Earnings Call: Q4 2020

Feb 24, 2021

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Telefonica Brasil Fourth Quarter of twenty twenty and twenty twenty Earnings Conference Call. Today with us representing the management of Telefonica Brasil, we have Mr. Christian Gebara, CEO of the company Mr. David Melcon, CFO and Investor Relations Officer and Mr. Luis Plaster, IR Director. We also have a simultaneous webcast with a slide presentation on the Internet that can be accessed at the website, www.telefonica.com.brir. 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 this time, further instructions will be given. Before proceeding, let me mention that forward looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. 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 results to differ materially from those expressed in such forward looking statements. Now, I will turn the conference over to Mr. Luis Plaster, Investor Relations Director of Telefonica Brasil. Mr. Plaster, you may begin your conference. Thank you. Good morning and welcome to Telefonica Brasil's conference call to discuss twenty twenty fourth quarter and full year results. The call will be divided as follows. First, our CEO, Christian Gebara, will give you an overview of our operational and financial performance. Then our CFO, David Melcon, will comment on the acquisition of Voice Mobile assets, our cost and CapEx management and our shareholder remuneration for 2020. To conclude, Christian will comment on our ESG initiatives and then move to the Q and A session. Now I hand over to Christian. Thank you, Blaster. Good morning, everyone, and thank you for attending our earnings calls. I'd like to start by giving an overview of 2020. The pandemic has accelerated Brazil's digital transformation, which confirmed the essentiality of our services. During this challenging year, Vivo delivered a solid set of results driven by the increased demand for our high quality and reliable connectivity. Our purpose of digitalizing to bring closer has never been so appropriate. We ended the year with 95,000,000 access. In mobile, we added 4,000,000 customers ending 2020 with Vivo's market share at historic highs of 33.6%. Our fiber deployment continued at full speed, reaching 15,700,000 home passed, an increase of 4,700,000 HPs, which is more than double what we did in 2019. FTTH revenues increased by 52.9 year over year in the fourth quarter. In terms of profitability and despite the headwinds of the temporary confinement measures, our resilient EBITDA totaled billion The EBITDA margin increased 0.3 percentage points year over year, reaching 41.3% due to the performance of our growing business and effective cost management that Adeel will elaborate later in the presentation. We are also able to deliver our highest ever level of free cash flow, billion growing 12.6% year over year. All these factors allowed us to propose a shareholder remuneration of billion for the year with a payout of 113.6% and a dividend yield of 7%, which is more than three times higher than the local interest rates. Moving to Slide four, you can see that the recovery of Vibos key segment was consistent throughout 2020. Postpaid revenues grew 4.9% quarter over quarter due to the acceleration of net additions and continued execution of our More for More strategy. Prepaid also continued to outperform with revenues increasing 4.3% quarter over quarter, driven by a robust level of net additions and recurrency of top ups. FTTH revenues rose 8.2% quarter over quarter, supported by the constant growth of the customer base and migration to higher speeds. Lastly, handset sales continued to recover, growing 14% in compared to the previous quarter. This performance was benefited by improved commercial activity and the success of our end of the year campaigns like Black Friday. On Slide five, we show the transformation of BIBO's revenue profile, which validates our positive outlook for the future. We divided our total revenues into two categories, core and no core businesses. Our core businesses are based on high speed connectivity, both fixed and mobile, which is a key enabler for digital services. The results that Vivo is increasing its relevance in today's cutting edge technologies like fiber and is in the best position to explore the full potential of customers' digital lives. Vivo's core businesses include mobile, handsets, FTTx, IPTV, digital services and data and ICT. These segments represent 88% of our total revenues and grew 3.2% year over year, mainly due to the positive results from FTTH and consistent performance in mobile. The non core businesses, which represent 12% of revenues and dropped 26.4% year over year, are made up of mature legacy technologies that we have strategically decided to deprioritize. The fixed to mobile substitution and the voice to data migrations are consolidated realities with no going back. We no longer foster the commercialization of EDSL, which is an outdated technology. And we stopped actively selling DTH back in mid-twenty nineteen. As a result, and from now on, we'll be focusing our presentations on the core business to better convey the company that's vivid today and the future that we foresee. On Slide six, you can see that the total mobile revenues increased 1.6% year over year despite the impact of the pandemic on handset sales. Prepaid revenues grew 7.3% driven by an impressive volume of net additions and continuous effort related to customer base management. The postpaid segment, which accounts for 57% of access and 80% of mobile services revenues was up 0.9% year over year and showed ARPU improvement. We continue to execute our more for more strategy and are combining data with a complete portfolio of co branded digital services. These actions are paying off and we are optimistic going forward. Turning to Slide seven. We also again reaffirmed our mobile leadership and Vivo's market share remains at historic highs, reaching 33.6% in December. Postpaid churn saw a reduction of 0.53 percentage points year over year and stands at the lowest level in five years. On the bottom left hand side of the slide, we show the breakdown of postpaid net additions and how they have been improving. In the fourth quarter twenty twenty, we had 638,000 net adds. Prepaid also had another strong quarter of net additions, 105,000, which indicates how quality connectivity is increasingly important across all segments. On Slide eight, we show the performance of our core fixed business that grew 9.1% year over year. The data and ICT line decreased 4.2% due to many companies postponing investments during the pandemic, but