Telefonica Brasil SA (VIV) 2015 Q2 法說會逐字稿

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Telefonica Brasil second quarter of 2015 earnings conference call.

Today with us representing the management of Telefonica Brasil, we have Amos Genish, CEO, Alberto Horcajo, CFO and Investor Relations Director and Mr. Christian Gebara, Chief Revenue Officer.

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

After the Company's remarks are over, there will be a question-and-answer session. At that time, further instructions will be given. (Operator instructions)

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities and 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.

Now, I will turn the conference over to Mr. Amos Genish, CEO of Telefonica Brasil. Mr. Genish, you may begin your conference.

Thank you. Good morning, everybody. I would like to thank you all for attending this call for the results of Telefonica Brasil on the second quarter of 2015.

In this call we will present the first consolidated results of Vivo already combined with GVT. Our call will have two parts. We will start discussing quarterly results and then we'll share with you the status of the integration and synergies plan.

With relations to our results for the second quarter, I'm excited to report a very solid financial and operation performance that reflects our competitive advantage and sound strategy.

Before Alberto Horcajo, our CFO, goes into details, I would like to share with you my perspective on our results and our business.

First, we accelerated growth. On a consolidated pro forma basis which includes GVT results for the entire quarter, revenues grew year over year by 5.4%, which outperformed the market. And it's higher than the 5.1% growth that we reached in the first quarter of 2015.

Not considering the reduction in mobile termination rates our growth rate would have reached 8.1%. Our customer mobile -- our consumer mobile business grew by 8.8% year over year, mainly driven by fewer postpaids and hybrid plans, which robustly grew by 11.9% and 37% respectively.

The consumer fixed business which includes voice, broadband and Pay TV grew by solid 6.4%, led by a double digit growth, in the formal GVT 12.1% and for the first time since 2008 productive growth in the Vivo standalone business in Sao Paulo, 1.8%.

Consumer fixed growth was driven both by broadband and Pay TV. Actually Pay TV represents more than 60% of consumer fixed growth year over year.

Finally, our enterprise business stabilized with the slight revenue decline of 0.5% year over year versus decline of 2.7% in the first quarter of the year.

Mobile enterprise revenue grew by 2.1% and the fixed enterprise revenue still declined by 2.4%.

Second point, we expand our position in key segments. We increase market share in mobile by 0.5 percentage points reaching 29.3% and specifically in postpaid we reached a solid 41.7%. We lead the sector on revenue share with a gap of 13 percentage points above our closest competitor.

We strongly expand our fixed business growing our private customer base which includes FTTH and FTTC by 20% and our Pay TV customer base by 22%. From January to May, we capture more than 90% of net adds in the Pay TV market.

Third point, we continue to monetize our customer base. Our investments in 4G where we cover most cities than our competitors allowed us to increase mobile net ARPU to by 27%, the highest growth in the last five years.

Smart digital [play] promotion allowed us to increase Pay TV ARPU by 6% and broadband ARPU by 2%.

So we maintain the highest possibility in the market. This is challenged by the external scenario. Our EBITDA margin remains constant at 30% in this quarter when compared to the first one.

It is direct (inaudible). In the last two months we have taken many decision to increase efficiency and compensate for cost pressure related to macroeconomics such as inflation, exchange rate and customer behavior.

We this, I pass into Alberto to go in more details over the quarterly results.

Good morning, ladies and gentlemen. Now on slide 4, we present in detail evolution of mobile revenues.

Revenue growth reached 7% in the quarter and almost 10% when excluding MTR caps for the period. Data revenues, our main growth driver, presented the greatest percentage increase over the last three years, by rising 33% year over year in second quarter thanks to a very strong performance in Internet revenues and the acceleration of the growth-value added services.

Voice revenues decreased by 5.7% annually in the quarter, partly impacted by a new portfolio of offers which includes a higher share of data services.

The 28% annual reduction in network usage revenues for the quarter reflects the MTR cap effective as of late February. Without this effect, we would have seen a net increase of almost 3%.

Our primary focus on value has been reflected in our share of revenues. We estimate that our share of revenues for the last 12 months has reached 38%, over 9 percentage points of our mobile access share of the market.

Now moving on to slide 5. On the top left side, we break down the evolution of mobile accesses which have grown 4.2% versus the second quarter of 2014 driven by the continued and strong evolution of postpaid accesses. They increased more than 13% over the same period.

Actually, due to our sound mobile commercial strategy, we managed to increase our total market share to reach 29.3% in June 2015. While we have cemented our leading postpaid market share to 41.7%.

Out of our total mobile base 36% of the accesses correspond to postpaid customers, 16% percentage points more than the average of our main competitors.

This leading position is sustained by a superior customer experience that brings and retains demand in consumers and most importantly creates resilience in our revenue base. Even in a period of aggressive market pricing, our voluntary churn levels and contract accesses remain at very low levels and in line with historical information.

On slide 6, we describe briefly our ongoing mobile strategy and its recent impact on ARPU. Telefonica Brasil continues to lead the market in 4G coverage closing the quarter with 140 municipalities and around 40% of the population covered.

Mobile data users reached 44 million accesses at the end of the quarter, an annual growth of 33%, while the smartphone penetration within our base soared to 71%.

4G already represents almost one-third of all mobile data traffic in the main capitals of Brazil. As a result, despite an MTR count of 33% in February, we generated a modest year-over-year growth in ARPU, once again in this quarter with data representing 46% of mobile revenues, 9 percentage points more than at the end of the second quarter of 2014.

The successful up-selling of data bundles in postpaid and greater sales of data packages to prepaid customers boosted the increase in data ARPU to 27% year over year, the fastest growth in the last five years.

The numbers are even more impressive in relative terms. Our ARPU is typically more than 50% higher than the average for the industry. And so far this year, we have been the only company reporting a rise in APRU.

We thus reinstate our commitment to value and sound competition in mobile.

Moving now to slide 7. In the second-quarter 2015, we achieved revenue growth acceleration in fixed business of 3% year over year and 5.6% when excluding regulatory impacts.

While GVT's revenues rose more than 10% annually driven by a strong growth in broadband and TV, the improvement in Vivo's stand-alone performance led to a stable revenue evolution, a smart turnaround over the last few years.

Combined broadband revenues in the quarter increased 8% against the second quarter of 2014. While voice revenues were down 3% in the quarter and continue to suffer from service maturity, mobile substitution and wireless regulatory impacts without which voice revenues in the second-quarter 2015 would have increased by 3% year over year.

