Ladies and gentlemen, thank you for standing by, and welcome to Telefonica's January to December 2014 Results Conference Call. At this As a reminder, today's conference is being I would now like to turn the call over to Mr. Pablo Egiron, Head of Investor Relations.
Good morning, ladies and gentlemen, and welcome to Telefonica's conference call to discuss January December 2014 results. This presentation may contain announcements that constitute forward looking statements, which are not warranties of future performance and involve risks and uncertainties this. 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 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 regularly to see if you don't have a copy of the relevant press release and slides. Please contact Telefonica's Investor Relations team in Madrid by in the following telephone number 3,491, 482, 87, double 0.
Now let me turn the call over our Chairman and CEO, Mr. Ferralia Paul will be leading this conference call.
Thank you, Pablo. Good morning, and welcome to the Telefonica 2014 Results Conference Call. Today with me is Jose Maria Vazparete, Chief Operating Officer and Angel Bula, Chief Financial And Corporate Development Officer. So during the question and answer session, you will have the opportunity to address to us any questions that you might have. Before starting, let me briefly explain with you the agenda for this conference call.
I will first explain the milestones achieved in North transit transformation journey to a Turkey Hotel Telco in 2014 and the expectation that we have for the 2 years. Angel will explain the 2014 results in detail and Jose Maria will provide details on the strategy and outlook in 2016. Please turn to slide number 2. To start reviewing the business deep transformation carryout in the 2012, 2014 period, which allow us to look on the next 2 years with great confidence that we'll be back and we will be back to sustainable profitable growth. During the past 2 years, we have made significant advances.
We invested in capturing growth opportunities in mobile data and negative services took initiatives to improve efficiency throughout simplification and reinforce our asset portfolio and derisk it or balance it. As a result of this, we have been a solid platform, and we have clear proof points of the which allow us to upgrade our ambitions for the 2015, 2016 period. We will accelerate growth and investment. Building stronger networks and monetizing the data explosion coupled with increasing efficiency levels. In addition to the synergies from Brazil and Germany acquisitions.
At the same time, maintaining financial flexibility will be key for delivering growth. Finally, let me stress our intention to increase the cash dividend after the execution of the proposed O2 UK this. Some of the indicators of our program are explained on the slide number 3. The average revenue per asset returned to growth for the first time in many years. Demonstrating the demand for high quality services and high speed connectivity.
In digital services, we saw exponential growth in revenues, setting the basis for their increased uptake in the future. We are proud to note the investment we made in expanding the reach of both fiber netting doubling figures in just 1 year. We generated a run rate of 1,000,000 awkward savings in 2014, derived from a linear operating model. In complexity and paving the way for further savings. In Spain, we recorded a significant improvement in the year on year trends.
Throughout the year, and we are well on our way to return to growth in 2015. In terms of our balance sheet, we recovered robust net for Venezuela adjustment and proportion of 2 UK sales. Turning to slide number 4, we can see the consistent improvement in our top line growth, with all the signs that this team is set to continue. 4th quarter was particularly strong. Our revenue grew by 5% year on year in Oregon.
Underpinned by the state increase in assets and EBITDA return per asset. As you can see from the graph on the left, The trend in 2012 is one of sequential growth with a 2.6 year on year organic for the full year 2014. On slide number 5, we continue to demonstrate how fundamentals are totally improving, as shown by your EBITDA and underlying earnings per share increase. In organic terms, EBITDA returned to growth in the full year 2014, showing a 0.2% increase year on year. Despite the more intense commercial activity aimed at high value customers.
Underlying earning per share reached encouraging results for the full year at $0.93 per share, improving solidly in the 4th quarter. And I want to remark that. And the line net profit reached €4.5,000,000,000 in 2004 1,000,000,000 for the year. Let's now slide number 6 review how Telefonica fulfilled guidance giving even for 2014. We have delivered on our operating outlook for 2014, leveraging on a strong execution skills.
Net debt is good above our full year target, but let me stress that including the proposed auto UK sale. We will have reduced it to 1,000,000,000, demonstrating our commitment to financial flexibility. In addition, the high-tech cooperation of scrip dividend translated into a cash dividend payout vouchers 55% of the free
cash flow.
Looking ahead in 2015 and behind on slide number 7, We are well positioned for further growth acceleration. In Spain, one of our largest markets, macro and market trends look positive. Increasing the appetite for higher value services. Also, our infrastructure and assets in fiber, pay TV, energy, will continue to increase our differentiation. At the group level, we will decision by expanding a differential LT experience across our markets.
And by designing propositions that lead to higher data adoption, including a push in prepaid smartphone penetration in Latin America. Also, will leverage network and IT upgrade to enhance customer insights. Our focus for portfolio management will create significant synergies in Brazil and Germany. And it means we can't absorb our customers to higher value and quality vendors, thus creating additional revenue streams. We will also be concentrating on savings over the coming years, and we will be delivering more than 1 800,000,000 synergies plan.
Turning to slide number 8. We will now touch on how external factors have turned from negative to positive for us. In terms of regulation, We have been very active in voicing our opinions on regulation. We have pointed out several times, we are in favor of in market consolidation and precedence setting examples in Germany and all the countries are very encouraged. Continuing with Europe, couldn't fix regulation give us certainty until 2020, while the retailer agenda appears to be following investments.
In LatAm, there has been also positive rulings by regulation regulators in Mexico and Colombia to foster sector development. On the macro side, the economy in some of our key markets is steadily improving. As is the case of GDP growth in Spain and Germany. And both are based on a stronger consumption us. In addition, financial markets are now back to normalized risk levels.
The rates have come down again. Finally, the market is structured in some key markets has evolved, which will allow us to move from a price inflationary competency model to a quality or service model for differential infrastructure. And therefore, the investment made by Telcos are the key drivers in gaining more loyal and high value customers. Turning to slide number 9. We at Telefonica have been working to drive a fair policy framework and a digital ecosystem.
11 playing field should be a priority for policy makers and regulators. The current situation is not sustainable today. For media connectivity and internet services are converging. Self operators need a balanced scenario with other players in the ecosystem, especially with internet companies, and our customers want to have a safe and open digital experience. We believe there is clearly a window of opportunities to achieve a different work in Europe.
The need for a living playing field and the need to recognize the investment risk with a more investment friendly framework are the key elements of regulatory and public policy strategy. We defend that policy and regulation will be revised considering the whole internet value change. This is necessary to guarantee a better internet experience for consumer based enterprise and political administrations and have and open internet, a portable digital life, and a safe and enjoyable digital experience, but also It is very important to avoid any situation of abuse or dominance and ensure that users have chosen in all layers of the difficult value chain, which means that difficult markets need to be watched carefully. Moving to the next slide, let me explain our financial priorities for the next 2 years. We have affirmed the termination to reach 3 interactive targets.
