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

Good morning ladies and gentlemen and welcome to Vivo's fourth quarter 2024 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. Para acessar nossa conferência em português, clique no ícone do globo localizado no canto inferior direito de sua tela Zoom e selecione a opção Portuguese Room. Ao acessar a nova sala, certifique-se de silenciar o áudio original. We would like to inform you that our attendees will only be listening to the conference call during the presentation, and then we will start the Q&A 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 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 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 Soares Carneiro, IR Director. Now, I'll turn the conference over to Mr. João Pedro Soares Carneiro, Investor Relations Director of Vivo. Mr. Carneiro, you may begin your conference.

Good morning, everyone, and welcome to Vivo's fourth quarter and full year 2024 earnings call. Christian Gibada, our CEO, will walk us through Vivo's performance in connectivity and digital services, as well as present our ESG accomplishments for the year. Then, David Melcon, our CFO, will give more details on cost and CapEx control, free cash flow generation, shareholder remuneration, and lastly, an update on our fixed voice migration process. With that, let me turn the call over to Christian.

Thank you, João. Good morning, everyone, and thank you for joining us today. I'm very pleased to present the results for 2024. We finished the quarter and the full year with an excellent performance, driven by our best-in-class products and services that allow us to continue to increase the lifetime value of our customers. We've churned at historical lows. We reached 66.5 million postpaid access in 2024, with a growth of 7.6%, reinforcing our capacity for strong mobile performance in 2025. In fiber, the number of homes connected grew 12.7% this quarter, totaling 7 million access. In total, Vivo reached the largest customer base in our history, with over 116 million access. Total revenues increased by 7.7% in the fourth quarter, with mobile still being the main driver, growing 7%, while fixed revenues grew 8%, the best performance that we have ever registered for this segment. Our top line expansion was fully reflected through 2EBITDA that increased by 7.8% year over year. We invested R$9.2 billion in 2024, decreasing our capital intensity and with that registered R$13.7 billion in operating cash flow, growing 11% year over year, representing almost 25% of our total revenues. In 2024, we paid over 5.8 billion to our shareholders, as remuneration grew by an impressive 22% year-over-year, that was equivalent to 105% of the net income generated in the period, thus meeting our guidance that we hereby reinforce for the next couple of years. On slide four, we show how our performance has been positively impacted by the shift that has been occurring in our revenue mix, with emphasis on postpaid, fiber, and B2B digital services. The mobile segment ended the year representing 65% of our total revenues and still benefiting from our ever-improving customer base. with strong prepaid to postpaid migration figures. As such, postpaid revenues grew 9.1% in the fourth quarter, representing 84% of our total mobile service revenues. In addition to that, fixed revenues grew 8%, the highest annual growth ever, driven not only by the double-digit growth of 12.4% in FTTH, but also by the 21.1% expansion of data, ICT, and digital services, as the take-up of digital solutions by our B2B customers accelerates. I would also like to highlight the replicable market position of our digital ecosystem. Our new businesses, combining B2B and B2C services, now represent more than 10% of our total revenues. With our one-stop shopping position, we're moving further and further from being just a connectivity provider while enhancing the overall lifetime value of our customers. On the next slide, we highlight our main mobile trends. Our mobile base grew 3.3% year-over-year, reaching over 102 million access. Postpaid has been the main driver, with a high single digital growth of 7.6%, reaching over 66 million users. In fact, the number of postpaid quarterly net additions, including M2M and Dungos, was once again very high, nearing 900,000. We are not only attracting more customers, but also increasingly retaining the existing one, being able to maintain postpaid churn below the 1% per month level for another year. This feat, coupled with