Pay TV revenues recorded an exceptional growth of more than 30% in the quarter, thanks mainly to the industry's fastest expansion in accesses.

Corporate data and IT revenues grew by 3% in the second quarter when compared to the second quarter of 2014. Demonstrating the benefits of the joint network capabilities of Vivo and GVT for the corporate market resulting in designing of some very large contracts in the combination last May, the 28.

Moving now to slide 8. We have been able to improve share and increase of ARPU in key fixed services. On the ultra broadband front, we have achieved an impressive 20% year-over-year growth in the total number of fiber accesses that surpassed the number of FTTX accesses for the first time in the second quarter of 2015. Such expansion is supporting our 57% market share in speeds higher than 12 megabytes per second.

Pay TV accesses reached an increase of 22% versus the second quarter 2014, accounting for almost 1.8 million customers at the end of June. Vivo capture an impressive 93% of the TV market growth from January to May 2015 according to Anatel figures.

A healthy operational performance on the fixed side was accompanied by a very positive evolution of broadband and Pay TV ARPUs which grew respectively 2% and 6% year over year reflecting the migration of customers to higher speed broadband and high definition content.

In slide 9, we present our cost evolution for the second quarter in a slightly different formant from what you may be used to for the benefit of detail. Personal cost rose 4% year over year reflecting the 7% [which] adjustment implemented as of January 2015 offset in part by headcount reductions over the last 12 months.

Cost of services increased by almost 4% year over year, benefiting from the 33% MTR cut effective last February. When excluding such effect, we recorded an increase of 10% attributable to the use of more sites to expanding or coverage in quality beside higher rate of overall cost of TV and mobile content, and a meaningful increase in energy expenses of BRL62 million in the period.

Selling costs excluding bad debt provision increased almost 11% year over year reflecting our focus on capturing postpaid customers with a view to continue sub-selling as reflected in the evolution of our ARPU, conceivably supported by the larger contribution from mobile data revenues in an expanded smartphone base as mentioned earlier.

Provisions for uncollectibles increased 17% on a year-over-year basis, representing 2.9% of net revenues. We are keeping a close watch on delinquency ratios on the back of a stricter credit policies and more effective collections creating the conditions for an improved cash conversion of sales later in the year.

With costs rising on average by two-thirds of the prevailing inflation rate combined with an increase in revenues of 5.4% in the quarter, we achieved an increase of 2.8% in EBITDA securing a 30% EBITDA margin in the quarter reported.

On slide 10, we show the net income evolution for the second quarter of 2015, decreasing to BRL933 million, a 56% reduction against the same period of 2014, mostly explained by the review of the tax bases of certain intangibles from past incorporation of businesses, which you may recall back in 2014 had a positive effect on the results of BRL1.2 billion. Excluding this impact, the recurring net income was almost stable quarter over quarter.

Depreciation and amortization were impacted by the gain from the review of the lives of plants and equipment, the reduced depreciation and amortization in the second-quarter 2014 the amount of BRL264 million besides the increase in the amortization of certain intangible assets generated by the incorporation of GVT since May 2015.

On the financial results, larger expenses in the quarter are attributable to the FX differences for debt repaid as well as to [IOF] taxes related to the settlement of the cash portion of the total consideration for the purchase of GVT.

Finally moving on to slide 11, on the top left side we showed our CapEx for the first six months of 2015 reach BRL3.8 billion, representing close to 18% of sales with a growth of roughly 7% over the first half of the previous year.

Investments continue to be focused on supporting our quality leadership and a [reign that] expanding our ultra broadband accesses and transmission infrastructure increasing 3G capacity and 4G coverage to guarantee the best network experience available.

EBITDA minus CapEx is to the BRL2.4 billion, 5% less than at the end of the first half of 2014 and in keeping with a sound liquidity position.

Gross debt by June 30th decreased 13% year over year thanks to the debt repayments in the period. At BRL11.5 billion it represented about 17% of total equity capital on the same date.

Net debt also recorded a decrease of 40% over the same period due to the major repayment and cash increases related to the capital increase, partially counterbalanced by the payment of the 700 megahertz license to Anatel in the last quarter of last year. By June 30th, net debt represented 0.33 times the trailing EBITDA of the previous 12 months. And is slightly over 4% of the total asset base.

Thanks for your attention. I now hand over to Amos.

Thank you, Alberto.

Now we can move to strategy and synergies. As you can see now in slide 13 we move [fastly] till the end of March when the general management was announced, we were able to accomplish a successful equity offering at the same time we kicked off an integration project involving more than 150 executives to design a strategic operation and (inaudible) plan for the new entity.

Along that among others to reassess the value of synergies related to the integration. A few days after closing on June 1st, we launched the platform company's employees and staffs execution. Actually since that day, we have been operating just one company.

Vivo follows the best practices on post major integration and are sustained with this -- a plan before closing starting integration fast, started to operate as one single company as soon as we can. At the same time, we have maintained the latest focus of the business as can be seen from our quarterly results.

During the 50 days before closing, the combined team adopted to a full set of information from both companies being able to review the assumption of opportunities identifying this due diligence and to identify opportunities that have been not -- that are not being considered.

As you can see on slide 14, this analysis confirms the best case scenario for the operational synergies that have been estimated during the due diligence and point out to upside potential which we will sell to -- as the best case scenario.

I will give you five examples that can help your understanding the nature of the upside potential we find or exist in the best case scenario. First, as we showed Vivo and GVT customer databases, we were able to identify one by one almost 2 million GVT's [potential] customers that were not cash flow zero. Likewise, we identified more than 2 million Vivo postpaid customers, the difference to about 1 million homes that lives in areas where GVT has a footprint but are not customer of GVT. With this type of information which Telefonica did not have at the time of due diligence, we were able to assess better the potential of cross-selling activities in the consumer market.

Second example in a similar way, we were able to identify one by one a set of large enterprise accounts that have been -- that have the limited relationship with Vivo and are behind overlapping GVT's footprint. Now that we have expanded the network, we aim to increase our business with this corporation.

Also within GVT's footprint, we identified more than 100,000 small and medium businesses that have Vivo as their mobile services but are not customer of GVT. This type of details, client by client information, has allowed us to better assess the potential of the enterprise market as well.