1st, we will have strengthened or balance sheet after the proposed or 2 UK disposal. In addition, we have already derisked its balance sheet with Venezuela foreign exchange adjustment, which allow us to limit EBT capital increase up to 1,000,000,000. On leverage, we aim to have a ratio in both years lower than 2.35, including the proposed or 2 UK sales. The result of this financial policy should translate into ratings and stabilization reflect or regain financial flexibility. 2nd, we will maintain an if shareholders remuneration comprise of 1st enabled dividend payments, tactical share buybacks, and sales calculation to mitigate the scrip dividend dilution.
3rd, to support us, continuous organic growth based on differentiation, what we keep analyzing inorganic opportunities to isolate value creation as our portfolio strengthening policy remains in place. Let me now highlight for guidance for this year and the ambition for 20 16. 2016 is going to be the year, but we will increase our revenue growth to more than 7%. While our EBITDA margin will present a limited margin erosion of around one point to allow for commercial flexibility if needed. Our CapEx to sales ratio will be around 17%.
For the period 2014, 2006 seen, the cumulative average growth rate of the revenue growth will stand at higher than 5% with EBITDA margin stabilization in the year 2016 versus 2015 and CapEx to sales to be stable around 70%. Reaching the peak in this period as it will be 2 points lower in 2007. Revenue guidance in organic terms compatible with our strategy to accelerate growth. On the financial guidance, let me add that we will do all this maintaining all then for 2015 at €0.75 with the same mix structure at last year. The first tranche $0.35 will be payable in the fourth quarter of 2015 by means of the voluntary in the second tranche of $0.40 in cash in the second quarter of 2015, 2016.
More of a orientation is to increase the card dividend to 0.75 dollars per share once the Dayton is closed. In order to mitigate the exclusivity and dilution, we will propose to the linear meeting the cancellation of Treasury sales equal to 1.5 of outstanding capital in the fourth quarter of 20 team, includes an additional 1.5% cancellation once the U. K. D. Is closed.
And now I will pass on to Angel to review the Intelligent 14 results in detail.
2014 results clearly reflect the solid steps in our transformation strategy towards a digital telco focused on accelerating long term sustainable growth. Commercial momentum, particularly in high quality services, has gradually strengthened throughout the year, which along with booming mobile data monetization has allowed Telefonica to recover strong revenue growth and increased customer value. Thus, in the fourth quarter, revenue growth accelerated to 5%. All these, along with further efficiencies across the board, has translated into robust profitability. With OIBDA growth returning to positive territory in 2014 and limited year on year margin erosion.
CapEx was up 16.9% in 2014 focused on technological transformation, setting the basis for future growth and differentiation the portfolio management. Let me stress that including the proposed O2 UK sale, the leverage ratio improves to 2.15 times. This proactive management of our asset portfolio has allowed us to lead in market consolidation and bolster our competitive position in key markets. Through value enhancing deals. Finally, we delivered on 2014 operating guidance and confirmed 2014 dividend commitment.
Moving to the next slide, let me summarize our key financials. Reported year on year evolution is significantly affected by nonrecurring factors. FX headwinds and changes in the perimeter of consolidation. Affected by these nonrecurrent items. Benefful and Bolivar set at the previously denominated CCAT II at 50 Bolivars per U.
S. Dollar. This decision has impacted OIBDA by 1,000,000,000 and net income by 1000000000. It is important to note that revenue contribution the net cash position is now below EUR 400,000,000, minimizing the impact of any further potential adjustment. Other non recurrent effects include: 1, a provision for restructuring costs with the aim of increasing efficiency in the future.
Impacting OIBDA in 1,000,000 and net income in 1,000,000, mainly affecting Germany, with the announced lever program. 2nd, a value adjustment of our investment in telco has reduced net income in 1,000,000,000 and third, asset sales in Spain, mainly towers, with close to 1,000,000,000 impact on OIBDA. These non recurrent items provide a clean sound and derisked base for profitable growth going forward. To see these impacts in more detail, please move to slide number 15. FX has been the main factor dragging 23.9 percentage points to OIBDA year on year valuation with the evolution of the Venezuela and Bolivar explaining our 90% of this effect.
Let me stress again that this impact is mitigated at free cash flow level. On the other hand, the consolidation of Iplaz since October 1, turned the contribution of perimeter changes to revenues to positive and reduced the negative contribution to OIBDA, still affected by the deconsolation of Czech Republic and Ireland. Nonrecurring effects, reduced q44 OIBDA net income by EUR 1,400,000,000 and EUR 1,100,000,000, respectively. Turning to Slide number 16. Sequential top line acceleration of 220 basis points in the quarter to 5% year on year organically is explained by strong commercial momentum, particularly in value services coupled with churn stabilization on a yearly basis.
Moment contact customers increased 11% versus 2013, boosted by smartphones, which deliver a remarkable growth of 39%. Pay TV momentum remained high with strong net adds of 4 $37,000 in October to December period and accesses increasing 1.5 times versus 2013, surpassing the $5,000,000 mark. Fiber Connected customers posted record net adds in the quarter and accesses doubled year on year. Best in class diversification and better revenue mix towards data explain the consistent improvement shown in sales performance during 2014. OIBDA in the GMC games.
Organic OIBDA margin decline of 0.8 percentage points versus 2013, underlying higher commercial investments and network and IT costs. Turning to slide number 17, we reviewed the strong performance of mobile data. Smartphone penetration reached 35% at the end of 2014, underpinned by increased LTE adoption. This, along with a strong year on year growth in average data consumption across our footprint, is driving the acceleration in total mobile data traffic, up 64% year on year in fourth quarter. The boosting data traffic smart pricing are reflected in data modernization and improved performance on non SMS mobile data revenues, which grew 24% organic year on year.
I would like to highlight that 1 third of customers actually use more data than they initially subscribed in their data plans, and 1 third of them subscribe additional data snacks. This gives us plenty of room to upsell as we currently have just 1 third of customers already on plans with more than 1 gigabyte of data included. Please turn to slide 18 for an update on our investment profile. In terms of network investments and in order to meet increasing customer demand for data traffic, both in fixed and mobile, we have devoted 74 percent of our investments to growth and transformation, 5 percentage points more than a year ago in organic terms, while at the same time, we have reduced investments in legacy. By concept, fiber CapEx increased by 81% and investments related to TV increased by 79%.
On the mobile side, was 30% higher and 4G spend was 19% higher, while we also advanced on transmission and 18 investing 15% more than a year ago. It is also remarkable the effort made in acquiring differential spectrum in 2014 to secure valuable spectrum in Brazil and its Pan American countries. Let me now review the performance of Telefonica Espana in slide number 19. We are especially satisfied with the progress made in building a stronger franchise. Our successful convergent offer enhanced in 2014, we a differential quality TV product drove a sound commercial turnaround, leading to an acceleration of growth in high value.
