Good morning, welcome to Telefónica conference call to discuss January, March 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 first 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 the 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's investor relation team in Madrid or London. Let me turn the call over to our Chief Operating Officer, Mr. Ángel Vilá.
Thank you, Pablo. Dear investor and analyst community, good morning and welcome to Telefónica's first quarter results conference call. With me today 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. I would like to start this call by sharing with you our main achievements during Q1. First, we continue increasing customer relevance by offering the best digital experience. High-value accesses continue to be the pillar. Increasing accesses and penetration translates into tangible results. Average revenue per access accelerates its organic growth to 4.2% year-on-year amidst stable churn. Customer satisfaction increased as Movistar ranked second top most valuable Spanish brand, the only telco brand in the top 20. Second, connectivity is the foundation to allow the best customer experience.
Smart connectivity on new high speed, flexible, secure, and advanced networks featuring elements of artificial intelligence. Third, our growth is consistent and profitable, with revenue improving its growth rate this quarter to 3.8% organic. Revenues continue their transformation process with 56% of revenues already coming from broadband connectivity and digital services. Our OIBDA recorded positive growth, and our earnings are outstanding, with net income and EPS growing strongly and free cash flow improving substantially. Finally, the clear deleverage path we initiated some years ago continues to be confirmed with eight straight quarters of decline in net debt, which stood below the EUR 39 billion mark at the end of the quarter when including the sale of both our Central American assets and data centers recently announced. Turning to slide number two, let me summarize our main financials.
Reported figures for the first quarter reflect the new IFRS 16 accounting standards, with a positive impact of EUR 414 million in OIBDA and a negative impact of EUR 17 million in net income. Let me remind you that 2018 figures are reported under IAS 17. As such, year-on-year reported changes reflect on one hand the organic growth and are also affected by accounting changes by the negative evolution of FX regulation and other special factors like capital gains, among others. Reported revenues reached almost EUR 12 billion. OIBDA stood at EUR 4.3 billion, a 35.6% margin, whilst net income exceeded EUR 900 million. Free cash flow of EUR 1.4 billion is a remarkably strong number, 2.6 times larger than in the same period last year, and allowing to reduce our net debt by 5.7% on a yearly basis to EUR 40 billion.
On an organic basis, it is worth to highlight the acceleration in the revenue growth rate to 3.8% thanks to improving service revenue trends. OIBDA posted positive growth of 1%. Next slide shows our 2019 guidance, which is well on track following Q1 results and fully aligned with our expectations. We also confirm the dividends to be paid in the calendar year and to be approved in the next AGM. EUR 0.20 per share on the 20th of June, which is the second tranche from the 2018 dividend, and EUR 0.20 per share on 19th of December, which will be the first tranche for the 2019 dividend. The second tranche of 2019 dividend, another EUR 0.20 per share, will be paid in June 2020. Let's move to slide 4, where we detail the net income components and their evolution.
We have achieved 10.6% annual growth in net income and surpassed the EUR 900 million mark despite FX headwinds and IFRS 16 negative impact. Reported earnings per share reached EUR 0.16, increasing a significant 33.8% versus the final quarter of 2018, reflecting our solid operational performance and further boosted by savings from financial management. As you can see in slide five, and as mentioned as the beginning of the presentation, I would like to remark the better trend registered at the top line, plus 80 basis points sequential improvement versus Q4 2018 to 3.8% in organic terms and 4.6% excluding regulation. The mix of this improvement is important as well, since service revenues ramped up by 130 basis points to 2.6% positive growth year-on-year, and handset sales continued to post a robust increase of 15.6%. By segments, there is growth across the board, and we are benefiting from our unmatched diversification.
Latin America being the main contributor to this better performance of revenues, increasing at a pace of 6.2% on a yearly basis and accelerating versus Q4 2018 by as much as 260 basis points, while Europe remains growing healthily at 1.6%. Let me present the OIBDA performance in the first quarter, which we show on slide six. OIBDA grew by 10.3% in reported terms, reflecting mainly the positive impact of IFRS 16, while in organic terms, it increased by 1% or 1.7% ex regulation. Main contributors to this organic performance are Hispam South, Brazil, and U.K., with Spain improving its trend versus the one registered the previous quarter, Mexico facing tougher year-on-year comps. OIBDA margin topped 35.6%, growing four percentage points on a reported basis.
As such, operating cash flow increased 14.6% from the same period last year in reported terms, while in organic terms, declined 5.3%, affected by CapEx phasing in this quarter, which is growing by 11.2% year-on-year. On slide number seven, you can see we are accelerating the deleverage path, bringing down net debt by almost EUR 700 million in Q1, again, driven by solid free cash flow generation. This is the eighth quarter in a row of debt decline. Free cash flow reached EUR 1.4 billion, 2.6 times or EUR 858 million higher than the one posted in the same quarter last year. This remarkable performance is mainly explained by our operations performance and the tax refund obtained in Spain, despite usual negative seasonality impacts during this period of the year. For the rest of 2019, we expect working capital seasonality to swing and positively impact free cash flow.
Turning to slide number eight, let me give you some more details for the B2C segment. Leveraging on a strong set of assets, we can grow relevance through a continuous focus on delivering a better customer experience. All in all, a simple quality offer ready for tailor-made personalization is the base of our value proposal. Video is a key driver for ARPU and customer loyalty improvement, with IPTV accesses up 17% year-on-year in this first quarter and over-the-top video service, Movistar Play, being already present in all Hispam countries after its launch in Mexico and Argentina this quarter. Ultra-broadband speed with price premia increases both satisfaction and ARPU, and its penetration over the total fixed broadband base reaches 63% at the group level, nine percentage points higher than a year ago.
