Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Telefônica Brasil second quarter of 2019 earnings conference call. Today with us representing the management of Telefônica Brasil, we have Mr. Christian Gebara, CEO of the company, Mr. David Melcon, CFO and Investor Relations Officer, and Mr. Luis Plaster, IR director. We also have a simultaneous webcast with slide presentation on the internet that can be accessed at the site www.telefonica.com.br/ir. There will be a replay facility for this call on the website. After the company's remarks are over, there will be a question and answer section. At that time, further instructions will be given. Should any participant need assistance during the conference, please press star zero to reach an operator. Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are based on the company's management beliefs and assumptions and on information currently available. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the company's future results and could cause 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 Telefônica Brasil. Mr. Luis Plaster, you may proceed.
Good morning, everybody, and thank you for joining us in this conference call for Telefônica Brasil's 2019 second quarter results. The call, as usual, will be divided as follows. To start, Christian Gebara, our CEO, will give you a view of our operating and financial highlights for the second quarter of the year, and then go over our commercial and CapEx evolution in more detail. Our CFO, David Melcon, will comment on our digitalization initiatives, efficiency commitments, and financial results. We will then move to Q&A. I now pass the word to Christian.
Thank you, Plaster. Good morning, everyone, and thank you for taking part of our second quarter 2019 results call. I start by commenting on the highlights on slide three. In the second quarter of the year, our FTTH customer base continued to grow at an accelerated pace of 37.9% year-over-year and FTTH revenues 55.1%. This again confirms that fiber is what is transforming our fixed business and will drive revenue growth in the future. In mobile, we continue to execute our role as market leaders by increasing prices and most importantly, enhancing customer experience. As a result, our postpaid customer base expanded 8.5% and postpaid revenues grew 3.5% year-over-year. Total revenues were up 0.4%, mainly driven by mobile revenues that grew 2.2% year-over-year, including handsets, and by an improvement in the fixed revenue trend.
In terms of costs, we still see additional opportunities to reduce non-quality costs and leverage on digitalization and efficiency initiatives so as to further improve profitability. In the second quarter, costs decreased 2.4% year-over-year when excluding the cost of handsets, and our EBITDA margin reached 34.9%. These elements, combined with efficient financial management, are what allow us to deliver superior cash generation, net income, and shareholder remuneration. In the first half of the year, our free cash flow expanded close to 13% year-over-year, reaching BRL 3.4 billion. We declared BRL 2.2 billion of interest on capital, and recurring net income grew 24.3% on an early comparison. Moving now to the details of our main businesses on slide four, we present the evolution of our mobile revenues, which grew 2.3% year-over-year when including handsets. If we exclude handsets, mobile service revenues increased 0.1%.
In the first half of the year, postpaid revenues grew 5.7%, benefited by the hybrid price increase in Q1 and a sequential improvement of prepaid revenues. For the second half of 2019, we'll maintain a rational pricing strategy and have already announced a pure postpaid price increase that will positively impact the third quarter of 2019. While in prepaid, we expect to continue to improve the evolution based on better monetization of our customer base. On slide five, you see that our leadership in the mobile segment slightly increased to 32.2% market share, and that it's 40% when considered only postpaid customers. In terms of postpaid net adds, we see a sequential improvement even after having increased our hybrid prices at the beginning of the year.
Moving to the right-hand side of the slide, I would like to point out the results of an analysis conducted by the benchmark expert P3 and the magazine connect on the quality of the mobile networks in Brazil based on 6.3 billion samples and almost 1 million users evaluating metrics such as voice and data coverage, download speed, and data availability. As you can see, Vivo led the overall nationwide results with a gap of more than 40 points versus second-place operator. This is an indicator that really measures the overall network quality, including capacity and coverage, where Vivo has a differentiated position. Moving to our fixed business on slide six, the transformation of fixed revenue mix is leading to continuous improvement. In the second quarter of 2019, total fixed revenues grew sequentially, and for the first time in the company's history, broadband revenues outweighed voice revenues.
