U.S. Markets closed

Edited Transcript of VIVT4.SA earnings conference call or presentation 25-Apr-18 1:00pm GMT

Q1 2018 Telefonica Brasil SA Earnings Call

Sao Paulo Apr 27, 2018 (Thomson StreetEvents) -- Edited Transcript of Telefonica Brasil SA earnings conference call or presentation Wednesday, April 25, 2018 at 1:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Christian Gebara

Telefônica Brasil S.A. - Chief Revenue Officer

* David Melcon Sanchez-Friera

Telefônica Brasil S.A. - Chief Financial & IR Officer

* Eduardo Navarro de Carvalho

Telefônica Brasil S.A. - Chairman of the Board & CEO

* Luis Carlos Da Costa Plaster

Telefônica Brasil S.A. - IR Director

================================================================================

Conference Call Participants

================================================================================

* Andre Baggio

JP Morgan Chase & Co, Research Division - Senior Analyst, Latin America Telecom, Media and Technology

* Carlos Eduardo Palhares Sequeira

Banco BTG Pactual S.A., Research Division - Head of Research and Analysis & Brazil Strategist

* Daniel Federle

Crédit Suisse AG, Research Division - Research Analyst

* Diego M. Aragão

Morgan Stanley, Research Division - Former Equity Analyst

* Frederico Mendes

Bradesco S.A. Corretora de Títulos e Valores Mobiliários, Research Division - Research Analyst

* Julio Arciniegas

RBC Capital Markets, LLC, Research Division - Analyst

* Maria Tereza Azevedo

UBS Investment Bank, Research Division - Director and Research Analyst

* Soomit Kumar Datta

New Street Research LLP - Founding Partner & Analyst of Latin America

* Susana Salaru

Itaú Corretora de Valores S.A., Research Division - Sector Head, Telecommunications, Media & Technology

================================================================================

Presentation

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

Operator [1]

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

Good morning ladies and gentlemen. At this time, we would like to welcome everyone to the Telefônica Brasil First Quarter of 2018 Earnings Conference Call. Today with us representing the management of Telefônica Brasil, we have Mr. Eduardo Navarro, CEO; Mr. Christian Gebara, COO; Mr. David Melcon, CFO and Investor Relations Officer; and Mr. Luis Plaster, IR Director.

We also have a simultaneous webcast with slide presentation on the Internet that can be accessed at the site www.telefonica.com.br/ir and [MVIQ] platform. There will be a replay facility for this call on the website. (Operator Instructions)

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the company's management beliefs and assumptions and on information currently available. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the company's future results and could cause results to differ materially from those expressed in such forward-looking statements.

Now I will turn the conference over to Mr. Luis Plaster, Investor Relations Director of Telefônica Brasil. Mr. Plaster, you may begin your conference.

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

Luis Carlos Da Costa Plaster, Telefônica Brasil S.A. - IR Director [2]

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

Good morning everybody and thank you all for joining us in this conference call for Telefônica Brasil's 2018 first quarter results. The call will be divided as follows. To start, Eduardo Navarro, our CEO, will give you an overview of our operating financial highlights for the first quarter of the year. Secondly, Christian Gebara, our COO, will go over commercial and CapEx evolution. Finally, our CFO David Melcon will comment on our digitalization initiatives, efficiency commitment and financial results. We will then move to Q&A.

But before we start, let me quickly share with you that from this quarter on, the accounting statements will include the effects of IFRS 15. That said and for better understanding of the evolution of our business, in this presentation we're presenting pro forma numbers for 2018 excluding those effects. Should you want to see our accounting evolution and main adjustments, they are presented in summary the last slide of this presentation and also in (technical difficulty). I now pass the word to Eduardo.

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

Eduardo Navarro de Carvalho, Telefônica Brasil S.A. - Chairman of the Board & CEO [3]

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

Thank you, Plaster. Good morning everybody. Thank you for taking out time to participate in our first quarter 2018 results call. At our recent Investor Day in New York held in March, we shared with you our strategy and business for the next few years. Three main pillars are positive revenue evolution; sustainable increase of margin and profitability; and a reasonable position with unique assets.

As you can see from the slides of highlights for the quarter, we are on a light pass. Our total revenues continued to grow in this quarter, represented by an increase of 4.6% year-over-year created by mobile data and digital services that grew 17.4% and fixed ultra-broadband that continues at an accelerated pace of 20.5% year-over-year.

Let me emphasize that Vivo has been growing total revenues quarter after quarter for the last 6 years, proving to be totally resilient to the Brazilian economic situation. When looking at the level of profitability, our EBITDA margin increased 1.8 percentage points year-over-year, reaching a solid 35%. Much of this is because we presented the 9 consecutive quarter with reducing cost, an impressive result that confirms and reinforce our commitment to efficiency, digitalization and recent (inaudible) to simplify our business model.

As a result of our efficient business model, we are able to present a strong 48% year-over-year increase of free cash flow which reached BRL 1 billion in the quarter. Another point to note is that our unique assets have once again allowed us to deliver another quarter of strong operational performance. We recorded the highest level of postpaid mechanisms during the first quarter since 2014 with more than 700,000, an impressive growth of 76.7% year-over-year, while in FTTH we achieved 120,000 net additions (inaudible), 71% higher than a year before. I am confident that the underlying initiatives behind these results will continue to produce positive outcomes going forward.

Moving to our key financials in Slide 4, you will see that consistent revenue evolution, combined with solid EBITDA expansion continues to result in a strong operation cash flow generation. As previous highlighted, our total revenues continue to expand with a 1.6% year-over-year growth leading by the solid performance of the high-end segments. Mobile revenue reached 4.2% year-over-year based on sustainable growth of mobile service revenues and the double-digit growth in handset sales on the back of the new position to attract high-value customers to our stores.

