Telefonica Brasil SA (VIV) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen. At this time we would like to welcome everyone to VIVO Participacoes fourth quarter 2009 and 2009 earnings conference call. Today with us we have Mr. Roberto Lima, CEO of VIVO Participacoes, and Miss Cristiane Barretto, CFO of VIVO Participacoes.

Today we have a simultaneous webcast with slide presentation on the Internet that can be accessed at the site www.vivo.com.br/IR. There will be a replay facility for this call on the website. After the Company's remarks are over there will be a question and answer session. At that time further instructions will be given. (Operator Instructions).

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 Vivo's 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 the future results of Vivo and could cause results to differ materially from those expressed in such forward-looking statements.

Now I will turn the conference over to Mr. Roberto Lima, CEO of VIVO Participacoes. Mr. Lima, you may begin your conference.

Good morning, ladies and gentlemen. On behalf of VIVO Participacoes SA we would like to thank you all for attending this conference for disclosure of 2009 fourth quarter and year results.

To Vivo 2009 was the year of its market leadership consolidation. Leadership in market share, recording more than 50m accesses in November and closing the year with 29.75% of the mobile lines in the market and the highest market share of net additions in the year.

Leadership in value generation, with margins consistently above the industry average, which will ensure Vivo the best year-to-date EBITDA share in the industry. Leadership consolidation in its differential attributes, that is service quality as evidenced by the achievement of the quality goals set by Anatel and by the fast expansion of its 3G network. In December 2009 Vivo's coverage reached 579 municipalities, being the largest and best 3G coverage in Brazil.

The quality of the offer combining with the coverage allowed Vivo to convert the data and value added service revenue, especially internet revenue, in the main growth driver of Company's revenue, increasing Vivo's advantage in terms of revenue share. Regarding sustainability, Vivo recorded another benchmark in November 2009, having been selected for the inclusion in the Bovespa Sustainability index portfolio IFC.

Vivo achieved significant financial results in the year. The EBITDA recorded BRL5.2b with an EBITDA margin of 31.9%, an increase of 110 basis points over the previous year, which resulted from the 5.9% growth in the net service revenue and from the slight increase of 1.8% in expenses in the quarter.

The EBIT recorded BRL1.96b, an annual increase of 6.7%. The net profit on its turn recorded 110% increase over 2008 was BRL857.5m. Cash generation after investment activities in the quarter recorded BRL2.5b benefiting from the cash generation from operators and from an efficient working capital management during the year.

Slide three shows that Vivo's performance in the fourth quarter was essential for the success in the year. We continued to place our focus on our strategy to increase the Company's attractiveness by delivering the best service quality to our customers. We have also increased the attractiveness of our commercial offer by launching in September new promotions for the pre-paid segment and in November our new Vivo Voce postpaid plan with more aggressive prices.

The result was the increase in our market share leadership, achieving the highest share of net additions for 12 months in a row, from September to December. An extraordinary growth of 122% in mobile internet revenue in the period is worth of mention.

Despite the aggressive competitive scenario and the increased commercial activity, the financial results recorded in the quarter showed our commitment to deliver differentiated profitability levels, due to the optional allocation of resources and continued improvement of our process without losing market share.

The EBITDA in the fourth quarter recorded BRL1.4b, with an EBITDA margin on total revenues of 32.7%, maintaining the high profitability recorded in the same period of last year. The net profit in the quarter recorded BRL222m, remaining almost stable in relation to the same period of last year. Cash generation after investment activities in the fourth quarter recorded BRL835.8m.

Slide four shows that Vivo is committed to establish quality and trustful relations with all its stakeholders and was recognized in all these aspects in 2009. We have recorded increased satisfaction index in relation to our customers. Among other recognitions, Vivo was considered the most trustworthy company in the industry according to [IBOP] Selecoes, Telecom Top of Mind by Datafolha and have the sixth most valuable brand in Brazil, being the first one in the telecom industry, according to the Brand Finance Consulting firm.

The satisfaction of our employees has also recorded consistent increase. In 2009 Vivo was elected one of the 12 best companies to work for among of the largest companies in Brazil, according to the Great Place to Work results, and one of the 105 best companies to work for according to the Voce S/A Exame Guide.

In relation to the shareholders we have invested in synergies and constant exchange of experience. The relationship with our investors has been based on closeness and transparency. Our shares appreciated more than 90% in Bovespa and more than 140% in the New York Stock Exchange in 2009.

