Telefonica SA (TEF) 2007 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Telefonica first quarter results conference call.

(OPERATOR INSTRUCTIONS)

I would now like to hand over to the Chairperson, Mr. Ezequiel Nieto, Head of Investor Relations. Please begin your conference call and I will be standing by.

Thank you and good afternoon, ladies and gentlemen, welcome to Telefonica's conference call, I am Ezequiel Nieto, Head of Investor Relations.

Before proceeding let me mention that this document contains financial information and data reported under IFRS. Financial information contained in this document has been prepared under International Financial Reporting Standards.

This presentation may contain announcements that constitute forward-looking statements which are not warranties 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 invite to read the complete disclaimer included in the first page of the presentation which you will find on our website. We encourage you to review our publicly available disclosure documents filed in the relevant securities market regulators.

If you do not have a copy of the relevant press release and the slides, please contact Telefonica's Investors Team in Madrid by dialing the following telephone number, 34 91 584 4713.

Now let me turn the call over to our CFO, Mr. Fernndez Valbuena, who will lead in this conference call.

Good afternoon, ladies and gentlemen, and thank you for attending Telefonica's conference call to discuss the first quarter of 2007 performance. During the Q&A you will have the opportunity to ask questions directly to our executive committee members as I have today with me Julio Linares who is our General Manager for Coordination, Business Development and Synergies, Antonio Viana who is the Head of Telefonica Espana, Jose Maria Alvarez-Pallete who heads Telefonica Latin America and Peter Erskine, Head of Telefonica O2 Europe who is connected from London.

Our two-prong growth exceeded just the 15% mark annually, pushing consolidated revenues to top EUR13.7 billion this first quarter. In organic terms total sales went up by close to 8% year-on-year. Operating income before D&A ended the period just above EUR5 billion or close to 10% up year-on-year, in line with higher commercial efforts to develop growth engines and strengthen market share.

Organic growth in operating income before D&A stood at almost 6% year-on-year. Operating income at the end of March exceeded the EUR2.7 billion mark, which is equivalent to an annual increase of 15% in nominal terms, which turned into a close to 20% growth rate purely organic.

Operating cash flow went up by almost 11% year-on-year to surpass EUR3.7 billion for the January to March period. Operating cash flow organic growth was just below 13% this first quarter.

On slide number four we turn to the earnings per share. Reported earnings per share reached EUR0.26 per share or 6.1% above last year's figure. Excluding capital gains, notably those accounted for by the sale of a 6.6% stake in Sogecable last year, underlying EPS went up by nearly 23% year-on-year.

Our Moviles growth profile by regions and businesses, which is behind our strong performance, is best outlined in slide number five. From a regional perspective, European operations including both Spain and Europe represented more than 60% of group sales and continued to grow in the mid single-digit territory, despite servicing increasingly mature and competitive markets. Latin America emerges once again as a key differentiating factor of our performance as the region's revenues grew by more than 12% in organic terms to account for 60% of Telefonica's top line expansion.

From the business perspective, high growth services, mainly mobile and fixed broadband, accounted for more than 60% of total revenues with the weight of traditional [takes] being limited to 33%. And more importantly, these same services contributed to more than 90% from the first quarter organic revenue expansion.

Turning to profitability on slide number six we can see that annual growth in operating costs continued to trend down despite stronger commercial activity to stand just above the 8% level in the first quarter. Underlying margins stood at 37.2% at the end of March or 0.7 percentage points below last year's figure. In nominal terms, margins for our key divisions ranged from the 26.4% posted by Telefonica O2 Europe, which is affected by increasing competition in mobile and the launching of operations in Slovakia, to a very solid 48.5% achieved in Spain, excelling both in fixed and mobile.

Let us start the review by business lines with Telefonica Espana on slide number seven whose performance stands out from other European peers. First quarter financial performance remained very robust in terms of growth and profitability, lead by the strength of our commercial activity in both fixed and mobile. The EUR95 million drop in the redundancy provision registered this first quarter compared to the same quarter of last year has added to this very solid underlying performance.

Revenues went up by 5.5% year-on-year to top EUR5 billion with OIBDA increasing by almost 11% with just about EUR2.4 billion. OIBDA margins stood at 48.5%, equivalent to a 2.3 percentage points, annual growth.

During the first three months of the year Telefonica Espana has consolidated its competitive position in the market after growing total accesses by 5.5% year-on-year, as shown in slide number eight. Our commercial drive, which has been focused particularly on value customers, remains strong in all business segments. Traditional line losses have been capped at below 30,000 this first quarter, containing the annual decline of fixed telephony accesses at 1.2%, which is a reference benchmark in Europe.

On broadband we continue to grow retail broadband accesses ahead of overall market growth and above 30%. And close to 368,000 mobile subscribers have been added to our network since January 1, pushing the total base up by almost 8% year-on-year.

For an overview of the fixed broadband market, now please turn to Slide number 9. We have successfully sustained our leadership since the start of the year, keeping our market share constant at 56% with close to 4 million retail connections at the end of the quarter. We have a pipeline of new products pending regulatory approval that we are confident will nurture the market further. In Pay TV Imagenio is gradually gaining ground, grabbing more than 40% of market net additions again this first quarter.

Outpacing our peers in the transformation of the business towards broadband and corporate solutions remains key to retain our unique growth profile in fixed, as we present in slide number ten. Keeping the lead in broadband net additions, promoting double and triple play and pushing the introduction of value-added services are the three main factors behind the 22% increase in Internet and broadband revenues. Becoming a broadband oriented company is helping us to move our client base up the value chain, which led to a total ARPU growth of 7% in the last 12 months.

In addition to the broadband drive, traditional revenues have benefited from the 2% increase in the monthly fee applied in January 1, which contributed to reduce the decline in access and voice revenues below 3%. Overall, fixed operating revenues went up by 3.6% annually, a very promising start of the year.

Moving now to the profitability of the domestic fixed business in slide number 11, we can see that underlying OIBDA growth was close to 5% year-on-year or roughly 1 percentage point ahead of top-line expansion, which is a clear proof that the new integrated management model yields tangible results. OIBDA margin increased close to half a percentage point in the last 12 months to 46.5%.

Let's now continue with our Mobile operations in Spain, which remain focused on value growth. Quarterly commercial performance stayed strong as we added close to 370,000 new customers since the beginning of the year, pushing the total base up by around 7.5% year-on-year. Churn is being kept under control thanks to continuous efforts on loyalty, the mix continues to improve and the results on number profitability remain positive despite renewed competition.

