Ladies and gentlemen, thank you for standing by, and welcome to Telefonica's January to June 2017 Results Conference Call. At this time all participants are in a listen only mode.
You.
As a reminder, today's conference is being recorded. I would now like to turn the call over to Mr. Pablo Head of Investor Relations. Please go ahead, sir.
As January, June 2017 results. I'm Pablo Guido, Head of Investor Relations. Before proceeding, let me mention that financial information contained in this document related to the second quarter of 2017 has been prepared under International Financial Reporting Standards, as adopted by the European Union This financial information is outdated.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 Fonega Group. These statements may include financial or operating forecast on estimates based on assumptions or statements regarding learns, objectives and expectations that make reference to different matters.
All forward looking statements involve risk, uncertainties and agencies, many of which are beyond the company's control and all of which make us actual results plan objectives or our expectations to differ materially from those First. We encourage you to review our publicly available disclosure documents filled with a relevant securities market regulator. If you don't have a copy of the relevant press release and the slides, please contact Telefonica Investor Relations team in Madrid by dialing the following telephone 3491428700. Now let me turn the call over to our Chairman and CEO, Jose Maria
Thank you, Pablo. Good morning and welcome to Telefonica's first half results conference call. I would like to take this opportunity to highlight the changes to our organizational structure announced last to accelerate the pace of business growth, facilitate the achievements of new goals, and promote the new values that will shape corporate governance in the coming years. I would like also to congratulate Angela as Chief Operating Officer and Laura Abasolo as Chief Financial And Control Officer. With me today is Angel.
And during the Q And A session, you will have the opportunities to address us with any questions you may have. I'd like to begin by highlighting the acceleration in organic growth this quarter across revenues, OIBDA and operating cash flow thanks to the successful implementation of our strategy. Our focus approach is paving the way for our ongoing transformation with efficiencies, synergies and digital agenda. Our business is more efficient with OIBDA margins expanding 32.1 percent, an increase of 1.2 percentage points year on year in organic terms. Moreover, higher quality assets drive our strong competitive position in main markets.
These progress results from targeted investment towards ultra broadband foster in digitalization, cognitive intelligence and differential value proposition to our customers. Our balance sheet continues to get stronger with net debt down 1,000,000,000 year on year and a robust free cash flow a context of lower cash interest costs and longer average maturities. So to sum up, we are accelerating growth with organic revenue growth of 4.1 percent ex regulation. Net margin expansion is fueling organic OIBDA growth to 7.2% which accelerates again at operating cash flow level to 15% to 17.5% thanks to lower CapEx. And in addition, we are reducing net debt by 1,000,000,000 year on year when including sales use closing.
So we are in the right direction as reflects the upgrade of our 2017 guidance, while we reiterate our dividend. Turning to Slide 3. Let me summarize the key financials. 2nd quarter revenues increased 1.9% in nominal terms, to reach almost EUR 13,000,000,000 and 3.1% in organic terms. OIBDA top 1000000000, up 6.1percentor7.2percent in organic terms.
Operating cash flow, ex spectrum totaled EUR 2,300,000,000, with very robust double digit growth, both in reported and organic terms. I would qualify this as a The average of 2017 guidance is best outlined in Slide 4. In the first half of the year, revenues have clearly beat guidance growing by 2.3% versus guidance of stable. We think that better trends posted in the 2nd quarter In addition to profitable growth expected for the second half of the year, allow us to increase this guidance to a growth of above 1.5%. Maintaining 1.2 percentage point of negative impact from regulation.
This higher revenue growth is not expected at the cost of all the variables. As we maintain our guidance for the rest of the metrics. We continue guiding for margin expansion and lower CapEx intensity. Regarding the dividend, we paid the 2nd tranche of 2016 dividend of per share in cash the last 17, 16th June. In addition, we confirmed the per share in cash for 2017.
Finally, we reiterate our main to maintain a solid investment grade rating. Moving to Slide 5. First half of the year reported OIBDA growth of 5.5 percent flow directly to net income, increase of 28.9 percent, reaching EUR 1,600,000,000 in the first half of the year, driven by sound management of non operating results. And the line EPS totaled, up 32.3% year on year. Lendy mentioned that we have adopted a synthetic FX in Venezuela.
This has had a negative impact in revenues and OIBDA. With this Venezuela's contribution to Total Group being reduced to 0.3% in revenues and 0.2% in OIBDA. On Slide 6, you can see very robust free cash flow dynamics in the graph on the top left of the slide. Accelerating sequentially and year on year, surpassing the EUR 1,600,000,000 mark in the first half an increase of 98.6% versus a year ago. Of this increase, as seen on the right, 70% came from operating cash flow, while interest payments and working capital more than offset the drag from taxes and others.
For the second half of the year, we expect free cash flow to improve further. Let me mention that net debt decreased in the second quarter year on year despite seasonality. And dividend payments in contrast to trends in previous years. On Slide 7, we show the breakdown of OEDA growth looking at organic trends and FX. In the 2nd quarter, OEDA increased by 1,000,000 compared with 2016.
It is worth highlighting that the organic contribution was $5,000,000 in the quarter versus $52,000,000 in the first quarter. So growth has higher quality. FX deducted EUR 51,000,000 year on year as the Venezuelan Bolivar was devaluated. But if we exclude this exchange rate continued to add EUR 70,000,000 this quarter, mainly coming from the appreciation of the Brazilian real against the euro. Turning to Slide number 8.
