Good morning, ladies and gentlemen. Welcome to TIM Participações 2019 second quarter results conference call. We would like to inform you that this event is being recorded, and all participants will be in a listen-only mode during the company's presentation. There will be a replay for this call on the company's website. After TIM Participações remarks are completed, there will be a question and answer session for participants. At that time, further instructions will be given. We highlight that statements that may be made regarding the projections and goals of TIM Participações constitute the beliefs and assumptions of the company's board of executive officers. Future considerations are not performance warranties. They involve risks, uncertainties, and assumptions as they refer to events that may or may not occur. Investors should understand that internal and external factors to TIM Participações may affect their performance and lead to different results than those planned.
Should any participant need assistance during this call, please press star zero to reach the operator. I'll turn the conference over to the CEO, Mr. Pietro Labriola, so he can present the main message for the second quarter of 2019. Please, Mr. Pietro, you may proceed.
Good morning, everyone, thanks for attending our results conference call. As I stated last quarter, we will put a lot of focus on execution and make some short-term adjustments to regain results momentum. We will also return to our DNA of innovation and agility. I believe that we are achieving this step by step, and during the second quarter, we reported results and achievements which denote we are back on track. I will walk you through the main highlights of second quarter, and then the team will help to answer your questions. In the second quarter, we were able to post solid results despite the external challenges of the slow economic activity and aggressive competition. Service revenues show a slight acceleration in growth, reaching 2.4% year-over-year versus 1% of the last quarter.
We still need to improve to reach our annual guidance, but we are on the right track. We continue to perform very well on the cost side, which combined with better revenues, led to an acceleration in EBITDA as well. Our growth reached 6.2% compared to last year, allowing margin to expand to 37.9%. These solid results were supported by a renewed market approach, always taking advantage of what was already working and changing what needed adjustment. In this context, TIM Black Família was our major launch during the quarter. This step completes our portfolio of mobile offering, increasing our presence in the high-end segment and providing a clearer path for offer upgrades. As we were the last ones to launch a family proposition, we didn't want to just replicate the other players.
That is why we brought the concept of an entertainment tab, which moves away from price competition and helps the upselling process. Actually, even more, we are creating for clients a reason why to upgrade. TIM Black Família is the first offering in Brazil to include the Netflix subscription, and we look forward to enriching our proposal with other content providers in the future. The plan offers all the features a common family plan would offer, as well as music content, e-magazine, e-newspaper, social network, international roaming package with voice and WhatsApp, and expert service. The market response is very interesting. Close to one-third of our gross addition in total postpaid are coming from this family plan.
After a long period out of the media, we launched a new campaign for our control plan, focusing on the key features and making sure that we remain relevant in the minds of clients, while in prepaid, we started a selective and rational response to our competitor with the goal of improving our acquisition rate and top-up levels. In this segment, we are more expensive than the other players, but we are adding features to what they already have. For example, one-week trial period of services and sponsored data. For the latter, we implemented the TIM Ads platform. Our first move in this field, where the most is yet to come. On top of that, we are improving our customer support channels, adding WhatsApp chatbot to prepaid users.
The combination of this action with other execution adjustment in the B2B segment is helping us to sustain solid mobile ARPU growth of 5.8% year-over-year, with postpaid, excluding machine-to-machine, declining 1.9% and prepaid growing 2.9%. Customer base dynamics remain healthy with postpaid, excluding machine-to-machine, up by 4.8% and prepaid data user at nearly 22%. This last number denotes an interesting change in the profile of our customer base as we leave the position of champions of the second SIM and become the first or unique SIM in more and more customers. Mobile has been a game of resilience. As I have described, we are adjusting our go-to-market to help accelerate growth in the second half. We look forward to a more rational competitive environment and a better economy as reforms are advancing.
One of the main highlights of our business is TIM Live, which continue to show strong momentum. In the second quarter, growth was once again driven by a combination of high single-digit ARPU expansion and a solid double-digit customer base expansion. This represented an important milestone, with TIM Live surpassing 500,000 customers. As a result, TIM Live revenues grew more than 50% compared to the last year. Since the first quarter, our FTTH rollout has been below our expected expansion rate, as we had to focus on addressing some issue with contractors in certain regions and tweaking field staff processes. We understand that the major adjustments were completing during the second quarter. That is why we were able to close the quarter with five additional cities with FTTH, reaching 17 in total.
