Ladies and gentlemen, thank you for standing by and welcome to Telefonica's January to December 2018 results conference call. At this time, As a reminder, today's conference is being recorded. I would now like to turn the call over to Mr. Pablo Yaron, Global Director of Investor Relations. Please go ahead, sir.
Good morning, and welcome to Telefonica's conference call to discuss January December 2018 results. I'm Pablo Hiron, Global Director of Investor Relations. Before proceeding, let me mention that financial information contained in this document related to the fourth quarter 2018 has been prepared under international financial reporting standards as adopted by the European Union. From the 1st January 2018, we implemented IFRS 159. And all financial information in this presentation is based on this new standard.
In organic terms, the effects of the accounting change to IFRS 15 are fruited. This financial information is unaudited. This conference call webcast, including the Q And A session, may contain forward looking statements and information relating to the Telefonica Group. These statements may include financial or operating forecast and estimates based on assumptions or statements regarding plans, objectives and expectations that make reference to different matters. All forward looking statements involve risk 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 Telefonica's Investor Relations team in Madrid Now, let me turn the call over to our Chairman and CEO, Mr. Jose Maria Alvarez.
Thank you, Pablo. Good morning, and welcome to Telefonica's 4th quarter and full year results conference call. With me today are Angel Vila, Chief Operating Officer and Laura Abasolo, Chief Financial And Control Officer. And during the Q And A session, you will have the opportunity to ask any questions you may have. Let me start with 2018 main achievements.
1st, we continue gaining customer's relevance, providing them with a top digital experience. Demand from more valuable customers is unabated and churn management translated into higher customer lifetime. 2nd, we are transforming our revenue mix, increasing the weight of high growing revenues as broadband connectivity and service beyond connectivity. During last year, we again created several unicorns that are already contributing to our growth. A third highlight is that we continue to invest to put the best technological platforms at the service of our customers' needs.
Positioning us as pioneers in digitalization, simplification, virtualization and artificial intelligence that put us at the forefront of technology in our way towards our cloud telco 4th, sustainable and profitable growth in our DNA. Growth trends accelerated from revenues to operating cash flow. Resulting into robust and sustainable free cash flow as we continued increasing our efficient use of our resources. 5th, our net debt has been reduced steadily for the 3rd consecutive year. Through ample organic free cash flow generation, and reshaping of our portfolio via our inorganic actions.
Finally, our reinforced balance sheet make it compatible with a sustainable and attractive dividend, in line with our commitment to return value to our shareholders. Moving to Slide 2. Let me go over the main proof points achieved in 2018. The backup our strategy. Double digit growth in fiber to the home and cable and LTE access with stable churn levels.
Best ever, customer satisfaction index. 53 percent of our revenues already come from broadband and services connectivity. Digital revenues topped EUR 7,000,000,000, 24 percent more versus 2017 in organic terms. We remain leaders in fiber deployment in Europe and Latin America, whilst being number 1 in network virtualization and legacy shutdown. All these matters is translated into growth.
We are growing our revenues OIBDA, EPS, and operating cash flow. Furthermore, our free cash flow ex spectrum to EUR 5,600,000,000, 5.3 percent higher than in 2017. It is free cash flow generation. Coupled with our return on capital employed driven focus that allows us to bring down debt as much as EUR 3,800,000,000 reduction from 2017 levels, including post closing events, while we maintain an attractive or very prudent dividend payout ratio of 42%. On Slide number 3, we show that this sustainable growth story goes back in time.
A deep business transformation, simplifying, investing and transforming our revenue mix and customer base. Was a more sustainable business model. As a result of this, our revenues have consistently been growing in organic terms, while our OIBDA margin has consistently expanded. Operating cash flow, the most sustainable source of cash flow generation has been growing in absolute terms from EUR 4,400,000,000 in 2015 to EUR 8,300,000,000 in 2018 ex spectrum. Furthermore, and no matter the significant investment effort we continue to undertake, our free cash flow reached almost EUR 5,600,000,000 in 2018.
9,000,000,000, including post closing events. And we have been able to do so while paying attractive dividends to our shareholders. Turning to Slide 4. We can see growth across main financials, both in the fourth quarter and in the full year. It is worth highlighting the sequential improvement in growth trends observed in the 4th quarter, both in terms of revenues and operating cash flow.
That organically grew respectively by 3% 31% year on year. Spain and Brazil, our 2 biggest operations, are large contributors to this quarterly improvement. Free cash flow boosted to almost EUR 2,000,000,000 in the last three months to reach EUR 4,900,000,000 in the January December period. Even after including spectrum. On a full year basis, growth has been profitable and consistent.
As revenues grew annually by 2.4%, OIBDA by 3.5%, and operating cash flow by 8%. With OIBDA margin expanding 0.3 percentage points. In reported terms, headlines are impacted by negative FX swing and regulation, hyperinflation in Argentina and other special factors that Lauda will detail later on. However, even on a reported basis, net income surpassed the 1,000,000,000 mark, an increase of 6.4% versus 2017, while net financial debt declined 5.5 percent to EUR41.8000000000. Turning to Slide number 5.
We have ticked all the boxes in terms of last year's guidance. Revenues increased by 2.4 percent year on year in 2018, ahead of the guidance of growth of around 2% that was upgraded at midyear. And despite regulation dragged 1.1 percentage points. OIBDA margins expanded by 0.3 percentage points, also in line with the guidance. With regulation deducting 1.7 percentage points to FDA finally growth.
Finally, CapEx to sales stood at 15.1%. Fully aligned with the guided level of around 15%. In addition, we accomplished with the goal of additional deleveraging and further strengthening of our balance sheet. We confirm our 2018 dividend with the second tranche of per share to be paid in cash in June 2019. Moving to Slide number 6.