Fiber customers doubling year on year pay TV tripling and contract mobile resuming growth. Movistar Fusion traction continued reaching 73% of the fiber base and 50 of the fixed broadband base and 57% of mobile contract securing a larger revenue stream in the consumer segment on more loyal customers with higher ARPU. Lastly, we fulfill the target of ultra broadband coverage with more than 10,000,000 premises passed, which fiber and 58% population coverage with LTE, supporting structural differentiation, which were reflected in the investment effort made in 2014. On page number 20, the sequential improvement of revenue year on year in Spain is a clear reflection of solid fundamentals. Underpinned by ongoing commercial momentum, price stabilization and a diminished impact book impact.
Importantly, revenue declined improved 7 percentage points in the last four quarters. And this along with savings from efficiency measures, limited year on year OIBDA erosion in the last quarter and delivered a healthy OIBDA margin of 45.6% in 2014, excluding tower sales. Hence, Telefonica Espana is on a clear trend to recover revenue growth. To review our operation in Germany, please turn to Slide 21. The successful integration of IPLAS, consolidated Telefonica Deutschland as the mobile market leader by customers, recording solid contract net adds with focus on data monetization.
Increased LTE coverage, 62% at the end of December and attractive bundles are driving an improvement in the bundle adoption mix. New tariffs launched on February 15, are further incentivizing increased data usage and upselling initiatives. On financials, mobile service revenue now representing percent of the combined company stabilized its year on year trend in the 4th quarter. 4th quarter OIBDA margin was 18% in 24 in excluding restructuring costs of 1,000,000, reflecting higher commercial spend to capture market growth. Finally, the company has such as gross and up selectivities, online procurement, defined network grid, and personal restructuring agreed.
On Slide 22, Telefonica UK added 394,000 customers, the highest of any quarters since 20 underpinned by the contract segment, up 6% year on year. Market Leading customer loyalty was reflected in contract churn at 1% for the full year and the quarter. The rapid rollout of LTE is translated into an outdoor coverage of 58% at December, with customers having 3 times average usage versus a 3G user. This led to ARPU stabilization with broadly flat year on year performance in the quarter. As a result, mobile service revenue, excluding O2 refresh, was up 3% versus the fourth quarter of 2013.
With total revenue, 5% higher, also boosted by the increased trading of high end devices. OIBDA margin grew 0.2 percentage points versus 2013 to 24.7 percent, with auto refresh adding 3.7 percentage points but negligible impacting the annual variation. In Brazil, moving to Slide 23, we have reinforced our market position in High Value customers in both businesses. In mobile, during 2014, we strengthened our leadership capturing more than half of new contract customers. And almost 40% of new LTE accesses, thanks to our superior network and our innovative services.
This strategy underpinned outgoing ARPU up 6% year on year on transformation into a fiber company with connections and IPTV accesses accelerating throughout the year. Slide 24 shows our solid Brazilian financial performance. Is leading to sustainable revenue growth. Thus, mobile service revenue year on year organic growth accelerated in Q4 to five point 7%. Excluding Q4, thirteen-1 off on strong data growth and despite negative regulatory effects.
In addition, despite the strong commercial activity, the efforts to achieve higher efficiencies resulted in an increase in cost much lower than inflation. And consequently, in full year 2014, OIBDA returned to positive year on year growth. Turning to Slide America. Strong trading with mobile gross adds growing year on year by more than 10% in Q4 and higher traffic volumes leading to mobile ARPU growth underpinned a steady double digit revenue growth. On top of that, Full year organic OIBDA margin was 0.5percentagepoints up year on year, returning to 2012 levels a special mention in profitability increases in Colombia, Chile and Mexico.
Let me stress that OIBDA growth remains in high double digit when excluding Venezuela. Let me now go through Mexico, whereas shown in slide number 26, are gaining momentum and accelerating growth. Strong commercial traction with record gross adds once again in in revenue growth acceleration to reach the highest mobile service revenue growth in 5 years in Q4. Let me also remark that the mix of top quality assets on strong CapEx efforts in the past and economies of scale started to flow into the results, expanded profitability with OIBDA almost doubling year on year in Q4. Turning to slide number 27, we review the performance of other countries in Espana America where solid, so top line growth boosted bottom line performance.
In Colombia, revenues continued outpacing inflation growing by 6 percent in Q4 amid strong increase in profitability. As such, margin expanded by more than 4 percentage points year on year in the last quarter of the year. In Peru, revenues also consolidated the trend posted in last quarters while OIBDA was affected by high activity to regain high value customers. In Argentina, the main highlight is that along the year, we managed to offset inflation and FX pressure profitability was slightly up year on 28. First, I would like to highlight the strong cash flow generation shown in 2014, which has allowed us to reduce the comparable net debt figure as of year end 2014 to 1,000,000,000.
However, by applying the circa 2 FX rates, of 50 Bolivars per dollar. This figure increases to 1,000,000,000. 2nd, I wanted to underline the active portfolio management, which is helping us to increase financial flexibility at the time we force our strategic position and credit profile. In this regard, the proposed O2 UK sale will trim our net debt figure to less than EUR 32,000,000,000, which will in turn bring our leverage ratio to 2.15%, comfortably below the 2.35 times target. Moving to Slide 29.
We continue delivering a prudent financial policy aimed at first maintaining a health and reversed liquidity, which exceeds 1,000,000,000. 2nd, diversifying our funding with 3 nearly EUR 15,000,000,000 with higher role for capital markets and hitting historical lowest coupons on our long term bond issuance. And third, keeping cost under control, so that average cost of debt is 5.4% and remains nearly flat below the midpoint weight and repayment of maturing lower cost debt in euros would have increased costs by 47 percentage 0.47 percentage points, but this has been nearly offset by 0.41 percentage points savings from lower interest rates. Now I will turn to Jose Maria to review the outlook for 2015 and beyond.
Thank you, Angel, and good morning to all of you. As you can see on Slide 31, our business mix will be transforming, working towards our goal of growing average revenue per services overconnectivity and broadband are both set to increase going forward. While there will be slight reduction in access and voice and equipment, moving us away from selling minutes to selling gigabytes. We will focus on creating voice bundles, and variable data proposition for our customers, allowing more flexibility and quality of services. For our portfolio, as I think we have proven over the last 12 months alone is evolving towards a much stronger position in our key markets, Spain Brazil and Germany with bigger local scale.
By the end of 2016, we aim to see the contribution from these markets group revenues increased roughly 2 thirds. On Slide 32, we have set out how we will maximize mobile data and video explosion. Telefonica will participate in and benefit from the digital revolution, capturing growing revenue streams. Deferential LTE will form the basis and we will advance towards high LTE penetration and faster network, which will lead to more devices connected. The right devices for our customers is also a critical piece.
We will increase the penetration of smartphones in our customer base by broadening our portfolio, lowering enterprises points and phasing upon the prepaid smartphone opportunity in Panamedics. As the network improves and devices affordability increases, customers will consume more data, exceeding their allowances. And thus upgrading to complementary bundles, bringing in extra data revenues. We will leverage this trend by creating tariffs that we bring quality and satisfaction to our customers. On top of this, we aim to create an environment were exciting.
