Ladies and gentlemen, thank you for standing by and welcome to Telefonica's November 2015 Results Conference Call. At this time, all participants are in listen only mode. As a reminder, today's conference is being recorded. I would like now to turn the call over to Mr. Pablo Egiron, Head of Investor Relations.
Good afternoon, and welcome to Telefonica's conference call to discuss January, September, 2015 results. I'm Pablo Guido, Head of Investor Relations. Before seeding, let me mention the financial information contained in this document related to 9 month, 15. Has been prepared under International Financial Reporting Standards as adopted by the European Union. This financial information is now deleted.
This presentation may contain announcements that constitute forward looking statements, which are not warranties of future performance and involve risks and uncertainties. And that certain results may differ materially from those in the forward looking statements as a result of various factors. We invite you to read the complete disclaimer included in the first page of the presentation, which you will find on our website. We encourage you to review our publicly available disclosure documents filled with the relevant securities market regulators. If you don't have a copy of and press release.
On the slides, please contact Telefonica's investor relations team in Madrid by dialing the following telephone 3 4914287. Now let me turn the call over to our Chief Financial Officer, Mr. Angel Beltran, who will be leading this conference call.
Thank you, Paolo. Good afternoon and welcome to Telefonica's 3rd quarter 2015 results conference call. Today with me is Jose Maria Alvarez Pagiete, Chief Operating Officer. And during the Q And A session, you will have the opportunity to address us with any questions you may have. Telefonica has achieved its 3rd consecutive quarter of improving organic growth in 2015.
Firmly placing the company in the new We would like to highlight in particular that Spain returned to positive revenue growth this quarter for the first time since 2008. Both revenues and OIBDA accelerated in Q3 that organic growth to close to 5%. With the latter proving that we are successfully delivering on synergies in Germany and on cost efficient margins. Margin was stable throughout the year at 31% and was flat year on year organically. Operating cash events in Ute Broadband lead to a differential infrastructure, translating into innovative and quality commercial propositions and allowing and reducing churn.
Despite adverse currency impacts in Q3, which we will cover ex spectrum to 1,000,000,000 up to September, combined with strong EPS increase of 63.5% year on year and a reduction in our post U. K. Sale leverage ratio to 2.32 times. Finally, we are pleased to reaffirm that we are fully on course to meet our guidance, which we upgraded in the previous quarter and dividend per share for both 2015 2016 are confirmed. Moving to slide 3, let me sum up our key financials which have been very sound despite the currency turmoil in Q3.
Did not leak through into free cash flow as they were offset by lower CapEx, tax interest and minorities payments both in the cumulative period to September and in the last three months. Overall, the third quarter saw steady top line and OIBDA year on year growth, both in reported and in organic terms. Net debt declined by 1,000,000,000 in the quarter to 1000000000. Principally due to cash flow generation and the lower value of net debt in foreign currencies. As I said before, we are reiterating our outlook for 2015 and we are fully aligned in the 9 months to fulfill this.
Under guidance criteria, revenue growth was 13.8% comfortably exceeding the guidance of higher than in line with target of around 1.2 percentage points and CapEx to sales of 15 point 6% is also in line with around 17 considering O2 UK sale is within guidance. In terms of shareholder remuneration, we will pay in the coming weeks per share in voluntary script dividend as the first tranche of the 15. The second tranche will be paid in cash in the second quarter of 2016. Turning to slide 5, free cash flow generation was robust in the 1st 9 months to September reaching 1,000,000,000 or 1,000,000,000 before spectrum payments. And absorbing the already mentioned FX impact.
I would like to highlight the sequential free cash flow improvement in the quarter of 1,000,000,000 to 1,000,000,000 leading to a solid year on year growth of 3 point percent based on improvement in most of free cash flow metrics. Let me remind you that year to date free cash flow is impacted by seasonal effects and thus free cash flow should record a better performance in the 4th quarter. Finally, EPS stood at in January to September, up 63.5% year on year. Moving to slide 6, we can see how organic performance and perimeter changes have outdated the FX fluctuation in Q3 leading to a very solid revenue and OIBDA year on year reported growth of 10.8% and 2.9% respectively. The consolidation of IPLAS EBT and DTS had a positive impact in the quarter.
Jointly contributing 13.57.2 percentage points respectively to revenue and OIBDA reported year on year changes. In addition, organic trends accelerated again in the quarter, took playing the 5.4 percentage points of reported revenue growth and 5.1 percentage points of OIBDA. On the other hand, the depreciation of LatAm Currencies in general and in particular, Brazilian real and Colombian peso directing Q3 around 8 percentage points in year on year revenue and OIBDA variation. On slide 7, we highlight how organic revenue growth continues to perform as actively ramping up 40 basis points versus the 2nd quarter and with Spain demonstrating a strong progress of 130 basis points reaching a positive year on year variation. In addition, Telefonica Espana America posted a sequential acceleration of 220 basis points and reached 12.6% year on year growth.
Let me also highlight the impressive evolution of data revenues, up 19.3% versus Q3 2014 organically and the increasing contribution of digital services. In addition, organic OIBDA growth ramped up 100 and 40 basis points sequentially to 4.8% boosted by the stellar performance of Germany and in spite of adverse macro by Brazil. Margin has remained flat throughout the year at 31% level, driven by stronger efficiency, synergies and simplification efforts reflected in the stable organic variation. To explain how our drive to increase quality rather than quantity in our customer base is paying off Overall, organic accesses are slightly up, but in higher value services, our performance has rocketed. As such, we added over 5,000,000 LTE customers more than quadrupling our base year on year.
Driving further adoption of smartphones, which were up 28% year on year. Fiber Connected and pay TV net adds also continued to grow robustly on a sequential basis, putting us in a strong position to capture further growth opportunities percent 18%, respectively, in organic terms. As a reflection of this, the growth in average revenue per accelerated in the quarter levels demonstrate the increased value Data monetization continued to contribute to revenue acceleration as you can see in slide number 9. Booming smartphone penetration and data volume growth are the key levers for data monetization. We are constantly developing initiatives to further monetize usage, launching data offers, center around integrated packages and new roaming commercial propositions.
