Telefonica Brasil SA (VIV) 2011 Q4 法說會逐字稿

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Telefonica Brasil Fourth Quarter 2011 Earnings Conference Call.

Today, with us we have Mr. Paulo Cesar Pereira 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 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 section. 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 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 4Q '10, 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 statements filed with CVM through the form Quarterly Information, ITR.

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

Good morning. Here is Carlos Raimar, the IR Officer. Thank you for attending this conference. From this quarter on, due to the conclusion of the integration process in which Vivo Part was incorporated into Telesp, and after that renamed it as Telefonica Brasil, and also with the transfer of the fixed authorization and the long distance authorization to Vivo SA, that is the full subsidiary of Telefonica Brasil, this happened on October 20. We are presenting the numbers and indicators after eliminating intercompany revenues and allocating long distance revenue according to the origin of the call.

This will provide a clearer way to analyze our figures and at the same time prepare the path to perceive the totally integrated company. Now, I offer the floor to Paulo Cesar Teixeira for the presentation of the operational performance. After that Cristiane will present our financials and Paulo again will conclude the presentation with strategic update of Telefonica Brasil.

Good morning, ladies and gentlemen. Thank you, Raimar. I would like to thank all of you for attending this conference of the fourth quarter and 2011 results of Telefonica Brasil.

On page 5, Sempre's quarter, when we present our stats, our commercial performance has been extremely solid and consistent. First of all, our prepaid promotion, Vivo Sempre, launched in the third quarter has already shown very positive results. We did significantly acquisition and recharge level.

In addition to the growth in prepaid, we have been able to enhance year-over-year our mix of postpaid and data customers, and maintain our leadership with focus on quality. This has been mainly supported by an increasing 3G coverage reaching our total coverage about 2,500 municipalities more than some of our competitors. And the launch of the new postpaid plans with [unlimited] voice, messaging and long distance offering the best solution in quality and price in Brazil.

In data, we launched our HSPA+ plans in Sao Paulo for high end users and we built one more step to enhance data revenue. We are also expanding our coverage in ultra broadband in Sao Paulo reaching more than 1.7 million homes passed, 6,000 kilometers of fiber, only in FTTH solution.

We are accelerating the sales of ultra broadband plans and have more than 160,000 clients at the end of the year, out of their 50,000 in fiber-to-the-home in December, and almost 60,000 in January. We are now the largest provider of FTTH in Latin America.

Our fixed wireless solution is now in five important metropolitan areas, our capital series, and should expand more in the next months on track with our plan to expand six operations outside of Sao Paulo. Our sales performance will continue to drive our market share of accesses in revenue, in our positioning as an integrated provider.

Slide 6 shows that we continue to see accelerated growth in total accesses made, led by the mobile business. As we can see on the chart on the left, in this quarter, we had 15.2% increase in accesses year-over-year, with a total of almost 87 million accesses enhancing our position as the largest telecom community in Brazil. The mobile segment grew 18.7% compared to the last year and reached 71 million accesses. On the fixed side, we managed to keep the business stable year-over-year.

As shown on the graph on the right, the Company achieved approximately 11 million new mobile accesses with 4.5 million during the fourth quarter. 31% of the net ads in the year were in the postpaid segment keeping our leadership in the segment with 42% market share of postpaid net additions. In the prepaid segment, net additions accounted for 7.8 million accesses, an increase of 37% over 2010 even considering that we had an additional 1 million connections of [net] prepaid customers.

In slide 7, we showed the mobile commercial performance in more detail. In the fourth quarter, we improved our customer mix with annual growth of 27.6% in postpaid clients versus a blended growth of 18.7%. In addition, we reached a market share of 36.6% in the postpaid segment increasing our leadership on the annual comparison.

In the data segment, we kept enlarging our lead and reached 43.4% of the modern and end-to-end market as indicated on the graph on the top right. Now, on the right we can see that we managed to increase our ARPU for the second consecutive quarter even after eliminating intercompany revenues and considering the fast growth presented of our access base.

The total mobile ARPU reaches BRL24.6, an increase of 2.9% over the last quarter. Over the last year, ARPU decreased 3.3% due to the dilution effect caused by the strong additions in the prepaid segment. On the other hand, the data ARPU grew 19% year-over-year, the main drivers for this growth were the sales of smartphones and fixed data package associated that grew three times year-over-year and the sales of data cards.

In slide 8, we highlight the civilization of fixed business. In fixed broadband, we grew the number of accesses by 9.5% year-over-year, and [likely increased] voice in the corporate segment. As a result, the ratio of broadband over voice accesses keeps climbing, reaching 33% in the quarter versus 29% in the fourth quarter of 2010. In the case of fiber-to-the-home, we accelerated the deployment of this solution, and at the same time, increased substantially our customer base during the last three months.

