Hello, good
morning, and welcome to Telefonica's conference call to discuss January, September 2017 results. I'm Paulo Yaron, Head of Investor Relations. Before proceeding, let me mention that financial information contained in this document related to the third quarter has been prepared under International Financial Reporting Standards. As adopted by the European Union and that 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 telephonic outlook of these statements may include financial or operating forecast and estimates based on assumptions or state 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 security 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. Now let me turn the call over to our Chief Operating Officer, Mr. Angel Villa.
Thank you, Pablo. Good morning, and welcome to Telefonica's 3rd quarter results conference call. With me today is Laura Abasolo, Chief Financial And Control Officer And during the Q And A session, you will have the opportunities to address us with any questions you may have. Telefonica continues to execute on its key priorities. 1st, organic growth was consistent and profitable.
Revenue and revenue per access acceleration were supported by strategic KPIs. Namely fiber and LTE, data monetization and churn control. OIBDA continued to post a positive increase despite the negative drag from Rome Lake at home this quarter. 2nd, thanks to cost control simplification synergies and investments carried out in recent years, along with a focused digitalization program, we are more efficient and we will continue to optimize resource allocation. And third, our balance sheet was reinforced with enhanced solvency and liquidity.
We are committed to deleveraging reflected in the EUR 3,600,000,000 decline in the last 12 months including the Telxius deal, which already closed this week. Strong free cash flow is a driver of the deleverage and was 39% higher than the figure posted in January, September 2016. In addition, we continue benefiting from positive bond refinancing. As shown in Slide 3, we are well on track to deliver our full year guidance across all three metrics. Regarding the dividend, we confirm the per share in cash for 2017 consisting in two tranches of EUR 0.2 per share each, with payments to be made on 14th December of this year, and June 2018.
Finally, our objective is to maintain a solid investment grade rating. To review financial telephonic snapshot, please move to Slide 4. 3rd quarter consolidated revenues reached almost EUR 12,800,000,000. Growing in organic terms, plus 4%. An OIBDA reached 1,000,000,000 growing 2.8% in spite of being impacted by European Rome like at home regulation.
Reported headlines in the quarter were also affected by negative FX contribution. Looking to the 1st 9 months of the year, margins stood at 31.6% and expanded 0.3 percentage points year on year organically, proving a strong execution. At the same time, a distinctive declining CapEx strength drove the high single digit organic increase in operating cash flow. Growing above 9%. Free cash flow and net debt are also improving as we will explain later on.
Moving to Slide 5. Net income grew 10% versus the January, September 2016 period. Outpacing OIBDA growth by 67 basis points as financial expenses posted better performance. As such, net income reached 2,400,000,000 and earnings per share, or in underlying terms. Up almost 9%.
As seen on Slide 6, In the third quarter, we posted a progressive improvement in free cash flow, leading to an increase up to September of 909 1000000 year on year or 39.2 percent. The main component of this strong free cash flow growth was the operating performance of the business We expect free cash flow to continue improving in Q4 maintaining a healthy growth year on year. Let me also mention that net financial debt continued its consistent declining trend fueled by organic drivers. Slide 7 takes you through the different moving parts affecting OIBDA evolution. The most remarkable is the organic contribution to total OIBDA growth in the 1st 9 months of the year of 1,000,000 versus a negative FX impact of 1,000,000.
Sorry. In the third quarter, I would also like to highlight the organic figure of EUR 119,000,000 despite approximately 1,000,000 negative effect from Rome like at home regulation. Negative impact of FX increased markedly in the quarter to minus 1,000,000 or minus 5.4 percentage points on year variation, mainly due to the peninsula and devaluation, and the depreciation of Argentinian peso British pound and Brazilian real. Again, It is important to highlight that the FXracato EPA is naturally hedged in our business. Due to CapEx, interest payments and others.
And thus, up to September, the negative OIBDA impact was offset completely To review the good quality Revenues accelerated in the 3rd quarter, 90 basis points leading to a growth up to September of 4% year on year excluding regulation. The main contributors were e spam and mobile data, which both grew at double digit rates. And the return to service revenue growth in Spain. Service revenues improved farther to 3.3% in the July September period. With all segments increasing year on year performance, despite regulation except Germany.
The revenue mix continued to transform as reflected in the accelerated change from traditional services towards connectivity and new services. Finally, the strong commercial momentum built on our high value base is flowing directly to Our strong focus on data monetization to We continue to develop our prepaid value proposition in LatAm around recurrent plans and tiered pricing schemes. We also sorry, we also continue to apply more formal strategies to improve value for money and ARPU. On the back of new bundles, richer in mobile data, video or data sharing. We have leverage our digital capabilities with focus on flexibility and real time by launching a new prepaid concept based on mobile applications, in Mexico and Brazil.
The benefit of all these actions is a consistent growth in volumes and ARPU accretion that translates into steady year on year increase in mobile data revenue growth. In addition, on the fixed business, Data volumes continued to post high growth, driven by the higher fiber to the home penetration. Slide 10 takes you through profitability. During the last three months, OIBDA year on year variation reflected the negative impact of the new Rome Black at home framework, which deducted 1.7 percentage points affecting our UK and German businesses. This effect, along with tougher comps in Argentina, broadly explained the lower performance versus the second quarter.
