Good afternoon, ladies and gentlemen, and welcome to TIM Participações 2018 fourth quarter results conference call. We would like to inform you that this event is being recorded. All participants will be in listen-only mode during the company's presentation. There will be a replay of 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 prospects, projections, and goals of TIM Participações constitute the beliefs and assumptions of the company's board of executive officers. These considerations are not performance warranties. They involve risks, uncertainties, and assumptions. They refer to events that may or may not occur. Investors should understand that internal and external factors affecting Participações may affect their performance and lead to different results than those planned.
Should any participants need assistance during this call, please press star zero for each operator. Now, I'll turn the conference over to the CEO, Mr. Sami Foguel. He can present the main messages for the fourth quarter of 2018. Please, Mr. Sami, you may proceed.
Good afternoon, everyone, and thanks for attending our conference call. Sorry for having our call right after our competitor. This was the only possible regimen this time around. I hope you had the chance to grab a bite before connecting. The opportunity to discuss my vision of evolution, building on a strong base to become the best operator in Brazil. The one customers love the most, the one with the highest engagement level of employees, and the one with the highest returns to its shareholders. As we transform our base with more exposure to postpaid, an entire new set of capabilities are under refinement. From credit and collections to billing to digital and physical distribution, acquiring, logistics. Under the surface, a revised set of capabilities are being put in place. That only signals the long-term potential we have ahead of us.
I'm pleased to be here today celebrating strong results. We called 2018 in a very solid way. Our focus on execution enabled us to deliver record-high numbers for EBITDA and margin. To then generate solid cash while continuing to invest in our infrastructure. All this amid an acceleration of mobile revenues in 4Q, with great growth trends in TIM Live. We delivered our 2018 targets. We are able to overcome obstacles imposed by much slower economic growth than originally expected in a much tougher competitive environment. Our 2018 annual plan was based on assumptions that began to turn in May. We hope that for 2019, those two components will pose less of a challenge. Even if there are no improvements, we are confident we can sustain positive results.
Going specifically to the fourth quarter, our EBITDA grew close to 6%, with margin soaring to 42%, the highest margin in the history of our company. Our MSR growth accelerated to 3.6% year-on-year, and TIM Live maintained its strong revenue growth trend, expanding more than 35%. The solid 4Q led to strong numbers for the year. EBITDA grew above 10%, and the margin expanding to about 39%. This drove EBITDA minus CapEx to BRL 2.6 billion in 2018, reaching more than 15% over sales, while net cash flow reached BRL 1.2 billion. Sales revenue growth reached almost 5% with the contribution of mobile and TIM Live. The dynamics in both businesses reflected double-digit ARPU expansion and resilient growth in high-value offers. Mobile is the largest portion of our revenues and network challenge has become more pronounced since May.
In prepaid, for instance, we had to deal with aggressive offers from competitors, hindering a rational approach to the market. Far, we have been able to avoid a price war, we have been focused on managing the natural slowdown in prepaid while we continue with the upselling process. Prepaid ARPU stood flat in 2018, supported by an average recharge that grew quarter-over-quarter. Our apps are becoming more digital, which is an important element for cost reduction. We've seen recharge penetration increased by 5%, reaching more than 30% of the total. At the end of last year, we introduced a new concept in prepaid to simplify the existing offer, facilitating customer understanding of their consumption while increasing their commitment. The new product is called TIM Pré TOP. This innovative product links the recharge directly to the service package.
The client always knows what BRL 1 of recharge will provide in benefits. We expect this approach to address customer concerns on transparency and interface, therefore improving customer experience. During the fourth quarter, we kept executing our multi-segmentation migration strategy. Press control to control to pure. Adjusting the way we target our base for this upselling movement to maintain growth with quality and profitability. We also took steps to increase loyalty, using lock-in offers both in pure postpaid and in control. Working offers in this sub-segment as a percentage of the gross additional represented 56% and 18%, respectively. We expect this to help the long-term churn levels and reduce the impact of competitive threats. We also had to dodge price competition movements in postpaid. To counter this, we combined innovative offers and cheaper restrictions to register a resilient postpaid ARPU.
