Telefonica SA (TEF) 2007 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Telefonica 2007 third quarter results conference call. At this time, all participants are in listen-only mode until we conduct a question and answer session, and instructions will be given at that time. (OPERATOR INSTRUCTIONS). Just to remind you, this conference call is being recorded. I would now like to hand over to the chairperson, Mr. Ezequiel Nieto, Head of Investor Relations. Please begin your meeting and I will be standing by.

Thank you and good afternoon, ladies and gentlemen. Welcome to Telefonica's conference call to discuss 2007 third quarter results.

Before proceeding, let me mention that this document contains financial information and data reported under IFRS. This financial information is not updated and therefore is subject to potential future modifications.

This presentation may contain announcements that constitute forward-looking statements, which are not 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 invite you 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 with the relevant securities market regulators. If you do not have a copy of the relevant press release and slides, please contact Telefonica's Investor Relations team in Madrid by dialing the following telephone number - 34-91-584-4713.

Now let me turn the call over to our CFO, Mr. Fernandez Valbuena, who will be leading this conference call.

Good afternoon, ladies and gentlemen, and thank you for attending Telefonica's 2007 third quarter results conference call. During the Q&A, you will have the opportunity to ask questions directly to our Executive Committee members that I have here today with me - Julio Linares, our General Manager for Coordination, Business Development and Synergies, Antonio Viana, Head of Telefonica Espana, Jose Maria Alvarez Pallete, Head of Telefonica Latinoamerica, and Peter Erskine, Head of Telefonica O2 Europe, who is connected from London.

We are keeping our distinctive growth profile in the sector at the closing of September, with strong organic growth. Consolidated revenues grew by more than 8% year on year, to reach more than EUR42b. In organic terms, total sales went up by close to 8% year on year.

Nine-month operating income before D&A topped EUR18.2b, up 24.5% year on year, including EUR2.7b relating to the Airwave and Endemol capital gains. Organic growth in operating income before D&A stood at almost 7%, showing the efficient cost structure and the materialization of synergies through the integrated management model.

Operating income exceeded the EUR11.2b mark for the period, which is equivalent to a 51% annual nominal growth rate that translates into a 19.2% organic increase. Operating cash flow ended the period over EUR13b, a 38% increase year on year that translated in 12% purely organic.

The negative impact of ForEx across the P&L during the first nine months of the year has improved compared to the first half of the year, deducting just 1 percentage point from the underlying performance of revenues.

Please turn to slide number four for the bottom line and EPS reviews, where we show that the top line growth floated directly into a very solid 51% net income increase, amounting to more than EUR7.8b in the January through September period. Reported earnings per share for the nine months through September reached EUR1.644, 50% above last year's figure.

The strength and reliability of our operating and financial performance puts into value the Company's diversification, which is drawn in slide number five. Our commercial drive allowed us to end September with more than 218m accesses at the Group level, 12% above last year's figure. With strong net adds across businesses and geographies, the 16%, 32% and 59% customer growth rates posted by mobile, broadband and pay TV respectively, have to be highlighted.

It is also important to mention the significant contribution from our double and triple play commercial offerings across all markets, to reach 4.8b as of September 2007.

From the regional perspective, we continued progressing well in the diversification of our asset base. Our European operations, including both Spain and Europe, represented more than 60% of the Group's sales and continued to grow in the mid-single-digit territory in organic terms, that despite servicing increasingly mature and competitive markets. Latin America's emerging once again as the main growth engine, as the region's revenues increased by almost 13% in organic terms.

From the business perspective, high-growth services, namely mobile and broadband, are contributing the most to organic revenue growth, posting 11% and 23% growth year on year, respectively.

Turning now to profitability on slide number six, we show that the expansion of the cost base is trending down, despite stronger commercial activity, to stand just above the 7% level in the first nine months. In organic terms, OpEx growth kept below revenue increase as a result of cost optimization. Underlying margin stood at 37.2% at the end of September, 30 basis points below last year's figure but 140 basis points higher than in the first half.

Organic OIBDA margins for our three regional business units ranged from the 26.7% posted by Telefonica O2 Europe to the healthy 47.8% achieved at Telefonica Espana.

Please turn now to slide number seven, for a review of our regional business units, starting with Telefonica Espana, where our commercial activity, both in wireline and wireless, is driving very sound results. January through September performance remained robust, led by customer growth of 5.3%, to reach over 45m accesses. Revenues increased by 5%, almost topping the EUR15.5b mark, and OIBDA by close to 8%, total EUR7.4b. Underlying OIBDA, which excludes the redundancy program, the E.U. fine and the real estate plan among others, grew by 6% year on year.

Turning to the Spanish wireline business, the commercial strategy developed by the Company is proving to be successful, as slide number eight shows. Year-over-year access line loss in the traditional business has been capped at negative 0.7%, maintaining record low figures as in the second quarter of 2007, driven by free connection fee campaigns. In the pay TV market, we've reached an estimated 12% share, with the Company leading market growth and surpassing 450,000 customers.

Once again, Telefonica has led the broadband market with an intense commercial effort. A new 1Mb lower entry product has been launched. At the same time, 1Mb customers have been migrated to 3Mb, becoming the new reference offer. And finally, a 10Mb duo has been launched. We will keep our leadership in the market by tapping all market segments. And this has been the case in this third quarter, when our estimated share of net adds was 63%, to keep our total share of the market just over 56%.

Please turn now to slide number nine for a review of the sound 3.7% revenue growth, where expanding broadband penetration is proving to be the key lever. Broadband penetration of the Spanish households with fixed line has grown 10 percentage points over the last 12 months, to reach now 49%. Thanks to a superior quality service and a broad portfolio of value-added services offered on top of broadband connectivity, the Company has been able to maintain retail broadband ARPU decline under the 1.5% level.

Let me highlight that the Internet and broadband revenues account for almost 90% of the revenue growth. Line loss contention, together with the monthly fee increase and improving traffic trends, are behind the lower revenue decline in the traditional business in this quarter versus the previous one.

Please go now to slide number 10 to highlight a review of the Spanish wireline business. The slight decline in the third quarter OIBDA is explained by the higher ERE provision in the third quarter of 2007 and the real estate capital gains registered in Q3 of '06 for roughly EUR80m. Excluding both effects, that add 1.5 and 4.5 percentage points respectively, the underlying quarterly OIBDA growth reached 5.6%. Underlying OIBDA growth for the nine-month period ending September stood therefore at 5.6%.

