Telefonica Brasil SA (VIV) 2011 Q3 法說會逐字稿

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Telefonica Brasil third quarter 2011 earnings conference call. Today with us we have Mr. Paulo Cesar Teixeira, CEO of Telefonica Brasil, and Ms. Cristiane Barretto, Controller Director of Telefonica Brasil.

Today we have a simultaneous webcast with slide presentation on the Internet that can be accessed at the site, www.telefonica.com.br/investidores. 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 Private Securities Litigation Reform Act of 1996. Forward-looking statements are based on the Company's management's beliefs and assumptions and on information currently available. 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 Company's future results and could cause results to differ materially from those expressed in such forward-looking statements.

For comparative purposes, the third quarter 2010, year to date 2011 and 2010 figures were prepared on a combined basis. Thus, the quarterly and annual variations presented may differ from those reported in the financial statement filed with CVM through the form, Quarterly Information, ITR.

Now I will turn the conference over to Mr. Paulo Cesar Teixeira, CEO of Telefonica Brasil. Mr. Teixeira, you may begin your conference.

Good morning, ladies and gentlemen. Thank you for attending this conference for 2011 for the quarterly results of Telefonica Brasil.

Starting about myself, my history and track record in this amazing industry. I have started in telecom 30 years ago and after the privatization process in 1998 I became part of the management team of Telefonica Mobile in Brazil.

With the creation of the joint venture in brand Vivo, I became responsible for the management, (inaudible) operations and commercial (inaudible) nationwide. I was also heading the operational and technology change from CDMA to GSM and other transformation projects.

During the last eight years, I was in charge of the commercial operation (inaudible), among others, and I would like to point out that I worked directly with our customers, our partners throughout Brazil, helping to increase the size, the efficiency and profitability of Vivo. I am a results-focused manager and look forward to the many exciting opportunities in the new Company we have just built.

During this conference, I will present the results of this quarter, covering our operation performance. After that, Cristiane, our Controller, will describe our financial performance and finally I will present to you some of my thoughts about strategy and next steps.

On slide four we emphasize that our innovative and unique products are our drivers for growth. Four different offers (inaudible) during the quarter, in order to strengthen our results and enhance growth.

The first one is Vivo Sempre. With focus on the prepaid segment, the campaign launched in the end of July contributed to boost the recharge volume and also help keep our market share stable during the quarter.

The second product I would like to highlight is the Vivo Direto, (inaudible) service (inaudible), now available nationwide that in only three full months already accounts for half of the monthly net additions in the second half.

As a result of the integration of services, we also launched our fixed (inaudible) solutions for both voice and data using our mobile infrastructure outside Sao Paulo. The Viva Fixo service, offering wireline voice and the Vivo Box, voice and data connection, able to be integrated into (inaudible).

Finally, with the objective of increasing loyalty of our most valuable customers, we also launched our new promotion bundling fixed, broadband and mobile Internet services in a more rational price.

These products are unique, have demonstrated excellent field results and we believe will create a lot of value for the Company in the future.

Yesterday we announced our new postpaid plans with the aim to enhance the offer, also, for this segment. Now putting together the best brand and the network with the best product on the market.

As you can notice, things are going amazingly fast. The quarter's performance reflects our commitment to long-term growth.

On slide five, I give you a summary of what has been our results in the quarter, where you can see the impact of our bet on long-term growth through strong commercial activities during the quarter.

We reached record levels in terms of net adds, having almost 3 million new lines. Our strong results were supported by the launch of the new products, which are demonstrating to be very well accepted by the market.

Even with higher total commercial costs in the period, we have been able to reduce the unitary subscriber acquisition cost in comparison with previous quarters, improving even more our commercial efficiency.

EBITDA, excluding acquisition costs, followed the same trend of improvement, producing an increase of 2.6% in the period. Overall, the Company is managing very well the costs associated with growth and, at the same time, controlling fixed and structural costs during the integration process.

We are growing in a sizable pace in this period. Slide six shows that our successful commercial strategy continuous quality focus and increased competitive advantage are helping us grow our customer base. As you can see on the chart on the left, this quarter shows at 13.4% accesses increased year over year, accounting for more than 82 million, the largest community of accesses in the sector.

