Tim SA (TIMB) 2022 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to TIM S.A. 2022 Second Quarter Results Conference Call. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the company's presentation. There will be a replay for this call on the company's website. After TIM S.A. remarks are completed, there will be a question and answer session for participants. At that time, further instructions will be given.

We highlight that statements that may be made regarding the prospects, projections and goals of TIM S.A. constitute the beliefs and assumptions on the company's board of executive officers, future considerations are not performance to warranties. 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 will turn the conference over to the CEO, Mr. Alberto Griselli, CEO of TIM S.A. and Ms. Camille Faria, Chief Financial Officer and Investor Relations Officer to present the main messages for the second quarter of 2022.

Please Mr. Alberto, you may proceed.

Good morning everyone and thank you for attending our results conference call. As you all know, this is the first quarter we report number after closing the deal with Oi. So most of the figures we will share with you today are a combination of TIM S.A. and [2 months of Cosan], ESP created to hold the assets we acquired. By the way the integration process is evolving swiftly and we are ahead of schedule for network migration clients are already benefitting from better network coverage and quality.

Having this in mind, I can say we had a great quarter. TIM is now a bigger than better company than ever before, we are growing faster and maintaining our high level profitability while delivering transformational projects, such as the launch of 5G. This past months were a great start for the next generation TIM.

In the second quarter our top line grew more than 20% year-over-year, our EBITDA also showed great momentum expanding more than 18%, which lead EBITDA minus CapEx to rise more than 20%, with a cash flow margin of around 27%. This is a very robust set of numbers supporting the path to reach our shareholder remuneration guidance of BRL 2 billion which includes the BRL 270 million in interest on capital that we announced in June. Additionally, we maintain our focus on execution to achieve another relevant milestone in our customer platform program. During the second quarter, we hit another target, and now we are entitled to a 5.2% stake in C6 Bank.

Getting into additional detail in our revenue dynamics, we saw mobile service revenues grow 23% year-over-year, while fixed services was up more than 7%, consolidating our service revenues at an expansion of 22% year-over-year. It is essential to highlight that this revenue pro forma was not only driven by the Oi assets acquisition. The organic performance was also a great contributor. Excluding the effects from [Cosan], stand-alone net revenues expanded at a sound 13% versus last year, while service revenues grew more than 12%, a level of growth we last achieved 10 years ago.

As a result, mobile blended ARPU reached BRL 28.5 confirming our leadership in the KPI versus peers. This level represents a double-digit growth versus second quarter '21, receiving a positive contribution from both postpaid and prepaid. In postpaid, TIM stand-alone revenues accelerated 12.2% year-on-year, with ARPU growing close to 6%. As main drivers, we had a better mix of plans for gross additions, the price adjustments to cope with inflation following the usual more-for-more approach, a more rational competitive environment and proactive migration of former Oi clients to our rate plans.

In prepaid, revenues, excluding the impact of Cosan , rose close to 7% with ARPU expanding more than 7%. As main drivers, we had a large number of clients recharging, higher spending per customer, a stable competitive scenario and governmental income transfer programs. These results once again show that our choice to focus on a value strategy is working well and paying off.

During the quarter, we added Amazon services to our content portfolio as an evolution of our value proposition. In prepaid, TIM Pre Top our core offer added prime video mobile-only subscription, results are very positive in terms of take-up. In postpaid, the entire Amazon Prime service catalog is available as a bundle or as a plug-in depending on the plan.

[Steele] mobile, and as I mentioned earlier, TIM launched 5G in Brasilia at the beginning of July. We deployed a larger coverage than required by the regulator to provide our customers with a meaningful experience already at launch. We also introduced an unique offer called 5G Booster that combines additional data allowance and cloud gaming and all these clearly supported by promotions on 5G smartphones. This approach makes tangible our innovation positioning, reinforce our network leadership and pave the way to 4G traffic of loading.