The change in revenue mix and sustainable fiber growth are driving a gradual progress in the year-over-year trend. In second quarter 2019, fixed revenues dropped 2.8% year-over-year, compared to a drop of 3.2% in the first quarter of 2019, and a decrease of 3.7% a year ago. FTTH revenues reached BRL 481 million, growing 55% year-over-year, and IPTV revenues reached BRL 270 million, increasing 40% year-over-year. This improvement confirms that we are on the right track to stabilize fixed revenues and resume growth in the near future. On slide seven, you can see that the shift of our fixed revenue mix is directly linked to the improved profile of our broadband services as we accelerate our FTTH deployment.
In the second quarter of 2019, FTTH access grew 38% and now represents close to a third of our broadband customer base, a nine percentage point increase versus a year ago. As a result, total broadband ARPU increased 14% year-over-year to BRL 63.3, the most significant increase of the last six quarters. On the right-hand side of the slide, you can see that our IPTV business is also performing very well. IPTV access increased 33% year-over-year and now represents 44% of our overall PTV customer base, improving overall ARPU by 5% to BRL 104. Moving to slide eight, we continue to focus on the expansion of our fiber footprint. In the second quarter of 2019, we took our FTTH network to an additional 12 new cities, summing up to a total of 142 cities, 21 more than at the end of 2018.
More importantly, we're increasing the number of home passed with FTTH, which now reach more than 9.5 million. For the second half of the year, we continued the fast pace of fiber expansion, both in new and existing cities, while selectively overlaying FTTH in the most valuable FTTC footprint. On slide nine, we detail the investment made in the period. CapEx amounted to BRL 2.4 billion in the second quarter of 2019, totaling BRL 4.1 billion in the year, 10% higher than a year ago. The CapEx execution is aligned with the guidance given at our investor day of a higher FTTH-related CapEx. As such, investment in fiber increased 34% year-over-year, further improving our presence to 252 cities with FTTX. Additionally, we continue to allocate CapEx to amplify our coverage and network quality in 4G and 4.5G technologies with a 33% increase year-over-year.
Moving to slide 10, you can see that on July 23rd, we signed a memorandum of understanding with TIM with the objective of analyzing options related to the sharing of mobile infrastructure. Signing this MOU, we intend to initiate discussion regarding the sharing of 2G and 4G infrastructures and other efficiency and cost reduction opportunities around network operations. We plan on combining our 2G footprint in a single grid model, something that can potentially release 2G frequencies to be reformed and used for up-to-date, higher return technologies. Additionally, we intend to share our 4G network in band of 700 megahertz, initially in cities with less than 30,000 inhabitants, allowing for further expansion of our 4G footprint with less CapEx, OpEx intensity. The agreement is in line with the global trends of network sharing and consolidation of fundamental importance in a country with the geographical dimension of Brazil.
It's also solid step taken towards the rationalization of investments and capture of cost efficiencies, which will additionally improve the overall quality of services for our customers. I now pass it on to our CFO, David Melcon.
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 second quarter of 2019, our operating expenses were flat year-over-year, significantly below inflation of 3.4% registered in the period. Costs were negatively impacted by accelerated handset sales. Excluding the cost of handsets sold, our expenses dropped 2.4%. Personnel costs that represent 13% of total OpEx decreased 2.6% as a result of the organizational restructuring executed in the last 12 months. Cost of service rendered that account for 40% of our total OpEx decreased 2.4%, benefited by the lower expenses with interconnection, partially decompensated by higher costs related to the expansion of our network.
