Telefonica Brasil SA (VIV) 2002 Q4 法說會逐字稿

Good Morning ladies and gentlemen. At this time we would like to welcome everyone to the participation TCP year 2002 conference call. Today, we have a simultaneous web cast with slide presentation on the Internet that could be accessed at the site www.telespcelular.com.br. That was 'b' as in boy 'r' as in Robert. There will be a replay facility for this call in Telesp Celular website. We inform that all participants will only be able to listen to the conference during the company's presentation. After the company's remarks are over, there will be a question and answer section. At this time further instructions will be given. Should any participant need assistance during this conference, please press star 0 for an operator.

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of TCP's management, and on information currently available on the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of TCP and could cause results to differ materially from those expressed in such forward-looking statements. Now, I'll turn the conference over to Mr. Francisco Padinha CEO of Telesp Celular Participation SA. Mr. Padinha, you may begin the conference.

Here with me today, we have Maria Paula de Canais our CFO and Investor Relations Director, and [Inaudible] Commercial Director and our investor relations team. I will begin by giving an overview of technically [Inaudible] which might take approximately twenty minutes or so, and afterwards I and Paula will be glad to take any questions you may have.

I would like to summarize it, our effort in improving our overall performance. Our EBITDA margin has been increasing since the second quarter 2001, and reached 46% in the fourth quarter 2002. One should not forget EBITDA margin was 42.7% in the first quarter 2002 and 34.5% in the fourth quarter 2001. Taking advantage on past effort on CAPEX and in light of prevailing market conditions, we are much more strict on our capital expenditure. As a result, CAPEX represented 12% of net operations revenues during 2002. After our capitalization process concluded in September and considering the consolidation of Global Telecom on a pro forma basis for 2002 will reach a net debt over EBITDA to a ratio of 1.8.

The billing ratio which is calculated as net debt on equity depleted to 40.9% in 2002, compared to 60.7% in the previous year. Consequently then, the pro forma consolidation of Global Telecom in 2001. This [Inaudible] are clear indications that we are initiating 2003, we have much more velocity than qualified capital structure for TCP.

Turning our attention to the slide three we'd like to review the new corporate structure of Telesp Celular Participacoes in the significance of joint venture creation of Portugal Telecom and Telefonica Moviles. As you can see BRASILCEL currently owns 93.7% of the voting shares of TCP, and 65.1% of the total capital with a significant lock in of 34.9% of total capital much more contemplated on prepared share.

Next slide we can review some highlights of our operating company, Telesp Celular and Global Telecom. Telesp Celular achieved a 19% growth of its clients base since the fourth quarter 2001. This growth is even more relevant considering the cost cutting effort primarily in the subscriber acquisition cost, which dropped to R$100, a reduction of 23.1% compared to fourth quarter 2001. Also, EBITDA once again was record since the creation of Telesp Celular, totaling R$427 million in the fourth quarter 2002, with a 46% margin in the quarter, and R$1.5 billion in the whole year 2002, with a 42.8% margin.

Global Telecom increased its client base by 37%, also reflecting an important market share gain in the region from 35% in the fourth quarter 2001 to almost 41% in the fourth quarter 2002. As in Telesp Celular, our effort in optimizing subscriber acquisition cost was successful and we achieved R$97 in the fourth quarter 2002, which represents a reduction of 24.2% compared to the R$128 in the fourth quarter 2001. Global Telecom also had positive EBITDA , reaching R$30 million in the fourth quarter 2002, with a 18% margin in the quarter, and R$95 million in the whole year 2002.

In slide number 5, we show you the evolution of the client base and the market share for Telesp Celular via-a-vis its regional competition within the state of Sao Paulo. Telesp Celular client base surpassed 6 million and our market share increased two percentage points along 2002, reaching 67% in the fourth quarter 2002, despite the entrance of a new competitor, which clearly reflects the strengthening and efficiency of our marketing initiatives.