In terms of OpEx, we recorded a reduction again for the ninth quarter in a row, as mentioned before, reflecting the digitalization and simplification initiatives resulting in that consistent EBITDA performance. (inaudible) to grow year-over-year and the highest (inaudible) since 2013 reaching 35%, an increase of 1.8 percentage points year-over-year. In CapEx, we invested BRL 1.5 billion in the first quarter, a 16.5% increase year-over-year which translates in the 14.4% CapEx to revenue switch.

Finally, the results in a consistent double-digit cash flow generation reaching our operation cash flow to BRL 2.2 billion and 20.6% margin in the quarter.

Now I'll pass the (inaudible) to our COO. Please.

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

Christian Gebara, Telefônica Brasil S.A. - Chief Revenue Officer [4]

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

Thank you Eduardo. Good morning everyone. This was another very important first quarter for Vivo reinforcing our leadership in key segments and as Eduardo said, we grew 1.6% in total revenues in comparison to the first quarter of 2017.

Before going to the slide, I'd like to highlight our key operation initiatives and results for the first quarter. We maintain our focus on the expansion of 4G and 4G+ coverage with more than 2,700 cities covered, 364 of them with 4G-plus and increasing the use of 700 megahertz band. Our focus on the premium mobile segments continues to pay off with consistent improvement in postpaid and mobile revenues and lower churn.

We increased the commercial (inaudible) of handsets, leading to an important revenue evolution with positive margins. Our key fixed business FTTH and IPTV continue to increase at a high pace and we are accelerating that. We continue to increase the B2B digital service revenues mainly driven by IoT (inaudible) services. We continue evolving our digitalization to increase even more our differentiation, and our e-care plus for Meu Vivo already accounts for 14.7 million unique users.

Getting on to details of our main business, on Slide 5 we present the evolution of our mobile revenues which increased 4.2% year-over-year. This strong performance was reported mainly by Data and Digital Services which grew 17.4% and also by handset revenues almost 21% higher than 1 year ago. Excluding handsets, the mobile service revenues grew 3.5% year-over-year.

Moving to the right-hand side of the slide, the graph on the top shows that our postpaid revenues maintain a solid growth of 8.8%, driving up the trend of real growth observed during the last 5 quarters. For the bottom of the slide, you can see that we increased data usage growth through our more for more value proposition in this quarter. Data value represent 78% of total mobile service revenue, but is still potential to grow given that half of our customer-base does not have 4G devices yet while over 85% of the population of the technology. Moreover, there are relevant opportunities for up-selling in hybrid and family plans.

The left-hand side of Slide 6 shows that our mobile market share increased 1.4 percentage points year-over-year reaching 31.9%, with 41.4% in postpaid. In the machine-to-machine business, we continued to extend our leadership with 41.6% market share. In postpaid we had an impressive performance increasing by 727,000 our postpaid customer-base in the quarter. I would like to point out that we have the vast customer-base mix in the market with postpaid representing 49.9% of our clients, 4.2 percentage points more than in the first quarter of 2017. On the right-hand side of the slide you can see that the accelerated migration for prepaid to hybrid plans growing 39% year-over-year over the last year. Finally we continue to increase data ARPU consistently which went up 15.8% year-over-year and overall ARPU -- mobile ARPU increased 2.1%.

Moving to Slide 7, we present additional details of Vivo differentiation and strategy for monetization. On the left-hand side of the slide, you can see that we continue to have postpaid customer loyalty with our (inaudible) increasing to 0.89% leading to a total postpaid churn of 1.63%. On the bottom of the slide, we show that Vivo's leading position in the net promoter score is all customer segments and in comparison to all main competitors.

On the right-hand side you can see the Vivo Familia plans continued to play a key role in our postpaid portfolio representing 60% of Vivo postpaid additions. Here customers perceived value in the plan and I think more family members, (inaudible) a traditional alliance by 25% year-over-year. This plan also contributes for high customer loyalty with churn rate around 1%. Moreover, in the hybrid segment, the portfolio launched this quarter is already bringing positive results with 36% increase in net additions reinforcing Vivo's strategy to offer more for more mobile Internet.

Finally, we believe that digital sharing is a unique and relevant feature that adds value to Vivo's community also in the prepaid segment. In the first quarter, we reached 1 terabyte of data shared through 6.2 million transaction in the segment. This feature also raised Meu Vivo ad adoption contributing for the copper digitalization.

Moving to Slide 8, we present our fixed business performance. We continue to focus on broadband services mainly in ultra-broadband which grew 22.5% year-over-year. This quarter service revenue decreased by 2.5% year-over-year mainly due to the trend of voice decline and the global and strategic decision of (inaudible) DTH business which represented over 50% of the drop. Excluding DTH revenue, the decrease in total fixed revenues would be minus BRL 1.1 billion year-over-year.

As you can see on the right-hand side of the slide, we consistently have the relevance of our premium products. Our focus of expansion of FTTH is reflected in an impressive 54.4% growth in revenues, while IPTV which follow the same strategy presented a 66.7% growth year-over-year. I would also like to point out that the B2B will double digital service revenues year-over-year mainly through the security services and IoT. Additionally, we closed our first deals on big data which expects to be an important new revenue stream for B2B business going forward.

On Slide 9, you can see other figures to show our focus on attracting fixed customers to premium services. The left-hand side of the slide shows that our FTTH continues driving up growth. Our customer-base had a significant increase of (technical difficulty) -- of the year as we reached a record 122,000 net additions in the first quarter. We continue to increase our premium customer-base sustaining profitability which was reflected in overall growth and ARPU growth of 13.7%.

On the right-hand side of the slide present our focus on customer digitalization through IPTV. We managed to increase by 53% our IPTV customer-base which now represents 27% of our total Pay TV. In the last 12 months, our total Pay TV ARPU grew 4.6%. And the Pay TV ARPU has consistently grown for the last 11 quarters.

