Maxcom Telecommunications (MXMTY) 20-F/A 2005 FY Annual report (foreign) (amended)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 20-F/A

(Amendment No. 1)

o	REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR(g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2005
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	for the transition period from          to

Commission FileNumber 333-11910

MAXCOM TELECOMUNICACIONES, S.A. DE C.V.

(Exact name of Registrant as specified in its charter)

MAXCOM TELECOMMUNICATIONS, INC.

(Translation of Registrant’s name into English)

UNITED MEXICAN STATES

(Jurisdiction of incorporation or organization)

Guillermo Gonzalez Camarena No. 2000

Colonia Centro de Ciudad Santa Fe

Mexico, D.F. 01210

(Address of principal executive offices)

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

None

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

None

Securities for which there is a reporting obligation pursuant to Section 15(d)

of the Act:

Senior Step — Up Notes Due 2009

Senior Notes due 2007

133/4% Series B Senior Notes Due 2007

Series N-2 Ordinary Participation Certificates

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Series A shares, no par value, common voting stock	4,508,644
Series A-1 shares, no par value, common voting stock with preferred liquidation rights	6,088,896
Series B-1 shares, no par value, common voting stock with preferred liquidation rights	10,181,950
Series N shares, no par value, without voting rights	8,861,834
Series N-1 shares, no par value, preferred stock with limited voting rights	220,714,874
Series N-2 shares, no par value, preferred stock with limited voting rights	26,867,820

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

YES o     NO þ

If this report is an annual or transition report, indicate by checkmark if the registrant is not required to file reports to Section 13 or 15 (d) of the Securities Exchange Act of 1934

YES o     NO þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ     No o

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

Large accelerated filer o          Accelerated filer o          Non-accelerated filer þ

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

Item 17 o     Item 18 þ

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined inRule 12b-2 of the Exchange Act)

YES o     NO  þ

TABLE OF CONTENTS

			Page
PART I				1
	ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS		1
	ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE		1
	ITEM 3.	KEY INFORMATION		1
EXCHANGE RATES				4
	ITEM 4.	INFORMATION ON THE COMPANY		14
	ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS		39
	ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES		67
	ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS		73
	ITEM 8.	FINANCIAL INFORMATION		78
	ITEM 9.	THE OFFER AND LISTING		79
	ITEM 10.	ADDITIONAL INFORMATION		79
	PART II			111
	ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		111
	ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES		112
PART III				112
	ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES		112
	ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS		112
	ITEM 15.	CONTROLS AND PROCEDURES		113
ITEM 16.				113
PART IV				114
	ITEM 17.	FINANCIAL STATEMENTS		114
	ITEM 18.	FINANCIAL STATEMENTS		115
	ITEM 19.	EXHIBITS		E-1
GLOSSARY OF TELECOMMUNICATIONS TERMS				G-1
EX-12.1: CERTIFICATION
EX-12.2: CERTIFICATION
EX-99.2: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES

i

EXPLANATORY NOTE

This Annual Report onForm 20-F/A (this “Amendment”) is being filed as Amendment No. 1 to our Annual Report onForm 20-F for the year ended December 31, 2005, filed with the Securities and Exchange Commission on June 30, 2006 (the “Annual Report”) to rectify certain inadvertent typographical and clerical errors and to make other corrections in the information set forth under the captions “Item 3. Key Information, “Item 4. Information on the Company”, Item 5. Operating and Financial Review and Prospects”, “Item 7. Major Shareholders and Related Party Transactions”, “Item 10. Additional Information”, “Item 16.” and “Notes to Consolidated Financial Statements” and contained in Exhibit 99.2. However, for the convenience of the reader, this Amendment sets forth the entire Annual Report, as amended.

This Amendment does not reflect events occurring after the filing of the Annual Report on June 30, 2006 and does not modify or update the disclosure in the Annual Report, other than (i) the corrections and amendments referenced above, (ii) the filing of certifications of our chief executive officer and chief financial officer included as exhibits to this Amendment, and (iii) revisions to the “Index of Exhibits” to reflect previously filed exhibits and the exhibits filed with this Amendment.

Unless otherwise specified, all references to “U.S. dollars,” “dollars,” “U.S.$” or “$” are to United States dollars, and references to “Ps.” and “pesos” are to Mexican pesos. We publish our financial statements in pesos that are adjusted to reflect changes in purchasing power due to inflation. Thus, unless otherwise specified, our financial data is presented in constant pesos of December 31, 2005 purchasing power. Amounts presented in this annual report may not add up or may be slightly inconsistent due to rounding.

Unless otherwise provided, this annual report contains translations of peso amounts into U.S. dollars solely for the convenience of the reader based on the exchange rate reported by the Federal Reserve Bank of New York as its noon buying rate for pesos at December 30, 2005, which was Ps.10.63 per U.S.$1.00. The currency conversions should not be construed as representations that the peso amounts actually represent such dollar amounts. Additionally, these conversions should not be construed as representations that these peso amounts have been or could have been converted into U.S. dollars at those or any other rates of exchange.

This annual report contains forward-looking statements. Statements that are not statements of historical fact, including statements about our beliefs and expectations are forward-looking statements. The words “anticipates,” “believes,” “estimates,” “expects,” “forecasts,” “intends,” “plans,” “predicts,” “projects,” “targets” and similar words are intended to identify these statements, which necessarily involve known and unknown risks and uncertainties. Accordingly, our actual results of operations may be different from our current expectations, and the reader should not place undue reliance on these forward-looking statements. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update them in light of new information or future developments.

These statements are based on management’s assumptions and beliefs in light of the information currently available to it. These assumptions also involve risks and uncertainties which may cause the actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Potential risks and uncertainties include, without limitation:

•  competition in local services, data, Internet and VoIP services;

•  our ability to service our debt;

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

•  significant economic or political developments in Mexico and the U.S.;

•  changes in our regulatory environment, particularly developments affecting the regulation of the telecommunications industry;

•  our need for substantial capital;

•  general economic conditions, including the economic slow-down in the U.S.;

ii

•  the global telecommunications downturn;

•  performance of financial markets and thus our ability to refinance our financial obligations when they come due;

•  our history of operating losses;

•  the risks associated with our ability to implement our growth strategy;

•  customer attrition;

•  technological innovations;

•  currency exchange rates, including the Mexican Peso — U.S. dollar exchange rate;

•  changes in the policies of central banksand/or foreign governments.

As used in thisForm 20-F, unless the context otherwise indicates, the terms “we,” “us,” “our,” or similar expressions, as well as references to “Maxcom”, mean Maxcom Telecomunicaciones, S.A. de C.V. and its consolidated subsidiaries. Please refer topage G-1 of thisForm 20-F for a glossary of telecommunications terms.

We will provide without charge to each person to whom this report is delivered, upon written or oral request, a copy of any or all of the documents incorporated by reference into this annual report (other than exhibits, unless such exhibits are specifically incorporated by reference in such documents). Written requests for such copies should be directed to Maxcom Telecomunicaciones, S.A. de C.V., Guillermo González Camarena No. 2000, Colonia Centro de Ciudad Santa Fe, México, D.F. 01210, attention: Director, Investor Relations. Telephone requests may be directed to011-52-55-5147-1125.

iii

PART I

ITEM 1.   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

Not applicable.

ITEM 2.   OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3.   KEY INFORMATION

A.   Selected financial data

The following tables present selected consolidated financial information of Maxcom and its consolidated subsidiaries. We have derived this information from our audited consolidated financial statements for the years ended December 31, 2001, 2002, 2003, 2004 and 2005, including the audited consolidated financial statements as of December 31, 2004 and 2005 and for the years ended December 31, 2003, 2004, and 2005 and accompanying notes appearing elsewhere in this annual report. This data is qualified in its entirety by reference to, and should be read in conjunction with, such consolidated financial statements.

The consolidated financial statements have been prepared in accordance with Mexican GAAP, which differs in certain significant respects from U.S. GAAP. Pursuant to Mexican GAAP, we have prepared the financial statements and the selected financial data presented below in accordance withBulletin B-10 of the Mexican Institute of Public Accountants (“MIPA”), which provides for the recognition of certain effects of inflation. See note 21 to the consolidated financial statements for a description of the principal differences, other than inflation accounting, between Mexican GAAP and U.S. GAAP applicable to us and for a reconciliation of our net income and stockholders’ equity to U.S. GAAP.

	As of the Year Ended December 31,
	2001			2002			2003			2004			2005			2005(2)
																(Unaudited)
	Thousands of constant December 31, 2005 pesos
	and thousands of U.S. dollars(1)
Statement of Operations Data:
Mexican GAAP
Net revenues	Ps.	375,573		Ps.	605,712		Ps.	832,212		Ps.	897,149		Ps.	1,150,472		$	108,229
Operating costs and expenses:
Network operating costs		(179,716	)		(235,174	)		(298,986	)		(316,606	)		(383,765	)		(36,102	)
Selling, general and administrative		(513,619	)		(484,543	)		(419,018	)		(386,871	)		(468,270	)		(44,052	)
Depreciation and amortization		(320,723	)		(358,907	)		(365,411	)		(346,045	)		(281,636	)		(26,494	)
Total operating costs and expenses		(1,014,058	)		(1,078,624	)		(1,083,415	)		(1,049,522	)		(1,133,671	)		(106,648	)
Operating (loss) income		(638,485	)		(472,912	)		(251,203	)		(152,373	)		16,801			1,581

1

	As of the Year Ended December 31,
	2001			2002			2003			2004			2005			2005(2)
																(Unaudited)
	Thousands of constant December 31, 2005 pesos
	and thousands of U.S. dollars(1)
Integral cost (income) of financing:
Interest expense, net		(418,343	)		(229,620	)		(28,310	)		(38,733	)		(97,123	)		(9,137	)
Exchange (loss) gain, net		108,456			(233,511	)		(188,186	)		(1,451	)		19,973			1,879
Gain on net monetary position		98,742			113,717			82,781			89,041			22,090			2,078
Gain on repurchase of debt		144,846
Total integral cost of
financing		(66,299	)		(349,414	)		(133,715	)		48,857			(55,060	)		(5,180	)
Nonrecurring charges		(74,323	)
Other income (expense), net		(212	)		2,987			(164	)		(818	)		8,991			846
Special item														(15,365	)		(1,446	)
Tax		(896	)		(8,755	)		(14,033	)		(28,969	)		(26,606	)		(2,503	)
Net (loss) income		(780,215	)		(828,094	)		(399,115	)		(133,303	)		(71,239	)		(6,702	)
U.S. GAAP
Operating (loss) gain		(635,461	)		(531,639	)		(286,124	)		(199,864	)		(5,457	)		(513	)
Net (loss) gain		(777,299	)		(394,101	)		(411,652	)		1,221,900			171,922			16,173
Balance Sheet Data:
Mexican GAAP
Cash and cash equivalents	Ps.	206,171		Ps.	130,793		Ps.	45,366		Ps.	62,189		Ps.	223,423		$	21,018
Restricted cash		223,157									5,740
Working capital(3)		(45,177	)		(20,337	)		14,455			(22,664	)		(117,074	)		(11,014	)
Restricted cash to long term											13,105			7,672			722
Frequency rights, net		125,239			118,014			104,644			97,419			86,102			8,100
Telephone network systems and equipment, net		1,635,273			1,794,949			1,671,129			1,783,834			2,082,795			195,936
Preoperating expenses, net		265,029			230,987			195,247			158,607			122,305			11,506
Intangible assets, net		357,820			481,373			424,859			378,330			303,527			28,554
Labor obligations upon retirement														14,798			1,392
Rent deposits and other assets		37,405			33,445			30,607			21,612			10,501			988
Total assets		2,996,788			2,992,778			2,687,663			2,752,445			3,159,718			297,245
Long-term liabilities		2,914,664			2,085,728			2,200,572			710,569			883,555			83,119
Total liabilities		3,224,967			2,314,164			2,407,043			1,115,285			1,375,872			129,433
Capital stock		1,166,059			1,905,012			1,905,012			2,500,957			2,744,607			258,194
Additional paid-in capital		122,220			475			1,595			895,494			219,622			20,661
Accumulated deficit		(1,516,458	)		(1,226,873	)		(1,625,988	)		(1,759,291	)		(1,180,383	)		(111,043	)
Total shareholders’ equity (deficit)		(228,179	)		678,614			280,620			1,637,160			1,783,846			167,812
U.S. GAAP
Long-term liabilities		2,914,664			1,715,619			1,853,347			479,570			701,082			65,953
Total Shareholders equity (deficit)	Ps.	(480,864	)	Ps.	(3,132	)	Ps.	(413,663	)	Ps.	1,010,743		Ps.	1,182,664		$	111,257

2

	As of the Year Ended December 31,
	2001			2002			2003			2004			2005			2005(2)
																(Unaudited)
	Thousands of constant December 31, 2005 pesos
	and thousands of U.S. dollars(1)
Other Financial Data:
Mexican GAAP
Capital expenditures(4)		617,430			596,904			136,267			359,359			447,064			42,057
Ratio of earnings to fixed charges(5)		—			—			—			—			—			—
Resources arising from (used in) operating activities		(402,069	)		(384,420	)		(51,212	)		276,715			298,574			28,088
Resources derived from financing activities		(111,675	)		905,950			102,052			99,467			309,724			29,137
Resources used in investing activities		(617,430	)		(596,904	)		(136,267	)		(359,359	)		(447,064	)		(42,057	)
U.S. GAAP
Cash (used in) provided by operating activities	Ps.	(434,378	)	Ps.	(436,816	)	Ps.	18,492		Ps.	145,412		Ps.	468,590		$	44,082
Cash provided (used in) by financing activities		(44,293	)		689,410			0			144,339			141,171		$	13,280
Cash used in investing activities		(597,304	)		(458,460	)		(70,710	)		(247,547	)		(441,745	)		(41,556	)

Notes to Selected Historical Consolidated Financial Information

(1)	Pursuant to Mexican GAAP, financial data for all periods in the financial statements have, unless otherwise indicated, been restated in constant pesos as of December 31, 2005. Restatement into December 31, 2005 pesos is made by multiplying the relevant nominal peso amount by the inflation index for the period between the end of the period to which such nominal peso amount relates and December 31, 2005. The inflation index used in this annual report for 2001 figures is 1.2070, for 2002 figures is 1.1561, for 2003 figures is 1.0397, for 2004 is 1.0519 and for 2005 is 1.0333.
(2)	Peso amounts were converted to U.S. dollars at the exchange rate of Ps.10.63 per U.S.$1.00 reported by the Federal Reserve Bank of New York as its noon buying rate for pesos on December 30, 2005. Such conversions are for the convenience of the reader and should not be construed as representations that the peso amounts actually represent such U.S. dollar amounts or could be converted into U.S. dollars at the rate indicated, or at all.
(3)	Working capital is defined as current assets (excluding cash and cash equivalents and restricted cash) less current liabilities (excluding current maturities of long-term debt, which includes interest payable).
(4)	Capital expenditures include frequency rights, telephone network systems and equipment, intangible assets and other assets. Investing activities in the consolidated statements of changes in financial position are net of dispositions.
(5)	Our earnings have been insufficient to cover fixed charges since we started incurring debt in 1998. Fixed charges include interest expense, capitalized interest and the portion of operating lease rental expense that represents the interest factor. The fixed charge coverage deficiency for the years ended December 31, 2001, 2002, 2003, 2004 and 2005 amounted to Ps.785.8 million, Ps.819.5 million, Ps.384.4 million, Ps.103.8 million, and Ps.44.2 million, respectively.

3

EXCHANGE RATES

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 U.S. dollars, all expressed in nominal pesos per U.S. dollar. The noon buying rate at June 29, 2006 was Ps. 11.3925 per U.S.$1.00.

	Noon Buying Rate(1)
	Period End		Average(2)		High		Low
2001		9.16		9.326		9.97		8.95
2002		10.43		9.745		10.43		9.00
2003		11.24		10.846		11.41		10.11
2004		11.15		11.309		11.63		10.80
2005		10.63		10.868		11.41		10.41
December 2005						10.77		10.41
January 2006						10.64		10.44
February 2006						10.53		10.43
March 2006						10.95		10.46
April 2006						11.16		10.86
May 2006						11.31		10.84

(1)	Source: Federal Reserve Bank of New York.
(2)	Represents the average rates for each period indicated, calculated by using the average of the exchange rates on the last day of each month during the period.

B.   Capitalization and indebtedness

Not applicable.

C.   Reasons for offer and use of proceeds

Not applicable.

D.   Risk factors

Factors relating to Maxcom

We anticipate that we will have negative operating cash flow until we develop a sufficiently large customer base

The development of our business and the installation and expansion of our network, services and customer base require significant expenditures. These expenditures, together with operating expenses, will adversely impact our cash flow and profitability until an adequate customer base is established. We have generated negative cash flows from operating activities since our incorporation in 1996 and until 2005 and expect to generate insufficient cash flows to cover our fixed charges through 2006. This is so even though our fixed charges have decreased significantly as we restructured our financial indebtedness in April 2002 and October 2004. We cannot assure you that we will be able to establish an adequate customer base to generate sufficient positive cash flows from our core operations.

If we cannot generate significant revenues, achieve and sustain profitability or generate positive cash flows from operating activities in the future, we will not be able to meet our debt service or working capital requirements, and the value of our securities, as a result, would be materially reduced.

We expect to incur net losses through at least 2006

Our cash flow from operations for the year 2005 was insufficient to cover our fixed charges. We expect to continue to incur net losses through at least 2006.

4

We may need additional financing

We may require additional financing in the future to service our indebtedness and fund our operations. Our budgeted capital expenditures for 2006 of U.S.$71.3 million are premised on our ability to obtain financing for the majority of such amount. We cannot assure you that we will have sufficient resources and that, if needed, any financing will be available in the future or, if available, that will be on terms acceptable to us. In addition, our ability to incur additional indebtedness is restricted by the terms of the indenture governing the Senior Notes due 2007, which we refer to in this report as the “old notes” and the terms of the indenture governing theStep-Up Notes due 2009, which we refer to in this report as the “new notes.”

We may be unable to build out our network in a timely manner or without undue cost

Our ability to achieve our strategic objectives will depend, in large part, upon the successful, timely and cost-effective buildout of our network. Factors that could affect such buildout include, among other things:

•  our inability to obtain permits to use public rights of way;

•  our inability to obtain future financing necessary for such buildout;

•  unforeseen delays, costs or impediments relating to the granting of state and municipal permits for our buildout;

•  delays or disruptions resulting from physical damage, power loss, defective equipment or the failure of third-party suppliers or contractors to meet their obligations in a timely and cost-effective manner; and

•  regulatory and political risks relating to Mexico, such as the temporary seizure or permanent expropriation of assets, import and export controls, political instability, changes in the regulation of telecommunications and any future restrictions on the repatriation of profits or on foreign investment.

Although we believe that our cost estimates and buildout schedule are reasonable, we cannot assure you that the actual construction costs or time required to complete the buildout will not substantially exceed current estimates. Any significant cost overrun or delay could materially affect our cash flow and our ability to repay our debt.

We have experienced significant turnover in our executive ranks, which has affected our ability to develop and execute our business strategies

Our operations are managed by a small number of key management personnel, the loss of whom could materially affect our operations. In June and July 2000, our then chief executive, chief operations and chief marketing officers resigned. In April 2001, our then chief financial officer also resigned. We appointed new officers to all these positions during 2001, 2002 and 2003.

However, between January and September 2003, our then chief executive officer, chief marketing officer, chief commercial operations officer and vice president of corporate communications and public relations and chief financial officer also resigned. We have since appointed a new chief executive officer who was our former chief operating officer and a new chief financial officer who was our former treasurer and director of investor relations. As part of our cost-reduction efforts and more efficient operations, we have eliminated the office of vice presidency of corporate communications and public relations and consolidated the vice presidencies of operations and information systems into a single vice presidency of operations. We have also consolidated our commercial and marketing areas into a single vice presidency of marketing and sales.

In February 2004 our Chief Engineering Officer resigned. We have subsequently consolidated the responsibilities of this position within the responsibilities of the Chief Operating Officer. In November 2004 our Human Resources Vicepresident resigned. Ms. Veronica Macias, then head of our recruiting area, has taken the responsibilities of the director of human resources.

The significant turnover we have experienced in our management has affected our ability to develop and execute our business strategies. The success of our company depends in part upon our ability to hire and retain highly skilled and qualified management personnel. The competition for highly qualified management personnel in

5

the telecommunications industry is intense and, accordingly, we cannot assure you that we will be able to hire or retain the management personnel necessary for our success.

We may not have sufficient administrative, operational or financial resources to grow as rapidly as we would like

Our expected growth will place a significant strain on our administrative, operational and financial resources. We anticipate that continued growth will require us to recruit and hire a significant number of new managerial, finance, sales and marketing, accounting and support personnel. If we are unable to attract and retain personnel who can manage our growth effectively, our growth may be limited and the quality of our service may be impaired. This occurrence could adversely affect our results of operations and financial condition.

We depend on Telmex for interconnection

Telmex exerts significant influence on all aspects of the telecommunications market in Mexico, including interconnection agreements for local services. We use Telmex’s network to service virtually all of our customers. In November 2003, we signed an amendment to our interconnection agreement with Telmex that reduces from 70% to 30% the allowed percentage of imbalance of traffic for the “bill and keep” procedure. A new amendment was executed in August 2004 reducing furthermore the allowed percentage of imbalanced traffic for the “bill and keep” procedure to 15%. This amendment was effective through December 31, 2005. The interconnection rate is still U.S.$0.00975 per minute. We are currently negotiating with Telmex the new terms and conditions for 2006, meanwhile, current terms and conditions are still applicable due to the continuous application clause included in the agreement. We cannot assure what percentage of imbalance of traffic we will finally agree to with Telmex. There is also the possibility that the “bill and keep” procedure may be eliminated from the interconnection agreement with Telmex and substituted by a full settlement procedure. If the allowed percentage for imbalance of traffic for the “bill and keep” procedure is exceededand/or if the “bill and keep” procedure is eliminated and we have to pay Telmex for local interconnection, we cannot assure you that we will be able to offer services at profitable and competitive rates.

Our high leverage could affect our ability to service our debt

We are highly leveraged. In 2005, our earnings were insufficient to cover fixed charges by an amount equal to Ps. 44.2 million (U.S.$4.2 million).

Our ability to meet our debt service requirements will depend on our future performance, which is subject to a number of factors, many of which are outside our control. We cannot assure you that we will generate sufficient cash flows from operating activities to meet our debt service and working capital requirements. In addition, our high leverage could affect our access to credit or our ability to pursue business opportunities.

The indenture governing the old notes and the new notes limits but does not prohibit our incurrence of additional indebtedness. We expect to incur additional indebtedness in the future. However, our significant level of indebtedness may impair our ability to raise additional indebtedness on commercially reasonable terms when required or with terms that will not limit our ability to develop our business.

Furthermore, our significant leverage could adversely affect:

•  our ability to fund capital expenditures, acquisitions or operating losses or to refinance existing indebtedness;

•  our flexibility in planning for, or reacting to, changes in our business and market conditions; and

•  our ability to compete in our markets.

6

We are and will be subject to restrictive covenants

The terms of the old notes and the new notes, impose significant operating and financial restrictions. These restrictions affect, and in many respects significantly limit or prohibit, our ability to, among other things:

•  borrow money;

•  pay dividends on our capital stock;

•  purchase stock or repay subordinated indebtedness;

•  make investments;

•  restrict the ability of our subsidiaries to pay dividends;

•  use assets as security in other transactions;

•  sell assets; and

•  consolidate or merge into other companies.

If we do not comply with these restrictions, we could be in default even if we are able to service our debt. If there were a default, holders of the notes could demand immediate payment of the aggregate principal amount and accrued interest on the notes outstanding. This could lead to our bankruptcy or reorganization for the benefit of our creditors or to our inability to pay our obligations.

We may not be able to finance an exit transaction repurchase

If an exit transaction, as such term is defined in the indentures governing the old notes and the new notes, occurs (unless certain conditions set forth therein are satisfied), we will be required to offer to repurchase all of the old notes and the new notes. However, it is possible that we will not have sufficient funds at the time of the exit transaction to make the required repurchase.

If we do not successfully upgrade and operate accounting, billing, customer service and management information systems, we may not be able to achieve desired 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 intend to upgrade the accounting, information and processing systems necessary to provide services efficiently. However, we cannot assure you that we will be able to successfully upgrade or operate such systems or that they will perform as expected.

Our operations are dependent upon our ability to protect and maintain our network infrastructure

Our operations are dependent upon our ability to protect our network infrastructure against damage from fire, earthquakes, floods, power loss, 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 are effected or replacement equipment is installed. The successful operation of our network and its components is highly dependent upon our ability to maintain the network and its components in reliable enough working order to provide sufficient quality of service to attract and maintain customers.

Any damage or failure that causes interruptions in our operations or lack of adequate maintenance of our network could have a material adverse effect on our business, financial condition and results of operations.

We could be negatively affected by the “by-pass” traffic

Pursuant to regulations of the Federal Telecommunications Commission (Comisión Federal de Telecomunicaciones), which we refer to as “COFETEL,” the only legal way to transport international long distance calls in

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Mexico is through an authorized international gateway. However, there are alternative ways to route and terminate international long distance calls at a lower cost in countries that exchange a significant amount of traffic with Mexico. Some estimates show that, given the disparity between long distance interconnection rates and termination rates through local service routes that would be payable under an alternative arrangement, an increasing portion of the long distance market between Mexico and the United States is being served by entities that “by-pass” the international long distance interconnection system. This practice is deemed illegal by COFETEL.

Maxcom cannot confirm whether any of its high-volume customers is engaging in “by-pass” activities. Under Mexican legislation, Maxcom is not required to investigate whether any such high-volume customers are engaged in “by-pass” activity. Maxcom is required, however, to obey any COFETEL formal order to disconnect a customer deemed to be engaged in “by-pass” activity by COFETEL.

Mexican regulatory authorities have announced their intention to conduct more rigorous audits of persons or companies engaging in “by-pass” activity. In December 2000, some of the major Mexican long distance carriers signed a cooperation agreement to combat “by-pass” in Mexico. If, as a consequence of such actions, the regulatory authorities determine that any of our high-volume customers are engaged in “by-pass” activity, Maxcom’s revenues could be negatively affected.

Our telecommunications network infrastructure has several vulnerabilities and limitations

Our telecommunications network is the source of all our revenues. Any problem with or limitation of our network may result in a reduction in the number of our customers and our revenues. The development and operation of our network is subject to problems and technological risks, including:

•  physical damage;

•  power loss;

•  capacity limitations;

•  software defects as well as hardware and software obsolescence;

•  breaches of security, whether by computer virus, break-in or otherwise;

•  denial of access to our sites for failure to obtain required municipal or other regulatory approvals; and

•  other factors which may cause interruptions in service or reduced capacity for our customers.

A failure to achieve current specifications for, or future upgrades of, our network may materially and adversely affect our results of operations and financial condition.

Our results are negatively impacted by high levels of churn

We experience a high rate of residential and business customer lines attrition, or “churn.” Churn may be impacted by:

•  our customer delinquency;

•  our limited coverage area that restricts our ability to continue providing service when a customer moves;

•  our failure to meet service levels required by our customers;

•  promotional and pricing strategies of our competitors; and

•  economic conditions in Mexico.

During 2005, we churned 40,715 voice lines (residential and business customer lines). This resulted in an average monthly churn rate of 1.8%. See “Item 5. Operating and Financial Review and Prospects” for a fuller description of voice and wholesale lines.

A high rate of churn increases our cost of operations and reduces our revenues.

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Factors relating to the Mexican telecommunications industry

We face significant increasing competition, which may negatively affect our operating margins

The telecommunications industry in Mexico is becoming highly competitive. We compete with our rivals primarily on the basis of features, pricing and customer service. We face significant competition from Telmex in all of the areas where we operate. In particular, as the former state-owned telecommunications monopoly, Telmex has significantly greater financial and other resources than those available to us. In addition Telmex has a nationwide network and concession wireless spectrum, and an established customer base.

We also face significant competition from recent entrants, particularly in Mexico City, Puebla, Pue., and Queretaro, Qro. Some of these recent entrants may have significantly greater financial and other resources than us. In addition, we are facing increased competition due to the fact that the Mexican government is granting local concessions to most of the long distance carriers. Moreover, we also face competition from the new technologies that are being developed. Competition may limit our ability to grow or maintain our customer base or to implement price increases to keep pace with inflation.

New competition from cable operators as well as from terrestrial microwave TV providers, who have been recently authorized by the Mexican government to provide bi — directional data and Internet broadband services and to provide the transport of voice services, including Voice over Internet Protocol “VoIP services,” acting as “carriers of carriers,” pose a high risk to us. As these cable operators and terrestrial microwave TV providers have a substantial coverage of the cities we are already servicing, and as the cable operators and terrestrial microwave TV providers’ telephony income may be seen as incremental revenue, the price reduction and the vast coverage may prevent us from continue growing.

Additionally, the Mexican government has granted licenses to new companies for the provision of VoIP telephony services. It is still uncertain how these entrants will affect the local and long distance telephony services in Mexico. It is important to mention that there are also new companies that without a permit from the authorities are offering and providing VoIP services that directly compete with ours. Since such companies are not investing in infrastructure and other obligations derived from a permit or concession, their commercial offer is below the current resale costs provided by authorized carriers within Mexico.

During 2006 we also expect a frequency auction process for frequency bands related to WiMax and WiFi services in the 3.4 — 3.8 GHz band. If we are not able to obtain a segment of such frequencies, we will be in disadvantage towards Telmex and Axtel, who currently own a concession in those frequencies, and also towards new winners of the auction.

If the Mexican government grants more concessions, the value of our concessions could be severely impaired

The telecommunications industry is regulated by the Mexican government. Our concessions are not exclusive and the Mexican government is granting concessions which cover the same geographic regions and frequency bands to other entrants. We cannot assure you that additional concessions to provide services similar to those we plan to provide will not be granted and that the value of our concessions will not be adversely affected as a result.

We could lose our concessions if we do not comply fully with their terms

The terms of our concessions require us to satisfy a number of technical, buildout and financial conditions. In September 2002 and November 2003, we notified COFETEL of our failure to provide coverage in certain towns and cities by such date as required by our local and long distance concessions. In addition, we were not able to meet certain buildout obligations in certain towns and cities along the Mexico City — City of Toluca City of Queretaro — City of San Luis Potosi and City of Puebla — City of Veracruz corridors by September 2004, as required by our concessions. On December 2004, we obtained a modification to the buildout requirements of the concessions from COFETEL and we are now in compliance with our coverage and buildout obligations. However, we cannot assure that we will not be fined for our past failure to comply with our coverage obligations.

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A failure to comply with any of the terms of our concessions or to obtain a waiver or modification could result in the termination of any of our concessions and the loss of up to Ps.48.2 million in performance bonds that we previously issued to the Mexican Ministry of Communications and Transportation, or SCT (Secretaría de Comunicaciones y Transportes). The Mexican government would not be required to compensate us in case of such termination. If any of our concessions were to be terminated, we could be unable to engage in our core business and we would likely be unable to repay our indebtedness. We failed to provide the SCT with the performance bonds renewal for 2004, and such failure could be construed as a default on the terms of our concessions. The SCT authorized new rules that reduce significantly the amount of performance bonds that we have to issue to the SCT and we complied with such obligation for the years 2005 and 2006. The amount of new performance bonds for 2006 is Ps.1.94 million.

Fraud increases our expenses

The fraudulent use of telecommunications networks imposes a significant cost upon service providers, who must bear the cost of services provided to fraudulent users. We suffer loss of revenue as a result of fraudulent use, and also cash costs due to our obligation to reimburse carriers for the cost of services provided to fraudulent users. Although technology has been developed to combat this fraudulent use and we are installing it in our operations, this technology does not eliminate fraud entirely. In addition, since we rely on other long-distance carriers for interconnection, some of which do not have anti-fraud technology in their network, we are particularly exposed to this risk in our long distance service and in traffic originated in our network to mobile users under the mode of “calling party pays”. In 2005, our expenses for the prevention and detection of fraud were not significant.

Because of cost reduction measures, we may elect not to upgrade our licenses relating to anti-fraud software or to cover maintenance fees. We have also reduced our fraud monitoring personnel. This has reduced our ability to detect fraudulent use of our services. See “Item 8. Financial Information — A. Consolidated statements and other financial information — Legal proceedings — Significant unpaid receivable.”

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 what we believe to be a technologically advanced fiber optic network with a microwave overlay, we cannot assure you that this technology will not be challenged by competition from new or improved digital or other technologies in the near future. Technological changes may adversely affect our competitive position, cause an increase in customer churn, require substantial new capital expendituresand/or require write-downs of obsolete technology.

The Mexican government could temporarily seize or permanently expropriate our assets under certain circumstances

The Mexican government has the authority to temporarily seize all assets related to a telecommunications concession in the event of natural disaster, war, significant public disturbance, threats to internal peace, economic events, and for other reasons related to national security. In addition, the Mexican government has the statutory right to permanently expropriate any telecommunications concession and claim any related assets for reasons of public interest. Mexican law provides for compensation in connection with losses and damages related to temporary seizure or expropriation. However, we cannot assure you that the actual compensation paid would be adequate or that such payment would be timely.

As a result of technological and regulatory changes, we may face additional competition in the future from new market participants, which may result in lower prices for telecomminications services, less margins,and/or a loss of market share

As a result of technological and regulatory changes, cable television networks operators and VoIP, providers may enter the Mexican telecommunications market, increasing the level competition. Several cable television network providers have requested that the SCT modify their concession titles to allow them to offer telephone services directly to the public. So far, the SCT has only passed a resolution allowing cable network operators to

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provide only the transport of local and long distance traffic, acting as a “carrier of carrier’s”, however, it is very likely that cable companies may be authorized in the near future to offer telephone services directly to the end users. Several companies without legal authorization have begun to target the Mexican telecommunications market to offer telephone services through Internet.

In a different matter, as a result of the World Trade Organization settlement between Mexico and the United States regarding the disputes over the U.S. telecommunications companies access to the Mexican telecom market, on August 12, 2005, Cofetel published regulations authorizing the issuance of permits for the resale of national and international long distance public switched telecommunications services, through the use of minutes obtained from cocessionaries and using their infrastructure at all times.

Additionally, the SCT is considering the auctioning of the 3.6 — 3.7 GHz spectrum band, that could open the market to new concessionaries and technologies, such as WiMax, that could compete with the service that we provide.

If a “Long Distance Calling Party pays” system is implemented in Mexico, it could increase our costs and result in a loss of traffic

Cofetel has drafted a policy to implement a “Long Distance Calling Party Pays” system, which is an agreement where mobile telephone subscribers do not pay from incoming calls, but, instead, the customer that originates a domestic or international call, either from a fixed line or mobile phone, pays the entire fee for placing the call. Even through the person receiving the call on the mobile phone does not pay to receive the call, the network from which the call originates must still compensate the terminating mobile network. If a “Long Distance Calling Party Pays” system is implemented in Mexico, we will need to increase our long distance rates, including international settlement rates, in order to pay.

Factors relating to Mexico

If Mexico experiences future political and economic crises, our business could be affected negatively

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

The Mexican government has exercised, and continues to exercise, significant influence over the Mexican economy. Mexican governmental actions concerning the economy and state-owned enterprises could have a significant impact on Mexican private sector entities in general and on us in particular, and on market conditions, prices and returns on Mexican securities, including our securities. In July 2000, Mexico held national elections, which were won by Vicente Fox, the candidate of the National Action Party (Partido Acción Nacional). This represents the first time in over 70 years that the Institutional Revolutionary Party (Partido Revolucionario Institucional) has not won the Presidency and has not secured the absolute majority of the Mexican Congress.

Additionally, the Mexican national elections will be held in July 2006 to elect the president and members of both houses. We cannot predict the impact that these Mexican 2006 elections will have on the economy and particularly on the growth and deregulation of the telecommunications industry. We expect this election to be highly competitive and to generate uncertainty which may have an adverse effect on economic developments in Mexico, including a possible adverse effect on 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 also possible that the political climate towards the July 2006 national elections may adversely affect the financial markets, as well as our ability to continue growing.

In the past, Mexico has experienced economic crisis caused by internal and external factors, characterized by exchange rate instability, high inflation, high domestic interest rates, economic contraction, a reduction of international capital flows, a reduction of liquidity in the banking sector and high unemployment. These economic conditions substantially reduced the purchasing power of the Mexican population and, as a result, the demand for telecommunications services.

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Crisis such as these could have a material adverse effect on our financial condition and results of operations and on the market value of our securities. We do not have and do not intend to obtain political risk insurance.

Changes in tax or other regulations could have an adverse impact on our financial condition

Effective January 1, 2002, the Mexican Congress expanded the scope of the Special Production and Services Tax Law (Ley del Impuesto Especial Sobre Producción y Servicios), whereby, among other things, a new 10% tax was imposed on the rendering of certain telecommunications and supplementary services an amendment to this law, effective January 1, 2003 confirmed that our core business (the offering of local and long distances services) is not subject to this special 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 special tax, we cannot assure you that the tax authorities may not interpret the law otherwise. In 2002 and 2003 tax years Maxcom accrued the tax corresponding to the services that might be claimed by the Mexican tax authorities. As of January 1, 2004, telecommunications and supplementary services are no longer subject to this tax.

The operation of telecommunications systems in Mexico is subject to laws and regulations administered by the SCT and the COFETEL. These governmental agencies may take regulatory actions that could damage our business.

Effective April 11, 2006, the Mexican Congress enacted an amendment to the Law on Radio and Television and to the Federal Telecommunications Law. These amendments were highly controversial. Pursuant to this amendment, the COFETEL has now also the ability to regulate broadcasting (radio and TV). Also as part of these amendments all the commissioners had to resign to their positions, effective May 12, 2006. To date the COFETEL commissions remain vacant. This uncertainty could adversely affect our business and subject us to additional legal liabilities or obligations. Additionally, we cannot predict how the SCT or COFETEL will interpret and implement the amendments to the Federal Telecommunications Law. We cannot predict how these new rules could affect our business.

Foreign ownership restrictions limit our ability to raise equity capital

Mexican law currently 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 represent 49% of our full voting stock. In addition, Mexican authorities have mandated that our limited voting shares, which are also referred to as neutral investment shares, may not represent more than 95% of our capital stock.

Under our current capital structure, we have limited flexibility to raise equity capital from non-Mexican investors. As a result, any future sales of equity securities, may require substantial participation by Mexicans or a waiver or modification of Mexican foreign investment laws and regulations. We cannot assure you that such a waiver or modification could be obtained.

We may lose money because of peso devaluations

While our revenues are almost entirely denominated in pesos, the majority of our obligations, and all of our long-term debt, are denominated in U.S. dollars. In addition, substantially all of our capital expenditures are denominated in U.S. dollars. We are, and will be, exposed to peso devaluation risk. The peso has devalued substantially against the U.S. dollar in the past and may devalue significantly in the future. For example, the noon buying rate rose from Ps.3.45 per U.S.$1.00 on December 19, 1994 to Ps.5.00 per U.S.$1.00 on December 31, 1994 and Ps.7.74 per U.S.$1.00 on December 31, 1995, representing a 124.6% devaluation of the peso relative to the U.S. dollar. In 2004, the peso devalued 7.8% relative to the U.S. dollar, and in 2004, the peso revalued 0.8%, relative to the U.S. dollar and in 2005 the peso revalued 4.7% relative to the U.S. dollar. In the first five months of 2006, the peso 6.2% relative to the U.S. dollar.

In July 2005, we acquired a hedge to cover the peso devaluation risk with IXE Casa de Bolsa, S.A. up to U.S.$16,709,000 dollars. This amount corresponds to U.S. dollar-denominated notes due 2007. Under this contract we have the option to buy the aforementioned amount of dollars at the exchange rate of $11.40 pesos per dollar.

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With this action, we eliminated the devaluation risk of a significant part of our U.S. dollar denominated obligations in the next year.

Further declines in the value of the peso relative to the U.S. dollar could adversely affect our ability to meet our U.S. dollar-denominated obligations, including the old notes the new notes and the 133/4% Series B Senior Notes due 2007, which we refer to in this report as the “133/4% notes”. In addition, any further decrease in the value of the peso may negatively affect the value of Mexican securities such as ours. Thepeso-to-dollar exchange rate may experience significant devaluations in the future.

Developments in other countries may impact the price of our securities

We cannot assure you that the price of our securities will not be adversely affected by events elsewhere, especially in the United States and in emerging market countries. Mexican financial and securities markets are, to varying degrees, influenced by economic and market conditions in other countries. Although economic conditions are different in each country, investor reaction to developments in one country has had and can have significant effects on the prices of securities of issuers in other countries, including Mexico. Currently, the economic slow down in the United States, the military conflict in Iraq, the threat of terrorism as well as political and financial crisis in certain emerging markets have had a significant negative impact on the financial and securities markets in many emerging market countries, including Mexico. The effects of these crises may worsen, or new crises may occur, which may negatively affect the price of our new notes, the old notes, the 133/4% series B senior notes due 2007 (which we refer to in this report as the “133/4% notes”), the CPOs or our financial condition and results of operations.

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 and are reconciled to U.S. GAAP. Mexican GAAP differs in significant respects from U.S. GAAP, including in the treatment of the amortization of frequency rights, the capitalization of preoperating expenses, the capitalization of interest, the extinguishment of debt, the restructuring of troubled debt and deferred income taxes and employees’ profit sharing accounting for retirement obligations, 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. We cannot assure you that these will be the only differences in the future. See note 21 to the consolidated financial statements for a description of the principal differences between Mexican GAAP and U.S. GAAP applicable to us.

You may suffer a U.S. dollar shortfall if you obtain a judgment against us or a distribution in bankruptcy

In the event you are awarded a judgment from a court enforcing our U.S. dollar-denominated obligations under either our old or new notes or the liquidation preference under ourseries N-2 preferred shares, we will have the right to discharge our obligations by paying you in pesos at the exchange rate in effect on the date of payment of such judgment. Likewise, if we are declared bankrupt, we will have the right to discharge our obligations by paying our creditors in pesos at the exchange rate in effect on the date of the declaration of such bankruptcy.

The exchange rate is currently determined by the Mexican Central Bank (Banco de México) every banking day in Mexico and published the following banking day in the Official Gazette of the Federation (Diario Oficial de la Federación). As a result of such currency conversion, you could face a shortfall in U.S. dollars. No separate actions exist or are enforceable in Mexico for compensation for any such shortfall.

You should also be aware that in the event we are declared bankrupt by a Mexican court or if we are subject to a bankruptcy reorganization proceeding (concurso mercantil) in such court, our debt obligations, including the new notes, the old notes and the 133/4% notes, if any, will cease to accrue interest and payment of any of our debt obligations would depend on the outcome of the bankruptcy reorganization proceedings, which are often very lengthy.

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We may not be able to make payments in U.S. dollars

In the past, the Mexican economy has experienced 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 foreign currencies generally, and U.S. dollars in particular, 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 institute a restrictive exchange control policy in the future. Any such restrictive exchange control policy could prevent or restrict our access to U.S. dollars to meet our U.S. 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.

High inflation rates in Mexico may decrease demand for our services while increasing our costs

In recent years, Mexico has experienced high levels of inflation. The annual rate of inflation, was 4.4%, 5.7%, 4.0% and 5.2% and 3.3% in 2001, 2002, 2003, 2004 and 2005, respectively. High inflation rates can adversely affect our business and results of operations in the following ways:

•  inflation can adversely affect consumer purchasing power, thereby adversely affecting consumer demand for our services and products; and

•  to the extent inflation exceeds our price increases, our prices and revenues will be adversely affected in real terms.

High interest rates in Mexico could increase our financing costs

Mexico also has, and is expected to continue to have, high real and nominal interest rates. The interest rates on28-day Mexican government treasury securities averaged, 11.3%, 7.1%, 6.2%, 6.8% and 9.2%% for 2001, 2002, 2003, 2004 and 2005, respectively. Although we do not currently have any peso-denominated debt, if we need to incur such debt in the future, it will likely be at high interest rates.

ITEM 4.  INFORMATION ON THE COMPANY

A.   History and development of the Company

Maxcom Telecomunicaciones, S.A. de C.V. is a limited liability company (sociedad anónima de capital variable) with indefinite life, organized under the laws of Mexico on February 28, 1996. We were originally organized under the name “Amaritel, S.A. de C.V.” We changed our legal name to “Maxcom Telecomunicaciones, S.A. de C.V.” on February 9, 1999. Our legal name is also our commercial name.

Our principal offices are located at Guillermo Gonzalez Camarena No. 2000, Colonia Centro de Ciudad Santa Fe, Mexico, D.F. 01210 and our general phone number is(52) 55-5147-1111. Our website address, the contents of which are not part of, or incorporated into, this annual report, is www.maxcom.com. Our agent in the United States is Puglisi & Associates, 850 Library Avenue, Suite 204, P.O. Box 885, Newark, Delaware 19715.

In February 1997, we were awarded Mexico’s first competitive wireline local and long distance telephony concession, covering the Federal District of Mexico and over 100 cities and towns in the Gulf region for local service and the whole nation for long distance service. This concession has a term of 30 years. The local telephony portion of our concession was expanded in September 1999 to cover most of the Greater Mexico City area and a wider area within the Gulf region. In September 2001, our concession was further expanded to allow us to provide nationwide wireline local telephony service.

In October 1997, we were awarded seven nationwidepoint-to-point and three regionalpoint-to-multipoint microwave concessions. Each of these concessions has a term of 20 years.

We commenced commercial operations on May 1, 1999. We are currently offering local, long distance Internet, VoIP services, public telephony, other value-added services and data services in Mexico City and the cities of Puebla and Queretaro.

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Through December 31, 2005, we invested Ps.3,986.4 million in capital expenditures, primarily for the buildout of our infrastructure.

For 2006, we plan to invest U.S.$71.3 million in capital expenditures, mainly to continue to build out our network. Of this amount, we had already spent Ps.184.1 million (U.S. $16.8 million) by March 31, 2006.

B.   Business overview

We are a growing facilities-based telecommunications company operating in the competitive local exchange carrier market in Mexico. We are focused on developing our network and support infrastructure required to provide local as well as long distance, data, Internet, public telephony, VoIP telephony and other value-added services to targeted niched markets, as well as small and medium-sized businesses and residential customers within our concession areas. In order to provide these services we develop our own network and support infrastructure; we also seek alliances with third party last mile providers and cable companies. In particular, we believe that the cities of Mexico, Puebla, Queretaro, Toluca, Monterrey, Guadalajara and San Luis Potosi, where we currently operate, offer opportunities for growth in telecommunications use as a result of the combination of a relatively large population, low subscriber line penetration by international standards and economic growth. We anticipate a large and growing demand for telephony services in these regions. We plan to expand our operations areas to Leon and Aguascalientes, where we intend to replicate our business model through our own sales force or through other distribution channels. We believe that extending our commercial footprint will have a positive effect also in Mexico City, enabling us to compete in new segments with companies that have several facilities throughout Mexico. See below “— Our markets — Concession areas” for a fuller description of the nationwide concession.

The construction of our telecommunications network is based on a smart-build, customer-driven, modular platform that utilizes a combination of fiber optic, copper wire and microwave transmission technology. This methodology enables us to provide fast service to our target markets, reduces the time lag between the incurrence of capital expenditures and the generation of revenues and increases flexibility to accommodate a changing market environment. To operate our network, we have constructed three central switching offices located in Mexico City, the City of Puebla and the City of Queretaro. We have a170-kilometer fiber optic link connecting the cities of Puebla and Mexico and 2,011-kilometer long fiber optic backbone connecting Mexico City and Laredo, Texas.

As of December 31, 2005, we had in service threestate-of-the-art Lucent Technologies 5ESS switches and one softswitch Alcatel A5020.

In August 2002, we acquired from Bestel, S.A. de C.V. two strands in a 2,011-kilometer fiber optic backbone covering the cities located between the cities of Toluca, Puebla, Mexico City, Queretaro, Celaya, Irapuato, Guadalajara, Leon, Aguascalientes, San Luis Potosi, Saltillo, Monterrey, Nuevo Laredo and Laredo, Texas. This fiber optic backbone includes a border crossing with the United States.

We believe that the combination of our smart-build network construction strategy, our position as a customer service-oriented provider, our focus on quality and reliability and ourstate-of-the-art network and systems will allow us to benefit from the expected growth of the Mexican telecommunications industry.

We position ourselves as a fully integrated telecommunications provider for our customers. In addition to our existing local, long distance, VoIP and data services, we offer value-added products such as broadband (xDSL), high-speed dedicated anddial-up Internet access, domestic and international dedicated lines and VPN. We are currently expanding our product portfolio by adding other services to bundle new solutions for new and current customers, such as mobile solutions with our fixed voice and data services.

In January 2005 we acquired a platform to deliver VoIP services that will allow us to deliver significant value-added services to our existing and new customers, such as hosted PBX functionalities as well as voice virtual private networks.

On February, 2005 we made a strategic alliance with Telemedia to provide “triple play” services in the City of Queretaro, Qro., Maxcom became the first carrier in Mexico to provide cable TV, voice and Internet services using the currently installed infrastructure, includinglast-mile coaxial cable access of Telemedia. “Triple — play” services are provided in conjunction with Telemedia under Maxcom’s trademark.

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In addition in June 2005, we signed up another triple play alliance with Multioperadora de Sistemas (MOS) to offer voice and Internet services using the same access model of Telemedia in the city of Toluca.

According to our market research, our target customers value highly, among other things, quality service, accurate billing and competitive pricing. Our marketing strategy focuses on these key elements:

•  prices that are between 5% to 15% below current market levels;

•  “one-stop-shopping” service, such as our“all-in-one-bill” feature (which allows our customers to receive a single invoice containing all local, long distance, data and Internet services together); and

•  state-of-the-art call center equipped with Customer Relationship Management Program (also known as CRM) application software to receive all customer inquiries includingaround-the-clock customer care availability.

Strategy

We intend to capitalize on our competitive strengths to become a leading telecommunications provider in Mexico. We have been focused on executing a strategy of growth in our existing markets and expansion in accordance with our nationwide concession. This strategy includes the following components:

Capture unmet demand for telephony services

We seek to capture unmet demand by targeting small and medium-sized businesses and residential customers that are looking to expand their telecommunications capacity or that do not currently receive the types of products and services we offer. We believe that the potential for expansion in the Mexican telecommunications market is significant given the low teledensity rate, which was 18.2 telephone lines per 100 inhabitants as of December, 2005, the increasing level of competition which generates increased awareness to new alternatives and the development of the Mexican economy.

Build our network on a demand-driven, modular basis

We build our network based on customer demand. We first identify city areas with the largest potential for new lines, which we refer to as “clusters,” in the markets that we serve through various market research techniques. We then carry out the network buildout in tandem with increased sales and promotional efforts targeted at customers within the cluster. This parallel track minimizes the time lag between the incurrence of capital expenditures and the generation of revenues, and allows a choice of technology and construction method based on the particular needs of the cluster. We refer to this approach as our “smart-build” strategy.

We also build our network on a customer demand basis to support small and medium-sized enterprises in buildings or locations other than “clusters.” We refer to these locations as “single sites.” When our corporate sales people identify a potential opportunity we analyze its technical feasibility, the costs associated with providing the service within such locations and the potential revenues, in order to establish whether it is convenient to offer our services there.

From these “single sites”, in some cases, we are able to deploy cooper wire into an area of two or three blocks, expanding our coverage with practically the same cost.

Differentiate product offerings based on features and price

We believe that we can differentiate ourselves from competitors by offering a variety of quality products that meet the specific needs of our customers. To that end, we seek to develop customer loyalty and brand awareness by informing consumers about the telecommunications services that we offer and by helping them to differentiate between the various telecommunications services available in the market. We also seek to offer our services at prices that are between 5% and 15% lower than the prevailing market price in order to build our customer base. See “— Pricing.”

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Deploy cost-efficient technology

We use a cost-efficient technology to deploy our network and serve our customers. Our current network consists of optical fiber, copper lines and microwave technology which we deploy to particular customers based on deployment cost, time to market, time to revenue, time to profitability, quality and reliability in our service.

Our technology platform allows us to provide xDSL services, dedicated Internet access lines, POTS and ISDN services, among others. In addition, due to additional duct capacity in our current facilities we are able to deployfiber-to-the-home (FTTH) services whenever customer premises equipment technology is available at reasonable prices. Our microwave rings allow us to reach customers throughout our market in a cost efficient manner and allow us to build network clusters that can reach from 1,500 to 6,000 lines.

Capitalize on our nationwide local telephony concession

In September 2001, our local telephony concession was expanded, allowing us to provide service to all of Mexico. This provides us with an opportunity to target small and medium-sized businesses and residential customers within our new concession areas who we believe are willing to evaluate other alternatives as they look for better service, higher reliability and lower tariffs. In September 2002, we acquired two strands in a 2,011-kilometer fiber optic backbone from Mexico City to the city of Laredo, Texas. We believe this acquisition is a key element for our nationwide expansion using our own independent network. As part of this strategy, we have already expanded our coverage area to the City of Queretaro, one of Mexico’s fastest growing cities.

In addition, we believe that the quality of our product and services offerings gives us a competitive advantage in many regions within our nationwide concession area, as experienced in the City of Puebla, where in December 2005 our number of lines in service grew by 20.5% and where we installed 19.3% of net additions in the whole state of Puebla according to our internal data and COFETEL data.

In February 2004, we incorporated a wholly owned subsidiary in the State of Delaware, U.S.A., under the name of Maxcom U.S.A., Inc. Also in February 2004 Maxcom U.S.A., Inc. applied before the Federal Communications Commission (FCC) to obtain a license under section 214 of the Communication Act of 1934, to provide international telecommunications services between the United States and international points, mainly Mexico (also known as a “214 License”). The U.S. Federal Communication Commission granted the license in March 2004. Maxcom U.S.A., Inc. has not yet initiated significant operations in the U.S.

In February 2005, we incorporated Maxcom SF, S.A. de C.V., a wholly owned subsidiary, under the laws of Mexico. This subsidiary will be used as a special purpose vehicle to finance the securitization of Maxcom’s accounts receivable in the future as well as for other specific purposes.

In May 2005, we incorporated Maxcom TV, S.A. de C.V., a wholly owned subsidiary, under the laws of Mexico. Also in May, 2005, this subsidiary has requested a license from the Mexican government to provide cable television services for the City of Puebla, Pue.

Our markets

Concession areas

In February 1997, we were awarded Mexico’s first competitive local and long distance telephony concession, covering the Federal District of Mexico and over 100 cities and towns in the Gulf region for local service and nationwide for long distance service. In September 1999, we received the approval of the SCT and COFETEL to provide local telephony services in several municipalities contiguous to the Federal District, which are part of Mexico City, as well as in selected additional cities in the Gulf region. In September 2001, our local service concession was expanded to cover all of Mexico. Under our concession, we are required to provide services to the cities of Toluca, Edo. Mex.; Celaya, Gto.; Irapuato, Gto.; Leon, Gto.; Guadalajara, Jal.; Aguascalientes, Ags.; San Luis Potosi, SLP; Saltillo, Coah.; Monterrey, N.L.; and Nuevo Laredo, Tamps. by the end of 2014. We started operations in the City of Queretaro in November, 2002.

We commenced commercial operations in Mexico City in May 1999. Mexico City has the nation’s greatest concentration of service and manufacturing industries and is also the center of Mexico’s public and financial

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services sectors. In 2005, according to CONAPO or Consejo Nacional de Poblaciúon (Mexican National Population Council), Mexico City had a population of approximately 18.1 million people. Although the Federal District, which covers most of Mexico City, has the highest teledensity rate in Mexico at approximately 42.1 telephone lines per 100 inhabitants as of December, 2005, we believe that significant unmet demand for high-quality local telephony services in Mexico City remains. As of December 31, 2005, we had 106,560 lines in service in Mexico City.

We commenced commercial operations in the City of Puebla in May 1999. Puebla is the fifth largest city in Mexico, with a population of approximately 1.8 million people in 2005 according to CONAPO. In the State of Puebla we have expanded our market share in local telephony service from 2.5% in 2000 to 7.2% in 2001, to 9.5%, in 2002, and 9.7% in 2003. As of December 31, 2005, we had 85,319 lines in service, as compared to 70,777 lines in service as of December 31, 2004. According to our internal data, our lines in service as of December 31, 2005 represented 11.12% of all the lines in service in the whole state of Puebla as of December, 2005 and 12.34% of the total lines installed in the whole state of Puebla as of December 31, 2004.

We commenced commercial operations in the City of Queretaro in November 2002. Queretaro is the nineteenth largest city in Mexico, with a population an estimated population of 837,746 people in 2005 according to the CONAPO. As of December 31, 2005 we had 13,988 lines in service as compared to 5,887 lines in service as of December 31, 2004. According to our internal data, we have in 2005, 4.7% of all lines in service in the whole state of Queretaro.

In order to take advantage of the geographical location of Toluca and its potential market, we also commenced commercial operations in the City of Toluca in November 2005 with a triple play strategy with Cablenet a CableTV company. Toluca is the twenty second largest city in Mexico and its one of the bordering cities of Mexico City, with a population of 944,973 people in 2005 according to CONAPO. As of December 31, 2005 we had 425 lines in service, according to our internal data, in 2005 we have less than 1% of all lines in service in the whole state of Mexico.

Clusters and single sites

We have developed a comprehensive marketing strategy that starts by identifying city areas with the largest potential for new lines, which we refer to as “clusters.” We use a variety of techniques to identify potential clusters, including canvassing, plotting of potential clusters and database marketing. Once a cluster is identified, a map of the geographic area is produced and the cluster is defined. A cluster becomes the basis for network design and deployment and for the launching of focused field sales and marketingone-on-one efforts.

Our cluster strategy is divided into three stages:

•  Identify clusters through market research. Our market research is designed to identify small- and medium-sized businesses and residential customers. Once we identify potential customers within the clusters, according to the marketing sales forecast we design the deployment of the access network to cover them. We perform a return on investment analysis for each cluster to assure that the investment made in such cluster meets our return benchmarks.

•  Deploy clustersthrough the implementation of a sales plan for each cluster based on our network deployment schedule. We promote our services at the same time that we build our network.

•  Fill in clustersby offering our services to all customers within the cluster.

We also build our network on a customer demand basis to support small and medium-sized enterprises in buildings or locations other than clusters. We refer to these locations as “single sites.” When our corporate sales people identify a potential opportunity we analyze its technical feasibility, the costs associated with providing the service within such locations and the potential revenues, in order to establish whether it is convenient to offer our services there.

