Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Telefônica Brasil second quarter of 2022 earnings conference call. Today with us, representing the management of Telefônica Brasil, we have Mr. Christian Gebara, CEO of the company, Mr. David Melcon, CFO and Investor Relations Officer, and Mr. Gabriel Menezes, IR Senior Manager. We also have a simultaneous webcast with a slide presentation on the Internet that can be accessed at the site www.telefonica.com.br/ir. There will be a replay facility for this call on the website. After the company's remarks are over, there will be a question and answer session. At that time, further instructions will be given. Should any participant need assistance during the call, please press star zero for an operator.
Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the company's management beliefs and assumptions and on information currently available. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the company's future results and could cause the results to differ materially from those expressed in such forward-looking statements. Now, I will turn the conference over to Mr. Gabriel Menezes, Investor Relations Senior Manager of Telefônica Brasil. Mr. Menezes, you may begin your conference.
Thank you very much. Good morning, everyone, and welcome to Telefônica Brasil's conference call to present the 2Q22 results. The call will be divided as follows. To start, our CEO, Christian Gebara, will comment on Vivo's financial and operating highlights, followed by an update about our B2B and B2C digital ecosystems and ESG initiatives. Then, David Melcon, our CFO, will go through our cost and CapEx structure, net income, free cash flow, and shareholder remuneration. Now I hand it over to Christian.
Thank you, Gabriel. Good morning, and thank you for joining our earnings calls. We begin on slide three. In the second quarter of 2022, we incorporated assets coming from the acquisition of our share of Oi Mobile. The results originated by these assets that are being considered in our numbers since April 1, 2022, coupled with an outstanding quarter in organic terms, led us to register double-digit growth in key performance indicators by which we measure our business performance, access, revenues, and cash generation. Our customer base totaled 114 million accesses as mobile postpaid reached impressive level of 57 million lines, while FTTH connections grew 25% year-over-year to 5 million.
With the remarkable acceleration of our operating figures, our total revenues posted a growth of 11.1% year-over-year, boosted by our mobile service revenue that expanded 15.1%. Excluding the effects of Oi's incorporation, mobile service revenue was up 9.4% in this period, considerably ahead in comparison to recent quarters' performance. Our EBITDA grew accordingly, up 8.3% versus second quarter 2021, offsetting impacts of the rising cost inflation, driving the operating cash flow generation of the first six months of 2022 to expand 3.3% year-over-year.
Moreover, aligning our strong top-line performance efficient financial management, our free cash flow rose 13.9% in the first half of the year, reaching BRL 4.6 billion, contributing to the distribution of BRL 3.1 billion back to our shareholders that was further enhanced by BRL 313 million in share buybacks. These results underscore Vivo's leading position in the Brazilian telco landscape that can be recognized not only by our sound financial performance, but also by the strength of our brand that was considered to be the fourth most valuable in Brazil among all sectors being worth almost $4 billion.
Moving to slide four, you can see on the left-hand side of the slide the continued improvement of our revenue mix, with core businesses increasing in relevance by 3 percentage points year-over-year, representing 2% of our top line. On the right-hand side, we show how the in-market is reaffirmed as our total revenues yearly performance continues to improve quarter after quarter. Bear in mind that our improving growth pace is happening despite a more challenging macroeconomic environment, highlighting the essentiality of connectivity and the inflation-proof character of our main services such as fiber and B2B solutions. On the next slide, we give more color on our core segments that continue to benefit from their positive momentum as mobile revenues expanded 16% year-over-year, while fixed core was up 10.8%.
We had double-digit growth across all mobile, a byproduct of our superior level of net additions that will be further detailed on the next slide. With a healthier price environment, as a result, our mobile service revenues rose 15.1% year-over-year. The highest expansion of this line in over ten years. Meanwhile, core fixed continues to post sound results leveraged by the nonstop fiber expansion and by our myriad of B2B solutions that place Vivo as the only player in the market capable of offering to enterprise the best connectivity platforms, capital services, and applications from top global partners. Now on slide six, we present our superior operating results. Our mobile base grew 23% year-over-year, reaching 99.2 million access, with the addition of approximately 12.6 million coming from Oi, on top of 1.4 million organic postpaid access.
