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

Good morning, ladies and gentlemen. Welcome to Vivo 3rd 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 the globe icon located 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. 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 statements that may be made during this conference call regarding the company's business prospects, operational and financial projections and goals are the beliefs and assumptions of Vivos 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 materially from those expressed in the respective forward-looking statements. Present at this conference, we have Mr. Christian Jabara, CEO of the company, Mr. David 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. Please, Mr. Carneiro, you may begin the conference.

Good morning, everyone. Welcome to Vivo's third quarter 2023 earnings call. The presentation will be divided in two parts. First, our CEO, Christian Jabada, will walk us through Vivo's financial and operating highlights, followed by an update on our new sources of revenue and ESG advances. Then, our CFO, David Melcon, will comment on our financial performance and shareholder remuneration in more detail. I now hand the call over to Christian.

Thank you, João. Good morning, everyone. Appreciate you joining us. I start by presenting the highlights of another very strong quarterly result. We delivered a revenue growth of 7.5% year-over-year and an EBITDA increase of 11.7% year-over-year, both well above inflation. The customer base mix keeps improving. Postpaid access surpassed the mark of 60 million customers and homes connected with FTTH summed up 6 million access. Our high value subscriber base is shooting our growth engine. This growth was combined with improved profitability. EBITDA was at an all-time high, reaching R$5.5 billion in the quarter, with a margin of 42.2%, leading to improved bottom-line performance, as net income reached R$3.4 billion year-to-date, up 15.9% year-over-year. As we continue to reduce our capex intensity to meet the level guided for the year of up to R$9 billion, cash flow generation speeds up. Over the first nine months of 2023, our operating cash flow grew 27.1% year-over-year to R$8.9 billion, while our pre-cash flow expanded 16.7% to R$7.6 billion. As such, we are committed to keep an attractive level of shareholder remuneration. Up to October 2023, we already declared R$2.6 billion in dividends and interest on capital, while also invested R$380 million to buy back our own shares. Moving to slide 4, we show the breakdown of our revenue growth. Our focus on best-in-class technology is contributed to total revenue growing 7.5% year-over-year, well above inflation. On the mobile side, the continuous upselling to post-paid plans coupled with price and rationality allowed mobile service revenues to reach an organic expansion of 9.0% year-over-year in the second comparable quarter since the acquisition of part of OiMobile's assets. Handsets and electronics posted a 13.5% annual increase as we outpaced the market in the selling of high-value 5G devices and offer a broader portfolio of electronics. FTPH and corporate data, ICT, and digital services continue to grow double-digit, meeting the demand for high-quality connectivity and digital services. These services are the drivers for the positive expansion of our fixed revenues. Turning to slide five, we can see the improvement of our mix of customers, as POS paid already represents 62% of total mobile access. Our mobile leadership has been reinforced as we continue to deliver an unmatched value proposition to our customers. This strong operational momentum combined with our pricing strategy resulted in an 11% annual growth in our pool, reaching its highest value in the last three years. While average spending increases, PostPayChain has reduced 39% in the last four years, reaching a very low level of 1.09% per month. With customers staying longer and spending more with us, we see a clear pathway to deliver sustainable real growth on a consistent base. On slide 6, we detail the advance of our top-notch fiber operation. Vivos Fiber's footprint is present in 439 cities throughout the country, totaling 25.1 million homes passed, which keeps up on track to reach the target of 29 million homes passed by the end of next year. In the last 12 months, we added 2.8 million fiber-to-the-home premises and connected 715,000 homes, increasing our network take-up rate after reaching 6 million users while also improving our R pool profile. In addition, VivoTotal, our fiber mobile convergent offer, surpassed the mark of 1 million customers. more than doubling its base over the last 12 months. This offer has the lowest churn and the highest lifetime value, putting Vivo in a unique position to benefit from convergence in the long term. Going to slide 7, you can see that the digital B2B services added up to 3.2 billion reais in the last 12 months, up 28% year-over-year, already representing 6% of Vivo's total revenue, even though the services are currently provided by Vivo to only around 10% of our 1.5 million B2B customers. Going forward, we see a significant opportunity to increase the penetration of digital solutions in our existing B2B customer base, mainly in SMEs. With that in mind, Vivo, my business, has a new position and focus on integrated digital solutions for micro, small, and medium enterprises tailored by size and sector. We offer accessible products related to cloud, sales management, web presence, and efficient tools to help these entrepreneurs adapt their business to compete and prosper. Moving to slide eight, we give an update on the evolution of some of our new sources of revenue in the B2C segment. Financial services generated R$106 million in revenues during the quarter, up 45% year-over-year. Here we highlight Vivo Money that ended the quarter with a portfolio of R$307 million in personal loans, more than doubling year-over-year. In the end of July, we announced that Vivo Money has a new investor, Polygonal, that has committed to invest up to R$250 million over the next two years to strengthen the expansion of our credit services. The distribution of video and music OTTs through our invoice totalled R$144 million of revenues in the quarter, up 33% year-over-year, coming from 2.8 million OTT subscribers. Our partnership with the main content providers allows us to expand average customer spend, decrease churn, and increase lifetime value. More recently, we broadened our electronic portfolio that includes notebooks, smartphone accessories, smart home devices, among others, to complement the experience provided through our connectivity services. This product generated 79 million reais in revenues last quarter, up 28% year-over-year. We know that revenues from financial services, OTPs and electronics beyond smartphones Put together, represented 3% of Vivo's total revenues over the last 12 months. As they keep this strong growth pace, we are confident that these new businesses will have a greater relevance over the next years. On slide 9, we highlight some advances in environmental and social fronts. We have a target to achieve net zero emissions by 2040. And to help us reach this goal, we established a program with 125 carbon-testing suppliers to diagnose, train, and encourage these partners to move towards this commitment. On energy, VIV is the first company in the sector operating in energy self-production modality. We announced a partnership with Valera in the state of Minas Gerais that comprises four solar parks. There are two important reconnections. First, Vivo was the only telco and Brazilian company in fortunes change the world list due to the Vivo Recycles program, our main initiative in circular economy. We were also highlighted once again in the Great Place to Work ranking, being one of the top 10 best companies to work in Brazil. Now, David will walk us through our financial performance.