On Slide 10, we detail the success of FTTH strategy as announced on our Investor Day last month. We are considerably expanding our existing footprint and accelerating our learning curve for FTTH rollout. Our timing to launch a new city reduced by 30% in 2017 benefited by an increasing strategy deployment industrialization. We had a successful track record in new cities quickly leading the ultra-broadband market as you can see on the left-hand side of the slide. In the new 16 cities launched in 2017, we achieved an average take-up of 30% over installed capacity, while in the first 500 cities, the take-up already surpassed 50%. In addition we had a strong IPTV take-up in higher-income neighborhood. For instance we reached 70% take-up in (inaudible) in Rio de Janeiro.

On the right-hand side of the slide, we show our ambitious plan to capture the fiber opportunity in Brazil. We aim to more than double our total FTTH home space by 2020 starting with the addition of 2 million house (inaudible) in 2018 after expanding to more than 20 new cities. Moreover, we increased by 30% the construction of vertical structures. As a result we expect the FTTH plan to bring relevant info-tech awareness already in 2018.

On Slide 11, we show that the transforming customer experience through digital channels. We fully believe that digitalization is one of our key differentiators in the market. We have launched new functionalities in (inaudible) enhancing customer experience such as data sharing, technical supports and digital scheduling, (inaudible) and a few more future stratagem.

Furthermore, we had an artificial intelligent development. Recently we launched Aura, that artificial intelligence platform that uses voice recognition to give support to our customers. Aura has 10 functionalities available that represent around 40% of our goal times. All these initiatives are leveraged in Vivo's option and increasing the app usage. This quarter Meu Vivo unit users grew 39% year-over-year, fixed unit users grew 50% and Meu Vivo downloads in total increased 80%.

Moving on to Slide 12, we present our CapEx perspective for the next 3 years. In addition to our current plan of BRL 24 billion, I would like to highlight additional CapEx of BRL 2.5 billion to accelerate FTTH deployment. On the right-hand side of the slide you can see that we accelerated our capital (inaudible) year-over-year, but maintained our final focus on the expansion of the infrastructure for premium technologies.

We expect that fiber footprint reaching 260 cities, 89 of them with FTTH of which 65 have IPTV available. This quarter we also continue to roll out 4G which already covers 85% of the total Brazilian population, an increase of 14 percentage points year-over-year. Moreover we tripled our 4G-plus coverage of 4.5 after bringing the technology to 250 new cities during the first quarter of the year reaching a total of 364 cities where 4G-plus or 4.5 is available. Furthermore we improved the quality of our sites including fiber connected sites by 12% year-over-year.

Finally I would like to mention that our transformation IT to full stack is already in progress with migration of mobile customer-base already underway.

Now I pass it on to our CFO David Melcon.

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

David Melcon Sanchez-Friera, Telefônica Brasil S.A. - Chief Financial & IR Officer [5]

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

Good morning everyone, and thank you Christian. Moving to Slide 13, once again we reduced cost year-over-year despite of inflation and continued costs. Personnel cost increased 5.7% mainly due to an evolution in the mix of our employees to the collective agreement and to the variable remuneration of our international force. Cost of service rendered, D&A and others fell 3.6% driven by interconnection tariff reductions, lower mobile content and regulatory tax cost partially offset by higher cost related to the expansion of 4G and FTTH.

Commercial expenses excluding bad debt decreased 2.9% in the period as a result of our digitalization initiatives which are impacting mainly our commissions and billing expenses more than offsetting the growth related to the increase of our customer-base. Bad debt remains under control reaching 2.4% of gross revenues maintaining a level similar to last quarter due to the continuation of credit and collection actions and accounting stability. As a result, our EBITDA growth was a solid 7.2% on a year-over-year basis reaching 35% of EBITDA margin in the first quarter of 2018.

Moving to Slide 14, we are pleased to present a follow-up of our main KPIs of the digitalization process. As we announced at our Investor Day in New York in March, we expect to save at least BRL 1.2 billion of annual gross OpEx savings by 2020 arising from digitalization initiatives. Let me present some examples of how we are aiming to achieve these savings and what we already deliver in the first quarter of the year. A 60% year-over-year increase of online fixed B2C sales. The percentage of digital top-ups increased 4 percentage points year-over-year reaching 22%.

We have 5 million new customers -- new users of Meu Vivo app; a 23% year-over-year decrease of cost to our call centers. Penetration of e-billing reached 44% of our total customer-base. More than 60% of credit scoring are made through digital channels. 15% of our point-of-sales are already operating on the full stack platform and 16% of all the technical supports are already digital.

Turning to Slide 15, I would also like to present the main lines impacted by digitalization initiatives. We said we'd do in the last quarters that 1/3 of our total OpEx could be addressed by the digitalization initiatives. That said, we already reduced 6% of the cost between the digitalization perimeter when compared to the first quarter of the previous year.

Billing and posting cost reduced 15%, mainly due to our sales-force efforts to include new and current customers in the billing solution. Call center calls dropped 10% year-over-year due to the increase of digital interactions to our e-care app, website, Facebook and others.

Installation and maintenance cost reduced by 7% in comparison to the same period of last year. As digitalization and Meu Vivo penetration goes up, physical top-ups have been losing relevance, decreasing 21% year-over-year. All these initiatives combining important savings with an enhanced customer experience would drive our company to maintain our EBITDA growth during the coming years.

Moving to Slide 16, net income for the first quarter 2018 reached BRL 1.1 billion, again representing a solid double-digit annual expansion of 10%. The main drivers of these results were the increase in EBITDA, lower interest rates, and lower leverage, partially offset by higher depreciation and amortization and tax expenses.

Turning to Slide 17, in the first quarter 2018, our free cash flow from business activity reached an impressive BRL 1 billion, BRL 326 million higher than the previous year. This performance in cash flow generation is a direct result of a solid EBITDA evolution, better financial results due to lower interest rates in the period and improved management of working capital.

The shareholder remuneration of BRL 4.6 billion related to 2017 net income will be paid in 2 tranches. In August, we will pay BRL 2.4 billion and in December we will pay BRL 2.2 billion related to the dividends and interest on capital declared last year.