We review the composition of this growth, with the strength that organic figures have shown. Total revenues grew a solid 3.1% versus the second quarter of 2016 or 4.1% excluding regulation. Service revenues and OIBDA accelerated versus first quarter by 120 basis points and 590 basis points, respectively. With a generalized improvement across regions in both service revenues and OIBDA. OIBDA expansion and CapEx decline explained the 8.60 basis points sequential acceleration in operating cash flow, with all segments growing year on year.
Thus, I would like to highlight the operating leverage improved returns. Data monetization continued contribute to revenue acceleration, as you can see on Slide 9. LT customer base increased 63% versus June 2016, and average an average data producer was 59 percent up, resulting in booming traffic that is 3 fold compared to last year. The consistent growth in volumes is fostered and further monetized by the development of integrated data offers that follow a more for more approach and increase value for money. The benefits of this strategy is a clear ARPU accretion, translating to a ramp up in mobile data revenue growth to 17.8% year on year, representing already 60% of mobile service revenues.
On the fixed business, data volumes continued to post high growth, showing a huge monetization potential. As an example, fiber traffic per customer in Spain continued expanding and is now 2.5 times higher than average DSL traffic. On Slide 10, we show the value creation opportunities we have ahead of us as we evolve through. First, the speed and connectivity is our core competitive advantage, allowing us to monetize the ultra broadband networks deployed. 2nd, service beyond connectivity offer our customer differential services besides the traditional ones, and TV is the main driver.
3rd, cognitive intelligence will add more value to our customers, building loyalty, improving efficiency and opening new optionality. We are currently working to launch ORA in several markets in the next few quarters. On Slide 11, we show our progress in the digital ecosystem. Video continues to be a key pillar of growth now and in the future. Accelerating revenue growth in the quarter to 4.8 percent year on year.
As we consolidate our leading position in Spain and LatAm, as one of the main distributors of content in the Spanish language. This success is built on our TV platform and differential bundling strategy. In other digital services, we are integrating solutions to strengthen our B2B offering and become an increasingly relevant player with progress made across cloud, security, and machine to machines. Turning to Slide 12. We show progress in Telefonica global resources to adapt our network to traffic growth, as well as to provide greater flexibility and foster end to end capabilities.
Our fiber and cable coverage surpassed 41,000,000 premises while lower LTE coverage reached 68% on average across our footprint, 89% in Europe. Regarding virtualization, we are currently implementing in 4 countries of our Unica program, providing the support needed to smoothly adopt and deploy virtualized solutions enabling the transformation to software driven networks. In parallel, end to end digitalization, mainly on the back of full stack projects, increasingly delivers efficiency and agility. Now please turn to Slide 13. Telcios posted a solid set of results in the second quarter, with a strong organic revenue growth of 11.4 percent and robust OIBDA margin of 47.9 percent.
Regarding its business performance, the work's tendency ratio of the quarter improved to 1.3x, while cable IP traffic grew 31% and capacity bandwidth 62%. It's also worth mentioning that marine deployment of Marietta and Gruza continued as expected. Now, I hand over to
On to Slide 14, Spain showed a clear improvement of commercial trends and positive momentum in our upselling strategy. Our focus on value and churn reduction allowed us to achieve sound need to improve, with high value packages increasing to 24%, while Fusion ARPU grew quarter on quarter almost million, up 6.4% year on year. Citi returned to positive net adds on a widespread take up of a new Fusion bundle. Fixed broadband gained traction gradually since March heading in the right direction. And mobile contract base posted very solid growth of 5% with a better portability balance.
Furthermore, we continue to strengthen our positioning with market segmentation As such, the new convergent entry level offer with differential TB content launched in July will foster trading dynamics in the coming months. Continuing with Spain on Slide 15, service revenues year on year trend posted a sequential improvement of 0.8 percentage points, driven by consumer revenues growth and a lesser decline in other revenues. Revenue is on the right path as service revenues have already stabilized year on year, excluding the lower DB wholesale of La Rica. An impact that will disappear from it August onwards. Despite tougher comps of personal savings, ongoing cost reduction led to a 0.9 percentage points improvement in OIBDA trend and margin reaching 40.6% up 0.8 percentage points sequentially.
Moreover, I'd like to draw your attention to the falling CapEx. -21 percent year on year in the first half. That comes from our early build of new generation networks, and translates into a superior cash flow conversion as shown in the 8% of year on year growth delivered in operating cash flow. In short, strong cash flow generation is Moving to Slide number 16. Telefonica Deutschland is driving solid momentum in a market shifting to stimulating data growth.
O2 Free and O2 Brand 15 Year anniversary Promotions accelerated net additions to 100 97,000 in contract and 322,000 in prepaid in the quarter. A robust, robust LTE increase sustained traffic and data usage growth. With impressive early statistics from OTO-three fifteen customers, with data usage above 3 gigabytes. On financials, MSR trend continued to improve in the 2nd quarter, to minus 0.4% year on year, excluding regulation. OIBDA growth rate accelerated to 3.8% year on year, and OIBDA margin expanded 1.9 percentage points, leveraging on incremental savings of 1,000,000 despite commercial investments.
In January to June, operating cash flow growth remained strong at 4%, leveraging synergies and transformation initiatives. Over now to the UK on Slide 17, where we have once again leverage our on our strong customer focus, resulting in a positive performance across metrics. We continued to grow our quality customer base as contract was up 2% year on year. Maintaining market leading loyalty levels, and LTE penetration reached 58%. This led to an acceleration in financials this quarter.