we are convinced that FIBO's revamped B2B portfolio puts us in a privileged position to capture this opportunity as soon as the economy picks up. FTTx revenues were up 13.8% driven by the relevance of FTTH that represents 73% of these revenues. FTTH is our main growth catalyst delivering an impressive 52.9% revenue increase year over year and a compound annual growth of 45% in the recent past. As we expand our FTTH footprint, IPTV access and revenues also grow. During the last two years, IPTV revenues posted a combined annual growth rate of 25%, confirming the appeal of our high speed broadband and content platform bundle. Moving to Slide nine, you can see the ramp up of our fiber access and the constantly improving quality of our customer base. Our fiber products continue to attract more customers, which resulted in a 36% increase of FTTH access year over year. We also show a substantial increase in FTTH ARPU, 13% year over year mainly related to the demand for higher speeds. Moving to the right hand side of the slide, we present acceleration FTTH net adds that totaled 248,000 in the fourth quarter of twenty twenty, 1.7 times higher than the previous year. I would also like to highlight the high value profile of last quarter's FTTH gross adds. More than 35% were convergent customers, approximately 30% were on speeds of 300 megabits, approximately 20% were sold together with IPTV and more than 25% were bundled with OTTs like Netflix and Disney plus On Slide 10, we show how our fiber deployment continues accelerating. As previously mentioned, we ended 2020 with 15,700,000 home passed, an increase of 4,700,000 year over year. By year end, our fiber footprint covered two sixty six cities, reinforcing our commitment to offering a best in class experience across Brazil. The cities launched during the last two years have already achieved expected penetration rates, confirming the accuracy of our strategic fiber deployment plan. Vivo has the largest FTTH footprint in Latin America, which is equivalent to the sum of home passed in The UK, Germany, Netherlands and Australia. We also lead in terms of homes connected with 20.3% market share in FTTH more than six percentage points ahead of the second player. But we still see that there is room for further fiber growth in Brazil and we plan to reach at least 24,000,000 ramp pass by the end of twenty twenty four. One of the ways that we'll be doing this is by launching an independent neutral fiber network. The initiative is progressing well. We have entered an advanced phase of negotiations together with Telefonica Infra and a major international investor and expect the signing in the near future. Vivo will be the anchor tenant carving out 1,600,000.0 brownfield home pass and the target is to reach at least 5,500,000.0 home pass with FTTH in four years. We will keep you updated as soon as there are further developments. Moving to Slide 11, we would like to share some KPIs that illustrate Vivo's initial success at expanding its portfolio beyond traditional telco services. One of our key initiatives is Vivo Money, a 100% digital personal loan platform. Vivo Money is in its early stages, but since launch in October, we have seen positive results. New contracts per month increased 2.5 times and monthly credit origination grew 2.4 times in just two months. Vivo Money stands out not only for its simple and quick loans, but also for its focus on high quality mobile customers with a digital profile. We're seeing that Vivo Money is attracting customers that demonstrate higher adoption of our Vivo Vivo WeChat. Another promising development in the fourth quarter was our digital marketplace, launch of vivo dot com. Br, launched in July 2020. We had an increase of 6.7 times its gross merchandise value quarter over quarter. Loggia Vivo is key to our strategy of becoming a one stop shop for our customers' technology and connectivity needs. Bibra is also a digital hub for B2B delivering a unique set of corporate solutions. Our cloud and cybersecurity segments proved how resilient they are despite of this year's economic downturn and grew revenues 77116% respectively. Another initiative Vivo Ads, our digital advertising platform saw its revenues grow 14% year over year. In August, we launched a self-service sales channel aimed at expanding its reach to small and medium enterprises, making it possible for them to have access to mobile marketing campaigns. To conclude, the Terra portal remains the third largest portal in the country with two eleven million business per month in 2020, an increase of 35% year over year due to the improved media coverage, which also contributed to Vivo ad revenue. Now I would like to pass it over to David, our CFO. Good morning, everyone, and thank you, Christian. Moving to Slide 12, I would like to present a brief overview of the execution of Oi's mobile assets. This opportunity will consolidate Vivo's leadership in quality of services, one of our historic strengths and contribute to the generation of additional value for our shareholders through the capture of synergies. The joint bid that won the auction on 12/14/2020, was set at BRL 16,500,000,000.0, of which we paid BRL 5,500,000,000.0. Okay, thank you. Let's continue with the Slide 12. So these are the key milestones of the overall execution process, and we are confident that the transaction will be completed by the end of twenty twenty one. As you can see on the bottom left hand side of the slide, this deal represents a unique opportunity for Vivo. With the redistribution of spectrum frequencies, we will strengthen our value offering and through the acquisition of customers in regions where we have lower market share, we will be able to make better use of our network and broaden our customer base. Additionally, OpEx and CapEx synergies will certainly be enhanced by a solid track record of previous integrations, such as the case with the acquisition of GBT in 02/1950. Furthermore, this movement is positive, not only for Vivo, but for the telco industry and Brazilian society as a whole. There will be a mass upgrade in customer experience given the improvement of network usage in all corners of the country and further acceleration of investment dedicated to infrastructure and innovation to advance Brazil digitalization process. Turning to Slide 13, we show our continuous commitment to improving our cost structure. Recurring cost, excluding good short, contracted by 4.2% year over year in nominal terms. If we were to discount the effect of inflation, we would see an even more impressive 8.7% decrease. G and A and personnel costs were benefited by ongoing