Telefonica Brasil S.A. American Depositary Shares (Each representing One Common Share)

Good morning, ladies and gentlemen. Welcome to Vivo First Quarter 2023 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 on the globe icon in 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 no lado inferior direito de 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 the conference during the presentation, and then we'll start the question and answer section when further instructions will be provided. Before proceeding, we would like to clarify that any statements that may be made during this call regarding the company's business prospects, operational and financial projections and goals are the beliefs and assumptions of Vivo's 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, the industry, and other factors that could cause results to differ maturely from those expressed in prospective forward-looking statements. Presented at this conference, we have Mr. Christian Gebara, CEO of the company, Mr. David Malcolm, CFO and Investor Relations Officer, and Mr. João Pedro Carneiro, IR Director. Now, I will turn the conference over to Mr. João Pedro Carneiro, Investor Relations Director of Vivo. Please, Mr. Carneiro, you may begin your conference.

Good morning, everyone, and welcome to Telefónica Brazil's conference call to present the first quarter 2023 results. The call will start with our CEO, Christian Gervana, commenting Vivo's financial and operating highlights. followed by an update on the progress of our B2B and B2C digital ecosystems and ESG initiatives. Then our CFO, David Melcon, will go through our cost and capex evolution, net income, shareholder remuneration, and free cash flow generation. I now hand it over to Christian.

