Earnings Call: Q3 2020

Oct 28, 2020

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Telefonica Brasil Third Quarter of 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 slide presentation on the Internet that can be accessed at the site www.telephonica.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. 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, begin your conference. Thank you. Good morning and welcome to Telefonica Brasil's conference call to discuss third quarter twenty twenty results. The call will be divided as follows. First, our CEO, Christian Gebara, will comment on our operational performance and give an update on the steady recovery of our top line. Then he will go over our commercial initiatives and accelerated FTTH expansion. Then our CFO, David Melcon, will comment on cost management, investments and financial highlights. To conclude, Christian will comment on our ongoing ESG initiatives and then move to the Q and A session. Now I hand over to Christian. Thank you, Glastor. Good morning, everyone. Thank you for taking the time to attend the third quarter twenty twenty earnings call. I would like to start by talking about Vivo's strong operating performance in key segments that confirms our consistent operating improvement and are once again robust cash flow generation. In mobile, Vivo's leading position in terms of quality and customer experience resulted in 844,000 postpaid net additions. Currently, our postpaid customer base accounts for almost 60% of our total mobile access. In this quarter, we also posted another set of impressive additions in fiber, a key lever for future revenue growth that saw record net adds for the third quarter in a row with 267,000 new customers reaching 3,100,000 homes connected. As you can see on the right hand side of the slide, our mobile service revenues fell minus 1% year over year, as the impact of temporary confinement measures still lingers in some segments of our business. On the other hand, the same line grew 3.3% quarter over quarter, which supports our more optimistic build that is a typical effect to soon have less impact on our operations. Our fiber revenues made up of FTTH Gen I PTV increased 47.3% year over year and 14.5% quarter over quarter. This impressive evolution is fueled by our efforts to expand our fiber footprint and the strength of the product that proved its unique value in terms of best in class connectivity for our customers. Shifting to cost, we remain focused on our digitalization and simplification initiatives that helped to reduce recurring costs, ex cost of goods sold by 3.4 year over year, taking EBITDA margin to 40%, advancing 0.3 percentage points quarter over quarter. Lastly, driven by the resilience of the business and our efficient and rational CapEx allocation, we registered solid cash flows throughout the year, posting billion in operating cash flow into September, expanding the margin 3.4 percentage points year over year to 23.5%. By aligning that with the financial management, we were able to deliver billion of free cash flow, 50% higher than the same period of the previous year. In fact, in the first nine months of 2020, we reached a higher level of free cash flow than in all 2019. On Slide four, I would like to show how Vivo has been able to consistently recover its revenue through its crucial role in the delivery of high quality connectivity. Postpaid revenues showed an evolution of 1.2% compared to second quarter twenty twenty, as net additions started to recover with the opening of stores and prepaid continued its sharp advance, increasing revenues by 13% quarter over quarter. In our fixed business, FTTH sales continue to outperform, growing 16.8 quarter over quarter, supported by the expansion of our fiber footprint that continues at full speeds. Finally, handset sales rose 90.3% in comparison to second quarter twenty twenty, since almost all stores are now open. All things considered, we can see that Vivo's value proposition along with the growing relevance of customers' digital lives are proving key to the fast and sound recovery of our business. On Slide five, you can see that our total mobile revenues remained stable as we continue to feel the impacts of temporary confinement measures that were partially offset by the positive evolution of handset sales and prepaid. Headset revenues increased 10.1% year over year as the impact of the pandemic on stores operations started to ease. Mobile service revenues fell minus 1%, mainly because of a difficult comparison base versus the third quarter of twenty nineteen, when we implemented significant price increases at the beginning of the quarter. In the third quarter of twenty twenty, the increases took place at the end of the quarter and impacted a smaller portion of our postpaid customer base. Prepaid revenues grew 5.8% driven by continuous efforts related to client acquisition and customer base management that were responsible for the encouraging level of net additions in recent months and higher recurrency of top ups. Moving to the right hand side of the slide, we show the postpaid that accounts for 67% of access and 80% of mobile service revenue is seen ARPU recover to prepaid coverage levels as we continue with our more for more strategy. Prepaid, which accounts for 43% of mobile access and 20% of mobile service revenue, saw its ARPU growth levels up both first quarter twenty twenty and the strong level of net additions will allow for higher migration to postpaid going forward. Moving to Slide six, in the third quarter twenty twenty, we again reaffirmed our mobile leadership supported by our superior consumer experience and quality of service. Our overall mobile market share stood at 33.3%, the highest in the last fourteen years. And we had a significant improvement in postpaid churn that reduced 0.56 percentage points year over year and it's now at the lowest level in five years. On the bottom right hand side of the slide, we show the breakdown of prepaid ongoing performance. This quarter, we had 1.466 net adds, the highest level since 2012 because of our continuous efforts to attract new customers and improve customer base management. Finally, postpaid reported last quarter's trend of