Telefonica Brasil SA (VIV) 2012 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 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 conference on the website. After the Company's remarks are over, there will be a question and answer session. At that time, further instructions will be given. (Operator instructions)

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the 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 4Q 2011, the YTD 2012 and 2011 figures were 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 call over to Mr. Paulo Cesar Teixeira, CEO of Telefonica Brasil. Mr.Teixeira, you may now begin your conference.

Good morning, ladies and gentlemen. I'd like to thank you all for attending this conference, for the fourth quarter fiscal 2012 results of Telefonica Brasil. These are the highlights of today's call.

In this quarter, we continue to see the results of our quality focus, which is reflected in the strength of our brands. We have remained leader in succession with the mobile and fixed customers, and our brand is clearly recognized by the market as the best option and quality.

In mobile, we continue with our selective approach, focus on gaining shares in high revenue segments, and maintaining efficient growth (inaudible).

In the post-paid segment, we had the highest growth in the market, capturing 2.7 million customers, which represent 39% of net additions during the year. Our focus on value generation is evident, when we see the results of the quarter.

During fourth quarter 2012, we balanced healthy growth in mobile and stabilization of fixed revenue decline with strong profitability. The margin for the quarter, excluding non-recurring effects, increases especially quarter of quarter and reaches 35.7%. As a consequence, our profit and cash flow closes the year with strong performance, allowing for a strong dividend distribution proposed by the Board, which will result in a dividend yield of 8% and a payout of 96% of the profit in the year.

On page 4, our differentiated quality is once again evident in fixed and mobile services. On the left side, you can see that the perception of customers, as measured by an independent research institute, is much greater for VIVO than for our competitors in mobile and fixed. We have been working hard to continue improving operations, and delivering a differentiated experience, something you can see on the top of mind of 2012, driven by Folha de Sao Paulo, in which VIVO has been the leader among mobile operators for the last five years.

In addition, the excellent perception of our brand, also measured by an independent institutions, shows that we are recognized as having best quality of signal, best coverage, best customer care, and best portfolio of handsets. We are confident that these strengths of our brand give us (inaudible) goodwill to improve profitability of the Company as we deploy new services.

Moving to slide 5, our strategy to increase value is basic, monetize our profitable mobile base, and stabilizing our fixed base. In mobile, we accelerate the growth in data and post-paid, which is enhancing our value generation. The chart on the left show that this quarter, we had a 4.9% annual increase in total accesses, ending the period with 91.1 million total accesses.

In the mobile segment, we have been more focused on post-paid and data, while being stricter in our prepaid disconnection policy, which is improving customer profitability. The mobile segment grew 6.5% year over year, to 76.1 million accesses. The fixed segment customer base achieved 15 million accesses.

The chart on the right details our performance in higher revenue segments, namely, mobile post-paid and mobile data plans. We are growing faster in post-paid and data, leveraging our competitive advantage. We increased our base by almost 5% quarter over quarter.

Data, we also keep increasing, driven by growth in smartphones and data cards attached to 3G Plus plans. We reached 12.4 million customers in December 2012, and accelerated the growth by 24.2% quarter over quarter. (inaudible) again our selective approach in prepaid has led to efficient growth in recharges.

In the quarter, we improved our customer mix with a year over year growth of 17% in the post-paid customer base, reaching a market share of 36.9% in the period. In data cards, we still have almost half of the market, despite increased competition in this segment.

In the prepaid, we reduced the (inaudible) of the annual growth and recorded plus 3.4% year over year, explained by an even more strict disconnection policy during the quarter. Our disconnection policy now applies to customers that meet two conditions at the same time. No recharge activity for 60 days at the expiration of previously charged, and 50 days with no (inaudible). Of course, our new disconnection policy has reduced and may continue to reduce our reported market share of accesses, which is not a driver of value.

As an aside, if our policy, we are the same as the one (inaudible) by the second player, our mobile customer base would have increased by around 7.8 million accesses in December 2012. But the efficiency of our strategy, as you can see on the bottom right, reduced a more active customer base, which is delivering our 14% annual growth in the financial volume of recharges.

On slide 7, we show that our better mix of additions and efficiency in acquiring new clients significantly reduced payback per customer. The better quality of our customer base is reflected in the evolution of our ARPU, which increased almost 8% quarter over quarter, and achieved BRL23.9 in fourth quarter 2012, driven by increases of the ARPU, which grew almost 11% quarter over quarter. If you excluded the effect of the MTR reduction, for the first time, we would see a movement towards stabilization of the ARPU on a yearly comparison.

As you can see, on the top right, the subscriber acquisition cost, SAC, decreased 29% in the year over year comparison, reaching BRL42.5 in the fourth quarter 2012. In contrast, the percentage of smartphones over total adds climbed from 42% in the fourth quarter 2011 to 68% in the quarter.