We expect that the recently announced price increase in postpaid can set the tone for 2019, depicting an environment with less price competition pressure. The industry should compete on service, products, innovation, quality, channels. That's what will deliver long-term return on investment for our shareholders. This will also drive positive impact with more and better service, client satisfaction, investments, coverage, employment, and growth. The net effect of navigating well through turbulent skies of the mobile market led us to total ARPU of BRL 32.4, with strong growth of 11.3% year-on-year. The postpaid base represents 36% of total, reaching December more than 20 million clients and yielding a growth of almost 14% versus December 2017. 4G adoption was also very strong, growing 25% year-on-year and reaching more than 60% of the base.
If the mobile operation was marked by its resilient performance, on the fixed business front, we keep having outstanding results in TIM Live. During the fourth quarter, we reached 14 cities with ultra-broadband service, of which in nine we have rolled out FTTH. The geographical expansion boosted coverage to a total of 4.3 million households and helped us post solid net adds of 75,000 clients, two-thirds of which are connected by fiber. Following the expansion, our base reached almost 470,000 customers, a 20% increase year-on-year. The combination of high speed and streaming content is pushing the mix of sales towards high-value offers. 40% of our clients have signed up for higher than 100 mega connections. This is driving strong ARPU performance, which grew 14% year-on-year in the fourth quarter. Double-digit growth rates for the base and ARPU led TIM Live revenues to grow more than 35% year-on-year.
This performance lifts TIM Live to become the largest portion of fixed revenues in 4Q. TIM Live is proving to be a great opportunity and an important stream of revenue. Looking forward, we will maintain our controlled growth approach, perfecting execution, and making sure our path is sustainable. Building a robust network and IT infrastructure is the foundation for transforming customer experience. On the network side, we are executing very well our strategy to improve coverage and capacity, both in mobile and fixed. Allow me to highlight some of the key initiatives. First, we are maintaining our leadership in 4G coverage with close to 3,300 cities. Second, our spectrum efficiency program continues to excel, helping us to scope with the data traffic growth in a CapEx-efficient manner.
We are accelerating the 2.1 GHz refarming, reaching almost 250 cities, while finalizing the reutilization of the 1.8 GHz, now in more than 2,200 municipalities. Third, the focus on deploying 4G on the 700 MHz keeps us in a unique position. Close to 65% of the urban population already has this additional layer of frequency that improves indoor coverage in a significant manner. Fourth, we continue pushing the deployment of VoLTE technology, now with more than 2,500 cities and 12 million customers. Lastly, on the fiber front, we reached more than 600 cities in our FTTC program. The FTTH rollout is showing excellent speed, and we close the year with more than one million households covered with fiber to the home. As a consequence, in the fourth quarter, we celebrated once again our leadership in most important ranks of network performance analysis.
We took first place in the P3 mobile benchmark. We maintained our leadership in OpenSignal's 4G availability test, and we continue our supremacy in Netflix ISP ranking, taking first place 53 times in the last 56 months. It's worth mentioning that our network investments of today are already 5G compatible. Brazil will not decrease its productivity gap without 5G. The more we wait, the less competitive the country will turn. We embrace the idea of 5G spectrum auction sooner rather than later, an auction that privileges the rapid rollout of the network, enhance country development, and GDP growth. TIM will be working with all stakeholders to support the best decision-making process for the society. This is what will put Brazil on par with global development and foster investment, innovation, and growth. On the digital transformation front, 4G demonstrated very consistent results.
