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Edited Transcript of NOS.EP earnings conference call or presentation 7-Nov-19 12:00pm GMT

Q3 2019 NOS SGPS SA Earnings Call

Lisbon Nov 14, 2019 (Thomson StreetEvents) -- Edited Transcript of Nos SGPS SA earnings conference call or presentation Thursday, November 7, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Ana Paula Garrido Pina de Marques

NOS, S.G.P.S., S.A. - Executive Director

* José Pedro Faria Pereira da Costa

NOS, S.G.P.S., S.A. - CFO, VP & Executive Director

* Maria João Hewitt Carrapato Moura Landau

NOS, S.G.P.S., S.A. - Head of the IR Department

* Miguel Nuno Santos Almeida

NOS, S.G.P.S., S.A. - CEO & Vice-Chairman

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Conference Call Participants

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* Henrik Herbst

Crédit Suisse AG, Research Division - Research Analyst

* Ivón Leal

BBVA Research SA - Research Analyst

* Luigi Minerva

HSBC, Research Division - Senior Analyst

* Martin Michael Heinz Hammerschmidt

Jefferies LLC, Research Division - Equity Analyst

* Mathieu Robilliard

Barclays Bank PLC, Research Division - Research Analyst

* Michael Bishop

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Nayab Amjad

Citigroup Inc, Research Division - VP

* Roshan Vijay Ranjit

Deutsche Bank AG, Research Division - Research Analyst

* Shavar Raid Halberstadt

New Street Research LLP - Communication Services Associate

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Presentation

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Maria João Hewitt Carrapato Moura Landau, NOS, S.G.P.S., S.A. - Head of the IR Department [1]

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Hi, good afternoon. Welcome to our third quarter 2019 results conference call. As usual, José Pedro Pereira da Costa will go through a brief presentation of the highlights of the results, and then we'll be available for Q&A with other members of the ExCom.

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José Pedro Faria Pereira da Costa, NOS, S.G.P.S., S.A. - CFO, VP & Executive Director [2]

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Thanks, Maria, and good morning, everyone. As usual, we will follow the slides of the results presentation. And starting with Slide 2. We would like to highlight main messages for this quarter. We had a pickup on consolidated revenue growth of 2.1% year-on-year driven by a solid Telco revenue growth of 1.1% and a record quarter for the Cinema and audio units. This revenue growth translated to EBITDA growth of 3.4% at the group level, 2.8% at the Telco level. As it has been the case in previous quarters, well above revenue growth and continuing to drive margin expansion.

Our transformational fixed and mobile network projects are well underway, impacting positively service quality. Still, we have a lower level of CapEx this quarter, providing the base for strong levels of free cash flow.

Now on Slide 4 and turning to the more detailed operating review. We have a quite positive KPI performance this quarter, reflecting historical levels -- historical low levels of churn. Overall, we were able to post a total RGU net adds number of close to 70,000 this quarter. We have grown steadily across all services. We have posted a robust Pay TV net adds number of 14,000, the best in the last 2 quarters, on the back of the network expansion, low churn and seasonally better DTH.

We also have fixed broadband and fixed voice net adds of 13,000 and 2,000, still supported by network expansion. And on the mobile front, we have posted 40,000 net adds number, benefiting from the typical positive seasonality of the summer period, therefore, continuing to expand our market share. We have good contribution from both prepaid and postpaid segments.

On Slide 5, on the fixed area. In this quarter, we have accelerated our greenfield FttH expansion to almost 80,000 new homes passed versus around 50,000 in the last couple of quarters, therefore, supporting well our fixed Pay TV net adds number of 80,000 in the quarter, reflecting good takeups in new areas and lower churn overall. We also had some contribution from the up-sell of basic Pay TV services in our legacy base of previous stand-alone broadband-only customers. The majority of homes passed net adds are being deployed by NOS under our own CapEx program. Also, our partners continue to provide us access to new FttH homes. In this quarter, this represented around 40% of new FttH homes passed.

Fixed Pay TV net adds continue to come not only from our own FttH network, but also from the FttH networks we are using from our partners. As we said before, churn levels in this quarter came down to historical low levels, benefiting from the overall disciplined market environment.

On Slide 6, we have started some time ago with a new commercial approach with pick-and-mix tariff plans that allow more flexible offers. Therefore, fully convergent 4P offers have not been pushed the same way as before. The focus has been more on what we call integrated offers that allow customers to have a more flexible way to add mobile cards on top of fixed services. In some cases, these cards can be -- these mobile cards can be prepaid, in some cases, youth segment-related.

