Tim SA (TIMB) 2021 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to TIM S.A. 2021 First Quarter Results Conference Call. We would like to inform you that this event is being recorded. (Operator Instructions)

We highlight that statements that may be made regarding the prospects, projections and goals of TIM S.A. constitute the beliefs and assumptions of the company's Board of Executive Officers. Future considerations are not performance warranties as they involve risks, uncertainties and assumptions as they refer to events that may or may not occur. Investors should understand that internal and external factors to TIM S.A. may affect their performance and lead to different results than those planned. (Operator Instructions)

Now I'll turn the conference over to the CEO, Mr. Pietro Labriola, so he can present the main messages for the first quarter of 2021. Please, Mr. Pietro, you may proceed.

Good morning, everyone, and thanks for attending our results conference call. We started the year with high hopes that the worst of the pandemic was behind us. Unfortunately, earlier in February, the second wave started to hit some Brazilian cities and spread more broadly during March. Of course, this time, we were more prepared to sustain the impact from more strict measures to control the spread of the virus. Also, the fact that cities implemented those measures in different moments of the quarter made a difference in how we were affected.

In all, the consequences of the second wave in our business were smaller than the first wave a year ago. Considering this, we are not altering materially any part of our strategic plan disclosed to you in our TIM Brazil Day. Neither the project nor the targets are going to be changed. We are confirming our entire guidance.

The first quarter was marked by excellent execution. We accelerated our recovery started in the second half of the last year, and both revenues and EBITDA are growing more in our recent results. We closed the quarter with service revenue growing more than 3% year-over-year. EBITDA came in very solid, up 4.5% versus last year. It summed more than BRL 2 billion, representing a margin of almost 47%.

As you probably saw last night, we reached an agreement with [AHS], completing the deal for our FiberCo, a great deal for both companies. As I said, our customer platform plan is moving forward, and we are much closer to announce new partnerships for distance learning education and digital wallet.

On the technology front, we reached more than 4,000 cities covered with 4G and more than 120 sites in the Sky Coverage project. We also signed the agreement with the vendors for our Journey to Cloud project. These achievements show our commitment to improve the quality of our service, implement more cost-efficient solution and last, generate social and environmental positive impact, as we detailed in our ESG plan. Last but not least, this quarter, TIM Live was appointed as the best broadband service in Brazil.

Detailing our revenue acceleration, we saw positive contribution coming from mobile and fixed services, with all lines posting better growth rates than the fourth quarter. Mobile Service revenue accelerated to grow 2.8% year-over-year, with Postpaid segment growth also speeding up to reach almost 4%. Mobile Service revenue is also receiving the contribution of Customer Platform projects. And this is the second quarter that we booked revenue from this new revenue stream.

In this quarter, it summed BRL 17 million. In parallel, Fixed Services are also growing faster, up by 12%, with a solid contribution from TIM Live of more than 20% year-over-year. ARPU improvements in all segments are a significant driver for both Mobile and Fixed accelerations.

The key element of our mobile recovery amid the second wave of pandemic is the ability to play our game up from volume to value. Despite having stores closed across the country impacting our commercial activity, our mobile ARPU grew almost 7% year-over-year, with postpaid and prepaid contributing positively to the performance. We expect to improve even further our prepaid dynamics.

In the first quarter, we increased the participation of e-recharges to 55% of the total and accelerated the adoption of TIM Mais Vantagens advantage program. In March, prepaid recharges were slightly positive versus last year. But in April, they are up by 9%. For postpaid, churn reduction was a highlight once again. At the same time, we continue to differentiate our offers with the OTT marketplace and try to monetize data consumption with a more-for-more approach.

Still in the Mobile arena, but now talking about new initiatives under Customer Platform name, our projects are starting to bear fruits. Out of the BRL 17 million in revenues, BRL 11 million were generated by financial services and BRL 6 million were generated by mobile advertising. The latter was driven by the evolution in TIM Ads and Informa TIM platforms. Besides data rewards for video ads, we are working on lead generation, surveys and app installations. In the second quarter, we expect even more after the launch of TIM Fun under our partnership with Play2Pay and TIM News with Icaro.