Finally, our payback on customers improved during the period to 1.8 months, and decreased by 27% annually, showing the consistency of our commercial strategy.

On slide 8, we can see that the fixed broadband and fixed voice maintained annual improvement. In fixed voice, we had during the quarter net connections of 68,000 accesses, more than the 57,000 recorded during third quarter 2012. But it's still far better than the performance in first half 2012. We faced pressure due to seasonality during the fourth quarter 2012, plus as I told you last quarter, I am still confident that integrated promotions are, and will continue to improve loyalty.

In fixed broadband, we grew total accesses by 2.8% year over year. We are working on repositioning our broadband customers in face of a much tougher competitive landscape. One of our competitors (inaudible) aggressive pricing, and offered higher speeds, creating a larger [gap in] ARPU. We have been upgrading speeds for broadband customers, especially during the second half of the year, when we did our (inaudible) migrations. In this sense, we increased by 65% since June 2012 clients with data plans of more than 4 megabits per second. We are improving adoption in FTTH, where we increased 2.2 times the base in one year.

But we are not happy with our general performance in the fixed business, mainly in TV and broadband. We are in the process of implementing a strong (inaudible) plan to turn around this business. Still, we are proud of the launch of our new IPTV platform. We implemented the platform in October, mainly for VIVO Fibra customers and we expect to improve results during 2013, because we offer this platform to our cable customers.

At the end of the year, we also launched our (inaudible) solution for TV, VIVO Play, for a very complete portfolio of content.

On slide 9, we can see the evolution of the Corporate business. Because of our increasingly convergent structure, we had significant annual growth rates on different fronts. In the fixed voice, we had a growth of 10% in accesses, with an ARPU 50% higher than the average of the market. We more than doubled fixed ultra-broadband Corporate accesses. In addition, we increased by 13% the number of Corporate mobile accesses, and by [more 11] percentage points the proportion of customers with data plans.

Page 10 shows that the recurrent profitability reached 36% in the quarter, and drove consistent business results for the year. Our total revenue growth in the year over year comparison reached 3.6%, an improvement compared to the fourth quarter 2011. In the year, revenue grew 2.3% over 2011, overcoming the MTR and the (inaudible).

The wireless services revenue kept a strong increase of 7.4% year over year in the quarter, and 9.7% in 2012. If you exclude the effect of MTR cuts, this line would have grown 12.1% on a cumulative basis.

In fourth quarter, EBITDA registered an increase of 16.5%, reaching BRL3.9 billion, with a margin of 43.3%. Even when adjusting for the impact related to the sale of non-strategic assets, margins for the quarter would show a [sudden] improvement, reaching 35.7%. In the year, EBITDA reached BRL12.7 billion, with an accumulated margin of 37.4%. Net income totaled BRL1.5 billion in the quarter, and BRL4.45 billion in the year.

Moving to slide 11, we can see that we are the indisputable market leader in revenues and EBITDA share, with strong operational and financial management, which led to higher EBITDA growth and superior growth in cash flow after investments.

Now Cristiane will take us through the financials. After that, I'll come back to the give you the highlights of our strategy.

Thanks, Paulo, and good morning, ladies and gentlemen. On slide 13, we see that mobile net service revenue reached consistent growth in the fourth quarter 2012. Sequentially, mobile service revenues grew 7.8%, consolidating a good sequential growth in the last three quarters.

Comparing fourth quarter 2012 over fourth quarter 2011, we increased 7.4%. Excluding the regulatory impact, revenue growth would have been 9.6% year over year. Access and users grew 9.3%, and data 17.3% year over year, demonstrating how successful our campaigns were during the quarter.

The reduction network usage [justified] by the MTR cuts of 14% made in February. In the year, mobile service revenue increased 9.7%, mainly driven by data revenue growth. By excluding the regulatory impact, mobile service revenue would have grown 12.1% in 2012.

On slide 14, data and VAS performance is presented. The value added service recorded annual growth of 17.3%. Thus, data and VAS already represent 29% of mobile net service revenues, compared to 26% in fourth quarter 2011. In the year, data grew 21.7%.

The performance in this quarter was driven by Internet revenue, which has been accelerating on the back of new 3G Plus offers and stronger smartphone adoption. In this sense, Internet revenue grew year over year 21.1% in fourth quarter 2012, versus 16.4% in third quarter 2012, and 15.8% in second quarter 2012. Message revenues increased by 11.4% over fourth quarter 2011.