expanding Orpus, provides a very robust combination to deliver strong results in any scenario. As such, our leadership remains intact, supported by our inspiring brand, a best-in-class infrastructure, a broad, unique portfolio, and powerful channels. Now moving to slide 6, where we can see more about our fiber operation. We reached our 2024 goal of delivering 29 million home paths with FTTH, which grew 11.2% year-over-year, while our homes connected expanded 12.7%, reaching 7 million connections. We have been accelerating the number of quarterly net additions, registering 220,000 new ads in Q4 2024, 20% higher than the expansion C in the same period of 2023. At the same time, we reached our lowest FTTH churn level ever, at 1.49% per month, powered mainly by Vivo Total's superior value proposition. By the end of 2024, 2.4 million FTTH access had Vivo Total, up 85% year-over-year, with revenues from those plans growing more than 90% versus 2023. With a significant portion of new fiber saves in our stores being convergent, we foresee fiber's performance improving even further going forward. We continue to see multiple opportunities to generate considerable returns by investing in fiber. Thus, going forward, we will maintain a selective expansion of our footprint while we step up the penetration of connections over our network. On slide 7, we show you more details on the B2C revenues. We closed the year with 57.2 million individuals as Vivo customers, over a quarter of Brazil's population. On average, our customers are generating a monthly net revenue of 62.3 reais, a number that has an evident improvement trend going forward as we are being successful in capturing additional share of wallet and increasing lifetime value, which translates into customer adherence to the Vivos brand. B2C represents 76% of Vivo's top line and grew 7.2% in 2024, with our steady telco expansion combined with a 23.7% growth in new businesses. Here, I would like to highlight the strong performance seen in the sale of video and music OTTs, with revenue already surpassing R$ 700 million a year, growing close to 30%. We reached 3 million OTT subscriptions by year-end, boosted by our proprietary video platform, VivoPlay, with access soaring 84% in the period. Also, mindful of how important digital safety is to all Brazilians, we recently launched Vivo Modo Seguro, a platform including services as smartphone insurance, blocking off spam calls and tips of how to identify frauds and scams. With Modo Seguro, we want to ensure that our customers not only have the best connection, but also secure experience in the digital environment. On the B2B side, our revenue growth was even higher, up 8.5% year over year in 2024, led by the outstanding performance of digital B2B that expanded over 20% in the same period. Among the vast number of digital B2B solutions that we provide to our clients, the main driver of this year's results were cloud solutions with revenues getting close to 2 billion reais, up 32.6% year over year. This derives from our broad portfolio of providers as well, services of hyperscale such as Microsoft, Amazon, and most recently Google, benefited by the acquisition of IPNet, the main integrator of Google solutions in Brazil. The company was consolidated in the results in October 2024, contributing with 64 million reais of revenues in the quarter. This showcases not only our ability to pick the right companies to join our ecosystem, but also strength Vivos as a key cloud solution provider in the B2B market. Moving on to our ESG actions on slide 9. First, I would like to announce that we joined the Dow Jones Best-in-Class World Index, which is considered the most important sustainability index in the world. We are the only Brazilian telco in the list, being leaders in the Americas and having the sixth best telco sector performance globally. reaching a score of 88 points in S&P Global Corporate Sustainability Assets. In our recycling program, Vivo Recicle, we achieved a new record of 37 tons collected, three times more than last year's amount. The social site Fundação Telefônica Vivo that completed 25 years of activity in Brazil invested 50 million reais in 2024 and was able to benefit 2 million people across the country. Also, in vivo, half of the internship and training programs positions were allocated to black talent, which reinforces our diversity pillar and stresses its importance of the company's growth. With that, I will pass the word to Davi, who will comment on our financial performance. Thank you.

