Good morning, ladies and gentlemen. Thank you for standing by, and welcome to Oi S.A. 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.br, 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 will 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, please request the operator's help by pressing star zero. We 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, the company is under no obligation to update them in light of new information or future developments. I will now turn the conference over to Mr. Eurico Teles, CEO. Please, Mr. Eurico, you may proceed.
Good morning, everyone. Thank you for joining our conference call today. I have here with me, José Claudio Gonçalves, Chief Operations Officer, Bernardo Winik, the Chief Retail Officer, Carlos Eduardo Medeiros, Chief Regulatory Officer, Silvio Almeida, Chief Administrative and Financial Officer, Carlos Brandão, Chief Financial and Investor Relations Officer, and Marcelo Ferreira and the IR team.
It's important to start by talking about yet another successful important step as 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 of July. We completed that conversion then. As a result, Oi reorganized the corporate structure, and now the 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 Oi, with a permanent board composed of independent members in a true corporation model. The next step is the execution of the BRL 4 billion capital increase set forth in the judicial reorganization 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, 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 to customers' home much more rapidly and at a much lower cost. Brandão will explain this project in further detail later on, but the first results have been quite encouraging. This quarter, Oi also recorded important operating improvements, which you can see on slide three. We can see that operating costs and expenses continue their downward trend with a reduction of BRL 256 million year-over-year. In the first six months of 2018, operating costs and expenses fell BRL 575 million when compared to the same period last year.
These reductions were the result of efforts with regard to operating efficiency, preventative actions to increase productivity, service and progress realization, improvements in the call center management, and strict cost control. I'd like to stress that the increase in operating efficiency is accompanied by consistent improvement in operating and quality indicators, which reflect the improvement in customer experience. Consequently, we continue to see consistent year-on-year reductions in Anatel, JEC, the small civil claims court, and Procon complaint indicators when compared with the second quarter 2017. As for revenue, we know that we are going to face challenges, we are working on several initiatives to minimize this impact in 2018 before we even receive the proceeds from the capital increase, which will be directed to the investment.
As a result, the company's total net revenue has slowed its decline, 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 BRL 1 billion, 554 million and a routine EBITDA margin of 28.2%, in line with our traditional reorganization plan. CapEx amounted to BRL 1.4 billion as we expanded our infrastructure investment. We closed the quarter with a cash position of BRL 5.2 billion, also in line with the judicial reorganization plan. I now give the floor to Carlos Brandão, who will present the details on our financial and operating results for the second quarter. Thank you, Eurico. Good morning, everyone. Let's begin on slide four. Net service revenue from Brazilian operations slowed its decline, closing the quarter at BRL 5.5 billion, down 4.9% year-on-year and 2.2% 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 intense sales activity, 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 again produced 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 BRL 575 million, 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 BRL 1.4 billion, in line with the year-end estimate. Slide five. 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 ARPU year-on-year. In personal 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 offers and increased sale activity. As with the top line, the B2B customer base has also been reacting.
It remained flat quarter-over-quarter and rose slightly year-over-year. Slide six. Let's look at the results of the residential segment. The company sales strategy is based on convergence with the sale of bundled products. The increase in bundle 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, especially local players, 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 and July. At the same time, we're beginning a structural project designed to accelerate the delivery of fiber to customers' home. We are adopting a new approach to fiber deployment called reuse, which boosts our competitive advantage with regard to our transport 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 implementation of our fiber to the home, FTTH network. We started a reuse pilot project in Cabo Frio, a city in the Região dos Lagos 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 2,100 HP were delivered in June, we saw that the Oi Fibra project was 18% market share in the region where it was launched in eight weeks. This shows potential demand for the project and good market acceptance. We're also using the pilot project as price elasticity. That is, how much customers are willing to pay for a much superior product in contrast to what a local competitor 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 seven. Let's talk about the results in the mobility segment. The second quarter reinforced what we had been observing in the physical indicators in the previous quarter.
