Earnings Call: Q4 2010

Feb 25, 2011

Good afternoon, ladies and gentlemen, and welcome to Telefónica's conference call to discuss January, December 2010 results. I am María García-Legaz, Head of Investor Relations. Before proceeding, let me mention that this document contains financial information that has been prepared under International Financial Reporting Standards. This financial information is unaudited. This presentation may contain announcements that constitute forward-looking statements, which are not guarantees of future performance and involve risk 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 filed with the relevant securities market regulators. If you don't have a copy of the relevant press releases and the slides, please contact Telefónica's Investor Relations team in Madrid by dialing the following telephone number: 34914828700. Now, let me turn the call over to our Chairman and CEO, Mr. César Alierta, who will be leading this conference call. Thank you, María. Good afternoon, ladies and gentlemen, and thank you for attending Telefónica 2010 full-year results conference call. Today I have with me Julio Linares, Chief Operating Officer, Santiago Fernández-Valbuena, Chief Strategy Officer, Guillermo Ansaldo, Head of Telefónica de España, José María Álvarez-Pallete, Head of Telefónica Latin America, Matthew Key, Head of Telefónica Europe, and Miguel Escrig, Chief Financial Officer. During the question and answer session, you will have the opportunity to ask questions directly to any of them. 2010 achievement reinforced our track record as a highly predictable and reliable company, and proves our differential profile in the industry with tangible results. First, in 2010, we have posted a solid set of results, delivering superior top-line growth, best-in-class profitability, and high cash generation. Strong execution and diversification have been key for this strong performance. Let me highlight that Latin America accounted for 43% of Group sales, while our push in mobile broadband data has delivered a 90% annual organic growth in mobile data revenue. It was achieved in a context of a strong commercial effort, resulting in a very rapid expansion of the customer base and the acceleration of restructuring measures that will further increase efficiency in the future. Second, we have completed key strategic transactions, particularly the acquisition of 50% of Brasilcel, following the M&A path set in October 2009. Third, we continue delivering on our commitments, meeting our 2010 guidance, and maintaining our robust balance sheet. All this will lead in cash returns for our shareholders, raising the dividend for 2011 40% year on year to EUR 1.6 per share. Please turn to slide number 3 to review 2010 major financial metrics. Reported year-on-year growth rates were impacted by several non-recurring effects, changing consolidation, especially the full consolidation of Vivo in the first quarter, and Forex. Nevertheless, underlying results remained very robust. Revenue increased 7.1% in nominal terms to EUR 60.7 billion, and 2.4% year on year on organic terms. 2000 EBITDA exceeded EUR 25.8 billion, up 40% or 0.8% in organic terms. As a proxy to cash flow generation, operating cash flow almost reached EUR 15 billion in 2010, despite increased CapEx and spectrum acquisition. Net income exceeded the EUR 10 billion mark, increasing by 31% over the previous year. At the EBITDA level, the EUR 3.8 billion positive impact derived from the revaluation of our persistent stake in Vivo was partially offset by a decision to accelerate operations restructuring, which led to non-recurring restructuring expenses amounting to EUR 1.3 billion in the second half of the year, EUR 1.1 billion in the fourth quarter. On top of that, in the fourth quarter of the year, we had the impact of the tax asset reassessment in Colombia. Non-recurring restructuring expenses were mainly related with personnel reorganization, EUR 668 million, and fee commitments relating to the Telefónica Foundation social activities. This reached EUR 400 million in total, 70% recorded at Telefónica, and the remaining 30% at Telefónica Latin America. Depreciation and amortization increased year on year, recording EUR 84 million in the fourth quarter, due to the amortization of the Vivo's purchase price allocation. We estimate an annual impact of depreciation and amortization of around EUR 350 million for the next five years, so these impacts are preliminary and unaudited. As a result, earnings per share reached EUR 2.25, above our target of EUR 2.10 per share. Turning to slide number 5, a value-oriented strategy across the group is behind the sound commercial performance recorded in 2010, which has allowed us to maintain our solid competitive position. Investments on value and growth levers. Mobile broadband data continued to excel with a remarkable year-on-year increase of 64% to reach the 22 million mark. The contract segment kept gaining traction, accounting for 53% of 2,000 mobile net adds, while fiber brand net adds increased over 44% in organic terms. As a result, we now manage over 288 million accesses, 7% more than a year ago in organic terms. Let's turn to slide number six for the review of the top line. Reported revenue growth recorded the fourth sequential quarter of improvement, ramping up nine percentage points from 2009 year-end, underpinned by the faster customer base expansion and the full consolidation of Vivo since October 2010. In organic terms, sales sustained a positive trend posted up to September, showing a healthy 2.4% year-on-year growth. Excluding the drag for MTR squads, organic sales growth jumped to 3.4% year-over-year, 190 basis points more than a year ago, on the back of our strong commercial efforts to drive penetration and usage growth. Slide number seven outlines the high-class diversification of our sales. From a regional perspective, Telefónica LatAm continues to be the key growth driver of the group. Telefónica Europe also posted some numbers compensating the lower contribution from Telefónica España. From a business perspective, we are increasing our exposure to the high growth business broadband connectivity applications and new service revenues, with already 23% of our total sales in 2010, three points more than a year ago, with significant growth rate across those services. Please turn now to the next slide to get more color on our mobile broadband strategy. Mobile broadband adoption is booming in our markets, and we are capturing this growth opportunity. Mobile broadband active users already account for 10% of our total mobile base, three percentage points more than the previous year, backed by the increasing penetration of smartphones. I would like to stress the 20% mobile broadband penetration mark already achieved in our European footprint, while the 5% level reached in Latin America give us a very clear opportunity for the future as handset costs continue to decline very rapidly. As a result, mobile data revenue recorded a solid 90% year-on-year increase, purely inorganic, driven by another 32% growth in non P2P SMS sales. Please notice that we have already launched tier pricing across our footprints, which will allow us to profitably monetize the data opportunity. On top of that, we continue to enlarge our handset portfolio, leveraging our scale to further reduce cost. It was great to see the new devices, applications, and continuous innovations in the recent Mobile World Congress. This is key to further stimulate growth in the mobile data business. Turning to slide number 5, in 2010, we are retaining a benchmark profitability in a context of renewing commercial efforts to drive future revenue expansion. Underlying EBITDA trend improved throughout the year. As we had previously outlined, driven by sales expansion, further advances in cost control initiatives, and tangible synergies from our integrated management model and also from our global initiatives. The acceleration of the restructure measures announced will further enhance efficiency in the future. As such, underlying EBITDA margin stood at 38.3% for the group, virtually stable versus last year in organic basis. Let's now turn to slide number 10. Total CapEx reached EUR 10.8 billion in 2010, rising close to 50% year-on-year, mainly due to investment in the spectrum in Germany and Mexico totaling EUR 2.6 billion. In organic terms, and stripping out spectrum acquisitions, CapEx increased 3% year on year to support growing usage and fast customer expansion. By regions, Spain and Latin America underpinned the increase in CapEx, with focused investments in fiber brand and mobile broadband networks. Lower CapEx at Telefónica Europe was driven by Germany, where we already have a high-quality owned network. 