Let's now take a closer look at Global Telecom in the next slide. The company registered a much stronger growth in the client base than the competition, which caused an increase in market share of approximately 6 percentage points along 2002. At the fourth quarter 2002, Global Telecom achieved a overall market share of 41%, and an increase of 150 thousand new subscribers.

In slide number 7, we have our client base evolution between postpaid and prepaid clients. All together we have more than 7 million clients as of December 31, 2002, 6 million and 60,000 customers in Telesp Celular and 1.17 million in Global Telecom. While growth occurs mainly in prepaid service, at Telesp we have been increasing post paid segment all over the year, following our focus on corporate segment. At Global Telecom, where prepaid service has been launched more recently, we experienced a shrink in postpaid base till third quarter 2002. In the fourth quarter of 2002, following specific actions aimed at corporate segment, postpaid segment has increased.

On slide number 9, we have the evolution of digital terminals up to the fourth quarter 2002. Currently, the analogic base represents only 2% of total handsets. Slide number 9, begins to review our financial results. We should point out that due to the acquisition of the 17% remaining stake of the holding companies, representative of the Global Telecom control (51% of voting stocks) on December 27, 2002, TCP currently owns 100% of that company. From January 2001 to December 2002, TCP has been consolidating Global Telecom's financial results using the equity method, while the balance sheets of Telesp Celular and Global Telecom were fully consolidated into Telesp Celular Participacoes as of December 31st, 2002. Therefore, TCP net revenues totaled R$3.4 billion or US $960 million in 2002, a 15.1% increase compared to 2001. Emphasis is given to net revenue from services, which showed a 17.8% increase compared to 2001 totaling R$2.9 billion or US $825 million. This positive performance comes as a result of the customer portfolio growth, based on the acquisition of new users, with a special emphasis on the post-paid an on going and a continuous effort to retain the best subscribers. In the fourth quarter 2002, net revenues were R$927 million or US $262 million, a 9% increase compared to the previous quarter.

At Global Telecom stand-alone, net revenues reached R$512 million in 2002, a 20.2% increase compared to 2001, primarily due to an increase in revenues from services, as a consequence of the client base increase. In the fourth quarter 2002, net revenues grew 17.3%, following higher sales volume in relation to 3Q02.

In the next slide, we can evaluate trends in operating costs and verify all our effort in cost cutting initiatives. At Telesp Celular, we had a trend of costs coming down every quarter after the second one in 2002, which on a cummulative basis gave us a 3% economy year over year. We can produce even better results in 2003. For Global Telecom, also begining on the second quarter 2002, we had a stabilization of the operating costs, however, at a significative level compared to 2001. Year over year, Global Telecom achieved savings of 15%.

At Telesp Celular, EBITDA totaled R$ 1.5 billion, a growth of 53.3% year over year. This was a result of the successful strategy of focusing on profitable growth. In the fourth quarter 2002, EBITDA reached R$427 million, a 12.3% increase over the third quarter 2002. Global Telecom's EBITDA reached R$95 million in 2002, compared to negative R$100 million in the previous year. In the fourth quarter 2002, EBITDA reached R$30 million, a 9.3% increase compared to R$27 million in third quarter 2002. EBITDA margins also went up on a year over year basis in both companies.

Slide 13 presents the breakdown of minutes of use for our both operators. Average Minutes of Use at Telesp Celular was 110 in the last quarter of 2002, a 5.2% decrease compared to 116 in fourth quarter 2001. This decrease is related to a lower prepaid MOU of 74, a 12.9% drop, mainly due to a volatile macroeconomic scenario during the year. However, this drop was partially offset by the 16.8% increase of postpaid MOU, which reached 213 in the last quarter of 2002, primarily as a result of the focus on high-end clients, indicating the increasing quality of the postpaid client base during 2002. Similar behavior was observed at Global Telecom. The MOU for postpaid clients increased from 133 to 161, while the MOU for prepaid customers dropped from 118 to 77 along 2002, mainly as a consequence of the 2002's macroeconomic conditions. Considering a higher prepaid base and a lower postpaid one as of the fourth quarter 2002, compared to the same period last year, total Global Telecom MOU decreased from 125 to 96 during 2002.

