Telefonica Brasil S.A.

Good morning, ladies and gentlemen. Welcome to Vivo's fourth quarter 2022 earnings call. This conference is being recorded and the replay will be available at the company's website at ri.telefonica.com.br. The presentation will also be available for download. This call is also available in Portuguese. To access, you can press the globe icon on the lower right side of your Zoom screen, and then choose to enter the Portuguese room. After that, select Mute Original Audio for a better experience. Para acessar nossa conferência em português, clique no ícone do globo localizado no canto inferior direito da sua tela zoom e selecione a opção Portuguese Room. Ao acessar a nova sala, certifique-se de silenciar o áudio original para uma melhor experiência. We would like to inform you that all attendees will only be listening to the conference during the presentation, and then we will start the question and answer section when further instructions will be provided. Before proceeding, we would like to clarify that any statement that may be made during this conference call regarding the company business prospects, operational and financial projections and goals are the beliefs and assumptions of Vivo Executive Board and the current information available to the company. These statements may involve risks and uncertainties as they relate to future events and therefore depends on circumstances that may or may not occur. Investors should be aware of events related to the macroeconomic scenario and the industry and other factors that could cause results to differ materially from those expressed in the respective forward-looking statements. Present at this conference, we have Mr. Christian Gebara, CEO of the company, Mr. Davi Malcolm, CFO and Investor Relations Officer, and Mr. João Pedro Carneiro, IR Director. Now, I'll turn the conference over to Mr. João Pedro Carneiro, Investor Relations Director of Vivo. Mr. Carneiro, you may begin your conference.

Good morning everyone and welcome to Telefonica Brazil's conference call to present the fourth quarter and full year 2022 results. The call will start with our CEO, Christian Gebara, commenting Vivo's financial and operating highlights, followed by an update on the progress of our digital ecosystems and ESG initiatives. Then our CFO, David Melcon, will go through our cost and CapEx evolution, net income, free cash flow, and shareholder remuneration. I now hand it over to Christian.