Mobile data use keeps on growing in both the prepaid segment, thanks to recurrent plans and incentives to top-ups, and in contract. Offers are enriched with new services as data sharing, data transfer, or dedicated data for apps. Finally, customized integrated handset offers focused on high-value customer renewals are delivering very positive results. We now move on to slide number nine, where we show how B2B, representing 20% of group revenues, is speeding up its pace of growth. B2B revenues are growing 6% year-on-year on the back of improving trends in both corporate, plus 10% year-on-year, and SMEs, plus 2% year-on-year. The evolution of the B2B portfolio around the digital core of communications, cloud, and security services with building blocks of best-in-class portfolio of own and third parties' digital services, deliver strong revenue performance, mainly in advanced digital services.
Set on the best networks, the B2B proposal evolves towards customer-centric end-to-end solutions with operational excellence. Let me just highlight cloud and security services and our virtualized IoT platform, widely awarded and considered as an industry reference. Moving to slide 10. In the first platform, we already cover 85 million premises with ultra-broadband. Seventy-eight percent of population with LTE, 95% in Europe, with an efficient network that enabled CapEx needs decrease by 40%. Network virtualization with UNICA was deployed in 10 countries and up to 66% of processes are digitalized and managed in real time, while 30% of customers migrated to full stack. The third platform provides an enlarged offering with digital services revenues growing by 21% in the first quarter, leveraging on personalization in the residential business and becoming the best partner for the enterprise's digitalization process. The fourth platform enriches all the above with artificial intelligence and open platforms.
New functionalities are available in Movistar Home and more use cases with big data and data analytics facilitate our decision-making processes. On next slide, we show how we are advancing in our digital transformation program, pushing for further efficiency gains. As such, the execution of the several initiatives set around sales, customer service digitalization, and process automation is translating into a higher use of digital channels, better customer experience, and additional savings to the ones captured in 2018. In terms of organization, we are taking a step forward, evolving into a simpler, more agile, and flexible way of working with an agile mindset methodology. As a result, we are progressing well on track and already capturing at the end of the first quarter, 20% of the targeted savings for this year of more than EUR 340 million. I hand over to Laura.
Thank you, Ángel. On slide 12, we start reviewing the performance of our Spanish operations, which again show growth in share of value, thanks to our premium quality differentiated offering. Within a period of tariff upgrades, which tend to impact commercial trading, we continue improving our customer base mix, growing in convergent TV, FTTH, and mobile contract during the quarter. Furthermore, trading for all our value accesses has improved throughout the quarter, which March show in the best monthly data in the period. We have recently announced the launch of new commercial initiatives for the coming months, such as priority customer care service or broadband for two homes on our Fusión clients, which should help to carry on with our more-for-more strategy in convergence. It is worth highlighting that Telefónica España is growing its share of net adds in Spanish fiber.
Putting together retail and wholesale customers, Telefónica España selling fiber net adds during the first quarter stands largely both its overall market share, with uptake growing significantly in wholesale to a combined takeup of more than 26% in Q1 2018. This brings in visibility and sustainability to our business. Moving on to slide 13, service revenue grew by 0.8% year-on-year in the quarter, above the 0.8% growth seen in the previous quarter. This is the seventh consecutive quarter of service revenue growth at Telefónica España. Quite a remarkable achievement. Within a quarter of lower price increases than those seen in the same period last year, consumer revenues stayed flat year-on-year. An improving mix of customers and promotions expiry as from Q3 should continue driving B2C revenue growth this year.
B2B revenues increased by 3% year-on-year, growing for four straight quarters already, with wholesale and other revenue start showing a reversing trend once drags such as MTR cut and MVNO agreements start to be removed. We should expect this trend to turn even more evident in the second half of the year. OIBDA performance improved by as much as 3% from the previous quarter. As we had anticipated, negative content one-off seen in Q4 have been removed, and incremental savings in personal and digitalization allow to partly offset growing content costs. We should expect better margin outlook in the second half once top line trends improve and content comparison base eases. Lastly, worth mentioning, Telefónica España remains a benchmark in CapEx over sales at 12.1% in Q1, despite facing impacting CapEx 9.2% year-on-year growth. Moving to slide 14, Telefónica Deutschland posted a strong commercial quarter.
The company has launched new value-added initiatives improving ARPU and churn. The O2 Free portfolio continues to drive usage and ARPU growth leveraging our improved network. On Tuesday, we also announced a significant enhancement of our infrastructure portfolio with the addition of cable wholesale access through a long-term agreement with Vodafone. This deal is subject to the completion of Vodafone's acquisition of Unitymedia. Telefónica Deutschland registered 306,000 contract net additions, 94% up year-on-year. O2 contract churn improved 0.2% year-on-year. O2 contract LTE customers accelerated their average data usage to 4.2 gigabytes per month, up 52% year-on-year. It is worth highlighting the sustained revenue growth of 0.7% year-on-year, mainly supported by another quarter of strong handset sales, up 12.6% year-on-year. The OIBDA year-on-year trend has improved 3.8 percentage points compared to last quarter.
CapEx in the quarter strongly increased by 28.3% year-on-year, mainly due to front-loaded LTE rollout, a trend expected to normalize over the year. Telefónica UK continued delivering good growth in its main financials and overall customer base. The company maintained its market-leading position as U.K.'s favorite mobile network, increasing the O2 contract customer base by 4% year-on-year and improving churn to 0.9%. It is also worth highlighting that O2 has been recognized as Best Network Performance at Mobile News Awards, and Best Sponsorship of the last 25 years for the O2 at the U.K. Sponsorship Awards in March. Revenue were up 5.3% year-on-year, mainly driven by the continued success of its flexible tariff offerings, high-value handset sales, and other revenue, which also supported OIBDA growth of +3.4% year-on-year.
