Telefonica Brasil SA (VIV) 2014 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 2014 earnings conference call.

Today with us we have Mr. Paulo Cesar Teixeira, CEO of Telefonica Brasil; Mr. Alberto Horcajo Aguirre, CFO and Investor Relations Director of Telefonica Brasil.

Today we have a simultaneous webcast with slide presentation on the Internet which can be accessed at the site www.telefonica.com.br/ir. There will be a replay facility for this call on our website.

After the Company's remarks are given, 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 Securities Litigation Reform Act of 1996. Forward-looking statements are based on the Company's and management's beliefs and assumptions, and on information currently available.

Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future.

Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the Company's future results and could cause results to differ materially from those expressed in those forward-looking statements.

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

Good morning, ladies and gentlemen. I would like to thank you all for attending this conference for the first quarter of 2014 results of Telefonica Brasil.

On slide 2, we see the main highlights of today's call. In the mobile business, we are quickly expanding our contract base reached unmatched growth in the quarter, while driving strong data adoption. As a consequence, data ARPU soared 18% annually.

In addition, despite seasonal effects in the first quarter, we continued to see solid improvement in fixed assets, mainly driven by strong performance in fixed, voice (inaudible) of Sao Paulo state and fiber.

Revenue trends in the quarter were also consistent. Net service revenues achieved solid growth of 1.3% year over year and 4.1% when excluding regulatory effects, recording an important annual evolution in the period.

Given the strong commercial activities, we managed to keep cost evolution under control with EBITDA margin of almost 30% during this quarter.

And going forward, we show our successive evolution in the quarter. The chart on the left, we registered 94 million total accesses at the end of first-quarter 2014, annual increase of 3.3% and 1.4% over the previous quarter. Mobile accesses have grown 3.3% compared to the last year, strongly driven by contract which increased 28% year over year.

Prepaid accesses decreased 5% due to our strict disconnection policy based on profitability analysis. We are firm that our focus has to be on value, not on the number of accesses. Following second player's policy, we have 16.5 million additional accesses.

Fixed accesses recorded 15.4 million at the end of first-quarter 2014 with annual growth of 3.5% and the strong evolution in all services. Fixed voice grew 2.6% annually, driven by sales of our fixed wireline solution nationwide. Broadband increased 4.4% year over year, thanks to an aggressive fiber-to-the-home marketing strategy. Pay TV, we saw annual growth of 16.6%, driven by IPTV and DTH sales.

Moving to slide 5, our super mobile strategy continues to produce outstanding results. Our main proposition is to accomplish differentiated quality skill services and customer care and has been working hard to deliver it. We systematically split ANATEL's quality indicators and have substantially improved our performance for the past month with an even better IDA customer care performance index and lower complaint level.

As a consequence, we continue to attract the majority of valuable customers in the market. Portability numbers of this quarter are impressive. In individual contract for each customer we lose, we bring four others from competitors and in 4G we reap 16 times more.

Contract growth is heavily accelerating. During first quarter 2014, annual increase is more than 10 percentage points higher than one year ago and market share in this segment grew to 40.6% in March, more than 3 percentage points higher year over year.

We even captured two-thirds of net adds in this segment during the quarter. As a result, (inaudible) contract base represents almost 32% of the total mobile base in March 2014, compared to 26% a year ago. Even with a larger and [recorded] acquisition of new contract customers, we continue to sustain a reduced level of contract churn with 1.5% in first-quarter 2014 against 1.9% in first-quarter 2013.

On slide 6, we show the strong pace and potential for data adoption in our base and the effects on ARPU. Smartphone penetration reached 76% for pure postpaid customers and 47% for the whole customer base.

However, data sales penetration represents only 28% of our base, demonstrating a strong opportunity for bigger revenue growth. We are addressing this opportunity by fostering data adoption for new and existing clients. As a consequence in 4G, our market share reached at 41.3% in the quarter.

On the bottom left, ARPU reached BRL23.3 in first-quarter 2014 with annual growth of almost 4% excluding MTR effects. The performance was driven by data ARPU, which soared almost 18% in the period. Our growth in higher value customers is generating higher and sustainable ARPU as attested by our revised and controlled mobile bad debt during the quarter.

