Earnings Call: Q2 2018

Jul 20, 2018

Good morning, ladies and gentlemen. Welcome to TIM Participa Point 2018 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 Participa's remarks are completed, there will be a question and answer session for participants. We highlight that statements that may be made regarding the prospects, projections and goals of 2 new participants, constitute the beliefs and assumptions of the company's board of executive officers. Future considerations are not performance warranties. The involve risks, uncertainties, and assumptions as they refer to events that may or may not occur. Investors should under team that's internal and external factors to Qingpazois may affect their performance and lead to different results than those planets. I'll turn the conference over to CEO, Mr. Estefano De Angelis, so he can present the main message for the second quarter of 2018. Please, Mr. Stefanu, you may proceed. Thank you. Good morning, everyone, and thanks for attending our earnings release conference call. As you saw in our material effect last night, I'm resigning from the position of CEO and mister Fogel will take over in the next couple of days. So this will be my last call with you. I will, however, remain on thin Brazil board to secure a smooth transition. Now let's move on the results, and I will make some additional remarks on this topic at the end of my presentation. This quarter, we managed to follow solid numbers with a consistent delivery in all fronts, amid a worsening macroeconomic environment and some temporary impacts. Total net revenues accelerated its pace to 5.8 percent year on year growth, reaching BRL4.2 billion. This quarter, all revenue streams contributed to growth with the highlights being the resilience of mobile service revenues which grew 5.7% year on year and the solid expansion of 41% in TIM Live revenues. With us, we remain focused on the combination of ARPU uplift and expansion of high value customer base. The transformation of our base helps to improve the resilience of our revenues. Reducing the impacts from macro headwinds. Xero denominated had limited impact this quarter. Accounting for a negative effect of BRL15 1,000,000 or approximately 0.4 of mobile service revenues. This is a consequence of closing the quarter with 76% of our revenue coming from mobile bundle offers. Growing bundle revenue at a solid pace of 35 percent year on year. We keep our focus in managing our customer base using more and more analytic tools to help profiling our clients even better. In the second quarter, 67% of our clients were in the recurring plans, up from 61% last quarter and 42% last year. Migration from pre to post new acquisitions remained stronger. And in the last 12 months, Tim had more than 3,000,000 new lines to postpaid, excluding machine to machine 1. We know the financial market is more than that. Nonetheless, our strategy goes beyond the activation of new lines in postpaid. Since last year, we set a good portion of our efforts in upselling client side segments. In Slide 3, there is a drawing that will help you to understand our approach. The goal behind this strategy is to promote harp increases. And in order to do so, accurately, providing our customers to offer the best proposition is key. The result of this strategy is generating positive ARPU trends in the 3 segments, prepaid, control and pure postpaid. The combined effect in mobile ARPU shows expansion of 13% versus last year. A quick comment on prepaid, we know there is a concern around our prepaid disconnections So it is worth mentioning. We understand that this is an area we need to properly address, but we now see it as an opportunity looking forward. Tim was and still is the champion of the second voice, SIM card. So it is fair to say we are more exposed to zinc consolidation process. Our migration strategy is also an important factor behind the reduction of our prepaid base. On the fixes business front, we have exciting news. We are expanding TIM Live operation and arriving in Bahia. Salvador is the 1st city in the northeast with teams Ultra broadband service. In parallel, with the geographic expansion, we maintained a solid execution to sustain TIM Live's strong revenue growth at 41% pace as a result of it 13% increase in ARPU. At the same time, our client base grew 22% year on year. TIM Live now accounts for 38% of our fixed service revenues. The launch of the new portfolio is producing interesting results quarter of quarter comparisons show the ARPU of new clients increasing in both FTTC and FTTH Technologies. New customers in FTTH are entering with a 19 higher ARPU when compared to first quarter 2018. This is a consequence of higher speed mix and content being embedded into our offer. In this phase, the key elements in TIM Live's operation is adequately managed. The phase out of the STTC network expansion, keeping probably the same footprint in the coming quarters and the phasing of the STTH and large in coverage to new cities, but as well as in Rio and Sao Paulo. To support all these developments, we keep evolving our netbooks. Both mobiles and fixed targeting solid improvements in customer experience. And teams' network numbers show important progress. Number 1 in 4g Coverage. More than 3100 Cities 92% of urban population, more than 70 1000 four gs sites. Leadership also in the 700 Megahertz roll out. Close to 40% of the urban population is covered with this frequency. More cities and more sites to closing the indoor coverage gap. Most populated seed in Brazil will start to enjoy this benefit in the second half. On the fiber front, we are accelerating the FTTH rollout, doubling our coverage to 415,000 addressable households. Half the city of Maua, launched last quarter. We started the feed test in other 4 cities. They will be officially launched beginning of Haggust. Always targeting customer experience, we are putting additional effort to deploy all voice over SD technology and expand our reforming strategy. Both did a very point 10,000,000 devices in Brazil and team reached in the beginning of July 5,000,000 clients using this technology. Our coverage reach more than 1.5000 Cities with poultry. The benefit for customer experience out materializing Both the clients experienced 57 percent less call interruption and the network takes 44% less time to have a call completed when compared to customers not using voter technology. After our successful execution, he referred me to 1.8 gigas frequency. We are now moving on to the 2.1 