Earnings Call: Q2 2019

Jul 24, 2019

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Telefonica Brasil Second Quarter of twenty nineteen Earnings Conference Call. Today, with that 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 slide presentation on the Internet that can be accessed at the site, www.telephonica.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 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. Luis Plaster, you may proceed. Good morning, everybody, and thank you for joining us in this conference call for Telefonica Brasil's twenty nineteen 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. Then our CFO, David Melcon, will comment on our digitalization initiatives, efficiency commitments and financial results. We will then move to Q and A. I'll now pass the word to Christian. Thank you, Blaston. Good morning, everyone, and thank you for taking part of our second quarter twenty nineteen 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 revenue that grew 2.3% year over year, including handsets and by an improvement in the fixed revenue trend. In term 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 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 BRL3.4 billion. We declared BRL2.2 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 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 twenty nineteen, we will maintain our rational pricing strategy and have already announced a pure postpaid price increase that will positively impact the third quarter of twenty nineteen. 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 is likely increased to 32.2% of 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 6,300,000,000 samples and almost 1,000,000 users evaluating metrics such as voice and data coverage, download speed and data availability. As you can see, we will have 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 twenty nineteen, 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 twenty nineteen, fixed revenues dropped 2.8% year over year compared to a drop of 3.2 in the 2019 and a decrease of 3.7% a year ago. FTTH revenues reached BRL481 million, growing 55% year over year and IPTV revenues reached 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 twenty nineteen, FTTH access grew 38% and now represent 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 dollars 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 PayTV customer base, improving overall ARPU by 5% to dollars Now moving to Slide eight, we continue to focus on the expansion of our fiber footprint. In the second quarter of twenty nineteen, 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 twenty eighteen. More importantly, we're increasing the number of home passed with FTTH, which now reached more than 9,500,000. 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 FTTH footprint. On Slide nine, we detailed the investment made in the period. CapEx amounted to R2.4 billion in the second quarter of twenty nineteen, totaling R4.1 billion dollars 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 two fifty two cities with FTTx. Additionally, we continue to allocate CapEx to amplify our coverage and network quality in four gs and 4.5 gs technologies with a 33% increase year over year. Moving to Slide 10, you can see that on July 23, we signed a memorandum of understanding with TIM with the objective of analyzing options related to the sharing of mobile infrastructure. By signing this MOU, we intend to initiate discussion regarding the sharing of two gs and four gs infrastructures and other efficiency and cost reduction opportunities around network operations. We plan on combining our two gs footprint in a single grid model, something that can potentially relieve two gs frequencies to be reformed and used for up to date higher return technologies. Additionally, we intend to share our four gs network in band of 700 megahertz, initially in cities with less than 30,000 in net defense, allowing for further expansion of our four gs 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, will additionally improve the overall quality of services for our customers. I now pass it on to our CFO, David Malkon. Good morning, everyone, and thank you, Christian. Moving to Slide 11. We continue to be very efficient managing costs, leveraging on digitalization and simplification processes that benefit not only our results, but also our customer experience. In the second quarter of twenty nineteen, our operating expenses were flat year over year, significantly below inflation of 3.4% registered in the period. Costs were negatively impacted by our accelerated handset sales. Excluding the cost of handset sold, our expenses dropped 2.4%. Personnel cost that represents 13% of total OpEx decreased 2.6% as a result of the organizational restructuring executed in the last twelve months. Cost of service rendered that account for 40% of our total OpEx decreased 2.4, benefited by the lower expenses within the connection, partially compensated by higher costs related to the expansion of our network. Commercial expenses, excluding bad debt, 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 twenty nineteen, commercial expenses represent 25% of our total OpEx. Moving to Slide 12. Artificial Intelligence and our eCare app continues 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 using more than 20 channels, recording more than 50,000,000 interaction 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 pertained by our cognitive call center multiplied by three, achieving satisfaction levels above 90%. We are also constantly developing our bigger app, Meovivo, 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 savings. As a result, over the last nine months, top ups made on MEOVivo increased by more than 60%, contributing to a significant reduction of top up commissions. Now moving to Slide 13. Net income for the 2019 reached BRL2.8 billion, 24% higher than a year ago in a recurring 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 2,200,000,000.0, significantly higher than in the previous year. This reinforced 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 twenty nineteen, free cash flow grew 13% year over year, reaching an impressive BRL3.4 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 7,000,000,000. Thank you. And now we can move to the Q and A. And Thank you. The floor is now open for questions. If at any point your question is answered, you may remove yourself from the queue by pressing 2. 