Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Oi S.A. ADR (NYSE:OIBR)

Q1 2014 Earnings Conference Call

May 15, 2014 10:00 AM ET

Executives

Zeinal Abedin Mahomed Bava – Chief Executive Officer, Member-Executive Board

Luis Pacheco de Melo – Chief Financial Officer-Portugal Telecom

Bayard de Paoli Gontijo – Member-Executive Board, Treasurer, Chief Financial and Investor Relations Officer

Analysts

Paul A. Marsh – Joh. Berenberg, Gossler & Co.

Vera R. Rossi – Goldman Sachs & Co.

Michel Morin – Morgan Stanley & Co. LLC

Ric H. Prentiss – Raymond James & Associates, Inc.

Luigi Minerva – HSBC Bank PLC

Mathieu Robilliard – Exane BNP Paribas

Giles D. Thorne – Jefferies International Ltd.

Sumit Dutta – New Street Research

Carlos A. de Legarreta Díaz – GBM Grupo Bursátil Mexicano SAB de CV Casa de Bolsa

Luis Prota – Morgan Stanley SV SAU

Operator

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to Oi SA’s conference call to discuss the First Quarter of 2014 results. This event is also being broadcast simultaneously on the Internet via webcast, which can be accessed on the Company’s IR website www.oi.com.br/ir, together with the respective presentation.

We would like to inform you that during the Company’s presentation all participants will only be able to listen to the call, we will then begin the Q&A session when further instructions will be given (Operator Instructions)

This conference call contains forward-looking statements that are subject to known and unknown risks and uncertainties that could cause the Company’s actual results to differ materially from those in the forward-looking statements. Such statements speak only as of the date they are made, and the Company is under no obligation to update them in light of new information or future developments.

I will now turn the conference over to Mr. Zeinal Bava, CEO. Please, Mr. Bava, you may proceed.

Zeinal Abedin Mahomed Bava

Okay. Thank you very much. Good morning, ladies and gentlemen and good afternoon to some of you. Allow me to use the presentation that we put on our sites to guide you through the first quarter results announcement of Oi. I am starting with the progress that we made against the business priorities that we outline to lot of you during the recent road show that we did.

So starting with the business priority as I highlighted a number of times in the meeting that we had essentially we have four plus one business priorities; OpEx control, CapEx control, asset monetization, synergies at Portugal Telecom and plus one is to do the right thing for the Company, so that we can position ourselves to take advantage of the future growth opportunities that exist particularly in the Brazilian market, in what concerns broadband and pay TV.

Let me start with OpEx control, Page #3 of the presentation. OpEx was down in Brazil 4.8% in the first quarter sequentially to just look against the fourth quarter, OpEx was also down, bear in mind that we have an impact from rentals of the asset disposals that we did during the course of the fourth quarter last year, but not outstanding OpEx was down 4.8%, both compared to the first quarter last year sequentially was also down.

With regard to Portugal likewise, the focus as I mentioned earlier, in the presentation and in the meetings that we did is in maximizing cash flow generation and therefore maintaining high levels of financial discipline when it comes to OpEx and CapEx. OpEx in Portugal not sustaining the fact that we have been cutting cost sequentially for quite a few quarters now, cost also down 6.5% sequentially and 4.4% year-on-year.

Now we are able to achieve some of these cost benefits on the back of the low hanging fruit that we believe exist particularly in Oi, but also on the back of business process reengineering that we are implementing in Oi, and also in Portugal Telecom.

We’ve highlighted to you some of the key initiative that we are pursuing not just in Brazil but also in Portugal, and we believe there is still substantial potential for us to continue to optimize cost not just in Brazil but also in Portugal.

With regard to CapEx likewise, CapEx was down 29% in the first quarter, in Brazil 20% down in the first quarter in Portugal. EBITDA minus CapEx generation at Oi in the first quarter amounted to about R$502 million, in Portugal was up 8% and amounted to €186 million. So in both companies Oi and Portugal Telecom we continue to maintain high level of financial and cost supply.

Some of the initiatives that we are implementing to reduce our CapEx involve taking a much more granular approach in the investments that we do particularly here in Brazil, but also the re-negotiation with suppliers that are ongoing, and also the infrastructure sharing that we are doing with some of our peer group companies in Brazil.

In Portugal, it was highlighting that we are beginning to benefit from the fact that we have completed the modernization process of our network, and also of our IT and as a result in the future CapEx in Portugal will be success line.

With regard to monetization of assets since June last year we sold our fixed line towers, we sold our mobile towers, we sold our submarine cables. As from June we have sold assets worth approximately R$4 billion just in the first quarter alone, we received cash in connection with the disposal of our fixed line towers and submarine cables amounting to R$3.3 billion of cash.

So as we said before we will look to correct the cash-burn in this company and in the process we will look to sell assets so that we can fund ourselves through cash flow, if you like becoming positive in 2016.

As I also said in a number of meetings that I had with investors we see these asset disposals as the way for us to fund ourselves more cheaply. We’re not only getting much, much longer maturities in our company, but we’re also beating up our financial flexibility and we’re using some of this additional cash to pay some of them more expensive financial liabilities that we have at Oi and Bayard our CFO at Oi will mention in particular the payment that we did in connection with our 3G license which was costing us about 18% per annum.

With regard to synergies; synergies having estimated at about R$261 million between OpEx and CapEx. We believe we can do this and we can do more. We prefer to understate and over deliver. We’ve highlighted to you a number of synergy areas that will come from the integration of Portugal Telecom in Oi, and it rests on us to come back to you quarter-after-quarter and share with you the action plan and also the results that we’re achieving.

I have no doubt in my mind that when we speak again when we announce the second quarter results we will have numbers alongside some of these initiatives to share with you so that you can monitor the progress that we’re making.

The plus one business objective is to position Oi in particular to grow in the future. Now this means that we need to move from single play to double play, double play to triple play. We just recently re-launched our TV service in Brazil in April and you will certainly have seen in the presentation here sales of our TV service in April are doing much better than the average run rate of the first quarter.

When it comes to mobility, clearly we would like to be the champions of prepaid in this market, so we’re repositioning our offers to be much more aggressive in prepaid bearing in mind, however, that a lot of the promotions that we’re doing are below the line, so as to ensure that this market can move in the direction of becoming more rational in the future.

When it comes to corporate, we’re leveraging the work that Portugal Telecom has done around virtualization, virtualized cloud and take advantage of that to beef up our data IT and also cloud revenues.

In Portugal as part of the investments of innovative technology and the transmission of the business model today if you just look at for example, the residential segment 67.8% of our revenues are actually a non-voice revenues.

What this means is that the business is a lot more resilient than it used to be, and in fact the numbers that we put out in connection with Portugal show how resilient the business have been, and in my view that has a lot to do with the fact that we repositioned our offer on the pack of leading edge technology in every single segment whether we are talking about residential, personal mobility, enterprise as well.

In Brazil the pay TV gross adds up 51% in April compared to the run rate of the first quarter. We took deliberate management decision to go slow when it came to TV, not only because of churn, but also because we had more capacity in the new satellites and now, we’re so much more comfortable to drive, if you like those gross adds, by the more when you think about personal mobility data revenues are up again 43% although we think a still substantial work to be done in this particular area.

So four plus one cost discipline, CapEx discipline, so I have to ensure cash flow generation synergies with Portugal Telecom asset monetization and plus one do the right thing to position this company so that we can grow in 2015 and beyond towards our objective to become cash flow positive in 2016.

I want to highlight in terms of the big numbers of our company, perhaps Slide 9, as you can see in this new company that we’ve now put together about 73% of our customers are in Brazil, 22% of our revenues are generated in Portugal and about 19% of our EBITDA is generated in Portugal. Whereas to emphasizing is that together as a new cloud we have over 100 million customers and this give us very large scale that we need to remain competitive in the long-term not just in Brazil but also in Portugal.

Page 11, if you look at the combined financials we had revenues of about R$9 million, EBITDA of about R$3.8 billion of course impacted by the disposal of mobile towers that we did, our CFOs and my CFOs be able to take you through that.

But as you can see our net debt is roughly R$42.7 billion, when you look at the liquidity position of the Company which is Page 12. We continue to enjoy significant amount of liquidity R$24.1 billion of liquidity with a maturity of over four years with more than 60% of our debt maturing in 2017 and beyond. Worth mentioning also is that both in Portugal and in Brazil we don’t have any ForEx exposure.

Allow me now to spend a few minutes and talk to you a little bit about the business. Starting with Brazil, clearly the challenge in Brazil is for us to focus efforts in terms of leveraging the technology and infrastructure we have available in low density areas, worth mentioning that Oi present in 4,800 municipalities and we think that is a unique and a structural competitive advantage that we have.

So, clearly focus on low density areas to drive profitability, market share gains, in terms of revenues and in high density areas where we would like to, if you likely based on price, and if you like convenience and converge as well.

Bundled offerings absolutely critical for us to reposition, if you like ourselves when you come to the residential segment. We’ve done that before in other markets namely Portugal, we think we can do it here. Having said that, we have works to do when it comes to productivity of our sales channels, capillarity of our network and also the change in the mindset of our company in order to move away from selling single play to selling multiple play services.

Policy of sales is absolutely critical, churn in our company was running very high. We took if you like decisions to address it management the high churn levels in June last year, of course, that came at a cost. We have to give up on certain sales channels, capillarity went down. Having said that, when you look across all our business segments and all our services today, we believe our churn is very much if you like benchmarks and now we need to focus on increasing our market share across.

In that regard Page 15, it will show a new pay TV offer, we think this pay TV offer is structurally much, much better offer than any other offering this market when it comes to DTH, not only because we have more HD, but also because we have this partnership with global and local content as you know in Brazil and everywhere else is absolutely critical to drive penetration of pay TV which in this market we believe still has substantial, potentials in growing the future.