Everything is connected either through multi devices or multi use data plans or through improving connectivity with fiber to the home and LTE leading to the adoption of new database services. On video, we are pursuing a focused strategy to fully capture the opportunity and where the uptake is key. Multi device accesses, new high definition technologies and larger screen devices are all increasing the appetite for video services. On Slide 33, we show our main priorities in terms of network. First of all, I would like to highlight that our main focus is to increase the deployment of our future proof ultra broadband networks that we result in up to 22,000,000 premises passed with fiber in 2016.
That is was always subject to adequate regulation. The number of LTE enabled base station will be a approximately 50,000 more than double versus 2014. And in Europe, this will mean a population coverage about 85% in 2016 and more than 55% in Latin America. Network modernization and rationalization are the key pillars of our transformation to all IP networks. Technology benefits are expected to result in steady customer adoption of IP access technologies and network capabilities, voice over IP accesses, fiber based broadband and the rise of 4G.
Regarding IT execution strategy, our main priorities are: 1st, to accelerate the business transformation, delivering more customer migrations to full stack projects. 2nd, simplification, including virtualization which will improve business efficiency generating synergies. And third, enable growth businesses to digital capabilities. Like online and multichannel and big data among others. On Slide 34, you can see the savings, including synergies that we will continue to capture under the 14, with the realization of savings above our initial expectation, 1,000,000 versus originally 50.
This was the result of several activities, including simplification of corporate functions from original to model and adopting the structure of the new operating model. SG and A, global policies and outsourcing of support functions for example, in Brazil. In the fourth quarter of 2014, we booked a provision for restructuring costs Ahel mentioned before. Additionally, we continue working with the simplification of the other channel optimization, customer initiatives like self care, fast mention of support functions, selective deployment base of analytics, network automation and synergies in Germany and Brazil. By applying these initiatives, we will be able to generate up to more than 1,800,000,000 OpEx and CapEx gross savings annually from 17.
The $700,000,000,000 already to be achieved in 2015. In Spain, we faced a more positive scenario with improved macro market consolidation, which should lead to more rationality in the market, and a pro investment approach in European regulation. Amid this backdrop, we plan to reinforce differentiation. With an unparalleled CapEx effort to further increase next generation network coverage to have the best in class network and bring 4 years forward the fulfillment of the European digital agenda targets just with our networks. We aim to cover up to 18,000,000 premises with fiber to the home and more than 85% of population with LTE by 2016.
But as we have always stated, this ambitious investment plan would only be executed in a scenario with adequate regulation. Mobe star Fusion will continue to be the key pillar of our strategy, accelerating the take up of ATV, and making fiber the principle fiber and fixed broadband technology in convergent households. Growing high value services will increase ARPU and year's churn and ultimately translate into the recovery of top line growth in 2015. Focus on control will continue and contribute to maintain a leading profitability. CapEx in 2017 was the next generation will be mostly completed.
Name priorities of the other businesses units are shown on Slide 36. Within digital services, we will focus on accelerating our capabilities in cloud, security and machine to machine in order to capture the full growth potential, especially refreshing the portfolio in the SME segment while at the same time we continue to drive emerging digital services. In Germany, we will base our strategy in 3 main pillars: 1st, setting market trends to a clear focus on stable mobile customers. 2nd, monetization of LTE opportunity with bigger offers per customer segment and with a goal of reaching an outbound coverage of up to 90% at the end of 2016. And third, offer the best high speed experience with a flexible combination of the latest technologies.
The execution of synergies, personnel soft shop, footprint reduction and mobile safety commissioned will improve profitability. For 2015, we are expecting 1,000,000 of recurring operating cash flow synergies, approximately 30% of the target expected after year 5. In Brazil, main focus will be on mobile data growth, increasing the penetration of high value customers on our superior network quality and innovative services. In the fixed business, we will continue deploying 5 aiming to cover more than 5,000,000 premises by 2016 such our strategy will be conducive to a more balanced revenue growth, while we continue working on cost reductions And on the significant synergies, the GBT acquisition will bring once we get to definitive approvals from regulators. Finally, Pan America will continue to be one of the most significant levers for growth in a landscape of different business realities and a context of favorable macro conditions in core countries like Mexico, Colombia, Peru Thank you, Jose Maria.
Conclusions. I know it has been a long presentation, but let me run up. We have reinforced our growth model in 2014 with the right fundamentals to grow and form further. And in the fourth quarter, we are used to the first signs of the change. We had a very focused portfolio with various position in core market.
We are determined to maintain the financial flexibility recovery. And we are fully committed to offer in very attractive returns to our shareholders. Thank you. And now all of us, we are open for your questions.
Thank you. We would kindly ask you to ask a maximum of 2 questions per participant. There will be a short silence while questions are being registered. First question comes from the line of Nick Brown from Goldman Sachs. Please go ahead.
Thanks. Two questions, please. Firstly, when you talk about Spain returning to growth in 2015, is it realistic to expect the point of inflection maybe in the first half? And secondly, I think previously you were adding for margin stabilization in 2014. Are you expecting you may have to invest more in commercial costs in Spain now to support revenue growth?
Is there another market where you want this flexibility? Thanks.
Thanks for your question. In Spain, we are not guiding in which quarter. We are going to be returning back to growth, but the trend set during the fourth quarter indicates that, we reaffirm our vision that during 2015, this should be accomplished. The first formation that we have for the 1st month of the year and the advance that we have for the February are also driving into these directions. So, we cannot be more precise on which quarter, but reaffirm the trend that, now Spain is set feedback to revenue growth in 2015.
And in terms of margins, we are guiding for limited OIBDA margin erosion on the basis of 1st. Overall, I'm talking on the consolidated level, improved revenue trends in all markets, driven as we have been presenting during the slides and Smartfield Banking. It is true that we are going to be incurring higher commercial costs, namely commissions and promotions as we see growth ahead of us and we capture we want to capture this revenue trend. But it's also true that we are going to have higher content costs, mainly in countries like Spain and also in Brazil, where our TV offer is booming. And we are building best in class video offering, and instigating traction.
As the more traction it gets, the more diluted this effort in content is going to be taking advantage of the scale and network effect. We are also facing higher network costs as we keep deploying ultra broadband network both fiber and LTE in all our geographies. But we are also seeing progressive positive impact of senior generation, namely in Germany, and potentially in Brazil when the GBT transaction will be cleared. Finally, let me stress that we are also seeing progressive positive impact of the simplification program. We already capture 1,000,000 of savings in 2014 ahead of our initial of 2015.
So overall, we see OIBDA growing significantly. Absolute terms and accelerating in 2015 with a limited margin erosion as we see profitable growth ahead of us. And we really want to it. Should not that be the case, we'll be adopting our commercial strategy and therefore adopting our commercial expenses.
Great.
Thanks.
Thank you, Nick. Next question, please.
Go ahead.