It's worth saying that in the second quarter of 2022, we registered our highest level of organic postpaid, excluding machine to machine net additions in over seven years, with approximately 1 million new lines added quarter over quarter, considering hybrid and pure postpaid. The remarkable outcome, along with the lowest level of postpaid churn in Vivo's history, is proof of our unmatched quality of services and brand positioning as our customer base keeps expanding month after month. Regarding fiber, we reached 21 million homes passed in 354 cities, totaling 5 million customers. The FTTH business is our main growth lever, and we'll continue to move forward in this segment. We are with our convergent offer, Vivo Total, while we expand our fiber footprint through organic deployment and throughout Brazil. Moving on slide seven gives an update on our B2B and B2C digital services.
As you can see on the left-hand side of the slide, the revenues coming from the sale of digital B2B services continued to outperform, up 36% year-over-year to reach BRL 2.3 billion over the last 12 months, led by heightened demand for cloud, cybersecurity, and digital solutions. Another promising corporate segment we have is Vivo Agro. Today, Vivo Agro delivers high-performance connectivity and efficiency assurance services to farms. However, we gauge an excellent opportunity in the sector, and thus we develop partnerships with specialized suppliers to create the biggest portfolio of solutions for the modern agribusiness. The results is what we're about to launch, new IoT products to revamp management tools and increase the productivity of our customers' operation as they will be able, for example, to manage and track cattle remotely and use drones to monitor perimeters or apply agriculture inputs on crops.
Regarding our B2C ecosystem, Vivo Money continues to expand with more than BRL 80 million in credit considered so far after originations grew more than sixfold this quarter on a yearly basis. In the meantime, Vivae, our joint venture on the education front with Ânima, is progressing according to plan. We have already defined the CEO and management team having a target to launch a minimum viable product is still in 2022. Lastly, Vivo Ventures, our corporate venture capital, is on its final steps towards its first round of investments after the creation of shortlist of the top 20 potential investees selected according to their growth potential fit with Vivo's digital ecosystem strategy. On slide eight, we present our first issuance of debentures linked to ESG goals and the recently launched financing framework.
The debentures issuance helps us in taking another step forward into a more sustainable and diverse company as it aligns financial, environmental, and diversity objectives. The debentures remuneration is subject to two ESG related goals, the reduction of our direct greenhouse gas emissions by 40% and having 30% of our leadership roles occupied by Black people, both by the end of 2027. Moreover, the new financing framework unwraps Vivo's approach to sustainability to investors and the market in general, allowing for a simplified emission and allocation of future investments with social impact and low carbon footprint. With that, we'll be able to continue expanding our contributions to the United Nations Sustainable Development Goals that underpins our ESG overall strategy. Now, David will take us through the financial highlights of the quarter.
Thank you, Christian, and good morning, everyone. On slide nine, we detail the company's costs, showing the ongoing trend of changing the mix as we increase the share of revenues that go beyond connectivity. Recurring costs grew 12.9% year-over-year and slightly above inflation. This quarter, we had a strong result in digital services, handsets and equipment, and therefore a revenue-driven cost of goods sold growth 16.3% year-over-year, representing 30% of our total OpEx. Meanwhile, cost of operation grew 11.5% given higher expenses related to personnel due to the annual salary adjustments, coupled with the continued increase of network usage that drives infrastructure cost up and acceleration of commercial activities. In addition, we reduced on a yearly basis for the eighth quarter in a row the provision for bad debt.
This positive outcome results from a well-developed billing strategy and superior credit scoring capabilities, as well as increasing relevance of our services for our customers, allowing us to maintain bad debt under control. On slide 10, you can see that Vivo once again increased its operating cash flow while we continue to expand investment through the deployment of top-tier technologies such as fiber and 5G. Year to date, CapEx reached BRL 4.5 billion, up 6% versus the previous year. In fact, this ongoing effort directly towards building the best network currently places us as a player with the largest 4.5G coverage in the country, as we already provide this enhanced data experience to 86% of Brazil population.