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Our network

Buildout strategy

We build out our network on a modular basis. Once a cluster has been identified in a joint effort by our marketing, engineering and sales departments, we build our network in clusters varying from 1,500 to 6,000 lines. To ensure the highest quality service to our customer, we install 24-gauge copper wire and limit the distance between our backbone network and the customer premises to four kilometers. These attributes also allow us to provide to our customers voice (including VoIP services) and data services, such as xDSL services with bandwidth of up to 4Mbps.

We standardize all our Lucent, Alcatel and Advanced Fiber Communications (also known as AFC) equipment to assure consistent, cost efficient, high quality service and also to enable us to use the same access equipment for all of our services.

Network backbone

At December 31, 2005, our network backbone consisted of one owned170-kilometer 24 strand fiber optic link between Mexico City and the City of Puebla with three optical regenerators at halfway points and two strands in a 2,011-kilometer fiber optic link covering cities between Mexico City and Laredo, Texas. This fiber optic backbone includes 13 cities (Laredo, Nuevo Laredo, Monterrey, Saltillo, San Luis Potosi, Aguascalientes, Leon, Irapuato, Guadalajara, Celaya, Queretaro, Mexico and Toluca) and six optical regenerators. We have installed Digital Wavelength Division Multiplexing (also known as DWDM) equipment, with a maximum growth capacity of 32 Lambdas, each with 2.5 Gbps capacity. We have three Lambdas already installed and we will install more Lambdas as needed to meet our customers’ requirements. We have the capability with this link to transmit synchrony links, LAN network links, long distance links and dedicated links. We have also installed three Lucent Technologies 5ESS digital switches in Mexico City and the cities of Puebla and Queretaro with a total capacity of 154,980 trunks. Our switch in Mexico City is connected to four different nodes in the city’s public switched telephone network, some by our own fiber ring and some by leased fiber capacity. Our switch in Puebla is connected to four different nodes in the city’s public switched telephone network by our own fiber ring. Our switch in Queretaro is connected to two different nodes in the city’s public switched telephone network by our own fiber. We also lease capacity to connect to long distance networks.

In June 2000, we finished constructing a lighted 144-strand,57-kilometer fiber optic ring in the City of Puebla. We also acquired six strands of dark fiber for approximately 175 kilometers in metropolitan rings in Mexico City and obtained an option for additional capacity in future fiber optic rings also in Mexico City. In order to increase the data transmission capacity in our Mexico City Metro Ring we recently installed a Coarse Wavelength Division Multiplexing (also known as CWDM) equipment, with a maximum growth capacity of 8 Lambdas, each with up to 2.5 Gbps capacity. We have three Lambdas already installed and we will install more Lambdas as needed to meet our customers’ requirements. In addition, the infrastructure is in place to provide local telephony service to five towns located along our Mexico City-City of Puebla fiber optic link.

In November 2004, we signed an agreement to interchange two fiber optic strands of our Mexico City — Puebla, Pue. Optical Link for two fiber optic strands in a metropolitan fiber optic ring located in the northern zone of Mexico City with an extension of 89 kilometers. This agreement provides redundancy to our fiber optic network and does not have any impact in our financial statements.

We use our own fiber optic rings to connect our microwave nodes to the fiber rings in order to transport the telephone and data communications from our customers to the telephone switch and from there back to our customers or to the public switched telephone network. We also use this fiber to provide to our customers dedicated links and dedicated Internet links that we connect through our fiber and also by leased capacity to the Internet backbone.

Last-mile connectivity

Thelast-mile connectivity portion of our network is comprised of a mix of wireline and wireless access technologies. We usepoint-to-point microwave transmission technology for fast deployment to clusters and single

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site locations. We havepoint-to-point frequencies in the 15 and 23 GHz band forming a complex microwave network throughout Mexico City and the cities of Puebla and Queretaro. We use microwave links to connect customers that cannot be immediately connected to our own fiber network, provided the yield on the capital expenditures required is in accordance to our investment parameters. We also have apoint-to-multipoint concession for the 10.5 GHz band, covering a portion of the Gulf region.

We also use wireline access to provide service to clusters. Clusters generally have an area ranging between one and four kilometers in diameter. An average of 50 kilometers of cable plant is required to providelast-mile connectivity within the clusters.

We use copper wire feeder and distribution facilities placed from the host or remote site along rights of way with a mix of aerial and underground construction. Aerial is our preferred and most used method because of its cost of construction advantage. Underground cable is placed using either the open trench or directional boring methods of construction. The size of the cable is based on the anticipated number of customers in each cluster’s influence area as forecasted by our marketing research. We also integrate fiber optic and Digital Subscriber Line Access Multiplexer (also known as DSLAM) facilities in the distribution plant to allow us to provide broadband services.

Switching

We have a Lucent Technologies 5ESS digital switch in Mexico City, and in the cities of Puebla and Queretaro. Our switch in Mexico City is currently equipped for 92,580 trunks, and new switches will be installed as the maximum capacity of the existing switches is reached. Our switch in the City of Puebla is equipped for 39,720 trunks. Our switch in the City of Queretaro is equipped for 22,680 trunks. Each trunk can generally carry between one and three lines, depending on whether it serves a residential or a business customer. Our equipment capacity is scaleable at incremental costs according to customer demand.

The switches are capable of providing analog lines, E1 digital lines, digital high-speed data services, centrex services and operator-assisted services. In addition, they can provide private analog lines, private clear-channel digital lines, data transmission and value-added services.

We also have a next generation Alcatel A5020 Softswtich which provides VoIP and VoCable services to the residential market. Our platform is fully IP integrated with additional services as voice mail, call waiting and IP Centrex features as hunting group, call transfer, 3-way conference call, etc. Our VoCable solution is fully packet cable compliant.

The platform has a capacity to manage 25,000 VoCable endpoints and 16,000 VoIP endpoints and is interconnected to the public switching telecommunications network or PSTN using SS7 signaling or signaling system 7 standards, a standard signaling protocol required by telecommunication administrators worldwide.

Our switches also have a synchrony network that is designed to assure a proper synchronization of every call that is made in the cities we serve and to assure proper synchronization with the public switched telephone network as well as any other carriers with whom we connect. We also have two STPs (Signaling Transfer Point) in Puebla, four in Mexico City and two in the City of Queretaro, to assure the proper signaling in our interconnection with all other carriers.

Operational support systems

We have a network operations and control center in Mexico City which oversees, administers and provides technical support to all service areas. Our center, which uses Hewlett Packard, Sun Microsystems hardware and Lucent Technologies software controls and monitors, among other systems, all of our network, microwave, fiber, access equipment, data equipment, synchrony, signaling and energy systems. Our center allows us to manage a multi-vendor network with the greatest efficiency possible, and to identify problems early in order to utilize available redundancy and repair the damaged part of the network.

Our operational support systems are designed to allow us to differentiate ourselves in the marketplace by being able to:

•  offer a flexible, large selection of services;

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•  provide tailored service packages;

•  quickly introduce products and services;

•  deliver near real-time activation and disconnection;

•  deliver a high quality of service;

•  minimize activation errors; and

•  provide accurate and timely billing services.

Our information technology strategy is to implement operational support systems possessing a high level of functionality and flexibility from the service order to the delivery of customer invoices. The systems include the following functional features:

•  Spanish language support for invoices and documentation;

•  a high degree of integration between all operational support systems components;

•  flow-through of information, provisioning and service activation;

•  capabilities to monitor, manage and resolve network problems;

•  allowance for growth on a modular scalable basis; and

•  support of administrative operations for financial controls.

Data Center

The Data Center groups all Information Technology Infrastructures (hardware and software) to support the current and future business processes that our organization demands. The Data Center contains solutions from leading companies in the IT Industry, like: Hewlett Packard, SUN, IBM, Microsoft, Oracle, Lucent, Cisco and Symantec. We have a mass storage solution (Hitachi vendor), the architecture offers fiber optic technology, redundancy and high availability to support storage requirements for all Operational Support Systems. For all IT elements we use a backup solution from HP vendor, which lets us generate a security copy to support recovery activities. The Data Center operates under a controlled condition like regulated energy, cooling, illumination and fire prevention systems.

Mediation and Provisioning Operational Support Systems

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The three Lucent Switches and the Alcatel Softswitch generate CDR’s (Call Detail Records) that are collected, formatted and processed by our Mediation System (Interact, Byte Vendor), they are delivered to the Billing system, the Settlement system and the Datawarehouse for further processing.

Provisioning process to Network Elements is made using ASAP System (Metasolv vendor), which is able to translate products attribs into structured commands to be executed in each network element.

Service Management Operational Support Systems

The customer account and its associated products are managed in TBS (Telecommunication Business System) system by Metasolv; its main functions are:

•  Order Management & Service Provisioning: manages the service delivery process, involving different transactions across our functional areas.

•  Workflow management:  provides the capability to maintain provisioning plans, which are groups of tasks needed to manage the flow of work and information.

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•  Network Inventory and Design Management: brings together the geographical, physical, electrical, and logical dimensions of the network into a single view supported by a set of integrated equipment administration and network design modules, also is able to manage all number and IP addresses inventory.

•  Trouble Management & Escalation.

The billing process is done in Arbor System (Comverse vendor), the monthly process considers (1) the calls done in the billing cycle, (2) the recurrent charges like: rents, value added services and (3) the no recurrent charges like: installation, Terminal Equipment. The convergent Billing System includes all commercial products that Maxcom offers to all kind of customers Single Play, Double Play and Triple Play.

The settlement process is done in Settler, a product by Intec Company. Settler also reconciles the CDR’s sent and received by our carriers through Interconnection agreements (Seven local carriers, Six Long Distance Carriers and Six Mobile Carriers) with the information provided by those carriers, on a monthly basis.

Business Management Operational Support Systems

The Customer Relationship Management strategy is based on Siebel CRM of Oracle, Siebel is the prior solution for our Contact Center Areas like Call Center, Post-Sales and Collections. Up to date, Siebel concentrates all historical information of customer, contact, products, service requests, invoicing, payments, balance due, commitments, credit limit, network status, etc.

Administrative System

Our administrative processes system or ERP (Enterprise Resource Planning) is JDE of Oracle trademark. Some of the processes that are handled in this system include general ledger, accounts payable, purchasing, warehouse, etc.

Our services

Our primary focus of service is local telephony, particularly the provision of high-quality, flexiblelast-mile connectivity to small and medium-sized businesses and residential customers. We offer long distance service as an integrated value-added service for our local telephony customers. We do not offer our long distance service separately from our local telephony service.

We currently provide value-added services such as: voice mail, speed dialing, call waiting, call forwarding, three-way calling, call blocking, caller identification and multi-line hunting. We also provide digital high-speed connectivity,dial-up Internet access, dedicated Internet access and VoIP services. All our services are offered with Service Level Agreements (also known as SLA).

Service products

We seek to offer high-quality telephony service products combining (1) prices that are between 5% and 15% below current market levels, (2) a wide range of value-added solutions and (3) superior customer service. The following are the service products we currently offer to our customers.

•  LineaMax Residencial.  This is a service for residential customers that provides a high-quality telephone line. The features offered under this product include voice mail, call waiting, call forwarding, three-way calling, call blocking, speed dialing and unlisted numbers.

•  LineaMax Comercial.  This service, which is offered to business customers, is identical to LineaMax Residencial, except that it also includes multi-line hunting.

•  CentralMax.  This service provides business customers with all the functions of a private branch exchange using centrex technology, without having to acquire and maintain equipment. The features offered under this product include call waiting, call forwarding, three-way calling, direct inward dialing, direct outward dialing, intercom dialing, call transfer, speed dialing, call hold, call pick up, outgoing call blocking, single

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digit access to attendant and distinctive ringing. Optional solutions include voice mail,music-on-hold, multi-line hunting and operator services.

•  Larga Distancia Max.  This service provides domestic and international long distance. We do not offer our long distance service separately from our local telephony service. See “Supervision and Regulation of the Mexican Telecommunication Industry — Our concessions — Long distance” for a description of significant special charges we would have to pay Telmex if we decide to provide long distance service to customers other than our local telephony customers.

•  TroncalMax Digital.  This service provides digital trunks for business customers that need highly reliable access to and from the public telephone network through their existing Private Branch Exchange (also known as PBX). This service is sold in groups of 10, 20 or 30 trunks. The groups can be configured with direct inward dial (DID), direct outward dial (DOD), caller identification or main telephone number assignments.

•  TroncalMax Analúogica.  This service, which is offered to business customers, provides connectivity to analog PBX or key systems. The features available with this product are multi-line hunting, caller identification and call barring.

•  Internet Max.  This service uses a traditional POTs line and modem to providedial-up Internet access allowing users to navigate on the Internet at speeds of up to 56 Kbps, depending on the number of users accessing the Internet at the same time, since it is a shared service. We provide this service to customers, regardless of whether they have a Maxcom line or not.

•  SpeediMax(ADSL (128, 256 and 512 Kbps and 1 and 2 Mbps)). Asymmetric Digital Subscriber Line (also known as ADSL) is a transmission service that turns ordinary telephone lines into high-speed data connections. It is a digital data service that provides telecommuting capabilities at speeds much faster than standard modems. With ADSL it is possible to have secure, dedicated links to the Internet or a company’s LAN at a high-speed transmission.

•  AsistelMax.  This service, which we launched in April 2002, provides basic telephone medical and home assistance to our residential customers in case of emergency.

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

•  Dedicated Internet Access.  This service offers Internet access at high speed within a clear channel access to the Internet backbone.

•  Digital private lines.  This service provides highly reliable dedicated circuits between two or more physical locations. Digital private lines are designed to integrate voice, data and video private networks over a single physical link. Digital private lines are, in effect, leased lines for exclusive/private use with no limitations in usage, available 365 days a year, with no restrictions in amount of traffic.

•  Hosted PBX.  This service provides our business customers with all the functions of an Internet Protocol PBX (or IP/PBX) using VoIP technology, without having to acquire and maintain high cost equipment. The features offered under this product include CentralMax as well as other Internet Protocol enhanced services such as web portal setup, “click to dial”, hosted directory, MS Outlook^© integration, etc.

•  I-line.  This service allows our customers to make and receive local, international and domestic long distance and mobile calls using the Internet. This service includes additional voice features such as: call waiting, caller ID and voice mail services

•  E-Security.  This service provides managed security including perimetral anti-virus, content filter and spyware solutions. In this sense Maxcom supplies all the software and hardware equipment as an integrated solution for our customers.

•  Opportune Service to Systems.  This service provides specialized engineering equipment to supply preventive and corrective maintenance to our customers IT equipment.

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We believe that our products will help us attract the significant data applications market growth expected in Mexico and help us increase our participation in the small and medium-sized business market. In particular, we believe that the combination of voice and data services constitutes an attractive set of product services for those customers enabling us to compete more effectively in such market.

Pricing

We generally seek to maintain our prices between 5% and 15% below current market levels. We offer pricing plans that are simple in order to assure customers of the integrity of the billing process. We also provide discounts to high-usage customers that are likely to generate a significant outflow of calls.

We pay interconnection charges to other carriers on a per minute basis. However, the common practice in the Mexican market is to charge customers on a per-call basis for local service. We seek to minimize the risk associated with this mismatch between our revenues and costs; for long holding time customers, we have, in some cases, implemented a per minute charge plan to be consistent with our interconnection fees that are on a per minute basis.

During the second half of 2002, we introduced voice line and ADSL service that for a fixed monthly charge includes the rental of the lines, unlimited local calling, a specified amount of long distance and mobile minutes, and high-speed Internet access. This offering is mainly targeted to small- and medium-sized business customers.

Marketing and sales

General

We seek to develop brand name recognition by using our corporate name, logo and product names consistently to portray a unified image. We conduct sales drives within target clusters to small-and medium-sized businesses and to residential customers. We seek to differentiate ourselves from our competitors by our pricing, consistent quality and reliability offirst-to-market technology, one-stop shopping, comprehensive billing and speed of line activation.

Sales and distribution channels

We focus our sales efforts within clusters usingdoor-to-door sales and telemarketing promotions. We promote our services primarily through advertisements on radio, billboards, in-building promotions, press and magazines. As we commence the deployment of our network within a cluster, we intensify our promotion efforts through our direct sales force in such cluster.

Our direct sales approach is to assign sales representatives or teams to locations within a cluster or to single sites.

At December 31, 2005, we had 478 salespeople including sales executives, supervisors and sales managers. We assign our sales force based on territory, product or market segment, depending on their background and experience. The compensation structure for our sales force is tailored to attract and retain high achievers by providing a base salary and a bonus component. Sales commissions are paid only after the new line is installed.

Candidates for our sales force undergo extensive training that covers the industry of telecommunications, our products, and our internal marketing and sales procedures. In its sales effort, our sales force uses, among other things, multimedia presentation, corporate videos and corporate and product brochures.

In addition to our sales force, we are developing other distribution channels, including store fronts, agents, distributors, outsourcing and telemarketing. In order to promote our IP services with distribution channels, we’re providing all the necessary support in advertising and promotion tools to our distributors

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Customer service

We seek to differentiate ourselves by providing superior and consistent customer service. Our customer service group is divided into three areas:

•  centralized answering point.  This area responds to calls to our customer care telephone numbers in Mexico City and the cities of Puebla and Queretaro 24 hours a day, seven days a week. Many prospective and existing customers use our centralized answering point for all types of queries, including queries regarding area codes, rates, billing and line installation and changes.

•  walk-in center.  We have three walk-in centers in Mexico City, three in the City of Puebla and one in the City of Queretaro for prospective and existing customers who wish to make inquires in person regarding our services. Our hours of operation are 9:00 a.m. to 6:00 p.m. on Mondays through Fridays and from 9:00 a.m. to 2:00 p.m. on Saturdays.

•  centralized trouble-shooting center.  This area responds to calls in Mexico City and the cities of Puebla and Queretaro. This center is available 24 hours a day, seven days a week and handles technical problems, inquiries and complaints.

Customers may access their billing statements through our website and link to the websites of two major Mexican banks to make payments. In addition, customers may pay their bills through monthly direct deposit, , cash payments at three of the largest Mexican banks, or at our walk — in centers located in Mexico City and Puebla. We also assist our customers with new service requests and product information.

Credit, billing and collection

We carry out credit checks on all our potential business customers that request more than two lines using a leading Mexican credit bureau. Depending on the result of the credit check, we may request a deposit, promissory note, bond or standby letter of credit.

For business customers with an imperfect credit history we require a one to three-month deposit, which is calculated based on the number of lines contracted. For call centers and other high-usage customers we may require higher deposits, collect on a prepaid or weekly basis and undertake a closer monitoring of call activity. We do not perform credit checks for business customers with one or two lines.

In addition, we do not perform credit checks for residential customers. Our sales representatives are required to verify the identity and address of our residential customers.

For our billing process, we usestate-of-the-art technology including an Ericsson/Hewlett-Packard billing mediation platform and a Kenan Systems/CSG product billing platform interfaced with our customer service system.

We perform seven billing cycles per month for our business customers and five billing cycles per month for our residential customers. We invoice customers monthly on a staggered basis, except for customers with greater credit risk in which case we may invoice weekly. For regular customers we process and print our bills within four days after closing of each cycle. Customers then have twenty-one days to pay the bill after the cut off date.

For customers with one to six lines, if a bill is past-due for more than two days, we leave a reminder message on their phone. If the bill remains unpaid for five additional days, we restrict service allowing incoming calls only. If the bill remains unpaid for seven additional days, we suspend the service. If the bill remains unpaid for another seven days, we again allow incoming calls but only in order to contact our customer through the telephone lines, negotiate and collect the payment. After 30 days past-due we visit our customers of uncollected accounts at their addresses in order to pursue payment. If no payment is received after 90 days, we disconnect the line and the receivables are assigned to collection agencies. If the bill remains unpaid, we may assign the receivables to another collection or legal agency.

For our customers with 12 months of billing history, we have more flexible terms and we restrict and suspend their service if their accounts are unpaid 15 days later than for our newer customers. For customers with more than six lines we use the same process to the one described above, except that we use a personalized approach where we

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try to negotiate payment terms before imposing any restriction, suspension or disconnection of the service. We may suspend service when an invoice is at least 30 days past due. However, in the case of high-usage customers, we may suspend service when an invoice is at least one day past due.

We have a CRM/Siebel system to support our business growth, which is focused on customer service, collection, training sales force and enhance marketing. Our initial investment for this program was U.S.$3.3 million and our strategic partner in this program is Siebel a software company. Our CRM strategy during 2006 will be to add new business processes related directly to customer’s information, within our current architecture.

Competition

We primarily compete in the local telephony market on the basis of customer service, value-added products and price. Our direct competitors are wireline and fixed wireless local telephony operators, although we also face competition indirectly from mobile wireless operators.

Currently we do not compete directly in the long distance retail market (offering presubscription). Although we provide long distance service, we position such service as an integrated value-added service for our local telephony customers. As a result, in the retail market we do not offer our long distance service separately from our local telephony service. See “ —Supervision and Regulation of the Mexican Telecommunications Industry — Our concessions — Long distance” for a description of significant special charges we would have to pay Telmex if we decide to provide long distance service to customers other than our local telephony customers.

However, in 2006 we will compete directly in the wholesale long distance market in certain cities where we have our fiber optic network. The interconnection and signaling infrastructure for these cities is provided by Telmex at current Maxcom collocation sites, adding new destinations to Maxcom’s long distance network.

Our core strategy is to service underserved markets by targeting new customers that do not currently receive the type of products and services that we offer. In particular, our intention is to service markets with lower teledensity rates that are also underserved by Telmex.

Telmex

Our main local telephony competitor is Telmex, the incumbent carrier and former government-owned telecommunications monopoly. Telmex has significantly greater financial and other resources than those available to us. In addition, Telmex has an established customer base, which represents substantially all of the wireline local telephony lines in Mexico. Telmex customers still represent the main destination of outgoing calls from our network, therefore local interconnection with Telmex is critical to our operations.

Other Competitors

We also face competition in local telephony from companies that were awarded concessions in recent years. The more significant of these competitors are Alestra, Avantel Servicios Locales S.A. (“Avantel”), Axtel, S.A. de C.V. (“Axtel”), Megacable Comunicaciones de México, S.A. de C.V. (“Megacable”), Marcatel, Bestphone, Vox IP and Unefon.

Avantel, in which Verizon is a shareholder, was awarded a long distance service concession in September 1995 and a local telephony concession in April 1999. Avantel offers nationwide long distance services and local services in several cities, including Mexico City, Monterrey, Guadalajara, Cd. Juarez, Chihuahua, Aguascalientes, Leon, Puebla, Cancun, Toluca, Queretaro, Cuernavaca, Merida, Veracruz, Hermosillo, Saltillo, Torreon, San Luis Potosi, Acapulco, Reynosa, Pachuca and Morelia.

Alestra, in which AT&T Corp. is a shareholder, was awarded a long distance service concession in December 1995 and a local telephony concession in June 2000. In addition, Alestra has apoint-to-point microwave frequency concession in the 15 and 23 GHz band range, apoint-to-multipoint microwave frequency concession in the 10.5 GHz band range and apoint-to-point national wireless telecommunications concession in the 7 GHz band range. Alestra offers nationwide long distance services and local service in Mexico City, Nogales, Veracruz, Hermosillo, Orizaba, Cd. Obregon, Cuernavaca, Los Mochis, Puebla, La Paz , Cuautla, Culiacan, Chilpancingo,

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Mazatlan, Acapulco, Durango, Coatzacoalcos, Cd. Juarez, Oaxaca, Chihuahua, Tapachula, Parral, Tuxtla Gutiérrez, Sabinas, Villa Hermosa, Nvo. Laredo, Campeche, Reynosa, Mérida, Torreon, Cancun, Saltillo, Monterrey, Matamoros, Cd. Victoria, Cd. Monte, San Luis Potosi, Leon, Queretaro, Celaya, Pachuca, Tlaxcala, Tampico, Tijuana, Ensenada, Mexicali, Fresnillo, Zacatecas, Aguascalientes, Tepic, Puerto Vallarta, Guadalajara, Poza Rica, Guanajuato, Irapuato, Pachuca, Zamora, Colima, Morelia and Toluca.

Alestra and Avantel are using their local telephony concessions to service primarily the corporate business segment. We believe they have recently started to target the small-and medium-sized business agreement and residential market supported by their alliance with massive ISP’s through broadband access.

Axtel, in which Telinor Telefonía, S. de R.L. de C.V., AIG — GE Capital Latin America Infrastructure Fund, L.P. The Blackstone Group and a group of other financial and technological investors, including Nortel Networks, are shareholders, was awarded a nationwide local telephony and long distance concession in June 1996, and wireless frequencies in the 60 MHz at 10.5 GHz forpoint-to-multipoint access, 112 MHz at 15 GHz forpoint-to-point backhaul access, 100 MHz at 23 GHz forpoint-to-pointlast-mile access and 50 MHz at 3.4 GHz for fixed wireless access. Axtel commenced commercial services in the northern city of Monterrey in July 1999, in Mexico City in May 2000, and in Guadalajara, Puebla, Toluca and Leon during 2001. It currently serves 12 cities. Axtel targets the high-end residential and the small-and medium-sized business segments. Axtel strategy includes packages with unlimited local calls at a fixed rate.

On December 6, 2005, Axtel and certain shareholders successfully completed an Initial Public Offering (IPO) both in domestic and international markets for an amount of Ps. 3,360 million. A total of 131,670,000 Ordinary Participation Certificates (CPO’s) were sold in both primary and secondary offerings at a price of $25.50 pesos each. This IPO represented 32.4% of the total outstanding capital stock of Axtel.

Other competitors such as Megacable, Marcatel, Bestel, Unefon, Vox IP and MetroRed that have local telephony concessions have a market approach that might be massive through alliances with Cable TV providers. We believe that Megacable, Marcatel and MetroRed do not represent strong competition in the short term.

Unefon won nationwide concessions for fixed wireless local loop frequencies in the 3.4 to 3.7 GHz band and in the PCS 1.9 GHz band in May 1998. Unefon began commercial operations using the 1.9 GHz band in Toluca in early 2000 and has initiated operations in Mexico City, Puebla, Monterrey and Guadalajara, among other cities, but it has focused mainly on mobile telephoning. We believe that Unefon will begin to focus on the fixed wireless telephony market in the near future.

Overview of the Mexican telecommunications industry

General

The telecommunications industry involves the transmission of voice, data and video communications from point of origination to point of termination. The Mexican telecommunications industry has been undergoing rapid change in the last decade due to the introduction of new technologies and the construction of additional infrastructure, as well as market liberalization, which together have resulted in increased competition and demand for telecommunications services.

The modernization of the Mexican telecommunications infrastructure began in 1990 with the privatization of Telmex, the former government — controlled telecommunications monopoly. Since privatization, Telmex and several concessionaires have begun deploying modern fiber and wireless networks throughout Mexico. To meet the demand for higher volume and higher quality wireline services, new copper cables are being installed and backbones are being replaced largely by fiber optic transmission systems that provide greater capacity at lower cost with higher quality and reliability.

Additionally technology and service convergence is allowing bundle offers to customers promoting alliances and synergies among concessionaires of different telecommunications services, manufactures and technology developers. Last miles continue to be one of the most valuable asset for telecommunicaction service providers.

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Market liberalization

Historically, Telmex has dominated the Mexican telecommunications industry. In December 1990, the Mexican government initiated the privatization and deregulation of Telmex by selling a controlling portion of Telmex’s equity to a private consortium led by Grupo Carso, S.A. de C.V., a Mexican conglomerate, as well as to subsidiaries of Southwestern Bell Corporation and France Telecom S.A. Subsequently, the Mexican government opened the wireless market by granting nine regional cellular concessions in Band “A” in order to allow concessionaires to compete with Telmex and its mobile service provider affiliate, Radiomóvil Dipsa, S.A. de C.V. (also known as Telcel).

Local telephony market.  In connection with the privatization of Telmex in 1990, the Mexican government amended Telmex’s nationwide concession, which expires in March 2026, and granted Telmex a six-year implied monopoly over local telephony services. The amended Telmex concession obligated Telmex to expand and increase local telephony service at a rate of 12% per year beginning in 1992 and to provide basic telephone service to all population centers of 500 or more inhabitants by 1995. The implied local service monopoly was eliminated in mid-1996 when the Mexican Communications and Transportation Ministry (Secretaría de Comunicaciones y Transportes), or “SCT”, published regulations governing the licensing of local services on a competitive basis.

In order to promote competition in the local telephony market, the Mexican government granted several concessions beginning in 1997, including first the regional concession awarded to us for wireline local telephony service and later expanded to a nationwide concession. Each wireline local telephony concession granted by the Mexican government generally has a30-year term, and authorizes, among other things, the provision of local telephony services and value-added services in a specified region of the country.

In addition, the Mexican government does not permit the unbundling of local loop frequencies, requiring all telephone companies wishing to offer local telephony service to build their ownlast-mile connectivity in order to reach their targeted customers.

The Mexican government has also been conducting auctions of spectrum frequencies in the:

•  450 MHz, 1.9 GHz (PCS) and 3.4-3.7 GHz (fixed wireless local loop) frequency bands;

•  7, 15, 23 and 38 GHz frequency band for nationwidepoint-to-point microwave transmission links; and

•  10.5 GHz frequency band for regionalpoint-to-multipoint microwave transmission service.

Four companies won nationwide concessions for fixed wireless local loop frequencies, although one later forfeited its right for failure to pay concession fees. In addition, six companies won concessions in the 1.9 GHz (PCS) frequencies on either a nationwide or regional basis, although one also forfeited its right for failure to pay concession fees. See “— Competition.”

Long distance telephony market.  In connection with the privatization of Telmex in 1990, the Mexican government granted Telmex an exclusivity period for long distance telephony services of six years. In August 1996, the exclusivity period expired and competition commenced in January 1997. According to Pyramid Research, measured in terms of traffic, since the expiration of the exclusivity period and the subsequent beginning of competition, Telmex has lost 26% and 31% of the domestic and international long distance telephony market, respectively, to new competitors.

In order to promote competition among domestic and international long distance providers, the Mexican government granted several concessions, including the national concession awarded to us, for domestic and international long distance services, as well as value-added services. Each concession generally has a nationwide scope and a30-year term, and authorizes the provision of domestic and international long distance services and value-added services.

The long distance concessionaires include among others:

•  Alestra, S. de R.L. de C.V.;

•  Avantel, S.A. de C.V.;

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•  Axtel, S.A. de C.V.;

•  Iusatel, S.A. de C.V.;

•  Marcatel, S.A. de C.V.; and

•  Bestel, S.A. de C.V.

International liberalization trends will likely impact the flow of long distance telephone traffic to and from Mexico. In particular, demand for long distance services may be inhibited by the increasing use of VoIP through the Internet.

Mexican market characteristics

Population and economic growth.  According to the Economic Commission for Latin America and the Caribbean-CEPAL (Comisión Económica para América Latina y el Caribe), Mexico is the second largest country in Latin America in terms of population. According to CONAPO, in 2005, Mexico had an estimated population of 106.5. million and a population compound annual growth rate of approximately 1.14% for the period from 2000 to 2005. In 2006, the projected population by age groups will be 30.0% under the age of 15, 61.3% between the ages of 15 and 59 and only 7.7% over 60. After a decline in 1995, Mexico’s real gross domestic product grew for five straight years, rising by 5.1% in 1996, 6.8% in 1997, 4.8% in 1998, 3.7% in 1999 and 6.6% in 2000. However in 2001, the real gross domestic product decreased by 0.3%. In 2002, the growth of the real gross domestic product resumed as it increased by 0.8%, 1.4% in 2003, 4.5% in 2004 and in 2005 it increased in 2.9%, according to the INEGI and Banco Nacional de Mexico, S.A.

Underserved telephony market.  In 2003, The World Bank ranked Mexico as the 10th largest economy in the world. In 2004, Mexico was ranked 60th and 55th in the competitiveness index in the world according to the World Economic Forum. This relatively low level of wireline penetration evidences substantial unmet demand for fixed telephony service.

According to Pyramid Research, the wireline local telephony market represents approximately 33.75% of Mexico’s total telecommunications market in terms of revenue, which in turn, generated approximately U.S.$18.6 billion of revenue in 2004.

Projected growth trends.  With the introduction of competition in the Mexican telecommunications market, teledensity rates and line usage increased substantially. According to Pyramid Research, between 2004 and 2009 fixed line penetration in service in Mexico is expected to increase by 16.86%. We have not received an update on such estimates for 2005.

According to Pyramid Research, fixed communications market is expected to experience an annual growth rate of 2.0% from 2004 until 2009. International long distance services revenues are expected to experience strong price pressure, due to recent changes in the long distance rules affecting incoming traffic from the U.S., Mexico’s main source of international long distance traffic inflows. Overall volume from the U.S. to Mexico will increase making revenues from call termination an important component of Mexico’s voice services’ market. In spite of the sustained growth in switched traffic, revenues from long distance services in Mexico have fallen. A drop in tariffs resulting from intense competition has not been compensated by a sufficient increase in traffic. In the international long distance market, the reduction in termination rates and the growing proportion of bypass traffic have played a major role in inhibiting growth in revenues.

Total local wireline telephony revenues in Mexico are expected to surpass U.S.$11.0 billion by 2009. In contrast, international long distance services revenues are expected to experience a 3.8% decrease from 2004 until 2009.

Supervision and regulation of the Mexican telecommunications industry

General

The telecommunications industry in Mexico is subject to the Federal Telecommunications Law (Ley Federal de Telecomunicaciones) which was enacted in 1995. However, certain rules set forth under the General Means of

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Communications Law (Ley de Vías Generales de Comunicación), the Telecommunications Regulation (Reglamento de Telecomunicaciones) and the rules promulgated thereunder, generally remain effective and are referred to as the Old Telecommunications Law.

Under the Federal Telecommunications Law, the Mexican telecommunications industry is regulated for administrative and operational matters by COFETEL (Comisión Federal de Telecomunicaciones). COFETEL was created in 1996 as an autonomous entity from the SCT to regulate and promote the efficient development of the telecommunications industry in Mexico. COFETEL is responsible for, among other things:

•  enacting regulations and technical standards for the telecommunications industry;

•  ensuring that holders fulfill the terms of their concessions and permits;

•  suspending operators without concessions;

•  resolving interconnection controversies between competitors; and

•  maintaining a registry of applicable rates.

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

Effective April 11, 2006, the Mexican Congress enacted an amendment to the Law on Radio and Television and to the Federal Telecommunications Law. These amendments were highly controversial. The COFETEL has now also the ability to regulate broadcasting (radio and TV). Also as part of these amendments all the commissioners had to resign to their positions, effective May 12, 2006. To date the COFETEL commissions remain vacant. This uncertainty could adversely affect our business and subject us to additional legal liabilities or obligations. Additionally, we cannot predict how the SCT or COFETEL will interpret and implement the amendments to the Federal Telecommunications Law. We cannot predict how these new rules could affect our business.

Concessions and permits

General.  To provide public telephony services in Mexico through a public network, a service provider must first obtain a concession from the SCT. Pursuant to the Federal Telecommunications Law, concessions for public 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 networks may be extended for a term equivalent to the term for which the concession was originally granted. Concessions for spectrum frequencies will be re-auctioned at least three years prior to their expiration date. Concessions specify, among other things:

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

•  the allocated spectrum frequencies, if applicable;

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

•  the required capital expenditure program;

•  the term during which such service may be provided;

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

•  any other rights and obligations affecting the concession holder.

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

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

•  providing telecommunications services as a reseller.

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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.

In addition, the Mexican Congress modified the Special Production and Services Tax Law effective January 1, 2002, which established a new tax to services provided by telecommunications companies, 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. In 2002 and 2003 tax years Maxcom accrued the tax corresponding to the services that might be claimed by the Mexican tax authorities. As of January 1, 2004, telecommunications and supplementary services are no longer subject to this tax.

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

•  Mexican individuals; and

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

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

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

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

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

•  expiration of its term;

•  resignation by the concession holder or the permit holder;

•  revocation.  A concession or a permit may be revoked prior to the end of its term under certain circumstances, such as:

•  failure to exercise the rights of the concession within 180 days of the grant;

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

•  loss of the concession or permit holder’s Mexican nationality;

(1) Renewal on an annual basis.

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

•  unauthorized interruption of service;

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

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

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•  failure to pay to 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.

The concession expressly permits us to provide the following services:

•  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; and

•  dissolution or bankruptcy of the concession holder or the permit holder.

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 telecommunications company.

Rates for telecommunications services

Before the Federal Telecommunications Law was issued, 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 issued.

Under the Federal Telecommunications Law, rates for telecommunications services (including local, cellular and long distance 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 Mexican Federal Antitrust Commission (Comisión Federal de Competencia) to have substantial market power pursuant to the provisions of Mexico’s antitrust statute. All rates for telecommunications services (other than value-added services) must be registered with COFETEL prior to becoming effective. The Federal Telecommunications Law prohibits telecommunications providers from cross-subsidizing among their services and requires that they keep separate accounting for each of their services.

The Mexican Antitrust Commission has found that Telmex has dominant market share on the local, long distance and Internet and data transmission markets, as defined under Mexico’s antitrust statute. Based on this finding, COFETEL issued a resolution in September 2000 regulating Telmex as a dominant carrier, imposing special obligations regarding, among other things, quality of services, tariffs and disclosure of information. Telmex has obtained an injunction against potential COFETEL actions that intend to regulate Telmex by imposing special obligations on Telmex regarding, among other things, quality of services, tariffs and disclosure information. As a result of this injunction, the Mexican Antitrust Commission must restart the administrative procedures and prove again that Telmex has dominant market share on certain services.

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Our concessions

Local telephony.  We obtained our regional wireline local telephony concession in February 1997. In September 2001, this concession was expanded to a nationwide concession. The concession, which is not exclusive, grants us the right to provide business, residential and public wireline local telephony services all over Mexico. Our wireline local telephony concession has a term of 30 years and may be renewable for up to an equivalent period provided we have complied with all its terms.

The concession expressly permits us to provide the following services:

•  basic local telephony;

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

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

•  value-added services;

•  operator services;

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

•  credit or debit telephone cards; and

•  public telephony.

The concession does not impose any limitations on the setting of our rates other than the requirement that we file with COFETEL a notification of any rate change prior to having it take effect.

The concession required us to comply with service quality specifications and, starting in September 2001, to install infrastructure on the basis of a yearly schedule. According to this schedule, we had to install at least an aggregate of 376,000 lines in at least 394 cities and towns in Mexico by the end of 2006.

Although we complied with the requirement in our concession for the number of lines installed, we were in default with respect to the coverage obligations in certain cities and towns required by our concession.

However, on December 2004 we obtained an amendment to our concession by which we are required to provide services to the cities of Toluca, Edo. Mex.; Celaya, Gto.; Irapuato, Gto.; Leon, Gto.; Guadalajara, Jal.; Aguascalientes, Ags.; San Luis Potosi, SLP; Saltillo, Coah.; Monterrey, N.L.; and Nuevo Laredo, Tamps. by the end of 2014. We still have the obligation to have available capacity to provide service to an aggregate of 376,000 lines by 2006. Currently, we are in compliance with our obligation to have available capacity to provide local service in those cities. We believe that we will be able to comply with the obligation of having available capacity to provide service to an aggregate of 376,000 lines by 2006.

Failure to comply with the terms of the concession or to obtain a waiver or modification could result in its revocation and the loss of the Ps.14.8 million performance bond that we previously issued to the SCT. The Mexican government would not be required to compensate us for such revocation. See ‘‘— Concessions and permits — Termination.” We failed to provide the SCT with the performance bonds renewal for 2004, and such failure could be construed as a default on the terms of our concessions. We complied with such obligation for 2005.

As of January 1, 2006, the level of fines, which are based on a multiple of the Mexican minimum daily salary, ranged from Ps.97,340 to Ps.4.9 million, depending on the nature of the infraction. In the case of multiple recurring infractions, these fines may be doubled.

Long distance.  We obtained our nationwide long distance concession in February 1997, concurrently with our local telephony concession. Our nationwide long distance concession has a term of 30 years and may be renewable for up to an equivalent period, provided that we have complied with all its terms.

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The concession expressly permits us to provide the following services:

•  the carrying of switched traffic between two different local calling areas that requires the use of a dialing prefix for its routing;

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

•  the purchase and lease of network capacity from other carriers; andnationwide and international long distance telephony.

The concession expressly prohibits the following services:

•  those which require a concession for frequency bands of the radio electric spectrum for specific uses;

•  those which require a concession to occupy and exploit geostationary orbital positions and satellite orbits assigned to Mexico;

•  those which require a concession to operate radio or television broadcasting systems; and

•  cable or other restricted television.

The concession does not impose any limitations on our ability to set rates other than the requirement that we file with COFETEL a notification of any rate change prior to having it take effect.

The concession required us to comply with service quality specifications and to install infrastructure on the basis of the schedule for our local telephony concession. According to this schedule, we must provide nationwide long distance service in the same locations and at the same time in geographic areas where we provide local telephony services. Of these areas, we had the obligation to provide service in 394 cities and towns in Mexico using our own or leased infrastructure by the end of 2006. We were in default with respect to the coverage obligations in certain cities and towns required by our concession.

However, on December 2004 we obtained an amendment to our concession by which we are required to provide services to the cities of Toluca, Edo. Mex.; Celaya, Gto.; Irapuato, Gto.; Leon, Gto.; Guadalajara, Jal.; Aguascalientes, Ags.; San Luis Potosi, SLP; Saltillo, Coah.; Monterrey, N.L.; and Nuevo Laredo, Tamps. by the end of 2014. Currently, we are in compliance with our obligation to have available capacity to provide long distance service in those cities.

Failure to comply with the terms of the concession or to obtain a waiver or modification could result in its revocation and the loss of the Ps.14.8 million performance bond that we previously issued to the SCT. The Mexican government would not be required to compensate us for such revocation. See “Concessions and Permits Termination”. We failed to provide the SCT with the performance bonds renewal for 2004, and such failure could be construed as a default on the terms of our concessions. We complied with such obligation for 2005.

As of January 1, 2006, the level of fines, which are based on a multiple of the Mexican minimum daily salary, ranged from Ps.97,340 to Ps.4.9 million, depending on the nature of the infraction. In the case of multiple recurring infractions, these fines may be doubled.

We service our long distance concession through direct interconnection with other carriers and by reselling our long distance traffic to other carriers with such capability. We currently have long distance interconnection with Telmex in the cities of Mexico, D.F.; Puebla, Pue.; Queretaro, Qro.;Toluca, Edo. Mex.; Celaya, Gto.; Irapuato, Gto.; Leon, Gto.; Guadalajara, Jal.; Aguascalientes, Ags.; San Luis Potosi, SLP; Saltillo, Coah.; Monterrey, N.L.; and Nuevo Laredo, Tamps.

According to the Mexican telecommunications regulations, all local carriers must offer their customers the option to select the long distance carrier of their preference; this practice is known as pre-subscription. However, local carriers may request a waiver of this obligation from COFETEL.

On May 27, 2002, COFETEL granted us a waiver of the pre-subscription requirement. With this waiver, our local telephony customers who are currently using other long distance carriers may only change, if they wish to do so, to our long distance service. New local telephony customers must use our long distance service. This waiver is

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valid through May 2004 for Mexico City and the City of Puebla, and for five years (calculated from the date we begin to provide service) for anywhere else in Mexico including the City of Queretaro. We requested COFETEL an extension to such waiver. In addition, most of the new local carriers jointly signed a request to COFETEL to authorize an extension to the initial period of the mentioned waiver.

Microwave transmissions. Point-to-point.  In October 1997, we were awarded seven nationwidepoint-to-point microwave concessions. These concessions cover:

•  two consecutive frequency segments in the 15 GHz band, with a 56 MHz bandwidth;

•  three consecutive frequency segments in the 23 GHz band, with a 56 MHz bandwidth; and

•  two consecutive frequency segments in the 23 GHz band, with a 100 MHz bandwidth.

These concessions, which were issued in June 1998, have a term of 20 years. COFETEL will re-auction the frequencies covered by the concessions at least three years before the expiration date of the concessions. The concessions require us to provide available capacity to the general public.

We are currently in compliance with all the material terms of the concessions.

The failure to comply with the terms of the concessions could result in their revocation and the loss of up to Ps.13.4 million in performance bonds that we previously issued to the SCT for all of our sevenpoint-to-point concessions. The Mexican government would not be required to compensate us for such revocation. As of January 1, 2006, the level of fines, which are based on a multiple of the Mexican minimum daily salary, ranged from Ps. 97,340 to Ps.4.9 million, depending on the nature of the infraction. In the case of multiple recurring infractions, these fines may be doubled. We failed to provide the SCT with the performance bonds renewal for 2004, and such failure could be construed as a default on the terms of our concessions. We complied with such obligation for 2005.

These concessions do not impose any limitations on the setting of our rates other than the requirement that we file with COFETEL a notification of any rate change prior to having it take effect.

Point-to-multipoint.  In October 1997, we were awarded three regionalpoint-to-multipoint microwave concessions covering Regions 3, 5 and 8, which include states in the north and southeast of Mexico’s Gulf region in the 10.5 GHz with a 60 MHz bandwidth.

These concessions, which were issued in April 1998, have a term of 20 years. COFETEL will re-auction the frequencies covered by the concessions at least three years before the expiration date of the concessions. These concessions require us to install a network and offer service to at least 30% of the population in each region covered by the concessions by the end of the second year after the issuance of the concession.

Until December 2003 we, together with 14 other concessionaires, were unable to start operations in some of our Regions because of lack of commercially feasible technological solutions and equipment for those frequencies. COFETEL initially granted extensions until April 2000 and later extended them to October 2001. In November 2001 and again in December 2002, we requested that COFETEL amend ourpoint-to-multipoint concessions in order to postpone the installation of our network and the offering of our services until one year after the granting of such request. We have knowledge that other concessionaires have made similar requests.

The COFETEL granted an extension until February 2004. On March 31, 2004, we notified the COFETEL that we started operation in Puebla, and thus we comply with our initial coverage obligations for Region 8. We, however, have been unable to start operations in Regions 3 and 5 and such failure can cause that we lose these concessions. We are on the process of testing commercial operations in such Regions in order to fulfill the terms of ourpoint-to-point concessions. The failure to comply with the terms of the concessions or to obtain a waiver or modification could result in its revocation and the loss of the Ps.5.2 million performance bond that we previously issued to the SCT for all of our threepoint-to-multipoint concessions. The Mexican government would not be required to compensate us for such revocation. As of January 1, 2006 the level of fines, which are based on a multiple of the Mexican minimum daily salary, ranged from Ps. 97,340 to Ps.4.9 million, depending on the nature of the infraction. In the case of multiple recurring infractions, these fines may be doubled. We failed to provide the SCT with the performance bonds renewal for 2004, and such failure could be construed as a default on the terms of our concessions. We complied with such obligation for 2005.

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These concessions do not impose any limitations on the setting of our rates other than the requirement that we file with COFETEL a notification of any rate change prior to having it take effect.

Interconnection

In accordance with the Mexican telecommunications laws, all local telecommunications carriers are required to provide interconnection to each local, long distance and mobile carrier operating in Mexico.

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

Local interconnection.  In November 1998, we entered into an interconnection agreement with Telmex. This agreement calls for reciprocal interconnection rates forlocal-to-local services. The interconnection rate was Ps.0.1159, Ps.0.0990, Ps.0.1111, Ps.0.1096 and 0.1031 per minute for the months of December 2001, 2002, 2003, 2004 and 2005, respectively.

This agreement was amended in February 1999 to incorporate a “bill and keep” feature through September 15, 2002, provided we maintain a significant percentage of residential users, and again in November 2000, retroactive to March 2000, to exempt Internet service provider traffic from interconnection fees. In December 2003, the agreement was once again amended in order to reduce the percentage of imbalance from 70% to 30% for “bill and keep” purposes. A new amendment was executed in August 2004 reducing furthermore the allowed percentage of imbalanced traffic for the imbalanced traffic for the “bill and keep” procedure to 15%. This amendment will be effective temporarily until we can reach a definitive agreement with Telmex. Additionally, the amendments exempts call centers’ and new customers’ traffic from calculation of imbalance. Under the new “bill and keep” arrangement, if the imbalance between calls originated by Telmex and terminated by Maxcom and calls originated by Maxcom and terminated by Telmex during a month does not exceed 15%, then no interconnection fee amounts are payable by the net user of interconnection services. If the imbalance exceeds 15% in any given month, the “bill and keep” feature will not apply for that month.

If we fail to maintain a significant percentage of residential users, then the “bill and keep” arrangement will be terminated and asymmetrical interconnection rates may apply. COFETEL has not yet defined what constitutes a “significant percentage of residential users” in this case, although in our local concession and in those granted to Alestra and Avantel it defines it to mean that at least 50% of the customers are residential.

Through December 31, 2005, no material interconnection fees have been paid.

Mobile interconnection.  We have also signed reciprocal interconnection agreements with Telcel, a wholly-owned subsidiary of América Móvil, which is a spin-off of Telmex; with several subsidiaries of Iusacell and with Operadora Unefon, S.A. de C.V. (“Unefon”) and Pegaso Comunicaciones y Sistemas, S.A. de C.V., (now owned by Telefónica Móviles “Telefonica Moviles”). Telcel and Telefonica Moviles are the first and second largest mobile telephony service providers in Mexico, respectively. Telcel and Telefonica Moviles are nationwide cellular operators. Iusacell provides cellular mobile services in seven of the nine regions covering central Mexico. Unefon is a nationwide PCS mobile operator.

The mobile to wireline interconnection fees with these carriers were Ps.0.1159 Ps.0.0989, Ps.0.1111, Ps.0.1096 and Ps$0.1031 per minute for the months of December 2001, 2002, 2003, 2004 and 2005 respectively. The wireline to mobile interconnection fees under the “calling party pays” mode was Ps.1.90 per minute for December 2000, 2001, 2002, 2003 and 2004. There is no interconnection fee for wireline to mobile interconnection outside of the “calling party pays” mode. The interconnection agreements provide that transit from Telmex may be used at a rate per minute which was, Ps.0.0278 for the month of December, 2001 Ps.0.0304 for the month of December 2002, Ps. 0.0342 for the month of December 2003, Ps.0.0337 for the month of December 2004 and 0.317 for the month of December 2005.

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Long distance interconnection.  Long distance carriers are required to ensure call termination by providing transit and direct or indirect interconnection. Since we view long distance services as a complement to our core local telephony business, we started our operations giving our customers the option to use our long distance services or those of other providers. As a result, we granted long distance carriers the option to pick up calls at our facilities. However, in May 2002, we obtained a waiver from COFETEL of the obligation to offer such option to our customers See “— Our concessions — Long distance.”

We currently provide our long distance service only to our local telephony customers through our own network and leased facilities on a reselling basis.

Municipal and other regulatory approvals

Our transmission antennas and telecommunication sites are located in sites that may require municipal and federal approvals to operate. See “Item 3. Key Information — D. Risk factors relating to Maxcom — Our telecommunications network infrastructure has several vulnerabilities and limitations.”

C.   Organizational structure

Maxcom has four Mexican direct subsidiaries, Corporativo en Telecomunicaciones, S.A. de C.V., Maxcom Servicios Administrativos, S.A. de C.V., Maxcom SF, S.A. de C.V. and Maxcom TV, S.A. de C.V., and two indirect subsidiaries, Outsorcing Operadora de Personal, S.A. de C.V. and Técnicos Especializados en Telecomunicaciones, S.A. de C.V., each a Mexican limited liability company (sociedad anónima de capital variable), that provide corporate services to Maxcom. Maxcom owns all of the capital stock of the subsidiaries, except for one share of each, which share is owned by Corporativo en Telecomunicaciones, S.A. de C.V. in the case of Maxcom Servicios Administrativos, S.A. de C.V. and by Maxcom Servicios Administrativos, S.A. de C.V. for the cases of Corporativo en Telecomunicaciones, S.A. de C.V., Maxcom SF, S.A. de C.V. and Maxcom TV, S.A. de C.V. This organizational structure is due to the fact that Mexican law requires that limited liability companies have a minimum of two stockholders.

In February 2004, we incorporated a wholly owned subsidiary in the State of Delaware, U.S.A., under the name of Maxcom U.S.A., Inc. Also in February 2004 Maxcom U.S.A., Inc. applied before the U.S. Federal Communications Commission to obtain a license under section 214 of the Communication Act of 1934, to provide international telecommunications services between the United States and international points, mainly Mexico (also known as a “214 License”). The U.S. Federal Communication Commission granted the license in March 2004. Maxcom U.S.A., Inc. has not yet initiated significant operations in the U.S.

In February 2005, we incorporated Maxcom SF, S.A. de C.V., a wholly owned subsidiary, under the laws of Mexico. This subsidiary will be used as a special purpose vehicle to finance the securitization of Maxcom’s accounts receivable in the future.

In May 2005, we incorporated Maxcom TV, S.A. de C.V., a wholly owned subsidiary, under the laws of Mexico. Also in May, 2005, this subsidiary requested a license from the Mexican government to provide cable television services for the City of Puebla, Pue.

In June 2005, we incorporated Outsorcing Operadora de Personal, S.A. de C.V. as a wholly owned subsidiary of our subsidiaries Corporativo en Telecomunicaciones, S.A. de C.V. and Maxcom Servicios Administrativos, S.A. de C.V. This indirect subsidiary provides personnel services to Maxcom.

In April 2006, we incorporated Técnicos Especializados en Telecomunicaciones, S.A. de C.V. as a wholly owned subsidiary of our subsidiaries Corporativo en Telecomunicaciones, S.A. de C.V. and Maxcom Servicios Administrativos, S.A. de C.V. This indirect subsidiary provides personnel services to Maxcom.

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D.   Property, plant and equipment

We currently lease the buildingsand/or the land where our operations are carried out and our microwave transmission equipment and switching centers are located.

We lease space for administrative offices in Mexico City and in the cities of Puebla and Queretaro. Our main headquarters are located in Santa Fe, Mexico City in a building leased for a7-year term that expires on December 31, 2012 and that is renewable for one additional5-year terms in accordance with an amendment to our original lease agreement. This lease area is comprised of 85,271 square feet.

In May 2003, we reached an agreement with our landlord at our former headquarters in Magdalena, Mexico City. Pursuant to this agreement, we retained a leasehold interest through May 2013 on the first floor, where one of our Lucent 5ESS switches is located, and a portion of the roof-top, where we have microwave transmission antennas. We were also released from lease obligation on approximately 35,887 square feet plus parking space of the building originally running through September 30, 2013. In exchange, we agreed to prepay the full, ten-year lease obligations on the first floor and a portion of the roof-top, which amounted U.S.$2.7 million and was payable in installments through May 2004.

Our offices in the City of Puebla are leased for a10-year renewable term that expires on March 25, 2008. These offices in Puebla are comprised of 14,100 square feet and hold one of our Lucent Technologies 5ESS switch. We have a branch office in Puebla that is leased for a5-year term. The original terms expired on June 1, 2004. The lease was renewed for an additional 5 year term that expires on May 31, 2009. This building is comprised of 1,350 square feet. We cancelled in June 2004, the lease agreement for the parking of our vehicular fleet in the City of Puebla. This parking space was comprised of 13,185 square feet.

Our offices in the City of Queretaro are leased for a15-year renewable term that expires on August 1, 2017. These offices in Queretaro are comprised of 12,012 square feet. We have a branch office in Queretaro that is leased for a15-year term that expires on June 23, 2017. This branch office is comprised of 33,947 square feet and holds one of our other Lucent Technologies 5ESS switch.

On August 1, 2005, we leased a warehouse comprised of 29, 324.9 square feet for a3-year term that expires on July 31, 2008. In addition we lease approximately 134 other sites that are used as hosts or single-site buildings and are located throughout Mexico City and the cities of Puebla. Additionally, we are the owners of five portions of land in the City of Puebla that are used as part of our infrastructure. We believe that our facilities are adequate for our present needs and are suitable for their intended purposes.

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ITEM 5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS

All peso amounts discussed in this annual report are presented in constant December 31, 2005 pesos in accordance with Mexican GAAP, except as otherwise indicated. You should read the following discussion and analysis in conjunction with the consolidated financial statements included elsewhere in this annual report. Unless otherwise indicated, all financial information in this annual report is presented in constant pesos as of December 31, 2005. The U.S. dollar translations provided in this annual report are solely for the convenience of the reader and are, unless otherwise indicated, calculated utilizing the noon buying rate at December 30, 2005, which was Ps.10.63 per U.S.$1.00 as reported by the Federal Reserve Bank of New York. Sums may not add due to rounding.

The following discussion and analysis is intended to facilitate an understanding and assessment of significant changes and trends in our historical consolidated results of operations and financial condition and factors affecting our financial resources. It should be read in conjunction with the audited consolidated financial statements as of December 31, 2004 and 2005 and for the years ended December 31, 2003, 2004 and 2005 and related notes.

These consolidated financial statements, which appear elsewhere in this annual report, have been prepared in accordance with Mexican GAAP, which differs in certain significant respects from U.S. GAAP. See note 21 to our consolidated financial statements for a description of the principal differences between Mexican GAAP and U.S. GAAP applicable to us. Note 21 to our financial statements also provides a reconciliation to U.S. GAAP of our net losses for the years ended December 31, 2003, 2004 and 2005 and of stockholders’ equity as of December 31, 2004 and 2005.

Our financial statements have been prepared in accordance withBulletin B-10, “Recognition of the Effects of Inflation on Financial Information,” as amended, issued by the Mexican Institute of Public Accountants (“MIPA”), which provides guidance for the recognition of the effects of inflation and translation of foreign currency transactions.

We restate our income statement to reflect the purchasing power of the peso as of the most recent reporting date (December 31, 2005), using a restatement factor derived from the change in the national consumer price index from the month in which the transaction occurred to the most recent year-end. Except where otherwise indicated, financial data for all periods in the consolidated financial statements and throughout this annual report have been restated in constant pesos as of December 31, 2005. References in this annual report to “real” amounts are to inflation-adjusted pesos and references to “nominal” amounts are to unadjusted historical pesos. In calendar years 2003, 2004 and 2005, the rates of inflation in Mexico, as measured by changes in the Mexican national consumer price index, were 4.0%, 5.2% and 3.3%, respectively.

Bulletin B-12, issued by the MIPA, specifies the appropriate presentation of the statement of changes in financial position when the financial statements have been restated in constant monetary units.Bulletin B-12 identifies the sources and applications of resources as the differences between beginning and ending financial statement balances in constant monetary units. The Bulletin also requires that monetary and foreign exchange gains and losses not be treated as non-cash items in the determination of resources provided by operations.