In addition, pay TV accesses in the year shown on the bottom graph on the right reached a significant increase of 43.7% 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 be of 12.2% compared to the fourth quarter 2010. In an effort to increase profitability and loyalty of our customers, we are also seeing good results in the sales of duos and trios to our customer base. Today, almost 8% of pay TV customers already have trios.

Looking at the slide 9, we can see there is our successful commercial strategy drove revenue acceleration contributing to build a strong set of financial results in the quarter. Our services revenue growth in the year-over-year comparison accelerated from 5.6% in the previous quarter to 6.3% as a result of the strong commercial performance during the year driven by our unique portfolio of products and capabilities. Accumulated EBITDA grew 6.4% on an annual basis reaching BRL12 billion with an accumulated margin of 36.3%. Net income totaled BRL5.1 billion, a growth of 18% year-over-year.

Now, Cristiane will give you some details on the financials and I will come back to give more specifics about the Company's strategy.

Thanks, Paulo Cesar and good morning, ladies and gentlemen.

On slide 11, we can see that mobile net service revenue as intercompany eliminations in the fourth quarter of 2011, grew by 14.1% year-over-year following the trend of growth acceleration we presented in the third quarter of 2011. In comparison with the previous quarter, this increase was 8.7%. Because of the increase in customer base, improvements in the mix in new campaigns and incentives outgoing usage, voice revenues grew 11.5% year-over-year, mainly related to the growth of long distance revenue boosted by promotional campaigns launch in during 2011.

The use of data and value-added services continue to be the main driver of the service growth and reached 33% of the mobile outgoing revenue in the quarter. We will see the data revenue in detail in the next slide. In the year, mobile service revenue increased 12.6% also driven by data revenue growth.

On slide 12, digging a little more into the source of our growth; we can perceive that the Company kept [an accelerator] to the pace in data revenue growth during the quarter, reaching 40.8% year-over-year. This performance was mainly driven by the SMS/MMS revenue, which recorded an important growth of 45.5% in the fourth quarter of 2011.

In addition, Internet revenues increased by 28.1% in the same period accounting for more than 50% of the data revenue. It's also important to point out the year-over-year increase of 82.2% in other data and VAS revenues, driven by interactive services based on the messaging P2A. Other new services like financial services, PTT, and over the top application, download of content and applications among others are now on the first time helping to deliver this growth. In the year, data revenues accumulated a 41.5% growth.

In slide 13, we can absorb the evolution of wireline revenues, which reduced 3.8% annually and 1.2% quarterly as per the graph on the left. Voice revenue, that includes voice, access and network usage reached an annual decrease of 12.3%, mainly explained by reduction of traffic originated by fixed access and by lower customer base, both do mainly to fixed mobile distribution.

Data transmission and pay TV revenues recorded annual growth of 13.6% despite increasing compact TV environment. The data positive evolution is related to the Company's commitment to quality in our commercial efforts in the period, both reflected in a higher quantity of access.

All this performance reflected in the mix of service provided present an increase of data transmission Pay TV, which already represents 31% of 2011 revenues. In the year, fixed revenues presented a small decrease of 1.2%.

On slide 14, the comment is on operating cost compared 2011 versus 2010. The total operating cost totaled BRL21.1 billion 2011, 4.8% higher than 2010. The variation is due to the increase of selling expenses in services rendered.

The cost of service rendered increased by 5% compared to 2010 due to the higher expenses with interconnection of sales -- pushing from sales related to much higher commercial activity and higher revenues in the periods compared. Selling expenses increased by 7.4% over the previous year due to higher expenses with third-party services.

In particular communication, call center, marketing and commission expenses due to the hiring volume of additions in the year, and the launching of our new and unique portfolio of offers in 2011.

General and administrative expenses rose 7.8% in 2011 compared to previous year due to the third-party expenses. Personnel costs rose 5% on an annual basis, which is the last in accumulated inflation in the period.

On slide 15, we can show in the top the EBITDA margin reached 38.5%, plus 4.4 percentage points over last quarter. Excluding BRL380 million in non-strategic items, the evolution would be stable as increase in commission cost related to new consumer addition was compensated by additional revenue growth. In the early comparison the combined EBITDA margin recorded an increase of 40 basis points in which 36.3% in 2011.

EBITDA totaled BRL12 billion with a 6.4% growth year-over-year. The operating profit, in the bottom on the left, decreased 4.2% in the fourth quarter of 2011 over the same quarter of last year mainly because of the growth of 27.7% in depreciation and amortization in the period.

