Axtel SAB de CV, et al. – ‘F-4/A’ on 8/11/05

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Pre-Effective Amendment to Registration Statement of a Foreign Private Issuer for Securities Issued in a Business-Combination Transaction   —   Form F-4
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: F-4/A       Amendment No. 4                                      246   1.11M 
 2: EX-23.3     Consent                                                1      6K 

F-4/A   —   Amendment No. 4
Document Table of Contents

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   As filed with the Securities and Exchange Commission on August 11, 2005
                                                     Registration No. 333-123608
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 AMENDMENT NO. 4
to
FORM F-4
REGISTRATION STATEMENT
 UNDER
THE SECURITIES ACT OF 1933

 AXTEL, S.A. DE C.V.
AND THE GUARANTORS LISTED ON THE TABLE OF ADDITIONAL REGISTRANTS
(Exact name of registrant as specified in its charter)

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     United Mexican States                   4813                      Not Applicable         
(State or other jurisdiction of  (Primary Standard Industrial  (I.R.S. Employer Identification
incorporation or organization)    Classification Code Number)              Number)            


 Blvd. Gustavo Diaz Ordaz 3.33 No. L-1
 Col. Unidad San Pedro
San Pedro Garza Garcia, N.L.
Mexico, LP 66215
(52)(81) 8114-0000
 (Address, including zip code, and telephone number, including area code, of
 registrant's principal executive offices)
__________________________

 CT Corporation System
 111 Eighth Avenue, 13th Floor
New York, New York 10011
(212) 590-9200
 (Name, address, including Zip Code, and telephone number, including
area code, of agent for service)

 with copies to:

Roger Andrus, Esq.                               Alberto J. Morales, Esq.       
Cahill Gordon & Reindel LLP                      D&A Morales y Asociados, S.C.  
80 Pine Street                                   Torre ING Comercial America    
New York, NY  10005-1702                         Batallon de San Patricio       
U.S.A.                                           No. 111-501, Col. Valle        
(212) 701-3000                                   Ote. San Pedro Garza           
                                    Garcia, N.L. 66269
                                    (52)(81) 8129-9200

Approximate date of commencement of proposed sale to the public:

 As soon as practicable after this registration statement becomes effective.

 If this Form is filed to register additional securities for an offering
pursuant to Rule 426(b) under the Securities Act, check the following and list  
the Securities Act registration statement number of the earlier effective       
registration statement for the same offering. |_| __________________            

  If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act   
registration statement number of the earlier effective registration statement   
for the same offering. |_| __________________                                   

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                         CALCULATION OF REGISTRATION FEE                                                                    
================================== ============== ===================== ============================== =====================
                                                  Proposed Maximum                                                          
Title of each Class of Securities  Amount to be   Offering Price Per    Proposed Maximum               Amount of            
to be Registered                   Registered     Unit                  Aggregate Offering Price (1)   Registration Fee (2) 
---------------------------------- -------------- --------------------- ------------------------------ ---------------------
                                                                                                                            
11% Senior Notes due 2013          $75,000,000          100.000%                 $75,000,000           $8,827.50            
---------------------------------- -------------- --------------------- ------------------------------ ---------------------
Subsidiary Guarantees              $75,000,000             --                          --                      None (3)     
================================== ============== ===================== ============================== =====================


(1)  The notes being registered are being offered in exchange for 11% senior    
 notes due 2013 previously sold in transactions exempt from registration
   under the Securities Act of 1933. The registration fee was computed based
   on the face value of the 11% senior notes due 2013 solely for the purpose
of calculating the registration fee pursuant to Rule 457 under the    
Securities Act of 1933, as amended (the "Securities Act").            

(2)  Calculated pursuant to Rule 457(f)(2) under the Securities Act.            

(3)  Pursuant to Rule 457(n), no separate fee is payable with respect to the    
subsidiary guarantees.                                                

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  The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration       
statement shall thereafter become effective in accordance with section 8(a) of  
the Securities Act of 1933 or until this registration statement shall become    
effective on such date as the Commission, acting pursuant to said section 8(a), 
may determine.                                                                  

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                                                      Additional Registrants                                       

   Exact name of registrant as   State or other jurisdiction of     Primary Standard Industrial   I.R.S. Employer  
     specified in its charter    incorporation or organization      Classification Code Number   Identification No.
     ------------------------    -----------------------------      --------------------------   ------------------

                                                                                                                   
Impulsora e Inmobiliaria             United Mexican States                     4813                Not applicable  
Regional, S.A. de C.V.*                                                                                            

Instalaciones y Contrataciones,      United Mexican States                     4813                Not applicable  
S.A. de C.V.*                                                                                                      

Servicios Axtel, S.A de C.V.*        United Mexican States                     4813                Not applicable  


*The address and telephone number of the principal executive offices of each    
additional registrant are the same as the address and telephone number of the   
principal executive offices of Axtel, S.A. de C.V.                              

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Information contained in this prospectus is subject to completion or amendment. 
A registration statement relating to these securities has been filed with the   
Securities and Exchange Commission. These securities may not be sold nor may    
offers to buy be accepted prior to the time the registration statement becomes  
effective. This prospectus shall not constitute an offer to sell or the         
solicitation of an offer to buy nor shall there be any sale of these securities 
in any jursidiction in which such offer, solicitation or sale would be unlawful 
prior to registration or qualification under the securities laws of the relevant
jurisdiction.                                                                   

 SUBJECT TO COMPLETION, DATED , 2005
PROSPECTUS                                                                      
[COMPANY'S LOGO]

 Axtel, S.A. de C.V.

Offer to exchange our 11% senior notes due 2013,
which have been registered under the Securities Act,
 for our 11% senior notes due 2013, which have not been registered

Terms of the Exchange Offer:                                                    

   o    Offer to exchange (the "exchange offer") up to $75,000,000 aggregate
      principal amount of our new 11% senior notes, which will mature in
          2013 (the "exchange notes"), for an equal amount of our old 11% senior
notes, which will mature in 2013 (the "2005 notes").        

     o    The exchange offer expires at 5:00 p.m., New York City time, on , 2005
(the "expiration date") unless extended.                    

o    You may withdraw your tender of 2005 notes any time before the   
expiration date.                                            

o    We will accept any and all 2005 notes validly tendered and not   
withdrawn for exchange before the expiration date.          

    o    Not subject to any condition, other than that the exchange offer does
      not violate applicable law or any applicable interpretation of the
     staff of the Securities and Exchange Commission and certain other
customary conditions.                                       

o    We will not receive any proceeds from the exchange offer.        

o    The exchange of notes will not be a taxable exchange for U.S. or 
Mexican federal income tax purposes.                        

  o    The terms of the exchange notes and the 2005 notes are identical in
   all material respects, except for certain transfer restrictions
relating to the 2005 notes.                                 

  o    The exchange notes will be evidence of the same indebtedness as the
         2005 notes and will be issued under, and entitled to the benefits of,
the same indentures that govern the 2005 notes.             

  o    We issued $175,000,000 of our 11% senior notes due 2013 on December
       16, 2003 (the "2003 notes"). We completed an exchange offer for the
     2003 notes on July 13, 2004. The exchange offer described in this
prospectus does not relate to the 2003 notes.               

The Exchange notes:                                                             

    o    Interest Payment: semiannually in arrears on June 15 and December 15,
beginning on June 15, 2005.                                 

o    Redemption: The exchange notes will be redeemable, in whole or in
     part, at any time on or after December 15, 2008 at the redemption
       prices set forth under "Description of the Exchange Notes--Optional
          Redemption." In addition, prior to December 15, 2006, up to 35% of the
          notes may be redeemed with the proceeds from certain equity offerings.
        In the event of a change of control or if we sell certain assets, we
   will be required to offer to purchase all or part of the notes.

See "Risk Factors," which begins on page , for a discussion of certain
factors that should be considered by holders before tendering their 2005 notes  
in the exchange offer.                                                          

The information contained in this prospectus is exclusively the       
responsibility of Axtel and has not been reviewed or authorized by the Comision 
Nacional Bancaria y de Valores or CNBV of Mexico. The registration with the     
special section of the Registro Nacional de Valores maintained by the CNBV does 
not imply a certification of the investment quality of the exchange notes or the
solvency of Axtel. The exchange notes are not registered in the securities      
section of the Registro Nacional de Valores and, therefore, are not subject to  
public offering or intermediation in Mexico. The acquisition of the exchange    
notes by any investor of Mexican nationality will be made at the sole           
responsibility of such investor.                                                

 Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the   
adequacy or accuracy of this prospectus. Any representation to the contrary is a
criminal offense.                                                               
--------------------------------------------------------------------------------
The date of this prospectus is , 2005.

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 _____________________

 TABLE OF CONTENTS

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                                                  Page                                                   Page 
                                                  ----                                                   ---- 

                                                                                                              
INDUSTRY AND MARKET DATA...........................ii   SUPERVISION AND REGULATION OF THE MEXICAN             
FORWARD-LOOKING STATEMENTS.........................ii     TELECOMMUNICATIONS INDUSTRY .....................53 
PRESENTATION OF FINANCIAL INFORMATION.............iii   BUSINESS...........................................57 
SERVICE OF PROCESS AND ENFORCEMENT OF                   MANAGEMENT.........................................73 
   CIVIL LIABILITIES...............................iv   PRINCIPAL SHAREHOLDERS.............................77 
PROSPECTUS SUMMARY..................................1   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....78 
SUMMARY OF THE TERMS OF THE EXCHANGE OFFER..........5   DESCRIPTION OF OTHER INDEBTEDNESS..................80 
SUMMARY OF THE TERMS OF THE EXCHANGE NOTES..........8   DESCRIPTION OF THE EXCHANGE NOTES..................81 
RISK FACTORS.......................................12   MATERIAL US FEDERAL INCOME TAX CONSEQUENCES.......124 
USE OF PROCEEDS....................................25   MATERIAL MEXICAN TAX CONSEQUENCES.................126 
THE EXCHANGE OFFER.................................26   PLAN OF DISTRIBUTION..............................129 
CAPITALIZATION.....................................36   WHERE YOU CAN FIND MORE INFORMATION...............129 
EXCHANGE RATES.....................................37   LEGAL MATTERS.....................................130 
SELECTED FINANCIAL DATA............................38   INDEPENDENT AUDITORS..............................130 
MANAGEMENT'S DISCUSSION AND ANALYSIS OF                 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS........F-1 
  FINANCIAL CONDITION AND RESULTS OF OPERATIONS ...40   INDEX TO UNAUDITED CONDENSED CONSOLIDATED             
OVERVIEW OF THE MEXICAN TELECOMMUNICATIONS                FINANCIAL STATEMENTS ...........................F-60
  INDUSTRY ........................................52                                                         


 _____________________

Unless we indicate differently, when we use the term "notes" in this  
prospectus, we mean the 2003 notes, the 2005 notes and the exchange notes and   
the related guarantees.                                                         

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  YOU SHOULD ONLY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH DIFFERENT INFORMATION. WE ARE NOT
MAKING AN OFFER TO EXCHANGE 2005 NOTES IN ANY JURISDICTION WHERE THE EXCHANGE   
OFFER IS NOT PERMITTED, AND WILL NOT ACCEPT SURRENDERS FOR EXCHANGE FROM HOLDERS
IN ANY SUCH JURISDICTION. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED  
IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT  
COVER OF THIS PROSPECTUS OR THE DATE OF SUCH INFORMATION AS SPECIFIED IN THIS   
PROSPECTUS, IF DIFFERENT.                                                       

   Since the 2005 notes have been registered with the special section of the
Registro Nacional de Valores maintained by the Comision Nacional Bancaria y de  
Valores of Mexico, no further registration of the exchange notes with such      
special section is required. However, once the exchange notes are registered    
under the Securities Act of 1933, we will inform the Comision Nacional Bancaria 
y de Valores of Mexico about such registration and the exchange offer being     
made, for the purpose of updating such registration with the special section of 
the Registro Nacional de Valores. Registration with the special section of the  
Registro Nacional de Valores maintained by the Comision Nacional Bancaria y de  
Valores does not imply a certification of the investment quality of the notes or
the solvency of the Company.                                                    

Each broker-dealer that receives exchange notes for its own account   
pursuant to the exchange offer in exchange for 2005 notes that it acquired as a 
result of market-making activities or other trading activities must acknowledge 
in the letter of transmittal accompanying this prospectus that it will deliver a
prospectus in connection with any resale of such exchange notes. The letter of  
transmittal states that by so acknowledging and by delivering a prospectus, a   
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the U.S. Securities Act of 1933 (the "Securities Act"). This         
prospectus, as it may be amended or supplemented from time to time, may be used 
by a broker-dealer in connection with resales of exchange notes received in     
exchange for 2005 notes where such 2005 notes were acquired by such             
broker-dealer as a result of market-making activities or other trading          
activities. We have agreed that starting on the expiration date and ending 180  
days after the expiration date, we will make this prospectus available to a     
broker-dealer for use in connection with any such resale. See "Plan of          
Distribution." We have agreed to use our reasonable best efforts to keep the    
exchange offer registration statement (as defined herein) effective,            
supplemented and amended as required, to ensure that it is available for such   
resale of exchange notes during such period.                                    

INDUSTRY AND MARKET DATA

    We obtained the market and certain other data used in this prospectus from
our own research, surveys or studies conducted by third parties and industry or 
general publications, such as Pyramid Research (an Economist Intelligence unit  
subsidiary) and other publicly available sources. Industry and general          
publications and surveys generally state that they have obtained information    
from sources believed to be reliable, but do not guarantee the accuracy and     
completeness of such information. While we believe that each of these studies   
and publications is reliable, we have not independently verified such data, and 
we make no representations as to the accuracy of such information. Certain      
market share data is based on published information available for the Mexican   
states. There is no comparable data available relating to the particular cities 
we serve. In presenting market share estimates for the cities, therefore, we    
have estimated the size of the market on the basis of the published information 
for the state in which the particular city is located. We believe this method is
reasonable, but the results have not been verified by any independent source.   

FORWARD-LOOKING STATEMENTS

  Many statements under the captions "Prospectus Summary," "Risk Factors,"
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition 
and Results of Operations," "Business," "Regulation" and elsewhere in this      
prospectus are "forward-looking statements." These forward-looking statements   
include, but are not limited to, statements about our plans, objectives,        
expectations and intentions and other statements contained in the prospectus    
that are not historical facts. When used in this prospectus, the words          
"expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates"  
and similar expressions are generally intended to identify forward-looking      
statements.                                                                     

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  These forward-looking statements reflect our best assessment at the time
and thus involve uncertainty and risk. These forward-looking statements are     
qualified by reference to the cautionary statements set forth in this           
prospectus. It is possible that our future financial performance may differ     
materially from our expectations due to a variety of factors, some of which     
include, without limitation, the following:                                     

o    ability to attract subscribers;                                  

o    expansion of our business to new cities;                         

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

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

o    an increase in churn, or subscriber cancellations;               

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

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

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

o    declining rates for long distance traffic;                       

o    fluctuations in labor costs;                                     

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

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

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

o    other factors described in this prospectus.                      

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

 PRESENTATION OF FINANCIAL INFORMATION

Our financial statements have been prepared in accordance with Mexican
generally accepted accounting principles, which we refer to as "Mexican GAAP,"  
which differ in significant respects from US generally accepted accounting      
principles, which we refer to as "US GAAP," including the treatment of the      
capitalization of pre-operating expenses, the capitalization of interest,       
severance, and deferred income taxes and employees' profit sharing and in the   
presentation of cash flow information. Note 24 to our audited consolidated      
financial statements, which are part of this prospectus, contains a             
reconciliation of our net loss and shareholders' equity to US GAAP as of and for
the years ended December 31, 2004, 2003 and 2002. Unaudited information for the 
three month periods ended March 31, 2005 and 2004 has been included elsewhere in
this prospectus.                                                                

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Pursuant to Bulletin B-10, "Recognition of the Effects of Inflation on
Financial Information," and Bulletin B-12, "Statement of Changes in Financial   
Position," issued by the Mexican Institute of Public Accountants, our           
consolidated financial statements are reported in period-end pesos to adjust for
the inter-period effects of inflation. The presentation of financial information
in period-end, or constant, currency units is intended to eliminate the         
distorting effect of inflation on the financial statements and to permit        
comparisons across periods in comparable monetary units.                        

Bulletin B-10 requires us to restate nonmonetary assets (other than   
inventory) using the Mexican national consumer price index. Bulletin B-10 also  
requires restatement of all financial statements to constant pesos as of the    
date of the most recent balance sheet presented. Accordingly, all data in the   
financial statements and in the selected financial data set forth in this       
prospectus has been restated in constant pesos as of March 31, 2005. References 
in this prospectus to "real" amounts are to inflation-adjusted pesos and        
references to "nominal" amounts are to unadjusted historical pesos. As of the   
three month period ended March 31, 2005 and in the calendar years 2004, 2003 and
2002, the rates of inflation in Mexico, as measured by changes in the Mexican   
national consumer price index, published by Banco de Mexico, were 0.8%, 5.5%,   
4.0% and 5.7%, respectively.                                                    

    When reporting under Mexican GAAP and in accordance with Bulletin B-10, we
are required to quantify all financial effects of operating and financing the   
business under inflationary conditions. For presentation purposes,              
"comprehensive (income) cost of financing" refers to the combined financial     
effects of:                                                                     

o    net interest expense or interest income;                         

o    net gains or losses on monetary position; and                    

o    net foreign exchange gains or losses.                            

  The gain or loss on monetary position refers to gains or losses realized
from holding net monetary assets or liabilities and reflect the impact of       
inflation on monetary assets and liabilities. For example, a gain on monetary   
position results from holding net monetary liabilities in pesos during periods  
of inflation, as the purchasing power of the peso declines over time.           

Net foreign exchange gains or losses reflect the impact of changes in 
foreign exchange rates on assets and liabilities denominated in currencies other
than pesos. A foreign exchange loss arises if a liability is denominated in a   
foreign currency which appreciates relative to the peso between the time the    
liability is incurred and the date it is repaid, as the appreciation of the     
foreign currency results in an increase in the amount of pesos which must be    
exchanged to repay the specified amount of the foreign currency liability.      

     The US dollar amounts provided in this prospectus are translations from the
peso amounts, solely for the convenience of the reader, at the exchange rate    
reported by the Banco de Mexico on March 31, 2005 as its noon buying rate for   
pesos. However, where peso denominated data is given "in nominal pesos," the    
amounts provided are the peso amounts actually paid at the time of the          
expenditure. On March 31, 2005, the noon buying rate for pesos was Ps. 11.2942  
per US dollar. These translations should not be construed as representations    
that the peso amounts represent such US dollar amounts or could be converted    
into US dollars at the rate indicated as of any dates mentioned in this         
prospectus.                                                                     

Sums presented in this prospectus may not add due to rounding.        

 SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES

We and our subsidiaries are variable capital corporations (sociedades 
anonimas de capital variable) organized under the laws of Mexico, and are       
headquartered, managed and operated outside of the United States (principally in
Mexico). Most of our directors and all of our officers reside in Mexico. All or 
a substantial portion of our assets and the assets of most of our directors and 
all of our officers are located outside of the United States (principally in    
Mexico). As a result, it may not be possible for the investors or holders of the
notes to effect service of process outside of Mexico or within the United States
upon us or such persons, or to enforce a judgment obtained in                   

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the United States against us or them outside of Mexico or in the United States  
courts that is based on the civil liability provisions under laws of            
jurisdictions other than Mexico including the federal and state securities laws 
or other laws of the United States.                                             

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

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

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

o    enforcement of the judgment would be contrary to public policy,  

   o    the defendant did not receive adequate personal notice in sufficient
time to defend itself,                                      

o    the judgment is not final in the rendering state,                

o    the judgment conflicts with another final judgment, or           

o    there is no reciprocity with the rendering state.                

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

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PROSPECTUS SUMMARY

     This summary highlights information contained elsewhere in this prospectus.
It is not complete and may not contain all the information that may be important
to you. You should read the entire prospectus, including the financial data and 
related notes, before making an investment decision. The terms "Axtel," "our    
company," "our" and "we" used in this prospectus refer to Axtel, S.A. de C.V.,  
the issuer of the notes, and its wholly owned subsidiaries, Servicios Axtel,    
S.A. de C.V., Impulsora e Inmobiliaria Regional, S.A. de C.V. and Instalaciones 
y Contrataciones, S.A. de C.V., as a combined entity, except where it is made   
clear that such terms mean only the parent company. You should pay special      
attention to the "Risk Factors" section beginning on page 12 of this prospectus 
to determine whether an investment in the exchange notes is appropriate for you.
All financial data have been restated in constant pesos as of March 31, 2005,   
except as otherwise indicated.                                                  

 Our Company

     We believe we are a leading telecommunications services provider in Mexico,
offering a wide array of services, including local and long distance telephony, 
data and internet to business and residential customers. We believe that we are 
one of the largest and fastest growing integrated telecommunications companies  
in Mexico, with 490,231 lines in service as of March 31, 2005. For the year     
ended December 31, 2004, we generated revenues and operating income of Ps.      
3,889.8 million (US $344.4 million) and Ps. 254.2 million (US$22.5million),     
respectively. For the three months ended March 31, 2005, we generated revenues  
and operating income of Ps. 1,118.7 million (US$99.0 million) and Ps. 105.3     
million (US$9.3 million), respectively.                                         

 We hold concessions to offer local and long distance telecommunications
services throughout Mexico. We provide services using a hybrid wireline and     
fixed wireless local access network designed to optimize capital expenditures   
through the deployment of network access equipment based on specific customer   
requirements. Our current network last-mile access options include fixed        
wireless access, point-to-point and point-to-multipoint wireless technologies,  
and copper and metropolitan fiber rings. Since inception we have invested over  
Ps. 9,740.3 million in the aggregate in our network, which includes 12 digital  
switches, 275 fixed wireless access sites, 93 point-to-multipoint sites (of     
which 88 are within fixed wireless access sites) and 467 kilometers of          
metropolitan fiber optic rings.                                                 

     Our strategy is to continue to penetrate our existing markets by offering a
comprehensive portfolio of high quality, facilities-based voice, data, internet 
and value-added communications services and to cost-effectively enter into      
selective new markets with high growth and revenue opportunity. Our approach is 
to bundle multiple voice, data and internet services into integrated            
telecommunications solutions for businesses and high-usage residential          
customers. For the year ended December 31, 2004, approximately 69% of our       
revenues were generated from business lines and 31% of our revenues were        
generated from residential lines. For the three months ended March 31, 2005,    
approximately 69% of our revenues were generated from business lines and 31% of 
our revenue were generated from residential lines.                              

We were founded in 1994. In June 1996, we were awarded by the Mexican 
government a concession to install and operate a public telecommunications      
network for the offering of local and long distance telephony services in       
Mexico. In 1998 and 1999, we won several spectrum auctions, including for 60 MHz
at 10.5 GHz for point-to-multipoint access, for 112 MHz at 15 GHz for           
point-to-point backhaul access, for 100 MHz at 23 GHz for point-to-point last   
mile access and for 50 MHz at 3.4 GHz for fixed wireless access, which together 
allow us to service the entire territory of Mexico. In June 1999, we launched   
commercial operations in the city of Monterrey. Our network currently reaches   
twelve of the largest metropolitan areas in Mexico (Mexico City, Monterrey,     
Guadalajara, Puebla, Toluca, Leon, Queretaro, San Luis Potosi, Aguascalientes,  
Saltillo, Ciudad Juarez and Tijuana), which represent more than 31% of the total
population of Mexico. We estimate that our total lines represent approximately  
9% of lines in service of this total addressable market. Due to our             
concentration of network facilities in business centers and upper income        
residential areas, we estimate that our current network coverage represents a   
significant portion of the total Mexican telephony and data telecommunications  
revenue opportunity.                                                            

 The Mexican Telecommunications Industry

The Mexican telecommunications market is the second largest in Latin  
America. According to Pyramid Research (an Economist Intelligence unit          
subsidiary), revenues from telephony communications services in Mexico,         

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including both fixed and mobile,are expected to grow for the next few years at a
compound annual growth rate of 4.7%, from US$19.1 billion in 2004 to US$22.9    
billion in 2008. We believe the following factors will continue to drive the    
growth in the Mexican telecommunications market:                                

     Stable and Expanding Economy. Mexico is the second largest economy in Latin
America in terms of gross domestic product (US$661.1 billion in 2004). According
to information made available by Banco de Mexico, Mexico's rate of inflation for
2004 was 5.19%. The economic growth for the same year was forecast by Pyramid   
Research to be 4.7%. Continued strong oil prices, more effective tax collection 
and controlled spending have been important factors in meeting government       
deficit targets.                                                                

     Significant Market Growth Potential. Although Mexico has one of the highest
gross domestic product per capita in Latin America, it has relatively low       
teledensity. According to Pyramid Research, at the end of 2004, the fixed-line  
penetration rate in Mexico was 16.9 telephone lines per 100 inhabitants,        
compared to 23.0 in Chile, 23.9 in Brazil, 23.2 in Argentina and 18.6 in        
Colombia. Pyramid Research forecasts that lines in service in Mexico will grow  
at a compound annual growth rate of 5.13% between 2003 and 2008. Moreover, the  
Mexican government has announced that it is committed to improving the          
teledensity rate in Mexico.                                                     

     Favorable Regulatory Environment. The Mexican telecommunications market has
long been dominated by Telefonos de Mexico, S.A. de C.V. ("Telmex"), the former 
government-owned telecommunications monopoly. Since the Mexican government      
completed the privatization of Telmex in 1990, the Mexican telecommunications   
sector has become increasingly open to competition. The opening of the Mexican  
telecommunications market has created an opportunity for competitive carriers to
capture market share from Telmex. As the owner and operator of a network serving
Mexico's largest metropolitan markets, we believe we are well positioned to     
continue to take advantage of this market opportunity.                          

 Competitive Strengths

     Leading Market Position. By being one of the first competitive providers to
approach customers with bundled local, long distance voice and data services, we
believe that we are able to meet pent-up demand for an alternative service      
provider, as well as establishing brand awareness and customer relationships    
prior to market entry by emerging competitors. We have benefited from our       
first-competitor-to-market advantage by capturing what we estimate to be        
approximately 9% market share of our total addressable market in the twelve     
cities where we offer services. In the cities of Monterrey and Guadalajara, the 
two markets where in 1999 we first launched operations, we estimate that we have
achieved approximately 14% market share of our coverage market in both of these 
cities.                                                                         

  Comprehensive Voice and Data Service Portfolio. We provide our customers
with an integrated bundle of services that includes local and long distance     
voice services, as well as internet, data and other value-added services. We    
believe our comprehensive service portfolio enables us to build strong,         
long-term relationships with customers, thereby reducing churn and increasing   
our return on our investment in network infrastructure. Furthermore, our digital
access, transport and switching network enable us to compete for the current    
revenue opportunity in voice services, while also enabling us to provide data   
services as demand for those services grows.                                    

  Flexible, Technologically Advanced, Reliable Digital Network. Our hybrid
fixed wireless and wireline local access network structure allows us to enter   
new markets quickly and cost-effectively. By utilizing the fixed wireless access
technology model, we are able to quickly cover a substantial geographic area    
with minimal initial capital expenditures. We do not incur incremental capital  
expenditures for last-mile connectivity until the customer subscribes to our    
service. As of March 31, 2005, our network consisted of 12 digital switches, 275
fixed wireless access sites, 93 point-to-multipoint sites (of which 88 are fixed
wireless access sites), and 467 kilometers of metropolitan fiber optic rings in 
order to service our 490,231 access lines.                                      

Compelling Financial Profile. We have a diversified revenue base, a   
favorable average revenue per user, positive free cash flow and strong          
capitalization.                                                                 

    o    Diversified revenue base. Our wide array of service offerings and our
    490,231 lines in service and 307,200 customers provide us with a
diverse revenue base.                                       

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o    Average Revenue Per User. Our business model targets business and
        high-usage residential customers. We believe this model allows us to
    achieve a favorable average revenue per user. For the year ended
       December 31, 2004, we had an average revenue per user of Ps. 662.6.
        For the three months ended March 31, 2005, we had an average revenue
per user of Ps. 627.9.                                      

   o    Positive free cash flow and strong capitalization. Our positive free
       cash flow, strong capitalization and low leverage put us in a solid
    financial position to continue to execute our business strategy.

Experienced Management Team and Strong Equity Partners. Our senior    
management team has extensive entrepreneurial, financial, marketing and         
telecommunications expertise. The diverse experience of our senior management   
team has contributed significantly to our initial success and rapid growth. In  
addition, we benefit from working with strong local partners and experienced    
multinational investors such as The Blackstone Group, AIG-GE Capital Latin      
American Infrastructure Fund and affiliates of Metropolitan Life Insurance      
Company and The Soros Group. Our local investors include Tomas Milmo Santos,    
Tomas Milmo Zambrano, Alberto Santos de Hoyos and Lorenzo Zambrano Trevino.     
These businessmen have extensive financial, operating and senior management     
experience in large Mexican corporations.                                       

Strategy

   Target Service Sectors with High Profitability Potential. We have divided
our target market into the mass market and business market. In the mass market, 
we focus on high-usage residential, micro and small business customers. Within  
the business market, we focus on medium and large businesses. We have developed 
differentiated, targeted telecommunications services plans designed to capture  
business and retain high-usage residential customers in each market segment. We 
believe that by focusing on the business and high-usage residential customers   
within a coverage area we are able to increase the return per dollar invested in
our network infrastructure. For the three month period ended March 31, 2005,    
approximately 69% of our revenues were generated from business lines and 31%    
from residential lines.                                                         

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

Exploit First-Competitor-to-Market Advantage. As Telmex's primary     
competitor in local fixed telephony services and the first facilities-based     
telecommunications service provider to enter new markets and offer integrated   
voice, data and internet services, we will continue to focus on selectively     
opening new markets where we believe we can capitalize on the market's desire to
have an alternative carrier and on serving demand unmet by our competitors.     

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

   Continue to Expand Technologically Advanced Network Infrastructure. Since
1999, we have successfully launched operations in twelve cities. We continue to 
evaluate opportunities in other regions in order to enhance our coverage area.  
We believe that selectively expanding our network and coverage area will enhance
our ability to acquire large business customers with multi-city operations,     
which we expect to result in higher revenues and margin improvements while      
minimizing capital expenditures.                                                

 Our Investors

    Our major investors are Telinor Telefonia, S. de R.L. de C.V. ("Telinor"),
a company formed in 1994 by a group of Monterrey businessmen including Tomas    
Milmo Santos, Tomas Milmo Zambrano, Lorenzo Zambrano                            

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Trevino and Alberto Santos de Hoyos; LAIF X sprl, an affiliate of AIG-GE Capital
Latin American Infrastructure Fund L.P.; and The Blackstone Group, a New        
York-based investment group. Telinor holds 59.5% of our voting stock and has a  
54.3% economic interest in us. LAIF X sprl holds 15.7% of our voting stock and  
has a 14.3% economic interest in us. The Blackstone Group holds 14.1% of our    
voting shares and has an 11.9% economic interest in us. Some of our other direct
investors include Tapazeca sprl (an affiliate of The Soros Group), New Hampshire
Insurance Company (an affiliate of American International Group, or AIG) and    
Nortel Networks Limited.                                                        

Recent Developments 

On August 3, 2005 we publicly announced our financial results for the 
second quarter of 2005. Revenues, operating income and net income (loss) were   
Ps. 1,200.1 million, Ps. 152.5 million and Ps. 118.5 million, respectively, as  
compared to Ps. 935.7 million, Ps. 68.2 million and Ps. (29.4) million,         
respectively, for the second quarter of 2004. Lines in service at June 30, 2005 
total 529,653 as compared to 388,194 at June 30, 2004.                          

 Corporate Information

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

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SUMMARY OF THE TERMS OF THE EXCHANGE OFFER

Set forth below is a summary description of the terms of the exchange 
offer. We refer you to "The Exchange Offer" for a more complete description of  
the terms of the exchange offer.                                                

Exchange Notes ................................   Up to $75.0 million aggregate 
                                               principal amount of our 11%
                                              Senior Notes due 2013. The
                                               terms of the exchange notes
                                                 are identical in all material
                                                respects to the terms of the
                                            2005 notes, except that,
                                            because the offer of the
                                                 exchange notes will have been
                                        registered under the
                                                Securities Act, the exchange
                                                notes will not be subject to
                                          transfer restrictions,
                                              registration rights or the
                                          related provisions for
                                            increased interest if we
                                             default under the related
                                                  registration rights agreement.

The Exchange Offer.............................   We are offering to exchange up
                                              to $75.0 million aggregate
                                                principal amount of exchange
                                              notes for a like aggregate
                                            principal amount of 2005
                                                 notes. 2005 notes may only be
                                            tendered in multiples of
                                                  $1,000. In connection with the
                                                private offering of the 2005
                                                 notes on January 13, 2005, we
                                               entered into a registration
                                                 rights agreement which grants
                                             holders of the 2005 notes
                                        certain exchange and
                                             registration rights. This
                                                 exchange offer is intended to
                                                 satisfy our obligations under
                                           the registration rights
                                              agreement. If the exchange
                                                 offer is not completed within
                                                the time period specified in
                                           the registration rights
                                                  agreement, we will be required
                                                 to pay additional interest on
                                   the 2005 notes.

Resale of Exchange Notes.......................   Based on existing             
                                                interpretations by the staff
                                           of the SEC set forth in
                                                  interpretive letters issued to
                                                  third parties, we believe that
                                             the exchange notes may be
                                                 offered for resale, resold or
                                                otherwise transferred by you
                                               without compliance with the
                                               registration and prospectus
                                                delivery requirements of the
                                                 Securities Act, except as set
                                            forth below, so long as:

                                           o you are acquiring the
                                                  exchange notes in the ordinary
                                            course of your business;

                                        o at the time of the
                                                consummation of the exchange
                                      offer, you are not
                                                participating in, you do not
                                                intend to participate in and
                                              you have no arrangement or
                                                 understanding with any person
                                         to participate in the
                                                  distribution of the 2005 notes
                                                or exchange notes within the
                                                  meaning of the Securities Act;
                       and

                                                 o you are not our "affiliate"
                                                  within the meaning of Rule 405
                                             under the Securities Act.

                                                  If any of the statements above
                                                 are not true and you transfer
                                              any exchange notes without
                                                delivering a prospectus that
                                                 meets the requirements of the
                                                Securities Act or without an
                                                  exemption from registration of
                                                  your exchange notes from those
                                               requirements, you may incur
                                                  liability under the Securities
                        Act.

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                                           Each broker-dealer that
                                               receives exchange notes for
                                               its own account in exchange
                                            for 2005 notes that were
                                                  acquired by such broker-dealer
                                                as a result of market-making
                                               or other trading activities
                                                  may be a statutory underwriter
                                                and must acknowledge that it
                                                will deliver a prospectus in
                                                 connection with any resale of
                                                 the exchange notes. See "Plan
                                     of Distribution."

Consequences of Failure to Exchange 2005                                        
notes for Exchange Notes.......................   If you do not exchange 2005   
                                                 notes for exchange notes, you
                                              will not be able to offer,
                                              sell or otherwise transfer
                                           your 2005 notes except:

                                            o in compliance with the
                                                registration requirements of
                                             the Securities Act or any
                                               other applicable securities
                         laws;

                                              o pursuant to an exemption
                                                from the securities laws; or

                                                  o in a transaction not subject
                                                to the securities laws. 2005
                                                 notes that remain outstanding
                                           after completion of the
                                                exchange offer will continue
                                               to bear a legend reflecting
                                         these restrictions on
                                               transfer. In addition, upon
                                              completion of the exchange
                                          offer, you will not be
                                                  entitled to any rights to have
                                            the resale of 2005 notes
                                        registered under the
                                          Securities Act, and we
                                              currently do not intend to
                                                 register under the Securities
                                              Act the resale of any 2005
                                                 notes that remain outstanding
                                               after the completion of the
                                   exchange offer.

Expiration Date................................   The exchange offer will expire
                                               at 5:00 p.m., New York City
                                           time, on , 2005, unless
                                                 extended. We do not currently
                                                 intend to extend the exchange
                          offer.

Interest on the Exchange Notes.................   Interest on the exchange notes
                                                  will accrue at the rate of 11%
                                               from December 15, 2004, the
                                             date of the last periodic
                                              payment of interest on the
                                             2003 notes. No additional
                                                 interest will be paid on 2005
                                               notes tendered and accepted
                                 for exchange.

Conditions to Exchange Offer...................   The exchange offer is subject 
                                            to customary conditions,
                                   including that:

                                                 o the exchange offer does not
                                                 violate applicable law or any
                                                 applicable interpretations of
                                  the SEC staff;

                                                o the 2005 notes are validly
                                               tendered in accordance with
                                       the exchange offer;

                                             o no action or proceeding
                                               would impair our ability to
                                             proceed with the exchange
                              offer; and

                                               o any governmental approval
                                              has been obtained, that we
                                        believe, in our sole
                                                discretion, is necessary for
                                           the consummation of the
                                                 exchange offer as outlined in
                                    this prospectus.

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Procedures for Tendering 2005 notes............   If you wish to accept the     
                                            exchange offer, you must
                                               complete, sign and date the
                                         letter of transmittal
                                                accompanying this prospectus
                                                 and mail or otherwise deliver
                                               it, together with your 2005
                                                 notes to be exchanged and any
                                                other required documentation
                                                to The Bank of New York, the
                                                  exchange agent, at the address
                                                  specified on the cover page of
                                              the letter of transmittal.
                                               Alternatively, if your 2005
                                               notes are held through DTC,
                                                  you can tender your 2005 notes
                                                through DTC by following the
                                             procedures for book-entry
                                               transfer. See "The Exchange
                                               Offer Book Entry Transfer."
                                                  Questions regarding the tender
                                                 of 2005 notes or the exchange
                                             offer generally should be
                                                  directed to the exchange agent
                                           at one of its addresses
                                              specified in "The Exchange
                                               Offer--Exchange Agent." See
                                 "The Exchange
                                         Offer--Procedures for
                                                Tendering" and "The Exchange
                                              Offer--Guaranteed Delivery
                                Procedures."

Guaranteed Delivery Procedures.................   If you wish to tender your    
                                             2005 notes and you cannot
                                                  deliver the required documents
                                                to the exchange agent by the
                                            expiration date, you may
                                          tender your 2005 notes
                                               according to the guaranteed
                                                 delivery procedures described
                                          under the heading "The
                                              Exchange Offer--Guaranteed
                                         Delivery Procedures."

Acceptance of 2005 Notes and Delivery of                                        
Exchange Notes.................................   We will accept for exchange   
                                           all 2005 notes that are
                                            properly tendered in the
                                              exchange offer before 5:00
                                                p.m., New York City time, on
                                                the expiration date, as long
                                           as all of the terms and
                                              conditions of the exchange
                                                  offer are met. We will deliver
                                               the exchange notes promptly
                                                  following the expiration date.

Withdrawal Rights..............................   You may withdraw the tender of
                                               your 2005 notes at any time
                                              before 5:00 p.m., New York
                                                City time, on the expiration
                                                  date of the exchange offer. To
                                             withdraw, you must send a
                                                written notice of withdrawal
                                                to the exchange agent at one
                                                 of its addresses specified in
                                                 "The Exchange Offer--Exchange
                                                Agent" before 5:00 p.m., New
                                          York City time, on the
                                             expiration date. See "The
                                                 Exchange Offer--Withdrawal of
                             Tenders."

Taxation.......................................   We believe that the exchange  
                                              of 2005 notes for exchange
                                                 notes should not be a taxable
                                                transaction for U.S. federal
                                              income tax purposes. For a
                                               discussion of certain other
                                                U.S. and Mexican federal tax
                                                  considerations relating to the
                                                  exchange of the 2005 notes for
                                              the exchange notes and the
                                           purchase, ownership and
                                               disposition of the exchange
                                          notes, see "Taxation."

Exchange Agent.................................   The Bank of New York is the   
                                                exchange agent. The address,
                                                  telephone number and facsimile
                                                number of the exchange agent
                                                  are set forth in "The Exchange
                                                 Offer--Exchange Agent" and on
                                                 the inside back cover of this
                               prospectus.

Use of Proceeds................................   We will not receive any       
                                                 proceeds from the issuance of
                                              the exchange notes. We are
                                             making the exchange offer
                                         solely to satisfy our
                                         obligations under the
                                                  registration rights agreement.
                                               See "Use of Proceeds" for a
                                                 description of our use of the
                                            net proceeds received in
                                                connection with the issuance
                                      of the 2005 notes.

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SUMMARY OF THE TERMS OF THE EXCHANGE NOTES

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

Exchange Notes Offered........................    US$75,000,000 in aggregate    
                                                  principal amount of 11% Senior
                                                  Notes due 2013 which have been
                                        registered under the
                                   Securities Act.

Maturity Date.................................    December 15, 2013.            

Guarantees....................................    Each of our current           
                                               subsidiaries and certain of
                                                our future subsidiaries will
                                            guarantee the notes with
                                           guarantees that will be
                                                 unsecured. From and after the
                                                  issue date, subject to certain
                                               exceptions, each subsidiary
                                              that guarantees any of our
                                                 indebtedness will be required
                                                 to guarantee the notes on the
                               same basis.

Interest Payments.............................    Interest will be payable      
                                               semi-annually in arrears on
                                              June 15 and December 15 of
                                                  each year, commencing June 15,
                         2005.

Ranking.......................................    The notes are our senior      
                                          unsecured obligations.
                                               Accordingly, the notes will
                         rank:

                                                 o effectively junior in right
                                                  of payment to all existing and
                                               future secured indebtedness
                                            and indebtedness owed to
                                         statutorily preferred
                              creditors;

                                                  o equal in right of payment to
                                                  any of our existing and future
                                                  senior unsecured indebtedness;
                       and

                                                o senior in right of payment
                                              to any of our existing and
                                       future subordinated
                                 indebtedness.

                                                  In addition, the guarantees of
                                                 the notes by our subsidiaries
                                               will rank equally to all of
                                      such non-guarantor
                                              subsidiaries' existing and
                                           future senior unsecured
                                                  obligations. The notes and the
                                              guarantees thereof will be
                                               effectively subordinated to
                                               all secured indebtedness of
                                                the guarantors to the extent
                                               of the assets securing such
                                                 indebtedness. As of March 31,
                                              2005, we had approximately
                                       US$278.9 million of
                                            outstanding indebtedness
                                           (excluding intercompany
                                               liabilities and guarantees)
                                                 and the 2005 notes would have
                                                ranked effectively junior in
                                       right of payment to
                                                 approximately $4.6 million of
                                        secured liabilities.

Optional Redemption...........................    We may redeem any of the notes
                                           at any time on or after
                                                  December 15, 2008, in whole or
                                            in part, in cash, at the
                                                  redemption prices described in
                                                 this prospectus, plus accrued
                                              and unpaid interest to the
                                       date of redemption.

                                                 At any time prior to December
                                                 15, 2006, we may redeem up to
                                                  35% of the aggregate principal
                                              amount of the notes issued
                                                 under the indenture governing
                                          the notes with the net
                                              proceeds of certain equity
                                             offerings at a redemption
                                              price equal to 111% of the
                                                 principal amount of the notes
                                           plus accrued and unpaid
                                           interest to the date of
                                                redemption. We may make that
                                                 redemption only if, after the
                                               redemption, at least 65% of
                                                  the aggregate principal amount
                      of

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                                          notes issued under the
                                                 indenture governing the notes
                                        remains outstanding.

Redemption for Tax Reasons....................    Under certain circumstances,  
                                              we may redeem the notes in
                                                  whole but not in part upon not
                                                 less than 30 and no more than
                                              60 days' prior notice at a
                                              price equal to 100% of the
                                             principal amount thereof,
                                             together with accrued and
                                               unpaid interest to the date
                                                 fixed for redemption plus any
                                           additional amounts. See
                                                "Description of the Exchange
                                                 Notes--Redemption for Changes
                                          in Withholding Taxes."

Change of Control.............................    If we experience a Change of  
                                             Control (as defined under
                                                "Description of the Exchange
                                            Notes--Repurchase at the
                                                Option of Holders"), we will
                                                be required to make an offer
                                                to repurchase the notes at a
                                              price equal to 101% of the
                                                  principal amount thereof, plus
                                                  accrued and unpaid interest to
                                           the date of repurchase.

Certain Covenants.............................    The terms of the notes will   
                                                restrict our ability and the
                                             ability of our restricted
                                                subsidiaries to, among other
                           things:

                                      o incur additional
                                         indebtedness or issue
                                    preferred stock;

                                                 o pay dividends or make other
                                        distributions to our
                                 stockholders;

                                                o purchase or redeem capital
                                         stock or subordinated
                                 indebtedness;

                                       o make investments;

                                   o create liens;

                                               o incur restrictions on the
                                             ability of our restricted
                                                 subsidiaries to pay dividends
                                                 or make other payments to us;

                                  o sell assets;

                                                  o consolidate or merge with or
                                           into other companies or
                                                 transfer all or substantially
                                          all of our assets; and

                                                 o engage in transactions with
                               affiliates.

                                             These limitations will be
                                          subject to a number of
                                                important qualifications and
                                                exceptions. See "Description
                                                  of the Exchange Notes--Certain
                               Covenants."

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 Summary Historical Consolidated Financial Information

The following table provides a summary of our historical consolidated 
financial data for the fiscal years ended December 31, 2000, 2001, 2002, 2003   
and 2004. The summary historical consolidated financial data as of December 31, 
2004 and 2003 and for the three years ended December 31, 2004 have been derived 
from our audited consolidated financial statements included elsewhere in this   
prospectus. The summary historical consolidated finan-cial data as of December  
31, 2002, 2001 and 2000 and for the two years ended December 31, 2001 have been 
de-rived from our audited consolidated financial statements not included in this
prospectus. The summary historical consolidated financial data as of and for    
each of the three month periods ended March 31, 2004 and March 31, 2005 were    
derived from our unaudited consolidated financial statements included elsewhere 
in this prospectus.                                                             

Our financial statements have been prepared in accordance with Mexican
GAAP, which differs in signifi-cant respects from U.S. GAAP. For a discussion of
the significant differences relating to these financial statements and a        
reconciliation of net income (loss) and shareholders' equity from Mexican GAAP  
to U.S. GAAP, see note 24 to our consolidated financial statements included     
elsewhere in this prospectus.                                                   

    The information presented below should be read in conjunction with "Use of
Proceeds," "Capitalization," "Selected Financial Data," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the          
consolidated financial statements included elsewhere in this prospectus.        

                                                        [Enlarge/Download Table]


                                                                                                 Unaudited       
                                                                                            Three Months Ended   
                                                   Year Ended December 31,                       March 31,       
                                      2000        2001       2002         2003      2004      2004       2005    
                                      ----        ----       ----         ----      ----      ----       ----    
                                          (Constant Ps. in millions as of March 31, 2005)                        
Statement of Income Data                                                                                         
                                                                                                                 
Revenues........................     1,118.5       2,383.0   2,605.7     3,101.9    3,889.8    904.7    1,118.7  
Cost of sales and operating                                                                                      
  expenses......................    (2,056.1)     (2,984.2) (2,853.0)   (2,982.5)  (3,635.6)  (830.9)  (1,013.4) 
                                  -----------    ---------- ---------- ---------- ---------- -------- -----------
Income (loss) from operations...      (937.6)       (601.2)   (247.3)      119.4      254.2     73.8      105.3  
Interest expense, net...........      (258.2)       (426.9)   (448.4)     (211.4)    (259.3)   (64.3)     (79.5) 
Foreign exchange gain (loss),                                                                                    
  net...........................       (20.1)        105.9    (656.9)     (339.4)      (7.4)    11.2       (7.1) 
Monetary position...............       176.3         230.5     298.0        98.6       65.2     17.0       12.1  
Other income (expense), net(1)..        14.0         (32.8)    (29.3)    1,821.6       21.2     14.8       (7.3) 
Cash severance and other                                                                                         
  special items.................         --          (67.0)    (34.4)      (11.1)       --                       
                                  -----------    ---------- ---------- ---------- ---------- -------- -----------
Income (loss) before income                                                                                      
  taxes and employee profit.....    (1,025.5)       (791.5) (1,118.3)    1,477.8       73.9     52.5       23.5  
Income tax and employee profit                                                                                   
  sharing benefit (expense).....       235.0         170.3     256.8      (524.3)    (151.6)   (19.1)      (9.1) 
                                  -----------    ---------- ---------- ---------- ---------- -------- -----------
Net income (loss) from                                                                                           
  continuing operations               (790.5)       (621.3)   (861.4)      953.5      (77.7)    33.4       14.4  
                                  ===========    ========== ========== ========== ========== ======== ===========
Net income (loss)...............      (790.5)       (621.3)   (861.4)      953.5      (77.7)    33.4       14.4  
                                  ===========    ========== ========== ========== ========== ======== ===========
Net income (loss) from                                                                                           
  operations per share                  (7.2)         (5.1)     (7.0)        0.4        0.0      0.0        0.0  
                                  ===========    ========== ========== ========== ========== ======== ===========

Operating Data:                                                                                                  
Depreciation and amortization...       356.4         685.0     861.2       914.3    1,008.6    241.0      262.3  
Investment in fixed assets (end                                                                                  
  of period)....................     3,276.3       1,681.7     600.7       488.9    1,554.0    202.8      352.1  
Net Cash Flow:                                                                                 102.5       72.2  
  Operating activities..........      (659.1)       (322.6)    (12.3)      169.6    1,191.7   (213.8)    (371.9) 
  Investing activities..........    (3,375.9)     (1,694.8)   (602.2)     (591.5)  (1,615.2)  (213.8)    (371.9) 
  Financing activities..........     4,081.6       2,004.3     819.5     1,150.7      (94.3)   (76.0)     996.9  
                                  -----------    ---------- ---------- ---------- ---------- -------- -----------
Total net cash flows............        46.6         (13.1)    205.0       728.8     (517.8)  (187.3)     697.2  
Total access lines in service                                                                                    
  (in thousands) (end of period)                                                                                 
  Business......................        72.5         121.0     116.4       132.4      177.6    141.4      191.3  
  Residential...................       144.3         169.1     178.7       216.7      275.9    227.8      298.9  
                                  -----------    ---------- ---------- ---------- ---------- -------- -----------
  Total.........................       216.8         290.1     295.1       349.1      453.5    369.2      490.2  
                                  ===========    ========== ========== ========== ========== ======== ===========


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                                                        [Enlarge/Download Table]


                                                            As of December 31,                      As of March 31,  
                                              2000       2001      2002       2003       2004       2004      2005   
                                              ----       ----      ----       ----       ----       ----      ----   
                                                  (Constant Pesos in millions as of March 31, 2005)                  
Balance Sheet Data:                                                                                                  
                                                                                                                     
Cash and cash equivalents.................      155.5     142.4     347.4    1,076.3      558.5      889.0    1,255.7
Net working capital investment............      (70.2)    144.6     (92.8)      56.9      (57.7)     250.5      158.2
Total assets..............................    7,491.0   8,571.4   8,589.6    8,637.4    8,701.7    8,608.5    9,573.8
Total debt................................    4,424.3   5,212.3   5,882.3    2,304.9    2,210.7    2,231.6    3,149.6
Total liabilities.........................              5,811.1   6,637.7    2,919.0    3,061.3    2,864.8    3,921.4
                                           5,158.5                                                                   
Total shareholders' equity................    2,332.5   2,760.3   1,951.9    5,718.4    5,640.4    5,743.7    5,652.4
Net assets................................    4,796.3   6,161.7   5,755.9    5,573.7    6,099.7    5,754.2    6,433.4
Capital stock.............................    3,191.1   4,273.8   4,329.0    7,159.2    7,159.2    7,159.2    7,159.2
Shares outstanding in million.............      110.1     122.6     122.6    2,533.7    2,533.7    2,533.7    2,533.7


Data in Accordance with US GAAP(2):                                             

                                                        [Enlarge/Download Table]


                                                                                            Unaudited        
                                                                                        Three Months Ended   
                                              Year Ended December 31,                       March 31,        
                               2000       2001        2002        2003         2004     2004         2005    
                               ----       ----        ----        ----         ----     ----         ----    
                                   (Constant Ps in millions as of March 31, 2005)                            
Financial Data:                                                                                              
                                                                                                             
Income (loss) from            (1,067.0)     (606.4)     (131.5)      181.6       257.5      83.7        107.8
  operations................                                                                                 
Income (loss) from                                                                                           
  continuing                  (1,210.3)     (648.6)   (1,004.7)    2,910.9        73.8      64.1         26.9
  operations................                                                                                 
Net income (loss)...........  (1,210.3)     (648.6)   (1,004.7)    2,910.9        73.8      64.1         26.9
Net income (loss) from                                                                                       
  operatings per share......     (11.0)       (5.3)       (8.2)        1.1         0.0       0.0          0.0
Net assets..................   4,797.6     6,187.0     5,801.9     5,600.0     6,123.7   6,838.7      6,458.2
Capital stock...............   3,191.1     4,273.8     4,329.0     5,798.5     5,798.5   5,798.5      5,798.5
Shares outstanding (in           110.1       122.6       122.6     2,533.7     2,533.7   2,533.7      2,533.7
  millions).................                                                                                 
Total assets ...............   6,776.7     7,774.3     7,570.5     8,183.3     8,397.5   8,177.7      9,288.6
Total debt .................   4,424.3     5,212.3     5,882.3     2,304.9     2,210.7   2,231.6      3,149.6
Total shareholders' equity     1,320.5     1,733.0       792.8     5,157.5     5,231.0   5,209.5      5,255.5
  (deficit).................                                                                                 
____________________________                                                                                 


(1)  Other income for the year ended December 31, 2003 includes a net gain of   
   1,974.6 million (US$174.8 million) due to our repurchase of certain debt.
See "Management's Discussion and Analysis of Financial Condition and  
Results of Operations--Debt Repurchase."                              

(2)  Reconciled in accordance with Note 24 of our consolidated financial        
statements.                                                           

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RISK FACTORS

    You should carefully consider the following risk factors, as well as other
information set forth in this prospectus, prior to making an investment in the  
exchange notes. The risks described below are not the only ones that may affect 
the notes. Additional risks not presently known to us or that we currently deem 
immaterial may also impair our business operations. In general, investing in the
securities of issuers in emerging-market countries such as Mexico involves risks
not typically associated with investing in the securities of US companies. To   
the extent it relates to the Mexican government or Mexican macroeconomic data,  
the following information has been extracted from official publications of the  
Mexican government.                                                             

Risks Relating to Our Company                                                   

Since we have a limited operating history you will not be able to fully evaluate
our historical performance.                                                     

We were founded in 1994. In June 1996, we were awarded by the Mexican 
government a concession to install and operate a public telecommunications      
network for the offering of local and long distance telephony services in       
Mexico. We commenced commercial operations in June 1999 by beginning operations 
in the city of Monterrey and entered the city of Guadalajara by the end of that 
same year. We commenced operations in Mexico City at the beginning of 2000 and  
expanded our services to the cities of Puebla, Toluca and Leon a year later.    
During 2004 we launched operations in the cities of Queretaro, San Luis Potosi, 
Aguascalientes, Saltillo, Ciudad Juarez and Tijuana. Because of our limited     
historical commercial operations, it may be difficult to fully evaluate our past
operating performance.                                                          

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

    Since our inception in 1994, we have incurred a cumulative net loss of Ps.
1,765.1 million. Except for 2003, when we restructured our Nortel debt, we have 
incurred losses in each year since our inception. We incurred a net loss of Ps. 
861.4 million during 2002, a net profit of Ps. 953.5 million during 2003 and a  
net loss of Ps. 77.7 during 2004. We anticipate that we could incur net losses  
for at least the next several quarters.                                         

We may not have sufficient administrative, operational or financial resources to
pursue our growth strategy.                                                     

    Our expected growth will place a strain on our administrative, operational
and financial resources. The development of our business and the installation   
and expansion of our network, services and customer base require significant    
expenditures. Since our inception we have invested in the aggregate             
approximately Ps. 9,740.3 million in our network and infrastructure. These      
expenditures, together with operating expenses, will adversely impact our cash  
flow and profitability. We also anticipate that continued growth will require us
to attract and retain qualified personnel who can efficiently manage such       
growth. If we are unable to meet the challenges that our growth presents, our   
results of operations and financial condition could be adversely affected.      

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

     Our ability to achieve our strategic objectives and our overall performance
and prospects depends and will depend, in large part, upon the successful,      
timely and cost-effective acquisition of equipment. From our inception until    
December 2003, Nortel Networks was our main supplier of fixed wireless access   
technology. On December 23, 2003, Airspan Communications Limited ("Airspan")    
acquired Nortel's fixed wireless access business, assuming Nortel's rights and  
obligations relating to the supply of fixed wireless access products and related
services to us. Therefore, we currently depend on Airspan for the production of 
all of our requirements for fixed wireless access products, which represent most
of our current network access infrastructure. We are Airspan's primary customer 
for these products. If Airspan ceases to produce these products, our network    
expansion and growth could be slowed and our operating results could be         
adversely affected. We have a license from Airspan to use their fixed wireless  
access technology to produce these products in the event Airspan ceases         
production. However, we may be unable to obtain additional fixed wireless access
products on satisfactory terms, if at all. See "Certain Relationships and       
Related Transactions."                                                          

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

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

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

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

If our significant customer fails to perform under our existing agreements, our 
business could be adversely impacted.                                           

  We have an agreement with Nextel de Mexico, our largest single customer,
which allows Nextel de Mexico to provide telecommunications services to its     
customers through access to our network. Under this agreement, we are guaranteed
certain minimum levels of traffic. For the fiscal year ended December 31, 2004  
and the three month period ended March 31, 2005, our sales to Nextel de Mexico  
accounted for approximately 17% and 16%, respectively, of our net sales. In the 
event that Nextel de Mexico fails to comply with its obligations under our      
agreement, or such agreement is not renewed upon its expiration in December     
2005, our results of operations and financial condition could be materially and 
adversely affected.                                                             

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

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

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

Telmex exerts significant influence on all aspects of the             
telecommunications markets in Mexico, including interconnection agreements. We  
use Telmex's network to terminate the vast majority of our customers' calls. Our
interconnection agreement with Telmex expires on December 31, 2005. Its terms   
and conditions (including the interconnection rates) are automatically extended 
after the expiration date until the parties mutually agree to extend the        
agreement or execute a new interconnection agreement. If a new interconnection  
agreement is entered into with Telmex, its terms and conditions (including      
interconnection rates) may not permit us to offer services that are both        
profitable and competitive. In addition, if the SCT (Secretaria de              
Comunicaciones y Transportes), the Mexican telecommunications regulatory        
authority (Comision Federal de Telecomunicaciones or COFETEL) ceased to regu-   

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late Telmex's pricing, the resulting competitive climate could have a material  
adverse effect on our business and results of operations.                       

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

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

o    physical damage to access lines;                                 

o    power surges or outages;                                         

o    software defects; and                                            

o    disruptions beyond our control.                                  

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

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

In accordance with the Federal Telecommunications Law, public         
telecommunications networks are considered part of the public domain. As        
provided in such law, the holders of concessions to install, operate or develop 
a public telecommunications network are subject to the terms and conditions     
imposed by the Federal Telecommunica-tions Law and those included in the        
concession agreement itself. Among other limitations, the Federal               
Telecommu-nications Law provides that:                                          

o    the rights and obligations granted by the concessions to install,
        operate and develop a public tele-communications network can only be
      assigned, in whole or in part, with the prior authorization of the
SCT;                                                        

   o    neither our concession, nor the rights granted therein or the assets
         related thereto, can be assigned, en-cumbered, pledged, mortgaged, or
sold to a foreign country or government; and                

o    the Mexican government, through the SCT, may expropriate or      
         temporarily seize all assets related to any of our concessions in the
     event of natural disaster, war, significant public disturbance or
         threats to internal peace and for other reasons of economic or public
order.                                                      

    Mexican law provides for compensation in connection with direct losses and
damages related to expropria-tion or temporary seizure, except in the case of   
war. However, there can be no assurance that we will receive com-pensation      
equivalent to the value of our investment in our concessions and related assets 
in the event of such action or that such compensation will be received in a     
timely manner. Mexican law does not prevent us from granting liens to creditors 
(other than foreign countries or governments) relating to our concessions and   
their related assets as long as we comply with certain procedural laws; however,
in the event that such liens are enforced, any applicable assignee must comply  
with the requirements that the Federal Telecommunications Law establishes in    
relation to assignees of concessions, including, among others, the requirement  
to receive the authorization of the SCT.                                        

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

 The telecommunications industry in Mexico is becoming more competitive.
Over the past two years, prices for local and long distance calls in Mexico     
declined by approximately 14% and 21% in real terms, respectively. We expect the
Mexican telecommunications market to continue to experience rate pressure,      
primarily as a result of:                                                       

o    increased competition and focus by our competitors on increasing 
market share;                                               

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     o    recent technological advances that permit substantial increases in the
        transmission capacity of both new and existing fiber-optic networks,
  resulting in long distance overcapacity and rate pressure; and

o    the entrance of cable television operators into certain of our   
markets.                                                    

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

    Telmex, as the former state-owned telecommunications monopoly and dominant
provider of local and other telecommunications services in Mexico, has          
significantly greater financial and other resources than those available to us. 
In addition, Telmex's nationwide network and concessions, as well as its        
established and long-standing customer base, give it a substantial competitive  
advantage over us. In addition, although not allowed by the Federal             
Telecommunications Law (Ley Federal de Telecomunicaciones) enacted in 1995,     
referred to herein as the Mexican Telecommunications Law, and Telmex's          
concessions, Telmex may subsidize its long distance services with revenues      
obtained from its local services and as a result may be able to price its       
services at rates that are not profitable for us. We will face significant      
competition from Telmex in all the areas where we currently operate.            

We depend on revenues from certain highly competitive segments.                 

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

We may need additional financing.                                               

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

The technology we use may be made obsolete by the technology used by our        
competitors.                                                                    

     All companies in the global telecommunications industry must adapt to rapid
and significant changes in technology. While we have been installing since      
inception what we believe to be a technologically advanced fixed wireless       
system, as well as a fiber optic network, point to multipoint, point to point   
and copper infrastructure, we cannot assure you that these technologies will not
be challenged by competition. We have relied heavily on the continued           
performance of wireless technology. Technological changes or advances in        
alternative technologies may adversely affect our competitive position, require 
us to reduce our prices, require substantial new capital expenditures and/or    
require write-downs of obsolete technology.                                     

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

The cost of acquiring a new customer is much higher than the cost of  
maintaining an existing customer. Accordingly, customer deactivations, or churn,
could have a material negative impact on our operating income, even if we are   
able to obtain one new customer for each lost customer. Although our average    
monthly churn rate has decreased to approximately 1.3% during the three month   
period ended March 31, 2005 from 1.4% and 2.9% in 2004 and 2003, respectively,  
our churn rate was still higher than that of our main competitors. We believe   
that our churn rate was mainly due to customer deactivations resulting from     
non-payment of bills. If we experience a further increase in our churn rate, our
ability to achieve revenue growth could be materially impaired. In addition, a  
decline in general economic conditions could lead to an increase in churn,      
particularly among our residential customers.                                   

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A majority of our voting stock is controlled by one shareholder, the interests  
of which may not always be the same as the interests of the holders; there is a 
dispute among certain of our shareholders and us which could affect our ability 
to make corporate decisions.                                                    

     Telinor owns all of our Series A Voting Shares and, as a result, a majority
of all of our voting shares. As a result, Telinor has control over many of our  
corporate decisions and will have the ability to prevent our taking any         
particular corporate decision, whether or not Telinor's actions are in the best 
interest of the holders.                                                        

     Our other series of voting shares issued and outstanding is Series C Voting
Shares. The holders of the Series C Voting Shares are entitled to certain       
rights. Certain actions cannot be approved at a meeting of shareholders without 
the vote of a majority of the Series C Voting Shares and certain actions cannot 
be approved at the Board of Directors level without the vote of at least one    
director appointed by the holders of Series C Voting Shares. These matters      
include, among others, issues associated with the fundamental nature of Axtel as
a corporation, changes in its indebtedness, changes in its charter or bylaws,   
the issuance or repurchase of securities, initiation or settlement of material  
litigation, transactions not in the ordinary course of business and material    
capital expenditures.                                                           

    As a result of a pending dispute among certain of our shareholders and us,
if a matter requiring the approval of the majority of the Series C Voting Shares
is approved without the affirmative vote of LAIF X sprl (a holder of some of our
Series C voting shares), or a matter requiring the approval of one or more      
Series C Directors is approved without the affirmative vote of at least one     
director appointed by LAIF X sprl, there may be doubt as to the validity of such
approval. LAIF X sprl has voted in favor of the issuance of the notes and no    
action is required at the Board of Directors level. See "Business--Legal        
Proceedings--Shareholdings Disputes."                                           

Risks Relating to the Mexican Telecommunications Industry                       

We operate in a highly regulated industry.                                      

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

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

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

Foreign ownership restrictions may limit our ability to raise equity capital.   

  Mexican law provides that no more than 49% of the full voting stock of a
Mexican corporation holding a concession to provide telecommunications services 
other than cellular services may be held by non-Mexicans. Non-Mexicans own 40.5%
of our full voting stock. Any future sales of equity securities to non-Mexicans 
in excess of 49% of full voting stock must involve so-called "neutral"          
securities with limited or no voting rights or would require a proportional     
purchase of voting stock by Mexicans. This national ownership requirement may   
limit our ability to raise capital from non-Mexican investors in the future.    

Fraud could increase our expenses.                                              

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

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long distance carriers to terminate our calls on their networks, some of which  
do not have anti-fraud technology in their networks, we may be particularly     
exposed to this risk in our long distance service.                              

Risks Relating to Mexico                                                        

Economic developments in Mexico affect our business.                            

     We are a Mexican company with all of our operations in Mexico. The economic
environment within Mexico can have a significant impact on our business and     
financial condition and results of operations and our ability to meet our       
obligations under the notes.                                                    

    Beginning in December 1994 and continuing through 1995, Mexico experienced
an economic crisis characterized by a sharp devaluation of the peso, high       
inflation, foreign currency exchange rate instability, high domestic interest   
rates, a strong contraction in consumer demand for many products and services,  
reduced availability of credit, high unemployment and diminished international  
investor confidence in Mexico. Mexico's gross domestic product, which grew at a 
real annual rate of 3.5% during 1994, declined by 6.2% in real terms during     
1995.                                                                           

    In response to these developments, beginning in February 1995, the Mexican
government implemented a variety of economic programs designed to promote       
economic recovery, stabilize foreign currency exchange rates and reduce         
inflation. Economic conditions in Mexico improved moderately in 1996 and 1997.  
However, a combination of factors led to a slowdown in Mexico's economic growth 
in 1998. Notably, the decline in the international price of oil resulted in a   
reduction of federal revenues, approximately one-third of which are derived from
petroleum taxes and duties. In addition, the economic crises in Asia and Russia,
as well as the financial turmoil in Brazil, Venezuela and elsewhere, produced   
greater volatility in the international financial markets, which further slowed 
Mexico's economic growth. In 1998, the inflation rate in Mexico was 18.6%,      
interest rates on 28-day Certificados de la Tesoreria de la Federacion ("CETES")
averaged 24.8% and the peso lost 22.7% of its value (in nominal terms) relative 
to the US dollar.                                                               

During 1999, conditions improved with inflation in Mexico at 12.3%,   
interest rates on 28-day CETES averaging 21.4% and the peso appreciating 4.2% in
value (in nominal terms) relative to the US dollar. Throughout 2000, the        
improvement shown in 1999 continued. In 2000 the inflation rate was 9.0%,       
interest rates on 28-day CETES averaged 15.2% and the peso devalued 1.5% in     
value (in nominal terms) relative to the US dollar. The Mexican government      
estimated that Mexico's real gross domestic product grew by 5.0% in 1998, 3.6%  
in 1999 and 6.6% in 2000.                                                       

     Beginning in January 2001, however, and increasing in the fourth quarter of
2001, amid concerns of a global economic slowdown and a recession in the United 
States, Mexico began to experience an economic slow-down marked by a decline in 
gross domestic product. In 2001, Mexico's gross domestic product shrank by 0.2% 
in real terms while the inflation rate was 4.4%, interest rates on 28-day CETES 
averaged 11.3% and the peso appreci-ated 4.8% in value (in nominal terms)       
relative to the U.S. dollar. During 2002, as the United States and global       
eco-nomic slowdown continued, the Mexican real gross domestic product growth    
rate was 0.7%, the inflation rate was 5.7%, interest rates on 28-day CETES      
averaged 7.1% and the peso devalued 13.9% (in nominal terms) relative to the    
U.S. dollar. During the years ended December 31, 2003 and 2004, the inflation   
rate was 4.0% and 5.2% respec-tively, interest rates on 28-day CETES averaged   
6.2% and 6.8%, respectively, and the peso devalued 7.7% and 0.3% respectively   
(in nominal terms) relative to the U.S. dollar. The gross domestic product for  
2004 was 4.4%.                                                                  

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

A global economic slowdown or other future economic developments in or
affecting Mexico could impair our business, results of operations, financial    
condition, prospects and ability to obtain financing.                           

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

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

   Mexican political events may also significantly affect our operations. In
the Mexican national elections held on July 2, 2000, Vicente Fox of the Partido 
Accion Nacional, which we refer to as the "PAN," won the presidency. His victory
ended more than 70 years of presidential rule by the Partido Revolucionario     
Institucional, which we refer to as the "PRI." The PAN did not succeed in       
securing a majority in either house of the Mexican Congress.                    

     President Fox assumed office on December 1, 2000. While the transition from
the previous administration was smooth, since assuming office, President Fox has
encountered strong opposition to some of his proposed reforms from both houses  
of Mexican Congress, where opposition parties such as the PRI, the Partido de la
Revolucion Democratica and/or the Partido Verde Ecologista de Mexico have       
frequently joined forces to block PAN initiatives. Further, on July 6, 2003,    
Mexican Congressional elections were held. The elections resulted in a reduction
in the number of Congressional seats held by the PAN and an increase in the     
number of Congressional seats held by the PRI, among others. We expect that     
these events will intensify the current legislative gridlock in the Mexican     
Congress, which could lead to a further slowdown in the progress of political   
and economic reforms in Mexico. This gridlock could have an adverse effect on   
us, including our business, financial condition, prospects and results of       
operations.                                                                     

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

High interest rates in Mexico could increase our financing costs.               

Mexico historically has had high real and nominal interest rates. The 
interest rates on 28-day Mexican government treasury securities (CETES) averaged
21.4%, 15.2% and 11.3% for 1999, 2000 and 2001, respectively. Although rates for
2002, 2003 and 2004 have lowered to 7.1%, 6.2% and 6.8%, respectively, we cannot
assure you that interest rates will remain at their current rates. Thus, we may 
be forced to incur Mexican peso-denominated debt in the future at interest rates
higher than the current rates.                                                  

We may lose money because of peso devaluation.                                  

While our revenues are almost entirely denominated in pesos, the      
substantial majority of our obligations, and all of our long-term debt, are     
denominated in US dollars. The value of the Mexican peso has been subject to    
significant fluctuations with respect to the US dollar in the past and may be   
subject to significant fluctuations in the future. During the year ended        
December 31, 2004, the peso was devalued by 0.2% (in nominal terms). Further    
declines in the value of the peso relative to the US dollar could adversely     
affect our ability to meet our US dollar-denominated obligations, including the 
notes. In addition, any further devaluation of the peso may negatively affect   
the value of Mexican securities such as the notes.                              

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

    We prepare our financial statements in accordance with Mexican GAAP. These
principles differ in significant respects from US GAAP, including the treatment 
of the capitalization of pre-operating expenses, the amortization of frequency  
rights, the capitalization of interest, and deferred income taxes and employees'
profit sharing, and in the presentation of cash flow information. In particular,
all Mexican companies must incorporate the effects of inflation directly in     
their accounting records and in published financial statements. The effects of  
inflation accounting under Mexican GAAP are not eliminated in the reconciliation
of US GAAP. For this and other reasons, the presentation of Mexican financial   
statements and reported earnings may differ from that of companies in other     
coun-                                                                           

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tries. See "Management's Discussion and Analysis of Financial Condition and     
Results of Operations" and Note 24 to the audited consolidated financial        
statements.                                                                     

Risks Relating to the Exchange Notes                                            

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

Although the agreements governing our and our subsidiary guarantors'  
outstanding indebtedness and the indenture governing the notes contain          
restrictions on the incurrence of additional indebtedness, these restrictions   
are subject to a number of qualifications and exceptions, and the indebtedness  
incurred in compliance with these restrictions could be substantial. Also, these
restrictions do not prevent us or our subsidiary guarantors from incurring      
obligations that do not constitute "indebtedness" as defined in the relevant    
agreement. If new debt is added to the current indebtedness levels, the related 
risks that we now face could intensify.                                         

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

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

    As of March 31, 2005, we had approximately US$278.9 million of outstanding
indebtedness.                                                                   

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

     o    impairing our ability to obtain additional financing in the future for
        working capital, capital expenditures, acquisitions or other general
        corporate purposes or to repurchase the notes from you upon a change
of control;                                                 

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

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

    o    increasing the possibility of an event of default under the financial
  and operating covenants contained in our debt instruments; and

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

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

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

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

The notes and the guarantees will be unsecured and effectively subordinated to  
our secured indebtedness.                                                       

The notes and the obligations of the subsidiary guarantors under their
respective guarantees will not be secured by any of our assets. As of March 31, 
2005, we had US$4.6 million of secured debt outstanding. The indenture governing
the notes will permit the incurrence of additional debt, some of which may be   
secured debt. Holders of our secured debt will have claims that are effectively 
senior to your claims as holders of the notes, to the extent of the value of the
assets securing the secured debt.                                               

   If we become insolvent or are liquidated, or if payment under any secured
debt is accelerated, the lenders thereunder would be entitled to exercise the   
remedies available to a secured lender. Accordingly, the lender will have       
priority over any claim for payment under the notes to the extent of the value  
of the assets that constitute its collateral. If this were to occur, it is      
possible that there would be no assets remaining from which claims of the       
holders of the notes could be satisfied. Further, if any assets did remain after
payment of these lenders, the remaining assets might be insufficient to satisfy 
the claims of the holders of the notes and holders of other unsecured debt that 
is deemed the same class as the notes, and potentially all other general        
creditors who would participate ratably with holders of the notes.              