Talking about the future, the customer platform road map is full. Also in the second quarter, we expect to sign an MOU with an e-learning platform and our digital wallet negotiations are speeding up, so we expect news by the end of the quarter. This time, we either manage to bring other telcos on board or we do it alone. On health, we are starting the first negotiation, so it will be something for the third quarter.

Changing gears and moving to the Fixed Services, it's not a surprise that TIM Live's consistent performance, combining ARPU and customer base growth, produced solid results in the past year. And it's no different this quarter. Additionally, we are developing the connected house concept to bring more innovation to our clients and sell intelligent devices.

Regardless of the difficulties imposed by one year of pandemic, we managed to keep growing our coverage, reaching 3.5 million homes passed with fiber, up 40% against last year. This is a remarkable achievement, but we believe we can do more. That is why TIM is partnering with IHS in the FiberCo project. As we have been saying from the start, this deal has an industrial orientation, different from other deals you can find in the market.

Summarizing the deal, the FiberCo will receive TIM Live's last-mile network in FTTH and FTTC, and TIM will hold 49% of the capital of the new company. TIM will drive the network's rollout, but the fiber will be open to other players to rent. The FiberCo was valued at 21x in terms of enterprise value on EBITDA multiple, and TIM received BRL 1 billion in proceeds from the transaction. As a consequence of the deal, we will deconsolidate a large portion of TIM Live's CapEx and even if new costs emerged from the last-mile rent, the net effect will generate a positive contribution to free cash flow.

Maintaining our discussion on infrastructure developments, I'd like to remark that it was not only the broadband coverage that grew solidly despite the challenges of the moment. Mobile coverage also expanded soundly: 17.5% more cities covered with 4G, 27% more in 4.5G; more than 40% growth in cities covered by 700 megahertz; and more than 120 sites within the Sky Coverage project to cover remote areas.

But network developments didn't stop there. We are preparing our network for Oi's asset integration and planning the 5G rollout. In this context, massive MIMO rollout, site modernization and the network sharing agreement with Vivo play a crucial role in the next step of our infrastructure plan.

Before moving to IT evolution, I wanted to remark that, despite a 5G DSS being the 5G of marketing, it has its importance. And we know how to play this game. That is why we are ahead of the competition on this front as well. Today, we have the broadest coverage in this technology with 19 cluster of cities and approximately 150 DSS stations. Also our customers access the 5G DSS technology more frequently than our competitor clients. And to complete the 5G topic, TIM was the first Brazilian telco to test 5G stand-alone with commercial equipment, reaching speeds above 1.8 gigabit per second.

Now, on the IT front, I'd like to remark TIM's pioneer move with the support of Microsoft and Oracle to be the first operator and one of the first company in Brazil to migrate 100% of its data center to the cloud. We already detailed the project during our Investor Day, but I want to use this as an example of the importance of having an integrated approach to ESG. In this project, we combine innovation, cash flow-focused efficiency and positive environmental impact to take TIM to the forefront of the IT solution.

It is essential to highlight this is not a unique example. When we analyze the outputs of our digital transformation in caring services and now the positive impact NPS in different segments, it is becoming clear that technology will help us deal with one of the most pressing ESG challenges for a telco in Brazil: its customer satisfaction.

One of the beauties of digital transformation is its dual effect. At the same time, it supports customer experience, but it also helps to control and reduce costs. We are still in the middle of the process so we have a long way to go. But this past year, digitalization speeded up, for sure one of the consequences of the pandemic. E-recharges, e-bills, e-payment, e-sales and app utilization all presented double-digit increases versus 2020. On top of that, PIX, which was launched 6 months ago, already has more than 2 million TIM invoices paid.