On slide 7, the results of this quarter confirm that positive trends we have seen in the last quarter for the fixed business. The first quarter of the year is typically lower in terms of commercial activity.

However, during first-quarter 2014, we achieved a positive monthly average of net additions of 44,000 versus net connections of 22,000 a year ago. The numbers forecasted for April are promising.

Net adds are almost 35% higher demonstrating the performance of the first quarter as seasonal especially in broadband and TV.

In fixed wireless sales nationwide, we kept a good pace during the quarter reaching a monthly average of 26,000 during the first-quarter 2014 and 28,000 expected in April.

As we focus on being a fiber company, the large majority of our net adds belongs to this technology. In areas not served with FTTH, we are offering our Vivo BOX solution.

During the quarter, including this solution, broadband monthly adds reached 13,000 with the expected ramp up to 15,000 in April.

Finally, Pay TV business, we continue to see a strong evolution followed by higher sales in IPTV and DTH. Vivo achieved a monthly average of 5,000 net additions during the quarter due to seasonal effects, although numbers forecasted for April are three times higher.

Moving to slide 8, we show our commitment and focus on transforming Vivo into a fiber company. In regions with more income per capita, we continue to accelerate FTTH net additions. On first-quarter 2014, they are 2.5 times higher than first-quarter 2013.

IPTV net additions climbed at 6.6 times over the same period. As a result, we reached 236,000 fiber customers in March.

Our footprint of FTTH is expanding achieving 2.3 million homes passed in Sao Paulo being 1.5 million addressable ones.

We are also proud to announce the development of the first 100% Digital City in Brazil Aguas de Sao Pedro. With a new project, we're testing a new concept of how we can develop our fixed infrastructure in a controlled environment. The main initiative is the replacement of copper by fiber, offering broadband speeds of up to 25 megabits per second in 100% of the homes taking voice, broadband and data services to the next level in terms of quality while unlocking new opportunities in different areas like health, education and security.

On slide 9, we show in more detail the positive evolution of our integrated offers serving fixed customers with mobile infrastructure and our strengthened video company strategy.

We are approaching our [bio-network] to provide a fixed wireless voice solution which can be currently offered to 50% of the homes outside of Sao Paulo state. After looking at that in the first-quarter 2014, we are 6.4 times higher than a year ago.

In the same way, Vivo BOX almost doubled the (inaudible) of net adds in one year. This plug and play service is being offered through 3G and 4G networks covering 87% of the population. Our fixed attributions in the year were also enhanced by our video strategy in addition to the IPTV offer Pay TV net adds were also driven by DTH solution, while expanding including our satellite offer by including more high definition channels. Our goal is to give a better experience to our customers increasing loyalty and generating higher ARPU.

Moving to slide 10, represent once again a solid evolution in the corporate segment. In core services fixed voice accesses has an annual growth of 3% in the first-quarter 2014 while we increased 50% the number of corporate accesses for fixed ultra broadband leveraged by FTTH and VDSL sales.

It is also important to highlight the penetration of mobile data package within our business which increased annually 6 percentage points in the first quarter with strong growth in 4G services. In addition, we almost doubled the number of M2M accesses in the period reaching a market share of 30%, 10 percentage points higher than a year ago.

We continue with this strategy to be a convergent nationwide provider. As we expanded our fiber optic network, we can address opportunities with large corporations offering high quality fixed data services bundled with our mobile offers. We have already observed positive results in first-quarter 2014, as 50% of our corporate data growth additions were made outside of Sao Paulo compared to the 11% a year ago.

Slide 11 shows the financial performance in the first-quarter 2014 versus first-quarter 2013. In the year-over-year analysis service revenues grew 1.3% with improved trends in fixed revenues and significant mobile growth. Steady cost control in personnel and G&A sustained an EBITDA margin of 29.8% in the first quarter of 2014 even with the continuous higher commercial activities.