In parallel, Data traffic is boosted by increasing average smartphone usage, 21% higher year on year in Q3 an LTE usage, 63% more than 3G. Also, there is a unique opportunity further incentivized data traffic as prepaid smartphone penetration in Espana America is just at 27% versus Brazil at 47%. The benefits of a smartphone penetration expansion and LTE adoption are clear and are delivering significant ARPU accretion. We are seeing double digit ARPU uplift. Data adoption is having a very positive impact on ARPU in the Spanish and Brazil with a significant prepaid ARPU uplift.
Each new data customer. And SMS drag is easing rapidly as can be seen in the acceleration of total data revenues which already represent 44% of mobile service revenue. Lastly, I would like to know that almost 30% of customers are using up their data allowance of which 44% by an extra data product. To review our progress in digital services, Please turn to slide 10. Q3 has been a milestone quarter for digital services as we surpassed the 1,000,000,000 in quarterly revenues, largely due to the solid organic performance of our Video segment with 1000000 25.6 percent higher than Q3 2014.
This positive evolution is built on our increasing content portfolio bolster key partnerships to deliver enhanced solution to our customers. In cloud, we have reached agreements with China Unicom and Equinix to expand our global data center footprint, offering a truly international solution for multinational companies. We have also partnered with Microsoft to bring cloud migration to our SME customers. In security, we recently acquired Jesdatos, a leading platform in Spain for the management of data now integrated into our international commercial office offer. We also launched Philippe in Spain, the first smartwatch for children which allows parents to monitor their children's safety.
Lastly, we are proud to once again be named global leaders in machine to machine in Gardiner's Magic Quadrant. TGR is the enabler of our progress by strengthening the networks and simplifying operations. In the third quarter, TGR continued with a rapid out of fiber and LTE. He tools to capture value growth. As of September, 14,400,000 premises were passed with fiber in Spain and 16,600,000 in Brazil.
We had more than 30,000 LTE sites, while 96% of 3G and or 4G mobile sites are connected with Ultra broadband technology. Additionally, we continued A key step towards IT transformation in the quarter includes expansion of full stack now in 15 countries. Lastly, we continued advancing on decommissioning applications, reducing physical servers, consolidating data center services and virtualization of IT. On slide 12, we summarized Telefonica Espana's trading performance. Launched in July, our new convergent offer Fusion Plus enhanced with digital class content drove an outstanding commercial turnaround in quarterly net adds across services on the back of strong gross adds and curtail churn levels.
Seasonality and the removal of lock in clauses since August. Fusion Plus continues to fuel the growth in high value services such as fiber and pay TV, improving customer mix and driving Fusion ARPU up to an 8.4% increase year on year and 5.1% increase quarter on quarter. In addition, we launched a campaign for the high end TB product in mid August with access to our premium content at promotional price until the end of the year. By the end of September, almost 500,000 customers had subscribed to it. Which increased the weight of customers with TV add ons over the total pay TV base to 36%.
Each percentage points more than in June. Let me remark that commercial strength has been achieved despite not having the Champions League which reflects a rational policy in content cost acquisition. Our differential assets, namely Utah Broadband Networks, continue the rollout to secure our leadership in value. Continuing continuing with Spain on Slide 13. Revenues returned to growth, plus 0.2% year on year for the first time since Q3 2008.
Amid a more favorable environment, top line reflects a new revenue cycle underpinned by consistent customer base growth, higher value in the base, price repositioning and wholesale revenue. Quarterly margin remained robust at 44.5%. Although higher OIBDA on year erosion than in Q2 in organic terms was mostly impacted by increased content costs as well as by higher equipment and network expenses. Importantly, let me comment on the effort we are making to increase the reach of Pay TV in Spain. Service that up to now has not been a mass product.
With this purpose in mind, we have launched an aggressive promotion while absorbing all the costs and this is obviously increasing margin pressure. However, once the discounted prices impact dissipates, We expect higher revenue flow through to OIBDA. And moreover, we will continue working on efficiency measures the following quarters. Review Telefonica Deutschland, please turn to slide 14. We posted very solid momentum in the third quarter, with strong contract net adds, leverage from strong dynamism of partners.
The company enhanced its value offering strengthening its O2 premium brand and revamping the value brand blow. Additionally, LTE continued to make progress, reaching a penetration of 16% and demonstrating that there is a strong demand for data in the market. We see now our O2 Blue All in customer base, 37% of new clients to Catarif above 1 gigabyte. And 54% of optatin customers had at least 1 automatic data extension. As a result, division from partners.
In addition, year on year growth of handset sales was lower sequentially affecting quarter on quarter revenue trends. Telefonica Deutschland has posted very strong profitability and an improved outlook. Early realization of synergies after achieving important milestones, along with sustained commercial savings translated into further OIBDA acceleration to 28.5 percent in the third quarter, with integration savings explaining more than 45% of this improvement. This, together with CapEx efficiencies, as network synergies outweighed the cost of LTE deployment, resulted in an outstanding organic operating cash flow growth of 40 On the back of this strong performance, the company updated yesterday its 2015 outlook announcing more ambitious targets and proposed a 2015 dividend of per share, stable versus last year. For a review of the performance of Telefonica Brazil, turn to slide 16.
As shown by our commercial and economic performance, we are outperforming the market once again this quarter. Leveraging on our differential position in value services. In the mobile business, contract gross adds reached highest ever quarterly volumes. While smartphones and LTE adoption continued to accelerate, driving data ARPU to ramp up year on year to 33%. This is reflected in the fact that Vivo is capturing all the market growth in service revenues year to date.
Regarding value services in the fixed business, Telefonica Brazil attracted 100 percent of new pay TV customers in the market and more than half of all high speed broadband net adds up to August. As such, The company's transformation towards a medium fiber company is improving ARPU and churn trends. Telefonica Brazil's financial performance on slide 17 shows how growth in higher value customers is flowing into the P and L. Thus, revenues sustained a robust year on year growth of 5.2%. Based on booming mobile data and fixed business improvement.
The latter is leverage on the business in Sao Paulo that returned to positive year on year growth in Q3. In addition, costs remain controlled, driving OIBDA growth acceleration to 2% year on year. Maintaining profitability roughly stable year on year despite a tougher macro environment. On slide 18, we review our performance in Span America where commercial momentum is driving a solid organic revenue acceleration. The strong trading in mobile contract resulted in almost 500,000 net adds in the quarter, quadrupling year on year, while at the same time, the growing adoption of bundled services in fixed business led to solid fixed broadband and pay TV net adds.