In this context, our OpEx continued to be under control, rising well below inflation. It went up just 1.7% versus 2020. Bad debt continued to show solid performance. But as we mentioned in the fourth quarter, the main structural changes were done, improvements would be more incremental than transformational. And we need to account that we have more than 60% of our revenues in postpaid.

Clearly, the combination of revenues going up and costs under control is well known. It produced EBITDA growth. In our case, a solid 4.5% year-over-year. And this is the 19th quarter with positive EBITDA growth. Additionally, it also generated margin expansion to reach 46.6%, and net income rise of almost 60%. As I mentioned earlier, we are preparing our network for Oi's asset integration and resuming project initially scheduled for 2020. So our investment [totalized] BRL 1.3 billion, growing more than 40%.

Before I conclude my presentation, I'd like to highlight that the mobile sector is being reshaped by the Oi acquisition on one side and the spectrum auction on the other side. Both are expected to occur at a certain point in the third quarter.

On the Oi Mobile deal, it is worth pointing that the transactional approval process is going according to expectation. We have completed all the necessary steps with Cade and Anatel for both to conduct their analysis. Now we must wait. As for the auction, we continue to view it as having a well-designed structure, which will privilege investments to serve customers in the best manner. As we stated before, TIM's focus will be the 5G frequencies. We are waiting on TCU's contribution to complete the details of our strategy for the auction.

Ending my comments. I want to remark on the sound result we are delivering amid a very complex environment, which confirms the company positive momentum and solid fundamentals. So we will continue to work on mobile growth acceleration with the expectation that vaccination can represent an upside; implementation of the deal with IHS to grow further our FTTH business; continue developing our Customer Platform strategy to increase its contribution; transforming our infrastructure and preparing the company for the future; and last, maintaining the focus on profitability and financial discipline.

Thank you. We will now open the floor for questions. Please, operator.

(Operator Instructions) The first question comes from Matt Robilliard with Barclays. Mr. Matt, you may proceed. (Operator Instructions)

The next question comes from Leonardo Olmos with UBS.

Can you hear me well?

Yes.

Yes, we can hear you well.

Okay. Sorry about that. Well, I have 2 quick questions. The first one about the FiberCo sales to IHS. Great deal, first of all. Congratulations. I wanted to know if you could share with us the EBITDA that this operation was generating so we can understand a bit about the multiple. And if there are any long-term clauses in this deal such as earnout.

Okay. Leonardo, it's Adrian here. So you know that it's not easy to disclose those kinds of information in terms of EBITDA. But I think that since Pietro mentioned the multiple that we arrived with the enterprise value that we are considering, you can do the math and it's almost pretty easy then. (multiple speakers)

I [gave] the multiple.

Sorry, yes, yes. Well, Pietro mentioned the 21x enterprise value over the 2020 pro forma EBITDA. So the thing here is that's the 2020 EBITDA in terms of pro forma. Clearly, what we have is a very challenging business plan, but it's the internal business plan that we had even before the transaction. What I'm trying to say is, probably, in the future, we can do more of what we put in the business plan. Because at the end, that's the goal of closing this deal and especially with IHS, being them an industrial partner in this case.

Because remember, Leonardo, we always said that this, for us, was not a financial deal. It's more an industrial deal due to the fact that we wanted to be in the business of fixed ultrabroadband. It's the opportunities that the market will have in terms of new connection of FTTH in the next 3 years, up to 11 million of new collections. You can understand that there is a lot of space for many players, and we want to catch a portion of that opportunity. So internally, with the actual situation, could have been a little bit difficult because this will mean additional CapEx being the fixed ultrabroadband most -- much more capital-intensive than the mobile. So that's the first goal of the FiberCo project.

Then, yes, of course, we can also mention the more financial side of the transaction. And then you arrive there to that multiple of 21x EBITDA. But it's not something that, for us, is the key. The key for us of this project is industrial. Then of course, this -- the secondary that we mentioned will help us in order to finance the deal with Oi. Yes, of course. But be sure that the first goal for us for this project was industrial. I think that you had a second question, Leonardo. Was?