The mobile segment grew 16.2% and reached 67 million accesses. The complete set of voice and data offers, the quality of our services and the wide presence of our own stores are some of the main reasons behind the good performance in the mobile business and contributed to the net additions that were 72% higher in the quarter when compared to the last year.

On the fixed side, the customer base reached more than 15 million accesses with growth of 2.9% year over year.

As shown in the graph on the right, the Company accounted for approximately 3 million new mobile accesses (inaudible) in the postpaid segment, ensuring our market leadership in the segment with 48.8% market share of postpaid net additions. In the prepaid segment, net additions accounted for 1.8 million access, mainly because of the new offer Vivo Sempre.

In slide seven, we can see the mobile commercial performance in detail. In the quarter, we improved our customer mix with an annual growth of 27.2% in the postpaid customer base, reaching a market share of 36.8% in the second half. We also managed to maintain our 29.5% market share in the quarter, which is very good, considering the competitive landscape scenario we are facing.

In the data market, our leadership is even higher, where we have 43% of the (inaudible) and machine-to-machine market, as indicated on the graphs on the top right.

Going down on the right, we can see that the quality of our customer base is contributing to the positive ARPU evolution. In annual basis, by the second consecutive quarter, the total ARPU reached BRL26 and increased 3.6% annually. Customers continue to recognize us as the best option in data services, which can be proven by the annual increase in the data ARPU that recorded BRL6.1 and grew 24.5% year over year and 3.4% in the quarter. So, we are accelerating the trending of annual growth in ARPU, something rarely seen when you can still see customers grow in the pace we are having.

In slide eight, we can highlight the stabilization of wireline connections in the quarter, as a consequence of the level of voice accesses in the corporate segment and higher customers in broadband. As a result, the result of broadband over voice accesses keeping climbing, reaching 32% in the quarter versus 27.7% in the third quarter of 2011.

In addition, pay TV accesses in the quarter, shown in the bottom graph on the right, reached a significant increase of 48.8%, mainly driven by the consolidation of TVA's pay TV business as of the second quarter of 2011. Excluding this impact, the organic growth would have been 16.4% in comparison with the third quarter '10.

In the effort to increase the profitability and loyalty of our customers, we also have been getting good results in the sales of duos and trios to our customer base and now, with our strategy to integrate services in mobile and fixed.

Looking at slide nine, we conclude that the operational performance combined with the integration process of operations has led to higher net profitability in the quarter. We are very pleased with the results.

Our accumulated net income of BRL3.6 billion almost (inaudible) year over year was a result of -- one, the consistency of our dedication to quality; two, our strategy to launch new and unique products, including integrated ones; and three, our efficient financial management and cost control.

The one number that I would like to improve is our EBITDA margin, which reduced slightly, mainly due to the cost of growth this quarter. But I am confident that we can do better as we continue to improve our operational efficiency.

Now Cristiane will give some details on the financials of the quarter and I will come back to give more specifics about my goals for the Company.

Thank you very much, Paulo. Good morning ladies and gentlemen.

On slide 11 in the left side, we can see that the stand-alone mobile net service revenues in the third quarter 2011 grew by 19.3 year over year, a double-digit growth like we presented in the last five quarters. The use of data and value-added continued to be the main driver of service growth and reached a 43% increase, year over year, reaching 37.5% in the mobile outgoing revenue.

This performance was mainly driven by Internet revenue that increased 32.6% in the same period, accounting for more than 50% of the data revenue as a result of the higher adoption of (inaudible).

On the other hand, the SMS/MMS revenue also presented important growth of 27.2%.

It's also important to point out the increase of 136.7% in the other data and VAS revenue, driven by messaging P2A and by the launching of innovative services such as financial services and applications.

Because of the increased customer base, improvement in the mix and new (inaudible) that incented the outgoing usage, voice revenue grew 3.6% annually.

I also highlighted the growth of long distance traffic as a result of our promotion that drives the use of this traffic, thus contributing to the evolution of network usage revenue per connection, which grew 25.8% annually.

In slide 12 we can observe the evolution of the wireline revenue as a stand-alone, which grew 6% versus a quarterly decrease of 0.2%, as per the graph on the left.

Fixed voice registered an annual increase of 3.4%, explained by the growth of long distance revenues as a consequence of the national long distance traffic originated on the mobile side, encouraged by the launch of Vivo Sempre in the end of July of this year.