Note that in both cases, the nine-month period and the third quarter, underlying OIBDA growth outpaced revenue growth, with this gap even widening in the third quarter thanks to the higher efficiencies achieved.

Let's now continue with our mobile operations in Spain, in slide number 11, which remained focused on value growth. Third quarter '07 performance has been driven by a more intense summer campaign to contain churn, among other factors. Third quarter total net adds increased by 10% versus the previous quarter, adding 317,000 customers to a total customer base that has grown 7% annually.

It is worth mentioning the solid performance of the contract segment, which represented close to 60% of the total base as of September 30. Top class churn performance and the solid 13% growth of contract gross adds led to close to 342,000 postpaid customers being added in the third quarter. Despite strong competition, over 59,000 contract customers were captured through number portability in the July through September period.

Let's turn to slide number 12 to review mobile usage trends in Spain with continued strong voice and data usage. Despite intense pricing pressure on the back of aggressive competition, tougher retail roaming regulations and summer promotions, quarterly outgoing ARPU remained flat. Total ARPU decline has been limited to 2% despite interconnection rate cuts as the Company has fostered usage by first, growing data, with data ARPU increasing 6.3% in the quarter to account for almost 15% of total ARPU. The new data pricing schemes are boosting data traffic over nine times those of the third quarter of '06.

Second, fostering 3G take-up. By the end of September, 13% of the customers -- or the customer base were 3G clients, after adding 800,000 new 3G customers in the quarter to reach 2.9m.

And third, roaming. For roamers, growth rate was double that of the total mobile subscriber base.

To highlight the Spanish mobile business review, let me comment on the financials on slide 13. Service revenues showed a healthy 4.9% growth rate on a comparable basis for the nine months through September 2007, [in fact], by the 7.2% advance in customer revenues, benefiting from a sound 6.7% customer base growth. Interconnection revenues declined by 3.1% on comparable terms. The second termination rate cut in the last 12 months is fully affecting the third quarter revenues. Despite the sharp cuts in roaming prices, new initiatives limited the roaming revenue drop to 14% year on year.

OIBDA growth remained unchanged at the 7% level, with margins improving slightly to 45.8% on the efficiency improvements.

Let me now continue with a review of our Latin American properties on slide number 14. The strong commercial activity and price declines have strongly pushed up both mobile penetration, over 11 percentage points, and usage in the region. In this context, Telefonica Latinoamerica is proactively accelerating the transformation of its wireline operations. Let me further develop this topic in the next slides.

During the quarter, customer growth accelerated by 1 percentage point from the second quarter, growing by almost 15% to reach 127m accesses. This strong operating performance explained the solid revenue evolution that increased almost 11% year on year in current euros. Operating income before D&A expansion exceeded the 10% mark. And the operating cash flow reached EUR3.4b for the January to September period, an 11% increase in constant currency in comparison with the nine months of '06 figure.

Revenues and operating income before D&A performance across the different countries are shown on slide number 15. At the top line level, almost all countries grew during the first nine months of 2007 in double-digit terms, with the only exception of Brazil and Ecuador, both posting single-digit growth.

In terms of operating income before D&A, most of the countries showed a positive performance. Brazilian operating income before D&A declined by 0.4%, excluding the one-off impact of PIS/COFINS during Q3 '06, as the significant improvement of the VIVO is not sufficient to offset lower profits at Telesp, which are impacted by higher bad debt provisions, lower traditional business revenues and higher workforce restructuring costs.

Mobile operating income before D&A growth in Peru was not enough to compensate the lower revenues in the wireline division, putting some pressure on the total country operating income before D&A.

Let me further develop our view on how we are accelerating the transformation of our wireline operations in slide number 16. Progress on broadband development is key for our strategy, both fostering bundles and increasing broadband speeds to enhance the use of value-added services. During the third quarter, broadband net adds grew by 8.3% annually, to surpass total retail connections 4.7m mark as of September, up 34% year on year. Let me highlight Colombia, where we have increased our broadband connections by almost four times.

Pay TV customers went up by 53% year on year. DTH represents already over 37% of the pay TV base, with this product offered now in four countries after the recent launch in Brazil. Pay TV is enabling us to offer triple play solutions that are showing to be key to limit the client erosion and keep our market share.

Let's now continue on slide 17 with the performance of VIVO. VIVO's biggest distribution network allowed us to carry on with the strong commercial activity during the third quarter of '07, with a focus in value and GSM. GSM accounted for close to 80% of the total customer adds in the quarter, with 22% of the client base now already using this technology.

Churn evolution has been very positive during the first nine months of the year, merely 0.6 percentage points versus the first nine months of '06, and doubling net adds despite only increasing gross adds by 25%. Hence, VIVO's customer base expanded by 9% year on year, topping 31.3m. The strong focus on value can be seen in ARPU evolution, which posted an annual growth of 8.9%, excluding the bill and keep effect.

As a result, service revenue in the first nine months of the year increased by 8.1% annually on comparable terms, mainly due to the very strong outgoing services, 17.8%. Revenue improvement, coupled with strict control measures, resulted in a 23.2% OIBDA growth on a like-for-like basis, expanding margins by almost 4 percentage points.

Let me now continue with our Mexican operations in slide number 18. Net additions and churn continued to trend very positively. Commercial campaigns are yielding strong results, leading us to add more than 2.5m new clients since the beginning of the year, or 2.3 times above last year's figure. And churn for the quarter improved 0.6 percentage points to hit the 2.5% level, better than the market leader. Last year, one-third of gross adds was translated into net adds, while this year the ratio improved to over 50%. So churn is key in our operating performance and our trend is outstanding.

Turning to key financial metrics, service revenues went up to 70% on a cumulative basis, pushed by outgoing service revenues, up 89%, as quarterly MOU increased by almost 66% to drive quarterly ARPU up by 14%. Despite the strong commercial activity, OIBDA passed the EUR110m mark in the first nine months of the year, benefiting from the increased scale reached with more than 11m customers.

In the next slide, we present a snapshot of the remaining mobile operations in the region. In Argentina, Venezuela, Central America and Uruguay our operations excelled, combining the strong customer increase with service revenue growth and margin expansion.

In Colombia, we are focused in reshaping our distribution network. ARPU expansion is driving service revenue growth, while profitability is improving to reach a 17% margin.

Peru delivered another strong quarter, though obviously the August earthquake has slightly restricted our commercial activity. Despite this, customer growth kept growing at a 60% pace, with a superb over 81% increase in outgoing service revenues. OIBDA grew at 20% in local currency, diluting margin by 4 percentage points.