Under Mexican GAAP and in accordance withBulletin B-10, we are required to quantify all financial effects of operating and financing the business under inflationary conditions. For presentation purposes, “integral cost of financing” refers to the combined financial effects of:

•  net interest expense and interest income;

•  net foreign exchange gains or losses; and

•  net gains or losses on monetary position.

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.

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The gain or loss on monetary position refers to the gains and losses realized from holding net monetary assets or liabilities and reflects 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.

Recent developments

On August 30, 2005, the Company’s shareholders’ approved a corporate restructuring whereby Ps.8.4 million of assets, Ps.8.3 million of liabilities and Ps.0.1 million of equity were transferred to a newly formed spun off company, Mijolife, S.A. de C.V. which was owned by the existing shareholders in the same proportion as their ownership in the Company. In accordance with the Mexican tax law, a proportional amount of existing net operating tax loss carryforwards were also transferred therewith.

In a subsequent transaction with the Company’s shareholders, the Company reacquired a 99% interest in Mijolife, S.A. de C.V. for Ps.218,027 (Ps.214,000 Nominal), an amount equal to its fair market value. Such amount was subsequently capitalized as equity. On November 22, 2005, the Company sold Mijolife, S.A. de C.V. to a third party for Ps.218,027 (Ps. 214,588 Nominal) in cash with no resulting gain or loss. Ps.15,365 of expenses incurred in the transactions described above were reflected as a special item in the statement of income.

On March 13, 2006 we announced an agreement in principle, subject to certain regulatory approvals and other conditions, to acquire Grupo Telereunión. As part of the transaction, the Vázquez-Arroyo Carstens family, current owners of Grupo Telereunión will also make an equity investment in Maxcom, which will be used primarily to fund additional growth and the expansion of its current product offering.

The announced acquisition will give us 480 kms of fiber optic rings, and 4,300 kms of national backbone with a border crossing into McAllen, TX. The acquisition of Grupo Telereunión will also provide us with a broader national footprint by adding 680 kms of fiber optic infrastructure in the Gulf region, local interconnection in 59 cities and duplicating our switching capabilities.

As a result of the acquisition and the equity investment, the Vázquez-Arroyo Carstens family will own approximately 16.34% of the company’s total equity. Upon completion of the transaction, Mr. Eduardo Vázquez-Arroyo Carstens will become vice chairman of our Board of Directors.

Grupo Telereunión was granted the license to operate as a long distance carrier and value-added service provider in 1998. It began its operations in 2000 and currently operates a 4,300 kms fiber optic network, with interconnection in 59 cities. In addition, Grupo Telereunión has border access to the U.S. It offers prepaid cards, calling cards,IP-based services, long distance services and broadband capacity services.

A.   Results of operations

Overview of Maxcom

We are a growing facilities-based telecommunications company operating in the competitive local exchange carrier market in Mexico. We are focused on developing our network and support infrastructure required to provide local, long distance, data, value-added, CATV andIP-based services to targeted small and medium-sized business and residential customers within our concession areas. We position ourselves as a single-source provider of telecommunications services to our customers.

We commenced commercial operations on May 1, 1999 and currently providelast-mile connectivity to small and medium-sized business and residential customers in greater metropolitan Mexico City, Puebla, Queretaro, Toluca, Monterrey, Guadalajara and San Luis Potosi.

We were incorporated in February 1996 to take advantage of business opportunities arising out of the liberalization of Mexico’s telecommunications industry. In February 1997, we were awarded Mexico’s first competitive wireline local and long distance telephony concession, covering the Federal District of Mexico and over 100 cities and towns in the Gulf region for local service and the whole nation for long distance service. This concession has a term of 30 years. Our concession was expanded in September 1999 to cover most of the greater

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Mexico City area, and a wider area within the Gulf region. In September 2001, our wireline local telephony concession was expanded to cover all of Mexico.

We were also awarded seven nationwidepoint-to-point and three regionalpoint-to-multipoint microwave concessions in October 1997, each for 20 years.

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/U.S. dollar exchange rate band by 15% and, two days later, by eliminating the band to allow the peso to fluctuate freely against the U.S. dollar. This resulted in a major devaluation of the peso relative to the U.S. dollar. Where the noon buying rate had been Ps.3.45 per U.S.$1.00 on December 19, 1994, by December 31, 1994 the noon buying rate had fallen to Ps.5.00 per U.S.$1.00, representing a 44.9% devaluation. The peso continued to decline against the U.S. dollar during 1995, closing at a noon buying rate of Ps.7.74 per U.S.$1.00 on December 31, 1995, which represented a 54.8% devaluation relative to the U.S. 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 5.3% and 6.8%, respectively. However, the financial crises 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 U.S. dollar. From 1999 to 2000, thepeso-to-dollar exchange rate remained relatively stable. In 2001, thepeso-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 and 2003, the peso devalued 13.9% and 7.8% relative to the U.S. dollar, in 2004 the peso revalued 0.8% relative to the U.S dollar. and in 2005 the peso revalued 4.7% relative to the U.S. dollar. In the first five months of 2006, the peso reevaluated 6.2% relative to the U.S. dollar.

Peso devaluations contributed to sharp increases in inflation. The following table summarizes the general economic conditions and inflation in Mexico for the periods specified below:

										Gross International
							Mexican GDP			Reserves as of the
	Inflation			Average			Annual Growth			End of Each Year
Year Ended December 31	Rate			28-day Cetes			Rate			(Billion)
1996		27.7	%		31.3	%		5.3	%	$	17.5
1997		15.7	%		19.8	%		6.8	%	$	28.0
1998		18.6	%		24.6	%		4.9	%	$	30.1
1999		12.3	%		21.3	%		3.9	%	$	30.7
2000		9.0	%		15.3	%		6.6	%	$	35.6
2001		4.4	%		11.3	%		(2.0	)%	$	44.8
2002		5.7	%		7.1	%		0.8	%	$	50.7
2003		4.0	%		6.2	%		1.4	%	$	59.0
2004		5.2	%		6.8	%		4.2	%	$	64.2
2005		3.3	%		9.2	%		3.0	%	$	74.1

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

•  the increase in the peso-carrying costs of our U.S. dollar-denominated debt and capital expenditure requirements;

•  the ensuing decrease in the purchasing power of Mexican consumers, which results in a decrease in the demand for telephony services; and

•  our inability, due to competitive pressures, to increase our prices in line with inflation.

We also record non-cash gains or losses on monetary position, which represent the erosion of purchasing power resulting from the effect of inflation on our holdings of monetary assets and liabilities. Our monetary

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liabilities, consisting primarily of our 133/4% notes, old notes and new notes, bank debt and accounts payable, have exceeded, and are expected to continue to exceed, our monetary assets, which consist primarily of cash and cash equivalents and accounts receivable. As a result, inflation will tend to produce gains to monetary position.

Impact of foreign currency fluctuations

Our principal foreign currency fluctuation risk involves changes in the value of the peso relative to the U.S. dollar. Although U.S. dollar-denominated revenues and expenses, including capital expenditures, are exposed to foreign currency fluctuations, our financial instruments are the most exposed. As of December 31, 2005, the amount of debt denominated in U.S. dollars was Ps.856.2 million.

Depreciation of the Peso against the U.S. dollar results in increase of our dollar-denominated revenues and expenses as reported in Peso. Conversely, appreciation in the value of the Peso against the U.S. dollar results in decreases to U.S. dollar-denominated revenue and expenses as reported in Pesos.

Interest expense on our U.S. dollar-denominated debt, as expressed in Pesos in our financial statements, varies with exchange rate movements. Depreciation of the Peso results in increases in interest expense on a Pesos basis.

We record foreign exchange gains or losses when the Peso appreciates or depreciates against the U.S. dollar. Because our U.S. dollar-denominated monetary liabilities have exceeded, and are expected to continue to exceed, our U.S. dollar-denominated monetary assets, depreciation of the Peso against the U.S. dollar will result in foreign exchange losses.

From time to time, we assess our exposure and consider opportunities to manage this risk, for instance through the use of hedging instruments. In order to minimize the exchange rate risk of the Mexican Peso-U.S. dollar. On July 11, 2005 we entered an exchange rate stability hedging transaction. This transaction relates to the payment of long-term commitments agreed in U.S. dollars, which maturity expires in 2007. This transaction has no additional related costs; the notional amount of the hedge is of $16,709 valuated at a future exchange rate fixed in Ps.11.40 per U.S. dollar.

See item 3. “Key Information — Selected Financial Data” for a discussion of exchange rates.

Capitalization of pre-operating expenses

We commenced commercial operations on May 1, 1999. As permitted under Mexican GAAP, during our pre-operating stage, we capitalized all of our general and administrative expenses and our net integral cost of financing.

We were required to begin to amortize all previously capitalized pre-operating costs. These capitalized pre-operating expenses, net, which balance amounted to Ps.195.2 million at December 31, 2003, Ps.158.6 million at December 31, 2004 and Ps.122.3 million at December 31, 2005, are amortized on a straight-line basis for a period not exceeding ten years.

Customer attrition (churn)

We historically have experienced customer attrition or churn. Churn results in the loss of future revenue from the customers whose service is disconnected, as well as the inability to recoup costs incurred to acquiring the customer, such as installation cost and commissions. Churn occurs for several reasons, including disconnection of a customer for non-payment of the bills and disconnection by the customer who chooses to switch to a competing company or terminate the service.

The following table summarizes our average monthly churn rates for the periods specified below:

Year Ended	Average Monthly
December 31	Churn Rate
2002		2.98	%
2003		2.62	%
2004		2.01	%
2005		1.82	%

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Voice, data and wholesale revenues

Voice services are our core business. Revenues from voice services include:

•  installation charges of voice lines;

•  monthly fees for the rental of voice lines, which include, depending on the product, a certain number of free local calls;

•  usage charges of voice lines, which can be local calls above those already included in the monthly fees, long distance minutes, as well as minutes to mobile numbers under the Calling Party Pays modality;

•  charges relating to value-added services such as voice mail, call waiting, call forwarding, three-way calling and caller identification;

•  interconnection fees; and

•  the sale of telephone sets.

During 2005, we entered into strategic and commercial alliances with two companies that render cable television (“CATV”) and Internet services to also render telephony services using CATV infrastructure. We issue a monthly invoice to the end-customer and record the three services (voice, data and video) as revenue. Likewise, the Company receives from CATV companies an invoice for television and Internet services (for the pertinent month), which is recorded as a decrease to revenue of the Company so that only revenue for voices services is recognized.

Revenues from data services include: Internetdial-up access, ADSL, dedicated Internet access, digital private lines and lease of backbone capacity. We charge for these services on a bandwidth basis.

Wholesale service revenues are related basically to the sale of bulk minutes where the cost per minute depends on the volume of traffic. Customers include high-usage customers, Internet service providers and carriers with whom we do not have “bill & keep” agreements (such as long distance and mobile carriers). We also include in this group other miscellaneous revenues.

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 of the voice business. We calculate ARPU by dividing the total voice revenues for a given period by the average number of voice lines in service during such period. Revenues from data and wholesale services are reported separately and are not the factor in calculating ARPU.

We calculate the ARPU for voice lines for each of our business and residential segments. Overall ARPU is affected by our business/residential line mix as business lines tend to generate higher ARPU than residential lines. Total Company ARPU includes Public Telephony revenues and lines.

Useful lives of fixed assets

As of December 31, 2005, we requested an independent expert appraiser to make a technical study on the operating and use conditions of our fixed assets, to determine whether the useful lives previously estimated by us should be restated. As result of this study, we extended the remaining useful lives of our fixed assets and recalculated the amount of depreciation for year 2005, which amounted to Ps.142.3 million. If depreciation would have been estimated based on the previous remaining useful lives, the depreciation for the fiscal year would have been of Ps.215.5 million. See note 7 to our consolidated financial statements for a more thorough description of the increased lives of fixed assets.

Spin-off of the Company and sale of subsidiary

On August 30, 2005, the Company’s shareholders approved a corporate restructuring whereby Ps.8.4 million of assets, Ps.8.3 million of liabilities and Ps.0.1 million of equity were transferred to a newly formed spun off company, Mijolife, S.A. de C.V. which was owned by the existing shareholders in the same proportion as their

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ownership in the Company. In accordance with Mexican tax law, a proportional amount of existing net operating tax loss carryforwards were also transferred therewith.

In a subsequent transaction with the Company’s shareholders, the Company reacquired a 99% interest in Mijolife, S.A. de C.V. for Ps.218,027 (Ps.214,000 Nominal), an amount equal to its fair market value. Such amount was subsequently capitalized as equity. On November 22, 2005, the Company sold Mijolife, S.A. de C.V. to a third party for PS.218,027 (Ps.214,588 Nominal) in cash with no resulting gain or loss. Ps.15,365 of expenses incurred in the transactions described above were reflected as a special item in the statement of income.

Results of operations

The following table sets forth, for the periods indicated, selected statement of operations data calculated in accordance with Mexican GAAP and expressed as a percentage of net revenue:

	Year Ended December 31
	2005			2004			2003
Net revenues		100	%		100	%		100	%
Operating cost and expenses:
Network operating costs		33	%		35	%		36	%
Selling, general and administrative expenses		41	%		43	%		50	%
Depreciation and amortization		24	%		39	%		44	%
Total operating cost and expenses		99	%		117	%		130	%
Operating profit (loss)		1	%		(17	)%		(30	)%
Integral (income)/cost of financing		(5	)%		5	%		16	%
Special item		1	%		0	%		0	%
Other income (expense), net		1	%		0	%		0	%
Taxes		2	%		3	%		2	%
Net loss for the year		6	%		15	%		48	%

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The following table sets forth, for the periods indicated, selected statement of operations data calculated in accordance with Mexican GAAP showingyear-over-year variations:

	Year Ended December 31,									Percentage Change
	2005			2004			2003			2005/2004			2004/2003
	(In millions)
Net revenues	Ps.	1,150.5		Ps.	897.1		Ps.	832.2			28.2	%		7.8	%
Operating cost and expenses:
Network operating costs		(383.8	)		(316.6	)		(299.0	)		21.2	%		5.9	%
Selling, general and administrative expenses		(468.3	)		(386.9	)		(419.0	)		21.0	%		(7.7	)%
Depreciation and amortization		(281.6	)		(346.0	)		(365.4	)		(18.6	)%		(5.3	)%
Total operating cost and expenses	Ps.	(1,133.7	)	Ps.	(1,049.5	)	Ps.	(1,083.4	)		8.0	%		(3.1	)%
Operating profit (loss)	Ps.	16.8		Ps.	(152.4	)	Ps.	(251.2	)		(111.0	)%		(39.3	)%
Integral (income) cost of financing		(55.1	)		48.9			(133.7	)		(212.7	)%		(136.6	)%
Special item		(15.4	)		0.0			0.0			n/a			n/a
Other income
(expense), net		9.0			(0.8	)		(0.2	)		(1225.0	)%		300.0	%
Taxes		(26.6	)		(29.0	)		(14.0	)		(8.3	)%		107.1	%
Net loss for the year	Ps.	(71.3	)	Ps.	(133.3	)	Ps.	(399.1	)		(46.5	)%		(66.6	)%

Year ended December 31, 2005 compared to year ended December 31, 2004

Net revenues

Our net revenues primarily include monthly fees, usage fees, installation charges, interconnection fees and the sale of telephone sets. See note 4.r. to the consolidated financial statements included in this annual report for an explanation of how we recognize revenues.

Our net revenues increased 28.2% in 2005 as compared to 2004, from Ps.897.2 million in 2004 to Ps.1,150.5 million in 2005.

Voice revenues increased by 25.8%, from Ps.739.4 million in 2004 to Ps.930.2 million in 2005. This increase was primarily due to 23.0% increase of the number of average voice lines in service from 142,685 in 2004 to 175,439 in 2005, as we continued the buildout of our network infrastructure and had more voice lines available. The increase in voice lines produced a 13.3% increase in monthly fee revenues (from Ps. 340.6 million in 2004 to Ps. 385.9 million in 2005) and a 27.7% increase in overall usage fees (from Ps. 395.9 million in 2004 to Ps. 505.4 million in 2005).

Wholesale revenues increased by 47.4%, from Ps.114.6 million in 2004 to Ps.168.9 million in 2005. This increase was primarily due to a 20.6% increase in traffic from 980.6 millions minutes in 2004 to 1,183.1 millions minutes in 2005 together with a 22% increase in the average cost per minute.

The following table presents a breakdown of our revenues by source for 2005 and 2004:

	Year Ended December 31
	2005		2004
	(In millions)
Voice	Ps.	930.2	Ps.	739.4
Data		51.4		43.2
Wholesale		168.9		114.6
Total revenues	Ps.	1,150.5	Ps.	897.2

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The following table presents a breakdown of our Average Revenue Per User (ARPU) for 2005 and 2004.

	ARPU
	2005		2004		%
	(In U.S. dollars)
Business
Monthly charges	$	22.3	$	22.9		(2	)%
Usage		53.9		54.9		(2	)%
Subtotal		76.2		77.8		(2	)%
Non-recurring		1.4		3.6		(60	)%
Total business	$	77.6	$	81.4		(5	)%
Residential
Monthly charges	$	16.3	$	17.6		(8	)%
Usage		12.1		13.6		(11	)%
Subtotal		28.4		31.2		(9	)%
Non-recurring		3.0		2.0		47	%
Total residential	$	31.4	$	33.2		(6	)%
Company
Monthly charges	$	17.1	$	18.6		(8	)%
Usage		22.4		21.6		4	%
Subtotal		39.5		40.2		(2	)%
Non-recurring		2.7		2.3		14	%
Total company	$	42.2	$	42.5		(1	)%

Business ARPU decreased 5% to U.S.$77.6 in 2005 from U.S.$81.4 in 2004, as a result of (i) a 2% decrease in monthly fees related to a change in the product mix, given that each product generates different rates; (ii) a 2% decrease in usage charges as a result of a lower combined traffic rates; and, (iii) a 60% decrease in installation charges as we continued waiving installation fees in many cases during 2005 due to competitive pressures.

Residential ARPU decreased 6% to U.S.$31.4 in 2005 from U.S.$33.2 in 2004. The decrease was due to (i) a 8% decrease in monthly fees; and, (ii) a 11% decrease in usage charges. These decreases were partially offset by a 47% increase in installation charges basically related to the installation of lines on the CATV network.

The following table presents a breakdown of our lines by type of customer at December 31, 2005 and 2004 and the percentage variation:

	At December 31
	2005		2004		%
Voice lines:
Business lines		36,680		28,249		30	%
Residential lines		154,233		125,934		22	%
Public Telephony		5,289		492		975	%
Wholesale lines		10,090		10,220		(1	)%
Total lines		206,292		164,895		25	%

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Operating costs and expenses

Our operating costs and expenses include:

•  network operating costs which, include technical expenses (comprised of electric power, site leases and maintenance of telecommunications equipment), installation expenses, when applicable and disconnection expenses;

•  selling, general and administrative expenses, which primarily included salaries, wages and benefits; consulting fees, which primarily related to consulting services and general legal and accounting fees; leasing costs which primarily related to our headquarters, warehouses, and other facilities; marketing expenses which primarily related to the implementation of our branding campaign, general advertising and promotions; and provisioning for bad debt; and

•  depreciation and amortization mainly related to pre-operating expenses, frequency rights, telephone network systems and equipment and intangibles.

Our operating costs and expenses were Ps.1,133.7 million in 2005, a 8.0% increase as compared to Ps.1,049.5 million in 2004. This increase was primarily due to:

•  a Ps.53.0 million, or 23.9%, increase in network operating services resulting mainly from (i) a Ps.30.4 million increase inlocal-to-mobile interconnection costs associated with a significant increase inlocal-to-mobile traffic, together with a Ps13.7 million increase in long distance interconnection as a result of increased long distance traffic, (ii) Ps.6.0 million costs associated with the operation of the CATV network, (iii) Ps.4.0 million increase in costs related to the lease of ports and circuits required for our backbone and last mile connectivity as a result of the growth of our network, and, (iv) Ps.1.0 million lower other costs, primarily the reduction of internet service costs as a result of lower rates obtained from new suppliers of internet access;

•  a Ps9.8 million, or 11.8% increase in technical expenses primarily due to (i) a 12.2% increase, or Ps$4.3 million in maintenance as a result of our larger telephone network, (ii) a Ps$2.2 million, or 7.8% increase in leases of sites and expenses related to the operation of our telephone network, and (iii) Ps.3.3 million in other expenses;

•  a Ps.64.4 million, or 18.6%, decrease in depreciation and amortization mainly related to the modification of the remaining useful lives and recalculation of the depreciation for the year 2005; and

•  a Ps.4.3 million, or 37.3%, increase in installation expenses basically as a result of lines installed on the CATV network. As a result of competitive pressures we have waived and will waive installation charges to our customers (we record installation expense at the time of installation only when we bill our customers for installation fees, and during 2004 and 2005 we waived installation fees in many instances due to competitive pressures), otherwise we capitalize and amortize the installation costs.

Selling, general and administrative expenses increased Ps.81.4 million, or 21.0% primarily due to (i) Ps.58.0 million higher salaries, wages and benefits related to increased headcount, (ii) a Ps.19.6 million pesos increase in sales commissions as a result of higher gross installed lines from 63,074 in 2004 to 82,113 in 2005, (iii) a Ps.7.8 million increase in fees paid to external advisors, and (iv) a Ps. 11.3 million decrease in other general and administrative expenses.

These decreases were offset in part by (i) a Ps.7.8 million decrease in bad debt provisioning as a result of improved collection efforts, (ii) a Ps.5.8 million decrease in leases of office building as a result of a renegotiation with the landlord at our headquarters, (iii) Ps. 1.7 million decrease in advertising expenses, and (iv) Ps. 11.3 million increase in other general and administrative expenses.

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Integral cost of financing

Our integral cost of financing was a negative Ps.55.0 million in 2005, a 212.7% decrease as compared to positive Ps.48.8 million in 2004. The following table sets forth our integral cost of financing for the periods under review:

	Year Ended December 31
	2005			2004
	(In millions)
Interest paid — Net	Ps.	(97.1	)	Ps.	(38.7	)
Exchange gain (loss) — Net		20.0			(1.5	)
Gain on monetary position		22.1			89.0
Integral cost of financing	Ps.	(55.0	)	Ps.	48.8

The decrease in integral cost of financing was primarily due to:

(i) a Ps.58.4 million, or 150.8% increase in interest paid as a result of interest paid on debt together with interest paid on financing obtained from local banks and suppliers during 2005.

(ii) a Ps.21.4 million reduction in exchange losses, as a consequence of the effect on our dollar-denominated debt of a revaluation of the peso as compared to the dollar during 2005, when compared to the devaluation of the peso during 2004, as well as lower dollar-denominated indebtedness due to our October 2004 exchange offer; and

(iii) a Ps.66.9 million, or 75.2% decrease in gain on net monetary position, as a result of the effect of a lower inflation on our liabilities monetary position in 2005 as compared to the inflation during 2004.

Tax provisions

As of December 31, 2005, we determined deferred tax liabilities of Ps.26.0 million generated mainly by the decrease in our cumulative tax losses carry forwards. As of December 31, 2004, we determined deferred income tax assets generated by the cumulative tax losses carry forwards; however, since there was no certainty that they would be realized within a reasonable term, such benefit was reserved.

Asset tax is incurred at the rate of 1.8% over the net amount of certain assets and liabilities only when this tax exceeds the Income Tax incurred. During the fiscal year that ended on December 31, 2005, we did not generate a tax base for the Asset Tax. At the close of the fiscal year of 2004, the provision for the Asset Tax was of Ps.27.8 million.

Employees’ profit sharing is estimated applying the procedures set forth in the Mexican Income Tax Law. During 2005 we did not generate employee’s profit sharing. During 2004 we generated Ps.0.5 million of employee’s profit sharing.

Year ended December 31, 2004 compared to year ended December 31, 2003

Net revenues

Our net revenues increased 7.8% in 2004 as compared to 2003, from Ps.832.3 million in 2003 to Ps.897.2 million in 2004. This increase was primarily due to 13.3% increase in the average number of voice lines in service (excluding public telephony lines) from 125,723 in 2003 to 142,439 in 2004, as we continued the buildout of our network infrastructure. The increase in voice lines produced a 0.7% increase in monthly fee revenues (from Ps.320.1 million in 2003 to Ps.322.4 million in 2004) and a 9.0% increase in overall usage fees (from Ps.344.1 million in 2003 to Ps.375.2 million in 2004).

Wholesale revenues increased by 24.0%, from Ps.92.4 million in 2003 to Ps.114.6 million in 2004. This increase was primarily due to a 54.5% increase in traffic from 634.0 million minutes in 2003 to 980.6 million minutes in 2004, partially offset by a 13.0% decrease in the average cost per minute.

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The following table presents a breakdown of our revenues by source for 2004 and 2003.

	Year Ended December 31
	2004		2003
	(In millions)
Voice	Ps.	739.4	Ps.	691.2
Data		43.2		48.7
Wholesale		114.6		92.4
Total revenues	Ps.	897.2	Ps.	832.3

The following table presents a breakdown of our Average Revenue per User (ARPU) for 2004 and 2003.

	ARPU
	2004		2003		%
	(In U.S. dollars)
Business
Monthly charges	$	22.9	$	26.6		(14	)%
Usage		54.9		56.6		(3	)%
Subtotal		77.8		83.3		(7	)%
Non-recurring		3.6		3.3		(9	)%
Total business	$	81.4	$	86.5		(6	)%
Residential
Monthly charges	$	17.6	$	18.4		(4	)%
Usage		13.6		13.4		2	%
Subtotal		31.2		31.7		(2	)%
Non-recurring		2.0		1.3		56	%
Total residential	$	33.2	$	33.0		1	%
Company
Monthly charges	$	18.6	$	19.9		(7	)%
Usage		21.6		21.4		1	%
Subtotal		40.2		41.3		(3	)%
Non-recurring		2.3		1.7		34	%
Total company	$	42.5	$	43.0		(1	)%

Business ARPU decreased 6% to U.S.$81.4 in 2004 from U.S.$86.5 in 2003, as a result of (i) a 9% increase in installation charges as we waived installation fees in many cases during 2004 due to competitive pressures, (ii) a 3% reduction in usage charges as a result of a slightly lower number of local, long distance and mobile outbound calls per line and, (iii) a 14% decrease in monthly fees related to a change in the product mix, given that each product generates different rates.

Residential ARPU increased 1% to U.S.$33.2 in 2004 from U.S.$33.0 in 2003. The increase was mainly the result of a 2% increase in usage charges.

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The following table presents a breakdown of our lines by type of customer at December 31, 2004 and 2003 and the percentage variation:

	At December 31
	2004		2003		%
Voice lines:
Business lines		28,249		24,305		16	%
Residential lines		125,934		106,389		18	%
Public telephony		492		—		N/A
Wholesale lines		10,220		6,850		49	%
Total lines		164,895		137,544		20	%

Operating costs and expenses

Our operating costs and expenses were Ps.1,049.5 million in 2004, a 3.1% decrease as compared to Ps.1,083.4 million in 2003. This decrease was primarily due to:

•  a Ps.15.7 million, or 7.6% increase in network operating costs resulting mainly from (i) a Ps.14.5 million increase inlocal-to-mobile interconnection costs associated with significant increases inlocal-to-mobile traffic, partially offset by a Ps.4.5 million decrease in long distance interconnection as a result of lower per-minute rates obtained from several carriers and improved routing of our long distance traffic, (ii) Ps.6.6 million increase in costs related to the lease of circuits required for our backbone and last mile connectivity as a result of the growth of our network, and (iii) Ps.0.9 million lower other costs, primarily the reduction of internet service costs as a result of lower rates obtained from new suppliers of internet access;

•  a Ps. 17.6 million or 26.7% increase in technical expenses primarily due to (i) a 46.9% increase, or Ps.11.3 million in maintenance as a result of our larger telephone network, and (ii) a Ps. 6.3 million, or 15.1% increase in leases of sites and expenses related to the operation of our network;

•  a Ps.19.3 million, or 5.3% decrease in depreciation and amortization related to the termination of the depreciation of some assets with short expected life period such as electronic and computing equipment and software; and

•  a Ps.15.7 million, or 57.4% reduction in installation expenses due to waivers of installation charges granted as a result of competitive pressures (we record installation expense at the time of installation only when we bill our customers for installation fees, and during 2003 and 2004 we waived installation fees in many instances due to competitive pressures). Through December 31, 2002, when we waived installation costs to our customers, installation costs were capitalized and amortized on a straight-line basis over a period of 20 years. Beginning in 2003, when we waive installation costs, we capitalize and amortize such costs on a straight-line basis over a period equal to the remaining original term of the microwave concessions, which expires in October 2017.

Selling, general and administrative expenses decreased Ps.32.1 million, or 7.7% primarily due to (i) Ps.21.1 lower provision for executive bonuses in 2004, (ii) a Ps.11.3 million pesos decrease in severance expenses as a result of the headcount reduction in 2003, (iii) a Ps.13.3 million decrease in bad debt provisioning coming mainly from the provision in 2003 of a fraud detected from a business customer, see “Item 8. Financial Information-A. Consolidated statements and other financial information, Legal proceedings, significant unpaid receivables” and customer retention plans that have allowed us to improve collections and hence to reduce bad debt provisioning, (iv) a Ps. 3.2 million or 9.9% decrease in leases of offices buildings, as we reached an agreement with our landlord at our former headquarters in 2003 together withsub-leases of office space in our current headquarters to other companies, (v) a Ps. 2.5 million, or 6.4% reduction in fees paid to external advisors; and, (vi) a Ps. 2.3 million or 51.8% reduction in insurance expenses.

These savings were offset partially by (i) a Ps.10.4 million, or 244.1% increase in advertising expenses, as we initiated advertising campaigns in new clusters, (ii) a Ps.2.9 million, or 11.0% increase in sales commissions, as a

50

result of a 17.6% increase in gross installed lines from 53,655 in 2003 to 63,071 in 2004, (iii) Ps. 2.7 million, or 71.6% decrease in reserve for obsolete equipment as we sold obsolete equipment in 2004, (iv) Ps. 2.4 million, or 8.8% increase in general selling and administrative expenses, (v) Ps. 1.7 million or 453.1% in market research expenses; and, (vi) a Ps.1.2 million increase in maintenance expenses.

Integral cost of financing

Our integral cost of financing was Ps.48.8 million in 2004, a 136.5% decrease as compared to positive Ps.133.7 million in 2003. The following table sets forth our integral cost of financing for the periods under review:

	Year Ended December 31
	2004			2003
	(In millions)
Interest paid — Net	Ps.	(38.7	)	Ps.	(28.3	)
Exchange gain (loss) — Net		(1.5	)		(188.2	)
Gain on monetary position		89.0			82.8
Integral cost of financing	Ps.	48.8		Ps.	133.7

The decrease in integral cost of financing was primarily due to:

(i) a Ps.186.7 million, or 99.2% reduction in exchange loses, as a consequence of the effect on our dollar-denominated debt of a lower devaluation of the peso as compared to the dollar during 2004, when compared to the devaluation of the peso during 2003, as well as lower indebtedness due to our October 2004 exchange offer; and

(ii) a Ps.6.2 million, or 7.5% increase in gain on net monetary position, as a result of the effect of a higher inflation on our liabilities monetary position in 2004 when compared to the inflation during 2003.

These factors of financing costs were partially offset by (i) a Ps.4.7 million increase in interest expense associated with financing from vendors and, (ii) a Ps.5.7 million higher bank commissions, net of interest on cash balances.

Asset tax

We recorded Ps.27.8 million in asset taxes in 2004 as compared to Ps.13.3 million in asset taxes in 2003. The difference is primarily due to a significant increase in our asset base in 2000, when we increased the buildout of our network, as compared to 1999, which are the respective years considered for purposes of computation of the asset tax. Asset taxes are computed on the asset base existing four years before the current tax year.

Critical accounting policies

Applications of critical accounting policies and estimates.

We have identified certain key accounting estimates on which our consolidated financial condition and results of operations are dependent. These key accounting estimates most often involve complex matters or are based on subjective judgments or decisions that require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We base our estimates on historical experience, where applicable, and other assumptions that we believe are reasonable under the circumstances. Actual results may differ from our estimates under different assumptions or conditions. In the opinion of our management, our most critical accounting estimates under both Mexican GAAP and U.S. GAAP are those that require management to make estimates and assumptions that affect the reported amounts related to the accounting for the allowance for doubtful accounts receivable, revenue recognition, installation revenues and costs, valuation of long-lived assets, stock-based compensation and fair value of our common stock, and deferred taxes. For a full description of all of our accounting policies, see Notes 4 and 21 to the Consolidated Financial Statements included in this Annual Report.

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There are certain critical estimates that we believe require significant judgment in the preparation of our consolidated financial statements. We consider an accounting estimate to be critical if:

•  it requires us to make assumptions because information was not available at the time or it included matters that were highly uncertain at the time we were making the estimate, and

•  changes in the estimate or different estimates that we could have selected would have had a material impact on our financial condition or results of operations.

Allowance of doubtful accounts receivable

The allowance for doubtful accounts represents our estimate of losses resulting from the failure or inability of our customers to make required payments. Determining our allowance for doubtful accounts receivable requires significant estimates. Due to the large number of customers that we serve, it is impractical to review the credit-worthiness of each of our customers, although a credit review is performed for business customers that request more than two lines. We consider a number of factors in determining the proper level timing for the recognition of and the amount of allowance, including historical collection experience, customer base, current economic trends and the aging of the accounts receivable portfolio. From this analysis, our current policy is to reserve in the amount of 90% and 100% of account receivable balance due over 90 but less than 119 days, and over 120 days, respectively except when there is a negotiated agreement with a customer. In such cases, a reserve is created in the amount of 30% once accounts receivable balance is 90 days past due and 100% when the balance is due over 120 days. We periodically review this policy to ensure that it accurately reflects current collection patterns.

In addition, in order to mitigate collections risk, our collection procedures include, but are not limited to, periodic reminder phone calls once a customer is past due, suspension of service, use of a collection agency and disconnection of service, if needed. Furthermore, within our network we have systems to detect fraudulent call activity. If these systems fail to identify this activity, we may have to recognize a higher degree of uncollectible accounts. While we believe that our estimates are reasonable, changes in our customer trends or any of the factors mentioned above could materially affect our bad debt expense. At December 31, 2005, our provision for bad debt was Ps.$86.2 million. We consider this provision is sufficient to cover the potential risk of uncollectible accounts; however, we cannot assure that we will not be required to increase the amount of this provision.

Revenue recognition

The Company recognizes revenues from telephone services provided to customers, the sale of customer-premise equipment, services provided to other telephone-service companies (such as interconnection services), and installation charges.

Revenues from services provided to customers, including installation and maintenance, are recognized in the month the service is rendered. When the installation is not charged to the customer, the cost is amortized on a straight-line basis over a period equal to the remaining original term of our microwave concessions which expire on October 2017.

Revenues from the sale of customer-premise equipment are recognized at the time of the sale and delivery and installation of such equipment.

Revenues from interconnections services are recognized on an accrual basis. We have entered into agreements with several telephone companies under the “Bill and Keep” compensatory agreement scheme. Under this arrangement and in most cases, if the imbalance between local calls originated by the other carrier and terminated by Maxcom and calls originated by Maxcom and terminated by the other carrier during a month does not exceed a determined percentage, then no interconnection fee amounts are payable by the net user of interconnection services. If the imbalance exceeds that percentage in any given month, the net user will be subject to a per minute charge. The percentage of imbalance was 70% for the period February 25, 1999 to December 31, 2002, 30% for January 1, 2003 to August 31, 2004, 18% for August 1 to December 31, 2004 and 15% as of January 2005. In the event that we fail to maintain a significant percentage of residential users, the compensatory agreement will be terminated and asymmetric interconnection rates could be applied.

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We have also entered into interconnection agreements for mobile and long distance services with other carriers, however, they do not incorporate the feature of the compensatory agreement.

In 2003 we started a new business line, the lease of transmission capacity through our fiber optic ring. Revenues from lease of capacity will be recorded in deferred revenue as billed and then recognized ratably into revenue over the term of the contract.

During 2005, we entered into strategic and commercial alliances with two companies that render CATV and Internet services to also render telephony services using CATV infrastructure. We issue a monthly invoice to the end-customer and record the three services (voice, data and video) as revenue. Likewise, the Company receives from CATV companies an invoice for television and Internet services (for the pertinent month), which is recorded as a decrease to revenue of the Company so that only revenue for voices services is recognized.

Advances from customers are classified as current liabilities until they are refunded. When the contract is rescinded, these deposits are applied to any outstanding balance with the respective customer.

Under U.S. GAAP, customer arrangements that include both equipment and services are evaluated to determine whether the elements are separable based on objective evidence. If element based on the relative fair values of the separate elements and the revenue associated with each element is recognized as earned. If the elements are not deemed separable, total consideration is deferred and recognized ratably over the longer of the contractual period or the expected customer relationship period. We believe that the accounting estimates related to customer relationship periods and to the assessment of whether bundled elements are separable are “critical accounting estimates” because: (i) they require management to make assumptions about how long we will retain customers; (ii) the assessment of whether bundled elements are separable can be subjective; (iii) the impact of changes in actual retention periods versus these estimates on the revenue amounts reported in our consolidated statements of operations could be material; and (iv) the assessment of whether bundled elements are separable may result in revenues being reported in different periods than significant portions of the related costs.

Installation revenues and costs

Installation costs include labor, tools and materials. Through December 31, 2002, before we waived installation costs to our customers, installation costs were capitalized and amortized on a straight-line basis over a period of 20 years. Since 2003, when we waived installation costs, we capitalize and amortize them on a straight-line basis over a period equal to the remaining original term of the microwave concessions, which expire in October 2017. When we charge installation fees to our customers, we recognize this cost as an expense and we do not capitalize or amortize it. Once service with a customer is terminated, the capitalized installation cost is expensed. Under U.S. GAAP, installation revenues and the related direct installation costs are deferred and amortized over the expected customer’s relationship period. When installation costs are not billed to customers, the related costs are expensed immediately.

We do not track capitalized installation costs on an individual customer basis because to do so would not be efficient. Based on an analysis of customer history including installation costs and cancellations, we have determined an estimated average cost per customer and estimated customer life and we use these estimates to calculate the amount of cost deferred and the amortization period of such deferred costs and the related installation revenue that is deferred and amortized over the customer relationship. As we have a limited operating history, past history cannot be used as the only accurate indicator as the average customer life. Based on our limited operating history and industry benchmarking, we have determined an average customer relationship period of four years.

Valuation of long-lived assets

We review fixed, definite lived intangible and other long-lived assets at least annually, under statement C-15. Impairment reviews require a comparison of the estimated future undiscounted cash flows to the carrying value of the asset for U.S. GAAP reporting and discounted cash flows to the carrying value of the asset for statutory reporting. If the total of the undiscounted cash flows is less than the carrying value under U.S. GAAP or discounted cash flows is less than the carrying value under statutory reporting, an impairment charge is recorded for the difference between the estimated fair value and the carrying value of the asset. In making such evaluations, we

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estimated the fair value of the long-lived assets as well as the undiscounted and discounted cash flows. In determining our undiscounted and discounted cash flows we make significant assumptions and estimates in this process regarding matters that are inherently uncertain, such as estimating remaining useful lives and the possible impact that inflation may have in our ability to generate cash flow, as well as customer growth and the appropriate discount rate. Although we believe that our estimates are reasonable, different assumptions regarding such remaining useful lives or future cash flows could materially affect the valuation of our long-lived assets.

We also evaluate our operating leases for utilization. Spaces leased in buildings with low occupancy have been reserved based on the contractual penalty for early termination, which is calculated as the maximum amount that would be paid upon termination of the contract.

Upon adoption of SFAS 142 “Goodwill and Other Intangible Assets” and Statement C-15 “Impairment of the Value of Long Lived Assets and their Disposal” we were required to reassess the useful lives of our intangible assets, which primarily consist of Mexican government telecommunications concessions and infrastructure rights. Upon reassessment, we concluded that our concessions would be definite lived intangibles. We will periodically reassess the useful lives of our concessions. As of December 31, 2005, upon the application of theses accounting pronouncements we concluded that an impairment charge to our assets was not required.

Deferred taxes

As part of the process of preparing our consolidated financial statements, we are required to estimate our income tax liability. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from the different treatment for tax and accounting purposes of several items, such as depreciation, amortization, and allowance for doubtful accounts. These differences result in deferred tax assets and liabilities that are included in our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely to occur, we must include an expense within the tax provision in the statement of operations.

Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. The valuation allowance is based on management projections of future financial results. Accordingly, we have created a valuation account for the full balance of our deferred tax asset as we feel it is unlikely we will use our net operating loss carry forwards before they expire. If actual results differ from these estimates or we adjust the projections in future periods, we may need to materially adjust the valuation allowance.

Principal differences between Mexican GAAP and U.S. GAAP

The financial information included in this annual report is prepared and presented in accordance with Mexican GAAP, which differs in certain significant respects from U.S. GAAP. See note 21 to the consolidated financial statements for a description of the principal differences between Mexican GAAP and U.S. GAAP applicable to us; for a reconciliation of our net income and stockholders’ equity to U.S. GAAP as of December 31, 2005 and 2004 and for each of the two years then ended; and for a description of the principal differences in classification between the statements of changes in financial position under Mexican GAAP and the requirements under U.S. GAAP for statements of cash flows.

Recent United States accounting pronouncements

In December 2004, the FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets An Amendment of APB Opinion No. 29. APB Opinion No. 29, Accounting For Nonmonetary Transactions” (“SFAS 153”). SFAS 153 is based on the opinion that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. SFAS 153 amends Opinion No. 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with an exception for exchanges that do not have commercial substance. SFAS 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS 153 is effective for the fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 is not expected to have any impact on the Company’s current financial condition or results of operations.

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In June 2005, the FASB published SFAS No. 154, “Accounting changes and Error Corrections a replacement of APB Opinion No. 20 and FASB Statement No. 3” (“SFAS No. 154”), which changes the requirements for the accounting for and reporting of a change in accounting principle and redefines restatement as the revising of previously issued financial statements to reflect the correction of an error. SFAS No. 154 requires retrospective application to prior periods financial statements of changes in accounting principle, unless it is impracticable to determine the period-specific effects of the cumulative effect of the change. This Statement also carries forward without change the guidance contained in Opinion 20 for reporting the correction of an error in previously issued financial statements and a change in accounting estimate. This Statement does not change the transition provisions of any existing accounting pronouncement. SFAS No. 154 will be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005.

In June 2005, the FASB issued Emerging Issues Task Force (EITF) IssueNo. 05-06, “Determining the Amortization Period for Leasehold Improvements.” EITF IssueNo. 05-06 indicates that for operating leases, leasehold improvements that are placed in service significantly after and not contemplated at or near the beginning of the lease term should be amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date the leasehold improvements are purchased. Leasehold improvements acquired in a business combination should be amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date of acquisition. EITF IssueNo. 05-06 is effective for leasehold improvements that are purchased or acquired in reporting periods beginning after June 28, 2005. The adoption of EITF IssueNo. 05-06 is not expected to have any impact on the Company’s current financial condition or results of operations.

In October 2005, the FASB issued FASB Staff Position (“FSP”)No. FAS 13-1, “Accounting for Rental Costs Incurred during a Construction Period. “FSPNo. FAS 13-1 requires rental costs associated with operating leases that are incurred during a construction period to be recognized as rental expense. FSPFAS 13-1 is effective for reporting periods beginning after December 15, 2005. The transition provisions of FSPNo. FAS 13-1 permit early adoption and retrospective application of the guidance. The adoption ofFAS No. 13-1 is not expected to have any impact on the Company’s current financial condition or results of operations.

In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, Accounting for Certain Hybrid Financial Instruments (SFAS 155). SFAS 155 permits fair value measurement for any hybrid financial instrument that contains an embedded derivative that would otherwise require bifurcation and separate accounting. An irrevocable election may be made at inception to measure such a hybrid financial instrument at fair value, with changes in fair value recognized through income. Such an election needs to be supported by concurrent documentation. SFAS 155 is effective for fiscal years beginning after September 15, 2006, with early adoption permitted. The adoption of SFAS No. 155 is not expected to have any impact on the Company’s current financial condition or results of operations.

Recent Mexican accounting pronouncements

Beginning June 1, 2004, the Mexican Financial Reporting Standards Board — (CINIF, for its initials in Spanish), assumed the responsibility for setting accounting and reporting standards in Mexico. In compliance with this responsibility and after due exposure in 2004 and 2005, the CINIF issued several Financial Reporting Standards — (NIFs) that will become effective on January 1, 2006.

The main objective of the NIFs is to achieve the maximum possible harmonization and convergence of Mexican accounting and reporting standards and regulation practices with International Financial Reporting Standards (IFRS).

The full hierarchy of NIFs, in effect beginning January 1, 2006, is as follows:

•  NIFs and Interpretations of NIFs issued by the CINIF.

•  Bulletins issued by the Accounting Principles Board of the Mexican Institute of Public Accountants (IMCP) that have not been modified, replaced or repealed by the new NIFs.

•  The supplementary IFRS that are applicable.

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The circulars issued by the Accounting Principles Board will continue to have the status of recommendations and will be part of the NIFs until such time as they are repealed or superseded by NIFs.

Following is a list of the NIFs issued to date. Being mainly of a general nature, they are not expected to have a significant effect on financial reporting:

NIFA-1 “Structure of Financial Reporting Standards”

NIFA-2 “Basic postulates”

NIFA-3 “User needs and objectives of financial statements”

NIFA-4 “Qualitative features of financial statements”

NIFA-5 “Basic elements of financial statements”

NIFA-6 “Recognition and valuation”

NIFA-7 “Presentation and disclosure”

NIFA-8 “Supplementary”

NIF B-1 “Accounting changes and correction of errors”

B.   Liquidity and capital resources

Financing sources and liquidity

We financed ourstart-up costs through capital contributions and vendor financing, as described below:

•  U.S.$100.0 million vendor financing facility from Nissho Iwai American Corporation, bearing an annual interest rate of three-month LIBOR plus 4.15% due August 12, 2005. Funds from this facility were used to purchase Lucent Technologies equipment. We used U.S.$72.3 million of proceeds from the sale of the 133/4 notes on March 17, 2000 to repay all amounts outstanding in full and terminated this facility.

•  U.S.$20.0 million vendor financing facility from Nissho Iwai American Corporation, bearing an annual interest rate of three-month LIBOR plus 4.15% due August 12, 2005. Funds from this facility were used to purchase NEC equipment. We used U.S.$13.9 million of proceeds from the sale of the 133/4% notes on March 17, 2000 to repay all amounts outstanding in full and terminated this facility.

•  U.S.$18.7 million vendor financing from Hewlett Packard de México, bearing an annual interest rate of three-month LIBOR plus 4.15% due November 25, 2005. We used U.S.$16.3 million of proceeds from the sale of the 133/4% notes on March 17, 2000 to repay all amounts outstanding in full and terminated this facility.

•  U.S.$70.0 million raised from private equity investors since inception through May 1998.

On March 17, 2000, we sold 133/4% notes due 2007 bearing an annual interest rate of 133/4% due April 1, 2007 in an aggregate principal amount of U.S.$300.0 million (the “133/4% notes”). Our debt service relating to the 133/4% notes for the first two years was paid with U.S.$77.9 million of the net proceeds of the offering of the 133/4% notes that was deposited in an interest escrow account.

In September 2000, our principal shareholders invested an aggregate of U.S.$35.0 million of new capital. This capital contribution was used primarily to fund capital expenditures and working capital related to the buildout of our network infrastructure.

During 2001, we financed our operations and capital expenditures with remaining funds from the issuance and sale of the 133/4% notes and with the remaining funds from the U.S.$35.0 million capital contribution completed in September 2000.

On April 29, 2002, we consummated a debt restructuring and recapitalization of Maxcom, hereinafter referred to as the “2002 recapitalization.” The purpose was to reduce our debt service burden, improve our liquidity and

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attract additional investment, in order to continue the buildout of our infrastructure and the growth of our business. The following actions were taken pursuant to the debt restructuring and recapitalization:

•  Holders tendered an aggregate of U.S.$259,410,000 in principal amount of 133/4% notes in exchange for an aggregate of (i) U.S.$165,078,150 in principal amount of old notes, and (ii) 26,459,820series N-2 convertible preferred shares, with an initial liquidation preference of U.S.$0.4927 per share and limited voting rights, represented by ordinary participation certificates or “CPOs,” which represented in the aggregate 15.2% of our then total capital stock;

•  Existing and new shareholders invested U.S.$66.2 million and received preferred shares (more fully described in “Principal Shareholders”), which represented in the aggregate 77.0% of our then total capital stock; and

•  Our capital structure was restructured as more fully described in “Item 7. Major Shareholders and Related Party Transactions-A. Major shareholders and share ownership-The capital restructuring.”

In April 2002, we cancelled U.S.$25,000,000 in principal amount of 133/4% notes that we had purchased in the secondary market prior to the 2002 debt restructuring. In addition, on July 25, 2002, we completed an additional exchange of U.S.$4,000,000 in aggregate principal amount of 133/4% notes under the same terms and conditions of the exchange offer consummated on April 29, 2002. 95.8% of the total 133/4% notes were exchanged and or cancelled, and old notes of an aggregate principal amount of U.S.$167,623,590 remained outstanding. An aggregate principal amount of U.S.$11,590,000 of 133/4% notes remained outstanding.

On December 17, 2003, we were advised by Bank of America/Nexus that it had purchased an aggregate amount of old notes with a face value of approximately U.S.$126.4 million, representing approximately 75% of the principal amount of the then outstanding of the old notes.

On April 28, 2004, we executed a working capital credit facility with Banco Santander Mexicano, S.A. (which we refer to as Banco Santander) for U.S.$2.0 million. We served interests on a monthly basis on any outstanding balance, at a rate of LIBOR (London Inter-bank Offered Rate) plus 190 basis points. Additionally, on August 17, 2004, we executed a working capital credit facility with Banco Santander for Ps.55.9 million. We served interests on a monthly basis on any outstanding balance, at a rate which we refer to as TIIE or Inter-bank Equilibrium Interest Rate (Tasa de Interés Interbancaria de Equilibrio), a commonly used referral rate in Mexico, plus 100 basis points. Both credit facilities were guaranteed by one of our shareholders. Both facilities were repaid on October, 2005.

On October 8, 2004, we consummated an exchange offer and consent solicitation, hereinafter referred to as the “2004 recapitalization.” The purpose was to improve our leverage and capital structure, in order to attract additional investments and access multiple opportunities for future growth. The following actions were taken pursuant to the debt restructuring and recapitalization:

•  Holders tendered an aggregate of U.S.$162,505,711 in principal amount of old notes in exchange for an aggregate of (i) U.S.$36,117,789 in principal amount of new notes due 2009, bearing an annual interest rate of 4.00% from October 8, 2004 through April 14, 2005, 5.75% from April 15, 2005 through October 14, 2005, 7.75% from October 15, 2005 through April 14, 2006, 8.25% from April 15, 2006 though October 14, 2006, 9.25% from October 5, 2006 through October 14, 2007, 10.25% from October 15, 2007 through October 14, 2008, and 11.25% from October 15, 2008 through October 14, 2009, and (ii) 101,110,338 shares of ourSeries N-1 Preferred Shares;

•  Maxcom received consents to the amendment of certain restrictive covenants of the indenture governing the old notes representing 92.0% of the total principal amount of outstanding old notes (other than old notes held by Maxcom or any affiliate of Maxcom), therefore fulfilling the condition for the adoption of the proposed amendments.

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As a result of the 2004 recapitalization, debt maturity dates of our debt will be as follows:

	DEBT MATURITY DATES
	March-07		April-07		October-09		Total
	(Thousands of U.S. Dollars)
Before October 8, 2004:
133/4% notes				11,590				11,590
old notes		167,624						167,624
Total		167,624		11,590				179,214
After October 8, 2004:
133/4% notes				11,590				11,590
old notes		5,118						5,118
new notes						36,118		36,118
Total		5,118		11,590		36,118		52,826

On November 5, 2004 we obtained a credit line from Banco Santander of Ps.100.0 million with a monthly interest rate of TIIE plus 1.2 additional percentage points. The terms required average monthly principal payments of Ps.5.5 million in accordance with the amortization table set forth in the contract plus accrued interest. The term of the contract was for 18 months and the due date was May 10, 2006. This line of credit was repaid on November, 24, 2005.

On April 13, 2005 we obtained a credit line from Ixe Banco of Ps.100.0 million with a monthly interest rate of TIIE plus 3.0 additional percentage points. The terms require average monthly principal payments of Ps.4.2 million in accordance with the amortization table set forth in the contract plus accrued interest. The term of the contract is for 24 months and the due date is April 30, 2007. On July 14, 2005 we repaid Ps.50.0 million of the principal amounts. The average monthly principal payments were reduced to Ps.2.0 million and the due date has no change.

On July 14, 2005 we entered into a short-term commercial paper program in Mexico for Ps.150.0 million. Notes will be payable on June 15, 2006 with a monthly interest rate of TIIE plus 2.75 additional percentage points. The terms require monthly interest payments and principal will be due on June 15, 2006. We have the option to one roll-over of the program for an additional12-month period subject to certain market conditions.

On October 21, 2005 we obtained a credit line from Banco Mercantil del Norte of Ps.240.0 million with a monthly interest rate of TIIE plus 3.0 additional percentage points. The term of the line of credit is 48 months with a disbursement period of 8 months. This line of credit is due on October 20, 2009. Each disbursement will be payable in equal monthly installments for the remaining term of the line of credit. We have disbursed Ps.76.3 million and are currently negotiating the extension of the disbursement period.

On October 25, 2005 we obtained a credit line from Ixe Banco of Ps.50.0 million with a monthly interest rate of TIIE plus 3.0 additional percentage points. The terms require average monthly principal payments of Ps.2.6 million in accordance with the amortization table set forth in the contract plus accrued interest. The term of the contract is for 19 months and the due date is April 30, 2007.

Pursuant to our credit lines with Ixe Banco and Banco Mercantil del Norte, our daily collections are subject to a restricted cash arrangement. These collections are deposited in a collection trust receiving all the proceeds from our daily collections coming from customers paying through bank deposits on accounts specially linked to the collection trust. During the first fifteen calendar days of every month a fixed percentage of the collections is restricted until the monthly installments of the three facilities are completed. This amount is then paid to each of our creditor banks on the specific principal payment date. The remaining funds from collections are transferred to our operating banking accounts.

Indebtedness

Our consolidated debt at December 31, 2005 was Ps.874.1 million (including Ps.1.0 million of debt discount related to the issuance of detachable warrants), of which Ps.656.0 million was long-term debt. Ps.576.9 million of

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our consolidated debt outstanding at December 31, 2005 was denominated in U.S. dollars and Ps.297.2 million was denominated in Mexican pesos.

The following table presents a breakdown of our consolidated debt for 2005 and 2004.

	Year Ended December 31
	2005		2004
	(In millions)
SHORT TERM COMMERCIAL PAPER DENOMINATED IN PESOS
Short term commercial paper	Ps.	150,000
Accrued interest		1,500
Total short term commercial paper denominated in pesos	Ps.	151,500
BANK LOANS DENOMINATED IN PESOS
Short-term portion:
IXE Banco, S. A	Ps.	47,573
Banco Mercantil del Norte, S. A		19,075
Banco Santander Serfin, S. A			Ps.	150,443
Total short term	Ps.	66,648	Ps.	150,443
Long-term portion:
IXE Banco, S. A	Ps.	25,026	Ps.
Banco Mercantil del Norte, S. A		54,046
Banco Santander Serfin, S. A				28,711
Total long term	Ps.	79,072	Ps.	28,711
Total bank loans denominated in pesos	Ps.	145,720	Ps.	179,154

	Year Ended December 31
	2005			2004
	(In millions)
LONG TERM PAYABLE BONDS DENOMINATED IN U.S. DOLLARS
$5,118 old notes (issued in connection with the 2002 recapitalization) with maturity in 2007, bearing interest at 0% until March of 2006, and as of the last year, will bear interest at a rate of 10%	Ps.	54,818		Ps.	59,573
$36,118 new notes (issued in connection with 2004 recapitalization) bearing a variable interest rate of 4% to 11.25% until October of 2009		386,853			420,420
$11,590: 133/4 notes (issued on March the 17th of 2000) bearing interest at a rate of 13.75%, with maturity date on April the 1st of 2007		124,139			134,910
Accrued interest		12,103			8,793
Less: Discount (net of accumulated amortization)		(1,005	)		(1,684	)
Total Long term payable bonds denominated in U.S. dollars	Ps.	576,908		Ps.	622,012

The U.S.$300 million aggregate principal amount 133/4% notes accrued interest at an annual rate of 133/4%, representing an interest expense of U.S.$39.8 million per year. In May and June 2001, Maxcom purchased U.S.$25 million aggregate principal amount of 133/4% notes in the secondary market, which Maxcom cancelled in April 2002. Pursuant to the 2002 recapitalization, 133/4% notes in an aggregate principal amount of U.S.$259,410,000 were exchanged for old notes in an aggregate principal amount of U.S.$165,078,150, as well as for certain equity. The old notes bear 0% interest through March 1, 2006 and 10% annual interest in the last year.

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On July 25, 2002, we completed an additional exchange of U.S.$4,000,000 of 133/4% notes under the same terms and conditions of the exchange offer consummated on April 29, 2002. On December 17, 2003, we were advised by Bank of America/Nexus that it had purchased an aggregate amount of old notes with a face value of approximately U.S.$126.4 million, representing approximately 75% of the principal amount of outstanding of the old notes. Pursuant to the 2004 recapitalization, old notes in an aggregate principal amount of U.S.$162,505,711 were exchanged for an aggregate of (i) U.S.$36,117,789 in principal amount of new notes, bearing an annual interest rate of 4.00% from October 8, 2004 through April 14, 2005, 5.75% from April 15, 2005 through October 14, 2005, 7.75% from October 15, 2005 through April 14, 2006, 8.25% from April 15, 2006 though October 14, 2006, 9.25% from October 5, 2006 through October 14, 2007, 10.25% from October 15, 2007 through October 14, 2008, and 11.25% from October 15, 2008 through October 14, 2009, and (ii) 101,110,338 of ourSeries N-1 Preferred Shares As of December 31, 2004, new notes in an aggregate principal amount of U.S.$36,117,789 remained outstanding, old notes in an aggregate principal amount of U.S.$5,117,879 remained outstanding, and 133/4% notes in an aggregate principal amount of U.S.$11,590,000 remained outstanding.

