Telefonica SA (TEF) 2008 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Telefonica's 2008 First Quarter Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. (OPERATOR INSTRUCTIONS.) As a reminder, today's conference is being recorded.

I would now like to hand over to your chairperson, Mrs. 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 2008 first quarter results. I am 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 is unaudited 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 that certain 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 don't 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 CFO, Mr. Santiago Fernandez Valbuena, who will be leading this conference call.

Good afternoon, ladies and gentlemen, and thank you for attending for attending Telefonica's 2008 January through March results conference call. During the Q&A session, you will have the opportunity to ask questions directly to the members of our Executive Committee, and so I have here today with me Julio Linares, our Chief Operating Officer; Guillermo Ansaldo, the head of Telefonica Espana; Jose Maria Alvarez-Pallete, Head of Telefonica Latin America; and Matthew Key, Head of Telefonica Europe, who is connected by a conference call.

In the first quarter of 2008, we have delivered another set of strong results, and we are well on track to meet our full year guidance, both for the group and the three original business units. Against the backdrop of a softer European economy, we continue to post strong organic growth rates, showing our distinctive profile in the industry. Our highly diversified portfolio and the integrated management of operations translates into a robust organic revenue growth rate, which ramps up to the bottom line, leading to an over 25% increase in earnings per share year on year.

Our balance sheet remains solid, allowing the transfer of the high cash generation to our shareholders. Shareholder remuneration continues to be our first priority, and our commitment is supported by the accelerated execution of the new share buyback program that we announced two months ago.

For the fifteenth quarter in a row and despite negative impacts from changes in consolidation and foreign exchange, we have posted simultaneous year-on-year growth in the key items across the P&L, as shown in Slide Number 4. In the first three months of the year, revenues rose 1.1%, went just below EUR 13.9 billion. Organic sales growth stood at 7% year on year, well ahead of our peers, being the seventeenth consecutive quarter to print organic growth above 7%.

Operating income before D&A reached almost EUR 5.4 billion in the first quarter, showing a 5.3% annual increase, which currently to 8.2% growth rate in organic terms. Operating income achieved the EUR 3 billion mark in the three-month period, up 14% in nominal terms, or 17% organically. Operating cash flow topped EUR 4.1 billion, 9% above the 2007 first quarter figures, while in organic terms, it rose close to 12%.

As in previous quarters, operating results are fully flowing into the group's net income, as you can see in Slide Number 5. January to March net income reached EUR 1.5 billion, 22% above last year's figure, and more than three percentage points above operating income growth. Earnings per share in the first quarter of '08 reached EUR 0.328, rising 26% year on year. If we exclude the impact from the purchase price allocations on EPS, EPS would have reached EUR 0.362.

On Slide Number 6, we show the outstanding customer growth recorded across businesses and regions. Our commercial push will fully exploit growth potential, mainly in mobile and fixed broadband and to cut through the value from the bundling opportunity have allowed us to reach more than 233 million accesses by the end of March, or 13% higher than a year ago.

Strong customer growth led to more than 4.7 million net adds in Q1, 42% above last year's figures. Mobile net adds were very strong, representing over 80% of total net adds, leading to a total mobile access base of 172 million.

In the broadband field, growth retail connections grew 27% year on year, topping close to 11 million, with net adds in the quarter achieving the 550,000 mark.

We ended the quarter with almost 2 million pay TV accesses, or 64% more than in March '07, with our new offerings in Latin America showing good results. I would like to stress that 36% of our total accesses are voice, broadband, and TV bundles, leading us to capture more value from our customers.

Now moving to Slide Number 7, we show that the solely operating performers reflecting the expansion of our customer base and high (inaudible) for our networks does fully flow into the revenue base. Despite the depreciation of the U.S. dollar versus the Euro, this strong revenue growth reported by Telefonicas of America places it as the largest contributor to group sales, with over 37% of group revenue in the first quarter.

Our operations in the region, which have posted a close to 13% increase, and sales in organic terms continue to drive our growth, explaining more than 60% of Telefonica Group organic revenue growth in Q1. In addition, the sound top line expansion recorded both in Spain and Western Europe are out to deliver vesting plans for organic growth rates, which reached 7% at the group level.

From a business perspective, mobile and fixed broadband are the main growth engines with a 27% year-on-year organic increase in mobile broadband revenues and a 13.6% organic growth in fixed broadband and value-added services sales.

Top line revenue is accompanied by sustained benchmark profitability levels, as you can see in Slide Number 8. Consolidated operating income before D&A grew over 8% in organic terms, showing the higher efficiencies achieved. It continues to focus on cost controls and the materialization of tangible synergies through the integrated benefit model.

Again, Telefonica Latin America continues to drive growth at the group level, with a year-on-year organic increase in OIBDA close to 12%. The group's OIBDA margin reached 38.7% in Q1, 12.5 percentage points higher than the last year's figure due to the enhanced margin at Telefonica Espana and stable margins posted both in Telefonica Europe and Telefonica Latin America despite strong commercial activity and the ongoing process to transform our businesses.

Let's turn now to Slide Number 9 for a review of our original business units, starting with Telefonica Espana. In the context of global economic growth, our business performance in the first quarter remained solid, with revenue growth reaching 2.6% on a comparable basis. Both wireless and wireline show sound growth rates, with revenues up 2.7% and 2%, respectively, on a comparable basis, sustaining their superior performance. Higher broadband revenues and healthy trends in traditional voice services bagged in above-average revenue performance in wireline, while the continuous boost in data, rising in excess of 16% year on year, led to a 3.4% customer revenue growth in wireless.

Roaming-in revenues performance was outstanding, just by global prices, showing the benefits of the integrated management of wholesale roaming agreements at the group level.

Underlying OIBDA growth, excluding real estate capital gains and the recovery of our debts, reached 2.8%, driven by a robust 4% increase in wireline on lower IT and personnel costs, and a 1.3% year-on-year increase in wireless. OIBDA margin remains flat versus Q1 '07, that's Telefonica Espana on a like-for-like basis at 48.8%. Margin in wireline is down 0.9 percentage points to a comparable 47.9%, while in wireless, profitability remains healthy, with a 43.4% underlying margin in a very competitive market.

Slide Number 10 provides more color on the trends we are seeing in wireline. The Spanish traditional access market continues to record good growth rates, close to 2% year on year despite the shortfalls in the construction sector. Competitors' activity in unbundling was similar to previous quarters; however, there was a change in the unbundlers' approach driven by the introduction of the new loop type, named naked shared loop.