Telephonic is a company of smart platforms. It's starting from the bottom of the page, Our first platform ensures the best connectivity. Our leading network in fiber covers already 83,000,000 premises. With ultra broadband and 76% of the population with LTE. We are also number 1 in network virtualization with Unica Infrastructure deployed in 11 countries, and the transformation of the core led to 40% reduction in the past 2 years in CapEx needs.
In the second platform, we progressed deeply in 2018, having 65% of their processes, digitalized and managed in real time. 30% of our customers migrated to full stack and 66% to online charging system. The 3rd platform provides innovative and personalized products and services. With segmented offers in the residential business and complete B2B solutions, delivering up to 6.8 1,000,000,000 digital revenues in 2018, a 24% year on year increase. After the 4th platform, We integrate artificial intelligence and open platforms to improve the way we engage with our customers and make internal decisions.
Moreover, our cognitive intelligence, Aura, is now available in 6 countries. I now hand over to Angel to take you through a detailed review of the business performance.
Thank you, Jose Maria. 4th quarter confirmed the ongoing operating momentum, with revenues and operating cash flow annual growth improving sequentially. Revenues accelerated 30 basis points from the previous quarter, with all regions performance improving. With a particular mention to the sequential improvement seen in service revenues in Spain and Brazil. Revenues in current euros reached EUR 12,900,000,000 versus EUR 11,700,000,000 in the third quarter.
Revenue growth would have been 3.9 percent excluding regulation. Operating cash flow posted as well and outstanding performance, growing by more than 30% in the 4th quarter on a year on year basis. While OIBDA grew 2.4% year on year. In the full year, operating cash flow grew by high single digit as CapEx declined 1.3% in organic terms. In Slide 8, we show how we are continuously enhancing our value proposition to make it simple reliable and efficient for our customers.
In the Consumer segment all regions are delivering organic revenue growth in 2018. We bring on board more customers who are more loyal and uplift ARPUs by means of superior convergent offers by pioneering now in Peru and with richer content in Spain and LatAm. Through personalized and flexible offers in postpaid with data sharing or OTT video and more data recurrent plans in prepaid. As such, we are monetizing better our offering and are growing revenue with a larger base of video subscribers plus 5% versus 2017 to almost 10,000,000. An increased base of fiber customers plus 20% and a larger percentage, 43% of LatAm mobile customers using data.
In Slide 9, we show a snapshot of our B2B segment, a very relevant piece of business that is also showing very encouraging trends. We have all the capabilities to be a first player, supporting the transformation of clients businesses. We have built a Lego A portfolio based on a digital core proposal with comms, IoT and cloud, and a complete ecosystem of leading digital services to be added on top of it. This is all underpinned by our global reach and making differentiated value proposals for multinationals, corporates or SMEs. As a result, B2B revenues topped EUR 9,600,000,000 in 2018, growing at the health pace of 3.4% year on year and accounting for 20% of total group revenue.
Both corporates and SMEs are growing by 5.3% and 1.8%, respectively. And the contribution of the advanced digital services, namely cloud and IoT, is worth to mention, both increasing at double digit. All in all, with a reference with a distinctive positioning to capture the large growth opportunity ahead of In Slide 10, you can see how the deep transformation of our business model is starting to deliver relevant savings more than 1,000,000 in 2018. We have introduced new ways of working, with 40% of savings coming from initiatives related to customer service in digital channels as foster use of apps. 30% from digital experience in sales thanks to advanced analytics and personalized sales.
20 percent from simplified and trustful processes in billing and payments especially in LatAm. And the remaining 10% from process automation, such as resolution of incidents and robots factories. Moreover, in Telefonica, we continue progressing on further digitalization already with an Agile mindset, and we expect to deliver more than EUR 340,000,000 of incremental savings at the end of 2019, reaching more than EUR 1,000,000,000 of cumulative savings by the end of 2020. Moving on to Spain. Slide 11 shows how our unique and differentiated offer takes us steps ahead of competition.
In 2018, by 9% year on contract mobile customers plus 7%. All these, under controlled churn levels, whilst increasing convergent ARPU, which despite notarib's update taking place, grows by more than 4% year on year in full year to this is more than 50% higher than our closest competitor within the conversion market, fueled by increased differentiation. We can thus conclude that both our revenue and value share are expanding. This is the result of a very clear strategy and unmatched network having passed already 21,300,000 premises in the Spanish market. And differential TV offer, As an example, we are direct owners of champion leak rights.
Goose audience is increasing by about 90% year on year so far this season. That allows us to further raise pay TV uptake, driving ARPU up and churn down. On Slide 12, we can find the financial consequence of what we just went through. Service revenues grew year on year in Q4 to plus 2% once excluding MTR and MVNO negative impacts. This is a remarkable 0.6 percentage points sequential improvement.
Aside from the already mentioned improvement in consumer revenues, namely convergence driven, growth improvement also lies on much better business performance, plus 3.5 percentage points on the previous quarter on record IT sales and flat communications. We are confident on further tailwinds, Namely, tariff's update and promos expiry in B2C. IT and digital services in B2B. EV and easing regulation slash MVNO impact for wholesale allowing to accelerate this positive revenue trend into 2019 We were able to post benchmark organic OIBDA margin of circa 40% in 2018, which, together with declining CapEx, down 5.1% year on year in 2018, allowed for operating cash flow annual growth of 0.6 percent to 1,000,000,000. 11% higher in Q4 than in the same period last year.
Year on year organic OIBDA evolution slightly worsens versus the previous quarter, despite revenue better performance. Growth in net content costs primarily related to one offs calendar effects, which will disappear us from Q1 twenty nineteen, is the main reason behind such performance. Going forward, OIBDA evolution throughout 2019 should be favored by the above mentioned progressive improvement in revenues and lower content cost growth. Moving to Slide 13. Telefonica Toitsland continued to show positive operational momentum in the fourth quarter.