Hello. Thank you for taking the question. I had two questions, please. First of all, just on Spain, just so we were very clear, are you guiding that Spain will grow for all of 15 or it will return to growth at some point in 20 So that's the first question. The second question is really on Brazil.
Are you still supportive of consolidation? Do you think likely to happen? And if not, what do you think the future is for Oi? And if you could maybe give some color on sort of concession renegotiation and how you think that might play out? For the market as a whole.
Thanks for your question. In the case of Spain, we are guiding for growth at 2015 on a cumulative basis, not just on a quarter per quarter basis, but on a cumulative basis.
Thank you. Regarding Brazil, Our focus continues to be getting the approvals for the GBT transaction and reach a successful closing, which we expect in the first half of of this year. In the meanwhile, we continue strengthening our position, both in mobile and in fixed broadband. And we're posting clear growth both in revenue and OIBDA and GBT when it finally closes. We're reaching our growth prospects and allowing us to have a conversion footprint and generate significant synergies.
Regarding mobile consolidation, we have stated in the past that we have strong believers in the benefit of in market mobile consolidation, which we would support and which could generate substantial synergies. But at this stage, we're fully focused on GBT. And we maintain our full optionality regarding potential consolidation in Brazil.
And any thoughts on concessions, please?
Well, on the concession, there are many news around we are pretty focused on what's going on. We think that, as we have been stating publicly, it's for all the wireline concession, therefore, not just for all of for, for just our case. We, we think it's going to have a rationale come back too soon to say. I mean, we are positive, but too soon to say.
Thank you, Mandeep. Next question, please.
We will now take our next question from Georgios Eirald Akono of Citi. Please go ahead.
Good morning and thank you for taking the questions. I just had a question on Spanish regulation. On the wholesale fiber access that was announced earlier in the year and also on the Digital Plus acquisition. If you could give us an update and a specific clarification, the group CapEx of 17% CapEx to sales. The way I interpret it is that assume you carry on investing towards 18 million homes passed in Spain.
If you would scale that down does that mean CapEx goes somewhere else either in Spain or somewhere else in the group or will you come a bit lower on CapEx to sales? And then my second question is around Mexico. If you could give us an update of, your options there and whether you confirm that any M and A that will happen in Mexico will still mean you consolidate the resulting asset. Thank you.
Taking the first part of your question on Spain, we are addressing our CapEx efforts to the areas that have been considered to have the competition. And we will, we take our coverage in other areas, when it is clear what they are, what the rules of the games are. But we keep deploying. And we keep focused on the areas of that has been declared already within and competition. And the CapEx over say that we have stated includes this effort and the CapEx guidance that we have been given for the future includes the assumption that regulation is going to be stable on this subject.
In with respect to the regulation. Now, the important thing is that The main challenge of Europe predicts the digitalization of the economy, and this is very clear seen by the every country in Europe, and I think, I'm fairly optimistic that this year is going to be big chances. Big chances in favor of, investment and investment in what in fiber and elting. And the framework is going to be more positive for us investing in fiber and elting. Having said that, my perception on how the regulation is going to be in Spain.
It's very positive in the sense that, everybody wants municipalities. This panic economy, and it means that the regulation has to favor it. So I'm fairly, fairly optimistic on that. And with regard to Ghana's Bruce, and also further optimistic, I think I think that in the next couple of months, it will be approved at, it will be a roofed, and, and we will complete, complete the transaction. In regards to Mexico, Ole Maria has been saying, you know, we are focused on organic growth, the new regulation in Mexico favors.
And this is our main audit you know, if there is any opportunities, that we think are reasonable, we might do it. But it has to be reasonable as as a separate. You know, we are, you know, we are very consistent on that. And, And, so we are we are, very, very enthusiastic about the future of operation in
Very clear.
Thank you.
Thank you, Julius. Next question, please.
We will now take the next question from Matthew Robbyar of Barclays. Please go ahead.
Good morning. Thank you for taking the questions. I had two questions. First on Slide 2 of your presentation pack. One of the items you highlight is the strengthening of your portfolio as opposed to the focusing of your portfolio in the past.
So I think, Estel Yerta, you just mentioned Mexico as an area potentially for strengthening the portfolio. Generally, consensus I mean, where are the regions where strengthening of the portfolio could take place? I mean, do you see more opportunities in Latin America or in Europe? That's the first question. And the second question has to do with Brazil.
GBT acquisition is not closed, but just thinking about the next few years ahead, obviously, one of your competitors on fixed is quite weak when we compare the GBT coverage to one of net services, for example, in terms of households passed, there seems to be a big scope for an acceleration of the of the growth of the network. Is it how you're thinking about Brazil by that? I mean, I mean, would GBT be a good platform to penetrate more households in the regions where you're not present or you would be more focusing on transforming the existing home passed in to, more subscribers.
K. It's we are very happy with the present, and, this is what we have. Any very clear that we are concentrating on our core markets and our core markets are very clear is that in America, except the 3 countries in which we are not, which is Honduras, Paraguay and Bolivia. We are not going to go to Honduras, Paraguay and Bolivia. And in Europe, we are very happy with the on year money and expense.
And that's it. And where we are going to go is in that market. We don't foresee going into other markets. At all. And so the focus now is in our present footprint and grow there in which we think we have tremendous opportunities.
Jose Maria will and then we'll follow-up. Thanks, Desjardt, on the GBT the activity situation, once and when, the regulators will approve the transaction. We have, we have a guy, we have, share, but our ambition is we are going to be combining the efforts of both companies. And therefore, we are going to be improving the network deployment of Vivo outside Sao Paulo in terms of fiber to the base station. And we are gonna significantly improving both our backbone and our backhaul.
And you are right, in terms of our ultra broadband deployment outside Sao Paulo, but also in South Paulo, we are going to be taking significant advantage of the GVT situation. In fact, places where we are deploying fiber in Sao Paulo just today on the Vivo, on the Vivo perimeter, we are gaining market share out of our competitors including the cable operators, which means that we have a pretty competitive product that the effort that we are doing in CapEx is paying off. And therefore, we will be continuous supporting the GVTF for the outside Sao Paulo in the cities that were already considered. So overall, we think that out of the approval of the activity process, you should expect us to keep investing and to keep growing both and we aim to regain market share because of the fact that wherever we are competing with significantly attributes with significant attributes like speed and capacity, we are very relevant for customers and we are gaining market share. So pretty optimistic on the outcome, pretty confident that GBT will bring significant value and will foster our growth in Brazil.
We will now take our next question from Giovanni Montalte of UBS. Please go ahead.
Just a question on content, what kind of competition, especially on pricing do you expect in the market in Spain going forward? Thank you.
Okay. In Spain, as in other markets, but namely in Spain, we do see revenues accelerating or improving on the basis of a more rational market. Infrastructure based competition means that all major players in the different markets, but mainly in Spain, are going to are building more sophisticated all IP networks. And that means that the sector is able to offer more sophisticated services, both in core attributes like speed or capacity, but also value added services like video, financial services, or other. That's why data traffic is booming overall and heavily in Spain.