Thank you, João. Good morning and thank you for joining our earning calls. I start by presenting the highlights of the fourth quarter and full year. 2022 was a transformational year for Vivo in the telecommunications industry in Brazil, with the initial deployment of 5G standalone and the mobile market consolidation, both of which are bringing significant improvements to the quality of service and customer experience. We closed the year with 112 million access, up 13.7% year-over-year, reinforcing our position as one of the Brazilian companies among all sectors with the largest number of clients. Our 58.7 million access in postpaid and 5.5 million in FTTH give us a very solid recurring revenue base, protecting our results from inflation impacts. In this sense, our total revenue grew 10.1% year-over-year in the fourth quarter, driven by the expansion of 13.6% of our mobile service revenues and by the best fixed revenue results since the fourth quarter of 2015, with a growth of 2.9%. As a result, our EBTA expanded 6.1% year-over-year, reaching 41.3% margin. The strong operating performance delivered during 2022 was culminated by a relevant amount of free cash flow, closing the year with R$ 7.3 billion. The robust cash generation, which is one of the key elements of our equity story, allowed us to declare over R$ 5 billion in dividends and interest on capital during 2022, on top of the R$ 600 million invested in buyback our shares. We firmly believe our shares to be undervalued. Hence, we are starting a new share buyback program aiming to invest an additional R$ 500 million during the next 12 months. To continue enhancing and differentiating our shareholder remuneration capability, yesterday we filed with Anatel a request that, if approved, will allow us to potentially reduce our capital stock by up to 5 billion reais. This will give us further flexibility to decide on future cash distribution and how to improve our capital allocation. Now we go to slide four, where we can see that for the second straight quarter, our top line grew well above inflation. The 10.1% year-over-year expansion results from the 13% growth of our core revenues that already represent 93% of our total revenues. This is particularly important as our known core business, which for years served as a drag to our revenue performance, now weighs less than lines with protection to keep double digital growth rates for years to come, such as FTTH and B2B data, ICT, and digital services. Moving to slide 5. On the left-hand side of the slide, you can see that our mobile revenues increased 13.4% year-over-year, as postpaid, prepaid, and handset revenues all grew double-digit. The mobile market consolidation and our leading commercial performance have been the main drivers here. On the right side, we detail our fixed-core performance, in which we had revenues climbing 11.9% year-over-year. The core products already represent 76% of our wireline business, up 6% on an annual basis. As a result, our total fixed revenues grew 2.9% year-over-year in the fourth quarter, this being the best early growth rate we reached since the fourth quarter of 2015. As usual, the main drivers were FTTH and data and ICT and digital services. Services that are hard to replicate and provide us with a robust platform for continuing improvement of our fixed business going forward. On slide six, we detail their operating performance on mobile and fiber, closing a year that probably was the best in our recent history regarding our customer base evolution. On mobile, we added 14 million new customers during 2022, reaching 98 million access. 16.8% year-over-year, even after carrying out this connection of 3.4 million inactive lines coming from OEM Mobiles' acquisition, of which 339,000 were eliminated during the fourth quarter. Our post-paid base grew at an even higher pace, up 18.2% year-over-year, as the migration of prepaid users towards hybrid plans continues to be very successful, while churn remains at record low levels, close to 1%. Also, we continue to be net gainers in portability of post-paid lines, clearly leading with the best value proposition. As a result, we closed the year with a biomarker share of 38.9%, up almost one percentage point since April, which was the first month in which Anatel reported the consolidation of voice access with the buyer's basis. In fiber, we ended 2022 with 23.3 million homes passed with FTTH after rolling out the network to 3.7 million new premises. Moreover, we added 874,000 FTTH access during the year, expanding our customer base by 19% to 5.5 million home connected. Our convergent offer, Vivo Total, has been very successful, representing around 70% of the FTTH net ads we registered during the fourth quarter. Being the only player capable of providing 5G plus fiber for a unique offering on a nationwide basis is a key differentiator, enabling us to keep on improving our operating performance and reducing post-paid and fiber churn. Moving to slide 7. During 2022, our digital B2B revenues grew 29% year-over-year, reaching R$ 2.7 billion. These revenues that aggregated products such as cloud, cybersecurity, IoT, digital B2B solutions, among other, already represent 5.6% of our total top line and will soon outweigh non-core revenues. These services and solutions are in great demand as companies of all sizes are becoming more and more aware of how beneficial it is to invest in digitalization of their business. We will continue to lever on our leading brand Complete portfolio, channel and reach capabilities to be the preferred partner of Brazilian companies in their digital transformation, capturing this unique opportunity. Moving to the right-hand side of the slide, you can see that we continue to develop our presence as a digital finance hub, taking advantage of the dozens of millions commercial relationships we have with individuals through our connectivity services to increase our share of wallet and customer monetization. Apart from VivoMoney, which closed the year with a long portfolio of over 180 million reais, Growing by almost seven times year over year, we are also offering co-branded credit cards in partnership with Itaú and handsets and home insurance products. In addition to that, Vivo Ventures, our corporate venture capital fund, made its second investment in a fintech by investing 10 million reais in Clube that act as a consortium administrator with financing model that's become increasingly relevant in Brazil. On slide eight, we update you on our ESG initiatives. During 2022, we were able to deliver solid results on all fronts. In environment, we reduced by 50% year-over-year our direct greenhouse gases emission and increased by 20% the collection of electronic waste through our Recycle with Vivo program. On diversity, we reached a 22.4% occupation of leadership roles by Black people, growing 3 percentage points year over year. Also, during 2022, Telefónica Viva Foundation invested 58 million reais to support students and teachers of the public education system in developing their digital capabilities, benefiting 2.2 million people. We are also recognized as a leading telco company in terms of corporate sustainability by S&P in the 2023 Sustainability Yearbook. Finally, we are pleased to announce we had the second highest score among 83 participants in B3's EZ2022 process, being the only telco within the top 10 best qualified companies. This is an improvement vis-a-vis the fourth place achieved in 2021, reflecting the efforts we make to create a more inclusive, green, and sustainable company. Now the view will take us through the financial highlights of the quarter.