OIBDA maintained a positive growth in the quarter, And in the 1st 9 months of the year, it reached 5.3% excluding the regulatory effect. As we continue delivering efficiencies and operational improvements. This, together with our ability to reduce CapEx -2.3 percent year on year led us to post an outstanding 9% operating cash flow growth, with all segments improving, with the exception of UK, which is focused on an accelerated LTE rollout. On Slide 11, we show the revenue growth opportunities based on upselling existing customer relationships. First, in the speed and capacity wave, we are monetizing the investments made in ultra broadband with a price premium premium on fiber versus DSL and a higher ARPU uplift from LTE customers.
2nd, in services beyond connectivity, these functionalities add further ARPU. TV is the main driver, along with other services, such as the Skype operation in Germany, or the OOPS smartphone insurance included in UK this quarter. 3rd, Oda, our cognitive power, will improve cross selling and encourage upselling through recommendations increasing customers' loyalty and reducing churn. In this context, Our long term value creation strategy will be built on our customers' higher loyalty, their value and their trust in us. Digital services are providing a differentiated offering, as you can see on Slide 12.
In Video, we continue to invest in quality and scale with differential content and technology. Thus, our IPTV base continues to grow, up to 40% of total. And revenues were up 6.8% year on year on higher ARPUs. We are also proud to be producing and distributing our own original content. Our other digital pillars posted strong results in the quarter, with the exception of security or albeit the B2B performance in this area has been impressive.
In machine to machine, we are focused on smart mobility and smart retail. While in cloud, we have new projects in Spain and Brazil. Turning to Slide 13. You can see the key role of global resources in our journey to become a digital company. Outstanding connectivity was enlarged to approximately 43,000,000 premises passed with fiber and cable.
While LTE coverage reached 69% across our footprint, and 90% in Europe. Network transformation is being accelerated as we continue to deploy our virtualization program, Unica, across 5 countries, enabling software driven networks to have more capabilities and functions smarter. And let me remark that digitalization is already a reality in Telefonica with 55% of our processes and 2 end enabled. This is mainly the result of the end to end digital management of already 19% of customer base, driven by full stack projects. And the huge increase in our big data capacity.
In short, big progress has been made enabling us to better compete in the digital world. Our vision as a platform company We've close to EUR 54,000,000,000 invested from 2012 to 2017 positions us at the forefront of digitalization. On slide number 14, digitalization is the driver of telephonic gas differentiation and efficiency. We have built best in class networks and our leaders in fiber deployment in Europe and LatAm. This is being complemented by switching off legacy networks and is the foundation for the digital revolution, which lies ahead of us.
Beyond these, services like cloud, IoT, video, and digital home innovation equipment among others are improving the customer experience. Today, we are immersed in an end to end digitalization program. Addressing first, transformation of key processes that support customer interactions. Sales, service provisioning, payments, top ups, post sales and technical support. And second, network transformation.
Moving towards all IP networks, virtualizing the networks and using big data to ensure the best quality experience while optimizing return on capital employed. And tomorrow, we will move towards digital customer engagement, where the network adapts to the needs of our customers dynamically, offering a personalized experience. This will lead to brand differentiation improving the customer perception. And as we have mentioned before, having new revenue streams. On the next slide, number 15, we are currently in full deployment of an end to end digitalization program to transform customer processes and network.
We are making our processes automated and real time, fostering digital channels, reducing assisted channel interactions. And improving customer experience. These initiatives have an impact on operational KPIs. And will support higher revenue growth and reduce both OpEx and CapEx needs. The main impacts so far are coming from reductions in back office costs, customer care, invoice printing, commissions and payments and the cost of technical support.
At the network level, the main initiatives our all IP networks, which are much more efficient and support more and better services. Radical network virtualization, optimizing CapEx required and with much faster deployments. And using big data for network planning. Our operation in Spain in Slide 16 is a showcase of the tangible benefits of digitalization. Its transformation process started in 2012.
So far, driving benchmark efficiency and business enhancement. Let me highlight. On the commercial front, we started to optimize all channels and customer processes involved in the customer journey, resulting in better time to market CSI and lower commercial costs. At the network level, widespread fiber deployment IP migration and legacy switch off, and allowing us to reduce failures and improve quality of service leading to lower maintenance costs and new revenues. IT And Systems simplification standardization and automation, fast reduce manual tasks and enabled end to end data management fence, reducing costs and CapEx.
Finally, digitalization and simplification, have allowed us to improve productivity and redeploy human resources in a more flexible and effective way. And this has not ended. There is much more to come. Moving to Slide 17. Digitalization is gradually being adopted group wide.
And we are starting to see the benefits of it in terms of self management levels and process automation. Let me illustrate this with customer on operations is boosted by business initiatives to become digital and supported by key technological enablers. As you can see on the left hand side of the slide, expectations for 2018 are promising. In terms of first, post sales and customer care and support, providing real time information, fostering the self assistant channel to reduce call center activity. 2nd, redefinition of the sales processes to improve effectiveness and work in the channel mix to boost online activity.
And third, technical support improvements, working to increase remote resolutions. Therefore, all these should be translated in a more efficient business model. Now I will hand over to Laura.