On slide 15, we [face] the wireline revenues evolution. As you can see on the left side, wireline revenues slightly decreased 1.1% quarterly, and reduced 7.6% annually, almost the same trend presented in third quarter 2012. On an accumulated basis, the total decrease compared to 2011 was 7.7%. Data transmission and pay TV revenues recorded an annual decrease of 3.2%, due to a more competitive environment, especially in broadband, with aggressive pricing in (inaudible) media communication, which led us to reduce its share of additions during the quarter.

In the pay TV business, we recently launched our new IPTV offer in our Over the Top solution to help improve trends in the business.

Other revenues increased by 3.2%, when compared to the same quarter of 2011. Looking at the graphs on the left side, we see that the voice and access revenue decreased 12.7% in fourth quarter 2012, versus 13.4% in third quarter 2012, and 17% in second quarter 2012. This reduction confirms our improving trend in fixed voice, driven by cross-selling offers like VIVO Favoritos.

On slide 16, we bring the operating cost evolution compared in fourth quarter 2012 versus fourth quarter 2011. Disregarding the non-recurring costs, fourth quarter expenses would have slightly increased 1% in comparison to the previous year, showing our rigorous control of costs. Our cost management in personnel and G&A must be highlighted. In personnel, [an express] reduction was filed in this quarter, reflecting the catch-up integration synergies from our workforce adjustments throughout the year. G&A reduced on the back of contract renegotiations, among other efficiency initiatives.

At the same time, you can notice the commercial activity keeping a reasonable pace of growth. Goods sold cost increased 30.4%, due to the higher volume of smartphone sales. Selling expenses increased due to a greater mix of post-paid in data customers, which have a higher commission per addition, besides the larger base of access.

Other costs increased mainly due to the increase in the provision for contingencies inherent to the business.

Total operation costs summed BRL5.1 billion in the fourth quarter of 2012, 4.5% lower than a year ago, including a net effect of non-strategic asset sales of BRL675 million in the quarter.

On slide 17, we comment on our EBITDA. Our recurrent EBITDA margin, excluding one-off items, has been sound for the last two quarters, showing the results of our commercial focus on value generation, and reaching 35.7% in the fourth quarter 2012.

On the right side of the slide, the EBITDA margin reached 43.3%, with EBITDA totaling BRL3.9 billion in the quarter, an increase of 16.5% year over year. In the year, EBITDA margin reached 37.4%, with a total EBITDA of BRL12.7 billion, 5.6% higher than last year.

On page 18, we analyzed the evolution of the EBIT. It reached BRL2.4 billion in the fourth quarter 2012, a 21.7% increase over the same quarter 2011. Net income in the quarter achieved BRL1.5 billion, and resulted in accumulated profit of BRL4.45 billion in 2012.

Net financial expenses in the quarter increased 34%, as a result mainly of higher tax expenses over the interest on capital paid by (inaudible) Telefonica Brasil. In the year, the increase of 62% is the result of the larger average growth (inaudible) during the year. In addition, the free cash flow after investments in 2012 reached an increase of 47% year over year.

Following to slide 19, we comment on CapEx and debt. On the left side of the page, we can see CapEx reached BRL6.1 billion in 2012, in line with market expectations. Also, CapEx increased 6.5% over last year, or 0.7 percentage points over net income revenue.

Excluding the spectrum acquired in the amount of BRL1.05 billion in 2012, and BRL0.8 billion in 2011, CapEx would have grown 2.8% year over year, and CapEx per sales would have remained stable in around 15%. The net debt on the right reached BRL0.4 billion, a decrease of 86% year over year, due especially to our operational cash flow generated in the period.

Now, Paulo says he will take us through the strategic highlights. Thank you to all of you.

Thank you, Cristiane. Moving to page 21, I illustrate the main evolutions achieved in the five pillars of our strategy that you may have seen before.

In the first pillar, in April, we rebranded our fixed services so that VIVO became the commercial brand for all services. We also launched some initiatives, like VIVO Valoriza and VIVO Favoritos.

In the second pillar, we had important achievements. The 4G spectrum acquisition was crucial for our data evolution. Our new data center will improve our ability to be convergent. During the year, we also expanded our digital coverage to almost 90% of the population, and in October, launched our new IPTV platform.

In the third pillar, the launch of new products and offers during the year added to the Company's profitability. VIVO Sempre Internet was a huge success for our prepaid, and the smartphone 3G Plus brought higher speeds in succession for our post-paid clients. VIVO Box gave us an alternative to grow, with profitability in broadband.

In the fourth pillar, new partnerships reinforced our capacity to innovate and capture new opportunities. Among many others, VIVO Kantoo, and our giant efforts with MasterCard, are examples of services with great potential to create value for the Company in the long term.

Last but not least, the fifth pillar drove us to a better operational model by integrating our working facilities, making new partnerships, share infrastructure, and become more virtual on lines and connections. I represent to you in the next slide some of our main goals for these pillars.