Thank you, Christian, and good morning, everyone. On slide 10, we saw the results of our commitment to an efficient cost structure. Total cost was up 4.6% year-over-year, well below our revenue growth. Cost of services and goods sold increased 5.9% year-over-year as revenue from B2B digital solutions, handsets, and electronics increased. Cost of operation, which represents 67% of total OPEX, was up 3.9% year-on-year, decelerating versus previous quarters and below inflation in the period. The performance is explained by the acceleration of commercial activities, continuous efficiency and digital initiatives, bad debt improvements and a positive net effect on R175 million on matters related to the oil mobile acquisition. Moving to slide 11, our focus on top-tier technologies such as 5G and fiber is contributing to a better mix of capital aspects. In the first nine months this year, we invested 6.7 billion reais, a decrease of 5.3% year-over-year, representing a capex-to-sales ratio of 17.3%, on track to reach our guidance of capex below 9 billion reais this year. As a consequence of a very strong operating performance coupled with controlled investments, our operating cash flow summed up an impressive value of 8.9 billion reais year-to-date, up 27.1%. We are optimistic about the opportunities to further reduce our capital intensity going forward. On mobile, we already cover more than 40% of the population with 5G. While on Fiverr, a significant part of the HomePass footprint we plan to have has already been deployed. On slide 12, you can see that our profitability metrics keep on improving as a result of a very positive operating momentum and solid financial execution. As such, net income and free cash flow increase every quarter of the year on an annual basis, reaching in the first nine months this year 3.4 billion reais and 7.6 billion reais, respectively, growing at double-digit rates year-over-year. This also results in a low debt level. Financial net debt decreases 76% year-over-year. Even considering IFRS 16 leases, Leverage remains well controlled at 0.6 times EBITDA. All these figures allow us to keep investing in our growing businesses and maintain an attractive shareholder remuneration. Lastly, on slide 13, we update you on our capital reduction request to ANATEP. In September this year, we had a positive outcome. as Anatel granted a prior consent to reduce our capital stock in up to R5 billion in one or more events. With this approval, we have more flexibility to decide the best mix of shareholder remuneration for the next years, through the combination of capital reduction, dividends, interest on capital, and share buybacks. 2023 shareholder payments sum up 4.6 billion reais year-to-date, including our save-by-back program. Our priority is to continue delivering a unique combination of growth, profitability, and return to shareholders. Thank you, and now we can move to the Q&A.