Gs. We run test in Terezina state capital of POE, which showed encouraging results. Download speeds were 14% faster after the frequency was redirected to 4g. And there was also an improvement in service availability. And talking about availability, the last tribos from Open Signers showed once more team as the leading player in the criteria that helped measure the quality of the 4 g coverage. As you all know, a team with favorable availability over download speeds. And I quote OpenSight and to explain our points. Pass 4 gs downloads aren't very useful if you can only find spam a small portion of the time. But that doesn't mean we are not working to improve the speed of our 4 g network In the last 12 months, according to data extracted from O plus Speedpay, we have improved our download speeds by 14% and our half load speeds by 19%, while latency improved 26%. Since digital transformation program is also a key driver for improving customer experience, while benefiting the efficiency program, and we are seeing strong results across the board. Digital sales are growing rapidly and became a pivotal element in our upselling strategy. Prepaid recharge mix is shifting toward digital channels. Self caring is becoming more and more relevant, My team platform users grew by 62% in the last 12 months. Since mobile app appears as the best rated among Brazilian Telco in the Apple store. Our new IVR is also playing an interesting role in reducing the necessity for human interactions. E billing and e collection adoption has also increased significantly by a 13% rate. This evolution not all improved satisfactions but also opens the opportunity for cost reductions that combined with our efficiency plan led to a total OpEx, there remains absolutely under control. In the second cost, costs were up 2.1% year on year, growing under reflection and within our guidance targets. We already reached 86% of our savings targets in June. Among our OpEx trend, it is worth explaining bad debt and other cost dynamics. For bad debt, it is important to highlight that 2% of gross revenues is at an healthy level and the expansion we are seeing is mainly as played by a larger revenue base as opposed to delinquency. Control plans that is the driver of our revenue expansion, for example, increase their gross revenue basis posed to default by 50% year on year. In the second quarter, there were still some nonrecurring items a plus relevant to once described last quarter. Regarding other cost lines, we saw a deterioration due to nonrecurring items related to tax and civil contingencies. A combined impact on the yearly comparison of approximately 30,000,000 Consistent revenue expansion, Control Coast gave us once more a robust EBITDA of R1.6 billion dollars, up by 13% year on year, while EBITDA margin was boost almost 38%. Reported net income in the 1st 6 months of the year totaled 508 R5 $1,000,000, growing 67 percent year on year. The 2nd quarter contributed with $335,000,000 in net income. In this context, the company announced yesterday distribution of interest on capital of BRL240 1,000,000 to be paid in November of 2018. The distribution follows the guidance disclosed last quarter to distribute between BRL809 1,000,000 in interest on capital. This year. CapEx was boost in the quarter to BRL 1,000,000,000 as a consequence of doing some catch up from the first quarter and also an acceleration in fiber investment and mobile access network. Year to date CapEx totaled 1 BRL0.7 1,000,000,000, up 12.5%. Having for the first half, an EBITDA of BRL3 1,000,000,000, EBITDA minus CapEx reached BRL1.3 billion, growing 17% year over year. Operating free cash flow expanded BRL 443,000,000, reaching BRL 313,000,000 at the end of the there. A final remarks, I would like to highlight the resilience in Brazil is showing in phase of a slow and attention for the economy are also deteriorating, but I'm happy to say I'm leaving the company in much better shape and also able to face this kind of short term uncertainties. So much so, the company is on track to deliver its guidance which is being confirmed by the entire management team and the board. Be my last call, I would like to emphasize that this has been a great pleasure to interact with everyone in the last 2 years. Thank you for the way Anna and the press have followed a great evolution of TIM. The company has undergone an important turnaround process being recognized for its innovation, it focused on infrastructure and its constant search for the best customer experience. I will remain the group and the board of directors of Tim Brazil to fully support the transition towards the development and the evolution of the company's strategic plan. I'm sure the team that remain in the company is very talented and along with the new CEO, we'll continue to achieve significant financial and operational results. In this way, in Brazil, remains a relevant player in the sector landscape and the protagonist of the digital transformation in line with its DNA of innovation and with the brand position, evolution never stops. We will now open the call for questions, and I kindly ask you to please focus on the issues related to the 2nd quarter results. Thank you. First, we will take questions from analysts followed by the journalists both in English. We ask each you. Our first question comes from Susanna Salaru Itau. Our first question is related to King Life. We have been seeing the King Life rollout and the revenue performance is evolving very fast. So we were just wondering if this is in line with expectations or it's actually coming there than anticipated. And if you could comment a little bit more on going forward, to life, specifically because we see the other players in the market are reacting and deploying also fiber network if that to change the strategy of expanding to 13 cities or adjust these strategies. That will be our first question. The second question is related to mister Stefanu, a board member position, and we just was wondering if that if there is a final period in which, you have to stay in the in in the board, or there is no, formality regarding that. Thank you. Hi, Sara. Thanks for the question. I will address the second question then I'll leave the floor to Pietro for the team live 1. I will stay in the board. I will not just stay in the board. I will spend some time in August in order to support the the best possible transition. And as I told before, to secure the execution of our strategic plan And let me say that there is no time, constraint