Ladies and gentlemen, thank you for standing by, and welcome to the Telefónica's January to September 2019 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question- and- answer session. If you would like to ask a question, please press star one on your telephone keypad. If you should require any assistance during this call, please press star zero. As a reminder, today's conference is being recorded. I would now like to turn the call over to Mr. Pablo Eguirón, Global Director of Investor Relations. Please go ahead, sir.
Good morning, welcome to Telefónica conference call to discuss January to September 2019 results. I'm Pablo Eguirón, Head of Investor Relations. Before proceeding, let me mention that financial information contained in this document related to the third quarter 2019 has been prepared under International Financial Reporting Standards as adopted by the European Union. From the 1st of January 2019, we implemented IFRS 16. In organic terms, the effects of the accounting change to IFRS 16 are excluded in 2019. This financial information is unaudited. This conference call webcast, including the Q&A session, may contain forward-looking statements and information relating to Telefónica Group. These statements may include financial or operating forecasts and estimates based on assumptions or statements regarding plans, objectives, and expectations that make reference to different matters. All forward-looking statements involve risks, uncertainties, and contingencies, many of which are beyond the company's control.
We encourage you to review our publicly available disclosure documents filed with the relevant securities market regulators. If you don't have a copy of the relevant press release and the slides, please contact Telefónica Investor Relations team in Madrid or London. Let me turn the call over to our Chief Operating Officer, Mr. Ángel Vilá.
Thank you, Pablo. Good morning, and welcome to Telefónica's Third Quarter Results Conference Call. Today with me is Laura Abasolo, Chief Financial and Control Officer. Following our presentation, we will host a Q&A session and invite you to ask any questions you may have. We are pleased to present a solid set of results, advancing on our strategy execution, as summarized on slide one. First, we continue gaining relevance. Through larger and technologically more advanced networks, we are ultra broadband leaders in Spain and Latin America, already accessing 123 million premises passed worldwide, of which 54 million with our own network. On top, we are number one in virtualization, with approximately 100 million customers already in full stack and artificial intelligence. This makes us more relevant to our customers, which are more valuable and loyal.
Churn comes down. Average revenue per access grew 4.3% year-on-year in the quarter. Second, we deliver sustainable and profitable growth. Revenues are back to reported annual growth in the quarter at +1.7%. Organic OIBDA grew close to 1% year-on-year, with even stronger free cash flow growth in the first nine months, up 40.3% year-on-year. Third, we remain focused on improving returns through being simpler and more efficient and via enhancing our financial flexibility. We continue switching off legacy. More than 400 copper central offices closed so far in Spain. During the last few months, we have signed sharing agreements with TIM and American Tower in Brazil and with Vodafone for mobile in the U.K. and cable in Germany. Balance sheet-wise, this is the 10th straight quarter of net debt reduction, with average debt maturity at above 10 years.
Let me conclude saying that portfolio management remains a core focus to further improve our returns going forward. As shown on slide two, we are accelerating strategic actions. We're executing on efficiencies. Spain's new workforce restructuring program will result into annual direct savings from 2020 of approximately EUR 210 million. 80% of the group's annual target of digitalization savings for 2019 have already been achieved through September. The copper network switch off in Spain progresses well, with 157 central offices closed in the quarter and 2,000 expected by 2021. Second, on portfolio management. Monetization of the mobile telecom infrastructure is a priority for the next months, and we have just started with tower sales during this quarter in Spain, Peru, and Chile to Telxius. Brazil, Germany, and U.K. are to follow in the coming quarters. Third, we are reaching agreements with new partners to further enrich our value proposition.
We created a 50/50 JV with Prosegur, a growth opportunity in the residential business security services market. We have announced as well the creation of a 50/50 joint venture with Atresmedia to produce and distribute Spanish fiction series for both companies and third parties. Fourth, we are introducing new alternative models to accelerate fiber expansion with less CapEx and reduced time to market. As such, we signed a partnership in Brazil with American Tower and are franchising through the Terra brand. Key operating metrics are shown on slide three. Robust momentum continued in high-value accesses, with double-digit increase in both fiber cable and LTE. Fiber penetration over fixed broadband has reached 67%. It was 59% a year ago, whilst LTE over total mobile stands at 54%, 44% a year ago.
This backs both a 4.3% increase in the average revenue per access and 20 basis points of churn sequential improvement, all helping to make our business more sustainable via increased customer lifetime value, which exceeded eight years for our U.K. mobile contract customers and five years for our Spanish Fusión clients. Turning to slide four, we summarize this quarter's key financial metrics. I would start by mentioning that third quarter reported figures include a significant provision in Spain related to the mentioned workforce restructuring, as well as other non-recurrent factors that Laura will explain in detail later on. Effects and negative effects from regulation also impact reported figures. Revenues surpassed the EUR 11.9 billion mark in the quarter, showing both organic and reported growth. Underlying OIBDA exceeded EUR 4.2 billion, and organic OIBDA grew 1.1% up to September.