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

   The indenture governing the notes limits, among other things, our ability
and the ability of our restricted subsidiaries to:                              

o    borrow money or issue guarantees;                                

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

o    create liens to secure indebtedness;                             

o    make certain investments;                                        

o    sell certain assets;                                             

o    pledge assets;                                                   

o    enter into transactions with our affiliates; and                 

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

     If we fail to comply with these covenants, we would be in default under our
credit facility and the indenture, and the principal and accrued interest on the
notes and our other outstanding indebtedness may become due and payable. See    
"Description of Other Indebtedness" and "Description of the Exchange            
Notes--Certain Covenants."                                                      

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In addition, our future indebtedness agreements may contain additional          
affirmative and negative covenants which could be more restrictive than those   
contained in the indenture.                                                     

We may not have the ability to repurchase the notes upon a change of control as 
required by the indenture.                                                      

   Upon the occurrence of a change of control (as defined in the indenture),
we will be required to offer to purchase all the notes at 101% of their         
principal amount plus accrued and unpaid interest to the date of repurchase.    
Upon such a change of control, we may not have sufficient funds available to    
repurchase all of the notes tendered pursuant to this requirement. In addition, 
we may be prohibited by future credit facilities from repurchasing any of the   
notes unless the lenders thereunder consent to such repurchase. Our failure to  
repurchase the notes would be a default under the indenture, which would, in    
turn, be a default under our credit facility and, potentially, other debt. If   
the payment of any debt were to be accelerated, we may be unable to repay these 
amounts or make the required repurchase of the notes. See "Description of the   
Exchange Notes--Change of Control."                                             

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

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

No public market exists for the exchange notes. An active trading market may not
develop for the exchange notes, which may limit your ability to resell them.    

   There is no established trading market for the notes. We do not intend to
list the exchange notes on a stock exchange or seek their admission for trading 
in the National Association of Securities Dealers Automated Quotation System. We
cannot assure you that an active trading market for the exchange notes will     
develop or, if a trading market develops, that it will continue. The lack of an 
active trading market for the exchange notes would have a material adverse      
effect on the market price and liquidity of the exchange notes. If a market for 
the exchange notes develops, the exchange notes may trade at a discount from    
their initial offering price.                                                   

In addition, you may not be able to sell your exchange notes at a     
particular time or at a price favorable to you. Future trading prices of the    
exchange notes will depend on many factors, including:                          

o    our operating performance and financial condition;               

o    our ability to complete the offer to exchange the 2005 notes for 
exchange notes or to register the 2005 notes for resale;    

o    the interest of securities dealers in making a market;           

o    the market for similar securities; and                           

o    prevailing interest rates.                                       

    Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in prices. The market for   
the exchange notes, if any, may be subject to similar disruptions. A disruption 
may have a negative effect on you as a holder of the exchange notes, regardless 
of our prospects or performance.                                                

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You may not be able to effect service of process on us, our subsidiaries or     
directors or to enforce in Mexican courts judgments obtained against us in the  
US.                                                                             

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

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

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

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

o    enforcement of such judgment would be contrary to public policy, 

   o    the defendant did not receive adequate personal notice in sufficient
time to defend itself,                                      

o    the judgment is not final in the rendering state,                

o    the judgment conflicts with another final judgment, or           

o    there is no reciprocity with the rendering state.                

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

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

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

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

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

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

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

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

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

The collection of interest on interest may not be enforceable in Mexico.        

 Mexican law does not permit the collection of interest on interest and,
therefore, the accrual of default interest on past due ordinary interest accrued
in respect of the notes may be unenforceable in Mexico.                         

It is possible that guarantees may not be enforceable.                          

All of our current Subsidiary Guarantors are Mexican corporations. The
Guarantees being given by the Subsidiary Guarantors provide a basis for a direct
claim against the Subsidiary Guarantors. However, it is possible that the       
Guarantees may not be enforceable. For those Subsidiary Guarantors located in   
Mexico, we have been advised by our special Mexican counsel, D & A Morales y    
Asociados, S.C., that the laws of Mexico do not prevent their respective        
Guarantees from being valid, binding and enforceable against such Subsidiary    
Guarantors in accordance with their terms. However, in the event that such a    
Subsidiary Guarantor is declared bankrupt, the Guarantee may be deemed to have  
been a fraudulent transfer and declared void if such Subsidiary Guarantor failed
to receive fair consideration or reasonably equivalent value in exchange for    
such Guarantee. In addition, under Mexican Bankruptcy Law (Ley de Concursos     
Mercantiles), if the Company or any of the Subsidiary Guarantors that are       
located in Mexico are judicially declared bankrupt, our obligations under the   
notes and each of such Subsidiary Guarantors' obligations under its Guarantee   
will be subordinated to secured creditors and certain statutorily preferred     
creditors, such as those holding labor, tax and social security related claims, 
which will have preference over any other claims, including claims by any       
investor in respect of the notes or such Guarantees. Furthermore, we have been  
advised that under Mexican laws, the validity of each Guarantee is subject to   
the existence and validity of the obligation being guaranteed. As a consequence 
thereof, its enforcement is not independent or irrespective of such obligation  
being guaranteed. Furthermore, under Mexican law, a Subsidiary Guarantor may be 
released from its obligations under the Guarantee if (i) the holder of the note 
gives the Company an extension for payment under the notes without the express  
consent of such Subsidiary Guarantor, or (ii) the Company waives any cause that 
would otherwise release the Company of its obligations under the notes,         
including expirations or statute of limitation provisions.                      

    The obligation of each Subsidiary Guarantor may be subject to review under
United States state or federal fraudulent transfer laws. Under such laws, if a  
court in a lawsuit by an unpaid creditor or representative of creditors of a    
Subsidiary Guarantor, such as a trustee in a bankruptcy of such Subsidiary      
Guarantor as debtor in possession, were to find that at the time such obligation
was incurred such Subsidiary Guarantor, among other things, (a) did not receive 
fair consideration or reasonably equivalent value therefor and (b) (i) was      
insolvent, (ii) was rendered insolvent, (iii) was engaged in a business or      
transaction for which its remaining unencumbered assets constituted unreasonably
small capital or (iv) intended to incur or believed that it would incur debts   
beyond its ability to pay such debts as they matured, such court could avoid    
such Subsidiary Guarantor's obligation and direct the return of any             

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payments made thereunder to such Subsidiary Guarantor or to a fund for the      
benefit of its creditors. Moreover, regardless of the factors identified in the 
foregoing clauses (i) through (iv), such court could avoid such obligation and  
direct such repayment if it found that the obligation was incurred with an      
intent to hinder, delay or defraud such Subsidiary Guarantor's creditors.       

 The measure of insolvency for purposes of the preceding paragraphs will
vary depending upon the law of the jurisdiction being applied. Generally,       
however, an entity would be considered insolvent if it is unable to pay or      
satisfy its obligations as they become due, the sum of its debts is greater than
all of its property (including collection rights) at a fair valuation or the    
present fair salable value of its assets is less than the amount that will be   
required to pay its probable liability on its existing debts as they become     
absolute and matured.                                                           

If the Guarantees become unenforceable under the conditions described 
above, the notes would effectively be subordinated to all liabilities, including
trade payables, of the Subsidiary Guarantors. On March 31, 2005, the Subsidiary 
Guarantors had total balance sheet liabilities of Ps. 76.2 million.             

Your failure to tender the 2005 notes in the exchange offer may affect their    
marketability.                                                                  

    If 2005 notes are tendered for exchange notes and accepted in the exchange
offer, the trading market, if any, for the untendered and tendered but          
unaccepted 2005 notes will be adversely affected. Your failure to participate in
the exchange offer will substantially limit, and may effectively eliminate,     
opportunities to sell your 2005 notes in the future. We issued the 2005 notes in
a private offering exempt from the registration requirements of the Securities  
Act.                                                                            

    Accordingly, you may not offer, sell or otherwise transfer your 2005 notes
except in compliance with the registration requirements of the Securities Act   
and any other applicable securities laws, or pursuant to an exemption from the  
securities laws, or in a transaction not subject to the securities laws. If you 
do not exchange your 2005 notes for exchange notes in the exchange offer, or if 
you do not properly tender your 2005 notes in the exchange offer, your 2005     
notes will continue to be subject to these transfer restrictions after the      
completion of the exchange offer. In addition, after the completion of the      
exchange offer, you will no longer be able to obligate us to register the 2005  
notes under the Securities Act.                                                 

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 USE OF PROCEEDS

We will not receive any cash proceeds from the exchange offer. We are 
making this exchange offer solely to satisfy our obligations under the          
registration rights agreement. In consideration for issuing the exchange notes, 
we will receive the 2005 notes in an aggregate principal amount equal to the    
value of the exchange notes. The 2005 notes surrendered in exchange for the     
exchange notes will be retired and canceled. Accordingly, the issuance of the   
exchange notes will not result in any change in our indebtedness.               

  We received approximately US$79 million in net proceeds from the sale of
the 2005 notes, after deducting discounts and offering expenses. We will use the
entire amount of net proceeds for general corporate purposes including the      
continued expansion of our network.                                             

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THE EXCHANGE OFFER

Purpose of the Exchange Offer                                                   

We issued and sold the 2005 notes in a private offering on January 13,
2005. In connection with that issuance and sale, we entered into a registration 
rights agreement with the initial purchasers of the 2005 notes. In the          
registration rights agreement, we agreed, among other things, to                

o    prepare and file with the SEC, as promptly as practicable, a     
     registration statement relating to the offer to exchange the 2005
  notes for the exchange notes (the "exchange offer registration
        statement"), or, under certain circumstances, a "shelf" registration
 with respect to the 2005 notes or exchange notes, (the "shelf
registration statement");                                   

o    use our reasonable best efforts to cause the exchange offer      
        registration statement to be declared effective under the Securities
      Act within 210 days of January 13, 2005 or, in the case of a shelf
          registration statement, as applicable, to be declared effective within
         certain specified time periods after a shelf registration is required
or requested; and                                           

    o    keep the registered exchange offer open for not less than 30 business
      days (or longer if required by applicable law) after the date that
       notice of the registered exchange offer is mailed to the holders of
the 2005 notes,                                             

These requirements under the registration rights agreement will be    
satisfied when we complete the exchange offer. However, if we fail to meet any  
of these requirements, and under some other circumstances, the interest rate    
borne by the 2005 notes that are affected by the registration default with      
respect to the first 90-day period, or portion thereof, will be increased by an 
additional interest of 0.25% per annum upon the occurrence of each registration 
default. The amount of additional interest will increase by an additional 0.25% 
per annum each 90-day period, or portion thereof, while a registration default  
is continuing until all registration defaults have been cured, provided that the
maximum aggregate increase in the interest rate will in no event exceed one     
percent (1%) per annum. Upon                                                    

o    the effectiveness of the registration statement, in the case of a
        registration default caused by a registration statement that was not
        declared effective on or prior to the date by which best efforts are
to be used to cause such effectiveness; or                  

     o    the effectiveness of the registration statement which had ceased to be
effective, in the case of a registration default caused by a
          registration statement that had been declared effective, but ceased to
      be effective at any time at which it was required to be effective,

the registration default damages (additional interest) shall cease to accrue.   

We have agreed to provide each holder of 2005 notes a copy of the     
prospectus that forms part of the registration statement. We have also agreed to
keep the registered exchange offer open for not less than 30 business days and  
after the date on which notice of the exchange offer is mailed to holders (or   
longer if required by applicable law).                                          

  Under the registration rights agreement, our obligations to register the
exchange notes will terminate upon the completion of the exchange offer.        
However, we will be required to file a shelf registration statement for a       
continuous offering by the holders of the 2005 notes if:                        

    o    a change in law or applicable interpretations of the staff of the SEC
do not permit us to effect such an exchange offer; or       

  o    for any other reason we do not consummate the exchange offer within
240 days of January 13, 2005; or                            

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 o    an Initial Purchaser shall notify us following consummation of the
    exchange offer that 2005 notes held by it are not eligible to be
exchanged for exchange notes in the exchange offer; or      

     o    certain holders are prohibited by law or SEC policy from participating
          in the exchange offer or may not resell the exchange notes acquired by
 them in the exchange offer to the public without delivering a
prospectus.                                                 

   During any 365-day period, upon the occurrence of certain events, we will
have the ability to suspend the disposition of 2005 notes pursuant to a         
registration statement or shelf registration statement for up to 30 days, if we 
determine in our reasonable judgment and upon written advice of counsel that the
continued effectiveness and use of the shelf registration statement would       
require the disclosure of confidential information or interfere with any        
financing, acquisition, reorganization or other material transaction involving  
us.                                                                             

We will, in the event of the filing of a shelf registration statement,
provide to each holder of 2005 notes that are covered by the shelf registration 
statement copies of the prospectus included in the shelf registration statement 
and notify each such holder when the shelf registration statement has become    
effective. The names of holders of 2005 notes that propose to sell the 2005     
notes pursuant to the shelf registration statement will be included, as selling 
security holders, in such prospectus. We may require such holders to furnish us 
with information we require to include in the shelf registration statement and  
we may exclude them from such shelf registration statement if they fail to do so
within a reasonable time. Selling holders of 2005 notes that are included in the
shelf registration statement will be subject to certain of the civil liability  
provisions under the Securities Act in connection with such sales and will be   
bound by the provisions of the registration rights agreement which are          
applicable to the holder (including certain indemnification obligations).       

  Once the exchange offer is complete, we will have no further obligation,
other than as set forth above, to register any of the 2005 notes not tendered to
us in the exchange offer. See "Risk Factors--Factors Relating to the Exchange   
Notes and the Exchange Offer--Your failure to tender 2005 notes in the exchange 
offer may affect their marketability."                                          

Effect of the Exchange Offer                                                    

Based on interpretations by the SEC staff, as set forth in no-action  
letters the SEC issued to third parties, we believe that you may offer for      
resale, resell and otherwise transfer the exchange notes issued to you in the   
exchange offer without compliance with the registration and prospectus delivery 
requirements of the Securities Act, except as set forth below, so long as you   
are able to make the following representations:                                 

  o    you are acquiring the exchange notes in the ordinary course of your
business;                                                   

    o    at the time of the consummation of the registered exchange offer, you
         are not participating in, you do not intend to participate in and you
          have no arrangement or understanding with any person to participate in
   the distribution of the 2005 notes or exchange notes within the
meaning of the Securities Act; and                          

   o    you are not our "affiliate" within the meaning of Rule 405 under the
Securities Act.                                             

     However, we have not sought a no-action letter with respect to the exchange
offer and we cannot assure you that the staff of the SEC would make a similar   
determination with respect to the exchange offer. If you are not able to make   
the representations set forth in the immediately preceding paragraph, and any   
such other representations as may be necessary under applicable SEC rules,      
regulations and interpretations, you are a "restricted holder." As a restricted 
holder, you will not be able to participate in the exchange offer, you may not  
rely on the interpretations of the SEC staff set forth in the no-action letters 
referred to above and you may sell your 2005 notes only in compliance with the  
registration and prospectus delivery requirements of the Securities Act or under
an exemption from the registration requirements of the Securities Act or in a   
transaction not subject to the Securities Act.                                  

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  In addition, each broker-dealer that receives exchange notes for its own
account pursuant to the exchange offer must acknowledge in the letter of        
transmittal that it will deliver a prospectus in connection with any resale of  
such exchange notes. The letter of transmittal states that by so acknowledging  
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This           
prospectus, as it may be amended or supplemented from time to time, may be used 
by a broker-dealer in connection with resales of exchange notes received in     
exchange for securities where such securities were acquired by such             
broker-dealer as a result of market-making activities or other trading          
activities. We have agreed that, starting on the expiration date and ending on  
the close of business 180 days after the expiration date, we will make this     
prospectus available to any broker-dealer for use in connection with any such   
resale. See "Plan of Distribution." In the registration rights agreement, we    
agreed to use our best efforts to keep the exchange offer registration statement
effective, supplemented and amended as required, to ensure that it is available 
for such resales of exchange notes during such period.                          

    Except as described above, this prospectus may not be used for an offer to
resell, resale or other transfer of exchange notes.                             

   To the extent 2005 notes are tendered and accepted in the exchange offer,
the principal amount of 2005 notes that will be outstanding will decrease with a
resulting decrease in the liquidity in the market for the 2005 notes. 2005 notes
that are still outstanding following the completion of the exchange offer will  
continue to be subject to transfer restrictions.                                

Terms of the Exchange Offer                                                     

Upon the terms and subject to the conditions of the exchange offer    
described in this prospectus and in the accompanying letter of transmittal, we  
will accept for exchange all 2005 notes validly tendered and not withdrawn      
before 5:00 p.m., New York City time, on the expiration date. We wi1l issue     
$1000 principal amount of exchange notes in exchange for each $1000 principal   
amount of 2005 notes accepted in the exchange offer. You may tender some or all 
of your 2005 notes pursuant to the exchange offer. However, 2005 notes may be   
tendered only in integral multiples of $1000 principal amount.                  

    The terms of the exchange notes will be in all material respects identical
to those of the 2005 notes, except for the elimination of certain transfer      
restrictions, registration rights, restrictions on holding notes in certificated
form and additional interest provisions. The exchange notes will evidence the   
same debt as the 2005 notes and will be issued under and be entitled to the     
benefits of the same indenture under which the 2005 notes were issued. The notes
will be treated as a single series of debt securities under the indenture. For a
description of the terms of the indenture and the notes, see "Description of the
Exchange Notes."                                                                

    The exchange offer is not conditioned upon any minimum aggregate principal
amount of 2005 notes being tendered for exchange. As of the date of this        
prospectus, an aggregate of $75.0 million principal amount of 2005 notes is     
outstanding. This prospectus is being sent to all registered holders of 2005    
notes. There will be no fixed record date for determining registered holders of 
2005 notes entitled to participate in the exchange offer.                       

   We intend to conduct the exchange offer in accordance with the applicable
requirements of the Securities Act and the U.S. Securities Exchange Act of 1934 
(the "Exchange Act") and the rules and regulations of the SEC. Holders of 2005  
notes do not have any appraisal or dissenters' rights under applicable law or   
under the indenture in connection with the exchange offer. 2005 notes that are  
not tendered for exchange in the exchange offer will remain outstanding and     
continue to accrue interest and will be entitled to the rights and benefits     
their holders have under the indenture relating to the 2005 notes.              

     We will be deemed to have accepted for exchange validly tendered 2005 notes
when we have given oral or written notice of the acceptance to the exchange     
agent. The exchange agent will act as agent for the tendering holders of 2005   
notes for the purposes of receiving the exchange notes from us and delivering   
the exchange notes to the tendering holders. Subject to the terms of the        
registration rights agreement, we expressly reserve the right to amend or       
terminate the exchange offer, and not to accept for exchange any 2005 notes not 
previously accepted for exchange, upon the occurrence of any of the conditions  
specified below under "--Conditions." All 2005 notes ac-                        

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cepted for exchange will be exchanged for exchange notes promptly following the 
expiration date. If we decide for any reason to delay for any period our        
acceptance of any 2005 notes for exchange, we will extend the expiration date   
for the same period.                                                            

If we do not accept for exchange any tendered 2005 notes because of an
invalid tender, the occurrence of certain other events described in this        
prospectus or otherwise, such unaccepted 2005 notes will be returned, without   
expense, to the holder tendering them or the appropriate book-entry will be     
made, in each case, as promptly as practicable after the expiration date.       

     We are not making, nor is our board of directors making, any recommendation
to you as to whether to tender or refrain from tendering all or any portion of  
your 2005 notes in the exchange offer. No one has been authorized to make any   
such recommendation. You must make your own decision whether to tender in the   
exchange offer and, if you decide to do so, you must also make your own decision
as to the aggregate amount of 2005 notes to tender after reading this prospectus
and the letter of transmittal and consulting with your advisers, if any, based  
on your own financial position and requirements.                                

Expiration Date; Extensions; Amendments                                         

    The term "expiration date" means 5:00 p.m., New York City time, on , 2005,
unless we, in our sole discretion, extend the exchange offer, in which case the 
term "expiration date" shall mean the latest date and time to which the exchange
offer is extended.                                                              

   If we determine to extend the exchange offer, we will notify the exchange
agent of any extension by oral or written notice. We will notify the registered 
holders of 2005 notes of the extension no later than 5:00 p.m., New York City   
time, on the business day immediately following the previously scheduled        
expiration date.                                                                

We reserve the right, in our sole discretion:                         

o    to delay accepting for exchange any 2005 notes;                  

     o    to extend the exchange offer or to terminate the exchange offer and to
     refuse to accept 2005 notes not previously accepted if any of the
 conditions set forth below under "--Conditions" have not been
satisfied by the expiration date; or                        

     o    subject to the terms of the registration rights agreement to amend the
terms of the exchange offer in any manner.                  

   Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice to the registered 
holders of 2005 notes. If we amend the exchange offer in a manner that we       
determine to constitute a material change, we will promptly disclose the        
amendment in a manner reasonably calculated to inform the holders of the 2005   
notes of the amendment.                                                         

During any extension of the exchange offer, all 2005 notes previously 
tendered will remain subject to the exchange offer, and we may accept them for  
exchange. We will return any 2005 notes that we do not accept for exchange for  
any reason without expense to the tendering holder as promptly as practicable   
after the expiration or earlier termination of the exchange offer.              

Interest on the Exchange Notes and the 2005 notes                               

Any 2005 notes not tendered or accepted for exchange will continue to 
accrue interest at the rate of 11% per annum in accordance with their terms. The
exchange notes will accrue interest at the rate of 11% per annum from December  
15, 2004, the date of the last periodic payment of interest on the 2003 notes.  
Interest on the exchange notes and any 2005 notes not tendered or accepted for  
exchange will be payable semi-annually in arrears on June 15 and December 15 of 
each year, commencing on June 15, 2005.                                         

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Procedures For Tendering                                                        

   Only a registered holder of 2005 notes may tender those 2005 notes in the
exchange offer. To tender in the exchange offer:                                

    o    a holder must complete, sign and date the letter of transmittal, have
  the signatures thereon guaranteed if required by the letter of
          transmittal, and mail or otherwise deliver such letter of transmittal,
        together with the 2005 notes and all other documents required by the
        letter of transmittal, to the exchange agent at one of the addresses
        set forth below under "--Exchange Agent," before 5:00 p.m., New York
City time, on the expiration date; or                       

    o    the exchange agent must receive, before the expiration date, a timely
         confirmation of a book-entry transfer of the tendered 2005 notes into
         the exchange agent's account at The Depository Trust Company, or DTC,
     or the depositary, and timely receipt by the exchange agent of an
        agent's message (as defined below under "--Book-Entry Transfer") and
          any other documents required by the letter of transmittal according to
the procedure for book-entry transfer described below; or   

o    the holder must comply with the guaranteed delivery procedures   
described below.                                            

A tender of 2005 notes by a holder that is not withdrawn prior to the 
expiration date will constitute an agreement between that holder and us in      
accordance with the terms and subject to the conditions set forth in this       
prospectus and in the letter of transmittal.                                    

    The method of delivery of 2005 notes, letters of transmittal and all other
required documents to the exchange agent, including delivery through DTC, is at 
the holder's election and risk. Instead of delivery by mail, we recommend that  
holders use an overnight or hand delivery service. If delivery is by mail, we   
recommend that holders use certified or registered mail, properly insured, with 
return receipt requested. In all cases, holders should allow sufficient time to 
assure delivery to the exchange agent before the expiration date. Holders should
not send letters of transmittal or other required documents to us. Holders may  
request their respective brokers, dealers, commercial banks, trust companies or 
other nominees to effect the above transactions for them.                       

Any beneficial owner whose 2005 notes are registered in the name of a 
broker, dealer, commercial bank, trust company or other nominee and who wishes  
to tender those 2005 notes should contact the registered holder promptly and    
instruct it to tender on the beneficial owner's behalf.                         

We will determine, in our sole discretion, all questions as to the    
validity, form, eligibility (including time of receipt), acceptance of tendered 
2005 notes and withdrawal of tendered 2005 notes, and our determination will be 
final and binding. We reserve the absolute right to reject any and all 2005     
notes not properly tendered or any 2005 notes the acceptance of which would, in 
the opinion of us or our counsel, be unlawful. We also reserve the absolute     
right to waive any defects or irregularities or conditions of the exchange offer
as to any particular 2005 notes either before or after the expiration date. Our 
interpretation of the terms and conditions of the exchange offer as to any      
particular 2005 notes either before or after the expiration date, including the 
instructions in the letter of transmittal, will be final and binding on all     
parties. Unless waived, any defects or irregularities in connection with tenders
of 2005 notes for exchange must be cured within such time as we shall determine.
Although we intend to notify holders of any defects or irregularities with      
respect to tenders of 2005 notes for exchange, neither we nor the exchange agent
nor any other person shall be under any duty to give such notification, nor     
shall any of them incur any liability for failure to give such notification.    
Tenders of 2005 notes will not be deemed to have been made until all defects or 
irregularities have been cured or waived. Any 2005 notes received by the        
exchange agent that are not properly tendered and as to which the defects or    
irregularities have not been cured or waived will be returned by the exchange   
agent to the tendering holders or, in the case of 2005 notes delivered by       
book-entry transfer within DTC, will be credited to the account maintained      
within DTC by the participant in DTC which delivered such 2005 notes, unless    
otherwise provided in the letter of transmittal, as soon as practicable         
following the expiration date.                                                  

    In addition, we reserve the right in our sole discretion (a) to the extent
permitted by applicable law, to purchase or make offers for any 2005 notes that 
remain outstanding after the expiration date, in privately negotiated           

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transactions or otherwise and (b) as set forth below under "--Conditions," to   
terminate the exchange offer. The terms of any such purchases or offers could   
differ from the terms of the exchange offer.                                    

     By signing, or otherwise becoming bound by, the letter of transmittal, each
tendering holder of 2005 notes (other than certain specified holders) will      
represent to us that:                                                           

o    it is acquiring the exchange notes in the ordinary course of its 
business;                                                   

    o    it is not engaging in and does not intend to engage in a distribution
of the exchange notes;                                      

o    it has no arrangements or understandings with any person to      
         participate in the exchange offer for the purpose of distributing the
exchange notes within the meaning of the Securities Act; and

  o    it is not our "affiliate," within the meaning of Rule 405 under the
       Securities Act, or, if it is our affiliate, it will comply with the
       registration and prospectus delivery requirements of the Securities
Act to the extent applicable.                               

     If the tendering holder is a broker-dealer that will receive exchange notes
for its own account in exchange for 2005 notes that were acquired as a result of
market-making activities or other trading activities, it may be deemed to be an 
"underwriter" within the meaning of the Securities Act. Any such holder will be 
required to acknowledge in the letter of transmittal that it will deliver a     
prospectus in connection with any resale of these exchange notes. However, by so
acknowledging and by delivering a prospectus, the holder will not be deemed to  
admit that it is an "underwriter" within the meaning of the Securities Act.     

Book-Entry Transfer                                                             

The exchange agent will establish a new account or utilize an existing
account with respect to the 2005 notes at DTC promptly after the date of this   
prospectus. Any financial institution that is a participant in DTC's systems may
make book-entry delivery of 2005 notes by causing DTC to transfer these 2005    
notes into the exchange agent's account in accordance with DTC's procedures for 
transfer. Exchange for the 2005 notes so tendered will only be made after timely
confirmation of this book-entry transfer of 2005 notes into the exchange agent's
account and timely receipt by the exchange agent of an agent's message and any  
other documents required by the letter of transmittal. The term "agent's        
message" means a message transmitted by DTC to, and received by, the exchange   
agent and forming a part of a book-entry confirmation, that states that DTC has 
received an express acknowledgment from a participant in DTC tendering 2005     
notes that are the subject of the book-entry confirmation stating (1) the       
aggregate principal amount of 2005 notes that have been tendered by such        
participant, (2) that such participant has received and agrees to be bound by   
the terms of the letter of transmittal and (3) that we may enforce such         
agreement against the participant.                                              

     Although delivery of 2005 notes may be effected through book-entry transfer
into the exchange agent's account at DTC, the letter of transmittal, properly   
completed and validly executed, with any required signature guarantees, or an   
agent's message in lieu of the letter of transmittal, and any other required    
documents, must be delivered to and received by the exchange agent at one of its
addresses listed below under "--Exchange Agent," before 5:00 p.m., New York City
time, on the expiration date, or the guaranteed delivery procedure described    
below must be complied with.                                                    

 Delivery of documents to DTC in accordance with its procedures does not
constitute delivery to the exchange agent.                                      

All references in this prospectus to deposit or delivery of 2005 notes
shall be deemed to also refer to DTC's book-entry delivery method.              

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Guaranteed Delivery Procedures                                                  

  Holders who wish to tender their 2005 notes and (1) whose 2005 notes are
not immediately available or (2) who cannot deliver a confirmation of book-entry
transfer of 2005 notes into the exchange agent's account at DTC, the letter of  
transmittal or any other required documents to the exchange agent prior to the  
expiration date or (3) who cannot complete the procedure for book-entry transfer
on a timely basis, may effect a tender if:                                      

o    the tender is made through an eligible institution;              

o    before the expiration date, the exchange agent receives from the 
         eligible institution a properly completed and duly executed notice of
          guaranteed delivery, by facsimile transmission, mail or hand delivery,
         listing the principal amount of 2005 notes tendered, stating that the
    tender is being made thereby and guaranteeing that, within three
      business days after the expiration date, a duly executed letter of
      transmittal together with a confirmation of book-entry transfer of
     such 2005 notes into the exchange agent's account at DTC, and any
 other documents required by the letter of transmittal and the
        instructions thereto, will be deposited by such eligible institution
with the exchange agent; and                                

o    the properly completed and executed letter of transmittal and a  
       confirmation of book-entry transfer of all tendered 2005 notes into
        the exchange agent's account at DTC and all other documents required
          by the letter of transmittal are received by the exchange agent within
three business days after the expiration date.              

     Upon request to the exchange agent, a notice of guaranteed delivery will be
sent to holders who wish to tender their 2005 notes according to the guaranteed 
delivery procedures described above.                                            

Withdrawal of Tenders                                                           

    Except as otherwise provided in this prospectus, tenders of 2005 notes may
be withdrawn at any time prior to 5:00 p.m., New York City time, on the         
expiration date.                                                                

     For a withdrawal to be effective, the exchange agent must receive a written
or facsimile transmission notice of withdrawal at one of its addresses set forth
below under "--Exchange Agent." Any notice of withdrawal must:                  

o    specify the name of the person who tendered the 2005 notes to be 
withdrawn;                                                  

o    identify the 2005 notes to be withdrawn, including the principal 
amount of such 2005 notes;                                  

o    if certificates for 2005 notes have been delivered or otherwise  
         identified to the exchange agent, be signed by the holder in the same
          manner as the original signature on the letter of transmittal by which
   the 2005 notes were tendered and include any required signature
guarantees; and                                             

o    if 2005 notes have been tendered pursuant to the procedure for   
       book-entry transfer described above, specify the name and number of
       the account at DTC to be credited with the withdrawn 2005 notes and
otherwise comply with the procedures of DTC.                

We will determine, in our sole discretion, all questions as to the    
validity, form and eligibility (including time of receipt) of any notice of     
withdrawal, and our determination shall be final and binding on all parties. Any
2005 notes so withdrawn will be deemed not to have been validly tendered for    
exchange for purposes of the exchange offer and no exchange notes will be issued
with respect thereto unless the 2005 notes so withdrawn are validly retendered. 
Properly withdrawn 2005 notes may be retendered by following one of the         
procedures described above under "--Procedures for Tendering" at any time prior 
to the expiration date.                                                         

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     Any 2005 notes that are tendered for exchange through the facilities of DTC
but that are not exchanged for any reason will be credited to an account        
maintained with DTC for the 2005 notes as soon as practicable after withdrawal, 
rejection of tender or termination of the exchange offer.                       

Conditions                                                                      

  Despite any other term of the exchange offer, we will not be required to
accept for exchange, or to issue exchange notes in exchange for, any 2005 notes,
and we may terminate the exchange offer as provided in this prospectus prior to 
the expiration date, if:                                                        

    o    the exchange offer, or the making of any exchange by a holder of 2005
        notes, would violate applicable law or any applicable interpretation
of the SEC staff; or                                        

     o    the 2005 notes are not tendered in accordance with the exchange offer;
or                                                          

    o    the tendering holder cannot make the representations set forth in the
       first paragraph under "--Effect of the Exchange Offer" and any such
         other representations as may be necessary under applicable SEC rules,
     regulations and interpretations to render available the use of an
     appropriate form for registration of the exchange notes under the
Securities Act; or                                          

   o    any action or proceeding is instituted or threatened in any court or
     by or before any governmental agency with respect to the exchange
        offer which, in our judgment, would reasonably be expected to impair
our ability to proceed with the exchange offer; or          

   o    any governmental approval has not been obtained which we believe, in
          our sole discretion, is necessary for the consummation of the exchange
offer as outlined in this prospectus.                       

These conditions are for our sole benefit and may be asserted by us   
regardless of the circumstances giving rise to any of these conditions or may be
waived by us, in whole or in part, at any time and from time to time in our     
discretion. Our failure at any time to exercise any of the foregoing rights     
shall not be deemed a waiver of the right and each right shall be deemed an     
ongoing right which may be asserted at any time and from time to time.          

If we determine that any of the conditions are not satisfied, we may: 

    o    refuse to accept and return to the tendering holder any 2005 notes or
          credit any tendered 2005 notes to the account maintained within DTC by
the participant in DTC which delivered the 2005 notes; or   

  o    extend the exchange offer and retain all 2005 notes tendered before
         the expiration date, subject to the rights of holders to withdraw the
   tenders of 2005 notes (see "--Withdrawal of Tenders" above); or

  o    waive the unsatisfied conditions with respect to the exchange offer
      prior to the expiration date and accept all properly tendered 2005
          notes that have not been withdrawn or otherwise amend the terms of the
        exchange offer in any respect as provided under "-- Expiration Date;
Extensions; Amendments."                                    

   In addition, we will not accept for exchange any 2005 notes tendered, and
we will not issue exchange notes in exchange for any of the 2005 notes, if at   
that time any stop order is threatened or in effect with respect to the         
registration statement of which this prospectus constitutes a part or the       
qualification of the indenture under the Trust Indenture Act of 1939.           

Exchange Agent                                                                  

The Bank of New York has been appointed as the exchange agent for the 
exchange offer. All signed letters of transmittal and other documents required  
for a valid tender of your 2005 notes should be directed to the exchange agent  
at one of the addresses set forth below. Questions and requests for assistance, 
requests for additional copies of                                               

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this prospectus or of the letter of transmittal and requests for notices of     
guaranteed delivery should be directed to the exchange agent addressed as       
follows:                                                                        

BY HAND DELIVERY, REGISTERED MAIL OR OVERNIGHT CARRIER

The Bank of New York
101 Barclay Street
Floor 7E
Corporate Trust Operations, Reorganization
New York, New York 10286
Attention: Ms. Kin Lau

 FACSIMILE TRANSMISSION:
212-298-1915
 Confirm by Telephone:
(212) 815-3750

 FOR INFORMATION WITH RESPECT TO THE EXCHANGE OFFER, CALL:
 Giselle Guadalupe of the Exchange Agent
 at (212) 815-6331

 Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.                                                    

Fees and Expenses                                                               

   We will bear the expenses of soliciting tenders. We have not retained any
dealer-manager in connection with the exchange offer and will not make any      
payments to brokers, dealers or others soliciting acceptance of the exchange    
offer. The principal solicitation is being made by mail; however, additional    
solicitation may be made by facsimile, telephone or in person by our officers   
and employees.                                                                  

 We will pay the expenses to be incurred in connection with the exchange
offer. These expenses include fees and expenses of the exchange agent and the   
trustee, accounting and legal fees, printing costs, and related fees and        
expenses.                                                                       

Transfer Taxes                                                                  

   Holders of 2005 notes who tender their 2005 notes for exchange notes will
not be obligated to pay any transfer taxes in connection therewith, except that 
holders who instruct us to register exchange notes in the name of, or request   
that 2005 notes not tendered or not accepted in the exchange offer be returned  
to, a person other than the registered tendering holder will be responsible for 
the payment of any applicable transfer tax thereon.                             

Accounting Treatment                                                            

 We will record the exchange notes in our accounting records at the same
carrying values as the 2005 notes on the date of the exchange. Accordingly, we  
will recognize no gain or loss, for accounting purposes, as a result of the     
exchange offer. Under Mexican GAAP, the expenses of the exchange offer and the  
unamortized expenses relating to the issuance of the 2005 notes will be         
amortized over the term of the exchange notes.                                  

Consequences of Failure to Exchange                                             

   Holders of 2005 notes who do not tender and exchange their 2005 notes for
exchange notes pursuant to the exchange offer will continue to be subject to the
restrictions on transfer of the 2005 notes as set forth in the legend printed   
thereon as a consequence of the issuance of the 2005 notes pursuant to an       
exemption from the Securities Act and applicable state securities laws. 2005    
notes not exchanged pursuant to the exchange offer will continue to accrue      
interest at 11% per annum, and the 2005 notes will otherwise remain outstanding 
in accordance with their                                                        

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terms. Holders of 2005 notes do not have any appraisal or dissenters' rights    
under applicable law in connection with the exchange offer.                     

 In general, the 2005 notes may not be offered or sold unless registered
under the Securities Act, except pursuant to an exemption from, or in a         
transaction not subject to, the Securities Act and applicable state securities  
laws. Upon completion of the exchange offer, holders of 2005 notes will not be  
entitled to any rights to have the resale of 2005 notes registered under the    
Securities Act, and we currently do not intend to register under the Securities 
Act the resale of any 2005 notes that remain outstanding after completion of the
exchange offer.                                                                 

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CAPITALIZATION

Our consolidated capitalization set forth below was calculated in     
accordance with Mexican GAAP. This table should be read in conjunction with, and
is qualified in its entirety by reference to, the information under the section 
entitled "Management's Discussion and Analysis of Financial Condition and       
Results of Operations" and our consolidated financial statements and the notes  
thereto included elsewhere in this prospectus.                                  

The following table sets forth our cash and cash equivalents and our  
capitalization on a consolidated basis as of March 31, 2005:                    

                                                        [Enlarge/Download Table]


                                                                  As of                      
                                                           March 31, 2005(1)                 
                                                ---------------------------------------------
                                                (Ps. millions)              (US$ millions)(1)
                                                --------------              -----------------
                                                                                             
Cash and cash equivalents......................     1,255.7                       111.2      
                                                ==============              =================

Total debt:....................................                                              
     Other debt(2).............................       326.0                        28.9      
     2003 notes................................     1,976.5                       175.0      
     2005 notes................................       847.1                        75.0      
                                                --------------              -----------------
     Total debt................................     3,149.6                       278.9      
     Total stockholders' equity................     5,652.4                       500.5      
                                                --------------              -----------------
        Total capitalization...................     8,802.0                       779.4      
                                                ==============              =================
____________________________                                                                 


(1)  Other than liabilities denominated in US dollars, peso amounts have been   
  translated into US dollars, solely for the convenience of the reader, at
 the rate of 11.2942 pesos per US dollar, the exchange rate on March 31,
2005.                                                                 

(2)  Other debt includes US$5.5 under a Banorte letter of credit facility,      
   US$3.9 under a Santander Serfin letter of credit facility, US$5.1 million
   to HP Operations (including Compaq Financial Services), US$3.6 million to
Arrendadora Banamex, US$2.6 million with other financial institutions,
     accrued interest as of March 31, 2005 of US$8.0 million with respect to the
notes and US$0.2 million with respect to other debt.                  

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EXCHANGE RATES

    On June 10, 2005, the noon buying rate in the spot market for the purchase
of US dollars (in nominal pesos per US dollar) was Ps. 10.87 (1) The following  
table sets forth, for the periods indicated, the period end, average, high and  
low noon buying rates, in each case for the purchase of US dollars, all         
expressed in nominal pesos per US dollar.                                       

                                                        [Enlarge/Download Table]


                                                          Noon buying rate(1)           
Prior Years                               Period End  Average            High     Low   
-----------                               ----------  -------            ----     ---   
                                                                                        
Year ended December 31, 2000.............      9.62      9.46              10.09    9.18
Year ended December 31, 2001.............      9.16      9.34               9.97    8.95
Year ended December 31, 2002.............     10.43      9.66              10.43    9.00
Year ended December 31, 2003.............     11.24     10.79              11.41   10.11
Year ended December 31, 2004.............     11.15     11.20              11.33   11.11
____________________________                                                            


(1) Source: Federal Reserve Bank of New York.                                   

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

                                                 Noon buying rate(1)
Month/Year                                         High                  Low    
----------                                         ----                  ---    
December 2004...............................      11.33                 11.11   
January 2005................................      11.41                 11.17   
February 2005...............................      11.21                 11.04   
March 2005..................................      11.33                 10.98   
April 2005..................................      11.23                 11.04   
May 2005....................................      11.03                 10.89   
____________________________                                                    

(1) Source: Federal Reserve Bank of New York.                                   

    The notes constitute substantially all of our indebtedness. Devaluation of
the peso in relation to the US dollar will adversely affect our ability to meet 
our US dollar-denominated obligations, including the notes. See "Management's   
Discussion and Analysis of Financial Condition and Results of                   
Operations--Liquidity and Capital Resources" and "Risk Factors--Risks Relating  
to Mexico--We may lose money because of peso devaluation."                      

   In the past, the Mexican economy has suffered balance of payment deficits
and shortages in foreign exchange reserves. While the Mexican government does   
not currently restrict the ability of Mexican or foreign persons or entities to 
convert pesos to US dollars, it has done so in the past and may do so in the    
future. Any such restrictive exchange control policy could adversely affect our 
ability to make payments in US dollars, and could also have a material adverse  
effect on our financial condition and results of operations.                    

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 SELECTED FINANCIAL DATA

     The following table provides our selected historical consolidated financial
data for the fiscal years ended December 31, 2000, 2001, 2002, 2003 and 2004.   
The selected historical consolidated financial data as of December 31, 2004 and 
2003 and for the three years ended December 31, 2004 have been derived from our 
audited consoli-dated financial statements included elsewhere in this           
prospectus. The selected historical consolidated financial data as of December  
31, 2002, 2001 and 2000 and for the two years ended December 31, 2001 have been 
derived from our audited consolidated financial statements not included in this 
prospectus. The selected historical consolidated financial data for each of the 
three month periods ended March 31, 2004 and March 31, 2005 were derived from   
our unauditied consolidated financial statements included elsewhere in this     
prospectus.                                                                     

Our financial statements have been prepared in accordance with Mexican
GAAP, which differs in signifi-cant respects from U.S. GAAP. For a discussion of
the significant differences relating to these financial statements and a        
reconciliation of net income (loss) and shareholders' equity from Mexican GAAP  
to U.S. GAAP, see note 24 to our consolidated financial statements included     
elsewhere in this prospectus.                                                   

    The information presented below should be read in conjunction with "Use of
Proceeds," "Capitalization," "Management's Discussion and Analysis of Financial 
Condition and Results of Operations" and the consolidated financial statements  
included elsewhere in this prospectus.                                          

                                                        [Enlarge/Download Table]


                                                                                                   Unaudited      
                                                                                               Three Months Ended 
                                                   Year Ended December 31,                         March 31,      
                                     2000        2001        2002         2003       2004       2004       2005   
                                     ----        ----        ----         ----       ----       ----       ----   
                                            (Constant Ps. in millions as of March 31, 2005)                       
Statement of Income Data:                                                                                         
                                                                                                                  
Revenues........................     1,118.5     2,383.0     2,605.7    3,101.9      3,889.8     904.7    1,118.7 
Cost of sales and operating                                                                                       
  expenses......................    (2,056.1)   (2,984.2)   (2,853.0)   2,982.5     (3,635.6)   (830.9)  (1,013.4)
                                   ----------   ---------   ---------  ---------   ----------  --------  ---------
Income (loss) from operations...      (937.6)     (601.2)     (247.3)     119.4        254.2      73.8      105.3 
Interest expense, net...........      (258.2)     (426.9)     (448.4)    (211.4)      (259.3)    (64.3)     (79.5)
Foreign exchange gain (loss),                                                                                     
  net...........................       (20.1)      105.9      (656.9)    (339.4)        (7.4)     11.2       (7.1)
Monetary position...............       176.3       230.5       298.0       98.6         65.2      17.0       12.1 
Other income (expense), net(1)..        14.0       (32.8)      (29.3)   1,821.6         21.2      14.8       (7.3)
Cash severance and other                                                                                          
  special items.................         --         (67.0)      (34.4)     (11.1)         --                      
                                   ----------   ---------   ---------  ---------   ----------  --------  ---------
  Income (loss) before income                                                                                     
  taxes and employee profit.....    (1,025.5)     (791.5)   (1,118.3)   1,477.8         73.9      52.5       23.5 
Income tax and employee profit                                                                                    
  sharing benefit (expense).....       235.0       170.3       256.8     (524.3)      (151.6)    (19.1)      (9.1)
                                   ----------   ---------   ---------  ---------   ----------  --------  ---------
Net income (loss) from                                                                                            
  continuing operations.........      (790.5)     (621.3)     (861.4)     953.5        (77.7)     33.4       14.4 
                                   ==========   =========   =========  =========   ==========  ========  =========
Net income (loss)...............      (790.5)     (621.3)     (861.4)     953.5        (77.7)     33.4       14.4 
                                   ==========   =========   =========  =========   ==========  ========  =========
Net income (loss) from                                                                                            
  operations per share..........        (7.2)       (5.1)       (7.0)       0.4          0.0       0.0        0.0 

Net income (loss) per share                                                                                       
  data:                                                                                                           
Net income (loss) per share:                                                                                      
  Basic.........................        (7.2)       (5.1)       (7.0)       0.4          0.0       0.0        0.0 
Income (loss) from continuing                                                                                     
  operations....................      (790.5)     (621.3)     (861.4)     953.5        (77.7)     33.4       14.4 
Income (loss) from continuing                                                                                     
  operations per share..........        (7.2)       (5.1)       (7.0)       0.4          0.0       0.0        0.0 
Net assets......................                                                                                  

Operating Data:                                                                                                   
Depreciation and amortization...       356.4       685.0       861.2      914.3      1,008.6     241.0      262.3 
Investment in fixed assets (end                                                                                   
  of period)....................     3,276.3     1,681.7       600.7      488.9      1,544.0     202.8      352.1 
Net Cash Flow:                                                                                                    
  Operating activities..........      (659.1)     (322.6)      (12.3)     169.6      1,191.7     102.5       72.2 
  Investing activities..........    (3,375.9)   (1,694.8)     (602.2)    (591.5)    (1,615.2)   (213.8)    (371.9)
  Financing activities..........     4,081.6     2,004.3       819.5    1,150.7        (94.3)    (76.0)     996.9 
                                   ----------   ---------   ---------  ---------   ----------  --------  ---------
Total net cash flows............        46.6       (13.1)      205.5      728.8       (517.8)   (187.3)     697.2 

                                  -38-                                                                            

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                                                                                                   Unaudited      
                                                                                               Three Months Ended 
                                                   Year Ended December 31,                         March 31,      
                                     2000        2001        2002         2003       2004       2004       2005   
                                     ----        ----        ----         ----       ----       ----       ----   
                                            (Constant Ps. in millions as of March 31, 2005)                       

Ratio of earnings to fixed                                                                                        
  charges under Mexican GAAP(2).       N/A         N/A         N/A          5.7x         1.2x      1.6x       1.2x
Ratio of earnings to fixed                                                                                        
  charges under US GAAP(2)......       N/A         N/A         N/A         10.4x         1.2x      1.7x       1.2x
Total access lines in service                                                                                     
  (in thousands) (end of period)                                                                                  
  Business......................        72.5       121.0       116.4      132.4        177.6     141.4      191.3 
  Residential...................       144.3       169.1       178.7      216.7        275.9     227.8      298.9 
                                   ----------   ---------   ---------  ---------   ----------  --------  ---------
  Total.........................       216.8       290.1       295.1      349.1        453.5     369.2      490.2 
                                   ==========   =========   =========  =========   ==========  ========  =========


                                                        [Enlarge/Download Table]


                                                       As of December 31,                        As of March 31,   
                                      2000        2001         2002        2003       2004       2004       2005   
                                      ----        ----         ----        ----       ----       ----       ----   
                                               (Constant Ps.  in millions as of March 31, 2005)                    
Balance Sheet Data:                                                                                                
                                                                                                                   
Cash and cash equivalents..........    155.5        142.4        347.4   1,076.3       558.5      889.0     1,255.7
Net working capital investment.....    (70.2)       144.6        (92.8)     56.9       (57.7)     250.5       158.2
Total assets.......................  7,491.0      8,571.4      8,589.6   8,637.4     8,701.1    8,608.5     9,573.8
Total debt.........................  4,424.3      5,212.3      5,882.3   2,304.9     2,210.7    2,231.6     3,149.6
Total liabilities..................  5,158.5      5,811.1      6,637.7   2,919.0     3,061.3    2,864.8     3,921.4
Total shareholders' equity.........  2,332.5      2,760.3      1,951.9     5,718.4   5,640.4    5,743.7     5,652.4
Net assets.........................  4,796.3      6,161.7      5,755.9   5,573.7     6,099.7    5,754.2     6,433.4
Capital stock......................  3,191.1      4,273.8      4,329.0   7,159.2     7,159.2    7,159.2     7,159.2
Shares outstanding (in millions)....   110.1        122.6        122.6   2,533.7     2,533.7    2,533.7     2,533.7


                                                        [Enlarge/Download Table]


Data in Accordance with US GAAP(3):                                                                                
                                                                                                Three Months Ended 
                                                     Year Ended December 31,                         March 31,     
                                       2000        2001        2002         2003       2004      2004        2005  
                                       ----        ----        ----         ----       ----      ----        ----  
                                               (Constant Ps. in millions as of March 31, 2005)                     
Financial Data:                                                                                                    
                                                                                                                   
Income (loss) from operations....    (1,067.0)     (606.4)      (131.5)       181.6       257.5     83.7      107.8
Income (loss) from continuing                                                                                      
  operations.....................    (1,210.3)     (648.6)    (1,004.7)     2,910.9        73.8     64.1       26.9
Net income (loss)................    (1,210.3)     (648.6)    (1,004.7)     2,910.9        73.8     64.1       26.9
Net income (loss) from                                                                                             
  operatings per share...........       (11.0)       (5.3)        (8.2)         1.1         0.0      0.0        0.0
Net assets.......................     4,797.6     6,187.0      5,801.9      5,600.0     6,123.7  6,838.7    6,458.2
Capital stock....................     3,191.1     4,273.8      4,329.0      5,798.5     5,798.5  5,798.5    5,798.5
Shares outstanding...............       110.1       122.6        122.6    2,533.7       2,533.7  2,533.7    2,533.7
Total assets ....................     6,776.7     7,774.3      7,570.5      8,183.3     8,397.5  8,177.7    9,288.6
Total debt ......................     4,424.3     5,212.3      5,882.3      2,304.9     2,210.7  2,231.6    3,149.6
Total shareholders' equity            1,320.5     1,733.0        792.8      5,157.5     5,231.0  5,209.5    5,255.5
  (deficit)......................                                                                                  
____________________________                                                                                       


(1)  Other income for the year ended December 31, 2003 includes a net gain of   
   Ps. 1,974.6 (US$174.8 million) due to our repurchase of certain debt. See
     "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Debt Repurchase."                                         

(2)  For purposes of determining the ratio of earnings to fixed charges,        
 earnings are defined as our income from operations before income taxes,
plus fixed charges. Fixed charges consist of interest expense on all  
indebtedness, amortization of debt issuance costs and 33% of lease    
payments, which represents the amounts considered to be the interest  
 factor. According to Mexican GAAP, earnings in 2000, 2001 and 2002 were
     insufficient to cover fixed charges by Ps. 669.5 million, Ps. 246.5 million
  and Ps. 563.0 million, respectively. According to U.S. GAAP, earnings in
   2000, 2001 and 2002 were insufficient to cover fixed charges by Ps. 796.5
million, Ps. 98.9 million and Ps. 447.1 million, respectively.        

(3)  Reconciled in accordance with Note 24 of our consolidated financial        
statements.                                                           

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 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
 FINANCIAL CONDITION AND RESULTS OF OPERATIONS

   The following discussion should be read in conjunction with our financial
statements and the notes thereto included elsewhere in this prospectus. The     
following discussion includes certain forward-looking statements. For a         
discussion of important factors, including the continuing development of our    
business, actions of regulatory authorities and competitors and other factors   
which could cause actual results to differ materially from the results referred 
to in the forward-looking statements, see "Risk Factors."                       

Overview                                                                        

    We provide bundled local and long distance voice services, as well as data
and internet services. Our integrated service offering enables us to maximize   
the recurring revenue received from each customer, increasing the return        
achieved on our investment in infrastructure, sales and marketing and           
distribution. Long distance services, for example, have been a significant      
source of revenue, but would not be cost-effective to provide as a stand-alone  
service offering because of the significant downward pricing pressure on long   
distance services in Mexico. In addition, we believe we have found that         
customers prefer to purchase their telecommunications services from a single    
provider and receive a single bill. We believe customer loyalty is increased    
with the provision of additional services, resulting in a lower customer churn  
rate.                                                                           

Key Performance Indicators                                                      

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

                                                        [Enlarge/Download Table]

                             2002                           2003                            2004                2005  
                 -----------------------------   -----------------------------  ------------------------------  ----  
                    Q1      Q2      Q3      Q4      Q1      Q2      Q3     Q4      Q1     Q2      Q3       Q4      Q1 
                 -----   -----   -----   -----   -----   -----   -----   -----  -----   -----  ------- ------- -------
                                                                                                                      
Revenues(1)(4)...598.1   651.8   665.6   690.1   706.3   754.5   793.4   847.7  904.7   933.6  1,003.6 1,048.0 1,118.7
Cost of                                                                                                               
Revenues and                                                                                                          
Operating                                                                                                             
Expenses(1)(4)..(502.0) (508.8) (494.8) (486.2) (486.7) (515.2) (518.9) (547.4) (589.9)(615.0) (676.2) (745.9) (751.1)
Access                                                                                                                
Lines(2)(4)......290.7   285.7   289.0   295.1   300.2   311.1   332.7   349.1  369.2   388.2   418.0   453.5   490.2 
Average                                                                                                               
Revenue Per                                                                                                           
User (3)(4)......608.9   672.3   685.8   697.6   696.0   723.1   713.0   693.3  676.6   681.2   673.8   638.0   627.9 
_________________________________                                                                                     


(1)  Amounts in constant Ps. in millions as of March 31, 2005.                  

(2)  Amounts in thousands at end of period.                                     

(3)  Amounts in constant Ps. as of March 31, 2005.                              

(4)  All figures are unaudited.                                                 

Revenues                                                                        

We derive our revenues from:                                          

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

o    Long distance services. We generate revenues by providing long   
distance services for our customers' completed calls.       

  o    Other services. We generate revenues by providing other services to
    our customers, which include internet, data, interconnection and
        dedicated private line service, as well as value-added services such
as caller ID, call waiting, call forwarding and voicemail.  

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The following summarizes our revenues and percentage of revenues from 
operations from these sources:                                                  

                                                        [Enlarge/Download Table]


                                       Revenues (1)                                    % of Revenues                        
                       -----------------------------------------------  --------------------------------------------        
                                                               Three                                       Three            
                                                              Months                                       Months           
                                                               Ended                                         Ended          
                             Year Ended December 31,         March 31,      Year Ended December 31,        March 31,        
   Revenue Source       2001      2002     2003      2004     2005      2001     2002     2003     2004      2005           
   --------------       ----      ----     ----      ----     ----      ----     ----     ----     ----      ----           
                                                                                                                            
Local calling                                                                                                               
services.............  Ps.1,761.0  Ps.1,946.8  Ps.2,317.0   Ps.2,742.2    785.8     73.9%     74.7%    74.7%  70.5%    702.%
Long distance                                                                                                               
services.............       318.5       307.9       314.6        384.7    100.9     13.4%     11.8%    10.1%   9.9%     9.0%
Other services.......       303.5       351.0       470.4        763.0    232.0     12.7%     13.5%    15.2%  19.6%    20.7%
                       ----------  ----------  ----------   ----------  -------   -------   -------  ------- ------   ------
Total................  Ps.2,383.0  Ps.2,605.7  Ps.3,101.9   Ps.3,889.8  1,118.7    100.0%    100.0%   100.0% 100.0%   100.0%
                       ==========  ==========  ==========   ==========  =======   =======   =======  ======= ======   ======
_______________________________                                                                                             


(1) Amounts in constant Ps. in millions as of March 31, 2005.                   

Cost of Revenues and Operating Expenses                                         

Our costs are categorized as follows:                                 

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

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

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

Access Lines                                                        

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

Average Revenue Per User (ARPU)                                     

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

Debt Repurchase                                                                 

During the first quarter of 2003, we implemented a significant        
restructuring of our debt and equity and entered into agreements to replace our 
most significant supply contracts. From the commencement of the roll-out of our 
network, Nortel Networks had been our main supplier of network equipment and our
most significant lender. As of December 31, 2002, our total indebtedness to     
Nortel Networks was US$511.5 million. After extensive negotiations, we agreed   
with Nortel to repurchase this debt in exchange for (i) non-voting shares of our
stock representing 9.9% of our total outstanding shares, (ii) a cash payment of 
US$125.2 million and (iii) a promissory note in the face amount of US$24.2      
million. These debt repurchase transactions resulted in a net gain for financial
statement purposes of US$168.9 million recorded in March 2003 and additional    
shareholder's equity of US$60.0 million. Although there was no negative impact  
on our cash flow in terms of accrued tax liabilities in connection with these   
transactions, we did decrease our accumulated Net Operating Losses and tax loss 
carryforwards due to the financial                                              

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gain. In December 2003, the promissory note in the amount of US$24.2 million in 
favor of Nortel was repaid in full with the net proceeds received in connection 
with the issuance of the 2003 notes.                                            

As part of the Nortel debt repurchase transaction, we renegotiated our
supply arrangements with Nortel, and entered into five agreements: three        
agreements relating to the provision of fixed wireless access equipment, and two
agreements relating to the provision of non-fixed wireless access equipment.    
Under such agreements, we assumed certain purchase obligations, including: (i)  
the obligation to purchase not less than 25,000 RSS units (customer premise     
equipment) in year 2003; 20,000 customer premise equipment units in year 2004;  
25,000 customer premise equipment units in year 2005; 30,000 customer premise   
equipment units in year 2006; and 35,000 customer premise equipment units in    
year 2007; (ii) the obligation to purchase not less than 20 radio base station  
units in year 2003; 30 radio base station units in year 2004; and 20 radio base 
station units in each of years 2005, 2006 and 2007; (iii) the obligation to     
purchase a minimum amount of US$0.6 million during year 2003 and US$2.1 million 
during each of the following four years. In addition, as part of these          
agreements, we are obligated to make yearly payments of US$3.8 million for      
technical services regarding our fixed wireless access platform. On December 23,
2003, Airspan Communications Limited ("Airspan") acquired Nortel's fixed        
wireless access business, assuming Nortel's rights and obligations under some of
these agreements.                                                               

   Bell Canada International Limited, a former shareholder, was also a party
to a certain Technical Services Agreement and a Secondment Agreement with us.   
BCI has embarked upon a Canadian court ordered plan of dissolution. In          
connection with our on-going capital needs and BCI's plans to dissolve, we      
agreed to pay BCI US$15.6 million to terminate all the rights and obligations of
both parties under the two agreements, including our obligation to pay fees in  
the future based on our financial performance, and in full settlement of any and
all claims that BCI may have against us arising out of or related to the        
Secondment Agreement and the Technical Services Agreement that we previously    
entered into. Such US$15.6 million amount was evidenced by a cash payment of    
US$2.7 million on May 30, 2003 and three non-negotiable promissory notes: (a)   
US$1.1 million paid on June 30, 2003; (b) US$1.1 million paid on September 20,  
2003; and (c) US$1.1 million payable on December 31, 2003. In addition, we      
issued in favor of BCI another promissory note with a future value of US$9.3    
million payable in June 2006. Due to these transactions with BCI, in 2003 we    
recorded an extraordinary expense of US$10.7 million. In December 2003, all     
amounts owed to BCI were repaid in full with the net proceeds received in       
connection with the issuance of the 2003 notes.                                 

 Finally, in connection with the foregoing transactions, on February 28,
2003 we issued a capital call to our existing shareholders for the subscription 
and payment of shares representing additional capital of US$60.0 million.       
Certain of our shareholders assigned their subscription rights with respect to  
such shares to some of their shareholders or members. As a result, the number of
our shareholders increased from 3 to 11. However, each of our new shareholders  
was already an indirect shareholder of ours through their equity interest in the
respective holding companies that have owned our stock since our formation. As  
is required under Mexican law, Mexican shareholders continue to own more than   
51% of our voting stock.                                                        

Period Over Period Comparisons                                                  

Three Months Ended March 31, 2005 Compared with Three Months Ended March 31,    
2004                                                                            

Revenues from Operations                                            

 Revenues from operations increased to Ps. 1,118.7 million for the three
month period ended March 31, 2005 from Ps. 904.7 million for the three month    
period ended March 31, 2004, an increase of Ps. 214.0 million, or 24%. The      
number of access lines increased to 490,231 from 369,231, an increase of 33%,   
and our average revenue per user decreased to Ps. 627.9 from Ps. 676.6. During  
the year 2004, we expanded our coverage to six new cities as a result of which, 
combined with new and innovative commercial offers, we were able to increase the
number of lines in service, having a favorable impact on 2004 revenues.         

   Local services. Local service revenues increased to Ps. 785.8 million for
the three month period ended March 31, 2005 from Ps. 628.9 million for the three
month period ended March 31, 2004, an increase of Ps. 156.9 million, or 25%.    
These increases were primarily due to higher monthly rent and cellular          
consumption driven by                                                           

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specifically targeted offers to capture high consumption customers. Lines in    
service increased due to geographic expansion.                                  

  Long distance services. Long distance services revenues increased to Ps.
100.9 million for the three month period ended March 31, 2005 from Ps. 89.4     
million for the three month period ended March 31, 2004, an increase of Ps. 11.5
million, or 13%. This is a consequence of a higher number of access lines.      

    Other services. Revenue from other services increased to Ps. 232.0 million
in the three month period ended March 31, 2005 from Ps. 186.5 million during the
three month period ended March 31, 2004 , an increase of Ps. 45.5 million, or   
24%. The increase was due to a higher termination of calls in our network,      
increase in international traffic through our international gateway and more    
subscription to our value added services.                                       

Cost of Revenues and Operating Expenses                               

   Cost of Revenues. Cost of revenues from operations increased to Ps. 351.8
million for the three month period ended March 31, 2005 from Ps. 281.4 million  
in the three month period ended March 31, 2004, an increase of Ps. 70.4 million,
or 25%. This increase was due primarily to a Ps. 34.5 million increase in our   
underlying costs related to calling party pays calls, and Ps. 19.2 increased    
long distance costs due to additional access lines installed during the year.   

 Operating expenses. Operating expenses for the three month period ended
March 31, 2005 increased Ps. 90.7 million, to Ps. 399.3 million. During the     
three month period ended March 31, 2004 this amount was Ps. 308.6 million. This 
increase was attributable primarily to increases in rents, salaries, maintenance
and outsourcing fees, which were in connection with our geographic expansion.   
The increase in expenses was partially offset by an uncollectible reserve       
reduction attributable to our more stringent collection policies.               

   Depreciation and Amortization. Depreciation and amortization increased to
Ps. 262.3 million for the three month period ended March 31, 2005 from Ps. 241.0
million for the three month period ended March 31, 2004, an increase of Ps. 21.3
million, or 9%. This increase in depreciation and amortization reflects the     
Company's growth and capital expenditures.                                      

Year Ended December 31, 2004 Compared with Year Ended December 31, 2003         

Revenues from Operations                                            

 Revenues from operations increased to Ps. 3,889.8 million for year 2004
from Ps. 3,101.9 million for the year ended 2003, an increase of Ps. 787.9      
million, or 25%. The number of access lines increased to 453,519 from 349,144,  
an increase of 30%, and our average revenue per user decreased to Ps. 666.3 from
Ps. 706.1. During the year 2004, we expanded our coverage to six new cities as a
result of which, combined with new and innovative commercial offers we were able
to increase the number of lines in service, having a favorable impact on the    
2004 revenues.                                                                  

     Local services. Local service revenues increased to Ps. 2,742.2 million for
year 2004 from Ps. 2,317.0 million for the year ended 2003, an increase of Ps.  
425.2 million, or 18%. These increases were primarily due to higher monthly rent
and cellular consumption driven by specifically targeted offers to capture high 
consumption customers.                                                          

  Long distance services. Long distance services revenues increased to Ps.
384.7 million for 2004 from Ps. 314.6 million for 2003, an increase of Ps. 70.1 
million, or 22%. This is a consequence of a higher number of access lines.      

    Other services. Revenue from other services increased to Ps. 763.0 million
in the year 2004 from Ps. 470.4 million during 2003, an increase of Ps. 292.6   
million, or 62%. The increase was due to a higher termination of calls in our   
network, increase in international traffic through our international gateway and
more subscription of our value added services.                                  

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Cost of Revenues and Operating Expenses                             

     Cost of Revenues. Cost of revenues from operations increased to Ps. 1,238.6
million for 2004 from Ps. 858.9 million in 2003, an increase of Ps. 379.6       
million, or 44%. This growth was due primarily to a Ps. 225.4 million increase  
in our underlying costs related to calling party pays calls, and Ps. 149.7      
increased long distance costs due to our augment in access lines during the     
year.                                                                           

 Operating expenses. Operating expenses for the year 2004 grew Ps. 179.3
million, totaling Ps. 1,388.5 million. During the year 2003 this amount was Ps. 
1,209.2 million. This increase was attributable primarily to in-creases in      
rents, salaries, maintenance and outsourcing fees, which were in connection with
our geographical expansion. Also the increase in expenses was partially offset  
by an uncollectible reserve reduction attributable to our more stringent        
collection policies.                                                            

Depreciation and Amortization. Depreciation and amortization from     
continuing operations increased to Ps. 1,008.6 million for 2004 from Ps. 914.3  
million for the year 2003, an increase of Ps. 94.3 million, or 10%. This        
increase in depreciation and amortization reflects the Company's growth and     
capital expenditures.                                                           

Year Ended December 31, 2003 Compared with Year Ended December 31, 2002         

Revenues from Operations                                              

 Revenues from operations increased to Ps. 3,101.9 million for year 2003
from Ps. 2,605.7 million for the year ended 2002, an increase of Ps. 496.2      
million, or 19%. The number of access lines increased to 349,144 from 295,141,  
an increase of 18%, and our average revenue per user increased to Ps. 706.1 from
Ps. 666.1. During the year 2003, we launched new and innovative commercial      
offers, thus allowing us to increase the number of lines in service, which had a
favorable impact on the 2003 revenues.                                          

     Local services. Local service revenues increased to Ps. 2,317.0 million for
the year ended 2003 from Ps. 1,946.8 million for the year ended 2002, an        
increase of Ps. 370.2 million, or 19%. These increases were primarily due to    
higher monthly rent and cellular consumption driven by specifically targeted    
offers to capture high consumption customers.                                   

  Long distance services. Long distance services revenues increased to Ps.
314.6 million for the year ended 2003 from Ps. 307.9 million for the year ended 
2002, an increase of Ps. 6.7 million, or 2%. This is a consequence of a higher  
number of lines in use during the year.                                         

    Other services. Revenue from other services increased to Ps. 470.4 million
in 2003 from Ps. 351.0 million in 2002, an increase of Ps. 119.4 million, or    
34%. The increase was due to different factors, including but not limited to the
following: higher termination of calls in our network, increase in international
traffic through our international gateway and more subscription of our value    
added services.                                                                 

Cost of Revenues and Operating Expenses                               

   Cost of Revenues. Cost of revenues from operations increased to Ps. 858.9
million for the year ended 2003 from Ps. 650.5 million for the year ended 2002, 
an increase of Ps. 208.4 million, or 32%. This increase was due primarily to a  
Ps. 208.2 million increase in our underlying costs related to calling party pays
call revenues.                                                                  

     Operating expenses. Operating expenses decreased to Ps. 1,209.2 million for
the year ended 2003 from Ps. 1,341.3 million for the year ended 2002, a decrease
of Ps. 132.1 million, or 10%. This decrease was attributable mainly to the      
improvements made on collections policies/processes which resulted in less      
provision for doubtful accounts.                                                

Depreciation and Amortization. Depreciation and amortization from     
continuing operations increased to Ps. 914.3 million for the year ended 2003    
from Ps. 861.2 million for the year ended 2002, an increase of Ps. 53.1         
mil-                                                                            

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lion, or 6%. This increase in depreciation and amortization goes in line with   
the Company's growth and investments.                                           

Year Ended December 31, 2002 Compared with Year Ended December 31, 2001         

Revenues from Operations                                              

 Revenues from operations increased to Ps. 2,605.7 million for year 2002
from Ps. 2,383.0 million for the year ended 2001, an increase of Ps. 222.7      
million, or 9%. The number of access lines increased to 295,141 from 290,132, an
increase of 2%, and our average revenue per user increased to Ps. 666.1 from Ps.
612.6. During the year 2001, we commenced offering our services in three new    
cities, Puebla, Toluca and Leon, which contributed positively to the increase in
revenue and customer base in 2002. We derived our revenues from the following   
sources:                                                                        

     Local services. Local service revenues increased to Ps. 1,946.8 million for
the year ended 2002 from Ps. 1,761.0 million for the year ended 2001, an        
increase of Ps. 185.8 million, or 11%. This increase was primarily due to the   
increase in consumption levels in cellular and measured service on a per line   
basis as a result of the acquisition of high consumption customers through the  
development of offers specifically targeted to such customers.                  

  Long distance services. Long distance services revenues decreased to Ps.
307.9 million for the year ended 2002 from Ps. 318.5 million for the year ended 
2001, a decrease of Ps. 10.6 million, or 3%, due to a lower consumption on a per
line basis following the introduction of alternative options to complete long   
distance traffic, like trunking services, voice over IP, among others.          

    Other services. Revenue from other services increased to Ps. 351.0 million
in 2002 from Ps. 303.5 million in 2001, an increase of Ps. 47.5 million, or 16%.

Cost of Revenues and Operating Expenses                               

   Cost of Revenues. Cost of revenues from operations increased to Ps. 650.5
million for the year ended 2002 from Ps. 553.9 million for the year ended 2001, 
an increase of Ps. 96.6 million, or 17%. This increase was due primarily to a   
Ps. 135.3 million increase in our underlying costs related to calling party pays
call revenues, which was partially offset by a decrease in the cost of investing
related to a reduction in gross additions over the prior year.                  

 Operating expenses. Operating expenses from operations decreased to Ps.
1,341.3 million for the year ended 2002 from Ps. 1,745.3 million for the year   
ended 2001, a decrease of Ps. 404.0 million, or 23%. This de-crease was         
attributable primarily to a significant reduction in bad debt expense due to an 
improved customer profile, as well as a significant rationalization of our      
workforce.                                                                      

Depreciation and Amortization. Depreciation and amortization from     
continuing operations increased to Ps. 861.2 million for the year ended 2002    
from Ps. 685.0 million for the year ended 2001, an increase of Ps. 176.2        
million, or 26%. This increase in depreciation and amortization expense         
reflects the continuing expansion of our asset base.                            

Liquidity and Capital Resources                                                 

     We have relied primarily on vendor financing, private equity contributions,
internal cash from operations and the proceeds from the 2003 notes, 2005 notes  
and bank debt to fund our operations, capital expenditures and working capital  
requirements. After giving effect to the offerings of the notes and the net     
proceeds therefrom, we believe that we will be able to meet our debt service    
obligations and fund our operating requirements in the future with cash flow    
from operations, although no assurance can be given in this regard. We will     
continue to focus on investments in fixed assets and working capital management,
including the collection of accounts receivable and management of accounts      
payable. Net cash provided by operating activities was Ps. 1,191.7 million, Ps. 
169.6 million and Ps. (12.3) million for the years ended December 31, 2004, 2003
and 2002, respectively and Ps. 72.2 million for the three month period ended    
March 31, 2005.                                                                 

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  Net cash used in investing activities was Ps. 1,615.2 million, Ps. 591.5
million and Ps. 602.2 million for the years ended December 31, 2004, 2003 and   
2002, respectively, and PS. 371.9 for the three month period ended March 31,    
2005. These cash flows primarily reflect investments in fixed assets of Ps.     
1,544.0 million, Ps. 488.9 million and Ps. 600.1 million for the years ended    
December 31, 2004, 2003 and 2002, respectively and Ps. 352.1 million for the    
three month period ended March 31, 2005.                                        

Net cash provided by (used in) financing activities from continuing   
operations was Ps. (94.3) million, Ps. 1,150.7 million and Ps. 819.5 million for
the years ended December 31, 2004, 2003 and 2002, respectively and Ps. 996.9    
million for the three month period ended March 31, 2005.                        

    Since our inception, we have invested over Ps. 9,740.3 million as we built
out our infrastructure. Our total investment in fixed assets was approximately  
Ps. 1,544.0 million in 2004. We expect to make additional investments in future 
years as we selectively expand our network into other areas of Mexico in order  
to exploit market opportunities as well as to maintain our existing network and 
facilities.                                                                     

Market risks                                                          

Our primary foreign currency exposure relates to our U.S.             
dollar-denominated debt. Most of our debt obligations at March 31, 2005 were    
denominated in U.S. dollars. Therefore, we are exposed to currency exchange rate
risks that could significantly affect our ability to meet obligations. On March 
29, 2004, we entered into a swap transaction under which we will pay the swap   
counterparty approximately Ps. 79 million semiannually and, on the same date,   
the swap counterparty will pay us approximately US$6.2 million. This transaction
will cease in December 2008.                                                    

In certain events we will have to transfer collateral to the swap     
counterparty to protect it from exposure to us arising from the swap            
transaction.                                                                    

    Prior to entering into foreign currency hedging contracts, we evaluate the
counterparties' credit ratings. Credit risk represents the accounting loss that 
would be recognized at the reporting date if counterparties failed to perform as
contracted. We do not currently anticipate non-performance by such              
counterparties.                                                                 

    The exchange rate of the peso to the U.S. dollar is a freely floating rate
and the peso has experienced significant devaluation in previous years. Any     
significant decrease in the value of the peso relative to the U.S. dollar in the
near term may have a material adverse effect on our results of operations and   
financial condition, including our ability to repay or repurchase the notes.    

Capitalization of preoperating expenses                               

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

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

Summary of contractual obligations                                    

   The following table discloses aggregate information about our contractual
obligations and the periods in which payments are due.                          