Strong commercial activity resulted on the one hand in top line growth with year on year rates ramping up to more than 12% or 9% excluding Venezuela, while on the other hand, it was the main driver behind percentage points decline in profitability this quarter Mexico, as shown on slide 19, we are gradually increasing both our scale and profitability. Thus the continued strong commercial activity is reflected in outstanding contract performance and is driving year on year accesses growth to 14% and smartphones to 87%. It is also the main driver behind the sustained double digit top line year on year growth which in the third quarter reached 17.9 percent year on year. At the same time, the ongoing profitability expansion is also remarkable this quarter, almost reaching the 30 percent mark, 4 percentage points more than 1 year ago. In the rest of Espana Americas, we show in Slide 20.
We are also capturing market value with better commercial traction with especially remarkable performances in Argentina, Colombia, Chile and Peru. This has translated into consistent regional market outperformance in revenue growth and it is also the main driver behind that acceleration in OIBDA year on year growth. Turning now to slide 21, Telefonica UK posted strong customer growth for the 6th quarter in a row outperforming the market with total mobile customer base reaching $25,000,000 at the end of September. Quarterly net adds were consistent and strong versus prior quarters with record market leading contract churn at 0.9% LTE continued to gain traction, reaching a penetration of 30% with increasing percent of new adds and upgrades adopting 4 tariffs of 1 gigabyte or more. As a result, Mobile service revenue performance continues to improve for the 12th consecutive quarter and grew 4.2% year on year excluding the impact of O2 Refresh.
OIBDA margin surpassed 26%. Expanded 1.7 percentage points year on year, excluding a non recurrent impact of 1,000,000 in the third quarter last year, thanks to the optimization of commercial costs. To the financial slides starting on slide 22. In Q3, debt has been reduced by 1,000,000,000 to 1000000000. Mainly driven by EUR 1,400,000,000 of free cash flow and EUR 1,200,000,000 savings in LatAm debt when translated into euros due to FX depreciation.
Leverage has been brought down to 2.84 times OIBDA while it could be a 2.32 times post UK sale. We expect to continue progressing on leverage improvement on 1st, positive free cash flow generation in Q4 'fifteen second, growing OIBDA on an organic basis and also benefiting from the acquisition of IPLAS and GBT and third, closing O2 UK divestment in 2016. Moving to Slide 23, I would like to highlight that our effective interest cost is 54 basis points lower than in the same period of 2014. We have continued to benefit from This improvement was enabled by an intentionally decreased fixed rate debt in euros and lower refinancing costs leading to 61 basis point savings, partially mitigated by higher debt in Latin American currencies, allowing for reduction in the financial cost to covering our maturities beyond 2016 we have continued with our proactive financing activity And thus, we have raised over 1,000,000,000 of long term funding by tapping diversified sources of financing. To recap, we have presented today a very solid set of results that reinforce our profitable growth profile and strengthen our position to capture future growth.
We continue to demonstrate an improving organic performance across all metrics. Driven by market momentum on value services. We're obtaining encouraging results from integration activities in Germany with Brazil to follow in the coming quarters. We are delivering network quality upgrades based on our superior infrastructure which allows us to respond to data traffic growth when demand is rocketing. We are leaders in major markets with a superior competitive position backed by strong investments.
And we are fully delivering on commitments for this year and also confirming the shareholder remuneration policy in play for 2015 2016. Thank you very much for your attention. We are now ready to take your questions.
And start to to cancel. And if possible, we recommend you not to use your cell or hands free phone. There will be short silence whilst question are being registered. We are going to take our first question from Nick Brown from Goldman Sachs.
The EBITDA margins in Spain have been flat at about 44.5% for the last three quarters. Should we expect that to fall in Q4 with a full quarter of La Liga costs? And should we then expect EBITDA to grow from the first quarter of 2016 once the Fusion Premium TV promotions you mentioned roll off in January? And secondly, remind me, are all the revenues and EBITDA from digital plus TV customers being reported in other and eliminations, or are you now reporting the content costs in the Spanish business without all of the revenues?
Thanks for your question. First on the OIBDA, Spain, a few message. First message being is that content cost is here to stay. And therefore, you have now an idea of a full quarter of the cost having the most complete TV offer in Spain, which has been the reason behind a very, very strong commercial momentum, namely on the ATV market. And we have proven that we are rational because we have been able to do so with limited inflation on some of the existing costs like La Liga and by no having others like the European champions because of too high cost.
And that's why the impact of margins in Telefonica Espana this quarter has been reflected by having the full amount of the content cost and just probably a month and a half of of activity, I would say. On the on the upside buffers that we have for the future, namely promotions. I mean, remember that we are having that impact of content with a promoted price of on the package. Promotion will be progressively expiring during the first quarter of 2016. We have roughly 600,000 customers on the promotion that would move out on that along that period and that will have an impact on OIBDA.
Also, pay TV penetration in Spain is one of the lowest in Europe. We are now in 29%. It used to be 22% just 2 years ago. So we have been gaining 7% point of pay TV penetration in just two years. And that's why we are investing on the market.
And then also remind that we keep doing extra efforts on the other part of the cost function of Telefonica Espana, distribution and others. So you should expect us to keep going into the direction of preserving efficiency in Spain. We don't guide on a specific margins going on. You have an idea of what's the impact of content, but also remember that this quarter's OIBDA is impacted by the promotion that would be expiring over the next years and that the extra customer base that we are capturing should also start to payback. During that period.
So that's what I can tell you in terms of the margin in Spain. In terms of how the integration of Telefonica Dyspania and DTS has worked this quarter, First of all, in terms of the wholesale revenues, there are part of the wholesale revenues that are reflected on DTS accounts and therefore not consolidating the Telefonica Espana, and that's basically applied for the football rights, the football laliga rights, are based on the digital plus on the former DTS. And therefore, are not consolidated into the Telefonica Espana accounts, while other sports like the MotoGP or the Formula ones are accounted into the wholesale revenues of Telefonica, Espana. Those revenues or those trends will be being consolidated probably starting this quarter in order to avoid confusion on where each of the coast component is relying. So as a result, they are part of the wholesale revenues, namely on the La Liga rights that are accounted on the DTS accounts and therefore not consolidated in Telefonica, and a minor part of the sports rights, namely formula 1 and MotoGP that are on the wholesale rights of Telefonica Espana.
Thank you, Nick. Next question please.