Thank you, João. Good morning, and thank you for joining our running call. I start by presenting the highlights of a very strong first quarter for Vivo, a period when we reached our highest total revenue year-over-year growth in over a decade, expanding top line by 12.1%, driven by an expansion of 15.9% of our mobile service revenue and by further improvement of our fixed business. This off-the-charts performance was a result of yet another positive quarter in operating terms. with mobile postpaid access growing 15.4% on an hourly basis, while our FTTA subs base expanded 16.8%. We have been able to grow EBITDA above inflation for a few quarters in a row, and this one was no exception, as we presented a 9.6% year-over-year expansion. This result, coupled with the reducing capital intensity you should see throughout the year, allowed us to generate R$3.1 billion in free cash flow in the first three months of 2023, with a robust growth of 26.4% versus the first quarter of 2022. This confirms the conditions for us to maintain a leading shareholder remuneration in the industry going forward. Going to slide four. In the first quarter of 2023, our total revenue reached R$12.7 billion, the highest result the company produced in a single quarter in its history. More importantly, the 12.1% year-over-year evolution is the best we had in over 10 years, confirming that we are on the right track to continue delivering a bold inflation top-line expansion going forward. Our revenue mix keeps on improving as we see our core services expanding. On the mobile side, service revenues grew 15.9% year-over-year with a strong performance, both in pre- and post-paid. In addition, smartphones and other electronics, which were increasingly seen as key elements to enhance customer loyalty, accelerated 20.6% in the period. On the wireline business, FTTH and B2B data, ICT, and digital services continue to be the driver of information transformation. enhancing our growth profile through highly demanded products that only Vivo can offer on a large scale. On slide five, we present the main achievements of our mobile operations in the quarter. We closed March 2023 with 98.1 million mobile subs, of which 60% in post-bates. The 15% year-over-year growth of our customer base enabled us to further expand our market share, reinforcing our leadership in all mobile segments. One of the key elements behind the market outperformance is how successful we have been in controlling and reducing churn. Over the last five years, our post-trade churn reduced 37% to a monthly average of 1.09% in the first quarter of 2023. Churn reduction, jointly with the ARPA recomposition we have been experiencing over the last quarters, is a powerful platform to provide above-market results going forward. On slide six, you can see the key highlights of our initial 5G deployment. We closed the quarter with 58 cities covered with our 5G standalone network, moving forward to offer in the near future the technology in all top populated places in Brazil. Apart from being within our coverage area, to use 5G, our customer must have a 5G-enabled device. At the moment, almost 70% of the smartphones we are selling in our stores are are 5G ready for prices starting from as low as R$1,300. The device affordability coupled with our accelerated footprint expansion has been a driver for fast customer migration from 4G to 5G. As such, 20% of our pure postpaid users are already enjoying Vivo's 5G experience, and this take-up is much faster. than what we saw a decade ago when we launched 4G. This is important as the migration to 5G not only will enable us to be more efficient in terms of investment deployment, but also creates room for more data consumption, which in turn will serve as an important driver for product upsell and improved monetization. Turning to slide seven, we move to fiber. In the first quarter of 23, we added over 1 million fiber to the home premises to our footprint, which now reaches 24.4 million homes in 436 cities. Our second-to-none network reach allowed us to maintain the undisputed leadership of the fiber market in Brazil, with 5.7 million customers, growing 16.8% year-over-year. Apart from the infrastructure advantage, Vivo has a unique ability in Brazil as the only player being able to bundle, in a single plan, fiber and mobile POS pay. This bundling strategy is an extremely powerful tool to extend the customer lifetime value, protecting our investment to capture new users and improving our overall return profile. In fact, Vivo Total, which is our fully convergent offer, had a churn of only 0.39% per month in the quarter. Moving to slide eight. Here we can see that our digital B2B services generate 813 million reais of revenues in the quarter, up 32% year over year, representing 6.4% of our top line in the period. We have been consistently growing this pool of revenues to a tune of 35% per year on average over the past five years. As such, we are on the brink of seeing our digital B2B revenues be greater than our non-core revenues, demonstrating how efficient we have been in becoming relevant in new verticals to replace fading legacy technologies. Even so, we are just beginning this journey. As only a small fraction of our B2B customers are already using cloud, cybersecurity, and digital service from our portfolio of solutions. Therefore, by using the key assets we have, such as a strong brand and the 5,000 B2B sales reps with nationwide presence, we have a huge potential market to explore. Let's move to slide nine. Here, for the first time, we start to put numbers on some of the verticals we have been developing to consolidate our digital B2C ecosystem. But before that, I would like to point out that Brazil is a country with a low penetration of basic services such as health, education, and financial products. We firmly believe Vivo to be in a unique position to bridge this gap and accelerate inclusion through digitalization. relying on a low acquisition cost that takes advantage of a set of assets that includes a long-standing relationship with 112 million customers, massive big data capabilities, channels comprised of 1.8 thousand stores, and an app with over 22 million unique users per month, and one of the top 10 most valuable brands in the country. Now going to numbers. On the left-hand side of the slide, you can see that in the first quarter of 2023, the financial services we offered to our customers generated 94 million reais in revenues. So the financial services we offered to our customers generated 94 million reais in revenues, up 55% year-over-year. Here we have key contributions from VivoMoney, our personal loan platform, which closed the quarter with a portfolio of 239 million reais, up over five times year-over-year. We are also accelerating the sale of insurance for electronic devices such as smartphones, tablets, smartwatches, and laptops. At the moment, we have over 300,000 smartphones insured with us in partnership with Zurich Seguros. We are also moving ahead to go beyond tech and offer insurance for pets, bikes, homes, among others. Another important source of revenue and churn reduction has been the sale of video and music OTTs through our invoice, bundled with our postpaid and FTTH plans, or on a standalone basis. We currently bill more than 2.2 million OTT subscribers, generating R$101 million of revenues in the quarter, up 53% year-over-year. VIV is one of the top telcos in the world in terms of partnership with content providers. As we see, this is a key advantage in maintaining our customer loyalty and satisfied with a completeness of our portfolio. Moving to slide 10, in addition to financial services and OTT distribution, we are developing other verticals that will complement our digital ecosystem strategy, starting with health and wellness. In March, we invested 60 million reais to acquire Vale Saúde Sempre, a startup that provides access to over 5,000 labs and clinics nationwide and was already acting as a partner to our e-health initiative, Vida V. Now, we already have more than 70,000 lives covered by our subscription-based products. Moving to education, we recently made the commercial lounge of Viva E., the employability platform we have in partnership with Anima, offering over 400 hours of content packed in short-duration courses. On Smart Homes, we see space not only to sell virtual assistants, lamps, sensors, and other products, but also to have a recurring revenue stream through our VivoGuru solution, which offers our customers access to professionals dedicated to help with tech doubts and configurations. Additionally, We see the business of selling electronic devices beyond smartphones as very attractive as this generates important influence to our stores and allow us to be a one-stop shop for tech needs of our customers. In the first quarter of 2023, we registered 69 million reais in revenues from this vertical, up 95% year over year. Here, apart from being a smartphone, apart from the smartphone products, we sell laptops, wearables, and accessories, the latter being reinforced by a recently launched brand, Ovi. Moving to slide 11. On ESG, this quarter, we highlight that we are well on track to achieve the goal of having 40% of women occupying our leadership roles. As at the moment, 36.8% of the positions are held by them. We are not only fomenting the presence of women in the executive position, but also in field service operations through the program Mulheres de Fibra. Still on diversity, in the first quarter, we've sponsored the Lollapalooza Music Festival, allocating the largest part of its tickets to black people from peripheral communities and black influencers and entrepreneurs, through the Presença Preta, or Black Presence Movement. Going to the right-hand side of the slide, you can see that we continue to expand our distribution generation program, having inaugurated seven new power plants, totaling 55 plants in function out of the 85 we have as a goal. We were also recognized by the Carbon Disclosure Project for the third year in a row as a supplier engagement leader, helping implement sustainable practice throughout the entire value chain. Now, David will take us through the financial highlights of the quarter.