Third example, as we compare in detail Vivo and GVT's business model for the consumer fixed businesses, we were able to identify significant opportunities related to portfolio integration, churn optimization, a new operational model for field operation and customer care leveraging GVT's system and best practices. Those opportunities have not been considered in the original due diligence spend.

Fourth example, on the procurement side once our team was able to exchange information about each one of the soft suppliers in that condition, we were able to identify new opportunities to leverage our combined scale.

Fifth and last example, (inaudible) the original plan assumed GVT would remain as a separate organization until 2017, either we decided it was possible and needed to anticipate integration of both organizations here in 2015.

As we move now to slide 15, it's important to emphasize that the estimation of value from best case scenario are subject to various type of uncertainty. One must recognize that the context behind integration may change as the macroeconomic scenario continues to be uncertain.

One should also be aware that the Company has different level of control for the capture of operation synergies. Some synergies fully depend on the Company's ability to execute, others depends on the outcome of negotiation with third-parties and others depends on market conditions.

In general, most of the assumptions (inaudible) best case scenario will be tested during 2016, giving us more visibility about the actual value potential. In light of transparency, we share with you the results of the best case scenario, but we'd like to highlight that they are useful to confirm the best case estimated previously and point out last years potential as mentioned earlier.

On slide 16, you can see that we build a comprehensive plan that I've mentioned before as many relevant milestones during 2015 we have been advanced fast on preparing the plan, we're accepting synergies and starting [quick win]. And have a detailed plan to advance our integration in the next 18 months. Most importantly we have started to execute.

On slide 17, we show some example of actions we took in the first week after day one. We have initiated already many activities starting to push concerning both on the consumer and enterprise market, renegotiating with store suppliers merging our networks and support.

We also kicked off the key IT project that will transform and improve our fixed business by allowing us to integrate portfolios and improve the operation model.

We have created an integration management office that is fully focused on following up on the integration process with a detailed master plan and allows specific KPIs to track out our advances area by area.

Next time we speak, I will continue to update you on the integration process and the status of synergies.

On slide 18, just to summarize we had a strong quarter and most importantly the benefits from the (inaudible) and we are moving as fast as possible to execute the integration plan.

However, one should recognize that Brazil is passing through a challenging time and as a result we don't have visibility on how the situation may evolve and how it may affect the telecom sector and the economy in general.

Now we can start the Q&A session. Thank you so much.

(Operator Instructions) Andrew Campbell, Credit Suisse.

I had two questions. My first one is just related to CapEx. And I was hoping you can give some visibility on where you think a full year CapEx will shape out -- will shake out?

And my second question is on technology especially regarding fixed broadband. And you mentioned the FTTX solutions. But I was wondering if you've made some headwind in terms of which technology solution you're likely to deploy if it will be geared more towards the fiber to the node, the type GVT solution or more towards fiber to the home or what kind of approach if you have that sort out, you'll be using generally speaking going forward? Thank you.

Thank you Andrew for the question. Talked about CapEx, we're maintaining our guidelines for about 20% of revenues in general.

About the fixed broadband technolog1y we will -- we have the clear plan in the next few years with respect to when and where to use FTTH fiber to the home and where and when to use the FTTC fiber to the cabinet. We analyzed very -- in details the business model position of the technologies and found that in some segments and some areas of Sao Paulo we should use FTTC to monetize better the current customer network. The business case is strong and better than we rebuilding a new FTTH platform in current areas where we already have some cut on networks.

In some other areas, we sell mostly based on type of customers in a segmented view competitive scenario, we'll continue focus on FTTH. In a Greenfield operation, everywhere we launched new cities. It will be always directly FTTH of the Greenfield, there is no issue of monetization current assets.

So clearly we have the -- we'll have the mixed model in Sao Paulo and the time on investments will be a key criteria in deciding what technology we'll use. Both will serve very well our customers.

Just to remind that the average speed in FTTC is around 50 mega and of FTTH is 100 mega and above. But clearly, depend on segmentation we can find the right balancing between the investment as FTTC on the current capital network is cheaper if you want per subscriber than a Greenfield FTTH. Thank you.

Okay. Thank you, Amos.

Maria Azevedo, UBS.

Thanks for taking the question. My first question would be on interest on capital. We would like to know what would be that the Company response in case IOC gets extinguished. Even maintaining the same level of payout through dividends, we believe there would be some impact. And our question is would there be room and approval from the parent company to lever up in order to offset this?

As you all know, we continue to declare and payout interest on capital as we continue to introduce net income. And in fact, we've already earlier this month we declared interest on capital and results up to May the 31st. So that would be our policy, and of course is our preference to have these cash distributions in the form of interest on capital.

Of course, we are very much aware of shifting conditions in the tax environment here in Brazil. As you rightly pointed out, we have clearly under gear balance sheet which is something that we need to consider in case on taxes activity, give interest on capital were to be repealed.

As I've already said in the past, we have a plan B. I think it's too early to comment on that, but we're ready to obviously within the constraints of the existing loss to optimize the distribution of cash to shareholders.

Maybe I would like to highlight that we don't have any indication so far on changing the law despite no one knows about the subject.

Perfect, thank you very much. And as a follow-up question, we would also like to understand a little bit on SMS trends. You highlighted a relevant improvement in the quarter over quarter explained from bundled offers. How should we expect to see SMS revenue trends going forward? Do you see room for recovery in that line or is the stretch from what's happened in other data messaging to relevant? Thank you.

I am Christian Gebara, Chief Revenue Officer, I'm going to answer you question. Our strategy is the one that we described before. Our packaging SMS and all our offers today in all our customers than we have SMS package to be revised and Internet. So we're doing that in the prepaid that we launched, like actually last year we were able to do. We do that in our hybrid and we're doing that in the pure and (inaudible).

So we're continuing with this strategy, giving value to the SMS and the bundled offer. That's what we're doing now. And we keep up this strategy in all plans.

Perfect. Thank you very much. And congratulations on the numbers.

Vera Rossi, Goldman Sachs.

And my first question is in the fixed line business. Could you give us the breakdown in terms of growth in the state of Sao Paulo and also outside? And in case you don't have the exact numbers, could you talk about the dynamics in the Sao Paulo state and whether the revenues loss has already declined from the previous quarters? Thank you.

Vera, I think we lost you about the second question. Can you repeat it, sorry?

Sure, yes. In case you don't have the exact numbers, could you talk about the dynamics of the competition of your revenues in the state of Sao Paulo and whether the revenues loss has already declined?

