Ladies and gentlemen, thank you for standing by and welcome to the Telefonica's Jan March 2018 Results Conference Call. Later, we will conduct a question and answer As a reminder, today's conference is being recorded. And I would now like to turn the call over to Mr. Pablo Egurin, Global Director of Investor Relations. Please go ahead, sir.
Good morning, and welcome to Telefonica's conference call to discuss January March 2018 results. I'm Pablo Huron, Global Director of relations. Before proceeding, let me mention that financial information contained in this document related to the first quarter 2018 has been prepared under international financial reporting standards as adopted by the European Union. From the 1st January 2018, we have implemented IFRS 159. And all financial information in this presentation is based on this new standard.
In organic terms, the effects of accounting change to IFRS 15 are excluded in 2018. This financial information is outdated. 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 risks, uncertainties and contingencies, many of which are beyond the company's control.
We encourage you to review our publicly available disclosure documents filled with the relevant securities market regulate If you don't have a copy of the relevant press release and the slides, please contact Telefonica's Investor Relations team in Madrid or London. Now let me turn the call over to our Chief Operating Officer, Mr. Arcelor Bida.
Thank you, Pablo. Good morning, and welcome to Telefonica's 1st Quarter Results Conference Call. With me today is Laura Abasolo, Chief Financial And Control Officer. Following our presentation, we will host a Q and A session and invite you to ask any questions you may have. I would like to start this call by sharing with you an update on the execution of our strategic priorities First, our total access base reached $357,000,000, highlighting strong growth posted by LTE, smartphones, fiber and pay TV.
In addition, We have increased our own fiber footprint by 15% year on year to a total of 45,800,000 premises passed, with fiber and cable. And advance further in our focus on monetization 2nd, all of our business units delivered revenue and OIBDA growth, excluding the impact of regulation 3rd, We continue to strengthen our differential platforms and advance in our digitalization and monetization journey. As such, we launched Aura in 6 countries, leveraging on cognitive intelligence to enhance customer relationship. Overall, this translated into incremental revenue, OIBDA and operating cash flow growth at a group level, with further net debt reduction In addition, Q1 results are in line with our expectations allowing us to reiterate guidance To review Telefonica's key financials, please turn to Slide number 3. Reported figures for the first quarter reflected the new IFRS 159 accounting standards, with a limited impact on both revenues and OIBDA, However, 2017 figures are reported under ES18.
As such, year on year reported variations are affected by accounting changes. By the negative evolution of FX, regulation, restructuring costs and tower sales. On an organic basis, growth is robust and accelerated from revenues to operating cash flow. As top line grew 1.9%, OIBDA 3.3% and operating cash flow 4.4%. Net income surpassed eur 830,000,000, 7.4 percent more than in January March 2017.
And underlying earnings per share reached Free cash flow of EUR 550,000,000 is a positive result in a quarter, traditionally, negatively impacted by seasonality and is growing pre dividends to minorities. Moving to Slide 4. And based on Q1 results, which were in line with our expectations, we confirm our 2018 guidance, as seen in the table to the top left of the slide. We are well on track to meet our guidance and are executing actions to maintain a solid balance sheet to pursue additional deleveraging, improve return on capital employed, and offer an attractive stable and sustainable shareholder remuneration. We also confirmed the dividends to be paid in the calendar year, per share on 15th June, which is the 2nd tranche from the 2017 dividend.
And per share on 20th December, which will be the first tranche for the 2018 dividend. The second tranche of the 2018 dividend EUR 0.2 per share will be paid in June 2019. On Slide 5, free cash flow generation reached EUR 550,000,000, roughly EUR 50,000,000 less than in January, March 2017. As shown in the graph on the top right of the slide, free cash flow evolution is affected by a 1 off payment to Telxius minorities. Before minorities, free cash flow grows by 15.2 percent to a total of EUR 719,000,000.
This strong cash generation has helped to reduce net financial debt in the first quarter by 1,000,000. This is the best first quarter performance on the last 4 years. In addition, net debt declined EUR 4,800,000,000 in the last 12 months a 10% decline. Let me remind you that Q1 is traditionally impacted by negative seasonality. For the rest of Moving to Slide 6, we will share with you some more details with regards to FX impact.
The largest impact that is affecting the year on year evolution of our revenues and OIBDA in the first quarter is the euro appreciation. This is a factor affecting many European companies. FX dragged OIBDA by EUR 372,000,000 in the first quarter, But impact in free cash flow was reduced to just EUR 26,000,000 as FX also reduced payments in euros of CapEx taxes, financials, and minorities. The use of spot rates for the calculation of net debt versus average rates for the P and L, mainly explains the net debt increase in the first quarter. In the 12 month rolling period to March 2018, FX reduced net debt by EUR 722,000,000.
As you can see on Slide 7, sorry, as you can see on Slide 7, we are delivering positive organic growth across key financials. In reported terms, the year on year decline diminished as we move from revenues down to operating in organic terms in the quarter to 31.7 percent, benefiting from the increasing relevance of digitalization cost efficiencies and synergies. OpEx was stable in reported term. Sorry, and we continue to be more efficient in CapEx with a percent year on year increase due to different phasing versus previous year. This increase will revert in the following quarters as we are covering more Now let me present the progress made given the exponential growth in data traffic.
Therefore, we are enhancing our focus on the 3 levers we employ, attracting bundling and upselling. Each quarter, we integrations. Once they are Telefonica customers, we then bundle voice and data in various ways with tailored and innovative offerings to Forrester upselling. We had exclusive video content to our tariffs and large data allowances or make the prepaid data plans recurrent. The results are positive.
