Oi's (OIBR) CEO Zeinal Bava on Q2 2014 Results - Earnings Call Transcript

Aug. 6.14 | About: Oi S.A. (OIBR)

Oi SA (NYSE:OIBR)

Q2 2014 Earnings Conference Call

August 6, 2014 10:00 a.m. ET

Executives

Zeinal Bava – CEO

Bayard Gontijo – CFO

Analysts

Paul Marsh – Joh. Berenberg, Gossler

Michel Morin – Morgan Stanley

Sumit Dutta – New Street Research

Rudolf Renault – RBS London

Giles Thorne – Jefferies

Sunil Rajgopal – HSBC

Walter Piecyk – BTIG

Giovanni Montalti – UBS

Carlos A. de Legarreta Díaz – GBM

Eric Oram – CD

Fullerdad Accoroni – Lorainsile

Operator

Good morning, ladies and gentlemen. Thank you for standing by, and welcome to Oi SA’s conference call to discuss the second quarter 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 Bava

Thank you very much. Good afternoon and good morning, ladies and gentlemen. I will be referring to the presentation that we put on our site this morning. Perhaps I will start on Page 4.

During the quarter, as I am sure you will have seen in the press release and in the presentation, we remain focused on delivering on the stated business priorities. Control our costs, we believe we are controlling our costs. Consolidated OpEx decreased by 6%, excluding the devaluation of the real against the euro, and the additional rentals related to the assets that we disposed throughout last year to continue to reinforce our financial flexibility.

In Brazil, notwithstanding a 6% inflation, costs decreased by 2.7%. If one was to exclude the additional rental costs of the asset disposals that we did, the cost would have decreased by 5.2%. In Portugal, costs decreased by 4.4% on a recurring basis, with a continuous focus on increasing the profitability in that market.

With regard to CapEx, we continue to invest in strengthening our coverage, increasing our broadband speeds and investing in new businesses such as pay TV in Brazil. However as we have always said in the past, we want to do more spending less and we can do that through a much more granular approach to market but also network sharing agreements with our peer group companies.

With regard to asset monetization, that remains on top of our priorities. We have ambition to be self-funding and we would like to continue to enhance our financial flexibility. The sale of our mobile towers in June 2014 will allow a R$ 1.2 billion cash in in the fourth quarter and that will have an impact of about 1 billion in our EBITDA. Obviously it’s not recurring but it’s a 1 billion impact in our EBITDA in the fourth quarter.

With regard to synergies, we have identified at least 22 initiatives that we have highlighted for you in this presentation, and we believe that a lot more can be done. Yes, we believe and we estimate that these initiatives that are now in place and being executed as we speak will allow for an annual run rate of over 303 million in terms of impact in our financial performance. I believe and we believe as a team that we can do more. And I will give more color on this later on during my presentation.

The fifth business priority relates to the business model transformation of Oi. As already shared with the markets several times, the business model transformation from a company that sells, if you like, mono, single products to multi-products takes time and obviously moving the company from voice to data always requires investments and business process reengineering whether we’re talking about network, whether we’re talking about IT, or whether we’re talking about field force management. We believe that the way that we have started presenting to you information in connection with, for example, our residential segment of the market in Brazil, shows that we are moving the direction of also not only doing more multi-products, more conversion, but also reporting in that way as well.

All in all, aligned with our announced priorities, OpEx, CapEx under control, we’re selling assets and we are looking at various options to accelerate potential disposals of those assets to reduce, if you like, financial risks and enhance our financial flexibility and create option for us to be able to bank on the optionality that exists in the Brazilian markets. And all in all, we believe that, then the big challenge for us is to ensure that we do the business model transformation so as to put Oi in the position to grow in the future.

Let me take a few comments on CapEx control. In the second quarter 2014, consolidated routine OpEx decreased on a pro forma basis and considering the full consolidation of PT Portugal in all the periods, OpEx decreased by 1.9% year on year. If one was to exclude the impact of the depreciation of the real against the euro, which amounted to 138 million in the quarter and the impact of additional rentals related to the asset monetization, which amounted to 137 million, consolidated OpEx would have decreased by 6% on a comparable basis.