Thank you, Christian, and good morning, everyone. On slide 10, we detail our cost evolution. Total OPEX grew 7.7% year-over-year, mainly driven by the 11% increase in cost of services and goods sold that expanded due to the continued double-digit growth in revenues from digital services and sale of smartphones and electronics. These services require no capex and contribute to extending the lifetime value of our customers. Our cost of operation, that represents 64% of our OPEX, grew 5.7% year-over-year, led by the cost related to our infrastructure expansion and strong commercial activity in the period. These factors were partially offset by the reversal of provisions related to the migration from concession to an authorization that positively impacted EBITDA in the amount of R386 million in the quarter. On a year-over-year basis, this is compensated by the effect of R$ 292 million related to the reversion of provision for fines connected to the renegotiation of leasing contract with Towers Coast that positively impacted previous year results. All in, we maintain our EBITDA margin at a high level of 42.5% in the last quarter last year, in line with the previous year, with EBITDA expanding 7.8% year-over-year. Moving to the next slide, we closed the year with capex at 9.2 billion reais, just 2.3% above previous year, reducing our capex over sales to 16.4%, with investment dedicated mainly to the expansion of 5G and fiber operations. By keeping CAPEX stable and constantly increasing our revenues, we continue reducing our CAPEX intensity in almost 1% points. We also maintain a positive evolution of our operating cash flow that grew 11% year-over-year with a margin of 24.6%. After leases, operating cash flow grew even more, 13.4% with over 8.6 billion reais generated in the year. On slide 12, we see our net income closing 2024 at 5.5 billion Reais, with a growth of 10.3% versus the previous year, resulting in 3.38 Reais of earning per share, up 11% in the period. The low financial debt protects the company in high interest rate scenarios. We close the year with a net cash position of R1.4 billion and including leases, a net debt of only 0.6 times EBITDA. In 2024, we generate R8.2 billion in free cash flow, translating into a free cash flow yield of 10.8%. This robust result showcases how Vivo continues to invest in high-return projects while also having space for attractive shareholder remuneration. So let's talk about shareholder remuneration on slide 13. In 2024, we paid out over 5.8 billion Reais combining capital reduction, interest on capital, and share buybacks. This represents a growth of 22% versus the previous year, up more than twice the growth rate of our net income. As a result, we successfully met the guidance for the year 2024 by having a payout of 105% over net income. I would also like to reaffirm the guidance for the next year, 2025 and 2026, stating that we will have shareholder distribution of at least 100% of the net income that we generate each year. As such, we already started 2025 with around 4.5 billion Reais committed to this year's shareholder remuneration. And to do more, We just renewed our share buyback program that will be enforced until February 2026 with an investment capacity up to 1.75 billion Riyals. To conclude on this topic, I would like to comment that last month our board of directors approved a reverse stock split operation, followed by a forward stock split. Our main goal with that initiative is to facilitate the trading of our shares and improve the liquidity in the Brazilian stock exchange. We will give you a post-it on the next steps regarding this operation. Finally, we would like to give you more information regarding the fixed voice migration process, a game changer in both Vivo's history and the telecommunications sector in Brazil. By the end of 2024, we sign a self-composition agreement with the regulatory bodies to migrate our fixed voice model from concession to authorization. The process is in the last step, and in the coming months we will formally conclude, at which point we will start to capture the benefits. With the conclusion of the process, we will execute projects related to the expansion of our 4G coverage and backhaul, with a net present value of R$ 4.5 billion, considering both OPEX and CAPEX. This will take quality connectivity to many underserved regions in Brazil, helping to reduce the technological gap that exists in our country. Having concluded all administrative and judicial proceedings related to the concession, we released provisions amounting to R792 million in the fourth quarter of 2024, while also mitigating risks related to over R5 billion in regulatory contingencies. This groundbreaking process is not only beneficial for Vivo, but also for our clients and society as a whole. More than 1 million customers that we are currently served with copper could migrate to cutting-edge technologies such as fiber or mobile, having access to better products and services. As we migrate these users, we will accelerate our network transformation in the state of Sao Paulo, freeing up around half of the 1.9 thousand owned or rented properties that we use to house our copper network, unlocking savings with energy, rent, property taxes, maintenance, security, among others. These movements will also enable us to extract and sell around 120,000 tons of copper and cable coating, simplifying our network. In 2024, we generated 1.3 billion reais in revenues linked to copper-based services. Due to the high cost and capex associated with the provision of these services, free cash flow coming from these revenues was negative, thus diluting the overall profitability of our business. Going forward, we estimate much better returns and will keep you informed about the effects and the benefits captured along the way. This is a huge step in Vivo's history, and now, more than ever, we are fully able to deliver best-in-class fixed services across the whole country. Thank you, and now we can move to the Q&A.

Thank you. We are now going to start the Q&A session 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, I will pull four questions. Our first question comes from Leonardo Olmos from UBS. Please, Mr. Olmos, your microphone is open.