As a result, our operating cash flow, which we believe is a key metric to check the profitability of our operations, amounted to BRL 4.6 billion year to date. Up 3.3% versus the previous year. This led us to reach an operating cash flow margin of 20.8% over the last 12 months, maintaining the above 20% level seen in recent years. Moving now to slide 11. The yield evolution of our net income was impacted by higher debt linked to the acquisition of 5G frequencies and Oi's mobile asset, which while improving our capital structure, results in higher financial cost, especially with the recent hikes of the local interest rate. Additionally, the year-over-year net income comparison is also affected by not recording effects that impacted the results from the first half of the previous year.
Regarding financial debt, we ended June 2022 with BRL 3.9 billion of gross debt, and includes BRL 1 billion of bank debt issued in April this year, as well as a commitment related to the 5G licenses acquired last year, part of which were already paid for during this quarter. Nonetheless, given our solid operating results and efficient financial management, we managed to generate BRL 4.6 billion of cash in the first six months of 2022, increasing 13.9% year-over-year and reinforcing our ability to convert our sound operating performance into cash. Finally, on the last slide, you can see that we maintain a solid level of shareholder remuneration that was further enhanced by the execution of our share buyback program, which we have been accelerating.
We will continue to direct resources toward that end, in line with BRL 313 million already invested this year, out of which BRL 271 million were included in the current buyback program that expires in February 2023. To conclude, on July 19th, we will make the first payment on the 2021 base remuneration with a cash outlay in amount of BRL 2.7 billion that will be complemented by a further payment of BRL 3.5 billion scheduled for October 2022. Thank you. Now we can move to the Q&A.
Thank you. The floor is now open for questions. If you have a question, please press star one on your touch-tone phone at this or any time. If at any point your question is answered, you may remove yourself by pressing star two. In case you are following the conference call via webcast, please click on Question to the Host to send your question. Questions will be taken in the order they are received. We do ask that when you pose your question that you pick up your handset to provide optimal sound quality. Please hold. Our first question comes from Bernardo Guttmann, XP. Please, Bernardo Guttmann, XP, proceed. Your microphone is opened. Okay, we are going to the next question from Andre Salles, UBS.
Hi, guys. Good morning. Thanks for taking my question. I have a question in terms of margin. We saw some pressure coming from cost of goods sold and personnel expenses growing above inflation. Are there any costs or expenses related to the integration of Oi client base in this quarter? How should we see the margin dynamic going forward? What could drive margin recovery in this case? Thanks.
Hi, Andre. Yes, the margins they were impacted, as you said, you know, by cost of goods sold. I think it's good also to highlight what we said about the digital services, the relevance that these services are taking into our numbers, and it should be, you know, reported in the year, you know, BRL 2.3 billion. Now, as you can imagine, these services, they come with a lower margin. There's no CapEx, most of them, so it's lower margin. At the same as we are also increasing digital services in the B2C segment, also been selling a lot of entertainment service. We are now opening up the numbers in B2C, but we are growing as well the services.
What we want to highlight here is that these services are getting in a relevant volume in our results. Our absolute number of EBITDA is growing, now is above 8%. Going forward, I think what we're gonna see is more sales of services, different margin.
At the same time, digitalization is still playing an important role in our cost decrease. Now, we also wanna see some benefit of more digitalization in the customer care and also in sales commission, or since we are driving our sales. Now, today is around 30% of B2B sales in the e-commerce channel. We see room to increase it much more. No, much, much above 30%. It's gonna be a combination of two things. It's important to highlight now the impact in CapEx of selling digital service that it's. There's no impact because these services we built over the infrastructure of connectivity that we're really deploying. The numbers of Oi, they are included.
Of course, the margin of the Oi is much higher, because we are serving these customers with our channel that we already have in place, especially in the Northeast, where we inherited most of the customers. The network is capable of absorbing these customers as well. The margin is much higher of the Oi incorporation.
Super clear. Thank you. Our next question comes from Vitor Tomita, Goldman Sachs.