It is worth mentioning the very solid performance of contract on all operating metrics. Churn, which runs at benchmark levels of 1.1% in the first quarter, complemented the 8% annual increase in gross adds. As such, contract net additions almost reach 390,000 clients in the first three months of the year or 13% above 2006 comparable figure. And over 78,000 contracts were captured through number portability, doubling last year's performance.

Please turn to slide number 13 to review mobile usage patterns in Spain, which continued voice stimulation and strong data ARPU leading to an almost flat ARPU performance. Voice usage grew at a healthy 5%, still showing positive elasticity and allowing the decline in voice ARPU to be kept at 0.45%. The performance of data ARPU has been very positive again this quarter, increasing by close to 6% on an annual basis, which is the highest growth rate since the fourth quarter of 2005. The strength of non-P2P SMS revenues up 27% year-on-year, driven by connectivity, were behind the boost in data usage.

The positive evolution of data ARPU led to a 0.6% increase in total outgoing ARPU. Incoming ARPU performed better than last quarters based on the reduced 6.9% mobile termination rate cut, which is in force since last October. Please bear in mind that a new 7.5% reduction became effective in April, adding pressure to incoming ARPU.

The key financials for the domestic Mobile business are presented in slide number 14. In terms of sales, service revenues increased by a healthy 6.7% on a comparable basis, driven by the 8.4% rise in customer revenues backed by solid customer and outgoing ARPU growth. Interconnection revenues were favored this quarter by the local mobile termination rate cut, growing 1.5% on comparable terms. Roaming-in revenues declined by 20%, affected by local prices ahead of EU regulation. In terms of profitability, OIBDA performed well again this quarter after growing by 7.9% year-on-year. The margin remained flattish at 44% despite higher commercial activity and handset upgrades.

Moving now to Europe, in slide number 15 we can see that operating revenues went up by close to 47% annually to surpass the EUR3.5 billion mark. Competition in the mobile space, increasing commercial expenses related to the change of O2's fiscal year from March to December and the launching of the Slovak operations in February have had an impact on the year-on-year cost comparison and led to reduced OIBDA growth of 23%. Consequently, OIBDA margin was cut close to 5% percentage points on an annual basis. We expect OIBDA to improve throughout this year.

In the UK, revenues continue to trend positively, driven by customer and ARPU growth. In Germany, we are proactively tackling competition and pricing pressures, which are pushing ARPU downwards, along with termination rate regulation. In Eastern Europe, broadband is offsetting the decline in the traditional faced businesses in the Czech Republic, while mobile growth remained healthy, focused on post-paid. And the launching of operations in Slovakia has shown solid progress, servicing more than 400,000 clients by mid-April.

Please turn now to slide number 16 for a summary of our UK's performance. From an operating standpoint, O2 UK ended March with 17.8 million mobile subscribers or up 8.6% on an annual basis. Client retention has been at the forefront of commercial strategy, as the almost 11% annual growth in post-paid customers shows, pushing contracts to account for 35.5% of the total base as of March 31. The close to 1% increase in blended ARPU, along with the client expansion, has driven a close to 10% rise in revenues.

January to March OIBDA margins stood at 24%, roughly 4 percentage points below last year's figure, driven by the focus on retention and the effect of the change in the fiscal year that I have already mentioned. Margin levels for the coming quarters are expected to be higher than the first quarter report as given.

In slide number 17 we present our O2 Germany's results. The company provided mobile services to 11.2 million mobile subscribers at the end of March, which is up close to 11% year-on-year amid a very competitive scenario. Client growth was biased towards the prepaid segment which posted a 12.5% annual increase. This weaker client mix coupled with pricing pressure and a 20% termination rate cut lead to a 15% annual reduction in ARPU this first quarter with revenues down by 3%. We expect the gradual recovery of momentum once planned initiatives to boost customer and ARPU growth through both, O2, or associated brands hit the market in the coming quarters.

The Genion S/M/L tariffs launched in November last year have made a good start, delivering higher minutes of usage and ARPU. OIBDA margin stood at 19.1%, which is a decline of 0.5 percentage points from last year's level. In addition to the change in the fiscal year common to O2's franchise, the higher volumes of retention and the decline in revenues are the factors behind OIBDA performance. We expect the trend in OIBDA growth to be reversed as the year progresses.

Please move now to slide number 18 to close the review of our European operations with the Czech Republic. Local currency revenues grew by 2.6% year-on-year with OIBDA margin flattish, once excluding Slovakia's start-up costs. Increasing the value proposition for both fixed and mobile clients is behind the solid financial performance of Telefonica O2 Czech Republic.

On the fixed side, retail broadband connections increased by just above 54%, driven by speed upgrades and product innovation with the recent launch of triple play and a mobile broadband convergent solution being the first examples of new integrated products. As such, retail broadband sales went up by more than 56%, nearly stabilizing fixed revenues overall. On the mobile side, fostering migrations and playing elasticity lead to the 4.8% growth in Mobile revenues.

And now for the review of our Latin American properties please turn to slide number 19. During this first quarter we are keeping our strong leadership in the development of the broadband market across the region through the gradual launch of double and triple play offers. And we are successfully sustaining mobile momentum in major markets, lining up client expansion, revenue growth and margins. These solid operating fundamentals have lead to sound revenue and profitability metrics. Sales in Latin America increased by 8.5% in the first quarter, a growth rate that exceeded the 12% mark in terms of operating income before D&A, and OIBDA margin went up by more than 1 percentage point year-on-year, standing at 36.6% for the January to March period.

Growth in revenues and OIBDA are being generated across the region as slide number 20 presents. All countries, with the exception of Ecuador, showed a positive financial performance during this first quarter. And higher efficiencies built around the deeper regional management of operations offset our commercial push, leading to a notable improvement in profitability. Fostering broadband and mobile have been the two key axis of revenue growth in the region.

Starting with broadband in slide number 21 we can see that we continue to develop the market, adding more than 265,000 new connections in the first three months of 2007, up 19% year-on-year. Our total retail broadband connection topped the 4 million mark at 38% increase on an annual basis. On top of pure connectivity, triple play services are being progressively launched in the region with the aim to reinforce market shares and drive ARPU. Pay TV clients went up by more 43% annually to exceed 700,000 clients at the end of March, 25% of which were already connected through satellite. As a consequence, broadband revenue growth ranged from the 15% posted by Telesp in Brazil to the more than 60% witnessed in Argentina.