Free cash flow generation remained solid, totaling EUR 1.4 billion in the quarter or EUR 4.1 billion up to September. Underlying earnings per share reached EUR 0.47 per share. Finally, and noticeably, net financial debt decreased 8% in the last 12 months to EUR 38.3 billion. Let's move to slide five. We are right on track to fulfill our 2019 guidance, as our nine months results are aligned with internal expectations. We expect to exceed the revenue guidance. Q4 OIBDA is expected to be solid across regions, and we reiterate our full year goal of growing organically around 2% OIBDA level. As for the first tranche of 2019 dividend, EUR 0.2 per share in cash, it will be paid on the next 19th of December. On slide six, we go through growth trends in revenue and OIBDA during the quarter, consistent with our solid fundamentals.
Latin America remains a growth contributor, with Europe improving its momentum, driven by improvements in Spain and Germany and solid growth in the U.K. Revenue mix continues its transformation progress, with 55% of revenues already coming from broadband and services beyond connectivity, two percentage points higher than a year ago. Digital revenues increased at 17.4% versus Q3 2018 in organic terms, while B2B sales maintained momentum at +3.7%, all supporting our sustainable growth trends. OIBDA improved trends in Q3 main markets like Spain, Germany and Brazil, while maintain a very strong performance in the U.K. Moving to slide seven, the B2B segment, which is 20% of group revenues, keeps its momentum with allowing to meet single digit revenue growth in both Europe and LATAM. Our strong and flexible portfolio and customer focus set us in a privileged position to gain relevant deals and increase customers' satisfaction.
As a key partner for the digital transformation of corporates, B2B digital services deliver solid revenue growth of 29% year-on-year to EUR 1.6 billion in the first nine months, mainly in cloud, IoT, and security, where we enjoy a distinctive profile. Turning to slide eight, in the B2C segment, we aim to maximize data monetization applying innovative pricing models such as the new flexible data and handset offer in Germany or the unlimited data offers launched in the U.K. aimed at blended ARPU increase. Our device integrated offer plays a key role to foster handset sales. Being remarkable, our handset renewal program, Phoenix, based on artificial intelligence and already launched in seven countries with very positive results so far. At the same time, we have identified five key spaces to develop our consumer portfolio, leveraging our global service and technological platforms.
Those five spaces where we will focus our efforts are My Digital Telco, My Entertainment, My Things, My Home, and My Financial Services. Specifically, within My Entertainment, we have proven to increase video engagement while growing ARPU and loyalty with continued IPTV and over-the-top growth, reaching 10 million video accesses as of September. Moving to slide nine, we continue working on our platforms strategy. On the first and second platforms, we have the largest ultra-broadband footprint outside China, 123 million premises and 54 million owned, and a leadership position in fiber to the home coverage, which coupled with more than two-thirds of our processes already being digitized, set us ahead of the pack for 5G. In the third platform, we are capturing the digitalization opportunity, we have already created several unicorns of digital services, delivering roughly EUR 2 billion revenues per quarter with a 17% year-on-year growth.
Lastly, our fourth platform enables the application of artificial intelligence to improve the customer experience, revenue generation, and efficiencies through different projects. Slide 10 shows the progress done with our digital transformation plan. Digital sales increased 27% versus the first nine months of 2018, with more personalized offers, thanks to data-driven models. Cognitive contact centers and digital channels are being increasingly used. A very ambitious processes automation program continues to be deployed, all resulting into lower commercial costs and higher customer satisfaction. All in all, Telefónica has already captured 80% of the more than EUR 340 million targeted end-to-end digitalization savings for 2019. I now hand over to Laura to take through a detailed review of the business performance.
Thank you, Ángel. As shown on slide 11, our successful value strategy again allow us to reinforce our leading market position. Within an increasingly segmented market, our strategy, leading services, and content proposal, which results into a higher value customer base, continue to deliver growth. We offer increasingly more services to our customers, total convergent accesses grew 5% year-on-year in the third quarter. At the same time, ARPU grew 1.7% year-on-year to EUR 90.6, the highest ever. Moreover, our differential asset, namely our FTTH network, increasingly deliver returns on the retail and wholesale business with a combined 28% uptake. We continue working to enhance and segment our value offering, including adjacent services and tapping new sources of growth. As such, we have added Second Home, Movistar Card, Movistar Plus+ Lite, and others to our portfolio of products.
Over the next few months, we will start offering home security and insurance services to our customers. We now move to slide 12, where we show the marked improvement in growth during this quarter. Service revenue grew for the ninth consecutive quarter, up 1% versus Q3 2018. The sequential improvement was mainly driven by convergent revenues that grew 5.4% year-on-year from 2.9% in the previous quarter. OIBDA posted as well a better year-on-year performance in Q3, plus 1.8 percentile points versus Q2, reflecting the growth in retail revenues, lower football net cost increase, and higher commercial cost reduction resulting from our digitalization program. Worth to note, we booked in the quarter a 1.7 billion EUR provision in personal expenses, mainly related to the voluntary employment suspension plan we already shared with you.