In the next slide, we can see that Blended ARPU (Average Revenue per User) remained fairly stable in Telesp Celular and Global Telecom, despite the observed ARPU growth for postpaid customers, reaching respectively 12.1% and 39.2% for those companies in the fourth quarters of 2001 and 2002, mainly due to our focus on high-end customers.

Slide number 14 presents the comparison of Subscriber Acquisition Costs. At Telesp Celular, the Subscriber Acquisition Cost remained fairly stable during 2002 and the average value for that year was R$97, a 23% reduction compared to 2001. This result is very important when we realize that the company achieved an increase in market share as previously discussed, even with a newcomer beginning operations in the second half of 2002.

At Global Telecom, we registered a 30% of the savings in the Subscriber Acquisition Cost, a more dramatic reduction compared to Telesp Celular, even considering the increase observed in the fourth quarter 2002. We should notice that Global Telecom gained approximately 6 percentage points in market share and specifically in the fourth quarter 2002, 7 out of 10 new clients in the region chose us instead of the competition.

Next slide reviews Average Cash Cost per User. Both operations showed solid improvement. At Telesp Celular, we realized a 13% reduction along 2002, while at Global Telecom the gain was even more relevant. Putting the graphic in words, we accounted for a 45% reduction, which made the contribution between Average Revenue per User and Average Cash Cost per User positive during the whole year of 2002 approximately R$ 8.

Average contribution in Telesp Celular was R$ 23 per user, aproximately 200% higher than Global Telecom, indicating potential opportunities to be captured primarily in the Parana and Santa Catarina operation.

In the slide 16, we can follow the reduction in the delinquency over gross operating revenues ratio. Telesp Celular achieved 1.6% in the fourth quarter 2002, while Global Telecom registered 1.4% in the same period, showing a better quality of the current post paid client base and also of the credit control policy regarding dealers and corporate clients.

Slide 17 just gives you a snapshot about Telesp Celular presence (ph) on wireless data. We have been able to increase this revenue, and I would like to give you special attention given to the Messaging services targeted to teenagers and young adults (both SMS and WAP) and to connectivity and productivity tools targeted to corporate clients using the 1XRTT structure. As a result, net revenues from Wireless Data/Wireless Internet rose to R$52 million, a growth of nearly 70% when compared to the previous year.

This amount is equivalent to 1.8% of total Telesp Celular's net revenues in 2002 including interconnect as shown in the next slide. In December, this percentage reached 2.3%. The share of wireless data revenues over total revenues when we consider only the revenues from clients with enabled phones, i.e. those phones which are technologically capable of using data services, already reached 4.5%.

In the next slide, I mean slide 19, we detail the amount of the new VOICE Activation per month on TCP Empresas - postpaid service. Most of the growth happened in the first half of 2002, leveling from August on. In the slide 20, we have the actual values of EBITDA margins for TCP since the first quarter of 1998 which registered the highest margin ever. Downturn cycle initiated with the beginning of operations of `B` band companies in Sao Paulo state metropolitan area (BCP) and Tess in the remaining of the state. Recovering of margin initiated with the strategy change for profitable growth and the retention program for the high-end customers. During the last six consecutive quarters, we have been achieving better margins than the previous quarter and we expect to maintain such a trend for 2002.

Moving to CAPEX in the next slide, we can confirm the optimization trend after heavy investments in the three-year period following the privatization and the beginning of operations which now-a-days support the best coverage of Brazil in our [Inaudible]. CAPEX over total net revenues ratio has been decreasing dramatically reaching 10% and 30% of Telesp Celular and Global Telecom respectively in 2002. Based on the quality of the network and perspectives of market growth next year, we believe that 2003 will also be a low CAPEX year. It is important to notice that our objective is to be self-funding working down from EBITDA. We will be repaying/refinancing our loan to further reduce our leverage and the remaining cash flow from operations will be used to fund our future growth.