We are now covering 1.6 million households. We should accelerate in the third quarter to offset the delays between January and May. Since the last quarter, I started to point out that we will look into other sources of revenue. I want to update you on some of the key initiatives we are working on outside the B2C world. We're exploring more and more Internet of Things solution. I commented last quarter about the ConectarAGRO initiative, in which TIM is promoting 4G technology on 700 megahertz in the countryside of Brazil and partnering with major names in the country's agribusiness segment. This quarter, we completed the migration of the machine-to-machine base of Porto Conecta, an MVNO that used to run over our network. Along with lines, we also bring expertise and system from the operation.
The last but not least, we are developing partnership for connected car application. We hope to have news pretty soon on this topic. Importantly, this vertical also offer opportunities for cross and upselling consumer and B2B products. While being financially small today, the combined effect can be relevant in the next two or three years. To support all of that, we need to evolve our infrastructure, and we are working on several fronts. In mobile network, for example, our 4G coverage continue to expand, driven by 700 megahertz rollout. We are covering more than 1,500 cities with this band, at the same time as our 4.5G coverage, which more than 57% of urban population. We continue to gain additional capacity with our spectral farming project at 1.8 and 2.1 gigahertz.
As a result, our 4G network is the largest, most available, and has the lowest latency in the country, bringing a high-level experience to our customers. Still, on the mobile network front, we are starting to implement techniques on our 4G network that were originally designed for 5G, and we are having a lot of success. Our tests show that Massive MIMO can boost capacity by two to three times under real conditions. On the fiber side, we are expanding our transport network to support both the mobile business and the FTTH rollout. In the past 12 months, we have increased high-capacity backhaul penetration by 5 percentage points, reaching almost 70% of our sites. FTTH coverage also expanded significantly. We are now covering four times more households. As you probably saw last week, we signed a memorandum of understanding with Vivo to explore different initiatives to share infrastructure.
The goals of such discussion are to find opportunities for both companies to work together to improve customer experience while having more efficient spending of CapEx and OpEx, shifting resources to where the customer are most benefited. We will focus our discussion in the 2G single grid, LTE at 700 megahertz in most cities, which may be expanded later. We will also discuss other technology, bands in other operation and maintenance initiatives. We think this is the right path for smart telcos. The fourth element of this equation is information technology. The first half was a period of major development for our system. We know this may create some instability at first, but they are certainly a fundamental basis for the evolution of the company. We implemented a new Internet of Things platform connected to our network. We finished the migration of the machine-to-machine management system of Porto Seguro Conecta.
On the network virtualization front, we signed a new contract to implement 57 data centers through 2021, and we have completed the delivery of new charging and billing features to support new products and customer care activities. The progress of our infrastructure is key for pursuing high-level customer experience and self-satisfaction. That is why we need to solve issue of today while preparing for the future. Having this in mind, this quarter, TIM was the first operator in Brazil to initiate 5G tests on real life network in 3.5 gigahertz band. We are testing in three different locations with three different vendors. We are conducting trials with technology institute to evaluate different products, solutions, and new business models, and to develop reference center on this new technology. The development of our infrastructure has been a key element to transform the company in many areas.
The digitalization process, for instance, is helping to change significantly client experience and improve satisfaction at the same time as it positively impacts our OpEx. Our digital transformation program attacks four major fronts: carrying, billing and payment, acquisition of clients, and prepaid recharges. In all of them, we are delivering strong evolution, which helps to capture the savings forecasted in our efficiency plan of BRL 1.2 billion between 2019 and 2021. The right implementation of both is generating robust savings. In the first half, they reach around BRL 350 million. This led normalized OpEx to remain stable in the quarter and during the first six months of 2019. Despite the overall positive dynamics in cost and regardless of staying at 3% of gross revenue, bad debt still represents a challenge.
To put it into perspective, excluding bad debt, our normalized OpEx would have decreased by 2.1% year-over-year. Our expectation is that we reach an inflection point in this line during the second half of 2019. Moving on the other financial highlights. As I pointed out earlier, despite a tough macroeconomic environment and competitive landscape, the company was able to accelerate revenue growth when compared to the previous quarter. In the second quarter, top line grew 2.4% year-over-year. The acceleration compared to the first quarter was mainly driven by mobile revenues, which grew 1.3% combined with the low double-digit fixed revenue expansion, mostly reflecting TIM Live growth. Mobile service revenue performance was driven by ARPU dynamics, as I mentioned before, showing a solid mid-single digit growth. This resilience is a consequence of the expansion of a high-value customer base.