The company continued to invest efficiently in network capacity and customer experience, and operating cash flow show a strong improvement of 5.8% year-on-year. On slide 16, we can see how our More for More strategy is reaping benefits in our Brazilian operations, where we are delivering profitable value growth. First, as regards to the mobile business, we have implemented different price increases during the last few months, starting with pure postpaid and hybrid in the last few months of 2018, and following with some rises in prepaid packages during March and April. This, coupled with a better base mix, contract ARPU is as much as four times higher than that of a prepaid customer, feeds through to mobile ARPU, which grows by 2.6% year-on-year in the first three months of the year. As for the fixed business, we continue speeding up our transformation journey, seeking for a major ARPU increase.
We have already passed 9 million homes with FTTH, 2 million homes already connected, which allows fixed broad ARPU to post as much as 14% annual growth in the quarter. Fiber ARPU is 1.4 times higher than DSL. We already offer our IPTV service in all cities with FTTH, 130 versus 121 at the end of Q4, which should be a further driving force to future revenue growth. IPTV ARPU is some 20% higher than DTH ARPU. Next slide shows that our strategy of seeking profitable value results into improving top-line trends. Service revenue trend improves again, mostly due to a strong growth in contract at +8.2% in the quarter versus +6.9% in Q4 2018, which leads to total mobile service revenue growing by 1.6% year-on-year, a marked improvement from the flat performance seen in the last quarter of 2018.
In fixed, a growing weight of high-value accesses, fiber and IPTV helped to further offset declines in traditional voice, which, coupled with sequentially improving B2B revenue, helped our Brazilian operation total revenue to show a significant sequential improvement. As regards to profitability, no matter we have been expanding margins for the last nine consecutive quarters, we have been again able to beat inflation. OPEX grows by 2.3% year-on-year, which compares with 4.6% inflation rate, 0.5 percentage points annual improvement in our OIBDA margin. Moving on the review of our Hispam operations and starting with South Hispam on slide 18, we could highlight revenue trend acceleration in the quarter, driven by positive mobile contract net adds for six straight quarters with a stable OIBDA evolution despite salary catch-up taking place in Argentina during the period.
Our revenue increased by 15% year-on-year in organic terms, with Argentinian revenue growth accelerating on tariffs increases and Peru showing better year-on-year performance than in the previous quarter. In the latter, we have recently launched our convergent offer, Movistar Total, the first and only truly convergent option in the market, which is showing promising results so far. OIBDA saw similar growth rates as in the previous quarter, even despite salary catch-up in Argentina on efficiencies and lower subsidies in Chile and Peru. As for North Hispam on next slide, negative revenue trend has been reversed in this first quarter of the year, thanks to Colombia accelerating its top-line growth rate, the good performance seen in Central America, and revenue in Mexico growing by 1.2% year-on-year, first time in five quarters, on the back of ARPU improvement and lower regulatory impact versus previous quarter.
OIBDA performance is nevertheless penalized by a charge in the booking, a change in the booking criteria of spectrum fees and regulation in Mexico. Should we exclude those dragging effects, OIBDA would have maintained similar year-on-year trend versus the previous quarter. On slide 20, we see how Telxius premium infrastructure continues bearing fruits. 75 new towers have been added to the portfolio in the quarter, mainly in Spain, Brazil, and Peru, with the tenancy ratio increasing to 1.37 times from 1.34 times in March 2018. Revenue and OIBDA were positively impacted by the sale of exceptional capacity in the Marea submarine cable that connects Spain and the United States. Excluding this impact, top line and OIBDA could have grown by 6% and 9.1% year-on-year respectively, sequentially improving in both cases.
On the other hand, CapEx declined more than 80% from the first quarter of 2018 after the completion of the BRUSA and Marea cables that came into service last year, driving operating cash flow up by 2.9 times higher, excluding the one-off aforementioned. Let's now move to balancing metrics on slide 21. One more quarter, we continue to progress on our deleveraging path, relying on a strong free cash flow generation that stood at EUR 1.4 billion in the period and comfortably allows to cover all our commitments and continue bringing down debt, which is reduced by EUR 0.7 billion in this quarter, continuing with previous year's trend. Should we include post-closing events, net debt would come down by EUR 2.4 billion, bringing total net debt figure down to EUR 38.7 billion at the end of the quarter.
Hybrid liability management exercise had a temporary effect on debt reduction, coming mainly from the positive effect of issuing hybrids in excess of the amount of hybrids repurchased. Overall, the two hybrid liability management exercises since March 2018 will reduce our annual hybrid coupons by more than EUR 70 million. Finally, let me mention that under IFRS 16, net debt could be impacted by EUR 7.4 billion worth of leases within the low end of the range provided in February 2019. Slide 22 shows how Telefónica keeps on increasing its financial flexibility through actively assessing debt capital markets, including the issuance of the first green bond in the telecommunication sector worldwide during the quarter. With over EUR 5.3 billion long-term financing completed year to date in 2018.
