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TIM Participacoes S.A. (NYSE:TSU)

Q2 2014 Earnings Call

August 01, 2014 10:00 am ET


Rogério Tostes Lima - Investor Relations Officer and Member of Board of Executive Officers

Rodrigo Modesto de Abreu - Chief Executive Officer, Member of Board of Executive Officers and Director

Claudio Zezza - Chief Financial Officer and Member of Board of Executive Officers


Paul Marsch - Berenberg, Research Division

Walter Piecyk - BTIG, LLC, Research Division

Valder Nogueira - Santander, Equity Research

Carlos Antonio de Legarreta Diaz - GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division

Andres Coello - Scotiabank Global Banking and Markets, Research Division

Soomit Datta - New Street Research LLP

Sunil Rajgopal - HSBC, Research Division


Good morning, ladies and gentlemen. We would like to welcome everyone to TIM Participações Second Quarter 2014 Results Conference Call. We would like to inform you that this event is being recorded. [Operator Instructions] Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of TIM Participações management. They involve risks, uncertainties and assumptions because they relate to future events, and therefore, depend on circumstances that may or may not occur in the future. Investors should understand that internal and external factors could also affect the future results of TIM Participações. [Operator Instructions]

Now I would turn the conference over to the IRO, Mr. Rogério Tostes. Please, Mr. Tostes, you may proceed.

Rogério Tostes Lima

Hello. Good morning, everyone, and thanks for joining us in another conference call on the second quarter results. Today, with me, we have the top management team of the company. To allow more time for a Q&A session, the presentation will be made by Rodrigo de Abreu, the CEO; and Claudio Zezza, the CFO. In the Q&A session, we will have the participation of the entire management team.

Now I'll turn the floor over to Mr. Rodrigo de Abreu. Rodrigo, please?

Rodrigo Modesto de Abreu

Thank you, Rogério, and welcome, everybody, to our conference call to discuss results of the second quarter 2014. And before we jump to the second quarter highlights, as usual, I'd like to start my remarks calling the attention to the cover of our presentation, which is our new institutional campaign based on the concept of the blue door. I'm going to talk more about it in my closing remarks, but I would like to say already that this marks a new phase of the institutional positioning of the company, with an eye to the future, and not necessarily just on what we have been doing in the recent past.

So if we can jump straight to Page 2 to talk about the second quarter highlights. As usual, we'd like to call your attention to metrics and highlights, both on the financial dimension, as well as on the operational dimension. And I'm glad to state that, once again, it's possible to highlight several very positive points in each of the 2 dimensions. Starting with the financial dimension, the first point I would like to call your attention to is the absolute solidity of the growth in our data revenue, which is one of the key components of the future growth of the company and a central part of our strategy in migrating and using our user base as an asset to increase the usage of data services. As we know, data service penetration, as a percentage of total revenues, has been increasing for quite a while. And we're glad to report that in the second quarter this year, the penetration achieved a level of 27% of total revenues when compared to 22% last year, a 5 percentage point increase, in a manner that's absolutely consistent with the execution of our data-centered strategy. Obviously, it's important to highlight not only the absolute value but the trends, and the trends continue to point up, and that we believe that there is still a long way to grow in the usage of data services, the key component of our strategy. The second highlight is on the net revenues. And on the net revenues, I would like to -- remember, everybody, that last quarter was the first quarter in which we opened the net revenues, net service revenues between incoming revenues, the revenues coming out from regulatory interconnection tariffs, as well as outgoing revenue or the revenue coming on from the usage of our own user base. And last quarter, we could show that despite a relatively small growth -- or challenges in growth in the overall revenues, the picture is very different when you compare the 2 components of revenue.

On the outgoing revenue, when we have, obviously, a measure of the health of our user base, I'm glad to report that the growth numbers continue to be consistent and very significant from last quarter. The second quarter of last year to the second quarter of this year, we presented a growth of 7% in net revenues were business-generated, meaning that we continue to have an efficient, healthy strategy of increasing usage from our user base. On another metric, it's also very important to highlight that in addition to all of the emphasis on evolving our strategy on the services and the usage of data, we have also been focusing very diligently on the strong cost control of the company. And once again, we could post very positive results, and as I mentioned, with the total OpEx percentage dropping down 7% when compared to the second quarter last year, coming from a minus 3% in the first quarter this year. In particular, on the OpEx control, I would like to highlight the very successful result in network [ph] costs, coming both from our strategy of substituting lease lines for our own infrastructure, as well as due to the negotiation of the reduction of lease line costs coming out from regulatory reductions.

As a result of the revenues and the cost control, I'm also glad to highlight that our EBITDA grew to 8% year-over-year when compared to the second quarter last year, with an improvement in the overall EBITDA margin from 25% to 28%. So very positive results in the financial dimensions.

On the operational dimensions, we also have several points to highlight. Starting with the first one in parallel with the growth in data revenue, we openly have the growth of our data user base. In the second quarter last year, we had 32% of the total customer base as data users. And this quarter, we closed the second quarter of 2014 with 39% of our user base as data users, meaning that we are pointing in the right direction in terms of the adoption of data services by our user base. Another point of highlight is the continuous progress of the mix of postpaid over the total base, 16.5%, almost 1 percentage point ahead of the second quarter last year, and this in particular because of the continuous growth of the control, the Liberty Controle packages which come from, obviously, the capture of the high-end segment of the prepaid segment. And as you know, we continue to be an undisputed leader in the prepaid segment and all of that while maintaining a stock over ARPU below 2 months. Undoubtedly, this is the best practice in the industry, a very efficient approach to user acquisitions, to subscriber acquisition, meaning that it's an efficient use of the company resources and results -- coming now from all of the commercial activities, which is absolutely in line with our cost control metrics to generate substantial financial results. 2 other highlights I would like to call to your attention to, the first one, still on the mobile phones, is the absolute success of the deployment of the mobile infrastructure during the World Cup event in Brazil in the months of June and July. There was a lot of concern and a lot of discussion about the capacity of this sector to provide the infrastructure for a successful mobile service during the World Cup. All of the mobile operators in Brazil did joint projects to address this issue. And this was a clear demonstration of both competence and investment by this sector. And in the end, the result was extremely positive, so much so that we did not have any significant comments about the infrastructure, meaning that everything worked according to plan. Some numbers to highlight out of the event, if you put together all of the numbers of the 4 operators, we had almost 50 million photos sent, more than 5 million outgoing calls for data traffic that approached 27 terabytes in total. So all in all, it's a demonstration of the capacity of this sector, and in particular in our case, of the company, to not only invest, but also to provide very good quality services.