As a result of the October 8, 2004 debt restructuring, debt maturity dates of our debt will be as follows:

	Debt Maturity Dates
	March-07		April-07		October-09		Total
	(Thousands of U.S. Dollars)
Before the 2004 recapitalization:
133/4% notes				11,590				11,590
old notes		167,624						167,624
Total		167,624		11,590				179,214
After the 2004 recapitalization:
133/4% notes				11,590				11,590
old notes		5,118						5,118
new notes						36,118		36,118
Total		5,118		11,590		36,118		52,826

The indenture governing the old notes (the “Old Indenture”) and the indenture governing the new notes (the “New Indenture”) restrict our ability to incur indebtedness. In particular, in order to be able to incur additional indebtedness, we must comply with a minimum consolidated leverage ratio of less than 3.75 to 1.00 and a minimum fixed charge coverage ratio of 2.00 to 1.00, in each case after giving effect to the proposed incurrence of indebtedness. Pursuant to the amendments to the old indenture, we only have the ability to incur up to an aggregate of U.S.$150 million of certain types of permitted indebtedness outstanding at any one time (including the new notes, old notes and the 133/4% notes) prior to the consummation of a merger, consolidation or sale of all or substantially all of our assets. Additionally, pursuant to the amendments to the Old Indenture the covenants restricting our ability to pledge our assets as security for financing were amended to allow us to secure up to an additional U.S.$50 million of liens on our assets. The covenant limiting our restricted payments, permitted investments and affiliate transactions was amended to allow us to securitize our assets, including our accounts receivable. The covenant restricting our ability to enter into sale/leaseback transactions was removed.

The Old Indenture and the New Indenture also provide that if certain events of bankruptcy, insolvency or reorganization of Maxcom occur, the principal and interest on all of the old notes will become immediately due and payable. In addition, if certain other events of default occur and are not remediated in accordance with the Indentures, the trustee appointed under the Old Indenture or our holders representing at least 25.0% in principal amount of the then outstanding old notes may declare all the old notes to be due and payable immediately. These other events of default include, among others, (i) a failure to pay interest or anygross-up amount when due for thirty days; (ii) a failure to pay principal when due; (iii) a failure to comply with certain covenants (including financial, reporting, control, merger and other covenants), representations, warranties and other agreements in the old indenture; (iv) a default under other indebtedness or a judgment or decree for the payment of money, in each case in excess of U.S.$5.0 million; (v) the unenforceability or disaffirmation of any subsidiary guarantee; and (vi) a failure to disclose an event of default. In some of these events of default, a limited grace period applies before the trustee or

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the holders can proceed to accelerate the old notes. The indenture governing the 133/4% notes provides that the trustee appointed under the indenture or our holders representing at least 25.0% in principal amount of the then outstanding 133/4% notes, may declare all the old notes to be due and payable immediately if we fail to (i) pay interest or anygross-up amount when due for thirty days, (ii) pay principal when due, (iii) comply with certain conditions in the event of a merger or (iv) observe any covenant, representation or agreement in the indenture for 60 days after notice by the trustee.

Resources from Operating, Financing and Investing activities

Historically, our resources generated from operating activities have not been sufficient to meet our debt service, working capital and capital expenditure requirements. We have relied on the capital markets for private equity, public debt and vendor financing. For the years ended December 31, 2001, 2002, 2003, 2004 and 2005, our earnings were insufficient to cover our fixed charges by Ps.785.8 million (U.S.$73.9 million), Ps.819.5 million (U.S.$77.1 million), Ps.384.4 million (U.S.$36.2 million), Ps.103.8 million (U.S.$9.8 million) and Ps.44.2 million (U.S.$4.2 million), respectively.

As of December 31, 2005 and 2004 we had Ps.231.1 million and Ps.81.0 million of cash and cash equivalents including Ps.7.7 million and Ps.18.8 million of restricted cash, respectively.

Resources used for operating activities

For the year ended December 31, 2005, net resources used in operating activities amounted to Ps.298.6 million compared to Ps.276.7 million for the year ended December 31, 2004. The resources increase in 2005 from 2004 was mainly attributable to a Ps.25.5 million higher resources coming from a decrease in losses from operations, and Ps.3.6 million lower resources coming from an increase in accounts receivable, restricted cash, liabilities and other assets, mainly attributable to:

(i) Ps.46.0 million lower resources coming from an increase in accounts receivable as a result of the increase in our operations.

(ii) Ps.11.1 million lower resources coming from a decrease in restricted cash as a result of the repayment of credit facilities to Banco Santender Serfin, S.A.,

(iii) Ps.66.7 million higher resources coming from an increase in short term liabilities,

(iv) Ps.12.1 million lower resources coming from an increase in inventory; and,

(v) Ps.0.8 lower resources coming from an increase in prepaid expenses.

For the year ended December 31, 2004, net resources used in operating activities amounted to Ps.276.7 million compared to a negative Ps.51.2 million for the year ended December 31, 2003. The increase in 2004 from 2003 was mainly attributable to a Ps.225.5 million higher resources coming from a decrease in losses from operations, Ps.76.4 million higher resources coming from an increase in restricted cash, liabilities and other assets, mainly attributable to:

(i) Ps.18.8 million higher resources coming from an increase in restricted cash under the Banco Santander financing. See “Item 5. Operating and Financial Review and Prospects — B Liquidity and Capital Resources — Financing Resources and Liquidity”, and

(ii) (ii) Ps.95.3 million higher resources coming from an increase in short term liabilities,

(iii) Ps.6.8 million higher resources coming from a decrease in inventory as we improved our inventory management,

(iv) Ps.5.7 million higher resources coming from a reduction in prepaid expenses primarily related to the recognition in 2003 of the agreement with the landlord at our former headquarters in Magdalena to retain a leasehold interest through 2013. See “Item 10. Additional Information-C Material contracts- Lease termination agreement.” and

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(v) Ps.7.4 million lower resources coming from an increase in accounts receivable as a result of the growth of our operations in 2003.

Resources provided by financing activities

For the year ended December 31, 2005, net resources generated by financing activities amounted to Ps.309.7 million, driven by:

(i) Ps.218.0 million resources generated by the capitalization of liabilities held with a related party in connection with the acquisition of a subsidiary. See “Item 5. Operating and Financial Review and Prospects — B Liquidity and Capital Resources — Financing Resources and Liquidity”,

(ii) Ps.151.5 million resources generated by a short term financing denominated in pesos with commercial paper including Ps.1.5 million of accrued interest. See “Item 5. Operating and Financial Review and Prospects — B Liquidity and Capital Resources — Financing Resources and Liquidity”,

(iii) Ps.72.6 million resources generated by a bank financing denominated in pesos obtained from Ixe Banco. See “Item 5. Operating and Financial Review and Prospects — B Liquidity and Capital Resources — Financing Resources and Liquidity”,

(iv) Ps.73.1 million resources generated by a bank financing denominated in pesos obtained from Banco Mercantil del Norte. See “Item 5. Operating and Financial Review and Prospects — B Liquidity and Capital Resources — Financing Resources and Liquidity”,

(v) Ps.18.8 million resources generated by an exchange rate stability hedging transaction obtained from IXE Banco. See “Item 5. Operating and Financial Review and Prospects — B Liquidity and Capital Resources — Financing Resources and Liquidity”,

(vi) Ps.179.2 million use of resources generated by the repayment of a bank financing denominated in pesos to Banco Santander. See “Item 5. Operating and Financial Review and Prospects — B Liquidity and Capital Resources — Financing Resources and Liquidity”, and,

(vii) Ps.45.1 million use of resources generated by the inflationary effect on our long term payable bonds.

For the year ended December 31, 2004, net resources generated by financing activities amounted to Ps.99.5 million, driven by a Ps. 179.2 million increase in bank financing as a result of the financing obtained from Banco Santander. See “Item 5. Operating and Financial Review and Prospects — B Liquidity and Capital Resources — Financing Resources and Liquidity”, partially offset by the non-cash effect of the 2004 recapitalization See “Item 5. Operating and Financial Review and Prospects — B Liquidity and Capital resources — Financing Resources and Liquidity” comprised by i) a Ps. 1,987.6 million decrease in old notes, ii) a Ps.420.4 million increase in new notes; and, iii) a Ps. 595.9 million and Ps. 893.9 million increase on issuance of capital stock and additional paid-in capital from the exchange U.S.$126.4 million old notes for 96.8 million N-1 and 4.3 million B-1 series shares. This increase in resources generated by financing activities in 2004 compares to resources provided of Ps.100.9 million for the year ended December 31, 2003, due primarily to the inflationary effect (non-cash).

Resources used for investing activities

For the year ended December 31, 2005, net resources used for investing activities amounted to Ps.447.1 million compared to Ps.359.4 million for the year ended December 31, 2004. The increase was mainly attributable to a Ps.105.5 million increase in investment in telephone equipment as a result of Maxcom’s strategy of infrastructure growth during 2005, and a Ps.17.8 million increase in investment in intangible and other assets resulting primarily from a non-cash inflationary effect.

For the year ended December 31, 2004, net resources used for investing activities amounted to Ps.359.4 million compared to Ps.136.3 million for the year ended December 31, 2003. The increase was mainly attributable to a Ps.216.2 million increase in investment in telephone equipment as a result of Maxcom’s strategy of infrastructure growth during 2004, and a Ps.6.9 million increase in investment in intangible and other assets resulting primarily from a non-cash inflationary effect.

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Other contractual obligations

In addition to our financial indebtedness, we are committed to make certain payments under various lease arrangements. All of our peso-denominated leases and some of our dollar-denominated site leases adjust automatically to reflect any variances experienced by the Mexican and U.S. consumer price index, respectively.

Additionally, we have executed financial leases with different institutions, in pesos and in U.S. dollars, for telecommunication equipment, computer equipment and transportation equipment.

Our new corporate headquarters are leased for a5-year term, renewable for two additional5-year terms. Site leases generally run for five, ten or fifteen year terms.

In May 2003, we reached an agreement with our landlord at our former headquarters in Magdalena, Mexico City. Pursuant to this agreement, we retained a leasehold interest through May 2013 on the first floor, where one of our Lucent 5ESS switches is located, and the roof-top, where we have microwave transmission antennas and a section of the basement, which will be used for parking and to place some of our electric equipment that supports the switch. We were also released from our lease obligations on approximately 35,887 square feet plus parking space of the building originally running through September 30, 2013. In exchange for the new lease and the releases, we agreed to prepay the full, ten-year lease obligations on the first floor, the roof-top and basement, as well as pay past-due lease payments dating back from October 2002 through April 2003. All these payments amount in the aggregate to U.S.$2.7 million and were paid in installments through May 2004.

The following table presents our minimum contractual operating lease obligations denominated in Pesos for the periods indicated:

									2010 &
	2006		2007		2008		2009		thereafter
	(In thousands of Pesos)
Facilities	Ps.	4,822	Ps.	4,695	Ps.	2,900	Ps.	1,407	Ps.	6,303
Sites		16,437		12,600		11,017		7,433		21,748
Poles		7,866		7,866		7,866		7,866		7,866
Others		2,197		—		—		—		—
Total	Ps.	31,322	Ps.	25,161	Ps.	21,783	Ps.	16,706	Ps.	35,917

The following table presents our contractual operating lease obligations denominated in dollars for the periods indicated:

									2010 &
	2006		2007		2008		2009		Thereafter
			(In thousands of U.S. dollars)
Corporate headquarters	$	1,759	$	1,806	$	1,849	$	1,897	$	5,981
Sites		385		385		360		112		90
Total	$	2,144	$	2,191	$	2,209	$	2,009	$	6,071

The following table presents our minimum contractual operating maintenance obligations denominated in Pesos for the periods indicated:

									2010 &
	2006		2007		2008		2009		thereafter
			(In thousands of Pesos)
Corporate equipment(1)	Ps.	244	Ps.	—	Ps.	—	Ps.	—	Ps.	—
Network(1)		540		—		—		—		—
Total	Ps.	784	Ps.		Ps.		Ps.		Ps.

(1) Renewal on an annual basis.

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The following table presents our contractual operating maintenance obligations denominated in dollars for the periods indicated:

									2010 &
	2006		2007		2008		2009		thereafter
	(In thousands of U.S. dollars)
Telephone equipment(1)	$	1,800	$	—	$	—	$	—	$	—
Fiber optic		882		882		882		882		10,579	(2)
Software(1)		1,255		—		—		—		—
Total	$	3,937	$	882	$	882	$	882	$	10,579

(1)	Renewal on an annual basis.
(2)	Included until 2022.

Additionally, we have executed financial lease agreements with different institutions in pesos and U.S. dollars regarding: telecommunication equipment, computer equipment and transportation equipment. The expiration of such agreements ranges from 18 to 36 months, with option to purchase the leased good at reduced prices once the agreement is terminated. The interest rate agreed in these agreements ranges from 6.9% to 10%, as per the specific conditions of each agreement.

The schedule of future minimum payments in pesos is as follows:

2006	Ps.	4,032
2007		3,645
2008 and thereafter:		3,324
Total(*)	Ps.	11,001

(*)  Includes interest to be accrued in Ps.2,279.

The schedule of future minimum payments in U.S. dollars is as follows:

2006	$	879
2007		363
2008 and thereafter:		134
Total(*)	$	1,376

(*)  Includes interest to be accrued in $7.

The following table presents our debt obligations denominated in dollars for the periods indicated:

							2010 &
	March-07		April-07		October-09		thereafter
	(Thousands of U.S. Dollars)
Before October 8, 2004:
13.3/4% notes		—		11,590		—		—
old notes		167,624		—		—		—
Total		167,624		11,590		—		—
After October 8, 2004:
13.3/4% notes		—		11,590		—		—
old notes		5,118		—		—		5,118
new notes		—		—		36,118		36,118
Total		5,118		11,590		36,118		52,826

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Capital expenditures

Through December 31, 2005, we have invested Ps.3,986.4 million in the buildout of our network operating support system and other capital expenditures, excluding cumulative pre-operating expenses and the expenses related to the issuance of the 133/4% notes, the old notes and the new notes and the U.S.$66.2 million private equity investment. This amount includes Ps.144.5 million paid to obtain all of our frequency rights.

For 2006, we plan to make capital expenditures of U.S.$71.3 million, mainly to continue to build out of our network. Of this total amount, we had already spent Ps.184.1 million (U.S.$16.8 million) by March 31, 2006. Our ability to make the remaining expenditures hinges on our ability to obtain financing for them. We cannot assure you that financing will be available or on terms acceptable to us.

Dividend policy

Our current policy is to reinvest profits into our operations. In addition, the indenture that governs the terms of the new notes allows us to pay cash dividends only if we meet the following conditions:

•  a minimum consolidated leverage ratio of less than 3.75 to 1.00;

•  a minimum fixed charge coverage ratio of 2.00 to 1.00;

•  no default (as defined in the indenture) must have occurred and be continuing or result from the payment of the cash dividend; and

•  the cash dividend payments do not exceed an amount determined in the indenture based on, among other things, cash flow generated from operations or equity offerings and consolidated interest expense.

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

Maxcom does not undertake research and development activities other than market research.

D.   Trend information

The Mexican Telecommunications industry is highly influenced by various U.S. industry trends, such as:

•  The growth in broadband access;

•  The convergence of services and industries, as evidenced by the introduction of voice, data and video bundles in the market:

•  Multi-service IP services;

•  Mobile services.

The growth of competition has been substantial and we expect it to continue. We are continuously improving our competitive position by strengthening our voice and data products and services. The increase in competition negatively affects our profit margins.

Our current financial constraints (including the insufficiency of our earnings to cover fixed charges and the uncertainty as to the availability of financing) has and may continue to negatively affect our plans for growth, including the buildout of our network. See “Item 3. Key Information — D. Risk Factors — We may need additional financing.”

E.   Off — balance sheet arrangements

Maxcom has no off-balance sheet arrangements.

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F.   Tabular disclosure of contractual obligations

The following table presents our minimum contractual operating lease obligations denominated in Pesos for the periods indicated:

	2006		2007		2008		2009		2010 & thereafter
	(In thousands of Pesos)
Facilities	Ps.	4,822	Ps.	4,695	Ps.	2,900	Ps.	1,407	Ps.	6,303
Sites		16,437		12,600		11,017		7,433		21,748
Poles		7,866		7,866		7,866		7,866		7,866
Others		2,197
Total	Ps.	31,322	Ps.	25,161	Ps.	21,783	Ps.	16,706	Ps.	35,917

The following table presents our contractual operating lease obligations denominated in dollars for the periods indicated:

									2010 &
	2006		2007		2008		2009		Thereafter
	(In thousands of U.S. dollars)
Corporate headquarters	$	1,759	$	1,806	$	1,849	$	1,897	$	5,981
Sites		385		385		360		112		90
Poles Others
Total	$	2,144	$	2,191	$	2,209	$	2,009	$	6,071

The following table presents our minimum contractual operating maintenance obligations denominated in Pesos for the periods indicated:

						2010 &
	2006		2007	2008	2009	thereafter
	(In thousands of Pesos)
Corporate equipment(1)	Ps.	244	Ps.	Ps.	Ps.	Ps.
Network(1)		540
Total	Ps.	784	Ps.	Ps.	Ps.	Ps.

(1) Renewal on an annual basis.

The following table presents our contractual operating maintenance obligations denominated in dollars for the periods indicated:

									2010 &
	2006		2007		2008		2009		Thereafter
	(In thousands of U.S. dollars)
Telephone equipment(1)	$	1,800	$		$		$		$
Fiber optic		882		882		882		882		10,579	(2)
Software(1)		1,255
Total	$	3,937	$	882	$	882	$	882	$	10,579

(1)	Renewal on an annual basis.
(2)	Included until 2022.

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The following table presents our contractual financial lease obligations denominated in Pesos and dollars for the periods indicated:

					2008 &
	2006		2007		Thereafter
Denominated in Pesos		4,032		3,645		3,324
Denominated in dollars		879		363		134

ITEM 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.   Directors and Senior Management

Directors

Our board of directors is responsible for the management of our business. The current members of the board of directors were elected at a shareholders’ meeting held on August 30, 2005. Pursuant to the 2002 recapitalization described in “Item 7. Major Shareholders and Related Party Transactions — A. Major shareholders and share ownership — The capital restructuring,” our series A andA-1 shareholders, voting together as a class, appoint five directors. The remaining four directors are appointed by our series B and B-1 shareholders, voting together as a class. Pursuant to the terms of the securityholders agreement described in “Item 7. Major Shareholders and Related Party Transactions — A. Major shareholders and share ownership — Securityholders agreement,”, the four series B and B-1 directors are now selected from among nominees proposed by Nexus — Maxcom Holdings I, LLP, a major shareholder which we refer to in this annual report as “Nexus.”

Series N-2 shareholders have the right to appoint an observer to our Board of Directors for so long as theseries N-2 preferred shares represent at least 3% of the outstanding capital stock of the Company or, so long as anyseries N-2 preferred shares remain outstanding and at least U.S.$17.5 million aggregate principal amount of the old notes remain outstanding. This observer, who is not a member of the Board of Directors, has the right to attend meetings of the Board of Directors but is not entitled to vote. In the event Mexican foreign ownership restrictions are lifted, theseries N-2 shareholders will be entitled to appoint one director, provided theseries N-2 shares represent at least 10% of Maxcom’s outstanding capital stock.

The following table presents information concerning our current directors (ages as of December 31, 2005):

Name	Position	Age
Adrian Aguirre Gomez	Series A and A-1 Director and Chairman of the Board		55
Lauro Gonzalez Moreno	Series A and A-1 Director		44
Maria Guadalupe Aguirre Gomez	Series A and A-1 Director		56
Marco Provencio Muñoz	Series A and A-1 Director		47
Rodrigo Guerra Botello	Series A and A-1 Director		63
Roberto Chute	Series B and B-1 Director		32
Jacques Gliksberg	Series B and B-1 Director		48
Marco Viola	Series B and B-1 Director		40
Sebastián Valdéz	Series B and B-1 Director		44

Miguel Sepúlveda Martínez, María Elena Aguirre Gómez, Raul Guijarro de Pablo, Gilberto Solis Silva and María Trinidad Aguirre Gómez serve as alternate Series A andA-1 directors during the absence of Adrian Aguirre Gómez, Lauro Gonzalez Moreno, Maria Guadalupe Aguirre Gómez, Rodrigo Guerra Botello and Marco Provencio.

Muñoz, respectively. Jorge Cervantes Trejo serves as an alternate Series B and B-1 director during the absence of any one of Roberto Chute, Jacques Gliksberg, Marco Viola or Sebastian Valdez. Gonzalo Alarcón is the secretary of the Board and our General Counsel.

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Enrique Boilini was the board observer for theSeries N-2 shareholders until July 2003 when he resigned. As of today such position remains vacant.

Adrián, María Guadalupe, María Trinidad and María Elena Aguirre Gómez are siblings. Gilberto Solís Silva is the spouse of María Elena Aguirre Gómez. Raúl Guijarro de Pablo is the spouse of María Trinidad Aguirre Gómez. Miguel Sepúlveda Martínez is the spouse of María Guadalupe Aguirre Gómez.

Set forth below is a brief biographical description of our directors:

Adrián Aguirre Gómezhas been a series A, and after the 2002 recapitalization a series A andA-1 director and Chairman of the Board of Maxcom, since March 1996. Mr. Aguirre also sits on the Board of Directors of Corporativo en Telecomunicaciones, S.A. de C.V., Maxcom Servcios Administrativos, S.A. de C.V., Maxcom SF, S.A. de C.V., Maxcom TV, S.A. de C.V. (which are Maxcom’s subsidiaries), Operadora Plusgamma, S.A. de C.V. (formerly known as Recover, S.A. de C.V.) and Fundación Teletón. He has been the Chairman of the Board since December 1992 for Operadora Plusgamma, S.A. de C.V. Previously, Mr. Aguirre was CEO of Grupo Radio Centro, S.A. de C.V. from November 1968 to May 24, 1999 and a Director until May 1999. Mr. Aguirre is a certified public accountant and holds an undergraduate degree in accounting from the Instituto Tecnológico Autónomo de México (ITAM).

Lauro Gonzalez Moreno,has been a series A andA-1 director since November 2005. Previously Mr. Gonzalez was the Chief Executive Officer of Satmex since November 1997, as well as of Principia Satmex’s holding company. Previously, Mr. Gonzalez was the Chief Executive Officer of Globalstar de Mexico from 1996 to 2004 and of Opel Telecommunications from 1994 to 1999. Additionally, Mr. Gonzalez was an engagement manager at McKinsey & Company in Mexico and Brazil. Mr. Gonzalez is also the founder of Vita Brevis, a non for profit organization in charge of promoting the use of information technology in elementary education in less developed communities and sits in the board of trustees of UNETE a non for profit organization providing education in Mexico through information technology.

María Guadalupe Aguirre Gómezhas been a series A director and after the 2002 recapitalization a series A andA-1 director and alternate director since May 1998. Previously Ms. Aguirre sat on the Board of Directors of Grupo Famega and OutBack Restaurant in Cancun and was an alternate director of Grupo Radio Centro, S.A. de C.V. from July 1979 to May 1999. Ms. Aguirre is also CEO of Sports and Therapy, S.C., a medical clinic and rehabilitation center for athletes. Ms. Aguirre holds an undergraduate degree in business administration from the Universidad Iberoamericana. Ms. Aguirre holds a diploma in advanced management from the Instituto Panamericano de Alta Direccion (IPADE) and several courses regarding financing and management from Harvard University.

Marco Provencio Muñozhas been a series A, and after the 2002 recapitalization a series A andA-1 director of Maxcom, since May 2001. He is also a partner and head of the public relations practice at the StructurA, a leading economic and political consulting firm in Mexico. During 2000, Mr. Provencio was the press secretary and the spokesman for the then Mexican President Mr. Ernesto Zedillo. He served 14 years in the Ministry of Finance and Public Credit where he held various positions, including Director General for International Financial Affairs and spokesman of the treasury. Mr. Provencio also worked for three years for the Foreign Affairs Ministry. Mr. Provencio holds an undergraduate degree in economics from the Universidad Iberoamericana and a master’s degree in economics and public affairs from the Woodrow Wilson School at Princeton University.

Rodrigo Guerra Botellohas been a series A, and after the 2002 recapitalization a series A andA-1 director of Maxcom since June 2002. Mr. Guerra is also the President of the Universidad Regiomontana in Monterrey, Mexico, since September 2001. Mr. Guerra was the Executive President of CETRO (a private trust for the development of small private business in Mexico), the National Vice-President of COPARMEX and the General Director and Treasurer of the Businessman Coordination Council. Mr. Guerra was also Director of Sidek and Situr.

Previously, Mr. Guerra worked for AT&T Mexico from March 1995 to January 1999 and served as President and Chief Executive Officer of IBM de México from October 1980 to February 1995. Mr. Guerra holds an undergraduate degree in Chemical Engineering from Universidad Tecnológica de Monterrey.

Jacques Gliksbergwas a series N director of Maxcom from May 1998 until April 2002, and has been a series B and B-1 director since then. He also sits on the board of directors of Geoplan Brasil Development Ltd. (Brazil),

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Organizacion Rescarven, C.A. (Venezuela), Crown Linen, LLC and is the President of Difusion Panoramica, S.A. de C.V. Mr. Gliksberg was a managing partner of Banc of America Equity Partners from 1994 until 2005. He is now the managing partner of Nexus Partners, LLC. Mr. Gliksberg holds a Bachelor of Arts degree in Economics and Political Science from the University of Rochester and a master’s degree in business administration from the J. L. Kellogg Graduate School of Management of Northwestern University, Chicago, Illinois.

Roberto Chutehas been a series B and B-1 director since April 2002. Mr. Chute sits on the board of directors of Difusion Panoramica, a Mexican outdoor advertising company, and Eki Discount, an Argentinean discount store chain. Mr. Chute was an associate and principal of Banc of America Equity Partners from 2001 to 2005. Mr. Chute is now a principal of Nexus Partners, LLC. Previously, Mr. Chute worked for Goldman, Sachs, Techint and Strat Management Consulting. Mr. Chute holds an industrial engineering degree from the Instituto Tecnológico de Buenos Aires, Argentina and a master’s degree in business administration from the J. L. Kellogg Graduate School of Management of Northwestern University, Chicago, Illinois.

Marco Violahas been a series B and B-1 alternate director since June 10, 2003. Mr. Viola joined Banc of America Equity Partners — Latin America as managing director in 1995 until 2005. He now is a managing partner at Nexus Partners, LLC. Prior to that, he was a principal in Booz Allen & Hamilton’s Financial Services Group, based in New York. Mr. Viola was active in a variety of valuation, joint venture, merger and turnaround projects for his clients. Before joining Booz Allen, Mr. Viola worked in budgeting and planning for Banco Roberts in Argentina and as an internal consultant for Aeroterra, a satellite technology and image processing company. Viola is currently a director of Eki Discount and Publicidad Sarmiento (Argentina), Geoplan (Brazil), Organizacion Rescarven (Venezuela) and BankAmerica International Investment Corporation. He received an MSM from the M.I.T. Sloan School of Management and a BS from Universidad de Buenos Aires.

Sebastián Valdezhas been a series B and B-1 alternate director since April 28, 2006. Previously he was a Series N director between October, 2000 and April, 2002. Mr. Valdez also sits on the board of directors of Difusion Panoramica, a Mexican outdoor advertising company, and Cimcorp S.A., a Brazilian information technology company. Mr. Valdez is a Director of BancBoston Ventures, Inc., a Bank of America company, and previously worked for BankBoston Robertson Stephens, BankBoston Securities, and BankBoston Argentina. He holds a degree from the Instituto Tecnológico de Buenos Aires, Argentina.

Executive officers

We have experienced significant turnover in our executive ranks over the last years. In June and July 2000, our then chief executive, chief operations and chief marketing officers resigned. In April 2001, our then chief financial officer resigned. We appointed new officers to all these positions during 2001 and 2002.

However, between January and September 2003, our then chief executive officer, chief marketing officer, chief commercial operations officer and vice president of corporate communications and public relations and chief financial officer also resigned. We have since appointed a new chief executive officer who was our former chief operating officer a new chief financial officer who was our former treasurer and director of investor relations. As part of our cost-reduction efforts and more efficient operations, we have split the commercial operations areas into two main segments, one for business and other for residential customers, we have eliminated the office of vice presidency of corporate communications and public relations and consolidated the vice presidencies of operations and information systems into a single vice presidency of operations.

On February 2004 our Chief Engineering Officer resigned. We have consolidated the responsibilities of this area with the vice president of operation. On November 2004 our Human Resources Vice president resigned.

These responsibilities have been assumed by Ms. Verónica Macias, our former head of the recruiting area, and now human resources director.

On December 2005, we appointed a new Chief of Sales and Marketing officer who was our former Market Commercial Director.

The significant turnover we have experienced in our management has affected our ability to develop and execute our business strategies. The success of our company depends in part upon our ability to hire and retain

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highly skilled and qualified management personnel. The competition for highly qualified management personnel in the telecommunications industry is intense and, accordingly, we cannot assure you that we will be able to hire or retain the management personnel necessary for our success.

The following table sets forth our current executive officers (ages as of December 31, 2005):

Name	Position	Age
René Sagastuy	President and Chief Executive Officer		45
José Antonio Solbes	Chief Financial Officer		40
Ricardo Arévalo Ruiz	Chief Operating and Information Technology Officer		41
Alejandro Díaz y Díaz	Vice president of Sales and Marketing		36

Set forth below is a brief biographical description of each of our executive officers not otherwise provided above:

René Sagastuyhas been the Chief Executive Officer of Maxcom since March 2003. Mr. Sagastuy was our Chief Operating Officer from May 2001 until March 2003. Prior to joining Maxcom, Mr. Sagastuy served for one year as Director of Operations for Johnson Controls in Mexico, a U.S. public company with 19 manufacturing sites in Mexico. Mr. Sagastuy also served as operations, strategic planning, manufacturing and project manager and director of several companies in Mexico, including Avex Electronics, AMP de México, S.A. de C.V. and the Jefferson Smurfit Group in Mexico. Mr. Sagastuy holds a bachelor’s degree in civil engineering from the Universidad Iberoamericana in Mexico and a master’s degree in Business Administration form the Instituto Tecnológico Autónomo de México.

José Antonio Solbeshas been Chief Financial Officer since October, 2003. Mr. Solbes was our Treasurer and Director of Investor Relations since March 2000. Prior to that Mr. Solbes held the positions of Director of Administration and Treasurer. Prior to joining Maxcom, Mr. Solbes was Corporate Financial Manager at Grupo Empresarial Organizado, S.A. de C.V. Mr. Solbes holds an accounting degree from the Universidad Anahuac and a Masters degree in Finance from the same university. Mr. Solbes completed the Corporate Financial Strategy Program at the J.L. Kellog Graduate School of Management in Northwestern University in Chicago.

Ricardo Arévalo Ruizhas been our Chief Operating and Information Technology Officer since May 2003. Mr. Arévalo was Chief Information Systems Officer from April 2001 to April 2003. Prior to joining Maxcom, Mr. Arévalo served as Vice-President, Information Systems and Chief Information Officer of Iusacell from August 1997 to May 2001. Mr. Arévalo also served as Vice President, Information Systems, as Chief Information Officer and as Director, Systems Development of Grupo Iusacell Cellular during the previous two years. Before then, Mr. Arévalo served as Director of Information Systems, Materials, Logistics and Customer Service of AMP de México, S.A. de C.V. from May 1993 until August 1997. Mr. Arévalo was also the Information Systems Manager for Tequila Cuervo, S.A. de C.V. from October 1990 until May 1993. Mr. Arévalo has an undergraduate degree in computer sciences and a diploma in marketing from the Instituto Tecnológico y de Estudios Superiores de Monterrey.

Alejandro Díaz y Díaz,has been the Chief Sales and Marketing Vicepresident since December 2005. Mr. Díaz was Market Commercial Director from June 2002 to November 2005. Prior Mr. Díaz held several positions in Maxcom since 1999. Prior to joining Maxcom, Mr. Díaz served as Customer Training Manager of Avantel from February 1998 to December 1998. Mr. Díaz has an Bachelor Degree on Business Administration from the Instituto Tecnológico Autónomo de México, also known as “ITAM” and a Diploma in telecommunications from the Instituto Tecnologico y de Estudios Superiores de Monterrey.

B.   Compensation

General

For the year ended December 31, 2005, our executive officers received an aggregate compensation (including bonuses and severance payments but excluding options) of approximately Ps.22.4 million. This amount was

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recognized as selling, general and administrative expenses for 2005, which represent 4.8% of our total selling, general and administrative expenses for 2005.

During 2005, members and the Chairman of the Board received options that vest immediately to purchase up to 2,500 and 5,000series N-1 shares, respectively, at an exercise price of U.S.$0.01 per share, for each time the member attended a board of directors or any board committee meeting. We already approved similar options incentives for the year 2004. There were six board of directors meetings, eight Operating Advisory Committee meetings and three Audit Committee meetings, during 2005. In 2004, we granted to our directors and committee members options to purchase a total of up to 187,500series N-1 shares at an exercise price of U.S.$0.01.

At a extraordinary shareholders meeting held on December 17, 2004, our shareholders decided to change the underlying securitieof these options from series N shares toseries N-1 shares, which are preferred shares.

Old executive stock option plan

In May of 1998, we implemented an executive stock option plan. This plan provided that the Company would grant options, on every April 1, commencing in 1999 through April 2001, to its executive officers. Under this plan, would a technical committee determined the executive officers to whom options to purchase Series “N” shares were granted, as well as the terms of those options.

Once the options are awarded, holders have the right to immediately exercise 20% of such options. The right to exercise the amount of the remaining options is accrued on a yearly basis in a fifth part each remaining year. In case the officer ceases to work for the Company, all options not exercised are forfeited. Options expire ten years from the date of grant.

As of December 31, 2005, the aforesaid plan had an amount of 575,000 shares to back options issued for officers due to their performance for the years of 1998, 1999 and 2000.

As of December 31, 2005, 526,214 options of this plan had been granted, of which 304,502 remain to be exercised, and 256,094 are fully exercisable.

Options are subject to a trust in a trust managed by Banco Nacional de México, S.A., established on June 20, 1999.

New executive stock option plan

We implemented a new executive stock plan, for the services rendered during the years 2002, 2003 and 2004. The plan is divided into four levels, depending on the ranking of the different members of management. The first level includes the highest management level of the Company and depends upon targets that the board fixes for the Company every year. The participants of the three following levels are guaranteed a minimum amount of options. The granting of options for the members of the last level, which is comprised of the junior management, is discretionary.

The underlying security of the options of this new executive option plan is comprised by Series N1 Class II shares, which represent the variable portion of the capital stock of the Company.

Since this is a retention plan, once options are granted, holders can immediately exercise 20% of such options. In order to keep these officers in office, the right to exercise the amount of the remaining options is accrued on a yearly basis in a fifth part each remaining year. In the event the officer ceases to work for the Company, all options not exercised are forfeited. Options expire ten years from the date of grant.

As of December 31, 2005, the board of directors and shareholders of the Company authorized an aggregate of 17,998,500 shares to remunerate officers for the services they rendered during the years 2002, 2003 and 2004. Also, part of these options served as extraordinary remunerations granted to certain key officers in case of a change in the control of the Company.

As of December 31, 2005, 13,529,500 shares had been granted, of which 2,705,900 were fully exercisable.

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C.   Board practices

The members of our board of directors are elected annually at our ordinary general meeting of shareholders. All board members hold the positions for one year and may be reelected. The current members of the board of directors were selected at the general annual ordinary and extraordinary shareholders’ meeting held on April 28, 2006.

Our board of directors established an Operating Advisory Committee responsible for advising the Board on, and overseeing, Maxcom’s operations. The Operating Advisory Committee is currently comprised of Adrián Aguirre, Jacques Gliksberg, Roberto Chute and Rene Sagastuy. Mr. Salvatore A. Grasso, former member of the Operating Advisory Committee resigned in January 2004.

Our board of directors established an Audit Committee responsible for advising the Board on, and overseeing, Maxcom’s financial condition and matters regarding accounting, taxation and release of financial information. The Audit Committee is currently comprised of Marco Provencio, Adrián Aguirre, and Roberto Chute. Mr. Juan Manuel Ferrón, our statutory auditor, and Gonzalo Alarcón, our general counsel and secretary of the Board, are required to participate in each meeting, although they are not formal members of the committee. Mr. Salvatore A. Grasso, former member of the Operating Advisory Committee resigned in January 2004.

Under the Mexican Companies Law (Ley General de Sociedades Mercantiles), we are required to have at least one statutory auditor (comisario), who is elected by our shareholders at the annual ordinary general shareholders’ meeting. C.P. Juan Manuel Ferrón is our statutory auditor. Mr. Ferrón is a partner of PricewaterhouseCoopers, S.C., who are our external auditors. The primary role of the statutory auditor is to report to our shareholders at the annual ordinary general shareholders’ meeting regarding the accuracy, sufficiency and reasonable basis of the financial information presented to such shareholders by the board of directors.

Our executive officers are appointed by the board of directors for an indefinite term and may be removed by the Board at will, provided the corresponding severance payments are made in accordance with Mexican labor law and the applicable labor contract.

Members of the board of directors are not entitled to any benefits upon termination.

D.   Employees

As of December 31, 2005, we had 1,250 employees, a 83% increase as compared to a total of 683 at the end of 2004. Of our total employees, 513 are managed through external agencies, 75 are unionized and covered by the terms of a collective bargaining agreement that we entered into with the National Union of Telecommunications, Communications, Cybernetics, Electric, Electronic and Similar Products Workers of the Mexican Republic (Sindicato Nacional de Trabajadores de Telecomunicaciones, Telefonía, Comunicaciones, Cibernética, Productos Eléctricos, Electrónicos, Similares y Conexos de la República Mexicana). This agreement is renewable every year and next expires on March 31, 2007. We have not experienced any strikes or work stoppages and believe that our relations with our employees are satisfactory.

We also had 478 sales representatives as of December 31, 2005, compared to 233 sales representatives as of December 31, 2004.

E.   Share ownership

Messrs. Jacques Gliksberg, Roberto Chute, Marco Viola and Martin Molina, Nexus-Holdings I, LLC,BASCF-Maxcom Holding I, LLC and BAS Capital Funding Corporation, hold, directly and indirectly 90.52% of our capital stock. None of our other directors or officers owns more than 1% of our shares, except for shares held by the Aguirre Gómez family, which are described below in “Principal Shareholders.”

The only agreements that we currently maintain for purposes of compensating our employees with our capital stock are our old and new executive stock option plans, described above under “—B. Compensation.”

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ITEM 7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.  Major shareholders and share ownership

The following table presents the equity structure and the major shareholders of Maxcom as of the date of this annual report:

	Shareholders
				Banc America
	Aguirre Gómez			Equity			Other
Shares	Family(1)			Partners(2)			Investors			Subtotal
Series A Shares
Number of shares		4,508,644			—			—			4,508,644
Percentage owned		100.00	%		—			—			100.00	%
Series A-1 Shares
Number of shares		6,088,896			—			—			6,088,896
Percentage owned		100.00	%		—			—			100.00	%
Series B-1 Shares
Number of shares		—			10,089,375			92,575			10,181,950
Percentage owned		—			99.09	%		0.91	%		100.00	%
Series N Shares
Number of shares		42,052			3,505,738			5,314,044	(4)		8,861,834
Percentage owned		0.47	%		39.56	%		59.97	%		100.00	%
Series N-1 Shares
Number of shares		—			217,207,981			3,506,893	(4)		220,714,874
Percentage owned		—			98.41	%		1.59	%		100.00	%
Series N-2 Shares(3)
Number of shares		—			—			26,867,820			26,867,820
Percentage owned		—			—			100.00	%		100.00	%
Total
Number of shares		10,639,592			230,803,094			35,781,332			277,224,018
Percentage owned		3.84	%		83.26	%		12.91	%		100.00	%

(1)	The shares of Maxcom controlled by the Aguirre Gomez family are held individually or through trusts or corporations (Adrian Aguirre Gomez 1,254,997 Series A, 1,522,224Series A-1 and 42,052 Series N Shares; Maria Guadalupe Aguirre Gomez 1,084,549 Series A, 1,522,224Series A-1 Shares, Maria Elena Aguirre Gómez 1,084,549 Series A, 1,522,224Series A-1 Shares 1,084,548 Series A, 1,522,224Series A-1 Shares and Maria Trinidad Aguirre Gómez 1,084,549 Series A, 1,522,224Series A-1 Shares). As part of the 2004 restructuring, the Aguirre Gùomez family exchanged i) 1,226,373 of our series B common shares for 1,226,373 of our series A common shares, and ii) 2,055,843 of our series N shares for 2,055,843 of our series A shares.
(2)	The shares of Maxcom controlled by Banc America Equity Partners are held through (i) Nexus-Maxcom Holdings I, LLC, which holds 166,408,377 shares or approximately 60.3% of the total outstanding capital stock,(ii) BASCF-Maxcom Holding I, LLC which holds 60,888,979 shares or approximately 21.96% of the total outstanding capital stock, (iii) BAS Capital Funding Corporation, which holds 3,155,164 shares or approximately 1.14%, and (iv) BankAmerica Investment Corporation, which holds approximately 0.13% of the total outstanding capital stock. As part of the 2004 restructuring the entities controlled by Banc America Equity Partners exchanged 4,333,741 of ourseries N-1 shares for 4,333,741 of ourseries B-1 shares.
(3)	Theseries N-2 shares were originally issued to the bondholders who participated in our debt restructuring. During 2003 Nexus — Maxcom Holdings I, LLC acquired an amount of approximately 75% of the old notes, as well as a similar percentage ofseries N-2 shares, which are now beneficially owned by Nexus — Maxcom Holdings I, LLC. See “Item 5 — Operating and Financial Review and Prospects — Debt restructuring and

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recapitalization.” Additionally, during 2003 Nexus — Maxcom Holdings I, LLC acquiredSeries B-1 andN-1 shares previously held by Morgan Stanley Asset Management, Caxton International and Credit Suisse First Boston Corporation.

(4)

As part of the agreements made between some of our current officers which also held shares, in February 2005 Rene Sagastuy Ferrándiz, our Chief Executive Officer, Ricardo Arévalo, our Chief Operation and Information Technology Officer and, Rogelio Espinosa Cantellano, head of the Strategic Negotiations Direction exchanged an aggregate amount of 1,469,836 of our series N shares for 1,469,836 of ourseries N-1 shares.

In addition, we have options authorized for the purchase of up to 3,024,011 series N and 23,010,943series N-1 shares. See “Outstanding options and warrants.”

The 2002 and 2004 capital restructurings

On April 11, 2002 we obtained an authorization from the Mexican Foreign Investment Bureau (Dirección General de Inversión Extranjera) to increase our ability to issue neutral investment shares for up to 95% of our total capital stock and to simplify our equity structure.

Our capital structure is comprised of the following stock:

•  Series A-1 common voting shares with preferred liquidation rights;

•  Series B-1 common voting shares with preferred liquidation rights;

•  Series N-1 preferred shares with limited voting rights; and

•  Series N-2 preferred shares with limited voting rights.

The holders of our series A shares andseries A-1 preferred shares voting together as a class have the ability to elect the majority of the board of directors. All series A shares andA-1 preferred shares are beneficially owned, directly or indirectly, by several members of the Aguirre Gómez family, including Adrián Aguirre Gómez, María Guadalupe Aguirre Gómez, María Elena Aguirre Gómez, and María Trinidad Aguirre Gómez. Pursuant to our amended by-laws, our amended series A shares andA-1 preferred shares represent 51% of our voting stock and may only be held by Mexican nationals.

Although the Aguirre Gómez family holds 51.00% of the voting stock through the series A andA-1 shares, and has the power to elect the majority of the board of directors, its ability to control Maxcom is substantially limited by the terms of the securityholders’ agreement described below under ‘‘ — Securityholders agreement.” The holders of our series B stock andseries B-1 preferred shares voting together have the right to elect four directors of our nine-member board of directors. However, pursuant to the terms of the securityholders agreement, the series B and B-1 director are elected from among nominees proposed by Nexus.

The holders of ourseries N-2 preferred shares have the right to appoint an observer to the board of directors for so long as (i) theseries N-2 preferred shares represent at least 3% of the outstanding capital stock of Maxcom or (ii) there is at least one share ofseries N-2 preferred shares remain outstanding and at least U.S.$17.5 million aggregate principal amount of the old notes remain outstanding. This observer, who is not a member of the board of directors, has the right to attend meetings of the board of directors but is not entitled to vote.

On October 8, 2004, we consummated an exchange offer and consent solicitation. The purpose was to improve our leverage and capital structure, in order to attract additional investments and access multiple opportunities for future growth. The following actions were taken pursuant to the debt restructuring and recapitalization:

•  Holders tendered an aggregate of U.S.$162,505,711 in principal amount of old notes in exchange for an aggregate of (i) U.S.$36,117,789 in principal amount of new notes, bearing an annual interest rate of 4.00% from October 8, 2004 through April 14, 2005, 5.75% from April 15, 2005 through October 14, 2005, 7.75% from October 15, 2005 through April 14, 2006, 8.25% from April 15, 2006 though October 14, 2006, 9.25% from October 5, 2006 through October 14, 2007, 10.25% from October 15, 2007 through October 14, 2008, and 11.25% from October 15, 2008 through October 14, 2009 (the “new notes”), and (ii) 101,110,338 shares of ourSeries N-1 Preferred Shares;

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•  Maxcom received consents to the amendment of certain restrictive covenants of the indenture governing the old notes representing 92.0% of the total principal amount of outstanding old notes (other than old notes held by Maxcom or any affiliate of Maxcom), therefore fulfilling the condition for the adoption of the proposed amendments.

Outstanding options and warrants

As of the date of this annual report, we have up to 23,010,943 millionseries N-1 shares and up to 3,024,011 million series N shares authorized for issuance upon the exercise of stock options and warrants. Each option entitles the holder to purchase one series N share or oneseries N-1 share. The following table presents shares authorized for issuance upon the exercise of stock options and warrants as well as information concerning the stock options and warrants authorized and outstanding:

			Type	Exercise
	Number of		of	Price		Expiration
Name of Option Holder	Options		Share	per Share		Date
				(US$)
Bachow & Associates, Inc. (strategic assistance services)(1)		442,312	N		3.60			(9)
Amsterdam Pacific LLC		24,426	N		8.70		Not Applicable
1998-2000 Executive Stock Option Plan		575,000	N		8.70 to 12.55		2014
2001-2003 Executive Stock Option Plan(8)		17,998,500	N-1		0.50		2015
UBS Warburg LLC(2)		89,244	N		0.01		2007
Donaldson, Lufkin & Jenrette Securities Corporation(2)		22,312	N		0.01		2007
133/4% notes warrantholders(3)		764,938	N		0.01		2007
Adrián Aguirre(4)		3,626,959	N-1		0.49		2012
Signing bonus reserve for new officers		246,215	N-1		0.01		Not Applicable
BAS Capital Funding Corporation (management services)(5)		249,781	N-1		0.01		Not Applicable
BankAmerica Investment Corporation (management services)(6)		27,754	N-1		0.01		Not Applicable
Bachow & Associates, Inc. (management services)(7)		277,535	N-1		0.01		Not Applicable
Directors and committee members compensation		684,199	N-1		0.01		1 year after granting
Total		24,929,175

(1)	We issued options to purchase up to 100,000 series N shares at U.S.$8.70 per share in May 1998 as compensation for strategic assistance services. Pursuant to our 2002 recapitalization, we issued options to purchase up to an additional 342,312 series N shares at an exercise price of U.S.$3.06 per share and reduced the exercise price of the original options to U.S.$3.06 per share as partial anti-dilution protection.
(2)	These warrants were issued in March 2000 as partial compensation for underwriting services related to the issuance of units comprised of our 133/4% notes and warrants.
(3)	These warrants were issued as part of the March 2000 offering of our units comprised of our 133/4% notes and warrants.
(4)	We issued options to purchase up to 375,000 series N shares at a strike price varying between U.S.$8.70 and U.S.$12.55 per share pursuant to the old executive stock option plan described in “Management — Compensation — Old Executive Stock Option Plan.” Pursuant to our 2002 recapitalization, we issued options to purchase up to 3,251,959 series N shares at an exercise price of U.S.$0.49 and reduced the exercise price of the original options to U.S.$0.49 per share as partial anti-dilution protection. Pursuant to a shareholders meeting held on December 17, 2004 we authorized an amendment to the existing options and warrants issued in

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	connection with employee compensation plans or management services to change the underlying value of the options from N to N-1 preferred shares.
(5)	We issued options to purchase up to 42,300 series N shares at U.S.$0.01 per share in May 2001 as compensation for management services provided during 2000. Pursuant to our 2002 recapitalization, we issued options to purchase up to an additional 207,481 series N shares at an exercise price of U.S.$0.01 per share as partialanti-dilution protection. Pursuant to a shareholders meeting held on December 17, 2004 we authorized an amendment to the existing options and warrants issued in connection with employee compensation plans or management services to change the underlying value of the options from N to N-1 preferred shares.
(6)	We issued options to purchase up to 4,700 series N shares at U.S.$0.01 per share in May 2001 as compensation for management services provided during 2000. Pursuant to our 2002 recapitalization, we issued options to purchase up to an additional 23,053 series N shares at an exercise price of U.S.$0.01 per share as partial anti-dilution protection. Pursuant to a shareholders meeting held on December 17, 2004 we authorized an amendment to the existing options and warrants issued in connection with employee compensation plans or management services to change the underlying value of the options from N to N-1 preferred shares.
(7)	We issued options to purchase up to 47,000 series N shares at U.S.$0.01 per share in May 2001 as compensation for management services provided during 2000. Pursuant to our 2002 recapitalization, we issued options to purchase up to an additional 230,535 series N shares at an exercise price of U.S.$0.01 per share as partial anti-dilution protection. Pursuant to a shareholders meeting held on December 17, 2004 we authorized an amendment to the existing options and warrants issued in connection with employee compensation plans or management services to change the underlying value of the options from N to N-1 preferred shares.
(8)	The board has authorized that up to three million options to purchaseSeries N-1 shares be granted to key officers in connection with a change of control as part of the severance package agreements.
(9)	Options expire 2 years after holders have disposed all of their ownership interest.

Pursuant to a shareholders meeting held on December 17, 2004 we authorized an amendment to the existing options and warrants issued in connection with employee compensation plans or management services to change the underlying security of the options from N to N-1 preferred shares.

On March 24, 2005 the option of Nissho Iwai American Corporation to subscribe up to 337,472 series N shares at a strike price per share of U.S.$8.70 expired in accordance with the Stock Option Agreement executed by and between Nissho Iwai American Corporation and Maxcom Telecomunicaciones, S.A. de C.V. on March 24, 1998.

On December, 2005, the option of CT Global Telecommunicacions, Inc to subscribe up to 1,105,779. Series N shares at a strike price per share of U.S.$3.06 expired in accordance with the Operating Agreement between CT Global Telecomminications, Inc., and Maxcom Telecomunicaciones, S.A. de C.V.

Securityholders agreement

On August 18, 2000, Maxcom executed an amended and restated securityholders agreement with our shareholders to, among other things, reflect the restructuring of our capital stock and to provide that the exchange of series C shares and series N shares for CPOs may not adversely affect in any manner the rights granted to the holders of the series N stock under the original securityholders agreement.

The securityholders agreement was again amended and restated in connection with our recapitalization. All of the holders of series A shares,series A-1 preferred shares, series B shares ,series B-1 preferred shares, series N stock andseries N-1 preferred shares are parties to the securityholders agreement, which sets forth certain corporate governance and the transfer or sale of such securities. The primary purpose of the securityholders agreement is to confirm the rights and obligations under the by-laws of each of the parties to such agreement. Accordingly, with certain limited exceptions, the terms of the new securityholders agreement are substantially the same as the terms of the by-laws as applicable to the holders of series A shares,series A-1 preferred shares, series B shares,series B-1 preferred shares, series N shares andseries N-1 preferred shares.

In particular, the new securityholders agreement provides that we are managed by a board of directors composed of nine members and nine alternate members. Five members are designated by holders of a majority of the series A shares and theseries A-1 preferred shares, voting together as a single class, and the remaining four

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members are designated by the holders of our series B shares andseries B-1 preferred shares voting together. However, the series B and B-1 directors are selected from among nominees proposed by Nexus.

Pursuant to the new securityholders agreement, Maxcom is required to deliver to certain significant holders of series A, B and N shares andseries A-1, B-1 and N-1 preferred shares financial statements and other information reasonably requested by such shareholders.

In addition, the new securityholders agreement provides, among other things, approval of key matters (which will require the affirmative vote of both Nexus and the board, including the approval of at least one director designated by Nexus), restrictions on transfers, rights of first offer, participation rights, and rights and obligations with respect to public offerings. For further description of corresponding provisions of the proposed by-laws see “Item 10. Additional Information — B. Memorandum and articles of association.”

B.   Related party transactions

General policy

Our general policy is that we will not, and will not permit our subsidiaries to, enter into any contract or transaction with or for the benefit of any affiliate (other than transactions between us and our subsidiary), which is not at a price and on other terms at least as favorable to Maxcom or our subsidiaries as those which could be obtained on an arm’s-length basis from an unaffiliated third party.

Operation services

On October 17, 1997, we entered into an operating agreement with CT Global Telecommunications, Inc., one of our series B shareholders. This agreement was amended in May 21, 1998 and October 1, 1999 and was terminated on December 31, 2000. Under this agreement, CT Global was responsible, among other things, for providing us with advisory consulting and supporting services in ourstart-up phase.

During the life of this Agreement, CT Global earned options to purchase our shares as incentive compensation for meeting certainstart-up and operational targets. As part of the 2002 recapitalization described in “—A. Major shareholders and share ownership — The capital restructuring,” we authorized the issuance of options in favor of CT Global to purchase up to 855,779 series N shares at an exercise price of U.S.$3.06 per share and to reduce the exercise price of the original options to U.S.$3.06 per share as partial anti-dilution protection. See “—A. Major shareholders and share ownership — Outstanding options and warrants.”

Strategic assistance services

On May 21, 1998, we entered into a strategic assistance agreement with Bachow & Associates, Inc., an affiliate of one of our current principal shareholders. The agreement provided that Bachow would help us to:

•  develop and implement a budget model template for our annual operating and capital budgets;

•  evaluate and assist in the choice and implementation of a financial accounting system;

•  develop a template for the monthly board of directors operational reporting package;

•  evaluate and assist in the choice and implementation of a customer billing system;

•  design a sales and marketing plan; and

•  provide training and guidance to our Chief Financial Officer.

This agreement expired on April 1, 1999. Bachow received, in addition to other compensation, options to purchase 100,000 series N shares at a strike price of U.S.$8.70 per share. In accordance with the terms of the strategic assistance agreement, Bachow may elect to have the Company finance up to 95% of the exercise price with a seven-year term non-recourse loan that will be secured by the stock. Pursuant to the 2002 recapitalization, we authorized the issuance of options to purchase up to an additional 342,312 series N shares at an exercise price of U.S.$3.06 per share and to reduce the exercise price of the original options to U.S.$3.06 per share as partial anti-dilution protection.

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Advertising

On April 9, 2002 we agreed to purchase U.S.$3.0��million of advertising time over the Grupo Radio Centro radio network from Operadora Plusgamma, a company controlled by certain members of the Aguirre Gómez family. Operadora Plusgamma is an operator of a network of radio station located throughout Mexico. The Aguirre Gómez family used the U.S.$3.0 million proceeds that were received by Operadora Plusgamma from this agreement to purchaseseries A-1 shares pursuant to the private equity investment made at the time of the recapitalization.

Management services

In May 2001, Bank America International Investment Corporation, Bachow & Associates, Inc. and LA Strategic Capital Partners II, which are principal shareholders (or affiliates of principal shareholders in the case of Bachow) received options to purchase an aggregate of 94,000 series N shares at an exercise price of U.S.$0.01 for management services rendered in 2000, during the term of vacancies in the offices of Chief Executive Officer, Chief Operating Officer and Chief Marketing Officer.

As part of the 2002 recapitalization described in “— A.  Major shareholders and share ownership—The capital restructuring,” we authorized the issuance to the same partners of options to purchase 461,069 series N shares at an exercise price of U.S.$0.01 per share partial anti-dilution protection. See “— A. Major shareholders and share ownership — Outstanding options and warrants.”

Spin-off and sale of subsidiary

On August 30, 2005, the Company’s shareholders’ approved a corporate restructuring whereby Ps.8.4 million of assets, Ps.8.3 million of liabilities and Ps.0.1 million of equity were transferred to a newly formed spun off company, Mijolife, S.A. de C.V. which was owned by existing shareholders in the same proportion as their ownership in the Company. In accordance with Mexican tax law, a proportional amount of existing net operating tax loss carryforwards were also transferred therewith.

In a subsequent transaction with the Company’s shareholders, the Company reacquired a 99% interest in Mijolife, S.A. de C.V. for Ps.218,027 (Ps.214,000 Nominal), an amount equal to its fair market value. Such amount was subsequently capitalized as equity. On November 22, 2005, the Company sold Mijolife, S.A. de C.V. to a third party for Ps.218,027 (Ps.214,588 Nominal) in cash with no resulting gain or loss. Ps.15,365 of expenses incurred in the transactions described above were reflected as a special item in the statement of income.

C.   Interest of experts and counsel

Not applicable.

ITEM 8.   FINANCIAL INFORMATION

A.   Consolidated statements and other financial information

Financial statements

See Item 18.

Legal proceedings

Significant unpaid receivable

We have initiated criminal and commercial actions against Americana de Sistemas, S.A. de C.V. for the failure to pay approximately Ps.6.4 million in telecommunications services. This service usage, which was incurred over several days, was detected by our fraud prevention system but was not noticed by our monitoring personnel, which has been significantly reduced as a result of our cost reduction measures. See “Item 3. Key Information — D. Risk factors — Factors relating to the Mexican telecommunications industry — Fraud increases our expenses.” Fraud on payment of labor quotas to the Mexican Institute of Social Security (IMSS).