Yes. The second question is related to the agreement you made with Telecom Italia. I understand that you've tested 7 other companies to provide the foreign submarine cable, the foreign connection. I just want to understand, before this deal, how -- which company were you using? What were you doing before that to get access to foreign Internet for Brazil?

I don't know if I got your question, Leonardo. It's regarding our contract that we signed with Sparkle?

Yes, yes, that's it. My question is you signed the contract with Sparkle, right, for 2021 until '23. My question is before that, which company were you using? What was the capacity, how much were you paying?

Leonardo, this is Vicente speaking. So this information was disclosed yesterday in our communication. All the information available about this contract with Sparkle as it's a related party is public. I'll pass the floor to Mr. Alberto, so he can explain to you since this is under our wholesale department. Please, Mr. Alberto.

Yes, Leonardo, it's quite a standard piece of business, meaning that on a yearly basis, we reviewed the terms of conditions of our peering Internet traffic. And so we sound the market, and we check out the best deal in terms of volume versus prices. And so this specific contract was discussed yesterday, and yes, it has been awarded to Sparkle because it provided to us the best technical scoring and the lowest price. And it extends for the 12 months renewable.

Yes. Okay. Just -- I'm not sure you got my question. In 2020, who was the Sparkle? Who was providing you capacity?

Sparkle, too.

The next question comes from Gabriel Figueiredo with JPMorgan.

Do you hear me well?

Yes, sure.

I have 2 questions on Mobile, if I may, please. The first one, Pietro mentioned during this speech, this move from volume to value. And indeed, we can see that the postpaid net adds from TIM have been softer in the past months. But on the other hand, you've been able to increase ARPUs and increase postpaid revenues. I was kind of trying to understand the drivers behind that. Are you benefiting from price increases? Or are customers migrating for higher value packages, such as [Controle] to pure postpaid?

Yes. And the second question?

Second question is still on Mobile. If you could give us a color on competition? We saw Oi launching unlimited products. How are you seeing these trends right now?

Okay. Gabriel, first of all, thank you. You catch the right point that is related to our strategy that we declare since a couple of years to move from volume to value. As you have seen, we posted a growth year-over-year in this first quarter, mainly on the postpaid. And the growth is related also to the fact that we had softer net adds increase. But in the meantime, we were able to continue to increase the level of consumption in our package by our customer. What I mean is that our package, differently from WhatsApp, for example, in some country like Italy or U.S. do not have a huge amount of giga.

During the pandemic, customer further increased their level of data consumption, and it will allow us to (technical difficulty) of giga, to package to higher amount of giga. What is important to highlight is that in this number, it's not yet included the price up that we did in the month of March. The impact of the ARPU increase coming from the price up will be more -- will be appreciated in the second quarter. What is important is that our price up is not a real price increase. But it's with our more-for-more strategy, what we do?

We add more giga for the customer, exchanging (technical difficulty) our strategy that we define from volume to value is composed by package of giga that progressively, time by time, are increased in terms of amount of giga in front of a price increase. This will follow the data consumption increase from our customer that in 2020, was driven by the increase of consumption due to the pandemic, but it is a natural trend in a country like Brazil.

To sustain this strategy, we have to further improve our quality of service. The fact that we were able also to reduce the level of churn, as I mentioned during my speech, is a further element that confirm that we are on the right path. So when we will discuss the results of the second quarter, we will show a further increase in the revenues of postpaid year-over-year. This time, they will be much more driven by an ARPU increase and less driven by a customer base increase.

Coming back to the second question that is related to the competition. It's -- time by time, if you remember, it happened also in early 2019. There are some operators that are perceived in the market with a lower level of network quality. They try to gain space releasing on the -- in the market offer with a higher volume of giga. So the good part of the market and of the customers of this offer and of these operators, what's happened is that they do not have impact in terms of strong increase of customer base, of change of operator. So we do not foresee this offer as an issue that can change. So again, I don't know if you were able to catch all my answer because I understood that there were some technical issue, Gabriel. I was able to explain?