We are going to take our next question from Georgios Lorraine from Citi. Please go ahead. Your line is open.
Good afternoon. I have two questions, please. The first one on Spain, and you mentioned earlier the 600,000 subscribers that could move out, from the current promotion in January. Give us an indication of what kind of ARPU uplift you would expect given that profile? Basically, what I'm trying to understand if I'm not mistaken, last January, you raised prices in mobile, later in May, you raised prices and the Fusion, do you think there will be enough inflation on TV and other areas this year to make up for annualizing some of these benefits in 2016?
And my second question is on, 2 of your, Spanish American assets, Colombia, Mexico. The first one in Colombia, you seem to be underperforming TIGO quite materially. And I know there's an MTR impact even if I adjust for there's quite a big gap. Is that because you are responded late to the MX price card something up to last for a while, or would it be fixed, relatively quickly? And, similarly, in Mexico, you have a big tailwind right now.
You seem to be benefiting a lot on the margin. Will you balance it a bit more in the future in a sense of being more commercially active any indications around your strategy in Mexico?
Well, thanks for your questions. On the customers that are currently under the promotion of 1,000,000 in Spain and the potential uplift Yes, we have an idea of what could be the movement outwards, but as you might imagine, we do not share that because it's commercially sensitive. They are enjoying a product of nominally for most of them or as part of them were coming from the basic product. So we are analyzing the customer base And we are preparing the offer that we will put to them in the different add ons, series, sports, and others in order to make sure that they move out on the value chain once the promotion is expiring. So yes, we are anticipating uplift, significant uplift, but we are not sharing how much because we are specifically analyzing those layers of customers and preparing their offer whenever the promotion will be expiring.
On the price, movements in Spain, we like to talk about upselling. We have been upselling our customers. We have been giving more value for I tell you more money. The average price per megabyte or per gigabyte has been decreasing. Therefore, we are giving more value for ATV more of money.
We have been executing that consistently during this year. We have started in January for the One Play products and we are And we also and we did a deep move in April on the Fusion product. And that's why Fusion ARPU year on year has been moving upwards 8%, which proves that we are able to make a value proposition for our customers that are looking to enjoy more value for a better ARPU. And you need to score into a situation in which we have been suffering and installation strikes on the subcontractors. And we have been able to move back on the commercial side and to post a quarter of very, very solid commercial momentum.
So, that proves that we can move upwards ARPU by proposing more value, but I did more of price And I think that that's a trend that we would like to continue going forward. Remember finally, that if you benchmark the performance, the commercial performance of this quarter, even considering that we have August and the full seasonality, in the meantime, you benchmark the absolute amount of net adds that we have been gaining all across the board with the first quarter of this year. You will see that we have not only been regaining momentum, have been out beating our first quarter performance. So commercially speaking, very strong market and we think that we can having both things at the same time, expanding our customer base and moving upwards, the value proposition for our customers. In terms of Colombia, this is probably a quarter in which we are regaining market momentum.
We thought that the market will be more rational but subsidies have been back into the market, namely because of the 3rd player. And therefore, we have been waiting for that two quarters to see if the market was becoming more rational. It didn't. So we went back to commercial aggressiveness and we have been regaining market momentum. And of course, that has been affected OIBDA.
But jointly, our commercial effort with the fact that we'll keep investing significantly on our networks allow us to think that going forward, we will have better trends namely in terms of revenues. And then finally, on Mexico, it is true that for the first time in 10 years, we have regulation, namely interconnection asymmetry supporting our efforts, but it is also true that the symmetry of interconnection lower this quarter than in the previous quarter because interconnection rates has been decreasing from $0.31 of a peso to something between $0.24 of a peso. And therefore, this impact is being slightly or progressively diluted. The reason behind of our strong momentum in Mexico is commercial. I mean, We have been successful on the prepaid for a sustainable time.
But this quarter, for the first time, we have been successful or more success I would say on the postpaid part of the market. And that's very encouraging. It's has a lot to do with the expansion of our LTE that we are doing the improving in 3 g coverage that we are also doing on the market. Therefore, the fact that we are reinvesting terms of CapEx, a significant part of the cash flow that we are generating commercially and thanks to the asymmetry So pretty enthusiastic, pretty positive about the future of our Mexican assets, much better trends and not just relying on prepaid, but this quarter is one of the first quarter in which we are more satisfied about our postpaid trends in Mexico.
Are going to take our next question from David Wright from Bank of America. Please go ahead. Your line is open.
Hello guys. Thank you for taking the call. Jose Maria, if I could just ask for a little more clarity on the cost allocation in Spain. So you've taken wholesale revenues in DTS but you've taken all of the cost in Telefonica Espana. Is that correct?
So when you do then consolidate DTS, we should assume some EBITDA growth recovery just on the natural sort of revenue uplift. That's question 1. And then my question too, is it a full when you say a full quarter of costs in Q3 but only marginal sort of revenue uplift from the football promotions. Is that correct? So we've taken effectively the La Liga cost divided by 4 for full quarter.
We've put that in, but then we've only got revenues for sort of 1.5 months. I'm just trying to understand the exact cost allocation. Thanks.
Well, thanks for your question. Let me try to be a little bit more specific on the wholesale revenues. The La Liga cost that we is in the neighborhood of close to 1,000,000 the owner of those rights is DTS. And therefore, this is not consolidated into Telefonica Espana. And therefore, DTS is billing Telefonica Dyspania for the proportional part of the billing rights, for their customer base and for their market share.
The other revenues coming from Dalija, right? The wholesale revenues are going to the other parties to the 3rd parties depending on the market share. And therefore, those are not consolidated into telephonic Therefore, summarizing. In terms of Aliga, using Aliga as an example, you will have on Telefonica Espana, the cost of their part of their proportional part of their area cost and the revenues coming from the pass through to the customer even though it has been promoted. Therefore, you will have when we will be consolidating DTS revenues into Telefonica Espana revenues, the third party wholesale revenues accreting into Telefonica Espana revenues.
And then in terms of the cost the La Liga rights are divided into the different quarters and therefore allocated. And remember that a significant part of the loss amount of the illegal rights is passed through the other players that want to have access to this premium content, namely Vodafone orange and others. Therefore, you need to consider, when taking, when running your numbers that close to 30% of that amount is going, it's flowing to the wholesale market to third parties and therefore not into the Telefonica's accounts.