Commercial expenses, excluding handsets, decreased 6.7% in the period, continually benefited by digitalization that significantly reduced expenses with call centers, back office, billing, and posting. In the second quarter of 2019, commercial expenses represent 25% of our total OpEx. Moving to slide 12, artificial intelligence and our eCare app continue to be the catalyst to capture cost efficiencies and to improve the overall experience of our customers, as well as their interaction with Vivo. Our virtual assistant, Aura, is already used in more than 20 channels, recording more than 50 million interactions up to date, addressing a variety of key issues related to billing, data usage, and prepaid balance, among others. Leveraging on Aura's capabilities, our cognitive call center address demands from our customers, reducing the number of calls with human interaction.
In fact, since January, the number of calls retained by our cognitive call center multiplied by three, achieving satisfaction levels above 90%. We are also constantly developing our eCare app, Meu Vivo, not only in mobile and fixed B2C, but also in B2B. Each app is designed to attend the most common demands from our customers, unlocking non-quality cost saving. As a result, over the last nine months, top-ups made on Meu Vivo increased by more than 60%, contributing to a significant reduction of top-up commissions. Moving to slide 13, net income for the first half of 2019 reached BRL 2.8 billion, 24% higher than a year ago in a recurrent basis.
This positive evolution was driven by EBITDA growth, boosted by total revenue expansion and rigorous cost evolution, improved financial results related to the lower net debt, and reduced recurring tax expenses resulting from the higher volumes of interest on capital declared in the period, amounting to BRL 2.2 billion, significantly higher than in the previous year. This reinforces our aim to continually remunerate our shareholders while investing to capture growth opportunities, a combination that is unique to Vivo in the Brazilian telecom space. Turning to slide 14, in the first half of 2019, free cash flow grew 13% year-over-year, reaching an impressive BRL 3.4 billion. Despite growing 10% the CapEx in the period, compensated by lower interest payments and improved working capital. The resources are being used not only to remunerate our shareholders, but also to invest in cutting-edge technologies that will consistently yield higher returns.
Finally, as a reminder, in August and December 2019, we have scheduled dividends and interest on capital payments related to 2019 results totaling around BRL 7 billion. Thank you, and now we can move to the Q&A.
Thank you. The floor is now open for questions. If you have a question, please press star one on your touch-tone phone at this or any time. If at any point your question is answered, you may remove yourself from the queue by pressing star two. 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. We do ask that when you pose your question that you pick up your handset to provide optimum sound quality. Please hold while we poll for questions. Our first question comes from Rodrigo Villanueva, Merrill Lynch.
Thank you. Good morning, Christian and David, Plaster. Good to speak with you. My first question is related to the wireless business. Over the last few months, Vivo has been consistently raising wireless prices across segments. This doesn't seem to be driving up wireless service revenue growth. I was wondering, why do you think this is the case? When would you expect wireless service revenue growth to accelerate? If there are other initiatives that you are considering apart from price hikes to accelerate wireless service revenue growth. Thank you.
Hi, Rodrigo. This is Christian. In the first quarter, we increased price in the hybrid plan, and we saw a better result for the mobile service revenue. In the second quarter, we haven't raised any price. Maybe that's why, because when you combine the two of them, we have a growth in the first semester, but a stronger growth in the first where, yes, we did increase price, and that we could see in the results for mobile revenue, especially moved from the hybrid one. We're going to do the same for the postpaid that we already announced in the third quarter. In the end of the year, we're going to do again in the hybrid. In the prepaid, we also raised price, as we also said in the last call. We raised price for our weekly and biweekly offer from BRL 10 to BRL 12.
We also increased price of the face value of some of our top-ups in some of the markets, and we could also see an improvement. Now, if you see the prepaid that was -19% in the first quarter, is now -8.7% year-over-year revenue. We do believe that when we do a price increase that is blended with innovation in the portfolio and more data or more benefits, we can see the results. Of course, it's not the only way for us to increase our attractiveness. I think our net add was also positive in this quarter, better than the quarter before.
Going forward, we're going to continue to do more innovation in our offer, blend our FTTH footprint that today is 9.5 million home passed, and be more convergent in our offer, and to cross benefits between the 2 type of customers, the fixed and the mobile.
