Telefonica Brasil S.A.

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Telefonica Brasil 30th Quarter of 2020 earnings conference call. Today with us, representing the management of Telefonica Brasil, we have Mr. Christian Gebara, CEO of the company, Mr. David Melcon, CFO and Investor Relations Officer, and Mr. Luis Plaster, IR Director. We also have a simultaneous webcast with slide presentation on the internet that can be accessed at the site www.telefonica.com.br. 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 the time, further instructions will be given. Should any participant need assistance during this conference, please press Start Zero for an operator. Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Security Litigation Reform Act of 1996. Forward-looking statements are based on the company's management beliefs and assumptions and on information currently available. Forward-looking statements are not guarantees of performance. They involve risks, 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. Luis Plaster, Investor Relations Director of Telefónica Brasil. Mr. Plaster, please begin your conference.

Thank you. Good morning and welcome to Telefonica Brasil's conference call to discuss third quarter 2020 results. The call will be divided as follows. First, our CEO, Christian Gebara, will comment on our operational performance and give an update on the steady recovery of our top line. Then, he will go over our commercial initiatives and accelerated FTTA expansion. Then, our CFO, David Melcon, will comment on cost management, investments, and financial highlights. To conclude, Christian will comment on our ongoing ESG initiatives and then move to the Q&A session. Now I hand over to Christian.