In the right top, we show the financial results with an improvement of BRL50 million in the annual comparison meaning to the lower net debt. Comparing 2011 against 2010, the improvement was of BRL275 million. The operational performance combined with the consistent financial management led to a net income of BRL5.1 billion in 2011, 18% higher than 2010 on pro forma basis.

On slide 16, we can notice that the consolidated CapEx amounted to BRL5.7 billion in 2011, an increase of 16.4% year-over-year. This evolution is mainly explained by the spectrum acquired by Vivo in around BRL800 million accounted as CapEx on May 2011. By excluding these events, the CapEx would have remained stable reaching a CapEx per sales of 15.3% in the period.

The Company's commitment to offer the best service quality in the market, drives its investment policy that this year focus on increasing network capacity, quality and coverage, especially in fiber and 3G. We have invested also in information technology in order to support the customer base growth, and its increased voice and data usage in both fixed and mobile segment, also with focus on ultra broadband.

The gross debt, on the right top, increased by 8.1% annually, and reached BRL6.2 billion in 2011 due to the use of BRL1 billion out of this BRL3 billion credit forward by BNDES to be used in three years. The net debt on the right bottom reached BRL3.2 billion with an increase of 51% in the year-over-year comparison.

When compared to the previous quarter, it decreased by 70%. Both variations are explained by the new credits we have been dealt combined with the payment of dividends and of the 90% of the spectrum acquired in December 2010, which reduced the cash. The ratio of net debt over EBITDA reached 0.26 in this quarter.

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

Thank you, Cristiane. As a recall, I have a list of goals for the Company that I wanted to describe for you. Number one, continue to grow our power voice and data business with focus on profitability. Number two, capture our new business and constantly await to create a sustainable revenue growth in the long-term. Number three, continue to strengthen our competitive advantage in quality and coverage. Number four, optimize operational synergies and become a fully integrated company. Our main goal is maintaining our position as the leader and best provider of telecom services in Brazil.

Now let me go through each item in more detail. Our macroeconomic evolution and better income distribution is offering large opportunities for Telefonica Brasil to increase revenues and profitability in all customer segments. We launched Vivo Sempre in July to observe the needs of the C, D/E classes. The promotions are driving an increase in the number of prepaid access, especially the most valued part of the segment, the ones able to recharge BRL25 per month. It aims not on a capture of new prepaid customers, but also that increase their royalty transforming the segment in the best class of future postpaid customer.

As we increased our postpaid clients, we continually upsell and crosssell services supported by our superior market mix, especially designed to acquire and retain most valuable customers in all the market. On the fixed front, we will keep our folks to send the quality. The speed, our DSL services offers best data speeds and we are all selling permanent offers given the RSP, the customer's possibilities to have discounts in mobile data plans.

We are also expanding our FWT solution to all main metropolitan areas outside Sao Paulo, to observe the potential market of more than 15 million homes. Further, the home and cable are already for position UBB for Sao Paulo customers. We already have more than 1 million homes passed in fiber as well as same amount in cable.

We will continue to require Fiber To The Home in order to keep our leadership in this segment. Profiting in the more important areas as well as extending our position. Beyond current business, we are investing in innovative and capturing new business opportunities. In the last year, we have seen a significant growth in new business avenues, as shown in the left side of this chart and we expect to continue this growth in 2012.

We will keep on exploiting new source of revenues in different areas. Our main focus, aligned with group's priorities and market opportunities, will be (inaudible) such as mobile applications like voice and SMS services, music and games. Financial services like [contactless] credit cards with Santander and Itau, prepaid card with MasterCard and the insurance products with that. The security is executed. The education of about 3 million English students in Vivo Kantoo, and have with new developments for 2012.

Our key assets are almost 90 million access base, strong customer insight and market understanding present through a wide sale and distribution network, established customer care process and channels and self-brand awareness.

In conclusion we leverage our ability to build and grow partnerships using our key assets as a way to differentiate ourselves. Going forward, we continue to strengthen the attributes that have allowed first to differentiate Vivo from our competitors.

Firstly, we have a clear sustainable quality differentiation for the other players, as seen in the left side of the chart, proven by one, better Anatel ratios in mobile customer care. Two, significant reduction in our data complaints for DSL customer, and three, superior CSI, Customer Satisfaction Index increase in postpaid customers.

Focus on quality will remain one of the our three priorities in 2012, especially considering the integration of our services under Vivo brand. Secondly, coverage and technology advantage will continue to drive our strategy. We will grow our 3G coverage even more. We will increase deployment of HSPA+ and look forward to implementing the LTE, which definitely allow us to sustain and foster our leadership in mobile broadband.

On the fixed business, we will increase deployment of fiber covering key areas of the premium market in Sao Paulo, consolidating our position as the largest FTTH player in LATAM.