Thank you. Our first question comes from Fred Manges from Bank of America. Please, Mr. Fred, your microphone is open.

Hello, good morning, everyone, and thanks for the call. I have two questions here. The first one, it is on CapEx. You already mentioned a few times on the presentation that you keep below $9 billion for the year, but historically, the fourth Q is the strongest, the highest in terms of CapEx, so just double-checking, because if we use the same numbers for the third Q, you'll be slightly above $9 billion, so just want you to double-check that, and how you see this number for 2024, in our calculation here there is room for some decrease here in terms of capex, but obviously I would like to be glad to hear your view on that. And the second point on mobile, I'm assuming also you're already doing the budget for 2024, and obviously the macro scenario can always change But with the information we have today, do you think there is room for us to continue to see this real increase in terms of price, or that's something that happened in 2023, more like a one-off and should not happen in 2024 as well? Thank you very much.

Hi, Fred. This is Christian. So going to your questions on CapEx, yes, what you said, no, we're going to be up to $9 billion this year for CapEx. There is a decisionality of the CapEx, but that's confirmed, the target that we have for the year. Regarding 2024, we're not giving guidance right now. What I said in the past is that last year was the peak that we had in CapEx because of the whole integration and part of the 5G auction, some part of the obligation that we had to invest. This year, as you said, in the beginning of the year, it was going to be a more reasonable CapEx up to 9%. next year, we're not going to see any peak. So I don't give guidance now, but I think it's continued to keep the trend. Regarding the revenues, yes, as you said, no, there is also not giving guidance for revenues. What we see here now that we presented in this call is that we've been very successful attracting customers, both mobile and fiber customers, so net ads being very strong. Churn is very controlled, actually is in the lowest level in the mobile and in the fixed. If you consider Vivo Total, we have more than 1 million customers today. We are talking about a churn that is lower than 0.5% per month. We've been very successful in adding new services to our services, both mobile and fixed. So you see the ARPU evolution. That is also a good sign of our strategy of adding more services or migrating, upselling customers within the same segment that they are. So combining all of this, I don't see any operational or competitive, in our case, no, the value proposition that we offer to be different in the next months. So confident about the future, but not giving you a specific guidance.

Perfect, Christian. Very, very clear. Thank you very much.

Thank you, Fred. Thank you.

Our next question comes from Bernardo Goodman from XP. Please, Mr. Bernardo, your microphone is open.

Hi, good morning, everyone. Thanks for taking my question. Actually, I have two here from my side. The first one, when considering margin dynamics, you are experiencing a consistent growth trend. There seems to be significant potential in leveraging the OE customer base for digitalization and also upselling opportunities. However, it would be valuable to understand the sustainability of this margin increase for the next year, also considering the fixed part of the business. And the second question is regarding basically asking for an update on the network sharing agreement with Tim, and if there is any discussion to expand the scope for 5G. Thank you.