E-billing doubled when compared to a year ago, reaching more than 50% penetration. The number of clients using electronic methods of payment grew by 33%. Meu TIM app utilization also expanded heavily, above 70% versus last year, and non-human interactions grew by almost 40%. Digital channels usage is accelerating the resolution of demands from our clients. Step by step, we are improving our capabilities to better serve all segments, and early signs confirm we are moving to the right direction. Satisfaction, NPS, and preference are all reflecting positive reaction. It's clear we have a long road ahead of us. Heavily changing the mix from prepaid to postpaid requires our continuous focus on core systems and processes. Recent improvements reinvigorate our motivation and present an enormous opportunity to capture.
I will continue to lead the evolution of the company culture towards a customer-centric approach, this will flourish in the upcoming quarters and years. Going to details of the financial results. As I mentioned earlier, the external environment poses additional challenge to our business. Nevertheless, our consistent execution drove resilient dynamics for revenue and ARPU. In the quarter, top line was up 5.2%, with service revenues accelerating 3.7% after 3.3% in the third Q, driven by a small recovery in mobile. 4Q mobile ARPU showed a solid expansion of more than 8% to reach almost BRL 24. Looking at the full-year picture, top line grew 5%, with service coming pretty close to that level as well. It's worth highlighting how our revenue profile has changed over the past 12 months. Postpaid generated revenue, sustaining a year-on-year growth of more than 20%, while prepaid was down close to 15%.
This led TIM to reach a split of 63% to 37% increase, an increment of more than eight percentage points versus 2017. Moving on to cost dynamics. Normalized OPEX for the year grew only 2%. Low inflation and better than expected in our original plan. We are over-delivering on our efficiency program, having achieved almost 120% of the target for 2018. The digitalization process is certainly a big contributor to this. Despite staying at a reasonable level at 2% of gross revenues, bad debt provisioning is the main challenge we are facing, and it is directly affected by the change in revenue mix. To put it into perspective, excluding bad debt, our normalized OPEX would have remained flat in 2018. During the third Q call, I listed some of initiatives we would be implementing to improve risk management, some of them became active in the fourth quarter.
These include the collection portal and the call center to treat early delinquents, as well as reinforced collections team. We expect to start seeing the benefits of this action plan in the second half of the year. It's worth detailing the two non-recurring items that impacted our results in the fourth quarter. First, we booked the first of our two court case related to the payment of PIS and COFINS federal tax over ICMS state tax. The tax credit plus monetary adjustments total more than BRL 350 million, roughly BRL 160 million positively impacted OPEX, while more than BRL 190 million was the positive impact on net financial expenses. As stated in third Q, we forecast a total of BRL 3.2 billion from these tax schemes.
Second, in our reassessment of our contingencies, we revised the loss probability forecast for a number of old cases, mainly related to third-party liability, which we don't expect to happen again. Total impact was in excess of BRL 280 million, BRL 160 million negative impact on OPEX, and BRL 130 million on net financial expense. The summary of what I have described until now is a robust operation with resilient revenue growth and continued cost control that combined producing an outstanding growth rate, nearly 6%. Full-year EBITDA grew more than 10% to BRL 6.6 billion, with margins reaching 42% in 4Q and 39% in 2018. Our EBITDA figures are really impressive as they represent the highest levels in the company history. The bottom line was also very strong. For the full year, we post a normalized net income of almost BRL 1.6 billion, 27% higher compared to 2017.
CapEx was deployed according to plan, totaling BRL 4 billion in 2018, representing 23% of sales, down from 26% in 2017. EBITDA net CapEx total BRL 2.6 billion. Bring more than 20% year-on-year and leading free cash flow to almost BRL 3 billion, 24% higher than 2017. Following this improvement, spend BRL 950 million, announced between JCP and dividends. We expect to continue using JCP as an efficient distribution tool. Before I conclude my speech, I'd like to remind you that Telecom Italia Group industrial plan will be released tomorrow, which will give us the opportunity to provide TIM Brazil's updated guidance. Although I, of course, cannot provide any numbers in advance, I can assure you that we'll give a solid, realistic, and coherent plan that will focus in key areas of the business.