On the last page, after two quarters, since the integration we have worked a lot. Our goal is to maximize the operational synergies and become a fully integrated company. We launched Vivo as a brand in the beginning of the second quarter, achieving the most important milestone for the operational integration. After that, we'll be more efficient in terms of market efforts. Our goal is to integrate culture unified management, we have already seen an increase in employee satisfaction, which is the best sign we are in the right direction. This is a long-term process and we will continue to bring together the best management practice and behaviors of the parts (inaudible).

The next goals would be to integrate IT, customer care, channels and customer intention to achieve better profitability and cash flow generation. To sum up, with the integration process on track, we continue to increase our revenue stream for voice and data and capture new business and growth opportunities to deliver even better cash flow. As I said this quarter, I am confident we have the right assets, the right execute -- and the right people to execute our plan and to return value to our investors every quarter.

Now, we are happy to take your questions.

(Operator Instructions). Michel Morin, Morgan Stanley.

Good morning everyone. If I can start off with a couple of quick numbers questions. First, on the cost side, G&A increased significantly sequentially by about BRL100 million. So, I was wondering if there was anything specific that drove that and if that's the new level that we should consider going forward? And perhaps it's related to the asset sale, I don't know, there was an asset sale in the quarter. I understand that may be related to towers and I am wondering what kind of impact that could have going forward on expenses, and I don't know if we saw that already in the fourth quarter results? Thank you. Hello?

Pardon me, this is the operator, is it possible that your phone is on mute. Your line is open. Please remain on the line. Thank you for your patience. It appears that the speaker line has disconnected, just one moment. Pardon me, the speaker line has been reconnected. Mr. Morin, could you please repeat your question.

Yes, thanks. So, the first question is on G&A expense, there was a big sequential increase by about BRL100 million, I was hoping you might explain that? And there was also an asset sale, which produced a gain, and I am wondering if there was also any impact of that on the cost side, I understand you sold some towers, I don't know if we saw an increase in cost already or is that something that we should anticipate beginning only in the first quarter of 2012? Thank you.

Hello, your line is connected. We can hear you. Just a minute I'll transfer the call to do speaker lines just a minute. Thank you. Pardon me, the speaker line has been reconnected.

Yes, Michel. Can you hear Michel?

Yes. I can hear you now. Thank you.

Oh sorry, I got your question, but I think that you do not hear answer, did you?

No, we did not hear anything.

Okay. About G&A, there was nothing regarding towers in these numbers. Actually we had some adjustment of some contracts and some specific items in the period, nothing to worry about the future. So, the level may reduce a little bit more. Okay.

Okay. Sorry, so there is nothing unusual in the G&A, it's just some lumpiness I guess from quarter-to-quarter?

Yes, correct.

Okay, alright. And then on the towers, is it too small to really make us worry about or are we going to see it somewhere in the P&L, an increase going forward?

Yes. Okay, about towers, we had the amounts that we disclosed in the press release. We had a gain of BRL381 million in the quarter; compared to last year there was BRL233 million. And actually, we are looking for opportunities to use our assets the best way we can. So, if we identify industries, so that we still have some non-strategic towers, maybe we analyze the sale of these towers, that's not under commitment and for now it's that what we did for the fourth quarter of 2011.

Right. But my question was on the cost side. Presumably, you'll have increased rental costs going forward. So, I don't know if we saw some of that already flow through in the fourth quarter or if it's something we should anticipate beginning in Q1 and if so how significant is this and where will it show up?

Okay, in fourth quarter was very small, the amount of rent of towers, but of course, we're going to have an expansion this year from now on from the towers that we sold, but nothing relevant in the first quarter if that's one of your questions.

Okay. And going forward is it possible to give us a sense of how significant that is?

We can't comment on that on the first quarter of 2012, okay, because we were going to have already a full quarter with these rental expenses. So, we prefer to comment on that after that, Michael.

Okay, alright. Thank you very much.

Welcome.

Andrew Campbell, Credit Suisse.

Good afternoon. I noticed there were some significant changes in some of the balance sheet accounts; in particular, goodwill, deferred taxes, the long-term provisioning. And I was wondering if you could give us a little color on what was incorporated, what changed during the quarter? And the question is whether or not that would have any impact perhaps on the level of goodwill that you can amortize going forward, and if that would have any impact on the level of non-operating synergies that you anticipate?

Okay. In the balance and -- hi, Andrew -- in the balance, what we had as you know we started to amortize the goodwill since April last year of the acquisition of Participacoes volumes, but from April to September, this goodwill is amortized and result any fiscal benefit and we started to amortize as October after the restructuring process and we started to get some fiscal benefit from that. So, what changes from the first quarter, the third quarter that you saw to the fourth quarter is that we started to amortize it and get the benefit as of October 2011 until December.

