Telefonica SA (TEF) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Telefonica's 2007 full year results conference call.

(OPERATOR INSTRUCTIONS)

I would now like to hand over to Maria Garcia-Legaz, Head of Investor Relations. Please go ahead, madam.

Good afternoon, ladies and gentlemen, and welcome to Telefonica's conference call to discuss 2007 full-year results. I'm Maria Garcia-Legaz, Head of Investor Relations. Before proceeding, let me mention that this document contains financial information that are reported under IFRS. The financial information contained in this document has been prepared under international financial reporting standards. This financial information unaudited and therefore is subject to potential modification.

This presentation may contain announcements that constitute forward-looking statements, which are not guarantees of future performance and involves risks and uncertainties and as such 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 the slides, please contact Telefonica's investor relations team in Madrid by dialing the following telephone number 34-91-482-8700. Now let me turn the call over to our Chairman, Mr. Alierta, who will be leading this conference call.

Thank you, Maria. Good afternoon, ladies and gentlemen, and thank you for attending Telefonica's 2007 full-year results conference call. First, let me introduce Santiago Fernandez Valbuena, Telefonica's Chief Financial Officer, with whom I will share the review of the group's performance. During the question and answer, you will have the opportunity to ask questions directly to our executive committee, as I have today with me Julio Linares, Chief Operating Officer, Guillermo Ansaldo, Head of Telefonica Espana, Jose Maria Alvarez-Pallete, Head of Telefonica Latinoamerica and Matthew Key, Head of Telefonica Europe.

Before turning to the numbers, I would like to stress that Telefonica equity story remains very solid, combining strong fundamentals and high returns. The results we are presenting today, the guidance for 2008, and the announcement of a new share buyback program reinforce our differentiated profile in the industry, a profile that shows our strong track record of execution in a growth industry with tangible results.

First, we have again delivered on our commitments, meeting or exceeding our ambitious targets for 2007. Second, we continue to outperform our peers, extracting value from our well-diversified asset portfolio, the deeper integration of our operations and our scale. Third, we have materially increased shareholder remuneration, raising dividends and launching a new share buyback product. And, finally, we are again set to post very solid results both in 2008 and in the long term.

Let me now review this topic in detail. The slide number four shows a summary of 2007 P&L. Consolidated revenues grew by close to 7% year on year to top [EUR56.4] billion. In organic terms, sales went up by 7.4%, positioning Telefonica at the top of the circles in terms of top-line performance.

2007 OIBDA exceeded EUR22.8 billion, up close to 20%, or 7% in organic terms, showing the benefit of scale and higher efficiencies achieved through our integration of [Manachavan Mobile]. Operating income surpassed EUR17.3 billion, equivalent to a 42% nominal growth rate, or more than 18% when translated into organic terms. As a proxy to cash flow generation, operating cash flow topped EUR14.8 billion in 2007, up 33% on 2006 figures. Operating cash flow organic growth was 12% in 2007. ForEx negative contribution to major financial metrics growth stood in the 1.1 to 1.4 percentage points range.

In summary, a very strong rate that has sped up from top to bottom line. The operating income growth flowed directly into a very solid net income increase, as presented in slide number five. Net income amounted to EUR8.9 billion in 2007, 43% more than a year ago. Reported earnings per share reached EUR1.872 per share, up 43% annually, while excluding the impact from [PTS], earnings per share will reach EUR2.012. Reported free cash flow per share totaled EUR1.859 in 2007. These figures are totally in line with our target of doubling reported earnings per share and free cash flow share by 2010 from 2006 levels.

And we continued to deliver on our commitments, as we present in slide number six. I would like to highlight that once again we have met or exceeded our growth targets, targets that had been upgraded along the year for the third year in a row. Revenues and OIBDA growth reached the top end of the guidance, while operating income exceeded by four percentage points the high end of the target.

CapEx came in line with our estimate of EUR8.1 billion. We delivered at the group level with all the business lines meeting their respective growth commitments in 2007. The slide number seven plots the reconciliation between reported and adjusted for guidance 2007 OIBDA figures. As you know, we are implementing restructuring measures that will increase efficiency in the future years. The impact of these measures on our numbers are explained in detail on this slide.

Group diversification and subscriber growth, which are key to reliable results, are outlined in slide number eight. Telefonica continues to manage current industry levers, capturing new customers, extending their usage patterns through bundling offers across all the markets. In 2007, we add close to 26 million accesses to reach almost 229 million accesses. Broadband, pay TV and mobile expansion are the key drivers of customer expansion, posting high double-digit growth rates.

In addition, our initiatives to capture more value from our customers are finding their way, with 34% of our total accesses having voice, broadband and TV bundles. From a regional perspective, Latin America continues to be the main revenue growth engine, increasing close to 13% year in organic terms, to account for more than 50% of Telefonica's top-line expansion. Spain and the rest of Europe represented more than 50% of group sales and continued to post mid-single organic growth rates. This explains the remarkable 7.4& organic revenue growth at group level.

Turning to slide number nine, in 2007, group profitability remained heightened, as we kept a stronghold on cost while driving strong commercial activities. Organic growth in operating cost was cut by close to two percentage points in 2007 to just 7.2, below sales organic increase due to the higher efficiencies achieved. As such, Telefonica's OIBDA margin stood at 35.8%, practically flat year on year.

Slide number 10 reviews CapEx and operating cash flow generation. 2007 total CapEx reached EUR8 billion in nominal terms, with 75% of this figure dedicated to growth and network transformation. A strong CapEx effort is encompassed with high operating cash flow generation, enhancing the ratio of our revenues to close to 22%. Operating cash flow grew across all the regions, leading to an 11.8 year-on-year organic increase at the group level, to reach EUR14.8 billion. And now let me hand the call to Santiago.

Thank you, Cesar. Ladies and gentlemen, please turn to slide number 11 for a review of our regional business units that we start with Telefonica Espana. Let me first highlight that the fourth quarter has been just another quarter within the 2007 year, with a strong commercial activity and revenue growth in line with the first nine months of the year.

The business has exceeded all announced targets, with revenues growing 4.7% and OIBDA 11.6% on guidance terms in 2007. This year, we have completed the 2003 to 2007 redundancy program in the wireline company with the provision of EUR229 million in the fourth quarter of '07, and we have already launched and started a new program for 2008 as part of the ongoing integration process of the wireline and wireless operations.

