Telefonica SA (TEF) 2003 Q3 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to the Telefonica conference call. Currently, all participants are in listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require assistance during the conference, press star then '0' on your telephone keypad. Just to remind you all, this conference call is being recorded. Now I would like to hand over to your chairperson Mr. Ezequil Nieto, Head of Investor Relations. Please go ahead with your meeting and I'll be standing by.

Thank you, good afternoon ladies and gentlemen. Welcome to Telefonica's conference call to discuss 2003 third quarter results. I am Mr. Ezequil Nieto, Head of Investor Relations. Before proceeding, let me mention that this presentation may contain references that constitute forward looking statements which are now guarantees of future performance and involve risks and uncertainties and actual results may differ materially from those in the forward looking statements as a result of various factors.

We want you to read the complete statement including the first page of this presentation, which you will find in our Web site. We encourage you to review our publicly with all of our disclosure documents filed with the relevant securities markets that relate to us.

As seen in past quarters, old management comments including this presentation refer to the financial performance of Telefonica IAC referring to national subsidiaries in which the group has nothing concerned after September being carried by full consolidation.

We are presenting our financial results, some management comments by global business lines on a proforma basis. Assigning all Latin American businesses to their corresponding global business line from January the first independently or debt transfer of the assets. If you don't have the copy of the relevant press release and the slide, please contact Telefonica Industrial Relations due in Madrid by dialing the following telephone number 3-49-158-44713.

Now, let me turn the call over to our Executive Chairman and CEO Mr. Cesar Alierta who will be leading this conference call.

Good afternoon, ladies and gentlemen. And thank you for attending Telefonica 2003 Third Quarter Results Conference Call. Today I have with me for you (inaudible) Telefonica Espania Executive Chairman Mr. Maria Alvarez, Executive Chairman of our world line division in Latin America and Santiago Fernandez Valbuena, Chief Financial Officer.

In the beginning of the year Telefonica results are consistently improving on a quarterly basis, both stock and both on line. A combination of solid underlying operating performance and a negative impact of 40's that is less intense.

In nominal terms, generate sector revenues that are created by close to 3% and figure that compared very positively with a 17% first quarter drop, while cumulative EBITDA was up by 4%, a first time increase for a year. Let me mention that the third quarter revenues increased by more than 3% year-on-year in nominal terms.

Breaking the negative trend of the past seven quarters with EBITDA up by 17%. Costs remain under control, complementing top line progress. Nine-month operating costs were up by only 1% in cost and currency trends. Place in EBITDA margins are 44.6%, 3 percentage points above 2002 figure.

Wanted up to the precision, which is falling by 8%, due to CAPEX control EBIT grow rate for the first nine month was close to 21%. Operating results are improving through out in 2003 are as like number 4 shows. Revenues and EBITDA were up by 6.4 and 17% for the July - September period, with quarterly growth rate improving sequentially in the beginning of the year. It is worth to highlight the very positive performance of Telefonica Latin America.

Global revenues in EBITDA, in euros are above 16% in the third quarter of this year. Reversing the set of negative quarterly comparisons since early 2001. At the same time (inaudible) business are keeping very strong performances. Telefonica Espania due to reducing it's quarterly revenue decrease to just minus 0.6%, with EBITDA growing at 2% rate in the third quarter despite competitive and (inaudible) chances. In the solar business, we registered a nominal growth rate of above 16% and 28% in revenues in EBITDA, respectively for the July --- September period.

As opposed to 2002 the solid and consistent improvement of the Latin American region with its positive impact on Forex, has allowed to transfer to the profit and loss all the efforts the company is doing to build a top line. Turning to slide number 4 for the analysis of foreign currency impact on the groups of line growth.

We can see that the recovery of Latin America and generate versus the dollar in this year, which is more than composite in the Euro spin this year, is allowing to the steady appreciation of average generate versus the Euro. A move which is particularly relevant for the Russian Ruble and the Argentinian Peso due to the weight of our operations in these countries.

Both Latin American currencies have appreciated best with the euro about 8% and 3% compared to the respective levels in March contributing clearly to reverse the negative impact of Forex in the group accounts. On a cumulative basis, Forex was reigning close to 9% points to generate September revenues in EBITDA growth.

Down from the minus 18% points projected in the first quarter of this year. Including the Forex, January September revenues, EBITDA and EBIT were growing at 6%, 13% and 28% rate respectively.