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Dividend policy

Our current policy is to reinvest profits into our operations. In addition, the indenture that governs the terms of the old notes and new notes allows us to pay cash dividends only if we meet the following conditions:

•  minimum consolidated leverage ratio of less than 3.75 to 1.00;

•  a minimum fixed charge coverage ratio of 2.00 to 1.00;

•  no default (as defined in the indenture) must have occurred and be continuing or result from the payment of the cash dividend; and

•  the cash dividend payments do not exceed an amount determined in the indenture based on, among other things, cash flow generated from operations or equity offerings and consolidated interest expense.

B.   Significant changes

Except for the recapitalizations described in “Item 5. Operating and Financial Review and Prospects — Debt restructuring and recapitalization,” no significant change has occurred affecting our results or financial conditions since December 31, 2004.

ITEM 9.   THE OFFER AND LISTING

A.   Offer and listing details

Not applicable.

B.   Plan of distribution

Not applicable.

C.   Markets

None of Maxcom’s securities are traded on any stock exchange.

D.   Selling shareholders

Not applicable.

E.   Dilution

Not applicable.

F.   Expenses of the issue

Not applicable.

ITEM 10.   ADDITIONAL INFORMATION

A.   Share capital

Not applicable.

B.   Memorandum and articles of association

General

Maxcom was incorporated on February 28, 1996, under the name “Amaritel, S.A. de C.V.” as a variable capital corporation (sociedad anónima de capital variable) established under the laws of Mexico. Maxcom was registered in the Public Registry of Commerce of the Federal District of Mexico under folio no. 210585 on June 11, 1996. Amaritel changed its name to “Maxcom Telecomunicaciones, S.A. de C.V.” on February 9, 1999.

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Maxcom was formed for the purpose of installing, operating and exploiting a public telecommunications network granted by the Mexican federal government for the provision of local and long distance telephone services.

Maxcom’s corporate purposes are found under Article Two of its by-laws. The duration of Maxcom’s existence under our by-laws is indefinite.

The following table sets forth our capital structure as of June 28, 2006:

			% of Total
	Number		Capital
Class of Shares	of Shares		Structure
Series A		4,508,644		1.62	%
Series A-1 Preferred Shares		6,088,896		2.19	%
Series B-1 Preferred Shares		10,181,950		3.67	%
Series N		8,861,834		3.72	%
Series N-1 Preferred Shares		220,714,874		79.08	%
Series N-2 Preferred Shares		26,867,820		9.69	%
Total		277,224,018		100.0	%

On April 11, 2002 we obtained an authorization from the Mexican Foreign Investment Bureau (Dirección General de Inversión Extranjera) to increase our ability to issue neutral investment shares for up to 95% of our total capital stock and to simplify our equity structure.

In connection with our 2002 recapitalization, we issued four new classes of shares: theseries A-1, B-1, N-1 and N-2 preferred shares. Theseries A-1 and B-1 preferred shares have full voting stock and theseries N-1 and N-2 preferred shares have limited voting stock. Theseries N-1 and N-2 preferred shares are not computed for purposes of determining the foreign investment percentage under the Mexican Foreign Investment Law and may be subscribed, paid for and held by Mexican and non-Mexican investors. Ourseries N-2 preferred shares have been deposited into the CPO trust, which is administered by Banco Nacional de México, S.A., also known as Banamex who is also the record holder of theseries N-2 preferred shares. The trust is managed by a technical committee, a majority of the members of which are designated by Maxcom. The technical committee has the authority to direct the trustee to, among other things, waive preemptive rights otherwise provided by Mexican law. Each CPO represents oneseries N-2 preferred shares.

Under the 2002 recapitalization, we liquidated the existing C/N CPO trust and cancelled the correspondingC/N CPOs. Additionally, the series C shares was converted at an exchange ratio ofone-to-one into series N shares. As a result, holders of C/N CPOs have become the direct holders of two shares of series N shares for each C/N CPO.

Our series A shares andseries A-1 preferred shares, which may only be subscribed, paid for and held by Mexican investors, collectively represent about 51% of our voting stock, and all of our series A andseries A-1 shares are held directly or indirectly by members of the Aguirre Gómez family. Theseries B-1 preferred shares represent 49% of our voting stock and may be subscribed, paid for and held by Mexican and non-Mexican investors.

In connection with our 2004 recapitalization, at a general annual ordinary and extraordinary meeting of our shareholders, our shareholders authorized the exchange, subject to the completion of the restructuring, (1) 1,226,373 outstanding shares of our series B shares held by Mexicans for 1,226,373 of our series A shares, (2) 4,333,741 shares of ourseries N-1 shares for 4,333,741 shares of ourseries B-1 shares and (3) a maximum of 2,005,843 of our series N shares held by Mexicans for 2,005,843 shares of our series A shares. Our offer to exchange shares of our capital stock described in the previous sentence was made to all holders of our series B, N-1 and N shares. This exchange will allow us to issue additional neutral investment shares when required.

Voting rights

Under our amended by-laws, the holders of series A shares,series A-1 preferred shares, series B stock andseries B-1 preferred shares are entitled to vote on all matters submitted to a vote of the shareholders, with each share of series A shares,series A-1 preferred shares, series B shares andseries B-1 preferred shares being entitled to one

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vote. In addition, under our by-laws, holders of series N shares have no voting rights and holders ofseries N-1 and N-2 preferred shares have limited voting rights. Currently, there are no series B shares outstanding.

Holders ofseries N-1 preferred shares will vote together as a separate class in connection with:

•  any amendment to the by-laws that adversely and disproportionately affects the economic characteristics (i.e., conversion right, liquidation right and dividend right) of theseries N-1 preferred shares as compared to theseries N-2 preferred shares; and

•  any amendment to the section of the by-laws relating to the voting rights ofseries N-1 preferred shares.

In addition, holders ofseries N-2 preferred shares will vote together as a separate class in connection with:

•  determining whether a sale of all or substantially all of the consolidated assets of Maxcom or a merger, recapitalization, reorganization or consolidation of Maxcom, immediately after which the shareholders of Maxcom beneficially own less than 50% of the voting power or equity securities of the surviving entity will not be deemed a liquidation event with respect to theseries N-2 preferred shares;

•  any amendment to the by-laws that adversely and disproportionately affects the economic characteristics (i.e., conversion right, liquidation right and dividend right) of theseries N-2 preferred shares as compared to theseries N-1 preferred shares;

•  any amendment to the by-laws that adversely affects the right of the holders of a majority of theseries N-2 preferred shares to designate an observer (or, in the circumstance described below, a member) to the board of directors;

•  any amendment to the by-laws that adversely affects the rights of the observer designated by theseries N-2 preferred shares to receive, subject to any restrictions imposed by applicable law, copies of any written materials distributed to the holders of series A and B shares andseries A-1 and B-1 preferred shares simultaneously with such holders;

•  certain amendments to the by-laws that impose additional transfer restrictions or conditions on theseries N-2 preferred shares, except to the extent necessary to comply with applicable law;

•  any amendment to the by-laws that adversely affects the co-sale rights or obligations of holders ofseries N-2 preferred shares;

•  any amendment to the by-laws that adversely affects the forced sale rights or obligations of holders ofseries N-2 preferred shares; and

•  any amendment to the section of the by-laws of Maxcom relating to the voting rights ofseries N-2 preferred shares.

Shareholders’ meetings may be called by the board of directors, its Chairman, Vice-Chairman or Secretary, the statutory auditor or Nexus or, in certain cases, by a Mexican court of competent jurisdiction. In addition, the board of directors or the statutory auditor must call a shareholders’ meeting at the written request of any shareholder if no ordinary general shareholders’ meeting has been held for two consecutive years or if the shareholders’ meetings held during that period have not considered the items mentioned in Article 181 of the Mexican Companies Law. Notice of meetings must be published in the Official Gazette of the Federation or in a newspaper of general circulation in Mexico City or by written notice given to each shareholder of record at least 15 days prior to the meeting. In order to attend a shareholders’ meeting, a shareholder must request and obtain an admission card by depositing, at least 24 hours before the time set for holding the shareholders’ meeting, such shares with Maxcom’s corporate secretary or with a Mexican bank or other qualified institution. If entitled to attend the meeting, a shareholder may be represented by proxy or apower-of-attorney.

Shareholders’ meetings may be ordinary, extraordinary or special. Extraordinary general meetings are called to consider the matters specified in Article 182 of the Mexican Companies Law, and principally include increases or reductions of capital stock, amendments to the by-laws, dissolution, issuance of bonds or preferred stock, merger, spin-off, transformation from one type of company to another, change in nationality and change of corporate purpose.

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General meetings called to consider all matters other than those mentioned above are ordinary meetings. An ordinary general meeting of the shareholders of Maxcom must be held at least annually during the four months following the end of each fiscal year to consider matters specified in Article 181 of the Mexican Companies Law, principally including the election of directors, the report of the board of directors regarding the performance of Maxcom, containing the financial statements of Maxcom for the preceding fiscal year and the declaration of dividends, if any.

Special meetings for each class of stock may be held to elect the members or observers of the Board of Directors representing those shareholders and to address other matters relating to the relevant series.

Under our by-laws, the quorum on a first call, and each call thereafter, for an ordinary general shareholders’ meeting is at least a majority of the voting shares. The quorum on a first call for extraordinary shareholders’ meetings, and each call thereafter, is at least a majority of the shares having a right to vote at such meetings. Except for purposes of certain key matters to be voted upon as a separate class by each of the holders ofseries N-1 andseries N-2 preferred shares, series N shares, andseries N-1 and N-2 preferred shares are not considered voting shares for purposes of determining the quorum at ordinary general or extraordinary shareholders’ meetings. The quorum on a first call for special shareholders’ meetings, and each call thereafter is at least a majority of the shares of the respective series for which the special meeting is being held.

Resolutions of ordinary general and special shareholders’ meetings may be adopted by the affirmative vote of the majority of shares present at the meeting, except as to certain matters described below. Resolutions of general extraordinary shareholders’ meetings held on a first call, and each call thereafter may be adopted by the affirmative vote of at least a majority of the shares having a right to vote at such meetings.

Under Mexican law, holders of 33% of Maxcom’s outstanding capital stock may have any shareholder action set aside by filing a complaint with a Mexican court of competent jurisdiction within 15 days after the close of the meeting at which such action was taken, by showing that the challenged action violates Mexican law or Maxcom’s by-laws.

Under Mexican law, an action for civil liabilities against a member or members of the board of directors may be initiated by a shareholders’ resolution. In the event shareholders decide to bring an action, the person or persons against whom the action is brought will immediately cease to be members of the board of directors. Additionally, shareholders representing not less than 33% of the outstanding shares of Maxcom may directly take such action against members of the board of directors, provided that:

•  such shareholders have not voted in favor of a resolution approved at the relevant shareholders’ meeting pursuant to which it was resolved not to take any action against the directors who are to be sued; and

•  the claim in question covers the total amount of damages alleged to have been caused to Maxcom as well as to the individual plaintiffs’ interests.

Any recovery of damages will be for the benefit of Maxcom and not the shareholders bringing the action.

Under Mexican law, any shareholder or director who has a conflict of interests in connection with any matter must abstain from voting at the relevant shareholders’ or board of directors’ meeting, respectively. Any shareholder or director who votes on a business transaction where its interests conflict with those of Maxcom may be liable for damages if the transaction would not have been approved without such shareholder’s or director’s vote.

The terms of compensation of the members of the board of directors must be approved at a shareholders’ meeting.

Approval of key matters

Our amended by-laws provide that the approval of each of the key matters described below will require the approval in advance of both Nexus, solely in its capacity as a shareholder, and the board of directors; provided that the approval of the board of directors will require the affirmative vote of at least one director designated by Nexus.

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Key matters generally include the following:

•  the incurrence or assumption by the companyand/or any of its subsidiaries of any indebtedness (including capitalized lease obligations) or other liabilities exceeding U.S.$10,000,000;

•  the issuance of any equity securities of the company or any of its subsidiaries;

•  the sale, transfer, exchange or other disposal of all or a significant portion of the assets or equity securities of the company or any of its subsidiaries;

•  any assignment by the company or any of its subsidiaries for the benefit of creditors or the voluntary commencement of any bankruptcy or insolvency proceedings;

•  the establishment by the company or any of its subsidiaries of any non-wholly-owned-subsidiary or the making by the company or any of its subsidiaries of any loans or advances to, guarantees for the benefit of, or investments in, any person or entity other than a wholly-owned subsidiary;

•  the declaration of dividends on, or the making of any other distributions in respect of, any of its capital stock, other than dividends and distributions by a direct or indirect wholly-owned subsidiary of the company to its parent;

•  the acquisition of any equity securities of the company or any of its subsidiaries;

•  the entering into any transaction with any restricted persons;

•  the election, appointment or removal of the Chief Executive Officer, the General Managers of any business units, the Chief Operating Officer, the Chief Financial Officer, the Director of Marketing and the Chief Engineer (or any other individual with a similar or more senior title or position), and the approval of salary, compensation and benefit or other similar plans for such key executives;

•  the approval of the company’s and its subsidiaries’ annual business plan and annual budget for each fiscal year;

•  the entering by the company or any of its subsidiaries into any new line of business (other than the main corporate purpose of the company);

•  any agreement that would restrict the company’s or any of its subsidiaries’ right or ability to perform the provisions of its by-laws (Estatutos) or any agreements or instruments to which it is a party;

•  the manner in which the shares or other interests of any subsidiary or entity owned by the company shall be voted at shareholders’ meetings called for key matters;

•  any amendments to the concessions/licenses granted by the Mexican authorities, by-laws and certain other specified agreements;

•  the subdivision or combination, in any manner, of the outstanding shares of one class or series of shares, unless the outstanding shares of the other class or series of shares of the company shall also be proportionately subdivided or combined in a similar manner;

•  the grant to any person or entity of the right to request the company to register securities; and

•  any commitment or agreement to do any of the foregoing.

Board of Directors

Our board of directors is composed of nine members, five of whom are designated by the holders of series A shares andseries A-1 preferred shares and four of whom are designated by the holders of series B shares andseries B-1 preferred shares. Pursuant to the terms of the securityholders agreement described in “Item 7. Major Shareholders and Related Party Transaction — A. Major shareholders and share ownership — Securityholders agreement,” each series B and B-1 director must be elected from nominees selected by Nexus. One alternate is also designated for each member of the board of directors.

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Prior to the consummation of a qualified public offering, the holders ofseries N-2 preferred shares or the new class of voting preferred stock into which theseries N-2 preferred shares is convertible are generally entitled to designate one observer to the board of directors. With certain exceptions, the observer has the right to attend meetings of the board of directors and receive information distributed to the company’s directors and copies of any written materials distributed to the holders of series A and B shares andseries A-1 and B-1 preferred shares. The observer, who is not a member of the board of directors, is also entitled to attend meetings of any committee of the board of directors authorized to act on behalf of the full board of directors. The observer has no right to vote at any meeting of the board of directors or any committee of the board of directors. The holders ofseries N-2 preferred shares or the new class of preferred stock into which suchseries N-2 preferred shares is converted are permitted to designate an observer to the board of directors for so long as either:

•  theseries N-2 preferred shares, or such other voting preferred stock represents at least 3% of the issued and outstanding capital stock of Maxcom; or

•  there are any shares ofseries N-2 preferred shares outstanding and at least U.S.$17.5 million principal amount of the old notes outstanding.

Upon a change in the applicable laws in Mexico permitting a majority of our board of directors to be composed of non-Mexicans, the holders ofseries N-2 preferred shares, or such other voting preferred stock into which theseries N-2 preferred shares is convertible, will be entitled to designate and elect a full member of the board of directors (in lieu of the observer) for so long asseries N-2 preferred shares, or such voting preferred stock, represents at least 10% of the total capital stock of the company then outstanding. If theseries N-2 preferred shares, or such other voting preferred stock, declines below this threshold, the class will again be permitted to designate an observer.

Dividends

At the annual ordinary general meeting of shareholders of Maxcom, the board of directors will typically submit the financial statements of Maxcom for the previous fiscal year, together with a report by the board of directors, to the general ordinary shareholders’ meeting for their approval. The holders of series A and B shares and holders ofseries A-1 and B-1 preferred shares will determine the allocation of Maxcom’s net profits for such fiscal year. At least 5% of such net profits must be allocated to a legal reserve, which is not available for distribution except as a stock dividend, until the amount of the legal reserve equals 20% of Maxcom’s paid-in capital stock. Additional amounts may be allocated to other reserve funds as the shareholders determine. The remaining balance of net profits, if any, is available for distribution as dividends.

Theseries N-2 preferred shares (on an as-converted basis) are entitled to receive dividend payments, if any, and rank pari passu with theseries A-1, B-1 and N-1 preferred shares with respect to dividend rights. Maxcom will pay no dividends on any class of capital stock that is junior to theseries N-2 preferred shares unless it also pays dividends to holders ofseries N-2 preferred shares.

Maxcom does not anticipate that it will declare and pay dividends in the foreseeable future.

Liquidation rights

In the event that we are dissolved or liquidated, one or more liquidators must be appointed at an extraordinary general shareholders’ meeting to wind up our affairs. Except as provided below, all fully paid and outstanding shares of capital stock will be entitled to share ratably in all assets remaining after payment of liabilities. Partially paid shares will be entitled to participate in a liquidation, dissolution or winding up in the same manner as they would in a dividend or distribution.

However, under our amended by-laws, upon any liquidation, dissolution or winding up of Maxcom, holders ofseries N-2 preferred shares will be entitled to receive liquidation proceeds in preference to the holders of the

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series A, B and N shares and pari passu with the holders ofseries A-1, B-1 and N-1 preferred shares on a pro rata basis in an amount equal to the greater of:

•  U.S.$0.4927 per share, as adjusted for stock splits, stock dividends and similar events, plus the accretion of such amount at a cumulative rate of 12% per year compounded semi-annually; and

•  the amount that holders ofseries N-2 preferred shares would have received if they had converted all of theirseries N-2 preferred shares into series N shares (or, to the extent the series N shares has been converted, to the class of stock the series N shares is converted into) immediately prior to the liquidation event.

A sale of all or substantially all of the consolidated assets of Maxcom, or a merger, recapitalization, reorganization or consolidation of Maxcom, immediately after which the shareholders of Maxcom beneficially own less than 50% of the voting power or the equity securities of the surviving entity, will be deemed to be a liquidation event with respect to theseries N-2 preferred shares, unless the holders of at least a majority of theseries N-2 preferred shares deem that such event does not constitute a liquidation event with respect to their shares.

A waiver of this deemed liquidation event by holders ofseries N-2 preferred shares will not impair the liquidation rights of holders ofseries A-1, B-1 and N-1 preferred shares.

The liquidation preference rights will not be retained in the event of an optional conversion or mandatory conversion into common stock in connection with a qualified public offering.

Changes in share capital

An increase of our capital stock may be effected through the issuance of new shares for payment in cash or in kind, by capitalization of indebtedness or by capitalization of certain items of shareholders’ equity. No increase of our capital stock may be effected until all previously-issued shares of capital stock have been fully paid. A reduction of our capital stock may be effected to absorb losses, to redeem shares, or to release shareholders from payments not made.

Increases in capital may not result in the series N shares andseries N-1 and N-2 preferred shares representing more than 95% in the aggregate of the outstanding capital stock of Maxcom. The series N shares and theseries N-1 and N-2 preferred shares currently represent 91.8% of our outstanding capital stock.

The fixed portion of our capital stock may only be increased or decreased by resolution of an extraordinary general meeting of shareholders and an amendment to our by-laws. The variable portion of our capital stock may be increased or decreased by resolution of an extraordinary general meeting of shareholders.

Preemptive rights

In the event of a capital increase through the issuance of new shares for payment in cash or in kind, as a matter of Mexican law, a holder of shares has a preferential right to subscribe for a sufficient number of new shares to maintain the holder’s existing proportion of shares held.

Shareholders have a preemptive right to subscribe for shares, except:

•  in connection with mergers or spin-offs;

•  on the conversion of convertible debentures; or

•  issuances of shares pursuant to a public offering, if a general extraordinary shareholders’ meeting called for such purpose so approves and other requirements specified in Article 81 of the Mexican Securities Law are satisfied, including obtaining the approval of the Mexican National Banking and Securities Commission.

Under Mexican law, preemptive rights may not be waived in advance by a shareholder, and cannot be represented by an instrument that is negotiable separately from the corresponding share but may be waived at the moment of issuance of such shares.

Theseries N-2 preferred shares are held in a limited purpose trust administered by Banco Nacional de México, S.A., who is also the holder of record. The CPO trust is managed by a technical committee, a majority of the

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members of which is appointed or designated by Maxcom, which has the authority to direct the trustee to, among other things, waive any applicable preemptive rights. See “— Description of the CPO trust” below.

We may not be able to offer additional shares of capital stock to holders of the CPOs pursuant to preemptive rights granted to our shareholders in connection with any future issuance of stock, unless a registration statement under the Securities Act is effective or an exemption from the registration requirements is available. Whenever we are required to make a preemptive rights offering to the holders of theseries N-2 preferred shares, we will evaluate the costs and potential liabilities associated with any such registration statement, the benefits to the holders of CPOs, and any other factors that we consider appropriate and then we will determine whether or not to file such registration statement. If we determine that we will not be able to offer the holders of CPOs the right to subscribe for additional shares of capital stock, we will direct the trustee of the CPO trust to waive its preemptive rights as the holder of record of theseries N-2 preferred shares.

Our by-laws and securityholders agreement provide that if the trustee of the CPO trust waives the preemptive rights in connection with a share issuance, the holders ofseries N-1 preferred shares will also waive their preemptive rights with respect to such issuance. Although the holders ofseries N-1 preferred shares must waive their statutory preemptive rights, such holders will be permitted to participate directly in the share subscription or if otherwise permitted to do so.

Optional conversion rights

Theseries N-2 preferred shares is convertible, in whole or in part, at the option of the holder into series N shares at any time prior to the earlier of:

•  the consummation of a public offering; and

•  the elimination of certain foreign ownership restrictions under Mexican law so as to permit the unrestricted ownershipand/or control of Maxcom by non-Mexicans.

Upon a public offering, theseries N-2 preferred shares (as well as new voting preferred stock issued pursuant to a mandatory conversion related to the elimination of certain foreign ownership restrictions under Mexican law) will be convertible, in whole or in part, at the option of the holder into the same class of equity securities offered in such public offering.

In addition, theseries A-1, B-1 and N-1 preferred shares are convertible, in whole or in part, at the option of the holder, at such time, and on such terms, as theseries N-2 preferred shares.

Mandatory conversion

Upon a qualified public offering, all, but not less than all, theseries N-2 preferred shares (as well as new voting preferred stock issued pursuant to a mandatory conversion related to the elimination of certain foreign ownership restrictions under Mexican law) will be convertible at the option of Maxcom into the same class of equity securities offered in such qualified public offering.

In addition, all, but not less than all, of theseries A-1, B-1 and N-1 preferred shares will be convertible at the option of Maxcom at such time and on such terms, as theseries N-2 preferred shares.

Upon the elimination of certain foreign ownership restrictions under Mexican law so as to permit the unrestricted ownershipand/or control of Maxcom by non-Mexicans, theseries N-2 preferred shares will automatically convert into a new voting preferred shares. This new voting preferred stock will retain the same liquidation preference rights of theseries N-2 preferred shares and the right to appoint either a member of the board of directors or, if such new voting preferred stock represents less than 10% of the outstanding capital stock of Maxcom, an observer to the board of directors.

Anti-dilution protection and conversion price adjustments

If Maxcom issues any shares of common equity or securities convertible into common equity (other than certain permitted issuances) for consideration per share of less than either (i) the conversion price, which will

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initially be U.S.$0.4927 per share, in effect immediately prior to that time or (ii) the then fair market value of the stock sold, then, until December 31, 2002, full ratchet anti-dilution protection will apply, and, thereafter, institutional weighted average anti-dilution protection will apply to the preferred stock, as more fully described below. This anti-dilution protection will no longer be available after the preferred stock is converted into common stock. Maxcom has not issued any shares of common equity or securities convertible into common equity since the adoption of this clause.

The following permitted issuances will not trigger the anti-dilution protections:

•  any rights, options and warrants granted or issued, or authorized to be granted or issued, to certain employees, directors, consultants and vendors of Maxcom and its subsidiaries, as of March 5, 2002, or under any management incentive plan approved by the board of directors, including the affirmative vote of at least one of the directors selected from Nexus appointees.

•  any securities issued pursuant to the private equity investment and up to U.S.$3.8 million of securities issued within one year of the consummation of the private equity investment at or above U.S.$0.4927 per share;

•  any shares issued upon the exercise or conversion of any of the foregoing; and

•  any of the capital stock issued in connection with a conversion of any of theseries A-1, B-1, N-1 or N-2 preferred shares.

Full-ratchet anti-dilution protection means that the conversion price will be automatically reduced to the lowest consideration at which any share of capital stock has been issued or sold.

Institutional weighted average anti-dilution protection means that the conversion price will be reduced to the lower of:

•  an amount equal to (A) the sum of (i) the product derived by multiplying the conversion price in effect immediately prior to such issuance or sale by the number of “common shares deemed outstanding,” as defined below, immediately prior to such issue or sale, plus (ii) the aggregate consideration (expressed as a net price per share), if any received by Maxcom upon such issue or sale, divided by (B) the number of common shares deemed outstanding immediately after such issue or sale; and

•  the conversion price determined by multiplying the conversion price in effect immediately prior to such issuance or sale by a fraction, the numerator of which will be the sum of (i) the number of the common shares deemed outstanding immediately prior to such issue or sale multiplied by the then market value of the then fair market value of the common stock of Maxcom then outstanding as of the date of such issuance or sale plus (ii) the aggregate consideration, if any, received by Maxcom upon such issuance or sale and the denominator of which shall be the product derived by multiplying the then fair market value of the common stock of Maxcom by the number of common shares deemed outstanding immediately after such issue or sale.

For the purposes of the foregoing calculations, the term “common shares deemed outstanding” means the currently outstanding capital stock of Maxcom plus all shares of capital stock issuable upon the exercise of options and warrants or conversion of convertible securities. Whenever Maxcom grants options or issues securities convertible into the capital stock of the company, the issue price will be the sum of the per share consideration received by the company upon the grant or issue of the option or convertible security plus any per share additional consideration that the company will receive upon exercise or conversion of such option or convertible security.

Determinations of fair market value will be made in good faith by the Board of Directors so long as the issuance is for cash consideration (and without any associated service arrangements) and at least 70% of the shares issued are to persons who are not then shareholders of Maxcom. Otherwise, Maxcom at its expense will obtain the opinion of an internationally recognized or nationally recognized in the United States financial advisory firm or investment bank to be selected by Maxcom as to the fair value of the shares to be issued and any non-cash consideration for such shares.

The conversion price will also be adjusted for any stock splits or combinations.

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Following any adjustment of the conversion price of theseries N-2 preferred shares, Maxcom will deliver notice to the CPO trustee of the adjustment setting forth the calculation of the adjustment. In addition, upon the written request of the CPO trustee, Maxcom will furnish or cause to be furnished to the CPO trustee a certificate setting forth (i) a summary of all adjustments and readjustments to the conversion price, (ii) the conversion price for theseries N-2 preferred shares then in effect, and (iii) the number of shares of capital stock into which theseries N-2 preferred shares is then convertible.

Right of first refusal

Except in connection with a sale of at least 50.1% of the total equity of Maxcom, a public offering or a transfer to an affiliate or a certain other permitted transferee, if a Maxcom shareholder other than certain significant shareholders, who we refer to as the “investors,” intends to sell its capital stock, then shareholders other than the investors and the holders of theseries N-2 preferred shares (but only with respect to theirseries N-2 preferred shares) will have the right to purchase such capital stock. This right of first refusal will terminate upon the earlier of:

•  a sale or transfer of at least 50.1% of the total capital stock of Maxcom or the sale of all or substantially all of the consolidated assets of Maxcom in one or more related transactions to an independent third party or parties, or

•  the elimination of certain foreign ownership restrictions under Mexican law so as to permit the unrestricted ownershipand/or control of Maxcom by non-Mexicans.

Right of first offer

Except in connection with a sale of at least 50.1% of the total equity of Maxcom, a public offering or a transfer to an affiliate or a certain other permitted transferee, in the event any investor intends to transfer anyseries A-1, B-1 or N-1 preferred shares, or securities received in a conversion of such preferred shares, such investor must offer to sell such securities to each other investor holding more than one percent of the aggregateseries A-1, B-1 and N-1 preferred shares, or securities received in a conversion of such preferred stock, then outstanding. This right of first offer will terminate upon the earlier of:

•  a qualified public offering;

•  the sale or transfer of anyseries A-1, B-1 or N-1 preferred shares involving at least 50.1% of the total capital stock of Maxcom or a sale of all or substantially all of the consolidated assets of Maxcom in one or more related transactions to an independent third party or parties.

Co-sale rights and forced sale obligations

Co-sale rights

If holders ofseries A-1, B-1 or N-1 preferred shares intend to sell, alone or together with any other shareholder of Maxcom, at least 50.1% of the total capital stock of Maxcom in one or more related transactions to an independent third party or parties, then holders ofseries N-2 preferred shares will, except in certain circumstances, have the right to participate in any such sale on a pro rata basis with the sellers. Holders ofseries N-2 preferred shares will be entitled to sell such shares generally on the same terms and conditions as the selling shareholder. This co-sale right will terminate upon the consummation of the earlier of

•  a qualified public offering; or

•  the sale or transfer of anyseries A-1, B-1 or N-1 preferred shares involving a transfer of at least 50.1% of the total capital stock of Maxcom or a sale of all or substantially all of the consolidated assets of Maxcom to an independent third party or parties in one or more related transactions.

In connection with any sale or transfer of any of our equity securities, debt securities with equity features or other securities convertible into equity securities, shareholders other than holders ofseries N-2 preferred stock may participate in such sale on a pro rata basis at a price and on terms substantially the same as the selling securityholder.

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However, these co-sale rights will not apply to a sale or transfer of no more than 7,000,000 shares of preferred stock. This co-sale right will terminate upon the consummation of the earlier of:

•  a qualified public offering; or

•  the sale or transfer of anyseries A-1, B-1 or N-1 preferred shares involving a transfer of at least 50.1% of the total capital stock of Maxcom or a sale of all or substantially all of the consolidated assets of Maxcom to an independent third party or parties in one or more related transactions.

Forced sale obligations

If Nexus desires to transfer at least two-thirds of the beneficial ownership of the total capital stock of Maxcom then outstanding, in one or more related transactions to an independent third party or parties, on terms and conditions approved by Nexus, then all shareholders of Maxcom (including holders ofseries N-2 preferred shares) may be forced by Nexus to sell a proportionate share of theirseries N-2 preferred shares. Such shareholders will be entitled to sell such shares generally on the same terms and conditions as the selling shareholders.

If Nexus desires to sell all or substantially all of the consolidated assets of Maxcom in one or more related transactions to an independent third party or parties on terms and conditions approved by Nexus, then all shareholders of Maxcom (including holders ofseries N-2 preferred shares) may be forced by Nexus to vote in favor of, consent to and raise no objections against such asset sale.

Holders ofseries N-2 preferred shares may not be forced to participate in, or vote for, any of the foregoing transactions unless:

•  the consideration for such sale is paid in cashand/or freely tradable, exchange—listed equity securities; and

•  the value of such consideration on a per share basis is not less than the then applicable liquidation preference for each share of series N-2 preferred shares.

These forced sale obligations will terminate upon the consummation of the earlier of:

•  a qualified public offering; or

•  the sale or transfer of anyseries A-1, B-1 or N-1 preferred shares involving a transfer of at least 50.1% of the total capital stock of Maxcom or a sale of all or substantially all of the consolidated assets of Maxcom to an independent third party or parties in one or more related transactions.

Other provisions

In both the case of a co-sale and a forced sale, the holders ofseries N-2 preferred shares will not be required to execute any ancillary documents. However, to the extent the proceeds from any such sale will be subject to any expense, escrow, holdback or indemnification obligation, the selling shareholders assume this obligation on a pro rata basis. The amount of any such obligation of each shareholder in connection with a participation in a sale or a forced sale will be limited to the maximum amount of proceeds that the such holder is entitled to receive. Shareholders participating in a sale or forced to sell may provide the purchaser with different assurances or collateral for their indemnification obligations. As a result, some shareholders may be permitted to sign an indemnification agreement or give a guarantee while others may be subject to a hold back of their sale proceeds.

It is possible that both the participation rights and forced sale obligations will be triggered by a single transaction. In this event, the participation rights will not apply.

In the event that the participation rights or forced sale obligations have been triggered, we will prepare, and to the extent applicable, file with the appropriate regulatory authority, with the advice of U.S. counsel, any notices or offering material required by our by-laws or applicable Mexican and U.S. federal and state securities laws to be delivered to the beneficial owners of theseries N-2 preferred shares and to cause such documents to be delivered to the CPO trustee in sufficient quantities for distribution to the beneficial owners of theseries N-2 preferred shares.

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Rights and obligations with respect to public offerings

Registration rights

Nexus at any time and from time to time may request that Maxcom take all requisite action, at its expense, to register one or more series of Maxcom’s equity securities under applicable Mexican securities laws, rules and regulations or applicable U.S. federal and state securities laws. However, the initial demand by Nexus shall be a public offering that is expected to yield aggregate net proceeds of at least U.S.$10.0 million.

Holders ofseries N-1 preferred shares andseries A-1 and B-1 shares will have the right to participate (piggyback) in any registration statement filed pursuant to the Securities Act for a public offering other than an initial public offering. However, the registration rights will be subject to customary cutback provisions.

Cooperation in connection with an underwritten offering

During the period commencing on Maxcom’s initial public offering that is not a qualified public offering and ending on the earlier to occur of eighteen months after the consummation of such initial public offering or the consummation of Maxcom’s first qualified public offering, at the request of one or more holders ofseries N-2 preferred shares, or of any class of stock into which theseries N-2 preferred shares has been converted, and at such holders’ expense Maxcom will cooperate one time only with the efforts of such holders to effect an underwritten offering of their stock, provided that such offering is for at least U.S.$5.0 million in net proceeds. In addition, the underwriter must be reasonably acceptable to Maxcom and Maxcom may delay such underwritten offering for up to six months if it is then separately in the process of preparing a qualified public offering. Maxcom will not be obligated to prepare any offering memorandum or registration statement in connection with such offering.

Listing rights

After a public offering, at the request of any holder ofseries N-2 preferred shares, or any class into which theseries N-2 preferred shares has been converted, Maxcom will, at its expense, use commercially reasonable efforts, to cause the shares into which theseries N-2 preferred stock has been converted or is convertible, including any CPOs representing such shares, to be listed on each securities exchange or the NASD automated quotation system, as applicable, on which similar securities of Maxcom, including certificates of participation representing the beneficial ownership of such similar securities are then listed. In connection with any such listing, Maxcom will, if required, also register such securities with the National Registry of Securities and Intermediaries of the National Banking and Securities Commission of Mexico.

Lock-up restrictions

We may, under certain circumstances, impose a limitation on the transfer ofseries N-2 preferred shares, which provides that such stock may not be transferred after notice from Maxcom, which may not be more than 30 days prior to the expected effective date of Maxcom’s first qualified public offering until the 180th day after such effective date. Maxcom may not impose this restriction on the transfer ofseries N-2 preferred shares if more than 20% of the securities being registered in connection with the qualified public offering are for the account of Maxcom’s shareholders. In addition, this restriction on transfer may not be more restrictive than any restrictions placed on all other shareholders.

Transfer of CPOs and transfer restrictions

Theseries N-2 preferred shares and any shares of capital stock into whichseries N-2 preferred shares is converted is deposited in the CPO trust and may not be transferred separate from the CPOs representing such securities. The CPOs may be transferred without restriction under U.S. federal securities laws by persons who are not affiliates of Maxcom. However, no market currently exists for the CPOs and we do not currently plan to list the CPOs on any exchange for trading. In certain circumstances we may be required to list the CPOs on a securities exchange and to cooperate one time only with efforts of holders of the CPOs to effect an underwritten offering. We may impose limitations on the transfer of CPOs for a period after the consummation of a qualified public offering. See “— Rights and obligations with respect to public offerings.”

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Until the earlier of a qualified public offering or a sale of the company, no holder of series A, B or N shares andseries A-1, B-1 or N-1 preferred shares may transfer such shares without the prior approval of both Nexus, solely in its capacity as a shareholder, and the board of directors, which board of directors approval will require the affirmative vote of at least one Nexus director.

Until a qualified public offering, in the event that certain significant holders ofseries A-1, B-1 and N-1 preferred shares desire to transfer such shares, such holders will be obligated to first offer to sell such shares to other holders ofseries A-1, B-1 or N-1 preferred shares at the same price, terms and conditions offered to the initial proposed transferees.

Upon the effectiveness of changes in certain Mexican regulations, other holders of series A, B and N shares andseries A-1, B-1 and N-1 preferred shares who desire to transfer such shares will be obligated to first offer to sell such shares to other series A, B and N shares andseries A-1, B-1 and N-1 preferred shares at the same price, terms and conditions offered to the initial proposed transferees.

There are certain exceptions to the transfer restrictions in our bylaws. These exceptions apply to (i) transfers by BAS Capital Funding Corporation or BASCF — Maxcom Holdings I, LLC with respect to any preferred share acquired by them pursuant to our restructuring and private equity investment, (ii) transfers as a result of inheritance, and (iii) transfers among shareholders and their qualified affiliates.

During our annual ordinary and extraordinary shareholders’ meeting held on June 10, 2003, we amended our bylaws to include a new exception to the transfer restrictions that allows Morgan Stanley Asset Management, one of the shareholders who participated both in the private equity investment and the exchange offer, to transfer its shares to any of its managed accounts.

Under our telecommunications concessions and by-laws, the SCT has 90 days to object to any transfer, subscription or conveyance of 10% or more of our capital stock with the exception of:

•  transfers related to series N shares and N-1 and N-2 shares and any successor stock; and

•  subscriptions made pursuant to the exercise of a shareholder’s preemptive rights, as long as the percentage participation of the shareholders in our capital stock does not vary.

Other provisions

Ownership restrictions

For a description of the limitations on the right to own securities imposed by Mexican law see “Business Overview — Overview of the Mexican Telecommunications Industry — Ownership Restrictions.”

Forfeiture of stock

Under our amended by-laws, the current or future foreign shareholders of Maxcom firmly undertake with the Ministry of Foreign Relations (Secretaría de Relaciones Exteriores) to consider themselves as Mexican nationals with respect to the stock of Maxcom that they may acquire or own, as well as with respect to the properties, rights, concessions, securities or interests owned by Maxcom, or the rights and obligations derived from the agreements entered with the Mexican authorities to which Maxcom is a party. The current or future foreign shareholders of Maxcom firmly undertake not to invoke the protection of their government, under penalty of forfeiting such shares to the benefit of the Mexican nation.

Dissolution

Pursuant to the Mexican Companies Law and our by-laws, we may be dissolved upon the occurrence, among other things, of any of the following events:

•  the impossibility of continuing with our current line of business;

•  the resolution of our shareholders at an extraordinary general shareholders’ meeting;

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•  the reduction of the number of our shareholders to fewer than two; and

•  the loss of two thirds of our capital stock.

Shareholder conflicts of interest

Under Mexican law, any shareholder that has a conflict of interest in connection with any transaction must abstain from voting at the relevant shareholders’ meeting. A shareholder that votes on a business transaction in which its interest conflicts with that of Maxcom may be liable for damages if the transaction would not have been approved without such shareholder’s vote.

Director conflicts of interest

Under Mexican law, any member of the board of directors who has a conflict of interest with Maxcom in any transaction must disclose such a fact to the other members of the board of directors and abstain from voting on such matter at the relevant meeting of the board of directors. Any member of the board of directors who violates such a provision may be liable for damages caused to Maxcom. Additionally, members of the board of directors may not represent any shareholders at any shareholders’ meeting.

Description of the CPO trust

General

Theseries N-2 preferred shares have been deposited by Maxcom in a limited purpose trust which is administered by Banco Nacional de México, S.A. under a trust agreement. We refer to the trust as the “CPO trust” and the trustee of the CPO trust as the “CPO trustee.” The CPO trustee is the holder of record of theseries N-2 preferred shares and any securities into which theseries N-2 preferred shares may be converted.

The CPO trustee issuedCertificados de Participación Ordinarios, or “CPOs”, which are negotiable instruments under Mexican law that give their holders the economic rights and voting rights of theseries N-2 preferred shares or any other shares of capital stock into which theseries N-2 preferred shares may be converted, which we refer to together as the “deposited securities.”

The CPOs are initially held in book-entry form through DTC, and a nominee of DTC is the holder of record of a global CPO certificate. Our amended by-laws provide that we will obtain all governmental approvals required in connection with the conversion of theseries N-2 preferred shares held in the CPO trust to other securities of Maxcom.

The following is a description of (i) certain provisions included in the CPO trust agreement and (ii) applicable provisions of the Law of Negotiable Instruments and Credit Transactions (Ley General de Títulos y Operaciones de Crédito). This is a summary description and does not purport to be complete and is qualified in its entirety by reference to the CPO trust agreement and the provisions of Mexican law referred to in such description.

Purpose

The main purpose of the CPO trust is to have the CPO trustee, as record holder of the deposited securities and upon the instructions of the technical committee described below under “Administrator of the CPO trust,” waive or not exercise any statutory preemptive rights that it may have from time to time to subscribe for additional shares of our capital stock. As the record holder of the deposited securities, the CPO trustee exercises certain rights attached to such securities in order to preserve to the largest extent possible the economic and voting rights that would otherwise be held directly by the beneficial owners of the CPOs.

Waiver of statutory preemptive rights

The trustee of the CPO trust will waive statutory preemptive rights with respect to deposited securities when, in the sole judgment of the technical committee of the CPO trust, as described below, the exercise of such preemptive rights would require that the shares so subscribed be registered pursuant to the Securities Act, unless Maxcom decides to register such shares. If the exercise of the preemptive rights is possible without registration under the

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Securities Act (or Maxcom decides to carry out such registration) and the holders of CPOs provide the CPO trustee with the necessary funds, the CPO trustee will subscribe for the corresponding number of shares, which will be held in the CPO trust, and deliver additional CPOs in respect of such additional deposited securities to the subscribing CPO holders. Under Mexican law preemptive rights may not be transferred separately from the underlying shares.

Voting and economic rights

The holders of CPOs are not entitled to directly exercise any voting or economic rights with respect to the deposited securities. Such voting rights are exercisable only by the CPO trustee pursuant to the instructions of the holders of CPOs. The holders of CPOs will be entitled to receive dividend distributions, if any, from Maxcom through the CPO trustee. DTC will receive the distributions and will make distributions to the beneficial owners of the CPOs. In the event of a forced sale the trustee of the CPO trust will cause theseries N-2 preferred shares to be delivered in connection with any such sale and will distribute to the record holder of the CPOs the proceeds from such sale subject to any holdbacks required pursuant to the terms of any such sale. The CPO trustee will also deliver deposited securities in connection with the exercise of the co-sale rights and will distribute to the record holders of the CPOs the proceeds from sale subject to any holdbacks required pursuant to the terms of any such sale. See “— Co-sale rights and forced sale obligations” above.

If a distribution by Maxcom consists of a dividend in shares, such shares will be transferred to the CPO trustee, and held in the CPO trust, and the CPO trustee will distribute to the holders of CPOs in proportion to their holdings, additional CPOs to represent the additional deposited securities received by the CPO trustee as such dividend.

The holders representing a majority of the outstanding CPOs will be entitled to appoint the board observer, or in certain circumstances, a member of the board of directors. See “— Board of Directors.”

Administration of the CPO trust

The CPO trust is administered by the CPO trustee under the direction of a technical committee, which consists of three members, two members of which are designated by Maxcom and one by the holders of CPOs.

Common representative

The majority of holders of CPOs have the right to appoint a common representative, whose duties include, among others: verification of the due execution and terms of the CPO trust agreement; verification of the existence of the deposited securities; authentication, by its signature, of the certificate evidencing the CPOs, exercise of the rights of the CPO holders in connection with the payment of any dividend or distribution related to the deposited securities to which such CPO holders are entitled; and undertaking of any other action required to protect the rights, actions or remedies to which CPO holders may be entitled to under the CPO trust.

Transfer

CPO holders may sell their interest in CPOs. Sales of CPOs may be subject to Mexican taxes. Neither Maxcom nor the CPO trustee will have any liability in connection with any such sale. CPO holders may not sell the deposited securities separately from the CPOs.

Term and termination

The maximum term of the CPO trust is thirty years, but it may be terminated at any moment by recommendation of the technical committee, in which case the deposited securities will be delivered to the CPO holders.

Fees

The fees of the CPO trustee for the administration of the CPO trust, and the fees of the common representative for acting in such capacity, are paid by Maxcom.

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C.   Material contracts

Concessions

In February 1997, we obtained a concession to provide local telephony services covering Mexico City and the Gulf region and long distance services nationwide from the Mexican government. We also obtained a nationwidepoint-to-point and three regionalpoint-to-multipoint microwave concessions in October 1997. In September 2001, our local telephony concession was expanded to cover all of Mexico. For a description of our concessions, see “Item 4. Information on the Company — B. Business review — Supervision and regulation of the Mexican telecommunications industry — Our concessions.”

Interconnection agreements

In November 1998, we entered into a local interconnection agreement with Telmex which was amended and extended on December 2003 and August 5, 2004. We have also signed reciprocal interconnection agreements with mobile telephony providers Telcel, Grupo Iusacell and Telefonica Moviles. Finally, we have signed long distance interconnection agreements with Telmex, Alestra, Bestel, Protel and Iusatel. For a description of these interconnection agreements, see “Item 4. Information on the Company — B. Business review — Supervision and regulation of the Mexican telecommunication industry — Interconnection.”

Lucent supply agreement

On September 5, 1997, Maxcom executed a purchase and sales agreement with subsidiaries of Lucent Technologies, Inc. pursuant to which Maxcom may purchase from Lucent products, services and software.

Metro Net capacity sales agreement

On April 28, 2000, Maxcom executed a metropolitan network capacity sale agreement with Metro Net, S.A. de C.V. (which was amended on December 21, 2000) for an aggregate amount of U.S.$7.2 million pursuant to which Maxcom purchased from Metro Net (i) the exclusive and unlimited right to use certain backbone fiber optic capacity of 6 (six) fiber optic strands of Metro Net’s metropolitan rings in Mexico City, and (ii) an option to acquire the exclusive and unlimited right to use additional backbone fiber optic capacity of 6 (six) fiber optic strands.

Bestel capacity acquisition agreement

On August 13, 2002, Maxcom executed an agreement with Bestel, S.A. de C.V. to acquire the irrevocable right to the exclusive use of two strands in a 2,011-kilometer fiber optic backbone covering the cities located between Mexico City and Laredo, Texas for U.S.$10.9 million. This fiber optic backbone includes a border crossing with the United States.

Also in 2003 Maxcom exchanged one 2.5 Gbps lambda with another carrier in order to achieve redundancy in the fiber optic backbone, with this redundancy Maxcom acquires a more competitive edge in order to provide its customers with redundant services throughout its fiber backbone.

Axtel sale of capacity agreement

On October 15, 2003, Maxcom executed an agreement with Axtel, S.A. de C.V. to sell capacity in the form of a STM16 in Maxcom’s fiber optic backbone covering the cities located between Mexico City and Laredo, Texas over a period of 13 years, with the possibility of an extension.

CPO trust agreement

On April 25, 2002, Maxcom and its shareholders executed an irrevocable trust agreement with Banco Nacional de México, S.A. acting as trustee for the issuance of ordinary participation certificates, also known as “CPOs,” each representing oneseries N-2 share of the capital stock of Maxcom with liquidation preference rights. For a description of this agreement, see “Item 10. Additional Information — B. Memorandum and Articles of Association — Description of the CPO Trust.”

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Securityholders’ agreement

On April 29, 2002, Maxcom executed an amended and restated securityholders’ agreement with the shareholders of the Company to, among other things, reflect the restructuring of the capital stock of Maxcom. For a description of the securityholders’ agreement, see “Item 7. Major Shareholders and Related Party Transactions — A. Major shareholders and share ownership — Securityholders agreement.”

Spin-off and sale of subsidiary

On August 30, 2005, the Company’s shareholders’ approved a corporate restructuring whereby Ps. 8.4 million of assets, Ps. 8.3 million of liabilities and Ps. 0.1 million of equity were transferred to a newly formed spun off company, Mijolife, S.A. de C.V. which was owned by the existing shareholders in the same proportion as their ownership in the Company. In accordance with Mexican tax law, a proportional amount of existing net operating tax loss carryforwards were also transferred therewith.

In a subsequent transaction with the Company’s shareholders, the Company reacquired a 99% interest in Mijolife, S.A. de C.V. for Ps. 218,027 (Ps. 214,000 Nominal), an amount equal to its fair market value. Such amount was subsequently capitalized as equity. On November 22, 2005, the Company sold Mijolife, S.A. de C.V. to a third party for Ps. 218,027 (Ps. 214,588 Nominal) in cash with no resulting gain or loss. Ps. 15,365 of expenses incurred in the transactions described above were reflected as a special item in the statement of income.

Indentures

2000 Indenture

On March 17, 2000, Maxcom and its subsidiaries, entered into an Indenture with The Bank of New York, acting as trustee, which governs the terms and conditions of the issuance by Maxcom of U.S.$300 million 133/4% notes. The Indenture restricted Maxcom’s ability to incur indebtedness by requiring that Maxcom meet minimum consolidated leverage and fixed charge coverage ratios. In addition, the Indenture limited our ability to pay dividends, repurchase subordinated debt, redeem our capital stock, dispose of assets and make investments, among other things. All of these restrictions were eliminated as a result of the exchange offer and U.S.$11,590,000 aggregate amount of 133/4% notes under this indenture remains outstanding.

Old Indenture

On April 29, 2002, Maxcom and its subsidiaries entered into an Indenture with The Bank of New York acting as a Trustee, which governs the terms and conditions of the issuance by Maxcom of U.S.$167,623,590 old notes. This indenture has substantially the same restrictions the 2000 Indenture had before they were eliminated pursuant to the exchange offer. However, as a result of the exchange offer and consent solicitation we consummated in October 8, 2004: (i) the covenants restricting our ability to pledge our assets as security for financings contained in this indenture were amended to allow us to secure up to an additional U.S. $50 million in liens on our assets, (ii) the covenant limiting our restricted payments, permitted investments and affiliate transactions was also amended to allow us to securitize our assets, including our accounts receivable and (iii) the covenant restricting our ability to enter into sale/leaseback transactions was removed.

New Indenture

On October 8, 2004, Maxcom and its subsidiaries, entered into an Indenture with The Bank of New York, acting as trustee, which governs the terms and conditions of the issuance by Maxcom of U.S. $36,117,789 in principal amount of new notes, bearing an annual interest rate of 4.00% from October 8, 2004 through April 14, 2005, 5.75% from April 15, 2005 through October 14, 2006, 9.25% from October 5, 2006 through October 14, 2007, 10.25% from October 15, 2007 through October 14, 2008, and 11.25% from October 15, 2008 through October 14, 2009. The New Indenture restricts our ability to incur indebtedness. In particular, in order to be able to incur additional indebtedness, we must comply with a minimum consolidated leverage ratio of less than 3.75 to 1.00 and a minimum fixed charge coverage rate of 2.00 to 1.00. However, pursuant to certain exemptions, we are still able to incur up to U.S. $100.0 million of indebtedness to finance the cost of acquiring or constructing or installing

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telecommunication assets, and up to U.S. $20.0 million for working capital purposes, in each case at any one time outstanding.

Warrant agreement

On March 17, 2000, Maxcom entered into a warrant agreement with The Bank of New York, acting as warrant agent, pursuant to which Maxcom agreed to issue warrants to purchasers of 133/4% notes for the purchase of up to 764,938 series N shares, convertible into 382,469 CPOs. The exercise price for each warrant, which entitled the purchaser to receive 2.54979 series N shares, was U.S.$0.01. These warrants were offered as an incentive to the purchasers of the 133/4% notes.

Lease termination agreement

In September, 2002, we commenced actions before the Lease Courts for the Federal District of Mexico against our landlord, seeking the termination of a15-year lease (expiring on September 30, 2013) of 70,500 square feet plus parking space in a building on Magdalena, Mexico City, which was our former headquarters. The action was based on claims of miscalculation of lease payment amounts and breaches of certain city compliance regulations. The landlord countersued alleging failure to make lease payments.

In May 2003, we reached an agreement with our landlord at our former headquarters in Magdalena, Mexico City. Pursuant to this agreement, we retained a leasehold interest through May 2013 on the first floor, where one of our Lucent 5ESS switches is located, the roof-top, where we have three microwave transmission antennas and a section of the basement, which will be used for parking and to place some of our electric equipment that supports the switch. We were also released from our lease obligations on approximately 35,887 square feet plus parking space of the building originally running through September 30, 2013, including past-due lease payments dating back from October 2002. In exchange for the new lease and the releases, we agreed to prepay the full, ten-year lease obligations on the first floor, the roof-top and basement, which amount to U.S.$2.7 million and will be payable in full by May 2004.

Credit facilities

Banco Santander

In April 2004, we obtained a credit line with Banco Santander Mexicano, S.A., Institución de Banca Múltiple, Grupo Financiero Santander Serfin for U.S.$1.98 million dollars. The annual interest rate was equal to the Libor Interest Rate plus 1.2 additional percentage points. In August 2004, we obtained additional resources under this line of credit for Ps.55,941,000. The annual interest rate was equal to the Inter-banking Equilibrium Interest Rate(Tasa de Interés Interbancaria de Equilibrio), which we refer to as TIIE plus 1.0 additional percentage points. We paid both amounts in October 2005 and the line was extinguished.

In November 2004, we entered into a credit agreement with Banco Santander Mexicano, S.A., Institución de Banca Múltiple, Grupo Financiero Santander Serfin for Ps.100,000,000 (approximately U.S.$10 million dollars). Under this credit facility we must make 18 equal monthly installments of principal and interest to extinguish the facility. The annual interest rate is equal to the Inter-banking Equilibrium Interest Rate (Tasa de Interés Interbancaria de Equilibrio), which we refer to as TIIE plus 1.2 additional percentage points. This credit was liquidated in advance in November 2005.

IXE Banco

On April 13, 2005, we entered into a credit agreement with IXE Banco, S.A., Institución de Banca Múltiple, IXE Grupo Financiero for Ps.100,000,000 (approximately U.S.$10 million dollars). Under this credit facility we must make 24equal monthly installments of principal and interest to extinguish the facility. The annual interest rate is equal to the Inter-banking Equilibrium Interest Rate(Tasa de Interés Interbancaria de Equilibrio), which we refer as TIIE plus 3 additional percentage points. In July 2005, the company paid Ps. 50,000,000 of principal in advance. The remaining installments of principal were reduced in order to maintain the original term of the credit.

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On October 25 ,2005, we entered into credit agreement with IXE Banco, S.A., Institución de Banca Múltiple, IXE Grupo Financiero for Ps.50,000,000 (approximately U.S.$5 million dollars). Under this credit facility we must make 19 equal monthly installments of principal and interest to extinguish the facility. The annual interest rate is equal to the Inter-banking Equilibrium Interest Rate (Tasa de Interés Interbancaria de Equilibrio), which we refer as TIIE plus 3.0 additional percentage points.

Certificados Bursatiles

On July 25, 2005, we issued “Certificados Bursátiles” in Bolsa Mexicana de Valores for Ps.150,000,000 (approximately U.S.$14 million dollars). The annual interest rate was equal to the Inter-banking Equilibrium Interest Rate (Tasa de Interés Interbancaria de Equilibrio), which we refer as TIIE plus 2.75 additional percentage points. The term of this issuance is one year; by the end of this term we must pay the principal amount unless the company wants to extend the term for another year and, simultaneously, the holders agree to do this.

Banorte

On October 21, 2005, we entered into a credit line with Banco Mercantil del Norte, S.A. by Ps.240,000,000 (approximately U.S.$23 million dollars). In the same month, we made a withdrawal of Ps.76,300,000 of this credit line. Under this credit facility we must make 48 equal monthly installments of principal and interest to liquidate the facility. The annual interest rate is equal to the Inter-banking Equilibrium Interest Rate (Tasa de Interés Interbancaria de Equilibrio), which we refer as TIIE plus 3.0 additional percentage points.

Collection Trust

The Banorte and Ixe Bank credit lines are secured with our daily collections. These collections are deposited in a collection trust receiving all the proceeds from our daily collections coming from customers paying through bank deposits on accounts specially linked to the collection trust. During the first 15 calendar days of every month a predetermined percentage of the collections is restricted until the monthly installments of the three facilities are completed. This amount is then paid to each of our creditor banks on the specific principal payment date. The remaining funds from collections are transferred to our operating banking accounts.

Hedging agreement

On June 29, 2005, we executed an exchange rate stability hedging agreement with IXE Banco, S.A. This agreement relates to the payment of long-term dollars commitments agreed in foreign currency that differ from the functional currency of the company. The hedge expires in 2007. This agreement has no additional related costs; the notional amount of the hedge is of $16,709, valuated at a future exchange rate fixed of Ps.11.40 per U.S. dollar.

The cost of this exchange rate stability hedging agreement has been agreed at a fixed interest rate of 2.9750% per annum, based on 360 days per annum. The interest is paid on a monthly basis.

D.   Exchange controls

The peso fluctuates freely against the U.S. dollar. The Mexican Central Bank intervenes occasionally in the market to stabilize the exchange rate. Mexico had an exchange control system from 1982 until November 11, 1991. Under this system, Mexican residents and companies were entitled to purchase, and required to sell, foreign currencies for certain purposes at a controlled rate of exchange that was established daily by the Mexican Central Bank (Banco de México). Transactions to which the controlled rate applied included payments for virtually all merchandise imports, revenues from virtually all merchandise exports, royalty payments and payments of principal, interest and related expenses with respect to indebtedness to foreign creditors registered with the Mexican government. For all transactions to which the controlled rate did not apply, foreign currencies could also be purchased, if they were available, at the then prevailing domestic free market rate for the type of transaction.

From November 11, 1991 to October 20, 1992, the Mexican Central Bank permitted a free market rate to fluctuate according to supply and demand within a moving band. In late December 1994, the Mexican government responded to exchange rate pressures first by increasing by 15% the upper limit of the peso/U.S. dollar exchange

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rate band and then, two days later, allowing the peso to fluctuate freely against the U.S. dollar. By December 31, 1994, the peso/U.S. dollar exchange rate, which had been Ps.3.47 to U.S.$1.00 on December 19, 1994 was Ps.5.00 to U.S.$1.00. The peso continued to devalue significantly through 1998, closing at Ps.9.901 to U.S.$1.00 at December 31, 1998. After a period of stability and modest appreciation, in 2002, the peso devalued 12.18% relative to the U.S. dollar. In the first three months of 2003, the peso devalued 3.82% relative to the U.S. dollar. Although the peso/U.S. dollar exchange rate has remained relatively stable in the last years, there may be significant devaluations in the future.