This has led to an additional provision of EUR322 million in the fourth quarter of '07, which takes the total '07 provision to EUR667 million. While this charge has reduced OIBDA growth in the short term, it is paving the way for enhanced efficiency metrics in coming years. In that respect, notice the 5.6% [underlying] OIBDA growth in '07, showing the outstanding business performance throughout the year.

Slide number 12 shows the result of the wireline business's commercial strategy, focused on upselling to our existing customer base and expanding accesses. Fixed telephony accesses evolution in the fourth quarter was outstanding, with positive net adds of 33,000 lines, losing just 0.3% of the lines in 2007. This is our best performance since 2001.

In broadband, we maintained our market share above 56% and reached 4.6 million retail clients, or 22% better than a year ago. With the recently launched new products, we are ready to lead the broadband growth opportunity, having products targeting all segments, high end, with the 10 to 30 mega connections to be enhanced through 2008 with products based on fiber and [ADSL], our referenced three mega offering and the range of one mega products for the lower segment.

In the pay TV market, we surpassed 0.5 million clients, increasing our share of the market to just below 13%. This has resulted in both higher ARPUs, which have gone up 5% to EUR67 and increased revenues.

Turning to slide number 13, revenue growth of 3.7% in Q4 was similar to the first nine months. Traditional access and voice revenues are showing an improved performance, flat on '06 fourth quarter figures. The excellent telephony access evolution, together with the monthly fee increase are the basis for a differential business performance enhanced with broadband, data and IT growth.

Broadband remains the growth engine at revenue level with over 800,000 retail net adds in '07 and a resilient ARPU at EUR45. Adding data and IT revenue growth we get to the 3.7% total growth in revenues, exceeding the guidance and standing out among European peers.

In the next slide, slide number 14, we show that the almost 15% reported OIBDA growth and how it is affected by the lower provisions related to workforce reductions in '07 versus '06. If you strip out this effect and you adjust it for one-offs at the 2007, you find among others OIBDA growth stands at 5.1%, showing the sound underlying performance of our business. OIBDA growth exceeded revenue growth by 1.4 percentage points, as higher efficiencies have been achieved. According to guidance criteria, OIBDA grew by 15.8%, or at the top end of the guidance.

On slide number 15, we continue with our mobile operations in Spain, which posted very strong commercial results, both in the fourth quarter and for the full year. In 2007, we led the growth in the market, achieving higher net adds than any of our competitors and sustaining our undisputed leadership. In the fourth quarter alone, our net adds reached 407,000.

The Christmas campaign was very strong, with a different approach versus last year. We moved from short-term traffic promotions to a campaign focused on customer loyalty that will continue paying off in the next few quarters in churn containment. We focused our efforts on value growth, recording an excellent performance in the postpaid segment, with 1.5 million net adds in the year and contract customers growing over 4% versus December '06, to represent close to 60% of our base. The churn rate has not only been outstanding, but also a differentiating factor in a year where we have seen the fourth player and nine MVNOs entering the Spanish market.

On the next slide, we review usage patterns. In 2007, outgoing ARPU remained almost flat with growth in data ARPU offsetting voice ARPU pressure. Data ARPU growth continued to be driven by the strong increase in connectivity revenue, up 72% on a yearly basis. Cumulative termination rate cuts in the year of 14.9% hit incoming ARPU, resulting in a 1.8% decline in total ARPU. As M2M takes more weight in our customer base, it is worth having a look at outgoing ARPU performance, excluding this rate, which for the whole of 2007 posted positive growth. In the last quarter of the year, we led the push on 3G, adding close to 700,000 3G customers, reaching 3.5 million, or 16% of our customer base, up 10 percentage points versus December '06.

In slide number 17, we show that we have met our guidance in terms of both service revenue and we have exceeded the OIBDA underpinned by the strong 6.5% advance in customer revenue, fully backed by the customer base growth. Incoming revenues including both interconnection and roaming in declined year on year due to mobile prices. Regarding profitability, a EUR154 million provision has been recorded in Q4, leading to a 2.8% growth year on year. Excluding this one-off, OIBDA would have grown 6.5%, ahead of the committed 4% to 5% guidance and expanding margins on the good quality of revenues.

In the next slide, you have a reconciliation of how to get from the 2007 reported OIBDA to 2007 OIBDA for guidance comparison, should you want to check those numbers out for yourselves and verify that we have fully delivered.

Let me now start to go through the review of our Latin American properties on slide number 19. The commercial activity in the region remains very strong. Mobile penetration surpassed the 70% mark in December '07 and over 12 percentage points increase in the last year. In the fourth quarter of '07, we achieved record mobile net adds of close to 7.3 million, up 61% year on year. Customer growth accelerated to increase by almost 17% versus December '06 and surpassed the 134 million accesses mark, driven by wireline, broadband and mobile services.

This strong operating performance led to a solid revenue evolution that increased 11% year on year in current euros on the back of a robust 6% mobile ARPU capacity in the year of well ahead of the indication given in London. Reported OIBDA expanded by 8.4%, impacted by personnel reorganization that reached close to EUR320 million in 2007. Excluding this charge, OIBDA would have increased by 11.8%. Operating cash flow in the year almost reached EUR3.8 billion, with positive cash flow generation in all the countries except Mexico.

Revenues and OIBDA performance across the different countries are shown on slide number 20. The top line performance has been robust along the year in most of the countries where we operate, reaping the benefits of our business diversification. Regarding operating income before D&A, please take into account the personnel reorganization programs in place, as the reported OIBDA growth figures of the integrated operators are impacted. All countries show a positive performance, with the exception of Brazil, where the bad debt provision in Telesp and the new revenue stream with lower margin are hitting the profitability.

Let me now share with you how we are accelerating the transformation of our wireline operations in slide number 21.

In the fourth quarter of '07, broadband net adds reached 332,000, or up 19% year on year. Total retail broadband connections surpassed the 5 million mark in 2007, for a 33.2% increase on an annual basis. This progress on broadband development is key to our strategy, both fostering bundles and increasing broadband speeds to enhance the use of our value-added services.