Revenues were up 2.6% year on year, OIBDA 3.9% and operating cash flow 5.3%, despite the fact that our accelerating LTE rollout is driving an increasing CapEx. Moving on to Brazil now on Slide 18, we have posted another set of strong results this quarter, accelerating profitable growth. In mobile, our best in class service quality, significantly increasing our 4G and 4G plus coverage drove stronger adoption of data services and as a result, mid single digit ARPU growth. On top of that, it also allowed us to capture almost 60% of new contract customers in a context of more intense competition. In fixed, we continued to focus on fiber deployment, passing new cities and complain with our plan to expand our reach.
Thus, we achieved new record high FTTH and IPTV net adds, and ARPU is reflecting the shift to upgraded networks. On Slide 19, you can see how this strategy is flowing into the P and L, with results once again well ahead of the market. Top line service revenue was 2.3% up year on year, with solid mid single digit MSR growth and fixed revenues recovering momentum. Moreover, consistent cost control coupled with continued capture of synergies are reflected in the improved profitability, with OIBDA increasing by 7% in Q2, and operating cash flow by 17% in the first half of the year. In Espana America, as shown on Slide 20, customer upgrade to higher value services is the main driver behind ARPU growth.
Thus, in mobile ARPU growth jumped to 21.1% year on year in the second quarter with positive trends both in prepay and contract. In the fixed business, fiber and cable connections grew 46%. Driving fixed broadband and pay TV ARPU increase by more than 9% 12%, respectively. The continued expansion of our 4G and fiber network coupled with relatively low penetration levels, represent a strong support to continue maintaining this quality growth. Moving to Slide 21, we can see how these positive trends are reflected in revenue and OIBDA growth.
Ramping up to 15 point operating cash flow growth in the first half of the year. Is steady positive contribution from Colombia, the recovery in Mexico and some signs of improvement in Peru and Chile against the backdrop of intense competition. Let me also remark that positive growth rates are visible in both organic and reported terms. Despite the devaluation in the exchange rate of the Venezuelan currency this quarter. Let's move now to the financial metrics on Slide 22.
We keep on steadily lowering our net debt to ADA ratio, down to 2.86 times as of June 2017, which could be further reduced to 2.78 times, including the TELSIUS stake sale. Strong organic free cash flow generation is the key driver of this leverage improvement, including the Telxius deal, Net debt is EUR 5,000,000,000 down year on year, a 9.5% decline. We expect further deleverage until year end thanks to stronger free cash flow in the second half of the year. On Slide 23 Let me highlight the strong liquidity position above the EUR 21,000,000,000 mark, built to face comfortably next 2 years of maturities. The effective cost of debt in June 2017 stood at 3.22%, 72 basis points lower than at the end of 2016.
I will now hand it back to Jose Maria to recap.
Thank you, Angel. To finish, please move to Slide 24 for our final conclusions. Today's strong set of results demonstrate our excellent position for delivering sustainable long term growth. As such, our organic growth is accelerating across the board on sustained commercial momentum with a focus on high quality connections, and for more actions. This allow us to strengthen our differentiation based on 2 key pillars: network leadership and quality assets, thanks to upfront CapEx efforts made in previous years.
Furthermore, our EPS is growing very nicely. And the free cash flow profile is clearly improving, driving a remarkable organic debt reduction. Finally, we are upgrading our guidance for the year. You very much. And now we are ready to take your questions.
You. We will take an opening question from Georgios Eero Baidu. Please go ahead. Your line is open.
Yes, hello. I've got two questions. 1, Regarding Spain and 1, regarding Peru, in Spain, you showed the mix of the customers it puts you on between the 3 different tiers. And obviously, it looks like the lower end is the one that is losing weight. I just wanted to see if it's possible to get an idea of the churn levels you are seeing between the different tiers.
And whether there's a big difference between the lower end and the other 2 tiers? And then secondly, whether you are seeing some down trading as you continue to offer more for more on one side and then have some promotions in the market on the other side. And am I my question around Peru is, as I can see, the margin is now in the mid-20s. And we all know it's a very competitive mobile market. And indeed, you still seem to be losing a lot of contract customers.
But under the impression of the competition, fixed is more balanced. So I was wondering, how low could these margins fall, given that around half of your revenues come from the fixed line services? And is it a point we've reached now where in mobile effectively the margins are at very low levels?
Thanks for your question. In terms of chart levels in the different segments of the Fusion customer base. What I can tell you is that in the mid to high end, churn in the second quarter, the numbers is in the high and mid term churn is 70% of the total churn on the the lower levels, which means that churn is much lower and the higher mid end than in the lower segments, which is natural. And we think that that will keep improving going forward. I would put more value in the equation.
And in terms of your question around Peru. The evolution of Peru has different performance in the mobile and in the fix. T Mobile competition remains very high. And also this quarter, we have the effects of the linear and some fluting effects. Prepaid is under a significant amount of pressure and also postpaid.
You know that we have launched very recently, a repositioning of our prepaid offer. And we are starting to have some positive signs of recovery mainly in terms of the level of recharges, which is the level of active customer base that you have. So we are starting have to see some signs of improvement on the fixed line side. Commercial trading remains very robust. We, service management with pay TV's accesses have been growing 5% year on year.
And TV ARPU to give you an example, is up 13% year on year. Piece broadband accesses are 2% up year on year and we have been having positive net adds of 15,000. So that means that we are seeing a robust trend on wireline. And some signs of improvement on the, on the wireless side. It is true that OEDA is significantly down year on year and the margin has been falling significantly.