When it comes to broadband, I have no doubt in my mind, and as we move in the direction of selling more pay TV and bundling that with landline and broadband, we’ll also be able to show better growths adds in terms of broadband. We don’t give you disclosure in terms of broadband revenues and pay TV revenues all I can say is that we continue to grow albeit at a slower rate due to the decision that we took – deliberate decisions to fix the churn before we start actually selling more.

Pay TV churn, as you can see early churn, is now 17% and we continue to believe there are still work to do and improvements to realize.

We’ve included on Page 16 one example of how we are driving conversion, the fixed mobile conversion. Again, main objective is for us to increase our share of wallet of every household and continue to improve the value proposition of our landline offer, and as you can see on Slide 16, that has a direct impact on the churn in terms of the fixed line.

Multiple play is clearly one of our business objectives. Households with more than 1P, one player or rather one service has gone up 3 percentage points. ARPU were up 7%, still on the back of the work that we’re doing around retention management or savings and downgrades, if you like, but we still believe that there is a lot more work to be done in terms of cross selling and up selling as well.

Revenues, broadband, 6.5% up, pay TV 18% up. Again, this is against the background why we took a decision to go slow, but I hope that in the two quarters we can give you a lot more detail and a lot more visibility as to what we think is possible in this particular services.

When it comes to mobility, we showed service revenues grow about the same as the fourth quarter last year. Having said that, recharges were up much faster and in my view this has a lot to do with the fact that we are focusing in becoming, if you like, a bigger player in terms of prepaid.

As I’ve mentioned to you before, some power state still continues to represent a drag in terms of our performance, but in those areas where we have substantial market share are also areas where economic growth and the consumption growth is likely to be higher in this market.

When it comes to the youth segment, our Oi Galera offer leverages not just, if you like the music and the SMS and so on, it also leverages the free Wi-Fi access that we provide to over 670,000 hotspots. It is our view that by the end of the year we are likely to have about 1 million hotspots in this market and we think this is the killer app when you’re thinking about the youth segment in the medium and the long-term.

In terms of prepaid, Page 19, prepaid net adds were up significantly with the focus that I mentioned to you earlier. Recharges were up 7.1%, which compares with 5.4% in the fourth quarter of last year. And because some investments are less familiar with our market share in each of the states, we’ve highlighted here for you the states that are likely to grow consumption much, much more than the average consumption growth in Brazil and highlight for you here the market share that we have in those states. As you can see, in those states that are likely to post high consumption growth we enjoy a pretty, if you like, leading position.

When it comes to dealing with that and so on, one of those things that we are also doing when it comes in terms of personal mobility is to make simple fixed-mobile offers available whereby you can pay all those services using your credit card. The Oi Conta Total – Oi Controle is one good example of that and as you can see, we are making good progress not just in terms of customers but also in terms of revenues.

When it comes to Page 21, on postpaid, as I mentioned to you, we took a deliberate management decision to go slow on postpaid for two reasons because of subsidies, with a lot of subsidized handsets, and second because channel is running very high.

The Brazilian market, when it comes to enterprises and corporate segment, is going in the direction of lower, if you like, subsidies in handsets. This may represent an opportunity for us to stop looking at postpaid more aggressively in the future. Having said that, what we are really looking for is an inflection point and post that inflection point is convergence so that we can get back in the game of personal mobility. So personal mobility, we are beefing up our 3G coverage, if you like, our point-of-sale and we are looking forward to seeing outcomes to this come down and inflection point of convergence to stop doing better in this particular area.

And therefore, when you look at our customer revenue performance in the first quarter and compare with our peer group companies, please bear in mind that São Paulo is a drag for us and postpaid right now is not a priority and as a result, the 3.5% of the announced represent a pretty good performance.

Mobile data revenues were up and we continue to make good progress in terms of increasing, if you like, the contribution to the overall mobility revenues. Those were up from 19% to 27%. Also worth mentioning is that by having launch packages that bring together SMS and data we are also hedging our bets with regard to what the future results in terms of SMS revenues in this market as well.

SMEs, commercial turnaround is in progress, allow me to go to Page 24, but we are beginning to see results. Having said that, there’s still work to be done. As you certainly will have seen on this Page 24, because we took a very aggressive decision to tackle churn, we lost 50% of our franchisees. Now, of course, we are beefing up the popularity of our network.

Our gross adds of course reflected the fact that we lost point-of-sale, but the goodness is that the gross margin contribution on the back of better quality sales is beginning to improve and we believe that over the next few quarters, still work to be done, but the trends are encouraging. It will be a bumpy ride because these things take a bit of time to basically deliver on the results, but the trends are in the right direction.

When it comes to Corporate, IT revenues were up 20%, data revenues were up 16%. This has a lot to do with the fact that we decided to focus on data and virtualization in IT to broaden the scope of the services that we offer, so that we can make ourselves a lot more relevant to our customers. Clients are clearly going in the direction of wanting to have all IT solutions and that regard we are leveraging, if you like, the work that Portugal Telecom has done over the last 12 to 18 months around virtualization across the partnerships and the acquisition that we have to essentially make progress in this area in Brazil as well.

As a result, you will have seen on Page 26 that our corporate and SME and wholesale revenues were up about 0.6%. Again, there’s work to be done when it comes to SMEs. It’s working progress at turnaround, but clearly the 0.6% and the 1.1% growth in billing revenues is encouraging.

Let me now hand you over to Bayard, so he can take you through, if you like, the financial performance of Brazil and then I’ll discuss Portugal and then I’ll ask Luis Pacheco, the CFO of Portugal Telecom to provide you additional details in terms of the financial performance in Portugal and then a quick wrap-up and then Q&A. Bayard, please.

Bayard de Paoli Gontijo

Thank you, Zeinal. Good morning, everyone. Starting with Oi’s financial review on Page 27, first quarter 2014 net revenues totaled R$6.9 billion, a reduction of 2.3% in comparison with the same period last year. This performance was due to the drop of mobile termination rate, MTR, that resulted in a reduction of R$180 million in the mobile interconnection revenue.

It is important to highlight they’re customer revenues, which means total revenues minus interconnection and handset sales, increased R$54 million or almost 1% year-over-year. This is the result of company’s focus on quantity of sales and profitability of the customer base.

In the next page, Slide 28, we showed evaluation of revenues per segment. The Residential segment net revenues totaled R$2.6 billion, almost flat when compared to the first quarter of 2013. Although broadband and pay TV revenues have grown 7% and 18% respectively. Fixed voice revenue decreased 3.1% due to the reduction in traffic.

As already mentioned by our CEO, Zeinal, Oi remained, we are focused on sales of bundle services combining fixed line, broadband and TV. At the end of the quarter, 59% of the households served by the company had more than one Oi product, a growth of 3 percentage points in the last 12 months of this index, and the outstanding initiatives resulted in 7% growth year-over-year of the residential ARPU, achieving almost R$74.

Net revenues from the Personal Mobility came to R$2.2 billion, 6.5% less than first quarter of 2013. As I have already explained, the drop was mainly due to the MTR cuts, it is important to emphasize that customer revenues totaled R$1.7 billion and moved up by 3.6% year-over-year. This performance reflects a continuous growth in data usage, mainly mobile internet, and increase of the base of clients and recharges in the prepaid market. It is worth noting as well, the mobile data revenue grew more than 40% year-over-year. And already represents 27% of Personal Mobility personal revenues.

The business-to-business segment that includes SME corporate and wholesale recorded net revenues of R$2.1 billion in the first quarter of 2014, 0.6% from the first quarter of 2013. This performance was due primarily the increase in Corporate’s revenue highlighting data and IT, that grew respectively 16% and 20%. It’s important to measure that companies working on turnaround SME segment by revising commissioning model, developing and aligning sales channels, redesigning the office and improving productivity.

In the Slide 29, we showed the gross margin contribution that is revenues, minus provision for buyback and interconnection costs. In this quarter a high reduction in the buyback and interconnection year-over-year more than compensated the reduction of net revenues, improving gross margins by 4.4%. This emphasizes the company’s focus on quality service.

Moving now onto Slide 30, it represents our operating costs and expenses evolution, considering routine OpEx, the company presents reduction of R$259 million, in comparison to the first quarter of 2013. The main reasons for the OpEx decline were reductions of R$338 million in interconnection costs as a result of MTR cuts. R$280 million in third-party services costs due to mainly in-sourcing of internet plant maintenance operations. R$45 million in handset sales in line with the company’s strategy of low rating services. R$78 million in provisions for buyback a result of the improvement in quality of service.

On the other hand increases of R$262 million in these insurance costs due to the asset disposals done during 2013. Higher expenses with the launch of the new satellite and then our contractual inflation adjustments, and R$50 million in personal due also to being sourcing of internal plant maintenance operations.

It’s important to mention that main items of the review done in the routine cost, our first quarter 2013 were reversals of R$242 million of employees bonus that were provision in 2012, which was released net of provisions done in the period, the first quarter 2013, and R$140 million due to the change in loss for mobility and legal disputes of tax liabilities related to (indiscernible). In the first quarter of 2014, OpEx was impacted mainly by a gain of R$1.3 billion from the disposable of mobile towers together with other items.

Moving on to Slide 31, OpEx fell 4.8% in year-over-year, excluding interconnection costs and the new lease costs related to the asset disposals, cost decreased 1.5%, despite the fact that two-thirds of the OpEx is – remains to inflation.

Inflation in 2013 amounted to 6.2%, routine EBITDA moved up 5.9% in an annually comparison, totaling R$1.7 billion. The routine margin stood at 25%, 2 percentage points over the quarter ended March 30, excluding the new rent costs due to asset sales of R$156 million in the first quarter of 2014 and R$11 million in the first quarter of 2013, EBITDA grew 15% year-over-year. This improvement reflects the personal revenue growth and focus on cost control.