Growth in pay TV was even higher this last quarter of the year. Net adds were over three times those of the fourth quarter of '06, partially due to the incorporation of TVA customers. Pay TV is enabling us to offer triple-play solutions, key tools to limit the pressure on the traditional fixed line business. Let me also highlight the strong increase in bundles, which already represents 53% of our fixed accesses, 15 percentage points better than in 2006.

Let me now review our mobile operations in Brazil in slide number 22. Vivo's performance in the last quarter of the year has been robust in a highly competitive market. Vivo leveraged its high-quality networks, commercial channel and strong brand awareness to increase gross adds by 56% in the first quarter of '07, 83% of them in GSM. Churn continued to go down, to reach 2.1% in the fourth quarter, allowing to increase last year's fourth quarter net adds by 6.6 times. In 2007, Vivo grew its customer base by 15%, topping 33.5 million.

ARPU evolution was also outstanding, up 14.5% year on year, or 6.6%, if we exclude the bill and keep impact. This brilliant operating performance translates into an 18% growth in service revenue on the back of outgoing service revenues that accelerated their growth rate in the last quarter of the year. Revenue growth, coupled with strict control measures resulted in a 30.8% OIBDA growth on a like-for-like basis, expanding margins by almost three percentage points.

Now, on slide number 23, we continue with our Mexican operations. Fourth quarter commercial results have been very strong on the back of new innovative and competitive products. Gross adds in the last quarter of the year increased 31% to reach 2.3 million. Churn continued its positive performance against the market trend and came down year on year to stand at 2.5%, driving net adds up by 32%.

In 2007, we gained close to 4 million customers, expanding our customer base by 47% to surpass the 12.5 million mark. Let me remark the good performance of churn on a yearly basis that allowed us to translate a 43% increase in gross adds in the year into an 82% advance in net adds. Our usage patterns continue their strong momentum. In 2007, minutes of use soared by close to 80%, leading to a 16% ARPU increase, a very positive trend in the Mexican market.

This robust operating performance drove outgoing service revenues up by 82%. Despite the strong commercial activity, 2007 OIBDA reached EUR179 million, a 12.5% margin versus the negative figures registered in 2006. Operating cash flow improved significantly in 2007, from minus EUR191 million to minus EUR51 million, though it is still impacted by the stronger investment efforts made in 2007. And in the next slide, we review our other Latin American mobile operations.

In Argentina, Venezuela, Uruguay and Colombia, outgoing service revenue growth in 2007 outpaced customer growth. Let me highlight Colombian performance, where fourth quarter outgoing revenue growth excelled the yearly performance. This strong revenue growth, combined with efficiency advances, led to margin expansion.

Peru's commercial activity has been very strong, leading to the highest customer growth in the group. Revenues and OIBDA grew steadily, though margin was diluted due to the high commercial activity. In Chile, the most mature market in the region, we achieved strong ARPU advances that led to a 23% growth in outgoing service revenue.

Now let me finish with Ecuador, where the turnaround of operations is showing up. Usage is increasing, a 16% increase in fourth quarter outgoing service revenue versus the minus 1% growth recorded in the first nine months of the year. Therefore, for the whole year, 2007 service revenue remained flat.

Let's now move to Europe, starting with slide 25. Revenues went up by 9.9% year over year, to almost EUR14.5 billion. Excluding Airwave, revenue growth was 11.7%, in line with guidance.

OIBDA reached almost EUR5 billion, excluding the gain from the disposal of Airwave. Excluding personnel reorganization and other unforeseeable charges, OIBDA would be around EUR4 billion, representing growth of over 10% at the top end of guidance. Personnel reorganization implemented across the group during the year, plus the cancellation of the T-Mobile national roaming agreement, as we accelerate the buildout of our own network, gave rise to a one-off charge of EUR338 million in 2007.

CapEx was below guidance and fell almost 17% year on year due to the exclusion of Airwave and 2007 CapEx brought forward into 2006 for both O2 Germany's 3G network rollout.

Turning to slide number 26, the UK business continued to outgrow the market and both customer and ARPU growth were behind the 18.6% rise in total revenues in 2007 above the top end of our guidance. O2 UK ended the year leading the market, with 18.4 million mobile subscribers, up 4.2% on an annual basis.

The contract customer base grew to 37% of the total base by the end of the year, an increase of 1.8 percentage points, driven by good gross adds and a continued improvement in churn. During the year, 79% of total net additions were on contract. The iPhone helped to deliver record disconnections of contract customers in the fourth quarter.

Blended ARPU went up by 4.4% in the fourth quarter, with positive evolution of both usage and data ARPU, growing by 9.8% and 9.1%, respectively. Non-SMS data revenues are growing at over 40%. Growth in OIBDA was 1%, but excluding personnel reorganization charges, growth was 10.6%, and fully in line with guidance. OIBDA margin showed a steady increase over the year, as expected, reaching 26.4% for the full year, excluding personnel reorganization charges.

And now, in slide number 27, we present O2 Germany's results. From an operating standpoint, O2 Germany has successfully focused on growing its contract customer net additions with 756,000 customers added in 2007, representing 48% growth over 2006. The total customer base ended the year at 12.5 million customers, up 13.1% versus '06. This included a reduction of 310,000 in the prepaid segment, after a review of revenue-generating customers. Our [achievable] mobile base continued to grow well, now with 1.2 million customers.

The Fonic brand, launched in September, has already grown to 200,000 customers. Regarding [game units] and mail tariffs, more than 2.14 million customers have already signed up. Telefonica Deutschland grew its unbundled lines by a factor of 3.5 to reach 671,000 in 2007. O2 DSL is beginning to gain traction, with 75,000 customers at the end of the year and a strong order book. The trend in revenues improved during the year, with fourth quarter revenues flat year on year. Revenue growth in 2007 was 6.7%, slightly under guidance criteria.

With continued mobile customer growth during 2007 and a rebalancing of the mobile tariff portfolio on the way, along with a growing DSL wholesale business and a strong order book for O2 DSL going into 2008, O2 Germany will return to growth in 2008.

2007 OIBDA was EUR473 million, impacted by personnel reorganization and the charge for cancellation of the national roaming contract with T-Mobile, among others. Excluding these charges and under guidance criteria, OIBDA grew 23.8%, towards the top end of guidance.