But if we are able to stabilize the prepaid segment and we keep working on the postpaid segment, we should be able to have a positive performance in the a better performance in the second half of the year. Please bear in mind that in the second quarter of 2016, we recorded a positive impact from the reduction of a tax provision And that has been also impacting the year on year comparison in OIBDA. Finally, in terms of the down trading in Spain, promotions are, namely the last one that we launched on the low end are starting to foster gross adds. And then we are also following the value strategy, which that we are improving the mix from the stand alone to convergence and the upselling conversion from low to mid high. Segments is also keeps also working.
So, we are not seeing so far. It is early times because of the recent promotion, different levels of of migration on the chain. So we don't have signs to be concerned on that side so far.
If I could ask a very quick follow-up. I know it's only been a few weeks, but since you launched the new promotions, have you seen a broadband improvement? Or are you still losing broadband customers?
We have seen an improvement But again, it's early days. It's just 2 weeks away from the promotion. But yes, we have been seeing an improvement.
Thank you.
Thank you, Georgios. Next question please.
We will take our next question from Louis Potta of Morgan Stanley. Please go ahead. Your line is open.
Yes, thank you. My first question is on the Spain and I would like to get some more color on the market dynamics and how this could evolve going into the second half. I've seen that Fusion customers have come down Q on Q4000, which is first time happening and also declining broadband net additions, lower growth in fiber. Are you really seeing a lot of competition, we're just stepping back from the market or Also, revenues were growing a bit less than expected in the consumer segment. So I wonder discount.
So you can elaborate a bit on the dynamics this quarter and how this could progress into the second half would be useful And the second question is on the potential IPO of asset like Colombia and Argentina that have been coming out in the press. I don't know whether you have plans for that and also the utilization of Colombia, whether there are any new news on that?
So thanks for your, thanks for your question, Luis. In terms of, of Spain, Let me start by saying that we are seeing a sequential improvement in revenue evolution, and we are seeing better trends commercial terms with a few exceptions and also, which is also very important, churn reduction in almost all segments. Remember that Fusion is already a highly penetrated product in our base, which means that 85% of broadband customer Ambert Fusion, 84% of TV customer and 77% of contract customers. And it's also growing in value. Ultra broadband fiber is up 38% year on year, to be 70% year on year, and high value packages 24% year on year.
Also worth, highlighting that Fusion ARPU is up 6.4% year on year to almost EUR 85 per in average. And churn is down, Fusion churn is down to 1.3%. I will also highlight the mobile accesses evolution. Is the best performance we have had since the third quarter of 2010, with net adds of almost 70,000, excluding machine to machine and churned out to 1.3%. What I try to say to tell you is that the market consolidation plus the environment is is helping us with this more for more strategy.
We think that the B2C improvement that we have seen in this quarter to keep growing in the next quarters. And we also aim to keep improving on the B2B segments. The wholesale impact will be fading away progressively as the year on year comparison will ease away. And therefore, we think that we will keep improving and we keep evolving towards revenue stabilization service revenue stabilization in Spain. And also, it is worth highlighting that handset revenues are significantly down as we it took us a while to eliminate the structural subsidies out of the equation in the Spanish market, and therefore, and as also as hardware revenues give at least very low margin, we will not push much on that So we have a better and more positive outlook this quarter in revenues.
And within those that evolution could keep going for the next quarters.
Hello, Luis. Regarding our Argentina first, In the second quarter of 2017, Telefonica's Argentina revenue, OIBDA and operating cash flow growth accelerated due to increased consumption and better regulatory environment. We believe our business in Argentina is currently undervalued and the opportunities that the market offers are not priced in as valuations applied in the some of the parts are very low, despite the fact that performance is very good, and we're already repatriating cash from the country. Having said this, we do not comment on market rumors regarding any potential IPO there. Regarding Colombia recapitalization, the process of recapitalization of curtail continue progressing on months, the government continued advancing.
On June 30th, hello, was approved by the Colombian Congress to allow the government to subscribe the capital increase in order to prepay the obligations with the Parapati in accordance with our shareholding. The next steps in the process is approval of a decree and other internal government approvals. Once the decrease approved, shareholder meeting can be held in order to approve the capital increase. However, there has been recent news, a result of an arbitration initiated by the Ministry of Information And Communication in connection with the potential revert stability of certain assets on the mobile, under mobile former concessions. We believe that this arbitration is not conducive investments in the telecommunication sector in Colombia.
We are analyzing the implications of that arbitration award and the legal measures available to us both local and international levels. And obviously, yesterday, news could potentially affect the process, although it's too early to say what would be the potential impacts.
We will take our next question from Akhil Detani of JP Morgan. Please go ahead. Your line is open.
Yeah, hi, good morning. Thanks very much for taking the questions. I've got two questions both related to Spain, please. Firstly, just on the new €45 Fusion offer that you've launched. And I guess just as a follow-up to the prior question on this, if I look at the slides that you've provided on the mix of customers, it looks like it's about 27% of the base that are on your low end?
I guess it would just be useful to get some color in terms of how you're thinking about what the impact of this is, both in terms of down trading from the current €55 plan to the how you think that kind of drives your ad mix And when we think about the move to that, obviously there's been a lot of emphasis in the market around Massimo. Should we think about that as having been a relevant factor for you driving this change in pricing do you think there are other factors behind why you've done that? And then the second question is really around your Other And Wholesale segment. You mentioned earlier in the call that we should expect a decent recovery through Q3 and Q4 as the wholesale TV drag washes out. Could you just remind us of some of the bigger ticket items that are likely to impact as we look at the next of years.