optimization initiatives and temporary government measures such as payroll subsidies. Commercial expenses saw a 9.2% reduction driven by our digitalization and simplification efforts. Another positive factor has been the greater use of digital channels across our customer base, decreasing expenses by commissioning, consider, billing and advertising. Provision for bad debt also dropped 9% year over year, reflecting our customers' concern to maintain their payments up to date as well as the measure that we have implemented like offering the option to pay in installments. Cost of self directed decreased 10% year over year due to the high interconnection costs, variable regulatory fees that are impacted by the acceleration of the mobile customer base and the growing demand for digital services that come through partnerships. As a result, our recurring EBITDA totaled almost 4,900,000,000.0 in the 2020 with a margin of 43.6%. On Slide 14, we present figures from our digitalization and simplification fronts that are key drivers for sequential cost contraction and improved customer experience. In December, e billing penetration hit 84%, a significant 12 percentage point increase year over year, while payments made through digital platforms now represent 64% of collections. Recently, we started offering digital technical support and this new way of caring for our customers already represent 25% of the overall technical support. We were able to reduce call center costs by 24% in 2020 through the growing use of e commerce channels like MioVivo, artificial intelligence with Aura and a selection of WhatsApp solutions. The enhanced acceptance from our customers for positive digital was also seen in prepaid top ups and B2C sales. In December 2020, 37% of recharges were made through digital platforms, and our B2B digital sales increased 61% year over year. That said, there is still room to advance in the digitalization journey, both internally performing our back offices and in the way that we interact and serve our customers. On the right hand side of the slide, you can see that since 2017, we were able to deliver our OpEx savings of BRL1.5 billion. Our OpEx savings improved sequentially from BRL $394,000,000 in 2018 to BRL $624,000,000 in 2020. We ended the year having reached 94% of our 2021 target of BRL 1,600,000,000.0, but let me again reinforce that we are confident that we can do even more. Moving to Slide 15, on the left hand side of the slide, we can see the performance of our smart CapEx allocation. Our CapEx ratio decreased 1.9 percentage points year over year and our CapEx decreased 11.9 in relation to the previous year. Regardless of the reduction in CapEx, we invested even more in FTTH and Cotton Eye Technologies in general. Growing technologies account for 70% of our total CapEx investment. I would also like to share more details regarding our network sharing agreement with TIM that is divided into three main fronts. In four gs coverage expansion, we have already reached three forty eight new cities, and we expect to close the first semester of the year with seven thirty cities covered, half for each operator. Another front is the network consolidation that will result in a single grid model, focused on cities below 30,000 inhabitants. We are carrying out a pilot in 50 cities, which will be completed during 2021. I will then be able to define the next steps. The full potential of this front involves an extension of the model to 1,600 cities. Lastly, we have the two gs network shutdown, which means that each operator will switch off half of the two gs sites. The alignment phase is ongoing and rollout is expected for the third quarter. Through this network sharing, we will have additional four gs coverage, better network capacity and OpEx and CapEx efficiencies. We are enthusiastic about the future of this agreement and it incorporates our commitment to quality and the optimization of our investments. Turning to the next slide, I'm happy to report the conclusion of the unification of share of glasses. Since November, we are trading with only the B3 ticker in the Brasilia stock market, while our IBR sticker remains unchanged. This represents a significant step towards a greater level of governance, granting all shareholders tag along and voting rights. I would also like to give you an update about the share buyback program. So far, we have acquired 1,300,000.0 shares for a total value of BRL58 million. We continue to be active and the program will be in place until January 2022. Finally, I'm reinforcing our commitment to our shareholders, we are proposing a remuneration of BRL5.4 billion for 2020, which represents a payout of 130% and a gross amount of BRL3.2 per share. Our dividend yield stands at 7%, more than three times the local interest rate. The payment of this amount will be divided in two tranches. The first tranche of BRL2.6 billion will be paid on July 13 and the second tranche of BRL 2,800,000,000.0 will be paid in 10/03/2021. This remuneration has been proposed by the Board of Directors and is pending the necessary approvals by the General Shareholders Meeting to be held on April 15. And finally, moving to Slide 17, you can see that our efficiency, financial management and CapEx allocation continue to have a positive impact on cash generation. We ended the year with 9,600,000,000.0 of free cash flow, our highest level ever. This result, in combination with a low leverage, is what allowed us to consistently invest on our core business, consolidate Vivo's leadership and look to the future with a positive perspective. Thank you. And now I pass the word back to Christian. Thank you, David. To conclude today's presentation, I would like to comment on the progress and some of the results around our commitment to ESG. Regarding our environmental initiatives, Recycle with Vivo collected 7.7 tons of electronic waste in 2020, an increase of 15% in comparison to 2019. Vivo, in its first local submission to the Carmel Disclosure Project, had the best grade in the assessment and was included in its prestigious A list. And for our social actions, Fundacion Telefonica Vivo invested R59.4 million dollars in education last year that benefited 2,400,000 students and teachers. In response to the ongoing pandemic, there was also an additional investment of R36 .6 million dollars in donations, totaling R96 million dollars in 2020. Last month, Vivo also donated through Fundacion Telefonica Vivo an additional R300,000 dollars for the purchase of medical equipment in the state of Amazonas. Vivo was also recognized for its commitment to promoting diversity and social