And finally, I would like to close the first page of the second quarter highlights calling the attention to our Live TIM fixed residential broadband, which in July, the very beginning of July, overcame the mark of 100,000 subscribers. It is a significant milestone for us, both because of the very good acceptance of the service, as well as because our Live TIM service continues in a path to achieve scale and critical mass, which are so important for the fixed residential broadband penetration. So those are the key highlights, and then we can start analyzing a little bit more, each of the components of our strategy in the coming slides. If we can move to Page 3. On Page 3, we provide an additional level of detail on all of the results, in particular the mobile service results and the company's EBITDA performance. But before looking at the results per se, I would like to call the attention to 3 points on the left hand of the page, which are important when understanding the results in terms of mobile net service revenue. The first one is that the second quarter of 2014 was the first quarter where we had the full effect of the MTR regulatory reduction. If you recall, in the first quarter of this year, we had the minus 18% result coming from the MTR cut, but this was because the MTR only was applied -- the reduction only applies to 1 month out of the first 3 months of the year. In the second quarter, this impact, obviously, was applied through the entire quarter and with this the incoming revenues from interconnection tariffs presented a reduction of minus 28%, a very significant reduction.

The second point is that the handset sales continue to be at a very healthy level, although with a reduced growth. And the reason for that is that when we set out our strategy to sell handsets, our strategy was not to keep increasing indefinitely the sale of handsets, but to achieve a level of handset sales, which is a level at which we are operating right now in the range of 10 million to 11 million units per year, in order to equip our user base with data-capable handsets. With this level of sales, we continue, absolutely confident that the strategy is working, and are not concerned with these small fluctuations, up and down, with the volume of handset sales. It's also important to highlight that this slightly reduced volume comes at the higher ticket price because of the better mix of smartphones, which are approaching over 70% of overall sales, as we're going to see in a couple of slides.

The third point is that the month of June, in particular on the second quarter, was a seasonal month that had some negative impact that albeit small can be considered as a relevant impact on the overall net service revenues, in particular for voice, given the holiday calendar due to the games. Last year, in 2013, the June month did not present any holiday as compared to June 2014, where we have several holidays or partial holidays during the activities of the World Cup. With all of that, we can look at the mobile service net revenue performance analysis and see that overall, although the nominal revenue in the end shrunk by 1% when compared to the second quarter last year, if we exclude the MTR cut effect, this revenue would have presented growth of 3%. Obviously, in our case, TIM for being a pure mobile operator and for having a very, very intense fixed mobile substitution strategy has a somewhat larger exposure to the MTR than some of the competitors. But at the same time, we continue to see the very positive effect of outgoing traffic and outgoing growth with the 7% number that I already mentioned in terms of the growth of business generated.

As far as the business received or the incoming traffic, it's also important to highlight that the drop in MTR was not the only responsible for the drop in top line revenues, but that was also followed by a reduction in SMS revenues. And it's important to highlight the SMS revenues, as we're going to talk about it in a second as well, because despite the reduction in SMS revenues, we obviously have presented very healthy growth in the usage of data services that serves to partially compensate this drop and to keep sustaining the growth of the outgoing business.

With all of that, we can see that the EBITDA performance continues to be very positive, with an increase in the margin to 27.9%, and a growth that's 8% in nominal terms, and 16% if we exclude the MTR impact on our EBITDA numbers. So all in all, a very solid core business performance.

Moving forward to the overall strategy and how we're executing. On Page 4, we can see that the data opportunity continues to be validated as we move forward. On the left-hand side of the page, we can see that the market continues to validate the opportunity. From the latest numbers that were released in June 2014, we can see that the mobile access growth in terms of data continues to represent 5x the number of growth in terms of fixed subscribers, meaning that, obviously, Brazil is a country that's ripe for growth in mobile data. At the same time, we can see that on the devices sold, the smartphone and tablets present an acceleration when compared to last year, while notebooks and PCs present a deceleration when compared to last year.

And finally, there is a topic on the Brazilian broadband average speeds which continues to remain at a low 2.6 megabits per second, representing not only a very good opportunity for fixed mobile substitution, which is one of TIM's key strategic focus, but also an opportunity for ultra broadband fixed services, which happens to be the focus of our Live TIM service. Also, in addition to all of the numbers, it's important to mention the qualitative nature of Brazilian adoption of data services. And as the Wall Street Journal put it recently, Brazil can be considered almost the social media capital of the universe, with some of the largest user bases of any social media service such as Facebook, Twitter, YouTube and WhatsApp. Obviously, all of this adoption ends up imposing on the adoption of data services as well.

On the right-hand side, what does this mean for us? It means that we continue capturing the data opportunity. If we look at the growth in the data gross revenues, including both contents, web connectivity and SMS, we can see that overall, year-over-year, we had an acceleration of 22% in the second quarter this year. But when we look at the 22%, we can see that this 22% was achieved despite a reduction year-over-year in SMS in the range of 8%. And so this means that the web connectivity and also the content and other value-added services have been growing at very healthy levels of 33% and 72%. This means an acceleration from the first quarter for both web and content and obviously, a deceleration in terms of SMS, which is absolutely consistent with what we expected. In terms of number of data users, we already highlighted the 39% of the user base, and this comes at an impressive growth of 24% of our user base, reaching 29 million subscribers in the second quarter using data services. And additionally, to this number, it's also important to highlight 2 numbers: One, the growth in bytes of use or what is the data usage in terms of average volumes per user; and also, the second one is the days of use. On the days of use, an important remark to highlight is that despite this 30% growth from the second quarter last year to the second quarter this year, we still present an enormous opportunity for growth because on average, subscribers are using, prepaid subscribers in particular, are using data less than 2/3 of the month. So all in all, it's a validation of our strategy, and not only of the opportunity, but on the execution of the opportunity.

If we move to Page 5. In order, obviously, to serve this growing demand and not to base the strategy of growing in data, we continue to execute a very focused infrastructure strategy in terms of increasing our capacity, our coverage and our availability. And we can highlight that a data-centric approach, while it has those 3 components as the key components to keep improving, last year, we focused on capacity and availability as the 2 critical components of our infrastructure focus. This year, we added, obviously, the coverage component as well after all of the work has started in capacity and availability. As part of each of the components, we can highlight that on the capacity, we obviously refer to the mobile broadband projects, to the backhauling infrastructure acceleration, to the 4G rollout, resulting in much higher speeds and much higher capacity. And on the availability, it's a continuous process of making sure that we have a very reliable and resilient infrastructure. On the coverage front, this time, we are focusing on increasing our coverage, not only in the areas where we are not present, but primarily in all of the relevant areas where we need to increase the densification of our sites, and to complement the air presence of our 3G and 4G coverage with additional network methods, which we call heterogeneous networks.

If we look at the networking numbers on the right-hand side, we can see that in terms of capacity at the bottom of the chart, we have a measure of capacity in terms of increasing the number of sites with fiber almost 4x when compared to second quarter last year. And in the number of cities in the mobile broadband project, which this quarter alone receives an addition of 13 cities, reaching the number of 66 cities with high capacity in terms of mobile broadband already. When we look at the coverage metrics, we can see that on the second quarter alone, we added almost 2,000 new sites in the second quarter of 3G and 4G sites. So a very significant achievement, complemented by, as I mentioned, the heterogeneous network approach and increasing the number of Wi-Fi hotspots and small cells in the network, which reached almost 40% when compared to the end of the last year.