You were cut sometimes, but I got the answer.

Okay. I apologize for the issue. But if you want, I can repeat.

The next question comes from Cristian Faria with Bradesco BBI.

I have 2 questions regarding the FiberCo deal. So the first one, I would like to understand the estimated growth in terms of homes passed. If the estimated growth now, we didn't saw much difference regarding the expected CapEx deployment, but would like to understand how much that the company can achieve in terms of homes passed in the future, now with the new investment partner versus previously.

And second, my other point is that if the primary offer that the company will receive is enough to fully finance the growth expected in terms of capital deployed?

Okay, Cristian. I think that, first of all, it's important to remember that when we presented the new plan during the TIM Day, we clearly stated to the market that (technical difficulty) the FiberCo project. So once we close the deal with IHS, the first step of our deal was we use IHS to fulfill what was included in our plan in terms of homes passed. So in this first phase, we are not adding further homes passed. But through the vehicle of IHS, we are going to deliver what was already included in the plan. It's clear that what we have in mind (technical difficulty).

I'll take the question from here because we're having some issues with the connection. But Cristian, I think that you heard what Pietro was mentioning. We reached this agreement with IHS for the FiberCo based on our actual plan for deployment of FTTH and obviously, operation and maintenance of the actual networks.

Clearly, in order to reach this agreement, we need to base it on what we already have and what we are already projecting. As I was mentioning in the first question here, the goal, obviously, is to accelerate. As you know, the opportunities that we will have in the next 3 years are big. We want to catch a big portion of those opportunities. So yes, obviously, the intention is make more of what we were projecting. What we have now on the base of this agreement is the actual plan that we have. So that's why you see the figures of reaching almost 9 million of homes passed in 4 years or what we are doing in terms of -- for the next 2 years.

The other part of your question is regarding the component of the primary that IHS will be paying, if it is enough in order to finance. Yes, it's enough to finance the first years of the operation. Remembering always that the good thing of this FiberCo is that it's born with an anchor customer that is TIM. So the FiberCo will have an EBITDA since the beginning. Probably something different in other cases. But again, we will try to focus on our projects.

So of course, with the EBITDA and the capital injection coming from IHS, there will be enough cash flow to finance the additional deployment. Obviously, every company can be much more efficient through leverage, and we obviously could consider this alternative. But again, we are -- we're very comfortable with this level of primary at least to finance the first 3, 4 years of the FiberCo.

Adrian, I'm ready. Can you hear me well?

Yes.

Adrian?

Yes.

Adrian, do you hear me well now?

Yes, Pietro.

Okay. Sorry, I apologize. Just to complement what Adrian was telling, I was telling before that it is important to remember that when we presented during our TIM Day presentation our 3-years plan, we didn't include in our numbers the FiberCo operation, the FiberCo deal. So in this first phase, what is happening is that we are replicating with FiberCo the target of homes passed that they were in our plan, in our existing plan.

It's clear that we have the flexibility to further accelerate because our goal is to use this vehicle to have an acceleration in terms of coverage. The way in which this deal was built give us the flexibility to do that. As Adrian was explaining also from the financial point of view, there are all the elements that can allow to have a further acceleration. What we'll do is that once we put everything in place from the operational point of view, the next step will be to evaluate the right speed up that we can have with this vehicle.

And again, answering also to the first question that we received on FiberCo, it's really important not to discuss about which is the level of EBITDA of this FiberCo. Because from our point of view, this is an industrial operation. And this is not a financial operation. Because if we would like to have a financial operation on that, it was quite easy to increase the level of EBITDA of this company, increasing the transfer price of the cost of the local loop. We kept this level at a low rate because this is a vehicle that will allow us to further accelerate our growth in the ultra-broadband business.

So again, I'd like to stress this point because this is not a financial deal. It has also important financial components. But at the end of the day, it is an important industrial deal that will allow us to further accelerate our ultra-broadband development.