The efforts to accelerate organic growth and efficiency gains have proven to be successful as percentage realized number 6. Excluding Forex, and changes in consolidation organic growth for the group in terms of revenue, EBITDA and EBIT were each 5.5, 12% and 28% respectively. (inaudible) in line are well ahead of the year end target.

At the beginning of the year of the operating results, are fully flowing into the group net income as seen in the slide number seven. First, through an 8% nominal cut in the position expenses and scattered rationalization efforts are starting to pay off. Excluding forex and changes in consolidation the position expenses were flat for the first nine months in comparison with the 5% increase in year 2000 that year.

And second to the growth improvement of non-operating results once our commitment to bidder (inaudible) has related into better associates, global amortization and extraordinaries.

Complimentary to bidder repercussion we are keeping financial expenses low, be it the (inaudible) and currency especially.As a result, net income for the first nine months just exceeded Euros 2 billion mark.

Lets turn to the slide number 8 for the review of cost management. In accordance with the group's 4% profitability, aiming at building leaner cost structure, all business lines have continued to implement initiatives to combine top line growth with higher efficiencies.

As a result, operating cost excluding Forex and changes in consolidation have seen a (inaudible) retribution for three consecutive quarters, going from a 4% increase last year to 0.7% increase for the nine months ending September of this year. (inaudible) Latin America with Telesp and Telefonica at Peru are generating 80 (inaudible) in commercial activity for traditional airways services together with plan of high expenditure related to the ESM expense especially in Mexico explained the moderate increase in the line cost.

If its worth highlighting that the gap between cost and revenues growth rate has consistently widened quarter-over-quarter, to reach 5% points at the end of September, resultant in better margins. Group EBITDA margin reached the 44.11 for the first 9 months of this year, 3% points higher than the last year's figures. For the analysis of consolidated Capex, please turn to the slide number 9.

Totally in this months for the first 9 months, exceeded 2.3 billion euros, equivalent to a 6% growth with respect to January-September of last year, we are keeping out year end CAPEX target which I remind you is in the zero to plus 3 range. As we expect in acceleration of Capex in the forth quarter, many related to our wireless operations in Spain, Brazil and Mexico and (inaudible).

ESM (inaudible) in the Chile and Mexico are driving the 11% increase in wireless CAPEX spending, we have higher efficiencies in ADSL are permitting Telefonica Espaniol to speed the base of Capex cost to 18% for the first nine months. That is looking a Asian entry sense (inaudible) we are keeping blue lent on a quarterly on a basis as shown in the slide number 10.

The post (inaudible) of two line, a leaner corporate (inaudible) in a rationalized capital spendings are the reason behind, cash flow generation which Balmore (inaudible) for the January - September period, a net percent increase in comparison with the same pages of last year.

Quarterly cash flow generation is a stable on the quadrant with EBITDA minus Capex per quarter remaining consistently above a 2 billion Euro mark and equals 33% of revenues on aggregate. It is important to mention that our business line is set (inaudible) are contributing positively to the group cash flow and the 2 billion contributors namely Telefonica Moviles, Tlefonica Espaniol are growing in cash flow at an 8% and 21% annual rate respectively.

Finally, the combination of a stronger operating resource and a linear capital base is leaving, so the inferior return on capital employee wide by 1.6 % points reaching 9%. We are starting a review of Telefonica Espaniol with the analysis of Esobedell(ph) financials in the slide number 11.

Our media challenging the company has been capable of reducing the base of revenues in EBITDA decline in the last (inaudible) and fewer revenues in EBITDA and I would like to take the opportunity to briefly align the major factor this will take in to account, while moving the forth quarter specimens. First as for our revenue in (inaudible) respective to Telefonica Espaniol, we benefit from our less demanding price cap formula. CPI minus 4 versus (inaudible) are from the positive impact on the month, we see increased grants in generally over this year.

Second, in from the cost standpoint additional marketing expenses are programmed, related to the ADSL (inaudible) campaign ending production of the company modular offering, which has already been approved by the regulator and commercially launched. Higher marketing cost will effect lower personal expenses once the first base of the (inaudible) plan announced the last quarter - best quarter has been completed.

We began to see this strategic plan and before turning into the net and operating performance I would like to inform you that 5499 employees have joined as planned this year. As a result we have achieved the provisions totally around 894 million euros net of taxes in the fourth quarter. A loss will partially compensate through positive extraordinaries as the group moves.