Postpaid lines now represent close to 40% of the customer base, while postpaid revenues represent 66%. Despite this, it's important to realize that we do not expect prepaid to reach zero. We believe that Brazil will always have a significant portion of revenue and base in this segment. Both segments are helping to produce a slightly better performance. Postpaid revenues 5% year-over-year, while prepaid slowed its double-digit decline in the first quarter to a single digit in the second quarter. As described until now, our solid execution led to resilient revenues and controlled costs that combined resulted in an EBITDA expansion of more than 6%. Once again, a record number for a second quarter EBITDA margin increased by 140 basis points to another record of 37.9%. In the second quarter, we posted a normalized net income of BRL 423 million, 27% higher year-over-year.
EBITDA minus CapEx increased by 24.1% to reach 60% of total revenue, while net financial position decreased by about BRL 640 million in the last 12 months, leading to a leverage of 0.4 times net debt to EBITDA. In conclusion, we delivered a consistent first half that put us in a position to reach our annual targets. On top of that, our tax disputes related to PIS and COFINS received favorable final court decision, unlocking BRL 3.4 billion in tax credits, of which BRL 2.9 billion was booked this quarter. Our board also approved the distribution of BRL 317 million in interest on equity, and we are expecting to reach nearly BRL 1 billion in distribution. We will continue to focus in execution while we look for opportunities to accelerate value creation in the second half of the year that we expect to present a more positive external environment. Thank you.
We will now open the floor for questions. Please, operator.
Thank you, Mr. Pietro. Now we will begin the Q&A section. First, we will take questions from analysts, followed by the journalists, both in English. We ask each participant to restrict himself to two questions at a time. To ask a question, please press star one, and to remove the question from the list, press star two. The first question comes from Susana Salaru from Itaú. Susana, you may proceed.
Hi guys. Thank you for taking our questions. We have two. The first one is related to bad debt. What are the initiatives that are being taken to improve collections or to reduce the bad debt? That would be our first question. Second, I know, Pietro, that you mentioned, but I couldn't actually fully understand the mobile service revenue trend for the second half of the year. If I understood correctly, you expect it to accelerate. I guess, if you could elaborate on that, if that's the case, if I understood correctly, and what would be the drivers for the acceleration? Thank you.
Hi, Susana. Thank you. As we stated also in the previous call, we expect related to the first question, that is bad debt. As we already mentioned in the call of the first quarter, we expect to improve our bad debt level in the second half. For sure, we are not satisfied about the level that we have today, and due to the fact that we are optimistic, usually we see the area where we are not performing at the top as the area where we can have a better level of performance in the future and opportunity. What we expect with the action that we put in place, that we described also in the previous quarter, we expect an improvement on this area. For sure, we are trying also to work better on the marketing side.
Keep in mind that this is a country where we reach a penetration of postpaid as overall market of 108 million postpaid customers. What is happening today that is important also to start to manage. Let me say, the customer that has the boundary between control and prepaid in a different way. What we did at that, we have launched at the beginning of July, also a new offer that is a kind of controller with payment in advance that allow also to control better the risk on the credit when we have already reached in the market a net penetration of postpaid. I take also the opportunity to explain better also what can happen on the revenue. I'm quite sure that when you tell that market has reached 108 million postpaid customers, someone think that there's no more growth in the market. This is not the truth.
We have to work in the meantime on all the areas. First of all, the growth of mobile revenues, and so I can answer to you also related to the second question, is coming first of all from the upselling intra-plan. What we mean, we can upgrade controller customer to postpaid, and we are upgrading postpaid customer to higher ARPU offer. This is one of the reason why or the TIM Black Família offer that allow to increase the ARPU of our customer. We have to continue to work on the controller as we are doing today in a rational way without push too much price because should be irrational and will never drive a huge increase in terms of elasticity in the volume. We have to work on other two elements.
The first one, as I was mentioning to you, that is the boundary between control and prepaid, where there are customers that have willingness to pay BRL 40, but that can have some risk. In this area, a control offer with a payment in advance could help. While on the prepaid, and this is the good news, the recharges of July are flat compared to the recharges of May. We are starting to rebound our prepaid base. All in all these elements will help us to continue to grow mobile revenues. In the July number, we already see an improvement also in the revenues of the postpaid.
Great. Thank you. Very clear.
Our next question comes from Diego Aragão, Goldman Sachs. Mr. Diego, you may proceed.