disconnections and posted strong additions in Q3, hundred and twenty seven thousand as commercial activity started to pick up and migrations from pre to postpaid posted stronger results. On Slide seven, we show that our fixed revenues dropped minus 6.6% because of the maturity of voice, our strategic decision to stop selling DTH pay TV and CapEx optimization for copper based services. On the other hand, we see very positive trends in fiber business that continues to transform the mix. On the right hand side of the slide, you can see that growing business were up 8.3%, increasing their relevance over fixed revenues and now accounts for 60% of the total. This trend shows why we are confident that this segment will be the driver of future growth. Our FTTH and IPTV revenues confirm the success of our accelerated fiber deployment. FTTH revenues were up 56% year over year, while IPTV were up 26.9% resulting in a combined growth of 47.3%. Now moving to Slide eight, our cutting edge fiber products continue to attract more and more customers. As a result, we posted record FTTH net additions for the third quarter in a row that now represents half of our broadband customer base. FTTH net adds totaled 267,000 in the third quarter twenty twenty, reaching 3,100,000 access, a 34% year over year increase. Broadband ARPU rose 17% year over year to R77.7 dollars FTTH customers have significantly higher ARPU from other corporate based technologies. Moving to the right hand side of the slide to present the growth of our IPTV business. IPTV access increased 26% year over year contributing to the improvement of PayTV's ARPU by 2%, reaching dollars I would like to highlight that these impressive figures are the combination of our accelerated FTTH deployment plan with the strength of the product we are delivering. Fiber connectivity is a future proof technology whose demand is consistently growing driven further by current home office and home schooling needs. Moving to Slide nine, this quarter I would like to present the distinct set of capabilities that Vivo has to capture opportunities and create value in the digital space. Vivo is the largest and most recognized telco in the country with 94,000,000 access and one of the top eight most valuable brands in Brazil estimated at $2,200,000,000 That's something with the almost 19,000,000 unique users that access our eCare app Meofivo, our more than 1,600 stores that make us comparable to the largest retailers in Brazil and the 200,000,000 visitors per month that our Ateramo portal showed the potential, reach and capillarity that the company has in the Brazilian technology market. Cipu is a gateway for the digital life of our customers. And for that reason, we launched a digital marketplace that offers everything technology related at our online store. Just to mention other examples of our ability to expand our reach, I would like to highlight the following initiatives. We recently launched Vivo Money, a digital loan platform that offers fast and simple personal credit to postpaid customers based on credit scoring that use our billing data to improve accuracy. Vivo also signed partnerships with various apps and OTTs to offer co branded mobile plans where data and digital services such as Spotify, Netflix and Rappi are jointly promoted as equal business of our value proposition. The same strategy has been used to sell fiber plus OTTs such as Netflix and Amazon Prime Video. Furthermore, we are venturing into other segments such as eHealth and Education to capture even more opportunities. One of them, Vivo Medici Ta Sao, a wellness app focused on meditation and mindfulness had more than 1,600,000 downloads since its launch in July 2017. Another recent initiative is our strategic partnership with Dialo and Doctor. Consulta to offer benefits in health services to Vivo customers, which represents our first step towards a more relevant participation in that sector. Moving to Slide 10, we had another quarter with impressive results regarding our fiber deployment that continues at full speed adding an additional 1,500,000 FTTH homes passed to our footprint. In Q3, we entered 28 new cities with FTTH reaching a total of two forty four and we expect to end this year with two sixty eight cities. We continue our organic expansion while also accelerating the overlay of corporate and FTTC networks that allows us to improve net adds and ultra broadband ARPU while protecting our customer base. Additionally, I would like to point out that the creation of our neutral fiber vehicle is advancing as planned. Several investors have demonstrated their interest in the project and we are confident that the vehicle will be operational in 2021. Finally, as you can see on the right hand side of the slide, we reached 14,600,000.0 HPs home passed in the third quarter twenty twenty and we expect to reach approximately 16,000,000 HPs at the year end. With that, we will more than double the number of cities launched and homes passed when compared to 2019. Now I'll pass it on to our CFO, David LeBlanc. Good morning, everyone, and thank you, Christian. On Slide 11, we show how our persistent cost efficiency supported by digitalization and simplification initiatives reduced cost by 3.4% year over year. G and A and personnel costs decreased 3.3% year over year, benefited by continuous cost control initiatives, but also by government measures such as temporary workday productions. Commercial expenses had 11% decrease, driven by our continued digitalization and automation efforts and by lower provision for bad debt that decreased 29% quarter over quarter. This reflects the increased value that our customers are giving to connectivity and maintaining their payments up to date as well as our measures to mitigate the effects of COVID, such as offering the option to pay in installments. On the other hand, cost of service rented increased 7.4% in the third quarter, driven by expenses related to network expansion, tariff readjustments and higher fixed cost due to the positive evolution of our mobile customer base. In addition, I would like to present a few figures related to our digitalization initiatives that are the main driver of our sequential cost production story. In the third