This plan will allow us to capture a run rate of direct savings or approximately EUR 210 million since 2020. As such, operating cash flow amounts to EUR 2.6 billion in nine months, with further efficiencies already in the pipeline. Moving to slide 13, Telefónica Deutschland delivered a robust commercial performance in both own brand and partners with 392,000 contract net adds. Customer experience continued to improve, and its O2 My App was well recognized in the latest connect test with a very good rating. Revenue growth sequentially improved by 0.3 percentage points to 1.9%, mainly driven by the good traction in retail, resulting in an accelerated mobile service revenue growth of +1.6% year-on-year. OIBDA reduces decline by one percentage points quarter-on-quarter. Nine-month CapEx continued to phase out and increased by 5.7% year-on-year, further enhancing customer experience.
Moving to slide 14, O2 remained the largest mobile network operator in the U.K., growing its customer base by 6%, with positive net adds across all customer segments: contract, prepaid, and MVNO. It is also worth highlighting a successful 5G launch, including unlimited data offers in mid-October. Revenue delivered a healthy growth of 4.1% year-on-year, mainly supported by both the innovative Custom Plans proposition and SMIS. OIBDA strongly grew by 5.7% year-on-year. In the first nine months, OIBDA minus CapEx increased by 6.2% year-on-year, while investment continued customer experience, network, and the foundation for 5G. On slide 15, we start reviewing our Brazilian operation, where we have again improved our subscribers' quality mix, leveraging on our best-in-class networks.
We have been strengthening our leadership in the mobile arena, reaching a market share of 32.3%, almost 40% in contract, thanks to our differential assets and customer experience excellence. As for the fixed business, the ongoing transformation process continued with acceleration of the FTTH deployment, having already passed 10 million homes. In addition, and as already mentioned, we are implementing alternative FTTH expansion models through partnerships and franchises, which will further enhance our reach with very limited impact on CapEx, while contributing to reduce our time to market. This will allow us to gain further exposure to the large FTTH opportunity in the Brazilian market. As a result of this growth in value, we continue showing ARPU increase in our main services, + 5% in mobile, + 12% in fixed broadband, and + 4% in pay TV.
Moving to slide 16, revenue growth accelerated significantly to +3% year-on-year, largest growth seen in 15 quarters, thanks to our successful More for More strategy in both contract and prepaid. Fixed revenue remained affected by the legacy businesses. Fiber and IPTV once again posted sound growth, allowing us to confirm that we are on the right track to stabilize overall fixed revenues in the next few quarters. As regards free cash flow evolution, it increased by a remarkable 15% year-on-year in the first nine months, thanks to the OIBDA margin expansion, levers on digitization and simplification, and despite the acceleration in CapEx driven by the ongoing business transformation. Next slide shows the review of our Hispam operations.
In Southeast Hispam, we maintain solid revenue and OIBDA growth in line with previous quarters, thanks to growth in contract and fiber accesses, progressive tariffs update, and improvement shown in Peru, where we return to positive revenue growth after 2.5 years of revenue contraction. In Hispam North, financials continue to be affected by Mexico, where OIBDA is highly impacted by the recognition of the spectrum fees as OpEx, overshadowing the sound commercial performance across the region. It is worth highlighting contract net adds in Colombia that hit a record high for the last 15 quarters, along with the sound growth in prepaid and contract accesses in Mexico. On slide 18, we saw Telxius progress during the quarter. Tower portfolio has increased with the acquisition during this quarter of 432 towers in Spain, Peru, and Chile to a total of 1,090 towers acquired so far in 2019.
On top of acquired towers, Telxius has built 316 new towers during the first nine months of the year. All the above translates into a tenancy ratio of 1.35x at the end of September. Worth highlighting that year-to-date, the increase on the number of tenants other than Telefónica has grown by 28% year-on-year. Revenue and OIBDA continue showing growing at mid-single digit year-on-year in the first nine months. Affected in the quarter by the seasonality of exceptional capacity sales in cable. We continue seeing ample room for further organic growth going forward. Turning to slide 19, we detail non-recurrent factors in Q3 reported results, which impact negatively OIBDA by EUR 1.5 billion and net income by EUR 1.2 billion.
These relate mainly to restructuring costs of EUR 1.9 billion, mainly in Spain, that will enhance future profitability, and capital gains of almost EUR 400 million from the sale of both Telefónica Panama and nine data centers. Moving to slide 20. Currencies continued to weigh negatively in Q3, but lower the year-on-year drag due to easier comps for the Brazilian currency. As such, Forex deducted 1.5 percentage points to OIBDA variation in the quarter, 3.2 percentage points up to September. In the first nine months of 2019, the EUR 391 million negative impact in OIBDA is reduced to a EUR 160 million negative hit at the free cash flow level, as Forex also reduced CapEx, taxes, and minorities. As regards net debt, FX had barely any impact on a 12-month rolling basis. Let's now move to balancing metrics on slide 21.
Our net debt further comes down this third quarter to a total decline in the first nine months of the year of EUR 2.8 billion - EUR 38.3 billion. This has been driven by a strong free cash flow generation that shows an impressive +40.3% year-on-year growth to EUR 4.1 billion up to September. A strong free cash flow generation is coupled with inorganic measures and including post-closing events, debt declined further to EUR 37.6 billion or 2.46 x OIBDA. Lastly, let me mention that under IFRS 16, net debt would be impacted by EUR 7.3 billion worth of leases.