On the bottom line, we totaled BRL661 million in the quarter, a decrease of 18% year over year which can be explained by the EBITDA evolution and financial expenses in the period.

Now, Alberto will detail the financial performance and I will return at the end of the presentation to detail the new plan to transform our Company.

Thanks Paulo and good morning ladies and gentlemen. On slide 13 you can see that mobile net service revenue grew 3.3% annually. When normalizing the comparison for MTR cuts made in the period, variation would be of 6.5%, an acceleration when compared to the annual growth of the previous quarter.

This positive evolution was mainly driven by data revenues which grew 20.6% in a year-over-year analysis. This strong data growth is due to considerably higher Internet revenues and increased penetration of the smartphones as I will detail in the next slide.

Access and usage revenues recorded an annual increase of 1.8% in the first quarter mainly driven by the growth in the contract customer base and despite the cooling of prepaid recharges evolution. Reduction of 26% in network usage revenues for the quarter reflects the already mentioned MTR cuts in the period.

Turning to slide 14, we show the recent performance of data and value-added services. In the first quarter, data revenues accounted for 35% of the mobile net service revenue, rising 5 percentage points annually. The main driver is Internet revenues which climbed an impressive 35% in the year due to faster addition of contract customers and the strong adoption of higher value data bundles such as 3G Plus and 4G.

Messaging revenues had an annual decrease of 16.4% in the quarter as a result of the maturity of this service and as we promote adoption of plans and promotions that integrate voice, data and SMS manifestly preferred by our customers. VAS revenues soared 50% on a year-over-year basis, mainly driven by new education and online security services besides our highly successful Vivo Som de Chamada RBT product.

As we show in the lower right side of the slide access loyalty and Internet revenues are more than compensating for the slowdown in messaging underpinning the promising annual growth of 20.6% in data and VAS revenues for the quarter.

On slide 15, we show the evolution of wireline revenues. As you can see on the left side of the slide fixed net revenues decreased just 2.3% year over year while remained stable when excluding the regulatory impact reflecting the best annual evolution for different (inaudible) reduction in fixed revenues. Data transmission revenues recorded a yearly increase of 1.2% mainly explained by seasonal effects and a more competitive environment, both partially compensated by higher ARPU net additions concentrated in FTTH.

Other revenues grew 8.7% year over year due to the accelerated adoption of IPTV and DTH services and higher sales of corporate services nonetheless impacted by the MMDS connection concluded in the second quarter of 2013.

As a result of our initiatives to better monetize the fixed business previously described by Paulo, we perceive a likely better prospect for the evolution of fixed net revenues which improve almost 7 percentage points in its annual variation versus the same comparison for the first quarter of 2013.

On slide 16, we show the EBITDA evolution between the first quarter of 2014 and the same period of last year. EBITDA margin sank 2.4 percentage points year over year as explained in the previous quarters due to our stronger efforts to improve our fixed business and to grow higher value mobile customers starting in the second quarter of 2013.

Subsidies plus selling expenses increased 16.3% year over year, impacting the EBITDA margin in 3.8 percentage points because of higher commissions to support our much larger contract and data revenue base and increased marketing expenses related to the launch of our new prepaid and successful campaign Vivo Tudo.

Services rendered expenses increased 0.6% year over year due to higher content cost related to sales of TV and mobile applications compensated by reducing the connection costs as a result of the MTR cuts made in the period. With a significant impact control re-negotiation with providers and the consequence of the three restructuring programs done since May 2012, there is annual reduction of almost 11% of general and administrative and personnel costs during the quarter.

Our discipline on costs even with the strong commercial efforts resulted in a controlled annual growth of just 4.2%, thus below inflation for this period.

Moving now to slide 17, on the top left side we show that CapEx reached slightly over BRL1 billion in the first quarter of 2014 representing 11.6% of sales and more than 3 percentage points higher than last year. This [outward] evolution is aimed at the selective expansion of fiber to the home in the state of Sao Paulo, investments in 3G capacity and 4G coverage to expand the superior quality and the services we provide.