Last Friday, we launched 3 other states capital, Belo Horizonte, (inaudible) Portalegre, again deploying more sites than the minimum regulatory requirements and launch and positioning ahead of competition. Until the end of the year, we will have 27 cities covered with 5G. We expect to be front runners in multiple key markets, including Sao Paulo, which is going to launch this week. This strategy will support our CapEx allocation efficiency and help achieve the BRL 600 million savings in 2023 and 2024 that we mentioned during our Investor Day last May.

Let's now move on and go deeper into the integration of Oi assets. As I mentioned earlier, network migration is ahead of schedule. As a matter of fact, we are completing the roaming like phase in half of the time. Clients are already reaping the benefits of better network coverage and quality. The second phase called SAC [retuning] and the third one when full integration, of course, are also being implemented. They are expected to be completed by October and December, respectively.

It is interesting to look at the Brasilia case to understand some benefits of this transaction and opportunities that can emerge from it, as the city has already passed through the 3 phases of network integration. Under this scenario, our customer on our network in Brasilia are experiencing 60% higher download speeds, within customers enjoying an 80-plus percent improvement. More spectrum and more sites can make a significant difference in customer experience and create opportunity for data monetization following a greater network availability.

On the IT side of our integration, which we call clients migration, we started in the second half of July migration pilots, and we are ramping up those tests to initiate migration waves in September. We plan to finish the transfer of client to our IT platform in the first quarter of next year.

Changing gears to fixed services. TIM Live had a solid quarter, immediate transition to a new operational model using iSystems as its network growth platform. The double-digit growth level was maintained, taking second quarter revenues to almost BRL 200 million, driven by the transition of client base to FTTH, fiber users represent close to 70% of the entire base now, and this migration is helping the churn level to reduce materially. As a result of our efforts to grow sustainably with a high-value service and portfolio, we maintain the highest broadband ARPU among our listed peers.

Finally, for the second half, we plan to evolve our offer portfolio to provide an even better service while sustaining our already competitive prices and tackling clients' main pain points.

Now, I will pass the floor to Camille, our CFO, to go over some details of our financial results.

Thank you, Alberto, and good morning, everyone. As Alberto described earlier, the second quarter was marked by large numbers on all fronts. This is also the case for our EBITDA trend. In the second quarter of 2022, we saw an expansion of more than 18%, taking our EBITDA to close to BRL 2.5 billion. Net of the iSystems cost, which, as you know, didn't exist in 2021, we would have had 22% EBITDA growth with a margin of 47.7%, flat when compared to a year ago. Of course, this record high EBITDA was driven by service revenue growth from organic performance and M&A amid an environment of cost under pressure and carrying a lot of transitory effects. Our OpEx remains under control despite the 22% rise versus second quarter 2021, when excluding the iSystems effects.

Looking ahead, it is always important to remember that we are carrying the burden of the temporary service agreement with Oi that will end in April of next year. We expect a much cleaner OpEx dynamic in 2023 as both impacts from the TSA and iSystems will start to disappear. If the iSystems deal negatively impacts our costs, it benefits us even more on the CapEx side, positively affecting free cash flow. The state CapEx compensated a good portion of our 5G rollout, even in the accelerated scenario, we decided to implement. Consequently, our investments stood at the BRL 1 billion range and EBITDA minus CapEx grew more than 20%, with the margin reaching a solid 27%.

Despite this favorable context, our net income is showing temporary impacts due to the M&A transaction with Oi. So under this circumstance, it totaled BRL 313 million, down more than 50% versus the second quarter of 2021. As the integration progresses and the synergies start to kick in, we will see this line resuming its usual trend.

The acquisition of Oi assets has other impacts in our numbers. Our cash position, for example, was significantly reduced after the M&A payment, an amount of BRL 6.7 billion. On top of that, in the second quarter of 2022, we also paid for the 5G auction licenses and contributions close to BRL 1.3 billion. We closed the first half with approximately BRL 2.3 billion in cash.

These disbursements and the registration of BRL 2.9 billion in IFRS 16 debt drove our net debt to a new level, below 1.8x in the net debt-to-EBITDA ratio, a very healthy level for a company like TIM. It's worth mentioning that this BRL 2.9 billion comes from the reassessment of the site leases we took under the transaction with Oi after applying the assumptions of the accelerated decommissioning plan and other adjustments.