And then the numbers in the balance sheets actually are the same, the number of goodwill are the same that we disclosed since the operation was done, but then we changed a little bit the net amount, because we started the amortization as of April last year.

Okay. And is the previous non-operating synergy guidance still valid or do you believe it could be a larger number than what we had received previously?

Hello, your line is connected.

Yes, Andrew.

Yes, I'm here.

Yes, I don't know what you heard actually.

I heard actually your answer regarding the explanation for why the accounts changed and that you started recognizing the tax benefit starting in October, but my follow--up was just whether or not this has any impact on the non-operating synergy guidance that you guys have provided in the past?

No, no changes.

Okay, thank you.

Welcome.

Vera Rossi, Barclays Capital.

Thank you. Could you talk about the reasons behind the acceleration in your fixed line losses and what do you expect for 2012 after you launch the Vivo brand on your fixed line product? Thank you.

Thank you, Vera for the question. Both fixed line, we are facing the problem that all incumbent operators in the world are facing, because in this moment in Brazil, a very competitive market in mobile and the lines in fixed are suffering this competition, and but we're bundle more products with our fixed line customers in order to increase loyalty. In this sense, we have 30% of our fixed line clients with fixed broadband, and we are in the best position I think so when you compare with the other operators, incumbent operators in Latin America. We are focused now to launch our FWT solution outside of Sao Paulo that we are confident that we have increased the number of fixed line in this region.

Okay. And but your customers, are they disconnecting because they don't want wireline services anymore or they are going to your competition?

No, in relative, we have more appeal in mobile, now we have more offers in mobile in this moment and the people are choosing the T-Mobile fixed lines, but we are working very much to bundle products with the fixed line and we are preparing the launch of the brands, the new brands, Vivo brand in Sao Paulo in April. And I think it's most -- we have the possibility to have some more appeal for the fixed line when the bundle products like we are doing now, but what we would think is more.

Okay. At this point, when you launched the Vivo brand, do you expect to have, a slowdown in the line losses and a potential increase in the growth for broadband and also the pay TV product?

Oh, yes, but only not for this, because we are working to have the possibilities to join more products, when you considering that we have said to have IT systems to prepare to launch bundles, no. And we are looking for -- all the parts of the business to do this and the brand is one of these parties.

Okay, will the IT systems be ready by May?

We are working for this, we're working.

Okay.

Okay?

Okay, Thank you.

Ric Prentiss, Raymond James.

Thank you. Two questions if I could, first on mobile termination rates. What is your expectations about what the cost will be and what the impact will be? And the second question is on smartphones, can you tell us what your penetration of smartphones is currently and what the costs are looking like?

Okay, the first one (inaudible) was already announced last year, the reduction following our sales, is a blend of 14% reduction that impacts now on (inaudible) net terms less than 2%.

Okay.

The question about the smartphone is we were in the best position in the market, because we're so confident to have the best coverage in 3G. We are now implementing -- pushing our Vivo smartphone limited plans, we're going very well with these plans. And we have some research in Brazil about this and we have a very good position in the site of the market.

We think in Brazil we have a low penetration in the smartphone while pushing a lot, smartphones in the category that you call as much, well, I think its possible to put a data package together, no. And we, in the sense we are, we think we are good in this second half.

Is it safe to say smartphone penetration is less than 5%?

Less than, the total market less than 10%.

Less than 10%. And you have cost cutting down to the BRL100 to U level, yet that seems to be an inflection point where sales might take off quite significantly?

Yes, the price is reducing and we are negotiating to have better price, we have two category; the smartphone that took on Brazil, the smartphone, the operating system, and the (inaudible) because we call it smartphone, because its possible to put a data package together, no, and we are focusing in both segments.

Great, thank you.

Valder Nogueira, Santander.

Good morning guys or good afternoon guys. One question, you successfully launched alternative calling plans for the postpaid clients, for the contract clients. They seem to be doing a good job you have entered into a piece of the market that was eaten up by the other competitors. And in this sense, my question is how much do you want to do in that segment of the markets as to avoid potentializing cannibalization of your already existing good clients?

Valder, the question is very good question, because in reality, we are now -- our unlimited plans we have more compromised on these plans, when you compare the plan that we have before, because we increased the plans, the compromise, BRL20 in each plan for to have the capacity to use this plan unlimited. If you compare -- if the previous plan that we have in postpaid we have now more portability with this plans.

Okay, thank you.

Rizwan Ali, Deutsche Bank.

Yes, good morning. My question is regarding your capital expenditures. Can you give us an idea of what your CapEx looks like for this year and roughly where it would be spent?