Hi. Good morning, guys. Thank you for taking my question. Regarding the MOU sign up with Vivo, what can you share with us, regarding the potential savings, in OpEx and CapEx in both 2G and 4G technologies? Thank you.
Diego, it's too early to give numbers. We got a commitment to work for the next 90 days. On our side, Leo Capdeville that you know very well, that is our CTIO, will lead the project, and we hope to come back in the result of next quarter with some numbers, some more details. What is important to say is that we think that this is the right path. Network sharing at this level could allow to improve the level of efficiency of our network and further develop our investment in area that will improve the customer experience of our customer base.
Okay. Thank you, Pietro. My second question, if I may, is regarding your cash flow profile. We are clearly seeing some great improvements on your cash flow. As you mentioned, the balanced CapEx is growing more than 20% year-on-year, and now you are guiding to distribute BRL 1 billion in IoC this year. This marks a great improvement compared to three years ago. My question is, how prepared are you to pursue further in market consolidation if some opportunity is presented? For instance, Oi recently stated that they can explore all strategic options to maximize their shareholder value in the mobile business. In a hypothetical scenario where this asset is available, how prepared are you to pursue a further consolidation? Thank you.
Hi, Diego. If I can joke, the sentence, we are exploring all the possible options to increase shareholder value, it seems a slogan, because if I'm not wrong, it was the same sentence that was used by Vivo in the conference call. Again, come back to the reality. What is happening is that we are entering in a period in which we have good opportunity because several things are happening at the same time. The MOU with Vivo is giving us an opportunity to further improve our capacity to continue to increase our network quality in an efficient way. The fact that we are going to have a bid for new frequency allow us to do evaluation on what can be and can make sense for us.
At any time, the market consolidation that it seems will happen, is giving us the opportunity to have not just one choice, but to have the possibility to choose. We are preparing the financial of our company to be able, exactly as you mentioned, to explore all the opportunities that can increase, for our shareholder, the value of our company. It will be an interesting period of time. The second half, I think that will give us a lot of surprise.
That's helpful, Pietro. Thank you.
Our next question comes from Fred Mendes, Bradesco. Mr. Fred, you may proceed.
Good morning, everyone. Thanks for the call. I have two questions as well. The first question is on the revenue front. I just want to get a better understanding about the line, all the revenues, especially, I am not sure if you give me this number, but if you could, any color on about the cancellations, the revenue from cancellations on this line, this would be great. That is my first question. On the second question, I think is more broad, but Pietro, what is the strategy of TIM today? In the past, it was really clear the company was focusing on improving its network and upselling to our base. Today it looks like you are much more restricted on this upselling, also because of the impact on our bad debt.
Just trying to understand, TIM today will be focusing more on the prepaid clients, especially as SIM pre-top is gaining relevance. Are you continuing to focus on increasing your postpaid base in ways? Where are you turning today, let's say, TIM for next one or two years? Thank you.
Hi, Fred. Thank you. About other revenues, in the other revenues line, we have a drop that is something that is for us also really important because it helps us in terms of cash flow. It's an important accelerator in terms of our network development. It is very helpful on both sides. Let's remember, in any case, that we continue to post a real very good profitability number. On the EBITDA, we reached 37.9%. On the other point, that is more related to strategy that help also, again, to explain better what we can expect in the future. What we are doing, if I can tell, let me say a slogan. We are discontinuing in continuity. What I mean? For sure, the strategy of continue to upsell prepaid customer base to postpaid is no more the only mantra of our company. What we are going to do?
On the telco, I'll tell you something related to adjacencies. On the traditional services, what we have to do is that we have to work very well on the quality. We have to increase our level of service on the postpaid, trying to create a better continuity of the offer to continue to convince our controlled customer to move to the postpaid. The creation of Plano Família was made to put something more on the postpaid to convince our customer base to migrate from control to postpaid. Just to give you some idea. On the postpaid Plano Família offer, that will be also put on the other TIM Black postpaid offer, we have functionality as rollover or the possibility to have direct access to a human attendant. Why that?
We have to justify for the customer why they should move from BRL 50 or BRL 60 of control to postpaid. This is the part that we were mentioning related to intra-plan migration. On the control, we have to continue to migrate our customer base from prepaid to control. It's clear that I can tell you that the volume that we reached in the past cannot be maintained. We have to work in a different way, trying to reduce the level of risk on bad debt, working also with new kind of offer, as I mentioned before, where the payment is up front. Last but not least, on the prepaid segment, where we have to continue to work with because we have a huge opportunity over to uplift with the consolidation of the second SIM in our customer.