Even though this new loop was approved by the regulator at the end of 2006, it has not been until the first quarter of '08 that unbundlers have started using it as the new direct take-up or as migrations from shared loops. And naked shared loops, included as fully unbundled loops, account already for 57% of the 135,000 full ULL net adds, whereas shared loops failed 21,000 in the quarter, mainly driven by migration to naked shared loops.

Our proactive commercial approach, with a free connection fee campaign from late February to early March, has allowed us to capture part of the market growth, limiting the line loss in the quarter to 77,000, compared with the 135,000 lines captured by unbundlers. Year on year, fixed lines were down 26%, showing an outstanding performance versus our European peers.

In broadband, the market continues to decelerate, though trends have improved versus previous quarters, with lower year-on-year declines in net adds. In this context, our retail broadband net adds reached 222,000, with no material changes versus the previous quarters, despite the seasonality of the business. We continue to enlarge our commercial portfolio, launching new offers to capital market segments. Then the highlights of our broadband market share remain stable at close to 57%.

In pay TV, the growth is ramping up versus previous quarters. Net adds in Q1 were pretty much in line with the last quarter '07 figures, despite business seasonality, while compared with the first quarter of '07, net adds were up 21%, with more than 550,000 customers, and the (inaudible) market share is now over 13%.

In summary, solid operating methods, despite economic slowdown, consolidating our leadership in the market while capturing more value for more customers, are reflected by the 2.4% year-on-year increase in wireline ARPUs.

Let's go now to Slide 7, where I will spotlight the performance of our wireless operations in Spain. In a more mature market where new [MPNOs] are emerging, our commercial efforts are focused on higher value to customers. In the last 12 months, we have increased our total customers by 5.5% year on year to over 23 million on the back of a very healthy performance in the contract segment, which already represents over 60% of our base.

In Q1, contract net adds were 305,000, leveraging our benchmark churn rate, which came down year on year to roughly 1%. Regarding usage, both MOUs and ARPUs declined on a similar basis as in the fourth quarter of '07. Incoming ARPU was impacted by lower mobile termination rates, while outgoing ARPU was 2.1% down year on year, in line with the performance posted in the previous quarter. Lower voice usage was partly offset by phone data ARPU growth.

Outgoing minutes of use showed a weaker performance, replacing over traffic promotions versus the first quarter of '07 and lower usage by our customers. We continue to monitor usage patterns very closely, having already launched new initiatives to foster consumption.

Outgoing data ARPU is performing very well, up 11% year on year. The good performance in connectivity is accompanied by a strong push in content SMS, driving a 17% increase in total data revenues. 3G penetration continues to expand to 19% of our total base, excluding M2M. At the end of March, we had 4.2 million 3G devices, or 2.8 times more than we had a year ago.

Let's now continue with a review for Latin American properties in Slide Number 12. During the first quarter of '08, we further accelerated our commercial activity in leveraging the strong net growth scenario in the region, with both Brazil and Peru having already become investment grade in 2008. Our total asset base grew 18% year on year, boosted by the strong increase of wireless, broadband, and pay TV, which reinforced the positive evolution in fixed-line accesses. Telefonica Latin America revenues were up 10% year on year in nominal terms, or 13% in organic terms, with very sound growth rates for the mobile, Internet, and TV revenues.

By countries, Brazil, Mexico, and Venezuela contributed with more than two percentage points each to revenue growth, highlighting the increasing weight of our wireless business in the region. OIBDA increased 10% from last year's figure in Euro terms, or 12% in organic terms on the back of very good performance in Venezuela and Mexico. As a result and despite a strong commercial push, we posted a healthy margin at 36.4%, flat versus the first quarter of '07. Margin expansion in the mobile business has offset the impact of a different revenue nationwide.

We also recorded a strong operating cash flow generation with positive contribution from all our operations, including Mexico. We are fully on track to achieve our 2008 guidance for Telefonica Latin America, with year-on-year growth rates accelerating in the coming quarters, both in revenues and OIBDA.

For now a review of our Latin American Wireless businesses, please turn to Slide Number 13. Net adds in Q1 reached 3.1 million, up 37% year on year, on the back of robust gross adds in most markets and churn containment in the region. Our total customer base achieved the 103 million mark, rising 23% year on year, with double digit growth rates in every single market and a strong performance in Brazil, Mexico, and Peru. We continue to further expand the GSM base, which already accounts for close to 70% of the total versus 43% a year ago, driving down subscriber acquisition costs.

I'd like to stress the ARPU production in constant terms, as it remained flat year on year despite the sharp growth in the customers' lower mobile termination rates. This performance was driven by the healthy 4.5% year-on-year increase in constant currency on outgoing ARPU.

A dimension that we don't notice is the materially impact in ARPUs from the Easter effect across the region. New commercial offerings are stimulating voice usage, while data services are increasing their contribution to revenue, forcing a 40% year-on-year growth with an adjusted percent to 13% of service revenues, showing a significant growth potential. We are seeing a good evolution in 3G data propositions based on CDMA EBDO in Brazil and Venezuela, having already launched 3G services in Argentina, Chile and Uruguay, with other countries to come in the coming months.

Moving now to the wireline businesses in Slide Number 14, we continued to advance in the transformation of the business with strong net adds, both in broadband and Pay TV, in the first quarter. We are fostering broadband and Pay TV growth, promoting bundles which not only allow to increase ARPU but are a good potential tool. Bundles already represent 55% of our fixed accesses, or 12 percentage points more than in March '07. At the same time, we continue to strengthen our competitive position, enhancing our commercial portfolio with higher speeds, as we have recently done in Brazil and Chile, and expanding network coverage. In Colombia, the deployment of the network in new areas like Bogota is already producing good results with a significant ramp in growth and gross adds in March versus February.

In pay TV, we are also getting momentum with total net adds in Q1 doubling the figure of Q1 '07, for having incorporated TVA in Brazil and in (inaudible), where our pay TV offering is starting to take off, leveraging Globo's content. As a result, we are seeing a significant change in the revenue mix of our wireline operations, with an increased contributions of Internet and TV revenues to total revenues that range between the two percentage points increase in Argentina to seven percentage points in Colombia. As such, the operators are having less exposure to regulated revenues. I'd like to stress that the increasing adoption of double- and triple-play offers is driving total wireline revenue profits up 1.9% year on year in constant terms.