Understood, Christian. Very clear. My second question is related to handset sales, as it seems that you're looking to gain share in this market. Looking at the P&L, it seems that you subsidize around 15%-20% of handset costs. I was wondering if this is actually the case, and if not, could you please share with us how much of a profit can you make out of handsets? Thank you.
Yeah. I don't know the number you took out from the cost of goods sold over the total revenues. I don't think it's 100% correct. It's in cost of goods, there are some other hardware that we sell for B2B customers, the ratio is not that one. I think our strategy for devices, as we've been saying for a long time now, I think we decided to come back to the game. I think it's very close to our core business that is selling service. We want our stores, as we are trying to communicate, not only to the market, but also to consumers in our communication, that we want customers to find everything that they want in technology in our stores.
We have 1,600 stores in Brazil, and we want to be seen as the place for them to buy, not only mobile service, but also hardware and accessories. Our strategy is combine subsidies with pure postpaid with more value, but also selling devices to hybrid and prepaid customers without subsidies. It's a mixture of the both, so that we are going to continue doing that. Again, hardware is all included in cost of goods sold, not only handsets.
Understood. Thank you very much.
Our next question comes from Maria Tereza Azevedo, UBS.
Hi, everyone. Thanks for the call. My first question is on mobile competition, following up on the previous question. You increased prices, and we should see the benefit of this next quarter, but how do you see the competitive environment? Do you think rationality is going to prevail, or do you see room for unlimited data plans or any disruptive movement from your competitors? Still on mobile, do you see any strategic value for a potential in-market consolidation, or do you think that the market is already very much segmented between the premium players and the other ones? That would be my first question. Thank you.
Maria Tereza, thank you for your question. Of course, we expect more rationality from our competitors. I think we've been giving signs of price increase. I think in some of the segments in the mobile, some of competitors followed our movements. We still expect them to follow more closely, especially in the prepaid. It's not only the price, but also the benefit that we offer. We've been very strict in off-net or even some social networks that we don't want to give for free, especially in the prepaid, when they're paying around BRL 10 per week or even two weeks in some cases. We expect rationality to come back. We see that in some segments, we don't see in all. We see from some competitors, not for all.
Going forward, I think we should, especially for all the investment that we all need to make in the country. We have auctions, we have network to deploy, so we need to generate more cash. I'm positive that rationality will be among all of the players. Concerning consolidation, I think Brazil, as we said in other calls, now Brazil requires a lot of investment, and very strong and with financial capability to be able to compete. I cannot tell you what the right number of competitors we should have in the market. I do believe that the investment that are required, both in mobile and fixed, don't allow to have so many players competing for the same customers.
Perfect. Thank you, Christian. My second question would be on your CapEx and 5G strategy. You have an upcoming auction. Can you maybe comment on how complex is the upgrade? What are your strategy on 5G? If there are expectations of a massive rollout or if it's going to be a more gradual strategy? If you see any risk of increased CapEx for 2020 and forward, or if you can roll out 5G with your current plan? Thank you.
I think the guidance that we gave for the three-year plan is the one that we gave. It's BRL 26.5, now the BRL 24 plus the BRL 2.5 that we accelerated for the fiber. Although we consumed a little bit less last year, and we are trying to be a little bit more efficient also this year. The guidance is the same. We haven't changed it. I think it's too early to say, Maria Tereza, how much is going to be our CapEx expenditure for the 5G. The auction is planned to be in March 2020. It's going to be a lot of things being auctioned there, 700 maybe. The 2.3, they can also be used for 4G. So far, what we've been doing is preparing ourselves as a capacity standpoint. We are putting the fiber to the side. We are doing as much as we can.
I think also this MOU that we signed with TIM is also our ability to release investment maybe in 2G and 4G in smaller cities to invest in other technologies or high-speed technologies. Again, we keep the guidance that we showed in the market for the three-year plan. That includes next year.