On top of that, we have to consider that there are areas that we are going to develop, and then we will discuss more in the end of the year for the next year plan. We are working to understand the opportunity that arise from mobile advertising and financial services. I don't have to mention to you as other player, our competitor, having this area revenues between BRL 120 million. I'm not telling that I can reach this amount of money in one month, but it show you that there are opportunity also in this area. All in all, we have to continue to execute very well on the traditional services with something that is no more just one action, but it's three, four action in the meantime.
We have to improve all the quality and the performance in our customer base, because the name of the game will be churn reduction, and we have to start to explore also adjacencies, as you mentioned, financial services, mobile advertising, Internet of Things. In the medium long run, we have to evaluate also the opportunity that can arise from fixed wireless access, because I think that we are the operator that is positioned in the best condition to exploit this kind of opportunity, being the operator with the lowest level of legacy on fixed network.
Just to confirm. Hi, Adrian. On your first question related to others, as Pietro was mentioning, the main portion of these other revenues are related to network sharing, and mostly in this case of the second quarter, to swaps. As we already discussed this in the past, swap for us, it's also very important. It's not only a source of revenues. Most of all, it's a source of efficiency in terms both of CapEx and OpEx, and also in terms of timing, because these swaps bring us additional, for example, fiber coverage, that if we need to construct it will take a long period of time. Just to give you an idea, the importance of this also this source of revenues for us. Probably we'll see also in the future in different quarters some jumps in terms of the other revenues, mostly related to swap.
On the other hand, you have the rent sharing agreements that we have. Those are more stable revenues. Again, just to underline the importance of this guide.
Perfect, Adrian and Pietro. Very clear. Just if you allow me, I want to just follow up here on the same front. Basically here is, you are investing mostly on infrastructure, 99% of your CapEx is going on that way. When you are modeling here, it makes sense to believe that, with a better infrastructure, the other players will use more of your network, and then of course, this line should continue to go up. As the information, I'm assuming, at the margin of this line is relatively similar to selling plans on the B2C. It should not have a major change as this line increase in the future. It should not have a major change in margin. Is it correct?
I'm not sure if I got correctly your question. Relating in terms of margin, as you know, clearly these revenues have very low margins. What brings you is additional efficiencies, mainly on CapEx and on future OpEx. Clearly we are improving on infrastructure. These are additional fiber coverage that we have, and those we sell to other operators. Just remember that each operator uses a small portion of a fiber deployment. It's always important to have these network sharing. You saw that there are a lot of movements in the last years related to network sharing. It's imperative for the operators to be much more efficient in the use of infrastructure. Everything is related.
Perfect. Thanks, Adrian. Thank you very much.
Our next question comes from Mathieu Robilliard by Barclays. Mr. Mathieu, you may proceed. Mr. Mathieu, your line is open. Our next question comes from Valder Nogueira, Santander. Mr. Valder, you may proceed.
Thank you. Good morning, guys. One first quick question. How much of the pace of postpaid has been curbed by what's happening in the bad debt side? Are you more cautious? You mentioned, Pietro, that you were working on the customers that were on the boundaries of the two plans, but how much has bad debt curbed you? That's the first question.
Hi, Valder. Part of the bad debt is related exactly for what you mentioned. We are more cautious. Just to give you an idea about what's happening usually, you have the acquisition, then the customer that can generate bad debt appears in terms of cancellation, mainly after six months, and the bad debt continue to generate effect in nine months. This is the reason for which we are forecasting an inflection rate in the second half. What we are doing is that we are doing some fine-tuning in our strategy. We are not doing a breakthrough, but it's something that makes a lot of sense to further improve our financials overall. This is the reason for which we expect also weak net debts in the third quarter that will not impact our achievement in terms of revenues and margin.
Again, differently from what's happened in the past, we are able to manage the transition without generating impact in our numbers.
Okay. Thank you for the answer. Second question is, lots have been said, some M&As are happening on the spectrum side. We have an upcoming 5G auction, we also have some frequencies come due, some already beginning next year and some in 2023. How do you play out your spectrum capacity vis-a-vis the spectrums that are coming due, not only of competitors but yours, the possibilities that you have to do M&A involving the spectrum from other players? How concerned are you with the renewal of the existing mobile licenses and at which cost?