quarter twenty twenty, we had 11 percentage points year over year increase of customers receiving eBills, reaching 79% of all bills sent, while 63% of the payments were made through digital platforms. We also reduced by 20% the number of calls through the growing use of e car channels like new Vivo and Aura. We have to make nine fifteen processes across the company with the use of robots that allowed us not only to reduce costs, but also to improve the customer journey. On Slide 12, we can see that through efficient capital allocation, we're able to deliver solid cash flow generation combined with expansion of our FTTH footprint and cutting edge technologies. In the first nine months of the year, our CapEx contracted 70% year over year to R5.4 billion dollars driven by our strategy to prioritize investments in growing technologies that currently account for 72% of our total expenditure. This rational approach can also be seen on the right hand side of the slide as CapEx allocated to fiber technologies increased 20% year over year, while legacy decreased 53%. Additionally, I would also like to share with you that our network sharing agreement with TIM is underway and evolving according to expectation. This agreement corroborates our commitment towards OpEx and CapEx optimization. Now moving to Slide 13, you can see our solid net income generation allowed for the maintenance of superior shareholder remuneration. Net income for the quarter is BRL 1,200,000,000.0, growing 25% year over year, contributing to the declaration of BRL 2,000,000,000 of interest on capital so far this year. Moreover, I would like to remind you about the payment of dividends based on last year net profit for a total of BRL 5,800,000,000.0. The first tranche was paid in August and the second of R2.2 billion dollars will be paid in December 2020. Turning to Slide 14. Accumulated free cash flow for the first nine months of 2020 grew 50% year over year, reaching BRL 8,900,000,000.0, surpassing the free cash flow for the whole 2019. These outstanding results were driven by the EBITDA contraction caused by lower economic activity, partially compensated by our strong cost reduction, lower CapEx as we continue to focus investments on growing technologies, lower financial costs and income tax expenditures and working capital improvements as a result of the postponement of some regulatory tax payments and lower CapEx and OpEx disbursements. By maintaining a robust cash flow generation and solid balance sheet, we continue to successfully implement our strategy and invest in selective assets, making Vivo a stronger company, allowing us to look to the future with confidence. Now I would like to pass the word back to Christian. Thank you, David. To conclude today's presentation, I would like to say that thanks to our increased focus on effective ESG practices, VIVO was chosen as one of the top 10 companies in the new S and P B3 ESG Index. Regarding our environmental initiatives, we launched a national campaign called Recycle with Vivo to increase the awareness of the proper disposal of electronic waste. This campaign invites and encourages societies to reflect on the necessity of recycling that can be done in more than 1,600 collection points available at Vivo stores and other strategic points across the country. Moreover, we inaugurated our first biogas power plant in Rio De Janeiro. It will produce more than 11,000 megawatts hour per year and it's one of the 70 renewable power plants in our distributed generation project that's expected to be fully operational in 2021. Moving to the center of the slide, we had two important recognitions in the social dimension. Fundacion Telefonica Vivo was the first Brazilian recipient of UNESCO's Handam's Prize for Teacher Effectiveness through the Connected Schools project. This project was launched in 2015 to promote inclusion of educators in the digital ecosystem and foster the development of ICT skills among students. The platform offer approximately 40 distance education courses covering a wide range of subjects and targets basic education teachers on all over Brazil. The success of this initiative was attested by more than 300,000 new subscriptions it had so far in 2020, three times more than last year. Another recognition came from Great Place to Work as Vivo was elected one of the 150 best companies to work in 2020 and also joined the early childhood ranking, highlighting our ability to adopt practice that care for and promote the well-being of children and their families. To conclude, we took an important step toward a higher level of governance. The conversion of preferred shares into ordinary shares was approved by the extraordinary shareholder meeting and a special general meeting of preferred shareholders, granting, take along and voting rights to all shareholders. There are just a few of many initiatives that we have at Vivo to help society reach a more sustainable future through a conscious consumption of goods, protection of our carbon footprint, but also to be more equal and just. I would like to invite all of you that are interested in our ESG efforts to have a look at our sustainability report that is available on our Investor Relations website. Thank you. And now we can move to Q and A. Thank you. The floor is now open for questions. If you have a question, please press 1. To remove yourself, please press 2. In case you are following the conference call via webcast, please click on question to the host to send your questions. 