Earnings Call: Q3 2019

Nov 4, 2019

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Telefonica Brasil Third Quarter of twenty nineteen 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. Louis Plaster, IR Director. We also have a simultaneous webcast with the slide presentation on the Internet that can be accessed on 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 section. 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 on the 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 Blaster, Investor Relations Director of Telefonica Brasil. Mr. Blaster, you may begin your conference. Good morning, everybody, and thank you for joining us in this conference call for Telefonica Brasil's twenty nineteen third quarter results. The call, as usual, will be divided as follows. To start, Christian Gebara, our CEO will give you an overall view of our operating and financial performance for the third quarter of the year and then go over our commercial and CapEx evolution in more detail. Then our CFO, David Melcon, will comment on our digitalization initiatives, efficiency and financial results. We will then move to Q and A. I'll now pass the word to Christian. Thank you, Blaster. Good morning, everyone, and thank you for taking part in our third quarter twenty nineteen results call. I'll start by commenting on the highlights on Slide three. The growth of everything related to fiber continues to accelerate. And in the third quarter, our FTTH customer base grew 34% year over year, while revenues grew 44.5%. More and more, fiber is proving to be a key catalyst in the transformation of our fixed business and it will drive sustainable revenue growth in the future. In mobile, our postpaid customer base grew 7.3% year over year and our premium position and a superior customer experience allow us to raise prices again, taking postpaid revenue growth to 6.8% year over year. Total revenues were up 2.6%, the highest growth in three years driven by mobile service revenues that grew 4.6% year over year. In terms of costs, we continue to see room for the reduction of non quality costs by leveraging on digitalization and simplification initiatives. In the third quarter, recurring costs remained under control, increasing 0.6 year over year when excluding the cost of handsets and our recurring EBITDA was 2.8% higher. Finally, we continue to deliver outstanding cash generation and shareholder remuneration. Free cash flow expanded close to 15% year over year, reaching billion dollars and our dividend yield stands at 6.7% for the last twelve months. Moving to Slide four, we present the results of our mobile revenues in the third quarter that grew 6.6% year over year, including handset sales. If we exclude handsets, mobile service revenues increased 4.6%. The key driver of this growth was the evolution of postpaid revenues that grew 6.8%, benefited mainly by price increases and solid net adds, especially in hybrids. In prepaid, we continue to improve the monetization of our customer base and are seeing encouraging results as demonstrated by the constant recovery since the beginning of the year. Our handset business is also outperforming. The sales of higher value smartphones continue to increase, stimulating the adoption of four gs and have been able to reduce subsidies, improving the profitability of this business. On Slide five, you see that our overall leadership in mobile increased to 32.3% market share and when we consider only postpaid customers 39.8%. Our superior competitive position allow us to maintain our rational strategy and increase prices across all segments as shown in the graph on the top right. The result is an ARPU increase of 6.4% and limited impact on churn. I would also like to point out the pace at which data consumption is advancing with gigabytes of use per customer growing 39% on a yearly basis. Data usage is quickly migrating towards four gs, where we see a year over year increase of 92% in traffic already representing 71% of all data consumed. This is relevant because it's confirmed that consumption continued to motivate the upselling of our services in line with our more for more approach. Moving to our fixed business on Slide six. For the first time in the company's history, revenues from growing business fixed business surpassed legacy revenues. The main driver has been broadband, which as seen in the previous quarter represents more than voice now. This change in revenue mix combined with sustainable fiber growth confirms that we are on the right track to stabilize fixed revenues and resume growth in the near future. In the quarter, fixed revenues dropped 3.9% year over year impacted by our recent decision to stop commercializing satellite television, which improves the company's profitability and the consistent decline of fixed voice also impacted the results. FTTH and IPTV revenues now represent almost 20% of overall fixed revenues, with FTTH reaching million dollars growing 44% year over year and IPTV million dollars increasing 26% year over year. On Slide seven, you can see that our fixed customer base continues to migrate