As I mentioned in my initial introduction about the results, I mentioned that the revenues in Sao Paulo grew 1.8%, yes, in the fixed business, yes, first time since 2008. While GVT consumer grew 12.1%, I mentioned it. So we get the breakdown. But clearly, we're really pleased with the turnover we're seeing in the fixed business of Sao Paolo. And I think that the fixed business in general is probably would be a very interesting business to follow in the next quarter of the year.

Is that helping, Vera?

Yes, very helpful. Thank you. And I have one question also in wireless. What's the percentage of your smartphones that are 3G and 4G? Or a different way to ask the question, if you exclude the web phones what will be the smartphone penetration for Vivo?

(Technical difficulty) Vera, what it like, in the smartphone penetration is the number that also present at 71%. The number of 4G smartphone is the number also that Anatel has given, that we have like 40% of the 4G handsets market share in Brazil today that Vivo is leading. So 71% in our smartphone penetration in general and in the home market we have 40% of the 4G smartphone.

Okay. But the 71% includes the web phones, correct?

Right, the web phones, exactly.

Yes. If you exclude the web phones, how much would be the smartphone penetration?

Like we're mostly selling smartphones. Now today, we are only basically selling smartphones, I don't know the specific percentage of today what's web phone in our customer base. And I don't know if you are like -- I think like maybe you can consider that like 40% is the smartphone. But it's growing much more than the web phone because we're not selling web phones anymore. So it's like -- it's getting to like very high percentage, and our sales is more than 100 --- is already 100%, so I think we're going to see this trend changing a lot in this next few quarters.

Vera, I suggest that the IR team will try to walk the structure of the numbers and sent you more detailed analysis of this, okay.

Okay. And with the significant reduction on prices of the smartphones that we are seeing on a global basis, do you think we are going to get to numbers that are close to 80% or 100% the smartphone penetration in the next three to four years in Brazil, or at Vivo specifically?

No, I think it's a reasonable time that you consider, and I think that we're going to see this growth very, very rapidly. And as you said the prices are going down. Vivo is only selling smartphones now days. But of course, there is other players in the market that sell smartphones. So we cannot control 100% of the sales in our customer base. But we believe that in the numbers that you've said are reasonable for the next three, four years.

If I may add also, Vera, as you know unfortunately, smartphones are becoming less affordable in Brazil because of the exchange rate depreciation. So trying to follow on what Christian just said, we also want to make sure that we get the right return from those devices that we're putting in the hands of our customers in terms of the ARPU that we expect to generate associated with such devices.

Okay. Thank you very much.

Matthew Rodelar, Barclays.

Thank you for taking the questions. First, just touching on the synergies since you mentioned it. Can you explain why a change in the Brazilian, euro exchange rate impacts the volume of the synergies? I'm probably wrong in assuming that all of the synergies are related to the business in Brazil, so they're in real. So I don't see exactly how the change in the euro could change the value of those. But if you can clarify that would be great.

Talking about more operating stuff. I mean obviously, there's been some price increases in the industry, both in fixed and mobile, which is important to catch up with inflation. Given the macro context, which obviously is deteriorating, do you think you can continue as an industry to pull price increases or you think it's going to be more difficult?

And finally in terms of the bad debts. As you said at the Q1, you've controlled the bad debt development on a quarter on quarter basis, so that's great. But as you see also the economy deteriorating, are you concerned that this could actually get worse in the next few quarters? So those are my questions, thank you.

Thank you, Matthew. With respect to the synergies, I mean just clarifying you're specifically talking about the fiscal benefits, yes, not operation (inaudible)?

Yes.

And just talk to in reals. And the fiscal benefits at the time due diligence, some of the [pies] that been paid or was supposed to pay to Vivendi was indexed to the euro, yes. I mean the cash portion, if you remember, BRL4.6 billion was in euros. The deal was the euro based in cash, and then stock exchange of Telecom Italia and Vivo Brazil.

At the closing, yes, which was almost eight to nine months later, clearly the exchange rates of debt cash portion was different and the value of the deal was about BRL22 billion at the time of the announcement in August, changed to about BRL25 billion. So clearly the goodwill created through that is higher and the capital being invested by Telefonica is higher. So clearly -- I don't think that's helping you understand why the value changed relating to (inaudible).

That's very clear.

Yes, okay. About the macroeconomics, and maybe then relating to the bad debt question, but I would say I would not enter into discussions in this call about what might happen or not in the macroeconomic scenario in Brazil. We all hope for a better development in the next quarters. It's hard to predict. And clearly like all businesses we're very much depends on how the economy will evolve and develop.

I think you mentioned inflation specifically. I think if there's any consensus in analyst about what might happen next year, in the economy is about inflation. Inflation it's -- I believe there's a clear consensus would substantially will be lower next year. I think it was a one-time hike this year relating to price adjustments in many sectors that were depressed by governments or not in the last few years. And that we hope that we'll see a substantial reduction in inflation.

However, if the GDP will grow and if exchange rates will continue pressure so much (inaudible), we cannot comment or discuss at this stage. But I think what I believe is the telecom sector showed so far some resilience about business compared to other sectors; if it's retail, construction, or automobile or others. And the sector showing some growth maybe not as high as it should be and that means as people maybe eating less outside or going out less to movies or traveling less to vacation, at least they would like to have a strong broadband connection to watch Netflix, a good Internet connection in mobile, be connected.

Somebody even mentioned to me yesterday an interesting observation, that people that losing their job cannot afford to be disconnected from Internet, that's the only way they can find a new job.

So clearly telecom is a different animal into that. But however, growth will be affected if economy will be worst than it is today.

About bad debts specifically, I think clearly, Alberto mentioned in the call, we'll have to be more focusing on intelligent growth than just growth per se. I think clearly some customers are having difficulty -- who will have difficulty to pay the bill. So we'll have to find a way to have the right planning internally with respect to credit and pricing, enabling customers to have the right packages, but at the same time to be very careful about giving credit to people that might be default later.

So it's a combination of many things. And I hope that give you some understanding the way we see or might -- thinking about the future development based on the economy.

Thank you very much.

Valder Nogueira, Santander.

Three good news in a day, that's very good. Still on the question of the bad debt. Let me go back to that, the specific topic. Looking at performing and the non-performing numbers that you put out, there was a sequential improvement going back to levels that we had seen in the past, closer to those historical levels. But what was behind this improvement?

We saw days of receivables is still when going up, but the overall bad debt improved. Any specific driver behind this? That's my first question.