Chile posted high-double-digit service revenue growth, outpacing customer growth. Higher efficiencies drove margin expansion by more than 4 percentage points year on year.

Let me finish with Ecuador, where the turnaround of operations is starting to show up as the new commercial offer is paying off in terms of usage. As such, the service revenue trend changed in the third quarter, mainly due to the improvement in contract outgoing service revenue.

Let's now move to Europe in slide number 20. Operating revenues went up by 14.2% year over year in the first nine months, to top the EUR11b (sic - see presentation) mark. The U.K. remains the main growth engine, driven by focus on higher-value customers, with a positive contribution from both Ireland, growing at 3% on a like-for-like basis, and the Czech Republic, also growing at around 3% in local currency.

OIBDA reached almost EUR2.9b, excluding the gain from the disposal of Airwave and including the restructuring charges from the second quarter, largely related to O2 Germany. These charges and the costs of this former cooperation meant OIBDA margin declined just over 3 percentage points on an annual basis, which is an improvement from the first half.

In the U.K., we are successfully managing the growth in margin balance, with the customer and ARPU growth along with an improving margin. In Germany, we are proactively taking a segmented approach, using new brands to address both mobile and fixed segments, and we're launching our own O2 DSL product, with continued positive results from the new Genion SML tariffs.

And in Eastern Europe, broadband, our fast-growing ICT revenues are offsetting the decline in the traditional fixed businesses in the Czech Republic. O2 TV users increased to 53,000 at the end of the quarter, while mobile revenue growth remained healthy at over 5%, focused on postpaid. The business in Slovakia has shown a solid progress, servicing nearly 500,000 clients by the end of September.

Please turn now to slide number 21 for a summary of O2 U.K.'s performance. The U.K. business maintained its momentum in the market, and both customers and ARPU growth were once again behind the healthy 10.2% rise in total revenues in the first nine months.

O2 U.K. ended September leading the market with 17.9m mobile subscribers, up 3.2% on an annual basis. The focus on client retention and contract customer growth has been at the forefront of the commercial strategy, pushing the contract customer base to 36.5% of the total base by the end of September, an increase of 1.4 percentage points.

Blended ARPU went up by 5.2% in the third quarter, with positive evolution of both usage and data ARPU, growing by 10.3% and 4.2% respectively. Within data ARPU, non-SMS data grew at over 20%.

January to September operating income before D&A margin stood at 25.7%, showing a steady increase over the year, as expected. Underlying OIBDA margin, excluding the EUR14.8m one-off headcount restructuring cost, was 26%. Margin in the core business will continue to improve, with new products such as O2 Broadband, launched on October 15, and the iPhone, launched just last Friday, helping margin in the fourth quarter.

In slide number 22, we present O2 Germany's results. From an operating standpoint, O2 Germany achieved the highest customer net additions for the September quarter, at 610,000, ending with a base of over 12m customers, up 14.5% versus September '06. Client growth was biased towards the pre-pay segment, which posted a 15.6% annual increase, helped by both Tchibo Mobile, now with over 1m customers, and our new Fonic brand, which has had a very successful launch. Genion SML tariffs continued to progress well, with more than 1.7m customers already signed up, delivering higher minutes of use and an ARPU around 10% higher than average.

Operating income before D&A margin stood at 17.5% during the first nine months, impacted by the restructuring charge of EUR96.5m in the second quarter. Excluding this charge, operating income before D&A margin was 21.1%, a clear improvement from Q1, as expected.

With our segmented approach in both mobile and fixed broadband, utilizing both the O2 brand and those of our partners, the businesses are well positioned to capture growth opportunities going forward.

In the Czech Republic, in slide number 23, the business continues to grow at a healthy rate of 3%, driven mainly by the mobile business but also helped by growing broadband revenues in the fixed business, offsetting the decline in traditional access and voice revenues. The trend in line loss is encouraging, helped by growth in broadband connections, driven by speed upgrades and bundled offers such as duos and trios. O2 TV customers exceeded 50,000 at the end of September.

In mobile, the proportion of contract customers in the base continues to grow, now at 43.5%, an increase of 6.1 percentage points, with blended ARPU increasing by over 3% year on year in the third quarter, driven by both increased usage and data ARPU, up 5% year on year.

Operating income before D&A margin declined by just over 3 percentage points for the first nine months, with around 2 points due to the impact of the Slovak operation, which reached nearly 500,000 registered customers at the end of September. Operating income before D&A margin in the fourth quarter will be stronger, due to the impact of the costs associated with the launch of the O2 brand and personnel restructuring costs which took place at the end of last year falling out of the base.

Please turn to slide number 24 to have an overview of the evolution of the Group's synergies. All initiatives to further integrate operations are running on track, building synergies of just more than EUR1b in 2007, which covers close to 90% of our guidance of EUR1.3b. More than 65% of the synergies have been generated in Latin America, as the original management of its operations started in 2004. In addition, let me highlight that close to 40% of the synergies achieved came from global, horizontal, cross-regional actions, leveraged by the coordination vehicles developed and the sharing of knowledge and experience.

Moving now to our financial profile, I want to highlight its stability in the middle of the financial turmoil. We have been able to keep our cost of debt below 5.4% of the total net debt plus commitments, with some basis points savings versus the first half of the year. So our nine months 2007 interest expenses were close to EUR2.1b.

On the foreign exchange front, we have kept our liability portfolio broadly unchanged except for two factors. First, following the Endemol disposal, we have been repaying euro debt. And secondly, we have increased our Czech koruna liabilities towards a more neutral stance, as it appreciated 4% versus the euro during the quarter.

Finally, we have been relatively quiet in the financing front in the third quarter, after having completed our refinancing exercise. However, we have issued Japanese yen bonds for around EUR180m equivalent and our Brazilian subsidiaries have raised more than BRL2b locally. And we have fully refinanced our commercial paper in euros, with no impact in either margin or term. This fact, coupled with the net debt reduction, has allowed us to keep the average debt maturity above the median level at 6.8 years, despite the passage of time.

Please turn now to slide number 26 to comment on our debt position. As of the end of September, we have reached our key leverage commitments set in May 2006 for the medium term, as our debt and commitments have dropped to 2.25 times annualized OIBDA, excluding extraordinary results from divestments. This ratio stands well below the 2.5 limit, just in the middle of the new target range.

Debt has been cut by more than EUR8b in the first nine months of the year, boosted by first the EUR2.7b (sic - see presentation) free cash flow retained after shareholder remuneration and, second, EUR4.9b of net investments and third, financial effects, including the EUR420m foreign exchange savings, mainly due to U.S. dollar and sterling depreciation versus the euro, accrued interest, EUR270m below payment, mark-to-market effects and debt deconsolidation following disposals.