The net financial expense increased BRL72 million on a yearly basis, mainly explained by higher level of net debt in the period. On the top right of the slide the operating cash flow evolution is affected by higher fees, outflows in the first-quarter 2014 since part of this payment last year was made in the second quarter.

Adjusting for this, operating cash flow would have decreased just 8% slightly above the recurrent EBITDA variation in the period, thanks to solid working capital management. The coverage of EBITDA minus CapEx rose from 1.1 times to 1.3 times in the same period. After the payment of dividends and interest on capital in the amount of BRL1.8 billion in the first quarter, our net debt stood at just BRL3.7 million, representing a comfortable 0.35 times last 12 months EBITDA.

Now Paulo will present our strategy for transformation. Thank you very much.

Thanks, Alberto. Considering the constant change in our environment and in accordance with the Group strategy, we defined a plan to transform ourselves into a leading digital telco, a customer service organization fully focused for monetizing the digital opportunity with a new operating model and best-in-class in efficiency. To achieve that we will, number one, leverage our mobile leadership; number two, transform our fixed business; number three, transform customer experience; number four, capture the digital opportunities; number five, foster simplicity, agility and efficiency through some simple process; and number six, leverage the sense of a single culture and a leading brand.

On slide 20, we present our agenda to accelerate the implementation of our transformation strategy with clear objectives and the strong commitment throughout our organization. I am personally leading this process.

The final [leaders] and short, medium and long term goals for each of the seven initiatives. First is increasing the main customers you keep investing to have the best network sustaining superior customer experience.

Second, we are aiming to deliver the best in class fixed services bundling the highest UBB speeds in the market with our state of the art IPTV offer and DTH sales.

Third, online channels are pillars of our transformation into a digital telco, aiming to improve customer experience and to reduce costs. Four, we are continually intensifying the integration, simplification and evolution of our systems and processes with focus on the clients.

Fifth, we aim to better off our data monetization segmenting our offer with the right pricing for each customer profile. Sixth, we are optimizing the use of our existing networks and working towards the evolution to own our IP network that will allow the convergence of fixed and the wired infrastructures.

And last, we will continue to evolve chasing three great objectives, reduce even more level of complaints by improving customer satisfaction, guaranteeing a unified experience in all points of contact and having a segment approach to customers.

This summarizes our transformation agenda. Now we are ready to take your questions.

(Operator Instructions) Fabio Levy, BTG.

So my first question is on the fixed line users. We saw that you had an important improvement on your fixed line revenue decline but at the same time the performance on broadband net additions were quite shy not only in the first quarter but also in the fourth quarter, so I was just wondering what is the main reason behind the deceleration on net addition in broadband? And how you can improve your year-over-year decline on fixed business?

Thank you Fabio, for the question. Basically in terms of the fixed broadband, our vision and our focus is to have more (technical difficulty) that is there in area of Sao Paulo state and continue to [be seated] in Sao Paulo state. Basically it's our focus, the main focus that we have now. Do we have a bundle for this, IPTV solution that we have in TV and we are (inaudible) in this space. On the other side of this Sao Paulo country side, basically we are focused on Vivo BOX solution. That is a top solution based on our initially in 3G first but now our focus basically in 4G.

This is very important to us to have a solution. The solution is plug and play and we think we have the opportunity now to increase a lot our participation in this -- with this solution. Basically these are our vision. I don't know, Alberto, if you want to complement this?

No, I just would like to add that we are seeing an acceleration in net adds as the year progresses. I think it was mentioned in the presentation that (technical difficulty) happening much higher than we have seen in the first quarter. It's obviously a ramp up process and we are expecting to see a combined net add of about 20,000 for the month of April. So that is quite impressive we believe looking at where we stood just a year ago.

(Operator Instructions) Daniel Federle, Credit Suisse.

You mentioned that handset sales declined due to lower subsidies in the period now focused on the 4G clients. But when we analyzed the handset revenues and compared with handset costs, we see that the handset margins are still very negative. Shouldn't it improve with lower subsidies? That's my first question.

