Tim SA (TIMB) 2022 Q4 法說會逐字稿

Good morning ladies and gentlemen. Welcome to TIM S.A. 2022 Fourth Quarter Results Conference Call. (Operator Instructions) 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 of the company's board of executive officers. Future considerations are not performance 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'll turn the conference over to the CEO Mr. Alberto Griselli, CEO of TIM S.A. and to Mr. Vicente Ferreira, Head of Investor Relations to present the main messages for the fourth quarter of 2022. Please Mr. Alberto, you may proceed.

Good morning, everyone. Thanks for attending our results conference call. 2022 was a year of relevant transformations in a volatile environment that requires much focus on execution to deliver what we promised during the TIM Brazil day. Looking at our results and what we accomplished, I'm sure we did a great job. Our plan to be the next generation team is at full speed. Let's recap some of those milestones of 2022.

In April, we close the deal with Oi, and we started the immense job of integrating the assets we bought. In June, Reclame Aqui web portal recognize us for our customer service excellence. We were also awarded the Great Place to Work certificate. In July, we started the 5G journey for real. Brasilia was the first capital to be covered and we were the first operator to implement a stand-alone 5G network in Brazil. In the subsequent months, we leveraged 5G to differentiate in Brazil from our peers and to reinforce our innovation positioning. We went for an all in coverage approach in key Brazilian capitals, we showcase the 5G experience in key events and locations such as a Rock in Rio in the Maracana Stadium.

In the business space, we pioneered partnership with industry leaders in several verticals such as agro business, automotive, and logistics. During the year, we became the operator with the broadest mobile coverage in Brazil. Those achievements and many others were accompanied by a robust set of financial results. Our top line grew close to 20% year-over-year. Our EBITDA also presented significant momentum, close in the year, growing more than 17% compared to 2021. This performance led our margin to exceed 47%. The proxy for operating free cash flow rose more than 26% yearly, which helped us to fulfill our promise of BRL 2 billion in shareholder remuneration. We fulfill all our promises to the market and our stakeholders, the entire set of goals we establish in our guidance in May during our TIM Brazil day was achieved.

These solid industrial and financial outcomes correspond to one more year of long-term responsible progress towards an integrated ESG agenda, reflected by the increase in all these sustainability rankings. Environmental management highlights the increasingly distributed clear renewable energy metrics and the continuous improvement of energy efficiency of network data traffic. We adhere to the highest international target setting and monitoring standards in this roadmap. In the social sphere TIM has been recognized for the second consecutive year as the worldwide teleco best practice in diversity and inclusion policies, which contributes to making our company one of the great place to work.

Moreover, being the first and only Brazilian operator to have reached 100% of Brazilian municipalities covered is an undoubted contribution to digital inclusion. Governance was enhanced by the international recognition of our cyber security management and by the federal government's confirmation as pro-ethics company. Additionally, we are using the power of technology to help develop communities under the partnership with the NGO Geraldo Falcoes. So when we say ESG is embedded in our strategy and everyday action isn't just a claim.

Now entering into more details of our business performance, I want to highlight our revenue dynamics. In the fourth quarter total net revenues grew more than 22% with a significant contribution from mobile services that expanded greatly to reach a speed up 23% year-over-year. Fixed services maintain a solid performance going up by high single digit. For the full year figures service revenues showed an excellent performance growing more than 19% year-on-year, driven by double digit growth in mobile and high single digit in fixed. It is worth highlighting the contribution from customer platform partnerships and fixed problems that now we call TIM UltraFibra.

Since the transaction is closing with Oi, I've made this point every quarter. TIM's revenue performance was driven by more than the Oi assets acquisition. Our organic performance continues to be helped by the positive net effect of our commercial strategy benign micro-environment and rationale competition. Analyzing the segments individually, postpaid revenues in 2029 presented a solid pace up more than 19% year-over-year within ARPU, excluding machine-to-machine lines of BRL 45.2 in the fourth quarter. Prepaid revenues expanded more than 21% versus 2021, pointing to an ARPU of close to BRL 14.