Slide 22 presents how we have actively continued to refinance, taking advantage of favorable market conditions, issuing long tenors at historically low rates while also diversifying financing sources. Total financing activity adds up to EUR 6.9 billion year to date, allowing us to extend our average debt life above 10 years and maintain a robust liquidity position of close to EUR 25 billion. Such financing activity at historically low interest rates has also allowed us to lower our effective interest payment costs to 3.30% as of September 2019, 22 basis points lower than in September 2018. I will now hand back to Ángel to recap.
Thank you, Laura. To summarize, I would like to again highlight our best-in-class customers value, our focus on digitalization and our technological advantage. As such, we have delivered reliable and solid growth in Q3, while slowing net debt for the 10th consecutive quarter, mainly due to strong free cash flow generation. All this allows us to reaffirm the guidance for 2019. Finally, I would like to remark the progress on strategic projects announced last month, such as towers monetization, restructuring in Spain, and new products partnerships, among others. We remain fully committed to continue working with determination in this and other strategic initiatives in the coming months to achieve the best results. Thank you very much for listening, and now we are ready to take your questions.
Ladies and gentlemen, if you would like to ask a question at this time, please press star one on your telephone keypad. To cancel your request, please press star two. Once again, that's star one to register a question and star two to cancel. We will kindly ask you to ask a maximum of two questions per participant. If possible, we recommend you not to use your cell or hands-free phone. There will be a short silence while the questions are being registered. Our first question comes from the line of Joshua Mills from Exane. Please go ahead.
Hi there. Thank you for taking the question. The first two questions from me are both on Spain. The first is just interested to hear how you think the MásMóvil-Orange deal can impact on your own wholesale revenues, whether this is a headwind and how many lines could be affected by that. Secondly, just whether in the aftermath of this, you would consider offering a more contingent model style agreement to use Euskaltel for access to your fiber network, given that clearly looking to expand the network and would be willing to make some volume commitments. Could you look at offering cheaper than NEBA prices in order to facilitate that? Thanks very much.
Thank you, Joshua. On the first question, on the MásMóvil wholesale agreement with Orange. We are not expecting a significant impact from the recent MásMóvil Orange deal because the fiber to the home premises involved were already available by Bitstream, and the agreement in Mobile is for 5G. What we see is that for 5G, MásMóvil may be designing a strategy in which access to the 5G network is offered by a third party, so minimizing deployment of their own network. This doesn't have an impact on us, though, in terms of spectrum allocation. We think this could be a positive regarding future spectrum auctions. Again, in fiber, what we see is that it's a change of model from OpEx to CapEx, but it could erode maybe Orange base further, but we do not expect a significant impact on us.
MásMóvil said that the savings could contribute to higher EBITDA. We do not expect extra aggressiveness from them in the market. Regarding the possibility of Euskaltel, well, we have been open to reach agreements with different players on fiber always regarding only the terms which are commercially attractive for the parties. This is not underway, but we have demonstrated our openness in previous situations.
Thanks very much.
Thank you, Josh. Next question, please.
We will now take our next question from the line of Mathieu Robilliard from Barclays. Please go ahead.
Good morning. Thank you. First, I had a question about EBITDA trends or OIBDA trends. You reiterated the guidance for the full year, 2% revenue growth. You're pacing slightly below in the nine months. Where should we expect an acceleration of EBITDA in Q4? Is it from Spain, something I think you said in the past should materialize, or is it coming from other geographies? In terms of the cost saving for Spain, you do mention that by 2020, you would have already EUR 210 million cost savings annually, which is very close to the full run rate that I think you guided for is at EUR 220 million. Does it mean that a very large portion of the employees have already taken the plan, and that's why you're so confident about the outlook for 2020? Thank you.
Thank you, Mathieu. On the first question regarding the group OIBDA guidance. Specifically, your question was in OIBDA. Let me address this question in full. We are reiterating our full-year guidance. This guidance is built on lots of moving parts. We have different revenue lines with different attached margins from very different geographies. What we see is that at the top-line level, we are delivering stronger than anticipated revenues, based in handset sales, which are growing 17% in the first nine months. We are seeing roughly 9% service revenue growth. Most geographical units at the service revenue are performing as expected, including Spain and Brazil. Some others are doing a notch better, some others doing a notch worse, including smaller contributors such as Mexico. In fact, Spain has posted this quarter the highest growth rate since 2016.
At the OIBDA level, the largest dragging growth is explained by Mexico performance. That is attracting close to one percentage point to the quarter's growth on a weaker top line and impact of changes in the spectrum accounting. If we were to exclude this negative Mexican contribution, results are very much in line with expectations to date. We would be posting a one percentage point higher EBITDA growth rate. I would like to highlight that for four largest divisions, three of them are accelerating trends at OIBDA, Spain, Brazil, and Germany, and the U.K., which is the fourth large one, continues to show very strong results. What do we expect looking at Q4? At the operating revenues level, we will very likely continue to be above guidance at the end of the year, including top-line growth in the quarter in both Brazil and Spain.
