Telefonica Brasil S.A.

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Telefonica Brasil 34th of 2019 earnings conference call. Today with us, representing the management of Telefonica Brasil, we have Mr. Christian Gebara, CEO of the company, Mr. Davi Melcon, CFO and Investor Relations Officer, and Mr. Luiz Plaster, IR Director. We also have a simultaneous webcast with the slide presentation on the internet that can be accessed on the site www.telefonica.com.br.ir There will be a replay facility for this call on the website. After the company's remarks are over, there will be a question and answer section. At that time, further instructions will be given. Should any participant need assistance during this call, Please press star zero for an operator. Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the company's management beliefs and assumptions on the information currently available. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the company's future results and could cause results to differ materially from those expressed in such forward-looking statements. Now, I will turn the conference over to Mr. Luiz Blaster, Investor Relations Director of Telefonica Brasil. Mr. Blaster, you may begin your conference.

Good morning, everybody, and thank you for joining us in this conference call for Telefonica Brasil's 2019 Third Quarter Results. The call, as usual, will be divided as follows. To start, Christian Gebara, our CEO, will give you an overall view of our operating and financial performance for the third quarter of the year, and then go over our commercial and CAPEX evolution in more detail. Then, our CFO, David Melcon, will comment on our digitalization initiatives, efficiency, and financial results. We will then move to Q&A. I now pass the word to Christian.