To conclude, we continued to improve our financial structure through a strong cash flow generation. Our net debt decreased 19% versus December '17, reducing our leverage from 0.26x annual EBITDA in December 2017 to 0.21x annual EBITDA in March 2018.

Thank you. And now we can move to the Q&A.

================================================================================

Questions and Answers

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

Operator [1]

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

The floor is now open for questions. (Operator Instructions) Your first question is from Maria Azevedo of UBS.

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

Maria Tereza Azevedo, UBS Investment Bank, Research Division - Director and Research Analyst [2]

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

Our first question is on mobile data. Can you please comment on what drove the mobile Internet data pressure in this quarter? And if you see data pricing issues presenting higher postpaid ARPU growth going forward?

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

Christian Gebara, Telefônica Brasil S.A. - Chief Revenue Officer [3]

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

Hi Maria, this is Christian. Actually we reported a growth of 17.4% in data -- in mobile data revenue, so I think it's positive results and if you look all the numbers -- also the other number that we shared, no, I think the solid growth in the postpaid, and a solid growth also in net adds for postpaid. Also what you see is positive results. Of course when you compare the inflation rate that we had 1 year before with the inflation rate that we have today, there is a difference also in the absolute number of the growth can be also impacted by that, but we are positive that we are going the right direction with a strong growth in data that already represent 70% or 80% of our mobile total service revenues. Now -- and ARPU -- data ARPU by itself is increasing 15.8% and the total ARPU that is very strong already, 28.6% also with a general and total growth of 2.1%. So in our terms, it's positive results for data.

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

Maria Tereza Azevedo, UBS Investment Bank, Research Division - Director and Research Analyst [4]

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

Sorry Christian, I meant on the Internet mobile data, there was a pressure in this quarter and it was offset by the growth in digital services and VAS. So I'm just trying to understand what is driving the Internet mobile data pressure in the quarter? And how much can you offset?

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

Christian Gebara, Telefônica Brasil S.A. - Chief Revenue Officer [5]

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

Okay. That's -- now I got your question, okay? Because also we are bundling with digital services, so there is the bundle -- the mix of what digital -- what data has changed. So a migration more for digital servers in (inaudible) data. But in terms of data adoption, what we see is a positive outcome. It is a lot of migration from prepaid to hybrid. More penetration of 4G smart (inaudible), but as you -- if you look at the number, as you look in the data by itself, the line, there is a migration to digital service. That's why we reported the 2 of them together. Because we included digital services in all our plans, okay? It's different from what we had in the year before.

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

Maria Tereza Azevedo, UBS Investment Bank, Research Division - Director and Research Analyst [6]

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

And then as a follow-up question, can you please comment on the B2B prospects? Do you see room for macro recovery or how do you see the competition in B2B, specially coming from regional ISP providers?

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

Christian Gebara, Telefônica Brasil S.A. - Chief Revenue Officer [7]

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

Yes, I think the B2B as we said in previous calls, now it's very aligned with economic recovery. So it's -- we see a slow recovery, but we have been able to capture a part of this growth. We've been recovering well in B2B mobile business. We are expanding Internet also in B2B and actually I think I said in previous calls that our deployment of Internet network may be outside Sao Paulo, now it's very driven -- both B2C and B2B in the past was too much driven for -- to B2C. And we started also selling much more digital services. And also if you look at the data and IT line that we reported in the fixed, there is a very slight but positive growth in revenues. And we also -- I mentioned like the growth in security, in cloud, in IoT, so we are positive about the trend of B2B. We don't give guidance, but of course we also depend a lot of the recovery of the economy that's being very smooth, no, so far.

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

Operator [8]

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

The next question is from Andre Baggio of JP Morgan.

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

Andre Baggio, JP Morgan Chase & Co, Research Division - Senior Analyst, Latin America Telecom, Media and Technology [9]

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

So I have in fact 2 questions. The first one is -- somehow relates to Maria's question which is that what is expected to see in terms of recovery of the whole fixed line because we have seen this is declining at different rates, but do you think that's the economy, the better [GP] can put that into positive territory again, or what do you think is needed?

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

Christian Gebara, Telefônica Brasil S.A. - Chief Revenue Officer [10]

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

Hi, Andre, this is Christian again. As I reported, no, I think the fixed in total, it was affected by -- there is a voice decline that I've said before. There is the DTH, our strategy to focus in IPTV rather than DTH, so it excludes what DTH represents in the total fixed revenues. The decline would be at 1.1 rather than 2.5, so DTH is like responsible for 50% of the drop. And again, it's a strategic decision that we took to focus on IPTV. If you look our footprint of IPTV, out of our 89 cities where we have IPTV, we are ready with 65 that we operate IPTV and we are growing revenues above 66%. So going forward, we see IPTV growing and representing more and more of Pay TV, so Pay TV in global, the number would be more positive. Rather than that, additional to data, I think there is the ultra-broadband, also we grew 32.5% (inaudible) ultra-broadband and here we are adding [SPTC] where -- FTTH. If I just focus in FTTH, the growth would be 54.4%. Consider that we deployed 16 cities last year, that we are deploying more than 30 cities this year, that we're increasing our home [pads] from 7 million to more than 9 million this year reaching above 14 million home pads in 2020 as we said also New York, we are expecting the growth to be more positive in the FX. Now, with the guidance again, but we are searching in these technologies about FTTH and IPTV and we expect that to drive growth going forward. And also to finalize and then I think Eduardo will complement, in the B2B the fixed business results also depend on some contracts that we close, so maybe when you see our third quarter of last year was very positive because also we got a very important contract in B2B, so we're going to see also some -- maybe some evolution that may differ quarter by quarter because of the presence of B2B. But also going forward, the ultra-broadband will benefit both B2C and B2B.