Thank you, Blaster. Good morning, everyone. Thank you for taking the time to attend the third quarter 2020 earnings call. I would like to start by talking about PIVO's strong operating performance in key segments that confirms our consistent operating improvement and our once again robust cash flow generation. In mobile, people's leading position in terms of quality and customer experience resulted in 844,000 postpaid net additions. Currently, our postpaid customer base accounts for almost 60% of our total mobile access. In this quarter, we also posted another set of impressive additions in Fiverr, a key lever for future revenue growth. that saw record net ads for the third quarter in a row, with 267,000 new customers, reaching 3.1 million homes connected. As you can see on the right-hand side of the slide, our mobile service revenues fell minus 1% year over year, and the impact of temporary confinement measures still lingers in some segments of our business. On the other hand, The same line grew 3.3% quarter-over-quarter, which supports our more optimistic view that this atypical effect will soon have less impact on our operations. Our fiber revenues made up of FTTH and IPTV increased 47.3% year-over-year and 14.5% quarter-over-quarter. This impressive evolution is fueled by our efforts to expand our fiber footprint and the strength of the product that proved its unique value in terms of best-in-class connectivity for our customers. Shifting to cost, we remain focused on our digitalization and simplification initiatives that helped to reduce recurring costs by 3.4% year-over-year, taking the EBITDA margin to 40%, advancing .3 percentage points quarter over quarter. Lastly, driven by the resilience of the business and our efficient and rational capital allocation, we registered solid cash flows throughout the year, boasting 7.5 billion reais in operating cash flow until September, expanding the margin 3.4 percentage points year over year to 23.5%. By aligning that with efficient financial management, we were able to deliver R$ 8.9 billion of free cash flow, 50% higher than the same period of the previous year. In fact, in the first nine months of 2020, we reached a higher level of free cash flow than in all 2019. On slide 4, I would like to show how Vivo has been able to consistently recover its revenue through its crucial role In the delivery of high-quality connectivity. Post-paid revenues showed an evolution of 1.2% compared to second quarter 2020, as net additions started to recover with the opening of stores and prepaid continues its sharp advance, increasing revenues by 13% quarter over quarter. In our fixed business, FTT sales continue to outperform and many more, growing 16.8% quarter-over-quarter, supported by the expansion of our fiber footprint that continues at full speed. Finally, handset sales rose 90.3% in comparison to the second quarter of 2020, since almost all our stores are now open. All things considered, we can see that Vivos' value On slide 5, you can see that our total mobile revenues remain stable, as we continue to feel the impacts of temporary confinement measures that were partially offset by the positive evolution of handset sales and prepaid. Headset revenues increased 10.1% year-over-year as the impact of the pandemic on stores operations started to ease. Mobile service revenues fell minus 1%, mainly because of a difficult compared space versus the third quarter of 2019, when we implemented significant price increases at the beginning of the and the rest of the team. Moving to the right-hand side of the slide, we show the post-paid that accounts for 57% of access and 80% of mobile service revenue is seen ARPU recover to prepaid COVID levels as we continue with our more-for-more strategy. Prepaid, which accounts for 43% of mobile access and 20% of mobile service revenue, shows ARPU growth to levels above first quarter trends and a strong level of net additions We allow for higher migration to postpaid going forward. Moving to slide 6. In the third quarter of 2020, we again reaffirmed our mobile leadership, supported by our superior consumer experience and quality of service. Our overall mobile market share stood at 33.3%, the highest in the last 14 years, and we had a significant improvement in postpaid churn that reduced Thank you very much. Postpaid reverted last quarter's trend of disconnections and posted strong additions in Q3. 427,000 as commercial activity started to pick up and migrations from pre- to postpaid posted stronger results. On slide 7, we show that our fixed revenues dropped minus 6.6% because of the maturity of voice. Our strategic decision to stop selling DTHB TV and CAPEX optimization for copper-based services. On the other hand, we see very positive trends in fiber business that continues to transform the mix. On the right-hand side of the slide, you can see that growing businesses were up 8.3%, increasing their relevance over fixed revenues, and now account for 60% of the total. This trend shows why we are confident that this segment will be the driver of future growth. Our FTTH and IPTV revenues confirm the success of our accelerated fiber deployment. FTTH revenues were up 56% year-over-year, while IPTV were up 26.9%, resulting in a combined growth of 47.3%. Now moving to slide eight. Our getting edge fiber products continue to attract more and more customers. As a result, we posted record FTTHnet additions for the third quarter in a row that now represent half of our broadband customer base. FTTHnet has totaled 267,000 in the third quarter of 2020, reaching 3.1 million access, a 34% year-over-year increase. Broadband ARPU rose 17% year-over-year to R$ 77.7, as FTTH customers have significantly higher ARPU than those from other corporate-based technologies. Moving to the right-hand side of the slide represents the growth of our IPTV business. IPTV access increased 26% year-over-year, I would like to highlight that these impressive figures are the combination of our accelerated FDTH deployment plan with the strength of the product we are delivering. Fiber connectivity is a future-proof technology whose demand is consistently growing, driven further by current home office and homeschooling needs. Moving to slide 9, this quarter I would like to present The distinct set of capabilities that Vivo has to capture opportunities and create value in the digital space. Vivo is the largest and most recognized telco in the country, with 94 million access and one of the top 8 most valuable brands in Brazil, estimated at 2.2 billion dollars. That summed with the almost 19 million unique users that access our e-commerce app, Meu Vivo, Our more than 1,600 stores that make us comparable to the largest retailers in Brazil, and the 200 million visits per month at our TerraMall portal show the potential, reach, and capability that the company has in the Brazilian technology market. Fibo is a gateway for the digital life of our customers, and for that reason we launched a digital marketplace that offers everything technology-related at our online store. Just to mention other examples of our ability to expand our reach, I would like to highlight the following initiatives. We recently launched VivoMoney, a digital loan platform that offers fast and simple personal credit to phosphate customers based on credit scoring that use our billing data to improve accuracy. Vivo also signed partnerships with various apps and OTTs to offer co-branded mobile plans Vivo Meditação A wellness app focused on meditation and mindfulness had more than 1.6 million downloads since its launch in July 2017. Another recent initiative is our strategic partnership with Diallo and Doutor Consulta to offer benefits in health services to vivo customers, which represents our first step towards a more relevant participation in that sector. Moving just like that, we had another quarter with impressive results regarding our fiber deployment that continues at full speed, adding an additional 1.5 million FTTH homes passed to our footprint. In Q3, we entered 28 new cities with FTTH, reaching a total of 244, and we expect to end this year with 268 cities. We continue our organic expansion, while also accelerating the overlay of corporate and FDTC networks that allows us to improve net edge and ultra broadband ARP while protecting our customer base. Additionally, I would like to point out that the creation of our neutral fiber vehicle is advancing as planned. Several investors have demonstrated their interest in the project and we are confident that the vehicle will be operational in 2021. Finally, as you can see on the right-hand side of the slide, we reached 14.6 million HPs home-passed in the third quarter of 2020, and we expect to reach approximately 16 million HPs at the end. With that, we will more than double the number of cities launched and homes passed when compared to 2019. Now I pass it on to our CFO, David Lebrun.