Hi, everyone. Good morning. First of all, thank you for the information on the benefits of the concession migration. The slide and the written information is quite helpful to us. Still, I'm going to focus my question on dividends for 2025. If you could discuss the perspective, so all the buildup of what could be the distributions 2025, if you expect an increase versus 2024, because it already had a great increase versus 2023. We also saw that the benefits of the concession in terms of impacting net income, even though it's not cash, they stayed in 2024, right? So maybe the benefits of the concession will not be converted into dividends 2025 or just likely. I don't know, if you could comment the construction of how you see dividends this year would be very helpful. Thank you.

Leo, thank you for the question. So for 2025, as I say, we are committed to deliver a payout of 100% of net income or above of 2025 and 2026. And so far, we have already on the way a capital reduction that will repay now the 15th of July amounting to 2 billion Riyals. And also the outstanding interest on capital that were declared last year, and they will pay the 8th of April in the amount of 2.2 billion reais. So that's 4.2 billion reais. And on top of that, we continue with our share buyback program that we already acquired 200 million reais in shares in the first quarter. the first couple of months, and we have just approved a total plan of 1.75 billion reais for the next month. So again, we are not giving guidance about the net income for the year, but you can see the strong trend that we have in our business, and particularly in terms also of the cash generation. So we have all the elements to continue having an attractive shareholder remuneration. Regarding the second question, also, I mean, the provision that we're releasing in Q4, as you say, was mainly on accounting. But looking for the next few years, as we have described, we have a strong plan to monetize both real estates and also the coppers, on top of also benefiting the cost lines that we have seen those quarters. that we have already implemented a plan that will be executed as soon as we have all the final approvals that we expect this to happen very early. So we are just in a moment where the transformation of a coastal structure, particularly an infrastructure, will take place and you will see a positive impact on the trends.

Very good, David. Thank you very much.

Thank you.

Our next question comes from Camila Koga from Bradesco BBI. Please, Mrs. Koga, your microphone is open.

Hi, thanks for the opportunity to ask questions. So, regarding the mobile service revenue, could you please give us more detail on the reasons for the quarter-over-quarter slight decrease and how you see it going forward? Thank you.

So, Camila, this is Christian. So, thank you for your question. First, I think it's important to highlight that we have a very strong growth of 7% in the fourth quarter. And if you see the growth that we had in the in the postpaid is even higher. So that was a good outcome for the quarter. And if you compare your question, a quarter over quarter, it's true that we had a very strong third quarter. So the comparison when you go one quarter to the other, And it's not maybe very fair because we grew 8.4% in the quarter before. If I'm not mistaken, sorry, we grew in the post-pandemic, we grew 9.1% in the fourth quarter and we grew 10.1% in the year before. When you go the price increase that we had in 2023, we had an average of 9% increase in the second half of 2023. And when you compare to the second half of 2024, we had an average price increase of 5%. So again, when you compare year over year, we had a very strong increase in 2023 that we couldn't repeat in the second quarter of 2024. Postpaid, although it was very strong, 9.1%, we had a prepaid software in the fourth quarter. Again, due a lot to the migration, we've been migrating a lot of customers from prepaid to hybrid. If you know, also you look in the fourth quarter, we had 18% more migrations. And you could see our net ads of the quarter close to 1 million customers. That is also a very high performance that we've been having in the last quarter, but also to highlight in the fourth quarter. In November 23, also I want to give you some update about the prepaid. That was when we increased our price from 15 to 17%. And we couldn't do the same movement in the fourth quarter, 24th. So that's impacting also the evolution that we see in the prepaid revenues. Again, we are working in many areas to continue to grow our revenues in the mobile. And we are very optimistic, especially because we are presenting a churn rate that is below 1%. We increased front book prices of hybrid and purpose-paid now in February on average 7%, 8%. We normally apply and we do so in the price for the customer base in April, starting in April and going until August. And our commercial performance is still the strongest one in the market, not only in terms of acquisition of customers, but also the very low churn, and especially in the ability to offer mobile plus fixed. So that's maybe the full explanation, not only the explanation from the third quarter versus the fourth quarter. But again, highlighting the very strong number that we had in post-crate, 9.1%, and our ability of price increase that we started already with the front book and we continue to do in our customer base starting now in April.