Bundling encourages usage and increases our customer loyalty, while upselling increases ARPU by double digits when customers move, for example, from copper to fiber or from 3g to 4g. On Slide 9, we lay out our platform strategy and why we believe this structure best serves our customers' needs. In the first platform, leading edge networks for tomorrow. LTE coverage reached 92% in Europe and 66% in LatAm. And Ultra broadband coverage is now at 76,000,000 premises passed.
Additionally, we are moving towards 100% virtualization of the network. In the same vein, we are accelerating end to end digitalization in the second platform to advance in real time process automation with the largest full stack transformation in the industry. Our end to end digitalization index is up 9 percentage points year on year to 61%. The evolution of our 3rd platform, products and services has allowed us to offer a distinctive value proposition. Broadband connectivity and services beyond connectivity now represent 53% of total revenues.
Finally, in the 4th platform, we are pioneering artificial intelligence to make the new customer relationship model a reality with 1.3 petabytes of data being processed a month. As a result of these capabilities, we have launched ARRA in 6 countries, as shown on the following slide. On Slide 10, we present our new way of experiencing and interacting with Telefonica based on our 4th platform capabilities. It's a one stop shop for our customer needs, delivered via own and third party apps, which allows customer to talk to technology in real time to get things done. This will build a relationship of trust with our customers based on data transparency and security.
And will have a positive impact in terms of customer acquisition and retention, plus improved brand perception. We have already launched Aouda in 6 countries. And further innovations will come during 2018, such as the Movistar Home device to be launched in Spain. On Slide 11, we are taking a step forward in our digitalization program. An area in which we are pioneers.
We have a clear objective here to imbue digitalization in everything we do. As such, across all geographies, we are focused on the execution of initiatives set around 5 priorities to improve the customer journey to foster sales through own digital channels to expedite payments and collections. To improve provision and technical support and to enhance customer care experience. As a result, we are increasing customer engagement and progressing well towards our goal of more than 1,000,000 savings this year. Now I will hand over to Lauda.
Thank you, Angel. Moving to Slide 12. We present the performance of the domestic business. Trading in value services with a noteworthy churn reduction seen across the board. Fusion continued to post healthy growth in based on total accesses.
Fusion ARPU increased 7.5% year on year. On the back of 30 upgrades and an improved value mix, thanks to the enhanced portfolio. The leading quality and the scale of Telefonica Espana's networks are in Grival, and they continue to deliver growth in both the retail and wholesale business, as proven by the recent wholesale fiber agreement signs with key players in the market. Moving on to Slide 13, we present how the growth profile of Telefonica Espana is also reflected in its financials. Service revenue accelerated their year on year growth to 0.8% in the quarter, on the back of a better performance from retail revenues and spite decline in wholesale revenues, which were impacted by the gradual loss of wholesale accesses from mass mobile and NTR cut.
Excluding this impact, service revenue would have increased 1.8% year on year. As a result of this positive top line trend in combination with cost discipline and lower commercial costs. OIBDA posted a 0.6% year on year growth, and margin stood at 39.5 percent, flattish year on year. Finally, operating cash flow margin stands down among European peers at 28.3 percent despite a slight increase in CapEx due to different phasing versus last year. Telefonica Deutschland slide 14, demonstrated a continuous market momentum in a dynamic yet rational competitive environment.
In the first quarter, the company successfully continued its integration process and was ranked number 2 in the connect mobile hotline test. The first quarter presented a strong KPIs performance supported by solid contract net adds of 157,000 customer and robust partner trading. LTE accesses increased 15% year on year to 16,100,000. Additionally, data traffic continued its strong growth and was up 46% year on year, supported by the NEO2 Free study portfolio. On financials, MSR ex regulation continued its improving growth path, while handset sales registered year on year increase of plus 10.5%.
OIBDA, 4 Series sustained growth of 0.7% year on year and further margin improvement of 0.3 percentage points year on year, with a successful synergy capture of EUR 35,000,000, which more than offset the ongoing regulatory drag. Finally, it's worth highlighting the operating cash flows increase of 7.1% versus Q1 2017, also boosted by CapEx synergies of EUR 15,000,000 and efficient CapEx spend for network consolidation and LTE rollout. Turning to Slide 18, the UK delivered another robust financial performance this quarter. We are highly satisfied with the results of the recent Spectrum auction. In which we won the largest share of spectrum for the lowest price per megahertz.
The 40 megahertz of 4G spectrum we have won enabled us to enhance connectivity for our customers right away, while the 40 megahertz of 3.4 gigahertz spectrum will be for the development of 5G Technologies. Telefonica UK's award winning network remains the largest in the country, with 32,000,000 customers, leverage on sustained growth in higher value customers and market leading loyalty level. This high quality base has led to another strong quarter of organic MSL growth of 2.8% excluding regulation. Leading with total revenue growth of 2.9 percent as consumer and businesses alike continue to choose us to be their preferred network providers. OIBDA was up 6.1% in the quarter, despite the continuing regulatory drag, mainly from roaming like at home, while benefiting from lower annual license fee payments.
As a result of fees and the phasing of CapEx investments, operating cash flow was up 32.9% year on year. Moving on to Slide 16 on Brazil. Our unique assets once again allow us to post a strong set of results. Postpaid Q1 net adds increased by an outstanding 67% year on year with a stable churn rate of 1.6%. New fiber connection accelerated to 102,000 in the quarter, with an impressive take up ratio of 5th percent in the 1st 5 cities launch in 2017.