towards our high value fiber products as we accelerate our FTTH deployment. In the third quarter, FTTH access grew 34% and now represent a third of our broadband customer base, a 10 percentage point increase versus a year ago. As a result, broadband ARPU increased 12% year over year to dollars continuing the trend of double digit increases from the previous quarters. Furthermore, we continue with our rational strategy and have just raised price for FTTH at the November. On the right hand side of the slide, you can see that our IPTV business is also performing very well. IPTV access increased 27% year over year and now represents almost half of our overall pay TV customer base, contributing to an ARPU improvement of 4% year over year to dollars Now moving to Slide eight. In the first nine months of the year, we deployed FTTH in 33 new cities, result of our accelerated deployment in comparison to previous In the third quarter of twenty nineteen, we took our FTTH network to 12 new cities, summing up to a total of 154 cities. The cities launched this year are showing better than expected results as uptake is higher than planned. We are not only expanding our footprint to cities that don't have our fixed services, but also to cities where we already provide FTTC, therefore overlaying such technology with FTTH to defend and upgrade our customer base. In fact, FTTH ARPU is 27% higher than FTTC and 36% higher than XTSL. These movements are contributing to an increased proportion of FTTH homes passed over our total fiber footprint. We ended the third quarter with 10,200,000 FTTH HPs from passed, representing 49% of our 20,700,000 fiber home passed. Moving to Slide nine, you can see that apart from the expansion that we have been doing for our own resources, which has already proved to be a success, we are implementing alternative models of FTTH deployment that will allow us to further enhance our footprint with lower CapEx impact. One of the models being rolled out is a partnership with American Tower. This partnership targets the construction of more than 40 new cities in the state of Minas Gerais with a potential of around 800,000 home passed to be built over three years. CapEx deployed in the rollout will be done by American Tower, which will also operate the home's pass infrastructure. Vivo will be responsible for an investment in customer premises and commercialize connectivity using the Vivo Vivo brand. In terms of profitability, this model is accretive and will lead to relevant operating cash flow generation. The other model we implemented is based on franchising. Here, we are targeting to roll out FTTH in new cities and additional neighborhoods of cities where we already operate by selling franchises to third parties. The franchisee was closely built and operate the entire network, meaning that Vivo does not deploy any CapEx in the expansion. The franchisee will be responsible for customer relationship and pay us a royalty fee based on gross revenues. In return, we will provide the franchisee our know how backbone call center, scale to suppliers among other advantages. The Teva brand powered by Vivo Vibra will be used to commercialize the product. These movements are important as they enable us to reach a relevant number of additional new cities and neighborhoods with UBB service, creating a further source of revenue and protecting our high value mobile customer base. On Slide 10, you can see that our investment amounted to R2.4 billion in the third quarter of twenty nineteen, totaling R6.5 billion dollars in the year, a growth of 6.7 in the period. Our CapEx execution is in line with the guidance provided for the year, which consider an accelerated expansion of our FTTH footprint. Investments in fiber increased 25% year over year, simplifying our presence to two fifty five cities with FTTx. In addition, CapEx related to improving the quality and coverage of four gs and 4.5 gs continues to rise, growing 45% year over year. To conclude, we continue to work closely with TIM to develop our network sharing initiative and are confident that the results will be very positive. The discussions so far are showing a relevant potential for OpEx and CapEx optimization across more than one technology, and we will share details with you as soon as possible. I now pass it on to our CFO, David Melco. Good morning, everyone, and thank you, Christian. Moving to Slide 11. We continue to be very efficient in managing costs, leveraging on digitalization and simplification processes that benefit not only our results, but also our customer experience. In the third quarter of twenty eighteen, our operating expenses rose 2.5%, below inflation of 2.9% in the period, which led us to expand our EBITDA margin to 36.2%. Costs continue to be impacted by our strategy of accelerating handset sales. Excluding the cost of goods sold, which grew 22%, our expenses increased only 0.6% year over year. Personnel cost, which represents 30% of total OpEx, decreased 0.2% as a result of the organizational restructuring and automation of processes carried out in the last twelve