And I guess what a mindful of is you've got on the negative side the, your go contract washing out, but I get setting that, you've got the new wholesale contracts on fiber you've signed with Vodafone. So I just I guess it's a really broad question is to how do you think post this year that wholesale and other revenue stream develops?
Thanks for your question. Regarding the first one around the new tariff that was launched 3 weeks ago. Our main target was to reactivate the gross adds at that level, because we are having good results in upselling our customer base. And therefore, if you compare the quality of the Fusion customer base, this quarter compared with a year ago, you will see that it has improved, but we see the opportunity of having a competitive are an upgraded and competitive in the new environment, low end offer. And that's why we have launched this 45 euro tariffs, which allow us to fight and capture some activity on the low end And certainly, as there are new actors, as Masmaw is, you mentioned, I think that we can be competitive because remember that we have the best network the best content and the best distribution channel in Spain.
So we think that we can reactivate the low end activity for Telefonica without triggering a down trading in our customer base. And the proof of that is that in the 1st 3 weeks, and again, it's too soon to conclude, but in the 1st 3 weeks of launching that tariff, we are not seeing major activity on customers moving from the 55 into the 45 year offer. Again, 3 weeks is not a good sample, but we think that, so far, it proves that we can be more active on the low end segment without triggering significant downturn, down selling on our customer base. In terms of Masmo, it has been certainly a disruptive element in the market. It is focused on low cost instead of value.
So we don't see immediate risk to market evolution in the mid to high end. Just capturing market share, but not that much, revenue share. And it also faced several challenges in the current market, the structure, the market is oriented to value with differential assets. And remember that Mass Mobile has no TV. Subscribers are more loyal on the back of convergence and totalization with lower churn.
And they have a smaller market growth in fixed broadband and mobile. Within that by revamping our entry level portfolio, we will have significant possibilities going forward to reactivate for growth in Fusion without affecting the quality of the base. In terms of the wholesale revenues, we include there, as you know, the TV and the MVNOs part. I was mentioning before that the football impact that has been affecting that because we have no revenues from La Liga since the third quarter of 2016, will be progressively fading away. But remember that we are having also right now not just the Vodafone which is, which is going to be affecting positively, but also, good performance in, in NEBA and roaming revenues.
So we think that, we could have a relevant upside coming from the NEBA growth in the midterm. It's going to be progressively. And that would be compensated progressively the decline in the traditional unbundling of the local access. So we will give you more color in the next quarter of this change of mix in the wholesale revenues. But we think that, the bulk of the impact coming from the football rights will start to fade away starting in August.
And therefore, we should have an easier comparison year on year in the next quarters.
That's great. Thank you.
Thank you, Akil. Next question please.
We'll take our next question from David Wright of Bank of America. Please go ahead. Your line is open.
Yes, I think actually a lot of it was covered in the last question, but I just wondered whether I could get a little more granularity on wholesale fiber because it seems like, that is one of the big opportunities to drive cash flows next year. The agreement with Vodafone, please, when exactly does that kick in in terms of the new rates being offered to them? And how you're expecting the actual fiber wholesale rate to evolve over time? My understanding is the DSL on bundling is around what should we expect the fiber level to be, please, and when could we really expect the Vodafone agreement to catalyze an acceleration? Is that the right way to read it?
Well, thanks for your thanks for your question. I would try to give a little bit more of color. In the wholesale segment, never is growing very fast. 2.6 times more important this quarter than a year ago. Growth is accelerating, but it is just 14% of the total amount.
The Vodafone agreement, as you know, is a 5 year commercial agreement. Will give them access to our fiber network. It's already starting. And it would be accelerating progressively, but it's still very low figures, including in this in this quarter. In terms of the mobile side of the wholesale revenues coming from MVNOs, Massmobile is still with Telefonica in 2017 because it will be migrating progressively.
And as a final piece of color, let me tell you that excluding Daliga, all the revenues would be flat year on year. So I think that going forward, and we should see a better performance of the wholesale segment. And And I think that in the coming and with respect of the price of the unbunding of the local access, the local loop, And the EUR 9,000,000 of the copper line, that price will be settled in the, I think, in the first quarter of next year, that we have and should be significantly higher than the EUR 9,000,000 that you are contemplating. But it is still unclear when the price of the local neva is going to be going to be established. So overall, with the new rates coming from the fiber axis, the progressive improvement coming from the Vodafone agreement and the softening of the impact of the football rights we should expect a better performance of the wholesale revenues going forward.
Thank you, David. Next question please.
Our next question comes from Julio Arciniegos of RBC. Please go ahead. Your line is open.
Yes. Hello. Thank you for taking my question. So, my first question is regarding the mix customers, I see that the mix of the low end has decreased from 29% to 27%. Can you give us some color of the dynamics?
Is this mix reducing due to higher churn in the low end? How should we think going forward after basically the company has launched some attractive offers in the low end, spinning down. That's my first question. And the second question is that by looking at the results of our of your main competitors in terms of broadband KPIs, they have grown, but they haven't been great. The rate of growth has been lower.
Do you see any risk that they are going to become a little bit more active, more aggressive in the low end to try to boost growth again? Thank you.
Thanks for your question. I would try to give you a little bit more of color. First, taking the the quality base for Fusion, we see it improving. And in fact, we keep working on that. So the target that we have launched is mainly devoted to attract new customer because we see value on the low end.
Not to preserve our existing customer base. And the proof of that is that, again, through soon to say, but in the 1st 3 weeks of the offer, we are not seeing major change of dynamics in customers migrating downwards. So we think that we could we should be able to keep building on the quality base of Fusion going forward. And the proof of that is the ARPU expansion. Again, let me try to give you a little bit of color on the ARPU expansion main levers.
