Telefonica SA (TEF) 2012 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Telefonica's January-December 2012 results conference call. At this time, all participants are in a listening-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, today's conference is being recorded. I would now like to turn the call over to Mr. Pablo Eguiron, Head of Investor Relations. Please go ahead, sir.

Good afternoon, ladies and gentlemen, and welcome to Telefonica's conference call to discuss January-December 2012 results. I am Pablo Eguiron, Head of Investor Relations.

Before proceeding, let me mention that this document contains financial information that has been prepared under International Financial Reporting Standards. This financial information is not audited.

This presentation may contain announcements that constitute forward-looking statements, which are not warranties of future performance and involve risk and uncertainties. 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 our presentation, which you will find in 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, 3-491-482-8700.

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

Thank you, Pablo. Good afternoon, ladies and gentlemen, and welcome to the Telefonica 2012 results conference call. Today with me are all the members of the executive committee. So during the question-and-answer session, they will have the opportunity to answer the questions you may have.

Let me start with the highlights of 2012. We are in the middle of a strong operational transformation that is starting clearly to bear fruit. LatAm is delivering quality growth and (inaudible) profitability, with Brazil as a cornerstone expanding its market leadership.

In Europe, 2012 has been a year of strategic change with Spain at the forefront. Fusion is a clear commercial success, (inaudible) rich margin breakeven in December net adds. In addition, there has been a strong EBITDA margin expansion and year-on-year growth in operating cash flow in the fourth quarter. All this is reflected in the further sequential cost containment and margin expansion across the whole group, along with earnings per share and free cash flow per share to continue expanding in underlying (inaudible), which, in 2012, are twice the announced dividend per share for 2013.

In addition to this operating progress, we have regained our financial flexibility with a strong deleverage, which will continue clearly in 2013.

If you turn to the next slide, you can see that 2012 has been a year in which we have adopted bold decisions to transform our business across the board. One of the goals of this transformation effort is to lead the Company towards a very sustainable top-line growth. The creation of Telefonica Digital, the growing contribution of LatAm with more than 50% of our revenues, the innovation of our offers and the increase of data contribution are clearly initiatives to recover our traditional (inaudible) within this industry.

We are also leading the sector in a new commercial model, moving away from the model based on new subsidies, incentivizing customer rotation to a new one oriented to increase customer satisfaction, breaking the rules through new proposals. Simplification has been one of our top priorities, simplification across the board, from simple tariff to simplifying the entire organization. These (inaudible), among other things, to significantly reduce legacy to increase the focus on core activities within media returns in terms of efficiency.

In terms of CapEx, optimization has been key. We want to have the best network, but we have a new approach with network sharing and co-investments. And at the same time, efficiencies through lower churn are at the center of our strategy.

Lastly, I also want to highlight that, in just six months, we have regained our financial flexibility. One (inaudible) consequence of all this is that we have recovered operating cash flow organic growth in the fourth quarter.

On slide number 4, I would like to show the results that this transformation is already delivering. In the first place, the better organic revenue performance is driven by Telefonica LatAm and (inaudible), accelerating organic growth trends. Some examples of this business transformation are the outstanding commercial traction of mobile broadband and fee broadband and the increase of difficult sales. Together (inaudible) the [margin], I would like to highlight our progress towards OIBDA stabilization on the back of strong executional skills.

Cost transformation by eliminating subsidies in Spain and other operating core reductions in different areas. In addition, disciplined CapEx management along the year has very positively impacted operating cash flow, reaching almost EUR13 billion in 2012 and 6.2% year-on-year organic in the fourth quarter reversing previous trends.

As slide number 5 outlines, earnings per share continued the progression quarter-on-quarter, reaching EUR0.46 in the fourth quarter in underlying terms. Underlying earnings per share up to December was EUR1.44 and the figure 4%, EUR1.55, providing a strong comfort about the full (inaudible) stability of our EUR0.75 cash dividend commitment for 2013.

In terms of financial flexibility, the reduction of our net debt figure to EUR51 million as of December is very significant. Reducing leverage 0.3 times in just six months demonstrates Telefonica capacity to deliver it and also (inaudible) at the end of the year is materially much higher than the last year figure.

Moving to slide number 6, our operational transformation has already begun in 2012, some by OIBDA progression. In absolute terms, underlying OIBDA grew sequentially from the third quarter in a row at the group and at the regional level. OIBDA margin grew to 37% in the fourth quarter and expanded growth to 200 basis points quarter-on-quarter.

Let me highlight that year-on-year margin improved 10 basis points in the fourth quarter, changing negative trends registered in the previous quarter. Important, the first year-on-year improvements in the first quarter of 2009, even despite the lower contribution from tower sales. [With] that, progress in margin recovery drove OIBDA stabilization year-on-year. And now, let me hand over to our Chief Operating Officer, Jose Maria Alvarez-Pallete, who will discuss in a more detail fashioned our operating transformational strategy.

Thank you, Cesar. Please move to slide 7 where I will provide you examples of our operational transformation. In Spain, the new commercial model is a clear example of our transformational approach. The process started in mid-2011 with the launch of new targets, which drove both to lower ARPU and lower churn.

The second step was to remove mobile subsidies in acquisition leading to lower commercial expenses. Simplification and focus on quality followed to end with a quad play offer of Movistar Fusion. Fusion implies lower ARPU at the beginning, but it brings also lower commercial cost, benefits from lower churn and high-value share gains. It does not only work commercially, it also works very well in financial terms leading to visible results. These demonstrate how acquisition of high-value customers is compatible with our rational commercial model making in addition the model more sustainable.

Another example of our focus on higher sustainability is in LatAm reflected in our data-centric services. In this process, we are leading sector transformation. We have the best starting point because we have the largest customer base in the region. Our focus now is in leading the smartphone adoption and thus to evolve the business towards data. This growth is more expensive short term, but it is more sustainable as well, as it is based in differential quality and higher customer loyalty.

Turning to the next slide, let me review the progress made by Telefonica Digital with our platform to capture the value opportunities in the digital world. First, we continue innovating in the development of new communication services in order to strengthen the telecommunication environment. Let me highlight that the first handset with Firefox OS will be launched in Spain, Brazil, Colombia and Venezuela during summer 2013.

Second, we have launched a number of digital services, leveraging our global approach and focusing financial services, cloud computing, machine-to-machine security and video communications.

And third, now we have a larger (inaudible) relationship with our customers, which places us in a privileged position to maximize our customer base value. These assets and the skills are fostering the transformation of our core business and they are already driving growth.

Going forward, we aim to continue accelerating innovation, working on building our overall platforms, but also reaching agreements with third parties on partnerships to fulfill our target of transforming Telefonica into the leading digital telco.

