Telefonica SA

Good morning. Thank you for standing by and welcome to Telefonica's January-December 2021 results conference call. This is Adrián Fontenay from Investor Relations. Before proceeding, let me mention that the financial information contained in this document has been prepared under international financial reporting standards as adopted by the European Union. This financial information is unaudited. This conference call and webcast, including the Q&A session, may contain forward-looking statements and information relating to the Telefonica 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 that could 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 filed with the relevant securities markets regulators. If you don't have a copy of the relevant press release and the slides, please contact Telefónica's investor relations team in Madrid or London. Now let me turn the call over to our chairman and chief executive officer, Mr. José María Álvarez-Pallete.

Thank you, Adrián. Good morning and welcome to Telefónica's fourth quarter results conference call. With me today are Ángel Vila, Laura Basolo, and Eduardo Navarro. We will first take you through the slides, and then we'll be happy to take any questions you may have. I would like to start by highlighting the strategic execution during 2021, which is delivering positive results. We remain focused on our core markets. We completed the biggest transaction in Telefónica's history, the JV with Virgin Media in the UK, whilst the acquisition of Oi's mobile asset in Brazil got final regulatory approval and is expected to close in the coming months. We secure key 5G spectrum in Spain, Brazil, and the UK, accelerated fiber deployments, and brought our German network quality to the highest market standards. We also continued building a digital consumer ecosystem in Spain and Brazil in areas such as connectivity, entertainment, home wellness, and finance. We further reduce our exposure to ISPAN through portfolio simplification and data allocation. We are implementing a new operational model which, together with CapEx optimization, allow us to reduce capital employed. At the same time, we now have a higher share of debt in local currencies, accounting for 28% of the group's total. Telefonica Tech again outperformed the market, increasing revenues in 2021 by over 30% year-on-year to almost 1 billion euros. This was achieved while strengthening capabilities through acquisitions and best-in-class partnerships. In Telefonica Infra, ongoing value creation and crystallization continues, along with the creation of growth opportunities through fiber vehicles. This strategy was proven by the tower sales to American towers at a record multiple. Finally, our streamlined and digital operating model is delivering enhanced efficiencies. with 80% of our processes already digitized, and implementing technology solutions such as Open RAN, green energy, fiber, and 5G. We are focused on attracting and retaining the best talent, offering agile and flexible working, and striving to be at the forefront of innovation. Slide number two shows the solid performance across our key metrics in 2021. Our connectivity leadership was reinforced, with group accesses growing by 3% to 369 million, and with strong traction in strategic areas that are key to economic growth, such as ultra-broadband, fiber, and mobile contract. We remain Western world leaders in ultra-broadband, with total ultra-broadband premises passed reaching 159 million as of 31st December. Second, In 2021, sustainable growth was restored with revenues growing organically 2% year-on-year and OVDA growing 1.4%. Third, free cash flow generation remained robust, with free cash flow excluding a spectrum reaching almost 3.8 billion euros or 0.66 euros per share, well above the dividend per share of 0.30 euros. Our focus on smart capital allocation is reflected in the 14.2% CAPEX to sales ratio, comfortably below our guidance. Fourth, net financial debt has decreased by a remarkable 26.2 billion euros since the peak in June 2016 to 26 billion euros at year end, driven by completion of M&A deals and solid and steady free cash flow generation over the last years. it is worth highlighting the group shareholders' equity doubled versus 2020 to 22 billion euros, mainly due to capital gains booked along the year. Moving to slide three, our focus on delivering sustainable growth is evident in our fourth quarter performance. Starting with the financial, we posted simultaneous organic growth and OED growth for the third quarter in a row, At the top line, all business units are growing, and OEDA has proven resilient, with an improving year-on-year trend in Spain. FX had a declining and minor impact in the quarter, and spot rates implied further tailwinds to come. The significant reduction in net debt in 2021 was achieved mainly through capital gains from M&A transactions, totally €11 billion. In addition, free cash flow ex-spectrum cost improved sequentially in the last quarter to almost 3.8 billion euros in 2021. We remain a customer-centered group. Commercial momentum improved in the quarter, driven by products and services with superior connectivity, outstanding digital experiences, and highly efficient networks. We also remain efficient in capital allocation, with CapEx allocated to next-generation networks being approximately 45%, and committed to promoting inclusive connectivity. And we continue to deliver on ESG, which is a core part of our strategy, including how we contribute to the economy in terms of GDP, employment, and fiscal contribution. Moving to slide four for our financial summary. Our full year reported figures were impacted by capital gains, changing the perimeter of consolidation and in the last quarter by restructuring provision of 1.4 billion euros in OEDA, mainly in Spain, and an impairment in Peru. Revenues reached 9.7 billion euros in the fourth quarter, growing 3.1% organically, while OEDA increased by 0.4%, underlying OEDA total 3.2 billion euros, while net income for the full year was over 8.1 billion euros, despite restructuring charges and the impairment mentioned earlier. Net financial debt for the year was 26 billion euros, 26% lower than the previous year, and free cash flow reached almost 2.7 billion euros. Slide number five highlights that we successfully achieved our recently upgraded 2021 guidance across revenues, OEDA, and capex to sales ratio. We are also confirming today the payment of the second tranche of the 2021 dividend of 0.15 euros per share which will be paid in June through a voluntary script dividend. The first tranche, 0.15 euros per share, was paid last December, with 65% of shareholders opting to receive shares. In addition, we will propose to the shareholders meeting the adoption of the corresponding corporate resolution for the cancellation of 2.41% of shares held as treasury stock as of 31st December 2021. At Telefonica, we are committed to sustainability, and we align and measure our progress across our ESG pillars against the United Nations Sustainable Development Goals. We are reducing our environmental impact by using cleaner energy and shifting to more efficient technologies. We are taking our customers on a journey towards decarbonization by providing them with products and services such as EcoRating and EcoSmart, that enable them to monitor and reduce their environmental impact. On the social side, we are committed to connecting the unconnected and bringing high-speed internet to as many people as possible. For example, we have now connected 2.4 million people in remote communities with mobile broadband in Peru. We also continue to innovate internally through our new innovation and talent hub and externally through new programs to scale up startups. Furthermore, we are ensuring that our workplace are more inclusive. We continue to make progress on governance. Our board of directors has been restructured, and we now have a leaner and more diverse board of directors with 15 board members, nine of which are independent, and with female representing 33%. Finally, I would like to highlight that our progress has been recognized externally. We have been included on the prestigious CDP-A list for the eighth consecutive year for our leadership in climate action, and we have been ranked first worldwide in the World Benchmark Alliance Digital Inclusion Benchmark. Telefonica has set robust targets to underpin our ESG commitments, and we have summarized the main ones on this slide. We will reduce our carbon footprint by becoming net zero in scope one and two emissions in our main markets by 2025, and across our whole footprint and our value chain by 2040. By 2030, we'll be using 100% renewable energy in every market we operate. We have made tangible commitments to become a zero waste company by 2030. We plan to reuse 90% of customer premise equipment by 2024, recycle 98% of waste, and introduce eco-design criteria in all our branded equipment by 2025. We have also set objectives to monitor how we are contributing to decarbonization of other sectors by enabling our customers to avoid emissions via digital services and choose sustainable products and services. We will bridge the digital divide by promoting digital inclusion with 90% to 97% connectivity in rural areas in the main markets by 2024, and we have committed to train at least 100,000 people every year in new digital skills. We will promote gender equality by eliminating the pay gap by 2050 and achieving parity at the highest level of the business by 2030. Finally, we align our remuneration to ESG metrics, accounting for 20% of all employees' annual variable pay and an additional 10% of senior executives' long-term incentives. I will now hand over to Angel to go through a detailed review of our business performance.