After disclosing these numbers, we can say that until now, we are on track with what we expected from the M&A transaction, but there is so much analysis to be done. And as the migration progresses, we expect to gain more control and certainty about the trends related to the assets we bought.

Now I hand the call back to Alberto to complete the discussion related to the second quarter.

Thank you, Camille. I believe it is clear to everyone that we are operating under uncertain times with an election cycle coming ahead to add volatility and with high inflation, putting pressure on the family's income. Despite that, team is creating a new chapter in its history and second quarter achievements support our evolution for being the best mobile operator in Brazil.

Looking to the first 6 months of 2022, I'd like to highlight some of our accomplishments. We closed the deal with Oi and started to integrate the assets, everything is proceeding according to plans. TIM Live asset-light model is implemented and generating operational benefits already. TIM launched 5G technology into state capital product Brasilia, we are front runners. IoT business has excellent momentum and solid pricing in agribusiness, while we build up new verticals. This will be a great source of opportunities for 5G down the road.

ESG continues to be at the core of our strategy and execution. We continue to improve on the relationship with our employees and clients, winning awards from -- great place to work and achieving the highest sale in the (inaudible). Finally, we posted robust financial results in the first half, leaving us in a great position to reach all our guidance by the end of 2022.

In the second half, we will maintain the focus on the M&A integration, because this is the most important project of the year. Nonetheless, we will also expand the 5G rollout, launch a new customer platform partnership and address the ICMS tax reduction to benefit our clients. So a lot to be done still. Building the next generation team is an immense effort. So I'd like to thank the entire team for the great work and commitment. Additionally, we have a new executive team member, Fabio Avellar joined yesterday TIM Brazil as the new Chief Revenue Officer. He has more than 20 years of telecom experience, and he is well rounded in all the aspects of the business. So I'd like to give him a warm welcome and wish good luck and success, because we have a lot to do. It is great to have him on board.

Now let's open the floor for questions. Please, operator.

Thank you, Mr. Alberto. Now, we will begin the Q&A section. First, we will take questions from analysts followed by general public, both in English. If you're listening through webcast, your questions can be sent by chat. (Operator Instructions). Our first question comes from Bernardo Guttmann

with XP.

Actually, I have 2 questions here. The first one about the solid growth in mobile, it seems to have been accelerated by the rationality in the segment. So if you could make a general comment on the mobile competitive environment, how things are trading in the 2 segments, postpaid and prepaid? And the second one on the cost front, if you can comment a little on the expected dynamics of costs and margin for the second half of this year?

So let's go to the first one, which is the market competitive scenario in postpaid and prepaid. So Bernardo, the competitive environment has been quite rational over the last 12 months. So if you look at the movements in terms of price up or down, basically being quite stable over the last months. What we think change a bit is our ability to pass inflation to customers. As you probably remember in our conference call, we updated according to our more-for-more strategy, the process for control and postpaid in the second quarter, and this reflects in our results.

So the overall competitive environment, it's quite stable and positive -- with positive outlook. When you look at our results and you look at the revenue growth, it is worth mentioning that basically, both in postpaid and prepaid, we are growing 50% in terms of customer base and 50% in ARPU. In postpaid, this is clear from the numbers. And so, there are these 2 balanced components that drive our revenues. In prepaid, it's a bit less clear, because you need to look at the number of recharges. So if you look at the number of recharges and spending, this build up our overall recharges and revenues. We got a growth -- the growth is divided in 50% number of recharger and 50% spending. This is also the results of a number of actions that we are taking on our customer base to stimulate recharge and to increase spending. So we -- as we mentioned in the second quarter, we are changing a bit some of the structure of our prepaid offers.