In Brazil, OpEx decreased 2.7%. If one excludes these additional rentals, the decrease would have been 5.2%. This decrease reflects not only lower interconnection costs, but also lower provision for bad debt and in my view it’s a testimony of the focus that the company has had in dealing with costs on all fronts. The decrease in provisions for bad debt was achieved through implementation of strict [ph] initiatives to improve the quality of sales. You may recall that second quarter last year we booked significant amounts of bad debt provisions and we indicated clearly that we needed to work in the direction of working, if you like, those bad debt provisions to levels of about 2% of our sales. We are clearly making good progress in that direction.

Additionally to the strong cost discipline, I also would like to emphasize the focus that we are putting on ensuring productivity gains on operations, particularly field force.

With regard to CapEx, in the first half of 2014, CapEx in Brazil decreased 19%. In the first half, our CapEx amounted to about R$ 2.6 billion. We continue to invest in our network and the development of new services but we are also being much more granular about it. We are investing in infrastructure, of course, but where we can do sharing agreements with established operators, that is clearly the preferred route for us going forward.

In the first half of 2014, 76% of Brazilian CapEx was directed to network infrastructure. It is worth highlighting that this improvement in quality and coverage of 3G and 4G networks, the investment that we’re doing to improve the speeds and fixed broadband as well and the deployment of our TV offering are beginning to have a positive impact not only in the services that we deliver but also in the perception of Oi as a quality service provider.

I also would like to mention that we also have to make investments necessary to attain FIFA’s World Cup event in Brazil specifically. In the first half of 2014, in Portugal, CapEx decreased 31%. CapEx amounted to about 157 million in the first half, and that’s against the backdrop of strong investments in network modernization that we have made over the last few years. CapEx for sales used to run at levels of around 20% plus, now we are talking about 10% to 13% and that’s a level where we believe we can run this business going forward considering that most of the investments have been done.

Furthermore, the recent agreement that we reached to share capacity in fiber also gives us additional footprint with no additional CapEx involved. If one looks at consolidated EBITDA minus CapEx, in the first half of 2014, it amounted to circa R$ 1.8 billion and that’s a substantial improvement year on year.

With regard to asset sales, Slide 7, throughout 2014 we continued the process of selling non-core assets. This has been clearly a priority from my management team and myself. On the 24th of June, we announced the sale of additional 1,641 towers and this will translate in a cash-in of 1.2 billion that we will receive in the first – fourth quarter of this and will have a positive impact in non-routine EBITDA of about 1 billion.

In second quarter 2014, the sale of non-core assets had an additional impact on rentals amounting to about 137 million. These transactions, we believe, allow us to extend the maturity of our debt and also optimize financial costs. Bayard Gontijo [ph] will refer to this specifically and will highlight that we are currently analyzing all options available in order to continue to monetize assets so that we can enhance our financial flexibility, to reduce financial risks and to continue to invest in growth opportunities and optionality in the Brazilian market.

With regard to synergies, one of the business priorities is to clearly crystalize the synergies from the combination of Oi and PT Portugal. In this context, it is important to highlight the 22 initiatives that already represent an annual run rate of synergies of about 303 million. I could take a lot of time going through each one in detail but allow me perhaps just to mention procurements. We are now beginning to procure. Just as one company independent of the geography, I can also mention to you the work we are doing in B2B around cloud services, I can mention to you obviously the work that we’re doing around customer care, in particular in taking advantage of software and services that we’ve developed that allow us to analyze and screen technical failures remotely. And last but not the least, the advantage that we are also taking from the shared services platform that we have, particularly in Portugal to insert certain functions to make sure that we can translate productivity gains into cash flow savings as well.

So 22 initiatives identified, we will keep you updated on this and we believe that the annual run rate is certainly above R$ 300 million and we believe that we can crystallize this and we can achieve this in 2015.

With regard to financial flexibility, Oi with Portugal Telecom continues to show a solid liquidity position. By the end of June 2014 Oi had consolidated cash of circa R$ 6 billion and available lines of circa R$ 11 billion, thus achieving a total liquidity of more than R$ 17 billion. At the end of second quarter 2014 our consolidated net debt was about R$ 46 billion. Consolidated free cash flow was negative R$ 300 million, that’s a major improvement compared to the second quarter of 2013 when our free cash flow was negative R$ 1.3 billion. This performance in terms of cash flow just shows the alignment that we have and the focus of our team in ensuring that we can turn cash flow positive sooner rather than later.