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                                                        [Enlarge/Download Table]


                                                                    Payments due by period                      
                                               -----------------------------------------------------------------
                                                             Less than 1                            More than 5 
                                                  Total          year      1-3 years   3-5 years       years    
                                               ------------  ------------  ---------   ---------    ------------
                                                                      (US $ in millions)                        
Contractual obligations:                                                                                        
                                                                                                                
Debt maturing within one year................. $       16.0       $  16.0        --         --               -- 
Long-term debt................................        254.6           --    $    4.6        --        $   250.0 
Operating leases..............................          8.9           2.9        6.0        --               -- 
Nortel/Airspan................................         35.0          34.8        0.2        --               -- 
Total contractual cash obligation............. $      314.5       $  53.7   $   10.8      $ 0.0       $   250.0 
                                               ============       =======   ========     =======      ==========


US GAAP Reconciliation                                                          

 We describe below the principal differences between Mexican GAAP and US
GAAP. See Note 24 to the audited consolidated financial statements for          
reconciliation to US GAAP of shareholders' equity and net loss for the          
respective periods presented.                                                   

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

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

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

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

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

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Vacations. Under Mexican GAAP, vacation expenses were recognized when 
taken, rather than in the period when they are earned by an employee, as is     
required under US GAAP. Beginning in January of 2003, Mexican GAAP required the 
recognition of vacation expense when earned.                                    

   Severance. Under Mexican GAAP, severance payments should be recognized in
earnings in the period in which they are paid, unless such payments are used by 
an entity as a substitution for pension benefits, in which case, they should be 
treated as a pension plan. Under US GAAP, post-employment benefits for former or
inactive employees, excluding retirement benefits, are accounted for under the  
provisions of SFAS No. 112, which requires recognition of certain benefits,     
including severance, over an employee's service life.                           

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

Devaluation and Inflation                                                       

 On December 20, 1994, the Mexican government responded to exchange rate
pressures by increasing the upper limit of the then existing free market peso/US
dollar exchange rate band by 15% and, two days later, by eliminating the band to
allow the peso to fluctuate freely against the US dollar. This resulted in a    
major devaluation of the peso relative to the US dollar. While the noon buying  
rate had been Ps. 3.45 per US$1.00 on December 19, 1994, by December 31, 1994   
the noon buying rate had fallen to over Ps. 5.00 per US$1.00, representing a    
44.9% devaluation. The peso continued to decline against the US dollar during   
1995, closing at a noon buying rate of Ps. 7.74 per US$1.00 on December 31,     
1995, which represented a 54.8% devaluation relative to the US dollar for the   
year.                                                                           

  The Mexican economy began to recover in 1996 and 1997, as exchange rates
stabilized, inflation decreased and real gross domestic product grew by 5.2% and
6.8%, respectively. However, the financial crisis in Asia and Russia, together  
with the weakness in the price of oil in 1998, which is a significant source of 
revenue for the Mexican government, contributed to renewed weakness in the peso,
which devalued 22.7% relative to the US dollar. In 1999, the peso appreciated   
4.2% relative to the US dollar. From 1999-2000, the peso-to-dollar denominated  
exchange rate remained relatively stable. In 2001, the peso-to-dollar exchange  
rate showed a slight recovery of 4.8% from Ps. 9.62 on December 31, 2000 to Ps. 
9.16 on December 31, 2001. However, in 2002, the peso devaluated 13.9% relative 
to the US dollar. In 2003, the peso devalued approximately 7.7% relative to the 
US dollar.                                                                      

Peso devaluation has contributed to sharp increases in inflation.     
Inflation, which had been 7.1% in 1994, increased to 52.0% and 27.7% in 1995 and
1996, respectively. After a reduction to 15.7% in 1997, inflation was 18.6% in  
1998. In 1999, 2000 and 2001, the inflation rate decreased to 12.3%, 9.0% and   
4.4%, respectively. In 2002, 2003 and 2004, the inflation rate was 5.7%, 4.0%   
and 5.5%, respectively.                                                         

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

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

     o    our inability, due to competitive pressures, to increase our prices in
line with inflation; and                                    

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

   See "Risk Factors--Risks Relating to Mexico--We may lose money because of
peso devaluation."                                                              

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Recent Accounting Pronouncements                                                

    Financial instruments with characteristics of liabilities, equity, or both

  In May 2003, the Mexican Institute of Public Accountants issued Bulletin
C-12, "Financial Instruments with Characteristics of Liabilities, Equity, or    
Both." Bulletin C-12 is effective for fiscal years beginning after December 31, 
2003, although earlier application is permitted. Bulletin C-12 combines         
regulations contained in other bulletins related to the issuance of complex     
financial instruments and adds regulations necessary for a comprehensive        
resolution of general problems. Bulletin C-12 also defines the basic differences
between liabilities and equity; establishes rules for the classification and    
valuation of the liability and equity components of combined financial          
instruments upon initial recognition and establishes rules for the disclosure of
combined financial instruments. Under Bulletin C-12 financial instruments should
be classified as liabilities or equity at the beginning of the year of adoption 
and comparative financial information for prior years should not be restated,   
nor a cumulative-effect-type adjustment recognized in the year of adoption. We  
estimate that the adoption of the new Bulletin C-12 will not have a material    
effect on our financial position or results of operations.                      

Recent accounting pronouncements under US GAAP                        

  In December 2004, the FASB issued FASB Statement No. 123 (revised 2004),
Share-Based Payment, which addresses the accounting for transactions in which an
entity exchanges its equity instruments for goods or services, with a primary   
focus on transactions in which an entity obtains employee services in           
share-based payment transactions. This Statement is a revision to Statement 123 
and supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and
its related implementation guidance. For nonpublic companies, this Statement    
will require measurement of the cost of employee services received in exchange  
for stock compensation based on the grant-date fair value of the employee stock 
options. Incremental compensation costs arising from subsequent modifications of
awards after the grant date must be recognized. This Statement will be effective
for the Company as of January 1, 2006.                                          

In December 2004, the FASB issued FASB Statement No. 153, Exchanges of
Non-monetary Assets, which eliminates an exception in APB 29 for non-monetary   
exchanges of similar productive assets and replaces it with a general exception 
for exchanges of non-monetary assets that do not have commercial substance. This
Statement will be effective for the Company for non-monetary asset exchanges    
occurring on or after January 1, 2006.                                          

Critical Accounting Policies                                                    

 Our consolidated financial statements included elsewhere in this annual
report have been prepared in accordance with Mexican GAAP, which differ in      
significant respects from respects from US GAAP. See Note 24 to our consolidated
financial statements, included elsewhere in this prospectus, for a description  
of the principal differences between Mexican GAAP and US GAAP as they relate to 
us.                                                                             

We have identified below the accounting policies we have applied under
Mexican GAAP that are critical to understanding our overall financial reporting.

Income taxes                                                          

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

     Significant judgment is required to appropriately assess the amounts of tax
assets. We record tax assets when we believe there will be enough future taxable
income for the realization of such deductible temporary differ-                 

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ence. If this determination cannot be made, a valuation allowance is established
to reduce the carrying value of the asset.                                      

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

Recognition of the effects of inflation                               

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

Impairment of long-lived assets                                       

We evaluate periodically the adjusted values of our property, plant,  
systems and equipment and other non-current assets, to determine whether there  
is an indication of potential impairment.                                       

     Recoverability of assets to be held and used is measured by a comparison of
the carrying amount of an asset to future net revenues expected to be generated 
by the asset. If such assets are considered to be impaired, the impairment is   
measured by the amount by which the carrying amount of the asset exceeds the    
expected net revenues. Assets to be disposed of are reported at the lower of the
carrying amount or realizable value.                                            

Revenue Recognition                                                   

On December 3, 1999, the SEC issued Staff Accounting Bulletin No. 101,
"Revenue Recognition in Financial Statements" (SAB 101). This bulletin          
summarizes the point of view of the SEC in the recognition of revenues in the   
financial statements according to US GAAP. The SEC concluded that only when all 
the following conditions are met is revenue recognition appropriate:            

(a)  there is persuasive evidence of an agreement;                    
(b)  the delivery was made or the services rendered;                  
(c)  the sales price to the purchaser is fixed or determinable;       
(d)  collection is reasonably assured.                                

    SAB 101, specifically in Topic 13A, Question 5, discusses the situation of
recognizing as revenue certain non-refundable cash items. SAB 101 provides that 
the seller should not recognize non-refundable charges generated in certain     
transactions when there is continuous involvement by the vendor.                

One of the examples provided by SAB 101 is activation revenues from   
telecommunication services. The SAB concludes that unless the charge for the    
activation service is an exchange for products delivered or services rendered   
that represent the culmination of a separate revenue-generating process, the    
deferral method of revenue is appropriate.                                      

     Based on the provisions and interpretations of SAB 101, for purposes of the
US GAAP reconciliation, we have deferred the activation revenues over a         
three-year period starting in the month such charge is originated. This         

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period was determined based on our experience. The net effect of the deferral   
and amortization is presented in the above US GAAP reconciliation.              

Estimated Useful Lives of Plant, Property and Equipment               

   We estimate the useful lives of particular classes of plant, property and
equipment in order to determine the amount of depreciation expense to be        
recorded in each period. Depreciation expense is a significant element of our   
costs, amounting in 2004 to PS. 903.4 million, or 25% of our operating costs and
expenses.                                                                       

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

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 OVERVIEW OF THE MEXICAN TELECOMMUNICATIONS INDUSTRY

General                                                                         

Mexico is a unique telecommunications market in Latin America as it   
combines a stable macroeconomic environment, a strong currency and relatively   
low penetration of fixed lines. As a result, Mexico's importance in Latin       
America's telecommunications market is expected by Pyramid Research to become   
more pronounced over the next four years.                                       

  Since the Mexican government initiated the liberalization of the Mexican
telecommunications sector, which began with the privatization of Telefonos de   
Mexico, S.A. de C.V., known as Telmex, in 1990, the Mexican telecommunications  
sector has become increasingly open to competition. Some of the measures        
implemented by the government in its liberalization process include the         
introduction of competition in long distance and local telephony services, the  
auctioning of spectrum and tariff rebalancing. The opening of the Mexican       
telecommunications market has created an opportunity for competitive carriers to
capture market share from Telmex.                                               

Mexican Market Characteristics                                                  

Mexico is the second largest country in Latin America in terms of     
population, with approximately 105 million people as of December 31, 2004. In   
addition, with a gross domestic product of US$661.1 billion and gross domestic  
product per capita of US$6,300 as of December 31, 2004, Mexico is the second    
largest economy and has one of the highest incomes per capita in Latin America. 
However, according to Pyramid Research, Mexico has relatively low wireline      
penetration compared to other countries in Latin America, with 16.9 lines per   
100 inhabitants at the end of 2004.                                             

  Mexico's under-penetrated fixed communications market leaves significant
room for growth. According to Pyramid Research, Mexico's fixed line penetration 
is expected to grow from 16.9 lines per 100 inhabitants in 2004 to 19.7 lines   
per 100 inhabitants in 2008.                                                    

Market Size and Projected Growth Trends                                         

  The Mexican communications services market, in terms of revenues, is the
second largest in Latin America. Revenues from communications services in       
Mexico, including both fixed and mobile, are expected by Pyramid Research to    
grow at a 4.7% compound annual growth rate, from US$19.1 billion in 2004 to     
US$22.9 billion in 2008.                                                        

 MEXICAN COMMUNICATIONS SERVICES MARKET GROWTH

Revenues

  Chart of revenues from communications services in Mexico

__________________________                                                      
Source:  Pyramid Research, 4Q 2004                                              

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  The fixed communications sector, which includes basic telephony, such as
local and long distance voice services, and data telecommunications services, is
an important part of the Mexican telecommunications industry because of its size
and the various areas of opportunity. In 2004, revenues from the fixed          
communications sector were approximately US$11.3 billion, or 59% of the total   
Mexican telecommunications industry. Driven by pent-up demand and a wider       
availability of services, revenues from fixed communications services in Mexico 
are expected to reach US$12.5 billion in 2008, according to Pyramid Research.   

 Mobile telephony services is one of the fastest growing segments of the
Mexican communications services market. In 2004, revenues from the mobile       
communications sector were approximately US$7.8 billion, or 41% of the total    
Mexican communications services industry. According to Pyramid Research, in     
2004, there were approximately 37.4 million mobile subscribers in Mexico, giving
Mexico the third largest penetration rate in Latin America. Pyramid anticipates 
that Mexico will continue to experience rapid growth in the number of mobile    
subscribers growing from approximately 29.4 million subscribers in 2003 to 44.5 
million subscribers in 2008, representing a compound annual growth rate of 4.5%.

    Basic telephony services, with US$9.2 billion in revenues in 2004, account
for the largest share of revenues in the Mexican communications services market.
Furthermore, within basic telephony, local telephony services are, and are      
expected to continue to be, the predominant source of revenue. According to     
Pyramid Research, in 2004, revenues from local telephony services in Mexico were
US$6.9 billion, accounting for 75% of basic telephony revenues and 36% of total 
fixed and mobile communications revenues. By 2008, revenues from local telephony
services in Mexico are expected to reach US$7.3 billion, accounting for 77% of  
basic telephony revenues and 32% of total fixed and mobile communications       
revenues.                                                                       

 SUPERVISION AND REGULATION OF THE MEXICAN
 TELECOMMUNICATIONS INDUSTRY

Current Regulatory Environment                                                  

General                                                               

The telecommunications industry in Mexico is subject to the Federal   
Telecommunications Law, which was enacted in 1995, and its regulations. In      
addition, certain rules under the General Means of Communications Law (Ley de   
Vias Generales de Comunicacion) and the Telecommunications Regulations          
(Reglamento de Telecomunicaciones) generally remain effective and are referred  
to as the Old Telecommunications Law.                                           

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

o    enacting regulations and technical standards for the             
telecommunications industry;                                

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

o    suspending operators without concessions;                        

o    resolving interconnection controversies between competitors; and 

o    maintaining a registry of applicable rates.                      

The SCT retains the authority to grant and revoke all concessions and 
permits. COFETEL makes recommendations to the SCT on major issues, such as      
amending existing telecommunications legal framework, allocating spectrum       
frequencies, granting, transferring, renewing or revoking concessions and       
applying penalties for conces-                                                  

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sion violations. The SCT has final decision making power on these issues. Once a
final decision is made, COFETEL implements the related regulations.             

Concessions and permits                                               

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

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

o    the allocated spectrum frequencies, if applicable;               

o    the geographical region in which the holder of the concession may
provide the telecommunication service;                      

o    the required capital expenditure program;                        

o    the term during which such service may be provided;              

o    the payment, where applicable, required to be made to acquire the
          concession, including, if applicable, the participation of the Mexican
   government in the revenues of the holder of the concession; and

o    any other rights and obligations affecting the concession holder.

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

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

o    providing telecommunications services as a reseller.             

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

The Mexican Congress enacted a law, effective January 1, 2002, that   
expanded the scope of the sales and use tax to include additional services,     
including services provided by telecommunications service providers such as     
value-added services, at a rate of 10%. An amendment to this law, effective     
January 1, 2003, confirmed that our core business (the offering of local and    
long distance services) is not subject to the tax. Although we believe, based on
the advice of our tax and regulatory advisors, that certain other services that 
are part of our local service offerings are also not subject to such tax, we    
cannot assure you that the tax authorities may not interpret the law otherwise  
or impose other taxes from time to time.                                        

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

o    Mexican individuals; and                                         

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     o    Mexican corporations in which non-Mexicans own 49% or less of the full
       voting stock and that are not otherwise controlled by non-Mexicans.

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

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

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

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

o    expiration of its term;                                          

o    resignation by the concession holder or the permit holder;       

   o    revocation prior to the end of its term under certain circumstances,
such as:                                                    

o    dissolution or bankruptcy of the concession holder or the        
permitholder;                                               

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

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

o    loss of the concession or permit holder's Mexican nationality;   

    o    unauthorized assignment, transfer or encumbrance of the concession or
permit;                                                     

o    unauthorized interruption of service;                            

    o    taking any action that impairs the rights of other concessionaires or
permit holders;                                             

    o    failure to comply with the obligations or conditions specified in the
concession or permit; and                                   

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

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

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Expropriation                                                         

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

Temporary seizure                                                     

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

Rates for telecommunications services                                 

 Before the Federal Telecommunications Law was enacted in June 1995, the
SCT's approval was required for setting the rates charged for all basic local,  
long distance and certain value-added local and long distance telecommunications
services. Historically, the SCT permitted rate increases based on the cost of   
service, the level of competition, the financial situation of the carrier and   
certain macroeconomic factors. Carriers were not allowed to discount the rates  
authorized by the SCT, although operators occasionally waived activation fees on
a promotional basis. Interconnection rates also required SCT approval. Rates for
private dedicated circuit services through microwave networks and private       
networks through satellites were not regulated before the Federal               
Telecommunications Law was enacted.                                             

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

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

The Mexican Antitrust Commission has found that Telmex has substantial
power in the following five markets: interconnection, local services, domestic  
long distance services, international long distance services and long distance  
resale, as defined under Mexico's antitrust statute. Based on this finding,     
COFETEL issued a resolution in September 2000 regulating Telmex as a dominant   
carrier and imposing special obligations regarding, among other things, quality 
of services, tariffs and information disclosure. However, Telmex has obtained an
injunction against any potential action by COFETEL for the purpose of           
implementing such resolution. As a result of this injunction, Telmex is not     
currently subject to the specific obligations covered by COFETEL's resolution.  

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BUSINESS

Our Company                                                                     

     We believe we are a leading telecommunications services provider in Mexico,
offering a wide array of services, including local and long distance telephony, 
data and internet to business and residential customers. We believe that we are 
one of the largest and fastest growing integrated telecommunications companies  
in Mexico, with 490,231 lines in service as of March 31, 2005. For the three    
months ended March 31, 2005, we generated revenues and operating income of Ps.  
1,118.7 million (US$99.0 million) and Ps. 105.3 million (US$9.3 million),       
respectively.                                                                   

 We hold concessions to offer local and long distance telecommunications
services nationwide. We provide services using a hybrid wireline and fixed      
wireless local access network designed to optimize capital expenditures through 
the deployment of network access equipment based on specific customer           
requirements. Our current network last-mile access options include fixed        
wireless access, point-to-point and point-to-multipoint wireless technologies,  
as well as copper and metropolitan fiber rings. Since inception we have invested
in the aggregate over Ps. 9,740.3 million in our network, which includes 12     
digital switches, 275 FWA sites, 93 point-to-multipoint sites (of which 88 are  
within fixed wireless access sites) and 467 kilometers of metropolitan fiber    
optic rings.                                                                    

     Our strategy is to continue to penetrate our existing markets by offering a
comprehensive portfolio of high quality, facilities-based voice, data, internet 
and value-added communications services and to cost-effectively enter into      
selective new markets with high growth and revenue opportunity. Our approach is 
to bundle multiple voice, data and internet services into integrated            
telecommunications solutions for businesses and high-usage residential          
customers. For the three months ended March 31, 2005, approximately 69% of our  
revenues were generated from business lines and 31% of our revenues were        
generated from residential lines.                                               

We were founded in 1994. In June 1996, we were awarded by the Mexican 
government a concession to install and operate a public telecommunications      
network for the offering of local and long distance telephony services in       
Mexico. In 1998 and 1999, we won several spectrum auctions, including for 60 MHz
at 10.5 GHz for point-to-multipoint access, for 112 MHz at 15 GHz for           
point-to-point backhaul access, for 100 MHz at 23 GHz for point-to-point last   
mile access and for 50 MHz at 3.4 GHz for fixed wireless access, which together 
allow us to service the entire territory of Mexico. In June 1999, we launched   
commercial operations in the city of Monterrey. Our network currently reaches   
twelve of the largest metropolitan areas in Mexico (Mexico City, Monterrey,     
Guadalajara, Puebla, Toluca, Leon, Queretaro, San Luis Potosi, Saltillo,        
Aguascalientes, Cd. Juarez and Tijuana), which represent more than 31% of the   
total population of Mexico. Due to our concentration of network facilities in   
business centers and upper income residential areas, we estimate that our       
current network coverage represents a significant portion of the total Mexican  
telephony and data telecommunications revenue opportunity.                      

Competitive Strengths                                                           

     Leading Market Position. By being one of the first competitive providers to
approach customers with bundled local, long distance voice and data services, we
believe that we are able to meet pent-up demand for an alternative service      
provider, as well as establishing brand awareness and customer relationships    
prior to market entry by emerging competitors. We have benefited from our       
first-competitor-to-market advantage by capturing what we estimate to be        
approximately 9% market share of our total addressable market in the twelve     
cities where we offer services. In Monterrey and Guadalajara, the first two     
markets where we launched operations in 1999, we estimate that we have achieved 
approximately 14% market share of our coverage market in both of these cities.  

     Comprehensive Voice and Data Service Portfolio. We provide our customers an
integrated bundle of services that includes local and long distance voice       
services, as well as internet, data and other value-added services. We believe  
our comprehensive service portfolio enables us to build strong, long-term       
relationships with customers, thereby reducing churn and increasing our return  
on our investment in network infrastructure. Furthermore, our digital access,   
transport and switching network enable us to capture the current revenue        
opportunity in voice services, while also enabling us to provide data services  
as demand for those services grows.                                             

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  Flexible, Technologically Advanced, Reliable Digital Network. Our hybrid
fixed wireless and wireline local access network structure allows us to enter   
new markets quickly and cost-effectively. As a result, our return on our        
investment in network infrastructure has increased. By utilizing the fixed      
wireless access technology model, we are able to quickly cover a substantial    
geographic area with minimal initial capital expenditures. We do not incur      
incremental capital expenditures for last-mile connectivity until the customer  
subscribes to our service. As of March 31, 2005, our network consisted of 12    
digital switches, 275 fixed wireless access sites, 93 point-to-multipoint sites 
(of which 88 are within fixed wireless access sites) and 467 kilometers of      
metropolitan fiber optic rings in order to service our 490,231 access lines.    

Compelling Financial Profile. We have a diversified revenue base, a   
favorable average revenue per user and a strong overall financial profile.      

    o    Diversified revenue base. Our wide array of service offerings and our
    490,231 lines in service and 307,200 customers provide us with a
diverse revenue base.                                       

o    Average Revenue Per User. Our business model targets business and
        high-usage residential customers. We believe this model allows us to
      achieve a favorable average revenue per user. For the three months
          ended March 31, 2005, we had an average revenue per user of Ps. 627.9.

   o    Positive free cash flow and strong capitalization. Our positive free
       cash flow, strong capitalization and low leverage put us in a solid
    financial position to continue to execute our business strategy.

     o    Efficient network build-out strategy. Fixed wireless access technology
      gives us the ability to rapidly initiate large geographic coverage
        areas while minimizing our upfront capital expenditures and reducing
our payback period.                                         

Experienced Management Team and Strong Equity Partners. Our senior    
management team has extensive entrepreneurial, financial, marketing and         
telecommunications expertise. The diverse experience of our senior management   
team has contributed significantly to our initial success and rapid growth. In  
addition, we benefit from working with strong local partners and experienced    
multinational investors such as The Blackstone Group, AIG-GE Capital Latin      
American Infrastructure Fund and affiliates of Metropolitan Life Insurance      
Company and The Soros Group. Our local investors include Tomas Milmo Santos,    
Tomas Milmo Zambrano, Alberto Santos de Hoyos and Lorenzo Zambrano Trevino.     
These businessmen have extensive financial, operating and senior management     
experience in large Mexican corporations.                                       

Strategy                                                                        

The key elements of our business strategy are:                        

   Target Service Sectors with High Profitability Potential. We have divided
our target market into the mass market and business market. In the mass market  
we focus on high-usage residential, micro and small business customers. Within  
the business market we focus on medium and large businesses. We have developed  
differentiated, targeted telecommunications services plans designed to capture  
business and retain high-usage residential customers in each market segment. We 
believe that by focusing on the business and high-usage residential customers   
within a coverage area we are able to increase the return per dollar invested in
our network infrastructure. For the three month period ended March 31, 2005,    
approximately 69% of our revenues were generated from business lines and 31%    
from residential lines.                                                         

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

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Exploit First-Competitor-to-Market Advantage. As Telmex's primary     
competitor in local fixed telephony services and the first facilities-based     
telecommunications service provider to enter new markets and offer integrated   
voice, data and internet services, we will continue to focus on selectively     
opening new markets where we believe we can capitalize on the market's desire to
have an alternative carrier and on serving demand unmet by our competitors.     

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

   Continue to Expand Technologically Advanced Network Infrastructure. Since
1999, we have successfully launched operations in twelve cities. We continue to 
evaluate opportunities in other regions in order to enhance our coverage area.  
We believe that selectively expanding our network and coverage area will enhance
our ability to acquire large business customers with multi-city operations,     
which we expect to result in higher revenues and margin improvements while      
minimizing capital expenditures.                                                

Our Services                                                                    

  We offer local and long distance telephony services, as well as data and
internet services to business and residential customers. We also provide        
value-added services such as call waiting, call forwarding, three-way-calling,  
call barring and multi-line hunting (centrex). We also provide internet services
in dial-up, dedicated and on-demand fashion. We have integrated access          
technologies that allow the internet access required by different types of      
customers, such as dial-up connection, Internet fixed wireless access (an       
always-on data channel that allows for the continuous use of the voice line     
while navigating on the internet), and dedicated private lines of all speeds. We
have also launched dedicated private lines for both local and domestic long     
distance telephony markets. For the latter, we use both our own and leased      
infrastructure.                                                                 

  The following chart summarizes each component of our revenue sources for
the twelve month period ended March 31, 2005:                                   

                                                        [Enlarge/Download Table]

Revenue Source                           % Revenue                          Description                       
--------------                           ---------                          -----------                       

                                                                                                              
Local services......................           70%  We generate revenue by enabling our customers to originate
                                                    and receive an unlimited number of calls within a defined 
                                                    local service area.  Customers are charged an initial fee 
                                                    for activating the service, a flat monthly fee for basic  
                                                    service, a per call fee and a per minute usage fee,       
                                                    depending on the type of call.                            

Long distance services..............           9%   We generate revenues by providing long distance services  
                                                    for our customers' completed calls.                       

Other services......................           21%  We generate revenues by providing other services to our   
                                                    customers such as internet, data, interconnection and     
                                                    dedicated private line service, as well as value-added    
                                                    services such as caller ID, call waiting, call forwarding 
                                                    and voicemail.                                            

---------------------------------------       100%                                                            
Total...............................                                                                          


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As of March 31, 2005 we offered the following products and services:  

                                                        [Enlarge/Download Table]


                      Voice                                          Data                    
------------------------------------------------  -------------------------------------------
                                                                                             
o        Business and Residential Line            o        Local and Domestic Private Lines  
o        Long Distance                            o        High Speed Private Lines          
o        Digital Trunks                           o        Co-location                       
o        Voicemail                                o        Virtual Private Network -- MPLS   
o        Centrex Line                                                                        
o        Customer Premise Equipment               Internet                                   
o        Telephone Sets, Key Systems and PBX      o        Dial Up Internet                  
o        Call Waiting, Call Forwarding, Caller    o        Dedicated Internet                
         ID, Conference Call                                                                 
                                                  o        Web Hosting                       
o        Directory Assistance                     o        Internet on Demand                
o        Operator Services                        o        Internet FWA                      
o        Automatic Dialing                        o        Co-location                       
o        Unique Number                                                                       
o        Prepaid Services                         Bundles                                    
o        Collect Calls                            o        Axtel in a Box                    
o        Virtual Line                             o        Axtel.NeXt                        
o        Toll Free Services                                                                  


Our Markets                                                                     

  We launched commercial operations in June 1999 in the city of Monterrey.
Our network currently reaches twelve of the largest metropolitan areas in Mexico
(Mexico City, Monterrey, Guadalajara, Puebla, Toluca, Leon, Queretaro, San Luis 
Potosi, Saltillo, Aguascalientes, Cd. Juarez and Tijuana), which represent more 
than 31% of the total population of Mexico. As of March 31, 2005, we had 490,231
lines. Due to our concentration of network facilities in business centers and   
upper income residential areas, we estimate that the cities in which we operate 
represent the majority of the total Mexican telecommunications revenue          
opportunity.                                                                    

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

    o    Size of telecommunications opportunity. According to COFETEL, for the
       year ended December 31, 2004, nearly 63% of the number of net lines
         added by the 32 states in Mexico were concentrated in only 10 states:
        Mexico City, Jalisco, Nuevo Leon, Veracruz, Baja California, Puebla,
       Guanajuato, Chihuahua and Tamaulipas. Eight of the twelve cities we
  currently serve are in these states and five of them are state
capitals.                                                   

o    Regional economy. According to INEGI (Instituto Nacional de      
         Estadistica Geografia e Informatica), in 2002, 68% of the total gross
          domestic product in Mexico was generated in the twelve states in which
we have a presence.                                         

   o    Operational synergies. To become more efficient in launching cities,
          we decided to open clusters of cities. The cities of Toluca and Puebla
     are close enough to Mexico City, Leon is close to Guadalajara and
Saltillo is close to Monterey to allow for quick systems and
operations integration and network buildout.                

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

   Our "first-competitor-to-market" advantage has enabled us to capture what
we estimate to be approximately 9% market share of our total addressable market 
in the twelve cities in which we offer services. In Monter-                     

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rey and Guadalajara, the first two markets where we launched services, we       
estimate that we have achieved market shares of approximately 14% in both       
cities. In particular, in the business segment, we estimate that in Monterrey   
and Guadalajara we have achieved a 16.2% and 18.6% market share, respectively.  
The table below provides our access lines and estimated market share as of March
31, 2005 for each of the cities where we offer services.                        

                                                        [Enlarge/Download Table]


                                           Market Share Within Coverage Market                                   
                                                 As of March 31, 2005                                            

                                 Date            Residential                Business                 Total       
          City                 Launched      Lines         Share       Lines       Share       Lines       Share 
          ----                 --------      -----         -----       -----       -----       -----       ----- 
                                                                                                                 
Monterrey.............          June 1999     87,605       12.9%       49,700         16.2%   137,305       14.0%
Guadalajara...........      December 1999     48,615       11.7%       34,239         18.6%    82,854       13.8%
Mexico City...........         March 2000    100,215       8.0%        66,573          8.8%   166,788        8.3%
Puebla................       January 2001     17,957       6.7%        10,852         10.2%    28,809        7.7%
Toluca................       January 2001      8,186       6.0%         3,941         10.0%    12,127        6.9%
Leon..................       January 2001     10,099       6.9%         9,279         15.7%    19,378        9.4%
Queretaro.............          July 2004      5,028       4.2%         3,550          7.0%     8,578        5.0%
San Luis Potosi.......          July 2004      5,428       4.1%         3,767          7.2%     9,195        5.0%
Aguascalientes........       October 2004      3,560       3.1%         2,648          6.9%     6,208        4.1%
Saltillo..............       October 2004      2,976       3.0%         2,130          5.7%     5,106        3.8%
Cd. Juarez............      November 2004      3,898       3.6%         1,742          3.0%     5,640        3.4%
Tijuana...............      November 2004      5,377       4.0%         2,866          4.1%     8,243        4.0%
                                           ---------     -------     --------      ---------  -------      ------
     Total 12 Cities                         298,944       8.3%       191,287         10.9%   490,231        9.1%
                                           =========     =======     ========      =========  =======      ======
____________________________                                                                                     


Source:  Market share percentages are Company estimates.                        

Our largest single customer is Nextel de Mexico, which provides       
telecommunications services to its customers through access to our network. We  
first entered into an agreement with Nextel de Mexico for the provision of our  
services in April 2001, and such agreement has been extended four times.        
Pursuant to the most recent agreement with Nextel de Mexico, we are guaranteed  
certain minimum levels of traffic through December 2005. This arrangement with  
Nextel de Mexico accounted for approximately 17% and 16% of our net sales for   
the year ended December 31, 2004 and for the three month period ended March 31, 
2005, respectively.                                                             

Marketing and Sales                                                             

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

   We complement this marketing campaign with focused sales efforts directed
to our target market using a variety of sales channels. Our primary sales       
methods are:                                                                    

o    Direct Sales. Account executives seek out a particular business  
customer and establish an appointment.                      

o    Door to Door. Salespeople walk through a neighborhood soliciting 
potential customers.                                        

    o    Telemarketing. Salespeople call potential customers from an extensive
          database developed by us. This same team receives calls from potential
         customers that have been addressed by our advertising and promotional
campaigns.                                                  

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o    Sales Booths. Salespeople stand at strategically determined areas
  where potential customers carry out their shopping activities.

 o    MAPs (Modulos de Atencion y Pago). Axtel-branded sales and service
      offices located at strategic locations within our targeted cities.

o    Indirect Channels (Sales Distributors). Selected companies are   
       certified to carry out sales activities in the name of Axtel. These
    companies target specific niches over which they have influence.

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

Customer attrition, or churn, occurs primarily from our disconnecting 
customers for non-payment of bills. Churn also occurs when a customer chooses to
switch to a competing service or to terminate service altogether. Churn results 
in the loss of future revenue from customers whose service is disconnected and  
limits our ability to recoup costs incurred in acquiring customers, such as     
switching costs, commissions and costs incurred in connection with independent  
third-party verification. Our average monthly churn rate has declined to 1.3%   
during the three month period ended March 31, 2005 from 1.4% and 2.9% for 2004  
and 2003, respectively, as a result of management initiatives to improve        
customer retention as well as the billing and collection process.               

Pricing                                                                         

In the residential market, in order to attract new subscribers, we    
frequently offer flexible and attractive initial pricing. Once a customer has   
chosen our services, we focus on customer satisfaction and offer the customer   
benefits, rather than lower pricing, in order to maximize our retention rate.   
For instance, we install and activate second lines for free and allow customers 
free service trials for value-added services. In the business market, we attract
users by providing volume discounts on local calls and provide additional       
services and discounts to customers who sign long-term contracts. To date, this 
strategy has allowed us to capture significant market share without eroding the 
value of the market through excessive price competition.                        

     We generally seek to maintain our prices at market levels. We offer pricing
plans that are simple in order to assure customers of the integrity of the      
billing process. Our pricing structure rewards consumption by increasing        
discounts in relation to the amount billed. Our ability to introduce new        
products such as Axtel.NeXt, a bundled product that provides voice services and 
always-on internet access, allows us to position ourselves as a value-added     
provider rather than as a price-cutter.                                         

Our Network                                                                     

We provide services using a hybrid local access network, designed to  
optimize capital expenditures through the deployment of network access equipment
based on specific customer requirements. Our current network access options     
include fixed wireless access, point-to-point and point-to-multipoint, high     
quality copper and metropolitan fiber. We switch our traffic using DMS equipment
that interconnects with Telmex's equipment and that of other local and long     
distance carriers in each city, as shown below.                                 

                                                        [Enlarge/Download Table]


                               Fixed Wireless     Point-To-                           
                                Access Sites   Multipoint Sites  Switches  Fiber (Kms)
                                ------------   ----------------  --------  -----------
                                                                                      
Mexico.......................       110               37              3          155  
Monterrey....................        55               17              2          109  
Guadalajara..................        49               12              2           89  
Puebla.......................        18                3              1           63  
Toluca.......................         8                3              1            8  
Leon.........................        10                4              1           14  

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                               Fixed Wireless     Point-To-                           
                                Access Sites   Multipoint Sites  Switches  Fiber (Kms)
                                ------------   ----------------  --------  -----------

Queretaro(1).................         5                2              0            1  
San Luis Potosi(1)...........         4                2              0            3  
Saltillo(1) .................         3                3              0           15  
Aguascalientes(1) ...........         3                2              0            3  
Cd. Juarez...................         4                3              1            2  
Tijuana......................         6                5              1            3  
     Total...................       275               93             12          467  
_______________________                                                               


(1)  Uses Remote Switch.                                                        

(2)  88 of the Point-to-Multipoint Sites are within the Fixed Wireless Access   
Sites.                                                                

     In order to deliver superior network reliability, we have acquired advanced
network technology and initially contracted network construction on a turn-key  
basis from proven industry participants. Since March 2002 we have built our     
network through the use of our own personnel and through certain Mexican        
third-party contractors. Our wireless network uses customer access equipment    
(manufactured by Airspan), microwave radios, DMS switching equipment and other  
equipment supplied by various other vendors, including Nortel Networks and      
Siemens. Our internet platform uses Cisco's routing platform with Compaq servers
and Microsoft software applications. Our fiber networks use Lucent Technology   
Allwave fiber and Nortel Networks DNX SDH equipment. The combination of these   
network components enables us to deliver network reliability, which we believe  
is superior to the incumbent's legacy network.                                  

     Through our current use of fixed wireless access technology, we are able to
provide our customers quality voice service and 64 Kbps data speeds. We consider
fixed wireless access technology to be ideal for our residential and micro and  
small business customers. Fixed wireless access technology provides our         
customers with always-on data connections with speeds up to 96 Kbps by using an 
Internet Protocol interface and dynamic timeslot assignments, which improves the
data rates experienced by customers and also increases our network efficiency.  

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

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

o    rapidly meet demand;                                             

o    penetrate specific target markets; and                           

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

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

Build-out strategy                                                    

   Our network is built on a modular basis. Once a region of opportunity has
been identified and the decision to expand has been made, we build our network  
in tandem with our sales efforts within the region. This approach provides      
greater flexibility and minimizes the time lag between the incurrence of capital
expenditures and the generation of service revenues. This model differs         
significantly from a traditional wireline network covering the same             

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geographic area in which the vast majority of capital expenditures are incurred 
prior to obtaining customer subscriptions.                                      

Last-mile connectivity                                                

    The last-mile connectivity portion of our network is comprised of a mix of
wireless technologies as well as fiber optics for customers within our          
metropolitan fiber optics rings. Our access technology is determined by         
cost-effectiveness analysis, customer applications and availability of service. 
We use fixed wireless access to serve customers requiring between 1 and 9 lines 
(plain old telephony service or "POTS") in a single point of service.           
Point-to-multipoint is used for customers that require between 10 and 30 lines  
(POTS) and/or require low-speed (below 2,048 Kbps) dedicated private line       
accesses. Our point-to-point and fiber optics accesses are used for customers   
requiring digital trunks or dedicated private line accesses of more than 2Mbps. 
Hybrid solutions are being used in order to reach more customers by expanding   
service using copper, digital loop concentrator, and multi-tenant solutions.    

We have contracts with Telefonica Data de Mexico, a subsidiary of     
Telefonica de Espana, pursuant to which we acquired the right to use capacity in
Telefonica's long haul fiber infrastructure, which is located between the       
northern border of Mexico and Mexico City. Pursuant to such contracts Telefonica
Data de Mexico has the right to use a pair of dark fibers in a portion of our   
metropolitan fiber rings.                                                       

Network backbone                                                      

   As of March 31, 2005, our network backbone consisted of 467 kilometers of
metropolitan fiber optic rings in the cities where we have presence. Our network
is comprised of several technologies, including fixed wireless access,          
point-to-point, point-to-multipoint, copper and fiber. Six of the twelve cities 
we currently reach are served by a Nortel DMS-100 digital switch which collect  
all calls originated and terminated in our network.                             

Switching                                                             

     We use Nortel's DMS-100 digital switches to route traffic within each city.
These switches are capable of handling up to approximately 100,000 lines on a   
modular basis providing analog lines, E1 digital lines, digital high speed data 
services, centrex services and operator assisted service. In addition, they can 
provide private clear-channel digital lines, data transmission and value-added  
services such as four digit dialing, conference, call back, caller ID, call     
waiting, hot line and hunt group among others.                                  

Operational support systems                                           

Since launching operations, we have implemented and integrated an     
information technology architecture that is based upon SAP software for         
enterprise resource planning, CSG Systems International software for billing and
an internally created customer relationship management system. These systems    
enable us to perform on-line sales and service provisioning. We have been able  
to manage customer requests, generate accurate bills and produce timely         
financial statements. We have also integrated Siebel's customer relationship    
management software into the core of our information technology architecture.   
These systems allow us to respond to customer requests with speed, quality and  
accuracy.                                                                       

    We have implemented an advanced network management system, which allows us
to detect, diagnose and solve network problems in real time. This system is     
being expanded to integrate all network components in order to improve fault    
management and response times.                                                  

 In July 2003, we received authorization from the COFETEL to install and
operate an international gateway, which allows us to establish interconnection  
agreements with other countries for incoming and outgoing traffic. Tariffs are  
applied to this international traffic in accordance with international          
settlement rates. See "--Interconnection--International settlement."            

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Our Concessions                                                                 

  We believe we have purchased sufficient spectrum to fulfill the capacity
requirements of our business plan including the offering of broadband services  
to our customers. On June 17, 1996, we were granted concessions to offer local  
and long distance telephony services nationwide. We were also awarded, for no   
fee, a public telecommunications network concession, which has a term of 30     
years and, subject to the satisfaction of certain conditions, is renewable for  
an additional 30-year period.                                                   

    In April, June and October of 1998, we were awarded several concessions to
use and exploit the following frequency bands:                                  

o    60 MHz at 10.5 GHz, nationwide divided into 9 regions, for       
point-to-multipoint access;                                 

o    112 MHz at 15 GHz, nationwide, for point-to-point access and     
transport;                                                  

     o    100 MHz at 23 GHz, nationwide for point-to-point access and transport;
and                                                         

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

 We paid a license fee of Ps. 569.7 million (in nominal pesos) for these
spectrum licenses. Each of the spectrum licenses has a term of 20 years and may 
be renewed at our option for additional 20-year periods as long as we are in    
compliance with all of our obligations thereunder and as long as an agreement is
reached on the new conditions set forth by the SCT.                             

The concession expressly permits us to provide the following services:

o    basic local telephony;                                           

o    nationwide long distance telephony;                              

     o    the sale or lease of network capacity for the generation, transmission
      or reception of signs, signals, writings, images, voice, sounds or
other information of any nature;                            

o    the purchase and lease of network capacity from other carriers,  
including the lease of digital circuits;                    

o    value-added services;                                            

o    operator services;                                               

    o    data, video, audio and video conference services, except for cable or
  other restricted television, continuous music or digital audio
services; and                                               

o    credit or debit telephone cards.                                 

We have the required regulatory authority to provide such services to 
Mexico's entire population. Some of our concessions require us to offer services
in certain geographic areas where we are not currently offering services. We    
have obtained waivers from COFETEL from the obligation to comply with such      
requirements. We expect to maintain all of our concessions for each such        
geographic area where we do not presently offer our services. However, in the   
event that we were to lose our concessions for these areas where we do not      
presently offer our services, our concessions for the geographic areas where we 
do presently offer our services would not be adversely affected.                

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Interconnection                                                                 

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

All terms of interconnection (such as point of interconnection and    
interconnection fees) are negotiated between telecommunications concessionaires 
under COFETEL's supervision. Should telecommunications concessionaires be unable
to agree on the terms of interconnection, including rates charged, after a      
certain period of negotiation, either concessionaire may request that COFETEL   
resolve any interconnection term at issue. Telecommunications concessionaires   
are prohibited from adopting discriminatory practices in the application of     
rates or any other terms of interconnection.                                    

In accordance with Mexican Telecommunications Regulations, we have    
established interconnection agreements as follows:                              

Local interconnection                                                 

    We entered into an interconnection agreement with Telmex in March of 1999.
This agreement included provisions concerning local switched interconnection,   
local non-switched interconnection, signaling, co-location and local transiting,
and provided for an interconnection rate of US$0.00975 per minute. This         
interconnection agreement expires on December 31, 2005. Its terms and conditions
(including the interconnection rate) are automatically extended after the       
expiration date until the parties mutually agree to extend the agreement or     
execute a new interconnection agreement subject to the approval of the competent
authorities.                                                                    

In addition to Axtel-Telmex local interconnection agreements, we have 
established interconnection agreements with most of the local fixed carriers,   
such as Telefonos del Noroeste, S.A. de C.V. ("Telnor"), Alestra, S. de R.L. de 
C.V. ("Alestra"), Operadora Unefon, S.A. de C.V. ("Unefon") and Maxcom          
Telecomunicaciones, S.A de C.V. ("Maxcom"). The terms and conditions for each   
agreement are similar to those established with Telmex. Although we have no     
local interconnection agreement with Avantel Servicios Locales, S.A. de C.V.    
("Avantel") or with Megacable Comunicaciones de Mexico, S.A. de C.V. due to     
particular legal issues between those operators and COFETEL, traffic is         
exchanged and interconnected between us and those local carriers through transit
agreements with Telmex.                                                         

Pursuant to those local interconnection contracts, we have established
"bill and keep" agreements. Under the "bill and keep" agreements, if the        
imbalance between calls originated by a local carrier (Maxcom, Alestra, Telmex, 
Unefon, Telnor, etc.) and terminated by us and calls originated by us and       
terminated by such local carrier during a given month does not exceed a         
predetermined percentage, then no interconnection fees are payable by the net   
user of interconnection services. If the imbalances are in excess of the        
predetermined percentage, which is 18% to date, then the net user must pay all  
interconnection fees related to calls originated by it in that period. The bill 
and keep agreements contain exceptions regarding internet traffic, long duration
calls, traffic generated by call centers, trunking operators and traffic        
generated by new customers (for a six-month period) so that these exceptions    
will not affect the calculation of the permitted imbalance percentage currently 
at 18%. The prices and tariffs charged under these local interconnection        
agreements are denominated in US dollars and then converted into Mexican pesos  
based on monthly exchange rates published by Banco de Mexico.                   

Mobile interconnection                                                

    We have reciprocal interconnection agreements with all-cellular providers,
including Telcel, Unefon, Iusacell and Telefonica Movil (including Cedetel,     
Norcel, Bajacel, Movitel and Pegaso PCS) within each of the local coverage areas
in which we operate. As of December 31, 2004, the interconnection fee with the  
cellular carriers was Ps.1.90 per minute for wireline to mobile interconnection 
under the "calling party pays" mode. For mobile to wireline calls, we receive   
US$0.00975 per minute from the mobile carrier.                                  

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Long distance interconnection                                         

     In our local operation, we have long distance interconnection agreements in
place with major long distance carriers such as LADA (Telmex and Telnor Long    
Distance operation), Iusacell, Alestra, Marcatel and Protel. Other long distance
carriers transit traffic through Telmex. As of March 31, 2005, the              
interconnection fee we received from long distance carriers was US$0.01003 per  
minute.                                                                         

   In our long distance operation, we have established agreements with local
networks, including Maxcom, Telmex and Telnor. In addition to the               
interconnection rate described above, we may pay extra charges for our local    
interconnection with Telmex and Telnor.                                         

International settlement                                              

    In 1996, COFETEL implemented the "Rules of Proportional Return System" for
allocating international long distance calls for each Mexican carrier based upon
the carrier's percentage of outbound international calls.                       

In August 2004, COFETEL eliminated the "Rules of Proportional Return  
System." As such, Mexican carriers entitled to operate an international gateway 
do not have any restriction on the volume of international traffic that they can
terminate in Mexico, as long as they comply with the Mexican telecommunications 
regulations.                                                                    

 In addition, each carrier is free to negotiate the applicable rates for
international calls terminating in Mexico. Prior to its application, rates must 
be registered in COFETEL.                                                       

Customer Service                                                                

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

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

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

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

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

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

Billing and Collection                                                          

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

 Our billing team receives and validates the call detail record from the
network and bills customers on a monthly basis, typically within 14 days from   
the end of the billing period.                                                  

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

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

o    convenience stores;                                              

o    banks;                                                           

o    Axtel MAPs (Axtel's Sales and Payment Points);                   

o    website e-billing;                                               

o    supermarkets; and                                                

   o    automatic charges to credit cards, checking and debit accounts (upon
customer approval).                                         

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

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

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

Competition                                                                     

     We compete primarily in the local telephony services market on the basis of
features, customer service and value. Our direct competitors are wireline and   
fixed wireless local telephony operators.                                       

     We do not compete directly in the long distance market. Although we provide
long distance service, we view such service as a part of our suite of products  
for our telephony customers. As a result, we currently do not offer our long    
distance service separately from our local telephony service.                   

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

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

    We interconnect with and use Telmex's network to service our own customers
and we are dependent upon Telmex to meet certain telecommunications needs of our
customers and to maintain our service standards. In addi-                       

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

   We believe we are competing effectively against Telmex by providing value
to customers through high quality customer service and new innovative commercial
offers.                                                                         

Avantel. Avantel commenced operations in 1996 by providing only long  
distance telephony services to residential and business customers. In 2000,     
Avantel started to offer local service to some of its corporate customers. We   
believe we are competing effectively against Avantel by developing and offering 
to corporate customers customized telecommunications service packages, which    
include attractive pricing, additional product value and applications and access
technologies to meet customer needs.                                            

     Alestra. Alestra commenced operations in 1996, providing only long distance
telephony services to residential and business customers. Like Avantel, in 2000,
Alestra also started to offer local service to some of its corporate customers. 
We believe we are competing effectively against Alestra by developing and       
offering to corporate customers customized telecommunications service packages, 
which include attractive pricing, additional product value and applications and 
access technologies to meet customer needs.                                     

     Maxcom. Maxcom commenced operations in 1999 targeting initially residential
and business customers in the cities of Puebla, Mexico City and more recently in
Queretaro. It has deployed a wireline network in these cities and after five    
years of operations, its customer base has grown to approximately 177,000 lines.
We currently compete in Puebla, Queretaro and Mexico City and we believe we     
compete effectively on the basis of outstanding customer service and price.     

Properties                                                                      

     All of our properties are located in Mexico. Our corporate headquarters are
located in Monterrey, Mexico. Our Monterrey office consists of 39,779 square    
meters. The lease on this property expires in 2015. We also own eight buildings 
throughout the twelve cities where we operate. These are the facilities in which
we have installed our switches and administrative offices. We have over 250     
towers on leased land throughout our service areas.                             

Employees                                                                       

   For the years ended December 31, 2002, 2003 and 2004, we had 2,125, 2,119
and 2,566 employees, respec-tively. As of March 31, 2005, we have 2,596         
employees. All of our employees, except our executive officers and certain other
managers, are members of one of two labor unions. We believe we have good       
relationships with our employees and their respective unions.                   

Legal Proceedings                                                               

We are currently party to the following material legal proceedings:   

Metronet Dispute                                                      

In October 2002, Metronet, S.A. de C.V. ("Metronet") filed an action  
against us in the Fourth Civil Court in Monterrey (Mexico). Metronet claims that
we wrongfully terminated a letter of intent and is seeking payment for services 
and direct damages of approximately US$3.8 million, plus other expenses and     
attorneys' fees. The trial court ruled against us. Then, on appeal, the State   
Superior Court of Appeals ruled in our favor, releasing us of any liability and 
responsibility. On November 12, 2004, Metronet requested constitutional review  
challenging such State Superior Court's decision. On May 27, 2005, the Mexican  
Federal Court resolved the constitutional review requested by Metronet by       
ordering the State Superior Court of Appeals to review the case and to issue a  
resolution.                                                                     

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Spectrasite Dispute                                                   

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

Shareholdings Disputes                                                

 In connection with an increase in our capital, approved on February 28,
2003, Telinor was entitled to subscribe for a certain number of voting shares.  
The subscription agreement tendered to us by Telinor recited that Telinor had   
assigned to Blackstone Capital Partners III Merchant Banking Fund L.P.,         
Blackstone Offshore Capital Partners III L.P. and Blackstone Family Investment  
Partnership III L.P. (collectively, "Blackstone") a portion of its subscription 
rights and that the voting shares representing that portion were to be          
subscribed for by Telinor, as a commercial agent for Blackstone, and issued in  
Telinor's name, for the account of Blackstone. As a result of the subscription, 
Series A voting shares were issued in Telinor's name. Subsequently, the portion 
of the voting shares issued in Telinor's name, which Telinor had advised us it  
was subscribing for the account of Blackstone, was exchanged for Series C voting
shares. The record ownership of these Series C voting shares was placed in      
Blackstone's name. We and Telinor believe these actions were proper because     
Blackstone, as a non-Mexican investor, cannot hold our Series A voting shares.  
LAIF X sprl , a holder of Series C voting shares, asserts that it would own a   
majority of the Series C voting shares absent Blackstone's ownership of Series C
voting shares, and disputes the validity of what it characterizes as the        
issuance of Series C voting shares to Blackstone, based on what LAIF X sprl     
asserts was an impermissible conversion of Series A voting shares into Series C 
voting shares. LAIF X sprl also asserts that Blackstone's holding of Series C   
voting shares is invalid and that our current board of directors was not        
properly constituted because the directors representing the Series C            
shareholders, elected with Blackstone's vote, were not properly elected. The    
subscription agreement submitted to us by LAIF X sprl states that Worldtel      
Mexico Telecom Limited ("WorldTel") assigned its subscription rights to         
participate in the capital call to its direct shareholders, among which LAIF IV 
Ltd. was an assignee. It also states that LAIF IV Ltd. thereafter re-assigned   
its rights to subscribe its pro-rata share of Axtel shares to LAIF X sprl, which
in turn subscribed and paid for some of our shares arising out of the capital   
call. Prior to such subscription and payment for Axtel shares by LAIF X sprl,   
Telinor had subscribed and paid in full the entire capital call, subject to     
WorldTel's exercise of pre-emptive rights. As a consequence of LAIF X sprl's    
subscription, we refunded to Telinor the amount paid by LAIF X sprl.            

These disputes have evolved as follows:                               

LAIF X Mexican Litigation:                                            

     On or about October 24, 2003, LAIF X sprl filed a petition before the civil
trial court located in Monterrey (Mexico), seeking preliminary injunctive relief
consisting of an order to suspend the effectiveness of the resolutions adopted  
during the meeting of our shareholders held on October 9, 2003, with respect to 
the appointment of members of our board of directors by the holders of Series C 
shares, pending the resolution of the dispute through the dispute resolution    
process set forth in our bylaws. The civil trial court denied the admission of  
such petition and ordered its dismissal on November 14, 2003; the State Superior
Court of Appeals (Sala Novena Civil) confirmed such dismissal on March 18, 2004.
LAIF X sprl requested constitutional review on April 20, 2004, challenging the  
State Superior Court's decision confirming the dismissal by the civil trial     
court. The Federal District Court denied such relief and confirmed the          
dismissal. LAIF X sprl requested review by the Federal Circuit Court of the     
decision rendered by the Federal District Court. On April 14, 2005, the Federal 
Circuit Court confirmed the resolution denying the relief sought by LAIF X sprl.
This decision is final and allows for no further legal recourse.                

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LAIF X Arbitral Proceeding:                                           

     On December 23, 2003, LAIF X sprl filed a Demand for Arbitration before the
International Centre for Dispute Resolution of the American Arbitration         
Association against us, Telinor and Blackstone (collectively "respondents"). In 
this arbitral proceeding, LAIF X sprl seeks among other relief, (a) a           
declaration that the allocation of the Series C shares to Blackstone was not    
made in compliance with our bylaws, (b) an order to nullify the Series C shares 
allocated to Blackstone, to cancel the corresponding stock certificates and to  
re-issue instead the same number of Series A shares to Telinor, (c) an order to 
remove the Series C directors appointed during the Ordinary Shareholders Meeting
held on October 9, 2003 and to hold a Special Meeting of the Series C           
shareholders to elect new Series C directors and (d) damages for an unspecified 
amount. LAIF X amended its complaint in March 2004, requesting a declaration    
that LAIF X sprl is a legitimate shareholder of the Company. Each of the        
respondents filed their answers to LAIF X sprl's Demand for Arbitration and     
requested, among other things, (a) the dismissal of the arbitration for lack of 
an arbitrable dispute, (b) alternatively, a stay of the arbitration until       
resolution of the pending litigation filed by Telinor in Mexico challenging LAIF
X sprl status as a shareholder of the Company (more fully described below under 
the caption Telinor Mexican Litigation) and (c) a denial of LAIF X sprl's       
request for relief in its entirety and a declaration that our issuance of Series
A shares to Telinor, as agent for Blackstone, and the subsequent exchange of    
those shares for Series C shares, were properly executed in accordance with the 
resolutions of our Extraordinary Shareholders Meeting dated February 28, 2003,  
our bylaws and Mexican law. Respondents have also challenged on jurisdictional  
grounds the Tribunal's right to consider the issue of whether LAIF X is a       
legitimate shareholder of the Company. The hearing on the merits of this matter 
was scheduled for early December 2004. However, at the request of LAIF X, the   
hearing was rescheduled to November 15, 2005 in order to give the parties an    
opportunity to resolve the matters raised in the arbitration in a consensual    
manner.                                                                         

Telinor Mexican Litigation:                                           

     On or about January 26, 2004, Telinor filed a lawsuit in Monterrey (Mexico)
against LAIF IV Ltd., LAIF X sprl and Axtel. In this lawsuit, Telinor is        
challenging the validity of an assignment of pre-emptive subscription rights by 
LAIF IV Ltd. in favor of LAIF X sprl, and as a consequence thereof, the validity
of the subscription of shares made by LAIF X sprl in us. If Telinor prevails,   
the re-assignment of pre-emptive subscription rights by LAIF IV Ltd. in favor of
LAIF X sprl may be judicially declared invalid, LAIF X sprl's status as a       
shareholder of Axtel may be revoked, and the shares subscribed by LAIF X sprl   
may be judicially allocated to Telinor. This action has not yet been served upon
defendants. As noted, LAIF X sprl has raised in the arbitration described above 
the question of its status as a legitimate shareholder of us; therefore, at this
stage, we cannot predict how or where this issue will be finally adjudicated.   

Environmental, Health and Safety Matters                                        

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

Enforceability of Civil Liabilities Against Foreign Persons                     

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

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

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

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

o    enforcement of the judgment would be contrary to public policy,  

   o    the defendant did not receive adequate personal notice in sufficient
time to defend itself,                                      

o    the judgment is not final in the rendering state,                

o    the judgment conflicts with another final judgment, or           

o    there is no reciprocity with the rendering state.                

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

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MANAGEMENT

Our Board of Directors is comprised of ten members. Subject to certain
provisions of the corporate bylaws, the Series A shareholders have the right to 
appoint up to six directors, the Series C shareholders have the right to appoint
up to four directors and the holders of the majority of Series N shares have the
right to appoint one independent Series N director. The directors of each series
of shares may be elected at our ordinary general meeting of shareholders or at  
special meetings of holders of each series of shares. All board members hold    
their positions indefinitely, unless they resign or are removed by the          
shareholders. Under the Mexican Companies Law, we are required to have one      
statutory auditor, who is elected by our shareholders at the ordinary general   
shareholders meeting. Our statutory auditor is Gerardo Gonzalez Rodriguez and   
his alternate is Ricardo Gonzalez Villarreal. As statutory auditor, his primary 
role is to report to our shareholders at the annual ordinary shareholders       
meeting regarding the accuracy and sufficiency of, and reasonable basis for, the
financial information presented to the shareholders by the Board of Directors.  

   The following table presents information concerning our current directors
and executive officers:                                                         

                                                        [Enlarge/Download Table]


Name                                      Age                           Position                      
----                                      ---                           --------                      
                                                                                                      
Tomas Milmo Santos.......................  40  Chairman, Series A Director and Chief Executive Officer
Patricio Jimenez Barrera.................  39  Chief Financial Officer                                
Andres Velazquez Romero..................  39  Regional Executive Director                            
Samuel Lee Belmonte......................  38  Regional Executive Director                            
Ivan Alonso Hernandez....................  40  Chief Technology Officer                               
Rafael Garza Blanc.......................  56  Human Resources Vice President                         
Tomas Milmo Zambrano.....................  69  Series A Director                                      
Alberto Santos de Hoyos..................  63  Series A Director                                      
Lorenzo Zambrano Trevino.................  60  Series A Director                                      
Alberto Garza Santos.....................  40  Series A Director                                      
Hector Medina Aguiar.....................  53  Series A Director                                      
Everett J. Santos(1).....................  64  Series C Director                                      
Bertrand Guillot(1)......................  41  Series C Director                                      
Iain Aitken(1)...........................  50  Series C Director                                      
Lawrence H. Guffey(1)....................  36  Series C Director                                      
Gabriel Montana(1).......................  33  Series C Alternate Director(2)                         
Patricio D'Apice(1)......................  34  Series C Alternate Director(2)                         
Benjamin Jenkins(1)......................  33  Series C Alternate Director(2)                         


_______________________                                                         

(1)  See "Business--Legal Proceedings--Shareholdings Disputes."                 

(2)  The role of Alternate Director is to perform the role of the primary       
Director if the primary Director is not in attendance.                

Set forth below is a brief description of our directors and executive 
officers:                                                                       

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

   Patricio Jimenez Barrera has held the position of Chief Financial Officer
of Axtel since January 1998. Prior to joining Axtel, Mr. Jimenez held a variety 
of finance-related positions, including an investment banker while              

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at Invermexico Casa de Bolsa, a corporate treasurer while at Grupo Cydsa, S.A.  
and an investment banker, international treasurer, financing and correspondent  
banker while at Banca Serfin, S.A. (Mexico's third largest bank). Immediately   
prior to joining Axtel, Mr. Jimenez was responsible for the International       
Division at Banca Serfin, S.A. He is a member of the board of Seguros Banorte   
Generali and Pensiones Banorte Generali. Mr. Jimenez is a CPA and holds a degree
from the Instituto Tecnologico y de Estudios Superiores de Monterrey.           

Andres Velazquez Romero has held the position of Regional Executive   
Director of Axtel since May 2002. Prior to his present position, Mr. Velazquez  
held the Treasurer and Administrative Director positions at Axtel. Mr. Velazquez
has been responsible for treasury, risk management, credit lines, funding       
structure and foreign exchange for a number of banking institutions. Prior to   
joining Axtel, he was the COO in charge of the Banca Serfin International Agency
in New York. Mr. Velazquez holds a degree in Economics from the ITAM in Mexico  
City.                                                                           

     Samuel Lee Belmonte has held the position of Regional Executive Director of
Axtel since May 2002. Prior to his present position, Mr. Lee held the           
Engineering Director position at Axtel. Mr. Lee has 17 years of experience in   
operations and telecommunications areas. He has been responsible for the        
technical support of large national companies. Prior to joining Axtel, he was   
Product Development Director with Iusacell. Mr. Lee holds a B.S. degree in      
Electronic Systems Engineering and an M.B.A.                                    

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

    Rafael Garza Blanc has held the position of Human Resources Vice President
of Axtel since July 1997. Prior to his present position, Mr. Garza Blanc has    
held the Administrative and Human Resources Vice President positions at Axtel.  
Mr. Garza Blanc has 26 years experience in business. His career with Conductores
Monterrey (now Xignux), one of the main copper-wiring producing companies in    
Latin America, evolved from being a plant engineer to becoming the company CEO. 
His background includes consulting activities in various firms. Mr. Garza holds 
a degree in Electrical Engineering and an M.B.A.                                

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

     Alberto Santos de Hoyos has been a Series A Director of Axtel since October
1997. Mr. Santos is a director of Banco de Mexico (regional), Grupo Cydsa, S.A.,
Sigma Alimentos and Seguros Comercial America. He has been Senator and          
Representative of the Mexican Congress; President and Vice-President of the     
Camara de la Industria de Transformacion de Nuevo Leon; Vice-President of the   
Mexican Confederacion de Camaras Industriales (CONCAMIN); and President of the  
Comision de Productos Basicos of CONCAMIN; President of the Camara Nacional de  
la Industria Azucarera y Alcoholera. Mr. Santos has also been Chairman of the   
Board, CEO and director of Gamesa. Mr. Santos holds a degree in Business        
Administration from the Instituto Tecnologico y de Estudios Superiores de       
Monterrey.                                                                      

Lorenzo Zambrano Trevino has been a Series A Director of Axtel since  
October 1997. Mr. Zambrano is the Chairman of the Board and CEO of Cemex, S.A.  
de C.V. He is also the Chairman of the Boards of Directors of the Instituto     
Tecnologico y de Estudios Superiores de Monterrey and the Americas Society. He  
is a member of the Executive Committee of Grupo Financiero Banamex Accival, S.A.
de C.V. and the Salomon Smith Barney International Advisory Board. In addition, 
he is a member of the Board of Directors of Coca Cola Femsa, S.A. de C.V. and   
Televisa, S.A. He is also a member of the Advisory Council to the Stanford      
Graduate School of Business, the                                                

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Museo de Arte Contemporaneo and the US-Mexico Commission for Educational and    
Cultural Exchange. Mr. Zambrano holds a B.S. degree in Mechanical Engineering   
from the Tecnologico de Monterrey and an M.B.A. from Stanford University.       

  Alberto Garza Santos has been a Series A Director of Axtel since October
2003. Mr. Garza is the founder and Chairman of the Board of Promotora del       
Viento, S.A de C.V., a company dedicated to wind power in Mexico. He is also    
founder and Chairman of the Board of Promotora Ambiental, S.A. de C.V. (PASA), a
leading waste management company in Mexico. Mr. Garza has engineered PASA's     
growth through multiple acquisitions, local unit start-ups, municipal           
concessions and the development of world-class landfills, including Mexico's    
first five privately owned landfills. In 2002, he positioned PASA as PEMEX's    
waste services provider of choice, winning various large, multiyear contracts.  
Mr. Garza is also a member of the Board of Maquinaria Diesel (MADISA),          
Desarrollo Inmobiliario Delta and Gemini. He holds a degree in Business         
Administration from the Instituto Tecnologico y de Estudios Superiores de       
Monterrey and a B.A. degree in Political Science from Southern Methodist        
University.                                                                     

  Hector Medina Aguiar has been a Series A Director of Axtel since October
2003. Mr. Medina is the Executive Vice-President of Planning and Finance of     
Cemex, S.A. de C.V. and responsible for worldwide strategic planning and        
finance. Mr. Medina is a graduate of the Instituto Tecnologico y de Estudios    
Superior de Monterrey with a degree in Chemical Engineering. He also holds an   
M.S.C. degree in Management from the University of Bradford Management Center in
England and an M.S. degree from the Escuela de Organizacion Industrial in Spain.

    Everett J. Santos has been a Series C Director of Axtel since October 2003
and had previously held the position of Series C Director from October 1997 to  
December 1998. Mr. Santos is the Chief Executive Officer of the Latin America   
Group of EMP Global and principal advisor to the AIG-GE Capital Latin American  
Infrastructure Fund. Mr. Santos is also the Co-Founder and Chairman of the Latin
American Venture Capital Association (LAVCA). From 1992 to 1995, Mr. Santos was 
director of infrastructure investments of the International Finance Corporation 
(IFC) of the World Bank Group. While at the World Bank, he was also a director  
for Latin America and the Caribbean for the IFC. Prior to joining the World Bank
Group, Mr. Santos was a capital markets consultant with the US Agency for       
International Development in Brazil and with the Venezuelan National Securities 
Commission, and he also has worked with the US Securities and Exchange          
Commission.                                                                     

 Bertrand F. Guillot has been a Series C Director of Axtel since October
2003. Mr. Guillot is the director of the Private Equity Latin America Group of  
AIG Global Investment Corp. He is also co-founder of WestNord, an investment    
bank boutique specializing in debt and equity raising for projects and mergers  
and acquisitions. Previously, he was the Director, Media & Telecom Project      
Finance Head, Senior Vice President and Relationship Management Head of ANZ     
Investment Bank. He was also the vice-president of the Telecom Unit Head within 
the Project Finance Group of Citibank N.A. He has been directly involved in     
private equity and project finance in emerging markets for the past 10 years.   
Mr. Guillot studied in Paris, London and Madrid. He holds a Baccalaureat in     
Economics and an International Finance degree from the European Business School.

   Iain Aitken has been a Series C Director of Axtel since October 2003. Mr.
Aitken is a Director of Bedminster Capital Management LLC, an advisor to Soros  
Funds Management LLC, focusing primarily on private equity transactions. Prior  
to joining Bedminster/Soros in September 2000, Mr. Aitken was engaged in his    
private consultancy practice, advising clients on restructuring and real estate 
matters. From 1991 to 1999, Mr. Aitken served as a Senior Vice President of ABN 
AMRO Bank N.V., one of the world's largest financial institutions, engaged in   
real estate and corporate debt restructuring. Previously, he served in a number 
of corporate banking positions in New York with the European American Banking   
Corporation (EABC), an investment company representing a consortium of European 
Banks, including ABN. Mr. Aitken was seconded to EABC having served in London   
with the International Division of Midland Bank PLC, another consortium member. 
Mr. Aitken is currently a director of Hainan Airlines Co., Limited (China),     
Batavia Investment Fund Limited, and Philippine Discovery Investment Company    
Ltd. He holds a B.A. degree in Monetary Economics from the University of        
Stirling in Scotland.                                                           

Lawrence H. Guffey has been a Series C Director of Axtel since October
2003. Mr. Guffey had served as Series A Director from May 2000 through October  
2003. Mr. Guffey is also a Senior Managing Director in the Private Equity group 
of Blackstone. Mr. Guffey has led Blackstone's efforts in virtually all media   
and communications-related investments and has day-to-day responsibility for    
management of Blackstone Communications Advi-                                   

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sors. Since joining Blackstone in 1991, Mr. Guffey has been involved in the     
execution of Blackstone's investments in Axtel, Bresnan Communications,         
Centennial Communications Corp., Crowley Wireless (Salmon PCS), CommNet         
Cellular, CTI Holdings, Encoda Systems (a LiveWire Media company), iPCS,        
Iusacell, LiveWire, PaeTec, TWFanch-one, TWFanch-two, Universo Online and US    
Radio. Before joining Blackstone, Mr. Guffey worked in the Acquisitions Group at
Trammell Crow Ventures, the principal investment arm of Trammell Crow Company.  
He currently serves as a director of Centennial Communications, Encoda Systems, 
Orcom and FiberNet. Mr. Guffey holds a degree from Rice University.             

  Gabriel A. Montana has been a Series C Alternate Director of Axtel since
June 2002. Mr. Montana is an Investment Officer with EMP Global, principal      
adviser to the AIG-GE Capital Latin American Infrastructure Fund (Fund). Since  
joining in 2000, Mr. Montana has worked in the telecommunications sector,       
managing Fund's activities and portfolio companies in fixed and mobile          
telephony, cable and broadband. Previously, Mr. Montana was a senior consultant 
with KPMG's finance practice, where he worked on profitability, strategic cost  
management and valuation assignments within different industries in the United  
States. He has also worked with Toyota and Renault in Latin America. Mr. Montana
has a B.S. degree in Mechanical Engineering from Universidad de Los Andes and an
M.B.A. from Georgetown University.                                              

Patricio D'Apice has been a Series C Alternate Director of Axtel since
October 2003. Mr. D'Apice is manager of the Private Equity Latin America Group  
of AIG Global Investment Corp. Mr. D'Apice is also an alternate director of one 
of the leading Mexican pay TV companies. He has six years of experience in      
private equity funds in Latin America, with AIG, HSBC Bank, the leading         
Argentine private bank Banco Galicia, and the Argentine media conglomerate La   
Nacion. Previously, he had been a Business Officer at the Argentine consulting  
and merchant banking firm Orlando J. Ferreres & Asociados for four years. He    
specialized in business plan development, restructuring, mergers and            
acquisitions and market research for companies like Perez Companc (now          
Petrobras), Coca Cola, Scania and YPF (now Repsol YPF). Mr. D'Apice is also     
founding partner of Sobregolf S.A., a software and services company with        
operations in Argentina and Chile. He was also financial advisor of two         
telecommunication projects, for the design and financing of their business      
plans. Mr. D'Apice holds a degree in Economics from the Universidad de Buenos   
Aires and a Masters degree in Finance from the Universidad del CEMA.            

Benjamin Jenkins has been a Series C Alternate Director of Axtel since
October 2003. Mr. Jenkins is a Principal in the Private Equity group of         
Blackstone. Since joining Blackstone in 1999, Mr. Jenkins has been involved in  
the execution of Blackstone's investment in Axtel and has evaluated numerous    
industrial and communications investments. Previously, Mr. Jenkins was an       
Associate at Saunders Karp & Megrue. Prior to that, Mr. Jenkins worked in the   
Mergers & Acquisitions Department at Morgan Stanley & Co. Mr. Jenkins holds a   
B.A. in Economics from Stanford University and an M.B.A. from Harvard Business  
School.                                                                         

Tomas Milmo Zambrano is the father of Tomas Milmo Santos and cousin of
Lorenzo Zambrano. Alberto Santos is the uncle of Tomas Milmo Santos and of      
Alberto Garza Santos.                                                           

     For the year ended December 31, 2004, the aggregate compensation, including
benefits, we paid to our di-rectors, alternate directors and executive officers 
for services in all capacities was approximately $2.8 million. In 2004, we and  
our subsidiaries incurred no costs to provide pension, retirement or similar    
benefits to our respective officers and directors pursuant to retirement plans  
or pension plans.                                                               

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PRINCIPAL SHAREHOLDERS

    Mexican law limits foreign ownership of those companies, like ours, owning
certain telecommunications concessions to 49% of the voting stock of such       
companies. The following table sets forth each owner of 5% or more of our voting
stock:                                                                          

                                                        [Enlarge/Download Table]


                                                                   Number of                              
                                                  Number of         Series C       Total                  
                                               Series A Shares       Shares     Percent of                
                                                 Beneficially     Beneficially  Outstanding    Percent of 
Shareholders                                        Owned            Owned       Shares(1)   Voting Shares
------------                                        -----            -----       ---------   -------------
                                                    (millions of shares) (%)                              
                                                                                                          
Telinor Telefonia, S. de R.L. de                                                                          
   C.V.(2)(3).................................       1,253.2            21.6         54.3          59.5   
LAIF X sprl (affiliate of AIG-GE                                                                          
   Capital Latin American                                                                                 
   Infrastructure Fund L.P.)(4)(6)............           --             336.0         14.3          15.7  
The Blackstone Group(5)(6)....................           --             302.7         11.9          14.1  
Tapazeca Sprl (affiliate of The Soros                                                                     
   Group)(7)..................................           --             122.0          5.0           5.7  
All directors and executive officers as a                                                                 
   group (five persons)(8)....................       1,253.2           324.3         66.2          73.7   
_______________________                                                                                   


(1)  Nortel Networks Limited owns 250.8 million "N" shares, representing 9.9% of
     our outstanding shares. The holder of the majority of the Series "N" shares
 (which is currently Nortel Networks Limited) has the right to elect one
independent Series "N" and up to one alternate director.              

(2)  "A" shares held by Telinor Telefonia, S. de R.L. de C.V. may be deemed to  
     be beneficially owned by Tomas Milmo Santos, Alberto Santos de Hoyos, Tomas
Milmo Zambrano and Lorenzo Zambrano Trevino, as each is a director of 
Telinor.                                                              

(3)  Also owns 99.8 million "N" shares. The business address of Telinor         
    Telefonia, S. de R.L. de C.V. is Ave. Vasconcelos 210 Ote Piso 12. Colonia
Residencial San Agustin, Garza Garcia, N.L. 66280.                    

(4)  Also owns 25.3 million "N" shares. The business address of LAIF X sprl is  
13A Avenue de Tervuren 1040 Brussels, Belgium.                        

(5)  Includes 242.1 million "C" shares owned by Blackstone Capital Partners III 
 Merchant Banking Fund L.P., 43.9 million "C" shares owned by Blackstone
 Offshore Capital Partners III L.P. and 16.7 million "C" shares owned by
   Blackstone Family Investment Partnership III L.P. The business address of
   the Blackstone entities is c/o The Blackstone Group, 345 Park Avenue, New
York, New York 10154.                                                 

(6)  See "Business--Legal Proceedings--Shareholdings Disputes."                 