We have consistently exceeded Anatel's quality goals and the coverage challenge along the year. In relation to the community and the opinion makers, our Company's quite present in the society with our branch of activity, leading trends and showing new courses. In 2009 Vivo was considered the most admired company in the Carta Capital ranking and the company with more prestige according to Epoca Magazine research.

As regards social environment matters, we carry out a range of actions that we institute in the culture, education, social and environmental areas besides our cellular phone and batteries recycling program, which has collected more than 2m items.

Slide six shows the growth in the access base, which recorded 51.7m accesses in December 2009 with an annual growth of 15.1%. We added around 2.9m accesses to Vivo community in the quarter, with 6.8m net additions in the year-to-date. Vivo led the share of net additions during the whole quarter, resulting in an increase in our market share to 29.75% in December, 35 basis points higher than in the previous quarter.

The performance in the postpaid segment is worth a mention. We have increased the leadership in postpaid customer share to 32.2%, stimulated by the strong contribution of the sales of internet access and the major acceptance of the new plans Vivo Voce.

The GSM and WCDMA operations record 84% of the total customer base and already account for more than 42.5m accesses. The distribution network quality is another key point. Vivo has more than 11,000 points of sale of handsets and more than 500,000 points of recharge situated throughout the main locations in Brazil, thus providing accessibility to our products and services.

Slide seven shows that in December we recorded approximately 12.8m unique users in our customer base who used the internet service of smartphone or data cards, an increase of 58% in the year-to-year comparison.

Slide eight shows the subscriber acquisition cost, which recorded BRL58 in the quarter. When compared to the fourth quarter of 2009, this SAC recorded a reduction of 21.6%. In comparison with the previous quarter, the reduction is of 24.7%, indicating that we maintain our rationale in attracting customers and the effects of the SAC dilution caused by the greatest increase of additions with the SIM only in the quarter. The SAC in 2009 was up BRL77, a reduction of 3.8% when compared to 2008.

The churn in the quarter required 2.5%, and remained stable both in relation to the previous quarter and to the same period of 2008. In the year-to-date the churn of 2.5% is 10 basis points lower than was recorded in 2008. The good results obtained from our customer loyalty and retention policies is worth of mention as they allow the churn to remain at reduced levels even considering the effects of the increasing sale of SIM only for which churn is higher.

The churn remaining stable is also a good indication of satisfaction of all our customers. Along the year Vivo recorded the lowest levels of complaints to Anatel in relation to its main competitors.

Slide nine shows the variations in the ARPU. The blended ARPU in the quarter of BRL26.10 recorded a slight decrease of 1.1% when compared to the previous quarter. When compared to the fourth quarter of the previous year, the ARPU recorded a reduction of 10.3%. The reduction in the ARPU is due to the dilution caused by the growth in the number of accesses and to the effort to make prices adequate to the market, which is the reason for the good commercial performance recorded in the last two quarters of 2009.

As a consequence of the increase in the mobile penetration, the community concept itself, which is stimulated by Vivo through promotions and differentiated plans, there was an increasing substitution of the fixed mobile traffic to the mobile-mobile traffic which could be noticed once again in this quarter. In the quarterly evolution, the outgoing ARPU recorded an increase of 0.6% while the incoming ARPU record a reduction of 3.6%.

As shown in the slide 10, the blended MOU in the fourth quarter of 2009 recorded an increase of 33.7% in relation to the previous quarter and 40% in relation of the fourth quarter of 2008. The outgoing MOU, on its turn, recorded an increase of 50.8% in the quarter-to-quarter comparison and 70.4% in the year-to-year comparison.

The total voice traffic recorded an increase of 60.8% in the year-to-year comparison and of 39.5% in the quarter-to-quarter comparison. The outgoing traffic, on its turn, grew 96% and 56.9% respectively in the comparison with the fourth quarter 2008 and with the previous quarter.

Taking advantage of the high quality of its network, Vivo beginning in September increased the commercial attractiveness of its offers by stimulating a higher volume of traffic in such a manner as to increase customer satisfaction and, consequently, customer loyalty and attract new customers during the period of highest commercial activity in the year.

The result was a higher receptiveness recorded by the new and existing customers. The adoption to pre-paid campaign exceeded 15m customers, the highest figure ever recorded in history. And the number of active customers recharging their phones reached its historic peak consequently reversing churn levels.