To sum up, in Latin America, we are capturing the strong growth potential of the region. The solid top line performance across our markets shows the strong growth rates recorded in broadband, TV, and wireless revenues.

Broadband and TV services grew about 20% in all markets, with Colombia posting a 120% increase year on year. Combined service revenue reported double-digit growth rates among most markets, driven by a good performance in outgoing service revenues, showing the combination of customer and ARPU expansions, which outpaced mobile termination rate cuts in some countries.

Let me highlight the robust year-on-year increases posted in Venezuela, Peru, Chile, and Colombia. OIBDA growth was also strong across the region on the back of significant advances in our wireless businesses, which offset the pressure of wireline operations holdup.

If we're finishing with our Latin operations, let me quickly review our two major mobile operations. In Brazil, Vivo maintains its momentum, combining a strong customer growth with higher outgoing ARPUs and solid margins, despite running for different (inaudible). The 18% year-on-year growth in customers was driven by the boost in gross adds and churn control.

In Mexico, we continued to reinforce our competitive position with a 42% increase in our customer base year on year to 13.3 million customers, reaching a 19% market share. The better quality of the customers we are getting is reflected in the further reduction of our churn rate and a 13% increase and also in ARPU in local currency. As a result, ongoing service revenue grew 64% year on year, while economies of scale led to a 19% margin in the first quarter of '08, four percentage points more than a year ago.

We have started the year with a strong improvement in operating cash flow, which reached EUR 57 million in the first quarter of '08.

Moving now to Slide 16, Telefonica Europe, we delivered a strong start of the year. The exit of Airwave from the group last April and the weakening of the sterling versus the Euro impacted revenue and OIBDA growth in the first quarter on a reported basis, but like for like, both revenue and OIBDA growth was towards the top end of guidance. Part of this success has been down to anticipating customer needs and delivering attractive propositions in both fixed and mobile.

Across the group, we saw good net additions on contract, an 80% increase compared with last year, reflecting the focus on policy growth. O2 UK continues to outperform the market with revenue growth of 12.6% in local currency, where the margin was 24.1%, in line with last year. We focused on acquisition and retention at the start of the year.

In prepaid, the focus is on revenue rather than customer numbers, and prepaid ARPU growth of 7.5% year on year in the quarter in most rates is success we have had with this segment.

In Germany, there are encouraging signs, with positive revenue growth for the first time in four quarters, and an improved trend in mobile service revenue growth, along with strong net adds, especially in contract.

In the Czech Republic, line loss was reduced year on year, reflecting a growth of 1.6% was impacted by turnings of revenues of ICT contracts, which will come later in the year.

Slovakia diluted margin by three points in the quarter, although excluding (inaudible), the underlying (inaudible) lost two points, in line with 2007. (Inaudible) company debts were one-third higher than last year, while revenue and OIBDA declined to the lower prepay (inaudible), and new prepay offers launched at the start of the year have helped the business regain momentum in that market.

Turning to Slide 17, we show that O2 UK recorded another strong quarter of contract net adds on the back of iPhone and traditional handset connections and the refresh of the tariff portfolio. Mobile service revenue was driven by continued customer and strong ARPU growth, in particular the record net adds on contract in Q4 of last year.

Investment in the customer proposition continues to deliver benefits with contract churn in the quarter down to 1.5%. Tariffs such as Simplicity offer value and flexibility and are an attractive option in the current economic climate. In broadband, we launched our mobile proposition in April, while our tier sales, service and delivery, high quality and satisfaction added 61,000 customers in the quarter with limited market and population coverage of only 57%. The service has now gone nationwide as of May 1, along with a DSL service for business.

In Germany, we are pleased that some of the actions we put in place last year are starting to show some encouraging signs. The first quarter saw strong net adds with both O2 and wireless delivering a good performance. Distribution channels were also expanded, with the DM drugstore chain and Fonic adding almost 1,000 new outlets and a new contract with Debitel.

We now have strong transitions in all segments with mobile fixed flat rates for voice calls and Internet access via DSL at the top end, and our Fonic brand at the lower end, with the rental (inaudible) and bundled carriers less (inaudible) prepaid times in between. We also have our successful partnership with Tchibo and Hansenet.

The trend to mobile service revenue improved from the fourth quarter, with total revenue growing 1.5%. Renewed contracts with major ISPs in the market, such as Freenet and United Internet, will help supply growth in our ULL business, which added 174,000 DSL lines in the quarter. But the growth of just under 1% reflects the reinvestment of the savings from the restructuring of the last year's growth along with the breakeven in the ULL business, which will deliver a positive contribution to OIBDA for the first time this year. We will continue to invest in profitable growth and grow our share in a competitive market.

Turning now to our financial profile on Slide Number 19, we show that net financial debt has moved from 2.3 times OIBDA to 2.1 times during the quarter. This has been the result of close to EUR 900 million to production, coupled with OIBDA ongoing increases. When adding our equipment to the financial debt, the ratio stands at 2.25, so that's at the midpoint of the range set in the last investors' conference. Our progress in this field deserves a positive outlook by Fitch, by the Fitch rating agency last February.

Given the current situation of the current market, it is worthwhile to note that Telefonica does not face any funding needs, and maturities in 2008 are lower than the cash available to the company, and our average debt life exceeds six years. On top of that, we have over EUR 90 million of undrawn credit lines, more than 50% of which are long term. Interest rate movements in the quarter pushed up our costs. The price and value of our commitments rose due to decreasing long-term rates used for discounting them, adding 24 basis points to our unrealized effective interest rate. At the same time, we took advantage of this movement by hedging EUR 2.8 million debt to swaps and cap spreads. We kept intact our 6% target for the average debt cost in 2008.

Finally, our liability mix benefited from the pound depreciation in the quarter, more than offset in the Czech kroner strength, leading to nearly EUR 400 million reduction in the size of our debt when measured in Euros.

Now turning to Slide 20, we show that our strong results and the solid free cash flow generation allow us to deliver on our first priority for the use of free cash flow--Telefonica shareholders remuneration. In addition to the increased dividend per share for 2008 and given the visibility of our cash flow generation ability and the fact that our debt ratios are on track, we have decided to bring the end of the current share buyback program announced at the end of February forward to the end of 2008. As a result, the 100-million-shares program will be completed within this year.

And we are progressing fast with the execution of the program. So today, we have already completed 35.7% of the new share buyback program. Overall, combining dividends and buyback, our 2008 cash yield is around 6.5%, which we think represents a very attractive remuneration package.