If we have integrated and convergent subscribers, we have reached a bit over 900,000 subscribers, representing almost 60% of the fixed base, having added 7,600 subs in the quarter, each one having an average of 2.1 mobile cards. The up-sale of integrated mobile cards is providing some ARPU uplift on fixed customers, therefore, offsetting the continued pressure from premium channel reduction and regulatory-driven negative impact, namely MTR declines in the international call caps.

On Slide 7, conversions and integrated offers continue to be a key engine of mobile growth, with NOS adding a 40,000 mobile net adds number in the quarter with even contribution from postpaid and prepaid. In the case of prepaid, benefiting from the positive seasonality, namely with mobile data cards, but also from very positive contribution of the youth prepaid segment which continues to grow consistently.

On Slide 8, we continue launching innovative offers for the Consumer segment. As examples, we can mention the launch of the first smartwatch tariff plan in the Portuguese market and the launch of 2 new channels, (inaudible) channel, a nonpremium sports channel produced by the Portuguese Football Federation, and Sundance TV on demand, which is a premium offer focused on the iconic film festival.

On Slide 9. On the B2B front, we continue to post growth in data and IT service revenues, offsetting the revenue drag that we have from more traditional Telco services. We continue positioning ourselves as the right partner for business transformation for our B2B customers. As a result of that, we have been growing across virtually all segments.

On the larger Corporate segment, we continue growing in recurrent customer revenues, leveraging IT, cloud and managed services. IT already representing 20% of revenues in this segment, having doubled in size in the last 4 years. On the SMEs and SoHo segments, we continued to post a solid 2% to 3% customer revenue growth.

On the wholesale segment, we had also double-digit year-on-year revenue growth with voice traffic growth -- growing well despite global market decline.

On Slide 10, and a quick update on the transformation program. The most relevant development this quarter were the launch and go-live of our customer apps on several fronts. To start with NOS app, which is a customer service app, aimed to enable customers to check mobile data consumption, manage mobile data allowances, manage tariff plans, check bills, execute payments at any time and have the NOS Cinema card always at hand. The WTF app for our mobile youth segment is an app that also allows WTF customers to manage their tariff plans, manage their mobile data allowances and consumption, manage and activate their Uber and Uber Eat vouchers and also activate the exclusive 2 for 1 NOS Cinema vouchers that they can use at our theaters.

And finally, the NOS Cinema app, a new app for our Cinema customers that allows customers to access the movies on show, to browse through movie trailers, select preferred theaters and most popular types of movies. And finally, also to purchase cinema tickets and popcorn and other bar products, which can be bought in advance and tickets forwarded to friends.

In general, ratings on the digital stores have been very positive, ranging from 4.5% to 4.7%, and listing consistently amongst the top 20 download apps.

On Slide 11, and on our transformational network projects on FttH deployment. We continue to develop the project at a good pace. Total fixed network coverage having reached 4.6 million households by the end of this quarter, with FttH representing already 1.4 million home passed, that is around 31% of total coverage. In this 1.4 million FttH number, we are including a bit over 200,000 contributed by our partner, which overlap HFC areas. The sharing agreement continues to be executed with around 800,000 households being exchanged since the start of the project.

And finally, on the mobile front, we have nearly finished the modernization project with now 99% of sites being operated to a single Radio Access Network.

To conclude the operational review, on the Cinema and audio units, as we said before, we had the best quarter ever, with the Cinema unit posting a 16% increase in attendance and gross box office revenues versus last year, maintaining a leading position of 60% market share. This very strong performance was due to a strong set of blockbusters, of which we should highlight Disney's Lion King movie that made it to the top. It is now the highest grossing movie of all time at Portugal box office. On the distribution front, we have also a very positive quarter, having distributed 7 out of 10 top movies, including the already mentioned Lion King success.

Now turning to the financial review on Slide 14. We had a 2.1% revenue growth at the group level or 2.4% adjusted for regulatory impacts as a result of the solid contribution of the Telco unit, with 1.1% year-on-year growth or 1.4% adjusted for the international call cap, being supported by the strong performance of the Cinema and audio units, which have posted a combined increase of 16% in the quarter. Cinema revenues went up by 21% following the increase in attendance and gross box office. And Audiovisuals have posted around 11% revenue growth, also supported by the Cinema distribution business.