about this, this position. So I will follow the mandate of the board members as the wall, advise all the other board members. K. Hi, Susanna. Petro speaking. Rick has been live. We have to rely that. As you know, we are a quite pragmatic. We are not completely satisfied about the speed that we have today in July because we can improve and achieve more. If a look at the situation, compared with what we were planning. We have perhaps, one moment of the delay in some of the activity. But it's not in there to leave us worried about our plan. Because if you look at our pads. We close something close to 5000 net adds per month in the last 2 months, sir. And this is something below what you want to sheet considering that all the activity that will increase our market potential on FTTH is coming, while the saturation of our network on the FTC is, increasing. All in all, we confirm our target and we think that we have a still room to further improve and achieve our our target. About the competition. As we stated in the past, we are choosing area in which the lower level of overlap. And what we are doing is that we are trying to optimize our network availability scenario where we have, let me say all the technology where we can be, a little more aggressive in our offer, always in an approach that is below the line approach. So not declaring or putting on the market, the irrational price that can generate the price war. Perfect. Very clear that you can Thank you. Stefano, best of luck. Our next question comes from Water Peak, BTIG ID. Thanks. Can you give us a sense of when the prepaid dates will stop being declining. I mean, I realize that these are customers that are shifting over to postpaid and nonpaying customers, but how many more do you have to go before that will answer. Okay. Thank you, Waldur. I think that it's important, to remember what we stated in the past. Tim was the main player in the prepaid market. As you remember, our strategy in the past was to become, it's increased our penetration, and we become the most, say, consumer operator in the market. So when you look and compare to the amount of seeing that you have in the past, I think that we will continue to have negative net debt on the postpaid for the following. I'm I'm discussing about prepaid. We will continue to have negative and attached on the prepaid. Due to the consolidation of the market of the 2 SIM, because we were the operator with the highest number of SIM and with the higher penetration of seconds in. What is important to a life is that the focus is not related to the amount of SIM because we not we do not count as revenue the SIM, but we count the up of the customer. As you can see, we are constantly increasing and improving the ARPU on the prepaid, while we are also negotiating part of the prepaid to the controller. And so I think that in this next 6 months, you will not see further improvement in the prepaid method. Okay. Thank you. And then the second question is yeah. I'm sorry. The second question is, I'm sorry. I didn't laugh. Go ahead. No. What they mean is that we are available with our investor relations team to have one to one to explain in better details the number that are related to the prepaid. I think that was a good explanation. So my second question was on, phone sales. America Movil had mentioned a move to try and remove subsidies. Can you just refresh our memory in terms of your phone sales? Do you offer subsidies for postpaid customers Have you considered maybe removing those subsidies? And maybe just talk a little bit about your handsets sold, declined this quarter, maybe what some of the things that were going on with the customer base and why handset sales were down this quarter. Okay. Keep in mind, just to be very fast. In the past, he had a huge amount of sale of the ants that exactly for the strategy of the second SIM. Let's remember the team was the operator that introduced in the Brazilian market, answered with the dual SIM This is due to Farfetch team. We are discussing about 2011 2012 was acting to increase the prepaid customer base. And the way to do that was to transform the, team, sir, team in a distributor of assets, commercialize mainly dual SIM asset. In the last three years, we progressively reduced our sales over asset. Because this kind of strategy makes no more sense. And we started as we stated that the last year with a small amount of subsidy on the postpaid segment. Once you start to look at our, revenues on the sales of handset, you can see that quarter on quarter, not year over year. We are more or less stable now as we declared also in the past. We don't think that we are going to increase our level of subsidy, in terms in absolute value, as total. And what is happening is that the number of ants that is decreasing, I say, and we are more focusing on handset of a higher level to corroborate our, try to increase our penetration on But if you look at the overall market, what is important to highlight is that all the operator are losing market share in sales in the sales of etcetera because it's the large distribution that is continuing to grow on that side. Great. Thank you very much. Our next question Good morning, everyone. And thanks, thanks for the call. I have I have 2 questions. The the first question is, I mean, looking at the the bad batch I think that's the only line that came in weaker than we had here than expected. So, I think the last quarter, we talked about something like a 100,000,000 per a 100,000,000 rears per quarter on this line. So I just want you to understand how much of that is related to this contract with the other telecomterator and eventually the trucker driver's strike. And if we look in the 2nd half, we can, if you keep this this idea of a 100,000,000 reais their quarter. That would be my first question. And then the second question, it looks like, you know, it's finally the gap between gross and net revenue growth, has closed completely. It doesn't mean that the the penetration of the vast is that it's it's maximal. Or do you believe that we do have room to for growth, on this front too? Thank you. I thank you for the question. First of all, regarding the bad debt, as you remember, I give you the answer about the 100,000,000 and Honestly, we are a little higher than 1 of the media, but continue to stay in, in one very relevant KPI it is the, the participation in terms of gross revenues. It's very important to keep in mind that when you migrate the prepaid customers to the control, you