To sum up, in the first quarter of the year, we have posted a strong set of results, and we are well on track to deliver 2008 guidance across regional business and at the group level, leveraging the abilities of the highly diversified growth platform. Our superior organic growth profile continues to differentiate ourselves from our peers, with high single-digit growth rates both in revenues and OIBDA, and a double-digit year-on-year increase in operating income reflecting our continuous focus to enhance efficiency.

In Latin America, solid growth prospects, both in mobile and broadband, should lead to a ramp-up in revenue and OIBDA growth rates in constant Euros in the coming quarter on the back of a sound economic scenario in the region.

In Europe, where we are facing an economic slowdown, in the first quarter of the year we have seen limited evidence of significant impacts on our businesses, though we will continue to monitor them very closely.

We maintain a robust financial position with leverage ratios in line with our targets, while the strong free cash flow generation is allowing us to accelerate the execution of our share buyback program, highlighting our commitment to increase shareholders' returns as the first priority for the use of cash.

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

(OPERATOR INSTRUCTIONS.) Our first question comes from the line of Damien Maltarp. Please go ahead, announcing your company name.

Thanks very much. The company's Cazenove. Two questions. I guess just looking at the Spanish, the trend in Spain, minutes vis a mobile down 6%, and even adjusting for the change of accounting a little, for like your domestic fixed track, new revenue trends are deteriorating a bit. Can you just expand a bit on whether you think you are seeing any impact from an economic slowdown, specifically in Spain, or whether you've changed your internal outlook as to what impact the slowing economy might have on your internal forecast?

And the second question, on LatAm, is there any way you can just give us a guide for how much of your mobile revenues in LatAm you generate from incoming as opposed to outgoing? Thanks very much.

Okay, this is Guillermo Ansaldo answering to your question about the minutes of use evolution in Spain. You see an evolution here in minutes of use of a decrease of 5.6 in the first quarter to the similar quarter in last year. The trends are similar to the ones that we explained last year. And basically, we see three type of things. First, the nature of the promotions that we launched in the Christmas campaign are different this year. The last Christmas campaign was much more focused on retention actions, so the minute that we were giving away are for clients that had been staying for a long time with Telefonica, basically is one week of on-net, free on-net traffic for each year of families with mobile service. So basically, it's for clients that have been long for us, and you have to stay to capture the benefits of the promotions. While in the Christmas campaign of 2006, basically, we were sending minutes away for all the customer base.

And second, just another issue that put some noise in the comparisons is that as long as we are growing in machine-to-machine type of lines and data (inaudible), obviously, the number of lines without traffic is growing. So we think that these two effects--the different issue of promotion and the growing number of machine-to-machine in data--only seems explains like two-thirds of the aberration. The other third could be explained for as of other explanations. They may be seasonality or some term decrease in the consumption of the client base.

Hi, good afternoon. Taking your second question about the incoming percentage of total revenues. The figure is 25.6% in terms of incoming revenues, out of which 60.5% is the cost, and as a result is a net effect of roughly 9.2% of service revenues.

Sorry. Did you say 9.2%? I didn't quite hear the number.

Yes. The answer is 25.6% in terms of the income. Out of those, 60.5% is the cost of that, so net is 9.1% to 9.2%.

Okay. Thanks a lot.

Next question, please?

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

Good afternoon. It's Terry Sinclair from Citi. A couple of questions. First of all, on Spain. Given that there is some kind of slowdown that you're seeing in your nevertheless good growth rate, one, do you agree that there is a slowdown in the growth rate? And would you expect to, up from the economy as the economy slows, and underperform it as the economy recovers?

Secondly, if we look at the cash conversion of your earnings, is it correct to say there was a significant working capital outflow, and could you tell us in which geographies that has been incurred? And could you just explain something about the interest timing, since cash interest out significantly exceeded interest in in the income statement? Thank you.

This is Guillermo Ansaldo. Regarding the question on Spain, obviously, the guidance that we provided this year is lower in terms of growth when you compare that to the actual growth we had last year. So we are acknowledging that the growth will be lower. In the first quarter, we have a decent and a solid growth, which is in line with the guidance. So we think, we do believe we can outperform the economy, and we are doing our best to do so. So we'll have to close, we have to have very close monitoring of the situation, and we believe that we can, of course, we can meet the guidance and we will again provide a very solid performance vis a vis what's going on in the market.

Yes, Santiago Fernandez Valbuena. Let me take your second double question on the cash conversion and the interest. The main reason for the difference between accrued and cash interest in Q1 comes from the fact that we have annual coupons, EUR 400 million of which we can do, were paid out in Q1. Of course, that is only paid once per year, and so that effect will wash out in the remainder of 2008. And you may have missed that at that point last year, because last year we also issued a significant amount of bonds, which are becoming due for payment, whose interest are becoming due for payment in early 2008. So that's the bulk of the explanation of the difference between interest and cash interest cost.

On the other point of your cost conversion question, it has a lot to do not with geographies but with the way CapEx accrued versus CapEx paid is behaving. Roughly half of the working capital consumption in Q1 comes from an excess payment relative to accrued of almost EUR 600 million, part of which is reflecting the exact inverse profile in Q3 and partially Q4 of 2007. This is also an effect that you may have seen in 2007, and we expect that the bulk, the majority of that number, will again be washed out as as the year progresses as a difference between accrued and cash CapEx conversion throughout the year.

Santiago, may I just press you on that? The CapEx term I understand, because you are taxed in January for commitments made at the end of the year. But there was a working capital outflow as well, wasn't there, which comes forward in the difference in EBITDA and the cash flow from operations?

Well, certainly. Those things are reasonably long based of minor issues which, when taken together, are contributing significantly to that working capital consumption. We have had something like the IAP, which is a long-term cash incentive pay to a large number of employees which we can do and was paid out in Q1. They are, we are one-off payments down in Brazil, down in Germany, which are due when they are due, and they are paid out, but they are not recurring, and therefore will not happen again next year.

There is a reasonably long list of them, and I'll be more than glad to go in detail with you over those.

Thank you very much, indeed.

Next question, please?

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

Hi, there. It's Christian Kern from Lehman Brothers, and two or three questions, please. The first one would be on the domestic mobile competition front. Orange Spain has just announced a flat rate today, which includes mobile roaming. We've seen Vodafone moving in their domestic UK market, moving to a flat rate mobile Internet. So I just was wondering what your views are, how this Spanish competition is going to shape up.