Managing the challenges in prepaid, evolving our B2C postpaid strategy to maintain strong performance, reinforcing TIM Live expansion without losing quality control. B2B will receive additional attention to become a new source of growth. Efficiency efforts will remain in place to maintain margin expansion, either by executing further on digital transformation or by more traditional means of controlling costs. We will focus on developing our infrastructure. This will continue to be the base for improving the customer experience. In mobile, with much more focus on growing capacity. While in the fixed segment, coverage will remain the core of our attention. We will now open the floor for questions. Please, operator.
Thank you, Mr. Sami. We will begin the Q&A session. First, we will take questions from analysts, followed by the journalists, both in English. We ask each participant to restrict themselves to two questions at a time. To ask a question, please press star one. To remove the question from the list, press star two. The first question comes from Susana Salaro with Itaú.
Hi, good afternoon, guys. Thank you for the questions. Actually, I have two questions. The first is about the competitive landscape. We have been hearing that the market has been more rational. Actually, we have been seeing perception of the market, and if you have intention of price increase going forward. That will be our first question. The second question is related to the 5G auction. What are your expectations towards the timing of the auction and the format of the auction? That's it, guys. Thank you.
For the first question, just to recap, the question was about market competitiveness. Can you repeat, please, because it's cut during your question?
Sure. It's about the competitive landscape for the market. We saw a competitive increase in pricing.
Yeah, I think that there are two different aspects on that. On the prepaid, we unfortunately haven't seen any easiness in the competition. Actually, the competition is very strong, and we are positioning ourselves a different product. We just launched the TIM Pré TOP, which has a different value proposition, an innovative product for our clients, transparent, customer-friendly, and it's not focused on price war. Unfortunately, we don't see this behavior in the competition. On the postpaid, we see a much better environment, as the price hasn't been the focus of competition over the last few months. Question about 5G. We are favorable of 5G auction in Brazil. This is important for the country. One of the tops of the country is the competitiveness gap, and without 5G, this will only increase.
It's not a matter of having or not 5G, it's how fast we can have a 5G. We hope the auction to be one year from now, and then after the auction, there will probably be a one-year spectrum planning. Really, the more it goes, the worse for the country for job generation, for competitiveness. This is the focus, and I turn to Mario here if he's complement any of the comments.
Just-
Mario Girasole.
Mario Girasole, Vice-President of Regulatory and Institutional Affairs. Just to complement, of course, we have discussions in place, in terms of having a rational approach to 5G. Fast and rational. 5G is strategic, so we cannot lose the momentum. Also, we cannot lose the rationality to have an auction that gives, of course, a privilege to the investment to be done in order to foster the sector and the productivity of the country.
Perfect. Thank you.
Our next question comes from Fred Mendes with Bradesco.
Good afternoon, everyone. Thanks for the call. I have two questions as well. The first one is, as Sami mentioned, I do understand the competitive landscape remains quite challenging, we did see, at least here in my numbers, there was an improvement on mobile service revenue. I was just wondering if something has changed. I think on this line as well, how's the FTTx , how is the performance of the double play FTTx? Is this something already relevant in terms of net revenue? If you think you're already being competitive against other players on the broadband, the other players that offer copper to the broadband. This will be my first question. My second question, in terms of the costs. Looking at the bad debt, of course, you are increasing your postpaid base significantly.
When I look at the bad debt, the increase of 80%, it does call the attention. You also mentioned that you started a new contact center back in September to reduce this line. I just wonder, what are your expectations for 2019, related to bad debt? Thank you.
Hi, Fred. I'm Adrian Calaza. Trying to answer your first question, there's a little noise in the line, I'm sorry for this. I get your question. More talking about the mix of the revenues and the impact on the growth from quarter to quarter, and to this point that Sami mentioned in the first answer. You see different competitive environments on the prepaid and on the postpaid. On the prepaid, with a little more aggressiveness in the market, where we managed to cope the reduction of those revenues. If you see the evolution of our prepaid revenues, our reduction was less than on the third quarter. That was a positive impact on the growth. If you see our total growth of the client-generated revenues was up for 4.5%. For us, it was positive in terms of prepaid.
