Telefonica Brasil SA (VIV) 2012 Q1 法說會逐字稿

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Telefonica Brasil first quarter of 2012 earnings conference call. Today with us we have Mr. Paolo Cesar Teixeira, CEO of Telefonica Brasil, and Ms. Christiane 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. (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 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 first quarter of 2011 figures are prepared on a combined basis. Thus, the 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 now begin your conference.

Good morning, ladies and gentlemen. I would like to thank you all for attending this conference for the first quarter 2012 results of Telefonica Brasil. In this quarter, we would like to highlight our commercial and financial performance in face of (inaudible) integration efforts in the high commercial activity (inaudible).

First of all, our performance in mobile markets reflect, once again, our (inaudible) of all types of plans. From the prepaid to post-paid and data, the majority of the customer have choosing Vivo. Corporate business also presented an outstanding performance, growing 14% year-over-year in accesses. Our new [mobile] offers, launched during the second half of the last year, are responding not only in acquisition of customers, but also in revenues, driving double-digit growth in the [immense] increase of (inaudible) and will detail further in this presentation.

But the main highlight of the quarter is our moving forward in the operating integration of our Company. We took two similarly important steps in this quarter -number one, organizational restructuring, and number two, launch of the Vivo brand for fixed services. The margins for the quarter reflect the results of higher efforts to enlarge our customer base and promote more efficiencies as an integrated operator. I am confident that this initial cost will pay off quickly in terms of higher revenue generation and cost reduction generate more value to our shareholders in the future.

On page six, we emphasize our data approach to the market. Data has been, and will be, the main growth driver for telecom operators, and we believe we are developing the best approach to customer in mobile and fixed services. Our coverage in 3G keeps climbing and reached more than 2,700 cities in March. Our superior coverage has been a differential not only in [some other cities], but also for premium and corporate customers due to the quality and possibility of roaming.

Our national launch of HSDPA plus in all our 2G sites will reinforce this advantage. The acceptance of customers is reflected in our superior and growing market share in the datacard market, and also in the SmartPhone, with a great base of accesses with data package, which is four times up one year ago. This is the result of our strategy to promote the adoption of 3G plans and package within our data enabled handsets.

On the fixed side, we have chosen what is and will be the best technology to provide a unique experience for customers. The fiber to the home solution can generate ISPs which is potentially more than 10 times the solution chosen by our competitors. We already have 1.7 million homes passed in ultra broadband, including one million in (inaudible). The results of our focus in adoption can be clearly seen. Our access base with ultra broadband in first quarter '12 is four times higher than in the first quarter '11.

Moving to the slide seven, we show our [solid] growth in accesses. As we can see from the chart on the left, in this quarter we had 16.7% increase in accesses year-over-year, with a total of 90 million accesses enhance our position as the largest telecom community in Brazil. The mobile segment grew 20.5% compared to the first quarter '11 and reached almost 75 million accesses. The fixed segment customer based reached more than 50 million accesses, with growth of 1.3% in the year-over-year comparison. On the graph on the right, we can see the details of net additions that were 83% higher than when compared to the first quarter '11. The new mobile campaigns are contributing to the mobile accesses growth, which has recorded around 3.2 million net additions.

In slide eight, we show the mobile commercial performance. In the quarter, we improved our customer mix with an annual growth of 25% in the postpaid customer base, reaching a market share of 36.5% in the segment. The datacard and M2M segment, we kept boosting our leadership and reached 43.8% market share after capturing almost 50% of all new clients. We also managed to increase substantially the number of prepaid net additions, resulting in a [super blend] market share of 29.8%.

As a result of this high adoption of prepaid customers, the ARPU [diluted] in 5.9%, also driven by MTR cuts beginning on February 24. Nevertheless, our campaign is showing good results in cash flow generation. As you can see down on the right, annual growth in recharge has been higher than the growth in accesses for the last two quarters.

In slide nine, we highlight the [subsidization] of the fixed business. In fixed broadband, we grew the number of accesses by 9.1% year-over-year and increased voice in the corporate segment. As a result, as we can see down on the left, the reach of broadband over voice access keeps climbing, reaching 34% in the quarter versus 30% in the first quarter of 2011.

In addition, a great part of the increase of fixed broadband access was (inaudible). Our fiber to the home solution, which maintain on an accelerated level of net additions during the quarter, and reach more than 70,000 accesses in March 2012, four times comparing to the rest of the year. Nowadays, it accounts for around 8,000 accesses.