expose your P and L to an inaugural increase into the bid debt while on the other hand, you benefit from a reduction in other line of OpEx just to give you a very clear and important remarks when we move a a customer from preventable taste, we increase the ARPU of the customers, and this is the first positive. We reduce the volatility. We increase the loyalty and we reduce the OpEx for the recharge. But don't forget that this between 6, 7% of the gross recharge. And our bad debt is not 6%, 7%. So at the end of the day, This is a non negative impact on the V and L. And as we mentioned in this quarter, when you look at the bad debt expansion that is 57%. If I'm not wrong, this is exactly in line with the expansion of the gross revenues for control where there is another impact. We are increasing the revenues. And in the mix of the revenues of the gross revenues coming from the control, we are reducing the portions related to the prepaid platform. As you know, the control customers in the past were paying a monthly fee as a postpaid and was spending additional money in the prepaid platform where you have this 6% to 7% cost in terms of participations to the revenues. The new offer in control is the evolution of the industry of the market is now strongly reducing this prepaid component. So when you look at the expansion of the revenue of the control, you have also to consider that the bill at postpaid, gross revenues of these customers. It's growing more than the blended revenues, blended revenues. 1. So, just to finalize, I wouldn't say that this is a good news, but if the control platform continue to expand the debt with naturally, continue to expand accordingly. What is important from our side and your side analyst to look at the participation of this bad debt in terms of the evolution of the gross revenues. And related to the, then I need to together to discuss what is the strategy going forward about the value added services when you look at gross versus net revenues, as I told last time, if you have also to look at the discount, component, if you remember in the last, call, I I say that the gross versus net revenue was in line, but if you eliminate the discount participation, we still have a a limited gap. Now in this quarter, we are exactly with the same trend in gross revenues, not considering the discount. So before, tax and the and the net 1. Again, looking forward, maybe that the discount component that is growing for our strategy that we discussed broadly after the first quarter results in our roadshow. Of upselling customers, existing customers is made with dedicated offer that includes sometimes a discount when compared to the what I normally call above the line, offer. So this is why We have this increase in discount, but this is not affecting the top line. This is not affecting the the the tax participation into the the revenues. I didn't get her to discuss about Fred. She's looking forward. Related to related to the VAS, what is happening is that our strategy in the bundle is not going to change. So we are trying also to use the value added services including the bundle to help us to increase and facilitate the migration from to pause from prepaid to controller. Just to give you an idea, we are going to release in the next week and offer a controller of without diesel inside because the commercial value of diesel is fixed in reais. And so leaving this with the postpaid allow us to convince the customer to move from controller to the postpaid because they gain also something related to the value added services. Our strategy for the future because you can, know in the market that the value added services, that we call. So that is not included in the bundle, is a a source of revenue that, mainly concentrated on the prepaid is decreasing. The approach that we are having is quite similar to the one that you have in the application store. So we are going to have some kind of freemium approach. We give to our customer for free some service in a light version to be a faster service and the and then to upgrade that. And the thing that we start to have some good news from this area starting from the free start of the next year. Congrats on the on the new on on the great work and the and the and the best of luck in in your new role. Thank you. Our next question comes from Daniel Federley Credit Suisse. Could you please comment a little bit on the new infrastructure sharing agreements with VoIP? It seems that the scope is larger now. So I would like to understand exactly the targets of the disease infrastructure sharing. If this It's only for the mobile segment or if the that could contribute to it in life as well. And the second question on the new PGMC. I don't know if you had an opportunity to analyze all the details, but I'd like to hear from you, any potential impacts for team and any opportunity or threats coming from the new PGNC. Thank you. Hi, Daniel. Thank you. I will to have the real, and Mario. Yes. Yes. Yes. I'm sorry. Just one point about the the OI the OI agreement. As you probably know, we have for 1 year and a half, strong, let's say, discussion with the oil also related to the 6 39 issue. And we finalized at the beginning of this year a very good and strong agreement with them that was not just resolving the the best but also target in the future with the the aim of improving the infrastructures sharing that we continue to consider a very strategic target, not just for in Brazil, but for the evolution of the telecommunication sector in Brazil, considering the strong gaps that we still have in terms of digital divide. In this agreement, we have included both wireline and mobile, topic. And clearly, when we discuss about fiber, it's not exactly just few wireline because, you know, that the distribution network serve both the wireline and the and the mobile 1. It's clearly the target is to improve. On both sides, the quality and the capacity of, of our network. And we will continue to pursue this kind of agreement, honestly, not just with, with Dolby, but also with all the other relevant, players in Brazil, about the to GMC, as you know, this is not 100% related to impacting, the mobile business, but we strongly follow each regular evolution because it's clearly now a convergent world. So each piece of the puzzle you move into the regulation that refers to fixed impact the global and convergent telecommunication business. Directly, we have no, specific impact. There is, as you probably note, some change related to the