Thank you, José María. Moving to Spain on slide 8, commercial activity improved in Q4, supported by a year-on-year improvement in churn to its lowest level since the second quarter of 2017, and record level of customer satisfaction. Our convergent ARPU improved sequentially to 90.4 euros, leading to an ARPU in the second half of the year 1.4 euros higher than that of the first half. We further strengthened our market positioning during the quarter. We acquired Lariga Content for the coming seasons at a lower cost and launched Fusion Digital Pymes, a digitalization solution that enabled capitalizing on the European recovery funds in the SME segment of the B2B sector. On financials, Q4 revenue growth improved year-on-year to plus 0.5%. An OEPDA annual decline was reduced to minus 3.4. On captured efficiencies, mitigating higher energy costs and higher costs from strong sales in IT and handsets. Worth to note is the voluntary redundancy plan, implying a provision of 1.4 billion euros in Q4 personal expenses, with a positive impact on cash flow from 2022 and an annual run rate of savings of around 200 million euros from 2023 onwards. Once again, cash conversion stands out, with an organic OTA minus capex margin of 27% in 2021. Finally, we are announcing today that Telefonica Spain is ready to launch, in conjunction with Telefonica Infra, the process to create a Fiber Co. focused on lower density areas, targeting more than 5 million premises past, and open a substantial minority stake to potential investors. Moving to Germany, we continue to have strong commercial momentum. underpinned by the O2-free portfolio and network parity resulting in over half a million contract net additions and ARPU growth in the quarter. The 3G switch-off was completed in 2021 and the energy efficiency ratio of the network improved by 78% compared to 2015. The 5G network covered 30% of the German population by the end of the year. Looking at the financials, this commercial momentum has driven continued top-line growth of 3.1% year-on-year, with OEPDA expanding by 4% year-on-year on 2021. The company's three-year investment for growth program passed its capex peak in fiscal year 21, resulting in an OEPDA minus capex margin of 14.7% in 2021. Moving to Virgin Media 2, which completed its gigabit rollout on time across its 15.6 million premises passed during Q4, and is now the biggest contributor to the government's broadband target. 5G is also now available in more than 300 towns and cities, and remains on track for 50% population coverage in 2023. As part of VMs O2, As part of BMSO2's ambition to roll out fibre further and faster across the UK, Liberty Global and ourselves have initiated discussions with a number of potential financial partners regarding the creation of a network-built joint venture. The focus of the entity will be on building a full fibre network of up to 7 million premises in new greenfield areas by the end of 2027. Commercial momentum remains strong, with the total base growing 5% year-on-year to reach 56 million at the end of 2021, driven by fixed broadband accesses growing by 3% year-on-year to 5.6 million, and the mobile contract base growing by 2% year-on-year to 15.9 million. Looking at the financials, revenue was broadly stable in the fourth quarter, while SOIPDA growth has slowed due to the return of some sales and marketing costs, as well as increased investment in growth drivers. In 2022, VMO2 expects to deliver mid-single-digit growth in pro forma transaction-adjusted EBITDA before cost to capture, supported by improved top-line growth and the delivery of synergies so that the cash distribution to shareholders is anticipated to be £1.6 billion. Moving to Brazil on slide 11, Vivo finished the year with outstanding commercial and financial results. In mobile, contract accesses grew 8% year-on-year, improving the customer mix and lifetime value. In fixed, fiber to the home reached 4.6 million connections, an increase of 36% year-on-year as we expanded our fiber coverage in the most valuable areas across the country, through organic deployment and via FI Brazil. Looking at the financials, we posted simultaneous year-on-year growth in revenues and OTA, with fixed revenues growing for the second consecutive quarter and efficiencies offsetting high levels of inflation. On ESG, we continue to make good progress this quarter, demonstrated by the inauguration of our first biogas facility and being ranked as the top telco in the Latam Dow Jones Sustainability Index. Finally, after receiving the final approvals, the acquisition of OE's mobile asset is almost complete and will allow us to further improve the quality of our mobile network and reinforce Vivo's market-leading position. Moving to slide 12, Telefonica Tech, our sustainable, focused, fast-growing technology company, delivered superior revenue growth throughout 2021. Revenue almost reached 1 billion euros in 2021 as growth accelerated to plus 50% year-on-year in Q4, driven by improving organic trends and further enhanced by M&A operations executed along 2021. Telefonica Tech, as a leading integrator of technology with strong operational capabilities, is already benefiting from the recovery of economic activity and the digitization projects post-COVID-19. proven on the better revenue performance in the second half of 2021. Telefonica Tech has delivered on its priorities, outperformed the market, enhanced its capabilities and scale, and improved its growth profile towards higher value services. Looking forward, a solid increase in sales well above revenue growth makes us predict a strong performance for 2022. Moving now to slide 13, Throughout 2021, Telefónica continued to focus on pursuing value creation opportunities and enlarging its infra portfolio. In Germany, UGG launched operations in six federal states and in Q4 accelerated the MOU signed with municipalities representing more than 170,000 premises passed. PHI Brazil is on track to reach its deployment target with 2 million premises passed in 2021. On net fibra, Chile continued its accelerated rate of deployment, reaching 1 million additional premises passed in 2021. And in Colombia, Infracore received all necessary regulatory approvals and the transaction closed in January 2022. We continue to explore alternatives to crystallize the value of our infra assets and look for growth opportunities while assessing our optionality across all asset classes. This was demonstrated by the acquisition, together with Ponte Gadea, of KKR's stake in Telsius Cable at the beginning of the month, reinforcing our ownership in an extremely relevant asset. And, as I previously stated, we have initiated processes for the establishment of FiberCo vehicles in the UK and Spain. I will now hand over to Laura to take you through our ISPAM operations and financial position.

