Earnings Call: Q2 2018

Aug 14, 2018

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to OI SA conference call to discuss the second quarter 2018 results. This event is also being broadcast simultaneously on the internet via webcast. Which can be accessed on the company's IR website, www.ir.oi.com. And also the MZIQ platform, along with all of the slides. We would like to inform you that All participants are in a listen only mode at this point. We'll then have the question and answer session when further instructions will be given. Questions via webcast will be prioritized. In case you need assistance during the conference, would also like to inform you that the conference call will be in English via simultaneous translation. This conference call contains forward looking statements that are subject to known and unknown risks and uncertainties. And that could cause the company's actual results to differ materially from those in the forward looking statements. Such statements speak only as of the date they are made, and the companies under no obligation to update them in light of new information or future developments. I will now turn the conference over to Mr. Yaurico Telez, CEO. Please, Mr. Yuriko, you may proceed. Good morning, everyone. Thank you for joining our conference call today. I have here with me today, Claudio Gonzalez, Chief Operations Officer Bernardo Winnick, the Chief Retail Officer Carlos Eduardo Maders, Chief Regulatory Officer Gilvi Almeida, Chief Administrative And Financial Officer Talos Grenell, Chief Financial And Investor Relations Officer and Marcela Ferreira and the IR team. This important is that by talking about yet another successful important step part of our judicial reorganization plan. That was the conversion of debt into equity by the deadline established in the plan That is the 27th July. We completed that conversion that's when. As a result, we reorganized the corporate structure and other shareholders will elect the new Board of Directors at the extraordinary shareholders meeting to take place on September 3rd. This stage consolidates a new era of governance in with a permanent board composed of independent members in a true corporation model. The next step is the execution of the 4th 1,000,000,000 real capital increase set forth in this digital organization plan, which will fund our investment plan for the coming years, so that our company can grow again in a sustainable manner. We are working very hard to carry out this capital increase as fast as possible And at the same time, we are preparing the company for the new phase of accelerated investment and business growth. For example, we have already launched pilot projects to test an approach that will allow us to accelerate the deployment of fiber's customers home much more rapidly and add a much lower cost. Writedown will explain this project in further detail later on, but the first results have been quite encouraging. This quarter, we also recorded important operating improvements, which you can see on Slide 3. We can see that operating costs and expenses continue their downward trend with a reduction of 1,000,000 year on year. In the 1st 6 months of 2018, operating costs and expenses fell CHF575,000,000 when compared to the same period last year. These reductions were the result of efforts with regard to operating efficiency, preventative act to increase productivity, service and progress utilization, improvements in the call center management and strict cost control. I like to stress that the increase in operating efficiency is accompanied by consistent improvement in operating and quality indicators, which reflect consequently. We continue to see consistent year on year reductions in ametel GP DC, the small civil claims court and procon complaint indicated when compared with the second quarter 2017. As for revenue, we know that we are going to face challenges, and we're working on several initiatives to minimize this impact end to 2018 before we even receive the proceeds from the capital increase, which will be directed to the investments. As a result, the company's total net revenue has slowed its decline and we will show later on. We have important indicators bearing witness to the improvement in all segments. We closed the second quarter 2018 with Routine EBITDA from Brazilian operations at RUB 1,554,000,000 and a routine EBITDA margin of 28.2 percent in line with our traditional reorganization plan. CapEx amounted to BRL1.4 billion as we expanded our infrastructure investment. We closed the quarter with a cash position of BRL5.2 billion, also in line with the judicial reorganization plan. I now give the floor to Carlos Brandell, who will present the details on our financial and operating results for the second quarter. Thank you, Rico. Good morning, everyone. Let's begin on slide 4. Net service revenue from Brazilian operations slowed its decline. Closing the quarter at BRL5.5 1,000,000,000, down 4.9% year on year and BRL2.2 quarter on quarter. We know that the structural reversal of revenue is due to the execution of our incremental CapEx plan which will be financed by the capital increase. However, despite this challenging scenario, we had some important signs of recovery. In the mobile segment, the increase in net additions in the postpaid segment in the last month has started to bear fruit. Revenue rose already quarter on quarter. In B2B, we continue to see an acceleration in the turnaround process. With more than intense sales activities aiming to reverse the reduction in revenue, which was heavily impacted by the judicial reorganization process last year. As for expenses, our efforts to improve operating efficiency and our focus on quality once it can produce significant results this quarter with a 6.1 reduction year on year and 3% reduction quarter on quarter. Our first half OpEx fell more than BRL575 1,000,000, thanks to improvement in virtually all the cost lines as we'll see in further detail later on. This cost efficiency once again helped us deliver EBITDA in line with our judicial reorganization plan. Finally, CapEx was R1.4 billion dollars in line with the year end