We expect some leverage increase in the last quarter, as we have already paid EUR2.3b for our stake in Italian Telco, and we will pay more than EUR1.6b of dividends this Wednesday, on November 14. This dividend will add up to the EUR3.2b already dedicated to shareholder remuneration, to approach a total close to EUR4.9b paid during the year. We have devoted EUR1.8b for buying back shares in the first nine months of the year, and so we can say that our commitment has been fulfilled.

To sum up, first, our commercial momentum continues across countries and businesses, with total Group accesses increasing by almost 12%. Second, we are retaining benchmark organic growth from top to bottom, posting a 7.6% increase in sales and a 50.4% in earnings per share. Third, we are keeping efficiency improvements with OIBDA margin standing at 37%. And finally, we reiterate our fiscal year 2007 guidance.

With this, I thank you very much for your attendance and we are ready to take your questions.

(OPERATOR INSTRUCTIONS). The first question comes from the line of Damien Maltarp. Please go ahead with your question.

Thanks very much. Damien Maltarp from Cazenove. Two questions. Firstly, just on the restructuring provision that you've guided for the full year, you previously indicated EUR630m in Spain. Should we still be thinking about that number? If not, if it's lower, why might it be lower? Is there any slippage in terms of signing people up to the redundancy plan?

And the second question, just looking at your balance sheet, the short-term provisions and other liabilities has gone up by about EUR1.6b over the quarter alone. Is there anything particular within that that you can point to? Thanks a lot.

Damien, this is Antonio Viana. Good afternoon. On the redundancy plan, as you probably have seen in previous years, normally the fourth quarter is the stronger quarter in terms of closing up most of the redundancies. I remind you that this is the end of a four-year program, with an overall target of 15,000 headcount reduction. We are already -- from those EUR630m, we have already accounted for EUR160m until now, and we expect to have a stronger than the previous quarters activity in the last quarter.

Nevertheless, we may be short of the overall target, since, as I was telling you, this is an overall program for four years and this is the final quarter of this four-year program. But be sure that we will have a more stronger activity in this quarter, and we are still committed to try to reach that target, although it seems difficult and we will probably fall a bit short on it.

Yes. On the second question on the balance sheet, we're unsure. Would you mind repeating the question, so that we can locate the answer, please?

Sure, yes. Just looking at the short-term provisions and other liabilities in your balance sheet, just over the quarter to quarter, it looks to have gone up quite materially, by over EUR1.5b. I was just wondering if there was anything in particular you could point to that was driving that increase.

Can I ask you to -- I'll answer the question later on in the call, because we're double-checking the numbers. Okay? I'll get back to you on the question during the call.

Thanks very much.

The next question comes from the line of Terry Sinclair. Please go ahead with your question, announcing your company name and location.

Hello. It's Terry Sinclair from Citi. Two things. First of all, I noticed there was some strike activity in Argentina. Is that something that should be of any concern to us? Are there any other -- is there any other industrial action elsewhere in the Group?

Secondly, can you help me understand what's happened with Chilean margins? They appear to be falling in fixed and going up in mobile.

I shall answer your first question about the strike in Argentina. You know that the strike ended and we are now in the way of recuperating a normal operational activity in Argentina, and that is progressively happening. And we have no other strikes going in or around in the regions. So we can tell you that negotiations came to an end a month or something ago, and now we are trying to recover the normal operational trends in Argentina. So it's taking us a while to recuperate that activity, because we have a pending waiting list both in traditional lines and in broadband, and therefore we are accelerating this deployment. So nothing on that front.

And with regard to the Chilean margins, in terms of the wireline division, we are now, as you know, entering into a new business, which is the TV business which has lower margins. And that's affecting these first months of -- we started last year and it keeps affecting us this year, but we are progressively improving as we are achieving critical mass. And that's the main effect on the wireline.

And on the wireless, the commercial activity as we are reaching a higher and really, I would say, high degrees of penetration on the wireless, the commercial activity is more reduced. And then we are focusing more on loyalty programs and on our prepaid to postpaid migrations, and that's why margins are improving on the wireless. Those are the main comments.

Thank you very much.

Thank you. Next question, please?

The next question comes from the line of David Wright. Please go ahead with your question, announcing your company name and location.

Yes. Hello. It's David Wright at JP Morgan in London. Three questions, please, first of all on Latin America. The margin in Venezuela looked fairly exceptional, with a very -- looked exceptionally good, I should say, with a low number of additions. Is that the kind of benchmark for underlying margin we should now be looking at for your Latin American mobile operations in perhaps the two-player-dominated market? Is that the kind of mid-term margin you're looking for all of those operations to head to?

Secondly, in the O2 business, we saw strong net adds in Germany but a dip once again in service revenues. Now, is this a case of most of those adds coming in late in the quarter, so perhaps we should see some kind of a rebound in Q4? I think, Peter, you have mentioned in the past that you expect service revenue trends to go positive in Q4. Is that still the case?

And then just finally, maybe Santiago, you could give us a bit of guidance on full year P&L tax, given that very low rate of the nine months. Thanks.

Well, I will take the question of Venezuela. And the answer is that each country has its own specificalities, and therefore I don't think that we can extrapolate one margin from one country to the other. In the specific case of Venezuela, you need to take into account the fact that there is a lower intensity in terms of handset subsidy in that country. And on top of that, the on-net effect, traffic effect in our own network is very significant. And that are the two main levers of why the margins are what they are in Venezuela.

So therefore, in Venezuela, we see no major movement that can otherwise -- that could change, but I don't think that we can extrapolate that to the rest of the region, because each country has its own specific effects in terms of subsidies and in terms of traffic evolution.

Okay.

So far as the German question, David, it's Peter Erskine here. Obviously, a business takes a while to swing around and it's net adds throughout the year that drive it. So it's not so much that they were net adds towards the end of the third quarter, it's just that it was a very big number at three-quarters of the way through the year.

I think we still stick with the guidance, which allows either flat or ever so slightly minus for the whole year. But that will give us, we believe, in the last quarter, a quarter's total revenue, and that includes the DSL business as well as the mobile business, which is looking positive. But as to actually whether the service revenue or mobile will go positive, I think it will be around the guidance number for the year-end.

And I'd just put Germany in a context. It's green shoots. It's a good number. It wasn't just 610,000 customers that were poor quality. Within that, close to 40% were contract customers. And I think that, plus our improving DSL performance, starts to say that signs were slightly encouraging, but obviously we'll know more as subsequent quarters come along.