Moving to slide number 9, we continue to invest to bring enhanced propositions to our customers. These efforts have allowed us to grow our customer base by 3% year-on-year to 360 million accesses. We recorded a strong acceleration in net adds in the fourth quarter of the year, especially mobile, driven by record smartphone sales and the superior increase in the contract segment. At the same time, fixed broadband and fixed line improved momentum, especially in Spain after the launch of our successful conversion of Movistar Fusion.

Lastly, we are doing a selective deployment of ultra-broadband services in the markets that meet potential demand, regulation and competition. At the end of the year, approximately 26% of our fixed assets are currently ready for commercial ultra-broadband services and out of them, 9% are already connected.

Slide number 10 details the evolution of Telefonica's revenue mix. We are increasing the capture and growth opportunities allowing to offset headwinds in Europe. Latin America continued to be our margin growth engine and kept posting growth acceleration in the fourth quarter to 7.5% year-on-year, purely organic. This performance led group revenues to show a sequential improvement of 0.8 percentage points. It is worth highlighting the remarkable performance of the (inaudible) revenues in the first year of operation.

On the mobile data business, a key strategic area for Telefonica, we are recording strong results. Fourth-quarter non-SMS data revenues continued to deliver a sustained ramp-up in their year-on-year organic increase and already account for 60% of data revenues on the back of our profitable data monetization strategy.

It is worth highlighting the very rapid expansion of smartphone penetration that reached 19% at the year-end, 6 percentage points more than a year ago. This represents a huge potential hit mainly in Latin America.

Let's turn to slide number 11 to talk about efficiency. I would like to stress the substantial sequential reduction in OpEx in the fourth quarter, consistent with performance posted in the last two quarters. This is the result of efficiency improvements, cost control measures and significantly declining commercial cost due to a much more rational approach to subsidies across geographies and in spite of record smartphones sales.

Such good progress of profitability along 2012 reflected firm actions in cost efficiency highlighting, among others, overhead, simplification of processes, quality of services, outsourcing, call center, new data centers and synergies from integration of operations.

January-December of 2012 profitability stood at 34.9% with a very limited year-on-year decline reflecting higher network and system cost to expand network coverage and capacity and commercial costs on the back of a very rapid smartphone adoption.

Please turn to slide 12 for an update of our investment profile. In 2012, CapEx in growth areas has significantly increased, especially in fiber, up 50% year-on-year followed by mobile 3G and 4G networks and with higher effort executed in our Latin American region. Overall, total investment remains stable despite the increased CapEx and growth thanks to the prioritization of deployments and benefiting from improved purchase efficiency and the positive impact from churn reduction.

It is also important to highlight that we have a complete spectrum up in the most relevant markets with the last acquisition in UK demonstrating our commitment to drive future growth in our countries of operation at a reasonable price. As a result, in 2012, we have been able to continue transforming our networks, investing in high-speed broadband, both fixed and mobile, while keeping CapEx to sales ratio at 14.2% flat versus 2011. With all this, I would like to highlight that operating cash flow grew 6.2% organically year-on-year in the fourth quarter.

Main accomplishments reached by global resources (inaudible) are on IT, devices, global sourcing and networks on operations. In IT, we have achieved significant savings in both OpEx and CapEx, mainly thanks to the efforts ran around simplifications and new data centers. In devices, scale is playing a significant role, increasing the value of global negotiations and portfolio optimization. We aim to have in 2013 an even more balanced vendor map.

Global sourcing was also central for increased savings while the most visible results come from network savings and asset optimization. TGR is also contributing in our global position approach to multinationals thanks to our scale benefits. Let me now hand over to our Group CFO, Angel Vila who will take us through the detailed group and regional results.

Thank you, Jose Maria. Please turn now to slide number 14 to start with a detailed review of full-year results. Both in 2012 and 2011, we booked several significant exceptional items with fourth-quarter numbers being particularly impacted by first the reduction in the value of telecom Italy investment; second, impairment recognizing the value of Telefonica Ireland; and third, the devaluation in Venezuela.

So to better understand the underlying performance of the Company, we are providing a P&L excluding those nonrecurrent effects and non-cash impacts. In those terms, revenue reached EUR62.4 billion in 2012, down 0.7% year-on-year while OIBDA topped EUR21.7 million with a margin decline of 1.3 percentage points, a lesser margin decline compared to last year and posting a better performance for the third quarter in a row. Underlying net income totaled EUR6.5 billion with an EPS of EUR1.44 per share.

I would also like to highlight that although material items such as the asset write-downs are flowing into the P&L, there are other transactions that are enhancing our equity, but not flowing through the P&L. For example, the restructuring of the Colombian operations increased shareholders' equity by EUR1.6 billion.

Let me now summarize our operations by region starting with Latin America. In 2012, our selective commercial strategy delivered the results (inaudible). Revenue growth outpaced accesses growth as we continued to leverage on booming mobile data and remaining opportunities on increased mobile voice usage while continuing to transform our fixed operations. Hence, revenue continued accelerating in Q4 at 7.5% year-on-year organic terms whilst profitability remained strong with OIBDA growing year-on-year at 1.6% and OIBDA margin above 40% in the quarter with a lower contribution of tower sales compared to one year ago.

Please turn now to slide 16 to review our Brazilian operation. 2012 was a key milestone in our transformation journey towards fixed and mobile integration while consistently improving the quality of our services and the satisfaction of our customers. In the fourth quarter, commercial activity in the higher value segments of the mobile market remained strong driven by our top service quality.

In the fixed business, we are in the process of changing the dynamics as proven by the innovative services launched this quarter. As a result, revenues accelerated in Q4 fueled by the outstanding performance in the mobile business, which already represents almost two-thirds of total sales. Our successful strategy resulted in a solid revenue trend outperforming the market and gradually expanding this gap. On the fixed side convergent offers are limiting erosion in the traditional business.

Turning to slide number 17, let me stress that profitability of our Brazilian operation is consistently improving. We kept gaining OIBDA marketshare quarter after quarter as annual growth progressively improved along the year reaching an outstanding performance in Q4. OIBDA margin stood at almost 45% and expanded on a yearly and on a sequential basis on the back of efficiencies implemented throughout the year. On top of that, despite maintaining strong CapEx efforts at 15% of sales, integration benefits continued flowing to bottom line with a strong cash flow generation.

In the next slides, we review the operational performance of the rest of the countries in Latin America. In Mexico, we keep focused on the turnaround process that, as Q4 showed, is starting to deliver results with commercial activity progressively improving and financial metrics also posting a gradual recovery.