77% of the group CapEx, excluding spectrum costs, were devoted to growth and transformation, with maintenance accounting for the remaining. Let me just finish this session highlighting that we have delivered on an annual target for eight years in a row, as slide number 11 outlines. Now let me hand over the call to Santiago. Thank you, Cesar, and good afternoon, ladies and gentlemen. Let me now summarize the performance we have delivered on the business priorities that we announced for the year. Amid a backdrop of strong competition in a weaker than anticipated telecoms market, our value-oriented commercial activity allowed us to maintain our undisputed leadership in the market, with an estimated revenue share of 53% and limited erosion year on year. We have also retained a comparable benchmark OIBDA margin at close to 47%, in spite of reinvesting efficiency gains to set the basis for future growth. Cost-cutting measures in those areas where OpEx is manageable in the very short term have been already implemented, leading to a 3% year-on-year decline in non-labor costs on a comparable basis, despite increased commercial efforts. Cash flow generation remains strong, with an operating cash flow margin of 36% on comparable terms, again, a best-in-class mark. Taking into account the significant pressures in revenues, the increased CapEx, and higher commercial volumes year-on-year, it should be highlighted the efficient management of the working capital, which allowed to limit the decline in operating cash flow after working capital in reported terms to 5.5%, well below the drop in the operating cash flow numbers. On slide number 13, we outline the top-line performance in Spain. On top of challenging economic conditions, adverse regulatory measures explain 1.4 percentage points of the 4.4% year-on-year decline in revenues. ULL prices in Spain are not only the lowest in Western Europe, but they are also below our costs according to the regulators' cost accounting methodology. In our view, current prices are not sustainable. Obviously, competitors are taking advantage of these attractive prices to launch aggressive commercial campaigns in the fixed broadband market, therefore impacting our retail access and fixed broadband revenues. These, together with lower consumption patterns, are the main drivers of the decline in sales. Price pressure intensified in the fourth quarter of the year and has continued during the first months of 2011, with the traditional rational network competitors launching very aggressive campaigns. There might be some regulatory consequences as according to the press, one player has sued one of them in the CMT, the local regulator, for dumping. We continue to focus on value. Therefore, though this situation is also affecting our pricing policy, leading to higher promotions, we keep upgrading and enhancing our fixed broadband offer to increase its perceived value and to preserve the value of the market. We expect competitors' rationality to come back to the market. To finish up with Spain, I would like to stress that we keep working to have a more competitive cost structure. On top of the initiatives already launched that have allowed non-labor costs to go down in 2010, we are making progress in our goal to reshape personnel expenses, and we aim to accelerate these measures in the coming months. We are already reducing manager positions in Spain, and we are analyzing the potential outsourcing of some operations and further headcount restructuring processes. At the same time, we will negotiate with labor unions to have more flexible labor conditions and pay reviews not linked to CPI. We will continue optimizing operational commercial costs where further capitalizing group scale will lead to additional savings. Finally, an active management of our asset portfolio should help us to deliver a healthy profitability, which will continue to be benchmarked in the sector. Please turn now to slide number 15 to review our Latin American operations. 2010 results confirmed the success of a profitable growth model on the back of an integrated management of the operations in the region. A model that is now bringing benefits to Vivo as the company is already under full control of Telefónica. Revenues from Latin America increased 7% year-on-year in organic terms up to December, fueled by the double-digit growth in MSRs and sequential acceleration of fixed broadband revenues. OIBDA performance was strong, with year-on-year growth ramping up to 9% in organic terms by year end, leading to a solid OIBDA margin of close to 40% if we exclude the capital gain from the revaluation of our previous stake in Vivo and non-recurrent charges booked in the fourth quarter of the year. The improvement in profitability was achieved despite higher commercial volumes, especially mobile contract. In 2010, mobile contract net adds reached 6.7 million and were almost half of total net additions, a benchmark ratio for the region. As a result, we reached 184 million total accesses by the end of 2010 or 9% higher than a year ago. Moving to slide number 16 on mobile, we are enjoying the perfect combination of growing voice and data revenues. The strong net adds and the higher quality of the accesses growth drove double-digit growth in MSRs with positive growth in voice revenues and over 40% year-on-year increase in data revenues shows our focus on enhancing customer value. Our strategy in the region is not about capturing growth at any price, but to focus our commercial efforts in the higher value segments. This is proven by the sound performance of the contract segment, up 29% year on year in 2010 on the back of higher gross adds, lower churn rates, and an active prepaid-to-contract migration policy. It is also worth noting the strong push in mobile broadband accesses, which have almost doubled versus 2009 and already account for over 5% of our total mobile base in the region. As a consequence, our ARPU ex foreign exchange remained almost flat year on year, despite the 11% rise in the customer base and negative regulatory impact. Regarding our wireline business in Latin America, in 2010, we posted a strong commercial momentum, which gradually led to improved trends in financial metrics through the year. Broadband accesses rose 16% year on year on the back of very strong net adds, which almost tripled versus 2009, reflecting the success of our strategic levers: bundles and churn potential leveraging enhanced quality. Also worth mentioning, the positive evolution of fixed accesses, which remained virtually stable year on year as we continued to push bundles. Pay TV also delivered a positive performance in the fourth quarter, leading to a 9% year-on-year increase in the access base. As a result, internet and Pay TV revenues growth improved sequentially to account for 22% of total wireline revenues in 2010 and growing contribution across our markets. On slide number 18, review the strong results recorded in Brazil in 2010, with fourth quarter figures confirming the trends already delivered up to September. In Telesp, our efforts to enhance quality led to a record level of fixed broadband net adds, over 680,000 accesses. More importantly, the company continued to regain market share, leveraging an enhanced broadband offer. We also managed to turn around the traditional business with a positive growth in the customer base versus significant line losses in 2009. As a result, the financial metrics continued to gradually recover through the year, especially on the top line. On the other side, Vivo continues to outperform in a very competitive wireless market with even better results in the fourth quarter. The focus on quality growth allowed Vivo to gain market share in the contract segment, which accounted for a third of total net adds in 2010. Thus, the strong rise in customers and the actions to foster voice and data usage led to a healthy 11% increase in mobile service revenue in 2010 with an acceleration in the fourth quarter. Profitability improved with OIBDA margin expansion year-on-year, despite increased commercial efforts and efficiency initiatives. Again, a very different performance versus our key competitors. I'd also like to highlight that we are fully on track with the capture of synergies derived from the combination of Vivo and