We have a solid improvement in the cash flow from operations as we see in the next slide which accounted for more than R$1b on a pro forma consolidated basis. Should we consider the tariff adjustments announced and approved by Anatel and stability in the market conditions disregarding Tele Centro Oeste Celular contribution we can expect a higher cash flow for 2003.

In summary, you can see in the next slide, this reinforces the four main characteristics of Telesp Celular operation during 2002. They are sustained market leadership, traffic and ARPU growth, efficient cost control, and strong operating performance. In the coming slide, we have identified in summary the five main characteristics of Global Telecom operations during 2002 - significant growth with market share increase, good use of the client base, efficient cost control, service quality improvement, and the pricing income improvement.

I will now hand over to Maria Paula de Canais for discussing financials [Inaudible].

Good morning. I'm going to discuss [Inaudible] some design of our economic and financial [Inaudible]. In side 25, we have our profit and loss segment including Global Telecom considered by the equity method. We achieved net operating revenue of R$3.4 about $958m in the year, a 15% increase compared to 2001 and a decrease in operating cost of 3% to R$1.9b about $548m. Labor cost increased 25% following the increase in in-house employees by 20% more than compensated by the reduction in outsourced employee. Financial expenses amounted to R$ 808m about $228m due the impact of the Real depreciation against both Euro and Dollar. Accumulated financial expenses in 2002 represented around 34% of average indebtedness, which compares to a devaluation of the Real of 79% against the Euro and of 52% against the Dollar. Financial expenses in fourth quarter 2002had a strong increase in extraordinary charge of R$267m, about $75m on the portion of our derivatives positions linked to both the CDI interest rate and dollar.

Equity loss from Global Telecom was R$ 891m about $252m in 2002, corresponding to 83% of GT's net income through a 17% of GT's equity. Additionally, the company recognized a R$171m investment provision, about $48m, following the evaluation of GT. Therefore although the company reported solid operating results the Real depreciation and the impact of Global Telecom produced a net loss of R$1.1b in 2002 about $322.2m.

In next slide, slide 26, you can see net income in each of the companies comparing fourth quarter 2002 to fourth quarter 2001 and also impact in TCP.

In slide 27 we have TCP's consolidated debt. Gross consolidated debt at the end of the year was R$4.5TCP's indebtedness is broken-down in slide 24. Gross consolidated debt at the end of 2002 was R$4.5b about $1.3b, 64% financed by Portugal Telecom. This is a 5.5% reduction compared to R$4.7b at the end of 2001.

At the end of the year, 74% of the debt was denominated in foreign currency. On a consolidated basis, TCP was $76m short on dollar and EUR296m long on the Euro following debt restructuring of the capital increase during third and fourth quarters 2002. The company is considering applying this excess position to foreign currency denominated obligations, such as Alsec and Capec (ph) and for analyzing the position.

Net consolidated debt taking into account cash and [Inaudible] results was R$2.8m a 34.5% decrease compared to 2001, which was R$12.3m. Thank you.

Now I would like to finish our presentation, just remembering our Tele Centro Oeste Celular investment decision, TCP's took into consideration not only TCO's client base, excellent operating performance and solid balance sheet but also the significant enhancement of TCP's competitiveness, after the acquisition, in a scenario of consolidation and increased competition in the mobile telecom industry in Brazil. The ability to offer digital roaming in CDMA in Sao Paulo, Rio de Janeiro and Brasilia should allow TCP to in the context of joint venture to control much more efficiently while increasing retention of corporate and high end subscribers.

With Tele Centro Oeste Celular acquisition, TCP increases substantially its coverage area in Brazil and consolidates its leadership position as wireless operator. TCP also expects that the acquisition will represent a significant and positive contribution to the company's cash generation beginning in 2003. Moreover TCP expects to derive significant synergies due to the contiguous geography and increased scale.