With significantly growth year over year above 50% in average at the group level. We have a product, as a sector data that people love and need and providing more value is what it is driving effectively higher ARPU. So we see more rationality on the market on the basis of more sophisticated product, a significant infrastructure based competition. As a result of all of that, we see better trends in, in ARPU. And this is gonna this is what it is driving, revenue up also data monetization in terms of bundling, more is by market bundling in terms of out of bundle consumption.
So overall, think that it is more rationality on the marketplace, focus on churn reduction. And I think that, we are gonna, we are gonna see a better fundamental trends in the Spanish market.
Sorry, if I may quickly follow-up, in this context, what kind of, let's say inflation do we expect for the cost stop content in Spain? Do you expect significant competition, for example, from the likes of Vodafone or no or the players that in the past were give on the content arena in Spain? Thank you.
I think that on the content side, you will see that whenever the digital plus transaction would be approved, we will have a clear picture what are the remedies that are imposed and therefore what the wholesale offers that we will need to have. So overall, I would say that it's probably going to go through wholesale offers, but I think that overall, the content cost is gonna remain under rational environment, but most of all, I think it's a consideration that fatal penetration is still very low in Spain. And therefore, the more it grows, the more diluted the overall content costs are going to be on the overall customer base. In top of that, you have to say that we are going to expand our pay TV in Latin America. Which in which the penetration of pay TV is very low, which means, the cost per user is going to go down for us very significantly in the coming years.
Because if you look at the base of potential customers in PTP in all the world, you know, you don't have to do the cost after what somebody has said, which is right, and then we don't see prices going up in a thing. But the cost for you, sir, is going to be going down, down in the coming years. And that's very good news for us.
We will now take our next question from Pedro Olivera of BPI. Please go ahead.
The first question you provided in the last conference call, the weight of Fusion in consumer revenues and the weight of consumer revenues in the total Spanish revenues. Can you please provide an update on this breakdown? And the second question was regarding your working capital evolution. In the fourth quarter seems to be around 1,000,000,000. The million are explained by the provision in Germany.
I was wondering if you could provide some sell on the remaining evolution. Thank you.
Could you repeat please the second part of your question?
My second part was your working capital and consolidated was around 1,000,000,000 in the 4th quarter. All of these million should be the provision in Germany. The rest, 2,000,000,000, I was wondering if you could provide some detail to explain the evolution and the capture of this fourth quarter. And if there is any relation with the Venezuela evaluation.
Okay. Thank you for your question. In terms of Fusion, we have reached 3,700,000 customers, with 1,400,000 mobile lines on top of that. This is a 27% year on year growth. Of our fixed broadband is already in Fusion.
57% of mobile contract is already Fusion. Fusion represents approximately 50% of the residential revenues in Spain, which approximately represents 50% of the total revenues in Spain. Journey Fusion is 1.1 significantly stable and significantly contributing to, to create value out of the product. So this is the overall figures that we which are I, if I may complement, let me remind you that 80% of the existing customers, of the upsell and the gross adds that are coming to Fusion, 80% are coming not to the basic product, but to one value added product. Therefore, the accretion of see also the same in terms of value keeps growing up.
With respect to working capital in the 4th quarter, it has had a Itif impact of 1,000,000,000. Note of these, we have several factors, some of them recurrent and some of them which are not which are just one time. Among the recurrent ones, we have the typical cyclicality of working capital and the evolution of CapEx accrual versus payments. We also have factoring, but you have to take into account that there are also some positive impacts, which not recurrent. 1 is the restructuring charge, not only the German 1, but the overall restructuring charge.
So something between 1,000,000,001,000,000,000 that have been, taken through EBITDA, but will be paid in 2015 and later. Second part of the spectrum that we accrue in Brazil or the cost of the spectrum in Brazil part will be the cleanup that will be taking places in later years. And this is to the tune of 1,000,000. And then we had also the advanced collection of some deferred payments that we in the Czech Republic transaction, we had agreed some brand fees, some management fees to be collected across a period of 4 years, from the buyer of the Czech Republic and we negotiated with them in the fourth quarter to collect them in advance So these would be some of the impacts that will have in this positive free cash flow figure in the 4th quarter.
Thank you, Pedro. Next question please.
We will now take our next question from Yvonne Lill of BBVA. Please go
ahead. Hello. Good morning, everybody. Two questions. Maybe the first one in Spain, think you've announced first price increase in broadband in January to be applied in April.
Do you think the scope for price increases in Spain, maybe on mobile and Fusi on bundles? And the second one on your financial cost I don't know if you could remind us what is the average financial cost of debt and what if there is a scope for improvement going forward there?
Taking your your first question. I mean, we are seeing more upselling rather than price increases. What we are doing right now is more value we put into the offer, the more we see appetite from consumers to pay for that and to value for that. So this is part of the strategy that we are putting together. And this is especially relevant at the time that we are increasing coverage of both LTE and fiber and on the TV side.
Overall, I would say that we do see a more rational behavior, both from operators, but also consumers more willing to invest more value for more services. So that applies to fixed broadband, but that also applies to a mobile contract that surprised to value other services like the voicemail or others. So overall, I would say better trends, more rational trends in the Spanish market. Yes.
Regarding the interest cost, as you can see on slide number 29, we are seeing forces that they are going in different directions. On the one hand, we have the reduction of interest rates, which is clearly working in the direction of reducing our interest cost. But on the other hand, after we divested, for instance, Czech Republic in Europe and Ireland, we are, we have been considering some debt, some less expensive debt in Europe. Also, we have some maturing Europe that, that headless cost than, the debt that we have in Latin America. So the mix in a lesser amount of total debt the mix is moving towards, you know, Latin America is waiting more in the mix of our bet And the cost of Latin America is Latin American that is 3 percentage, 3.5 percentage points higher than the one that you can Europe.
We're still digesting the higher cost of debt in the refinancing exercises that we had to take through 2011, 2012, and partially 2014. But this impact is going to be fading away you will see progressively better interest costs flowing through our accounts. We maintain the 5% to 6% range, but we're going to be in 2015 in the lower part of worth improving.
Thank you.
Thank you, Ivan. Next question, please.
We will now take our next question from David Wright of BO AML. Please go ahead.
Yeah, it's David Wright from Bank of America Merrill Lynch. Just a couple of things. Thank you for a very comprehensive presentation. I have two questions, please. First of all, just on the net debt guidance, if you could just maybe walk us through some of the bigger sort of ticket items that you're expecting.
So for instance, the Hutchison cash in. Obviously, we've got GBT cash out. Are you looking to exploit the option on E Plus? And also whether there are any convertible proceeds expected So just a big ticket sort of up net debt items in the 2016 guidance, please. And then second of all, just a comment on Venezuela you've moved to the Saicab 2, but clearly, the more commercial rate.
It's gone way beyond that. Is this something that you could be forced to reconsider again in 20 15, or is this something you tend to look at on an annual basis? Those two questions. Thank you.