Thank you, Christian, and good morning, everyone. On slide 12, you see that we were able to maintain our cost of preparation, which comprise 68% of our cost and expanded 11% year-over-year, growing below revenues. Here, personal cost continues to be one of the main drivers, as this line is not only impacted by the annual salary increase, but also by the insourcing of staff to support our winning B2B digital services strategy and additional headcount related to new businesses. Apart from that, commercial and infrastructure costs remain well under control, while the provision for bad debt was slightly lower on a yearly basis, denoting how relevant our services have become to our customers. Looking at the cost of service and goods sold, which mostly increase in line with our effort to sell high-growth solutions and products such as digital services, handsets, IT equipment, and accessories, the expansion of 18% year-over-year was lower than the increase in revenues coming from these verticals. For the quarter to come, we see a path to improve the annual evolution of costs. not only from the opportunities around digitalization and simplification, which we continue to capture, but also from the recently completed integration of OI's mobile assets that resulted, for example, in the termination of the transition service agreement with OI that had a cost of almost 50 million reais this quarter, and consume around one percentage point of every year growth. This integration will also boost the capture of synergies related to the network costs, IT platforms, and customer care, among others. Additionally, in March, we started to amortize for tax purposes the goodwill arising from the acquisition that will generate more than R1 billion cash during the next five years. Going to slide 13, as guided in the previous quarter, Vivos CapEx for 2023 will be below R9 billion. providing an important savings compared to the R9.5 billion invested in the previous year. This first quarter figure already points to this lower capex intensity, with investments clocking in at R1.7 billion, or 13.3% of revenues, our lowest ratio ever. As a result, we saw a robust expansion of 23.7% year-over-year of our operating cash flow in the quarter, with the last 12 months' margin recovering the 21% level. These results put us in a unique spot as we continue to invest in top-tier technologies, such as 5G and fiber, while being able to optimize capital allocation as well. On mobile, synergies arising from the recent Spectrum acquisition start to kick in, while on Fiverr, most of the footprint deployment is gone. On slide 14, you see that our net income expanded 11.3% year-over-year in the quarter, reaching 835 million reals. Even though we are still seeing increasing pressure coming from the financial results due to the increased debt level and higher interest rate, the 17% expansion of our operating income in the period more than compensates this factor. Year-to-date, we have already declared R1.2 billion of dividends and interest on capital. In addition, we invested 72 million reais in the quarter to buy back our shares. As such, we kick off the year with a very robust allocation of capital towards our shareholders, something that will continue to be one of the key elements of our strategy. Finally, on slide 15, you can see that our free cash flow generation reached 3.1 billion reais in just three months, growing 26% year-over-year. Looking at last 12-month figure, we closed the quarter with a free cash flow yield of 12%, a number hard to be matched by companies of any industry. 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 raise hand button. If your question has already been answered, you can leave the queue by clicking on the same button. Wait while we pull four questions. Our first question comes from Fred Mendes from Bank of America. Please, Mr. Fred, your microphone is open.