Perfect. Thank you very much.
Next question comes from Susana Salaru, Itaú.
Hi, guys. Good morning. Thank you for taking our questions. The first question is related to the price increase timing. We used to have price increases, if I'm not mistaken, the beginning of the year and towards the end of the year. This year, the whole seasonality of price ups changed. If you could comment on the rationale of changing the price increase, that will be our first question. The second question, just a follow-up on the handset business. You mentioned that you have been selling handsets with and without subsidies. Could you just elaborate a bit more? What are the kind of margins that you aim to have in this segment? If those margins are positive, what are the strategy behind that? I mean, how come you can have positive margins on handsets? That's it. Thank you.
Susana, I think this question. The price increase, it's more or less the same that we did. Maybe we are doing one month in advance in some segments. We did hybrid last December or beginning of January with some impact. We're going to do again December, January this year. It's more or less one year after it. In the postpaid, it's similar. I think we did third quarter 2018. We are doing now, August 2019. It's more or less the same. Prepaid, there's no rule because it kept the same price for a long time. We are doing offer by offer. I think it's similar to what we did in the past, maybe one month ahead, one month before, but it's always different for hybrid and pure postpaid. They are never the same date.
Regarding handsets, maybe our team can give you more detail that, well, I don't know how much we can share, it's a mix of pure postpaid customers, we also want to position ourselves in hybrid and prepaid customers that don't buy with subsidies that some years ago, we decided not to sell to these customers. We decided to be back to this game, also selling, competing with retailers, big retailers, large retailers that are capturing a lot of this market. Here, there is a mixture of customers that we sell with subsidies. Although the unit value of the subsidy is going down, we still sell with subsidies. These customers, they won't buy for pure postpaid. In the hybrid, depending on the customer, we only give slight subsidies for the high-end one in the hybrid.
We don't give to the others. We don't give in the prepaid. It's a difficult number for me to give you right now because there is also accessories that we sell together, that the margin is much higher. What we give as a number is that we are getting a positive margin, but it's a mix between subsidies in the pure postpaid without subsidies in other segments. We are reinforcing our presence in segments without subsidies, with a massive communication to drive customers to our stores and very focused in hybrid and prepaid.
Okay. Just a follow-up on that, Christian. On the handsets, do you have any strategy regarding the inventory to have a high inventory turnover just to optimize the cost of the handset, or you have been buying a big number of handsets through Alemania, through your trading desk in Alemania, in southern Germany, to lower the prices? In terms of procurement, is there anything that you guys are doing to facilitate the profitability of the business?
Our inventory is very well optimized, and I think the scale that we get is not for buying more. It's the scale of Telefónica Group that help us also have a good unit price. Even like Vivo by itself, it's a very strong buyer for Brazil. We've been working a lot in inventory optimization, and I can tell you that we have one of the best ratios in the market, not only in Brazil, but worldwide.
Okay, perfect. Thank you.
Next question comes from Fred Mendes, Bradesco.
Good morning, everyone. Thanks for the call. I have two questions as well. The first one, if you could give just a little bit more of information about the MOU you signed with TIM and the possibility of expanding to cities with more than 30,000 inhabitants, particularly in terms of potential improvement in terms of capital allocation. This will be my first question. My second question, looking at the EBITDA margin, especially on a pro forma basis, just to get a better understanding of the potential for the next quarters. We do expect here, at least as our view, that the FTTH product does have a higher margin than other products such as copper and voice. As the FTTH continues to grow at a fast pace, do you believe that we could see an improvement in margins, maybe above what the market expects?
Maybe, on this initial stage, you are charging a lower price in order to gain more market share. That's why you're not seeing such an improvement in margins yet. There are other moving parts. Just trying to get an understanding of the strategy here and the potential from the FTTH in terms of margins. Thank you.