Nonetheless, TIM's customer based and ARPU were significantly affected by the acquisition of Oi assets. In 2023, we should see normalization in the volatility seen in those two indicators as we complete the cleanup of Oi customer base from lines that do not generate any traffic or revenues. It is essential to highlight that the underlying trends for both postpaid and prepaid are positive. In postpaid, we are sustaining our volume to value strategy with offer innovations such as Amazon Prime and in-flight connectivity and continuous improvement of service levels. As a matter of fact, last quarter we registered our best Black Friday. In prepaid all operational indicators are improving. The number of client recharging, spending, the total amount of top-ups, our share of gross addition and our share of recharges are all showing positive. Those are clear evidence of our success with innovations as such as TIM Vantagens and Prime Video.

As I'm talking about Oi's impact on TIM indicators, let's go deeper into the integration details. Integration is on track. We have completed the two most relevant steps of network integration and we are well-advanced in the last phase. We expect to complete full integration by the end of the first quarter. As for client migration, we virtually completed the prepaid transition with close to 8 million lines moved to our systems. Postpaid has a similar scenario, we are close to finishing the migration, with most of the remaining lines been machine-to-machine.

The last point regarding the arrival of Oi's format client is related to the cleanup that I mentioned earlier. As you saw in November, Anatel figures with disconnected 5.1 million lines with zero traffic. Now that the customers are in our systems, we will continue to analyze their behavior and profile eventually additional adjustments will be necessary. This quarter, we are also planning some migration of control lines to prepaid to reflect the real customer's behavior. It is important to point that these actions do not impact our revenues.

The third element in the integration agenda is the site the commissioning process. Different from the other tool this activity starting in October last year and will accelerate in 2023, following the end of the antitrust required offering period. The first 500 sites were dismantled last quarter and we foresee their financial impact to appear in the early second quarter. Differently from what appeared in some recent reports, the commissioning process is not delayed on the contrary is ahead of schedule, and its financial benefits will have to build up but during the year to have a more pronounced impact in 2023. Our scheduled point to 3000 sites being dismantled this year, leaving more than 1000 sites for 2024.

Still on mobile, let's discuss the evolution of our network. 2022 represented a major step toward becoming the leader in network quality. During the year important milestones were achieved. Firstly, our indisputable leadership in 4G was confirmed. Secondly, we had started in 5G, and with the most available network and being leader in key capitals such as San Paulo, Rio de Janeiro, Curitiba and (inaudible) as the result of our all in 5G deployment approach. Lastly, in the second half of 2022, we achieved the broadest mobile coverage and in early January this year, we reached 100% of Brazilian municipalities.

The journey to be in the differentiated infrastructure to transform customer experience and create new assets for brand positioning has only begun. We are on the verge of seeing the full benefits of closing the spectrum gap against our peers, while becoming much more efficient in deploying CapEx. In the next couple of years, we will see the transformation materialize. 5G has a crucial role in the process. As I say last quarter, the 5G launch is a success, the smart coverage approach and the workflow device strategy of delivering competitive differentiation and customer experience improvements. Additionally, the technology started to contribute to 4G CapEx avoidance as traffic of load exceeds 10%. Please look for our communication on the 14th this month when we will update our guidance.

The next topic is an update on an area of the business where we stood quieter in 2022. The truth is that we have a lot of on our plates, and we had to prioritize. As we move forward with our strategic plan, we'll resume focus on going beyond the telecom core. And today, we announced a new partnership in the health sector. TIM Brazil is joining forces with (inaudible) Group to address the massive opportunity created by population underserved by private health care services. Approximately 165 million people in Brazil do not have any insurance. When we analyze our client base, more than 60% face the same situation. Not sure if you all know (inaudible), they are a well-established group with annual revenues exceeding BRL 3 billion. They are the largest popular medical cleaning network in the country. Present in all states with more than 400 clinics, covering 100% of the cities with more than 90,000 inhabitants. We plan to launch a digital solution to facilitate access to health services starting with a premium offer to help build a distinctive value proposition. With this partnership and following LGPD rules, we can also offer and sell our telecom services to a client base of 18 million customers that use their clinics.