Now I offer the floor to Cristiane Barretto, Vivo's CFO, to continue with our presentation.

Good morning for all. Thank you, Roberto. Slide 12 shows that the net service revenue in the fourth quarter 2009 recorded a growth of 3.4%, both when compared to the same period of last year and to the third quarter of 2009. This happened on one side, due to an increase in sales of data and value added services, especially in internet and messaging, to the growth in the customer base and to actions including (inaudible). And on the other side, due to the already mentioned effort to adjust prices to increase activity in existing customers and to attract new clients. In the year-to-date the net service revenue growth was 5.9%, which is explained by the same reasons mentioned above.

Slide 13 shows in detail the evolution of the data and value added services revenue, which recorded a substantial growth of 64.8% in the fourth quarter over the same period last year, now representing 16% of the net service revenue, an increase of 600 basis points in this revenue share as compared to last year.

The increase in the data and value added services revenue recorded in the quarter was 22.5%. As shown in the slide, the mobile internet revenue grew significantly, 122.1% in the year-to-year comparison, stimulated by the increase in the sales of data plans related to modems and smartphones and due to expansion in the 3G network.

Access base in the 3G plans grew 152% when compared to December 2008. Because of this high growth, Vivo's internet revenue now accounts for a higher share than short messaging and medium messaging revenue, corresponding to 48.5% of the data and value added services revenue, while the latter now accounts for 45% of the revenue.

It's important to emphasize that a significant 45.4% growth was recorded in the short messaging and medium messaging revenue in the quarter. The successful sales of short messaging promotional packages, special (spoken in Portuguese) promotion and the growth in the interactivity services stimulated by the launching of innovating services such as Vivo Twittando are the reasons for the increased penetration and usage of such services.

Slide 14 contains our comments on the operating costs. The figures attest that our cost efficiency policy consistent. The cost of services rendered, excluding the Fistel Fee, recorded a growth of 13.5% in relation to the previous quarter and 16.3% in relation to the fourth quarter of 2008, reflecting the increase in the interconnection costs as a result of the increasing traffic in the period.

The cost of goods sold recorded an increase of 8% over the previous quarter due to the growth in sales during Christmas period. In relation to the previous year, it recorded a reduction of 31.8% as a result mainly of less sales of handsets due to an increase this year of SIM only clients in the total gross addition.

The selling expense recorded a growth of 3.8% over the third quarter and 5.3% over the fourth quarter of 2008. In both cases the growth was due to an increase in the expenses for sales commission and support, due to the growth in the gross addition and a better mix with higher participation of postpaid and data customers. This increase was partially offset by the reduction in third-party services as a result of the internalization of the own store employees.

General and administrative expenses record an increase of 5.8% over the previous quarter. In the year-to-year comparison an increase of 109.4% was recorded due to the non-recurring positive effects related to technical administrative services as well due to the [end] of some contractor suppliers recorded in the fourth quarter of 2008.

Personal expenses recorded increases of 19.1% in the quarter and of 19% in the year due to incremental expenses resulting from the collective agreement negotiated at the end of the year and to the incorporation in September 2009 offering 2,440 employees providing personal assistance in our own stores. Such tax resulted in a reduction in costs with third party services as previously explained.

Fistel, Fust and Funtel expenses record an increase of 1% in the quarter, of 16% in the year-to-year comparison due to the growth in the customer base in revenue relating to the same period of last year. Still with regard to total costs and in comparison with fourth quarter 2008 and third quarter of 2009 there was an increase in the revenue from recovered expenses mainly related to the non-recurring recovery of taxes and fees among other effects.

Slide 15 shows the EBITDA in the quarter was BRL1.4b, an increase of 0.6% in relation to the previous quarter. In the year-to-year comparison there was an increase of 1.1%. The EBITDA margin in the quarter reached 32.7%, a reduction of 170 basis points when compared to the margin in the third quarter of 2009 due to the increase in the commercial activity, however, maintaining the margin levels recorded in the same period of 2008.

Obtaining a differentiated profitability even in periods of increased sales reflects the result of the rational customer attraction and retention policies and the strategy of creating a more stable and profitable customer base through the sales of value added services and the continued search of an optimum allocation of resources and improvement of process.

Slide 16 shows the cash flow from operation and investment activities. In the first quarter of 2009 we recorded cash generation of BRL835.8m which, together with the available cash, were used for payments of debt and corresponding (inaudible) which became during the quarter.