Data transmission revenues recorded annual growth of 7.8% as a consequence of the Company's commitment to quality and our commercial efforts in the period, both reflected in the higher quantity of access, mainly due to the strong performance of the corporate segment in the analyzed quarters.

All this performance is reflected in the mix of service provided, representing an increase of data transmission and pay TV that already represents 27% of revenues, with a consequent lower (inaudible) of the fixed voice revenues, as shown in the chart on the right.

On slide 13, we talk about operating costs. The total operating costs amounted to BRL5.4 billion in the third quarter of 2011, 7.4% higher than third quarter of 2010. The increase is primarily due to the increase of commercial activity and customer base.

Personnel costs increased 14.4% on an annual basis. This evolutions stems from the consolidation of TVA's employees as of June 2011, and the increase due to the collective bargaining occurring in September of 2011.

The cost of services rendered increased by 7.8% compared to third quarter 2010, due to higher expenses in (inaudible) due to higher net additions in customer base for the periods compared.

Selling expenses rose by 10.1% over the previous year, supported by increased expenses with communication and marketing as a consequence of the launch of new services in third quarter 2011, besides higher commission and expenses due to higher commercial activity and improving mix in the period.

On slide 14, we can observe on the left that EBITDA remained stable over third quarter 2010 and 180 basis points lower in terms of EBITDA margin. This evolution was due to the launch of services during the third quarter 2011 and increased commercial activity with clear focus on higher-value segments, which also contributed to higher net additions, mainly in the wireless business.

On a cumulative basis on the right, the combined EBITDA recorded an increase of 6.4%, mainly explained by the positive contribution from data service revenues. In terms of EBITDA margin, Telefonica Vivo reached 35.7% in the first nine months of 2011, stable over the same period of the previous year.

On slide 15, we present EBIT, financial result and net result. Operating profit EBIT in the top on the left decreased 20.8% in third quarter 2011 over the same period of the previous year, mainly because of the growth in depreciation and amortization of 33.9% on a year-over-year basis due to an increase in amortization of deferred assets.

As for financial results in the left bottom, it shows an improvement of BRL35.9 million in the annual comparison, mainly due to the lower net debt.

Income taxes on the period were lower in the annual comparison due mainly to payment of interest on capital in the quarter in the amount of BRL1.025 billion.

Reflecting the improved operating performance, combined with the financial result, net income, in the chart on the right, reached to BRL1.3 billion, 6.6% higher than the third quarter 2010 and 15.9% over the previous quarter.

In slide 16 it can be noted that in the nine months of 2011 the consolidated CapEx amounted to BRL3.7 billion, an increase of 32.5% year over year. This evolution is mainly explained by the steps required by Vivo in the auction held in December 2010 in the amount of BRL811 million. By excluding this event the CapEx would have remained stable, reaching a CapEx per sales of 12.2% in the period.

This evolution shows the Company's commitment to offer the best service quality on the market, focusing its investments on information technology and increasing network capacity and quality, as well as in the commercial activities to support the growth of the customer base.

In slide 17, we can see that the cash flow generation after investment activities accounted for almost BRL1.4 billion in the quarter. In comparison to the same period last year, cash after investment decreased BRL175 million, due mainly to an increase of BRL113.6 million in CapEx.

In slide 18, we focus on debt evolution. Gross debt on the left reduced by 19.1% annually due to the debt amortization in the period. In terms of the net debt on the right, (inaudible) a reduction 29.7% in comparison with the third quarter 2010. In the quarterly comparison, the decrease of 40.2% is a result of the high cash generation and debt amortization in the period.

As a result, the ratio of net debt over EBITDA reached 0.16 in this quarter.

Now I offer the floor again to Paulo Cesar for his final comments. Thanks to all of you.

Thank you, Cristiane.

My first task as a CEO was to do an analysis of what we considered our strengths and our challenges. Let's first talk about what we perceive as our strengths.

Our strengths are -- number one, increased mix of postpaid and data customers; number two, quality in the network and customer care; number three, most valuable brand in the sector; number four, innovative and unique portfolio of products and services; number five, absolute leadership in 3G coverage; number six, solid infrastructure of fiber in backbone and backhaul; number seven, strong cash flow generation.

I think these strengths give us a competitive advantage but in this environment, we can never be satisfied. So, I have a list of goals.