Let's change gears to the fixed services. By now, you all know that we have rebranded TIM Live to TIM UltraFibra. The novelty marks the beginning of a new moment in the history of TIM FTTH services elected 6x as the best broadband in received by Estadao Best Services Award. The name change aims to bring the service even closer to consumers, generating a clear and immediate association with its attribute of very high download and upload speeds. A series of initiatives are planned to consolidate the new brand with the public following an expansion of the service to new markets that will be announced throughout the year.

The first move started in Parana state where we launched TIM UltraFibra and services will be available in 34 cities. Back to 2022, our focus was to guarantee a smooth transition to the new operational model using I-Systems as our network partner, not impacting the growth profile of the broadband services. I believe it is fair to say we achieved that. We grew revenues at around 11% versus 2021. We expanded the client base by mid-single digit while doing a massive migration from FTTC to FTTH. Now we have more than 70% of our users, which spends above 150 megabit per second, better services driving improvements in customer experience and satisfaction while helping

(inaudible) to reduce. As a result of our efforts to grow sustainably with a high-value service and portfolio, we maintain a robust FTTH ARPU level of close to BRL 98 despite competitive pressure.

Now I will pass the floor to Vicente, our Head of IR, to review the financial results.

Thank you, Alberto, and good morning, everyone. As explained earlier, the fourth quarter as well as the full year figures point to robust performance in all relevant lines of our results, even in the face of important challenges, such as the high inflation level in early 2022. This is the proof of team's resilience and effective execution. Our OpEx line was impacted by this inflationary environment as well as other elements such as temporary service agreement with Oi, additional costs and expenses due to a more extensive customer and infrastructure base and the rental cost for the fiber last mile. Those elements are not new, and we've been talking about them for the entire past year. They drove OpEx to rise more than 20% versus 2021 in the quarter and for the full year.

The good news is that most of those adverse effects will dissipate in 2023 because we will not face the same cost pressure from the TIM S.A. or because we will be comparing apples to apples under the FTTH asset-light model. We also expect to start grabbing the additional opportunity to take the former clients to the same level of digitalization as our team customers. In this context, fourth quarter EBITDA sustained an excellent performance, growing close to 20% year-over-year, combining organic evolution and M&A contribution. As for the full year, EBITDA rose more than 17%. Margins stood at 50% in 4Q and 47.4% in 2022. If we exclude the impact of I-Systems rental costs, the EBITDA margin would have been 51.2% in the quarter and 49% for the year.

As we discussed in prior quarters, TIM Brazil is passing full transformations that impose transitory impacts on its results, that's precisely the case for our below EBITDA lines. They are receiving additional pressure from the leasing contracts we got from the M&A transaction. Those short-term elements will disappear in 2024, but the improvements will already be noticed in 2023. Alberto already gave some details of our site decommissioning program that will help us in this process. Having said that, looking exclusively at our net income performance can be deceiving. To put in perspective, more than BRL 1 billion was added between depreciation and interest related to the leasing contracts without necessarily the same cash impact.

So a better way of understanding our evolution is to use metrics of operating free cash flow. EBITDA minus CapEx, for example, grew robustly by more than 26% versus 2021. The percentage over net revenues representing a proxy for free cash flow margin expanded to 25.5%. Another metric that we see the market using is EBITDA after leases minus CapEx. This is a way to consider the leases impact as they were OpEx. It's similar to reverting IFRS 16 effect. In this metric, once again, a solid double-digit increase was seen. As a result, despite posting a contraction in net income, we were able to deliver only BRL 2 billion promise we made, BRL 1.4 billion was already paid and the additional BRL 600 million are being proposed in the Annual Shareholders Meeting.

So as anticipated, we will be using reserves to complete the distribution. It's worth remembering that TIM has more than BRL 7 billion in distributable reserves. Ending my comments, I want to point out the strength of our cash position even in a year with relevant disbursements, such as the payments of Oi and spectrum auction. This performance helped maintain a healthy leverage level with net debt to EBITDA ratio reaching 1.4x below our guidance for this metric. Now I will hand the call back to Alberto to wrap up our comments.