Thank you, Ángel. Moving to ESPAN on slide 14. Our strategy continues to bear fruits. Firstly, we accelerated value growth throughout the year, with outstanding performance in contract, ultra broadband, and pay TV. Secondly, we are implementing incremental and progressive operational synergies, thanks to digitization and simplification of our new operational model, creating a leaner and more efficient company. Thirdly, we continue to modulate our exposure to the region reducing capital employed by 22% year-on-year. And finally, despite the tough macro and competitive environment, revenue OIBDA and OIBDA-CAPEX increased in both reported and organic terms. Turning to slide 15. Our net debt has been reduced by €9.2 billion year-on-year to €26 billion at the end of December 2021, or €26.3 billion including post-closing events. Thanks to resilient free cash flow generation of €2.6 billion coupled with the completion of strategic and inorganic initiatives, namely the sale of Tertius Towers and the BMED 02 UKJB. Net debt to OIDA ratio is now 2.59 times, 0.2 below the 20 ratio. Looking ahead, we are well covered. Our liquidity cushion amounts to 24.6 billion euros, and the average debt life is up to 13.6 years, placing us in a comfortable position given maturities are covered beyond 2024. We have remained active as well in managing our debt, with financing activity of €12.8 billion in 2021 and 2022 year-to-date, including the financing of JVs such as German Fiber, BMO2, Fibra Seal, and Cornerstone operations. We remain committed to ESG financing, which we plan to increase to over €10 billion in the coming years. We have recently completed the refinancing of our main syndicated facility of €5.5 billion, which is now linked to sustainability objectives. I will now hand back to José María, who will wrap up.