So... Bernardo, I will start and then David will continue if he wants in the margin. Then I will come back to discuss the team. Look, we are growing EBITDA in a very solid way. So as we have been discussing with you in the past, we are growing revenues and EBITDA above inflation, and that's a very positive sign. Actually, revenues are growing in all lines. We are growing mobile, we are growing in what we call smartphones and electronics, and we are growing in the fixed. what is what we call non-core, that is voice and DSL, our growth would be a double digit. Positive growth. Part of this growth is also in digital services. I think I highlighted here 6% of our revenues are already in B2B digital services, and you can calculate on average here 3% may be in digital services in B2C. So our mix of revenues is changing. Some of the services, they have a different margin. but they have no capex. So if you consider the operating cash flow margin that we are presenting here, or even the free cash flow margin that we are presenting in the nine months, you can see a significant increase in these two margins. So our objective here is to continue to grow absolute numbers of revenue in EBITDA and improving the margins that we present both in operating cash flow and in the free cash flow considering the new mix of products that we are selling that I just described here as some of them. Having said that, of course, there's a lot of initiatives in reducing costs. We are driving the company to digital interaction with our customers. It has an impact in customer care, but it also has a strong impact in commissions and many other areas. commercial OPEX that you have, then it's going to be reduced when you drive it even more digital. So, here's a combination of factors. Obsession here is to increase in absolute numbers, and obsession here is to have operating cash flow and free cash flow margin much stronger.

Let me also add, Bernardo, the question about OE. So, we have the synergies. As we say, we acquired OE 18 months ago. We say that we're going to have a synergy from OPEX and CAPEX of 5.4 billion reais, equivalent to the amount we paid. And this is coming nicely every quarter. That's why you are seeing, as Christian said, an operating cash flow growth in the quarter of 22.9%. And in the first nine months, we are growing operating cash flow in 27.1%. So this is the line that we are looking at, and particularly we are monitoring and we are tracking in absolute numbers.

Can I go to the run sharing, Bernardo, or any other question?

Yes, please. Thank you. Very clear, the first one. Thank you.

Okay. So, here we have, like, we are very keen on this initiative for run sharing with team. Here we have three dimensions of this initiative. The first one was expand 4G coverage. So, we like... that happened in 716 cities approximately 360 cities to each of the operators that was successfully implemented so cities that team had presence and we didn't or in the opposite so we could do that and that was great and we are we may envision doing more in the in the near future especially now that apart from 4g we may have also the 5g deployment then there was a single grid model That is what the first trend of this run sharing was focused in cities of less than 30K inhabitants. Here we had a plan to do more than what we did so far. At the end of this quarter, we ended up doing that in 180 cities. But we are now preparing ourselves to do more cities. So it took us more time, technically speaking, especially because we also had the OEDO in the middle of the process that would put our network focused in migrating customers and also integrating their frequency in our portfolio. And now we are again ready to expand the single grid to more cities. I don't give you a number right now, but there's opportunity to expand it. And then there is a third element of this agreement, that is the 2G network that we want to consolidate and shut down. That also had a very good progress. We concluded, no, the rollout, I think we have like more than 1,000 cities today that we have the 2G networks already consolidated. Here there is also room to expand it, and once it's expanded, we are close shutting down 2G infrastructures as a whole. So 1,000 cities that we already have the consolidation. In the future, apart from having the consolidation, we may shut down the 2G and use the frequency to other technologies. So that's the status. Some progress, still room to come. and the last year impacted by the OI integration for both operators.

Very clear. Thank you very much, Chris and David.

Thank you, Bernardo, for the question.

Our next question comes from Marcelo Santos from J.P. Morgan. Please, Mr. Marcelo, your microphone is open.

Hi, good morning, Christian, Davi, everybody from the Vivo team. Thanks for the opportunity for making questions. I have two. The first, you had some fines on the decommission of OSI, so I just wanted to ask where you are on the these sites, and how much gain, if you could give us an idea, how much gain could we expect in leases going forward? And the second question is on fiber ads. The number of fiber ads we're having is growing. I wanted to see the outlook you have for this. I mean, you're approaching the levels of last year, so it's a good sign. Is this because of better competitive environment, better macro? I mean... Could you give some color on the reasons for the improvement and the outlook? Thank you.