Second question would be with regards, though, to Germany. What makes you so confident in the turnaround, and where do you stand on the network rollout, and finally, since every time I ask you on your views, as you're accelerating the share buyback program, the question is, obviously, when are you going to think about shareholder returns to '09? Is that anything we should post on the agenda for the second half? Thank you.

Okay, regarding your question in Spain regarding the mobile flat rates. Of course, as you know in the mobile market, there's some characteristics that have to be taken into account. First, in the case of Spain, in the case of Orange, for example, and Vodafone, we're speaking about semi-flat rates, meaning that it's a package of minutes regardless of where we go commercially, but it's a package of minutes for a fixed price. They're different from the fixed--flat rates we have in there, for example, in the deals in the fixed traffic business.

Some of these stories, like the one you pulled up on this, is targeted to higher ARPU type of clients, and so they have a very specific and very limited impact. In the case of Orange vis a vis the position of previous carriers, and also compares with the tariff that we have, which is more expensive in terms of value. And so our reaction will be targeted. We are, we do have plans. We are going to launch more plans, but before we start, to be certain type of plans and certain type of traffics. We do not want to enter into any kind of price wars. We have a strategy of providing more value and a targeted response. So we do have some plans, as you know, like the 30 plan, the 10/30, 10/60 over 90, where basically you pay a fixed amount and you get a very, a very good price, and we continue working on that arena. But always we target the responses and always without entering price wars.

In terms of the share buyback and the other shareholder conversation, while typically, at least around the end of the year that we start thinking about what the next year's policy should be, if there are any significant changes. So take that as just an indication of what has happened in the past. We don't commit to revising that that every year. We think we have a reasonably attractive advantage in place. We just brought the share buyback program towards the end of this year, and we don't have any specific plans going on. But it is likely that before the end of the year, we will do another round of thinking about this.

Shall I pick up the German question? (Inaudible). Christian, I guess I would point to two or three things. The first thing is, if you look at our performance in the market over the last three quarters, actually we've done net adds of half a million for each of the last three quarters. The, clearly, what we're doing in the marketplace is working, and I think that's from a tariff perspective. Fonic is clearly going very well, over 300,000 customers on Fonic now. But also a distribution perspective in terms of signing new partners, and we just signed a deal with Debitel as far as expanding our distribution there.

You used the word "turnaround." I would (technical difficulty) green shoot Germany. And I think I'm very pleased that in the first quarter we've got revenue posted for the first quarter in the last four, but it is green shoot at this moment.

As far as the network is concerned, clearly we're rolling out now after the (inaudible) deal that we signed, particularly in 3G and HSDPA. So you'll see from the German perspective, an acceleration of our rollouts in Germany over the next three quarters at the back end of this year.

It's very (inaudible). Can I ask him one more on the domestic environment? Hello?

Yes, go ahead.

Just on the heading back lower bad debt provision. This sounds counterintuitive in an economy which is slowing down. I just was wondering what your view on this is, the EUR 25 million you added back on your OIBDA?

Well, in the case of Spain, we had on a not ordinary effect that we saved, we sold that portfolio of non-performing bills, so that's why we have extraordinary in OIBDA impact and that's why the provision is negative. And that's a non-regular, non-normal impact, so that's why in the information we share it with just warranties. We were trying to show the numbers of the growth without this impact, also without the real estate and also without other effects. But this is something that was a one-shot event. It's the same as the typical sale of a bad loan portfolio, if you want to put it that way, and that's why we have the reversion in the bad loan provision because the price was better than the provision that we have already in the balance sheet now.

Thank you.

Next question, please?

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

Yes, hi, good evening. This is Javier Marin from Cheuvreux in Spain. A question on non (inaudible). I was wondering whether you can share any of your views of doing business and spending your money on two specific markets, namely broadband in Germany and maybe the (inaudible) in Spain on names that comes to my mind, (inaudible) in Germany. And also, regarding Brazil, the first steps on the creation of a national champion, has that increased your visibility on any potential corporate restructuring of the different businesses there? Thank you.

Well, let me take M&A question first, and in Germany we continue to monitor the situation. We have not seen anything that makes us change our mind, and it's already in May, so I think it's not likely that we will change our mind any time soon. Our Chairman has specifically excluded some of our other possibilities just a few weeks ago, and we continue to monitor very closely Brazil, Mexico, and Germany as our focus points. But as you already know, we have had limited progress in all three of those fronts, and we continue--all I can tell you is that we continue to be very close to anything that is hunting in those markets, but we have nothing to report on that front.

And on our (inaudible), we do not see that as an excursion into other territories. We're just going, you know we are very interested in developing our triple-play platforms, and certainly anything that can accelerate or improve our position in that particular segment of the market will likely come under review. But there is nothing to report, either, on this front as of today.

Thank you very much.

Next question, please?

Our next question comes from the line of Will Milner. Please go ahead, announcing your company name.

Hi. This is Will Milner from Arete Research. A couple of questions. Firstly, on Spain and mobile broadband. I just wonder what is your strategy with respect to mobile broadband and specifically how it's priced in Spain? I mean, overall prices seem fairly high, particularly in relation to other European markets where we've seen them fall pretty sharply. I just wonder if you will be the first to lower prices to drive take-up, or whether you're going to take a back seat and wait for others to lower those prices first?

Second question on Latin America. Obviously, Colombia's taken a fairly huge termination rate hit this year. Obviously, that's coming through in America Mobile's numbers as well. I wonder if you could just talk about which of the other businesses are exposed to termination rate cuts over the next couple of years that we should be aware of? Thanks.

On the mobile broadband, the first point. We've got it under review. We do see the service as a complementary service to the fixed broadband. And we have analyzed this, and very carefully, and we are tracking the results and we are very satisfied to see that virtually two-thirds of additions are complementary. And another sixth, so half of the rest of the remaining third, is new market, meaning plans that are not, that we're not considering fixed broadband and are adding up to the mobile broadband.

Regarding price in the two type of carriers. We have data carriers, but they are for the people that use mobile broadband on an occasional basis, and we also have the traditional flat carried, monthly rate for people that have more intense usage. As long as due to increase, we will see, as we've seen in fixed and broadband, better pricing and better offers. But we've got to get into more usage and more value added.

