Telefonica SA (TEF) 2015 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Telefonica's November 2015 results conference call. (Operator Instructions) As a reminder, today's conference is being recorded.

I would like now to turn the call over to Mr. Pablo Eguiron, Head of Investor Relations. Please go ahead, sir.

Good afternoon and welcome to Telefonica's conference call to discuss January-September 2015 results. I am Pablo Eguiron, Head of Investor Relations.

Before proceeding let me mention the financial information contained in this document related to nine months 2015 has been prepared under international financial reporting standards as adopted by the European Union. This financial information is unaudited.

This presentation may contain announcements that constitute forward-looking statements which are not warranties 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 87 00.

Now let me turn the call over to our Chief Financial and Corporate Development Officer, Mr. Angel Vila, who will be leading this conference call.

Thank you, Pablo. Good afternoon and welcome to Telefonica's third-quarter 2015 results conference call. Today with me is Jose Maria Alvarez-Pallete, Chief Operating Officer, and during the Q&A session you will have the opportunity to address us with any questions you may have.

Telefonica has achieved its third consecutive quarter of improving organic growth in 2015, firmly placing the Company in the new cycle of profitable growth initiated at the start of the year. We would like to highlight in particular that Spain returned to positive revenue growth this quarter for the first time since 2008. Both revenues and OIBDA accelerated in Q3 their organic growth to close to 5%, with the latter proving that we are successfully delivering on synergies in Germany and on cost efficiencies.

Margin was stable throughout the year at 31% and was flat year on year organically. Operating cash flow returned to positive growth. Our consistent investments in ultra broadband lead to a differential infrastructure translating into innovative and quality commercial propositions and allowing to increase customer value by improving year-on-year growth in average revenue per access and reducing churn.

Despite adverse currency impacts in Q3, which we will cover in further detail later on, we have achieved sequential improvement in free cash flow, ex spectrum, to EUR2.5 billion up to September. Combined with strong EPS increase of 63.5% year on year and a reduction in our post UK sale leverage ratio to 2.32 times.

Finally, we are pleased to reaffirm that we are fully on course to meet our guidance, which we upgraded in the previous quarter. And dividend per share for both 2015 and 2016 are confirmed.

Moving to slide 3, let me sum up our key financials, which have been very sound despite the currency turmoil in Q3. The negative impacts of FX at OIBDA level did not leak through into free cash flow as they were offset by lower CapEx, tax interest, and minorities payments both in the cumulative period to September and in the last three months. Overall, the third quarter saw steady top-line and OIBDA year-on-year growth, both in reported and inorganic terms.

Net debt declined by EUR1.5 billion in the quarter to EUR49.7 billion, principally due to cash flow generation and the lower value in euros of net debt in foreign currencies. As I said before, we are reiterating our outlook for 2015 and we are fully aligned in the nine months to fulfill this.

Under guidance criteria, revenue growth was 13.8%, comfortably exceeding the guidance of higher than 9.5%. OIBDA margin erosion stood at 1.3 percentage points, in line with target of around 1.2 percentage points, and CapEx to sales of 15.6% is also in line with around 17% at year-end. Leverage, considering O2 UK sale, is within guidance.

In terms of shareholder remuneration, we will pay in the coming weeks EUR0.35 per share in voluntary script dividends as the first tranche of the EUR0.75 corresponding to 2015. The second tranche will be paid in cash in the second quarter of 2016.

Turning to slide 5. Free cash flow generation was robust in the first nine months to September, reaching EUR1.2 billion, or EUR2.5 billion before spectrum payments, and absorbing the already mentioned FX impact. I would like to highlight the sequential free cash flow improvement in the quarter of EUR2 billion to EUR1.4 billion, leading to a solid year-on-year growth of 3.6% based on improvement in most of free cash flow metrics.

Let me remind you that year-to-date free cash flow is impacted by seasonal effects and, thus, free cash flow should record a better performance in the fourth quarter. Finally, EPS stood at EUR0.91 in January to September, up 63.5% year-on-year.

Moving to slide 6, we can see how organic performance and perimeter changes have outweighted the FX fluctuation in Q3, leading to a very solid revenue and OIBDA year-on-year reported growth of 10.8% and 2.9%, respectively. The consolidation of E-Plus, GVT, and DTS had a positive impact in the quarter, jointly contributing 13.5 and 7.2 percentage points, respectively, to revenue and OIBDA reported year-on-year changes.

In addition, organic trends accelerated again in the quarter to explain the 5.4 percentage points of reported revenue growth and 5.1 percentage points of OIBDA. On the other hand, the depreciation of LatAm currencies in general, and in particular Brazilian real and Colombian peso, [direct in] Q3 around 8 percentage points in year-on-year revenue and OIBDA variation.

On slide 7, we highlight how organic revenue growth continues to perform effectively, ramping up 40 basis points versus the second quarter and with Spain demonstrating a strong progress of 130 basis points, reaching a positive year-on-year variation. In addition, Telefonica Hispanoamerica posted a sequential acceleration of 220 basis points and reached 12.6% year-on-year growth.

Let me also highlight the impressive evolution of data revenues, up 19.3% versus Q3 2014 organically and the increasing contribution of digital services. In addition, organic OIBDA growth ramped up 140 basis points sequentially to 4.8% boosted by the stellar performance of Germany and in spite of adverse macro by Brazil. Margin has remained flat throughout the year at 31% level, driven by stronger efficiency, synergies, and simplification efforts reflected in the stable organic valuation.

Let me now turn to slide 8, explain how our drive to increase quality, rather than quantity, in our customer base is paying off.

Overall organic accesses are slightly up, but the higher value services our performance has rocketed. As such, we added over 5 million LTE customers, more than quadrupling our base year-on-year, driving further adoption of smartphones, which were up 28% year-on-year.

Fiber connected and pay-TV net adds also continued to grow robustly on a sequential basis. Putting us in a strong position to capture further growth opportunities and increasing their base since last year 36% and 18%, respectively, in organic terms. As a reflection of this, the growth in average revenue per access accelerated in the quarter to 2.8% year-on-year organic, which coupled with the decline of 0.7 percentage points in churn levels, demonstrate the increased value and sustainability of the model.

Data monetization continued to contribute to revenue acceleration, as you can see in slide number 9. Booming smartphone penetration and data volume growth are the key levers for data monetization. We are constantly developing initiatives to further monetize usage, launching data offers centered around integrated packages and new roaming commercial propositions. In parallel, data traffic is boosted by increasing average smartphone usage, 21% higher year-on-year in Q3, and LTE usage, 63% more than 3G.