In terms of coverage, it's also important to highlight the introduction of a patented solution from TIM in Brazil, which is called the BioSite, which is a new approach to coverage. It's a very innovative solution for implementing macro cells in urban environments. And now, we are initiating the deployment of this technology, which resembles a lightbulb, in Brazil, Curitiba and Rio De Janeiro. All of the electronics and the antennas are contained in this lightbulb, meaning a much faster deployment time and a much smaller, both environmental and urbanistic, impact. And with that, we are able to substantially increase the number of sites that we're able to deploy, given the innovation of the new technology.

Finally, I'd like to highlight one action which covers both capacity, as well as coverage, which is the implementation of a new frequency in Sao Paulo at the 900-megahertz range, meaning better indoor coverage and addressing capacity requirements because of our very successful presence as the market leader in the City of Sao Paulo. So all in all, our actions in infrastructure continue in a very focused way. And we believe that we are now at a very consistent level of quality in data, which will only improve over time.

If we move on to our market performance and as to what we're doing in terms of the go-to market and the offers [ph], we can see on Page 6 that the second quarter presented a relative stability in all of the market shares, and we continue to be the undisputed leader in prepaid users in the prepaid segment. In addition to posting, again, a strong control -- a strong growth in our control postpaid base. All of that, in spite of an austere disconnection policy, that has the aim of increasing the quality of our prepaid segment.

In terms of the postpaid users, some highlights to make here. As I mentioned, very good growth on the control plans, stable on the growth of our pure postpaid consumer subscribers, and some actions to recover in our corporate segments. The corporate segment has been the segment that presented the weakest results, and we are taking a lot of steps and measures to address this, both with the introduction of new plans, as well as with some organizational changes, which will aim at increasing our focus on the corporate segment. If we look on the 3G and 4G market share charts that we also present on this page, we can see that TIM continues to have a very positive performance in terms of the presence on 3G and 4G handsets. And we can also state that when compared to the second quarter last year, TIM was the only operator that grew market share in both metrics. And in addition to that, if we look at the quality of our prepaid user base, an indication of the health of our user base is the growth in prepaid recharges or top-ups, which grew 8.4% when compared to the second quarter last year, even with a customer base growth which was in the range of only 2% to 3%, so meaning that we have a very healthy prepaid base.

If we understand, on Page 7, how are we addressing all of the user base requirements and challenges and our go-to market progress, we can see on the chart that on the postpaid side, we're focusing on adding data emphasis to the control plan with our new Liberty Controle Express plan that adds data component, as well as managing our customer base with a focus on corporate, with the introduction of plans such as the Liberty Empresa Controle. So with that, we're really focused on maintaining and increasing the quality of our postpaid user base and addressing some of the opportunities in increasing the net additions, in particular, on the corporate segment. When we look at the prepaid segment, we continue to introduce innovations in terms of prepaid offers. And in May, we launched our Infinity Turbo 7 package which is a weekly package including all services for BRL 7, that you contract once, and does not have the need to recontract every single week. So providing the users with a lot more flexibility than some of the offers in the market. And at the end of July, we have just announced the launch of our Infinity base in a much larger number of states in Brazil, changing the focus of our primary prepaid offer from $0.25 per call to $0.75 per day. So once again, we're focusing on the innovation and on the simplicity and the transparency of our offers to maintain our very strong position on the prepaid segment.

And supporting that, on the bottom of the page, we can see that our strategy of equipping our customer base with handsets continues working, and we remain the undisputed leader in terms of smartphone sales amongst the players in the second quarter with over 40% of market share. And the percentage of smart and webphones is reaching 52% on the base in the second quarter, as well as 71% of smartphone over total sales in the same period. So all in all, very consistent with the objectives we have in mind with our overall strategy of adoption of data services.

If we turn to Page 8, we can have a view of some regulatory updates in terms of 3 key components, which we believe are important to the analysts, in particular because they were discussed as being components that have some impact -- can have some impact on the results of the company. And we start with the path of the MTR reduction. There was a lot of discussion and publicity about the new glide path of the MTRs with very accelerated reductions after 2016 going all the way down to $0.02 per minute in 2019. For us, what does it mean? It means that in 2016, a relatively low impact because our plan already contemplated a sharp reduction of the MTRs in 2016. And then with another component, which sometimes is not clearly observed, which is that the same regulation that presented the acceleration of the MTR glide path brought the regulatory reduction -- additional reduction on the lease line regulatory mandated tariffs. And for us, on a preliminary static simulation, we can see that the positive impact of the reduction of lease lines will more than compensate the reduction of the MTR in 2016, with a positive net impact for the OpEx of the company if all rules are applied accordingly. So it's an important step for us, in particular with our current position of a pure, quasi-pure mobile operator.

The second update is the update on the 4G 700 megahertz auction that's expected to take place in September this year. A lot of additional details were revealed about the auction, in particular the absence of any additional obligation and the detailed switch off plans starting at the beginning of 2016. The key thing for us in this regard is to confirm our intention of participating in the auction. Obviously, the 700 frequency is a very important strategic asset for us, and we're going to participate to obtain this license. But also, we would like to highlight that we are in favor of anticipating the availability of the frequencies, and have started discussing this with the regulator in order to anticipate the benefits that this frequency range will bring, not only to the operation, but in particular to all of the subscribers and the impact of the adoption on data on the overall country.

Finally, in terms of a regulatory update, we have a focus on Anatel's new customer care policy, the RGC. And there were several metrics that had to be observed until the middle of July. We complied with all of those metrics, and we foresee no significant impact given our policy of transparency. And all of the 3 are already operating successfully, so no major impacts to the operations, which we knew were a concern to some in terms of what would change in the relationship between the operators and their customers.

If we move to Page 9 and 10, we can have a quick overview on what's going on with our fixed businesses, the 2 components of our fixed business. Starting with Page 9. TIM SOLUÇÕES CORPORATIVAS, if you recall last quarter, we rebranded Intelig by TIM SOLUÇÕES CORPORATIVAS, or TIM Corporate Solutions, and we are executing the plan and moving forward as well in Q2. In line with the strategic plan, the second quarter was a quarter of market repositioning with the new branding, the launch of new offers and the restructuring of our sales force. And the results are already starting to move here. We know that this line still presented a negative growth in revenues this quarter, but in a demonstration of a clear path forward in terms of the strategy, the revenues were stable when compared quarter-over-quarter, and not only that, but we have some additional metrics that point out to the path of recovering growth in the third and fourth quarters of this year's -- or of this year already for TIM SOLUÇÕES CORPORATIVAS. The first one is the activation time, which gets reduced by 80% in terms of number of days when compared to the second quarter last year, accelerating the past 2 revenues. And the second one is that the new sales grew very significantly from the second quarter last year to the second quarter of this year, 19x in terms of the growth of sales, meaning that we are recovering sales, we are recovering the path of growth, and it should be presented, in particular at the end of Q3, beginning of Q4 for the company.