With regards to your question about the termination rate of the exposure that we might have globally, a good, the Colombian example that you mentioned. First, on the Colombian example, I can tell you that the (inaudible) has been basically neutral for us in terms of how the structure of our earnings and cost in our mobile operation in Colombia. But globally speaking, our exposure to the incoming, exposure that we have in terms of termination of rates is less and less every year, having already the same vis a vis call that the net exposure this year is roughly 9%, and it's becoming less and less relevant as the outcome in part of our revenues is increasing significantly year on year. So whatever the trend is in the region, which is, again, showing, I would say, a more, year after year, more with use exposure to the termination rate effect.

Okay, but can I just, I mean specifically which markets do you know about where you have termination rate cuts coming through? And do you see a risk, for example, with either that rates might be cut earlier than 2010?

For the time being, we don't have, or we not aware of having any major cost issues in 2009, but as you might, but we'll monitor that. But what I can tell you is that the trend of increasing dependence keeps going on in the year 2008, so the net effect at the end of this year is going to be even lower than the one that we have right now.

Okay. Thanks a lot.

Next question, please?

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

Hi. It's Laurent Sierra from Redburn in London. A couple of questions. The first one on associates. It seems that the lower profit was due to Portugal Telecom. Can you give us any update on Zone, also, as you own 5% of the company?

My other question was on other companies and elimination. This is an accounting question, because it seems that you have eliminated up to EUR 200 million compared to last year's reporting, and there is also the contribution from Attente, which was around EUR 300 million. So can you give me a bit more visibility on that?

And I would like to know also that you have apparently changed your reporting on the number of fixed lines in Spain and also in Latin America. What was the exchange in the reporting? It seems like in Latin America, you have added the fixed wireless, but that's not occurring in Spain. Can you give me more clarity on that thing?

Yes. On the question about the contribution of our associates, you are right in pointing out that it made a difference between this year and last year. It's a lower contribution, but still positive for Portugal Telecom. You know that Portugal Telecom went last year with a very dynamic change in their perimeter, and so the total contribution that Portugal Telecom had to us has come down quite significantly, from EUR 33 million to slightly above EUR 7 million. And that explains the vast majority of the total.

The rest, the only inclusion in the list of associates that is with us this year is a small step in telecom. Our investment (inaudible) in Italy with our Italian partners, which showed a very small negative contribution as a consequence of interest costs to worldwide BT vehicle. But other than that, there is not much more to report.

If you look at the caption of changes in other companies and the relations, you will see that Endemol, which was last year with us, is no longer part of the company, and that explains probably--although I don't have all the numbers in my head--the vast majority of the changes, Endemol being present in '07 and not being present in '08.

By the way, you mentioned the percentage we own of BT, and it's close to 10%, almost 10%, not 5%, which I think is the number that you mentioned. We continue to hold the same percentage that we did.

In terms of your question about the change in criteria in the fixed line accounting in terms of the reporting, in Latin America we are included in the fixed wireless units right now, and this is this year in terms of fixed-line accesses rather than in the figures you have according to the wireless accesses. That's for Latin America.

And regarding Spain, the only change that we made in the way we presented the numbers in accesses is that we have included Iberbanda. Iberbanda is a small company that we would have 51% control, and basically, we have restated all the number from December 2006, so the number is in the tables in our report, our (inaudible) all the numbers we give, we wanted to give you the favor of the numbers, which are very small. In the fixed lines, it's only 23,000, and in broadband, roughly 60,000, so it's the only change, and it's fairly small.

Thanks very much.

Next question, please?

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

Yes. It's James Ratzer from New Street Research. I have two questions, please. The first one was just regarding your Mexican business. It seems like you've adopted a slowdown in competitive activity in the first quarter. Your average price per minute seemed to rise for the first quarter in three years, and as a result, your revenue market share in Mexico seems to have stabilized. I was wondering if you could explain your strategy here in a bit more detail in the certain distinct decision you've taken. Do you expect to get more aggressive on pricing in the upcoming quarters?

And the second question was regarding O2 UK. The rate of growth in this business continues to be pretty phenomenal. Your service revenue growth accelerated to the highest level in five quarters. Is there anything on the horizon that means you can't continue that rate of growth over the full year? Thank you very much.

Well, thanks for your question. Taking the Mexican market, first, we have basically in this first quarter, we have slightly changed one of the promotions that we were making in terms of not adding so many free minutes. But you could state that we'll keep pursuing the same strategy of maintaining or even lowering the ARPM in terms of, because for us, the elasticity effect has been proved to be very positive. And we think that that's the right way to approach that market--which is, by the way, growing very significantly. Our ARPU has been increasing in the first quarter of this year in spite of the seasonal effect of Easter. We have been able to increase ARPU. And we have been also having a, I would say, a significant and sound share of minutes. So for us, the Mexico market has proven to be very sound this first quarter.

Take also into consideration that we have a different criterion base, and when you convert different articles between ours and Bell South, the client base calculation is different. We clean up the client base after 90 days of non-activity, which is different. So I think that the levels of ARPU are probably not comparable, even though we have been able to (inaudible) during the first quarter.

And on top of that, while our minutes of usage is growing, which is also important for our strategy, so we tend to think that the proposal that the, the value proposition that we have made to customers in Mexico has proven to be successful, and we'll keep going in the same direction.

Revenue growth potentially will accelerate, and as we go through the year?

Well, we've been going in the same direction. We are right now in the 19% market share in terms of total customer base, but again, take into consideration that the customer bases are probably not comparable. Ours has a different (inaudible) and much more restrictive criteria than our competitor. So yes, we keep going in the same direction.

James, this is Matt Key here. I'll pick up the O2 UK question. Yes, in 13% growth in quarter one, we were clearly very pleased with. We expect it to outperform the market, and I think we will continue to outperform the market for the balance of the year. I think the outstanding question for us is, will we continue to outperform the market as we did in the first quarter? And I think that does have to be questionable, because you must see how our competitors react, I think, to the results we're producing in the UK.

Okay. Thank you very much.

Next question, please?

Our next question comes from line of John Karidis. Please go ahead, announcing your company name.

Thank you very much. It's MF Global. I have two question, please. Firstly, is it possible to get some guidance on tax, both in terms of P&L tax rate and cash tax? If it's possible, for the full year and maybe for an extra year, that would be great.

And secondly, in Germany, yesterday the regulator announced a naked DSL rate of EUR 20. Is this close to irrelevant for your business in your local unbundling business in Germany, or does it actually undermine it?

