Telefonica Brasil SA (VIV) 2003 Q3 法說會逐字稿

Good morning ladies and gentlemen. At this time we would like to welcome everyone to the Telesp Celular Participacoes - TCP - third quarter 2003 conference call. Today, we have a simultaneous webcast, with slide presentation on the Internet that could be accessed at the site www.vivo-sp.com.br. There will be a replay facility for this call on the website.

We inform you that all participants will be able to listen to the conference during the company's presentation. After the company's remarks are over there will be a Q&A section. At that time further instructions will be given. Should any participant need assistance during this conference, please press '*' '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 management, and on information currently available to 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 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 Participacoes. Mr. Padinha, you may begin your conference.

Good morning, or good afternoon, ladies and gentlemen. Thank you for joining us for TCP's Q3 Earnings Release conference call.

This conference call is being simultaneously transmitted over the Internet, and you may access a copy of this presentation from our website www.vivo-sp.com.br, Investor Relations section. Here with me today is Fernando Abella Garcia, CFO, and our Investor Relations team.

I just want to highlight that in order to facilitate comparisons, Q2 2003 is presented on a pro forma basis, consolidating TCO 100%.

To begin on slide three, by updating you on some of the quarterly highlights.

First, there was an improvement in the macroeconomic scenario. The reduction of 5 percentage points in CDI, the domestic interest rates, the slight maintenance of US dollars against Reals and Brazil's counter risk at a very low level, stood at 695 basis points. Additionally, the increase in foreign investments and the approval of some reforms also make us very confident for 2004.

Second, regarding the mobile market. Brazil experienced a significant growth this year when there was a total net additions of 6 million clients in the first nine months of 2003, of which 47% was just in Q3 2003.

Third, TCP has leading the growth of the market. Total net additions in TCP regions - Sao Paulo, Parana, Santa Catarina, north and mid-west - reached 1,436,000 in Q3 compared to 1,079,000 in Q2 2003, according to Anatel's data from September, showing that the entrance of a new competitor has boosted the market.

Fourth, another important event this quarter was the acquisition of BCP by [Claro] which - in our view - was good news because Sao Paulo region won't have a fourth competitor as we forecasted in the beginning of the year. Additionally, we have been competing with [Claro Tess] in area two since the beginning of its operations, so we know the competitor.

Fifth, regarding the Vivo brand. We have been achieving [top of mind] in most of the regions where Vivo is represented, reflecting the successful consolidation of the brands. Additionally, Vivo was recognized as the most admired company within the mobile telecom sector according to [Cathy] capital magazine, and the second of all telcos after Telefonica Fixed Operation.

Sixth - according to the SMP rules, there were two important factors this quarter that I would like to point out.

First, long-distance carrier selection. Since July 6, clients calling from a mobile must choose call-by-call a carrier for their long-distance calls. Consequently long-distance calls VC2 and VC3 are not included in total revenues any more, being substituted by the interconnection revenues.

Second, Bill & Keep. The operators under this regime must operate with the Bill & Keep, which started in August. This means that the interconnection fee is charged for just what exceeds 45% to 55% of the traffic amount to operators. Consequently there will be an impact in the connection revenues, and also on costs.

On slide four you can see that TCP market share of net additions increases 17 percentage points and reached 55% in Q3 2003 and 45% on an accumulated basis, showing that TCP has continued to lead the market growth in its regions, even maintaining a premium strategy.

It's important to point out that GT's market share of net additions reached more than 60%, TC 59%, and TCO 48%. All figures are based on Anatel's data. Total TCP net additions presented a significant growth this quarter and increased 95% compared to Q2 2003, reaching 788,000, reflecting not only the growth in commercial activities of the market, but the reduction of [shares] of TCP's operators showing these achievements of our retention policies.

On slide five you can see that our client base rose 21% year-over-year and 7% quarter-over-quarter. As discussed before, the market has been growing and TCP has led this growth. Regarding net [heads], it's important to mention the 7% growth in post-paid base year-over-year and 1.4% quarter-over-quarter. It's important to point out that we maintained our rigorous client database criteria of 90 days without inbound and outbound traffic.

Moving to slide six, you can see that TCP released less than 1 percentage point of its market share, even in a competitive environment. This is a consequence of an increased market share at Global Telecom, maintenance at NBT, and a slight reduction at TCO and TC.

We have continued to aggressively focus on keeping our best clients and market share retention strategies to maintain our premium position. This means we focus on share of revenues and profitability, not purely on number of subscribers.