The innovative O2 free tariff portfolio with boost option and the unique O2 connect continued to stimulate data usage and drive data monetization. During the quarter, the company registered 279,000 contract net additions, 50% up year on year. LTE customers amounted to 18,400,000, up 17% year on year, with LTE penetration reaching 44% Average data usage of O2 contract LTE customers was up 47% year on year to 4.1 gigabyte per month. Customers on O2's most popular tariff O2 Free M reported an even higher average data consumption of 6.5 gigas per month. With regards to key financials in the quarter, revenues are up 2.6% year on year, mainly supported by strong seasonal handset sales, up 24.2%.
OIBDA was 4% down year on year, mainly due to capital gains from the sale of assets in q44 2017, lower incremental synergies and regulatory impacts. For the full year, CapEx increased by 1.7% year on year, driven by the now largely finalized network integration and ongoing LTE rollout. Also reflected by significant quality improvements achieved in the latest published network tests Company generated operating cash flow of 1,000,000. Turning to Slide 14, Telefonica UK maintained its market leading position with 32,600,000 mobile accesses. The ongoing success of custom plans has been one of the key drivers of O2's strong commercial performance.
The company also continued being the UK's favorite mobile network, with sector leading loyalty evidenced by the lowest postpaid churn in the market, at an unchanged 1%. Telefonica UK delivered the 10th consecutive quarter of MSR growth and was up 2.9% year on year. In the quarter, accelerated OIBDA growth of 23.8% year on year resulted in margin expansion of 3.8 percentage points year on year and a stellar performance once again. At the same time, we continue to invest in our network, for example, through rapid deployment of the awarded spectrum. For the full year, CapEx is up 7.1% year on year organically, while operating cash flow strongly improved by 16.5%.
Moving to Slide 15. Vivo ends 2018 with an outstanding commercial performance. Capturing valuable growth opportunities, thanks to a combination of superior assets. In contract, mobile net adds reached $3,600,000 in 2018, increasing 7% year on year and maintaining similar churn levels versus those seen in previous quarter. In prepaid and as planned, the new commercial offering started to post positive results in Q4.
Improving year on year revenue trend by 5 percentage points versus the previous quarter. Along with an improved macroeconomic environment throughout 2019, we are confident that this positive trend will continue going forward. Regarding our fixed operations, we continue accelerating the transformation of our business, having covered 13 new cities with Fiber2 Home Technology in 2018, already reaching 8,700,000 premises passed. Average take up ratio on this improvement network stood at an outstanding 42% for premises passed in 2017, leading to a solid ARPU growth in fixed broadband and pay TV of 11% 4%, respectively, during 2018. On Slide 16, we can see revenue reversed its strength in Q4, returning to positive year on year growth, thanks to the already mentioned improvement in prepaid.
And the remarkable growth seen in contract plus 7%, fiber plus 27% and IPTV plus 59% in revenue Furthermore, the ongoing simplification efforts and the benefits of the digitalization initiatives translated into the 12th consecutive quarter of year on year OpEx reduction. It is worth highlighting that in cumulative terms, Evo has been able to bring down its OpEx base by 4.5% percent since 2016, which compares with cumulative inflation in the same period of 13%. Making this effort even more remarkable. As a result, organic OIBDA margins surpassed 39% in Q4, the best OIBDA margin ever for our Brazilian operations. Finally, free cash flow reached an unprecedented level, growing 30 percent year on year to EUR 1,500,000,000 in 2018.
In spite of intense capital deployment with CapEx over revenues of 19% in 2018. In the Southeast Palm region on Slide 17, we continue growing in value despite the tough competitive environment we're facing mainly Peru and Chile. Contract accesses rose 5% year on year, posting positive net adds for the 5th consecutive quarter. Fiber connections increased 50% after accelerating their deployment with 2,100,000 premises pass in 2018. Pay TV accesses grew 8% year on year, and it is worth highlighting the sound performance in Peru and the launch of this service in Argentina in October.
This commercial performance, coupled with efficient OpEx management and the benefits of digitalization, resulted in a healthy growth of 9.6% 8.1% in revenue and OIBDA, respectively, during 2018. Moving to Slide 18. In Mexico, financial performance continued to be strongly affected by regulation and by the sharp pricing pressures seen in the market as a result of strong competition. However, we were able to grow in both contract and prepaid in Q4 after recent changes in offers in both segments. On the other hand, Colombia continued showing a stellar performance with accesses growth in its main services specialty fiber where connections more than doubled versus the previous year.
This sound commercial performance and implemented efficiencies led to OIBDA growth by 28% year on year in fourth quarter. As a result, and despite Mexico headwinds, operating cash flow in the North Eastbound region increased by a remarkable 18% year on year. Excluding Mexico, 2018 revenue and OIBDA grew 1% and 2.7% year on year, respectively. On Slide 19, TELSIUS continued growing its asset portfolio in the quarter, showing good traction in towers and gaining commercial momentum in cable. The tower portfolio added 2 91 new tenants in Q4 improved the tenancy ratio by 0.03 percent year on year.
In the cable business, It is worth mentioning the ongoing capacity sales in both Bruce and Maria, resulting in agreements such as the 1 signed in Maria Cable in January 2019 with Amazon Web Services. Regarding the 4th quarter, revenues increased by 5.5% year on year and OIBDA did so by 6.3%. Mainly driven by the tower business and on the back of efficient cost management. Thus, OIBDA margin improved by 0.4 percentage points year on year 46.6%. Full year CapEx declined by 6.3% year on year, after the completion of the new cables that came into service in 2018, resulting into operating cash flow growth of 33.9%.
I will now hand over to Laura to take you through the details of the financial position.