Before maybe handing to Alberto, this -- maybe can comment more.

I would say that once -- it's really interesting phenomena that the fixed business, okay, that GVT being consolidated first time in the fixed business, we see even a decline in bad debt so far, very surprisingly, a little bit, not much but we're seeing decline. I think it is more resilient business as I mentioned, and I believe it was helpful.

Second, clearly we are controlling more the bad debt phenomena. I will give you one example, we took an action in the quarter because taxes -- somehow the revenue is less, but we decided to stop sending bill (inaudible) bill for customer that defaulted the first and second, an example.

Even though by Anatel's needs we continue to provide services with them, yes. And we'll continue to do services by Anatel regulation. But certainly we need to continue bill them. When you bill a default customer, you get into a situation where you might have revenues, but you'll have a bad debt for sure. So clearly some of that action, it doesn't -- might reflect what might happen in the next few quarters, it all depends on -- will continue smartly to monitor credit, billing collection and the many other actions, see if the fixed businesses continue to be resilient or not as we saw it so far but I hope to give you some kind of overview.

And if Alberto wants to add anything beyond that?

I would just quickly add, Valder, that we have a very thorough multi-segmented approach to managing both credit and collections. We look at geographies, we look at products and we look at customer segments in terms of value associated.

And it is true in the second quarter we were able to have a lower probation than we had in the first quarter of this year. This is a consequence of early good results from these actions. And I would also like to stress that we already have 21% of our accounts receivables fully provisioned and over 105% of all accounts are due more than 100 days. So we're pretty sound on our policy. And like I said, we are managing the adverse conditions in credit markets with very thorough policies.

Okay, thanks. That's the first question. The second question is, lot's of noise in the recent past regarding Fistel, regarding consolidation. What can you tell us about what's going on regarding the discussion of Fistel. And more important, is there a possibility that the government may come out and auction off some spectrum capacity? Is it on the regulators' agenda, is it on the players' agenda to potentially buy more spectrum capacity?

I will try to answer quickly on those simple question you're asking, yes. Just small simple answer.

About Fistel, I think since the news in the media, nothing came from the government with respect to substantial or insignificant raise of the Fistel taxes. The industry working extremely well together and met almost all key government officials making the case that Fistel hike is an inefficient tax in any way you look on that, yes. It will reduce the base of the prepaid and by this the government will not get more money. On the other end, it will have a substantial effect on maybe potential investments. And clearly it's against the social agenda of the government.

Anyhow, anyway you look on that I think whoever we met, any ministers or above that has a clear understanding of the issue relating to the Fistel, and any increase of that, Fistel is a fixed tax and not variable, can create really a problem to the consumers and to the industry.

As you could see form the changes of the government for all taxes relating to government agencies, Anatel was excluded, yes, which is a good news. It show that our word with the government helped them to realize not to put additional Fistel or other tax directed to the sector in the same package of other agencies, we're very pleased with that move.

Clearly, it's not maybe the end of the saga, we'll continue to work with the minister of telecom, that is now supposed to be the guy that's supposed to work with us with the government. We know the minister has a very clear position about raising Fistel taxes.

So I think clearly we are more optimist than we used to be, but clearly I can tell you that all government officials said very clearly this media news, the percentage and sound never, never cared for the government is not in the agenda as we understood from them raising that much Fistel or at all. It's something that is under discussion. So far we're out of that stage. We'll have to see how that develop in the future.

But clearly, we believe and hope that governments will continue to be resistance to an increase of that tax. I will also highlight that any change in Fistel, this (inaudible) and other taxes of other agencies need to be approved by the congress. And that even if the government want to increase, I believe we have a good support in the congress not to raise Fistel.

About consolidation, I think clearly there's no magic in talking about consolidation at this point. I think there's no any obvious or -- any obvious move happening in the market at this point. And we are very comfortable that we are out of the integration of GVT. We're well positioned, really the national champion of the sector. We have what we need to grow and we have what we need to be well positioned in all key segments in, all key territories.

With respect to spectrum, I think there is some ideas of the government, maybe to auction in the fourth quarter spectrum some left over of the past like 1.8 gigahertz and we don't -- we're not aware that they will auction the leftover of the 700 mega that has not been bought in the last auction.

So clearly it probably will be a leftover of frequencies that are still available, but nothing national, nothing big unless they will decide to auction the leftover of the 700 that has not been bought in the previous one. I think it's something we need to follow in the next few months, but believe that public hearing will start in beginning of August.

Okay. Thanks Amos, thank you Alberto.

Thank you.

Susana Salaru, Itau.

We have two questions. The first one is related to the handset subsidies. In the press release, you mentioned that there was an increase or higher handset subsidies. Could you just elaborate on that if you're changing the subsidy policy or it's just a consequence of the FX impact on the amount of the subsidies? That will be our first question.

And our second question is related to the synergies, [OPEC] synergies. Content cost, it's a matter of the size of the subscriber base. And we have been in talk with some peers in the market, and they have actually a small subscriber base than Telefonica, actually less than 1.5 million subscriber. And they claim that they already got the discount. They anticipate a discount that they would get from their content providers. So I was just wondering if Telefonica also could get an anticipation of the discount before reaching the 2 million subscriber threshold? That's it guys, thank you.

Christian will answer the first one about the subsidies.

Okay. Hi, Susana, I'm Christian. I think what Alberto mentioned is that the device price may increase because of the exchange rate, but our strategy has not changed. Like we are only focused in subsidies for pure postpaid customers, and always related to the plan they are acquiring from us. So we are going to keep our targets for profitability with our customers so the strategy hasn't changed. So we're keeping the same that we have right now.

If the prices increased so much, we're going to need to revise it to customers always respecting the profitability that we're looking for.

With respect to TV contents, we're not far away from 2 million at this stage. It's not a barrier, we don't need to wait for 2 million to maybe get to the discounts or at least agree on the discount. And I believe that sooner than later we'll start the negotiation with a contents provider.

I mean the key part of them is as you know a global [stage]. And we are waiting for some schedule from them to start negotiation. But I believe that 2 million is not obstacle to start the negotiation, maybe even anticipate it before we get 2 million, if you have commitment about what might come forward. But it's very sensitive and as we have a big appetite with respect to the discount level we expect, I don't think it will be a quick win. Okay, thank you.

Okay, yes, no, it's clear. Thank you very much.

Carlos Legorreta, GBM.