On the next slide, as we said, Telco revenue has achieved 1.1% year-on-year growth. Adjusting for the regulatory events, 1.4%.

As you know, last May, there was this new legislation imposing the international call cap. The negative impact on revenues this quarter was close to EUR 1 million, slightly below what we were expecting. Still, this has a direct impact at the EBITDA level of the same magnitude. To this 1.1% Telco revenue growth, we had positive contribution from both Consumer and Business and Wholesale segments. Consumer segment posted 0.7% year-on-year growth adjusted for the cap driven mostly by the residential fixed and personal mobile segments with growth of around 2% and 5%, respectively, and despite the pressure that we continue to feel in the residential DTH segment of around minus 11% and premium channel revenues of around minus 9% year-on-year. The business and wholesale segment grew 5.5%, adjusted for the cap, with growth of 1.2% in business customer revenues driven mainly by large corporates and SMEs, and a 15% growth in all sales revenues. This very positive performance in wholesale was due to a strong pickup in voice and data traffic.

On the next slide, EBITDA in this quarter grew 3.4% at the group level, again, growing above revenue growth driven by the strong performance of the Telco units this quarter, well amplified by the Cinema and audio units. At the group level, margins went up by 50 basis points, reaching 43%. At the Telco unit, they grew also a solid 2.8%, also posting a margin improvement of 70 basis points versus last year.

In terms of costs in the next slide, total OpEx grew by 1.2%, well below growth in consolidated revenues, showing well cost control and discipline. In terms of nondirect costs, we continue to keep these costs very much under control, having increased just 0.2% year-on-year.

Our transformational cost-efficiency programs are helping to compensate and mitigate the structural inflation that we have in items such as minimum wages, energy, maintenance and the costs driven by larger network and traffic demands. The recently launched customer service apps will contribute for sure in the future to continue to contain these nondirect costs going forward.

Regarding direct costs, we had in this quarter, an increase of 2% year-on-year, impacted by higher volume of wholesale traffic driving an increase in interconnect costs, also by an increase in corporate IT-related projects, some increase in sports-related content costs. And finally, we had a relevant increase in direct costs of the Cinema and audio areas due to the substantial increase in activity. That translated into higher royalty costs in these areas. If we were to exclude the increase in the Cinema and audio OpEx, total Telco OpEx decreased slightly in the quarter, continuing to show, again, a strong level of cost control and efficiency.

On the next slide, net income in the quarter increased year-on-year to EUR 48 million. That is a 6% year-on-year increase, taking advantage from the increase in EBITDA of over EUR 5 million in the quarter, also with the positive contribution of the reduction in D&A. That decreased in the quarter to EUR 98 million, following the strong reduction in impairment charges, compensating some increase in current amortization.

Also, financial costs continued to contribute positively. They continued to decrease to around EUR 6.8 million in the quarter driven by lower average cost of debt versus last year. On the negative side, on the negative contribution to net income evolution, we had some increase in nonrecurrent other costs of around EUR 7 million. This is related mostly to a noncash provision regarding some regulatory contingencies, and also had a slight reduction in the contribution from the share of JV results consolidated through the equity method with ZAP's contribution being slightly positive.

On this topic, on the ZAP topic, it is worthwhile flagging the very material devaluation of the Angolan currency during last October, which lost against the euro close to 30%. It did not affect this quarter numbers, but we have to report, as a subsequent event, the negative contribution from ZAP at the net income level in October of around EUR 5 million, pointing to a relevant negative impact in the fourth quarter 2018 that we estimate to be around EUR 10 million. Again, just a reminder that these impacts from ZAP, either positive or negative, are purely accounting noncash impacts, since we are not receiving any dividends from ZAP, neither we are contributing with any capital to ZAP.

On Slide '19, total group CapEx in the quarter, excluding the accounting impacts of leasing contracts, reached EUR 92 million, a decrease of around EUR 8 million versus last year, reflecting both a decrease in technical Telco CapEx, reaching EUR 48 million in the quarter, that is 12.5% of Telco revenues, considerably below last quarter numbers due to the phasing of technical projects.

FttH expansion and the single RAN mobile upgrade continue to be the main projects that are driving these levels of technical CapEx. For the full year 2019, we aim to be slightly above 13% of technical CapEx to sales as we have been guiding in the past. We also had a decrease in customer-related CapEx to around EUR 36 million due to lower levels of churn we had in the quarter, translating to lower levels of gross sales and subscriber acquisition CapEx.