It's also worth mentioning, the performance in the corporate business in integrated view, which registered an increase of 14%, in line with year-over-year, driven by increasing integrated offers.

Looking at slide 10, we can see that we managed to build a solid set of financial results even face of the three large [margin reducers] in the quarter. Number one, intense progress in integration process, number two is strong commercial activity, and number three, regulatory impact in the period. Our sales and revenue growth in the year-over-year comparison reached 5.4% as (inaudible) compared in the first quarter '11, mainly due to the impact of regulatory change as of February, 2012, which reduced the annual growth in around one percentage point. EBITDA remained stable [all-in-all] basis, reaching BRL2.8 billion, with a margin of 34.2% affectable by nonrecurrent events. Net income totaled BRL957 million, a decrease of 15% year-over-year, mainly due to the amortization of intangible assets generated by the incorporation of the Vivo into Telefonica as of second quarter '11 in the amount of nearly BRL200 million.

Now, Cristiane will give you some details on the financials, and I'll come back to give more specifics about our progresses in the operation integration.

Thanks, Paulo Cesar, and good morning, ladies and gentlemen. On slide 12, we see that mobile net service revenue in the first quarter 2012 grew by almost 13% year-over-year due to an increase in access in usage. If we exclude the impact of MTR, revenue growth would be roughly the same as last quarter. The larger customer base in our new promotions, (foreign language), have stimulated increase of outgoing voice and data, which grew 12% and 34% year-over-year respectively. Reduction in network usage is explained by the [nature of the] the MTR cuts beginning on February 24 in around 14%.

On slide 13, going into further details in data and value-added services, we see that we [captured] accelerated growth and (inaudible) revenue during the quarter, reaching 34% year-over-year. Data and VAS already represent 27% of mobile net service revenues compared to 22.5% in March 2011. The performance in this quarter was mainly driven by (inaudible) revenue, which recorded a growth of 39% in the first quarter 2012 due to the high usage promoted by our new prepaid and postpaid offers. Internet revenues increased by 25% in the same period, represented more than 50% of the data revenue as a consequence of the high adoption of 3G plans and packages and datacards, and especially SmartPhones.

In this sense, the number of SmartPhone access with data package increased four times annually. In other data and VAS services, we achieved one more time a high growth of 59%. This increase was driven by our innovative services, especially natural fit markets like financial services, security, and [e-health], also leveraging on the global capabilities of Telefonica [Jetau]. Interactive services based on [SMS] message applications and content downloading had also contributed to this growth.

In slide 14, we can observe the evolution of wireline revenue, for which reduced 4.1% annually and 3.9% quarterly, as per the graph on the left. Excluding the regulatory impact of the reduction of fixed to mobile tariffs, annual reduction would be 3.4%. [Performance] revenue that includes voice, access, and network usage reached an annual decrease of 13.8% mainly explained by reduction of traffic originated by fixed assets, by lower customer base, and by the reduction of fixed-mobile tariffs as of February 24.

Data transmission and Pay TV revenues recorded annual growth of 14.7% despite increases in competitive environment. The data [policy revolution] is related to a higher quantity effects as name from corporate and Vivo (inaudible). All this performance was reflected in the revenue mix of services provided present an increase of nontraditional services, like data transmission and Pay TV, which already represent 33% of first quarter wireline revenue. When looking to the revenue mix per business, the corporate segment (inaudible) has also improved and already accounts for 48% of the wireline revenue.

On slide 15, we've commented on operating costs, comparing first quarter 2012 versus first quarter 2011. The total operating cost totaled BRL5.5 billion in first quarter 2012, from which there was a net effect of BRL64.8 million related to one-offs reducing expenses. Excluding this effect, the recurring cost would have increased 6.8% compared to previous year. The variation of the recurring cost is due in main to the increase of the commercial activity and revenue growth in the period, as well as some of the [infrastructures] expenses related to the optimization of the facilities, new data center, and some contract adjustment with third parties according translation. The net for the season nonrecurring effect totaled BRL64.8 as follows.

Number one, personnel cost in the total of BRL130.2 related to our organization restructuring. Number two, commercial costs in the total of BRL21.5 million for the launch of the Vivo brand for fixed services. Number three, other expenses revenues presented a revenue of BRL216.5 million, explained by the sale of non-strategic assets in the period.