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

Eduardo Navarro de Carvalho, Telefônica Brasil S.A. - Chairman of the Board & CEO [11]

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

Just to complement (inaudible), we are very confident on these 2 drop-off business of existing business. Now, we see is 2 fixed business, the old one, the latest one is the new one. Now the old one is everything related to voice, to DTH, it's rolled (inaudible); and everything related to the new, that's IPTV, that's fiber, it's growing very, very fast. It's growing above 50% of revenues. And all the investment that we're doing, we're doing with (inaudible). So I feel that as Christian has explained one -- a 60% of the decrease of the (inaudible) is now is devoted to DTH, it has been an absolutely conscious decision of B2C raising a lot of money in the future. Again we are not giving a guidance. The (inaudible) is going out, but (inaudible) is it will come and we are absolutely confident over the future of this -- we are absolutely confident on the future of this business.

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

Andre Baggio, JP Morgan Chase & Co, Research Division - Senior Analyst, Latin America Telecom, Media and Technology [12]

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

And (inaudible) the government has (inaudible) there will be a package dealing on the (inaudible) on the project of the [PL 79], do you think it's -- it is a positive sign that's like eventually things are kind of moving and how confident you are that it will be this year or next year? And any other impact for Vivo?

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

Eduardo Navarro de Carvalho, Telefônica Brasil S.A. - Chairman of the Board & CEO [13]

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

That is (inaudible). No, we continue to be confident on the approval, not the -- (inaudible) I've seen it stop (inaudible), do I have a confession that we should not stay like we are, spending money in public floors and things like it. I told to them that this reading on the May 8th will be a turning point. I think it will be very -- mid-August it will be very good to feel what's the (inaudible). I think what we have to understand, no, is that we have some windows to approve this project this year. I'll say that one of those windows will be until mid of June. Then we are going to enter in World Cup or holidays and elections, then I see that if you're not approved on -- until mid of June, it will be difficult to be approved before the elections. Then I have another windows that -- another -- after the elections, November and mid of December could be another good opportunity here to be discussing this project. We are confident now that this could be approved in those periods. If not, no, it could be next year. We are not in a hurry to approve this. I said it will be good for us, we're not in a hurry to approve this. And in the meantime, we are preparing internally to win the [Lloyd] approval. We are not completely -- it takes the case of what (inaudible) that could be sold, and we are even preparing to the case that the Lloyd is not involved. We have raised a decision on it (inaudible), that's the Federal 46 in Brazil that every asset that are not being used in the services could be sold. These again -- this is not a forced -- this is not a final decision, only the first state decision, but it's very positive on the understanding of what's it and what's not (inaudible). Again, it's just in summarize, we are confident that's going to be approved. (inaudible) that people actions work up, it's going to grow through this year. Yes, we have some wins of opponents, and we are preparing to -- when the law is approved will be read to (inaudible) and to move very fast in immigration, and even in the case, it's -- that again I do not consider to be the most probably one that the law is not approved, we are working in ways that we could divest on our assets that are being used.

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

Operator [14]

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

The next question comes from Julio Arciniegas of RBC.

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

Julio Arciniegas, RBC Capital Markets, LLC, Research Division - Analyst [15]

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

My first question is regarding Oi. Oi has been competing in the market without 4G and with corporate network. However, it seems that Oi will be back with higher investments for 5 around 4G after the debt restructuring process. Do you see any risk the market in Brazil is going to become more competitive with the comeback of Oi? And my second question is regarding that BRL 1.2 billion worth savings from the utilization, can you give us some color on how these savings translate into net or are they impacting EBITDA?

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

Christian Gebara, Telefônica Brasil S.A. - Chief Revenue Officer [16]

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

I think Oi is a relevant competitor, so I think they -- as I said, maybe they are not so strong in 4G. Actually we haven't seen this new deployment that you mentioned, but I think they are still playing strongly in the mobile or the prepaid. They have like the fixed business in most of the cities of the country. So we see them as a relevant competitor, and I think it will continue. I cannot foresee what's going to happen if they have more investment, if they do more for sure they do more in fixed. So for the moment we see them playing -- see them what they played in the quarters before and again is relevant player for us. In digitalization, and maybe David can give you more flavor, but as I said we are putting a lot of effort increasing the Meu people adoption. We have a very good number of 14 million -- more than 14 million unique users using this service. What is the impact that we see in our results? We see call reduction in the call center and I think we gave some numbers in the investors. We see also a increase in the e-billing adoption. We run like almost 45% of our customer-base already would be billing, but the most important part of it is out of home stores, when we are selling more buyer, we are having 75% adoption. And as we said we out of our cost-base, 1/3 has the potential to de-digitalize and that we are like -- we gave some numbers and I think that we can give you more details of how do we see that evolving. So our main focus will be in using e-care and using e-commerce as both sources of cost reduction both in our e-care -- our caring activities, but also in our commission activities through the e-commerce, and the numbers as we said out of our total cost, 1/3 with the potential to be reduced digitalization and the (inaudible).

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

Eduardo Navarro de Carvalho, Telefônica Brasil S.A. - Chairman of the Board & CEO [17]

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

Just let me just also complement. And thing we are working on 2 areas. One is we want to reduce our -- the non-quality costs, so costs that are not adding value to the customer and therefore we want to eliminate. So this is impacting every single line of our P&L. And then we are using those savings to reinvest in areas and in activities that are really adding value to our customer, and we are investing more in digitalization to bring new solutions that will bring additional revenues plus additional profitability. So we are working on these, we have a total base of more than BRL 10 billion per annum which is the total cost that we are trying to address, and we are seeing very good results as Christian explained and as we are also showing on these slides. There is more than double-digit in all the main activities that I'd say are non-quality-accretive.

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

Operator [18]

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

The next question is from Susana Salaru of Itau.