Slide 32 shows CapEx with continued focus on reducing the total cost of ownership. In the first quarter 2014, Oi invested R$1.2 billion, 7%, 8% invested in the networks, especially to improve wireline infrastructure for the broadband service, expanding their mobile network, and the voice and data service in the corporate segment. The investments already reflect some initiatives of improving CapEX efficiency, such as rationalization and reduction of the suppliers and renegotiation of contracts, including Pay As You Go model.

Extraction of network synergies, which increased our 3G coverage using existing 2G sites. Expansion of traffic offload through, Wi-Fi capacity, and leverage multiple play with DTH based HDTV services. And finally, rent sharing of 4G infrastructure. Operational cash flow totaled R$502 million, 4% up in the quarter and R$578 million up year-over-year. The continuous improvement in operational cash flow shows management commitment to leverage control and financial business.

Moving on to Slide 33, we showed the evolution of net debt which dropped R$1 billion in the quarter, goes in the first quarter of 2014 at R$30.3 billion, excluding Portugal Telecom shares. This is because following the capital increase and acquisition of PT Portugal assets take into consideration the future merger of Oi MPT, these shares will be canceled.

This quarter the company received proceeds from Globenet and mobile tower disposals, which totaled R$3.3 billion. Payments of 3G license, we still field maintenance and Oi’s employees bonuses partially offset the cashing of the asset disposals. Important to mention that 3G license and the hope we’ve seen in 2013 were paid in the second quarter. In relation to the daily operation activities, there was an increase of R$1 billion in net debt.

It is important to mention that this increase was R$500 million lower than in the first part of 2013. Thanks to a greater financial disciple and operation efficiency.

I will now turn back the presentation to Zeinal.

Zeinal Abedin Mahomed Bava

Okay. Thank you, Bayard. Let me now take you through where we are in the Portuguese market and then Luis will provide you some financial details as well. In the Portuguese market, the focus for us is convergence, (indiscernible) which is a convergent product that we launched on the 11th of January of 2013, continues to be hugely successful in that market.

May we’ve got about 2 million RGUs, roughly 1 million SIM card and as you will have seen on Slide 35, the number of customers with three and four SIM cards is roughly 41%, which is very encouraging, because we clearly have positioned our conversion offer as a family package.

Looking at the performance in the first quarter of our cable companies in Portugal, I’m sure you will have seen that we have done very well in terms of sales, in terms of gross ads, but particularly also in the convergence, so the run rate of the growth of (indiscernible) not withstanding all competition continues to be pretty much the same every witness in the second half of last year.

Convergence is also underpinning our Pay TV market share. We sell convergence, but we also sell triple play, is a face study six of presentation, you will see that we added 37,000 customers in triple play, 22,000 in broadband, 20,000 in TV, and the line loss is pretty much if you like stable compared to the previous quarter.

If you put this performance alongside numbers that have been put out in the Portuguese market, I believe that this is stellar performance. And we’ve achieved this performance, because the mindset of our company in Portugal is to sell triple link and triple play. We have achieved this performance, because when it come to maintenance, repairs and installation, we’ve done a superb job in terms of ensuring that the quality with which we are able to connect customers is clearly a differentiating factor for Portugal Telecom, and of course, this is translating into growth in market share.

Pay TV market share is now 41.8% notwithstanding the fact that Pay TV penetration is 79%, we continue to believe that the goal for us to continue to grow our triple play if you like market share and also as a result of our Pay TV market share.

I have mentioned to you earlier in meetings we’ve had, our important convergence is to position ourselves also in mobility. We think triple play is our churn. We think convergence is about repricing of mobility and repositioning in terms of competitiveness of mobility. So on phase study seven, I’ll call your attention just to two flexi data points.

First, look at how post-paid net has evolved. We are selling ten times more than we used to compared to the fourth quarter of 2012 before we launch convergence. Also, look at the mobility flat fees, they are up 13.5 percentage points, customers want the convenient of having this one supplier, customers also want the comfort of not having to worry about technology, but just focused and if you like benefit from the services.

Personal mobility data revenues on the back of the work we doing also in convergence are also up 3.7 percentage point. As a percentage of customer revenues it’s about 41.7% this goes to show that we’re making our services far more relevant and as a result we’re becoming a lot more resilient not just in terms of retaining customers, but also delivering financial returns.

Our market sharing mobility has also gone up about 2.3 percentage point, we think if you look at the GAAP of Portugal Telecom versus our direct competitors that has also increased. So when it comes to the Portuguese market, we believe that there is clearly work to be done.

We’re benefiting already of this convergence offer that we launched ahead of time and notwithstanding, if you like, more aggressive competitive behavior on the part of our competitors in Portugal. Our product and services continue to enjoy if you like, a superior conversation in that market, also because if you like the more successful retail brand in Portugal is our new Meo brand.

Now the quadruple play offer is obviously underpinning the B2C performance but it is also having an impact in our SME performance as well. As you all have seen on Page 39, our percentage of customers with rather convergent customers has grown up from 65.8%, 71.5% this is first quarter 2013, first quarter 2014.

If you want to look at this number two years ago, three years ago the convergent customers were less than 50%, so we’ve actually almost if you like, double the number of convergent customers on the back of triple play, on the back of this increased focus in selling convergence not only because it allows us to appropriate more share of wallets, but also reduced churn.

If you look at Slide 40, you can see that when it comes to the enterprise segment instantly B2B has done better this first quarter than the previous quarter. I think that has also to do with a fact that the economic recovery in Portugal seems to be in progress or improving, if you like, the ARPU seems to be improving.

But when you look at the enterprise segment, we continue to drive penetration of smartphones, we continue to drive penetration of mobile internet, so that we continue to grow our so called non-voice revenues and as a result the weight of non-voice revenues in the corporate segment is actually now 70%, which I think augments very well for the future.

I’ll skip to the Page 38 and I’ll hand you over now to Luis and asking to maybe stop at Page 38 and then we can move on to Page 41 and then I’ll wrap up, Luis, please.

Luis Miguel da Fonseca Pacheco de Melo

Okay, thank you Zeinal, good afternoon ladies and gentlemen with regards to Portugal, I would like to reinforce what Zeinal just said, which is that PT continues to gain market share in the consumer segment on the back of its successful triple play and the convergent documents.

PT Portugal continues to deliver very strong broadband and TV and postpaid net adds despite the already high penetration of some of the services. On the personal mobility service revenues we have improved from a minus 9.9% one year ago to minus 5.2% in the first quarter, on the back of course of the success of the convergent offers.

On the residential revenues and despite the market environment in the high penetration revenues remained almost flat in this quarter vis-à-vis the first quarter of last year. As much business to consumer operating revenues declined just 2.5%, which is a remarkable improvement and achievement vis-à-vis our main competitors and also vis-à-vis the main southern European peers.

Please recall that in the previous quarter so in the last quarter of last year these revenues were very positively impacted by significant equipment, first which were not the case on this quarter. On the business-to-business revenues, which also considerable improvement from previous quarter having declined a near 6.5% versus the 12.1% in the last quarter of last year and 10% in the first quarter of last year.

Also on the back of the increasing penetration of the convergent offers on the SME segment as Zeinal mentioned where we of course saw increased weight of this convergent clients by 6 percentage points.

On the last quarter segment we also saw a considerable improvement in the trends and as Zeinal also mentioned the economic environment improvement has certainly something to deal with that. Also another revenues remained flat, the positive growth in the also domestic and international traffic in the way being offset by the continuous decline in our directory business.

On the OpEx front we continue to focus our effort on the efficiency improvement in order to amortizing tax of the revenue decline. In Portugal OpEx declined by 4.4% in the first quarter, the personnel cost down 4% due to of course higher efficiency, but also due to the restructuring that we did in the second quarter of last year. Commercial costs are down 8.5% and that despite a huge marketing campaign that’s re-launch when converting the previous CNN to MEO brand.

Other operating cost was down 6.3%, which significant contribution by lower maintenance and repair expenses and also by the good contribution from support service cost, and this was in the back half of all the improvements that we’ve been doing all the investments that we’ve done on the new technologies and on the network, which are proving to be very resilient especially in the bad weather situation as the one that we saw in the first quarter of this year.

As such the EBITDA in Portugal declined 2.2% which is a considerable improvement from previous quarter. I just remind you that in the last quarter of last year EBITDA declined by 5.8% and in the first quarter of last year declined 11.7%. In addition and as previously indicated CapEx in Portugal continued to decline.

In the first quarter, CapEx was down 20% and as such our operating cash flow grew almost 8% in the quarter. As you know, Portugal Telecom has gone through an extensive investment plan over the last five years and now we are collecting the benefits of those investments. With regards to previous PT International assets, we continue to see strong performance in Namibia and very strong competition in (indiscernible).

With regards to the financial debt as previously announced if you went through an extensive and successful cost and solicitation exercise for our all lot of financial debt and that was executed prior to the capital increase and we were able to maintain all the existing bonds outstanding and all the credit facilities. And therefore now they are part of the new group. I also mentioned as a result of that, the business combination the new entity will be working on the organizing the capital structure of course both from a currency, the cost and the maturity perspective.

Let me hand it over, now over to our CEO Zeinal Bava for his final remarks.

Zeinal Abedin Mahomed Bava

Okay thank you Luis. So just to wrap up, we believe that this quarter once again, we showed progress against the priorities that we defined, OpEx was down, CapEx was down, EBITDA minus CapEx did well. And of course we are underpinning that on the back of the cost performance.

Having said that, the business model transformation is critical for us to put this company in the path of growth. So we are developing a number of initiatives as was shared with you during the road show that we recently did plus on this presentation. Our synergies at Portugal Telecom that R$261 million OpEx and CapEx synergies, we believe that’s a starting point, so we prefer to under promise and over deliver, so we will keep you posted on that one.

And last but not the least, it comes to asset monetization, we believe that end of this year or by the end of this year we will certainly have sold our mobile tower that recently we are working towards selling another 1500 to 2,000 mobile towers furthermore we will continue to see what other, if you like assets that behalf that don’t quite fit in our strategy also to monetize as well so that you can continue to beef up our financial flexibility.