Thank you, Angel. On to Slide 18, Spain recovered commercial momentum following the launch of new convergent bundles with Verential TV in July. TV net adds double quarter on quarter, fixed broadband gain traction heading in the right direction. And mobile contract posted best quarterly net adds of the last 10 years. Moreover, our focus on value continued to sustain a value mix improvement in Fusion.
High value packages increased to 26 percent of customer base and ARPU increased 7.1% year on year to almost EUR 88. Segmentation of the offering and our best in class assets brought about this positive dynamic. Continuing with the Spain Financials on Slide 19. Service revenues were back to growth year on year, plus 0.4%. A sequential improvement of 1.2 percentage points, driven by improvements in all segments.
2, cost containment led to an improvement in the OIBDA trend in the quarter, declining 0.6% year on year, excluding real estate gains. While margin reached 41%, plus 0.7 percentage point versus Q2. Rome like at home regulation, had a marginally positive impact in the quarter. CapEx declined sharply, minus 14.5% year on year in the 1st 9 months. And translated into a robust cash flow generation of EUR 2,600,000,000, up 4.7% year on year, excluding real estate sales.
On Slide 20, Telefonica Deutschland remain increasingly focused on the data monetization opportunity in a competitive environment. Bigger data buckets fuel, mobile data growth, close to plus 49% year on year, with O2-three fifteen customers usage of more than 5 gigabytes. The new 23 portfolio is setting new standards for mobile freedom with ARPU up potential. The mobile service revenue trend improved this quarter to almost flat year on year, excluding regulation. OIBDA was 0.1% down mostly reflecting regulation, a EUR 28,000,000 drug, mainly related to Rome Lake at home.
Nonetheless, incremental synergy savings of EUR 40,000,000 were achieved and margin expanded 0.3 percentage points. Finally, operating cash flow reached $630,000,000 in the 1st 9 months, growing by 12.9% year on year, reflecting lower CapEx intensity. Moving to our UK business on Slide 21, where we continue to post strong operational results. Our innovative offerings focus on our customers' needs are driving our sustained market leading contract churn levels. Contract customers now account for 63% of our total base.
LTE reached 58% penetration, and we are successfully driving data adoption with usage up 55% year on year. O2 UK's financial performance this quarter reflects the impact from Rome Lake At Home as expected. However, it must be noted that we continue to grow both in revenues and mobile service revenue as our customers spend more with us. OIBDA was down 4.7% in organic terms, reflecting the roaming impact and leaving margin at 25.7% this quarter. Operating cash flow in the 1st 9 months was slightly down 0.9% year on year, improving sequentially as CapEx levels gradually ease as our LTE network rollout nears completion.
Moving on to Brazil now. On Slide 22, During this quarter, Telefonica Brasil widened its quality gap, reaching 76% 4 g coverage and connecting 18,000,000 premises with fiber. Throughout the year, we have increased our 5 year reach to 12 new cities, where we are already capturing 82 percent of ultra broadband market. With an impressive take up of 40% out of the premises we have passed. Moreover, in mobile, we are also growing in the most profitable segments, grabbing 46% of contract net add share from January 2 hours.
While with the new portfolio, we announced in recent days We reinforce our position with unique and innovative futures, fully aligned with our group wide, more for more strategy. On Slide 23, we show how this commercial positioning is consistently delivering top line positive growth with service revenues up 1.7% year on year. On top of that, synergies, end to end digitization benefits and other cost control measures drove operating expenses down 1.1%. And in yet another quarter, it resulted in a spending profitability, with OIBDA margin up 1.7 percentage points to almost reach 35% in Q3, fueling OIBDA growth to 6%. Finally, operating cash flow posted a solid double digit growth of 11% in January to September.
In Eastern America, as shown on slide 24, our continuous network improvements are driving record quarterly net adds in LTE $2,800,000 and Fiber and Cable with 249,000 new connections. But let me also highlight the unparalleled opportunity ahead of us. As penetration rates remain in the 20s for contract, 4G accesses and fiber connections. This continues focus on value led to a significant growth in mobile fixed broadband and pay TV ARPU, which in turn drove total revenue per access up 18% in the quarter. Moving to Slide 25, this growing adoption of data services is being translated into solid year on year evolution in revenues, up 16%.
And in OIBDA, 9% above Q3 2016, despite inflation driven costs. Greater commercial efforts and tougher year on year comparisons in countries like Argentina and Colombia. All in all, This has reflected in the strong operating cash flow generation in the 1st 9 months of the year, reaching EUR 1,300,000,000 and growing by almost 27% year on year. On Slide 26, tells you a strong set of results with revenues increasing by 7.5% year on year. And OIBDA margin reaching 46.5 percent fueled by the positive performance in both the cable and the tower business.
Let me highlight that in the third quarter TELSIUS acquired 304 Towers in Argentina and grew its tenancy ratio to one point 31 times. Plus 0.03versus December 2016. At the same time, the cable business is delivering a strong traffic demand, while the 2 best in class cable Maria and Brusa are advancing in the rollout plan as expected. Let's move now to the financial metrics on Slide 27. We continue to steadily lower our net debt to OIBDA ratio down to 2.80 as of September 2017.