months. Cost of service rendered, which account for 41% of total OpEx, increased 6% year over year as a result of the phasing from higher network expansion costs. Commercial expenses, excluding bad debt, decreased 3.5% in the period as the ongoing digitalization of our customer relationship contributes to reduce costs with call centers, back office, billing and posting. In the third quarter of twenty nineteen, commercial expenses represent 24.6% of our total OpEx. Moving to Slide 12, the digitalization and automation process continues to improve our customer experience and help us to capture cost efficiencies in both front and back offices. Our front office initiatives presented positive evolution with e billing penetration expanding to 65%, an increase of 24% year over year, while 51% of payments are already done on eCare platforms. VivoUp increased its user base by 14% and alongside with Aura, which is Vivo artificial intelligence, reduced the need to reach a human call center by 20% year over year. We are also constantly developing solutions to improve technical support. Today, 40% of all technical support is digital, and 41% of queries related to our fixed service are sold remotely. At the same time, we are starting to work on the automation of a number of back office initiatives that can produce further cost savings and optimization. Among other initiatives, we are using robots to contact customers with overdue bills to schedule and confirm technical repairs and to run failure tests to prevent unproductive visits. These initiatives are allowing us to significantly reduce related back office and non quality costs. Now moving to Slide 13. Accumulated net income for the first nine months of 2018 reached 3,900,000,000.0, 2.6% higher than a year ago in a recurring basis. The evolution was driven by EBITDA expansion boosted by revenue growth and disciplined cost evolution, improved financial results related to lower debt and reduced taxes expenses backed up by an efficient financial management. Turning to Slide 14. In the first nine months of 2018, free cash flow grew 15% year over year, reaching billion, even during a higher CapEx cycle as a result of lower interest and income taxes payments and improved working capital. Our expressive cash flow generation allow us to continue expanding our investment in top share technologies such as fiber and 4.5 gs, leading us to capture high quality growth while we remunerate our shareholders with one of the highest yield in the industry. In this sense, in August, we already paid out the first part of our last year remuneration in the amount of BRL3.2 billion. And in December, we will pay out the final tranche BRL3.8 billion, totaling BRL7 billion of shareholder remuneration. Thank you. And now we can move to the Q and A. Thank you. The floor is now open for questions. You. Our first question comes from Mr. Rodrigo Villanueva, Merrill Lynch. Yes, thank you. Good morning, Christian, David, Plaster. Thank you for taking my question. My question is actually related to wireless ARPU. It increased by 6% year on year during the third quarter. And as far as I understand, price increases over the last twelve months have not applied yet to the entire subscriber base. So the question is when would you expect higher prices to apply to the whole base? And which would you expect to be the impact on ARPU? That would be my first question. Thank you. Hi Rodrigo, this is Christian. Yes, you're right. We increased price. We increased price in all segments of the mobile and postpaid, hybrid and prepaid. Yes, it was applied for the whole customer base, okay? There may be in some prices that were related to acquisition in the prepaid. That's only when you acquire a new customer that maybe the Giga chip, but all the rest was applied to the whole customer base and the impact was already seen in the last month of the quarter. Understood, Christian. Very clear. Thank you. And my second question is related to a recent JV with American Tower and the franchising scheme that you just announced. Is it possible for you to share with us the economics of these alternative schemes in terms of revenue and margin on a per home connected basis? Thank you. Rodrigo, this is a partnership, so we cannot share the details of the deal. What I can tell you is what I briefly explained. We talked about two new models. Now I think in the previous calls, we always mentioned that we were studying alternative models to deploy fiber. So we are giving here two concrete examples. I think you referred to the American Tower one. This one is Imina Gerais. We are talking of around 40 cities, and a total of 800,000 home passed in the period of three years. American Tower is responsible for building the home passed. Vivo is responsible for connecting. There's a variable cost associated to the connection of each of the customers that we pay to American Tower. And that's, I think, all I can share with you at the moment, okay? So if you have any further question, specific question, our team can share, but we cannot talk about economics. The good thing here is that we