When you look at cost, of course, there are -- I'm going to the second question. Of course, there are some inflationary pressure in some of our cost categories, namely energy, passive infra and people. We've got a number of actions in place here. And so, we see an outlook that is sort of positive for the second semester. I may give some examples here to make it more tangible. Consider, for example, the energy cost, when at this point in time, we absorbed around 7,000 towers from Oi, and so we are paying energy for all of them. We already implementing a plan whereby decide that we are going to decommission, we scaled down the energy consumption to the minimum level requirement, and this will reflect in savings down the road. If we look at [people], we've got a number of business process outsourcing program that have been implemented and the benefits will be fully available throughout the year. And so, if you look at the cost, we got pressures, yes, but we've got a number of actions to control and mitigate this pressure

Our next question comes from Fred Mendes with Bank of America.

I have 2 questions here as well. The first one in terms of…

(technical difficulty)

Our next question comes from Marcelo Santos.

I have 2. The first one, you mentioned that part of the sequential acceleration you saw in organic mobile was due to clients that migrated voluntarily from Oi. Would it be possible to break a little bit down like how much of the growth was actually purely organic, if we could say that and how much was a bit of a contribution from Oi?

And the second question is about ICMS, what's the strategy of the company towards that? I understand you're going to pass that to prices, but is there some strategies that you could use to try to capture some price elasticity, offering more solutions, offering more differentiated plans. I don't know something to capture a bit of this reduction in price?

Okay. Marcelo, I will take both questions. So on the first one, there is -- so when you look at the Oi customer base, we are working on our client migration -- massive client migration, and we are on schedule is happening, but now it's happening at the pilot stage. So we are not migrating many customers. So we are just piloting the process.

Nonetheless, there is -- there are clients who decides to voluntarily migrate from Oi to other carrier through number portability. And we monitor this. So I will give you some numbers for you to have an idea, you can build up your own math around it. The number of clients supporting out from Oi to other carriers moved to 150,000 per month to around 250,000 per month over the last months. We have been working to increase our share of this number of portability over the last months. We've been quite successful. We are the operator who grows the most in terms of increased share of portability. And in our area and around -- in our area, this number is now well above our fair share.

So let's put it away, make 35% of 250. Then there is an edge of ARPU. So this is the number that every month we migrate from Oi to our network. It's not a big contributor, of course, in absolute terms, but we are just anticipating some revenues that would have come to us through the massive migration later on. Was it clear, Marcelo?

Yes.

So let's move to the ICMS. So the ICMS, we decided to pass it over to our customers. And we are going to implement a new pricing -- we're going to deploy the new pricing plans in the next couple of weeks. So next week, both control and postpaid will be updated nationally. And so, we'll pass this price adjustment to the customers that are going to join TIM, this for postpaid and for control. For prepaid, we are doing something different because since our offer, it's quite simple to explain to customers like you buy a BRL 15 prepaid and you've got 15 days of recharge. It's difficult to change. So we decided to provide our customer with an extra allowance of 1 giga. So if you look at our offer today, one of them is BRL 15, 8 gigabyte 15 days. This will become BRL 15, 9 gigabyte 15 days. So we're going to translate the ICMS reduction in terms of a greater larger allowance for our customers.

When you look at the positive effect that we see by doing this is -- when we lower the price for control of our postpaid, we are going to be able to accept more customers in these plants, because of credit policies, and we are going to be able to increase migration between plants, for example, for prepaid to control. So we got a reduction at this stage, but we have a number of potential benefits from greater demand elasticity. A bit further down the road, I think that ICMS reduction will be quite important for implementing or continuing to implement our more-for-more strategy, for example, next year.

Our next question comes from Fred Mendes with Bank of America.

I have 2 questions here. The first one is related to the net income. Obviously, there is an impact here from the lease payments. So just wondering how is going to be the curve here? And how long should it take for us to see a major reduction in this lease expense through the decommissioning of the towers? This will be the first one.

And then the second one, I guess, is linked to the first question. When I look at the dividends, the guidance, circa BRL 2 billion, obviously, that seems to be above what you guys will be delivering in terms of net income for the year. So how should we reconcile these 2 lines and what can be done here in order to reach the guidance of close to BRL 2 billion in terms of dividend payment?