Good morning, everyone, and thank you, Christian. On slide 11, we saw how our persistent cost efficiency supported by digitalization and simplification initiatives reduced costs by 3.4% year-over-year. G&A and personal costs decreased 3.3% year-over-year, benefited by continuous cost control initiatives, but also by government measures such as temporary workday reductions. Commercial expenses had an 11% decrease driven by our continuous digitalization and automation efforts and by lower provision for bus deaths that decreased 29% quarter over quarter. This reflects the increased value that our customers are giving to connectivity and maintaining their payments up to date, as well as our measures to mitigate the effects of COVID, such as offering the option to pay in installments. On the other hand, cost-of-service rates increased 7.4% in the third quarter, driven by expenses related to network expansion, tariff re-adjustments, and higher fiscal costs due to the positive evolution of our mobile customer base. In addition, I would like to present a few figures related to our digitalization initiatives that are the main drivers of our sequential cost reduction story. In the third quarter, 2020, we had an 11 percentage point year-over-year increase of customers receiving e-bills, reaching 79% of all bills sent, while 63% of the payments were made through digital platforms. We also reduced by 20% the number of calls, center calls, through the growing use of e-care channels like New Vivo and Aura. We automate 915 processes across the company with the use of robots that allow us not only to reduce costs but also to improve the customer journey. On slide 12, we can see that through efficient capital allocation, we are able to deliver solid cash flow generation combined with expansion of our FCTH footprint and cutting-edge technologies. In the first nine months of the year, our CAPEX contracted 70% year-over-year to R$ 5.4 billion, driven by our strategy to prioritize investment in growing technologies that currently account for 72% of our total expenditure. This rational approach can also be seen on the right-hand side of the slide. as CAPEX allocated to fibrous technologies increased 20% year-over-year, while legacy decreased 53%. Additionally, I would also like to share with you that our network sharing agreement with TEAM is underway and evolving according to expectation. This agreement corroborates our commitment towards OPEX and CAPEX optimization. Now moving to slide 13. You can see how our solid net income generation allowed for the maintenance of superior shareholder remuneration. Net income for the quarter stood at 1.2 billion reais, growing 25% year-over-year, contributing to the declaration of 2 billion reais of interest on capital so far this year. Moreover, I would like to remind you about the payment of dividends based on last year's net profit, for a total of 5.8 billion reais. The first tranche was paid in August, and the second, of R$ 2.2 billion, will be paid in December 2020. Turning to July 14, accumulated free cash flow for the first nine months of 2020 grew 50% year-over-year, reaching R$ 8.9 billion, surpassing the free cash flow for the whole 2019. These are the standing results was driven by the EBITDA contraction caused by lower economic activity partially compensated by a strong cost reduction, lower CAPEX as we continue to focus investments on growing technologies, lower financial costs and income tax expenditures, and working capital improvements as a result of the postponement of some regulatory tax payments and lower CAPEX and OPEX disbursements. By maintaining a robust cash flow generation and solid balance sheet, we continue to successfully implement our strategy and invest in selective assets, making Vivo a stronger company, allowing us to look to the future with confidence. Now, I would like to pass the word back to Christian.