In the Czech Republic, in slide number 28, the business continues to grow at a healthy rate of 3%, at the top end of revenue guidance, 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 collections, driven by speed upgrades and bundled offers, with 100,000 customers now taking the bundle. O2 TV customers exceeded 73,000 at the end of the year, with a 25% increase in retail broadband connections. In mobile, the proportion of contract customers in the base continues to grow, now at 43.8%, with blended quarterly ARPU increasing by 2.3% year on year, driven by both increased usage and the change in customer mix.

OIBDA was fully in line with guidance, with the year-on-year decline mainly due to costs associated with the Slovak businesses, which reduced OIBDA margin by around two points, as expected. OIBDA margin for the year was only 1.1 percentage points lower than in 2006, due to efficiency savings and the rebranding costs booked in 2006.

The Slovak business reached 565,000 registered customers at the end of the year, due to the high levels of double-[list] SIM cards in the market inactivity levels remain high. And now please move to slide number 29 for a quick update on group synergies.

All initiatives to further integrate operations are running on track, yielding synergies of more than EUR1.6 billion in 2007, well above the target that we had committed for this year. Close to half of our 2007 target comes from regional management, mainly related to our focus on the group commercial approach actions, as well as the integration of network operations, processes and IT. Global initiatives to extract benefits of scale had close to 40% of the total synergies. By geographies, around 69% of 2007 synergies have been generated in Latin America, where regional management has been developed since 2004.

And now on slide 30, we turn to show our financial profile, which has been stable in the middle of the financial turmoil of the latter half of 2007. Interest expense reached EUR2.8 billion in 2007, which on EUR50.8 billion total average debt profiles an effective cost of servicing debt of 5.59%. Close to one-third of the increase is due to a higher percentage of debt denominated in Latin American currencies and close to two-thirds of the increase, or 32 basis points, are due to higher short-term interest rates in Europe. In the fourth quarter, the FX breakdown of liabilities remained broadly stable.

On the bottom-left chart of this page, we would like to highlight our maturity profile, which is especially relevant under current market conditions. Telefonica has no need to access capital markets in the near future, as we can rely on our free cash flow generation and our unused credit facilities of almost EUR10 billion, or more than 50% of which are long term.

An additional strong point is that our average debt life is 6.3 years, thus longer than the time needed for full repayment if all available free cash flow was dedicated to this goal. We have visited all major [bull] markets in 2007 in benchmark sites and we have opened the new Czech and Japanese markets. Most of the funds raised in 2007 were applied to smooth out our maturity profile in years '08, '09 and 2010, to allow us to show current comfortable maturities and avoid the payments on volatile current markets.

Another sign of our healthy position is the rolling over of our EUR2 billion commercial paper program throughout the whole 2007 and the first months of 2008 at spreads very close to zero.

Please turn now to slide 31 for a comment on our deleveraging progress. Please note how Telefonica has been able to upgrade shareholder remuneration to EUR5.2 billion and deleverage by EUR7 billion at the same time. As of December, our net financial debt stands at 2.3 times OIBDA, excluding extraordinary results from divestments, significantly below our 2006 figure, as a consequence of our net debt reduction and OIBDA growth. Net debt plus cash commitments is within the leverage target range of 2 to 2.5 that we set out in last October in our London Investor Day.

Financial debt has been cut by almost EUR7 billion, driven mainly by, first, a EUR3.7 billion free cash flow retained after shareholder remuneration, second, EUR2.5 billion net divestments and, third, EUR0.8 billion of foreign exchange savings thanks to foreign exchange liability management.

And now let me turn back the call over to our Chairman.

Thank you, Santiago. Now I would like to run you through our 2008 guidance. In slide number 32, once again, Telefonica sets benchmark in the industry, both in terms of the [civility] and growth prospect. We have a very positive outlook for this year, with solid 2008 targets being totally in line with our long-term guidance provided in London four months ago.

We expect top-line growth to grow between 6% and 8%. We anticipate operating income before depreciation and amortization to go up by 7.5% to 11%. Growth in operating income is expected to reach 17% to 19%. Total CapEx should be around EUR8.6 billion in 2008.

The increasing CapEx in 2008 is mainly driven by initiatives to foster top-line growth. CapEx in Latin America will be above 2007 figures due to the higher than initially expected customer growth, the strong traffic increase in wireless forecasted, the employment of 2.5 and 3G networks in key markets to further expand our program in pay TV services.

In Spain, we will continue to invest in growth and transformation, expanding our broadband networks, both in wireline and wireless. In Europe, we are accelerating the network build in Germany, providing the business with a strong platform to capture the significant growth opportunities in this country with the EUR3.5 billion CapEx plan for 2007-2010. At the same time, we will further develop our fixed broadband networks both in the UK and in Germany.

In October, we anticipated total CapEx for less than EUR33 billion for 2007-2010 period. But we did not say that the spending should be linear. We are maintaining our guidance 2008 to mark the peak in the CapEx [deceleration] and total CapEx in 2009 and 2010, will be in the range of EUR8 billion per year.

Leveraging our well-diversified portfolio facets and geography, we are expecting above-average sector growth rates across our business in 2008. In Spain, we expect Telefonica Espana to post very robust results. Fixed, broadband and wireless markets should be lower than in 2007, though broadband wireless growth will be higher. We are expecting sales to grow between 2% and [3.5%], while OIBDA growth will be in the 6% to 8% range.

This performance remarks our differential growth profile versus other incumbent players in Europe. Please notice that from 2008 the business model applicable to pull in voice telephony services has been changed due to the new regulatory framework. Thus, only the net margin on the business will be reported as revenues. To facilitate like-for-like comparisons, 2000 revenues, adjusted for guidance, are considering these changes. I would like to stress that this change does not have a meaningful effect on EBITDA, neither an impact on our long-term revenue guidance.

In Europe, we will advance in our strategy to capture growth opportunities and build a bigger business for the future. This translates into a revenue growth in the 4% to 7% range, while OIBDA is expected to grow between 2% to 6%.

In Germany, we will accelerate our growth in both mobile and DSL markets, which will clearly have a cost. We think this is the right thing to do in order to build towards our targets of significant market share gains in mobile and a higher DSL customer base by 2010. We want to create a scaled business and capture the opportunities in this market. On the other hand, the wholesale DSL business has only just broken even at the OIBDA level on a monthly basis. And therefore posted contributions to EBITDA will be weighted towards 2009 and 2010.