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 Rodrigo Villanueva, Bank of America. Please proceed. Thank you. Good morning. Can you hear me well? A little bit louder Rodrigo. Yes. Okay. Thanks so much. So my first question is related to the process to migrate concessions to authorizations. I was wondering, Christian, if you can share with us your views on this process. How is it going? And what are your plans regarding this? That would be my first question. And secondly, do you see appropriate economic conditions in Brazil to raise prepaid wireless prices? And if so, when would you expect to do so? Thank you. Hi, Rodrigo. As you know, this law, the reform bill, the PLC 79, it was signed into a law in October 19, yes, last year. Now we need to go through the process. Araceli is currently doing, they are working on the regulation of this new telecom framework. So in the June, they opened a public process to hire now through the International Telecommunications Union, a consultancy firm to support the agents in the calculation of everything related to the migration of the fixed telephony concessions to an authorization. Also there is appraisal of reversible asset. There are many analysis of the current cost models and many other calculations that they need to go through. So we're still waiting to have more definitions in the coming months. So it's a long process. We started, we are optimistic, but it's still very early for me to say if we're going to reach the right price for this migration. Hopefully, yes, but still the process of having ANATEL getting the support to have the calculation for us to start discussing. So that's in this point. In the prepaid and the same as in other mobile services, we've been raising in the post premium hybrid, we raised price in the as I said, in the end of the third quarter, not as we did in the last year that we raised in the beginning of the third quarter. The increase is lower than we used to have because inflation is much lower as well. But we keep our strategy of giving more for more. So I think we've been successfully doing that. In the prepaid, we also be increasing our offers. Now it's difficult to talk about specific offer in the prepaid since we have different ones. We've been trying to drive our weekly and biweekly offers to drive prices up. We are not giving as others competitors are giving lots of social networks for free. So I think we've been very, very rational, although the market in the prepaid specifically as you mentioned, it still hasn't act or perform the way we expect as we are moving prices. So I would expect more price increase in the prepaid as happened in the hybrid than the postpaid, but we don't see this movement with our competitors. So let's see what happens in the next months. I think we had a very strong results with prepaid this quarter. I think the flight to quality proves to be right in moments where people needed to be connected, so we could see a robust net adds for FIFO, an increase in revenues for prepaid and we are still trying to move price up as far as we can do that specifically in offers that have more frequency than our weekly and biweekly offers that people have at the moment. Understood, please. Thank you. Thank you, Alberto. Our next question comes from Marcelo Santos, Banco, JPMorgan. Please proceed. Hi. Good morning. Thank you for taking my question. The first is just following up on the prepaid success. Do this also have anything to do with some sort of higher focus of Vivo on prepaid, some initiatives you did to drive this very, very strong result? So I think that's the first question, any change in strategy. And the second question on the legacy business in the fixed line, we saw a steeper deterioration. You could please comment this breaking down and how much of this is the economy, how much is the lower focus or maybe higher competition from other fiber players? So just try to understand why it's getting worse? Thank you. Hi, Marcelo. Thank you for the question. First, in the prepaid, you're right. We had a very strong result of 5.8% year over year growth in prepaid. So we had it open. Now if you compare to the quarter, no, it's a 13% increase. I think that there are many things related to this performance. The first one, I answered to Rodrigo before, I think when quality is required, Vivo stands as the number one. So I think people are now home office, homeschooling, home entertainment and when you need a good connection, if you consider the penetration that we have in three gs plus four gs, 4.5 gs together, we are the top one. So I think that's the first one. Second one, I think we have been working and we have a lot of capabilities in managing our customer base. So I think we've 've been doing that well, proposing the right offer to the right customer to improve the engagement with people and not only with our service, but also digital service. I think the right way to do that, I think it also proves to be good. The strategy has been following actually very good because improving number of net adds as well. Also our commercial activity, we're being fairly precise, acting the right point of sales to attract the right customers So I think also the numbers that you've seen that's also proved that. So that's a combination of both, no more customers, lower churn and also increase in ARPU. Now I think as you can see also in our presentation, if you see the ARPU that we have the third quarter of this year is much higher than we had, not only the second quarter, but we were very strongly impacted by the COVID, but also the first quarter of this year pre COVID impact. And there is a final comment that I would add Marcelo that the government adds Brazil as you know, it's given money for people in a more vulnerable situation also helping people to consume. And that also has an impact, a direct impact in our prepaid performance. So by the combination of all, even when there is a reduction of the head of the government, continue to see a strong movement in our customer base, reduced churn, lot of engagement and consumption going up for our customer. That's first, I think, the final answer. But let's go to the second one, and then if you have any questions, the first one, I go back. In the fixed revenues, as we said in the last quarter as well, we are optimizing our CapEx allocation. I think that's the first decision. We are putting all the strength of our CapEx on the FTTH and reduced when started COVID, our deployment of CapEx related to new customers in FTTC or DSL. That has an impact because we cannot grow the revenues in this two lines as we used to do because there is a better allocation, better return, but has a direct impact in revenues. Voice also legacy services is decreasing as you know. We've just showed a number of minus 18%. That's a combination of factors, but it's something that we're going to continue to see because voice is getting not used as we used to in the past. And the