will be able to deploy fiber with more speed, leverage on the assets that American Tower acquired in Minas Gerais. Vivo is the leading company in this state with more than 50% market share postpaid. So again, it's a model that allow us to deploy more fiber with less impact in our CapEx and give us time to market. That's what we are looking for. Understood. Very clear. Thank you very much, Christian. Next question comes from Diego Aragon, Goldman Sachs. Yes. Good morning, everybody. Thank you for taking my question. Christian, I guess the question is for you. You have been very vocal about the new areas and new opportunities that in this digital context Vivo can explore to find new source of revenue. For instance, you recently launched a credit line for consumers in order to leverage your customers' profiling. You also launched these new business models to sell FTTH into new regions. So I guess the first question is, how fast do you think top line can grow and benefit from these new initiatives in the next, let's say, years? Thank you. Thank you for the question, Diego. So yes, you're right. We are looking for new source of revenues. I think our strategy is based on that. I think you mentioned two different models. Now one is partnering with other companies to deploy more infrastructure. So we gave two concrete examples, the franchise and the American Tower that I just described to Rodrigo. The franchise is also partnership with many other third parties that are willing to deploy fiber network. As we see, there are many small companies in Brazil, so what we want to offer these companies is our expertise, our scale, our brands and to help them deploy this fiber in cities that we cannot reach and that is a good idea for bringing digitalization to cities with Vivo's expertise. The second one and the first one that you mentioned is how can I partner with others to distribute digital services and that we have been doing in B2C and B2B? B2C, we gave some examples in entertaining, in video, in music, in gaming, education, and we want to go further with the strategy. We don't give a specific name number for this, but I think that allow us not only to increase our revenues for our digital service, but also to make our customers more loyal. And I think churn has been showing that, that we have a very controlled churn even when we increase price above competition and that happened in all segments, postpaid, hybrid and prepaid. And in the B2B, we are seeing important deals also with big companies, large companies like Cisco, Microsoft among others, bringing more results in B2B that we see a positive growth in revenues there. And again, giving our value proposition a differentiation of value that's bringing more customers and keeping the ones that we have more loyal. So it's part of the strategy going forward. We see that, though partnerships in deploying infrastructure and partnership in distributing content. Okay. Thank you, Chris. And I guess my second question is regarding opportunities and cost efficiency. Maybe David can help me with this one. As your margins continue to improve driven by digitalization and you already have a very healthier, let's say, cash flow profile, which is growing, let's say, about 10% on an early basis, would you consider to speed up investments in order to address the pent up demand for data connectivity, either like in the fixed business or the mobile business? You. Diego. This is David. Thank you for your question. Just to give you just an introduction about what's going on here, about initiatives to continue have economic savings in digitalization. In the first quarter, we were talking about a target of BRL1.6 billion that we were expecting to capture between 2018 and 2021. And we are fully on track. So the first quarter, we were already captured around 36% of the total. Now we are closer to 40%. And now we are seeing that as we explained about all the robots and all the digital initiatives, well, we are going beyond what we were initially were planning. Now the scope of digitalization now is we are enhancing this scope. What we are seeing in particular, when we talk about the network, which is one of it's going to be one of our key investments for the next few years, that means that we are going to have saving not only our existing cost base, but this new strategy is going to allow us to capture some savings that will be cost avoidance, we could say, because I mean, Brazil is like a size of the continent. So deploying fiber using analytics is going to provide even more and more savings. So we are expecting to continue having the same discipline that we have shown so far, having almost three year reducing costs over quarter over quarter, year over year, and this is the strategy that we are planning. So we could see continuously in these trends in financials. I think here, only to complement, Diego, on what David just mentioned, I think digitalization is key for us. I think we've been seeing the penetration of our eCare app growing year over year. Also we see the cognitive platform that are deploying here in Brazil for Vivo