Also, there is a unique opportunity to further incentivize data traffic as prepaid smartphone penetration in Hispanoamerica is just at 27% versus Brazil at 47%. The benefits of the smartphone penetration expansion and LTE adoption are clear and are delivering significant ARPU accretion. We are seeing double-digit LTE ARPU uplift.

Data adoption is having a very positive impact on our plan Hispanoamerica and Brazil with a significant prepay ARPU uplift of each new data customer. And SMS drag is easing rapidly, as can be seen in the acceleration of total data revenues, which already represent 44% of mobile service revenue. Lastly, I would like to know that almost 30% of customers are using up their data allowance, of which 44% buy an extra data product.

To review our progress in digital services, please turn to slide 10. Q3 has been a milestone quarter for digital services as we surpassed the EUR1 billion mark in quarterly revenues, largely due to the solid organic performance of our video segment with EUR652 million, 25.6% higher than Q3 2014. This positive evolution is built on our increasing content portfolio and improved technology, most notably in Brazil and Spain.

In other areas we continue to foster key partnerships to deliver enhanced solution to our customers. In cloud, we have reached agreements with China Unicom and Equinix to expand our global data center footprint, offering a truly international solution for multinational companies. We have also partnered with Microsoft to bring cloud migration to our SME customers.

In security, we recently acquired Gesdatos, the leading platform in Spain for the management of data now integrated into our international commercial offer. We also launched FiLIP in Spain, the first smartwatch for children which allows parents to monitor their children's safety. Lastly, we are proud to once again be named global leaders in machine to machine in Gartner's Magic Quadrant.

This year is the enabler of our progress by strengthening the networks and simplifying operations. In the third quarter, TGR continued with the rapid rollout of fiber and LTE, key tools to capture volume growth. As of September, 13.4 million premises were passed with fiber in Spain and 16.6 million in Brazil. We had more than 30,000 LTE sites, while 96% of 3G and our 4G mobile sites are connected with ultra broadband technology.

Additionally, we continued to progress on the deployment of all-IP network innovation and best-in-class operations. A key step towards IT transformation in the quarter includes expansion of full stack, now in 15 countries. Lastly, we continued advancing on decommissioning applications, reducing physical servers, consolidating data center services, and virtualization of IT.

On slide 12, we summarized Telefonica Espana's trading performance.

Launched in July, our new convergent offer, Fusion+, enhanced with digital-plus content, drove an outstanding commercial turnaround in quarterly net adds across services on the back of strong gross adds and curtailed churn levels. All this was achieved despite summer seasonality and the removal of locking clauses since August. Fusion+ continues to fuel the growth in high-value services such as fiber and pay-TV, improving customer mix, and driving Fusion ARPU up to EUR75.5, an 8.4% increase year on year and 5.1% increase quarter on quarter.

In addition, we launched a campaign for the high-end TV product in mid-August with access to our premium content at a promotional price until the end of the year. By the end of September, almost 0.5 million customers had subscribed to it, which increased the weight of customers with TV add-ons over the total pay-TV base to 36%, 8 percentage points more than in June.

Let me remark that commercial strength has been achieved despite not having the Champions League rights, which reflects our rational policy in content cost acquisition. Our differential assets, namely [ultra-]broadband networks, continued the rollout to secure our leadership and value.

Continuing with Spain on slide 13, revenues return to growth, 0.2% year on year, for the first time since Q3 2008. Amid a more favorable environment, top line reflects a new revenue cycle underpinned by consistent customer-based growth, higher value in the base, price repositioning, and wholesale revenue.

Quarterly margin remained robust at 44.5%, although higher OIBDA year-on-year erosion done in Q2 in organic terms was mostly impacted by increased content costs as well as by higher equipment and network expenses.

Importantly, let me comment on the effort we are making to increase the reach of pay-TV in Spain, service that up to now has not been a mass product. With this purpose in mind, we have launched an aggressive promotion while absorbing all the costs, and this is obviously increasing margin pressure. However, once the discounted prices impact dissipates we expect higher revenue flow-through to OIBDA, and moreover, we will continue working on efficiency measures in the following quarters.

To review Telefonica Deutschland, please turn to slide 14.

We posted very solid momentum in the third quarter with strong contract net adds, leveraged from strong dynamism of partners. The Company enhanced its value offering, strengthening its O2 Premium brand and revamping the value brand Blau. Additionally, LTE continued to make progress, reaching a penetration of 16% and demonstrating that there is a strong demand for data in the market.

Within our O2 Blue All-In customer base, 37% of new clients took a tariff above 1 gigabyte and 54% of opted-in customers had at least one automatic data extension. As a result, mobile data monetization continued to flow-through to mobile service revenue, but accelerated in the quarter mainly due to the increased contribution from partners. In addition, year-on-year growth of handset sales was lower sequentially, affecting quarter-on-quarter revenue trends.

Telefonica Deutschland has posted very strong profitability and an improved outlook. Earlier realization of synergies after achieving important milestones, along with sustained commercial savings, translated into further OIBDA acceleration to 28.5% in the third quarter, with integration savings explaining more than 45% of this improvement. These, together with CapEx efficiencies as network synergies outweighed the cost of LTE deployment, resulted in an outstanding organic operating cash flow growth of 45% year on year in the first nine months of this year.

On the back of this strong performance the Company updated yesterday its 2015 outlook, announcing more ambitious targets and proposed a 2015 dividend of EUR0.24 per share, stable versus last year.

For a review the performance of Telefonica Brazil, turn to slide 16.

As shown by our commercial and economic performance, we are outperforming the market once again this quarter, leveraging our differential position in value services. In the mobile business, contract gross adds reached highest-ever quarterly volumes while smartphones and LTE adoption continued to accelerate, driving data ARPU to ramp up year on year to 33%. This is reflected in the fact that Vivo is capturing all the market growth in service revenues year-to-date.

Regarding value services in the fixed business, Telefonica Brazil attracted 100% of new pay-TV customers in the market and more than half of all high-speed broadband net adds up to August. As such, the Company transformation towards 1 billion fiber company is improving ARPU and churn trends.

Telefonica Brazil's financial performance on slide 17 shows how growth in higher-value customers is flowing into the P&L. Thus, revenue sustained a robust year-on-year growth of 5.2% based on booming mobile data and fixed business improvement. The latter is leveraged from the businesses in Sao Paulo that returned to positive year-on-year growth in Q3.