Telesp. We will provide further details on the execution process in our Investor Day, but we are very positive about all the opportunities we have ahead of us. To finalize with Brazil, let me remind you that the tender offer for Vivo's ordinary shares has already been launched and is expected to finish by the third week of March. The total outflow should be below EUR 800 million, in line with our expectations. On the other side, the corporate restructure of Vivo and Telesp is also on track, with the full process expected by the end of the first half of this year. To finish up with Latin America on slide 20, we will just make two comments on Mexico and Venezuela. In Mexico in 2010, we continued to gain market share. We reshuffled our prepay offer in the fourth quarter, already leading to better commercial results as prepay net adds doubled quarter-on-quarter. Nevertheless, it is too soon to see the results in financial metrics, but we expect sequential improvements throughout 2011. We have also strengthened our position through the investment in Spectrum, which should lead to better results in the mobile broadband market in 2011. In Venezuela, we posted strong financial results leveraging a very robust increase in data revenues despite lower commercial activity impacted mainly by limited availability of handsets. Let's now turn to slide 21 to review Telefónica Europe, that delivered strong financial and operating performance in 2010, with continued expansion of our customer base and the fast growth of mobile data revenues. Of our new mobile customers, 65% were in the contract segment and now represent close to 50% of the base. Significantly, active users of mobile broadband increased 46% year-on-year in 2010, resulting in a customer base of close to 10 million. As a result, organic revenue accelerated its growth trend throughout the year, topping at 7% year-on-year growth when excluding MTR cuts underpinned by the healthy organic rise in non-SMS P2P revenue, 26% year-on-year in 2010. We managed to maintain a stable OIBDA margin in 2010 despite higher commercial investment, recording a very solid 17% operating cash flow growth, both in comparable terms. On slide 22, we show that Telefónica O2 UK showed strong results in 2010 underpinned by the growth of mobile broadband while mobile core continued to excel. 23% of our customer base actually pay for using data services at year-end 2010, which is a significant 7 percentage point improvement over 2009. We advanced on our goal to profitably monetize the mobile data opportunity with the introduction of data caps in the fourth quarter, already taken by 36% of retail mobile contract data users. We also reduced handset subsidies in the fourth quarter, leading to higher hardware revenues. As a result, total revenue growth for the year was 6.5% year-on-year in local currency, underpinned by the strong 5.6% rise in mobile service revenue despite the drive for MTR cuts. Continued efficiency led to a sound 7% year-on-year OIBDA growth in comparable terms. We also increased the investment in the network, including the recent 900 MHz refarming to ensure best-in-class quality. Let's now turn to slide number 23 to explain the performance of Telefónica O2 Germany. 2010 continued to deliver growth in the mobile business, in particular in the contract segment, which accounted for over 50% of total net adds in the fourth quarter. This was driven by improved customer service and strong demand for mobile broadband, including the iPhone, which we have been selling from October. LTE network rollout in rural areas is already in progress, with most of the planned sites for this year located in existing O2 premises and commercial operations due to begin in the second quarter of 2011 after successful trials with customers in four locations. Mobile service revenue growth accelerated through 2010 to 5% year-on-year in the fourth quarter, excluding mobile termination rate cuts, which were halved in December. This, compounded with My Handy handset model, which does not allocate subsidies into mobile service revenues, led to a strong 8% organic year-on-year increase in total revenues for the year. Improved sharply in 2010, further conferring synergies with HanseNet and continued operational efficiencies, leading to an operating cash flow that more than tripled 2009 figures in comparable terms. Turning now to slide 24, I would like to highlight that we have generated close to EUR 8.5 billion cash and dedicated 80% of it, nearly EUR 6.8 billion to shareholder remuneration. On the first chart, you see that our debt has increased by EUR 12 billion in the year, of which EUR 8.6 billion are due to financial investments, mainly the Vivo acquisition, and EUR 2.4 billion to changes in foreign exchange. Close to 50% of those are due to the Bolívar devaluation in Venezuela. Even so, our financial flexibility at the beginning of the year has allowed us to accommodate this increase without exceeding our 2.5 times limit for the debt and commitments over OIBDA, as shown on the bottom chart. That limit is respected both on a reported basis and if adjusted by adding Vivo's OIBDA not consolidated in the first nine months and subtracting the positive result of the gains on the sale of fixed assets net of non-recurrent restructuring expenses. Even if non-recurrent restructuring expenses other than the firm commitment to Telefónica Foundation were kept within OIBDA, the leverage ratio would still not exceed 2.5 times. Turning to the next slide, we show that we have decreased our effective interest rate, ex FX, at 5% of our debt, 54 basis points lower than in 2009, while implementing a prudent financial management. We have succeeded in keeping our financial expenses, ex foreign exchange, at EUR 2.5 billion, nearly exactly the same level as we had in 2009, excluding from the previous year about EUR 600 million charge due to hyperinflation in Venezuela. All this despite the aforementioned debt increase. On our financial management, let me mention first that we have taken advantage of the low rate environment to increase our fixed rate debt by close to EUR 13 billion. Those EUR 6.8 billion have been implemented through forward swaps starting to fix our debt in the middle of 2011. The weighted average interest rate of these swaps is 2.7%, with average maturity in 2017. Had we fixed this amount of debt at the end of January 2011, we estimate that the equivalent cost would have been 60 basis points higher at 3.3%. Second, we have been reinforcing our liquidity position by increasing our undrawn committed credit lines up to EUR 9 billion, EUR 1.8 billion up in the year, with 100% of the amount of the credit lines maturing in 2010 rolled out successfully. Lastly, we have raised around EUR 16 billion long-term financing in 2010, EUR 8 billion through a syndicated loan, close to EUR 6 billion through bond issues, and around EUR 2 billion in Latin financing in public entities. Despite the less active fourth quarter, leading to a one-quarter reduction in the average life of our debt in the quarter, not surprisingly, the issuance at the beginning of the year by EUR 3.2 billion should be enough to slightly exceed our six years medium-term limit for the average life of our debt. With this, let me now hand back the call to our Chairman. Thank you, Santiago. Let me share now with you our priorities for 2011. We continue to prioritize revenue growth, leveraging our diversification. Further momentum at Telefónica LatAm and Telefónica Europe will outpace top-line pressures in Telefónica España. We focus our efforts on capturing the mobile data growth opportunity in our footprint, with commercial efforts oriented to increasing customer value and therefore quality growth. As a result, and according to guidance criteria, group revenue is expected to increase up to 2% in 2011. We report the growth rate being significantly higher due to the full consolidation of Vivo in the group accounts since the fourth quarter of 2010. Despite increased commercial activity, we will be able to deliver an industry-leading profitability. We expect group EBITDA margin to be in the upper 30s, limiting margin erosions despite high commercial activity based on a securing of profitable growth business model, further leveraging scale economics, and benefit from global initiatives. Total CapEx at the spectrum cost should be around EUR 9 billion this year. As we continue setting the foundation for future growth, improving network capability to support the mobile data explosion, and further