with results not only in our digital channels, but also in the call center. And going forward, I think we're going to expand all these initiatives to bring more OpEx reduction. At the same time, I think for what the first question that you just also asked us, we're going to do more partnerships. So of course, the margins of some of the services will be different, because in some of them we're paying revenue share or we're sharing with a partner our results different from our legacy products where we had 100% of the benefit. So I think we should focus more in EBITDA growth instead of the margin evolution. We want to grow in EBITDA even if you look for products or services, also handset that has a different economics that could bring us more revenues and more growth in EBITDA and not only be focused in the margin. Thank you very much, Christian and David. And maybe just a follow-up question on this. I mean, if you would benefit 100% of those digital initiatives, how far do you think margins can go? I mean, passing any, let's say, benefit to price and to consumers, just capturing 100% of the digital in the CFPs, how far do you think your EBITDA margins can go? You. Diego, we don't give guidance in margins. As I said, our focus is growing revenues and growing OIBDA. So I think our strategy will be driven by that, those two targets, growing revenues and growing OIBDA, but we cannot give you a guidance of the margin. Okay. Thank you. Next question comes from Marcelo Biard, Barclays. Yes. Good morning, Marcelo Biard. I had two questions, please. First, in B2B, very strong growth in the fixed business in Q3. And I was wondering if those kind of growth rates are sustainable. I do understand that there's some big contracts signed from one quarter to another. But generally, do you expect that sector or rather that segment to continue to grow at least high single digit? And I don't know if you can answer to that, but back to the margin question. I mean, is there a big difference in margins when you generate revenues there compared to the core fixed? And then the second question was, you laid out quite a number of initiatives to stimulate growth in fixed with a number of partners. Is it realistic to assume that within twelve, twenty four months, the defense business could stabilize, thanks to all these initiatives and also the different price increases you're putting through? So Matthew, this is Christian again. So I want to share with you as much as we can in B2B because we don't open up so much the numbers. But you're right, B2B revenues are recovering and we are having like good results in the fixed. I think the fixed business in B2B is being driven by also of our fiber deployment. So I think we are doing fiber deployment with a much more focus in B2B that was done in the past. So when we enter a new city, we also focus on areas where we see B2B customers. So not only for the fiber, but also for advanced data, corporate data that we leverage on the fiber penetration that we have there. Apart from the fiber itself, as I also said, we have been very successful partnering with other IT players and selling services related to the fixed business, both services and hardware that leverage our presence in these places. So we are selling a lot of cloud security services and hardware that also improving our results for B2B. So we are positive and optimistic and also the recovery in the economy is also helping these companies to decide about investments that were postponed in the past. What talking about the fixed business, I think is your second question. We are again, we are here trying to get the balance of new services that are the fiber, corporate data, broadband in general against voice and DTH. So today, this is the good ones, now the future ones are growing around 15%, and we expect it to continue to grow. And while we have this growth there and we have a more controlled decline in what we call legacy, we assume that next year we're going to have a positive result for fixed business. In general, B2C, B2B, we don't give a precise month, but we see the trend as positive as we deploy more fiber, we leverage the corporate data, B2B services based on the fixed services, more PTV and try to control declining voice and also take into consideration our decision to stop selling DTH. That has a negative impact on our numbers, we continue with the decision. Thank you very much. Next question comes from Mr. Daniel Sedaris, Credit Suisse. Hi, good morning everyone. Thank you very much for taking my questions. The first one is regarding the mobile business. The company has been very successful in passing through price increases. My question is if that should continue to be an important pillar for further revenues growth and if the higher bad debt in the third quarter is in any sense a yellow flag for future churn? And the second question regarding potential financial services. Actually, saw the company launching the Vivo Money a few months ago. And my question is, what's the ambition of the company in this segment? And also if you could see eventually VivoPay or any