Thank you, Angel. Please turn to slide number 20 to see in more detail the effects impacting the quarter. These factors reduced OIBDA and net income by EUR 472,000,000 and EUR 651,000,000, respectively. In detail, special factors are restructuring costs, mainly in Spain, 2, in Permian, Mexico, 3, hyperinflation in Argentina and 4 capital gains and losses and other factors. As you can see in Slide 21, net income surpassed the EUR 3,300,000,000 mark in 2018, 4.4% versus the previous year.
We continue to manage successfully non operating results, as our operating income declined by 4% in reporting terms, while net income year on year growth was mid single digit. Underlying earnings per share reached EUR 0.81 per share in the year, growing 9% versus 2017. Let me now update on Slide 22 how we are managing FX headwinds. ForEx continued to deduct growth in revenue and OIBDA on a year on year basis, but this impact has been reduced in the fourth quarter. In addition, during this period, hyperinflation adjustment in Argentina was positive.
In 2018, FX drag amounted to EUR 4,300,000,000 in terms of revenue. EUR 1,500,000,000 in OIBDA while negative impact was significantly reduced to EUR 500,000,000 in free cash flow. Regarding net debt, the effect was the contrary and FX lower net debt by EUR 200,000,000. On top of that, Let me remark that organically, the contribution remains solid and consistent. On Slide 23, we can see that free cash flow reached almost EUR 2,000,000,000 in the last quarter, growing by double digit.
In 2018, a total EUR 4,900,000,000 after including the UK and Spanish spectrum auctions. Excluding spectrum, it topped EUR 5,600,000,000, up 5.3% year on year. As you can see on the upper right hand side of the slide, main free cash flow driver is the improved business performance along with lower financial payments. On a per share basis free cash flow reached that would have a stay at EUR 1.09,000,000, excluding spectrum. Free cash flow from our European operations before financial payments amounted to EUR 0.85 comfortably covering dividend high risk and total interest payment.
Let's move now to the financial metrics on Slide 24. This slide shows how we continue to progress on our deleverage path, relying on a strong free cash flow generation, coupled with inorganic measure. Such as the disposals of Telxius and tariffs and the operations of Telefonica in Central America. Therefore, we saw a remarkable net debt reduction figure of EUR 2,400,000,000 in 2018, continuing with previous year trends. And increasing to EUR 3,800,000,000, including post closing events.
As such, and net debt figures of year end 2018, including post closing events stands at EUR 40,400,000,000. On Slide 25, we highlight Telefonica's extensive access to capital markets in 2018. And year to date, taking advantage of historically low rates. It's worth highlighting that in January 2019, we issued a green bond the 1st globally in the telecom market. By accessing long tenors, we have extended our ARA tape life to 9 year while we keep a comfortable liquidity position over EUR 20,000,000,000 exceeding next 2 years of maturities.
Our interest payments effective cost in the last 12 months stood at 3.41% as of December 2018. Being an attractive average rate level and 4 basis points lower than September 2018. I will now come back to Jose Maria.
Thank you, Laura. Let me now outline the guidance for 2019. We aim for sustainable and profitable growth. Revenue and OIBDA organic growth of around 2% despite regulation. CapEx ex spectrum acquisition will be around 50% of sales.
For 2019, we are proposing a stable, sustainable and attractive dividend payment This consists in EUR 0.4 per share in cash, payable in 2 tranches. The first, in December 2019, and the second in June 2020, subject to the adoption of the corresponding corporate resolutions announcing the specific payment dates like this year, calendar year payments around amount to per share. To finish, please move to Slide 27. 2018 was a year of continued focus and investments in transformation which allow us to lead the pack in terms of digitalization, virtualization and artificial intelligence. So connectivity has been the foundation for upgrading our customer base and offering the best customer experience.
With a clear drive towards ultrabroadband connections. All these translated into sustainable and profitable organic growth. Leading OIBDA margin and further deleverage, driven by robust free cash flow generation. We are confident into 2019, when we expect to continue delivering growth and returns, leveraging on our differential assets and global capabilities. Networks are getting smarter and ready for the future, reinforcing our world class network infrastructure and IT systems.
Monetization of our leading propositions will be key. Digitalization savings will give flexibility to reallocate resources across on footprint and management based on return on capital employed will allow us to increase returns. Thank you very much for your attention.
You. And if possible, we recommend you not to use your cell or hands free phone. There will be short silence while questions are being registered. We will now take our first question from Georgios Yaroniacono from Citi. Please go ahead.
Hi, and thank you for taking the questions. I have 2. The first is, just, maybe if you could give us some clarity on the moving parts cash flow for 2019. I know you already highlight the post closing events, but spend some tax decisions. And I was wondering whether those will have any effect on the tax actually paid in the next couple of years.
And any other moving parts around that interest payment with the capital that are worth highlighting just to get an understanding of what to expect in 'nineteen? And then my second question is around the operating performance of the group. Obviously, in the past, you are guiding for margin improvement progressively not so this year. Understand there are high content costs in Spain and hefty gave us some guidance yesterday on some other headwinds they are facing. But if you could give us an idea of why, some of the cost savings you are doing are not offsetting these and which markets will be the ones that may offset declines in margins in Spain, perhaps and in Germany.
And then if I could just ask a clarification on that, we've seen very dilutive performance of margins in Peru in the fourth quarter, if that is something that could turn around in 2019.
Thank you, Georgios. Let's start with your question on free cash flow. As you know, we don't know guide specifically, not formally on free cash flow. What I can tell you is the facts that we have achieved 2 consecutive years of very strong free cash flow, which has been the main driver for deleverage, about EUR 5,000,000,000 ex spectrum, both in 20172018. And in 2018, almost EUR 5,600,000,000, growing 5%.
