Telefonica SA (TEF) 2002 Q3 法說會逐字稿

DUE TO DIFFICULITIES BEYOND OUR CONTROL, THIS TRANSCRIPT IS BELOW STANDARD.

Good morning and good afternoon ladies and gentlemen and welcome to Telefonica's third quarter results conference call. I would like to turn it over to Mr. [INAUDIBLE] head of Investor Relations. Please go ahead sir and I will be standing by for questions.

Good afternoon ladies and gentlemen, welcome to Telefonica's conference call to discuss third quarter results. I am [INAUDIBLE], head of Investor Relations. Before proceeding, let me mention that forward-looking statements are to be made under the Safe Harbor of the Securities Litigation Reform Act of 1996. October and those anticipated in any forward-looking comments as a result of macroeconomic conditions, market risks and other factors. As in past quarters, [INAUDIBLE] commencing through this presentation refer to the financial performance of Telefonica [INAUDIBLE] with all international subsidiaries in which (INAUDIBLE) up to September being [INAUDIBLE]. We continue to present our financial results [INAUDIBLE] comments by global business lines on a pro forma basis, assigning all Latin American businesses to their corresponding global business line (INAUDIBLE) independently of [INAUDIBLE] the assets. If you do not have a copy of the relevant press release and slides, please contact Telefonica's Investor Relations team in Madrid [INAUDIBLE] in New York. Let me now turn the call over to our Chief Operating Officer, Mr. Fernando [INAUDIBLE], who will be leading this conference call. Good afternoon, ladies and gentlemen. Thank you for attending Telefonica's third quarter conference call. Today, I have with me Mr. [INAUDIBLE], our Chief Financial Officer. To start with the slide number one, January, September consolidated revenues and EBITDA decreased by close to 7%, clearly by 4X, FX and slowdown of the Latin American economy. with Argentina as a top example. While FX dropped 12.5 percentage points to a nine months low in revenues in EBITDA, Telefonica-Argentina posted an annual decline in both financial and metrics of 14% and 21% versus January, September 1 in local currency. This is a drop drop that exceeds 70% in euro terms. In addition, the exchange rate close related to the dollar denominated [INAUDIBLE] Argentinian subsidiaries is reducing the groups net income by close to 400 million euros. It's clear in Argentina and 4X revenues EBITDA [INAUDIBLE] have grown in the 7 to 8% range.

At [INAUDIBLE], I would like to highlight the [INAUDIBLE] positive and the line performance that has led to a precash flow generation of close to 860 million euros for the nine months period compared to a [INAUDIBLE] 19 million euros last year. Aside from the impact of Latin American into our accounts, domestic business remains reversed. First, Telefonica-Espania is steadily reversing the negative trend to show that the beginning of the year [INAUDIBLE] business segments on track to meet their 2002 target. Third quarter revenues were up close to 2% on an annual basis already posting a flat [INAUDIBLE] rate for the year. Third quarter of [INAUDIBLE] of ETA increased by almost 4% with respect to third quarter '01, reducing the January to September annual decline to close to 3%. [INAUDIBLE] Telefonica Mobile-Espania is keeping a strong performance with revenues in EBITDA growing up 19 and 24% rates respectively. EBITDA margins for nine months reached 52%. And third Telefonica [INAUDIBLE] Spain was focused on efficiency, has translated into 3 percentage points annual increase in EBIT margin to 24%. Finally, we continue to focus on managing the group's resources [INAUDIBLE] cost structures and capital expenditure programs. And as a result, external services for the nine months ending in September increased by just 1.7% in real terms, a figure that compares positively with a 5% rise in total costs.

All business lines are up in costs to topline growth leading to a generous September group [INAUDIBLE] margin of 41.6%. Moving to slide number 2, [INAUDIBLE] highlights of the impact of currency situations and changes in the consolidation in group accounts is shown here. The progressive depreciation of Latin American currencies to the Euro, with the Argentinian peso and [INAUDIBLE], losing more than 75 and 35% of the value since the beginning of the year respectively, as you can see clearly [INAUDIBLE] on the Company's results in euros. Despite some mild signs of recovery during the quarter, specifically with the Argentinian peso, close in September is slightly stronger than the close of June. The average exchange rate has continued to erode on a quarterly basis. And as a result, FX is dragging 12.5 percentage points to revenues and EBITDA growth for the January-September period, [INAUDIBLE] 4.5 percentage points more than in the first quarter '02. [INAUDIBLE] the impact of changes and consolidation to 4X, a running growth for the group reached 4% of both revenues and ETA.

Moving to slide number three, [INAUDIBLE] the current environment, characterized by macroinstability, weaker demand with expectations rated to high [INAUDIBLE] services [INAUDIBLE] to materialize and somehow strong competition will [INAUDIBLE] consideration on [INAUDIBLE] temporary basis. In Asia [INAUDIBLE] performance up with [INAUDIBLE] commitment to future growth [INAUDIBLE] such as [INAUDIBLE], two of the basic initiatives that we continue to be focused on. Downsizing the group cost structures [INAUDIBLE] and optimizing capital expenditures, grossly monitoring returns on investment. With regard to [INAUDIBLE], all subsidiaries continue to consistently improve the cost basis with the groups total expenses posting 7% on decline . It is worth mentioning the efforts to push down costs at both Telefonica-Espania and Telefonica-Mob[INAUDIBLE], despite Telefonica-Espania increasing focus on commercial activities to expand [INAUDIBLE]. Among operating costs, I would like to stress the positive trend in [INAUDIBLE] expenses which decreased by 6% in cost on currency terms year-on-year, breaking the upward trend [INAUDIBLE] in the first two quarters of 2002. Telefonica-Espania and Telefonica [INAUDIBLE] successfully were using uncollectibles [INAUDIBLE] of 1.5 percentage points of revenues each. Latin American operations achieved [INAUDIBLE] stable at 3.8 percentage points of revenues in the last 12 months. As a result of this cost stream initiatives, group of ETA margin stood at 41.6%, as I said before, marginally improving compared to the 2001 figure.

On the slide number four, (INAUDIBLE), we can see that the investments total 2.5 billion euros for the first nine months of the year, representing an annual decrease of 52%. This reduction is mainly due to Cap Ex [INAUDIBLE] efforts with Latin American currency depreciation, benefiting euro drop in euro terms. However, it is worth mentioning that this Cap Ex controls efforts have been very selective and will not jeopardize potential [INAUDIBLE] growth. Cap Ex reductions were incentive from traditional businesses with Telefonica-Espania voice-related topics, what we tend to call traditional topics, being cut by an annual rate of 24%. Telefonica [INAUDIBLE] Espania is taking advantage of the economies of scale and the ability to balance investments in new technologies and services to demand, reduce total investments by 22% year-on-year. On the contrary, we are maintaining our investment plans to take advantage of growth opportunities mainly in [INAUDIBLE]. And as such, Telefonica-Espania [INAUDIBLE] related topics grew by 17% compared to a January, September 2001 figure. We are presenting now more than 45% of the division total investment program to date. From original perspective, Latin America is driving Cap Ex reductions with total six-line Cap Ex falling by 78% to represent now a mere 8% of the division revenues that is 26% in 2001.