(7)  Also owns 4.5 million "N" shares. The business address for Tapazeca Sprl is
Avenue Louise 331-333 B-1050, Brussels, Belgium.                      

(8)  Includes shares attributable to Telinor because of the directorships of    
Tomas Milmo Santos, Alberto Santos de Hoyos, Tomas Milmo Zambrano and 
 Lorenzo Zambrano Trevino and includes shares attributable to Blackstone
because of the directorship of Lawrence H. Guffey.                    

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Shareholders Agreement                                                          

   On October 6, 1997, we and our initial shareholders Telinor Telefonia, S.
de R.L. de C.V., Bell Canada International (Mexico Telecom) Limited and Worldtel
Mexico Telecom Ltd (the "Initial Shareholders") entered into a shareholders     
agreement (the "Shareholders Agreement"). Soon after, Bell Canada International 
Inc. also agreed to be bound by the Shareholders Agreement. On March 20, 2003,  
Nortel Networks Limited agreed to join in the Shareholders Agreement through the
execution and delivery of a Joinder Agreement and a supplemental agreement to   
such Joinder Agreement.                                                         

   This Shareholders Agreement includes provisions related to, among others,
(i) the form of the Bylaws to be agreed upon and formalized among the Initial   
Shareholders, (ii) their initial capital contributions, (iii) the designation of
members to our board of directors, (iv) certain restrictions on transfers of    
shares, (v) pre-emptive rights, (vi) transfers to permitted assignees, (vii)    
tag-along rights, (viii) rights of first offer and (ix) registration rights with
respect to our equity securities.                                               

As a consequence of the capital call of February 28, 2003, the Initial
Shareholders were materially diluted.                                           

    On February 28, 2003, the Extraordinary Meeting of Shareholders of Company
resolved that in the event of any inconsistency between the Shareholders        
Agreement and our current Bylaws, the Bylaws will prevail.                      

Supply Contracts and Financing Agreement                                        

 In June 1999, we entered into a Finance Agreement with Toronto Dominion
(Texas), Inc. as administrative and collateral agent, and Nortel Networks       
Limited as lender, for the principal amount of US$455.0 million. Such finance   
agreement was amended and restated on June 18, 2001, with Nortel Networks       
Limited, as administrative agent, Toronto Dominion, as collateral agent, and    
Nortel Networks Limited, as lender.                                             

  On March 20, 2003, we entered into a Restructuring Agreement with Nortel
Networks Limited and Nortel Networks de Mexico, S.A. de C.V. for the            
restructuring of the current outstanding liabilities and indebtedness arising   
from the Amended and Restated Finance Agreement and the Supply and Services     
Contracts. Such Restructuring Agreement provided for (i) our payment to Nortel  
Network of US$125.2 million; (ii) our subscription of a promissory note and a   
facility agreement in the principal amount of US$24.2 million; (iii) the        
termination and settlement of the Supply and Services Contracts and the granting
of mutual releases of all obligations and liabilities under or arising out of   
such Supply and Services Contracts; and (iv) the restructuring of the Amended   
and Restated Finance Agreement and the granting of mutual releases of all       
obligations and liabilities under or arising out of such Finance Agreement. In  
December 2003, the promissory note in the amount of US$24.2 million in favor of 
Nortel was repaid in full.                                                      

     In March 2003, we also restructured our commercial relationship with Nortel
Networks whereby all of the previous supply agreements and service contracts we 
had with Nortel Networks were canceled and we entered into five new agreements, 
which are briefly described as follows:                                         

o    Purchase and License Agreement among us, Nortel Networks Limited and Nortel
 Networks de Mexico, S.A. de C.V. regarding the supply of fixed wireless
access equipment and certain services related thereto. On December 23,
  2003, Airspan Communications Limited ("Airspan") acquired Nortel's fixed
  wireless access business, assuming Nortel's rights and obligations under
    this agreement. We are Airspan's primary customer for their fixed wireless
 access technology. We have a contingent license from Airspan to produce
such technology ourselves or through a third party (see below).       

o    Technical Assistance Support Services Agreement for fixed wireless access  
    equipment, between us and Nortel Networks UK Limited pursuant to which the
latter will provide technical support services for our fixed wireless 
access platform. On December 23, 2003, Airspan acquired Nortel's fixed
  wireless access business, assuming Nortel's rights and obligations under
this agreement.                                                       

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o    Purchase and License Agreement for non-fixed wireless access equipment,    
  among us, Nortel Networks Limited and Nortel Networks de Mexico, S.A. de
   C.V. regarding the provision of non-fixed wireless access equipment, such
    as switches and electronic equipment and certain services related thereto.

o    Technical Assistance Support Services Agreement for non-fixed wireless     
  access equipment, between us and Nortel Networks de Mexico, S.A. de C.V.
     pursuant to which Nortel Networks will provide technical assistance support
services for our switch and SDH platform and other non-fixed wireless 
access equipment supplied by Nortel Networks.                         

o    Fixed Wireless Access Technology License Agreement entered into between us 
     and Nortel Networks Limited pursuant to which Nortel Networks granted to us
   a contingent license to produce and manufacture the fixed wireless access
     products ourselves or contract a third party to produce such fixed wireless
access products.                                                      

On December 23, 2003, Airspan acquired Nortel's fixed wireless access 
business, assuming Nortel's rights and obligations under the: (i) Purchase and  
License Agreement for Fixed Wireless Access Equipment, (ii) the Technical       
Assistance Support Services Agreement for fixed wireless access equipment and   
(iii) the Fixed Wireless Access Technology License Agreement. We are Airspan's  
primary customer for their fixed wireless access technology. On December 28,    
2004, we and Airspan entered into a new Purchase and License Agreement for Fixed
Wireless Access Equipment. This new agreement replaces the Purchase and License 
Agreement for Fixed Wireless Access Equipment mentioned in section (i) of this  
paragraph.                                                                      

    In July 2004 we and Nortel Networks Limited and Nortel Networks de Mexico,
S.A. de C.V., entered into a Purchase and License Agreement for the supply of   
next generation soft switch equipment and certain related services thereto. For 
the period beginning January 1, 2002 and through June 28, 2005, we have paid    
Nortel Networks US$9.8 million for services and equipment they provided to us.  

Other Transactions                                                              

o    In March 1999, we and GE Capital Fleet Services de Mexico, S. de R.L. de   
C.V. (a subsidiary of one of the investors in one of our shareholders)
     entered into a lease agreement for the lease of our fleet vehicles. For the
period beginning January 1, 2002 and through June 28, 2005, we paid GE
     Capital approximately US$4.7 million in rental payments under these leases.

o    In March and May 2000, we and Gemini, S.A. de C.V. (a company controlled by
one of the investors in one of our shareholders) entered into lease   
agreements for the lease of land and property on which our corporate  
    offices and a switch are located. For the period beginning January 1, 2002
   and through June 28, 2005, we paid Gemini approximately US$7.3 million in
rental payments under these leases.                                   

o    In August 2002, we and Neoris de Mexico, S.A. de C.V. (a consulting firm   
  indirectly controlled by certain shareholders of Telinor) entered into a
   professional services agreement for the provision of technical assistance
  to us with respect to a customer care platform. For the period beginning
    August 1, 2002 and through December 31, 2003, we paid Neoris approximately
   US$0.2 million in fees for services. No payments have been made to Neoris
de Mexico, S.A. de C.V under this agreement since December 31, 2003.  

o    In April 2002, we and Instalaciones y Desconexiones Especializadas, S.A. de
  C.V. (a company controlled by the son of Alberto Santos de Hoyos, one of
     the investors in one of our shareholders) entered into a services agreement
    for the provision of installation services with regard to customer premise
equipment. For the period beginning April 1, 2002 and through June 28,
2005, we paid them approximately US$1.4 million in fees for services. 

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o    The Blackstone Group advised us in connection with the Restructuring       
Agreement dated as of March 20, 2003 that we entered into with Nortel 
    Networks and Toronto Dominion. For the period beginning March 20, 2003 and
through December 31, 2003, we paid the Blackstone Group approximately 
    US$5.6 million in fees under this agreement. No payments have been made to
The Blackstone Group under this agreement since December 31, 2003.    

 DESCRIPTION OF OTHER INDEBTEDNESS

The following is a description of our other indebtedness, after giving
effect to this offering and the application of the net proceeds therefrom.      

Banorte Short Term Letter Of Credit                                             

 We have issued letters of credit in favor of different suppliers; as of
March 31, 2005 we have approximately US$5.5million outstanding.                 

HP Operations Unsecured Promissory Notes                                        

 We signed promissory notes for an aggregate amount of US$5.1 million in
favor of HP Operations Mexico S. de R.L. de C.V. The term of the notes is for 3 
years accruing at an interest rate of 7.0%. Principal and interests are payable 
on a quarterly basis. The outstanding balance is US$4.6 million.                

Arrendadora Banamex                                                             

     We have entered into a financial leasing agreement with Arrendadora Banamex
S.A. de C.V. (Banamex), to finance the acquisition of certain equipment for our 
network the terms of the lease are up to thirty six months with a monthly       
payment structure. The aggregate outstanding amount as of March 31, 2005 is     
approximately US$3.6 million.                                                   

11% Senior Notes Due 2013                                                       

     On December 16, 2013, we completed the private placement of the 2003 notes,
which consisted of US$175.0 million of 11% senior notes due 2013. On July 13,   
2004, we completed an exchange offer for the 2003 notes of new 2003 notes with  
substantially identical terms, except that the new 2003 notes are generally     
freely tradeable. The notes constitute a single class of debt securities and    
have the same terms. See "Description of the Exchange Notes."                   

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 DESCRIPTION OF THE EXCHANGE NOTES

  We issued the 2005 notes and will issue the exchange notes as additional
notes under an Indenture (the "Indenture") among itself, the Subsidiary         
Guarantors and The Bank of New York, as Trustee. The terms of the 2005 notes and
any exchange notes include those stated in the Indenture and those made part of 
the Indenture by reference to the Trust Indenture Act.                          

     On December 16, 2003, we completed the private placement of the 2003 notes,
which consisted of US$175.0 million of 11% senior notes due 2013. On July 13,   
2004, we completed an exchange offer for the 2003 notes of new 2003 notes with  
substantially identical terms, except that the new 2003 notes are generally     
freely tradeable.                                                               

    The exchange notes offered hereby are part of a single class of securities
together with the 2005 notes, the 2003 notes and the new 2003 notes. The terms  
of the exchange notes are identical in all material respects to the terms of the
new 2003 notes and substantially similar to the 2005 notes, except for transfer 
restrictions and registration rights relating to the 2005 notes.                

  Unless the context otherwise requires, for purposes of this section, the
"Notes" shall be deemed to refer collectively to the 2003 notes, the new 2003   
notes, the 2005 notes and any exchange notes.                                   

 Certain terms used in this description are defined under the subheading
"--Certain Definitions." In this description, the word "Company" refers only to 
AXTEL, S.A. de C.V. and not to any of its subsidiaries.                         

   The following description is only a summary of the material provisions of
the Indenture and the Registration Rights Agreement. We urge you to read the    
Indenture and the Registration Rights Agreement because they, not this          
description, define your rights as holders of the Notes. You may request copies 
of these agreements at our address set forth under the heading "Additional      
Information."                                                                   

Brief Description of the Exchange Notes                                         

The Notes:                                                            

o    are unsecured senior obligations of the Company;                 

    o    are senior in right of payment to any future Subordinated Obligations
of the Company;                                             

o    are guaranteed by each Subsidiary Guarantor; and                 

    o    are subject to registration with the SEC pursuant to the Registration
Rights Agreement.                                           

Principal, Maturity and Interest                                                

The Company issued the 2005 Notes and will issue the exchange notes   
initially with a maximum aggregate principal amount of US$75.0 million. The     
Company will issue the Notes in denominations of $1,000 and any integral        
multiple of $1,000. The Notes will mature on December 15, 2013. Subject to our  
compliance with the covenant described under the subheading "--Certain          
Covenants--Limitation on Indebtedness," we are entitled to, without the consent 
of the holders, issue more Notes under the Indenture on the same terms and      
conditions and with the same CUSIP numbers as the Notes being offered hereby in 
an unlimited aggregate principal amount (the "Additional Notes"). The 2005 Notes
and the exchange notes constitute an issuance of Additional Notes under the     
Indenture. The Notes and all subsequent Additional Notes, if any, provided that 
such Additional Notes are treated as fungible with the Notes for US Federal     
income tax purposes, will be treated as a single class for all purposes of the  
Indenture, including waivers, amendments, redemptions and offers to purchase.   
Unless the context otherwise requires, for all purposes of the Indenture and    
this "Description of the Exchange Notes," references to the Notes include any   
Additional Notes actually issued.                                               

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   Interest on the 2005 Notes and the exchange notes will accrue at the rate
of 11% per annum and will be payable semiannually in arrears on June 15 and     
December 15, commencing on June 15, 2005. We will make each interest payment to 
the holders of record of the Notes on the immediately preceding June 1 and      
December 1. We will pay interest on overdue principal at 1% per annum in excess 
of the above rate and will pay interest on overdue installments of interest at  
such higher rate to the extent lawful.                                          

     Interest on the 2005 Notes and the exchange notes will accrue from December
15, 2004, the last interest payment date in respect of the 2003 notes. Interest 
will be computed on the basis of a 360-day year comprised of twelve 30-day      
months.                                                                         

   Additional interest may accrue on the 2005 notes in certain circumstances
pursuant to the Registration Rights Agreement.                                  

Optional Redemption                                                             

   Except as set forth below, we will not be entitled to redeem the Notes at
our option prior to December 15, 2008.                                          

     On and after December 15, 2008, we will be entitled at our option to redeem
all or a portion of the Notes upon not less than 30 nor more than 60 days'      
notice, at the redemption prices (expressed in percentages of principal amount  
on the redemption date), plus accrued interest to the redemption date (subject  
to the right of Holders of record on the relevant record date to receive        
interest due on the relevant interest payment date), if redeemed during the     
12-month period commencing on December 15 of the years set forth below:         

Period                                            Redemption Price    
------                                            ----------------    
2008.................................                 105.500%        
2009.................................                 103.667%        
2010.................................                 101.833%        
2011 and thereafter..................                 100.000%        

   Prior to December 15, 2006, we may at our option on one or more occasions
redeem Notes (which includes Additional Notes, if any) in an aggregate principal
amount not to exceed 35% of the aggregate principal amount of the Notes (which  
includes Additional Notes, if any) originally issued prior to the redemption    
date at a redemption price (expressed as a percentage of principal amount) of   
111%, plus accrued and unpaid interest to the redemption date, with the net cash
proceeds from one or more Equity Offerings; provided, however, that             

(1)  at least 65% of such aggregate principal amount of Notes (which  
      includes Additional Notes, if any) remains outstanding immediately
        after the occurrence of each such redemption (other than Notes held,
  directly or indirectly, by the Company or its Affiliates); and

(2)  each such redemption occurs within 75 days after the date of the 
related Equity Offering.                                    

Selection and Notice of Redemption                                              

   If we are redeeming less than all the Notes at any time, the Trustee will
select Notes on a pro rata basis, by lot or by such other method as the Trustee 
in its sole discretion shall deem to be fair and appropriate.                   

  We will redeem Notes of $1,000 or less in whole and not in part. We will
cause notices of redemption to be mailed by first-class mail at least 30 but not
more than 60 days before the redemption date to each holder of Notes to be      
redeemed at its registered address.                                             

   If any Note is to be redeemed in part only, the notice of redemption that
relates to that Note will state the portion of the principal amount thereof to  
be redeemed. We will issue a new Note in a principal amount equal to the        
unredeemed portion of the original Note in the name of the holder upon          
cancellation of the original Note. Notes                                        

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called for redemption become due on the date fixed for redemption. On and after 
the redemption date, interest ceases to accrue on Notes or portions of them     
called for redemption.                                                          

Mandatory Redemption; Offers to Purchase; Open Market Purchases                 

We are not required to make any mandatory redemption or sinking fund  
payments with respect to the Notes. However, under certain circumstances, we may
be required to offer to purchase Notes as described under the captions "--Change
of Control" and "--Certain Covenants--Limitation on Sales of Assets and         
Subsidiary Stock." We may at any time and from time to time purchase Notes in   
the open market or otherwise.                                                   

Additional Amounts                                                              

We and the Subsidiary Guarantors are required to make all our payments
under or with respect to the Notes free and clear of and without withholding or 
deduction for or on account of any present or future tax, duty, levy, impost,   
assessment or other governmental charge (including penalties, interest and other
liabilities related thereto) (hereinafter "Taxes") imposed or levied by any     
jurisdiction in which the payor is organized or incorporated or resident for tax
purposes or any jurisdiction from or through which any such payment is made     
(each, a "Relevant Taxing Jurisdiction"), unless we are required to withhold or 
deduct Taxes by law.                                                            

     If we or any Subsidiary Guarantor are so required to withhold or deduct any
amount for or on account of Taxes imposed by a Relevant Taxing Jurisdiction from
any payment made under or with respect to the Notes, we will be required to pay 
such additional amounts ("Additional Amounts") as may be necessary so that the  
net amount received by you (including Additional Amounts) after such withholding
or deduction will not be less than the amount you would have received if such   
Taxes had not been withheld or deducted. However, no additional amounts will be 
paid for or on account of:                                                      

(1)  Taxes that would not have been imposed but for the fact that:    

          (A)  the Holder of Notes has or had a present or former connection (or
       imputed connection) with the Relevant Taxing Jurisdiction
            (including, without limitation, being resident, domiciled or a
             national of, or engaging in business or maintaining a permanent
            establishment in, or being physically present in, the Relevant
            Taxing Jurisdiction) other than by merely owning, or receiving
payment under, the Notes;                         

        (B)  the Holder of Notes presented the Notes more than 30 days after
              the payment in question first became due and payable or the date
         on which payment thereof is duly provided for, whichever is
             later, except to the extent the Holder would have been entitled
         to the Additional Amounts if it had presented the Notes for
payment during that 30-day period;                

    (2)  estate, inheritance, gift, sales, excise, transfer, personal property
or similar Taxes;                                           

     (3)  Taxes payable otherwise than by withholding or deduction from payments
          of, or in respect of, principal of, or any premium or interest on, the
Notes;                                                      

     (4)  Taxes imposed or withheld because the Holder failed to comply with our
reasonable request:                                         

      (A)  to provide information concerning the nationality, residence,
identity or address of the Holder; or             

(B)  to make any declaration or similar claim or satisfy any
    information or reporting requirement, required by law,
               regulation, or other practice of the Relevant Taxing Jurisdiction
               as a precondition to any exemption from all or part of any Taxes,
           but only to the extent the Holder is legally entitled to such
exemption; or                                     

(5)  any combination of these Tax matters above.                      

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Furthermore, no Additional Amounts will be paid with respect to any payment     
under the Notes to any Holder who is a fiduciary or partnership or any person   
other than the sole beneficial owner of the payment, to the extent the payment  
would, under the laws of the Relevant Taxing Jurisdiction, be treated as being  
derived or received for tax purposes by a beneficiary or settlor with respect to
the fiduciary or a member of the partnership or a beneficial owner who would not
have been entitled to the Additional Amounts had it been the Holder of the      
Notes.                                                                          

   Upon request, we will provide the Trustee with official receipts or other
documentation satisfactory to the Trustee evidencing the payment of the Taxes   
with respect to which Additional Amounts are paid.                              

Whenever in the Indenture there is mentioned, in any context:         

(1)  the payment of principal;                                        

(2)  purchase prices in connection with a purchase of Notes;          

(3)  interest; or                                                     

(4)  any other amount payable on or with respect to any of the Notes, 

such reference shall be deemed to include payment of Additional Amounts as      
described under this heading to the extent that, in such context, Additional    
Amounts are, were or would be payable in respect thereof.                       

We will pay any present or future stamp, documentary or other similar 
excise taxes, governmental charges or levies that arise in any jurisdiction from
the execution, delivery, enforcement or registration of the Notes, the Indenture
or any other document or instrument related to them (including, without         
limitation, any such taxes that are referred to as "court" or "property" taxes) 
excluding such taxes, charges or levies imposed by any jurisdiction outside of  
the United Mexican States and the jurisdiction of incorporation of any          
Subsidiary Guarantor, the jurisdiction of incorporation of any successor of the 
Company or any jurisdiction in which a paying agent of the Company, a successor 
or a subsidiary Guarantor (as the case may be) is located, and we will agree to 
indemnify the Holders for any such taxes paid by such Holders.                  

    The obligations described under this heading will survive any termination,
defeasance or discharge of the Indenture and will apply mutatis mutandis to any 
jurisdiction in which any successor Person to the Company or any Subsidiary     
Guarantor is organized or any political subdivision or taxing authority or      
agency thereof or therein.                                                      

    For a discussion of Mexican withholding taxes applicable to payments under
or with respect to the Notes, see "Material US Federal Income Tax               
Considerations" and "Material Mexican Tax Consequences."                        

Redemption for Changes in Withholding Taxes                                     

 We may redeem the Notes in whole, but not in part, upon giving not less
than 30 nor more than 60 days' prior notice mailed by first class mail to each  
holder's registered address, at 100% of their principal amount, plus accrued and
unpaid interest to the redemption date (subject to the right of holders of      
record on the relevant record date to receive interest due on the relevant      
interest payment date) and including Additional Amounts payable in respect of   
such payment, if (i) we certify to the Trustee immediately prior to the giving  
of such notice that as a result of any change in or amendment to the laws,      
regulations, general rules or treaties of any Relevant Taxing Jurisdiction, or  
any change in the application or official interpretation of such laws,          
regulations, general rules or treaties, which change or amendment becomes       
effective after the Issue Date, we have become or will become obligated to pay  
Additional Amounts with respect to the Notes in excess of the Additional Amounts
that would be payable were payments of interest or discounts deemed to be       
interest on the Notes subject to a 10% withholding tax ("Excessive Additional   
Amounts") and (ii) such obligations cannot be avoided by our taking reasonable  
measures available to it; provided, however, that (a) no such notice of         
redemption will be given earlier than 60 days prior to the earliest date on     
which we would be obligated to pay such Excessive Additional Amounts and (b) at 
the time such notice is given, our obligation to pay such Additional Amounts    
(including any Excessive Additional Amounts) remains in effect. Prior to giving 
of any notice of redemption described in this paragraph, we will deliver to the 
Trustee an Officers'                                                            

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Certificate stating that we are entitled to effect such redemption in accordance
with the terms set forth in the Indenture and setting forth in reasonable detail
a statement of the facts relating thereto (together with a written Opinion of   
Counsel to the effect that we have become obligated to pay such Excessive       
Additional Amounts as a result of a change or amendment described above and that
we cannot avoid payment of such Excessive Additional Amounts by taking          
reasonable measures available to us and that all governmental approvals         
necessary for us to effect such redemption have been obtained and are in full   
force and effect or specifying any such necessary approvals that as of the date 
of such opinion have not been obtained)                                         

Guaranties                                                                      

  Each of the Subsidiary Guarantors jointly and severally guarantees, on a
senior unsecured basis, our obligations under the Notes. The Subsidiary         
Guarantors include certain of our Subsidiaries existing on the Issue Date and   
will include any of our future Restricted Subsidiaries that Incur Indebtedness. 
The obligations of each Subsidiary Guarantor under its Subsidiary Guaranty will 
be limited as necessary to prevent that Subsidiary Guaranty from constituting a 
fraudulent conveyance under applicable law. See "Risk Factors--Risks Relating to
the Exchange Notes--It is possible that Guarantees may not be enforceable."     

Each Subsidiary Guarantor that makes a payment under its Subsidiary   
Guaranty will be entitled upon payment in full of all guaranteed obligations    
under the Indenture to a contribution from each other Subsidiary Guarantor in an
amount equal to such other Subsidiary Guarantor's pro rata portion of such      
payment based on the respective net assets of all the Subsidiary Guarantors at  
the time of such payment determined in accordance with GAAP.                    

   If a Subsidiary Guaranty were rendered voidable, it could be subordinated
by a court to all other indebtedness (including guarantees and other contingent 
liabilities) of the applicable Subsidiary Guarantor, and, depending on the      
amount of such indebtedness, a Subsidiary Guarantor's liability on its          
Subsidiary Guaranty could be reduced to zero. See "Risk Factors--It is possible 
that Guarantees may not be enforceable."                                        

     Pursuant to the Indenture, (A) a Subsidiary Guarantor may consolidate with,
merge with or into, or transfer all or substantially all its assets to any other
Person to the extent described below under "--Certain Covenants--Merger and     
Consolidation" and (B) the Capital Stock of a Subsidiary Guarantor may be sold  
or otherwise disposed of to another Person to the extent described below under  
"--Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock";      
provided, however, that in the case of the consolidation, merger or transfer of 
all or substantially all the assets of such Subsidiary Guarantor, if such other 
Person is not the Company or a Subsidiary Guarantor, such Subsidiary Guarantor's
obligations under its Subsidiary Guaranty must be expressly assumed by such     
other Person, except that such assumption will not be required in the case of:  

  (1)  the sale or other disposition (including by way of consolidation or
        merger) of a Subsidiary Guarantor, including the sale or disposition
   of Capital Stock of a Subsidiary Guarantor following which such
Subsidiary Guarantor is no longer a Subsidiary; or          

  (2)  the sale or disposition of all or substantially all the assets of a
Subsidiary Guarantor;                                       

in each case other than to the Company or an Affiliate of the Company and as    
permitted by the Indenture. Upon any sale or disposition described in clause (1)
or (2) above, the obligor on the related Subsidiary Guaranty will be released   
from its obligations thereunder.                                                

  The Subsidiary Guaranty of a Subsidiary Guarantor also will be released:

   (1)  upon the designation of such Subsidiary Guarantor as an Unrestricted
Subsidiary;                                                 

(2)  at such time as such Subsidiary Guarantor does not have any      
     Indebtedness outstanding that would have required such Subsidiary
         Guarantor to enter into a Guaranty Agreement pursuant to the covenant
described under "--Certain Covenants--Future Guarantors"; or

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    (3)  if we exercise our legal defeasance option or our covenant defeasance
option as described under "--Defeasance."                   

Ranking                                                                         

Senior Indebtedness versus Notes                                                

  The indebtedness evidenced by the Notes and the Subsidiary Guaranties is
unsecured and ranks pari passu in right of payment to the Senior Indebtedness of
the Company and the Subsidiary Guarantors, as the case may be. The Notes are    
guaranteed by the Subsidiary Guarantors.                                        

As of March 31, 2005:                                                 

    (1)  the Company's Senior Indebtedness was approximately US$278.9 million,
including US$4.6 million of secured indebtedness; and       

(2)  the Subsidiary Guarantors had no indebtedness.                   

    The Notes are unsecured obligations of the Company. Secured debt and other
secured obligations of the Company are effectively senior to the Notes to the   
extent of the value of the assets securing such debt or other obligations.      

Liabilities of Subsidiaries versus Notes                                        

A substantial portion of our operations is conducted through our      
subsidiaries. Any right we have to receive the assets of any such subsidiary    
upon such subsidiary's liquidation or reorganization (and the consequent right  
of the Holders of the Notes to participate in the distribution of the proceeds  
of those assets) effectively will be subordinated by operation of law to the    
claims of such subsidiary's creditors (including trade creditors) and holders of
its preferred stock, except to the extent that such subsidiaries guarantee our  
obligations under the Notes, and except to the extent that we are recognized as 
a creditor or preferred stockholder of such subsidiary, in which case our claims
would still be subordinate to any indebtedness or preferred stock of such       
subsidiary senior in right of payment to that held by us.                       

As of the Issue Date, all our continuing existing subsidiaries will be
Subsidiary Guarantors. Although the Indenture limits the incurrence of          
Indebtedness and preferred stock of certain of our subsidiaries, such limitation
is subject to a number of significant qualifications. Moreover, the Indenture   
does not impose any limitation on the incurrence by such subsidiaries of        
liabilities that are not considered Indebtedness under the Indenture. See       
"--Certain Covenants--Limitation on Indebtedness."                              

Book-Entry, Delivery And Form                                                   

   The 2005 notes have been, and the exchange notes will be represented by a
single, permanent Global Security (which may be subdivided) in definitive, fully
registered form without interest coupons (each a "Global Security") in minimum  
denominations of $1000 and integral multiples in excess thereof. Each Global    
Security will be deposited with the Trustee as custodian for DTC and registered 
in the name of a nominee of DTC for credit to the respective accounts of the    
purchaser at DTC.                                                               

   Except in the limited circumstances described below under "--Certificated
Notes," owners of beneficial interest in the Global Security will not be        
entitled to receive physical delivery of Certificated Notes. The notes are not  
issuable in bearer form. The Global Security may be transferred, in whole or in 
part, only to another nominee of DTC.                                           

The Global Security. Ownership of beneficial interests in the Global  
Security will be limited to persons who have accounts with DTC ("participants") 
or persons who hold interests through participants. Ownership of beneficial     
interests in the Global Security will be shown on, and the transfer of that     
ownership will be effected only                                                 

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through, records maintained by DTC or its nominee (with respect to interests of 
participants) and the records of participants (with respect to interests of     
persons other than participants).                                               

  So long as DTC, or its nominee, is the registered owner or holder of the
Global Security, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the notes represented by the Global Security for all    
purposes under the Indenture and the notes. No beneficial owner of an interest  
in the Global Security will be able to transfer that interest except in         
accordance with the applicable procedures of DTC, in addition to those provided 
for under the Indenture and, if applicable, those of Euroclear and Clearstream  
Banking.                                                                        

    Payments of the principal of, premium, if any, and interest on, the Global
Security will be made to DTC or its nominee, as the case may be, as the         
registered owner thereof. Neither us, the notes trustee nor any paying agent    
will have any responsibility or liability for any aspect of the records relating
to or payments made on account of beneficial ownership interests in the Global  
Security or for maintaining, supervising or reviewing any records relating to   
such beneficial ownership interests.                                            

We expect that DTC or its nominee, upon receipt of any payment of     
principal, premium, if any, or interest in respect of the Global Security, will 
credit participants' accounts with payments in amounts proportionate to their   
respective beneficial interests in the principal amount at maturity of the      
Global Security as shown on the records of DTC or its nominee. We also expect   
that payments by participants to owners of beneficial interests in the Global   
Security held through such participants will be governed by standing            
instructions and customary practices, as is now the case with securities held   
for the accounts of customers registered in the names of nominees for such      
customers. Such payments will be the responsibility of such participants.       

    Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds. Transfers   
between participants in Euroclear and Clearstream Banking will be effected in   
the ordinary way in accordance with their respective rules and operating        
procedures.                                                                     

   We expect that DTC will take any action permitted to be taken by a Holder
of notes (including the presentation of notes for exchange as described below)  
only at the direction of one or more participants to whose account the DTC      
interests in the Global Security is credited and only in respect of such portion
of the aggregate principal amount at maturity of notes as to which such         
participant or participants have given such direction. However, if there is an  
Event of Default under the notes, DTC will exchange the Global Security for     
notes.                                                                          

   We understand that DTC is a limited purpose trust company organized under
the laws of the State of New York, a "banking organization" within the meaning  
of the New York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code and a "Clearing  
Agency" registered pursuant to the provisions of Section 17A under the Exchange 
Act. DTC was created to hold securities for its participants and facilitate the 
clearance and settlement of securities transactions between participants through
electronic book-entry changes in accounts of its participants, thereby          
eliminating the need for physical movement of certificates and certain other    
organizations. Indirect access to the DTC system is available to others such as 
banks, brokers, dealers and trust companies that clear through or maintain a    
custodial relationship with a participant, either directly or indirectly        
("indirect participants").                                                      

    Although DTC, Euroclear and Clearstream Banking are expected to follow the
foregoing procedures in order to facilitate transfers of interests in the Global
Security among participants of DTC, Euroclear and Clearstream Banking, they are 
under no obligation to perform or continue to perform such procedures, and such 
procedures may be discontinued at any time. Neither we nor the notes trustee    
will have any responsibility for the performance by DTC, Euroclear or           
Clearstream Banking or their respective participants or indirect participants of
their respective obligations under the rules and procedures governing their     
operations.                                                                     

Certificated Notes                                                              

   If DTC is at any time unwilling or unable to continue as a depositary for
the Global Security and a successor depositary is not appointed by us within 90 
days, we will issue Certificated Notes in exchange for the Global               

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Security. Holders of an interest in the Global Security may receive Certificated
Notes in accordance with DTC's rules and procedures in addition to those        
provided for under the Indenture.                                               

Change of Control                                                               

Upon the occurrence of any of the following events (each, a "Change of
Control"), each Holder shall have the right to require that the Company         
repurchase such Holder's Notes at a purchase price in cash equal to 101% of the 
principal amount thereof on the date of purchase plus accrued and unpaid        
interest, if any, to the date of purchase (subject to the right of holders of   
record on the relevant record date to receive interest due on the relevant      
interest payment date):                                                         

     (1)  prior to the first public offering of common stock of the Company, any
     "person" (as such term is used in Sections 13(d) and 14(d) of the
          Exchange Act), other than one or more Permitted Holders, is or becomes
       the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the
        Exchange Act, except that for purposes of this clause (1) and clause
  (2) below, (x) such person shall be deemed to have "beneficial
  ownership" of all shares that any such person has the right to
        acquire, whether such right is exercisable immediately or only after
       the passage of time and (y) such person shall not be deemed to have
          "beneficial ownership" of any shares solely as a result of a voting or
        similar agreement entered into in connection with a merger agreement
         or asset sale agreement), directly or indirectly, of more than 50% of
  the total voting power of the Voting Stock of the Company (for
      purposes of this clause (1) such "person" (the "specified person")
       shall be deemed to beneficially own any Voting Stock of the Company
  held by any other Person (the "parent entity") so long as such
     "specified person" beneficially owns (as so defined), directly or
      indirectly, in the aggregate a majority of the voting power of the
Voting Stock of the parent entity);                         

  (2)  after the first public offering of common stock of the Company, any
     "person" (as such term is used in Sections 13(d) and 14(d) of the
          Exchange Act), other than one or more Permitted Holders, is or becomes
      the beneficial owner (as defined in clause (1) above), directly or
        indirectly, of more than 35% of the total voting power of the Voting
   Stock of the Company; provided, however, that Permitted Holders
   beneficially own (as defined in Rules 13d-3 and 13d-5 under the
    Exchange Act), directly or indirectly, in the aggregate a lesser
   percentage of the total voting power of the Voting Stock of the
          Company than such other person and do not have the right or ability by
          voting power, contract or otherwise to elect or designate for election
         a majority of the Board of Directors (for the purposes of this clause
         (2), such other person shall be deemed to beneficially own any Voting
      Stock of a specified person held by a parent entity, if such other
          person is the beneficial owner (as defined in clause (1)), directly or
        indirectly, of more than 35% of the voting power of the Voting Stock
        of such parent entity and the Permitted Holders beneficially own (as
         defined in this clause (2)), directly or indirectly, in the aggregate
       a lesser percentage of the voting power of the Voting Stock of such
       parent entity and do not have the right or ability by voting power,
          contract or otherwise to elect or designate for election a majority of
the board of directors of such parent entity);              

   (3)  individuals who on the Issue Date constituted the Board of Directors
    (together with any new directors whose election by such Board of
    Directors or whose appointment or nomination for election by the
       shareholders of the Company was approved by a vote of a majority of
     the directors of the Company then still in office who were either
 directors on the Issue Date or whose appointment, election or
       nomination for election was approved by the Permitted Holders or by
          directors previously so approved) cease for any reason to constitute a
majority of the Board of Directors then in office;          

   (4)  the adoption of a plan relating to the liquidation or dissolution of
    the Company; provided, however, that this clause (4) will not be
         applicable to (A) a Restricted Subsidiary consolidating with, merging
        into or transferring all or part of its properties and assets to the
       Company or (B) the Company merging with an Affiliate of the Company
          solely for the purpose and with the sole effect of reincorporating the
Company in another jurisdiction; or                         

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     (5)  the merger or consolidation of the Company with or into another Person
         or the merger of another Person with or into the Company, or the sale
          of all or substantially all the assets of the Company (determined on a
     consolidated basis) to another Person other than a transaction in
         which holders of securities that represented 100% of the Voting Stock
  of the Company immediately prior to such transaction (or other
       securities into which such securities are converted as part of such
      merger or consolidation transaction) own directly or indirectly at
   least a majority of the voting power of the Voting Stock of the
         transferee Person or surviving Person in such merger or consolidation
transaction immediately after such transaction.             

  Within 30 days following any Change of Control, we will mail a notice to
each Holder with a copy to the Trustee (the "Change of Control Offer") stating: 

 (1)  that a Change of Control has occurred and that such Holder has the
     right to require us to purchase such Holder's Notes at a purchase
      price in cash equal to 101% of the principal amount thereof on the
      date of purchase, plus accrued and unpaid interest, if any, to the
      date of purchase (subject to the right of Holders of record on the
     relevant record date to receive interest on the relevant interest
payment date);                                              

    (2)  the circumstances and relevant facts regarding such Change of Control
       (including information with respect to pro forma historical income,
          cash flow and capitalization, in each case after giving effect to such
Change of Control);                                         

  (3)  the purchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed); and      

  (4)  the instructions, as determined by us, consistent with the covenant
       described hereunder, that a Holder must follow in order to have its
Notes purchased.                                            

We will not be required to make a Change of Control Offer following a 
Change of Control if a third party makes the Change of Control Offer in the     
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by us and         
purchases all Notes validly tendered and not withdrawn under such Change of     
Control Offer.                                                                  

    We will comply, to the extent applicable, with the requirements of Section
14(e) of the Exchange Act and any other securities laws or regulations in       
connection with the repurchase of Notes as a result of a Change of Control. To  
the extent that the provisions of any securities laws or regulations conflict   
with the provisions of the covenant described hereunder, we will comply with the
applicable securities laws and regulations and shall not be deemed to have      
breached our obligations under the covenant described hereunder by virtue of our
compliance with such securities laws or regulations.                            

The Change of Control purchase feature of the Notes may in certain    
circumstances make more difficult or discourage a sale or takeover of the       
Company and, thus, the removal of incumbent management. The Change of Control   
purchase feature is a result of negotiations between the Company and the Initial
Purchaser. We have no present intention to engage in a transaction involving a  
Change of Control, although it is possible that we could decide to do so in the 
future. Subject to the limitations discussed below, we could, in the future,    
enter into certain transactions, including acquisitions, refinancings or other  
recapitalizations, that would not constitute a Change of Control under the      
Indenture, but that could increase the amount of indebtedness outstanding at    
such time or otherwise affect our capital structure or credit ratings.          
Restrictions on our ability to Incur additional Indebtedness are contained in   
the covenants described under "--Certain Covenants--Limitation on Indebtedness,"
"--Limitation on Liens" and "--Limitation on Sale/Leaseback Transactions." Such 
restrictions can only be waived with the consent of the holders of a majority in
principal amount of the Notes then outstanding. Except for the limitations      
contained in such covenants, however, the Indenture will not contain any        
covenants or provisions that may afford holders of the Notes protection in the  
event of a highly leveraged transaction.                                        

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Future indebtedness that we may incur may contain prohibitions on the 
occurrence of certain events that would constitute a Change of Control or       
require the repurchase of such indebtedness upon a Change of Control. Moreover, 
the exercise by the holders of their right to require us to repurchase their    
Notes could cause a default under such indebtedness, even if the Change of      
Control itself does not, due to the financial effect of such repurchase on us.  
Finally, our ability to pay cash to the holders of Notes following the          
occurrence of a Change of Control may be limited by our then existing financial 
resources. There can be no assurance that sufficient funds will be available    
when necessary to make any required repurchases.                                

The definition of "Change of Control" includes a disposition of all or
substantially all of the assets of the Company to any Person. Although there is 
a limited body of case law interpreting the phrase "substantially all," there is
no precise established definition of the phrase under applicable law.           
Accordingly, in certain circumstances there may be a degree of uncertainty as to
whether a particular transaction would involve a disposition of "all or         
substantially all" of the assets of the Company. As a result, it may be unclear 
as to whether a Change of Control has occurred and whether a holder of Notes may
require the Company to make an offer to repurchase the Notes as described above.

  The provisions under the Indenture relative to our obligation to make an
offer to repurchase the Notes as a result of a Change of Control may be waived  
or modified with the written consent of the holders of a majority in principal  
amount of the Notes.                                                            

Certain Covenants                                                               

  The Indenture contains covenants including, among others, the following:

Limitation on Indebtedness                                            

     (a) The Company will not, and will not permit any Restricted Subsidiary to,
Incur, directly or indirectly, any Indebtedness; provided, however, that the    
Company and the Subsidiary Guarantors will be entitled to Incur Indebtedness if,
on the date of such Incurrence and after giving effect thereto on a pro forma   
basis the Consolidated Leverage Ratio would be less than 4.0 to 1.              

(b) Notwithstanding the foregoing paragraph (a), the Company and the  
Restricted Subsidiaries will be entitled to Incur any or all of the following   
Indebtedness:                                                                   

(1)  Indebtedness owed to and held by the Company or a Wholly Owned   
      Subsidiary; provided, however, that (A) any subsequent issuance or
        transfer of any Capital Stock which results in any such Wholly Owned
        Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent
        transfer of such Indebtedness (other than to the Company or a Wholly
      Owned Subsidiary) shall be deemed, in each case, to constitute the
      Incurrence of such Indebtedness by the obligor thereon, (B) if the
     Company is the obligor on such Indebtedness, such Indebtedness is
      expressly subordinated to the prior payment in full in cash of all
  obligations with respect to the Notes, and (C) if a Subsidiary
       Guarantor is the obligor on such Indebtedness, such Indebtedness is
      expressly subordinated to the prior payment in full in cash of all
        obligations of such obligor with respect to its Subsidiary Guaranty;

(2)  the Exchange Notes;                                              

  (3)  Indebtedness outstanding on the Issue Date (other than Indebtedness
described in clause (1) or (2) of this covenant);           

    (4)  Refinancing Indebtedness in respect of Indebtedness Incurred pursuant
     to paragraph (a) or pursuant to clause (2) or (3) or this clause;

 (5)  edging Obligations consisting of Interest Rate Agreements directly
       related to Indebtedness permitted to be Incurred by the Company and
its Restricted Subsidiaries pursuant to the Indenture;      

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(6)  obligations in respect of performance, bid and surety bonds and  
   completion guarantees provided by the Company or any Restricted
Subsidiary in the ordinary course of business;              

  (7)  Indebtedness arising from the honoring by a bank or other financial
     institution of a check, draft or similar instrument drawn against
    insufficient funds in the ordinary course of business; provided,
       however, that such Indebtedness is extinguished within two Business
Days of its Incurrence;                                     

(8)  Purchase Money Obligations and Capital Lease Obligations, in an  
       aggregate principal amount at any time outstanding not exceeding an
amount equal to 5% of Consolidated Total Assets at any time 
outstanding;                                                

 (9)  Indebtedness consisting of the Subsidiary Guaranty of a Subsidiary
         Guarantor and any Guarantee by a Subsidiary Guarantor of Indebtedness
          Incurred pursuant to paragraph (a) or pursuant to clause (1), (2), (3)
        or pursuant to clause (4) to the extent the Refinancing Indebtedness
      Incurred thereunder directly or indirectly Refinances Indebtedness
        Incurred pursuant to paragraph (a) or pursuant to clause (2) or (3);
and                                                         

   (10) Indebtedness of the Company or of any of its Restricted Subsidiaries
        in an aggregate principal amount which, when taken together with all
     other Indebtedness of the Company and its Restricted Subsidiaries
       outstanding on the date of such Incurrence (other than Indebtedness
         permitted by clauses (1) through (9) above or paragraph (a)) does not
exceed $15 million.                                         

  (c)Notwithstanding the foregoing, neither the Company nor any Subsidiary
Guarantor will Incur any Indebtedness pursuant to the foregoing paragraph (b) if
the proceeds thereof are used, directly or indirectly, to Refinance any         
Subordinated Obligations of the Company or any Subsidiary Guarantor unless such 
Indebtedness shall be subordinated to the Notes or the applicable Subsidiary    
Guaranty to at least the same extent as such Subordinated Obligations.          

(d) For purposes of determining compliance with this covenant:        

 (1)  in the event that an item of Indebtedness (or any portion thereof)
    meets the criteria of more than one of the types of Indebtedness
       described above, the Company, in its sole discretion, will classify
     such item of Indebtedness (or any portion thereof) at the time of
          Incurrence and will only be required to include the amount and type of
such Indebtedness in one of the above clauses; and          

(2)  the Company will be entitled to divide and classify an item of   
        Indebtedness in more than one of the types of Indebtedness described
above.                                                      

   (e) For purposes of determining compliance with any US dollar denominated
restriction on the Incurrence of Indebtedness where the Indebtedness Incurred is
denominated in a different currency, the amount of such Indebtedness will be the
US Dollar Equivalent determined on the date of the Incurrence of such           
Indebtedness; provided, however, that if any such Indebtedness denominated in a 
different currency is subject to a Currency Agreement with respect to US dollars
covering all principal, premium, if any, and interest payable on such           
Indebtedness, the amount of such Indebtedness expressed in US dollars will be as
provided in such Currency Agreement. The principal amount of any Refinancing    
Indebtedness Incurred in the same currency as the Indebtedness being Refinanced 
will be the US Dollar Equivalent of the Indebtedness Refinanced, except to the  
extent that (1) such US Dollar Equivalent was determined based on a Currency    
Agreement, in which case the Refinancing Indebtedness will be determined in     
accordance with the preceding sentence, and (2) the principal amount of the     
Refinancing Indebtedness exceeds the principal amount of the Indebtedness being 
Refinanced, in which case the US Dollar Equivalent of such excess will be       
determined on the date such Refinancing Indebtedness is Incurred.               

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Limitation on Restricted Payments                                     

  (a) The Company will not, and will not permit any Restricted Subsidiary,
directly or indirectly, to make a Restricted Payment if at the time the Company 
or such Restricted Subsidiary makes such Restricted Payment:                    

(1)  a Default shall have occurred and be continuing (or would result 
therefrom);                                                 

(2)  the Company is not entitled to Incur an additional $1.00 of      
          Indebtedness pursuant to paragraph (a) of the covenant described under
"--Limitation on Indebtedness"; or                          

(3)  the aggregate amount of such Restricted Payment and all other    
    Restricted Payments since the Issue Date would exceed the sum of
(without duplication):                                      

       (A)  50% of the Adjusted Consolidated Net Income accrued during the
               period (treated as one accounting period) from October 1, 2003 to
               the end of the most recent fiscal quarter ending at least 45 days
            prior to the date of such Restricted Payment (or, in case such
             Adjusted Consolidated Net Income shall be a deficit, minus 100%
of such deficit); plus                            

        (B)  100% of the aggregate Net Cash Proceeds received by the Company
        from the issuance or sale of its Capital Stock (other than
             Disqualified Stock) subsequent to the Issue Date (other than an
               issuance or sale to a Subsidiary of the Company and other than an
          issuance or sale to an employee stock ownership plan or to a
             trust established by the Company or any of its Subsidiaries for
          the benefit of their employees) and 100% of any cash capital
        contribution received by the Company from its shareholders
subsequent to the Issue Date; plus                

          (C)  the amount by which Indebtedness of the Company is reduced on the
            Company's balance sheet upon the conversion or exchange (other
               than by a Subsidiary of the Company) subsequent to the Issue Date
            of any Indebtedness of the Company convertible or exchangeable
              for Capital Stock (other than Disqualified Stock) of the Company
          (less the amount of any cash, or the fair value of any other
          property, distributed by the Company upon such conversion or
               exchange); provided, however, that the foregoing amount shall not
         exceed the Net Cash Proceeds received by the Company or any
      Restricted Subsidiary from the sale of such Indebtedness
            (excluding Net Cash Proceeds from sales to a Subsidiary of the
          Company or to an employee stock ownership plan or to a trust
           established by the Company or any of its Subsidiaries for the
benefit of their employees); plus                 

   (D)  an amount equal to the sum of (i) the net reduction in the
        Investments (other than Permitted Investments) made by the
               Company or any Restricted Subsidiary in any Person resulting from
           repurchases, repayments or redemptions of such Investments by
               such Person, proceeds realized on the sale of such Investment and
              proceeds representing the return of capital (excluding dividends
             and distributions), in each case received by the Company or any
             Restricted Subsidiary, and (ii) to the extent such Person is an
        Unrestricted Subsidiary, the portion (proportionate to the
              Company's equity interest in such Subsidiary) of the fair market
            value of the net assets of such Unrestricted Subsidiary at the
          time such Unrestricted Subsidiary is designated a Restricted
             Subsidiary; provided, however, that the foregoing sum shall not
    exceed, in the case of any such Person or Unrestricted
        Subsidiary, the amount of Investments (excluding Permitted
       Investments) previously made (and treated as a Restricted
          Payment) by the Company or any Restricted Subsidiary in such
Person or Unrestricted Subsidiary.                

(b) The preceding provisions will not prohibit:                       

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        (1)  any Restricted Payment made out of the Net Cash Proceeds of the
        substantially concurrent sale of, or made by exchange for,
             Capital Stock of the Company (other than Disqualified Stock and
            other than Capital Stock issued or sold to a Subsidiary of the
       Company or an employee stock ownership plan or to a trust
           established by the Company or any of its Subsidiaries for the
            benefit of their employees) or a substantially concurrent cash
   capital contribution received by the Company from its
               shareholders; provided, however, that (A) such Restricted Payment
              shall be excluded in the calculation of the amount of Restricted
           Payments and (B) the Net Cash Proceeds from such sale or such
       cash capital contribution (to the extent so used for such
           Restricted Payment) shall be excluded from the calculation of
 amounts under clause (3)(B) of paragraph (a) above;

  (2)  any purchase, repurchase, redemption, defeasance or other
             acquisition or retirement for value of Subordinated Obligations
               of the Company or a Subsidiary Guarantor made by exchange for, or
          out of the proceeds of the substantially concurrent sale of,
           Indebtedness of such Person which is permitted to be Incurred
       pursuant to the covenant described under "--Limitation on
               Indebtedness"; provided, however, that such purchase, repurchase,
           redemption, defeasance or other acquisition or retirement for
         value shall be excluded in the calculation of the amount of
Restricted Payments;                              

    (3)  dividends paid within 60 days after the date of declaration
             thereof if at such date of declaration such dividend would have
              complied with this covenant; provided, however, that at the time
               of payment of such dividend, no other Default shall have occurred
        and be continuing (or result therefrom); provided further,
              however, that such dividend shall be included in the calculation
of the amount of Restricted Payments;             

  (4)  so long as no Default has occurred and is continuing, the
               repurchase or other acquisition of shares of Capital Stock of the
       Company or any of its Subsidiaries from employees, former
               employees, directors or former directors of the Company or any of
           its Subsidiaries (or permitted transferees of such employees,
               former employees, directors or former directors), pursuant to the
          terms of the agreements (including employment agreements) or
              plans (or amendments thereto) approved by the Board of Directors
              under which such individuals purchase or sell or are granted the
       option to purchase or sell, shares of such Capital Stock;
              provided, however, that the aggregate amount of such repurchases
    and other acquisitions (excluding amounts representing
              cancellation of Indebtedness) shall not exceed $2 million in any
             calendar year; provided further, however, that such repurchases
            and other acquisitions shall be excluded in the calculation of
the amount of Restricted Payments;                

       (5)  payments of dividends on Disqualified Stock issued pursuant to
          the covenant described under "--Limitation on Indebtedness";
             provided, however, that such dividends shall be excluded in the
calculation of the amount of Restricted Payments; 

      (6)  repurchases of Capital Stock deemed to occur upon exercise of
             stock options if such Capital Stock represents a portion of the
          exercise price of such options; provided, however, that such
             Restricted Payments shall be excluded in the calculation of the
amount of Restricted Payments;                    

      (7)  cash payments in lieu of the issuance of fractional shares in
        connection with the exercise of warrants, options or other
              securities convertible into or exchangeable for Capital Stock of
              the Company; provided, however, that any such cash payment shall
              not be for the purpose of evading the limitation of the covenant
             described under this subheading (as determined in good faith by
           the Board of Directors); provided further, however, that such
            payments shall be excluded in the calculation of the amount of
Restricted Payments;                              

          (8)  in the event of a Change of Control, and if no Default shall have
            occurred and be continuing, the payment, purchase, redemption,
           defeasance or other acquisition or retirement of Subordinated
             Obligations of the Company or any Subsidiary Guarantor, in each
              case, at a purchase price not greater than 101% of the principal
           amount of such Subordinated Obligations, plus any accrued and
            unpaid interest thereon; provided, however, that prior to such
               payment, purchase, redemption, defeasance or other acquisition or
               retirement, the Company (or a third party to the extent permitted
by the In-                                        

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             denture) has made a Change of Control Offer with respect to the
             Notes as a result of such Change of Control and has repurchased
             all Notes validly tendered and not withdrawn in connection with
           such Change of Control Offer; provided further, however, that
             such repurchase and other acquisitions shall be included in the
calculation of the amount of Restricted Payments; 

(9)  payments of intercompany subordinated Indebtedness, the
             Incurrence of which was permitted under clause (3) of paragraph
  (b) of the covenant described under "--Limitation on
            Indebtedness"; provided, however, that no Default has occurred
             and is continuing or would otherwise result therefrom; provided
           further, however, that such payments shall be excluded in the
  calculation of the amount of Restricted Payments; or

         (10) Restricted Payments in an amount which, when taken together with
             all Restricted Payments made pursuant to this clause (10), does
             not exceed $10 million; provided, however, that (A) at the time
             of each such Restricted Payment, no Default shall have occurred
            and be continuing (or result therefrom) and (B) such dividends
              shall be included in the calculation of the amount of Restricted
Payments.                                         

  Limitation on Restrictions on Distributions from Restricted Subsidiaries

 The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or permit to exist or become effective any consensual 
encumbrance or restriction on the ability of any Restricted Subsidiary to (a)   
pay dividends or make any other distributions on its Capital Stock to the       
Company or a Restricted Subsidiary or pay any Indebtedness owed to the Company, 
(b) make any loans or advances to the Company or (c) transfer any of its        
property or assets to the Company, except:                                      

(1)  with respect to clauses (a), (b) and (c),              

             (A)  any encumbrance or restriction pursuant to an agreement in
    effect at or entered into on the Issue Date;

              (B)  any encumbrance or restriction with respect to a Restricted
           Subsidiary pursuant to an agreement relating to any
                 Indebtedness Incurred by such Restricted Subsidiary on or
                 prior to the date on which such Restricted Subsidiary was
                    acquired by the Company (other than Indebtedness Incurred as
                 consideration in, or to provide all or any portion of the
           funds or credit support utilized to consummate, the
                 transaction or series of related transactions pursuant to
            which such Restricted Subsidiary became a Restricted
                  Subsidiary or was acquired by the Company) and outstanding
on such date;                           

          (C)  any encumbrance or restriction pursuant to an agreement
                    effecting a Refinancing of Indebtedness Incurred pursuant to
                   an agreement referred to in clause (A) or (B) of clause (1)
               of this covenant or this clause (C) or contained in any
                  amendment to an agreement referred to in clause (A) or (B)
                    of clause (1) of this covenant or this clause (C); provided,
                    however, that the encumbrances and restrictions with respect
           to such Restricted Subsidiary contained in any such
                   refinancing agreement or amendment are no less favorable to
               the Noteholders than encumbrances and restrictions with
               respect to such Restricted Subsidiary contained in such
predecessor agreements; and             

              (D)  any encumbrance or restriction with respect to a Restricted
                    Subsidiary imposed pursuant to an agreement entered into for
               the sale or disposition of all or substantially all the
             Capital Stock or assets of such Restricted Subsidiary
            pending the closing of such sale or disposition; and

(2)  with respect to clause (c) only,                       

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         (A)  any encumbrance or restriction consisting of customary
              nonassignment provisions in leases governing leasehold
            interests to the extent such provisions restrict the
                    transfer of the lease or the property leased thereunder; and

       (B)  any encumbrance or restriction contained in security
          agreements or mortgages securing Indebtedness of a
               Restricted Subsidiary to the extent such encumbrance or
                  restriction restricts the transfer of the property subject
 to such security agreements or mortgages.

Limitation on Sales of Assets and Subsidiary Stock                    

     (a) The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, consummate any Asset Disposition unless:                

  (1)  the Company or such Restricted Subsidiary receives consideration at
        the time of such Asset Disposition at least equal to the fair market
       value (including as to the value of all non-cash consideration), as
         determined in good faith by the Board of Directors, of the shares and
assets subject to such Asset Disposition;                   

(2)  except in the case of a Permitted Asset Swap, at least 75% of the
    consideration thereof received by the Company or such Restricted
Subsidiary is in the form of cash or cash equivalents; and  

(3)  an amount equal to 100% of the Net Available Cash from such Asset
         Disposition is applied by the Company (or such Restricted Subsidiary,
as the case may be)                                         

       (A)  first, to the extent the Company elects (or is required by the
             terms of any Indebtedness), to prepay, repay, redeem, purchase,
             defease or otherwise acquire Senior Indebtedness of the Company
             or Indebtedness (other than any Disqualified Stock) of a Wholly
            Owned Subsidiary (in each case other than Indebtedness owed to
              the Company or an Affiliate of the Company) within one year from
               the later of the date of such Asset Disposition or the receipt of
such Net Available Cash;                          

        (B)  second, to the extent of the balance of such Net Available Cash
            after application in accordance with clause (A), to the extent
              the Company elects, to acquire Additional Assets within one year
         from the later of the date of such Asset Disposition or the
receipt of such Net Available Cash; and           

       (C)  third, to the extent of the balance of such Net Available Cash
               after application in accordance with clauses (A) and (B), to make
           an offer to the holders of the Notes (and to holders of other
              Senior Indebtedness of the Company designated by the Company) to
       purchase Notes (and such other Senior Indebtedness of the
             Company) pursuant to and subject to the conditions contained in
the Indenture;                                    

provided, however, that in connection with any prepayment, repayment, purchase, 
redemption, defeasance or other acquisition of Indebtedness pursuant to clause  
(A) or (C) above, the Company or such Restricted Subsidiary shall permanently   
retire such Indebtedness and shall cause the related loan commitment (if any) to
be permanently reduced in an amount equal to the principal amount so prepaid,   
repaid, purchased, redeemed, defeased or otherwise acquired.                    

    Notwithstanding the foregoing provisions of this covenant, the Company and
the Restricted Subsidiaries will not be required to apply any Net Available Cash
in accordance with this covenant except to the extent that the aggregate Net    
Available Cash from all Asset Dispositions which is not applied in accordance   
with this covenant exceeds $5 million. Pending application of Net Available Cash
pursuant to this covenant, such Net Available Cash shall be invested in         
Temporary Cash Investments or applied to temporarily reduce revolving credit    
indebtedness.                                                                   

   For the purposes of this covenant, the following are deemed to be cash or
cash equivalents:                                                               

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    (1)  the assumption of Indebtedness of the Company (other than obligations
      in respect of Disqualified Stock of the Company) or any Restricted
          Subsidiary (other than obligations in respect of Disqualified Stock or
     Preferred Stock of a Subsidiary Guarantor) and the release of the
    Company or such Restricted Subsidiary from all liability on such
Indebtedness in connection with such Asset Disposition; and 

   (2)  securities received by the Company or any Restricted Subsidiary from
     the transferee that are promptly converted by the Company or such
      Restricted Subsidiary into cash, to the extent of cash received in
that conversion.                                            

(b) In the event of an Asset Disposition that requires the purchase of
Notes (and other Senior Indebtedness of the Company) pursuant to clause         
(a)(3)(C) above, the Company will purchase Notes tendered pursuant to an offer  
by the Company for the Notes (and such other Senior Indebtedness) at a purchase 
price of 100% of their principal amount (or, in the event such other Senior     
Indebtedness of the Company was issued with significant original issue discount,
100% of the accreted value thereof) without premium, plus accrued but unpaid    
interest (or, in respect of such other Senior Indebtedness of the Company, such 
lesser price, if any, as may be provided for by the terms of such Senior        
Indebtedness) in accordance with the procedures (including prorating in the     
event of oversubscription) set forth in the Indenture. If the aggregate purchase
price of the securities tendered exceeds the Net Available Cash allotted to     
their purchase, the Company will select the securities to be purchased on a pro 
rata basis but in round denominations, which in the case of the Notes will be   
denominations of $1,000 principal amount or multiples thereof. The Company shall
not be required to make such an offer to purchase Notes (and other Senior       
Indebtedness of the Company) pursuant to this covenant if the Net Available Cash
available therefor is less than $2 million (which lesser amount shall be carried
forward for purposes of determining whether such an offer is required with      
respect to the Net Available Cash from any subsequent Asset Disposition). Upon  
completion of such an offer to purchase, Net Available Cash will be deemed to be
reduced by the aggregate amount of such offer.                                  

(c) The Company will comply, to the extent applicable, with the       
requirements of Section 14(e) of the Exchange Act and any other securities laws 
or regulations in connection with the repurchase of Notes pursuant to this      
covenant. To the extent that the provisions of any securities laws or           
regulations conflict with provisions of this covenant, the Company will comply  
with the applicable securities laws and regulations and will not be deemed to   
have breached its obligations under this covenant by virtue of its compliance   
with such securities laws or regulations.                                       

Limitation on Affiliate Transactions                                  

     (a) The Company will not, and will not permit any Restricted Subsidiary to,
enter into or permit to exist any transaction (including the purchase, sale,    
lease or exchange of any property, employee compensation arrangements or the    
rendering of any service) with, or for the benefit of, any Affiliate of the     
Company (an "Affiliate Transaction") unless:                                    

  (1)  the terms of the Affiliate Transaction are no less favorable to the
  Company or such Restricted Subsidiary than those that could be
     obtained at the time of the Affiliate Transaction in arm's-length
dealings with a Person who is not an Affiliate;             

(2)  if such Affiliate Transaction involves an amount in excess of $1 
    million, the terms of the Affiliate Transaction are set forth in
   writing and two Officers of the Company have certified that the
  criteria set forth in clause (1) are satisfied in an Officers'
Certificate;                                                

(3)  if such Affiliate Transaction involves an amount in excess of $5 
          million, a majority of the directors of the Company disinterested with
       respect to such Affiliate Transaction have determined in good faith
    that the criteria set forth in clause (1) are satisfied and have
 approved the relevant Affiliate Transaction as evidenced by a
   resolution of the Board of Directors; provided, however, that a
          director will not be deemed disinterested with respect to transactions
         between the Company or a Restricted Subsidiary on the one hand and an
         immediate family member of such director or an entity affiliated with
such immediate family member on the other; and              

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(4)  if such Affiliate Transaction involves an amount in excess of $10
      million, the Board of Directors shall also have received a written
       opinion from an Independent Qualified Party to the effect that such
      Affiliate Transaction is fair, from a financial standpoint, to the
       Company and its Restricted Subsidiaries or is not less favorable to
        the Company and its Restricted Subsidiaries than could reasonably be
      expected to be obtained at the time in an arm's-length transaction
with a Person who was not an Affiliate.                     

(b) The provisions of the preceding paragraph (a) will not prohibit:  

     (1)  any Investment (other than a Permitted Investment) or other Restricted
       Payment, in each case permitted to be made pursuant to (but only to
      the extent included in the calculation of the amount of Restricted
         Payments made pursuant to paragraph (a)(3) of) the covenant described
under "--Limitation on Restricted Payments";                

 (2)  any issuance of securities, or other payments, awards or grants in
 cash, securities or otherwise pursuant to, or the funding of,
    employment arrangements, stock options and stock ownership plans
approved by the Board of Directors;                         

   (3)  loans or advances to employees in the ordinary course of business in
       accordance with the past practices of the Company or its Restricted
  Subsidiaries, but in any event not to exceed $2 million in the
aggregate outstanding at any one time;                      

 (4)  the payment of reasonable fees to directors of the Company and its
       Restricted Subsidiaries who are not employees of the Company or its
Restricted Subsidiaries;                                    

(5)  any transaction with a Restricted Subsidiary or joint venture or 
         similar entity which would constitute an Affiliate Transaction solely
          because the Company or a Restricted Subsidiary owns an equity interest
         in or otherwise controls such Restricted Subsidiary, joint venture or
similar entity;                                             

 (6)  the issuance or sale of any Capital Stock (other than Disqualified
Stock) of the Company; and                                  

(7)  transactions entered into in the ordinary course of business,    
   consistent with past practices, on terms that are substantially
similar to those that could be obtained at the time of such 
     transactions in arm's-length dealings with a Person who is not an
Affiliate.                                                  

Limitation on Line of Business                                        

 The Company will not, and will not permit any Restricted Subsidiary, to
engage in any business other than a Related Business.                           

Limitation on the Sale or Issuance of Capital Stock of Restricted     
Subsidiaries                                                                    

The Company                                                           

(1)  will not, and will not permit any Restricted Subsidiary to, sell,
    lease, transfer or otherwise dispose of any Capital Stock of any
    Restricted Subsidiary to any Person (other than the Company or a
Wholly Owned Subsidiary), and                               

    (2)  will not permit any Restricted Subsidiary to issue any of its Capital
Stock (other than, if necessary, shares of its Capital Stock
        constituting directors' or other legally required qualifying shares)
to any Person (other than to the Company or a Wholly Owned  
Subsidiary),                                                

unless                                                                          

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        (A)  immediately after giving effect to such issuance, sale or other
              disposition, neither the Company nor any of its Subsidiaries own
 any Capital Stock of such Restricted Subsidiary; or

        (B)  immediately after giving effect to such issuance, sale or other
     disposition, such Restricted Subsidiary would no longer
           constitute a Restricted Subsidiary and any Investment in such
              Person remaining after giving effect thereto is treated as a new
              Investment by the Company and such Investment would be permitted
            to be made under the covenant described under "--Limitation on
             Restricted Payments" if made on the date of such issuance, sale
or other disposition.                             

    For purposes of this covenant, the creation of a Lien on any Capital Stock
of a Restricted Subsidiary to secure Indebtedness of the Company or any of its  
Restricted Subsidiaries will not be deemed to be a violation of this covenant;  
provided, however, that any sale or other disposition by the secured party of   
such Capital Stock following foreclosure of its Lien will be subject to this    
covenant.                                                                       

Limitation on Liens                                                   

 The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, Incur or permit to exist any Lien (the "Initial Lien")  
of any nature whatsoever on any of its properties (including Capital Stock of a 
Restricted Subsidiary), whether owned at the Issue Date or thereafter acquired, 
securing any Indebtedness, other than Permitted Liens, without effectively      
providing that the Notes shall be secured equally and ratably with (or prior to)
the obligations so secured for so long as such obligations are so secured.      

  Any Lien created for the benefit of the Holders of the Notes pursuant to
the preceding sentence shall provide by its terms that such Lien shall be       
automatically and unconditionally released and discharged upon the release and  
discharge of the Initial Lien.                                                  

Limitation on Sale/Leaseback Transactions                             

 The Company will not, and will not permit any Restricted Subsidiary to,
enter into any Sale/Leaseback Transaction with respect to any property unless:  

 (1)  the Company or such Restricted Subsidiary would be entitled to (A)
       Incur Indebtedness in an amount equal to the Attributable Debt with
       respect to such Sale/Leaseback Transaction pursuant to the covenant
        described under "--Limitation on Indebtedness" and (B) create a Lien
        on such property securing such Attributable Debt without equally and
       ratably securing the Notes pursuant to the covenant described under
"--Limitation on Liens";                                    

    (2)  the net proceeds received by the Company or any Restricted Subsidiary
         in connection with such Sale/Leaseback Transaction are at least equal
         to the fair market value (as determined by the Board of Directors) of
such property; and                                          

 (3)  the Company applies the proceeds of such transaction in compliance
         with the covenant described under "--Limitation on Sale of Assets and
Subsidiary Stock."                                          

Merger and Consolidation                                              

 The Company will not consolidate with or merge with or into, or convey,
transfer or lease, in one transaction or a series of transactions, directly or  
indirectly, all or substantially all its assets to, any Person, unless:         

(1)  the resulting, surviving or transferee Person (the "Successor    
        Company") shall be a Person organized and existing under the laws of
      the United Mexican States or the laws of any political subdivision
        thereof, the laws of the United States of America, any State thereof
    or the District of Columbia, or the European Union or any of its
       member nations and the Successor Company (if not the Company) shall
        expressly assume, by an indenture supplemental thereto, executed and
delivered                                                   

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to the Trustee, in form satisfactory to the Trustee, all the
  obligations of the predecessor Company under the Notes and the
Indenture;                                                  

 (2)  immediately after giving pro forma effect to such transaction (and
          treating any Indebtedness which becomes an obligation of the Successor
       Company or any Subsidiary as a result of such transaction as having
          been Incurred by such Successor Company or such Subsidiary at the time
of such transaction), no Default shall have occurred and be 
continuing;                                                 

 (3)  immediately after giving pro forma effect to such transaction, the
   Successor Company would be able to Incur an additional $1.00 of
          Indebtedness pursuant to paragraph (a) of the covenant described under
"--Limitation on Indebtedness";                             

(4)  the Company shall have delivered to the Trustee an Officers'     
 Certificate and an Opinion of Counsel, each stating that such
         consolidation, merger or transfer and such supplemental indenture (if
any) comply with the Indenture;                             

    (5)  the Company shall have delivered to the Trustee an Opinion of Counsel
          to the effect that the holders will not recognize income, gain or loss
          for US Federal income tax purposes as a result of such transaction and
        will be subject to US Federal income tax on the same amounts, in the
         same manner and at the same times as would have been the case if such
transaction had not occurred; and                           

   (6)  the Company shall have delivered an Opinion of Counsel in the United
       Mexican States to the effect that the holders of the Notes will not
  recognize income, gain or loss for income tax purposes of such
       jurisdiction as a result of such transaction and will be subject to
    income tax in such jurisdiction on the same amounts, in the same
    manner and at the same times as would have been the case if such
transaction had not occurred;                               

provided, however, that clause (3) will not be applicable to (A) a Restricted   
Subsidiary consolidating with, merging into or transferring all or part of its  
properties and assets to the Company or (B) the Company merging with an         
Affiliate of the Company solely for the purpose and with the sole effect of     
reincorporating the Company in another jurisdiction.                            

 For purposes of this covenant, the sale, lease, conveyance, assignment,
transfer or other disposition of all or substantially all of the properties and 
assets of one or more Subsidiaries of the Company, which properties and assets, 
if held by the Company instead of such Subsidiaries, would constitute all or    
substantially all of the properties and assets of the Company on a consolidated 
basis, shall be deemed to be the transfer of all or substantially all of the    
properties and assets of the Company.                                           

The Successor Company will be the successor to the Company and shall  
succeed to, and be substituted for, and may exercise every right and power of,  
the Company under the Indenture, and the predecessor Company, except in the case
of a lease, shall be released from the obligation to pay the principal of and   
interest on the Notes.                                                          

     The Company will not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a series
of transactions, all or substantially all of its assets to any Person unless:   

(1)  except in the case of a Subsidiary Guarantor (x) that has been   
    disposed of in its entirety to another Person (other than to the
      Company or an Affiliate of the Company), whether through a merger,
      consolidation or sale of Capital Stock or assets or (y) that, as a
       result of the disposition of all or a portion of its Capital Stock,
     ceases to be a Subsidiary, the resulting, surviving or transferee
   Person (if not such Subsidiary) shall be a Person organized and
existing under the laws of the jurisdiction under which such
      Subsidiary was organized or under the laws of the United States of
    America, or any State thereof or the District of Columbia or the
       United Mexican States, and such Person shall expressly assume, by a
      Guaranty Agreement, in a form satisfactory to the Trustee, all the
          obligations of such Subsidiary, if any, under its Subsidiary Guaranty;

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     (2)  immediately after giving effect to such transaction or transactions on
     a pro forma basis (and treating any Indebtedness which becomes an
    obligation of the resulting, surviving or transferee Person as a
          result of such transaction as having been issued by such Person at the
    time of such transaction), no Default shall have occurred and be
continuing; and                                             

  (3)  the Company delivers to the Trustee an Officers' Certificate and an
       Opinion of Counsel, each stating that such consolidation, merger or
   transfer and such Guaranty Agreement, if any, complies with the
Indenture.                                                  

Future Guarantors                                                     

The Company will cause each Restricted Subsidiary that Incurs any     
Indebtedness to, at the same time, execute and deliver to the Trustee a Guaranty
Agreement pursuant to which such Restricted Subsidiary will Guarantee payment of
the Notes on the same terms and conditions as those set forth in the Indenture. 

SEC Reports                                                           

The Company will furnish to the Noteholders and the Trustee and make  
available to securities analysts and prospective investors upon request: (i)    
within 120 days from the end of each fiscal year, an annual report on Form 20-F 
containing the information required to be contained therein for such fiscal year
and (ii) within 45 days after the end of each of the first three fiscal quarters
in each fiscal year, quarterly reports on Form 6-K containing all the           
information that would be required to be contained in a filing with the SEC on  
Form 10-Q if the Company were required to file such Form, including a           
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations." All reports required by this paragraph will be prepared in all     
material respects in accordance with all the rules and regulations applicable to
the relevant Form, which for purposes of filings on Form 6-K will require       
including all the information required to be included in such Form 6-K by the   
preceding sentence. In addition, whether or not the Company is subject to the   
periodic reporting requirements of the Exchange Act, the Company will file a    
copy of each of the reports with the SEC for public availability within the time
periods specified above (unless the SEC will not accept such a filing). The     
Company agrees that it will not take any action for the purpose of causing the  
SEC not to accept any such filings. If, notwithstanding the foregoing, the SEC  
will not accept the Company's filings for any reason, the Company will post the 
reports referred to in this paragraph on its website within the time periods    
specified above.                                                                

At any time that any of the Company's Subsidiaries are Unrestricted   
Subsidiaries, then the quarterly and annual financial information required by   
the preceding paragraph will include a reasonably detailed presentation, either 
on the face of the financial statements or in the footnotes thereto, and in     
"Management's Discussion and Analysis of Financial Condition and Results of     
Operations," of the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and       
results of operations of the Unrestricted Subsidiaries of the Company.          

  In addition, the Company will furnish to the Holders of the Notes and to
prospective investors, upon the requests of such Holders, any information       
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act so
long as the Notes are not freely transferable under the Securities Act.         