With regard to the transformation of our business model, in a nutshell what we would like to do in Brazil is more convergence and more data, similar to what we have been able to do in Portugal but we will have to be much more granular considering the size of this country but also considering the infrastructure that we have in place in every single state. We’re present as you know in 4800 municipalities with fixed line infrastructure and we need to bring to bear if you like that advantage in making sure that we can crystallize, if you like, that advantage into superior performance in terms particularly of broadband and TV.

In the SMEs and if you like, large corporates, the focus is on data, IT and cloud services also taking advantage of synergies with PT Portugal, I will come back to that a bit later.

Allow me now to move to Brazil, and focus specifically on the residential segment of our market. Regarding the residential segment we’ve been focusing on the development – if you like, we have been focusing on the repositioning of our offer away from single products to multiple products. I like to say bundle as opposed to convergence because work is still being done at the IT level in order to allow us to transform if you like bundles into full convergence where if you like the consumer can have a unique experience seamless offer [ph].

So in that regard I think the real motive of the Oi pay TV was absolutely critical in late March or early April this year. Pay TV we believe will allow us to differentiate our value proposition and will also allow us to underpin if you like the sale of double play and triple play services in this market as well. Also it is worth mentioning our strategy in this segment is to actually continue to simplify our offers so as to ensure that we can continue to work customer satisfaction to high levels than in the past.

If one looks at Slide 12, as a result of this service bundling strategy in the second quarter of 2014 the weight of households with more than one service subscribed to Oi reached 60%. This is a growth of 3 percentage points compared to the second quarter of 2013. Oi Voz Total, it’s a service that f bundles mobile voice and fixed line, is already subscribed by 1.5 million customers and those customers that subscribe basically take on the SIM cards and the average number of SIM cars has grown from 1.2 second quarter 2013 to 1.5. In this context obviously residential ARPU has is also been growing and broadband and pay TV revenues continued to show growth albeit at a level that we believe is still not sufficient to if you like compensate for the decline in our traditional, if you like, landline business. We believe that both in broadband and in pay TV there is still a lot to do, particularly bearing in mind Oi’s extensive territory coverage, the 4800 municipalities that I referred to earlier.

Broadband and pay TV growth is key to mitigate the secular trends in the landline and we have seen that happening at the markets and Brazil will not be different in that regard.

Slide 13, worth mentioning that the new pay TV offer that we launched has been extremely well received by the market. The pay TV gross adds increased 66% quarter on quarter. The Oi TV growth is key to underpin the multi product strategy, it will drive broadband sales and it will certainly lead to higher loyalty to the landline service that we offer as well.

Broadband gross adds were down, but there is explanation for that, in part, and part of the explanation has to do with strikes that we saw happen particularly in Avaya [ph] and in the southern part of the territory, less working days in June and the work that’s being done in the new field force of service provider management system which is now being rolled out in larger territories in Brazil and it’s still subject to consolidation in terms of reaching crew speed which we think will happen until the year-end. We've already put in place a plan that we believe will look to address the fixed line and broadband installation and maintenance capacity while trying to intensifying commercial momentum through high rate of presence, more door to door popularity and of course the provision of the commissioning policy so as to ensure that the focus is clearly on multiproduct.

Slide 14, in terms of mobility. With regard to mobility perhaps I will mention just personal prepaid. With regard to personal mobility we continued to grow in the quarter both in terms of customers and in terms of revenues. Prepaid and data were both growth drivers, namely if you look at mobile internet, Slide 14, mobile revenues were up 101% compared to the same period last year.

Personal mobility revenues were up 6.5% year on year showing a strong take-up vis-à-vis first quarter 2014.

Slide 15, specifically on prepaid, the prepaid segment has been the growth driver for us in personal mobility. The prepaid has intrinsic characteristics that we like, low customer acquisition cost, no billing and collection issues, no bad debt issues and a positive impact in terms of working capital. We adopted this from the third quarter last year and investment strategy consistent with the priority of growing our prepaid customer base focusing not just on voice but also on data. Particularly focusing on those customers that we believe have an active consumption of data services and a different rechargeable bias.