This is Santiago. Let me take the tax question first. We don't provide specific guidance, but I can give you an idea of where things might be headed. Two things have happened this year, and it is happening in some of the European markets where we're most exposed and tax rates have come down. The Spanish tax rate has come down from 32.5% to 30%, and that is bound to have a positive P&L effect as the flows of this year would be, on the tax terms, lower than those of last year.

We have a very varied array of businesses in Latin America, where the tax rates and the tax systems are widely divergent, so it's hard to generalize. With the things that this year's P&L tax rate should come lower by one or two percentage points relative to last year's as other countries like Germany have also been included in the lower tax rates.

And in the cash terms, it's highly volatile on a quarterly basis, but we should end up 2008 with a slightly higher cash tax consumption than last year. The Q1 number, which is about 50% of cash tax over P&L tax, is unlikely to continue, and I would expect the number to be closer to last year's average, or last year's Q1, which is closer to two-thirds or so. So you know, in order to model that, although I insist it is highly volatile, anywhere from 50% to 66% seems a sensible approach.

Yes, hi, John. I'll pick up the German question. I think the first thing to state is it was broadly with where we thought it would be. And interestingly, we've got a balance in our business because, obviously, we've got a retail DSL business as well as our local unbundling business. So clearly, it may bring some more pressure on the local loop unbundling part of our business, but probably brings us some potential upside on the retail side. And the other thing I would say is on the wholesale side, clearly we've got out partners and it's not just a matter of price. There's also a matter of quality as well, so I would take out that it was broadly in line with where we expected it to come out.

Great, gentlemen. Thank you.

Our next question comes from the line of Luis Prota. Please go ahead, announcing your company name.

Yes, hello. Luis Prota from Morgan Stanley. I have two questions. The first one is whether you can clarify if you have included any kind of one-off charge this quarter to reflect the retroactive tax in this stream tariff recently by the regulator.

And the second question is, following your exit from Sogecable and the speculation on new issue holders that are coming to Prisa, do you see any (inaudible) change to your strategy in content or any other implications business-wide?

Yes, this is Guillermo, and regarding the question in Spain, yes. We do have one one-time effect, negative effect, that is recorded in our numbers. Basically, have an impact of EUR 18 million in the OIBDA. This is the retroactive effect of the OIBDA new regulation. We do not agree, we're not agreed with this regulation. We are now applying against this regulation, but we are accounted in this, and it's drawing a negative effect. Fortunately, the business absorbed, and positive effects have absorbed this impact, so the growth that we're having in Iberia, in Spain, is more in line with guidance.

And Luis, this is Julio Linares. As you know, we have commercial agreements with Sogecable regarding bundles in both sites for both companies in relation to that regarding content. And those agreements are working. We are very pleased with the way that they are evolving, and of course, we are going to continue this kind of cooperation with Sogecable.

Next question, please?

Our next question comes from the line of Guy Peddy. Please go ahead, announcing your company name.

Yes, hello. It's Guy Peddy from Macquarie. Two quick questions. Firstly, aiming up to Matthew. In the UK, Matthew, retail base overs, which should be shocking, but your performance has clearly been absolutely exceptional in Q1, but do you think that you have flexibility in your business, your models be proactive, and as you touch your voice pricing given the fact that the UK consumer continues to pay what is a relatively high actual revenue yields relative to, for example, other markets, and especially your own German property?

And on the secondly question, Santiago, you highlighted the effect of interest rate with a rate just over 6.2% in Q1. But you've got a target of just 6% for the full year. Can you just talk us through how you expect the interest rates to decline, and what will be the drivers of those in the coming quarters? Thank you very much.

So I'll pick up the UK questions first, Santiago. Yes, I think the reason for our key success in the UK, Guy, is basically we're doing the right thing for customers and what customers want. And I would use an example of Simplicity in the UK, which, when we looked to the market last summer, we felt there was a room for a SIM-only proposition without a handset that gave good value in terms of the rate, in terms of pence per minute, and was a 30-day rolling contract, which effectively meant people didn't have to commit to 18 months or two years when they were a little bit nervous about the economic outlook. So, and on that one product, we've now got over half a million customers. So I would say that what we've done in the UK has absolutely done the right thing for the customer and produced products that the customers love. So very happy with that performance and don't see any reason why we can't continue to win in the market.

And in terms of the evolution of interest and of the rate of interest cost. The main reason why we're expecting to converge lower than what they are is that in Q1 we have registered a strong increase in costs coming from the mark into market of the value of our personnel liabilities. This has had a--and I'm speaking off the top of my head--something like EUR 200 million. It is, in our view, unlikely that this mark into market will be necessary again, as the interest rates that we are now going through are more stable relative to Q1 than they were relative to Q4. It is that, together with the interest rates that we have already fixed, and the environment of interest rates, that makes us believe that we are going to end the year, as we said, around the 6% level.

Next question, please?

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

Yes, thank you. It's David George from Credit Suisse. I have a couple of questions. Firstly, on the fiber trials in Spain. Could you update us on your progress there? And specifically, I think we've had a number of comments now from the CMC on how they see the regulation of fiber developing. I wonder if you could give us your thoughts on how you feel about that and when we might see the start of a more full-scale fiber build in Spain. Is that possibly next year?

And secondly, just going back to the domestic trends question on the Spanish mobile. Just on the ARPU outlook for the rest of the year, obviously, some of these roaming cuts will begin to drop out in H2, but you also have some termination rate cuts to come. So I wondered how do you see that ARPU trend evolving? Is it possible to see a better ARPU trend in the second half of the year?

David, it's Guillermo. Regarding the fiber, we do have authorization to do a new pilot in fiber to the home up to 5,000 clients, and we agreed that we are not going to win back clients from the conditions, so it's basically for our clients or new clients. This pilot will help us to keep improving all the processes and the valuable decisions for plans and the technical and commercial side.

Regarding full-scale launching, we have not, we have not been authorized outright yet to launch our retail fiber to the home services. We expect, or we hope, to launch these services in the last part of this year, but it will depend on regulation. We are analyzing the, last Thursday resolution from the regulator, and we have to see if we are able to launch it this year or we have to delay it until next year. But our intention is to launch it as soon as possible.

Regarding the trends in ARPU, there are several, as you know, several things impacting on the positive side. Data ARPU is behaving very healthy and very strong, and the trends in connectivity, we see that that will continue and will continue in a positive way in data connectivity. Regarding SMS, that will also continue along the same trends as we have seen the last six months. Regarding a free minutes (inaudible), we do have a campaign this quarter that will not be repeated in the following quarter, but we will have similar campaigns, maybe later in the third and the fourth quarter, so that will have a discontinuated quarter-on-quarter basis.