I'll start with the second one. So in terms of dividends, we confirm the guidance that we gave to the market of BRL 2 billion. And while we are still mitigating the theme with the leases of the towers that I'll explain in a while, we have means to distribute more cash, especially considering that we have profit reserves of BRL 6.5 billion that can be distributed. The reserves are actually above that, but we have BRL 6.5 billion that can be distributed. So that's easily manageable through the reserves. So we continue -- we confirm the BRL 2 billion guidance that we gave to the market before.

Regarding the net income, you're right. The major effect on our net income comes from the towers. As you remember, we received roughly 7,200 towers from Oi. We had already indicated that it is our plan to decommission more than 60% of these towers. But as you probably also remember we have a commitment to try to sell 50% of our antennas. That's a commitment with CADE. We are in the process of doing so. It's public. We have 6 months to do that. So while we are in that process, we cannot decommission any of these towers.

So in 2022, we'll have, let's say, a full effect of the leases of the 7,200 towers, after the 6 months are expired, whatever antennas we don't sell, and the antennas we sell if the towers don't go with them, we'll immediately start our accelerated decommissioning plan so that we expect 2023 already to be a much better year. But in any case, our plan is to complete the full decommissioning plan until the end of 2024. So we'll start feeling the effects of the decommissioning of the towers already in 2023 strongly and to finalize the full work in 2024, so that the impact that you see in our net income this quarter will dissipate or will be dissipated -- fully dissipated until the end of 2024, but already heavily mitigated next year.

Our next question comes from Diego Aragao with Goldman Sachs.

Actually, I have 2 follow-up questions in here. Can you just confirm the amount of leases booked this quarter and whether we should expect a different number in the third quarter? This would be the first question.

And the second question is actually also related to the competitive landscape. I mean, if we would analyze markets regionally on a state-by-state basis, are you seeing an easing competitive environment now that Oi is no longer competing? Or are you still seeing some regional promotions made by either Vivo collateral or even you, that could eventually impact the overall dynamic in these markets.

Okay, Diego. Let me start with the second one in terms of the competitive dynamics. So far, we are proceeding with a national offer and a national approach. Of course, as you rightly pointed, we got some clients in area where we were weaker, and therefore, where we want to increase our market share and our performance. But we -- basically, when you look at the overall go-to-market, we are doing this without touching the offers. So we are primarily working on our communication strategy and our channel strategy, whereby on the offer side, at least on our side, we are not including any discount or any more aggressive offers to gain market share. We don't see happening on our competitors on side as well.

So for the time being, the national offer has been in place. Of course, due to the ICMS, we will see a reduction in prices among all competitors, but that this is going to be something like even across the board. So there is no worsening of competitive dynamics at the regional scale at this point in time. Consider that a lot of our IT capacity is now [employed] to migrate the customers and to implement the SMS changes, this is quite an effort that we need to put in place on our IT system to carry out these activities. And so from an offer update perspective, there is nothing planned to -- with respect to changing offers over the coming months as well.

Regarding your second question, Diego. So on balance sheet terms, you probably remember that we announced BRL 4.1 billion that we expected in terms of increase in our net debt coming from the leases of the towers. Actually, after we got the detailed portfolio and we deployed or the -- accelerated decommissioning plan that we were able to drop that number to 2.9%, which is the number that is affecting our June 30 balance sheet, 2.9% increase in debt coming from the leases after decommissioning plan.

In terms of cash flow, we're still talking about roughly BRL 600 million of cash out in leases in 8 months 2022, which leads us to an annualized number of BRL 900 million. That is for the full 7,200 portfolio without considering the commissioning that will start happening in 2023.

Our next question comes from Alejandro Gallostra with BBVA.

I have a couple of questions. The first one is regarding TIM Live. I was expecting that following Oi Systems transaction, you will have more time to focus again on the FTTH business and perhaps accelerate its customer base. But we're still seeing quarterly net-ads in the 5,000 to 10,000 range. And I'm not sure if this is because you're now focused on the Oi mobile integration or this is because the competitive environment is getting more difficult or maybe both. So I would like to know if you believe that you could accelerate the FTTH customer base again in the short and medium term or maybe this is the new pace that we should get used to going forward.