Defaults                                                                        

Each of the following is an Event of Default:                         

    (1)  a default in the payment of interest on the Notes when due, continued
for 30 days;                                                

(2)  a default in the payment of principal of any Note when due at its
      Stated Maturity, upon optional redemption, upon required purchase,
upon declaration of acceleration or otherwise;              

(3)  the failure by the Company to comply with its obligations under  
"--Certain Covenants--Merger and Consolidation" above;      

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     (4)  the failure by the Company to comply for 30 days after notice with any
        of its obligations in the covenants described above under "Change of
         Control" (other than a failure to purchase Notes) or under "--Certain
     Covenants" under "--Limitation on Indebtedness," "--Limitation on
        Restricted Payments," "--Limitation on Restrictions on Distributions
       from Restricted Subsidiaries," "--Limitation on Sales of Assets and
Subsidiary Stock" (other than a failure to purchase Notes), 
      "--Limitation on Affiliate Transactions," "--Limitation on Line of
        Business," "--Limitation on the Sale or Issuance of Capital Stock of
         Restricted Subsidiaries" or "--Limitation on Liens," "--Limitation on
 Sale/Leaseback Transactions," "--Future Guarantors" or "--SEC
Reports";                                                   

   (5)  the failure by the Company or any Subsidiary Guarantor to comply for
   60 days after notice with its other agreements contained in the
Indenture;                                                  

(6)  Indebtedness of the Company, any Subsidiary Guarantor or any     
         Significant Subsidiary is not paid within any applicable grace period
         after final maturity or is accelerated by the holders thereof because
    of a default and the total amount of such Indebtedness unpaid or
         accelerated exceeds $10 million (the "cross acceleration provision");

(7)  certain events of bankruptcy, insolvency or reorganization of the
      Company, a Subsidiary Guarantor or any Significant Subsidiary (the
"bankruptcy provisions");                                   

(8)  any judgment or decree for the payment of money in excess of $10 
         million is entered against the Company, a Subsidiary Guarantor or any
  Significant Subsidiary, remains outstanding for a period of 60
          consecutive days following such judgment and is not discharged, waived
or stayed (the "judgment default provision"); or            

 (9)  a Subsidiary Guaranty ceases to be in full force and effect (other
       than in accordance with the terms of such Subsidiary Guaranty) or a
       Subsidiary Guarantor denies or disaffirms its obligations under its
Subsidiary Guaranty.                                        

However, a default under clauses (4) and (5) will not constitute an Event of    
Default until the Trustee or the holders of 25% in principal amount of the      
outstanding Notes notify the Company of the default and the Company does not    
cure such default within the time specified after receipt of such notice.       

     If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the outstanding Notes may declare the    
principal of and accrued but unpaid interest on all the Notes to be due and     
payable. Upon such a declaration, such principal and interest shall be due and  
payable immediately. If an Event of Default relating to certain events of       
bankruptcy, insolvency or reorganization of the Company occurs and is           
continuing, the principal of and interest on all the Notes will ipso facto      
become and be immediately due and payable without any declaration or other act  
on the part of the Trustee or any holders of the Notes. Under certain           
circumstances, the holders of a majority in principal amount of the outstanding 
Notes may rescind any such acceleration with respect to the Notes and its       
consequences.                                                                   

  Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee will 
be under no obligation to exercise any of the rights or powers under the        
Indenture at the request or direction of any of the holders of the Notes unless 
such holders have offered to the Trustee reasonable indemnity or security       
against any loss, liability or expense. Except to enforce the right to receive  
payment of principal, premium (if any) or interest when due, no holder of a Note
may pursue any remedy with respect to the Indenture or the Notes unless:        

   (1)  such holder has previously given the Trustee notice that an Event of
Default is continuing;                                      

   (2)  holders of at least 25% in principal amount of the outstanding Notes
have requested the Trustee to pursue the remedy;            

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     (3)  such holders have offered the Trustee reasonable security or indemnity
against any loss, liability or expense;                     

  (4)  the Trustee has not complied with such request within 60 days after
   the receipt thereof and the offer of security or indemnity; and

 (5)  holders of a majority in principal amount of the outstanding Notes
         have not given the Trustee a direction inconsistent with such request
within such 60-day period.                                  

Subject to certain restrictions, the holders of a majority in principal amount  
of the outstanding Notes are given the right to direct the time, method and     
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. The Trustee, however,   
may refuse to follow any direction that conflicts with law or the Indenture or  
that the Trustee determines is unduly prejudicial to the rights of any other    
holder of a Note or that would involve the Trustee in personal liability.       

     If a Default occurs, is continuing and is known to the Trustee, the Trustee
must mail to each holder of the Notes notice of the Default within 90 days after
it occurs. Except in the case of a Default in the payment of principal of or    
interest on any Note, the Trustee may withhold notice if and so long as a       
committee of its Trust Officers determines that withholding notice is not       
opposed to the interest of the holders of the Notes. In addition, we are        
required to deliver to the Trustee, within 120 days after the end of each fiscal
year, a certificate indicating whether the signers thereof know of any Default  
that occurred during the previous year. We are required to deliver to the       
Trustee, within 30 days after the occurrence thereof, written notice of any     
event which would constitute certain Defaults, their status and what action we  
are taking or propose to take in respect thereof.                               

Amendments and Waivers                                                          

Subject to certain exceptions, the Indenture may be amended with the  
consent of the holders of a majority in principal amount of the Notes then      
outstanding (including consents obtained in connection with a tender offer or   
exchange for the Notes) and any past default or compliance with any provisions  
may also be waived with the consent of the holders of a majority in principal   
amount of the Notes then outstanding. However, without the consent of each      
holder of an outstanding Note affected thereby, an amendment or waiver may not, 
among other things:                                                             

     (1)  reduce the amount of Notes whose holders must consent to an amendment;

   (2)  reduce the rate of or extend the time for payment of interest on any
Note;                                                       

 (3)  reduce the principal of or change the Stated Maturity of any Note;

(4)  change the provisions applicable to the redemption of any Note as
        described under "--Optional Redemption" or "--Redemption for Changes
in Withholding Taxes" above;                                

 (5)  make any Note payable in money other than that stated in the Note;

(6)  impair the right of any holder of the Notes to receive payment of
        principal of and interest on such holder's Notes on or after the due
          dates therefor or to institute suit for the enforcement of any payment
on or with respect to such holder's Notes;                  

(7)  make any change in the amendment provisions which require each   
holder's consent or in the waiver provisions;               

(8)  make any change in the ranking or priority of any Note that would
adversely affect the Noteholders;                           

(9)  make any change in, or release other than in accordance with the 
      Indenture, any Subsidiary Guaranty that would adversely affect the
Noteholders; or                                             

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 (10) make any change in the provisions of the Indenture described under
   "--Additional Amounts" that adversely affects the rights of any
          Noteholder or amend the terms of the Notes or the Indenture in any way
       that would result in the loss of an exemption from any of the Taxes
described thereunder.                                       

 Notwithstanding the preceding, without the consent of any holder of the
Notes, the Company, the Subsidiary Guarantors and Trustee may amend the         
Indenture:                                                                      

(1)  to cure any ambiguity, omission, defect or inconsistency;        

(2)  to provide for the assumption by a successor corporation of the  
     obligations of the Company, or any Subsidiary Guarantor under the
Indenture;                                                  

(3)  to provide for uncertificated Notes in addition to or in place of
         certificated Notes (provided that the uncertificated Notes are issued
          in registered form for purposes of Section 163(f) of the Code, or in a
      manner such that the uncertificated Notes are described in Section
163(f)(2)(B) of the Code);                                  

    (4)  to add Guarantees with respect to the Notes, including any Subsidiary
Guaranties, or to secure the Notes;                         

   (5)  to add to the covenants of the Company or a Subsidiary Guarantor for
        the benefit of the holders of the Notes or to surrender any right or
power conferred upon the Company or a Subsidiary Guarantor; 

  (6)  to make any change that does not adversely affect the rights of any
holder of the Notes;                                        

(7)  to comply with any requirement of the SEC in connection with the 
    qualification of the Indenture under the Trust Indenture Act; or

   (8)  to make any amendment to the provisions of the Indenture relating to
        the form, authentication, transfer and legending of Notes; provided,
       however, that (a) compliance with the Indenture as so amended would
        not result in Notes being transferred in violation of the Securities
          Act or any other applicable securities law and (b) such amendment does
  not materially affect the rights of Holders to transfer Notes.

The consent of the holders of the Notes is not necessary under the    
Indenture to approve the particular form of any proposed amendment. It is       
sufficient if such consent approves the substance of the proposed amendment.    

   After an amendment under the Indenture becomes effective, we are required
to mail to holders of the Notes a notice briefly describing such amendment.     
However, the failure to give such notice to all holders of the Notes, or any    
defect therein, will not impair or affect the validity of the amendment.        

Transfer                                                                        

   The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of transfer. 
We may require payment of a sum sufficient to cover any tax, assessment or other
governmental charge payable in connection with certain transfers and exchanges. 

Defeasance                                                                      

   At any time, we may terminate all our obligations under the Notes and the
Indenture ("legal defeasance"), except for certain obligations, including those 
respecting the defeasance trust and obligations to register the transfer or     
exchange of the Notes, to replace mutilated, destroyed, lost or stolen Notes and
to maintain a registrar and paying agent in respect of the Notes.               

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   In addition, at any time we may terminate our obligations under "--Change
of Control" and under the covenants described under "--Certain Covenants" (other
than the covenant described under "--Merger and Consolidation"), the operation  
of the cross acceleration provision, the bankruptcy provisions with respect to  
Subsidiary Guarantors and Significant Subsidiaries and the judgment default     
provision described under "--Defaults" above and the limitations contained in   
clause (3) of the first paragraph under "--Certain Covenants--Merger and        
Consolidation" above ("covenant defeasance").                                   

We may exercise our legal defeasance option notwithstanding our prior 
exercise of our covenant defeasance option. If we exercise our legal defeasance 
option, payment of the Notes may not be accelerated because of an Event of      
Default with respect thereto. If we exercise our covenant defeasance option,    
payment of the Notes may not be accelerated because of an Event of Default      
specified in clause (4), (6), (7) (with respect only to Significant Subsidiaries
and Subsidiary Guarantors) or (8) under "--Defaults" above or because of the    
failure of the Company to comply with clause (3) of the first paragraph under   
"--Certain Covenants--Merger and Consolidation" above. If we exercise our legal 
defeasance option or our covenant defeasance option, each Subsidiary Guarantor  
will be released from all of its obligations with respect to its Subsidiary     
Guaranty.                                                                       

    In order to exercise either of our defeasance options, we must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or US          
Government Obligations for the payment of principal and interest on the Notes to
redemption or maturity, as the case may be, and must comply with certain other  
conditions, including delivery to the Trustee of (1) an Opinion of Counsel to   
the effect that holders of the Notes will not recognize income, gain or loss for
US Federal income tax purposes as a result of such deposit and defeasance and   
will be subject to US Federal income tax on the same amounts and in the same    
manner and at the same times as would have been the case if such deposit and    
defeasance had not occurred (and, in the case of legal defeasance only, such    
Opinion of Counsel must be based on a ruling of the Internal Revenue Service or 
other change in applicable US Federal income tax law) and (2) an Opinion of     
Counsel in the United Mexican States to the effect that holders of the Notes    
will not recognize income, gain or loss for income tax purposes of such         
jurisdiction as a result of such deposit and defeasance and will be subject to  
income tax of such jurisdiction on the same amounts and in the same manner and  
at the same times as would have been the case if such deposit and defeasance had
not occurred.                                                                   

Concerning the Trustee                                                          

The Bank of New York is to be the Trustee under the Indenture. We have
appointed The Bank of New York as Registrar and Paying Agent with regard to the 
Notes. In addition, The Bank of New York will act as Exchange Agent in          
connection with the Exchange Offer contemplated hereby.                         

  The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company or any Subsidiary Guarantor, to      
obtain payment of claims in certain cases, or to realize on certain property    
received in respect of any such claim as security or otherwise. The Trustee will
be permitted to engage in other transactions; provided, however, if it acquires 
any conflicting interest it must either eliminate such conflict within 90 days, 
apply to the SEC for permission to continue or resign.                          

     The Holders of a majority in principal amount of the outstanding Notes will
have the right to direct the time, method and place of conducting any proceeding
for exercising any remedy available to the Trustee, subject to certain          
exceptions. If an Event of Default occurs (and is not cured), the Trustee will  
be required, in the exercise of its power, to use the degree of care of a       
prudent man in the conduct of his own affairs. Subject to such provisions, the  
Trustee will be under no obligation to exercise any of its rights or powers     
under the Indenture at the request of any Holder of Notes, unless such Holder   
shall have offered to the Trustee security and indemnity satisfactory to it     
against any loss, liability or expense and then only to the extent required by  
the terms of the Indenture.                                                     

No Personal Liability of Directors, Officers, Employees and Stockholders        

    No director, officer, employee, incorporator or stockholder of the Company
or any Subsidiary Guarantor will have any liability for any obligations of the  
Company or any Subsidiary Guarantor under the Notes, any Subsidiary Guaranty or 
the Indenture or for any claim based on, in respect of, or by reason of such    
obligations or their creation. Each Holder of the Notes by accepting a Note     
waives and releases all such liability. The waiver and re-                      

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lease are part of the consideration for issuance of the Notes. Such waiver and  
release may not be effective to waive liabilities under the US Federal          
securities laws, and it is the view of the SEC that such a waiver is against    
public policy.                                                                  

Governing Law                                                                   

The Indenture and the Notes will be governed by, and construed in     
accordance with, the laws of the State of New York.                             

Enforceability of Judgments                                                     

Since all of our operating assets and the operating assets of our     
subsidiaries are situated outside the United States, any judgment obtained in   
the United States against us or our subsidiaries, including judgments with      
respect to the payment of principal, interest, redemption price and any purchase
price with respect to the Notes, may not be collectible within the United       
States. A judgment obtained in a competent State or Federal court sitting in the
Borough of Manhattan, City of New York, United States of America arising out of 
or in relation to the obligations of the Company under the Notes would be       
enforceable in Mexico against us or our subsidiaries, provided that all federal 
and state procedural requirements under Mexican law (as the applicable case may 
be), including laws concerning statute of limitations and expirations, are      
satisfied; and further provided that:                                           

     (1)  such judgment is obtained in compliance with legal requirements of the
       jurisdiction of the court rendering such judgment and in compliance
with all legal requirements of the Notes;                   

   (2)  such judgment is strictly for the payment of a certain sum of money,
based on an in personam (as opposed to an in rem) action;   

(3)  service of process was made personally on the defendant or a duly
authorized process agent;                                   

(4)  such judgment does not contravene Mexican law, public policy of  
       Mexico, international treaties or agreements binding upon Mexico or
generally accepted principles of international law;         

    (5)  the applicable procedure under the laws of Mexico with respect to the
    enforcement of foreign judgments (including issuance of a letter
       rogatory by the competent authority of such jurisdiction requesting
          enforcement of such judgment and the certification of such judgment as
      authentic by the corresponding authorities of such jurisdiction in
accordance with the laws thereof) is complied with;         

(6)  such judgment is final in the jurisdiction where obtained; and   

(7)  the courts of such jurisdiction recognize the principles of      
          reciprocity in connection with the enforcement of Mexican judgments in
such jurisdiction.                                          

Consent to Jurisdiction and Service                                             

 The Company, each Subsidiary Guarantor and the Trustee consent that any
legal action, suit or proceeding arising out of or relating to the Notes may be 
instituted in the United States District Court of the Southern District of New  
York and the courts of the State of New York sitting in New York, Borough of    
Manhattan, and will submit to and accept the jurisdiction of any such court.    

The Company and each Subsidiary Guarantor has irrevocably appointed CT
Corporation System, domiciled at 1633 Broadway, New York, New York 10019 as its 
agent for service of process for actions relating to the Notes, the Registration
Rights Agreement or the Indenture brought under Federal or state securities laws
brought in the                                                                  

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United States District Court of the Southern District of New York and the courts
of the State of New York sitting in New York, Borough of Manhattan.             

Certain Definitions                                                             

"Additional Assets" means:                                            

     (1)  any property, plant, equipment or licenses used in a Related Business;

    (2)  the Capital Stock of a Person that becomes a Restricted Subsidiary as
       a result of the acquisition of such Capital Stock by the Company or
another Restricted Subsidiary; or                           

   (3)  Capital Stock constituting a minority interest in any Person that at
such time is a Restricted Subsidiary;                       

provided, however, that any such Restricted Subsidiary described in clause (2)  
or (3) above is primarily engaged in a Related Business.                        

"Adjusted Capital Expenditures" means                                 

 (1)  for any period ending on or before September 30, 2005, the product
          obtained by multiplying (A) Eight Quarter Average Capital Expenditures
by (B) the Number of Test Quarters; or                      

(2)  for any period ending on or after October 1, 2005, capital       
        expenditures made by the Company and its Restricted Subsidiaries for
such period.                                                

  "Adjusted Consolidated Net Income" for any period means Consolidated Net
Income                                                                          

(1)  plus, to the extent deducted in calculating such Consolidated Net
        Income, depreciation and amortization expense of the Company and its
        consolidated Restricted Subsidiaries (excluding amortization expense
      attributable to a prepaid operating activity item that was paid in
cash in a prior period) for such period; and                

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(2)  less Adjusted Capital Expenditures for such period.              

 "Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common     
control with such specified Person. For the purposes of this definition,        
"control" when used with respect to any Person means the power to direct the    
management and policies of such Person, directly or indirectly, whether through 
the ownership of voting securities, by contract or otherwise; and the terms     
"controlling" and "controlled" have meanings correlative to the foregoing. For  
purposes of the covenants described under "--Certain Covenants--Limitation on   
Restricted Payments," "--Certain Covenants--Limitation on Affiliate             
Transactions" and "--Certain Covenants--Limitation on Sales of Assets and       
Subsidiary Stock" only, "Affiliate" shall also mean any beneficial owner of     
Capital Stock representing 10% or more of the total voting power of the Voting  
Stock (on a fully diluted basis) of the Company or of rights or warrants to     
purchase such Capital Stock (whether or not currently exercisable) and any      
Person who would be an Affiliate of any such beneficial owner pursuant to the   
first sentence hereof.                                                          

  "Asset Disposition" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) by the Company  
or any Restricted Subsidiary, including any disposition by means of a merger,   
consolidation or similar transaction (each referred to for the purposes of this 
definition as a "disposition"), of:                                             

 (1)  any shares of Capital Stock of a Restricted Subsidiary (other than
        directors' qualifying shares or shares required by applicable law to
be held by a Person other than the Company or a Restricted  
Subsidiary);                                                

(2)  all or substantially all the assets of any division or line of   
business of the Company or any Restricted Subsidiary; or    

   (3)  any other assets of the Company or any Restricted Subsidiary outside
        of the ordinary course of business of the Company or such Restricted
Subsidiary                                                  

(other than, in the case of clauses (1), (2) and (3) above,                     

          (A)  a disposition by a Restricted Subsidiary to the Company or by the
              Company or a Restricted Subsidiary to a Wholly Owned Subsidiary;

(B)  for purposes of the covenant described under "--Certain
            Covenants--Limitation on Sales of Assets and Subsidiary Stock"
               only, (i) a disposition that constitutes a Restricted Payment (or
               would constitute a Restricted Payment but for the exclusions from
       the definition thereof) and that is not prohibited by the
          covenant described under "--Certain Covenants--Limitation on
   Restricted Payments" and (ii) a disposition of all or
            substantially all the assets of the Company in accordance with
           the covenant described under "--Certain Covenants--Merger and
Consolidation";                                   

      (C)  a disposition of assets with a fair market value of less than
$500,000;                                         

 (D)  a disposition of cash or Temporary Cash Investments; and

         (E)  the creation of a Lien (but not the sale or other disposition of
the property subject to such Lien)).              

     "Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate   
borne by the Notes, compounded annually) of the total obligations of the lessee 
for rental payments during the remaining term of the lease included in such     
Sale/Leaseback Transaction (including any period for which such lease has been  
extended); provided, however, that if such Sale/Leaseback Transaction results in
a Capital Lease Obligation, the amount of Indebtedness represented thereby will 
be determined in accordance with the definition of "Capital Lease Obligation."  

    "Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing:                                

(1)  the sum of the products of the numbers of years from the date of 
     determination to the dates of each successive scheduled principal
    payment of or redemption or similar payment with respect to such
Indebtedness multiplied by the amount of such payment by    

(2)  the sum of all such payments.                                    

 "Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.               

"Business Day" means each day which is not a Legal Holiday.           

"Capital Lease Obligation" means an obligation that is required to be 
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such     
obligation shall be the capitalized amount of such obligation determined in     
accordance with GAAP; and the Stated Maturity thereof shall be the date of the  
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a 
penalty. For purposes of the covenant described under "--Certain                
Covenants--Limitations on Liens," a Capital Lease Obligation will be deemed to  
be secured by a Lien on the property being leased.                              

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"Capital Stock" of any Person means any and all shares, interests     
(including partnership interests), rights to purchase, warrants, options,       
participations or other equivalents of or interests in (however designated)     
equity of such Person, including any Preferred Stock, but excluding any debt    
securities convertible into such equity.                                        

"Code" means the Internal Revenue Code of 1986, as amended.           

   "Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries.            

 "Consolidated Leverage Ratio" as of any date of determination means the
ratio of (a) the aggregate amount of Indebtedness of the Company and its        
Restricted Subsidiaries as of such date of determination to (b) EBITDA for the  
most recent four consecutive fiscal quarters ending at least 45 days prior to   
such date of determination (the "Reference Period"); provided, however, that:   

(1)  if the transaction giving rise to the need to calculate the      
     Consolidated Leverage Ratio is an Incurrence of Indebtedness, the
          amount of such Indebtedness shall be calculated after giving effect on
a pro forma basis to such Indebtedness;                     

   (2)  if the Company or any Restricted Subsidiary has repaid, repurchased,
          defeased or otherwise discharged any Indebtedness that was outstanding
        as of the end of such fiscal quarter or if any Indebtedness is to be
        repaid, repurchased, defeased or otherwise discharged on the date of
         the transaction giving rise to the need to calculate the Consolidated
         Leverage Ratio (other than, in each case, Indebtedness Incurred under
         any revolving credit agreement), the aggregate amount of Indebtedness
shall be calculated on a pro forma basis and EBITDA shall be
      calculated as if the Company or such Restricted Subsidiary had not
  earned the interest income, if any, actually earned during the
          Reference Period in respect of cash or Temporary Cash Investments used
to repay, repurchase, defease or otherwise discharge such   
Indebtedness;                                               

(3)  if since the beginning of the Reference Period the Company or any
    Restricted Subsidiary shall have made any Asset Disposition, the
          EBITDA for the Reference Period shall be reduced by an amount equal to
          the EBITDA (if positive) directly attributable to the assets which are
     the subject of such Asset Disposition for the Reference Period or
     increased by an amount equal to the EBITDA (if negative) directly
attributable thereto for the Reference Period;              

(4)  if since the beginning of the Reference Period the Company or any
     Restricted Subsidiary (by merger or otherwise) shall have made an
          Investment in any Restricted Subsidiary (or any Person which becomes a
        Restricted Subsidiary) or an acquisition of assets which constitutes
       all or substantially all of an operating unit of a business, EBITDA
       for the Reference Period shall be calculated after giving pro forma
       effect thereto (including the Incurrence of any Indebtedness) as if
   such Investment or acquisition occurred on the first day of the
Reference Period; and                                       

(5)  if since the beginning of the Reference Period any Person (that  
          subsequently became a Restricted Subsidiary or was merged with or into
        the Company or any Restricted Subsidiary since the beginning of such
Reference Period) shall have made any Asset Disposition, any
   Investment or acquisition of assets that would have required an
         adjustment pursuant to clause (3) or (4) above if made by the Company
          or a Restricted Subsidiary during the Reference Period, EBITDA for the
      Reference Period shall be calculated after giving pro forma effect
   thereto as if such Asset Disposition, Investment or acquisition
occurred on the first day of the Reference Period.          

For purposes of this definition, whenever pro forma effect is to be given to an 
acquisition of assets, the amount of income or earnings relating thereto and the
amount of Consolidated Interest Expense associated with any Indebtedness        
Incurred in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting Officer of the Company.  
If any Indebtedness bears a floating rate of interest and is being given pro    
forma effect, the interest on such Indebtedness shall be calculated as if the   
rate in effect on the date of                                                   

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determination had been the applicable rate for the entire period (taking into   
account any Interest Rate Agreement applicable to such Indebtedness if such     
Interest Rate Agreement has a remaining term in excess of 12 months).           

  If any Indebtedness is Incurred under a revolving credit facility and is
being given pro forma effect, the interest on such Indebtedness shall be        
calculated based on the average daily balance of such Indebtedness for the four 
fiscal quarters subject to the pro forma calculation to the extent that such    
Indebtedness was incurred solely for working capital purposes.                  

"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall  
not be included in such Consolidated Net Income:                                

   (1)  any net income of any Person (other than the Company) if such Person
is not a Restricted Subsidiary, except that:                

    (A)  subject to the exclusion contained in clause (4) below, the
            Company's equity in the net income of any such Person for such
            period shall be included in such Consolidated Net Income up to
              the aggregate amount of cash actually distributed by such Person
               during such period to the Company or a Restricted Subsidiary as a
       dividend or other distribution (subject, in the case of a
             dividend or other distribution paid to a Restricted Subsidiary,
    to the limitations contained in clause (3) below); and

       (B)  the Company's equity in a net loss of any such Person for such
           period shall be included in determining such Consolidated Net
Income;                                           

  (2)  any net income (or loss) of any Person acquired by the Company or a
        Subsidiary in a pooling of interests transaction (or any transaction
        accounted for in a manner similar to a pooling of interests) for any
period prior to the date of such acquisition;               

(3)  any net income of any Restricted Subsidiary if such Restricted   
         Subsidiary is subject to restrictions, directly or indirectly, on the
          payment of dividends or the making of distributions by such Restricted
    Subsidiary, directly or indirectly, to the Company, except that:

    (A)  subject to the exclusion contained in clause (4) below, the
       Company's equity in the net income of any such Restricted
               Subsidiary for such period shall be included in such Consolidated
    Net Income up to the aggregate amount of cash actually
             distributed by such Restricted Subsidiary during such period to
           the Company or another Restricted Subsidiary as a dividend or
             other distribution (subject, in the case of a dividend or other
        distribution paid to another Restricted Subsidiary, to the
limitation contained in this clause); and         

  (B)  the Company's equity in a net loss of any such Restricted
              Subsidiary for such period shall be included in determining such
Consolidated Net Income;                          

    (4)  any gain (or loss) realized upon the sale or other disposition of any
     assets of the Company, its consolidated Subsidiaries or any other
     Person (including pursuant to any sale-and-leaseback arrangement)
        which is not sold or otherwise disposed of in the ordinary course of
   business and any gain (or loss) realized upon the sale or other
disposition of any Capital Stock of any Person;             

    (5)  any net, after-tax, extraordinary or non-recurring gains or losses or
income or expenses; and                                     

(6)  the cumulative effect of a change in accounting principles;      

in each case, for such period. Notwithstanding the foregoing, for the purposes  
of the covenant described under "--Certain Covenants--Limitation on Restricted  
Payments" only, there shall be excluded from Consolidated Net Income any        
repurchases, repayments or redemptions of Investments, proceeds realized on the 
sale of Investments or return of capital to the Company or a Restricted         
Subsidiary to the extent such repurchases, repayments, redemptions,             

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proceeds or returns increase the amount of Restricted Payments permitted under  
such covenant pursuant to clause (a)(3)(D) thereof.                             

"Consolidated Secured Leverage Ratio" means, as of any date of        
determination, the ratio of (1) the aggregate amount of Indebtedness of the     
Company and its Restricted Subsidiaries that is secured by Liens as of such date
of determination to (2) EBITDA for the period of (i) the most recent four       
consecutive fiscal quarters ending at least 45 days prior to the date of        
determination or (ii) if quarterly information is available for the immediately 
preceding fiscal quarter and such financial information is included in the      
reports filed or delivered pursuant to the covenant described under "Certain    
Covenants--SEC Reports," the most recent four consecutive fiscal quarters, with 
such pro forma and other adjustments to each of Indebtedness and EBITDA as are  
appropriate and consistent with the pro forma and other adjustment provisions   
set forth in the definition of Consolidated Leverage Ratio.                     

  "Consolidated Total Assets" means, as of any date of determinations, the
total assets shown on the consolidated balance sheet of the Company and its     
Restricted Subsidiaries as of the most recent date for which such a balance     
sheet is available, determined on a consolidated basis in accordance with GAAP  
(and, in the case of any determination relating to any Incurrence of            
Indebtedness or any Investment, on a pro forma basis including any property or  
assets being acquired in connection therewith).                                 

    "Currency Agreement" means in any foreign exchange contract, currency swap
agreement or other similar agreement with respect to currency values.           

   "Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.                                             

   "Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is convertible
or for which it is exchangeable at the option of the holder) or upon the        
happening of any event:                                                         

   (1)  matures or is mandatorily redeemable (other than redeemable only for
        Capital Stock of such Person which is not itself Disqualified Stock)
pursuant to a sinking fund obligation or otherwise;         

(2)  is convertible or exchangeable at the option of the holder for   
Indebtedness or Disqualified Stock; or                      

    (3)  is mandatorily redeemable or must be purchased upon the occurrence of
certain events or otherwise, in whole or in part;           

in each case on or prior to the first anniversary of the Stated Maturity of the 
Notes; provided, however, that any Capital Stock that would not constitute      
Disqualified Stock but for provisions thereof giving holders thereof the right  
to require such Person to purchase or redeem such Capital Stock upon the        
occurrence of an "asset sale" or "change of control" occurring prior to the     
first anniversary of the Stated Maturity of the Notes shall not constitute      
Disqualified Stock if:                                                          

    (4)  the "asset sale" or "change of control" provisions applicable to such
       Capital Stock are not more favorable to the holders of such Capital
    Stock than the terms applicable to the Notes and described under
      "--Certain Covenants--Limitation on Sales of Assets and Subsidiary
Stock" and "--Certain Covenants--Change of Control"; and    

     (5)  any such requirement only becomes operative after compliance with such
      terms applicable to the Notes, including the purchase of any Notes
tendered pursuant thereto.                                  

The amount of any Disqualified Stock that does not have a fixed redemption,     
repayment or repurchase price will be calculated in accordance with the terms of
such Disqualified Stock as if such Disqualified Stock were redeemed, repaid or  
repurchased on any date on which the amount of such Disqualified Stock is to be 
determined pursuant to the Indenture; provided, however, that if such           
Disqualified Stock could not be required to be redeemed, repaid or              

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repurchased at the time of such determination, the redemption, repayment or     
repurchase price will be the book value of such Disqualified Stock as reflected 
in the most recent financial statements of such Person.                         

    "EBITDA" for any period means the sum of Consolidated Net Income, plus the
following to the extent deducted in calculating such Consolidated Net Income:   

(1)  all expense for income tax or asset tax of the Company and its   
consolidated Restricted Subsidiaries;                       

(2)  Consolidated Interest Expense;                                   

(3)  depreciation and amortization expense of the Company and its     
        consolidated Restricted Subsidiaries (excluding amortization expense
      attributable to a prepaid operating activity item that was paid in
cash in a prior period); and                                

(4)  all other non-cash charges of the Company and its consolidated   
      Restricted Subsidiaries (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash 
expenditures in any future period);                         

in each case for such period. Notwithstanding the foregoing, the provision for  
taxes based on the income or profits of, and the depreciation and amortization  
and non-cash charges of, a Restricted Subsidiary shall be added to Consolidated 
Net Income to compute EBITDA only to the extent (and in the same proportion,    
including by reason of minority interests) that the net income or loss of such  
Restricted Subsidiary was included in calculating Consolidated Net Income and   
only if a corresponding amount would be permitted at the date of determination  
to be dividended to the Company by such Restricted Subsidiary without prior     
approval (that has not been obtained), pursuant to the terms of its charter and 
all agreements, instruments, judgments, decrees, orders, statutes, rules and    
governmental regulations applicable to such Restricted Subsidiary or its        
stockholders.                                                                   

"Eight Quarter Average Capital Expenditures" means, at any date of    
determination, the quotient obtained by dividing (A) the sum of capital         
expenditures made by the Company and its Restricted Subsidiaries for the eight  
fiscal quarters preceding such date through and including the end of the most   
recent fiscal quarter ending at least 45 days prior to the date of determination
by (B) eight.                                                                   

    "Equity Offering" means any sale of Capital Stock (other than Disqualified
Stock).                                                                         

  "Exchange Act" means the US Securities Exchange Act of 1934, as amended.

   "Exchange Notes" means the debt securities of the Company issued pursuant
to the Indenture in exchange for, and in an aggregate principal amount equal to,
the 2005 notes, in compliance with the terms of the Registration Rights         
Agreement.                                                                      

"GAAP" means generally accepted accounting principles in Mexico as in 
effect on the Issue Date.                                                       

  "Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any Person and any      
obligation, direct or indirect, contingent or otherwise, of such Person:        

 (1)  to purchase or pay (or advance or supply funds for the purchase or
    payment of) such Indebtedness of such Person (whether arising by
         virtue of partnership arrangements, or by agreements to keep-well, to
        purchase assets, goods, securities or services, to take-or-pay or to
maintain financial statement conditions or otherwise); or   

(2)  entered into for the purpose of assuring in any other manner the 
          obligee of such Indebtedness of the payment thereof or to protect such
  obligee against loss in respect thereof (in whole or in part);

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provided, however, that the term "Guarantee" shall not include endorsements for 
collection or deposit in the ordinary course of business. The term "Guarantee"  
used as a verb has a corresponding meaning.                                     

     "Guaranty Agreement" means a supplemental indenture, in a form satisfactory
to the Trustee, pursuant to which a Subsidiary Guarantor guarantees the         
Company's obligations with respect to the Notes on the terms provided for in the
Indenture.                                                                      

  "Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.                  

"Holder" or "Noteholder" means the Person in whose name a Note is     
registered on the Registrar's books.                                            

  "Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness of a Person existing at the time  
such Person becomes a Restricted Subsidiary (whether by merger, consolidation,  
acquisition or otherwise) shall be deemed to be Incurred by such Person at the  
time it becomes a Restricted Subsidiary. The term "Incurrence" when used as a   
noun shall have a correlative meaning. Solely for purposes of determining       
compliance with "--Certain Covenants--Limitation on Indebtedness":              

(1)  amortization of debt discount or the accretion of principal with 
 respect to a non-interest bearing or other discount security;

    (2)  the payment of regularly scheduled interest in the form of additional
   Indebtedness of the same instrument or the payment of regularly
          scheduled dividends on Capital Stock in the form of additional Capital
Stock of the same class and with the same terms; and        

    (3)  the obligation to pay a premium in respect of Indebtedness arising in
         connection with the issuance of a notice of redemption or making of a
mandatory offer to purchase such Indebtedness               

will not be deemed to be the Incurrence of Indebtedness.                        

"Indebtedness" means, with respect to any Person on any date of       
determination (without duplication):                                            

    (1)  the principal in respect of (A) indebtedness of such Person for money
          borrowed and (B) indebtedness evidenced by notes, debentures, bonds or
     other similar instruments for the payment of which such Person is
       responsible or liable, including, in each case, any premium on such
       indebtedness to the extent such premium has become due and payable;

     (2)  all Capital Lease Obligations of such Person and all Attributable Debt
          in respect of Sale/Leaseback Transactions entered into by such Person;

(3)  all obligations of such Person issued or assumed as the deferred 
        purchase price of property, all conditional sale obligations of such
       Person and all obligations of such Person under any title retention
  agreement (but excluding trade accounts payable arising in the
ordinary course of business);                               

     (4)  all obligations of such Person for the reimbursement of any obligor on
any letter of credit, bankers' acceptance or similar credit 
         transaction (other than obligations with respect to letters of credit
         securing obligations (other than obligations described in clauses (1)
         through (3) above) entered into in the ordinary course of business of
       such Person to the extent such letters of credit are not drawn upon
      or, if and to the extent drawn upon, such drawing is reimbursed no
        later than the tenth Business Day following payment on the letter of
credit);                                                    

(5)  the amount of all obligations of such Person with respect to the 
          redemption, repayment or other repurchase of any Capital Stock of such
         Person or any Subsidiary of such Person or that are determined by the
     value of such Capital Stock, the principal amount of such Capital
Stock to be determined in accordance with the Indenture;    

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    (6)  all obligations of the type referred to in clauses (1) through (5) of
       other Persons and all dividends of other Persons for the payment of
         which, in either case, such Person is responsible or liable, directly
         or indirectly, as obligor, guarantor or otherwise, including by means
of any Guarantee;                                           

    (7)  all obligations of the type referred to in clauses (1) through (6) of
      other Persons secured by any Lien on any property or asset of such
          Person (whether or not such obligation is assumed by such Person), the
        amount of such obligation being deemed to be the lesser of the value
  of such property or assets and the amount of the obligation so
secured; and                                                

(8)  to the extent not otherwise included in this definition, Hedging 
Obligations of such Person.                                 

Notwithstanding the foregoing, in connection with the purchase by the Company or
any Restricted Subsidiary of any business, the term "Indebtedness" will exclude 
post-closing payment adjustments to which the seller may become entitled to the 
extent such payment is determined by a final closing balance sheet or such      
payment depends on the performance of such business after the closing; provided,
however, that, at the time of closing, the amount of any such payment is not    
determinable and, to the extent such payment thereafter becomes fixed and       
determined, the amount is paid within 30 days thereafter.                       

The amount of Indebtedness of any Person at any date shall be the     
outstanding balance at such date of all obligations as described above;         
provided, however, that in the case of Indebtedness sold at a discount, the     
amount of such Indebtedness at any time will be the accreted value thereof at   
such time.                                                                      

    "Independent Qualified Party" means an investment banking firm, accounting
firm or appraisal firm of national standing; provided, however, that such firm  
is not an Affiliate of the Company.                                             

    "Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement with respect to  
exposure to interest rates.                                                     

"Investment" in any Person means any direct or indirect advance, loan 
(other than advances to customers in the ordinary course of business that are   
recorded as accounts receivable on the balance sheet of the lender) or other    
extensions of credit (including by way of Guarantee or similar arrangement) or  
capital contribution to (by means of any transfer of cash or other property to  
others or any payment for property or services for the account or use of        
others), or any purchase or acquisition of Capital Stock, Indebtedness or other 
similar instruments issued by such Person. Except as otherwise provided for     
herein, the amount of an Investment shall be its fair value at the time the     
Investment is made and without giving effect to subsequent changes in value.    

     For purposes of the definition of "Unrestricted Subsidiary," the definition
of "Restricted Payment" and the covenant described under "--Certain             
Covenants--Limitation on Restricted Payments":                                  

     (1)  "Investment" shall include the portion (proportionate to the Company's
       equity interest in such Subsidiary) of the fair market value of the
     net assets of any Subsidiary of the Company at the time that such
  Subsidiary is designated an Unrestricted Subsidiary; provided,
         however, that upon a redesignation of such Subsidiary as a Restricted
 Subsidiary, the Company shall be deemed to continue to have a
    permanent "Investment" in an Unrestricted Subsidiary equal to an
        amount (if positive) equal to (A) the Company's "Investment" in such
     Subsidiary at the time of such redesignation less (B) the portion
          (proportionate to the Company's equity interest in such Subsidiary) of
          the fair market value of the net assets of such Subsidiary at the time
of such redesignation; and                                  

   (2)  any property transferred to or from an Unrestricted Subsidiary shall
       be valued at its fair market value at the time of such transfer, in
    each case as determined in good faith by the Board of Directors.

"Issue Date" means December 16, 2003.                                 

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"Legal Holiday" means a Saturday, a Sunday or a day on which banking  
institutions are not required to be open in the State of New York or the United 
Mexican States.                                                                 

    "Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention     
agreement or lease in the nature thereof).                                      

  "Moody's" means Moody's Investors Service, Inc. and any successor to its
rating agency business.                                                         

     "Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of   
principal pursuant to a note or installment receivable or otherwise and proceeds
from the sale or other disposition of any securities received as consideration, 
but only as and when received, but excluding any other consideration received in
the form of assumption by the acquiring Person of Indebtedness or other         
obligations relating to such properties or assets or received in any other      
non-cash form), in each case net of:                                            

 (1)  all legal, title and recording tax expenses, commissions and other
   fees and expenses incurred, and all Federal, state, provincial,
       foreign and local taxes required to be accrued as a liability under
GAAP, as a consequence of such Asset Disposition;           

   (2)  all payments made on any Indebtedness which is secured by any assets
          subject to such Asset Disposition, in accordance with the terms of any
          Lien upon or other security agreement of any kind with respect to such
         assets, or which must by its terms, or in order to obtain a necessary
          consent to such Asset Disposition, or by applicable law, be repaid out
of the proceeds from such Asset Disposition;                

   (3)  all distributions and other payments required to be made to minority
         interest holders in Restricted Subsidiaries as a result of such Asset
Disposition;                                                

(4)  the deduction of appropriate amounts provided by the seller as a 
        reserve, in accordance with GAAP, against any liabilities associated
        with the property or other assets disposed in such Asset Disposition
       and retained by the Company or any Restricted Subsidiary after such
Asset Disposition; and                                      

    (5)  any portion of the purchase price from an Asset Disposition placed in
          escrow, whether as a reserve for adjustment of the purchase price, for
       satisfaction of indemnities in respect of such Asset Disposition or
  otherwise in connection with that Asset Disposition; provided,
         however, that upon the termination of that escrow, Net Available Cash
    will be increased by any portion of funds in the escrow that are
released to the Company or any Restricted Subsidiary.       

    "Net Cash Proceeds," with respect to any issuance or sale of Capital Stock
or Indebtedness, means the cash proceeds of such issuance or sale net of        
attorneys' fees, accountants' fees, underwriters' or placement agents' fees,    
discounts or commissions and brokerage, consultant and other fees actually      
incurred in connection with such issuance or sale and net of taxes paid or      
payable as a result thereof.                                                    

   "Number of Test Quarters" means, at any date of determination, the number
of completed fiscal quarters after September 30, 2003 ending at least 45 days   
prior to the date of determination; provided, however, that such Number of Test 
Quarters shall be at least one.                                                 

    "Obligations" means, with respect to any Indebtedness, all obligations for
principal, premium, interest, penalties, fees, indemnifications, reimbursements,
and other amounts payable pursuant to the documentation governing such          
Indebtedness.                                                                   

     "Officer" means the Chairman of the Board, the Chief Executive Officer, any
Vice President, the Chief Financial Officer or the Secretary of the Company.    

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"Officers' Certificate" means a certificate signed by two Officers.   

"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the  
Company or the Trustee.                                                         

"Permitted Asset Swap" means the disposition by the Company or its    
Restricted Subsidiaries of Telecommunication Assets to another Person or Persons
in exchange for which the Company and the Restricted Subsidiaries receive       
Telecommunications Assets having, in the reasonable judgment of the             
disinterested members of the Board of Directors, a fair market value            
substantially equivalent to or greater than the fair market value of the        
Telecommunications Assets so disposed; provided, however, that no such          
disposition or series of related dispositions shall constitute Permitted Asset  
Swaps to the extent that the aggregate fair market value of the                 
Telecommunications Assets so disposed, when combined with the fair market value 
of all other Telecommunications Assets disposed of in one or more Permitted     
Asset Swaps (x) in the twelve calendar months preceding such disposition exceeds
US $15 million or (y) since the Issue Date exceeds US $60 million; provided     
further, however, that if the book value of the Telecommunications Assets to be 
disposed in a Permitted Asset Swap (or in a series of related Permitted Asset   
Swaps) exceeds US $7.5 million, such disposition shall not constitute a         
Permitted Asset Swap unless an Independent Qualified Party shall have determined
in writing that the fair market value of the Telecommunications Assets to be    
received by the Company and its Restricted Subsidiaries is substantially        
equivalent to or greater than the fair market value of the Telecommunications   
Assets to be disposed.                                                          

    "Permitted Holders" means each of the direct shareholders of record of the
Company as of the Issue Date (as identified in the indenture), and any Affiliate
thereof and the shareholders of Telinor Telefonia, S. de R.L. de C.V.           

     "Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in:                                                                  

   (1)  the Company, a Restricted Subsidiary or a Person that will, upon the
        making of such Investment, become a Restricted Subsidiary; provided,
         however, that the primary business of such Restricted Subsidiary is a
Related Business;                                           

   (2)  another Person if, as a result of such Investment, such other Person
          is merged or consolidated with or into, or transfers or conveys all or
substantially all its assets to, the Company or a Restricted
         Subsidiary; provided, however, that such Person's primary business is
a Related Business;                                         

(3)  cash and Temporary Cash Investments;                             

(4)  receivables owing to the Company or any Restricted Subsidiary if 
         created or acquired in the ordinary course of business and payable or
     dischargeable in accordance with customary trade terms; provided,
       however, that such trade terms may include such concessionary trade
terms as the Company or any such Restricted Subsidiary deems
reasonable under the circumstances;                         

(5)  payroll, travel and similar advances to cover matters that are   
     expected at the time of such advances ultimately to be treated as
      expenses for accounting purposes and that are made in the ordinary
course of business;                                         

     (6)  loans or advances to employees made in the ordinary course of business
    consistent with past practices of the Company or such Restricted
Subsidiary;                                                 

(7)  stock, obligations or securities received in settlement of debts 
          created in the ordinary course of business and owing to the Company or
any Restricted Subsidiary or in satisfaction of judgments;  

(8)  any Person to the extent such Investment represents the non-cash 
         portion of the consideration received for (A) an Asset Disposition as
 permitted pursuant to the covenant described under "--Certain
         Covenants--Limitation on Sales of Assets and Subsidiary Stock" or (B)
  a disposition of assets not constituting an Asset Disposition;

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     (9)  any Person where such Investment was acquired by the Company or any of
        its Restricted Subsidiaries (A) in exchange for any other Investment
     or accounts receivable held by the Company or any such Restricted
          Subsidiary in connection with or as a result of a bankruptcy, workout,
  reorganization or recapitalization of the issuer of such other
         Investment or accounts receivable or (B) as a result of a foreclosure
        by the Company or any of its Restricted Subsidiaries with respect to
         any secured Investment or other transfer of title with respect to any
secured Investment in default;                              

     (10) any Person to the extent such Investments consist of prepaid expenses,
     negotiable instruments held for collection and lease, utility and
         workers' compensation, performance and other similar deposits made in
    the ordinary course of business by the Company or any Restricted
Subsidiary;                                                 

(11) any Person to the extent such Investments consist of Hedging     
      Obligations otherwise permitted under the covenant described under
"--Certain Covenants--Limitation on Indebtedness";          

     (12) any Person to the extent such Investment exists on the Issue Date, and
  any extension, modification or renewal of any such Investments
    existing on the Issue Date, but only to the extent not involving
      additional advances, contributions or other Investments of cash or
          other assets or other increases thereof (other than as a result of the
      accrual or accretion of interest or original issue discount or the
      issuance of pay-in-kind securities), in each case, pursuant to the
terms of such Investment as in effect on the Issue Date; and

   (13) Persons to the extent such Investments, when taken together with all
          other Investments made pursuant to this clause (13) outstanding on the
date such Investment is made, do not exceed $10 million.    

"Permitted Liens" means, with respect to any Person:                  

   (1)  pledges or deposits by such Person under workers' compensation laws,
     unemployment insurance laws or similar legislation, or good faith
        deposits in connection with bids, tenders, contracts (other than for
    the payment of Indebtedness) or leases to which such Person is a
        party, or deposits to secure public or statutory obligations of such
          Person or deposits of cash or United States government bonds to secure
          surety or appeal bonds to which such Person is a party, or deposits as
       security for contested taxes or import duties or for the payment of
   rent, in each case Incurred in the ordinary course of business;

     (2)  Liens imposed by law, such as carriers', warehousemen's and mechanics'
       Liens, in each case for sums not yet due or being contested in good
  faith by appropriate proceedings or other Liens arising out of
      judgments or awards against such Person with respect to which such
       Person shall then be proceeding with an appeal or other proceedings
     for review and Liens arising solely by virtue of any statutory or
         common law provision relating to banker's Liens, rights of set-off or
     similar rights and remedies as to deposit accounts or other funds
         maintained with a creditor depository institution; provided, however,
    that (A) such deposit account is not a dedicated cash collateral
    account and is not subject to restrictions against access by the
          Company in excess of those set forth by regulations promulgated by the
         Federal Reserve Board and (B) such deposit account is not intended by
         the Company or any Restricted Subsidiary to provide collateral to the
depository institution;                                     

    (3)  Liens for property taxes not yet subject to penalties for non-payment
          or which are being contested in good faith by appropriate proceedings;

    (4)  Liens in favor of issuers of surety bonds or letters of credit issued
        pursuant to the request of and for the account of such Person in the
         ordinary course of its business; provided, however, that such letters
of credit do not constitute Indebtedness;                   

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     (5)  minor survey exceptions, minor encumbrances, easements or reservations
          of, or rights of others for, licenses, rights-of-way, sewers, electric
       lines, telegraph and telephone lines and other similar purposes, or
        zoning or other restrictions as to the use of real property or Liens
      incidental to the conduct of the business of such Person or to the
          ownership of its properties which were not Incurred in connection with
       Indebtedness and which do not in the aggregate materially adversely
         affect the value of said properties or materially impair their use in
the operation of the business of such Person;               

(6)  Liens securing Indebtedness Incurred to finance the construction,
   purchase or lease of, or repairs, improvements or additions to,
        property, plant or equipment of such Person; provided, however, that
         the Lien may not extend to any other property owned by such Person or
       any of its Restricted Subsidiaries at the time the Lien is Incurred
        (other than assets and property affixed or appurtenant thereto), and
          the Indebtedness (other than any interest thereon) secured by the Lien
 may not be Incurred more than 180 days after the later of the
          acquisition, completion of construction, repair, improvement, addition
          or commencement of full operation of the property subject to the Lien;

(7)  Liens existing on the Issue Date;                                

    (8)  Liens on property or shares of Capital Stock of another Person at the
         time such other Person becomes a Subsidiary of such Person; provided,
         however, that the Liens may not extend to any other property owned by
        such Person or any of its Restricted Subsidiaries (other than assets
and property affixed or appurtenant thereto);               

   (9)  Liens on property at the time such Person or any of its Subsidiaries
         acquires the property, including any acquisition by means of a merger
     or consolidation with or into such Person or a Subsidiary of such
         Person; provided, however, that the Liens may not extend to any other
       property owned by such Person or any of its Restricted Subsidiaries
    (other than assets and property affixed or appurtenant thereto);

  (10) Liens securing Indebtedness or other obligations of a Subsidiary of
         such Person owing to such Person or a Wholly Owned Subsidiary of such
Person;                                                     

     (11) Liens securing Hedging Obligations so long as such Hedging Obligations
    relate to Indebtedness that is, and is permitted to be under the
   Indenture, secured by a Lien on the same property securing such
Hedging Obligations;                                        

   (12) Liens securing directly or indirectly obligations in respect of term
        loans or revolving loans or other Indebtedness (including principal,
        premium, interest, penalties, fees, indemnifications, reimbursements
          and other amounts relating thereto) permitted to be Incurred under the
        Indenture; provided, however, that, at the time of Incurrence of the
Indebtedness so secured and after giving effect thereto, the
        Consolidated Secured Leverage Ratio would be no greater than 2 to 1;

(13) Liens to secure any Refinancing (or successive Refinancings) as a
          whole, or in part, of any Indebtedness secured by any Lien referred to
        in the foregoing clause (6), (7), (8), (9) and (14) below; provided,
however, that:                                              

  (A)  such new Lien shall be limited to all or part of the same
               property and assets that secured or, under the written agreements
         pursuant to which the original Lien arose, could secure the
               original Lien (plus improvements and accessions to, such property
or proceeds or distributions thereof); and        

  (B)  the Indebtedness secured by such Lien at such time is not
     increased to any amount greater than the sum of (i) the
              outstanding principal amount or, if greater, committed amount of
           the Indebtedness described under clause (6), (7), (8), (9) or
            (14) at the time the original Lien became a Permitted Lien and
    (ii) an amount necessary to pay any fees and expenses,

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         including premiums, related to such refinancing, refunding,
extension, renewal or replacement; and            

     (14) Liens securing Purchase Money Obligations or Capital Lease Obligations
       Incurred in compliance with the covenant described under "--Certain
Covenants--Limitation on Indebtedness."                     

Notwithstanding the foregoing, "Permitted Liens" will not include any Lien      
described in clause (6), (8), (9) or (14) above to the extent such Lien applies 
to any Additional Assets acquired directly or indirectly from Net Available Cash
pursuant to the covenant described under "--Certain Covenants--Limitation on    
Sale of Assets and Subsidiary Stock." For purposes of this definition, the term 
"Indebtedness" shall be deemed to include interest on such Indebtedness.        

    "Person" means any individual, corporation, partnership, limited liability
company, joint venture, association, joint-stock company, trust, unincorporated 
organization, government or any agency or political subdivision thereof or any  
other entity.                                                                   

"Pesos" means the legal currency of the United Mexican States.        

 "Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of any class or classes (however designated) which is preferred as
to the payment of dividends or distributions, or as to the distribution of      
assets upon any voluntary or involuntary liquidation or dissolution of such     
Person, over shares of Capital Stock of any other class of such Person.         

    "principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the     
relevant time.                                                                  

    "Purchase Money Obligations" means any Indebtedness Incurred to finance or
refinance the acquisition, leasing, construction or improvement of property     
(real or personal) or assets, and whether acquired through the direct           
acquisition of such property or assets or the Capital Stock of any Person owning
such property or assets, or otherwise.                                          

  "Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, purchase, redeem, defease or retire, or to issue  
other Indebtedness in exchange or replacement for, such Indebtedness.           
"Refinanced" and "Refinancing" shall have correlative meanings.                 

"Refinancing Indebtedness" means Indebtedness that Refinances any     
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue  
Date or Incurred in compliance with the Indenture, including Indebtedness that  
Refinances Refinancing Indebtedness; provided, however, that:                   

  (1)  such Refinancing Indebtedness has a Stated Maturity no earlier than
the Stated Maturity of the Indebtedness being Refinanced;   

 (2)  such Refinancing Indebtedness has an Average Life at the time such
         Refinancing Indebtedness is Incurred that is equal to or greater than
the Average Life of the Indebtedness being Refinanced;      

     (3)  such Refinancing Indebtedness has an aggregate principal amount (or if
         Incurred with original issue discount, an aggregate issue price) that
  is equal to or less than the aggregate principal amount (or if
        Incurred with original issue discount, the aggregate accreted value)
        then outstanding or committed (plus fees and expenses, including any
          premium and defeasance costs) under the Indebtedness being Refinanced;
and                                                         

(4)  if the Indebtedness being Refinanced is subordinated in right of 
          payment to the Notes, such Refinancing Indebtedness is subordinated in
    right of payment to the Notes at least to the same extent as the
Indebtedness being Refinanced;                              

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provided, further, however, that Refinancing Indebtedness shall not include (A) 
Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or (B) 
Indebtedness of the Company or a Restricted Subsidiary that Refinances          
Indebtedness of an Unrestricted Subsidiary.                                     

 "Registration Rights Agreement" means the Registration Rights Agreement
dated January 13, 2005, among the Company, the Subsidiary Guarantors and Credit 
Suisse First Boston LLC.                                                        

  "Related Business" means any business in which the Company or any of the
Restricted Subsidiaries was engaged on the Issue Date and any business related, 
ancillary or complementary to such business.                                    

"Restricted Payment" with respect to any Person means:                

     (1)  the declaration or payment of any dividends or any other distributions
         of any sort in respect of its Capital Stock (including any payment in
         connection with any merger or consolidation involving such Person) or
          similar payment to the direct or indirect holders of its Capital Stock
    (other than (A) dividends or distributions payable solely in its
   Capital Stock (other than Disqualified Stock), (B) dividends or
          distributions payable solely to the Company or a Restricted Subsidiary
          and (C) pro rata dividends or other distributions made by a Subsidiary
      that is not a Wholly Owned Subsidiary to minority stockholders (or
        owners of an equivalent interest in the case of a Subsidiary that is
an entity other than a corporation));                       

    (2)  the purchase, redemption or other acquisition or retirement for value
         of any Capital Stock of the Company held by any Person (other than by
    a Restricted Subsidiary) or of any Capital Stock of a Restricted
    Subsidiary held by any Affiliate of the Company (other than by a
      Restricted Subsidiary), including in connection with any merger or
          consolidation and including the exercise of any option to exchange any
       Capital Stock (other than into Capital Stock of the Company that is
not Disqualified Stock);                                    

    (3)  the purchase, repurchase, redemption, defeasance or other acquisition
   or retirement for value, prior to scheduled maturity, scheduled
   repayment or scheduled sinking fund payment of any Subordinated
          Obligations of the Company or any Subsidiary Guarantor (other than (A)
    from the Company or a Restricted Subsidiary or (B) the purchase,
repurchase, redemption, defeasance or other acquisition of  
      Subordinated Obligations purchased in anticipation of satisfying a
        sinking fund obligation, principal installment or final maturity, in
each case due within one year of the date of such purchase, 
repurchase, redemption, defeasance or other acquisition); or

  (4)  the making of any Investment (other than a Permitted Investment) in
any Person.                                                 

    "Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.                                                        

"Sale/Leaseback Transaction" means an arrangement relating to property
owned by the Company or a Restricted Subsidiary on the Issue Date or thereafter 
acquired by the Company or a Restricted Subsidiary whereby the Company or a     
Restricted Subsidiary transfers such property to a Person and the Company or a  
Restricted Subsidiary leases it from such Person.                               

"SEC" means the US Securities and Exchange Commission.                

"Securities Act" means the US Securities Act of 1933, as amended.     

"Senior Indebtedness" means with respect to any Person:               

    (1)  Indebtedness of such Person, whether outstanding on the Issue Date or
thereafter Incurred; and                                    

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   (2)  all other Obligations of such Person (including interest accruing on
or after the filing of any petition in bankruptcy or for    
     reorganization relating to such Person whether or not post-filing
      interest is allowed in such proceeding) in respect of Indebtedness
described in clause (1) above                               

unless, in the case of clauses (1) and (2), in the instrument creating or       
evidencing the same or pursuant to which the same is outstanding, it is provided
that such Indebtedness or other obligations are subordinate in right of payment 
to the Notes or the Subsidiary Guaranty of such Person, as the case may be;     
provided, however, that Senior Indebtedness shall not include:                  

(1)  any obligation of such Person to the Company or any Subsidiary;  

  (2)  any liability for any national, state, local or other taxes owed or
owing by such Person;                                       

    (3)  any accounts payable or other liability to trade creditors arising in
    the ordinary course of business (including guarantees thereof or
instruments evidencing such liabilities);                   

(4)  any Indebtedness or other Obligation (and any accrued or unpaid  
       interest in respect thereof) of such Person which is subordinate or
          junior in any respect to any other Indebtedness or other Obligation of
such Person; or                                             

  (5)  that portion of any Indebtedness which at the time of Incurrence is
Incurred in violation of the Indenture.                     

  "Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under   
Regulation S-X promulgated by the SEC.                                          

    "Standard & Poor's" means Standard & Poor's, a division of The McGraw-Hill
Companies, Inc., and any successor to its rating agency business.               

   "Stated Maturity" means, with respect to any security, the date specified
in such security as the fixed date on which the final payment of principal of   
such security is due and payable, including pursuant to any mandatory redemption
provision (but excluding any provision providing for the repurchase of such     
security at the option of the holder thereof upon the happening of any          
contingency unless such contingency has occurred).                              

     "Subordinated Obligation" means, with respect to a Person, any Indebtedness
of such Person (whether outstanding on the Issue Date or thereafter Incurred)   
which is subordinate or junior in right of payment to the Notes or a Subsidiary 
Guaranty of such Person, as the case may be, pursuant to a written agreement to 
that effect.                                                                    

"Subsidiary" means, with respect to any Person, any corporation,      
association, partnership or other business entity of which more than 50% of the 
total voting power of shares of Voting Stock is at the time owned or controlled,
directly or indirectly, by:                                                     

(1)  such Person;                                                     

(2)  such Person and one or more Subsidiaries of such Person; or      

(3)  one or more Subsidiaries of such Person.                         

    "Subsidiary Guarantor" means Instalaciones y Contrataciones, S.A. de C.V.,
Servicios Axtel, S.A. de C.V. and Impulsora e Inmobiliaria Regional, S.A. de    
C.V. and each other Subsidiary of the Company that executes the Indenture as a  
guarantor on the Issue Date and each other Subsidiary of the Company that       
thereafter guarantees the Notes pursuant to the terms of the Indenture, in each 
case unless and until such Subsidiary is released from its obligation under its 
Subsidiary Guaranty pursuant to the terms of the Indebtedness.                  

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  "Subsidiary Guaranty" means a Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Notes.                                

"Telecommunications Assets" means any property, including licenses and
applications, bids and agreements to acquire licenses, or other authority to    
provide telecommunications services, used or intended for use primarily in      
connection with a Related Business.                                             

"Temporary Cash Investments" means any of the following:              

   (1)  any investment in direct obligations of the United States of America
        or any agency thereof or obligations guaranteed by the United States
of America or any agency thereof;                           

(2)  investments in demand and time deposit accounts, certificates of 
          deposit and money market deposits maturing within 180 days of the date
     of acquisition thereof issued by a bank or trust company which is
       organized under the laws of the United States of America, any State
     thereof or any foreign country recognized by the United States of
     America, and which bank or trust company has capital, surplus and
          undivided profits aggregating in excess of $50 million (or the foreign
        currency equivalent thereof) and has outstanding debt which is rated
     "A" (or such similar equivalent rating) or higher by at least one
        nationally recognized statistical rating organization (as defined in
         Rule 436 under the Securities Act) or any money-market fund sponsored
by a registered broker dealer or mutual fund distributor;   

(3)  repurchase obligations with a term of not more than 30 days for  
    underlying securities of the types described in clause (1) above
    entered into with a bank meeting the qualifications described in
clause (2) above;                                           

    (4)  investments in commercial paper, maturing not more than 90 days after
   the date of acquisition, issued by a corporation (other than an
          Affiliate of the Company) organized and in existence under the laws of
         the United States of America or any foreign country recognized by the
      United States of America with a rating at the time as of which any
        investment therein is made of "P-1" (or higher) according to Moody's
or "A-1" (or higher) according to Standard and Poor's;      

   (5)  investments in securities with maturities of six months or less from
    the date of acquisition issued or fully guaranteed by any state,
        commonwealth or territory of the United States of America, or by any
         political subdivision or taxing authority thereof, and rated at least
"A" by Standard & Poor's or "A" by Moody's;                 

(6)  "Certificados de la Tesoreria de la Federacion (Cetes), Bonos de 
    Desarrollo del Gobierno Federal (Bondes) or Bonos Ajustables del
Gobierno Federal (Ajustabonos)," in each case, issued by the
government of the United Mexican States;                    

  (7)  any other instruments issued or guaranteed by the government of the
United Mexican States and denominated and payable in pesos; 

    (8)  investments in money market funds that invest substantially all their
          assets in securities of the types described in clauses (1) through (7)
above; or                                                   

   (9)  demand deposits, certificates of deposit, time deposits and bankers'
        acceptances maturing not more than 180 days (or 365 days in the case
 of clause (A)(I) or (B)(I)) after the acquisition thereof (A)
          denominated in pesos and issued by (I) any of the five top-rated banks
  (as evaluated by any internationally recognized rating agency)
      organized under the laws of the United Mexican States or any other
         state thereof, or (II) any such bank which at the date of acquisition
          is a lender to or has made available a line of credit to (in each case
    in an amount equal to or greater than the amount of the proposed
        acquisition), the Company or any of its Restricted Subsidiaries; (B)
      in any jurisdiction other than the United Mexican States where the
Company or any of its Restricted Subsidiaries               

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      conducts business and (I) issued by one of the three largest banks
      doing business in such jurisdiction, or (II) any such bank in such
       jurisdiction which at the date of acquisition is a lender to or has
          made available a line of credit to (in each case in an amount equal to
        or greater than the amount of the proposed acquisition), the Company
          or any of its Restricted Subsidiaries; (C) issued by any bank which at
          the date of acquisition is a lender to or has made available a line of
         credit to the Company or any of its Restricted Subsidiaries and which
         is not under intervention, receivership or any similar arrangement at
      the time of acquisition; provided that the aggregate amount of all
    such demand deposits, certificates of deposit, time deposits and
         bankers' acceptances acquired in accordance with this clause (C) does
     not exceed $50 million at any one time; or (D) issued by any bank
   which at the date of acquisition has an outstanding loan to the
 Company or any of its Restricted Subsidiaries in an aggregate
        principal amount at least equal to the aggregate principal amount of
         such demand deposit, certificate of deposit, time deposit or banker's
acceptance.                                                 

"Trust Indenture Act" means the Trust Indenture Act of 1939 (15 USC.  
Section 77aaa-77bbbb) as in effect on the Issue Date.                           

     "Trust Officer" means the Chairman of the Board, the President or any other
officer or assistant officer of the Trustee assigned by the Trustee to          
administer its corporate trust matters.                                         

 "Trustee" means The Bank of New York until a successor replaces it and,
thereafter, means the successor.                                                

"Unrestricted Subsidiary" means:                                      

    (1)  any Subsidiary of the Company that at the time of determination shall
         be designated an Unrestricted Subsidiary by the Board of Directors in
the manner provided below; and                              

(2)  any Subsidiary of an Unrestricted Subsidiary.                    

The Board of Directors may designate any Subsidiary of the Company (including   
any newly acquired or newly formed Subsidiary) to be an Unrestricted Subsidiary 
unless such Subsidiary or any of its Subsidiaries owns any Capital Stock or     
Indebtedness of, or holds any Lien on any property of, the Company or any other 
Subsidiary of the Company that is not a Subsidiary of the Subsidiary to be so   
designated; provided, however, that either (A) the Subsidiary to be so          
designated has total assets of $1,000 or less or (B) if such Subsidiary has     
assets greater than $1,000, such designation would be permitted under the       
covenant described under "--Certain Covenants--Limitation on Restricted         
Payments."                                                                      

  The Board of Directors may designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided, however, that immediately after giving effect  
to such designation (A) the Company could Incur $1.00 of additional Indebtedness
under paragraph (a) of the covenant described under "--Certain                  
Covenants--Limitation on Indebtedness" and (B) no Default shall have occurred   
and be continuing. Any such designation by the Board of Directors shall be      
evidenced to the Trustee by promptly filing with the Trustee a copy of the      
resolution of the Board of Directors giving effect to such designation and an   
Officers' Certificate certifying that such designation complied with the        
foregoing provisions.                                                           

"US Dollar Equivalent" means with respect to any monetary amount in a 
currency other than US dollars, at any time for determination thereof, the      
amount of US dollars obtained by converting such foreign currency involved in   
such computation into US dollars at the spot rate for the purchase of US dollars
with the applicable foreign currency as published in The Wall Street Journal in 
the "Exchange Rates" column under the heading "Currency Trading" on the date two
Business Days prior to such determination.                                      

Except as described under "--Certain Covenants--Limitation on         
Indebtedness," whenever it is necessary to determine whether the Company has    
complied with any covenant in the Indenture or a Default has occurred and an    
amount is expressed in a currency other than US dollars, such amount will be    
treated as the US Dollar Equivalent determined as of the date such amount is    
initially determined in such currency.                                          

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"US Government Obligations" means direct obligations (or certificates 
representing an ownership interest in such obligations) of the United States of 
America (including any agency or instrumentality thereof) for the payment of    
which the full faith and credit of the United States of America is pledged and  
which are not callable at the issuer's option.                                  

"Voting Stock" of a Person means all classes of Capital Stock of such 
Person then outstanding and normally entitled (without regard to the occurrence 
of any contingency) to vote in the election of directors, managers or trustees  
thereof.                                                                        

 "Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned, directly or  
indirectly, by the Company or one or more other Wholly Owned Subsidiaries.      

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 MATERIAL US FEDERAL INCOME TAX CONSEQUENCES

   The following is a general summary of the principal US federal income tax
consequences associated with the exchange of 2005 notes for exchange notes and  
the beneficial ownership and disposition of the exchange notes by US holders (as
defined below). This summary is based on the US Internal Revenue Code of 1986,  
as amended (the "Code"), Treasury regulations promulgated thereunder, rulings,  
official pronouncements and judicial decisions, all as in effect on the date of 
this prospectus and all of which are subject to change, possibly with           
retroactive effect, or different interpretations. This summary only addresses   
tax considerations for holders of the notes that hold the notes as "capital     
assets" (generally, property held for investment). Moreover, this summary does  
not address all of the tax consequences that may be relevant to specific        
investors in light of their particular circumstances or to investors subject to 
special treatment under US federal income tax laws (such as non US holders (as  
defined below), banks, insurance companies, tax-exempt entities, retirement     
plans, dealers in securities, brokers, expatriates, partnerships, other         
pass-through entities or investors in such entities, persons who hold their     
notes as part of a straddle, hedge, conversion transaction or other integrated  
investment, persons whose functional currency is not the US dollar, persons     
subject to the alternative minimum tax or persons deemed to sell the notes under
the constructive sale provisions of the Code), all of whom may be subject to tax
rules that differ significantly from those summarized below. The discussion     
below does not address US federal estate and gift tax considerations or the     
effect of any US state or local tax law.                                        

THIS DISCUSSION IS FOR GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE.
HOLDERS OF NOTES ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE          
PARTICULAR TAX CONSIDERATIONS FOR THEM RELATING TO THE EXCHANGE OF THE 2005     
NOTES FOR EXCHANGE NOTES AND THE OWNERSHIP AND DISPOSITION OF THE NOTES,        
INCLUDING THE APPLICABILITY OF US FEDERAL, STATE OR LOCAL TAX LAWS OR NON-US TAX
LAWS, ANY CHANGES IN APPLICABLE TAX LAWS AND ANY PENDING OR PROPOSED LEGISLATION
OR REGULATIONS.                                                                 

 For purposes of this summary, a "US holder" is a beneficial holder of a
note that is, for US federal income tax purposes:                               

o    an individual who is a citizen or resident of the United States; 

o    a corporation or other entity treated as a corporation created or
         organized in or under the laws of the United States, or any political
subdivision thereof;                                        

o    an estate the income of which is subject to US federal income tax
regardless of the source thereof; or                        

  o    a trust (1) if a court within the United States is able to exercise
          primary supervision over its administration and one or more US persons
          have the authority to control all of its substantial decisions, or (2)
      that validly elects to be treated as a United States person for US
federal income tax purposes.                                

If a partnership is a beneficial owner of a note, the treatment of a  
partner in the partnership generally will depend upon the status of the partner 
and the activities of the partnership.                                          

     The term "non-US holder" means a beneficial owner of notes that is for U.S.
federal income tax purposes, a nonresident alien individual or a corporation,   
trust or estate that is not a US holder.                                        

Exchange of Notes                                                               

 The exchange of 2005 notes for exchange notes pursuant to this exchange
offer will not constitute a taxable event for U.S. federal income tax purposes. 
Consequently, no gain or loss will be recognized by a holder of the 2005 notes  
upon receipt of an exchange note. A holder's adjusted tax basis of the exchange 
note will be the same as the adjusted tax basis of the 2005 note exchanged      
therefor. A holder's holding period of the exchange note will include the       
holding period of the 2005 note exchanged therefor.                             

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Payment of Interest                                                             

    Subject to the discussion below regarding pre-issuance accrued interest, a
US holder must include in the US holder's gross income all payments of stated   
interest in respect of the exchange notes, and additional amounts, if any, on   
account of Mexican withholding taxes, at the time accrued or paid, in accordance
with the US holder's usual method of tax accounting for US federal income tax   
purposes. Interest on the exchange notes generally will be treated as foreign   
source income for US federal income tax purposes.                               

 A US holder's stated interest income will not be reduced by the Mexican
taxes withheld. Therefore, a US holder generally will be required to include    
more interest in the US holder's gross income than the US holder actually       
receives in cash interest. A US holder may, subject to some limitations, be     
eligible to claim either a US federal income tax deduction or a credit for      
Mexican taxes withheld from stated interest paid on exchange notes. The rules   
relating to foreign tax credits are extremely complex and US holders should     
consult with their own tax advisors regarding the availability of a foreign tax 
credit and the application of the foreign tax credit limitations to their       
particular situations.                                                          

Market Discount                                                                 

  Under the market discount rules of the Code, a US holder who purchased a
2005 note at a market discount will be treated as if such US holder purchased   
the corresponding exchange note at a market discount, and thus, will generally  
be required to treat any gain recognized on the sale, exchange, retirement or   
other taxable disposition of the exchange note as ordinary income to the extent 
of the accrued market discount during the US holder's holding period that has   
not been previously included in income. Market discount is generally defined as 
the amount by which a US holder's purchase price for a 2005 note is less than   
the 2005 note's stated redemption price at maturity (generally, the exchange    
note's principal amount) of the exchange note on the date of purchase, subject  
to a statutory de minimis exception. In general, market discount accrues on a   
ratable basis over the remaining term of the exchange note unless a US holder   
makes an irrevocable election to accrue market discount on a constant yield to  
maturity basis.                                                                 

 A US holder who is deemed to have acquired an exchange note at a market
discount may be required to defer a portion of any interest expense that        
otherwise may be deductible on any indebtedness deemed to have been incurred or 
continued to purchase or carry such exchange note until the US holder disposes  
of the exchange note in a taxable transaction. A US holder who has elected under
applicable Code provision to include market discount in income annually as such 
discount accrues will not, however, be required to treat any gain recognized as 
ordinary income or to defer any deductions for interest expense under these     
rules. This election to include market discount in income currently, once made, 
applies to all market discount obligations acquired on or after the first day of
the taxable year to which the election applies and may not be revoked without   
the consent of the Internal Revenue Service (the "IRS").                        

Amortizable Bond Premium                                                        

   In general, if a US Holder purchased a 2005 note for an amount (excluding
any amount attributable to pre-issuance accrued interest described below) in    
excess of its stated principal amount, such excess will constitute bond premium,
which, to the extent not previously amortized, will carry over to the exchange  
note. You generally may elect to amortize the premium over the term of the      
exchange note (including the term of the 2005 notes exchanged therefor) on a    
constant yield method as an offset to interest when includible in income under  
your regular accounting method. If you do not elect to amortize bond premium    
that premium will decrease the gain or increase the loss you would otherwise    
recognize on disposition of the exchange note. Your election to amortize premium
on a constant yield method will also apply to all debt obligations held or      
subsequently acquired by you on or after the first day of the first taxable year
to which the election applies. You may not revoke the election without the      
consent of the Internal Revenue Service. You should consult your own tax advisor
before making this election.                                                    

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Pre-Issuance Accrued Interest                                                   

A portion of the purchase price of the 2005 notes (and therefore the  
exchange notes) is attributable to the amount of interest accrued prior to the  
date the 2005 notes were issued. We intend to take the position that, on the    
first interest payment date, a portion of the interest received (in an amount   
equal to such pre-issuance accrued interest) is not income and is not taxable   
interest to US Holders. Pre-issuance accrued interest will reduce the basis of  
the exchange notes owned by a US Holder.                                        

Sale, Exchange, Retirement or Other Dispositions                                

     A US holder generally will recognize gain or loss for US federal income tax
purposes upon the sale, exchange, retirement or other disposition of the        
exchange notes in an amount equal to the difference between the amount realized 
and the US holder's adjusted tax basis in the exchange notes. For this purpose, 
the amount realized does not include any amount attributable to accrued interest
on the exchange notes (which will be taxable as ordinary income as described    
above) other than pre-issuance accrued interest. A US holder's tax basis in the 
exchange notes generally will equal the cost of the 2005 notes to such holder   
increased by any market discount that a US holder has elected to include        
currently in income and reduced by any previously amortized bond premium.       