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. Our first question comes from Rodrigo Villardueva, Merrill Lynch. Thank you. Good morning, Christian, David, Lester. 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. But this doesn't seem to be driving up wireless service revenue growth. So I was wondering why do you think this is the case? When would you expect Wireless Service revenue growth to accelerate? And 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 results for the mobile service revenue. So in the second quarter, we haven't raised any price. So 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 words, yes, we did increase price and that we could see in the results for mobile revenues, especially moved from the hybrid one. We're going to do the same for the postpaid that we already announced in the third quarter and in the end of the year, we're to do it again in the hybrid. In the appropriate, we also raised price. As we also said in the last call, we raised price for our weekly and biweekly offer from ten to twelve. 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 prep rate that was minus 19% in the first quarter is now minus 8.7% year over year revenue. So 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. But of course, it's not the only way for us to increase our attractiveness. I think our net adds was also positive in this quarter better than the quarter before. And going forward, we're going to continue to do more innovation in our offer, blend our FTTH footprint that today is 9,500,000 home pass and be more conversions in our offer and to cross benefits between the two type of customers, the fixed and the mobile. Understood, Christian. Very clear. And my second question is related to handset sales as it seems that you are looking to gain share in this market. Looking at the P and L, it seems that you subsidized around 15 to 20% of handset costs. Is this 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. Yes, 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 sold. There are some other hardware that we sell for B2B customers. So 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. So 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. So we have 1,600 stores in Brazil and we're going to be seen as a place for them to buy not only mobile service, but also hardware and accessories. So our strategy is combined subsidies with pure postpaid with more value, but also selling devices to hybrid and prepaid customers without subsidies. So it's a mixture of the both. So that we are going to continue doing that. And again, hardware is all included in cost of goods sold, not only handsets. Understood. Thank you very much. Our next question comes from Maria Theresa Acevedo, UBS. Hi, everyone. Thanks for the call. So 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? And 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 will be my first question. Thank you. Maria Theresa, 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 in the benefits that we offer. We've been very strict in off net or even some social network that we don't want to do for free, especially in the prepaid when they are paying around dollars week or even two weeks in some cases. So we expect rationality to come back. Now we see that in some segments, we don't see no. We see from some competitors, not for all. So going forward, I think we should, especially for all the investments that we all need to make in the country. We have like options, we have network to deploy, so we need to generate more cash. So I'm positive their personality will be among all of the players. Concerning consolidation, I think Brazil, as we said in the others in other calls, Brazil requires a lot of investment and very strong and with financial capability to be able to compete. So I cannot tell you what the number or the right number of competitors we should have in the market. But 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. And my second question would be on your CapEx and five gs strategy. You have an upcoming auction. Can you maybe comment on how complex is the upgrade? What are your strategy on five gs? If there are expectations of a massive rollout or if it's going to be a more gradual strategy? And if you see any risk of increased CapEx for 2020 and forward? Or if you can roll out five gs with your current plan? Thank you. I think the guidance that we gave for the three year plan is the one that we gave. So with the 26.5% of the 24% plus the 2.5% that we accelerated for the fiber. Although we consumed a little bit less last year and we are trying be a little bit more efficient also this year. But the guidance is the same, we haven't changed it. I think it's too early to say, Medeiros, how much is going to be our CapEx expenditure for the five gs. 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 that can also be used for four gs. So far what we've been doing is preparing ourselves for as a capacity standpoint. So we are putting the fiber to the side. We are doing as much as we can. And I think also this MOU that we signed with TIM is also our ability to release investment maybe in two gs and four gs in smaller cities to invest in other technologies or high speed technologies. So 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 Salario, Itau. 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 increase, if I'm not mistaken, the beginning of the year and towards the end of the year. And this year, the whole seasonality of price ups changed. So 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? And if these 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 is Christian. 