Thank you, David. To conclude today's presentation, I would like to say that thanks to our increased focus on effective ESG practices, Vivo was chosen as one of the top ten companies in For more information, please visit our website at www.patreon.com.br We inaugurated our first biogas power plant in Rio de Janeiro. It will produce more than 11,000 megawatts hour per year, and it's one of the 70 renewable power plants in our distributed generation project that expect to be fully operational in 2021. Moving to the center of the slide, we had two important recognitions in the social dimension. Fundação Telefônica Vivo was the first Brazilian recipient of UNESCO's Hamdams Prize for Teacher Effectiveness through the Connected Schools Project. This project was launched in 2015 to promote the inclusion of educators in the digital ecosystem and foster the development of ICT skills among students. The platform offers approximately 40 distance education courses covering a wide range of subjects and targets basic education teachers from all over Brazil. The success of this initiative was attested by more than 300,000 new subscriptions it had so far in 2020, three times more than last year. Another recognition came from Great Place to Work, as Vivo was elected one of the 150 best companies to work in 2020, and also joined the early childhood ranking, highlighting our ability to adopt practices that care for and promote the well-being of children and their families. To conclude, we took an important step toward a higher level of governance. The conversion of preferred shares into ordinary shares was approved by the Extraordinary Shareholder Meeting and the Special General Meeting of Preferred Shareholders, granting take-along and voting rights to all shareholders. There are just a few of many initiatives that we have at VIVO to help society reach a more sustainable future, Thank you. The floor is now open for questions. If you have a question, please press Start 1.

To remove yourself, please press star 2. In case you are following the conference call via webcast, please click on question to the host to send your questions. Questions will be taken in the order they are received. We do ask that when you pose your question that you pick up your handset to provide optimum sound quality. Please hold. Our first question comes from Rodrigo Villanueva, Bank of America. Please proceed.

Thank you. Good morning.

Can you hear me well?

So my first question is related to the process to migrate concessions to authorizations. I was wondering, Christian, if you can share with us your views on this process, how is it going, and what are your plans regarding That would be my first question. And secondly, do you see appropriate economic conditions in Brazil to raise prepaid wireless prices? And if so, when would you expect to do so? Thank you.

Hi Rodrigo, as you know, this law, the reform bill, the PLC 79, it was signed into a law in October 2019, yes, last year. Now we need to go through the process. So what Anatel is currently doing, they are working on the regulation of this new telecom framework. So in the end of June, They opened a public process to hire, now through the International Telecommunications Union, a consultancy firm to support the agency in the calculation of everything related to the migration of the fixed telephone and concessions to an authorization. Also, there's appraisal of reversible assets, there are many analysis of the current cost models, and many other calculations that they need to go through. So we're still waiting to have more definitions. In the coming months. So it's a long process. We started. We're optimistic. But it's still very early for me to say if we're going to reach the right price for this migration. Hopefully, yes. But it's still the process of having Anatel getting the support to have the calculation for us to start discussing. So that's in this point. In the prepaid, and the same as in other mobile services, We've been raising, in the post-pandemic hybrid, we raised price. As I said, in the end of the third quarter, not as we did in the last year that we raised in the beginning of the third quarter. The increase is lower than we used to have because inflation is much lower as well. But we keep our strategy stable. Thank you very much. Thank you. So I think we've been very, very rational, although the market in the prepaid specifically, as you mentioned, still hasn't acted or performed the way we expect as we are moving prices. So I would expect more price increase in the prepaid as happened in the hybrid and the postpaid. But we don't see this movement with our competitors. So let's see what happens in the next months. I think we had a very strong result between prepaid this quarter. I think the slide to quality proves to be right in moments where people needed to be connected so we could see a robust net ads for FIFO, an increase in revenues for prepaid, and we're still trying to move price up As far as we can do that, specifically in offers that have more frequency than our weekly and biweekly offers that people have at the moment.

Understood, Christian. Great to hear. Thank you.

Thank you, Rodrigo.

Our next question comes from Marcelo Santos, Banco JP Morgan. Please proceed.

Hi, good morning. Thank you for taking my question. The first is just following up on the prepaid success. Does this also have anything to do with some sort of higher focus of Vivo on prepaid, some initiatives you did to drive these very, very strong results? So I think that's the first question, any changing strategy. And the second question, on the legacy business and the fixed line, we saw a steeper deterioration. If you could please comment this breaking down, how much of this is the economy, how much is the lower focus, or maybe higher competition from other fiber players? So just try to understand why it's getting worse. Thank you.