With regard to Telefonica Espania additional service operating performance in the late numbers to us. The loss of (inaudible) remains significantly below 2002 level with average quarterly loss just below 100,000 lines almost 20% under 2002 average.

With regards to indirect access, the selected lines exhibit 2.1 million, 90% of which were globally pre-selected. Our increasing commercial flexibility particularly through the approval of the modular offering in the US in addition has done to fight pre-selection. Our going towards traffic decline by 9% year-on-year, mainly driven by the poor performance of total market traffic.

Local traffic, which accounted for 85% of total outgoing towards traffic decline decreased by almost 40%. We narrowed on Internet traffic continues to reach newer heights by ADSL they got posting 17% year-on-year growth.

Operating performance has led to an 8% decrease in both revenues for the first nine months of the year - a better performance than traffic. Due to the change in traffic's mix leading to an increase in effective revenue per minute. Network after revenues, which went up by more than 3% year-on-year has probably compensated this therefore placed additional revenues dropped for the first nine months just above 3%.

Moving to ADSL metrics in this late (inaudible) at the end of September, total ADSL connections just exceeded 1.4 million, 66% of which were Internet. With the net ads for the third quarter up by 47% year-on-year, we said on the (inaudible) ADSL connections as of October reached the 1.5 million mark with 84,000 users being added in October alone.

The best month ever since we launched the service and a clear proof of the business growth potential. It is worth to highlight that January-October net debt are almost equal to full year 2002 figure. But more importantly ADSL business combined growth with profitability. Gross incremental margin is up 277 million euros for the January-September period - 3 times higher than the total 2002 figure and equivalent to gross 55% of DSL revenue.

At 13 we will have Latin America well on business review in the slide 14. Revenues in EBITDA growth is good in 40's is accelerating with the first nine months annual increase receiving the 9% and 8% mark respectively at the top of Telesp for the full year.

Let it be is the main driver of the Telefonica Latin America improved performance so in a 19 and a there percent local currency growth in revenues and EBITDA pushing both matrix up by more than 2.5 percentage points from January - June levels.

Complimenting Telesp it is worth to mention that's a positive results. Global revenues in EBITDA in local currency by 13% and 35% for the January - September period. Improved economical business positively infected traffic and licensing service that are condition of inflation adjustment to whole tariff an a tight control of CAPEX that were down by 8.5% year on year and the fact of pushing (inaudible) financial scope.

Despite the demanding content of operation Telefonica Latin America retains a high EBITDA margin in line with the 2002 level and a solid cash flows in ratio in Euro terms to which also sever contribute in a particular way.

Now turning to the less performance in as like number 15. Operative revenues were growing at a 19% rate in local currency terms with local and long distance revenues as key drivers. Tariff increase against in 2002 and 2003 are behind the 12% on our growth in local revenues where our market share gains is (inaudible) to rates in long distance service rate.

The AVSL business with abridge connection increases by unanimous 48% rate and revenues increases by 70% year on year is having in top line growth. As in past quarters operating cost excluding the connections were up by 70% resulting from a combination of high activity in the long distance and broad band markets in (inaudible) rate increases are affecting customer services (inaudible) and a regional party dispenses us strict to provision criteria are being implemented.

Local currency EBITDA was up by 10% on a annual basis with EBITDA margin close in September are 47.6%. The latest type increase has stopped much in the duration since the past quarters with the third quarter margin is slightly above 48%. (inaudible) Telefonica Mobile Results which were fully explained during the company conference call for the reason and to shorten my speech we will not review the companies January-September performance of will be ready to answer your questions that you may have on the (inaudible). Now (inaudible) to our Chief Financial Officer. Santiago Fernandez

Thank you so sorry if you got a little Ladies and gentlemen. Very briefly on the next three slides we'll try report on financial expenses, did management in our cash flow statement. Just talking on slide 17 we can see that up through the to the third quarter of 2003 net financial results are down 62.7% or 1.3 billion if we were to approach the effect of no cash full in exchange provisions from these total financial results figure the total number would be 1.19 billion, which is 15% below the figure we reported 12 months ago.

Our financial expenses are declining that they are declining at lower phase than overall debt. The reasons for that are mainly, m number one that our debt denominated in Brazilian currency is gaining weight in our overall debt. Second that the average cost for our Brazilian currency denominated debt has increased by about 700 basis points relative to the last 12 months.

And thirdly and non-Brazilian related the lengthening of our maturities has also and deposit slope of year has an also contributed to increasing the cost of our Euro denominated portfolio.