Out of the 6.4% increased year on year or which is roughly EUR 5.1. On the positive side, you have we have the tariff upgrades the more for more strategy, the upselling to higher value packs, but we have also some dilutive effect from promos. And the promos are mainly devoted to if it takes to our customers of the superior product and then a significant part of them staying on that part on the higher packages. And then we also have some diluting effect from the old mobile add ons that should be progressively fading away. So just to tell you as a result that we keep working on improving the quality base.
And that links perfectly with the second part of your questions. It is true that we are seeing some, less, gross adds in a net some of our some multi growth, I think some of our competitors, but it is also true that all of them the bulk of them are also based on upgrading their customer base on improving their customer base. And I think that's a positive sign of seasonality in the market. So we do not see major changes in the market dynamics in Spain and it's something probably towards more rationalization. But again, we will keep you posted on the reaction of our own customer base of all the market to our recently launched tariff.
Thank you very much.
Thank you, Julio. Next question please.
Our next question comes from Giovanni Montalty of UBS. Please go ahead. Your line is open.
Hello, good morning. Thanks for taking the question. Very, very quick ones. On towers, would you consider as an option the contribution of additional towers to Telcis. I mean, this was one of the strategic pillars at the time of the IPO, I was wondering if this could be still a lever for you.
And on South America, is there any, let's say, progress? Are you more optimistic about the possibility to reach some more, let's say, extensive sharing agreement, especially with your top competitor there. And very last one, if I may, on wholesale volumes. I see that disconnections from your fixed networking spend are improving materially both quarter on quarter and year on year. Should we expect this trend to continue?
Obviously, thanks to the both the wholesale agreement. And is there any room to reach some similar comparable agreement at least in some parts of the country with Orange Thank you.
Hello, Giovanni. Regarding TELSIUS, on the one hand, we are progressing very well in the in the process to close the transaction with KKR. We've got all but one off of the approvals that we needed and we're expecting to do the 1st closing in Q3 or very early Q4 and the second closing in Q4. So that's progressing well. The strategy, of course, is to grow the the vehicle by contributing more towers.
It's, telcos is already increasing. It's our perimeter. It's working a lot in build to suite towers for Telefonica units and other parties. And also, we are contemplating, contributing some of our portfolios of towers into Delosio. So So yes, you should expect it to grow its number of towers.
And as Jose Maria said during the presentation, we are progressing in the layout of the new submarine cable systems.
Taking your question on network sharing agreements in, in, in, in, in, in, in Brazil. The answer is, yes, we have already have already some very interesting agreement in place like in Colombia with Millicom, but we think that this is a feeling which we can do much more in places where infrastructure deployment is not going to be a competitive advantage. I think that it makes all the sense to share more elements of the network in order to accelerate deployments. And I think that the interest of all of everybody are aligned, the customer, the society and the different players So yes, as we speak, we are having different conversations, including our largest competitor in the region. We don't have concrete news to share with you at this stage.
But yes, we are open, we think it makes all the sense. And in terms of the wholesale volumes, we have a the reading that you have is correct, but also remember that out of the total number of wholesale accesses, which is 4,300,000 just less than 600,000 are coming from fiber. So we do see a significant opportunity again, in places which makes all the sense, to offer these kind of agreements to extend those kind of agreements to other players. So the answer is, yes, we are open to extend those agreements to other players.
Our next question comes from Mandeep Singh of Redburn. Please go ahead. Your line is open.
Please. 1, sorry to come back to Spain. I know you've had a lot of minute details so far. I think in the presentation, you said that service were growing at plus 0.2 percent excluding the impact of wholesale drags or the TV rather. Just sort of I think Akhil asked about this earlier as well.
Once you move into Q3 and Q4, obviously that diminishes, but Yuego, Peppercorn grow, I mean, is plus 0.2i something north of positive, a reliable indicator for what service revenues could look like in the second the year, just bearing in mind that the various moving parts are we on an underlying basis back to positive? That's the first question. And the second question is just if you perhaps give us a little bit more color on the sort of hybrid call date for next year sort of strategy around hybrids, please?
Thanks. Thanks for your question. On the executive evolution of Orange in Spain, let me reiterate, we do not provide guidance on the different business division. But having said this, we expect revenue trends in Spain to continue improving in the next quarters. To remind that, total revenues will continue to be affected by lower handset sales.
And as you know, though, have very little impact on OIBDA. But if you ask me about service revenues evolution, the message is that service revenues would be already stable in the second quarter when you exclude negative impact from the lower wholesale sales of the legal rights, as I mentioned before. And that is negative impact will disappear from August. So the next two quarters, we expect that service revenues should continue to improve and will remain relatively stable in year on year terms. We'll give you more color in the third quarter when we see the actual result of the €45.
Thank you. Regarding hybrids, we have an outstanding amount of 1,000,000,000 equivalent recorded as Security accounting wise, this amount includes the $500,000,000 issuance in Colombia. The 1st date of first call will be, I think, in September next year. Of course, We cannot make a affinity for a remarkable commitment to redeem the notes as the first call date. It should be noted that at the 1st date, securities are expected to lose their entire equity credit from S And P, which is a strong incentive to replace them with an instrument of similar So we would be focusing on all replacement, to keep the equity component.
Okay. Thank you very much.
Thank you, Mandeep. Next question please.
Our next question comes from Danandei Meechandani of Bernstein Please go ahead. Your line is open.