We mentioned in the third quarter that we saw a more stable curve in terms of recharges in the prepaid. That was a positive. You have on the postpaid side, we did some price increases already in November. We were, as a matter of fact, the first movers on postpaid. It was a big effort on our side. As you know, we are trying to focus more on ARPU growth and quality these days. That was one of the key reasons that our revenues this quarter were above the growth of the third quarter. On the second question-
Bad debt
regarding bad debt. Clearly, this is a factor that we've been working a lot in the last quarters. We always talk about this as something that may be one of our main concerns in terms of OPEX. Clearly, there is an effect on all the migration processes we did in the past. We started this migration process from prepaid to postpaid at the end of 2016, beginning of 2017. Clearly, the effect of the mix of our customer base creates the effect on the year-on-year growth of the bad debt. Nevertheless, it's something extremely important for us, even if the rate is aligned with the rest of the operators in this market. It's even below rates, as a matter of fact, of some banks. It's still something where we will be working a lot. If you see, there were some questions about the growth of our G&A OPEX.
That's related also to increased efforts in terms of cost, contract cost to cut this bad debt effect. Again, it's more related to the new mix of our customer base. It's an area where we want to work a lot for the next quarters. The big issue is the year-on-year comparison.
As I mentioned, to complement Adrian here, Fred, we have implemented recent list of initiatives to continue to work on the bad debt or portal, the negotiation portal already. As Adrian mentioned, we reinforce our operations. We have a full team now on board, but also we are expanding our capabilities on the credit side. As we know, this is a vintage game, right? The new vintage are going better or worse according to our appetite and our capabilities on the collection side. It's a natural evolution. As I mentioned in the call, as we change our mix from more postpaid, there's a whole new set of capabilities that we are developing. That actually only signals the positive upside ahead of us.
We expect on the second part of the year to start seeing the benefits of those initiatives.
Perfect. Thank you, Adrian. Thank you, Sami. I think the beginning of the answer was a little bit hard to understand you. If I just may follow up here, looking at the WTTX, is this something already that's becoming relevant in the net revenue? Does this line, did it have any impact in the mobile service revenue growth or not yet? Thank you.
Still Adrian, yes. WTTX isn't yet relevant in terms of total revenues. The impact, it's still very low. It's not an easy business. We are reviewing all the process of this business, we think that this can bring us, it's an additional revenue stream for the future. We're working a lot. We think that you will see an effect in terms of weight and revenues more in at the end of 2019, maybe beginning of 2020. No, it's not a factor in this fourth quarter of 2018.
Questions are very clear now, Adrian. Thank you.
Our next question comes from Maria Azevedo with UBS.
Hi. Thank you for the question. I'm not seeing this growing focus on convergence and converting offers. Do you expect to increase your CapEx allocation in the coming years to accelerate your fixed line strategy? I know you're going to cover this if you spend more, but do you see rooms for higher CapEx? Two, on the convergence, what is your strategy on content? We're seeing some competitors bundling Netflix, Globo, Amazon, and content. How do you think that you approach that? That'll be my first question. Thank you.
CapEx allocation.
As I mentioned. In terms of CapEx allocation for the live business or for fiber, we are following what we mentioned in our communication of the plan in last March. The live business is full on track. We believe there is, as Sami mentioned in the speech, there are a lot of opportunities on this business, but it's always a business that we need to grow very carefully. You know particularly well the story of this business in this company in the past years. It needs to be very well managed and a very controlled growth. Again, a lot of efforts on our CapEx plan are oriented to growth in fiber, not only in FTTH, but also in FTTC, and fiber to the site. Clearly, it's going to be a key factor for the revenue growth in the following years.