Turning to slide 18 to debt management, total net debt is down 9% in this year, through September, which is a decline of about EUR 2 billion. In the third quarter however, net debt has exhibited a modest pickup in debt five as a result of the mainly the Terrabase (ph) which cased us a slightly north of EUR 1 billion and yes acquisition of the first dividend payment in July for EUR 640 million property.

For those of you how attended our investor conference or have the information there off, if you worked to use the cetraria that we shared with you at that time which included not only debt but also cash commitments and they were out on the same balls, we would like to give you an update of were we stand, and this is from the upper right part of the slide 18.

If we annualize to their first 9 months EBITDA with that we just reported we would have a ratio of net debt to EBITDA of 1.65. It was worth watching the press in value of cash commitments, we would get about 2.0, so that's were we stand evil work to analyze the EBITDA numbers for the first 9 months.

On repactuation (ph) we have continued our efforts to bring to Spain, along the same lines we communicated inventorial conference. Total number is 804 I give in Euros and this is the amount that has been brought for a 76% of total free cash flow generated in on Latin American operations.

Also let me briefly mention that the outstanding bounds in our Argentinian operations KAZA have been restructured with a very high level of expectants - a higher expectants rate on the part of bond holders.

There is no marital change in the currency compensation of our debt, let me just remind you that we are effected a major change in the US stock denominated debt that we had in the second quarter that we thing reported at length about that and the re financial risk is pretty much non-existent as the average debt maturity of our debt is now placed at the 6.2 years or in number which would let the cash flow generated pay off the debt in full should in turn to complications.

Finally, on this I am going to briefly over slide 19, we will represent you the now regular cash flow statement, which is probably very known by all of you and now almost self explanatory.

Let me make two point on, what we see you have what we call that the invest commerce a free cash flow, this number is about EUR 4.2 billion this year. If you work use the same criteria we communicated in our invest conference the number would be slightly higher, rather 4.4 it could be something like 4.47 billion, as a result of the necessarily rearrangement of principal and notional interest on the cash payments to our priorities.

Of the total number of 697 which is recorded as other payments related to operating activities on caption number two II of 577 are principal payments, and the rest of roughly 200 would be related to interest. So far this year we have devoted roughly 3.15 billion to firm commitments, of which 642 is a dividend payments, 2.8 billion to shares cancellation and acquisition of no treasury stock and 2.2 billion have been devoted to debt reduction of which 1.65 is straight reduction on financial debt and 577 would be the reduction in the principal of the cash commitments.

Finally, the remaining 1.3 billion has been devoted to expansion of the business, basically the Terra buy out that we effected in July and the acquisition of PCO of which we reported at the beginning of the year. And with this I will change back to my Chairman, CTsar Alierta, for him to make the conclusions.

Thank you Santiago. To sum up, first operating results are improving quarter-over-quarter, with revenues, EBITDA and EBIT growing in nominal terms in the third quarter. Second, solid Espana's operations, Latin America had a slight improvement and the weaker effect of forex are leading to the expansion of top line.

Third, the capital revenues in cost growth rate is widening and exceeding the group's EBITDA much which stands at 44.6%. Fourth, on the line of operating results, as clearly was seen our exceeding of targets for 2003. And last, top line performance is related in to merchant's net income, cash flow, and re-dense things to the delivery of business repercussion. Thank you very much, now we are ready to take your questions.

Ladies and gentlemen, if you do have a question at this time, press number "1" on your telephone keypad. To cancel your question, press "#" or pound key. Once again, that's the number "1" to register your question. Our first question comes from Mr. James Golob, please go ahead with your question announcing your company name.

Golob from Goldman Sachs. If I could ask two questions please? One is just if you could give us any update on the timing of the implementation of the share buyback and then secondly whether there's any scope to restructure further of the long term debt to bring down the cost of it?

It was just a buy back as mentioned in the conference call, as you know we have the fear of three years but as I said clearly the first priority is to do anything as a whole because it's debating very much we can make (inaudible) so it's very much related to the level of purchase. So the timing will be to the price position we decide for the coming future.

And with regard to the --

With regard to the-- on the Latin American debt, we are not very worried about it's size. We think the size is right, it is not increasing and remember that the Brazil interest rates were about 12% twelve months ago. They are now more like 19 and they are going down.

So we think this is just a passage of time and the fulfillment of the Brazilian government and Central Bank targets will probably bring us down to where we are. We don't think we need any further resurgence. Your question relates more to the contingent part, we don't have any outstanding bonds to speak of or to be restocked .