Mobile service revenues increased by 2.7% year-on-year in Q4 and our OIBDA margin continued improving sequentially and reached 31.4%. Our operation in Venezuela showed an impressive operational performance and meet increased profitability. And in Colombia, I would like to highlight that the benefits stemming from the integration of the fixed and mobile businesses are starting to be reflected on the results with operating cash flow growing by more than 30% year-on-year in 2012.

Turning now to the southern region, let me highlight the positive results delivered in Peru across all metrics with sustained commercial momentum along with healthy sales growth and profitability. In Argentina, improved commercial activity from Q3 continued this quarter while revenues and OIBDA margin accelerated. And in Chile, we continued posting solid growth and profitability amid a highly competitive environment.

Let me now review the performance of our operations in Europe. 2012 has been a year of strategic change for Telefonica Europe delivering the right balance between customer growth and profitability. Successful commercial moves in key markets led to sustained momentum in contract mobile throughout the year and a solid uptake of smartphones leading penetration to 35%, up 8 percentage points year-on-year.

Growth strongly accelerated in Q4 thanks to Movistar Fusion in Spain. The good news is that we achieved this commercial traction with lower operating costs, down 7% year-on-year thanks to the transformation initiatives put in place across the footprint focused on optimizing the allocation of strategic costs and investments.

So efficiency gains and the continued monetization of tiered data resulted in a sequential improvement of profitability and with Q4 margins posting a year-on-year expansion despite continued revenue pressure. No doubt, we have laid the foundations for future growth.

Please turn now to slide number 21 to start reviewing the Spanish business. The successful execution of our transformation, which started back in September 2011, has already delivered visible results with clear improvement at both OIBDA and operating cash flow levels throughout the year. Telefonica de Espana has been able to manage the continued top-line pressure due to tariff repositioning and lower usage with multiple initiatives of cost-cutting across the board.

The strong focus on quality increased customer satisfaction and lowered claims and churn. Subsidies removal and portfolio simplification processes and personnel have driven a sharp OpEx decline. As a result, OIBDA has been stabilized while OIBDA margin year-on-year trend has sequentially improved to 47.2% in the last quarter, 5.5 percentage points above previous year.

On top of that, we increased the resources devoted to fiber. And at the same time, we reduced overall CapEx positively impacting cash flow. As a result, efficiency gains offset revenue declines in Q4 and operating cash flow increased by almost 8% year-on-year returning to growth. All in all, I would like to stress that this strategy that dramatically changed the business model has set the basis to keep commercial traction in 2013 while delivering sustainable cost savings.

Let me now update you on the progress made by Movistar Fusion, a key step in our transformation journey. Movistar Fusion is a revolution in the Spanish marketplace where convergence is the new name of the game. Our priority was to recover leadership in the market and in just five months, we have achieved this goal.

Our quadruple play offer leveraged on our integrated profile has made in a stagnated market to grow again in a more profitable way. More than 1.5 million customers have already signed to Movistar Fusion. As of December, more than 30% Fusion customers have contracted new mobile or fixed broadband services. But Fusion is not only helping to get new customers, it is also accelerating the take-up of high-value services such as fiber and mobile broadband. So Fusion has improved our commercial performance as shown by Q4 net adds, the lowest loss in fixed telephone in five years and the highest additions in fixed broadband since the second quarter of 2008.

Looking at the financials, top-line dilution of Movistar Fusion is easing with an increasing proportion of upselling and new customers joining in. So we are on track for Fusion revenue (inaudible) in 2013.

On the cost side, savings in commercial costs are material on the back of no subsidies, lower acquisition and billing costs and lower churn. All in all, Movistar Fusion is on the right path to be margin accretive. Considering just December, net adds of Fusion have already reached margin breakeven.

Turning now to slide number 23, Telefonica UK consolidated the success of the commercial strategy started in Q3 '11 and regained momentum specifically in the contract segment with contract mix up 3 percentage points year-on-year reaching 52%. As a result, we continue closing the gap in terms of revenue performance versus competitors with market-leading profitability.

It should also be noted that we continue to gain high-value customers with an expansion of more than 3% of the customer base and noticeable reductions in both prepaid and postpaid churn. The strong commercial traction flows into financials with underlying revenue trends moving towards growth by the last quarter of the year.

In parallel, we balanced the right equation of growth and profitability with the first half of the year heavily impacted by the higher commercial activity while in the second half, we show more comparable trading.

Lastly, let me stress that Telefonica UK has successfully secured two blocks of 10 megahertz in the 800 megahertz spectrum band for a total investment of GBP550 million.

To review our operation in Germany, please turn to slide 24. Let me highlight our sustained trading momentum in the contract segment that is supported by the continuous improvement of contract churn as we focus on the right balance between growth and value. This, together with a successful data monetization strategy, led to grow revenues despite MTR cuts in December and to gain mobile service revenue share outperforming competitors throughout 2012.

The higher ARPU of new customers versus churners is the main growth lever, though revenues showed an acceleration in Q4 year-on-year due to the increased renewals of the early launch integrated (inaudible) portfolio within the base. On the profitability side, continued sales growth and scale benefits flow into OIBDA, up 5% year-on-year in Q4 leading to OIBDA margin expansion. CapEx grew as we invested in LTE, reaching a 15% 4G coverage at the end of 2012 and operating cash flow is up 12% year-on-year in 2012.

Let's now move to the financial side on slide 25. Net financial debt has been reduced by EUR5 billion during the year, mainly thanks to our strong cash flow generation generally with our successful portfolio management execution. As a result, our leverage ratio has improved dramatically to reach 2.358 times OIBDA, minimally above our target leverage commitment. Importantly, we will continue our deleverage in 2013 backed by our cash flow generation, as well as continuous asset rationalization measures to place ourselves comfortably below the 2.35 times net debt to OIBDA.

We have delivered almost EUR7 billion of free cash flow as a result of better operating performance and working capital contribution as quarters were progressing. Free cash flow per share reached EUR1.55, comfortably covering our 0.75 cash dividend commitment.

Slide number 26 shows our outstanding and diversified financing activity in 2012 where we raised close to EUR15 billion, complemented by an additional EUR4 billion in the first two months of this year. Our financial policy has placed our average debt life at 6.4 years and has steadily reinforced our liquidity position up to EUR21 billion covering well in excess of two years' maturities. We have also improved the quality of our liquidity with substantial cash balances and higher percentage of long-term and new committed credit lines. Our access to markets is normalized.

To wrap up, we have kept our effective interest cost at 5.37% decreasing from Q3 and standing at the lower part of our medium-term guidance despite the burden of a high cash position.

Now let me return the presentation to our Executive Chairman and CEO, Cesar Alierta, who will outline the guidance and priorities for 2013.