growth in fixed broadband. CapEx, excluding spectrum acquisitions, will go up in LatAm and Spain, remaining nearly flat in Europe, despite higher investments in the United Kingdom network. Please notice that the full consolidation of Vivo have a significant impact in this figure. We are fully consolidating 100% of Vivo CapEx in 2011, which is expected to be around 2.7 billion reais. Please be aware that the quarterly profile is going to be heavily backloaded as the market recovery in Spain takes longer to materialize and the bulk of the synergies in Vivo Telesp start after the operational integration is completed. In 2011, we will honor our commitments to deliver growing dividends. There are no key strategic transactions pending on the M&A front, and therefore the focus will be on acquiring additional spectrum in countries we are already present to secure future growth. We will continue analyzing value creation opportunities, maintaining an active management of a non-core asset portfolio. And we expect to improve the leverage ratio. Therefore, the board will propose the dividend distribution of the dividend of EUR 1.3 in 2011, growing 14.3% year-on-year. As usually, the dividend will be paid in two tranches. Free cash flow payout is clearly below 100%. We no doubt, we do reiterate our commitment to pay EUR 1.75 in dividends next year. Regional priorities are outlined on slide 28. There is one clear common priority for all of them: increase the value of the customer base and monetize the mobile broadband opportunity in a very profitable way. By region, in Spain, we will defend our revenue leadership with a rational commercial approach focused on leveraging our integrated profile, while we aim to foster broadband revenues, both fixed and mobile, and to capture the remaining growth opportunities in the corporate segments, where the demand for ICT service should recover strongly in 2011. In Latin America, we will speed up the integration of fixed and mobile business to maximize the benefits of being integrated, maintaining at the same time a strong commercial momentum. In Europe, we aim to continue outperforming in the contract segments and to lead the mobile broadband monetization. In summary, our high-class diversification with a growing bias toward emerging markets and integrated operations will allow us to deliver further top-line expansion and to prove we continue to generate a strong cash flow for our shareholders. To recap, we have delivered a solid set of numbers at the group level, leveraging our high-class diversification and our strong execution skills that mitigate external challenges. Once again, we have made year-on-year target for the eighth year in a row. We have also completed key strategic transactions in 2010, positioning us much better for the future and following the M&A path set in October 2009. And finally, in 2011, we will continue to focus on capturing the growth opportunities of the digital world while maintaining premium returns. Thank you very much for your attention. I hope you will join us in our next Investor Day in London, where we will share with you the main challenges and opportunities for the industry, and we will provide an update on Telefónica strategy for the coming years. And now we are, all of us, ready to take your questions. Our first question comes from David Wright from Deutsche Bank. Please ask your question. Yeah. Good afternoon, everyone. A couple of questions from me. First of all, just on the revenue guidance you've given, can you just elaborate a little on the assumptions for Spain within that? I know, Santiago, you said that January had been very similar to Q4. Are you actually assuming things get a great deal better in 2011? Just a little more thought around that, please. Second of all, just on the restructuring and Telefónica Foundation charges to OIBDA, could you give us some guidance on how they will feed through the cash flow statement, please, in 2011, whether they're immediate impacts or whether they are run over a certain period? Thank you. Regarding our revenue guidance and looking into Spain, we expect a strong commercial activity in Spain, value-oriented, focused on total broadband, both fixed and mobile, and we expect a gradual recovery in consumption around the year. Yes, David, this is Santiago. On the restructuring charges, what we've done is accept that as irrevocable some of the commitments that had been previously done with the Telefónica Foundation, especially to fund our star program, which is called Proniño, and you may have very well heard of it. By making this irrevocable commitment, we had to register in our accounts the full amount that is going to be disbursed over a three to four-year period. The hit in the cash flow is going to be spread out over three to four years, depending on whether we're looking at Latin America or Europe. Next question, please. The next question comes from Tim Boddy from Goldman Sachs. Please ask your question. Yes, thanks. A couple of questions from me. The first is just around the way you framed your guidance, which is obviously somewhat open-ended to the downside. Normally, you give a much more precise range of guidance. I'd just like to understand why you've changed that. Obviously, one conclusion could be that with the uncertainty in Spain, there's less visibility at this point in the year than normal. If you could talk to that, I'd be grateful. Secondly, you talk in the release also about regulatory pressure. Some of your peers have articulated the size of regulatory impacts this year on revenue and EBITDA for the major markets, I guess particularly in Europe. If you could do the same, that would be most helpful. Thanks very much. Tim, Santiago again. Let me take the first part of your question on how we frame the guidance. Having given it a lot of thought and having made all the comparisons, we've decided that besides building credibility, which is what we think we've been able to build over the past eight years, as the Chairman explained, we should build some flexibility going forward. We think we are in a growing sector, and certainly, we are a growing company, and that's why we've guided to modest but positive growth group-wide for 2011. We wanted to hold a few of our cards in case that we have to fight back on some commercial fronts, or we want to increase the commercial efforts should those be necessary. It is not our intention to be vague. It's our intention to become more flexible than we have been in the past, and that's why we have framed it the way we have. Regarding the impact that we see in the regulatory front for 2011, basically, we expect that the MTR changes in Europe will have an impact of around EUR 1 billion in our whole footprint in Europe in the year. Our revenues. Next question, please. The next question comes from Mathieu Robilliard from Exane BNP Paribas. Go ahead with your question. Yes, good afternoon. Two questions, please. First, with regard to CapEx, I think I understood well that you plan to increase CapEx in Spain. Maybe if you could give us a little bit of color as to where that CapEx will go. Second, with regards to Latin America, there was a very noticeable re-acceleration in mobile service revenue growth in pretty much all the countries. Maybe if you could give a little bit more color in terms of whether that was driven by more volumes or a better pricing environment. The follow-up to that would be, if you fear or you include maybe a potential negative impact from a rising inflation in some of these countries. Thank you. Yes, Matthew, this is Guillermo. I will take the first question regarding CapEx in Spain. What our priorities of policy for next year regarding CapEx in Spain is the following: we will continue investing in the future, in the next years. Second, we will continue focusing on value customers. And third, we will focus on premium quality. That means that we will continue investing heavily on 3G since we are seeing great growth opportunities and profitability there. Second, we will continue investing on SMEs and corporates where we know we have a very strong market position, and that means fiber for this type of customer, new services, cloud computing, machine to machine, and so on. And third, we will continue with a very selective deployment in fiber for the residential and SOHO business. That will mean that the CapEx level will be about the same level or a little bit over the number that we have in 2010. Also, please take into account when you compare Spain with other incumbent