Okay, that's much clearer. And can I just ask obviously there is an assumption that the ARPU can uplift beyond the promotion ore period at the beginning of next year, but you're also seeing quite strong promotions from your competitors right now? So are you confident that you'll see a sort of a wider market reaction or is there a risk that your competitors also with some Champions League Football might continue
but it has been very, very competitive, not just from the content part, but also on the pure triple play before TV on the for the last 2 years. And we have been able to move forward to our customer because we have significant, I would say, differential assets, namely our coverage, our fiber coverage. Now with the DTS incorporation, we a satellite platform that is covering the 100 percent of the Spanish territory. And therefore, we are also able to sell a bundled product to the regions of spending, which we don't have coverage of fiber or VDSL. Then on top of that, I think that you also need to score that we are doing cross selling on the different customer base of the a DTS base into with Telefonica as our product.
And then I would also like to mention one specific issue, which is that 56% of our pay TV base is now with some kind of add ons, which basically means that the value proposition that we are doing and the segmentation that we are doing in the market with the different layers of products on the TV side is gaining traction. Therefore. And finally, let me add on in terms of the advantages that we think we have. Is that on top of the network, on terms of the contents, we also have in terms of the features that we are able the technological features that we have been able to embed in our platform TV on demand, cloud storage and more than 74 high definition channels. I think that we have enough strength on our value proposition on our products to allow us to think that we can uplift our customer base going forward.
A final point I would like to mention the over the top platform that we have been incorporating from Digital Plus, a lowest to have in just 1 quarter more than 500,000 customers that has now downloaded and most more than 70% of those are recurrently using the app. So I think that overall when you put everything into consideration and you consider also the strength of our fiber on the strength of our network. I think that we should be able to actually follow our customers going forward.
And DTS is fully consolidated Q4. Is that correct?
We will do our best to do it. It's already fully consolidated. I mean, but we'll make
a comment within FS Espana.
Concentrating the Telefonica Espana. So we avoid confusion going forward.
Thank you.
Thank you, David. Next question please.
We are going to take our next question from Jonathan Dan from Royal Bank of Canada. Please go ahead. Your line is open.
Hi, there. Two questions, please. One is, looking at some of the listed subsidiaries, some various, I mean, I'm thinking in Brazil and Germany, with the with tax changes in Brazil and I guess the pace of improvement in Germany, is there a moment to improve the capital structure either less or more debt? And then completely separately, are you looking at unbundling in Mexico?
Hi, Jonathan. This is Angel regarding the first question. We have a group wide approach to the capital structure, which allows us to comply with our overall leverage commitments group wide and also with some other criteria like what amount of debt pushdown can have 2 subsidiaries regarding, structural subordination issues and some other consideration that, for instance, ratings agencies would be looking at. Also, we are managing, taking into account the different commitments taken to the market in the case of Telefonica Deutschland at the time of the IPO. In the prospectives, there was some commitment to leverage that we have been complained with and also regarding our other major listed subsidiary, which is Brazil We're continuously monitoring market conditions, cost of debt, a macroeconomic situation of of the country to optimize from a group perspective, what would be the financial costs.
This is a dynamic, obviously, exercise that we are continuously assessing and there could be variations over time, but we feel that we are in a good position now.
Taking your question about Mexico, we are analyzing access to cell infrastructure on the mobile side, because the current regulatory framework has forced the incumbent to prepare a wholesale offer by having embedded access to their passive network infrastructure. And therefore, on towers on tele CTOs and other CS we are analyzing not on the wireline side. We need to make sure that we have fixed our situation on the mobile side, namely that our prepay traction is in good shape that our postpaid traction keeps improving was a pending issue in this quarter. So before considering any other movement, we are totally focused on our mobile business in Mexico in order to try to accelerate our CapEx deployment and to make them as efficient as possible, but having access if possible and the reasonable prices to indirect infrastructure of the incumbent in Mexico. So not on the wireline side,
yes,
we are analyzing option on the wireless side.
Thank you very much.
Thank you, Jonathan. Next question please.
We are going to take our next question from Matthew Robilliard from Barclays. Capital. Please go ahead. Your line is open.
This process of the sale of Telefonica UK, if you can maybe give us a bit of color in terms of how your conversation progressing and what is the timetable? Should we still expect something to be closed by Q2 next year? And then coming back to Mexico, actually, I mean, obviously, one of the new entrants there planning to spend quite a bit of CapEx over the next few years much more than what your current run rate suggests do you think that at some point, you will have to ramp up CapEx there to catch up with that or you think you already have a head start in next to the near entrant?
Hi, Matija. Regarding the O2 UK approval process, as you know, this process is being led by Hutchison, and we are supporting them and participating in the meetings with the European Union. What they call the forms here was filed on September 11 as expected. On October 30, the commission moved the file to phase 2. This was, I want to insist expected and did not refer the file to the UK CMA.
There was an initial deadline set by the commission on March 16, This can be extended at the request of the commission or voluntarily by request from Hutchison. I want to stress that there is an ongoing constructive and continuous dialogue with the competition authorities. Our base case scenario continues to be that the deal gets with remedies regarding timing, we expect the deal to close in the second quarter of 2016 provided that there European Union does not significantly stop the clock, no. So we remain optimistic and confident in the success of the deal.
Can you just confirm if there is a breakout fee in this deal?
The commendation is confidential, but I would assume that if there was a significant breakup deal, we would have had to disclose it.
Taking your question on Mexico, yes, we have, as you might imagine, we have been monitoring very closely announced from the brand new competitor in the Mexican market about their future CapEx intention. And we have scored that in our model. Let me remind you that, throughout things, we have employed, we have invested more than 1,000,000,000 of CapEx in Mexico in the last years. Thanks to that, we have the 2nd best network after cell And that's precisely why the other, the previous two continents, namely Jussafel and Nextel had National Roman agreements on our network and they were relying mostly on our network, focusing on parts. So we can easily understand that AT and T would like to have their own network and therefore, they will need to catch up significantly in the next quarters because they will need to basically build a significant part of the network which we have already done.
Having said that, we are accelerating CapEx in ago. And because we think that the growth opportunity that lies ahead of us, we need to take advantage and therefore, we cannot miss the opportunity but we are not in the need of precisely matching what ATA team is going to do. At the same time, we are analyzing. And I was saying previously, any option that would help us or would facilitate the way to do that in a more efficient manner by having access to sites if those were to be at reasonable pricing compared to deploying our own network. So to make a long story short, we feel that we have a good base on our network.