Hello, good morning, everyone. Thanks for taking our questions. We have a couple questions on our side. The first one is on M&A. There has been some M&A activity involving ISPs lately, and even a transaction between ISPs announced today. Do you see opportunities to participate in M&A on that front? The second question is that this is on Oi. This quarter, a large number of Oi users have been migrated to their new operators. Are you seeing a relevant movement in the market of users recently migrated from Oi requesting portability from one operator to another or changing operators more generally? Was this reshuffling of Oi subscribers a relevant factor at all for the strong organic postpaid performance you had this quarter? Thank you.
I will start with the second one, then I'm gonna go to the first one. Of course, we have seen portability going up. We have, if you look, the share of portability in our net add numbers in the second quarter of 2021, they were, portability represented at 15%, 16% sorry of our net adds and this last quarter it represented 31%. It's not only portability from Oi, it's complete portability from all operators. But if you look net adds in our case, it was 1.4 million postpaid net adds this quarter, and that not considering, you know, the movement of the Oi's customers to our customer base.
That shows that yes, it can be impacting the portability number, but it's not only that. Now, I think that's a strong commercial performance of Vivo that's also reinforced, if you look at our churn number, that was 1.1%, the postpaid churn. That is the lowest also compared to the second quarter of 2021. That was 1.3%. But if you compare two years ago, it was 1.5%. I think it is a combination, but I will highlight our superior value proposition that is attracting more customers to our customer base. Also that's the first and second question, and then if you want, I can comment a little bit more. About M&A.
Look, we are always attentive on market opportunities in many fronts and of course it also includes the fiber. We have a plan to get to 29 million home passed by the end of 2024, and we said already that 6 million will be FiBrasil responsibility and the rest will be part of our own strategies. Today we are in the 21, a little bit more than 21 million. We are on pace, and we are completing the target that we set to ourselves to get to 29. If you're gonna face any M&A decision in the future, it's also always depends. It depends of the overlap of the network, it depends of the quality of the network. It depends of the quality of the companies being sold.
We also need to see how we are gonna integrate these customers, our customer base, because one is buying the network, the second decision is buying the customer. It's complex. When the companies are too large it's even more complex because the overlap is even higher. We are always open to see, but we have a clear plan to get to 29 and that's building together with FiBrasil.
Very clear. Thank you very much.
Our next question comes from Bernardo Guttmann, XP. Please proceed.
Hi, good morning, everyone. Thanks for taking my question. Actually, I have two questions here. The first one about the solid growth in mobile. It seems to have been accelerated by the rationality in the segment. The market consolidation seem to have brought greater rationality to price. On the other hand, your guidance for synergies was conservative and did not consider revenue synergy. Is it fair to assume that this trend is in its early stage? Any view on the potential market repair of this deal? The second one related to the subject of tax reduction.
I understand the telcos' concern of passing on the benefit to customers by making services cheaper. I would like to understand, does the price reduction make room for a gradual margin recomposition? Historically, the sector has had difficulty with such price adjustments, now it seems to open up a greater room to pass through. I would appreciate it if you could comment a little more on this subject. Thanks.
Bernardo, I don't think the market has changed. No, I think what our performance in the mobile is a consequence of our strategy for the last years. We've been very keen on always adapting our value proposition to the needs of customers. We've been investing in network now to provide now 4G, 4.5G and now preparing ourselves for 5G. Also now we have also started to play the convergence of Vivo Total and also adding to our value proposition a digital service that I think we've been doing that very successfully. If you see how important then that they
Mm-hmm.
These are in our value proposition. I think it also gives you some highlight of like that we are in the right direction. Of course, I think all the players are looking for returns. We can see a more rational approach in general. It's not something specifically for this quarter. I think that is a movement that's been going on for many quarters. There is inflation that is going up. We've been adjusting price according to inflation on the plans that we have this annual possibility of being adequate in the plan. I think it's more condition that we've seen in previous quarter and reinforcing our value proposition that stands out, in our opinion, the best in the market.