   Subject to the discussion of market discount above, the gain or loss upon
the sale, exchange, retirement or other disposition of the exchange notes       
generally will be capital gain or loss. If, at the time of such disposition, the
exchange notes have been held for more than one year, the gain or loss will be a
long-term capital gain or loss. Under current law, long-term capital gains      
recognized by an individual or other non-corporate US holder are generally      
subject to a reduced US federal income tax rate. Capital losses are subject to  
limits on deductibility. Any gain or loss recognized by a US holder generally   
will be treated as from sources within the United States for US federal income  
tax purposes. Therefore, if any such gain is subject to Mexican tax, a US holder
may not be able to credit the Mexican tax paid against its US federal income tax
liability.                                                                      

Backup Withholding and Information Reporting                                    

     US backup withholding (at a current rate of 28%) may apply to some payments
to a US holder of interest on the exchange notes and/or proceeds from the sale  
(including a redemption) or retirement of the exchange notes if the US holder   
fails to furnish to the paying agent the US holder's taxpayer identification    
number, that is, the US holder's social security number or employer             
identification number, or fails to otherwise comply with the applicable         
requirements of the backup withholding rules. Some US holders, including        
corporations, are not subject to backup withholding. In addition, such payments 
of interest on the exchange notes and/or proceeds from the sale (including a    
redemption) or retirement of the exchange notes will generally be subject to    
information reporting requirements.                                             

     Any amounts withheld under the backup withholding rules from a payment to a
US holder with respect to the exchange notes will be allowed as a refund or     
credit against such US holder's US federal income tax liability; provided,      
however, that the US holder timely furnishes the required information to the US 
Internal Revenue Service.                                                       

 MATERIAL MEXICAN TAX CONSEQUENCES

    The following is a general summary of the principal Mexican federal income
tax consequences of the acquisition, ownership and disposition of the notes by  
holders that are not residents of Mexico for Mexican federal tax purposes and   
that do not have a permanent establishment in Mexico (a "foreign holder"), in   
the case of Mexican federal income tax consequences. This summary is based on   
the Mexican federal income tax law ("Ley del Impuesto sobre la Renta") and      
regulations as in effect on the date of this prospectus, all of which are       
subject to change, possibly with retroactive effect, or different               
interpretations. This summary does not address all of the tax consequences that 
may be applicable to specific holders of the notes and does not purport to be a 
comprehensive description of all the tax considerations that may be relevant to 
a decision to purchase, own or dispose of the notes.                            

Potential investors are urged to consult with their own tax advisor   
regarding the particular consequences to them of an investment (including the   
purchase, ownership or disposition) in the notes under the federal laws of      
Mexico or any other jurisdiction in which they may be subject to tax.           

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  For purposes of Mexican taxation, an individual or corporation that does
not satisfy the requirements to be considered a resident of Mexico for tax      
purposes, specified below, is deemed a non-resident of Mexico for tax purposes. 
An individual is a resident of Mexico if he/she established his/her home in     
Mexico. When the individuals in question also have a home in another country,   
they will be deemed residents in Mexico if their center of vital interests is   
located in Mexican territory and, among other cases, when: i) more than 50% of  
the aggregate income realized by said individuals in the calendar year is from a
Mexican source of wealth or ii) the principal centre of their professional      
activities is located in Mexico. The individuals with Mexican nationality who   
are State officials or employees thereof, even when their center of vital       
interests is located abroad, are deemed to be Mexican residents. A legal entity 
is a resident of Mexico if it has been incorporated pursuant to Mexican law or  
if it maintains the principal administration of its business or the effective   
location of its management in Mexico. A Mexican citizen is presumed to be       
resident of Mexico unless such person can demonstrate otherwise. If a legal     
entity or an individual is deemed to have a permanent establishment in Mexico   
for Mexican tax purposes, all income attributable to that permanent             
establishment will be subject to Mexican taxes, in accordance with applicable   
tax laws.                                                                       

  The summary description of the Mexican federal income tax laws set forth
below is based on the laws in force as of the date of this prospectus and is    
subject to any changes in applicable Mexican tax laws. The governments of the   
United States and Mexico ratified an income tax treaty and protocol which came  
into effect on January 1, 1994 (the US-Mexico Tax Treaty). The United States and
Mexico have also entered into an agreement that covers the exchange of          
information with respect to tax matters.                                        

Mexico has also entered into and is negotiating tax treaties for the  
avoidance of double taxation with several other countries.                      

     Each prospective holder of a note should consult such holder's tax advisors
with respect to the tax treatment applicable to that holder.                    

This summary of some Mexican income tax considerations deals only with
holders of notes that are foreign holders.                                      

Payment of Interest                                                             

  Pursuant to Article 195, Section II, paragraph (a) of the Mexican Income
Tax Law, payments of interest to foreign holders will be subject to Mexican     
withholding tax at a rate of 4.9%, if, as expected, the following requirements  
are met:                                                                        

o    The notes are registered with the Special Section of the National
        Securities Registry (Registro Nacional de Valores e Intermediarios -
     RNV); and the information requirements established in the general
rules issued by the Tax Administration Service (Servicio de 
          Administration Tributaria - SAT) for those purposes are duly complied;
and                                                         

o    The notes are placed outside of Mexico through banks or brokerage
   houses in a country with which Mexico has in force a treaty for
     avoidance of double taxation (which currently includes the United
States of America).                                         

If any of the above-mentioned requirements is not met, the Mexican    
withholding tax will be 10.0%.                                                  

    Neither the 4.9% rate nor the 10.0% rate will apply and, therefore, higher
withholding tax rates will apply if the effective beneficiaries, directly or    
indirectly, individually or jointly with related parties, receive more than 5.0%
of the interest paid on the notes and (1) own directly or indirectly,           
individually or jointly with related parties, more than 10.0% of our voting     
stock or (2) are entities 20.0% or more of whose stock is owned directly or     
indirectly, individually or jointly, by parties related to us. In this case, the
Mexican withholding tax rate will be 30% in 2005. In 2006 and 2007 the          
applicable rate will be 29% and 28%, respectively.                              

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     As of the date of this prospectus, the US-Mexico Tax Treaty is not expected
to have any material effect on the Mexican tax consequences described herein,   
because, as described above, under Mexico's income tax law, we will be entitled 
to withhold taxes in connection with interest payments under the notes at a 4.9%
rate.                                                                           

 Payments of interest on the notes to non-Mexican pension and retirement
funds will be exempt from Mexican withholding tax provided that:                

    o    Such fund is duly incorporated pursuant to the laws of its country of
       residence and is the effective beneficiary of the interest payment;

 o    Such income is exempt from taxes in its country of residence; and,

  o    Such fund is registered in the Registry of Foreign Banks, Financial
   Entities, Pension and Retirement Funds and Investment Funds, in
accordance with certain rules for these purposes.           

     We have agreed, subject to certain exceptions, to pay additional amounts in
respect of the above-mentioned Mexican withholding taxes. See "Description of   
the Exchange Notes--Additional Amounts."                                        

Payment of Principal                                                            

 Under Mexican Income Tax Law, principal paid to a foreign holder of the
notes by us is not subject to Mexican withholding tax.                          

Taxation of Capital Gains                                                       

    Capital gains resulting from the sale or other disposition of our notes by
a foreign holder will not be subject to Mexican income or withholding taxes in  
Mexico.                                                                         

     However, the Mexican Income Tax Law imposes a tax upon the sale at discount
of a note by a Mexican resident or by a non-resident to a purchaser that is also
a non-resident, if the non-resident seller has a permanent establishment in     
Mexico. In such case, the tax should be withheld by the seller, considering as  
interest the difference between the sales price over the sum of the face value  
and the accrued interest, by applying the corresponding withholding tax rates   
mentioned above; otherwise, no Mexican taxation nor withholding taxes would     
apply.                                                                          

  Additionally, the Mexican Income Tax Law, as amended on January 1, 2005,
will treat the capital gains derived as a consequence of the sale of the Notes  
to a Mexican resident or to a non-resident with a permanent establishment in    
Mexico as interest income. With respect to the non-resident holder of the Notes,
the tax will be imposed on the sale proceeds less the actual amount received by 
the original debtor of the Note, applying the income tax withholding rates      
applicable to the beneficial owner of the capital gains.                        

Other Mexican Taxes                                                             

There are no Mexican estate, inheritance, succession or gift taxes    
generally applicable to the acquisition, ownership or disposition of the notes  
by foreign holders. There are no Mexican stamp, issuer registration or similar  
taxes or duties payable by foreign holders of the notes.                        

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PLAN OF DISTRIBUTION

  Each broker-dealer that receives Exchange Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a          
prospectus in connection with any resale of such Exchange Securities. This      
Prospectus, as it may be amended or supplemented from time to time, may be used 
by a broker-dealer in connection with resales of Exchange Securities received in
exchange for Initial Securities where such Initial Securities were acquired as a
result of market-making activities or other trading activities. The Company has 
agreed that, for a period of 180 days after the Expiration Date, it will make   
this prospectus, as amended or supplemented, available to any broker-dealer for 
use in connection with any such resale. In addition, until , 2005, all dealers  
effecting transactions in the Exchange Securities may be required to deliver a  
prospectus.                                                                     

The Company will not receive any proceeds from any sale of Exchange   
Securities by broker-dealers. Exchange Securities received by broker-dealers for
their own account pursuant to the Exchange Offer may be sold from time to time  
in one or more transactions in the over-the-counter market, in negotiated       
transactions, through the writing of options on the Exchange Securities or a    
combination of such methods of resale, at market prices prevailing at the time  
of resale, at prices related to such prevailing market prices or negotiated     
prices. Any such resale may be made directly to purchasers or to or through     
brokers or dealers who may receive compensation in the form of commissions or   
concessions from any such broker-dealer or the purchasers of any such Exchange  
Securities. Any broker-dealer that resells Exchange Securities that were        
received by it for its own account pursuant to the Exchange Offer and any broker
or dealer that participates in a distribution of such Exchange Securities may be
deemed to be an "underwriter" within the meaning of the Securities Act and any  
profit on any such resale of Exchange Securities and any commission or          
concessions received by any such persons may be deemed to be underwriting       
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a            
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.                                                  

For a period of 180 days after the Expiration Date the Company will   
promptly send additional copies of this Prospectus and any amendment or         
supplement to this Prospectus to any broker-dealer that requests such documents 
in the Letter of Transmittal. The Company has agreed to pay all expenses        
incident to the Exchange Offer (including the expenses of one counsel for the   
Holders of the Securities) other than commissions or concessions of any brokers 
or dealers and will indemnify the Holders of the Securities (including any      
broker-dealers) against certain liabilities, including liabilities under the    
Securities Act.                                                                 

The exchange notes will constitute a new issue of securities with no  
established trading market. We do not intend to list the exchange notes on any  
national securities exchange or to seek approval for quotation through any      
automated quotation system. The initial purchasers informed us that, following  
the completion of the initial distribution of the 2005 notes, they intended to  
make a market in the 2005 notes. However, any such market making may be         
discontinued at any time. Accordingly, we cannot guarantee the development or   
liquidity of any trading market for the exchange notes. If a trading market does
not develop or is not maintained, holders of the exchange notes may experience  
difficulty in reselling the exchange notes or may be unable to sell them at all.
If a market for the exchange notes develops, any such market may cease to       
continue at any time. in addition, if a market for the exchange notes develops, 
the market prices of the exchange notes may be volatile. Factors such as        
fluctuations in our earnings and cash flow, the difference between our actual   
results and results expected by investors and analysts and Mexican and U.S.     
currency and economic developments could cause the market prices of the exchange
notes to fluctuate substantially.                                               

 WHERE YOU CAN FIND MORE INFORMATION

     We file reports and other information with the SEC. You may read and, for a
fee, copy any document that we file with the SEC at the public reference        
facility maintained by the SEC at 450 Fifth Street, N.W., Washington, D.C.      
20549. Copies of these documents may also be obtained at prescribed rates from  
the Public Reference Section of the SEC at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for 
further information on the operation of the Public Reference Room. You may also 
obtain the documents that we file electronically from the SEC's website at      
http://www.sec.gov, which contains reports and other information regarding      
registrants that file electronically with the SEC. Our reports and other        
information that                                                                

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we have filed, or may in the future file, with the SEC are not incorporated in  
and do not constitute part of this prospectus.                                  

   While any notes remain outstanding, we will make available, upon request,
to any beneficial owner and any prospective purchaser of notes the information  
required pursuant to Rule 144A(d)(4) under the Securities Act during any period 
in which we are not subject to Section 13 or 15(d) of the Securities Exchange   
Act of 1934. Any such request should be directed to Axtel, S.A. de C.V.,        
Attention Rafael Salinas, Blvd. Gustavo Diaz Ordaz km. 3.33 No. L-1, Col. Unidad
San Pedro, San Pedro Garza Garcia, N.L. Mexico, CP 66215.                       

 LEGAL MATTERS

Cahill Gordon & Reindel LLP will pass upon certain United States legal
matters for us in connection with the exchange notes offered hereby. D & A      
Morales y Asociados, S.C., Monterrey, Mexico, will pass upon certain Mexican    
legal matters for us in connection with the exchange notes offered hereby.      

INDEPENDENT AUDITORS

     The consolidated financial statements of Axtel, S.A. de C.V. as of December
31, 2004 and 2003, and for the three years ended December 31, 2004, appearing in
this prospectus have been audited by KPMG Cardenas Dosal S.C., independent      
auditors, as stated in their report appearing or incorporated by reference      
herein.                                                                         

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Audited Consolidated Financial Statements                                       

Independent Auditors' Report............................................... F-1 
Consolidated Balance Sheets as of December 31, 2004 and 2003............... F-2 
Consolidated Statements of Operations for the fiscal years                      
 ended December 31, 2004, 2003 and 2002 .................................. F-3
Consolidated Statements of Changes in Financial Position                        
 for the fiscal years ended December 31, 2004, 2003 and 2002 ............. F-4
Consolidated Statements of Changes in Stockholders' Equity                      
 for the fiscal years ended December 31, 2004, 2003, 2002 and 2001 ....... F-5
Notes to the Consolidated Financial Statements............................. F-6 

INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Condensed Consolidated Financial Statements                           

Unaudited Condensed Consolidated Balance Sheets as of                           
  March 31, 2005 and March 31, 2004........................................ F-60
Unaudited Condensed Consolidated Statements of                                  
Operations for the Three Months Ended                                       
  March 31, 2005 and 2004.................................................. F-61
Unaudited Condensed Consolidated Statements of                                  
Changes in Financial Position for the Three Months                          
  Ended March 31, 2005 and 2004 ........................................... F-62
Unaudited Condensed Consolidated Statement of Changes                           
  in Stockholders' Equity as of  March 31, 2005............................ F-63
Notes to Unaudited Condensed Consolidated Financial                             
  Statements............................................................... F-64

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Report of Independent Registered
Public Accounting Firm

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

We have audited the accompanying consolidated balance sheets of Axtel, S.A. de  
C.V. and subsidiaries (the Company) as of December 31, 2004 and 2003, and the   
related consolidated statements of operations, changes in stockholders' equity, 
and changes in financial position for each of the years in the three-year period
ended December 31, 2004. These consolidated financial statements are the        
responsibility of the Company's management. Our responsibility is to express an 
opinion on these consolidated financial statements based on our audits.         

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

In our opinion, the consolidated financial statements referred to above present 
fairly, in all material respects, the consolidated financial position of Axtel, 
S.A. de C.V. and its subsidiaries as of December 31, 2004 and 2003, and the     
consolidated results of their operations, the changes in their stockholders'    
equity and the changes in their financial position for each of the years in the 
three-year period ended December 31, 2004, in conformity with accounting        
principles generally accepted in Mexico.                                        

Accounting principles generally accepted in Mexico vary in certain significant  
respects from accounting principles generally accepted in the United States of  
America. The application of accounting principles in the United States of       
America would have affected the results of operations for each of the years in  
the three-year period ended December 31, 2004, and the stockholders' equity as  
of December 31, 2004 and 2003 to the extent summarized in note 24 to the        
consolidated financial statements.                                              

                         KPMG Cardenas Dosal, S.C.

                Rafael Gomez Eng

Monterrey, N,L., Mexico                                                         
February 25, 2005, except for notes                                             
2(a) and 22(b) which are as of June 22, 2005                              

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
 Consolidated Balance Sheets
 (Thousands pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


                                                                                            December 31            
                                                                                -----------------------------------
            Assets                                                                    2004               2003      
                                                                                -----------------  ----------------

 Current assets:                                                                                                   
                                                                                                                   
    Cash and cash equivalents (including $4,778 of restricted cash as of                                           
       December 31, 2003)                                                      $        558,494         1,076,270  
    Accounts receivable, net (note 5)                                                   511,334           426,966  
    Refundable taxes and other accounts receivable                                       83,100            20,646  
    Prepaid expenses (note 7)                                                           132,849           195,376  
    Inventories (note 8)                                                                 58,680            22,899  
    Derivative financial instruments (notes 3 and 6)                                   -                      595  
                                                                                -----------------  ----------------

            Total current assets                                                      1,344,457         1,742,752  

 Long-term accounts receivable                                                           19,915            21,235  
 Property, systems and equipment, net (notes 9 and 13)                                6,157,397         5,516,808  
 Telephone concession rights, net of accumulated amortization of $260,562                                          
    and $209,168 in 2004 and 2003, respectively                                         708,757           760,151  
 Pre-operating expenses, net (note 10)                                                  204,118           212,633  
 Deferred income taxes (note 16)                                                        124,999           267,731  
 Other assets, net (note 11)                                                            142,061           116,077  
                                                                                -----------------  ----------------

            Total assets                                                       $      8,701,704         8,637,387  
                                                                                =================  ================

            Liabilities and Stockholders' Equity                                                                   

 Current liabilities:                                                                                              
    Accounts payable and accrued liabilities                                   $        600,470           329,574  
    Accrued interest                                                                     10,959            71,167  
    Taxes payable                                                                        41,049            73,577  
    Short-term debt (note 12)                                                           109,227            25,500  
    Current maturities of long-term debt (note 13)                                       49,352            57,808  
    Other accounts payable (note 14)                                                    202,140           206,457  
    Derivative financial instruments (notes 3 and 6)                                        942          -         
                                                                                -----------------  ----------------

            Total current liabilities                                                 1,014,139           764,083  

 Long-term debt, excluding current maturities (note 13)                               2,041,173         2,150,457  
 Other long-term accounts payable                                                         3,569             2,308  
 Seniority premiums (note 15)                                                             2,412             2,125  
                                                                                -----------------  ----------------

            Total liabilities                                                         3,061,293         2,918,973  
                                                                                -----------------  ----------------

 Stockholders' equity (note 17):                                                                                   
     Common stock                                                                     7,159,184         7,159,184  
     Additional paid-in capital                                                         141,654           141,654  
     Deficit                                                                         (1,779,508)       (1,701,806) 
     Cumulative deferred income tax effect                                              119,382           119,382  
     Change in the fair value of derivative instruments (note 6)                           (301)         -         
                                                                                -----------------  ----------------

             Total stockholders' equity                                               5,640,411         5,718,414  

 Commitments and contingencies (note 21)                                                                           
 Subsequent events (note 22)                                                                                       

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

            Total liabilities and stockholders' equity                         $      8,701,704         8,637,387  
                                                                                =================  ================

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


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
 Consolidated Statements of Operations
 (Thousands pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


                                                                                     Years ended December 31,               
                                                                       -----------------------------------------------------
                                                                             2004              2003               2002      
                                                                       -----------------------------------------------------
                                                                                                                            
Rental, installation, service and other revenues                           3,889,819          3,101,942         2,605,652   
    (note 18)                                                         $                                                     
                                                                       ----------------  -----------------  ----------------

Operating costs and expenses:                                                                                               
   Cost of sales and services                                             (1,238,577)          (858,942)         (650,466)  
   Selling and administrative expenses                                    (1,388,480)        (1,209,221)       (1,341,330)  
   Depreciation and amortization                                          (1,008,556)          (914,347)         (861,191)  
                                                                       ----------------  -----------------  ----------------

                                                                          (3,635,613)        (2,982,510)       (2,852,987)  
                                                                       ----------------  -----------------  ----------------

           Operating income (loss)                                           254,206             119,432         (247,335)  
                                                                       ----------------  -----------------  ----------------

Comprehensive financing result:                                                                                             
   Interest expense                                                         (276,102)          (231,946)         (459,169)  
   Interest income                                                            16,767             20,568            10,812   
   Foreign exchange loss, net                                                 (7,375)          (339,404)         (656,856)  
   Monetary position gain                                                     65,230             98,608           298,043   
                                                                       ----------------  -----------------  ----------------

            Comprehensive financing result, net                             (201,480)          (452,174)         (807,170)  
                                                                       ----------------  -----------------  ----------------

Other income (expenses), net (notes 13 and 20)                                21,158          1,821,584           (29,313)  
                                                                       ----------------  -----------------  ----------------

Special item (note 19)                                                       -                  (11,068)          (34,447)  
                                                                       ----------------  -----------------  ----------------

            Income (loss) before income taxes and tax on                                                                    
             assets                                                           73,884          1,477,774        (1,118,265)  
                                                                       ----------------  -----------------  ----------------

Deferred income tax (note 16)                                               (151,586)          (524,284)          256,821   
                                                                       ----------------  -----------------  ----------------

          Net (loss) income                                           $      (77,702)           953,490          (861,444)  
                                                                       ================  =================  ================

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


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Consolidated Statements of Changes in Financial Position
 (Thousands pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


                                                                                           Years ended December 31,                 
                                                                            ------------------------------------------------------- 
                                                                                  2004               2003                2002       
                                                                            --------------------------------------------------------
Operating activities:                                                                                                               
                                                                                                                                    
     Net (loss) income                                                     $       (77,702)            953,490            (861,444) 
     Add charges (deduct credits) to operations not requiring                                                                       
        (providing) resources:                                                                                                      
           Depreciation                                                            903,363             820,835             769,002  
           Amortization                                                            105,193              93,512              92,189  
           Accrual for seniority premiums                                              732                 724                 245  
           Deferred income tax and employee statutory                                                                               
             profit sharing                                                        151,586             524,284            (256,821) 
           Gain on extinguishment of debt                                          -                (1,974,589)          -          
                                                                            -----------------  -----------------  ------------------

             Resources provided by (used in) operations                          1,083,172             418,256            (256,829) 

     Net financing from (investment in) operations                                 108,524            (248,616)            244,562  
                                                                            -----------------  -----------------  ------------------

             Resources provided by (used in) operating activities                1,191,696             169,640             (12,267) 
                                                                            -----------------  -----------------  ------------------

Financing activities:                                                                                                               
    Increase in common stock                                                       -                 2,830,205              55,186  
    Additional paid-in capital                                                     -                   (15,740)             (2,171) 
    (Payments) proceeds from loans, net                                            (94,221)         (1,602,750)            669,960  
    Deferred financing costs                                                       -                   (19,605)             28,708  
    Other accounts payable                                                             (31)            (41,414)             67,826  
                                                                            -----------------  -----------------  ------------------

             Resources (used in) provided by financing activities                  (94,252)          1,150,696             819,509  
                                                                            -----------------  -----------------   -----------------

Investing activities:                                                                                                               
     Acquisition and construction of property, systems                                                                              
        and equipment, net                                                      (1,543,952)           (488,875)           (600,694) 
     Pre-operating expenses                                                        (29,089)           -                   -         
     Other assets                                                                  (42,179)           (102,612)             (1,506) 
                                                                            -----------------  -----------------   -----------------

             Resources used in investing activities                             (1,615,220)           (591,487)           (602,200) 
                                                                            -----------------  -----------------   -----------------

             (Decrease) increase in cash and cash equivalents                     (517,776)            728,849             205,042  

Cash and cash equivalents at beginning of year                                   1,076,270             347,421             142,379  
                                                                            -----------------  -----------------   -----------------

Cash and cash equivalents at end of year                                   $       558,494           1,076,270             347,421  
                                                                            =================  =================   =================

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


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
 (Thousands pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


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

Balances as of                                                                                                                     
                                                                                                                                   
  December 31, 2001         $  4,273,793        159,565    (1,792,414)            119,382          -                  2,760,326    

Common stock contribution                                                                                                          
  (note 17a)                      55,186         (2,171)     -                  -                  -                     53,015    

Comprehensive loss                                           (861,444)          -                  -                   (861,444)   
                            --------------   -----------   --------------  ------------------ ------------------  -----------------

Balances as of                                                                                                                     
  December 31, 2002            4,328,979        157,394    (2,653,858)            119,382                             1,951,897    

Common stock contribution                                                                                                          
  (note 17a)                   2,830,205        (15,740)     -                  -                  -                  2,814,465    

Cumulative effect of                                                                                                               
  vacations accrual             -             -                (1,438)          -                   -                    (1,438)   

Comprehensive income            -             -               953,490           -                   -                   953,490    
                            --------------   -----------   --------------  ------------------ ------------------  -----------------

Balances as of                                                                                                                     
  December 31, 2003            7,159,184        141,654    (1,701,806)            119,382          -                  5,718,414    

Comprehensive income                                                                                                               
  (notes 3 and 6)               -             -               (77,702)          -                      (301)            (78,003)   
                            --------------   -----------   --------------  ------------------ ------------------  -----------------

Balances as of                                                                                                                     
  December 31, 2004         $  7,159,184        141,654    (1,779,508)            119,382              (301)          5,640,411    
                            ==============   ===========   ==============  ================== ==================  =================

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


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 2004 and 2003
 (Thousands pesos of constant purchasing power as of March 31, 2005)

(1)  Organization and description of business                                   

    Axtel, S. A. de C. V. and subsidiaries (the Company or AXTEL) is a Mexican
corporation engaged in operating and/or exploiting a public           
  telecommunication network to provide voice, sound, data, text, and image
   conducting services, and local, national, and international long-distance
  calls. To provide these services and carry out the Company's activity, a
     concession is required (see note 21e). In June 1996, the Company obtained a
concession from the Mexican Federal Government to install, operate and
   exploit public telecommunication networks for an initial period of thirty
years.                                                                

    The Company's capital structure has Mexican majority share ownership, with
   59.5% of shares with voting rights owned by Telinor Telefonia, S. de R.L.
de C.V. The remaining 40.5% is distributed among other entities.      

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

  The Company has been granted the following licenses over the spectrum of
frequencies necessary to provide the services:                        

   o    60MHz for Point-to-Multi-Point in the 10.5GHz band to cover each one
          of the nine regions of the Mexican territory. The acquisition of these
     twenty-year concessions, with an extension option, represented an
investment of $145,362 for the Company.                     

    o    112MHz for Point-to-Point in the 15GHz band and a 100MHz in the 23GHz
        band with countrywide coverage. The acquisition of these twenty-year
       concessions, with an extension option, represented an investment of
$73,310 for the Company.                                    

    o    50MHz in the 3.4GHz. The licenses obtained allow coverage in the nine
        regions of the country, and the investment was $750,647 for a period
of twenty years with an extension option.                   

     The Company has commercial services in Monterrey, Mexico City, Guadalajara,
Puebla, Toluca, Leon, Tijuana, Cd. Juarez, Saltillo, Aguascalientes,  
Queretaro and San Luis Potosi.                                        

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

(2)  Summary of significant accounting policies                                 

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

(a)  Financial statement presentation                                 

         The accompanying consolidated financial statements have been prepared
         in accordance with accounting principles generally accepted in Mexico
   (Mexican GAAP), which include the recognition of the effects of
        inflation on the financial information, and are expressed in Mexican
        pesos of constant purchasing power as of March 31, 2005 based on the
      National Consumer Price Index (NCPI) published by Banco de Mexico.

     The following national consumer price indexes (NCPI) were used to
recognize the effects of inflation:                         

                                                   Inflation
                               NCPI                %
                                 --------------     --------------

March       2005                      414.687              0.74       
December 2004                         411.648              5.47       
December 2003                         390.299              3.99       
December 2002                         375.324              5.70       
December 2001                         355.084              5.00       

For purposes of disclosure in the notes to the financial statements,  
   references to pesos or "$", are to Mexican pesos; likewise, references to
dollars, are to dollars of the United States of America.              

(b)  Principles of consolidation                                      

          The consolidated financial statements include the assets, liabilities,
          equity and results of operations of the subsidiaries listed below. The
       balances and transactions between companies have been eliminated in
the preparation of the consolidated financial statements.   

                                               % ownership
                                                ------------------

Instalaciones y Contrataciones, S. A. de C. V.              99.998%             
Impulsora e Inmobiliaria Regional, S. A. de C. V.           99.998%             
Servicios Axtel, S. A. de C. V.                             99.998%             

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

(c)  Cash equivalents                                                 

        Cash equivalents are expressed at the lower of acquisition cost plus
    accrued interest as of the most recent balance sheet date or net
      estimated realizable value. Interest and foreign currency exchange
       fluctuation are included in the statements of operations as part of
the comprehensive financing result.                         

(d)  Inventories                                                      

 Inventories are carried at the lower of restated cost and net
       realizable value. The restated cost is determined by application of
the NCPI factor to current costs.                           

(e)  Property, systems and equipment                                  

        Property, systems and equipment are recorded at acquisition cost and
restated by NCPI factors.                                   

   Comprehensive financing results incurred up to June 1999 during
       construction or installation periods was capitalized as part of the
         cost of the assets that were incurred during the pre-operating stage.
         Since that date, comprehensive financing results have been recognized
as part of the results of year in which they are incurred.  

       Depreciation of property, systems and equipment is calculated using
the straight-line method, based on useful lives estimated by
management. Useful lives are described in note 9.           

       Leasehold improvements are amortized over the shorter of the useful
life of the improvement and the term of the lease.          

   Maintenance and minor-repair expenses are expensed as incurred.

(f)  Telephone concession rights                                      

          Telephone concession rights are restated by NCPI factors and amortized
         under the straight-line method over a period of 20 years (the initial
term of the concession).                                    

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

(g)  Pre-operating expenses                                           

         Pre-operating expenses include administrative services, technological
         advice and comprehensive financing results incurred through June 1999
          and also the expenses incurred during 2000 and 2004 in opening offices
         in other cities throughout the country. The Company started providing
         business services beginning in 2001. These expenses were capitalized,
          and restated by NCPI factors and are amortized under the straight-line
method over a period of 10 years (see note 10).             

(h)  Other assets                                                     

       Other assets mainly include costs from Telmex/Telnor infrastructure
       special projects, guarantee deposits, and notes issuance costs (see
note 11).                                                   

(i)  Seniority premiums                                               

     The accumulated seniority premium benefits to which employees are
       entitled by law are recognized in the results of each period at the
    current value of the obligation, based on actuarial calculations
prepared by independent experts.                            

  Other benefits to which employees may be entitled, principally
         severance benefits, are recognized as an expense in the year in which
they are paid (see note 23b).                               

(j)  Derivative financial instruments                                 

         To reduce the risks resulting from foreign exchange rate fluctuations
     of the peso with respect to the dollar, the Company enters into a
        Cross Currency Swap agreement (CCS) that meet the characteristics of
          derivative financial instruments. The CCS involve the exchange of cash
     flows originated by the exchange of interest rates and currencies
fluctuations. Net amounts paid or received are reflected as 
adjustments to interest expense.                            

         Changes in the fair value of hedging derivative financial instruments
are recognized within the comprehensive result account in   
      stockholders' equity, before being offset to assets or liabilities
        whose risks will be hedged and/or offset. The non-effective portions
        (portions not hedging or that stop hedging the designated risks) are
recognized in results of the period (see notes 3 and 6).    

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

 (k)  Income tax (IT) tax on assets (TA) and employee's statutory profit
sharing (ESPS)                                              

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

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

    (l)  Inflation adjustment of common stock, other contributions and deficit

          This adjustment is determined by multiplying stockholder contributions
         and deficit by NCPI factors, which measure accumulated inflation from
         the dates contributions were made and losses arising through the most
          recent year end. The resulting amounts represent the constant value of
stockholders' equity.                                       

(m)  Comprehensive income (loss)                                      

         The comprehensive income (loss) represents the net income or loss for
 the year plus the effect of those items reflected directly in
          stockholders' equity, other than capital contributions, reductions and
distributions.                                              

(n)  Cumulative deferred income tax effect                            

        The Company adopted Bulletin D-4, "Accounting for income tax, tax on
      assets and employee statutory profit sharing" effective January 1,
       2000, which required the adoption of the asset and liability method
for determining deferred income taxes. The cumulative effect
          represents the cumulative previously unrecognized deferred taxes as of
the date of adoption.                                       

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

(o)  Comprehensive financing result (CFR)                             

    The CFR includes interest, currency exchange differences and the
          monetary effect, less the amounts capitalized, as part of fixed assets
and preoperating expenses.                                  

      Foreign currency transactions are recorded at the rate of exchange
       prevailing on the date of execution or settlement. Foreign currency
          assets and liabilities are translated at the exchange rate in force at
        the balance sheet date. Exchange differences arising from assets and
       liabilities denominated in foreign currencies are recognized in the
results of operations.                                      

        Monetary position gains and losses are determined by multiplying the
          difference between monetary assets and liabilities at the beginning of
          each month, including the deferred taxes, by inflation factors through
         year-end. The aggregate of these results represents the monetary gain
       or loss for the year arising from inflation, which is recognized in
the CFR.                                                    

(p)  Revenue recognition                                              

  The Company's revenues are recognized when earned, as follows:

          o    Telephone service - Based on monthly service fees, measured usage
         charges based on the number of calls made and other service
charges to customers.                             

o    Activation - At the time the equipment is installed.   

         o    Equipment - At the time of sale and the customer takes ownership
and assumes risk of loss.                         

(q)  Business and risk concentration                                  

The Company rendered services to one client that represents 
          approximately 17%, 18% and 16% of total net revenues during 2004, 2003
         and 2002, respectively. This client's accounts receivable balances as
     of December 31, 2004 and 2003 represent approximately 1% of total
        accounts receivable in both years. The Company provides an allowance
         for doubtful accounts based on management's analyses and estimations.
   The allowance expense is included as selling and administrative
expenses in the consolidated statement of operations.       

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

(r)  Contingencies                                                    

       Liabilities for loss contingencies are recorded when it is probable
       that a liability has been incurred and the amount of the assessment
     and/or remediation can be reasonably estimated. When a reasonable
         estimation can not be made, qualitative disclosure is provided in the
        notes to the consolidated financial statements. Contingent revenues,
    earnings or assets are not recognized until their realization is
virtually assured.                                          

  (s)  Impairment of property, systems and equipment and other non-current
assets                                                      

 The Company evaluates periodically the adjusted values of its
   property, systems and equipment and other non-current assets to
     determine whether there is an indication of potential impairment.
 Recoverability of assets to be held and used is measured by a
        comparison of the carrying amount of an asset to future net revenues
        expected to be generated by the asset. If such assets are considered
         to be impaired, the impairment is measured by the amount by which the
          carrying amount of the asset exceeds the expected net revenues. Assets
         to be disposed of are reported at the lower of the carrying amount or
realizable value.                                           

(t)  Use of estimates                                                 

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

(3)  Accounting changes                                                         

Derivative financial instruments                                      

The Mexican Institute of Public Accountant (IMCP) issued Bulletin C-10
"Derivative financial instruments and hedging operations", effective  
January 1, 2005, with an early adoption encouragement. One of the main
 provision of this new standard is the classification of hedging through
     derivative financial instruments according to the exposure to be hedged, in
three accounting models: on fair values, on cash flows and on net     
 investments of subsidiaries located abroad. This Bulletin C-10 requires
   that all derivative instruments be recorded on the balance sheet at their
respective fair value.                                                

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

  For all hedging relationships the Company formally documents the hedging
     relationship and its risk-management objective and strategy for undertaking
   the hedge, the hedging instrument, the item, the nature of the risk being
     hedged, how the hedging instrument's effectiveness in offsetting the hedged
risk will be assessed, and a description of the method of measuring   
 ineffectiveness. This process includes linking all derivatives that are
designated as fair-value or cash-flow hedges to specific assets and   
liabilities on the balance sheet or to specific firm commitments or   
forecasted transactions. The Company does also formally assesses when 
     appropriate, both at the hedge's inception and on an ongoing basis, whether
    the derivatives that are used in hedging transactions are highly effective
     in offsetting changes in fair values or cash flows of hedged items. Changes
in the fair value of a derivative that is highly effective and that is
     designated and qualifies as a fair-value hedge, along with the loss or gain
 on the hedged asset or liability or unrecognized firm commitment of the
hedged item that is attributable to the hedged risk, are recorded in  
earnings. Changes in the fair value of a derivative that is highly    
 effective and that is designated and qualifies as a cash-flow hedge are
     recorded in other comprehensive income to the extent that the derivative is
 effective as a hedge, until earnings are affected by the variability in
  cash flows of the designated hedged item. The ineffective portion of the
     change in fair value of a derivative instrument that qualifies as cash-flow
hedge is reported in earnings.                                        

The Company discontinues hedge accounting prospectively when it is    
     determined that the derivative is no longer effective in offsetting changes
cash flows of the hedged item, the derivative expires or is sold,     
terminated, or exercised, the derivative is designated as a hedging   
instrument, because it is unlikely that a forecasted transaction will 
  occur, a hedged firm commitment no longer meets the definition of a firm
    commitment, or management determines that designation of the derivative as
 a hedging instrument is no longer appropriate. When hedge accounting is
    discontinued because it is probable that a forecasted transaction will not
   occur, the Company continues to carry the derivative on the balance sheet
at its fair value with subsequent changes in fair value included in   
     earnings, and gains and losses that were accumulated in other comprehensive
   income are recognized immediately in earnings. In all other situations in
    which hedge accounting is discontinued, the Company continues to carry the
derivative at its fair value on the balance sheet and recognizes any  
subsequent changes in its fair value in earnings.                     

   The Company decided on the early adoption of Bulletin C-10 for 2004. As a
     result of this early adoption, the Company recognized a loss from effective
   hedging amounts for cross currency swaps derivative financial instruments
     as a decrease to stockholders' equity accounts, for $301, which corresponds
    to the unrealized loss on these derivative financial instruments (see note
6).                                                                   

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

(4)  Foreign currency exposure                                                  

   Monetary assets and liabilities denominated in dollars as of December 31,
2004 and 2003 are as follows:                                         

                                                        [Enlarge/Download Table]


                                                           (Thousands of dollars)       
                                                    ------------------------------------

                                                          2004               2003       
                                                          ----               ----       

                                                                                        
Current assets                                              62,351              85,048  
Current liabilities                                       (73,384)            (36,146)  
Long-term liabilities                                    (180,121)           (180,266)  
                                                    ----------------   -----------------

          Foreign currency liability position, net       (191,154)           (131,364)  
                                                    ================   =================


The U.S. dollar exchange rates as of December 31, 2004 and 2003 were  
   $11.2648 and $11.2360 respectively. As of February 25, 2004, the exchange
rate was $11.0807.                                                    

As of December 31, 2004, the Company had foreign exchange derivative  
instruments (see note 6).                                             

As of December 31, 2004 and 2003, the Company had the following       
  non-monetary assets of foreign origin, the replacement cost of which may
only be determined in dollars:                                        

                          (Thousands of dollars)
                          ----------------------------------

                         2004               2003
                         ----               ----

Inventories                                   2,798              1,029          
Systems and equipment, gross                732,181            663,225          
                          ---------------    ---------------

                                  734,979            664,254
                          ===============    ===============

Following is a summary for the years ended December 31, 2004, 2003 and
    2002, of transactions carried out with foreign entities, excluding imports
and exports of systems and equipment:                                 

                                                        [Enlarge/Download Table]


                                                             (Thousands of dollars)             

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

                                                    2004              2003             2002     
                                                    ----              ----             ----     

                                                                                                
Interest expense                                      21,429            14,926           38,475 
Commissions                                              471            11,174            1,978 
Administrative and technical advisory services         1,004               243            3,325 
                                                -------------     -------------   --------------

                                                      22,904            26,343           43,778 
                                                =============     =============   ==============

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

(5)  Accounts receivable                                                        

Accounts receivable consist of the following:                         

                                                                [Download Table]


                                             2004             2003      
                                             ----             ----      

                                                                        
Trade                                 $         612,293         497,853 

Less allowance for doubtful accounts            100,959          70,887 
                                        ---------------  ---------------

          Accounts receivable, net    $         511,334         426,966 
                                        ===============  ===============


 The activity in the allowance for doubtful accounts for the years ended
December 31, 2004, 2003 and 2002 was as follows:                      

                                                        [Enlarge/Download Table]


                                                           2004            2003            2002      
                                                           ----            ----            ----      

                                                                                                     
Balances at beginning of year                       $        66,719         232,316           73,461 
Bad debt expense                                             33,500          57,658          158,855 
Write-offs                                                   -             (223,255)         -       
                                                       -------------  --------------  ---------------

Balances at end of year not adjusted for inflation          100,219          66,719          232,316 

Effects of inflation                                            740           4,168           24,364 
                                                       -------------  --------------  ---------------

Balances at year end at constant pesos              $       100,959          70,887          256,680 
                                                       =============  ==============  ===============

(6)  Hedging                                                                    

 On March 29, 2004, the Company entered into a derivative Cross Currency
    Swaps (CCS) transactions denominated "Coupon Swap" agreements to hedge 65%
     of their US dollar foreign exchange exposure resulting from the issuance of
    the U.S. $175 million 11% senior notes which mature in 2013. Under the CCS
  transactions, Axtel will receive semiannual payments calculated based on
 the aggregate notional amount of U.S.$ 113.75 million at an annual U.S.
     rate of 11%, and the Company will make semiannual payments calculated based
  on the aggregate of $1,270,019 (nominal value) at annual Mexican rate of
12.30%. The CCS will expire in December 2008. During the life of the  
contracts, the cash flows originated by the exchange of interest rates
   under the CCS match in interest payment dates and conditions those of the
     underlying debt. The Company does not enter into derivative instruments for
 any purpose other than cash-flow-hedging purposes. That is, the Company
does not speculate using derivative instruments.                      

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

    By using derivative financial instruments to hedge exposures to changes in
    currency exchange rates fluctuations, the Company exposes itself to credit
 risk and market risk. Credit risk is the failure of the counterparty to
    perform under the terms of the derivative contract. When the fair value of
     a derivative contract is positive, the counterparty owes the Company, which
  creates credit risk for the Company. When the fair value of a derivative
    contract is negative, the Company owes the counterparty and, therefore, it
does not possess credit risk. The Company minimizes the credit risk in
derivative instruments by entering into transactions with high-quality
foreign financial counterparties                                      

The CCS information is as follows:                                    

                                                        [Enlarge/Download Table]


     (Amounts in charts are expressed in millions, except exchange rates which                              
     are expressed in pesos)                                                                                

                                           Currencies                             Interest Rates            
                                 -------------------------------    ----------------------------------------
                                                    Notional                                                
                                                     amount                                                 
                                  Notional          (nominal            Axtel       Axtel         Estimated 
      Maturity date                amount            value)            receives      pays        fair value 
-------------------------------- --------------- ---------------    ------------- ----------   -------------

                                                                                                            
   December 15, 2008             U.S.$ 113.75        $ 1,270           11.00%       12.30%      U.S.$(0.1)  


   For the year ended December 31, 2004, the change in net unrealized losses
"mark to market" for derivatives designated as cash flow hedges was US
     $(0.1) million. No hedge ineffectiveness on cash flow hedges was recognized
during 2004.                                                          

As of December 31, 2003, the Company had an European-Style-type option
  contract, (option) which established a floor and a ceiling exchange rate
between the peso and the U.S. dollar at specified dates on specified  
    notional amounts. In the first quarter of 2004 this derivative instruments
was settled and thus the Company recognized a loss of $555 from this  
 transaction. As of December 31, 2003, the position of the option was as
follows:                                                              

                                                        [Enlarge/Download Table]


                                          Notional                Notional              Changes in the fair     
         Inception and             amount/exchange rate -    amount/exchange rate -     value recorded within   
        expiration dates                    floor                    ceiling            the CFR earnings item   
---------------------------------  ------------------------  ------------------------  -------------------------

                                                                                                                
    Sept 23, 2003/March 17,                                                                                     
              2004                      $ 55.4/11.08              $ 56.5/11.30                  $ 0.6           


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

   The estimated fair values of derivative instruments used for the exchange
of interest rates and/or currencies fluctuate over time and will be   
determined by future interest rates and currency prices. These values 
should be viewed in relation to the fair values of the underlying     
    transactions and as part of the overall Company's exposure to fluctuations
in interest rates and foreign exchange rates.                         

(7)  Prepaid expenses                                                           

Prepaid expenses consist of the following:                            

                                                                [Download Table]


                                        2004             2003      
                                        ----             ----      

                                                                   
Airspan Communications Limited    $      93,511            -       
Nortel Networks de Mexico                 3,493               3,286
Nortel Networks Limited                   2,128             167,937
Maxcom Telecomunicaciones                   292               8,821
Other                                    33,425              15,332
                                   ---------------  ---------------
          Total prepaid expenses  $     132,849             195,376
                                   ===============  ===============


    In accordance with the debt-restructuring agreement (See note 13b) all new
  purchases from Nortel should be either secured through the issuance of a
letter of credit or prepaid.                                          

     The payment terms for Airspan requires a 50% downpayment with the remaining
balance payable upon shipments of goods (see note 21i).               

(8)  Inventories                                                                

Inventories consist of the following:                                 

                                                                [Download Table]


                                                    2004             2003     
                                                    ----             ----     

                                                                              
Telephones and caller identification devices  $      17,432             4,351 
Installation material                                 7,678             4,421 
Tools                                                 2,959             1,394 
Network spare parts                                  16,474             8,312 
Other                                                14,137             4,421 
                                               ---------------  --------------
             Total inventories                $      58,680            22,899 
                                               ===============  ==============

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

(9)  Property, systems and equipment                                            

Property, systems and equipment are analyzed as follows:              

                                                        [Enlarge/Download Table]


                                                                                    Useful   
                                                     2004            2003           Lives    
                                                     ----            ----           -----    

                                                                                             
Land                                           $      38,301           38,089                
Building                                             124,874          123,835      25 years  
Computer and electronic equipment                  1,057,421          900,364      3 years   
Transportation equipment                              19,060           15,341      4 years   
Furniture and fixtures                               100,500           93,970      10 years  
Network equipment                                  6,710,503        6,127,338   6 to 28 years
Leasehold improvements                               152,187          140,093                
Construction in progress                           1,193,890          439,208                
                                                --------------  --------------               
                                                   9,396,736        7,878,238                
Less accumulated depreciation                      3,239,339        2,361,430                
                                                --------------  --------------               
        Property, systems and equipment, net  $    6,157,397        5,516,808                
                                                ==============  ==============               


   As of December 31, 2004 the Company has capitalized CFR as a component of
     the acquisition cost of property, systems and equipment aggregating $2,307.

(10) Pre-operating expenses, net                                                

The capitalized pre-operating expenses incurred up to June 1999 and   
    expenses incurred during 2000 and 2004 in opening operations in new cities
are as follows:                                                       

                                                                [Download Table]


                                             2004              2003        

                                                                           
Salaries                               $         198,161          187,001  
Legal and financial advisory                     106,800          106,800  
Operating expenses                                76,042           58,113  
Depreciation                                       9,281            9,281  
Comprehensive financing result                   (23,422)         (23,422) 
Service and other revenues                       (13,239)         (13,239) 
Other                                             36,911           36,911  
                                         -----------------  ---------------
                                                 390,534          361,445  
        Less accumulated amortization            186,416          148,812  
                                         -----------------  ---------------
          Pre-operating expenses, net  $         204,118          212,633  
                                         =================  ===============


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

(11) Other assets                                                               

Other assets consist of the following:                                

                                                                [Download Table]


                                             2004              2003      
                                             ----              ----      

                                                                         
Notes issuance costs                  $         71,199            63,589 
Telmex / Telnor infrastructure costs            56,319            35,578 
Guarantee deposits                              19,011            15,015 
Other                                           12,600             2,767 
                                       ----------------  ----------------

                                               159,129           116,949 
 Less accumulated amortization                  17,068               872 
                                       ----------------  ----------------

         Other assets, net            $        142,061           116,077 
                                       ================  ================


Notes issuance costs                                                  

Notes issuance costs mainly consists of legal and audit fees,         
   documentation, advising, printing, rating agencies, registration fees and
out of pocket expenses incurred in relation to the issuance of notes  
payable and are amortized over the life of the related debt.          

Telmex / Telnor infrastructure costs                                  

As part of the opening of the telecommunications market in Mexico, new
  telecommunications companies must have interconnection with Telefonos de
  Mexico (Telmex) and Telefonos del Noroeste (Telnor). These two companies
 made agreements with the new entrants by which they must compensate the
  investment in infrastructure that Telmex / Telnor were forced to make in
order to provide interconnection for the new entrants.                

    In the case of Axtel, the agreement signed with Telmex / Telnor indicated,
  that the Company is obligated to make such compensation as follows which
ever comes first:                                                     

    a)   December 31, 2003 or 2004 depending the invested infrastructure or b)
  Certain amount minutes of calls terminated by Telmex / Telnor.

  After one of these events is met, the Company is not longer obligated to
  make further compensations in this regard. These costs will be amortized
under the straight line method over a period of fifteen years.        

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

(12) Short-term debt                                                            

Short-term debt as of December 31, 2004 and 2003 and their main       
characteristics are as follows:                                       

                                                        [Enlarge/Download Table]


                                                                                              2004            2003     
                                                                                              ----            ----     
                                                                                                                       
Revolving  line of credit with SR Telecom Canada Inc.  denominated in U.S.  dollars.                                   
The  payments are made 50% net 30 days and 50% net 360 days.  The  interest  rate is                                   
LIBOR plus 6.25 percent points applicable only to the 360-day portion                                                  
                                                                                      $        -                4,432  

Revolving  line of credit with Banco  Mercantil del Norte,  S.A.  (Banorte) used for                                   
letters of credit, denominated in U.S. dollars up to 360 days                                    85,436        14,979  

Revolving  lines of credit with  different  institutions  used for letters of credit                                   
denominated in U.S. dollars up to 360 days                                                       23,791         6,089  
                                                                                         --------------  --------------

         Total short-term notes payable                                               $         109,227        25,500  
                                                                                         ==============  ==============


(13) Long-term debt                                                             

Long-term debt as of December 31, 2004 and 2003 and its main          
characteristics is as follows:                                        

                                                        [Enlarge/Download Table]


                                                                                             2004            2003      
                                                                                             ----            ----      
                                                                                                                       
U.S. $175,000,000 in aggregate principal amount of 11% Senior Notes due                                                
2013. Interest is payable semi-annually in arrears on June 15, and                                                     
December 15 of each                                                                                                    
year which began on June 15, 2004.                                                   $       1,985,893      2,089,165  

Hewlett Packard de Mexico, S. de R. L. de C.V. denominated in U.S. dollars,  payable                                   
in 36 monthly  installments  with a six- month grace  period  maturing in 2005.  The                                   
interest rate was 9.8%. This debt was pre-paid in full during 2004.                           -                 4,743  

Promissory  Notes  with  Hewlett  Packard  Operations  Mexico,  S. de  R.L.  de C.V.                                   
denominated  in U.S.  dollars,  payable in 12  quarterly  installments  maturing  in                                   
December 2007. The interest rate is 7.0%                                                        53,937         22,917  

Line of credit with Siemens  Financial  Services Inc.  denominated in U.S.  dollars.                                   
The payments were made in six  semiannual  installments  through 2005.  The interest                                   
rate was LIBOR plus 5.5 percentage points.  Interest was payable semiannually.  This                                   
debt was pre-paid in full during 2004                                                         -                54,744  

Other long-term financing with several credit institutions with interest                                               
rates fluctuating between 6% and 9% for those denominated in dollars and                                               
TIIE (Mexican                                                                                                          
average interbank rate) plus six percentage points for those denominated in pesos               50,695         36,696  
                                                                                        --------------  ---------------

         Total long-term debt                                                                2,090,525      2,208,265  

            Less current maturities                                                             49,352         57,808  
                                                                                        --------------  ---------------

         Long-term debt, excluding current maturities                                $       2,041,173      2,150,457  
                                                                                        ==============  ===============

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

Annual installments of long-term debt are as follows:               

Year                               Amount               
----                               ------               

2006                       $            35,053            
2007                                    20,226            
2008                                  -                   
2009 and thereafter                  1,985,894            
                      ----------------
                       $ 2,041,173
                      ================

    The following are the most important changes in the Company long-term debt
during 2004 and 2003:                                                 

a)   On March 18, 2003, the Company obtained a loan for U.S.$ 75 million dollars
     from Banco Mercantil del Norte, S.A. (Banorte) at a variable Libor interest
rate to 90 days plus certain basis points, payable quarterly. The loan
     payments were set in four equal consecutive quarterly installments of U.S.$
4.5 million and one last installment of U.S.$ 57 million, beginning 24
months after the credit disposition date, which was March 20, 2003. On
December 17, 2003 this loan was paid in full (see note 13d).          

b)   On March 20, 2003, the Company entered into a debt-restructuring agreement 
    with Nortel Networks Limited and Nortel Networks de Mexico (Nortel), which
resulted as follows: payment in cash of U.S.$ 125.2 million dollars,  
     issuance by the Company of a promissory note for U.S.$ 24.2 million dollars
   and the capitalization of debt of U.S.$ 178.5 million dollars in exchange
for 250,836,980 Series "N" shares of common stock (see note 17). As a 
  result of this transaction, Axtel recognized a gain on extinguishment of
   debt of approximately $1,975,000 pesos (see note 20). The promissory note
 for U.S$ 24.2 million dollars was paid in December 2003 (see note 13d).
After this transaction and in accordance with the debt restructuring  
   agreement, all new purchases from Nortel should be either secured through
the issuance of a letter of credit or prepaid (see note 7).           

c)   On May 2003 the Company entered in an agreement with Bell Canada           
    International (BCI) to terminate all of the rights and obligations of both
     parties under the technical services agreement and a second agreement dated
 as of October 6, 1997, including Axtel's obligations to pay fees in the
    future based on the Company's financial performance and in full settlement
 of any and all claims that BCI may have against Axtel arising out of or
  related to the above mentioned agreements. The termination agreement was
   for U.S.$ 15.6 million, which was included in other income (expense) line
  item; originally payable as follows: U.S.$ 2.7 million at closing of the
   agreement, U.S.$ 1.1 million in June 2003, U.S.$ 1.1 million in September
  2003, U.S.$ 1.1 million in December 2003 and U.S.$ 9.3 million, maturing
  thirty seven (37) months after closing payable without interest and in a
  single installment. On December 17, 2003 this debt was paid in full (see
note 13d).                                                            

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

d)   On December 16, 2003, the Company completed an offering of senior unsecured
notes, for a value of U.S. $175 million maturing on December 15, 2013.
 Interest on the Notes are payable semiannually at a annual rate of 11%,
beginning on June 15, 2004.                                           

The indenture of the notes contain certain affirmative and negative   
    covenants, as of December 31, 2004, the Company was in compliance with all
covenants.                                                            

   With the proceeds of the offering the Company prepaid in full the Banorte
facility, the Nortel promissory note and the BCI Indebtedness.        

Each of the Company's consolidated subsidiaries, Instalaciones y      
Contrataciones, S.A. de C.V. (Instalaciones), Impulsora e Inmobiliaria
Regional, S.A. de C.V. (Impulsora) and Servicios Axtel, S.A. de C.V.  
    (Servicios), are guaranteeing the notes with unconditional guaranties that
are unsecured.                                                        

Some of the debt agreements that remain outstanding establish certain 
 covenants, the most important of which refer to limitations on dividend
     payments and comprehensive insurance on pledged assets, among others. As of
   December 31, 2004, the Company was in compliance in all its covenants and
obligations.                                                          

(14) Other Accounts Payable                                                     

    As of December 31, 2004 and 2003 the other accounts payable consist of the
following:                                                            

                                             2004                     2003
                                             ----                     ----

Guarantee deposits (note 21a)           $        147,523               155,195  
Interest payable (note 21a)                       32,163                25,783  
Other                                             22,454                25,479  
                                        ----------------      ----------------

                                      $       202,140                206,457
                                        ================      ================

(15) Seniority premiums                                                         

The cost of the obligations and other elements of seniority premiums  
    mentioned in note 2(i) have been determined based on independent actuarial
calculations as of December 31, 2004 and 2003.                        

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

  The components of the net periodic cost for the years ended December 31,
2004, 2003 and 2002 are the following:                                

                                                        [Enlarge/Download Table]


                                                             2004       2003        2002   
                                                             ----       ----        ----   
Net periodic cost                                                                          
                                                                                           
   Labor cost                                           $      616         612         186 
   Financial cost                                               79          65          43 
   Amortization of transition obligation                         1           1           1 
   Variances in assumptions and experience adjustments           9          17           0 
   Inflationary effect                                          27          29          15 
                                                          ----------  ---------  ----------

                  Net periodic cost                     $      732         724         245 
                                                          ==========  =========  ==========

The actuarial present value of plan benefit obligations is as follows:

                                                        [Enlarge/Download Table]

                                                                                 2004          2003     
                                                                                 ----          ----     

                                                                                                        
    Present benefit obligation                                              $       2,413        2,193  
                                                                              -----------   ----------- 
    Present value of benefits attributable to future salary increases                              135  
                                                                                      184               
                                                                              -----------   ----------- 
    Projected benefit obligation (PBO)                                              2,597        2,328  
    Items pending amortization:                                                                         
       Variances in assumptions and experience adjustments                           (375)        (433) 
       Transition liability                                                            (7)          (8) 
       Minimum additional liability                                                   197          238  
                                                                              -----------   ----------- 
          Net projected liability recognized on the consolidated balance                         2,125  
              sheets                                                        $       2,412               
                                                                              ===========   =========== 

     The most significant assumptions used in the determination of the net                              
     periodic cost of plan are the following:                                                           

                                                                                  2004          2003    
                                                                                  ----          ----    

Discount rate                                                                        4.00%         4.00%
                                                                              ============   ===========
Rate of increase in future salary levels                                             1.00%         1.00%
                                                                              ============   ===========
Estimated inflation for the period                                                   4.00%         4.00%
                                                                              ============   ===========
Amortization period of the transition liability                                 17 years       11 years 
                                                                              ============   ===========


During 2004 the amortization period of the transition liability was   
increase for additional six years as the variable of probability for  
     payments of pension (when personnel reach 65 years old) was incorporated in
     the new actuarial calculations. The effect of this change was not material.

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

(16) Income tax (IT), tax on assets (TA), employee statutory profit sharing     
(ESPS) and tax loss carryforwards                                     

The parent company and its subsidiaries file their tax returns on a   
stand-alone basis, and the consolidated financial statements show the 
aggregate of the amounts determined by each company.                  

   In accordance with the current tax legislation, companies must pay either
 the IT or TA, whichever is greater. Both taxes recognize the effects of
inflation, in a manner different from MexGAAP.                        

   The TA law establishes a 1.8% tax on assets adjusted for inflation in the
case of inventory, property, systems and equipment and deducted from  
certain liabilities. TA levied in excess of IT for the year can be    
     recovered in the succeeding ten years, updated for inflation, provided that
in any of such years IT exceeds TA.                                   

   In December 2004, the Mexican Congress approved changes to the Income Tax
   Law, previously on January 1, 2002 a new Income Tax Law had been enacted,
this law provided for a 1% annual reduction in the income tax rate    
     beginning in 2003, so that the income tax rate would have been 32% in 2005,
  nevertheless the main change included in December 2004 and its impact on
     the Company's financial statements was related to a reduction in the income
 tax rates from previously approved tax rate of 32% in 2005 to a new tax
   rate of 30%. Also, for years 2006 and 2007 the tax rates will decrease to
  29% and 28%, respectively. Consequently, the deferred income taxes, were
calculated assuming a 30% tax rate for current assets and current     
     liabilities; 29% and 28%, for assets and liabilities whose tax effects will
    be reversed after 2005. The effect of the reduction in the deferred income
tax assets calculation for 2004 was $51,300.                          

The tax (expense) benefit attributable to the income (loss) before IT 
    differed from the amount computed by applying the tax rate of 33% in 2004,
 34% in 2003 and 35% in 2002 to pretax income (loss), as a result of the
items mentioned below:                                                

                                                        [Enlarge/Download Table]


                                                                     2004             2003            2002      
                                                                     ----             ----            ----      

                                                                                                                
Computed "expected" income tax                                                                                  
  (expense) benefit                                            $      (24,382)       (502,443)         391,393  
Increase (decrease) resulting from:                                                                             
       Effects of inflation, net                                      (16,277)          4,023          (27,636) 
       Change in valuation allowance                                   (7,338)         (9,162)          (1,145) 
       Adjustments to deferred tax assets and liabilities for                                                   
        enacted changes in tax rates                                  (51,300)        (20,527)          16,577  
       Amendment to 2003 income tax return                            (30,306)         -               -        
       Non-deductible expenses                                        (13,852)         (1,700)         (43,842) 
       Other                                                           (8,131)          5,525          (78,526) 
                                                                 --------------  --------------  ---------------
          Deferred income tax (expense) benefit                $     (151,586)       (524,284)         256,821  
                                                                 ==============  ==============  ===============


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

In June 2004 the Company filed before the Mexican tax authority its   
  Statutory Tax Report and also filed an amended Income Tax Return for the
  year ended December 31, 2003. In that filing, the net tax operating loss
carryforwards were decreased by approximately $90,600 as a result of  
certain expenses originally reported as deductible expenses and in the
   amended return reported as non-deductible expenses. As a consequence, the
     tax assets associated with these carryforwards were reduced resulting in an
 increase in the deferred tax expense for 2004 of approximately $30,306.
    This decrease and the enacted changes in tax rates are the main factors as
to why the effective rate for the year ended December 31, 2004 is     
approximately 200% as compare to the 34.2% effective rate for the same
    period in 2003. Other factors contributing to the large effective tax rate
  mainly include non-deductible expenses and certain inflationary effects.

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, 2004 and 2003 are presented below:                       

                                                                [Download Table]


                                                        2004            2003     
                                                        ----            ----     
Deferred tax assets:                                                             
                                                                                 
         Net operating loss carryforwards       $       518,811          530,710 
         Accounts receivable                             28,268          184,265 
         Accrued liabilities                              4,069           23,574 
         Tax on assets                                   17,431            9,134 
         Accrued vacations                                2,037            2,609 
                                                   --------------  --------------

               Total gross deferred tax assets          570,616          750,292 

       Less valuation allowance                          19,081           11,743 
                                                   --------------  --------------

              Net deferred tax assets                   551,535          738,549 
                                                   --------------  --------------

Deferred tax liabilities:                                                        
         Property, systems and equipment                179,339          229,384 
         Telephone concession rights                    166,387          162,588 
         Pre-operating expenses                          58,152           69,095 
         Other assets                                     5,054            1,965 
         Inventories                                     17,604            7,786 
                                                   --------------  --------------

               Total deferred tax liabilities           426,536          470,818 
                                                   --------------  --------------

               Deferred tax assets, net         $       124,999          267,731 
                                                   ==============  ==============


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

The Company assesses realizability of deferred tax assets based on the
    existence of taxable temporary differences expected to reverse in the same
    periods as the realization of deductible temporary differences or in later
     periods in which the tax loss carryforwards can be applied and when, in the
   opinion of management, there will be enough future taxable income for the
    realization of such deductible temporary differences. However, the amounts
     of realizable deferred tax assets could be reduced if the taxable income is
 lower. As of December 31, 2004 and 2003, a deferred tax asset valuation
    allowance was established for tax loss carryforwards from the subsidiaries
and TA from the Company. No deferred tax asset valuation allowance was
established for AXTEL tax loss carryforwards, since, in the opinion of
   Company management, there is a high probability that there will be enough
future taxable income to realize the net deferred tax assets.         

     According to the IT law, the tax loss of a year, restated by inflation, may
  be carried to the succeeding ten years. The tax losses have no effect on
ESPS. As of December 31, 2004, the tax loss carryforwards expire as   
follows:                                                              

  Year          Inflation-adjusted tax      Recoverable TA
loss carryforwards    
----------------------     -----------------------    --------------------      

2009          $                  597                    - 
2010                       1,183,654                    - 
2011                         225,024                    - 
2012                         443,096                    - 
  2013                             525                   8,658
  2014                         -                         8,773
                     -----------------------    --------------------
                $            1,852,896                  17,431
                     =======================    ====================

Effective January 1, 2002, Axtel transferred all of its personnel to a
subsidiary Company, which eliminated any deferred ESPS liability.     

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

(17) Stockholders' equity                                                       

The main characteristics of stockholders' equity are described below: 

(a)  Common stock structure                                                     

   The main characteristics and issuances of common stock for 2004, 2003 and
2002 are described below:                                             

                                                        [Enlarge/Download Table]


                                                                               Additional  
                                                                                paid-in    
                        Amount            Amount               Amount           capital    
                      (thousand          (nominal            (constant         (constant   
   Date                dollars)           pesos)               pesos)            pesos)    
   ----                --------           ------               ------            ------    

                                                                                           
February 28, 2002         5,000        $       47,690            55,186        (2,171)     
                   ------------------------------------------------------------------------

Total 2002                5,000        $       47,690            55,186        (2,171)     
                   ------------------------------------------------------------------------

February 28, 2003        35,336        $      389,854           425,731        (8,420)     
October 7, 2003         203,164             2,202,544         2,404,474        (7,320)     
                   ------------------------------------------------------------------------

Total 2003              238,500        $    2,592,398         2,830,205       (15,740)     
                   ========================================================================


At the General Stockholders' Meeting, held on February 28, 2003 the   
stockholders approved the following:                                  

1.   Cancellation of the stockholders' outstanding contribution of U.S.$10      
   million dollars according to the resolutions of the General Stockholders'
   Meeting held on March 30, 2001, releasing the Company's stockholders from
their obligation to make this contribution to capital. Consequently, a
 U.S.$10 million-dollar decrease was approved of the variable portion of
common stock of the Company.                                          

2.   Additional contribution to the variable portion of common stock for an     
  amount equivalent in Mexican pesos of U.S.$60 million dollars payable in
  cash. Consequently, it was approved to issue 2,156,184,303 shares, which
was distributed as follows: 1,041,437,018 Series "A" shares Variable; 
549,355,873 Series "B" shares Variable; 451,232,470 Series "C" shares 
    Variable and 114,158,942 Series "N" shares, all of them with no par value.
 In addition the Shareholder's Meeting also resolved that all Series "B"
  shares were to be exchanged for either Series "A" shares, in the case of
investors of Mexican nationality, or Series "C" shares, in the case of
investors of non-Mexican nationality.                                 

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

3.   Additional contribution to the variable portion of common stock of the     
Company for up to the amount equivalent in Mexican pesos of U.S.$200  
     million dollars through the capitalization of liabilities payable to Nortel
(See note 13). Consequently, it was approved to issue 250,836,980     
   registered shares, with no par value and no right to vote. All the shares
  were Series "N" shares of the Company's common stock in favor of Nortel,
    that when issued, will represent 9.9% of the total number of shares issued
and paid of the Company's common stock.                               

In addition, on March 20, 2003 the Company entered in a subscription  
 agreement with Nortel Networks Limited (Nortel), where Nortel agreed to
   subscribe for 250,836,980 nominative, non par value and non-voting Series
     "N" Shares for a total subscription price of $2,108,993 (U.S.$178.5 million
  dollars). Such subscription price shall be considered to be satisfied by
means of the debt capitalization as contemplated in the Restructuring 
Agreement (see note 13). Upon subscription of the shares, such shares 
 represent 9.9% of the total issued and outstanding shares of the common
stock of the Corporation.                                             

 Also, during 2003 the Company entered in a subscription agreements with
LAIF X Sprl, Tapazeca Sprl and New Hampshire Insurance Company whereby
these entities agreed to subscribe and pay for 115,068,613 Series "B" 
    shares, and 426,843,722 Series "C" shares all of which are nominative, non
 par value and voting shares, and 36,181,412 Series "N" shares which are
    nominative, non par value and non-voting for a total subscription price of
US$16 million.                                                        

 In the Extraordinary Shareholders Meeting held on September 8, 2004 the
  shareholders approved a proposal to increase the variable portion of the
     capital stock of the Company in the amount in Mexican pesos equal to $3,089
     through the issuance of 124,957,212 non-voting Series "N" shares which will
represent 4.7% of the total issued capital stock of the Company. These
series "N" stocks have not been issued.                               

The Company common stock consists of 1,253,233,984 Series "A" shares, 
     888,152,627 Series "C" shares and 392,320,255 series "N" shares. Series "A"
  and "C" shares have the right to vote, and series "N" shares have no par
     value and no voting rights. Series "A" is restricted to Mexican individuals
or corporations.                                                      

(b)  Stockholders' equity restrictions                                          

     Stockholder contributions, restated as provided in the tax law, totaling of
$7,223,506 may be refunded to stockholders tax-free.                  

    No dividends may be paid while the Company has a deficit. Some of the debt
    agreements mentioned in note 13 establish limitations on dividend payment.

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

(18) Rental, installation, service and other revenues                           

Revenues consist of the following:                                  

                                                                [Download Table]


                                2004             2003             2002      
                                ----             ----             ----      

                                                                            
Local calling services  $        2,742,172       2,317,021        1,946,829 
Long distance services             384,673         314,560          307,873 
Other services                     762,974         470,361          350,950 
                           ---------------  ---------------  ---------------

                        $        3,889,819       3,101,942        2,605,652 
                           ===============  ===============  ===============

(19) Special item                                                               

   In order to improve productivity and comply with the strategic plans, the
 Company restructured some of its operating areas during the years ended
December 31, 2003 and 2002. The costs of restructuring, comprising    
compensation and benefits to personnel, were $11,068 and $34,447,     
respectively, and are presented as a special item in the statements of
operations for the years ended December 31, 2003 and 2002.            

(20) Other income (expenses), net                                               

Other income (expenses) consist of the following:                     

                                                        [Enlarge/Download Table]


                                              2004              2003               2002       
                                              ----              ----               ----       

                                                                                              
Gain on extinguishment               $          -              1,974,589            -         

Nortel prepayment                               -                 32,535            -         

Nortel withholding cancellation                 -                 31,638            -         

Banorte prepayment                              -                (84,052)           -         

BCI termination agreement                       -               (127,726)           -         

Other                                             21,158          (5,400)           (29,313)  
                                        -----------------  ---------------  ------------------

       Other income (expenses), net  $            21,158       1,821,584            (29,313)  
                                        =================  ===============  ==================


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

(21) Commitments and contingencies                                              

As of December 31, 2004, there are the following commitments and      
contingencies:                                                        

(a)  On January 24, 2001 a contract was signed with Spectra Site Communications 
    Mexico, S. de R.L. de C.V. (Spectra Site) expiring on January 24, 2004, to
 provide the Company with services to locate, construct, set up and sell
   sites within the Mexican territory. As part of the operation, the Company
  agreed to build 650 sites, subject to approval and acceptance by Spectra
Site and, in turn, sell or lease them under an operating lease plan.  

   On January 24, 2001, the Company received 13 million dollars from Spectra
     Site to secure the acquisition of the 650 sites at 20,000 dollars per site.
 These funds are not subject to restriction per the contract for use and
    destination. However, the contract provides for the payment of interest at
  a Prime rate in favor of Spectra Site on the amount corresponding to the
 number of sites that as of June 24, 2004 had not been sold or leased in
 accordance with the terms of the contract. The Company has recognized a
liability to cover such interest for $32,163, presenting it as other  
accounts payable in the balance sheet as of December 31, 2004.        

     During 2002, Spectra Site Communications filed an Ordinary Mercantile Trial
against the Company before the Thirtieth Civil Court of Mexico City,  
demanding the refund of the guarantee deposit mentioned above, plus   
   interest and trial-related expenses. The Company countersued Spectra Site
 for unilateral rescission of the contract. As of December 31, 2004, the
     trial is at a stage where evidence is being shown, and thus it not possible
to determine whether there is a contingency for the Company.          

(b)  On October 2002, Metronet, S.A. de C.V. ("Metronet") filed an action       
against the Company in the Fourth Civil Court in Monterrey (Mexico).  
   Metronet claims that the Company wrongfully terminated a letter of intent
 and is seeking payment for services and direct damages of approximately
    U.S.$3.8 million, plus other expenses and attorneys' fees. The trial court
ruled against the Company in first instance. The Company appealed such
   judgment before the Appeal Court and the Appeal Court on October 22, 2004
    ruled in favor of the Company, discharging Axtel of any liability, damages
  or payment in favor of Metronet. Metronet has a last resource before the
Mexican Federal Courts to change the Appeal Court judgment.           

(c)  The Company is involved in a number of lawsuits and claims arising in the  
   normal course of business. It is expected that the final outcome of these
matters will not have significant adverse effects on the Company's    
financial position and results of operations.                         

(d)  In compliance with commitments made in the acquisition of concession       
     rights, the Company has granted surety bonds to the Federal Treasury and to
  the Ministry of Communication and Transportation of $31,970 and to other
service providers for $48,759.                                        

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

(e)  The concessions granted by the Ministry of Communications and              
     Transportation (SCT), mentioned in note 1, establish certain obligations of
    the Company, including, but not limited to: (i) filing annual reports with
the SCT, including identifying main shareholders of the Company, (ii) 
     reporting any increase in common stock, (iii) providing continuous services
  with certain technical specifications, (iv) filing monthly reports about
  disruptions, (v) filing the services' tariff, and (vi) providing a bond.

(f)  The Company leases some equipment and facilities under operating leases.   
     Some of these leases have renewal clauses. Lease expense for 2004, 2003 and
2002 was $289,684, $207,225 and $223,817, respectively.               

The annual payments under these leases as of December 31, 2004 are as 
follows:                                                              

                                                                [Download Table]


                                   Contracts in:                           
             --------------------------------------------------------------
                                     Dollars                  UDIS         
                  Pesos            (thousands)         (Investment units)  
             ----------------    ---------------   ------------------------

                                                                           
2005        $        59,724              6,716                 54,833      
2006                 45,464              5,551                 54,833      
2007                 39,468              4,588                 54,833      
2008                 33,722              2,819                 54,833      
2009                 28,039              2,727                 45,694      
Thereafter          107,692             11,461                -            
             ----------------    ---------------         --------------    
            $       314,109             33,862                265,026      
             ================    ===============         ==============    


(g)  As of December 31, 2004, the Company has placed purchase orders which are  
pending delivery from suppliers for approximately $771,401.           