estimate. Slide 5. We'll talk about our customer base. In the residential segment, the pay TV base continued to grow, supporting our convergence strategy and contributing to a 3.7% increase in RPU year on year. Enfission mobility, the decline in prepaid business was due to the disconnection policy for inactive customers Meanwhile, as mentioned on the previous slide, the postpaid customer base grew year on year and quarter on quarter mainly driven by the new the B2B customer base has also been reacting. It remained flat quarter on quarter and rose slightly year on year. Slide 6. Let's look at the results of the residential Padmet segment. The company's field strategy is based on convergence with the sale of bundled products. The increase in bundled penetration in the fixed line base naturally increases ARPU and reduces churn. Broadband is the main driver of bundle penetration And we know we can only expedite this process by implementing our CapEx plan for the coming years, which is focused on the Massification of fiber in the base. Before we can accelerate the implementation of incremental CapEx to curb competition, a specialty local player. We are repositioning our broadband offers and making our existing assets more profitable by intensifying selective sales actions and offering regional bundles. These actions began at the end of the first quarter and we were already able to see the first positive signs of reversal of the trend during the second quarter, including a slight increase between June July. At the same time, we're beginning a structural project designed to accelerate the delivery of fiber to customer's home. We are adopting a new approach to fiber deployment called reuse which boosts our competitive advantage with regard to our transplant network as well as to the reach of our Metropolitan fiber network. This approach we will discuss in further detail when we talk about CapEx has resulted in greater agility, precision and cost efficiency in the implement of our fiber to the home FTTH network. We started a reused pilot project in Campbell Frio, a city in the late region of Rio de Janeiro and the first results were extremely encouraging. We plan to deliver 15,000 homes passed in the region, after the first lot of 2.1000 HP were delivered in June, we saw that the OEC per project was 18% one rather, 18% market share in the region where it was launched in 8 weeks. This shows potential demand for the project in good market acceptance. We're also using the pilot producers price elasticity that is how much customers are willing to pay for a much superior project in contrast to local competitive offers at a much lower price and with lower quality. The results of the pilot project will guide the acceleration of our fiber deployment strategy funded by the capital increase. Slide 7. Let's talk about the results in the mobility segment. The 2nd quarter reinforced what we had been observing in the physical indicators in the previous quarter. The postpaid market reacted very well to OE MICE digital. Which, driven by the intensification of sales, accounted for most of the acceleration of net additions growth this quarter. We also began to see a reversal in the curve of portability that adds between our customers and customers of our competitors in the postpaid segment. This indicator improved around 80% year on year, and it is likely to become positive in the future. As a result, postpaid net revenue grew over the previous quarter and we're confident that this trend will continue in the coming quarter. And the prepaid segment. The good news is that revenue also moved up quarter on quarter. This segment is strongly influenced by the unemployment rate. As this indicator improves, top up volume and revenue response quickly. In addition, we are pursuing our strategy of increasing the share of OIBIVRI in the base The product gives customers the freedom to control use of credit between minutes and data through the MENA OA app and has the highest average top up in the prepaid segment. At the end of June, OIBDA accounted for 70% of our prepaid base you get another factor that contributed to revenue growth. Slide 8, let's look at each of the results. The approval of the judicial reorganization plan at the end of the last year put an end to uncertainties about the continuation of the business which is very important This creative predictability helps us implement a number of structural changes in the segment, including A change in the organization structure in order to begin a turnaround process, increasing sales reach, expanding and under original units from 4 to 11 synergies in the business segment were worth, sorry, by using retail structures and sales channels among others. We can already see the first results of these changes and the intensification of sales efforts. Since January, new revenue prospecting soared 5 29% while effectively contracted revenues jumped 94% year on year and 81% quarter on quarter. New data and IT revenue grew over 100% compared with the same period last year. These initiatives have had positive impact on the segment's total revenue, which had been progressively increasing on a year on year basis. The business cycle in this segment from prospecting to service delivery and billing has a maturation period of around 6 months. Depending on how complex about it is. The recent behavior of the B2B segment makes us confident that this rise in revenue may become cheaper in the last month of 2018. Slide 9. We'll talk about cost reduction this quarter. Our cost efficiency has led to stable routine EBITDA in 2018. This quarter, routine EBITDA amounted to 1,554,000,000. That is in line with the previous quarter and year end estimate according to the economic financial report of the judicial reorganization plan. On reductions affected all expense lines and are a result of our efforts on digitalization, operating efficiency in the management of field teams and improvement in internal process. Always focusing on service quality in order to improve customer experience, of course. We have a continuous cost reduction process based on structural front with a permanent effect on our customer base. We keep working identifying business initiatives that will generate cost reduction as well as revenue opportunities. Slide 10. Will detail a little bit more the drivers of expense reduction. On the previous slide, I mentioned that the cost reduction was mainly associated with the company's focus on 3 fronts. The principle is operating efficiency, which we will break down into 2 items on this slide. 