Regarding the synergies, yes, we didn't give synergies in revenues for the old operation, and we keep with the numbers that you saw before. That is the 5.4, that's BRL 5.4 billion that was based on the OpEx and CapEx. Yes, we said also that we see the possibility of customers migrating, you know, the way that they're gonna be in our customer base, that they would have the possibility to spend more because we have a value proposition that is, it's broader than the one that they used to have in the Oi for many reasons, 4G investment, fiber, this agreement. Of course, we can see that. Now we are just assessing the assets that we get.
We're gonna see what activity of these assets, if some of them are not active as the way we consider active, especially in the prepaid. I think it's still early to say what's gonna be the revenue synergies impacting. Of course, customers porting in from other operators may see here an opportunity to increase their telco expenditure because our value proposition is broader than anyone else in the market. I think I answered your question. Regarding the ICMS, I think here the first thing that was very positive, you know, to see that telcos now are considering essential services and that we are gonna charge less.
Now, I think we've been talking about that for a long time, even before the pandemic, that we couldn't be taxing so much a service that could enable people to do so many things. We are very now focused in complying with all the government determination and attend the customer needs. That's passing over the tax reduction to everyone in every segment. We still are following on the states that we have two states that they haven't approved yet. Four states that recently approved. We have different tax in different states, different reduction in different states. There's a lot of complexity, but we are doing as fast as we can. What we believe going forward is that if customers, if they have the possibility of acquiring more services because now the price will go down, I think they will.
Customers that were running out of data because they couldn't afford more data, now they will be able to afford more data. Finally, the inflation that we are passing over to customers may be mitigated by the tax reduction. Customers that would downgrade when the inflation would pay a different price in their plan will now be able to keep the plan that they have. I think it's positive overall. It's positive for the consumer and in the end it's positive for us as well.
Very clear, Christian. Thanks a lot.
Our next question.
Bernardo-
From Lucca Brendim, Bank of America.
Hi, good morning, everyone, and congratulations on results. I have a question on my side from, for ARPU. If you could give us some further color on, how did the ARPU organically did, so not considering, OIB for postpaid and for prepaid, and also looking for the next quarters, now that there are only three players, if you believe this will also have a positive impact on ARPU. Also looking at churn because, as you mentioned, you reached lower churn ratios than before, if you expect this to continue going forward. Thank you.
Lucca, I think going forward, yes. I think we are not giving any trend about performance of an indicator, but I think what our value proposition is getting even richer. Now I believe that loyalty and lifetime value of customers with Vivo will increase. We are positive, you know, as we are like changing and adapting and including new service to our value proposition, being a true convergent player in the market with FTTH and the leadership in the mobile. It give us like a great opportunity to be with customers even more loyal. Now ARPU, it's impacted by Oi. Yes. They come with lower ARPU, as you know. But it may impact the postpaid ARPU. Here there are two effects.
Now our postpaid ARPU. First, there's a lot of migration from prepaid to postpaid that is impacting in a negative way the mix of the postpaid ARPU and also the customers that we are adding to our customer base that are postpaid from Oi. They are also impacting in a negative way the average ARPU. We're not giving all the detail, but if we excluded the Oi integration here, our movement would be positive in the ARPU evolution, okay? In both prepaid and postpaid. That's something that I can tell you. Again, here also not only Oi, but there is in the postpaid a very robust and very accelerated also migration from prepaid to postpaid. That is very positive.
That's why we are giving these very solid numbers in both, revenue, evolution of the prepaid that was 18.3% and the postpaid that was 14.4%. Both of them are very positive, gives us 15.1%. If exclude Oi is 9.4%. Now somewhere around there I can have the calculation. ARPU would be positive, moving, if it was not Oi considered in this calculation.
Okay. Thank you.
Our next question comes from Phani Kanumuri, HSBC.
Hi. Thanks for taking my question. My major question is on working capital. It seems that, you know, this quarter has been, you know, positively impacted by a significant working capital change of BRL 1.4 billion. What is driving that positive working capital and how sustainable is it going forward? Thank you.
Hi, Phani Kanumuri. Thanks for the question. Look, if you look the working capital this year, this is positively impacted by the tax benefit that we had last year in the second quarter, which is related to the PIS/COFINS where we got a credit around BRL 2 billion. Now, we are benefiting around BRL 500 million per quarter, this is giving us an upside. Also, if you compare the working capital of last quarter last year, the fourth quarter last year was negative 328. That means that at the end of the day, the working capital is made of impact that have a seasonality. You can see the free cash flow. If you look overall the last two, three years, we have a very robust cash flow generation.