In pay TV, we continue to focus on IPTV, which has a higher internal rate of return, uses cutting edge technology and currently represents 27% of our total TV access. These quality growth enable us to maintain an outstanding ARPU growth across our main services. On to Slide 17, we saw the consistent and solid financial performance in Brazil. Year on year, once more well above inflation, driven by mobile data and tariff updates. The fixed business trend continued to be affected by the declining voice fixed to mobile substitution and DTH.
These negative effects are partly offset by the outstanding growth of almost 22% in fiber and 67% in IP dollars 1009 underpinned by our ongoing cost reduction efforts built on efficiencies, digitalization and simplification measures. Moving to Slide 18. In Southeast Bank, mobile contract quarterly net adds reached 159,000 well above last year levels, with Peru posting positive figure for the first time in 7 quarters and Chile strengthening the Abwar Springs zone since the second half of twenty seventeen. At the same time, fiber connections posted a 4 fall increase and pay TV accesses were up 7% year on year, while penetration levels still remain low. This focus on quality, along with a better macroeconomic backdrop, resulted in healthy financial results with revenue growth of 7.6% or EBITDA of 10.8% and margin expansion of 0.8 percentage points.
Turning to North Eastbank on Slide 19, it is worth highlighting our commercial success, delivering best in class connectivity through continuous network improvement. In mobile, we reached the highest ever contract net adds in the region, while penetration of smartphones and LTE is ramping up. In the fixed business, fiber adoption accelerated after adding 41,000 new fiber connections in the quarter. However, revenues and OIBDA were negatively impacted by the new regulation in Mexico implemented at the start of 2018. 2018.
Excluding this adverse impact, revenue and OIBDA growth, On Slide 20, we saw the Telesus highlights. The key development to flag is that MARIA cable came into service at the end of March, is now connecting U. S. And Spain. The tower portfolio continued to grow 3% year on year as 24 new towers were added mainly in Spain Brazil, amounting to more than 16,000 in total, while tenancy ratio also grew to 1.34 times.
Solid financials were maintained in the first quarter with improving revenue trends, plus 2% up year on year, mainly driven by tower less. OIBDA margin levels were sustained at 47.6%. CapEx reflected the Air Force deployments of the 2 cables, Maria and Brucea. We expect to reduce the CapEx levels during the second half of the year, when Bruce comes into service. Let's move now to the financial metrics on Slide 21.
Net debt has reduced below the EUR 44,000,000,000 mark, mainly thanks to healthy free cash flow generation. Net debt to OIBDA ratio remains range bound at two 0.67 times despite the usual Q1 seasonality. Our high reliability management exercise had a temporary positive effect on debt reduction in Q1 that will reverse in Q3 when the remaining amount of hybrid with non core September 2018 is called. Overall, the hybrid management exercise has had a positive mid to long term impact. Since 2 sorry, Slide 22 shows how Telefonica keeps on actively approaching the market with over EUR 10,000,000,000 long term financing completed in Q1.
As a result, we have increased our average debt life in excess of 9 years and maintain a liquidity cushion over EUR 20,000,000,000. Therefore, facing comfortably next 2 years of maturity. The interest payment effective cost in the last 12 months stood at 3.50% as of March 2018. Stable compared to a year ago. The positive evolution in Latin America is compensated in Europe due to different coupon payment calendars.
I will now hand back to Angel.
Thank you, Laura. To summarize, first, we are making excellent progress with regards to our strategic priorities focused on our mission to let our customers choose it all. 2nd, we had a healthy start to the year delivering robust financials. And third, we are reiterating our 2018 guidance. Thank you very much for listening, and we are now ready to take your questions.
Thank you. To ask you to maximum of 2 questions per participant. There will be short silence Our first question comes from the line of Joshua Mills from Goldman Sachs.
Hi, there. And thanks for taking the questions. I've got 2, please. The first is just a quite straightforward data points. So on Slide 11, you've laid out quite a few targets for digitalization.
I wondered if you could give a statistic as some other operators have as to how many of your sales, maybe just in Spain, you're actually done online now and how that has changed over the past year or so? And so I think a few operators said it's around the 20% level already. The second is a bigger picture question on your convergence strategy in Europe. So message has always been that whilst we're in conversion in Spain, we're less worried about having fixed line in Germany and the UK, which you haven't had the same level of fiber build in. Now that level of 5 build may be increasing.
You potentially have some strategic options, to go for cable wholesale in Germany if Vodafone Liberty gets approved or maybe buy an asset in the UK. So my question is, do you think that there is a bigger need now for convergence in either of those markets than there was before? And why is it that you think your UK mobile only trends seem to be holding up a lot better than your German mobile only trends when you look at net adds, ARPU, etcetera, on an underlying basis? Thank you.
Thank you, Joshua, for your 2, actually three questions. On digitalization, we have described in page 11 first the 5 areas which we are focusing with regards to customer journey. This and the targets for 2020, we had already put this in the previous presentation in the last quarter. And we are including examples of how in different geographies we are progressing in different points. So for instance, In customer, direct customer interaction regarding to sales, we expect across the group to increase over the next 3 years by 2.5 times the sales in self assisted channels.
Offer personalization is increasing conversion rate in online channels. It also increases value, value sales. So in this sense, Spain is already, showing progress at the end of 2017. Spin has already achieved 40% of sales, personalized. So this is, good KPI with respect to Spanish operation compared to some peers.