third is the DTH. DTH, we stopped a long time ago to acquire new customers, has a direct impact in our revenues. But I think it's all again, it's a wise decision. We are focusing just in IPTV or fiber plus OTT. If you look at the breakdown of our revenues, what we call this legacy services, they still represent 40%, but they used to represent almost fifty percent one year ago. So going forward, we're going to see these legacy services going down and what's the new ones, the FTTH plus IPTV growing in a robust way as we are deploying more HPs and we are penetrating more our network, we are going to place more convergence. So we're going to these numbers going up. The only one that I also would highlight, corporate data and ICT. We are also optimistic about this slide. This quarter, we were impacted by companies being closed and not signed for new deals. That was a temporary effect that we believe in the months to come, it will be corrected by new companies and our current customers also investing more in data and that's specifically talking about Let me answer all your questions, Marcel. Perfect. No, thank you very much. Our next question comes from Maria Theresa Acevedo, Santander. Hi, everyone. Thank you for the call. My first question is on the CapEx side. We have a lot of positive trends going on right now, open RAN, the network sharing, the neutral fiber networks in which you're going to participate, probably a more gradual rollout of five gs. How should we think on the CapEx trends more mid and long term? Is it fair to assume that the CapEx should continue to go down over the next years, finally reaching low teens? Hi, Maria. Thank you for your question. Let's just go back a little bit to talk about the CapEx. Now in 2018, we said that we will increase CapEx because we had a model like to expand our fiber footprint in a more accelerated way. And that's why we've got in this 2018 an additional CapEx and that was also forecasted to be EUR 9,000,000,000 in 2019, 9,000,000,000 in '20 So we were at the time that we were in Investor Day in 2018, we said that we will reach 14,000,000,000 HPs with this additional CapEx that we were presenting at the moment. So just want to highlight that because we're going to end this year with 16,000,000 HPs, it's more than what we said at the time and we're using an amount of envelope much lower than the one that we predicted at the time. So even 2018, the CapEx was lower than what we said, EUR2.5 billion last year, it was lower than EUR9 billion. And this year, it's going to be much lower, not only because we are more efficient, but also because of the impact of the COVID. And as I said in the question before, we are prioritizing what is growth technology and not investing the legacy, so also has a very good CapEx allocation. Going forward, as you said, we're going to continue growing fiber. We're going to continue growing 4.5 continuing to grow five gs. We are understanding that we just started the five gs DSS. We're going to have the auction next year. So there's a lot of commitment that we will need to comply and we will to keep Vivo leading the Internet arena both in mobile and the fixed. So and we are looking for alternative models as the one that you mentioned, the neutral ones that will ease a little bit depression on CapEx. So the same that we have for American Tower is already a CapEx allocation that is different because American Tower is responsible for part of it. The same that we have with Phoenix Tower, different one that we have in the franchisee because in franchisee, there is no CapEx for Vivo, it's 100% CapEx in franchisee. And in the neutral, that is the plan that we have for the future to continue to grow. We're going to also have a different CapEx allocation that will allow us with lower CapEx. I'm not giving guidance, but not with lower CapEx to accelerate from what we have today EUR16 million to 2024 have more than EUR24 million HPs. That will be a different allocation, more pressure on OpEx, but lower pressure on CapEx. Thank you very much, Christian. And then as a follow-up question, the FTTH execution is impressive. Can you comment a little bit on the different strategies in large, medium and small markets competition wise? Do you think that the expectation is to ARPU continue to grow? And how accretive do you expect the fiber spin off to be? And if you see any consolidation opportunity in the fiber market for that new vehicle as well? Thank you. So I think as you said, the fiber market segment is competitive, but we've been very successful in any new city that we enter. We have a competition there. Now it's as you know, there are thousands of small players. So any new city that we enter, we face any type of competition and we've been very successful deploying more, not only for you to have an idea, this quarter 28 new cities that we were not present. And if you consider the year of 2020, we are talking about 104 new cities, not that compared to the year before, that was 43 new cities. We are more than doubling the number of cities and more than doubling the number of HPs. So we are very confident with our strategy going to the cities and we are not being limited by the presence of competition. ARPU in our case is also as representing is growing. I think we've been able to sell in a better mix. We are selling much more higher speeds and people are willing to pay a little bit more to have a better quality in their connection. And here, has the best value proposition by far, reaching 300 megabits. We are also being able to add to our broadband proposition, not only IPTV, PayTV, but also OTTs. I think successfully Vivo has been deploying FTTH plus Netflix plus Amazon Prime Video plus many others that we are coming to announce in the next month. So also that's going to help drive ARPU. And also seeing ARPU in a total figure of mobile plus FTTH. Here I think is the figure that Vivo has that I don't see the small players. So the ability to protect or to expand our mobile customer base with a combined offer that we put together the fixed FTTH, IPTV, eventually OTT, mobile and many other digital services that we are putting into place here, I just mentioned some of them, to increment our share in the wallet of