Breaking down service revenue performance, IT and digital services will continue more than initially anticipated with different margins, though. Group OIBDA should show continued growth in Q4 towards the full-year target. Despite stronger revenue growth and slightly different mix, we are confident in meeting our guidance thanks to efficiency mainstreams, including the workforce restructuring in Spain. The impact of spectrum fee accounting in Mexico will start to annualize from Q4. To conclude on this guidance question, and despite tough competitive environments in some of our markets, macro political headwinds, we would be today comfortably meeting the OIBDA guidance when excluding Mexico, and we are confident that our efficiency gains will help us overrun these factors and meet the full-year group OIBDA guidance.
Sorry if I can follow up just on Spain. Excuse me. Should we see already in Q4 in Spain some of the benefits of the employee reduction, or are you expecting materially?
Yeah. That was your second question, which I was about to address.
Oh, sorry.
No, don't worry. The EUR 210 million annual savings will be the run rate from next year. We will see part of those savings already flowing into Q4 because the employees that have left with these programs have already left the company at the end of last month. Those savings are ready to start flowing in the month of November and December of this year.
Thank you, Mathieu. Next question, please.
Our next question comes from the line of David Wright from Bank of America. Please go ahead.
A couple of questions, please, guys. First of all, I think I saw your Spanish business, your TV customers decline, and I think that's the first time for a couple of years, and even back in 2017, I think it was a Digital+ drag, if anything. Just wondering if we could expect that dynamic to evolve a little, and is this a shift from the mid-tier customers down to the lower connectivity segment? I have to admit, I'm still a little bit confused about the group OIBDA guidance. By definition, you've done 1.1% through the first nine months, you've done 0.8% in Q3. To make 2%, you're going to have to do over 4.5%. Even to make 1.5%, I guess your guidance is around 2%. You'd have to do closer to 3%. It's not really obvious how that works.
I know you've given some answers, but the 1% Mexico unwind on its own doesn't really get us there. What are the big drivers, the more material drivers, divisional towards that, please? Thank you.
Thank you, David. On the TV commercial performance in Spain and in general commercial performance in the quarter, we had a quarter which contained commercial trading, which was impacted by some tariff upgrades at the beginning of the quarter for premium customers and the end of promos, promotions. It's always a quarter with back-to-school commercial activities. We have seen a fixed broadband positive net adds for a second quarter in a row with good performance in premium fiber. On pay TV, to your question, one has to bear in mind that pay TV penetration or conversion base is already high at 93%. Regardless of the overall number, the mix is very important. We are adding higher value pay TV customers with better mix and better ARPU growth. We have a base of TV very well penetrated. We are seeing improvement in the mix of that one.
This is reflected on, as you can see in slide 11, the converged customer base actually shows a move up with high-end customers being 30% of our converged base, two percentage points more than in Q2, and converged ARPU is 1.7% up. With respect to group OIBDA guidance, what we're expecting is a strong fourth quarter. You've seen the improving trends that we have in our four big units in the group. Sorry. Three of them, Spain, Germany, Brazil, improving and accelerating their OIBDA growth. We have specific factors, for instance, helping us in one of the operations. In Spain, the comparison of content cost, the fourth quarter is going to experience the lowest growth rate in content cost. We're going to start seeing benefits from the recently closed personnel restructuring plan. Germany already yesterday confirmed their OIBDA guidance.
Brazil shows strong growth. They were confident in their call yesterday that this is to continue. The U.K. is performing strongly. We will have easier comps in some of our Hispam units, such is the case of Mexico with spectrum accounting. We are on track for progressive turnaround in some of our units in the region, such as Peru.
Okay, maybe just a quick expansion on Spain. I think you gave some interesting stats in Q2, around 28% of sorts high-end. I think it was 30-odd% mid-range, EUR 80, and about 40% low-end, EUR 55 customers. Can you give us an indication on how that mix is continuing to shift, please?
Well, the mix is, if I would say, polarizing. On the upper end, we have grown the high-value customer from 28% - 30%. Sorry, let me get the specific figures. What we call low-end, which is an ARPU that equals to the average ARPU of our closest competitor, is now 41%, and the mid-end or the intermediate is at 29%.
Good. Thank you.
Thank you, David.
Next question, please.
Our next question comes from the line of Nawar Cristini from Morgan Stanley. Please go ahead.
Thank you very much for taking my questions. I have two, please. Firstly, on Spanish competition. We are hearing mixed messages from your competitors about the competitive landscape in Spain. It would be helpful to have your views on this, and also to have any color about whether you are seeing any change of behavior from competitors. Secondly, on Brazil, momentum seems to be building for market consolidation there. Could you elaborate a little bit on your views on the topic and, in particular, the level of involvement that you'll be willing to pay and possible implications on leverage. Thank you very much.
Thank you very much for your questions. Competitive environment in Spain. We believe that the market remains competitive but has a rational structure. We see no structural change despite intense activity in the low-end and despite some of our peers' comments. What we do see is more polarization, or if you want, more market segmentation. On the high-end, it's a rational segment with Orange and Ono being the only ones having access to football and targeting the highest value customers. In the mid to low segment, promotional intensity increased as a result of Vodafone needing to reposition after abandoning football in an effort to turn around their operation. In the low-end, it's very competitive. There is intense competition with MVNOs, low-end brands from commercial players, and the fight between MásMóvil and Vodafone.