interconnection tariff, but we make some simulation. This is not having a significant effect, in fact, especially in terms of, EBITDA, we are talking about some 1000 of, of reais. Now I pass to Captiville to add some color to the sharing agreement with Oasis. In fact, the the news that we saw on the the prayers in the last days was the approval by Anatel, from the contract that I was signed into the road, most of the bills. So, basically, this contract that, we did before it was to change the way that we are moving the whole sharing from the previews, move on to mark in. The main, target for this new agreement, is to use the g barrel based spectrum. So Instead that you have a 10 plus 10 in our own sharing agreement now, we have a continuous 20 megahertz to share between the companies. The other part is that we are extended the the run sharing for 1800 and some regions. It is a small part of the the agreement. But, again, we are restarting that. So we need to just to delete the to, Anatel and the Chicago to approve this, variation, this evolution of the the previous run sharing content. But as Stefano said, in fact, the infrastructure sharing is our continuous and our ongoing discussion among our pairs. We have a discussion about the fiber for the long haul and, some capability with Yoreen, but we have the same with Vivo, Claro, and other, regionals, providers. So it is part of the concept that we are trying to reduce the investment and to use the most efficiently, the CapEx for the future. Okay? Our next question comes from Valder Nogueira. Good morning. Stefan, congratulations on your second successful Monday 13th. Great job and and keep on the the the the board presence. Two questions here, one on TIM Live and another one on the PL79. On TIM Live, how much of your TIM Live net adds have been or can be so far traced to existing. So you to to to say you to an existing team customer. Do you work with a target for this? Because when we look at the ARPUs of Team Life, which is currently 3.3 times large under the average team ARPU, that is increasing. So how much can we factor in of a higher ARPU coming from the team live, without having to sell to the existing customer, which is a potential buyer, but on the other hand, you have the the the bundle discounts that you may have to offer. That's the first question on team line. From there, Pietro speaking, related to TIM Live. What is happening today is that we are working in some area with that, some specific technology that allow us to increase the speed of existing customer base. So we are working to upsell part of the existing customer base with higher speed and with without specific additional CapEx or OpEx for this activity. It's clear that the increase of the ARPU is also coming from the fact that we are increasing. We are starting to increase the penetration and the new net adds from FTTH. I think that this will be a driver that, will continue more and more in the following months once the new area on FTTH will be opened. So then we can, give with the investor rate or more details related to a better breakdown of these components. But we think that's what, one important element of our growth on the fix will be driven by the higher auto that we have on the FTTH FTTH that compared to FTTC allow a future proof for the increase of ARPU because the cap of the increase of the speed is 2 giga. So you can imagine that in 1 year, we can try to option the customer from 100 megabits per second to 300, 300, 400, try to keep the price or increase the ARPU. Okay. And and it's still on this question. And how much of the team life have your soul to an existing team mobile customer? What is the cross sell there? The today to to be, to be transparent with you. We do not yet have a specific convergent strategy. We are developing, but today, we are something that is close to 25 percent of the team lead customer base with, mobile offer from team. This is an opportunity that we are going to leverage in the following month. Okay. Now the second question is one of the features of the PL 79, which is being put on hold in congress, talks about, automatic renew of mobile spectrum. Okay? We know that some of the spectrum, especially the ones that will privatize together with the Taliban system are coming from from, Tumi Nio, around 20,022,021,024. How should we work with this possibility of the PLC 79 not get approved or being post phone forever, what's the strategy regarding, the renew of the existing spectrum, or would be an an additional twist for you to engage in M And A of the spectrums that have a larger 10 year to come due. Fantastic question. Well, you start from the Piacente, you end up with the M and A. So it's my job. But, by the way, then I need somebody to give you some additional color 1st of all, the, if that the potential M and A strategy, I would tell you, will not is not driven by the mix of the expiration, but it's more related to the gap that we may have in some specific error in some different layers. So we will not address, some specific spectrum because it's and an inspiring date that is longer than, another one. So honestly, we were not considering this as a fundamental variable in our M and A discussions. And Regarding what we may expect honest, Rival, to imagine that the BL-seventy 9 will not be approved in the next, let me say, 80 months. Let's give 1 year to the new government that is a very long time when you consider the content of the VR 79. They they they they shouldn't need for the VR 79, but I think it's honestly quite impossible to imagine to arrive to 2022 with not having, the the BS 79 or something that will address that kind of issue approved by by the government. What we expect looking forward is that the renewal let me say methodology and scheme with the similar to the existing one that is that probably this frequency. We will have to do this scheme with some, let me say, cost to be paid on an annual basis. That is something that is already happened in part of our of our spectrum, ma'am. Then I'll lead to Mario if you want to add something, Mario, please. Yeah. Yes. Thank you, Stefano. Thank you all for the questions. Can you hear me? Yes. I hear perfectly. The point is that, a reformulated communication when you're the same worker is, is necessary. We think that, you know, the so called first 10 days of the government to address it, sir. From practical point of view, the spectrum that is in spot, this that is your expiration in, 2020 for, I it's original Spectrum, I mean, in