As far as financial performance, the financial performance in terms of EBITDA minus CapEx, which turned positive last year, continues to remain very positive. And so we are glad with the strategic movement forward of TIM SOLUÇÕES CORPORATIVAS.

On the fixed broadband side, with the Live TIM service, as we highlighted, we overcame the mark of 100,000 subscribers, a very significant milestone for us. And we continue to improve in the number of addressable households, 1.2 million households addressed in the second quarter of 2014. And the performance in terms of gross adds also continues to be very positive, 113% when compared to last year, plus 34% when compared to the last quarter. All of this because of the new offers and the very high-quality service that the Live TIM service is offering to subscribers. On the new offers, we highlighted already the launch of the Live TIM 1-gigabit-per-second flagship service, which is a service theme that's demonstrating the very high quality of the Live TIM service. We soft-launched the Live TIM Blue Box, which is an over-the-top TV box to be plugged into any broadband service, in particular at this very moment to the Live TIM service. It's an alternative of video services going forward. And also the introduction of the 70 mega speed in July for BRL 119, it's our top range speed and the flagship product of the mainstream services for Live TIM.

In terms of quality experience, we continue to see that the service is extremely well-reviewed by users, not only in terms of Internet buzz, where we have 31% positive comments when compared to a market average of just 8%, and only 18% negative comments when compared to a market average of 72% negative comments according to the gauge first quarter '14. And in terms of quality experience, also another important highlight is the Netflix broadband ranking. For 2 consecutive rankings, Live TIM continues to be the best service in terms of fixed broadband in Brazil, ahead of pretty much all of the direct competitors. So all in all, very successful execution for Live TIM, and we continue to retain this as a very important strategic option for growth in the fixed residential services.

So those are the highlights of our operational results in our strategic movement. And we would now pass it over to Mr. Claudio Zezza for the financial results analysis. But before we pass it over to Mr. Claudio, I would like to share with you and call your attention to a relevant market communication that we did last night in terms of a change in our management positions, in particular, in this case, in the position of the CFO. And it's with, obviously, mixed feelings that I announce that Mr. Claudio has decided to go back to Italy. So he's moving back to Italy in a couple of months, and we're going to have, starting after all of the process of the visa and all of the regulatory compliance is completed, a new CFO in the presence of Mr. Guglielmo Noya. I'm going to talk about more about Mr. Guglielmo in some moments. But before that, I would like to highlight the outstanding work that Mr. Claudio Zezza has developed in Brazil and his key role in making sure that TIM has not only a very successful strategy on the market side, but also a very successful strategy on the financial side in terms of results, in terms of the financial strategy, in terms of the cost controls. Mr. Zezza has provided an invaluable contribution to the company. So I would like to extend, in the name of the entire management, in the name of the board of the company, our deepest congratulations and thanks to Mr. Claudio.

So Mr. Claudio, please go ahead with the financial results.

Claudio Zezza

Thank you. Absolutely. Thank you, all, and Rodrigo and you all. I'm proud to be part of this group and to have contributed to these results in 6 years, so in terms of TIM Brazil growth, in size and in value. So proud to be part of this challenge. And again, and also happy to come back to my country, where I expect to assume new challenges and responsibilities, so within the same Telecom Italia Group. So again, thank you for this.

Coming back to the presentation, I would like just to add some quick and few comments besides what Rodrigo has already commented. The business generated growing year-on-year 6.9%, and the incoming diluting [ph] the growth. In terms of EBITDA, top right of the slide, this performance is apparently a negative performance of the top line, but as a whole didn't hurt the results because in terms of trapping that contribution margin, we're still growing 6%, 5.8%. So this is a sound growth from our ping list generated. In terms of area of OpEx, we still have some growth in the HR and saves and a little bit in part in the advertising. So HR and saves related to the growth of the sites and then made a chart internalization of network knock, the operational and control center. So with the savings in the external cost at the same moment. And that the other line of the chart that is growing is from the saves and the new stores opening toward this year.

So all in all, I will say 80% of growth in terms of EBITDA, it's still a sound one. The MTR exposure, as already commented, it's something that is going down and down. So we do not expect this impact, negative impact in our EBITDA will keep the EBITDA in pressure. So we are at the moment at 12% of exposure in the service and below 18% in terms of EBITDA. But as you can see, the trend is a decreasing one. So we do not expect any major impact in the forthcoming quarters. In terms of efficiency and cost control, as commented, interconnection down, but also the operational metrics, KPI, stable at 1% in terms of the total revenues. Lease line cost, so network going down 10%, and this is not including any new reference price from OI. This is organic figure, 10%. So this means also that our strategy of bringing [ph] out the network is paying because the cost of lease lines doesn't mean this -- it is not a part of our infrastructure. And on the contrary, we are increasing our infrastructure and the size of it. But the control of this line of cost is king in our P&L.

Passing to Page 12, net income in 6 months growing 6.7%. And in terms of cash generation, if you look at the CapEx and the dramatic change in the mix, we're putting 94% of our capital spend into the infrastructure, and the main part of it is 3G. So this means that we are sustaining the tremendous growth in the data traffic. In terms of net debt, also we are showing an improving figures, and also if we exclude the new BNDES loan that we got last year and withdrawing the first installment in April this year.

In terms of cash flow, the operating free cash flow also shows an interesting and significant increase compared with last 2 -- last year with more than BRL 600 million of improvement, thanks to the working capital control and improvement. And the accounting also this year of the Amazonas leasing, that is, the fees that will charge to Telefonica for the sharing of the network in the north part of the country.

So I'll conclude this presentation. I'll say that a good, still good operational result. And cash generation was an important part, with CapEx sustaining the growth and with some cash flow as well. So I'll just terminate my 2-page presentation, leaving the floor to Mr. Rodrigo for the final remarks. So thank you.

Rodrigo Modesto de Abreu

Thank you, Claudio, and thanks, again, for the invaluable contribution that you have been providing to this company. We wish you all the best in the new challenges.

On Page 13, just to conclude the remarks on the key highlights, we continue to maintain a very keen strategic focus on the second half based on the priority that we have defined as the key pillars of the company. So the accelerated network evolution for data will continue. The key relevant fact in the second half will be the auction of 4G, as I have mentioned. We continue to consolidate our recent offers and to launch innovative services. Mainly the one service to highlight at the very beginning of the second half is the launch of TIM MULTIBANK. TIM MULTIBANK is the payment service that serves to target the relatively large penetrate -- the large percentage of the population that -- and banker [indiscernible] that does not have a bank account in Brazil, and also the additional launches of several content and value-added services.

We continue to maintain a very strong institutional position, changing dramatically from the past. So we are leading discussions in the industry, where we have communicated our strong position on the 4G auction participation. And we are retaining a very significant dialogue with all of the relevant institutions in Brazil, as can be seen by our presence with President Dilma last week, when we communicated our plans to invest in the country, our long-term commitment with the country and everything we're doing to keep being one of the key players in the telecommunications market in Brazil.