Of course, we are not immune to competition, but we are far more protected than others, thanks to our positioning and differential assets within a market structure that is very well-defined and segmented. In Q3, we have seen promotional activity as always in the third quarters, it was milder than one year ago. The promos that we saw were less intense and for shorter periods. As proof, portability volumes continue going down. For us, being high-end focused makes us more protected from these competitive dynamics. Proof of this is our performance, nine straight quarters of service revenue growth with clear acceleration in this quarter. Conversion revenue is growing mid-single digit for the last 15 quarters, including this quarter at 5.3%. As I said before, in this quarter, we have achieved the best year-on-year revenue growth since 2016, and this with a 40.1% organic OIBDA margin.
Yes, we think it's a competitive market, but rational, and a market in which we are outperforming. On the question on potential M&A in Brazil, there is speculation, especially regarding Oi and the mobile part of Oi. First, here we think Brazil is a very attractive market from the macro point of view, where they have recently approved the pension reform, and this is the future for balanced finances, public finances. It's attractive from sector structure. Recently there has been approval of PLC 79, which is very good news for the industry. Third, Brazil is a very attractive market because of our position of leadership. We think it's a market where we are strong, and we want to be stronger. We have always defended the market consolidation in the sector as a catalyst to improve returns, but also to accelerate sector transformation towards a digital society.
Brazil, of course, is not an exception. Although Oi has not formally said that they are selling mobile assets, we will closely monitor the situation. We think there could be a significant value creation from synergies. We also think that if a market consolidation were possible, none of the three players in Brazil would be capable of doing it alone. It would also require Oi's intention and capacity to do so. The company is under judicial intervention, lots of moving parts. Although this may sound like a deja vu, lots of stars need to be aligned. It looks like this time they may actually align at some point.
Okay, how do you think about implications for leverage, please?
Sorry, can you repeat that question?
How do you think about, if you were to be involved in Brazil, how do you think about implications on leverage?
I think it's too soon to say, and being a transaction in which more than one party is involved, it shouldn't be really sizable. In any case, we will look at that within our overall target of maintaining a solid investment-grade credit rating, and also align with the performance you have seen regarding deleverage so far, in which we have accelerated the pace, and we have again posted a very sound net financial debt reduction in the first nine months of 2016 of almost EUR 3 billion.
Okay. Thank you very much.
Thank you, Nawar. Next question, please.
Our next question comes from the line of Mandeep Singh from Redburn. Please go ahead.
Hi. Thank you for taking the questions. They're primarily related to free cash flow and net debt. You talk about factoring benefits in free cash flow in the text of your report. Could you just help quantify that for us? Relating to organic deleveraging versus inorganic, if you exclude hybrids, asset sales, and potentially any benefits from factoring that you will tell us about, it doesn't look like there's been any organic deleveraging in the first nine months. If you could just bring us up to date with what's going on with deleveraging organically and inorganically, so we just understand the moving parts. Thank you.
Thank you for your question. Regarding free cash flow, we indeed believe we have reached a very sound free cash flow in the first nine months of the year. It's been EUR 4.3 billion, and that has a strong year-on-year performance. The drivers behind that free cash flow are various. First, the solid revenue and OIBDA organic growth. Obviously, the very positive tax contribution. Also, the lower financial payments and working capital generation. Regarding working capital generation, there's been a big improvement, but it's mostly due to the deferred spectrum payment in Germany. Excluding that, it's also being helped by the positive effect of the Brazilian court decision in 2018. In fact, the working capital measures, they are being lower than the ones we did in 2018. We've been very less active in that front.
Regarding supply financing, for instance, that we published the figure, it's been below what we had in 2018. It's been slightly above EUR 300 million, and for the full 2019, it should be below what we did in 2018. If I give you a little bit flavor of working capital, working capital has been affected obviously by seasonality, which is there's some measures that unwind through the remainder of the year. We also do sale of receivables, commercial and financial agreements to postpone payments, and I have specifically mentioned the supply financing figure being below last year. We also do monetizing on concept financing and other measures. We do that, this is pretty much in line with what we do every year.
As I said, in the first nine months of the year, there's been less measures, and working capital has proved being better because of the deferred payment of the spectrum and the judicial review of Brazil. Regarding the net debt figure and evolution, we again believe it's the free cash flow being the main driver. There's been other impacts, of course, as always. The net debt figure and the solid investment-grade credit rating target is being achieved through a combination of free cash flow and also inorganic measures, as has been the case also in this year, and we are already accounting for the sale of the data center, the sales of Guatemala, Nicaragua, and Panama, and more is to come, because we are still not accounting for Panama and Costa Rica, whose regulatory approval we expect by the end of the year.
Hybrids have indeed helped for these nine months, as we have the liability management positive impact, and also the EUR 500 million issuance we did in September. This is a temporary improvement, so we definitely do not count on that for our net financial debt deleveraging path. You are already seeing it.
Thank you.
Thank you, Mandeep. Next question, please.
Our next question comes from the line of Jakob Bluestone from Credit Suisse. Please go ahead.