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 questions. Actually, I have two from my side. The first one is related to margin. Excluding the one-off effect, the margin would have faced a year-over-year compression. What can we expect for this year, considering the expectation of rising inflation? What elements could drive the margin up considering cost pressures? And the second question is about the change in the concession regime, trying to understand the company's approach regarding the sale of reversible assets. What we can expect in terms of the speed of selling copper and real estate assets? Thank you very much.

I start with the second question, and then Davi will jump to answer your first. We have a four-year plan for the concession. We're going to start this year. As Davi stated before, there is a lot of upside here, especially that we have started with the migration of customers. Now we have 1.2 million customers using the corporate network. So we have here the opportunity to migrate these customers to a cutting edge technology that's going to be fiber. Even here, we have like a revenue impact. Maybe we have a cross-sell opportunities when you migrate this customer to fiber. And also the cost to serve these customers will be lower because we're not going to use the copper that we kept until now. And now we can do everything with the fiber. then we have like 120 000 tons of copper cables that we're going to be reducing and and of course when we migrate we are able to sell we're starting this year and during the next four years we're gonna be able to do everything now we have like to keep some customers where we are now the carrier of less resource, but it's only until 2028. So apart from these areas, we all can do the migration in all the rest of the state. That is also a vast area that we can do this migration. And of course, then we have around 2,000 owned or rented properties. And we today, for the numbers that we have, we can imagine that 50% of this total could be freed up for sale or can have a lease cancellation. So that will also be able to give us a lot of savings and also upside in the sale of the real estate. So again, we have a great opportunity here. to improve our results based on these operations that I briefly described to you. If you don't have more questions, I can give David to talk about this one and EBITDA if he wants.

Yeah, so regarding the first one, Bernardo, thank you for the question. So if you look to the evolution of our result, I mean, it's difficult to extrapolate one quarter on trends or neither on margins. So even excluding the others, the others line that you mentioned, the growth that we have on EBITDA for the full year, 9%. So it's a very strong growth, so 9%. In terms of margin, full year, even excluding the others, is above 40%. So again, so very assured. Even if we consider capex and even leases, so we are growing margin year-over-year in almost one percentage point, 0.8%. So that means that we have a very solid cost structure that allowed us to continue having efficiencies and benefiting from digitalization and transforming the business. Also for the next year, what we are seeing is that some of the costs that we have, particularly in the second half of the year and this quarter, have to do with preparing the company to benefit from the concession. So we have been running some projects that obviously have a cost. This cost not only will not be for next year, but also we will have the benefit for what we have invested, particularly in this quarter. So once we start having, as Christian mentioned, the sale of the copper and the real estate, what we will see is that... For the future, we will see these others will also start to be positive, but not only in terms of net income and EBITDA, but also in terms of cash flow. And in some cases, the cash flow will be even higher than the amount that you will see in EBITDA. So trying to answer your question, we always look to margin, but not only BDA, but also after leases and capex. And we are optimistic in terms of improving the trends. I'm not talking about the BDA margin. I'm talking more about BDA after leases and capex for the future.

Very clear. Thank you very much, Davide and Christian.

Thank you, Bernardo.

Our next question comes from Felipe Chang from Santander. Please, Mr. Chang, the microphone's open.

Thank you. And there are two questions from my side. The first one related to B2B revenues in the fixed line segment. Even if we adjust for the acquisition of IPNet, the growth was very strong at 15% year over year. I was just wondering if there is anything specific to this quarter or if we should expect this strong level of growth to carry over 2025. If you could maybe detail a little bit of what were the main drivers here for us to see such an acceleration versus the previous quarters. And my second question is related to the timing of the migration of these 1.2 million customers, which are currently using the corporate technology. and what maybe we could expect in terms of revenue accretion and free cash flow margin for these customers once they are migrated. Any detail you can provide on that would be great. Thank you.