1, the implementation of new management model based on the absorption of network service providers with which increased the productivity of our fuel technicians to the development of the customer service model, which directs more traffic to the operative with resolution readings. The second front is quality improvement. Thanks to heavier investments in the core and network transmission in the last few years, we increased our network capacity and stability ensuring a better customer experience and thus reducing the need for customer service and support as a result, our customer service costs dropped 31% in the year. The 3rd front is visualization. The launch of several digital innovations, including the very successful technical virtual Altus Virtual and media Oi app relationship channels using virtual assistants, chatbot on Facebook Messenger and recently on WhatsApp as well has allowed us to substantially reduce customer More than that, in addition to contributing to cost control, these solutions also improve customer experience and customer satisfaction with our products and services encouraging us to continue our customer pursuit of more and better solutions. Slide 11, CapEx. We closed the quarter with investments totaling BRL1.4 billion in line with the results expected for the year. Investment grew 11.1% over the quarter, the same quarter last year and 21.5% over the previous quarter. We've returned the company to begin a new investment cycle, which will be funded by the capital increase provided for in the judicial organization plan. As an example of this process, we have recently entered a partnership with Huya, which will enable us to expedite our incremental CapEx plan. The incremental CapEx plan will be basically focused on access that increased, increased, pardon me, high speed, broadband and mobile coverage will support the company's main business transformation and growth initiatives designed to protect the customer base and ensure that the customer service experience utilization and better fuel operations and increased profitability. In order to achieve that, we broke the country down into over 9000 landline clusters and the mobile area into almost 3500 Municipalities and we conducted a study to assess demand competition and existing infrastructure. We use specific metrics to rank and prioritize these areas where the focus where to focus our investments. The results of this study are presented in 3rd detail on slide 12. That's the slide we're looking at now Slide 12. Actual investment in fiber in order to offer high speed broadband, we divided the country into more than 9000 buses and rank these areas based on metrics that can optimize capital and utilization with revenue flows and PV. And investments flow to generate these revenues, IPV. This is prioritizing areas with the best return on investment capital and accelerating value creation. With this prioritized 4 1000 and 90 cluster, which will generate an NPV of 1,000,000,000 with CapEx of 1,000,000,000 over the next 10 years. Regarding investments in the mobile business in order to refarm the 1.8 gigahertz frequency We divided attention to 3,500 Cities with fully mobile, which we ranked using the same NPV IPD criteria, to get the 1100 and 60 Cities LV prioritized. The NPD generated will come to R6.6 billion with CapEx of R8.8 billion over 10 years. Please bear in mind that this NPV is a net of investment. Slide 13, will go into the details about fiber reuse. That's one of the strategies that our plan to accelerate the implementation of the 502's home network. This strategy will make our competitive advantage better. Capacity and robustness of our backbone and capillary of a gastroenterology fiber network as well. We currently have 350,000 lummeters of fiber in Brazil, covering 2000 cities with fiber through our transport and access network. We take advantage of our existing infrastructure to deliver high speed broadband customers through TCH, a model which allows us to work better with our marketing, increasing agility and reducing implementation costs thus minimizing the need for a high number of homes passed inventory. With this approach, we have immediate potential to reach 6,000,000 homes with FTTH. That is we would only need the last fiber to deliver the service customer, we plan to deliver 1,000,000 homes staffed by the end of the year and enable another 1,000,000 homes for pet pH. As we mentioned on the slide about Residential segment, we have done a few pilot projects and the first results were quite encouraging. In trouble for you, for example, the first FTTH loss that was delivered at 8 in 8 weeks 20% market share captured by OE Zebra in that region. Slide 14, we'll look at company's cash debt and shareholders structure. We closed June with a cash position of R5.2 billion dollars, a reduction of approximately R1 billion dollars against this large. The decline was due to certain seasonal payments and nonrecurring payments. But I would like to point out that all these payments were at expected and are covered in the cash flow of the judicial regulation plan. The first seasonal payment was the fixed sale maintenance fee which is paid to Anatel every year based on the mobile customer base. The second payment, which is also seasonal was a variable compensation of all the company's employees for the partial achievement of 3 companies target for 2017. 