Telefonica SA

Good morning and welcome to Telefónica's conference call to discuss January-June 2020 results. I'm Pablo Ridón, head of Investor Relations. Before proceeding, let me mention that financial information containing this document related to the second quarter 2020 has been prepared under international financial reporting standards, as adopted by the European Union, and that this financial information is un-audited. This conference call webcast, including the Q&A session, may contain forward-looking statements and information relating to the Telefónica Group. These statements may include financial or operating forecasts and estimates or statements regarding plans, objectives and expectations regarding different matters. All forward-looking statements involve risks and uncertainties, including risks relating to the effect of the COVID-19 pandemic, that would cause the final developments and results to materially differ from those expressed or implied by such statements. We encourage you to review our publicly available disclosure documents filled with the relevant securities market regulators. If you don't have a copy of the relevant press release and the slides, please contact the Telefónica's Investor Relations team in Madrid or in London. Now, let me turn the call over to our Chairman and Chief Executive Officer, Mr. José María Álvarez Payete.

Thank you, Pablo. Good morning and welcome to Telefónica's second quarter results conference call. Today with me are Ángel Vila, Chief Operating Officer, and Laura Basolo, Chief Finance and Control Officer. As usual, we will first walk you through the slides and we'll then be happy to take any questions you may have. We face extremely challenging operating conditions and unprecedented economic uncertainty. Still, we remain committed to our local markets and their long-term potential. An accelerated execution of our new Telefónica plan, we stayed true to our ideals, keeping in mind the long-term vision without compromising neither our strategy nor our profitability. And we did so through different means. Strengthening the value proposition in our core markets that proved the resilience within such turbulent times, with organic OEBDA minus capital growing 2% year on year in the second quarter. Staying close to our customers also pay off with record NPS levels. Making our core business more sustainable in the UK through the deal agreed with Liberty Global, as we are trying to pursue in Brazil again with the strongest possible partners, or in Spain with good commercial traction and historical levels of profitability. Sustainability and long-term profitability lie as well behind the steps we are taking in Houston, where we progress in all strategic options, including inorganic alternatives, as proven with the sale of Costa Rica only three months after Millicom refused to complete their deal. We on top optimize its business model, OEBDA minus CapEx improves 10% expoin in organic terms in the second quarter, and neutralizes FX impact via increasing debt at the local level. Securing key partners that join as well our fastest growing proposition Telefónica Tech, that grows double digit in the quarter despite COVID-19 impacts, and has generated 756 million euros in revenues in the first half. We also continue crystallizing value and monetizing assets at Telefónica Infra, as proven by the 1.5 billion euro tower transaction in Germany that doubles Telstra's scale to 33,000 towers. And as I said before, we can take all this action thanks to a new operating model based on digitalization, agility and efficiency. We paved the way for the future while proving cash preserving despite extremely challenging conditions, OEBDA minus CapEx margin improved by 1% expoin in the second quarter, demonstrating the strong execution. Moving to the next two slides, we present the swift and effective actions we have taken in response to COVID-19. In these unprecedented times, managing commercial relationship becomes all the more critical, while introducing a wide range of measures to mitigate top line impacts. We have been able to improve business efficiency and generate savings in OPEX and CapEx without compromising our business model. This has first allowed to deliver strong results at the operating cash flow level. The good news is that our customers stayed with us, allowing for a notable commercial and operational recovery since June, suggesting Q2 will likely be the worst quarter in terms of COVID-19 impacts. How can you turn more efficient in the midst of the pandemics? Fostering significant growth in sales through digital channels while relying in our secure and top quality networks. This again strengthened our customers' loyalty, which improved both year on year and quarter on quarter, with NPS reaching 24% in our core four markets. OPEX was tightly controlled, declining .9% in the second quarter year on year in organic terms, while CapEx flexibility and execution slowdown as a result of COVID-19 resulted in a .3% annual organic decline. All in all, we have neutralized a negative shock of revenues of 1.8 billion, reducing the gap gradually from top line to bottom, and we have generated a very attractive free cash flow, while improved debt reduction versus previous year. On the next slide, we show the support we have provided to all stakeholders during the crisis, with actions taken in each and every market. For our customers, we provided additional entertainment and mobile data at no extra cost. For our people, we focused on protecting the safety of all employees, with 95% working remotely, and appropriate safety measures enacted for key workers. For our suppliers, we acknowledged their need for liquidity and offered flexible payment options. For the wider society, we created a 25 million euro fund to provide medical equipment and monetary aid, made our technologically advanced buildings available for governmental and public use across the majority of our footprint, and undertook many other measures across our markets. To safeguard the environment, we updated our target of zero net emissions in our four core markets, bringing this forward to 2030 instead of 2050. And for shareholders, we maintain our dividend and offer a voluntary script for the 2020 calendar payments. Finally, we are leveraging our -the-art infrastructure to support much needed economic recovery across our markets. Moving to slide 5 to review our second quarter performance highlights. As you can see on the left hand side of the slide, revenues declined in the second quarter in organic terms, but excluding the COVID-19 impact, -on-year revenue growth accelerated. We continue to support this growth leveraging our high quality access base, ultra broadband network, and growing our digital revenues, which topped 1.7 billion euros in the second quarter. As mentioned before, effective operational management during the crisis led us to increase -minus-capEx in our four core markets by .9% -on-year in organic terms. While the margin expanded by 1.3 percentage point, a remarkable achievement given the circumstances. To note, our core markets represents more than 90% of telephonic-aggrouped -minus-capEx, which amounted to 2.1 billion euros in the second quarter of this year. And importantly, we remain on a clear deleveraging path with 1 billion euro reduction in net debt in the quarter, leading to a 7.5 reduction in the last 12 months. Moving now to guidance and dividend. Let me start with the 2020 dividend, which is confirmed at 40 euro cents, thanks to the high resilience of the business and our solid liquidity position. The dividend will be payable in two 20 euro cents tranches, the first in December 2020 through a voluntary script dividend and the second tranche in June 2021. I would like to note that for the payment made last June, 63% of shareholders opted to receive new shares, further enhancing our financial flexibility as just 371 million euros were paid in cash. Regarding our 2020 outlook, we rated the target of a slightly negative to flat -minus-capEx growth year on year, based on the signs of recovery observed in June and July and the proactive measures taken to reduce operational and capital expenditure. For reference, the first half of the year figure was down 2.3%. I'm also pleased to reiterate our targets for 2022 of year on year organic revenue growth and -minus-capEx over revenues expansion of 2% point versus 2019, based on the sustained demand and long term growth trends for connectivity and digital services. I will now hand over to Angel to take you with more detail through the group results.