Thank you. I believe most of the questions have been asked, but I would still like to talk about the Pay TV market if you will. I mean you clearly had a fantastic performance during the quarter. And looking at the performance where you mix, that's very externally contrasting. I'm just wondering what is it that you guys are doing differently that is marking such a big change within the companies? Thank you.

I mean you probably want us to talk what we do may be better than our competitor. I think on Pay TV, I believe we answer, and I believe that not much we can add into that. Pay TV is a huge upside in our offered synergies, not the biggest one by the way, but an important one. We believe we'll get there.

It is question of time and I think that the content provider are looking forward to starting the negotiation which I think is a very good and thorough analysis and good homework internally before we go to discuss with them. And I think we can manage a maximum or two will be in the negotiation table dealing with this position. Hopefully until the end of the year we'll be able to give you a better view on that accomplishment.

With respect to why may be Vivo is outperforming the market, I will say it's a combination of two things; I think clearly it starts with the network. I think we have one of the most comprehensive and high quality networks. If it's mobile, yes 3G and 4G in the mobile side, if it's in the fixed business the combination of GVT and Vivo is really -- has a very extensive footprint, at the same time more fiber oriented than it used to be.

If you look from the market share, we have on ultra broadband customers more than 50% of the overall customer base in the country are in Vivo. I think the network is a key element of that differentiation.

The second one is no doubt is the brand. Yes, I think communication and branding, I mean both brand GVT and Vivo considered as the premium brands. It was not build in one -- day one, it's ready to develop our position and so on. But in the end, customer perceive both companies as the premium provider enabling us to charge a higher APRU in some segments and some products. And I think as to have a higher cost and better profitability.

Third, is always is about the situations. In one hand, we have excellent commercial team headed by (inaudible). At the same time we are very much focusing on efficiency and CapEx optimization. We just started few months ago in very thorough actions relating to that I believe. We'll have still long way to go. But I think the Company as a whole is very much focusing on getting more with less.

And fourth, not least, I think quality of service, both companies considered as the top provider on quality. And so quality perception following the consumer market B2B are really critical to consumer today. And I think both companies in any perception we know, consider as the highest quality provider, that's helping a lot the business.

I think, lately we saw an important recovery in the business of Sao Paulo which was I've said non-utilized assets for use at Vivo. We're taking some important actions with respect to the packaging, pricing, quality of service. And sooner of course the -- as we said in sometime in 2016, we launch first time in Sao Paulo the triple play, one unified as triple play portfolio GVT and Vivo, a nationwide integration of the TV platform based on best.

IPTV will be the Vivo One, which is an excellent one, while the DTH one will be GVT One, taking the best of both (inaudible) already substantially the quality of service and the developed position of our Pay TV.

And we saw, as I mentioned, more than 90% of the net ads of the quarter, first time in history Vivo is taking the bigger share of the net adds in the market.

So it's a combination of many things. And clearly we'll have to prove it every quarter again and again. What's been in the past doesn't mean it's a guarantee for the future. But I think we have an excellent management team that's very much committed to deliver on that.

Thank you. And if it's possible to know if most of these additions are new customers or just changing customers from competitors. If you could also talk about that for the broadband market that will be really helpful. Thank you.

You mean Pay TV and broadband? I think if you looks on both segments, they're still growing, it's about 7% yield. The market accepts the Pay TV and broadband still relevant growth in the market.

However, clearly if you looks in more specific cities and you might see that some players are losing customers, yes, in Pay TV or in broadband while others gaining more. And that it's a combination of few things. So no doubt we're gaining so the market growth but also we're beginning from other players in the market in both segments.

And in mobile, only to compliment, Vivo has been leading the (inaudible), so customers coming from other operators for Vivo will be leaving for the last like months and so I think we're keeping with the trend.

Okay. Thank you.

Thank you.

Mauricio Fernandes, Merrill Lynch.

Two questions, first, it's another first quarter, Amos, but I would say its confirming a widening I would say a very distant gap in terms of revenue or performance in wireless relative to the other operators. How -- have you seen any action to that in trying to make up for that difference coming from the competition?

We've seen very, I would say, good dynamics good competitive dynamics this year in last 6 to 12 months. But there's a couple of offers out there recently that seem to be more aggressive in targeting postpaid customers. So just wanted to grab your thoughts on what you think about this going forward for Vivo in wireless specifically.

And then secondly to understand on the synergies. It's clear this is the best case scenario versus the base care scenario before. Just wondering if you've been able to compare if you could share with us the comparison what was the best case before relative to what is the best case now to see whether the difference in potential synergies are relative to what was expected before? Thank you.

Thank you, Mauricio. Very good two questions. About the competition I would say that clearly we might have some tactical reaction sometime as you mentioned, and I guess, you've also in this segment or other segments. My belief, again there's no any guarantee in today, most players are rational in the end of the day, vis-a-vis, they're macro. And I don't think we'll see a bloody wall like we have in Europe, for example. Yes, I think in the end of day basically, we'll have to continue in a high competitive scenario. But strategically I believe market will continue to be rational in the long run.

I think companies will continue may be focus their efforts in improving quality of networks, expansion of network and so on. But at the same time everyone is looking now more and more on margins at the time of the investments and not just some gross specifically. So that will balance any aggressive tactical campaign.

With respect to the synergies, I will say when we define the best case scenario we did not really compare it to what's been best case previously or not, yes. I mean our -- we build the new scenario, yes, for the synergies. We ignore if you want kind off, yes, the initial estimation visions in order to make sure the team are really building things again from zero and not taking the initial analysis of the base and building on top of it. So this two months of hard work of many people.

And really looking on the case from zero base building every opportunity that might come later on, (inaudible) cost it with due diligence. And I think why we call it best case and not base case, if you looks on the difference between the two scenarios, the due diligence really analyze quickly in a three weeks due diligence time what is data room information, only I would say that the quick wins in the clear case, migration of last mile and migration of back bone idea of the content cost reductions and so on and so forth, yes.

But if you looks the difference in the two cases, the rest of the upside, not all, but some of that coming from more complex level on the synergies side. For example, launching revised portfolio for triple play unifying pricings and offers and so on it require more substantial internal work of the IT systems and market acceptance and so on.

If you looks on the many of the operational synergies will come from the migration of the customers of Vivo stand-alone in Sao Paolo to GVT IT systems, we expect that remain a still. It's a major undertaking, yes, to migrate I don't see as many cases that you can look on migrating millions of customers from one system to another and so on.