payment solution in the future? Thank you. So Daniel, this is Christian. I will let the last one off bad debt to the fee. I will answer the other two questions. Okay. In the mobile, I think we see still there's opportunity to migrate customers from prepaid to hybrid and hybrid to postpaid and also to penetrate more with four gs. And once you penetrate more with four gs, you have more data consumption. And then also leverage more in our partnerships to offer something different with our customers a better proposition that is differentiated. We don't see price increase as the key strategy going forward since we have like an inflation that is much lower than it was before. So here now we are looking for other ways to give our differentiation, not only for the coverage and the quality of our internet, mobile internet, but also bringing something else. Again, I think it's going to be an inflation lower than we had before, so price will increase less than what increased in the past. So we're going to bring more innovative offers to the market to be capturing more customers and controlling our churn that again is very reduced. Regarding money, no, it's one of the initiatives that we have in financial services and other digital services. It's not the key one or the main one. We are piloting something right now. We are planning to do something more concrete next year. Here what we want to do is to leverage on the footprint that we have as a company with the channel that reached many places that other channels don't reach. We have a very strong brand that gives a lot of credibility to the customer who wants to borrow money. And then we have information of some customers that are our prepaid customers, but are not does not have a bank account. So we want to leverage on that to be much more assertive and positive in providing credit to these customers. So again, it's a pilot. We see other opportunities in the FinTech arena. We are not revealing now because it's part of our strategy going forward, but we see that we have strengths that our footprint, brands, data that we should leverage, not only for financial service, but also for other digital services. I don't know if I answered these two questions. Daniel, I will pass to David for the bad debt. Daniel. This is David. I will take the question about the bad debt. So first of all, it's important to look at commercial cost as a whole, which includes a provision for bad debt and which is dropping, reducing year over year. But even when we drill down into the bad debt number, we see that it's primarily linked to the acceleration of postpaid services, mainly mobile postpaid with revenues and subscribers that we are that are going up more than 7%. So we continue using analytics for a greater scoring process and taking a controlled financial risk. And we have a very high margin in those services, not subsidies for customer acquisition, and we grow back commercial commissions. We believe the greatest scoring model is accretive, and it allowed us to keep growing market share, at the same time, we're increasing our profitability. So if you look to the ratio of bad debt with gross revenues, we see that full year, we have 2.5%. And in the third quarter, it's in line something like 2.7%. So there is no nothing to worry here. And we do not believe this is an indicator that could be an increase in churn now. So nothing additional to remark. Perfect. Thank you, Christian and David. Next question comes from Fred Mendesco. Hi, good morning and thanks for taking my question. It's actually Guilherme Hagiara here. My first one is on wireless. We have seen you more active in price increases in recent months, and we appreciate the details you provided in the slide and the speech. And we were just wondering how are you seeing competitors react to your pricing strategy? And if we can expect more rationality, not only for postpaid, but also for the prepaid segments going into 2020? Guillermo, thanks for the question. As I said, no, we've been moving prices in all segments. Now as we showed in our presentation, we increased price in postpaid, increased price in hybrid postpaid was in July 8%, in the hybrid 10% September, and also in the prepaid and trend offer that we had Giga Chip that will increase 25%. Yes, I expect competitors to be more rational. It's difficult to point out who is being more and who is not being so. I think you follow the market and you know the difference between the offers that we have among all of our players. And also important to highlight that sometimes price can be comparable, but some competitors are giving off net and full access to social network that I think is a strong benefit, especially for prepaid. We should be more rational there, controlling the usage of social network and off net calls. And again, we are being positive that we need to be more rational and should increase prices in all segments. Once you move the prepaid, you are able to move the hybrid and then you move the pure postpaid. If you don't move the prepaid, your ability to move the hybrid is limited. And for consequence, the