Again, we are not changing any point on our CapEx allocation that we already communicated at the beginning of 2018. You will see that in the next communication that we'll give, that we are by the line with what we said 12 months ago. The second part of the question was?
I can take.
Yeah.
Maria, talking about content, especially on the broadband, on the FTTH. There are two components of this. First is our strategy. We have a selective approach. Okay? We select place that have the proper population mix in terms of GDP and low competition or no competition. Our strategy is not to enter the most competitive place with a double play or triple play. On the contrary, we are being very successful in entering plays that are underserved and start to offer outstanding products in terms of broadband. We see over the next three years, a lot of opportunities to continue growing in that manner. Second, despite of this, we already have content available in our offering. Fox, Cartoon, Nat Geo. We do have embedded on our offers already content.
Perfect. Thank you very much. As a follow-up question, if you could please comment, on the cost side, you've been executing extremely well on cost efficiencies. Do you have any expectations on improving your bad debt and this provision, or do you think that this is more a structural macro issue, and what strategy you can do and keep being more selective on your upgrade from mobile to postpaid on the back of higher bad debt levels? If you're comfortable with the logic? That's very helpful. Thank you very much.
Hi, Maria. We said already a couple of times that we are already focusing more in terms of quality. This is maybe made the starting point, working a lot in terms of credit, in credit analysis, focusing more on the better customers to migrate from prepaid to postpaid. I think that delinquency, it's a structural factor. It's not really high in Brazil compared with other countries. Clearly there is a factor. What we are seeing for the future is that you won't have this year-on-year growth. Maybe you will still be in the same nominal levels that you're in these past quarters, but this will not help you to additional growth, in terms of bad debt. Usually, the new customers need to have more marginality due to a better quality.
Perfect. Thank you very much. Our next question comes from Diego Aragao with Goldman Sachs.
Good afternoon, everybody. Thank you for taking my question. My first question is related to the acceleration on the mobile service revenue growth in the fourth quarter. How do you see this line trending in 2019? Will this mark a turning point on your top-line growth, or we should see it more as a stabilization of the growth rate? If you can just provide the outlook, how should we be considering your top-line growth in the coming year, that would be great. Thank you.
Thank you, Diego. This goes back to the macroeconomic and competition environment. There's a lot of expectations that the country will grow and will develop. Some of the early signs for January are not so optimistic in terms of what's actually going on. We don't see, so far, a real change in terms of GDP growth, that could allow us a different scenario in terms of macroeconomic. Either in terms of more demand or less debt or, improve in the prepaid that would come with higher growth. Of course, if the growth comes, it's only upside to everyone. Also in terms of competition. As we discussed here, I think the competition healed in the postpaid. We have a repricing, we have tactical facts in the postpaid over the last quarter, and we just announced the repricing as well now in Feb.
We see the competition much more mild, if you wish, if it could be possible, in the postpaid, while in the prepaid, we haven't seen any real fundamentals on what's going on over the last quarters.
Okay, thank you. Maybe the second question related to the postpaid. We saw some deceleration actually on your net adds in the fourth quarter, especially in November and December, which was right after this increase in price. What is causing this pressure on recent months? Could this be a reflection of the increase on price?
Hi, Diego, this is Renato, head of marketing. We have elaborated a little more on our strategy on migrating prepaid to postpaid, and have start focusing on more quality. What you have seen on our net adds, it's also the quality of the net adds are better than what we had in the past. There is a more focus on a selective approach, migrating prepaid to postpaid. Also we started the phase 2 of our migration inside of the segment of control and also postpaid. We are doing more controlling to controlling migration, controlling to postpaid, and also postpaid to postpaid. As you have seen, our main postpaid offer a year ago was in the BRL 99 target price. Our main offer now is in the BRL 119.
Piece by piece, we are migrating the base, not only from prepaid to control it, but also intra the postpaid base overall.
Perfect, Renato. Thank you very much.
Our next question comes from Valder Nogueira with Santander.
