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.