Thank you, José María. Moving to slide seven and looking at our financial performance, the reported figures this quarter are significantly affected by two factors, currency depreciation and COVID-19. You can see these impacts at the bottom of the slide, and we will explain this in more detail later on. To a lesser extent, OED was impacted by the absence of capital gains booked in second quarter 2019. Revenues amounted to 10.3 billion euros, declining .8% year on year on a reported basis and .6% in organic terms. In our four core markets, revenues declined by .8% from the previous year. It is worth highlighting the continued transformation of our top line, especially in the context of the COVID-19 crisis, with 67% of our service revenues coming from broadband and connectivity services, 4 percentage points higher than one year ago. OED reached 3.3 billion euros, down .3% year on year or 10% organically. This drop was significantly lower in our four core markets, with a 6.6 annual decline in organic terms. Thanks to our focus on profitability, OED minus capex was practically flat, declining by only .7% in organic terms, and growing by .9% year on year in our four core markets, despite the challenging conditions. OED minus capex margin also increased year on year for both the group and our core markets, both in the second quarter and in the first half, thanks to the effective operational management mentioned previously. Net income reached 425 million euros in Q2 and above 0.8 billion euros in the first half. Earnings per share stood at 0.23 euros in underlying terms in the first half of the year. Free cash flow performance improved sequentially in Q2, nearing 1 billion euros. And finally, net financial debt stood at 37.2 billion euros as of June, declining .5% year on year, thanks to a 1 billion euro reduction in Q2. Slide 8 shows the financial and operational impacts in the first full quarter affected by COVID-19, with clear signs of recovery evident from June 2020. The estimated revenue impact in Q2 amounted to nearly 730 million euros, with a 338 million euros impact on OED, attracting around 6 and 8 percentage points respectively from organic growth. The main impacts and challenges at the revenue level came in the form of lower overall commercial activity, derived from lockdowns and travel restrictions. We saw lower handset sales and lower service revenues as a result of almost absent roaming due to travel bans. Service revenues were also affected by a decline in mobile prepaid, a reduction in B2B due to delayed IT projects and certain contract renegotiations, lower SME revenue and overall promotional activity and discounted tariffs. Nevertheless, during the quarter we leveraged our strengths to exploit opportunities presented by the crisis. We took proactive steps to improve our OPEC, with as much as 50% of the negative top line effects being absorbed through lower direct and commercial expenses, while successfully controlling churn that was down by 40 basis points versus Q2 2019. Qapex savings, thanks to our flexible operating business model, also supported financial performance. And meanwhile, digitalization has proven key during the pandemic, as shown by the 12 percentage point increase in the digital channel mix in just one quarter to 39% in our core four markets, and by the high rate of growth in the use of online apps in Brazil. I would like to note that to date we have seen a sharp recovery in post lockdown markets, with a strong resurgence in commercial activity as stores reopen. We also believe that the COVID-19 crisis is likely to significantly accelerate the digitalization shift, and we're already registering an increase in underlying demand for cloud, cyber and health services. Moving to slide nine. As previously stated, we are seeing a clear path to recovery. Year on year revenue growth trends are getting better by the month, in line with the gradual lifting of COVID-19 restrictions, as you can see in our Spanish operations. We can therefore identify May as the month worst affected by COVID-19. As such operating trends remain positive, -COVID-19. Looking ahead, our intention is to further leverage capabilities and infrastructure to capitalize on accelerating trends in IoT, big data and ICT, among others. Moving to slide nine, we show how a year on year revenue decline of 1.8 billion euros translated into a 1.1 billion euro drop at the level, as a result of measures implemented by the group to mitigate the negative effects of COVID-19. Resulting in outstanding cost management. As such, OPEC's decline minus .7% in reported terms and minus 4.9 in organic terms. Moreover, the OEPA decline was further reduced to 0.5 billion euros in terms of OEPA minus CAPEX, thanks to the efficient and effective management of investments during the crisis. All this outlines the resilience of our business in the middle of the deepest economic crisis in this century. On slide 11, we highlight the impact of our proven execution. In Q2, we moved at pace in the operational management of our four core markets, delivering growth year on year in 80 minus CAPEX to revenue ratio, despite the COVID impact. At the regional level, it is worth highlighting the growth posted in both Spain and Brazil are our two largest operations. Turning to slide 12, Telefonica Spain's Q2 results were impacted by strict government measures introduced in response to COVID-19. Throughout this period, we leveraged the strength of the largest -the-home network in Europe to provide reliable service for our customers, while leading efforts to support the wider society. Since the lifting of restrictions and supported by a refreshed offering and football competition restart, commercial activity recovered throughout the quarter. Fiber net ads in May were 21 times higher than in April, and mobile and TV improved as well. This is reflected in net ads recorded across all types of accesses. Our segmented offering and differential assets are reflected in the growth seen across different tiers of the retail market, as well as in the fiber wholesale arena. On the other hand, despite the challenging environment, our strategy to offer added value to our customers allowed us to maintain robust ARPU and limit churn in our conversion base. In slide 13, the recovery in commercial activity was reflected in improving revenue trends throughout Q2 2020. For example, the -on-year drop in service revenue in June was half of the level of the decline recorded during April and May. In this environment, the company prioritized cash generation and showed significant resilience. Thanks to strong OPEX and CAPEX management, we achieved -on-year growth in both OEPA minus CAPEX and OEPA minus CAPEX over revenues for Q2. However, investments in growth continued at pace, with 51% of total CAPEX devoted to next-generation deployment, 12 points above Q2 2019, translating into 228,000 new premises passed in Q2. Given our leading position in Spain, where we have a well-invested and diversified business, we are confident that we are very well positioned to continue to deliver solid cash flow generation going forward. Moving to slide 14, Telefonica Deutschland delivered a solid operational performance, despite experiencing some COVID impacts throughout the quarter. Following the reopening of O2 shops from the end of April, footfall and trading dynamics have been experiencing a gradual recovery. O2 contractual improved by .1% -on-year in Q2, and owned brand ARPU grew by .7% -on-year in the month of June. In terms of financial performance, the OTA minus CAPEX over revenues ratio remained broadly stable versus Q1 2019, despite the full COVID-19 impact, demonstrating the robust profitability and cash generation of the business. Finally, the company won several industry awards during the quarter, including a very good rating in Connex Magazine's 2020 Fixed Network Test and Best M&O in Telecom Handles Reader's Choice Awards. Moving on to slide 15 and the UK business. Despite being in lockdown for almost all of the second quarter, O2 remains the UK's number one for customers, growing its base by .5% to 34.1 million. Contract churn stood at .9% as customers continued to value our award-winning customer service, network resilience, brand and unique propositions. Looking at our financial performance, revenue declined by .8% -on-year, primarily due to COVID-19 impacts on roaming and calls, and OTA declined by .1% excluding special factors in the prior year. Given the situation, we have maintained our OTAX and CAPEX flexibility to manage operating cash flow, which remained broadly stable in the first half of the year, whilst continuing to invest in our network to boost 4G and 5G coverage and capacity. Let's now move to the performance of our Brazilian operations on slide 16. Even though commercial activity was highly impacted by lockdown restrictions during the quarter, with the gradual reopening of stores in June, we are starting to see signs of recovery. Mobile contract gross ads increased 73% in June compared to April, and we reached a new all-time record in -the-home net ads in June. This confirms Vivo's high-quality value proposition and demonstrates our ability to steer our business through a difficult environment. In terms of our financial performance, despite COVID-19, we delivered a resilient service revenue trend and notable improvements in profitability, with an OTA minus CAPEX margin above 25% for the first six months of the year. Specially remarkable is the free cash flow generation in Brazil, which has increased by .5% in the first half of the year,