Thank you, Vicente. 2022 was a remarkable year for us TIM Brazil. The number of things we were able to deliver, maintaining high standards and with great financial results is something to celebrate. We fulfill our promises to the market and our stakeholders. The entire set of goals we established in our guidance in May during the TIM Brazil Day was achieved. Double-digit service revenue growth, checked; double-digit EBITDA growth, checked; investment of BRL 48 billion, checked; free cash flow margin above 24%, checked; in debt as below 2x EBITDA, checked; and EUR 2 billion in shareholder remuneration finally, checked. Those accomplishments confirm that the first step to building the next-generation TIM was taken, and we are on the right plan to transform in this company into the best mobile operator in Brazil.

The second step starts in 2023, and we require the same level of focus and commitment for the entire company. Nonetheless, despite the tough comps, our updated plan points to a better over business dynamic when compared to our original expectation for 2023. We are forecasting a significant expansion in free cash flow margin, some improvements in EBITDA margin, both driven by efficiency and synergy that will improve trends for revenues, OpEx, CapEx and leases. Making sure our shareholder moderation will benefit from those gains means at the core of our equity story. Stay tuned for February 14 when we will share our renewed guidance with the market.

I'm reaching the end of my comments, so I want to share how grateful I am to close this first year as CEO of this fantastic company. No doubt that building this new chapter in TIM history is taking a huge effort, but I'm very confident when we get there. That is why I need to share this special moment with the entire team and thank them for the outstanding work and commitment. Looking back, it was worthwhile going the extra mile. With no further delays, let's open the floor for questions. Please, operator.

Thank you, Mr. Roberto. Now we will begin the Q&A session. First, we will take questions from analysts followed by general public, both in English. (Operator Instructions) Our first question comes from Bernardo Guttmann with XP. The first question will come from Marcelo Santos with JPMorgan.

Good morning. Can you hear me? Okay. I hope you can hear me. The first question I wanted to ask is about the competitive environment in the mobile. So if you could please comment on how prepaid, postpaid and hybrid are going to be great. And the second question would be about the impacts of tower decommission in 2023. How could we expect the impact to be divided during the quarters of the year in terms of the financials? How much what's the likely distribution of that impact?

Okay, Marcelo. So let me take these 2 questions. So on the first one regarding the competitive environment, I think that when you look at the past months and you look at the overall dynamics, both for prepaid and postpaid, the market has been relatively rational and calm, I would say, over the last 18 months. We expect this trend to continue. As you know, this is a market where as a sector we were unable to pass through inflation for many, many years to the entry prices. And there are some positive updates in -- so well either as prepaid price adjustment starting last year, as we discussed in previous calls, and this already benefit our top line growth for prepaid. And for postpaid, there are some positive news that came along this week actually. There are some price adjustment happening. The market leader updated its control and postpaid prices. It was something that we were assessing also internally on our future plans. So overall, I think that this rationality is going to stay in the coming months.

When it comes to the lease decommissioning plan, here, it's -- so as you know, we've got a quite ambitious decommissioning plan that started in October last year. We decommission a bit more than 500 towers in 2022, starting October, and we plan to decommission another 3,000 towers in the course of 2023. Now how does it work, there is a physical activity that is required basically to dismantle the equipment that is placed on the tower. And this results in an economic saving after a few steps that are in between the physical decommissioning and the actual recognition of the saving.

In line of principle, I think you can -- we can say that it takes roughly 3 months to move from the physical decommissioning to the financial impact. So when you look at the quarter, which is the question that you asked, you will see the number ramping up over time. So as we move forward with the physical decommissioning with a delay of roughly (inaudible), on average, you will see this appearing in our lease payments. So the first quarter is going to be the full value. And when we move to the last quarter and the last quarter, we will accumulate the saving of the physical decommissioning of the (inaudible). So you can monitor the effectiveness of our plan looking at the decrease of the lease cost on a quarter-by-quarter basis.

Perfect. Very clear. Thank you.

The next question comes from Frederico Mendes with Bank of America.

Good morning, everyone. Can you hear me?

Yes, Fred.

Okay. Perfect. Sorry, sorry. Okay. I have 2 questions here. The first one is about the effective tax rate. In our calculation here for this year, it remain at single digits. And obviously, you still have the IOC for 2023, a few fiscal benefits. So if we can expect this line to remain somehow similar 2023 over 2022. And then the second one is about CapEx. I know, obviously, you have the guidance, but just wondering in this scenario that we are seeing with this macro that seems more challenging if there is room to reduce CapEx for 2023? Thank you.