On reaching the last slide shows that Tele Centro Oeste Celular also reaffirms JV's leadership in the Brazilian cellular market. This joint venture will reach 50% of Brazilian wireless market share, with 11m clients more than TIM closest competitor with 5m clients and 15% market share. So, now, I and Paula will be available for your questions.

At this time, I would like to remind everyone, in order to ask a question, please press numbers 1 followed by 4 on your touchtone telephone. If you would like to withdraw a question, simply press the pound key. Please hold while I poll for questions. Thank you, our first question is coming from Rusty Johnson, your line is live.

Good morning. I have two questions. One, in your press release, it states on page 11 that pro forma net financial expenses would have been $413m with Global Telecom, which is in excess of your consolidated EBITDA from my understanding. Could you give us an indication to how much of those financial expenses were true cash interest expenses and how much were perhaps non-cash FX loses and what sort of interest burden are we going to be looking at for '03 on a cash basis? And the second one refers to charge you took for excess hedge provisions. I wonder if that means that you are speculating in the financial markets, that's on page 5.

Just a moment.

You were looking at the consolidated financial [Inaudible]

Yes. Those are going to be consolidated going forward. So, that's why I was looking at it. Thank you.

About $150m were cash disbursements and the rest is [appreciatedly] the foreign exchange losses.

Ok. So, $150m is cash interest expense?

Yes.

And the balance $250m is roughly non-cash?

Right.

Ok. Presumably that magnitude of nonrecurring FX losses would not occur again assuming that the FX rates do not change again?

That's correct.

Ok. Second question, just refers on page 7, says, due to noncash FX loss related to an excess hedged position matures in '04, you have to take a charge for that. So my question is do you hedge or you are taking speculative movements, which would suggest an excess-hedged position, which may, in this case, incur losses? How do I interpret your hedging policies?

We have two different configurations in our balance sheet. One is associated with provision and the provision was done because two of our hedging expense items accrue interest based on both the local interest rate and the US dollars. So, I have the FX exposure of the state related to the premium. So, we recognized the provision based on the combined effect of rising interest rates and rising FX rate or depreciation of the Real. It has nothing to do with the speculating against the foreign currency. The second point that we have to mention is, following the capital increase, we are long on the Euro by about roughly to 196m Euro. This has to be with effect that we repaid debt, following cap increase and it was not efficient at that time to unwind these positions. So, we kept in and we are considering measures to unwind them now because the US dollar coupon has decreased by so much or applying these hedges to other foreign exchange denominated commitments that we have, specifically CAPEX expenditures, purchase of handsets, and other CAPEX related order affected by foreign exchange.

Next question please.

Thank you our next question is coming from Andre Paggio from Salomon Smith Barney, your line is live.

Good morning. My first question, I have two questions, first question is related to the net debt. I want to know when do you expect net debts to peak during the year or going forwards with the payment CRO selling in shares? Hello, are you listening?

Yes, our net debt is expected to peak right after the acquisition of CRO that should happen during first [Inaudible].

Okay. The second question I have is related to the new additions, I want to know do you have any estimate of the percentage of this new addition that's coming from competitors like BCP they are not in a good finish on current conditions or mostly coming from really new clients coming to the cellular?

Sorry, could you repeat?

Well, the question is the new additions are coming from either are the companies or they are really new people going to cellular, handsets?

Okay, so the question is, is the new addition came from our competitor I mean from the market or from the new handsets, is that what?

Yes.

Okay, so coming from the both sides right. That depends on the market. In the space of Sao Paulo we are gaining market share, so there are some clients coming from our competitor, main competitor which is BCP in the metropolitan area of Sao Paulo. In the remaining area of the space I mean the interior of Sao Paulo there are some also. Some customers coming from our competitor but the market itself has grown. As you know in Brazil the market grows roughly 19% during 2002 so there are also new customers I mean real new customers which came directly from the market mainly young people also coming from the application on the business segment of market. Okay.