which means

that free cash flow in Brazil is growing at double digit in Euros, despite the currency depreciation. Moving to slide 17, during Q2, Telcios continued to deploy new sites, mainly in Brazil and Spain, with 91 new towers added in the quarter. Its total tower portfolio reached over 20,400, and the tenancy ratio stood at 1.34 times, all this prior to closing the German deal. Revenues were up .1% -on-year, excluding the exceptional capacity ceiling cable in Q2 2019, with the tower business growing at a higher pace of .7% -on-year due to both the strong performance in Germany and the towers recently acquired in Latin America. OTA grew by .5% -on-year, excluding the sale of cable capacity. A high level of profitability was maintained during the quarter, with OTA minus CAPEX overrevenues ratio of .2% as of June, up 0.8 percentage points -on-year, excluding the exceptional capacity ceiling cable and CAPEX-related to inorganic acquisitions. On slide 18, tech services have become even more essential during recent months due to the heightened need for reliable access to communication networks among business customers and for remote management and collaborative work tools. While COVID-19 had a notable impact on SMEs, larger corporates, which account for 60% of our B2B revenue, were less affected. As a result, revenues from B2B tech services grew by a significant 18% -on-year in the first half. In Q2, our cloud and cybersecurity segments continued to outperform the market, delivering high revenue growth rates of 27% and 20% -on-year respectively. This was achieved largely thanks to our large distribution platform, high quality professional services and superior infrastructure, which is highly valued by our -in-class partners including Amazon, Google, Microsoft or SAP. The combinations of these strengths enhances our value proposition and increases our relevance in the global market. I will now hand over to Laura to cover ESPAM and financial results.

Thank you, Ángel. Moving to slide 19. In ESPAM, our focus has been on improving and expanding connectivity and supporting local communities during the COVID-19 crisis. While Q2's performance was strongly impacted by the challenging economic and social environment, commercial activity has been gradually recovering throughout the quarter. For example, new ultra-road and connections doubled versus the previous quarter to 88,000. Despite the significant impact of COVID-19 on revenue and OIPDA trends -on-year, increasing synergies and efficient management of OPEC and CAPEX allow OIPDA minus CAPEX to improve 10% -on-year in the quarter, in addition to preserving cash flow generation. Slide 20 shows how currency headwinds were limited in terms of free cash flow generation through the effective hedging strategy implemented by the group. During the second quarter, COVID-19 crisis contributed to the depreciation of Latin American currencies versus the euro. The second quarter's effects increased, driving down the second quarter's -on-year variation by 6.5 percentage points in revenue and by 6.7 percentage points in OIPDA. This was mainly due to the depreciation of the Brazilian RIAI against the euro. The negative impact of 448 million euro at OIPDA level was largely contained, with free cash flow generation affected by a much lower, 111 million euro. At the net debt level, this had a positive impact of 1 billion euro in H1, or 1.7 billion euro when looking at net debt plus leases. On slide 21, you can see the continuous decline in our net debt to 37.2 billion euro at the end of June 2020. Since June 2016, we have reduced our net debt by 15 billion euro, mainly due to a strong free cash flow generation coupled with inorganic measures during this period. Free cash flow generation reached 1.2 billion euro in the first half and is expected to improve further during the second half of the year. Our decision to offer a voluntary script dividend payment, which reduced our cash outflow by more than 600 million euro, demonstrates a clear focus on net debt reduction. Slide 22 shows Telefónica's proactive and broad financing exercise completed in recent years, with over 52 billion euro raised in total since 2016. This year, we have issued more than 10 billion euro, benefiting from minimum costs including a 500 million euro 10-year euro bond with a coupon of 1.864%, a 500 million US dollar 10-year bond out of Colombia, and a 4 billion pound sterling syndicated loan to back the O2-virgin media merger. Telefónica's ample and diversified financing activity has contributed to almost doubling average debt life from 5.7 years in December 2015 to 11.2 years at June 2020, and to a robust liquidity position of 23.7 billion euro, which covers more than two years of upcoming maturities. On top of that, we have 4 billion pound sterling of additional liquidity to secure the financing of the JVO2 with virgin media. This financing activity has been executed at historical loan interest rates, enabling us to lower our total financial payments by nearly 1 billion euro and reduce our total financial payment costs to 3.41%, a 155 basis points lower than in December 2015. In summary, we have been successfully strengthening our balance sheet in the last four years. The second stage of our balance sheet de-risking is to gradually change the FX mix of our capital structure. We are working on two main levers. Firstly, we are reducing overall exposure to ISPAN by reducing capital employ and equity in the region. Secondly, we are going to gradually increase our exposure to Brazilian REIS taking advantage of the massive cut in rates in Brazil to their current levels. We are currently working to reduce capital employ and equity exposure to the region via inorganic measures. Execution has been impacted by COVID-19, but we remain on track to execute in due course, and Costa Rica's sales serve as a proof point of such execution. In Brazil, debt in local currency amounted to 3 billion euro at the end of June, a reduction of 0.9 billion euro equivalent year to date due to currency depreciation. In the context of the historic reductions in interest rates, we plan to gradually increase our leverage in REIS. On slide 23, you can see how CELIC and local 10-year swaps have fallen by 1,200 basis points and 943 basis points respectively since December 2015 in both nominal and real terms, meaning it now makes sense to gradually increase our debt in REIS. Moving to slide 24, Telefónica's credit profile continues to improve by means on, first, robust cash flow generation with unexpected improvement in OIRA minus capex margin and a focus on prioritizing investment. Second, a prudent financial policy based on a sustainable and balanced dividend policy, together with a smooth maturity profile and a strong liquidity cushion. Third, a solid balance sheet as demonstrated by the significant debt reductions in June 2016 and a clear path to the leveraging. And finally, a de-risk portfolio on reduced capital employ and improved return on capital employ. I will now hand back to Jose Maria to give a brief update on the execution of our strategy and to recap.