I go to the second question, Marcelo. I think it is the result of a better value proposition. Now, we are in 25 million homes already. We're going to get to 29 by the end of next year. We have 6 million customers. We've been able to sell, especially that I think I highlighted here in our stores, most of the customers buying fiber is buying Vivo Total. That has the combination. Either the customer came with the mobile and acquired fiber or had nothing with Vivo and ended up being both fiber and 5G with the Vivo Total. We have more than 1.1 million customers. We've been very successful also adding digital servers to this offer. We've been also very successful in providing high-speed experience to our fiber customers. That's also due to the technical network, the high-quality technical network that we have and the high-quality CPEs that we have. We also have been investing a lot. in our technicians. So customers buy not only fiber, but it's also buying a Wi-Fi experience. They're expanding to a smart home experience very successfully. So it's a combination of many factors. Now, I hear there is no gain because we are promoting anything. I think the gain of customers is related to a better value proposition, leveraging what we said before, customer base, network quality, channel presence, physical and digital, brand, strength of the brand, and the possibility to offer convergence in a way that no one can replicate at the moment. So all this gives very strong results, and we are very positive about the successful trajectory of this strategy going forward. I don't know if you have more questions. Why is that? We want to hear about the evolution of the...

Marcelo, thank you for the question. So first of all, I think the underlying growth we have this quarter is very strong, and it's coming from a significant acceleration of the growth in revenues, but also controlling the costs and acceleration of digitalization, vivo app, and so on. So we also, as we explained last quarter, we also terminated with the transition service agreement with DOI that is giving us OPEC savings are around 140 million reais per year now. So as you mentioned this quarter, we also have a couple of impacts coming from the oil acquisition. So we finally reached an agreement regarding the oil price. So we got 244 million cash back plus 33 million interest that are also receiving this quarter. And as you mentioned, we also are still negotiating some of the towers' leases that we received from OI. So in total, we received 2,700 sites, out of which we are going to maintain 800 of those. So the rest, which is something like 1,900. are going to be canceled and decommissioned in the next quarters. So we are progressing well on the negotiation with the Towers Company. So we have already agreed with some of them cancellation in the third quarter. And also we are progressing with the rest, and we are hoping to have everything agreed in the next two or three quarters. So overall, I mean, that's it. So we are very efficient on managing those negotiations. And as you mentioned, we had an impact of 69 million costs this quarter, which are non-cash, as we are continuing negotiating. And what we see at the end of the next couple of quarters, the end of the negotiation. But this is what we have so far. But I want to mention that the underlying OEBA growth is very strong.

Okay, perfect. Very clear. Thank you very much.

Our next question comes from Leonardo Olmos from UBS. Please, Mr. Leonardo, the microphone is open.

Hi. Good morning, everyone. Hope you're all well. I got a single question. Can you please discuss the main potential tax change you're facing now and how could that affect your earnings or other parts of your cash conversion? Thank you.

Hi, Leo. Davi can give you more color if he wants, but There is no change right now. We are talking about, I don't know if you're talking about the interest on capital. That is still under the initial discussion. So that we can give you some color. But the other one, the other tax is still waiting to see what's going to be the outcome, the one more related to consumption. Here we are always advocating for the essentiality of our service and The possibility of having a better tax over digitalization connectivity would help the country in many ways. That's what we try to advocate because, as you know, we pay a lot of tax over the service that we sell to our end customers, on average 35%. And when there was this decrease in ISMS in some states, they were very positive, I think, for inclusion and for many other things that we could calculate here during this period. So, this is the text that we have right now. The one in Infrasound Capital that we can give some more color.

Yeah. Leo, thank you for the question. So, at this moment, it's too soon to talk about any potential impacts. as this matter is not solved nor defined at the executive or legislature level. Anyhow, if the end of interest on capital goes through an anticipation of a border income tax reform, which we believe will also have targets, a reduction of a current corporate tax rate. So we have relevant alternatives to maintain our solid levels of shareholder remuneration, such as reducing capital stock, leveraging the company, speeding up But anyhow, we are not expecting any change this year.