inclusion by winning the CNN Notable Awards in the diversity category. Another important achievement is the fact that we were classified as industry mover in S and P sustainability yearbook. Finally, Vivo maintained its listing in the main ESG indexes like Beatrice Corporate Sustainability Index and Carbon Efficient Index. And our compliance program obtained the DSC 10,000 certification guaranteeing our conformity with Brazilian decoreruption laws and regulation. These are just a few examples of how VIVO seeks to be a protagonist in promoting sustainable development contributing to our society. Thank you. And we can now move to Q and A. Thank you. The floor is now open for questions. In case you are following the conference call via webcast, please click on the question to the host to send your question. Questions will be taken in the order they are received. Our first question comes from Fred Mendes, Bradesco BBI. Hello. Good morning, everyone. I have two questions here. I mean, the first one related to the FTTH, a strong increase again in the ARPU. And it looks like the high speed products like the 300 megabytes is driving this growth. So I think the first question here is, do you see room to increase the ARPU above BRL90 since the average that we have here? And then on the same topic, if these clients that you are adding, a very strong net addition again, if you are getting clients from the competition or if that's basically an upgrade from the corporate clients that you already have? Thank you. Hi, Fred. That's Christian. The second question, about the net adds, most of it is new customers that are coming in. So most of the net adds are coming from new customers. So new cities that we enter or penetration of the existing network. So most of it is coming from new customers. Regarding ARPU, so as you correctly stated, ARPU is improving for two reasons. We are selling more the mix of High Speed 300 is growing, So we still see room for growing even more. And also we are blended together with our broadband offer OTTs. So we started with Netflix, very successful. We added Disney plus and we're going to add others in the near future. So blending content with fiber is a strategy going forward that we're to follow and also increase and improve the mix of 300 or even high speeds that if considered appropriate in the future will also be in our strategy. So ARPU may continue with this positive trend. Thank you. Thank you, Christian. And if I may, just a quick follow-up. You briefly mentioned about the carve out process during the beginning of the presentation, but can you give us a little bit more details on that or not yet? Thank you. Okay, Fred. So as we ended the year with 15,700,000 home pass. So out of this 15,700,000, we're going to carve out 1,600,000. We're going to contribute now with this at this new independent and neutral fiber network. It's a company, FibreSil. So Vivo is contributing this EUR 1,600,000.0 brownfield HPs. Then we have an international investor as a partner and Telefonica Infra, that's from Telefonica Group also as a partner together in this vehicle and in this company. The objective is at the end of twenty twenty four, we end with a network with more than 5,500,000 HPs that contributed to the 24,000,000 HPs that we said also in this presentation that is going to combine organic growth from Vivo and this €5,500,000,000 originated by the Neutrol network. Very clear, Christian. Thank you very much. Thank you, Fred. Our next question comes from Leonardo Omos, UBS. Hi, good morning everyone. My question is on mobile. We noticed very wide range of net additions in the quarter, AMX with over 2,000,000 subs, 10,000, 300,000 and you with 1,800,000. So my question is, want to understand your strategy in net additions in the fourth quarter of twenty twenty, was it? And how do you see that right now in 2021? Leonardo. This is Christian. So as we stated in the beginning, we are seeing a recovery. I will talk about first postpaid and then we talk about prepaid. In the postpaid, after the very difficult months, March and April, what we saw after that was a reopening of the economy. And when the reopening of the economy occurs, we also opened our stores and our physical channels, and we see a better mood for the customers to go to malls and to stores and to buy telco services or technology services. So I think we were able to capture this positive trend, this recovery of the economy and reopening of the channels. I also believe that our superior quality and customer experience drove the decision for some customers to select Vivo as their operator that you can see not only in the positive net adds and gross adds, but also in a very reduced churn. Now the churn in the postpaid was one of the lowest ones in the last five years. So that's the positive. And also, I think we've been innovating in our offer. We innovated in the hybrid and also innovated in the postpaid. Here, I will emphasize the selfie plan. That is a combination of data with an OTT on a value added services. Here we have strong partnerships and we launched it just after the pandemic started in May, June. Partnerships with Happy for delivery, partnership with Netflix for video, partnership with Spotify for music, partnership with Premier for football and lastly, partnership with Disney plus and we are about to launch new partnerships. That's driving this concept of buying content plus data in the same level of protagonism and not only having data and with an added service as a secondary offer. So I think that stands out as very positive. Again, we're also being able to migrate prepaid to postpaid. Our net debt in the prepaid, as we stated, is very strong. It was strong in the third quarter. This also gives us room for migration for the hybrid and that's also going to the positive recovery, people with more mobility than they were before, people buying SIM cards and that we are able to capture. Again, the quality, the coverage of people stands out. And also there is the government aid. The government also, we've some incentives that they put in place in the last year was also positive for driving consumption and the prepaid in this case was also benefited. Thank you, Christian. You mentioned that migration from prepaid to postpaid or hybrids. Looking at your own base, especially considering the new prepaid you recently had, how long do you think that can go? How long can you how many more clients can you migrate on prepaid to hybrid or postpaid? Gerardo, prepaid is increasing the base. So when we keep bringing customers in, there's always room for migration. And I cannot tell you for how