Hi Rizwan. Actually, the CapEx for this year is quite similar to what we had in 2011.

Okay. And follow-up question is, regards to your push-to-talk product, it did pretty well in the third quarter. Can you give us some numbers as to how well it did in the fourth quarter?

We are pushing this service in the corporate market. We are now -- obviously, you have the competition for the consumer because you have unlimited plans in postpaid, but its going very well. We still (inaudible) this product, and we are very good position to market because we are now prepare of the launch of the international roam for this service and for the corporate its doing very well.

Can you give us any numbers as to how many subscribers are on --

No numbers, no numbers. For us, that's on medium, it's not number.

One last thing, in terms of leveraging, you have, in a way to leverage is their a reason to increase leverage in certain forms and potentially increase dividends or potentially even do share buybacks?

Actually, we always generalize opportunities to maximize our capital structure, so it's no, no specific intention to increase the leverage, if its necessary we can do that, but we have to have some fixed plan for that and get the best we can do with the structure.

James Ratzer, New Street Research.

Yes, good morning. Thanks very much. I had two questions please. First one regarding your integration costs, you mentioned on the final slide that's going to be around BRL400 million. Could you let us know how much that has been spent to-date please and whether that's been booked in OpEx or CapEx.

And the second question was regarding your mobile data revenue growth, where may -- has been quite a mixed change within that. Internet revenue growth has been slowing steadily over the years, where I just thought that might have seen some acceleration with smartphone growth, but other data revenues have been accelerating sharply. So, I was wondering if you could just let us know what's going on within those two revenue lines. Thank you.

Okay. About the integration cost, the amount did not change, but the main cost going to be sales actually, starting 2012. So we prefer not to make any comments on the numbers of 2011, which were very small, but we are not changing the numbers that we disclosed before, and maybe 2011 the first quarter -- when they occur, we can make more comments -- specific comments, okay.

But the impact in 2011, that was very low?

Yes, very low, very low.

And then on the data revenue mix, please?

Okay. The growth in Internet revenues have started to slow because our base is very big and so we have a very big coverage in Internet municipalities comparing to the competitors. And we are launching and developing all the services as well as data to increase, that we launch different financial services and push-to-talk and other different interactive downloads to get some more revenues despite the MMS and SMS and Internet. So, it's natural that the growth that we fell relates to Internet. It can be slower right now, but then we are trying to launch different initiatives to have much more growth in other data also.

And then the reason why other revenues have been growing so sharply and what specific products then in that revenue line please, that are boosting growth?

We have some P2A some applications that we use when you making downloads and they had a revenue share to some partners. We have push-to-talk. We have some financials and insurance services. We have a lot of items, and Paulo mentioned some of the services in the -- one of his slides, when he was talking about his strategy, if you can get back to the slide later to just take a look and see some of the differences we are doing that can benefit this group of data revenues.

So, when you say in your edges in the cost line, I think it goes back to the one of the first questions you've seen growth of cost to third parties. Does -- is that tied in with this growth we're seeing on data revenue that this is booking revenues growth that they have a low net margin?

No, there is nothing to do with that. I took the first question about G&A. actually this G&A increase was related to some adjustments we made in some contracts in this fiscal item. The revenue share I was talking about in data is in the group of cost of sales that are directly related to revenues. So, they have nothing to do with G&A and have to do with cost of services.

Okay. Thanks very much.

Welcome.

Giovanni Montalti, Cheuvreux.

Good afternoon. Just a couple of details on the numbers, I was noticing your press release, you are going to have a capital gain on the disposal and you were mentioning also the related figures for 2010 on the -- again, capital gain that you were getting. Could you please specify what amount of capital gains was booked in Q4 2010, because in the press release, you are providing just the full amount for full-year 2010 for capital gains? Thank you.

Okay. We had in this quarter, I'm going to give specific numbers as you asked. In this quarter we have BRL381 million in this fourth quarter rather to non-strategic assets of the power that we made. In the second quarter of this year 2011, we had BRL95 million, and in the fourth quarter of 2010 we had BRL233 million.

BRL233 million?

BRL233 million, yes.

So, could you also tell us what the number of sites that you are selling or a share, I mean, compared to your total tower portfolio that you are now disposing?

Now we've decided not to make any comments on that item.

Okay. So, just following up on the question of the pervious analyst, I didn't understand honestly if with respect the increase on rental fees for towers to be material going forward or not?

No, we don't expect be material. What I said is that we prefer to disclose the numbers after the first quarter is done, because in 2011, the amount was very small, since the main assets we sold in the fourth quarter of 2011. So, it did not have any material expenses in 2011. So, in the first quarter of 2012, maybe we can make some (inaudible) about it.