Hi, Marcelo. Thank you for the question. First, in the prepaid, you're right, we had very strong results, top five. So we had it open, and if you compare it to the forms or no, it's a 13% increase. I think that there are many, many things related to this performance. The first one I answered to Rodrigo before, I think when quality is required, people stand as the number one. So I think people are now home office, homeschooling, home entertainment, and when you need a good connection, So I think that's the first one. Second one, I think we have been working with a lot of capabilities in managing our customer base. So I think we've been doing that well, proposing the right offer to the right customer to improve the engagement with people and not only with our servers but also digital servers. I think the right way to do that, I think it also proves to be Good strategy, a bit falling, actually very good because improving number of net ads as well. Also a commercial activity with being very precise, acting the right points of sales to attract the right customers to people. So I think also the numbers that you see net ads also prove that. So that's a combination of both, no more customers, lower churn, and also increase in ARPU. As you can see also in our presentation, if you see the ARPU that we have the third quarter of this year is much higher than we had not only the second quarter where we were very strongly impacted by the COVID, but also the first quarter of this year pre-COVID impact. There is a final comment that I would add, Marcelo, that the government adds And Brazil S.A. is giving money for people in a more vulnerable situation, also helping people to consume, and that also has an impact, a direct impact in our prepaid performance. So by the combination of all, even when there is a reduction of the government, we continue to see a strong movement in our customer base, reduced churn, a lot of engagement, consumption going up per customer. That's the first, I think, answer, but let's go to the second one, and then if you have any questions, the first one will go back. In the fixed revenues, as we said in the last quarter as well, we are optimizing our CapEx allocation. I think that's the first decision. We are putting all the strength of our CapEx on the FTTH. and reduced when started COVID our deployment of CapEx related to new customers in FTTC or DSL. That has an impact because we cannot grow the revenues in these two lines as we used to do because there is a better allocation with better return but has a direct impact in revenues. Voice, also legacy services is decreasing as you know. We just showed the number of minus 18%. That's a combination of factors, but it's something that we're going to continue to see because voice is getting not used as we used to in the past. And the third is the DTH. You know, DTH, we stopped a long time ago to acquire new customers, has a direct impact in our revenues, but I think it's all, again, it's a wise decision. We are focusing just in IPTC or Fiber plus OTT. If you look at the breakdown of our revenues, what we call these legacy services, they still The only one that I also would highlight Corporate Data, NICT. We are also optimistic about this line. This quarter we were impacted by companies being closed and not signing for new deals. That was a temporary effect that we believe in the months to come it will be corrected by new companies and our current customers also investing more in data and specifically talking about B2B. That's all your questions, Marcelo.

Perfect. Thank you very much.

Our next question comes from Maria Teresa Azevedo, Santander.

Hi, everyone. Thank you for the call. My first question is on the CAPEX side. We have a lot of positive trends going on right now, open RAN, the network sharing, the neutral fiber networks in which you're going to participate, probably a more gradual rollout of 5G. How should we think on the CAPEX trend more mid and long term? Is it fair to assume that the CAPEX should continue to go down over the next years, finally reaching low teens?

Thank you for your question. Let's just go back a little bit to talk about the CAPEX. Now in 2018, we said that we would increase CAPEX because we had a model like to expand our fiber footprint in a more accelerated way. and that's why we got in this 2018 an additional capex and that was also forecasted to be 9 billion 2019, 9 billion 2020. So we were at the time that we were in investor day in 2018 we said that it would reach 14 Thank you very much. Thank you very much. Going forward, as you said, we're going to continue growing fiber. We're going to continue growing 4.5G. We're going to continue to grow 5G. We are understanding that we just started the 5G DSS. We're going to have the auction next year. So there's a lot of commitment that we need to comply, and we will to keep people leading the Internet arena, both in mobile and in the fixed. And we are looking for alternative models, the one that you mentioned, the neutral ones, that will... is a little bit depression on CAPEX. So the same that we have for American Tower is already a CAPEX allocation that is different because American Tower is responsible for part of it. The same that we have for Phoenix Tower, different one that we have in the franchising because in franchising there's no CAPEX review but it's 100% CAPEX in the franchisee. And in the neutral, that is the plan that we have for the future to continue to grow, we're going to also have a different CAPEX allocation that will allow us with lower CAPEX, I'm not giving no guidance, Thank you very much, Christian. And then as a follow-up question, the FTTH execution is impressive. Can you comment a little bit on the different strategies in large, mid, and small markets, competition-wise,

Do you think that the expectation is to ARPO continue to grow? And how accretive do you expect the fiber spin-off to be? And if you see any consolidation opportunity in the fiber market for that new vehicle as well? Thank you.