In slide 16, we can see on the left side that EBITDA margin reached 34.2%, 120 basis points below last year. In the first quarter, the EBITDA was impacted by one-offs, as explained in Peter's slide. Eliminating these effects during the first quarter 2012, we can see the adjusted EBITDA and margin on the right side of the slide. Recurrent margin in the quarter reached 33.5%.

On slide 17, we analyzed the evolution of the operating profit in [the last], which decreased 12.9% in first quarter 2012 over the same quarter of last year, mainly because of the growth of 21.6% in depreciation amortization in the period regarding the amortization of intangible generated with incorporation of Vivo by Telefonica.

In the right half, we show the financial results. Net financial expense decreased by BRL51 million in the annual comparison mainly due to decreases in net debt and lower returns on financial investments. As a result of lower EBIT and higher financial expenses, the net income totaled BRL957 million in first quarter 2012, a decrease of [15%] year-over-year on a pro forma basis.

On slide 18, in the top left, we can notice that the consolidated CapEx amounted to BRL1.2 billion in the first quarter 2012, an increase of 63% year-over-year due to the expansion of capacity and quality of the network besides the coverage in 3G. These investments reflects our aim to improve execution and enhance returns of business projects in the period reaching in the quarter, and CapEx per sale [reach] of 14.3%.

The gross debt on the right top decreased by 4% annually and reached BRL5.9 billion in first quarter 2012 due to amortization of (inaudible) from BNDS and BNB [debt]. The net debt on the right bottom reached BRL2.6 billion, is an increase of 34% year-over-year. When compared to the previous quarter, it decreased by 16% due to the operational cash generation.

Now, Paulo Cesar will give us his final comments. Thanks to all of you.

Thank you, Cristiane. In this quarter, I would like to emphasize our progress in our operating integration. But first, let me tell you how our investments and focus on quality, which is our main competitive advantage, are already demonstrating results for mobile and fixed services.

As I told you in the last quarter, focus on quality continues to be one our chief priorities this year, especially [in this moment] of the integration process, with which all our services will be under the Vivo brand. We are working hard to keep the good quality perception that our customers have for the mobile products and to spread the perception within the fixed products, always seeking to make the customer experience even better.

Thus, we can see on slide 20, with the continued investment in quality, we have been positioned as the best company in Anatel's (inaudible) index in 36 of the last 37 months. We have also been the fewest complaining company in Anatel's rankings.

On the fixed side, we perceived during the quarter a great decrease in the level of complaints for all services [and have reduced] annually in 30% complaints in fixed voice services and more than 20% for data and Pay TV. We also dropped five positions our level of complaints in the Brazilian consumer bureau, Procon, ranking in 2011.

In light [to anyone], we'd like to highlight the [three important] steps we had during this quarter. The first one was a rebranding of fixed services that has brought us two main benefits. Number one, a convergent customer experience for fixed clients. Number two, creation of a unified culture within the Company, focusing on the same values.

In terms of channels, we have more than 400 owned stores able to sell mobile and fixed services, trying to fulfill our customer needs. We also (inaudible) reduce expenses and be more efficient with own [brand].

The second part of step we took this quarter was our corporate restructuring, aligned with the objectives of this new company, eliminating all the redundancy of the fixed and mobile [respect]. Since we began the integration, we have been [simplifying] our process, and we felt now was the time to turn the Company even more agile, simple, and integrated. This divestment generated some cost in the present, but in the future, benefits will be proved to be much higher.

In slide 22, we are also moving on the revenue front, capturing opportunity especially in the corporate business. Large corporate and SMEs have specific needs and demand convergent, simplified solutions. We are leveraged on our integrated capabilities to attend this demand. On the infrastructure, we count on our national backbone, mobile, (inaudible) and radio, to provide services with strong reductions in OpEx and CapEx, allowing us to be more competitive on prices and maximize returns.

Our commercial approach has also been integrated. For large corporate, we count on convergent teams unifying the best skills from each site. For small and mid-sized companies, we integrate our direct, and also indirect, channels. The results can already be seen. We currently offer fixed and mobile solutions in the top five companies with some of the more important factors in our economies. Also, we are increasing [comparative] levels before the integration, and more than 40% our gross adds in complete converted solutions for business customers.

In summary, we are (inaudible) execute the plan exactly how we designed. As I said before, our goal is to maximize the operational synergies and become a full integrated company, and I'm confident we will achieve it.