On Slide 20, we have a robust free cash flow generation. In terms of EBITDA minus CapEx, we have reached EUR 81 million, increasing 20% versus last year, supported well by EBITDA growth and the increase in CapEx we just referred to.

Operational free cash flow after lease payments and working capital variation reached around EUR 58 million, which then converted into a net free cash flow after interest and taxes generated in the quarter of EUR 44.4 million, again, showing a strong cash conversion. Comparison versus last year as to take into consideration the EUR 41 million cash inflow we had in the third quarter 2018, relative to the closing of a legal settlement in our favor regarding a regulatory dispute over operator termination.

And lastly, on Slide 21, on the balance sheet. Net financial debt decreased in the quarter as a result of the strong free cash flow generated to around EUR 1,089 million. This net financial debt number represents 1.9x the EBITDA level adjusted for lease payments, which is in line with our stated target of close to 2x that we are committed to maintain.

Average cost of debt decreased a bit further in the quarter to 1.4%, benefiting from the refinancing deals concluded between the end of second quarter and beginning of this third quarter. And we should only expect any further reductions, small reduction towards the beginning of 2020 after the maturity of this November of EUR 100 million bond issue, which is now fully refinanced.

And with this, we conclude the presentation, and we are now ready to take the questions you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Michael Bishop from Goldman Sachs.

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Michael Bishop, Goldman Sachs Group Inc., Research Division - Equity Analyst [2]

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Just a couple of questions from me. Picking up on the impact you were talking about, about the pick-and-mix tariffs for customers, could you just talk us through how we might see that coming through the financials? Does that potentially mean slightly lower ARPU but maybe lower cost to serve?

And then secondly, again, just staying on the customer topic. You highlighted sort of good traction with the apps. So I was just wondering, given you started to see evidence there and whether you could give us a bit more color on what size of cost reduction you could see and how that might phase through relative to your overall efficiency guidance targets?

And then thirdly, just the usual question of how you're seeing competition in the market during the quarter, and then, obviously, into the Christmas period?

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José Pedro Faria Pereira da Costa, NOS, S.G.P.S., S.A. - CFO, VP & Executive Director [3]

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Okay. Thanks, Michael. So starting on reverse order. In terms of competition, there's not much more to add to what we already referred in the presentation. We are going through a relatively disciplined period in terms of competition. You can -- the reflection of that, you can track that in churn numbers. It's a good indication of the level of competition we have in the market. We know always that Portugal remains a very competitive market with 3 large players with enough scale to provide the best services to our customers and also the best prices. Having said that, in terms of trends, this is more or less in line with previous quarters with a reflect of that on the churn levels.

In terms of absent before asking Ana to help me on the first signs of traction, in terms of usage of apps, I can say that we are not changing guidance. So we have said that overall transformation program is aimed at containing the nondirect costs pretty much flat. That has been what we have been able to perform up to now and that is what we will see ideally going forward.

So if all the projects and apps is just an example, we are executing a considerable number of different projects. Again, the purpose is to mitigate and contain the inflationary pressures that we have in nondirect costs and to keep that, by and large, flat.

In terms of the pick-and-mix approach. I mean it will drive some service subscription. If you think in ARPU in terms of per unique customer level, we will have different types of customers with different types of services going forward. So eventually, this can lead to some decrease, as you mentioned, in terms of the ARPU. But ARPU gives -- measures in a different way, so it's not the ARPU we usually track and report of typical Pay TV customers. We might see in the -- if we start tracking ARPU for unique subscribers, we might see different -- slightly different types of trends with some ARPU dilution, given that we are giving more flexibility to customers to choose the types of services that they really want to track.

And I ask Ana to provide a little bit more color on what you know in terms of usage of the apps and also the feedback we are having from customers on the usage of the apps we just launched.

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Ana Paula Garrido Pina de Marques, NOS, S.G.P.S., S.A. - Executive Director [4]

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What the transformation program is doing is really to help to offset the pressure in certain areas as you can see in some of the costs. We have at this moment, around 0.5 million clients in the app's ecosystem. What we can see in this moment is also that we have very good ratings. But this also increases the number of interactions that we have per customer. So this is the setup of a basis. We cannot see at this point any reduction in the overall costs of service.