Moving to slide number six, [INAUDIBLE], calculated as every day [INAUDIBLE], grew by 44% on your rate to [INAUDIBLE] 6.4 billion euros. Despite the weight of our businesses in Latin America, Telefonica's cash flow generation is well balanced with Spain contributing to two thirds of the January-September figure and that's limiting the [INAUDIBLE] file of the company. The weight of Spain is giving the company the necessary stability to serve as [INAUDIBLE] and financial growth while keeping a very solid balance sheet and the flexibility to selectively tap the capital markets. On slide number six, year to date contribution by business lines to the revenue on everyday structure and growth, is presented here with Telefonica [INAUDIBLE] contributing the most and supporting the [INAUDIBLE] results as in past quarters. [INAUDIBLE] business, as I said, remains as the main contributor to consolidate revenues and EBITDA growth with two and three percentage points respectively. Telefonica-Espania [INAUDIBLE] which is consistently reversing its negative trend in everyday growth after posting revenues in EBITDA in 3rd quarter up 1.7% and 4% versus the fifth quarter of last year has drastically reduced its negative contribution to group revenues and EBITDA growth. The positive trend of the above mentioned units is just partially compensation Telefonica's [INAUDIBLE] shortfall. [INAUDIBLE] moderate to slow down of local operations and the worsening of the average Latin exchange rates for the [INAUDIBLE]. And, as a result, Latin American fixed line operations saw its negative contribution to revenues and everyday growth increased to minus 17 percentage points in revenues and minus 12 percentage points at the everyday level accumulated for the fifth quarter total. In actual terms, Telefonica-Latin America weight in total EBITDA is still decreasing, representing 25% of the fifth quarter 2002 total EBITDA, which is a reduction of close to 10 percentage points in comparison with [INAUDIBLE]. By country, Argentina accounted for just 3% of consolidated nine month EBITDA, dropping from a level of 11% a year ago while Brazil has kept it's weight stable at 21% during the last twelve months. Telefonica-Espania remains as a major single contributor to consolidated revenues and EBITDA.

And moving and reviewing Telefonica-Espania, in slide seven, we can see that traditional business revenues were down to 1.9% on an annual basis stabilizing with respect to [INAUDIBLE] decline and clearly recovering from the 3.9% growth where you stood in the first quarter of 2002. With this performance, traditional revenues are in line with our 2002 targets, which were equal to the decline in the range of minus 2 to minus 4% range for the full year. There are basically three factors driving the business performance of the traditional part of the business of Telefonica-Espania. First, the access [INAUDIBLE] in lines decreasing by more than a half million during the year due to a combination of a stronger competition, mainly from cable operators and also fixed mobile institutions. As of September, [INAUDIBLE] had reached a 6.1% access market share compared to the 3.3% [INAUDIBLE] in September 2001, 80% of which was lost to cable operators. With respect to fixed mobile institutions, 1.3 million households have only mobile access according to our internal estimate. Second, traffic. With incoming traffic growth of 24% being partly upset by a 1.4% drop in outgoing traffic, to reach a blended growth rate of 5.7% for the first nine months of the year. [INAUDIBLE] traffic growth is slowing down on a quarterly basis at 1.6% in the first nine months compared to a 57% for the same period last year and preselected lines which amounted to a 1.6 million at the end of September, are the basic factors behind outgoing traffic evolution. t is worth mentioning that [INAUDIBLE] lines increased by just 54,000 in the fifth quarter '02, a decreased growth to 90,000 versus the second quarter of '02 compatible with the seasonality of the summer period. And third, the 7% overall [INAUDIBLE] decrease related to 2001 price cuts, fully affecting 2002 affected prices. I would like to [INAUDIBLE] you that price cuts approved in the first quarter '02 were neutral to the 2002 price cut. [INAUDIBLE] revenues increased by 51% year-on-year [INAUDIBLE] clearly by ADSL. The Company has already recovered from the fifth quarter '02, a slowdown in [INAUDIBLE] related to lower commercial activity in the summer period and we had a very strong figure of [INAUDIBLE] due in October. It almost weakened the total [INAUDIBLE] with 78,000 new connections. Thus, [INAUDIBLE] connections exceeded 825 thousand at the end of October and we believe we are also really in line to get our Company's objective of 900,000 for the full year.

Telefonica-Espania is monitoring very closely the [INAUDIBLE] economics, taking measures to build the business profitability and as a result the Company is controlling operating expenses with [INAUDIBLE] up to 58% of September retail additions. [INAUDIBLE] forced the migration of (audio not understandable) and it's worth to highlight that we [INAUDIBLE] now close to 40%, 40% of our new ADSL clients were [INAUDIBLE] generating [INAUDIBLE] before. And third, working to promote, that's increase (INAUDIBLE] speed upgrades and the launch of new services. In short, each [INAUDIBLE] captured in the first nine months of 2002 have [INAUDIBLE] with respect to the previous [INAUDIBLE] spending.

Moving to slide number eight, on a quarterly basis, [INAUDIBLE] Telefonica is clearly improving throughout 2000 [INAUDIBLE] moving from the 10% decrease in the 1st quarter to a 4% increase in the fifth quarter compared to the fifth quarter '01 figure. This trend is allowing the Company to reduce it's [INAUDIBLE] EBITDA decline to a minus 3% for the first nine months of the year. To reach our flat and ETA target for 2002, we need still to post a strong [INAUDIBLE] of ETA in the region of 1.15 million euros which would mean close to a 10 to 11% year-on-year increase. It is challenging, although, we remain very committed to this achievement and we [INAUDIBLE] to have the last two months of the year performing at least in line with October which have shown quite a strong performance in line with this strategy of objective. On page number 9, slide number 9 and moving to Telefonica-Latin America, a word on performance, (INAUDIBLE] lines and service for the region has dropped by .6 percentage year-on-year to 21.5 million (INAUDIBLE) tighter controls to [INAUDIBLE] And also because of Telefonica-Argentina's lower activity. It's worth mentioning, as well, that Telefonica-Argentina main operation metrics are [INAUDIBLE] to stabilize [INAUDIBLE] unfolded with September disconnections being 40% lower than the January to June monthly average. he group continues to push on ADSL commercial front, ending September with more than 390,000 connections which is 156% annual increase. Close to 80% of these are located in [INAUDIBLE].