In the comparison over the previous quarter, an increase of BRL215.4m was recorded in cash generated, which was possible due to the increase in operating revenue in the period and to reduced disbursement related to CapEx spending, partially offset by operating disbursements in excess to those recorded in the third quarter of 2009.

In comparison with the fourth quarter of 2008, the cash flow after investing activities increased BRL769.2m mainly explained by the growth in operational revenue as a result of a higher customer base. The operating profit EBIT in the quarter recorded BRL578.7m, a reduction of 4.7% when compared to the previous quarter and of 2% when compared to the same period of last year due to the growth in depreciation and amortization expenses.

Slide 17 shows the net profit. In the year-to-date the profit recorded BRL857.5m, an annual growth of 120%. In the quarter Vivo recorded net profit of BRL221.6m remaining almost stable in relation to the fourth quarter of 2008. In relation to the previous quarter, the profit decreased by 34.8% due to increased depreciation expenses and to the financial results in the quarter, which will be shown in the next slide.

As shown in slide 18, Vivo's net financial expense in the fourth quarter of 2009 increased by 50.8% over the previous quarter. Such variation is explained mainly by the additional expense resulting from increased destination of interest on our own capital, which was levied by Pis and Cofins taxes and by the provision for extraordinary expenses of BRL24.6m referring to the adjustments to present value provided for in FAS 143, partially offset by the reduction in the actual interest rate in the period.

In the year-to-date Vivo's financial expenses decreased by 21.4% due to the reduction in the cost of debt. Gross debt closed the year at BRL5.01b (sic - see Presentation), a drop of 36% when compared to the previous year. The main reason for such reduction was the pre-paying of 3G licenses in the fourth quarter of 2009. In the quarter-to-quarter comparison the gross debt remained almost stable.

The strong and consistent operating cash generation exhibited the CapEx disbursement, interest on own capital and cost of debt. Consequently net debt decreased by 10% from around BRL4.2b in the third quarter of 2009 to the BRL3.8b in the fourth quarter, which represents a net debt over EBITDA ratio of 0.73. At the same time the Company improved its debt profile with its long-term debt having increased to 81.4% of total debt over 61.2% last year.

Slide 19 shows our comments on Vivo investments, which continued to be intended for ensuring increase in the coverage of second and third generation networks, increase of capacity in regions where demand exists, especially the Northeast region, and achievement of goals set forth by Anatel. In addition we invested to increase system capacity, both in hardware and software and for the development of our own stores. With the investment made, the Vivo network now covers 2,451 municipalities with digital technology, being 579 provided with 3G (inaudible) technology.

Vivo's investment in the quarter recorded BRL672.5m, equivalent to 15.6% of the net revenue. In the year-to-date, CapEx totaled BRL2.369b, representing 14.5% of the net revenue. Now, I offer the floor again to Roberto Lima for his final comments. Thank you.

Thank you, Cristiane. 2009 was another year of good results for Vivo. The positive performance has even more special meaning if we consider in the context in which it was obtained. The beginning of period was marked by the turbulences of the world economic crisis. Following there were aggressive competition access, which contributed to raising some degrees of temperature of an already strong competition in the telecom industry in Brazil.

Vivo has largely overcome such challenges. We've closed the year consolidating our leadership position, market share, revenue share and EBITDA generation and margin. In relation to the last year, the net profit increased by 120% posting BRL857m. If we analyze that figure from a more comprehensive timeframe, contemplating three or four years in the past, we arrive to just one conclusion, Vivo has constantly grown on a profitable basis.

This has happened because thanks to several actions implemented along the period on a sound and sometimes varying basis, the Company is now based on solid fundamentals and strategies. There was a wide mosaic of actions developed in 2009; however this essence of our strategy has remained unchanged quality in products and service and customer assistance.

Quality is a differential factor which attracts and retains customers and reduces operating costs. Satisfied customers are drivers for attracting new customers thus reducing customer acquisition costs. We invest in significant fronts for offering more and better service, we are evidently injecting fully into our business for Vivo to continue growing on a profitable and sustainable basis, bringing benefits to our customers, employees, partners, shareholders and investors.

In parallel we have intensified the connections which contribute to the progress of the citizens, the companies and the country. That is we are providing the key elements for the development of this new information era and of the network linked society connectivity. As a progressing country means a future line for company growth, our virtual cycle is thus established.