Okay. Fred, let me start with the CapEx question, and then we'll move -- I will ask Vicente to answer the tax rate question. So on the CapEx one, as you know, our CapEx last year and this year has been impacted by, let's say, a few things that are one-off like the -- primarily the integration. We are talking about something like EUR 500 million divided in between '21 and '22. And of course, the deployment of 5G technology that at the beginning you see the CapEx that we deployed for a quick start while the revenue tends to build up later on in time.

So when we commented in the previous quarters, you already say that one of -- when you look at the Oi acquisition, one of the -- the most important synergy comes from the infrastructure side. So we acquired the frequencies, and we closed a gap that we had. And this frequency and towers that we are getting from them contributes something like 70% of the overall synergy pack. Then we also commented that the deployment of 5G is driving 4G offload in excess of what we initially expected. So when you sum up these 2 main drivers, so 3 actually, the one-off nature of some investment that we had in '21 and '22, the fact that we closed our frequency gap with the acquisition of Oi assets and the fact that 5G is delivering 4G offload faster than we expected. We already signaled that we were expecting CapEx efficiencies already coming in the following years.

So what we are talking here, it's a nominal reduction in CapEx, driven by these effects that are industrial effects and therefore, anticipating some of the previous planned targets like going below the 20% mark of CapEx on revenues. So the main dynamics are there. So the synergies from Oi are materializing. The 4G of load is happening faster than we expected. And the one-off costs that we incurred to integrate Oi basically are one-off, and so we won't be present in the following years. This will result in increased CapEx efficiency, and you will see the number in a couple of days.

Fred, this is Vicente. So regarding the effective tax rate, first of all, I think it's important to highlight that we don't have a specific guidance for effective tax rate. So let's talk just about the drivers. So what is driving our effective tax rate today, as you well mentioned, is interest on capital, some credits that we have, such as Sudan, Sudani and other related to prior credit. So basically, the drivers will remain the same in 2023. We don't expect any specific change in regulation or taxation rules for this year. So the broad framework that is driving our effective tax rate is going to be pretty much the same. So that's basically what we can say right now.

Perfect. Super clear. Thanks, Alberto. Thank you Vicente.

The next question comes from Bernardo Guttmann with XP.

Can you hear me now?

Yes, Bernardo, now we hear we.

Good morning, everyone. Thanks for taking my question. I have one question related to the fiber business. The company accelerated the launch this month, several cities in Parana. I suppose that most of the cities are through the Vital network. In this sense, I would like to understand if this the pilot project and what's the rollout strategy through this new partner? Which regions should you focus on since Vital has a very large clarity? So how to scale faster through this new model?

So Bernardo, as you correctly pointed out, we are now working with 2 partners, I-Systems and Vital. So the strategy is sort of unchanged. So I-Systems is focusing on deploying new clusters, building up fiber. We launched last year a joint villa, and then we launched Campinas more recently. And so the plan here is to deploy the new fiber deployment. Generally speaking, where we do not find additional neutral networks because we think this is an efficient way to move forward. The Vital partnership, it's a growth optionality that we negotiated last year, whereby we can have access to a larger footprint because the fiber is already built up and generally Oi is their main (inaudible).

So you are correct. We launched a pilot a few weeks ago in an area where we have a stronger commercial spending because we launched in Parana. So as you know, Parana, it's a place where our -- we are a leader in mobile, both on postpaid and prepaid. Our brand recognition is high. Our commercial capabilities are quite strong. And so we are piloting a new approach where we can address a larger area. So these are 30-something series all at once. So far, we launched a few weeks ago. So far, the pilot is proving in line with our expectations. And I think that we're going to be able to share with you a bit more detail in the next quarter when we -- let's say, we consolidated the results. So far, the launch of the new brand and the offering and the commercial network is proceeding very well, but it's sort of early stages because we launched just a few weeks ago. But the idea is to use Vital as a complement to I-System, where I-System doesn't have coverage and doesn't plan to put coverage.

Very clear. Thank you, Alberto.

