Telefonica Brasil SA (VIV) 2022 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 2022 Earnings Conference Call. Today with us representing the management of Telefonica Brasil, we have Mr. Christian Gebara, CEO of the company; Mr. David Melcon, CFO and Investor Relations Officer; and Mr. Gabriel Menezes, IR Senior Manager. We also have a simultaneous webcast with the slide presentation on the internet that can be accessed at the website www.telefonica.com.br/ir. There will be a replay facility for this call on the website. (Operator Instructions)

Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the company's management beliefs and assumptions and on information currently available. Forward-looking statements are not guarantees of performance. They involve risks and 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 the results to differ materially from those expressed in such forward-looking statements.

Now I will turn the conference over to Mr. Gabriel Menezes, Investor Relations Senior Manager of Telefonica Brasil. Mr. Menezes, you may begin your conference.

Thank you very much. Good morning, everyone, and welcome to Telefonica Brasil's conference call to present the 2Q '22 results. The call would be divided as follows. To start, our CEO, Christian Gebara will comment Vivo's financial and operating highlights, followed by an update about our B2B and B2C digital ecosystems and ESG initiatives. Then, David Melcon, our CFO, will go through our cost and capital structure, net income, free cash flow and shareholder remuneration. Now I'll hand it over to Christian.

Thank you, Gabriel. Good morning, and thank you for joining our calls.

We begin on Slide 3. In the second quarter of 2022, we incorporated assets coming from the acquisition of our share of Oi Mobile. The results originated by these assets that are being -- considering our numbers since April 1st, 2022, coupled with an outstanding quarter in organic terms, led us to register double-digit growth in key performance indicators by which we measure our business performance: access, revenues and cash generation.

Our customer base totaled 114 million access as mobile postpaid reached impressive level of 57 million lines, while FTTH connections grew 25% year-over-year to 5 million. With the remarkable acceleration of operating figures, our total revenues bolstered the growth of 11.1% year-over-year, boosted by our mobile service revenue that expanded 15.1%. Excluding the effects of Oi's incorporation, mobile service revenue was up 9.4% in this period, consider we're ahead in comparison to recent quarters' performance.

Our EBITDA grew accordingly up 8.3% versus second quarter '21, offsetting impacts of the rising cost inflation, driving the operating cash flow generation of the first 6 months of 2022, to expand 3.3% year-over-year. Moreover, aligning our strong top line performance, efficient financial management, our free cash flow rose 13.9% in the first half of the year, reaching BRL 4.6 billion, contributing to the distribution of BRL 3.1 billion back to our shareholders, that was further enhanced by BRL 330 million in share buybacks. These results underscore Vivo's leading position in the Brazilian telco landscape that can be recognized not only by our sound financial performance, but also by the strength of our brand that was considered to be the fourth most valuable in Brazil among those sectors, being worth almost $4 billion.

Moving to Slide 4. You can see on the left-hand side of the slide, the continued improvement of our revenue mix with core businesses increasing in relevance by 3 percentage points year-over-year, representing 2% of our top line. On the right-hand side, we show how the (technical difficulty) in the market is reaffirmed, as our total revenues yearly performance continues to improve quarter after quarter. Bear in mind that our improving growth base is happening despite a more challenging macroeconomic environment, highlighting the essentiality of connectivity and inflation proof character of our main services such as fiber and B2B solutions.

On the next slide, we give more color on our core segment that continued to benefit from their positive momentum, as mobile revenues expanded 16% year-over-year, while fixed core was up 10.8%. We had double-digit growth across all mobile (technical difficulty), a byproduct of our superior level of net addition that will be further detailed on the next slide, with a healthier price environment.

As a result, our mobile service revenues rose 15.1% year-over-year, the highest expansion of this line in over 10 years. Meanwhile, Core Fixed continues to boast sound results leveraged by the nonstop fiber expansion, and by our myriad of B2B solutions that place Vivo as the only player in the market capable of offering to enterprise the best connectivity platforms, capital services, and applications from top global partners.