Number one, consolidating a unique culture within the Company has been a concern for a lot of market people and we faced it several times in Vivo. We are working to bring together the best practices and behavior of the two parts we are joining.

Number two, continue to grow our voice and fixed wireless solution. Bundling our products, expanding our Vivo Direto community to continue to foster pre- to postpaid migration while we leverage our recently launched network over the 1.8 gigahertz spectrum.

On the data side, we keep increasing our mobile broadband accesses, bundling fixed broadband and mobile broadband, as well as enhancing our ultraband offer.

Number three, capture all new business opportunities like the commercial offers and fixed offer outside Sao Paulo, as well as the recent pay TV launch.

Number four, improve cost efficiency through operational synergies. We are joining two big companies (inaudible) room to turn our Company more efficient in cost, looking for a better EBITDA after this integration is complete.

Without doubt, the future single brand Vivo will help to overcome all of these challenges.

All in all, we consider we have the right access, the right structure and the best people to make it happen.

Thank you and now we are open to answer your questions.

Thank you, sir. (Operator Instructions). The first question we have will come from [Bruno Mendoza] of Santander. Please go ahead.

Hi, guys. Thanks for your time.

My question is about the mobile postpaid offer you launched this week. Although it's not exactly the same, it had some similarities with TIM's unlimited (inaudible) offers. So two questions.

First, could you give us an overview about the rationale behind the offer and the difference between Vivo's and TIM's?

And the second question is, what will be your approach towards your own client base? I mean, is there any mechanism to avoid cannibalization of your current postpaid plans? Thank you.

Thank you, Bruno, for the question. I think the main objectives are to improve (inaudible) and loyalty of postpaid customers and to increase our position to postpaid migration, consolidating even more our leadership in postpaid and data segments. We expect to upgrade our customers to higher plans with the final aim to increase our revenues and profitability.

We are also seeing a great increase in the penetration of smart phones in the years ahead, so we want to be the best option for these customers, combining the best brand quality on the work and customer with the best offer on the market.

About cannibalization, in fact we are protecting our revenue base in the long term by enlarging our postpaid and data customer base, increasing expenditure (inaudible) data, which is much more sustainable revenue stream and, at the same time, protecting our voice and SMS revenues from being attacked by the over-the-top players.

Okay, thank you.

And the next question we have comes from Alex Garcia of Citigroup.

Hi, everyone. Paulo, thanks for taking this question. I have two questions.

The first one is that I was wondering if you could give us an idea of how much those four promotions you launched on this quarter pressured the margin and when do you expect that to, let's say, disappear from the results and perhaps you deliver an EBITDA margin a bit more in line with what we say in the first half of this year? That would be my first question

Then my second question is regarding some lines of your results that kind of like differ from the trend we saw on past quarters, namely your-- and I was wondering, I would love to hear comment on how recurring those lines would be? And I would point it out in terms of leased lines, provision for bad debt and also on income tax. Sorry about having so much questions.

Thanks, Alex. I could say the first question, it's about our promotions. We launched so many promotions in the quarter, but I think we will maintain our focus on profitability. On these promotions, we have in case of postpaid Vivo Direto and Vivo Fixo, we have (inaudible) but in case of prepaid, we are -- this offer does not pressure our margin, because we have (inaudible) our strategy to grow these markets.

But we have advertising, we have some other pluses to pressure, because it has a higher increase in the sales in this period of time.

Hi. (inaudible). About the costs, you asked about three cost lines. We are growing our infrastructure, mainly in the northeast and in north, so it's natural that with the growth of the traffic in these lines, we increasing numbers of these lines. So that explains the increase in the quarter.

About provision for debt, it was a little bit higher than what we had last quarter and last year. This year we have a very low level of provision of debt in (inaudible) and we had a little impact of the strike on the letters that the post office had in the period and also adds. So, we are going to try to recover that little increase that we had in the quarter, but nothing to worry about, nothing -- not very different from what we had in the past.

About income tax, we had an impact of interest on own cash in the quarter. Actually, in the acquisition of Vivo we increased our shareholders' equity, which makes us -- which makes it more possible to pay dividends as interest on capital. When you do that, as you know, we have less income taxes. That was the impact we had in the quarter and explained the lower income tax we had in the line.

Okay, just -- I mean, the reason why you guys reported an effective tax rate of 4% was just because of the interest on equity?