Thank you, Christian, and good morning, everyone. Moving to slide 9, the continuous transformation of our cost-based structure remains underway as we accelerate revenues related to the digital B2B and B2C services and solutions that lead to increased lifetime value of customers. Looking at the cost of services and goods sold that represent 35% of our OPEX in the quarter, it grew 11% year-over-year, driven by the ongoing transformation of our business mix, as revenues coming from the sale of digital solutions and services, handsets and accessories outplaced total top-line expansion, leading to an improved growth profile. Cost of operations, which comprises the remaining 65% of our OPEX, increased 14% year-over-year in the quarter. Here, even though we continue to reduce costs such as commissioning, billing, call centers, and back offices, assisted by the increased usage of digital channels and payment platforms, this was compensated by the effects related to higher personal costs and lower recovery of taxes and sale of unused network equipment in the quarter. Another positive note, we expect to incorporate Garliaba, the SPE that held the assets we bought from OEMobile during the first quarter of 2023, unlocking additional savings while also allowing for the tax amortization of the goodwill arising from this acquisition. Moving to slide 10, in 2022 we invested 9.5 billion Reais, which is the highest ever annual capital expenditure excluding licenses made by us. These years were particularly pressured by investment made to incorporate all mobile assets of around 500 million Reais. and by the initial deployment of 5G to key cities to start building a network that was recently considered as the one delivering the fastest 5G in Brazil. We also accelerated our FTTH HomePass footprint, taking the opportunity to further consolidate our leadership in fiber. Even so, our operating cash flow expanded 4.4% year-over-year, reaching R9.8 billion. For 2023, we just provided a market guidance on CAPEX that will bring strong revenues in the coming years, committing to invest less than R9 billion in the period, thus allowing for an important improvement of our CAPEX per sales ratio. This year's investment will be focused on the continued expansion of our 5G coverage, on the reinforcement of our overall mobile capacity, and on the increase of our FTTH penetration. Moving to slide 11, In 2022, our net income reached R$ 4.1 billion. The year-over-year comparison was impacted by some positive non-recurrent events that benefited the previous year's results, as well as by the higher average interest rate seen in 2022 versus 2021, which comparatively penalized our financial results. On the other hand, we deliver once again an excellent result in terms of free cash flow, with a generation of 7.3 billion reais in 2022, representing 15.2% of our revenues. This 11.3% free cash flow yield is among the very best in the sector and denotes how resilient our business is under any circumstance. Finally, now going to slide 12, here we detail the components of our 2022 shareholder remuneration, as well as discuss the additional levers that will allow for a continuation of a strong cash return going forward. Considering the dividend and interest on capital events declared with record dates in 2022, our total distribution reached 5.1 billion Reais, of which 2 billions were already paid out to our shareholders in October 18, 2022, while the remaining 3.1 billion Reais will be paid out on April 18 and July 18, 2023. In addition, we invested over 600 million reais to buy back our own shares, resulting in a total of 5.7 billion reais of shareholder remuneration, equivalent to 8.9% of the company market cap as of December 2022. We keep working on ways to maintain the cash returns to our shareholders. As such, yesterday, our board of directors green-lighted the following. First, the proposal to our 2023 General Shareholder Meeting to be held next April of a dividend based on 2022 results of 827 million Reais to be paid out on July 18th, 2023. Second, the deliberation of 106 million Reais in interest on capital based on January 2023 results. Third, the cancellation of 13.4 million shares held in treasury on December 31st, 2022, equivalent to 0.8% of our capital. Fourth, the creation of a new share buyback program to be executed from February, 2023 to February, 2024, with a potential to invest up to 500 million reais to buy back our stock. Fifth, the request to Anatel of a prior consent to potentially reduce our capital stock by up to R$ 5 billion, which, if approved, will bring important flexibility to decide on the future remuneration of our shareholders and capital structure. As you can see, we remain highly committed to maintain our differentiation as one of the few companies that combine important growth avenues such as the one presented by the mobile consolidation, fiber capillarity, and soaring demand for digital B2B and B2C solutions with a rock-solid balance sheet and cash flow generation capacity while providing leading shareholders yields. Thank you and now we can move to the Q&A.