Let's comment now on our Mobile operations in the region, starting with Brazil in Slide number 22. Vivo has continued to refocus its commercial strategy towards higher value segments in the context of a challenging competitive environment. The shift has borne fruit as the company gained 144,000 contract customers in the first quarter, ahead of post-pay net adds for the whole of 2006. Pricing plans introduced in the last quarters have promoted usage with the almost 13% annual increase in minutes of use, acting as a driver for the 2% growth in ARPU, excluding bill and keep. From a financial standpoint both service revenues and OIBDA have visibly improved their performances. Underlying OIBDA margin widened by more than 4 percentage points annually to reach 31.5%.

Moving now to the strong momentum of our Mexican operations in slide number 23, we can see that the first quarter gross additions grew by 57% year-on-year to reach almost 1.6 million, which is in line with our ambition to capture half a million clients per month. But more importantly, net additions have increased fourfold pushed by the 30% in monthly churn which stood at 2.9% this first quarter. This strong commercial performance led to a customer growth of more than 40% annually for both prepaid and contract.

Turning to key financial metrics, service revenues went up 66% annually. Outgoing service revenues soared by 86% as the two-times higher minutes of use was reflected in a 26% ARPU expansion. Incoming service revenues grew at a 55% rate, positively impacted by national calling party pays. We are gradually achieving critical mass, as shown by the plus EUR22 million OIBDA posted in the first quarter, which is the third positive quarter in a row.

In the next slide we present a snapshot of the remaining mobile operations. Taken as a whole, Mobile performance has remained very healthy, combining a solid commercial momentum with revenue growth and enhanced margins. The majority of countries have achieved customer growth above 30% threshold, as presented in the first section of the table, a growth that has been transferred to outgoing service revenues and OIBDA. Just Telefonica Moviles Ecuador faces still difficulties, showing the weakest performance amongst our mobile universe. The company has launched a new set of refreshed tariffs to turn around its financials.

TEM Colombia is gradually improving its performance as the company is successfully balancing commercial push and revenue expansion. We achieved around 10% growth in clients and revenues alike, and the proactive migration to GSM aiming at strengthening our competitive position, and that has been responsible for the top in OIBDA margin. And finally Chile, a mature market where retention and efficiency are becoming the keys to outperformance, posted high double-digit growth in service revenues, driven by higher ARPU. Its margin improved by close to 4 percentage points.

Before turning to financial expenses and debt, please move to slide number 25 for an update on group synergies. Synergies of more than EUR180 million have been generated in the first three months of the year. This figure is totally in line with the EUR1.25 billion that we have committed to generate in '07 as quarterly savings are correlated to CapEx spending and commercial campaigns. Close to half of our 2007 target will come from convergence and integration mainly related to technology, operations and systems. The benefits of our enhanced scale, best practices and management of resources will be responsible for 30% of synergies while regionalization will account for 23% of the expected economies.

Moving now to the cost of servicing our debt on slide number 26, we show that our first quarter of '07 interest expense reached EUR750 million, up 45% versus the first quarter of 2006. This increase has been driven by both higher average debt and a higher cost per unit of debt. The effective cost of servicing our debt stood at just about 5.5% at the end of March, up from the 5.1% level posted in 2006, given the changes in debt composition and amount following acquisitions and divestitures executed in 2006.

Interest rate movements explain 16 basis points of extra costs as higher interest rates in euro and the sterling have been partly offset by lower interest rates in Latin America, especially in Brazil. At the end of the quarter 33% of euros and the sterling debt was exposed to floater rate. The higher weight of the more expensive Latin American debt accounted for 10 basis points of the increase in debt service costs. 14% of our net debt position is denominated in Latin American currencies. Finally, the absence of other non-recurring positive mark-to-market results pushed the gap by a further 15 basis points.

Please turn now to the next slide, to slide number 27, to comment on our debt position. We have reduced our net financial debt by EUR261 million in the first quarter of the year. The [pool allocation] of cash flows has been partially offset by both interest accrual, [EUR349] million below payment, and by the sterling depreciation which contributed to reduce the value for foreign currency debt by EUR156 million. Our leverage has been reduced once again helped by OIBDA growth. Net financial debt reached 2.54 times OIBDA or 2.70 times when adding financial commitments.

And now to sum up, let me say that first our commercial momentum continues across countries and businesses with total group accesses increasing by more than 11% year-on-year. Second, we are retaining benchmark organic growth from top to bottom, posting a 7.8% increase in sales and a 22.5% rise in earnings per share. Third, we benefit from diversification and we are successfully developing our distinctive growth levers, namely mobile and broadband. And fourth, we are keeping the focus and efficiency with OIBDA margins standing at 57%.

Now thank you very much for your attention and we are now ready to take your questions. Operator please, we are ready to take questions now.

Thank you. (OPERATOR INSTRUCTIONS) Our first question comes from the line of Luis Prota. Please go ahead with your question announcing your company name.

Yes, hello, it's Luis Prota from Morgan Stanley in Madrid, I have two questions. The first one is on domestic broadband and I've seen that the share of net additions in the first quarter is 52%, which is 10 percentage points below the levels of 2006. So my request is whether you can elaborate a bit on whether this is due to increased competition from cable, from other DSL providers or whether this has been affected by any seasonal pattern or lower advertising from your side?

And the second question is on German Mobile, were you already expecting first quarter revenues to be that weak? Or did this come as a surprise due to tougher competition? And also what are the initiatives that you are planning to turn around this situation in future quarters? What can we expect here?

Peter, you will answer the first question, (inaudible) the second question.

Well, of course yes, shall I start now? On German Mobile let me put the context of the market. I guess I could talk about the fact that our revenues were hit by termination rate cut that hit our revenue by 4%. So in other words we'd have been flat year-on-year with that. And obviously I can also talk about the fact that Deutsche Telecom and Voda have declined by a lot more. But I think it's important to see exactly what the plan is in Germany. Due to E-Plus launching about MVNOs, prices have come down enormously for the whole market by about 20% in the last 12 months.

What we did was we took the summer to evaluate the situation and in the late autumn, the beginning of November, we relaunched Genion, which as you probably know, is our home phone product and very successful. And we simplified it by having three major tariffs, small, medium and large, and effectively each was a bundle, as you would expect for the small, medium and large user. Now they've been very successful on the new business front, in the last four months we've signed up over 0.75 million Genion customers. The exciting thing, and the big driver, is that also we found that those customers were giving us some 2 to 3 times more minutes of use. In other words, at last starting to show some early signs of elasticity in the German market.