Hello. Good morning, everyone. Thanks for the call. I have two questions here on my side. The first one on cost, I mean, you already mentioned a little bit, but it was cost grew like 12%, personal itself 23%. a little bit higher than what we had here. So just wondering if with the lower inflation in 2023, there is room to reduce this cost, or given that the other business, they are growing, you know, this line should stay high throughout the year. This will be the first one. And then the second one on the B2B digital. Once again, some acceleration, you know, already 6.5% of your revenue. Do you believe that there is room to continue to grow at this pace as you add more products, or is this kind of a one-off? Basically trying to understand the potential of this line here for the next years. Thank you.

Hi, Freddy. I will start with the first question. Yes, as we saw in the slides, we have divided the cost in two parts. Now, the first one, will be linked to the evolution of the new businesses, more like cost of goods sold and so on. So we're expecting this to continue to grow. But just to remind you that those revenues will have no capex allocated. So in terms of operating cash flow margin will be very positive. Regarding the second one that you mentioned about inflation, We are working with different levels to make sure that we reduce those costs. And, in fact, despite some lines are increasing, particularly the one that has to do with personal costs, as we explained, they are explained by just specific projects. But if we look to all the OPEX overall, we see a lot of opportunities, both in simplification and digitalization.

a part of the synergies coming from from oi to to reduce and to improve the trends starting from from the first from the next quarter in second quarter this year we will see some improvements on on the trends if the i could continue fred with the with the b2b uh so uh as you know we've been giving a lot of uh visibility to our evolution the b2b uh digital services This quarter was 32%, but if you see what happened in the last five years, the trend is exactly the same, no positive evolution of the services. Here we believe there is room for growth for many reasons. Because Vivo has a unique channel footprint for B2B, coming from the small companies to the large corporations. Now we are more than 5,000 sales reps distributed nationally with the relationship with all type of customers that allow us to sell more services. The second thing is that after the pandemic that was accelerated, the need for digitalization in companies. And if you look at the level... of digitalization, penetration of digital services in all types of companies is still very low in Brazil. Talking about cloud, cyber securities, notebooks, and many other type of services that we sell. It's much more, we're talking here much more of recurrent services rather than a hardware sale. So the mix is much more for recurrent services. And we see ourselves, because we can prove it, we're one of the key partners of the large techie companies. So if you look at Cisco, Microsoft, Google, Huawei, among others, they search for our partnership because we have the footprint, we have the relationship, and we can build the customers in an easy way to distribute their services. And apart from what they have as services, we are also investing in having people here that understand the services in depth, that can help the sale, but more important, can help the management of the services once it's implemented in our customer base. That's the reason that we bought one company last year, Vita IT. That's the reason that we are hiring people as well. So one of the answers of the personal cost is also related to increased capability, internal capability of being able to deploy and manage B2B services. So going forward, we don't give trend, but everything that we see is very positive for the role that B2B can play in our future revenue mix. I don't know if that's all your question about the B2B and the cost threat. Otherwise, I can compliment you.

Perfect, Christian. That would be very clear. If I just may, on these two points, if I just may follow up here. I'm sorry for the third question, but it looks like the deal with Winity is about to be approved, is already approved. So just wondering if with this, let's say, higher spectrum, there is room to further decrease the capex in 2023. It's already lower than 2022. Thank you.

It's not approved. Yesterday, we had a positive decision of the technical team from the Elti Trust, from CADE. So it's a first step in the antitrust, so yesterday they approved with no restriction the deal as we expected because it's the secondary use of a frequency, the spectrum that was bought by Winiti, but we still need to grow for all other stages in the antitrust and the stages that we need to go through in Anatel. So it was a positive step in the antitrust, but we still need to have final approval there and also approval in Anatel.

Perfect. Very clear, Christian. Thank you.

Go for it.

Thank you. Our next question comes from Marcelo Santos from J.P. Morgan. Please, Mr. Marcelo, you may proceed.