Thank you. We are going to start the question and answer section for investors and analysts. If you wish to ask a question, please press the button raise hand. If your question has already been answered, you can leave the queue by clicking on the same button. Wait while we pull for questions. Our first question comes from Fred Manges, of the Bank of America. Please, Mr. Fred, your microphone is open.

Hello, good morning, everyone. Thanks for the questions. I have two here on my side. The first one is related to capital reduction. I mean, I think it was a good move doing the capital reduction, most likely to increase the dividends. But the question is, why $5 billion? I mean, why not more, considering the equity of $65 billion you guys have? That would be my first one. And then as a second one, At least with the scenario we have today, it looks like 2023 is going to be a year of lower inflation, which I think is particularly good for the telcos. How do you see the opportunity to reduce costs here, eventually increasing margins further in 2023? Thank you.

Hi, Freddie. Thank you for the question. Look, our free cash flow generation, I mean, exceeds the annual net income. It has been like this for many years now. And we have limited distributed reserves left. Therefore, we believe a capital reduction address this situation, allowing us to create a platform to distribute more cash than their net income. We had a 100% payout over the last few years. So with this capital reduction, if it's approved, we should be able to have a higher payout than 100. And we believe 5 billion is the right amount to have a story for the next few years. Also regarding timing, I'm sure your question is also about this. I mean, now we need to wait around six months for Anatel prior consent approval, and then we need to go through also all the internal governance approval, such as board and general assembly. And I can take the beginning of the second question and then Christian can also elaborate. Look, we are showing the OPEX breakdown, showing the cost of service and goods sold and cost of operation. On the first one, I mean, we have been growing 11% in the last quarter, but if you look to the revenues that are linked to those costs, which are mainly have to do with digital service and handsets, We are growing more than 50%, not just the B2B digital services, they grow 29%. And in the other part of the costs that have to do more with operation, there are a few things that happened in the second half this year. The first one is the acquisition of Vita IT, which is a B2B company that's allowing us to accelerate the growing B2B. This is bringing additional costs, particularly on personal costs. That's why we are seeing an increase on personal costs that year over year, next year, we shouldn't see such a growth. Also, we have the cost from the integration of OI. Just to remind you that we are paying 146 million for the transition service agreement to OI, which is more than 12 million per month. This will finish at the end of the first quarter of 2023, so it's something that we will not have in the nine months of 2023. Also, inflation for next year, we are expecting to be lower than 2022, so this is also a lever. Also, we are seeing that the new revenue streams are coming with higher OPEX, but without CAPEX. So this is also an upside because we look to operating capital margin that we will see that will be an expand for next year. And also that it's also linked to to the story of the integration of OI is that we are planning to incorporate, to merge Arliaba, which is the company we acquired the assets from on mobile in the next, let's say, one month or one month and a half. This not only will bring savings in OPEX, but also this will unlock The tax benefit coming from the amortization of the goodwill. And this, just to remind you, is more than 1 billion reais cash that will come through in the next five years, no? So all in all, we see an expand on margins and also a growth in operating cash flow for the next year also because the capex, as Christian mentioned, I mean, we are going to also to have below 9 billion, no?

And just to complement the two, the second is exactly what he said. So there is the impact on the inflation personal cost that is an important part of our cost of serving. So it's going to be positive in that way, the operation that we have now related to personal. Of course, there is this changing mix that we mentioned, Fred. So, of course, now when we start also selling more digital service that is cost of goods sold, that is different cost mix. But in absolute numbers in the EBITDA, we are very positive about our growth. And also digitalization. We are increasing a lot the digitalization and the representativeness of our channels, both the app and also the WhatsApp, with the use of artificial intelligence that we're increasing the usability, especially now with the new developments of artificial intelligence that we're going to start impacting our way of serving customers through these channels. And in the first question about the capital reduction, it's good also to bear in mind that in 2025, the solution about the concession will be there. So the migration, that is what we expect. So in this case, we're going to have much more flexibility also to capital reduction. So for two years, that's the proposal that we have.