Except for the period from September through December 1982 during the Mexican liquidity crisis, the Mexican Central Bank consistently has made foreign currency available to Mexican private sector entities to meet their foreign currency obligations. Nevertheless, in the event of a renewed shortage of foreign currency, we cannot assure you that the Mexican Central Bank would continue to make foreign currency available to private sector companies or that foreign currency we need to service foreign currency obligations could be purchased in the open market without substantial additional cost.

Pursuant to the provisions of North American Free Trade Agreement, or “NAFTA,” Mexico remains free to impose foreign exchange controls on investments made in Mexico, including those made by U.S. and Canadian investors

E.   Taxation

United States Federal Income Tax Considerations

General

The following is a general discussion of certain material U.S. federal income tax considerations of beneficial ownership of (1) the old notes and CPOs received in the exchange consummated on April 29, 2002, (2) the 133/4% notes for holders who did not participate in the April 29, 2002 exchange, and (3) the new notes received in the October 2004 exchange (the new notes collectively with the old notes and the 133/4%, the “Notes”). In general, the federal income tax consequences of ownership of the Notes are identical, except where discussed below. This summary is relevant to you only if you are a U.S. holder holding your Notesand/or your CPOs (for holders of old notes received in the 2002 exchange) as capital assets within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the “Code”). In general, you will be a U.S. holder if you are:

•  An individual citizen or resident of the United States;

•  a corporation or other entity taxable as a corporation created in or organized under the laws of the United States or of any political subdivision thereof;

•  an estate, the income of which is subject to U.S. federal income tax without regard to its source; or

•  a trust, if a court within the United States is able to exercise primary supervision over its administration and one or more United States persons have the authority to control all of the substantial decisions of such trust, or if the trust has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.

As used in this annual report, the term“Non-U.S. holder” means a beneficial owner of a Note or CPO who is not a U.S. holder. In the case of a holder of Notes or CPOs that is a partnership for U.S. federal income tax purposes, each partner generally will take into account its allocable share of income or loss from the Notes or CPOs and will take such income or loss into account under the rules of taxation applicable to such partner, taking into account the activities of the partnership and the partner.

This summary is based upon the Code, its legislative history, existing and proposed regulations thereunder, published rulings and court decisions, all as currently in effect and all subject to change at any time, perhaps with retroactive effect. This discussion is for general information only and does not describe all of the tax consequences that may be relevant to you in light of your particular circumstances or if you are subject to special tax treatment under the Code, including, without limitation, because you are:

•  a foreign person or entity;

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•  a tax-exempt organization, a financial institution, an insurance company, a regulated investment company or a dealer or broker in securities or currencies;

•  a trader in securities or commodities that electsmark-to-market treatment;

•  a person who holds the Notes, and with respect to a holder of new notes, the CPOs, as part of an integrated investment such as a straddle, hedge, constructive sale, conversion transaction or other risk reduction transaction;

•  a person whose functional currency is not the U.S. dollar;

•  a partnership or other flow-through entity (including an S corporation or a limited liability company treated as a partnership for U.S. federal income tax purposes);

•  a person subject to the alternative minimum tax; or

•  a person who owns or will own directly, indirectly or by attribution 10% or more (by voting power) of our voting stock or 10% or more (by value) of our outstanding capital stock.

The summary does not include any discussion of federal non-income tax law or the tax laws of any state, locality ornon-U.S. government that may be applicable to you. You should note that no rulings have been or will be sought from the United States Internal Revenue Service (or the IRS) with respect to any of the U.S. federal income tax consequences discussed below, and we cannot assure you that the IRS will not take contrary positions. You should consult your own tax advisors concerning the application of U.S. federal income tax laws to your particular situation as well as any consequences of the purchase, ownership and disposition of the Notes or CPOs arising under the laws of any other taxing jurisdiction.

For holders who acquired the old notes and the CPOs in the 2002 exchange, the U.S. federal income tax consequences of certain aspects of the 2002 exchange were unclear. Therefore, the summary discusses the various alternative tax consequences of the old notes and the CPOs which may depend in part on the results of the 2002 exchange. For more complete information on the 2002 exchange, we urge you to consult the section entitled, “United States Federal Income Tax Considerations” on ourForm 20-F for the fiscal year ending December 31, 2001, which was filed on July 1, 2002. You should also consult your own tax advisors concerning the application of U.S. federal income tax laws to your particular situation.

For holders who acquired the new notes in the 2004 exchange, the U.S. federal income tax consequences of certain aspects of the 2004 exchange were unclear. Therefore, the summary discusses the various alternative tax consequences of the new notes which may depend in part on the results of the 2004 exchange. For more complete information on the 2004 exchange, we urge you to consult the section entitled, “United States Federal Income Tax Considerations” in the Offering Circular with respect to the 2004 exchange. You should also consult your own tax advisors concerning the application of U.S. federal income tax laws to your particular situation.

U.S. federal income tax consequences to U.S. Holders of the Notes

Payments of interest and additional amounts.  Generally, payments of “qualified stated interest,” (as defined below in “Original issue discount”), including Mexican withholding tax imposed on such interest, and additional amounts (if any) would be taxable to you as ordinary income. Payments of qualified stated interest and additional amounts (if any) on the Notes generally are includible in your income as it accrues or is received, in accordance with your regular method of accounting for tax purposes.

Original issue discount.  The treatment of original issue discount in respect of the Notes is highly complex. You are urged to consult with your tax advisor concerning this issue.

In general, original issue discount on a note is equal to the amount by which the “stated redemption price at maturity” of a note exceeds its “issue price” if this excess is more than a de minimis amount (generally, the product of 0.25% of the stated redemption price at maturity and the number of full years to maturity on the instrument). A note’s stated redemption price at maturity equals the total amount of all principal and interest payments to be made on the note, other than “qualified stated interest.” Qualified stated interest generally is stated interest that is unconditionally payable at least annually at a single fixed rate over the entire term of the note.

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The new notes.  The interest payments with respect to the new notes that exceed 4.00% do not constitute qualified stated interest because such payments are not made at least annually, and therefore the new notes will be treated as issued with original issue discount.

Your issue price in respect of the new notes received in the exchange will depend on whether either the old notes surrendered or the new notes received were “publicly-traded” as of the date of the 2004 exchange. If as of the date the 2004 exchange offer was consummated, the new notes were “traded on an established securities market” within the meaning of the applicable regulations on or at any time during the sixty day period ending thirty days after the date the 2004 exchange offer was consummated, then the issue price of such notes would equal the fair market value established by such trading. If the new notes were not so traded, but the old notes were so traded, then the issue price of the new notes would equal the fair market value, established by such trading, of the old notes. If neither the new notes nor the old notes were so traded, the issue price of the new notes generally would be the stated principal amount of such notes.

It could not be determined whether the new notes or the old notes were, at the relevant times, traded on an established securities market within the meaning of the applicable regulations. The relevant Treasury Regulations are complex and highly detailed in defining the phrase “traded on an established market.” For example, it is possible that the new notes would have been treated as so traded not only if they are listed on an exchange, but also if transfers of such new notes appear on a computerized quotation medium. You should consult you own tax advisor with respect to whether your old notes or new notes may qualify for this purpose as “traded on an established market.”

In the event neither the old notes nor the new notes were treated as traded on an established securities market, the issue price of a new note would equal its stated principal amount, only if the implicit interest rate was equal to or greater than the “applicable federal rate,” or AFR, for the month in which the new notes were issued. If the implicit interest rate was less than the AFR, the issue price of a new note would be equal to its imputed principal amount, which generally is the sum of all payments due under the new note (including qualified stated interest) discounted from the date of payment to the issue date of the new notes at the AFR.

The old notes.  The interest payments with respect to the old notes do not constitute qualified stated interest because such payments are not made at least annually.

The determination of the issue price of the old notes will depend on whether the old notes or the 133/4% notes were “publicly traded” as of the date of the 2002 exchange, and if not publicly traded, whether the implicit interest rate of the old notes is at least equal to or above the applicable federal rate, or AFR. If on the date of the 2002 exchange, the old notes were “traded on an established securities market” within the meaning of the applicable regulations on or at any time during the sixty day period ending thirty days after the date the exchange offer is consummated, then the issue price of such notes would equal the fair market value established by such trading. If the old notes were not so traded, but the 133/4% notes were so traded, then the issue price of the old notes would equal the fair market value, established by such trading, of the 133/4% notes. Under these rules, if either of the Notes were publicly traded, the old notes will be treated as containing original issue discount if the stated redemption price at maturity of the old notes exceeded the issue price (i.e., the fair market value of the old notes) by more than the de minimis amount.

It could not be determined whether the old notes or the 133/4% notes were, at the relevant times, traded on an established securities market within the meaning of the applicable regulations. The relevant Treasury Regulations are complex and highly detailed in defining the phrase “traded on an established market.” For example, it is possible that the old notes would have been treated as so traded not only if they were listed on an exchange, but also if transfers of such old notes appear on a computerized quotation medium. You should consult you own tax advisor with respect to whether your 133/4% notes or old notes qualified for this purpose as “traded on an established market.”

In the event that neither the old notes nor the 133/4% notes were traded on an established securities market, the issue price of the old notes would equal their stated principal amount if the implicit interest rate on the old notes was equal to or greater than the AFR for the month in which the old notes were issued. If the implicit interest rate was less than the AFR, then the issue price of a old note would be equal to its imputed principal amount, which generally

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is the sum of all payments due under the old note (including qualified stated interest) discounted from the date of payment to the issue date of the old notes at the AFR.

The 133/4% notes.  The 133/4% notes were issued with original issue discount for U.S. federal income tax purposes. If you were an original purchaser of an 133/4% note, you also acquired a warrant as part of an “investment unit” for federal income tax purposes. Our company allocated the issue price of a unit between the 133/4% note and the associated warrant in accordance with our company’s determination of their relative fair market values on the issue date. Our company determined that the issue price of each 133/4% note should be U.S. $975.06.

Although our company’s allocation is not binding on the IRS, if you were an initial purchaser of a unit, you had to use our company’s determination of the 133/4% note issue price for purposes of calculating original issue discount unless you disclosed on your U.S. federal income tax return for the year in which you acquired the unit that you planned to use an allocation inconsistent with our company’s allocation. As mentioned above, the stated redemption price at maturity of a note equals the total amount of all principal and interest payments to be made on the Note, other than qualified stated interest. However, if the amount of original issue discount determined under this formula is “de minimis original issue discount,” then the notes will be treated as if there is no original issue discount. The 133/4% notes will have de minimis original issue discount if the total amount thereof is less than the product of 0.25% of the stated redemption price at maturity and the number of full years from the issue date to the maturity date of the note.

Inclusion of original issue discount in income.  You must include any original issue discount on your Notes in income as ordinary interest income as it accrues on the basis of a constant yield to maturity. Original issue discount must be included in income regardless of whether cash is received in respect of such income. The amount of original issue discount includible in income by you is the sum of the “daily portions” of original issue discount with respect to the Notes for each day during the taxable year or portion of the taxable year on which you held such Note. The daily portion is determined by allocating to each day in any accrual period other than the initial short accrual period and the final accrual period an amount equal to the excess of:

•  the product of the Note’s “adjusted issue price” at the beginning of such accrual period and its “yield to maturity” (determined on the basis of compounding at the close of each accrual period and properly adjusted for the length of the accrual period) over

•  the amount of qualified stated interest payments, if any, allocable to such accrual period.

The yield to maturity is the discount rate that, when applied to all payments under a Note, results in a present value equal to the issue price. The amount of original issue discount allocable to the final accrual period is the difference between the amount payable at maturity and the adjusted issue price of the Note at the beginning of the final accrual period. The amount of original issue discount allocable to the initial short period may be computed under any reasonable method.

The adjusted issue price of a Note at the beginning of the first accrual period is equal to its issue price. A Note’s adjusted issue price at the beginning of any subsequent accrual period is equal to its issue price increased by the amount of accrued original issue discount previously includible in your gross income (and market discount, as discussed below) for each prior accrual period and reduced by the amount of any payments previously made on the note to you (other than payments of qualified stated interest, if any).

Generally, upon election, you may use the constant yield to maturity method applicable to original issue discount to determine the timing of inclusion of all qualified stated interest (if any) and original issue discount on the old notes, subject to certain limitations. Such an election will apply to all debt instruments identified in the election and may not be revoked without the consent of the IRS.

The above treatment assumes that the stated redemption price at maturity for a Note does not include any additional amounts payable on the Notes. It is possible that the IRS might disagree with this treatment and contend that the stated redemption price at maturity should include the reasonably expected amount of additional amounts payable on the Notes. In such case, the amount of original issue discount on the Notes would be increased by such amount.

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With respect to the holders of old notes, the rules discussed below under “Premium and acquisition premium” may reduce or eliminate the amount of original issue discount you must include in your income. For example, if your exchange of the 133/4% notes for old notes and CPOs qualified as a recapitalization, your basis in the old notes may substantially exceed the issue price of such old notes (depending on your basis in the 133/4% notes), and you may be able to reduce or eliminate the amount of original issue discount includible with respect to such old notes.

You should consult your tax advisor concerning the inclusion in your taxable income of the original issue discount attributable to the old notes or the 133/4% notes.

Premium and acquisition premium.

The new notes.  If you acquired new notes for an amount (or with a basis) less than or equal to the sum of all amounts payable on such new notes after the acquisition date (other than payments of qualified stated interest, if any) but in excess of their adjusted issue price (any such excess being acquisition premium),you will be considered to have acquired the new notes at an acquisition premium. If you do not make the election described below, you are permitted to reduce the daily portions of original issue discount includible in your income by a fraction, (i) the numerator of which is the excess of your adjusted tax basis in the new notes immediately after their acquisition over the adjusted issue price of such new notes and(ii) the denominator of which is the excess of the sum of all amounts payable on such new notes after the acquisition date (other than payments of qualified stated interest, if any) over the adjusted issue price of such new notes.

If you acquired the new notes for an amount (or with a basis) greater than the sum of all amounts payable on such new notes after the acquisition date (other than payments of qualified stated interest, if any) you will be considered to have acquired the new notes at a premium. In such a case, you will not be required to include any original issue discount in your gross income.

The old notes.  If you acquired old notes for an amount (or with a basis) less than or equal to the sum of all amounts payable on such old notes after the acquisition date (other than payments of qualified stated interest, if any) but in excess of their adjusted issue price (any such excess being acquisition premium), you will be considered to have acquired the old notes at an acquisition premium. If you do not make the election described below, you are permitted to reduce the daily portions of original issue discount includible in your income by a fraction, (i) the numerator of which is the excess of your adjusted tax basis in the old notes immediately after their acquisition over the adjusted issue price of such old notes and (ii) the denominator of which is the excess of the sum of all amounts payable on such old notes after the acquisition date (other than payments of qualified stated interest, if any) over the adjusted issue price of such old notes.

If you acquired the old notes for an amount (or with a basis) greater than the sum of all amounts payable on such old notes after the acquisition date (other than payments of qualified stated interest, if any) you will be considered to have acquired the old notes at a premium. In such a case, you will not be required to include any original issue discount in your gross income.

The 133/4% notes.  If you purchased your 133/4% notes for an amount (or with a basis) greater than the sum of all amounts payable on your 133/4% notes after the purchase date (other than payments of qualified stated interest, if any) you will be considered to have purchased your 133/4% notes at a premium.

General.  You generally may elect to amortize the premium, if any, on the constant yield method. The amount amortized in any year will be treated as a reduction of your interest income from the Notes. The election to amortize the premium on a constant yield method, once made, applies 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 and may not be revoked without the consent of the IRS. If you make this election, you will be required to reduce your basis in the Notes to the extent that any amortizable bond premium is applied to offset your interest income on the Notes. If you do not make this election, the premium on your Note, will decrease the gain or increase the loss otherwise recognized on disposition or retirement of the Note.

Market discount.  If you purchased your Note at a price that is less than its adjusted issue price, the excess of the adjusted issue price over your purchase price will be treated as “market discount.” Such market discount, however, will be considered zero if it does not exceed a “de minimis amount” equal to 0.25% of the Note’s stated

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redemption price at maturity multiplied by the number of complete years to maturity from the date you purchased the Note.

General.  Under the market discount rules, you generally will be required to treat any partial principal payment on, and any gain realized on the sale, exchange, retirement or other disposition of, a Note as ordinary income (generally treated as interest income) to the extent of the market discount which accrued but was not previously included in income during the period you held such Note. In addition, you may be required to defer your deduction of all or a portion of the interest expense on any indebtedness incurred or continued to purchase or carry such Note until the maturity of the Note or its earlier disposition in a taxable transaction.

In general, market discount will be considered to accrue ratably during the period from the date of acquisition to the maturity date of the Note, unless you make an irrevocable election (on aninstrument-by-instrument basis) to accrue market discount under a constant yield method. You may also elect to include market discount on the Note in income currently as it accrues (under either a ratable or constant yield method), in which case the rules described above regarding the treatment as ordinary income of gain upon the disposition of the Note and upon the receipt of certain payments and the deferral of interest deductions will not apply. The election to include market discount in income currently, once made, applies to all market discount obligations acquired by you on or after the first day of the first taxable year to which the election applies, and may not be revoked without the consent of the IRS. Such currently included market discount will increase your tax basis in the Note and generally is treated as ordinary interest income for U.S. federal income tax purposes.

The new notes.  If you acquired your new notes as part of the 2004 exchange, whether the new notes will be treated as having market discount may depend on whether the exchange was treated as a recapitalization for U.S. federal income tax purposes, which is not entirely clear. If the 2004 exchange was not treated as a recapitalization, the new notes will be considered to have been acquired with market discount if the adjusted issue price of the new notes at the time of the 2004 exchange exceeded your initial tax basis in the new notes by more than a specified “de minimis amount.” As discussed below in “Adjusted tax basis of the new notes,” your initial tax basis in the new notes will depend on whether the new notes were treated as securities for U.S. federal income tax purposes.

The Code provides the authority for regulations to be issued by the Treasury Department that would provide that any accrued market discount not treated as ordinary income upon an exchange of market discount bonds in which gain or loss is not recognized in whole or in part, such as the exchange of the new notes andSeries N-1 Preferred Stock for the old notes (if such exchange is treated as a recapitalization and the old notes are market discount bonds), would carry over to the nonrecognition property received on the exchange. If such regulations were promulgated and were applicable to the 2004 exchange, any accrued market discount not treated as ordinary income on the exchange would carry over to the nonrecognition property received in the exchange (e.g. theSeries N-1 Preferred Stockand/or the new notes if the new notes were treated as securities for U.S. federal income tax purposes). On disposition of any such new notes or stock, any gain recognized generally would be treated as ordinary income to the extent of the amount of accrued market discount carried over thereto (unless, in the case of the new notes, you had previously elected to include market discount in income as it accrues, in which case the amount taxable as ordinary income on disposition would be reduced by the amount of market discount previously included in income). Although not free from doubt, it is likely that the above characterization would be required under the Code even without the promulgation of regulations.

The old notes.  If you acquired your old notes as part of the 2002 exchange, whether the old notes will be treated as having market discount may depend on whether the exchange was treated as a recapitalization for U.S. federal income tax purposes, which is not entirely clear. If the exchange was not treated as a recapitalization, your old notes will be considered to have been acquired with market discount if the adjusted issue price of your old notes at the time of the exchange exceeded your initial tax basis in the old notes by more than the “de minimis amount.” As discussed below in “Adjusted tax basis of the old notes and the CPOs,” your initial tax basis in the old notes will depend on whether the old notes were treated as securities for U.S. federal income tax purposes.

The Code provides the authority for regulations to be issued by the Treasury Department that would provide that any accrued market discount not treated as ordinary income upon an exchange of market discount bonds in which gain or loss is not recognized in whole or in part, such as the exchange of the old notes and CPOs for the

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133/4% notes (assuming: (a) such exchange is treated as a recapitalization, (b) the 133/4% notes are market discount bonds, and (c) the 133/4% notes are treated as securities for U.S. federal income tax purposes), would carry over to the nonrecognition property received on the exchange. If such regulations were promulgated and were applicable to the 2002 exchange, any accrued market discount with respect to the 133/4% notes that was not treated as ordinary income on the exchange would carry over to the old notes and CPOs received in the exchange. On disposition of any such old notes or stock, any gain recognized generally would be treated as ordinary income to the extent of the amount of accrued market discount carried over thereto (unless, in the case of the old notes, you had previously elected to include market discount in income as it accrues, in which case the amount taxable as ordinary income on disposition would be reduced by the amount of market discount previously included in income). Although not free from doubt, it is likely that the above characterization would be required under the Code even without the promulgation of regulations.

Sale, exchange or retirement of a Note.General.  Upon the sale, exchange or retirement of a Note, you generally will recognize capital gain or loss equal to the difference between (i) the amount realized on the sale, exchange or retirement (other than amounts representing accrued and unpaid interest which are taxable as ordinary income) and (ii) your adjusted tax basis in the Note, determined under the rules discussed in the following paragraphs. Such capital gain or loss recognized on the sale, exchange or retirement of the Note generally will be long-term capital gain or loss and subject to a maximum U.S. federal income tax rate of 15% (through December 31, 2010) if you held the Note for more than one year before sale. U.S. corporations, however, are taxed on their net capital gains at the regular corporate income tax rates. Gain or loss recognized by you in connection with the disposition of the Notes generally will be treated as U.S. source gain or loss.

The adjusted tax bases and the holding periods of the new notes received in the 2004 exchange depends upon the tax consequences of the 2004 exchange of old notes for new notes. While the issue is not free from doubt, we believe that the old notes were likely to be treated as securities for U.S. federal income tax purposes and that there is a reasonable position that the new notes also should be treated as securities for U.S. federal income tax purposes. You are encouraged to consult your own tax advisor with regard to this issue.

Adjusted tax basis of the new notes.  If the 2004 exchange is treated as a recapitalization for U.S. federal income tax purposes, your aggregate tax basis in the new notes you received in the exchange will equal your tax basis in your old notes;provided thatthe tax basis of any new notes treated as received in satisfaction of accrued but unpaid interest should equal the amount of such accrued interest. Your holding period in the new notes will be the same as your holding period in the old notes you surrendered in the 2004 exchange;provided thatthe holding period for holding period of new notes treated as received in satisfaction of accrued but unpaid interest should not include the holding period in the old notes you surrendered in the exchange.

If, alternatively, the 2004 exchange is not treated as a recapitalization because the old notes surrendered or new notes received were not securities, then your adjusted basis in the new notes will equal the issue price of the new notes. Your holding period in the new notes will begin on the day following the date of the 2004 exchange.

Adjusted tax basis of the old notes.  If you did not tender your old notes in the 2004 exchange, while the issue is not free from doubt, you should not be deemed to have engaged in a taxable exchange for U.S. federal income tax purposes and you should have the same adjusted tax basis and holding period in your old notes after the exchange.

The adjusted tax bases and the holding periods of the old notes, the 133/4% notes and the CPOs depend upon the tax consequences of the 2002 exchange of 133/4% notes for old notes and CPOs. While the issue is not free from doubt, we believe that the 133/4% notes are likely to be treated as securities for U.S. federal income tax purposes and that there is a reasonable position that the old notes also should be treated as securities for U.S. federal income tax purposes. You are encouraged to consult your own tax advisor with regard to this issue.

Adjusted tax basis of the old notes and the CPOs.  If the 2002 exchange is treated as a recapitalization for U.S. federal income tax purposes and the 133/4% notes and the old notes qualify as securities, your aggregate tax basis in the old notes and the CPOs will equal your tax basis in your 133/4% notes. Although the method for allocating your tax basis in the 133/4% notes between the old notes and the CPOs is unclear, the determination of the portion of your tax basis in the 133/4% notes that should be allocated to the old notes and the CPOs should be based on the issue price of the old notes (as determined under “Original issue discount”) and the fair market value of the

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CPOs. Your holding period in the old notes and the CPOs will include your holding period in the 133/4% notes you surrender in the exchange.

If, however, the old notes do not qualify as securities, your tax basis in the old notes should equal their issue price, and your tax basis in the CPOs should equal your tax basis in your 133/4% notes, less the issue price of the old notes, plus any gain recognized in the exchange. In addition, your holding period in the old notes will begin on the day following the date of the exchange and your holding period in the CPOs will include your holding period in the 133/4% notes you surrendered in the exchange.

If, alternatively, the exchange is not treated as a recapitalization because the 133/4% notes are not securities, then your adjusted basis in the old notes will equal the issue price of the old notes, and your adjusted basis in the CPOs will equal the fair market value of the CPOs. Your holding period in the old notes and the CPOs will begin on the day following the date of the exchange.

Adjusted tax basis of the 133/4% notes.  If you did not tender your 133/4% notes in the 2002 exchange, while the issue is not free from doubt, you should not be deemed to have engaged in a taxable exchange for U.S. federal income tax purposes and you should have the same adjusted tax basis and holding period in your 133/4% notes after the exchange.

Foreign tax credit.Interest, original issue discount and additional amounts.  Qualified stated interest, original issue discount and additional amounts (if any) paid on the Notes will constitute income from sources outside the United States, and, with certain exceptions, generally will be grouped together with other items of passive income, for purposes of computing the foreign tax credit allowable to you. The availability of a foreign tax credit is subject to certain conditions and limitation, and the rules governing the foreign tax credit are complex. In addition, note that certain aspects of the foreign tax rules applicable to taxable years beginning after December 31, 2006 differ meaningfully from those rules applicable to prior taxable years. U.S. holders should consult their own tax advisors regarding rules governing the foreign tax credit.

Effect of Mexican withholding taxes.  You will be required to include the amount of Mexican withholding taxes, if any, imposed on payments on a Note (including any additional amounts payable by our company) in gross income as interest income. Such treatment will be required regardless of whether, as will generally be true, our company is required to pay additional amounts so that the amount of Mexican withholding taxes does not reduce the net amount actually received by you as a holder of a Note.

Subject to certain limitations, you may be entitled to a credit against your U.S. federal income tax liability, or a deduction in computing your U.S. federal taxable income, for the amount of Mexican taxes withheld by our company (which, as described above, would include amounts withheld on additional amounts paid by us with respect to Mexican taxes). However, Mexican taxes may be deducted from your taxable income only if you do not claim a credit for any Mexican or other foreign taxes paid or accrued in that taxable year. You may be required to provide the IRS with a certified copy of the receipt evidencing payment of such withholding tax imposed in respect of payments on the Notes in order to claim a Mexican tax credit in respect of such Mexican withholding tax.

Since you may be required to include in your gross income original issue discount on the Notes in advance of any withholding of Mexican income taxes from payments relating to the discount (which would generally occur when such discount is paid in cash), you may not be entitled to a credit or deduction for these Mexican withholding taxes in the year the original issue discount is included in your gross income for U.S. federal income tax purposes, and may be limited in your ability to credit or deduct in full the foreign taxes in the year those taxes are actually withheld by our company. In addition, under certain U.S. Treasury Department guidance, foreign tax credits will not be allowed for withholding taxes imposed in respect of certain short-term or hedged positions in securities or in respect of arrangements in which your expected economic profit, afternon-U.S. taxes, is insubstantial. You should consult your tax advisor concerning the availability and timing of a foreign tax credit or deduction relating to the payment of Mexican withholding taxes.

Certain U.S. federal income tax consequences of holding and disposing of the CPOs

Distributions.  In general, a holder of CPOs will be treated as the beneficial owner of theseries N-2 preferred stock represented by the CPOs. Subject to the “passive foreign investment company” rules discussed below,

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generally, distributions of cash or property with respect to your CPOs (including the amount of any Mexican taxes withheld on any such distribution) will constitute ordinary dividend income to the extent of our company’s current and accumulated earnings and profits (as determined for U.S. federal income tax purposes), which generally will be includible in your income on the day on which the dividends are received by the CPO trustee, and will be treated as foreign source dividend income (generally passive income) for foreign tax credit limitation purposes. Any distributions in excess of such earnings and profits will constitute a nontaxable return of capital and reduce your tax basis in such CPOs. To the extent such distributions exceed your tax basis in your CPOs, such excess will constitute capital gain and will generally be treated as described below under “Sale, redemption or other taxable disposition of the CPOs.” Dividends on the CPOs will not be eligible for the dividends received deduction allowed to U.S. corporations.

Dividends paid in a foreign currency (including the amount of any foreign taxes withheld there from) will be includible in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the day the dividends are received by the CPO trustee, regardless whether the dividends are converted into U.S. dollars. In addition, any gain or loss resulting from currency exchange fluctuations during the period from the date the dividend is includible in your income to the date such payment is converted into U.S. dollars will be exchange gain or loss and will be treated as ordinary income or loss.

The Jobs Growth Tax Relief Reconciliation Act of 2003, as amended since its enactment, generally lowered to 15% the maximum full income tax rate imposed on dividends received from U.S. and certain foreign corporations for years 2003 through 2010. Recipients of dividends from foreign corporations will benefit from these reduced rates, provided that certain holding period requirements are satisfied, if the dividends are received from certain “qualified foreign corporations,” which generally include corporations located in a jurisdiction with which the United States has an income tax treaty that the Secretary of the Treasury determines is satisfactory and includes an information exchange program, and such corporation is eligible for benefits of such income tax treatment. The Secretary of the Treasury has indicated that the income tax treaty between the United States and Mexico (see “— Mexican Taxation — United States/Mexico and other tax treaties”) would qualify under the legislation. Additionally, dividends paid with respect to stock of a foreign corporation which is readily tradable on an established securities market in the United States also will be treated as having been received from a qualified foreign corporation. However, while not completely clear, we believe that the CPOs will not be treated as readily tradable on an established securities market in the United States. You are urged to consult your tax advisor regarding this legislative change. A qualified foreign corporation, however, does not include any foreign corporation which for the taxable year of the corporation in which the dividend was paid, or the preceding taxable year, is a “passive foreign investment company”, as discussed below.

Sale, redemption or other taxable disposition of the CPOs.  Subject to the “passive foreign investment company” rules discussed below, generally, you will, upon the sale, redemption or other taxable disposition of your CPOs, recognize gain or loss for U.S. federal income tax purposes in an amount equal to the difference between (i) the amount of cash and fair market value of property received therefore (if the amount received is denominated in foreign currency other than in U.S. dollars, then its U.S. dollar equivalent determined at the spot rate on the date of the disposition) and (ii) your tax basis in your CPOs (in U.S. dollars) as determined in “Sale, exchange or retirement of a Note — Adjusted tax basis of the old notes and the CPOs.”

Capital gain recognized by you generally will be long-term capital gain and subject to a maximum federal income tax rate of 15% (through December 31, 2010) if you held CPOs for more than one year before the sale. U.S. corporations, however, are taxed on their net capital gains at the regular corporate income tax rates. Gain or loss recognized by you in connection with the disposition of your CPOs generally will be treated as U.S. source gain or loss.

Generally, you will not recognize any gain or loss upon the conversion of the CPOs into series N stock or other classes of our stock.

Passive foreign investment company considerations.  In general, a foreign corporation will be classified as a passive foreign investment company, or PFIC, if (i) at least 75% of its gross income for the taxable year consists of passive income or (ii) at least 50% of the average value of the corporation’s assets (determined as of the close of each quarter) in a taxable year is attributable to assets that produce or are held for the production of passive income.

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For this purpose, passive income generally includes dividends, interest, royalties, rents (other than rents and royalties derived from the active conduct of a trade or business and not derived from a related person), annuities and gains from assets that produce passive income.

The determination of PFIC status is a factual determination that must be made annually at the close of each taxable year and depends on the sources of our income and the relative values of our passive assets such as cash and our non-passive assets, including goodwill. Based on the source of our income and the value of our non-passive assets as compared to our passive assets, in 2005 we believe we were not a PFIC for U.S. federal income tax purposes and we do not expect to be a PFIC in future taxable years. However, as noted above, the determination of PFIC status is a factual determination that must be made annually and our current belief that we were not a PFIC could be subject to change in the future. We will make the determination of whether we are a PFIC on an annual basis and intend to notify you within 75 days of the end of any year in which we become a PFIC.

If we were to become a PFIC in any taxable year, a special tax regime would apply to both (a) any “excess distribution” by us (generally, your ratable share of distributions in any year that are greater than 125% of the average annual distributions received by you in the three preceding years or your holding period, if shorter) and (b) any gain realized on the sale or other disposition (including a pledge) of your CPOs. Under this regime, any excess distribution and realized gain will be treated as ordinary income and will be subject to tax as if (a) the excess distribution or gain had been realized ratably over your holding period in the CPOs, (b) the amount deemed realized had been subject to tax in each year of that holding period at the highest applicable tax rate in effect for that year and (c) the interest charge generally applicable to underpayments of tax had been imposed on the taxes deemed to have been payable in those years.

You are urged to consult your own tax advisor as to the effect to you of our company being a PFIC and the availability, if any, of either the “qualified electing fund” or“mark-to-market” election as defined in the Code and the regulations thereunder.

Controlled foreign corporation considerations.  If more than 50% of the voting power of all classes of our capital stock or the total value of our capital stock is owned, directly or indirectly, by “U.S. shareholders,” we may be treated as a controlled foreign corporation, or a CFC, under Subpart F of the Code. U.S. shareholders are defined as citizens or residents of the United States, United States domestic partnerships and corporations or estates or trusts other than foreign estates or trusts, each of whom owns 10% or more of the total combined voting power of all classes of our capital stock. The United States generally taxes a U.S. shareholder of a CFC currently on its pro rata share of the Subpart F income of the CFC. Such U.S. shareholder is generally treated as having received a current distribution out of the CFC’s Subpart F income and is also subject to current U.S. tax on its pro rata share of the CFC’s earnings invested in U.S. property (however, the 15% tax rate applicable to dividends received from certain foreign corporations does not apply to amounts included in a U.S. shareholder’s income under the controlled foreign corporation rules). . In addition, gain from the sale or exchange of stock in a CFC by a U.S. person who is or was a U.S. shareholder of the CFC at any time during the five-year period ending with the sale or exchange is treated as ordinary income to the extent of the CFC’s earnings and profits attributable to the stock sold or exchanged. If a foreign corporation is both a PFIC and a CFC, the foreign corporation generally will not be treated as a PFIC with respect to U.S. shareholders of the CFC.

Under the current ownership structure, we believe that we are a CFC for U.S. federal income tax purposes. You should consult your own tax advisor as to the potential application of these rules to you based on your particular circumstances.

Certain U.S. federal income tax consequences tonon-U.S. holders of the Notes and CPOs

Subject to the discussion below concerning information reporting and backup withholding, generally, anon-U.S. holder will not be subject to U.S. federal income or withholding tax on distributions in respect of the Notes or the CPOs unless such income is effectively connected with the conduct by thenon-U.S. holder of a trade or business in the United States.

Anon-U.S. holder will generally not be subject to U.S. federal income or withholding tax on gain realized on the sale or the other disposition of the Notes or the CPOs unless (i) such gain is effectively connected with the

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conduct of a United States trade or business by suchnon-U.S. holder or (ii) suchnon-U.S. holder is present in the United States for 183 days or more during the taxable year of sale or disposition and certain other conditions are met.

Information reporting and backup withholding

In general, if you are a non-corporate U.S. holder (or do not come within certain other exempt categories), information reporting requirements will apply to certain payments of principal, premium and interest on the Notes, or dividends on the CPOs, and to payments of the proceeds of the sale of the Notes or CPOs made to you.

Additionally, if you are a non-corporate U.S. holder (or do not come within certain other exempt categories), you may be subject to backup withholding at a rate of 28% with respect to such payments, unless you provide your taxpayer identification number (social security number or employer identification number), certify that you are not subject to backup withholding and otherwise comply with applicable requirements of the backup withholding rules. Generally, you will provide such certification on IRSForm W-9 (“Request for Taxpayer Identification Number and Certification”) or a substituteForm W-9.

If you do not provide your correct taxpayer identification number, you may be subject to penalties imposed by the IRS, as well as backup withholding. However, any amount withheld under the backup withholding rules may be allowable as a credit against your U.S. federal income tax liability (which might entitle you to a refund), provided that you furnish the required information to the IRS.

Anon-U.S. holder generally will be exempt from information reporting requirements and backup withholding, but may be required to comply with certification and identification procedures in order to obtain an exemption from information reporting and backup withholding.

Mexican taxation

The following is a general discussion of the material consequences of the exchange of the old notes, the investment in the new notes and CPOs and the investment in outstanding old notes under the Mexican Income Tax Law (Ley del Impuesto sobre la Renta) and rules and regulations thereunder, as currently in effect based on the advice of PricewaterhouseCoopers, our tax advisors. This summary of certain Mexican tax considerations deals only with holders of notes and CPOs or of a beneficial interest therein that are not residents of Mexico for Mexican tax purposes and that do not conduct a trade or business through a permanent establishment or fixed base in Mexico (a “Foreign Holder”).

For purposes of Mexican taxation, an individual is a resident of Mexico if he has a permanent home in Mexico. If it has other permanent home in another country, then it should be analyzed if its center of vital interests is in Mexico. For these purposes, the center of vital interests will be deemed to be in Mexico if i) more than 50% of its total income, obtained in a calendar year, is sourced in Mexico; or ii) its main center of professional activities is located in Mexico. A legal entity is a resident of Mexico for tax purposes if it has been incorporated under the laws of Mexico, or has established the principal management of its business or the base of its effective direction in Mexico. A Mexican citizen is presumed to be a resident of Mexico for tax purposes unless such person can demonstrate otherwise. If individuals or legal entities changed their tax residency, they would be obliged to notify the Mexican tax authorities of such change.

The Mexican Congress has passed and approved a reform on the Federal Tax Code (although it has not yet been enacted) by which certain provisions applicable to define the tax residence of individuals or entities in Mexico is amended. This amendment provides that individuals who change their residence to another country which is considered as a tax haven or a country with a preferred tax regime, will still be considered as Mexican tax residents for the year in which the tax residence is changed and the following three years. Furthermore, companies and other legal entities would now only be deemed as Mexican tax residents when they have established the principal management of their business or the base of effective management in Mexico, eliminating any reference to the incorporation under Mexican laws.

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United States/Mexico and other tax treaties

A Convention for the Avoidance of Double Taxation and Prevention of Fiscal Evasion, together with a related Protocol thereto, between the United States and Mexico entered into force on January 1, 1994 as well as its second protocol entered into force as from July 22, 2003 (collectively, the “Tax Treaty”). Provisions of the Tax Treaty that may affect the taxation of certain U.S. holders of notes or CPOs are summarized below. 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 several other tax treaties that may reduce the amount of Mexican withholding tax to which the notes may be subject. Holders of the notes and CPOs should consult their own tax advisors as to the tax consequences, if any, of such treaties.

Mexican tax consequences to Foreign Holders of the exchange of old notes for new notes

General.  A Foreign Holder will not be subject to any Mexican tax upon the exchange of the old notes for the new notes, since it will be treated by us as additional consideration for Mexican tax purposes, paid to the Foreign Holders in exchange for their tendered old notes.

Other taxes.  A Foreign Holder will not be liable for Mexican estate, gift, inheritance or similar taxes with respect of the exchange of the old notes, nor will such a Foreign Holder be liable for Mexican stamp, registration or similar taxes.

Mexican tax consequences to Foreign Holders of the notes

Taxation of interest and principal.  Under the Mexican Income Tax Law, payments of interest made by Maxcom in respect of the new notes (including payments of principal in excess of the issue price of such notes, which, under Mexican law, are deemed to be interest) to a Foreign Holder will generally be subject to a Mexican withholding tax assessed at a rate of 4.9% (the “Reduced Rate”), provided that:

•  the notes are offered through banks or brokerage houses in a country with which Mexico has a tax treaty in force;

•  the notes are registered in the Special Section of the National Registry of Securities (Registro Nacional de Valores); and

•  certain periodic information requirements by the Mexican Ministry of Finance (Secretaría de Hacienda y Crédito Público) are complied with.

•  If these conditions are not met, the applicable withholding tax rate will be 10%.

FOREIGN HOLDERS SHOULD CONSULT THEIR TAX ADVISORS REGARDING WHETHER THEY RESIDE IN A COUNTRY THAT HAS ENTERED INTO SUCH A TREATY WITH MEXICO WHICH IS EFFECTIVE, AND IF SO, THE CONDITIONS AND REQUIREMENTS FOR OBTAINING BENEFITS UNDER SUCH TREATY.

However, if the beneficial owner, either directly or indirectly, individually or jointly with related parties, of more than 5% of the interest derived from the related securities, is any of the following:

•  a shareholder of the issuer who owns, directly or indirectly, individually or jointly with related parties, more than 10% of the voting stock of the issuer, or

•  a legal entity 20% or more of whose stock is owned, directly or indirectly, individually or jointly with related parties, by the issuer,

then, the withholding tax rate will be 29%. For 2007 and on, and the tax rate will be 28%.

Pursuant to Rule 3.23.8 (the “Reduced Rate Rule”) issued by the Mexican Ministry of Finance (Secretaría de Hacienda y Crédito Público) on April 28, 2006 payments of interest with respect to the notes made by us to Foreign

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Holders, regardless of the place of residence or the tax regime applicable to the Foreign Holder recipient of the interest, will be subject to withholding taxes imposed at the Reduced Rate if:

•  the notes are registered with the Special Section of the National Registry of Securities and Intermediaries and copies of approval of such registration are provided to the Ministry of Finance;

•  we timely file with the Ministry of Finance certain information relating to the issuance of the new notes;

•  we timely file with the Ministry of Finance on a quarterly basis information on the amount and dates of interest payments made during each quarter and information representing that no party related to us, directly or indirectly, is the effective beneficiary of more than five percent (5%) of the aggregate amount of each such interest payment; and

•  we maintain records that evidence compliance with the conditions set forth above.

We will comply with the first two conditions set forth above and expect that the last two conditions will also be met and, accordingly, expect to withhold Mexican tax from interest payments on the notes at the Reduced Rate during the effectiveness of such rule.

However, during the fiscal year 2006, the Tax Treaty is not expected, generally, to have any material effect on the Mexican tax consequences described herein, because, as described above, under Mexican Income Tax Law and regulations as currently in effect, with respect to a U.S. holder that meets the Reduced Rate Rule requirements described above, we will be entitled to withhold taxes in connection with interest payments under the notes at the Reduced Rate.

Payments of interest we make on the notes to non-Mexican pension or retirement funds will be exempt from Mexican withholding taxes, if any such fund is:

•  the effective beneficiary of the interest;

•  duly incorporated under the laws of its country of origin;

•  exempt in its country of origin from income tax on interest income; and

•  registered with the Ministry of Finance for that purpose.

Under existing Mexican law and regulations, a Foreign Holder will not be subject to any Mexican taxes in respect of payments of principal made by us with respect to the notes.

Taxation of additional amounts.  We have agreed, subject to specified exceptions and limitations, to pay Additional Amounts (as such term is defined in “Description of the Notes — Additional amounts”) to the holders of the notes in respect of the Mexican withholding taxes mentioned above. Payments of Additional Amounts with respect to the notes will be subject to Mexican withholding tax at the same rate applicable to interest paid on the notes.

Holders or beneficial owners of the notes may be requested to provide certain information or documentation necessary to enable us to establish the appropriate Mexican withholding tax rate applicable to such holders or beneficial owners. In the event that the specified information or documentation concerning the holder or beneficial owner is requested and is not provided on a timely basis, our obligation to pay Additional Amounts will be limited.

Taxation of accrued interest.  Interest accrued that is not due and payable under the terms applicable to the old notes before the exchange of the old notes for the new notes will not be subject to a Mexican income tax withholding under the terms described above, but such interest will be subject to a Mexican income tax withholding when such interest becomes due and payable under the new notes after the exchange of the old notes for the new notes.

Gain on dispositions.  Gains resulting from the sale or other dispositions of the notes and by a Foreign Holder will not be deemed as an income arising from Mexican source, and therefore will not be subject to Mexican income tax, to the extent the acquirer is a non Mexican tax resident.

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Mexican tax consequences to Foreign Holders of the CPOs

The sale or other disposition of the CPOs by a Foreign Holder will not be subject to any Mexican tax if the sale is carried out through the Mexican Stock Exchange or other securities market approved by the Ministry of Finance and Public Credit (Secretaría de Hacienda y Crédito Público). Sales or other dispositions of the CPOs made in other circumstances would be subject to Mexican tax, regardless of the nationality or residence of the transferor. However, under the Tax Treaty, a U.S. holder that is eligible to claim the benefits of the Tax Treaty will be exempt from Mexican tax on gains realized on a sale or other disposition of the CPOs in a transaction that is not carried out through the Mexican Stock Exchange or such other approved securities markets, so long as such holder did not own, directly or indirectly, 25% or more of our outstanding shares within the twelve-month period preceding such sale or other disposition.

Certain tax consequences to Mexican holders on the exchange or disposition of the CPOs.

The Mexican income tax effect for the disposition or exchange of the CPOs by a Mexican resident holder, may vary depending on the conditions of the acquisitions, disposition or exchange of the CPOs, as well as on the characteristics of the holders. Therefore, such holders should seek advice from Mexican tax counsel to determine the effects on a case by case basis.

F.   Dividends and paying agents

Not applicable.

G.   Statement by experts

Not applicable.

H.   Documents on display

We file annual reports with and furnish other information to the SEC as may be applicable from time to time. You may read and copy any documents filed or furnished by Maxcom at the SEC’s public reference rooms in Washington, D.C., New York and Chicago, Illinois. Please call the SEC at1-800-SEC-0330 for further information on the public reference rooms.

I.   Subsidiary information

Not applicable.

PART II

ITEM 11.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk

The 133/4% notes, the old notes, the new notes, the credit Facilities executed with local banks, the short term financing commercial paper or “certificados Bursatiles” issued in the Bolsa Mexicana de Valores and our vendor financing constituted substantially all of our indebtedness as of December 31, 2005. For a more detailed description of the Banco Santander’s working capital credit facilities and line of credit, see “Item 5. Operating Review and Financial Prospects — B. Liquidity and Capital Resources — Financing sources and liquidity”. At December 31, 2005, we had variable interest note debt outstanding of Ps. 229.1 million and exposure to risk due to fluctuation of interest rates.

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Foreign exchange risk

Our primary foreign currency exposure relates to our U.S. dollar-denominated debt. A substantial portion of this debt is incurred to finance U.S. dollar-denominated capital expenditures. The majority of our debt obligations at December 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 our obligations. We currently do not enter into hedging transactions with respect to these foreign currency risks, but continue to consider the appropriateness of this option.

The exchange rate of the peso to the U.S. dollar is a freely-floating rate and the peso has experienced significant devaluations in recent 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. At December 31, 2005, an immediate 10% devaluation of the peso relative to the U.S. dollar would have increased our interest expense by approximately Ps.4.8 million over a one-year period.

To the extent capital expenditures are financed with operating cash flows, we are also exposed to foreign currency fluctuations. Substantially all of our capital expenditures are denominated in U.S. dollars. In addition, our operating lease for our new headquarters building is denominated in U.S. dollars. See “Item 5. Operating and Financial Review and Prospects — B. Liquidity and capital resources — Other contractual obligations” for a description of our contractual operating lease obligations denominated in U.S. dollars.

ITEM 12.   DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

Not applicable.

PART III

ITEM 13.   DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Maxcom is not in default under any of its obligations nor is any payment of dividends in arrears.

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

Pursuant to the terms of the exchange offer that was consummated on April 29, 2002, the indenture governing the old notes was amended to, among other things, eliminate:

•  all of the covenants restricting the incurrence of indebtedness, the making of investments, the granting of loans, the payment of dividends, the creation of liens, the entering into transactions with affiliates, the undertaking of mergers, consolidation of sales, the disposition of assets or subsidiary stock, a change in control and any limitations on the transfer of funds from subsidiaries to Maxcom;

•  the redemption option in the event of a change of control; and

•  events of default related to the non-compliance with such covenants, cross-defaults, adverse judgments in excess of U.S.$5.0 million and certain bankruptcy events.

The modification of the restrictive covenants permits Maxcom, absent the existence of similar covenants under other indebtedness, to take actions that could increase the credit risks, with respect to Maxcom and its subsidiaries, faced by the holders of the old notes or that could otherwise be adverse to the interest of the holders of the old notes.

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ITEM 15.   CONTROLS AND PROCEDURES

(a) As of the date of this report, we performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Disclosure controls and procedures are designed to ensure that the material financial and non-financial information required to be disclosed onForm 20-F and filed with the SEC is recorded, processed, summarized and reported timely. The evaluation was performed with the participation of our key corporate senior management and under the supervision of our Chief Executive Officer, Mr. René Sagastuy and our Chief Financial Officer, Mr. José Antonio Solbes. Based on the foregoing, our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures (as defined inRules 13a-14(c) and15d-14(c) of the Securities Exchange Act of 1934, as amended) are effective.

(b) There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the evaluation thereof. Therefore no corrective actions with regard to significant deficiencies and material weaknesses were taken.

ITEM 16.

A.   AUDIT COMMITTEE FINANCIAL EXPERT

Our board of directors has determined that Mr. Adrián Aguirre Gómez is an audit committee financial expert as defined under appropriate Securities and Exchange Commission guidelines. Mr. Aguirre is also Series A andA-1 Director and Chairman of the Board.

B.   CODE OF ETHICS

On March, 2006 we adopted a new code of ethics that applies to our Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer and other corporate and divisional employees. Our board of directors has not yet made a determination whether further modification of our code of ethics will be required to comply with Securities and Exchange Commission requirements.

We will provide without charge to each person to whom this report is delivered, upon written or oral request, a copy of Maxcom’s code of ethics. Written requests for such copies should be directed to Maxcom Telecomunicaciones, S.A. de C.V., Guillermo Gonzalez Camarena No. 2000, Colonia Centro de Ciudad Santa Fe, Mexico, D.F. 01210, attention: Director, Investor Relations. Telephone request may be directed to 011-52-55-5147-1125.

C.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

PricewaterhouseCoopers, S.C. served as our auditors for the years ended December 31, 2005, 2004, 2003, 2002 and 2001. The following table sets forth the fees paid to Pricewaterhouse Coopers, S.C for the financial years ended December 31, 2005 and 2004.

	Year Ended December 31
	2005		2004
	(In millions)
Audit Fees(1)	Ps.	2.7	Ps.	2.6
Taxes Fees and Other Statutory Audit requirements fees(2)		0.7		0.7
Total revenues	Ps.	3.4	Ps.	3.3

(1) Audit Fees includes fees associated with the annual audit of our consolidated financial statements. Audit fees also include fees associated with Securities and Exchange Commission statutory quarterly and annual reporting audit requirements.

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(2) Taxes Fees and Other Statutory Audit requirements fees includes fees associated with Mexican statutory audit requirements for tax and other purposes. Taxes Fees and Other Statutory Audit requirements fees also includes fees incurred for assistance with tax planning and compliance matters.

We have introduced procedures for the review and pre-approval of any services performed by PWC. The procedures require that all proposed engagements of Pricewaterhouse Coopers, S.C. for audit and permitted non-audit services are submitted to the audit committee for approval prior to the beginning of any such services.

D.   EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.

Not Applicable

E.   PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

During the fiscal year ended December 31, 2005 there have been no purchases made by or on behalf of the issuer or any “affiliated purchaser”, as defined in §240.10b-18(a)(3), of shares or other units of any class of the issuer’s equity securities registered by the issuer pursuant to section 12 of the Exchange Act.

PART IV

ITEM 17.   FINANCIAL STATEMENTS

We have responded to Item 18 in lieu of responding to this Item.

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ITEM 18.   FINANCIAL STATEMENTS.

	Page
Maxcom Telecomunicaciones, S.A. de C.V. and Subsidiaries
Report of Independent Registered Public Accounting Firm		2
Consolidated Balance Sheets as of December 31, 2005 and 2004		F-3
Consolidated Statements of Operations for the years ended December 31, 2005, 2004 and 2003		F-4
Consolidated Statements of Changes in Shareholder’s Equity for the years ended December 31, 2005 and 2004		F-5
Consolidated Statements of Changes in Financial Position for the years ended December 31, 2005, 2004 and 2003		F-6
Notes to the Consolidated Financial Statements for the years ended December 31, 2005, 2004 and 2003		F-7

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of
Maxcom Telecomunicaciones, S.A. de C.V. and subsidiaries

We have audited the consolidated balance sheets of Maxcom Telecomunicaciones, S.A. de C.V. and its subsidiaries as of December 31, 2005 and 2004, and the related consolidated income statements, the statements of changes in shareholders’ equity, and the statements of changes in the financial position for the three years ended December 31, 2005. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Mexico and with the Standards of the Public Company Accounting oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statements 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 Maxcom Telecomunicaciones, S.A. de C.V. and its subsidiaries as of December 31, 2005 and 2004, and the consolidated results of their operations, changes in equity and changes in financial position for each of the three years in the period ended December 31, 2005, 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 the latter would have affected the determination of the consolidated net income for each of the three years ended December 31, 2005 and the determination of consolidated stockholders’s equity at December 31, 2005 and 2004 to the extent summarized in Note 21 to the consolidated financial statements.

Mexico City, March 17, 2006, except for Note 21 for which the date is June 30, 2006.

PricewaterhouseCoopers, S. C.

Humberto Pacheco Soria

Auditing Partner

F-1

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2005 AND 2004
(Notes 1, 3 and 4)
Thousands of Mexican Pesos (“Ps.”) in purchasing power
as of December 31, 2005, and in thousands of US Dollars (“$”)

	2004			2005			2005
							(Unaudited)
							(Note 3)
ASSETS
Current assets:
Cash and Temporary Investments	Ps.	62,189		Ps.	223,423		$	20,859
Restricted cash		5,740			—			—
		67,929			223,423			20,859
Accounts receivable:
Clients, net of estimate for doubtful accounts of Ps.86,237 and Ps.65,200 in 2005 and 2004, respectively		120,718			172,139			16,071
Value-added tax refundable		2,684			22,754			2,124
Other accounts receivable		30,523			21,515			2,009
		153,925			216,408			20,204
Inventory, net of reserves for slow moving supply of Ps. 312 and Ps. 353 in 2005 and 2004, respectively		11,688			15,403			1,438
Prepaid expenses — Net		65,996			76,784			7,169
Total current assets		299,538			532,018			49,670
Restricted long term cash (Note 9)		13,105			7,672			716
Frequency rights — Net (Note 5)		97,419			86,102			8,039
Preoperating expenses — Net		158,607			122,305			11,419
Intangible assets — Net (Note 8)		378,330			303,527			28,338
Telephone network systems and equipment — Net (Note 7)		1,783,834			2,082,795			194,456
Other assets:
Labor obligations upon retirement (Note 12)					14,798			1,382
Guaranty deposits		16,684			4,597			429
Other assets		4,928			5,904			551
Total assets	Ps.	2,752,445		Ps.	3,159,718		$	295,000
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term bank loans portion (Note 9)	Ps.	150,443		Ps.	66,648		$	6,222
Suppliers and other accounts payable		222,757			251,463			23,477
Clients’ deposits		2,677			3,999			373
Commercial paper (Note 10)					151,500			14,144
Other taxes payable		28,839			18,707			1,747
Total current liabilities		404,716			492,317			45,963
Long-term liabilities:
Notes payable — Net (Note 11)		622,012			576,908			53,862
Bank loans (Note 9)		28,711			79,072			7,382
Notes payable		31,652			140,454			13,113
Other accounts payable		28,194			25,620			2,392
Deferred income tax (Note 15)		—			25,971			2,425
Labor obligations upon retirement (Note 12)		—			16,693			1,559
Derivative financial instruments (Notes 4q. and 19)		—			18,837			1,759
Total long-term liabilities		710,569			883,555			82,492
Total liabilities		1,115,285			1,375,872			128,455
Shareholders’ equity (Notes 13 and 18):
Capital stock		2,500,957			2,744,607			256,244
Additional paid-in capital		895,494			219,622			20,505
Net loss for the year		(1,759,291	)		(1,180,383	)		(110,204	)
Total shareholders’ equity		1,637,160			1,783,846			166,545
Commitments and contingencies (Note 16)
Total liabilities and shareholders’ equity	Ps.	2,752,445		Ps.	3,159,718		$	295,000

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

F-2

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
Thousands of Mexican Pesos (“Ps.”) in purchasing power
as of December 31, 2005, and in thousands of US Dollars (“$”)

	2003			2004			2005			2005
										(Unaudited)
										(Note 3)
Net revenues (Note 17)	Ps.	832,212		Ps.	897,149		Ps.	1,150,472		$	107,410
Operating costs and expenses
Network operating costs		298,986			316,606			383,765			35,829
Selling, general and administrative expenses		419,018			386,871			468,270			43,719
Depreciation and amortization		365,411			346,045			281,636			26,294
Total operating costs and expenses		(1,083,415	)		(1,049,522	)		(1,133,671	)		(105,842	)
Operating profit (loss)		(251,203	)		(152,373	)		16,801			1,568
Integral cost (income) of financing:
Interest expense — Net		28,310			38,733			97,123			9,068
Exchange gain (loss) — Net		188,186			1,451			(19,973	)		(1,867	)
Gain on monetary position		(82,781	)		(89,041	)		(22,090	)		(2,062	)
		133,715			(48,857	)		55,060			5,139
Other income (expense) — Net		(164	)		(818	)		8,991			839
Loss before special entry		(385,082	)		(104,334	)		(29,268	)		(2,732	)
Special item (Note 2)		—			—			(15,365			(1,435	)
Loss before provisions for taxes		(385,082	)		(104,334	)		(44,633	)		(4,167	)
Tax provisions for: (Note 15)
Asset tax		13,375			27,835			—			—
Deferred income tax		563			651			25,971			2,484
Current income tax		—			—			635			—
Employees’ profit-sharing		95			483			—			—
		14,033			28,969			26,606			2,484
Net loss for the year	Ps.	(399,115	)	Ps.	(133,303	)	Ps.	(71,239	)	$	(6,651	)

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

F-3

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
Thousands of Mexican Pesos (“Ps.”) in purchasing power
as of December 31, 2005, and in thousands of US Dollars (“$”)

				Additional						Total
	Capital			Paid-in			Accumulated			Shareholders’
	Stock			Capital			Deficit			Equity
Balances at December the 31, 2003	Ps.	1,905,012		Ps.	1,595		Ps.	(1,625,988	)	Ps.	280,619
Increase in capital stock arising from debt restructuring (Note 13)		595,945			893,899			—			1,489,844
Net integral loss for the year		—			—			(133,303	)		(133,303	)
Balances at December 31, 2004		2,500,957			895,494			(1,759,291	)		1,637,160
Spin-off effect (Notes 2 and 13)		(650,249	)					650,147			(102	)
Capitalization of premium on shares subscription		893,899			(893,899	)		—			—
Capitalization of liabilities (Note 13)		—			218,027			—			218,027
Net loss for the year		—			—			(71,239	)		(71,239	)
Balances at December 31, 2005	Ps.	2,744,607		Ps.	219,622		Ps.	(1,180,383	)	Ps.	1,783,846
U.S. Dollars (Unaudited) (Note 3)	$	256,244		$	20,505		$	(110,204	)	$	166,545

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

F-4

MAXCOM TELECOMUNICACIONES, S. A. DE C. V. AND SUBSIDIARIES

STATEMENTS OF CHANGES IN THE CONSOLIDATED FINANCIAL POSITION
FOR THE YEARS ENDED ON DECEMBER 31, 2005, 2004 AND 2003
Thousands of Mexican Pesos (“Ps.”) of purchasing power

as of December the 31^st of 2005, and in thousands of US Dollars (“$”)

	2003			2004			2005			2005
										(Unaudited)
										(Note 3)
Operating activities:
Net loss	Ps.	(399,115	)	Ps.	(133,303	)	Ps.	(71,239	)	$	(6,651	)
Charges to income not affecting resources:
Depreciation and amortization		365,411			346,045			281,636			26,296
Labor obligations upon retirement		—			—			1,895			177
Deferred income tax		—			—			25,971			2,425
(Increase) decrease in:
Accounts receivable — Net		(9,051	)		(16,498	)		(62,483	)		(5,834	)
Inventory — Net		1,576			8,368			(3,715	)		(347	)
Prepaid expenses — Net		(15,716	)		(10,030	)		(10,788	)		(1,007	)
Restricted cash, liabilities and others — Net		5,683			82,133			137,297			12,818
Resources arising from (used in) the following operating activities		(51,212	)		276,715			298,574			27,877
Financing activities:
Increase in capital stock		—			595,945			—			—
Contributions for future capital increases		1,122			893,898			—			—
Spin-off effect		—			—			(102	)		(10	)
Capitalization of liabilities		—			—			218,027			20,356
Derivative financial instruments		—			—			18,837			1,759
Benefits of loans and bond payable		100,930			(1,390,376	)		72,962			6,812
Resources derived from financing activities		102,052			99,467			309,724			28,917
Investment activities:
Investment in telephone network systems and equipment, net of dispositions		(118,784	)		(335,008	)		(440,526	)		(41,130	)
Intangible assets		(17,184	)		(33,348	)		(17,649	)		(1,648	)
Other assets		(299	)		8,997			11,111			1,037
Resources used in investment activities		(136,267	)		(359,359	)		(447,064	)		(41,741	)
Cash and cash equivalents:
Increase (decrease) in cash and temporary investments		(85,427	)		16,823			161,234			15,053
Cash and cash equivalents at beginning of year		130,793			45,366			62,189			5,806
Cash and cash equivalents at end of year	Ps.	45,366		Ps.	62,189		Ps.	223,423		$	20,859

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

F-5

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003
(Figures in thousands of Mexican Pesos (“Ps.”) of purchasing power as
of December 31, 2005, and in thousands of U.S. Dollars (“$”),
except for exchange rates, stock values, options and warrants)

NOTE 1 — INCORPORATION AND BUSINESS:

Maxcom Telecomunicaciones, S. A. de C. V. (“Maxcom” or the “Company”), is a Mexican company incorporated on February the 28^th of 1996. Its main corporate purpose is the construction and operation of a telephone network, for the provision of local, national and international long-distance services, data transfer services, virtual private network services and other value-added services, within Mexico.