We launched certain services like Oi Galera and Tudo por dia, these are essentially prepaid offers that stimulate recharges but also promote the use of data and SMS packages. In this context I would like to highlight that the recharges increased 7.2% notwithstanding less working days in June, accelerating when compared to first quarter 2014, benefiting not only from the prepaid annual base -- the prepaid annual base growth of 3.9% but also from the growth of the average recharge ticket of 10.8%.

The recharge growth also benefited from the use of what we call a tool here, which is active campaign management tool. This allows us essentially to manage recharge campaigns through a one to one marketing concept creating and executing and managing campaigns based on customer profile, thus improving the context and the relevant of our promotions. Obviously a stand [ph] is a tool that we use below the line.

With regard to postpaid, after period in which we focus in restructuring our sales channels and beefing up if you like control processes in order to bring down bad debt provisions, we are now promoting again the postpaid plus through a service that we call Oi Controle. This Oi Controle is a plan that consists of a fixed mobile affordable offer that includes unlimited onnet calls to fix and mobile in Brazil for circa R$ 29.9 a month. This software includes about R$ 10.9 a month to be used for the services including off-net calls and about R$0.75 of charge a day for data SMS and Wi-Fi usage. The payment of the service and this is the relevant point -- is made by credit card, thus we believe that by using the credit card despite it is a postpaid offer we will continue to benefit not only from higher ARPU and lower churn but we will also stay away from any potential issues of bad debt.

Instantly the growth in postpaid in the Brazilian market in the last two quarters has been very much on the back of similar products that use credit card as a payment method. With this focus on postpaid customers now, we saw our client base grow 2.3% year on year.

Turning now over to B2B to Slide 17, in B2B we would like to highlight that the turnaround process of the SME segment is well underway and in line with our stated plan. The first stage of this restructuring was to focus on the improvement of sales quality and that led us to change if you like our partners in terms of franchises, commissioning policy and also let us to implement, if you like, quality goals to ensure that the customers can actually confirm the service that they bought and to make sure that whatever we install is in line with whatever they bought as well. The second phase consisted, of if you like, enhancing our competitive positioning in the market by being also more aggressive in the point-of-sale -- the last phase of this confirmation will lead us to focus much more in the increase of productivity of the sales channels and if this is clearly one of the -- in the fourth quarter of this year and first quarter of next year.

As a result, of the work that’s being done we saw an increase of about 25% in gross additions in the second quarter 2014 compared to the first quarter 2014. We believe that this is a direct result of the new convergent offers that we have already put in the market. The share of bundle offerings in total mobile gross additions improved from 6% in December ‘13 to 36% in March and 50% in June 2014. This in my view also underlines the attractiveness of the convergence strategy and product offering to customers of the segment.

It is also worth highlighting that the churn in the SME segment has been decreasing and in the second quarter of 2014 we had the lowest level of disconnections the fourth quarter of 2012.

Slide 18 just to mention on the B2B, a few highlights for you. First is that with regard to the focus around data centric cloud and IT, we saw 22% annual growth in terms of IT and we saw the increase the contribution from non-voice services to reaching about 60% which is about a three percentage point improvement compared to the second quarter of last year. So IT revenues were up 22%, new services contracts were up 176% and non-voice revenues are now 60% of the overall revenues of this segment.

One additional point I would like to make on page 19 is that in June 2014 we were the official provider for telecom and IT services of FIFAS’s World Cup. We served FIFA and FIFA corporate network and media services including if you like cable and wireless internet and phone solution for the media, we offered data in vast communications to meet FIFA’s requirements and the media in more than 70 events in about 12 cities that hosted the World Cup. And as you will have seen certainly from the press the traffic – the volumes were absolutely amazing and the good news is that Oi was able to deliver these services with quality. In fact, FIFDA recognized the high quality of the services that Oi provided in this very complex and very visible event.

I also would like to in this call highlight the incredible work that was done by the Oi operational team across-the-board in order to ensure that the World Cup was successful in Brazil in what concerns technology, in what concerns telecom and IT as well.