I started with the first one. No, there is nothing specific. That's the pace of the business. And apart from the 63 million that you correctly highlight, it's a small amount. You know, you're talking about 63 million of IP net over 1.9 billion. that we have, you know, the total cloud revenue for the quarter. I think we've been highlighting that for the last quarters. Now, we have a strong focus in the digital services, you know, and in B2B, it represents 7.3% of our total revenue and it's 21.2% of the B2B revenue. And it's like we are growing a lot in these lines. We are going cloud, we are going IoT messaging, we are growing other different solutions. I think here is the result of our vast portfolio. partnerships, and also acquisitions. As we highlighted here, we also had another one of Vita that is a Cisco integrated some time ago. We have 5,000 salespeople dedicated to serve our 1.8 billion B2B customers in all the different segments. And if you consider the penetration of digital services that we sell through Vivo to these customers is around 15%. So that gives us room to increase it, especially when you go down the pyramid to customers like medium or small companies that have a very low penetration of digital services. So going forward, so over this 11 or 12 years, billion reais of revenues that we have in the quarter. Four, it's in B2B digital services. So it's one third. We grew 20%, but even the telco B2B revenues Apart from the loss that we have in voice, it grew 3.1%. So B2B, we think we have a structure that is difficult to replicate and we could see growth going forward, both in telco and in digital services.

Hi, Chen. Regarding the question on the concession, the 1.2 million customers that we have currently on copper, a large part of those are already on our fiber footprint. So we have already defined a plan to accelerate the migration. We cannot talk about how many will be in each year, but what we can say is that we have an internal target to capture a significant part of all those benefits in the first four years. So you will start seeing the benefit from in a couple of quarters and in four years, a big part of the benefits.

We're going to start right now, as David said, because as he mentioned before, now we had some OPEX related to getting the company prepared for this accelerated migration. We did that last quarter. So now we are prepared to start doing that. So that's also, we had this impact the last quarter that I'm going to repeat. And now we're going to start capturing the benefits of the migration.

Very clear. Thank you very much.

Thank you.

Our next question comes from Marcelo Santos from JP Morgan. Please, Mr. Santos, your microphone's open.

Hi, good morning, Christian, David, João. Thanks for the presentation, opportunity to make questions. I wanted to touch a bit more about the concession migration and this 1.2 million customers. I think they generate 1.3 billion, as you wrote in the presentation. How could we think about what are the elements that we could think to understand what kind of potential margin they could have? Like today, you say they have a negative free cash flow margin, and Vivo has a 15% operating free cash flow margin after leases in 2024. I mean, I understand you're not going to give a number, but what kind of the elements could we think to imagine where this could get to? And the second question also related to these clients. I mean, I understand that before the concession change, you could also migrate. You already migrated many corporate clients over your life. What changed now? Now you can force them to migrate or to leave. I mean, why are you going to accelerate now? Just wanted to understand better what kind of tools you have now that you didn't have before. Thank you.

Thank you for the question. Marcelo, I will answer the second piece and then David goes to the first and then repeat. Yes, you just highlighted. Yes, now we can see in a more precise way that they need to migrate. Before, we gave the option. Now we have the mandate to migrate customers. And now we have a lot of incentives to do it very, very fast. So it changes. The way we approach customers was that it's a legal decision that we can migrate them to the new technology. It changed completely. And it gives us the right to do it in a very accelerated way. That's mainly the main reason that we do that in accelerated way and with results in the short term. Regarding the first, Davi, if you want to talk a little bit more.

Marcelo, regarding the first, I mean, we currently have a significant footprint of copper in Sao Pablo. So we don't share the number, but it's relevant. That means that the cost to maintain these homes is expensive. We have a specific contract to maintain the copper, different to the contract to maintain the fiber. So as I say, a significant part of the 1.2 are already on the footprint of fiber. So we should be able to protect the revenues On fiber technology, that means that the margin could be similar to a traditional telco. The commissioning, the infrastructure that we have today, that is very expensive to maintain because, as Christian mentioned, we also are subject to regulation that forces us to repair this old infrastructure in a very short period of time, which at the end of the day is it'd be very expensive. So from now on, we should be released from those obligations, not only for migration, but also to maintain on a different condition. So this will have an impact from day one in OPEX and CAPEX.