3rd payment, which is nonrecurring, refers to taxes on the debt innovation following the approval of the terms of the digital regulation plan. I'd like to remind you that this plan provides for a cash position of BRL6 1,188,000,000 at the end of 2018. So it's taking into account the capital increase 4,000,000,000 real and CapEx of BRL7 billion. Please note that fluctuations up and down. We're forcing the plan especially in the first half of the year, where due to the particularities of our businesses, we have a higher concentration of payments. And in the graph, you can see the orange rose debt, which moved up BRL1.7 billion over March. Mainly due to RUB 727,000,000 of amortization of the gain related to fair adjustment of the debt. It is important to note that in accordance to the IFRS, we accounted for R and D debt fair value in the first quarter. According to the rules, we the fair value adjustment must be measured and recorded upon initial recognition of today. From then on, this adjustment is not recalculated and is amortized over the contractual term of each debt. Amortization is carried out on a straight line basis and the currency of the debt. The remaining balance of the AVJ fair value adjustment related to the foreign currency tax should be restated by an exchange of the variation for the period and explained below R269 million in interest on debt. Please bear in mind that we're talking about contractual interest on pace of the face value of each debt. That's from now on, Our debt financial expense will have 2 components, the contractual costs on the face value of debt plus the straight amortization of the fair value adjustment during the term of each debt and in the currency of each debt as we have explained. We also have the foreign exchange variation, which had an impact to our cost of R1 billion dollars in the quarter. It's important to mention that, yeah, the effect of foreign exchange variation on the fair value of the debt. The balance of our debt is composed of the face value less the fair value adjustment as I have over dimension this fair value adjustment is made in the currency of exchange rates, devaluation have a negative impact on the face value, but a positive impact on the fair value adjustment and vice versa. At the end of June, slightly more than 50% of the company's fair value debt was denominated in foreign currency. This quarter, the real depreciated 16% against dollar. Which explain the foreign exchange variation. I'd like to point out that the company is currently evaluating a new hedging policy for its financial liabilities denominated in foreign currencies, considering the potential impact on the balance sheet and cash flow. Adjusted to the right shows Oi's new shareholding structure. We already showed this last quarter, but we adjusted it this quarter to reflect the final figures of the first change of the capital increase through the conversion of debt into equity. Before the conversion, we had 676,000,000 shares on the market. As part of this process, we issue 1,700,000,000 additional shares, including warrants. In the next capital increase, we expect to issue over another 3.2000000000 shares resulting in a new free float of 5,600,000,000 shares. Slide 15, I'll describe the next steps of the judicial organization process. We completed another step of the process by converting debt into shares within the agreed deadline. Oi has with us reorganized its corporate structure and now the new shareholders will elect a new Board of Directors at the extraordinary shareholders meeting scheduled for September 3rd, consolidating a new year in our corporate governance we will have a permanent board composed of independent members following the evolution of the company's corporate governance Meanwhile, we have already focused all our efforts to complete the capital increase of 4 1,000,000,000 as soon as possible. As we have already said, the capital increase will be the key driver of CapEx growth in the coming years, which will be directed to investments in fixed and mobile access, fiber and 4G coverage designed to increase our market share in various cities generating incremental revenue and sustainable EBITDA growth over the medium term. I now give the floor back to IRico for his final remarks. Thank you, Brenda. I'd like to wrap up are called today by reinforcing our main messages. We continue to complete all stages of the judicial reorganization process as planned. We successfully converted debt into shares reorganizing our corporate structure and soon we will have a permanent board composed of independent members with a high level of corporate governance following the rules for corporations. EBITDA is in line with the amount set forth in the judicial organization plan for the year end and we remain strongly committed to finding opportunities in revenues and costs to maintain the level of EBITDA in the coming quarters without ever compromising quality. We can see positive signs of recovery in all segments, especially in mobile postpaid and Bilibili. These results increased our confidence that these indicators will be even better going forward Our CapEx plan is ready. We have a huge competitive advantage over our competitors. Which is the robustness and reach of our fiber network, which makes only a unique asset in Brazil. We are ready to implement this plan accelerating execution with efficient capital allocation through strategies such as the reuse approach presented by Rental. Our cash and debt are in line with the amounts in the judicial plan and we reaffirm our commitment to the balance of the Indian caters. We are happy with the results achieved so far. We are even more motivated to work and complete the judicial organization plan carry out the capital increase, implement our CapEx plan and read the rewards in revenues. The floor is now open for questions. We will now begin the question and answer session. I'd like to remind you that questions sent via webcast will be prioritized. Good morning, everyone. Let's start with our question and answer segment. We have one question per webcast. What are the next steps Plan was approved 8 months ago. We have completed important steps so far. The approval itself was one of them, Justice, the P and L that was also approved with all the complexity it has. The sun being accepted in the United States and in the Netherlands and the renegotiation process in the new instruments. This is an important delivery in the implementation of the judicial organization plan. And looking forward, we're