Thank you, Laura. Turning to slide 25, with regard to our first pillar, we are able to clearly show how we are focusing on our four core markets and strengthening our positions. In Spain, we continue growing our Fiber to the Home network with 526,000 new premises passed year to date, expanding the largest Fiber to the Home network in Europe. We offer attractive differentiated content based on our own production, Disney Plus and the UEFA Champions League, which has been secured for the next three seasons. We are also leveraging partnerships to create unique propositions such as our Pro Seguro joint venture in the Smart Security space, our Antenna Tres Media joint venture in Spain language content production, our World with Movistar Car, EuroTaller on connected cars, and with Epic Games on worldwide gaming and eSports. In the UK, we announced a transformative deal with Liberty Global back in May to form a JV between O2UK and Virgin Media that will create the UK's connectivity champion. But we will not remain idle until the deal is approved. In Germany, we are deploying 5G now available in 60 cities and leveraging partnerships including our position as the exclusive distributor of Disney Plus mobile content. In Germany, we continue to strengthen the largest mobile network by boosting mobile coverage and increasing urban capacity. We are also strengthening our convergent proposition based on agnostic fixed access and partnership with a range of leading enterprises including Ericsson and Kidomi. In Brazil, we are expanding the leading -the-home network with 2 million additional premises passed year to date. We have bid for all its mobile assets to improve our spectrum position nationwide and increase our scaling in subscale regions. We are also working on a strategic partnership such as our agreement with American Towers to offer -the-home service in Minas Gerais. There is significant opportunity in our four core markets and we could therefore see further consolidation or the acceleration of network deployment by co-investing with strategic or financial partners. We are also making progress in our plan to optimize our ISPAM portfolio and reduce capital employed. We have announced the sale of our Costa Rica operation to Liberty Latin America only three months after Millicom walk away from their contractual commitment. We are monetizing assets including buildings and data centers and towers. 2,400 towers have been sold year to date to Telsius in Chile and Peru and to Phoenix towers in Colombia and Ecuador. We are securing network sharing agreements to reduce our capital intensity and optimize investment. And we are also increasing debt in local units to improve capital structure. In addition, we have a wide range of options to further reduce our exposure to the regions. All inorganic options are on the table as well as a potential operational and financial spin-off. We have achieved significant progress in launching Telefonica Tech. We are creating a new company and at the same time maintaining strong revenues with organic growth of 18% year on year in the first half of this year. We are reaching strategic agreements with the leading players in the ecosystem like Amazon Web Services, Microsoft and Google Cloud leveraging our premium infrastructure. We are also partnering with companies like GE Healthcare and Fortinet and investing in companies like Nozomi, a leader in industrial IoT cybersecurity. We are already completing the carve out of the cybersecurity business to create a separate entity with significant opportunity. Cloud and IoT Big Data will follow soon. We'd also like to highlight the awards we are receiving in cloud and cyber security from the likes of WMWare and Gartner, which are testament to the quality of our offering. As a separate entity, Telefonica Tech will provide a dedicated platform for us to foster the growth of our large tech operations and provide significant optionality. We are looking at potential M&A targets with complementary capabilities to accelerate our growth. We are assessing new verticals to add to Telefonica Tech and we have the potential to bring an equity partner on board to crystallize value and add new resources. Moving to slide 28, we are one of the largest owners of future infrastructure in the sector. The ultra broadband network reached 131 million premises past, almost 60 million owned, 10% more than a year ago, with accesses connected increasing by 5% to almost 15 million, while we are analyzing new fiber vehicles in Brazil and Germany. One of the largest transactions that the sector witnessed during the first half of 2020 was the sale of more than 20,000 towers by Telefonica Germany to Telcios. This sale will turn Telefonica Infra into the controlling shareholder of one of the largest telco-owned tower goes, with close to 53,000 towers. Telefonica Infra has a range of significant opportunities to maintain growth into the future. Telefonica owns 50% of CTIL, the largest portfolio of towers in the UK. Its aspiration goals went beyond towers. As an infraco that can leverage the demand and capabilities in tech operation, it can develop new business lines like fiber to the home and data centers, in addition to its successful summer and cable business. In short, a huge portfolio of highly attractive assets. Moving to Pillar 5 on slide 29, we show how we are rolling out a new operating model that takes advantage of digitalization and adapting our headquarters to reflect the new business portfolio. Digitalization has progressed significantly in the period. Digital sales increased 53% versus the second quarter of the previous year, while the number of robots automating internal processes reached over 1,800 million. We have signed significant network sharing agreements both in our core markets, like in Brazil with TIN and ISPAM, to add to the highly structural ones we already had in the UK and Colombia. Our legacy shutdown is progressing with the closure of around 500 central offices in Spain over the last 12 months. And we are streaming our support functions, both in business lines and at our headquarters. Our headquarters building is being refitted with costs reduced by circa 6% during the first half of 2020 compared to the previous year. All of these initiatives have contributed to 0.3 percentage point expansion in organic OED and Manuscapes over revenue ratio in the first half of this year, in line with the 2022 guidance announced back in November 29 to highlight organic managing increase to .8% in the first half of this year. And there is still room for further optimization on several fronts, namely centralization, insourcing, outsourcing and more agile ways of working. Looking forward, our priority is to continue executing and creating value with our strategy. In our four core markets, our short-term priorities are stabilizing operating cash regeneration to mitigate the impact of COVID-19, closing the UK deal with Liberty Global, strengthening our competitive advantage via Fiber to the Home deployments and partnerships, and continually assessing consolidation options. In ISPAM, our focus is similarly on stabilizing organic cash regeneration to mitigate COVID-19 impacts, closing the deals in Costa Rica and El Salvador, and continuing to develop our strategic options. At Telefonica Tech, our priority is maintaining a strong growth momentum, strengthening our capabilities through inorganic acquisitions, and finalizing trending carve-outs. At Telefonica Infra, our focus is on closing the German towers acquisition, developing strategic option and increasing the towers tenancy ratio. And finally, in regard to the new operating model, our short-term priorities are accelerating digitalization, expanding network sharing agreements, and maintaining a relentless focus on simplification and streamlining. As we move towards a post-COVID era, we are supporting sustainable economic recovery in our markets based on three pillars, which are aligned with the United Nations Sustainable Development Goals. First, building a greener future with digital innovation to power a lower carbon economy. Second, helping society to thrive by supporting communities and customers. And third, leading by example and running an inclusive, fair, and ethical business inside out. The future, now more than ever, will be built on networks and digitalization, and we are well positioned to support all of our stakeholders on that journey. So in summary, first, we have delivered a robust performance for our stakeholders in the midst of an unprecedented global crisis. Second, our commercial and financial performance has proven resilient in the second quarter, despite adverse effects impacts and GDP trends. And we continue to focus on improving the return on capital employed. Third, our outlook for OBA minus capex and 2020 dividend has been confirmed. Fourth, we have accelerated our delivery against our strategic priorities. And finally, we are well positioned to capitalize on the favorable long-term trends accelerated by recent developments. Thank you very much for listening, and we are now ready to take your questions.

Thank you, sir. Ladies and gentlemen, if you would like to ask a question, please press star 1 on your telephone keypad. To cancel your question, please press star 2. Once again, that is star 1 to register a question and star 2 to cancel. We would kindly ask you to ask a maximum of two questions per participant. And if possible, we recommend you not use your cell or hands-free phone. There will be a short silence while questions are being registered. We'll now take our first question from Michael Bishop from Goldman Sachs. Please go ahead. Your line is open.