Perfect. Very clear. Thank you. Thank you both.

Thank you, Marcelo.

Our next question comes from Victor Tomita from Goldman Sachs. Please, Mr. Tomita, the microphone's open.

Hello, good morning all, and thanks for taking our questions. Two questions from my side. The first one, you mentioned when talking about margins, some increased commercial activity as a major driver for the largest cost line this quarter. Could you give us more detail on that and on whether that level of commercial spend was related to related to any specific initiatives or should remain the norm in upcoming quarters. And my second question would be actually on the side of Fiber ARPU. Fiber ARPU has been declining a bit sequentially. Is this being driven by bundling discounts in Vivo Total or mostly just by competition, seasonality or other factors? Thank you very much.

Victor, I will start with the second part of the questions. And the fiber ARPO, I think first, let's highlight the growth in absolute numbers of revenues in fiber, 12.4%. So out of our total revenue of the quarter, the 14.5%, 1.8%. it's already fiber. And we've been expanding our footprint. We went from 26 million homes in the end of 2023 to 29.1 million homes in the end of 2024. So when you expand so much, also when you start selling to the new places, new neighborhoods, new cities, we have an entry point of customers in a lower price. Then we are able to migrate them to higher speeds or we end the promotions of entry new markets. And that's impacting, of course, the ARPU. And then secondly, there is also the combination of VivoTotal. give us an upside in ARPU when you mix new customers that are coming in with both services with Vivo, customers that have only one of them with Vivo and ended up having both of them. So our strategy of doing Vivo Total, it's better to see in the customer perspective overall ARPU that is going up. And if you see the revenues coming from Vivo Total is also growing in a very strong way. And we are very positive that's the right decision. So again, it may impact individually a little bit the arc of the fiber that keeps in a very stable level. That combined with the new entries in new cities that I just described before is also impacting there. But we are being able to grow in absolute numbers more than 12%. Revenues that are already very relevant, 1.8 in the quarter, give you room of what we are doing and what we are able to do in the next quarters. Again, here also it's good to highlight net ads of fiber customers in the last three quarters. We had 183 net ads, 1,000 customers in the fourth quarter, 23. We came to 192 in the third quarter of 24, and we reached now 220,000 customers in the last quarter. And also, we highlighted churn, 1.49%. So that's the right strategy. We're going to keep on doing that, expanding network, expanding penetration, and expanding VivoTotal.

And Vitor, regarding the other question on commercial cost and infrastructure, I mean, it's difficult to look at the run rate of a quarter just for the full year, because if you look to the trend on the line of commercial cost and infrastructure, Even though in the quarter we grew 8.7%, the last 12 months we grew 5.8%. The run rate that we are seeing is more close to the one that we have seen for the last 12 months rather than just in one quarter. The activity Christian mentioned in terms of Fiverr, very strong, but also immobile. But I would say that also this quarter, we will not maintain the level of growth, particularly on infrastructure costs. As we said before, I mean, the second half of the year, particularly the last quarter, we were preparing the company also with some specific investments to make sure that we can accelerate some of the benefits that we'll be capturing from the migration. So as I say, the 5.8, which represents the last 12 months, makes more sense as a run rate rather than the 5.7.

Elias, thank you very much.

Thank you.

Our next question comes from Luca Branding from Bank of America. Please, Mr. Branding, your microphone is open.

Hi. Good morning, everyone. Thank you for taking my questions. I have two here. First, also on the concession migration, can you give us some more color on the numbers related to the copper cables? As we understand from the 120 tons, not all of it is copper. You also have other materials. Can we have like an a rough estimate or any color on how can we think about how much that is actually copper and second also on this on this point specifically what can we think about the extraction cost and the margin that you'll be selling this if this will be mostly related with the cost you already be having to install the fiber and then they will both go together or if we can get any more call-in, that would be great. And second, you increased prices for hybrid and postpaid, but not for prepaid. So the gap for hybrid to prepaid continues to go up. Do you have any plans of increasing prices on prepaid in the future? And do you think that this larger gap might be a problem for upsell in the future as well? So those would be my questions. Thank you.