Thank you very much and my team and I, of course are now available to answer any questions that you may have.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from Paul Marsh with . Please go ahead sir.

Paul A. Marsh – Joh. Berenberg, Gossler & Co.

Thank you. I hope you can hear me okay. There is a little bit of an echo on the line from this side of the ocean. So maybe I could start just with if there is any updates on Africa sale and unit sale and the situation there. And then secondly, you referred in the presentation to the DTH footprint so 34% household for which Oi will be the only suppliers of global channels.

And I’m just wondering if there is anything more you can say about what kind of opportunity that might be, I mean those households that have frontline with Oi, they have broadband or mobile service with Oi already, so in the cross-sell opportunity, is that a new sale opportunity?

And then the third question would be on the Corporate and SME outlook in Brazil? Where I think you highlighted some of the sub-segments are showing good growth. I just wondered if maybe you could remind us what the spilt is between Corporate and SME?

And what is the proportion of traditional services that are still in decline there compared to the proportionate revenues which is clearly growing and the outlook for that through the rest of the year. Thanks.

Zeinal Abedin Mahomed Bava

Okay. Thank you, Paul. With regard to pay TV’s question, we have about R$12 million landline and we have less than R$1 million pay TV customers. When you look at the penetration of pay TV in Brazil, it’s roughly about 32% of all the households. Of course, if you look at more developed markets that penetration in some cases, take the example Portugal is much closer to 80%, I think U.K. in the same ballpark. I am not suggesting in any way that, that the kind of staff you should be looking at.

That clearly, we believe that there is room for us to continue to grow that pay TV penetration overall, but when you think about just of our own customer base, we have 12 million landlines, 5.3 million broadband customers. So as you can imagine, we have significant scope to actually move our own customer base from being single play to double, essentially triple or moving from double play to triple play.

Worth also mentioning that all, when you think about this 12 million landlines that we have, about 40% our areas where if you like in terms of municipalities, we are operating in what we call low density areas in terms of competition.

The reason why we went slow last year was because trend was running very high and because we had already brought July capacity on this new satellite, and we were in the process of negotiating some of the local contracts, contracts that we brought, content contracts that we bought was a significance, if you like competitive advantage for us.

Starting April, we feel a lot more comfortable about the churn levels. We signed up an agreement to global and therefore we believe that our competitive advantage is not just the satellite capacity which allows us to have better HD but also the local content. And local content is absolutely critical as in most pay TV market, the usually local content accounts for about 30% to 35% of the viewership of pay TV homes in Brazil, that number is much high than 50% if you like. So therefore, we believe that this agreement that we signed up will not only benefit content suppliers that will also benefit us.

By growing our pay TV revenues, we are rather pay TV customers we hold that if we can get the right focus on being double play and triple play, we can also grow our broadband if you like customers.

On the Slide 17, we should you how revenues are behaving in terms of broadband and you certainly would have seen that broadband revenues were up 6.5% and TV customers were 18%, one would expect TV customers to be much in a growth to be much higher than 18%. The reasons why it’s 18% because we took that deliberate decision to go slow.

So clearly this is the one to keep at the back of your mind we are clearly seeing in the month of April gross adds that are running, if you like faster than the average gross adds of the first quarter, and let’s see how it goes in the next one, two quarters and particularly on how we can transform our sales force and make them more capable of selling triple play which is clearly one of these barriers that most telcos including Alcatel. With regards to your second question, on Unitel, let me ask Luis to give you an update, thank you.

Luis Pacheco de Melo

Okay, Paul, how are you? On Unitel there is no relevant use if and when there is relevant use of (indiscernible).

Paul A. Marsh – Joh. Berenberg, Gossler & Co.

Okay.

Zeinal Abedin Mahomed Bava

Paul, sorry that your third part of your question was about, was it corporate and SMEs?

Paul A. Marsh – Joh. Berenberg, Gossler & Co.

Yes, it was really I mean it is that was some interesting growth in some of the sub-segments of corporate? For example, IT, data revenue, VPN sales for example sales like that, and I just wanted I was trying to get a balance of what’s the proportion of growing revenues relative to the declining revenues impact sub-segment or in that sector. And then how should we be think about the outlook here, it can be lumpy from quarter to quarter, but if this is a revenue line which is sustainably going to be positive through the rest of the year and into next year or should we be expecting it to be up one quarter down the next quarter?

Zeinal Abedin Mahomed Bava

Just to get a sense when you think about what’s we call B2B and in that we include SMEs corporate and wholesale. One could work on the basis on the assumption that corporate call you represents about 50% to 60% in terms of the contribution, and yes, it is going to be lumpy particularly because if you like, the turnaround of SME is still in progress, so one can expect perhaps us to continue to do better in terms of IT, data, virtualization in corporate. But to see some lumpy performance in terms of SMEs in particular which probably represents about 30% to 35% of the overall contribution.

So for us is very encouraging to see that in the first quarter gross revenues were up about 0.6%. It’s difficult to give you better outlook for what, may or may not happen simply because a lot of the times when it comes to the corporate segment, you are looking at pretty sizable contract that may or may not come in one quarter. But I would say that what I am seeing from a business standpoint in terms of performance in the corporate segment.

I’m very encouraged, very encourage particularly of the work that Portugal Telecom’s cloud team is doing with our corporate team here in Brazil. And we are beginning to see those revenues actually pick up, and I hope that maybe next quarter when we announce over in my next conference call I can provide you with some more color on what we will be doing around the cloud, and I would say the success that we are having very much underpinned by the strategic partnership we have with SAP and Cisco. Thank you.

Paul A. Marsh – Joh. Berenberg, Gossler & Co.

Thanks.

Operator

And our next question comes from Vera Rossi of Goldman Sachs. Please go ahead.

Vera R. Rossi – Goldman Sachs & Co.

Thank you. Could you talk about the declining wireless revenue? Your decline was higher than your because you rely more on MTRs or a consequence of the disconnections in the postpaid users. Thank you.

Zeinal Abedin Mahomed Bava

Thank you, Vera. As I mentioned in Slide 22, you certainly will have seen that when it comes to prepaid, I think we did tell you well, in terms of overall RGUs that we’re up 3.8%, in terms of postpaid RGUs the growth was about 1%, Mobile Internet actually show the pretty strong performance both in terms of prepaid and postpaid.

So coming back to your point, we took a deliberate decision to go slow in terms of postpaid sales, and that has a lot to do with the fact that we were running very high churn. As a result, if you like, the lead indicator of our performance clearly are prepaid recharge and when it comes to prepaid recharges, we have done better in the first quarter of this year than in the fourth quarter of last year. And as you know, that’s the lead indicator of what we are doing in terms of prepaid not a share in terms of overall customers, but also in terms of revenues.

Of course, MTR is having an impact, I’ll ask Bayard to take you through some of those impact, as we indicated to you in the past MTRs will weigh on our EBITDA performance this full-year roughly R$200 million negative. So, this year you can expect us to see an impact of roughly R$200 million. We are more hedged than others because we are an integrated telco, but it will still weigh on our EBITDA performance although it won’t be as relevant as it might for others.

Bayard de Paoli Gontijo

I think that’s exactly what it is, the situation in MTRs. We are an integrated company. So, impact will be in our case not as relevant as in a few mobile player and the impact for this year will be around R$200 million as we have already mentioned before.

Allow me also to add the following, when you look at Page 19, you will see two things here, which are worth mentioning, one is recharges of 7.1% and then this market shares that we have in some of the states that are seeing substantial consumption growth. So this 7.1% recharge as I’ve said before and in the past suffers from the drag effect that we have in the state of São Paulo where clearly our market share have to grow in the future. So, if one was to look at the overall performance that we are seeing in prepaid it’s actually much better than 7.1% in most states other than São Paulo. Thank you.

Vera R. Rossi – Goldman Sachs & Co.

Just a follow-up question. What do you expect your contract base to have net positive additions?

Zeinal Abedin Mahomed Bava

As I’ve said in the past, in fact if you go again to Page 22, you see postpaid RGUs were actually up 1%, but as I said in the past we need to work towards improving our 3G coverage, which we are doing. We need to start the process which I think we’ve pretty much have done because I think when I look at some of the comparable churn rates that other operators show on their postpaid I think we are fairly comfortable that our postpaid churn rate is now pretty much benchmarked.

We are looking into life at the infection point in this market when it comes to convergence to actually back, get back in this game. So as I mentioned, in the Portuguese experience what we saw with convergence is that the Portugal Telecom sales of postpaid went up ten folds on the back of it. So we are not going to be in the business of competing based on high subsidies of forcing migration from prepaid to postpaid on the back of high subsidies.

So that’s why we’ve a deliberate decision even in the corporate segment of our business to actually focus more on data than on subsidization of handsets to grow market chain mostly. So I think we’ll have to see how the market evolves in the next one or two quarters, but when it comes to convergence we are frankly just pat on ourselves to make sure that we have the product in place in that regard I don’t want to go into more details for commercial reasons as well. Thank you.

Vera R. Rossi – Goldman Sachs & Co.

Thank you.

Operator

And our next question comes from Michel Morin of Morgan Stanley. Please go ahead, sir.

Michel Morin – Morgan Stanley & Co. LLC

Yes, good morning, good afternoon. Questions first on the restatement this is the first quarter 2013 EBITDA, I was wondering if you can confirm whether or not this had any impact on the full year number that you have previously disclosed which was R$7.6 billion and can you give us the quarterly updated quick quarterly number?

Zeinal Abedin Mahomed Bava

Okay. Let me hand you over to Bayard.

Bayard de Paoli Gontijo

Michel, regarding the changes we have in terms of routine EBITDA the changes do happen basically in the first quarter of 2013 therefore it impacted the full year numbers, but that was specifically in the first quarter of 2013 as I mentioned in my presentation.