Hi. Good morning, Christian, Davi, João. Thanks for taking my questions. The first question is for Davi regarding the working capital. I think on the first quarter, we saw a big release of 1.3 billion reais in working capital. How should we think about this line going forward? And what are the main moving parts here that investors should keep in mind? And the second question is for Christian. I wanted to discuss a bit more Vivo Money. Could you please discuss the types of loans that you are giving there? What are they for? What are the average size? Are these to buy mobile phones or general loans? Any more color on these loans would be quite interesting. Thank you very much.

Thank you, Marcelo, for the question. I will start with the first one. Look, at Telefónica Brasil, we have shown very strong cash flow generation over the last few years. And working capital has been one of the key parts. So the key reasons why the working capital is still positive this quarter, I will summarize in two. The first has to do with the fiscal tax, which is, you know, we have an injunction obtained in relation not to pay the fiscal tax since 2020. This is something that is impacting our costs because we are recognizing the cost in our financial statements. but we are not paying. So this had an impact in the last 12 months, and one impact of 750 million reais, positive impact in the working capital. The second one has to do with the monetization of the tax assets that we have in our balance sheet. Not only the one that have to do with the taxation of the ISMS and physical things, which is the most relevant, that just in the quarter, just a piece of coffee that we have monetized amounts to around 500 million reais. On top of that, we are always working with initiatives on working capital, that taxes is one of just the key areas. But just those two are explaining a significant part of it. On top of that, we keep working, and something that is important, that for the second quarter, We still have some tax assets that will be monetized. That means that will be cash coming in where the positive impact on the results was already recognized in the previous year. So, in summary, these are the key elements for the working capital positive. And we continue. We expect positive trend in the second quarter.

Marcelo, going to VivoMoney, okay? So going back, VivoMoney was launched in October 2020. Now it's one of the financial services we offer in our fintech platform. It's a personal loan. It's available for people's customers because we know this customer better. We can access their credit risk using our big data and data analytics, so we understand the profile. We can minimize risk, and we can be very assertive offering the right amount of loan to the right customers. Now, the range goes from $500,000 to 50,000 reais, on average is 5,000 reais. It's very fast and practical the way they hire it. It's 100% digitally that we do that. The money is not related to smartphone acquisition at the moment. It's direct loan, and the customer can use it the way they want it. If you look at the number, the evolution, If I look at the number of contracts that have been generated, that's been multiplied by two, three, four last year. So today we have in the loan platform approximately 239 million reais being lent. It's part of our strategy to reinforce our position of a digital hub. I think, of course, it will help also enable the acquisition of products as a way to finance it. So it's a way that we're going to use it more, as you mentioned, the smartphone or any other device for the smart home. Nowadays, the funds raised through our FIDIC, a fund based on receivable full rights, We are the only participant at the moment, but we are looking for others. So that's the way we are doing the financing of funds. I don't know if you have more questions, Marcelo, about liver money.

No, perfect. It was pretty clear. Thank you very much, Christian and Davi.

Thank you, Marcelo.

Our next question comes from André Salles from UBS. Please, Mr. André, your microphone is open.

Hi. Good morning, everyone. Thanks, Christian, João, and David for the space here to ask a question. The first one will be in terms of the price up schedule. If you guys could please share the company views on the price up schedule on your mobile plans, both postpaid and prepaid. And the next question will be the developments of the capital reduction discussion with Anatel. So if you guys could please just comment on that and share. The follow-up here is that after a potential approval from the regulator, there are some additional internal steps that the company needs to make, right, such as shareholder, debt holder meetings and approvals. So regarding these internal steps, could you please give the expected timing for this to happen? Thank you.

So, Marcelo, we've been – sorry, André. We've been increasing price according to inflation every year. So, in April now, we're going to have price increase for almost half of our hybrid customer base, more than half of our post-paid. In January, you already increased – mostly all our fixed products, FTTH, IPTV and voice. So our strategy is always to adjust price. Even in January, there were some hybrid that we already adjusted. So if you look the entry point of our hybrid, it went from 50.99 to 57. We also had to increase based to inflation, our individual postpaid or family plans. So we're following with the calendar to increase prices. Even the Vivo Total was recently increased. So in April, we have more increase in the mobile. And in the fixed, we have more increase, not only the one in January because it was on 100%, but in June, we also have increase in our fixed customer base. Prepaid, we also aim to increase because we need to pass over inflation. would be great to have the market following us on that because the price of prepaid has been in the same level for a long time. So we are aiming also to capture the inflation on prepaid as another one in the mobile space. So that's basically what we've been doing in price. Regarding the capital reduction that you mentioned. As you know, we have in February, we announced that we would do this reduction. Also, we already asked Anatel for that, so we filed in February 15th. They have six months to analyze, and we are confident with the approval, giving a very strong financial position. And after that, once it's approved, we need to comply with all the other necessary steps of this kind of operation, such as the general shareholder meeting that we need to approve. That's a period that we have to do to get it approved. So, on schedule, waiting for an approval.