In addition, costs remain controlled, driving OIBDA growth acceleration to 2% year on year, maintaining profitability roughly stable year on year despite a tougher macro environment.

On slide 18, we review our performance in Hispanoamerica where commercial momentum is driving a solid organic revenue acceleration. The strong trading in mobile contract resulted in almost 0.5 million net adds in the quarter, quadrupling year-on-year, while at the same time the growing adoption of bundled services in fixed business led to solid fixed broadband and pay-TV net adds.

Strong commercial activity resulted, on the one hand, in top-line growth with year-on-year rates ramping up to more than 12%, or 9% excluding Venezuela, while on the other hand it was the main driver behind the 2 percentage points decline in profitability this quarter.

In Mexico, as shown on slide 19, we are gradually increasing both our scale and profitability. Thus, the continued strong commercial activity is reflected in outstanding contract performance and is driving year-on-year accesses growth to 14% and smartphones to 87%. It is also the main driver behind the sustained double-digit top-line year-on-year growth, which in the third quarter reached 17.9% year on year.

At the same time, the ongoing profitability expansion is also remarkable this quarter, almost reaching the 30% mark, 4 percentage points more than one year ago. In the rest of Hispanoamerica, as we showed in slide number 20, we are also capturing market value with better commercial traction with especially remarkable performances in Argentina, Colombia, Chile, and Peru. This has translated into consistent regional market outperformance in revenue growth and it is also the main driver behind the acceleration in OIBDA year-on-year growth.

Turning now to slide 21, Telefonica UK posted strong customer growth for the sixth quarter in a row, outperforming the market, with total mobile customer base reaching 25 million at the end of September. Quarterly net adds were consistent and strong versus prior quarters, with record market-leading contract churn at 0.9%.

LTE continued to gain traction, reaching a penetration of 30% with increasing demand for higher subscription bundles, as now more than 65% of new adds and upgrades adopting for tariffs of 1 gigabyte or more. As a result, mobile service revenue performance continued to improve for the 12th consecutive quarter and grew 4.2% year on year, excluding the impact of O2 Refresh. OIBDA margin surpassed 26% and expanded 1.7 percentage points year on year, excluding a non-recurrent impact of EUR34 million in the third quarter last year thanks to the optimization of commercial costs.

Let me now move to the financial slides starting on slide 22.

In Q3 debt has been reduced by EUR1.5 billion to EUR49.7 billion, mainly driven by EUR1.4 billion free cash flow and EUR1.2 billion savings in LatAm debt when translated into euros due to FX depreciation. Leverage has been brought down to 2.84 times OIBDA, while it would be at 2.32 times post UK sale. We expect to continue progressing on leverage improvement on: first, positive free cash flow generation in Q4 2015; second, growing OIBDA on an organic basis and also benefiting from the acquisition of E-Plus and GVT; and third, closing O2 UK divestment in 2016.

Moving to slide 23, I would like to highlight that our effective interest cost is 54 basis points lower than in the same period of 2014. We have continued to benefit from the [euro] rate reduction. This improvement was enabled by an intentionally decreased fixed-rate debt in euros and lower refinancing costs, leading to 61 basis point savings, partially mitigated by higher debt in Latin American currencies allowing for a reduction in the financial cost to 4.91%.

We have improved our robust liquidity position to exceed EUR16 billion, covering our maturities beyond 2016. We have continued with our proactive financing activity and, thus, we have raised over EUR13 billion of long-term funding by tapping diversified sources of financing.

To recap, we have presented today a very solid set of results that reinforce our profitable growth profile and strengthen our position to capture future growth. We continue to demonstrate an improving organic performance across all metrics, driven by market momentum on value services. We are obtaining encouraging results from integration activities in Germany, with Brazil to follow in the coming quarters.

We are delivering network quality upgrades based on our superior infrastructure, which allows us to respond to data traffic growth when demand is rocketing. We are leaders in major markets with a superior competitive position backed by strong investments. And we are fully delivering on commitments for this year and also confirming the shareholder remuneration policy in place for 2015 and 2016.

Thank you very much for your attention. We are now ready to take your questions.

(Operator Instructions) Nick Brown, Goldman Sachs.

Firstly, EBITDA margins in Spain have been flat at about 44.5% for the last three quarters. Should we expect that to fall in Q4 with a full quarter of La Liga costs? And should we then expect EBITDA to grow from the first quarter of 2016 once the Fusion premium TV promotions you mentioned roll off in January?

And, secondly, can you remind me are all the revenues and EBITDA from digital plus TV customers being reported in other eliminations, or are you now reporting the content costs in Spanish business without all of the revenues? Thank you.

Thanks for your question. First, on the OIBDA Spain, a few message. First message being is that content cost is here to stay and, therefore, you have now an idea of a full quarter of the cost of having the most complete TV offering in Spain, which has been the reason behind a very, very strong commercial momentum, namely on the pay-TV market.

And we have proven that we are rational, because we have been able to do so with limited inflation on some of the existing costs, like La Liga, but not have in others like the European Champions because of too high cost. And that's why the impact on margins in Telefonica Espana this quarter has been reflected by having the full amount of the content cost and just probably a month and a half of activity, I would say.

On the upside, buffers that we have for the future, namely promotions; remember that we are having that impact of content with a promoted price of EUR9.9 on the package. Promotion will be progressively expiring during the first quarter of 2016. We have roughly 600,000 customers under that promotion that would move outward along that period and that will have an impact on OIBDA.

Also pay-TV penetration is paying -- is one of the lowest in Europe. We are now in 29%. It used to be 22% just two years ago, so we have been gaining 7 percentage points of pay-TV penetration in just two years and that's why we are investing on the market. Then also remind that we keep doing extra efforts on the other part of the cost function of Telefonica Espana: distribution and others.

So you should expect us to keep going to the direction of preserving efficiency in Spain. We don't guide on the specific margins going on. You have an idea of what is the impact of content, but also remember that this quarter's OIBDA is impacted by the promotion that would be expiring all along next years and that the extra customer base that we are capturing should also start to pay back during that period. So that's what I can tell you in terms of the margin in Spain.