Thank you, Blaster. Good morning, everyone, and thank you for taking part in our third quarter 2019 results call. I start by commenting on the highlights on slide three. The growth of everything related to fiber continues to accelerate, and in the third quarter, our FTTH customer base grew 34% year-over-year, while revenues grew 44.5%. More and more, fiber is proving to be a key catalyst in the transformation of our fixed business, and it will drive sustainable revenue growth in the future. In mobile, our postpaid customer base grew 7.3% year-over-year, and our premium position and superior customer experience allow us to raise prices again, taking postpaid revenue growth to 6.8% year-over-year. Total revenues were up 2.6%, the highest growth in three years, driven by mobile service revenues that grew 4.6% year-over-year. In terms of costs, We continue to see room for the reduction of non-quality costs by leveraging on digitalization and simplification initiatives. In the third quarter, recurring costs remained under control, increasing 0.6% year-over-year when excluding the cost of handsets, and our recurring EBITDA was 2.8% higher. Finally, we continue to deliver outstanding cash generation and shareholder remuneration. Free cash flow expanded close to 15% year-over-year, reaching R$ 5.6 billion, and our dividend yield stands at 6.7% for the last 12 months. Moving to slide 4, we present the results of our mobile revenues in the third quarter that grew 6.6% year-over-year, including handset sales. If we exclude handsets, mobile service revenues increased 4.6%. The key driver of this growth was the evolution of post-paid revenues that grew 6.8%, benefited mainly by price increases and solid net ads, especially in hybrids. In prepaid, we continue to improve the monetization of our customer base and are seeing encouraging results as demonstrated by the constant recovery since the beginning of the year. Our handset business is also outperforming. The sales of higher value smartphones continue to increase. Stimulating the adoption of 4G and we have been able to reduce subsidies, improving the profitability of this business. On flight 5, we see that our overall leadership in mobile increased to 32.3% market share and many consider only post-paid customers 39.8%. Our superior competitive position allows us to maintain a rational strategy and increase prices across all sectors. and show in the graph on the top right. The result is an output increase of 6.4% and limited impact on churn. I would also like to point out the pace at which data consumption is advancing, with gigabytes of use per customer growing 39% on a yearly basis. Data usage is quickly migrating towards 4G, where we see a yearly increase of 93% in traffic, already representing 71%, This is relevant because it confirms that consumption continues to motivate the upselling of our services in line with our more-for-more approach. Moving to our fixed business, Ons Like Six. For the first time in the company's history, revenues from growing fixed business surpassed legacy revenues. The main driver has been broadband, which, as seen in the previous quarter, represents more than voice now. This change in revenue mix combined with sustainable fiber growth confirms that we are on the right track to stabilize fixed revenues and resume growth in the near future. In the quarter, fixed revenues dropped 3.9% year-over-year, impacted by a recent decision to stop commercializing satellite television, which improves the company's profitability, and the consistent decline of exploits also impacted the results. FTTH and IPTV revenues now represent almost 20% of overall fixed revenues, with FTTH reaching R$ 531 million, growing 44% year-over-year, and IPTV R$ 227 million, increasing 26% year-over-year. On slide 7, you can see that our fixed customer base continues to migrate towards our high-value fiber products. as we accelerate our FTTH deployment. In the third quarter, FTTH access grew 34% and now represents a third of our broadband customer base, a 10 percentage point increase versus a year ago. As a result, broadband ARPU increased 12% EOV year to 66 reais, continuing the trend of double-digit increases from the previous quarters. Furthermore, we continue with our rational strategy and have just raised price for FTTH at the beginning of November. On the right-hand side of the slide, you can see that our IPTV business is also performing very well. IPTV access increased 27% year-over-year and now represents almost half of our overall PTP customer base, contributing to an upward improvement of 4% year-over-year to 106 reais. Now moving to slide eight. In the first nine months of the year, we deployed FTTH in 33 new cities, result of our accelerated deployment in comparison to previous years. In the third quarter of 2019, we took our FTTH network to 12 new cities, summing up to a total of 154 cities. The cities launched this year are showing better than expected results, as uptake is higher than planned. We are not only expanding our footprint to cities that don't have our fixed services, but also to cities where we already provide FTTC. Therefore, overlaying such technology with FTTH to defend and upgrade our customer base. In fact, FTTH output is 27% higher than FTTC and 36% higher than XDSL. These movements are contributing to an increased proportion of FTTH homes passed over. Over our total fiber footprint. We ended the third quarter with 10.2 million FTTH HPs on past, representing 49% of our 20.7 million fiber on past. Moving to slide 9, you can see that apart from the expansion that we have been doing for our own resources, which has already proved to be a success, we are implementing alternative models of FTTH deployment. that will allow us to further enhance our footprint with lower capex impact. One of the models being rolled out is a partnership with American Tower. This partnership targets the construction of more than 40 new cities in the state of Minas Gerais with a potential of around 800,000 home paths to be built over three years. Capex deployed in the rollout will be done by American Tower, which will also operate the home's fast infrastructure. Vivo will be responsible for the investment in customer premises and commercialize connectivity using the Vivo Vibra brand. In terms of profitability, this model is a creative and will lead to relevant operating cash flow generation. The other model being implemented is based on franchising. Here we are targeted to roll out FTTH in new cities and additional neighborhoods of cities where we already operate by selling franchises to third parties. The franchisee will exclusively build and operate the entire network, meaning that Vivo does not deploy any capital in the expansion. The franchisee will be responsible for customer relationship and pay as a royalty fee based on gross revenues. In return, will provide the franchisee our know-how, backbone, call center, scaled suppliers, among other advantages. The Terra brand, powered by Vivo Fibra, will be used to commercialize the product. These movements are important as they enable us to reach a relevant number of additional new cities and neighborhoods with UBB service, creating a further source of revenue and protecting our high-value mobile customer base. On slide 10. You can see that our investment amounted to R$ 2.4 billion in the third quarter of 2019, totaling R$ 6.5 billion in the year, a growth of 6.7% in the period. Our CapEx execution is in line with the guidance provided for the year, which considers an accelerated expansion of our FTTH footprint. Investments in Fiverr increased 25% EOV year, amplifying our presence to 255 cities with FTX. In addition, capex related to improving the quality and coverage of 4G and 4.5G continues to rise, growing 45% EOV year. To conclude, we continue to work closely with TIM to develop our network sharing initiative and are confident that the results will be very positive. The discussions so far are showing a relevant potential for OPEX and CAPEX optimization across more than one technology, and I will share details with you as soon as possible. I now pass it on to our CFO, David Melvo.