Perfect. If you allow me to make a (technical difficulty) How is it going to be in terms of TIM branding? So are you going to continue to (technical difficulty) or they will available to the offer the infrastructure to other players?

Cristian, we lost you for part of your question. Can you rephrase?

Perfect. I just wanted to understand if the growth in terms of homes connected will be exclusive to use the TIM brand. So -- or the fiber company will be able to offer the other homes passed to other players as well?

Okay. Yes, understood. As we mentioned in the material fact that we issued yesterday, there will be, for every new deployment, a period of exclusivity for TIM of 6 months. After that, yes, obviously, FiberCo could start to offer the infrastructure to other players. That's the main difference when we talk about neutral or open vehicles.

In this case, it's not a neutral because the vehicle will have the anchor customer that is TIM and we'll have an exclusivity period on every new deployment. But then, yes, these networks will be open to third parties. That's probably what's interesting in this deal. And we think that it's reflected in the value of the company.

So again, remembering always that we will keep all the management of the customers, we will keep even the management of the home devices, so the modems, because we think that this is an extremely important touch point with our customers. So again, the -- what we are putting here in this FiberCo, what we are dropping down, is from the OLT, from the cabinet until -- out to the customer to the customer. So the answer to your question is yes, the networks will be open after a period of exclusivity.

Adrian, if I may add, because perhaps also do a comparison can help Cristian to catch the difference between other model of InfraCo. As Adrian was explaining, in the Brazilian market, you will see that you will have some cases in which the InfraCo's model will be completely neutral. What this means that from day 0, the day where they build infrastructure, the last mile, this infrastructure can be bought by any operator. There will be no exclusivity of the time for one operator to buy from this neutral InfraCo. This is more or less the model of the Oi InfraCo, okay?

It is a model that is pure wholesale, that have some pros and some cons related to the fact that you don't have an anchor operator customer. Our model, as Adrian was explaining, is open. What it means? Once we build the fiber infrastructure, for a certain period of time, 6 months, the only operator that could buy that infrastructure will be TIM. After that period of time, it will be open also to other operators, okay? So these are 2 more, they're completely different because in the second one, the one that was chosen by TIM, it's clear that you can give a strategic indication in the area that must be developed and continue to be synergic with the TIM strategic plan. This is the reason for which, I'll stress another time, it's more an industrial deal than a financial deal.

The next question comes from Carlos Sequeira with BTG Pactual.

I will still stick to the transaction of the fiber company. I think by now, I got it. But just to confirm, the TIM's backhaul backbone are not included in the assets that have been transferred, right, to the FiberCo. They will remain controlled by TIM. Is that right?

You told, Carlos, backbone. Is it right?

Yes, backhaul and backbone, yes.

They will stay with TIM.

Okay. So any decision by the fiber company...

Yes. Sorry, Carlos, it's -- sorry, it's Adrian here. Yes, as Pietro was mentioning, we always said since the beginning that what we were interested in, in order to find a partner, was on the last mile. And why this was designed? Because remember that our backbone and obviously, our backhauling are mainly for the mobile business yet, considering what we have. Of course, as we said in the beginning, the ultra-broadband, it's always leveraging on this mobile infrastructure that we have. So for us, it was extremely key to maintain what we have in terms of backbone and backhauling in household. That's why the only thing that we are dropping down is the secondary network.

It's -- at the end, as we mentioned, this is an industrial deal, and it's probably more strategic. And the strategy is to maintain the backbone and the backhauling in-house. Then there could be additional sub-sites in the deal, in this FiberCo deal, because FiberCo could be in the future, yes, deploying infrastructure, not only on the FTTH, but also on what we call FTT sites because it could be also efficient. But what we are dropping down to the company is limited to the secondary network.

No, it's clear. And I think this is important to be clear to everybody because we, ourselves, when we were doing the analysis, we mentioned an EV per homes passed and compare it to the deals that happened, but it's completely different, right? Because other deals included backhaul and backbone that we're not including here. So it's impossible to really compare the different transactions from a valuation standpoint, right?