Luca, we are not giving details on the 120,000 tons of copper. Of course, most of it is copper. And that's when I give more visibility over the next months, as soon as we also get into the more detail of the operation of extracting. Of course, there is a lot of value in the copper. You cannot say that it's gonna be mitigated by the CapEx related to the fiber. the CapEx related to fiber. Today, the home pass, we are talking about less than 200 reais. So it's far from being what is penalizing us the migration. And also the migration will be with an upside in revenues. Now, Sao Paulo, the state of Sao Paulo is the key market for Vivo. We're going to get the benefit of extracting the copper, putting fiber and also connecting these customers to fiber and capture not only the voice, but the broadband and even the TV, if it's the case. And also all the other digital servers that are going to sell it. So, of course, I don't have the number, but of course, it's much more positive to Vivo than it could be negative, especially with the copper price. uh uh regarding the the the price of uh of uh prepaid yes you're right uh i think uh prepaid uh requires a price increase hopefully we're gonna be able to do soon and but we keep migrating customers in a very positive way so if you see the numbers of our net ads it's not only migration, but there's a lot of migration. But if you also look, portability is also positive. So Vivo keeps being the most attractive value proposition of the market. So I agree with you. We have a challenge if there is a difference in pricing in prepaid. Hopefully, it's not going to be like this for the rest of the year. So let's see our strategy going forward.

very clear thank you for the answers thank you welcome our next question comes from fanny canamuri from hsbc please mr canamuri your microphone's open hello uh thank you for taking my questions uh the first one is uh

regarding the timeline for positivity due to the change of license agreement. So because of the change of migration, because of the migration of the license, you have some obligations as well as you have some CapEx and OpEx savings. So how do you see the impact on FCF? Is it going to be positive from the first year or is it going to take some time to be positive? My second question is regarding your use of cash. So Vivo generated about 8 billion of free cash flow, but has provided about 6 billion of shareholder remuneration. So is there some other use of cash other than shareholder remuneration for Vivo? Is it planning for some acquisitions going forward? Thank you.

So regarding the second question, yes, we are always looking at opportunities. As you know, our debt level is very low, even considering the leases, the IFRS 16. And we acquired a company in IPNet that I just described, and we are always looking at opportunities. Now, we continue to accelerate fiber expansion. organically through our neutral network and always also checking opportunities for M&A. In the digital arena, also in B2C and B2B, as we're expanding, more than 10% of our revenues are coming from the services. We're also always very open to see opportunities that could add talent to our team, but also could also accelerate our revenue expansion. So yes, so your assessment is correct. regarding the first part that David can answer you, but it's the investments are 5 to 10 years and NPV considers OPEX and CAPEX. And I don't know specifically what was used, you could see that.

So the investment, as Christian said, will happen from now to the next 10 years. And the OPEX will be those 10 plus another 10, so 20 years. As we said before, the benefit from the migration, we want to capture a big part of the benefits, real estate and cooper, in the first four years. So in terms of speed of benefits and investment, we will maximize the value for our shareholders and always maximizing the free cash flow in the coming years.

Thank you. And a quick follow-up. Is there any change in CapEx envelope because of the migration?

We don't give guidance. And we are working on, as we said before, growing revenue EBITDA above inflation and reducing capex intensity over revenues. And that's what we're going to continue doing.

Thanks, everyone, for the answers.

Thank you.

The Q&A session is over. We would like to hand the floor back to Mr. Christian Jabara for the company's final remarks. Mr. Jabara, the microphone is yours.

So, thank you everyone for participating. As I stated in the beginning, we are very pleased with the results and very optimistic with the quarters to come. Based on our unique value proposition, focus on customer lifetime value, and our strong ability to monetize our superior customer experience and leadership in all the segments, in all the products, and in all the services. So if you have any additional questions, please, you can reach all of us here in the Vivo team.

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