In the UK, we will capture growth and build our DSL base. Our DSL offer has very positive customer feedback and we will have a more aggressive push in the market to begin building towards our 2010 target of 1 million customers. At the same time, we will continue to outgrow the mobile market in 2008.

We see an opportunity to take more growth and share in postpaid, as other competitors falter. This will lead to a more variable business and [share growth] our postpaid ARPU, but we want to improve our position in the market. In Latin America, we aim to capture a significant part of the untapped growth potential in wireless and broadband penetration, forcing bundles and accelerating the transformation of wireline operations. This will allow revenues to grow between 11% to 14%, while the enlarged scale of our operations and the focus on efficiency will lead OIBDA growth to expand between 12% and 15%.

Turning to the next slide, in the context of different rumors every day, we are not only presenting a very robust guidance for 2008, but confirming our long-term targets. Slide number 34 shows how we are fully on track to meet the guidance we provided in our last investors conference in October. If you add to the 2007 actual growth rate our forecast for 2008, you can see that meeting 2010 targets does not imply that we will have to outperform.

I will not explain slide number 35, which includes a guide to how 2008 targets have been calculated. That you can review in detail later on. Our solid growth prospects are accompanied by an enhanced shareholder remuneration policy, as we present in slide 36. In the year 2007, we have distributed to shareholders close to EUR5.2 billion, combining dividends and buybacks equivalent to a 5% yield. Yesterday, we announced a new 100 million share buyback program, which will run until mid 2009.

We will reset the start of the program to the 1st of January this year and its complete execution is sensitive to the cash flow generation and share price evolution. This new share buyback program, jointly with the recently increased dividend for 2008 to EUR1 per share represents a very attractive remuneration policy.

To sum up, a robust performance in 2007, a confirmation of our track record of delivering our commitments and the solid guidance for 2008 reinforces our differentiated profile in the industry. Despite market concerns due to market uncertainty our fundamentals remain intact and the underlying performance of our business is very robust.

Commercial momentum continues across countries and businesses, fostering top-line growth, while benefits from our integrated strategy and scale and diversification drive further efficiency gains. As a result, we maintain benchmark growth rates from top to the bottom. Shareholder remuneration comes first. Our strong free cash flow generation allows us not only to increase dividends, but to announce a new share buyback program offering very attractive shareholder returns.

We hope that 2007 results, 2008 guidance and the new share buyback program released today increase your confidence in our Company and will allay your concerns about the growth prospects. The [best ever] Telefonica has not changed since we met in October.

Thank you very much, and now we are ready to take your questions.

(OPERATOR INSTRUCTIONS)

The first question comes from the line of Luis Prota. Please go ahead, announcing your company name and location.

Yes, hello, it's Luis Prota, Morgan Stanley, from Madrid. I have two questions. The first one is on fixed telephony in Spain, and what are the reasons behind the [TSDN] growth in the fourth quarter of 33,000 lines, whether it's because the market has been growing or you are taking share or campaigns or free connections? What are the reasons behind? And the second question is on the impact that you are foreseeing from any potential economic slowdown in Spain in terms of line loss, but also ARPUs in DSL, post traffic and overall for the group. Thank you.

Thank you, Luis. This is Guillermo Ansaldo. First, the positive net gain that we saw in the last quarter of last year in fixed wireline, the [specific] rate, we believe is an exceptional result, should not be extrapolated into the future. I think it was a consequence of us having two free-of-charge [interrelated] campaigns in that quarter and maybe the competition was not that agile during that quarter. The market as a whole according to our estimation grew by almost 2% during the last year.

Regarding your second questions, our guidelines for 2008 take into account our best information and estimates for the whole year as of today, so we feel very comfortable with those numbers.

Thank you.

Next question, please.

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

Hello, it's Terry Sinclair from Citi. Two questions. First of all, you've made provisions for personnel restructuring often. I understand that the Spanish process is now concluded, but could you just confirm that? What further personnel reductions are you expecting, for example, in Latin America, over the next couple of years? To what extent are these actually recurring rather than nonrecurring items?

Secondly, could we just talk a little bit about your expectations for German margin recovery beyond '08. It looks to me from your guidance as though we have strong revenue growth in '08, with revenue -- sorry, with margin pressure. And then beyond '08, to meet the guidance one would have to have a strong margin increase. What kind of commercial policy goes with that?

On the provisions for Latin America -- this is Jose Maria Alvarez-Pallete speaking -- what we have done is, as the chairman has stated during the presentation, we are accelerating the transformation of the wireline business in Latin America and therefore we're anticipating that the impact at the end of last year, in order to make it more recurring for the time being, in order to make it sustained for the time being. So we are not anticipating any other movements for the time being. And what we are just doing is accelerating the transformation of the wireline business, adapting them to the new market conditions.

Hi, Terry. It's Matthew here. Just on your German question, I think you're right. '08 for us is clearly a year of investment, building foundations both in the network and in our distribution network in terms of our retail stores and in terms of the customer propositions. What I would say is, though, that through '09 and '10, we'll clearly start to benefit from having turned off the T-Mobile roaming as we start to use our network more and more.

On your specific question on specific margins for Germany, clearly what we don't do is guide by individual businesses in terms of margin into the future.

But it is true that you would anticipate margins building beyond '08?

Certainly as our DSL wholesale business runs into profit, that would start to help us, and as the level of investment that we put in our customer and our foundations, clearly we would expect to see some benefit, yes.

And, Matthew, could I just also ask you, are you anticipating any further personnel provisions?

In Germany, you mean, Terry, or in general?

Across your business, Matthew.

Sorry.

Across all of your businesses, Matthew.

Across all of my businesses? No, you may have seen in the year-end release that actually we provided for about 1,000 people to leave the business. 700 in Germany have already left. We don't have any immediate plans to do any major restructures, no.

Thank you very much.

Thanks, Terry.

Next question, please.

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

Hi, there. It's Christian Kern from Lehman in London. Two questions, if I may. One, the macro environment has changed quite dramatically since you gave your long-term guidance in October. I understand with the '08 guidance you remain comfortable with that, but I was wondering if you want to use this opportunity to update us on what the macro assumptions are in your long-term guidance, especially as Spain is slowing down.