Perfect. Very clear, Christian and David. Thank you. Just if I may do a follow up on the concession idea. 2025, the base case in your mind is to finish the concession without paying anything extra for it, right? That's the base case.

Look, we are in the middle of the process. There is, as you know, there are two processes that are going parallel. First one is the value that Anatel decided that would be required for the migration that is at the moment is being analyzed by the TCU. Okay, that's something that is public and there is a number of the figure. We have our questions about the methodology and the number, but that's something that's gonna be discussed In this way, between TCU and ATEL. There's a second one that is our claim for the sustainability and the financial balance of the concession. that is also being discussed with Anatel but at this time in the arbitrage chamber that we have for this topic. In this case, we are claiming for a value that it's Thank you very much. to the market, to the country and of course to Vivo.

Very clear. Thank you, Christian.

Our next question comes from Lucas Chaves from UBS. Please, Mr. Lucas, your microphone is open.

Hey, thanks for having my question. And my question is especially on CapEx that you guided us. So where do you see the bulk of investments going to? I know you discussed about 5G and fiber, but especially on fiber, would you be pursuing more client connections or CD expansion? And could you also give more color also on the division between 5G and fiber? Thank you very much.

Hi Lucas, this is Christian. I can start and you may compliment if you want. Yes, it is in fiber. Expansion is one of the lines that we're going to increase investment. Here it's both in connecting customers and expanding network. It's again, I think our network is already close to 24 million home paths. We said that we would reach the end of 2024 with 29. So there is 5 million homes to increase our footprint. But most importantly is to connect customers. And we've been doing that in a very accelerated pace, being the leading company in net ads of the market. Now the churn is very reduced. And then being able to capture most of the market. As you could see, there are almost 1 million new customers in the last year. So we're going to continue with this strategy, increasing footprint up to the 29 that we already declared. by end of 2024, and connecting more customers. Here is also good to highlight that we've been very strong in connecting customers with Vivo Total, our convergent offer. 70% of the new ads come with the Vivo Total offer that also protect our post-paid base. That's why we have also a very reduced churn as we presented earlier. In the 5G, we are ahead of the obligation of the auction. So, apart from the 27 capitals, we already have 26 cities above 500,000 inhabitants. We're going to continue expanding in the cities that we are already there. We need to expand also some other new cities, but that's not what I'm going to share here. But we're going to expand a little bit beyond what's required by the auction. And we are going to do that in a very intelligent way. Follow the penetration of 5G smartphones. Thank you very much. On the speed, continue growing customer base both in mobile and in fiber.

Thank you very much. That was very clear.

Thank you, Lucas. Our next question comes from Marcelo Santos from JP Morgan. Please, Mr. Marcelo, your microphone is open.

Hi, good morning, Christian, David, João Pedro. Thanks for the question. I have two questions. The first is if you could provide an overview of how the competitive environment is in mobile. I saw that you recently raised prices for the, at least on the website. And the second question is regarding Tigo Money. Your portfolio is growing a lot. Could you share a bit more details about APRs, NPLs, how these loans behave? Thank you.