Changing to slide seven, Vivo Empresas structured in January 2001, and commercially launched in October 2003. It's a business [in its] focused on the corporate sector. Until 2001 a specific structure was not in place to meet the needs of the corporate sector. Thus a specific structure was created to meet the needs of this segment, including a sales force specialized in data and integrated solutions.

The company believes the corporate market is one of the drivers of the growth in our postpaid client base, and is one of the key segments of our business model. TCP believes that the expansion of the corporate market will be particularly strong in small and medium companies.

On slide eight you can see the significant growth in our corporate client base. This is the result of an increase in our recent penetration of the market that translated into a greater number of companies being serviced by TCP, and an increase in vertical penetration that signals an increase in the number of lines of already-existing clients.

With this structure - Vivo Empresas - now in place TCP also has become the leader in this segment of the market. For more detailed information please look at TCP's website for the Vivo Empresas presentation.

On slide nine you can see that the WAP-enabled base increased considerably. For the first time WAP exceeded 50% and SMS accounted for two-thirds of the total base. The use of SMS and WAP almost doubled year-over-year, increasing more than the growth in Base Enabled. SMS and WAP are responsible for around 90% of total revenues from data.

We experienced a boom in the use of SMS in 2003, more than tripling the monthly average of SMS text messages sent in the last 12 months. This is a reflection of monthly price promotions [interoperability] agreements with operators of SMP, market studies about consumer needs and preferences. [indiscernible] campaigns always focused on the use of products and service of data, to improve the quality of our platforms to guarantee sales.

In relation to WAP we can highlight - advertisement [shed] WAP, broadcast for use of application and use of WAP, launch of 1XRPT at G.T., increasing use of services.

We have other [types of] data services beside SMS and WAP, which we believe will also be a key to lead the growth in this business.

Downloads. In the first five months of the launch of the download service we were able to get a 30% average of clients accessing the service. We have no doubt this is one of the best averages we have maintained amongst existing applications. This is a result of the development with the partners, and the proportion of a variety of high-quality applications.

Zap is an exclusive service that transmits 2.5G data that [receives] client [base] in the last few years and [released] an increase in traffic by more than 300%. This is a result of focus on corporate clients that today represent more than 80% of PCMTA cards sold.

Moving to slide ten, you can see the positive results of different products and services offered by TCP. Data revenues growth is mainly due to the increase in penetration of enabled handsets, and the use of SMS.

In the first nine months of the year 2002, TCP had 55% of its data revenues coming from SMS. In comparison with the first nine months of 2003, SMS accounted for 63% of data revenues.

Since the launch of national promotional campaigns related to the youth segment, such as [Quasar] in 2002, and the recent launch of [Vivo-Vivoo] - a multimedia super platform that enables Vivo's clients to use icons with direct access in a way to facilitate the use of different services and products of the company - have always concentrated on having an image associated with innovation as a means to attract and be the preferred choice of new clients.

As such, the company can increase national ARPU through the utilization of value-added services and data, given the significant growth potential in ARPU compared to other markets. For example, in Europe more than 10% of ARPU comes from data services.

The result of this combined effort has led to revenue for data as a percentage of revenue per services to grow from 1.2% in September 2002 to 2.7% in September 2003.

On slide eleven you can see that service revenues increased 4% in the quarter, and has increased 3 percentage points excluding the effects of CSP and Bill & Keep. In order to analyze the effect of CSP and Bill & Keep, it's important to take into account also the reduction in interconnection costs, which we'll discuss further.

The evolutions of TCP consolidated revenues is a mixture of different factors.

First. Usage revenues, which represent 28% of total revenues, decreased 14%, mainly reflecting the loss of VC2 and VC3 revenues as a consequence of the carrier selection regime, even with a 7% client base growth.

Second. On the other side, interconnection revenues increased 10%, reflecting the substitution of the outgoing long-distance calls by incoming revenues, and the client base growth, which was partially offset by the Bill & Keep effect.

Third. Other services increased 59%, mainly reflecting an increase in data revenues of 26%, especially prepaid SMS.

Moving to slide twelve, Minutes Of Use were slightly higher at TCP this quarter, mainly reflecting an increase in traffic at TC due to a higher traffic volume compared to the growth in the client base. It's important to note that the long-distance carrier selection is not affecting minutes of use, as VC2 and VC3 outgoing minutes are being substituted by incoming minutes.