Just to start to answer this question but Alberto to complement. Basically I have two points here. One, in Brazil the retail have lot of expectations in terms of selling as much phones at the moment, no, because it's profitable to -- because our installments like 12 to 18 and to 24 installments to balance as much phones in the retail in Brazil. Real focus is to have a good offer for postpaid basically and then promoting our own sales and our exclusive channels which we are promoting in the price -- affordable price. That we see more subsidy and that we are comparing in our comparative price with selling better buy. Just there is more focus on this is to capture people that want to have as much fun with data. And our focus is to push this through our starts and through our exclusive channel. Focus on post paid.

In prepaid, basically we achieved this part of market basically the offer that we have now (inaudible) offer that we have with data that is our vision is the best offer in the market today. And is possible to capture used to the retail market. I don't know, Alberto, if you complement it.

I just would like to add that from the first quarter we always look at what is the net result of our sale of our devices. And the fact is in the first quarter the net result improved about BRL20 million when compared to first quarter of last year. It was true that the sale of devices dropped by about 3% but then the cost of the goods sold decreased by over 8%. So net-net we're doing better and I think we've been emphasizing in previous calls looking at the end result of this -- even this sale of this and so -- so that's the numbers on the sale of devices.

Okay. And how you see emigration to (inaudible) segment now that the other two companies telco companies in Brazil are trading at November (inaudible). Does it make sense for Telefonica or no, and why? Thank you.

I think we are always looking at different ways to improve our standing. We don't necessarily believe that it brings value to our shareholders to (inaudible) market. We believe we have a strict governance model. We follow the rules of all the markets where we are listed. And so we look at different opportunities. We don't necessarily wish to compare ourselves with our competitors depending on where we list our shares. But it's something that we've been looking at in the past and we may continue in the future. Certainly no (inaudible) expected in that.

Okay thank you.

Michel Morin, Morgan Stanley.

I just wanted to see if you can expand a little bit on the cooling that you referenced regarding prepaid recharges, what do you think is behind that? And can you comment on whether or not you saw any impact from the timing of Easter this year?

You also had very good growth in your mobile value added services segment and I was wondering if you could give us some qualitative color as to how profitable that revenue stream really is? Thank you.

Our (inaudible) in terms of prepaid we are promoting a lot of immigration from prepaid to postpaid around 400,000 a month. It's a very important number that you develop this kind of impact in prepaid base. We have now the new promotion that we start to capture more peoples data in prepaid but we are having here to see that we have enough -- no, it is not economical, not so good, Brazil is not growing well after growing in our first phase and this reflection is simply (inaudible).

In terms of our strategy, I think we -- all profit that we have in our postpaid we launched recently new possibility to acquire postpaid through the credit card in control plan and we think we have a good base for this, a good opportunity in this way to capture more people from prepaid but to have the possibility so we have to be in postpaid.

Now, Alberto will complement --

No, I would just like to say that our base reduced in this first quarter by 5% and then recharges dropped by just 2.9%. So overall, as Paulo said before, we see a soft market and bear in mind that Vivo Tudo was only launched in the third week of January, so have a partial effect. But the numbers we have been looking at in the last few weeks of the quarter were very encouraging. So we might as well do better or we will be contingent on how the overall economic environment develops.

Can you repeat the second question?

Yes, and so the second question had to do with your value-added services in mobile, you had very strong growth there but I am wondering is it very profitable growth what kind of margins do you get on that kind of business?

We don't disclose the margins, Michel. But what we can tell you is that, while they are still representing a small amount of our revenues and margins are in line with the average margins for the overall business. So we are not promoting users here and have renewed our share agreement with our partners. This is something that is still has a very slow pick up, but it's benefiting (inaudible) for the business, yes.

Okay, that's very, very helpful. And if I can just make one quick follow-up, you mentioned that you are now using credit cards for the controlled plans. So this is new, you were not doing that previously and when did you start?

We started at the end of April, now it is possible to buy a control plan in retail using a credit card.

[Luis Davero], [Redesco].