Thanks. Good morning. Just two questions from me, please. Firstly, you had quite a solid revenue and ARPU performance in Spain, particularly as you highlight in June and the exit run rate. So I was just keen to get your thoughts on the Spanish outlook for the second half, both for revenues, but in particular the trajectory of Spanish EBITDA and the different moving parts there. And then my second question is just on free cash flow in the second half, and so for the full year. You delivered $1.2 billion in the first half, but could you just give us an indication on whether you expect the usual seasonality in free cash flow in the second half, and in particular whether you can give us any verbal guidance on working capital for the year? Thanks very much.

Thank you, Michael, for your question. I will take the one on the Spanish market. As you have seen the results, we have had quite resilient commercial activity and quite resilient cash generation. COVID-19 was impacting the second quarter because we had a lockdown in place for most of the quarter, but if one good adjust for the COVID impact stop line would have been growing 0.9 percent, or if the if we take away the property sale of one year ago would be at minus 3.4 and operating cash flow positive 4.1 percent growth. This we saw with notable recovery along the quarter. So net adds positive across the line, which is a great contrast to some of our competitors, and this was improving sequentially across the quarter. We had a record net promoter score during the crisis. We increased 10 percentage points. Now stands at 28 percent and we are widening the gap versus competitors. All this we achieve while maintaining OTA margin at 40 percent levels and operating cash flow margin at 29.9, which is benchmark across operators in Europe. So we saw improving trends as bonds were going by in the quarter and what we're seeing also in July, the same improving trend that we saw in June. So when we look at the second half, we have positive expectations in B2C with commercial trading recovering. Sorry. ARPU in the second half, we are expecting it to be higher than in the first half. And CHERN, which in the quarter was at 1.2, but even in the last month of the quarter was below what we're seeing in Q1. CHERN should also be controlled. We are expecting, now that over the tops are no longer going to be offering soccer, we expect probably football, subscriber gains, and others, which used to be in a typical month. For football competitions this year is going to be an active month. We're also launching new services. Our launch of alarms with ProSegur is getting very good traction. We're exploring new lines like insurance and e-health to contribute to top line. On B2B, we're already capturing opportunities. You saw the growth in the digital services for B2B. And wholesale in the second half, we should show an even better figure than in the first half. So we have good expectations on the trend of revenues. At the same time, the type of efficiencies that we have been capturing in the first half of the year, some of them are going to be continued and will remain. So we're aiming potentially to even improve with the margin slightly versus the first half. And we'll continue with very effective capex management. I hope this can provide you a view of the confidence we have in the resilience of our business, both commercially and financially, regarding cash flow generation.

Mike, hello. Free cash flow, as you pointed out, free cash flow in the first half of the year has amounted to 1.2 billion. And it's been 1 billion in Q220. And it will be in general backloaded. So we expect free cash flow being strong and higher in the second half of the year. We do not guide on free cash flow, but let me remind you, we do expect a robust free cash flow generation. It will comfortably exceed dividend payments, labor commitments, and the hybrid capons. And it will continue to be a sustainable driver for continuing the leverage. In this situation, not only we are more resilient at revenue level, although not immune, but we have many levers to maneuver and we will closely monitor our free cash flow generation along the year. There's plenty of efficiency improvements and capex savings, as you have seen in Q2 this year. We will continue delivering a robust, which is a priority for us. Regarding working capital, it has been impacted by some COVID measures that will fade away in the second part of the year. And in general, it's been higher due to capex spacing and some restructuring payments that took place in Q1 2020, although they were accrued in the previous year. In general, working capital consumption will be slightly higher in 2020 and in 2019. But we will also do less supply financing measures. So it will be of higher quality. Thank you.

Thank you, Michael. Next question,

please. Our next question comes from Jacob Bluestone from Credit Suisse. Please go ahead. Your line is now open. Please note, Jacob, we're not receiving any audio from your line. You may be on mute.

Hi. Sorry about that. Can you hear me? Yes, we can. Great. Sorry. So two questions, please. Firstly, on capex, which as you alluded to, is down to protect the cash flow generation. Can you maybe just help us understand how sustainable the lower capex will be? Should we be expecting that maybe next year there has to be a period of catch up or something that you can essentially keep at this lower level? It's not just a delay in capex payments. And then secondly, just around the sort of prospects of M&A and consolidation, I think you've made some public statements in recent weeks and months. Can you maybe just sort of share with us what your thinking is around the potential for consolidation in Spain specifically? Do you think post the UK decision, that's something which is more feasible with acceptable remedies? Just sort of any thoughts you can share on that topic? Thank you.

I think we have been monitoring capex. First, there was an initial reduction due to the lockdown. That was immediate. But what we have done is through a strict capital allocation, a strict screening and approval processes. We have a view to prioritize everything which is related to customer service, customer quality and ultra broadband development. So we have not stopped, which really matters. And we've been much more strict on legacy and maintainers that could be prioritized in these circumstances. So you can see the ultra broadband figures, how they've been progressing despite the situation. And you can also see that the revenue in the lines not affected by COVID have performed well as the case in Spain. So we don't envisage a potential catch up in the coming years. I think this reduction will be maintained throughout the following months.

In terms of consolidation, overall you know that our position is that current market structure in Europe is unsustainable. There are more than 400 mobile players, almost one mobile player per million

habitants,

which I don't think is competitive, neither sustainable in the future. So we think that in-market consolidation should be fostered. In the case of Spain, we don't see any signs yet. But we think that the undergoing transaction around mass mobile is something to monitor because the multiple at which this transaction is being done enhance the value of the Spanish market and improve the sustainability of the value going forward. So I think it's a good sign for the overall Spanish market. In terms of the UK, the joint venture will create a stronger fixed mobile competitor in the UK market. And I think it has the scale to innovate in this very changing landscape. This is a move toward convergence and won't reduce competition. So we think it should be, we are confident that the deal should be quickly approved by regulators without significant remedies, as also proved by presidents on that market. The sooner this happens, the sooner we'll be able to transfer to consumers a very large and ambitious investment program of more than £2 billion in the Italian infrastructure over the next five years. So basically with the closing between the end of 2020 and mid-2021, it should happen without significant remedies, but we'll keep you posted soon to say.

Thank you.

Thank you.

Jacob, next question please.

Our next question comes from Carl Murdoch-Smith from Burnburgh. Please go ahead, your line is now open.

Hi, thank you. I just wanted to ask about other OIBDA. In H1 it's come in at €265 million. Is there anything in H1 in particular that's causing it to run higher than normal run rates, or should we expect it to continue at that kind of level going forward? I think it's probably around £500 million in the year, because that's currently about double where consensus currently sits. So any kind of colour on where we should expect OIBDA in other to kind of be on a regular run rate, because it certainly looks higher in H1. Thank you.