At the end, the seasonality is not really impacting the figure that we have on an annual basis.
Okay. Yeah. Thank you.
Thank you. Our Speakers, you may proceed, if you may. Our next question comes from [audio distortion] , JP Morgan.
Hello, guys. Can you hear me? Hello?
Yes.
Perfect. Thank you for taking my question. Could you give us a little bit color on the dynamics that you're seeing in broadband? We saw a slight slowdown in your net add pace. Is this a reflection of slower economic activity overall or just competition increasing? That's my first question. Second question on margins. In this quarter, are we seeing the full benefit of the migration of Oi, or this is something that will take some quarters to actually translate and we should see some year-on-year margin expansion in the coming quarters just on the effect of Oi? Thank you, guys.
Hi, Roy. This is Christian. I think the market as a whole in the broadband, it's not as growing as what was growing before, maybe because after the pandemic there was a hype in the market. We are very confident that we continue to lead, you know, this market. Not only like building and expanding our network, but also connecting customers and keeping the rationality of our pricing. For us, like, we continue to penetrate the network and increasing the penetration actually go out to 5 million customers. That was our specific situation now in FTTH. The market as a whole is not growing as much as it was just after like the most severe time of the pandemic. I think natural movement.
Let's see how it evolves. Now we are confident that we have a unique value proposition that combines a very good quality of our network with a channel footprint and presence that is digital and also it's the presence of physical stores and door-to-door. Now we started to play the convergence with Vivo Total plus digital services. I think natural movement and that we are here very attentive to how to respond to demand and to keep our plans to get to 29 million homes passed, as I said before, and keep the penetration at the high level that we expect to have in the next year. Natural movement, leadership, but although, the market is not as accelerated as it was just after the pandemic.
For the margin like of Oi, David can help me. Okay.
For Milan, regarding the second question, look, the deal from Oi, as we say, is accretive from day one, although the synergies and the margin will continue improving quarter-over-quarter. Now, just to remind you, the first 12 months, we need to pay as part of the deal a transition service agreement around BRL 150 million to Oi because they are looking after their customers, the 12.5 million customers that are going to be migrated in the next 12 months. Once we have 100% of those costs internally, for sure will be lower than that, no?
To adapt our network, particularly in the regions where we are receiving the customer from Oi, during 2022, we are investing in CapEx, some amounts that this will not need to continue for the next years. We say that the margin will be above 70% coming from the revenue from Oi customers. The number that we are showing in Q2 now, margin will improve in the coming quarters.
Perfect. Thank you so much, guys.
Our next question comes from Luis Fernando Azevedo, Safra.
Good morning, everyone. My first question is regarding the revenues from Oi. It seems that the revenues from Oi customers is lower than the run rate it was indicated by the time of the closure of the deal. Do you agree with that? Besides, do you see potential base cleanup from Oi customers? This is the first question. Thank you.
Luis, I would take that one. Look, when we published the information around the integration of Oi, we said that we're going to have around BRL 135 million revenues per month. This was based on the numbers coming from March. We integrate the company starting in April, and the number that we are seeing could be slightly lower, but anyway, there is rationality. Consider that most of those customers are prepaid customers, so the activity will not have an impact on, in theory, on the revenues that we already saw in March and in April. What we are seeing is that some of those customers are migrating organically from Oi to each one of the acquirers in the case of Vivo.
As Christian says, we are accelerating the portability, so migration customers from an organic way. Overall, when you look at Vivo overall, I do believe that the numbers that we were saying, BRL 135 million per month, are still there. It doesn't need to be in one line, could be on the just on the reported line as Vivo, no? In the next few quarters, we are going to accelerate the migration, so those customers are going to be 100% working or operating in Vivo's network, and they are going to be also with the care that we will do for those customers will be as part of the rest of the base. We will protect the revenues.