operators in Europe, we are in the lower part of the range. Hi, Matthew. Taking your question on Latin America on the service revenue growth. In fact, it is due to both effect parties volume, a significant parties volume as traffic keeps growing. There is also a question of value, that we have been able to focus on value and foster migration to prepaid to postpaid, and prioritizing contract customers with regard to prepaid. As a result, we have been able to reach our customer base, which is in contact with this almost, and in fact, surpassing 20% of the total customer base at the end of 2010. As well as we keep significantly growing data revenues, which are growing 43.4% with an ARPU that is practically stable. So it is a mix of different effects. We have been managing our customer base, the existing one, and the new adds. And we keep very focused on value customers. With regard to inflation is much more focused, as you know, in two countries, Venezuela and Argentina. In both countries, we are holding up as much as we can with inflation on the mobile tariffs. In other countries, in fact, we are holding on pretty well, namely in Brazil, where you know that Vivo has been having an outstanding year. So it is a mix of different effects. I would outline the customer, the contract, or the postpaid focus that we have been having, the value focus that we have been having, and in fact, trying to be much more effective in terms of campaigns and subsidizing less in terms of handsets. Thank you very much. Next question, please. The next question comes from Torsten Achtmann from JP Morgan. Please ask your question. Hello. Good afternoon. Two questions, please. Number one is on Venezuela. If you could give me any update on cash and if there's any improvement in terms of getting the cash out. Secondly, on Brazil, Vivo is clearly outperforming all its competitors, which I think is mainly driven by the focus on data. Looking into 2011, where all the competitors are investing more, where do you think that is sustainable? Also on the MTR cuts in Brazil, if it is more likely that we don't see any MTR cuts in 2011 now. Thank you. Hello, Torsten. Regarding the cash we have in Venezuela, it is equivalent, roughly speaking, to EUR 1.1 billion. This year, we have been granted authorization to pay imports denominated in US dollar for around $500 million in the year. We have been able to repatriate a small amount based on extra Have been granted access to dividends that we have been claiming for the year, and we expect that this could happen in the future. That is it. Taking your question on Brazil, on Vivo. Yes, we had a very good 2010, with revenues 9.3% up and very sound OIBDA performance, which is also very, very important with a stable and growing OIBDA margin, which is the highest in the industry. Our efforts are based on several factors, the first one being that Vivo is the most valuable and recognized brand on the mobile market in Brazil. By the way, the Brazilian mobile market is the fastest growing out of the 10 largest mobile markets on Earth. We have the largest coverage of 3G, thanks to our network in Brazil. We were the first one to deploy, and we have been pretty consistently investing in that front. We have also been at the forefront on the data expansion, both in smartphones and in big screen. We will keep growing. In fact, we have been growing at a very high rate in 2010. So, we have been also basing, namely on the last part of this year on contract. In fact, the contract customer already accounts for 21% of our total customers in Brazil. The traffic of our network has been up significantly. Our MOU is slightly decreasing, almost stable, 1.1% decrease. ARPU is almost flat, it is a 3% decrease. Data ARPU has been growing 31%, so it is a mix of different factors. I would say that, I think that we have an outstanding distribution network, an outstanding brand, which is, by the way, the most valuable brand in Brazil. The customer satisfaction index is the highest in the industry. So it is a mix of different factors, and we intend to keep going into the same direction. We have been aggressive on the last spectrum auction in Brazil, because we wanted to increase the spectrum capacity of the group, and we have been successful on that front, which is especially important in northeast part of the country where we are new entrant. I would say that our plan is to keep going, to preserve our leadership position, to optimize the level of our OIBDA margin, and I think that Vivo has an outstanding platform to keep leading the Brazilian market. Next question, please. The next question comes from Luigi Minerva from HSBC. Go ahead with your question, please. Yes, good afternoon, everyone. Two questions, please. The first question is on mobile applications. It looks like the Wholesale Applications Community has made little progress since it was launched more than a year ago. Do you think operators are still in a position to regain a role here and properly monetize the application layer in mobile, or shall we consider this opportunity as lost for good to the likes of Google and Apple? My second question is on your core holdings. Is your stake in Telecom Italia still core to your strategy? Thank you. This is Julio Linares. Regarding your first question on WAC, I think that the WAC was announced one year ago. Progress has been pretty good till now, taking into account the number of memberships in boards, taking into account that WAC 1.0 was released in September for developers community. Based on that, there are around 12,000 widgets already available in September last year. The number is increasing. It is very important to take into account that the release 2.0 was delivered in February this year, including HTML5, and is available for the developers' community with a significant improvement versus previous version, and there is a commitment on WAC in order to release WAC 3.0 in September this year. That will include network APIs that will be a significant differentiation regarding other ecosystems. Overall, we are pretty comfortable with the progress till now. I am very confident on the future of WAC. This is César regarding Telecom Italia. We are very happy with the present participation we have with Telecom Italia. We do not intend to put it up or put it down. We are going to maintain the present position. I want to stress that our relation with our Telco shareholders are very fruitful and very good on the key strategic issues. We are very happy with the management of Telecom Italia. I think now, as I said, we will stay where we are, and I think Telecom Italia is on the right track. Next question, please. The next question comes from James Mackenzie from Fidentiis. Go ahead with your question. Thanks for taking the question. A couple, if possible. Firstly, the financing cost in the last couple of years in the cash flow statement has been around EUR 2 billion. That is well below the P&L cost. Is this more representative of the sort of clean cash cost of interest for you, both in these two years and then going forward? Secondly, I wonder, could you remind us how much intangible or PPA depreciation has been in 2010? Maybe give us a guess as to what it might be in 2011 in total. Thanks very much. Hello, James. This is Miguel. Regarding the difference between the accrual and the payments in interest ex FX, really in the financial expenses ex FX, we have had this year some extraordinary effects. One of them is the fact that we are including there the write-down of our participation in BBVA as financial expense, while there is no payment related to that. Other than that, we have also some zero coupons that are creating some savings in payments, and also partially there are some effects at DRM depending on the payment date of some interest in loans, which amount roughly speaking to EUR 50 million in that area. But over time, we estimate that we will be converting to the same amount as we are accruing. James, Santiago again. On the impact of the PPA, what I can tell you is that the increase from last year into this year has meant going from 753 to 867. The greatest contribution, as I think we have mentioned in the call, is the inclusion of Vivo and the new PPA of EUR 84 million allocated to Vivo. So the overall number is EUR 867 million in PPA amortization this year. Next question, please. The next question comes from Jonathan Dann from Barclays. Please ask your question. Hi there. Could you elaborate on your comments around the guidance that the performance will be