Going to slide 22, the left of the slide shows the state of the business when I took over as CEO in the third quarter 2011. On the right side of the slide, you can see the goals that I set, and I am pleased that we are at -- achieved some of our targets.

For example, we now have only one brand for all Telefonica VIVO services. In the customer intelligence front, we are moving towards having a single vision of the customer, managing them for all services they have with us.

In terms of the channels, I have been promoting an integration of our own stores, which now sell fixed and mobile products. I am also aiming to converge IT infrastructure and billing, always focusing on improving the quality of the services [handled], and simplifying the life of our customers.

My ultimate goal is to move from cross-selling to effective bundling of all our services, which will provide a more cost-efficient and superior offering to our customers. In this way, we can simplify their lives with one-stop shopping and convergent customer care.

Moving to slide 23, you see our main goals for the year, as part of our lasting quality proposition, our convergent infrastructure. In our network, we plan on expanding our ultra-broadband footprint to profitable areas even more. This will allow us to provide more customers with FTTH.

In regions where we do not currently have fiber-to-the-home, we will (inaudible) our copper network with (inaudible) as an alternative to fixed, or via Internet in 3G Plus and 4G are also being considered to serve customer needs.

We will continue to strengthen our fiber backbone and backhaul through investment in sharing, to make it able to handle the expected rate of data traffic, while sustaining our service and quality.

In IT, we will continue our path of convergence and simplification, making our infrastructure more dynamic and robust, focused on the client. We plan, among other initiatives, on simplifying our applications and IT structural map, and consolidating our data center to support our growth for the future.

Moving to page 24. In 2013, we will continue with our aim of growing with profitability, in three different strategic objectives, we will divide our action.

First, keep momentum in mobile. We will focus on growth in 3G Plus and 4G, leverage our advantages in quality, customer base, brand, frequency band, and network infrastructure, to be the best provider of 4G services in the market.

Second, protect the value in fixed services. The focus on bundling and cross-selling, expanding and accelerating adoption in FTTH. In TV, by implementing a tactical plan to turn around the business during the year.

Third, consolidate leadership in Corporate. Converge fixed plus mobile, grow innovative services and products, expand ITS services, and use our new data center to unlock new opportunities like services in the cloud.

Altogether, those three guidelines should lead us to improve ARPU and loyalty, gain share in higher revenue segments, support us in our chase for profitability.

We move now to slide 25. Innovation is a key element in our strategy, as we have been taking many actions to be ahead. In this quarter, we have three new events that we wanted to emphasize. The eHealth Telefonica Digital, the unit of digital services of Telefonica Group, just acquired Axismed, a leading player in management of chronic disease to be even more present in the eHealth segment.

In financial services, we've developed a partnership with MasterCard, and we are creating many initiatives such as a prepaid account that do allow customers who have had access to banking services like transfers, payments, recharge, shopping in stores, and a simple (inaudible).

We are also expanding services in M2M, increasing our customer base in 108% year over year. We captured almost half of the net additions in the market in the second half of the year.

Now, on page 26, in the process of transforming our operational model, we have been working hard to take our efficiency to the next level, and [we have achieved] some strong results. We are leveraging our virtual channels in many different fronts.

During 2012, we increased customers with online accounts by 10 percentage points. In addition, the volume of Customers Care via SMS in December 2012 was 3 times higher in comparison with the beginning of the year, and already reached around 15% of our total (inaudible). Meu VIVO, a selfcare channel via Web, achieved 16 million (inaudible) users, growing 64% in the year.

Apart from our complete and convergent online store, we also developed some important events in sales channels, always aiming the best connection with our customers. The year, we extend the possibilities of pop-ups, including Facebook and PayPal for example.

Besides utilization, (inaudible), we continue evolving in other fronts like optimizing customer management, driving network efficiency, enhanced IT infrastructure, and reinforcing a culture of excellence.

Finally, in slide 27, in summary, we are happy with our results. The profitability of the business, our increasing leadership in higher revenue segments, and the succession of customers, demonstrate the success of our strategy. We evolved well in 2012, and integration is already a reality inside the Company.

In 2013, we will continue moving towards convergence, attending all telecom customer needs in (inaudible) way, so as to simplify their lives.

Innovation and efficiency will continue to be some of our main goals, but quality is and will continue to be the driving force behind our strategy.

Thank you. Now I would like to open for questions.

At this time, the floor is now open for questions. (Operator instructions) Our first question comes from Andrew Campbell from Credit Suisse. Please go ahead with your question.