From the financial standpoint, consolidated results continue to be shifted by the [INAUDIBLE] in local currency growth rates and the worsening of the average exchange rates which have dropped 28 percentage points to revenue and EBITDA growth. In euro terms, both financial metrics decreased by 29% and 32% respectively. All operators are concentrating on [INAUDIBLE] structures to the domestic market [INAUDIBLE] and as such, Telefonica's [INAUDIBLE] operating expenses were cut by 4% year-on-year excluding [INAUDIBLE] and interconnection. Therefore, [INAUDIBLE] division is keeping it's EBITDA margin in the 48 to 49% range. Despite the falling of ETA, the tight management of capital expenditures continues to drive capital up with Cap Ex to sales moving from a 26% to 8%. [INAUDIBLE] the region generated more than 1.5 billion euros with receipt accounting for more than half of total, 55% of total. [INAUDIBLE] to a detailed review of [INAUDIBLE] on the slide number 10, and starting with the financials, January, September operating revenues in EBITDA had increased by 10.6% and 9.4% respectively in local currency. The 8% rising the average [INAUDIBLE] service, that [INAUDIBLE] increases [INAUDIBLE] June 2001 and 2002 and divisional contribution of [INAUDIBLE] long distance services are behind this Company's results.

From [INAUDIBLE] this perspective, I would like to highlight three basic elements. First, that the negative trend [INAUDIBLE] has been reversed since [INAUDIBLE]. Thanks to a tighter control of these connections, deeping scoring of (INAUDIBLE) and the commercialization of (INAUDIBLE] for low income users. In October [INAUDIBLE] totaled around 44,000, slightly under the 49,000 [INAUDIBLE] accounted for in the third quarter. It is also worth mentioning that despite the both the intense growth in license service since we took over operations [INAUDIBLE] and that [INAUDIBLE] lower income [INAUDIBLE] expenses have remained stable at the level of 3.7% of revenues. [INAUDIBLE] continues to be strong. [INAUDIBLE] over 306,000 [INAUDIBLE] at the end of September which 115% above September 2001 figure. And third, [INAUDIBLE] has been successful in gaining market share on national and international long distance services despite being operating in those markets for just three and five months respectively. And of September, the market shares were around 25% [INAUDIBLE].

Moving to slide 11, turning to Telefonica [INAUDIBLE] performance, from an operating perspective, the Company's net [INAUDIBLE] remains strong with an active [INAUDIBLE] 53.5 million at the end of September which is [INAUDIBLE] to a 20% annual increase. Third quarter [INAUDIBLE] exceeded 975,000, increasing by 33%, this is the second quarter of this year which is a significant achievement considering the current economy context of our markets of operation. More than 50% of the groups net [INAUDIBLE] were in Spain with more than a half a million new clients in the fifth quarter '02, which is an increase of over 60% to the second quarter of figure -- second quarter of '02 figure. In regard to the financials, revenues on EBITDA were [INAUDIBLE] 11 and 12% rate with organic rate excluding [INAUDIBLE] and changes in the conservative accounts reaching 13 and 16% respectively. Latin America, despite suffering from currency depreciation, is successfully protecting EBITDA which grew by close to 2% in euro terms on a yearly basis. [INAUDIBLE] 6.2 million clients and improving [INAUDIBLE] margin by 3 percentage points in the fifth quarter versus the second quarter will remain an area for growth. The [INAUDIBLE] corporation of the joint venture with Portugal Telephone, will be the levers for growth, giving the company access to 30 million clients and 70% of the countries GDP. Mexico, where a management team has already been appointed and it's working to integrate operations, shows also a positive operating performance. Total [INAUDIBLE] of the northern properties grows like 23% year-on-year with contract subscribers presenting 25% of 2002 net [INAUDIBLE]. In late September, local currency revenues increased 31% annually with third quarter EBITDA dropping by 15% compared to the fifth quarter '01 figure, due mostly to the commercial efforts deployed.

And finally Europe, which is sequentially reducing [INAUDIBLE] since we announced the closing of commercial services in Germany and we have scaled back all business structures in Europe. We expect to complete this restructuring by year end and have already reached an agreement [INAUDIBLE] to transfer funds [INAUDIBLE] effective November 15, effective today. Telefonica [INAUDIBLE] is a [INAUDIBLE] contributing to total revenues and EBITDA growth by 13 percentage points and 12 percentage points respectively. In [INAUDIBLE] terms, the Spanish operations accounted for 74% of consolidated revenues, a figure that increased over 90% if we look at the EBITDA. (INAUDIBLE) of our Spanish wireless subsidiary in page 12, the Company is working to protect EBITDA margin and [INAUDIBLE] we are stabilized [INAUDIBLE] controlling capital costs. (INAUDIBLE), which declined by just 5% in fifth quarter, compared to fifth quarter '01, [INAUDIBLE] commercial initiatives have been successfully implemented since the beginning of 2002 with the objective to stabilize it. First, promote [INAUDIBLE] [INAUDIBLE] migration [INAUDIBLE] increasing usage and spending. Fifth quarter '02 contract [INAUDIBLE] triple dose of the same period last year reaching now 65% of total [INAUDIBLE] for the quarter. Second, [INAUDIBLE] minutes of usage. Our commercial efforts, mainly reflected in incentives to prepay migration, price increases and the [INAUDIBLE] of the [INAUDIBLE] to a 1% year-on-year increase [INAUDIBLE]. This increase is worth to be highlighted as it breaks, for the first time, the downward trend seen in recent years. And third, promote data services [INAUDIBLE] which accounted for 12% of [INAUDIBLE] in the fifth quarter. In addition, subscriber [INAUDIBLE] and subscriber retention [INAUDIBLE] are under control, showing a 28% annual drop in the first nine months of the year without harming the Company's ability to gain and retain clients.