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Operator [5]

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Your next question comes from the line of Roshan Ranjit from Deutsche Bank.

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Roshan Vijay Ranjit, Deutsche Bank AG, Research Division - Research Analyst [6]

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Great. Three quick ones for me, please. We saw a nice pickup in your FttH deployment. Could we now think that there is some upside to the 200,000 or so annual run rate you have previously given? So that's something which we can think about going forward.

Secondly, in B2B, again, another nice pickup from Q2. You do cite some seasonality, but you also say that there is some growth in the average revenue per account. Is it fair to say that some price increases have been put through on certain accounts in the B2B segment? And again, how should we think about that going forward because it's an area of focus?

And lastly, I know it comes up each quarter, but on your infrastructure. Now you have completed the RAN architecture upgrade, does this bring forward the scope for expansion of your network sharing agreement? And how can we think about that going forward?

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José Pedro Faria Pereira da Costa, NOS, S.G.P.S., S.A. - CFO, VP & Executive Director [7]

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Okay. Thanks, Roshan. I'll address question 1 and 2. So on the FttH greenfield deployment, we'll probably do a little bit over the 200,000 we have guided before. So we have stepped up -- as we said, we have accelerated a bit the pace in this quarter. Fourth quarter number, we expect to be between the 50,000 we did in the last couple of quarters, in quarter 1 and 2. And the third quarter number, the 80,000, so probably we'll get to between 200,000, 250,000 this year.

Next couple of years, this will start to decelerate. As you know, the sharing agreement on the FttH will go up to 2.6 million households in total. But the contribution of -- for us, what we call greenfield FttH homes will be pretty much done this year. We'll still have a bit next year. We're still quantifying this number, clearly of smaller magnitude than we have in 2019.

And then most of the effort will be -- in terms of FttH deployment will be what we call brownfield, which is deploying fiber in places, in regions where we already have HFC. So the opportunity to basically address new markets will be in some way decreased. But of course, we'll have an opportunity to provide, well, a different service that can attract more different type of customers.

On the infrastructure front, there's not much more that we can comment at this stage. So I mean we always said that our position regarding network sharing remains the same. We are open to evaluate these opportunities that would translate into industrial synergies. And this is basically in terms of the way we approach this opportunity. This is our priority. So we see this opportunity basically from an industrial standpoint. So we'll try to look at opportunities of doing some -- any deal with industrial logic. So -- but at this stage, that -- there's not much more that we can comment. On the B2B front...

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Miguel Nuno Santos Almeida, NOS, S.G.P.S., S.A. - CEO & Vice-Chairman [8]

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Regarding B2B, what I would say that the -- a healthy year-to-date year-on-year growth revenue trends as we have around 2.9% on customer revenues do not reflect price increases. It's a very competitive market. It reflects both customer growth and service perimeter growth in current customers, especially IT-driven, as we've been saying, which IT, as I said, has been having a very significant year-on-year growth. I would not follow too closely the quarter-on-quarter ARPU customer trends as they have relevant seasonality, what we would expect is the IT growth in B2B customers more than offsets the Telco pressure that has been felt over time.

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Operator [9]

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Your next question comes from the line of Ivón Leal from BBVA.

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Ivón Leal, BBVA Research SA - Research Analyst [10]

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Just a couple ones for me. The first one related to -- or following up on what you just say on the fiber-to-the-home rollout. What I would like to understand is, could you give us a sense of your technical CapEx very roughly, what's going today to mobile and what's going to the fixed line? And to what extent the change from CapEx in fixed line, so the decreasing fiber-to-the-home will need to be reinvested or redirected to the mobile networking in coming years. Okay. I try to understand why the -- you really need to intensify your CapEx on mobile, okay, and then significantly reduce the fiber-to-the-home rollout. And the second one, just for brief win. There is already a decision taken on prices for the retail segment for next year?

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José Pedro Faria Pereira da Costa, NOS, S.G.P.S., S.A. - CFO, VP & Executive Director [11]

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Okay. Thank you, Ivón. On the first topic, we are not providing the split between fixed and mobile, but actually -- and we are planning to maintain pretty much the CapEx at these levels because there's no FttH deployment reduction, so we will continue deploying FttH in the future. So what we are spending today in terms of the fiber project, we will continue spending at least until we complete the FttH sharing agreement that we have, that is until 2022. So the only thing I mentioned is that we won't have as much greenfield FttH homes as we have this year, so we'll start having less of that. But we will have to continue rolling out more or less at the same pace.