Lower ARPU is a consequence of the impact of CSP and Bill & Keep, as well as the significant client base growth in the quarter. The impact of Bill & Keep was more significant at G.T. and TCO once [STC's] regions [indiscernible] were operating under the SMP regime. TCP migrated just in October.

We estimate the combined impact of Bill & Keep and TSP in the quarterly ARPU to be negative, approximately R$ 1.

On slide thirteen you'll see that despite the strong growth in terms of [gross additions], operating costs were 4% lower this quarter compared to Q2 2003, mainly as a consequence of lower marketing expenses as a result of a more rational competition compared to Q2 2003.

It's important to remember that operational costs in Q2 2003 include the launch of the Vivo brand. Additionally, interconnection costs decreased 32% compared to Q2 2003, reflecting the positive impact of Bill & Keep and CSP.

G&A expenses decreased 18% as a consequence of lower third party services, reflecting synergies of Vivo.

On slide fourteen it's important to point out the reduction of 4.6 percentage points in total operating costs, impaired mainly by interconnection costs which decreased 2.6 percentage points compared to Q2 2003, and by G&A which decreased 1.2 percentage points.

Moving to slide fifteen. Despite the strong growth in the quarter, TCP Subscriber Acquisition Cost was lower compared to Q2 2003, even excluding the expenses related to the launch of the new brand.

As a consequence of lower handset price, TCP's average price per handset decreased quarter-over-quarter and year-over-year, and reached R$ 200 in Q3 2003 versus R$ 254 in Q3 2002 and R$ 235 in Q2 2003, mainly reflecting discounts granted from suppliers due to larger negotiation sales volumes and higher percentage of low-end handsets, as a result of a higher mix of prepaid clients.

Lower subsidies at TC, GT and TCO - subsidies reached an average of R$ 46 per handset, 43% lower than the level reached in Q3 2002 and 41% lower than Q2 2003, showing that TCP has been maintaining a premium position against the competition.

Third, lower marketing expenses. [Marketing gross overheads] reached an average of R$ 31 in Q3 2003, 38% lower compared to Q2 2003 and stable when compared to Q3 2002 due to a more rational market.

On slide sixteen I'd like to discuss EBITDA evolution compared to Q2 2003. Total net revenues increased 4%, while operating costs decreased 4%. Interconnection costs as a percentage of revenues decreased 2.6 percentage points due to the combined effect of CSP and Bill & Keep.

CSP effects – it’s because the company does not have to pay interconnection fees on VC2 and VC3 outgoing of net calls, once those long-distance calls are not carried through TCP any more.

Bill & Keep effect -- it's because the company does not receive, and does not have to pay, interconnection fees among mobile SMP operators.

G&A reduced 1.2 percentage points, as discussed in the previous slide, basically reflecting synergies of Vivo. As a consequence, margins presented a significant growth of 4.8 percentage points, despite the strong sales in the quarter reaching 41% in Q3 2003 and on an accumulated basis amounting to 39.8%, in line with our objectives of increasing margins.

TCP margins, excluding TCO, increased to 40.6% in Q3 2003, and on an accumulated basis 30.3%. Regarding Bill & Keep and CSP impact, we have reduced revenues and costs more or less in the same amount. For that reason, margins increased this quarter. The impact on margins was positive, in approximately 1 percentage point.

Additionally, margins excluding handsets increased to 54% in Q3 2003 compared to 49% in Q2 2003, reflecting the effects of reduced interconnection costs and G&A improvements.

Going forward, we expect the market to continue to grow, and [the elasticity] will leave this market even with the strategy focused on profitability.

I will now hand over to my colleague Fernando Abella for the financials of the company.

Good morning ladies and gentlemen, this is Fernando Abella.

I will begin with the operating cash flow, which as you can see has had growth of 21% quarter-on-quarter. TCO contributed R$ 154m to TCP's operating cash flow during this quarter, meaning 25% of the total operating cash flow generated.

Regarding CAPEX for the full year 2003, we maintain our target of investing around 10% to 12% of total revenues. Even including the [CBMA] overlay addition, which was launched today, and will [indiscernible] profitability in some areas.

As in the first nine months investment reaches only 5.5% of total revenue. We are expecting to increase the investment as a percentage of revenues in the fourth quarter.

Regarding the financial results in slide 18, we have to take into account for an accurate comparison the extraordinary effects in Q2 of [ R136m], so the reduction in the financial results will not be 42% but 7%. Even though this is not a reduction, [of the financial losses].