My question is regarding the competition in the mobile market. I would like to understand the price dynamics, so it seems that some of our competitors has raised the price for a few package. I would like to see if it's true. Do you realize this move and how do you see it, do you believe that there is a space for price adjustments in the future and how do you see that move with the launching of the Vivo Tudo?

It's a very important question. I think we have at the moment more rationality in the mobile space and we have tried also to improve it. The monetization by reducing prices especially of data where we have the new ones that we have mentioned before, Vivo Tudo, but we have the oldest one, that we have the package I know that is possible to have 200 megabytes in a packaging in prepaid we increased the price now and we are launching in this month two new offers in prepaid to monetize our data.

Basically what we think we are seeing in Brazil a very good position now for the Company growth that are more rational in the market and I think it's a good base for us, basically some concern what about points that we are seeing like the same pricing 4G versus 3G but not so aggressive like in the past with an offer that destroy over the market. I don't know Alberto if you can comment.

No, I would agree on Paulo, obviously that we see some rationality in pricing that we were first to include the data packaging in this prepaid product and obviously competition trends behind us and we see this continues to be highly competitive environment but we are confident that this will continue to attract customers based on the premium points of our services there.

If you allow me may I make a second question. The second one would be regarding the (inaudible) for machine-to-machine devices. So far I think that machine-to-machine didn't grow as much as I expected, I don't know your expectations, but I would like to know how do you see this market going forward, how large this could reach?

Regarding machine-to-machine it's very important for those who are growing in a first base, we are number one now and we are actually in terms of the total market in Brazil, but basically the decrease of the price of this still is for (inaudible). Basically 50% of our sales are (inaudible) and you have to basically give 50% of the opportunity that we have in the future.

In our base we have around 60% of (inaudible) but at the moment I think it's a very good decision from the government side. It's very important because M2M has a lot of market in Brazil, a lot of opportunity for us and we are focused on this.

Mauricio Fernandes, Merrill Lynch.

Paulo, on the 700 megahertz auction, obviously the government seems to be keen on doing it. There is and it seems increasingly likely that it will happen, but we still have term issues with the signal interference, it is unclear when exactly companies will be able to use all of the spectrum in all the cities. What is your latest, what are your latest thoughts on this, please?

We are analyzing, if you analyze all those documents of the recent public hearing, I think it's very important to understand all points in the implication of this auction like the availability of the spectrum and the associated obligations and report to have a clear view of the value that it could add for our Company.

Basically on this it's a starting process, I think we have in this month opportunity to participate in all the public auction of and to -- in the end of the month to send to the government all the contributions.

At the same time we are working hard to have 4G service available likely with 2.5 gigahertz, we have now 86 cities covered in Brazil, we are number one in this technology and is basically on this. I think its process in the beginning I need to analyze this with more time to do this.

And one clarification. Does the CapEx spend for this year, does that include any need to invest in 4G already? I guess it doesn't given you will not be able to use the spectrum?

Mauricio, in this year we are prepared to use 2.5 gigahertz basically the -- all the obligation that we have now. We are already contract -- we are promoting this in 2.5 gigahertz.

Valder Nogueira, Santander.

I have been reading on your ARPUs and churn numbers, but I would like to know if they -- if I am reading the right direction?

I am seeing the gap between prepaid and the postpaid ARPU further widening and also on the churn rate for prepaid and postpaid further widening, all in favor of the postpaid, I see that as positive. Is that a good read or and how do you believe this should be moving forward?

I think we are promoting immigration in our first phase that we mentioned before. In postpaid we have very good numbers, we have good ARPU. We have increased our ARPU in hybrid plan in control plan because we are selling now more plans with data. We have a well controlled channel, it is of two postpaid and control plan that almost 1% amount. And in terms of prepaid there is a difference with prepaid where we have a very strict policy to disconnect people.

We are focused on the profitability of this segment and we prefer to promote the immigration but we are focused on this to promote the immigration and to capture all the opportunities in terms of prepaid that people wants to be in prepaid. But I think our (inaudible) churn with lower ARPU are good numbers when you compare our plans in Brazil.