The second question would be on the geographic breakdown of your 2008 CapEx guidance. We see a trend of CapEx going up across the industry, so that would be very helpful for us to understand. And, finally, on slide 16, you are talking about SMS and as a percentage of data revenue in the split it's decreasing, so I was wondering if we should look at this as SMS cannibalization happening in Spain from connectivity.

This is Cesar Alierta. You know, we are in 54 countries, and when we build our guidance, it's very extensive and deep work of all our business operations in what's going to be -- we expect to be the year. So our guidance for 2008 are a very sound basis on a very deep work around the business lines on the micro situation, (inaudible) conditions and every condition. We are in a growth sector. We have [different] factors. The specifics of our industry and operations are very much sustained, and that's in which our guidance is founded, so we are in very well deep work, as is the tradition in the house. Because our biggest increase in CapEx is in Latin America, Jose Maria will talk about it.

Well, first, let me remind you that in the CapEx figure for 2008, the very recently launched a successful spectrum building in Brazil for Telefonica is included and therefore you have a one-time impact there. But on the more underlying trends, also remember that we are anticipating part of the CapEx of the long-term plan indicated in London, because we are seeing more robust growth in terms of penetration rates in Latin America [globally] year round, and therefore we need to be there to capture these clients and that's why we are anticipating CapEx.

On top of that, as we have been mentioning before, the transformation of the wireline business is also accelerating. We need to accelerate that, because precisely of the very robust evolution of the mobile business, and that's why in order to be able to bundle, we are also accelerating investment of upgrading our network for DSL and also in terms of investing in our systems in order to be able to provide more sophisticated double and triple plays, and that [TDF] for this is also accelerating.

So that's why you see that peak in CapEx in year 2008 in Latin America, and that's why the message that we would like to send you is that we are anticipating CapEx that we are foreseeing in the long-term guidance contemplated in London.

Okay, Christian, this is Guillermo Ansaldo. Regarding your question on page 16, I think the fact that we have to look at here is that we are growing on yearly basis, but also in the last quarter of 2007 over 70% in connectivity data revenues in the mobile business. This is mobile broadband. And that's a trend that will continue very strong along this year.

Is it fair to say that you do not see any cannibalization impact on SMS at this point?

No, we think it's complementary and we are very satisfied with both trends in the wireline and in the wireless broadband services.

Thank you.

Next question, please.

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

Thanks, this is Damien Maltarp, Cazenove in London. Two questions. Just I guess going back to the Germany question, if I could push a little bit more on that, the commentary that Germany wouldn't contribute to EBITDA growth until 2009, 2010, should we be interpreting that as suggesting that German EBITDA in absolute terms might actually decline in 2008, or was it just going to grow at a slower growth rate relative to the rest of the O2 group.

And the second question, on Brazilian fixed line, you've obviously seen a lot of commentary about Telemar and Brasil Telecom potentially getting together. Does this pose an incremental risk to Telesp? Is there any risk that they're going to start encroaching on the Sao Paulo region? Thanks.

Hi, Damien, it's Matthew. I'll pick up the question on Germany. There's a few puts and takes in 2008 in Germany. Broadly, across the whole business, the margin will be broadly flat, but underneath that we expect to see a bit of growth in the mobile business, with further investment in our retail DSL business and wholesale DSL business and also some of the foundations.

Okay, I'll hand to Jose Maria.

In terms of your question regarding the Brazilian competitive landscape and this potential combination of Brasil Telecom and Telemar, the message that we would like to send is that 10 years after the privatization, it was conceivable that the landscape should evolve, and therefore we are not close to that. The only thing that we are seeing is an opportunity to build the regulatory environment in Brazil to evolve also and not being also only for these punctual and the specific transactions or combinations.

And, as a result, we see that as opportunity to make this regulatory environment more open to the new times of telecommunications in terms of duals and triple plays, and that's our position.

And in terms of the potential more intensive aggression in terms of Sao Paulo for the new combined entity, we are already considering that because Oi has already -- or Telemar with Oi has already been significantly marketing that they will be entering into the market. We are prepared for that. We have products for that. Remember that Vivo is the most valuable brand in Brazil globally, that now we have nationwide coverage that we have been able also to be successful with the Telemig transaction. So we foresee a more powerful Vivo than the one that we had at the beginning of year 2007.

So we are monitoring that, but we are not for the time being specifically concerned.

Okay, thanks very much.

Next question, please?

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

Yes, hi there, it's Robert from Dresdner. Just on the CapEx budget from 2008, is the renewal of the Ecuadorian concession in that CapEx guidance, and is there anywhere else in LatAm you could be hit by a concession renewal charge anytime soon? And then on O2 in the UK, were the iPhone revenues reported net or gross and was that the reason for the slowdown in the top line? Thanks very much.

I will take your first question. It's Jose Maria Alvarez-Pallete, again. On the Ecuador, we don't have any figure of Ecuador included in that CapEx figure because so far we don't have any indication of what might be the amount, because in spite of the noise that you might be hearing, it is still not clear what is the total amount going to be. It is neither clear what is going to be the split of that amount between the leader of the market in Ecuador, America Movil and ourselves in that they have two-thirds of that market.

And it isn't clear what is going to be included in that figure in terms of CapEx commitment for the coming years and the potential delay in the payment. So it's still too soon to say what is going to be the impact of Ecuador. And that's why we are not contemplating any specific figures for the CapEx.

And are there any other countries where this is going to come up as an issue anytime soon?

Well, there's going to be a 3G spectrum license process in Mexico, but more at the middle of this year. So the only impact that we are monitoring for the time being is the one in Ecuador and we are having discussions with the government there.

Okay.

Hi, Robert, it's Matthew. I'll pick up the iPhone question. Yes, both the handset revenue that we charge in store and the amount that the customer actually pays is both booked growth and then the revenue share to Apple comes lower down the P&L in cost of sales.

Okay, great. Thanks [much].

Okay.

Next question please?

The next question comes from the line of [Guillame Bran]. Please go ahead with your question, announcing your company name and location. Guillame Bran, your line is open now.

This question seems to have been withdrawn. 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 from JPMorgan in London. Just on the buyback program, the EUR2 billion buyback announced just four months after the investor day. It has traditionally I think, if I refer back to Valencia, been your policy I think, and also Seville, I think, to announce buybacks at the investor day. So soon after that, is this a response to the sort of de-rating of the sector? You mentioned that it's going to be a buyback sensitive to stock prices. And, as such, should we expect it to be fairly aggressive at these levels?