Our next goals will be to fully integrate the IT, customer care, and customer intelligence to achieve better profitability and cash flow generation. And we are moving in full force in all these fronts. Our incorporation of subsidiaries, including our mobile and TV companies, into one entity will help to accelerate the process.

As I have been repeating each quarter, I am positive we have the right assets, the right structure, and the right people to execute our plans and return value to our investors every quarter.

Now we are glad to take your questions.

(Operator instructions.) Michel Morin of Morgan Stanley.

Hi, good morning, everyone. Thanks for taking the questions. The first is on ARPU in mobile. You mentioned that the mix to predominantly adding prepaid customers I think three to one versus postpaid diluted your ARPU. And obviously we know about the MTR cut. If we were to exclude the MTR cut, are you telling us that ARPU for postpaid alone and for prepaid alone would have grown? Like, if you segregate those two segments separately, are we seeing any ARPU growth?

Hi, good morning. Actually, even if we take out the impact of MTR, the ARPU would have decreased a little less, almost one percentage point less than what we presented in the numbers.

Right. But is the rest of the decline entirely due to the mix shift towards prepaid?

Yes.

Okay, so prepaid ARPU was perhaps stable, or even up slightly, same thing for postpaid. Okay.

Yes. The only reason, it was a mix.

Okay, great. And then, on slide eight, I was hoping you might explain the chart on the bottom right a little bit better. It's not clear to me exactly what the percentage of recharge year-on-year represents. So you're showing that your recharge activity is growing faster than your prepaid subscriber growth. What specifically are we looking at here?

We are trying to show here that we started to grow [fast] from the first quarter of 2011, much more in recharge than the actual base of prepaid, meaning that, in the future, the recharge become revenue. So we have [descendancy] that we started to do last year.

Okay. so we are looking -- that 23% is essentially the amount that has been recharged during the first quarter? It's up 23% year-on-year in reais?

Yes.

Okay, perfect. Thank you very much.

Welcome.

Andrew [Gamble] of Credit Suisse.

Yes, good morning, it's Andrew Campbell. My question was related to mobile data. And you mentioned that the very strong growth in SMS, but the growth in mobile Internet was actually a bit lower, the 25%. And given the very strong increase that you saw in the SmartPhone base, perhaps we could have expected a bit stronger growth there. So if you could provide any additional color on what's driving that growth and what the dynamic is there? Thank you.

Actually, we -- hi, Andrew. Actually we grew 25% this year in Internet, and we showed already that the number of customers that have Internet package grew four times more. You know that we had increase in the past in the last quarter more than this because, as long as our base of Internet plans increase, also the bases are higher between the [use, and that's why I explained the reduction in the growth.

I don't know what else you want to understand regarding these two graphics, Andrews.

Okay. Do you think that you're seeing any kind of saturation in that market, or is it an issue with pricing, or is there anything creating any headwind for them?

Of course, we have seen some pressure in pricing in the plans that we have together, the voice and the bundles. We try to grow out the number of clients' package. That's why today (inaudible) it's very important for us to make an activation right on the store. How is the data plan? In the past we had this presentation much lower than we have today, and that's why we think that, if we have much more penetration in data package in the SmartPhone, we can compensate a little bit of reduction in pricing that we may have in the pricing of voice and bundles with Internet plans.

Okay, thank you.

Welcome.

Fabio Levy of BTG Pactual.

Hi, guys, good morning. I have a question on your strategy to continue to sell your towers. I don't know how much you have, going forward, to sell more towers. And what is the negative perspective of selling those towers? What could be negative on doing that? That's the two of my questions. Thank you.

Okay. We sold towers last year, the only towers that are non-strategic for our business. We don't think that this will reduce our capacity to continue to grow our mobile services using the towers and the [types]. Of course, we have a rental expense that we had before, but we think that we can make very good credit contracts with the new sites and compensate increasing costs. So the only thing that's important to understand is that we are selling only the towers that are not strategic for our business. Does not create any (inaudible) in the future.

I see. Do you have much more to sell?

We are always looking for opportunities to segregate the towers that are strategic, and these ones we will never sell, and the non-strategic. We cannot talk about these numbers right now, but it's important to understand that we are always looking for non-strategic assets that we can sell, resulting impacts in [negative dollar] business in the future and without causing any constraint.