long. I think we are putting a lot of effort in creating a very wise and with very attractive portfolio coming from prepaid, going to hybrid, going to self it. Now self it is an individual postpaid plan, going to the family plan that already stands for different needs, no one or family together wants to have a plan. So I think here the and we have Vivo Yizi that our plan that is also sort of entry postpaid plan with a very personalized offer using a credit card. So I think it's much more our ability to drive customers into people and get them with the best offer that's best for their needs. Now our percentage of postpaid customers is very high, as you know. And here, I think it's our ability to drive more prepaid to postpaid. So that's why our revenues coming from postpaid is much higher than the ones coming from prepaid. So that's the ability that we have to do that. So today, have $45,000,000 access in postpaid and $34,000,000 access in prepaid. But this 35,000,000 was asked by we added 1,000,000 in the last quarter. So once we could continue keeping this number growing and moving this number to the postpaid, I think it's mid long term strategy. All right. Thank you very much. Thank you, Leonardo. Our next question comes from Marcelo Santos, JPMorgan. Please proceed. Hi, good morning. Thank you for taking my questions. I would like to explore a little bit more the digital initiatives that you put on Slide 11, Vivo Money and Vivo Marketplace. I wonder if you could give a little bit more color. On Vivo Money, how far has this been running as a fully implemented initiative? I understand you ran it as a pilot for a while, but is it available to all? What are the main hurdles to grow? And alternatives of funding are you studying? Do you consider launching some kind of fatigue? Any data you could share about losses like delinquency or anything that would be interesting? So anything basically. And on the marketplace, how what kind of channels are they using more the app or is it more through the Internet? What are the incentives you're putting to bring sellers? How do you work logistics? So basically, if you could give some more color on these initiatives, that will be very helpful. Thank you. So Marcelo, good question. I think to start it, we strong belief in our ability to leverage digital services through our customer base, channel capability, physical and online, our big data capability and the strength of our brands. So Vivo Money that we included in this presentation is one example among many other that we are working now in different sectors and different verticals. Financial services is one, hardware and accessories is another one, Health is another one. Education, entertainment, so there are several ones. If you go money, we've been working a lot in this project for a long time, and we've been very cautious and conservative the way we want to expand it. We launched it commercially in a segmented approach in October, was when we started offering this to a segmented customer base, it's not for everyone. And we started with hybrid and postpaid customers. We still haven't addressed the prepaid customers. That is most of the target that is maybe more aligned with the needs of this credit. What we started offering for these customers, it's loans that coming from R1,000 dollars to R30,000 dollars And it's 100% digital, as you asked also. So we normally do that through marketing campaigns that the customers could click and then get the credit. And also over our customer base, sometimes on SMS, we're also using it to address customers in the need of a loan. The rates we want to be attractive, so we compare ourselves with similar companies that are offering credit or loans to this customer base. Most of them are not banks. Some banks are entering debt, but others are companies that are just addressing the financial needs of this customer base. Here, we started with FafidIQ and we're to today is funded by us, but we're going to add more partners as it grows. What we try to show here is what we had in October was multiplied by 2.5 on what we had in December. We are being opening up a little bit more or getting awareness of the service. We're not doing a massive campaign, putting on TV or using all the channels available to us to market what is Vivo Money, we've been very conservative and cautious to start growing on that. That's only one piece of our financial services strategy that we have. We're going to be talking about more financial services in the near future. Today, if you consider that our customers, they go and they buy most of today, we reached more than 35% of our top ups in prepaid already done digitally. Why not this top up that is digitally executed could not end to be a wallet? So today, they use this money only to buy data and buy a prepaid plan. We foresee that the same money that they put in the prepaid app, they could also use to buy other services. So that's also the initial thought that we had for wallet. That is a Vivo wallet that we started from a customer base. They already use us for the top up, as I mentioned before. So there are many other insurances or something that we already sell. So we have pieces. And the fee for money is another piece in a larger and broader strategy to have a relevant role in financial services. And the other one that is in this slide only to mention, if you want, is our marketplace. We have an e commerce and our e commerce was centered in selling our services, telco services plus the smartphone that is very close to the core that is the mobile service. We've decided to open up to be a marketplace for technology, not only selling the products that we have in our own store, but adding together stores from other players. So that's why we call it Loggia Vivo, that's a marketplace. So you can buy a smartphone, you can buy an accessory, you can buy a service from Vivo, but you can also buy a fridge, you can also buy a blender, you can also buy different types of accessories. We strongly believe that we can go much further with that. And so that's why we mentioned for the first time this, we have a number that's multiplied by seven almost the third quarter and now in the fourth quarter is multiplied by seven, all the results that we have in the third quarter. That's only to address some of the questions that we normally have, how can you leverage customer base, big data, customer channel capability, the strength of the brand and also our billing capability. These are few examples that we're going to bring more and more as soon as they develop. So that's I don't know if I address all your questions, Marcelo. Great. Thank