Finally, the last of the 4 key pillars is the pillar of people and organization. And here as well, we're evolving the structure to address the new challenges and the new growth rates. And all of that with having a stronger segment focus in mind. We are doing some changes in the organization so we can better address the consumer, the corporate and the residential segments, streamlining the organization with some small changes, and in addition to that, we're adding new talent. I already mentioned the arrival of Mr. Guglielmo Noya, who will be in place after all the regulatory requirements for a visa are completed.

And just a few words about Mr. Noya. Mr. Noya is a long-time Telecom Italia contributor. He has been with the Telecom Italia Group since 1997. He started his career working in the financial industry in what today is, in case of Sau Paulo, a group and financial institution in Italy. And after that, Mr. Noya had also a very extensive experience in terms of the telecom market in Latin America, including Brazil. From 2002 to 2005, he was CEO of Entel PCS in Chile. He was also the CEO from 2005 to 2008 of Telecom Personal in Argentina. And he was in Brazil as the COO of TIM Participacoes from 2008 to 2010. Since 2010, he occupies a leadership position in the finance team of Telecom Italia and is coming back to rejoin TIM Participacoes in Brazil. He has some Brazilian friends, so he is not a stranger to the country. He knows the country extremely well, he speaks the language. And so he will also be an important contribution to continue on the outstanding work that Mr. Zezza has left us. And another highlight I would like to make in terms of adding new talent, is the creation of a new position in our structure, in particular with a focus on all of the infrastructure of the company, encompassing both the network as well as the IT infrastructure components, which is the creation of a true CTO position. And for this CTO position, we are glad to announce that Mr. Leonardo Capdeville has agreed to join our team starting this month, starting the middle of August. And Mr. Leonardo comes from a very solid background of presence in a large telecommunications operator in Brazil. He was the network director at Vivo. And prior to Vivo, he was present in several large project companies in Brazil, in particular with a focus on telecommunications. So very strong background. And we're glad to have Mr. Leonardo join us. He will surely be an important addition to the team and another contribution to the execution of a very focused strategy for the future.

With all of that, I would like to close with the new positioning. If you recall, during all of last year, we have emphasized a positioning of the work [ph] on quality, the work on investments, the work on building our infrastructure. And obviously, this was a phase that was necessary. But I'm glad to say that we're ready to move forward. And with that, we are changing our positioning, in terms of the institutional campaign, to the blue door campaign or puerta azul, which is the door that opens the opportunities for all of our user base who have access to more services, more opportunities, more content and, in general, to do more. This is in line with the announcement of our new mission. We are announcing a new mission for the company today. And this mission, in very simple terms, is to connect and take care of each customer so everyone can do more. And so we are inaugurating a new phase in our institution of communication, who marks an eye to the future and not to the past.

So with that, once again, solid results, both on financial terms as well as operational terms, focused on the execution of the strategy, and I believe that the entire management team is glad that -- with the progress we had in the second quarter.

With that, I'll open the floor to all of the questions.

Question-and-Answer Session


[Operator Instructions] Our first question comes from Paul Marsch with Berenberg.

Paul Marsch - Berenberg, Research Division

I'd like to just ask 2 questions: one, just to understand maybe a little bit more about the World Cup impact; and then secondly, on margins in OpEx. So with the World Cup, think you said that ARPU would have declined 0.3%, excluding MTRs. But does that mean that without the World Cup impact, ARPU would have actually grown year-over-year and whether or not you might be able to quantify that? And then also, were there any benefits, do you think, from the World Cup, such as did it boost demand for value-added services, for example? But basically, I think the question here is, when we take it in aggregate, should we expect a recovery in trends into Q3 from Q2 as that World Cup impact unwinds? And then thinking about margins for the second half, my question is really, can you help us to get a feeling for the impact on margins in the second half of some of the new initiatives, such as the push on postpaid, the Blue Box product, the blue door campaign? When I look back at previous years, Q3 is usually, seasonally a weak month for margins and then they bounce back again in Q4. So should we expect a similar pattern or will those new initiatives disrupt that pattern through the second half of 2014?

Rodrigo Modesto de Abreu

Thank you, Paul. And just starting with your first question on the World Cup impact, as I mentioned, it was an impact that was perceived, but it's relatively small. Although, if on aggregate we consider the numbers that we have not highlighted any specific numbers in terms of ARPU impact, we believe it's tricky to calculate that with some level of precision. But in terms of the general impacts to revenue, what we saw is that because of all the holidays, there was some softness in terms of the revenue during those days. And if we did a pro forma with comparable days, which were not holidays in the same period, we can say that this would have a small impact. But that could reach not even close to 1 percentage points of growth, in terms of the overall revenue here. So it's small, but it could be significant. Obviously, there is some impact on image terms on the positive side, because we did have a very successful event, and there were no problems in terms of the usage of the telecom infrastructure. If anything, it would probably serve to highlight that when presented with the condition, whether for the appropriate conditions or investments, there can be a positive impact in terms of infrastructure development for the country. So no major, major impacts. But it's just important to highlight that, indeed, it does present a little bit of softness in June, in particular. In terms of margins and impact for the second half, obviously, when I look at the blue door, it's an institutional campaign and it has a long-term meaning. Not necessarily a product campaign, but a positioning campaign. And this is consistent with our strategy of converting the most number of users to the usage of data services. So this is the primary goal. It's to look forward. It's to really communicate that TIM is the primary offer. It should be the primary option for the usage of data services in particular, considering that we have the largest prepaid base in Brazil and most of the prepaid users. You have a lot to gain from increasing or even starting to adopt data services. And so this is probably the primary component of this campaign. The second one is obviously aimed at just leaving in the past all of the issues and perceptions, the negative perceptions associated with quality. And with that, also have an impact on postpaid. Obviously we know that postpaid reacts a little bit slower to any initiative. So it's a mid to long-term initiative in terms of recovering postpaid. But we are doing a number of things, in particular on the corporate segment. As I mentioned, we are announcing a small reorganization in terms of the focus on segment. We're going to concentrate the activity on the corporate customers in a specific business unit. And with that we expect some impact, both from the additional focus as well as from specific products for this segment. The Blue Box product, obviously, it's just a soft launch and it's -- the impact is relatively small because we are focusing it on just to the light TIM [ph] services. So it will be a product that will be available only for the 100,000 subscribers we currently have. So no major impact this year, it's a profit for the long term. And in terms of seasonality, obviously, you're right in terms of looking at the third quarter. Historical seasonality, and the seasonality accelerates in the fourth quarter. What we're doing to compensate that is obviously the strong cost control impact that we already saw in Q2, with some areas which provide an impact going forward as well. So on natural costs, in particular, we have mentioned that this had been the greatest reduction in OpEx that we experienced in Q2. And given the new agreements that we closed in particular, one agreement that we have been talking about for a long time which is the agreement with OI. Even without disclosing in detail all of the numbers for that agreement, we estimate that this agreement alone will have an impact in the range of 10% of reduction on lease line costs overall going forward. So there was a one-time impact in the second quarter, but it will also provide a significant benefit for the upcoming quarters in terms of reduction. And obviously, the guidance remains. We have provided a guidance which is a 3-year guidance, so there may be fluctuations in the guidance in all the different quarters. But we will continue to work on really emphasizing cost control in order to compensate for some of the hits on the topline, in particular, the hits on MTR and the hits on SMS. The first one with a more direct hit to, obviously, the EBITDA. The second one with a slightly smaller hit to EBITDA, but obviously, there is the possibility of having a hit on EBITDA because of SMS as well. So in general terms, those are the comments of what we can disclose. Not sure if you have any specific follow-ons.