Thank you, Angel. Let me now highlight our guidance for this year. 2013 is going to be the year when we recover our growth DNA while we keep reducing our leverage. We will go back to revenue growth with revenue trends in Europe stabilizing in the first part of the year and starting to record a gain in the second part. In Latin America, revenue growth will continue strong throughout the year based on a customer-based expansion, increased mobile presentation and data revenue growth.

We will also keep limiting the OIBDA margin erosion delivering benchmark OIBDA margin leverage on a strong diversification and scale. Let me stress that we will do all that while maintaining our CapEx sales level, allowing us to keep transforming the Company. On the financial guidance, the leverage will continue in 2013 with a final goal of net finance debt lower than EUR47 billion at year-end.

In slide number 28, we summarize our 2013 priorities. In Europe, Spain leads the transformation and simplification of the commercial approach and we will continue accelerating this journey in 2013, which is already driving lower OpEx and CapEx. The commercial momentum seen in UK with innovative propositions will continue how we will do a rational deployment of the 4G network. In Germany, we aim to continue outperforming the mobile market share while improving the margins.

Moving to Latin America and starting with Brazil, we already are working hard on the fixed business turnaround while keeping the full focus on maintaining the mobile business outperformance leverage on our top-quality proposal. On the other hand, on a regional level, we are also focused on exploiting the benefits of further efficiency gains while we will grab the advantages and opportunities that our regional footprint provides us.

At the same time, Telefonica Digital will continue fostering digital growth, leveraging our core assets and building powerful positions through partnerships. On top of that, scale benefits from Telefonica Global Resources will further contribute to Telefonica operating excellence.

To conclude, let me highlight. First, we have reinforced our growth model in 2012, a solid execution of the transformation initiative is delivering visible results. Second, we have regained financial flexibility. Third, we have delivered on our 2012 guidance and fourth, we are able to provide you with a very realistic outlook for 2013. Thank you very much and now all of us, the members of the (inaudible) are ready to answer your questions.

(Operator Instructions). Georgios Ierodiaconou, Citi.

Good afternoon. I have two questions. My first question is on asset portfolio management. You have got an extensive portfolio of real estate assets and you started monetizing them the last couple of years. There are some reports in the Spanish press suggesting that you are planning EUR2.5 billion of disposals of towers in Spain and Brazil this year. Is it something that you are considering and should we think of this process come on top of what you guided and therefore, the EUR47 billion of net debt position could actually end up being much lower?

And if possible, could you give us an indication of the multiples you have received on the tower sales last year in terms of the sale price compared to the lease rent that you pay?

And my second question is related to page 11 and the OpEx evolution in the fourth quarter. When I look at the guidance, it suggests that you will have some margin erosion in 2013. So I was wondering whether this is down to specific reasons having made the fourth-quarter numbers look better perhaps on the underlying trend or whether you are leaving yourselves with some room for commercial expenses to go up. Thank you.

Thank you. This is Cesar Alierta. First, I want to make clear, very clear, when I said now we are very realistic that our net debt by the end of 2013 will be below EUR47 billion, I have to say two things. This will be -- as Angel said, we will be basically down because we are going to have a strong cash flow generation and the second thing, which is very important and is unique to Telefonica, all the portfolio management we are going to do in the coming months, which will result in a deleverage, will at the same time increase the profitability of our business. Telefonica is in a position that we can have the portfolio management in which we will deleverage and at the same time we deleverage, we increase the recurrent -- I want to stress recurrent profitability of our business. And in the coming months, you are going to see.

So we feel so comfortable (inaudible) our (inaudible) that you are going to be surprised when we announce how we do that. This is unique in the industry and it is because the position Telefonica has. And now I hand it to Jose Maria to talk about our (inaudible).

Thanks for your question. On towers, I mean we are not aware of any offer of this size on towers neither in Spain or in Brazil, so we are not contemplating that today. But we are open because we are very open in terms of capital allocation as we have been during 2012. That means that we are reviewing the way we allocate capital. That means that we are considering nonstrategic towers divestment, but always with the financial criteria that financially makes sense in terms of the lease commitments make sense compared to the financial expenses that we are right now, the financial threshold that we have right now. So no plans. Nothing is included from the guidance on that purpose. That doesn't mean that we are not contemplating, but we will be very opportunistic and on a case-by-case basis. Just if it makes sense.

And considering the page 11, the OpEx evolution, most of the efforts that we have done in 2012 are sustainable. That doesn't mean that they are recurring in terms of we cannot keep the level of improvement of those permanently because we will keep growing our commercial efforts in Latin America, but we do think that the commercial efforts (inaudible) that has been done in Europe and mainly in Spain are there to stay.

So in terms of the OpEx evolution, we feel that -- therefore that we have done, by changing the model, effectively changing the model, focusing on quality on churn reduction, on simplification, on making our (inaudible) efforts much more profitable are sustainable. And finally, we have guided that our margin, OIBDA margin erosion is going to be more limited in 2013 than it has been in 2012. So you can make your own calculation on where we are pointing at.

And is it possible to give us a multiple on the (inaudible) sales that you had in 2012?

No, we are not disclosing that information. Sorry.

Thank you.

Thank you, Georgios. Next question please.

Ivon Leal, BBVA.

Yes, good afternoon, everybody. Just two questions. My two questions are on OpEx in Spain. I don't know if you could give us a rough idea of what were the subsidy costs in 2011 and 2012? And the second one is on personnel costs. I think the redundancy program was approved back in third quarter 2011, so I don't know up to which quarter in 2013 we can keep on seeing that 12% decrease in personnel costs that we have seen throughout 2012.

(interpreted) Thank you. With regards to the redundancy program, I think that we have stated that our large-scale organizational restructuring is particularly EUR257 million savings in 2012.

And that is supposed to continue throughout 2013?

(interpreted) Well, we have -- as you know, it was a three-year program. So it is up to 2013, end of 2013. So it started in 2011. We completed the whole program in 2012, which was expected and we will finalize it in 2013. So we are on track.

Okay. What about the subsidy costs?

(interpreted) Yes, in terms of savings in the commercial costs, we believe that they were more than EUR500 million during the financial year 2012, so mainly coming from a new subsidy policy.

And was the -- could you give us the number on the subsidy cost in 2012 just to see how much is left there?

(interpreted) Well, I am afraid that I cannot disclose that information now.

Okay, no problem. Thanks anyway.

(interpreted) Thank you.

Tim Boddy, Goldman Sachs.

Yes, thanks for taking my question. Just some more questions around Fusion really, just trying to understand a few of the statements you have made and obviously the remarkable progress made on costs. First of all, to what extent -- what do you mean by revenue breakeven? Is that the total revenues on the Fusion products, including new customers, are to be the same as beforehand or is this just on the customers within your base adopting Fusion?