In terms of how the integration of Telefonica Espana and DTS has worked this quarter, first of all, in terms of the wholesale revenues, they are part of the wholesale revenues that are reflected on DTS accounts and therefore not consolidated in Telefonica Espana. And that's basically apply for the football rights. The football La Liga rights are based on the [Ital] plus on the former DTS and, therefore, are not consolidated into the Telefonica Espana accounts, while other sports like the MotoGP or the Formula One, are accounted into the wholesale revenues of Telefonica Espana.

Those revenues or those trends will be consolidated and we will try to give you a full quarter of both units being consolidated starting this quarter in order to avoid confusion on where each of the cost component is [align]. So as a result, there are part of the wholesale revenues, namely on the La Liga rights, that are accounted on the DTS accounts and, therefore, not consolidated in Telefonica Espana. And a minor part of the sports rights, namely Formula One and MotoGP, that are on the wholesale rights of Telefonica at this point.

Thank you.

Georgios Ierodiaconou, Citi.

Afternoon, I have two questions please, the first one on Spain. You mentioned earlier the 600,000 subscribers that could move out from the current promotion in January. Could you give us an indication of what kind of ARPU uplift you would expect given that profile?

Basically, what I'm trying to understand, if I'm not mistaken last January you raised prices in mobile. Later in May you raised prices in Fusion. Do you think there will be enough inflation on TV and other areas this year to make up for annualizing some of these benefits in 2016?

My second question is on two of your Hispanoamerican assets, Colombia and Mexico. The first one, Colombia, you seem to be underperforming Tigo quite materially and I know there is an impact. Even if I adjust for that, there is quite a big gap. Is that because you responded late to the MX price cut? Is this something that lasts for a while or would it be fixed relatively quickly?

Similarly, in Mexico you have a big tailwind right now. We seem to be benefiting a lot on the margin, but will you balance it a bit more in the future since [you will be] more commercially active? Any indications around your strategy in Mexico? Thank you.

Thanks for your questions. On the customers that are currently under the promotion of EUR9.90 in Spain and the potential uplift, yes, we have an idea of what could be the movement upwards, but as you might imagine, we do not sure that because it's commercially very sensitive.

They are enjoying our product of normally EUR65 for EUR9.90. Most of them or part of them were coming from the basic product, so we are analyzing the customer base and we are preparing the offer that we will put to them in the different add-ons -- TVs, sports, and others -- in order to make sure that they move upwards on the value chain once this promotion is expiring. So, yes, we are anticipating uplift, significant uplift, but we are not sharing how much because we are specifically analyzing those layers of customers and preparing that offer from whenever the promotion will be expiring.

On the price movements in Spain, we like to talk about upselling. We have upselling our customers. We have been giving more value for a little bit more money. The average price per megabyte or per gigabyte has been decreasing and, therefore, we are giving more value for a little bit more money.

We have been executing that consistently during this year. We started in January for the one play product and we are -- we did the deep move in April on the Fusion product. And that's why Fusion ARPU year on year has been moving upwards 8%, which proves that we are able to make a value proposition for our customers that allow them to enjoy more value for a better ARPU.

And you need to score that into a situation in which we have been suffering installation strikes on the subcontractors and we have been able to move back on the commercial side and to post a quarter of very, very solid commercial momentum. So that proves that we can move upwards ARPU by proposing more value for a little bit more of price, and I think that that's a trend that we would like to continue going forward.

Remember, finally, that if you benchmark the performance, the commercial performance of this quarter, even considering that we have August and therefore seasonality in the meantime, and you benchmark the absolute amount of net adds that we have been gaining all across the board with the first quarter of this year you will see that we have not only been regaining momentum, but we have been outbidding our first-quarter performance. So commercially speaking, very strong market and we think that we can keep having both things at the same time: expanding our customer base and moving upwards the value proposition for our customers.

In terms of Colombia, this is probably a quarter in which we are regaining market momentum. We thought that the market would be more rational, but subsidies have been back into the market, namely because of the third player. And, therefore, we have been waiting for two quarters to see if the market was becoming more rational.

It didn't, so we went back to commercial aggressiveness and we have been regaining market momentum. Of course, that has been affected OIBDA, but our commercial effort, jointly with the fact that we keep investing significantly in our networks, allow us to think that going forward we have better trends, namely in terms of revenues.

Then finally, on Mexico. It is true that for the first time in 10 years we have regulation, namely on interconnection asymmetry, supporting our efforts, but it is also true that the symmetry of interconnection is lower this quarter than in the previous quarter because interconnection rate has been decreasing from MXN0.51 to something between MXN0.23 and MXN0.24. And, therefore, this impact is being slightly or progressively diluted.

The reason behind our strong momentum in Mexico is commercial. We have been successful on the prepaid for a sustainable time, but this quarter for the first time we have been successful, or more successful I would say, on the postpaid part of the market. And that's very encouraging.

It has a lot to do with the expansion of our LTE that we are doing, the improving in 3G coverage that we are doing on the market. Therefore, the fact that we are reinvesting in terms of CapEx a significant part of the cash flow that we are generating commercially and thanks to the symmetry.

So pretty enthusiastic, pretty positive about the future of our Mexican asset, much better trends. Not just relying on prepaid, but this quarter is one of the first quarters in which we are more satisfied about our postpaid trends in Mexico.

Fantastic.

David Wright, Bank of America.

Thank you for taking the call. Jose Maria, if I could just ask for a little more clarity on the cost allocation in Spain. You have taken wholesale revenues in DTS, but you've taken all of the cost in Telefonica Espana; is that correct? So when you do then consolidate DTS, we should assume some EBITDA growth recovery just on the natural sort of revenue uplift? That's question one.

And then my question two. Is it a full -- when you say a full quarter of costs in Q3, but only marginal sort of revenue uplift from the football promotions, is that correct? So we have taken effectively the La Liga cost, divided by four; for full quarter we'd put that in, but then we've only got revenues for sort of 1.5 months. I'm just trying to understand the exact cost allocation, thanks.

Thanks for your question. Let me try to be a little bit more specific on the wholesale revenues.

The La Liga cost that is in the neighborhood of close to $600 million, the owner of those rights is DTS and, therefore, this is not consolidated into Telefonica Espana. And, therefore, DTS is billing Telefonica Espana for the proportion, our part of the billing rights for their customer base and for their market share.

The other revenue is coming from La Liga rights. The wholesale revenues are going to the other parties, to the third parties, depending on the market share and, therefore, those are not consolidated into Telefonica Espana.