Okay. It's just because this widening of the gap in favor of the outflow of the postpaid I see as positive and also a better churn on the postpaid revenue than on the prepaid, I also see as positive and it's widening. My question is -- again is this read right? And second, is this bearing on cost that pays off? Are you happy with the cost benefit of this trend?

It has a rather -- it has a well controlled cost acquisition, our (inaudible), our payback ARPU the direct relation between (inaudible) and ARPU is around two months. I think we have a regular operate here in postpaid. The numbers that you show in postpaid was so impressive when compared with all our competitors. And it's natural I think so if you are focused on postpaid its (inaudible) why the difference between postpaid and prepaid.

I would like to add to it, it's obvious in this first quarter of the year we've made an incredible effort to improve our customer base with this net addition of 1.2 million customers. It's taken a lot out of our costs, it's obvious rose 16%.

We are looking at ways to improve our sales productivity. It's a challenge because we continue to position ourselves and we need to invest not only on the infrastructure we need to invest in the intangibles as well. Blended ARPU continues to rise and that's a good thing. On average, we're doing well, both on postpaid and on prepaid. And it's obvious that we're trying to move customers to the point where the cost of keeping them and serving them is lower. But in the process, it's obvious that we are investing significantly to develop that customer base. Yes.

Vera Rossi, Goldman Sachs.

Do you see more competition in the high-end postpaid versus a year ago? And do you see [cloud] gaining more traction with this customer segment? Thank you.

I think all the markets nowadays that are focused on postpaid are two kinds of postpaid, (inaudible) postpaid and average plan control plan. I think we are focused on both segments. I think the competition is so high, many of our competitors are putting in a lot of money in subsidy, subsidizing handsets. We are putting less money. So if the numbers are showing in terms of portability, I think it's very impressive. It's a very good point to show that our position in the market is so strong. (Technical difficulty) four times more than to our losing is the total postpaid. And the 4G 16 times I think it's also quite impressive the numbers we have in our postpaid.

Okay. And I have one question on the fixed line business. Do you expect this -- the revenues from fixed line the growth rate to turn positive in the next quarter? Then if so, what would be driving this turn in growth rate?

Well, seeing growth absolute revenue growth in fixed, it's a challenge. Obviously you have seen this -- it's been declining for the large -- very large number of quarters. But we are approaching this from both sides, the high end that is the fiber deployments we're doing and that's bringing in revenues, incremental revenues. So still a small base and that's important. We are also developing our fixed wireless solution which we are selling nationwide. That's also bringing in revenues and is complementing this -- unrelenting drop in revenues from our fixed base here in Sao Paolo.

We are expecting to see an impact from an adjustment in what's called the (inaudible) which is a consequence of the merger we effected last year. We hope that we will be able to absorb that impact and continue to see a trend that closes the gap between the evolution of our mobile and our fixed revenues. But it's -- it would be quite a big bold bet to say that we will see net growth in fixed revenues in the near term future.

I have just a follow up on the fixed line. This business outside Sao Paolo, this -- the fixed wireless in -- what is the percentages total revenues that they are representing now? I saw the customer -- the number of customers in the press release but I didn't see any thing related to revenues. Are they relevant -- is this business relevant?

I consider that relevant, particularly within the state of Sao Paolo.

But it is -- in terms of revenues, what is the percentage that this business outside Sao Paolo is representing now?

We don't disclose that figure. But like I said, it contributes to the overall fixed business revenues but it's not significant, not yet.

Paul Marsch, Berenberg.

In Germany, the move by Telefonica to consolidate E-Plus led to the next spectrum auction being delayed whilst the regulator considered their approval of that consolidation move. In theory, in Brazil if there was a move to consolidate the market would that require the 600 megahertz auction round to be delayed?

I think it's a question for the government. Basically there is several hundred several process on -- it's really now -- I think it's not a question for us. Basically, (inaudible)--

Michel Morin, Morgan Stanley.