Yes. Mainly, yes.

Mainly that. All right, guys. Thank you. 'Bye-bye.

Welcome.

The next question we have comes from Michel Morin of Morgan Stanley. Please go ahead.

Good morning. Thank you.

I was wondering, you launched a number of promotions during the quarter and another one yesterday. Is there -- is this directly related to the arrival of a new CEO who wants to be more aggressive? So, I was hoping if you could talk a little bit more about whether or not there's been a change in strategy and specifically related to the prepaid market, is it important for Vivo to remain the leader in the prepaid segment?

And then secondly, if we -- given that there was a big spike in intra-company eliminations, I think if we look at the combined service revenues, fixed mobile's -- fixed plus mobile, minus eliminations, and we look at the total service revenue growth, it does look like it slowed a little bit in the third quarter to about 5.5% from about 7% in the first half.

So, I'm a little bit surprised by that, given how well you've done in the marketplace. So, I was wondering if you could explain what factors might have produced that slight slowdown? Thank you.

Thank you, Michel. First of all, I think we are moving very fast our commercial activity. We are maintaining our focus on profitability. We are perceived, like you said, in the time, but we are focused to the same strengths which we have in the Company, protect our base and to build the leadership in the postpaid segment with the best offer that you can achieve at the moment and to think you are protecting our base and increasing this base with this offer.

Hi, Michel. About eliminations, I just want to understand that when you increase the business that you have together between fixed and mobile, we have more intra-connection revenues and calls between the company. And as we grow naturally from the new products we have between the companies, then also, similar to (inaudible) the use of 15, the long distance code, we also have to eliminate all this revenue between the companies.

So, it's natural that, as we grow, we have eliminations between these businesses pieces that's going to grow in the same proportion that we grow in the revenue side.

If you take out elimination impact, which is just an accounting issue regarding the (inaudible) business that we have together between the companies, we can notice that the business has separate mobile and fixed. They grew -- the mobile business grew 19%. If we take out all the business between the mobile and the fixed, we grew 11%, which is double-digit growth in the period.

And also in the fixed, we also grew a little bit, about stable, between the last quarter of last year.

So, to analyze the revenues we have to take out the elimination side, consider that this is a natural impact as you grow the business between the companies and analyze both the revenues as separate to understand what was the most important impact in the quarter. I don't know if this was clear, but eliminations just --

Well, I think the answer was clear, but that's -- I don't know that we can really take out the eliminations, because in terms of the total revenues that you are collecting from third-party customers, as opposed to collecting from each other, the growth rate of that seems to have slowed a little bit and I don't see anything --

Yes, but then, Michel, the main reason why we grew less than we did in the last quarter was mainly some fixed businesses, the broadband, the fixed broadband and voice, fixed to fixed. That's natural, the substitution between fixed to fixed or fixed to mobile or mobile to mobile.

So, the business itself, regarding taking out eliminations, decreased a little bit if you compare to the last quarter. That was the main reason that we grew 5.5% against 7% in the second quarter.

Is there anything, Cristiane, in the -- maybe related to bonus to how you account for bonuses that might be shaving the top line a little bit on the mobile side, also?

No. No, no.

Nothing? Okay.

Nothing.

All right. Thank you.

You're welcome.

The next question we have comes from Andrew Campbell of Credit Suisse.

Yes, good afternoon. Just looking ahead a little bit to next year with the LTE auction coming up in April, I was wondering how that additional spectrum figures into your plans and if you can give us any idea, in the event that you win the spectrum, how that would influence the CapEx budget for 2012? Thank you.

Andrew, thanks for the question, but for strategic reasons we prefer not to comment on our participation in the 2.5 gig spectrum auction.

Okay, can I just ask, of course without giving any numbers, but just to give a rough idea, in the event you get the spectrum, would it be a large change in the CapEx budget or a small change?

We believe we still have room to increase the coverage and return on investment in 3G since the last spectrum happened not so long ago. And so there is no rush in having the 4G spectrum auction.

And, Andrew, we do not provide for any guidance for CapEx, as you know. (Inaudible) and impacts on CapEx, so we prefer to talk about this later on next year.

All righty. Thank you.

You're welcome.

And the next question we have comes from Louis DiPalma of William Blair.

Hello. This is Louis DiPalma on behalf of Jim Breen. Thanks for taking the question.