Therefore, summarizing in terms of La Liga, using La Liga as an example: you will have in Telefonica Espana the cost of their part of the -- proportional part of the La Liga cost and the revenues coming from the pass-through to customers, even though it has been promoted. Therefore, you will have, when we will be consolidating DTS revenues into Telefonica Espana revenues, the third-party wholesale revenues accreting into Telefonica Espana revenues.

And then in terms of the cost, the La Liga rights are divided into the different quarters and therefore allocated. Remember that a significant part of the gross amount of the La Liga rights is passed through to the other players that want to have access to this premium content, namely Vodafone, Orange, and others. Therefore, you need to consider when running your numbers that close to 30% of that amount is flowing into the wholesale market to third parties and, therefore, not into the Telefonica's account.

Okay, that's much clearer. Can I just ask -- obviously there is an assumption that the ARPU can uplift beyond the promotional period at the beginning of next year, but you are also seeing quite strong promotions from your competitors right now. So are you confident that you will see sort of a wider market reaction, or is there a risk that your competitors also with some Champions League football might continue to push?

The market is very competitive, but it has been very, very competitive; not just on the content part, but also on the pure triple-play before TV for the last two years. And we have been able to move to our customers because we have significant, I would say, differential assets, namely our coverage, our fiber coverage.

Now, with the DTS incorporation, we have a satellite platform that is covering 100% of the Spanish territory and, therefore, we are also able to sell a bundled product for the regions of Spain in which we don't have coverage of fiber or of VDSL. Then on top of that I think that it is also in this core that we are doing cross-selling on the different customer base of the former DTS space into a new Telefonica product.

And then I would also like to mention one specific issue, which is that 56% of our pay-TV base is now with some kind of add-ons, which basically means that the value proposition that we are doing and the segmentation that we are doing at the market in the different layers of products on the TV side is gaining traction.

Therefore, and finally, let me add, in terms of the advantages that we think we have, is that on top of the network, in terms of the contents we also have, in terms of the features that we are able, the technological features that we have been able to embed in our platform: TV on demand, cloud storage, and more than 74 high-definition channels. So I think that we have enough strength in our value proposition and our product to allow us to think that we can uplift our customer base going forward.

A final point that I would like to mention. The over-the-top platform that we have been incorporating from digital plus allow us to have, in just one quarter, more than 500,000 customers that have now downloaded. And more than 70% of those are recurringly using the app. So I think that overall, when you put everything into consideration and you can see that also the strength of our fiber and the strength of our network, I think that we should be able to uplift for our customers going forward.

And DTS is fully consolidate Q4, is that correct?

We will do our best to do -- it is already fully consolidated, but we will make (multiple speakers)

I meant within TEF Hispana.

Will be consolidating to Telefonica Espana so we avoid confusion going forward.

Thank you.

Jonathan Dann, Royal Bank of Canada.

Two questions please. One is looking at some of the listed subsidiaries -- I'm thinking Brazil and Germany -- with tax changes in Brazil and I guess the pace of improvement in Germany, is there a moment to improve the capital structure, either less equity or more debt? And then completely separately, are you looking at unbundling in Mexico?

Jonathan, this is Angel. Regarding the first question, we have group-wide approach to the capital structure, which allows us to comply with our overall leverage commitments group wide and also with some other criteria, like what amount of debt push down we can have through subsidiaries regarding (inaudible) subordination issues and some other considerations that, for instance, ratings agencies would be looking at.

Also, we are managing taking into account the different commitments taken to the market. In the case of Telefonica Deutschland, at the time of the IPO and the prospectus there was some commitment to leverage that we have been complying with. And also, regarding our other major listed subsidiary, which is Brazil, we are continuously monitoring market conditions, cost of debt, the macroeconomic situation of the country to optimize from a group perspective what would be the financial costs.

This is a dynamic obviously exercise that we are continuously assessing and there could be variations over time, but we feel that we are in a good position now.

Taking your question about Mexico, we are analyzing access to passive infrastructure on the mobile side, because the current regulatory framework has forced the incumbent to prepare a wholesale offer by having direct access to their passive network infrastructure and, therefore, on towers and the telecitios and others, yes, we are analyzing.

Not on the wireline side. We need to make sure that we have fixed our situation on the mobile side, namely that our prepaid traction is in good shape, that our postpaid traction keeps improving, which was [apparently] an issue this quarter. So before considering any other movement we are totally focused on our mobile business in Mexico in order to try to accelerate our CapEx deployment and to make them as efficient as possible by having access, if possible, and at reasonable prices to indirect infrastructure of the incumbent in Mexico.

So not on the wireline side. Yes, we are analyzing options on the wireless side.

Thank you very much.

Matthieu Robilliard, Barclays Capital.

Thank you, good afternoon. Two questions, please. First, with regards to the process of the sale of Telefonica UK. If you can maybe give us a bit of color in terms of how your conversations are progressing and what is the timetable. Should be still expect something to be closed by Q2 next year?

And then coming back to Mexico actually, obviously one of the new entrants there is planning to spend quite a bit of CapEx over the next few years; much more than what your current run rate suggests. Do you think that at some point you will have to ramp up CapEx there to catch up to that or you think you already have a head start in Mexico compared to the new entrant? Thank you.

Regarding the O2 UK approval process, as you know, this process is being led by Hutchison and we are supporting them and participating in the meetings with the European Union. What they call [their forms] was filed on September 11 as expected. On October 30 the commission moved the file to phase two this was, I want to insist, expected and did not refer to the file to the UK CMA.

There was an initial deadline set by the commission on March 16. This can be extended over the course of the commission or voluntarily by a request from Hutchison. I want to stress that there is an ongoing constructive and continuous dialogue with the competition authorities. Our base case scenario continues to be that the deal gets approved with remedies.

Regarding timing, we expect the deal to close in the second quarter of 2016, provided that the European Union does not significantly stop the clock. So we remain optimistic and confident in the success of the deal.

Excuse me, can you just confirm if there is a break-up fee in this deal?

The documentation is confidential, but I would assume that if there was a significant break-up deal we would have had to disclose it.

Thank you.

Taking your question on Mexico; yes, as you might imagine, we have been monitoring very closely announcements from the brand-new competitor in the Mexican market about their future CapEx intentions. And we have explored that in our model.

Let me remind you that -- a few other things. We have employed -- we have invested more than EUR10 billion of CapEx in Mexico in the last years. Thanks to that, we have the second-best network after Telcel, and that's precisely why the other -- the previous two [contendents], namely USACell and Nextel, had roaming, national roaming agreements in our network and they were relying mostly on our network for a significant part.