As a result of that success we are, now from April, proactively migrating our existing base to those tariffs. Yes, they'll get a lot better value, which will stop them eroding to some of the lower price operators, and also we do get something like a 10% better ARPU. So that's sort of activity one and that means I think that we would start to see an improving position on revenue in the second, third and fourth quarters. In answer to your question was Q1 a surprise, I think we always knew that we would be there or thereabouts because, rather than rush out there with a load of actions, we decided to get it right.

What we've also been doing in Germany, because it's a bit more than just a mobile play now, we've been moving our German business to be a full converged broadband and mobile business. We have managed to sign up the Italian Internet companies which trade under the name now Alice, that's the AOL base and the [Hanternet] base. Point one they've become broadband wholesale customers, which gives our already quite large broadband base, we've got something like three quarters of a million broadband wholesale customers, but it gives us obviously an extra kick, a big opportunity. And we will also be launching in the middle of the year selling our mobile offering to the Italian broadband base. Now we ran a trial on this in December and it was very successful, many tens of thousands of customers in one month, and that will start in the July/August time frame.

Now there's quite a lot of activity going on in a considered way that says that point one, Genion's new tariffs seem to work, they're getting elasticity and extra ARPU. Two, we're now moving that into proactively migrating our base. Three, we will also be relaunching broadband to our mobile base in the summer. We ran a trial in the December timeframe, there were teething problems. We called it a soft launch. We're now ready for June/July to start to rebuild that. So we remain confident that in a very tough market where prices have come down significantly we can turn the revenue in the upwards direction during the rest of the year.

What we remain very confident in is our OIBDA guidance of the market, frankly there's a number of cost savings that we've already started. Last year we saved of the order of EUR40 million in programs, this year we can see our way quite comfortably to high double-digit millions of euros and next year low triple digit millions of euros savings. So the OIBDA is quite confident in the guidance. Obviously, we'll learn more about the revenue growth during the rest of the year as we can report how all of these planned actions start to kick in, in terms of actual revenues.

This is Antonio Viana regarding domestic broadband, our share of net adds has been 56%, not 52%, and we feel quite comfortable with this level of share. Let me just remind you that in Valencia we had given the guidance for 2009 of having a market share of 53% to 57% in broadband, so we feel quite comfortable on that. Obviously stimulating the market will also depend on the approval on the regulatory side of a couple of products that they have there in order to launch, and then we hope that we can stimulate the market further in the second half of the year.

Okay thank you.

Thank you, next question please.

Our next question comes from the line of Jesus Romero. Please go ahead with your question announcing your company name.

Jesus Romero from Merrill Lynch in London. I had a question on Spain. You've had a very good quarter in the first three months of the year. If I look at the numbers you've reported from a revenue point of view, compared with your guidance for the full year in Spain, I was wondering if, Antonio, you could give us a bit more detail on what effects or potential negatives could take place in the next three quarters that might lower the growth rate you have seen in Q1? Or whether there is room for potential adjustments in the guidance perhaps in the next quarter.

And then a question on Mexico. We're seeing a big improvement in growth and a reduction in churn, I was wondering if, Jose Maria, you could give us a bit more detail on what you think the sustainable churn level is and what kind of market share numbers do you think you could achieve in two years, if you can keep the performance of Q1. Thank you.

Jesus, this is Antonio Viana. Well, as a matter fact, as you stated, our performance in revenues has been quite good, we're very happy with the results. I'd like to remind you that when we announced the guidance that there were three issues that we had in consideration. The first one was the emergence of new competitors and I have to say that for the time being they've had no significant impact on the market, but maybe it's too soon to come to a final conclusion so we'll have to wait and see what will happen in the coming quarters. But until now new competitors have had very, very limited impact in the market.

The second one is, as you know, termination rates where this year we will be facing two decreases in termination. The first one occurred now in April, minus 7.5%, and the second one is due to occur in October. So obviously the coming quarters in that sense will suffer from that effect. And the third one is the decrease in roaming tariffs that we have already incorporated in our forecast for the year. And obviously that will affect the second half of the year more, especially with the roaming traffic occurring more in the summer months. That is obviously going to impact more on that front. Having said that, we feel comfortable and we are happy with the results that we have achieved in this quarter, and we will see, and probably the timing for re-discussing those issues will be after the second quarter. For the time being, we feel comfortable where we are.

And regarding your revenue question about Mexico, first of all, let me tell that we feel confident that we feel confident that the current evolution is sustainable. The quality of net add is proving to be very good and therefore we feel comfortable with the current levels of churn and we even try to improve them in the future. We need to make an additional effort on the post-paid segment of clients and we will be focusing on that. And we have been very effective in managing the new distribution channels and the new products that we have been able to launch, especially the on-net product.

As a result we think that we should focus and keep going in the same direction of walking rather than running, and working on the quality of net adds. We think that the target that we fixed a little bit sooner last year was in the neighborhood of 20% market share in the next two years and we feel comfortable that we will be able to achieve that.

Thank you.

Thank you. Next question please.

Our next question comes from the line of David Wright. Please go ahead with your question announcing your company name.

Hello, it's David Wright from JP Morgan, I might just chase Jesus' question a little more on the wireline side if that's okay. I think when you gave full year guidance it was 9% to 12% and we worked out that the employee provisions in real estate, if you strip those, you were already at 9.2%. So there was kind of an implicit 0% to 3% OIBDA guidance and you've just come in at 4.7%. So again on the wireline side, it certainly looks like you're running well ahead, especially given the rental revenue increase over on all year. And you should also get a boost from the tariff increase that only came in, in March, that's question one.

And then just on Latin American Mobile, Colombia went backwards fairly substantially, I'm just wondering whether we have a Mexican scenario here where you have perhaps outgrown yourself and we have two to three quarters to really clean the base. And also on Argentina I think for the first time your net additions have been overtaken by TEO, I'm wondering if you could just comment on why perhaps you've slowed down your share of adds there. Thank you.

Okay Dave, this is Antonio again. On the wireline in Spain, I will restate what we have said also on the wireless side. We feel happy with the results. I think that we're doing a great performance in commercial terms. You have to bear in mind that the headcount reduction that we experienced during this first quarter we had already taken it into account on the provision that we created in the fourth quarter of last year. Right now, just to keep you posted on that, we are running something like 1,700 headcount reduction for the time being. And as a consequence of that it is probable that you will see the costs that we have announced in the results of the fourth quarter, costs of around EUR620 million, for [ERI] to take place in the coming quarters. And that obviously is going to affect the overall result.