I see. And do you have the expenses that could increase, going forward, in that (inaudible) basis from what it -- have already been sold? So do you have an amount that you could share with us?

Okay. We do not disclose this number for the future, but what I can assure you, that this expense that we are having right now is below average of market price.

Below 95?

Market price, below average of market price.

Okay. Thank you.

Welcome.

Vera Rossi of Barclays.

Thank you. My question is about your fixed line voice business. when do you expect the decline in fixed line voice to slow down? And what needs to happen first to see this slowdown in decline?

Thank you, Vera. We are working hard in this time for this point. We think the fixed line -- the evolution of this business is so hard because the people are prepared to use the mobile, but to our -- make bundle [with] our base -- to have a base, which today one-third of this base who have a fixed broadband and who are now implement some offers in the mobile segment to put together with the fixed lines. Our expectation is to [stable] this business, but it's so hard to do this, but we are working hard.

And do you think, in addition to lose your subscribers to mobile companies, are you losing also to your competitors, [Naturvesus] and GVT?

In some places we [have to] have a competition against GVT, it's a point that we focus to implement our new network. We have focus on implement our fiber to the home solution. And now, we have two projects implement more our mobile (inaudible) [node] services to increase the capacity to offer better offers than our competitor in these area.

I see. What's the number of homes passed now with fiber?

We have one million.

One million. Okay, thank you.

Miguel Garcia of Deutsche Bank.

Yes, good morning. My question is regarding your (inaudible) strategy. Looking at the growth of broadband and Pay TV, it looks like it hasn't been very successful, even in this quarter, especially where we saw this connection of Pay TV. I would like to know, when could we start seeing a higher growth in these areas, because, I mean, looks like you have reached a good quality in your network, as you said initially, with less complaints. And the economic environment also continues to be very positive. So I would have expected a better performance in this area. Could you explain why this still so slow, and what could you expect, going forward, in terms of improvement? Thank you.

Thank you, Miguel. About television, we have now -- a very good point, because we are in the process to have a transformation in this business. We have some point like (inaudible) that's (inaudible) base that is decreasing, but we have to clean up discrepancy [band] to be able [provide] mobile services. And in terms of the Pay TV platform, lot of substitution on this platform for the second half of this year to put a new platform. It's not -- makes sense to me additions in this [goal] platform.

And in case of [BTH] solution, we have now (inaudible) lower in terms of investment in this business, and we are looking forward to recover the profitability of this business and to [understood] the best way to approach the opportunity of this business.

In case of the mobile -- the fixed broadband, we have the seasonality of the markets. We are the numbers -- in the number that we have now in the first quarter are not so high, but [we are] focused to exploit all the capacity that we have, and our focus is to have more clients [seeing] the ultra broadband in more areas in Sao Paolo, in the 50-city Sao Paolo state, in the main (inaudible) in Class A and Class B that we are growing very fast in this solution.

Well, yes, but going forward, I mean, you're growing at 9% in terms of ADSL subscribers, and you were growing at 20% a year ago. Is a lot of this because there is saturation in the market, or we could see again double-digit growth, going forward?

In the last year, we are growing 20%, no? But in (inaudible) we're growing 9%. The market just has -- all our competition have an added solution, like mobile broadband, too, no? And we are focusing mobile broadband in the same way. But our focus is to have the high portfolio in this market, to have good offers, to retain our main subscribers in our base, and then a focus to have good clients.

In terms of the fixed broadband, the number that we are showing is not so high, but our focus is in ultra broadband that the numbers are so good.

Okay. By the way, you mentioned before the fiber to the home. How many subscribers do you already have with the service?

We have closed the year 50,000. Now we close the quarter with 70,000. And nowadays, we have almost [8,000].

80,000 already. Okay, great. Thank you.

Soomit Datta of New Street Research.

Good morning, a couple of questions, please. Firstly, on CapEx, the CapEx billing in Q1 was up quite strongly on last year. And can I just check, you're still comfortable with what I think is your guidance for flattish CapEx for full year 2012?

And then, secondly, just going back to the issue of fiber, first of all, can you give any indication as to what ARPU uplift you're getting on an ultra broadband customer? And secondly, what are you seeing, if anything, from TIM and their fiber deployment in the region, please? Thank you very much.

Hi, Soomit, I will take the first one. The CapEx was higher than what had last year in the first quarter due to the deceleration that we had in some very important projects, but we have -- can't have the payback this year in 2012. But even so, we are comfortable and confirm the guidance that we gave for the full year.