If we go into 2019, based on the guidance provided, which is consistent revenue and OIBDA growth and a stable CapEx over revenue, you should expect a gain strong operating cash flow performance that coupled with optimization of interest and cash payment costs should flow again into a very solid free cash flow, excluding spectrum. And the most important, comfortably exceeding dividend payments, labor commitments, and the hybrid coupons payments. Those again, it's going to be a main driver and the most sustainable for the continuing deleverage. Going to your specific question on interest payment, I could tell you that it will still sit comfortably below 4%. Regarding your question on the tax refund and what the notification we have received from the Central Economic Administrative Tax Court, in January 2018, at this point in time, it's not possible to quantify the vast amount of the expected refund.
But most likely, there will be a tax refund related to overpayments made by the company in the years 2019 2010. And that obviously will flow through free cash flow as well. And regarding the closing of Central America and impacts in cash, Guatemala has been signed and closed simultaneously. However, the remaining 4 operations are pending regulatory approvals. And therefore, we'll have the cash flow from those operations until the transaction is formally executed.
Taking your question on the guidance globally and namely on OADA. Let me start by saying that, we are we expect to grow at a similar pace than in 2018. And in fact, and regulation should drag less this year than in the previous year. Remember as well that we tend to be prudent last year, we started with a guidance of 1%. So in comparable terms, we are guiding for more growth, year on year, so to say.
And then we upgraded midyear when we are we will see in our operational performance. Why are we guiding for OUDA in absolute terms and not for OUDA margin? First, because we want to have a flexibility to invest in those markets where we see growth opportunities. But as an overall reflection, We are guiding for around 2% growth in revenues and around 2% growth in OIBDA, which basically tend to imply a stable margin evolution. And that's precisely because we want to be prudent.
And at the same time, we want to keep flexibility to invest for further growth in the markets where we see this opportunity. And now let me hand it over to Angel for a specific answers on the countries that you have mentioned.
Hi, Georgios. I'm going to address your several questions on if I understood right on Spain, Germany and and Peru margins. Well, Spain in the fourth quarter, first, I want to highlight that it's back to growth. The revenues have been accelerating sequentially, and they have been accelerating year on year. We have achieved for the full year OIBDA margin of 39.8 percent, which in the 4th quarter, has been of 38.9%.
This was affected, and this had been flagged in previous conference calls by higher content costs, by the B2B strength also by the reduction in MVNO wholesale revenues. But what I would want to say is that the declining organic OIBDA that you see in the 4th quarter compared to the 3rd quarter. One third of that would come roughly from higher football costs with the full quarterly impact of the new Champions League cycle, but 2 thirds would come from others. Basically accelerated amortization of MotoGP rights, which we no longer own and have some calendar impacts in this fourth quarter that would not be repeated in additional quarters. Going forward, what we see is for our Spanish operation that we can maintain an OIBDA margin at broadly similar levels as this year.
Due to the content cost calendar, the first half margins will be closer to what we saw in Q4, but they will trend up in the second half And in any case, what we are aiming at is to growth in Spanish OIBDA for 2019, would be slight growth but growth nonetheless in the Spanish business in OIBDA in 2019, what we have not seen in prior years. Moving to Germany. They announced results yesterday. You have seen the actuals, the APA performance, which was conforming to their guidance with an increased ex regulation. And they have guided OIBDA on a broadly stable to slightly positive ex regulation for 2019.
And with respect to Peru, what we are seeing is the impact of a still strong competition in the mobile segment strong commercial activity in the Peruvian market. We have, in Peru, been able to maintain on the fixed business and on the pay TV, the strength that we had in the previous quarters, we are now launching for convergent offers in Peru, but we continue to see, competitiveness in in the mobile segment, so commercial intensity and also, commercial intensity that has some handset financing packages that are also impacting the EBITDA performance.
Thank you.
Thank you, Georgios. Please ask two questions. The following ones because the Jarius has like 7.
Our next question comes from the line of Keval Kuroya from Deutsche Bank. Please go ahead.
And thank you for two questions, please. Both of which in Spain So when we look at the revenue trend for the non convergent revenues, we did see a deterioration in Q4 when compared to rates decline in Q3. Would you mind giving just a bit more color on that, maybe some comments on the direction. And following up on your comments on Spain and 2019 EBITDA, which are very helpful. As you mentioned, we will see the higher football costs obviously continuing in the first half.
When it comes to extra cost savings, which help offset that. Can you talk about whether there will be some additional rate of cost reduction beyond what you've already seen in 2018 to help offset some of those content cost pressures? Thank
you,
Keval. Our B2C business, accounts for 53% in the 4th quarter. Of total service revenues, and it's growing at a rate of 1.1%. For the full year, it accounted to slightly a bit more of 54%. And the growth, you have it on slide 12 of 1.33%.
73% of these B2C service revenue is Fusion, which is growing at very nicely at 7.1%. And the non convergent revenues are declining at 12.3%. Here, the weight of the non convergent revenues is getting smaller as we move forward. And here, you have still the impact of some single play pay TV customers that we've had decline, and we still have some base some of those stand alone customers are migrating to convergence and this process is still underway. With respect to the evolution of other elements of or the elements of our OpEx, or cost function there are several pieces.
On the one hand, the evolution of the content course that we have been flagging in the in this call and in previous calls, we have entered into the 3rd season of the previous La Liga cycle, And we have the 1st year or the 1st season of the current Champions League cycle. On the other hand, we have been not renewing some other contents in our offer. So this means that the net the net content cost is peaking, peaking into account old content will peak in Q4 this quarter. Compared to this, we also have additional efficiencies. We continue to have efficiencies in distribution channels, And here, we are seeing the benefits of digitalization that we are flagging in the presentation.
We continue to have incremental savings from personal redundancy program, they will achieve full run rate in 2019. And we are seeing fewer people returning after the suspension. So this will result in a slightly higher run rate than the one we had announced before. We have deficiencies from running the full fiber or close to full fiber network, the maintenance cost of fiber versus copper is less than it's less than 50%. Of fiber versus copper.
We continue to switch off legacy. We have closed down 182 copper center switches. We expect to close 700 additional switches by 2020. We continue to migrate from, our systems to full stack. So All in all, again, we have confidence in an ability to grow OIBDA slightly.