Thanks, David. On net debt, the first, outflow would be the acquisition of GBT. GBT is going to be financed from Telefonica, Brazil, with, capital increase in, to be, to raise money in cash and then issuing shares to, to be Bendi. The cash portion would be, consequently also financed by a rights issue at Telefonica parent level. The capital increase in Brazil will be to the tune of 4 point 1,000,000,000.
Our percentage of that would be 1,000,000,000. We are going to do a capital, of 1,000,000,000 less than those 1,000,000,000 because we feel that we have the room to do so. So GBT basically is an equity financed transaction and should not have major impact on net debt. With respect to the O2 UK transaction, we are now in exclusive conversations. We are progressing nicely.
I cannot comment on that because those are confidential, but we are conducting due diligence with no surprises and negotiations are progressing. And we are highly confident that that deal will be successful. The figure is known is €13,400,000,000. That cash inflow, would be on debt reduction would be at the time of closing of the transaction, which would be subject to Phase 2 review in Brasel So at some point in the first half of twenty sixteen. Also, another item that will impact that is the demerger of Telco.
In the demerger of Telco, we get 14.8 percent of telecom Italy shares. Part of that up to 6.5% will be given in view of the mandatory exchangeable NTA shares so that 700,000,001 150,000,000 will not increase our debt. But out of the 1,000,000,000 that telco has, we are pro rata part of the debt of telco, 1,000,000,000. So we will have to solve in our balance sheet because we will not be selling 8.3 percent, shares that we give to Evendi. Swap them.
We don't sell them. So, and that's about 1,000,000 that will increase our debt. With respect to the plus option, it's out of the money we have no intention to exercise it. What we could do potentially over time is gradually increase modestly our stake in Telefonica urgent. Then regarding Venezuela, what we saw is that in events accelerated in the fourth quarter of last year.
The last option on the old CCAD 1 and CCAD 2 systems took place in October. They're not been auctions since then. And in the first half of February, there was a new, FX them enacted in Minatura where they created, they joined the Tussicat rates and they created a new rate, which is called the SIMali original system of currency. So we decided that the most prudent was to move to the most conservative of the official exchange rates prevailing in the country at the end of 2014, which was $2.50. The CCAT has still not undergone any options of currency so far in this year.
There have been of this new system, the SIMADI, there has been some some options. Those are at a much lower rate to the tune of 150, 170. We are still assessing which would be the rate that we to apply. But what is very important is that now when a full accounts for less than 1% of our revenues. The cash that we have in Venezuela is after the move to Sika-two is to the tune of 1,000,000 equivalent.
20 the devaluation that, we could see in the country would have, negligible impact in, in, in, in our cash position. We have, neutralized. We have mitigated completely this financial impact in our in our accounts, while we continue, to believe in the country, obviously, as much as we can in local currency because, we are getting a good operational traction in in the country.
That's clear. And just to come back on your comment on net debt, I think in the last conference call, when it was clear, you guys were maybe just heading a little bit over the original guidance for 'fourteen. You did suggest you could look at hybrid instruments. I assume now with the Hutchison sale sorry, the 2 UK sale that you would no longer need to go down that route. Is that correct?
Yes, that's correct.
All
right. Thank you.
Thank you, David. Next question, please.
You.
We will now take a question from Eroya of Deutsche Bank.
Sounds like the newsroom in Brazil has become a little bit weaker. I think many expect it to be in recession for this year. What are your thoughts on how the Brazilian economy could affect your business in 20 15. And secondly, you've done a very good job at cost control in Brazil. OpEx was basically flattish in the second half of 'fourteen, even though the rate of inflation is now 6% or 7%.
And leaving GBT aside, could you give us some color on whether you think that's sustainable and where maybe the OpEx trends should get to? Thank you.
Well, regards to Brazil, we are very optimistic being realistic, we expect GMP to grow at least 3% and the long term growth of Brazil GMP is going to be higher. You have to take in mind In the last decade, a lot of part of the population have become part of the middle class. Now the middle class and then operating income, there are 100 60,000,000 people. This is one of the biggest markets in the world. 160,000,000 people with high consumers.
The position of the country is very good. External debt 23% of GMP. And total debt is 34% of the of external debt. So the financial situation overseeing the potential is there. The market is there, and we are very, very happy to be number 1 in a market like that.
Taking your question on the cost structure of Brazil and recent evolution. Overall, at the end of of 2014 TotalEx operating expenses have been flattish. I mean, it has declined 0.5% in the last quarter and flat year on year. If we open that split in terms of supplies, supplies is roughly 1,000,000,000 out of the 7.7 total. They have been down 6.3% year on year and this is mainly due to interconnection.
I mean, the interconnect drop that has significant in Brazil and that are affecting us on the revenue side has another impact on the cost side. This is going to keep going as the glide path is already in place. In terms of labor force, which is roughly 1,000,000 out of the 10,700. It has been down 4.2%. And we keep going because we have been doing another round of efficiency in the 1st month of this year.
So we are very demanding internally demanding in terms of efficiency. So you should expect us to keep focusing on on efficiency on that front. And then on the other expenses, which are 1,000,000,000, namely, they are up 6% year on year. And those are mainly commercially we are talking about, handsets, we are talking about commissions, and we are talking about, promotion. And again, that's what you should to keep going because we do see profitable growth, namely on the mobile side.
So overall, we think that we can keep going on the efficiency side. We have been able to absorb a 6 percent CPI in the country is significant focus on cost reduction. Interconnection is positively affecting us in terms of, of interconnection expenses, we do think that, on a stand alone basis, we can keep going into that direction. And now if you put in place in place the potential impact of the GBT transaction, we have announced a 1,000,000,000 synergy program, which could significantly improve the situation. Most of the other operating expenses are also network related we're considered the fact that we need to connect more base station with fiber, the backhaul synergies with the activity are very significant.
So overall, we are moderately optimistic on the trends this in Brazil.
That's very clear. Thank you.
Thank you, Kewa. Next question please.
We will now take our next question from Luis Prota Morgan Stanley. Please go ahead.
Yes, thank you. Two questions, please. The first is a kind of a follow-up on the Spain. And you were mentioning your expectations of coming back to revenue growth in 2015. But it would be very helpful if you could give us some kind of guidelines in terms of EBITDA margins in Spain.
And I'm particularly interested in understanding the content costs, how much could that be on an annual basis? And how is that going to affect EBITDA margins in Spain in 2015 2016. And the second question is a bit more a theoretical one on the scrip dividend relative to the share buyback of shares that you were announced and the cancellation of 1.5 percent, which is pretty much in line with the amount of shares, from the script. So the why keeping script dividend in 2015 instead of just going for an all cash dividend. At the end of the day, you are going to buy similar amount of shares and cancel.
So I understand that some shareholders might like the scrip dividend, but it looks like I don't know. The share buyback you are mentioning is a tactical one. I don't know whether that means it might happen or might not. So anything you could elaborate on that would be helpful.