If that is the case, perhaps it's EUR2 billion, it doesn't last so long. Should we be sort of expecting more of an extended share buyback program to be kind of constantly topped up through the year. The EUR2 billion against your cash flow generation is a fairly low number, especially if we look at a window into the first half of next year. Thanks.

Thanks for the question, David. This is Santiago. You're absolutely right, that the tradition that we had was to announce our buyback and remuneration packages at investor days. I think we warned sufficiently at the investor day that when the full numbers for '07 were known, we will take a look at whether or not a renewed buyback effort would be sensible.

The Board has indeed decided that this is the case, and it is predicated upon the confidence in the cash flow generation and not any nervousness about current de-rating of our stock or the sector, which we certainly do not like, but there is very little we could do to counter it, other than continue to fulfill our commitments.

So you should, I think, contemplate that more as a complement to what we announced in London than to a substitute or an early warning of any other things. We're going to do 100 million shares, and we always say that those are going to be dependent on the cash flow generation continuing to flow, as we expect it to do, and the share price. Current share prices we certainly think it is more appropriate to go fast than to go slow, but we have given ourselves the full 18 months until the next General Assembly of '09 comes about and we can send those shares to cancel, which is indeed what we will do with this buyback , as we have done in the previous two

Okay, thank you.

Next question, please?

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

Hi, it's Jonathan Dann from Bear Stearns in London, and I have two questions. One is, in Europe, most of your peers appear to be doing network sharing deals and Telefonica O2 seems to be stepping away from any. Secondly, in Europe, your fixed-to-mobile assets are merged and in Latin America they tend to still be separate. Should we expect mergers in Latin America for these operational and potentially fiscal synergies?

Hi, Jon, it's Matthew. I'll pick up the network sharing and then hand to Jose Maria. I think it's no secret that certainly in the UK we entered into relatively heavy discussions with both 3 and T-Mobile on potential network sharing and, having looked at it in some depth, we came to the conclusion that the size of the prize was not worth the risk to customer experience and really maintaining control over that customer experience and what we consider to be a key asset. Interestingly, you would have seen the Vodafone and Orange announcement last week, which was certainly a lot shallower than they originally announced, because effectively they ended up just announcing a [mass] sharing, which we do anyway. And so their idea of a complete joint venture company clearly didn't come off.

So we'll look at it. If it makes commercial and customer sense for us, we'll do it, but certainly we haven't seen anything so far that really makes sound commercial sense for us. I'll hand over to Jose Maria.

On your second question about the fixed-to-mobile structure in Latin America, let me first stress the fact that the main focus that we have right now in Latin America is to take advantage of the growth prospects of the mobile business and that's why we're accelerating in terms of the deployment and the efficiency of mobile assets. And, at the same time, we are accelerating the transformation of the wireline. So considering that the agenda of both businesses for the time being is not exactly the same, we are prudent with that approach.

But, at the same time, remember also that the bulk of the synergies that we are getting at the group level are positioned in Latin America. So there is a lot of things already being done independently of the current shareholding structures of the different companies in Latin America. We are taking advantage wherever we are present in both the mobile and the wireline business of cross-utilization of the commercial networks, of I would say coordination of the network deployments and a very good example of that is the situation that we have in Peru, where we are expanding the coverage of the traditional business in terms of fixed-line accesses using our wireless technology.

So, yes, we are advancing not in terms of doing corporate restructuring, but just in terms of reaching full collaboration. And, at the same time, we are taking advantage of the huge growth prospects that we have in the region in order to focus the different businesses in the different topics.

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. One question on Brazil. If the consolidation happens between Telemar and Brasil Telecom, will that bring the full ownership of Vivo back on your priorities list? So would you consider it as a higher importance?

And the second point, on the UK and the communication from Ofcom this morning, asking O2 to meet the 3G rollout obligation by June '08, how comfortable you are with that? Thank you.

Thank you, this is Cesar Alierta. We said clearly that we wanted to buy 100% of Vivo, and still we are very committed to buy 100% of Vivo. As far as now your friends Portuguese [don't] want to sell it to us, so we decided a year ago that what we had to do was improve the operation, which is the best thing for them and for us and for the whole operation. That's what we are doing and we are concentrating on that and still keeping that to buy Vivo at the right price. That's the situation.

And the other question will be answered by Matthew.

Okay, thanks, Cesar. Luigi, as far as our 3G build is concerned, what we're always said is that we'll build our network to the customer demand and not just for the sake of technology, and we certainly kept Ofcom up to speed with our build profile over the last few years. As far as the target of June '08, I can tell you that I'm 100% confident that we'll hit that, because actually it's only 100 sites. They're already in the land bank, so we'll very comfortably hit the June '08 target that Ofcom has set.

Thank you.

Next question, please?

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

I'm calling from Fidentiis in Madrid. A question for Jose Maria. I listened with interest to everything you've talked about about the transformation of the fixed-line businesses in Latin America. I realize you don't give any guidance specifically on the fixed-line businesses. But I was wondering if you could give us any sort of qualitative detail as to what you're expecting for 2008. The only business which we've got formal guidance for is Chile, where the Chilean business is looking for a small fall in EBITDA in 2008.

Is that something we should be extrapolating through to the other businesses, or do you expect a better performance from the other businesses?

Well, James, I could very baldy hear what you were saying, but I anticipate the question was about the wireline business and specifically Brazil and Chile and the transformation that is going around in those two units. Am I correct?

That's correct. I mean, if you could give us some sort of feel for what you're expecting for 2008, even if it doesn't include absolute growth numbers.

Okay, as you know, we are not providing a specific guidance for the wireline business per se, but what we can tell you, that the situation of Telesp, which has been driving most of the impact of the year 2007, we have been intensively working during the year 2007 to accelerate that transformation. And by transformation we mean that we have been trying to build up a leaner company, 800 people less Telesp last year, and as you know we have been provisioning for further efficiency this year.