Telefonica [INAUDIBLE] market share of gross has reached more than 60% in the summer campaign with annual churn of 12% which is 6 percentage points lower than the 2001 figure. This [INAUDIBLE] performance continues to translate into very positive financial results with the record high of ETA margin in the fifth quarter '02 of 59%. EBITDA, growing at the 24% annual rate, combined with capitalization dropping by 22% in the last 12 months before [INAUDIBLE] 370 million euros are also driving cash flow up to exceed 2.2 billion euros to date. [INAUDIBLE] the financial performance of Telefonica [INAUDIBLE] focus on operating efficiency that the Company has been applying since the beginning of the year is currently paying now with everyday posting and organic growth of 148% to almost reach 111 million euros. Both [INAUDIBLE] operations in Spain and Latin America and international network are improving EBITDA margins sequentially, driving the overall groups positive performance. In Spain the company has successfully [INAUDIBLE] the witness and demand increasing it's everyday margin to 24 percentage mark. January to September everyday margins for Latin America [INAUDIBLE] improved also by close to 10 percentage points to reach the 15.2 percentage level [INAUDIBLE] top performer. Telefonica [INAUDIBLE] saw its revenues increased by 59% in local currency, driven by a 20% rise in the number of [INAUDIBLE]. EBITDA reached 14 million [INAUDIBLE] equivalent to a margin of 14% for the first nine months of the year. Consolidated EBITDA margin (audio not understandable) were fully consolidated and stood at 5.2%, a significant improvement with the [INAUDIBLE] 1.3% margin posted in 2001.

The company also continues to move forward in terms of operating cash flow with [INAUDIBLE] operating performance being complimented with an effort on [INAUDIBLE] which also dropped by 51% on an annual basis.

Now our Chief Financial Officer will comment on the financial expenses.

Good afternoon, ladies and gentlemen. Let me now move to slide 14 where the net financial expenses of our group are shown. The [INAUDIBLE] financial result, our company has posted net financial income in line with that third quarter 2001 level, that is, if we exclude the effects of the Argentinian devaluation. The average net debt level for the first nine months of the year, has been 26.6 billion euros with an average effective interest rate standing very close to 7% which has generated 1.4 billion euros of financial expense. While net interest charges have decreased due to [INAUDIBLE] and lower debt level and a lower level of [INAUDIBLE] interest rates, there are the factors which have worked in the opposite direction such as additional hedges from our Latin America foreign exposure, linked to direct investments, the interest differential which on this hedge has been negative for 30 million euros, has to be recorded as an expense in the P&L while the profits, 120 million euros, which will have gotten as a consequence of the Latin American currencies having been evaluated, have no impact whatsoever on the P&L, but have to be recorded instead on the balance sheet to offset the lower value of our investments in U.S. dollars. The Argentinian peso has depreciated from 1.7 pesos, as recorded in our 2001 financial statements, to 3.74 pesos per U.S. dollar at the end of September of '02. And this added 608 million euros charged to the net financial results because of the unhedged U.S. dollar external debt which is outstanding at the Argentinian subsidiaries level.

Could you now please turn to slide 15. We can comment on the extraordinary charges to our P&L. Telefonica has posted a 5 billion euro net loss for the first and nine months of this year. And, this is heavily penalized by a set of extraordinary charges shown in this slide. [INAUDIBLE] UNTS and Media West net writedowns have totalled 5.4 billion euros, which have already been accounted for at the end of the second quarter of 2002. Secondly, exchange rate losses related to Argentina to the tune of 400 million euros on the period around 47 million euros below the January to June figure, have been recorded. If the peso or should the peso continue to strengthen in the coming months, the year end [INAUDIBLE] loss would continue to decrease. Thirdly, losses on the sale of [INAUDIBLE] assets basically relative to [INAUDIBLE] in Argentina [INAUDIBLE] are also shown on this slide. [INAUDIBLE] prove that we are delivering on restructuring nonperforming businesses as we committed to do in July. [INAUDIBLE] a provision for treasury stock reflecting the difference between the average purchase price and the market price at the end of September of '02 is included. It is worth mentioning that this provision would have been 122 million euros lower if we were to adjust the average purchase price to October market prices. Finally, other extraordinaries not only provisions related to severance payments in Latin America are shown. If we were to exclude all these effects, net income would have 1.5 billion euros.

If you please turn to slide 16, we can review Telefonica's debt profile. As of September '02, Telefonica's net debt amounted to 24.6 million euros, which means that it is close to 4.4 billion euros below the 2001 end year figure. This very significant reduction was driven [INAUDIBLE] by two main factors. First, a very solid operating performance with 3.2 billion euros of retained cash flows after Cap Ex and second, [INAUDIBLE] liability management which has led to savings close to 2.6 million euros when we translate into euros to debt denominated in Latin American currencies or U.S. dollars for hedging purposes. These two factors have been partly offset by financial investments and changes in consolidation which have an aggregate nearly 1.4 billion euros to net debt.

On slide 17, which show the Telefonica is overseeing its current exposure to Latin America, looking to limit its effects on the consolidated account. [INAUDIBLE] parallel to cost and Cap Ex rationalization, Telefonica firmly manages local balance sheet structures and actively participates in the derivatives market, covering its exposure to potential currency fluctuations. This slide presents the group's exposure to currency depreciation as of the end of September. Let me mention that our hedging policy is two-fold. First, we try and tab the local debt markets when accessible to hedge foreign currency debt of the local operator's level. Not only do the local operators hedge dollar denominated debt external to the group, but they have also been hedging all or part of the intergroup loans denominated in U.S. dollars, thus, partly offsetting the currency risk inbedding the translation of local P&L's into U.S. dollars for an amount of 412 million U.S. dollars on a proportional basis. Secondly, [INAUDIBLE]. Today, if we were to exclude Argentina, hedges go beyond dollar denominated external debt, having been protected a portion of regional cash flow. I now turn it back to our COO, Fernando [INAUDIBLE].

I want to wrap up and ensure we are actively managing the Company's Latin American exposure to minimize [INAUDIBLE] the groups accounts. We are closing [INAUDIBLE] operating performance of the Latin American subsidiaries and we believe we are being successfully driving cash flow from the [INAUDIBLE] despite the very difficult macro conditions. Our domestic businesses are performing strongly, with Telefonica-Espania improving sequentially EBITDA and Telefonica [INAUDIBLE] translating also its [INAUDIBLE] operating performance into positive financials. And we are efficiently managing [INAUDIBLE] and Cap Ex [INAUDIBLE] and strengthening the groups [INAUDIBLE0. And now I will be happy to answer your questions. Thank you.

Thank you. We will now poll for questions using our Quick Queue polling feature. If you have a question, press the number 1 on your telephone keypad and the hash or pound sign to cancel. The first question today comes from Nick [INAUDIBLE]. Please go ahead announcing your company name.

Yeah, hi. It's Nick [INAUDIBLE] from Lehman Brothers. Two questions. The first is on the the dividends. Could you let us know whether you are planning to pay a dividend in 2003 on 2002 net income or a dividend in 2004 on 2003 and I think more something in between the two.

And secondly I'm a little bit mystified by the amount that's being spent on broadband. Can you clarify what kind of coverage of ADSL at what speed that will give you. Does this high level of spending give you more than two megabits for 90% of households. What exactly are you spending and what are you getting in return?