Which will be partly reduced to 2.72, including the TELSIUS stake sales. This week, we received the 1st payment of 800,000,000 from KKR. Strong organic free cash flow generation continued to be the main driver of our leverage improvement. Slide 28 shows how financing year to date of EUR 8,200,000,000 has increased our average debt life to 7.85 years and allow us to build a strong liquidity position to face comfortably for around the next 2 years of maturities. Effective costs of debt in September 2017 stood at 3.23%, 71 basis points lower than the end of 2016.
This positive evolution is mainly due to refinancing in Europe at very attractive rates. I will now hand back to Angel to recap.
Thank you, Laura. To finish, please move to Slide 29 for our final conclusions. Today's results demonstrate the delivery of profitable organic growth and strong execution. Through our best technology platforms, IT systems integration and new digital products and services, we are building for the future with cognitive intelligence the forefront. In this context, continuing with our digitalization program started some years ago, we see a big opportunity ahead of us in terms of better customer experience, higher efficiencies and newer revenue streams.
On the leverage side, progressive improvement has been achieved. Furthermore, we secured our market position and confirmed our outlook and dividend for the current year. Finally, we have a clear and consistent strategy built on 2 pillars, sustainable growth and digitalization. Thank you very much, and we are now ready to take your questions.
You.
We kindly ask that you keep we kindly ask a maximum of 2 questions per participant. And if possible, we recommend you not to use your cell or hand There will be a short silence Our first question comes from the line of Nicholas Sidio of Berenberg. Please go ahead.
Hi, good morning. Thanks for taking the question. I have 2 as per the rules. A question about the net puncturing in LatAm, Jose Maria, in Q1 conference call indicated that, you are being much more rational in terms of CapEx deployment in LatAm. And that's something we should score into our models.
I'd like to know if this is something that we already see through the Q3 numbers. So that's something incremental in the next quarters and yours. And the second question is about the arbitration in Colombia I mean, there has been some CapEx we hear on the other side, Millicom, keeping investing at the expense of the margin in terms of investing in growth. I'd like to know if the arbitration in Colombia and the unfavorable ruling is changing the software with which you are managing Colombia, are you kind of having lower ambitions than in the past and do you want to kind of catch up with Munich in terms of investments in broadband And what about ETB? The sale has been put on hold, but just if you can highlight your position in terms of the potential market consolidation in Colombia?
Thank you.
Thank you, Nicolas, for your questions regarding network sharing in Latin America. We continue to believe that network sharing is an opportunity to reduce network costs, not affecting coverage and quality. As we already have several sharing agreements in place. And we believe that where infrastructure is not a competitive advantage. It makes sense.
It makes absolute sense to share. Convinced that this is the way forward. Part of this is being reflected in our number. But we are in talks with various players in various countries. Conversations in each country are different, with many forms of discussion, and we should be progressing along this line.
We also think that looking forward, when we move to other networks like 5G, this will bring additional opportunities and needs for network sharing. Regarding the second question in Colombia, we recapitalized the company through the through sorry, 2 capitalizations, one to deal with a para pad and the other one with the arbitration award. The financial result of these 2 capitalizations has been practically neutral in terms of leverage, for the company. But has had the advantage of leaving a company free of contingencies and liabilities with a very sound balance sheet and ready for a new phase of development and growth. Of course, we will continue with our legal actions beat that domestic level or international that we deem appropriate with respect to the Largo situation, but the company now is enjoying which was not the case before, a quite light and unlevered balance sheet and it has all the opportunities to capture growth as they present themselves.
Our next question comes from Joshua Mills of Goldman Sachs. Please go ahead.
Hi, there. Thanks for taking the questions. 2 for me. First one on Spain, just in terms of revenue trends. So encouraging to see that back to growth.
And one of the key swing factors this quarter was in wholesale. So I know that there's potentially some losses to come on the MVNO front given you've renegotiated contracts with Massimo. Is that going to weigh in Q4 or that more of a 2018 story? I'm just trying to understand whether or not we can see a further acceleration in the overall Spanish service revenue growth, given you've already kind of met your guidance initially to stabilize by year end? And then secondly, just crushing on digitalization.
So I think on Slide 16, you lay out some very clear data points in terms of how this is a cost cutting opportunity. But the references you make to monetization and how this can help improve the customer experience on Slide 14 are obviously a bit bigger. I mean, in a nutshell, do you see digitalization as an opportunity to really increase ARPUs and ask more money from the customer? Or is it mainly getting a through on the cost side? Thank you.
Thank you, Joshua. First, on Spain, In Spain, we have had a very good third quarter performance. In previous results calls and in best four meetings this year, We have been saying that we expected revenue trends in Spain to improve along the quarters. And in Q3, Spain is back to service revenue growth. We have recovered positive commercial momentum following the launch of the new convergent bundles.
As you have seen in the presentation. And the improvement in service revenue is in all segments. In B2C, in B2B and in wholesale. B2C, which accounts for, as you can see on Slide 19, accounts for 54% or service revenues is growing 2.1%. And this growth in B2C service revenue accelerated from Q2 to Q3.
B2B, which accounts for 27 percent of service revenue, is declining 1.1%, but improving sequentially 0.2 percentage points quarter on quarter and is declining a bit less than in the second quarter. And the 3rd component that you were asking about wholesale wholesale accounts for 19% of the revenues and it's improving sequentially 3.2 percentage points quarter on quarter. This impact of wholesale revenue, has several components. One of them is the impact from wholesale revenues from selling football content. We had already been saying that this comparison year on year would fade away from August because now we have the same contents that we were wholesaling in the same quarter of 1 year ago.