So we took some key challenges that bring best management, best practices and ideas about business that will require more a sub-complex process together. If you look at the (inaudible) organization, the times due diligence assume three years company standalone and in the end some right sizing, while we have be -- we said more objective in the timing in the level. So we'll have to pass that reach of the redesigning and in the next few months in order to make sure that we actually have that benefit in the full content.

So I think just to give a range for people understanding that there is base case and best case and in between we'll have to see where we are heading. I'm not expecting you to understand that issue in my view.

Yes. Thank you very much, Amos.

Michel Morin, Morgan Stanley.

So first question on mobile data. I know that you changed your practice during the first quarter I believe of allowing customers to top up in order to keep their -- the speeds. I was wondering if you could comment about the trends you're seeing? Are people still topping up mobile data plans as much as they did in Q1?

And then secondly on the transaction that was announced today, can you remind us of Vivendi's lock up for the remaining shares and of the regulatory requirements to divest the rest. Has there been any change to that?

And then if I can throw a third one in there, Amos, can you update us on your plans or how you think you might be able to improve corporate governance practices going forward in order to basically better align Telefonica and minority shareholder interests? Thank you.

Christian will give -- answer the first question with respect to the data packages.

Okay. Michel, I will like -- we a saw very positive effect, not like after the blockage no two special like specific effects, first in the network, not having so many -- assume it's 10 years consumer is trying to use data in very low speed. It helps us in the customer experience for all the customer base so that the first one that is proven and very positive.

Also customers, most of them didn't understand that they were navigating in a very low speed, so now they have the option to buy additional package when they keep their regional speeds, so what we saw in both hybrid and prepaid where we have the blockage is people are willing to buy, they are buying more. They do top ups to buy and we started with the 50 megahertz like the -- or the only additional packets that we had and like recently we launched 100 megahertz.

And we can see also the upgrade of customers that are happy users not only (inaudible) going to 100. So we are positive that it was the right decision. And I think some of our results in prepaid and in data revenues are associated to the blockage, so we are confident of the positive effect of both network and customer experience.

Yes, was the second question relating -- it was the last one.

The second one was related to Vivendi and the lock up and the regulatory requirements.

Thanks. I would say, if you remember Vivendi started with 7.5% in Vivo and (inaudible). I would not get now in all the schedule, but I will say one thing is important, acquire them that within 12 months they have to go below 5%, yes, that's at 12. Then there's a schedule every year which I don't remember. but in four years they have to go to zero, yes.

So clearly the deal today with Telefonica bought them to 4% of Vivo, so they met the condition of (inaudible) to be below 5% within the third year. So clearly there is enough time line for them to continue in the next well, 4 years to get to zero in a much more smooth way then they could be without their transaction with Telefonica.

With respect to corporate governance, I would say total you can trust old management and myself included that we are totally focused on protecting all shareholders right, minorities or majority, we don't have any differences in the way we conduct business.

We are negotiating whatever need to be negotiated with Telefonica on the arms length totally pushing on priorities and making sure that whatever is relating to relation with Telefonica is always an arm's length and there are very few of that happening here as you know.

I think the best example that the interests are in line, even Telefonica, I would say is very concerned about minorities. I will give the example exactly of what you mentioned now, the deal with Vivendi. When being in the road show and we got the concerns of many investors about the other ending of the 7.5%, we started tier management with the idea of having a swap of share within Telefonica and Vivendi. It was not the agenda of Telefonica and so on, it was clearly resolving and ordering on the shares that mostly affecting minorities.

I'm happy to tell you that in all my projects with the management team of Telefonica and despite the ups and downs of this negotiation which was closed really in just early morning, I think you can see that the managements were going to say is have the same consideration in making sure that minorities are well treated, yes, I will say it. And I believe that corporate governance are at the level they need it, yes.

Clearly we can go to other level in Bovespa and other things in order to might want to reach one day, yes, and so on. But I think so far I cannot -- I don't have any indication that the interest of the minority in Telefonica are not fully aligned.

I hope it's helping, Michel.

Yes, certainly. Thank you very much, Amos.

Paulo Passoni, Third Point.

Hi, Amos. Can you help reconcile the synergy numbers that you expressed on NPV terms with long-term objectives for EBITDA margin and CapEx levels in absolute terms just as a reference? I think the market works at about 33% EBITDA margin long term and BRL8.5 billion of CapEx. Can you help us understand if this new synergy numbers make -- should make that go up in terms of margins and CapEx go down?

Paulo, hi. Thank you for the question. I think we will not give guidelines about the growth and profitability and so on at this stage.

I think smart investors like you can earn some numbers and find expected EBITDA in the next few years. Clearly, if -- we'll deliver on the hope of synergies, we should have a better margin going forward in the next 5 years, that's the best I can do.

On CapEx, I said, generally we still talking about in the next 2, 3 years around the 21%. Clearly, we'll have to see other business requirements for expansion and upgrade and so on and see how does it work on revenues growth. I will keep it at that level of information at this stage, Paulo. Sorry, I cannot help more than that.

Okay. Thank you.

Walter Piecyk, BTIG.

Thanks. First question on the operations. With the pro forma numbers it's a little bit more difficult to kind of get through the balance sheets. So I was wondering if you could help us understand if there's any I guess extended receivables from your postpaid customers from the economy? Are people paying their bills on time, are you seeing any risk there on the postpaid side of things? Thanks.

This is Alberto Horcajo. Before, we have 21% of our accounts receivable which are now provisioned. We have a slightly longer number of days of sales, when compared to the same quarter of 2014. However, we've seen a slight sequential improvement when compared to the first quarter.

And of course this is a consequence of some changes in terms of policies. You look out at the makeup of our customer bases where you'll see prepaid also gaining ground. You see that we have contract that is growing but it's not growing as fast as it used to. And as Amos said before also the fixed business is quite resilient and we have a lower impact of allowances and collectibles in fixed business. So all in all, with a combination of GVT into Vivo in this pro forma accounts, we have a slightly longer number of day sales, as I said before but a good containment of delinquency ratios.

Okay, great. Thanks. And then my second question was just on, regulators had no issue. I don't believe with consolidation of NET Servicos and Embratel into America Movil, so that -- I think their market share is about 50%. I'm just curious if you thought regulators would have any issue, if there was an opportunity for you to buy DirecTV's assets in Brazil, because obviously the market share there would be below 50%. And in the past regulators didn't seem to have an issue with that type of market share in the Pay TV market?