Regarding conversions, strategy in Europe. And in particular, with respect to the markets in UK and Germany, We have also always stated and we continue to be of the same opinion that convergence is supply driven. Conversions, is, depending on the specificities of each one of the markets. But what we're seeing both in Germany and in the UK is soft conversion trends with, relatively limited traction so far. We have different hedges to our mobile centric exposure, both in the UK and Germany.
In Germany, We have a long term agreement to access the Ultra broadband network of Deutsche Telekom And in the UK, on the one hand, one of the leading players that is aiming for conversions with is Skye, has been being honest. So we have a partial hedge. And in addition, regulatory measures regarding Openreach are going to be providing progressively access to that network and other independent players are building fiber networks. We keep on monitoring those developments to have access to backhaul or more capital fiber when needed. But we believe that our mobile centric approach in both markets is sustainable.
And I think that you finally were commenting on the different performance of the mobile operations in Germany and UK. These are different disarvery different situations in the UK. We deliver very solid results. We remain being the leading mobile network carrier with a base in excess of 32,000,000 we are growing 0.4% year on year. The postpaid base grew 1.2%, the LTE grew to 7%, reaching a penetration of 60%.
There was increased customer spend in the UK, And we continue to have the leading labor level of customer loyalty with churn below 1% And this has flown into financials in our UK operation. In Germany, we continue to to have progressively better commercial momentum in B2C and in B2B. And we are in a trend that if you through regulation, we are moving towards better mobile service revenue trends. Different markets. In both, we are the leader in terms of number of subscribers in mobile and in both, we are improving or in the case of the UK posting a shining performance.
Just one very quick follow-up. Would you consider co investing with some of these smaller fiber players, either in the UK or Germany to get better fixed line access terms, like a city fiber or a glass fiber, for example,
We're open to agreements with players in order to have the infrastructure that we may need for operations. So yes, we're absolutely open to explore such agreements if they were needed by our operations to deliver to their customers.
Thank you, Jos. Next question, please.
Next question comes from the line of Matthew Robilliard from Barclays. Please go ahead.
Yes, good morning. Thank you for taking the questions. I had two questions. The first one on fiber rollout in Spain. So the regulator has now released what the wholesale prices will be for a fiber.
And then I wanted to get your take on how you view these prices and more importantly, how does that affect your plans in terms of FTTH for allowing Spain? I think this was something you were waiting to have confirmation on to have a better sense of what kind of profitability you could reach from these investments? And the second question with regards to the UK for very good results on the spectrum auction. I was wondering how fast can you put the spectrum at work? And then how does that impact your thinking in terms of any potential IPO for this asset?
Thank you.
Thank you, Matier. With respect to the regulation of fiber in Spain, The Never fiber wholesale price is regulated, which applies to regulated areas is based on ability for Marliva's cost base now is based on replicability. This means that every retail offer from Telefonica must be replicable with profitability by competitors. The new price of Neva service has been set at 17.57 which is clearly better than the initial consultation price and recognizes a price premium versus versus copper, which is significant. This price allows Telefonica to combine the generation of wholesale revenues but at the same time allows for a competitive retail offer and the price will be periodically reviewed every 6 months.
And any more for more strategy will be reflected in nevaprise variations or increases even. So this is allowing for a simultaneous generation of wholesale offers, and we have entered into wholesale agreement with Vodafone and Orange, which are being reflected in the nice take up of the fiber wholesale revenues, the NEBA fiber accesses have multiplied by 2.3% year on year. But at the same time, we can have competitive retail offer will also result in avoiding an overbuilt of fiber in the country. With respect to the UK spectrum, Lefonica UK acquired the most spectrum amount of spectrum in the auction at the lowest price per megahertz. This was an option in which the industry has displayed rationality and the more balanced spectrum distribution will benefit UK mobile customers.
The spectrum is already in use. The first sites because we had been preparing thoroughly for this. The first site went live within 6 minutes of spectrum award and 60 sites when they when they've within 4 hours. And our hundred sites will be already live by the end of April. So on this spectrum is already in play and is giving our customers an immediate boost in the user experience.
So with this successful auction behind us, And the very nice performance of our UK operation, we continue to progress or on the preparation of a potential IPO. For us, the UK market is strategic because it's at the forefront of of the digital customer revolution in Europe. The UK operation is displaying a very good performance. This successful outcome of the spectrum auction is giving us the capability to strengthen our quality proposition. We are stronger company now than we were when we last spoke in the previous conference call.
And imagine if our performance was good so far, from now on without capacity restrictions, how it could be now. So the IPO is still an option. We keep working on it. We will be monitoring market condition. We will be prepared as soon as there is, if there is a suitable window of opportunity.
Next question, please.
Next question comes from the line of Ivan Leals from BBVA. Please go ahead.
Hello. Good morning, everybody. Just maybe one question on football and try to understand how your approach in the next auction on football. The first thing is, I think you're going to have to negotiate the Champions League rights before Lalika rides. Okay.
So I would like to understand if you if you feel you can make different offers for Champions League or La Liga, or falsely, you think that that has to go in the same package? And the second one is do you think the availability of an OTT offer has hurt your return on football rights? And therefore, for the next seasons, you need to secure both OTT package and a normal package. Those are the two questions on football.
Thank you, Ivan. Well, 1st, champions league and the league are separate and different processes. Not only there are different processes, but also the periods of or decisions for both contents are different. No? The Champions League, there is a cycle that starts for the 3 years starting this coming September.