Yes, good morning. My question is on the EBITDA margin performance in the quarter, because typically in the fourth quarter, we see more commercial expenses, we see a weaker margin sequentially, which was not the case this year. So I was wondering, even stripping out the non-recurring gains, if there was anything else that was unusual about the fourth quarter this year that would make this margin unsustainable, or do you believe that this is a good level of margin, looking into 2013? Thank you.

Hi, Andrew. Thank you for your question. Actually, regarding the fourth quarter, we had some non-recurring items, which we took off the margin. So then the margin that we disclosed are normalized. It does not consider that.

We had some negotiations and some reductions in cost controls, (inaudible), we think that's going to be sustainable for the future, but as you know, we cannot provide for any guidance for our EBITDA margin. But we are comfortable with that, and we are going to continue to work on reducing the level of expenses and maximize the profitability, which come up with better margins in the future.

Okay. And will you guys be quantifying the synergy gains and benchmarking them relative to the original synergy guidance, or basically, this is something that will be just talked about more generally?

We are on track with that. I think that in 2013, we can give some more details and information about this. But we keep the guidance that we gave, that Telefonica gave about the acquisition of VIVO.

Okay, thank you.

You're welcome.

Our next question comes from Alex Garcia from Citibank. Please go ahead with your question.

Good morning, all. Cesar, you mentioned about a strong turnaround plan in your presentation, your remarks. I think it was for the fixed line [base business] or broadband. Could you give us a little bit more detail about it, when can we expect it, and what kind of actions are you guys are willing to take on this? That would be my first question.

Thank you, Alex. I think we have two areas that we need to improve our performance, basically in fixed broadband and TV. In fixed broadband, we have now a much tougher competitive landscape. You have compared our ratio, obviously, price plan and increasing media communication. We need to face these competitors who have (inaudible) our base. We increase a lot of our number of clients that we have more 4 megabits per second. We increased [65%] in the last quarter, and we have reduced in this connection about 10% in the period.

We are growing in this -- we are working this test to be more -- we achieved several points that we are earning (inaudible) with our (inaudible) have now with FTTH, with a couple of our (inaudible) solutions. We improved the speeds in copper with the (inaudible), and the ADSL again. It's possible to increase our use of 3G and 4G device we call VIVO Box, and we have a solution that we call VIVO (inaudible), our TV solution that we (inaudible) in the next months.

But basically, (inaudible) TV, we are -- we have a decision, an operating decision about TV, with the results for it, we are achieving the next semester, and that's second half of the year. Basically, it's those two points that you are facing more, the situation is more complicated, but we think we have good plans, and very good plans, and we work together, all of the Group. Also, (inaudible) TV, for example, that we are also making these decisions. (multiple speakers) --

And just to make sure -- go ahead, sorry.

Yes, just -- mention of (inaudible), it's [structural], we'll put more emphasis (inaudible) that you have this business, and I think we fix more our -- gain to focus more in these areas. Okay?

Okay, great. Okay. Any -- and a second question, if I may. Do you have any expectations on when the regulator will improve the unification of the [subsidy areas]? And that -- if they are demanding any requests, if they're going to come with any requests, just to approve that?

Ah, thank you for the question. Actually, we are working (inaudible). We had, last September, the leading (inaudible) was driven by (inaudible), and they are discussing about some conditions that now look (inaudible) [to analyze].

We are on track on that, work internally and try to obtain all Anatel requirements. But as of being any formal [price] (inaudible). We are just working from some information we had (inaudible) [case].

Okay, Cristiane. Okay. Thank you, guys.

You're welcome.

Our next question comes from Andre Baggio from JPMorgan. Please go ahead with your question.

Good morning, everyone. So, if it is possible to compare how the performance of VIVO, what has the help of the fixed line, which is (inaudible) Sao Paulo with the rest of Brazil? What's the -- at the end of the day, what the difference for you as being an integrated player as opposed to a standalone player? (inaudible), you got my question?

Hello. (inaudible). I think you want to talk about the situation that we have, basically (inaudible) Sao Paulo, that we are promoting all the efficiencies that we can in our differentiation about the brand network, quality of services, and you are learning very well this business.

In (inaudible) Sao Paulo, we have a different approach. We have a fixed business here, and if we need to address some price, basically we talk about fixed broadband and TV that we need to (inaudible) over some pricing, competitive situation, like we had (inaudible) decision about TV, how to increase this business, and have IPTV. We are proud about this, because we are -- in a learning curve of the service, but it's going very well.

We launched again our (inaudible) VIVO Play, and -- but we are not take decision more to get more results about this FTTH solution that we have in Sao Paulo.

In terms of fixed broadband and (inaudible), in terms of (inaudible), basically we (inaudible), because in the [fourth] quarter, this was campaign in fixed mobile (inaudible), but I think we have very good coverage offers in Sao Paulo, like VIVO Favoritos, VIVO Valoriza, and we have, in Corporate segment, a very good position regard (inaudible) evolution, (inaudible) offers, and we see further improvements in the future, because we are integrated, more integrated, basically, (inaudible) customer (inaudible). Okay?