By issuing loan tenors, we extended our average debt life in excess of 10 years while keeping a comfortable liquidity position over EUR 24 billion that exceeds next two years of maturities. All this happened while lowering our interest payments effective cost of 3.39% as of March 2019, 18 basis points lower than in March 2018. Moving to slide number 23, we share more details with regards to FX impacts on our results. FX headwinds in the first three months of 2019 dragged close to five percentage points to the year-on-year variation on revenue and OIBDA. Argentinian peso and Brazilian real are the currencies that appreciated the most during the quarter. This negative effect of EUR 180 million at the OIBDA level translated into just EUR 74 million in free cash flow terms, once CapEx and tax payments in local currency largely mitigated the impact.
As regards net debt in the 12-month rolling period to March 2019, FX had a small positive impact. Meanwhile, organic contribution to the reported figures continued to be very solid on a yearly basis. I will now hand back to Ángel.
Thank you, Laura. To summarize, first, today's results showed a solid start of the year, advancing in our strategic positioning and delivering a consistent, profitable, and sustainable growth demonstrated with a strong improvement in revenue growth trends. Second, we have achieved double-digit net income and EPS growth. Third, we further deleveraged, de-risked our balance sheet, and improved returns with asset sales. We have brought down net debt by eight straight quarters. Fourth, best-in-class infrastructures continue to be key for ensuring top-quality customer experience. Fifth, monetization of the core and extended offering, along with digitalization efficiencies, are translating in higher efficiencies. This allowed us to confirm the outlook for 2019 and to continue returning value to our shareholders through our proposed EUR 0.4 dividend per share. Thank you very much for listening, and we are now ready to take your questions.
Ladies and gentlemen, if you would like to ask a question at this time, please press *1 on your telephone keypad. To cancel your question, please press *2. Once again, that's *1 to register a question and *2 to cancel. We would 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 whilst questions are being registered. Our first question comes from the line of Mathieu Robilliard from Barclays. Please go ahead.
Yes, good morning. Thank you very much. I had two questions. First, on Spain, in terms of the different revenue dynamics. I think wholesale did a bit better probably than what you were flagging at the end of last year. If you could explain the different moving parts there. When I look at consumer, do you think that the recent initiatives that you announced, I'm talking about, for example, the premium service called Priority, and other ones, can have a contribution that is meaningful to the top line already in 2019? I had a question on Brazil. Obviously, improved mobile performance there. When we look at fixed, despite all the investments that you're doing, it is still tough in terms of the KPIs. I understand there's more competition from small players in different areas.
Is this a business line, I'm talking fixed Brazil, that you think can revert to growth or stabilization in the short term, or is it more delayed? Thank you very much.
Thank you, Mathieu. On Spain revenue dynamics, you have seen that we are posting revenue growth again and service revenue growth for a seventh quarter in a row. This is consistent with what we have been expecting and communicating in the previous conference call. The components here on B2C, which accounts for a bit more than 50%, actually 55% of service revenues. It has a flat performance in the quarter, mainly due to the different phasing of price or tariff upgrades in this first quarter of this year compared to the first quarter of last year. Also to a more muted commercial performance in the quarter. At the same time, B2B, which accounts for 28% of service revenue, is growing 3% for a fourth or fifth quarter in a row.
Here, I would like to highlight the very strong growth of IT at 18.5%, which more than offsets the decline on the traditional communications part in IT, this is due to all the digital services efforts that we are doing in B2B, not only in Spain, but all across the footprint. Third, the component of wholesale and other, which accounts for 17% of service revenue, it has turned around and is growing at 0.2% in this quarter. The reduced impact of MVNO laws and the regulatory impacts that we saw last year are absorbed by growth in NEBA and TV and roaming revenues. We think, and we had been expecting this turnaround of the trend. It is true that in the previous call, I got a question whether this would turn to growth, and at that point, we were cautious in projecting forward what could be the trends.
What we have seen in the first quarter, we think that we can continue seeing in additional quarters. I think you were also asking about commercial initiatives, new commercial initiatives that we are working in Spain. Here we have, and this is linked to our More for More strategy, we are enriching the offer that we have for our customers. We are launching different services targeted to improve and increase the engagement of the customers with us and support More for More strategies. As such, we have been launching services like Movistar Car, which includes connectivity, SOS, safety, car diagnosis, for the vehicles of our customers. We have launched security or services like Conexión Segura, Movistar Cloud. Services which are quite interesting for families like Movistar Junior or parental projection, especially for large families like Pablo's family, I should say.
We are also giving devices with more intelligence for the home, like Movistar Home. We are getting into financial services with Movistar Money. Soon, we are going to be launching also additional services like Priority Movistar, a premium service treatment for our more valued customers. We are launching Fusión for second residences, which is a segment where we see high potential in Spain. You have to take into account that there are almost 3 million second homes in this country. Regarding Brazil and the revenue trends in Brazil, what we have seen is an improvement of the top line. This has been driven by acceleration of, and positive acceleration and performance of the revenues in mobile, and a better trend in the fixed revenues.
Here, we're working in a big effort of transformation in which businesses such as voice, DTH, copper are declining, while what we're seeing is ultra-broadband and fiber growing strongly, double digits. The trend that we are seeing quarter by quarter in this transformation of the revenue function of the fixed business, we think is going to continue in the same direction and probably produce positive results in the future. I don't know if that would address your question.
Thank you, Ángel, for recommending me this service. I will check it. Thank you, Mathieu, for the question. Next question, please.
We will now take our next question from Ivan Lian from BBVA. Please go ahead.