So it in 2019, 2020, 2021, La Liga would be 1 year after the the cycle that starts in September 2019, so 2019, 2020, 2021, 2022. So it's it's they are 1 year separated. As you know, in the last results call, and I'm talking about first, about the Champions League, or on both content, we affirm that regarding soccer rights, both league and champions, we would always be analyzing the cost benefit equation in a rational way. And we also stated that there was a distinct possibility that we may not renew the Champions League contract. 1 quarter on, both statements remain absolutely valid.
During this period, Mediaparos started the process to market the champion league, for the next three seasons. This is an attractive content for our customers, provided that it is acquired at economically sound conditions. The media process, includes a condition of confidentiality, so we cannot give specific details. But what they can tell you is that you should expect us to proceed according to very strict cost benefit rationality. And acknowledging that there is a very distinct possibility that we may not acquire such content.
Then with respect to Aliga, the conditions or even the calendar of the of the auction of La Liga is not clear. It's still in a process of consultation between La Liga themselves and antitrust regulator. So the conditions are not clear. Here, the key issue is whether to be or not to be that is the question. And we will, respond to this question based on what conditions and minimum prices and the possibility of different loads and the possibility of variable prices.
But always, with a rational cost benefit analysis. And you were asking about, the over the top offer on those rights, the conditions of the auction of of La Liga, not clear. But I would think it would be unwise for La Liga to set conditions that would shut off the main distributors. I hope this answers your question.
Next question comes from David Wright from Bank of America. Please go ahead.
Yes, good morning, everyone. I think, historically, you guys have talked about the potential for some asset divestment or portfolio restructuring in Latin America. And there was a clear move obviously to recategorize the North And Southern regions with, I think it's quite clear some significant underperformance covering coming from the north. Mexico in particular, Venezuela looks literally like it's trending down board 0. Could you talk a little bit about your ambitions for those assets and how you can stem some of the declining return on capital profiles there, please?
Thank you, David. We constantly monitor our portfolio of assets to improve according to profitability, return on capital employed criteria and derived better strategic positioning for our portfolio from those. When we restructured Span America, along the regions, we wanted to recognize 2 different realities in his Pano America South, we are mostly, former incumbents with fixed and mobile capabilities, strong market positions. Which have a very different approach to what we have in East Palm North are mostly mobile centric attackers with exception of Colombia where we have more capabilities. In both regions, we are aiming to improve our strategic positioning and return on capital employed.
We're talking specifically about Mexico. I think in Mexico, we are, we are focused on organic development and improving the return on capital employed in our operation. We are focusing in the 26 biggest metropolitan areas of the country, covering the rest through roaming and agreements and franchises. We are in Mexico, the only non incumbent mobile operator that positive for EBITDA and operating cash flow, which is a differential for our asset. But at this moment, our performance is suffering from the change that we had in the interconnection regulation.
We are open to roaming agreements. We're open to franchises. We're open to agreements with other players. And we continue to monitor all the strategic alternatives. But we are focused in the organic development of our business, in securing the value of our business, while we explore all the optionality with respect to other potential alternatives.
I don't know if you were interested in some other geography.
No, no, I think that's fine. And maybe just my second question, if that's okay, Hidal, if just one say, can we obviously saw the wholesale revenue line deteriorate with the MVNO loss Can you tell us whether that was a full quarter's impact? Should we expect the same kind of drag through the rest of this year?
Yes. Well, the different components of the wholesale line are are no. On the one hand, you have the negative coming from the loss of the mass mobile MVNO. And MTR price cuts. And this is mitigated, but not fully compensated by growth in fiber wholesale, never fiber wholesale TV and roaming revenues.
This will be the the trend for the whole year. But what is important, as you must have seen in the first quarter results, is that the positive trend that we're having in B2C and the positive or improving trend that we were having in B2B more than compensate the decline that we're going to suffer this year on the wholesale line. So Spain is back to mobile service revenue growth. It's actually accelerating that mobile service revenue growth. And Spain is in OIBDA growth and accelerating from the previous quarter as well the OIBDA growth.
So we are managing through a very good traction in B2C, which by the way is seeing reduction in churn in all its lines. And an improving trend in B2B, we are managing to compensate for the impact that wholesale line we have in service revenues this year.
Next question is from Mandeep Plinch from Redburn. Please go ahead.
Thank you for taking the question. Given your commentary around the different business lines in Spain, I don't know you don't give sort of single country guidance, but do you see the sort of current trends as roughly sustainable, the around the 40% margins in Spain and service revenues to stay in positive territory for the remainder of the year. I accept this quarterly movement here and there, just directionally speaking. And the second question I have is on the UK. I mean, it wasn't that long ago you deemed this asset wasn't strategic and it was up for sale.
Somebody else that deal got blocked. And now you're saying the asset is strategic. I'm sort of trying to understand what's other than the fact that the regulator blocked the sale, what's change your mind to make the asset strategic versus non strategic before? Thank you.
Thank you,
Mandeep. Your first question is becoming a classical one now in these calls. As you know, we do not guide revenues by regions. But, and we don't guide by quarters. But, as you can see, B2C service revenues have been steadily improving throughout the last quarters.
We have been seeing a first quarter in which the promotional activity was not there. Lots of rationality, more for, more moves by buy on or by most players. We have seen increases in volumes And we are seeing increases in prices with reduction in churn. These are good trends. In B2B, the trend should be better because growing IT revenues will mitigate the traditional communications decline and we will continue to sell more digital services, IoT, cloud security, these type of services.