Hi, good afternoon. Sami, you mentioned this too long road ahead, regarding, the mobile business, and there is milk yet to be taken from this business. Given the success that you have had on TIM Fiber, and I believe low-hanging fruits in the B2B arena, would it make sense for you to speed up a little bit more, your fiber deployment or fiber partnership or be more engaged into this business? This is the first question.
Okay, thank you. Thank you, Valder. This is Sami. Thanks for your question. In December 2017, we have two pilots on FTTH with a few clients. One year later, we have 11 cities with over 50,000 clients, and a big plan ahead of us. So what we've been saying about in terms of effort with FTTH is that, number 1, we are really accelerating, the growth of 35% year-on-year, but also is a total new business for us. And we wanted to perfect execution so that we grow in a controlled manner, so that we actually generate positive value to our clients and to our shareholders. So, that's number 1. In terms of your second related question in terms of fiber, we have been, and we are always open to analyze potential inorganic moves. So far, what we have faced is that the organic paths are the preferred.
We don't have examined something that would add more value to our shareholders and to our strategy in an inorganic way. But also want to take this opportunity to present Stefano Siragusa. He just joined, a few months ago, the company. He's leading the B2B area in Live. He's coming from a long background into those segments. And he will complement, any comments about the growth in B2B and what we see ahead.
Oh, hi, Valder. As Sami said, we are studying a new way to approach the B2B market. We do have here in TIM, a very good infrastructure, a very advanced network with high quality, and also focused, as Sami mentioned, in a customer-centric way. So there is a very good opportunity for us to increase our share in the B2B marketing with this approach. And also in the TIM Live, as Sami said, we are being very focused. We are studying, the best regions to deploy our network and be more efficient in the deployment. So, we do believe that this is a good path for growth, and we are going to see that in the years to come.
Well, nice hearing from you in the new house. And does it make sense, making partnership with those players that have fiber that goes closer to these players, to this potential B2B arena? Not necessarily going inorganic, but making joint ventures or helping to finance these guys, so you can have a faster access to this fiber.
We are studying here, of course, the partnership. Today we have partnerships also. We buy a leased line from many companies, we are also studying here ways to increase that. I think that's a way to go to new areas. Studying new products, that we can put over this leased line from third parties to increase our capacity or offer capacity. We are increasing this. We are looking to the market to see partners that can help us. We do this today, we intend to grow in this also. Ever looking at the qualities of service that we are delivering. I think that this is the greatest differential that a company can give to the B2B market, is being very close to the customer, have a high-speed delivery, and having high quality of service. We are looking at all possibilities here. Yes.
Congratulations on your new challenge. Thank you.
Our next question comes from Walter Piecyk with BTIG.
Yes. Hi, this is Joe Galone for Walter. You mentioned the ongoing refarming of spectrum in 1.8, 2.1, the LTE. There was also a comment about, I think it was over 700% of data traffic is on the 4G network at this point. My question is, how far within those bands can you push refarming or the additional bands that you have? How little spectrum do you need to continue to serve the 2G and 3G subscribers at TIM? Also, maybe you've mentioned this before, when do you think you get to the point where, you maybe shut down 2G or 3G? Thanks.
Valder, it's Leandro speaking. First, we started to have the refarming in 2.1 this year. Sorry, last year. We are still, let's say, beginning this opportunity. We are seeing that, we have some interesting point in the Northeast and other states like Minas Gerais, Paraná, Santa Catarina. We are trying to do the same in São Paulo area. What we are discovering is every time that we move ahead with the refarming for one band, we are seeing that we can capture more and more traffic in the 4G. You know that we are above 90% of the traffic already generated in 4G device, and we are carrying on the network 4G around 76% of the amount of data traffic.