Hi, good morning. Thanks for taking the questions. I've got two questions, please. Firstly, on Spain, can you maybe comment a little bit on the outlook for convergent ARPU, obviously accelerated this quarter, as you highlighted, with price hikes and past promotions rolling off. We also had Orange, who were highlighting these negative effects from spin down on ARPU. From your comments on the market being increasingly polarized, it sounds like you are expecting that you're not seeing a big impact from spin down on ARPU. I'd just be interested if you could maybe share a little bit, how you see the outlook for the Spanish convergent ARPU. Just secondly, in Brazil, you announced these fiber franchise and partnership agreements. I'd just be interested if you saw a similar model being applicable elsewhere, particularly in Spain.
Would you look at similar sort of deals or setups or indeed other forms of monetization in Spanish fixed line? Thank you.
Thank you, Jakob, for the questions. On the ARPU Fusión, as you saw, EUR 90.6, it's up both year-on-year, 1.7%, and up quarter-on-quarter, 2.5%. This is the result of a positive impact from tariff upgrades that we have had in more for more moves during the year. It also has a positive impact from upselling, and it has the dilutive effect from promos and has a dilutive effect from what we call multi-brand, which is the lower ARPU from our O2 convergent brand. The impact from tariff upgrades, but also upselling, is more than countering the dilutive impact of promos and multi-brand. In Brazil, with the fiber building agreements that we have reached, first, it's very different situation from Spain. Spain, we have already 22.7 million homes passed with fiber.
The penetration is very high already, while in Brazil, which is a huge country, penetration is still much lower. What we have done, we are prioritizing the cities, in Brazil across to three categories. One category of cities that we're going to do the fiber deployment from our own CapEx. 2nd tier, which is cities where we're going to do partnerships, like the first one we have announced with American Tower Corporation, but others to follow. Third, the 3rd tier of cities that we're going to address via franchises. This is allowing us to do a faster deployment in the market with limiting the impact on our CapEx, because the partners are going to be investing in passing the homes, and then we will take care of connecting the customers in the partnerships.
These partnerships can take the format of this type of commercial agreement like we've reached with American Tower Corporation, could also take the format of JVs or equity partnerships into fiber costs. We're exploring all options in Brazil and in countries where still fiber penetration is low, but not in Spain.
Can I just follow up just on the Fusión point? Is your expectation that when you take all those pluses and minuses, that you can continue to grow Fusión ARPU? Is that your assumption?
Well, we are going to continue applying the same type of strategies that we have been using up to now, including more for more. Of course, this will be depending on market conditions. We are getting into a quarter where we will have Black Friday and Christmas campaign. We have seen also ARPU increases in fourth quarters in previous years. We're going to continue applying the same strategy. I cannot forecast the ARPU on a quarterly basis.
Thank you very much. That's very helpful.
Thank you, Jakob. Next question, please.
Our next question comes from the line of Michael Bishop from Goldman Sachs. Please go ahead.
Yes. Thank you. Good morning. Just two questions from myself. Firstly, could you give us a bit more color on the U.K. mobile trends going forward? It seems like you've got very positive contract net add momentum, but clearly there's also some headwinds going forward, and we've seen 5G being generally launched at no premium by operators. Secondly, I was just keen to get your latest thoughts on the tower strategy. You mentioned that you transferred some towers, in particular in Spain, into Telxius, I was wondering if I could get your updated thoughts on your broader thinking of the towers you identified and how quickly we might see those transferred or even sold externally. Thanks.
Thank you, Michael. On U.K. U.K. reported one more set of strong quarterly results with top line growth, 4.1% at revenue line, bottom line 5.7%. Sorry, bottom line is EBITDA and overall customer base growth. Mobile accesses are 5.6% up year-over-year to more than 34 million. This allows us to maintain the market leading position and the largest network carrier, also the U.K. most favorite mobile network with the highest sector leading loyalty. The contract base of this 34 million, the contract base is 17.4 million, growing 8.7%, and prepaid base 8.6 million. MVNO partner base 8.1 million, growing 8%. We are growing customers more in the contract base than through the MVNOs. We have very good traction in the U.K., which is reflecting into sound revenue growth and ARPU improvements. This, though, as you said, can be affected by a number of factors.
On the one hand, there is a regulatory focus on revenue spending measures such as roam like at home, also lower out-of-bundle revenues, and then some decisions that have been taken to going into 5G, not applying a premium pricing versus 4G. Lots of moving parts, but still, we expect to continue outperforming the U.K. market, in our U.K. business. With respect to the tower strategy, we announced in early September, a push to accelerate the monetization of our tower portfolio. We had already set up Telxius a few years ago, a company that has 18,000 towers where we own 50.1%, and we have as partners KKR and one of the largest family offices in Spain. The total number of owned towers by Telefónica is around 69,000, of which 18,000 are in Telxius, 51,000 owned by Telefónica SOVs.
The four largest markets, Germany, U.K., Spain, Brazil, account for around 2/3 of that number of towers. What we are planning to do is to monetize the remaining portfolio of towers that can be transferred. As in any tower portfolio, one needs to conduct due diligence of which towers have more or less ability for co-location, technical capabilities, and so on. One has to filter the portfolio of towers, we are going to be monetizing those progressively. We have already, in this quarter, transferred to Telxius the remaining towers we had in Spain, Chile, and Peru. This is de facto because some people have asked why is this monetization.