So I think, as you said, the fiber market segment is competitive, but we've been very successful in any new city that we enter. We have a competition there. As you know, there are thousands of small players, so any new city that we enter, we face any type of competition and we've been very successful deploying more. Only for you to have an idea, this quarter, 28 new cities that we were not present, and if you consider the full year of 2020, we're talking about 104 new cities. That's compared to the year We are more than doubling the number of cities and more than doubling the number of HPs. So we are very confident with our strategy going to the cities and we are not being limited by the presence of competition. Our pool, in our case, is also, as we presented, is growing. I think we've been able to sell in a better mix. We are selling much more higher speeds and people are willing to pay more. A little bit more to have a better quality in their connection and here Fibre has the best data proposition by far, reaching 300 megabits. We are also being able to add to our broadband proposition not only IPTV, Pay TV, but also OTGs. I think successfully Vivo has been deploying FTTH+, Netflix+, Amazon Prime Video+, and many others that we are coming André Almeida, Rodrigo Pacheco de Oliveira Thank you very much, Christian.

Our next question comes from Matthew Robillier, Barclays.

Good morning and thank you. I had three questions. The first one was around the outlook for Q4. On the one hand, you're exiting the quarter with very strong volume growth in mobile, and really the question is about mobile. On the other hand, I don't know how the situation is evolving in Brazil in terms of The second question was about costs. If I look at what you've done over the past five years, you basically have been able to reduce costs five years in a row, which is very impressive. And I was wondering how we should think about the next one year or two, because on the one hand, I understand that maybe some of the costs have come down because the legacy revenues in FIX have come down and that will disappear at some point, so maybe less cost-cutting opportunities. Also, as you just mentioned, You're slightly shifting the model in terms of your infrastructure, sharing more with others, which moves CAPEX to OPEX. So the simple question is, do you still see overall reduction in OPEX in the next year or two? And then lastly, can you give us what is your best estimate or best guess for when the spectrum auctions The 5G spectrum auctions will take place in 2021 or could it shift to 2022? Thank you.

So, Matt, this is Christian. I will answer number one and number three, and then I ask David to answer number two. Number three, we expect to be next year. We don't have a final date. We're still waiting for Anatel to publish the rules of the auction. The Minister of Telecommunications said that it... The first question, Brazil's situation here is getting better, I'm talking about COVID situation, so we are now fully operational regarding our commercial channels. We still have some areas where we don't want our working at the same hours that we used to work in our stores. And of course there is limitation of capacity in our stores that has impacts in our sales. But what we see weekly is a change in a positive way. We see cities coming from more conservative phases in isolation or protocols going to softer phases and that's positive. For our business. So what we see, we are not giving trends for the revenues, but what we see is more flow in stores, more people looking for connectivity, more demand for smartphones and accessories. We have now Black November, we're going to have Christmas. So the signs, economic signs and the COVID signs are positive for our business, not giving you any trends. Hi, Matthew. Talking about the cost, I mean, you're right.

So we have been reducing the cost year by year for more than four years, but we believe that there is still room to continue reducing the cost. We present through the slides, we are working on e-care, e-commerce, billing, payments, and many other initiatives that are reducing our costs. So we say for the future, so the cost have to do with running the company. We see still room to keep reducing. As you mentioned also, we are moving to a model where would be less capex, more opex. Also, we are moving to more digital space where there's going to be higher revenue that would bring with lower revenue, lower margin. So how do we prefer to look at it is we are planning to keep growing OEPA because all those revenues will bring positive margins always, and also to keep accelerating and to put focus on the operating cash flow margin. So if you look for the first nine months of the year, we have an operating cash flow margin of 23.5%, which is growing 3.4% year-over-year. So this is how we monitor our business, and we make sure that independently in which line is recognized, We are always improving the profitability and this is what is helping us to keep accelerating the cash flow generation. You can see that this quarter has been impressive.

Thank you very much.

Thank you.

Our next question comes from Carlos Sequeira, BTG Paxual.