Michel Morin – Morgan Stanley & Co. LLC

Okay. So the full year 2013 EBITDA therefore is roughly what 7.2?

Bayard de Paoli Gontijo

It was impacted by R$530 million.

Michel Morin – Morgan Stanley & Co. LLC

Okay.

Bayard de Paoli Gontijo

From which R$242 million it is the reversal of employee’s bonuses that was provisioned in 2012, and it was released in the first quarter of 2013 net of the provisions then in the periods before the end of first quarter of 2013.

Michel Morin – Morgan Stanley & Co. LLC

Okay.

Bayard de Paoli Gontijo

So we have announced first quarter of 2013 R$173 million and the number total number was R$242 million. Then in addition to that we have a reversal of R$140 million due to the change in mass probability and legal disputes of tax liabilities related to these same end those are the main ones.

Michel Morin – Morgan Stanley & Co. LLC

Okay. And then…

Zeinal Abedin Mahomed Bava

Doesn’t change the routine EBITDA, obviously changes as a result of this and we believe that by providing this clarity, those makes it easier for you to if you like judge our performance going forward in a more transparent manner.

Michel Morin – Morgan Stanley & Co. LLC

Absolutely and for the second quarter of last year you had a big severance personnel expenses I think about R$130 million, are you including that in how you routine EBITDA?

Zeinal Abedin Mahomed Bava

That was the decision we’ve made at that time to pay smaller portion of the bonuses to the employees of the company, so was an wage benefit done in the second quarter of 2013.

Michel Morin – Morgan Stanley & Co. LLC

Okay, and the second question now is you focus a lot on the EBITDA length CapEx but when I look at your Slide 33, I do see that on a sequential basis 2014 from Q4 to Q1, it looks like your net debt has nonetheless increased by about R$1 billion maybe the number that is more than that – fees sales is really just seasonality and they are maybe more or like 1.2%. Is that a fair gauge or it’s a cash burn as your current gain and how are you going to close that gap?

Luis Pacheco de Melo

Michel, what happened in the first quarter of 2014 is that we paid the 3G license, we anticipated the payment of 3G license, with that we saved around R$25 million to company details as you know, the cost of that is around 18% per year. So we decided to anticipate we think that was an important financial decision although it impacts our cash flow. And we have the payment of FISTEL Fee and the bonuses. Those items, we didn’t have those items in the first quarter of 2013, they happened in the second quarter of 2013 before we anticipated those cash outs for the first quarter of this year.

Michel Morin – Morgan Stanley & Co. LLC

Right, I’m just comparing, this three as to the 31.3%, the middle blue bars in that Slide 33, which show R$1 sequential change in one quarter. So it does not include any of these effects that you just mentioned. So there is R$25 million improvement from the 3G license but it’s all about continuing the OpEx reduction and operating growth?

Luis Pacheco de Melo

What we have in terms of working capital Michel and first quarter of 2014 was mainly payments to with them in terms of contracts with GlobeNet and TV, that we announced in Brazil. We decided to anticipate the payment for commercial reasons and there was a good negotiation as well for us.

Therefore this is mainly what we have in terms of working capital in that number. And then there is also the seasonality of the peers, normally effects to the first quarter of every year.

Zeinal Abedin Mahomed Bava

So I think, bottom-line I would be careful about doing the math that you were doing in terms of what the cash burn maybe for this year as we’ve indicated in the past that we don’t think that the cash burn will be the R$1.2 billion to R$1.3 billion that this company was showing in the fourth quarter of 2012. Likewise, we don’t think it will be the R$600 million that we showed in the fourth quarter, but the seasonality when it comes to working capital further more with this additional financial flexibility that we have from the disposal of assets.

We would look to take advantage to pay some of the more expensive liabilities, so going back to your earlier comment, it’s of course all about also improving our cash flow. So whilst, we do look as we can imagine an EBITDA and so and so forth, we are clearly focusing on EBITDA minus CapEx as if you like a first derivative for you to ascertain gain whether we are making progress in terms of delivering on what we said – as a priority which is to change the casual profile of the company and in that regards we continue, we did make significant progress not just in Brazil but also in Portugal.

Michel Morin – Morgan Stanley & Co. LLC

And your management compensation is it based primarily on EBITDA and CapEx or there other metrics could you share with us?

Zeinal Abedin Mahomed Bava

We have five drivers of our annual books and those five drivers are top-line delta, so revenue delta, EBITDA, net debt, EVA economic value added which, as we move towards intellectual we might add, could become something else, but right now it’s EVA and the fifth, if you like driver of annual bonus is Anatel Complaints because we want a tackle, if you like the quality service as an issue for the whole company and we like to more to talk, we decided to allocate 20% of our annual bonus towards achieving certain targets for Anatel Complaints as well.

Now we have to sets of, if you like drivers of our annual bonus, so for everyone that’s in the headquarters are these five and then in each region we have another five, if you like specific objectives. One of the key advantage of portfolio that said in the past, is in fact that we are present in 4,800 municipalities in Brazil and we want our regional teams to lead the charge in terms of the implementation of our strategy locally.

So each one of those regional teams will have an additional five targets and 60% of the bonus will be driven on the back of company numbers and 40% on the regional numbers and when it comes to there, if you like objectives one will include things like churn, market share of gross adds, net adds and so on.

Michel Morin – Morgan Stanley & Co. LLC

Great, that’s very helpful. Thank you very much.

Luis Pacheco de Melo

Thank you, Michel.

Operator

Thank you. Our next question comes from (indiscernible) USB Bank. Please go ahead sir.

Unidentified Analyst

Good afternoon, thank you for the question. A couple for me, on the ongoing cost of the MTR rate, do you expect any specific change in the operating dynamics would expect more price pressure with a lack of utilization because of the disappearance of the community concept. Thank you.

Zeinal Abedin Mahomed Bava

I think clearly declining termination rates, in my view could end up becoming more benefit or if you like players that have no market share, particularly in some regions like our sales. I have no doubt in our mind, that regulation right now we focused on-net, off-net device, which in Brazil is free substantial, so in that regard if you like termination rate is coming down, will pave the way for this market to end of having, if you like on-net flat rates and an SMS help those operates as an I enjoying from the network in fact will find the more difficult to sustain that performance just on the back of it so, Brazil will not be different from any other market in debt regard.

Clearly in our case, we have a hedge in sense that we are fixing mobile and we are integrating and as we have fulfilled the market before, we estimate this year, the net impact at EBITDA level of falling termination rates will be circa to R$200 million. So it will not be material in the overall context in terms of the performance of the company financially speaking, but strategically it could have an important and a positive impact in our positioning in the market simply because we think will be better able to reposition our office to address what we think consumers want which is on-net, flat rates. Thank you.

Unidentified Analyst

So, if I may on the African asset side, could you consider disposal of these assets going forward into the end of 2014 and if you can share we got some update about professional consideration but again you think that, so all your conditions are in place or let’s say the environment is positive for this evolution in Brazil? Thank you.

Zeinal Abedin Mahomed Bava

We said that, we have five business objectives and clearly one of them is asset monetization. So we will continue to work towards monetizing assets that allow us to reduce financial risks, beef up our financial flexibility, and improve if you like our financial ratios.

After the recent offering that we’ve done, we continue to have leverage which in the context of the sector is incomes of net debt EBITDA, if you like ratios is still high, but we enjoy financial flexibility of R$24 billion, so under no circumstances we will be taking short-term decisions that may impair it from being competitive on the medium and the long-term.

And what is our strategy, our strategy is clearly to focus in the Portuguese market where we, in this quarter are beginning to see improvements, clearly despite the environment whether it’s macro, whether it’s competitive our performance, I think was stellar and therefore we hope that we can benefit from tailwind in terms of economic recovery, particularly in mobility to deliver a better performance, but I think it has a lot more to do with the way that the consumer behaves rather than what is that we can or we cannot do.

When it comes to the Brazilian market the focus is on repositioning the company, cutting costs getting more efficiency out of CapEx and running after those synergies that we believe exists with Portugal Telcom. So we have our plate full between Portugal and Brazil and that will be our focus, if you like from a management standpoint and we will continue to look at ways in which we can, if you like monetize assets that don’t quite fit that strategy.

When it make sense and that’s what I can say now, we will come back to you on sequential basis, I’ve spoken to you very openly about what we are doing around mobile towers and I prefer not to go into more details about other things that we have in mind at this stage. Other than to say that asset disposals if clearly, our monetization of assets is clearly one of the five business objectives that we have for 2014. Thank you.

Unidentified Analyst

And so to say the Brazil consolidation.

Zeinal Abedin Mahomed Bava

We see the encouraging, if you like signs about some market repair in Brazil when it comes to prepaid and mobility in the last few weeks, we’re all in favor of working towards improving profitably of the sector, so that we can generate more cash so that we can invest if you like in beefing up our coverage, improving the reliability of the networks providing better speeds to people.

So our general view when it comes to improving profitability of the sector we’re of course always in favor, but with regards to consolidation test, as you can imagine I will not comment other than to say that other market have seen consolidation and it has been beneficial not just for the overall profitability of the sector, but also for the, if you like the help of the sector and with clear benefits for consumers overall particularly in terms of the ability of the companies to execute their digital agenda and move the infrastructure to in terms of modernization to a new level.

So that’s all I can say in that regard and just continue to reiterate that we will work towards improving margins and this is what would like to do and we would like to see and we think that this is the market required.

Unidentified Analyst

Thanks very much.

Operator

Thank you. And our next question comes from Ric Prentiss of Raymond James. Please go ahead, sir.

Ric H. Prentiss – Raymond James & Associates, Inc.

Thank you. A follow-up question what is the current status of auctions in Brazil, as well as your thoughts for timing.