The improvement in the financial results this quarter is due to the lower interest rates and the level of total debt, that have reduced during the quarter. Even considering the 1.8% depreciation of R$ versus the dollar in the Q3 the gross indebtedness decreased 349m compared to Q2. Besides, longer-term debt captured during the quarter will allow TCP to reduce the present [size] of current debt from 43% in Q2 to 34% in Q3.

Going to the net debt - due to the cash flow generated allowed us to reduce almost 10% the level of net debt. TCP reduced 15% its financial leverage quarter-over-quarter, reaching 1.5 times net debt to EBITDA.

One important fact this quarter was the AA- in the local S&P scale rating, [Brazil rating] attributed to the first TCP debentures issue. The AA- group is the second best rating according to S&P's scale, which reflects our strong payment capacity and a minimal difference from the best rating, that is the AAA group.

Going to the net income on page 21. The company reduced significantly its net loss by R$ 150m quarter-over-quarter, excluding the extraordinary effect in Q2, which had a negative impact of R$ 136m on the financial results was the net loss will have reduced 17%.

It's important to highlight that for the first time in the last three years the income before tax was positive.

I would like now to provide you with an update on the TCO acquisition process. As you can remember from our former presentation, the TCO acquisition was [still] in three steps.

The first one - the acquisition of the controlling stake. Acquisition of control took place on April 25. We acquired the control of TCO for R$ 1.5b, including [implied debt assumption]. By the end of September 2003 we have already paid R$ 1.3b and we still have to pay R$ 294m by 2008. That figure of R$ 294m is related to September 30; 96% of this amount matures in 2004.

The second step was the tender offer for the OM minority shares. The tender offer was launched on October 8 and it was registered in the CVM and SEC. Minority shareholders of common shares have from October 9 until November 11 to accept the offer. The auction is set to be on November 18. The price per share is R$ 16.58 per 1000 shares as of September 2003.

The [indiscernible] of November 18 are described in the tender offer. The tender offer process is estimated to cost around R$ 735m, that is not included in the figures for Q3 debt. The company has already secured credit lines with a couple of banks to fund the tag along for the tender offer.

The third step was the merger of shares. This former night, on October 29 we are now detailed terms from incorporation - the incorporation or the merger of shares and called an extraordinary shareholders' meeting to approve it, to be held on December 22.

We are filing the documentation related to the mergers with SEC and CVM. The merger registration documents F-4 form required SEC approval.

As announced, the merger of shares will [raise] an exchange ratio of 127 shares of TCP for each share of TCO. Two international and renowned institutions - Citigroup and Merrill Lynch - were hired for their valuation reports. The 127 ratio was confirmed and was equitable for both TCP and TCO shareholders.

The company will issue ON and PN shares to be exchanged for the TCO shares. 252,756,000,000 shares. TCO's PN shareholders will receive TCP PN shares and TCO's ON shareholders will receive TCP ON shares.

Prior to the merger of shares there will be a limited conversion of TCP PN shares to TCP ON shares to ensure that the company continues to comply with the one-third ON versus two-third PN rule.

The conversion will be extended pro rata to all TCP PN shareholders, and for each PN share converted the shareholder will receive one ON share.

The number of shares to be converted depends on tender offer acceptance ratio. 100 acceptance and 100 TCP ON withdrawal, TCP's ON withdrawal - 105,590,000,000 shares. 100 acceptance and 70% TCP ON withdrawal - 88,205,000,000 shares.

Going to slide 24, to summarize the timetable of TCO merger of shares. We expect to close the transaction even by the year end. By the end of January 2004 the tickers of both companies will be unified on the stock exchange.

As I mentioned before, SEC's review and final registration is necessary for the shareholder's meeting to take place. We have called the shareholders' meeting with 50 days of advance versus 30 days of legal requirements, to have enough time to get the SEC's clearance.

We have made public at CVM all the relevant documents and reports required for the transaction. Meaning enrollment and merger of shares, appraisal report of shareholders' equity based on market value of TCO, and financial and economic analysis. And yesterday we called the shareholders' meeting for December 22.

OK. Ladies and gentlemen, this is Francisco Padinha speaking. Now, summarizing, we are very proud to highlight the following.

TCP is leading the market growth with 55% market share net adds according to Anatel's figures. We have a solid operating performance, we increased year-over-year our EBITDA by 23.3%. We are in the region of 41% EBITDA margins, we increased revenues year-over-year 23%. We increase also year-over-year our client base of 21.3%.

As far as it concerns the new avenue of data services, we are very proud to announce that we are growing 133% year-over-year and we have launched with tremendous success our super platform for multimedia services, which is the basis for our growth in the area of data and contents.