Turning now over to Portugal, just to mention a few things, Slide 20, a M4O continues to be a strong commercial success, it has now reached 2.2 million RGUs, it has been an anchor service to transform the consumer market in Portugal. It has allowed Portugal Telecom to differentiate its offering in that market and take advantage of the first mover advantage. Their focus has been shifted from prepaid to postpaid and of course this differentiation of Portugal Telecom’s offering has also resulted in consistent market share gains given that 42% of M4O gross adds are new customers to Portugal Telecom. Of the 2.2 million M4O RGUs, about 1 million are SIM cards, mobile with 42% of the customer subscribing to more than two SIM cars between, so basically M4O is a family plan. In the meantime we have progressed the software to includes also data as well, additional data and therefore we have already moved M4Os and FIFO as well.

Slide 21, with regard to personal mobility customer segment, it has continued to gain market share notwithstanding high levels of penetration in the Portuguese market. Since the launch of M4O in January postpaid net adds have consistently been above 100,000 per quarter. This is a paradigm shift in the Portuguese market and also worth mentioning the increasing weight of flat fees and data revenues which today already account for 50% and 41.7% of the total customer revenues respectively.

Also would like to highlight the 2.5 percentage point market share gain. Portugal Telecom will now have 48% market share in a market environment where the number of active SIM cards also fell 2.4% due to increased popularity of on-net offers.

Slide 22, in the B2B segment in Portugal, perhaps I would like to emphasize the ongoing business transformation towards convergence and high value-added services. Convergent customers in Portugal also rose 6 percentage points and the contribution of non-voice services in this segment’s revenues increased five percentage points to 58%. The revenue decline improved when compared to the previous quarter from minus 6.6% in the first quarter 2014 to minus 5.7% in the second quarter of 2014. The performance however in this challenging segment continues to be penalized by market conditions.

Slide 23, notwithstanding intense competitive pressure, revenues from the Portuguese Telecom businesses improved when compared to previous quarters, 4.5% year-over-year in the second quarter 2014 and that compares with minus 6.1% in the first quarter of 2014. Incidentally this was the best performance that we have booked over the last 6 quarters.

In the B2C segment, there was also an improvement in revenue trends, 3% revenue decline in the second quarter improving versus the previous quarter which was minus 3.5%. As I mentioned before, now M4O and 5O continues to contribute decisively to market share gains both in triple play and in mobile.

Several indicators continue to demonstrate the success of the transformation we have already implemented. Non-voice revenues in Portugal already represent 55.4%, increasing 2.6 percentage points year on year. The weight of flat fees stood at 19.3% in the residential segment and at 50% in the personal mobility segment, thereby enhancing revenues and if you like making the profile a lot more resilient in terms of the future.

Let me now hand you over to my CFO so he can shed more light on the financial details of the announcement that we put out this morning. Bayard, please?

Bayard Gontijo

Thank you, Zeinal . Good morning everyone. I will start showing Oi’s financial review on page 24. Firstly I would like to mention that due to the capital increase closed at the end of April, since May the key Portugal assets are being consolidated at Oi. To the best understanding of this second quarter results, we are presenting pro forma numbers for most of the information.

Now moving to Slide 25, pro forma net revenues totalled R$ 9 billion at the second quarter of 2014, an increase of 0.4% in comparison with the same period of last year. Net revenues from Brazil amounted R$ 6.9 billion reflecting a drop of 2% year over year.

Excluding the impact of the MTR cut, revenues increased 0.7% despite the low number of working days related to FIFDA’s World Cup. It's worth highlighting that personal mobility customer revenues grew R$ 103 million on the back of the increased of the Oi controlled based of clients and the prepared recharges as well as improvement in the data usage, mainly mobile internet.

Mobile data revenues grew 36% year-over-year and already represent 28% of the personal mobility customer revenues. Regarding the residential revenues, the performance reflects mostly fixed line base partially offset by higher broadband and pay TV revenues. Oi remains with the focus on sales of bundle services combining fixed line broadband and TV. At the end of the quarter 60% of the households served by the company had more than one Oi product.

The revenues in B2B segment, corporate and SMEs were also impacted by a lower number of working days in the quarter, and does not reflect yet the work on turning around the SME segment by revising commissioning model, developing and aligning sales channels, redesigning the offers and improving productivity.

With regard to Portugal, net revenues totaled R$ 1.9 billion. However excluding FX effect net revenues dropped 3.4% year over year. The revenue performance was penalized by a deteriorating trends in the consumer segment mainly explained by lower equipment sales and also by the competitive dynamics and pricing pressure. It's worth highlighting that customer revenues from Portuguese telecommunication business decreased 4.5% year-over-year presenting the best performance in the last six quarters.