Hi, Fred. This is Christian. Thank you for the question. Regarding the MOU, the first one, I think it's very preliminary to talk about what's going to be the impact. Giving more color on the MOU, there's two key pieces. The first one is the 2G. The 2G here, the idea is to work towards a single grid where we could split our footprint, and give services in half of a country each, so that we could free our frequency to be used in other technologies, such as 3G or 4G. That's the first idea that we have. We're going to start with cities outside capitals to see how it works, then we can be improving it to more cities depending on the analysis that we do during the 90 days that we have. Before the final approval, if it's needed by Anatel and CADE.
In the 4G, it's focused on 700. We started with the 30,000 inhabitant city, but of course, if it works, we may be expanding it more to larger cities, as you correctly said. I think it will depend on the results. We are very positive and optimistic that can work. We have 90 days to make it concrete as a plan, get the needed approvals, and make it work. Also, I think in the short term, we'll be able to present the results, how it's working, and with the impact in our CapEx and OpEx, and especially in our coverage, that we could expand it, if we can do that, split it with TIM. Regarding EBITDA margin, as you said, you're right. We've been increasing FTTH. We've been replacing some copper.
At the same time, we're also replacing voice that has high margin, but we are going in the right direction if you consider only broadband. I think we have the right price point. We are trying to sell high speed in cities that we get to optimize and to increase our ARPU. I think we've been seeing the ARPU going in the right trend, and I think you will believe that if the revenues come, we'll be able to increase margins and increase the EBITDA. I think our key objective here is to increase in absolute numbers the EBITDA that we present. I think it's a mixture of all various different services. There is handset that Susana asked before that is involved in our revenues. There are some B2B services that include services and hardware that is also being very successful in our same strategy.
Of course, fiber is being one that's contributing not only with revenues but also with positive margins. I think going forward, individually, fiber is a good project that's bringing positive margin, as you said, but I need to combine with all the other services and products we are also selling.
Perfect, Christian. Very clear. Thank you.
Next question comes from Valder Nogueira, Santander.
Good morning, guys. Thanks for taking my question. Continuing on the FTTH here and shifting gears from mobile. You have proven to have a very good FTTH strategy, and that has underscored the improvement that we saw in fixed-line revenue dynamics. The question here is, do you see ways to speed up that rollout, meaning having built-to-suit agreements with construction companies or independent players or even commercial agreements with them? How has the pricing dynamics of FTTH behaved vis-à-vis the DSL prices and the price of competitors in the geographies you are? That's my first question.
Valder, thank you for the question. That's Christian again. I think as we said, now we got to 142 cities with FTTH, a little bit more in 250 if you consider FTTX. Brazil is a huge country, now with more than 5,000 cities. I think we want to get to as many cities as we can. We have a guidance, and we have a CapEx that is controlled, so we cannot do everything by our own. We'd be able to consider other infrastructure type of models. We don't have anything right now. We've been analyzing and to see if there is an incentive for us to do that, how can we do that?
I think going forward, it's going to be hard to believe that we'll be able to be independent player building by ourselves all the network that we believe it's demanded in a country the size of Brazil, especially when we have 40% of the postpaid customer base, that there is a lot of advantage for us to sell a bundle of our postpaid advantage together with FTTH. I think we started before. We have more expertise as a group, and we're going to continue to accelerate. As we have CapEx limitation, we will need to see if there is any different model that can help us to be more aggressive in speed and respecting all the restrictions that we have as a company that wants to have the control or have the FTTH built in the way that we know how to build it.
That was the first question. The second question was the price. I think the price, I think our broadband ARPU is going up. Now it's going up more than 14%, and we had 12% in the quarter before. I think going forward, we expect to be increasing ARPU as we are selling more FTTH and less ADSL. I think it's a natural movement, and I expect the market to be also rational on broadband, because there is a lot of investment to make this fiber, and also to the CPE related to customer's premises. Going forward, we expect ARPU to grow as we replace more FTTC and ADSL by FTTH.