Okay, thank you.

Next question please.

Thank you, once again ladies and gentlemen if you do have a question or comment at this time please press the numbers one followed by four on your touchtone phone. Our next question is coming from Ricardo Shiro from BPI, your line is live sir.

Yes, hi good afternoon. I have a couple of questions. First one is, when you mentioned the independent evaluation made on the Global Telecom for the purpose of getting this provision, does the this independent evaluation already increase the amount of capital that was poured from Telesp Celular to Global Telecom? The second question is why is there an increase in goodwill of Global Telecom from 3Q to 4Q? Then the third question is when you mentioned the hedging agreements and by looking at your debt numbers it seems that there must be some inter group because when you add the TCP that is on page 27 with Global Telecom's that currently you don't get the TCP consolidated numbers and then if you could just provide us some more detail there and how much of these hedging agreements that you have on your balance sheet are basically agreements together with Portugal telecom that would be faced as an inter group transaction? Finally we have seen some days ago the Brazilian telecom's regulator announcing that the new price cap too reflecting inflation minus a [Inaudible] at 40,003 would be 22% of applicable to the basic packages, my question is do you expect any increase in the average revenues per minute following these price cap announced by ANATEL or should we expect to see average revenues per minute coming down the flat in 2003?

Let's go over the first question. You asked if the independent evaluation that was conducted for Global was already included in the financial results.

If that evaluation already includes or not the capital increase at Global Telecom?

Yes. You are right it does.

Okay.

And the equity pickup that we did on the fourth quarter was related to the acquisition that we made 17% of Global Telecom's capital.

So you mean the goodwill increased?

Yes.

Yes, but the goodwill increase from 586m euros to 1.2b euros I don't know if I am getting this right or not and applies for the 17% stake was only R$290m?

This increase is due to the full consolidation of the [Inaudible] accounts balance sheet, R$290m without TCP goodwill and the acquisition of the 17% stake at Global and R$296m is the goodwill registered at Global Telecom's balance sheet deriving the acquisition of their holding company.

Okay.

The third question about the hedging agreements, I didn't quite understand what you mentioned about the inter-company loans?

Well, first of all, on slide 27, where you have TCP's debt R$2.2b and then you have TCP consolidated debts which I assume also includes Global Telecom, is R$4.46b?

On that slide, we are showing you the debt that's based on the separate legal entities. Telesp Celular Participacoes has itself a R$2.2b debt plus Telesp Celular's standalone of R$1.1 plus Global Telecom R$0.4.

Okay. All right. Okay, okay, that's okay. On the hedging agreements that you set, and you have on your balance sheet, each amount was R$1.7b, is any part of this is contracted with Portugal Telecom or is it basically third parties?

None of this is Portugal Telecom, it's all with banks, unrelated parties.

Okay. Then there is a final one on the price capital.

Well, about the new price from Unicell, overall has a positive impact, but if we take into account some effect in order to leave it away, actually we are just finishing our model and that's been [Inaudible]. What I'd like to emphasize to you, first the application of the new price is mainly on interconnections, in Basic Plan, okay. So, Basic Plan we have [Inaudible] on interconnections usually taking into account, at the same time we are measuring optic discount with a mobile opportunity. So, the 22% decrease impact [Inaudible] much lower, roughly 40%. The second one is something that we don't know exactly. We need to measure, we need to follow in the reality which is the effect of possible negative elasticity from the fixed to mobile (ph) which in fact we don't know exactly what will be size of this impact. But, a positive impact which is normally when you deplete the fixed to mobile in [Inaudible] mobile to mobile. So, some mixed effect that we are now finishing our evaluation okay, some of them we need to follow, because we have no experience in such increase in pricing, mainly on fixed to mobile, roughly 27% [Inaudible] , and we need to slowly follow what has happened in the market. Overall of course this is positive in a [Inaudible].