And then I guess kind of around that, it would seem that, as we go into Q1 and Q2 particularly, you get a larger revenue pressure because more of -- the customers are taking more of a discount, which is lasting for the whole quarter. So should we look to see a softer first half both in revenue and possibly EBITDA, growth trends in Spain before we get to that point of stability?

The last question I have really is just more of a wider strategic question about Spain where just really how you see the regulatory roadmap panning out. And is it really in your interest to have Vodafone and Orange build yet another fiber infrastructure as opposed to allowing them attractive access to your own fiber? Many thanks.

(interpreted) Thank you very much. Just to clarify, when we speak, that we are working towards revenue breakeven in 2013. Yes, we talk about the totalized clients, so the foreman on the news, so basically the ones who are [other] together with the ones that were already with us. That is the expression. The same way we use it in the what we call breakeven, margin breakeven that were particularly happening in December.

With regards to your second question, again, just to reemphasize what we have stated. Up to December, we had new services accounting for around 30% of the totality and that improved during the quarter. So I can say that we were quite happy. Just to let you know, you know that by the end of December, we accounted for 1.1 total clients and I think that the Head of Spain already expressed that we were up to 1.5 million in February. Jose Maria is saying that --.

I will take your question on regulation and deployment of fiber or basically network sharing as a philosophical approach. We are very open to that. We think it makes not major sense to have so many networks in Europe so very open to share infrastructure at reasonable prices and at reasonable conditions. We have been doing that in Spain namely with (inaudible) you know that and it is public information, so open to conversation because we think that time has come for a more rationalized approach to CapEx and namely to CapEx and networks deployment in Europe.

And just on the first half of 2013, should we see increased pressure on revenue and margin from Fusion before it gets better or you think this is now a very linear type of improvement we should anticipate?

(interpreted) Well, I think that Fusion is one of the components of the total offering in Spain and there are many moving parts in that sense. If we ask ourselves what we want with Fusion, it is clearly we want to achieve the goal of revenue growth. And first thing we need to see that coming from the growth of our customer base. We are, in fact, seeing it as we have mentioned throughout our presentation. And the beauty of this offer is it is not just an offer, it is a concept, which we can focus on specific situations in order to make them be even more important to the offer.

I have to emphasize this is still early days and we are still facing a strong competition, but the capabilities of working on particular efficiencies in each of the services and products that we offer, it is quite important. So I think that I answered.

Great, thank you for your time.

Thank you, Tim. Next question please.

Mathieu Robilliard, Exane BNP Paribas.

Good afternoon and thank you very much. I just wanted to look for a clarification on the guidance. I think that, during the presentation, the Chairman said that revenues in Europe were expected to stabilize and maybe grow in H2. I just wanted to make sure I get that right because, if that is the case, then you are basically expecting Spanish revenues to stabilize because of the size between Spain and the other European assets.

A second question had to do with Spain, very impressive decrease in line loss. Is that due to Fusion in one way or another and is that something you expect to continue into 2013, this low rate of decline? And finally, if I may, are you expecting further spectrum auctions in Brazil this year? Thank you.

Taking your question on the guidance, I mean we start to predict the evolution of the Spanish economy today, but we do foresee a better second half of the year than the first one and Spain has a significant impact in the overall region. So we will keep you posted, but it is true that the guidance implies a better second half of the year compared to the first part.

Trends that we are seeing in the markets, namely in Spain, are still challenging. We are improving in the UK. We are doing better, a little bit better in Spain, but still challenging. So we will see. But it is true that our guidance assumes that the second half of the year is going to be better than the first one.

This is something that the Spanish economy the reality of the Spanish economy at this time is much better than it was earlier, that is a fact and all the trends are pointing in that direction. So this is a fact and it is a reality. Anyway, it's in our giudance (inaudible) very conservative.

(interpreted) In terms of your question regarding if the reduction of line loss was due to Fusion, we believe so. It is due to Fusion. Fusion has marked several impacts into the fixed line business and I think it is important to highlight that we have obtained definitely better fixed line growth than in the last five years with a very positive fixed broadband net adds, which is probably the highest in four years. So Fusion is fostering growth in the fixed broadband market and that is something that we wanted to highlight in the third quarter.

Hi, this is Santiago. In terms of the possibility of a new Brazilian spectrum license, you know that it is under study at the government. We think it is unlikely that all the necessary stages will be completed within this year. The 700 frequency is filled with things that need cleaning up and we will not welcome that spectrum process to take place this year while we are in the middle of the process of deploying LTE for all the sporting events coming up in Brazil. So we have no way of knowing, but certainly we think it is unlikely and we don't support it being anticipated.

Thank you very much.

Giovanni Montalti, UBS.

Good afternoon. Just following up on the improvement in terms of fixed line thanks to Fusion, I was noticing that we do not see these, let's say, (inaudible) of the trend in terms of new full unbundling lines. So I was just wondering if this means that a big share of the clients that are taking Fusion are coming from, let's say, mobile (inaudible). Thank you.

(interpreted) Well, we believe that there is some market growth in that particular piece of the business and we are proving so with the new lines. So there is market growth there and we are capturing it.

Sorry (inaudible), but -- sorry -- can you hear me?

(interpreted) Sure, yes.

Sorry. But is it correct to say that a big chunk of the clients that are taking Fusion do not have any, let's say, fixed broadband connection or fixed -- or not even a traditional fixed line, because this seems, looking at the trend of wholesale unbundling, that you are still strong. Actually in this quarter, it is up versus last quarter, so there is no sequential inversion in the trend of deals and connections? Thank you.

(interpreted) It's actually coming from both, but it is showing growth in the market. I hope this answers.

Thanks very much.

(interpreted) Thank you.

Robin Bienenstock, Sanford Bernstein.

Thanks very much. Two questions, if I may. First, I am just wondering whether a deeper relationship with KDG would make sense for O2 Deutschland and whether that would be coherent with the longer-term strategy towards more unified services. And separately, I'm wondering whether you need to accelerate your wireline investment as well in Brazil given [GBT's] access to Sao Paulo or whether it makes sense to do LTE first and then think more about fiber in Brazil afterwards. Thanks.

(interpreted) Thank you, Robin and I think that basically I don't think we can make any comment on the KDG (inaudible) situation or that possibility. Although I think there has been some statement there.

In our case, what we believe is that every market is particularly different and that, in any case, as we have shown before, we have kept quite an open-minded strategy for particular agreements. So if you look at what we are doing in Germany in particular, we have a special agreement with Deutsche Telekom on VDSL, which is working well and we are doing fiber with DTAG, which, in Sao Paolo as well, shows that we are open for those possibilities.

If you ask us about the particular German market, as you know, it is behaving a lot more rational than other European markets, but it is still knowing the formal up convergence. We would be at least being actively responding to some of potentially these situations by agreements that we have so far.