It is also true that there is some seasonality on this part of the business, so now probably the second quarter is a less strong quarter in terms of growth of broadband from a cyclical perspective, and that is obviously going to impact the growth that we will have. Having said that, I have to acknowledge we are in a good commercial momentum, we are in a very strong momentum in Spain both wireline and wireless. I believe that the results of integrating the two business lines, and managing them together, has given a boost to the team and that things are moving fast ahead. So probably the time for re-discussing the issues on how we see year-end will be closer to the end of the second quarter.

Okay, taking your question on the Colombian mobile unit, first of all, there are like three different effects that are occurring this first quarter. First of all, we had -are aggressively cleaning the client base as a result of aggressive campaigns in net customer acquisition at the beginning of last year, and therefore we have been cleaning up that client base in order to focus on profitable clients. On top of that we are finishing the deployment of the new GSM network and that's also facilitating the migration of clients fro, CDMA to GSM. We are aggressively incentivating and promoting this migration in order to have a payback within this year. This is a profitable action that is affecting OIBDA margin in this first part of the year, but we think it's the right thing to do in order to improve the situation sooner.

And finally in terms of the commercial distribution network, we are doing exactly the same process that we did in Mexico a year ago. We are improving the distribution network and we are adding up new points of sale and closing up some others in order to cut a much more sound, recurrent and profitable [division] network. So we think that those three effects should have a positive impact all along this year and will keep you posted on that evolution.

And if I understood correctly your second question, it was on the wireline in Argentina?

No it's still on Mobile, it just seems like your share of asds is slipping a little.

No, according to the figures that we have in this first quarter of the year the situation is more or less the same that it was at the end of last year. We are not facing any special situation in Argentina, but we will keep you posted on that.

I'll just chase quickly then on Colombia, should we expect positive net additions for the full year if this is a similar recovery to Mexico? You know are we expecting back to positive territory in Q2? Or should we expect sort of net zero for full year '07?

It is too soon to say. It will depend on several things, just before Mother's Day, the Mother's campaign that is trying out right now. So I rather prefer to wait for the second quarter to update you on Colombia.

Okay, thanks.

Thank you. Next question please.

Our next question comes from the line of Terence Sinclair. Please go ahead with your question announcing your company name.

Good afternoon, Terry Sinclair from Citigroup. I apologize, I missed the very beginning of this call and I hope you didn't cover this, but since we last spoke in public you've obviously announced the position of the stake in Olimpia. And I wonder if you could say what options you believe that brings you in Brazil and other countries where you will have to absent yourself from participation in the TI Board. And secondly what benefits you believe that acquisition brings you beyond those of a financial investment.

Yes, Terry, thanks for the question, this is Santiago. Let me answer you briefly saying that we have decided to take the opportunity presented to us for mainly two reasons. One is because this brings us closer to the action in Italy. As you know we have decided to buy 42.5% of [Ivico], which is going to be invested in both Olimpia and some other Telecom Italia shares contributed by our partners. We are the only industrial and we are the only non-Italian partner in this consortium. We think that gives us a complementary angle to those of our Italian partners. We think we can provide a lot to the table in terms of helping shape and helping understand what is going on in our sector.

So far so good, until the bill gets actually completed, which as you know is pending some regulatory approvals yet. It will be too soon to say anything else, but for the time being let me say that this gives us certainly the benefit of looking at the Italian situation and looking at the international experience of Telecom Italia from a close angle. You know that Telefonica will obtain two Board seats at the Telecom Italia level, together with our partners in Italy, and that means that together we will help shape significantly the strategy at TI. So far that's as far as we can say.

In terms of Brazil, which is one thing you mentioned, we have no special angle at this point. We understand that both the team in Brazil and other operations of the TI level are absolutely independent of what we say or do. And we certainly intend to keep it that way.

Thanks. Is there anything in the comments that Anatel made during the process of negotiations with Olimpia that gives you any concern? I'm talking about regulatory separation keeping assets listed, there have been a number of public comments, do you have any reaction to those?

No, we don't have any specific reaction to that, it is still early days in the regulatory approval phase and we certainly will keep the market updated on the different reactions. But we do not expect any impossible to overcome constraint.

Thank you very much indeed.

Thank you. Next question please.

Our next question comes from the line of Christian Kern. Please go ahead with your question announcing your company name.

Christian Kern of Lehman Brothers, Santiago, can I just follow-up Terry's question with regards to Brazil? Any comments on the ongoing negotiations with regards to Vivo? That the first question. The second one, I was interested in an update on your domestic competitive situation around mobile there, we can [UIGO] there now in the market for a couple of months, we've seen Vodafone spending rather aggressive there, any update there would be much appreciated.

And finally on the strategy side, OTE, E-Plus, we've seen the German business weakening, any thoughts on this? Thank you.

Yes thanks, Chris, let me answer the Vivo question and maybe a little bit of the strategy bid. On Vivo we just reiterate what we have said a number of times, we would very much like to get the access to 100% of Vivo. We think we could manage that in a faster way than it is currently doable, but as our Chairman has always remarked, it has to be at the right time and certainly at the right price. There is no change in that and if there is at some point any change, of course we will alert the market about that.

And in terms of other interest, we are of course always associated with interest on anything that moves. At this stage it is very uncertain for us what potential privatization or other sales process of OTE might be like. And in any case, any decision we might adopt would be in the context and within the investment criteria that are by now very well known, the limits on both the cap on acquisitions and certainly the rating limits that we have set fir ourselves and that are serving us very well.

On the domestic competition in wireless, there's not much to add, Christian. UIGO, honestly it's not relevant to put it mildly. And I think that Vodafone is still doing a very good performance, we'll have to see from the results that they will present on May 29, but they are still the strong competitor here. The results of Orange you have already seen them and I would make no comments on them. So I think that again our challenge is more and more to retain our value customers, to continue offering them better services and that putting value on the network that they have into the almost 22 million customers that we have.

Thank you very much.

Thank you. Next question please.

Our next question comes from the line of Robert Grindle. Please go ahead with your question announcing your company name.

Yes, hi there, it's Robert Grindle from Dresdner Kleinwort. I'm just struggling to reconcile your Spain mobile ARPUs on subscribers with the strong acceleration of service revenue growth you've seen in Q1. Did you change anything on the promotional discounts during the quarter or indeed last quarter, which helped the growth trend which isn't seen in the ARPUs? And separately, was the big working capital requirement in Q1 due to the EUR0.5 billion extra accrued CapEx in Q4? And is that all unwound now at this stage in 2007? Thanks very much.