Since the launch of Vivo Direto in early June, has it been successful? Approximately how many subscribers have adopted the add-on service?

William, I think it's not the time to open the numbers, but we are facing at this moment we have 50% of the total net adds of the market.

By 50% would you say, approximately, it's over 280,000?

No, I talked about the amount.

Okay.

Okay?

And secondly, I'm interested in the behavior of these subscribers. Roughly speaking, could you estimate what is the minutes breakdown between cellular and push-to-talk for these subscribers, just to get a basis of if they're primarily using the phones for push-for-talk or for casual use?

We had a plan that it's possible to call (inaudible) just to pay BRL29 per month, but, in addition, a postpaid plan and we don't (inaudible) more information about this.

Great. Thank you very much.

And the next question we have comes from James Ratzer of New Street Research. Please go ahead.

Yes, thank you very much. I've got two questions, please.

The first one was on the fixed side of the business. You mentioned that you're seeing an increasingly competitive environment for residential access. I was just wondering if you could talk about that a little bit more. Is this competition you're seeing from some of the cable operators or are you actually now starting to see competition directly from the mobile industry, as well, for residential access?

And secondly, in the mobile business, based on some of the numbers you've given, I calculate and estimate that just your outbound voice decline rate has actually deteriorated this quarter. I mean, is this a sign that you just see the basic voice market getting more competitive, yet again, after a period of prices being kind of stable for the past two or three quarters? Thank you.

We're going to take the first question, James, and ask that you please repeat the second one because the line was a little bit (inaudible) here.

Okay.

We're going to take the first one and then will you repeat the second one? Can you do that?

Yep. That sounds good. Thank you.

All right, sorry, the second question, I'll repeat it again, was I was just looking at your Vivo usage revenues. Given the rate that that has been growing relative to the rate that your out-bound minutes on mobile have been growing would suggest that your outbound voice price declines have started to accelerate again this quarter. I was wondering whether that you was a fair assumption, you thought, and is it a sign that the retail voice market is getting more competitive after what looks like a period of a more stable trend in the prior two to three quarters? Thank you.

Okay.

First of all, the question about the competitive market in Sao Paulo on the fixed side, I think we have today very aggressive offers by the-- of all our competitors and the pricing (inaudible) in that and GBT in the market, but we are protecting our base.

We are now circulating this base to have more products from Vivo now. We have a special discount for this kind of customer and we are protecting our base through -- we have so many offers that we are having now in the market and have some adjustment in the speed of the line in broadband services. And we are confident that we are doing a very good job to protect this base. But we have faced very huge competitors that are putting the pricing down in that market at the moment.

Okay, about the second question, James, the reduction of outgoing voice, actually, it's just related to the offer that we have. Vivo Sempre has a lower price, BRL0.045 for calls, increasing the long distance calls, which -- regarding that traffic. So, there's nothing more different than that in the quarter. We're continuing to grow on the outgoing and that's it. Nothing's changed, nothing weird.

Okay, thank you.

You're welcome.

In addition -- just to addition the question that you said -- the first question, I think Telefonica in Sao Paulo is becoming better in overall quality perception. We have (inaudible) for the last month and we improved our network and customer care. I think we are now in a good position in the perception of the market. Okay?

The next question we have will come from Andres Coello of Scotia Capital. Please go ahead.

Yes, thank you. My question was already answered. Thank you.

Thank you, sir. The next question we have will come from Rizwan Ali of Deutsche Bank. Please go ahead, sir.

Good morning. My question is regarding the push-to-talk service that you're providing now. I'm just trying to figure out what your objective is. Are you going head-to-head against Nextel, with the idea to have certain market share or target market share of the postpaid push-to-talk subscribers in Brazil? Or is it just another product that you're offering (inaudible) the services that you do?

And my second question was, will you -- can you focus on fixed, where you mentioned you are going to develop fixed wireless solutions? Does that mean you are unlikely to buy into fiber optic assets that are available in other cities and just be (inaudible) and be in Sao Paulo?

Thank you for the question. Regarding PTT, we developed the service in order to work (inaudible) customer the added technology solution that we have in our network. And we have this product in our portfolio. We have some differences when you compare with our competitor. We cover almost 90% of Brazilians and -- with the solution that we have and we do not have the limitation to sell this product for the corporate market, but for the consumer market, together, we are implementing this solution.