Okay.

Yes, David, in terms of the taxes, as you know, we do not provide cash taxes guidance. The one significant number that we have produced this quarter is this tax shield increase as a consequence of the Endemol disposal, which is going to result in an increased tax shield going forward and therefore lower cash taxes, not this year but in the coming future, once the tax shield gets depleted again. But we don't have any specific -- we don't expect, by the way, any big impact on the cash side of taxes until the year end, and so you can make your best guess as to where the cash taxes is going to be from now until the end of the year.

And in terms of the P&L tax, is that the kind of level we're looking at for the full year, the nine months level, or blended up a little?

Well, Q3 P&L effective tax rate is very low as a consequence of the very large tax credit coming from the Endemol sale again. So you should not expect that 13.7% to be happening again. We should reverse that to an average more commensurate with the first half of the year.

Okay. Super. Thanks.

Thank you. Next question, please.

The next question comes from the line of Robert Grindle. Please go ahead with your question, announcing your company name and location.

Yes. Hi there. It's Robert Grindle from Dresdner Kleinwort in London. Just on the iPhone in the U.K., will your iPhone revenues be reported net or gross of payments to Apple? And roughly what would that difference be?

The second question is what's the plan for funding Telco -- the holding company for Telecom Italia? Are you expecting still to contribute your share of any capital increase?

And then just on mobile data in Spain, sorry if I missed it but is it possible just to know the absolute number for mobile data in Spain in Q3? Thanks very much.

Thank you, Robert. Regarding the iPhone, I'm sure you hadn't intended it but your question could reveal our revenue share, and I'm not willing to do that. As to exactly how we report the number, we're currently working with our auditors to make certain that as the revenues flow we report it properly, so we'll be telling you more of that at the end of this quarter.

Yes. In terms of the capital increase in Telco, Bob, what's going to happen is that before the year end, now that the Telco deal has been completed, Telco will have to go to the capital markets to fund an increase in shares. We are determined to contribute our shares, and whether it is going to be through a capital increase or if it's going to be through further debt, is not something which has been decided at the Telco level. We are indifferent; either way, it fits us and suits us, but we'll have to discuss that with our Italian partners to understand what's best for all the Telco partners.

And on the mobile data in Spain, Robert, the revenues for the quarter on mobile data in Spain was EUR325m, to reach a cumulative of EUR930m for the whole of the year. The growth in mobile data revenues has been on the range of 13%, if I'm not mistaken, on that quarter compared to the same quarter of last year.

That's very clear. Thanks very much indeed.

Thank you.

Thank you. Next question, please.

The next question comes from the line of Mathieu Robilliard. Please go ahead with your question, announcing your company name and location.

Afternoon. Mathieu Robilliard, Exane BNP Paribas in Paris. I have two questions, please. First, in terms of your performance at the EBITDA level in Spain mobile, could you give us a little bit more color as to what is behind the good progression of the margin? Is it a lower SAC or SRC per unit, or is there some structural improvement in cost efficiency?

The second question has to do with the Telco deal. With that [behind half] and the fact that Telecom Italia mentioned potential synergies of up to EUR500m annually, I was wondering when, in your view, we should start to see those synergies flow your side. Thank you.

Mathieu, this is Antonio. On the mobile evolution in the case of Spain, well, we have stated from the beginning that you would see, as the year will go by, the impact of the different interconnection rate decreases. And as a consequence, if you add up the two decreases, the one in October plus the one in April, that has led to a decrease in the range of 14% on a cumulative basis. So, obviously that affects the level of revenue growth and as a consequence the margin as well. In terms of the third quarter and on the other side, you see also that this is the quarter where we have a stronger impact in terms of the roaming tariffs. But apart from that, we do not see any structural relevant change.

This is Julio Linares. Regarding your question in relation with the synergies with Telecom Italia, we had some exploratory discussions at the beginning of the year in order to identify the potential areas for synergies and identify in each area the amount -- roughly the amount of synergies that we could reach, both companies together. At that time we identified a yearly range with EUR300m and EUR500m for both companies. Now that the deal is closed, we have to go deeper in each area and, with the right information and with the right people, to analyze more closely the potential synergies before we are able to close a program for the measures.

If I can come back for a minute - this is Santiago - I want to come back to Daniel's question at the beginning. I can now confirm that the EUR1.6b increase in short-term provisions is fully related to the payment of the dividend, this Wednesday, of EUR1.67b. And the reason why it is sitting there is that once the dividend is announced, and it was announced, it is no longer freely available for the Company. So, it will be adjusted after the payment is completed this Wednesday.

Thank you. Next question, please.

The next question comes from the line of David George. Please go ahead with your question, announcing your company name and location.

Yes. Thank you. It's David George at Credit Suisse in London. A couple of questions, firstly on Spanish broadband. We heard some comments from Ono recently that they were seeing some more aggressive competition from yourselves in Spain, I think matching them a bit more closely on pricing and speed. And we did see, I think, a fairly weak net adds figure for cable broadband in the quarter. I wonder, is there a particular change of strategy in terms of how you view cable in Spain as a competitor and could we see that trend continue?

Secondly just in Germany, Peter, I wondered, firstly, I'm not sure if we've got an exact number of the Fonic brand adds in Q3. And also, wondered your expectations on the upcoming termination rate cuts in Germany. Is there a danger we could see the current amount of asymmetry in German termination reduced?

David, it's Antonio Viana. On the Spanish broadband, I will not comment on Ono performance. I would rather comment on our performance in the sense that what we have tried is to deliver what we have promised to our customers. We've had probably a consistent delivery in terms of service. We have expanded our range of products going, as Santiago pointed out in the presentation, from the 1Mb entry offer to the core offer at 3Mb and to the upgraded offer at 10Mb.

I think that also the numbers that we are providing in terms of Imagenio and the level of net adds that we're having in Imagenio on a market that is not growing as fast probably in the third quarter, due to all these soccer distribution wars that have occurred during that period in Spain, have also contributed for us to have a better performance than others. So, we are pleased with our performance. We want to keep on growing not only in the cable areas, but all over Spain with an offer that is consistent in the rest of the country. So, we are positive about the way our operations are growing. As I told you, I would not make any comment on the Ono performance.

And David, on your questions on Fonic, etc., we did 70,000 net adds of Fonic in September. It was only launched in September. And in fact, since then it's continued to do very well. It's pretty close at the end of October to around the 100,000 mark. So, it's going very well. It's also worth saying that in the quarter the Tchibo operation hit 1.1m customers and actually 191,000 net adds in the quarter.