Got it. Thank you. And since you're on regulation, can you talk a little bit about the secondary spectrum, the use of secondary spectrum by local ISPs? How are you seeing all that? What do you expect?

I don't know if there is no demand. I don't have anything relevant to share with you right now. We haven't been demanded, and so I really don't have anything new to share about it or what's the specific question, if there is demand, because so far there is nothing new to share.

No problem. Thank you very much. Have a good day.

Thank you, Leo. Thank you.

Our next question comes from Vitor Tomita from Goldman Sachs. Please, Mr. Peter, your microphone to open.

Hello, good morning, all, and thanks for taking our questions. We have two questions from our side. The first one is on your recent price up to prepaid plans. Did you notice any elasticity impacts such as lower recharge frequency or other impacts after pricing up your plans on prepaid plans? And do you see room for pricing up other prepaid offerings this year or for making other movements on the pricing side? And that would be our first question. Our second question would be on Fiber to the Home. This quarter saw not only some improvements in volumes for Fiber to the Home, but also some interesting improvements in trends for Fiber to the Home ARPU, with year-on-year growth turning positive. Should we see that as a turning point with FPGAs are now potentially maintaining a positive growth trend for more quarters. Thank you very much.

Vitor, going to the second one, we are not giving a trend on that, but as what I said before, we've been very successful in increasing the penetration of digital servers overall offer, so selling a lot of utilities together with Fiber. We also are increasing the speed of our offer and also increasing prices related to that. And as you see, the average speed of our customer base is also going up. We share numbers in the last quarter and we can share also in this number. So it's always positive, not only the entry, level of the speed, but also the mix that we have in our customer base. And also we are selling more VivoTotal as a way to bundle more service to the same customer. So the trend is positive when you consider that we have a very low churn and the customers are choosing our offer in a broader sense, fix more mobile and also adding digital service and going up in the speed. I think also another room to grow is that we are going stronger in this concept of smart homes. So apart from selling the fiber itself, we are selling Wi-Fi connectivity in different rooms. We are selling also the possibility of customers accessing paying for service of installation of more devices of a smart home. So all this area of home connectivity we see strategically room to grow. That was the first. I don't know if you have any more questions on this. In the second, the prepaid is we are – Moving the offer, I think we mentioned, I think you mentioned that the top-up face value that we increased, we're increasing the top-up face value, but we're also increasing our, we have different offers, but we're increasing the value of the Bi-weekly offer, that was 15. We are moving already in many states to 17. And the idea is to go to 17 nationally along November. So 17 bi-weekly offer.

Very clear. Thank you very much.

Thank you, Richard. Our next question comes from Fanny Poonamuri from HSBC. Please, Fanny, your microphone is open.

Hi. Thanks for taking my questions. So I have a couple of questions. The first one is regarding the timing of the process for the capital reduction process. When is it expected to complete the capital reduction process, and how would it benefit your shareholder remuneration? And the second question is related to the concession agreement. Do you have any updates on what is happening on the concession process? Thank you.