And my second question is regarding the 5G rollout. Could you please remind us who will be paying for the fiber to the tower interconnection CapEx as you expand your 5G coverage in the country, will it be TIM or iSystems, who will be paying for that last mile on fiber interconnection?

Alejandro, let me get the 2 questions here. So when you look at TIM Live, just a bit of a recap, and then I will give you some figures. So basically, what we are doing, as you know, we got 2 bases. We've got the FTTC and FTTH. So as we speak and over the last quarters, we have been quite active in migrating FTTC customers to FTTH. And we -- because why this? Because FTTC is more vulnerable to competition. And so, basically, we want to -- basically want to defend by doing that our customer base. And we reach around now 70% of our overall customer base, which is FTTH, and we are aiming to get to 80% by the end of the year. So this is one vertical of activities that we are carrying out.

When you look at the net additions per quarter on FTTH, we are moving from something around 27,000 to something around 45,000 per quarter. So we -- the number that you see in the quarter is net because you need to sum down, you need to subtract the losses from FTTC. So this quarter is our record high quarter of net additions on FTTH. So the number is around 45%. And we moved from the following quarter that was 27%. Now, we -- by migrating the FTTC to the FTTH, we are defending or limiting our exposure to the -- to a technology and an offer portfolio, which has been a negative net additions over the last 2 years. So this is one vertical of expansion. The other one is expanding our footprint. So we launched a cluster last quarter. We plan to launch another quarter last quarter. So basically, we are balancing the defense of the FTTC, while we bring down the conditions from further growth on FTTH. Remembering that we got in this quarter, the record high number of net additions.

When you move to your second question, the deal that we have with iSystem is just related to the secondary network of our broadband operations. So all deployment related to 5G, it's on us, meaning that we either build or lease our backbone and connection to the [BTS] by -- bid or we lease it by available players -- wholesale players in the market.

So is it possible to quantify how much you will be spending on the fiber to the tower during the year as part of this 5G roll out either this year or next year?

We don't give this sort of detail, Alejandro. Sorry, but this is already included in the guidance that we provided.

Our next question comes from Andrea Salis with UBS.

I have a couple of questions on the sites coming from our mobile acquisition. We saw that one of your competitors booked close to BRL 700 million in decommissioning provisions and with plans to decommission between 1 and 2,000 sites. Your decommissioning plan considers over 4,000 decommissioned sites, and we saw a provision of around BRL 280 million on the balance sheet due to asset decommissioning. How can we concile those figures? Or can you provide us a guidance on the [penalty] fees to the decommission of your sites? And should we expect the provision to increase in the following quarters?

Andrea, the BRL 2.9 billion that we booked in our balance sheet is already the net present value of -- is already the net present value of the remaining time that we expect to have the towers for, each of the towers, plus penalties. And the penalties that are included in the BRL 2.9 billion are much larger than the number you just mentioned. So they are much more in line with what we heard -- what you heard from the competition. So the BRL 2.9 million already includes roughly BRL 700 million in penalties from the towers that we are going to decommission. But if you want more details, you can get in touch with our IR and let's see if they help you go through the numbers and reconcile them.

Yes, my question was not on the IFRS 16 impact more on the -- more on the liabilities due to the commissioning of those assets. But yes, that's all right. I can follow up in another chance.

The next question comes from Carlos Sequeira with BTG Pactual.

So I have a couple of questions. One is, if you can -- there is always -- this is debating discussion and Anatel's President has made some public comments about the roaming agreement that you guys are supposed to reach related to the acquisition of Oi? And I'm just wondering if you can give us some clarification on what is going on, and what are the next steps? And what is behind the discussion, please?

And the second one, I just wanted to confirm then, when you talk about the ICMS reduction, you mentioned that for the prepaid plans, you were not going to reduce prices, but increased allowances. I just want to make sure that this is -- and an increase in allowance is only 1 gigabit per second, 1 gigabit additional data. I was just wondering if that is all that is taking place and on the postpaid and you are reducing the prices. Just to understand exactly how this is going to work and impact the numbers?