Actually just the last one if I can, the final slide on the --

I just can make an -- a complement, that all the new leases that we had with the towers are below market prices. So, just for reference for you, if you want to know before the first quarter.

Okay. So, they were very convenient, let's say, conditions for you?

Yes, yes.

On the last slide, you were saying that you have no change in the synergies, but this means that the numbers that we are seeing now in the slide still include the portion of the synergies that I assume you have already achieved in 2011, is that correct?

Can you repeat please?

You were mentioning before that in the last slide, the one related to the synergies ---

Yes.

That one has no change.

Yes.

Yes, and so.

Asking specifically about non-operating fiscal --- non-operating synergies and I said there was no changes, yes.

Okay. But the numbers that we see there in slide 22, those ones are still including the portion of synergies that you have already achieved in 2011, I imagine?

Yes, includes. Yes.

And can you tell us, what is this portion of synergies that you have already achieved?

No. They're not disclosed in detail.

Okay. Thank you. Thank you very much.

Marcelo Santos, JPMorgan.

The first question, I have is about competition, I think Cristiane mentioned during the -- her prepared remarks that competition is increasing. I'd like just to get a little bit more color on that. And the second question would be how much did you have on tax savings related to goodwill amortization in the fourth quarter?

Marcella, I think there was a competition. We have the same situation in the last two years, we had very tough competition, but we are all focused in the same, Vivo has the best quality of sales we're able to address the best offering in the market. We are now all proposed to compete with the quality differentiation and we had somewhat of points that we prefer to focus. I think the market is not changing; we are so prepared to have this competition; we have different ways we like, we put more coverage -- focus and coverage in 3G and in the quality that is our differentiation for the market.

Okay, about. Okay, do you have any -- sorry, do you have any follow-up on that to Paulo?

No, no, thank you.

Okay. About tax, you can see some more details in the footnote in the financial statements that we are disclosing there, that despite the allocation of the goodwill made to brands and clients, all the other goodwill that's disclosed right in the footnote are subject to fiscal benefit, in amortizations around between -- around 10 years, but you can change on a going forward because I have to make some analysis and profitability of going forward. So this is not steady but for now it's around 10 years.

Okay. Thank you.

You are welcome.

(Operator Instructions). Dominic St George, Nevsky.

Yes, hi. I have got a question on the iPhone actually, I had conference earlier this week, Tim Cook basically said after China, Apple are looking to target Brazil specifically as a key market for them to focus on. So, I was just wondering if I could get your views on that given, as you have already said, in a great position to take up the share on the smartphone, and then also if you are able to give an update on the plant that's being built in Brazil or any views on it, please?

Mr. Dominic, we agree totally with Mr. Tim Cook, because you are focusing in smartphone in Brazil. We have the best coverage. We have the best quality service and our focus is to have the best offer for this segment. We comment before we have -- because Brazil is the marketing that we have a low penetration in smartphone. Our focus in smartphone is much like again, two options for the market and it's very important not to sell only the smartphone but to have a data package associated, and we are focused with this, I think you -- Brazil probably will be the market that is possible to grow more in the next few months.

Sorry, are you saying in the next few months, we'll start seeing acceleration in iPhone sales and then also just as a follow up on the actual plant is being built in Brazil?

Depend on the price, I think we still have a good negotiation the prices will drop in Brazil because it's very important for the price in this market. We have the possibility to have (inaudible) the Brazil factory, and if it's possible to have the better price, I think the core view be accelerated for this reason.

Sorry, just to clarify, so the Brazilian factory, is that already up and running and producing handsets?

A small part of the product for Apple is from Brazil. We have expectation to have more products from Brazil in the price drop. We have a high price mix to compare Brazil with other markets but -- all the criteria -- smartphones we have the same situation, and we are striking to reduce the pricing in this year.

Okay, perfect. Thank you.

Will Milner, Aurette Research.

Thanks. I just got one question really. Over the course of the year, you've obviously changed tariffs and included long distance in prepaid offer, and I think as a BRL20 bolt-on on the elements of the postpaid offers, I just wonder if you can talk about the level of customer acceptance and the take up rate of the long distance offers and the impact that's had on traffic and usage? Thanks.

Yes, we felt very good acceptance from the prepaid clients regarding the long distance offer that we had, BRL0.05. We tried to really increase it. We felt we had a demand very strong and there was maybe development that we had in the past was not big because the prices are very high, and now we made a very strong penetration and we are seeing these results, now recharge as far as speeding of the time and the prepaid clients as we saw in the numbers of general, in the prepaid segment in Vivo. So the acceptance was very good, yes, in the clients of prepaid. We had very strong growth in traffic and the numbers are quite good.