you. Thank you very much. Our next question comes from Susana Salaru, Itau. Hi. Hi, morning guys. Thank you for taking our questions. We have two. The first question is related to the FTTH growth. It's actually expanding very fast. So our question is how what is the pricing strategy once you get one new place if you have a bond, a more aggressive pricing strategy to be able to maintain this level of growth going forward? That will be our first question for FTTH. The second question is related to top of the prepaid. How much more do you believe that you can believe in terms of a lead of the charge? We are asking that expression because we understand that the key cost in the prepaid, the key cost of the pay is the pop up cost. So they were just like to know two years from now, do you believe that what will be the percentage of the charge done digitally versus non digitally? And if you are really aware that that would be an important driver for margin expansion? Thank you. Susana, can you repeat the second question? Didn't get it. I cannot answer the FTTH, but what's the question of I understand that the one the prepaid, what is the question? The top ups? My question is following the top ups today digitally by 37% the 7% of the recharge are agreed. Two years from now, what percentage of the yield or recharge you believe you can reach? We are asking that because we believe that's an important driver to expand margins. So actually, if you already know that it's a key cost that can actually be better managed and accelerate margin expansion. Susanne, I think we've been growing a lot in top ups through digital channels, no? And there are always new digital channels coming up. So it's difficult for me to tell you what is going to be the limit. And I think also many more people are getting credit cards. So when the people have a credit card, it has more access to digital channels. We have new wallets coming in, the market. These wallets also help the digital penetration. So if you see some of the new brands coming up in the market now that are used to buying in online channels, and I'm not going to name them, not to be naming one and not naming other, but there are many, many companies bringing up digital payment solutions. All of them, they have been adopted by Vivo. When we adopt these new ways of payment, we see an increase an important increase in the usage of digital channels. Now the peaks also will facilitate people to get money. We facilitate people to have an account and we facilitate people to transfer this money to a wallet. So that's why also I answered before Marcelo that we see an opportunity for us to develop our own wallet. Also the number that we see here, I believe, is going to be much higher. I think the two things will be very aligned with the circulation of appeals in the market. Now some people believe that deals will be over in few years. If they are over, digital channels will be most of our top ups. So there is room to grow, and we are growing constantly. In the first one, in the FTTH, as I said, we are the largest fiber network in the country. Last year, we got to 4,700,000 new homes. We've got almost 1,000,000 new customers. We have an ambitious plan to go to more cities. We are overlaying some of our ADSL and FTTC network when we believe there is an opportunity. We still haven't played convergence. No, we can't play convergence. We have the highest market share in mobile. We are we have strong partnerships with OTT bringing content to the FTTH offer. So I believe there is room for much more growth and that's why we are doing this independent neutral fiber network because we foresee as a great opportunity for Brazil where the penetration of ultra broadband is still low and we see Vivo as the leader in what we call convergent offer that is mobile fiber plus OTT. We are in a unique position to do that. You. Our next question comes from Sumit Dada, New Street Research. Yes. Hi, there. Thanks for taking my question. Questions, a couple, if that's okay. First of all, on Oi, we have quite a bit of guidance from your kind of peers, Telecom Italia last night on how their business would look with Oi. I guess you're not giving anything specifically, but I wondered if you could maybe add a bit of color as to the direction of numbers when we think about incorporating Oi. Specifically as well, they kind of guided up to some incremental CapEx in 2021 ahead of the deal close. And I wondered whether you were going to see a similar step up in CapEx, a kind of preparation CapEx, if you will. That's the first question, please. And then secondly, on the balance sheet, you're paying a generous dividend this year above net income. You're buying back stock. Where would you sort of envisage the leverage of the balance sheet getting on a sort of two year basis? Thank you. So thank you for the question. This is Christian. So as you said, we are not giving much more information I think what we saw here is the process that we're going through and the stake that it's for Vivo if the deal is approved by Anatel and the antitrust institution in Brazil called CARE. What we see here is the opportunity to bring customers to our customer base and that with no additional cost. Now these customers will be served by our existing network. If you see areas that may be more aligned with people's lowest market share are areas where we have a very strong and robust coverage, not only in three gs, but mainly in four gs, different from Oi in some of these areas. Our coverage will be superior and our quality will be superior with no additional cost in this case of bringing these customers in. Also in the customer care, we are able to also treat take care of these customers with our own structure. We have a robust structure for digital channels, stores and call center and also to address the incremental number of customers that we may have if this operation go through. We don't have we don't consider additional CapEx for this year CapEx, as you asked, and that's going to be absorbed in our project for the year. And different from our competitors, we don't give guidance here in Brazil about our numbers. But our CapEx will be controlled. I think we had an additional CapEx in the past for acceleration of FTTH that we said that we'll do that three years ago. Last year, we ended with 8,000,000,000 So we're going to work in the numbers. Last year was unusual because of pandemic, but we're not going to come back to levels that we had when we needed to accelerate FTTH. Regarding dividend, I think David can answer you. Yes. Thank you. Thank you, Samit. This is David. Let me cover the second