Okay, thank you.

Paolo? Yes, Paolo, you're going to take the second question.

About fiber, our project of fiber, we are -- we have now one million homes passed we (inaudible) the cable, we have 1.7. We have now a base with some fixed and cable. Our more than 180,000 clients in this segment. And our focus today, what I said before, is this, and we are -- they're prepared to compete against in fiber in these areas, no problem.

And just maybe on ARPU, I mean, you added around 20,000 fiber subs in Q1, I think you said. What sort of ARPU uplift are you getting on those customers relative to a traditional copper broadband subscriber?

We do not disclose the ARPU of this service, okay?

Okay.

Susana Salaru of Banco Itau.

Hi, good morning, guys. If you could, I just wanted you guys to elaborate a little bit more on competition, specifically on the mobile broadband. We have been seeing AMX (inaudible) being very aggressive on the mobile broadband. And considering that, and what do you see, going forward? What will be your recurring EBITDA margin considering the competitive landscape has been deteriorating? Thank you.

Susana, about the competition mobile broadband, I think we have the best quality of the network. We have the coverage, like 3G coverage, 2.7 (inaudible) at this moment, and we are increase a lot our coverage in 3G. What I can say is that we are maintain our profitability of this service. We have good prices. We have no idea to [compete] in price because we think we have the depreciation of coverage and the -- about the quality, and our focus is to maintain an offer that we have now in the market. We are growing very fast. We have more than 50% of the net adds in this market, and we think we are in the right place.

If I may add one question, do you believe that participate in the 4G auction will be key for you guys to continue with this position in the market?

We are now in the middle of this process. We are analyzing the final rules, and we are defining our strategy, [just it].

Okay, (inaudible). And on the EBITDA margin, recurring EBITDA margin, going forward?

Yes, hi, Susana. About the margin, as you know, we do not provide for any guidance for future margins. We believe that we had a very strong quarter regarding commercial activity, and we do not provide -- we don't believe that we would decrease [very strong] with the margin, but we cannot talk about the future.

Okay. And sorry, just one more question. Regarding the net adds of April, we saw that it was in a different level that you are used to. Any comments on that?

No comments, [saw] some seasonality also in April regarding the additions that we had in the first quarter of 2011, was natural in [our (inaudible)] March and April, Susana, nothing additional and no changes.

Okay. Thank you.

Ivon Leal of BBVA.

Oh, yes, hello. Good morning, everybody. Coming back to the fiber, just one question on the -- do you think the right moment to reconsider speeding up the fiber rollout, given that you're seeing good numbers on fiber uptake in Q4 and first Q, and actually you just commented that you plan to give a new push out to the Pay TV strategy, and if you would be reconsidering investing a bit more on CapEx.

And the second thing, coming back to the margins issue, should we expect all these savings as coming from the integration and restructuring to flow into the P&L, or actually you think [this moment] to reinvest that on commercial activity to continue gaining market share in the market?

Yes, thank you for the questions. First of all, about the fiber, we are increase the fiber home connect, or our focus now is to have more connections, more people connecting these services. We have IPTV solution for the second half of this year that we implement in this fiber, too, in the cable, too, and we understand that our focus, correct, we -- our focus now is to have multiple connect. And with the solution [of] ultra broadband now and in the second half of the year, we [implemented] this solution.

Could you give a number on the target for homes connected in one year or two years?

Oh, no. No, no.

Hi, Miguel. About the savings, we are not done yet with the savings that we think we can accomplish within this integration. We have been working very hard in the process and the [efficiency] system so we can capture a lot of synergies regarding process that is not very fast, not so quick win. We closed since the beginning the operational synergies for 2013, the biggest part. We cannot talk about the savings that we had right now with the restructuring, how it's going to represent in the future.

But what's important for you to understand is that you said that -- to focus on the commercial activity. We did not stop any kind of focus on a commercial activity in the projects that we already have. So we are doing both things together, not impacting our commercial level of projects and deployments we're doing the network. So two separate things. One has one timing, the other one has different timing. We're doing both together.

Okay, thanks very much.

Welcome.

Andre Baggio from JP Morgan.

Good morning. Just [along] on I think Susana's question on the EBITDA, recovering EBITDA, is it fair to say that recovering EBITDA on year-over-year basis was either flat or slightly down? And if that's the case, what's really behind that?