stepping into a new phase. The new governance phase, we hope that it will be confirmed in the new, in the next rather extraordinary shareholders meeting in September with the new most members. All of them are independent. Looking forward, we have also a challenge to conclude the increased capital investment. Capital increased data. 22 registered tax offer in debt. Is also elabeche, more of a NAND phase of the implementation process. A question that always comes up is what does the Portuguese decision mean, right? The Portuguese decision in court mean, there shouldn't have any consequences. And it is important to wanted to notice that it was not about the method. It was about the form. We have been working to conclude the recognition in Brazil as well. Understand that it should happen in Brazil. So it's a matter of time. It's the complex person, everyone knows. And we need to wait for the separate molecules says later that we can continue with our traditional reorganization plan. There's another question. Also from the webcast, that's fine. He also wants better understanding of the debt report. That's a very technical question. We're trying to cover that and we presented the results. Maybe we should try and clarify it a bit better considering how complex this matter is Thank you, Stifel. I know we talked a little bit about the mechanics behind it. This message is, I mean, concerning the restructuring process. One of the characteristics of this new game is that it has to go a very long term before a 5 year grace period and very low interest rates. DJX ARRF, we need to adjust this instrument fairly. How does System Mechanic work? Fundamentally, there's 3 elements that we will be looking at in the debt report process. The first is to get updates to face value. In the conditions negotiated. For example, 80% DI 17 years maturity in 5 year grace period in Brazilian debt. The second point is the fair value adjustment. Again, this is extremely technical. Will project the debt in interest contractual aspects and you will discount it at a conceptual incremental capsulation costs. That brings us to elements: 1 face value and the fair value adjustment. These two elements will allow us to move the debt. There is a third element of course There is the foreign exchange rate. So these are the 3 elements that will play a role in debt. The first is value correction by the contract. The second is the amortization of this fair value adjustment and the third is foreign exchange fluctuation. To help our investors. We are really detailing that out in our press release and our website. There will be a spreadsheet that will help you to the math in a way that everyone can understand that a little bit better. This is actually a new way to understand and debt. Our hedging strategy is also very important. We have been discussing ways to source in order to build the strategy, there are two aspects or two angles that need to be taken into account the to balance and the cash position for the cash flow rather. There's a high grade period their slow interest rate, as I already mentioned. So we need to take the balance into account, and we always need to project cash flow. We are discussing that with our board so that we can propose a strategy that can cover all of these element. This point is still under discussion, and we should soon have a definitive strategy now we're going on to listen to the questions from the analyst Anasalado from Itau would like to ask a question. Good morning, everyone. Thank you for taking my question. Did I talk a little bit about our cost dynamics. We can see that there's significant efficiency gain in marketing and third parties. Do you think that can continue to improve? And marketing is unusually low. Are we going to continue with such a the strong position in the future. And as for B2B, we can see that things are improving bit by bit. What do you expect the turning point will be when will that take place? Thank you, Susanna. So starting off with costs. We have been really looking into costs in the last years. We knew that top line would be difficult for us, especially in the access network. Cost management is one of our top priorities. We continue with the drivers we had been using last year, especially digitalization. This is responsible for many of the results we have been presenting in many lines. There's not only about our commercial costs. We have many sales taking place We're also improving quality, which makes service more stable and reduces complaints line and then reduces corrective maintenance, reduces churn, reduces contingency. That is very clear in our results this quarter. We can still continue to improve on cost reductions. We're still profiting on the actions we took in the last 3 years, improving productivity and improving not only quality as I already mentioned, but also the number of technicians we need on the field providing service. So we still have leverages that we can use, we hope to continue to improve in a sustainable way without any negative impacts much to the contrary, improving quality, which is the main catalyst to continue improving. Bernardo will talk a little bit about This increase in commercial activities in the second quarter. Should probably have more effect in about 6 months. And after it's been effectively contracted between 30 to 90 days. So the 3rd quarter should show some results already. And we believe that the 4th quarter should continue in that direction Thank you everyone. The next question is from My first question is about mobile operations. Speaking to improved quality and all, do you believe that the prices for charges in the market? Is it going to stay below the competition or is the focus going to maybe monetize the base more improved quality and improved prices. That's my first question. And the second question around landlines. The strategy to calculate NPV for region is very interesting, but I think that competition is a very important variable here. What about FTTH? Is there a scenario there? Very competitive as well? How do you see that with other players like Tim? What do you expect regarding competition? Brenardo will support us to