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, January with some impact. We're to do again December, January this year, so it's more or less one year after it. In the postpaid similar, I think we did third quarter twenty eighteen, We are doing now August 2019. So it's more or less the same. And prepaid has no rule because it kept the same price for a long time. So we are doing offer by offer. No. So it's 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 not never in the same date. Regarding handsets and then maybe our team can give you more detail that I don't know how much we can share, but it's a mix of pure postpaid customers and we also want to position ourselves in hard and the prepaid customers that don't buy with subsidies that with some years ago we decided not to sell to these customers and 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. So 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, but this customer, the one buy for pure postpaid. In the hardware, depending on the customer, we only give slight subsidies for the high end one in the hardware, we don't give to the others and 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. So what we give as a number is that we are getting a positive margin, but it's a mix between subsidies and the pure postpaid without subsidies in other segments. And 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, I mean, 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 Alemannia to your trading desk in Alemannia Germany to lower the prices? I mean, in terms of procurement, is there anything that you are guys doing to facilitate the profitability of the business? Our inventory is very, very well optimized. And I think the scale that we get is not for buying more. It's the scale of Telefonica Group that help us also have a good unit price. And even like Vivo by itself is a very strong buyer for Brazil. And so and we've been working a lot in the 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. Have two questions as well. I mean, 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 form a basis, just to get a better understanding of the potential for next quarters, I mean, we do expect here, at least in our view, that the FTTH product does have a higher margin than other products such as copper and voice. So 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? Or maybe on this initial stage, you are charging a lower price in order to gain more market share, so that's why you're not seeing such an improvement in margins yet? Of course, are other moving parts, but just trying to get an understanding of the strategy here and the potential from the FTTH in terms of margins. Thank you. Hi, Fred. It's Christian. Thank you for the questions. Regarding the MOU, the first one, I think it's like very preliminary to talk about what is going to be the impact. Giving more color on the MOU, we're going to there's two key pieces. The first one is the two gs. The two gs here, the idea is to work towards a single grid where we could split our footprint and give services like in half of a country each so that we could free our frequency to be used in other technologies such as three gs or four gs. So that's the first idea that we have. We're going to start with cities outside capital to see how it works and then we can be improving it to more cities in depending on the analysis that we do during the ninety days that we have before the final approval if it's needed by Anatel and Kade. In the four gs, 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. So as you said, as you correctly said, so I think it will depend on the results. We are very positive and optimistic that can work. We have ninety days to make it concrete as a plan, get the needed approvals and make it work. And also I think in the short term, we'll be able to present the results, how is it 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 we believe that if the revenues come, we're being able to increase margins and increase our 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 very different services. There is handset that Susan asked before that is involved in our revenues. There's some B2B services that include services and hardware that is also is being very successful in our sales strategy. And of course fiber is being one that's contributing not only with revenues, but also positive margins. Think going forward, individually fiber is a good project that's bringing positive margin as we said, but I need to combine with all the other services and products we are also selling. Perfect, Christian. That's 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 had and that has underscored the improvement that we saw in fixed line revenue dynamics. The question here is, do you see any way 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? And how has the pricing dynamics of FTTH behaved vis a vis the DSL prices and the price of competitors in the geographies you are? That's my first question. Thank you for the question. That's Christian again. I think as we said, we've got to 142 cities with FTTH, a little bit more in two fifty if you consider FTTx. Brazil is a huge country, now it's more than 5,000 cities. I think we want to get to as much as many cities as we can. So and we have a guidance and we have a CapEx that is controlled. So we cannot do everything by our own. So 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. But 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 consumer base that there is a lot of advantage for us to sell a bundle of our postpaid advantage together with FTTH. And I think we started before, we have more expertise as a group and we're going to continue to accelerate. And 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 ARPU broadband ARPU is going up. Now it's going up more than 14% of what 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. So I think it's a natural movement and we 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 customers' premises. So going forward, we expect ARPU to grow as we replace more FTTC and ADSL by FTTH. Okay. And the second question is how has been how clients have reacted to your cross sell offers on the 4.5 gs and fiber? Where which regions have been more adhering to that offer and how that has helped your overall ARPU dynamics? Here it's more 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. You could see our postpaid churn, it's very controlled. Although there is some aggressive movements from some of my competitors with prices that are below all rates and with a lot of benefits in social network and other things that I mentioned before. So 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. And 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. And I think also there's a channel synergy that we don't see in all the numbers in a very clear way, but 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 it's being used also to sell high value products and services in the fixed business. Thank you, Christian. Next question comes from Marcelo Santos, JPMorgan. 