And just if I can quickly follow up on the postpaid side, I mean of the growth sides on the limits, how many are actually taking the long distance bolt-on which I think is BRL20, if I am not mistaken, is that a number you have to hand?

Yes, in the postpaid we also feel there is some growth, in the plan also mixed with long distance, in both segments prepaid and postpaid.

Okay. Thank you.

Luis Azevedo, Bradesco.

Good morning. My question is regarding the broadband -- fixed broadband services, I read in the press release that you have already 1 million homes passed to fiber-to-the-home. But the number of subscribers is around 50,000. I'd like to know how do you expect this to get to feel and also if you have any numbers of expectations for growth in broadband -- fixed broadband services for fiber and SPD as well?

Okay, thank you, Luis Azevedo. Yes, we believe that the future of fixed broadband is also broadband; it's our focus now to accelerate the product that to have in Sao Paulo. We have now 1 million homes passed, about 6,000 kilometers in fiber, 50% of this network was constructed in the last year, in part of the last year. And we have now 50,000 clients by the end of the year. But now we're -- we have not in the end of January, almost 60,000.

We're increasing a lot in this service. I think it's possible to increase more if we have the IPTV services probably in the second semester of this year. As we -- some of this, our cable system that we have in TVA and with some of that we have 1.7 million homes passed, possibility to have ultra broadband in Sao Paulo. We have now more implementation using our network in Sao Paulo with -- we're putting more boot service nodes to create our network and to achieve more capacity and possibility to have better services for the broadband services in Sao Paulo.

Then for the complimentary marketing in -- out of Sao Paulo, our focus is to have the fixed line (inaudible) Vivo Box (inaudible) solution. Regarding the Sao Paulo situation in the broadband, we have a very competitive marketing. We are focusing mobile too and -- but we think with the fixed broadband in Sao Paulo is driven by the ultra broadband and we are in the best position in the market and we have focus in this segment.

Okay. Thank you.

Mathieu Robilliard, BNP Paribas.

Yes, good morning, good afternoon, a question around fiber actually. Could you give us a sense of what is the CapEx of per home passed so far, and also could you give us a sense of what the incremental CapEx of connection costs are when you transform the home passed into an actual subscriber? Thank you.

Now, we cannot disclose this information for strategic reasons.

Okay. If I just follow-up on that, presumably you have set-top box related costs, when you transform one home passed to an actual customer. How do you treat that; is that an OpEx or a CapEx?

CapEx.

Thank you.

Welcome.

Mauricio Fernandes, Merrill Lynch.

Thank you. Good afternoon everyone. Following on on the point of Louis question about fiber and the competition in fixed line, you mentioned that, if I'm not mistaken, there is 6,000 kilometers of fiber, a good chunk of it, if I'm not mistaken, about 50% of it was built in the last year.

Can you share with us whether the plan is to continue to grow to expand the fiber network by the same percentage or the same number of kilometers? And how do you see that, I mean -- where is that being, is it mostly in the metropolitan Sao Paulo area, or are you talking about the whole state. I would guess that most of it is in the metropolitan area given the additional [competition printing] fiber, but also given that GVT is not coming to the Sao Paulo city, but still coming to the Sao Paulo metropolitan area, you would be deploying that -- most of it in the Sao Paulo metropolitan area. Thank you.

Thank you, Mauricio. What can I say, in fact we have fiber in 15 cities in Sao Paulo. Our focus is to maintain our position to accelerate this project. We have now 1,000 home passed and we think it's possible to grow in this year. But we don't want to disclose this number -- the information, and the solution that we have now, we can agree the IPTV solution, that we can do it in the standards of best solution that is possible to have in this market. We are looking for the state-of-the-art solution and we've just -- solution is possible to have in the second semester of this year. It's supposed to increase more fast in this situation that we are facing now. But we have some competition in the market, but we are thinking we are in the best position.

Okay. Thank you.

This concludes the question and answer session. At this time, I'd like to turn the floor back to Mr. Teixeira for any closing remarks.

I would like to thank you for attending this conference, and we are pleased with the numbers we just presented to you for 2011. Our strategies for the big successful and financial results is already showing it. Most important, we see an even brighter future for us ahead. The mobile numbers of January have been delivered yesterday by Anatel, and this show that an increase in our blended market share to reach 29.7%. We are the perfect choice for 45% of the new additions to the market.

This performances show we are in the right direction. We will try to differentiate in the quarter for our competitors during the 2012 to generate even more value to our shareholders. I look forward to see you again in the presentation of Telefonica Brasil in first quarter '12 results. Thank you.

Thank you. This concludes today's Telefonica Brasil 4Q '11 results conference call. You may disconnect your lines at this time.