Hi Marcelo, let's talk about the mobile dynamics. So as we presented, commercially speaking, it was a great year for Vivo. We continue to expand our market share and we continue to expand both in prepaid and in postpaid. So when we see the number that we have today of access, 980 million, www.patreon.com In a unique position to be the leading company of both technologies, the 4G, 5G plus fiber. And our churn reflects that. The 1.05 of the last quarter was the lowest one and the market share of almost 39%. Having said that, we are... We are very, very keen on monetizing all the investment that we've been doing in the last years. So we are the one increasing prices. We did that last year. We are doing again in the entry plans for all our postpaid plans. So give an example. Now in January, Our entry plan for hybrid was adjusted to 57 highs, used to be 50.99. So that was an important increase. And when I compare to others, we are above them in price and in what we offer by this price. So I think it's a normal behavior that we expect to be followed by others because we are giving back what inflation is at the moment and also giving back to customers what was the benefit that they got from the ISMS reduction. We did the same in the entry point of our individual postpaid plan. Today, our first plan is 122 reais per month. And the same we did in the family plans, that is also a good plan for us, that we increased to 242. Doing the same in the Vivo Total. Also increasing our bundle that I said is responsible for 70% of our FTTH sales. Again, here we increase price. Now, the first one is at R$200. So we are putting the market in a different price point. Expectation that our peers follow this movement because what we are doing here is passing through inflation. The same here. In the fiber, in FTTH, 50% of our customer base will be increased in price. So we have now the entry price of 120 reais with 300 megabits as speed for the fiber service. In prepaid, we would like to do the same. I think the prepaid price has been in the same level for many years. Now we just have the benefit of the ISMS reduction with more data that is offered to the customers. We need to move this price up, especially when you move the hybrid price up. If you don't do that in the prepaid, it will be difficult to continue with the successful strategy we are keeping all following of migrating prepaid to hybrid. So here again, we expect market to move up in prepaid as well. I think that was the first question. The second one was,

on Vivo Money.

We will complement Vivo Money. We are very... Sorry, do you want to continue in the first one? Marcelo, should I move to the second?

No, no, the first one is perfect. I was just reminding the Vivo Money.

The Vivo Money, we are highlighting here, our long portfolio. It reached 183 million reais. It's like seven times higher than it was one year before. It's almost six times higher in number of contracts. And that's a combination of many factors that we could give you more light on that. And we are very satisfied with Rodrigo Pacheco de Oliveira, Paula Bragança Mansur We have VivoPay, our digital wallet. We are selling more and more insurance. We have this co-branded plan card, sorry, with Itaú that's also been very successful, increasing sales of smartphones and other devices using this card. And we now, as I said, we invested in a consortium company because we're launching something here. So we see... that our capability of selling other services, combining our customer base, our low customer acquisition costs, our brand, our billing capability, our credit capability is giving proof that the potential that we have expanding not only in financial services but beyond that. So that's why we're also going to do more in health, with our service more in education and other lines that we're going to give more color in the next calls as we are doing now with money. I don't know, Davi, if you want to...

Marcelo, just to add that we are very positive and optimistic about the evolution of this business that's growing very fast. So we are monitoring very carefully always the greatest scoring to make sure that the bad debt is under control with very low levels. So positive to keep these trends that we have seen over the last 12 months to keep like this for the future.

Anything else, Marcelo? Thank you very much.

Thank you. Thank you.

Our next question comes from Fanny Kumar from HSBC. Please, Ms. Fanny, your microphone is open.

Thank you for taking my question. My first question is regarding the dividends. Typically, you have stated before that you distribute 100% of the net income dividends. The second question is regarding the risk of concession. So if you cannot reach an agreement with Anatel by 2025, do you Do you see a scenario where you lose the concession agreement and what would be the potential impacts on your operations because of that? Thank you.

I'll go to the second one. We are very optimistic that we're going to find a solution for the concession. And I think it's going to be positive for everyone, especially because we're talking about the concession of more than 20 years that is related to voice services and public telephony that we all agree. That is a service that is not demanded anymore. So we work in a very optimistic scenario that it reached an agreement. And I think all the parts are very reasonable about the outcome that we are pursuing here. So at the moment is what a new thing that I can share. And it's important also to see as we call the core revenues and non-core revenues. We're talking about a service that has a very low share in our revenue mix. So the impact is going to be even greater. Thank you very much.

Hi, Fanny. Just regarding the first question, if you look back the last two years, Telefónica Brasil would generate more than 7 billion reais free cash flow per year, 2021-2022. However, the net income is a lower amount because some of the elements, particularly investments, have already been paid but still been depreciated. Thank you, that's very clear.