Now on Slide 6, we present our superior operating results. Our Oi Mobile base grew 23% year-on-year, reaching 99.2 million access, with the addition of approximately 12.6 million coming from Oi, on top of 1.4 million organic postpaid access. It's worth saying that in the second quarter of 2022, we registered our highest level of organic postpaid, excluding machine-to-machine net additions in over 7 years, with approximately 1 million new lines as of quarter-over-quarter considering hybrid and pure postpaid. That remarkable outcome, along with the lowest level of postpaid churn in Vivo's history, is proof of our unmatched quality of services and brand positioning, as our customer base keeps expanding month after month.

Regarding fiber, we reached 21 million home passed in 354 cities, totaling 5 million customers. The FTTH business is our main growth lever, and we continue to move forward in this segment with our convergent offer, Vivo Total, while we expand our fiber footprint through organic deployment and to Brazil.

Moving on Slide 7, gives an update on our B2B and B2C digital services. As you can see, on the left-hand side of the slide, the revenues coming from the sale of digital B2B services continue to outperform, up 36% year-over-year to reach BRL 2.3 billion over the last 12 months, led by heated demand for Cloud, Cybersecurity and Digital Solutions. Another promising corporate segment we have is Vivo Agro. Today Vivo Agro delivers high performance connectivity and efficiency assurance services to farms. However, we gained an excellent opportunity in this sector, and thus we developed partnerships with specialized suppliers to create the biggest portfolio of solutions for the modern agribusiness. The results what we're about to launch, new IoT products to revamp management tools and increase the productivity of our customers' operation, and they will be able for example, to manage and track capital remotely, and use drones to monitor perimeters or apply agricultural inputs on crops.

Regarding our B2C ecosystem, Vivo Money continues to expand with more than BRL 80 million in credit considered so far, after originations grew more than 6-fold this quarter on a early -- yearly basis. In the meantime, VivaE, our joint venture on the education front with Anima, is progressing according to plan. We have already defined as CEO and management team having a target to launch a minimum viable product still in 2022.

Lastly, Vivo Ventures, our corporate venture capital, is on its final steps towards its first round of investments after the creation of shortlist of the top 20 potential investees selected according to their growth potential and fit with Vivo's digital ecosystem strategy.

On Slide 8, we present our first issuance of debentures linked to ESG goals, and the recently launched financing framework. The debenture's issuance helps us in taking another step forward into a more sustainable and diverse company, as it aligns financial, environmental and diversity objectives. The debenture remuneration is subject to 2 ESG-related goals: the reduction of our direct greenhouse gas emissions by 40%, and having 30% of our leadership roles occupied by black people, both by the end of 2027. Moreover, the new financing framework unwraps Vivo's approach to sustainability to investors in the market in general, allowing for a simplified emission and allocation of future investments with social impact and low carbon footprint. With that, we'll be able to continue expanding our contribution to the United Nations Sustainable Development Goals, that underpins our ESG overall strategy.

Now David will take us through the financial highlights of the quarter.

Thank you, Christian, and good morning, everyone. On Slide 9, we detect the company's cost showing the ongoing trend of change in the mix, as we increase the share of revenues that go beyond connectivity.

Recurring cost grew 12.9% year-over-year, slightly above inflation. This quarter we had a strong result in digital services, handsets and equipment. And therefore, our revenue-driven cost of service of -- and goods sold rose 16.3% year-over-year, representing 30% of our total OpEx. Meanwhile, cost of operations grew 11.5%, given higher expenses related to personnel due to the annual salary adjustments, coupled with the continued increase of network usage that drives infrastructure costs up, and acceleration of commercial activities.

In addition, we reduced on a yearly basis for the eighth quarter in a row, the provision for bad debt. This positive outcome results from a well-developed billing strategy and superior, greater scoring capabilities, as well as increasing relevance of our services for our customers, allowing us to maintain bad debt under control.