ability to move the pure 's paid is also limited. So we should move in all directions. If you consider the $9.99 weekly offer, we've been with this price point for a long time and we see now competitors offer off net calls and full access to social network with the same price point. So again, expecting everyone to be more rational. We saw some movements from some of them, but not from all of them. Okay. Thanks. That's very clear. And my second question on the cost side. We have seen some pickup in the cost related to your network expansion efforts. And we understand it's linked to the acceleration of your investments over the past quarters. And we were just wondering how much more can this line slightly pressure results going forward? And if the other efficiency and your digitalization initiatives should continue to be able to offset this not only in the fourth quarter, but also looking into next year? Guillermo. This is David. Just actually a question about the evolution of the cost of sales rep, which is mainly, as you say, is mainly impacted by the network expansion. So we are as you know, we are accelerating deployment of both fiber and mobile capacity in 4.5 gs. So this is increasing part of our costs. But mainly, we have a seasonality phasing quarter over quarter. But so for example, this quarter, we are growing 6%. But if you look to the previous quarter, which was the second quarter, these costs were down 2.4%. So here we are seeing economies from the scale for being part of Telefonica Group and also for deploying the network using also again analytics and so on. So this is helping us to keep growing revenues. At the same time, we have been talking about margin, we have been talking about also being more efficient. So this will be one of the levers to continue improving our OIBDA over the next few quarters in the future. So nothing additional to talk here, but this is one of our main costs and buckets that we have, and this is where we are driving also our efficiencies. Okay. Thanks. That's very clear. Next question comes from Susana Salero, Itau. Hi, guys. Good morning. Thank you for taking our questions. The first question, if you could elaborate a bit more on the MOU with TIM. If you could give us an idea of how much CapEx or OpEx you expect to save from this partnership or this combination of infrastructure? That would be our first question. The second question will be related to handset sales. If you could give us a guidance or give us idea of if the margins currently is already neutral in terms of EBITDA or if it's still slightly negative in terms of contribution to overall results of the company? That's it guys. Thank you. Hi, Susana. This is Christian. So as I said that we've been working with TIM in the last sixty days in the MoU. We've been very positive and optimistic about the results. As you remember, the MoU has more than one area, one is the two gs and the other one is more a full technology in cities, it's more than 30,000 inhabitants. We evolved very well in one and still working on the second. So that's why we decided to postpone another sixty days our MOU to be able to present a full result of this agreement. So at this moment, we cannot share more than what I shared. We've seen that it's promising. We progress well and we still have some work to do, especially in the full technology sharing for smaller cities. Hopefully, the next call for the end of the year, we're going to be able to share more. Regarding handsets, again, we've been there are two types of sales. Now the sales for pure postpaid customers that in the sense we are giving subsidies. So you know the margin, it's different to calculate because we are like keeping the customer loyal and there is the revenue coming from the service. But also we are expanding our penetration in customers that we don't sell with subsidies. In this one, the margin is positive. So we don't give a specific number adding up these two type of customers, but we are growing in the ones that we don't give subsidies and we are reducing subsidies in general. So the business itself, it is good and positive for us, but we don't give the detail. Also, Susana, this is David Melcon. Just to complement here on the network and also the previous question from Guillermo. The MOU team, which also allowed us to protect the costs of maintaining our network, particularly being more efficient and particularly in small cities and old technology, which is one of the key topics that we are covering here with the network sharing with the team. Perfect. Very clear. 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. Okay. So thank you for everyone for participating in the call. I hope to see you in all the events that we have scheduled for the next weeks. And if you have any additional questions, our team is here like ready to answer all of them. Otherwise, I see you soon or in the next call for the end of the year results. So thank you everyone. Thank you. This concludes today's Telefonica Brasil 3Q twenty nineteen results conference call. You may disconnect your lines at this time. Have a great day.