So the football rights component is fading away starting in August. We are seeing also a good performance in NEBA and roaming revenues. The loss of Yogo revenues will be more in in 2018. So in all, service revenue trends are improving in all three segments. And if I should say we expect them to continue growing in Q4.
2nd, regarding digitalization, This is a topic in which we started early. We started early. And we are already seeing results We have tried to make an effort in this presentation. We have included 5 slides on this, giving you an overview on our approach to digitalization, which you saw Slide 14, a description of the areas where we can see potential benefits in Slide 15. The progress made so far in end to end digitalization and enabling digital capabilities that you can see in Slide 13, And then the proof points that we're achieving already.
So with respect to 2 examples, but we have more. Two examples which are Spain and Brazil. The ones in Spain are on on Page 16, and probably you can go through them. This is, we see beyond cost benefits from digitalization. We see benefits that can affect cross selling and upselling to our customers.
We can see foresee benefits regarding loyalty. And the for reducing churn of our customers, we can see benefits obviously at cost and efficiency level, and we also see benefits at CapEx deployment level with the use of big data to be more efficient. So it's more than cost cutting. It just go it goes beyond efficiency. I think it we try to present how it permits all the platforms of our business.
And again, I would like to highlight we have achieved significant benefits, but there is much more to come.
Follow-up on that. Just I mean, have you got any data points that show, for example, that people who have a digital relationship with Telefonica pay more or have a higher NPS, for example, or is it still too early to get those kind of numbers?
Well, our customers that in Spain, for instance, have fiber, they're paying more than they used to pay when they had copper. The ones that not only have fiber, but have the advanced home gateway unit in Spain can have access to higher quality content than the quality of vision of the content that customers that do not have it, the ones that have the smart Wi Fi capabilities at home can adjust also their coverage at home. And all of these is resulting in customers being willing to use our pay TV compared to the 1 off of other players. And that would be one example, for instance.
Thank you very much.
Thank you, Jos. Next question please.
Our next question comes from Sam McHugh of Exane. Please go ahead.
Morning guys. Thanks for the questions. Just two, one on content. So I think before you said you're spending something like 1000000 to 200000000 over the next year or so on original content, that number is in your guidance, but should we expect that to grow in the coming years? And then just secondly on Spain, we've seen a bit of a slowdown in customers taking the 100 and 300 megabits fiber.
Can you talk about kind of some consumer experience and demand for higher speeds? Is this a structural problem? Do you think growth there is going to reaccelerate going into 2018?
Thank you, Sam. Regarding content, I think that, that you were talking about our own production. We are figures that we have given to the market are the ones that will stay. Here, if anything, to be highlighted, is that we are having quite a successful reception to the cities that we're producing. We have been previewing them in film festivals.
They have been deem to have the best quality and the start audience that we're having in our in our series are quite successful. This is one part of the 3 legs that make, that make a TV strategy successful. 1 would be the high speed connection and the home equipment that I was touching before then the content, own content and acquire content and then DB platforms with the best functionalities. We have, on content, the most complete and widest offer in the market, including movies, serious and sport, none of our competitors has a similar level of contents and the one that we have. And we are producing in the limited or figures that you know our production.
We have noticed it we have noticed on the other hand, recent inflation on certain sugar rights And as always, we will analyze the core's benefits equation of content in a rational way and we'll decide accordingly. Regarding, Spain fiber, Well, we have been recovering momentum commercially. We have been recovering momentum commercially in Spain. We have launched in July some new convergent bundles. This have led to traction commercially in several were asking about fiber, but we have had very good commercial traction on TV.
We have had very good commercial traction On mobile, we have had traction going back to positive net adds Infusion and fixed broadband gain traction as well. And it's in positive territory 33 in the last 2 months of the quarter since we launched any offers. So we have a good recovery in commercial momentum in Q3.
Can I just follow-up very quickly on the content
if
that's possible?
Okay. Is there like a particular series or is there a kind of a point in time where you'll launch some of your new series and we'll see a bit more of a commercial splash you have your own own version of NARCOS sneaking around the corner somewhere or something like that?
Well, we have series called Velvet, which is quite successful. We also are launching 1 called the zone, which is also being very well received. We plan to add more, I don't know how to say Espam flavor to the production of some of our cities so that they fly over to Latin America also successfully. And we can leverage that in our over the top TV proposition, mobile star play in Latin America, which is already active in Peru and will be deployed across the footprint in Latin America. So this is really getting traction within, limited or not exaggerated budget levels.
Awesome. Thank you very much.
Thank you, Sam. Next question please.
Our next question comes from David Wright of of America. Please go ahead.
Yes, hello guys. Just a couple of questions on the Roam Lake at home because it's obviously impacted the UK really quite materially. And there's also, I think in the domestic business, there's some increased run like a home expenses. Q3 is a seasonally we might expect as a seasonally higher impact So given you have, I believe, in the presentation, quantified the UK impact in Q3, Could you give us an indication as to how that could progress in Q4? And similarly in Spain, the drag in Q3, if you could quantify that and how you could expect that to progress in Q4.
I think that would be, very useful. And then my only other question is on the CapEx side. Again, just visibility full year 2018 domestically, if you could give us some indication of whether absolute CapEx levels could be falling?