This is Santiago, Robin. In terms of fixed line investment in Brazil, especially in Sao Paulo, which is where we have an exposure, you know that we don't look so much at competitors than to ourselves. We have a clear problem at substituting old revenue sources with new revenue sources that (inaudible) sell in fiber and that is what we are doing. Whether they will be fast enough to compensate the secular decline in voice revenues remains to be seen, but it has nothing whatsoever to do with GBT because we have very limited overlapping markets with GBT in Sao Paulo.

Yes, my question -- sorry, if I may follow up, my question was really given that GBT now has more access to Sao Paulo and potentially under a new owner, whether you thought that they would be more aggressive in places where they could overlap with you. In other words whether the overlap would increase and therefore whether you needed to build defensively against that.

Well, when they get there, we will be there.

Thanks.

Frederic Boulan, Nomura.

Hi, yes. If I can come back on Spain for a second, so we have had a pretty strong decline in contract mobile subs. Is this acceptable and what can you do to limit the marketshare erosion? What makes you confident customers will remain with Movistar when they need a new handset and (inaudible) pricing, Movistar is now about 50% more expensive than Vodafone and Orange, including handset costs? So do you think this premium is sustainable?

And secondly, to come back on the revenue question, so revenue dropped 13% in Spain this year in 2012. Can you discuss a bit the impact of ongoing macro pressure on your business and where you can realistically improve this top line in 2013 considering the Fusion upward dilution? Thanks a lot.

(interpreted) Thank you very much, Fred. Basically, on the mobile performance in Fusion and in Spain, in particular, I think that the market dynamics have changed significantly from the launch of Fusion. So basically we have seen the market increasing advertising from our competitors. We have seen competitors launching or trying to replicate our offers and very importantly, we have seen new handsets and mobile offering.

After three or four months of Fusion, what we believe is that this is a successful offering, but we need to -- there is room for improvement in execution and particularly, we need to work harder in all the channels to get the offer closer to our customers. We still are in the early days for the financing model, which I think is what you were referring particularly.

I have to say that, month after month, we have seen the market and the customers understanding a lot better our offering and financing. This was better understood in other parts of Europe, but now we are seeing this as a reality as an opportunity for adding a financing model and the handset of a financing model here.

We believe that still there are market dynamics that are tough. It is not just the macro; it is the fact that we are seeing the market shrinking overall as a cleaning of lines and so that also need to be taken into account. In any case, we think the market can be profitable. We are seeing offers in the markets, which we believe are not sustainable. So we need to stick to our principal within Fusion with not handset -- no handset subsidy and moving more and more into financing model.

Luigi Minerva, HSBC.

Yes, good afternoon. The first question is on fiber in Spain. A couple of weeks ago, there was a statement that you would reach 8 million households by 2015. Does this imply that the co-investment agreement with Jazztel will be extended beyond the current 3 million? I mean we just [said] also with other players if they join. And the second question is on the cash flow and over the last couple of years, you benefited from a timing difference between reported CapEx and cash CapEx. Do you expect a similar trend in 2013 and in the same amount of 2012 or '11?

(interpreted) Thank you very much. With regard to your question, just to clarify that we have compromised on 3 million number of households until [good] in 2013 with Jazztel. So just to clarify that. And as you know, the agreement is flexible, it is a flexible investment approach in the coming years with the goal of reaching 8 million households by the end of 2015.

Hello, Luigi. This is Angel. With respect to your question on cash flow, as you have seen, working capital has followed the traditional seasonal profile that has been happening in the last few years and as we had indicated in previous conference calls, it has clearly improved in the second half. Part of this is due to the different phasing of accrual (inaudible) payment of CapEx and that probably will be (technical difficulty).

Okay, thanks.

Jerry Dellis, Jefferies.

(inaudible) characterized by very stable OpEx performance, particularly on commercial costs. I wondered how sustainable you think that is going into 2013 and what the implications of the tactical turnaround plan for the TV business that local management discussed on Monday might have for the OpEx outlook in Brazil.

Second question is on Spain. On the wireless business, you highlighted in the press release how wireless service revenues benefited from fewer retention upgrades in the fourth quarter. I am just wondering as we sort of model wireless service revenues quarter by quarter going forward, was there a particularly higher volume of those redeemed loyalty points falling in the fourth quarter relative to what we can expect would normally fall in sort of Q1, Q2.

Jerry, can you please repeat the first question?

Yes, of course. In Brazil, you reported a very stable operating cost performance in the fourth quarter. I think growth was just 1% on an underlying basis. And that was particularly characterized by quite tight control of the commercial costs, the selling expenses. So my question is how sustainable you think that performance is going into 2013. Clearly, there is a pretty competitive fixed broadband market, lots of things that are not entirely within your control and there is also one specific issue in 2013, which I guess is the turnaround plan for the pay-TV business. And I am wondering what implications that relaunch might have for cost trends going forwards? Thank you.

Yes, this is Santiago. Let me start on the part of Brazil. Well, first of all, cost-containment has received a greater focus at the end of 2012 and will continue to be one of the top priority items into 2013. We are talking subsidies, we are talking cost control, our headquarters and we are talking deepening all the synergies that were created by the combination of both companies last year.

The (inaudible) on pay-TV that you mentioned is important and it is one of our focal points of developing the revenue line this year. But we think it is going to be very likely associated with a variable cost model, meaning it is not going to be the case that we invest large amounts in acquiring customers without them being in the position to allow the amount of revenue that we would expect from them. So all in all, we think those trends should continue well into 2013. And TV is a focal point, but should not be detrimental to this cost-containment effort.

(interpreted) With regards to your question on the mobile service revenue in Spain, yes, the year-over-year trend improved mainly due to fewer handset upgrades. And specifically to highlight there is no seasonality in these numbers, which, by the way, were around minus 48% year-over-year. So the only question is we might act tactically. We think it's necessary, but overall the quarter has shown already what it is our intention at what we do.

If I may, Pablo, I think to answer more completely to Luigi, Luigi, our commitment internally as Telefonica with regards to fiber passed through households is 8 million, but our commitment with Jazztel, in the agreement with Jazztel is 3 million co-investment in 2013. I hope this is clearer now.

Jonathan Dann, Barclays.

Hi, there. The first question is on plans for network sharing and say what is actually happening in places like Germany, but also plans to perhaps extend the model into Latin America. And then, secondly, it is back on I guess the quarter-by-quarter domestic margins. I guess my question -- normally the fourth-quarter EBITDA dipped -- the margin dipped in Moviles and I guess could you give some sort of sense of, in 2011, the ratio of commercial costs in the fourth quarter by comparison to the first, second and third quarter? And I guess what I am really asking is will we expect Q1, Q2, Q3 margins to be above, in 2013, above the level they were in 2012?