Carlo, let me ask you to repeat the ICMS doubt. So we are passing over additional allowance to prepaid, and we are pricing down a control and postpaid -- what is your

Yes, I just wanted to confirm. I just wanted to confirm that what is happening, because the [following] prices are going to be reduced, right? And it seems that for the prepaid clients, you are not cutting prices, you're just giving more more data to users.

Yes. And the reason behind this is, because it's like -- it's 15 days, BRL 15. So that would be like 15 days, BRL 13…BRL 13.5. So in order to make commercially viable, we decided to increase the allowance, which by the way, it's 1 giga out of 8, so it's even above the actual ICMS reduction, because it's more than 10%. Of course, this will impact, we will see in a few months, the recharge pattern of our clients, because generally when we put additional gigabyte, of course, the clients need to recharge less. And we discussed this in previous quarters whenever we give additional gigabyte, we are hit somewhat in our recharge pattern. So at the end of the day, we are talking about the same stuff in terms of either price reduction or extra allowance.

But it's correct, we are giving an [ICM], we are giving extra gigabyte for prepaid and a discount for control and for postpaid. Everything is going to happen over the next couple of weeks. When we go to the roaming agreement, yes, there have been some discussion in the press. Anatel, the President of Anatel suggested a few weeks ago that if these things doesn't go through, the Oi deal could be rediscussed. We met the President of Anatel last week. He clarified that -- and we clarify within that is not the case.

So the Oi deal is not in discussion at all. What needs to be now be agreed among the 3 of us and Anatel is the right price for the roaming agreement. Anatel proposed a number. And when Anatel proposed this number, we didn't have access to the number and the methodology used to get to this number, we got it afterwards. And so, we accepted some of the changes that Anatel was proposing. Friday last week, we sent to Anatel a revised proposal on our side. And so it's now for Anatel to decide if our proposal is accepted or not, should happen this week. And afterwards, we will see what happens.

If I may, can I make just one more question on C6 stake. I was just wondering what are the strategic options for that stake and what the company plans to do with this 5 plus percent stake in C6 that you are now almost, please?

Carlo here, the point is, we are in the middle of an arbitration process. So we need to wait for this process to complete. And then we will see what we do with the stake. It depends on the outcome of it. And when the outcome is clear. We will decide the next step in terms of monetization or continuing the partnership, whatever the outcome. It depends on the outcome. That's my answer.

Without any more questions from analysts, we will now start the public Q&A session from the webcast platform. And it will be read by Vicente Ferreira. Please, Mr. Vicente, you may proceed.

So the first question from our web chat comes from Gabriel Gusan from Citibank. Hi, can you please comment about the site decommissioning process? What is the total expected in fines to undo contracts of overlapped towers? Why did you choose not to provision for this in 2Q?

This is Camille. So the fines are in the range of BRL 700 million, as I mentioned before. And it is provision, it's part of the BRL 2.9 billion that we registered in our IFRS 16 debt. And as, of course, as we pay the fines, this will reduce our IFRS 16 debt. So it's there, it's provisioned.

Now the next question comes from (inaudible). I have 2 questions. Number 1, about the customers coming from Oi, can you tell us please how the churn dynamics is behaving, if there is any churn, both in prepaid and postpaid?

Second question, can you give us an update on your view on possible FTTH M&A movements?

So the first one, [Rodrigos] we don't see any change because at this point in time, our clients are still within Oi Systems, and these are managed through the temporary service agreement, and we are just starting the process of migrating them to our systems. The process itself has been quite successful so far, but we are in the early stages. We are piloting already live customers. And so, there is no change in churn dynamics because the churn is there. Now, since the number portability increased over the last months, we can say that there has been an acceleration of customers that voluntarily decided to leave Oi and to come to us or to our competitors. We see this by the increase in number portability. The number portability to give you just an order of magnitude, we are talking about 250,000 customers per month to a customer base of 40 million. So you can do the math and see what the impact in churn is.