We will be aiming for stabilization in in B2B, which already showing a very good improvement in Q4, B2B was declining minus 2.6 in this quarter is minus 0.6. And then wholesale and other, I already commented in a previous question. There is also differential factor this year versus last year, which is handset sales, targeting more traction on more more commercial activity. So we do not guide on revenues. But we are reasonably optimistic.
With respect to the UK, we think we have the best mobile asset in the UK. We have probably the best management for a mobile company in the UK. Our performance is displaying this. We have even when having some capacity problems being able to maintain the best customer satisfaction, to maintain the best customer loyalty in the market. And we're experiencing margin improvement while we grow also our revenues.
So we're happy with with this company, regardless on how the market may evolve in the coming years. To own the best mobile franchise in the UK. We think it's a very valuable position to be in.
Thank you.
Next question comes from Kevin Keyroyer from Deutsche Bank.
On Spain and one on LatAm. On Spain, there was some recent press reports saying that you could launch a new low end brand. After summer. Can you talk about whether you're happy with the current brand strategy, whether you think 0 is serving the loans sufficiently or whether you think there is a role for more brands within your Spanish business? And secondly, going back to the question around LatAm and your return on capital there, I think Chile and Peru are 2 markets which have been reshaped by the smaller players and you entered in the past few years.
Do you think there's any scope for consolidation in those markets Thank you.
Thank you, Keval. Regarding the possibility that has been speculated in the press about potentially your brand. At the moment, Movistar and 20 are suiting all market segments. We are getting good traction on both brands, which are positioned at different segments of the market. Without cannibalizing or competing themselves.
But we constantly work to improve our offer segmentation to provide to all of our different types of customers with the most appealing and competitive products and differential customer experiences. Nothing has been decided on this front so far. And then I think you were talking about Chile and Peru and the possibilities of consolidation. In those markets, we are focused on organic development These are two markets that have suffered a lot of pressure from new entrants. We think that the situation in both is different.
Potentially Chile may have touched the bottom, and we're seeing pretty encouraging developments on Chile. Peru is still in a more competitive position. However, we are back to positive commercial traction in Peru in terms of net adds in mobile, in terms of portability. And we continue to have strong fixed performance in Peru. And turnarounds normally start by better commercial traction, which then turns into better revenue traction, which eventually through efficiencies transforms into better profitability.
We're still in early stages in this turnaround. But we are seeing the commercial, we are seeing the commercial good part in mobile, and we continue to be strong in fixed It's difficult to speculate about potential consolidation in those markets. We always monitor developments that can result in better value for our operations in the markets where we operate. But at this stage, we are focused in organic development.
Thank you, Keval. Next question, please.
Next question comes from Georgias Eridakiou from JP Morgan. Please go ahead.
Hi, George, just on Citi. I have two questions, please. 1 on Germany, And one follow-up on KeyBanc's question from earlier. So the follow-up is around Chile and Peru. There is a change, as you mentioned, of your commercial approach in Peru in particular, if I'm not mistaken, the marginal 20% even if we strip out mobile, it will imply fixed line margin of around 40 and mobile of around 0.
So I was just trying to understand from your perspective if there is scope for margins to start stabilizing. You mentioned the commercial improvement or whether you think you may need to go into negative territory in margins, which is where your competitors are in order to the mobile competition? And then my question on Germany is just to get an understanding of the partner revenues or to yesterday reported a significant slowdown. And obviously, there is significant growth in usage of partner revenues both within the MBA contract and from some of the other partners you have in aggregate. I understand it's difficult to comment on a specific contract.
But for the wholesale revenues as a whole, is it possible to give us an idea of whether you are expecting a further slowdown, perhaps even a decline or whether you believe this is a temporary phase and even the significant growth in access as you are seeing there, there should be any acceleration at some point in the next few quarters.
Good, Georgios. First on Peru, let me give you some more color. We're selling, as a response to a previous question, that we are turning around commercial trends seen in Peru. Let me give you some figures in postpaid. We are in positive net adds after seven quarters.
In prepaid, we're also in positive net adds. We are in positive net portability. In fixed, where I was stating that we maintain our strong position, We are focused in cable development with record fixed broadband and pay TV gross adds. Pay TV accesses. Posted a 9% year on year increase and fixed broadband, 7% year on year increase.
So we are having very positive commercial traction. Prices continue to be under pressure, especially on the mobile side. And you can see this in the revenue evolution. And OIBDA, I think you were talking about the margin. OIBDA has taken a decline and the margin has been reduced, but we're still at 19.6% of EBITDA margin.
So this is I think an example of or a reflection of how our Peruvian colleagues are managing not only to reactivate activity on the commercial side, but also work very strongly on efficiency measures to maintain the profitability of the company, which by the way is generating positive operating cash flow in spite of accelerating part of their CapEx. We don't think that we need to erode OIBDA margins to the levels that some of our competitors are displaying because we have already been working for a few quarters on this Peruvian turnaround. And now it's starting to show the signs. With respect to Germany, and I thank you for the question. We believe that yesterday concerns regarding this topic were over And probably because we didn't explain ourselves well yesterday.
According to our German team, the B2B segment in Germany is in good health, with positive commercial traction and financials growing year on year. We are seeing higher migrations to the MBA contract that will derive additional revenue opportunities in the future. And at the same time, we are optimizing low margin service providers, including shifting some business to our customers. This internalization of reseller into own business is neutral on top line and neutral to positive for no FDA. But in any case, what created the concern yesterday is an negligible effect on OIBDA, about 1,000,000 or less.