Okay. On the dividends, we have already said that we were proposing to our Chairman and Chief Executive Officer in the first half quarter -- said clearly that he would propose a dividend payment to our general shareholder's meeting of next year. [INAUDIBLE] which will be, you know, the second quarter around second quarter. And the other thing that we said that we have the capacity to pay the dividend despite having a net income negative for 2002. That doesn't mean we cannot pay a dividend next year over 2002 because we can pay it out of research, so that's all. We clearly [INAUDIBLE] pay a dividend next year and we will come back to you -- this is a very formal issue and therefore, we will stratify [INAUDIBLE], but we will pay a dividend in 2003 if [INAUDIBLE]. [INAUDIBLE], we have to look at different things. Okay. You know, behind the concept of a traditional Cap Ex and [INAUDIBLE] Cap Ex, basically -- behind that concept is a transformation of the Company [INAUDIBLE] and it's not just the Cap Ex related to ADSL connections, but it's also [INAUDIBLE[ Cap Ex related to the transformation of the networking to a fully multiservice IP network. Okay? And, therefore, it is not a 45% of the Cap Ex of Telefonica-Espania growing really to ADSL.

Some of that Cap Ex is going to other network elements that will help or be needed for ADSL, but will be needed anyway, even for narrow band internet traffic, for example, or just to improve the cost-base of our [INAUDIBLE] of our networking [INAUDIBLE]. Right now we have ADSL coverage of 82% of total lines, roughly. That continues to grow slowly because 82% is already high [INAUDIBLE], taking into account the extension of our network and also taking into account that the Spanish population is not very concentrated. So, that will grow, but marginally only in terms of coverage. And right now, the elements of ADSL that we can provide it is clearly in our (INAUDIBLE). We are often in [INAUDIBLE] capacity [INAUDIBLE] and that is available, so [INAUDIBLE] 82 percentage. Okay? So, we are, I remind you, we are almost in the second year of [INAUDIBLE] and this is an investment that will take some time to mature, but so far all our metrics and specifically for 2002, all our metrics are behaving better than we planned. The Op Ex is behaving better, Cap Ex is behaving better as well. The average Cap Ex on the marginal Cap Ex of the last one, in fact, [INAUDIBLE] behaving as well according to our plan. It's slightly short because of the mix of [INAUDIBLE] that we are selling more of the cheaper mix than the more expensive mix. And, in general, we are quite pleased with the development of our broadband plan.

In terms of additions, so far we are online for a 900,000 target for year end. So far we continue to see demand and it's more important that we continue to see sort of a learning curve of [INAUDIBLE] internet users and now we are basically testing, specifically, that each new set of ADSL subscribers is [INAUDIBLE] less and less than the previous ones. It seems like each ADSL now is more [INAUDIBLE] than the previous one when you look at the effect. In summary, we're quite please and despite [INAUDIBLE] maturity, in terms of investment returns of the ASDL plan, we believe we are quite on track and we will continue to update you.

Can I just come back one thing that -- I was more interested in the [INAUDIBLE] products and what the likely impacts of that is going to be. It's referred to quite a lot in relation to [INAUDIBLE] as well. What are -- when is your launch, your wide launch from [INAUDIBLE] and how successful do you expect it to be in '03, '04.

Two things to briefly answer you on this one. [INAUDIBLE] is on a debt [INAUDIBLE], we will have 500 clients in the country, in the south of Spain and we are just testing it from the [INAUDIBLE]. It works fine. [INAUDIBLE] and obviously we are not counting on a development of Cap Ex [INAUDIBLE] to provide basically universally [INAUDIBLE] short-term. So, that's the first answer.

The second one, [INAUDIBLE] merger, we still don't know the conditions of that merger. In fact, maybe you have read in the press yesterday there was a [INAUDIBLE] in the press, the announcement that the Court of Competition has already issued the recommendations, but those recommendations are not for us. It is strictly for the government and the government would probably take up to the final date that they can use which is a month from [INAUDIBLE]. So this sort of December the 14th to finally issue the approval or not to the merger and in case they approve it, the conditions for the approval and only then we will be able to know really where that might impact on which form our plans to introduce more services or contending to our ADSL.

And, again, coming back to the first question, in [INAUDIBLE] right now, it's in a test and we have no specific plans just in terms of size or something that could mean tremendous Cap Ex so far. Okay?

Thanks very much.

Thank you. The next question comes from Patrick Foley. Please go ahead announcing your company name.

Hello, it's Patrick [INAUDIBLE] here from UBS Warburg. I wonder if you could clarify a detail, which, I think you show on slide 16 regarding your cash flow. You, I think, include cumulative operating precash flow of 3.2 billion. I wonder if you could first of all just define a bit more specifically what that is.

And secondly, explain the difference between that and the number you get if you simply take EBITDA Cap Ex tax and interest. I would guess most of it's restructuring costs and perhaps some working capital, but it would be helpful if you could run us through that in detail. And secondly, could you just clarify whether the decision to deconsolidate (INAUDIBLE) leaves with you with any outstanding funding commitment or liabilities in Italy. Thanks.

Okay on [INAUDIBLE], I think there is still close to 60 million euros Telefonica holding a guarantee. (INAUDIBLE). Okay? I guess that's the question, no? 60 million euros [INAUDIBLE]. Okay?

Yup.

Okay. On the second one, basically, you are coming [INAUDIBLE] so you wanted a [INAUDIBLE] of -- the 3.162 that you see on slide 16, okay, it's [INAUDIBLE] minus interest that would have paid minus taxes paid, minus dividends paid, minus external payments, minus Cap Ex and minus the change in receivables payables basically. Okay? So, obviously it's a more strict cash flow definition that the [INAUDIBLE] minus Cap Ex. Basically, if you take the [INAUDIBLE] of 8.9, right, you have to take out on the first nine months 460 million euros off early retirement programs that were taken in the past and that have been paid in the first nine months of this year. You have also to take out 1.3 billion euros of interest payments. You have to take out basically 130 million euros of taxes paid so far in the first months and then you have to take an additional 1 billion -- 1 billion which is different changes, net changes on payables receivables.

And there are many adjustments which are first of all, you know, changes maybe in the average period of payment or in the average period of collecting, you know, our balances there. There is also another effect which is very important this year and last year as well which is that normally you don't pay the Cap Ex the moment [INAUDIBLE] from an accounting point of view, but you tend to pay later. So, for example, this year we are paying out Cap Ex that works from an accounting point of view [INAUDIBLE] for last year and, given the fact that our Cap Ex figure this year would be substantially lower than the one that we had [INAUDIBLE] in 2000 there is some [INAUDIBLE] in the cash, net cash [INAUDIBLE] when compared [INAUDIBLE] Cap Ex when you accounted for. So, you take the 8.9 billion of [INAUDIBLE], you take the 460 early retirements, you take the 1.3 interest payments, you take the 130 taxes and then you take another adjustment of 1 billion in which we included [INAUDIBLE] Cap Ex and some other changes in the payables receivables and you take out the Cap Ex of 2.7 billion, then you have the 3.162, okay?