Good. Could I just follow-up on the buy back and ask whether you have actually purchased any shares so far?

Let me tell what is the position of the territory stock as of today. We are today past 31,351,447 shares which represents percentage point, 63% of the total capital and that is the position.

Thank you.

Our second question comes from Mr. Louis Prota please go ahead with your question announcing your company name.

Yes, hello it is Louis Prota from Morgan Stanley. Yes I have two questions. The first one is on the headcount reduction and the financial implications for Q4. I just would like to confirm that we can assume that the 5500 people have already left the company in October and will have two months of savings on restructuring payments this year and that the program is closed at the moment and we shouldn't be expecting a higher number of people leaving the company this year.

And the second question is on carrier per-selection, could you give us any light on the performance so far in Q4 to see whether the improvement in Q3 was seasonal or a positive trend is going to continue in coming quarters and if this is the case what are the main drivers behind that? Thank you.

Well, Linares (ph) will answer your questions. (inaudible).

Regarding the - we didn't actually program in October less the company 4700 people on the total amount that we already shared with you. The program is already closed for this year. Regarding the second question, the selection - that the selection in the third quarter behaves better but in the second quarter that was the worst in the year and in fact the programs that we launch are working very well and I can't say that view knew now that October also behaves quite well and the number of pre-selective customers in October were around 35,000 which is much lower than the average around the year and is more or less like an average in the first quarter of the year.

OK. Thank you.

Our next question comes from Mr. Ricardo Sedda (ph), please go ahead with your question announcing your company name.

Hello, this is Ricardo Sedda from the DPI Portfolio (ph). I have got three questions if I may. The first one is regarding you said that you in the last quarter will have the provision from the lay-off program but this will likely be offset - partially offset by some extraordinary items - positive items. Well try to bring what are these items about.

The second question I believe is somehow related with this is that if you could give us an update on your plans for the real estate assets this year, if you are still planning to get the - I think it was around 800 million euros, total proceeds for 2003 and if there is any changes on these?

Finally you mentioned in your report at least the Spanish version on page 10 that there is the contribution from for the extraordinary line of the lay-off in the 1999 program and also the re-structuring of Latin America. Could you give us the numbers on these key items that also contributed to the extra-ordinary lines? Thank you.

Well back to your first question as you know during the months - during Q1 we would compute the capital gain from Antena and the operation of Antena 3 which roughly close capital would be in the level of 300 around 350 million euros.

We still have to complete this in line with we have commented before the real estate disposals and that were basically the two main capital gains and that we compensate personally and than the provisions for the 898 million euro for we are heading that we - well we saw in this quarter.

Yes to give you an update on the real estate sales, you know that the accounted number are to be spread out over a number of quarters. Total proceeds so far and remember that this program had three parts. So the proceeds this year are 330.

We expect that a major completion of 2 or 3 single items will be completed before year-end. Although I don't have in front of me the numbers expected.

Ricardo would you mind to repeat your last question?

Yes if you could provide us a detail on within the extra-ordinary lines, you mentioned that there was a negative contribution from the Latin American re-structuring and the lay-off and the once that were from the (inaudible) in 1999.

Yes basically this labor constitute that the first 32 million euro therefore means 33 million for Telefonica is due. 90 million euros from Tel SP (ph) and 9 million euros from (inaudible).

Thank you.

Our next question comes from Mr. Roberto Mukota (ph). Please go ahead with your question announcing your company name.

Actually Bob Macaque from Citigroup. I have got two questions. The first one is about DSL in Spain. You have clearly had a very successful run rate in the last few months with DSL. Have you done anything differently in terms be either a marketing or pricing that has generated that?

The second question I think is for (inaudible) its really a question about Brazilian fixed line regulation next year. Do you have any clouds you know what the likely regulation environment is going to look like in Brazil in 2004 please?

Regarding - Julio Linares - regarding your first question, the only thing that we make new in ADSL in the first quarter was a standard campaign where we provide during the vacation period like on hours a free monthly fee. during these two months, and we work quite well because in fact we have a 50% more of additional newer ADSL's than in the first quarter of the previous year.

Hello, this is Maria speaking. Picking your point your question about what is the future that we foresee for the (inaudible) for next year. Basically, there is no major point of doubt on that front. Let me just remind you that we have a real account opened with regard to the tariff adjustment of this year.