The next question comes from Victor (inaudible) with Credit Suisse.

Good morning, Alberto and Vicente. I have just one question on mobile competition. We recently saw some competitors increasing the offers and store prices. And we want to -- just to take your sense if you plan to follow --

Yes. So, Victor, let's put this way. There was a sort of an initial answer of the first question. So the -- as I was mentioning, it's -- in the mobile market, basically, we do -- we implement a more for more strategy, generally speaking, of our customer base. To make the strategy sustainable in the long term, of course, we're always discussing the opportunity to do this at the entry point as well. So in stores, for example, on the websites also because these prices have not been adjusted for many, many years now. And so we are not being able to pass inflation always on a more for more approach at the point of sales.

So as you correctly mentioned, the market leader in postpaid made the change a couple of days ago this week. And we were planning -- we were studying this opportunity ourselves. And I think that the market is going in the right direction. We pioneered some price adjustment in prepaid, where we are sort of co-leader starting last year and always on a more-for-more approach. Everything is going well. We got the good effects on prepaid revenues. We don't see any counter effect in terms of share levels. So I think it's where the market is probably heading in the next month.

Great. Very clear. Thanks, Alberto.

(Operator Instructions) Without any more questions from analysts, we'll now start the public Q&A session from the webcast platform, and will be read by Mr. Vicente. Please, Mr. Vicente, you may proceed.

Okay. So the first question comes from Manyun from Eastspring Capital and he goes. Oi's subscriber cleanup, excluding Oi's subscriber cleanup, there was 1 million postpaid subs versus negative versus 3Q '22. So 1 million of disconnections. What was the driver of this decline in subscribers? Please, Alberto.

Okay. This is quite an important question because it gives me the opportunity to describe in a better face on the dynamics of our net additions. So basically, when we look at this, we have a number of phenomena that are taking place. And so the first one, let's put this way, in our organic business. So our organic business, let's put it, pre-Oi is growing net additions constantly over time as it was growing in the first quarter and in the second quarter. Then, of course, we got a new layer, which is primarily related to Oi in the fourth quarter also to some cleanup that we do on our customer base.

So on the Oi side basically we have 3 main effects happening in the customer base. The first one is the cleanup of the customer base, which is around 5 million customers that we cancel in November. We basically finalized the cancellation, but as we migrate the customers to our own systems, there might be some fine-tuning in the first quarter. The second one, which is also happening is related to the reclassification of control lines as prepaid. So when you look at Oi customer base, they called -- they labeled actually, as control some customers that are actually prepaid in behavior. The number is it's in the range of roughly 1 million. And the profile of this customer is actually prepaid. So this customer recharged to use their service. Their spending is much lower our control plants.

And so we are in the process of reclassifying these lines, control lines as prepaid. And this process is going to end up in the first quarter. There is in the first cleanup scenario and in the reclassification scenario, no impact on revenues because in the cleanup case there is no revenues at all. And in the reclassification, the revenues are maintained just they appear in prepaid rather than in control. And by migrating a controlled customer to prepaid, we are more effective in monetizing the prepaid customers as we move forward because our BTL marketing net debt action and offer are designed for the specific customer segment.

In the third quarter, and so I finally get to the question that has been asked, the additional cancellation that we had are related to the -- a couple of business contracts. If you look at the Anatel numbers and you split it up by consumer and postpaid and the business, you will see around 5,000 lines canceled. This is because 500,000 lines canceled. This is because -- in the course of 2002 and 2001, some governments launched educational programs with a significant volume of lines at low ARPU. There was sort of emergency contracts with a specific due date. We came to the end of 2 contracts summing up to roughly 0.5 million customers. And then as the last point, there is some cleanup that we took the opportunity to execute on our customer base.

The next question comes from Ryan Gomes from Guiding (inaudible) I will translate this question. So it's regarding bad debt. The bad debt seen in your balance sheet increased, and it was originated by clients from Oi or there was organic deterioration in the TIM clients?

Okay. So in terms of the overall performance of bad debt, actually, our bad debt as a percentage of revenues decreased and so we see an improvement of the overall KPI. If this question is raised on an annual comparison, there is an increase because there are some adjustments that we mentioned in the last quarter of last year on a year-on-year comparison. But our bad debt performance is improving over time. And therefore, the weight of bad debt on our revenues has been going down constantly in 2022.