Hello. Good morning, everybody. Thanks for these two questions. The first one is on that announcement to launch an OTT offering in Spain in June. I don't know if you could give us a bit more detail on that, because I guess that's a meaningful change in your strategy. I don't know if you could tell us about the timing. If I understand correctly, I think everything except football is going to be offered to all of the market, eventually, if that strategy is going to be exported to other countries. The second one is on competitive landscape in Spain. ARPU has basically stabilized in the last two quarters. This week, we had Euskaltel basically blaming competition for margin pressure. The same day, I think MásMóvil was dismissing that.
It would be interesting to know your view on how ARPU is going to evolve in Spain going forward and how competition has kicked off in 2019. Thanks much.
Thank you, Ivan. The first question on the OTT launch that we've announced in Spain and whether this means a change of approach, which the short answer is no, but let me elaborate. Video remains core for our customers. At the core of our strategy of offering the best pay TV and the best video, this is delivering good results. We have more than 8 million daily audience, growing 8% year on year on Movistar+ platform, with a daily consumption which is growing sequentially to more than 200 minutes per day. The TV offer, convergent differential and complete increases loyalty. TV customers have a churn which is 25% lower to non-TV customers. TV evolution is key to defend a very strong market position.
Low penetration of pay TV in Spain, which stands according to different sources, between 35%-45%, which compares to most other European markets, around 60% to even 100% penetration. We see a growth opportunity. With these two elements, we have announced the launch of our OTT to take place in June at a cost of EUR 8 per month. This will include a limited tasting of our content. It will include generous channels produced in-house, #Vamos and #0, some limited linear channels. It will include Movistar Series and Series Mania, and some video on demand of in-house content. It will not include, to be sure, any football. It will not include a big part of our premium and offer sport.
It will allow, in a rational move, to capture a complementary part of the significant growth opportunity that we see in the Spanish TV market. This is an online product which will be linked to an app download. It's aimed to appeal to a big number of online followers that are following already our content or some programs online, especially those of our own production included in channels like #0. We aim to take them as a 1P OTT product and allow them to taste a preview of the Movistar+ content that will allow us later to attempt to upsell those customers into our full conversion pay TV services. We see zero cannibalization risk. It does not detract value from our Fusión offering. It does include no football, includes no functionalities, no add-ons possibilities.
Regarding competitive landscape in Spain, we think or we see that overall dynamics remain rational and competitive. We had a softer competitive quarter in Q4 following a quite intense Q3. What we have seen in this first quarter of the year was a quiet beginning of the quarter, which saw later higher promotional activity. Promotional intensity was mostly concentrated in the low end, mainly through extra mobile data allowances. What we saw also, Vodafone in their final quarter of the year ahead of their full close, were quite active in promotions. It's not unusual, since Vodafone has been, for a while, the most active promotional player in the market. At the same time, we have seen that market portability continues to slow down and remains in line with the minimum levels seen in 2018, signaling a rational, competitive environment.
We see, again, competition intense in the low-end, including prepaid, where we are less exposed. We expect, having seen the Vodafone new portfolio of offers, which include some more for more elements, that their promotion activity would cool down, and they would focus on their new proposal. Summing up, we see a rational environment in the high end with value bundles, with ultra broadband connections, pay TV services, value-added content, value-added functionalities, which is where we focus, and where we still see room for selective more for more. This is the segment that takes more of our B2C revenues. Yes, competitive and rational at the same time.
Great. That was very clear, Ángel. Thanks much.
Thank you, Ivan. Next question, please.
We will now take our next question from Michael Bishop from Goldman Sachs. Please go ahead.
Thank you. Good morning. Just two questions from me. Firstly, just moving to the U.K. There were some headlines around O2 UK potentially looking at fixed line again during the quarter. Whilst it's very slow in terms of the uptake of convergence as a market, both Virgin Media and BT yesterday talked about potentially moving forward a bit more with fully converged products. It'd be good to get your latest thoughts on that. Secondly, in terms of working capital, I was just wondering whether you could just build on the comments around working capital unwinding through the rest of the year, and where you potentially see the direction of working capital for the whole of 2019. Thank you very much.
Thank you, Michael. On the U.K., we think that convergence remains supply-led rather than demand-led. It's not being demanded, and it's not growing at the speed that we have seen in other countries. What we have seen is that the majority of the market remains, or what we think remains mobile-focused, being the U.K., one of the highest loyalty markets. Also, the telecom pricing and margins in the U.K. are already leaning towards some of the lowest in Europe. Since convergence to take traction sometimes entails a discount to the bundles, we think that there is little scope. The penetration of services like pay TV that allow to build convergent bundles. The penetration is already very high in the U.K.
One of the critical elements that we have seen for convergence to take up probably does not have upside in the U.K. as it has had in other places. We see convergence still as supply-led, not demand-led, and having relatively little traction. However, of course, market conditions can change. If the conversion segment was to grow, we have already a hedge with one of the largest converged players, whose MVNO is on us, being Sky. There could be elements where we could access converged place. However, I have to say, regarding what has been speculated, is that we are delighted with Telefónica UK's mobile-first strategy. You can see that it's been very effective by delivering top line, bottom line, customer growth, customer loyalty.
We made the choice to exit the fixed market in 2013. We have currently no plans to change this course and this decision that we took already in 2013.
Regarding working capital, Q1 has had a consumption of minus EUR 711 million, which is due to seasonality impacts as it's usual in this first quarter of the year net of working capital measures. The consumption in Q1 has been slightly lower than the consumption of last year, but we will see throughout the year that that consumption diminishes with seasonality playing more in favor and continue with working capital measures. For the full 2019 year, we will expect a positive contribution in our free cash flow, and that's why we commented that this will be unwinding throughout the year, which is usually what happens every single year. We usually see this trend.