Okay, taking your question on network sharing overall globally, we are very happy with the situation that we have in places like the UK with Vodafone. We think it makes sense, we think it creates a huge amount of value. We think that by investing mostly the same, we have a much better network in a much faster deployment effort and in a much more efficient way.

The same thing applies for Germany for example where we have this transport agreement with Deutsche Telecom and the same thing applies for the agreement that we have here in Jazztel. So we are more than willing to do network sharing and to co-invest with people that are really focused on investing on creating network and investing on the networks. We think it makes sense.

And the answer is yes, we are more than willing to extend that model into Latin America and in fact, it is already in place in some of our operations, namely, for example, in Argentina historically and yes, we are exploring ways of collaborating through network sharing agreements all around the region.

So for us, it is strategic. We think it makes sense. We think that having the best network is a must, having the best network as a competitive advantage only if it is sustainable, but if not, negotiating is the answer.

(interpreted) And regarding your question on the margins, in particular, as you know and the question is is this margin, high margin sustainable. We believe these high margins are sustainable because we have our cost reductions that are quite substantial and sustainable. We are, first of all, focusing on quality. As you know, 56% of claims reduction just in fourth quarter and we have effective reduction expected in 2013.

With regard for portfolio and processes simplification (inaudible) in IT and services savings are clearly part of our strategy and most important is that the new commercial model with the financing of handsets and no subsidies already has that included in the model. We also believe that Fusion is not a margin dilutive concept or a margin dilutive offer and as we mentioned earlier is already margin breakeven in December in net adds. So basically no subsidies, lower billing costs and lower marketing costs with (technical difficulty).

Just to remember as well that the fourth quarter last year -- sorry -- last quarter 2012, we had one-offs of around 1% of the EBITDA margin. We strongly believe that the market can be profitable and Fusion is helping us to maintain these markets. But just to reemphasize that is necessary we can take some tactic moves if it is needed.

With respect to the fourth quarter in particular, if you remember, fourth quarter 2011, we had a strong marketing campaign, so we had low commercial costs also assigned to that fourth quarter while, in the fourth quarter 2012, we have already the new model, which is different, a completely different approach. So the impact as you pointed out is completely different.

Luis Prota, Morgan Stanley.

Yes, thank you, two questions please. First is on Venezuela and more specifically on margins, whether you see any kind of margin pressure coming from the weaker currency. I don't know whether you could give us a percentage of costs. You haven't had currency and also in this regards whether you see any change following the devaluation of the currency in terms of potential for repatriating any cash from that country?

And the second question is on the potential IPO of LatAm where we have seen some quotes suggesting that you had canceled this IPO. But to be very honest, I am not sure whether that was an unofficial view coming from the Company or it was just a press article. So you can confirm that, it would be helpful. Thank you.

This is Cesar Alierta. With the IPO in Latin America, there is not going to be an IPO in Latin America. As I said at the beginning, we are regaining our total financial flexibility. We are going to be well below EUR47 million with (inaudible) plan and this is not a priority anymore to IPO Latin America operations and that is clear. And --.

In terms of what is going on in Venezuela, two observations, one is that margins continue to be very healthy. We continue to have the leading market operation in the country. The Venezuelan devaluation just happened and so it is early days still to know what the final impact is going to be on foreign currency-denominated inputs, which are not a lot and the situation is not likely to be very different from what it was until now. So certainly the translation is going to mean a different number, but I don't think the day-to-day businesses are going to be all that affected by the devaluation. So certainly we see no sign of improvement anytime of the currency repatriation issues and we have nothing to report on that.

Okay, thank you.

Torsten Achtmann, JPMorgan.

Good afternoon. The first one is on Brazil where you continue to outgrow competition, but overall the market in mobile seems to be slowing down and I wonder is that due to competition or is it due to the economy? And going forward, do we have now reached a stable base and we expect to grow from that over the next year?

And the second question is on your net debt target of below EUR47 billion. Could you clarify in terms of potential asset sales, that is included and excluded, and how many of them or if only a few of them would be included what would that be? Thank you.

In terms of mobile growth in Brazil, two observations. One is that growth is still there. We continue to expand both the customer base and the number of clients and at the same time, we continue to upgrade the existing customer base into more expensive and more interesting products. So I think the growth rate is slowing down a bit, but it is far from having stabilized or having reached maturity the way we see it.

We are also happy to report that we have been moderately successful in upgrading our customers into the better segments of the market and we think that process is at its early days. It is not at its final days. So you have both the expansion and the migration that still have a lot of time to run.

This is Angel. With respect to deleverage and our target of net debt, we have established a target of below EUR47 billion net debt and we are also stating clearly that we aim to be comfortably below 2.35 times net debt to EBITDA. This is going to be done, as Cesar said initially, organically in a significant way. We expect significant free cash flow generation to be in excess of our dividend commitment that we are confirming to the market, our tax dividend commitment to be paid this year.

Also, we are going to be analyzing inorganic transactions that would improve first position in markets where we operate, that would create recurrent benefits while at the same time providing debt relief. So we expect to be giving you news in the future on this as soon as these transactions and projects that we are working on eventually materialize.

Fabian Lares, JB Capital Markets.

Hi, good afternoon. Two questions. The first one with regards to the current tendency to move towards convergence as you are implanting the Fusion offer in Spain, I was wondering whether you foresee that this type of offering is going to become prevalent throughout Europe and in this case, what would be your strategy in a country like the UK where you are primarily mobile? And second, with regards to the total divestment that you carried out, when you are focusing so much on customer service and the quality of service, I was wondering if the fact that you no longer own your call centers is not going to be a problem for that strategy. Thanks.

Thanks for your question. Regarding convergence, data plus voice plus TV offers can be structured in different markets different ways. For example, you have access to unbundling in some places or you can play with complementary platforms like satellite that we think will also take a role in the global landscape.

At the same time, remember that an accelerating LTE deployment -- LTE the first wireless technology that equalizes speed of access of data transmission speeds compare with ADSL or VDSL or even fiber (inaudible) voice Plus data or plus broadband or even plus ultra broadband offers can be done in different places in different ways.

So we think that just convergence in terms of our quadruple plays or integrated offers are going to be the way to go. The way this is going to be structured in different markets is going to be different. The turnaround in Spain, if that is the question, is not just Fusion. Fusion is a converging offer. Fusion is much more -- Fusion is the last step of a significant process that was started by realigning our pricing strategy in Spain, by focusing on quality, significantly improving the quality and therefore reducing churn and reducing the number of monthly claims by more than half. At the same time, the subsidy removal strategy by getting into the financing and putting the bulk of the commercial retention effort on the existing customer base and not on the acquisition and finally, Fusion, which is a product more than a tariff.