So far as your question on German termination rates, we would -- we will know at the end of November, we think, and we would certainly anticipate lower than last year's 20%. Precisely how much lower, but we think significantly lower than last year's level is what we're anticipating. But it's currently, bluntly, all still in the melting pot.

Thank you. Next question, please.

The next question comes from the line of Will Milner. Please go ahead with your question, announcing your company name and location.

Thanks. It's Will Milner from Arete in London. Within your longer-term EBITDA growth forecasts in Latin America, are you forecasting Telesp EBITDA returning to growth in the year 2010? And what should we expect to drive this return to growth?

And then secondly, on Spanish wireline, what percentage of your broadband base in Spain do you expect to ultimately take the lower EUR30 offer? Thanks.

On the long-term OIBDA trend of Latin America, we are considering a slight increase in -- positive increase in OIBDA from Telesp, and therefore -- and that's why we were saying during the slides that we are accelerating the transformation of the wireline.

And if you take into consideration the fact that out of Telesp evolution of this quarter, you have one significant event that was positively affecting us here, the September figure, which was behind direct tax, the [discontinuance] effect, which was more than BRL300m and that significantly affected the year-on-year comparison. And on top of that, this year you have this negative (technical difficulty) that we have been carrying now during the last whole year of the bad debt evolution.

Those two are non-recurring events. And therefore, we think that this, jointly with the fact that we are accelerating the transformation of Telesp in terms of deploying a network upgrade and in terms of diversifying the different platforms in order to offer triple play offers, now we have the TV agreement being signed, we have the global content and therefore we are very competitive in terms of the content part of our TV offer in Brazil, and the continuous efficiency effort that we are carrying out in Telesp, we have introduced more than 800 people in the workforce here, we think that we should be able to turn around the Telesp situation in the short term.

On the broadband base and the 1Mb, I think that the 1Mb offer has a very clear purpose, which is to expand our broadband customer base. That is clearly the purpose of launching the 1Mb offer. From there on, what we want is that the customer has new sort of customer experiences using increased speeds. So, as we pointed out in the Investors' Day, our target is to have around 6.1m, 6.8m customers on broadband by the year 2010. And I can't tell you what would be the percentage of 1Mb, but by 2010 having 1Mb will be the same as having narrowband today. So, it is really an entry product to increase the customer base and then the customer will by itself, as it becomes a heavier user, will require extra speed.

Okay. If I can just follow up, you don't then see any cannibalization risk of your existing broadband base from this product?

Well, obviously, if a customer decides to abandon our service, this is also a retention product to retain some of those customers. But as I told you, the core of our offer is centered around the 3Mb offer.

Okay. Thank you.

Thank you. Next question, please.

The next question comes from the line of Stanley Martinez. Please go ahead with your question, announcing your company name and location.

Thanks. Good afternoon. It's Stanley Martinez from Legal & General Investment Management in Chicago. I have two questions, if I might, please, first for Mr. Pallete on Latin American ARPUs. Can you discuss the pricing power you have in local currency terms within Latin American countries with high inflation? Last quarter in Argentina we saw some impressive ARPU growth, in TASA and TEM Argentina, but less so in TEM Venezuela, where ARPU is a higher percentage of per capita income. I'm wondering if there is a further spike in local price inflation in these two countries or elsewhere in Latin America, say in the order of magnitude of 10%, for instance, to what extent you feel your local managers can pass along those costs so as to minimize any dilutive impact on Telefonica's Group results in euros.

And then I have a question for Mr. Valbuena on debt targets. When I look beyond the Q4 commitments, and even when incorporating the new dividend policy announced in London three weeks ago, Telefonica has the potential to be sustainably below 2 times net debt to OIBDA over the next couple of years. Now, you've been clear about targeting high BBB plus minimum ratings rather than trying to return to the A ratings you had prior to the MMO2 acquisition. Should I presume that any excess debt capacity below 2 times leverage will divert to acquisitions? Or might we actually see Telefonica's leverage below 2 times for a few quarters into the new fiscal year? Thanks very much.

Taking the first part of your question in terms of the ARPU and the linkage with local inflation in each of the countries, I would like to say that yes, of course, we are influenced by the local inflation. But in most of the cases, this is much more linked to the effort in terms of minutes of usage that we are doing in every single country.

In order to give you some example, what you have stated about Argentina and Venezuela is true. But ARPU is also growing, for example, in Brazil or Chile, where inflation is much more contained. And that's much more linked to the fact that we have been able to put in the market an offer that is attractive to the customer in terms of elasticity, in terms of number of minutes versus price per minute. And therefore, we have room playing with the elasticity and the value proposition that we are making to each country -- in each of the countries to drive that effort up.

So, yes, of course, it is affected by inflation, but it is not directly affected. You are finding cases where lower inflation are low enough to have ARPU that are significantly above the inflation in each of the countries.

Okay. Staying on the debt targets, we're very happy to have been able to reach the target that we had set for ourselves, so bringing total debt leverage ratios below 2.5, and this has been accomplished already. We've said during the call that there might be a small pick-up in that leverage ratio in Q4 of this year, as a consequence of paying the dividend and the recent payment of Telco.

And medium term, we feel very comfortable with the BBB plus rating that we have secured for the time being, and we think this is broadly compatible with a 2 to 2.5 times debt over OIBDA leverage ratio. Should we have any reason to think that that ratio ought to be adjusted in permanent conversations with the rating agencies, we will review it. But we think this is not likely to happen, a revision to those targets I mean, over the next couple of quarters.

So, while we get there, the priorities that we set for ourselves in London were quite clear. Any excess cash flow and excess free cash flow, I should say, is going to revert back to the top priority, which is shareholder remuneration. And we will go down that ladder again by increasing shareholder remuneration in its various incarnations, then dealing with debt if that is needed and then attending the acquisitions. Shareholder remuneration continues to be our top priority, once we've completed the ladder.

Fair enough. Thank you.

Thank you. Next question, please.

The next question comes from the line of Randall Pollock. Please go ahead with your question, announcing your company name and location.

It's Randall Pollock, Vanguard Group, Philadelphia. Just a follow-up. Do you expect to issue new debt next year in any market or to refinance or whatever?

And also a second question. Can you discuss how you're obtaining content for -- non-sports content for broadband and mobile phone? And any comment on costs and its impact on margins?