Okay, I go to the first and go to the second. The first, in the capital reduction, as you all know, it got approved by Anatel up to 5 billion reais in capital reduction. So that's what we stand for. We are planning to announce the first branch of this reduction in the next weeks. To do so, we need to first know as a management or submit a proposal to our board of directors that we may do in the next weeks, as I just mentioned. After that, we should call the general shareholder meeting that has to be realized 45 days after this call. After the GSM is approved, the company should grant another 60 days as a period for opposition of creditors. So considering that we may approve in the next weeks in our board, then we're going to call the GSM. So we have to estimate another 120 days to have it executed. So this is the plan for next steps in capital reduction. In the other question, specifically about the immigration, and I don't know what is your question about it, because as you know, we have two things here going on. Now, we have one that is a discussion about the value of the immigration that we discussed with Anatel. They came up with the number, the 8.7 million reais. that we discussed. Now, we want to discuss this number because there is some not a convergence in the value. And on the other hand, we also have an arbitrage process of Anatel where we discuss a financial equation of the concession that's more the imbalance of the original contract and also the sustainability of the contract. For this, we are demanding more than the $8.7 billion. We don't give the number, but it's a high number where we see the sustainability and the unbalancing of the concession. That is an arbitrage. There is now a solution, or an alternative, not a solution, but an alternative, that TCU opens up for a consensual solution where we could put the two discussions together on the table and try to come up with a consensus. And we are betting on that solution. So, to do so, we have a suspension of the arbitrage process because we want to discuss with the TCU mediating it, the solution consensual with Anatel. Anatel submitted this request to the consensual solution to TCU. We are now waiting for TCU to accept it. If they accept it, we're going to have a commission installed, and we're going to have 120 days to reach this consensus. And after this final approval by the court, it may last up to another 90 days to get everything approved, so 210 days. So now what we are waiting for is TCU approval. to approve that we can establish the consensus solution or start discussing the consensus solution. So it's more or less where we stand in the process. If you need more details, then our team here can give you more call around that.

Very clear. Thank you, everyone.

Thank you. Thank you. Our next question comes from Carlos G. Liguerita from Itaú BBA. Please, Mr. Carlos, your microphone is open.

Hi, thank you. Good morning. I have two questions from my side. The first one regarding your personal expenses, and I would like to understand what has been the driver year to date, and also how do you see personal expenses evolving in 2024? Talking about the B2B business, you know, obviously you've done very high growth, 28% in the last 12 months. Is it going to get a sense if that is because you're adding new services or you're just overall growing faster than the market? Thank you.

I go to the second, Carlos, and then I would let you go to the first question, okay? B2B is, yes, we are always launching new services, but we are very focused on the verticals that you know. That is cyber, that is IoT, that is cloud, and there is also sales equipment. So that's the main focus as a product perspective. But within this family of products or services, we are always adding new ones, especially when You customize that to specific verticals, that they're very structured now by verticals. So the agribusiness has some demands, different from the retailers. So we also always try to adapt to the needs of a specific vertical and also the needs of the different size of companies. As you know, Vivo has 1.5 million customers in B2B, ranging from micro company, small company, up to the largest companies of this country. So we structure also our value proposition based on the size of the company. I think I highlighted in my speech that Vivo Meio Negócios, Vivo My Business, that is very focused to the small company. And here we add cloud services, cybersecurity services, very tailored to this size. So what we are doing here is always innovating, but increasing the penetration. I also said that we sell products. through Vivo Digital Services in these categories that I just mentioned, to less than 10% of our customer base. So there is room to sell to more customers and also room to sell more service to the existing customers. So the growth will come this way, more services to our customer base and always innovating in these categories and always also considering new categories if they come along in a relevant way for us to address digitalization. I think here what we see is a huge opportunity for digitalization companies in Brazil, especially if you go to the mid bottom, where the level is still very low. After pandemic, these customers are very interested. They need someone to help them doing that. We have 5,000 sales reps that can be very close to these customers and help in this digitalization process. I don't know if I answered your question, but that's what we have right now, 3.2 billion annual basis of revenues, more than 6% of total revenue, double-digit growth in the last quarters, one after the other.

And, Carlos, taking the first question on personal costs, I mean, the main driver for this growth is have to do with insourcing of activities. These are mainly areas related to IT and B2B. and also accelerating the growth in new services and new businesses, as, of course, we need to also to recruit the best people to drive those businesses. Plus the salary increase that we normally have as part of our business as usual. I think regarding the trends, if you look to the number of this quarter, I mean, we are growing less than we were growing the second quarter and also less than what we were growing last. on the first one. So we are seeing a positive trend. But as we said before, total cost is what we are looking at. So no matter perhaps if it's one line or another one, and we are seeing a very controlled cost and growing below inflation. So that's it.