Even though we are continuing analyzing the activity of those customers, this will not have an impact on revenues, could be even an upside because now we will try to migrate and also to upsell and cross-sell those customers. That would be, let's say, for the next 12 months.
Thank you. The second question I have is regarding the dispute for Anatel on roaming price. Can you give more color on how is this dispute?
Yes. What we are discussing here is the model that was used to calculate the roaming. We agree with the decision of Anatel and CADE that we need to present a tariff of roaming, but in our view that they are based on what are the model that was defined in the PGMC, the General Plan of Competition Goals. Based on this that we presented our first offer. Now, here what we are discussing is how we should calculate the roaming tariffs, not the remedy itself, because agree with the remedy. The core discussion here is about the model used to define the tariff, and that was the discussion at the moment. No, nothing more I can add on that because it's where we stand at the moment.
Now, we use the regulation that exists today. There is a top-down one that is a fully allocated cost, historical cost accounting, and that was the one that we used to present our offer as well as the other operators. Now, it seems that there was a new proposal based on a different calculation model that is not in the regulation that is a bottom-up long run incremental cost. That's what we are debating at the moment, and hopefully we're gonna get to an agreement.
Thank you.
Our next question comes from Andres Salles, UBS.
Hi. Hi guys, thanks for the follow-up here. Could you please comment a little on the sites coming from Oi Mobile acquisition and the decommissioning plan that you guys have for them? Do you estimate any costs due to contract early termination?
They're for sale, and that was part of the obligation, so they are there. I think we have, like, a period for people to answer, and to comply. We are like 60% of them will be divested to comply with the CADE's remedy. We have to wait until, like, all the offers will come to the table and decide on that, and that we can comment on that, Andre.
Yeah. Just to complement on that, Andre, then, I mean, the figure we have in our balance sheet shows the liability that we already have for those 2,700 sites coming from Oi. The worst scenario is already considered in our balance sheet. Now we are on the way to renegotiate with the towers company whether we can, I mean, we are going to decommission, as we say, more than half of them because they will be for sale. We will need to negotiate. The worst numbers are already there, so we see just opportunities to manage this process over the next 12 months.
Got it. Just to confirm, that's related to that close to BRL 700 million that is booked on your balance sheet right now, right? The provisions.
Yeah. We have the provision in two lines. One have to do with IFRS 16, which is BRL 700, and we have another BRL 700, which is booking other provisions. Those are the ones related to the sites that are for sale as part of the remedy from CADE. We have 50/50 booking two lines because we have two strategies on 50% of the sites and different strategy for the rest of the other 50. Everything is considered.
Okay. Got it. Thank you.
Our next question is from the webcast from Cesar Medina, Morgan Stanley. How do you expect the rollout of 5G to impact your CapEx trends as CapEx intensity, CapEx versus revenues?
Like, it's part of the business. I think it's evolution of technology. We continue investing in the new technology, so investing for 4.5G. We're still, like, implementing a broader coverage. We started with 5G in the cities that are included in the obligation. We may go beyond that. Also, that's a commercial decision that we may decide. I think once we start doing that, we are also not doing other investment in previous technology such as 2G, 3G. As I said before, also we are taking the opportunity to strengthen our position as a leading infrastructure provider in Brazil in both mobile and fiber.
That we believe, as we believed in the past and gave the result today, that we are gonna bring more revenues once we continue to differentiate ourselves as a leading value proposition for connectivity plus digital services in our country. It's gonna be part of our CapEx, but it's gonna be a combination of reduction also in previous technologies.
Thank you. This concludes the question and answer session. At this time, I would like to invite Mr. Christian Gebara for any closing remarks.
Okay. Thank you all for attending our call. As I said in the beginning, we are extremely satisfied with the robust results that we presented, especially highlighting the unique growth that we had in all lines of our revenues, that like beating the double-digit result and also the increase in our EBITDA results as well. In the end, the free cash flow that's been with a robust result. We are open here for any further question with our team, as you know. Again, thank you all for participating. Thank you.
Thank you. This concludes today's Telefônica Brasil second quarter 2022 results conference call. You may disconnect your line. Have a nice day.