On Slide 10, you can see that Vivo once again increased its operating cash flow, while we continue to expand investment through the deployment of top shared technologies such as fiber and 5G. Year-to-date, CapEx reached BRL 4.5 billion, up 6% versus the previous year. In fact, this ongoing effort directed towards building the best network, currently place us as a player with the largest 4.5G coverage in the country, as we already provide this enhanced data experience to 86% of Brazil population. As a result, our operating cash flow, which we believe is a key metric to check the profitability of our operations, amounted to BRL 4.6 billion year-to-date, up 3.3% versus the previous year. This led us to reach an operating cash flow margin of 20.8% over the last 12 months, maintaining the above 20% level seen in recent years.

Moving now to Slide 11. The yield evolution of our net income was impacted by higher debt linked to the acquisition of 5G frequencies and Oi Mobile assets, which, while improving our capital structure, result in higher financial cost, especially with the recent hikes of the local interest rate. Additionally, the year-over-year net income comparison is also affected by nonrecurring effects that impacted the results from the first half of the previous year.

Regarding financial debt, we ended June 2022 with BRL 3.9 billion of gross debt and includes BRL 1 billion of bank debt issued in April this year, as well as commitment related to the 5G licenses acquired last year, part of which were already paid for during this quarter. Nonetheless, given our solid operating results and efficient financial management, we managed to generate BRL 4.6 billion of cash in the first 6 months of 2022, increasing 13.9% year-over-year, and reinforcing our ability to convert a sound operating performance into cash.

Finally, on the last slide, you can see that we maintain a solid level of shareholder remuneration that was further enhanced by the execution of our share buyback program, which we have been accelerating. We will continue to direct resources towards that end in line with the BRL 313 million already invested this year, out of which BRL 271 million were included in the current buyback program that expires in February 2023.

To conclude, on July 19th, we will make the first payment on the 2021 base remuneration with a cash-out in amount of BRL 2.7 billion, that will be complemented by a further payment of BRL 3.5 billion scheduled for October 2022.

Thank you, and now we can move to the Q&A.

(Operator Instructions) Our first question comes from Bernardo Guttmann, XP.

Okay. We are going to the next question from Andre Salles, UBS.

I have a question in terms of margin. We saw some pressure coming from cost of goods sold and personnel expenses growing above inflation. Are there any costs or expenses related to the integration of Oi clients base on this quarter? And how should we see the margin dynamics going forward? What could drive margin recovery in this case?

Yes, the margins they were impacted, as you said, by cost of goods sold. I think it's good also to highlight what we said about the digital services, the relevance that these services are taken into our numbers and B2B reported in the year now BRL 2.3 billion. So, as you can imagine, these services, they come with a lower margin. There's no CapEx, most of them. So it's lower margin as -- the same as we are also increasing digital services in the B2C segment, also been selling a lot of entertainment services. We are now opening up the numbers in B2C, but we are growing as well these services. So, what we want to highlight here is that these services are getting in a relevant volume in our results.

Our absolute number of EBITDA is growing, is above 8%. And going forward, I think what we're going to see is more sales of services, different margins. But at the same time, digitalization is still playing an important role in our cost decrease. So, we're also going to see some benefit of more digitalization in the customer care and also in sales commission since we are driving our sales. Today is around 30% of B2B sales in the e-commerce channel. We see room to increase it much more, much above 30%. So, it's going to be a combination of 2 things. It's important to highlight the impact in CapEx of selling digital service that it's -- there's no impact because these services we build over the infrastructure of connectivity that we're really deploying. The numbers of Oi, they are included. Of course, the margin of the Oi is much higher because we are serving these customers with our channel that we already have in place, especially in the Northeast where we inherited most of the customers. The network is capable of observe these customers as well. So, the margin is much higher of the Oi incorporation.

Our next question comes from Vitor Tomita, Goldman Sachs.