Good morning, everyone, and thank you, Christian. Moving to slide 11, we continue to be very efficient in managing costs. Leveraging on digitalization and simplification processes that benefit not only our results, but also our customer experience. In the third quarter of 2018, our operating expenses rose 2.5%, below inflation of 2.9% in the period, which led us to expand our EBITDA margin to 36.2%. Costs continue to be impacted by our strategy of accelerating handset sales. Excluding the cost of goods sold, which grew 22%, our expenses increased only 0.6% year-over-year. Personal costs, which represent 30% of total OPEX, decreased 0.2% as a result of the organizational restructuring and automation of processes carried out in the last 12 months. Costs of services rendered, which account for 41% of total OPEX, increased 6% year-over-year. as a result of defacing from higher network expansion costs. Commercial expenses, excluding bad debt, decreased 3.5% in the period as the ongoing digitalization of our customer relationship contributes to reduced costs with call centers, back office, billing and posting. In the third quarter of 2019, commercial expenses represent 24.6% of our total OPEC. Moving to slide 12, the digitalization and automation process continues to improve our customer experience and help us to capture cost efficiencies in both front and back offices. Our front office initiatives presented positive evolution, with e-peeling penetration expanding to 65%, an increase of 24% year-over-year, while 51% of payments are already done on e-care platforms. The Vivo app increases user base by 14% and alongside with Aura, which is Vivo artificial intelligence, reduces the need to reach a human call center by 20% year over year. We are also constantly developing solutions to improve technical support. Today, 40% of all technical support is digital and 41% of queries related to our fixed service are solved remotely. At the same time, we are starting to work on the automation of a number of back office initiatives that can produce further cost savings and optimization. Among other initiatives, we are using robots to contact customers with overdue bills, to schedule and confirm technical repairs, and to run failure tests to prevent unproductive visits. These initiatives are allowing us to significantly reduce related back office and non-quality costs. Now moving to slide 13. Accumulated net income for the first nine months of 2018 reached 3.9 billion reais, 2.6% higher than a year ago in our current basis. The evolution was driven by EVDA expansion boosted by revenue growth and disciplined cost evolution. Improved financial results related to lower debts and reduced tax expenses backed up by an efficient financial management. Turning to slide 14, in the first nine months of 2018, free cash flow grew 50% year-over-year, reaching 5.6 billion reais, even during a higher capex cycle as a result of lower interest and income tax payments and improved working capital. Our expressive cash flow generation allows us to continue expanding our investment in top-shared technologies such as fiber and 4.5G technology. Thank you and now we can move to the Q&A.

Thank you. The floor is now open for questions. If you have a question, please press star 1. If at any point your question is answered, you may remove yourself from the queue by pressing star 2. In case you are following the conference call via webcast, please click on the question to the host to send your question. Questions will be taken in the order they are received. We do ask that when you pose your question, that will pick up your handset to provide optimum sound quality. Our first question comes from Mr. Rodrigo Villanueva, Merrill Lynch.

Yes, thank you. Good morning, Christian, David, Plaster. Thank you for taking our question. My question is actually related to wireless ARPU. It increased by 6% year-on-year during the third quarter. And as far as I understand, price increases over the last 12 months have not applied yet to the entire subscriber base. So the question is, when would you expect higher prices to apply to the whole base, and which would you expect to be the impact on ARPU? That would be my first question. Thank you.

Hi, Rodrigo. This is Christian. Yes, you're right, we increased price. We increased price in all segments of the mobile, and postpaid, hybrid, and prepaid. Yes, it was applied for the whole customer base. There may be in some prices that were related to acquisition in the prepaid. That's only when you acquire a new customer that may be the gigachip, but all the rest was applied to the whole customer base, and the impact was already seen the last month of the quarter.

Understood, Christian. Very clear. Thank you. And my second question is related to a recent JV with American Tower and the franchising scheme that you just announced. Is it possible for you to share with us the economics of these alternative schemes in terms of revenue and margin on a per-home connected basis? Thank you.

Rodrigo, this is a partnership, so we cannot share the details of the deal. What I can tell you is what I briefly explained. We talked about two new models. I think in the previous calls, we always mentioned that we were studying alternative models to deploy fiber. So, we are giving here two concrete examples. I think you referred to the American Tower one. This one is in Minas Gerais. We are talking of around 40 cities. The total of 800,000 home paths in the period of three years. American Tower is responsible for building the home paths. There's a variable cost associated to the connection of each of the customers that we pay to American Tower. And that's, I think, all what I can share with you at the moment. So if you have any further questions, specific questions, our team can share. But we cannot talk about economics. The good thing here is that we will be able to deploy fiber with more speed. Thank you very much, Christian.

Next question comes from Diego Aragão, Goldman Sachs.

Yes, good morning, everybody. Thank you for taking my question. Christian, I guess the question is for you. You have been very vocal about the new areas and new opportunities that, you know, in this digital context, Vivo can explore to find new sources of revenue. For instance, you recently launched a credit line for consumers In order to leverage your customers profiling, you also launched these new business models to sell FTTH into new regions. So I guess the first question is, how fast do you think top line can grow and benefit from these new initiatives in the next, let's say, three years? Thank you.