Which is marginal for a company that generated over EUR 400,000,000 in the quarter. I'm sure that the Telefonica Deutschland Finance And IR department stand ready to give you all the additional proper explanations that you may need. But again, concerns are in our opinion over them the B2B business is doing just fine.
Next question comes from Akhil Gattani from JP Morgan. Please go ahead.
Please. First on Argentina, I guess a big picture question. If we look at the last 5, 6 years, we've had sort of a compound 20 percent currency pressure. Each year. Despite that, if you look at the euro denominated financials, you've managed to keep a broadly stable EBITDA performance of about 1,000,000,000.
I guess just keen to understand, what are the moving parts here? How sustainable you think it is? Is it down to underlying price increases? Are there any accounting issues in that So just how do we think about that? And then the second question was on the UK, and I guess it's a follow-up to Mandeep's question.
You've talked about the UK strategic. I guess what I'm trying to understand within that is firstly, fundamentally, operators in the market are introducing CPI based price increases. So is it partly down to revenue outlook? Can you comment on that? Is that partly down to what's making you more comfortable?
And linked to that, you're still talking about IPO ing the asset. So I guess keen to understand if it's strategic, what is the merits and rationale behind considering an IPO?
Thank you, Akhil. First on Argentina, I think that, we should, to summarize in a sentence, Argentina is growing very strongly, even when converted into hard currency. We are managing, to grow the revenues through price increases through higher consumption, to growth in high value customers, both in fixed and in mobile. We're achieving or we're managing to achieve, I'm talking historically because I cannot talk forward looking on this asset. We are managing to grow above inflation.
And also cost or efficiencies are allowing us to grow costs, below inflation. So our OIBDA is, again, growing above inflation. And this is what is allowing for us to have a performance that in spite of the FX evolution is allowing our Argentina asset to be growing and growing strongly even when converted into hard currency. With respect to the UK, the asset is or the company, again, is performing
nicely on the commercial front,
our customer base in a market which overall is not growing that much. We are managing to grow our customer base. We are improving our ARPUs. We are having the lowest churn in the industry. So we have a strong customer base.
We have Yes, in our revenues, there is a impact from items like CPI, Also, as you saw, we are expanding margins in OIBDA. Part of that has been from the reduction in an annual license fees, but also the commercial or the revenue traction and efficiencies are embedding into that. And the company generates substantial cash flow. So we think it's a very attractive asset, again, in a market that we believe is at the forefront of the digital customer revolution in Europe. And for us, it's an asset that is strategic.
The merits of a potential IPO if market conditions were there, is this company can grow faster depending on how the market evolves in the future. Being a listed company can provide strategic and financial flexibility and proceeds from such potential IPO would also be helping in our continued and recurrent effort to improve our balance sheet at the group level.
Great. Thank you.
Thank you, Akil. Next question, please.
Next question comes from Giulio Telescas from RBC. Please go ahead.
Two questions on Spain. So the first one, based on the Spanish regulator, Telefonica's broadband net adds in January, actually they were quite strong. 18,000 net adds. However, Telefonica ends the quarter with losses I think like 6000 net adds. Hence, it looks like competition landscape in Spain has increased after January.
Can you give us some color on what are the drivers that has made like a very good start for Telefonica Engineering to losing subscribers by the end of the quarter? My second question is regarding the comments on football rights. ARPU in Spain has been increasing with more for more example, given football to customers. In the case, the company decides not to renew the football rights as it has been commented how would the company avoid churn increase? I would think that actually the satisfaction from customers will actually drop if that happens.
And also, don't you think that actually this move might benefit operators like Masmobi? Thank you.
Thank you, Julio. On your first question, I would throw your attention to Slide number 12, where you can see at the top right that we've had very positive commercial traction in the quarter in fiber in neva fiber, in TV, mobile contract. And slightly negative, as you said, in fixed broadband. Should take into account that this fixed broadband is composed of fiber, but is composed of copper. So, as you would imagine, through migrations and through traditional normal commercial activity, and given the very strong offering and coverage that we have in fiber in this country, customers are taking up more and more fiber either directly from us or through some of our competitors to whom we wholesale.
And they are doing less of TSL and copper. So fixed broadband, which includes both is declining, but fiber, which is the important part of of this is going up. No. And there was potentially some mishap in the publication of figures by the CNMC. With regard to your second question on soccer, as you can imagine, we are simulating all type of scenarios.
We're simulating scenarios of what would be the economic impacts for us and for our main competitors, if none of us had the soccer. If all of us had the soccer, if we didn't have the soccer, but some other players had the soccer, And we are simulating all these scenarios. We have the biggest base of of TV customers in Spain, we have lots of data about the number of customers, which can assume which type of content. So we have a very good visibility on how to assign profitability to the different scenarios. So you must be ensure that we are running all these scenarios, that we are making all these simulations and that we are factoring all those into into the decisions that we will need to take in the coming months, on potential soccer rights options.
Where again, we will be very rational. I already said that the Champions League content is attractive. At the right price. Lalija is attractive at the right price. So we will be applying, but it's big economic cost benefit analysis to those decisions.
And we are simulating what could be the impact and the situation with respect to different scenarios, not only regarding current telco players, but eventually, which has been rumor and we have no certainty. Some over the top players were also bidding for those for those freights.