back-end loaded, if I understood correctly? Also, am I right in thinking, does the guidance still allow you to include any M&A within the guidance? Could you just walk through the guidance on a clean basis excluding the additional quarters of Vivo, just for a bit of clarity? Well, this is Julio Linares. Again, regarding the guidance that we provided for the full year, organically, this is back end at the end of the last part of the year. With regards to M&A, I want to make clear that we have fulfilled our M&A strategy. We are very happy with the present fulfill we have. We might do a small acquisition on the level we did of 20 or on some bilateral business. We have completed a footprint, and we think with the footprint we have now, we have tremendous capacity of organic growth, and with that, we were going to concentrate the whole organization to deliver the organic growth of the group because we have tremendous potential. Next question, please. The next question comes from Justin Funnell from Credit Suisse. Go ahead with your question. Thank you. Yes, a couple of things. In Brazil, obviously, there is this trend with long distance pricing that TIM is exploiting. I guess if we look at Brazil, it is quite an archaic market, quite an old market. Most markets, long distance is gone. Just wondering what your exposure is to long distance within Telesp, and whether at some point, perhaps post the merger, we should expect you to attack that mobile long distance market and take some share back off TIM. Secondly, just big picture in LatAm. Could you give us a feel in 2010 as to how much of your mobile data growth was driven by dongles versus smartphones, and whether 2011 is the year where you hit a sort of tipping point on smartphones coming down to the right price to hit the class B and class C parts of the population in that region? Thank you. Okay, thanks for the questions. The first one, we are looking for the exact figure of exposure in long distance. But in the meantime, let me tell you that as we have been battling aggressively in the last 3 to 4 years in Telesp, not only traditional products with broadband, but as well within the traditional products in terms of voice between domestic long distance and international long distance. I think that the exposure that we have to the traditional long distance or plain vanilla long distance product has been significantly reduced in the last 4 years. We are looking for the current figure. As soon as I have it, I will give it to you. While you were asking your question, I remind that I didn't ask about the MTRs cut in Brazil in the previous one. Let me stress the fact that nothing has happened yet on that front on the mobile side. That if you remember the initial draft for public hearing that Anatel issued some months ago, were proposing a steady decline of 10% in the next two years. This draft is still under discussion, so it is not clear for us when this is going to happen, but what it is clear for us, it is probably going to be steadier and not in a significant or immediate cut, at least with the current environment. In the meantime, Vivo exposure to interconnection rate keep being reduced as we are fostering on net traffic. With regard to your comment on the mobile broadband in Latin America, in terms of how much we have out of the total 7.5 million mobile broadband customers that we have in the region, approximately 3.5 are smartphones, and this amount is growing very rapidly. The smartphone penetration in Latin America at the end of 2010 is in the neighborhood of 5%. That compares with something in the neighborhood of 30-something in Europe. The rules of the game are still to be written in Latin America in terms of subsidies. The main barrier of entry is the price of the handset. It is still too expensive to be massified, but in the last year, prices have declined very dramatically, and we are seeing already some handsets in the neighborhood of $150 and going down. I guess that probably 2011 is going to be a year of explosion of smartphone in Latin America, and that provide us with a very good opportunity, and that's why we have been working so hard in the last two years in our customer, in our postpaid database, and namely on being more, I would say, precise on the knowledge that we have of our customers. I'm afraid that we don't have the number that you were asking us in terms of the long distance, but please get back to our investor relationships, and we will share that number with you. But remember that most of our traffic, of our traditional voice, is already bundled into SP. Next question, please. The next question comes from Luis Prota from Morgan Stanley. Please go ahead with your question. Yes. Hello, everyone. I have 2 questions. The first one is on the guidance slide in the presentation. You are mentioning setting basis for profitable mobile broadband growth, and you are mentioning this throughout the whole presentation many times. If you could elaborate a bit on this. I am wondering whether the focus is on the cost and subsidy of the handset, maybe tiered pricing and ARPU implications, maybe applications. I guess that all of them important, but if you could elaborate a bit on what is the main focus now and how you see this evolving, would be very helpful. The second question is on retail share of broadband in Spain, which you are mentioning to be around 53%. You are saying solid market share at 53%, but that has come down 1 percentage point, or around that, in the fourth quarter, and around 2 percentage points for the full year. Clearly accelerating in the fourth quarter. I am interested in getting your thoughts on whether this negative trend is going to continue, or it was especially aggressive fourth quarter, and you are expecting this aggressiveness to slow down, and if possible, what could be the level of market share at which you would consider minimum at which market share should stabilize? Thank you. Luis, it is Cesar. We talk a lot about that because that is one of the biggest leverage of growth opportunities, not only for Telefónica, but the whole industry. In our Investor Day, we will elaborate a lot more on that. There is one thing which is clear. It is clear now, it was not so clear last year, the tier pricing is working in our markets, and it is working very well. We are seeing people really accepting the tier pricing. That is very good news on one front. The second thing, which is very good news, is that smartphones are going down, the prices. Every time there is going to be more competition in the smartphones. The competition in the smartphone is going to be very strong, especially in the second part of this year. Both news are good. When we talk, and then you see in our presentations, we have talked a lot. The value of the client, and we are working a lot on Telefónica on the value of the client in every three of the business line, Europe, Spain, and LatAm. As I said, we are very confident on that. It is going to be tremendous group. This is something that on the Investor Day, we are going to talk a lot more about it. Luis, it is Iggy Gemmo. I will take your question regarding retail market share on broadband. First, it is true, in the last quarter, in the last year, we witnessed an increased level of competition, price-based competition in fixed broadband. Two type of conducts or behaviors. One is aggressive promotions, as usual, and second, cross promotions, meaning that players with mobile operations giving discount to fixed broadband if they bring also the voice with them. This is a conduct that has been challenged by another operator under CMT, and we will see what happens with that. My belief is that that will soften in the near future, that players will become more rational, and also take into account that according to the CMT own accounting, regulatory accounting, the ULL prices are below cost. So that is something that should be solved in the future in some way or another. Finally, keep in mind that our focus is on value. That means that we will put more emphasis on value market share, not in access market share, and that is why we have been highlighting that our retail revenue market share is around 53% and only 1.3 points below last year. So we keep the leadership in the market, and our profitability measure, for example, as OIBDA margin, is benchmark in Europe. Thank you. Next question, please. The next question comes from Jesus Romero from Metalinks. Please ask your question. Thank you. This is Jesus from Metalinks. The first one is on cash taxes. You