The postpaid market reacted very well to Oi Mais 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 net adds between our customers and customers of our competitors in the postpaid segment. This indicator improved around 80% year-over-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 quarters. In the prepaid segment, the good news is that revenue also moved up quarter-over-quarter. This segment is strongly influenced by the unemployment rate. As this indicator improves, top-up volume and revenue respond quickly. In addition, we are pursuing our strategy of increasing the share of Oi Livre in the base.
The product gives customers the freedom to control use of credits between minutes and data through the Minha Oi app and has the highest average top-up in the prepaid segment. At the end of June, Oi Livre accounted for 70% of our prepaid base, yet another factor that contributed to revenue growth. Slide eight. Let's look at B2B 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 to all our customers, especially those in the B2B segment, who usually have medium to long-term service agreements.
This greater predictability helped us implement a number of structural changes in the segment, including a change in the organizational structure in order to begin a turnaround process, increasing sales reach, expanding the number of regional units from four to 11, synergies in the business segment 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 529%, 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 six months, depending on how complex the product is. The recent behavior of the B2B segment makes us confident that this rise in revenue may become steeper in the last months of 2018. Slide nine. 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 BRL 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. Cost 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. We'll 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 three fronts. The first is operating efficiency, which we will break down into two items on this slide. One, the implementation of new management model based on the absorption of network service providers, which increased the productivity of our field technicians. Two, the development of the customer service model, which directs more traffic to the operators with better resolution ratings. 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% year-on-year. The third front is digitalization. The launch of several digital innovations, including the very successful Técnico Virtual and Minha Oi app, relationship channels using a virtual assistant, chatbot on Facebook Messenger, and recently on WhatsApp as well, has allowed us to substantially reduce customer service, selling, and billing costs. 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 conscious pursuit of more and better solutions. Slide 11, CapEx.
We closed the quarter with investments totaling BRL 1.4 billion, in line with the results expected for the year. Investments grew 11.1% over the quarter, the same quarter last year, and 21.5% over the previous quarter. We're preparing the company to begin a new investment cycle, which will be funded by the capital increase provided for in the judicial reorganization plan. As an example of this process, we have recently entered a partnership with Huawei, which will enable us to expedite our incremental CapEx plan. The incremental CapEx plan will be basically focused on access and increased high-speed broadband and mobile coverage. It will support the company's main business transformation and growth initiatives designed to protect the customer base, ensure a better customer service experience, utilization, and better field operations, and increase profitability.
In order to achieve that, we broke the country down into over 9,000 landline clusters and the mobile area into almost 3,500 municipalities. We conducted a study to assess demand, competition, and existing infrastructure. We used specific metrics to rank and prioritize these areas where to focus our investments. The results of this study are presented in further detail on slide 12. That's the slide we're looking at now, slide 12. As for investment in fiber, in order to offer high-speed broadband, we divided the country into more than 9,000 clusters and ranked these areas based on metrics that can optimize capital utilization with revenue flow, NPV, and investment flows to generate these revenues, IPV. This is prioritizing areas with the best return on investment capital and accelerating value creation.
We thus prioritize 4,090 clusters, which will generate an NPV of BRL 9.1 billion with CapEx of BRL 6.7 billion over the next 10 years. Regarding investment in the mobile business, in order to reform the 1.8 gigahertz frequency, we divided the country into 3,500 cities with Oi mobile, which we ranked using the same NPV IPV criterion to get the 1,160 cities that will be prioritized. The NPV generated will come to BRL 6.6 billion with CapEx of BRL 8.8 billion over 10 years. Please bear in mind that this NPV is net of investment. Slide 13 will go into the details about fiber reuse. That's one of the strategies in our plan to accelerate the implementation of the fiber to the home network. This strategy will make our competitive advantage better. The capacity and robustness of our backbone and capillarity of existing metropolitan fiber network as well.
We currently have 350,000 kilometers of fiber in Brazil, covering 2,000 cities with fiber through our transport and access network. In reuse, we take advantage of our existing infrastructure to deliver high-speed broadband to our customers through FTTH, 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 million homes with FTTH. That is, we would only need the last fiber to deliver the service to customers. We plan to deliver 1 million homes passed by the end of the year and enable another 1 million homes for FTTH. As I mentioned on the slide about residential segment, we have done a few pilot projects, and the first results were quite encouraging.