Year-over-year, actually we could say it's flat. We have been facing a lot of pressure on competition also, although we are not reducing very strongly our pricing, but of course this quarter [except] a little bit with commercial. We also had some other pressures in the quarter, but I would say that year-over-year is flat without any very important impact that we could postpone for the future, negative impact, I mean.

Sure, but flat meaning -- flat in nominal terms, which is probably not a great discussion, because we're seeing inflation [run] at five, and then, also even in revenue increasing to three or four.

Yes. But like I said in the previous questions, I was explaining about the opportunities that we have with integration. Some of them are going to be captured only from 2013, so in that moment we can capture more opportunities in terms of EBITDA margins and efficiency.

Okay. And also, in terms of the tower sales, how much that will cost in the -- do you expect that to cost in recurring EBITDA per year? Because you sell the towers, I imagine that you're going to assume some extra cost of leasing that towers. Is this correct?

Yes. We do not disclose for this information, but like I said also before, the prices are lower market prices, and does not have a relevant impact on our cost as a whole.

Okay. All right, thanks a lot, Cristiane.

Welcome.

Carlos Sequeira of BTG Pactual.

Hi, good morning, guys. I have one question. There is no question that the growth of the fiber to the home client base has accelerated in the past months, but it's still quite timid to have an important (inaudible) client base. Do you have any plans to speed it up, just -- I know that you have, like, a million clients connect, the homes passed, and 1.7 million have the cable network. But the number of clients connected are still only 80,000. Are there any plans to speed that up, to make it really relevant compared to the whole client base you have? Thank you.

Carlos, thank you for the question. What I said, we have now 1.7 million homes passed. If you add cable plus fiber, we have more than 180,000 clients new to our broadband services. And we are growing in this market. It's a market that, for our premium price, for our premium clients, no, and we are preparing to launch a solution TV, the IP solution TV, in the second semester of this year to reinforce our position in ultra broadband and TV solution. But it's our premium services, okay?

Okay. Okay, I see. Thanks.

Rizwan Ali of Deutsche Bank - Analyst

Yes, good morning. I have two questions. One is about your store product, Vivo Directo, just want to know how that expansion has gone and how many [stragglers] you added on their particular program. And second is about whether you see any difference the way -- [OEs] competing in the market have become more aggressive in broadband, or on Pay TV or wireless.

Thank you, Ali. About PTT, we have -- the solution is going very well. Our focus now is the corporate market. The Brazilian market has now only -- the total operators in Brazil have now unlimited plans, and for (inaudible) affected naturally this solution that we had. But our focus is to implement the solution to increase a lot with PTC and with our regional direct in their corporate segment. It's going very well. It's growing month by month.

In case of our competitor, our work at -- ask about [OE]. I think the market certainly will have more active player in this case, but should not be [delivering duration] of competition, no, in this case. And we have a large market in Brazil for many opportunities for many players. But I think you have more strength about our infrastructure in Vivo in coverage, 3G, quality and brand. We are well prepared for this competition.

With regards to Vivo Directo, I mean, so far, are you suggesting that, so far, the subscribers who have taken up the package are more residential and now you'll start focusing on the corporate customers?

So we start with more residential, but when we launch our unlimited plans change the situation, and we have more now -- we are selling more now for the corporate market, okay?

Michael Morin of Morgan Stanley.

Thanks for taking the follow-up. I don't know, Cristiane, did you say that, in terms of personnel -- we know that you took BRL130 million in expense this quarter, but are you prepared to say what kind of savings we can start to expect seeing and whether or not we should expect to see those beginning in the second quarter?

Yes. Hi, Michael. We do not disclose this information, actually. We cannot affirm that we are already 100% done with this process because it takes a while in some areas and some processes, that have to implement some changes in process, and maybe to analyze a different improvement in all the changes in [personal]. That's why we don't have the total complete information right now, and we prefer not to disclose any savings that we had from these specific (inaudible) that we did in this quarter.

Okay. And then, separately, I know that Anatel is looking at some new regulation regarding dedicated lines and the pricing of dedicated lines for carriers with substantial market power, which I think you are one of the three that are listed there. Can you talk to us, or give us a sense of what kind of impact you think that that new regulation could have on your business? On your revenues, but, more importantly, on your EBITDA.

Hi, Michael. I think it's better to wait for the regulation. I think we also to have negative in state of Sao Paolo but positive outside of Sao Paolo. I prefer to wait for the final regulation is approved.