Thank you for the question, Diego. So, yeah, you're right. We are looking for a new source of revenues. I think our strategy is based on that. I think you mentioned two different models. One is partnering with other companies to deploy more infrastructure. So we gave two concrete examples, the franchise model. and the American Tower that I just described to Rodrigo. The franchise is also partnership with many other third parties that are willing to deploy fiber network. As we see, there are many small companies in Brazil, so what we want to offer these companies is our expertise, our scale, our brands, and to help them deploy this fiber in cities that we cannot reach. And that is a good idea for bringing digitalization to cities Thank you very much. and we want to go further with the strategy. We don't give a specific number for this, but I think that allows us not only to increase our revenues, For our digital servers, but also to make our customers more loyal, and I think churn has been showing that, that we have a very controlled churn, even when we increase price above competition, and that happens in all segments, post-paid, hybrid, and prepaid. And in the B2B, we are seeing important deals also with big companies, large companies like Cisco, Microsoft, among others, Thank you, Christian. And I guess my second question is regarding opportunities and cost-efficiency.

Maybe David can help me with this one. As your margins continue to improve, driven by digitalization, and you already have a very healthier, let's say, cash flow profile, which is growing, let's say, about 10% on an early basis, would you consider to speed up investments in order to address the pent-up demand for data connectivity, either in the fixed business or the mobile business? Thank you.

Hi Diego, this is David. Thank you for your question. Just to give you just an introduction about what's going on here, about initiatives to continue to have economic savings in digitalization. In the first quarter, we were talking about a target of 1.6 billion reais that we were expecting to capture between 2018 and 2021. And we are fully on track. So the first quarter, we were already capturing around 36% of the total. Now we are closer to 40%. And now we are seeing that, as we explained about all the robots and all the digital initiatives, we are going beyond what we were initially planning. The scope of digitalization now is we are enhancing this scope. We are seeing that particularly when we talk about the network, which is going to be one of our key investments for the next few years, that means that we are going to have savings not only our existing cost base, But this new strategy is going to allow us to capture some savings that will be cost avoidance, we could say. Because, I mean, Brazil is like a size of a continent. So deploying fiber using analytics is going to provide even more and more savings. So we are expecting to continue having the same discipline that we have shown so far, having almost three years reducing costs over a quarter of a year. and this is the strategy that we are planning. So we could see continuously this trend in our finances.

I think here, only to complement Diego and what David just mentioned, I think digitalization is key for us. I think we've been seeing the penetration of our e-care app growing year over year. Also, we see the cognitive platform that we're deploying here in Brazil for Vivo with results not only in our digital channels but also in the call centers. And going forward, I think we're going to expand all these initiatives to bring more OPEX production. At the same time, I think for the first question that you just also asked us, we're going to do more partnerships. Also, of course, the margins of some of the services will be different because in some of them we're paying revenue share or we're sharing with a partner our results different from our legacy products where we had 100% of the benefits. So I think we should focus more in EBITDA growth Thank you very much, Christian. And maybe just a follow-up question on this. I mean, if you would benefit 100% of those digital initiatives

How far do you think margins can go? I mean, without passing any benefit to price and to consumers, just capturing 100% of the digital initiatives, how far do you think your EBITDA margins can go? Thank you.

Diego, we don't give guidance in margins. As I said, our focus is growing revenues and growing OIBDA. So I think our strategy would be driven by that. No two targets. No growing revenues and growing OIBDA. But we cannot give you a guidance on the margin.

Okay. Thank you. Next question comes from Marcelo Biliard Barclays.

Yes, good morning, Mathieu Robillard. I had two questions, please. First, in B2B, very strong growth in the fixed business in Q3. And I was wondering if those kind of growth rates are sustainable. I do understand that, you know, there's some big contracts signed from one quarter to another. But generally, do you expect that sector or rather that segment to continue to grow at least high single digits? And I don't know if you can answer to that, but back to the margin question. I mean, is there a big difference in margins when you generate revenues there compared to the core fix? And then the second question was, you laid out quite a number of initiatives to stimulate growth in fix with a number of partners. Is it realistic to assume that within 12-24 months the fixed business could stabilize thanks to all these initiatives and also the different price increases you're putting through?