We have a couple of questions on our side. The first one is on M&A. There has been some M&A -- some noise on M&A activity involving ISPs lately, and even a transaction between ISPs announced today. Do you see opportunities to participate in M&A on that front? And the second question is that -- this is on Oi. This quarter, a large number of Oi users have been migrated to the new operators. So are you seeing a relevant movement in the market of users recently migrated from Oi requesting portability from one operator to another, or changing operators more generally? And was this reshuffling of Oi subscribers a relevant factor at all for the strong organic postpaid performance you had this quarter?

So, I will start with the second and then I go to the first one. Of course, we have seen portability going up. So, we have like -- if you look the share of portability in our net debt numbers, in the second quarter of the 2021, they were -- portability represented at 15% -- 16%, sorry, of our net adds and this next quarter it represented 31%. It's not only portability from Oi, it's portability -- complete portability from all operators. But if you look net adds in our case, it was 1.4 million postpaid net adds this quarter.

And that's not considering the movement of the Oi's customers to our customer base. So that shows that yes, it can be impacting the portability number, but it's not only that. Now I think we are -- that's a strong commercial performance of Vivo. That's also reinforced -- if we look at our churn number, that was 1.1%, the postpaid churn. That is the lowest also compared to the second quarter of '21. That was 1.3%. But if you compare 2 years ago, it was 1.5%. So, I think it is a combination, but I will highlight, our superior value proposition that is attracting more customers to our customer base. So that's the first.

And if you ask second question -- and then if you want I can complement a little bit more. About M&A, look, we are always attentive on market opportunities in many fronts. And of course, it also includes the fiber. We have a plan to get to 29 million home pass by the end of 2024. And we said already that 6 million will be FiBrasil's responsibility and the rest will be part of our own strategy. Now today, we are in the 21 -- a little bit more than 21 million. So we are on pace, and we are completing the target that we set ourselves to get to 29 million.

So, if we're going to face any M&A decision in the future, always depends. It depends of the overlap of the network. It depends of the quality of the network. It depends of the quality of the companies being sold. It also need to see how we're going to integrate these customers in our customer base because one is buying the network, the second decision is buying the customer. So, it's complex. And when the companies are too large, it's even more complex because this overlap is even higher. So, we are always open to see, but we have a clear plan to get to 29 million, and that's building together with FiBrasil.

Our next question comes from Bernardo Guttmann, XP.

Actually, I have 2 questions here. The first one about the solid growth in mobile. It seems to have been accelerated by the rationality in the segment. The market consolidation seem to have brought greater rationality to price. On the other hand, your guidance for synergies was conservative and did not consider revenue synergy. Is it fair to assume that this trend is in its early stage? Any view on the potential market repair of this view? The second one related to the subject of tax reduction. I understand the telco's concern of passing on the benefits to customers by making services cheaper. But I would like to understand, does the price reduction make room for a gradual margin recomposition? Historically, the sector has had difficult with such price adjustments, and now it seems to open up a greater room to pass through. I would appreciate it if you could comment a little more on this subject.

Bernardo, I don't think the market has changed. I think what -- our performance in the mobile is a consequence of our strategy for the last years. So, we've been very keen on always adapting our value proposition to the needs of customers. We've been investing in network now to provide 4G or 4.5G and now preparing ourselves for 5G. So -- and also now we are staying -- also starting to play the convergence of Vivo Total, and also adding to our value proposition and digital service, that I think we've been doing that very successfully.

If you see how important -- then I think is -- are in our value proposition. I think it also gives some highlights of like -- that we are in the right direction. So, of course, I think all the players are looking for returns. So, we can see a more rational approach in general. It's not something specifically for this quarter. I think that is a movement that's been going on for many quarters. And also, there is inflation that is going up. So, we've been adjusting price according to inflation on the plans that we have this annual -- possibility of being adequating the plan. So, I think it's more conditioned than we've seen in previous quarter, and reinforcing our value proposition that stands out by now being the best in the market.