Okay. Valder, I leave the stage to Mario.
Okay.
In any case, just as a strategic view, as we mentioned before, we want to state that we are entering in a period of time where acting in a clever and rational way, we have more opportunity to improve our position compared to what was happening in the past. I leave Mario to better.
Yes. Thank you for the question. Probably, you can imagine this issue, but with three dimensions. First of all, of course, you will have, in some point of time next year probably, a new spectrum available. This is not only 5G spectrum because there will be also the 700 megahertz spectrum that is typically 4G. The 700 megahertz is 2.3.5, and millimetric spectrum. On the other side, today you have a lot of agreements among players in specific areas to share spectrum that increase also the capacity of the system to manage these scarce resource. Then, the third point you had, I don't remember.
Renewal.
The license. Yes, the license. The license is, of course, one of the key pillars of the PLC 79. The PLC 79, that of course, is fundamental for the sector as the fixed concession side and as the mobile successive renewable side that we expect will be approved this year, because it's something, of course, that from a regulatory point of view is needed by the sector as a whole. The PLC 79 for the renewal, spectrum sharing for efficiency, and the new spectrum for the next year.
Okay. Still on that question, Mario, do you have an expectation, assuming that the PLC 79 may be approved, okay? Assuming that is approved, it comes with it the ability to renew the license. Has there been any consideration of at which cost this renewal will take place?
The reference we have today is the cost that we have today for the renewal that is 1% per year of the net revenues related to that spectrum. I think that the good news could be the fact that today, this is a cash out. In the new scheme, we could have, for example, a pay-or-play possibility, not to cash out this value, but to invest this value in those coverages of the less favored areas. We think that the value reference, we think is more or less the reference that we have today. The idea is to consider it as an additional CapEx possibility.
Okay. This is an angle that I believe is not properly explored, to revert that money into coverage.
Yes.
Are you confident that that can fly?
Pardon?
Are you confident that this possibility could fly?
Yes. This is what we are discussing at legislative level. This is clear. The basis of the PLC 79 is that all the resources created by PLC 79 will be available for the coverage that the country needs. We think that also for the spectrum, we will have this new arrangement.
Okay. This was just clarification. Thank you.
Okay.
Valder, it's Leonardo. Just complementing some part of this spectrum strategy. As Mario said, we are focusing, let's say, three main pillars. The focus is about a new spectrum. You are right, we have an auction ahead. So important as that, with the PLC 79, we have the spectrum trade. Maybe some opportunity can come from this line. The second is the opportunity that we are facing from the sharing agreement. Remember that in the past, we have agreement for run sharing with Oi, and we, let's say, make an upside of the run sharing from more run to more clients. It's used the spectrum sharing in a more advanced way. The third, so important as that, is that the technology is suffering a very, let's say, optimistic incremental for efficient users of the spectrum.
On that, I'd like to highlight that we were the third company, let's say, in the world to test the new technology for Massive MIMO in 4G in our network. The result was very interesting. Just to point a number, we have two, three times more capacity on the same spectrum using this kind of Massive MIMO. This is a technology that is native from a 5G round, and what some vendors are doing is to anticipate this technology, Massive MIMO, on 4G. We are seeing that on this front, we have a very interesting opportunity to increase our capacity using the existing spectrum. Okay.
Thank you, Leo. Always refreshing hearing you.
Our next question comes from Marcelo Santos from JPMorgan. Mr. Marcelo, you may proceed.
Hi. Good morning. Thanks for taking the questions. I have two. The first one is if you could comment a little bit more on how much space more do you see to gain margins on digitalization initiatives? You have several indicators that you put there that shows two space to grow. The second question would be regarding TIM Fiber. What have been the main hurdles to grow? Is it the sales team? Is it competition? Is it personnel to install the equipment? I know you're growing fast, but what prevents you from growing even faster? These are the two questions.
Thank you, Marcelo. About digitalization initiatives, we think that we have still good rooms of improvement. Just to give you an idea, we have closed, I think yesterday or the day before yesterday, a bid internal to move part of our customer care IVR functionalities to artificial intelligence functionalities. I think that we will be that in place by September, October, and it will allow us to have a further acceleration on the digitalization of the cost of our customer care. In the meantime, starting from, just to give you an idea, we change also our IVR system. I don't want to go too much in detail, but just to give you idea that is not a slogan, but is the truth.