In Slide 26 we show the evolution of our routine pro forma OpEx, with a reduction of R$ 124 million in comparison to second quarter 2013, totaling R$ 6.6 billion. Excluding incremental costs related to assets disposed and FX impact, caused an expenses drop 6%. The main reason for this performance were the rollouts in Brazil of initiatives to control OpEx that were already implemented in Portugal as follows -- reduction in the net sales and churn, improvement in clients retention, accounts receivable and back-office, efficiency gains in field force, increased utilization of online billing, among others. These savings were partially offset by higher marketing costs due to the World Cup and personnel costs mainly due to the insourcing of internal plant maintenance operations and the collective bargaining agreement signed in last December.

Now the other detail, the main OpEx items that have relevant changes in the year-over-year comparison. The drop of interconnection cost is due to both MTR cuts which resulted in lower cost of R$ 183 million and lower SMS and mobile voice off-net traffic, as a result of the successful offers based on on-net traffic in Brazil.

The reduction in plant maintenance cost was due to the insourcing of internal plant maintenance operations in Brazil, that on the other hand, had increased personnel costs as already mentioned. The reduction of R$ 142 million in provisions for bad debt is a result of improvement in the quality of sales.

Rent and insurance expenses moved up R$ 151 million, excluding the incremental costs related to the assets disposed in 2013. This increase was mainly due to higher expenses with the ramp up satellite capacity, higher expenses with car rentals and insurances related to the internal plant operations and an annual contract adjustments by inflation.

Moving now to Slide 27, routine pro forma EBITDA moved up 6.9% year over year, totaling R$ 2.5 billion. The routine margin stood at 27%, one percentage point over the quarter ended June 13. Routine EBITDA from Brazil amounted R$ 1.6 billion reflecting a growth of 0.4% year over year mainly due to the focus on cost control as already shown. No routine effect in EBITDA is explained by the recovery of SMS tax.

Routine EBITDA from Portugal totalled R$ 782 million, 24.5% higher compared to the same period last year. Excluding the FX impact and adjustment in second quarter ’13, to reflect the alignment of reporting criteria, the routine EBITDA decreased 2% year over year.

Slide 28 shows the investment by the company. In the second quarter of 2014 we invested in Brazil and Portugal R$ 1.7 billion. In Brazil the focus was the improvement of the quality and coverage of 3 and 4G, the infrastructure for the supply of IT and communications services to the World Cup, the investments to improve quality and speeds of broadband, and investments in infrastructure and customer equipment related to the rollout of the TV services.

It is important to mention that CapEx in Brazil was down into a more granular approach to invest in broadband with the models of contracted suppliers and increased focus on infrastructure sharing.

CapEx from Portugal decreased mainly due to lower investments in IT projects, infrastructure and technology. As a result of the strong investments made in the past years, both in FTTH and 4G LTE networks.

Operational cash flow totalled R$ 795 million, an increase of 110% year over year. The continuous improvement in operation and operational cash flow shows management commitment to leverage control and financial discipline.

Moving now to Slide 29, we show the net debt evolution quarter over quarter. It is important to highlight that information available in the slide is based on statutory accounts consolidating PT Portugal as from May. Not considering the cash investment in commercial papers or Rioforte which is expected to be delivered to Portugal as GPS in exchange of Oi’s common and preferred shares as already disclosed by the company through material effect. Although it’s still corporate approvals and the authorization from CBM, related in Brazil, consolidated net debt amounted R$ 46.2 billion.

Considering only the daily operation activities, Oi’s net debt increase R$ 399 million compared to an increase of R$ 1.3 billion in the same period last year.

In the next slide, we present our liquidity position that at the end of June totalled 17.4 billion, considering cash and credit lines available and approved to be disbursed at any time. The short-term funding requirements are low, around 40% of the total debt is due in 2019 onwards and the average debt maturity is 4 years.

Moving now to Slide 31, we present Oi’s cash investment dollars, the main priorities of the company are liquidity, diversification and security of the capital, Oi has concentration limits per issuer and rating restrictions as well as obligation to report not only to the financial risk committee and internal group with the participation of executives from several departments of the company and every two months to the board. The same policy was implemented in PT Portugal as well as you can see in the next slide, however in this case we need to adopt the rating parameters for the Portuguese sovereign risk context.