Yes, thank you very much. My question is on consumer revenues in Spain, which account for about half of Spanish revenues. Now for the own revenues, which are about 2 thirds of consumer revenues grew by 10%. And yet the segment posted a moderate 1% revenue growth year over year. So it's rather obvious that the decline is coming from the non FOCE owned revenues of twothree a third roughly, which were declining at 13%.
Could you please help us understand how voice line loss trends in the consumer segment are evolving and where and more importantly, where these customers are going to.
Thanks for your time for your question. You are right. The 54% of total of service revenues is the B2C segment. And out of that, the bank is, is Fusion. The main writers of the growth of Fusion is 1 third subscriber growth and 2 thirds the ARPU increase in the NoFusion, they are declining 30% year on year, which is a smoothening its evolution compared with previous quarter.
But it's also been affected on the non foreseeable side, revenues for the DTA, the former digital plus customers, which is, which, again, the year on year comparison should be easing in the next quarter. So it's not just the traditional lines. It's also the DTIA and the former digital plus customer. And those contracts are either migrating into the fiber product or even going to some fiber competitors offers from the competition. And I don't have a key or the exactly number of how those customers on the percentage, but I guess that we are trying to attract most of them to our fiber offer.
So to summarize, the nonfusion declining minus 30% softer decline at a quarter ago. It is not just the traditional lines. It includes also the digital digital plus customer who's whose bundling is also progressing and therefore should be a fade in a way in the next quarter. And out of the traditional lines, part are coming to our fiber offer and parts are going to the competitors.
Thank you. May I ask a follow-up question or a second question, please?
Please go ahead.
Thank you. So Orange today announced its average revenue per converted account of about EUR 58. Your Fusion ARPU, which arguably the similar indicator was about 85 for the quarter. That's a 45% premium. I mean, how do you explain the spread or justify this premium?
And what are you doing to what looks at face value like a pretty disproportionate exposure to a potential repricing risk in the market.
Well, the explanation that we have, for the quality of our Fusion base is, 1st, we have the best fiber network in Europe. There is no Europe that has a similar fiber network at the home that we have been building in the last years. And by the way, keep an eye on operating free cash flow generation in Spain because as we have we are reaching a significant coverage of fiber in Spain, CapEx in density should be progressively going down. But the price premium is justified because we have the best network. We have the best platform in terms of functionalities, DVR.
We have the best content. No, none of our competitors have similar level of context that the one that we have in spite of regulation that forced us to offer premium content to our competitors. And also, we think we have the best distribution channels. So and we have started first to upsell our customers. So I guess that In the case of the competitor that you mentioned, you are including all the customers that they have, including the adjusted customer and therefore, they would I would not be surprised that they would start to offer upsell offers to their customer base and therefore that there are 2 could expand and shorten that differential.
So I think that there is a mix of effects. And if you ask us if we are concerned, Let me point out that churn, in Fusion customer is very significantly controlled. So for the time being, we think that this is a sustainable market evolution. We think that there is significant incentive for our aditors to upgrade their customer base by offering the customer better products through the network. And then finally, let me highlight that, again, churn in the different levels of Fresenius highly controlled, Fusion churn overall is 1.3% is down 0.1percentage.
Year on year. Postpaid churn on the mobile side is 1.3%. Is down. TV churn is also down. So for the time being, it looks like competitors and customers are appreciating that we have a significant competitive advantage in terms of all the different features that I mentioned before.
Thank you. Thank you very much. Thank you. Next question, please.
We will take our next question from Keval Kavoya of Deutsche Bank. Please go ahead. Your line is
Thank you. One question from Spain and one question on Brazil, please. In the second half of last year, you did have another price increase in return for giving free football included in some of the bundles. And do you see much of a drag on Fusion up in the second half as this price rise annualizes or did not have much of a net benefit given some TV customers would have no longer paid for the football. And then secondly, on Brazil, this time 4 years ago, I think we're getting starting to get excited about potential consolidation in the Brazilian wireless market.
Do you expect Brazilian consolidation to return on the agenda at all? And would you be in favor of it if it were to happen?
In terms of your first question of the packages and the football. We are not seeing major changes in the composition of the packages going forward. So would try to understand better your question offline and give you some color through the IR because we are not seeing major changes on the, on the football side on the content. We have launched, we see on Odfjell in trying to put to try to differentiate ourselves through movies and series as an alternative And our customers are reacting well to that, but we are not seeing major changes in the composition or the appetite of customer based on the football. And in terms of consolidation, on the consolidation agenda in Brazil, I will hand it to Angel to give you a little bit of color but we think it makes all the sense that was to happen.
Again, in Q2, Brazil maintained a very healthy revenue and OIBDA growth trends with margin expansion, posted double digit operating cash flow growth, with increased synergies generation. We've had a record share of mobile net adds, especially in contract. So we are delivering very nicely. We do not see the need for inorganic movements. However, as always, we would analyze in market conservation opportunities if they make sense and they create value.
Thank you. May I come back to my first question, just to be clear, My question really related to the price increase you put through, in July of last year where you included the football and some of the TV package. And obviously, this will then start to annualize in Q3 of 2017. Will there be much of a drag on the second half Fusion ARPU from the annualization of this move you did in the second half of last year or is it not too much of an issue? Thank
you. Let me let me try to, to give you a little bit of color. It is true that we have a price move that we mentioned last year, but it is also true that we have been having other offer upgrades this year in April in February and also recently in August. So there will be evolution going forward will be a mix of all of those. So it is not just the year on year comparison is going to be negatively affected by the prices that were done in the second half of the previous year, but they will be positively affected by the price upgrades that we have done.