In Spain in 2019.
Our next question comes from the line of Matthew Robilliard from Barclays. Please go ahead.
Two questions, please. First in terms of the macro environment in Latin America, you highlighted that you expect an improvement in Brazil. I realize all countries are different, but if you can maybe give us a sense of what you expect for the main countries in Latin America. In 2019, basically what is embedded in your expectations. 2nd, with regards to asset sales, so you've sold most or all of your Central American operations are in the process of doing it, which is great.
And I was wondering, Is that it for, for, asset portfolio restructuring or in theory conceptually you would still consider or still working potentially on other disposals in the region? Thank you very much.
Well, taking Thanks for your questions. In Latin America, starting by Brazil, we see a strong Brazil growing forward. I mean, going forward, in terms of macro volatility, Brazil, we expect it to grow in 2019. And depending on the level of reforms that the government recently appointed is going to be able to pass through the Congress, this growth can even be accelerated. Remember that Brazil has a significant amount of foreign reserves, more than $380,000,000,000 of foreign reserves.
And therefore, has also been created during the last 15 years, a very strong middle class. And therefore, internal concession has become another driving force of stabilization of the economy. So overall, in Brazil, we, we think it can be a positive surprise in the market in terms of decent growth, robust GDP growth. And it should help to stabilize the region because at the end of the day, Brazil is the heart of Latin America. In Argentina, we see volatility, namely based on inflation driven processes.
We think that the reforms that the government is doing should should finally help to have some stabilization. So we have a better outlook for Argentina in 2019 than in 2018. And therefore, a better performance in terms of GBP. Strong growth in Peru and Chile, strong growth in Colombia as well. So overall, we expect to have a more robust macro environment in Latin America this year compared with the previous one.
And certainly, we are we think we should have less volatility in terms of FX. Namely, certainly, much less headwinds in terms of FX translation into all accounts. So to try and then Venezuela has a very big uncertainty. So I'm going to I'm not going to be able to comment on the Venezuela and situation. It's pretty binary.
So overall, our expectations embedded in our budget for this year is macroeconomic growth in the region, driven by strong Brazil, less FX volatility and therefore a less impact and therefore less dilution of the growth translated into euro terms for Telefonica. And then moving into the portfolio management, as we have stated, since 3 years ago, we are trying to be very consistent. We are not making any divestment. Just for the purpose of just taking debt down. It needs to make financial sense.
We are not going to be destroying value by divest We have classified our assets into categories, assets, meaning geographies, infrastructure and products and services. And we have projected return on capital employed of each of those for the next 2 years. And therefore, we are benchmarking this return on capital employed derived from an organic management with any potential divestment opportunity or inorganic opportunity we may have. And it's in that framework that you should framework the Central American discussion. We have been able to generate more value by integrating those in in some of our competitors and grabbing part of the synergies that are going to be derived for this integration and therefore, creating value.
Are we targeting more portfolio optimization based on return on capital employed? Certainly, yes, as well as we keep investing very heavily. In our own networks and monitoring very closely any in market consolidation that we can have and drive ourselves. So the answer is yes, return on capital employed portfolio approach, certainly going forward, and more capital and more portfolio optimization to
Thank you very much. Thank you, Matthew. Next question please.
Our next question comes from the line of Joshua Mills from Goldman Sachs.
Hi there. Thank you for taking two questions from me. The first is on your Spanish wholesale business. And I wondered if you could just kind of walk us through how to think about growth in this segment as we move into 2019? Because clearly, it was under pressure in for.
I understand there's a couple of one off items there, but it'd be good to get a sense of whether the underlying broadband wholesale revenues the business are growing. I think you talk about a tougher comp year on year in the press release. And then this next year, we've got higher TV wholesale revenues, maybe a bit lower MVNO, but your broadband can continue to be upsold. Is this going to be a positive contributor to the top line performance in Spain? And then secondly, just on Brazil, so it would be great to have an update on the regulatory situation there following PRC 79 headlines and whether or not you think that there is potential resolution to the concession setup in the market today within the kind of time frame of 2019 and whether you think that that in itself is an opportunity to create more value in your 2nd biggest asset?
Thank you, Joshua. Let me, of course, we do not guide on on OB's revenues, but let me talk a little bit about what we see as trends for the revenue. Service revenue in Spain, and I will, in particular, talk about wholesale. As you know, B2C, which is more than 50% of our service revenues has been consistently growing. We are seeing increases in volumes and ARPUs and we have some tailwinds going forward regarding to more for more tariff updates and some end of promotions.
So we think that these trends, will result in tailwinds seen in B2C regarding B2B. We are growing in the last three quarters. The AT growth is, is compensating the comms evolution are selling more digital services in IoT, cloud security. So we see also positive trend. And then in the wholesale and other, there are going to be changes in the revenue function, the MVNO loss that we saw this year will fade out during 2019.
We have recently signed an agreement with Masmovil that will also help on the mobile side. We have accretive migrations from copper to fiber wholesale. Which will continue. And the control presale dynamics, will be relevant because we're going to be we have more content to resell to 3rd parties. Will this mean that the wholesale and other line will become positive Probably not, but far less negative than what we've seen this year.
So in all, this should translate in service revenue acceleration in Spain in 2019. And with respect to the approval from the concession to authorization in in Brazil. There are what we see or our Brazilian colleagues see is that there are increased chances with current political conditions that, that can be taken for approval sooner rather than later, although we don't have any specific calendar.
Thanks. Can I just ask one thing on wholesale? So we've talked about your MVNO losses fading out. You've got the upselling copper to fiber and TV revenues are higher. So what is it that we're missing that means, revenue wouldn't grow?
Is there just declining kind of transport and roaming revenues that we need to think about as well?