We are currently applying their retail index, while we have the right under the concession contract of that whole sale index that's obtained in issue to results. There are some other issues that could be on the horizon.

First, the change in the local billing from thousand to fractions of minutes that's already contemplated in their expansion of their contract that should come up beyond 2006 and there are other initiatives on the parliament that currently have been in the closest grip of the processes that for the time being should converge into these concession of contract issue.

So, for the time being no major issues. Remember also that the wholesale index that should contemplate the tariff next year is decelerating and therefore we do not envision any major items for the (inaudible) next year in Brazil.

Our next question comes from Mr. Alfredo Tennenbaum(ph). Please go ahead with your question announcing your company name.

Yes good afternoon, Alfredo Tennenbaum from Commerz Bank. I'm calling on a question on the cash flow. The investment in working capital from Q2 to Q3 has gone up by 300 million euros. Is there an explanation for that?

Let me give you some color on the number by line. Basically in the third quarter what we have seen an increase of activity of Telefonica de Espana at this level which explains most of that.

The investment increase or the increase in working capital related to CAPEX is more varied. So, it is a hotch potch of ups and downs in the major business lines. But we showed the explanation, it's basically coming from the two major lines Telefonica de Espana and Mobil SP (ph) in Spain.

Our next question comes from Mr. Dipeddy(ph). Please go ahead with your question announcing your company name.

Hello gentlemen, it's Dipeddy from Deutsche Bank. Just a quick, few quick questions. The first one, just on the employee costs of Telefonica de Espana in Q3 just wonder, if you can detail the savings made from the head count reduction that as you came through the Q3 accounts for which you'll be provisioning in Q4 and secondly you gave some details on the pre-select line trends in October.

Could you just give us some details on the access line trends and then finally, on the cash re-penetration from Latin America, you've got about 804 million euros so far. Could you just break down by which country that's coming from and I just want to make sure you are reiterating your guidance of 1.5 billion re-penetrating from Latin America before any further investments in Mexico? Thank you.

Regarding to your first question, there is no savings in Q3 in relationship with the investing program. For the next quarter the savings will be around EUR 55 million, regarding the access behavior in October is following more or less a line of the last months.

OK on the repatriation we are still sticking to a targeted percentage of investor conference of roughly 80% of free cash flow to give you a little bit of color about half of the 800 million we have reported are coming in the way of dividends and capital reductions and the rest a vast majority of the rest are coming from intra group loans. In terms of countries you know I cannot at this point disclose all the numbers but it is difficult to realize that they are still being the largest operator is the largest contributor to our cash flow and cash flow reputations

Thank you very much.

Our next question comes from Mr. Matthew Cohaje (ph) please go ahead with your question announcing your company name.

Yes, good afternoon, Matthew Cohaje from BNP Paribas I would ask two very little question my first question is related to the slide 18 that provided on your slide show which was very interesting can you just detail of commitment you include in the net that EBITDA retreated of the commitments and just providing a breakdown and a little update between financial guarantees and the 99 fee for ramification and the second question is related to traffics as in the fourth quarter the wagon trains apparently deteriorating despite commercial results to improve in this for the personal, traditional business, do you expect this trend on volume to stabilize on the same trend in the fourth quarter as definitely it seems to be pretty encouraging as far as excess retention is concerned So can you give us a little update here. Thank you.

OK on the value of the cash commitments in gross, in large numbers. The pre-retirement of 12 months of 1999 is now worth about 3 billion and depending payment for the EBITDA guarantees is worth about 600 million so that gives you a total value of the cash commitments which are non financial debt of 3.6 billion.

OK

Regarding to second question relating with the traffic. As of September this year was traffic decline was as you know 8.9%. The next quarter, we expect the traffic evolution in line with this decline, so that as an average this year together with a previous year towards that has to be formation that we share with you in the third investor's conference, we will follow the average yearly decline that we already share, that means 7% in the two years.

Regarding the future, we have said that in the next year we will be able to reach the contention of the traffic that we committed in the Third Investor's Conference. That means that a decline of traffic - the average decline of traffic per year in the next four years will be around 4.5%.

Can I just ask a follow-up question on access? Just regarding access retention because you lost already 346,000 lines to competition in the first nine months which is it may give performance as you indicated during the analyst meeting that you were heading for losing 480,000 lines.

Do you think these targets for survey in 3 or 480 lines lost competition is pretty conservative, or what do you see regarding the fourth quarter because definitely you could very easily beat this access retention target? Thank you.