Vivo's aware of the relevance of its service. It is determined to continue fulfilling its mission of connecting people and as it is an aspect of its own leader profile, in a wide sense, dictating trends and leading movements which may contribute to the development of the marketing of the industry. After all, it's a privilege to be an organization that may combine in such proportion the Company shareholders and investors' interests with those of the society and of the country. Doing that the best way is our commitment.

Thank you all for your attention and now I think we are ready for our questions.

(Operator Instructions). Before we go to our first question, Mr. Lima, do you have any further comments?

Yes, I would just like to highlight something that is in our press release is the fact that the management proposed and the Board of Directors approved yesterday the decision of paying almost 100% of the net income after legal reserve as dividends and interest on capital. This is for a total net amount of BRL818.8m and this amount shall be paid in two installments in April and October 2010.

Are we ready for our first question, sir?

Okay, thank you.

Okay, our first question comes from James Rivett from Citi. Please go ahead.

Yes, good morning, guys. Just following on from that dividend comment, I just wondered whether you could say should we now expect for this to be the floor in terms of dividends going forward and we should expect to see dividend growth in future years?

And secondly, I know you don't give guidance but I'm just wondering how you're seeing 2010 at this stage. Is there any reason to think that we should see accelerating revenue growth in 2010 or any improvement in margins?

And could you also talk a little bit about your CapEx plans for this year? Thanks very much.

The dividend, so we couldn't confirm that this should be the floor for the next years, it depends on the level of investment the Company should be making for the years after 2010, so we wouldn't like to anticipate that. So this year it's 100% of the results and let's see for 2011 what will be the proposal considering how the market is growing and also the opportunities we have to invest on that.

About the second question, the revenue growth, yes, we know that we have some pressures for reducing the ARPU, so giving tract at low prices, but on the other side we have a good increase in data and value added services revenues and we think one should compensate the other. And we expect to keep on growing revenues, but considering that we have to reduce price to maintain the Company as competitive as it was, at least today.

And how does that translate into margins? Presumably data is a higher EBITDA margin product as well. And how does that impact CapEx?

We couldn't state that, sorry. We don't do guidance. You have seen for the past that we try to be the number one in terms of EBITDA margin in the market and trying to attract the other competitors to do the same move, in order to make competition more rational. But at this point, we see that we have from 5 to 12 points of margin above our competitors. But we will try to maintain the level we have nowadays and looking for all the opportunities we have to increase by reducing costs and increasing revenues. And as concerns revenues, I think that the opportunities we have are on 3G and new value-added services.

Okay. And just finally, CapEx for this year?

The CapEx for this year -- so we estimate an approval in the Board for BRL2.419b in 2010.

Okay. Thank you very much.

You're welcome.

Thank you. Our next question comes from Andrew Campbell from Credit Suisse. Please go ahead.

Yes, good morning. My question is about the very strong increase in traffic that you saw during the quarter, the strong jump in outgoing minutes. And I was wondering if you feel that it's possible to have this level of traffic growth and still maintain the quality standards that you mentioned, or if you feel that this level of traffic growth could put some pressure on the quality indicators. And could it also require perhaps some additional CapEx to what you had mentioned previously?

So it's true that the increase in traffic on the last quarter was the result of the aggressive promotions we launched early in September and a new offer that we launched in November, which attracted like [16m] customers to this new offer. It's a record on the -- Vivo's history. Our network is able to absorb all this traffic. You know that the investments that have been made in the past, it's not only in the access network, but also in transmission, puts Vivo as the one who has the best quality in service in coverage nowadays. And we think that with the budget we have for CapEx in 2010, we are able to maintain the same level of quality and maintain this level of traffic.

We have to consider that the last quarter is impacted by the traffic in December that appears to be higher than the average because of Christmas season.

Okay, thank you. And if I could just ask a follow-up. The tax rate was quite high in the fourth quarter, higher than it's been in previous quarters. Was there anything in particular happening there?

The effective tax rate was 43%. Normal tax rate is [24%]. And it has some [premium] additions, but nothing very different from what we had in the previous -- in the past.

Okay, thank you.

You're welcome.

Thank you. Our next question comes from Vera Rossi from Morgan Stanley. Please go ahead.

Thank you. My question is about the increasing in the MOUs. Do you think this increase in traffic will have a positive impact in ARPUs in the next quarters? Or this was a reduction in price and to see a higher ARPU, we need to see a further increase in traffic? Thank you.