Okay. Thanks. If I may make a fast follow-up so the publications So I get it right. So the publication of the Spanish regulator is not correct about the broader networks of January of Telefonica?
Was wrong in January.
Next question comes from Sam McHugh from Exane. Please go ahead.
Yes, good morning. Thanks. Two quick questions for me. First one on O2 UK. I just wondered if you could share what the book value is and whether if you did an IPO or if you did do a sale, whether there would be any tax implications?
And then secondly, you raised an impressive amount of financing in Q1, EUR 10,000,000,000. I think you said, have you seen, what can you say about the rate at or raising financing year over year? Has there been a bit of pressure because of raising rates? Thanks very much.
Please repeat the second question.
Just on financing, how have the, the rates you're raising debt, changed year over year?
On your first question, I think we do not disclose the book value of of our assets. And we cannot disclose, would be premature, any tax implication. If there was a transaction, to take place, which at this moment is uncertain, these impacts would be disclosed But at this stage, 1st, it's uncertain and second, there are some figures that we do not disclose publicly.
Joel, no worries.
The second was, sorry, Sam?
Just on financing. You raised EUR 10,000,000,000 of new debt in Q1 you mentioned or year to date. And I just wondered what the rates were like year over year. So compared to the debt you're raising this time last year, has the average cost of interest gone up or down or is it broadly stable?
We couldn't understand the question at first place. As you've seen throughout this quarter, we've been very active in refinancing we have refinanced with issues of EUR 10,700,000,000. As a result of that, we have continued length at our average life of death to over 9 years, we are continuing increasing the fixed component to 72% So far, as you've seen in the interest payment costs, our payment costs in the 1st Q is around 3.5%. In cash terms. That's fairly similar to last year, which was 3.48%.
You have to also when you look at the difference between the payment and the P and L this quarter. We are accounting in payments. The majority of all of the coupon of some bonds that we issued the first quarter of the year, the first quarter of 2007. So there's going to be less. It's not going to be with that amount of payment coming throughout the remainder of the year.
We will continue monitoring credit markets diversifying investment investor base and selected the right timing. But I think with the amount of activity we've done, throughout these 3 months of the year, we will be more calm thereafter for the remainder of the year.
Awesome. Thank you very much.
Thank you, Sam. We have time for one final question, please.
Our last question comes from Nicholas Deidou from Berenberg.
To choose 2. One question would be regarding your credit rating with Moody's. I mean, the credit ratio shows that you should be, upgraded, but still you are at Baa3, I was wondering what could be the impact on your refinancing should Moody's upgrade, your rating? And the second question would be on your Spanish content and the side from wholesaling that content to LatAm and potentially to Netflix. Can you give us a bit of an update on on potential discussions you may have there.
Thank you.
Yes. We are quite comfortable with the credit ratings outlooks at the moment, each we are in the 3 cases in a stable outlooks Obviously, we would like an improvement from Moody Moody's. I cannot deny that, but credit agents ratings are comfortable with our strong free cash flow generation last year, our net debt, deleverage focus on organic growth, but also some inorganic movements as we did last year with Wiltel Sius and they are also happy with a hybrid activities. So we are quite comfortable that with the stable outlooks we have at the moment, and we have gone through we go through regular yearly meetings, and we just have gone through the meetings with the 3 of them in the last month. I can tell you that we don't think Moody's rating is affecting at all, our access to markets.
As you've seen, we've been very active this quarter, not only on the bond front, also in the syndicate facilities, we have achieved a very competitive cost So we believe our investment grade rating is good enough for the access of the market. And I think the numbers we show in the presentation today prove that it's not having any effect to the best of any impact to the best of our knowledge.
And regarding own content of Telefonica, First, Movistar 0 is the most viewed pay TV channel in our platform after being the soccer. We are also producing contents in motor, in MotoGP and Formula 1, which are increasing significantly their audiences, and we are enjoying at this stage dosing in exclusivity. We are having excellent acceptance of our in house series among Movistar customers. And this not only in Spain, where we are having very good traction, but we're also going to be selling this abroad MobiStar Cities will arrive to 13 countries in 2018. We are aiming to reach in addition to the close to 4,000,000 pay TV customers in Spain with viewing serious, more than 3,000,000 in ispam.
And eventually through our top platforms, we can reach our more than 110,000,000 movistar mobile customers in Espram. Some costs will be recovered through foreign distributors as well. Probably not to competitors in those geographies where we would aim to have that content for us, but our ambition is to recover 20 percent of serious costs via those foreign distributors. And finally, also in production in sports, although it's still newborn, it's already getting those subtraction and we are the main reference on this. So we are happy with our original production.
It's giving us differentiation and lots of traction with customers. And we are being able to leverage it across our Latin American footprint quite successfully.
Can I ask a sub one? Just I was looking at one news on Bloomberg quoting the expansion on the long term incentive plan and kind of the 5 year plan. I mean, can you give us a bit more color dimension, TSR, will it be relative absolute? What kind of targets do you set? Thank you.
The long term incentive plan needs to be approved by the AGM. We have plans of that kind in the past as well. We haven't had those plans for the last 2 years. It's a 3 year plan, what we are taking for approval. And in order to have the shares for the employees, it has to be a combination of the share price performance together with free cash flow.
So thank you very much for your participation. And we certainly do hope that we have provided some useful insights. Should you still have further questions, please contact our Investor Relations department Good morning and thank you.
Telefonica January, March 20 18 Results Conference Call is over. You may now disconnect.