In Cabo Frio, for example, the first FTTH logs that were delivered had, in 8 weeks, 20% market share captured by Oi Fibra in that region. Slide 14 will look at company cash, debt, and shareholding structure. We closed June with a cash position of BRL 5.2 billion, a reduction of approximately BRL 1 billion against March. This decline was due to certain seasonal payments and non-recurring payments. I would like to point out that all these payments were expected and are covered in the cash flow of the judicial reorganization plan. The first seasonal payment was the FISTEL 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 the company's targets for 2017.
Third payment, which is non-recurring, refers to taxes on the debt innovation following the approval of the terms of the judicial reorganization plan. I'd like to remind you that the plan provides for a cash position of BRL 6.188 billion at the end of 2018. This figure takes into account the capital increase of BRL 4 billion and CapEx of BRL 7 billion. Please note that fluctuations up and down were foreseen in 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. In the graph, you can see the orange gross debt which moved up BRL 1.7 billion over March, mainly due to BRL 227 million 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 our new debt as fair value in the first quarter. According to the rules, the fair value adjustment must be measured and recorded upon initial recognition of the debt. 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 debt should be restated by an exchange of the variation for the period and explained below. BRL 269 million in interest on debt. Please bear in mind that we're talking about contractual interest on the face value of each debt.
Thus, from now on, our debt financial expense will have two 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 or a cost of BRL 1 billion in the quarter. It is important to mention that here, 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 already mentioned, this fair value adjustment is made in the currency of the debt, and therefore works as a natural hedge because exchange rate 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 BRL depreciated 16% against the U.S. dollar, which explained 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. The chart 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 million shares on the market. As part of this process, we issue 1.7 billion additional shares, including warrants. For the next capital increase, we expect the issue of another 3.2 billion shares, resulting in a new free float of 5.6 billion shares. Slide 15. I'll describe the next steps of the judicial reorganization process. We completed another step of the process by converting debt into shares within the agreed deadline. Oi has thus reorganized its corporate structure, and now the new shareholders will elect the new board of directors at the extraordinary shareholders meeting scheduled for September the 3rd.
Consolidating a new era 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 BRL 4 billion as soon as possible. As we have already said, this capital increase will be the key driver of CapEx growth in the coming years, which will be directed to investment 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 Eurico for his final remarks.
Thank you, Brandão. I'd like to wrap up our call 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. 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 reorganization plan for the year-end. 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 B2B. These results increase 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 Oi 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 Brandão. Our cash and debt are in line with the amounts in the Judicial Reorganization plan. We reaffirm our commitment to the balance of the indicators. We are happy with the results achieved so far. We're even more motivated to work and complete the Judicial Reorganization plan, carry out the capital increase, implement our CapEx plan, and reap the rewards in revenues. The floor is now open for questions. Thank you for joining us.
We will now begin the question and answer session. I'd like to remind you that questions sent via webcast will be prioritized. To ask a question per phone, please press star one. If at any point your question has been answered, you may remove your question from the queue by pressing pound.
Good morning, everyone. Let's start with our question and answer segment. We have one question per webcast. What are the next steps in the Judicial Reorganization plan now? A very good question. The plan was approved eight months ago. We have completed important steps so far. The approval itself was one of them, accepted by Justice. The P&L that was also approved with all the complexity it has. The plan being accepted in the United States and in the Netherlands. The renegotiation of debt in the new instrument. This is an important delivery in the implementation of the Judicial Reorganization plan. Looking forward, we're stepping into a new phase, a new governance phase. We hope that will be confirmed in the next rather extraordinary shareholders meeting in September with the new board members. All of them are independent.
Looking forward, we have also a challenge to conclude capital increase. We need to register that offer in CVM, which is also innovative. This is more of an end phase of the implementation process. A question that always comes up is, what does the Portuguese decision in court mean? That shouldn't have any consequences. It is important to notice that it was not about the method, it was about the form. We have been working to conclude the recognition in Portugal as well. Portuguese justice understands that it should happen in Brazil, so it's a matter of time. This is a complex situation, as everyone knows. We need to wait for the separate small logistics later that we can continue with our traditional reorganization plan. There's another question also from the webcast platform.