Thank you for the question. I'd rather not guide on other for the next half of the year, because it also depends on potential capital gains and inorganic moves. But let me explain that probably what it was high was first half last year, 2019. You have to remember that last year was abnormally high, the line of others, because we have the capital gains of Nicaragua. So what you are seeing in H1 2020 is more similar to what it should happen. It was 100 negative in Q1 and 165 negative in Q2. Variation versus last year is explained as I said mainly because of the capital gains, changes in perimeter, and also as we are reducing CAPEX we have a little bit less revenue on OIBDA from our supply. So that will be it.

That's great. Thank you. So I take the point on the year on year, but that means that the current rate is kind of normal, which leads to you to around 500 a year, whereas I think consensus for next year is currently at 264.

This line was actually below consensus, because as I said last year was abnormally high. So consensus is actually wrong in this line. You are more right in your view for the rest of the year.

That's great. Thank you very much.

Thank you, Gael. Next question, please.

Our next question comes from Joshua Mills from Exain. Please go ahead. Your line is open.

Hi there. Thanks for the questions. Just two from my side. First on Spain. I think you refer in the presentation to B2B revenues at group level being down about 3%. It would be great to get an idea from you on how the consumer versus B2B revenues in Spain have performed relative to one another. I know on the consolidated basis you've reported down just over 3.4%, but that would be very helpful. And then the second question on Germany. I think at the end of the presentation you're saying that a new Fiber deal could be under analysis. Could you give us a sense of what form that might take, whether this is a co-investment scheme, you're looking at other partners, and your kind of bigger picture thoughts around the conversion opportunity in the German market right now? Thank you.

Thank you, Joshua, for the questions on revenues in Spain. Revenues in Spain were affected by COVID. In the second quarter we saw handset sales declining by 50% on the drop of COVID and service revenues minus .9% on the back of lower conversion revenues and business communications. Not compensated by the growth both in IT and wholesale. These service revenues were improving month by month in Q2. So this was minus 2% in the month of June. We are also seeing that upselling has been contributing to revenue improvement. And although the trend worsens in Q2 versus Q1, we have different COVID effects in retail. So in consumer, to your question, it dragged 2% points. And in business, it dragged .5% points in the year on year trend. Also we had lower wholesale growth, we had positive wholesale revenues, but lower rate of growth mainly formed interconnection and roaming decline. So if one were to remove the impact from COVID, this top line would be growing 0.9%. But minus .9% was .6% points positive in wholesale and was .5% points dragged in what is retail services. We have access to cable network of Vodafone and also with Telekollombus. With this we have access to the largest footprint of ultra broadband in Germany. But we have also seen that there is an opportunity which we're going to develop mostly from Telefonica infra and potentially Telefonica Deutschland can take an equity stake, but it will be mostly developed by Telefonica infra. And we have an opportunity to develop fiber in areas which are underserved in Germany aiming for a neutral model, absolutely wholesale, open to all the players. With a very tight geographic segmentation going to areas which are not covered because we want to avoid over-built and this would be done along financial partners. The philosophy is a neutral company with a modular model of deployment depending on the demand along with financial partners which would not be consolidated with full integration into Telefonica. And with limited financial exposure on our side but at the same time making Telefonica Deutschland an anchor customer, an anchor client of this wholesale company but it being open to all the players in the market. We have launched already the process. We have received indications of interest and as the process progresses when there is more detailed news to give to the market we will do.

Thank you, that's very clear.

Thank you, Jost. Next question please.

Our next question comes from Fernando Cordero from Banco Santander. Please go ahead, your line is open.

Hello and good morning. Thanks for taking my two questions. The first one is related also with infra assets and in that sense trying to understand if there has been any change in your views on what kind of assets should be fully controlled. And when I say fully controlled is 100% ownership within the group, namely for example the Spanish Fiber and which assets can be open to have not only minority states but also even losing the control of those assets. And the second question is related with the Spanish OPEC looking into the second half. As far as I understand you have been including the full cost of the premium content particularly the football during the first half of the year. And I would like to know at which extent we should see any kind of cost regularization during the second half given the lower content delivered by the different properties, not only football but also for example Formula One and so on. So in that sense trying to understand if there is any kind of tailwind on the OPEC for the second half in that sense. Thank you.

Thanks for your question. I'll take the first one. Our view hasn't changed in terms of the strategic ownership of strategic assets and the Fiber being one of them. But it is also due to the telecom infrastructure assets are generating lots of interest from new long-term oriented capital and Telefónica is one of the largest owners of next generation network. Just in terms of ultra broadband assets let me remind you some key facts. We own 58.2 million premise pass and this figure keeps growing every quarter. In the last 12 months we have passed more than 6.3 million additional ones. We have 14.6 million homes connected which means that despite these networks are relatively new we are filling in them rapidly. As you know this is the key for improving the profitability. In the last 12 months we have connected 1.4 new homes. Demand is on the rise and the current situation has if any brought forward that demand. In the last quarter and despite COVID crisis or maybe as one of its consequences we are seeing historical demand levels for customers willing to be connected. In Spain demand for Fiber has multiplied by two times in one quarter. Brazil has its best month ever in June in terms of Fiber to the Home net ads. 80% of all market next generation network net ads in the first quarter were connected in Telefónica's network in Spain. In addition we have been for years operating wholesale agreement with our peers in Fiber to the Home and this is another critical factor towards future profitability of these assets. We know how to implement long term profitable wholesale models without generating market distortion. All these factors demonstrate basically two things. The first one is an unparalleled experience in executing Fiber to the Home business model and probably second and second to none opportunity in terms of the size of the assets we have already up and running. Obviously under these metrics our assets are generating interest for these big pockets of capital that I mentioned before and it is now public that as we have been saying we are exploring options in Brazil and in Chile and there could be other products on their analysis. It is also a fact that it has happened with other telco infrastructure assets. There is big arbitrage opportunity by transferring these assets to the private market. But we will always do this, analyze our options with long term perspective. We think these types of assets are critical and therefore control is essential. And they have very long life periods so we believe some financial models are probably underestimating that factor. To sum up, we started before anybody deploying Fiber and at the time a lot of people questioned us. But now we own one of the largest network worldwide and these assets are attracting a lot of interest from capital providers willing to put capital at work. So we think that what we have ahead of us is a lot of optionality and we think this is a good place to be.

And regarding the second question, Fernando, on OPEX in Spain, first we have seen in the second quarter OPEX year on year decrease thanks to efficiency measures and cost reduction in several elements like roaming and commercial. On personal cost, since we had the people plan, the PSI, we already saw in Q2 the same savings as in Q1. When we look at supply cost, which includes content, the second quarter was having half the increase that we saw in the first quarter because the new cycles with deflation are starting to kick in. Commercial costs were sharply declined from lower activity and we had in the rest of OPEX similar trends. The content costs, to your question, they have peaked in the first half and then we will see better trend or stability in Q4. It's very important to see that we had previously achieved slight decline in La Liga when we renewed the last cycle. Now we have achieved 15% deflation in the Champions League and some other relevant sports which are being at this moment auctioned. We will most likely be able to show double digit deflation as well. In addition to this, as you were saying, some sports didn't take place. So for instance, some tennis competitions, different calendar and structure for Formula One races and so on. So we are managing each content as the situation clarifies in each one of the competitions. So initial savings have been achieved already and some more may come. All of this allows us, as I was responding before in a question about the outlook, to be optimistic that the margin in the second half could be slightly higher than the one we had in the first half.