We are changing our IVR system for the prepaid. In the B2B, where we were able already to do that, our capability to have automatized interaction with our customer base moved from 69% to 75%. This gives you an idea of what we are going. We expect to move all our segment with this automatized IVR again by the end of the year. The automatization is not only on the customer care. We are working also to better understand all the activities today are still human intensive because for the next year, we are imagining to have specific project to work with artificial intelligence in the area where we have seen a lot of activities that are human intensive. We still have good possibility of improvement also on the recharge, where we have already reached a good level. We think that we can move forward.
I think that in the next quarter, we will present also a new concept of a project in Germany, is so-called Naked SIM, that could further accelerate our capacity to be efficient using digitalization. Related to TIM Fiber, what happened was that among some of the different players that we're using as for maintenance and delivery, we had a company that was unable to perform. What's happened that we had to change, and change this kind of company takes time. In fact, the issue today was mainly related not to our commercial performance because we have reached the highest level of gross adds, but was more related to the level of service that we were guaranteeing due to this problem.
In the meantime, another factor that obliged us to decelerate was that in some cities, exactly that has happened also for the mobile to put new antenna, we had problems to use the poles to put our fiber. The lessons learned on our side was that we have increased, we have doubled the number of projects that we have to manage because in this way, we are able to, if there is a rejection of 50%, we are able to, in any case, deliver what we have in the plan. We are quite sure about that because in the third quarter, we are recovering the part of the gap that was generating the first half, and we are sure about that because we already started installation, and the main part, the main bottleneck that was the bureaucratic authorization, was already passed.
Perfect. Thank you very much.
Our next question comes from Maria Tereza Azevedo from UBS. Mrs. Maria, you may proceed.
Hi, everyone. Thanks for the call and for taking the questions. I still have two questions on my side. Following up on the previous CapEx question, if you could please comment on how disruptive do you think 5G is going to be to your strategy, if you're expecting more gradual rollout, if you see any disruptive CapEx cycle out of it, if it's going to be more focused on B2B initially? In the past, you were very vocal about WTTX and fixed wireless broadband. How important do you think that's going to be for your 5G and residential strategy going forward? That'll be my first question. Thank you.
Okay. Thank you. Maria, I assume in some way try to answer both the question. The second question was related to WTTX. WTTX is how much is important also in our future strategy. This is also confirm what I told before. We see in this market a huge opportunity coming from fixed wireless access. The activity that we put in place with WTTX was very useful for us because it's allowing us to better understand how to manage this kind of business that is not complex as a fixed line business in terms of delivery and all this kind of stuff. In any case, it's not exactly the same to sell a SIM in a shop, and it is very useful.
I think that also the position of some of the other players related to the 5G is also related to the fact that they see 5G as fixed wireless access as a threat to their business model. Related to the CapEx and the 5G, we do not image a disruptive approach, but it's more a gradual approach in the development. It's clear that it's too early to try to understand better the level of CapEx and all this kind of stuff, because it's important to understand better from what will be published by Anatel with the public hearing, that will allow us to have a better understanding about what can be done.
What I told you is exactly the position of SindiTelebrasil, the position of all the operators, that don't want an approach that could drive a huge amount of CapEx up front and with the gradual development of data. I don't know if I was able to answer to your questions.
Perfect. No, that's very good. My second question would be on competition. You advocated in the past that the entire industry should take a step back in terms of aggressive zero-rating offers. How rational do you see your competitors on that front? Do you expect rationality to improve both in terms of pricing, but also in terms of bundles and zero-rating apps?
Now, I can tell you that what we are experiencing is that with some small exception, but I see Claro, Vivo, more rational, and so more on the same line of us. The two players that must be controlled in terms of rationality are Nextel and Oi. Why? Nextel is very aggressive in below the line offer, and you understand that also looking at the balance of the mobile number portability. They are very aggressive also in the acquisition. That is something always risky in terms of the debt. Again, we think that is a momentum because it's very difficult to take that place with that amount of giga with that kind of network. Makes no sense to react in an irrational way. We starting to see some irrationality on the Oi side, but I think that it's quite understandable.
I don't think that is a strategy that can be sustainable in medium, long run. Yesterday on the TV, I saw an offer, it's BRL 99, 50 giga. I don't have to tell you how is the network of some players to understand that this is something that is sustainable in the short run for a small number of customers. I continue to see rationality and perhaps market consolidation will help to continue with this rationality that will help everybody to improve the quality of service for our customer and to increase the quality of the network throughout the country.
Perfect. Thank you very much.