In fact, this was a reduction in price. We have two different tiers in 2009, the first semester, where we tried to generate cash as much as we can -- as we could. And in the second half, we came again to the market very aggressively launching promotions to reduce price. And you see that for four months in a row, Vivo gained market share, for the first time in its history. And it was really a reduction on price for us to attract new customers and to maintain the customers we had, that had been attracted by the competition.

And this is a result of the Vivo Voce plans that you launched in November?

Vivo Voce, in fact, it goes on the opposite direction. The Vivo Voce is going very well and we are increasing the level of signatures that have the customers that used to be in the Vivo Escolha plans in the past. The reduction was in the prepaid. So in the prepaid, we have been very aggressive since some of our competitors launched promotions in July and August that were very aggressive. But Vivo Voce permits that the customers rationalize their use.

And some other products we launched, that kind of convergence that mix a residential line with the mobile line and also with the modem for 3G, it allows us to give the customer a better price, but at the same time, increase the level of revenues per customer because it reacts as EBITDA and they become better customers without paying more for each one of the products.

Okay, thank you.

You're welcome.

(Operator Instructions). Our next question comes from Rizwan Ali from Deutsche Bank. Please go ahead.

Good morning. My question was your CapEx plans for this year. How much of this CapEx is going towards backbone and backhaul? And how much would be towards expanding your route capacity?

Normally we don't break down this -- the CapEx amount. I think that what I could tell you is that a little more than 60% of the total CapEx is for network, 20%, 23%, 24% is for IT. And the rest is for administrative and commercial investment, like stores and others. But we have been investing in transmission since we had the 2.5G which CDMA and [Invidia] which puts Vivo as the best company, in terms of transmission. New projects, like we did recently with two other companies in Brazil -- we built like 4,000 kilometers of optical fiber, together with Claro and Embratel. It means that we start sharing infrastructure in a way to reduce CapEx and [the tax] and to be more efficient.

So would you say that a large majority of your backbone is now yourself, or do you still lease a lot from other operators?

The largest part is from Vivo. If you consider regionally, maybe in the State of Sao Paolo where we have the last -- we lease a lot of circuits, but all over Brazil, we depend on ourselves.

Okay, thank you very much.

You're welcome.

Our next question comes from Paul Marsh from Berenberg Bank. Please go ahead.

Yes, hi. It's just a question about the balance sheets, into the near and medium term. I guess it could be argued that pretty soon you're going to be looking at an inefficient capital structure. And I'm just wondering what we should be expecting for the outlook for the net debt and what net debt to EBITDA ratio you'd be happy with, going forward.

Thank you for the question. We don't give guidance on the future net debt of Vivo. We are comfortable with 0.7. It's low. It could go into 2 and consider and maintain the same risk standard that we have right now. We're looking for some needs of investments. And we still -- we cannot talk right now what we're going to do, if we're going to have more needs additional -- for needs for additional debt for future investment. Right now our own generation is sufficient, the level of debt that we have. In some respects that fluctuation is the plan is for this year to support our investments and other obligations that we have right now.

Could you maybe elaborate on what those other obligations or other significant areas of new capital spending might be?

Our obligations that I am talking is the normal obligations that we have. Our operational obligations, with taxes, and supplies and CapEx.

There can be opportunities to buy new frequencies. You know there is a discussion in Brazil about the 2.5 gigahertz licenses that nowadays belongs to the MBS operators. I would like to see that in the SMP in Brazil. And if it shows up, we should be ready to buy these frequencies and start building a new network on LTE, if it comes that LTE could be a convergency in global base. So with a very high economy of scale and all of that so we should take advantage on that to increase our service capacity. So this is the kind of opportunity we could see.

In terms of acquisitions, even we are very active on the market, trying to look opportunities to buy other companies, we don't see opportunities -- interesting opportunities at this moment.

It's important to mention that the CapEx, as Roberto said, that our guidance does not include and frequencies, new frequencies in 2010.

That's great. Thank you very much.

Now our next question comes from Henry Cobbe from Nevsky Capital. Please go ahead.

Hi. Just following up on the traffic part. What percentage of your traffic is now on net, or how do you intend to control the interconnection costs from the higher volumes that you stimulated?