Perfect. Thanks very much.
Thank you, Michael. Next question, please.
Our next question comes from the line of Mandeep Singh from Redburn. Please go ahead.
Hi. Thank you for taking the question. I have a couple, please. First of all, relates to the Spanish fixed line trends and broadband trends. Obviously, I know you put price increases through and your trading improved sequentially through the quarter, but quite a big line loss number and a decline in broadband subs. Can broadband net adds return to stability in Q2 and beyond? That's the sort of. Also, what's the outlook for line losses? It's quite a big decline in Q1. Just linking that and how, relative to the sort of big content investments you've made, is it surprising to see these sorts of trends given how much better your content offerings are versus everybody else? That's the sort of first question.
The second question is whether the outlook for wholesale is sort of negative or positive on the basis that as copper declines, can NEBA growth take the strain for copper declines? Those are the two questions, please.
Thank you, Mandeep Singh. As always, a pleasure to talk to you again. On the Spanish trends, you were asking on the fixed, no?
Yeah.
I'm going to deal with the commercial trends, because as you know, on revenues, we are looking at the bundles in a converged way. I should say that it's not unusual to see softer KPIs in a quarter in which we updated tariffs, and we updated in January tariffs for fixed only, for mobile only, and in February, we have updated tariffs for convergence. If one looks at the evolution inside the quarter, between the January, February, and March, what we have seen is that an improvement takes once the tariff upgrades effect vanishes. Actually, the month of March as an exit month of the quarter is quite positive. For instance, in conversions, we've got 13,000 net adds, of which 13,000 positive net adds were in the month of March. In mobile contract as well. In TV, this happened as well as also in fiber.
We expect this trend to continue improving. As you can see on slide 12, we continue improving our customer base mix. We're growing in convergent, in TV, we're growing in fiber, and we are growing in mobile contract. More in particular to what you were asking in fiber, you can also see on slide 12 that we are growing our share of fiber net adds, both on the retail side and both on the wholesale side. We are also growing the uptake, the number of homes connected to homes passed, both on retail and wholesale side. On wholesale fiber, net adds were 197,000. Yes, it's been a more muted quarter, but we are seeing trends that are supportive of the commercial traction. In any case, the decline in fixed broadband has been more significant in non-converged than actually in converged.
We have launched, as I was talking in a previous question, a new portfolio of digital services. We have strong expectations of commercial traction, and we also see potential for selective more for more moves. Regarding wholesale, the different moving pieces I also spoke about in a previous question. We have seen, and we are seeing the fading away of what we had seen adverse moves or impact from MVNO loss. We see lower impact of regulatory impacts. Then, we are seeing growth in NEBA, we are seeing growth in wholesale TV, and we are seeing growth in roaming revenues, which has made the drag that we had in the wholesale line fade away and turn actually to slight positive revenue performance in the first quarter, which, given the trends that we see, I'm more confident now about the sustainability of this performance.
Thank you.
Thank you, Mandeep. Next question, please.
Our next question comes from the line of David Wright from Bank of America. Please go ahead.
Good morning, guys. Congratulations, Pablo, also on getting this report out, given your new additions. Just a question on Spain and O2, please. Obviously, that is now a contributing factor to convergent revenues. I just wondered if you would be willing to give us any KPIs, perhaps, for O2, any line adds, what kind of ARPU it is coming in at, just so that we can maybe start to model some of the convergent dynamic. It's tempting to just see the convergent ARPU reflecting the Fusión momentum, clearly now there is a dilutive effect from O2 adds. I wondered if you could give us any granularity on that I may have unless I've missed anything. Thank you.
Thank you, David. O2 is progressing according to the expectations that we have for this proposition. It's a way to, without cannibalization, address some segments that were not fully addressed by our converged Fusión bundles. It's reaching some base around 50 high, 60,000 fixed broadband subscribers. It's around 120,000 mobile subscribers. 80% of those would be converged subs. The ARPU, when we are publishing the converged ARPU, used to be before we include only the Fusión ARPU. Now we are including Fusión and O2 ARPU, and obviously also in the mix of converged customers between high-end, mid-end, and low-end, we are including the O2 customers. These obviously are leaning towards the low-end and are affecting the ARPU increase that we see year-on-year on converged functions, which I have to say is still a growing ARPU.
In this sense, I would take advantage of your question to point out something, which is the mix of our converged customers. We are seeing in convergence, in addition to ARPU growth year-on-year of 0.6%, we are seeing that the mix, 30% of the customer base continues to be high-value packages. Here, which is up 3 percentage points year-on-year. Here we're talking about an average ARPU of EUR 130. What we call mid-value, which is 33% of the mix, it's an ARPU of EUR 85. What we call low-end of converged customers, which account for 37%, and this includes the O2 customers, has an average ARPU of EUR 60. Bear in mind Sorry, I have a thickened voice. Bear in mind that what we call low-end, with an average ARPU of EUR 60, is the average ARPU of our closest competitor, which stands at EUR 58.
I would like to say that, yes, O2 is increasing the mix in what we call low-end. Yes, O2 has got ARPU in that category. What we call low-end ARPU is what our closest competitor calls average ARPU. Okay? Yes, we're getting traction, but it's not something that is not expected in our projections.
Okay. I could maybe just follow up then, if given those broadband subs, I guess it launched late last year. I'm just trying to understand, what is the sort of net adds O2, which could imply a slightly higher net loss, perhaps in the Fusión base? Would that be right, or is that not really the way to read this?
Well, what we're seeing is that portabilities from Movistar to O2 are quite reduced. More than 85% of the capture of O2 is not from us.