Paul Marsch - Berenberg, Research Division

May I -- I suppose the follow-up would be your margins in Q2 and in the first half did see quite a significant expansion year-over-year. And then if I look back at last year, should I be expecting that kind of expansion to continue, half 2 compared to half 2? Or will those initiatives, which all seem very, very sensible initiatives, will they come out at a cost to the margin comparison, second half compared to second half?

Rodrigo Modesto de Abreu

Yes. Obviously, it's hard to precise a specific number. But for all the reasons that you know all too well, obviously our key intention is to at least maintain a successful margin in terms of EBITDA, not necessarily in expansion, given that we're operating at a very efficient level in many terms. So at least we try to maintain the margin as well as the comparables.


Our next question comes from Walter with BTIG.

Walter Piecyk - BTIG, LLC, Research Division

Not sure if you just addressed this. Sorry, I was -- I might have missed this. Can you talk about the ARPU trends through the course of the year? And also, if you could just update us on -- I know the Spectrum auction is about to occur. It's unclear if everyone's bidding in the first round. If you have an opportunity to get more than one block of spectrum. Would you have interest in, again, gaining more than just maybe one block of Spectrum?

Rodrigo Modesto de Abreu

Okay. Thank you, Walter. So on your first question, the ARPU trend. Obviously, the ARPU trends are impacted by several things, in particular, the top line performance, because the ARPU trend includes both the outgoing as well as the incoming. Obviously, if we exclude the incoming reduction, given especially the MTR, we can see a positive ARPU trend. Obviously, when you include the reduction in the MTR, the ARPU trend ends up getting negative despite the growth of the user base. But we believe that this is a temporary impact. If we look at the 2 components, the 2 components will tend to be reduced over time. So the MTR impact will be reduced over time. And if we look at just the pro forma impact, we would have a pro forma impact probably in the range of over 6%, excluding all of the drops in MTR. So it's a positive performance when we look at the business that we control, not the business that is impacted by regulatory reduction. And as we are a pure mobile, we are most impacted by the MTR reduction. The good news is that this will get diluted over time. But the real significant thing is that the outgoing ARPU trend continues to demonstrate a positive evolution, and that not only serves to compensate initially the majority of the reduction in the incoming revenue from MTRs, but in the very near future it will serve also to increase and to continue on a positive nominal increase of the MTR numbers. The second component of that is obviously the work on the base. When we start to work with increasing our control participation, naturally, there will be an increase in the ARPU trend that, over time, will more than serve to compensate the regulatory reductions. As far as the second question on the participation of the 4G. For obvious reasons, as you could expect, we have announced that we will participate. This is an important participation for us. It's part of our long-term strategy to have access to the 700 megahertz frequency. But we would not comment about any specific strategy components for our participation in the bid, given that, obviously, all of the operators are formulating their participation strategies, and it would not be wise to highlight what we expect or intend to do in the participation.

Walter Piecyk - BTIG, LLC, Research Division

Can you just also comment on GBT? I know there was a comment in the media about it, so maybe you'd be willing to expand on it more here about, a, whether there's any discussions; and b, whether a transaction with GBT at some point in future makes sense and what the timing of that might look like?

Rodrigo Modesto de Abreu

Walter, there were several -- there were several statements already done about that in terms of the viability or not. But in general, we would not like to comment on speculations. And there is a lot of speculation about it, so I would not like to comment on speculation. What I can say is that, obviously, our plan is a very solid plan. We believe in the plan that we're executing, and we're going to focus on executing our plan for the time being.


Our next question comes from Valder Nogueira with Santander.

Valder Nogueira - Santander, Equity Research

One question. You mentioned on the lease line agreement with OI, there was a 10% drop there. The question is, has it already fully impacted 2Q results or this is going to be only mostly seen on third quarter? And still on that question. Is it a one-off thing? Has it gone through the P&L? Does it have a cash effect? How should we read it?

Rodrigo Modesto de Abreu

Okay. Valder, being very precise to you, obviously without disclosing the actual numbers but disclosing exactly the type of impact that we had and the magnitude in percentage terms. The agreement has 2 components. One component is a component that ends up to settle some past disputes. And that has a one-time impact that was served in Q2. But the primary impact of the agreement is on a run-rate basis going forwards, meaning that we have not recognized any future benefits of the agreement. The agreements will be recognized as they occur in all of the next quarters in a run-rate basis. And this run-rate basis is what we have mentioned in terms of the 10% reduction, not specifically with OI, but in terms of our overall lease line expenses, given just the price trend. In addition to that, there can obviously be additional reductions in terms of our reduction of the number of lease lines. So we continue to have our strategy of substituting lease lines for our own infrastructure, as always as possible, and this strategy will continue. So there was some impact to Q2, but it was probably compensated by other things that we had, such as extraordinary expenses related to the sale of towers, et cetera. The key benefit of the agreement will be observed in our run-rate basis going forward.

Valder Nogueira - Santander, Equity Research

Okay, okay. So -- but this settlement did pass through P&L?

Rodrigo Modesto de Abreu

It did.


Our next question comes from Marcelo Santos with JPMorgan. Our next question comes from Carlos de Legarreta with GBM.

Carlos Antonio de Legarreta Diaz - GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division

Well, I'm much more [ph] concerned regarding the strategy going forward about the company, now that the MTR glide path has been disclosed. Are you planning to -- or how are you planning to push forward the adoption of data and value-add services under your prepaid customer base? I don't know if you can give us more color on that, that would be pretty great.