And regarding incoming ARPU, as you know, that's affected, as you mentioned, by the MTR cuts that are in April and October, so it's something that we can focus on. And, as you know, the decreases we have is lower than the competitors' cuts because we are compressing to the same number and to their (inaudible), and so the decrease is negative for us, but it's more negative for the competition.

And regarding the rest of voice, that will depend, of course, on the MOU evolution, and the trend that we are seeing in the last six months, we hope that will continue in the rest of the year. And we are also planning for several target measures in order to boost MOU consumption with a note that we understand that that's very challenging in this year, but we will continue working on those lines.

So all in all, it's very hard to predict the number for the rest of the year. We have to take a closer look, but there are some positive trends and some challenges ahead of us.

Next question, please?

Our next question comes from the line of Mathieu Robilliard. Please go ahead, announcing your company name.

Yes, good afternoon. Mathieu Robilliard, Exane BNP Paribas. I have two questions regarding Latin America. First, at Telesp, it seems their margins are a bit under pressure. It seems that you are facing a lot of competition from cable operators in Brazil, and that forces you to integrate different platforms to do triple-play now. How, when do you think you can contain that margin pressure? Because for the moment, as far as I understand, IPTV's forbidden, and in terms of the personnel, you've already done quite a lot. So is there a moment where you think you can stabilize your margins there?

And then a second question, also on margins in Argentina. An official inflation is apparently running above 20%. And a lot of your tariffs are actually regulated, and you can't increase your prices. So how are you going to escape also margin compression in Argentina fixed? Thank you.

Yes, thanks for your question. Considering Telesp, of course, it's, if you run the comparison, the first quarter of 2007 versus this first quarter, you need to, I would say, differentiate some of our mistakes that we had in the first quarter of 2007 like the real estate sale of [Compella]. Out of that, you net that and if you take into consideration the fact that also in this quarter we have been including a contingency, which is a fine that the regulator imposed to us, imposed on the media. We keep fighting but we have been accounting.

And on top of that, if you consider the restructuring provision that we have been also including in the last quarters, you will find that in the margin that we are having in Telesp in this first quarter of 2008, compared with the last quarter of 2007, is basically the same, in the neighborhood of 39%. So we are starting to stabilize margin. It's taking us a while. Take into consideration also that the products of Telesp in terms of revenue is completely changing. We are now having more bundles. We are now having more TV and more broadband. And the bank of those businesses is out of the total revenue of Telesp is increasing, and those businesses have lower margins than the previous ones.

And you are right. We keep doing a significant effort in terms of labor costs, that take us in a, I would say, a non-ending look for efficiency. And I think that we still have looked when you take us into consideration that in terms of restructuring of the payroll, 1,000 people have been leaving Telesp in April. Those are cutting through in March. So we keep going to the efficiency practice. So I, (inaudible) the comment I just made, roughly the EBDA margin is more or less similar or the same in the last quarter of 2007 and in this quarter of 2008.

In Argentina the situation is different because of the impact of inflation. You are right. We are taking significant pressure from the inflation point of view, and we have not been able to impact that totally in the revenue line, in spite of the fact that we are only 10% of revenues in Argentina. So we keep looking for efficiency, and we keep asking them, and talking with the government that, that also they take consideration that we are increasing also the transformation effect in terms of bundling, when we bundled, we are effectively having like the price increases. So we'll keep you posted. Basically, in Telesp, we think we're on the right track. And in Argentina, we will see to, waiting to see for another ways to contain inflation in the push that we are having right now.

Thank you.

We'll have time for the last question, please?

Our last question comes from the line of [Evan Lell]. Please go ahead, announcing your company name.

Hello. Good afternoon, gentlemen. This is Juan Tuesta. A couple of questions. The first one on coming back to the domestic business and very specifically, the broadband business. We've seen a sound number of subscriber growth in the first quarter of the year, though the revenues growth just grew by 11%, which shows a slight weakness on the ARPU. I would be concerned that in fact your most aggressive promotions in terms of broadband offers have come up, I think, in March and April, so should we be concerned about the ARPU decreases in the present business in Spain? And if that's the case, do you think you'll be able to compensate that through a stronger increasing in subscribers?

And the second question is regarding Latin America. Given that seeing your presentation, now Venezuela is one of the countries which most supports growth in the region, how comfortable do you feel about the possibilities about repatriating the dividends from the country? I think that in the previous quarter you were pending the authoritation on repatriating dividends, I think, from years 2005 and 2006? Do you have, did you have the okay on that? And how comfortable do you feel on how that is going to develop in the future? Thanks.

This is, Juan, this is Guillermo. So you have a revenue question about the domestic program. When you see the numbers of broadband income, you have to take an accounting of, obviously, the retail side and the wholesale side. So that's effective for both effects, the retail and the wholesale. And the wholesale, as you know, there have been reductions in the fees we charge to the players in the (inaudible), so that affects also our members. Regarding the retail, take into account we have also connectivity and value-added services. And as you know, we, our connectivity, our view is with this being reduced by between 5% to 6% on a yearly basis. And we are growing in value of the services, and (inaudible) is part of that. And so the net impact, so you have to note the effects wholesale, value-added services, and also domestic retail connectivity.

Regarding connectivity, as you mentioned, we launched new products on the lower-end side and on the upper side of our portfolio. On the lower side is 19.9 and one megabytes with limitation of download capacity to three gigabytes and at 29.9. Both are bundled with voice and one megabyte. And so, and on the upper side, we have been selling from the last quarter the 10-megabytes. So the end here is to sell as much as possible of lower and higher product portfolios so as to defend the connectivity. So basically, that's the game we're trying to play. We're going to keep on adding services from the upper part of the portfolio, and we have to monitor that in order to sustain our revenue. But that's the trick to sustain connectivity so the decrease is more than 5%, 6%, or 7%, and to keep on selling value-added services.

With regard to your question about Venezuela and their dividend trouble, they are, yes, the one that was pending was signed and approved, I think it's two weeks ago, and we're submitting the approval. So for the time being, we are not seeing any major difficulties on having those approvals being done. So we'll keep you posted on that, but for the time being, I think things are running normally.

Well, ladies and gentlemen, with this we bring this conference call to an end. We appreciate your presence and your interest, and let me remind you that our investor relations team is available to answer any further questions that you might have. Thank you.

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