Okay. That's very useful. Thank you.
Thank you, David, and thank you for your comment. Next question, please.
Our next question comes from the line of Jakob Bluestone from Credit Suisse. Please go ahead.
Hi. Good morning. I've got a couple questions, please. Firstly, just on your guidance and how you're sort of tracking against that. You're guiding for about 2% EBITDA growth for the full year. You did about 1% in Q1. Just sort of trying to understand, which are the bits you expect to accelerate during the course of the year. You've obviously flagged Spain gets better later in the year. Just sort of wanted to understand, is that really what's driving that implied acceleration during the course of the year? Are there other parts of the business as well that you think will pick up in terms of EBITDA growth during the course of 2019? That's the first question. Just secondly, just to follow up from David's question.
As you highlighted, I guess the two bits really driving your Fusión ARPUs, one of them clearly being this mix effect. Then on the other side, you've been putting through various price hikes. I guess the sort of evolution of convergent ARPUs is really the balance of those two. Is it fair to say that the mix effect is becoming bigger? Could we actually start seeing convergent ARPUs decline from here, just because of more and more of what you refer to as the low end becoming a sort of bigger share of it? Do you think convergent ARPUs can continue to grow because of the pricing power that you have? Thank you.
Thank you, Jakob. On OIBDA guidance, we have guided for OIBDA growth around 2% for the year, in the first quarter, it's growing around by 1%. We expect group OIBDA growth to accelerate along the year, with better growth in the second half versus the first half, fostered by several factors. Spain is one that we've been flagging with reiteration in previous calls. We expect service revenue acceleration in the second half, fostered by the end of football promotions, by IT revenues acceleration, new B2C digital opportunities that I was talking in a previous question, and the wholesale revenues acceleration. In addition to revenues, the lower year-on-year growth in net content costs in the second half and further efficiencies in areas like commercial channels, call centers, network, IT costs from digitalization and automation. Spain is a clear area.
We're also expecting better performance in second half in OIBDA in other geographies. Germany, according to their own guidance, as they stated in their call yesterday. Brazil, as was also stated in their call yesterday. What we see is that the drags that we have seen in Hispanoamérica units to be lower also. We remain confident and reiterate our guidance of the OIBDA growth around 2%. Regarding Fusión ARPU, we are not expecting to see a decline going forward. In the first quarter, Fusión ARPU increased 0.6% year-on-year from EUR 87.8 to EUR 88.2. To explain this improvement, it has had a positive impact from tariff upgrades, a positive impact from upselling and a dilutive impact from promos, dilutive impact from mobile add-ons migrating to Fusión multi-line packs, and dilutive effect from convergent offers as in the multi-brand segment, as I spoke about regarding O2.
We see potential for additional selective more for more moves in the market, especially in the high end. We are launching new commercial initiatives where we aim to improve the engagement, or further improve, I should say, the engagement with our customers, which make us be confident that the positive convergent ARPU evolution should be here to stay.
Thank you.
Thank you, Jakob. Next question, please.
Our next question comes from the line of Keval Khiroya from Berenberg. Please go ahead.
Hi, thank you. Just almost following on from Jakob's question, asking on the other side of the convergence KPIs. I suppose taking a longer term view of convergence churn. Five years ago, it was at 1.1%, now it's at 1.7%. Given the strength of your brand, the improvements you've made to mix and propositions, I suppose that's quite a surprise over that five-year period. Just taking a longer term view, do you think that churn will now stabilize at that kind of level? Or looking forward five years, would you expect, given the increase in competition in the market, that convergent churn, as you push through the penetration, will still continue to trend up over the years to come? Thank you.
Thank you for your question. First, I would want to state that converged products, being a bundle of several products. Once there is a move in any of the products that make part of the bundle, that is accounted for as churn. That doesn't mean that the customer churns, but it could be that the customer drops some product or some part of the churn. Second, for the last quite a few quarters, churn has been moving in a relatively stable band around 1.5%, 1.6%. Yes, in this quarter, we've seen a spike, slight to 1.7%, but we think that this is within control range. As you should imagine, this is one of the KPIs that we measure very carefully within our commercial moves and marketing moves in the converged world. We are looking at the number of converged customers, the ARPU, the mix, and the churn.
This is something that if we see any deviation that would be a concern, we can clearly adjust our propositions in order to manage the situation, which at this point, we do not think that should be of concern.
In response to Jakob's question, you said that you thought that convergent ARPU would still go up. Are you willing to say that you think convergent churn can stabilize around this level, or should I expect it to trend upwards on a multi-year view?
We would expect Fusión churn to move in a band around these levels, but not spike up.
Okay. Thank you.
Thank you, Keval. Next question, please.
Our next question comes from the line of Jerry Dellis of Jefferies. Please go ahead.
Yes, good morning. I had a couple questions, please. First one is to do with Spain. I noticed that in Spain, your pay TV intake this quarter was about 4,000. Q1 last year, it was about 80,000. Obviously, recently, you revamped the Fusión lineup to segment, in particular, the football content in a different way. I think Netflix also became available as an upsell for Fusión customers from December onwards. To understand the TV dynamic would be interesting, please. Also to understand whether the promotional pressures that you were seeing during the first quarter have extended into the first half of the second quarter as well. My second question has to do with the U.K. You've reported a mobile service revenue growth rate of positive 0.5% today.