At the same time we are increasing our cash flow generation by 60% year-over-year without any problem or any lack of quality of service of our network. We are also reducing our debt by 10% quarter-on-quarter.

Finally, we received the rating of AA- in Brazil. So we are very proud of these results. We are now available for the Q&A that we intend to (indiscernible). Thank you very much.

At this time I wish to remind everyone, in order to ask a question please press the number '1' then '4' on your telephone keypad. If you want to withdraw your question please press the '#' key. Once again, that is '1' followed by '4' to ask a question. Your first question is coming from Andrew Campbell of Credit Suisse First Boston.

Yes, I was hoping to just get a little more color on the market dynamics in the quarter.

All indications were - from what we were seeing, anyway - that [TAM] was being quite a bit more competitive. So we would have expected maybe that your share of adds would have gone down. Of course, if you'd been spending more money I guess it would have been understandable but you saw that your subscriber acquisition costs were also coming down at the same time.

So maybe you can just give us a little bit of flavor for why you think your net adds have still been so strong and your share of the net adds has been so strong in spite of that competition.

The figures we are supplying today about the net adds are supplied by Anatel. We suppose that some [cleaning of places] of some of our competitors, we don't know exactly [indiscernible]. But according to our internal figures we are able to keep our market share of gross adds in the region.

As far as it concerns the decrease of SAC, as we explained before, that is related with a change in the mix and also with much more favorable conditions for negotiating the prices of the handsets with our suppliers.

So we believe that the situation is not completely possible to replicate in the next quarter. But we believe that these figures [conceal] the TCP performance till the end of the year, in order to achieve our internal goals, at least the goals that we have designed in terms of management team, and reach the targets of our shareholders.

So when you say your targets, you're referring to the 40% [indiscernible] margins for the year, is that right?

It's our management internal targets. It's not the [guidance], it's our internal targets in terms of management team.

Thank you. Our next question is coming from Patrick Grenham, of Citigroup Smith Barney.

Good morning. Could you just give us an idea - you've mentioned that the [indiscernible] knocked your revenues a little bit, but you also mentioned that not for the full quarter. We didn't have all of the operators in your system over on the PCS, or the SMP system. Is there another reduction in your revenues to come, as a result of when everybody in your regions moves over to the SMP system?

The other thing is, could you give us some guidance on how your debt's going to move over the course of the next 12 months or so? Thank you.

Relating to the Bill & Keep issue, what happened is that still TCP is not in the SMP regulations. So still we are not doing Bill & Keep with TCP. So still for the next quarter we are expecting reduction in revenues and reductions in cost, in interconnection costs. At the end, the effect on [indiscernible] must be minimum.

Relating to the guidance for the next 12 months, we are not providing any more guidance specifically for TCP.

Thank you. Your next question is coming from Vera Rossi, of Morgan Stanley.

Hello. I have two questions.

My first question is on your subscriber growth. You are starting to add a lot of subscribers this quarter, and the competition as well, and you're not seeing [an increased return on] TCP.

I'd just like to know who are the new subscribers [in Brazil]? What kind of user you are adding, what segment of the market that is so strong? If you could also relate it to the improvement that you are seeing in the market environment in Brazil, or it's because the companies are spending more [advertising].

My second question is about the launching of new handsets. I've seen [indiscernible] you're about to launch GSM [CDMA GX ] [indiscernible] handsets. I wondered [inaudible] is expecting to use these handsets and - if so - when, because then you'll be able to provide digital roaming in the whole country. Thank you.

OK. So as you mentioned, in fact, the growth of the market has been driven mainly by the [tremendous effort] of all players in terms of [marking].

As far as it concerns the new customers we are [carefully] measuring the [cascades] of the ARPU. In fact they are more or less okay in terms of value, more or less the same, with a slight decrease in terms of ARPU, but for the time being a very slight decrease.

So that's why we value these customers, we are working in this area but not taking measures in commercial and operational terms that can hit the value of the company. We have a quite balanced approach in this market.

In terms of GSM, [silla] [made] 2000 terminals. Of course we are interested, we've been working with some potential suppliers and we expect to have these terminals available by the end of this year, first quarter next year.

Just to complement the answer - the new clients are very similar to the old clients, prepaid clients are very similar to the new prepaid clients, post-paid clients are very similar to the new post-paid clients.

But the mix, the percentage of new clients coming from prepaid is much higher than the actual client base, the percentage of the actual client base. So there is still a reduction of ARPU related with the mix of the new clients.