Thank you, Laura. Moving to slide 16, we are ready to commit for 2022. Our guidance includes 50% of EM02 in the UK, as it better reflects the reality of the group and provides a more comprehensive evolution of the Telefónica's managed business. UK is a core market for us, and as such, we devote resources to this core unit. We guide for low single digit growth in both revenues and OEDA. I stepped forward from the 2021 upgraded guidance in spite of added inflationary pressure. In terms of investment, and even including the JV in the UK, we stick to our guidance of up to 15% capex to sales. Investment peak remains behind. We will push for revenue growth in all our geographies, with main growth drivers in Spain and Brazil stemming from lower margin activities, such as IT, new digital services and equipment. OED performance will, on top, be more back-end loaded. In some regions, inflationary pressures will be more evident in the first half of the year, such as energy costs in Spain, though we will continue to accelerate efficiency generation to offset those. Additionally, synergy realization in the UK and Brazil would add to OED growth as they ramp through the year. We will continue to closely monitor the macro situation and to manage our resource according to the evolution of the pandemic and potential new restrictions. But we think we have left behind the worst economic impact. On dividends, we are announcing 30 cents of a euro per share for 2022, payable in cash in two tranches, December 2022 and June 2023. We believe reasons that justify the voluntary script dividend implemented in 2020 have been mostly left behind, whilst we are confident in our free cash flow sustainability. As I said before, we are proposing to cancel 2.41% of Treasury stock held as of December 2021. and we may as well consider using excess free cash flow to tactically buy own stock. To recap, please turn to slide 17. First, in 2021, we delivered successfully against our strategic priorities, reinforcing our position in our core markets, reducing exposure to Telefonica eSpam, creating value and capturing growth opportunities through Telefonica Infra and Telefonica Tech, and significantly reducing debt by streamlining our operations and delivering robust free cash flow. Second, we successfully met our full-year targets, which were upgraded at our second quarter results. Third, investments during the last year have allowed us to deliver best-in-class capex-to-sales ratio with enhanced ultra-broadband experience whilst promoting inclusive connectivity. Fourth, Positive momentum continued in the fourth quarter, with growth in revenues and ODA and sequential improvement in free cash flow. Looking forward, we are confident in the outlook for 2022, and we are pleased to announce a dividend of €0.3 per share in cash. Thank you very much for listening. We are now ready to take your questions.

Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad. To cancel your question, please press the pound or the hash key. Once again, that is star one to register a question and the pound or hash key to cancel. We would kindly ask you to ask a maximum of two questions per participant. There will be a short silence while questions are being registered. Your first question. comes from the line of Giorgio Herodia of Citi. Please ask your question.