particular, the aid and the, Spectrum we think that, the ambition of the regulators, not also of the government, is to convert the fee for the automatic renewal of the spectrum in commitments on investments. This is more or less the decline. And we can use this could be a second review, not only the renewal, but also the possibility not to cash out but to invest in the in the assets for the country or for the company. Okay. That's an interesting angle because the PLS 79, correct me if I'm wrong, it automatically renews the Spectrum, tenure. But I have not heard that angle of, you committing CapEx as a way to to maintain the tenure of the spectrum. Is there any other reason? In a recent, public institution when I tell about the the structural network plan, the renewal of the frequency, the the the the the the fee, the electricity is considered a way of funding investments. So probably there will be possibility to have a win win arrangement, sir, what's it was not possible for us until we first, we need to find that it's paid but not needed. Okay. That's very interesting. Thank you for for your for your feedback. Our next question comes from Diego Aragon, Goldman Sachs. Hi. Good morning, everybody. First, I just want you, Stephanie, for all the good work and, I wish you all the best for your future endeavors. So look, my first question, is for the team. Is related to your recurring prepaid base. Can you provide further details about this segment? I mean, I want to understand the trends for ARPU and churn rate just for the recurring prepaid base. And also, what's your strategy for this segment? Thank you. What is happening right now? We have mainly two main offers that we are working on, on the prepaid. The first one is a monthly offer that is mainly to your voice and the the one that in the last period is giving us, good result also because in Brazil, We still have a huge number of customers that are pure voice. So as we always stated, we cannot forget that to have good restart in Brazil. We have to we have to work in all the segment. And this offer is a monthly one. And what we are doing now is to try to upset this customer from full unlimited on net calls to full unlimited on net and off net calls. So we are going to move this customer from a price offer of 9.99 to 199929.99. And this is the offer that is working very well. On the other side, we are still increasing our penetration of a weekly offer at 99.99. This is still growing. But I think that one of the next step to further increase the ARPU will be to start to understand if it is possible in the market to not start with the recharge of 10 reals, but increase the level of the level of entry level recharge from 10 to 15. This is the next, playing field that could allow to further increase the ARPU of our prepaid. What are doing now, it's actually as, trying to give also some callers to the question that was related to the fact that we have negative net adds on the prepaid due to the fact that you have a lot of seconds in. This is a big opportunity for us because ever in our customer base customer that they've used in the past team, mainly as incoming SIM give us the opportunity to try to get this customer transformed this customer in a loyal team customer. One of the main issue that we still have today on this kind of customer is the perception. Nevertheless, we invested money in terms of advertising compared related to our to our network, coming from the past, mainly on the prepaid customer that are still with our computer thing that our network is not completely good. So what we are going to do in a below the line approach is to try to stimulate this customer base to try the team network because we are more than confident that today, our network is at the same level or also better than the other and try to increase the level of expenditure and that. Then again, with the the investor related, if you want, we can go more in-depth on some number related to the mix of the different offer and decrease of ARPU. Very clear, Pietro. Thank you very much for that. So the second question is related to your cost efficient plan. Know you guys have a guidance out there, but given your results would imply the company reaching the margin guidance earlier than expected, at least, you know, my, my perception here, I was wondering if you can walk us through the stage of the cost efficiency initiatives just so we can try to quantify the opportunities for you going forward. Thank you very much. Hi, Diego. It's Adrian answering. Yes, in fact, we'll be we've been performing better than expecting in terms of efficiency, you know, that we reached today almost 86% of the target that we were, that we guide for 2018. This is a this strategy was very successful in terms of of efficiency. We think that, yes, there is, maybe additional room in order to improve on this side. And we hope we will do better on this. Regarding also, and looking what can happen with, with the whole P and L and in terms of revenues, regarding the the anticipation of the macro. But Again, yes, we've been improving margins above our expectations also. We think that we still can do better. But this will be something that we will address in the next process of planning for the next years. Okay. Thank you, Adrian. Thank you very much. Our next question comes from Andre Badriu, JP Morgan. Good morning. I just have two questions. The first one is for Stefan. So, Stefan, we have seen, Tim, doing very good results in terms of growth. But, we also saw recently, Claro, the number 3 player accelerating and, even growing faster than 10. So, do you think that, is there anything that, can be drawn from a conclusion for what Claro has been doing well that could also be applied for 10 is there any kind of concern or do you think that's, 10 positions are solid the way the way the way it is? Thank you, Andre. But generally speaking, 1st of all, as you know, that a lot of time when we compare trends, I like to highlight that, you know, that's not necessary to look just that year on year comparison, but also at the quarter over quarter 1. So it's clear that the car is doing a very good job. But when you look at quarter over quarter trends, you may see that the expansion in terms of top line, the trend of plan is very similar to to team. We have a very, irrelevant change in the the desktop of revenues between Tim and Claro in the last 3 months. So, I will highlight that the the different rate of growth is more related to what happened last year. And you may see the