Now when we look at the collection curves, and this is a very positive piece of information in terms of the health of our business, the collection curves have been improving over time, therefore, showing the ability of collecting money from our customers. The improvement of collection curves results and improvement of bad debt in terms of revenues. It's correct that the customer coming from Oi has a slightly higher bad debt versus our own customers. This is an opportunity for us to further improve bad debt by bringing the efficiency of our collection process to Oi customers in the course of this year.

Thank you, Alberto. We have, I think, an additional question from our webcast, and this comes from my individual investor called Bruno Caldera. He's congratulating our results and is asking for additional information regarding the Vital contract. Alberto, if you could elaborate a little bit on that, please.

Well, Bruno, there is not much actually that I can share on this contract because it's a commercial contract that is specific to us. I would say that we have a contractor that provides us a payback, which is in line with our business plan and expectations. So we close what we think is a very good contract with Vital. But in terms of specific numbers of contractual terms, unfortunately, we do not share this with the market. An important point that is worth mentioning is that since we are a second tenant, we do not have a volume commitment or obligations with our partner.

Okay. I think we have an additional one coming from Andrea Sales, UBS and it's regarding indebtedness level. This level of indebtedness, close to 1.4x that you see as ideal in this moment for the company? Or do you believe that you could have room for improvement or allocating capital differently going forward?

I will take this question. Well, Andrea, we actually -- this 1.4x net debt-to-EBITDA ratio is below what we expected in the beginning of the year is actually below even what we expected for 2024. So we are ahead of schedule in terms of deleveraging the company. Of course, we expect to improve significantly our free cash flow. This can lead to opportunities for us to either have a better indebtedness level as well as distributing more to our shareholders. I think Alberto already mentioned this during the call. So basically, that's what we can say right now.

Again, on the 14th next week, we'll be able to disclose more information regard guidance and future expectations. But for now, I think that's it.

The second question that comes from Andre is regarding the rollout of 5G. As we move to smaller cities, do you see possibilities of using other technologies such as fixed adviser access to complement the coverage of fixed broadband? Do you want to take this one, Alberto, please?

Yes, yes. So when it comes to FWA, we explained the way we look at it in our Investor Day in May last year. I think that there are a couple of opportunities here. The first one and the initial one is on B2B. So as you know, the first point is to have coverage. And so we a team -- as we mentioned, we went with an all-in coverage approach in main capital. So for example, if you take San Paulo or Rio de Janeiro, our 5G coverage, it's already a pretty widespread. We cover the big majority of the population and every district in the city.

There the opportunity is already existent and we are already leveraging it in the business case. So for example, we closed announced an agreement with Itau to put FWA in all their branches in some of their branches. And so we are working actively to extend this approach in the business segment. In the consumer segment, besides coverage that is addressing some of the key capitals, one other aspect that today limit the adoption of FWA is the availability of CPE at affordable prices. Now given to the increase of scale around the globe and the commitment of some equipment manufactured in Brazil to reduce prices, this barrier is likely to be addressed by the end of this year. At that point, we will be in the position to leverage this opportunity in the consumer segment where we already have coverage.

And this is not necessarily just suburban areas, but could be capital as well. So it's something that we're going to put in our pipeline likely at the end of this year to be commercially active in 2024. It is something that we are looking for, and it could be interesting as a mobile complement and complement to fiber.

Okay. We have no further questions from our webcast platform. So we are closing the Q&A session right now. We'll pass the floor again to Alberto for him to wrap up his comments. Please, Alberto.

Thank you, Vicente. Well, everybody, I think it is fair to say that we enter 2023 as a bigger and more robust TIM Brazil in a more favorable telco environment and with a significant cash flow expansion opportunity in front of us. In a couple of days, we are going to share with you the updated guidance. And I'm very confident that we will deliver those guidelines once again this year.

I look forward to meeting some of you in the one-to-one meetings in the coming weeks. And thank you for attending our conference call.

Thank you. This will conclude the Fourth 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, and have a nice day.