So, Matthew, this is Christian again. So, I want to share with you as much as we can in B2B because we don't open up so much the numbers. But you're right, B2B revenues are recovering and we are having good results in the fix. I think the fix business in B2B is being driven by also our fiber deployment. So, I think we are doing fiber deployment with a much more focus in B2B that was done in the past. So, when we enter a new city, we also focus on areas where we see B2B customers. So, not only for the fiber, but also for advanced data, corporate data that we leverage on the fiber penetration that we have there. Apart from the fiber itself, as I also said, we have been very successful partnering with other IT players and selling services related to the fixed business industry. Both services and hardware that leverage our presence in these places. So we are selling a lot of cloud security services and hardware that also improving our results for B2B. So we are positive and optimistic and also the recovery in the economy is also helping these companies to decide about investments that were postponed in the past. Talking about the fixed business, I think it's your second question. We are, again, we are here trying to get the balance of new services that are the fiber, corporate data, broadband in general, against voice and DTH. So today, this is the good ones. Now the future ones are growing around 15%. and we expect it to continue to grow and while we have this growth there and we have a more controlled decline in what we call legacy, we assume that next year we're going to have a positive result for fixed business. In general, B2C, B2B. We don't give a precise month, but we see the trend as positive as we deploy more fiber, we leverage the corporate data Thank you very much. Next question comes from Mr. Daniel Seders, Heidi Suisse.

Good morning, everyone. Thank you very much for taking my questions. The first one is regarding the mobile business. The company has been very successful in passing through price increases. My question is if that should continue to be an important pillar for further revenues growth, and if the higher bad debt in the third quarter is in any sense a yellow flag for a future churn. And the second question regarding potential financial services. Actually, we saw the company launching the Vivo Money a few months ago. And my question is, what's the ambition of the company in this segment? And also, if you could see eventually VivoPay or any payment solution in the future. Thank you.

So, Daniel, this is Christian. We will let the last one of MadNet to the V. I will answer the other two questions. Okay. In the mobile, I think we see still there's opportunity to migrate customers from prepaid to hybrid and hybrid to postpaid and also to penetrate more with 4G. And once you penetrate more with 4G, you have more data consumption. And then I also leverage more in our partnerships to offer something different. Our customers have better proposition that is differentiated. We don't see price increase as the key strategy going forward since we have like an inflation that is much lower than it was before. So here now we are looking for other ways to give our differentiation opportunity. Thank you very much. Thank you. Regarding money, it's one of the initiatives that we have in financial services and other digital services. It's not the key one or the main one. We are piloting something right now. We are planning to do something more concrete next year. Here, what we want to do is to leverage on the footprint that we have as a company with the channel that reaches many places that other channels don't reach. We have a very strong brand that gives a lot of credibility to the customer who wants to borrow money. And then we have information of some customers that are our prepaid customers but doesn't have a bank account. So we want to leverage on that to be much more assertive and positive in providing credit to these customers. So again, it's a pilot. We see other opportunities in the fintech arena. We are not repeating now because it's part of our strategy going forward, but we see that we have strengths that are our footprint, brands, data that we should leverage, not only for financial service, but also for other digital services. I don't know if I answered these two questions, Daniel, and you pass to David for the bad debt.

Hi, Daniel, this is David. I will take the question about the bad debt. So, first of all, it's important to look at commercial costs as a whole, which includes the provision for bad debt, and which is It's dropping, reducing year by year. But even when we drill down into the budget number, we see that it's primarily linked to the acceleration of post-pay services, mainly mobile, post-pay, with revenues and subscribers that are going up more than 7%. So we continue to see analytics for a great scoring process and taking a control of financial risks. And we have a very high margin in those services, not subsidies for customer acquisition, and we blow back commercial commissions. We believe the greatest scoring model is accretive, and it allows us to keep growing market share at the same time that we're increasing our profitability. So if you look to the ratio of ATF with gross revenues, we see that full year we have 2.5%, and in the third quarter it's in line, something like 2.7%. So there is nothing to worry here, and we do not believe it's any indicator that there could be an increase in share. So nothing... Nothing additional to remark.

Perfect. Thank you, Christian and David.

Next question comes from Fred Mendesco.

Hi, good morning, and thanks for taking my question. It's actually Guilherme Hagiara here. My first one is on wireless. We have seen more active price increases in recent months, and we appreciate the details you provided in the slide and the speech. And we were just wondering, how are you seeing competitors react to your pricing strategy? And if we can expect more rationality, not only for postpaid, but also for the prepaid segments going into 2020?