Thanks, Bob, this is Santiago, let me answer quickly on the working capital. You are essentially very well oriented. The big change in working capital recorded in Q1 has a lot to do with a spike in CapEx spending that was recorded in the last two quarters, especially Q4 of '06. And it will gradually be reversed and normalized, assuming, of course, taking into account that this year we are many more in the family than we were in Q1 as O2 becomes having a fully impact or a 12-month impact on the full account. So you are very well oriented on that particular.

On the criteria for accounting promotional discounts or whatever, we've changed no criteria whatsoever in Spain. So the criteria is exactly the same. I think that the figures speak for themselves in terms of the growth, in terms of ARPU that you can see on Chart 13 that I have explained, a good performance in terms of voice and a great performance in terms of data. And also the fact that the migration from prepaid to contract in the gross and contract where the net adds that you can see on Chart 12 have been more than 390,000 on contract. Obviously that is what explains the growth in terms of revenues, nothing else, there is no change whatsoever in criteria.

That's great. Thanks so much.

Thank you.

Thank you. Next question please.

Our next question comes from the line of Bosco Ojeda. Please go ahead with your question announcing your company name.

Hi, good afternoon, I have a quick question on taxes, I wanted to ask if Q1 is a good reference for the cash tax payment we're going to see going forward into the next few quarters? And also if you could let us know how the Airwave and Endemol divestment have performed in terms of taxes, whether you have been able to use your tax shield, how is your tax shield looking after the divestment? Thank you.

Thanks for the question, Bosco. On taxes, Q1 is going to be slightly abnormal in terms of the cash consumption of taxes as a consequence of two factors coming together. First the disbursement of corporate income taxes in many places, many markets in Latin America, and a special VAT related effect that is a spillover from Q4 of last year. So you should see the difference between accrued and cash taxes become more normal as the year progresses. And I would argue this is highly volatile always, that Q1 is probably going to see the spike or the peak in the seasonality factor of 2007.

On the tax effect of Airwave and Endemol, well first Airwave is completed and it is not taxed at the local level, so that's that. And Endemol has not been completed yet, it will be I hope completed in the next four to five weeks as small or minor regulatory approvals need happening. So the signing has been communicated on Monday but the closing will likely not take place until, I'm not sure, something late June or so. And by that time we will see what we can say.

What we have said is that we expect capital gains as a consequence of the purchase price, or the selling price in our case, being significantly higher by EUR1.4 billion than the booked value of the asset. And that's a capital gain that will be recorded in all likelihood in Q2, or for whatever reason the regulatory approvals are drawn out then it will be a Q3 event. But more likely than not, it will be this second quarter.

Thank you.

Okay, next question please.

Our next question comes from the line of Brian Rusling. Please go ahead with your question announcing your company name.

Yes, it's Brian Rusling from Cazenove, just to finish on cash flow, the cash interest payment in the first quarter implies about a 7.5% rate of interest. Is there something abnormal there? Or are there some large bond coupons that get paid in the first quarter? And what's your expectation for full year?

The second question is related to your guidance and specifically the Telefonica O2 Group commentary where you talk about not changing the guidance for the divisional level, to Telefonica O2 Group. And yet the results of O2 Germany for example in the Q1 suggest that the guidance you gave us on the first of March for Germany is not really going to be achieved. But Peter, your commentary suggests that you might be able to get the OIBDA level. Can you just walk you us through what the, on slide 40 from the first of march presentation, what's changing to the O2 UK and O2 Germany guidance, what the flexibilities are there?

Yes certainly, so I'll take that piece first. I think the UK guidance doesn't change at all. In fact, the revenue in the first quarter in the UK is at the very top end of our guidance. And it's generally a quieter market in the UK than it was six nine months ago, that was because we've all started to launch 18-month contracts. In fact, 70% of our UK business on post-paid is not on 18-month contracts, so our revenue looks good.

Our margin is slightly lower in the first quarter than it will be the rest of the year because we spent a lot of money quite deliberately on retention. So I think the UK guidance is very robust at this juncture, which is effectively after you knock off the fact that we're doing 12 months compared to 11 last year, a UK of 6 to 9% revenue growth and a margin that's a little off last year but certainly better than the 24% we got in the first quarter.

In Germany, obviously with a minus 3% in the first quarter to deliver the 5% to 8% in the rest of the year is a challenge. We have a number of initiatives out there and I can report a lot more usefully at the end of the second quarter when those initiatives I ran through at the beginning, i.e. new Genion tariffs which have started to bite. Putting them into the base, launching DSL into our customer base in the summer et cetera have started to show what they can deliver.

What I am very confident of is the OIBDA guidance in Germany, there's a number of cost saving programs which were planned. I mentioned earlier last year they saved about EUR40 million in cost savings, this year they have a number of programs that come in at high double-digit millions of euros savings and next year low triple digit. So we remain robust on our guidance but obviously we'll know more about the German revenue in the summer when we report next time. But the EBITDA is solid and the UK numbers are totally solid, as are the Czech, of course.

Yes. Brian. Santiago again on your cash flow related to interest expense question. The Q1 is somewhat of an abnormality as a consequence of annual coupons being paid in Q1. You may remember that last year we issued a fair amount of bonds, EUR6 billion worth of them, and their first coupon payment has become due in this first quarter. So there is a strong increase in cash relative to accrued, which is not going to be repeated throughout the year, at least not to that extent.

If anything throughout the year you should expect two things, one is the cash interest expense to become very much in line with accrued interest expense. If anything cash will be slightly lower as a consequence of our small zero coupon bonds accruing, but not actually getting anything to pay. And second you should expect our interest expenses accrued to drift slightly or gently higher as a consequence of higher interest rates and higher Latin American, and therefore more expensive debt in our (inaudible) companies.

Thank you. Next question please.

Our next question comes from the line of Javier Borrachero. Please go ahead with your question announcing your company name.

Yes good afternoon, Javier Borrachero from ING, two questions. One is on Venezuela, very high OIBDA margins in Q1, I was just wondering if this is a sustainable run rate or if there's anything extraordinary in Q1? And another question on Brazil Telesp on the fixed side, I saw in the press release that you mentioned some capital gains without disclosing the amount, I guess probably the amount is negligible, but in order to have a clear assessment of the of Telesp maybe if you can disclose these capital gains? Thank you.

Yes, Javier, thanks for your question, Jose Maria speaking. On Venezuela there is nothing extraordinary so I think the OIBDA margin is nothing special that we can comment on apart from the normal run rate of operations. And regarding Brazil, the capital gain is due to the sale of (inaudible) property, it is accounted below the line of adjusted OIBDA and the amount R$134 million. Therefore that is the only capital gain that is accounted. And again it's below the line of adjusted OIBDA.