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

Susana Salaru, Itaú Corretora de Valores S.A., Research Division - Sector Head, Telecommunications, Media & Technology [19]

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

The first one we have was -- is related to the significant increase in the top-up online, 21%, just want to understand if there is some initiatives to motivate prepaid clients to do top-ups online and if you have a target to be reaching -- what percentage is the target in terms of top-ups that you aim to reach? That's our first question. And the second one, if you could elaborate a bit on the FTTH expansion in the new cities, what's the sales strategy? You are grabbing clients from other players, you have to give discount for the value proposition itself. Is it strong enough to attract new subscribers? That's it.

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

Christian Gebara, Telefônica Brasil S.A. - Chief Revenue Officer [20]

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

Hi Susan, this is Christian. Yes, we are trying to do as much as we can top-ups digitally. There are marketing campaigns and we could benefit, we give extra data for customers using digital top-up channels. It varies depending on the frequency and the size of the top-up going up to 1 gigabyte per month, okay? So it depends a lot on the -- as again in the size and in the frequency, but we are -- you are putting some incentives and we are doing marketing campaigns for people to use this channel. In the second question about the new cities, it's -- yes, we are attracting customers from others. Now, there is -- include all the types of competitors they may have. It can be copper competitor, it can be cable competitor or it can be fiber local competitor. Our value position mostly of them is driven by the strong brand that we have, the strong channel that we have, more speed that we offer and also we are offering fiber to the home. It's not everyone, as I mentioned before, that's offering that. That can range to 100 megabytes to 300 megabytes, and also we have a Pay TV in the new cities. So it's also something very unique from Vivo. And of course we are not doing bundles, but of course over our postpaid customer-base, we have some cost benefits and I think I explained in other calls, we give more data for more buyer postpaid customers when they also become fixed. So I think the combination of everything, best products because I think fiber, when you get the speed and the quality of the IPTV is unique. We have a strong brand, we have the channel prepared to receive and to sell to these customers and of course we have some benefits for our cross-selling.

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

Operator [21]

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

The next question is from Diego Aragão of Goldman Sachs.

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

Diego M. Aragão, Morgan Stanley, Research Division - Former Equity Analyst [22]

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

Two questions if I may. The first one is regarding your margin. It has been very -- quite interesting to track the benefits from digitalization of several network management and CRM process for telcos. So my question for you is, for how long will Vivo benefit from such a trend especially considering the fact that you have basically 4 different companies, let's say, like mobile FTTH, DTH, and there might be a different stage in terms of digitalization?

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

Eduardo Navarro de Carvalho, Telefônica Brasil S.A. - Chairman of the Board & CEO [23]

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

I think first of all, I would not say that have 4 companies, no, I think that we are fully integrated in terms of structure, in terms of sales, marketing.

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

Christian Gebara, Telefônica Brasil S.A. - Chief Revenue Officer [24]

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

Yes.

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

Eduardo Navarro de Carvalho, Telefônica Brasil S.A. - Chairman of the Board & CEO [25]

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

No, the answer no for this introduction. And --

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

Christian Gebara, Telefônica Brasil S.A. - Chief Revenue Officer [26]

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

Yes, and I think that's correct and I think also we talked in previous calls as well about our IT transformation. So we are transforming IT in the whole company, we are blowing to a full stack model and that's going to help us a lot in digitalization. In this case maybe you are right, the stage of development is different among our segments. We are much more developed in the mobile B2C. We already migrating customers to the full stack solution. Next steps will be the fixed B2C, but in parallel we are launching a full stack also a project with the B2B. So I guess today B2B may lag behind, but we already put in place the project to help on the digitalization. So going forward in the next 2 years-3 years is going to have the full customer-base already full stack model and that's going to help us a lot in digitalization. And also I think the view complements, but I think it's important to mention that digitalization is happening in the front end, but we're also doing digitalization internally making our process more automated as a process that the customer doesn't see as the end-process, but helping us also to reduce cost internally. David, I don't know if you want to comment?

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

David Melcon Sanchez-Friera, Telefônica Brasil S.A. - Chief Financial & IR Officer [27]

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

Hi Diego, just remains to complement, we are seeing that all the improvement we're seeing on the margin over the last couple of years have been from internal structural changes. Now we expect it to continue. Also in New York in March, we shared with you that our aim is to have an operating cash flow margin, I think [OIBDA] minus CapEx of the revenues margin by 2020 of 20% and this will be a combination of being more efficient on CapEx, but also to improve our OIBDA margin. So we -- to answer your question, yes, we are planning to continue with those trends.

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

Eduardo Navarro de Carvalho, Telefônica Brasil S.A. - Chairman of the Board & CEO [28]

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

And Diego, this is Eduardo, just to complement, we believe now that we are in the beginning of this journey. There is a lot to be done. I think we have just been touching some of the opportunities, and we are very confident that in the next few years there's a lot to be captured and again I feel that we are in the beginning of the journey.

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

Diego M. Aragão, Morgan Stanley, Research Division - Former Equity Analyst [29]

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

Just let me correct myself, I was referring to technologies, not companies, sorry about that. So look, the second question is actually just a follow-up regarding the fixed business. Is there any change more recently to your FTTH strategy? I mean, I'm asking this because we note that you started to sell naked broadband instead of keep focus on the [triplay] bundle with Pay TV more recently. So what was the rationale behind that and how this could eventually impact your investments and returns?

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

Christian Gebara, Telefônica Brasil S.A. - Chief Revenue Officer [30]

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

It has -- (inaudible) question, it hasn't changed our strategy, we just opened the possibility for customers who just want the broadband and the other one, the voice. The price of the surface individually is higher, but of course we opened this opportunity, it's a small percentage of our sales, it's related to this, but it's much more a marketing strategy to have the possibility for customers rather than a change in strategy. I think the strategy remains the same and after what we presented in New York Investor Day, it's more focused on FTTH and IPTV as we described before.

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

Operator [31]

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

The next question is from Fred Mendes of Bradesco.