Our next question comes from Sumit Data from New Street Research. Your microphone is open.

Yeah, hi there. Thanks very much. A couple of questions, please. One, on the free cash flow, there was a very favorable working capital movement in Q4 and again in 2022. I just wondered what was driving that and can you give any steers to... And then second, on the cash return policy, you mentioned you thought your shares were undervalued. There is a buyback of 500 million, but it's a relatively small amount. Thank you.

Okay, so let me take the question. So first of all, the positive working capital, I mean, you're right, the first quarter we have 268 million reais, for the full year, 3 billion. The previous year was also positive, no? So the main drivers for having this positive working capital, first is a positive tax asset recognition that we had in previous years, So this is a positive effect that will not be reversed in the future. So will not be reversed in the future. Because in three, four years ago, we have a positive internet income that we didn't bring cash. Now we are seeing the cash coming from that effect. Also, another one is the effect of Fistel. We have a liminal, so we have a decision, legal decision not to pay Fistel over the last three years. So this is 700 million per year. So this is also something that is benefiting not only Telefónica Brasil, but all the sector in Brazil, the working capital. Then, I mean, the second question regarding the share buyback, I mean, we have been having over the last, particularly the last year, 600 million. We believe, I mean, this is the right number to give more liquidity to our share. So looking for 2023, we believe that 500 will address the strategy that we had in the previous year. And regarding share Telefonica, I say, I mean, we really know that we are not aware of anything. So we are just buying on the market 500 million per year as we did last year.

Okay, thank you.

Our next question comes from Felipe Chang from Santander. Please, Mr. Chang, your microphone is open.

Hi, Christian, Davi, João. Thank you very much for taking my questions. So, two on my side. The first one regarding if you guys could provide a little bit more details on the opportunity for additional growth in B2B digital services. This is definitely one of the revenue lines which has been growing at a faster pace and calling a lot of attention. So if you could provide a little bit more detail where the future opportunities are, how big the addressable market is, and if you continue to see room to grow at this high double digit base that you have been growing in the past few quarters. And the second question regarding M&A, if you can talk a little bit about potential M&A opportunities in the short term, where would they be concentrated and which segments? So any color on that would be great. Thank you so much.

So let's go to M&A, you refer to Fiber M&A?

Fiber or digital services, where do you see more opportunities for M&A?

Look, there are different ways of seeing M&A. So like in the B2C digital services, what we are doing is basically investing through our corporate venture capital fund. That is a Vivo Venture. Now that I said that we made two investments in FinTech. and that we have 320 million reais to spend and we envision investing in 12 companies along the years. That's going to be a minority stake, it's not an acquisition. We're also looking for potential acquisitions in the same areas that we are considering for the venture, our corporate venture capital. So we're talking about B2C, we're talking about health, fintech, Thank you very much. The Billing Capability, the Channel Capillarity Online and Offline, and other attributes that we normally discuss. So we are very open and we are talking to different companies and we're going to be bringing news, I think, along the quarters. In the B2B... is the same. We acquired a company called Vita IT last year. It's a network integrator, one of the key partners of Cisco in Brazil. It's been a very smooth integration and we are very positive about the returns that we're going to capture with this acquisition. The same way Telefónica is acquiring companies globally, Telefónica Tech is the initiative that Telefónica has for B2B digital services. They are creating independent business for that. It focuses in the product development or product partnership. It's not in the sales. The sales is done by the operator in our case. But we have these three companies in Brazil. One focuses in cyber, another one focuses in cloud, and the third one focuses in big data and IoT. So these three companies, we have established the same three companies that Telefónica has in Spain here in Brazil. and we are working very closely to them. So going forward, when you talk about B2B digital service that we said, the 2.7 billion and there is a growth of 29%, we continue to see a very, very optimistic growth for the next quarters, especially because we are the only one With the channel capillarity among not only our sector, but all sectors, even the big players of this industry, they need our capillarity. And here, I'm not talking just about the large companies of the country. The possibility that we foresee here as the growth is because we reach even the small companies of the country. So with this capability and with all the companies now searching for digitalizing their operation, and that I think was accelerated by the pandemic, Everyone wants to be in cloud. Everyone is worried about cybersecurity. Everyone wants to have new notebooks and not rely just on desktops. And all these new ideas, not counting on the IoT that we also see developing very, very strongly with the arrival of 5G. We see ourselves prepared because we have the teams to develop the product, leveraging on the Telefonica's group capability, and we have the channel already in place to respond to these demands. So the growth here, we don't give trends, but we only see positive in all lines of the services in B2B and also in B2C. We talked about money. But we're going to talk about many other services that we see also growing here, not only growing in revenue, but also protecting and reducing churn. That we see entertainment, for instance. We are, I think, one of the largest sellers of OTT video services in Brazil. And what we see here is it increases our pool, but at the same time, it reduces churn because the customer gets committed to Vivo in more than one service. Two services, if it's people total. Three services, he has a digital service with us as well. So the vision is clear, and we only see upside in both B2B and B2C. I don't know if I answered you, Felipe, it was long, because there are lots of things to say here.