The Company started its commercial operations in May 1999.

On February 3, 1997, the Ministry of Communications and Transportation (Secretaría de Comunicaciones y Transportesor“SCT”) awarded the Company a concession to install and operate a public telecommunications network in Mexico (the “concession”). Subsequently, on December 7, 1999, September 27, 2001 and December 2, 2004, the Company received amendments to the initial terms and conditions of the concession. This concession is not exclusive. The initial term of the concession is 30 years and includes certain renewal rights. The concession grants the Company the right to provide the services granted in the concession in any part of the Republic of Mexico and, under the last amendment dated December 2, 2004, certain obligations were set forth for the Company, as described in Note 16d.

On October 3,1997, the Mexican Federal Government granted the Company ten concession rights (the “frequency rights”) to use and exploit different bands of the radio-electric spectrum and to establishpoint-to-point andpoint-to-multi-point microwave links; seven are nation widepoint-to-point and three are regionalpoint-to-multipoint microwave concessions. The frequency rights became effective on February 28, 1998, and shall remain in effect until 2018, see Note 5. In accordance with the terms of these frequency rights, the Company must provide to the “SCT” a guarantee on its operations. This guarantee must be renewed every year, see Note 16e.

On January 22, 1999, the Company entered into a contract to provide local interconnection services (the “agreement”) with Teléfonos de México, S. A. de C. V. (“Telmex”), whereby Maxcom agrees to render Telmex interconnection services to finish Telmex’s long-distance traffic in Maxcom’s local network.

Likewise, the Company subscribed an interconnection agreement to handle Maxcom’s long-distance traffic towards Telmex’s local network.

The Company has negotiated the signing of various amending agreements to the contract with Telmex, to extend the original term of that contract, irrespective of the fact that the contract provides that the interconnection between the two companies is carried out based on the clause of “continuous application”. This clause sets forth that upon termination of the first period, the original terms and conditions of the contract will continue in full force and effect until the parties sign a new contract to continue interconnecting their networks.

In addition, this contract was amended on March 23, 1999, in order to apply a compensation agreement between the parties relating to the reciprocal debts in local interconnection traffic.

During 2003 and 2002, the Company entered into various interconnection and reselling agreements with other local and long distance carriers, as well as mobile phone companies.

The Federal Telecommunications Commission during its session on November the 28, 2000, issued a resolution authorizing Maxcom to operate the station located in Magdalena No. 211, Mexico City, Federal District, as an international port.

In August of 2002, the Company bought an optical fiber system with a longitude of 2,011 kms, which allows it to operate a network that carries traffic from Mexico City to the Nuevo Laredo, Texas, border crossing.

F-6

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 2 — SPIN-OFF AND SALE OF SUBSIDIARY:

On August 30, 2005, the Company’s shareholders’ approved a corporate restructuring whereby Ps.8,393 of assets, Ps.8,291 of liabilities and Ps.102 of equity were transferred to a newly formed spun off company, Mijolife, S.A. de C.V. which was owned by the existing shareholders in the same proportion as their ownership in the Company. In accordance with Mexican tax law, a proportional amount of existing net operating tax loss carryforwards were also transferred therewith.

In a subsequent transaction, the Company reacquired a 99% interest in Mijolife, S.A. de C.V. for Ps.218,027 (Ps.214,000 Nominal), an amount equal to its fair market value. Such amount was subsequently capitalized as equity. On November 22, 2005, the Company sold Mijolife, S.A. de C.V. to a third party for Ps.218,027 (Ps.214,588) in cash with no resulting gain or loss. Ps.15,365 of expenses incurred in the transactions described above were reflected as a special item in the statement of income.

NOTE 3 — BASIS OF PRESENTATION:

a. Consolidation -

The consolidated financial statements include the accounts of Maxcom and its subsidiaries:

Subsidiary Company	Interest %		Line of Business
Corporativo en Telecomunicaciones, S. A. de C. V.		100%	Technical personnel services
Maxcom Servicios Administrativos, S. A. de C. V.		100%	Administrative personnel services
Maxcom SF, S. A. de C. V.		100%	Rendering of financial services
Outsourcing Operadora de Personal, S. A. de C. V.		100%	Operating personnel services
Maxcom T. V., S. A. de C. V.(1)		100%	Cable television services
Maxcom USA, Inc.(1)		100%	International telecommunication Services

(1) Maxcom T.V. and Maxcom USA are still in the preoperating stage.

All significant balances and transactions between consolidated companies are eliminated in the consolidation process.

b. Convenience translation-

U.S. dollar amounts ($) shown in the consolidated financial statements have been included solely for the convenience of the reader, and were translated at the exchange rate as of December 31, 2004. This rate equals Ps.10.71 per U.S.$1.00, as published in the Official Gazette of the Federation (Diario Oficial de la Federación) by the Bank of Mexico. Such translation should not be considered as a representation that the Mexican peso amounts have been or could be converted into U.S. dollars at this or any other rate.

NOTE 4 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The significant accounting policies used by the Company in the preparation of its consolidated financial statements, including the items, methods and criteria related to the recognition of the effects of inflation on the financial information, are summarized below:

a. The accompanying consolidated financial statements are expressed in thousands of Mexican pesos, denoted by the symbol “Ps.”, and have been prepared in accordance with Accounting Principles Generally Accepted in Mexico (“Mexican GAAP”) issued by the Accounting Standards Board (“ASB”) of the Mexican

F-7

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Institute of Public Accountants (“MIPA”), and are expressed in pesos of purchasing power for the last fiscal year reported.

b. Recognition of the effects of inflation-

The financial statements of the Company have been prepared in accordance with Statement B-10 “Recognition of the Effects of Inflation on Financial Information,” (Integrated Document), which provides the basis for the recognition of the effects of inflation.

i. The Company restates its income statement to reflect the purchasing power of the Mexican peso as of the most recent reporting date (December 31, 2005), using a restatement factor derived from the change in the National Consumer Price Index (“NCPI”) from the month in which the transaction occurred to the most recent year-end. The financial statements have been restated to Mexican pesos as of December the 31, 2005 purchasing power, using the NCPI as of that date. The financial statements of the previous years have also been restated in terms of the purchasing power of the Mexican peso as of the most recent financial reporting date, thus making them comparable. The restatement is determined by using a restatement factor derived from the change in the NCPI, which for 2005, 2004 and 2003 was 1.0333, 1.0519 and 1.0397 respectively. Therefore, these amounts differ from those previously reported.

ii. Capital stock, premium on shares subscription and accumulated deficit represents the value of these items stated in purchasing power at the end of the last fiscal year. These values are determined by applying the restatement factors derived from the NCPI.

iii. Comprehensive income (loss) is represented by the net income (loss), plus those entries required by specific accounting standards to be reflected in shareholders’ equity but which do not constitute capital contributions, reductions or distributions, and it is restated on the basis of NCPI factors.

iv. The gain on monetary position represents the effect of inflation, measured in terms of the NCPI, on net monthly monetary assets and liabilities for the year, expressed in pesos of purchasing power as of the most recent fiscal year.

v. Integral cost of financing consists of interest income and expenses, net exchange gains or losses, and the gain or loss on the net monetary position. The integral cost of financing during the development stage period was capitalized to preoperating expenses. Once the Company commenced operations, amortization of these costs began over a ten-year term.

c. Cash and temporary investments -

Temporary investments include highly liquid investments, valued to market value. The company considers highly liquid investments with maturities of three months or less from date of purchase to be cash equivalents.

d. Inventories -

Inventory consists of materials used to install telephone lines. It is initially recorded at average cost and subsequently restated based on factors derived from the NCPI. Amounts determined do not exceed fair value.

e. Telephone network systems and equipment -

Telephone network systems and equipment are recorded at acquisition cost and restated by applying factors derived from the change in the NCPI since their acquisition date.

Telecommunication equipment held for sale is valued at the lower of acquisition cost or net realization value, where the acquisition cost is determined based on the method last in first out (“LIFO”).

The Company constructs certain of its own network systems and related facilities. Internal costs directly related to the construction of such facilities are capitalized. Such internal costs capitalized during the year were

F-8

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Ps.47,250, Ps.44,662 and Ps.37,990 (including Ps.377, Ps.288 and Ps. 29 of integral cost of financing) in 2005, 2004 and 2003, respectively.

The Company opted to capitalize the integral cost of financing attributable to assets under construction. Capitalized integral financing includes interest expenses, gains from monetary position, and foreign exchange losses, and are determined by reference to the Company’s average interest cost on borrowings.

When the installation cost is not invoiced to the client, such cost is capitalized and amortized during the estimated useful life of the line contracted by the client.

Depreciation is calculated by the straight-line method over the restated cost, based on the estimated useful lives of the assets. Depreciation is charged to results of operations.

The Company requested a technical study from an expert appraiser on the remnant useful lives of its fixed assets, taking into consideration their operating and use conditions as of December 31, 2005. As a result thereof, useful lives were increased, as indicated in Note 7, with the effects described therein.

Maintenance and repair costs are charged to results as incurred; replacement and improvement costs are capitalized. The cost and related reserves of assets sold or retired are removed from the accounts, and any resulting profit or loss is reflected in results of operations.

f. Concessions -

On February 3, 1997, the “SCT” awarded the Company a concession to install and operate a public telecommunications network for a30-year period. That concession was subsequently amended in 1999, 2001, and 2004, and currently permits the Company to render basic telephony services with national coverage, long-distance services, data transfer services, and other value added services, see Note 16d.

In accordance with Statement C-8 “Intangible Assets” of GAAP, this concession was not accounted for financial reporting purposes and it is only disclosed through one note to these financial statements.

g. Frequency rights -

Frequency rights are recorded at acquisition cost and restated by applying factors derived from the NCPI since the acquisition date. Amortization is calculated by the straight-line method over the term of 20 years, which is the term of the frequency rights, see Note 5.

h. Preoperating expenses -

All expenses incurred during the development stage or in specific projects in progress are capitalized. Such expenses are amortized on a straight-line basis for a term of ten years. The amortization period begins when the corresponding project commences its operations.

For the years ended on December 31,2005, 2004 and 2003, the Company recorded amortization expenses in the amounts of Ps.36,302, Ps.36,616 and Ps.36,088, respectively. The accumulated amortization was Ps.240,717 and Ps.204,415 as of December the 31, 2005 and 2004, respectively.

i. Intangibles -

Intangible assets are recognized in the balance sheet as long as they are identifiable, they provide future economic benefits, and the Company has control over such benefits. Intangible assets with a definite useful life are amortized systematically based on the best estimation of its useful life, as determined in accordance with the expected future economic benefits.

Purchased software and certain activities of developing internal-use software are capitalized and amortized over its expected useful lives. Other activities, such as training, maintenance and re-engineering are recognized in the results of the period, as incurred.

F-9

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Debt issuance costs are amortized on a straight-line basis over the term of the related debt.

j. Long-lived assets -

Long-lived assets, tangible and intangible, are subject to an annual study to determine its value in use and to define whether impairment exists or not. At December 2005 and 2004, the Company’s management carried out studies to determine the value in use of its long-lived assets and identified its national telephony concession as its predominant asset, even though it represents anon-amortizable intangible asset with a definite life. To this effect, the Company deemed the date when this concession expires, February 2027, as the terminating date for its financial projections. As result of such evaluations, it was determined that no impairment exists as of December 31, 2005 and 2004.

k. Liabilities and provisions -

The Company’s liabilities and provisions recognized in the balance sheet represent current obligations which probably will require the disbursement of economic resources. These provisions have been recorded at the best reasonable estimate to pay the current obligation; however, actual results could differ from recognized provisions.

l. Transactions in foreign currencies -

Transactions in foreign currencies are recorded at the rates of exchange prevailing on the date of the transaction. Assets and liabilities nominated in such currencies are valuated at the exchange rate in force at the close of the period. The exchange profit or loss is recognized as part of the integral financing cost.

m. Income tax (“ISR”) -

The Company has incurred tax losses since inception and accordingly has not provided for income taxes.

Income tax is recorded by the comprehensiveasset-and-liability method, which consists of recognizing deferred tax on all temporary differences determined between the book and tax values of assets and liabilities, see Note 15.

n. Labor obligations upon retirement -

Seniority premiums, to which employees are entitled upon termination of employment after 15 years of service, are recorded as cost in the years in which the respective services are rendered, based on actuarial studies carried out using the projected unit credit method, see Note 12a.

As of January 1, 2005, the Company adopted the amendments to Statement D-3 “Labor Obligations” which incorporates rules to valuate, present and record the recognition of compensation obligations at the end of the labor relationship due to events other than restructuring. These effects are recognized through actuarial studies carried out by independent experts using the projected unit credit method. The net cost of the period for this item amounted to Ps.4,238, recognized in the profit and loss for the year. As of December 31, 2005, the initial adoption of such adaptations generated liabilities of Ps.15,474 and transition assets of Ps.14,798, which will be amortized over a term of 22 and 24 years. These terms represent the terms of the average remnant labor life of the workers for the recognition of prior services for compensations at the end of the labor relationship, see Note 12b.

The Company has no other benefits or pension plans for its employees after retirement, or at the end of the labor relationship.

o. Financial instruments -

The Company’s financial instruments consist principally of cash and temporary investments, restricted cash, accounts receivable, accounts payable and notes payable. The profit and loss related to components of

F-10

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

financial instruments classified as liabilities are recorded in the integral financing cost. The book values of these financial instruments, except for bonds, are close to its fair value.

p. Stock-option compensations -

As of December 31, 2005, 2004 and 2003, the Company has different plans to grant stock options to members of the board of directors, officers and employees of the company, as described in Note 18.

At the end of 2004, the International Accounting Standard Board issued “International Financial Reporting Standard (IFRS) No. 2” “Share-based Payments” (IFRS-2), with mandatory application effective for fiscal years beginning on January 1, 2005. The IFRS-2 is applied in a supplementary manner in Mexico, as per StatementA-8 “Supplemental application of international accounting standards”.

This standard sets forth that the valuation of the expense for the stock option plan granted to employees must be estimated,inter alia, by applying the fair value method. The total amount of the expense estimated under this method is amortized throughout the period granted. It is estimated at the date when each plan is established, but excludes the effect of any circumstance unrelated to the performance of the market.

Any granting conditions unrelated to the market are included in the presumptions over the number of shares expected to become capable of being exercised or by the number of shares that employees will receive. This estimate is reviewed each year, and the differences are charged or credited to the income statement, with the pertinent capital adjustment. For the years ended on December 31, 2005, 2004 and 2003, there were not differences to be adjusted.

Stock options exercised, net of any other cost or expense attributable to transactions, are credited to the capital stock at par value and at a stock subscription premium upon being exercised. On the contrary, options exercised through the payment in cash are recognized as liabilities, immediately callable in favor of employees.

The fair value of the options is estimated on the date it is granted using the Black & Scholes option valuation model with the following weighted-average assumptions used for stock options granted during the years ended on December 31, 2004, 2003 and 2002 respectively. The following assumptions were used.

	2003			2004			2005
Expected yield		—			—			—
Expected stock price volatility		50.00	%		52.03	%		55.00	%
Risk-free interest rate		2.74	%		2.76	%		4.35	%
Expected life of options		10			10			10

q. Derivative financial instruments -

The Company applied the provisions of Statement C-10, “Derivative Financial Instruments and Coverage Hedging” of GAAP, which, besides requiring detail recording, valuation and disclosure of all derivative financial instruments, requires that the effectiveness of cash flow hedges be measured. The effective portion of the gains or losses on hedging instruments must be recognized within comprehensive income. The adoption of this statement gave rise to a charge in the profit and loss of the Company as of December 31, 2005 of Ps.18,774 due to the recognition of the initial effect of the ineffectiveness of cash flow hedges. This effect was determined by the fair value of the hedge, see Note 19.

r. Revenue recognition -

The Company recognizes revenues from telephone services provided to its clients, the sale of telephone equipment, services provided to other telephone-service companies (such as interconnection services), and installation charges.

F-11

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Revenues from services provided to clients, including installation and maintenance, are recognized in the month the service is rendered.

Revenues from the sale of telephone equipment to clients are recognized at the time of the saleand/or delivery and installation of such equipment.

Revenue from interconnection services is recognized on an accrual basis. The Company entered into local interconnection contracts with various telephone companies under the “bill and keep” compensatory agreement. In accordance with these agreements, if the imbalance between local calls originated from the other telephony company and completed by Maxcom, and the calls originated from Maxcom and completed by the other telephony company over the course of one month do not exceed a determined percentage, there will be no payment of an interconnection rate charge to the user for the interconnection services. However, if the imbalance exceeds that percentage in a determined month, the net user will be subject to a per minute charge. The percentage of imbalance was 70% for the period to December 31, 2002; 30% for January 1, 2003 to October 31, 2004; 18% for December 1 to 31, 2004; and 15% as of January 30, 2005. In the event that the Company fails to maintain a significant percentage of residential users, the compensatory agreement will be terminated and asymmetric interconnection rates could be applied.

The Company also has interconnection contracts for long-distance mobile services with other telephony companies. However, they do not include the feature of the “bill and keep” compensatory agreement.

During 2004, the Company started a new business line, the lease of transmission capacity through its fiber optic ring. Revenues from lease of capacity are recorded in deferred revenue when billed and then recognized ratably into revenue over the term of the contract.

During 2005, the Company entered into alliances with two companies that render cable television and Internet services (“CATV”) in order to also render telephony services using CATV infrastructure.

The Company issues a monthly invoice to the final client and records the three services (voice, data and video) as revenue. Likewise, the Company receives from CATV companies an invoice for television and Internet services (for the pertinent month), which is recorded as a decrease to revenue of the Company so that only revenue for voices services is recognized.

Advance payments from clients are classified as current liabilities until reimbursed. When the contract is rescinded, these deposits are applied to any outstanding balance with the respective customer. The Company creates a reserve in the amount of 90% of accounts receivable balance due over 90 but less than 119 days, and of 100% of accounts receivable due over 120 days, except when there is a negotiated agreement with a client. In such cases, a reserve is created in the amount of 30% once accounts receivable balance is 90 days past due.

s. Information by segments -

The Statement B-5 “Financial Information by Segments” of GAAP requires the Company to review its internal organizational structure and internal reporting system for purposes of identifying segments. For the years presented, the Company has operated only one segment of business. The revenue by geographical location included in Note 17 complies with a specific disclosure required by the SCT in the Company’s concession title.

t. New accounting standards -

On June 1, 2004, the Mexican Board for Investigation and Development of Financial Information Standards (“CINIF”) assumed the responsibility over the accounting standards in Mexico. As part of this responsibility and after an examination process carried out during the years of 2004 and 2005, the “CINIF” issued different Financial Reporting Standards (FRS) that come into effect as of January of 2006.

F-12

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The purpose of these standards is to achieve harmonization between local standards used by the different sectors of the economy and to be consistent, to the greatest extent possible, with the International Financial Reporting Standards (IFRS).

The structure of the FRS, to be compulsorily observed as of January 1, 2006, is as follows:

— The FRS and its interpretations issued by the “CINIF”.

— Statements issued by the ASB of the MIPA not amended, superseded or repealed by the new FRS.

— The IFRS that apply in a supplementary manner.

ASB’s bulletins will continue to remain as recommendations, and will form part of the FRS as long as they do not cease to operate; this is, until they are repealed or no longer apply as a result of amendment by any FRS.

The FRS issued, which adoption is not deemed to have a significant impact on the financial information, are listed hereinbelow:

FIN A-1 “Structure of Financial Information Standards”.

FRSA-2 “Basic principles”.

FRSA-3 “Needs of users and purpose of financial statements”.

FRSA-4 “Qualitative characteristics of financial statements”.

FRSA-5 “Basic elements of financial statements”.

FRSA-6 “Recognition and valuation”.

FRSA-7 “Presentation and disclosure”.

FRSA-8 “Supplementation”.

FRS B-1 “Accounting changes and correction of errors”.

Management estimates that the adoption of the above-mentioned standards will have no significant effect on the Company’s financial position and results of operation.

NOTE 5 — FREQUENCY RIGHTS:

As of December 31, the frequency rights are analyzed as follows:

	2004			2005
Frequency rights	Ps.	144,507		Ps.	144,507
Less — Accumulated amortization		(47,088	)		(58,405	)
	Ps.	97,419		Ps.	86,102

For the years ended December 31, 2005, 2004 and 2003, the Company recorded amortization expenses in amounts of Ps.11,317, Ps.7,225 and Ps.13,381, respectively.

F-13

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 6 — RELATED PARTIES:

For the years ended on December 31, related party transactions are analyzed as follows:

	2003			2004		2005
Commissions and administrative services paid to:
Comercializadora Road el Camino, S. A, de C. V.(1)	Ps.	48		Ps.	39	Ps.	1,427
Expenses associated to Bank of America, Co.(2)		212			414		488
Advertising services provided by Difusión Panorámica, S. A. de C. V.(3)		—			91		34
Offices and site lease(4)		262			273		—
Commissions paid to Francisco Adrián Aguirre Palme(5)		—			60		—
Travel expenses in relation to Bachow and Associates, Inc.(6)		277			32		—
Advertising and other administrative services rendered by Operadora Plusgamma, S. A. de C. V.(7)		311			—		—
Travel expenses in relation to CT Global
Telecommunications, Inc. and other expenses(8)		(66	)		—		—

(1)	The activity of 2005 and 2004 correspond to sales’ commissions of telephone lines. The transactions carried out during 2003 correspond to administrative services.
(2)	Correspond to expenses relating to the debt restructuring and travel expenses.
(3)	Advertising services paid to Difusión Panorámica, S.A. de C.V.
(4)	The Company leased a site located within the premises of a building that, until 2004, was controlled by the family of one of the shareholders.
(5)	During 2004, the Company incurred expenses of sales’ commissions of telephone lines.
(6)	Travel expenses of certain shareholders.
(7)	Corresponds to an investment in an advertising agreement of $3,000, executed on April of 2003 with Operadora Plusgamma, S.A. de C.V., which shall render such advertising services through Grupo Radio Centro.
(8)	Credit note on travel expenses relating to the attendance of meetings by the Board of Directors.

F-14

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 7 — TELEPHONE NETWORK SYSTEMS AND EQUIPMENT — NET:

As of December 31, consists of:

							Useful Life (Years)
	2004			2005			2004		2005
Telecommunication network and equipment	Ps.	1,301,945		Ps.	1,462,591			10		17
Leasehold improvements		315,458			452,068			20		30
Radio equipment		282,270			269,776			10		30
Line installation cost		239,576			266,963			20		30
Electronic equipment		230,677			223,304			3.33		25
Capitalized expenses due to construction of networks		162,464			209,714			20		30
Computer equipment		60,709			78,903			3.33		5
Transportation equipment		26,589			29,979			4		4
Office furniture		17,178			17,968			10		10
Other		17,286			17,487			10		10
Engineering equipment		11,379			11,943			10		10
Subtotal		2,665,531			3,040,696
Depreciation and accumulated amortization		(1,113,245	)		(1,243,049	)
Subtotal		1,552,286			1,797,647
Construction in progress		231,548			285,148
	Ps.	1,783,834		Ps.	2,082,795

For the years ended December 31 2005, 2004 and 2003, the Company recorded depreciation and amortization expense (including leasehold improvements) of Ps.142,364, Ps.222,328 and Ps.242,244, respectively.

As of December 31, 2005, the Company’s Management requested an independent expert appraiser to make a technical study on the operating and use conditions of its fixed assets, to determine whether the useful lives previously estimated by the Company should be restated. As a result of this study, the Company modified the remaining useful lives and recalculated the amount of depreciation expense for the year 2005, which amounted to Ps.142,364. If depreciation would have been estimated based on the previous remaining useful lives, the depreciation expense for the fiscal year would have been of Ps.215,581.

The Company executed financial leases with different institutions, in pesos and in U.S. dollars, for telecommunication equipment, computer equipment and transportation equipment, see Note 16c.

As of December 31, 2005 and 2004, the gross amount of fixed assets acquired through a lease subject to capitalization, is as follows:

	2004		2005
Computer equipment	Ps.	—	Ps.	15,953
Transportation equipment		3,286		10,949
Telecommunication equipment		—		8,950
Total	Ps.	3,286	Ps.	35,852

F-15

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 8 — INTANGIBLE ASSETS:

As of December 31, intangible assets consist of the following:

							Term of
							Amortization (Years)
	2004			2005			2004		2005
Infrastructure rights	Ps.	275,085		Ps.	279,204			30 & 15		35 & 17
Debt issuance costs		264,619			265,433			7		7
Software licenses		137,812			149,985			3.3		3.3
		677,516			694,622
Accumulated amortization		(299,186	)		(391,095	)
	Ps.	378,330		Ps.	303,527

For the years ended on December 31, 2005, 2004 and 2003, the Company recorded amortization expense of Ps.91,653, Ps.79,875 and Ps.73,698, respectively. These amounts include Ps.32,715, Ps.31,614 and Ps.33,800 of software amortization expense, respectively.

NOTE 9 — LONG-TERM BANK LOANS:

As of December the 31, bank loans consist of:

	2004		2005
Short-term portion:
IXE Banco, S. A.(1)	Ps.	—	Ps.	47,573
Banco Mercantil del Norte, S. A.(2)		—		19,075
Banco Santander Serfin, S. A.(3), (4) and (5)		150,443		—
	Ps.	150,443	Ps.	66,648
Long-term portion:
IXE Banco, S. A.(1)	Ps.	—	Ps.	25,026
Banco Mercantil del Norte, S. A.(2)		—		54,046
Banco Santander Serfin, S. A.(3), (4) and (5)		28,711		—
	Ps.	28,711	Ps.	79,072

(1)

The Company has two unsecured credits with IXE Banco, S.A.. One was taken out in April of 2005 for a term of 24 months; the second was taken out in October of 2005 for a term of 19 months. For both credits the monthly interest rate is estimated based on the equilibrium interbank interest rate (EIIR) plus 3.0 percentage points and will be paid-off by equal monthly amortizations of principal and interest on unpaid balances.

(2)

Unsecured line of credit taken out with Banco Mercantil del Norte, S.A., in October of 2005. This line of credit bears monthly interest at an EIIR rate plus 3.0 percentage points. The line of credit was taken out for a term of 48 months.

In 2005, long-term restricted cash amounted to Ps.7,672 and is to guarantee the obligations of a line of credit taken out in October of 2005 with Banco Mercantil del Norte, S.A. This cash was deposited in a trust, and also guaranteed the payment obligations of two credits that the company obtained from IXE Banco, S.A.. The balance includes the required funds to pay interest on a transaction of derivative financial instruments obtained from this institution, see Note 19.

F-16

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(3)	Unsecured line of credit with Banco Santander Serfin, S.A., that generated monthly interest at an EIIR rate plus 1.0 percentage point. The agreement was executed on August 17, 2004, and was renewed several times, until the Company paid it off on October 26, 2005.
(4)	Unsecured credit with Banco Santander Serfin, S.A., taken out at a monthly interest rate of EIIR plus 1.2 percentage points. The credit was taken out in October of 2004, for a term of 18 months, with equal monthly amortizations of principal and interest on unpaid balances. The credit was paid off in advance in November of 2005.
(5)	Unsecured line of credit with Banco Santander Serfin, S.A., with monthly interest at a LIBOR rate plus 1.9 percentage points. The agreement was executed on April 28, 2004, and was renewed several times until the Company paid it off on October 26, 2005.

In 2004, the short-term restricted cash amounted to Ps.5,740 and corresponded to an alternate source to pay the bank loan taken out with Banco Santander Serfin, S.A. This cash was deposited in a trust. Also, the Company maintained the long-term restricted cash of Ps.13,105 as an additional reserve in the selfsame trust to guarantee the equivalent of two monthly amortizations of principal plus interest. The Company paid-off this credit in its entirety in the month of November 2005 and thus, extinguished the obligation to maintain these restricted resources.

NOTE 10 — SHORT-TERM FINANCING WITH COMMERCIAL PAPER:

On July 14, 2005, the Company began a financing program in Mexico with the issuance of 1,500,000 certificates in commercial paper with a value of Ps.01 each, with one-year maturity equivalent to Ps.150,000. The amount of these certificates will be paid-off on June 15, 2006. These certificates have an interest rate equal to the EIIR plus 2.75 points and taxes that apply (13.24% for the first term). The term to place them is one year, with option to renew them for another year. As of December 31, 2005, the balance includes Ps.1,500 of accrued interest.

NOTE 11 — LONG-TERM PAYABLE BONDS:

As of December      , the debt of long-term payable bonds consisted of:

	2004			2005
$5,118: “Old Bonds” (issued in the year 2002 due to restructuring debt) with maturity in 2007, bearing interest at 0% until March of 2006, and as of the last year, bearing interest at a rate of 10%	Ps.	59,573		Ps.	54,818
$36,118: “New Bonds” (issued in the year 2004 due to restructuring debt) bearing a variable interest rate of 4% to 11.25% until October of 2009		420,420			386,853
$11,590: “B Series Bonds” (issued on March the 17th of 2000) bearing interest at a rate of 13.75%, with maturity date on April the 1st of 2007		134,910			124,139
Accrued interest		8,793			12,103
Less: Discount (net of accumulated amortization)		(1,684	)		(1,005	)
	Ps.	622,012		Ps.	576,908

On October 6, 2004, the Company concluded the restructuring of its debt of “Old Bonds” of $167,624. In exchange, the holders received:

i. $5,118 of the same “Old Bonds” with maturity date on March 1, 2007, which will not bear interest until March 1, 2006, and in the last year, will bear interest at a rate of 10% per annum.

ii. $36,118 “New Bonds”, which will bear interest at a variable rate. Said rate will be of 4% as of the date of issuance until April 14, 2005, 5.75% until October 14, 2005, 7.75% until April 14, 2006, 8.25% until

F-17

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

October 14, 2006, 9.25% until October 14, 2007, 10.25% until October 14, 2008 and 11.25% until October 14, 2009.

iii. Regarding the remaining $126,388, the holders of the bonds accepted to make an increase to the variable portion of the capital stock of the Company. Holders received 101,110,338 shares with no-par value shown, of which 96,776,597 were Series N1 shares and 4,333,741 Series B1 shares, at a subscription price of $1.25 per share, of which $0.75 was recorded as premium on subscription of stock and $0.50 as capital stock.

The main characteristics of the “New Bonds” are the following: a) represent unsecured preferred obligations of the Company; b) rankpari passuin payment rights for all the current and future principal debt of the Company; c) are deemed as principal debt in payment rights over any future issuance of subordinated obligations of the Company; d) are subject to registration with the U.S. Securities and Exchange Commission (“SEC”), as per Rights Registration Agreement, and e) are unconditionally guaranteed by shares of the subsidiaries Corporativo en Telecomunicaciones, S. A. de C. V. y Maxcom Servicios Administrativos, S. A. de C. V.

The aforesaid agreement sets forth restrictions related to: i) indebtedness; ii) limitations on investments; iii) redemption of capital stock; iv) prepayment of subordinated obligations, and granting of loans; v) restrictions on profit distributions from restricted subsidiaries; vi) limitations on sales of assets and shares of subsidiaries; vii) limitations on the transactions of affiliate companies; viii) limitations of sale of assets or capital stock of restricted subsidiaries; ix) limitations on liens; x) limitations on sales transactions and certain leases, and xi) restrictions on mergers and consolidations, amongst other covenants. If an event of default occurs and is continuing, the trustee or the holders of 25% in principal amount of the outstanding bonds may declare the principal and any accrued, but unpaid, interest on all the notes to be due and payable.

As of December 31, 2005, the Company had fulfilled all affirmative and negative covenants set forth in the agreement.

NOTE 12 — LABOR OBLIGATIONS UPON RETIREMENT:

The Company has no benefits or pension plans for its employees after retirement, or at the end of the labor relationship. Obligations and costs of seniority premiums workers are entitled to receive upon the termination of employment, are recognized based on actuarial studies prepared by independent experts. The actuarial study shows the net cost of the period and the labor obligations determined according to the requirements set forth in Statement D-3 “Labor Obligations”, and under generally accepted actuarial principles.

F-18

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of December 31, 2005, the amount of accrued liabilities, transition assets and net cost for the period is analyzed as follows:

a. Seniority premium:
Obligations due to current benefits	Ps.	602
Less: assets of the plan
Current net liabilities		602
Less: projected net liabilities		(1,219	)
Additional liabilities	Ps.	—
Obligation for projected benefits	Ps.	709
Plus (less): Entries pending of amortization in 22 and 24 years:
Net transition assets		510
Projected net liabilities	Ps.	1,219
Net cost for the period:
Labor cost	Ps.	217
Financial cost		21
Transition assets amortization		(22	)
Total net cost for the period(*)	Ps.	216
b.Termination of employment:
Obligations due to current benefits	Ps.	15,474
Less: assets of the plan
Current net liabilities		15,474
Less: projected net liabilities		(676	)
Additional liabilities	Ps.	14,798
Obligation for projected benefits	Ps.	20,443
Plus (less): Entries pending of amortization in 22 and 24 years:
Net transition liabilities		(19,767	)
Projected net liabilities	Ps.	676
Net cost for the period:
Labor cost	Ps.	2,516
Financial cost		758
Transition assets amortization		964
Total net cost for the period(*)	Ps.	4,238

(*) The net cost for the period amounted to Ps.4,454, determined in the same manner as obligations due to projected benefits, on an actual estimated rate of return of 4% and an average salary increase of 1.5%.

F-19

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A summary of the provision as of December 31, 2005 due to labor obligations are shown as follows:

Obligations due to current benefits upon termination of employment	Ps.	15,474
Projected net liabilities for seniority premium		1,219
Total accrued liabilities for labor obligations	Ps.	16,693

NOTE 13 — SHAREHOLDERS’ EQUITY:

Under Mexican Federal Telecommunications Law and Foreign Investment Law, no more than 49% of the full voting capital stock of a Mexican corporation holding a concession to provide local and long-distance telecommunication services may be held by foreigners.

On April 11, 2002, the Company obtained an authorization from the Mexican Foreign Investment Bureau (Dirección General de Inversión Extranjera) to increase its ability to issue limited voting shares up to 95% of its total capital stock.

As of December 3, the shares that represent the capital stock of the Company are registered shares, no-par value shares, and consist of:

Series and Class of Shares	2003		2004		2005
Issued and outstanding:
“A” Series  Class I (fixed portion)		765,714		1,528,827		1,528,827
“A” Series  Class II (variable portion)		510,714		2,979,817		2,979,817
“A1” Series Class II (variable portion)		6,088,896		6,088,896		6,088,896
“B” Series  Class I (fixed portion)		763,113		—		—
“B” Series  Class II (variable portion)		463,260		—		—
“B1” Series Class II (variable portion)		5,848,209		10,181,950		10,181,950
“N” Series  Class II (variable portion)		12,237,513		10,331,670		8,861,835
“N1” Series Class II (variable portion)		122,468,441		219,245,038		220,714,874
“N2” Series Class II (variable portion)		26,867,820		26,867,820		26,867,820
Subtotal		176,013,680		277,224,018		277,224,019
Authorized shares not outstanding:
(treasury shares)
“N” Series		26,603,926		3,361,483		3,024,011
“N1” Series				22,679,507		23,110,943
Subtotal		26,603,926		26,040,990		26,134,954
Total authorized shares		202,617,606		303,265,008		303,358,972

As of December the 31, the capital stock of the Company consisted of the following:

	2004		2005
Capital stock	Ps.	2,255,565	Ps.	2,524,094
Restatement effect		245,392		220,513
Total capital stock	Ps.	2,500,957	Ps.	2,744,607

The Series “A1” and “B1” preferred shares have full voting rights, and the Series “N1” and “N2” preferred shares of the “N1” and “N2” Series are neutral shares, and have limited voting rights. The Series “N1” and “N2”

F-20

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

preferred shares, which are neutral shares, are not computed for purposes of determining the foreign investment percentage under the Mexican Foreign Investment Law and may be subscribed, paid for, and held by Mexican and non-Mexican investors. Series “N2” preferred shares have been deposited into the CPO trust, which is administered by Banco Nacional de México, S.A.

Preferred shares have additional pecuniary rights and preferential rights regarding the liquidation or dissolution of the corporation regarding the common shares. The preferential right in liquidation of shares consists in receiving an amount denominated “liquidation fee” regarding each preferred share before the holders of common shares, and with preference to any other distribution of the Company’s assets.

Under the Mexican Corporate Law (Ley General de Sociedades Mercantiles) (“LGSM”), and with the bylaws of the Company, no shares of capital stock can be issued until all the shares issued have been actually paid, prior to the agreements that amend the number of shares of the capital stock due to increases, reductions, amortizations and splits of capital stock.

Therefore, all treasury shares were cancelled and reissued each time a shareholders’ agreement was adopted to this effect.

In May of 2004, the Chief Executive Officer of the Company received a contract-signing bonus of 100,000 options for the acquisition of an equal number of Series “N” shares, at an exercise price per share of $0.01.

In accordance with the capital restructuring completed on October 6, 2004 (see Note 11), the holders of bonds accepted a capitalization of $126,388 of the “Old Bonds” to increase the variable portion of the capital stock of the Company. In exchange, holders received 101,110,338 Series “N1” shares, with no par value shown. The subscription price was $1.25 per share, of which $0.75 was recorded as premium on subscription of stock and $0.50 as capital stock.

In addition, an exchange of shares was made as follows: i) the holders of all Series “B” shares (1,226,373 shares) exchanged those shares for Series “A” shares at a 1:1 ratio; ii) 4,333,741 Series “N1” shares were exchanged for Series “B1” shares, issuing an equal number of shares at a 1:1 ratio; and, in the end, iii) it was agreed to exchange 2,005,843 Series “N” shares for Series “A” shares at a 1:1 ratio.

These exchanges were approved at the Annual General Extraordinary Stockholders’ Meetings held on August 23, 2004.

At the General Extraordinary Stockholders’ Meeting held on December 17, 2004, the stockholders approved the cancellation of 26,040,990 shares of Series “N” Class II capital stock held in treasury, which were all the Series “N”, Class II shares of capital stock of the Company. An equal number of shares, with no-par value shown were issued as follows: i) 3,361,483 Series “N” shares, Class II and, ii) 22,679,507 Series “N1” shares, Class II, to be held in treasury to meet certain commitments under option and warrant agreements, which have been approved by the shareholders and the Board of Directors of the Company.

In February of 2005, several officers of the Company exercised their withdrawal right from the corporation, under Articles 213, 220, 221, and other applicable articles of the “LGSM.” Thus, 1,469,836 Series “N” shares were cancelled. On the same date, several officers of the Company decided to exercise their options and thus the company issued 1,469,836 Series “N1” Shares.

At the General Extraordinary Shareholders’ Meeting held on August 30, 2005, the shareholders approved the following,inter alia: (i) to spin-off Maxcom Telecomunicaciones, S. A. de C. V., (see Note 2), (ii) to capitalize the share subscription premium, in an amount of Ps.893,899 (Ps.874,268 in historical pesos) paying up, under Article 116 of the “LGSM”, 72,078,245 fullypaid-up and subscribed shares, with no-par value shown, which were delivered to shareholders in proportion to their equity interest, including series and class of shares, and (iii) to cancel 26,040,990 shares held in the treasury of the company to guarantee their issuance under the different options and warrants commitments of the Corporation, which 3,361,483 correspond to the “N” Series, Class II, of the

F-21

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

capital stock and 22,679,507 to the “N1” Series, Class II, of the capital stock, and issue up to 26,134,954 shares, with no-par value shown, of which 3,024,011 “N” Series, Class II shares, and 23,110,943 “N1” Series, Class II shares, to be held in the treasury of the Company.

At the General Extraordinary Shareholders’ Meeting held on August 31, 2005, the shareholders agreed to increase the variable portion of the capital stock in the amount of Ps. 218,027 (Ps.214,000 in historical pesos) by capitalizing the debt the Company assumed with a shareholder, and thus 1 “N” Series, Class II share was issued. The 1 share issued was assigned a value of Ps.0.50, and the remaining increase in capital stock was allocated to additional paid-in capital.

In case of a reduction to the capital stock or to the share subscription premium due to any surplus of the amount reimbursed on balances of the accounts of contributed capital, a tax equivalent to 40.84% or 38.91% shall be incurred, when paid, either in 2006 or 2007, respectively. The tax incurred shall be paid by the Company and may be credited against the Income Tax for the fiscal year, or the Income Tax for the two immediately following fiscal years.

NOTE 14 — POSITION IN FOREIGN CURRENCY:

As of December 31, the Company’s foreign-currency position was the following:

	2004			2005
U.S. dollars:
Assets	$	7,357		$	15,351
Liabilities		(69,481	)		(79,938	)
Net liabilities in U.S. dollars	$	(62,124	)	$	(64,587	)
Exchange rate at end of the year (Ps. per U.S.$1.00)	Ps.	11.26		Ps.	10.71

In July of 2005, the Company obtained an exchange hedge to guarantee the exchange rate to pay commitments in foreign currencies for the year 2007, see Note 19.

NOTE 15 — INCOME TAX, ASSET TAX AND TAX LOSS CARRYFORWARDS:

The Company and its subsidiaries are subject separately to the payment of income tax and asset tax, this is, they are not consolidated for tax purposes.

Maxcom has had tax losses since inception. Tax result differs from accounting result due to differences of permanent and temporary nature, as shown hereinbelow.

The provision for Income Tax in 2005 and 2004 is analyzed as follows:

	2004		2005
Income tax incurred	Ps	651	Ps.	635
Deferred income tax		—		25,971
Total provision	Ps.	651	Ps.	26,606

Due to the amendments to the Mexican Income Law Tax approved on November the 13, 2004, the Income Tax rate will be of 29% and 28%, in 2006 and 2007, respectively.

F-22

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As of December 31, the effect of the deferred income tax over the main temporary differences is analyzed hereinbelow:

	2004			2005
CURRENT:
Allowance for uncollectible accounts	Ps.	20,864		Ps.	24,146
Inventory		(3,741	)		—
Prepaid expenses		(22,595	)		(29,905	)
Provisions		72,362			70,410
Total current		66,890			64,651
NON-CURRENT:
Telephone network equipment and leasehold improvements, frequency rights, intangible assets and preoperating expenses — Net		(305,768	)		(215,895	)
Asset tax paid in previous years		33,247			33,227
Tax loss carry forwards		1,077,244			95,930
Total non-current		804,723			(86,738	)
Net deferred tax (liabilities) assets before valuation allowance		871,613			(22,087	)
Tax losses valuation allowance		(871,613	)		(3,884	)
Deferred income tax liabilities	Ps.	—		Ps.	(25,971	)

As of December 31, 2005, the Company determined deferred tax liabilities generated mainly by the decrease in its cumulative tax losses carry forwards. As of December 31, 2004, the Company determined deferred income tax assets generated by the cumulative tax losses carry forwards; however, since there was no certainty that they will be realized within a reasonable term, such benefit was reserved.

As of December 31, 2005, the Company had cumulative tax losses in an aggregate of Ps.342,607, that will be carried forward against future profits as follows:

			Year of
Year of Loss	Amount		Maturity
1996	Ps.	504		2006
1997		1,800		2007
1998		11,569		2008
1999		29,380		2009
2000		39,446		2010
2001		54,712		2011
2002		58,486		2012
2003		18,461		2013
2004		1,019		2014
2005		127,230		2015
	Ps.	342,607

Asset tax is incurred at the rate of 1.8% over the net amount of certain assets and liabilities only when this tax exceeds the Income Tax incurred. During the fiscal year ended on December 31 2005, the Company did not generate a tax base for the Asset Tax. At the close of the fiscal year of 2004, the provision for the Asset Tax was Ps.27,835.

F-23

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Employees’ profit sharing is estimated applying the procedures set forth in the Mexican Income Tax Law.

Provisions for Employees’ Profit Sharing in 2005 and 2004 are analyzed as follows:

	2004		2005
Employees’ profit sharing incurred	Ps.	483	Ps.	—
Deferred employees’ profit sharing		—		—
Total provision	Ps.	483	Ps.	—

NOTE 16 — COMMITMENTS AND CONTINGENCIES:

As of December 31, 2005, the Company had the following commitments:

a. Operating lease agreements:

The Company maintains operating leases on buildings, sites, poles and office equipment. The Company recorded leasing expense of Ps. 59,447, Ps. 60,074 and Ps. 60,452 in 2005, 2004 and 2003, respectively.

The schedule of estimated future minimum lease payments is as follows:

2006	Ps.	35,563
2007		29,401
2008		25,740
2009		17,941
2010 and thereafter:		36,905
	Ps.	145,550

b. Corporate building lease agreement for the building currently occupied by the Company.

On September 1, 2002, the Company executed the release of the lease agreement dated July 16, 2001, and thus, such agreement ceased to be in effect and a new agreement was executed for seven years and four months; starting on September 1, 2005 and ending on December 31, 2012. The surface leased has 7,922 M².

The schedule of estimated future minimum lease payments is as follows:

2006	$	1,759
2007		1,806
2008		1,849
2009		1,897
2010 and thereafter:		5,981
	$	13,292

c. Finance lease agreements:

As of December the 31, 2005, the Company has executed finance lease agreements with different institutions in pesos and U.S. dollars regarding: telecommunication equipment, computer equipment and transportation equipment. The expiration of such agreements ranges from 18 to 36 months, with option to purchase the leased good at reduced prices once the agreement is terminated. The interest rate agreed in these agreements ranges from 6.9% to 10%, as per the specific conditions of each agreement.

F-24

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The schedule of future minimum payments in pesos is as follows:

2006	Ps.	4,032
2007		3,645
2008 and thereafter:		3,324
Total (*)	Ps.	11,001

(*) Includes interest to be accrued in Ps.2,279.

The schedule of future minimum payments in U.S. dollars is as follows:

2006	$	879
2007		363
2008 and thereafter:		134
Total (*)	$	1,376

(*) Includes interest to be accrued in $7.

d. Geographic expansion commitment:

The amending agreement to the national concession certificate to install and operate a public telecommunications network in Mexico, entered into on December the 2, 2004, sets forth a capacity installation program to attend a certain number of lines at the end of the year 2006. Moreover, it sets forth a geographic expansion commitment up to 2014.

The Company, among other terms, should comply with the capacity installation and geographic expansion commitment discussed above in order for the concession to remain in effect.

e. Commitment related to frequency rights:

As of December 31, 2005, the Company complied with its obligation to provide to the “SCT” the renewal of the surety bonds for the fiscal year 2005, according to the commitments and obligations set forth in the concessions.

f. Commitment of sale of capacity:

In October of 2003, the Company executed a sale agreement of optical fiber capacity with another carrier for $2,000, which was recognized at the time of sale as an advanced collection to render this service; the term of this agreement is of 13 years. As of December 31, 2005, the balance pending to be accrued is of $1,692, of which $154 will be accrued during 2006.

F-25

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE 17 — REVENUE BY GEOGRAPHICAL LOCATION:

The Company’s concession title requires a revenue report by geographic location, analyzed as follows:

	Metropolitan		Downtown-
Services	Area		South		Total
Year that ended on December the 31 of 2005:
Local	Ps.	465,565	Ps.	303,498	Ps.	769,063
Long distance		190,704		161,081		351,785
Rent of dedicated links		332		478		810
Sale of client equipment		2,667		2,973		5,640
Lease of capacity		22,347		—		22,347
Other		827		—		827
	Ps.	682,442	Ps.	468,030	Ps.	1,150,472

	Metropolitan		Downtown-
Services	Area		South		Total
Year that ended on December the 31 of 2004:
Local	Ps.	462,760	Ps.	268,076	Ps.	730,836
Long distance		91,128		48,585		139,713
Rent of dedicated links		463		942		1,405
Sale of client equipment		3,663		2,019		5,682
Lease of capacity		18,297		—		18,297
Other		1,216		—		1,216
	Ps.	577,527	Ps.	319,622	Ps.	897,149

	Metropolitan		Downtown-
Services	Area		South		Total
Year that ended on December the 31 of 2003:
Local	Ps.	421,077	Ps.	253,438	Ps.	674,515
Long distance		73,989		46,720		120,709
Rent of dedicated links		3,238		566		3,804
Sale of client equipment		15,679		2,066		17,745
Lease of capacity		15,246		—		15,246
Other		193		—		193
	Ps.	529,422	Ps.	302,790	Ps.	832,212

NOTE 18 — STOCK OPTION PLANS:

a. Stock option plan for the purchase of shares by officers.

i. Plan for executive officers -

In May of 1998, the Company implemented an executive stock option plan. This plan provided that the Company grant options, on every April 1, commencing in 1999 through April 2001, to its executive officers. Under this plan, a technical committee determined the executive officers to who options to purchase Series “N” shares were granted, as well as the terms of those options.

F-26

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Once awarded the options, the holders can immediately exercise 20% of such granted shares. In order to keep these officers, the right to exercise the amount of the remaining options is accrued on a yearly basis in a fifth part each remaining year. In case the officer ceases to work for the Company, all options not exercised are forfeited. Options expire ten years from the date of grant.

As of December 31, 2005, under the aforesaid plan, there were 575,000 shares available for granting to officers performance for the years of 1998, 1999 and 2000.

As of December 31, 2005, 526,214 options of this plan had been granted, of which 304,502 remains to be exercised, and 256,094 are fully exercisable.

Options are subject to a trust in a trust managed by Banco Nacional de México, S.A., established on June 20, 1999.

ii. New executive stock option plan -

The Company implemented a new executive stock plan, for the services rendered during the years 2002, 2003, and 2004. The plan is divided into four levels, depending on the ranking of the different members of management. The first level includes the highest management level of the Company and depends upon targets that the selfsame board fixes for the Company every year. The participants of the three following levels are guaranteed a minimum amount of options. The granting of options for the members of the last level, which is comprised of the junior management, is discretionary.

The underlying value of the options of this new executive option plan is comprised by Series N1 Class II shares, representing the variable portion of the capital stock of the Company.

Since this is a retention plan, once options are granted, their holders can immediately exercise 20% of such shares granted. In order to keep these officers in office, the right to exercise the amount of the remaining options is accrued on a yearly basis in a fifth part each remaining year. In case the officer ceases to work for the Company, all options not exercised are forfeited. Options expire ten years from the date of grant.

As of December 31, 2005, the board of directors and shareholders of the Company authorized an aggregate of 17,998,500 shares to remunerate officers for the services they rendered during the years 2002, 2003 and 2004. Also, part of these options served as extraordinary remunerations granted to certain key officers in case of a change in the control of the Company.

As of December 31, 2005, 13,529,500 shares had been granted, of which 2,705,900 were fully exercisable.

iii. Members of the Board of Directors and members of various committees -

Members of the Board and of the various committees of the Company are entitled to receive their emoluments by way of options to subscribe N1 Series Class II shares, representing the capital stock of the Company.

For each meeting of the Board or of the different committees of the Company where directors and members of the different committees attend, they receive an option to purchase 2,500 shares at an exercise price of $0.01 per share. The chairman of the Board or of the different committees is entitled to receive options to subscribe 5,000 shares at the same abovementioned exercise price. Options granted in each meeting may be exercised immediately and expire three years after, beginning on the date when granted, except when the selfsame Board or the shareholders’ meeting provides otherwise.

As of December 31, 2005, 955,000 options had been granted in this plan, of which 637,500 are fully exercisable.

F-27

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

iv. Signing bonuses and other bonuses for officers or directors -

From time to time the Company has granted signing bonuses, special bonuses and other bonuses by way of stock options.

As of December the 31 of 2005 there are 3,626,959 options for the purchase Series N1, Class II shares, granted to one of the shareholders of the Company as remuneration for special services rendered. The price to exercise these shares is of $0.50 per share. The Board has determined that all of these options are available to be exercised.

There is a reserve of 246,215 N1 Series, Class II treasury shares, available so that the management or the Board of Directors may grant options on these shares as part of the signing bonuses negotiated and signed to contract new key officers with the Company.

The compensation expense of the abovementioned plans is determined based on the fair market value per share using the Black-Scholes method. The above produced no charge to results during the years ended on December 31, 2005 and 2004. A charge of Ps.8 was recognized as expense in 2003.

Below is the summary of changes in employees’ capital options for the year ended on December 31, 2005 (in thousands of shares):

	2003				2004				2005
			Weighed-				Weighed-				Weighed-
			Average				Average				Average
			Exercise				Exercise				Exercise
	Shares		Price		Shares		Price		Shares		Price
Outstanding at beginning of year		15,935	$	0.56		4,377	$	1.16		4,464	$	1.14
Granted		318		0.27		188		0.01		13,712		0.49
Exercised		173		0.01		100		0.01		0		0.00
Cancelled		11,703		0.33		0		0.00		78		0.01
Outstanding at the end of the year		4,377		1.16		4,465		1.14		18,098		0.65
Options exercisable at the end of the year		2,587		1.41		2,675		1.36		7,226		0.71
Weighted-average of options granted during the year (nominated in U.S. dollars)			$	0.26			$	0.00			$	0.00

F-28

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table summarizes the stock options outstanding for employees (in thousands of shares).

											Weighed-
											Average
	Range				Remaining		Exercise				Exercise
	of Prices		Number		Life		Price		Number		Price
As of December 31, 2005	$	0.01		638		0.41	$	0.01		638	$	0.01
		0.49		3,627		6.32		0.49		3,627		0.49
		0.50		13,530		9.58		0.50		2,706		0.50
		8.70		33		3.24		8.70		33		8.70
		10.45		191		4.24		10.45		179		10.45
		12.55		80		5.24		12.55		45		12.55
As of December 31, 2004	$	0.01		533		0.41	$	0.01		533	$	0.01
		0.49		3,627		7.32		0.49		1,886		0.49
		8.70		33		4.24		8.70		33		8.70
		10.45		191		5.24		10.45		179		10.45
		12.55		80		6.24		12.55		45		12.55
As of December 31, 2003	$	0.01		445		1.59	$	0.01		445	$	0.01
		0.49		3,627		8.33		0.49		1,886		0.49
		8.70		33		5.24		8.70		33		8.70
		10.45		191		6.25		10.45		179		10.45
		12.55		80		7.25		12.55		45		12.55

b. Options (“warrants”) for services rendered to the Company.

Since 1998 and until 2001, the Company has issued options to subscribe shares of the Company in exchange of different services rendered.

For the year ended December 31, 2000, the Company granted holders of bonds, initial purchasers and underwriter the Notes with maturity in 2007 that bear annual interest at a rate of 133/4%, options to subscribe 764,938 “N” Series shares representing the capital stock of the Company at an exercise price of $0.01 per share. Options mature after 7 years of the grant date.

As of December 31, 2005, the 764,938 of this plan are fully exercisable.