(h)  On April 20, 2004 Axtel and Airspan entered into Amendment Agreement No. 2 
  to the Purchase and License Agreement of Fixed Wireless Access Equipment
   and the Technical Assistance Support Services Agreement, both dated March
   20, 2004, by virtue of which the parties agreed to: (i) reduce the prices
    of (a) the Fixed Wireless Access Equipment (RSS customer premise equipment
 and the radio base station equipment) and (b) the Technical and Support
Services for years 2004 and 2005; (ii) eliminate Axtel's obligation to
provide a payment guarantee and modify its payments terms under such  
     Agreements, (iii) improve the delivery times of the equipments; (iv) create
   a single unit of RSS (customer premise equipment) which will be sold at a
  lower price in comparison of the current RSS customer premise equipment;
  and (v) cancel Axtel's purchase commitments of years 2005, 2006 and 2007
    established under sold Agreements and to replace such commitments with two
new commitments, one for U.S.$ 55.0 million to purchase Fixed Wireless
 Access Equipment commencing April 20, 2004 and ending on December 31st,
2005 and the second commitment for the amount of U.S.$ 10.0 million to
  purchase any Airspan product, commencing January 1st, 2006 and ending on
May 1st, 2006.                                                        

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

(i)  On December 2004, the Company entered into a Purchase and License Agreement
   for FWA Equipment, by virtue of which the Company acquires the commitment
of purchasing equipment manufactured by Airspan for the amount of U.S.
$38.7 millions, from December 2004 through December 2006.             

As of December 31, 2004 the Company has placed purchase orders for the
amount of U.S. $28.7 millions.                                        

(j)  On July 20, 2004 Axtel, Nortel Networks Limited and Nortel Networks de     
     Mexico, S.A. de C.V., entered into a Purchase and License Agreement for the
   supply of next generation soft switch equipment and related services (the
   "NGN PLA"). This NGN PLA contains standard commercial and legal terms. In
this NGN PLA, Axtel has a purchase commitment to acquire from Nortel  
   Networks the equipment and the software licenses required to have 100,000
   lines in services by the end of the five (5) year term of such agreement.

(k)  Those arising from labor obligations mentioned in note 2(i).               

(22) Subsequent events                                                          

    (a)  During January 2005, the Company re-opened its bond issuance program,
       issuing U.S. $75,000,000 under the current indenture. This issuance
         matures on December 2013. The bonds were issued at a price of 106.75%
over face value having a yield to maturity of 9.84%.        

    (b)  On June 3, 2005, the Company entered into a derivative Cross Currency
       Swaps (CCS) transactions to hedge the remaining portion of their US
          dollar foreign exchange exposure resulting from their US $250 millions
       senior notes, which matures in 2013. (See notes 6 and 22(a)). Under
       the transactions, Axtel will receive semiannual payments calculated
      based on the aggregate notional amount of US $136.25 million at an
     annual rate of 11%, and the Company will make semiannual payments
          calculated based on the aggregate of MX $1,480.36 million at an annual
rate of 12.26%. The CCS will expire in December 2008.       

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

(23) New accounting pronouncements                                              

a)   Business combinations                                            

          In March, 2004, the Mexican Institute of Public Accountants issued the
        new Bulletin B-7 Business Combinations, which is mandatory beginning
     on January 1, 2005, although it allows his early application. The
          Bulletin B-7 provides for certain rules to the accounting treatment of
         business acquisitions and investments in associate entities. The most
       relevant aspects included in the Bulletin B-7 among others are: the
     adoption of the purchase method as a unique rule of valuation. In
         consequence, the use of the International Accounting Standard IAS-22,
        Business Combinations was eliminated; modification of the accounting
treatment of the goodwill, eliminating his amortization and 
      establishing certain rules of impairment; it provides for specific
       rules in the acquisition of the minority interest, transferences of
         assets or exchange of stocks among entities under common control, and
     the accounting treatment of the intangible assets recognized in a
business combinations.                                      

          The Company estimates that the adoption of this Bulletin will not have
        any important impact in its financial position or operation results.

b)   Labor obligations.                                               

 The new Bulletin D-3, issued in January 2004, substitutes and
         supersedes former Bulletin D-3, published in January 1993 and revised
       in 1998. The provisions of this Bulletin are effective immediately,
   except for those relating to payments upon termination of labor
relationships, which are effective January 1, 2005.         

        This Bulletin adds the issue of post-retirement benefit payments, to
       supersede Circular 50, "Interest Rates to be Used for Valuing Labor
       Obligations and Supplementary Application of Accounting Principles,
      Relating to Labor Obligations." Also, this Bulletin eliminates the
         issue of unforseen payments, and replaces it with the one relating to
        "Payments Upon Termination of the Labor Relationship," defining them
          as those payable to workers upon termination of the labor relationship
   before retirement age. These payments are of two types: (i) for
    restructuring reasons, for which the provisions of Bulletin C-9,
  "Liabilities, Accruals, Contingent Assets and Liabilities, and
    Commitments," should be applied, and (ii) for reasons other than
      restructuring, which valuation and disclosure requirements are the
        same as those for pension and seniority premium payments, permitting
          that, upon adoption of the Bulletin, the transition asset or liability
         be immediately recognized in the results of operations, or else, that
         it be amortized over the average remaining service life of employees.

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

(24) Differences between Mexican and United States accounting principles        

     The consolidated financial statements of the Company are prepared according
     to accounting principles generally accepted in Mexico (Mexican GAAP), which
    differ in certain significant respects from those applicable in the United
States of America (U.S. GAAP).                                        

The consolidated financial statements under Mexican GAAP include the  
   effects of inflation provided for by Bulletin B-10, whereas the financial
     statements prepared under US GAAP are presented on a historical cost basis.
   The following reconciliation does not eliminate the inflation adjustments
for Mexican GAAP, since they represent an integral measurement of the 
   effects of the changes in the price levels in the Mexican economy and, as
such, are considered a more meaningful presentation than the financial
     reports based on historic costs for book purposes for Mexico and the United
States of America.                                                    

     The main differences between Mexican GAAP and U.S. GAAP and their effect on
    consolidated net (loss) income and stockholders' equity as of December 31,
2004, 2003 and 2002 is presented below, with an explanation of the    
adjustments.                                                          

                                                        [Enlarge/Download Table]


                                                                               Year ended December 31,                 
                                                                -------------------------------------------------------
                                                                     2004               2003                2002       
                                                                -------------------------------------------------------

                                                                                                                       
Net (loss) income reported under Mexican GAAP .............. $         (77,702)            953,490            (861,444)
                                                                ---------------    ----------------    ----------------

Approximated US GAAP adjustments                                                                                       
1. Deferred income taxes (see 24a)..........................           142,732             515,150            (256,821)
2. Amortization of start-up cost (see 24c)..................            37,604              37,599              38,007 
3. Start-up costs of the year (see 24c).....................           (29,089)           -                   -        
4. Allowance for post retirement benefits (see 24d).........             7,769                 199              11,734 
5. Revenue recognition (see 24b)............................            (6,132)             30,718              64,840 
6. Deferred financing cost amortization (see 24f)...........           -                    14,116              (2,342)
7. Accrued vacations (see 24d)..............................           -                  -                      1,297 
8. Capitalized interest (see 24e)...........................            (1,364)             (1,050)           -        
  9. Gain on the forgiveness of debt (see 24g)..............           -                 1,360,700            -        
                                                                ---------------    ----------------    ----------------
Total approximate US GAAP adjustments.......................           151,520           1,957,432            (143,285)
                                                                ---------------    ----------------    ----------------
Approximate net income (loss) under US GAAP................. $          73,818           2,910,922          (1,004,729)
                                                                ===============    ================    ================


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Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


                                                                     Year ended December 31,       
                                                                -----------------------------------
                                                                     2004               2003       
                                                                -----------------------------------

                                                                                                   
Total stockholders' equity reported under Mexican GAAP...... $      5,640,411           5,718,414  
                                                                ---------------    ----------------

Approximate US GAAP adjustments                                                                    
1. Deferred income taxes (see 24a)..........................         (124,999)           (267,731) 
2. Start up costs (see 24c).................................         (204,118)           (212,633) 
3. Revenue recognition (see 24b)............................          (84,085)            (77,953) 
4. Allowance for post retirement benefits (see 24d).........          (21,114)            (28,883) 
5. Capitalized interest (see 24e)...........................           24,936              26,300  
                                                                ---------------    ----------------
Total approximate US GAAP adjustments.......................         (409,380)           (560,900) 
                                                                ---------------    ----------------
Total approximate stockholders' equity under US GAAP........ $      5,231,031           5,157,514  
                                                                ===============    ================


   The term "SFAS" as used in this document refers to Statement of Financial
Accounting Standards.                                                 

 (a)  Deferred income taxes (IT) and employee's statutory profit sharing
("ESPS")                                                    

      For Mexican GAAP Deferred IT are accounted for under the asset and
   liability method. All of the Company's pretax income (loss) and
  reported income tax (expense) benefit is derived from domestic
operations.                                                 

For Mexican GAAP Deferred ESPS is recognized only for timing
        differences arising from the reconciliation of book income (loss) to
        income (loss) for ESPS purposes, which can be reasonably presumed to
     result in a future liability or benefit, with indication that the
liabilities or benefits will materialize.                   

      For U.S. GAAP purposes, the Company accounts for IT and ESPS under
    SFAS 109 "Accounting for Income Taxes," which uses the asset and
        liability method to account for deferred tax assets and liabilities.
 Under the asset and liability method, deferred tax assets and
 liabilities are recognized for the future tax consequences of
        "temporary differences," by applying the enacted statutory tax rates
          applicable to future years to the differences between the book amounts
        of the financial statements and the tax bases of existing assets and
      liabilities and the tax loss carryforwards. The amount of deferred
          income taxes charged or credited to the operations in each period, for
        U.S. GAAP purposes, is based on the difference between the beginning
      and ending balances of the deferred tax assets and liabilities for
         each period, expressed in nominal pesos. The deferred tax effect of a
        change in the tax rate is recognized in the results of operations of
the period in which the change is enacted.                  

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

         The tax (expense) benefit attributable to the income (loss) before IT
        differed from the amount computed by applying the tax rate of 33% in
        2004, 34% in 2003 and 35% in 2002 to pretax loss, as a result of the
items mentioned below:                                      

                                                        [Enlarge/Download Table]

                                                              2004             2003            2002      
                                                              ----             ----            ----      

                                                                                                         
Computed "expected" income tax                                                                           
  (expense) benefit                                     $      (24,360)        (992,820)        351,656  
Increase (decrease) resulting from:                                                                      
     Effects of inflation, net                                 (16,277)           4,023         (27,636) 
     Change in valuation allowance                             139,905          532,316        (200,710) 
     Gain on the forgiveness of debt                            -               462,638         -        
     Adjustments to deferred tax assets and                                                              
        liabilities for enacted changes in tax rates           (51,300)         (20,527)         16,577  
     Amendment to 2003 Income Tax Return (see note 16)                                                   
                                                               (30,306)        --               -        
     Non-deductible expenses                                   (13,852)          (1,700)        (43,842) 
     Other                                                      (3,810)          16,070         (96,045) 
                                                          --------------  --------------  ---------------

      Deferred income tax (expense) benefit             $       -               -               -        
                                                          ==============  ==============  ===============

          The tax effects of temporary differences that give rise to significant
      portions of deferred tax assets and liabilities as of December 31,
2004 and 2003 for U.S. GAAP are presented below:            

                                                        [Enlarge/Download Table]


                                                                                      2004             2003      
                                                                                      ----             ----      

   Deferred tax assets:                                                                                          
                                                                                                                 
   Net operating loss carryforwards.......................................... $         518,811         530,710  
   Accounts receivable.......................................................            28,268         184,265  
   Deferred revenues.........................................................            23,545          26,503  
   Seniority premium and allowance for                                                                           
      post retirement benefits...............................................             6,586           9,242  
   Accrued vacations.........................................................             2,037           2,609  
   Accrued liabilities.......................................................             4,069          23,574  
   Tax on assets.............................................................            17,431           9,134  
                                                                                 ----------------  --------------

           Total gross deferred tax assets...................................           600,747         786,037  

   Less valuation allowance..................................................          (229,188)      (377,865)  
                                                                                 ----------------  --------------

           Net deferred tax assets...........................................           371,559         408,172  
                                                                                 ----------------  --------------

                               F-36                                                                              

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              AXTEL, S. A. DE C. V. AND SUBSIDIARIES                                                             
          Notes to the Consolidated Financial Statements                                                         
(Thousands pesos of constant purchasing power as of March 31, 2005)                                              

   Deferred tax liabilities:                                                                                     
   Property, systems and equipment ..........................................           187,568         237,799  
   Telephone concession rights...............................................           166,387         162,587  
   Inventories...............................................................            17,604           7,786  
                                                                                 ----------------  --------------

           Total deferred tax liabilities....................................           371,559         408,172  
                                                                                 ----------------  --------------

   Net deferred tax liabilities under US GAAP                                          -                -        
   Less net deferred tax assets recognized                                                                       
        under Mexican GAAP...................................................           124,999         267,731  
                                                                                 ----------------  --------------

   US GAAP adjustment to stockholders' equity................................ $         124,999         267,731  
                                                                                 ================  ==============


     In assessing the realizability of deferred tax assets, management
         considers whether it is more likely than not that some portion or all
 of the deferred tax assets will not be realized. The ultimate
          realization of deferred tax assets is dependent upon the generation of
     future taxable income during the periods in which those temporary
     differences become deductible. Management considers the scheduled
          reversal of deferred tax liabilities, projected future taxable income,
    and tax planning strategies in making this assessment. Since the
      Company had not generated taxable income prior 2002 a deferred tax
       asset valuation allowance of $229,188, $ 377,865 and $910,183 as of
         December 31, 2004, 2003 and 2002, respectively, was recorded for U.S.
    GAAP. This represents a (decrease) and increase in the valuation
        allowance of $(148,677), $(532,316) and $207,527 for the years ended
December 31, 2004, 2003 and 2002, respectively.             

(b)  Revenue recognition                                              

          On December 3, 1999, the SEC issued Staff Accounting Bulletin No. 101,
          "Revenue Recognition in Financial Statements" (SAB 101). This bulletin
          summarizes the point of view of the SEC in the recognition of revenues
         in the financial statements according to U.S. GAAP. The SEC concluded
  that only when all the following conditions are met is revenue
recognition appropriate:                                    

a) there is persuasive evidence of an agreement;            
b) the delivery was made or the services rendered;          
     c) the sales price to the purchaser is fixed or determinable; and
d) collection is reasonable assured.                        

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

 SAB 101, specifically in Topic 13A, Question 5, discusses the
          situation of recognizing as revenue certain non-refundable cash items.
        SAB 101 provides that the seller should not recognize non-refundable
      charges generated in certain transactions when there is continuous
involvement by the vendor.                                  

       One of the examples provided by SAB 101 is activation revenues from
        telecommunication services. The SAB concludes that unless the charge
       for the activation service is an exchange for products delivered or
  services rendered that represent the culmination of a separate
 revenue-generating process, the deferral method of revenue is
appropriate.                                                

        Based on the provisions and interpretations of SAB 101, for purposes
 of the U.S. GAAP reconciliation, the Company has deferred the
      activation revenues over a three-year period starting in the month
          such charge is originated. This period was determined based on Company
  experience. The net effect of the deferral and amortization is
presented in the above U.S. GAAP reconciliation.            

(c)  Start-up costs                                                   

          In April 1998, the AICPA issued Statement of Position 98-5, "Report of
        Start-up Costs" (SOP 98-5), which requires start-up costs, including
          organization costs, to be expensed as incurred. SOP 98-5 is effective,
       except for certain investment companies, for fiscal years beginning
after December 15, 1998. Under Mexican GAAP, this costs were
     recognized when incurred as a deferred asset and amortized over a
    period of 10 years. The Company has reversed the amortization of
        $37,604, $37,599 and $38,007 in 2004, 2003 and 2002, as shown in the
     U.S. GAAP reconciliation, and has reduced stockholders' equity by
      $204,118 and $212,633 to write off the unamortized balance at each
   year end. For US GAAP purposes during 2004 the Company reversed
$29,089 of capitalized amortization costs.                  

(d)  Other employee benefits                                          

Vacation                                                    

        For the years ended December 31, 2002 and before, under Mexican GAAP
         the vacation expense was recognized when taken rather than during the
      period the employees earn it. In order to comply with SFAS 43, the
     Company recorded an increase in net income of $1,297 for the year
   ended December 31, 2002. Starting on January 2003, Mexican GAAP
requires the recognition of vacation expense when earned.   

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

Severance                                                   

   Under Mexican GAAP (Bulletin D-3), severance payments should be
       recognized in earnings in the period in which they are paid, unless
    such payments are used by an entity as a substitution of pension
         benefits, in which case, they should be considered as a pension plan.
    Under U.S. GAAP, post-employment benefits for former or inactive
         employees, excluding retirement benefits, are accounted for under the
 provisions of SFAS 112, which requires recognition of certain
       benefits, including severance, over an employee's service life. For
         the years ended December 31, 2004, 2003 and 2002 the Company recorded
        an increase in net income of $7,769, $199 and $11,734, respectively,
    and recognized an accrual amounting to $21,114 and $28,883 as of
December 31, 2004 and 2003, respectively.                   

(e)  Capitalized interest                                             

     Under Mexican GAAP, the Company capitalizes interest on property,
          systems and equipment under construction. The amount of financing cost
     to be capitalized is comprehensively measured in order to include
        properly the effects of inflation. Therefore, the amount capitalized
       includes: (i) the interest cost of the debt incurred, plus (ii) any
        foreign currency fluctuations that result from the related debt, and
     less (iii) the monetary position result recognized on the related
         debt. Under U.S. GAAP, only interest is considered an additional cost
          of constructed assets to be capitalized and depreciated over the lives
of the related assets.                                      

          The U.S. GAAP reconciliation removes the foreign currency gain or loss
         and the monetary position result capitalized for Mexican GAAP derived
from borrowings denominated in foreign currency.            

(f)  Deferred financing cost amortization                             

     Under Mexican GAAP, the Company amortizes deferred financing cost
         under the straight-line method over the life of the related debt. For
          U.S. GAAP, this cost is amortized on the interest method over the life
of the related debt.                                        

(g)  Gain on extinguishment                                           

     As disclosed in note 14 to the financial statements, on March 20,
      2003, the Company entered into a debt-restructuring agreement with
       Nortel Networks Limited and Nortel Networks de Mexico (Nortel). The
         Company paid Nortel $125.2 million dollars in cash, issued a new note
     for $24.2 million dollar and capitalized 178.5 million dollars in
         exchange for 250,836,980 Series "N" shares of common stock to settled
all the debt outstanding with Nortel as of the date of the  
transaction.                                                

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

       For US GAAP, and as required by SFAS 15 "Accounting for Debtors and
       Creditors for Troubled Debt Restructurings", the equity provided by
         the Company to Nortel was recorded at the fair market value resulting
in a net gain on extinguishment of the debt of approximately
$3,335,289.                                                 

(h)  Supplemental cash flow information under U.S. GAAP               

   Under Mexican GAAP, statements of changes in financial position
       identify the sources and uses of resources based on the differences
          between beginning and ending consolidated financial statement balances
       in constant pesos. Monetary position results and unrealized foreign
      exchange results are treated as cash items in the determination of
resources provided by operations. Under U.S. GAAP (SFAS 95),
         statements of cash flows present only cash items and exclude non-cash
items. SFAS 95 does not provide guidance with respect to    
    inflation-adjusted financial statements. The differences between
         Mexican GAAP and U.S. GAAP in the amounts reported are mainly due to:
  (i) elimination of inflationary effects of monetary assets and
   liabilities from financing and investing activities against the
        corresponding monetary position result in operating activities, (ii)
        elimination of foreign exchange results from financing and investing
    activities against the corresponding unrealized foreign exchange
         result included in operating activities, and (iii) the recognition in
  operating, financing and investing activities of the U.S. GAAP
adjustments.                                                

        The following table summarizes the cash flow items as required under
      SFAS 95 provided by operating, financing and investing activities,
        giving effect to the U.S. GAAP adjustments, excluding the effects of
     inflation required by Bulletin B-10. The following information is
         presented in thousands of pesos on a historical peso basis and is not
presented in pesos of constant purchasing power:            

                                                        [Enlarge/Download Table]


                                                                          Years Ended December 31,             
                                                               ------------------------------------------------
                                                                    2004             2003           2002       
                                                               ---------------- -------------------------------
                                                                                                               
Net cash provided by (used in) operating activities...........     1,118,390         (11,160)        668,419   
Net cash provided by (used in) financing activities...........      (193,983)      1,038,913        (210,035)  
Net cash used in investing activities.........................    (1,382,981)       (329,221)       (265,855)  
                                                               ---------------- -------------------------------


      Net cash flows from operating activities reflect cash payments for
interest and income taxes as follows:                       

                                                        [Enlarge/Download Table]


                                                                          Years Ended December31,            
                                                               ----------------------------------------------
                                                                    2004             2003          2002      
                                                               ---------------- -----------------------------
                                                                                                             
Interest paid.................................................      278,528          463,711        103,958  
Income taxes paid.............................................        8,789            8,597        -        
                                                               ---------------- -----------------------------

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

        During the years ended December 31, 2004, 2003 and 2002, the Company
  acquired property, systems and equipment through notes payable
         financing amounting to approximately $203,810, $119,655 and $243,523,
respectively.                                               

(i)  Condensed financial information under U.S. GAAP                  

     The following table presents consolidated condensed statements of
    operations for the years ended December 31, 2004, 2003 and 2002,
          prepared under US GAAP, and includes all differences described in this
         note as well as certain other reclassifications required for purposes
of US GAAP:                                                 

                                                        [Enlarge/Download Table]


                                                                         Years Ended December 31,            
                                                               ----------------------------------------------
Statements of operations                                            2004           2003           2002       
                                                               ----------------------------------------------
                                                                                                             
Revenues......................................................    3,879,645       3,128,492       2,670,491  
Operating income (loss).......................................      257,453         181,614        (131,457) 
Comprehensive financing result................................     (195,940)       (432,773)       (809,512) 
Other income (expenses), net..................................       21,159       3,171,215         (63,760) 
Tax on assets.................................................       (8,854)         (9,134)        -        
                                                               ----------------------------------------------
Consolidated net income (loss)................................       73,818       2,910,922      (1,004,729) 
                                                               ==============================================


           The following table presents consolidated condensed balance sheets at
       December 31, 2004 and 2003, prepared under US GAAP, including all
   differences and reclassifications as compared to Mexican GAAP
described in this note 24:                                

                                                        [Enlarge/Download Table]


                                                                        At December 31,            
                                                             --------------------------------------
Balance sheets                                                     2004                2003        
                                                             -----------------   ------------------
                                                                                                   
Current assets..............................................       1,344,457            1,742,752  
Property, systems and equipment.............................       6,182,333            5,543,108  
Deferred charges............................................         870,733              897,463  
                                                             -----------------   ------------------
       Total assets.........................................       8,397,523            8,183,323  
                                                             -----------------   ------------------
Current liabilities                                                1,014,139              764,085  
Long-term debt..............................................       2,041,173            2,150,456  
Other non-current liabilities...............................         111,180              111,268  
                                                             -----------------   ------------------
       Total liabilities....................................       3,166,492            3,025,809  
                                                             -----------------   ------------------
       Stockholders' equity.................................       5,231,031            5,157,514  
                                                             -----------------   ------------------
       Total liabilities and stockholders' equity...........       8,397,523            8,183,323  
                                                             -----------------   ------------------

(j)  Fair value of financial instruments                              

          The carrying amount of cash, trade accounts receivable, other accounts
          receivable, trade accounts payable, other accounts payable and accrued
        expenses and short-term debt, approximates fair value because of the
  short-term maturity of these financial assets and liabilities.

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

      The carrying value of the Company's long-term debt and the related
    fair value based on quoted market prices for the same or similar
          instruments or on current rates offered to the Company for debt of the
       same remaining maturities (or determined by discounting future cash
      flows using borrowing rates currently available to the Company) at
December 31, 2003 is summarized as follows:                 

                                                        Estimated fair
                          Carrying amount              value
                               -----------------------------------------------
   Long-term debt....            175,000                  67,250
                               -----------------------------------------------

(k)  Segment information                                              

  The Company believes that it operates in one business segment.
     Management does review the business as consisting of two revenues
        information streams (Mass market and Business Market), however it is
        not possible to attribute direct or indirect costs to the individual
         streams other than selling expenses. Additionally management believes
         that the two revenue streams are so similar that they can be expected
to have essentially the same economic characteristics.      

(l)  Recently Issued Accounting Standards                             

     In December 2004, the FASB issued FASB Statement No. 123 (revised
  2004), Share-Based Payment, which addresses the accounting for
        transactions in which an entity exchanges its equity instruments for
       goods or services, with a primary focus on transactions in which an
         entity obtains employee services in share-based payment transactions.
    This Statement is a revision to Statement 123 and supersedes APB
     Opinion No. 25, Accounting for Stock Issued to Employees, and its
  related implementation guidance. For nonpublic companies, this
       Statement will require measurement of the cost of employee services
       received in exchange for stock compensation based on the grant-date
      fair value of the employee stock options. Incremental compensation
         costs arising from subsequent modifications of awards after the grant
     date must be recognized. This Statement will be effective for the
Company as of January 1, 2006.                              

          In December 2004, the FASB issued FASB Statement No. 153, Exchanges of
   Nonmonetary Assets, which eliminates an exception in APB 29 for
      nonmonetary exchanges of similar productive assets and replaces it
        with a general exception for exchanges of nonmonetary assets that do
       not have commercial substance. This Statement will be effective for
     the Company for nonmonetary asset exchanges occurring on or after
January 1, 2006.                                            

       The Company estimates that the adoption of the above bulletins will
      not have a material effect on its financial position or results of
operations.                                                 

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

(m)  Guaranteed debt                                                  

     On December 16, 2003, the Company completed an offering of senior
         unsecured notes, for a value of U.S.$175 million maturing on December
      15, 2013. Interest on the notes are payable semiannually at annual
rate of 11%, beginning on June 15, 2004.                    

    Each of the Company's consolidated subsidiaries, Instalaciones y
          Contrataciones, S.A. de C.V. (Instalaciones), Impulsora e Inmobiliaria
        Regional, S.A. de C.V. (Impulsora) and Servicios Axtel, S.A. de C.V.
         (Servicios), are guaranteeing the notes with unconditional guaranties
         that are unsecured. Each of the subsidiary guarantors is 99.99% owned
        by Axtel, S.A. de C.V. All guarantees are full and unconditional and
are joint and several.                                      

         Axtel is eligible, under Adopting Release (nos. 33-7878 and 34-43124)
and a no-action request letter, for presenting the condensed
       consolidating financial information of Impulsora, Instalaciones and
         Servicios in this note in accordance with Rule 3-10 (f) of Regulation
          S-X. Each of Impulsora, Instalaciones and Servicios have total capital
          stock outstanding of 50,000 common shares. Axtel directly owns all but
    one share of each of Impulsora, Instalaciones and Servicios. The
     ownership of the remaining share by someone other than Axtel is a
requirement of Mexican law.                                 

       For the purpose of the accompanying condensed consolidating balance
     sheets, income statements and changes in financial position under
    Mexican GAAP, the first column "Axtel" corresponds to the parent
        company issuer. The second column, "Combined Guarantors", represents
         the combined amounts of Instalaciones, Impulsora and Servicios, after
         adjustments and eliminations relating to their combination. The third
          column, "Adjustments and Eliminations", includes all amounts resulting
   from the consolidation of Axtel, and the guarantors. The fourth
       column, "Axtel Consolidated", represents the Company's consolidated
         amounts as reported in the audited consolidated financial statements.
        Additionally, all amounts presented under the line item "Investments
        in subsidiaries" for both the balance sheet and the income statement
are accounted for by the equity method.                     

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

    The condensed consolidating financial information is as follows:

                                                        [Enlarge/Download Table]


Condensed consolidating balance sheets:                                                                                        
                                                                                                Adjustments                    
                                                                               Combined             and             Axtel      
As of December 31, 2004                                       Axtel           Guarantors       Eliminations     Consolidated   
------------------------------------------------------    ---------------------------------------------------------------------

                                                                                                                               
Current assets                                         $      1,359,829              111,548        (126,920)       1,344,457  
Property, systems and equipment, net                          6,149,228                9,486          (1,317)       6,157,397  
Deferred charges                                              1,031,995                5,880           -            1,037,875  
Investment in subsidiaries                                       24,385              -               (24,385)           -      
Other-non current assets                                        157,976                3,999           -              161,975  
                                                          ---------------  ------------------ ---------------- ----------------

    Total assets                                       $      8,723,413              130,913        (152,622)       8,701,704  
                                                          ---------------  ------------------ ---------------- ----------------

Current liabilities                                    $      1,038,260              102,799        (126,920)       1,014,139  
Long-term debt                                                2,041,173              -                 -            2,041,173  
Other non-current liabilities                                     3,569                2,412           -                5,981  
                                                          ---------------  ------------------ ---------------- ----------------

    Total liabilities                                         3,083,002              105,211        (126,920)       3,061,293  
                                                          ---------------  ------------------ ---------------- ----------------

Total stockholders equity                                     5,640,411               25,702         (25,702)       5,640,411  
                                                          ---------------  ------------------ ---------------- ----------------

Total liabilities and stockholders equity              $      8,723,413              130,913        (152,622)       8,701,704  
                                                          ---------------  ------------------ ---------------- ----------------

As of December 31, 2003                                                                                                        
------------------------------------------------------                                                                         

Current assets                                         $      1,740,089               99,165          (96,502)      1,742,752  
Property, systems and equipment, net                          5,508,204               10,453           (1,849)      5,516,808  
Deferred charges                                              1,233,888                6,627            -           1,240,515  
Investment in subsidiaries                                       22,163              -                (22,163)          -      
Other non-current assets                                        137,137                  175            -             137,312  
                                                          ---------------  ------------------ ----------------- ---------------

    Total assets                                       $      8,641,481              116,420         (120,514)      8,637,387  
                                                          ---------------  ------------------ ----------------- ---------------

Current liabilities                                    $        770,302               90,283          (96,502)        764,083  
Long-term debt                                                2,150,457              -                  -           2,150,457  
Other non-current liabilities                                     2,308                2,125            -               4,433  
                                                          ---------------  ------------------ ----------------- ---------------

    Total liabilities                                         2,923,067               92,408          (96,502)      2,918,973  
                                                          ---------------  ------------------ ----------------- ---------------

Total stockholders equity                                     5,718,414               24,012          (24,012)      5,718,414  
                                                          ---------------  ------------------ ----------------- ---------------

Total liabilities and stockholders equity              $      8,641,481              116,420         (120,514)      8,637,387  
                                                          ---------------  ------------------ ----------------- ---------------

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


Condensed consolidating income statements:                                                                           

                                                                                  Adjustments                        
                                                                 Combined             and                Axtel       
For the year ended December 31, 2004            Axtel           Guarantors       Eliminations        Consolidated    
----------------------------------------  ------------------ ----------------- ------------------  ------------------

                                                                                                                     
Rental, installation, service and                                                                                    
   other revenues                       $       3,889,819            927,701          (927,701)         3,889,819    
Cost of sales and services                     (1,238,577)            -                  -             (1,238,577)   
Selling and administrative expenses            (1,380,048)          (936,133)          927,701        (1,388,480)    
Depreciation and amortization                  (1,007,645)              (911)             -            (1,008,556)   
Operating income                                  263,549             (9,343)             -               254,206    
Comprehensive financing result, net              (200,601)            (2,138)            1,259           (201,480)   
Other income (expenses), net                       20,681              1,736            (1,259)            21,158    
Income tax                                       (150,757)              (829)             -              (151,586)   
Investment in subsidiaries                        (10,574)             -                10,574             -         
                                          ------------------ ----------------- ------------------  ------------------
Net (loss) income                       $         (77,702)           (10,574)           10,574            (77,702)   
                                          ------------------ ----------------- ------------------  ------------------

For the year ended December 31, 2003                                                                                 
----------------------------------------                                                                             

Rental, installation, service and                                                                                    
   other revenues                       $       3,101,875            815,113          (815,046)         3,101,942    
Cost of sales and services                       (858,942)            -                  -               (858,942)   
Selling and administrative expenses            (1,217,849)          (806,418)          815,046         (1,209,221)   
Depreciation and amortization                    (913,923)              (424)            -               (914,347)   
Operating (loss) income                           111,161              8,271             -                119,432    
Comprehensive financing result, net              (451,515)            (1,939)            1,280          (452,174)    
Other expenses, net                             1,820,305             (8,509)           (1,280)         1,810,516    
Income tax                                       (522,814)            (1,470)            -               (524,284)   
Investment in subsidiaries                         (3,647)             -                 3,647             -         
                                          ------------------ ----------------- ------------------  ------------------
Net income (loss)                       $         953,490             (3,647)            3,647            953,490    
                                          ------------------ ----------------- ------------------  ------------------


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


                                                                                  Adjustments                        
                                                                 Combined             and                Axtel       
For the year ended December 31, 2002            Axtel           Guarantors       Eliminations        Consolidated    
----------------------------------------  ------------------ ----------------- ------------------  ------------------

                                                                                                                     
Rental, installation, service and                                                                                    
   other revenues                       $        2,605,652           862,070           (862,070)         2,605,652   
Cost of sales and services                        (650.466)         -                    -                (650,466)  
Selling and administrative expenses             (1,349,030)         (854,370)           862,070         (1,341,330)  
Depreciation and amortization                     (860,230)             (961)            -                (861,191)  
Operating (loss) income                           (254,074)            6,739                              (247,335)  
Comprehensive financing result, net               (807,160)           (1,560)             1,550           (807,170)  
Other expenses, net                                (27,002)          (35,208)            (1,550)           (63,760)  
Income tax                                         248,611             8,210             -                 256,821   
Investment in subsidiaries                         (21,819)            -                 21,819             -        
                                          ------------------ ----------------- ------------------  ------------------
Net (loss) income                       $         (861,444)          (21,819)            21,819           (861,444)  
                                          ------------------ ----------------- ------------------  ------------------


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


Condensed consolidating statements of changes in financial position:                                                        

                                                                                            Adjustments                     
                                                                             Combined           and             Axtel       
For the year ended December 31, 2004                           Axtel        Guarantors     Eliminations      Consolidated   
---------------------------------------------------------- --------------  -------------- ---------------- -----------------

Operating activities:                                                                                                       
                                                                                                                            
   Net (loss) income                                     $    (77,702)          (10,574)          10,574         (77,702)   
   Non-cash items                                            1,168,974            2,474          (10,574)       1,160,874   
                                                           --------------  -------------- ---------------- -----------------
         Resources provided by (used in) operations          1,091,272           (8,100)           -            1,083,172   
   Net (investment in) financing from operations               107,380            1,375             (231)         108,524   
                                                           --------------  -------------- ---------------- -----------------
         Resources provided by (used in) operations, net     1,198,652           (6,725)            (231)       1,191,696   
                                                           --------------  -------------- ---------------- -----------------

Financing activities:                                                                                                       
   Increase in common stock                                     -                12,794          (12,794)        -          
   Additional paid-in capital                                   -                  -               -             -          
   Loans payments, net                                         (94,221)            (231)             231         (94,221)   
   Others                                                          (31)            -               -                 (31)   
                                                           --------------  -------------- ---------------- -----------------
         Resources provided by financing activities            (94,252)          12,563          (12,563)        (94,252)   
                                                           --------------  -------------- ---------------- -----------------

Investing activities:                                                                                                       
   Acquisition and construction of property, systems and                                                                    
     equipment, net                                         (1,543,476)            (476)           -          (1,543,952)   
   Investment in subsidiaries                                  (12,794)            -              12,794         -          
   Other assets                                                (67,444)          (3,824)           -             (71,268)   
                                                           --------------  -------------- ---------------- -----------------
         Resources used in investing activities             (1,623,714)          (4,300)          12,794      (1,615,220)   
                                                           --------------  -------------- ---------------- -----------------

Increase (decrease) in cash and equivalents                   (519,314)           1,538            -            (517,776)   
Cash and equivalents at the beginning of the year            1,075,783              487            -            1,076,270   
                                                           --------------  -------------- ---------------- -----------------
Cash and equivalents at the end of the year              $     556,469            2,025            -              558,494   
                                                           --------------  -------------- ---------------- -----------------


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]

                                                                                            Adjustments                     
                                                                             Combined           and             Axtel       
For the year ended December 31, 2003                           Axtel        Guarantors     Eliminations      Consolidated   
---------------------------------------------------------- --------------  -------------- ---------------- -----------------

Operating activities:                                                                                                       
                                                                                                                            
   Net (loss) income                                     $      953,490          (3,647)           3,647           953,490  
   Non-cash items                                              (534,204)          2,617           (3,647)         (535,234) 
                                                           --------------  -------------- ---------------- -----------------
       Resources used in operations                             419,286          (1,030)           -               418,256  
    Net financing from (investment in) operations              (246,353)             16           (2,279)         (248,616) 
                                                           --------------  -------------- ---------------- -----------------
       Resources provided by (used in) operations, net          172,933          (1,014)          (2,279)          169,640  
                                                           --------------  -------------- ---------------- -----------------

Financing activities:                                                                                                       
   Increase in common stock                                   2,830,205           2,407           (2,407)        2,830,205  
   Additional paid-in capital                                   (15,740)           -               -               (15,740) 
   Proceeds from (loans payments), net                       (1,602,750)         (2,279)           2,279        (1,602,750) 
   Others                                                       (61,019)           -               -               (61,019) 
                                                           --------------  -------------- ---------------- -----------------
       Resources provided by financing activities             1,150,696             128             (128)        1,150,696  

Investing activities:                                                                                                       
   Acquisition and construction of property, systems and                                                                    
     equipment, net                                            (488,875)           -               -              (488,875) 
   Investment in subsidiaries                                    (2,407)           -               2,407          -         
   Other assets                                                (102,437)           (175)           -              (102,612) 
                                                           --------------  -------------- ---------------- -----------------
       Resources used in investing activities                  (593,719)           (175)           2,407          (591,487) 
                                                           --------------  -------------- ---------------- -----------------

Increase in cash and equivalents                                729,910          (1,061)           -               728,849  
Cash and equivalents at the beginning of the year               345,873           1,548            -               347,421  
                                                           --------------  -------------- ---------------- -----------------
Cash and equivalents at the end of the year              $    1,075,783             487            -             1,076,270  
                                                           --------------  -------------- ---------------- -----------------


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


                                                                                            Adjustments                     
                                                                             Combined           and             Axtel       
For the year ended December 31, 2002                           Axtel        Guarantors     Eliminations      Consolidated   
---------------------------------------------------------- --------------  -------------- ---------------- -----------------

Operating activities:                                                                                                       
                                                                                                                            
   Net (loss) income                                     $    (861,444)         (21,819)          21,819          (861,444) 
   Non-cash items                                              633,436           (7,002)         (21,819)          604,615  
                                                           --------------  -------------- ---------------- -----------------
         Resources used in operations                         (228,008)         (28,821)           -              (256,829) 
     Net investment in operations                              260,620          (14,673)          (1,385)          244,562  
                                                           --------------  -------------- ---------------- -----------------
         Resources used in operations, net                      32,612          (43,494)          (1,385)          (12,267) 
                                                           --------------  -------------- ---------------- -----------------

Financing activities:                                                                                                       
   Increase in common stock                                     55,186           46,052          (46,052)           55,186  
   Additional paid-in capital                                   (2,171)            -               -                (2,171) 
   Proceeds from (loans payments), net                         669,960           (1,385)           1,385           669,960  
   Others                                                       96,534             -               -                96,534  
                                                           --------------  -------------- ---------------- -----------------
         Resources provided by financing activities            819,509           44,667          (44,667)          819,509  
                                                           --------------  -------------- ---------------- -----------------

Investing activities:                                                                                                       
   Acquisition and construction of property, systems and                                                                    
     equipment, net                                           (600,694)            -               -              (600,694) 
   Investment in subsidiaries                                  (46,052)            -              46,052             -      
   Other assets                                                 (1,544)              38            -                (1,506) 
                                                           --------------  -------------- ---------------- -----------------
         Resources used in investing activities               (648,290)              38           46,052          (602,200) 
                                                           --------------  -------------- ---------------- -----------------

Decrease in cash and equivalents                               203,831            1,211            -               205,042  
Cash and equivalents at the beginning of the year              142,042              337            -               142,379  
                                                           --------------  -------------- ---------------- -----------------
Cash and equivalents at the end of the year              $     345,873            1,548            -               347,421  
                                                           --------------  -------------- ---------------- -----------------


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

  The tables below present combined balance sheets as of December 31, 2004
and 2003, and income statements and statements of changes in financial
     position for each of the three-year periods ended December 31, 2004 for the
   Guarantors. Such information presents in separate columns each individual
 Guarantor, consolidation adjustments and eliminations, and the combined
guarantors. All significant related parties balances and transactions 
  between the Guarantors have been eliminated in the "Combined Guarantors"
column.                                                               

The amounts presented in the column "Combined Guarantors" are readily 
     comparable with the information of the Guarantors included in the condensed
consolidated financial information.                                   

Guarantors' Combined Balance Sheets:                                  

                                                        [Enlarge/Download Table]


As of December 31, 2004                                                                                               
------------------------------------                                                                                  
                                                                                       Adjustments                    
                                                                        Servicios          and           Combined     
              Assets                    Icosa        Inmobiliaria         Axtel       Eliminations      Guarantors    
                                     ------------ ------------------- --------------  -------------- -----------------

                                                                                                                      
Cash and cash equivalents          $         593                12          1,420            -                2,025   
Related parties receivables                7,397            -              88,752              (4)           96,145   
Refundable taxes and other                                                                                            
   accounts receivable                     1,336             1,202         10,840           -                13,378   
                                     ------------ ------------------- --------------  -------------- -----------------

    Total current assets                   9,326             1,214        101,012              (4)          111,548   
                                     ------------ ------------------- --------------  -------------- -----------------

Property, systems and equipment,                                                                                      
net                                       -                  9,486         -                -                 9,486   
Deferred income taxes                          9            -               6,105            (234)            5,880   
Other                                        809            -               3,190           -                 3,999   
                                     ------------ ------------------- --------------  -------------- -----------------

    Total non current assets                 818             9,486          9,295            (234)           19,365   
                                     ------------ ------------------- --------------  -------------- -----------------

Total assets                       $      10,144            10,700        110,307            (238)          130,913   
                                     ------------ ------------------- --------------  -------------- -----------------

Liabilities and Stockholders Equity                                                                                   

Account payable and accrued                                                                                           
   liabilities                     $        163             -              18,314           -                18,477   
Taxes payable                             4,759             -              51,101           -                55,860   

Related parties payables                      4              8,655         -                   (4)            8,655   
Other accounts payable                    1,075             -              18,732           -                19,807   
                                     ------------ ------------------- --------------  -------------- -----------------

    Total current liabilities             6,001              8,655         88,147              (4)          102,799   
                                     ------------ ------------------- --------------  -------------- -----------------

Deferred income taxes                      -                   234         -                 (234)            -       
Others                                      405             -               2,007           -                 2,412   
                                     ------------ ------------------- --------------  -------------- -----------------

    Total liabilities                     6,406              8,889         90,154            (238)          105,211   
                                     ------------ ------------------- --------------  -------------- -----------------

Stockholders' equity                      4,931              1,400         29,945           -                36,276   
Net (loss) income                        (1,193)               411         (9,792)          -               (10,574)  
                                     ------------ ------------------- --------------  -------------- -----------------

Total stockholders equity                 3,738              1,811         20,153           -                25,702   
                                     ------------ ------------------- --------------  -------------- -----------------

Total liabilities and stockholders                                                                                    
equity                             $     10,144             10,700        110,307            (238)          130,913   
                                     ------------ ------------------- --------------  -------------- -----------------


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


As of December 31, 2003                                                                                              
------------------------------------                                                                                 
                                                                                      Adjustments                    
                                                                        Servicios         and           Combined     
              Assets                    Icosa        Inmobiliaria         Axtel       Eliminations     Guarantors    
                                     ------------ ------------------- -------------- --------------- ----------------

                                                                                                                     
Cash and cash equivalents          $        171                 16            300            -                 487   

Accounts receivable                          35             -                 102            -                 137   
Related parties receivables               5,644             -              81,165             (611)         86,198   
Refundable taxes and other                                                                                           
  accounts receivable                     1,043              1,415          9,885            -              12,343   
                                     ------------ ------------------- -------------- --------------- ----------------

    Total current assets                  6,893              1,431         91,452             (611)         99,165   
                                     ------------ ------------------- -------------- --------------- ----------------

Property, systems and equipment,                                                                                     
net                                        -                10,453           -               -              10,453   
Deferred income taxes                         3             -               7,080             (456)          6,627   

Other                                       175             -                -               -                 175   
                                     ------------ ------------------- -------------- --------------- ----------------

    Total non current assets                178             10,453          7,080             (456)         17,255   
                                     ------------ ------------------- -------------- --------------- ----------------

Total assets                       $      7,071             11,884         98,532           (1,067)        116,420   
                                     ------------ ------------------- -------------- --------------- ----------------

Liabilities and stockholders'                                                                                        
equity                                                                                                               

Account payable and accrued                                                                                          
liabilities                        $        172             -               8,977            -               9,149   
Taxes payable                             2,917             -              50,658            -              53,575   
Related parties payables                   -                 9,496          -                 (611)          8,885   
Other accounts payable                      469             -              18,205            -              18,674   
                                     ------------ ------------------- -------------- --------------- ----------------

    Total current liabilities             3,558              9,496         77,840             (611)         90,283   
                                     ------------ ------------------- -------------- --------------- ----------------

Deferred income taxes                      -                   456         -                  (456)          -       
Others                                      294             -               1,831            -               2,125   
                                     ------------ ------------------- -------------- --------------- ----------------

    Total liabilities                     3,852              9,952         79,671           (1,067)         92,408   
                                     ------------ ------------------- -------------- --------------- ----------------

Stockholders' equity                      3,999              1,582         22,078           -               27,659   

Net (loss) income                          (780)               350         (3,217)          -               (3,647)  
                                     ------------ ------------------- -------------- --------------- ----------------

Total stockholders equity                 3,219              1,932         18,861            -              24,012   
                                     ------------ ------------------- -------------- --------------- ----------------

Total liabilities and stockholders                                                                                   
   equity                          $      7,071             11,884         98,532           (1,067)        116,420   
                                     ------------ ------------------- -------------- --------------- ----------------


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


Guarantors' Combined Income Statements:                                                                                

                                                                                           Adjustments                 
                                                                           Servicios           and         Combined    
For the year ended December 31, 2004      Icosa        Inmobiliaria          Axtel        Eliminations    Guarantors   
-------------------------------------- ------------  ------------------ ----------------- -------------- --------------

                                                                                                                       
Rental and service revenues          $    79,898               1,990            845,813          -            927,701  

Administrative expenses                  (80,746)               (505)          (855,386)          504        (936,133) 

Depreciation and amortization               -                   (435)              (476)       -                 (911) 

     Operating (loss) income                (848)              1,050            (10,049)          504          (9,343) 
                                       ------------  ------------------ ----------------- -------------- --------------

Comprehensive financing result, net         (274)               (862)            (1,002)         -             (2,138) 
                                       ------------  ------------------ ----------------- -------------- --------------

Other income (expenses), net                   6            -                     2,234          (504)          1,736  
                                       ------------  ------------------ ----------------- -------------- --------------

   (Loss) income before income taxes and                                                                               
     employee statutory profit                                                                                         
     sharing                              (1,116)                188             (8,817)         -             (9,745) 
                                       ------------  ------------------ ----------------- -------------- --------------

     Total income (tax) and employee                                                                                   
        statutory profit sharing                                                                                       
       benefit                               (77)                223               (975)         -               (829) 
                                       ------------  ------------------ ----------------- -------------- --------------

         Net (loss) income           $    (1,193)                411             (9,792)         -            (10,574) 
                                       ------------  ------------------ ----------------- -------------- --------------

For the year ended December 31, 2003                                                                                   
--------------------------------------                                                                                 

Rental and service revenues          $    47,410               2,082            765,621           -           815,113  

Administrative expenses                  (47,803)               (531)          (758,615)          531        (806,418) 

Depreciation and amortization               -                   (424)         -                   -              (424) 

     Operating income (loss)                (393)              1,127              7,006           531           8,271  
                                       ------------  ------------------ ----------------- -------------- --------------

Comprehensive financing result, net         (147)               (904)              (888)         -             (1,939) 
                                       ------------  ------------------ ----------------- -------------- --------------

Other expenses, net                           26                   6             (8,010)         (531)         (8,509) 
                                       ------------  ------------------ ----------------- -------------- --------------

   (Loss) income before income taxes and                                                                               
      employee statutory profit                                                                                        
      sharing                               (514)                229             (1,892)         -             (2,177) 
                                       ------------  ------------------ ----------------- -------------- --------------

     Total income tax and employee                                                                                     
       statutory profit sharing             (266)                121             (1,325)         -             (1,470) 
                                       ------------  ------------------ ----------------- -------------- --------------

         Net (loss) income           $      (780)                350             (3,217)         -             (3,647) 
                                       ------------  ------------------ ----------------- -------------- --------------

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


                                                                                           Adjustments                 
                                                                           Servicios           and         Combined    
For the year ended December 31, 2002     Icosa         Inmobiliaria          Axtel        Eliminations    Guarantors   
-------------------------------------- ------------  ------------------ ----------------- -------------- --------------

                                                                                                                       
Rental and service revenues          $    38,322               2,180            821,568         -            862,070   

Administrative expenses                  (37,735)               (552)          (816,635)          552       (854,370)  

Depreciation and amortization               (484)               (477)          -               -                (961)  

      Operating income                       103               1,151              4,933           552          6,739   
                                       ------------  ------------------ ----------------- -------------- --------------

Comprehensive financing result, net         (203)               (909)              (448)        -             (1,560)  
                                       ------------  ------------------ ----------------- -------------- --------------

Other expenses, net                       (1,771)            -                  (32,885)         (552)       (35,208)  
                                       ------------  ------------------ ----------------- -------------- --------------

    Loss before income taxes and                                                                                       
     employee statutory profit                                                                                         
     sharing                              (1,871)                242            (28,400)        -            (30,029)  
                                       ------------  ------------------ ----------------- -------------- --------------

       Total income tax and employee                                                                                   
         statutory  profit sharing           358                 187              7,665         -              8,210   
                                       ------------  ------------------ ----------------- -------------- --------------

        Net (loss) income            $    (1,513)                429            (20,735)        -            (21,819)  
                                       ------------  ------------------ ----------------- -------------- --------------


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


Guarantors' Combined Statements of Changes in Financial Position:                                                      

                                                                                           Adjustments                 
                                                                           Servicios           and         Combined    
For the year ended December 31, 2004      Icosa        Inmobiliaria          Axtel        Eliminations    Guarantors   
-------------------------------------- ------------  ------------------ ----------------- -------------- --------------

Operating activities:                                                                                                  
                                                                                                                       
   Net (loss) income                 $    (1,193)               411             (9,792)         -             (10,574) 
   Non-cash items                            216                213              2,045          -               2,474  
                                       ------------  ------------------ ----------------- -------------- --------------

       Resources (used in) provided                                                                                    
         by operations                      (977)               624             (7,747)         -             (8,100)  

       Net (investment in) financing                                                                                   
         from operations                     320               (397)             1,452          -               1,375  
                                       ------------  ------------------ ----------------- -------------- --------------

       Resources (used in) provided                                                                                    
         by operations, net                 (657)               227             (6,295)         -              (6,725) 
                                       ------------  ------------------ ----------------- -------------- --------------

Financing activities:                                                                                                  
   Increase in common stock                1,713           -                    11,081          -              12,794  
   Loans payment, net                      -                   (231)           -                -                (231) 
                                       ------------  ------------------ ----------------- -------------- --------------

Resources provided by (used in)                                                                                        
   financing activities                    1,713               (231)            11,081          -              12,563  
                                       ------------  ------------------ ----------------- -------------- --------------

Investing activities:                                                                                                  
   Property. System and Equipment,                                                                                     
   net                                      -                 -                   (476)         -                (476) 
   Other assets                             (634)             -                 (3,190)         -              (3,824) 
                                       ------------  ------------------ ----------------- -------------- --------------

       Resources used in investing                                                                                     
         activities                         (634)             -                 (3,666)         -              (4,300) 
                                       ------------  ------------------ ----------------- -------------- --------------

Increase (decrease) in cash and                                                                                        
   equivalents                               422                 (4)             1,120          -               1,538  

Cash and equivalents at the                                                                                            
   beginning of the year                     171                 16                300          -                 487  
                                       ------------  ------------------ ----------------- -------------- --------------

Cash and equivalents at the end of                                                                                     
   the year                          $       593                 12              1,420          -               2,025  
                                       ------------  ------------------ ----------------- -------------- --------------


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


                                                                                           Adjustments                 
                                                                           Servicios           and         Combined    
For the year ended December 31, 2003      Icosa        Inmobiliaria          Axtel        Eliminations    Guarantors   
-------------------------------------- ------------  ------------------ ----------------- -------------- --------------

Operating activities:                                                                                                  
                                                                                                                       
   Net income (loss)                 $       (780)               350            (3,217)         -             (3,647)  
   Non-cash items                             372                303             1,942          -              2,617   
                                       ------------  ------------------ ----------------- -------------- --------------

     Resources (used in) provided by                                                                                   
       operations                            (408)               653            (1,275)         -             (1,030)  

      (Investment in) financing from                                                                                   
        operations, net                      (195)                46               165          -                 16   
                                       ------------  ------------------ ----------------- -------------- --------------

     Resources (used in) provided by                                                                                   
       operations, net                       (603)               699            (1,110)         -             (1,014)  
                                       ------------  ------------------ ----------------- -------------- --------------

Financing activities:                                                                                                  
   Increase in common stock                   866              1,541            -                -              2,407  
   Loans payments, net                     -                  (2,279)           -                -             (2,279) 
                                       ------------  ------------------ ----------------- -------------- --------------

     Resources provided by (used in)                                                                                   
       financing activities                   866               (738)           -                -                128  
                                       ------------  ------------------ ----------------- -------------- --------------

Investing activities:                                                                                                  
   Other assets                              (175)             -                -                -               (175) 
                                       ------------  ------------------ ----------------- -------------- --------------

     Resources used in investing                                                                                       
       activities                            (175)             -                -                -               (175) 
                                       ------------  ------------------ ----------------- -------------- --------------

(Decrease) increase in cash and                                                                                        
   equivalents                                 88                (39)            (1,110)         -             (1,061) 

Cash and equivalents at the                                                                                            
   beginning of the year                       83                 55              1,410          -              1,548  
                                       ------------  ------------------ ----------------- -------------- --------------

Cash and equivalents at the end of                                                                                     
   the year                          $        171                 16               300          -                 487  
                                       ------------  ------------------ ----------------- -------------- --------------


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Notes to the Consolidated Financial Statements
 (Thousands pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


                                                                                           Adjustments                 
                                                                           Servicios           and         Combined    
For the year ended December 31, 2002      Icosa        Inmobiliaria          Axtel        Eliminations    Guarantors   
-------------------------------------- ------------  ------------------ ----------------- -------------- --------------

Operating activities:                                                                                                  
                                                                                                                       
   Net (loss) income                 $     (1,513)               429           (20,735)         -            (21,819)  
   Non-cash items                             180                290            (7,472)         -             (7,002)  
                                       ------------  ------------------ ----------------- -------------- --------------

     Resources (used in) provided by                                                                                   
       operations                          (1,333)               719           (28,207)         -            (28,821)  

     Investment in operations, net           (700)               663           (14,636)         -            (14,673)  
                                       ------------  ------------------ ----------------- -------------- --------------

     Resources (used in) provided by                                                                                   
       operations, net                     (2,033)             1,382           (42,843)         -            (43,494)  
                                       ------------  ------------------ ----------------- -------------- --------------

Financing activities:                                                                                                  
   Increase in common stock                 1,857               -               44,195          -             46,052   
   Loans payment                           -                  (1,385)           -              -              (1,385)  
                                       ------------  ------------------ ----------------- -------------- --------------

     Resources provided by (used in)                                                                                   
       financing activities                 1,857             (1,385)           44,195          -             44,667   
                                       ------------  ------------------ ----------------- -------------- --------------

Investing activities:                                                                                                  
   Other assets                                38               -                -              -                 38   
                                       ------------  ------------------ ----------------- -------------- --------------

     Resources used in investing                                                                                       
       activities                              38               -                -              -                 38   
                                       ------------  ------------------ ----------------- -------------- --------------

(Decrease) increase in cash and                                                                                        
   equivalents                               (138)                (3)            1,352          -              1,211   

Cash and equivalents at the                                                                                            
   beginning of the year                      221                 58                58          -                337   
                                       ------------  ------------------ ----------------- -------------- --------------

Cash and equivalents at the end of                                                                                     
   the year                          $         83                 55             1,410          -              1,548   
                                       ------------  ------------------ ----------------- -------------- --------------

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Thousand pesos of constant purchasing power as of March 31, 2005)

Guarantors - U.S. GAAP reconciliation of net income and stockholders' 
equity:                                                               

     As discussed at the beginning of this note 24, the following reconciliation
     to U.S. GAAP does not eliminate the inflation adjustments for Mexican GAAP,
    since they represent an integral measurement of the effects of the changes
   in the price levels in the Mexican economy and, as such, are considered a
   more meaningful presentation than the financial reports based on historic
costs for book purposes for Mexico and the United States.             

   The main differences between Mexican GAAP and US GAAP and their effect on
 consolidated net loss and stockholders' equity as of December 31, 2004,
   2003 and 2002 is presented below, with an explanation of the adjustments.

                                                        [Enlarge/Download Table]


                                                                              Year ended December 31,                
                                                                -----------------------------------------------------
                                                                     2004               2003               2002      
                                                                ---------------    ----------------    --------------

                                                                                                                     
Net loss reported under Mexican GAAP ....................... $       (10,574)              (3,647)          (21,819) 
                                                                ---------------    ----------------    --------------

Approximated US GAAP adjustments                                                                                     
1. Deferred income taxes (A)................................             746                1,392            (8,210) 
2. Amortization of start-up cost (B)........................          -                  -                      484  
3. Allowance for post retirement benefits (C)...............           7,769                  199           (27,103) 
4. Accrued vacations (C)....................................          -                  -                   (2,178) 
                                                                ---------------    ----------------    --------------
Total approximate US GAAP adjustments.......................           8,515                1,591           (37,007) 
                                                                ---------------    ----------------    --------------
Approximate net loss under US GAAP.......................... $        (2,059)              (2,056)          (58,826) 
                                                                ===============    ================    ==============

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Notes to the Consolidated Financial Statements
(Thousand pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


                                                                     Year ended December 31,       
                                                                -----------------------------------
                                                                     2004               2003       
                                                                ---------------    ----------------

                                                                                                   
Total stockholders' equity reported under Mexican GAAP...... $        25,702               24,012  
                                                                ---------------    ----------------

Approximate US GAAP adjustments                                                                    
1. Deferred income taxes (A)................................           (5,880)             (6,627) 
2. Preoperating result......................................             -                -        
3. Allowance for post retirement benefits (C)...............           (21,114)           (28,883) 
                                                                ---------------    ----------------
Total approximate US GAAP adjustments.......................           (26,994)           (35,510) 
                                                                ---------------    ----------------
Total approximate stockholders' equity under US GAAP........ $          (1,292)           (11,498) 
                                                                ===============    ================


Guarantors-Notes to the U.S. GAAP reconciliation                      

A.   Deferred income taxes                                            

Deferred income taxes adjustment in the stockholders' equity
reconciliation to U.S. GAAP, at December 31, 2004 and 2003, 
represented decreases of $ 5,880 and $ 6,627, respectively. 

B.   Start-up costs                                                   

          In April 1998, the AICPA issued Statement of Position 98-5, "Reporting
       on the Costs of Start-up Costs" (SOP 98-5), which requires start-up
        costs, including organization costs, to be expensed as incurred. SOP
          98-5 is effective, except for certain investment companies, for fiscal
          years beginning after December 15, 1998. Under Mexican GAAP, this type
  of costs were recognized when incurred as a deferred asset and
     amortized over a period of 10 years. The Company has reversed the
          amortization of $ 484 in 2002, as shown in the US GAAP reconciliation.

C.   Other employee benefits                                          

        Vacation-For years ended December 31, 2002 and before, under Mexican
          GAAP the vacation expense was recognized when taken rather than during
          the period the employees earn it. In order to comply with SFAS 43, for
        the year ended December 31, 2002, the Company recorded a decrease in
          net income of $ 2,178. Starting on January 2003, Mexican GAAP requires
the recognition of vacation expense when earn.              

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AXTEL, S.A. DE C.V. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
(Thousand pesos of constant purchasing power as of March 31, 2005)

          Severance-Under Mexican GAAP (Bulletin D-3), severance payments should
          be recognized in earnings in the period in which they are paid, unless
    such payments are used by an entity as a substitution of pension
         benefits, in which case, they should be considered as a pension plan.
    Under U.S. GAAP, post-employment benefits for former or inactive
         employees, excluding retirement benefits, are accounted for under the
 provisions of SFAS 112, which requires recognition of certain
       benefits, including severance, over an employee's service life. For
         the years ended December 31, 2004, 2003 and 2002 the Company recorded
 an increase or (decrease) in net income of $7,769, $199 and $
          (27,103), respectively, and recognized an accrual amounting to $21,114
and $28,883 as of December 31, 2004 and 2003, respectively. 

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AXTEL, S. A. DE C. V. AND SUBSIDIARIES

 Condensed Consolidated Balance Sheets

March 31, 2005 and December 31, 2004

(Thousand pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


                                                                                         (Unaudited)                     
                                                                                      -----------------                  
                                                                                          March 31,        December 31,  
                                                                                      -----------------  ----------------
                  Assets                                                                    2005               2004      
                                                                                      -----------------  ----------------

       Current assets:                                                                                                   
                                                                                                                         
          Cash and cash equivalents (includes $1,168,292 and $534,017 from           $     1,255,702           558,494   
             temporary investments in 2005 and 2004, respectively)                                                       
          Accounts receivable, (net of allowance for doubtfull accounts of                                               
          $115,669 and $100,959 in 2005 and 2004, respectively)                              558,882           511,334   
          Refundable taxes and other accounts receivable                                     125,324            83,100   
          Prepaid expenses (note 5)                                                          116,578           132,849   
          Inventories                                                                         59,983            58,680   
                                                                                      -----------------  ----------------

                  Total current assets                                                     2,116,469         1,344,457   

       Long-term accounts receivable                                                          19,534            19,914   
       Property, systems and equipment, net (note 6)                                       6,275,192         6,157,397   
       Telephone concession rights, net of accumulated amortization of $273,426                                          
          and $260,562 in 2005 and 2004, respectively                                        695,893           708,757   
       Pre-operating expenses, net                                                           194,029           204,119   
       Deferred income taxes (note 11)                                                       115,891           124,999   
       Other assets (note 7)                                                                 156,786           142,061   
                                                                                      -----------------  ----------------

                  Total assets                                                       $     9,573,794         8,701,704   
                                                                                      =================  ================

                  Liabilities and Stockholders' Equity                                                                   

       Current liabilities:                                                                                              
          Accounts payable and accrued liabilities                                   $       467,601           600,470   
          Accrued interest                                                                    93,352            10,959   
          Taxes payable                                                                       23,752            41,049   
          Short-term debt (note 8)                                                           129,026           109,227   
          Current maturities of long-term debt (note 9)                                       51,604            49,352   
          Other accounts payable (note 10)                                                   211,171           202,140   
          Derivative financial instruments (note 4)                                            7,047               942   
                                                                                      -----------------  ----------------

                  Total current liabilities                                                  983,553         1,014,139   

       Long-term debt, excluding current maturities (note 9)                               2,875,641         2,041,173   
       Premium on bond issuance (note 9)                                                      56,066               -     
       Other long-term accounts payable                                                        3,870             3,569   
       Seniority premiums                                                                      2,235             2,412   
                                                                                      -----------------  ----------------

                  Total liabilities                                                        3,921,365         3,061,293   
                                                                                      -----------------  ----------------

       Stockholders' equity (note 12):                                                                                   
           Common stock                                                                    7,159,184         7,159,184   
           Additional paid-in capital                                                        141,654           141,654   
           Deficit                                                                        (1,765,088)       (1,779,508)  
           Cumulative deferred income tax effect                                             119,382           119,382   
           Change in the fair value of derivative instruments (note 4)                        (2,703)             (301)  
                                                                                      -----------------  ----------------

                   Total stockholders' equity                                              5,652,429         5,640,411   

       Commitments and contingencies (note 13)                                                                           
                                                                                      -----------------  ----------------

                  Total liabilities and stockholders' equity                         $     9,573,794         8,701,704   
                                                                                      =================  ================

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


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES

 Condensed Consolidated Statements of Operations

(Thousand pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


                                                                                        Three months ended           
                                                                             ----------------------------------------
                                                                                            March 31,                
                                                                             ----------------------------------------
                                                                                           (Unaudited)               
                                                                                     2005                 2004       
                                                                             ---------------------  -----------------
                                                                                                                     
   Rental, installation, service and other revenues                         $         1,118,679           904,699    
                                                                             ---------------------  -----------------

   Operating costs and expenses:                                                                                     
      Cost of sales and services                                                       (351,813)         (281,373)   
      Selling and administrative expenses                                              (399,290)         (308,555)   
      Depreciation and amortization                                                    (262,325)         (240,977)   
                                                                             ---------------------  -----------------

                                                                                     (1,013,428)         (830,905)   
                                                                             ---------------------  -----------------

              Operating income                                                          105,251            73,794    
                                                                             ---------------------  -----------------

   Comprehensive financing result:                                                                                   
      Interest expense                                                                  (96,410)          (69,680)   
      Interest income                                                                    16,887             5,375    
      Foreign exchange (loss) gain, net                                                 (7,072)            11,236    
      Monetary position gain                                                             12,122            17,018    
                                                                             ---------------------  -----------------

               Comprehensive financing result, net                                      (74,473)          (36,051)   
                                                                             ---------------------  -----------------

   Other (expense) income, net                                                           (7,250)           14,803    
                                                                             ---------------------  -----------------

               Income before income taxes                                                23,528            52,546    
                                                                             ---------------------  -----------------

   Deferred income tax (note 11)                                                         (9,108)          (19,106)   
                                                                             ---------------------  -----------------

             Net income                                                     $            14,420            33,440    
                                                                             =====================  =================

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


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Condensed Consolidated Statements of Changes in Financial Position

(Thousand pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


                                                                                                Three months ended          
                                                                                       -------------------------------------
                                                                                                     March 31,              
                                                                                       -------------------------------------
                                                                                                    (Unaudited)             
                                                                                              2005               2004       
                                                                                       -------------------------------------
Operating activities:                                                                                                       
                                                                                                                            
     Net income                                                                       $        14,420              33,440   
     Add charges (deduct credits) to operations not requiring                                                               
        (providing) resources:                                                                                              
           Depreciation                                                                       234,321             215,876   
           Amortization                                                                        28,004              25,101   
           Deferred income tax                                                                  9,108              19,106   
                                                                                       ------------------ ------------------

              Resources provided by the operations                                            285,853             293,523   

     Net investment in operations                                                            (213,640)           (191,000)  
                                                                                       ------------------ ------------------

              Resources provided by operating activities                                       72,213             102,523   
                                                                                       ------------------ ------------------

Financing activities:                                                                                                       
    Proceeds from (payments of) loans and interest, net                                       938,912             (73,290)  
    Premium on bond issuance                                                                   56,066                -      
    Other accounts payable                                                                      1,909              (2,740)  
                                                                                       ------------------ ------------------

              Resources provided by (used in) financing activities                            996,887             (76,030)  
                                                                                       ------------------ ------------------

Investing activities:                                                                                                       
     Acquisition and construction of property, systems                                                                      
        and equipment, net                                                                   (352,116)           (202,826)  
     Pre-operating results                                                                       -                   (826)  
     Other assets                                                                             (19,776)            (10,136)  
                                                                                       ------------------ ------------------

              Resources used in investing activities                                         (371,892)           (213,788)  
                                                                                       ------------------ ------------------

              Increase (decrease) in cash and cash equivalents                                697,208            (187,295)  

Cash and cash equivalents at beginning of period                                              558,494           1,076,270   
                                                                                       ------------------ ------------------

Cash and cash equivalents at end of period                                            $     1,255,702             888,975   
                                                                                       ================== ==================

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


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES

 Condensed Consolidated Statement of Changes in Stockholders' Equity

(Thousand pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


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

                                                                                                                               
     Balances as of                                                                                                            
       December 31, 2004        $     7,159,184             141,654    (1,779,508)        119,382           (301)     5,640,411

     Comprehensive income               -                 -                14,420       -                 (2,402)        12,018
                                  --------------   ----------------- --------------  --------------  -------------  -----------

     Balances as of                                                                                                            
       March 30, 2005                                                                                                          
       (Unaudited)              $     7,159,184             141,654    (1,765,088)        119,382         (2,703)     5,652,429
                                  ==============   ================= ==============  ==============  =============  ===========

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


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AXTEL, S. A. DE C. V. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

 March 31, 2005 and 2004

(Thousand pesos of constant purchasing power as of March 31, 2005)

(1)  Organization and description of business                                   

    Axtel, S. A. de C. V. and subsidiaries (the Company or AXTEL) is a Mexican
corporation engaged in operating and/or exploiting a public           
  telecommunication network to provide voice, sound, data, text, and image
   conducting services, and local, national, and international long-distance
  calls. To provide these services and carry out the Company's activity, a
     concession is required (see note 13f). In June 1996, the Company obtained a
concession from the Mexican Federal Government to install, operate and
   exploit public telecommunication networks for an initial period of thirty
years.                                                                

     The Company's capital structure has a Mexican majority share ownership with
   59.5% of shares with voting rights owned by Telinor Telefonia, S. de R.L.
de C.V., the remaining 40.5% is distributed among other entities.     

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

  The Company has been granted the following licenses over the spectrum of
frequencies necessary to provide the services:                        

   o    60MHz for Point-to-Multi-Point in the 10.5GHz band to cover each one
          of the nine regions of the Mexican territory. The acquisition of these
     twenty-year concessions, with an extension option, represented an
investment of $145,362 for the Company.                     

    o    112MHz for Point-to-Point in the 15GHz band and a 100MHz in the 23GHz
        band with countrywide coverage. The acquisition of these twenty-year
       concessions, with an extension option, represented an investment of
$73,310 for the Company.                                    

    o    50MHz in the 3.4GHz. The licenses obtained allow coverage in the nine
        regions of the country, and the investment was $750,647 for a period
of twenty years with an extension option.                   

     The Company has commercial services in Monterrey, Mexico City, Guadalajara,
Puebla, Toluca, Leon, Tijuana, Cd. Juarez, Saltillo, Aguascalientes,  
Queretaro and San Luis Potosi.                                        

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AXTEL, S.A. DE C.V. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

(2)  Financial statement presentation                                           

  The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in Mexico    
     (MexGAAP), which include the recognition of the effects of inflation on the
financial information, and are expressed in Mexican pesos of constant 
     purchasing power as of March 31, 2005, based on the National Consumer Price
Index (NCPI) published by Banco de Mexico.                            

     The following national consumer price indexes (NCPI) were used to recognize
the effects of inflation:                                             

                                                     Inflation
                               NCPI                %
                                 --------------     --------------

March 31, 2005                        414.687              0.74       
December 31, 2004                     411.648              5.47       
March 31, 2004                        396.544              1.60       

  The accompanying financial statements should be read in conjunction with
     Axtel's Annual Audited Financial Statements for the year ended December 31,
2004, as certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted   
accounting principles in Mexico have been condensed or omitted. The   
Company's condensed consolidated interim financial statements are     
unaudited, but in the opinion of management, reflect all necessary    
adjustments for a fair presentation, which are of a normal recurring  
  nature. Operations results for the three months ended March 31, 2005 are
not necessarily indicative of the results that may be expected for the
fiscal year ending December 31, 2005.                                 

When reference is made to pesos or "$", it means Mexican pesos; when  
reference is made to dollars or U.S.$, it means currency of the United
States of America. Except where otherwise is indicated or specific    
   references are made to "U.S. dollar millions", the amounts in these notes
  are stated in thousand of constant Mexican pesos as of the balance sheet
date.                                                                 

The consolidated financial statements include the assets, liabilities,
equity and results on operations of the subsidiaries listed below. The
 balances and transactions between companies have been eliminated in the
preparation of the consolidated financial statements.                 

                                                         % ownership
                                                         -----------

Instalaciones y Contrataciones, S. A. de C. V.                99.998% 
Impulsora e Inmobiliaria Regional, S. A. de C. V.             99.998% 
Servicios Axtel, S. A. de C. V.                               99.998% 

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AXTEL, S.A. DE C.V. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

(3)  Accounting changes                                                         

a)   Business combinations                                            

          In March, 2004, the Mexican Institute of Public Accountants issued the
        new Bulletin B-7 Business Combinations, which is mandatory beginning
          on January 1, 2005, although it allows early application. The Bulletin
          B-7 provides for certain rules to the accounting treatment of business
          acquisitions and investments in associated entities. The most relevant
          aspects included in Bulletin B-7 among others are: the adoption of the
       purchase method as a unique rule of accounting. In consequence, the
 use of the International Accounting Standard IAS-22, Business
      Combinations was eliminated; the accounting treatment of goodwill,
  eliminating his amortization and establishing certain rules of
     impairment; and specific rules in the acquisition of the minority
          interest, transferences of assets or exchange of stocks among entities
    under common control, and the accounting treatment of intangible
  assets recognized in a business combinations were established.

         The initial adoption of this Bulletin had no material effects neither
    on the financial position nor on the result of operations of the
Company.                                                    

b)   Labor obligations.                                               

 The new Bulletin D-3, issued in January 2004, substitutes and
         supersedes former Bulletin D-3, published in January 1993 and revised
        in 1998. The provisions of this Bulletin were effective immediately,
   except for those relating to payments upon termination of labor
relationships, which are effective January 1, 2005.         

        This Bulletin adds the issue of post-retirement benefit payments, to
       supersede Circular 50, "Interest Rates to be Used for Valuing Labor
       Obligations and Supplementary Application of Accounting Principles,
      Relating to Labor Obligations." Also, this Bulletin eliminates the
         issue of unforseen payments, and replaces it with the one relating to
        "Payments Upon Termination of the Labor Relationship," defining them
          as those payable to workers upon termination of the labor relationship
   before retirement age. These payments are of two types: (i) for
    restructuring reasons, for which the provisions of Bulletin C-9,
  "Liabilities, Accruals, Contingent Assets and Liabilities, and
    Commitments," should be applied, and (ii) for reasons other than
      restructuring, which valuation and disclosure requirements are the
        same as those for pension and seniority premium payments, permitting
          that, upon adoption of the Bulletin, the transition asset or liability
        be immediately recognized in the results of operations or that it be
   amortized over the average remaining service life of employees.