So no, we don't disclose that. But it's growing. It's one of our strategy, is to launch plans that consider the family and groups of -- and to sell new access to the people to related to our customers to increase the on net traffic and to reduce the cost of interconnections. And that affects on our interconnection revenues as well. So it's increasing. It's in a higher level than it used to be for the past. But unfortunately, we don't disclose this number.

Okay. Thank you very much.

You're welcome.

(Operator Instructions). Our next question comes from [Daniel Morris] from JP Morgan. Please go ahead.

Yes, good morning. I wondered if you could just let us know what the impacts of the non-recurring tax recovery and other items was in the quarter, please. Thank you.

BRL69m.

That's six, nine.

BRL69m, yes.

Thank you.

You're welcome.

Our next question comes from [Antonio Junquera] from BTG. Please go ahead.

Oh, hey guys. Morning. Do you believe the 0.7% of gross revenues is a stable -- is the recurring percentage of bad debt expenses you may see in the future?

It's not recurring. I would say that the normal run rate would be between 1% to 1.5%. We actually had fourth quarter better than what we expected in the delinquency. And that's what resulted in the 0.7% in the fourth quarter.

Okay, thanks.

You're welcome.

Our next question comes from [Jonathan Dan] from Barclay's Capital. Please go ahead.

Oh, hi. I was wondering, could you comment on the appetite for end-users to bundle mobile with perhaps cable or mobile with fixed-line, and any synergies you see in that market?

Jon, we are trying to build our own convergent products. We just launched the -- a product that's called Vivo [Selecon] which means it's not a handset. It's a telephone for residential use that is wireless. But it's one that is not so mobile as a handset. And the customer can buy one of those, can buy one mobile phone and can buy one modem for Internet access. And it is just one deal with a price that is very competitive, considering the alternatives that they could have in the market, buying different service from three different companies.

So on the other side, we're trying to launch, in the State of Sao Paolo, with [Teles] some convergent projects, and not only to acquire new parts of market, but also to retrieve the loyalty of our own customers, customers that could be, at same time, customers for Teles and for Vivo.

And for the future, considering that nowadays we have a very good 3G network, we'll be working on each one of our customers, trying to have more service sold to each one of them. And as you see, our data and value-added services grew a lot this year. This now represents more than 16% of the total service revenues. And part of this -- those revenues are generated on the same customer base we already have.

Can I ask a follow-up?

Yes.

What do you think your percentage of 3G dongles USB cards is currently in the market? What is your market share?

Nowadays it should approach 40% of market share in data cards.

Thank you.

Our next question comes from [Diago Marcus], from Itau Unibanco Asset Management. Please go ahead.

Good morning. I just want to understand if you guys feel you need new frequencies to keep data services going at such a fast pace or if the BRL2.4b CapEx is enough to achieve that.

For the moment, I think that we already have the frequencies we need, that we bought (inaudible) in the last bid from Anatel in 2007. And the network we are building now has the capacity to provide the service itself. But it's true that, looking forward, we expect Anatel to allocate the 2.5 gigahertz frequencies to the SMP instead of maintaining that on the [MMS] product that serves like 400,000 customers, considering that on the other side, we should have the opportunity to sell internet to 107m customers we have in the sector.

And I think that, for the future, it will be critical to have more frequencies to increase traffic for -- considering the size of the customer base we already have. But we've not concerned new frequencies in the CapEx we just announced of almost BRL2.5b. We are not considering the acquisition of new frequencies in 2010, which could happen, depending on how the bid that Anatel is forecasting for this year. So if it happens, we'll decide to buy or not new frequencies.

All right, thank you.

You're welcome.

Our next question comes from James Ratzer from New Street Research. Please go ahead.

Yes, thank you. I have two questions, please. The first one was just regarding the elasticity you saw on some of these voice price cuts you've been putting through. It seems that your actual consumer outbound voice revenue trends have declined on a negative 5% year-on-year. Do you therefore think it's a sensible strategy to persist with these price cuts and you expect elasticity to improve over time?

And then the second question I had was just regarding your inbound termination rates. I was wondering if you could give us an update, please, on your discussions with Anatel, whether you expected those termination rates to come down, and if so, when and by how much. Thank you.