answer your question on mobility. On mobility, we expect to make progress with 4.5g increasing profit. And increasing prices. At this point with the conditions we're operating in. This is the most adequate level we could operate in, which doesn't mean that in the future As for competition, I'll try and compliment here this discussion. We talked about our CapEx plan, our NPV approach and how we put competition within this strategy. How do we build this plan? We had the granularity point and we had elements that we're taking into account to put together a business plan. There is potential market competition and existing infrastructure. So for each one of these points in the business line, We have the whole company involved. We evidently took competition into account. It is different in every market. So we have smaller providers which really were the ones to be the catalyst for growth in the last years. We've looked at the high level competition, which is with prepared players that operate on a high end market. And the 3rd element was to the network quality. So these three elements jointly represented the drivers we use for our model. So, we are addressing all of the elements we have just mentioned and Nava will speak a little bit about our network approach so that we can capture the market Good morning, Danielle. In the last three years, considering our constraints regarding investment, we focus all of our efforts on getting our transport network and our core to be more robust and have higher capacity so that we could deal with the existing and with new traffic. Delta plan has been approved. We started observing our network and looking at the current reach we have been looking at how we could reuse this network. Looking at our fiber in the metropolitan region, that already exists. We have been looking at how we could reuse that and reduce implementation time so that the market could address the needs of these Implementation happens at a much lower cost than it would if I were to implement a network with higher speed. We also broke our network down into smaller cells. And as I said, we can do that quite quickly. That allows us to make the right choices. It's like using the right medicine with the right dose to the right disease. So we can do Still about the second question. Can you be sure that you're not aiming at the same cities as the competition because you may be looking at the competition as it is today, putting 1, 2, 3 years time, so to think that the competition may be looking at the same NPV opportunities. It's difficult to answer that question, architectively, right? We don't really know our competitions, plans in detail. Looking at our plan, what I can say is that we mapped our opportunities quite well. And we have alternatives that will increase heat in going to the market. We can move very quickly and address the market at hand. We had been reacting proactively to any indicator we get from the competition and using this approach that was just mentioned in Cabo Friel, And with some expansions of that pilot we used in CaboFru to other cities as well. And Bernardo mentioned, we hope to Half Nineteen Cities by the end of 2018. And from there, Valder Nogueira would like to ask questions. Two questions, quick ones. On Slide 9, he spoke about the pilot in Cabo Freo. And piggybacking on Danielle's question, but being a bit more straight to the point, What kind of price aspect or approach do you see in this project? What was the premium that you were able to charge in this pilot project against what was being offered by the competition question. Will answer that question. They are working on this budget up close. A couple of few pilots. Evidently is not going to be the standard used in the whole country. We had a premium price of up to 15% in contrast to low competition in Cabofrio, and we had a good conversion rate. As for costs, comparing it with the traditional implementation model, we had about percent reduction in costs depending on how much we can reuse the existing network, primary, secondary pipelines. If everything works as well as it can, it can get to 50%. It's generally about 30% to 50% the range that we can save. As Bernardo said, we're also looking at price elasticity. Another point in this approach, I mean, in the presentation you spoke about the reach and the network, but not much was said, and that's what I would like to understand about, how traffic is flowing. More than the time to market, the right time to market. We need to understand how traffic slowing to how the network is organized because that wasn't really mentioned in the presentation and also what the transport cost was because that is what's going to determine how competitive your offer is. So what is the situation like in contrast to regional competitors? How efficient or how much more efficient can you be in providing broadband from that aspect? That's an excellent question, and I'll try and break that answer down into layers as our reach. We have a very broad, very fire reaching backbone. For the last 3 years, we have been building triple approaches in basically every capital. So we have a very high reaching backlog. We have just entered the partnership with Huawei And that gives us 2 new chances for capacity and efficiency. Brazil is fully covered. We also are trying to develop a strategy to have all of the traffic interest in cash. Looking at Netflix, Google and others. Looking at the network in Brazil, if we have less need for high distance traffic if we have a high capacity backbone network with capacity with optic fiber in more municipalities. And the reach that is connected with all of the internal metropolitan regions that we have in the cities we have a very good traffic flow capacity. It's about the technical aspect of our approach, but from a general perspective, that is the strategy. We are very confident that traffic flow is going to be working well for landline and mobile. As for the base or the infrastructure base, we understand the core based in infrastructure and the pillars for us to do anything regarding access. That's why we have focused our energies into this layout. Sorry, our intention