Regarding synergies, yes, we didn't give synergies in revenues for the Oi operation, and we keep with the numbers that you saw before, that is the BRL 5.4 billion that was based on the OpEx and CapEx. Yes, we said also that we see the possibility of customers migrating all the way that they're going to be in our customer base, that they would have the possibility to spend more because we have a value proposition that is broader than the one that they were -- used to have in the Oi, for many reasons, 4G investment, fiber, (technical difficulty) agreement. So, of course, we can see that. But now we are just assessing the assets that we get. We're going to see more activity of this access. If some of them are not active in the way we consider active, especially in the prepaid -- So I think it's still early to say what's going to be the revenue synergies impacting. But of course, customers porting in from other operators may see here an opportunity to increase their telco expansion because our value proposition is broader than anyone else in the market. I think I answered your question.

And then regarding the ICMS, I think here, the first thing that was very positive to see that telco now are considering essential services, and that we are going to charge less. Now, I think we've been talking about that for a long time, even before the pandemic, that we couldn't be taxing so much a service that could -- can enable people to do so many things. So, we are very now focused in complying with all the government determination and attend the customer needs that's passing over the tax reduction to everyone in every segment. We still are falling on the states -- that we have 2 states that they haven't approved yet, 4 states that recently approved. We have different tax in different states, different reduction in different states. So, there's a lot of complexity, but we are doing as best as we can. What we believe going forward is that if customers, if they have the possibility of acquiring more services, because now the price will go down, I think they will, customers that were running out of data because they couldn't afford more data, now they will be able to afford more data.

And then finally, the inflation that we are passing over to customer may be mitigated by the tax reduction. So customers that would downgrade when the inflation would play a different price in the plan, will now be able to keep the plan that they have. So, I think it's positive overall. It's positive for the consumer, and in the end is positive for us as well.

Our next question comes from Luca Zileri, Bank of America.

Congratulations on results. So, I have a question on my side from -- for ARPU. So, if you could give us some further color on how did -- the ARPU organically did? So not considering Oi for postpaid and for prepaid, and also looking for the next quarters, now that only -- there are only 3 players. If you believe this will also have a positive impact on ARPU? And also looking at churn because, as you mentioned, you reached lower churn ratios than before. If you expect this to continue going forward?

Luca, I think going forward, yes -- I think we are not giving any trend about performance of an indicator, but I think what -- our ARPU position is getting even richer. So, I believe that loyalty and lifetime value of customers with Vivo will increase. So, we are positive as we are like changing and adapting and including new service to our value proposition, being a real convergent player in the market with FTTH and the leadership in the mobile. It gives us like a great opportunity to be with customers even more loyal.

Now ARPU. It's impacted by Oi, yes. They come with a lower ARPU, as you know. But -- and that it may impact the postpaid ARPU. So here, there are 2 effects -- our postpaid ARPU. First, there is a lot of migration from prepaid to postpaid. That is impacting in a negative way the mix of the postpaid ARPU, and also the customers that we are putting in our customer base that are postpaid. For Oi they are also impacting in a negative way the average ARPU.

We're not giving all this detail, but if we excluded the ARPU -- the Oi integration here, our movement would be positive in the ARPU evolution, okay, in both prepaid and postpaid. That's something that I can tell you. But again, here also, not only Oi, but that is in the postpaid, a very robust and very accelerated also migration for prepaid to postpaid that is very positive. That's why we are giving these very solid numbers in both revenue evolution of the prepaid that was 18.3%, and the postpaid that was 14.4%. So, both of them are very positive, gives us 15.1%, if exclude Oi 9.4%. So more or less, I can have the calculation. ARPU would be positive moving -- if it was not Oi considered in this calculation.

Our next question comes from (inaudible), HSBC.

My major question is on working capital. It seems that this quarter has been positively impacted by a significant working capital change of BRL 1.4 billion. So what is driving that positive working capital? And how sustainable is it going forward?