So far this year. And we see still room for this more for more strategy going forward before the year end.
Next question please.
We will take our next question from Joshua Mills of Goldman Sachs. Please go ahead. Your line is open.
Thanks. Two questions on Spain, please. So the first is just on the trade off between offering customers speed and content with your Fusion base. If you look at the Fusion subscribers taking 100 or 300 make broadband packages, there's been a big step down in the net add growth this quarter. My question is, is that because people are sacrificing a bit of speeds, maybe churning down to 50 megs in order to keep to content, which was discounted before.
And now is in that context, how do you think about Sky's announcement this morning that they'll be looking to do an OTT service in Spain. The second question is just on CapEx. Now I know it's difficult to read too much into phasing, but Spanish CapEx is down 20% year on year in the first half. Do you think that there's scope to deliver a greater than 1% CapEx of sales saving in the domestic market, the 1% reduction of CapEx of sales is obviously what you're guiding at group level? And what's driving that lower CapEx effectively?
Thank you.
Well, taking your question on the mix of features that we put in play in order to build this more for more strategy. You are right. It's a mix of speed on the fiber network. Capacity on the mobile side, number of mobiles included in the bundle and certainly content. So we play and also the technological features of the platform.
So we try to build different attributes, speed and capacity on the wire and on wireless side. Number of mobile lines included, technological features of the platform like cloud DVR or latest 7 days recording or access. So it's a mix of those. And the customer chooses the different features. So the more we built into that, the more versatility of the offer we have.
But again, the proof of that is the mix of the customer base. If we put more value, it might be a different combination, but the result of that needs to be that we keep upgrading our customer base. And that has been happening in the last year. I mean, our customer basis, of better quality this quarter than a year ago, and there is a mix of effects out of that. And we will keep building that.
And remember that the network capacity that we have and the network speed, that we can offer to our customer is just starting and we just deployed the fiber network. So we have significant room to go in terms of the capacity and the speed of the network And your question about potentially more over the top players or offering in Spain, we have already here the largest players. And we see that more as an opportunity than anything because that would increase the usage of our, of the fiber network So we think that there is room for a while customer to choose between different options. But finally, we have when you get back to the previous question, we have the best fiber network in Europe, we have the best platform and therefore, we should be able to to offer our customer a very attractive proposition going forward. So in order to give you a summary, I think that you are right.
The speed is one of the elements. Capacity on the mobile side is another as we keep deploying LTE content and and the features of the platform should allow us to keep up selling our customer base. And in terms of the CapEx, we are already reaching levels of penetration of fiber in Spain that are 8x or 10x are the ones that you could see in the UK or Germany So Spain has become the best country in Europe, and I think it's the 3rd in the OECD network, ultra broadband network expansion. And therefore, CapEx intensity should keep going down in the in the future. And that's why I was trying to drive your attention into the free cash flow generation in Spain, not just revenues, which are very important and would be significant focus for us going forward, but free cash flow generation of Spain, because that will be a key lever for the group going forward.
Thank you, Joshua. We have time for the last question, please.
Our last question comes from Sam McHugh of Exane. Please go ahead. Your line is open.
Yeah, good morning guys. I just wanted to follow-up on that last question a little bit actually on Netflix. They obviously launched at the end of last year. Skye had said that they're launching second half of this year. Have you seen any impact from Netflix on the kind of consumer appetite for some of your TV bundles?
And how are you trying to factor in the now TV launch in terms of how you're thinking about the low end Fusion product? Is there a greater that people just take skinny bundles? And then just more broadly, can you remind us of your plans for original content, kind of whether the cost is OpEx or whether it's being capitalized? Thank you.
Sorry. We didn't catch the first part of your question. Could you please repeat it?
Yes. Can you hear me now?
Yes, we can.
Yes. So I was just saying, so Sky confirmed they're launching now TV in the second half of the year. And we've had nearly a year of Netflix post launch have you seen any impact from Netflix? And just how do you factor in this growing OTT availability into your thinking around the low end bundles? Is there a greater risk of people taking just the Fusion 0 offer, with more OTT video.
And the second one, sorry?
Oh, the second one was just on whether the content costs remind us of the plans and whether they're OpEx or being capitalized.
Thank you. Well, thanks for the question. In Netflix and other over the top players in Spain. We are not seeing a major shift in the evolution of our customer base so far. Again, remember that Netflix is already very active, for a year now in Spain.
I know our customer base keeps pushing customer keeps improving. So I think that, over the top players are seen so far in Spain by consumer as a complementary service to their bundle TV. And remember that we have, today, a significantly better catalog in terms of series and movies than any over the top in Spain. So I think that, we still have a better offer than any of them, and as a result, I think that our list of our customer base, I've seen them as a implementary, product that I'm gonna do, that I'm gonna, replacing product. In terms of, intensive.
In the second quarter, we are seeing just the opposite, even with Netflix already here, net adds in high and mid end are up six times year on year. So we do not see that cannibalization, namely on the high end or medium customer base. And in terms of content, is all flowing through our, through the OpEx sites. We are not capitalizing any content element in Spain. So it's fully reflected at OIDA level.
At this time, no further questions will be taken.
Thank you very much for your participation. And we certainly do hope that we have provided some useful insights for you. Should you still have further questions, we kindly ask you to contact our investor relations department Again, thank you very much to all of you and good morning.
17 Results Conference Call is over. You may now disconnect your line.