Okay, that's clear. Thanks, Christian.

Thank you, Andrea.

Thank you. Our next question comes from Marco Nargini from XP. Please, Mr. Marco, your microphone is open.

Hello, good morning. Thank you for taking my questions. I actually have two here on my side. The first one is regarding the competitive environment in FTTH. We saw once again a strong performance in top-line growth this quarter. Can you provide us some further details on that, please? And the second one is regarding the EBITDA margin drop year-over-year. Can you give us some color on the end of the TSA contract with OI in February impacts on margins? And also, as I've already mentioned, the increase in personal expenses and higher share of digital services. What should we expect on margin performance over the next quarters, please? Thank you.

So, Marco, I'll start with the FTTH. So, as I said, we are increasing our footprint. So, we have today 24.4 million home paths. We increased the connection of customers as well. So, we have today 5.7%. It's good to highlight. So, we increased. 18.7% the home pass. We increased 16.8% the home connected. And we're increasing similar level the revenues coming from FTTH. So we are in a very strong position. If the market... It's very competitive, as you mentioned. There are many players. We're talking about very small players to large players like us, that we are the number one in the market. And in general, the number of net ads has been reduced. But Vivo stands out. If you look at the last net ad number available in March, Vivo gained 60,000. The second player gained 39,000. So we are gaining market share in strong position. And as I said also, we are bundling that with mobile. So 75% of the sales or FTTH in our stores are in Vivo total. So either the customer is already a mobile and is acquiring Fiverr, or it ends up being both with Vivo. So the competitiveness of the market is very strong. We have different type of competitor, small ones, medium ones, and large ones. But we have the largest network, the largest customer base, and the only one in national basis with the possibility to offer the VivoTotal bundling, not only mobile and fiber, but also digital services, as I highlighted. It's important to say that apart from selling IPTV, We are the key channel for OTT video, and we have 2.2 million subscribers that's paying OTT through Vivo. So that's the overall vision on ITH. I don't know if you want any specific question on that.

That's super clear. Thanks.

And the EBITDA, I think Davi will talk, but it's important to highlight our very strong growth In absolute terms, 9.6% of EBITDA growth, well above inflation. That shows that we are in the right direction. And important also to highlight the mix of service that we are selling now. We are very positive of our strategy of selling more digital services. We highlighted the 6.2% of the B2B, and we are also giving more color on the B2C. These surveys may come, some of them, with lower margin, but they have no capex. So, highlighting the growth in absolute terms of our EBITDA, also highlighting the growth in our operating cash flow margin that is also growing, and it's a very, very, very high number.

So, David, if you want to comment. Marco, thank you for the question. As Christian said, I mean, we prefer to look to the operating cash flow margins because the evolution of the revenues is very strong, particularly on those new services. But in terms of operating cash flow margin, they are similar, could be similar to the telecom services, but we cannot look just on EVDA. So we look this quarter, we are back to the 21% operating cash flow margin looking to the last 12 months, as we show on the slide 13 in our presentation. We are very positive in terms of seeing operating cash flow margin expansion looking to the last 12 months for the coming quarters as we are reducing capex and also we are improving our efficiencies. And regarding your specific question on the transition service agreement we had with OI, we agreed at the beginning of the deal 172 million reais for the next 12 months after the acquisition that happened the 20th of April of 2022. So we have done an early termination of this contract as we have already merged the customers. So from the second quarter compared to the previous, the first one, just on this contract, as I say on the call, there would be 50 million reais less costs on top of the rest of the costs that we had to facilitate the migration of customers call centers, there were customers calling our call centers to clarify what was about the migration to the new services. Those calls will not happen again for the rest of the year. That's why, as I say, we are positive that the second quarter will see an improvement on the cost trends. This second quarter and also for the coming quarter.