We also want better understanding of the debt report. That's a very technical question. We tried to cover that as we presented the results. Maybe we should try and clarify it a bit better considering how complex this matter is. I think it's important that we talk a little bit about the mechanics behind it. This message is concerning the restructuring process. One of the characteristics of this new debt is that it has got a very long term, a five-year grace period and very low interest rates. Due to IFRS, we need to adjust this instrument fairly. How does the mechanics work? Fundamentally, there are three elements that we will be looking at in the debt report process. The first is the debt update to face value and the conditions negotiated. For example, 80% CDI and 17 years maturity and five-year grace period in Brazilian debt.
The second point is the fair value adjustment. Again, this is extremely technical. We will project the debt and into contractual aspects, and we will discount it at a conceptual incremental capitalization cost that brings us two elements. One 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. These are the three 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 in our website. There will be a spreadsheet that will help you do the math in a way that everyone can understand that a little bit better.
This is actually a new way to understand our debt. Our hedging strategy is also very important. We have been discussing ways to protect our instruments. Of course, in order to build the strategy, there are two aspects or two angles that need to be taken into account, the balance and the cash position or the cash flow rather. There's a high grace period. There are low interest rates, as I already mentioned, we need to take the balance into account, and we always need to protect cash flow. We're discussing that with our board so that we can propose a strategy that can cover all of these elements. This point is still under discussion, and we should soon enough have a definitive strategy. Now we're going on to listen to the questions from the analysts. Susana Salaro from Itaú would like to ask a question. Good morning, everyone.
Thank you for taking my question. Two points here. Can we talk a little bit about our cost dynamics? We can see that there's a significant efficiency gain in marketing and third parties. Do you think that can continue to improve? Marketing is unusually low. Are we going to continue with such a strong position in the future? 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, Susana. 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. It's not only about our commercial costs. We have many sales taking place on the web channel. We're also improving quality, which makes service more stable and reduces complaint lines, 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 two 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. 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 B2B. Hi, Susana. Hello, everyone. This increase in commercial activities in the second quarter should probably have more effect in about six months. After it's been effectively contracted between 30-90 days. The third quarter should show some results already, we believe that the fourth quarter should continue in that direction as well. We really do believe that it's going to continue. Thank you, everyone. The next question is from Daniel Federle from Credit Suisse. My first question is about mobile operations. Seeking to improve quality and all, do you believe that the prices Oi charges in the market, are they going to stay below the competition or is the focus going to maybe monetize the base more, improve quality and improve prices? That's my first question. The second question around landlines.
The strategy to calculate NPV for region is very interesting, I think that competition is a very important variable here. What about FTTH? Is the scenario there very competitive as well? How do you see that with other players like TIM? What do you expect regarding competition? Hello, Daniel. Bernardo will support us to answer your question on mobility. On mobility, we expect to make progress with 4.5G 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 we will not try and increase prices. As for competition, I'll try and complement here this discussion. We talked about our CapEx plan, our NPV approach, and how we put competition within this strategy. How did we build this plan?
We had the granularity point, we had elements that we're taking into account to put together a business plan. There is potential market, competition, and existing infrastructure. For each one of these points in the business plan, we had the whole company involved. We evidently took competition into account. It is different in every market. We have smaller providers, which really were the ones to be the catalyst for growth in the last years. We looked at the high-level competition, which is with prepaid players that operate on a high-end market. The third element was the network quality. These three elements jointly represent the drivers we use for our model.
We are addressing all of the elements we have just mentioned, Alvaro will speak a little bit about our network approach so that we can capture the market we want and be competitive on the several levels we operate in. Good morning, Daniel. In the last three years, considering our constraints regarding investment, we focused all of our effort 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. Now that the 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 or can address the needs of these customers a lot faster. 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. 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. We can do that quite quickly and adequately. 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, in one, two, three years' time, don't you think that the competition may be looking at the same NPV opportunities? It's difficult to answer that question objectively, right? We don't really know our competition's plans in detail. Looking at our plan, what I can say is that we mapped our opportunities quite well, that we have alternatives that will increase speed in going to market. We can move very quickly and address the markets at hand. We had been reacting proactively to any indicator we get from the competition, using this approach that was just mentioned in Cabo Frio. With some expansions of that pilot we used in Cabo Frio to other cities as well, as Bernardo mentioned, we hope to have 19 cities by the end of 2018.