Being on on thanks, Luis, for your questions, taking the one on Spain, and namely on the OIBDA margin. Going forward, we are not guiding, as you know, on margin in Spain. Having said that, I can give you some color on the trends that we are seeing again. Overall, out of the total expense figures of Spain, which is roughly 1,000,000. It has to have a 1.1% decline during 2014.
If you open up that between supplies, which is 1,000,000,000, it has been up 4.2% year on year, mainly because of the contents and also because of the smartphone that we have been putting into our offer. In terms of labor force, it's 2,000,000,000 they have been growing 1.2% as the measure that we took in are fading away in terms of the contribution to the pension fund and therefore, this trend should keep going. And in terms of other operational costs, which is roughly SEK 2,200,000,000, they have been down 8.5% year on year because of the simplification effort that we have been doing. Keeping, I mean, for an eye on 2015, cost will, keep going up because of the new content that we are acquiring. But we are also working on other activities in order to mitigate the impact in margins, namely in in sourcing activities.
And also about reconfiguring the distribution model, namely the amount divid distribution that we have. If you take the overall integration and you also put in top of the equation, the share reduction that we are also seeing. We think that we should be able to have attractive evolution of margins in Spain in the next quarters.
Regarding the second question, the screen dividend was designed, temporarily to accommodate 3 interactive targets. 1, the increase investments, derived from acquisition and CapEx that, that are waiting on our free cash flow and and from our presentation, you see that we're going to keep on with a substantial CapEx intensity in 2015, 2016, and that we'll be easing in 2017. So we wanted to accommodate with the script this increased, investment, intensity with our leverage and the shareholder remuneration objectives. The share buybacks, as you know, as I'm going on publicly at the beginning of January, we have 2.88 percent of our, share capital and treasury stocks. So basically, what we're announcing now is to clarify the destination of this 2.88 percent that we already hold in treasury shares.
That 1.5% would be canceled this year and an additional rounding 1.5% would be canceled in 2016 once we closed, once we close the O2 UK transaction. So it's not that we're planning to acquire the shares and then cancel. It's the use that we're going to give to some shares that we already have
Okay. Thank you.
From Luji Minerva of HSBC. Please go ahead.
Yes, good morning everyone. I have a question Spain and on how convergence will influence the pricing environment as your competitors will aim to rebalance their fixed and mobile market shares. So for example, if you take Vodafone ono, they have a lower national market share in fixed broad than in mobile, they should target selling ono fixed services to Vodafone mobile customers in order to rebalance their market shares. So how is Telefonica going to react? Will you accept some further loss in fixed broadband market shares?
Or will you defend your market shares with pricing? Thank you.
We see that from another perspective. I mean, the consolidation of the market, the example that you gave, on Vodafoneono, but potentially also case with Orange Estelle means that the major competitors in Spain on the convergence side are going to have kind of similar ARPUs. Overall ARPUs in the blended scenario, which means that the average mobile ARPU and the average wireline ARPU is going to become pretty similar once you put both things together. If on top of that, you consider the fact that both companies, both Vodafone and potentially orange have been investing significant resources to acquire both mono and industrial. That means that they need now to defend higher ARPUs in order to make sure that the value that they acquire is not destroyed.
So, and on top of that, let remind you also that we it takes a while before you have a clear picture of what is the blended the strategy because you need to combine systems that are not similar. It took us, in the case of Spain, meaning same company for a long while, almost a year and a half to have a clear picture of the wireline customers that are that have or have not a wireless offer in within the group. So overall, we think that, we should expect a more Russian performance of behavior for more companies as they become integrated. And I think it's going to be shown not just on a more rational pricing scenario, but also in a more rational subsidies approach in terms of being more focused on defending their core customer segments. And therefore, we think that the core of the subsidies are gonna be devoted, at the market level to reach existing customers.
This is how we see the market today. We will update you. But in our view, the trend are all going into a more rational behavior in the Spanish market.
We will now take the next question from Jonathan Dan of Royal Bank of Canada. Please go ahead.
Hi, everybody. Just one question. Fantastic results, and I understand the Spanish turned around very well. A question on cash flow and the $0.75 dividend. Going forward, will the decision on whether or not to have a scrip dividend be based to the dividend.
Is that I mean, I so I guess, do you I guess to simplify, do you think going forward, you'll have annual free cash flow of sort of mid billion and hence be able to pay a full cash dividend? Or is there some other decision around the scrip?
The answer is absolutely yes. That's why we're saying that we will move in 2016 to full cash dividend of of per share.
Thank you, Junath. And we'll have time for just one final question, please.
Okay. We will take our final question from Fernando Cordero of Santander. Go ahead.
Hello. Good morning. Thanks for taking my two questions. And the first one is related with the U. K.
And particularly with the SKYY agreement, MVNO women. I would like to know, at which stand this contract is already similar in terms of the structure of the contract to the new MBA MVNO contracts to be signed in Germany. Just to understand at which extent this contract is already aligned with the potential remedies to be seen into the O2 regulatory approval process. And the second question is related with regulation in Brazil. On top of the discussions or just the discussion of talks on potential changes on the fixed concession framework.
I would like also to know if you are expecting or foresee any kind of, how can I say discussions on other changes in the regulatory framework? Like, for example, talks about the spectrum caps, I about the spectrum in Brazil and so on. Thanks.
Thanks for your question. On the U. K. Question on the Sky MVNO, as you might imagine, it's subject to confidentiality clauses, but it's nothing different of where the kind of contract that we have, signed with, with other places like TalkTalk. For us, the good news is, means that, a big, wholesale customers like Sky in able to choose between different options decided to choose for O2.
And the answer to that is that because we have, right now, the best customer experience in our network. In terms of that that can be considered a remedy for the potential outcome of the consolidation that is going on in the UK market will certainly create a new player in terms of the mobile side. But again, this is not a major game changer, consider the current scenario of NBNOs in the UK. And in terms of the regulation in Brazil, we are holding discussion with the regulators. I mean, because of the activity transaction and also because of the concession we are discussing, mainly on every single matter.
But we do see a more, with a rational approach in all fronts, in Brazil as well. The LTE spectrum has already been auction, as you know, in 2015, we'll be cleaning up the spectrum in order to that to be prepared for being exploited. And in terms of spectrum too soon to say. I mean, we, it all going to be, it depends on the final picture on the Brazilian market, which is a moving target as we week. So no major news that I can share with you on that front, unfortunately.
Well, thank you very much for your presence in this conference call and for your questions, which have been very, very important. I want to remark again that 2012, 2014 has been key since the reformation of Telefonica into a teleco resident in and we are very, very confident that 2015 2016 are going to be early growth years. On top of that, I just want to add a comment. I think, the general regulation in the digital ecosystem going to change for much better in this month, in this year and the next year for the turquoise. And the value chain is going to be where it has to be.
And, that will be very good news for all of us at, thank you very much at,
Telefonica's January to December 2014 results come