Okay. The second question is, how clients have reacted to your cross-sell offers on the 4.5G and fiber. Which regions have been more adhering to that offer, and how that has helped your overall ARPU dynamics?
Here, we are giving more benefits in the mobile side for fiber customers. It's not a very aggressive offer. What we're giving today is more mobile data to customers that are both fiber and postpaid with us. I don't have a number to give you. I think it's been good in states where we have a strong market share. I think it consolidates our position in these places. If you see our postpaid churn, it's very controlled. Although there is some aggressive movements from some of my competitors with prices that are below ours and with a lot of benefits in social network and other things that I mentioned before. I think that, combined with many other things, are helping us to keep our net adds in a very strong and solid number, keeping our churn down. Going forward, maybe we need to do more as a bundle.
Today is to have two bills, two offers. Going forward, maybe we need to put them together. I think also there's a channel synergy that we don't see in all the numbers in a very clear way, Valder. We have been able to sell more and more fiber in our stores, that also give more value to the channel that was deployed for a mobile purpose in the past and now is being used also to sell high-value products and services in the fixed business.
Thank you, Christian.
Next question comes from Marcelo Santos, J.P. Morgan.
Hi. Good morning. Thanks for taking the question. The first question is going back a little bit to the MOU, the question of Fred. I know it's very preliminary, so it's hard to see the benefits, but I think you already had an agreement of sharing a network with Oi, and maybe TIM, that you signed in 2015 regarding the 2.5 gigahertz. What kind of benefits did you achieve there? What kind of things you could talk about that agreement of sharing network that could be useful for us to understand the benefits this new agreement could bring? This is the first question. The second question is just a technical question on the tax rate, which seem very low in this quarter. Even with the interest on capital, it seem abnormally low. Just a comment on the reason about that. Thank you.
Hi, Marcelo. It's Christian. I will answer the first, and then I'll give David the second, okay? The agreement that we had with TIM and Oi is different from this one. That one was signed in 2015, was related to the 2.5 frequency for 4G. It was very limited. I think at the end, we did 1,300 sites in our, from Vivo, and they gave each more or less 667 each because they had a 10 plus 10, and we had 20 plus 20 megahertz as a frequency. I think that's not the same. I think that was very limited. As I said, it was a three-way sharing that made it a little bit more complex. We had more frequencies, and they had to add the two of them together. I don't think that serves as a benchmark for us going forward.
I think that was a good experience in a way to do things, but I think going forward, the one that we have planning to do with TIM is a little bit more aggressive. Now going to more cities and more sites. Again, we have 90 days to define the scope and to get the right approvals to make it happen. I don't think the benchmark will be the one that we did. It was like we were talking about, I don't know, I think less than 150 cities each that we put in the place to do the three-way sharing that we had before. I think it's going to be different, this one. Then I'm going to ask David, if you have more questions about that, I will give you more.
Thank you.
Hi, Marcelo. Thank you for your question. This is David. Hi. I think the main reason, if you compare tax rate year-over-year is the interest on capital. In the first six months this year, we declared BRL 2.2 billion, compared to the BRL 400 million that we declare in the first half of the first year. Now, considering that we have a tax benefit of 35% of this amount, this explains the evolution of the number. There's any other big impact here.
Okay. Thank you very much.
Thank you, Marcelo.
Next question comes from Mathieu Robilliard, Barclays.
Yes, good morning, and thank you. I had three questions quickly, please. On B2B, could you give us a little bit the outlook for the segment in itself and how you're doing there compared to your peers? Second, on the mobile venture you announced. I was wondering whether you had considered it but decided not to share anything on 3G, or you hadn't considered it because you don't think it's the right time. Finally, Fred, I have to ask about PLC 79. Is it realistic to expect something in Q3 after the recess, or could it be further delayed? Many thanks.