is always to be at least 2 to 3 years ahead concerning capacity for our core for transport and for traffic flow. Having said that, we have no bottleneck and that I say considering the country as a whole. We have really been able to map and spread our network throughout the country. That also applies to B2B, allowing us to work with the traffic flow in B2B, and we will help the market as well. Do you think the competition has a similar capacity? Regional competition? Certainly not. Because they depend on high capacity backbone to do the traffic flow. But they will certainly have the buffalo mix, anything we need to address. And of course, I can't speak about their technologies in detail. What I can say is that our network technology is absolutely adequate so as to deal with the traffic flow that we have in our network. Brett Menz from Lesco would like to ask a question. Good morning, everyone. I have two questions. I think they're similar to the questions that have been asked. We have big players and small players opposed to competition. And it cost him to be ever lower. So looking at the medium term, do you think that broadband competition would come for bigger players really in regions with fewer inhabitants? Or do you think that relatively smaller players are growing? Should they become more competitive? In the medium term, really that's my first question. And the release says that the pilot project with fiber had 20 percent market share. Can you speak a little bit more about that? As well so that we can calculate a few things for other regions. Brunardo Enneval will answer that question. Hello Fred, good morning. Specifically as to cover free, what we have there is basically local players. About 50% of the market belong to local players. One of the local players has 7% market share and has got up to fiber. The rest of them works with radio waves. We had about 50% price elasticity and didn't have any problems with conversion, including that optic fiber player. So we had good returns on that in that region. Whenever we get to other regions where a bigger player, also lighting services will have different conversion rates. I wouldn't expect to have the same really. So what we expect to see the future? Is, I mean, 1st of all, these local players, they have different regulation, their SLEs, and their deliveries are different to what we have. We need much higher level SLAs What I expect from that market is that there should be a consolidation it should become medium players not so small and that's what we'd expect in the future. We're looking at our fiber approach, especially with high quality and with these providers that provide internet via radio waves. We really expect to have very high competitions levels and take back the market from, I mean, in regions that we used to provide services for already. All right. Thank you. My questions have already been answered, but I'd like to hear a little bit more about this infrastructure sharing agreements. Do you see that in landline and mobile with Tim? What kind of opportunities do you see in these agreements with other operators and how do all of that stand really? Thank you for your question. Good morning, Maria Theresa. OEC is back as an opportunity. Yes. We should exchange with other operators so that we compare our interest in our wholesale customer's interest in mind. We have the room sharing, with Tim. But we're also looking at opportunities with other players, with other operators, national or original players reading. Better in our pipeline for wholesale. But in the regulatory agenda, Oui has been exploring the possibilities of sharing as much as possible. The new Spectra use with PP2 for secondary use. That is in our roadmap that is somehow encouraged by the regulatory agents agency, sorry, and also due to the impact in whole sales. What about asset sales. Do you think that would make any strategic sense to sell partially or fully the mobile network or are we going to be focusing on non core assets? Thank you for your question, ladies and gentlemen. We have an asset portfolio Our focus is now specifically in the asset change. Vastello Centers from JP Morgan, we'd like to ask a question. Good morning. I'd like to hear a bit more details about Cabo for you. What the economic aspect was like what the costs were like. I'd like to hear a bit more details of the financial assets we had. I think that was a good example of what we could be doing in the future. This is a high point in our agenda. We're very excited about the first results that we have had. And I'm going to say what Nava already said. We expect to reduce between 30% to 50% due to the infrastructure that we could reuse in these locations. And alongside this cost reduction, we have the time to market higher agility rate. Of course, it depends on the region, as Naval said, each region will have its own specificities. Looking at the business model, we could probably say that the reduction in unit cost would be about 30 to 50 cost percent reduction in costs considering the traditional approach. And of course, that should be also driven by the the speed in which we can implement the structures we have. The second question has to do with the debt. You said the way the debt has been progressing was already part of the plan. I was looking at the plan and I couldn't find it. Also, I couldn't find how this 17% of the precision in the semester could be So I'd like to see that line. If you could please send that to me, I'd be very thankful and how do we see debt and the foreign exchange aspects together? Line approved in December didn't set forth specifically how the debt was going to be dealt with. Because that was built with the auditors after the plan was approved. You can see in the plan one of the components. There are 3 of them, one one of them is the conversion of the debt to the face value. The second is amortization at fair value and the third is foreign exchange. What you can find in the plan it's 2 rather of these 3 components. The impact that we have I already said that you're going to be giving more information around how the calculations are made on the press releasing on our