And in terms of mobile, we will have 5G soon. So basically, we just completed the 4.5G upgrade, but we will have to continue upgrading the network in terms of mobile. So overall, this leads to a guidance in terms of technical CapEx, which should be, order of magnitude, what we are spending today. So that's what we can comment at this stage.

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Ivón Leal, BBVA Research SA - Research Analyst [12]

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Okay. So actually, there is no expectation of high increase in the mobile CapEx because you're trying to maintain the fiber-to-the-home rollout?

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José Pedro Faria Pereira da Costa, NOS, S.G.P.S., S.A. - CFO, VP & Executive Director [13]

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Yes. Basically, but there's no news on that front. So in terms of prices, there's nothing also to be at this stage that we can comment. We can only say that this year, the inflation-based price increase was implemented beginning of January, and the reception has been okay from customers. So we haven't had, as you can track, any pickup in terms of churn. We haven't had any major noise around this also because we have been quite contained. We have just, this year, increased prices along with inflation. But having said that, we cannot comment at this stage anything more for 2020.

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Operator [14]

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Your next question comes from the line of Nayab Amjad from Citi.

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Nayab Amjad, Citigroup Inc, Research Division - VP [15]

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So you've reported really strong KPIs this quarter, particularly on TV. Is this growth in the market or you're getting share from other operators? More specifically, where is share coming from? And also, if you could update us on wholesale revenue, which has been strong this quarter from -- due to structural growth in revenue from network sharing arrangement? What trends should we expect going forward? Will the growth from network sharing arrangements continue?

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José Pedro Faria Pereira da Costa, NOS, S.G.P.S., S.A. - CFO, VP & Executive Director [16]

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Okay. So we don't have the -- in terms of market share of Pay TV, we don't have yet the numbers reported by our competitors, but our 14,000 number should be more or less in line with what they have been doing on a quarterly basis in the past couple of quarters. So I believe this is overall market growth. And basically, this -- in our case, this would mean basically maintaining market share.

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Miguel Nuno Santos Almeida, NOS, S.G.P.S., S.A. - CEO & Vice-Chairman [17]

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Regarding wholesale revenues. As we said, most of the year-on-year growth for this quarter is due to growth in voice traffic, which was growing against global market trends and only a small portion of that growth is a structural remuneration from the sharing agreement.

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Operator [18]

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Your next question comes from the line of Henrik Herbst from Crédit Suisse.

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Henrik Herbst, Crédit Suisse AG, Research Division - Research Analyst [19]

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I have 2 questions, please. Firstly, on customer-related CapEx. So you've got very strong RGU additions in the consumer segments, your churn is basically flat year-over-year. The subscriber base a bit bigger. So just wondering what's driving the reduction in customer-related CapEx. Is there sort of -- do you have cheaper modems or set-top boxes or something and it's basically just doing things more efficiently, maybe it's driving more sales through online channel or something like that?

And secondly, I wanted to check on below-the-line promotions. I think there's been a lot of that in Portugal. So maybe I don't know what you -- I know you don't want to talk about what's going to happen in the future. But in Q3, the level of below-the-line promotional activity versus Q2 and Q3 last year, please? Maybe if you can give, I don't know, if there's any percentage in terms of discounts or something like that?

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José Pedro Faria Pereira da Costa, NOS, S.G.P.S., S.A. - CFO, VP & Executive Director [20]

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Okay. Thank you, Henrik. So starting with promotions. Actually, the -- since above-the-line prices have come down quite significantly. Today, we have our entry-level triple play priced at EUR 29.9, which is more or less the reference in the market. The level of below-the-standard promotions is relatively low. So this is more or less the more aggressive promotional offer. We can have, in a couple of cases, basically more on a regional level. When a new player is entering a new regional market, you can maybe offer a couple of subscriptions -- of monthly subscriptions, but that's as much as promotions go. And actually, on that front, that level of promotional activity has gone down as well.

In terms of customer-related CapEx, there's also -- this quarter, we have -- it's true that we have a good KPI number related to Pay TV, but at the same time, we also had some positive impact coming from the reinjection of used equipment with former customers. So that is one of the transformation projects that we have mentioned before. That is already providing some good results that helped to contain a bit customer-related CapEx. So in our view, for this type of activity that we are performing today, we should have more or less the type of customer-related CapEx that we are posting this quarter. So there's nothing really nonrecurrent in this number.