I just wanted to see -- I think I'd asked earlier if you saw any impact from Easter if you can help us understand what kind of impact that might have had? And then secondly, based on Telefonica Group's experience with prior World Cups and Olympics, can you give us a little bit of a sense of what we should anticipate for Q2 and Q3 in terms of any potential additional traffic or revenues that the event might generate? Thank you.

As far as the -- in case of World Cup, we are so prepared for this. We have (inaudible) coverage and capacity in all stadiums and in the areas that people view -- be there. But in terms of revenues we have on the contrary one impact because many cities in Brazil will declare a holiday in the period of the game, not in the game of Brazil but the games in general. In Rio, for example, it's a point that we are already decided. I think in this situation it's possible to have a negative effect.

But I think it's too early to have enough vision about this, but the extra revenue from the digital that we have, we are launching this week the first business to have roaming in LTE for many countries and it's very important for us, I think the first company in Brazil that launched (inaudible) roaming.

And we are looking for all the potential that we have in this space. But we are -- we concentrate to have now is basically the (inaudible) we can have in some cities of Brazil.

If I may to this question of Easter, we mentioned earlier in the presentation that numbers in the fixed business in broadband and TV products in the month of April were looking good.

So our statement going forward considering that Easter was April this year, it's positive, it's still, it's a volatile consumer environment, so you cannot draw any conclusions from that, but we believe there is a steady and good adoption of our product. So we don't think that you should see any particular (inaudible) when comparing for this between the two years.

Okay, that's very helpful. And if I can turn a quick one out there. You mentioned in your presentation also that you still have big opportunity in data because of the smartphone penetration and many of the smartphone users don't have a data plan. Do you know why? I mean are these people who use Wi-Fi but not a mobile plan or are they simply not using data at all on their smartphones?

There is of course in prepaid basically but people use Wi-Fi and are to buy a package now to use daily or week, not a normal plan amount, basically on this. But it's in prepaid, not in postpaid, the numbers are quite so the same.

Soomit Datta, New Street Research.

A couple of question please. First of all, can I check in line with the cut to the termination rate, the MTR rate, did you also cut your fixed to mobile retail price, I think that referred to as the [VC] rates, were they cut at the same time by the same amount? And if so -- and presumably that was something of a headwind on the fixed business lot and what impact might that have had, please?

And then secondly just again going back to the fixed wireless business, you gave some subscriber numbers which is very helpful in the presentation. Could you give any sense as to where that might be going either on the sort of one-year basis so just an idea as to how much more growth there is going forward, please? Thank you very much.

Sure. On the first question on the MTR cuts, in 2014 we have a 30% net reduction in VC and a 25% reduction MTR and that was in the last week of February. It was in fact before we had anticipated. The impact we are expect -- it was about BRL75 million in the first quarter this year. And that means (technical difficulty) was about 15% for (inaudible).

And I think second part of your question, I am sorry I think I missed it.

Yes, I was just -- I was saying you put some subscriber numbers out in the presentation on the fixed wireless business both on the plug and play broadband and also on the voice services. This is a 339,000 broadband subs, 653,000, I think it is voice accesses. I just wondered if you could give an idea as to where that number could go on the sort of medium-term basis please?

So we made a 160,000 net additions, fixed wireless and it is ramp up process with 161,000 net additions in the quarter is roughly now as we cover more cities in Brazil and we believe we have a very competitive product. But it would be wrong for me to point to any potential average of volume of net gains in the future.

Okay. Maybe you would hope it would accelerate perhaps from (inaudible) rather than slowdown.

Okay, all right. This concludes the question and answer section. At this time I would like to turn the call back to Mr. Teixeira for any closing remarks.

Thank you. Thank you all for attending this conference. The results of the first quarter consumer are a good evolution in mobile and fixed (inaudible) contract evolution and improved fixed revenue trends. In a context of high inflation and strong commercial growth, our cost evolution should be highlighted. We have great challenges this year with the World Cup and the lower economic growth and we will do all the efforts to continue to deliver better results.

Thanks again, and hope to see you soon. Thank you.

Thank you. This concludes today's Telefonica Brasil first-quarter 2014 results conference call. You may now disconnect your lines. Have a nice day.