Okay. Sorry, hello.

Yeah please.

Sorry just to wrap up, so how do you see your ARPU going forward in the next year? Do you think [Inaudible] is having any chances of increasing?

Yeah, [Inaudible]?

Your ARPUs.

The ARPU, the ARPU as I said, will have some of this mixed impact, okay. So, we need to finish our model [Inaudible] impact in our finishing, want to evaluate exactly what will be the impact on the ARPU. Overall we believe that it will be positive. At best, we have to take into account [Inaudible] the possible negative impact coming from the elasticity of the fixed to mobile okay.

Okay, thank you very much.

Next question please.

Thank you. Our next question is coming from Guy Patty from Deutsche bank. Your line is live.

Yes, good afternoon gentleman, just wondering if you could give us a feel for CAPEX gain [Inaudible]. I know you have said that Telesp we stated our asset as a stand-alone CAPEX which is just under 10% of revenues, wondering why do you expect to keep it underneath that benchmark going forward. And then on the secondary point, on the ability of Telesp Cellular, it is a pay down, the inter-company loans that are basically provided to your floating right notes from Portugal Telecom. Do you have any plans to start paying down some of these inter-company loans to these floating right notes and what is your sort of cash flow schedule for paying down these debts?

[Inaudible].

Before we go on. It is very difficult to hear, can you speak up a little bit.

Pardon.

Thank you. It is very difficult to hear, if you could speak up a little that'll be helpful.

Okay, thanks. We were discussing the CAPEX issue, well, as we know and we were explaining during the presentation and as Telesp allow, we are now taking advantage of the past CAPEX into a role approach. What happens now its impact during 2002 and that policy will be also in place in 2003 in the creed of different approach, where much more straight in terms of the CAPEX application. Every project which is the policy after joint venture but because of the policy after TCP [Inaudible]. Every project has an NPV (ph) evaluation, so each project on the CAPEX only goes on if we have impact, positive effect on all of them and even responsible for every project are identified. This includes also indeed maker of the settlement. So definitely, I believe that will be possible to keep the policy to keep this figures and possibly to implement earlier because all our commitments, we have allotted all those is to influence much more the free cash flow in order to get our financial compromise. So, I would like to handover now to Hudson (ph) for the other question please.

Yes, we have about $160m that matures in 2003 and is '02, especially to the comment it will be paid on [Inaudible]. Another $445m approximately matures in June 2004 and the remaining $200m go out further until 2007.

Thank you.

Okay. Next question please.

Thank you. Our next question is coming from Maricio Levy from Pharma. Your line is live.

Thank you. My question is regarding the acquisition of Tele Centro Oeste. I would like to know, what about the schedule, is it going according to what you had planned? How far have you gone on the due diligence of the accounts, and how do you face the minority shareholders who were not really pleased with the offer you have made for the PN shares.

Beginning with your second question.

Could you speak -- could you just speak a little bit louder? It is very difficult to hear you.

Hello.

Yeah, hi.

Can you hear me?

Yeah, now it is little bit better.

Okay. So, beginning from the second question what the reaction of the minority shareholders on this operation. What we would like to [Inaudible]. We have very strong technical support for [Inaudible] first point. Second point, we have also a very strong legal support also. And third, we are not doing nothing, we knew. So, for the time being and according with the conditions involved and also according to the position of our shareholder, we believe that the proposal is very fair. Okay, with the proposal technically and legally approaching. So, don't question now, any problem with that. Second, related to the due diligence process. The due diligence process is almost finished. I believe that we need probably more one week, something like that, okay? We have been working together with TCO team, very good environment, very good relationship, so we can believe that, probably more one week and we will finish the due diligence part. We do not anticipate any surprise that the process is ongoing. Nothing new from there on a large scale [Inaudible]. About the acquisition, about the financials, there are some questions? No, okay. So, about the due diligence. That's the answer, I don't know if you are happy or not with the answer, but that's it.