Thank you, Christian and David.

Thank you, Marco.

Our next question comes from Victor Ricciucci from Credit Suisse. Please, Mr. Victor, you may proceed.

Hi, good morning, Christian, David, João. Thanks for taking my question. The first one is regarding the competition in the mobile segment. As you already mentioned, you are being able to increase prices for almost the whole client base. And at the same time, you are being able to also reduce churn prices. So we were wondering how are you perceiving competition in the mobile segment and how do you expect it to continue throughout 2023? And my second question is regarding the OA client base. So the OA incorporation happened already one year ago, so now you can increase prices to this client base. So could you provide us some color around the commercial strategy for the OA client base going forward? Thank you.

Thank you, Victor. I'm Christian. I'm trying to answer. Yes, it's a very competitive market. It has been competitive for so many years. It's very competitive. What I try to highlight here is, first, there is the need of pass-over inflation, and we are doing that to be able to increase revenues. And, no, in regard – because we have, like, investments, so we need to increase revenues – to increase our profitability. So we are doing that. So hopefully we're going to be followed by the market. The second thing is that I think the value proposition of Vivo is unique. We have the best coverage combining mobile and fixed. that give us increased loyalty. So that's why I think we also see the good performance in churn at both Mobile, Fiverr and Vivo Total. We've been able also to increase lifetime value, reducing churn with more services to our customer base. So let's take into focus here in the mobile access. We have 98 million access in our customer base. It's a growth of 14.2% in prepaid, but 15.4% in postpaid. That's a combination of attributes that we have, infrastructure, complete digital service value proposition, customer service that we focus in giving best experience, and many others that I talked over the presentation. So going forward, we continue with our strategy. We are combining the inflation change that we need to put in prices with highlighting the value proposition that we can offer to customers. So, very competitive, and our strategy is focused on what I just described. Regarding OEI, Yes, we have full integration. We finalized the process. The customers that we had, we disconnected. So in final numbers, we are closer to 9 million rather than 12. That was the first number that we received. concentrated most of them in our case in prepaid, although we had some also in hybrids. There's no specific strategy of increasing prices for this base. It's also very mixed, the number of customers that we have. There was a lot of migration. from customers that were oi to vivo customer base even before the deal or the incorporation was concluded. We also had migration reporting of customers from oi in other regions where we haven't received geographically the customers. So our strategy is the same. We are doing what we normally do. We try to upsell to customers. We try to move customers from prepaid to hybrid, from hybrid to within hybrid to higher plan. We are adding digital services, some of them to have hybrid plus digital services. And we are also migrating hybrid to pure postpaid. Has no specific action. to what we got from NOI, rather than integrating the customer here, migrating to our plans, and try to give them the best experience once they have now a coverage of network and channel that they didn't have when they were in the other operator.

That's very clear. Thank you, Christian.

Thank you, Victor.

Our next question comes from Daniel Ferdelli from Credit Suisse. Please, Mr. Daniel, your microphone is open.

Good morning. Thank you very much for the opportunity to do a follow-up question here. So we are seeing telecoms, and I could say especially Vivo, growing faster than they used to, growing faster than normal. And my question is, in a scenario of, like, a more positive price environment, if this more positive price environment allows for one, two percentage points more in growth, should we expect this additional growth to pass through EBITDA? So one, two percentage more in revenue should translate to one, two percentage points additional in EBITDA margin, or are there – like reinvestments, additional costs associated to this scenario. Thank you.