Hi, good morning, guys. Thank you for taking my question. So I know the FTTH operation is growing super fast. Net additions are impressive. Vivo is the largest FTTH operator by a good margin. So everything is going super well in the FTTH business. What strikes me is, is there any way to grow even faster? I mean, you have CapEx under control. Free cash flow generation is amazing. Are there any ways to Thank you.

Hi Cadu, thank you for the question, that's Christian. Yes, I think you answered part of it, yes, it's right. There is also always a capitalist control as well, not to deploy I think we've been also very precise in where we want to enter with our network and that is part of our success. We are entering the right places in the right cities and also capturing the totalization of the right customers for Vivo that is also blending our cost paid, as I said before, with the FTTH deployment. Going faster, I think the decision, and as I said, when we went to New York and we said in our investor data that we would end this year with 14 million, it sounded a huge number. We are ending this year with 16 million. So that's our ability to go faster and do that with the same capex or even lower capex. So I think that's proven the ability of people of doing more with less. And that's the number that we are presenting this year. And this number is As you also mentioned, so when signing a partnership in Minas Gerais with American Tower that would give us another 800,000 AHPs, that's part of the strategy of going faster with lower cappings. When we signed with Phoenix, it's another example of going faster with lower cappings. And that's why we decided to do it bigger and larger, and that's what we put in place, our infra-co project. That is very well advanced. It's progressing very rapidly. We have a series of investors interested in being part of this project. As we said in the last quarter, we expect to be fully operational in 2021. That will help us to go over 24 million HPs by 2024. What is over 24 million? It's a number that could be Good and also extrapolate what we predicted when we said it would get 14 in 2018. So this process is doing very well. We have investors talking and checking data in the data room and hopefully in the next months we'll be able to sign it and be operational. And M&A, your question, we haven't seen So far, a target that would combine our expansion strategy with the quality of the network that we need. But once we have this vehicle in place, I think part of the growth of this vehicle, and I'm talking about the infra code that we're deploying, could be expansion through M&A. So it's not, and we are always checking the assets that are available in the market, to find something that could combine the excellent infrastructure in the construction of the network that for us is the number one requirement with the footprint that we need to expand our FTTH. Of course we're going to see and look at it and maybe be able of an acquisition in the future.

Thanks, Christian. Can I make one follow-up question on that, too? One thing that I'm curious to hear how you're seeing that is the competition between your fiber operation and NETS services, you know, coaxial cable network. How are you, you know, when you have a direct competition, how are you faring compared to NETS, especially after the pandemic, when I think the quality differential became more clear than before?

Cadu, I think there is always a limitation of the quality that you expect from your network. I think the pandemic was the climax of the need of speed. and upload and download. That's something that you get much better when you are talking about fiber and parallel usage. So imagine everyone at home using at the same time the network and the other thing that fiber has an advantage. So given that speed, upload, download and parallel usage of the network, fiber shows up to be Thank you. Thank you.

Our next question comes from Susana Saleru, Itaú.

Hi, good morning, guys. Thank you for taking our questions. Hi. Our first question is regarding the EBITDA mark in France. We have been seeing Telefonica being able to sustain If the margins are at 40% level, despite what happened with the pandemic. So going forward with a more healthy top-down scenario, could you just elaborate what you're expecting for margins to be? If you should expect the same margins level or you could see room for improvement? That would be our first question. The second question, just a follow-up on the prepaid again. Apologies. Actually, I didn't fully understand. You guys are about to do a price up in prepaid, or you already did a price up offering more for more? Thank you.

On prepaid, Susana, we're not going to have a price increase in prepaid right now. I think we're trying to, as I said, try to manage our customer base in a better way, to have people increasing their top-ups with Vivo, and here it's playing, as I said before, How do you do that? Okay, putting the right offer to the right customers in the right moments, expanding their usage with Vivo, weekly, bi-weekly, monthly offers, and trying to combine that with also bringing a value proposition specific to the hybrid product, because then gives us the opportunity to migrate from prepaid to hybrid. So I think it's always the strategy. Look at the different segments at the same time because the impact in one is directly affecting the performance of the other. As I said also before, we are always trying to push the market up as we do in the pure post-paid, what we do in the hybrid, and we try to do also in the prepaid, the responses lower from competition in the prepaid. There's still a lot of aggressiveness In the prepaid arena, so we cannot stand out in a negative way towards our customers. So we are looking in rational ways to increase in more for more, but if you're not going to see a price increase in absolute terms as you're used to see in hybrid or pure postpaid, as we also did in this quarter, although inflation is much lower as you know, and room for improvement or increase is also lower. Second question.