Okay, thank you.

Thank you Fernando. Next question please.

Our next question comes from David Wright from Bank of America. Please go ahead, your line is open.

Hello guys, thank you for taking the questions. Just to get to the first one, obviously they are actually related. The first one is about the dividend really. You've obviously had huge pressure from Latin American currencies. Also the operations have deteriorated somewhat over the last couple of years. S&P sound very much like they're about to downgrade you, but even Moody's on the lowest level of IG, I think they have an outlook free BDAR this year, 15.5 billion I think. Your commentary this morning from IR suggests that you're comfortable with levels below 15 right now. So it does feel like the Moody's number could be missed, in which case are you worried about the current balance sheet rating? And if so, if Moody's were to take a more cautious view, does dividend become part of the equation? You've obviously moved to Sqrt, but that does feel quite an expensive offset right now, given the current share price level. And then my second question, just on I think you mentioned before, Angel, the ARPU growth in Spain, H2. That seems, given the current trend, which has seen the ARPU declining year on year in an accelerated fashion, Q4, Q1, Q2, that seems extremely difficult to achieve, especially given the current dilute of the sector, the 02 apps, unless you're pricing some kind of planning, some kind of price rises. Could you confirm that? Otherwise, how do you expect ARPU to get better in the second half? Thank you.

Thanks for your questions. I mean, I'll start with the dividend. I think that we feel comfortable with the current level of 40 cents of euro per share, even with our revised figures reflecting full COVID impacts. Our dividend shows very prudent organic free cash flow coverage, even if it was to be fully payable in cash terms. Allow me to say that free cash flow will be significantly above current market expectation this year. These dividend levels allow us additionally to keep enough financial flexibility to keep reducing debt levels. It is a strategic decision of the company to keep reducing debt levels and preserve a strong credit rating profile. As you know, we do not have a long term dividend policy as we think that with the current volatile macroeconomic scenario, an additional level of caution is required. But we feel comfortable with the current dividend level in order to preserve additional financial flexibility. You know that our shareholders approved in our last shareholders meeting to introduce this credit option to shareholders. This option was approved for the last tranche of 2019 dividend, which was spent last month, and the first tranche of 2020 dividend that would be paid in November this year. Both tranches each of 20 cents of euro per share each. In the last June payment, 63 percent of shareholders decided to offer shares and 37 in cash. And that means that out of a total dividend of a billion euros, 371 million was paid in cash and 631 in shares. So in summary, we think that dividend is comfortably covered with expected free cash flow generation. And still allow me to stress that overestimate for free cash flow for this year, it's significantly above current market expectations. And even if we were to include all COVID impacts, a script has been introduced to provide additional flexibility.

And the option,

the script dividend option looks like having welcomed by investors, by shareholders, because 63 percent opted for shares. I hand it over now to Laura for rating outlook.

Hello on rating. Let me remind you that we maintain a stable outlooks both with Fitch and Moody. So we have a stable outlook with Moody at present. The negative outlook of S&P reflects the risk of downgrade. You are right. If they no longer expect Telefonica will make significant progress in reducing its leverage in 2020 as an intermediary step for returning to comfortably below the maximum adjusted depth to EBITDA under S&P methodology. We are in constant conversations with rating agencies. They have welcomed Telefonica's measures undertaken to protect the credit rating. They know our commitment to solid investment rate. They have welcomed also the script dividend. And it's also worth highlighting the strong financing activity that we keep undertaking with the maintainers on appropriate level of liquidity and the active portfolio management we have done. So many things we have done in Organic as well. In the last year, partial disposal of Telseus, agreements for the sale of Central America, sale of 11 data centers, sale of towers in Brazil, Ecuador, Colombia, but also in Q2 in the midst of COVID, we have undertaken the sale of towers in Germany to Telseus and the sale of Costa Rica, both reducing net debt slightly below one billion. Also, you mentioned FX as a reason for a credit rating. And we have shown how FX has reduced free cash flow only by 111 million euro. And we pay down debt with free cash flow, not with OIPDA. You know, we are not very fond of the OIPDA to debt ratio. First, because the FX move in different rates in the numerator and denominator. And also because you have to look at the ratios in the light of the revenue prospects going forward and in the light of the CAPEX commitments going forward. And as Jose Maria explained, we are well ahead in fiber deployment. So our CAPEX going forward should be lower than many, many of our competitors.

Sorry,

if I could just check then. So you're not expecting S&P to cut. And if you do miss the Moody's EBITDA target, you're not expecting a more cautious outlook there. Is that correct?

I think we have to go to the facts. We have stable outlooks with Moody's and we have a negative outlook with S&P. And that's obviously a risk. If we are in negative outlook, there could be a downgrade. So it's for them to judge and it's for us to explain everything we are doing in DeliverAge and confirm our commitment to solid investment rate.

Allow me also to remind that we have an inorganic transaction that has been, that are under approval process. And that would imply significant sources of fund and capital gains and would also accelerate debt reduction. Notably, out of the UK merger, when approved, it would generate between 5.5 and 5.8 billion pounds of funds for Telefonica and a significant capital gain. We have announced today the sale of Costa Rica. We have under approval process El Salvador. And in addition, you know that we have Telefonica infra, which tells us that has a significant amount of towers that could put into value. Telefonica tech is growing significantly, has a sizable size. We are also looking at it as a potential source of value. And then we have Telefonica ISPAM process of inorganic measures that should also be a source of additional comfort. So overall, we think that we have enough organic and inorganic measures to preserve a strong credit profile and to make sure that all the components of the financial equation of the company, dividend

and

debt reduction and preserving a strong credit profile is preserved.

And can I just ask as a follow up, I'm happy to drop my Spanish question, given I'm taking some time here. But just on you mentioned about potential demerger optionality around the ISPAM asset. It's hard to imagine that you could demerge the business with the same level of credit that you currently have, the same level of leverage you currently have in Telefonica Group. I would have thought way over three times. So could a demerger even be a re-leveraging event for the Telefonica core business? How are you thinking about that? Thank you.

Yeah, you're right. It will be very difficult to maintain an actual credit rating in an ISPAM only vehicle. But the ISPAM move, the demerger movement will take a re-leveraged effort. And in fact, we are already working on a re-leveraging effort in ISPAM because that's a non-regret move and we can do it also organically.

Thank you, guys.