have given us guidance for operating free cash flow in 2011. I wanted to know if you could give us something on cash taxes for and also working capital, where there was a big movement in the fourth quarter. The second question on the Vivo dividend. From a Telefónica shareholders point of view, can you explain the logic for such a high increase in the Vivo dividend, and why that versus maybe delaying that dividend for a later stage after the merger with Telesp, or perhaps doing a buyback of minorities in Vivo? Thank you. Okay, Jesus. This is Miguel. We have had this year a tax of 27.5, and we will still be within the range we have stated previously, and certainly around 27% in the next year. Regarding working capital, we are working a lot on that front, but we do not expect to repeat the excellent result of 2010 that has also been underpinned by some extraordinary facts. Such as the fact that we are not paying in full in the spectrum acquired in Mexico, or that the provisions that we have recorded in the last quarter had no impact in cash while depressing the EPS. These have been behind the extraordinary result in 2010, in part, on top of a lot of efforts on the CapEx payment and also on the bad debt recovery, especially in Spain. For the next year, we expect maybe something slightly negative, also driven by the fact that we expect some revenue growth that has always a negative impact on the working capital. Yeah, Jesus Romero, this is Santiago Fernández-Valbuena again. Just a quick comment. Not that there is much we can say about this, but the one thing I do want to say is that we don't change our mind depending on the size of our stake. We had a dividend policy in place before this whole thing started, and when this is over, we'll probably have to review it. But until that happens, we think we are on the right track applying the dividend policy that had been done at the regional level. At the top level, you know that we pride ourselves in being a shareholder-oriented company, and you may or may not like the policy that we have towards the dividend. But certainly, we will give you an update at the Investor Day as how we think about this going forward. But for the time being, we thought this was the right way of completing the top company payment. Next question, please. The next question comes from David Strauch from Natixis. Please ask your question. Yes, thank you. My first question is, I would like to know to which extent you are committed to come back quickly to a mid or the low end of your comfort zone in terms of net debt over EBITDA ratios, or if you are pretty easy with the current level at 2.5 times. Secondly, in terms of organic revenue growth, 2011, in fact, should be close to 2010, despite Vivo having a higher weight in 2011, which implies probably weaker trends out of Brazil. Is it mainly coming from the MTR cuts in Europe, or are there any other reasons? Hello, David. Regarding our comfort with the current leverage is not very high, certainly. We have stated that we want to be in the 2-2.5 range, and we are in the 2.5, which is the upper limit. So we want to reduce it, and we count on improving that ratio over the year. This is a ratio that has served us well in the past. If we have been able of acquiring Brasilcel in 2010, this is partly due to the fact that we have flexibility and that we were not at the top of our leverage. Also it is good to be below that limit in order to accommodate any unforeseen damage, such as could happen with a devaluation, for instance, in Venezuela or in other country. So we are committed to going towards the middle. Regarding your second question, the impact on our revenue organic growth of MTRs that we see for the whole year, it is around EUR 1 billion, as I mentioned before, for the whole Telefónica Group, basically in Europe. Today in Brazil, we do not see any immediate impact. Next question, please. The next question comes from James Ratzer from New Street Research. Go ahead with your question. Yes, good afternoon. I had two questions, please. The first one was just regarding your CapEx guidance. I believe in 2009 in Madrid, you talked about CapEx gradually being able to come down from a level of about EUR 8.4 billion. This seems a bit of a change in the CapEx outlook. I was wondering, is this a case of front-end loading CapEx so we can expect a sharp decline in 2012? Or do you see CapEx now on an ongoing level nearer the EUR 9 billion mark? The second question I had, please, was just regarding your Vivo shares. Last year, you wrote the value of those up in your books following the offer for Brasilcel. Does that mean that if the offer made by Telesp for your current Vivo ON shares is below The price on your books that you pay for Portugal Telecom, you will have to make a write-down in the 2011 P&L, and is that something you would be happy to do? Thank you. Regarding the first question on our CapEx, first of all, you have to take into account the difference in our perimeter, because now we have new companies in Germany. We have the 100% of Vivo, so that has a significant impact. In addition to that, based on our commitment to capture revenue growth opportunities, there is a change in the mix of our CapEx, and we are going to go deeper in the development of all the broadband network, particularly in the mobile side of the business. James, it's Diego back again. In terms of the accounting impact, you're absolutely right in pointing out the effect that our proposal to buy the 50% of Brasilcel had on our accounts. Let me also remind the audience that we did not imply that that offer was going to be recorded at exactly that price on our books. It was rather a lower number, which is closer to the one that we have proposed to the voting minorities of Vivo to come in. So, yes, it is based on the offer that we made, but no, it is not the exact price, but a lower number. With the ongoing process of putting together Vivo and Telefónica, we do not expect any change in either the valuation or in the accounting impact of them. Of course, as this is a pending and ongoing issue, we'll have to wait until the end, until that is fully realized. Next question, please. The next question comes from Giovanni Montalti from Cheuvreux. Ask your question, please. Could you please provide us some comments on the competitive dynamics in the Spanish mobile? It seems that in Q4, the mobile service revenue trend of Vodafone, and especially Orange, was materially better than yours, even more than it was already in Q3. If you could provide us some comments, please. Thank you. Yes, Giovanni, this is Guillermo. The last quarter, as you know, is always a quarter of strong seasonality and a lot of campaigns in the mobile market, and Spain was very active. What we have seen in the last month is stronger price competition, started from the mobile virtual operators, Yoigo, and then Orange competing against Yoigo with the small tariffs. Later, Vodafone made some moves in order to be competitive on the pricing arena. So looks like the dynamics in the last quarter were a little bit more loaded towards the tariff price. Spain was traditional market, there was a little more balance between handsets and prices. I think during this year, 2011, we will see a more rational or balanced approach, and we continue focusing on our market share. Let me remind you, to give you an example, that in terms of in the mobile market, in revenue market share, when you compare our revenue market share with our access market share, at the beginning of the year, in 2010, we had a 4 percentage point difference, and at the end of the year, 5 percentage point difference. That means that a lot of the accesses that have been traded in the market, some of them and a majority of them, little value. Thank you. Next question, please. The next question comes from Ivon Leal from BBVA. Please ask your question. Hello. Good afternoon, everybody. A couple of them. The first one on the broadband business in Spain. How concerned you are about Ono upgrading its network to DOCSIS 3.0? Maybe it would be useful if you could share with us the share of net adds in the areas where Ono is upgrading and where it is not. Eventually, if that could push you in the future to anticipate a fiber-to-the-home deployment in Spain. The second one is about Telefónica. It is true that top line is doing rather well, but still the company looks to be lagging a bit in terms of EBITDA. I do not know, when do you expect to see EBITDA stabilizing in Telefónica somewhere in 2011, or maybe it is