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Henrik Herbst, Crédit Suisse AG, Research Division - Research Analyst [21]

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I guess another way to look at the promotional list. On your -- the average sort of revenue on your incoming customers or new sales, is that higher or lower than last quarter or a year ago, i.e., sort of the average build on your -- Sorry?

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José Pedro Faria Pereira da Costa, NOS, S.G.P.S., S.A. - CFO, VP & Executive Director [22]

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It's flat. It's flat versus last year. It hasn't changed. And it's not that different from the ARPU in terms of our -- from what we call the back book. So it's the new ARPU for -- or ARPU for new customers, it's not materially different, it is a little bit lower, but it's not that different as it used to be in the past. So the -- all the repricing has led to this situation that we have right now.

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Henrik Herbst, Crédit Suisse AG, Research Division - Research Analyst [23]

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Well, is your back book higher than your front book? Is that what you're saying? Just so I'm correctly thinking.

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José Pedro Faria Pereira da Costa, NOS, S.G.P.S., S.A. - CFO, VP & Executive Director [24]

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The front book is slightly lower than the back book. But the gap, the difference is much slower than it used to be in the past. So the back book is repriced too much closer to the pricing that we have on the front book over a long period.

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Operator [25]

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Your next question comes from the line of Martin Hammerschmidt from Jefferies.

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Martin Michael Heinz Hammerschmidt, Jefferies LLC, Research Division - Equity Analyst [26]

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Quickly on dstelecom, is there any update in terms of phasing to reach this 900,000 to 1.2 million new households? Or anything -- any more color on the agreement would be good.

And then secondly, maybe on Másmóvil, do you have any thoughts on like what the end game could be in the Portuguese market from sort of your perspective?

And then maybe thirdly, on the dividend. I think the dividend this year will not quite be covered? And also, given the spectrum payment that come in the next year or the year afterwards by not necessarily help covering the dividend and also going forward. And if I look at the market expectations for the dividend, we have a 7% to 8% growth per annum over the next 2, 3 years. So maybe your thoughts on -- is that dividend level -- are you feeling comfortable with it? Or if you could -- any color on that would be useful.

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José Pedro Faria Pereira da Costa, NOS, S.G.P.S., S.A. - CFO, VP & Executive Director [27]

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Okay. Starting with the dividend question, it's premature at this stage to tell anything about this. This will be a Board decision, which is going to be when we announce the results for the fourth quarter.

You have mentioned in your own question a bit of the question marks that there are still in the market. Some -- we continue not to have full clarity in terms of what potentially is the cash out relating to the spectrum auction. So there is no clarity on that. But for sure, when we announce the dividend and when the Board will reflect on the dividend to propose to the AGM, eventually we'll have a bit more information regarding this. But I think at this stage, there's not much more that we can comment.

Regarding DST, the DST deal was not something that will have an impact in the short term. So we were not counting with any relevant contribution for, for instance, next year numbers. And there is no relevant development around the -- this DST agreement.

Regarding Másmóvil, there's not much that we can comment. So the only thing we know is that the acquisition has been approved by the Competition Authority. And up to now, there hasn't been any relevant change in terms of competition. And anything else you have to ask Másmóvil directly.

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Operator [28]

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Your next question comes from Shavar Halberstadt from New Street Research.

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Shavar Raid Halberstadt, New Street Research LLP - Communication Services Associate [29]

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A quick question on competition. You mentioned that above-the-line prices have come down significantly. If specifically, we can talk about mobile for a second, where Vodafone has introduced unlimited bundles, which is followed by MEO and by yourself. MEO, in fact, has also embarked on what you could call a more for less strategy with some of its other bundles. How do you see this impacting competition? And how should we view this and the potential revenue impact?

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José Pedro Faria Pereira da Costa, NOS, S.G.P.S., S.A. - CFO, VP & Executive Director [30]

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Again, on this, basically, now there are -- 3 players are having these offers in the market. Prices are still relatively high and traction for take up of these services is, for the time being, also relatively low. So the -- impacting the short terms in terms of -- the short term in terms of revenues is not of a significant magnitude we can say at this stage. So...

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Shavar Raid Halberstadt, New Street Research LLP - Communication Services Associate [31]

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No, that's understood for the short term. But so given that MEO has already responded with restructuring their tariffs to some degree, do you see that having further reverberations in the market?