digital services of our customer going beyond only talking about telecommunication. I think the figure here is that we are to go beyond just considering telecommunications as the ARPU that we want to capture. Perfect. Thank you very much, Christian. Our next question comes from Matthew Robillier, Barclays. Good morning and thank you. I had three questions. The first one was around the outlook for Q4. On the one hand, you're exiting the quarter with very strong volume growth in mobile, and really the question is about mobile. On the other hand, I don't know how the situation is evolving in Brazil in terms of COVID, lockdown, reduced mobility. Obviously, I don't think you had percent reduced mobility than in Europe, but I was wondering how you see the Q4 when you look at these two elements together. I mean, we expect an acceleration of mobile because you have better volumes and the price increase? Or you think there could be a bit of a deterioration in the economic environment? The second question was about costs. So if I look at what you've done over the past five years, you basically have been able to reduce costs five years in a row, which is very impressive. And I was wondering how we should think about the next one year or two because on the one hand, I understand that maybe some of the costs have come down because the legacy revenues in fixed has come down and that will disappear at some point or maybe less cost cutting opportunities. Also, as you just mentioned, you're slightly shifting the model in terms of your infrastructure, sharing more with others, which moves CapEx to OpEx. So the simple question is, do you still see overall reduction in OpEx in the next year or two? And then lastly, can you give us what is your best estimate or best guess for when the spectrum auctions the five gs spectrum auctions will take place? Is it 2021? Or could it shift to 2022? Thank you. So, Matt, this is Christian. I will answer number one and number three, and then I ask David to answer number two. Number three, we expect to be next year. We don't have a final date, still waiting for Anatel to publish the rules of the auction. The Minister of Telecommunications said that it most likely would happen in the first semester of twenty twenty one, but we don't have any official confirmation. So I believe it's going to be next year. That's the third question. The first question, Brazil situation here is getting better. I'm talking about COVID situation. So we are now fully operational regarding our commercial channels. We still have some areas where we are now working at the same hour that we used to work in our stores. And of course, there is limitation of capacity in our stores that has an impact in our sales. But what we see weekly is a change in a positive way. We see cities coming from more conservative phases in isolation or protocols going to a softer phases and that's positive for our business. So what we see, we are not giving trends for the revenues, but what we see is more flow in stores, more people looking for connectivity, more demand for the smartphones and accessories. We have now Black November, we're going to have Christmas. So the signs, economic signs and the COVID signs are positive for our business, not giving you any trend. And we expect that we are able to capture this positive trend wave coming from these two movements, the economic one and the COVID and the health one. Going to cost, I will ask David to complement the complement on this. Hi, Matthew. This is Arist. Talking about the cost, I mean, you're right. So we have been reducing cost year over year for more than four years. But we believe that there is still room to continue reducing the cost. We present through the slides, we are working on eCare, e commerce, billing, payments and many other initiatives that are reducing our costs. So would say for the future, so the cost have to do with running the company. We see still room to keep reducing. As you mentioned also, we are moving to a model where it would be less CapEx, more OpEx. Also, are moving to more digital space, but it's going to be higher revenue that will bring with lower revenue lower margin. So how do we prefer to look at it is we are planning to keep growing OIBDA because all those revenues will bring positive margin always and also to keep accelerating and to put focus on the operating cash flow margin. So if you look for the first nine months the year, we have an operating cash flow margin of 23.5%, which is growing 3.4% year over year. So this is how we monitor our business, and we make sure that independently in which line is recognized. We are always improving our profitability, and this is what is helping us to keep accelerating the cash flow generation that you can see that this quarter has been impressive. Thank you very much. Thank you. Our next question comes from Carlos Ekeda, BTG Pactual. Hi, good morning guys. Thank you for taking my question. So I know the FTTH operation is growing super fast. Net additions are impressive. Vivo is the largest FTTH operator by a good margin. So everything is going super well in the FTTH business. What strikes me is, is there any way to grow even I mean, you have CapEx under control, free cash flow generation is amazing. Are there any ways to do it even faster to build out the network even faster? The issues are engineering or why not try to move even faster with FTTH given how well we were doing? And also, if that is not possible organically, would it make sense to try to go for inorganic strategy in the area to grow faster, please? Thank you. Hi, Kadu. Thank you for the question. It's Christian. Yes, I think you answered part of it. Yes, it's right. There is also always a capital control as well, not to deploy much faster than we are doing. I think we've been also very precise in where we want to enter with our network and that is part of our success. We are entering the right places in the right cities and also capturing the utilization of the right customers for Vivo that is also blending our postpaid as I said before with the FTTH deployment. I think going faster, I think the decision and as I said, when we went to New York and said in our Investor Day that we end this year with $14,000,000 it sounded a huge number. We are ending this year with $16,000,000 So that's our ability to go faster and to direct the same CapEx with a lower CapEx. So I think that's proven the ability of people of doing more with less now and that's the number that we are presenting this year. And this number is still is not counting a lot what we're to do with partnerships as you also mentioned. So when we sign up a partnership in Minas Gerais with American Tower, that will give us another 800,000 HPs that's part of the strategy of going faster with lower CapEx. When we signed with Phoenix, it's another example of going faster with lower CapEx. And that's why we decided to do it bigger and larger and that's what we put in place our infra coal project that is very well advanced, is progressing very rapidly. There is we have a series of investors interested in a few parts of this project. As we said in the last quarter, we expect to be fully operational in 2021 that will help us to go over 24,000,000 HPs by 2024. What is over 24,000,000, it's a number that could be good and also extrapolate what we predicted when we said that would get 14 in 2018. So this process is doing very well. Have investors talking and checking data in the data room And hopefully in the next months, we'll be able to sign it and be operational. And M and A, in your question, we haven't seen so far a target that would combine our expansion strategy with the quality of the network that we need. But once we have this vehicle in place, I think part of the growth of this vehicle and I'm talking about the infra code that we're deploying could be expansion through M and A. So it's not and we are always checking the assets that are available in the market. If we find something that could combine the excellent infrastructure in the construction of the network that for us is the number one requirement with the footprint that we need to expand our FTTH. Of course, we are to see and look at it and maybe be able of an acquisition in the future. Thanks, Christian. Can I make one follow-up question on that too? One thing that is that I'm curious to hear how you're seeing that is a competition between your fiber operation and NetServiso's, you know, coaxial cable network? How are you you know, when you have a direct competition, how are you feeling compared to Net, especially after the pandemic when I think the quality differential became clear than before? I think there is always a limitation of the quality that you expect from your network. Now I think the pandemic was climax of the need of speed and upload and download, that's something that you get much better when you are talking about fiber and parallel usage. Imagine everyone at home are using at the same time the network and the other thing that fiber has an advantage. So given that speed, uploaddownload and parallel usage of the network, fiber shows up to be best alternative. And I think the number that we are presenting that adds by themselves, they prove the strength of our value proposition. Although it's difficult to compare the numbers from one company to the other because sometimes they are deploying in one area that have not. When we are face to face, I think it's a clear advantage of the superiority, especially in the technology that's fiber versus coaxial that you just mentioned. Thank you. Thank you. Our next question comes from Susana Salaru, Itau. Hi. Good morning, guys. Thank you for taking our questions. Hi. Our first question is regarding the EBITDA margin trends. We have been seeing Telefonica being able to sustain EBITDA margins at 40% level, despite the what happened with the the pandemic. So going forward with a more healthy top down scenario, could you just elaborate why you're expecting for margins to to be if we should expect the same margin level or we could see room for improvement? That would be our first question. The second question, just a follow-up on on the prepaid again. Apologies. Actually, I didn't fully understand. You guys are about to do a price up in prepaid or you already did a price up offering more for more? On prepaid, Susana, no, we not going to have a price increase in prepaid right now. I think we are trying to, as I said, try to manage our customer base in a better way to have people increasing their top ups with Vivo. And here it's playing as was asked before, how do you do that, okay, doing the right offer to the right customers in the right moments, expanding their usage with Vivo weekly, biweekly, monthly offers and trying to combine that with also bringing value proposition specific to the hybrid product because then gives us the opportunity to migrate from prepaid to hybrid. So I think it's always the strategy, look at the different segments at the same time because the impact in one is directly affecting the performance of the other. As I said also before, we are always trying to push the market up as we're doing the pure postpaid, what we're doing the hybrid and we try to do also in the prepaid, the response is lower from competition in the prepaid. There is still a lot of progressiveness in the prepaid arena. So we cannot stand out in a negative way towards our customers. So we are looking in rational ways to increase in more for more, but if you're not going to see a price increase in absolute terms as you used to see in hybrid or pure postpaid as we also did in this quarter, although inflation is much lower as you know and room for improvement or increase is also lower. Second question, Hi, this is David. Just regarding the margin, so if you look to the margin, OIBDA margin for the first nine months, so we're up we have 40.3% margin, which is growing 0.4 percentage point year over year. So even though the current situation, we're able even to improve in accumulated numbers on margin. And for the future, as I mentioned before, I mean, we're optimistic. We're optimistic about the OIBDA generation more than just the margin. But let me just give you two examples. We are moving to a world where we have the commissions more through push channels. Now we are going to e commerce where the unitary cost is almost zero. We are moving from a world where we have call to call centers where we need to