It's part of our portfolio. I think it's a very good opportunity to have more revenues from this side and to have good profitability in this product, because this product is an over-the-top product. We are selling this product together our postpaid plans.

Regarding the second one about the fixed wireless product solution, we have two solutions. One is a fixed voice solution and the other one is a fixed and broadband solution. We think it's a plug-and-play product, very easy to install.

It's very interesting. The size of the market is so big you have only 50% of penetration in the market, in the fixed market outside Sao Paulo and at a similar way we put this product in our portfolio, by using our networking, 3G networking people and I think it's a very good product to increase our revenues and to have more profitability.

Why would you not consider buying more terrestrial or fiber optic assets if they're available in other cities than Sao Paulo?

We have so good assets in Vivo, we are using these. I think it's the best way to cover. The (inaudible) service outside Sao Paulo (inaudible) and inside Sao Paulo we have our fiber project. We are deploying it and we are now pushing a lot to have so many clients.

Thank you.

The next question we have comes from Bernardo Miranda of BTG.

Hi. This is, in fact, Carlos Sequeira from BTG Pactual. Thanks for taking the question.

I have a couple questions. One is on pay TV. Although we can see that the number of users increased year on year, it's still -- overall the growth is still modest and this could be a key product in retaining clients. My question is, what you guys are planning to do with your pay TV offer in order to make it gain traffic and be more effective in protecting your client base? That's one question.

The other one, going back to the push-to-talk service, what is -- I mean, you have to push to talk and you are now launching it on the calling plans. How did your offers compete with each other? Do you really have to have both? Thanks.

So, thank you for the questions. About pay TV, we are working several fronts in order to increase the size and [window] offers of our existing and new customers.

We are growing our TV customer base where we have cable, DTH and fiber. As you say, to make a bundle, we have to protect our base and in case of the PTT we have the same strategy about this, because we, first of all, offering this for our base. We just -- we have now just got the authorization to control the (inaudible) our access -- the new access and we are working to integrate this business into our organization.

Thank you.

The next question we have comes from Mauricio Fernandes of Bank of America Merrill Lynch. Please go ahead.

Thank you. Good afternoon. A question on costs. Can you give us a sense of how much of your increased costs in the third quarter we can call non-recurring in the sense that you're giving an initial push to the new products that were launched in the third quarter? Thank you.

Hi, Mauricio. Actually, we have some costs. We don't like to call them non-recurring, because they are natural from commercial activity. It's variable cost regarding the launch that we had from new products, (inaudible) activity like advertising, commissions and other. And, of course, we had some additional compared to last year, but you have to remember that we don't talk about the guidance for the future, as you know, but next quarter we'll have Christmas, which is a very important date in, mainly, mobile, but, of course, it adds some pressure and some costs regarding, also, commercial activity.

So they are non-recurring. We had more than we had last quarter and last year, but then we had previously on Christmas, it's a quarter that normally has some pressure on commercial costs.

Thank you, Cristiane, and also, on the revenue side, revenue -- the consolidated revenue, so including the eliminations, has come down, the growth has come down from 6.5%, roughly speaking, in the second quarter year on year, to 4.5% now.

Do you -- would you -- I know you don't give guidance, but -- so the question is, would you expect the new products to start contributing to revenues soon so that we see, eventually, revenue growth going back to the -- beyond 5%?

Okay, Mauricio, we had -- I don't know if you were hearing the first explanation that we had about eliminations. I was saying that the eliminations increased a lot because the business between the companies also increased a lot. There was much more additions and much more clients, which it's natural that we grew elimination between the companies.

But I also said that the main reason why we decreased the growth in this quarter if you compare it to last year and last quarter was on the fixed side. And Teixeira just talked a lot about some initiatives that we have in pay TV, broadband, in products between fixed and mobile. And we think that these actions will increase the level of growth in commercial and also in revenues for the next quarter, although we have not provided for any guidance, but the things that were doing on the business side here are intended to increase and improve what we have some increase now in revenue side.

Understand. Thank you very much, Cristiane.

You're welcome.

The next question we have comes from Sean Glickenhaus of HSBC. Please go ahead.

Good afternoon. Just two questions. One on mobile voice ARPU and one on broadband.