Good morning, and thank you for taking my question. I had a couple around Spain. The first one is around the open spaces during 2022. And I know in the third quarter, obviously, we had an impact on energy costs, which we managed by saying in the fourth quarter But given the development here, I would be interested if you could give us an indication.

George, sorry. We're hearing you quite badly. I don't know whether you can close your mind.

Is it better now? Is it better now?

Slightly better, yes.

Perfect. I'll start again in case you haven't been able to listen to the question earlier. So in terms of... OPEC's facing in Spain for 2022. You gave some indications of the negative impact in the third quarter. You seem to have managed it better in the fourth, but it would be great if you can give us any indications of how we should think about 2022 in light of the movements we are seeing in the energy markets as well. And the second question linked to that is more on the top line in Spain. You mentioned during the presentation that Telefonica Tech is getting some of the benefit from what I understood in the European Recovery Fund. But I'm just curious if you can give us an update on what to expect on that front during 2022, both with regards to Spain and Telefonica Tech. I know one of your competitors are very optimistic about the impact they expect to see. So I'm curious to hear from you. Thank you.

Thank you, Georgios. This is Angel. Let me take you a little bit on how we see 2022 in the OPEX phasing that you were talking about, but also a little bit on the outlook. As always, this should not constitute a guidance because we do not guide on specific geographies. But yes, we can give you some color on the trends we see now. First of all, in terms of how we see the market, we think it will continue to remain competitive in the low end, but rational in the high end. We expect our commercial traction to continue sequentially improving, as you have seen in this fourth quarter. A little bit less so in the first quarter, because we just increased or did a more-for-more movement that always comes with a more muted commercial activity. But later on in the year, the commercial activity trend we expect to continue moving forward. And accordingly, we aim for slightly growing revenues in Spain. The main growth drivers, and this partially is linked to your second question, would be B2B, where we see continued momentum in IT growth. And as I was saying in my speech, we are launching specific products for digitalization of SMEs, which is a substantial part of what we expect to be European recovery funds disbursed in 2022 and so on in Spain. Also handset sales or equipment in general. We see that they should have traction in 2022 based on our new offer of mobile fusion with handset. ARPU. erosion should be lower in 2022, year on year, and continuing the trend that we're seeing quarter on quarter, and clear growth in digital services. This revenue growth, when you look at equipment and you look at some of the digital and IT services, comes with a lower margin. So we estimate that the margins in Spain to be in the high 30s for the year 2022. And it would be, and this links clearly with your question on OPEX phasing, we expect it to be a better performance in the second half than in the first half. Several things are underpinning this expectation from a commercial standpoint. As I was saying at tariff repositioning in the first quarter, will imply that we could have a muted quarter, but then this will improve the second half. The margin will be under pressure from energy prices. We are factoring in the first half a significant or relevant impact on this that will analyze from the second half, geopolitical situation allowing efficiencies in personnel will start. From February onwards, the second or the final part of the year will have also the benefit from the new La Liga deflation in the content cost. So we expect the second half to be with better traction than the first half. And with respect to CAPEX, you should expect a similar weight to 2021. I hope I've covered the moving parts that you were interested in in the OPEX and also a little bit on the top line in B2B.

Perfectly. If I could ask one quick follow-up. I know you don't use guidance, but assuming no major shifts in the market, and I appreciate there is uncertainty around energy prices, is it realistic to expect EBITDA to be sluggish before the end of this year? Is that achievable under some favorable circumstances?

Well, I commented that we expect slightly growing revenues and margins in the high 30s, so you can do the multiplications.

Thank you. Thank you. Our next question comes from the line of David Wright of Bank of America. Please go ahead.

Good morning, guys, and thanks for the very comprehensive presentation on ESG. Just on your comments, Jose Maria, on excess free cash flow to buy back or to potentially consider buybacks, you've obviously got the VMO2 recapitalizations due earlier than expected, I think. That was announced a few days ago, and obviously that would benefit your free cash flow this year. Is that the kind of excess free cash flow that you're defining here, or could we be talking about excess free cash flow from asset sales, for instance? When you talk about excess free cash flow, could you just elaborate a little on what that comprises? Thank you.