Rodrigo Modesto de Abreu

Okay, Carlos. Probably it's important to point the attention to some of the things that we have already showed. And the first one is, what is the path of impact due to the MTR? And obviously, when you have such significant cuts, as the magnitude of the cuts that we have been having on the MTR, it does have an impact on results. It's obvious. But at the same time, year-after-year, the magnitude of the impact in percentile terms gets reduced, as we can see on the charts that we presented on Page 11. So if just some years back, the impact on total revenues was in excess of 25%, now we're talking about roughly slightly more than 10%. And at the same time, on EBITDA, the exposure got all the way up to over 35%, so a significant impact on EBITDA. This year, it's slightly over 15%, 18%. So it's a significant reduction of the exposure. And this trend will continue because we have 2 things happening. First, obviously, the comparables got smaller over time, the percentage of revenues and EBITDA coming from MTR gets smaller over time. And at the same time, we continued the growth on the other services of the company. So that's why we highlighted the importance of the 7% outgoing revenue growth, because this is what serves to compensate the MTR drop. And obviously, on the 7%, the data usage is the greatest component. Why do we believe that there is a very strong possibility of growing and compensating for that? And on a positive impact over time, in terms of our long-term plan for 2 reasons. The first one is that, if you observe how are we achieving this data revenue growth, we are achieving the data revenue growth by expanding our customer base and by expanding the usage of this customer base. In the 2 metrics, there is still a relevant space for growth in the 2 dimensions. On the user base, we still have over 50% of the user base to convert into data users. I mean, it requires probably not a lot of foresight to understand that, in a few years, certainly most of the users will have data as the primary service. So this is a trend that has no going back, and we're working to make it a reality, in particular for our users. The second one is that in our case, we bring that as part of a full focus on accelerating data usage, in particular, on the control and on the prepaid user bases. And on both the usage, even when it occurs, so even when you convert a user to being a user of data, there is still a significant impact to the growth of usage per se. As of last year, we had, on average, on our data users, 7 days out of the month as the average usage of data by those that use data. This year, this number has increased by 30%, as I've stated in one of the charts. But still, if you increase 30%, we still have a result that 20 days out of the month on average are not being used for data. So there is still significant room for growth there. In this case, what happened is that you don't see a jump in the revenues right away. You obviously, you see a smooth path. And the good thing is that this smooth path is not only high, but the scale which it can achieve -- the magnitude of what it can achieve, is comparable to the sale of our prepaid user base of 60-plus million users. So we can foresee constant, fast and relevant growth for a long period of time. And that's exactly what serves to compensate the impact of the reduction of the regulatory revenues. So in addition to that, there's another component I'd like to highlight, the second component I'd like to highlight. When we talk about the growth in data, normally, people tend to associate the growth in data just with the growth in connectivity terms, so having Internet access. But if we observe what has been happening with our own users, we have 2 components of this growth that are important to highlight. One is the growth in connectivity, just that web access, just Internet access. The second one is the growth in all of the additional services that come hand-in-hand with data such as content, such as video, such as music, such as education, such as applications and others. And when we look at the services that we have introduced already, understanding that we still have a portfolio that's very innovative but that can grow significantly, we see that this growth was 72% when compared to the same component last year. So a huge space for growth in addition to the connectivity. So we believe there's ample opportunity to substitute the incoming voice revenues that are dropping down and to sustain the growth in the long term, which is comparable to the guidance that we have provided. So in a nutshell, this is a simple strategy in conceptual terms. But obviously, the details of execution in terms of the innovation of the services, the deployment of infrastructure, how efficient we are in acquiring and maintaining customers is obviously what counts in terms of the overall results.

Carlos Antonio de Legarreta Diaz - GBM Grupo Bursátil Mexicano, S.A. de C.V. Casa de Bolsa, Research Division

Okay, that's pretty helpful. I appreciate it. And just a very brief follow-up. To what do you particularly attribute the remarkable increase in the 4G market share? Which I believe -- it's really, I don't know if it's related to tariffs or...

Rodrigo Modesto de Abreu

Yes -- no, it's a good point, and it's also important for us to mention 2 things. First, we believe that our strategy to enter the 4G space was a very successful strategy, both from the point of view of how did we invest in infrastructure. And again, I'd like to bring the attention to the 4G rent sharing agreement that we did, which lowered our CapEx and enabled us to do more with the same CapEx investment when compared to some other operators. But at the same time, I'd like to call the attention to the very transparent strategy of 4G, without initially trying to create different 4G pricing or premium pricing for 4G. What we did was we introduced the new plans with higher data capacity, but that could be used both for 4G and 3G. So there was no 4G specific premium at the very beginning. In addition to that, our handset strategy is also an important component of the mix. As I mentioned, we lead the handset market in Brazil amongst operators. And obviously, even though it's a much smaller market in terms of 4G, we also maintain the lead there. So this was also an important component of the strategy. The third point is obviously to highlight that this is still a relatively small market. It's going to continue growing significantly, but it's relatively small. If you look at the difference between 3G and 4G, we are talking about over 110 million, almost 120 million subs overall for 3G there and just slightly over 3 million for 4G. So there's still a lot of days to grow and a lot of customers to address. But we believe that the success in 4G is consistent with our success in data overall, with our success in transparency, simplicity and the overall approach as to how we present offers to the market.


[Operator Instructions] Our next question comes from Ivan Hernandez with Scotiabank.

Andres Coello - Scotiabank Global Banking and Markets, Research Division

This is actually Andres Coello. Rodrigo, during the quarter, the Brazilian postpaid market grew by over 2 million subscribers. However, the company gained less than 10,000 subscribers. And basically, it was the same for the first quarter of the year. So to be frank with you, I am concerned about whether TSU is avoiding the difficult task of converting prepaid to postpaid in order to boost margins in the short term. So I would like to get your view as of why the company is not gaining more postpaid additions and why are you letting your competitors like Vivo, for instance, to grab all this market share of high ARPU postpaid customers while you remain so much focused on prepaid.

Rodrigo Modesto de Abreu

Yes, absolutely. So adding -- addressing your question head-on, as I mentioned very explicitly when I talked about the market stability, I mentioned that on the postpaid front, there are 3 different segments in terms of postpaid that we should consider and with different results and different strategies for each and some comments specifically for each of the segments. The first one I did mention is Controle. We continued to present solid growth on Controle with -- it's a relative growth of -- in terms of revenue, which is very significant. We're not opening, obviously, the revenue per segment. But I can say that it's a very, very significant growth in terms of Controle revenue and also in terms of number of adds. We are adding a good number of Controle subscribers. Then we have 2 different situations in what we call the postpaid, the pure postpaid, not the Controle plan, and the corporate postpaid. On the pure postpaid, we are stable. So we are stable, we are moving according to plan. We obviously would like to resume growth, but in this segment we are stable. And then on the corporate segment, we are presenting a weaker than expected -- weaker than what we planned performance, which are addressing with a number of measures, both from the point of view of adding new products as well as reorganizing our focus on the segment. But let me turn back to your first question about the migration from pre to post. What we'd like to do with pre to post and what we have been doing, is the migration with real ARPU growth, not just with a one-time shock and then eventually a degradation of that ARPU overtime. And let me explain why I'm mentioning that. As you know, I believe that in the last -- probably few quarters, the whole industry has, at a given point, showed some signs of rationality. Because we know, in an environment that has inflation in the range of 5% to 6%, that you cannot go undercutting prices forever. And I believe that the whole industry ended up realizing that. In the case of the migration to Controle, we see that the average Controle user and the average plans in the market have a range of BRL 29, BRL 30 approximately, excluding the usage of data. And we have been focusing on that. We know that some companies have been emphasizing the growth of Controle very dramatically by substantially undercutting prices. So moving prices down to BRL 19. And in the end, it's a very nice number in terms of the growth of subs, but not necessarily in the growth of ARPU or in the growth of the value of the customers. As you substitute -- tend to substitute just the prepared revenue for postpaid revenue, but without an accretive component on the overall revenue. And we would not like to take the approach of just, again, just resorting to prices for growing statics of the numbers. But obviously, we maintain our focus on the initiatives to migrate more prepaid users to the Controle base. And in addition to that, to focus on the adoption of the data services in the Controle plans as well, which to me, according to us, it's a relatively unexplored area still for the whole market. So all in all, obviously, we are focusing on increasing the customer base and increasing the overall number of subscribers. But for us, it's more important than that, just to grow the base with our quality of ARPU and quality of the sustainability of those customers in the days going forward. There will be actions that we're going to be taking, in particular, with the launch of new plans. We already launched some interesting new plans for Controle. And now we expect the growth to, again, reaccelerate, even though we're not posting negative results in Controle. We're posting positive and very solid results in the growth of the Controle base, in particular.