I don't know if I would talk about, Daniel, about margin, but growth, you know, for EBITDA. We don't give trends. So there are many things implied in what you just said. Now, first, we are growing in revenues in all segments. So I wouldn't specify the growth in mobile. We are growing mobile. We are growing fixed. And we are growing in digital services. And the dynamic of the three segments are totally different. And if you talk B2C, B2B, you are creating either other dimension. And as we try to reflect here, that we've been able to grow in all of them. Also important to highlight that what we call non-core, that used to represent 9% of our revenues, now represents 7%. We took out DTH from our value proposition. We are now offering the service, and we disconnected or migrated the customer they used to have. Even with this movement, we grew fixed in total 3.5%. We are also growing handsets and electronics because we believe that's a way also to increase flow to our stores. It's a way to increase lifetime value. And it's proof that the customer is much more loyal and they see us as a technology partner rather than just a telco. So there's a combination of of strategies here. So it's very difficult just to isolate mobile and believe that there is a mobile rationality and that would be reflecting EBITDA. If I talk about the specific telco service, maybe your assessment is correct, but here we are talking about the combination of services and segments that give us this absolute growth. And as David said, we are also very focused on the operating cashflow margin We've already set here a target for CapEx, $9 billion maximum this year. We already presented a number for CapEx in the first quarter, lower than we had in the previous quarter. So this is the strategy. Try to mix more revenue. opening up our spectrum to have more sources of revenues, controlling costs based on digitalization, understanding that some of these sources of revenues have different EBITDA margin, but maybe a better operating cash flow margin since some of them don't depend on CapEx. So that's the view. That's the strategy. And we wanted to show this quarter with more color that we are going in the right direction.

Perfect. Thank you, Christian.

Thank you, Daniel.

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

Hi. Thank you for the opportunity to make some questions. The first one is regarding shareholder distributions for this year, given that free cash flow generation was very strong in this first quarter. Just wondering what is your expectations for dividend distributions in 2023, and if we could see a very rising level of distributions relative to 2022. And my second question is regarding B2C ecosystem revenues. We already saw a relevant contribution of financial services and sale of OTT this quarter. So just wondering what other opportunities do you see, right, which could further complement your ecosystem going forward, right? And eventually if you plan to do this through partnerships or M&A. Thank you.

Thank you, Felipe. I will start with the first one. I mean, you know, we have a practice to distribute 100% payouts. This is something that will continue. We have a very strong cash flow generation, not only this quarter, but also in the previous years. That's why we launched the project of capital reduction to close the gap between the net income that we have generated this quarter and this year with the cash flow generation that will continue as in previous period, very, very strong. So that's it. So 100% payout and working on the capital reduction as Christian explained before.

Well, Felipe, I don't know if you have more questions in the shareholder, but otherwise I'll go to the B2C ecosystem. So as I said, now we are leveraged on the assets that we have. customer base, channel, big data, billing capability, and brand. And we see ourselves as one of the unique players in the market among sectors to be able to create a digital ecosystem in Brazil. And again, the key focus is serving through digitalization, customers that don't have access in the physical terms to to service that we believe are very essential to our lives. So we're going to do that, and we're going to open up the numbers quarter over quarter. This quarter, we gave more color in the financial services and entertainment. We may give more color in the future to the other verticals that I described here. We are doing that, as a question, in different models. Some of them is pure distribution like entertainment. Others are JVs like the education that we did with Anima. Some may also have a position as the one in health that we bought, Vale Saúde Sempre, to accelerate the creation of our platform that is VidaVie. Others would be minority stakes, as we are doing with our venture capital fund, Vivo Ventures. We already have two investments in fintechs, one in open finance, The second one, Clube, there is a consortium that we're gonna have a digital platform to sell consortium that it's a typical Brazilian model of selling something in installments, financing, the acquisition, cars, real estate, and why not electronics. So each of these verticals will have a specific model, either partnership, M&A distribution, and we're going to give more color over the quarters as soon as we develop more each of them. So that's the vision, and we believe that with all the assets that I described before, that we are among different sectors in Brazil, we are in a unique position to be the winner of the construction of ecosystem.

Perfect. Very clear. Thank you, Christian and David.

Thank you. Thank you, Vepe.

The question and answer section is over. We would like to hand the floor back to Mr. Christian Giovanna for the company final remarks. Please, Mr. Christian, you may proceed.

Okay, so thank you for all of you for participating. As you could see, we start very strong this year. It's a reflection of the strategy that we've been communicating along the last quarters, and that will give very robust and clear results that give us optimism about the next quarters. And we're going to be always at your disposal, Davi, myself, and our IR team, to answer any questions that you may have. So thank you again. Have a great day.

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