We also feel that we need to accelerate because there is a huge opportunity ahead of and the time is now because of the asymmetry of the regulation. We don't feel such a disadvantage, like AT and T might be filling. But yes, we are going to be accelerating and we are accelerating and we have not changed our CapEx because of the announcement by AT and T.
If I may ask, is the project of the government around the 700 megahertz spec part of the options you're considering on that's the no go for you?
It's not one of the most attractive for you that we are analyzing that we keeping everything on top of the table. We are analyzing other products with a better return.
Thank you very much.
Thank you, Matthew. Next question please. We are going to take
our next question from Keval Kiuria from Deutsche Bank. Please go ahead.
Thank you. I've got 2 questions, please. Firstly, on Spain, at the start of the year, you laid out an ambition to grow revenues in Spain on a cumulative based in 2015. In the 1st 9 months, the Spanish revenues are down 1.5% do you think in Q4, we'll see growth delayed to reach flat of growing revenues for the full year? And if not, what's gone worse than what you expected at the start of the year?
And then secondly, in Brazil, you have been doing a great job at outperforming the market, but do you think the current wireless growth rate is sustainable as we look to 2016, do you expect any further impact from the weak macro environment? And how do you feel about the recent competitive moves from Tim Brazil in particular? Thank you.
Taking your question on Spain, we are already discussing previous calls that it was not a guidance. Having said that, we have been already having 5 months of growth in Spain. And we think that the performance that we see in this quarter are going also into that direction, whether that's going to be enough to match or to surpass previously our revenues still to be seen, but again, that's not a guidance. And therefore, we keep working into that direction and allow me remind you that, again, we have already had 5 months on a row of growth in Spain. Things that were unexpected that you were mentioning.
First, the approval process of digital digit Plus took 2 months longer than we expected initially. 2nd, the subcontractor strike was not scored, into the model at the beginning of the year. And that had an impact on the 2nd quarter. And that's that is also affecting the performance. So we'll keep you posted, but allow media to highlight that we have already had 5 months on a row of revenue growth in Spain.
And in terms of Brazil, it's affecting the business in terms of bad debt, namely, and therefore, it is true that we have had a significant impact in terms of bad debt that is starting to be controlled. And that's why we have been significantly upgrading our credit scores for new ads. In spite of that, we have been able to maintain revenue growth, and we have been able to accelerate in terms of OEDA performance. Thanks to the fact that we have been basically grabbing more than 50% of the contract net adds of the market that we have been able to capture mostly 100% of the mobile service revenue growth of the market and also because of the fact that we have been able to grab 100% of the pay TV net adds on the quarter, which means that products that we have in Brazil are very strong in these circumstances and that we are replacing the growth that is not coming from the macro environment with market share without incremental competitors. So a very strong quarter speaking in Mexico.
And even without the bulk of the synergies yet flowing through our accounts, remember that are starting to see significant traction in terms of synergies in Germany, 3 quarters after 4 quarters after the approval process. We are just 1 quarter after the approval process in in Brazil. So pretty confident on the future of our Brazilian subsidiary, very, very satisfied by the commercial results, especially you take into consideration the fact that we were just in the middle of the integration process of both teams. And therefore, rather than losing focus on the market, we have been to accelerate our market aggressiveness and therefore capturing a significant part of the value of the market in the quarter. In the cost of energy and in other supplies.
In spite of that, we have been able to accelerate OIBDA growth because of the first signs of the we have been able to preserve revenue generation revenue growth compared with the previous quarter because we have been grabbing most the value of the market in this quarter. So very satisfied with the performance of the Brazilian unit during this quarter.
That's very clear. Thank you.
Thank you, Geva. Next question please.
We are going to take our next question from Christine Funnel from Credit Suisse. Please go ahead. Your line is open.
Thank you. Two quick questions. On Spain and the fiber, the competitive dynamics, I think Orange announced a couple of days ago, they're going to expand its send their footprint and obviously it's going to take them time to do that. So I was just wondering what's going on when you're competing against orange, and I guess what Vodafone built in fibre when you're going head to head with them, what sort of market share do you get? I presume it's pretty high, but any visibility on that would be useful And then just generally, obviously, going into this LatAm down cycle, you're relatively exposed, a group, has it led to any new thinking about how you want to be exposed long term?
Is there an argument to pivot back to Europe at some point? Thank you.
Taking your question on, what competitors expansion in terms of coverage on fiber in Spain, yes, Orange announced this week that looks like they have announced that they will be expanding to their coverage from $10,000,000 to $14,000,000 from fewer deal 2020, we have already almost 40,000,000 households covered are passing in Spain. And we are aimed to, if if regulation doesn't change, if the regulatory environment is stable, to go significantly above that level in the next So coverage, which is one of the factors that we are using in order to accelerate our value proposition in Spain, we take into account what they are doing, but we are significantly ahead of them. So allow me to say also that coverage is one of the elements, but not the only one. I mean, the content is essential. And we think we have the best overall content in the market in Spain, in spite of not having the European championship we have a very good and very competitive product in terms of series, a very outstanding product in terms of movies an outstanding product in terms of other sports and in terms of football rights.
And we have also a platform that is providing features that they are hard to match by the others like a video on demand, VTR, cloud storage last 7 years, last 7 days of programming high definition channels. So whenever we find them on a building, so to say, it is hard for them to compete with us because we we have a very good product and a very good bundle. So we, we acknowledge we were already accelerating. And I think it is the right approach. I mean, competition based infrastructure is the right approach for fiber.
And I think that that's precisely why Spain in the middle of the crisis has passed from being the 6th country in Europe in terms of fiber customers are not talking about relative or percentage. I'm talking about absolute number of fiber connected homes. From being the 6 in 2011 to being the leader, the leader in 2015. So I think this is the way to go. More competition on infrastructure based competition, the better for the country.
So, we deeply encourage that.
And regarding the second question on geographical diversification. What I would like to point out is that you PNcentric company. And given the high expected growth in EBITDA and operating cash flow that we will achieve in Germany this will probably continue to be so. So in our cash and value metrics, we continue to be a European centric company. Okay, thank you.
Thank you, Justin. Next question, please.
We are going to take our next question from Giovanni Montal from UBS. Please go ahead. Your line is open.