Our next question comes from Soomit Datta with New Street Research.

Soomit Datta - New Street Research LLP

Just a quick one, please, on pricing, retail pricing. We saw some news up for this. I think it was May time from Vivo, who pushed up the Vivo Sempre offer from point -- or from BRL 0.05 to BRL 0.06. Generally, the pricing environment in Brazil seems to have been kind of favorable in the first half of the year. I just was interested in why then you had, what looks to be a fairly aggressive prepaid offer. The Infinity Turbo 7 seems to be slightly bucking the trend for market development. So I just wondered if you could put a little bit of perspective on how you thought TIM should be pricing going forward.

Rodrigo Modesto de Abreu

Okay, it's a fair question. As I mentioned in response to the last question, obviously, I believe that the whole industry needs this kind of more rationality. Obviously, this wasn't -- excludes the possibility of having one-off actions and strategic insertions of specific promotions. And in this case, let me say that despite, obviously, the aggressive component of our BRL 7 for 7 days and the inclusion of all services. To us, in the business plans it's an accretive promotion. Because it means that we're not the first, we're not creating an offer which is going to substitute all of the basic offers. I must remember that this is an offer that's just sold at the top up points, the recharge points, it's not a plan. And it's not a credit, it's a consumption. So when the customer buys the BRL 7 of Turbo 7, it's an immediate recognition of BRL 7 in revenue and not a top up of BRL 7 of credit that the customer's going to use later. So it's a very specific -- a very niche approach in terms of addressing a need of users that have a slightly higher capacity of spending during the week. And it's accretive to us when we compare all of the pricing analysis we did for the average behaviors of users. And the same thing, as well as the other offers that we have introduced. If you recall, last year, we introduced an offer, which was the Infinity Web + Torpedo of BRL 0.75. And apparently, it would mean a sharp discount from the BRL 0.60 offer of each individual service. But on average, we can see that most users do not use the 2 services at the same time. So on average, it's an accretive offer for us in terms of our user base. And the same thing is happening once again with our introduction of the Infinity Day, which is BRL 0.75 per day. And on average, again, this is an accretive offer for us. It has obviously a good attractiveness to customers in terms of the freedom to do calls the entire day. And at the same time, it's accretive to us in the mid-term on the business cases. Obviously, when you look at the individual components, these individual components have a trend of going up -- just following in place for pretty much for all operators. You mentioned the BRL 0.05 to BRL 0.06 in Vivo. There was an increase in the individual components of Web and SMS, where pretty much all operators from BRL 0.50 to BRL 0.60. Now we actually did the first increase from BRL 0.50 to BRL 0.60 a while back. There was an increase of several prices of Controle plans for all operators going above BRL 30 in the range of 5% to 10% increase on the Controle plan. And excluding one-off promotions, such as the very, very point initiatives to gain market share on a given area or to try to counter a given loss, I believe that, overall, the general trend should be that of a more rational industry. So I believe, obviously, it's not a perfect market. It's a very competitive market, so to speak. And it's natural that you have some fluctuations, up and down in some areas. But overall, I believe that the trend must continue.


Our next question comes from Sunil Rajgopal with HSBC.

Sunil Rajgopal - HSBC, Research Division

I just wanted to see if you can share your thoughts on competition and pricing. As Claro integrates its fixed pay-TV and mobile businesses together, and now with Anatel's approval coming in yesterday, do you see this might increase competition in bundled offers and particularly in the fixed broadband segment?

Rodrigo Modesto de Abreu

Thank you, Sunil, for the question. And obviously, when you look at the very specific segment, which is subject to bundled offers, I mean, it's a very small segment when you compare the overall number of users, including mobile users and particular prepaid users. Obviously, there should be an impact in the bundled offers when you compare it to the existing bundled offers. Even though, despite the lack of brand integration in the past, Claro and the American-model companies in Brazil had already started to do that very aggressively starting last year. So now it's a matter of consolidating the brand and how they're approaching the customer, not necessarily the different offers. So the offers were already there. If you look at just the broadband impact and, in our case, the fixed residential broadband, we're addressing the needs, which is still the needs of initial customer. And in many cases, it's interesting. Because we are one of the only options of naked broadband out there. So there is a space for bundles, yes, but there is a space for those customers that really want the high-quality broadband and not necessarily to buy an additional pay-TV service or an integrated fixed line. And that's the reason why the service has been growing so much. Obviously, we're talking about such different dimensions of addressable market. At the current time, our Live TIM service is present just in Sau Paulo and Rio, even though it's obviously a large area, we have 1.2 million households to address, and that's just the city [ph]. Now obviously, when you look at the overall picture, there may be, obviously, some increase in the competitors, especially with other pay-TV operators with other broad-fixed residential operators outside Sau Paulo and Rio. And obviously, this is a game that we're not playing today. So we're -- with the exception of Sau Paulo and Rio, we're focusing our efforts of fixed mobile substitution and on the mobile offers. So in a nutshell, it may impact the very reduced segment in which we compete. But overall, it's just business as usual, as they have been doing that for a while now. It's not that it's just going to be started with the announced integration in the last couple of weeks.


Ladies and gentlemen, without any more questions, I am returning to Mr. Rodrigo De Abreu for the final remarks. Mr. Rodrigo, please proceed.

Rodrigo Modesto de Abreu

Well, I'd like to thank you all, once again, for participating in another conference call. Again, the management is pleased with the results. It's an environment that requires all of the attention, all of the focus on strategic terms. We will continue to execute the plan. The good news is that our strategy remains solid. We believe in the execution of the strategy. And we expect to continue repeating the solid results, obviously, with all of what the environment has to offer us. And then I would just like to close my closing remarks by extending a thank you of the entire management team and the board of company to Mr. Claudio Zezza. And on the next call, we're going to have the presence of Mr. Guglielmo Noya as the new CFO of the company. So thank you, all. Have a great day. And I hope to see you in the next call.


This concludes the conference call results of TIM Participações. Your lines can now be disconnected. For further information and details of the company, please access the website,, and take the opportunity to download TIM IR app available for Android and iOS platforms. You can also follow @tim_ir on Twitter. Thank you.

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Source: TIM Participacoes S.A.'s (TSU) CEO Rodrigo Modesto de Abreu on Q2 2014 Results - Earnings Call Transcript

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