I will now turn back the presentation to Zeinal for his final remarks.

Zeinal Bava

Thank you, Bayard. With regard to – as a conclusion, so we can quickly start doing Q&As, allow me to say the following -- with regard to the business priorities, I would like to say that -- with regard to the five business priorities that we have shared with the market – OpEx control, CapEx control, asset monetization, synergies and business model transformation, we believe that we continue to deliver in line with and in fact I think you saw in the results that we put out that personal mobility performance has been better. Cash burn has been lower, synergies are coming through, we are executing the asset disposals and as my CFO said we are looking at ways in which we can continue to dispose of assets very much in line with what we have said in the past to reduce if you like – or to enhance our financial flexibility so that we can reduce our financial risks and continue to invest in growth opportunities and in the market, particularly in Brazil. And we continue to invest very much in our business, but of course deliver also on the numbers that we have seen out there as consensus.

So I would say that when it comes to business priorities those will be our priorities, I mean we will continue to bring updates to the market quarter after quarter. Even though it’s not the purpose of this conference call to discuss other exogenous issues I would like to perhaps make a few remarks about the Rioforte issue give its significance during these most recent weeks.

Prior to that, however, I just would like to say that the material information regarding this matter particularly what concerns the MOU and the definitive terms of the transactions that have already been detailed in the material facts of Oi that we released in July. On this matter, I would like to emphasize that the company promptly adopted the necessary measures and acted with appropriate care to protect the interest of its shareholders. The proposal which is what we were able to negotiate with Portugal Telecom is subject to the approval of the general meeting of PT SGPS, the holdco, the boards of Oi and Telemar and in addition it is still also subject to authorization of the [indiscernible] for the exchange in the call option to be given to the PT SGPS. We believe that this agreement in the current scenario is more likely to create the best results for the company in terms of the future.

Therefore I believe that it is perhaps not convenient at this stage to discuss or in this call the Rioforte issue, and we hope that we can focus just on the earnings release and I very much would like to in advance thank you for taking this into account.

I also would like to mention that yesterday the board of Oi approved the changes that we as management proposed for the governance structure of PT Portugal, we will look to implement these changes in the next up to 30 day but sooner rather than later, as was approved yesterday in a meeting of the board of directors of Oi. The main objective of this change is to ensure that we integrate completely both companies sooner rather than later, particularly in what concerns treasury management, finance control etc. as was mentioned by Bayard. We believe that in addition to that by combining the teams and by promoting this new governance structure we can have a management team that continues to be focused in delivering on synergies, better financial flexibility, Oi turnaround and continue to work to ensure that we can take this company to an overall grower [ph] and if you like, make this company a corporation as it’s always been our objective.

The new CEO of PT Portugal will have a direct report to me. The finance team of PT Portugal will have a direct report to the CFO of Oi, Bayard and we believe that these changes are helpful in the sense that it will help us reinforce the day-to-day management of the Portuguese business while allowing myself and Bayard to continue to oversee all the major strategic and financial decisions of PT Portugal in the future.

Thank you both very much for being in this call and of course my team and I are now available to answer any questions that you may have. Thank you.

Question-and-Answer Session

Operator

(Operator Instructions)

The first question comes from Paul Marsh from Berenberg.

Paul Marsh – Joh. Berenberg, Gossler

I guess I have three questions, I wonder maybe if you could give us an update on the Portuguese market environment from a pricing perspective – you’ve obviously been fairly aggressive in the market, and that should have been targeting the SME and corporate space, I just wonder if you’re seeing any changes into the third quarter and particularly if you’re expecting the deal that you signed with Vodafone to – any changes in the pricing environment? And then secondly just coming into Brazil on the spectrum auction, maybe you could just give us an update with where you think we are now in terms of the timing of the auction? Oi’s intention to bid in the auction, I mean so I think we are assuming the Oi intending to bid but maybe you can confirm that. And then I wondered if you just had any observations on the move made by Telefonica with GVT, and any implications for options that Oi may face in coming months and years arising out of that move?