Look, if you look at the working capital this year, this is positively impacted by the tax benefit that we had last year in the second quarter, which is related to the PIS/COFINS where we got the credit around BRL 2 billion. So we are benefiting around BRL 500 million per quarter. So this is giving us an upside. Also, if you compare the working capital of last quarter -- last year, fourth quarter last year was negative BRL 628 million. So that means that at the end of the day, the working capital is made of impact that have a seasonality. But you can see the free cash flow. If you look overall in the last 2, 3 years, we have a very robust capital generation. So at the end, the seasonality is not really impacting the figure that we have on an annual basis.

Our next question comes from [Koila Mendes], JPMorgan.

Could you give us a little bit color on the dynamics that you're seeing in broadband? We saw a slight slowdown in your net add pace. Is this a reflection of slower economic activity overall or just competition increasing? That's my first question. And second question on margins. In this quarter, are we seeing the full benefit of the migration of Oi? Or this is something that will take some quarters to actually translate and we should see some year-on-year margin expansion in the coming quarters just on the effect of Oi?

I think the market as a whole in the broadband, it's not as growing as what we were doing before. Maybe because of the pandemic there was a hype in the market. So, we are very confident that we continue to lead this market. So not only like building and expanding our network, but also connecting customers and keeping the rationality of our pricing. So for us, like we continue to penetrate the network and through the penetration actually go to 5 million customers. Now that was our positive situation now in FTTH. But the market as a whole is not growing as much as it was just after like the most severe time of the pandemic. I think natural movement. Let's see how it evolves.

Now we are confident that we have a unique value proposition that combines a very good quality of our network with a channel footprint and presence that is digital, and also the presence of physical stores and door-to-door. And now we started to play the convergence with Vivo Total plus digital services. So, I think natural movement -- and that we are here, very attentive to how to respond to demand and to keep our plans to get to 29 million home pass as I said before, and keep the penetration at a high level that we expect to have in the next year. So natural movement, leadership, but although the market is not as accelerated as it was just after the pandemic. For the margin like of Oi, David can help me.

So, regarding the second question, look, the deal from Oi, as we say, is accretive from day 1. Although the synergies and the margin will continue improving quarter-over-quarter. Now just to remind you, the first 12 months, we need to pay as part of the deal, a transition service agreement around BRL 150 million to Oi because they are looking after the customers -- the 12.5 customers that are going to be migrated in the next 12 months. So, once we have 100% of those costs internally, for sure, would be lower than that, also to adapt our network, particularly in the regions where we are receiving the customer from Oi. During 2022, we are investing in CapEx, some amount that this will not need to continue for the next year. So, we said that the margin will be above 70% coming from those -- the revenues from Oi customers. And so, the number that we are showing in Q2 now will -- margin will improve in the coming quarters.

Our next question comes from Luis Fernando Azevedo, Safra.

My first question is regarding the revenues from Oi. It seems that the revenues from Oi customers is lower than the run rate it was indicated by the time of the closure of the deal. Do you agree with that? And besides do you see potential base cleanup from Oi customers? This is the first question.

Look, when we published information around the introduction of Oi, we said that we're going to have around BRL 135 million revenues per month. This was based on the numbers coming from March. So we integrate the company starting in April. And the number that we are seeing could be slightly lower, but anyway, this rationality considered that most of those customers are prepaid customers. So the activity will not have an impact on the revenues that we already saw in March and in April.

So what we are seeing is that some of those customers are migrating organically from Oi to each one of the acquirers in the case of Vivo. As Christian said, we are accelerating the portability, some migration customers from an organic way. So overall -- when you look at Vivo overall, I do believe that the number that we were saying BRL 135 million per month, are still there. So it doesn't need to be in one line, could be on the -- just on the reported line as Vivo.