Our next question comes from Alejandro Lavin from Citigroup. Mr. Alejandro, you may proceed.
Thank you. Hi, good morning. Thanks for taking my question. Just a couple of quick questions on your guidance for this year. The first one would be just to confirm you are still confident on reaching all your targets for this year, and the second is, would this be possible with the current pace of GDP growth, or would you expect, or would you need an acceleration in GDP in the second half to get there? Thank you.
Okay. I think that is important to relate exactly what you mentioned in the beginning. Our guidance was built with a GDP expectation that was 2.5%. We continue to restate that we are confident to reach our guidance in a tough environment. We hope also that the improvement that will be more, let me say, psychological, because the impact of the pension reform will not generate a flow of money in Brazil in the second half. Will generate a psychological impact that could restart the willingness to spend by customer. Again, we are confident to reach our guidance also in this kind of environment that was changed compared to the beginning of the year.
Okay, understood. Thank you.
Without any more questions from analysts, we will now start the Q&A session with the press.
This is Vicente Ferreira. The first question comes from Ana, from Convergência Digital. The question is like this, could you detail the new contract to implement the 37 new data centers till 2021 in a moment where your rivals are scaling down from those activities?
It's Leonardo Capdeville talking. In fact, we needed to highlight that we are talking about different data centers here. The data centers that our competitor is scaling now is about the old one, this kind of biggest data center and more focused on IT. The new data center that we are talking here in TIM is about the evolution for the virtualization of the core on the network. It is smaller and is more applied for a future topology that will be very necessary for the 5G. Because in the 5G, we will need to have more, let's say, power computing and more content delivery on the edge to use at maximum the low latency the technology came. One important point to highlight is that now we are testing in a three different region, the 5G in Brazil.
One is one fit in the south, other in southeast, and other in northeast. The way that we are doing that is exactly use this kind of a new concept of topology and in a virtualization core and a content cache. With that, we can deliver a very important quality over the 5G. The idea here is to increase this presence. Remember that in Brazil, we are talking about a country with some kind of a continental territory, so it's very important for the customer experience that we have more on the edge, this power, capacity, and the content.
The second question comes from Miriam from TeleSíntese, and she'd like to know about the MOU with Vivo and if in this MOU we'll have as well sharing of frequencies.
Hi, Miriam. It's Leonardo again. In fact, the MOU with Vivo is focused on to have the most efficient, let's say, investment and use data for the best customer quality and experience. I guess that the details will be in the end of this working. We have 90 days to conclude that. It's possible that we use this kind of spectrum sharing. Again, this is not new. We already did that with Oi in 2.6 gigahertz. It is a kind of discussion that a technical group will have to present the best way to use the spectrum.
The last question coming from the press is from Mr. Alexandre Melo, Valor Econômico. He would like to know if understanding on the sharing of infrastructure as a more advanced way means that in the coming auctions TIM and the other operators will proceed in forming a consortium to make bids together on the slots that are going to be sold by the government.
Thank you, Alexandre. Mario Girasole speaking. The participation options in a bid are written in the rules of the bid. We don't know what will be these rules. In general, for the experience of the past bids, the consortium option was not an option from a regulatory point of view. At the same time, in particular, the 4G bids, the 2.5 and 700 megahertz, create some incentives in network sharing to implement the network. That is what we did since 2013. We are trying to put as a business practice in the last three years.
Ladies and gentlemen, without any more questions, I am returning to Mr. Pietro Labriola for his final remarks. Please, Mr. Pietro, you may proceed.
Thank you. I want to reiterate what I said during our last conference call. TIM Brasil has strong fundamentals, and we are in a position to take full advantage of the economic recovery that should accelerate in the second half into 2020. With the go-to-market adjustment we are implementing, as we return to our DNA, we are already regaining momentum. The road will be bumpy, but we are back to the right track. Before we conclude this call, I'd like to say we have two great addition to our team that I'm sure will contribute significantly to our business. Mr. Alberto Griselli has joined us on the executive team as Chief Revenue Officer, with over 15 years in consulting firms. Mrs. Flavia Bittencourt as Independent Board Member with many years of experience in telecom, banking, private equity, and consumer goods.
Thank you once again for participating in our conference call. Have a great day, and I hope we can meet soon.
Thus, we conclude the second quarter of 2019 conference call of TIM Participações. Your lines can be disconnected from now on. For further information and details of the company, please access our website, ri.tim.com.br. Thank you.