Well we realize that the decline of the number of lines in the next quarter will follow the line of the previous quarters, as you see. That means that we will be 20% below the previous year. And with the kind of follow-up that we launch to the market and especially some of them are related to as I said these kinds of services in the first quarter. We realized that in the future we will be able to have better behavior containing these line declines.

Thank you.

Our next question comes from Mr. Brian Rusling (ph), please go ahead with your question announcing your company name.

Yes it is Brian Rusling from (inaudible). I have got two questions. First of all to request Mr. Berguanez (ph) if you could repeat when you were going through slide 19 you gave a whole lot of statistics on the uses of cash so far. I am afraid you gave a lot of numbers. Could you actually repeat those please? The second question relates to slide 13 and the figures on the retail ARPU and the value-added contribution to the ARPU.

One, the retail ARPU has sort of fallen in the nine months against the first half. Was there anything special or is it just the third quarter or the summer months or what happened in the third quarter to bring down the retail ARPU? And then if you could just help me understand what the big growth in the value-added contribution is? What is in there that is giving that expansion?

OK. I am sorry I felt you were up with so many numbers. The numbers I voiced are not new. I just wanted to do the exercise we did at Investor Conference for trying to breakdown the free cash flow and it's uses so far this year. And now we will gradually go of the numbers again.

If we take the 4.47 billion of free cash flow we generated in the first 9 months, our goal is to spread that out in three blocks, first what we have called firm commitment, which are dividend payments and share buybacks. This number for so far this year is 3.15 so out of the 4.47 - 3.15 have been devoted from commitments, dividends and shares cancel already and acquired alone.

Second, debt reduction, which is also part of our firm commitments 2.2 billion, this is in the slides. This point 2.2 billion is broken down in 1.65, which is the net debt reduction and the reduction in cash commitments, which has gone down by 577.

Now of the total number that you have in the cash flow statement, which is 697 line two in slide - line roman to on of this slide, you will see that 697 is the submission of reductional principal, 577 and interest 220. So the remanding part of the cash flow are rocketing 1.3 billion is what we would have awarded our point to our break down to business expansion. Basically this year the Terra buyout and acquisition in Brazil.

Regarding our second question, reveling with a ADSL, ARPU - we believe that in the first quarter the ADSL ARPU was pretty stable - in combine with a previous quarter the meaning but on the ARPU the mix of products that we are selling in the market, as you know we have to wait for different products with four different prices, according to four different exhibits and according to the number of ADSL of each different prove that set in the market, we have of course a different out view and that's the main reason why these ARPU has these time already is small variations.

Many case we are very old to keep quite a stable, this ARPU because of the number of what you have at the services that we already sold in the third quarter that compensate the that the number of ADSL of the cheapest proves we sold in the last quarter was a little bit than before because I was on there campaign that we mentioned before.

So you can you tell me what those value added services were they you sold?

Well mainly the value added services that have today already if you can input, -- ARPU, our bill serves that we are selling to a small a made use enterprises in fact the ARPU of that part of the assignment is already quite significant. This is a the type of further then we called some unit how they sell it including a big log IP private networks

Our next question comes from Mr. James Mckenzie (ph) please go ahead with your questions announcing your company name.

That is James Mckenzie from Juventis (ph). Just a couple of quick questions. I think they are follow-up questions on the cash flow. First of all, my understanding for the operational payments were - your guidance for this year was around 750 million euros.

I may be wrong but it appears that with 700 million euros already, in the first three months or first nine months of this year that you tend to overshoot that. So could you either give us new guidance or explain what is going on there? Secondly, on investment and working capital. The 680 million increase in working capital compared to a 147 decrease in capital expenditure seems huge. It so rapidly in the fourth quarter last year and I was just wondering if we can expect something similar and I mean just finally can we I confirm that regulation in Brazil will not allow you to buy Empritel (ph) consequently you have no intention of looking at the purchase of Empritel? Thanks.

OK James let me see what I can do to answer your questions. Number one I wouldn't call guidance name in the number where you gave I think it was nine months ago. It wasn't our intention about 750. Now that number is predicated on the evolution of the main driver of this line, which is the payment of (inaudible) Telefonica Espania. There have been a number of other things going on, especially the redundancy payments in Latin America and subsidization and a rather long list of minor items, which are non-recurring, which we do not expect to be exceeded. So I would still hold on to the opinion that 750 looks like a number that should not differ materially from what the final year results should be. Right now on working capital this is a very complicated thing to understand.