Previously, I suppose you reported on a different basis, the mobile service revenue trends that we had previously were on an IAS 18 basis, you reported growth of 2.8% in Q4, and I think about 3.5% in Q3. Is the slowdown between the revenue growth rates that were reported previously and the one you've reported today, is that purely an accounting effect? Is it possible to get any pro forma sense of what the underlying development in U.K. revenue trends has been, please? Thank you.
Thank you for your questions. Regarding Spain Pay TV, we continue to see an opportunity in the market. We see that penetration is still low compared to other markets. What we also think is that this has to be a segmented approach. The number of net adds varies along quarters, depending on factors, for instance, the start of the sports season. The same way that you saw in Q3 last year, an important push ahead. One would expect another similar type of movements in the third quarter this year. The difference of this first quarter versus last year is that one year ago, we included TV in some packages that were not having some contents before and didn't have TV, that make a jump in the first quarter last year, which has not been repeated this year.
Regarding the promotions, what we see is less intensity of promotions on some players that have moved to innovative approaches such as Vodafone, more based on speed and less working on promos, albeit we don't think that is disruptive. Maybe tactically some other players may be doing some promotions now who saw lower commercial performance in the first quarter. Potentially Orange could be promoting a bit, but this is not unusual. This is a regular dynamics that we see in the Spanish market. Regarding the U.K., we continue to have a strong revenue performance. Revenues have grown in the first quarter 5.3%. This is driven by the continuing success of flexible tariff offerings like custom plans.
Traction on handset sales, of value handset sales, and we continue to have revenue growth in other segments like the SME, IoT elements in MVNO and in business ICT. Here, when one looks at the revenue function in the U.K., the split between mobile service revenue and handset sales has been affected by IFRS 15, and accounting between these two elements. That's why one should look at the total revenue rather than these two components. There have also been some elements, such a decrease in out-of-bundle traffic. Once bundles become larger, you have lower out-of-bundle traffic, and some slowdown in interconnect and outbound roaming. We see that we continue to have a strong total revenue trend in the U.K., and we expect to continue outperforming the market. At the same time, we are displaying the benchmark churn in the market of just 0.9%.
Thank you very much.
Thank you, Jerry. We have time for one last question, please.
Our last question comes from the line of Fernando Cordero from Santander. Please go ahead.
Hello. Good morning, thanks for taking my two questions. The first one is regarding Latin America. In that sense, we have seen network sharing deals, mobile network sharing deals here in Europe in the recent weeks. I would like to know at which extent, what could be your thoughts, particularly thinking on Latin America and ahead of the potential CapEx cycle to come from 5G. The second question is related with your balance sheet, and at which extent, after seeing the disposals of Central America businesses as well as the disposal of some of your data center assets, I would like to know how far are you from your desired capital structure in terms of leverage, or should we expect any further asset disposals? Thank you.
Thank you, Fernando. I'll take the first question, Laura, the second one. On network sharing, we are firm believers in network sharing. 80% of CapEx and 20% of OpEx in network are due to infrastructure, sites, transmission, rentals. Network sharing is an opportunity to reduce network costs while maintaining the objectives of coverage and quality, and therefore improve the return on capital employed, which is a critical objective for us. I would say should be for the industry. We think that this will be especially relevant in the upcoming deployment of 5G technology due to the pressures coming from a much denser network, both in radio access and in transport. We're already sharing in several of our geographies. You asked specifically for Hispanoamérica or Latin America, but we're sharing in many of our geographies.
We have sharing of infrastructure, of transport, of fixed access, of mobile access in different degrees and different flavors in different countries. We have sharing of infrastructure in Brazil, in Argentina. We have sharing in Chile. We have also in Colombia, very significantly with Tigo. We have sharing of transport as well in mobile, which probably is what you're focusing. Already, we have some experiences of 3G, 4G RAN sharing with Oi, with TIM, and with Claro. In Argentina, we are sharing 3G and 4G with Claro in some cities. We have signed an agreement also in sharing in Colombia with Tigo and in Central American assets that we are now in the process of divestment. We had also shared agreements with Millicom. Willingness to explore sharing in 5G, of course, without any doubt, it takes two to tango, we will approach partners in due course.
It's early days for 5G, especially in Hispanoamérica. Yes, we are ready. We recently announced in the U.K. the extension of our sharing agreement with Vodafone to 5G, we will explore opportunities if they create value and they do not erode a competitive position in every other geography.
Thank you, Fernando, for your question. It is worth mentioning that after the disposals of Central America and the data center, we have accelerated the net debt reduction substantially. Today we are at EUR 38.7 billion after post-closing events. Let me highlight the evolution, because we have decreased EUR 2.4 billion just since the beginning of the year. If we look at since June 2016, we have almost reduced our net debt by EUR 14 billion in 11 quarters. That's more than EUR 1 billion per quarter. That has been done on the back of many levers, the most important being a strong free cash flow coming from operations, but also optimization of our tax and interest payments, inorganic measures, as you mentioned, which have been return on capital driven, despite having a very strong CapEx intensity these past years and also despite having spectrum payments every single year.
From that point, our intention is to continue reducing debt and leverage going forward on the back of a strong cash flow generation. We could consider inorganic measures always based on return on capital employed and with no need to sell anything in a rush that does not create a strategic value. I definitely think we are approaching the moment when net debt will be less of a concern for the investment community, that gives us flexibility. I also want to say that we are fully committed to maintain a solid investment-grade credit rating, we will keep taking debt down organically and also inorganically.
Okay.
Thank you, Fernando.
Thank you.
At this time, no further questions will be taken.
Thank you very much for your participation. We certainly hope that we have provided some useful insights. Should you still have further questions, we kindly ask you to contact the investor relations department. Good morning, and thank you.