Perfect. If I may just make one quick follow-up on the M&A side, if you could maybe talk a little bit about consolidation prospects here for the FTTH segments, how active do you plan to be if you see this market starting to consolidate a little bit quicker in 2023? So just get your overall perception regarding this topic. Thank you.

I think the market needs to be consolidated. I think that's clear for everyone. We started with fiber before everyone. We now have 24 million home paths. We have 5.5 million customers. And we are the only one able to offer, with the size of operation, the convergent offer. So we are in a very unique and leading position. Having said that, we believe that there's no sense of having three fiber networks in the same city. So we need to be much more rational. And I think there was in the past in the market a feeling that everyone could build a fiber network and everyone would be successful. I don't think that's going to happen anymore. And I think with the numbers that we see of the market, of total net ads of the market is making what I say real. Now we don't see the market growing the same way. And when we see the leading one in net ads of the market, share of net ads, we see Vivo is standing out. So it's also a business that requires CapEx. It's not only CapEx of deploying the network, but it's also CapEx to connecting the customers. It needs a lot of things to make it happen in a successful way. And when you talk about neutral networks, they need anchor talents and someone that is really able to occupy this network in a good percentage. So having said all that, I believe that consolidation needs to happen and may happen, especially in the context of high interest rates In our case, we generate cash. So as we said before, our free cash flow is very strong, as you all could see in our presentation. But others, maybe they have a different situation. So we need investment to continue to grow. And with interest rate at that level, the cost of capital is not going to be that low as it used to be in the past. So we are open to see what's the opportunity. We have 24 million home paths. We may have a lot of overlap with most of the players. So that could be a reason not to buy if the overlap is very high. So that's something is one of the criteria that we have in M&A. And the second and the third that are very important is the quality of the network that we are acquiring. We are not going to give up the best quality network that we have, both in mobile and fiber. So if you decide to buy something, it needs to be in the level of quality that we expect to offer to our customers. Not only the network, but also the CPE. That's the important part of the investment. And of course, finally, we only look for companies that have all the fiscal labor and all the other assets that we believe are correct to be in place in a due diligence that would fit the way we manage our company. So, again, open to see. We haven't found anyone so far, but I think the market is a little bit more open to discussion than it was one year ago.

Perfect. Very clear. Thank you, Christian.

Thank you, Felipe.

The question and answer section is over. We would like to hand the floor back to Mr. Christian Gebara for the company's final remarks. Please, Mr. Christian.

Okay, so thank you everyone for participating in our call. As you could see, we have like, apart from the very strong results in all the lines, we have a very optimistic and strong perspective for the year. We have many other things going on that we described here coming from new businesses, like expansion of the current business and also our capital structure that we have new things coming up. We are here all the team at your disposal to discuss in more detail any question that you must have. and again, with a positive perspective for the next quarters. Okay, so thank you all for participating.

Vivo's conference call is now closed. We thank you for your participation and wish you a very good day.