Okay, thank you. And the second, very technical question, maybe for Cristiane, how could the MTR impact on EBITDA decrease from [69] in third quarter to only BRL13 million in the fourth quarter? Is there any fundamental in that change with regards to MTR, that move from third to fourth quarter?

Well, actually, no, nothing different from normal. Of course, the MTR cuts, they reflect the mix of (inaudible) we have. Also, a distinction between the fourth quarter mix and the third quarter, but nothing consistent different from what we had.

Okay. Thanks a lot.

You're welcome.

Our next question comes from Fabio Levy from BTG Pactual. Please go ahead with your question.

Hi, good morning, Paulo and Cristiane. I have two questions, please. First, on your broadband, you had a negative broadband addition in the quarter, but mostly, you address the point that it's more related to gross additions. And I was just wondering if it's more competition comes from the countryside, whether you have (inaudible), or it's more related to the main areas where you face more competition from that?

And the second question is related to your CapEx. Given all your initiatives related to improve the broadband, should we expect CapEx to go up in 2013, excluding license, given you have a base level of close to BRL5.1 billion in CapEx in 2012? Should it represent close to 15% of your revenue? So, should we expect an improvement, an increase on CapEx during 2013? That's the second question. Thank you.

Thank you, Fabio, for the question. I think about 6%. We have more competition in the main areas, like Sao Paulo capital, basically (inaudible) the offers that we have now basically with TV, and very good -- our aggressive price from our competitors in fixed broadband.

The good news that we are -- that we reduced our churn in this year, in the last year, when you compare in the previous year, and basically, the second semester, we reduced 10% semester by semester. But I think we are pretty small competition in many areas, in (inaudible).

Thank you for the question about the CapEx. We intend to have, in 2013, around 12% -- between 11% to 12% more CapEx compared to 2012, so BRL5.7 billion, not only to improve our broadband behavior, but also, we had some (inaudible) in this year, and a focus on fiber, and continue to focus on quality as we have been doing for the last years. So the CapEx for the year would be BRL5.7 billion.

Okay, good. Thank you very much.

You're welcome.

Our next question comes from Diego [Arancio] from Morgan Stanley. Please go ahead with your question.

Hi, good morning. Thanks for taking my questions. So the first question is regarding the mobile business. For how long should we expect the prepaid disconnections taking place? Thank you.

Thank you, Diego. It's a very good question. We put the new numbers in the market, because we are decided to reduce the period that we are in (inaudible). Basically, we are reducing now to 50, 5-0, there is (inaudible). And the decision that we made is -- I think a very good decision. I hope all the markets have the same decision, because we think Brazil will be more healthy in our base numbers, no? And explain, partly, I think so, for the profitability of the sector.

We are, as you say, in our speech, if you use the same criteria that our second player is using, we have 7.8 million more clients, but basically we understand that what's most important, the share of revenue, and we achieve this -- our decision, we maintain the decision, for the half of the year.

Great. And if you don't mind, my second question is regarding the machine to machine segment. What are your expectations for this growing business? I mean, if you can -- I don't know if you can provide some colors in terms of margins and revenues growth, what are your expectations for this business? Thank you.

Thank you. This discussion is very important [to it]. Machines to machine, it's possible to increase a lot, to have a new platform that we are enlarged. It's a (inaudible), and we are doing this business with focus on profitability.

Basically, we are in very good negotiation. We are facing (inaudible) situations that is still not reduced, but probably we'll be reducing it this year. But basically, you will understand that it's a market to have unusual opportunity to grow. And Brazil will have a low penetration in terms of solutions, and I think it will be one of the parts of the business that will grow most.

Okay. Thanks.

Our next question comes from Susana Salaru from Itau. Please go ahead with your question.

Hi, good morning, guys. I have two questions on the mobile segment. The first one is regarding strategy. We are seeing some regions that Telefonica is offering limited plans at very aggressive price. So the question would be, if that's some specific tactical action in the northeast part of Brazil, or do you plan to use it in other regions? That would be our first question.

And the second one would be regarding the 700 megahertz auction, if you have any kind of -- how do you expect it to [reply during (inaudible)]? Do you intend -- do you think it's wiser to participate? You are in the [sense] of the upcoming auction. That's it. Thank you.

Thank you, Susana, for the questions. Basically, the offer that we have in northeast of Brazil, prepaid, is an offer that you have (inaudible) in this area, because we've had in our -- in a (inaudible) situation, all the offers that you have for early (inaudible) high in postpaid. No, we are very competitive in this plan, but we look for the profitability of this plan, and you -- our intention to maintain this number that we are promoting our plan. Basically, it's not our intention to have any offer in prepaid, in unlimited voice or data.