Going forward, would you expect the 1 billion which is the difference between payables and receivables, presumably to reduce somewhat.

Yeah, that will reduce and will eventually converge -- and will eventually converge as basically the seasonality, the comparison between Cap Ex of one year and the next one [INAUDIBLE]. Now we are in a trend in which, you know, [INAUDIBLE] up to the nine months of this year Cap Ex is roughly 50% lower than last year. And therefore, you know, on a cash basis, we have [INAUDIBLE] coming from a month of Cap Ex which is significantly higher than the one [INAUDIBLE] year. So, at the comparison of Cap Ex [INAUDIBLE] the year before, it's slowing. You know, that will [INAUDIBLE] convert.

In any case, we will give you more disclosure as we told investment community that we will be giving gradually more and more disclosure on our cash flow figures as we progress and [INAUDIBLE] incorporating new and additional [INAUDIBLE] cash flow analysis on our [INAUDIBLE] quarter and this [INAUDIBLE] rising on your side more detailed questions that we, in exchange, will be redefining for the next quarter and basically being able to give you more detail. But between the 3.162 [INAUDIBLE] is the EBITDA .9 minus the 2.7 Cap Ex minus 460 early retirement, 1.3 interest and 1 billion which is mainly due to this slippage [INAUDIBLE] of Cap Ex, okay?

Great. Thank you very much.

Thank you. The next question comes from EG Petty. Please go ahead and announce your company name.

Hello, it's Guy petty from Deutsche Banc here. I've just got a few questions. Back in Seville, you gave details of a target of 700 to 900 million [INAUDIBLE] of DLD and ILD revenues in [INAUDIBLE] in the Brazil 2002 project with a 15-18% market share. In the third quarter, I know it wasn't a full quarter, but for assumed run rates of about 110 million [INAUDIBLE] of revenues of ILD and DLD, you are a lot behind your original target despite the fact your market share was ahead. I was wondering if you could us some [INAUDIBLE] as to whether you brought down your expectations for the impact of the Brazil 2002 project in telephony. Secondly, just focusing on Cap Ex, your Cap Ex in the first nine months was extremely light at 2.5 billion. Give some feel for the full year outturn. You also, thirdly reiterated your target flat EBITDA in Telefonica-Espania. I assume that's going to have to be driven by a margin expansion in the fourth quarter, probably quite significant one. Where can we get confident that you're going to get that margin extension from them and what elements are you going to cut [INAUDIBLE] And thirdly -- sorry, fourthly, you mentioned you paid 130 million of tax in the third nine months. I was wondering how much you expect to pay in cash tax for the full year. Thank you.

Okay. We will start this slowly with the first one. No, in, fact, we are doing better than we thought on our international distance and domestic long distance plan [INAUDIBLE]. The trouble was that we had a legal injection that delayed five months roll out of the service. That means that, despite having better market share gains, we are within the fiscal, we are going to be short of the estimated 700 to 900 because [INAUDIBLE] five months late within the fiscal. So, obviously, we are delaying the overall [INAUDIBLE] revenuing part. And, what is your important, the impact. Because, in fact, remember that [INAUDIBLE] at the very beginning because the commercial launching had some negative EBITDA and was readily hitting better margins. So we are [INAUDIBLE] moving forward the gross numbers in terms of revenue impact and also the absolute numbers and also the sign, the positive sign [INAUDIBLE]. But in part, we are doing better than we thought on market share. And the only thing that we had a little injection we had to delay that.

In terms of Cap Ex, we are right now 50 percent on our estimate. That is also including the fact that we translate Cap Ex coming from [INAUDIBLE] at [INAUDIBLE] because the FX is having a very negative effect and it's moving down the Cap Ex figure. But it is true that we will be short of our guidance in Cap Ex and we will end up probably, the way we see it right now is that probably for the full year we will end up our Cap Ex being a reduction of between 40 and 45% reduction versus last year Cap Ex. In terms of the tax, we paid so far 150 million taxes. And that is because [INAUDIBLE], you know, not all the companies that we fully consolidated in our accounts are under the tax consolidation of the group. And, therefore, they pay taxes on their own profits. In some countries, [INAUDIBLE] yellow pages is paying the taxes and [INAUDIBLE] consolidated levels to record them. It's very difficult to anticipate what's going to be the effective tax payment for the year. It's made a lot of -- it's a very complex consolidation, [INAUDIBLE] but we estimate that we will have [INAUDIBLE] in terms of tax payments from the trend that we are seeing. Okay?

And the last one is Telefonica-Espania. I mean we've [INAUDIBLE] 2002 budget [INAUDIBLE] of 2002 will work in in comparison to 2001, looking at [INAUDIBLE] structures, looking at the price cap, looking at the dates in which we were expecting to effectively cut rates, looking also at the defense between [INAUDIBLE] price and effective prices taken into account, the discounts we had, looking also at the effect of the cumulative effect of growing ADSL [INAUDIBLE], we will have a trend which will start on a very negative comparison and will readily improve and [INAUDIBLE] a flat ETA. I mean it's not that we guarantee you that we will have a flat ETA, in part we are having tremendous difficulty in [INAUDIBLE] and trimming down costs and so on, but we don't see a difference as of today to really change the objective nor the guidance. On the next quarter, in fourth quarter [INAUDIBLE] October numbers [INAUDIBLE] roughly in line to the objective [INAUDIBLE] for the year. We have some price increases [INAUDIBLE] for example. We have other cost-cutting measures that will impact positively the quarter. We have a growing contribution from both the retail and the wholesale program. We have modeled our behavior of, number one, internet, we have [INAUDIBLE] price cut, but you have to look at the price cut again and not at the gross impact. The nominal impact of the price cuts that we implemented as of this month. The net impact [INAUDIBLE] discounts that we don't give anymore after [INAUDIBLE] and so far we don't see reasons to really change our balance. We still work hard to get a flat EBITDA number for the full year in Telefonica-Espania. Okay?

Thank you. That's good enough for me.

Thank you. The next question comes from [INAUDIBLE]. Please go ahead announcing your company name.

Good afternoon, Javier [INAUDIBLE]. My question relates to Latin America. I see that in the third quarter there has been a slow down in ETA growth [INAUDIBLE] compared to previous quarters, I guess related to the launch and pursuit of new services. But, will you give us some indications of what you expect for Latin America for the fourth quarter. Is this going to be a local currency and some improvement compared to third quarter or will this third quarter trend will go in the 4th quarter? Thank you.