Santander, Valder Nogueira would like to ask a question.
Two questions, quick ones. On slide nine, you spoke about the pilot in Cabo Frio. Piggybacking on Daniel's question, 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 in the region? That's my first question. Thank you, Valdo. Valdo and Bernardo will answer that question. They are working on this project up close. The Cabo Frio pilot 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 local competition in Cabo Frio, we had a good conversion rate.
As for costs, comparing it with the traditional implementation model, we had about 50% reduction in costs, depending on how much we can reuse the existing network, primary, secondary, at that point. If everything works as well as it can, it can get to 50%. It's generally about 30%-50%, the range that we can save. As Bernardo said, we are also looking at price elasticity. Another point in this approach, in the presentation, you spoke about reach and the network, but not much was said, and that is 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 is flowing. How the network is organized, because that was not really mentioned in the presentation.
Also, what the transport cost was, because that is what is going to determine how competitive your offer is. 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 is an excellent question, and I will try and break that answer down into layers. As for our reach, we have a very broad, very far-reaching backbone. In the last three years, we have been building triple approaches in basically every capital. We have a very high far-reaching backbone. We have just entered a partnership with Huawei, and that gives us two 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 reaches that we have in the cities, we have a very good traffic flow capacity. Speaking 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 base and infrastructure are the pillars for us to do anything regarding access. That's why we have focused our energy into this layer.
Our intention is always to be at least two to three years ahead concerning capacity for our core, for transport, and for traffic flow. Having said that, we have no bottleneck. 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 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. They will certainly have bottlenecks that they will need to address. 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. Thank you. Fred Mendes from Bradesco 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 that pose a competition. The costs seem to be ever lower. 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 really the smaller players are growing? Should they become more competitive in the medium term, really? That's my first question. The release says that the pilot project with fiber had a 20% market share.
Can you speak a little bit more about that as well so that we can calculate a few things for other regions?
Thank you, Fred, for your question. Renato and Avel will answer that question. Hello, Fred. Good morning. Specifically as to Cabo Frio, 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 optic 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. We had good returns in that region. Whenever we get to other regions where bigger players are also providing services, we'll have different conversion rates. I wouldn't expect to have the same, really. What will you expect to see in the future?
First of all, these local players, they have different regulation. Their SLAs 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. They should become medium players, not so small, and that's what we'd expect in the future. 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 competition levels and take back the market in regions that we used to provide services for already. All right. Thank you. Maria Tereza de Toledo, UBS, would like to ask a question. My questions have already been answered, but I'd like to hear a little bit more about this infrastructure sharing agreement. Do you see that in landline mobile with TIM?
What kind of opportunities do you see in these agreements with other operators? How does all of that stand, really? Thank you for your question. Cadu will answer that question. He's in charge of wholesale. Good morning, Maria Tereza. Oi sees that as an opportunity, yes. We should exchange with other operators so that we can bear our interest and our wholesale customers' interests in mind. We have the RAN sharing with TIM, but we're also looking at opportunities with other players, with other operators, national or regional players, really. That is in our pipeline for wholesale. In the regulatory agenda, Oi has been exploring the possibilities of sharing as much as possible. The new spectrum use with the 2G for secondary use. That is in our roadmap. That is somehow encouraged by the regulatory agency, and also due to the impact in wholesales.
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, Maria Tereza. We have an asset portfolio. Our focus is now specifically in the assets. Marcelo Santos from J.P. Morgan would like to ask a question.
Good morning. I'd like to hear a bit more details about Cabo Frio, what the economic aspect was like, what the costs were like. I'd like to hear a bit more details from the financial aspect. I think that was a good example of what we could be doing in the future.