question. So we continue with our policy to distribute 100% of the net income. And this year, on top of that, we had up €600,000,000 of distributor reserves that we had on the balance sheet. So we end up having a very attractive shareholder remuneration that was it's around the dividend yield around 7%, which is three times the CELIC, which is the local interest rate. So considering that this year, we'll have a very, very strong free cash flow generation of more than $9,000,000,000 that means that we will still have additional cash that could be used partially to find to find out acquisition of Oi's mobile assets that we hope will happen we expect by the end of the year. And then we will still we are also expecting, I mean, this year, there will be the five gs spectrum auction. And again, we will expect to leverage the company to absorb this payment. Having such a strong balance sheet that we have today and the low interest rate that we are enjoying now here in Brazil, we think we have the best combination to combine growth, to keep investing in our core business, to have a strong shareholder remuneration, as we have already shown over the last few years, maintaining our policy of 100% plus to be able to fund at a very attractive interest rate, all the opportunities that are coming in front of us. As I say, Oi, Oi's mobile and also the spectrum auction that we will have during this year. That's really helpful. Can I ask a very quick follow-up, which is what is your latest expectation for the five auction in terms of structuring cash upfront or wrapped into future coverage? And what is the expectation for timing? Thank you. The five gs, we expect I don't have an official date, but the government has been stating that they want to do it by June, July. We still need the rules of the auction to be defined, approved by the regulatory institution, Annatel. They may do that this week. There was a first vote first actually three votes, and then there was asked for the President of Anatel to review the documentation about the ruling of the auction. There are some obligations related to the auction. They still need to be defined, the investment required and the gap for this investment. So we're still waiting. We may have some news in the following days. These numbers of the value of the auction also needs to be approved by the relative to what's going to be charged. So we need to get through the process that may take a few weeks or months. And once it's ready, we're going to get prepared to that. So I don't have any more news than the one that is in the press. And we wait for a final meeting in Anatel to move the process. Okay, great. Thank you. Our next question comes from Maria Theresa Acevedo, Banco Santander. Hi, thank you for the question. It's just a follow-up on the previous question on five gs. Can you please comment on your five gs strategy plans? Are you going to focus more on personal mobility or fixed wireless access? Or do you expect early adoption on B2B automation and IoT? And also in that context, do you see any opportunities not only on the ARPU but also on the cost side from having five gs networks with softwareization, virtualization that could optimize your network maintenance cost? That would be all. Thank you. Hi, Theresa. It's difficult for us to share the strategy that we are planning for five gs. It ranges from most of the topics that you just described. Of course, there is usage of data, mobile usage of five gs that may increase. There are the usage of some apps or solutions that we can use with fiber, but not with four gs. So five gs may also be helpful for that. I mean gaming and many other entertainment that on five gs, the experience will be much better with the speed and the latency related to that. Of course, we foresee a big number of new applications with IoT, B2C with connected homes, but B2B mainly, as you just described, we've been doing some private LTE network with important clients in Brazil with great success. I'm sure that with five gs, we'll be able to do that in a more massive way with better results. And here, we have been working and already planning our business, industrial clients and many others. We wonder five gs may also mean a different way of the restructuring their whole business. So again, and then in the end, you may consider smart cities, difficult to see the money that we're going to capture from that right now, still have time for that, and many other applications that we see in other countries. Fixed wireless, our focus is in fiber is FTTH, but why not in some remote areas to complement our footprint as you're seeing here that we may end 2024 with 24,000,000 home passed. There are many other homes in Brazil and why not complement this strategy as we do complement with four gs sometimes with FWA solutions. So we're open to all of them. In the cost side, difficult to tell you. There is also, of course, some automation that we may be captured, but there are many more sites that need to be put in place for five gs. And I think, again, we've been pioneering in sharing infrastructure. We've been doing that with TIM, and we are open to do more also in five gs. So we started with four gs with TIM, two gs. We are piloting single grid three gs, four gs. And again, we'll be opening to do that also in the five Perfect. Thank you, Christian. And just as a follow-up question, do you have any additional color you can share on the fiber spin off process? Do you expect that you can improve your returns on the fiber in the mid cities and reduce a little bit your CapEx? And how are you thinking about the franchisees as well for the smaller cities? Thank you. We're talking about the franchising Terra or the Fibrazio? Both, actually. Okay. The franchising that we have for the Terra brand, it's very focused on smaller cities. The number of franchising is not in the number of 24,000,000 home pads that I said. We have already launched seven cities we franchise. The model is different. The CapEx is 100% for the franchisee. So Vivo has no CapEx. And the revenue, we only have royalties from the franchisee of royalties that is paid to the sorry, the franchising fees that is paid from the franchisee to Vifor. So it's a different model, very focused in the smaller cities. We have a year in the target of cities with less than 60,000 inhabitants that is more appropriate for our franchising. So we continue with this project, opening up in the different regions of the country. Also as that, we had seven and planning to have more. So that's part of the strategy. Here the CapEx, as I said, it's zero because the CapEx is not ours. In the