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Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

(4)  Hedging                                                                    

     On March 29, 2004, the Company entered into derivative Cross Currency Swaps
   (CCS) transaction, denominated "Coupon Swap" agreement to hedge a portion
     of its U.S. dollar foreign exchange exposure resulting from the issuance of
    the U.S. $250 million 11% senior notes which mature in 2013. Under the CCS
  transactions, Axtel will receive semiannual payments calculated based on
 the aggregate notional amount of U.S.$ 113.75 million at an annual U.S.
     rate of 11%, and the Company will make semiannual payments calculated based
  on the aggregate of $1,270,019 (nominal value) at annual Mexican rate of
12.30%. The CCS will expire in December 2008. During the life of the  
contracts, the cash flows originated by the exchange of interest rates
   under the CCS match in interest payment dates and conditions those of the
     underlying debt. The Company does not enter into derivative instruments for
 any purpose other than cash-flow-hedging purposes. That is, the Company
does not speculate using derivative instruments.                      

    By using derivative financial instruments to hedge exposures to changes in
    currency exchange rates fluctuations, the Company exposes itself to credit
 risk and market risk. Credit risk is the failure of the counterparty to
    perform under the terms of the derivative contract. When the fair value of
     a derivative contract is positive, the counterparty owes the Company, which
  creates credit risk for the Company. When the fair value of a derivative
    contract is negative, the Company owes the counterparty and, therefore, it
does not possess credit risk. The Company minimizes the credit risk in
derivative instruments by entering into transactions with high-quality
foreign financial counterparties.                                     

The CCS information is as follows:                                    

                                                        [Enlarge/Download Table]


     (Amounts in charts are expressed in millions, except exchange rates which are expressed in pesos)       

                                           Currencies                             Interest Rates             
                                 -------------------------------    -----------------------------------------

                                                    Notional                                                 
                                                     amount                                                  
                                 Notional           (nominal           Axtel       Axtel        Estimated    
   Maturity date                 amount              value)          receives       pays        fair value   
-------------------------------------------------------------------------------------------------------------

                                                                                                             
   December 15, 2008             U.S.$ 113.75        $ 1,270           11.00%       12.30%      U.S.$(0.6)   


For the three-month period ended March 31, 2005, the change in net    
    unrealized losses "mark to market" for derivatives designated as cash flow
hedges was U.S. $(0.6) million. No hedge ineffectiveness on cash flow 
hedges was recognized during 2005.                                    

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Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

   The estimated fair values of derivative instruments used for the exchange
of interest rates and/or currencies fluctuate over time and will be   
determined by future interest rates and currency prices. These values 
should be viewed in relation to the fair values of the underlying     
    transactions and as part of the overall Company's exposure to fluctuations
in interest rates and foreign exchange rates.                         

(5)  Prepaid expenses                                                           

Prepaid expenses consist of the following:                            

                 (Unaudited)
                   -----------------
                                       March 31,          December 31,
                                        -----------------  -------------------
                                     2005                 2004

Airspan Communications Limited       $        30,105               93,511 
Nortel Networks de Mexico                      4,859                3,493 
Nortel Networks Limited                       43,132                2,128 
Maxcom Telecomunicaciones                      1,004                  292 
Other                                         37,478               33,425 
                                        -----------------  -------------------

         Total prepaid expenses     $       116,578              132,849
                                        =================  ===================

(6)  Property, systems and equipment                                            

Property, systems and equipment are analyzed as follows:              

                                                        [Enlarge/Download Table]


                                                      (Unaudited)                                         
                                                 ---------------------                                    
                                                       March 31,           December 31,                   
                                                 ---------------------  -------------------               
                                                         2005                  2004           Useful lives

                                                                                                          
Land                                            $             38,527                38,301                
Building                                                     125,132               124,874      25 years  
Computer and electronic equipment                          1,065,693             1,057,421      3 years   
Transportation equipment                                      23,779                19,060      4 years   
Furniture and fixtures                                       100,952               100,500     10 years   
Network equipment                                          6,873,411             6,710,503   6 to 28 years
Leasehold improvements                                       157,293               152,187                
Construction in progress                                   1,355,493             1,193,890                
                                                 ---------------------  -------------------               

                                                           9,740,280            9,396,736                 

Less accumulated depreciation                              3,465,088            3,239,339                 
                                                 ---------------------  -------------------               

        Property, systems and equipment, net  $            6,275,192            6,157,397                 
                                                 =====================  ===================               

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AXTEL, S.A. DE C.V. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

    As of March 31, 2005 the Company has capitalized CFR as a component of the
acquisition cost of property, systems and equipment aggregating $2,307.         

(7)  Other assets                                                               

Other assets consist of the following:                                

                                                                [Download Table]


                                             (Unaudited)                          
                                        ---------------------                     
                                              March 31,            December 31    
                                        ---------------------  -------------------
                                                2005                  2004        

                                                                                  
Notes issuance costs                  $            86,915                  71,199 
Telmex / Telnor infrastructure costs               56,319                  56,319 
Guarantee deposits                                 20,357                  19,011 
Other                                              12,701                  12,600 
                                       ---------------------   -------------------

                                                  176,292                 159,129 
Less accumulated amortization                      19,506                  17,068 
                                       ---------------------   -------------------

     Other assets, net                $           156,786                 142,061 
                                       =====================   ===================

(8)  Short-term debt                                                            

Short term debt and its main characteristics are as follows:          

                                                        [Enlarge/Download Table]


                                                                                      (Unaudited)                        
                                                                                  -------------------                    
                                                                                       March 31,          December 31,   
                                                                                  -------------------  ------------------
                                                                                         2005                2004        

                                                                                                                         
Revolving line of credit with Banco Mercantil del Norte, S.A.  (Banorte) used                                            
for letters of credit, denominated in U.S. dollars up to 360 days.             $               62,623           85,436   

Revolving line of credit with Banco Santander  Serfin,  S.A. used for letters                                            
of credit, denominated in U.S. dollars up to 180 days.                                         44,255            -       

Revolving  lines of credit with  different  institutions  used for letters of                                            
credit denominated in U.S. dollars up to 360 days.                                             22,148           23,791   
                                                                                  -------------------  ----------------- 

         Total short-term notes payable                                        $              129,026          109,227   
                                                                                  ===================  ================= 

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Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

(9)  Long-term debt                                                             

Long-term debt and its main characteristics are as follows:           

                                                        [Enlarge/Download Table]


                                                                               (Unaudited)                         
                                                                            ------------------                     
                                                                                March 31,          December 31,    
                                                                            ------------------  -------------------
                                                                                  2005                2004         
                                                                                                                   
U.S. $250,000,000 in aggregate principal amount of 11% Senior Notes due                                            
2013. Interest is payable semi-annually in arrears on June 15, and                                                 
December 15 of each year which began on June 15, 2004.                   $         2,823,550             1,985,893 

Promissory Notes with Hewlett Packard  Operations Mexico, S. de R.L. de                                            
C.V. denominated in U.S. dollars,  payable in 12 quarterly installments                                            
maturing in December 2007. The interest rate is 7.0%.                                 51,601                53,937 

Other long-term financing with several credit institutions with interest                                           
rates fluctuating between 6% and 9% for those denominated in dollars and                                           
TIIE (Mexican average interbank rate) plus six percentage                                                          
points for those denominated in pesos.                                                52,094                50,695 
                                                                            ------------------  -------------------

          Total long-term debt                                                      2,927,245           2,090,525  

               Less current maturities                                                 51,604              49,352  
                                                                            ------------------  -------------------

          Long-term debt, excluding current maturities                  $           2,875,641           2,041,173  
                                                                            ==================  ===================

Annual installments of long-term debt are as follows:                 

     Year                               Amount

        March 2007                         $    33,659
        March 2008                              15,841
        March 2009                               2,386
        Thereafter                           2,823,755
                                          ----------------
                                           $ 2,875,641
                                          ================

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Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

   The following are the most important changes in long-term debt during the
   three-month period ended March 2005 and the year ended December 31, 2004:

    o    During January 2005, the Company re-opened its bond issuance program,
       issuing U.S. $75 million under the current indenture. This issuance
         matures on December 2013. The bonds were issued at a price of 106.75%
over face value having a yield to maturity of 9.84%.        

o    Each of the Company's consolidated subsidiaries, Instalaciones y 
          Contrataciones, S.A. de C.V. (Instalaciones), Impulsora e Inmobiliaria
        Regional, S.A. de C.V. (Impulsora) and Servicios Axtel, S.A. de C.V.
         (Servicios), are guaranteeing the notes with unconditional guaranties
that are unsecured.                                         

    o    Some of the debt agreements that remain outstanding establish certain
  covenants, the most important of which refer to limitations on
          dividend payments and comprehensive insurance on pledged assets, among
          others. As of March 31, 2005, the Company was in compliance in all its
covenants and obligations.                                  

(10) Other accounts payable                                                     

As of March 31, 2005 and December 31, 2004, the other accounts payable
consist of the following:                                                       

                                                                [Download Table]


                                              (Unaudited)                           
                                         ---------------------                      
                                               March 31,            December 31,    
                                         ---------------------  --------------------
                                                 2005                   2004        

                                                                                    
Guarantee deposits (note 13a)           $           146,825                 147,523 
Interest payable (note 13a)                          34,469                  32,163 
Other                                                29,877                  22,454 
                                         ---------------------  --------------------

          Total other accounts payable  $           211,171                 202,140 
                                         =====================  ====================


(11) Income tax (IT), tax on assets (TA), employee statutory profit sharing     
(ESPS) and tax loss carryforwards                                     

The parent company and its subsidiaries file their tax returns on a   
stand-alone basis, and the consolidated financial statements show the 
aggregate of the amounts determined by each company.                  

   In accordance with the current tax legislation, companies must pay either
 the IT or TA, whichever is greater. Both taxes recognize the effects of
inflation, in a manner different from MexGAAP.                        

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Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

   The TA law establishes a 1.8% tax on assets adjusted for inflation in the
case of inventory, property, systems and equipment and deducted from  
certain liabilities. TA levied in excess of IT for the year can be    
     recovered in the succeeding ten years, updated for inflation, provided that
in any of such years IT exceeds TA.                                   

   In December 2004, the Mexican Congress approved changes to the Income Tax
   Law, previously on January 1, 2002 a new Income Tax Law had been enacted,
this law provided for a 1% annual reduction in the income tax rate    
     beginning in 2003, so that the income tax rate would have been 32% in 2005,
  nevertheless the main change included in December 2004 and its impact on
     the Company's financial statements was related to a reduction in the income
 tax rates from previously approved tax rate of 32% in 2005 to a new tax
   rate of 30%. Also, for years 2006 and 2007 the tax rates will decrease to
  29% and 28%, respectively. Consequently, the deferred income taxes, were
calculated assuming a 30% tax rate for current assets and current     
     liabilities; 29% and 28%, for assets and liabilities whose tax effects will
    be reversed after 2005. The effect of the reduction in the deferred income
tax assets calculation for 2004 was $51,300.                          

     For the three months ended March 31, 2005 and 2004 (unaudited), deferred IT
amounted to an expense of $9,108 and $19,106, respectively.           

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of
December 31, 2004 are presented below:                                

                                                        December 31,
                                                        --------------------
                                                        2004
Deferred tax assets:                                                          
       Net operating loss carryforwards            $               518,811
       Accounts receivable                                          28,268
       Accrued liabilities                                           4,069
       Tax on assets                                                17,431
       Accrued vacations                                             2,037
                                                        --------------------

             Total gross deferred tax assets                       570,616

     Less valuation allowance                                       19,081
                                                        --------------------

            Net deferred tax assets                                551,535
                                                        --------------------

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Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

Deferred tax liabilities:                                                     
      Property, systems and equipment                            179,339
      Telephone concession rights                                166,387
      Pre-operating expenses                                      58,152
      Other assets                                                 5,054
      Inventories                                                 17,604
                                                       -------------------

            Total deferred tax liabilities                       426,536
                                                       -------------------

            Deferred tax assets, net                  $          124,999
                                                       ===================

The Company assesses realizability of deferred tax assets based on the
    existence of taxable temporary differences expected to reverse in the same
    periods as the realization of deductible temporary differences or in later
     periods in which the tax loss carryforwards can be applied and when, in the
   opinion of management, there will be enough future taxable income for the
    realization of such deductible temporary differences. However, the amounts
     of realizable deferred tax assets could be reduced if the taxable income is
 lower. As of March 31, 2005 and December 31, 2004, a deferred tax asset
 valuation allowance was established for tax loss carryforwards from the
subsidiaries and TA from the Company. No deferred tax asset valuation 
   allowance was established for AXTEL tax loss carryforwards, since, in the
 opinion of Company management, it is probable that there will be enough
future taxable income to realize the net deferred tax assets.         

     According to the IT law, the tax loss of a year, restated by inflation, may
  be carried to the succeeding ten years. The tax losses have no effect on
ESPS. As of December 31, 2004, the tax loss carryforwards expired as  
follows:                                                              

    Year                  Inflation-adjusted tax      Recoverable TA
      loss carryforwards
---------------------------     -----------------------    -------------------- 

 2009                  $                    597                  -
 2010                                 1,183,654                  -
 2011                                   225,024                  -
 2012                                   443,096                  -
      2013                                       525                   8,658
      2014                                    -                        8,773
                               -----------------------    --------------------
                            $              1,852,896                  17,431
                               =======================    ====================

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Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

(12) Stockholders' equity                                                       

The main characteristics of stockholders' equity are described below: 

(a)  Common stock structures                                          

       In the Extraordinary Shareholders Meeting held on September 8, 2004
         the shareholders approved a proposal to increase the variable portion
      of the capital stock of the Company in the amount in Mexican pesos
         equal to $3,089 through the issuance of 124,957,212 non-voting Series
          "N" shares which will represent 4.7% of the total issued capital stock
 of the Company. These series "N" stocks have not been issued.

         The Company common stock consists of 1,253,233,984 Series "A" shares,
    888,152,627 Series "C" shares and 392,320,255 Series "N" shares.
       Series "A" and Series "C" shares have the right to vote, and Series
    "N" shares have no par value and no voting rights. Series "A" is
restricted to Mexican individuals or corporations.          

(b)  Stockholders' equity restrictions                                

   Stockholder contributions, restated as provided for in tax law,
    totaling of $7,226,904 may be refunded to stockholders tax-free.

         No dividends may be paid while the Company has a deficit. Some of the
         debt agreements mentioned in note 9 establish limitations on dividend
payment.                                                    

(13) Commitments and contingencies                                              

As of March 31, 2005, the Company has the following commitments and   
contingencies:                                                                  

(a)  On January 24, 2001 a contract was signed with Spectra Site      
        Communications Mexico, S. de R.L. de C.V. (Spectra Site) expiring on
     January 24, 2004, to provide the Company with services to locate,
          construct, set up and sell sites within the Mexican territory. As part
       of the operation, the Company agreed to build 650 sites, subject to
       approval and acceptance by Spectra Site and, in turn, sell or lease
them under an operating lease plan.                         

     On January 24, 2001, the Company received 13 million dollars from
     Spectra Site to secure the acquisition of the 650 sites at 20,000
        dollars per site. These funds are not subject to restriction per the
        contract for use and destination. However, the contract provides for
       the payment of interest at a Prime rate in favor of Spectra Site on
       the amount corresponding to the number of sites that as of June 24,
        2004 had not been sold or leased in accordance with the terms of the
  contract. The Company has recognized a liability to cover such
        interest for $34,469, presenting it as other accounts payable in the
balance sheet as of March 31, 2005.                         

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Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

         During 2002, Spectra Site Communications filed an Ordinary Mercantile
        Trial against the Company before the Thirtieth Civil Court of Mexico
        City, demanding the refund of the guarantee deposit mentioned above,
     plus interest and trial-related expenses. The Company countersued
       Spectra Site for unilateral rescission of the contract. As of March
    31, 2005, the trial is at a stage where evidence is being shown.

   (b)  On October 2002, Metronet, S.A. de C.V. ("Metronet") filed an action
        against the Company in the Fourth Civil Court in Monterrey (Mexico).
      Metronet claims that the Company wrongfully terminated a letter of
    intent and is seeking payment for services and direct damages of
      approximately U.S.$3.8 million, plus other expenses and attorneys'
          fees. The trial court ruled against the Company in first instance. The
         Company appealed such judgment before the Appeal Court and the Appeal
        Court on October 22, 2004 ruled in favor of the Company, discharging
    Axtel of any liability, damages or payment in favor of Metronet.
     Metronet has a last resource before the Mexican Federal Courts to
change the Appeal Court judgment.                           

  (c)  On December 23, 2003, LAIF X filed a demand for arbitration against
      the Company, Telinor, Blackstone Capital Partners Merchant Banking
  Fund, L.P., Blackstone Offshore Capital Partners III, L.P. and
        Blackstone Family Investment Partnership III, L.P. (collectively the
          Blackstone Entities") disputing the validity of the transfer of Series
  "A" shares held by Telinor to the Blackstone Entities, and the
 conversion of the series "A" shares into series "C" shares in
       connection with such transfer. LAIF X claims that such transfer and
         conversion were not authorized by the Company's bylaws or shareholder
       resolution, and that the Blackstone Entities' purposed ownership of
         the Company's shares is therefore invalid. LAIF X also challenges the
       composition of the Company's Board of Directors. In addition to the
         declaratory relief, LAIF X's demand for Arbitration seeks unspecified
 damages and cost from the Company, Telinor and the Blackstone
Entities.                                                   

    (d)  The Company is involved in a number of lawsuits and claims arising in
        the normal course of business. It is expected that the final outcome
     of these matters will not have significant adverse effects on the
Company's financial position and results of operations.     

   (e)  In compliance with commitments made in the acquisition of concession
        rights, the Company has granted surety bonds to the Federal Treasury
          and to the Ministry of Communication and Transportation of $32,101 and
to other service providers for $49,602.                     

(f)  The concessions granted by the Ministry of Communications and    
Transportation (SCT), mentioned in note 1, establish certain
         obligations of the Company, including, but not limited to: (i) filing
        annual reports with the SCT, including identifying main shareholders
      of the Company, (ii) reporting any increase in common stock, (iii)
        providing continuous services with certain technical specifications,
 (iv) filing monthly reports about disruptions, (v) filing the
services' tariff, and (vi) providing a bond.                

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Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

(g)  The Company leases some equipment and facilities under operating 
        leases. Some of these leases have renewal clauses. Lease expense for
     three-month periods ended March 31, 2005 and 2004 was $89,434 and
$61,338, respectively.                                      

     The annual payments under these leases as of March 31, 2005 are as follows:

                                                                [Download Table]


                                       Contracts in:                          
             -----------------------------------------------------------------
                  Pesos            U.S. Dollars               UDIS            
                                   (thousands)         (Investment units)     
             ----------------    ---------------   ---------------------------

                                                                              
2005        $        51,753              5,415                 41,125         
2006                 53,935              6,435                 54,833         
2007                 47,612              5,471                 54,833         
2008                 41,625              3,299                 54,833         
2009                 35,815              2,741                 45,694         
Thereafter          149,660             11,471                -               
             ----------------    ---------------         --------------       
            $       380,400             34,832                251,318         
             ================    ===============         ==============       


     (h)  As of March 31, 2005, the Company has placed purchase orders which are
pending delivery from suppliers for approximately $741,514. 

   (i)  On April 20, 2004 Axtel and Airspan entered into Amendment Agreement
        No. 2 to the Purchase and License Agreement of Fixed Wireless Access
      Equipment and the Technical Assistance Support Services Agreement,
        both dated March 20, 2004, by virtue of which the parties agreed to:
         (i) reduce the prices of (a) the Fixed Wireless Access Equipment (RSS
        customer premise equipment and the radio base station equipment) and
        (b) the Technical and Support Services for years 2004 and 2005; (ii)
          eliminate Axtel's obligation to provide a payment guarantee and modify
        its payments terms under such Agreements, (iii) improve the delivery
       times of the equipments; (iv) create a single unit of RSS (customer
        premise equipment) which will be sold at a lower price in comparison
         of the current RSS customer premise equipment; and (v) cancel Axtel's
       purchase commitments of years 2005, 2006 and 2007 established under
sold Agreements and to replace such commitments with two new
      commitments, one for U.S.$ 55.0 million to purchase Fixed Wireless
     Access Equipment commencing April 20, 2004 and ending on December
     31st, 2005 and the second commitment for the amount of U.S.$ 10.0
         million to purchase any Airspan product, commencing January 1st, 2006
and ending on May 1st, 2006.                                

(j)  On December 2004, the Company entered into a Purchase and License
  Agreement for FWA Equipment, by virtue of which the Company is
         commited to purchase equipment manufactured by Airspan for U.S. $38.7
millions, from December 2004 through December 2006.         

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Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

    As of March 31, 2005 the Company has placed purchase orders for U.S. $35.4
millions.                                                                       

     (k)  On July 20, 2004 Axtel, Nortel Networks Limited and Nortel Networks de
       Mexico, S.A. de C.V., entered into a Purchase and License Agreement
       for the supply of next generation soft switch equipment and related
       services (the "NGN PLA"). This NGN PLA contains standard commercial
        and legal terms. In this NGN PLA, Axtel has a purchase commitment to
        acquire from Nortel Networks the equipment and the software licenses
         required to have 100,000 lines in services by the end of the five (5)
year term of such agreement.                                

(14) Differences between Mexican and United States accounting principles        

     The consolidated financial statements of the Company are prepared according
     to accounting principles generally accepted in Mexico (Mexican GAAP), which
    differ in certain significant respects from those applicable in the United
States (U.S. GAAP).                                                   

The consolidated financial statements under Mexican GAAP include the  
   effects of inflation provided for by Bulletin B-10, whereas the financial
statements prepared under U.S. GAAP are presented on a historical cost
basis. The following reconciliation does not eliminate the inflation  
    adjustments for Mexican GAAP, since they represent an integral measurement
of the effects of the changes in the price levels in the Mexican      
inflationary economy and, as such, are considered a more meaningful   
  presentation than the financial reports based on historic costs for book
purposes for Mexico and the United States.                            

     The main differences between Mexican GAAP and U.S. GAAP and their effect on
  consolidated net income for the three-month periods ended March 31, 2005
     and 2004, and on stockholders' equity as of March 31, 2005 and December 31,
2004 are presented below, with an explanation of the adjustments.     

                                                        [Enlarge/Download Table]


                                                                            (Unaudited)            
                                                                        Three months ended         
                                                                 ----------------------------------
                                                                             March 31,             
                                                                 ----------------------------------
                                                                     2005                2004      
                                                                 ------------- ----- --------------

                                                                                                   
Net income reported under Mexican GAAP ...................... $       14,420               33,440  
                                                                 -------------       --------------

Approximated U.S. GAAP adjustments                                                                 
1. Deferred income taxes (see 14a)...........................          9,108               19,106  
2. Amortization of  start-up cost (see 14c)..................         10,090                9,394  
3. Start-up costs of the period  (see 14c)...................            -                   (826) 
4. Revenue recognition (see 14b).............................         (6,726)               2,994  
5. Allowance for post retirement benefits (see 14d)..........            155                  455  
6. Capitalized interest (see 14e)............................           (183)                (414) 
                                                                 -------------       --------------
Total approximate U.S. GAAP adjustments......................         12,444               30,709  
                                                                 -------------       --------------
                                                                      26,864               64,149  
Approximate net income under U.S. GAAP....................... $                                    
                                                                 =============       ==============

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Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


                                                                            (Unaudited)           December 31,   
                                                                             March 31,                           
                                                                           --------------- ---- -----------------
                                                                                2005                 2004        
                                                                           --------------- ---- ---------------  

                                                                                                                 
Total stockholders' equity reported under Mexican GAAP................  $      5,652,429             5,640,411   
                                                                           ---------------      ---------------  

Approximate U.S. GAAP adjustments                                                                                
1. Deferred income taxes (see 14a)....................................          (115,891)            (124,999)   
2. Start-up costs (see 14c)..........................................c          (194,029)            (204,119)   
3. Revenue recognition (see 14b)......................................           (90,811)             (84,085)   
4. Allowance for post retirement benefits (see 14d)...................           (20,959)             (21,114)   
5. Capitalized interest (see 14e).....................................            24,753                24,936   
                                                                           ---------------      ---------------  
Total approximate U.S. GAAP adjustments...............................          (396,937)            (409,381)   
                                                                           ---------------      ---------------  
Total approximate stockholders' equity under U.S. GAAP................  $      5,255,492             5,231,030   
                                                                           ===============      ===============  


   The term "SFAS" as used in this document refers to Statement of Financial
Accounting Standards.                                                           

 (a)  Deferred income taxes (IT) and employee's statutory profit sharing
("ESPS")                                                    

      For Mexican GAAP Deferred IT are accounted for under the asset and
     liability method. All of the Company's pretax income and reported
income tax expense is derived from domestic operations.     

For Mexican GAAP Deferred ESPS is recognized only for timing
        differences arising from the reconciliation of book income to income
      for ESPS purposes, which can be reasonably presumed to result in a
        future liability or benefit, with indication that the liabilities or
benefits will materialize.                                  

      For U.S. GAAP purposes, the Company accounts for IT and ESPS under
    SFAS 109 "Accounting for Income Taxes," which uses the asset and
        liability method to account for deferred tax assets and liabilities.
 Under the asset and liability method, deferred tax assets and
 liabilities are recognized for the future tax consequences of
        "temporary differences," by applying the enacted statutory tax rates
          applicable to future years to the differences between the book amounts
        of the financial statements and the tax bases of existing assets and
      liabilities and the tax loss carryforwards. The amount of deferred
          income taxes charged or credited to the operations in each period, for
        U.S. GAAP purposes, is based on the difference between the beginning
      and ending balances of the deferred tax assets and liabilities for
         each period, expressed in nominal pesos. The deferred tax effect of a
        change in the tax rate is recognized in the results of operations of
the period in which the change is enacted.                  

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Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

          The tax effects of temporary differences that give rise to significant
      portions of deferred tax assets and liabilities as of December 31,
2004 for U.S. GAAP are presented below:                     

                                                      December 31,
                                                      2004
                                                       -------------------
Deferred tax assets:                                                          
Net operating loss carryforwards..................... $             518,811   
Accounts receivable..................................                28,268   
Deferred revenues....................................                23,545   
Seniority premium and allowance for                                           
post retirement benefits..........................                 6,586
Accrued vacations....................................                 2,037   
Accrued liabilities..................................                 4,069   
Tax on assets........................................                17,431   
                                                       -------------------

     Total gross deferred tax assets..............               600,747

Less valuation allowance.............................             (229,188)   
                                                       -------------------

     Net deferred tax assets......................               371,559
                                                       -------------------

Deferred tax liabilities:                                                     
Property, systems and equipment .....................              187,568    
Telephone concession rights..........................              166,387    
Inventories..........................................               17,604    
                                                     -----------------

    Total deferred tax liabilities...............              371,559
                                                     -----------------

Net deferred tax liabilities under U.S. GAAP                        -         
Less net deferred tax assets recognized                                       
 under Mexican GAAP..............................              124,999
                                                     -----------------

U.S. GAAP adjustment to stockholders' equity......... $            124,999    
                                                     =================

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Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

     In assessing the realizability of deferred tax assets, management
         considers whether it is more likely than not that some portion or all
 of the deferred tax assets will not be realized. The ultimate
          realization of deferred tax assets is dependent upon the generation of
     future taxable income during the periods in which those temporary
     differences become deductible. Management considers the scheduled
          reversal of deferred tax liabilities, projected future taxable income,
    and tax planning strategies in making this assessment. Since the
      Company had not generated taxable income prior 2002 a deferred tax
     asset valuation allowance of $229,188 as of December 31, 2004 was
       recorded for U.S. GAAP. This represents a decrease in the valuation
allowance of $148,678 for the year ended December 31, 2004. 

(b)  Revenue recognition                                              

          On December 3, 1999, the SEC issued Staff Accounting Bulletin No. 101,
          "Revenue Recognition in Financial Statements" (SAB 101). This bulletin
          summarizes the point of view of the SEC in the recognition of revenues
         in the financial statements according to U.S. GAAP. The SEC concluded
  that only when all the following conditions are met is revenue
recognition appropriate:                                    

a)   there is persuasive evidence of an agreement;          

b)   the delivery was made or the services rendered;        

       c)   the sales price to the purchaser is fixed or determinable; and

d)   collection is reasonable assured.                      

        Based on the provisions and interpretations of SAB 101, for purposes
 of the U.S. GAAP reconciliation, the Company has deferred the
      activation revenues over a three-year period starting in the month
          such charge is originated. This period was determined based on Company
  experience. The net effect of the deferral and amortization is
presented in the above U.S. GAAP reconciliation.            

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AXTEL, S.A. DE C.V. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

(c)  Start-up costs                                                   

          In April 1998, the AICPA issued Statement of Position 98-5, "Report of
        Start-up Costs" (SOP 98-5), which requires start-up costs, including
          organization costs, to be expensed as incurred. SOP 98-5 is effective,
       except for certain investment companies, for fiscal years beginning
after December 15, 1998. Under Mexican GAAP, this costs were
     recognized when incurred as a deferred asset and amortized over a
    period of 10 years. The Company has reversed the amortization of
       $10,090 and $9,394 for the three months period ended March 31, 2005
      and 2004 as shown in the U.S. GAAP reconciliation, and has reduced
  stockholders' equity by $194,029 and $204,119 to write off the
         unamortized balance at March 31, 2005 and December 31, 2004. For U.S.
         GAAP purposes during the three months period ended March 31, 2004 the
Company reversed $826 of capitalized amortization costs.    

(d)  Other employee benefits                                          

Severance                                                   

     For the year ended December 31, 2004 and prior under Mexican GAAP
          (Bulletin D-3), severance payments should be recognized in earnings in
          the period in which they are paid, unless such payments are used by an
     entity as a substitution of pension benefits, in which case, they
should be considered as a pension plan. Under U.S. GAAP,    
        post-employment benefits for former or inactive employees, excluding
       retirement benefits, are accounted for under the provisions of SFAS
  112, which requires recognition of certain benefits, including
         severance, over an employee's service life. The Company recognized an
     accrual amounting to $20,959 and $21,114 as of March 30, 2005 and
          December 31, 2004, respectively. As of March 31, 2005, the Company has
not recognized this liability under Mexican GAAP.           

(e)  Capitalized interest                                             

     Under Mexican GAAP, the Company capitalizes interest on property,
          systems and equipment under construction. The amount of financing cost
     to be capitalized is comprehensively measured in order to include
        properly the effects of inflation. Therefore, the amount capitalized
       includes: (i) the interest cost of the debt incurred, plus (ii) any
        foreign currency fluctuations that result from the related debt, and
     less (iii) the monetary position result recognized on the related
         debt. Under U.S. GAAP, only interest is considered an additional cost
          of constructed assets to be capitalized and depreciated over the lives
of the related assets.                                      

          The U.S. GAAP reconciliation removes the foreign currency gain or loss
          and the monetary position result capitalized for Mexican GAAP, derived
from borrowings denominated in foreign currency.            

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AXTEL, S.A. DE C.V. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

(f)  Guaranteed debt                                                  

     On December 16, 2003, the Company completed an offering of senior
          unsecured notes, for a value of U.S.$ 175 million maturing on December
      15, 2013. Interest on the notes are payable semiannually at annual
rate of 11%, beginning on June 15, 2004.                    

      During January 2005, the Company issued U.S. $75 million under the
        current indenture. This issuance matures on December 2013. The bonds
       were issued at a price of 106.75% over face value having a yield to
maturity of 9.84%.                                          

    Each of the Company's consolidated subsidiaries, Instalaciones y
          Contrataciones, S.A. de C.V. (Instalaciones), Impulsora e Inmobiliaria
        Regional, S.A. de C.V. (Impulsora) and Servicios Axtel, S.A. de C.V.
         (Servicios), are guaranteeing the notes with unconditional guaranties
         that are unsecured. Each of the subsidiary guarantors is 99.99% owned
        by Axtel, S.A. de C.V. All guarantees are full and unconditional and
are joint and several.                                      

         Axtel is eligible, under Adopting Release (nos. 33-7878 and 34-43124)
and a no-action request letter, for presenting the condensed
       consolidating financial information of Impulsora, Instalaciones and
         Servicios in this note in accordance with Rule 3-10 (f) of Regulation
          S-X. Each of Impulsora, Instalaciones and Servicios have total capital
          stock outstanding of 50,000 common shares. Axtel directly owns all but
    one share of each of Impulsora, Instalaciones and Servicios. The
     ownership of the remaining share by someone other than Axtel is a
requirement of Mexican law.                                 

       For the purpose of the accompanying condensed consolidating balance
     sheets, income statements and changes in financial position under
     Mexican GAAP, the first column, "Axtel" corresponds to the parent
        company issuer. The second column, "Combined Guarantors", represents
         the combined amounts of Instalaciones, Impulsora and Servicios, after
         adjustments and eliminations relating to their combination. The third
          column, "Adjustments and Eliminations", includes all amounts resulting
   from the consolidation of Axtel, and the guarantors. The fourth
       column, "Axtel Consolidated", represents the Company's consolidated
 amounts as reported in the consolidated financial statements.
        Additionally, all amounts presented under the line item "Investments
        in subsidiaries" for both the balance sheet and the income statement
are accounted for by the equity method.                     

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Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

The condensed consolidating financial information is as follows:      

Condensed consolidating balance sheets:                               

                                                        [Enlarge/Download Table]


                                                                                         Adjustments                     
(Unaudited)                                                             Combined             and             Axtel       
As of March 31, 2005                                   Axtel           Guarantors       Eliminations      Consolidated   
-----------------------------------------------    ----------------------------------------------------------------------

                                                                                                                         
Current assets                                  $       2,121,370              89,667         (94,568)         2,116,469 
Property, systems and equipment, net                    6,267,129               9,312          (1,249)         6,275,192 
Deferred charges                                        1,000,641               5,172           -              1,005,813 
Investment in subsidiaries                                 21,750             -               (21,750)            -      
Other non-current assets                                  170,570               5,750           -                176,320 
                                                   ---------------  ------------------ ---------------- -----------------

    Total assets                                $       9,581,460             109,901        (117,567)         9,573,794 
                                                   ---------------  ------------------ ---------------- -----------------

Current liabilities                             $         993,454              84,667         (94,568)           983,553 
Long-term debt                                          2,875,641             -                 -              2,875,641 
Other non-current liabilities                              59,936               2,235           -                 62,171 
                                                   ---------------  ------------------ ---------------- -----------------

    Total liabilities                                   3,929,031              86,902         (94,568)         3,921,365 
                                                   ---------------  ------------------ ---------------- -----------------

Total stockholders equity                               5,652,429              22,999         (22,999)         5,652,429 
                                                   ---------------  ------------------ ---------------- -----------------

Total liabilities and stockholders equity       $       9,581,460             109,901        (117,567)         9,573,794 
                                                   ---------------  ------------------ ---------------- -----------------

                                                                                         Adjustments                     
                                                                        Combined             and              Axtel      
As of December 31, 2004                                Axtel           Guarantors        Eliminations     Consolidated   
-----------------------------------------------    ---------------  ------------------ ----------------- ----------------

Current assets                                  $       1,359,829             111,548         (126,920)        1,344,457 
Property, systems and equipment, net                    6,149,228               9,486           (1,317)        6,157,397 
Deferred charges                                        1,031,995               5,880            -             1,037,875 
Investment in subsidiaries                                 24,385             -                (24,385)           -      
Other non-current assets                                  157,976               3,999            -               161,975 
                                                   ---------------  ------------------ ----------------- ----------------

    Total assets                                $       8,723,413             130,913         (152,622)        8,701,704 
                                                   ---------------  ------------------ ----------------- ----------------

Current liabilities                             $       1,038,260             102,799         (126,920)        1,014,139 
Long-term debt                                          2,041,173             -                  -             2,041,173 
Other non-current liabilities                               3,569               2,412            -                 5,981 
                                                   ---------------  ------------------ ----------------- ----------------

    Total liabilities                                   3,083,002             105,211         (126,920)        3,061,293 
                                                   ---------------  ------------------ ----------------- ----------------

Total stockholders equity                               5,640,411              25,702          (25,702)        5,640,411 
                                                   ---------------  ------------------ ----------------- ----------------

Total liabilities and stockholders equity       $       8,723,413             130,913         (152,622)        8,701,704 
                                                   ---------------  ------------------ ----------------- ----------------

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AXTEL, S.A. DE C.V. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

Condensed consolidating income statements:                            

                                                        [Enlarge/Download Table]


                                                                                           Adjustments                        
(Unaudited)                                                              Combined              and               Axtel        
For the three-month period ended March 31, 2005          Axtel          Guarantors        Eliminations        Consolidated    
-------------------------------------------------  ------------------ ----------------  ------------------ -------------------

                                                                                                                              
Rental, installation, service and other revenues $        1,118,679        225,232              (225,232)         1,118,679   
Costs of sales and services                                (351,813)        -                     -               (351,813)   
Selling and administrative expenses                        (397,883)       (226,639)             225,232          (399,290)   
Depreciation and amortization                              (262,208)           (117)              -               (262,325)   
Operating income (loss)                                     106,775          (1,524)              -                 105,251   
Comprehensive financing result, net                         (74,334)           (470)                 331           (74,473)   
Other (expenses) income, net                                 (6,986)            67                  (331)           (7,250)   
Income tax                                                   (8,399)           (709)              -                 (9,108)   
Investment in subsidiaries                                   (2,636)           -                   2,636             -        
                                                   ------------------ ----------------  ------------------ -------------------
Net income (loss)                                $           14,420          (2,636)               2,636             14,420   
                                                   ------------------ ----------------  ------------------ -------------------

                                                                                           Adjustments                        
(Unaudited)                                                              Combined              and               Axtel        
For the three-month period ended March 31, 2004          Axtel          Guarantors        Eliminations        Consolidated    
-------------------------------------------------  ------------------ ----------------  ------------------ -------------------

Rental, installation, service and other revenues $          904,699          214,506            (214,506)           904,699   
Costs of sales and services                                (281,373)        -                     -               (281,373)   
Selling and administrative expenses                        (309,036)        (214,025)            214,506          (308,555)   
Depreciation and amortization                              (240,866)            (111)             -               (240,977)   
Operating  income                                            73,424               370             -                  73,794   
Comprehensive financing result, net                         (35,824)            (514)                287           (36,051)   
Other income (expenses), net                                 14,493              597                (287)            14,803   
Income tax                                                  (18,357)            (749)             -                 (19,106)  
Investment in subsidiaries                                     (296)           -                     296            -         
                                                   ------------------ ----------------  ------------------ -------------------
Net income (loss)                                $           33,440             (296)                296             33,440   
                                                   ------------------ ----------------  ------------------ -------------------


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AXTEL, S.A. DE C.V. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

Condensed consolidating statements of changes in financial position:  

                                                        [Enlarge/Download Table]


                                                                                            Adjustments                     
(Unaudited)                                                                  Combined           and             Axtel       
For the three-month period ended March 31, 2005                Axtel        Guarantors     Eliminations      Consolidated   
---------------------------------------------------------- --------------  -------------- ---------------- -----------------

Operating activities:                                                                                                       
                                                                                                                            
   Net income (loss)                                     $       14,420          (2,636)           2,636            14,420  
   Non-cash items                                               273,243             826           (2,636)          271,433  
                                                           --------------  -------------- ---------------- -----------------
         Resources provided by (used in) operations             287,663          (1,810)           -               285,853  
   Net (investment in) financing from operations               (217,072)          3,645             (213)         (213,640) 
                                                           --------------  -------------- ---------------- -----------------
         Resources provided by operations, net                   70,591           1,835             (213)           72,213  
                                                           --------------  -------------- ---------------- -----------------

Financing activities:                                                                                                       
   Proceeds from (loans payments), net                          938,912            (213)             213           938,912  
   Others                                                        57,975            -               -                57,975  
                                                           --------------  -------------- ---------------- -----------------
         Resources provided by (used in) financing              996,887            (213)             213           996,887  
         activities                                                                                                         
                                                           --------------  -------------- ---------------- -----------------

Investing activities:                                                                                                       
   Acquisition and construction of property, systems and                                                                    
     equipment, net                                            (352,104)            (12)           -              (352,116) 
   Other assets                                                 (18,027)         (1,749)           -               (19,776) 
                                                           --------------  -------------- ---------------- -----------------
         Resources used in investing activities                (370,131)         (1,761)                          (371,892) 
                                                           --------------  -------------- ---------------- -----------------

Increase (decrease) in cash and equivalents                     697,347           (139)            -               697,208  
Cash and equivalents at the beginning of the period             556,469           2,025            -               558,494  
                                                           --------------  -------------- ---------------- -----------------
Cash and equivalents at the end of the period            $    1,253,816           1,886            -             1,255,702  
                                                           --------------  -------------- ---------------- -----------------


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Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


                                                                                            Adjustments                     
(Unaudited)                                                                  Combined           and             Axtel       
For the three-month period ended March 31, 2004                Axtel        Guarantors     Eliminations      Consolidated   
---------------------------------------------------------- --------------  -------------- ---------------- -----------------

Operating activities:                                                                                                       
                                                                                                                            
   Net income (loss)                                     $       33,440            (296)             296            33,440  
   Non-cash items                                               259,519             860             (296)          260,083  
                                                           --------------  -------------- ---------------- -----------------
       Resources provided by operations                         292,959             564            -               293,523  
    Net (investment in) financing from operations              (191,103)            459             (356)         (191,000) 
                                                           --------------  -------------- ---------------- -----------------
       Resources provided by operations, net                    101,856           1,023             (356)          102,523  
                                                           --------------  -------------- ---------------- -----------------

Financing activities:                                                                                                       
   Loans payments, net                                          (73,290)           (356)             356           (73,290) 
   Others                                                        (2,740)           -               -                (2,740) 
                                                           --------------  -------------- ---------------- -----------------
       Resources used in financing activities                   (76,030)           (356)             356           (76,030) 
                                                           --------------  -------------- ---------------- -----------------

Investing activities:                                                                                                       
   Acquisition and construction of property, systems and                                                                    
     equipment, net                                            (202,814)            (12)           -              (202,826) 
   Other assets                                                 (10,965)              3            -               (10,962) 
                                                           --------------  -------------- ---------------- -----------------
       Resources used in investing activities                  (213,779)             (9)           -              (213,788) 
                                                           --------------  -------------- ---------------- -----------------

Increase in cash and equivalents                               (187,953)            658            -              (187,295) 
Cash and equivalents at the beginning of the period           1,075,788             482            -             1,076,270  
                                                           --------------  -------------- ---------------- -----------------
Cash and equivalents at the end of the period            $      887,835           1,140            -               888,975  
                                                           --------------  -------------- ---------------- -----------------


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AXTEL, S.A. DE C.V. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

   The tables below present combined balance sheets as of March 31, 2005 and
  December 31, 2004, income statements for each of the three-month periods
ended March 31, 2005 and March 31, 2004, and statements of changes in 
     financial position for each of the three-month periods ended March 31, 2005
and March 31, 2004 for the Guarantors. Such information presents in   
 separate columns each individual Guarantor, combination adjustments and
    eliminations, and the combined guarantors. All significant related parties
  balances and transactions between the Guarantors have been eliminated in
the "Combined Guarantors" column.                                     

The amounts presented in the column "Combined Guarantors" are readily 
     comparable with the information of the Guarantors included in the condensed
consolidating financial information.                                  

Guarantors' Combined Balance Sheets:                                  

                                                        [Enlarge/Download Table]


(Unaudited)                                                                                                          
As of  March 31, 2005                                                                  Adjustments                   
------------------------------------                                    Servicios          and          Combined     
              Assets                    Icosa        Inmobiliaria         Axtel       Eliminations     Guarantors    
                                     ------------ ------------------- --------------  -------------- ----------------

                                                                                                                     
Cash and cash equivalents          $      1,007                  12            867         -                  1,886  
Accounts receivable                         540           -                     99         -                    639  
Related parties receivables               5,356           -                 61,911            (11)           67,256  
Refundable taxes and other                                                                                           
   accounts receivable                    1,062               1,194         17,630         -                 19,886  
                                     ------------ ------------------- --------------  -------------- ----------------

    Total current assets                  7,965               1,206         80,507            (11)           89,667  
                                     ------------ ------------------- --------------  -------------- ----------------

Property, systems and equipment,                                                                                     
net                                      -                    9,312        -               -                  9,312  
Deferred income taxes                        18           -                  5,389           (235)            5,172  
Other                                     1,138           -                  4,612         -                  5,750  
                                     ------------ ------------------- --------------  -------------- ----------------

    Total non current assets              1,156               9,312         10,001           (235)           20,234  
                                     ------------ ------------------- --------------  -------------- ----------------

Total assets                       $      9,121              10,518         90,508           (246)          109,901  
                                     ------------ ------------------- --------------  -------------- ----------------
Liabilities and Stockholders Equity                                                                                  

Account payable and accrued                                                                                          
   liabilities                     $        215           -                 10,970         -                 11,185  
Taxes payable                             3,767           -                 33,782         -                 37,549  
Related parties payables                 -                    8,443             11            (11)            8,443  
Other accounts payable                    1,109           -                 26,381         -                 27,490  
                                     ------------ ------------------- --------------  -------------- ----------------

    Total current liabilities             5,091               8,443         71,144            (11)           84,667  
                                     ------------ ------------------- --------------  -------------- ----------------

Deferred income tax                      -                      235        -                 (235)         -         
Others                                      341           -                  1,894         -                  2,235  
                                     ------------ ------------------- --------------  -------------- ----------------

    Total liabilities                     5,432               8,678         73,038           (246)           86,902  
                                     ------------ ------------------- --------------  -------------- ----------------

Stockholders' equity                      3,738               1,743         20,154         -                 25,635  
Net (loss) income                           (49)                 97         (2,684)        -                 (2,636) 
                                     ------------ ------------------- --------------  -------------- ----------------

Total stockholders equity                 3,689               1,840         17,470         -                 22,999  
                                     ------------ ------------------- --------------  -------------- ----------------

Total liabilities and stockholders                                                                                   
equity                             $      9,121              10,518         90,508           (246)          109,901  
                                     ------------ ------------------- --------------  -------------- ----------------


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Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


As of December 31, 2004                                                                                              
------------------------------------                                                                                 
                                                                                      Adjustments                    
                                                                        Servicios         and           Combined     
              Assets                    Icosa        Inmobiliaria         Axtel       Eliminations     Guarantors    
                                     ------------ ------------------- -------------- --------------- ----------------

                                                                                                                     
Cash and cash equivalents          $        593                  12          1,420         -                  2,025  
Related parties receivables               7,397           -                 88,752             (4)           96,145  
Refundable taxes and other                                                                                           
  accounts receivable                     1,336               1,202         10,840         -                 13,378  
                                     ------------ ------------------- -------------- --------------- ----------------

    Total current assets                  9,326               1,214        101,012             (4)          111,548  
                                     ------------ ------------------- -------------- --------------- ----------------

Property, systems and equipment,                                                                                     
net                                      -                    9,486        -               -                  9,486  
Deferred income taxes                         9           -                  6,105           (234)            5,880  
Other                                       809           -                  3,190         -                  3,999  
                                     ------------ ------------------- -------------- --------------- ----------------

    Total non current assets                818               9,486          9,295           (234)           19,365  
                                     ------------ ------------------- -------------- --------------- ----------------

Total assets                       $     10,144              10,700        110,307           (238)          130,913  
                                     ------------ ------------------- -------------- --------------- ----------------

Liabilities and stockholders'                                                                                        
equity                                                                                                               

                      Account payable and accrued                                                                    
liabilities                        $        163           -                 18,314         -                 18,477  
Taxes payable                             4,759           -                 51,101         -                 55,860  
Related parties payables                      4               8,655        -                   (4)            8,655  
Other accounts payable                    1,075           -                 18,732         -                 19,807  
                                     ------------ ------------------- -------------- --------------- ----------------

    Total current liabilities             6,001               8,655         88,147             (4)          102,799  
                                     ------------ ------------------- -------------- --------------- ----------------

Deferred income tax                      -                      234        -                 (234)         -         
Others                                      405           -                  2,007         -                  2,412  
                                     ------------ ------------------- -------------- --------------- ----------------

    Total liabilities                     6,406               8,889         90,154           (238)          105,211  
                                     ------------ ------------------- -------------- --------------- ----------------

Stockholders' equity                      4,931               1,400         29,945         -                 36,276  
Net (loss) income                        (1,193)                411         (9,792)        -                (10,574) 
                                     ------------ ------------------- -------------- --------------- ----------------

Total stockholders equity                 3,738               1,811         20,153         -                 25,702  
                                     ------------ ------------------- -------------- --------------- ----------------

Total liabilities and stockholders                                                                                   
   equity                          $     10,144              10,700        110,307           (238)          130,913  
                                     ------------ ------------------- -------------- --------------- ----------------


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AXTEL, S.A. DE C.V. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

Guarantors' Combined Income Statements:                               

                                                        [Enlarge/Download Table]


                                                                                                  Adjustments                  
(Unaudited)                                                                        Servicios          and          Combined    
For the three-months period ended March 31, 2005      Icosa      Inmobiliaria        Axtel       Eliminations     Guarantors   
-------------------------------------------------- ------------ ---------------- --------------- --------------  --------------

                                                                                                                               
Rental and service revenues                      $    23,548              482         201,202           -            225,232   

Administrative expenses                               (23,548)         -              (203,091)         -            (226,639) 
Depreciation and amortization                           -                 (105)            (12)         -                (117) 
                                                   ------------ ---------------- --------------- --------------  --------------

     Operating  income (loss)                           -                 377           (1,901)         -              (1,524) 
                                                   ------------ ---------------- --------------- --------------  --------------

Comprehensive financing result, net                       (61)            (278)           (131)         -                (470) 
                                                   ------------ ---------------- --------------- --------------  --------------

Other income, net                                          3            -                  64           -                 67   
                                                   ------------ ---------------- --------------- --------------  --------------

   (Loss) income before income taxes and                                                                                       
     employee statutory profit sharing                    (58)             99           (1,968)         -              (1,927) 
                                                   ------------ ---------------- --------------- --------------  --------------

     Total income tax and employee                                                                                             
        statutory profit sharing benefit                   9                (2)           (716)         -                (709) 
                                                   ------------ ---------------- --------------- --------------  --------------

         Net (loss) income                       $        (49)             97           (2,684)         -              (2,636) 
                                                   ------------ ---------------- --------------- --------------  --------------

                                                                                                  Adjustments                  
(Unaudited)                                                                        Servicios          and          Combined    
For the three-months period ended March 31, 2004      Icosa      Inmobiliaria        Axtel       Eliminations     Guarantors   
-------------------------------------------------- ------------ ---------------- --------------- --------------  --------------

Rental and service revenues                      $     13,423              505        200,578         -               214,506  

Administrative expenses                               (13,423)         -              (200,602)       -              (214,025) 
Depreciation and amortization                          -                  (111)        -              -                  (111) 
                                                   ------------ ---------------- --------------- --------------  --------------

     Operating income (loss)                           -                   394             (24)       -                   370  
                                                   ------------ ---------------- --------------- --------------  --------------

Comprehensive financing result, net                       (68)            (162)           (284)       -                  (514) 
                                                   ------------ ---------------- --------------- --------------  --------------

Other income, net                                           7         -                   590         -                   597  
                                                   ------------ ---------------- --------------- --------------  --------------

   (Loss) income before income taxes and                                                                                       
      employee statutory profit sharing                   (61)             232            282         -                   453  
                                                   ------------ ---------------- --------------- --------------  --------------

     Total income tax and employee                                                                                             
       statutory profit sharing                             3               60           (812)        -                  (749) 
                                                   ------------ ---------------- --------------- --------------  --------------

         Net (loss) income                       $        (58)             292           (530)        -                  (296) 
                                                   ------------ ---------------- --------------- --------------  --------------


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AXTEL, S.A. DE C.V. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

Guarantors' Combined Statements of Changes in Financial Position:     

                                                        [Enlarge/Download Table]


                                                                                                  Adjustments                 
(Unaudited)                                                                       Servicios           and         Combined    
For the three-months period ended March 31, 2005     Icosa       Inmobiliaria       Axtel        Eliminations    Guarantors   
------------------------------------------------- ------------  --------------- ---------------  -------------- --------------

Operating activities:                                                                                                         
                                                                                                                              
   Net (loss) income                            $       (49)              97           (2,684)          -             (2,636) 
   Non-cash items                                        (9)             107             728            -               826   
                                                  ------------  --------------- ---------------  -------------- --------------

       Resources (used in) provided by                                                                                        
         operations                                     (58)             204           (1,956)          -             (1,810) 

       Net financing from operations                    800                9           2,836            -             3,645   
                                                  ------------  --------------- ---------------  -------------- --------------

       Resources provided by operations, net             742             213             880            -             1,835   
                                                  ------------  --------------- ---------------  -------------- --------------

Financing activities:                                                                                                         
   Loans payment, net                                   -                (213)         -                -               (213) 
                                                  ------------  --------------- ---------------  -------------- --------------

Resources used in financing activities                  -                (213)         -                -               (213) 
                                                  ------------  --------------- ---------------  -------------- --------------

Investing activities:                                                                                                         
   Property, system and equipment, net                  -              -                  (12)          -                (12) 
   Other assets                                        (328)           -               (1,421)          -             (1,749) 
                                                  ------------  --------------- ---------------  -------------- --------------

       Resources used in investing activities          (328)           -               (1,433)          -             (1,761) 
                                                  ------------  --------------- ---------------  -------------- --------------

Increase (decrease) in cash and equivalents             414            -                 (553)          -               (139) 

Cash and equivalents at the beginning of the                                                                                  
   period                                               593               12           1,420            -             2,025   
                                                  ------------  --------------- ---------------  -------------- --------------

Cash and equivalents at the end of the period   $     1,007               12             867            -             1,886   
                                                  ------------  --------------- ---------------  -------------- --------------


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AXTEL, S.A. DE C.V. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of March 31, 2005)

                                                        [Enlarge/Download Table]


                                                                                                  Adjustments                 
(Unaudited)                                                                       Servicios           and         Combined    
For the three-months period ended March 31, 2004     Icosa       Inmobiliaria       Axtel        Eliminations    Guarantors   
------------------------------------------------- ------------  --------------- ---------------  -------------- --------------

Operating activities:                                                                                                         
                                                                                                                              
   Net (loss) income                            $        (58)            292           (530)           -               (296)  
   Non-cash items                                         (3)             51             812           -                860   
                                                  ------------  --------------- ---------------  -------------- --------------

     Resources (used in) provided by operations          (61)            343             282           -                564   

      Financing from operations, net                    145               13             301           -                459   
                                                  ------------  --------------- ---------------  -------------- --------------

     Resources provided by operations, net               84              356             583           -              1,023   
                                                  ------------  --------------- ---------------  -------------- --------------

Financing activities:                                                                                                         
   Loans payments, net                                -                 (356)          -               -               (356)  
                                                  ------------  --------------- ---------------  -------------- --------------

     Resources used in financing activities           -                 (356)          -               -               (356)  
                                                  ------------  --------------- ---------------  -------------- --------------

Investing activities:                                                                                                         
   Property, system and equipment, net                  -              -                (12)            -                (12) 
   Other assets                                           3           -                -               -                  3   
                                                  ------------  --------------- ---------------  -------------- --------------

     Resources used in investing activities               3           -                 (12)           -                 (9)  
                                                  ------------  --------------- ---------------  -------------- --------------

Increase in cash and equivalents                         87            -                 571           -                658   

Cash and equivalents at the beginning of the                                                                                  
   period                                               168               14             300           -                482   
                                                  ------------  --------------- ---------------  -------------- --------------

Cash and equivalents at the end of the period   $       255               14             871           -              1,140   
                                                  ------------  --------------- ---------------  -------------- --------------


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AXTEL, S.A. DE C.V. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

 (Thousand pesos of constant purchasing power as of June 30, 2004)

Guarantors - U.S. GAAP reconciliation of net income and stockholders' 
equity:                                                                         

     As discussed at the beginning of this note 14, the following reconciliation
     to U.S. GAAP does not eliminate the inflation adjustments for Mexican GAAP,
    since they represent an integral measurement of the effects of the changes
   in the price levels in the Mexican economy and, as such, are considered a
   more meaningful presentation than the financial reports based on historic
costs for book purposes for Mexico and the United States.             

     The main differences between Mexican GAAP and U.S. GAAP and their effect on
   consolidated net loss for the three month-period ended March 31, 2005 and
    2004 and on the stockholders' equity as of March 31, 2005 and December 31,
2004 is presented below, with an explanation of the adjustments.      

                                                        [Enlarge/Download Table]


                                                                                       (Unaudited)                  
                                                                       ---------------------------------------------
                                                                            Three-month period ended March 31       
                                                                       ---------------------------------------------
                                                                                2005                    2004        
                                                                       ----------------------- -- ------------------

                                                                                                                    
Net loss reported under Mexican GAAP ..............................  $              (2,636)                   (296) 
                                                                       -----------------------    ------------------

Approximated U.S. GAAP adjustments                                                                                  
1. Deferred income taxes (A).......................................                   709                       749 
2. Allowance for post retirement benefits (B)......................                   155                       455 
                                                                       -----------------------    ------------------
Total approximate U.S. GAAP adjustments............................                   864                     1,204 
                                                                       -----------------------    ------------------
Approximate net (loss) income under U.S. GAAP......................  $              (1,772)                     908 
                                                                       =======================    ==================

                                                                               (Unaudited)                          
                                                                             -----------------                      
                                                                               Three-month           Year ended     
                                                                              period ended                          
                                                                                March 31            December 31     
                                                                             ----------------- --- ---------------- 
                                                                                   2005                 2004        
                                                                             ----------------- --- ---------------- 

Total stockholders' equity reported under Mexican GAAP................   $           22,999                 25,702  
                                                                             -----------------     ---------------- 

Approximate U.S. GAAP adjustments                                                                                   
1. Deferred income taxes (A)..........................................                (5,172)              (5,880)  
2. Allowance for post retirement benefits (B).........................                (20,959)            (21,114)  
                                                                             -----------------     ---------------- 
Total approximate U.S. GAAP adjustments...............................                (26,131)            (26,994)  
                                                                             -----------------     ---------------- 
Total approximate stockholders' deficit under U.S. GAAP...............   $             (3,132)             (1,292)  
                                                                             =================     ================ 

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AXTEL, S.A. DE C.V. AND SUBSIDIARIES

Notes to the Condensed Consolidated Financial Statements

(Thousand pesos of constant purchasing power as of June 30, 2004) 

Guarantors-Notes to the U.S. GAAP reconciliation                      

A.   Deferred income taxes                                            

     Deferred income taxes adjustment in the stockholders' equity reconciliation
to U.S. GAAP, as of March 31, 2005 and December 31, 2004, represented 
expenses of $5,172 and $5,880, respectively.                          

B.   Other employee benefits Severance                                

     For the year ended December 31, 2004 and prior under Mexican GAAP (Bulletin
    D-3), severance payments should be recognized in earnings in the period in
which they are paid, unless such payments are used by an entity as a  
    substitution of pension benefits, in which case, they should be considered
    as a pension plan. Under U.S. GAAP, post-employment benefits for former or
    inactive employees, excluding retirement benefits, are accounted for under
     the provisions of SFAS 112, which requires recognition of certain benefits,
   including severance, over an employee's service life. For the three-month
   periods ended March 31, 2005 and 2004 the Company recorded an increase in
net income of $155 and $455, respectively, and recognized a liability 
amounting to $20,959 and $21,114 as of March 31, 2005 and December 31,
 2004, respectively. As of March 31, 2005 the Company has not recognized
this liability under Mexican GAAP.                                    

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 $75,000,000

 AXTEL, S.A. DE C.V.

 11% SENIOR NOTES DUE 2013

[GRAPHIC OMITTED][GRAPHIC OMITTED]

 _____________

PROSPECTUS

, 2005

______________

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 PART II

INFORMATION NOT REQUIRED IN THE PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS                              

     Under Mexican law, when an officer or director of a corporation acts within
the scope of his authority, the corporation will answer for any resulting       
liabilities or expenses.                                                        

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES                             

The exhibits and financial statement schedules filed as a part of this          
Registration Statement are as follows:                                          

List of Exhibits:                                                               

Exhibit Number     Exhibit                                                
--------------     -------                                                

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

   4.1  Indenture, dated as of December 16, 2003, among Axtel, the
              Subsidiary Guarantors named therein and The Bank of New York, as
               Trustee, governing Axtel's $75,000,000 aggregate principal amount
               of 11% Senior Notes due 2013 (incorporated herein by reference to
             Exhibit 4.1 of our Registration Statement on Form F-4, File No.
333-114196).                                      

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

     4.3  Form of Specimen Global Note representing the exchange notes
     (incorporated herein by reference to Exhibit 4.3 of our
       Registration Statement on Form F-4, File No. 333-114196).

     **4.4 Registration Rights Agreement, dated as of January 13, 2005
             among Axtel, the Subsidiary Guarantors named therein and Credit
Suisse First Boston LLC.                          

      **5.1 Opinion of Cahill Gordon & Reindel LLP as to the validity of
the exchange notes under New York law.            

     **5.2 Opinion of D&A Morales y Asociados, S.C. as to the validity
of the exchange notes under Mexican law.          

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

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

10.1 Concession title granted by the Mexican Ministry of    
            Communications and Transportation (the "Ministry") in favor of
              Axtel, dated June 17, 1996, together with an English translation
           of such concession title (incorporated herein by reference to
Exhibit 10.1 of our Registration                  

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Exhibit Number     Exhibit                                                
--------------     -------                                                

Statement on Form F-4, File No. 333-114196).      

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

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

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

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

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

         10.7 Restructuring Agreement, dated as of March 20, 2003 by and among
             Axtel, Nortel Networks Limited, Nortel Networks de Mexico, S.A.
             de C.V. and Toronto Dominion (Texas), Inc. (incorporated herein
           by reference to Exhibit 10.7 of our Registration Statement on
Form F-4, File No. 333-114196).                   

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

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

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

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

    **10.12 Purchase and License Agreement for FWA Equipment and the
     Technical Assistance Support Services Agreement for FWA
       Equipment, dated as of December 28, 2004, between Airspan
        Communications Limited and Axtel (certain portions of this
      Exhibit 10.12 have been omitted pusuant to a request for
confidential treatment).                          

       **10.13 Amendment No.3 to the Technical Assistance Support Services
         Agreement for FWA Equipment, dated as of December 28, 2004,
between Airspan Communications Limited and Axtel  

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Exhibit Number     Exhibit                                                
--------------     -------                                                

               (certain portions of this Exhibit 10.13 have been omitted pusuant
to a request for confidential treatment).         

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

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

        21.1 List of Subsidiaries of Axtel (incorporated herein by reference
             to Exhibit 21.1 of our Registration Statement on Form F-4, File
No. 333-114196).                                  

     23.1 Consent of Cahill Gordon & Reindel LLP (contained in Exhibit
5.1).                                             

       23.2 Consent of D&A Morales y Asociados, S.C. (contained in Exhibit
5.2).                                             

*23.3 Consent of KPMG Cardenas Dosal, S.C., relating to the 
audited financial statements of Axtel.            

**24.1 Signed copies of the powers of attorney.             

     **25.1 Form T-1 Statement of Eligibility and Qualification of The
               Bank of New York with respect to the exchange notes. ** 99.1 Form
of Letter of Transmittal.                         

**99.2 Form of Notice of Guaranteed Delivery.               

      **99.3 Form of Instructions to Registered Holder and/or Book-Entry
           Transfer Facility Participant from Beneficial Owner of Senior
Notes due 2013.                                   

**99.4 Form of Exchange Agent.                              

*        Filed herewith.                                                        

**       Previously filed.                                                      

There are no Financial Statement Schedules included with this filing.           

ITEM 22. UNDERTAKINGS                                                           

The undersigned registrant hereby undertakes:                         

 (1) that, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report 
   pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
   of 1934 (and, where applicable, each filing of an employee benefit plan's
   annual report pursuant to section 15(d) of the Securities Exchange Act of
     1934) that is incorporated by reference in the registration statement shall
 be deemed to be a new registration statement relating to the securities
    offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof;                  

    (2) insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and    
     controlling persons of the registrant pursuant to the foregoing provisions,
  or otherwise, the registrant has been advised that in the opinion of the
   SEC such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for       

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 indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or     
controlling person of the registrant in the successful defense of any 
action, suit or proceeding) is asserted by such director, officer or  
    controlling person in connection with the securities being registered, the
   registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate    
 jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will governed by the final  
adjudication of such issue;                                           

      (3) to respond to requests for information that is incorporated by
     reference into this prospectus pursuant to Items 4, 10(b), 11 or 13 of this
   Form F-4, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt
means; and (ii) to arrange or provide for a facility in the U.S. for  
  purposes of responding to such requests. The undertaking in subparagraph
   (i) above includes information contained in documents filed subsequent to
the effective date of the registration statement through the date of  
responding to the request; and                                        

        (4) to supply by means of a post-effective amendment all information
   concerning a transaction and the company being acquired involved therein,
     that was not the subject of and included in the registration statement when
it became effective.                                                  

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 SIGNATURES OF AXTEL, S.A. de C.V.

    Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form F-4 to be signed on its     
behalf by the undersigned, thereunto duly authorized in Monterrey, Mexico on    
August 11, 2005.                                                                

     Axtel, S.A. de C.V.

                    By:   /s/ Patricio Jimenez Barrera
                                  ------------------------------------
                                Name:     Patricio Jimenez Barrera
                               Title:    Chief Financial Officer

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Pursuant to the requirements of the Securities Act of 1933, this      
registration statement on Form F-4 has been signed by the following persons in  
the capacities and on the dates indicated.                                      

                                                                [Download Table]


SIGNATURE                       TITLE                            DATE           

                                                                                
/s/ *                           Chairman, Series A Director and  August 11, 2005
------------------------------  Chief Executive Officer                         
Tomas Milmo Santos                                                              

/s/ Patricio Jimenez Barrera    Chief Financial Officer and      August 11, 2005
------------------------------  Principal Accounting Officer                    
Patricio Jimenez Barrera                                                        

------------------------------  Series A Director                August 11, 2005
Tomas Milmo Zambrano                                                            

/s/ *                           Series A Director                August 11, 2005
------------------------------                                                  
Alberto Santos de Hoyos                                                         

------------------------------  Series A Director                August 11, 2005
Lorenzo Zambrano Trevino                                                        

------------------------------  Series A Director                August 11, 2005
Alberto Garza Santos                                                            

/s/ *                           Series A Director                August 11, 2005
------------------------------                                                  
Hector Medina Aguiar                                                            

                                Series C Director                August 11, 2005
------------------------------                                                  
Everett J. Santos                                                               

/s/ *                           Series C Director                August 11, 2005
------------------------------                                                  
Bertrand Guillot                                                                

/s/ *                           Series C Director                August 11, 2005
------------------------------                                                  
Iain Aitken                                                                     

/s/ *                           Series C Director                August 11, 2005
------------------------------                                                  
Lawrence H. Guffey                                                              


*  By:  /s/ Patricio Jimenez Barrera                                            
-------------------------------------                           
Name: Patricio Jimenez Barrera                                  
Title:Attorney-in-Fact                                          

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 SIGNATURES OF IMPULSORA E INMOBILIARIA REGIONAL, S.A. de C.V.

    Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form F-4 to be signed on its     
behalf by the undersigned, thereunto duly authorized in Monterrey, Mexico on    
August 11, 2005.                                                                

                       Impulsora e Inmobiliaria Regional, S.A. de C.V.

          By:   /s/ Patricio Jimenez Barrera
                         -------------------------------------
                      Name:     Patricio Jimenez Barrera
                     Title:    Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this      
registration statement on Form F-4 has been signed by the following persons in  
the capacities and on the dates indicated.                                      

                                                        [Enlarge/Download Table]


Signature                          Title                                      Date           

                                                                                             
/s/ *                              Chief Executive Officer and Sole Director  August 11, 2005
---------------------------------                                                            
Tomas Milmo Santos                                                                           

/s/ Patricio Jimenez Barrera       Chief Financial Officer                    August 11, 2005
---------------------------------                                                            
Patricio Jimenez Barrera                                                                     


*                  By:    /s/ Patricio Jimenez Barrera                          
    --------------------------------
  Name: Patricio Jimenez Barrera
Title:Attorney-in-Fact      

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SIGNATURES OF INSTALACIONES Y CONTRATACIONES, S.A. de C.V.

    Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form F-4 to be signed on its     
behalf by the undersigned, thereunto duly authorized in Monterrey, Mexico on    
August 11, 2005.                                                                

                    Instalaciones y Contrataciones, S.A. de C.V.

          By:   /s/ Patricio Jimenez Barrera
                         -------------------------------------
                      Name:     Patricio Jimenez Barrera
                     Title:    Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this      
registration statement on Form F-4 has been signed by the following persons in  
the capacities and on the dates indicated.                                      

                                                        [Enlarge/Download Table]


Signature                                           Title                                      Date           

                                                                                                              
/s/ *                                               Chief Executive Officer and Sole Director  August 11, 2005
-----------------------------                                                                                 
Tomas Milmo Santos                                                                                            

/s/ Patricio Jimenez Barrera                        Chief Financial Officer                    August 11, 2005
-----------------------------                                                                                 
Patricio Jimenez Barrera                                                                                      

*                  By:    /s/ Patricio Jimenez Barrera                                                        
                          ------------------------------                                                      
                          Name: Patricio Jimenez Barrera                                                      
                          Title:Attorney-in-Fact                                                              


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 SIGNATURES OF SERVICIOS AXTEL, S.A. de C.V.

    Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form F-4 to be signed on its     
behalf by the undersigned, thereunto duly authorized in Monterrey, Mexico on    
August 11, 2005.                                                                

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

                    By:   /s/ Patricio Jimenez Barrera
                                    --------------------------------------
                                Name:     Patricio Jimenez Barrera
                               Title:    Chief Financial Officer

Pursuant to the requirements of the Securities Act of 1933, this      
registration statement on Form F-4 has been signed by the following persons in  
the capacities and on the dates indicated.                                      

                                                        [Enlarge/Download Table]


Signature                                           Title                                      Date           

                                                                                                              
/s/ *                                               Chief Executive Officer and Sole Director  August 11, 2005
---------------------------------                                                                             
Tomas Milmo Santos                                                                                            

/s/ Patricio Jimenez Barrera                        Chief Financial Officer                    August 11, 2005
---------------------------------                                                                             
Patricio Jimenez Barrera                                                                                      

*                  By:    /s/ Patricio Jimenez Barrera                                                        
                          ---------------------------------                                                   
                          Name: Patricio Jimenez Barrera                                                      
                          Title:Attorney-in-Fact                                                              


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SIGNATURE OF AUTHORIZED REPRESENTATIVE

Pursuant to the requirements of the Securities Act of 1933, the       
undersigned, the duly authorized representative in the United States of Axtel,  
S.A. de C.V., has signed this Registration Statement on Form F-4 in the City of 
Newark, State of Delaware on August 11, 2005.                                   

Signature                                Title                                  

/s/ Donald Puglisi                       Authorized Representative in the       
------------------------------           United States                          
Donald Puglisi                                                                  
Managing Director                                                               
Puglisi and Associates                                                          

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 EXHIBIT INDEX

 DESCRIPTION

Exhibit Number      Exhibit                                               
--------------      -------                                               

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

   4.1  Indenture, dated as of December 16, 2003, among Axtel, the
              Subsidiary Guarantors named therein and The Bank of New York, as
               Trustee, governing Axtel's $75,000,000 aggregate principal amount
               of 11% Senior Notes due 2013 (incorporated herein by reference to
             Exhibit 4.1 of our Registration Statement on Form F-4, File No.
333-114196).                                      

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

     4.3  Form of Specimen Global Note representing the exchange notes
     (incorporated herein by reference to Exhibit 4.3 of our
       Registration Statement on Form F-4, File No. 333-114196).

     **4.4 Registration Rights Agreement, dated as of January 13, 2005
             among Axtel, the Subsidiary Guarantors named therein and Credit
Suisse First Boston LLC.                          

      **5.1 Opinion of Cahill Gordon & Reindel LLP as to the validity of
the exchange notes under New York law.            

     **5.2 Opinion of D&A Morales y Asociados, S.C. as to the validity
of the exchange notes under Mexican law.          

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

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

10.1 Concession title granted by the Mexican Ministry of    
            Communications and Transportation (the "Ministry") in favor of
              Axtel, dated June 17, 1996, together with an English translation
           of such concession title (incorporated herein by reference to
              Exhibit 10.1 of our Registration Statement on Form F-4, File No.
333-114196).                                      

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

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

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

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

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

         10.7 Restructuring Agreement, dated as of March 20, 2003 by and among
             Axtel, Nortel Networks Limited, Nortel Networks de Mexico, S.A.
             de C.V. and Toronto Dominion (Texas), Inc. (incorporated herein
           by reference to Exhibit 10.7 of our Registration Statement on
Form F-4, File No. 333-114196).                   

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

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

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

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

    **10.12 Purchase and License Agreement for FWA Equipment and the
     Technical Assistance Support Services Agreement for FWA
       Equipment, dated as of December 28, 2004, between Airspan
        Communications Limited and Axtel (certain portions of this
      Exhibit 10.12 have been omitted pusuant to a request for
confidential treatment).                          

       **10.13 Amendment No.3 to the Technical Assistance Support Services
         Agreement for FWA Equipment, dated as of December 28, 2004,
       between Airspan Communications Limited and Axtel (certain
           portions of this Exhibit 10.13 have been omitted pusuant to a
request for confidential treatment).              

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

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

        21.1 List of Subsidiaries of Axtel (incorporated herein by reference
to Exhibit 21.1 of our Registra-                  

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tion Statement on Form F-4, File No. 333-114196). 

     23.1 Consent of Cahill Gordon & Reindel LLP (contained in Exhibit
5.1).                                             

       23.2 Consent of D&A Morales y Asociados, S.C. (contained in Exhibit
5.2).                                             

*23.3 Consent of KPMG Cardenas Dosal, S.C., relating to the 
audited financial statements of Axtel.            

**24.1 Signed copies of the powers of attorney.             

     **25.1 Form T-1 Statement of Eligibility and Qualification of The
  Bank of New York with respect to the exchange notes.

**99.1 Form of Letter of Transmittal.                       

**99.2 Form of Notice of Guaranteed Delivery.               

      **99.3 Form of Instructions to Registered Holder and/or Book-Entry
           Transfer Facility Participant from Beneficial Owner of Senior
Notes due 2013.                                   

**99.4 Form of Exchange Agent.                              

*        Filed herewith.                                                        

**       Previously filed.                                                      

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