Thank you for the color. I guess as a follow-up to that, is that insourcing process expected to finish in the near future, or should we continue something, I mean, this to be a driver to perhaps drive personal expense growth above inflation for next year?

I mean, this is something that we do ad hoc, so depending on what we see, the evolution, there is no big program for insourcing that could drive this cost up. But this, I would say, this ends up being more business as usual.

Okay, so just an ongoing process.

Yeah.

Okay, thank you so much.

Thank you.

Our next question comes from Carlos Siqueira from BTG Pactual. Please, Mr. Carlos, your microphone's open.

Hi, good morning, and congratulations on the results. You were amazing. I have a couple questions, really. One is, Bernardo asked earlier a question on rent-sharing agreements, and I want to just make a follow-up. I saw that Antel put up for sale, put up for public consultation earlier, rules that prevent the big telcos from executing run-sharing agreements in cities with less than 100,000 people. And my question is, does that change in any way your plans or capital requirement, assuming it's approved, right, to deploy 5G in these small cities, please? That's the first one. And the second one is a more straightforward one. Or you put up for sale, it's fiber-client-based, and I'm wondering if that makes sense for you eventually.

Thank you. Thank you for the comments and the question. The first one is a public hearing note that Anatel has in place. Yes, I think we're going to give our opinion. I think brand sharing is a very positive way. to optimize CapEx and to increase coverage. And I think the country that needs more coverage needs to find new models of a network extension, especially now that we have 4G, 5G, and in the future we're going to have different technologies. So our opinion here is that reinsurance should be available, and we are doing that in 2G. That is the technology that – We can shut down. We are doing that in single grid. We are doing that in 4G with Tim, as I explained to Bernardo. And, of course, we imagine doing that with different technologies in more places. And, again, that's necessary to a country the size of Brazil. to reach everyone. Now, there's a lot of discussions also about schools being covered, suburban areas being covered, remote areas in Amazonia being covered, and we are keen on covering that, but we need to save topics in other places to be able to reach this coverage that is also demanded and we wanted to fulfill. So, again, participating and having a very strong opinion about coverage and the need to optimize investment. Second one, we're going to, it's a new process now of the sale of oil customer. We need to understand, especially because we don't have any detail, understand that these customers, they today are using the infrastructure of a neutral network. So what is the relationship and what is the contract of these customers that oil has today with the neutral company, not the Vital in this case? Who buys customer, buys the contract? What are the conditions of this contract? So I think there are many questions to be answered. We participate in everything related to any opportunity in the fiber business. So far, we haven't been a buyer of anything. But again, being the number one company in network and in customers in Brazil, we need to see what is there and understand all the details, especially related to the contract of the usage of the neutral network that I mentioned before.

Okay, thank you, Christian. So, on the range sharing, my understanding is that you hope that this possibility will not materialize, right? And that we'll understand that there are bigger goals they should be looking at rather than preventing companies from doing branch sharing, right? That's your view. Yes, that's my view. Yeah, and on the OA process, do you have an idea on timing for that or it's so new that you don't have any idea? Just wondering. I don't have any.

We don't have any official timing that was presented to us. Only in the press, nothing official. Okay.

Thank you very much. Thank you. Thank you.

Thank you. This does conclude the question and answer section. We would now like to hand the floor back to Mr. Christian Ibarra for the company's final remarks. Please, Mr. Christian, you may proceed.

Well, thank you all for participating. We are very satisfied with a very strong quarter, the third in this year with strong results in all lines. We keep on with our strategy, you know, that is based on having the best infrastructure for digitalization in the country and the ability to go beyond telco and add new digital services. And I believe we've been able to prove that is also a successful and relevant part of revenue going forward. So, again, we have all the team here available for any additional questions that you may have. And, once again, thank you for your participation.

Vivos conference is now closed. We thank you for your participation and wish you a very good day.