team has a quarter over quarter trend between 1st 2nd quarter 20172018 very similar. It's 0 point something. Change between first and second post date. This is not exactly what happened on the on the other side. So I don't know. I don't want to know at that point. I think it's very important look at evolution along the 2018 results. I already, and always state that Clari is doing a very good job. And this means unfortunately, on the other side, that the market is becoming more and more, competitive because as you probably thought there were some reaction also in the the prepaid from Vivos. So it's a combination of a macroeconomic scenario that is probably affecting all the the industry. And clearly a combination of, some aggressiveness in the in the offer that it's part of the the business. It's part of the brand in the industry worldwide. And it's part of it was part of my job until today, and we'll be part of the job of my team and the new CEO to address decision to continue to deliver the best results. Possible in this context. Thank you. And I guess the second question, maybe for Lyle, can you talk a little bit of what's going on in the cities there where the 700 megafeds network has been activated, what was the perception of consumer download speeds, if that has also helping our team to gain market share, even if that's helping to somehow to go to the fixed fixed broadband. So in the sense of, sorry, one is broadband. So that would help just comment some more in general detail and for the bigger heads. In fact, remember that we explained that the perfect city, capital city that we launched with the 700 was in Brazil. Every increase is very, very fast and attracted. And it was because in Brazil, at that time, we didn't have the 1800. We just have the coverage and to choose up 6 giga. So when we launched the 700, we saw a very, very, huge growth of the traffic. Not because, we put more customer on 4 g, but because the coverage get the indoor environment. So with that, You can bring all this traffic to the 700. One interesting thing that we are seeing is that we allow the 700, the North East, the last year. And, now we are capturing a very, very important part of the rescue And then it is exactly what, allowed us to launch the new refarming wave with the 2.1 gigahertz. So, what I mean is if you get 700, we can choose all the plastic that we have in the indoor environment. So we bring everything to the 4 gs. We reduce it, the usage of the 3 gs in the original boat even the calls now is going directly to the 4 g. With that, we made the first refarming of the 2.1 gigahertz that is a frequency that now is used in Brazil for 3 g. So, with the 700, we have a big opportunity to open a new window of opportunity to refarming the 3 g specs in 2 4 gs. Now in the end of this month, in July, we had expected the, the SMS sale will, give us the license to use the 700 in Sao Paulo City. And I just should give you a color. We already have more than 600 sites already installed in Sao Paulo City Just waiting for the license from Natal to start with the operation. What we expect from Sao Paulo is 1st, to get more indoor coverage, which is the state of Islam, but to change a historical gap that because in Sao Paulo, every time that you complete a call, before you are using a higher frequency, we could 3 g into dotonegigahertz. Now with the volt and with the 700, you can stay in the call even in the most difficult indoor environment which is very, very good quality. So, our expectation about this condemnation of the 700 and the vote is that we can accumulate it in a very efficient way, the customer experience. So, I don't know if it is all that you expected to hurt, but, again, we are moving now in the southeast and the south of the 700. And the results is very good in terms of the quality and in terms of, the coverage. We showed that what the volta means in terms of a reduction of a drafted call just to give you the color. It's on power. We are talking about something around the 0.2 percent of drop off calls comparable with the 1.5 percentage of non vault, usage. Sorry. Perfect. Thanks a lot for that, and, congrats to Stefano on the others. Good job, Danica. Our next question comes Alright. Thank you. Well, Stephanie, sorry for the inconvenience. I can't wait for the great work, and thanks for the partnership. Our first question is on the CapEx line. Back to concentrate, not 3 year service providers more on the short term, 2018, 19, we've seen some increase. And how did you treat any potential M and A in by their assets, groups of CapEx avoided. Should you assume it would be a 100% CapEx avoided? And even if you have any other assets that are there for sale what is your view on diversification and, your take on that? And as a second question, I'd like you to expand a bit on the B2B segment. It is some totally strictly. I would like to understand what are the opportunities that you see there if you have started to see any more robust, market requests that are available to be. Thank you. I'm trying to answer the first question. We didn't hear very good. I think there was some kind of a nice in line. But regarding CapEx, I think that your question was what was happening in the second quarter and regarding the the guidance for the 3 years and for this year. In fact, we see this growth of 12 5% in CapEx in the 6th month. We got it last year as a positive thing. I think it's we are planning much better our CapEx, along the year, we started before this year with the deployment of the network. We've been improving significantly internally on all the processes regarding the CapEx deployment. So for us, we are confirming exactly what we said in terms of CapEx for the full, so twelve digits for the 3 years, and women tell this number especially this year. So, nothing changes on this side. Regarding, I think your second question, that is also related to CapEx in terms of M and A in an analysis or make or buy. Yes. We are always analyzing the decision. We're also assessing every opportunity that arises, today, let us tell you that we are not with any specific, analysis of specific opportunity, we're seeing some, some cases that maybe with a very high prices, a few a tomato. But again, it's, an ongoing analysis for us in terms of, in terms of make a buy. Actually, if I address your question, Hi, Maria. This is speaking, ready to be to be to be transparent and that we are not satisfied about the result on the B2B. Less divided the the B2B market into corporate segment. I