On top of that, we have been upgrading basically most of our network in order to be able to deploy fastest DSL speed of access. At the same time, we have been able to complete the acquisition of the TVA and NMDS assets. Therefore we have now a triple-play offer online both in terms of satellite and in terms of in NMDS, and we have a commercial bundle with TVA for the cable product. On top of that, we have been reaching an agreement to have the global content, and therefore we now have a very competitive product on the market, and that is starting to provide some result, specifically in the areas where we are very aggressively competing with Net. And, finally, I would say that the bundles, the duals and trios, has been very successful. Also taking into account that the bad debt impact that we have been, I would say, adjusting during the year 2007 is non-recurrent.

And therefore we foresee, especially in Telesp, a more stable year 2008 because we think that the Company is much better -- it's better prepared for the intensive competitive landscape. And, yes, you can take Chile as an example. I mean, Chile has been advancing significantly in terms of the triple play and in terms of the quality of service we are providing to our clients. We do think that we are on the right track with the wireline business and we will deploy exactly the same strategy both in Colombia, where we are growing, and in Argentina.

I would say that the main challenge is to have TV licenses where we do not have that and that's the bulk of our regulatory effort for the year 2008. So we are very focused on the transformation of the wireline. We are confident that we are going to be able to have success in our efforts. And also remember that if you benchmark Telesp with other wireline operators in Brazil, Telesp is doing better, so we are more confident than a year ago, yes.

Would be possible to comment on what's going on in Peru, as well, where it looked like you had quite a weak fourth quarter.

In Peru, we had a challenge. Remember that Peru has still a very significant amount of public telephony revenues, and of course that was going to be adjusted once the mobile penetration was accelerating, and that's happening. But, at the same time, we have also the opportunity of expanding the number of clients, the number of accesses that we have there, thanks to the agreement that we reached with the Peruvian government and thanks to these fixed-wireless solutions that we are deploying all around. So, yes, we are showing the impact, and also the impacts of the long-distance -- I don't know the English word for that, pre-selection, pre-selection change in the regulatory environment. So those are two impacts that we are absorbing. But, at the same time -- and also remember that we have a price cap of CPI minus 7%.

If you take all these things into consideration, I think that Peru is behaving pretty well and we are pretty confident that this deployment of fixed-to-wireless solution will let us to have more clients. And therefore we are also accelerating the transformation of Peru.

Thanks very much.

Next question, please.

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

Thank you. Simon Weeden from Goldman in London. Just a quick question in your investment in Telecom Italia. I'd be very interested to know how you feel that's going so far and whether you have plans to take advantage of the relationship in terms of particularly exploiting synergy in Germany.

Okay, it's, well, we are very happy with the industrial alliance we have with Telecom Italia. When you look at Europe and you add the number of clients we have in Europe, which in the case of Telefonica is 58, which in the case of Telecom Italia I think is 70, it's around [150] million clients, which means that our industrial alliance in Europe represents 90% market share of the European market. It just means synergies and everything that's on constant revenues and cost is going to be very important.

By the way, in the working teams between Telecom Italia and Telefonica, we are estimating that the synergy figures for us in between 2008 and 2010 is going to be around the figure EUR1.3 billion, which is significant and this is the start. So that is the situation. In the case of Germany, our German operations are building -- as I was telling you, we had the very important CapEx program in Germany, which is focused on organic growth. The whole company is focused on organic growth, as we said in the October conference.

The target for the next year is organic growth, and we are going to achieve that. But in the case of Germany, we had good relations with our Italian partners and we can build better relations, we can build it. But, basically, our German operations, as Matthew was saying, are concentrating on delivering organic growth in the coming years.

Thanks very much.

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, it's Guy Peddy from Blue Oak. Good afternoon, everyone. Three very quick questions. Matthew, firstly, there seems to be a lot of accelerating going on in O2 Germany, apart from actually service revenue growth trends, which continued to perform very weakly on the mobile side. Could you just talk a little bit about what you're doing to turn that around?

Secondly, the DSL products within O2, you seem to be accelerating the customer growth looking at your customer bases for January and February that you've detailed. Is that a conscious strategy since the new year to push the broadband product? And then, finally, to Jose Maria, looking at the way Telesp is performing, with its EBITDA declining and looking at the way Vivo is starting to pick up and Vivo's underlying operating performance is very good this quarter, isn't it in your interest to accelerate the integration of those two businesses sooner, rather than later? Thank you.

Hi, Guy. I'll pick up the first two questions. Let me pick up the DSL in the UK and Germany first. We were very conscious in the UK that we wanted to build a first-class customer product and not rush to market and once we had a first-class customer product then start to market it quite heavily. The reality is we've got 100,000 customers in the UK in our DSL business, frankly, without marketing it at all. We're going to go for pretty heavy marketing in Q2, because we believe we've got, and customers are telling us, a market-beating DSL product. And to give you just one stat that I think is fascinating, we're actually -- each of our customers are achieving an average of over nine megabits per second on our DSL network in the UK.

The highest BT offer in the UK, not achieved, but offer, is only eight. So we're actually achieving higher speeds than they offer.

As far as mobile in Germany is concerned, clearly a very competitive market with a lot of price competition and a characteristic of the market in quarter four in Germany was a significant amount of our customers migrating effectively onto higher-value tariffs, particularly at the top-end post-pay customers. As at the end of 2007, actually of all the customers that are going to migrate onto the high-value tariffs, already 75% have migrated. So we can clearly see our path to mobile growth during 2008 in Germany and total revenue growth as well in 2008.

On your question about Telesp OIBDA margins, let's first say that part of this evolution of margins is nonrecurrent. Remember that in the last quarter of the year 2006, we have this extraordinary recovery of the this tax in Brazil, the [discounting] tax, and only adjusting that will give you 5.5 percentage points of a lesser drop in the margin. And on top of that, if you were to adjust the bad debt figure into what we consider to be an ongoing figure, you will see that the margin of Telesp will only be falling by half a percentage point because of the significant cost efforts that we have been incurring out during the year. And that's why we have been saying that we have been accelerating the transformation of Telesp.

So we don't know what the year 2008 is going to bring to us, but for the time being, what we can tell you is that the full impact of the year 2007 is not fully projectable for the future. And in terms of the new integration, as the Chairman has stated, it's not going to depend on us. It's something that depends on Portugal Telecom's side, and of course we will be closely monitoring that.

Thank you very much.

Well, thank you very much all of us. I want to thank you for attending our conference and you know investor relations if there are any further questions you can have, we will be delighted to answer. Thanks a lot.

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