Mobile voice ARPU -- I want to be careful how I phrase this, given that you don't give guidance, but is it fair to assume that the sequential increase in the mobile voice ARPU, because of the timing of the product launches, that was only a partial quarter benefit? So, going forward or at least for Q4 we should see another sequential increase? Does that make sense?

And on broadband, is there -- are you offering more promotional activity? Is there more promotional activity going on or is really the average pricing decline continuing to be because of -- as you expand into -- perhaps customers that are taking lower price plans? Thank you.

Are you talking about mobile broadband or fixed broadband?

Sorry, the second one is for fixed broadband. Thank you.

Okay. I'll take the first one and you talk about broadband?

Okay.

Actually, the ARPU, as you know, we do not provide for guidance for ARPUs, but, as you can see, we had a very strong growth in ARPU on the data side. We grew 24.5%. This was the main reason of the growth in the ARPU side. We don't expect to have -- we cannot talk about the future, but we think we still have some room to increase and opportunity to grow in data.

On the other hand, the voice itself has some pressure within other business, so maybe you're going to have a tradeoff to offset the growth in data. But we're working very strongly in the data side on growing traffic to try to not reduce or compensate any decrease we could have in normal voice.

But the main reason for the growth in the ARPU was related to data, 24.5%.

And, Cristiane --

On the question on the fixed broadband, we can say it's very -- we are acting in many fronts to enhance our offers and the speed for new and existing customers with the bundling that we are offering now, with 50% discount in 3G plans to protect this base, a promotion that we call Internet Total in Brazil and, at the same time, in many cases we are increasing the speed of our broadband and maintaining the same prices.

Okay, thank you. Cristiane, just one clarification on the ARPU, I understand. Obviously, voice ARPU declining is, obviously, a trend, global trend, but this particular quarter I assumed the voice ARPU was helped by the new product offerings and I guess my clarification question is, because of the timing of these new product launches, the benefit to voice ARPU in Q3 was probably lower than if you had -- obviously, if you had launched earlier in the quarter. Again, I know you don't give guidance, but I'm just trying to calculate going forward. Thanks.

Going forward, the only thing that we can say that we're going to keep the launch that we did now that may have some impact, some positive impact, on ARPU for the future.

Okay. Thank you so much.

You're welcome.

And the next question we have comes from Michel Morin of Morgan Stanley.

Thanks for the follow up. Really, I just wanted to clarify the comment you made about the Vivo Direto, half of the net additions. So, are you -- when you say half of net additions, you're looking at the SME data reported by ANATEL and basically your growth would be about -- your net adds would be about half of those numbers as of the most recent monthly figures?

Thank you, Michel, for the question. It's about -- the information we give you is about ANATEL information. Our information is internally, but (inaudible) it's information from ANATEL. 50% of our net additions, our market share net additions (inaudible) that ANATEL shows for the market.

Okay, but you don't actually provide ANATEL with your Vivo Direto subscriber figures, right?

No, because in our case we would have to (inaudible).

Okay. And then you also mentioned in your prepared remarks that your Vivo Sempre offering has created -- has produced a pickup in the recharge activity. And I know that, typically, the recharge activity can be a good leading indicator for the kind of growth that we might see next quarter.

So, I was wondering if you can help us, perhaps, by quantifying or giving us a range of the pickup that you've seen in the recharge activity, most recently? Thank you.

We have now very good performance in Vivo Sempre, this product that we launched in the end of July. Now it's -- I think it's the best offer in the market. People are looking for the offers and they are now understanding that Vivo has the best offer.

We are increasing our recharge and keeping our base. We are very happy with this product (inaudible) that we have now.

Okay. All right. Thank you.

This will conclude the question-and-answer session. At this time, I would like to turn the floor back to Mr. Teixeira for any closing remarks. Mr. Teixeira?

Thank you for all. I believe we are living in a very good moment and preparing to capture all the potential growth that we have ahead of us. The commercial results of this quarter already reflected our solid our strategy is.

With the new launches we made and the attributes we already have, I am confident we are going to be the best option for the customers and this will reflect in our financial performance. Thanks for attending the conference call and I see you the next year, when we present results for the full year 2011.

Thank you.

And we thank you, sir, and also to Ms. Barretto for your time. This concludes today's Telefonica Brasil third quarter 2011 results conference call. You may disconnect your lines at this time. Thank you.