website. So that we can really include that in the financial model. So the original plan does not have that because it did not exist back then that was approved by the board after the approval of the plan. And then there will all be made available to the public in detail and how we thought of it and how we happened this semester this You said you would be hedging the cash flow, right? We need to take into account what we have in foreign currency as well, right in foreign exchange. So what do you have to say about that? We have been discussing that quite thoroughly. What we need to put in perspective is how macroeconomy is going to develop in the medium to long term. We have 5 years grace period, whatever is related to the foreign exchange and what doesn't have it is bonds and coupons. With all of these elements are looked at, from our perspective, we expect a macro economy in the medium to long term. Are well, it is to converge to a more balanced behavior concerning the country's economic growth and so on. And in the short term, we have no expectation of paying dividends in our balance in the short term. Our investments I mean, our focus is on investments. So we have this understanding that's going to be discussed but board meeting is still. But we have the understanding that at this point, we don't need to take a hedge decision on components that will have no impact in the cash flow. Thank you, Bruno, and I hope our country gets back on track. It looks like it is from BTIGU Pactual has a question. I have two questions, maybe 3. What is the PGIMU situation and what are your expectations around how how long you will take for the decrease to be published? And the capital increase should take place by theendoftheyear. And that's backstopped by creditors. So why should we not start accelerating CapEx right now? Because we are at a race really with the other competitions trying to fight for these smaller cities that don't have such good quality service. Thank you for your questions. The GMU point will be answered by Q2 and I will get back to being CapEx plan. Asset PG And U, As far as we know, there are 2 perspectives: 1 within the communication ministry they're analyzing PGNU around part of the total scope. Based on what Anatel has already assessed. And there is also a process going on within Anatel. That vote took place at the end of the 1st or second half of the country call. And that is going down and ending with PIK. So we're going to send this PGMU is on the Ministry's And Nattel's agenda. Maybe they'll take place this year. And part of it will and I'd like to remind you that PEC is a structuring program. The public program by Anatel, and this is a part of the PGMAU would be linked to this program progress. And then for the second question, The Spyler project was so that we could learn more about this new approach, but as I said, We expect to have this reuse approach implemented and running in 19 cities before the end of the year. We have seen good indicators in the last weeks showing improvements in the market. Where we want to expand into these 19 cities, then we hope that by the end of the year, we will be working on the commercial aspect to present this infrastructure that we are offering I know that it's difficult to say that, but when will that operation be concluded? It's a point that we have to be careful of. I cannot speak about the details of that. It is a subject that we don't have that much objective visibility yet. We don't know when the process is going to be concluded. It is a priority and we're working on it. That's what I can say. We have a question in English now. May proceed sir. You may ask your question. Hi, sorry. Just two quick questions, please. 1, on fiber again with the reuse project. What speeds can be achieved, please? And secondly, you talk about 6,000,000 homes passed in the presentation. When will those be active? And then finally please on B2B. I thought you said we will see growth in B2B by the end of this year. Can I check that? That would be helpful. The first part of the question is reuse with a cabofrio project, what speeds we're offering. The second point has to do with the second- the 6,000,000 home passes. That way you have And at what point do you're going to be available for sale? And the second question has to do with the PCB segment if we can confirm that we expect to have results. Naval and Bernardo will answer the questions. As for the speed What we have offered in cabofrio is 50,000,000,001,000,000,000 and 200,000,000 And these are the offer speeds they'll probably be offering in the project as a whole. As for B2B, As I mentioned, sales has been growing in the first and second quarters. The conclusion of sales, as we also mentioned in the presentation, has also been growing. The implementation time or the average implementation time is between 30 to 90 days. So we'll start to see the impacts really, in fact, in the 3rd quarter. And in the 4th quarter, as we already in August, really, we should continue to move at the same pace. We should see that positive impact on revenue in the 4th quarter as well. As for the DKK 6,000,000 home pack. We plan that by the first half of twenty twenty, we should have our full capacity installed. Thanks. At this point, question and answer session is at an end. Thank you all for joining me on this conference call to discuss our results for the second quarter of 2018. I'd like to take the opportunity to thank all of our employees, partners and other stakeholders for their dedication commitment and confidence in OE's project. As I have already said, I'd also like to emphasize that we have been successfully completing all the stages of the judicial organization plan. We're now working on the capital increase of R4 billion that will fund our growth. I'd also like to stress that we are also working to increasingly improve our operations and the quality of the services we provide with ongoing focus on operating efficiency There's a lot of work ahead of us, of course, but we are on the right path to build a new company. Thank you, everyone, and I'll see you next time. Have a great day. That's the end of the conference