Well, you have you have the rate of movement from the wholesale from copper to fiber. Part of that is moving to different types of unbundling of fiber. So you have what called the NEBA to pull a migration, the local or non local access to that fiber have different prices. And this migration with the wholesale agreements we've reached with Vodafone Orange and so on is giving more weight to the local one and also there is self provisioning on on fiber. So it's accretive migration, but the rate is clearly an improvement, but probably will not be enough to turn that line into positive.
However, the trends that we see in B2C And in B2B, compared to this improvement in wholesale, should result in a clear acceleration quarter quarter on the revenues in Spain in 2019.
Our next question comes from the line of Julio Arciniegas from RBC. Please go ahead.
Yes, good morning. Thank you for taking my question. Today's football in Spain is exclusive to Telefonica and Orange. And I believe that OTTs are planning to offer football for the next season. How do you see the risk of losing this to Cbd and facing competition from OTTs?
And my second question is also related to this topic. I guess that if OTC food policy available from OTT, there is a restart or telcos, let's say, Orange might stop acquiring the football rights from Telefonica. Can you give us some color on how the contract between you and Orange actually work out on any moment from the wholesale agreement for football or they have to stay for the 3 years? Thank you.
Thank you, Julio, for your question. The first thing I would like to say is that pay TV penetration in Spain lower compared to other European countries. So there is room for a lot of room to grow in pay TV in Spain. You're right. By regulation, we must make our premium content and this includes the football available, to other players.
And there are some OTT players that are considering entering with different sports, the Spanish market, for instance, the zone has acquired the rights to broadcast MotoGP, the UK Premier League and the basketballs Euroleague. We looked at those contents But we were not willing to pay more than what was justified by a rational economic analysis. And given the knowledge that we have of the base of viewers, we were not willing to pay those type of prices. In any case, if an OTT were or a pay TV telco player wants to get access to our premium content. They need to comply with certain requirements and share that was set by the antitrust authority when we acquired Digital Plus.
This formula has two parts. 1 is a minimum guaranteed cost and then a cost per subscriber. The minimum guaranteed cost is calculated taking into the share of fixed broadband, the share of pay TV subscribers and sets certain minimum cost levels. So in the case, for instance, of somebody like the zone, if they launch their service with MotoGP and other contents, which we think they have announced they will do in the month of March. The pay TV customers that they would have according to those services, would be counting towards the formula.
Also, if at some point, There was to be some coordination of commercial efforts between an OTT and some of the Telco players their shares of fixed broadband and the shares of pay TV would be added up in order for the calculation of the guaranteed minimum cost. Having said this, we have seen in the past, interest of OTTs that have offered even all pay TV football with limited success being connect that was owned by Mediapro. Had this type of service and they didn't manage to grow the customer base. There are some technical factors. Linked to time delays, the quality of image, some technical constraints.
But again, there are very clear set rules for this content to be provided to the players that may request it. And second, we have a healthy pay TV market in Spain with upside still in penetration. Regarding your question on Orange, every player has the right to request on a yearly basis, the soccer rights from us. So Now we have orange, we can see more players or less players asking for those contents in the seasons ahead
Okay, fantastic. Thank you very much.
Our next question comes from the line of Jacob Bluestone from Credit Suisse. Please go ahead.
Hi, good morning. Thanks for taking the questions. I've got two questions as well. Firstly, just staying on Spain. Could you maybe just share with us a little bit your expectations for the sort of competitive environment in Spain?
So do you see pricing continuing to improve. I think you've already announced some price hikes for the first quarter, but just sort of more broadly how are you seeing competition trending? And then secondly, you also had a very good performance in the UK. So again, if you could maybe just share a little bit your thoughts on the outlook for that business? Thank you.
Thank you, Jacob. On the Spanish competitive environment, following a third quarter that had a very high level of commercial intensity the Q4 was much cooler. The dynamics went back to normal. It was a quieter quarter It was quite a third quarter for us and for the whole market. The competitive intensity softened once we removed the football related promotions.
This was followed by competitors removing their most aggressive retention promotions. We have seen a significant portability slowdown to minimum levels, in Q4, especially around Christmas and Black Friday campaigns reappear, but with shorter discounts period. And this Christmas campaign had suffered promotional activity than in previous years. And what we see so far in Q1 shows, again, a rational market, both Vodafone and Orange kept acquisition promos, but suffer softer than the one software during the summer. And Masmobil is merely extending their promos in 2019.
By segments, what we're seeing is that in the high end, we were seeing more for more moves And remember that this is the segment that makes the most of our B2B, B2C revenues, sorry, in Spain, the mid too low end is also rational, given, Masmovil and Diego have in the new portfolio launch on February 19th, more for more in some of their tariffs. So the market is cooler and is is rational. And somehow, if we could say it's polarizing, we continue to focus on the high value customers. Which is the pillar of our business sustainability. And here, we are seeing rational and more formal behavior from different players.
Regarding the UK, sorry. The UK has delivered another set of very strong results, continued customer growth with 284,000 contract additions in the quarter. The total mobile base is 32,600,000, has the sector leading loyalty churn sorry, of 1%. So, we have seen revenue, I know EBITDA growth in the quarter is the 10th consecutive quarter of mobile service revenue growth. There are 2 very substantial metrics.
It's Sarefonica UK achieved this year the highest revenue in a decade and its highest ever profitability ratio. Of course, There are some factors here that are due to the business that are not going to be recurrent. For instance, the adjustment on annual license fees or some settlements we have reached with some commercial partners, but still a very strong performance the UK business and we are confident in the outlook of the business going forward.
Thank you.
Thank you, Jacob. Next question please.
Our next question comes from the line of David Wright from Bank of America Merrill Lynch. Please go ahead.