Thank you, David. Regarding a room like at home, we have seen a high traffic elasticity Since this new regulation is in place, data traffic growing by 3 to 4 times, voice traffic also growing, although at a lower pace. No? We have seen a significant impact on on group revenue and OIBDA from Rome, like at Home in Q3, due to the seasonal behavior of roaming revenues in the holiday season is clearly a high that impacts should be lower, both the positive ones in Spain and the negative ones in Germany and UK should be lower in Q4 compared to Q3. In the UK, it has a significant impact.
We have put the figure, the million impact in OIBDA in Q3. From Chrome like at home, it's a slight lower impact in revenues. Revenues that grew 1.1% in the UK in Q3 would have grown 3.6% excluding roaming and MTR impacts. So This has been significant in the quarter. The 3rd quarter is the highest.
It was positive in Spain. It has had a negative impact in the UK, a little bit more phased impact in Germany because not all the customers had moved to the new to the new roaming tariffs, but Q4 will be less will be less, will have lesser of an impact less positive in Spain, less negative in U. K. Less negative in Germany. Regarding CapEx, 2018 was first yes.
Sorry, Angel. Sorry, Angel. Are you able to quantify that the kind of net headwind you've got positive Spain, you've got negative the others, is the net roaming impact lower in Q4? So obviously, the benefits in Spain, are they the reduced roaming benefit there? Is that more than offset by the reduced headwind from all the markets
It will continue to be a negative impact. The net impact for group wide and though it will be lower.
Okay, that's clear. And then the CapEx please, Daniel?
Yes, CapEx is, is on a declining trend in Spain. We have already 97% LTE coverage. We have, I think, it's close to 70% fiber to the home coverage. Will continue deploying fiber, but a more reduced speed and focusing on connecting. You know that we don't guide CapEx by Yobi, but the CapEx trend in Spain is already declining in terms of CapEx to revenues.
Very good. Thank you.
David. Next question please.
Our next question comes from the of Keppel Carolla of Deutsche Bank. Please go ahead.
Thank you. I've got
a question on the assets in Chile and Peru. Please. And within the mix from these tests are still relatively weak from an EBITDA perspective. Are you happy with this strategy for turning these assets around And if so, do you have visibility as to when the double digit EBITDA declines you're seeing within Chile and Peru could also start to improve as well?
Thank you. Thank you, Keval, for your question. Both in Chile and Peru, we are seeing improvements from Q2 from Q3 compared to what was Q2, but we see challenges in both markets. In Chile, we are seeing some increasing commercial intensity on the mobile side with the launch of of some unlimited tariffs. And in spite of this, we have seen a progression or lesser decline in mobile in total revenues, but still slight decline.
OIBDA is, is decreasing through due to an increase in operational expenses that are driven by this competitive situation in Chile, but we are managing to control the OIBDA margin in Chile. And through some adjustments on CapEx to your question, we have managed to have an operating cash flow growth year to date of positive of 5.5% year on year. Regarding Peru, again, Q3 is better than Q2, but challenges are remaining. We have seen some improvements in some trends. So our prepaid base with frequent top ups is returning to growth.
Our gross paid loss is slowing down. And in fixed, we continue to have a robust commercial trading with pay TV accesses growing 5%, with fiber accesses growing 4%. So here, we are having we are having a better performance. All in all, these are markets that we are focusing a lot our management efforts and there is still challenges looking forward.
That's great. Thank you.
Our next question comes from the line of Ediran Khanu of Citi. Please go ahead.
Hi. I've got two questions, please. My first question is around theTH in Latin America. Yesterday, Vivo suggested that the FOC is more on IPTV and that ETH options are not that appealing, in Brazil. Obviously, you do have some M and A options there.
And I'll be interested to hear your thoughts more broadly, not just in Brazil, but across Latin America, where there are countries where maybe adding a DTH base, could help with cross selling and whether it's any scope of that? And my second question is around the moving parts on EBITDA for Spain in 2018. Obviously, we've got the content side, we've got the loss of MVNO revenues. I was just trying to understand whether digitalization will get some savings through. If you could more or less give us an idea of what are the headwinds and tailwinds we should anticipate going into next year?
And whether you think you kind of set this in order to be on flat to positive EBITDA performance?
Thank you, Georgios. On your first question on DTH in Latin America or our video strategy in Latin America, We have different situations in different markets in Peru. We are by far the leader in pay TV. Through our historical position in cable, in Brazil, as was highlighted in the call yesterday, We are focusing on APTV. We are growing our fixed brought our fiber base in Brazil.
We are covering more and more cities with fiber in Brazil and following that with IPTV. And in markets like, like Argentina, we will be able to offer pay TV starting next year in some regions and progressively nationwide. Our strategy is more focused on on IPTV. And second, in those markets where we would have lesser position in IPTV. We are focusing on over the top aggregator strategy.
We call it Movistar Play. It's already launched in some of our markets. And this would be our priority rather than progressing on DTH. We know that at some point, there could be some potential available assets on DTH. We tend to look at opportunities for a market consolidation always, but it would have to make sense in terms of valuation conditions.