David, I will take the question if you don't mind. I think it's more a conceptual point of view. I mean, we are comfortable with our balance sheet. We have reinforced equity significantly. We have reduced net financial debt. We are fully committed to maintain our solid investment grade. But within all of that, if there are free cash flow, which is in excess, And it could be well from dividends from our JVs. It could be from potential tax impact upsides. It could be for inorganic deals. Although, as you know, inorganic deals are not moved by net debt reduction, but more for strategic value creation. We could devote that as a complement to our shareholder remuneration. So that could be the point. So far in the previous years, and mainly in 2020 and 2019, with a script dividend, free cash flow has been devoted mostly to, or all of it, to the leverage. So that would be the message behind.

Thank you for that, Laura. And if I could ask just a second question. I think you also, again, Jose Maria, just in your concluding remarks, you talked about some synergy impact from Brazil and the UK to support growth through the year. So just to clarify, there's no sort of synergy from Brazilian consolidation in the guidance. I'm pretty sure there is not. And then when could you expect that deal to be complete, and should we expect you to come out and amend guidance on the back of that? Thank you.

Hi, David. I will framework the question, and I will hand it over to Angel for more detail. The answer is yes, we are including synergies coming from the OE. acquisition in Brazil, as well as we are including in the guidance the synergy realization in the UK. For more detail in Brazil, I pass it over to Ángel.

Yes, we finally managed to align all those stars that had to be aligned, and we got all the approvals necessary for the Brazilian deal. We expect to close the deal in, we say, the first half of the year. We expect it to be as soon as possible within what is left of the first half of the year. As our colleagues in Brazil stated in their conference call yesterday, we will provide the full detail on the synergies estimations once we have closed the deal. Now the process of the split of the iMobile asset into three sub-assets want to be acquired by each one of the players is taking place, so we prefer to have the final full detailed picture of the asset to be bought. Also, you know, there are customary price adjustments to what we pay, so when we have the full detailed picture, which, again, we'll do as fast as possible within what is left of the first half of the year, we'll provide. I should say that We have had in the past substantial cases in Brazil where we have announced, delivered and over-delivered the synergies that we announced. It was in the GBT transaction also when we combined Vivo with Telespia after acquiring the 50% of Portugal Telecom. So the track record of delivering synergies and in the previous cases that I mentioned over-delivering the synergies are already in our track record.

I'm sorry, could I just clarify? I may be misunderstanding and I apologize, but your guidance says constant perimeter of consolidation, but you're telling us that there are synergies from the Brazilian deal in the guidance.

Yes, because we are not changing the perimeter. It's still vivo. I mean, we are acquiring customers and we are acquiring the spectrum. We are not acquiring a company.

Okay, thank you.

Thank you. Our next question comes from the line of Luigi Minerva of HSBC. Please go ahead.

Yes, good morning. Thanks for taking my questions. The first one is on your announcement about the cyber call in Spain. And I just wanted to just understand in principle whether you think that there is value in... setting up these frameworks with minority investors only when there is new footprint to deploy. So essentially what is the rationale in just focusing it on the rural areas? Is that because you want to deploy more there and that's why you are welcoming minority investors? And more broadly, I was wondering what is the end game with these frameworks fiber structures that you're putting in place, do you expect eventually to be completely out of these fiber vehicles or perhaps medium term you would like to buy out your co-investors? I presume the answer is different depending on the market, but I leave it to you. Thank you.

Hi, Luigi. We are setting the fiber going in in Spain in the format of a regional fiber going low density areas and not proceeding with other fiber projects in Spain. We are doing this because we think it's what would create the most attractive project for Telefónica and for potential investors. It's an industrial project, not a financial engineering one. It's a project that aims for growth, so this would be a growing fiber core, which is targeting steel and built areas. In these areas, there is a lower or even absolutely low risk of overbuild, and as a result, the fiber core should have higher percentages of take-up of premises. It's also a project that would be eligible for fiber subsidies from from the European funds and others. Of course, it will benefit from Telefónica Spain know-how in building and operating fiber networks, also Telefónica Spain being the anchor customer of this company. We are building it with a partial brownfield contribution and then a greenfield build to reach in excess of 5 million premises passed. With this initial brownfield contribution, the company has a cash flow profile that will allow potential investors to leverage their upstream BitCos while keeping a control level of debt at the FiberCo itself, because we plan to continue to control it accounting-wise, that FiberCo, and we do not want to contaminate the parents balance sheet and the ratings. And very importantly, this FIBERCO will be born with the ambition to trigger consolidation and rationalization of the ALNET FIBERCO space in Spain. So we think that this, alongside with the FIBERCO that we're launching with Liberty and BMO2 in the UK, these are the two most attractive projects for infrastructure investors nowadays in Europe. As you were asking, our fiber costs that we have in Germany, that we have in Brazil, in Chile, in Colombia, now in the UK and Spain are aiming for growth of investing in areas that are still uninvested because we think that it's the way to continue progressing in our infrastructure. We are the absolute leaders in fiber in Europe, and Jose Maria was explaining our position globally of leadership in fiber, but we also are mindful of the return on capital employed. Regarding the end game, you saw in the slide in the presentation the portfolio we have, or we are building, of different fiber costs. For us, fiber is technology of the future. All options will be open, but these are very attractive, valuable fiber co-assets whereby third-party investors will have put an objective level of valuation for each one of them. So we are creating value. We are creating growth. And at the same time, we are doing it very mindful of the return on capital employed.