Thank you for your question. This is a high point in our agenda. We're very excited about the first results that we have had. I'm going to say what Naval already said.
We expect to reduce between 30%-50% due to the infrastructure that we could reuse in these locations. Alongside this cost reduction, we have the time to market at a 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%-50% reduction in costs considering the traditional approach. Of course, that should be also driven by the speed in which we can implement these structures we have. The second question has to do with the debt. You said that 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% depreciation in the semester could be.
I'd like to see that plan. If you could please send that to me, I'd be very thankful. How do we see debt and the foreign exchange aspects together? Plan 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 three of them. 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 is two rather of these three components. The impact that we have on the debt and the forecast at face value in the contract. I already said that.
We're going to be giving more information around how the calculations are made on the press release and on our website. That we can really include that in the financial model. 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, then they will all be made available to the public in detail on how we thought of it and how it happened this semester, this half. 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. 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 five years grace period, whatever is related to the foreign exchange, and what doesn't have it is bonds and coupons. When all of these elements are looked at, from our perspective, we expect a macroeconomy in the medium to long term are what it is to converge to a more balanced behavior concerning the country's economic growth and so on. In the short term, we have no expectation of paying dividends in our balance in the short term. Our focus is on investment. We have this understanding, and that's going to be discussed at board meetings still. We have the understanding that at this point, we don't need to take a hedge decision on components that will have no impact on the cash flow. Thank you for that, and I hope our country gets back on track. Carlos Sequeira from BTG Pactual has a question.
I have two questions, maybe three. What is the PGMU situation, and what are your expectations around how long it will take for the decree to be published? The capital increase should take place by the end of the year, and that's backstopped by creditors. Why should we not start accelerating CapEx right now? Because we are in a race, really, with the other competition, trying to fight for these smaller cities that don't have such good quality service.
Thank you for your questions. PGMU point will be answered by Cadu, and I will get back to the CapEx plan. As for the PGMU, as far as we know, there are two perspectives. One within the communication ministry. They're analyzing PGMU around part of the total scope based on what Anatel has already assessed. There is also a process going on within Anatel.
That vote took place at the end of the first or second half, I can't recall. That is going hand in hand with PEC. In a sense, the PGMU is on the ministry's and Anatel's agenda. Maybe they'll take place this year, and part of it will. I'd like to remind you that PEC is a structuring program, the public program by Anatel. This other part of the PGMU would be linked to this PEC program progress. As for the second question, the pilot project was so that we could learn more about this new approach. 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.
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. About Africa? I know that it's difficult to say that, but when will that operation be concluded? That's a point that we have to be careful of. I cannot speak about the details of that. As for Africa, 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. Thank you. Thank you, Faruk. We have a question in English now. You may proceed, sir. You may ask your question.
Hi. Sorry. Just two quick questions, please. One, on fiber, again, with the reuse project, what speeds can be achieved, please? Secondly, you talk about 6 million homes passed in the presentation. When will those be active? 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. Thank you.
The first part of the question is reuse with the Cabo Frio project, what speeds we're offering. The second point has to do with the 6 million home passes that we have, and at what point they are going to be available for sale. The second question has to do with the B2B segment, if we can confirm that we expect to have results in this year still, right? Naval and Bernardo will answer the questions. As for the speed, what we have offered in Cabo Frio is 50, 100, and 200 mega. These are the speeds that we'll probably be offering in the project as a whole. As for B2B, as I mentioned, sales have 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. We'll start to see the impacts really, in fact, in the third quarter. In the fourth quarter, as we already have in August, really, we should continue to move at the same pace. We should see that positive impact on revenue in the fourth quarter as well. As for the 6 million new home passed, we plan that by the first half of 2020, we should have our full capacity installed.
Thanks.
At this point, the question and answer session is at an end. Now, Mr. Eurico will make his final remarks.
Thank you all for joining this conference call to discuss our results for the second quarter 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 Oi's project. As I have already said, I'd also like to emphasize that we have been successfully completing all the stages of the traditional reorganization plan. We're now working on the capital increase of 4 billion BRL 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 and customers' experience.
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.