So we can easily understand that AT&T would like to have their own network and, therefore, they will need to catch up significantly in the next quarters, because they will need to basically build a significant part of the network which we have already done. Having said that, we are accelerating CapEx in Mexico, because we think that the growth opportunity that lies ahead of us we need to take advantage and, therefore, we cannot miss the opportunity. But are not in the need of precisely matching what AT&T is going to do.

At the same time, we are analyzing, as I was saying previously, any option that would help us or would facilitate the way to do that in a more efficient manner by having access to sites. Those were to be at reasonable pricing compared to deploying our own network. So to make a long story short, we feel that we have a good base in our network. We also feel that we need to accelerate, because there is a huge opportunity ahead of us, and the time is now because of the asymmetry of the regulation.

We don't feel at such a disadvantage like AT&T might be feeling, but yes, we are going to be accelerating and we are accelerating. And we have not changed our CapEx because of the announcement done by AT&T.

If I may ask, is the project of the government around the 700 megahertz spectrum part of the options you are considering, or that's a no-go for you?

It's not one of the most attractive projects that we are analyzing that we are keeping everything on top of the table. We are analyzing other projects which have better return.

Thank you very much.

Keval Khiroya, Deutsche Bank.

Thank you, I've got two questions, please. Firstly, on Spain. At the start of the year you laid out an ambition to grow revenues in Spain on a cumulative basis in 2015.

In the first nine months the Spanish revenues are down 1.5%. Do you think in Q4 we will see growth to allow you to reach flat or growing revenues for the full year? And if not, what has gone worse than what you had expected at the start of the year?

And then second, in Brazil you have been doing a great job at outperforming the market, but do you think the current wireless growth rates are sustainable as we look to 2016? Do you expect any further impact from the weak macro environment? And how do you feel about the recent competitive moves from TIM Brazil in particular? Thank you.

Taking your question on Spain, we already discussed in previous calls that it was not a guidance. Having said that, we have been already having five months of growth in Spain and we think that the performance that we see in this quarter are going also into that direction. Whether that is going to be enough to match or to surpass the previous year revenues is still to be seen. But again that is not our guidance and therefore we will keep working into that direction. And allow me to remind you that again we have already had five months in a row of growth in Spain.

Things that were unexpected that you were mentioning: first, the approval process of the [E-Plus] took two months longer than we expected initially. Second, the subcontractors strike was not scored into the model at the beginning of the year, and that had an impact on the second-quarter net adds that is also affecting the performance. So we will keep you posted, but allow me just to highlight that we have already had five months in a row of revenue growth in Spain.

And in terms of Brazil, macro, it's affecting the business in terms of bad debt namely and, therefore, it is true that we have had a significant impact in terms of bad debt that is starting to be controlled. And that's why we have been significantly upgrading our credit scores for new adds.

In spite of that, we have been able to maintain the growth rate of almost level compared with the second quarter in terms of revenue build, and we have been able to accelerate in terms of OIBDA outperformance. Thanks to the fact that we have been basically grabbing more than 50% of the contract net adds of the market that we have been able to capture mostly 100% of the mobile service revenue growth of the market. And also because of the fact that we have been able to grab 100% of the pay-TV net adds on the quarter, which means that the products that we have in Brazil are very strong in these circumstances and that we are replacing the growth that is not coming from the macro environment with market share [coming] from all our competitors.

A very strong quarter, commercially speaking, in Mexico. And even without the bulk of the synergies yet flowing through our accounts, remember that we are starting to see significant traction in terms of synergies in Germany three quarters after or four quarters after the approval process. We are just one quarter after the approval process in Brazil.

So pretty confident on the future of our Brazilian subsidiary. Very satisfied by the commercial results, especially if you take into consideration the fact that we were just in the middle of the integration process of both teams. And therefore, rather than losing focus on the market, we have been able to accelerate our market aggressiveness and, therefore, capturing a significant part of the value of the market in the quarter.

So, yes, the market is affecting us in bad debt, in the cost of energy, and in other supplies. In spite of that, we have been able to accelerate the OIBDA growth because of the first signs of the synergies. We have been able to preserve revenue generation and revenue growth compared with the previous quarter, because we have been grabbing most of the value of the market in this quarter. So very satisfied with the performance of the Brazilian unit during this quarter.

That's very clear, thank you.

Justin Funnell, Credit Suisse.

Thank you, two quick questions on Spain and the fiber, the competitive dynamics. I think Orange announced couple of days ago they are going to extend their footprint and obviously it's going to take them time to do that. So I was just wondering what's going on when you're competing against Orange and I guess what Vodafone built in fiber and you're going head-to-head with them; what sort of market share do you get? I presume it's pretty high, but any visibility on that would be useful.

And then just generally, obviously going into this LatAm down cycle you are relatively exposed as a group. Has it lead to any new thinking about how you want to be exposed long term? Is there an argument to pivot back to Europe at some point? Thank you.

Taking your question on our competitors' expansion in terms of coverage and fiber in Spain; yes, Orange announced this week that -- it looks like they have announced that they will be expanding their coverage from 10 million to 14 million from here till 2020. We have already almost [14] million households covered or passed in Spain and we are aiming to, if regulation doesn't change, if the (inaudible) environments are stable, to go significantly above that level in the next years.

So coverage, which is one of the factors that we are using in order to accelerate our value proposition in Spain, we take into account what they are doing, but we are significantly ahead of them. So allow me to say also that coverage is one of the elements, but not the only one. The content is essential, and we think we have the best overall content in the market in Spain, in spite of not having the European championship.

We have a very good and very competitive product in terms of series, a very outstanding product in terms of movies, an outstanding product in terms of other sports and in terms of football rights, and we have also a platform that is providing features that are hard to match by the others like video-on-demand, VDR, cloud storage, last seven days of programming, high-definition channels. So whenever we find them on a building, so to say, it is hard for them to compete with us because we have a very good product and a very good bundle.

We acknowledge we were already accelerating and I think it is the right approach. A competition-based infrastructure is the right approach for fiber and I think that that is precisely why Spain in the middle of the crisis has passed from being the sixth country in Europe in terms of fiber customers -- I'm not talking about relative or a percentage, I'm talking absolute number of fiber-connected homes. From being the sixth in 2011 to being the leader, the leader in 2015.