We are, at this moment, focused in our organic development. Regarding what you call the moving parts in OIBDA in Spain, Well, and you were asking about 2018, which, obviously, I cannot give give an answer. But if if I had to give you some color, first, let me touch on the Q3 OIBDA evolution. OIBDA in Spain in the 3rd quarter had a margin of 41%. It's an outstanding OIBDA margin figure for Q3.
And we believe we have been telling that we continue to see margin sustainable around the 40% level. This is including our OpEx in Q3 grew just 0.2 percent organic in Spain. On lower personnel and higher supply costs, personnel costs was 4.5% down year on year. Other operation expenses down 1.1% year on year and supply cost was up 4.2% mainly on higher content cost. Other cost items were declining handset costs and a little bit higher roaming out.
But we are managing to maintain, margin sustainable around 40% in spite of the content inflation. Do we have room for additional efficiencies? And part of them from digitalization, yes, for sure. We can have efficiencies, additional efficiencies in distribution channels from end to end digitalization, leading to increasing online sales, the usage of the improved My Movistar app will drive lower CRM expense, we continue and you saw it again on and I encourage you to look at Slide 16, point of sale and store optimization, lower commissions and so on. We will continue to have incremental savings from personnel redundancy programs because the run rate will not be achieved until 2019, so it still has and room to go.
We continue to have efficiencies from running a full fiber LTE network Maintaining cost of fiber versus copper is 40%. And as we continue deploying that will continue flowing through and we continue to switch off legacy. By year end, we will have closed approximately 70 copper central switches. We have tender we will have tender 300 closure announcements. And this will continue for the next 10 years.
We expect to close 2000 copper switches. So this is something to continue. Of course, we are seeing the inflation of content cost And as I said before, we will continue working, optimizing the content costs according to a rational cost benefit analysis that we perform. And then migration to full stack business support systems will drive additional simplification and reduction in our IT cost. So we think that we continue to have levers to be able to maintain the Spanish operation in the levels of OIBDA that you're seeing.
Next question please.
Our next question comes from the line of Fernando Cordaro of Santander. Please go ahead.
Hello. Thanks for taking my two questions. The first one is related with the with your guidance and considering that you have reiterated the EBITDA expansion, the EBITDA margin expansion up to 1 percentage point year on year. And given the performance in the 1st 9 months, should you should reconsider that the 4th quarter should reflect more than 9 months in the margin expansion? And the second question is related.
It's a follow-up of the previous comment on the efficiencies to be, to be pending in the Spanish operation. Particularly on the corporate average reach of. You've said that and you are expecting to close 2000 switches in 10 years. Given the, I would say, the diversity of the switches, I would like to know how much of the current lines or the size of the network would be switch it off in with these 2000 switches closed?
Thank you.
Thank you, Fernando. First on the guidance, first of all, I would like to reiterate that with our Q3 results, We are well on track to deliver on the guidance across all metrics. We have upgraded revenue guidance in Q2. And, well, we tend to be conservative. So if we extrapolate the 9 months performance, we should exceed the revised revenue growth guidance.
At the same time, we expect to be in the range regarding the OIBDA margin. And we expect to comfortably meet the CapEx guidance. So to your question on OIBDA, we expect to be in the range regarding the margin. And then with respect to the copper to the copper switch off. I think with Telefonica Spain is the company that has done the most globally across all operators with respect to switching off copper networks.
Here, we need to give advance notice in those switchers where we have other operators collocated, we need to give notice in advance of 5 years if we didn't, which is quite unusual, have anybody collocated we could do with 1 year. But still, we started since we started our fiber deployment by in 2012. We started tendering those notices, and we are steadily, steadily closing some of those switches. There's going to be a much optimized network and the metrics. I gave you before center, copper center switches.
Close down by year end and 300 closure notices already tendered. Okay. Thank you.
Thank you, Fernando. Next question please.
Our next question comes from the line of Matt Robbie Lord of Barclays. Please go ahead. Yes,
good morning. Thank you for taking the questions. Two questions, please first in terms of the regulatory environment in Europe, obviously lots of discussion recently about what the final tax is going to be around regulation, around the fiber. And I wanted to know if any of the recent changes or discussions that could introduce title legopoly or not allow full deregulation on fiber, if that could affect your expected return on investment. And generally, operations in Spain?
And the second question about the competitive environment, how would you characterize it today compared to a few months ago? I mean, are you seeing the kind of discipline you were expecting and hoping at the mid to high end of the market?
Thank you, Matti. With respect to fiber regulation, that in Spain, we have the biggest fiber deployment in Europe and this was the result of a regulation that favored investment, that favored infrastructure investment, supposed to other favoring other metrics. What we have in what we have in Spain separates between competitive areas in which it's not regulated. Competative areas are those where you have 3 networks with a commercial competition from those areas in which there are less than 3 networks in which there is different degrees of regulation. So it's a geographically segmented regulation.
We think that the European level with the Euro gigabyte vision There is an underlying desire to promote more pro investment and more pro innovation environment. And it's still in process, but the proposal represents a good starting point because we think that, that there are areas including the promotion of infrastructure investments that are in the correct direction. Also, generating or proposing some measures that that address the level playing field with respect to all the top. So for us, if regulation continues to be one that that promotes investment for us. It's the way to go forward.