Yes, you are right. Also because some of the transactions that happened have all such customer included. In such a case, we are only including the last mile, the fiber that go from, let me say, the OLT, not to the customer house.

No, perfect. And a different question. I mean, the expansion plan is pretty aggressive, right? My question is, what type of geographies or type of cities looking -- the fiber company will expanding to? Is there any specific target you're looking for? A type of market that you are going to target with the new company?

Carlos, it's clear that if we were just into in front of a coffee or a glass of wine, I can give you a lot of details that now could be the disclosure of our strategy. What I mean? It's clear that your question, try to understand if there's the risk of some overlap with other activity that are quite similar.

We took a lot of attention at our geomarket model to evaluate exactly where to go. In our plan, there will be, for sure, this is something that we can disclose, part of the change of the FTTC in FTTH, what we call brownfield. The choose of the remaining area will be done based on our idea about the move and the strategy of the other player in terms of geomarketing and analysis about what is the potentiality of each area.

And it's clear, you have to consider that there are different factors here that we're to keep in mind. Also the strategy of the other player also. There is someone that therefore evaluate the evolution of the cable technology, if and how, at which cost cable technology is able to scale up, up to 1 gigabit per second. The migration of copper to fiber from some other players. There are some small list that have fiberoptics network, but with the level of overbooking, that do not allow, in an easy way, to upsell and upgrade the network at highest level of speed.

So these are all the different elements that we are evaluating to define exactly our geomarketing approach in the different area. What is clear that we will try to avoid overlap, and we will never try to be the third or the fourth player to go to build a fiberoptics network, because it makes no sense from the industrial point of view. But in some way, thanks to the size of Brazil, the untapped market is still huge. So I don't foresee in the next 3, 5 years, a huge issue in terms of overlap.

Carlos, it's clear that you have to keep in mind that this is something that is a chess game. Because you have to consider also what will be, as I mentioned, the strategy of the other player. They have to keep in mind that, differently from TIM, there's some legacy. So the strategy is: defend the legacy, migrate the legacy, go for untapped market, but it will be difficult for them to do all of that. And really must be clever having no legacy to try to fill this, let me say, gap in their strategy that will be left on the market due to the fact that the increase of speed is attractive. We are already moving to offer for a 400 or 500 megabit per second. And you can imagine that there are some technology that can have much more difficulties to follow this kind of strategy.

Yes, no doubt.

The next question comes from Alejandro Gallostra with BBVA.

The first one, I'm trying to better understand the strategy of the new FiberCo. The purpose of the FiberCo is to have all the homes passed with FTTH in 4 years and having nothing with FTTC. So that -- does it mean that you plan to upgrade your current FTTC network to FTTH and then increase the FTTH footprint in order to reach the 9 million FTTH homes passed target within 4 years, is that correct? We are talking about 9 million in FTTH plus 3.5 FTTC. And then what will be the infrastructure deployment plans at the TIM level? That's my first question.

And then the second question is regarding the personnel expenses. You have been reducing the number of employees at a faster pace in recent quarters. Will this trend continue as part of the digitalization process or it is accelerating because you are permanently closing stores? And how much reduction in the workforce should we expect going forward?

And in addition, related to this question, you mentioned in the press release that employees will be transferred to the new FiberCo. So would it be possible to mention the number of employees that you will be transferring to the new entity when the transaction materializes?

Okay. Related to the first question, before to leave Adrian to give more detail, perhaps my previous speech wasn't clear. We are not starting to phase off the FTTC, changing everything for FTTH. In our 3-year plan, what we'll do that we will partially substitute, in some area, FTTC with FTTH. We don't have to deduct once. So at the end of the 3-year, we will continue to have FTTC customer, but we will migrate part of them, not all the customer, to FTTH, okay? So if -- now I don't remember, but today, we are more than 300,000 FTTC customer. If I'm not wrong, our number at the end of 2023 will be to reduce FTTC customer from 300,000 to 200,000 customer, but Adrian can correct me if I'm wrong.