Sorry, Javier?

Yes.

Okay, sorry. Okay. We will review quickly what's going on. And in fact, we have been observing you in the year that we see weak, weak revenue pattern in Latin America in general. We think that Argentina really better performance in the sense that the economy really has [INAUDIBLE], sorry and, therefore, we see more activity. Now the issue that inflation is picking up, we still haven't got any -- a break in our values and now we have growing pressure as the year progresses on our cost base. So, that's why, you know, we already had (INAUDIBLE) in EBITDA decline of Telefonica-Argentina, despite having better [INAUDIBLE] figure and despite having better traffic if you wish trend. But, you know, on the -- and despite, you know, about doing better and so on, we have pressures on the cost base and [INAUDIBLE] has suffered a little bit this quarter versus the previous two other quarters. So, we don't know in Argentina but I don't think we will get tremendous improvement in the 4th quarter. Okay? My [INAUDIBLE] it's doing okay, it's just slowing down in nominal terms but we don't think the fourth quarter will be worse than the third one. So, we expect that will be mundane in terms of the net number of lines have already started to be serious and we are not losing over the last four months [INAUDIBLE] improved the net [INAUDIBLE] position and we continue to see [INAUDIBLE] which is not as strong as we have seen last year or the beginning of this year. But, we don't see [INAUDIBLE] at all. In fact, it's well supported so we expect that to continue to be at the same level of this quarter. In Chile and in Peru, we continue to see weak economies. In Peru there's tremendous volatility on the international long distance market as they are [INAUDIBLE] and then they are withdrawn and, therefore, market share moves up and down and so on. So, we have to wait. We don't expect tremendous improvements so we continue to see a very similar pattern. And Chile is also quite stable in the sense that we continue to show some weak demand in general. The economy continues to be weak. It's weakening [INAUDIBLE] the government projections and such demand is weak. We accomplished very aggressive and very sour cost cutting measures and so far with, you know, numbers of October are not low enough to be -- to expect a big improvement really in the 4th quarter. So, we have to wait.

On top of that, what is true is that the FX impact will accelerate in the fourth quarter. But, you know, because of the way we accounted for which is the average and the average continues to be weaker. The FX [INAUDIBLE] continues to be weaker than the last year's average. Therefore as such, if we are saying that so far FX is driving close to 12.5 percentage points of revenues and EBITDA, that [INAUDIBLE] will probably increase a little bit in terms of negative impact for the full year. Okay?

Okay. Thank you very much [INAUDIBLE]

Thank you. The next question comes from [INAUDIBLE]. Please go ahead announcing your company name.

Hi [INAUDIBLE] from Credit Suisse First Boston. Three questions for me. First, is related to taxes. In previous conference calls you set up the significant changes in the book value of your asset was partially due to currency depreciation as you translate the Latin balance sheet at the end of the period of the exchange rate. Could you please tell us if the loss to your book equity [INAUDIBLE] translation give rise to any tax credit or tax breaks for the controlling Company incorporated in Spain? The second relate to your cash. Basically, you mentioned two cash outflows in the nine months. The first is 460 million for the early retirement. Could you just elaborate, if you reckon, that next year any plan for cost with action would imply for the [INAUDIBLE] and if this provisional cash out was going to be repeated. The other one is the billion for working capital. You didn't give the breakdown for receivables and payables.

Just, within the receivables, I was wondering, could you just tell us how much of the cash outflow or the loss in cash is due to the fact that you book revenues in a soft currency. I'm talking about the lack of revenues that you collect probably after two months when the currency depreciated. Can you quantify that in cash flows. And the third is if you just provide the rational for the proposed issuance of the two billion preferential shares and if you can just briefly describe the main characteristic of of these financial instruments. Okay. Thanks.

Okay [INAUDIBLE], if I understood what your first question, when we experience what we call depreciation because lower value for investments in the holding or in the Company where those investments are hold for, that generates tax credit. [INAUDIBLE].

Exactly. If you [INAUDIBLE] depreciate, [INAUDIBLE] taken on the equity. [INAUDIBLE] any tax credits or [INAUDIBLE].

Yeah. I think that if I understand well your question, the answer would be yes. Now, I would like you to pose a question exactly to make sure we discuss -- we are talking about the same elements of impact, okay? But I think [INAUDIBLE] I would like to reconfirm to you after the call or tomorrow, whenever you want with our IR people, okay? In terms of working capital, your question was if we can give you the detail. We can not give you detail because that is pretty complex in the way that we know that when we give you [INAUDIBLE] on our cash flow numbers, you want to get more questions and we have to learn to be able to provide it. But no, we don't -- there is no leakage basically because of the foreign currency, receivables and because that should [INAUDIBLE] P&L of the subsidiaries. Therefore, that doesn't really create simply that. Now it is true for example that on Cap Ex, for example, and it happens -- oh, it has happened in he past mostly, on receivables, that you might have dollar index contracts on Cap Ex, for example, in Brazil, or you know, wherever.

Therefore, when there is a strong depreciation, you might have adjustments, you know, on the absolute amount of the Cap Ex [INAUDIBLE] or on the absolute amount of the expense. And, in fact, we had some of those last year. We put in strict control on the way, you know, we revise our contracts and so on. But not really through this working capital figure.

[INAUDIBLE] so the Cap Ex expressing dollars. Could you just tell us how much the payable is coming from the Latin Americas?

No, no. It depends. The payables from Latin America depend. The Cap Ex in general depends on fixed wire line or [INAUDIBLE]. Some of the Cap Ex is dollar-related in terms of the price at which it moves, not necessarily when you sign the contracts. So, there is no authorization on any [INAUDIBLE] to sign dollar index Cap Ex or expense contracts. Okay? There is no authorization. That has to be reported to the financial division so they can properly include in their exposure figures all together.

Now, having said that, we from time to time, have some minor impact because there is some contract that were indexed to dollars and we have to come in. Beyond that, when you look at Cap Ex, but not for [INAUDIBLE] that you have already contracted, but for new Cap Ex, you know. How will the [INAUDIBLE] because the Cap Ex is basing dollars and, therefore, new handsets, for example, in Brazil or subscriber [INAUDIBLE] costs will go up in Brazil because handsets have denomiated in dollar and [INAUDIBLE] has depreciated. That depends, but basically in Brazil 60% of the Cap Ex is local currency in the region and 40% is dollars. In the rest of Latin America, 30% of the Cap Ex is local currency and 70% of the Cap Ex is dollars. Okay? In Brazil, normally the dollar [INAUDIBLE] we introduce in the financial exposure and, therefore, hedge. Okay? And then I will pass it to our Chief Financial Officer that will give you the rational for the [INAUDIBLE] shares issuance.