Thank you for the question, but clearly I am not aware of the DirecTV is for sale. And clearly we are not in process of looking into its assets. So not much to state because we never even check the regulatory aspect of this. But clearly, I believe Vivo has a very strong market share compared to the other big guys. And -- but we never really run into that sort internally or to check this out with the regulators, it's just too early.

And do you have any special marketing plans to attack that business now that there's been a change in ownership of the company? Because typically when that happens, there might be an opportunity with the change in ownership there's some operating changes. I believe the CEO of the company is retiring and there's a new AT&T executive getting put there. Are there any plans to try and go after that business more aggressively?

I think we are -- I guess we're going through all the players that have substantial market share. And clearly, Sky, DirecTV in Brazil is one of them. And the fact they have mostly DTH standalone business and not bundled. That's clear will give us advantage of other players that have a bundle to attack a base that normally might -- would like to have maybe a one-stop shop for all services; mobile, fixed, broadband, and Pay TV, or just Pay TV.

And I think the evolution of fiber and IP TV letting the Pay TV packages to be much more sophisticated, it's more (inaudible) content that's really hard sometimes to duplicate on the DTH stand-alone business.

Okay. Thank you, Amos.

Thank you.

Jonathan Dann, Royal Bank of Canada.

Hi, there -- sorry, I was just late on meeting. Could you just walk us through -- I mean in the past mobile consolidation has been sort of key, a key topic. I mean could you -- are you seeing -- are there any live discussions happening?

And then separately, if you could walk us through the sort of the regional plans for how you've leveraged GVT and Vivo in the different regions towards you know, work? But I guess the revenue synergies is what I'm trying to get my hand -- head around?

Hi, Jonathan. If any discussion were going on we probably will not tell you today, yes, but be patient.

With respect to synergies and you know clearly, I believe the combination of Vivo GVT is one of the most really tough combination -- I know we're in the telecom sector, it's clearly very different footprint on the fixed business. Sao Paulo only versus west of Sao Paulo, on the technology and the best practices and so on, and one with mobile the other one without mobile, clearly that kind of a combination help us to build kind of more interesting synergies scenario.

I think what we will do is really leverage GVT best practices, IT systems, CRM systems, field operations systems in Sao Paulo, and (inaudible) technology, FTTC -- in some areas that have not acquired full FTTH build out.

So I think again, if you looks on Vivo today we are really operating all the since 1st of June, as one single company. We don't talk about GVT Vivo, is one single management team, one single company. And the only differentiation -- the only gap we have really to have one single product portfolio, and one brand is really some in telephone society together and second some legal requirement that not then enable us to merge the brand before 1st of April, 2016.

So what will happen 1st of April, 2016, is the day of change, we will combine in our brands, Vivo GVT into one Vivo, that will have substantial marketing consequences on the product and positioning, communication strategy, and clearly efficiency in marketing.

Moreover, we'll be able again to operate as one single company with respect to the portfolio in Sao Paulo and outside of Sao Paulo. So by this we'll reduce substantial stress with respect to another product and number of systems operationally this -- today, compared to what will happen sometime in 2016.

I hope this can give you somehow, Jonathan, some (inaudible).

I'm going to say, Jonathan, also in the channel we are very complementary, like in -- like Vivo has a vast channel like of all stores and resellers, like adding up of more than 2000 points of sale, there also we can leverage the GVT product portfolio that Vivo used. So we already start piloting eight stores in two regions that were GVT's stronger north east and south of the country, so.

And GVT on the other hand is very strong in door-to-door. And then we start also like try to pilot like mobile services in this channel. So I think not only the portfolio is complementary, but also the channel.

Excellent, thank you very much.

Luis Azevedo, Bradesco.

So my question is regarding the concession, the fixed concession terms. So how do you see the recent statements from people -- from the government saying that they want to carry the concession? What are the points you believe that are most critical to be changed or to improve?

And if you have an idea that when it could happen? Thank you.

Thank you, Luis. Very good question. We should not undermine that aspect, when we looks on the future of Vivo.

The concession was a drag on the business of Vivo and another concession added in Brazil for the last few years. There was never such an opening in the government. They still use the concession of the telecom sector to revise the terms and improve them for the concession, that's a fact.

I think we hear the kind of statement within ministers. Surprisingly, when the Minister of Finance, Levy, mentioned it, I think a week or two weeks ago, it's time to reevaluate the concession contract in order to enable more investments and so on. Clearly, I believe that the renewal will end with better terms we have today.

Clearly, we're looking on mostly focusing on obligations and quality requirements. Obligations -- the operational obligations and quality requirements that in the end costing the Company's unnecessary CapEx and unnecessary OpEx.

And that's the -- so the operation part will be a key element of discussion. I believe we have already some discussion with the regulator. And the next few months will be intensified with respect to that, that's why need at least by the schedule to have a new renewal concession by the end of the year or beginning of January. We might have a delay of one month or two, I don't think beyond that.

The other aspect which is more strategic, relating to the visibility of the assets, as the asset concession there is kind of gray area about what might go back in the requisition with the government is the adjusted capital network phasing beyond that, that might be using the capital network, it's not clear.

And the government is open minded in discussing that aspect. And in order to enable investments in the capital network which really if you could see many of the concessions, concessionary do not invest so much in the capital networks in order to avoid the risk of them coming back going back to the government, clearly that is the way of that.

They want to intensify further investments so they would love to really come back with some solution and the solution can be additional long-term contact on the concession that's supposed to expire in 10 years to 2025 or clarifying that the assets will not go back to the state in the end of the concession. Whatever will be agree, clearly will help in reducing the remote risk of assets that are more broadband related, fiber related and that will be very positive.

So I think -- summarizing, I think I am very positive on the concession. I think we will have different terms in 2016. And that will be helpful for the -- clearly the business model of the Company.

Is that helpful? Thank you so much.

Yes, yes.

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

I would like to thank everyone participating on this call. I think we have been able to present a very solid result for Q2, a very solid business plan for the next five years integrating in the most efficient and smart way GVT into Vivo, building no doubt a clear leader in the telecom sector in all key segments; Pay TV, broadband and mobile.

We love to see you in three months from now, hopefully with another positive set of information.

Thank you all and good bye.

Thank you. This concludes today's Telefonica Brasil's second-quarter 2015 results conference call. You may disconnect your lines at this time.