Thank you very much.

Thank you. Our next question comes from the line of Pilar Rico of Credit Suisse. Please go ahead.

Buenos días, Laura, José María, Ángel. Muchas gracias por el call y por responder a mis preguntas. I have two on my side, please. So first, I had a question on the customer mix in Spain. You had previously given a number for the mix of low-mid, high-end customers in your retail base. Can you please provide an update on that? And could you tell us how much is O2 out of this mix and the impact of the S16 fusion product? So what would be the percentage of convergent customers now on O2? You announced the creation of the Fiverr call in Spain for low density areas. So what is your thinking regarding the creation of a Fiverr call for your entire Spanish business? Is this now off the table with today's announcement or is it still something that you would consider? Thank you.

Thank you, Pilar, on the mix of the convergent portfolio. We stopped disclosing this mix because we realized that what we were qualifying as high, medium, and low value would not correspond to what would be the corresponding ARPUs with respect to our competitors. So what we would be calling medium or low value would be the average ARPU of our following competitors. So we were kind of creating... first giving some commercially sensitive information to the market and also creating a categorization which was not consistent with the rest of the players. What I can say is that the convergent value mix is being supported by our strategy of combining more products in the bundle, including, for instance, the handset offering, the fiber speed, the data, the content, also with new B2C digital services that we are including as an ecosystem. There is, yes, some polarization in the market, so you should assume that the higher end where we are having, we continue to have, uh a higher traction compared to the rest of players and the low end which is very competitive are polarizing more so compared to to the medium but you know in the end the the result you can see the blended in the increase the sequential increase in arpu the reduction in in turn we have 1.37 it's the lowest Since 2017, we have the highest net promoter score, and we have widened the gap with our competitors. I can give you some figures regarding O2, yes. O2 has been contributing in the base positively, both in fixed broadband and in mobile post-pay. So this is... increasing our weight in what we used to call before the lower end of the spectrum. With respect to the big FiberCo, I don't know, José María, if you want to comment on that one.

Yeah, this is the FiberCo that we are announcing today. It's the FiberCo we are executing in Spain. All other projects are finalized, are postponed. So this is the Fiber project in Spain.

Thank you. Thank you. Thank you. Our next question comes from the line of Fernando Cordero of Banco Santander. Please go ahead.

Hello and thanks for taking my two questions. The first one is more on the, let's say, on the short term. And I would like to understand how do you see the wholesale revenue flow evolving in the Spanish market? You have already given some guidance on the whole Spanish operations but just to understand how the wholesale has and could be evolving considering the some deceleration that we have seen in the fourth quarter. And also the second question with a more longer term view, and coming back to the discussion on the end game on the different fiber costs, you're already having right now, let's say different JVs or different potential dividend sources in the future. And I would like to understand, although it is not going to be a fact in the short term, given the capacity effort, but what is your outlook or what is your expectation regarding the potential dividend flow to come from the different fiber costs that you are having right now in Chile, in Colombia, in Brazil, in Germany? So in that sense, trying to understand what could be the potential contribution to the Tricash flow, also considering the inclusion and relevance of dividends from JVs. Thank you.