So I think this is the way to go. The more competition and infrastructure-based competition the better for the country. (technical difficulty)

If you look at metrics like free cash flow or some of the parts value, we remain a European-centric company. And given the high expected growth in EBITDA and operating cash flow that we will achieve in Germany, this will probably continue to be so. So in our cash and value metrics we continue to be a European-centric company.

Giovanni Montalti, UBS.

Sorry, two quick questions. The first one on your expectation in terms of inflation of the content for football. There should be an auction in a short time. We haven't seen much inflation last time around, so wondering what are your thoughts about this.

Second, if you can give us any color about the current pricing in terms of net additions, especially for pay-TV in Spain. Thanks so much.

In terms of our content, it's hard to say. But so far we have been able to send signals to the market that we want to be rational in terms of building the market and that's why it was a very limited inflation on the La Liga rights this year. And we have decided, for the time being, that we were not ready to pay the amount that was required to have the Champions in Europe. So we will try to do our best to make sure that content cost keeps under rationale terms.

Also, taking into consideration that we are at a part that -- again, let me stress that Spain does have a 29% pay-TV penetration, compared with an average of 61% in Europe, and there is way to go on the upside. So I think that if the pricing scheme is rational, we could try to create a stable environment here in Spain. So hard to see. We see that if La Liga -- this La Liga auction coming shortly, so we will keep you posted on that, but for the time being we are trying to send rational signals to the market.

Also take into consideration the fact that the remedies that were imposed to us because of the acquisition of DTS in terms of premium content that we need to have available through our competitors made that -- and the way those are being shared in terms of fixed versus variable components, means that part of the fixed component of those premium rights is shared among the different players. So I think that nobody is really -- of the infrastructure-based players is really incentivized to pay crazy pricing for -- because all of us will need to bear a significant part of the fixed cost.

And in terms of net additions in fiber, what we are seeing so far. Now we are just with October recently closed is that the good trends that we were seeing keeps going. So we think that it should be another quarter of good net adds overall in the Spanish market.

Thanks very much.

Will Milner, Arete Research.

Thanks very much. I had a couple. I just want to take I think it was Matthieu's question on the UK disposal a step further.

If you are unable to sell the UK business, if the European Commission doesn't approve or if Hutchison sees the remedies as too severe, could you maybe just discuss that scenario; what you believe your options are given the sort of leverage that the group would have after that decision? And obviously the LatAm devaluation that we've seen so far. That would be quite helpful to talk through your options in that scenario.

Then secondly, obviously a big part of the debate today has been about content costs and the promotion that you are running in Spain. From what I can see, the basic Fusion offer that people are taking is EUR59 and the promotion they will get stuff that costs EUR65 for basically EUR10. So in January the price for people on that promotion is going to jump from EUR69 to EUR124, which is obviously a huge jump.

I just want to understand how exactly you are going to manage that promotional roll off. Presumably you'll try and encourage consumers to take one of the add-on bundles, but just how is that going to work and how are you going to manage that when you hit that point in January? Thanks.

You first question, I would like to insist that we remain confident in the deal being approved with remedies and closing in the first half of 2016. In the unlikely situation that that was not the case, there would be several alternatives regarding our UK asset, which should be reasonably easy to execute either through M&A, capital markets, strategic or financial investors, doing a complete or a partial deal. There are several alternatives that one could think of.

And in addition, and irrespective of the UK deal outcome, we have several alternatives regarding other assets. For instance, we are strategically reviewing in-depth our portfolio of infrastructure assets. We see opportunities to free capital, realize value while maintaining operational control and this would include things like towers, hammering cables, backhaul, data centers, etc.

Okay, thank you.

Taking your question on customers that are right now under this EUR9.90 promotion, and assuming -- which is an assumption that is not totally correct, but for the sake of the analysis let's assume that they are all on the basic Fusion content offer of EUR59. If they were to move, and they right now they have the premium extra TV offer which is normally EUR65 and is now being promoted to EUR9.90, we will not need to assume that all those customers are going to try to move to this nominal price of EUR65. And allow me to remind you that we have several add-on package that they could decide to move on some of those.

For example, right now you have the football package and the football add-on, which is a pure football package for EUR25 on top of the EUR59. You have the other sports with this EUR20. You have the movies which is just EUR9 and you have the series which is just EUR5. So we have tried to create flexibility for them to accommodate in the content that they would like to have and they would like to choose.

When they have tasted the full blended product of everything, they can decide if they move into that, if that is affordable for them. Or if not, they can decide to stay with at least one of the contents or two of the contents. So we have tried to create a scalability on our product range to make sure that after the promotion they would be attracted to share part of their disposable income with us once they have tasted the product.

So that's our assumption. Again, allow me to remind that one of the basic assumptions is that not all of them are on the EUR59 promotion, on the EUR59 Fusion package.

Okay, that's clearer. Thank you.

Jerry Dellis, Jefferies.

Good afternoon, thank you for taking my questions. The first question is around DTS, please.

Last year DTS disclosed an EBITDA margin of around about 4.5%. There are now La Liga costs within -- La Liga rights within the DTS perimeter, but has the DTS margin changed significantly since 2014?

And then secondly, in Brazil now you have TIM taking advantage of falling MTRs to bring off-net calls into the bundle. Do you expect a short-term impact from that? And would you be able to give us any guidance as to how much of your Brazilian revenue is derived from call-by-call off-net calls please? Thank you.

Taking your question on DTS, we have issued the numbers of DTS for the five months that are wholly being consolidated. Basically in terms of OIBDA we are close to breakeven, if you put into consideration the wholesale cost that in being transferred from Telefonica Espana on the other sports.

At least 4.5% OIBDA margin right now is flat, is breakeven in terms of OIBDA for taking out extraordinary adjustments, positive extraordinary adjustments because of the mergers. So I think that close to 7% OIBDA margin when we put everything into consideration and when we scored the wholesale cost being transferred to DTS from Telefonica Espana.

In terms of Brazil, we do not disclose the OIBDA exposure because of interconnection. It has been significantly decreased over the last five years because we knew that it was coming. So it used to be a very high exposure; now it's a pretty limited one because we have been bundling significantly our tariffs in Brazil during the last quarters.

Yes, it's a new feature on the market. We knew it was coming sooner or later. We have tried to prepare ourselves for that. And as Amos was stating on the call yesterday, everything in the quarter Vivo has been facing because we are the leaders of the market branding further the much more aggressive promotion from our customers.