When we go to the FTTH M&A activities, we repeat what we already said in our moments. We are now fully focused on 5G deployment, the integration of our customers. So we are not proactively looking for M&A activities related to ISP. Of course, these opportunities come to us, we will assess them.

The next question comes from Mr. Gerardo Zamorano from Brandes Investments. Can you tell us how much of depreciation is related to IFRS 16? And how much of interest expense is related to IFRS 16?

Thank you for the question. So in terms of interest expenses, that number is public. It's in Note 33 of our financial statements. We actually had BRL 590 million of expenses -- overall expenses, that includes our towers as well -- our previous towers as well of expenses in the quarter. The percentage of the D&A that is related to IFRS 16 is not public, but I can tell you it's between 25% and 30% of our total depreciation and amortization.

The last question from investor comes from Henrik from Investment Club called Infinity. Could you please give more details on the discussions with [Ana] related to Oi. In your opinion, does exist any possibility for the -- I believe he was talking about actually Anatel. So if there is any possibility for this transaction to be reverted? And what would be a solution viable for the discussion of the problem? I'm assuming he's mentioning related to the roaming offer that we just gave to Anatel yesterday?

I've answered the previous question. So we discussed this with Anatel and the, let's say, rewind of the Oi deal is not in the agenda. And the solution will pass through a negotiation of the new updated value for the [ORPA]. As I was mentioning, we submitted an updated proposal last Friday, and now the ball is on Anatel's camp, and they will review our proposal, and they will let us know if -- what the feedback is.

Now, we'll move to the questions related to the press. The first question comes from Posts by Bruno Amaral from TELETIME. Did team had any feedback from Anatel about the new roaming proposal, I think Alberto just mentioned, but [Mario], please.

As we -- as Alberto already mentioned, we submitted our proposal last Friday, which is fully in line with current regulation and with the principles of the approval of the Oi transaction. The point is quite technical. It's not a disagreement in principle on the remedy and an application of the remedy. It's technical to understand what kind of cost accounting we can consider to design the remedy. And so, the idea on our side is that the cost accounting should be a bit considered as it was in the last decade. That is with a top-down approach based on our balance. On the other side, Anatel is innovating with a bottom-up approach with theorical costs. And so, this is the point that will be discussed this week. But as Alberto mentioned, there is no stress about the operation and relation with the authority.

The second question from the press comes from Pedro Azores from Business News Americas. Can you please comment on how you're seeing the evolution of 5G in the country? When do you expect to capture the first returns of the investment in 3.5 gigahertz band? And how is the sale of 5G compatible mobile devices on your base?

So Pedro, we are at the early stage of deployment at this stage. We launched 4 capitals, so Brasilia Distrito Federal and the other 3 last week. This week on Thursday, we will launch Sao Paulo. So it's -- we are at an early stage. I can comment on our strategy. So what we are doing is -- we basically decided to build up a meaningful coverage in markets that are critical to us from a commercial and cost perspective. I will explain this in a second. We put together a value proposition with a 5G booster that should give our customer the ability to experiment new services. And of course, we are promoting 5G smartphones that are required in order to use the service.

In our point of sale, around 70% of models are already 5G smartphones. Basically, we want to -- we want to trigger a virtual cycle, whereby coverage, offer and terminals give a reason for customers to migrate to 5G. And we have 2 benefits here. The first one is to monetize this down the road when the coverage is going to be more, let's say, widespread. And once again, down the road, we are talking about 2023, we are going to be able to stop investing in 4G and therefore, be more efficient on our network deployment. So this is our strategy. And I think the opportunity to invite everybody to our press conference that is going to happen on Thursday this week in Oscar Freire at 11, where we will unveil our 5G approach for Sao Paulo. And we can take further questions from journalists related to this quarter results.

Ladies and gentlemen, without any more questions, I am returning to Mr. Alberto Griselli for his final remarks. Please, Mr. Alberto, you may proceed.

Thank you again for attending once again our results. I want to thank once again TIM Brazil team for the solid results we delivered in this quarter and guys look forward to speak to you all in 3 months. Thank you.

Does we conclude the second quarter of 2022 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.