Just a reminder, to ask a question, please press numbers '1' then '4' on your touchtone phone at this time. Our next question is coming from Ricardo Sera of BPI.

Yes, good afternoon. I've got some questions on the Bill & Keep interconnections scheme that was implemented in this quarter.

You said that this effect, together with the new long-distance code selection, had a negative impact on ARPU of around R$ 1. My question is - should there be also a change with BCP as regards Bill & Keep, how much would the dilution on ARPU?

The next question is - when you mention in the press release that basically this new scheme of Bill & Keep only applies if the traffic is not higher than the 55% - is this regarding total traffic, 55% of total traffic? What do you mean about this?

Thank you.

Related to the effect on BCP – really much of the effect is already in the ARPU for Q3. So the effect on BCP is not important, operator. It's going to be much less important than the Bill & Keep that is already shown in the figures.

Relating with the explaining how the Bill & Keep is working - it is only related where the traffic is going from mobile to mobile, in the area of the operator. So if you have (for example) owe 100 minutes of mobile, of outgoing minutes going to BCP, and you receive 105 minutes related to BCP, going to BCP - you sum up 100 and 105, you have 205, and 100 is, for example, 49%, so you don't pay anything.

For example, the percentage of this amount would be below 45, then you have to pay the difference. That is how it works.

So in short - in the window of 45% to 55% relationship in terms of traffic between two operators the sender keeps all? In short, that's the rule.

Do you have the breakdown of this [indiscernible], of this R$ 1, by the two separate effects, just for us to get a feeling of what is weighing on the ARPU?

We don't have here the figures, perhaps [indiscernible] conversation we can explain.

OK, thank you very much.

Thank you. Your next question is coming from Mauricio Fernandes of Merrill Lynch.

Good morning, two questions.

First is - if my interpretation is correct - your outgoing revenue from [indiscernible] has come down significantly, particularly [indiscernible] Sao Paolo [indiscernible]. [Do you think this is solely the result of the SMP rule] , or do you believe that there is some negative [indiscernible] happening as a result of more aggressiveness from [indiscernible]?

The second question is - you mentioned that in order for the incorporation of shares to happen, it is subject to registration at the SEC, and to the conclusion of the offering for the voting shares. Do you need any approval from the SEC, or from the CVM on that, in order to incorporate the shares [indiscernible]? Thank you.

Could you repeat the first question please?

Yes. If my calculations are correct, your outgoing -- if you just take the usage and divide it by your outgoing minutes of use, your revenue per minute on that has come down significantly in Q3. Is that a result purely of the introduction of SMP rules or do you believe that there's already some negative pricing happening as a result of the aggressiveness from [indiscernible].

It's related basically to the SMP rules, because now we are not dealing with the VC2 and VC3 for the long-distance calls. We are not dealing with that, we are changing that for our interconnection fee.

So we [indiscernible], for example, that [indiscernible] as an average for VC2, VC3, more or less is our estimate, and we are now receiving only 33, 34 cents on interconnection fees. So really the average revenue per minute has to reduce.

Related to our registration, really the SEC has to approve the registration, has to say all the information that you are filing in the [report] is OK. From this moment on the operation -- we are not requiring formal approval from the CVM.

OK, so unless the SEC requires something you don't need an approval. We have to assume that the SEC has been approving everything that has been filed at the SEC, correct?

We are filing today therefore, and the SEC has to revise all documentation, have to say if it's OK or not. If the SEC say it's OK we can continue with the operation with a shareholders' meeting.

OK, that's clear enough. Thank you very much.

As a reminder, to ask a question, please dial the numbers '1' then '4' on your touchtone phone at this time. Our next question is coming from Laura Mello of Santander. Please go ahead with your question.

Good afternoon. I just wanted to have a feeling if you expect any kind of arguing from minority shareholders. What is the procedure that [indiscernible] would have to be protected against any kind of filing against the process on regulators or CVM? What would be the procedure in this case?

All documentation has been provided to the minorities, it is related with corporate law of Brazil, and related with SEC regulations. So really we are not expecting too much problems.

OK, thank you.

There are no further questions at this time. Mr. Padinha, please proceed with your final remarks.

Thank you very much for everybody who joined us for these results for Q3 2003. We shall expect to meet you again formally by the end of the year, and I expect to have good surprises for everybody. Thank you very much.

Ladies and gentlemen. TCP's Q3 2003 conference call is over. You may disconnect now. Thank you.