Thank you.

Next question please.

Our next question comes from the line of [John Caride]. Please go ahead with your question announcing your company name.

That's very kind, thank you. Yes, it's Man Securities, I just wanted to ask a question about O2 UK if I may. In the statement you actually highlighted extra focus on retention during the quarter. Would it be possible to enlarge on the ways that the recently renewed contract with Carphone will help you deliver the sort of lower commercial costs that you're forecasting for the rest of the year? I appreciate a lot of things are confidential, but maybe you can talk generally about the various ways that you envisage that helping you?

Yes, well we have spent a lot on retention. I mean first of all we focused by 18-month contracts because obviously the longer the customer stays the less we have to pay at the end to upgrade them. And a number of other initiatives predominantly initiatives predominantly around pricing that say now we've launched loyalty programs that call things like Fair Deal that make sure our existing customers get at least as good deals as the new customers.

However, talking specifically to distribution, your question about Carphone, we obviously felt that we lead the way with the whole fact that we bought the link and broke it up, which took us down to two independent retailers. And we are quite open that we've cut a deal with Carphone and perhaps reduced our clout with Phones4U. And as you would expect in that situation, we're both were quite eager for the volume. We've got from Carphone a deal which gives them a lot of income but for a lot greater volume. In other words we're getting a lower cost per acquisition.

Now to make the point, the Carphone deal actually is more second half loaded so we will get more of the financial benefits in the second half. As you imagine, these things take quite a while to -- the agreements have to unwind on all deals and therefore we start to get an increasing share of their volume through the year. But effectively what you would expect where there's two independents, who are being squeezed increasingly as operators led by ourselves take more and more of their business direct, we've now got over 60% of their UK connections by our self. We've gone volume, but in return lower cost per connection, and that's effectively what we've got with Carphone.

May I ask, is there a sort of serious move away from up front fees towards a share of ongoing revenue in the UK?

Well, there's no change there in all honesty, we started all of 18 months to 2 years ago doing exactly that with Carphone, and it works very well. You get a lower churn and indeed we do the same with Phones4U. So a serious move, your words would imply a change, no. But we find it a very useful way to do business because rather than they just make their money up front and then can churn us off, they get a piece of the ongoing revenue. But it's not that significant anymore because as I say, over 60% of our business is now signed by ourselves and that's growing with the success of our retail channel and our online channel.

Great fine. Thank you, Peter.

Thank you, next question please.

Our next question comes from the line of Jonathan Dann. Please go ahead with your question announcing your company name.

Jonathan Dann, Bear Stearns, two questions. The first one, most of the good questions have been asked, could you just kind of run us through why you're delaying broadband launch in the UK? Does that imply anything about the sort of how key it is to your converged strategy in Britain? And secondly, when you look at German Mobile, is some of the things that E-Plus is doing good? Do you think you will kind of try to go down that sort of no handset cheaper tariff type model? Or will you stick to the tried and trusted cheaper calls free handset kind of model?

Well, to take both your questions, broadband in the UK, I mean the glib but truthful answer why we're taking our time to launch is we want to get it right. We said when we bought last autumn at that stage it was only a 15% population coverage, we needed to roll out to more and we're now at 40% population coverage. I think also I'm on record as saying that although O2, prior to being acquired by Telefonica, said it wants to get into broadband. Thank heavens we didn't on our own, because it is really complicated, witness the reason, without sounding smart, that several of our competitors in the UK have perhaps not done a brilliant job.

We were aiming originally for a July launch. By working with Telefonica we've talked a lot about it, we're now set on a September launch. Because I really don't want to go out there and frankly put something into the marketplace that causes difficulties. We're very confident that we can get it right because we're learning from people who get it right in a number of countries, i.e. the rest of Telefonica.

I think in German Mobile we already do a number of SIM only connections. And indeed one of the things with the Genion launch on November 1 was that the small package was SIM only. So we're already in that space. I think we already had an MVNO with [Cibo] so in a way the MVNO strategy that E-Plus has launched you could argue that we were the first out there because Cibo has now got over 800,000 customers. But what we aren't following is the model where you go get some 45 different MVNOs. And I think that's because I think you do gain in year one with that, everybody's out there selling new net adds and of course that grows the revenues in the short-term. But already one is saying the vast majority of those aren't succeeding and therefore this is sort of a dog eat dog.

Having said that, what we are doing is getting much more single minded in our offerings. Undoubtedly, the Genion launch November 1 had in mind the offerings from E-Plus but obviously also from our competition. And that's working so far really quite well. And the idea of proactively migrating our base rather than just sitting back has been sparked by the competitive set. We do have in our base, and I know the competitors do, many customers who will have two SIMs. And my goal is obviously that they get back through the Genion tariff to just having one, and that's ours. So of course, any competition focuses you, but no we're certainly not going to copy the strategy because I think we're very confident by tightening our cost structure, adding more value to broadband plus mobile and putting the new Genion tariffs into the base. We've got sort of the same winning formula that O2 in German has had for the last four or five years.

Okay, thanks.

Thank you. Next question please.

Our next question comes from the line of James McKenzie. Please go ahead with your question announcing your company name.

Hi, it's James McKenzie calling from Fidentiis, I've got one question on Spain. I wonder if in the first quarter you could give me the underlying revenue growth that would have occurred if you hadn't changed the accounting for the telephone cards, either in absolute euro terms or in a percentage term? And then just finally on the UK, looking at the broadband launch in September, is that going to be a broadband launch as we've seen Germany very soft at the beginning? Or should we expect a significant extra expenditure in the fourth quarter?

James, this is Antonio. The growth in revenues that we spent is 3.6%, without that effect that you mentioned on the wireline side, the underlying would have been 4%.

I think so far as the UK launch of broadband, it's going to be focused on the existing customers which will control costs. So we don't see any big investment rather like our competitors have needed to do, those who have gone at new business. So that would be to the existing base. But then to put that in a context, we've got the biggest existing base, we've got 17.75 million of our own customers, that's without the 1.5 million Tesco. No, it'll be a powerful launch but it's not going to be a big bang in terms of a big hole in the bottom line if that's what's concerning you.

I'm sort of learning all about the core key performance of O2, would it be right to expect that the second and third quarter margins would be considerably above obviously what we've seen in the first quarter but then in the fourth quarter we could see a decline again?