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

Frederico Mendes, Bradesco S.A. Corretora de Títulos e Valores Mobiliários, Research Division - Research Analyst [32]

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

I have 2 questions. The first one, I mean we saw a reduction in the ARPU for the postpaid segment ex (inaudible) when you look at it quarter-over-quarter. It was very minimal of course, but to just get (inaudible) because suppose you didn't have a price increase and the (inaudible) paid on November and also the hybrid segment on the February, so just maybe expecting an increase in ARPU, especially also once you consider the increase in the VAT and of course a higher efficiency in terms of tax rate? So that will be the first question. And then I think the second question also related to digitalization, if you want your (inaudible) savings that you have in the first Q, in our calculation here you get something like BRL 550 million for '18 for a guidance of BRL 1.2 billion and (inaudible), so it is a bit conservative, so just I want to make sure that (inaudible) is correct and it may be soon to revise this guidance as you move forward?

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

David Melcon Sanchez-Friera, Telefônica Brasil S.A. - Chief Financial & IR Officer [33]

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

Hi Fred, it is David, I will take the second question. In the -- the fact that we have BRL 1.2 billion in the years is (inaudible), so we think as Eduardo mentioned this is a journey where we have this discussion. I don't think we can just see one quarter on a standalone basis, I think this is more the trend and our plan is to deliver more than BRL 1.2 billion, as we said is the meaning, so I think we are as I say changing -- transforming the structure of the company and we will accelerate the sales.

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

Christian Gebara, Telefônica Brasil S.A. - Chief Revenue Officer [34]

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

As far as -- regarding -- this is Christian, regarding the first one, it's more of a mix in the postpaid. I think if you look, we accelerated strongly the net adds and the net adds are lot driven by the hybrid control. So with this strong performance, the control, it may impact significant, it's very small impact in the ARPU versus the fourth quarter. And also there are some changes of the price increase depending on the inflation that we put, but it's mainly the mix that we had in hybrid and postpaid, it's nothing more than that.

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

Frederico Mendes, Bradesco S.A. Corretora de Títulos e Valores Mobiliários, Research Division - Research Analyst [35]

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

Just because the -- on the (inaudible), I do understand this -- definitely this movement of the strong net adds, but when I'm looking like year-over-year, there was an increase, so maybe there was increase in ARPU, so maybe the higher base also played out. So I just want to know if I was missing something quarter-over-quarter, but I did think that it makes sense.

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

Unidentified Company Representative, [36]

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

And I think that and also the inflation and the price -- that the price impact, if you see what we did in the end of 2016, the increase was very high, inflation was around 12%, (inaudible) the same way in the last quarter of last year impacting the results for this quarter. But it's more of the mix, okay, the hybrid and postpaid.

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

Operator [37]

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

The next question is from Carlos Sequeira of BTG Pactual.

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

Carlos Eduardo Palhares Sequeira, Banco BTG Pactual S.A., Research Division - Head of Research and Analysis & Brazil Strategist [38]

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

I have just one question and it really relates to the competitive environment on the mobile portion of the business. We are seeing some of your competitors coming up with new promotions, slightly more aggressive on pricing and I'm just wondering how you were seeing competition and if you feel like you need to make any moves to face this new packages and terms offered by your peers?

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

Christian Gebara, Telefônica Brasil S.A. - Chief Revenue Officer [39]

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

Carlos, I think -- that's Christian again, okay? As we show we keep attracting customers, we keep reducing churn and we keep with the highest quality level perceived by customers. So customer -- number of customer-wise, we are confident we are in the right strategy. Of course when there are some aggressiveness in promotions, in prices, we are driving the whole market down in price per mega or price per plan. We responded to that with the more for more strategy as we described in previous calls, very focused if there is a migration from prepaid to hybrid, focus in the family plan, adding more family members to their plan. So we are responding with the intrinsic attributes that we have for people. Now, again also I mentioned the 4G plans. We are ahead of others in the coverage of this technology and part -- in part of the part of our fixed strategy to deploy fiber is also to protect our postpaid customers apart from the opportunity of capturing a client that demanding for more speeding ultra-broadband, we are also preparing ourselves to be a company who offer total service to these customers. So of course any promotion, any aggressiveness in price moves the market, but we're being able to be defend and to be still very effective with records of net adds and with the churn in a very low level.

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

Operator [40]

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

The next question is from Daniel Federle of Crédit Suisse.

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

Daniel Federle, Crédit Suisse AG, Research Division - Research Analyst [41]

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

The first one is regarding the margin the handset operations. We saw that the gross margin increased significantly this quarter. So I'd like to see that that's the new trend, that's a recurring margin or this quarter was exceptionally good in this sense? And the second question is regarding gross revenues growth in the mobile segment, we are seeing growth gradually declining, so we would like to understand if this smaller growth is coming from challenging scenario in the prepaid market or mostly in the postpaid market?

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

Christian Gebara, Telefônica Brasil S.A. - Chief Revenue Officer [42]

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

Look, (inaudible). This is Christian here. In the handset, supported to qualify we are -- our strategy handset used to be very focused only through postpaid and with subsidies for customers with higher plans. What we are now doing is that we're increasing sales also for customers that are not in this postpaid plan and want to buy a smartphone without any subsidies. And we've been successful on that, so margin is positive and we are not using subsidies to increase the sales of handset. So only to clarify our strategy, so going forward we continue to grow from this line, and we want to position ourselves as a store where you can buy services and you can buy handset, and (inaudible) subsidies if you want to postpaid plans -- postpaid plan in the top, but can also be for a hybrid or prepaid with a margin in the sale of these devices. Talking about the gross and the net, I think David --

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

David Melcon Sanchez-Friera, Telefônica Brasil S.A. - Chief Financial & IR Officer [43]

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

Yes, I believe your question is more about the trends on the gross, right, the gross revenue?