Zeinal Abedin Mahomed Bava

Thank you for your question, Anatel as you know is in the process of consultation of the sector. I think we all have heard the same thing that the plants have been made for the option to occur in August and that’s public info. So I’m just relaying to you what’s in the public domain. We as a company as we said in the past, we believe that’s – the cost value associated with the spectrum and therefore we will continue to monitor whatever developments happen in the market and then take decisions when they are required. Thank you.

Ric H. Prentiss – Raymond James & Associates, Inc.

Okay. And then the tower sale that you’ve mentioned you would like to get done by year end 2014, it looks like there could be some other tower portfolios coming out with Tim and maybe some of the private sponsors any thoughts about how much you want to get from your tower sale or if you might pull if you don’t get enough?

Zeinal Abedin Mahomed Bava

I think we were very quick to actually get going with those asset disposals to GlobeNet in 4 of June, like I said we’ve sold assets worth about R$4 billion. Yes, we do understand that there will be more demand out there, but it is what it is, I think we are looking to disposal of those assets. As you know, if we work solely, because I was asked earlier the question about the key drivers of our self bonuses, it’s worth mentioning that if one was just focused on the maximizing EBITDA, some of these asset disposals, and then having a negative impact. In fact, I just saw a research from analyst, but each of these numbers we forgot to mention that, this year, for example, we will have an impact of about R$650 million from asset disposals, which in terms of if you like our OpEx performance.

And so but for me that’s financing costs. So when I just saw this research and this analysts have ignored that I think, it’s slightly misleading, but I think it’s worth keeping at the back of your mind that we as management want to do right thing for this company and therefore, asset disposals will allow us to get funding with longer maturity and more cheaply than actually tapping the markets or the banking system.

So therefore expect us to continue to drive aggressively our agenda of asset disposals. So as to allow us to not only improve our financial flexibility, but use that financial flexibility to pay some of the expensive viabilities that we carry on our balance sheet, which will allow insurance as to improve our cash flow. So we remain confident, and therefore we remain confident that we will be able to sell our tower this year.

Ric H. Prentiss – Raymond James & Associates, Inc.

You’ve made excellent decisions in. Can you kind of quantify what you think the effective interest rate is for having sold the towers since it does affect the EBITDA instead of financing cost?

Zeinal Abedin Mahomed Bava

If we can imagine and you also rightly mentioned there are – the demand out there the other people looking at this by prefer not to provide you, allow me not to specifically answer that question. But refer you to page 5 of our presentation, where we said to you, where we’ve indicated that the cost of this funding to us is about 7% overall. Okay, this includes disposal submarine cables, mobile towers, and so on. So we continue to believe that it’s much cheaper funding hence we can have access right now in the banking system wise, interest rates are running at about 11% and 11.5%.

Ric H. Prentiss – Raymond James & Associates, Inc.

Makes great sense. Thank you.

Zeinal Abedin Mahomed Bava

Thank you.

Operator

Our next question comes from Luigi Minerva of HSBC. Please go ahead.

Luigi Minerva – HSBC Bank PLC

Yes, good morning. Question on your fiber foot printing Portugal, so on the back of the merger between ZON OPTIMUS and the investments that the Vodafone is doing, do you feel that it’s scope to increase your fiber footprint and do you sense that the regulator would give you the opportunity to not wholesale fiber beyond the current 1.6 million homes. Thank you.

Zeinal Abedin Mahomed Bava

Okay, thank you. We are quite happy with the footprint that we have today, because that footprint was built on the basis that we had segment of regulation. So it’s worth mentioning that that was the underlying assumption that allowed us to actually look at the fiber business plan and convince our Board and our investors that was the right investment decision.

Certainly, I think we have been able to deliver on results having 42% market share in Pay TV as a new entrant in that game in 2008. I think it’s a pretty good achievement. But going beyond R$1.6 billion with though – with no regulatory visibility and so on and support, it’s something that is not in our plan. So the short answer is, no, we’re not looking to fill full fiber in Portugal under current conditions.

With regard to others building fiber and the potential for there being if you like infrastructure sharing in the future, we have never ruled that out in the past. However, we believe that infrastructure sharing should be done on the basis of economics that makes business sense.

With regards to regulation, we also believe that one should not distinguish fiber from DOCSIS 3.0. We think that this new generation networks to be treated the same simply because they can actually offer pretty similar services. So when you think about regulation, it is our belief that if you want to promote investments in terms of upgrading of technology, the fiber and DOCSIS 3.0 should not be distinguished, because the customer in the end doesn’t quite distinguish them as well.

So, yes, we are happy with $1.6 million that we have to-date. Yes, we have to with the progress we’ve made in terms of penetration of our own fiber plant. Yes, we’re quite happy with the fact that fiber has allowed us to reduce if you like the cost of servicing our customers. But right now our focus is in driving penetration in the plant that we already have. Thank you.

Luigi Minerva – HSBC Bank PLC

Okay. Thanks.

Operator

And our next question comes from Mathieu Robilliard of Exane BNP Paribas. Go ahead please.

Mathieu Robilliard – Exane BNP Paribas

Good afternoon. Thank you for taking the question. I had three questions please, the first one, with regards to the initiative of Vivo to do fixed wireless outside of São Paulo, we are taking quite a bit of subscribers, and I wanted to know if you see any impact of this initiative on your customer base or rather that taking customers that (indiscernible) has a fixed line? That’s the first question.

The second one is with regards to SMEs and corporate and general in Portugal still revenue decline, but quite an improvement from the previous quarters and kind of in the line of the same question for Brazil, I was wondering if we should expect that to be an ongoing trend, how should we expect some lumpiness?

And finally going back to the free cash flow, it’s more for me to understand some of the necessities of Brazilian taxes, but you’d show in this quarter a big contribution to Cisco and along the full year and so there’s some seasonality there. But you excluded some kind of the normalized free cash flow generation. My question is isn’t that the cost of the doing in this year and be included in what we consider regular free cash flow on a yearly basis. I understand why you extracted down the quarter, but on a yearly basis you’ve sensed just another drag on the cash flow. Thank you.

Zeinal Abedin Mahomed Bava

Okay. Thank you, Mathieu. With regard to the Vivo fixed wireless, I’m actually quite glad that you’re asking this question. We also have a fixed wireless of ourselves. And so we are monitoring whatever is happening in this market in this regard. As you know, in some other markets fixed wireless has not been very successful. If I understand correctly at the end of the first quarter, they had about 653,000 customers. So, I think, and the run rate, I think is about 30,000 a quarter. So, in the context of those bigger numbers in Brazil one obviously has to keep an eye on it.

Worth mentioning also the fact that if you think about our DTH footprint, don’t forget we also cover São Paulo. So, I think one has to look at the market in a way that we can actually create value and improve profitability. So, we are keeping a watchful eye on it. We have not ourselves given as a business. We have not done much in terms of fixed wireless, but it is something that we will continue to look at. But worth mentioning that I think end of April, they have done about 28,000 net adds.

Second thing, with regard to Portugal, SMEs and revenues declined and lumpiness. The Corporate segment, as I said, in one of the earlier questions, the Corporate segment also had some lumpiness. With regard to SMEs in Brazil it was turnaround. In Portugal, clearly you are seeing an improvement in performance, but being very candid with you that improvement is against the backdrop where our revenues last year were down 11% to 12%. So, obviously, having fallen 11% to 12% last year it’s certainly doing better this year. And if you like, the major concern continues to be the re-pricing of mobility in that market.

So, when it comes to the SME segment in a way that we are compensating for that re-pricing in mobility is to drive penetration, offer triple-play and quadruple-play also in the solo segment of the market and if you like in the small enterprise segment of the market. So, we think that the first quarter numbers in terms of B2B in Portugal were better, encouraging, but you should expect some lumpiness, because this is in the nature of the business, particularly when it comes to the Corporate segment, which ends up having a disproportionate, if you like, contribution to the overall B2B segment and as a result, that is much more dependent on contracts that you kind of get awarded.

With regard to free cash flow, let me hand you over to Bayard, but I’ll need to make one comment. The only reason why we’ve highlighted the 3G license and the FISTEL fees and the bonus is that so that you can have an easier comparison to the first quarter last year, because some of these things are updated in the same quarter. So your point about this is the cost of doing business. Indeed it is the cost of doing business. So, if you are looking at my cash flow annually that would not be an issue, because the market tends to look quarter-by-quarter. One has to highlight to you what has actually moved from one quarter to the other so that you are not driven to the one conclusion. Bayard?

Bayard de Paoli Gontijo

Yes. So, regarding the maintenance FISTEL fee, I mean this is a cost of R$13 per client in the mobile base. It happens normally in the first quarter of the year as it happened this year. In last year, in 2013, for specific reasons it happened in the second quarter of the year. Normally, as I now mentioned, it happened in the first quarter and we paid roughly R$580 million in maintenance FISTEL fee in 2014. So it is R$13 per client in the mobile business.

Mathieu Robilliard – Exane BNP Paribas

Thank you very much.

Zeinal Abedin Mahomed Bava

Thank you.

Operator

Thank you. Our next question comes from Giles Thorne of Jefferies. Please go ahead sir.

Giles D. Thorne – Jefferies International Ltd.

Good afternoon. Thanks for taking my questions. I had two pieces. First to do with Brazil. I wanted to start again with the impacts of the MTR finally coming down is what we said to expect we’re going to see a fresh acceleration of fixed to mobile substitution. Could you frame for us the risk, because you said you want to offset the headwind by pushing the conversion agenda? Indeed it will be good to know how much revenue you still generate from fixed voice and fixed voice traffic in Brazil base, starting by R$517 as it looks like a third of revenues in residential?

And secondly, it’s quite notable. I was interested you pick up this one around the importance of ANATEL later are on complaints on mobile quality. There is a definite gap and a sustained gap was build up between you and your peers on mobile quality and complaints and indeed on 4G coverage. Now all these are clearly crispy of the data monetization and convergence strategy and indeed would probably be more important as emphasize a more voice price in that environment, but they are coming down. Can we have some color on how you think you can close the gap given your financial flexibility that was just…?