Yes. On the debt issue, we have net maturities of EUR2.7b next year. It is not impossible, but it's not a set plan and we will visit the whole market. That will crucially depend on the characteristics of issues and the timing. We've been calling on the capital market since we financed the O2 acquisition. We certainly intend to keep it that way. But the point I want to get across is we are under no pressure to do so, because free cash flow generation would be more than enough to accommodate, plus the cash at hand, to accommodate those maturities. But we want to be perceived as frequent benchmark issuers in the various capital markets. So, again, no set plans but yes, a strong likelihood that if the markets are reasonably open, we will be there in the major currencies, including euro, sterling and certainly the dollar.

Would you mind to repeat your second question, please?

Could you discuss how you're obtaining - your plans to obtain entertainment content for mobile and broadband, and any comment on costs in backlog costs?

Regarding your -- this is Julio Linares. Regarding your question on content, first of all, we decide the kind of content we need depending of the local markets. But in addition to that, we have joined negotiations based on a centralized jury that takes care of all the content negotiations for any platform, regardless if it's Internet platform, TV or mobile platform. In our negotiations, basically we are trying to reach agreements with the content providers based on a relative sharing or based on cost per subscribers or user basis rather than to pay upfront content. We have just those kinds of upfront agreements in very special cases, like it could be soccer rights or some movies for our video on demand offer. So, basically, we are always trying to reach agreements with the content providers based on sharing with them the risks we have in those packets.

Is there a central purchasing or is there separate purchasing in each country?

There is a central purchasing unit that takes care of all the negotiations for the different countries, in cooperation with local market but there is a central unit in our corporate center.

Thank you very much.

Thank you. Next question, please.

The next question comes from the line of Guy Peddy. Please go ahead with your question, announcing your company name and location.

Yes. Hello, gentlemen. It's Guy Peddy from Blue Oak in London. Three very quick questions. I note in Telefonica Espana's wireless business a dramatic increase in pre-pay usage in the quarter, but actually a decline in contract. I wondered if you could explain what was driving pre-pay that wasn't driving contract usage growth.

Secondly, interpreting Peter's comment about the O2 Germany turnaround, it would appear as if you're signaling, Peter, that big things like this don't turn around quickly. So, perhaps we should be waiting well into 2008 before we actually see a discernible turnaround at O2 Germany. Is that the case?

And finally, in Telesp it seems like in reading your talk that there's an ongoing value shift from Telesp to VIVO, which from a Telefonica perspective is clearly the wrong way. I'm just wondering what you can do to actually reverse this, because it's fair to say that IPTV and triple play bundles in most countries haven't had a discernible change on any wireline operator. Thank you.

Okay. This is Antonio Viana. Let me address the usage issue on Spain. What you see in the third quarter had nothing of a long-term trend. It is nothing but what occurs in the summer. What you had in the summer was a campaign clearly directed at pre-pay. By paying a small fee you would be able to talk every night during the summer from 10pm on a flat rate. So, as a consequence that has increased, happily, the usage in the summer. We're extremely happy with the kind of results that we have achieved in terms of the acceptance of the customers for that sort of campaign. And for the results that we have (technical difficulty) that also helps in terms of maintaining a better churn in terms of the pre-pay cycle.

The comparison that you're making with the contract side is that obviously in August here in Spain the consumption from corporations drops dramatically. And if you look at other third quarters in previous years, you'd probably see a similar trend. But there's nothing else but that, just the effect of the summer season in that. And that's why then there's nothing graphically different or structurally changing.

Guy, it's Peter Erskine regarding your German question. No, I didn't mean to say well into 2008. I'm sorry if I misled. It's an encouraging quarter we've just had. As well as the headline 610,000 net adds, we also have Fonic as a new brand kicking in, in its first six, seven weeks, 100,000 net adds. That does go into October. It was 70,000 in September, is encouraging. To have DSL now starting to give us an order bank of about 4,500 a week, that we now need to be quicker to install on DSL, is encouraging. To have the Genion base now on the new tariffs, we've got about 1.7m customers within our total post-pay base. To have 40% more minutes of use and 10% ARPU is encouraging.

I think the fourth quarter is on the back of quite a good fourth quarter last year, which had some good numbers in there, will be challenging. I think we've made -- we'll especially start to see continued improvement but zero debate. This isn't well into 2008. We'll see a quarter-on-quarter improvement. And I remain very confident that we're doing all the right things and by early next year we'll be starting to say, yes, it's well on the road to recovery and we're getting back to good revenue growth and obviously working at improving the margin.

Hi, Guy. With regard to your third question about Telesp and the competitive environment in Sao Paolo and VIVO, I would rather say that we think we have the two best platforms in telecommunications in Sao Paolo, both Telesp and VIVO. The competitive scenario in Sao Paolo is very aggressive in terms of pricing power to the voice on one side. And we have been able to be fully prepared for that, thanks to the turnaround of VIVO. So, right now, compared with a year ago or two years ago, we have the opportunity to share that upward trend at the level of VIVO.

And at the same time, in Telesp that's a trend that is unavoidable, because of that market competition and scenario in Sao Paolo. But we have all the elements that were needed or that are needed to turn around Telesp that were not there a year ago. Remember that during the last year we have been able to complete this year/year process. We have been able to reach the agreement of the content providers that is differential and that we need to have that for our offer to be competitive. And we are delivering broadband in Sao Paolo.

So, we really think that we have the best platforms in the most attractive state of Brazil, in order to be competitive and in order to be -- to take advantage of what's happening there in terms of market dynamics. So, I think that we should be able to take the best out of the two worlds.

Okay. Thank you.

Thank you. Next question, please.

The next question comes from the line of Chris Connor. Please go ahead with your question, announcing your company name and location. This question appears to be withdrawn. The next question comes from the line of James McKenzie. Please go ahead with your question, announcing your company name and location.

Yes. It's James McKenzie calling from Fidentiis in Madrid. Just a question on LatAm fixed line generally. You seem to have seen a big fall in EBITDA margins this year, not just in the third quarter, which was obviously motivated by the tax recovery, but generally margins seem to have fallen from high 40s to the low 40s this year. Now, I know it's something that you don't specifically guide upon, but what are you -- I don't know if you can give us any idea of what you're expecting for these margins going forward, particularly considering that in the two biggest countries you haven't actually rolled out any pay TV as yet.

Well, thanks for the questions, James. It is so that the margins of the wireline this year have been affected. But I would like also to correct those by the bad debt impact of Telesp here, which is supposed not to be recurring and that we have been carrying out during these three quarters of the year.

Yes.