OK, I'll answer the Spanish ARPU question because I have been preparing for it. So now I would like to respond. So if one looks at the evolution of the conversion ARPU in the first half, it has had negative and positive impacts in this evolution. On the negative side, you have COVID-19 effects like downgrades, some promotions to hold the mix, some disconnections. And also, you know, the closing down of social venues, bars, basically, that were showing food port packages to their customers. Also, we had smaller dilutive effect from multi-brand options. And we had consumer upselling of new services and higher ratio of additional high value lines. In the second half of the year, many of these impacts are not going to be there. Actually, downgrades regarding food port probably will become upgrades because with the reopening of the season, also, overs, which used to be a very muted month, even in which some customers disconnected and then rejoined, this is not going to be the case this year. Also, without soccer on over the top, we are going to get first share of those customers that will improve the mix. The reopening of the social venues is also going to help us. We are seeing big demand, for instance, of Internet in second homes and all the services that go along with those. And we are expecting less impact of promotions. So all of these factors are the ones that make us confident in an improvement in the ARPU versus what we've seen in the first half.

Appreciate all the answers. Thank you, guys.

Thank you, David. Next question, please.

Our next question comes from Luigi Menevere from HSBC.

Yes, good morning. Thanks for taking my questions. The first one is on the announcement in Brazil yesterday about the option for a neutral fiber network available to wholesale customers. Perhaps a similar plan to what you described for Germany, but can you please elaborate on what it actually implies? And then I was wondering, just following up on previous comments, I understand that the Spanish fiber is core and strategic, but whether you would be interested in the minority investors in the Spanish fiber. And second question is on what you are seeing in the business B2B segment, whether there is some evidence of customers, for example, missing payments or downgrading their packages. I presume that the impact there will come with a lag, so it will be more important in the second half as the government support starts to diminish. Thank you.

Hi, Luigi. On the Brazilian fiber code that was described yesterday in Telefonica Brasil's call, it's a project which is also in motion. Brazil, our Brazilian operation, first is showing record levels of deployment and connections in fiber. We are at this moment connecting every month 140,000, 150,000 homes with fiber, which is above the highest we ever achieved when deploying in Spain. And we are seeing that there is a very healthy demand. But of course, it's a huge market. We cannot cover all the market with our CAPEX, so we have decided to segment three type of situations. There is a first tier of cities and markets that we are investing directly from the CAPEX, from Telefonica Brasil. Then there is a second tier that we are looking to address with new models that I will describe in a second. And then there is a third tier of towns in Brazil that we are going to a franchise model in which the CAPEX is made by the local partners and we provide the technology and we have some revenue share. But in the mid-tier, we are doing different models. The first one, for instance, is the agreement that we reached with American Towers to deploy fiber in Minas Gerais. But also, we have launched a process to attract financial partners to do a fiber code that would not be consolidated into our accounts. Here would be a joint opportunity or a joint project between Telefonica Brasil and Telefonica Infra aiming to bring on board a partner that would take 50% of that company and between Telefonica Brasil and Infra would have 50%. The difference with the German project is that the German project is purely green field. The project in Brazil will be mixed. We'll be having park brown field by contribution of some of the fiber that Vivo has in the regions that are going to be object of this project. And the rest will be green field build out. It will be also a model which will be open to wholesale to all the players in the market. We think that it is a huge opportunity in Brazil. We are showing the high double digit growth in the fixed broadband, ultra broadband services in Brazil. And again, we are even with the cuts in CAPEX that were commented before, we are deploying at the highest and connecting, by the way, at the highest level we've ever done in Brazil.

I may complement Angel because we are also doing fiber projects in Ispan. As you know, we are completely focused on ultra broadband and we are progressing very well and having beaten previous quarters, this quarter despite COVID. We have agreements with ATC and ATP in Chile, Colombia and Argentina, but we are going a step further in the line of the other infra projects. And we have, we are working on the carve out of FTTH and related assets in the case of Chile. And we will sell a majority stake of that vehicle. And the next step is to sell the vehicle. It's a way to monetize but also, and more important, accelerate the transformational deployment plan in Chile. And more projects of this kind could come in the rest of the Ispanamerica region.

Yes, regarding the B2B business, we are quite well positioned in markets like Spain, in Brazil, in this segment. And we are very well positioned to capture the post-COVID opportunity, especially in services in IT such as cloud, cybersecurity, elements linked to smart working scenarios. And we leverage this on our bigger share in corporates. What we see or where we see more difficulty in some of our customers is in the SME segment. Here we have been ready to financially facilitate life to those customers. Obviously, this we are doing with a very thorough monitoring of the potential bad debt risk, which is not an issue at this moment. And with a progressive return of activity, we think that this segment should be performing nicely in the next quarters. So monitoring very carefully some of the segments and the financial impacts that may come from those. But we think that there are opportunities that we're already capturing in cybersecurity, cloud, that you have seen in our presentation are growing at a very substantial double digit.

Okay, thank

you. We have time for one final question,

please. Our last question will come from Jerry Dellis from Jeffreys. Please go ahead. Your line is open.

Yes, good morning. Thank you for taking my questions. I just had a first question was just following up on the Spanish sort of issue. And I just wondered whether you could clarify for me one particular point. I remember that in July last year, you applied a rather large price increase about 10 euros to about one and a half million sort of high end customers. That seems to me to create a fairly difficult comp for the second half of this year. Is it correct to sort of think about that? Or is there some offsetting issue, particularly with reflect within relation to the high end Fuzion base and the comp into the second half? And then my second question is in the UK. To understand it, the Project Lightning investment is included within the proposed UK joint venture. What is your attitude to accelerating the deployment of Project Lightning and perhaps investing more capital in that project to accelerate the current run rate of build above what's been achieved over the last four years? Thank you.

Thank you for your questions. Regarding the Spanish airport, you're right. It's we had a price increase or an offer increase in the third quarter last year, which will not be repeated this year. And that is one of the the drugs that we will have in the third quarter roaming potentially will also be one of those. We think that there are some positives that they were describing before, and I would not need to repeat myself from from the previous answer. And I am very mine that the answer that I was giving before was relating to the second half was not relating to the third quarter. And regarding your question on Project Lightning, our merger in the UK aims to build one of the leading converged players in the market. It was one of the main attributes that attracted us to combine our business with Virgin Media and Project Lightning is a very important part in that. We have shown in our markets and in the markets where we are converged that we are firm believers in fiber. So if and when, you know, transaction is concluded now at this moment, each company is operating independently and we cannot share or revise or do anything with respect to making plans together. So once the transaction is closed, we will assess if there are opportunities to accelerate the deployment that are value creative for the shareholders. We will look at them. I think it was evident in this call that not only we have one of the largest fiber footprints globally, but that we are analyzing vehicles to deploy fiber in an operationally and financially effective way across our footprint. And the UK should not be any different from that once the transaction is concluded. Thank you. Thank you. Thank

you, Jerry.

Thank you very much for your participation and we certainly hope that we have provided some useful insights for you. Should you still have further questions, we kindly ask you to contact our investor relations department. Good morning and thank you.