Okay. In terms of elasticity, we think that we are close to 1, in terms of elasticity. The first move we launched was very aggressive. But nowadays, we have an offer that is very, very flexible, which means that we can make small perfections -- we can change this offer we have by regions or by segments, considering the opportunities we have to increase revenues, depending on the region or segment. So we think that it was a very successful action. For the first time, more than 10m customers signed a new offer. We reached [16m] customers in this new offer. And we will maintain this offer and trying to make some changes as -- in order to take the opportunity to help to increase the revenues in the market.

The second question is about the [VUM]. We think that politically it's very difficult for Anatel to touch this subject as now. You know that in Brazil there is still a lot of customers that don't really charge their handset. They only generate income traffic. And part of this income traffic comes from the fixed lines. So this is what produced the revenue, the mobile [companies'] needs. The day that Anatel reduces the VUM, I don't see how we could maintain these customers in the base. And from the social point of view, it will be very, very difficult for the government to do -- to explain why they decide to do that.

On the other side, these revenues generate a lot of taxes for the government. If they decide to reduce the VUM revenues, they will have to explain why they are reducing as well the taxes that all the states in Brazil receives from this revenue. So in the short term, I don't see a high probability of the government to touch -- I'm talking about 2010 -- I don't see any movement in terms of VUM.

But in order -- but considering that, anyway we are doing what we can do to increase other revenues in Vivo so as not to depend on VUM. You can see that data and value-added service revenues went from 7% three years ago, to 16% of the total revenues. We just launched a new platform for new developers to create products and applications for us to sell to our base of 52m customers. It's a new source of revenue. So we will keep on growing revenues that don't depend on the incoming traffic.

Mr. Ratzer, do you have any further questions?

No. Thank you very much, indeed.

Okay. Our next question is a follow-up from Henry Cobbe from Nevsky Capital. Please go ahead.

My question has been answered, thank you.

Thank you. Our next question is a follow-up, as well, from Paul Marsh from Berenberg Bank. Please go ahead.

Hi. Yes, I have two questions. I'm wondering what your thoughts are on how open the regulatory and antitrust authorities would be toward consolidation amongst the major operators in Brazil.

My second question is, even if there were to be no structural consolidation in the Brazilian mobile market, do you see much scope for significant synergies through cooperation with one or more of your peers in the mobile market? And I'm talking about network sharing, or shared procurement, or 3G rollouts and coverage, or maybe access to backbone networks or backhaul.

Well for the first question, I don't see, from the regulator point of view -- I don't think they would be favorable to more consolidation in the Brazilian market, considering the sub-sector of mobile phone. But as we read in the newspapers, there's a lot of global movement that could impact Brazil. I don't think I'm able to comment on that, considering that involves our shareholders.

But on the regulator side in Brazil, I don't see it as easy to consolidate two or three more companies in the Brazilian market.

In what concerns the opportunity to increase the efficiency by sharing investments and some OpEx, I believe on that, we have been working on that for several years. And this year we have some products that are already going very well. As I told in my presentation, we built 4,000 kilometers of fiber network -- transmission network, together with Claro and Embratel.

We are studying two other projects with two other operators in different regions of Brazil. And we feel that the environment is very favorable on the research of more efficiency for the other operators And we think in what concerns network, and especially in transmission, we could have two or three more projects that could show up this year, 2010.

That's great. Thank you very much.

You're welcome.

Thank you. This concludes the question and answer session for today's conference. At this time, I'd like to turn the floor back over to Mr. Roberto Lima for any closing remarks.

I just would like to thank you all for your attention, for attending to our 2009 and fourth quarter 2009 results presentation. We are very proud of the work we have been doing all this year. We think that we have a strong Company nowadays, not only because it's a Company that used the better in terms of technology -- the best in terms of technology, but also because it counts as the better team in the Brazilian market. We have shareholders that are able to support Vivo at any time and at any moment in all the projects that we have been proposing to them.

A lot of synergies have been created among the companies that control Vivo in Brazil. And nowadays that we are closer to our competitors, trying to organize the sector and to establish more rational competition in the market, we see the future very positively and we expect to be -- to see in the future a better performance than we have been presenting.

But we consider that we are doing good in the environment we have in the view, even more if you compare with the telecom sector in Brazil. This week, Vivo in the stock market -- the Brazilian Stock Market was valuated as the more valuable company, considering all the other fixed or mobile operators in Brazil. We think it's a very good confirmation of the good job that we have been doing. Thank you all for your attention and we expect to see you in the next results conferences.

Thank you. This concludes Vivo's 4Q '09 results conference call. You may disconnect your lines at this time. And have a good day.