Hello. Hi. Sorry, 2 quick questions. The first one on your expectation in terms of inflation of the content for football. There should be an auction short term.
I mean, we haven't seen much inflation last time around. So wondering what are your about this? 2nd, if you can give us any color about the current trading in terms of net additions, especially PayTV in Spain? Thanks so much.
Well, in terms of content, it's hard to say, but so far the we have been able to send signals to the market we want to be rational in terms of building the market. And that's why we, it was a very limited inflation on the La Liga rights this year. And we have decided for the time being that it was we were not ready to pay the amounts that was required to have the champions in Europe. So we will try. We'll do our best.
We'll try to do our best to make sure that content cost keeps on the rational terms, also taking into consideration that we are at a part that again, let me stress that Spain just have a 29% pay TV penetration compared with an average of 61 in Europe, and there is way to go on the upside. So I think that if the price in scheme is rational. We could try, we could try to create an and stable environment here in Spain. So hard to see. We will see that Laliga.
This had a Liga auction coming shortly. So we will keep you posted on that. But for the time being, we are trying to send rational signals to the market. Also taken into consideration the fact that the remedies that were imposed to us because of the acquisition of DTS in terms of premium contents that we need to have available for our competitors make that and the way those are being shared in terms of fixed versus variable component means that part of the fixed component of those premiums, right, is shared. Among the different players.
So I think that nobody is really, of the infrastructure based players is really incentivized to pay crazy pricing for, because all of us will need to bear a significant part of the fixed cost. And in terms of net additions in fiber, what we are seeing so far, And now we are just with October recently closed is that the good trends that we were seeing keeps keeps going. So we think that it should be another quarter of good net adds overall in the Spanish Thanks
so much.
Thank you, Giovanni. Next question please.
We are going to take our next question from Will Meiner from Arete Research. Please go ahead. Your line is open.
Thanks very much. I have a couple. I just want to take I think Mattya's question on the UK disposal, a step further. I mean, if you are unable to sell the UK business for European Commission doesn't approve, more if Hutchison sees the remedies as too severe. Could you maybe just discuss that scenario what you believe your options are given the sort of leverage that the group would have after that decision.
And obviously the LatAm devaluation that we've seen so far would be quite helpful to talk through your options in that scenario? And then secondly, obviously a big part of the debate today has been about content costs and the promotion that you're running in Spain. I mean, from what I can see, the basic fusion offer that people are taking is and the promotion, they'll get stuff that costs for basically So in January that the price for people on that is going to jump from to which is obviously a huge jump. I just want to understand how exactly you're going to manage that promotional roll off, presumably you'll try and, encourage consumers to take one of the add on bundles, but just how is that work and how you're going to manage that when you hit that point in January?
Regarding the first question, I would like to insist that we remain confident in the deal being approved with Renaries. And closing in the first half of twenty sixteen. In the unlikely situation that this was not the case, the be several alternatives regarding our UK asset, which should be reasonably easy to execute either through M And A, capital markets, with strategic or financial investors, doing a complete or a partial there are several alternatives that one could think of. And in addition, an irrespective of the UK deal outcome We have several alternatives regarding other assets. For instance, we are strategically reviewing in-depth our portfolio of infrastructure assets to seek opportunities to free capital, realize value, while maintaining operational control.
This would include things like towers, submarine cables, backhaul, data centers, etcetera.
Taking your question on the customers that are right now under 9.9 Euro promotion. And assuming, which is an assumption, which is not totally correct, but for the sake of the year, of the analysis, let's assume that they are all on the basic Fusion Contiendo offer of If they were to move and they have right now the premium extra TV offer, which is nominally and is now being promoted to 9.9. We will need to assume that all those customers are going to try to move to this nominal price of 65. And allow me to remind you that we have several add on package that they could decide to move on some of those. For example, right now, you have the football package and the football add on, which is a pure football package for on top of the 59, you have the other sports, which is you have the movies, which is just and you have the series, which is just so we have tried to create flexibility for them to accommodate in the content that they would like to have and they would like to choose when they have tasted the full blended product of everything, they can decide if they move into that, if that is affordable for them.
Or if not, they can decide to stay with at least one of the contents or 2 of the contents. So we have tried to create scalability on our product range to make sure that after the promotion they would be attracted to share part of their disposable income with us have, based the product. So that's our assumption. And again, allow me to remind that one of the basic assumption is that all of, not all of them are on the EUR 59 promotion on 59 euro of Fusion package.
We are going to take a
question from Jerry Delis from Jefferies. Please go ahead. Your line is open.
Yes, good afternoon. Thank you for taking my questions. The first question is around the DTS, please. Last year, DTS disclosed an EBITDA margin. Of around about 4.5%.
There are now La Liga costs within La Liga rights within the DTS perimeter. But has the DTS margin changed significantly since 2014? And then secondly, in Brazil, now you have a Tim taking advantage of falling MTRs to bring off net calls into the bundle. Do you expect a short term impact from that would you be able to give us any guidance as to how much of your Brazilian revenue is derived from a call by call off net calls please? Thank you.
Well, taking your question on DTS, we have issued the numbers of DTS for the 5 months that are already being consolidated. Basically, in terms of EDA, we are close to breakeven. If you you put into consideration the wholesale cost that is being transferred from a Telefonica, the other sports. So this 4 point 5% OID margin right now is flat. It's breakeven in terms of OADA for taking out extraordinary adjustment, positive extraordinary adjustment because of the merger.
So I think that close to 0% of EBITDA margin when we put everything into consideration. And when we scored the wholesale costs being transferred to digital to DTS from Telefonica De Espana. And in terms of Brazil, we do not disclose the OEDA exposure because of interconnection. It has been significantly decreased over the last 5 years because we knew that this was coming. So it used to be a very high exposure now it's a pretty limited one because we have been bundling significantly of our tariffs in Brazil during the last quarter.
Yes, it's a new feature on the market. We knew it was coming sooner or later. We have tried to prepare ourselves for that. And as Amos was stating on the call yesterday, every single quarter, we will been facing because we are the leaders of the market, brand new product and much more aggressive promotions from our customers. And so far, we have been able to overcome them.
Because we have, as I was stressing before in Spain, significant differential attributes in Brazil as well. Have the best brand. We have the best quality, the best coverage. We have the best distribution channels, the best distribution network and integration is providing us with amazingly high cross selling opportunities among the customer base of GBT. And among the customer base of the former GBT and among the customer base of the former BIVO.