Okay. Thank you very much.

You're welcome.

Stanley Martinez of Legal and General Investment Management.

Thank you, and good afternoon to you. Just two questions. First, a follow-up on Vera's question on the fixed line business, but focusing on the data transmission revenues. Could I get a sense for what proportion of those you consider to be legacy, frame, relay, ATM, PBX, versus IP products, and get a sense for how far along you are in the product transition with respect to revenues?

And then, secondly, on the balance sheet, I just wondered, are there any inter-company loans at this point between Telefonica Brasil and the parent company? And even if not, now that you're below BRL6 billion in gross debt, have you or your parent company given any thought to potentially borrowing, at the Telefonica Brasil level, rather than at the parent level, given that you probably have a fairly substantial cost of debt advantage in Brazil for the first time rather than at the parent company? Thanks.

I'll take the second and the third questions, then we come back to the fixed line questions for Paolo. For the second, I do not have any inter-company loans between Telefonica Brasil and parent company. And about loans in Brazil, there haven't been (inaudible) orientation for borrowing just for lending even to parent company and other. We cannot do that. Of course, we are always open to have good cost of loans in Brazil to finance the projects we have internally.

Okay.

Okay. About our infrastructure, that's very [seasonal] for corporate business. I think we are in a good position because we are adding always to have the mobile with the fixed, and we are proving now ultimately solution like [VPN, AP, IP] (inaudible) for our corporate business. And we are increasing this market. We made the solutions that we have the focus to implement the solutions and use it in diversified situations (inaudible) our business, and we are focusing this, okay?

Okay. Thanks, Paolo. Thanks, Cristiane.

Alex Garcia of Citigroup.

Good morning, everyone. Hi, Cristiane. Hi Paolo Cesar. Cristiane, I was wondering if you could update us in terms of the integration cost process. I have a number in my mind I would like to confirm with you that was, like, BRL450 million total integration cost. So we had BRL130 million in Q1. It's probably going to be another BRL100 million in terms of rebranding in Q2. So I was wondering if those are the right numbers so we would still be left with BRL200 million, BRL200 million-something for 2012. Just wondered if you could update us on where we are and where are you guys in terms of expected integration costs and how much you guys have spent on that. Thank you.

Hi, Alex, good morning. Actually, the BRL400 million that were disclosed in the beginning by Telefonica was, of course, an estimate that were done in the past. The numbers are looking forwards to reduce as much as we can. Regarding the future, we cannot talk about the second quarter, and third and fourth, but I can advance (inaudible) brand. We just made the launch in the brand April 15, which (inaudible) information and brand here regard information that we send to the clients say that they're going to change their products, specific products for the brand of Vivo. But the launch, the specific launch and the campaign on TV started to be presented as of April 15, and took almost one month with this information.

So of course, it will have some impact also in the second quarter. (Inaudible) relevant and also very different from what it had in the cost that it normally had in TV in communication process. So from the other items, I'd prefer to wait, give them the next quarter, Alex.

Okay. Okay, thank you. And another question regarding the MTR cuts. I mean, we saw -- you guys mentioned BRL22 million impact. We could stretch that to BRL60 million in the quarter. But I was wondering if you guys have any sensibility on when price elasticity could work on your side, and if that elasticity would be low or it would be closer to one.

Okay. Alex, first, I don't think that we could make the BRL22 million that we had in March, only for three months in the total, because it's not a very accurate account considering that February is a very small month and January is very seasonal, also. But we have some calculations internally, but we don't want to change what we said before. The impact would be around sort of 2% or a little bit lower the EBITDA of the full year. And maybe elasticity would change a little bit and reduce this impact.

For now, we don't have this impact calculated to disclose for you.

So, no, great. So just to clarify that 2% impact on the full -- the 2012 EBITDA, it doesn't consider price elasticity?

Yes. No, it doesn't.

Awesome. Awesome. Great, great. Thank you, Cristiane. Thank you, Paolo Cesar.

Okay.

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

Thank you all. As I have been repeating each quarter, I am positive we have the right stats, the right structure, and the right people to execute our plan and return value to our investors every quarter. I hope to see you again in the next presentation of our second quarter results. Thank you very much.

Thank you. This concludes today's Telefonica Brasil first quarter 2012 results conference call. You may disconnect your lines at this time.