Hello, Fernando. With respect to the wholesale revenues, we expect them to remain rather stable in 2022. We have a growing MVNO. We continue to see traction in the fiber wholesale. Important, you know, with pandemic becoming an endemic, there should be further roaming reactivation. And On the contrary, we will have the same way that we have lower content cost from La Liga. We will have lower resale of TV revenues compared to the seasons where we had the full La Liga content to be resolved. And with respect to the cash flow profile of the different fiber costs, now they are in the investment phase. So and second, as you can see in the slide that we have described the fiber cost and let me go, it's slide number 11, number 13. We have different levels of ownership of this fiber cost. So UGE which is 50% owned by, Allianz and 50% owned by Telefonica, split between Telefonica Infra and Telefonica Deutschland. This is fully ring-fenced from the parent, financially, rating-wise, and so on, and it's in the investment phase. So it's a company in which we are still for some time in the investment phase. Five Brazil, which is 50% CDPQ, and the other 50% split equally between Telefónica Brasil and Telefónica Infra. It's a company that was created with the contribution of Brownfield, partially did an acquisition, and the rest is being financed mostly from the funds contributed by CDPQ and leverage, and Telefónica Group contribution was the Brownfield we did initially. So this, again, it's reinfenced, it's not For us, we should not have additional contribution. On the Chilean and Colombian fibercores, KKR is leading those companies. We are a minority shareholder. And with respect to the Spanish fibercore we are announcing today, as I said, it will start with significant brownfield contribution that will be cash generation from the beginning. and it will be able to access fiber development subsidies. So this is not going to be cash consuming for the group in any significant way. And the Greenfield JV 5050 in the UK, it's early days. We need to see in the discussion with potential investors what will be. But in the scenarios that we are designing, The equity ticket is quite limited for the promoters, Liberty Global and ourselves. These will be assets that we'll need to develop over the coming years. Here we are looking at this stage to capture growth and to improve even further the leadership positions that we have in Ultra-Europa and in several of these markets. So it's still early to say and to project cash flow distribution from these companies.

Okay. Thank you. Very clear.

Thank you. And our next question comes from the line of Stan Noel of Bernstein. Please go ahead.

Good morning. I've got two questions. The first one is about your portfolio strategies. In the presentation, you showed quite a long menu of infra-optionalities. You had a slide on Telefónica Tech. I assume you're still working on reducing exposure and e-spam. Maybe can you remind us what is your portfolio strategy and what are your top priorities? And the second question is about the open letter that you published in the Financial Times last week, along with the other European tech groups, along with other CEOs. In this letter, you're asking for the network investment burden to be shared in a more proportionate way with the few digital content platforms who account for the majority of traffic on your networks. I was wondering what specific business model do you have in mind to implement and what's the likelihood that regulators will allow you to go ahead? Thank you.

On the strategy, we remain very focused on the five pillars of action that we announced back in November 19. The first one focused on our four core markets, being Spain, Brazil, the UK, and Germany, reducing capital or optimizing our capital exposure to Latin America. The third one being Telefonica Infra, the fourth being Telefonica Tech, and the fifth being a leaner and more digitized operational model. So we stick to what we announced back in November 19, and everything we do, you should framework that on those five pillars of action. And therefore, we have been accelerating the execution over the last two years in spite of COVID. And we are really, really focused on that. And in terms of the overall regulatory situation or the overall regulatory view, COVID has accelerated digitalization everywhere. And in fact, data volumes have been growing 50% recurrently year on year. Out of that growth, More than 70% of that growth is coming from video streaming and is coming from social networks. And therefore, what we are saying is that in Europe, namely, the pressure on investment, the pressure on return on capital, on returns, and the pressure on cost of capital needs an urgent decision. Europe needs an industrial policy. And therefore, I think that the way to measure relevant markets is wrong. I think that now we are no longer competing with traditional ecosystem. We are competing with an enhanced and amplified ecosystem. And I'm going to give you an example. In the case of Spain, we are supposed to be a dominant player on the pay TV market because according to the local regulator, there are roughly 6 point something billion pay TV customers in Spain, and we have more than 50% of the market share. The reality of the Spanish market is that there are more than eight additional pay tv customers coming from streaming platforms and therefore the total market size is not six point something million is more than 15 million and therefore we are no longer the dominant player and we have some restrictions several restrictions on our commercial offer so our position is that time has come for a change that we need to be aware that the european sector needs a revamp and that reason is that this famous consolidation of 4 to 3 is no longer 4 to 3. It might be from 100 to 99. So that's our position. And I think that the COVID and the pandemic has accelerated this controversy, has accelerated this anomaly on the market. So that's our position, and that's where we see regulators' mindset evolving.

Thank you.

OK, thank you, Stan. I'm sorry you have no time for further questions. I will now hand over to Jose Maria for closing remarks. Thank you.

I hope we have been able to provide you enough information through the slides and through the Q&A session. In any case, should you have further questions, please contact our IR department. And thank you very much for your interest in our company. Thank you.