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 say 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 lessons can you what kind of benefits that you achieved 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. And the second question is just a technical question on the tax rate, which seemed very low in this quarter. Even with the interest in capital, it seemed abnormally low. So just a comment on the reason about that. Thank you. Marcelo, it's Christian. I will answer the first and then I will give David the second, okay? The agreement that we had with Kim and Oi is different from this one. That one was signed in 2015, was related to the 2.5 frequency for four gs. It was very limited. I think at the end, did like 1,300 sites in from Vivo and they gave each more or less six sixty seven 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. And I don't think that serves as like a benchmark for us going forward. I think that was a good experience in a way to to do things, but I think going forward, the one that we have planning to do with him is a little bit more aggressive, not going to more cities and more sites. But again, we have ninety days to define the scope and to get the right approvals to make it happen. But I don't think it's the benchmark will be the one that we did. But like we were talking about like, I don't know, being less than 150 cities each that we put into place to do the three way sharing that we had before. I think it's going to be different in this one. Then I'm to ask Damian if you have more questions about that, then he'll give you more. 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. So in the first six months, this year we declared EUR 2,200,000,000.0 compared to the EUR 400,000,000 that we declared in the first half of the first year, not considering that we have tax benefit of 35% of this amount, this explains the evolution of the number. No, there's no there's any other big impact here. Okay. Thank you very much. Thank you, Marcelo. Next question comes from Matthew Robillea, 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, you haven't announced anything on three gs, and I was wondering whether you had considered it but decided not to share anything on three gs? Or you hadn't considered it because you don't think it's the right time? And 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, Matthew, this is Christian. I'm trying to answer these two questions, 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 B2B. The fixed is a lot it's impacted by some deals that can move up or down when you compare year over year. But overall health of the business is 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 ways at 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. So there are many public numbers that we shared that signaling what I'm saying that is positive, the trend that we see in B2B and it still depends a lot of the recovery of the economy as much as new companies start to 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 three gs is not there. I think we wanted to do just to point out our key priorities in the short term to make it feasible and real. So two gs and four gs is going to be the first step, but there is a line in our MOU that also said that we're to be assessing other technologies and other frequencies. So once we get to the analysis of the two gs and four gs and we see that there is also opportunity to capture in the three gs, we're going to do it. We just didn't point out as the key priority because we wanted to make it real. So starting with the two g, that we see easily to be accomplished and four g, new cities with 700. But, again, when we get to a city that there's two g, there is four g, and there is also three g, of course, we're gonna 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, the pension fund before first and then the others or they can go in parallel. This feeling I cannot give you, but it's 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. So obviously, you have a very comfortable position right now. Your net cash will measure excluding IFRS 16. So obviously, this gives you a lot of flexibility going forward. So I'm wondering what would be the top two or three possible uses for this leverage capacity? Alejandro. This is David Melcott. I will take the question. I mean, 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 we amount to almost BRL 7,000,000,000. So we have a cash out of BRL 7,000,000,000 in second half. So So this is something that we need to consider. And then regarding what would be the plan for the future, I think having such a strong balance sheet give us opportunities also to have flexibility I'm thinking about your tax reform and few other things. So 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. And 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. I mean, we have a ratio. I think if you look to the tax and interest rates in Brazil have reduced significantly over the last couple of years. So I think now we are in difficult different situation than we were before. We are better. But at the moment, we don't have plans, so I cannot give you a number. No. So if you include also the data we have from IFRS 16, so the number is slightly higher. But as I said before, I think we need to see what would be the next future, particularly about the tax reform and few other things that will then we will make a decision. But at the moment, we have nothing no reference here. Okay. Very clear. Thank you. Thank you. This concludes the question and answer session. At this time, I would like to turn the floor back to Mr. Christian Gebara for any closing remarks. So I'd like to thank you all for participating in our call. If you have any additional questions, please contact our IR team. And as we said along the call, we are very optimistic about the country and our both our business, the mobile and the fixed for the second half of the year. So thank you and hope to see you soon. Bye bye. Thank you. This concludes today's Telefonica Brasil 2Q twenty nineteen results conference call. You may disconnect your lines at this time.