Related to the personnel expenses, keep in mind that, first of all, employee reduction. We don't foresee employees reduction also because we are already a lean company. We have more or less 9,500 employees. If I remember well, in 2015, we were 15,500, okay? So we already did a huge job in terms of use of external forces, outsourcing part of the activity. So we don't foresee this activity. What will happen is that the digitalization process that we put in place is allowing us to reduce costs that we have externally for some kind of activity that are more human based than automatized.

Then in relation to the comparison year-over-year, if you look at the real labor costs, the increase -- if you look at the overall cost, it's an increase, if I'm not wrong, 8% year-over-year. But the real increase on what is exactly labor cost, it was only 3%. It is more or less aligned with the inflation. The remaining part is related to some contingencies. But again, Adrian, please, if you want to integrate or correct something that I told.

No, you said it -- you said correctly, Pietro. On the first part of the question in terms of what we'll have 4 years from now in terms of homes passed, clearly, we want to reach 9 million of home passed on FTTH, but there will remain still some others on FTTC. Why? Because we will be overlaying from C to H, where we need to. As always, we need to be extremely efficient in order to maximize the return. So it's not that we will be overlaying all the FTTC in 4 years.

On the second part of your question regarding the employees that will be going to the FiberCo, remember that's -- this is a very limited number of employees. We're not talking about something significant. Anyway, we didn't have any movement in our numbers of employees in the past. We think that we are very comfortable with the actual situation and we don't have plans in order to reduce this number.

[Alejandro], about your question, allow me to further give another detail about why FiberCo. Next year, but reality, the truth is that already this year, we will add a big challenge that will be the integration, touch wood, of the Oi asset. So one of the reasons to create the FiberCo was also to create, let me say, a center of excellence in terms of fixed operation for the last mile.

What I mean? Until you discuss about backbone, backhaul, transport network, there are a lot of synergies managing a unique network, fixed and mobile. When you talk about the last mile, it's something that is completely different from, let me say, the last mile of mobile. Mobile is a delivery of a SIM and everything works. Build the last mile, it's a completely different job. So the creation of a FiberCo will allow us to have a TIM that will be completely focused in this tough job, and we are sure that we will benefit the most also from the operational point of view. We have a separate company, completely focused on this activity. They'll be working on the fixed for a lot of years in Italy. And I can assure you that I don't want to say that there's one simplest than the other. But for sure, our 2 activity completely different. And it is difficult to let them converge.

So the creation of this company will allow, through our internal team, to be 100% focused on the integration of Oi and discussing about the operation activity. And we will let another team that will be in the NewCo in the InfraCo that will be completely focused to build this last mile network. Then Alberto and his team will be focused to sell fixed and mobile because at the sale level, nothing changed, and we'll continue to manage the customer.

(Operator Instructions) Ladies and gentlemen, without any more questions, I'm returning to Mr. Pietro Labriola for his final remarks. Please, Mr. Pietro, you may proceed.

I have been saying this for the past few quarters. In TIM, we don't use shortcuts. We will maintain our focus on the sustainability of the business with a rational approach and solid execution. The anti-fragile stance of the company is turning challenges into opportunities to evolve further.

So we will continue to use our innovative approach and agility to make the right decision and be ready to take full advantage of the recovery of the economy.

I want to thank the dedication and commitment of our team who continue to overcome many challenges to deliver outstanding results. Once again, together, we can do more, or as we say internally, (foreign language).

Thank you once again for participating in our conference call. Stay safe and healthy. I hope we can virtually meet soon in the upcoming events that we will be doing with the financial community, but I hope to meet you in person as soon as possible.

Thus, we conclude the First Quarter of 2021 Conference Call of TIM S.A. For further information and details of the company, please access our website, tim.com.br/ir. You can disconnect from now on. Thank you once again.