mean, it's a large customer. On this area, we are very satisfied about our result. In the past, we have never been a reference in this area and we are gaining important customer in the last period. This is an important element because it's in the big corporation that we can exploit in the future. The development of new source of revenue as IoT and machine to machine. And perhaps we live in the following months some good commercial, commercial partnership to further develop this area on the SMB I think that the assignment in which all the operator are not satisfied because also drops also because it's out of the spotlight. This is the area in which the level of competition is less rational. And the thing that, we as all the operator, we have to think better about the possible development of this segment. We are working to complete change, the business model and the go to market, to further improve the result of our company. Perfect. Well, thank you very much, and thanks again for the 4 digit work and the partnership without any more questions from analysts. We will now start the Q And A session. So the first question comes from Fabiola from Bloomberg. And the question is as follows. Dear Stefano, congratulations on your new challenges. You've mentioned in the past that you're working on Team's balance sheets to prepare it for M And A. I'd like to know if, Sandy Fogle will continue implementing this strategy. Thanks for the question. Let's split the question into it's clear that NCO of the of the company will continue to work on improve the balance sheet. This was a clear, a focus that we gave, 2 years ago, And as the market remember, we stressed in the 20 years anniversary of teams say that it was the the proper time to have team finally deliver stronger, not just commensurate result, but also financial result and a strong balance sheet. Then moving to the to the M and A, we always stated that we see opportunities looking forward for a consolidation in today the Brazilian market. And in order to participate, this consolidation organically or inorganic, you need to have a very strong balance sheet. So the two things goes together looking at improving, further improving the financial results of the in Brazil and the footprint of in Brazil in the country. Thank you, Fabiola. We'll move to the next question. It comes from Alejandro Melo, Valorico, How do the team participate in the consolidation process of the sector in Brazil? What are the expectations in this area for the next 12 to 24 months? This year, will TIM Live reach more Northern Northern Eastern, States or some new region of the country? Addressen, please. Yeah. Regarding M And A, and consolidation process in the country. We always said along this 2 last years that team should be, about this event in this consolidation on the sector. We've been working lot on the operational side, on the financial side, on every matter that, that prepared us in order to be in this position. Clearly, it will depend a lot if it fits in a strategy or not. It's a it's it's we, we always said this. It has to make sense with a strategy. It's not that we will participate because we, we need something to do of, of M and A. Now it's a matter of strategy. Hopefully, we'll maintain, this this path. And we'll see what happens in the next couple of years. For sure, in terms of consideration of the market in the industry, something will happen in the next couple of years. So our our task is to be, prepared. And, and we feel that we are, we just need to remember that maybe 2 or 3 years. This was the company target. Today, the situation, and we can say it with the situation is completely different. We think that we can be a player, a significant player in the consolidation? Related to TIM Live we are going to offer further city. We are going to increase our coverage also in summary of the of, not the eastern of the country. We cannot disclose now, which are the city for, 3 reasons. Keep in mind that this is something that you have to state and repeat. The model of network 14 live allow us to very fast increase the coverage based on the opportunity of the market. Remember that we are going to put the Amazon. So the network equipment jointly with the antenna. So once we reach an antenna with the fiber, and we see that around the container, there's the possibility to increase very fast. We are able to put an offer of TIM Live. In the following weeks, we will disclose the ad in which we are going to work in the last quarter of 2018 and the first quarter 2018. Now I have another question from Ana Loebu, Good morning. Infrastructure was a key element to the restructuring of team. Does this means that team will prioritize semi Telecom acquisition. A change in the strategy in prepaid, made him to lose its 2nd position in market share to arrival Claro. Being the 3rd place in a market with 4 operators doesn't hurt the company plans. First, Adrian, we will address many parts and then pay it through on the pay and then market share issues. Regarding the first part question about the process of CEMIC, it's same thing that we in the previous question. We always analyze these cases if there if they fit in a strategy, if they make sense in in this case, especially in terms of make or buy. So we'll look at on this. It depends obviously, in terms of, in terms of price, because when you make an ice of makeup, it's clearly, that the price is the most important variables. So again, it's a matter of, obviously, the structure we need to increase our fiber structures as Leo always mentioned. But again, it's it's a matter of of of what the price has decided and if, if they make sense on a strategy. Related to the second part of the question, what is important to remember is that the team is the 2nd player by far and of service revenue. And that is the focus that we continue to keep. So we don't count the number of customers only, but we count the revenue in the ARPU. Excuse me, ladies and gentlemen, without any more questions, I'm returning to Mr. Estefano D'Angeles, for his final remarks. Hey, Mike. It was through wonderful years that we've been together. So I would just say you have time, Aridadeshi, and thank you once again. Bye bye. Since we conclude the 2nd quarter of 2018 conference call of TIM Participasone. Your lines can be disconnected from now on. For further information and details of the company, please access your website. Www.tin.com.brir. And take the opportunity to download tin IR app. Available for Android and iOS platforms.