Well, we don't specifically go into from quarter-to-quarter, but what I am confident in saying is that the first quarter margin in the UK was planned at the kind of level it is and that is below the guidance for the year. And obviously through the year we will get our margins back to what the sort of level that we guided the market as we spend a little less on retention et cetera. But I don't see any big holes caused by broadband. Obviously though, the Christmas quarter is always highly competitive and therefore the margins can be under challenged. But no, I see an even growth through the rest of the year.

Thank you.

Thank you. Next question please.

Our next question comes from the line of Laurent Sierra. Please go ahead with your question announcing your company name.

Hi, Laurent Sierra from Redburn in London, a couple of questions. You said that you are reiterating your guidance regarding O2. I believe we shouldn't expect any write off of the book value of O2? And my question was on Spain, due to your above 50% market share in the fixed broadband, could we expect new measures from the regulator going forward? Thank you.

Let me answer first on the write off you ask about, we do not expect. We have no budget nor do we have any reason to believe that a write off of any small part of our O2 investment is in danger. If that were the case we would of course share that with you, but that is not in our cards.

Regarding the broadband situation in Spain, I think that we already have a quite severe regulatory environment. And as you know in order for us to launch any product, the regulator first of all has to approve it and has to be certified that that offer can be replicated by other operators through the unbundling. So I think that the regulatory scenario in that sense in all ready tough enough.

Could you give us if there is any update on VDSL plans in Spain?

Well, for the time being what we are waiting for is for a public consultation that the regulator wants to launch regarding the fiber networks. So we have to wait for that in order to understand how that will play in the market. We have announced in Valencia that we have for '06 '09 that we have a CapEx of around EUR800 million in fiber that we intended to do. The pace and the amount of whether we will increase that will depend on the regulatory scenario in the Spanish market related to fiber.

Thank you.

Thank you. Next question please.

Our next comes from the line of James Ratzer. Please go ahead with your question announcing your company name.

Yes, it's James Ratzer, New Street Research, I have two questions please. The first one was regarding your debt structure, you've got roughly 14% of your debt denominated in LatAm currency and you're making 30% of your profits in Latin America. Do you see that as sustainable in the long term? And if not, what mechanism do you see putting in place to try to address that balance?

And then the second question, I was wondering if I could just explore the performance of Telesp in Brazil in a little bit more detail. Firstly, just on a point of clarity, you mentioned that the real estate sales were below EBITDA but your wording on Page 25 seems to suggest they were included in EBITDA. So I was wondering if I could just clarify that. Secondly your line loss in Telesp seems to have accelerated to about minus 2.7% year-on-year in the first quarter, how do you see that developing going forward? And the final question on Telesp is you mentioned you've won a DTH license, I was wondering how you saw the roll out of DTH services affecting margins going forward for Telesp? Thank you.

Okay, James, let me answer the question on debt. First we have stated on a number of occasions that we do not intend to hedge the value of net assets but rather the euro value of future cash flows over the next two years. So, that's why you may find partly an explanation for the apparent mismatch where we derive our income from and where we place our debt. Also in some markets in Latin America it is not feasible to get into debt in local currency, and therefore we have to resort to a more widely, marketed proxy like the US dollar. If you add the US dollar to our exposure you will find a bigger number, our US dollar exposure is now somewhere between 4% and 5%.

So the answer is twofold, number one it is cash flow hedging that we do, not net assets, and cash flow is a lower number than revenue is, or OIBDA is. And second we do have to use the dollar sometimes as a proxy where the local currency debt is either not feasible or not available.

Taking your question on Brazil on Telesp and the wireline operation in Brazil, two things. First of all, in terms of the capital gain the R$134 million is the gross sale price. The impact on the account, you have to deduct the R$50 million of the group value of the asset and that will give you the exact amount of the impact at the OIBDA level. What I was trying to say before is that is of course included in the OIBDA, but in terms of calculating the real return margin you should start that in order to see what is the real ongoing margin that we are obtaining in Telesp.

And regarding the question on the evolution, the recent evolution of Telesp, there are like two different effects. From a revenue standpoint the situation is improving with regard to last year and the previous quarter. We are suffering less erosion in terms of numbers and lines in the months of March and April, and the bundling strategy that we are pursuing in Telesp is giving good results. In fact, approximately 20% of the lines of Telesp are already bundle lines together with one or two products, and that's improving the figures in terms of the client structure.

It is true that we are suffering from one single effect, which is the bad debt evolution that is a result of last year's process. Last year the bad debt situation was accelerated in Brazil and as a result of that we lowered the barriers of entry. We have reconsidered that strategy at the end of last year and that's why we will be, during this first part of this year, we will be suffering an increase in the bad debt account in this quarter and probably the next one. If you were to exclude that effect and the fact that we have a negative tariff adjustment last year, you will see that year-on-year revenue evolution margin and OIBDA in Brazil will have a positive stand.

And then could you talk about the DTH license impact as well please?

Yes, there is still no impact of that because we have not been launching our own DTH license and we obtained that very recently. What we are doing right now is bundling with a third-party, DTH [AA], is a third-party to Telesp, and that has an impact but is negligible for the time being.

Do you have any guidance on what impact that might have over the rest of the year as you launch your in services?

Not yet, but we don't think it's going to be significant.

Okay thanks very much.

Thank you. We have time for the very last question please.

The next question comes from the line of Luigi Minerva. Please go ahead with your question announcing your company name.

Yes, it's Luigi Minerva from HSBC, I wanted to ask you whether you're assessing in Spain the opportunity of a next generation access program, and especially the related opportunity of a windfall from property disposal given that most local exchanges would become redundant, if you were to upgrade the access network? Thank you.

Well, Luigi, as I mentioned before, obviously such a program would have that sort of effect that you are mentioning in terms of real estate. But before we engage into that program we need to be clear what is the regulatory environment surrounding that type of new network. So that is where we are discussing or waiting for the regulator to launch this public debate. We have our own position in terms of saying that in areas where there are competitive infrastructures, this should be left to commercial agreements between players, and in areas where there are no competitive infrastructures we would accept a different sort of regulation. I have stated that the regulator, we have to wait. And until then I think it's premature to think about what kind of savings one can get or what kind of real estate results you could get from that sort of operation.

Okay, thank you.

Thank you. Okay, ladies and gentlemen, with this we thank you all for having taken the time to share a part of your evening with us. And until the next Q2, I wish you all a very successful couple of months.

Ladies and gentlemen, thank you for your participation today. This concludes today's conference, you may now disconnect your lines. Thank you.