This is de facto monetization because our partners are taking 50% of the equity of this monetization, be it through less dividends payout by Telxius and therefore less leakage for us on those dividends, or depending on the size of the deal, by direct equity contributions. We have transferred the remaining towers in Spain, Chile, Peru. The next batches or lots of towers that you should see would be in Brazil, in the U.K., where we are already in advanced talks with our partner Vodafone, and in Germany. You should expect us in the coming quarters to give you a consistent update on the monetization of those towers. We are going to be open to different alternatives of monetization.
We think there is value in doing these transactions through Telxius because we get the double benefit of monetizing the towers and at the same time keeping the controlling stake in a larger and more valuable infrastructural company. We remain open to different monetization avenues.
Thank you, Michael. We have time for one last question, please.
Our last question comes from the line of Jerry Dellis from Jefferies. Please go ahead.
Yes, good morning. Thank you for taking my questions. First question has to do with consumer convergent segment in Spain, please. You highlighted how the proportion of Fusión customers at the high end has been increasing. On a year-on-year basis, it is indeed up 1 percentage point to 30%. When we look at the medium and the low tier segments, we see much more material shifts year-on-year. Looks like the medium segment is now 9 percentage points less as a proportion as to where it was in Q3 2018. The low-end segment is now 41%, which is up 8 percentage points year-on-year. It looks like there's been quite a lot of shift from medium down to low, and perhaps that puts more and more pressure on you to keep raising prices on Fusión customers at the high end.
Is that the right way of thinking about the pressures that you face in keeping the convergent business growing, or is there another way of looking at this? In particular, is it possible to see a situation in which, going forward, the Fusión business or the convergent segment can grow revenues without such reliance on price increases, please? My second question has to do with the B2B segment in Spain. I think we understood that B2B revenues were rather flat at the Q2 stage because of some issues around invoice phasing. The third quarter progression in B2B revenues is also flat. It'd be interesting, please, to have your thoughts on the outlook for B2B revenue growth in Spain. Thank you.
Thank you for your questions. On the first one on the consumer convergent segment in Spain, you have to look at Fusión through different metrics and KPIs. One is the base or the number of customers, then the mix of that base, the ARPU, and the churn. We have sustained momentum on our base. It's up quarter-on-quarter and year-on-year. On year-on-year, the customer base in Fusión is growing 2.4% to 22.9 million accesses and 4.7 million customers. The mix that you are pointing out is polarizing. Here, I would like to qualify how we have defined this mix, because this mix is defined by types of products, and since these type of products move their prices up, what we call low could have been at the bottom end price-wise of what could have been mid one year ago.
Low end is EUR 50-EUR 72 products. Mid end is EUR 95-EUR 105 products, and high end range from EUR 110-EUR 190. Our share in our customers that have products above EUR 95, that would be adding up the medium and the top segment is 59%, which is resulting in an increase in our ARPU. Because there is not only increase in the number of customers, but also increase in the ARPU of each one of these segments, and this is sometimes overlooked. This we are achieving with churn, which is the fourth element of how we look at Fusión of 1.6%, which is controlled. It was 1.7% in the first quarter, 1.5% in the second, 1.6% in the third. We believe that we have a solid and resilient mix which is making us less dependent on the fights at the low end.
Are our services expensive given the substantially higher ARPU that we have with respect to our customers? I think your question is regarding, is this too expensive? Will you see downgrade or will you find it harder to do more for more? The first question would be, are these services too expensive? Well, 90.6 convergent ARPU includes five services per customer with an average of less than four services for the hundreds of our competitors. We have a higher number of mobile lines per customer, and pay TV penetration is also higher. On a per service basis, our prices are similar, slightly higher than those of our peers. We think that we have a very competitive offer, and very importantly, which is well priced. Is there still room to grow through more for more moves?
Well, we have been leading the market in the last years through offer upgrades. All our competitors have followed, and they continue to do so. Not only the five telco operators have put prices up these years, both front book and back book, but also over-the-top players have been putting their prices up. Depending on market conditions, we think that there is room for selective more for more. On B2B, which is your second question, and is 27% of service revenues in Spain, we are growing for the sixth consecutive quarter, and the growth is 0.4% year-on-year with a sequential improvement of 0.3 percentage points versus the previous quarter. Here, what we see is pressure on the traditional communications part of this. This has two parts, traditional communications and IT services. We see pressure on traditional communications impacted by contract renewals, basically.
At the same time, we see IT continuing to grow at double digit. We have a very strong position in B2B, where we are clear market leader. We have competitive advantages due to scale, brand, convergence network, and digital services. We think that momentum is good, and we will continue to see growth in B2B segment.
Thank you very much.
At this time, no further questions will be taken.
Well, thank you very much for your participation. We hope we've provided you with some useful insights. Should you still have further questions, we kindly ask you to contact our investor relations department. Good morning, and thank you.
Telefónica's January 2, September 2019 results conference call is over. You may now disconnect your line. Thank you.