And we think that Europe is taking some inspiration from the Spanish case. Regarding competitive landscape, and I assume you were asking about the landscape in Spain, we think that the market remains competitive, but rational. Which is quite important. The market is driven by convergence in all accesses with fiber quality TV and mobile data as the main levers. But it's clearly segmented this competitive environment.
The mid high end segment has 3 infrastructure based players, all all oriented to upselling and cross selling. Here, you can see and you will see tactical promotions, but not structural ones. And we believe that different players adopting policies or strategies that again aim to be our pre accretive the low end is seeing some more intense competition. But we feel we'll equip to compete here because we have differential strengths. We have the best fiber network.
We have an LTE coverage which is second to none. We have the best platform, the best content, We think we have the best distribution channels, and we are working as we have been highlighting throughout the presentation to have the best digital customer experience. So, we feel very well equipped to compete. And you can see this in addition to all this talk, you can see this in metrics. We are back since we launched the Fusion 0 on the Fusion Series to address the low end segment.
We are back to positive commercial momentum. We have added Fusion customers The mix of Fusion customers is better than the one we had in the previous quarters. We have more Fusion customers in the mid and high segments. Fusion ARPU is up 7.1%. It's up 5.8.
And churn is broadly stable in a controlled range. So it continues to be a competitive market, but we think it's a rational one. And we are we are competing comfortably in this market.
Thank you, Madhu. Next question please.
Our next question comes from the line of Louis Proter of Morgan Stanley. Please go ahead.
Yes, thank you. I have two questions. The first one is on Mexico. I don't know whether you could give us some estimate on the impact on EBITDA in Telefonica, Mexico, from the new regulation on termination rates and whether you see this as a major change to the competitive landscape? And the second question is on the Spain and the wholesale market I don't know whether you could give us some data points on the take up of wholesale fiber accesses by Vodafone don't know whether you could give us their run rate or what could we expect midterm in this regard, potentially helping to stabilize or even grow wholesale revenues once the Joy Go impact is over?
Thank you, Luis. Regarding Mexico interconnection, in the month of August, the Supreme Court ruled in favor of America Movilas injunction regarding the legality of our constitutionality of having a 0 fee due to interconnection. Two points here. The regulator now has to set the new rates, but those rates have to be based on the principle of asymmetry, maintaining asymmetry will be lower asymmetry, but maintaining asymmetry. And second point, important one is that this ruling was not retroactive.
So this would be applying from January 1, 2018 onwards and is not retroactive. This is this is going to be decided quite soon because it has to be applied by the beginning of next year. And there are different speculations about what could be the levels of this termination rates in the respective networks, but there will be a level of asymmetry. It's likely that it will be less asymmetry than the one that we had before. So this will have an impact in ROEPA and an impact in in other players, so it's in Mexico, but it's, but it's still soon to quantify the potential impact.
Regarding the fiber wholesale in Spain, the fiber never keeps good old keeps ramping up based on recent agreements and regulation, but penetration is still low. And this is going forward, something that will grow. Another important thing to note is that the migration from a bundle local loop to Neva even the price is revenue accretive. And this will be another important factor into this growth. And I say that we're happy with our Vodafone agreement and are open to further agreements with other players, which could be or will be analyzed according to profitability criteria.
So if one were to look at the moving pieces of the service revenue evolution, for looking forward, I can give you some, not the guidance, but some trends for Q4 in B2CA and B2B, we expect similar trends But in wholesale and this would in part include this fiber wholesale. We expect the trend we expect the trend of service revenues in the wholesale component in Spain to continue to improve in 2017. I hope this can help you with your model.
Yes, it does. Thank you. Thank you, Luis. We'll have time for the last question, please.
Our last question comes from the line
question on Spain and the Fusion KPIs, you have seen a big tick up in a reasonable tick up in churn during the quarter. In previous quarters, I think we've talked about churn being higher in the lower end bundles. Is that still the case? Or has there been a, has there been a tick up in churn in the high end bundles because of the price increases you put through? And then I mean, just finally on Fusion, how do you see the commercial sets of the, of the new low end offers that you launched at the beginning of July.
How's the growth has been doing on the, on the low end bundles.
Thank you, James. I will respond to your questions about Fusion. I'm unable to say Fusion. I prefer to call it Spanish way. I would challenge your statement that Fusion churn is worsening.
We have been seeing in the different quarters. Point 1, up or down movement, we this is a metric that, as you can imagine, we monitor very closely. And we think that this is broadly stable and is in within a controlled range. The what we said in the previous call continues to be to be true. The churn in the mid high end subscribers is around 70% lower than the churn in the low segment because the higher end subscribers show more loyalty.
And actually, when you look at the mix of mid and high end, it's moving up rather than moving down And we are seeing to your second question, traction in our lower end offers. We launched we include the DB in Fusion Feto and Fusion Series, Fusion Series is under a promo at the same prices as Fusion Feto. What we're seeing is traction in Fusion Series. And, bear in mind that this is under promotion. And when the promotion finishes, we continue to see substantial percentage of the customers staying with the products and therefore, it tends to be our co accretive when the promotion finishes.
So we get commercial traction. We get commercial traction partially through a promotion that when it end up, it will become ARPA accretive. So, I hope this answers your question.
At this time, no further questions will be taken.
For your participation, and we certainly hope to have provided you some useful insights should you still have further questions, we kindly ask you to contact IR department. Good morning, and thank you.