In terms of the new possibilities that we have (inaudible) 700 megahertz, I think it's good, it's very good to pursue this (inaudible) band, basically to have more coverage in the countryside. But we think it's very early to make any opinion about this, because we need to address better information from the government, decision about this auction.

Okay, thank you.

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

Yes, thank you very much. I have two questions, please. The first one was regarding the level of SAC that you reported on slide 7, down about 29% year on year. I was wondering if you could give us some breakdown about how that's split between prepay and post-paid. Am I right, from the comments that you've given, that most of the decline at the moment is in the prepay segment? It would be helpful just to get some color on that, and whether that low level, BRL42, you think is now sustainable, or can that drop further going into 2013?

And secondly -- I mean, thank you for the guidance you gave on CapEx, looking into 2013. And I was just wondering about revenues and EBITDA. Do you think the reduction you're pushing through in commercial activity will negatively impact revenue growth next year, but we could see better profitability levels? It would just be helpful to get a bit more color on thoughts for 2013. Thank you.

Okay, James, thank you for the question. About SAC, subscriber acquisition costs, we decreased this, because we are fully subsidizing clients with as much (inaudible) in data plans. Most of it (inaudible) prepaid, most of it is (inaudible) plans, any plans with (inaudible) without data.

Basically, we understand that it's possible to (inaudible) this situation, but depend of the dollar, depend of the other things in Brazil, but we are in a good situation to have a better quality of service, better than (inaudible), and will maintain the leadership of the market with the price that we have now. It's not (inaudible) price in the market.

The other point about prepaid, I think we are growing well, 14% year over year in recharge. It's the most important point for us, is the (inaudible), which is growing, and these are the figures to maintain this strategy. We've had a good offer, we are promoting our more data in prepaid. Basically, our strategy is to promote a month use, you pay only one value for what you are using, and we are growing very fast in this segment. (multiple speakers) --

Okay, thank you very much, and with regard to the guidance of 2013?

No guidance (inaudible)?

No. What was the (inaudible), what was the (inaudible) question about the CapEx in 2013? Can you repeat, please?

Ah, okay.

No, I just said thank you for the guidance you have on the 2013 CapEx. I was really wondering whether the reduction in commercial activity you've talked about will have more of an impact on revenues slowing next year, that we can see an improvement in EBITDA margins?

No, we don't think it's going to be this impact regarding the CapEx. I mean, I said that the CapEx for 2013 had new, new things that we had to do this year, consider (inaudible) investments and considering our quality. And disconnections in prepaid will have an impact in our margins and revenues.

Okay, thank you.

You're welcome.

Our next question comes from Sean Glickenhaus from HSBC. Please go ahead with your question.

Hi, good morning. Just following up on mobile data pricing, we've seen quite a reduction into -- well, actually, mobile Internet pricing plans. I know that previously, you've mentioned or discussed a lot of competitive -- you know, the competitive pricing environment for mobile data. Just wanted to see how you think about pricing -- as the premium player, how you think about pricing for this. Are these prices we're seeing on the website somewhat more a new base, as opposed to promotions, temporary promotions? Thanks.

I think you're seeing -- I think we have affordable pricing in data. We have different prices, if you use 3G or 3G Plus. It's BRL15 more expensive for 3G Plus. We are selling the two different prices, the decision to have -- not to have the same price. But I think they are affordable price.

We have a premium price if you compare it with our competitors, and we have basically -- we have more data coverage, 3G coverage, 3G Plus coverage, and data quality. It's our strategy. Okay?

Our next question comes from Mauricio Fernandes from Merrill Lynch.

Thank you. Good morning, everyone. I wanted to go back on -- to the fixed line business. It seems -- I think, as you pointed out in the presentation, that revenues have stabilized, or the decline in revenues has stabilized. I wanted to get your sense for how much of the stabilization is the result of integrating the product with the rest of VIVO's products, wireless, pay TV, or how much of that is related with pricing, and whether this is already a reflection of the fiber-to-the-home -- although it doesn't seem to be, because it's quite early, but whether it would be a reflection of the fiber-to-the-home product already, please, Paulo. Thank you.

Thank you, Mauricio. I think you have so many reasons. Basically, in great numbers, not -- we have the churn under control. We reduced the churn, the disconnection in land lines and fixed (inaudible). And we have more integrated offers. Basically, VIVO Favoritos, VIVO Valoriza, and so many (inaudible) offers that we are promoting and specifically groups [of clients]. We have (inaudible), and you will make offer for this specific group of clients, mobile and fixed.