So the answer is yes, we believe in quadruple play in integrated offers. They (inaudible) structure is different. It depends on market dynamics and by the way, remember that roughly more than 80% of our cash flow is generated or is being generated in countries where we have integrated platforms. So we are very well-positioned anyhow.

In terms of the quality, how we have been improving quality and the call center role of that, we do not feel that it's a disadvantage because we have been divesting in (inaudible). Simplification is the key. We have too many products. We have become a too complex company and therefore, when you have a thousand, literally a thousand references of product in each company, you put a [bargain] off interaction at the call centers, at the IT part of your business, which makes a huge complexity transforming to a high operational cost. Keeping complexity going into simplification is the key.

Now we can build our customers with Fusion with one single line. The product doesn't deserve any more promotions, so billing is much more easy. The number of calls that we are having through the call center has been significantly reduced. So we do not feel it's a disadvantage at all because we don't have (inaudible) anymore because the key is in the transformation of the Company through simplicity.

Thank you.

Justin Funnell, Credit Suisse.

Thank you, two questions please. Just on this mix of people who are upshifting, bringing back a line or a mobile phone on Fusion versus downshifters, it was 30% for Q4. You said it got better through the quarter. I guess it may have got better again into January. Can you give us a rough feel for what it might have been in January, into the 40%s now and what level does it have to be for you to be at this revenue breakeven level?

And then secondly, just looking big picture at your margin guidance, still a little bit of a mystery where this margin erosion is going to come from. If Fusion continues, good margins there. Results seem to be doing better. Is your guidance simply cautious or should we be expecting some margin erosion in one or two operations and what might those be please?

(interpreted) Okay, with regard to your first part of the question, just to reemphasize what we are giving up till December is a mix of 30% new services and we are talking about working towards revenue breakeven in 2013, which is already a positive statement. In terms of market breakeven, we have already got the net adds in December in positive territory. I hope that is clear.

Taking your question on the margin guidance, we get back to the issue if the trends that we have been experiencing in 2012 are sustainable or not and we think they are sustainable because they are a structure under our transformational operational model. To be more precise, for example, TGR has raised more than EUR1 billion of OpEx and CapEx savings that has been transferred to the businesses. And therefore, this is playing the scale of the group that it is even increasing because now we are increasing the scope and decreasing the responsibility of TGR.

So on top of that, are we being cautious or not? We think that we need to preserve the optionality of growing faster in Latin America if the market is there and therefore, we are keeping some room to maneuver to accelerate the market in Latin America if the market is there in a profitable way. So we are keeping -- we are trying to keep both options. I mean the sustainability of the transformation of the business that we are doing and the possibility of accelerating our growth.

Thank you very much.

Keval Khiroya, Deutsche Bank.

Hi, there. I have got two questions, one on the UK and one on Spain. So the UK was less bad this quarter, but the EBITDA was still falling 9%. So how far do you think we are from revenue and EBITDA stabilization? What do you need to do to get there?

Second, on Spain, just touching back on the OpEx in a slightly different way. So how much further do you think commercial costs can fall in 2013 if Fusion continues with its current rate of success? So could it be similar to EUR500 million savings in '12 or would it be higher or lower? Thank you.

(interpreted) Thank you very much. With regards to the UK, as you know, we are very happy with what happened in 2012, which is a combination of a very balanced commercial momentum and profitability. The reality that we are seeing a more rational market in the UK and it is really illustrated so far by increasing in inflation with in particular our operation in the UK, Telefonica UK increased by 3.2% actually from today.

The other thing, which is important to highlight, is that we got close to EUR1 million contract-based growth in 2012 and very importantly, we continue to work with growth in revenue and profitability on the back of this strong commercial momentum that we have experienced. We need to continue and we will continue stabilizing EBITDA while we continue working in driving efficiencies and obviously growing our client base. That is the focus in the UK.

With regards to OpEx in Spain, as you know, we cannot release levels, cost levels, but just to give you an idea that we believe the model is sustainable and that we have all the initiatives in Spain, i.e. insourcing, i.e. increase our productivity that our team led by Luis Miguel are working very hard on. So just to give you -- that is the only thing I can say.

Okay, that's clear. Thank you.

We will have time for one last question please.

Paul Marsch, Berenberg.

Thank you very much. Back to Fusion again. You talked about 30% of new Fusion connections or new services rather. What about the proportion of new customers? Have there been any new customers or what proportion of new customers are coming to Fusion?

And then if I think about the services, if you signed say 500,000 new services, about 30% of the total, 1.5 million, it looks from your churn statistics on broadband and from the mobile adds that about 300,000 of those were broadband connections or broadband services and 200,000 were mobile services. Is my calculation about right on that? Thank you.

(interpreted) Just to clarify, when we speak about 30%, we talk about 30% new clients. So that is the figure I can give you specifically on the proportion of the clients within the totality of Fusion. And I think that I am not sure if I can give the other figures. But in terms of fixed broadband, we have already obtained 150,000 net ads in the quarter and we need to emphasize that that is the major important figure we provide in fixed broadband.

But I think from your churn statistics, I can work out that your gross broadband ads were about 600,000 I think. And that doubled by the looks of it. So can I assume that the increase there is all driven by Fusion?

(interpreted) Well, I think that the main message I can give you that it was an important increase in net ads because of Fusion. You have to count as well the churn, but the reality is that it is very strong and it is very strong in particular in fixed broadband.

Thanks.

Thank you, everybody. This is Cesar Alierta. Two years ago, we started the transformation of Telefonica. We created Telefonica as a service to grow revenue with the Telefonica Global Resources to reduce our cost and efficiency and we migrate to regions. As my colleagues in this call have said during this conference call, the key of Telefonica is transformation and simplicity. Transformation and simplicity, and you have seen the numbers are flowing into increasing the (inaudible) of our business clearly.

2012 was a clear example. 2013 is going to be much more clear and I would like only to add two comments. The things that are happening in this sector, which is extremely important and are going to be reflected in the profitability of digital telcos like Telefonica, one which we think is extremely important is the fiber operating (inaudible) and everything that is going to be implied in changing the balance sheet and this is going to be reflected this year and next year.

And one thing, which I think is extremely important for Europe, is the new approach by the European Union to have a single digital antenna, which is going to be the real difficult telco players. We are going to be in the most appropriate position for everything this year and the coming years. It is a flatness that the two last comments are not reflecting guidance, but let me tell you the results of these new policies are going to be very, very, very positive in the profitability not only of Telefonica, but of the real players in the digital world.

Thank you very much and on behalf of my colleagues for your question in this (inaudible) and I wish you a very good evening. Thank you very much.

Telefonica's January-December 2012 results conference call is over. You may now disconnect your line. Thank you.