So, that's one of the effects. And the other effect, and it's probably the most longer lasting one, is the fact that we are entering into new markets, into new products, like the one in broadband has a different margin and also TV, mainly in Chile and starting to appear in Colombia and also starting to appear in Brazil, has lower margins.

So, I think that we need to focus on the kind of margins and the blended margins that we are getting these days. And we are able to sustain those and even to try to do those volume effects with the regionalization efforts that we are carrying out. Most of the synergies are directly devoted to sustain the margins, especially on the wireline side. And also, the efficiency effort that we have been carrying out during the year and that, by the way, has been fully reflected in terms of the OIBDA margin, [has boosted the] margin, has also there and that's also impacting the margins this year.

So, I guess that the transformation effort that accounts for both the new offer of products and this efficiency effort that we're carrying out, jointly with the non-recurring event of the bad debt evolution of Telesp, are the key to explain the margin evolution on the wireline.

Sure. Do you have any feeling for us going forward of where the margins are going to stabilize, rise or even fall from this point?

I'm afraid not. You're going to have -- see different effects. One is that the key offer, the key client base, is reaching critical mass, the margins are improving. And that happened, for example, and that's the case in Chile. Also, churn is reduced. You will see that churn, both in traditional and in broadband, is quite stable all along this year in Latin America, and this is basically due to the effect of the bundles of products. So, you will have from that part margins being sustained.

On top of that, you need to add the fact that the regionalization efforts, both in terms of central network supervision that is basically Telesp, or the IT effort that we have been carrying out in (inaudible), is also going to pay off during these coming months. So, I would say that we are continually focusing on that, but I don't think we can guide you on the long term.

Fine. That's kind. Thank you.

Thank you. Next question, please.

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

Yes. Good afternoon. Luigi Minerva from HSBC. I just wanted to have an update on your discussions with the Spanish regulator on the NGA program you announced at the Investors' Day. You told us that November was going to be the time for the first feedback. Thank you.

Thank you, Luigi, for your question. Well, we have put our points of view, as did other operators, to the regulator in terms of how we think that the regulation of the new generation networks should be established in Spain, differentiating it clearly from the traditional network and also having a differentiation depending on the alternatives regarding different networks or alternative networks in specific regions of Spain. And as a consequence, that sort of segmentation should be required when considering how to address regulation in that front.

We are still waiting for the view of the regulator. We know that others have converted to our opinions and now we still have to wait for the regulator to come back with his own view. So, I think that we'd better wait for his final view on this issue.

Okay. Thanks.

Thank you. Next question, please.

The next question comes from the line of Jonathan Dann. Please go ahead with your question, announcing your company name and location.

Hi. It's Jonathan Dann from Bear Stearns in London. Two questions. The first was could you disclose the year-on-year change in gross additions in the German mobile business? I think you've disclosed it for all the others.

And secondly, could you comment on when you'd expect the U.K. DSL business to be posting the type of weekly DSL adds that Germany's currently doing?

And thirdly, do you think German DSL adds can accelerate for the O2 broadband brand?

I'll do those in reverse order. The German ADSL, yes, we're very certain we can accelerate that. We really only started to sell this proactively in July/August. That also ran into the Deutsche Telekom strike, which slowed us down a little bit on installations, and the usual getting the systems refined. So, we remain quite confident that we can ramp up the German DSL.

We're not saying when the U.K. can get to those levels. To put it into context, we've been selling DSL in the U.K. now three weeks. We've committed that we will do more than 1m customers by 2010 and we're remaining very confident in that. But I think exactly when we'll start to hit the kind of run rates that we're getting in Germany, no, we're not in a position to say.

I've got people rapidly giving me the gross -- sorry, hang on one second, will you, please. The gross year-on-year increase, 79%.

Thanks very much.

Thank you. We have time for a last question, please.

The last question comes from the line of Christian Kern. Please go ahead with your question.

Hello. It's Christian Kern here from Lehman in London. Three questions, if I may. The first one would be on the roaming revenues. You pointed out that domestic roaming revenues have been down 14%. That implies, given the drastic price cuts, you have seen quite a strong elasticity. Could you confirm that and what you've seen around that trend?

Secondly, what do you expect from Brussels tomorrow?

And the final one, does OTE look more or less attractive after the transaction last Friday? Thank you.

Well, Christian, on the roaming, what I mentioned regarding the 14% drop in terms of pressure was really to termination, not to roaming. It was really the termination prices.

On the roaming front, what we have seen in the third quarter is that you have clearly two different markets. On the roaming end market, it has been traditionally a very competitive market with the different operators here in Spain trying to compete for the traffic of major operators in Europe. So, it was already a very competitive market to that extent, so the impact has been not that strong as probably one could expect.

On the roaming element, I think that Santiago pointed out in one of the slides that the major effect that it had was that we have now more roamers. More of our customers are doing roaming out. That is that the number of roaming out customers has grown at a rate that is double of the growth on the customer base. And that's quite a positive sign, to the extent that people are getting used to roam out, to use their mobile while they are out of the country. So, that has changed the -- or is starting to change the perception of people that roaming is too expensive and people are starting to behave differently, and that obviously is translating into a better traffic.

Is elasticity higher than [one] throughout -- for the time being, no, but the overall effect, I think that it's already included in the kind of growth that we have provided and that we feel comfortable with the economic scenario that it has translated on this roaming front.

This is Julio Linares. Regarding your question on tomorrow's announcement of European Commission, we believe that they are going to announce a new proposal for the review of the current telecommunication directives, that they will include new policy for spectrum management. They will include some stretching of the European Commission regulatory power. We don't know yet to what extent. And they will include some extension of privacy and consumer protection rules.

In addition to that, they are going to review the European recommendation on relevant markets. You know that today there are 18 relevant markets and it is very difficult right now to see whether that number is going to be reduced to seven, eight or nine. We don't know right now, but we are expecting a significant reduction in any case.

And in addition to that, it may happen that they announce a set of initiatives for 2008 regarding the timelines for optical fiber deployment and investment, guidelines for national segmentation and guidelines for universal services. That's the kind of announcement that we are expecting tomorrow.

And your last question, if I understood you correctly, we do not see anything changing in the landscape related to OTE or other targets. We were quite clear in our Investor Day that the time has now come for us to strengthen the markets we already have. We have already built on the strength and it is building on that strength that has taken us to where we are. The scale is enough. And so I'm sure they will be very worthwhile assets, but those are going to be for many others to explore.

Let me with this bring this call to an end, thanking you all for having attended and expecting you all at the next full year results, which will take place in early 2008. Thank you.

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