So yes, brand new feature on the market, something that was anticipated, and therefore, confident that we will be able to preserve our commercial traction.
We are going to take our next question from Mandeepstein from Redburn. Please go ahead. Your line is open.
Hi, thank you for taking the question. I just wanted to dig a bit more into Spanish revenue growth. I appreciate this year was never official guidance. It was really an ambition But do you think that next year 2016 is a cumulative, your revenue growth is actually positive and sustainable for the whole year? Second question I have is really sort of digging into the Spanish revenues in a bit more detail as a category of revenues called Other, which grew very significantly year over year.
Excluding that, your revenues in Spain are declining by 2%. So if you could just sort of try and explain what that other category is, is it accretive or dilutive to margins and just a bit of revenue picture in Spain beyond just Fusion where you do give us a lot of disclosure?
Well, try to stress that it was not a guidance. And therefore, we are trying to stress that it's not a guidance for 2016. I mean, in order to avoid confusion going forward. But for sure, if we have been already having 5 months on a row of revenue growth, we think we can continue into that direction. I mean, it took us almost 7 years to turn Spain back into growth.
It took us 7 years to build the attributes to make sure that that was sustainable with significant CapEx effort with significant price cuts with significant bundling and therefore with significant discounts, significant efforts in terms of quality allow me to stress the fact that one of the most important features of this quarter that has been almost a notice churn reduction. I mean, we back to historical levels of churn, low levels of churn in Spain. So all if you put on top of the table, also the technological improvements that upgrades that we have been doing to our platforms and the expansion that we are doing in LTE and fiber. Definitely, we are doing that because we think that we can be a growing company. But again, we are not guiding and we will just keep you posted on a quarter by quarter basis.
And in terms of the others line, a very low margin line. It's basically carriers and others. For further detail, please keep in touch with with Pablo and the IR team. And remember also the fact that the speed of revenues in the traditional way of Spain between fixed or mobile is having less and less sense because of the Fusion and the bundles. So I deeply encourage you to go to the overall numbers of revenues Spain.
And for further details on these orders, please contact Paolo and the IR team, they will give you more color on that.
We are going to take our next question from James Breitzer from New Street Research. Please go ahead. Your line is open.
Yes, thank you very much indeed. Two questions, please. First one is actually almost a kind of direct follow-up from Mandeep's one just now, regarding, you have made a number of previous statements about aspiration for revenue growth in Spain. I mean, now that been achieved, do you have an aspiration for EBITDA growth in Spain? And if so, when might that be able to be achieved?
And secondly, please, just wondering if you could give us an update on the situation around cash repatriation from Argentine Tina. Is that something you've been able to do? And if not, how much cash is in Argentina at the moment?
Thanks for your questions. And now that have been able to cross the lines of our revenue growth in Spain for sure. We are we want as soon as possible to cross the line of OIBDA as well. We will try to give you more color on that during the fourth quarter conference call in terms of the efforts that we are doing, not just on the because of the end of the promotion, but also the other efforts that we are doing by attacking the cost function in Spain. Distribution and others.
So I hope that during the fourth quarter, we'll be able to give you more color on the courses of Telefonica, Espana going forward. But yes, as you might imagine, after revenue growth for 5 months in a row and the platform that we have been able to build. Now we are targeting to get back to OIBDA growth as soon possible. So allow me to postpone this for the fourth quarter conference call because I think that during that, we probably would be able to give you more color on acosta for that will be running Telefonica De Spanish.
And regarding Argentina, we have not repatriated any amount this year. The cash position is the equivalent of 1,000,000, which is decomposed in the equivalent 1,000,000 in pesos and 1,000,000 equivalent in foreign currencies.
Thank you, James. We have time for one final question, please.
Thank you. Our last question comes from Fabienne Lares from GB Capital Madrid. Please go ahead. Your line is open.
Hi, good afternoon. Thanks for taking my questions. First of all, could you give additional information now that the European Union has finally decided on the outlook for roaming, can you give us some information how much that weighs on your consolidated basis in Spain and Germany and where this would be, how much of this would be affected? With the change in regulation in April 2016 June 2017. And second, with regards to the the statement by Standard And Poor's on hybrids.
I'm not sure if this was asked, but if it was, I'm sorry, because I joined late. The could you give us more information as to what your strategy might be with hybrids given now that they account 100% of the debt whether you would hope whether you would retire these earlier, replace them with a more senior, cheaper senior debt, etcetera. Thanks.
Thanks for your question. In terms of the bromine exposure in terms of net exposure in the at the third quarter of this year is 1.5 percent of revenues. So this is what we have right now. Allow me to remind you that we are already preparing our companies for that. We have all the players, but namely Telefonica has been putting together on our own networks significantly attractive tariff for the rumors that are coming from the UK into Spain or from Germany into Spain or the other way around.
So we are already as we will seen before on the Brazilian interconnection question, we are also trying to anticipate that and to accommodate the impact on our accounts as we move forward the end of roaming at the end of 2017. So right now to be precise on the answer, 1.5 percent of net revenues. This is the net exposure to, and finally, allow me also say that we have been growing 4.8 percent in revenues organic at the group level this quarter, I mean, cumulative so far this year, 9 months. Regulation is dragging 1.2 percentage points. Of that growth.
I mean, if regulatory situation would have been exactly the same in the previous year, we would have been growing 5.4%. So, we are used those regulatory effects, they are more and they are getting less and less relevant because regulation still things in the previous century, but the impacts are getting less and less relevant.
Regarding the hybrids, SMP has revised the equity content assigned to several hybrid capital instruments to minimal from intermediate. In our case, all our hybrids have been impacted by this change. Revision of which allow the issuer to call the hybrids upon a reclassification link to change in the rating previously assigned to the issuer. In confronted with this situation, which wasn't expected, Our main target is to regain the equity content, to keep the financial flexibility we aim at the times of the several issuances and also to maintain a good market access. We are currently, reviewing the documentation with legal counsel, we are reviewing our options.
And we are in dialogue with SMP about courses faction in order to regain expeditiously the equity content and we will update the market in due course.
This was the final question. I'll pass now to closing the call.
Well, thank you very much for your participation. And we certainly hope that we have provided some use full insights for you. Should you still have further questions, please contact our Investor Relations department. Good afternoon.