Let me just give you one piece of - one beat of color. The economies administration, the governments especially in Spain are now changing slightly the way they take our payments. So this is highly seasonal and part of that may have been recorded in the Q3 change in working capital. But you know I think we got to have to do some deeper work in trying to disentangle and find the underlying trends and once we are through that we would be more than happy to share those numbers with you.

The difference is roughly 316 in terms of CAPEX and this is as you know from past experience also a very valuable number, depending on what exchange rates do, what the payment periods for suppliers are.

Yes, OK.

And with regard to it (inaudible) we have opinion that they have present their oration in Brazil does not allow us to vibrate (ph) it.

OK, thank you.

Our next question comes from Mr. Nick Delfas. Please go ahead with your question announcing your company name.

Hello Nick Delfas from Lehman Brothers. Could you just confirm that the staff reduction of next year will occur in the third quarter rather than in the fourth and as a result of that pursuant to the cost benefits will be in the order of about 3% points of revenue. Thanks very much. That's of all on Telefonica de Spania revenue?

Gentlemen, to answer your question, next year the program is started at the beginning of the year and is closed in front of people incorporating to the program at the end of March. It doesn't mean that the people are going to leave the company in those three months. They will leave the company around the whole year, depending on the age of the people and depending of our needs. So that we will be able to keep the program without increasing our outsourcing.

(inaudible) of the 5500 you signed up in October, how many have those will have left by the end of the year?

By the end of the year, we leave almost the total amount of exceeded except 120 people that are key people in San Isberg (ph), it's places in our company, that will leave the company around the first quarter of next year.

Right. Thank you very much.

Our next question comes from Mrs. Maria Rotondo. Please go ahead with your question announcing your company name.

Maria Rotondo from Santander. Well, I have two questions. One is regarding Embedden (ph) and even if you not allowed, if you could elaborate it a bit more on what would be the further of the comps of Biom Reden and the second question also relates to Latin American Telefonica Santina. As your company released as 6% of revenue growth is due to CER increased indexing, I don't understand that very well. Thank you very much.

What I think the answer about number two was very clear. We are not worried from see which are not possible and so we it's my (inaudible) company that we are going to (inaudible) Argentina, this is an index the CER is a wholesale index we do have (inaudible) and the net productive by 22 million Argentinian businesses of Telefonica, which means they will have an increase of revenue of 32 all the companies operating at Argentina have agreed to look at this in the horrors restriction within in, I mean an increase of 32, I think 32 million Pesos, yes.

Our next question comes from Mr. Jonathan Dan (ph). Please go ahead with your question announcing your company name.

Hi It's Jonathan from Boston's (ph). Three questions just if I could do quite quickly. Can you split the decline your estimated decline in Forex volume between what the markets is doing and what the market share is doing and secondly can you give us your market share of both the DSL market I Telefonica branded versus Telefonica total DSL and if thirdly you could also give a split between DSL in cable and then a quick question on when would you anticipate beginning this sort of the renewed investment in Argentina, so four questions?

Yes we'll answer the - the last part of the Argentina question. You may be aware that we may announce when I was in Argentina had a meeting with the President of Republic of Telefonica where I was going to make in the next four years, 2002 will be your basis that is roughly around 300 million Euros for which the biggest part, around two thirds go to non-regulated business. This is the deployment of GSM operations and the POL-1 operation because we see the opportunities for the present there.

Then the rest of Atlanta, we go into our fixed line operations, which we envisage in our business plan. A growth in penetration in the coming years and we want a changed economics of evolution of the country and the information we have we think it is the minimal investment that we have to make to increase our market share in (inaudible).

OK regarding your first question we believe that in our own estimates, the voice -- the fixed voice market is decreasing in the last year around 5%. Additionally to that our market share lost in the last year has been around 4 points. Regarding your ADSL question about our market share, again our estimates today are the following.

We believe that Cable and Modem in Spain of all different cable companies has a market share of around 20%. So ADSL has a market share of around 80%. Of this market share we believe that Telefonica group including Telefonica de Espania, Terra and Telefonica without Espania have a market share of around 62%. It means that the rest of the competitors that are choosing in the year (ph) our ADSL have around 8% market share today.

Thank you

Thank you very much in the name of four of us. Thank you for attending our conference and we wish you all a good weekend, thank you.

Ladies and gentlemen thank you for your participation this concludes today's conference. You may now disconnect your lines.