That's right. As you know our balance sheet offers the [INAUDIBLE] to selectively and I stress that we're selectively tapping the financial market using a wide range of instruments. By issuing preferred shares, what we think we will achieve is to significantly reduce and give comfort to the investment community of our rate financing risk for 2003. We are also keeping our liquidity reserves at very healthy levels in complicated times and we also achieved another target which is to increase the average life of our maturities in order to improve our maturity profile and at the same time strengthen what we deem [INAUDIBLE] a very solid capital structure. It is also a great opportunity for us to tap and explore a new source of financing despite reasonable costs which is the [INAUDIBLE] market in Spain which has a high demand for stable, predictable and high credit rating and strong quality issuers. We think that the 1.5 extendable to two billion euros issued which is still pending approval on the perspective side of the local regulator, the [INAUDIBLE] in Spain, will be a significant new source of financing which is not new to the Spanish market, but is the first time for our Company. We also stress that there is no specific destination to put those funds forward. So it is general financing. Let me also stress that those are not new shares in any way, shape, or form. They are going to be issued by a Delaware vehicle and therefore, they're not going to be a part of Telefonica Consolidated Liabilities. But they are rather going to be [INAUDIBLE] interest line.

Is the credit agency going to consider this as equity I suppose?

We will see. This is, of course, the rating agency's call. We think this is subordinated debt. [INAUDIBLE] but certainly above equity. We will have to check it with them when the issue is fully doable which we expect to be in the next couple of weeks. It will be placed before the end of the year.

Thanks.

Thank you. The next question comes from Ricardo Sierra. Please go ahead announcing your company name.

Yes hi, [INAUDIBLE] from [INAUDIBLE]. Most of our questions have already been answered, but I would just to follow up on the dividend you said that -- on the dividend is on tract, it will be no [INAUDIBLE] next year out of reserve. I was wondering if you can just provide us a feeling of how [INAUDIBLE] will you be on Telefonica's dividend to the parent company to make the dividend at the parent Company safer.

No, we are not dependent. So, we are on track. We are generating the cash at the group level and we have reserves at the different holding levels. So, the answer is we are not dependent. That doesn't mean Telefonica will not pay dividend or not. We are not dependent, okay?

Okay. Thank you.

Did he answer your question Mr. Sierra?

Yes, thank you.

Thank you, the next question comes from Jose Martin. Please go ahead announcing your company name.

Hi. I'm [INAUDIBLE] from J.P. Morgan. Last year you had a provision for traffic consultancy of around 160 million euros. Essentially it was focused on Q3 and Q4 last year. That affected your EBITDA margins and you clearly pointed that out in your presentations at year end. I was wondering if your targets this year is going to be somewhat helped by any reversals of these provisions made last year or if you are doing progress in recovering the money and if so, where do you account for that?

Okay. There is no [INAUDIBLE], no [INAUDIBLE] here at all. Our margin is being held not because they are reversals because [INAUDIBLE]. Just because we are not having to provision more. Okay? So, [INAUDIBLE] when you compare last year, we had more provisions than we have this year. But that doesn't mean we haven't reverted at all.

In terms of recovery, these are very difficult to recover money because it's, you know, on the very low end chip international, you know, wholesalers basically, which are very difficult to trade and once you fund them, normally they are [INAUDIBLE]. So, so far I can tell you we have recovered in terms of cash less [INAUDIBLE] than 5 million euros, okay?

Many thanks.

Okay we have time -- Sorry, we have time for the last question, please.

Thank you. The next question will be the last question is from James MacKenzie. Please go ahead announcing your company name.

Hi, it's James MacKenzie calling from [INAUDIBLE]. I wonder a couple of questions. If you can have a look at the net debt evolution in the fourth quarter. As I said, you have got an increase in Cap Ex in the quarter. You've also got this share issue and the consolidation [INAUDIBLE]. I wonder where you think the net debt may end up, currencies notwithstanding by the year end.

And secondly, on the fixed line, I noticed that outgoing traffic showed a deterioration in the third quarter. I wonder if you can give us a little bit more detail as to where that's come from and if you can potentially give the detail you gave in the half year slide that would be really interesting with regard to traffic evolution.

Okay. On the net debt [INAUDIBLE] for the fourth quarter, I'm sorry to say that as we don't have data as a target, but as an instrument, I cannot help you on that one. You know that two things are going to happen and this is no secret. It is that the [INAUDIBLE] is going to need an additional source of funds. I think and I'm talking by heart as something to a tune of 1.2, 1.3 billion. So, that should be new investment coming in. On the other hand, you have what I already explained, a 1.5 most likely 2 billion of preferred issue. So, those are two significant [INAUDIBLE], although the latter one is not necessarily going to continue on our consolidated account. So, net additions and, of course, assuming that no other deals that no other changes are done, also be in line with the numbers we said.

But again let me stress that we don't have debt as a target and specific numbers, but we rather try and finance projects and needs as we go.

Okay.

In terms of topic in Telefonica-Espania, we don't see a weakening pattern or such a big [INAUDIBLE] impact. Okay? We had a 1% outgoing traffic I mean -- we had 1% [INAUDIBLE] in the first quarter, going 3% decline on the first half, 1.4% decline in the first nine months. So, really it's not a tremendous pattern. The most worrisome thing I think it was the local traffic on the first quarter came down 10% and since then has stabilized in minus 7% and has improved, in fact, a little bit. It's minus 7.4 accumulated versus minus 7.8 on the first half. That impacts on a 25% and 50% of the traffic. Then I think it's worth mentioning [INAUDIBLE] traffic because it's slowing down and it's going now at 1.6%. [INAUDIBLE]. We are going to have more than 900,000 ADSL in two months. We already have over 830,000 already. That is removing the big, big traffic spenders on [INAUDIBLE] from the market. I think [INAUDIBLE] a lot of enthusiasts in the ASDL means that we have grown ASDL very strongly and I think that now number one traffic should start to push [INAUDIBLE] on getting new internet users or so.

As you know in Spain both PC penetration and internet users are very low in terms of percentage compared to other countries. At the same time when you look at ASDL [INAUDIBLE] in general, in Spain, it's very high in percentage when you compare to other countries. It seems like we have a couple versus another and still internet traffic it's growing at 1.6%. [INAUDIBLE] traffic is weak, but we don't see really an affiliation -- dramatic affiliation in weakening traffic.

Thank you.

Thank you. Okay, thank you, therefore, for attending our conference call. If you have additional questions I remind you that you can contact our Investor Relations department. Thank you very much.

Thank you. That concludes today's conference call. You may now disconnect your line.