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

Daniel Federle, Crédit Suisse AG, Research Division - Research Analyst [44]

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

No, it's -- no, the second question is more related to the growth revenues -- the revenues growth in the mobile segment because growth has been gradually declining. So I would like to understand if it is a consequence of a challenging scenario in the prepaid market like market conditions are not so good at this moment or it's more like declining prices in the postpaid, so just understand if prepaid is the measure of the (inaudible)?

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

David Melcon Sanchez-Friera, Telefônica Brasil S.A. - Chief Financial & IR Officer [45]

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

Okay. I was talking about the margin. I was talking about the margin. Okay. Here there are many answers, okay? I think the first one is the inflation, so as I said in the -- if you look the price increase that we had 1 year ago was above 10%-12% in all services. This inflation at that time allowed us to do that. It's very different from the change in prices that we had in the last quarter, so that's the first impact. So as Eduardo said in the beginning, real terms, you consider a growth in the mobile is very positive, but of course we are dealing with a different scenario for inflation for corrections in the plan. Also it's important also to note that Vivo has been growing revenues in mobile services for many years. So we watched on a customer-base and our revenue-base much higher than others. Prepaid I see -- we had 2 effects; economic recovery is still not there, unemployment is still very high. That's impacting the prepaid results, but also we've been more successful than ever in migrating prepaid to postpaid. So it's difficult to segregate in an isolated way because when you migrate to hybrid you are bringing the best prepaid customers whenever, but to a different level and we are retaining the revenues in much more frequency in a much better ARPU through this regulation. And Vivo also is being very successful doing that for many years. We see now other competitors in the market doing the same of something that we started 4 or 5 years ago. And of course, as also responded to Carlos, while there is a lot of promotion in the market, we are defending our customer-base at a very low churn, we're still attracting the best customers, but of course we have to adequate our value proposition for more for more depending on the prices being defined by the market. So I think it's a combination of all these factors.

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

Operator [46]

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

The next question is from Soomit Datta of New Street Research.

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

Soomit Kumar Datta, New Street Research LLP - Founding Partner & Analyst of Latin America [47]

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

Just question on fiber strategy please. We're hearing from Oi that they're planning on rolling about 2 million fiber to the homes out and per year and (inaudible) ambitions out there which they've stated and we're also seeing [Clara] which I think at the moment is steering particularly well at migrating from broadband customers to ultra-broadband, so they seem to be kind of winning that part of the market for the time being. And I'm just curious how do you think about the overall ambitions of everybody trying to pass homes with ultra-broadband and do you think we end up with a risk of a potential price war in a year or two's time?

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

Christian Gebara, Telefônica Brasil S.A. - Chief Revenue Officer [48]

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

Hi, this is Christian. So if you look at the Brazilian broadband market and we see -- consider like an odd of the 65 million homes that we have broadband, we are talking about lower the half of it and if you consider only the homes with broadband, only 7% of them at ultra-broadband. So I think there is a serious opportunity here for broadband deployment in Brazil -- ultra-broadband deployment in Brazil, and there is room for more than one player. So we consider like the 5,000 municipalities or cities that we have in Brazil, we are talking about more than a 10% with ultra-broadband actually now-a-days. So we see that as a great opportunity for us to deploy ultra-broadband. Now, we -- I think here in Vivo we have some attributes that make this opportunity even higher for us. So I think first is there is a market context. Ultra-broadband is not deployed in Brazil. There is very low penetration if you compare to any country with any type of developed or even not-so-developed countries, our percentage of ultra-broadband is very low. Vivo adds first the expertise to do fiber, okay, we've been doing that for many years. I think we -- when they ask us why we haven't deployed more fiber in the past because I think we needed to have (inaudible), and today we have it. We have the scale of the group to do that better, okay? The group has been very successful doing fiber in Spain. (inaudible) with what we have in fiber, that is more than any other bigger, larger countries in the continent. We're doing technology (inaudible) fiber to the home, it's different to other technologies that we described, so I think the only one we (inaudible) from deployment of fiber to the home in the market -- in Brazilian market today is Vivo. We are doing that, levering also our channel. As I said before, okay, we have a channel -- commercial channel deployed in every single city that we deployed that. So that's also give us another advantage. We have a very strong brand that recognized the quality and good customer care and we have the mobile customer-base that in the end is going to play a important role when we have to totalize customers that we're going to have both of them. So we are very confident that this new opportunity, it's very clear for Vivo, that's why we also said that we're going to invest more, the BRL 2.5 billion that we said, and we are like doubling the home pad that we have to-date, 7 billion -- 7 million to more than 14 million in 3 years. So of course we will face competition that I think is part of the game. And again out of this 5,000, we are analyzing the possibility of entering in 400-500. Out of this 400-500, we're going to get to a part of it. So there are so many municipalities, there are so many cities that we can share this country in more players, but even if we compete in the same, I think we have all the attributes to be the winner, technology, mobile customer-base and also expertise to the better.

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

Eduardo Navarro de Carvalho, Telefônica Brasil S.A. - Chairman of the Board & CEO [49]

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

Yes, I think just one just to complement, even if you go to large cities like Brasilia, (inaudible) Rio de Janeiro, Sao Paulo, there are a few very, very -- to which areas in those cities that are not (inaudible). The marketing is huge. I do not see now if in our horizon some price war, so I think it's market for all. Again, like (inaudible) has said, that we had (inaudible), we have been able to utilize, but again we are very, very confident on the future of this business.

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

Operator [50]

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

This concludes our question-and-answer session. At this time I would like to turn the floor back to Mr. Eduardo Navarro for closing remarks.

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

Eduardo Navarro de Carvalho, Telefônica Brasil S.A. - Chairman of the Board & CEO [51]

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

I would like to thank you very much for participation, for participating in this. I think in the meantime we're going to meet some of you in isolated events now, and I'll meet all of you in (inaudible). Thank you very much again and hope to see you soon. Bye-bye.

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

Operator [52]

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

Thank you. This concludes today's Telefônica Brasil first quarter 2018 results conference call. You may disconnect your lines at this time.