Oh, hello guys. Thank you for taking the call. If I could just add a little question on the UK there, you obviously have the outage in December, it's clearly it doesn't look to have impacted that very strong set of numbers, but I just wondered whether the the you were seeing in Q1 or in the last couple of months any indications of a little bit of a churn spike? Whether there are any sort of financial penalties that you're going to have to accrue in 2019? If you could just give us a little bit of color on that.
And then I think you've mentioned sort of ongoing deleverage for 2019. I guess, given it's obviously very sensitive, very commercial, that is a comment, expect them Or is that just a comment including spectrum as well, with the asset sales? Should we expect deleverage to continue? Thank you very much.
Thank you, David. On December 6, we lost part of our network. This was to you to a software glitch from one of our suppliers who publicly acknowledged that the software provided by them was to blame and it affected other networks across the globe. What we saw this as an opportunity to learn some lessons and to minimize the risk of this happening ever again. So and we took actions in order to manage the situation with our customers.
And this did not result in any worsening or any spike in churn for some of our customers we credited for customers in SMB and the pay monthly customers and mobile broadband customers, we credited 2 days of monthly airtime for the biggest U. S. U. S. U.
S. U. S. U. S.
U. S. U. S. U.
S. U. Mobile customer we gave some discounts on bolt on purchases and to the enterprise and MVNO customers. We also credited 2 days of our time challenges. The overall impact of these benefits for our customers, versus the commercial settlement we reach with our supplier is broadly neutral.
And what We see that this event underscores also the importance of having a diversified supplier strategy, but no spike in churn financial impact broadly neutral. It's been already reflected in 2018 accounts.
Hi, David. As you know, we have a commitment on solid investment grade and we do not give any specific target on amount of net debt or ratio. Having said that, we also usually talk about free cash flow ex spectrum given the confidential nature of this. But as you've seen in our deleverage path, in 2018, it has been achieved even with the spectrum. And if you look at the deleverage path since June 2016 up to now, which has been almost EUR 12,000,000,000 that has, of course, been achieved, including the spectrum.
So where we talk for 2019, of our net debt continue reducing. That is including the spectrum that we will have in 2019 as well.
Okay, that's great. Laura, just while you're on, could I just ask one very simple question? Is there any working capital movement of any note we should be expecting in 2019 just for modeling?
No, too different from what we've seen in the last couple of years. Now in 20 18, as you've seen, working capital, contribution has been very low, but it's been more because of non recurrent event from the judicial review in Brazil, though, and you should expect a little bit of a contribution of working capital in 20 19 as well, but not a great amount either.
If I may, I would like to compliment, Lara has stated that since June 2016, we have been taking down debt including the post closing event, roughly 1,000,000,000. 1,000,000,000 is roughly the value that we will be getting out of the transaction of the UK or to UK being sold to Hat and blocked by the European Commission in April. So basically, we have been in 2 years reducing basically the same amount that we were supposed to get out of that divestment, and we still have the UK inside. Which is performing a strong extremely well. Best revenues in Adequate, highest profitability ever, and a significant Africa saw generation.
So we'd like to consider that the effort that we have been doing that has been so far mainly organic. Has been very strong and take us to a different position. So and you should expect us to keep going to the same direction.
Thank you very much. Thank you, David. We'll have time for the last
Our last question comes from the line of Mandeep Singh from Redburn. Please go ahead.
Hi, thank you for taking the questions. I have two questions. So just digging into Spain a little bit, if we take out IT services and handsets, I mean IT services seem to have quite a big spike presumably it's a lower margin contribution compared to traditional revenues. Then if you take out IT services and handsets, then there's not really much sign that Spanish revenues are growing. So despite the high inflation in football costs, that doesn't appear to be being matched commercially in the other part of the business.
I mean, is this just an acceptance that too much money was paid for those rights? Secondly, just looking at sort of Colombia EBITDA up 32% year on year in local currency terms UK up over 35%. I mean beyond obviously the operation is being run and managed and performing very well. Is there anything else that's sort of going on any sort of accounting benefits, anything that we're not sort of seeing in the headline numbers, please?
Thank you, Mandeep. On your first question, we couldn't really hear very well, but if I understood right, you were saying that handsets revenues an important element, which actually it is. For us, it's part of our strategy. We think that device relevance is a critical for sustainability of the business. And this is a device and handset sale, which comes with a positive margin.
So this is not linked to subsidies is not money losing revenues, which have a positive margin in OIBDA service revenues. And then you were touching, I think, on Spain and the content cost, service revenues in Spain are back to growth. They are growing in a way that we have not seen in the previous years. This is the result of the improvement of our customer base. When you look at Fusion, we're increasing the number of Fusion customers.
We're increasing the ARPU Fusion customers. We're increasing or improving the mix. Of customers that have packages that include content costs that include TV. And we are seeing stabilization not worsening sterilization quarter on quarter year on year of the Fusion churn at the low levels that we have. We have been before we acquire the content cost, we have been doing lots of numbers about the economics of soccer.
And we think that our strategy is showing the results and is proving right. With respect to any accounting tricks or I don't know exactly what how you worded it on the OIBDA figures in some of our operation or in any of our operations, we don't play and we disclose whatever are elements which are nonrecurrent, one offs or whatever. No, no tricks on
No, sorry.
If I could
just follow-up, sorry, I didn't mean to imply there was any accounting trickery. I just thought the performance is almost too good to be true. So I just thought maybe there may be some accounting changes or sort of stuff like that, but it's that's fine. Thank you for following up.
For instance, in the UK, I think I've been quite opening and we've been transparent in the release and the presentation, annual license fees and 2 settlements with some commercial partners. I think I've said it three times in this conference call. Thank you very much. And in Colombia, there is nothing to talk about.
Thank you.
Okay. Thank you very much for your participation. And we certainly do hope that we have provided some useful insights for you. Should you still have further questions, we kindly ask you to contact our investor relationship department.
Telefonica's January to December 2018 results conference call is over. You may now disconnect your line. Thank you.