And Mauricio, hi. As you know. We cannot provide financial guidance about the stability of this revenue. The things that Paulo just mentioned, we are working very strongly in order to keep the pace and reduce -- maximize the reduction of the fixed lines, bundling with other products and (inaudible) TV and broadband.

Okay. I know -- thank you, Cris. And I know it's not really -- you can't provide guidance. But it is, I guess, from where we're seeing since the middle of last year with a lower rate of decline, that one should expect the fixed line revenue to be -- to decline either by the same pace or less, then we'll be 7.5% that we saw this quarter in fixed line. That's one question.

The second is on revenues. By the same analogy, I would say, it doesn't seem that there is reason to assume that revenue growth, in this case positive, in the wireless business, can be higher than what you have already been reporting in the last couple of quarters.

Mauricio, in quantitative terms, I think you have focused on this. We have improved a lot the quality of services to have a fixed business. We talk about we have a new team, more focused in this business, in the Sao Paulo area, especially. I think in terms -- in quality terms, we could (inaudible). Okay?

Okay. And in fixed line, Paulo -- sorry, in wireless, Paulo? Should we expect, for any reason, that wireless revenues should -- wireless revenue growth should be higher? I'm not just talking about 2013, but going forward, relative to what we saw in 2012?

In VIVO -- (multiple speakers) -- yes, (multiple speakers). In VIVO, we are maintaining our pricing. I think we got -- we don't have interest in -- to reduce the price. But we have the MTR effect. It's realistic. But I think we have affordable price for the market today. And we maintain our strategy of focusing more quality, that's a lot in 3G, 3G Plus, or investing 4G. And I think if we get the quality, you can perhaps a good price, a good, affordable price, not compete -- where basically reducing price.

Okay, I appreciate. Thank you.

Our next question comes from Valder Nogueira from Santander. Please go ahead with your question.

Thank you. (inaudible), two questions. First of all, would you say that your strategy, or the dynamics of the market, is currently more rational or less rational there was in late first half of -- or most of the second half of last year? And the second question is -- don't take me wrong. Why seem to be more active in using interest on capital? I'm not complaining about the dividends that you mentioned, [the two], but what is preventing you from being more active on paying interest on capital?

About the competition -- although, thank you for the question, basically, I think you -- the market could be more rational, no? The last -- the Christmas campaign (inaudible) to know -- permit new offers in the market. It was good, I think so, as we had some information from our competitors, more aggressive of offers, especially in prepaid. But we think we are probably in this year, because of the -- we are facing more people, new -- there is changes (inaudible) in our competitor, I think it could be more rational.

Basically, we hope the market is more rational. We need to invest, we need to invest a lot on quality, we need to invest a lot in (inaudible) 4G, and basically, we think the business could be well, if the market in Brazil would be more rational.

Is this potential there, a rationality coming from the regulator shifting its focus on trying to foster competition at any cost onto quality, or because most of the people who you talk to in the industry seems to say, okay, we've done enough, let's try to be more rational. Not necessarily an increased price, we'll stop reducing prices on the mobile arena.

I think -- to give us a good example, we are running the business very well. I think, in the mobile, no (inaudible) that we have leader in the market, we have very good business, and we are not competing in price. It's not necessary to compete in price. I think the market at the moment in Brazil needs to have more quality. And our focus is to have more quality, and push the market in this direction. Okay?

Okay.

All right, Valder, thank you for the question. We are very comfortable with the level of dividends that we declared this year, about the -- in the discussion about the dividend (inaudible), it's just a question of mix. As you know, in Brazil, we had some limits, legal limits to declare interest on capital, and we could not maximize (inaudible) this year. We're working very strongly to try to maximize this for this year. But the level of total dividends paid out was very high, and we're very proud of that.

Okay, thank you. I'm -- just to -- again, I'm not complaining. It just can be even higher. Thank you, Cris.

You're welcome.

And ladies and gentlemen, at this time, we will conclude the question and answer session. I'd like to turn the conference call back over to Mr. Teixeira for any closing remarks.

Thank you all for attending our conference, and for your interest. I think this quarter is showing us again that we are on the right track. We closed the year with important achievements in our numbers, but more importantly, with [progress] in crucial projects to improve our offer, our infrastructure and our quality.

We are optimistic about 2013. We are expect to become even more convergent, to offer better services to our customers. The launch of 4G is another great challenge that we see as an opportunity to differentiate even further for competition. In this context, we will continue focusing on profitability to provide a strong result for our shareholders.

Thanks again. I hope to see you again when we present our first quarter 2013 results, or any time soon. Thank you.

Thank you. This concludes today's Telefonica Brasil fourth quarter 2012 results conference call. You may now disconnect your telephone lines.