What we are seeing is that we have this opportunity in 2.1, in the near future, we can see that the 850 will be the next wave. We are forced to have the customer all the time in the 4G. We are the leader in terms of the coverage. We started to use the VoLTE in Brazil. We have more than 12 million subscribers already using VoLTE. In some cities, as in Recife and São Paulo, we are above of a 25% of the total calls already in VoLTE. What it means is that this customer will be there in the 4G for all the time, despite if you use data or voice. When you look ahead, what we have is some opportunity in C-band, which is a new band in 2.6 gigahertz that we have in some region.
We still have some kind of, let's say, refarming and new frequency opportunity.
What we are seeing is that the technology is developing, and with that, all the time, we are discovering new ways to use the same asset in a more efficient way. Just talking about the switch off of 2G and 3G, it's not clear to us right now what will be in Brazil and when it will happen. Of course, it's difficult to work with 2G, 3G, 4G, and start speaking about the 5G. What we are seeing is that 2G and 3G will be, let's say, more peripheral technology, it's not so clear when we have the opportunity to make the switch off one of these technologies. What we are trying to push in Brazil is some kind of a sharing agreement with the other companies to reduce the inefficient way of this legacy network.
We are trying to move some kind of a new discussion among other companies to have some kind of a single grid or RAN sharing in the old technology to avoid the maintenance cost.
Our next question comes from Diego Aragao with Goldman Sachs.
Hi. Yes. Thanks for the follow-up question. Look, the industry is clearly benefiting from this ongoing digitalization process in the region, which is producing major margin gains. The question is, when do you expect margins to stabilize in a scenario where players will start using those efficiencies to reinvest in growth? Thank you.
Diego, it's Adrian again. Digitalization, it's a key factor. It has been already this year in order to increase margins for the industry, and you can see it also on our numbers. The thing is, as we discussed a couple of times, today, this industry is every day more capital-intensive. Again, in terms of new customers, in terms of new networks, and clearly, digitalization is part of this process. We've been improving margins already almost three years in a row, or even more. Did we reach already the upper part of the curve? I don't think so. Maybe the pace could be a little bit lower in the future, but we'll still see some room in order to improve furthermore. Again, we need this improvement in terms of margins because we need more investments in infrastructure, in information technology, because the industry has become much more digital.
You know that we are still maybe a little bit back in terms of digitalization with some other industries. It's still an ongoing process, we clearly see that there is still a little bit of room in order to improve in terms of margins.
Makes a lot of sense, Adrian. Thank you very much for this. If I may just very quickly, any thoughts on consolidation? After you get, let's say, the green light from Telecom Italia to eventually pursue some acquisitions in Brazil, I think the market was expecting to hear something about it. Is there anything, any progress that you can share with us? Thank you.
Thank you for the question, Diego. No. As we mentioned also a couple of times, this company was supposed three or four years ago to be the target, we are now in a completely different situation. If you see our financial situation is extremely healthy. Our leverage is extremely low. We've been working a lot in order to put us in this situation because we think that there will be a consolidation in this market. If you see all the mature markets in the world, almost in every of these countries, there are three operators. There are some countries that don't even have two operators. We think that this consolidation will eventually come, we want to be prepared. This said, we are not working on any process these days. We are analyzing everything.
We have a deep knowledge of the numbers of each of the competitors on every possible target. Today, we are focused on what we need to deliver in organic terms. Again, we'll see what happens in the near future.
Very clear, Adrian. Thank you very much.
Ladies and gentlemen, without any more questions, I am returning to Mr. Sami Foguel for his final remarks.
Thank you. I want to congratulate our team for this strong fourth-quarter performance. They worked very hard to deliver these results. I also want to thank our clients who choose TIM every day of their lives, and investors who share our vision of long-term value generation. We are planning events over the next weeks, so I'm sure we will have the chance to discuss our results and new plans in further detail. Thank you all once again for participating in our conference call. Have a great afternoon, and I hope we can meet soon.
We conclude now the first quarter of 2018 conference call of TIM Participações. Your line is disconnected from now on. For further information and details of the company, please access our website, www.tim.com.br/ir. Thank you.