other model that we already have in place with American Tower or Phoenix Tower, though there are a combined model where the CapEx is split between Vivo and the partner, in this case talking about American Tower or Phoenix Tower that together we have already more than 25 cities. Part of the CapEx is responsibility of the partner. It reduces our CapEx and we pay for home connect and there's an OpEx related to any customer that we connect. There's going to be a similar model that we're going to put in place with FiberZeal, lower CapEx and the OpEx related to connecting new customers. And also give us the speed, normally, that it is not only the CapEx, OpEx and formula, also speed. If you consider the case of American Tower and Minas Gerais, they bought the Mink Telecom. So we leverage from their infrastructure there. We put part of the infrastructure that we already have there. We reduced our CapEx and we can address this opportunity much faster. If you consider that our aim there is to get to 800,000 The home passed, we already surpassed 300,000. So we are doing very fast, moving very fast with very good results. Perfect. Thank you. And the fiber spin off is also in advanced talks, right? What about the farmers do not is what? Is in advanced stages and it will also drive a lower CapEx impact in your balance sheet? Yes. It is in a very advanced stage and the model is more or less the same that I said that we are developing with HTC, American Tower. Now part of the CapEx is responsibility of the partner. In the case of Fibrazil, part of the CapEx will be responsibility of Fibrazil. And we're to be the anchor So we're to penetrate. Then we still have the CapEx related to the CPE, the customers' premises equipment. And we pay an OpEx for the usage of this neutral network at 2.5 Brazil. Perfect. Thank you very much, Christian. Thank you, Martinez. Our next question comes from Alejandro de Loestra, BBVA. Hi. Good morning, everyone. This is Alejandro Calostra. Thank you so much for taking my question. You mentioned at the beginning of the call that most of the new subscribers in FTTH come from new customers. However, the, the pace of, your disconnections from other technologies is still outpacing the number of net additions in FTTH even even though you benefit from from entering a new, new regions with FTTH. So my question is, what do you think why do you think customers from other technologies are migrating to to other companies? What do you why do you think or what what are the offering that you do not at this stage? And what initiatives are you taking to increase the rate of retention of these customers? Thank you. Okay. Thank you, Alejandro, for the question. I restate what I said. Most of the customers that we are bringing to FTTH are new customers. No? Your question is correct as well. The issue here is not the areas are not the same. Sometimes I'm coming to new cities. Most of the cities that I entered last year, I don't have any network. No, I only have network if I used to have FTTC, then there is an overlay, it's not a new city. Or if I'm doing overlay in the state of Sao Paulo, that is the only place that I have copper, no ADSL, no different from other players. Our concentration of copper is exclusive in Sao Paulo and then we have another few cities where we bought from GDT that we have FTTC. So the markets where I enter or the markets where I'm losing customer, as you correctly stated, are not necessarily the same. When I am overlaying, when I'm entering, I'm I'm losing these customers to myself. So these are the percentage that is the minority of customers that migrate from IDSL FTTC to FTTH because they put the network there and they connect, are already people customer and it's much easier and they migrate to FTTH service from the same operator. But in some cities or in some places, I'm not there yet with FTTH. So this customer is an IDSL customer, one FTTC customer may find out another alternative with higher speeds that I cannot offer with DSL and FTTC. I've been trying to retain this customer, but if he is an ADSL customer with a four megabits speed in their broadband and they face and they face the competition of a local fiber provider offering this customer 100 or 200 megabits, it's impossible to retain. The customer is willing to pay a little bit more. They will certainly migrate to this new technology. But the same happened to us in places where we were not there. There was someone that captured my customer that used to be DSL, and now I'm winning back this customer. So it's a mixture of different scenarios, Alejandro. So they are not so easy to put a number. The only thing that I can say is where I can migrate, I'm migrating because I'm deploying the network. Where I'm not deploying the network, I'm trying to retain, but I normally I lose the customer because they have an alternative with much higher speed. And where I'm entering, I'm capturing the customer. Even if the customer is in another technology with higher speeds, normally fiber is the winner. So I win back this customer. If it's a different technology with good speed, but not as good as fiber for upload and download. And even when it's in a fiber local provider, I'm able to capture this customer because I offer fiber, I offer ATT blended, I offer IPTV for those who want to buy IPTV. And in the future, I also play convergence. I offer mobile plus FTTH. Okay, great. Thank you for the explanation. And how long do you think it will take you to cover with FTTH those regions where you still cover with only FTTC? I may overlay all the areas that I think are interesting for me, know that it's financially attractive. It's not it doesn't mean that I'm going to migrate and overlay 100%. In neighborhood, some of the decisions of deploying FTTC were taken in the past, and we may agree to continue to just offer FTTC in these regions. And in some regions, as we see value, we may migrate. So it's I don't give you a number as part of our strategy, but it will depend of the value that we believe we can capture. Okay. Thank you very much for the explanation. Okay, Alejandro. Thank you. This concludes the question and answer session. At this time, I would like to turn the floor back to Mr. Christian Gebara for any closing remarks. So thank you all for joining our call today. If you have any additional questions, as you know, you please access our IR team. Hope to see you soon in our 2021 results release that will be in April. So thank you so much. Thank you. This concludes today's Telefonica Brasil 4Q twenty twenty results conference call. You may disconnect your lines at this time. Have a great day.