Guillermo, thanks for the question. As I said, now we've been moving prices in all segments. Now, as we showed in our presentation, we increased price in postpaid segments. Thank you very much. In the pre-pre-entrant offer that we had, GigaChip, that we increased 25%. Yes, I expect competitors to be more rational. It's difficult to point out who is being more and who is not being so. I think you follow the market and you know the difference between the offers that we have among all of our players. And also important to highlight that sometimes price can be comparable, but some competitors are giving off-nets and full access to social network that I think is a strong benefit especially for prepaid. We should be more rational there controlling the usage of social network and off-net calls. And again, we are being positive that we need to be more rational and should increase prices In all segments, once you move the prepaid, you are able to move the hybrid and then you move the pure plus paid. If you don't move the prepaid, your ability to move the hybrid is limited. And for consequence, the ability to move the pure plus paid is also limited. So we should move in all directions. If you consider the $9.99 weekly offer, We've been with this price point for a long time, and we see now competitors offer off-net calls and full access to social networks with the same price point. So again, expecting everyone to be more rational. We saw some movements from some of them, but not from all of them.

Okay, thanks. That's very clear. And my second question on the cost side. We have seen some pickup in the cost related to your network expansion efforts and we understand it's linked to the acceleration of your investments over the past quarters. And we were just wondering how much more can this line slightly pressure results going forward? If the other efficiency and your digitalization initiatives should continue to be able to offset this, not only in the fourth quarter, but also looking into next year.

Hi, Guillermo. He's David. Just actually a question about the evolution of the cost of strategic rent, which is mainly, as you say, is mainly impacted by the network expansion. So we are, as you know, we are accelerating deployment of both Fiverr, A mobile capacity 4.5G. So this is increasing part of our costs, but mainly we have a nationality and facing quarter over quarter. So for example, this quarter we are growing 6%, but if you look to the previous quarter, which was the second quarter, these costs were down 2.4%. So here we are seeing economies from this scale. for being part of Telefonica Group and also for deploying the network using also again analytics and so on. So this is helping us to keep growing revenues at the same time. We have been talking about margin. We have been talking about also being more efficient. So this will be one of the levers to continue improving ROVDA over the next few quarters in the future. So nothing additional to talk here, but this is Next question comes from Susana Salero, Itaú.

Hi, guys. Good morning. Thank you for taking our questions. The first question, if you could elaborate a bit more on the MOU with TIM. If you could give us an idea of how much CapEx or OAPs you expect to save from this partnership or this combination of infrastructure, that would be our first question. The second question would be related to handset sales. If you could give us a guidance or give us an idea of if the margin currently is already neutral in terms of EBITDA or if it's still slightly negative in terms of That's it, guys. Thank you.

Hi, Susana. This is Christian. As I said, we've been working with the team in the last 60 days in the MOU. We've been very positive and optimistic about the results. As you remember, the MOU has more than one area. One is the 2G network. and the other one is more a full technology in cities smaller than 30,000 inhabitants. We evolved very well in one and still working on the second, so that's why we decided to postpone another 60 days our MOU to be able to present a full result of this agreement. So at this moment we cannot share more than what I shared. We've seen that it's promising. We progress well, and we still have some work to do, especially in the full technology sharing for smaller cities. Hopefully, the next call, for the end of the year, we're going to be able to share more. Regarding handsets, again, there are two types of sales. The sales for pure post-paid customers, that in this sense we're giving subsidies so you know the margin it's different to calculate because we are like keeping the customer loyal and there is the revenue coming from the service but also we are expanding our penetration in customers that we don't sell with subsidies and this one the margin is positive so we don't give a specific number adding up these two type of customers but we are growing in the ones that we don't give subsidies and we are reducing services in general. So the business itself, it is good and positive for us, but we don't give the detail.

And also, Susana, this is David Melcon. Just to compliment here on the network and also the previous question from Guillermo, the MOU team has also allowed us to protect the costs of maintaining our network, particularly being more efficient and particularly in small cities. and all technology, which is one of the key topics that we are covering here with the network sharing with the team.

Perfect. Very clear. Thank you.

Again, to ask a question, please press Start 1. This concludes the question and answer section. At this time, I would like to turn the floor back to Mr. Christian Gebara for any closing remarks.

Okay, so thank you for everyone for participating in the call. I hope to see you in all the events that we have scheduled for the next weeks. And if you have any additional questions, our team is here ready to answer all of them. Otherwise, I see you soon or in the next call for the end of the year results. So thank you, everyone.

Thank you. This concludes today's Telefonica Brasil 3Q19 Results Conference Call. You may disconnect your lines at this time. Have a great day.