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José Pedro Faria Pereira da Costa, NOS, S.G.P.S., S.A. - CFO, VP & Executive Director [32]

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No. We haven't seen anything.

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Operator [33]

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Your next question comes from the line of Mathieu Robilliard from Barclays.

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Mathieu Robilliard, Barclays Bank PLC, Research Division - Research Analyst [34]

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Few questions, please. First, on CapEx. When we think about Q4, very short-term question, but the Q4 trajectory, should it be broadly in line with what we've seen for the first 9 months, which is a slight decline?

Second, on the 5G spectrum auction, can you clarify which bands are going to be auctioned next year. I mean clearly, it's in 700, but is 3.5 gigahertz, also something that can be auctioned next year? Or is that a separate process?

And then finally, if you could remind us what is your view with regards to granting MVNO deals? I mean is that something you're completely opposed to or is it something you can consider?

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José Pedro Faria Pereira da Costa, NOS, S.G.P.S., S.A. - CFO, VP & Executive Director [35]

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Okay. So on CapEx, your view is correct. So it should look more or less at average of the first 3 quarters of the year. This should point to a small reduction in terms of overall CapEx. That's what we are expecting.

In 5G also, yes, there will be an auction around 700 and 3.5 gigahertz and...

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Mathieu Robilliard, Barclays Bank PLC, Research Division - Research Analyst [36]

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I'm sorry, on the spectrum, those bands are to be auctioned next year, is the right understanding?

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José Pedro Faria Pereira da Costa, NOS, S.G.P.S., S.A. - CFO, VP & Executive Director [37]

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Yes. Both bands will be auctioned next year, the 700 and 3.5, yes.

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Miguel Nuno Santos Almeida, NOS, S.G.P.S., S.A. - CEO & Vice-Chairman [38]

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So regarding MVNOs, we already had experience with MVNOs and MVNO contracts in the past. And of course, depending on the commercial conditions, we are always willing to discuss.

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Operator [39]

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(Operator Instructions) Your next question comes from the line of Luigi Minerva from HSBC.

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Luigi Minerva, HSBC, Research Division - Senior Analyst [40]

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Thanks for taking my two questions. The first is a follow-up on the spectrum auction. And whether in the discussions you're having with ANACOM, you have an impression that they may want to ring-fence some spectrum for the new entrant so yes, if you can give us just an update on that?

And then secondly, on the impact that the FttH deployment is having on your commercial activity. So can you describe how you -- when you overbuild FttH in the cable areas, how you managed the transition of the retail customers from cable to fiber and whether you take that as an opportunity to, for example, up-sell your customers?

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José Pedro Faria Pereira da Costa, NOS, S.G.P.S., S.A. - CFO, VP & Executive Director [41]

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Okay. Regarding 5G, there's no clarity whatsoever in the public consultation. So it's a question that you have to address to ANACOM as well. So we don't know.

On FttH, basically, on what we call the brownfield FttH, basically regions where we also have HFC. For the time being, we are doing limited transition or migration of customers from HFC to FttH. This will be more demand-driven. And so we do not have a plan to do a full migration in a short period of time. So we'll manage it along the way.

This -- again, this will be more driven by what customers ask and we know that HFC can cope well with the demands that -- average demands that we have today. So we don't have -- we are not in a hurry to do any type of migration from HFC to FttH.

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Luigi Minerva, HSBC, Research Division - Senior Analyst [42]

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Okay. And in general, if I may follow up, what impacts are you seeing from -- in the FttH area in terms of ARPU and churn? Are the FttH customers more valuable?

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José Pedro Faria Pereira da Costa, NOS, S.G.P.S., S.A. - CFO, VP & Executive Director [43]

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I'd say that more or less in line with what we already had. So we are not seeing any material difference from both the churn levels or ARPUs because ARPUs are also a reflection of market prices and what are other -- our competitors are offering. So this is more a function -- again, this is driven in this case by the overall market. So we are not seeing any relevant difference.

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Operator [44]

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There are no further questions at this time. Please continue.

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Maria João Hewitt Carrapato Moura Landau, NOS, S.G.P.S., S.A. - Head of the IR Department [45]

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Okay. Well, thanks very much for being on the call. As usual, we're available to take care of your questions post-call and meet you in the near future. Bye-Bye.