pay people just attending those calls that we are moving to award, particularly in our case, that we are moving to MeoVivo, that we have more than 18,000,000 unique users per month, that each one of their queries are sorted without incremental cost. So this is allowing us to be a company significantly more digital, but also more efficient and to put more OpEx on those costs that will add more value to the customers and we have more return to our shareholders. So we are working on this mix to make sure that the OIBDA and also to focus on operating costs operating cash flow is growing year over year. Our next question comes from Diego Aragon, Goldman Sachs. Yes. Morning, Christian, David and team. Thank you for taking my question. Actually, I just want to follow-up on the question regarding your FTTH. You have this business in over two fifty cities now, and I was wondering if you can comment a little bit more about the competitive landscape in these cities where you operate, but not with the the captive operator. In fact, with, you know, eventually smaller and regional fiber providers? Are you seeing some of these, let's say, ESP players in this in the cities? And also looking forward, how fast do you can, you know, you can grow into new cities? And how competitive should be in the new cities you are planning to add? Thank you. Diego, thank you for your question. So in large cities, we I think asked more about the small player. But in big cities, we normally will face competition from the cable. In large cities, it's depending on the neighborhood, mostly our competition is with the cable. So what I answered to Kathu before, I think fiber has an advantage of technology and I think that seems the numbers and the robust numbers that we are showing. In smaller cities, yes, as you are right, we face competition for small players in FTTH. Here I think there is a combination of things. Now first, technically I think we present a better proposition and not only the infrastructure that we build, but also the equipment that we put in the homes and customers' premises. I think people plays a different game and we are in a better quality situation that could be perceived by customers in experience with the fiber. Second, we come with a very good customer care. Normally, we have a store, we have our service from people and our experience and expertise that we have in place in the new cities that we enter. So I think it's a very well defined strategy to enter a new neighborhood or a new city. Third, we have a BTP for customers who wants to have TV. Most of these competitors don't offer the TV or if they offer TV satellite. We have also a portion of BTP interesting deals with Netflix and Amazon Prime Video in a good price and also built in there a fiber bill that's also a final advantage. And we started playing convergence now that's also something that small players cannot offer. So we still have cross benefits, but going forward, it could be a little bit more advantages if we put convergence or total offer from people combining mobile with FTTH. So we are very pretty confident. As I said before, also the evolving cities that we have, we have a local fiber competitor and we've been successful. And we are going to accelerate. We have we see a very positive outlook going forward. I think we have the demand for digitalization, the demand for homes connected growing in Brazil, we still have just 20 of homes in Brazil with ultra broadband. So there's a lot of room still to be captured and we are in the right place in the right moment because people decided to do fiber a long time ago. People have the largest fiber infrastructure in Latin America and people have the best mobile customer base. All this combined with the strong brand and the channel prepared to sell mobile fix and digital, I think we have unbeatable offer. So confidence and the need for digitalization is more than evidence now after all we went through and still going through with the COVID situation. Thank you, Christian. Super clear. That's very helpful. And look, just quickly on the mobile business. You know, you had, like, a pretty strong, you know, additions in the prepaid. So so the question is, how do you see, you know, the prepaid and postpaid mix going forward? Let's say, maybe two, three years from now where this mix should be. Because I just want to understand if there's still room to see further, let's say prepaid to postpaid migration going forward. Thank you. No, we don't see that. I think what we saw in the prepaid, as I said before, is a combination of factors that gave us this strong performance and we are positive that we are again doing very well in the prepaid. And I think here it's more in the opposite side. I think the benefits of being able to capture so much so many customers in the last month, last quarter give us the opportunity now that we have our channel in place again to migrate prepaid to hybrid. I think the value proposition that we have in Vivo for the different segments is very clear and being able to successfully able to show to customers the advantage of being in each of the segments. So we don't have this risk right now of reverse migration. I think the opportunity is much more in the right migration, pre hybrid and hybrid to pure. And in the future, trying to give more customers with fiber and with mobile in vivo. If the contribution of prepaid in our results will be lower or the postpaid will be stronger, think it's this natural movement of migrating pre to hybrid will be in place in vivo. So maybe the postpaid will be even more relevant going forward. So even though we are doing well with the prepaid, these customers that we are capturing now are the right candidates after some time for us to be migrated to the hybrid and we are willing to do so. You, Christian. This concludes the Q and A session. I would like to turn the floor back to Mr. Christian Zubara for any closing remarks. So thank you all for joining our call. If you have any additional questions, please access our IR team and hope to see you soon. Okay? Thank you. Thank you. This concludes today's Telefonica Brasil 3Q twenty twenty results conference call. You may disconnect your lines at this time. Have a good day.