And so far we have been able to overcome them, because we have, as I was stressing before in Spain, significant differential attributes in Brazil as well. We have the best brand. We have the best quality, the best coverage. We have the best distribution channels, the best distribution network, and the integration is providing us with amazingly high cross-selling opportunities among their customer base of GVT and among the customer base of the former GVT and among the customer base of the former Vivo.

So, yes, brand-new feature on the market, something that was anticipated and therefore confident that we will be able to preserve our commercial traction.

Thank you.

Mandeep Singh, Redburn.

Thank you for taking the question. I just wanted to dig a bit more into Spanish revenue growth. I appreciate this year was never official guidance, it was really an ambition. But do you think that next year 2016 is accumulative; your revenue growth is actually positive and sustainable for the whole year?

Second question I have is really sort of digging into the Spanish revenues in a bit more detail. There is a category of revenues called other which grew very significantly year over year. Excluding that, your revenues in Spain are declining by 2%.

So if you could just try and explain what that other category is; is it accretive or dilutive to margins? And just a bit of a revenue picture in Spain beyond just Fusion, where you do give us a lot of disclosure. Thank you.

Well, I tried to explain that it was not a guidance and therefore we have tried to stress that this is not a guidance for 2016. In order to avoid confusion going forward, but for sure, we are already having five months in a row of revenue growth. We think we can continue into that direction.

It took us almost seven years to turn Spain back into growth. It took us seven years to build the attributes and make sure that that was sustainable with significant CapEx effort, with significant price cuts, with significant bundling, and therefore with significant discounts, significant effort in terms of quality.

Allow me to stress the fact that one of the most important features of this quarter that has been almost unnoticed is churn reduction. We are back to historical levels of churn, low levels of churn in Spain. So if you put on top of the table also the technological improvements or upgrades that we have been doing to our platforms and their expansion that we are doing in LTE and in fiber, definitely we are doing that because we think that we can be a growing company. But again, we are not guiding and we will just keep you posted on a quarter-by-quarter basis.

And in terms of the other slide, it's a very low margin line. It's basically carriers and others. For further detail, please keep in touch with Pablo and the IR team. And remember also the fact that the speed of revenues in the traditional way of Spain between fixed and mobile is having less and less sense because of the Fusion and the bundles.

So I deeply encourage you to go to the overall numbers of revenues in Spain, and for further details on these orders, please contact Pablo and the IR team. They will give you more color on that.

Thank you very much.

James Ratzer, New Street Research.

Thank you very much indeed, two questions please. First one is actually almost a direct follow-up from Mandeep's one just now regarding you have made a number of previous statements about aspiration for revenue growth in Spain. Now that has been achieved do you have an aspiration for EBITDA growth in Spain? And if so, when might that be able to be achieved?

Secondly, please, just wondering if you could give us an update on the situation around cash repatriation from Argentina. Is that something you have been able to do? And if not, how much cash is in Argentina at the moment? Thank you.

Thanks for your questions. Now that we have been able to cross the lines of revenue growth in Spain, for sure we want as soon as possible to cross the line of OIBDA as well. We will try to give you more color on that during the fourth-quarter conference call in terms of the efforts that we are doing; not just because of the end of the promotion, but also the other effort that we are doing by attacking the cost function in Spain, distribution and others. So I hope that during the fourth quarter we will be able to give you more color on the cost structure of Telefonica Espana going forward.

But yes, as you might imagine, after revenue growth for five months in a row and the platform that we have been able to build, now we are targeting to get back to OIBDA growth as soon as possible. So allow me to postpone this for the fourth-quarter conference call, because I think the during that we probably will be able to give you more color on the extra cost effort that we will be running in Telefonica Espana.

Regarding Argentina, we have not repatriated any amount this year. The cash position is the equivalent of EUR203 million, which is decomposed in the equivalent of EUR105 million in pesos and EUR98 million equivalent in foreign currencies.

Thank you, James. We have time for one final question, please. Thank you.

Fabian Lares, JB Capital Madrid.

Good afternoon. Thanks for taking my questions. First of all, could you give additional information; now that the European Union has finally decided on the outlook for roaming, can you give us some information on how much that weighs on your consolidated basis in Spain and Germany and if this would be -- how much this would be affected with the change in regulation in April in 2016 and June 2017?

Second, with regards to the ruling -- the statement by Standard & Poor's on hybrids -- I'm not sure if this was asked, and if it was I'm sorry; I guess I joined late. Could you give us more information as to what your strategy might be with hybrids given now that they account 100% of debt, whether you would retire these earlier, replace them with more senior, cheaper senior debt, etc.? Thanks.

Thanks for your question. In terms of the roaming exposure, in terms of our net exposure at the third quarter of this year is 1.5% of revenues so this is what we have right now. Allow me to remind you that we are already preparing our company for that.

We have all the players, but namely Telefonica has been putting together on our own network a significantly attractive tariff for roamers that have come in from the UK into Spain or from Germany into Spain or the other way around. So we already -- as we were discussing before on the Brazilian interconnection question, we are also trying to anticipate that and to accommodate the impact on our accounts as we move over the end of roaming and the end of 2017. But right now, to be precise on the answer, 1.5% of net revenues; this is a net exposure to it.

And finally, allow me also to say that we have been growing 4.8% in revenues organic at the group level this quarter -- cumulative so far this year, nine months. Regulation is driving 1.2 percentage points of that growth. If the regulatory situation would have been exactly the same in the previous years, we will have been growing 5.4%.

So we are used to those regulatory effects. They are getting less and less relevant because regulation still thinks in the previous century, but the impacts are getting less and less relevant.

Regarding the hybrids, S&P has revised the equity content assigned to several hybrid capital instruments to minimal from intermediate. In our case, all our hybrids have been impacted by this change.

This revision of the equity content has been triggered by a review of the rating event provisions in certain hybrid documentations, which allow the issuer to call the hybrids upon a reclassification leading to a change in the rating previously assigned to the issuer. Confronted with this situation, which was unexpected, our main target is to regain the equity content. To keep the financial flexibility, we aimed at the times of the several issuances and also to maintain good market access.

We are currently reviewing the documentation with legal counsel. We are reviewing our options and we are in dialogue with S&P about courses of action in order to regain expeditiously the equity content. And we will update the market in due course.

This was the final question. I'll pass now to Angel for closing the call.

Well, thank you very much for your participation and we certainly hope that we have provided some useful insights for you. Should you still have further questions, please contact our investor relations department. Good afternoon.

Telefonica's November 2015 results conference call is over. You may now disconnect your line. Thank you.