Zeinal Abedin Mahomed Bava

Okay, great. Thank you. With regard to fixed voice revenues in this split, I think we already provide substantial amount of, if you like, information about our business compared to some of other peer group companies here. So we don’t quite give you that specific number in terms of breakdown. What I can say to you is obviously the trends in Brazil are not going to be very different to trends in other market. In the residential segments, you see declining, if you like, voice revenues and increasing broadband and TV revenues. And this is how you get your B2C to actually grow.

So that’s why I’ve always said that we needed to work towards improving, or if you like, we needed to transform our business model away from being seller of single-play to becoming a multiple play service provider and the good news is that the penetration of services in own customer base seems to be increasing and therefore we are beginning to deliver on that strategy.

Granted there’s a lot of work to be done and in particular if you like one of the biggest challenges that we have is cultural, which is to get our people to focus on selling triple play as opposed to selling, if you, like single play or double play. So watch that phase. I think you will see us talk a lot more about it and in some cases with some level of frustration because we believe that we can do a lot more, but the fee at which we can get done will also depend on our ability to be better at execution of triple play.

With regard to termination rates, termination rate is coming down. I frankly believe that – your point about fixed mobile cannibalization, my personal view is that with penetration of mobile voice already well above 100% of the population, if there was to be cannibalization of a voice that’s probably has happened. When it comes to data, I would be very cautious about believing that will happen at whatever speed because, as you know there are quite issues in this market around providing Internet speed and transfer network conjunction is a challenge for all operators not just Oi, every single operator.

But I think you have different positioning of each operating in each market because our starting position is for example is very different, I’ll give you an example two days ago I’ve spent a last couple days in the region of Centro-Oeste in Brazil and you take for example Brasília we are the operator that is able to provide the highest speed in terms mobile Internet in Brasília, now that is probably true for Brasília and may not be true for some other cities.

So, I think the network quality in this market is not as homogenous, as some markets that are much smaller and that’s why taking a granular approach is absolutely critical, so that you invest where it makes business sense and you invest where actually you need to be that quality. Now your point about our 4G coverage allow me to say the following we do RAN sharing with TIM, so my 4G coverage is the same as Telecom Italia.

So and I don’t think the TIM-Oi coverage is that different from some these one of operators that I can think about, so bear in mind that 4G even in more developed markets still have not generated if you like, the performance that was expected and the ability to price some of those source that are premium hasn’t quite materialized. So let’s be on the same page on this one I think my 4G coverage is as same as TIM and therefore we will continue to honor all the obligations that we have with ANATEL.

Again coming back to your comment about quality of service, I think it’s worth looking at what ANATEL complaints that have been in terms of mobility and what you will you see and these are not our numbers these are ANATEL’s numbers. You will that in the month of March and April, I think we improve substantially our positioning, and I will try and get you some specific some numbers on this, and I will have my team if you like e-mail to you.

But if you look for example at the month March we were the mobile operator with the lowest number of ANATEL complaints among all mobile companies in Brazil, okay, so if I’m not mistaken in March we had about 14,000 something complaints and which made the operator with the lowest number of ANATEL complaints and highest complaint number from one other peer group companies they reached about 20,000 so from that standpoint what I can say is that April was the similar kind of performance to March.

And we’re so committed to improving our quality that we have decided to allocate 20% of our annual bonus to actually being better at ANATEL complaints then we work for example last year, so we have to look walk and talk and when we say that quality is important to us and we want to improve we also put best our own skill to play here. Thank you.

Giles D. Thorne – Jefferies International Ltd.

That will be really great to get update. Can I just follow-up on something you said around SIM penetration being comfortably over 100% in Brazil, so my mind it’s not how many people have the SIM, it’s actually how much they are using it and the MTR finally coming down it’s going to reduce that community effect and drive data voice usage in mobile, so again I just wondered are you basis and you’re quite comfortable on the risk of the large amount of traffic coming of – internet on firewall?

Zeinal Abedin Mahomed Bava

If you look at the minutes of usage in this market they oscillate somewhere between 100 million and 160 minutes. So it’s pretty high from that standpoint because it is a market that’s very much driven on the back of promotions, okay traffic promotion. Obviously, in order for us to live-up to the challenge of having if you like the best performance in terms of parental complaints which I repeat, we actually were able to do in the month of March.

So just to get this preconceived idea about quality of Oi out of the way, I think that the minutes of usage are quite high in this market already, what we are doing in that regard is targeting our promotion below the line where we have capacity available and where we can offer these minutes without effecting the overall quality of service that we deliver. So my personal view and I think your points about minutes of usage. Minutes of usage is high, termination rates coming down opens up a slightly different discussion in my humble opinion and that’s the current device within on-net and off-net, it’s like towers in Brazil, will have to collapse.

Right now, some operators are leveraging if you like their performance on the back of the on-net, off-net device and estimate initially has come down. We will move to a market where you will have a lot more on-net, unlimited plans. Now that has happened in Europe for example in Portugal most of our, if you like offers right now, determination rates with 71%, all-net as opposed suppose distinguishing in on and off-net. Because this is what at the end consumers want. They want a flat rate and they want to be able to talk to any customer independent of the network operator that they are calling on.

So my personal view is that perhaps, it’s much relevant, the how the market will evolve between on and off to all-net as opposed to fixed mobile cannibalization, if you are thinking about termination rate, it reset my opinion, thank you.

Giles D. Thorne – Jefferies International Ltd.

Thank you very much.

Operator

Our next question comes from Sumit Dutta of New Street Research. Please go ahead.

Sumit Dutta – New Street Research

Yes, good afternoon. A couple of questions please. First of all on the Brazil, looking at the cost base that’s been a very good performance this quarter and last quarter and if I could just in terms of the cost base, if we would adjust for interconnect and adjust for the new level of rental payment coming on this year. Do you feel comfortable that adjusted cost base can be flat or down in 2014. Secondly if I could ask about cash flow on the juridical deposit payments, I think running at R$199 million this quarter and doesn’t sort of pay to be any sign of fees, and can you give any potential outlook on that particular cash flow item going forward please.

Then a final question if I could again going back to termination rates, the R$200 million negative impact you indicated for this year. Can I just check are you interpreting, the idea of the fixed mobile retail price also being cut, always that just strictly on the MTR rate. And can you confirm how do you cut the fixed mobile retail price in line with the MTR rate. Thank you.

Zeinal Abedin Mahomed Bava

Okay thank you and with regard to costs, again, two-thirds of costs are inflation length, where inflation running at about 5.96% means that we have a headwind of about 3.5% beginning of every single year. We therefore have made productivity, if you like one of the biggest challenges of our company now that’s in the field force, that’s in all the sales channels employment support.

These, of course, in our view, so a lot of low-hanging fruit, which we are going after, and therefore some of the slight improvement that you saw third, fourth quarter and first quarter. On the basis that, we can make some of these things happen faster, but this doesn’t mean that we are not working on more structural projects that will allow us to underpin similar sort of performance in the past.

So we are working towards having a flat cost base in 2014 that’s if you like what we are looking to do. Granted that in our first quarter, we actually did much better. If you – even if you ignore, if you like any adjustments that was done to routine EBITDA and so on and so forth, our costs were flat, if you take into account if you like the rentals. So I think for the reason why we did these adjustments is to make it easier for you to follow the progress that we are making, but even if we you were to ignore that, okay, the 5167…

Operator

Ladies and gentlemen please hold on, the speakers will be reconnecting their line. Please do not disconnect your phone.

Zeinal Abedin Mahomed Bava

Okay, I apologize. So coming back to your – okay, thank you. So apology for this. With regards to – so coming back to the cost, we are clearly working towards having a flat cost base, which as I mentioned to you means that we will be able to send off the headwinds of inflation. If you look at our first quarter performance, even if you forget about the adjustments that we are done around, if you like, good EBITDA this will facilitate your reading of our performance and make it more transparent. If you take our 5.167 that was impacted by R$166 million of rental, so even it just for what I believe is routine in that regard keeping first quarter last year exactly the same as we reported our cost of plan.

Okay, and that you in my view is one of the key drivers of what we’re trying to achieve for 2014, likewise keeping CapEx under control and by the way cost is not such in Brazil but also in Portugal and CapEx under control both in Brazil and in Portugal, so if you look at the run rate of the CapEx that we posted in Brazil and in Portugal it’s actually looking much better than even if you like any number we’ve given to you in the past.

With regard to traditional deposits?, perhaps you can ask something but basically the thing pretty much flat.

Sumit Dutta – New Street Research

Yeah, so over the last quarters, I mean we’ve been depositing around R$200 million was being to control to issue deposits and that’s our goal for the future we believe numbers should remain flat.

Zeinal Abedin Mahomed Bava

With regard to the mobile termination rate, that’s the number we’ve given to the market that factors in the drop that we’re seeing and, slightly prefer to leave it at that, we think that we can do slightly better than R$200 million, but that’s a good number for you to be working in your model. Thank you.

Sumit Dutta – New Street Research

Do you have time, sorry for a quick follow-up on the (indiscernible) question. Can I just confirm, when are you talking flat cost that is sort of as reported not adjusted for interconnect or anything in which case then sort of bearing in mind that Q1 restatement your cost base last year was give or take about R$21.2 billion that’s basically the number you’re targeting for the cost base in 2014.

Zeinal Abedin Mahomed Bava

If you look at for example, again interconnection, I agree it’s (indiscernible) but so I’m thinking about our overall cost if you like. Okay, but look at Page 30 of the presentation that we put out. We showed you significant improvement in personnel, in others, on discretionary spending, so line by line, if you look at the cost base of Oi, we’re working towards if you like improving our efficiency lowering cost, renegotiating contract to suppliers, line by line. One other thing that it’s difficult for you to capture, but as a material impact is the impact of share. If you like our ability to improve our efficiency of turning less gross adds, more net adds as a very significant impact commercial cost and that underpin profitability, so that’s why I understand the focus on gross add. But clearly, I mean I look at the conversion rate, in that regard that will also allow us to do better in terms of commercial cost going forward.