still too soon? If there is a way to slow down that aggressive fixed to mobile substitution in Brazil? This is Guillermo. I take the first question regarding the broadband market in Spain, in particular, the cable operator and Ono. As it has been published by Ono is upgrading its network to DOCSIS 3.0, and they have been focusing so far more on their own customer base, which is logic in order to improve the quality and the speed of the network and to retain the customer base. Ono, in the last years, has been losing or flattish in terms of market share. This looks like, in the first wave, a defensive move. In the future, we will see if they escalate to be on the offensive side, taking into account that given the leverage that Ono has, the room for maneuver is limited. I do not have here market shares per region, and we usually do not disclose that, but if you look at the Spanish markets and the information that is provided by the CMT, you will see that in 2010, the ones that are gaining market share are the unbundlers, not the cable operators. Okay. Hi, good afternoon, everyone. It's José María speaking on your question on Telefónica. You know that after a very complex, tough, and difficult 2009, we decided to turn around Telefónica basing on several pillars, the first one of them being quality and customer satisfaction index. As a result of that, during the whole of 2010, we have been working on that front. We have increased significantly the subcontracting effort in order to ensure that we were able to preserve both the level of quality of the existing customers and of the existing network, and at the same time, retaking our commercial effort. It is true that in terms of revenues, we have been having a turnaround situation, and we have been able to slightly increase revenues in the company during 2010. It is also true that the OIBDA has been impacted by several effects, one of them being positive, like the tower sale, but also another one being the fact that we have been incurring more cost to ensure quality and to preserve the level of net adds. Taking everything into consideration, the year for Telefónica has been outstanding. We have been able to almost maintain the traditional line customers, the number of customers of traditional lines, while in 2009, we have been losing 400,000. We have been increasing broadband almost 700,000 customers, which is historically high. We have been having more net adds in the month of December of 2010 than in the 3 previous year altogether. We have also been retaking growth on the TV part, which is part of our pending issue. We have been able to do that with the highest level in the history of Telefónica customer satisfaction. Taking everything into consideration and excluding non-recurring items, the tower sales, another one-time impact of 2009, OIBDA margin in Telefónica is more stable in 2010 than in 2009. It is true that at a lower level, but it is not decreasing, at least not decreasing at the same pace. We think that all the effort that we are doing in Telefónica are going to be paying off in 2011. Take into consideration as well the fact, and I take advantage of the opportunity to communicate that to you, that in the first 2 months of this year, it has been raining even more than in the previous year. 2010 was the heaviest rain period in the last 63 years. 2011 has been the highest one in the last 64 years. Therefore, we have also focused on quality, and therefore, commercial activity in the first 2 months of the year is going to be lower. But we are fully confident that we'll be retaking the commercial effort as the Brazilian market is booming. In terms of fixed to mobile substitution that you were mentioning, I would just outline the fact that we have been able to preserve basically the number of traditional lines. We have been just losing 39,000 in 2010. So I think that the bundling strategy and the transformation strategy and the quality focus that we have been putting is paying off. We'll keep you posted. We are much more optimistic about Telefónica, and we are waiting for the final process of the Vivo tender offer and integration in order to do even more things together with Vivo. Next question, please. The next question comes from Will Milner from Arete. Please ask your question. Yeah, thank you. Couple of questions. Firstly, on Spain, on the restructuring charge. I just wonder what level of savings on personnel costs you might achieve this year after you book the EUR 202 million charge. Also, I guess, how many employees does that cover? You also mentioned outsourcing, and I just wonder what sort of political pressure you are under to not reduce headcount too much, given the unemployment levels in Spain right now. The second question, again, just it was interesting to see the Vivo dividend yesterday. I just wonder, after you have completed the merger between Telefónica and Vivo, is there anything to prevent a full 100% payout of free cash flow of the consolidated entity? I am thinking really around distributable reserves in that context. Thanks. Hey, Will, this is Guillermo. Regarding human resources in Spain, yes, it has provision for several projects, restructuring projects in Spain, for a total amount of EUR 202 million. Among them, there is a program, for example, for reducing managers position that was mentioned in the presentation. Roughly, we are thinking about a reduction of 6% of this management position. Roughly 250 people. Obviously, the unit costs are completely different to the ones we had in the previous redundancy programs, because we are talking about managers, and the payback is similar to the previous ones. Regarding outsourcing, we have no political pressure at all. This is basically a typical managerial discussion and analysis that we are conducting, and we will give more color information in the Investor Day in London. Your question on the dividend policy of the integrated unit after the process is completed, as we are running in the middle of the process, we are highly restricted of sharing additional information. We will wait for the final process to be completed and achieved in order to share with you the dividend policy of the joint unit afterwards. Next question, please. The next question comes from Jeremy Dellis from Jefferies. Ask your question, please. Yes, good afternoon. I just have two questions, please. Firstly, on Spain. You noted there's been a certain amount of price promotion on the fixed broadband side. I wonder how much additional pricing pressure you've been seeing on the mobile side, and whether your guidance accommodates an element of price rebalancing on the mobile side during 2011. Secondly, just on Vivo, and just to labor the point on distributable reserves. Obviously, the Vivo dividend is 127% payout ratio. I just wondered whether there's anything to prevent you, in future, running down those distributable reserves to boost cash flows into the corporate center. Thank you. Jeremy, this is Guillermo. Yes, there are price promotions in the fixed broadband and also some more intensive price activity on the mobile side. That is taking into account, obviously, in our guidance in the future. Let me stress that our focus in present and the future will be on value, and that means that revenue market share is a much more relevant metric than access market share, and we have been defending very well that metric. Profitability, as usual, is all but very good measure, and we still have almost 47% OIBDA margin. We will put focus on value. We will not enter in destructive price wars or tactics, and we will continue focusing on our best customers and our bottom line. I am taking your question on the structure of, would there be any restriction or limitation on the Vivo or the integrated unit dividend payment after the process is completed? Again, we are highly restricted to comment, but it is going to be highly dependable on the final structure of the exchange ratios and all that. It is very soon to conclude. We will keep you posted, but for the time being, we do not see any major limitation. Okay, this is César Alierta. I want to thank all of you on behalf of all the team of Telefónica for your attendance at today's conference call. As I said before, we are looking very much forward to see you in London on the 13th and 14th of April, in which we will share with you how we see the main challenge, and especially the big opportunity for the industry, and update you on the strategy of Telefónica for the coming years. Thank you very much, and good weekend.