Hi, this is David. Just regarding the margin. So if you look to the margin, or if the margin for the first nine months were up, we have 40.3% margin, which is growing 0.4 percentage point year over year. So even though the current situation, we're able even to improve and accumulate numbers of margin. And for the future, as I mentioned before, we are optimistic. We are optimistic about the OIPTA generation more than just the margin. But let me just give you two examples. We are moving to a world where we have the commissions more through push channels. Now we are going to e-commerce where the unitary cost is almost zero. We are moving from a world where we have call-to-call centers, where we need to pay people just attending those calls, that we are moving to a world, particularly in our case, that we are moving to Mio Vivo, that we have more than 18 million unique users per month, that each one of the queries are sorted without incremental cost. So this is allowing us to be a company significantly more digital, but also more efficient, and to put more OPEX Thank you. Thank you, Susana.

Our next question comes from Diego Aragão, Goldman Sachs.

Yes, good morning, Christian, Davi, and Tim. Thank you for taking my question. Actually, I just want to follow up on the question regarding your FPTH. You have, you know, this business in over 250 cities now, and I was wondering if you can comment a little bit more about the competitive landscape in these cities where you operate, but not with the category operators, Thank you for your question.

In large cities, I think you asked more about the small player, but in big cities, we normally face competition from the cable. In large cities, it's depending on the neighborhood, but mostly our competition is with the cable. So what I answered to Cato before, I think fiber has an advantage as technology, and I think that's seen in the numbers, in the robust numbers that we're showing. In smaller cities, I think there's a combination of things. First, technically I think we'll present a better proposition and not only the infrastructure that we build but also the equipment that we put in the homes, in the customers' premises. I think people play a different game and we are in a better quality situation that could be perceived by customers in the experience we I think it's a very well-defined strategy to enter a new neighborhood or a new city. Third, we have IPTV for customers who want to have TV. Most of these competitors don't offer the TV or if they offer TV, satellite. We have also, apart from IPTV, interesting deals with Netflix and Amazon Prime Video in a good price and also build in there a fiber bill that's also a final advantage. And we started playing We are very confident, as I said before, also Diego, all the cities that we enter, we have We are going to accelerate. We see a very positive outlook going forward. I think we have the demand for digitalization, the demand for homes connected growing in Brazil. We still have just 20% A long time ago, Vivo has the largest fiber infrastructure in Latin America and Vivo has the best mobile customer base. All this combined with a strong brand and the channel prepared to sell mobile fix and digital, I think we have an unbeatable offer. So confidence and the need for digitalization is more than evident. I'm still going through with the COVID situation.

Thank you, Christian. Super clear. That's very helpful. And look, just quickly on the mobile business, you know, you had like a pretty strong, you know, additions in the prepaid. So the question is, how do you see, you know, the prepaid and postpaid mix going forward? Let's say maybe two, three years from now, where this mix should be? because I just want to understand if there's still room to see further prepaid to postpaid migration going forward. Thank you.

No, we don't see that. I think what we saw in the prepaid, as I said before, is a combination of factors that gave us this strong performance, and we are positive that we are, I'll guess, doing very well in the prepaid. I think here it We have our channel in place again to migrate prepaid to hybrid. I think the better proposition that we have in vivo for the different segments is very clear and being able, successfully able to show to customers the advantage of being in each of the segments so we don't have this risk right now of this reverse migration. I think the opportunity is much more in the www.patreon.com Thank you, Christian. This concludes the Q&A session. I would like to turn the floor back to Mr. Christian Gebara for any closing remarks. Thank you all for joining our call. If you have any additional questions, please access our IR team and hope to see you soon. Thank you.

Thank you. This concludes today's Telefonica Brasil 3K20 Results Conference Call. You may disconnect your lines at this time. Have a good day.