So when I think about my (indiscernible) make it clear about taking cost slab, it includes everything, okay so our OpEx including everything. And but I again I believe that the way to look at it is the way that we have surely get gestures that we have shown. Why because we think that the routine EBITDA in 2013 included some events that were if you like not to be and by giving you more transparency I think it will make it easier for you to understand what are the efforts that we are making or not making in the future to keep those in control. Thank you.

Sumit Dutta – New Street Research

Okay. That’s very helpful. Thank you.

Operator

Thank you. Our next question comes from Carlos de Legarreta of GBM. Please go ahead, sir.

Carlos A. de Legarreta Díaz – GBM Grupo Bursátil Mexicano SAB de CV Casa de Bolsa

Thank you very much for hosting the conference. Just had a quick question regarding the pay TV market in Brazil. If I’m not mistaken you currently have a market share of around own 5%. Do you have a goal for this metrics, and if so in what timeframe?

Zeinal Abedin Mahomed Bava

Thank you. It’s difficult at this stage to tell you what we are driving for simply because we have pre-launched our pay TV offer. So, yes, we have. What I can say to you is having 4.5% market share is clearly mediocre. And certainly should do better. If you work on a basis that we have less than 1 million pay TV customers, 12 million fixed line customers, 5.3 million broadband customers and that we have a DTH platform that gives us international coverage and when you look at some of our peer group companies when it comes to DTH HD in the 5 million customers as well, we can certainly do better. But having said that, allow me to say this. Our pay TV prices are aligned with other prices in the market. We think that marketing dollars should expand not to compete, if you like, on price, but to promote the advantages of people buying pay TV.

So when you look at the reader cost, if you like cost in terms of prices, our prices are the same as well our competitors, but we think that we have a much better value proposition. Why? Because we have most of that capacity. As a result, we can give you better HD and we can give you more global content. So we are not, if you like, competing on price. We have no wish competing on price. We believe that organically the penetration of pay TV in Brazil can grow. And on the back of that growth we think that we can grow together.

Now penetration of pay TV in Brazil in about 33% more or less in terms of households, maybe less 30%. We can certainly do much better than that. I think you have overall about 34 million pay TV customers in this market, 60 million households more or less. So that gives you a sense for where we are, but when you look at other more developed markets you will see that penetration has gone much higher. Now this is the market that buys about 50 million TV sets per annum and chances are they will be buying a lot of those that will HD Ready and HD TV set.

You have one incredibly went that’s going to happen in the next four to six weeks in Brazil, which is the World Cup and the World Cup is going to be all about HD. So we believe that the value proportion of HD in this market is likely to improve substantially post the World Cup, at least I’m banking on it. I believe that if that happens, it will be great, if you like, for all the pay TV customers, not pay TV service providers, not just all others as well.

In the case Oi, simply because we believe that we have more satellite capacity therefore our HD is of better quality, which should be able to benefit from it, but at this stage all I can say to you is that clearly 5% is not where we would like to be. Portugal, we have about 42% market share in pay TV. As you know, when you think about the critical math, when you think about programming cost we are far from it, but at this stage I would be cautious to give you anymore guidance other than safe way where we are and then we need to monitor the progress we make the next two to three quarters in order to understand how far we can go. Thank you.

Carlos A. de Legarreta Díaz – GBM Grupo Bursátil Mexicano SAB de CV Casa de Bolsa

Thank you. And if I may just a final one. You mentioned very specific or at least synergies in the IT segment because of Portugal Telecom. Do you have any other particular business that is really going to positively impacted by say know-how of the merger. Thank you?

Zeinal Abedin Mahomed Bava

In qualitative service, what I can say to you, this is not captured in that R$261 million run rate in terms of synergies in operations in qualitative service, I can say to you is that the fact that the transformation that we wish to do in terms of business model and technology in Brazil, we’ve done it before simply makes it easier or this if you like we will certainly make mistakes going forward, but they will be different mistakes not the same mistakes.

So that is something which has a lot of value in terms of time to market, and therefore if you like the – let me just give you one example that goes to talk generally about this, if you look at our DTH offer in Brazil that we just re-launched that work was done together between Portugal Telecom and Oi and why because in Portugal, we also run a DTH service.

And as a result what we did we used that experience, we innovated on it. So what we are doing in Brazil is actually even more innovative in the sense that we will have three types of setup boxes and modem will be a hybrid setup box which will allow our HD customers that have our broadband to also enjoy if you like some interactivity as well in terms of services.

So it’s not just about a read across our technology from one market to the other, it’s actually innovating a process and avoid making the same mistakes and do it and get it right first time. So there will be lots of areas but ultimately, it comes down to a number and I hope that next time we seek second quarter results, we should, we hope that we can give you already some clarity as to how much of that R$261 million, we are beginning to realize. Thank you.

Carlos A. de Legarreta Díaz – GBM Grupo Bursátil Mexicano SAB de CV Casa de Bolsa

I appreciate your answer. Thank you.

Operator

And our next question comes from Luis Prota of Morgan Stanley. Please go ahead.

Luis Prota – Morgan Stanley SV SAU

Yes, hello. I have two questions on domestic business in Portugal, I’m sorry. First is on pay TV business, your pay TV customers are already above your broadband customer base, I wonder if there was if you could give us a split of IPTV versus satellite customers and what’s the growth expectations you have here and in this regards, what’s the – play ARPU, that’s you are recording the residential segment and how you are expecting this above taking into account your comments in the press release that the TV grows might come from price sensitive segment.

And the second question is on the prepaid to postpaid migration. Thanks to Embratel, I wonder if you could give us some based upon in terms of ARPU to figure out how – is this migration for mobile customers. So what’s the ARPU for prepaid customers and what’s the average ARPU you are accounting for mobile within this Embratel for defense impact. Thank you.

Zeinal Abedin Mahomed Bava

Okay thank you, Luis. On DTH, we have about 295,000, 296,000 subscribers which I think it’s even slightly higher than what our competitor has in Portugal, which means that when it comes to DTH, our market share is actually about 50%.

With regard to, how you should think about pricing of mobility, if you like our quadruple play service in Portugal leaving to one side any promotions that we may or not do cost about €79.99. If we work on a basis that triple play costing about 45 that has implicit if you like an ARPU including VAT of about €17.5 if you’re just buying two SIM cards, but if you are buying four SIM cards that would take you to an ARPU of about €12.5 including VAT, which means that it’s circa €10 of ARPU.

So, as you can imagine this represents an uplift in terms of ARPU compared to where we are and what we report today, as we are going to see standalone. And this is why what we have said in the past, is that where triple play is about churn, quadruple play is about repricing of mobility.

So, I think that as we continue to push in the direction of making M4O, a family package the benefits for our customers improve, and this is why good to report that 41% of our customers have more than two SIM cards, so they have either three or they have, which those two actually in the direction of the points that I made earlier, that it’s more you buy from a better deal you end up getting. There is also two of you questions and I think you have a third one, which is…

Luis Prota – Morgan Stanley SV SAU

It’s about the potential.

Zeinal Abedin Mahomed Bava

One other thing allow me to mention in the presentation and you’ve also seeing that is that M4O is also allowing us to gain share. So about 40% of the customers that we are 35%, 40% of the customers that we’re getting are new customers to Portugal Telecom, so these are people that are coming into our ecosystem, so and this is why our market share is growing, that’s why mobility our market share gap vis-à-vis the second operator has actually grown substantially in the last 12 to 15 months. Sorry, you laughing?

Luis Prota – Morgan Stanley SV SAU

Yeah, no, I was trying to get what would be the potential growth for pay TV customers Portugal taking into account high penetration, you were giving the 295,000 DTH customers, that give some room until you have 100% penetration of your broadband customer base. Even though whether that’s good within or that were effecting some market growth that could pressure the growth in yours pay TV customers in Portugal, thanks.

Zeinal Abedin Mahomed Bava

What we have experience is that as moved from analog to digital in Portugal clearly that if you like, one trigger event for customers to query whether they wanted to buy into pay TV, because they would have to buy decoder anyway. So from that sense point that was a positive event at least in the Portuguese market.

The second thing is, yes, we did have significant market competition between us other companies that are operating in Portugal, but that was very beneficial in promoting the advantage of the few having one triple play and two pay TV.

Like as I mentioned earlier in connection with the Brazilian market, the fact that this year 15 million TV sets are expected to be sold most of them will be HD, HD ready and the world cup is likely to be all about HD and assuming that we are all using our marketing dollars to promote the advantage of having pay TV that certainly will help you increase penetration.

But we are at 79%, so clearly our growth in the future will come on the back of some market share growth as we continue to see, but also one should not rule out that 80% actually growing a bit in the future, but certainly not that the way that you do in the past. If that be a concern one of the big positives of Portugal Telecom in the domestic market is that culturally speaking, we are sellers of voice.

We are no longer sellers of voice, we’re sellers of content and TV, and that is something, which is very much ingrained in the DNA of the company, and it’s not something that happens overnight. So on that 10 point the fact that we do have some significant experience on cable in the past has helped us a lot. Thank you.

Luis Prota – Morgan Stanley SV SAU

Thank you.

Luis Pacheco de Melo

Thank you.

Zeinal Abedin Mahomed Bava

Okay. Thank you very much for being on the call. Again as always we’ve taken up a lot of your time, my team and I are very grateful for you being on the call and of course they are all available to answer anymore questions that you may have offline. I look forward to seeing you in the future if not in our next conference call. Thank you. Bye-bye.

Operator

This concludes Oi SA’s conference call. Thank you very much for attending today’s presentation. You may now disconnect your lines and have a good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Oi's (OIBR) CEO Zeinal Bava on Q1 2014 Results - Earnings Call Transcript
This Transcript
All Transcripts