Hey, Mathieu, this is Christian. I'll try to answer the three questions, the different ones. B2B, we see a positive trend. We don't give numbers specifically for the B2B, but we see, as we've been saying for many quarters, a very positive trend in both fixed and mobile segments for the B2B. The fixed is a lot, it's impacted by some deals that can move up or down when you compare year-over-year. Overall, health of the business, it's positive. Although the economy is still under recovery, we see our B2B getting more attractive. Now, there are some numbers that we see going in a very positive way. Digital services, we've been partnering with big companies in digital arena like Cisco, Microsoft, among others. We are growing security, we are growing cloud, we are growing machine-to-machine.
There are many public numbers that we shared that's signaling what I'm saying, that is positive, the trend that we see in B2B, and I still depend a lot on the recovery of the economy. As much as companies starting reinvest in Brazil, we're going to see our business going up in the same way. Regarding the MOU team, I think your question was about why 3G is not there. We wanted to point out our key priorities in the short term to make it feasible and real. 2G and 4G is going to be the first step. There is a line in our MOU that also said that we're going to be assessing other technologies and other frequencies.
Once we get to the analysis of the 2G and 4G, and we see that there is also opportunity to capture in the 3G, we're going to do it. We just didn't point out as the key priority because we wanted to make it real. Starting with the 2G, that we see it easily to be accomplished, and 4G new cities with 700. Again, when we get to a city that there is 2G, there is 4G, and there is also 3G, of course, we're going to consider doing everything and getting much more of this MOU. PLC, we don't have a concrete date to tell you. We're still very optimistic. We don't know what's going to be the right timing. I think it's there being analyzed by the senator. We have to wait her timing to have it analyzed.
Brazil is under a lot of reforms at the same time, so we don't know what's going to be the agenda of the Senate to approve, maybe social security, pension funds report first, and then the others, or they can go in parallel. This feeling I cannot give you, but we're still very optimistic, and I think as a sector, we are all aiming for this approval.
Thank you very much.
Next question comes from Alejandro Lavin, Citi.
Hi, guys. Good morning. Thank you for the call. I have a couple of quick questions on the balance sheet and leverage. Obviously you have a very comfortable position right now. Your net cash we'll measure excluding IFRS 16. Obviously this gives you a lot of flexibility going forward. I'm wondering, what would be the top two or three possible uses for this leverage capacity?
Hi, Alejandro. This is David Melcon. I will take the question. As you say, we have a very strong balance sheet. You're trying to consider that in the next six months, five months, we are going to pay the shareholder remuneration coming from last year that will amount to almost BRL 7 billion. We have a cash out of BRL 7 billion in the second half. This is something that we need to consider. Regarding what will be the plan for the future, I think having such a strong balance sheet gives us opportunities also to have flexibility for anything that will happen in the future. I'm thinking about your tax reform and few other things. We believe that this is the right structure that we have at the moment, and then we will see further on when there is any specific.
Okay, great. If I may, a quick second question. What would be a normalized or steady state leverage level that you would feel comfortable with? Thank you.
We don't have a ratio. I think if you look to the tax and interest rate here in Brazil, they have reduced significantly over the last couple of years. I think now we are in a different situation than we were before. We are better. At the moment, we don't have a plan, so I cannot give you a number. If you include also the data we have from IFRS 16, the number is slightly higher. As I said before, I think we need to see what will be the next future, particularly about the tax reform and few other things that then we will make the decision. At the moment, we have nothing, no reference here.
Okay. Very clear. Thank you.
Thank you.
This concludes the question and answer section. At this time, I would like to turn the floor back to Mr. Christian Gebara for any closing remarks.
I'd like to thank you all for participating in our call. If you have any additional questions, please contact our IR team. As we said along the call, we are very optimistic about the country and both our business, the mobile and the fixed for the second half of the year. Thank you and hope to see you all soon. Bye-bye.
Thank you. This concludes today's Telefônica Brasil 2Q 2019 results conference call. You may disconnect your lines at this time.