So in the next few quarters, we are going to accelerate the migration. So those customers are going to be 100% working -- operating in Vivo's network, and they are going to be also with the care that we will do for those customers -- will be as part of the rest of the base. So also we will protect our revenues. And even though we are continue analyzing the activity of those customers, this will not have an impact on revenues. Could be even an upside because now we will try to migrate and also to upsell and cross-sell those customers. But that would be, let's say, for the next 12 months.

The second question I have is regarding the dispute for -- on Anatel roaming. Can you give more color on how is the dispute?

Yes. What we are discussing here is the model that was used to calculate the roaming. We agree with the decision of Anatel and card that we need to present a tariff of roaming. But in our view, that they are based on what are the model that was defined in the PGMC, the general plan of conception goals. So based on this, that we presented our first offer. So here, what we are discussing is how we should calculate the roaming tariffs, not the remedy itself because of -- reviewed the remedy. Because discussion here is about the model used to define the tariffs.

And that was the discussion at the moment. Nothing more I can add on that because it's where we spend at the moment. Now we use the regulation that exists today. There is a top-down one. That is a fully allocated cost, historical cost accounting, and that was the one that we used to present our offer as well as the other operators. Now it seems that there was a new proposal based on a different calculation model that is not in the regulation, that is the bottom -- long run incremental cost. That's what we are debating at the moment, and hopefully, we're going to get an agreement.

Our next question comes from Andre Salles, UBS.

Could you please comment a little on the sites coming from Oi Mobile acquisition and the decommissioning plan that you guys have for them? Do you estimate any costs due to contract termination?

They're for sale, and that was part of the obligation. So, they are there. I think we have like a period for people to answer and to comply. So we are like -- 50% of them will be divested to comply the CADE remedy, and we have to wait until like all the offers will come to table and decide on that, and that we can complement on that, Andre.

Yes, just to complement on that, Andre, I mean the figure we have in our balance sheet shows the liability that we already have for those 2,700 sites coming from Oi. So let's say, the worst scenario is already considered in our balance sheet. So now we are on the way to renegotiate with the towers company, whether we can -- I mean, we are going to decommission as we say, more than half of them, because they will be for sale. So, we will need to negotiate. But there was numbers already there. So, we see just opportunities to manage this process over the next 12 months.

Just to confirm. That's related to that -- close to BRL 700 million that is booked on your balance sheet right now, right, the provisions?

Yes. We have the provision in 2 lines. One have to do with IFRS 16, which is BRL 700 million, and we have another BRL 700 million which is booked in other provisions. And those are the one related to the sites that are for sale as part of the remedy. So we have 50-50 booking 2 line because we have 2 strategies on 50% of the sites, and different strategy for the rest of the other 50%. But everything is considered.

Our next question is from the webcast from Cesar Medina, Morgan Stanley. How do you expect the rollout of 5G impact to your CapEx trends as CapEx in terms -- CapEx versus revenues?

So like, it's part of the business. I think it's evolution of technology. We continue investing in the new technology, so invest in 4.5G. We still like implementing a broader coverage. We started with 5G in the cities that are included in the obligation. We may go beyond that. Also, that's a commercial decision that we decide. But I think once we start doing that, we are also not doing other investment in previous technologies such as 2G. As I said before, also, we are taking the opportunity to strengthen our position as the leading infrastructure provider in Brazil, in both mobile and fiber. And that we believe, as we believed in the past and gave the results today, that we are going to bring more revenues once we continue to differentiate ourselves as the leading value proposition for connectivity plus digital services in our country. So, it's going to be part of our CapEx, but it's going to be a combination of reduction also in previous technologies.

Thank you. This concludes the question-and-answer session. At this time, I would like to invite Mr. Christian Gebara for any closing remarks.

Okay. So thank you all for attending our call. As I said in the beginning, we are extremely satisfied with the robust results that we presented, especially highlighting the unit growth that we had in all lines of our revenues that like -- being the double-digit results and also the increase in our EBITDA results as well. And in the end, the free cash flow that's been a robust result. We are open here for any further question from the team, as you know. And again, thank you all for participating. Thank you.