In relation to the restructuring of Maxcom’s capital stock in April of 2002, the Company issued subscription options in an aggregate of 466,738 “N” Series, Class II shares, representing the capital stock of the Company at an exercise price per share that ranges from $3.06 to $8.70. Parts of these options were granted to previous commitments of the Company as partial anti-stock dilution protection due to the aforesaid capital stock restructuring.

In December 2005, one of the titleholders of the options forfeited the right to subscribe 1,105,779 shares, as he did not exercise his options within the term set forth in the pertinent agreement.

The fair value of options for services rendered was determined using the Black-Scholes method, which produced no charge to results during the years that ended on December 31, 2005, 2004 and 2003.

F-29

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The summary of changes to the options plan to purchase shares by non-employees during the years ended on December 31, are described as follows (in thousands of shares):

			Weighed-				Weighed-				Weighed-
			Average				Average				Average
	2003		Exercise		2004		Exercise		2005		Exercise
	Shares		Price		Shares		Price		Shares		Price
Outstanding at beginning of year		3,341	$	2.37		3,341	$	2.37		3,341	$	2.37
Granted		—		—		—		—		—		—
Exercised		—		—		—		—		—		—
Cancelled		—		—		—		—		1,106		3.06
Outstanding at the end of the year		3,341		2.37		3,341		2.37		2,235		2.02
Options exercisable at the end of the year		3,341	$	2.37		3,341	$	2.37		2,235	$	2.02
Weighed average of options granted during the year (nominated in U.S. dollars)			$	—			$	—			$	—

The following table summarizes the stock options outstanding for non-employees (in thousands of shares):

											Exercisable
			Outstanding:								Weighted-
					Weighted-Average						Average
	Range				Remaining		Exercise				Exercise
	of Prices		Number		Life		Price		Number		Price
As of December 31, 2005	$	0.01		1,432		0.86	$	0.01		1,432	$	0.01
		3.06		442		2.00		3.06		442		3.06
		8.70		362		0.00		8.70		362		8.70
As of December 31, 2004	$	0.01		1,432		1.96	$	0.01		1,432	$	0.01
		3.06		1,548				3.06		1,548		3.06
		8.70		362		0.05		8.70		362		8.70
As of December 31, 2003	$	0.01		1,432		2.93	$	0.01		1,432	$	0.01
		3.06		1,548		1.00		3.06		1,548		3.06
		8.70		362		1.05		8.70		362		8.70

NOTE 19 — HEDGES OF CASH FLOWS:

On July 11, 2005, the Company obtained from IXE Banco, S.A. an exchange rate stability hedging transaction. Once the details of this transaction were analyzed, the Company decided to record and to enter its effects as a “Cash Flow Hedge” according to the guidelines of Statement C-10 “Derivative financial instruments and hedge transactions” of GAAP.

This transaction relates to the payment of long-term commitments agreed in foreign currency that differ from the functional currency of the company. The hedge expires in 2007. This transaction has no additional related costs; the notional amount of the hedge is of $16,709, valuated at a future exchange rate fixed of Ps.11.40 per U.S. dollar.

The exchange rate stability hedging transaction has been agreed at a fixed interest rate of 2.9750% per annum, based on 360 days. The interest is paid each month. As of December 31, 2005, accrued interest equaled Ps.63.

NOTE 20 — SUBSEQUENT EVENTS:

On March 13, 2006, the Company announced that it had reached an agreement, subject to certain regulatory approvals, to acquire Grupo Telereunión (TR). As part of the transaction, TR’s shareholders will subscribe to an

F-30

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

increase in Maxcom’s capital stock in order to finance the additional growth and expand the services currently offered. As a result of the acquisition and the increase to the capital stock, current TR’s shareholders will obtain 16.34% of Maxcom’s shareholding.

Once the transaction is approved, one of TR’s representative will become a member of Maxcom’s Board of Directors.

Grupo Telereunión obtained its license as long distance operator and other value-added services in 1998. It began to operate as of 2000, and currently has 4,300 kms. of optical fiber network and local interconnection in 59 cities. Also, Grupo Telereunión has border access to the United States and offers prepaid cards, Internet services, long distance services and broadband services.

NOTE 21 — SIGNIFICANT DIFFERENCES BETWEEN MEXICAN AND THE UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES:

The Company’s consolidated financial statements are prepared in accordance with Mexican GAAP, which differs in certain significant respects from accounting principles generally accepted in the United States of America (“US GAAP”). The Mexican GAAP consolidated financial statements include the effects of inflation as provided for under Statement B-10, issued by the MIPA. The application of this Statement represents a comprehensive measure of the effects of price level changes in the Mexican economy, and is considered to result in a more meaningful presentation than historical cost-based financial reporting for both Mexican and U.S. accounting purposes. Therefore, the following reconciliation to US GAAP does not include the reversal of such inflationary effects.

The principal differences between Mexican GAAP and US GAAP other than inflation accounting, are presented in the following pages with an explanation, where appropriate, of the effects on consolidated net loss and consolidated shareholders’ equity. Reconciling items are presented net of any gain or loss from monetary position.

The following is a summary of the adjustments to consolidated net loss and consolidated shareholders’ equity as of and for the years ended December 31, 2005, 2004 and 2003:

	Years Ended December 31,
	2005			2004			2003
Net loss under Mexican GAAP	Ps.	(71,239	)	Ps.	(133,303	)	Ps.	(399,115	)
Adjustments:
Amortization of pre-operating expenses(a)		36,302			36,616			37,319
Capitalization of interest(b)		(1,122	)		(779	)		(500	)
Amortization of capitalized interest(b)		2,594			1,782			1,001
Amortization of frequency rights(c)		—			—			11,892
Installation revenues and related costs(d)		3,006			(20,249	)		(33,454	)
Installation costs not charged to customers(e)		(64,292	)		(65,772	)		(51,811	)
Debt restructuring(f)		48,616			1,403,473			22,884
Capitalized internal compensation cost(g)		132			132			132
Spin-off and sale of subsidiary		217,925			—			—
Total US GAAP adjustments		243,161			1,355,203			(12,537	)
Net income (loss) under US GAAP	Ps.	171,922		Ps.	1,221,900		Ps.	(411,652	)

F-31

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	2005			2004
BALANCE AS OF DECEMBER 31,
Shareholders’ equity (deficit) under Mexican GAAP	Ps.	1,783,846		Ps.	1,637,160
Accumulated adjustments:
Preoperating expenses(a)		(363,036	)		(363,036	)
Amortization of preoperating expenses(a)		242,284			205,982
Capitalization of interest(b)		66,639			67,761
Amortization of capitalized interest(b)		(12,333	)		(14,927	)
Amortization of frequency rights(c)		—			—
Installation revenues and related costs(d)		(63,059	)		(66,065	)
Installation costs not charged to customers(e)		(286,954	)		(222,662	)
Debt restructuring(f)		(182,473	)		(231,089	)
Capitalized internal compensation cost(g)		(2,250	)		(2,382	)
Total US GAAP adjustments	Ps.	(601,182	)	Ps.	(626,418	)
Shareholders’ equity (deficit) under US GAAP	Ps.	1,182,664		Ps.	1,010,742

Provided below is an analysis of changes in shareholders’ equity (deficit) under US GAAP:

	Year Ended December 31,
	2005		2004
Balance at the beginning of the year	Ps.	1,010,742	Ps.	(413,664	)
Net income (loss) under US GAAP		171,922		1,221,900
Increase in capital stock		—		202,506
Balance at the end of the year	Ps.	1,182,664	Ps.	1,010,742

a. Preoperating expenses -

Under Mexican GAAP, all expenses incurred while a company or a project is in the preoperating or development stages are capitalized. The Company’s operations commenced in May 1999 and capitalized expenses are being amortized on a straight-line basis for a period not exceeding 10 years. The Company has not incurred in preoperating or development expenses since 2003.

Under US GAAP, such pre-operating expenses are expensed as incurred.

b. Capitalization of interest -

In accordance with Mexican GAAP, the Company capitalizes integral cost of financing (which is comprised of interest expense, foreign exchange gains or losses and monetary gain related to the debt) incurred during the period of construction and installation of an asset. Further, cost capitalized is limited to the specific financing obtained for the construction of the related asset. The Company is amortizing capitalized interests on a straight-line basis over 10 years.

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 asset acquisition period that theoretically could have been avoided if expenditures for the assets had not been made, and is not limited to indebtedness directly attributable to the assets. In an inflationary economy, such as Mexico, acceptable practice is to capitalize interest net of the monetary gain on the related Mexican peso debt, but not any monetary gains on U.S. dollar or other stable currency debt. US GAAP does not allow the capitalization of foreign exchange losses.

F-32

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

c. Frequency rights -

Under Mexican GAAP, frequency rights were amortized on a straight-line method over the term of the concession, from the date the Company commenced its operations. In 2003, the Company adjusted the amortization expense in Mexican GAAP and since that year it is consistent with US GAAP.

Under US GAAP, such incurred expenses should be amortized over the term of the concession beginning at the granting date of the concession by the SCT.

d. Installation revenues and related costs -

Under Mexican GAAP, installation revenues and related costs are recognized and the related expenses are recorded immediately, when installations are charged to customers.

Under US GAAP, installation revenues and related costs are deferred and amortized over the expected customer relationship period when installation is charged to the customers. The Company estimated its customer relationship period to be 4 years.

e. Installation costs not charged to customers-

Under Mexican GAAP, installation costs not charged to customers are capitalized and amortized on a straight-line basis over the remaining term of the concession. The concession term expires in October 2017.

Under US GAAP, installation costs not charged to customers are expensed as incurred.

f. Troubled debt restructuring -

Under Mexican GAAP, the difference between the old carrying value and new carrying value of the debt is taken directly to equity at the time of the restructuring and recorded as capital stock and additional paid-in capital. Debt issuance costs and the debt discount recorded due to the issuance of warrants are amortized over the original term of the corresponding debt with which it was originally issued with no adjustment at the time of restructuring.

Under US GAAP the April 2002, July 2002 and October 2004 debt restructurings qualify as troubled debt restructurings pursuant to the provisions of Statement of Financial Accounting Standards No. 15, Accounting by Debtors and Creditors for Troubled Debt Restructurings (“FAS 15”).

The 2002 debt restructurings are accounted for as a combination of types, as stock, warrants, and Old Senior Notes were exchanged for the 133/4% Notes. A gain was recognized in 2002, as the adjusted carrying value of the 133/4% Notes (including unamortized debt issuance costs and warrant discount) was greater than total future cash payments of the Old Senior Notes at the dates of the 2002 restructurings. To calculate the gain on the 2002 restructurings, the carrying value of the 133/4% Notes was reduced by the fair value of the equity interest granted as well as by all legal and other costs in relation to the restructurings, to determine the adjusted carrying value, which was compared to the gross future cash payments of the Old Senior Notes to determine the gain.

For the purposes of applying the provisions of FAS 15 to October 8, 2004 restructuring, the exchanges of the primary and other holders were recorded as follows:

(a) The exchange with the primary holder is accounted for as a combination of types as the primary holder received both New Senior Notes and stock in exchange for the Old Senior Notes exchanged. A gain was recorded, as the adjusted carrying value of the Old Senior Notes exchanged was greater than the total future cash payments of the New Senior Notes at the time of the exchange. To calculate the gain on the restructuring, the carrying value of the Old Senior Notes was reduced by the fair value of the equity interest granted as well as all legal and other costs in relation to the restructuring, to determine the adjusted carrying value, which was compared to the gross future cash payments under the terms of the New Senior Notes to determine the gain.

(b) The other holders exchanged Old Senior Notes for New Senior Notes, which is accounted for as a modification of terms under FAS 15 due to the extension of the maturity date and the increase in total interest

F-33

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

payments. Since the carrying amount of the Old Senior Notes on October 8, 2004 did not exceed the total future cash payments of the New Senior Notes, no gain on the exchange with the other holders was recognized.

Interest expense on the New Senior Notes provided to other holders is determined using an effective interest rate that equates the present value of the future cash payments specified by the New Senior Notes, with the carrying amount of the Old Senior Notes.

g. Capitalized internal compensation cost-

Mexican GAAP allows that certain compensation charges directly attributable to capital expenditures to be capitalized. During 2002 the Company capitalized some compensation expenses in an amount of Ps.2,646, that are being amortized on a straight-line basis over 20 years. The Company has not incurred in these charges since 2003.

Under US GAAP, these charges were expensed.

h. Spin-off and sale of subsidiary

As more fully described in Note 2, in 2005, the Company undertook a corporate restructuring whereby certain net assets were spun off and subsequently sold to a third party. The transactions were recorded at fair market value resulting in an increase in stockholder’s equity of Ps. 218,027 and no gain or loss reflected in the statement of income.

Under U.S. GAAP, the spin off and subsequent reacquisition of Mijolife, S.A. de C.V. described above would be accounted for at historical cost with no change in the carrying basis of existing assets and liabilities, including net operating tax loss carryforwards, which had previously been fully reserved for given the uncertainty of recoverability. Under U.S. GAAP, a gain would be recognized in the income statement related to the sale of Mijolife, S.A. de C.V. to third parties. Such gain would be equal to the difference between the sale price and the historical basis of existing assets and liabilities, including net operating loss carryforwards.

i. Deferred income taxes -

For Mexican GAAP purposes, the Company applies revised Statement D-4 and recognizes future tax impacts based on the differences between the financial statements and tax bases of assets and liabilities-temporary differences- as of the date of the financial statements. For purposes of the reconciliation to US GAAP, the Company has applied Statement of Financial Accounting Standards No. 109 “Accounting for Income Taxes” (FAS 109), for all periods presented.

FAS 109 requires an asset and liability method of accounting, whereby, deferred taxes are recognized for the tax consequences of all temporary differences between the financial statement carrying amounts and the related tax bases of assets and liabilities. Under US GAAP, the effect on deferred taxes of changes in tax rates is recognized in the income statement in the period in which the tax rates are enacted.

FAS 109 requires deferred tax assets to be reduced by a valuation allowance if, based on the weight of available evidence, including cumulative losses in recent years, it is more likely that some portion or all of the deferred tax assets will not be realized. Accordingly, the Company has established a valuation allowance for the full amount of the deferred tax assets.

F-34

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Significant components of deferred income taxes under US GAAP are as follows:

	SFAS 109			SFAS 109
	Applied to			Applied to
	Mexican GAAP			US GAAP
	Balances			Balances			Total
December 31, 2005
Deferred assets:
Allowance for doubtful accounts	Ps.	24,146			—		Ps.	24,146
Asset tax payments		33,227			—			33,227
Tax loss carryforwards		95,930			—			95,930
Accruals		70,410						70,410
Installation revenues		—			17,657			17,657
Deferred tax assets		223,713			17,657			241,370
Deferred liabilities:
Prepaid expenses		(29,905	)		—			(29,905	)
Telephone network equipment and leasehold improvements, frequency rights, intangible assets and preoperating expenses		(215,895	)		19,235			(196,660	)
Installation costs		—			80,347			80,347
Deferred tax liabilities		(245,800	)		99.582			(146.218	)
Net deferred income tax asset before valuation allowance		(22,087	)		117.239			95.152
Valuation allowance		(3,884	)		(117.239	)		(121.123	)
	Ps.	(25,971	)	Ps.	—		Ps.	(25.971	)

F-35

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	SFAS 109			SFAS 109
	Applied to			Applied to
	Mexican GAAP			US GAAP
	Balances			Balances			Total
December 31, 2004
Deferred assets:
Allowance for doubtful accounts	Ps.	20,864			—		Ps.	20,864
Asset tax payments		33,247			—			33,247
Tax loss carryforwards		1,077,244			—			1,077,244
Accruals		72,362			—			72,362
Installation revenues		—			21,141			21,141
Deferred tax assets		1,203,717			21,141			1,224,858
Deferred liabilities:
Inventory		(3,471	)					(3,471	)
Prepaid expenses		(22,595	)					(22,595	)
Telephone network equipment and leasehold improvements, frequency rights, intangible assets and preoperating expenses		(305,768	)		34,112			(271,656	)
Installation costs		—			71,252			71,252
Debt issuance costs on restructuring		—			(5,406	)		(5,406	)
Deferred tax liabilities		(332,103	)		99.958			(232.145	)
Net deferred income tax asset before valuation allowance		871,614						992.712
Valuation allowance		(871,614	)					(992,712	)
	Ps.	—					Ps.	—

j. Statement of changes in financial position -

Under Mexican GAAP, the Company presents statements of changes in financial position in constant Mexican pesos. This presentation identifies the generation and application of resources representing differences between beginning and ending financial statement balances in constant Mexican pesos.

Under US GAAP, pursuant to FAS No. 95 “Statement of Cash Flows”, a statement of cash flows is a required component of a complete set of financial statements in lieu of a statement of changes in financial position. FAS 95 establishes specific presentation requirements and additional disclosures but does not provide guidance with respect to inflation adjusted financial statements. Based on requirements of the Securities and Exchange Commission (“SEC”), the effect of inflation restatements and foreign exchange gains and losses on cash flows related to financing and operating activities has been included in the line item, “Monetary gain”, and the effect of inflation on cash balances has been included in a separate line item after cash flows from investing activities.

F-36

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Year Ended December 31,
	2005			2004			2003
Operating activities:
Net income (loss) under US GAAP		171,922		Ps.	1,221,900		Ps.	(411,652	)
Adjustments to reconcile net income (loss) to net cash flow provided by operating activities:
Depreciation and amortization		242,608			334,334			265,355
Gain on restructuring of debt		—			(1,347,930	)		—
Fixed asset write-offs		11,479			—			8,709
Allowance for doubtful accounts		28,625			35,544			55,324
Monetary gain		(22,090	)		(113,865	)		(90,794	)
Non recurring charges		—			—			8
Allowance for inventory of obsolescence		306			1,080			3,795
Deferred Income Tax		25,971			—			—
Foreign currency exchange loss		(18,141	)		102,229			205,017
		440,680			233,292			35,762
Changes in operating assets and liabilities:
Accounts receivable		(99,078	)		(3,750	)		(57,073	)
Inventory		(4,021	)		6,298			2,495
Prepaid expenses		(12,917	)		(13,745	)		(19,154	)
Accrued interest		—			756			—
Accrued expenses and other accounts payable	��	143,926			(77,439	)		61,452
Cash flow provided by (used in) operating activities		468,590			145,412			18,492
Financing activities:
Restricted cash		11,173			(18,845	)		—
Proceeds from loans and notes payable		129,998			163,184			—
Cash flow provided by financing activities		141,171			144,339			—
Investing activities:
Acquisition of fixed assets		(380,591	)		(247,547	)		(70,410	)
Other assets		(55,154	)		—			(300	)
Cash flow used in investing activities		(441,745	)		(247,547	)		(70,710	)
Cash and cash equivalents:
Effect of inflation and exchange rate changes on cash and cash equivalents		(6,782	)		(25,381	)		(33,211	)
Net increase (decrease) increase in cash and cash equivalents		161,234			16,823			(85,427	)
Cash and cash equivalents at beginning of the year		62,189			45,366			130,793
Cash and cash equivalents at end of the year		223,423			62,189			45,366
Interest paid	Ps.	69,994		Ps.	24,009		Ps.	22,445
Taxes paid	Ps.	505		Ps.	13,535		Ps.	25,404
Supplemental disclosures of non-cash investing and financing activities:
Capital stock issued in exchange for services	Ps.	—		Ps.	—		Ps.	—
Capital stock issued in exchange for advertising	Ps.	—		Ps.	—		Ps.	—
Reduction of notes payable from troubled debt restructuring	Ps.	—		Ps.	1,474,389		Ps.	—

k. Operating income -

Mexican GAAP allows certain non-recurring charges, such as asset write-offs, to be classified as non-operating.

F-37

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Under US GAAP, such items are considered part of operating income.

l. New US GAAP accounting pronouncements -

In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 153, “Exchanges of Nonmonetary Assets” (An amendment to APB Opinion No. 29) (SFAS 153). This statement addresses the measurement of exchanges of nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, “Accounting for Nonmonetary Transactions”, and replaces it with an exception for exchanges that do not have commercial substance. This statement specifies that a monetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The provisions of this statement shall be effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted. The adoption of this standard did not have a material impact on our consolidated financial position or results of operations.

In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“FAS 154”). FAS 154 requires retrospective application to prior periods’ financial statements of changes in accounting principle. It also requires that the new accounting principle be applied to the balances of assets and liabilities as of the beginning of the earliest period for which retrospective application is practicable and that a corresponding adjustment be made to the opening balance of retained earnings for that period rather than being reported in an income statement. The statement will be effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. Our adoption of FAS 154 is not expected to have a material impact on our consolidated financial statements.

In June 2005, the Emerging Issues Task Force (“EITF”) reached consensus on IssueNo. 05-6,“Determining the Amortization Period for Leasehold Improvements”(“EITF05-6”). EITF05-6 provides guidance on determining the amortization period for leasehold improvements acquired in a business combination or acquired subsequent to lease inception. The guidance in EITF05-6 will be applied prospectively and is effective for periods beginning after June 29, 2005. We are currently evaluating the potential impact of this statement.

In October 2005, the FASB issued FASB Staff Position (“FSP”)No. FAS 13-1, “Accounting for Rental Costs Incurred during a Construction Period. “FSPNo. FAS 13-1 requires rental costs associated with operating leases that are incurred during a construction period to be recognized as rental expense. FSPFAS 13-1 is effective for reporting periods beginning after December 15, 2005. The transition provisions of FSPNo. FAS 13-1 permit early adoption and retrospective application of the guidance. The Company is currently considering the impact that the adoption will have on its consolidated results and financial position.

In September 2005, the FASB ratified the EITF’s IssueNo. 05-7,“Accounting for Modifications to Conversion Options Embedded in Debt Instruments and Related Issues.”, which addresses whether a modification to a conversion option that changes its fair value affects the recognition of interest expense for the associated debt instrument after the modification, and whether a borrower should recognize a beneficial conversion feature, not a debt extinguishment, if a debt modification increases the intrinsic value of the debt (for example, the modification reduces the conversion price of the debt). In September 2005, the FASB also ratified the EITF’s IssueNo. 05-8,“Income Tax Consequences of Issuing Convertible Debt with a Beneficial Conversion Feature.”, which discusses whether the issuance of convertible debt with a beneficial conversion feature results in a basis difference arising from the intrinsic value of the beneficial conversion feature on the commitment date (which is treated recorded in shareholder’s equity for book purposes, but as a liability for income tax purposes) and, if so, whether that basis difference is a temporary difference under FASB Statement No. 109,Accounting for Income Taxes. The adoption of these Issues, which are required to be applied to reporting periods beginning after December 15, 2005, will not have a material effect on our consolidated financial position or results of operations since we do not currently have any convertible debt instruments.

n. Subsidiary Guarantor information -

F-38

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As mentioned in Note 13, in March 2000 the Company issued U.S.$300 million of senior unsecured notes (“Series B Notes”) as part of its financing program and in April and July 2002, the Company restructured the majority of the original $ 300 million in debt and issued additional senior, unsecured notes (“Old Notes”). In October 2004 the Company then exchanged the majority of the Old Notes for additional senior, unsecured notes (“New Notes”). The Series B Notes, the New Old Notes and the New Notes are joint and severally guaranteed on a senior subordinated, unsecured, full and unconditional basis, pursuant to a guarantee by the Company’s subsidiaries, Corporativo and MSA (“Guarantor Subsidiaries”). The subsidiaries guarantee is full and unconditional.

The following consolidating information presents restated condensed balance sheets at December 31, 2005 and 2004 and condensed statements of operations and the restated changes in financial position for the years ended December 31, 2005, 2004 and 2003 of Maxcom Telecomunicaciones, S.A. de C.V. (Maxcom), Corporativo en Telecomunicaciones, S.A. de C.V. (Corporativo), Maxcom Servicios Administrativos, S.A. de C.V. (Servicios), Outsourcing Operadora de Personal, S.A. de C.V. (OOP), and Maxcom SF, S.A. de C.V. (Servicios Financieros).

These statements are prepared in conformity with accounting principles generally accepted in Mexico, including the recognition of inflation, in accordance withBulletin B-10, with one exception: for the purposes of the presentation of the subsidiary guarantor information, the Subsidiary Entities have been accounted for as investments under the equity method by Maxcom. Earnings of subsidiaries are therefore reflected in Maxcom’ investment account and earnings. The principal elimination entries eliminate Maxcom’ investment in subsidiaries and intercompany balances and transactions.

The significant differences between Mexican and U.S. GAAP as they affect Maxcom are described in Note 21.

												Servicios
	Maxcom			Corporativo			Servicios			OOP		Financieros			Elimination			Consolidated
Balance sheet as of December 31, 2005:
Cash and cash equivalents and Current restricted cash	Ps.	215,820			654			473			82		6,394			—			223,423
Accounts receivable — net		144,070			141			12,423			2,263		193,888			(136,377	)		216,408
Inventory — net		15,403																	15,403
Prepaid expenses		75,769			401			609			7		6,474			(6,476	)		76,784
Restricted cash long term		7,672																	7,672
Investment in subsidiaries		206,471						55								(206,526	)		—
Frequency rights — net		86,102																	86,102
Telephone network system and Equipment net		2,082,795																	2,082,795
Preoperating expenses — net		122,305																	122,305
Retirement Obligations					1,588			13,210											14,798
Intangible assets — net		303,527																	303,527
Other assets		5,954			178			2,076					4,362			(2,069	)		10,501
Total assets	Ps.	3,265,888		Ps.	2,962		Ps.	28,846		Ps.	2,352	Ps.	211,118		Ps.	(351,448	)	Ps.	3,159,718
Total liabilities	Ps.	1,482,042		Ps.	4,861		Ps.	31,106		Ps.	2,297	Ps.	600		Ps.	(145,034	)	Ps.	1,375,872
Shareholders’ Equity:
Capital Stock and Additional Paid- In Capital		2,964,229			89			61			51		213,215			(213,416	)		2,964,229
Accumulated deficit		(1,180,383	)		(1,988	)		(2,321	)		4		(2,697	)		7,002			(1,180,383	)
Total shareholders’ equity		1,783,846			(1,899	)		(2,260	)		55		210,518			(206,414	)		1,783,846
Total liabilities and Shareholders — equity	Ps.	3,265,888		Ps.	2,962		Ps.	28,846		Ps.	2,352	Ps.	211,118		Ps.	(351,448	)	Ps.	3,159,718
Total shareholders’ equity under Mexican GAAP	Ps.	1,783,846		Ps.	(1,899	)	Ps.	(2,260	)	Ps.	55	Ps.	210,518		Ps.	(206,414	)	Ps.	1,783,846

F-39

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

												Servicios
	Maxcom			Corporativo			Servicios			OOP		Financieros		Elimination			Consolidated
Preoperating expenses		(363,036	)															(363,036	)
Amortization of preoperating expenses		242,284																242,284
Capitalization of interest		66,639																66,639
Amortization of capitalized interest		(12,333	)															(12,333	)
Amortization of frequency rights																		(63,059	)
Installation revenues		(63,059	)															(286,954	)
Installation costs		(286,954	)															(182,473	)
Debt restructuring		(182,473	)															(182,473	)
Bonus capitalization		(2,250	)															(2,250	)
Deferred tax provisions		(2,939	)															(2,939	)
Retirement obligations		675																675
Total shareholders’ equity under US. GAAP		1,180,400			(1,899	)		(2,260	)		55		210,518		(206,414	)		1,180,400

													Servicios
	Maxcom			Corporativo			Servicios			OOP			Financieros			Elimination			Consolidated
Statements of Operations for the year ended December 31, 2005:
Revenues	Ps.	1,150,371		Ps.	38,155		Ps.	270,955								Ps.	(309,009	)	Ps.	1,150,472
Operating cost and expenses		(1,133,357	)		(38,075	)		(271,057	)		23			(213	)		309,009			(1,133,670	)
Integral (cost) income of financing		(52,240	)		(2	)		17			(38	)		(2,795	)					(55,058	)
Other income (expenses)		(36,013	)		(230	)		1,823			19			311			1,107			(32,983	)
Net (loss) income	Ps.	(71,239	)	Ps.	(152	)	Ps.	1,738		Ps.	4		Ps.	(2,697	)	Ps.	1,107		Ps.	(71,239	)
Net (loss) income for the year under Mexican GAAP	Ps.	(71,239	)	Ps.	(152	)	Ps.	1,738		Ps.	4		Ps.	(2,697	)	Ps.	1,107		Ps.	(71,239	)
Amortization of preoperating expenses		36,302																		36,302
Capitalization of interest		(1,122	)																	(1,122	)
Amortization of capitalized Interest		2,594																		2,594
Amortization of frequency rights Installation revenues		3,006																		3,006
Installation costs		(64,292	)																	(64,292	)
Debt restructuring		48,616																		48,616
Bonus capitalization		132																		132
Spin-off and sale of subsidiary		217,925																		217,925
Net loss (income)
for the year Under U.S. GAAP	Ps.	171,922		Ps.	(152	)	Ps.	1,738		Ps.	4		Ps.	(2,697	)	Ps.	1,107		Ps.	171,922

F-40

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

												Servicios
	Maxcom			Corporativo			Servicios			OOP		Financieros			Elimination			Consolidated
Statement of Cash Flows under U.S. GAAP for the Year Ended December 31, 2005:
Net (loss) income	Ps.	171,922		Ps.	(152	)	Ps.	1,738		Ps.	4	Ps.	(2,697	)	Ps.	1,107		Ps.	171,922
Depreciation and amortization		242,608																	242,608
Other adjustments to reconcile net income to cash provided by operating activities		26,150																	26,150
Net change in working capital		27,910			(152	)		1,738			4		(2,697	)		1,107			27,910
Resources (used in) provided by Operating activities		670,730			404			(185	)		82		6,394			(208,844	)		468,590
Resources used in financing activities		141,171																	141,171
Resources (used in) provided by investing activities		(650,589	)													208,844			(441,745	)
Effect of inflation on cash and cash equivalents		(6,782	)																(6,782	)
Cash and cash equivalents:
Net increase (decrease) in cash And cash equivalents		154,540			404			(185	)		82		6,394						161,234
Beginning balances		61,280			250			658											62,189
Ending balances	Ps.	215,820		Ps.	654		Ps.	473		Ps.	82	Ps.	6,394		Ps.	—		Ps.	223,423

F-41

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Maxcom			Corporativo			Servicios			Elimination			Consolidated
Balance sheet as of December 31, 2004:
Cash and cash equivalents	Ps.	61,280		Ps.	250		Ps.	658		Ps.			Ps.	62,188
Current restricted cash		5,740												5,740
Accounts receivable — net		152,317			241			14,788			(13,420	)		153,926
Inventory — net		11,688												11,688
Prepaid expenses		65,538			196			461						69,195
Restricted cash long term		13,105												13,105
Frequency rights — net		97,419												97,419
Telephone network system and equipment — net		1,783,833												1,783,833
Preoperating expenses — net		158,607												158,607
Intangible assets — net		378,330												378,330
Other assets		21,438			173									21,611
Total assets	Ps.	2,752,295		Ps.	860		Ps.	15,907		Ps.	(13,420	)	Ps.	2,755,642
Total liabilities	Ps.	1,115,136		Ps.	2,606		Ps.	19,905		Ps.	(19,164	)	Ps.	1,118,483
Shareholders’ Equity:
Capital stock and additionalpaid-in-capital		3,396,451			89			61			(150	)		3,396,451
Accumulated deficit		(1,759,292	)		(1,835	)		(4,059	)		5,894			(1,759,292	)
Total shareholders’ equity		1,637,159			(1,746	)		(3,998	)		5,744			1,637,159
Total liabilities and shareholders’ equity	Ps.	2,752,295		Ps.	860		Ps.	15,907		Ps.	(13,420	)	Ps.	2,755,642
Total shareholders’ equity under Mexican GAAP	Ps.	1,637,159		Ps.	(1,746	)	Ps.	(3,998	)	Ps.	5,744		Ps.	1,637,159
Preoperating expenses		(363,036	)											(363,036	)
Amortization of preoperating expenses		205,982												205,982
Capitalization of interest		67,761												67,761
Amortization of capitalized interest		(14,927	)											(14,927	)
Installation revenues		(66,065	)											(66,065	)

	Maxcom			Corporativo			Servicios			Elimination		Consolidated
Installation costs		(222,662	)										(222,662	)
Debt restructuring		(231,088	)										(231,088	)
Bonus capitalization		(2,382	)										(2,382	)
Total shareholders’ equity under US GAAP	Ps.	1,010,742		Ps.	(1,746	)	Ps.	(3,998	)	Ps.	5,744	Ps.	1,010,742

F-42

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Maxcom			Corporativo			Servicios			Elimination			Consolidated
Statements of Operations for the year ended December 31, 2004:
Revenues		Ps.897,149			Ps.31,030			Ps.235,215			Ps.(266,245	)		Ps.897,149
Operating cost and expenses		(1,051,009	)		(30,207	)		(234,551	)		266,245			(1,049,522	)
Integral (cost) income of financing		48,666			(43	)		235						48,858
Other income (expenses)		(28,110	)		(640	)		(399	)		(640	)		(29,789	)
Net (loss) income		Ps.(133,304	)		Ps.140			Ps.500			Ps.(640	)		Ps.(133,304	)
Net (loss) income for the year Under Mexican GAAP		Ps.(133,304	)		Ps.140			Ps.500			Ps.(640	)		Ps.(133,304	)
Amortization of preoperating expenses		36,616												36,616
Capitalization of interest		(778	)											(778	)
Amortization of capitalized interest		1,781												1,781
Installation revenues		(20,249	)											(20,249	)
Installation costs		(65,772	)											(65,772	)
Debt restructuring		1,403,474												1,403,474
Bonus Capitalization		132												132
Net loss (income) for the year under US GAAP		Ps.1,221,900			Ps.140			Ps.500			Ps.(640	)		Ps.1,221,900
Statement of Changes in Financial Position for the Year Ended December 31, 2004:
Net (loss) income		Ps.(133,304	)		Ps.140			Ps.500			Ps.(640	)		Ps.(133,304	)
Depreciation and amortization		346,045												346,045
Net change in working capital		212,741			140			500			(640	)		212,741
Resources (used in) provided by operating activities		275,971			147			658						276,714
Financing activities:
Issuance of capital stock		595,945												595,945
Additional paid in capital		893,898												893,898
Proceeds from loans and notes payable		(1,394,376	)											(1,390,376	)
Resources used in financing activities		99,467												99,467
Investing activities:
Telephone network systems and equipm		(355,008	)											(335,008	)
Intangible assets		(33,348	)											(33,348	)
Other assets		8,988			8									8,996
Resources (used in) provided by investing activities		(359,368	)		8									(359,360	)
Cash and cash equivalents:

F-43

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Maxcom			Corporativo			Servicios			Elimination			Consolidated
Balance sheet as of December 31, 2003:
Cash and cash equivalents and restricte	Ps.	45,270		Ps.	96		Ps.			Ps.			Ps.	45,366
Accounts receivable — net		136,292			183			9,994			(9,042	)		137,426
Inventory — net		20,056												20,056
Prepaid expenses		58,080			119			129						58,328
Frequency rights — net		104,644												104,644
Telephone network system and equipme		1,671,129												1,671,130
Preoperating expenses — net		195,247												195,247
Intangible assets — net		424,859												424,859
Other assets		30,425			182									30,607
Total assets	Ps.	2,686,002		Ps.	580		Ps.	10,123		Ps.	(9,042	)	Ps.	2,687,663
Total liabilities	Ps.	2,405,382		Ps.	2,464		Ps.	14,622		Ps.	(15,426	)	Ps.	2,407,043
Shareholders’ Equity:
Capital stock and additionalpaid-in-capital		1,906,608			89			61			(150	)		1,906,608
Accumulated deficit		(1,625,988	)		(1,975	)		(4,559	)		6,534			(1,625,988	)
Total shareholders’ equity		280,620			(1,886	)		(4,498	)		6,384			280,620
Total liabilities and shareholders’ equity	Ps.	2,686,002		Ps.	580		Ps.	10,123		Ps.	(9,042	)	Ps.	2,687,663
Total shareholders’ equity under Mexican GAAP	Ps.	280,620		Ps.	(1,886	)	Ps.	(4,498	)	Ps.	6,384		Ps.	280,620
Preoperating expenses		(363,036	)											(363,036	)
Amortization of preoperating expenses		169,366												169,366
Capitalization of interest		68,540												68,540
Amortization of capitalized interest		(16,709	)											(16,709	)
Installation revenues		(45,816	)											(45,816	)
Installation costs		(156,890	)											(156,890	)
Debt restructuring		(347,225	)											(347,225	)
Bonus capitalization		(2,514	)											(2,514	)
Total shareholders’ equity under US GA	Ps.	(413,664	)	Ps.	(1,886	)	Ps.	(4,498	)	Ps.	(6,384	)	Ps.	(413,664	)
Statements of Operations for the year ended December 31, 2003:
Revenues	Ps.	832,211		Ps.	49,434		Ps.	200,599		Ps.	(250,032	)	Ps.	832,212
Operating cost and expenses		(1,084,452	)		(49,489	)		(200,772	)		251,299			(1,083,414	)
Integral (cost) income of financing		(134,020	)		86			219						(133,715	)
Other income (expenses)		(12,854	)		(22	)		(666	)		(654	)		(14,196	)
Net (loss) income	Ps.	(399,115	)	Ps.	(9	)	Ps.	(620	)	Ps.	(613	)	Ps.	(399,113	)

F-44

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Maxcom			Corporativo			Servicios			Elimination			Consolidated
Net (loss) income for the year under Mexican GAAP		Ps.(399,115	)		Ps.9			Ps.(620	)		Ps.(613	)		Ps.(399,113	)
Amortization of preoperating expenses		37,319												37,319
Capitalization of interest		(500	)											(500	)
Amortization of capitalized interest		1,001												1,001
Amortization of frequency rights		11,892												11,892
Installation revenues		(33,454	)											(33,454	)
Installation costs		(51,811	)											(51,811	)
Debt restructuring		22,884												22,884
Bonus capitalization		132												132
Net loss (income) for the year under US GAAP		Ps.(411,652	)		Ps.9			Ps.620			Ps.613			Ps.(411,650	)
Statement of Changes in Financial Position for the Year Ended December 31, 2003:
Net (loss) income		Ps.(399,115	)		Ps.9			Ps.(621	)		Ps.613			Ps.(399,113	)
Depreciation and amortization		365,411												365,411
Net change in working capital		(33,704	)		9			(621	)		613			(33,703	)
Resources (used in) provided by operating activities		(38,021	)		(8,020	)		(5,172	)					(51,213	)
Financing activities:
Additional paid-in capital		1,121												1,121
Proceeds from loans and notes payables		100,930												100,930
Resources used in financing activities		102,051												102,051
Investing activities:
Telephone network systems and equipm		(118,784	)											(118,784	)
Intangible assets		(17,184	)											(17,184	)
Other assets		(307	)		8									(299	)
Resources (used in) provided by investing activities		(136,275	)		8									(136,267	)
Cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents		(72,245	)		(8,011	)		(5,172	)					(85,429	)
Beginning balances		117,515			8,107			5,172						130,794
Ending balances		Ps.45,270			Ps.96			Ps.—			Ps.—			Ps.45,366

o. Valuation and Qualifying Accounts -

F-45

MAXCOM TELECOMUNICACIONES, S.A. DE C.V. AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Amounts expressed in Million of Mexican Pesos (Ps.) with Purchasing Power as of December 31, 2005)

		Balance at		Charged to
		Beginning of		Cost and					Balance at End
		Period		Expenses		Deductions			of Period
Allowance for doubtful accounts	2005		Ps.65.2		Ps.24.5		Ps.(20.8	)		Ps.68.8
	2004		Ps.67.7		Ps.36.5		Ps.(39.0	)		Ps.65.2
	2003		Ps.36.3		Ps.55.3		Ps.(23.9	)		Ps.67.7
Allowance for obsolete and slow- moving supply inventories	2005		Ps.0.3		Ps.—		Ps.—			Ps.0.3
	2004		Ps.0.3		Ps.—		Ps.—			Ps.0.3
	2003		Ps.0.7		Ps.—		Ps.(0.4	)		Ps.0.3
Allowance for obsolete and slow- moving network inventories	2005		Ps.9.3		Ps.—		Ps.0.1			Ps.9.4
	2004		Ps.10.4		Ps.—		Ps.(1.1	)		Ps.9.3
	2003		Ps.14.3		Ps.—		Ps.(3.9	)		Ps.10.4
Allowance for lease penalty	2005		Ps.—		Ps.—		Ps.—			Ps. —
	2004		Ps.—		Ps.—		Ps.—			Ps. —
	2003		Ps.8.3		Ps.—		Ps.(8.3	)		Ps. —

F-46

ITEM 19.  EXHIBITS

			Page
1	.	By-laws (estatutos) of Maxcom Telecomunicaciones, S.A. de C.V. as amended to June 10, 2003.	*****
2(a)		Not applicable.
2(b)
1	.	Indenture dated as of March 17, 2000 among Maxcom, Corporativo en Telecomunicaciones, S.A. de C.V. and The Bank of New York, as Trustee.	**
2	.	Indenture dated as of April 29, 2002 among Maxcom, Corporativo en Telecomunicaciones, S.A., de C.V., Maxcom Servicios Administrativos, S.A., de C.V. and The Bank of New York, as Trustee.	*
3	.	Second Supplemental Indenture dated as of April 29, 2002 among Maxcom, Corporativo en Telecomunicaciones, S.A. de C.V., Maxcom Servicios Administrativos, S.A. de C.V. and the Bank of New York, as Trustee.	*
4	.	Amended and Restated Indenture, dated as of October 8, 2004 amoung Maxcom, Corporativo en Telecomunicaciones S.A. de C.V., Maxcom Servicios Administrativos, S.A. de C.V., Maxcom USA, Inc. and the Bank of New York, as trustee.	******
5	.	Indenture, dated as of October 8, 2004 among Maxcom, Corporativo en Telecomunicaciones S.A. de C.V., Maxcom Servicios Administrativos, S.A. de C.V., Maxcom USA, Inc. and the Bank of New York, as trustee.	******
2(c)		Not applicable.
1	.	CPO Trust Agreement effective April 25, 2002 among Maxcom., its shareholders and Banco Nacional de México, S.A., Institución de Banca Múltiple, Grupo Financiero Banamex Accival, acting as trustee.	*
2	.	Second amended and Restated Securityholders Agreement entered into as of April 29, 2002 among Maxcom and certain existing and new securityholders.	*
4(a)		Agreement for the use of infrastructure and installation of fiber optic cable on the highways between Puebla and Mexico, dated August 18, 1998, between Amaritel, S.A. de C.V. (the predecessor of Maxcom Telecomunicaciones, S.A. de C.V.) and Iusatel, S.A. de C.V.	**
4(b)		Interconnection Agreement for long distance services, dated January 22, 1999, between Amaritel and Teléfonos de Mexico (Telmex) valid for a period of two years between February 1, 1999 and January 1, 2001. The agreement establishes that it would remain in effect after the expiration date if no further agreement for its termination or renewal has been entered into, in accordance with article 42 of the Mexican Telecommunications law.	**
4(c)		Local Interconnection Service Agreement, dated November 24, 1998, between Amaritel, S.A. de C.V. and Teléfonos de Mexico, S.A. de C.V.	**
4(d)		Amendment to Local Interconnection Service Agreement, dated February 25, 1999, between Amaritel, S.A. de C.V. and Teléfonos de Mexico, S.A. de C.V., originally entered into on November 24, 1998.	**
4(e)		Metropolitan Network Capacity Sale Agreement, dated April 28, 2000, between Maxcom Telecomunicaciones, S.A. de C.V. and Metro Net, S.A. de C.V. (including amendment dated December 21, 2000).	***
4(f)		Telecommunications Service Agreement dated November 15, 1999, between Maxcom and Teléfonos de México, S.A. de C.V.	**
4(g)		Telecommunications Service Agreement dated March 9, 1999, between Maxcom and Bestel S.A. de C.V., according to which Bestel will provide long distance and private calls services to Maxcom.	**
4(h)		Concession for the installation and operation of telecommunications services granted to Amaritel, S.A. de C.V. by the Secretary of Telecommunications and Transport on December 20, 1996.	**

E-1

		Page
4(i)	Amendment to Concession for the installation and operation of telecommunications services granted to Amaritel by the Secretary of Telecommunications and Transport on December 20, 1996, dated September 8, 1999, extending the coverage of such concession to include various additional municipalities of the State of Mexico.	**
4(j)	Amendment to Concession for the installation and operation of telecommunications services granted to Amaritel by the Secretary of Telecommunications and Transport on December 20, 1996, dated December 7, 1999, authorizing Maxcom to employ whatever technologies it deems appropriate in providing telecommunications services to various municipalities.	**
4(k)	Amendment to Annex A and B of Concession for the installation and operation of telecommunications services granted to Amaritel, S.A. de C.V. by the Secretary of Telecommunications and Transport on December 20, 1996, dated September 27, 2001, extending the coverage of such concession to include all of Mexico.	**
4(l)	Concession for a public telecommunications network in Regions 3, 5 and 8 granted to Amaritel, S.A. de C.V. by the Secretary of Telecommunications and Transport on April 29, 1998.	**
4(m)	Concession for the operation ofpoint-to-multipoint microwave telecommunications services in Region 5 granted to Amaritel, S.A. de C.V. by the Secretary of Telecommunications and Transport on April 23, 1998.	**
4(n)	Concession for the operation ofpoint-to-multipoint microwave telecommunications services in Region 3 granted to Amaritel, S.A. de C.V. by the Secretary of Telecommunications and Transport on April 23, 1998.	**
4(o)	Concession for the operation of point-to multipoint microwave telecommunications services in Region 8 granted to Amaritel, S.A. de C.V. by the Secretary of Telecommunications and Transport on April 29, 1998.	**
4(p)	Concessions for the nationwide operation ofpoint-to-point microwave telecommunications services using five frequency bands in the 56 MHz bandwidth, each granted to Amaritel, S.A. de C.V. by the Secretary of Telecommunications and Transport on June 4, 1998.	**
4(q)	Concessions for the nationwide operation ofpoint-to-point microwave telecommunications services using two frequency bands in the 100 MHz bandwidth, each granted to Amaritel, S.A. de C.V. by the Secretary of Telecommunications and Transport on June 4, 1998.	**
4(r)	Amendment to Concession for the operation ofpoint-to-multipoint telecommunications services in Regions 3, 5, 8 granted to Amaritel, S.A. de C.V. by the Secretary of Telecommunications and Transport on April 1, 1998, dated October 12, 1999, regarding the start date for the initiation of services.	**
4(s)	Amendment to Concession for the installation and operation of telecommunications services granted to Amaritel, S.A. de C.V. by the Secretary of Telecommunications and Transport on December 20, 1996, dated September 24, 1999 eliminating financial restrictions.	**
4(t)	Warrant Agreement dated as of March 17, 2000 between Maxcom Telecomunicaciones, S.A. de C.V. and The Bank of New York, acting as warrant agent.	***
4(u)	Dark fiber optic purchase agreement dated as of August 13, 2002 between Maxcom Telecomunicaciones, S.A. de C.V. and Bestel S.A. de C.V.	****
4(v)	Transactional Lease Termination Agreement dated as of May 20, 2003 among Maxcom Telecomunicaciones, S.A. de C.V. and Jacobo Zaga Romano, Jacobo Zaga Buzali,et.al..	****
4(w)	Capacity sale agreement dates as of October 15, 2003, between Maxcom Telecomunicaciones, S.A. de C.V. and Axtel, S.A. de C.V. [xxx].	*****
4(x)	Credit Agreement dated April 28, 2004 by and among Banco Santander Mexicano, S.A. Institución de Banca Mútiple Grupo Financiero Santander Servin, as Lender, and Maxcom, as Borrower.	*******

E-2

			Page
4(y)		Credit Agreement dated April 13, 2005 by and among Ixe Banco, S.A., Institución de Banca Mútiple, Ixe Grupo Financiero., as Lende, and Maxcom, as Borrower.	*******
4(z)		Amendment dated August 5, 2004 to Exhibit ‘‘B” of the Master Agreement to Supply Local Interconnection Services, dated February 25, 1999 between Maxcom and Telefonos de Mexico, S.A. de C.V.	*******
4(aa)		Credit Agreement dated April 13, 2005 by and among Ixe Banco, S.A., Institución de Banca Múltiple, Ixe Grupo Financiero, as Lender, and Maxcom, as Borrower	†
4(bb)		Credit Agreement dated October 25, 2005 by and among Ixe Banco, S.A., Institución de Banca Múltiple, Ixe Grupo Financiero, as Lender, Maxcom, as Borrower and Maxcom SF, S.A. de C.V. as joint and several obligor and amendment dated December 13, 2005	†
4(cc)		Credit Agreement dated October 21, 2005 by and among Banco Mercantil del Norte, S.A., Institución de Banca Múltiple, Grupo Financiero Banorte, as Lender and Maxcom, as Borrower	†
4(dd)		Irrevocable Trust Agreement dated November 21, 2005 by and among Maxcom, as Settlor, Banco Mercantil del Norte, S.A., Institución de Banca Múltiple, Grupo Financiero Banorte and Ixe Banco, S.A., Institución de Banca Múltiple, Ixe Grupo Financiero, as trust beneficiaries and HSBC México, S.A., Institución de Banca Múltiple, Grupo Financiero HSBC, Trust Division, as trustee	†
4(ee)		Maxcom Shareholders Meeting dated August 31, 2005 approving the spin-off	†
4(ff)		Stock Purchase Agreement dated November 22, 2005 by and among Maxcom and Maxcom SF, S.A. de C.V., as Sellers and Tiendas Comercial Mexicana, S.A. de C.V. and Controladora Comercial Mexicana, S.A. de C.V. , as Buyers.	†
5	.	Not applicable.
8	.	No significant subsidiaries.
9	.	Not applicable.
10	.	None.
11	.	Maxcom’s Code of Ethics adopted March, 2006.	†
12	.1	Certification of the Chief Executive Officer pursuant toRule 13a-14(a).
12	.2	Certification of the Chief Financial Officer pursuant toRule 13a-14(a).
13	.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350	†
13	.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350	†
99	.1	Computation of earnings per share.	†
99	.2	Computation of ratio of earnings to fixed charges.

*	Previously filed with annual report onForm 20-F, submitted to the SEC on July 1, 2002.
**	Previously filed with Registration Statement onForm F-4 NO. 333-11910 submitted on May 5, 2000.
***	Previously filed with annual report onForm 20-F, as amended, submitted on June 29, 2001 and on September 28, 2001.
****	Previously filed with annual report onForm 20-F, submitted to the SEC on June 30, 2003.
*****	Previously filed with annual report onForm 20-F, submitted to the SEC on June 29, 2004.
******	Previously filed with annual report onform 20-F, submitted to he SEC on June 30, 2005.
[xxx]	Certain material has been omitted pursuant to a request for confidential treatment request. The places in this document where material has been omitted is marked with a asterisk and brackets “[*]” The omitted material has been filed separately with the SEC pursuant toRule 24b-2 under the Securities Exchange Act of 1934.
†	Previously filed with annual report onForm 20-F, submitted to the SEC on June 30, 2006.

E-3

GLOSSARY OF TELECOMMUNICATIONS TERMS

ADSL	(Asymetrical Digital Subscriber Line) ADSL is a physical-layer protocol that supports up to 8 Mbps bandwidth downstream and up to 1 Mbps upstream. The asymmetrical aspect of ADSL technology makes it ideal for Internet browsing, video on demand, and remote LAN access. Users of these applications typically download more information than they send. ADSL also allows simultaneous voice communication by transmitting data signals outside of the voice frequency range.
Band	A range of frequencies between two defined limits.
Bandwidth	The relative range of analog frequencies or digital signals that can be passed through a transmission medium, such as glass fibers, without distortion. The greater the bandwidth, the greater the information carrying capacity. Bandwidth is measured in Hertz (analog) or Bits Per Second (digital).
Capacity	Refers to the ability to transmit voice or data over telecommunications networks
Carrier	A licensed provider of telecommunications transmission services by fiber, wire or radio.
Centrex service	A business telephone service developed originally by Lucent Technologies which offers private branch exchange type features directly from the local telephone company central office, such as voicemail, callpick-up group, abbreviated dialing and multi-line hunting.
Churn	Refers to customer line attrition and is measured as the percentage of disconnects from service relative to the total subscriber base over a given period of time.
COFETEL	Comisión Federal de Telecomunicaciones, the Mexican Federal Telecommunications Commission.
Digital	Describes a method of storing, processing and transmitting information through the use of distinct electronic or optical pulses that represent the binary digits 0 and 1. Digital transmission/switching technologies employ a sequence of discrete, distinct pulses to represent information, as opposed to the continuously variable analog signal.
DSLAM	Digital Subscriber Line Access Multiplexer. A technology to concentrate traffic in ADSL implementations through time division multiplexing at the central office.
E1	A digital telephony format that carries data at the rate of 2.048 Mbps(DS-1 level).E-1 is the European and Latin American version of North American T-1, though T-1 is 1.544 Mbps.
Fiber optic technology	Fiber optic systems use laser-generated light to transmit voice, data and video in digital format through ultra-thin strands of glass. Fiber optic systems are characterized by large circuit capacity, good sound quality, resistance to external signal interference and direct interface to digital switching equipment and digital microwave systems. A pair of fiber optic strands using advanced transmission technologies is capable of carrying multiple 2.5 or 10 Gbps communication streams. Because optical signals disperse over distance, they must be

G-1

	regenerated/amplified at sites located along the fiber optic cable. Fiber optic systems using earlier eneration fiber require frequent intervals between regeneration/amplifier sites. Greater distances between regeneration/amplifier sites afforded by the use of advanced fiber generally translate into substantially lower installation and operating costs and fewer potential points of failure.
Fixed wireless local loop	A wireless local telephony service using the 3.4-3.7 GHz frequency band.
FTTH	Fiber-to-the-home, reference to an all fiber-optic public telephone network design, where broadband services are delivered to the customer premises/network interface by fiber optic.
Gbps	Gigabits per second. A measurement of speed for digital signal transmission expressed in billions of bits per second (Gbps).
Gulf region	115 cities and towns in eleven states in eastern Mexico, which includes the cities of Puebla, Tampico, Veracruz, Reynosa, Cancún, Chetumal, Mérida, Ciudad del Carmen, Campeche, Coatzacoalcos and Tuxtla Gutiérrez, among others.
Hertz	The unit measuring the frequency with which an alternating electromagnetic signal cycles through the zero-value state between lowest and highest states. One hertz (abbreviated Hz) equals one cycle per second. KHz (kilohertz) stands for thousands of hertz; MHz (megahertz) stands for millions of hertz and GHz (gigahertz) stands for billions of hertz.
ISDN	Integrated Services Digital Network. ISDN is an international standard that providesend-to-end digital connectivity to support a wide range of voice, data and video services.
Kbps	Kilobits per second, a measurement of speed for digital signal transmission expressed in thousands of bits per second.
Lambdas	Lambdas are used as the symbol for wavelength in lightwave systems. Fiber optic systems may use multiple wavelengths of light, with each range of wavelengths appearing in a “window,” roughly corresponding to a color in the visible light spectrum.
LAN	Local area network, a private data communications network linking a variety of data devices, such as computer terminals, personal computer terminals, personal computers and microcomputers, all housed in a defined building, plant or geographic area.
Microwave technology	Although limited in capacity compared with fiber optic systems, digital microwave systems offer an effective and reliable means of transmitting lower volume and narrower bandwidths of voice, data and video signals over short and intermediate distances. Microwaves are very high frequency radio waves that can be reflected, focused and beamed in aline-of-sight transmission path. As a result of their electro-physical properties, microwaves can be used to transmit signals through the air, with relatively little power. To create a communications circuit, microwave signals are transmitted through a focusing antenna, received by an antenna at the next station in the network, then amplified and retransmitted. Because microwaves disperse as they travel through the air, this transmission process must be repeated at repeater stations, which consist of radio equipment, antennae andback-up power sources, located on average every 30 kilometers along the transmission route.

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Mbps	MegaBits per second. A measurement of speed for digital signal transmission expressed in millions of bits per second (Mbps).
Multi-line hunting	A value-added service that allows for multiple calls to be received with a single telephone number.
PCS	Personal Communications Services. PCS has come to represent two things: first, a digital wireless communications service operating over the 1.9 GHz band; and second, more generically, a wireless communications service utilizing a digital network that offers typical features such as voice, video and data applications, short messaging, voicemail, caller identification, call conferencing and call forwarding. Generic PCS suppliers promote this service on the ability of its features to be customized, or “bundled,” to the needs of the individual customers.
Point-to-multipoint microwave transmission	A transmission using microwave technology by which a single signal goes from one origination point to many destination points.
Point-to-point microwave transmission	A transmission using microwave technology by which a signal goes from one point to another, usually connected by some dedicated transmission line.
POTS	Plain Old Telephone Service. The basic service supplying standard single line telephones, telephone lines and access to the public switched network.
SCT	Secretaría de Comunicaciones y Transportes, the Mexican Communications and Transportation Ministry.
Switch	A device that opens or closes circuits or selects the paths or circuits to be used for transmission of information. Switching is the process of interconnecting circuits to form a transmission path between users.
Teledensity	Teledensity is a measure of telephony service in a population. It is calculated by dividing the total subscriber base (number of lines in service) by the inhabitants and multiplying by 100. It is generally used as a comparative measure of network development. All teledensity figures are reported in subscribers per 100 inhabitants.
Triple play services	Triple play services consist combination of voice, data, and video services offered as a bundled service for a price that is less than the price of the individual services acquired individually.
VoIP	Voice over Internet Protocol services consist in the technology that provides telephone companies with the ability to carry normal telephony-style voice over an Internet Protocol-based Internet with POTS-like functionality, reliability, and voice quality.
VPN	Virtual Private Network. A network design offering the appearance and functionality of a dedicated private network.
Web-hosting	A service performed by Internet service providers (also known as ISPs) and Internet access providers (also known as IAPs) consisting in the hosting of outside companies web pages to be displayed on the Internet.
xDSL	XDSL is a physical-layer protocol that supports bandwidth downstream and upstream.

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities and Exchange Act of 1934, the registrant certifies that it meets all requirements for filing onForm 20-F/A and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized.

MAXCOM TELECOMUNICACIONES, S.A. DE C.V.

By:  /s/  JOSE ANTONIO SOLBES

José Antonio Solbes

Chief Financial Officer

DATE: November 22, 2006