Okay, just one doubt. The technical support you say you have, is it based on free cash flow or which kind of calculation did do to reach this value and can you make these numbers, can you put these numbers forward to everybody?

Technical support was based on the evaluation of independent banks.

Okay, are these numbers open to the analysis?

No. We are not disclosing those.

Sorry?

The technical support is based in the evaluation of independent banks.

Yes, okay and are these numbers, are you going to make these numbers public?

No.

Okay, thank you.

Thank you. Once again, ladies and gentlemen, if you do have a question or comment at this point, please press the numbers 1 followed by 4 on your touchtone phone. Please hold while I poll for questions. The next question is coming from Maria Tinedo from Citigroup Asset Management. Your line is live.

Sorry to ask this question again, but I didn't hear most of the conference call, neither I have the presentation and it is not online. The presentation that is online is in Portuguese. But anyway, regarding ARPUs I was wondering, it wasn't clear to me whether your expectations are for ARPU to increase or to remain stable in both areas in Sao Paulo and Santa Catarina for 2003?

I'm sorry. Well the presentation is in English in our site, okay?

Well, I tried to get it, I couldn't download it, but it's all right. I guess..

We have been discussing with a lot of analysts, all of them using this presentation in English.

Right.

Sorry, but during your question, I missed some of the...

The question is regarding...

Could you repeat it?

My question is regarding ARPUs for both regions, what are your expectations for 2003?

In Sao Paulo and in Parana, Santa Catrina?

Yes.

We believe that is possible to keep the figures at the front of the figures that we have now, provided there are no strong changes in the economic environment in Brazil, mainly, because we are doing tremendous effort on the top space in the area of business we have corporate customers, okay. We have succeeded in the last quarter, there are no regions that do not keep these trends, okay. Despite of much more competition, but in Parana Santa Catarina for instance, it is difficult for the newcomers to implement during the first [Inaudible] this year for instance, they see a new network, really competes with the two existing operators. In Sao Paulo state, the same applies just if you have the theme, that depends on what the efficacy of the theme also, but we keep those our back in terms of cost price, so we believe that will be possible to keep the ARPU figures that we have now and in fact they are pressing for that.

You mean, you hope to have them stable in to 3 relative to 1, despite the entrance of new competitors, is that what you are saying?

Yes.

Now the increase in Global, the ARPU for postpaid, what is the response that you are getting from Telecom Italia? I guess you are getting churn of post paid customers, high end from Telecom Italia, that's why your ARPU is increasing?

Yes, of course, but they would come from Telecom Italia because we are working with high-end customers that was normal to [Inaudible] of the first proprietor, the same applies for the corporate customer. So what we are seeing now has in fact being able to in trying to move customers from mainly on the area of [Inaudible] in the area of corporate customers and the other users from Telecom Italia to our operations. Why? Telecom Italia as you know international pick up arena is managing CDMA with some limitations in terms of corporate application. We are now moving to one hat and to receiver and the advantage we are exploiting much more aggressively. The advantage of CDMA International pick up arena and at the same time we have a very similar coverage. I'd to like to say that in some areas, we are much better than Telecom Italia.

Great. So the explanation is basically technology?

Not only in technology mainly the base has been our market approach and the solutions that we are marketing to the corporate customer.

Okay. Could you please repeat the payments to Portugal Telecom that are, I understand it is 150 million euros for 2003 and how is the rest? I didn't get the numbers, sorry.

I converted to US dollars, $160m in 2003, $445m in 2004, $200b in 2007.

Okay. Thank you.

Okay.

Thank you. There are no further questions at this time. Mr. Padinha you may proceed with your closing remarks.

So, thank you very much for joining us in this conference call. And if you have extra questions, please contact the Investor Relations team at Telesp Celular. Thank you for participation thank you very much. Have a good day, bye.

Thank you ladies and gentlemen. Telesp Celular year 2002 conference call is over. Have a good day.