Zeinal Bava

With regard to the Portuguese market the agreement that we signed with regard to sharing of the capacity with one of the local companies there, in my view is a step in the right direction because it brings rationality in terms of where we are investing. And also we believe it perhaps brings the coverage of both companies to a level where perhaps going forward the focus has to be in terms of the profitability of the business because clearly we have work to do in that regard. We are not seeing any major changes in terms of the environment. Having said that it is worth mentioning that we continue to post a pretty strong performance in terms of postpaid net adds. We had 130,000 postpaid net adds in the second quarter of 2014 and when you look at for example second quarter of 2012 we had minus 4,000. So we have actually with the launch of the convergence offer on 11 January of 2013 that we've made a step change in terms of postpaid net adds from roughly a pretty much 0 to about the 100 to plus 1000 every quarter. This is why our market share is growing, this is why the market share in Portugal is about 48% right now.

Clearly our focus – we’re quite happy with the current market share that we have. Our focus is in ensuring that we can improve the profitability in that market, we continue to enjoy high levels of authority of our brand, and we continue to enjoy a substantial lead in terms of innovation, so we will continue to work very much in line with what we have done before which is to enhance the value proposition that we’re offering to our customers, the convenience of dealing with the company that is by far the leader whether we’re talking about triple plays, quad plays or mobility, and that will remain our focus and therefore we hope that this recent agreement that we have signed will work in the direction of making that market more financially sustainable in terms of the future.

With regard to the auction, I think you’re probably following – there have been some legal issues about the publishing of the final terms and conditions of the auction, we will await to see the final terms and conditions of that auction to take a view at the management team level and at the board level of Oi. So at this stage I think it's too early to make any comments other than to say that we will look to be rational and notwithstanding the fact that we believe that – but we need to continue to invest in our business -- with clear targets of returns that we need to achieve as well.

With regard to consolidation that -- and the recent move in the Brazilian market as we have indicated in the past, the consolidation is something that may allow the profitability of the market to improve, may allow thus as a result of companies to generate more cash so that companies can continue to invest in that business. We believe that we have very little to comment obviously on this deal that has been announced that we are focusing in our own turnaround and as my CFO said, we also focusing in ensuring that we can look at all the strategic to options available so that we can continue to dispose of assets that allow us to enhance our financial flexibility so that we can also keep the optionality associated with potential future investment in the Brazilian market.

Operator

And the next question comes from Michel Morin from Morgan Stanley.

Michel Morin – Morgan Stanley

I just wanted to focus on your leverage and your liquidity for a second. If we analyze your second quarter routine EBITDA, we get to a run rate of about 9.9 billion, so with 47 billion of debt that’s leverage of about 4.7 times. So I just wanted to see if you are comfortable, if you think that, that’s a fair analysis of annualizing the routine EBITDA levels? And then on liquidity you have 17 billion of available liquidity but you also have 17 billion of debt maturities over the next two and half years. So I think you had previously guided that free cash flow breakeven would be reached by the end of 2016, and now that you have less cash than expected, I'm assuming it’s going to be a little bit tougher to get to that free cash flow breakeven by year-end 16. So I guess the question is what’s the plan here to make sure that you don't run into a liquidity problem over the next two years?

Bayard Gontijo

Well, let’s start by the leverage question here, well first, the way we measure -- the way we we’re supposed to measure – it’s not by the routine EBITDA, it’s by the reported EBITDA. Therefore as I mentioned in the Portuguese call we have as of today an index of 3.8 times gross debt to EBITDA, so it’s comfortable we are far below our limit of four times.

In regard to the liquidity, as we mentioned in the presentation we have around 17 billion of liquidity which gives us as well a comfortable position to get with the cash position that we still have, within our two companies. Therefore in our view leverage is controlled, liquidity is adequate for the size of the company.

Regarding the target that – or the indication we gave to the market in terms of in terms of free cash flow we’re still confident that we’re going to be able to achieve that by the end of 2016, because all the objective in terms of operations, all the goals we have they are still our targets, therefore I don't think we have to move that target to other base. We’re still analyzing and discussing asset disposals, we still have assets to sell, as we’ve been doing over the last months. We sold, as you now, a submarine cable that we used to have, the Globanext [ph] company, mobile dollars, fixed dollars, and still have some assets to sell. Powers, we would say, even powers in Portugal we can’t monetize as well, so we’re analyzing all the alternatives to enhance our financial flexibility and even to move forward with further de-leverage of the company.

Michel Morin – Morgan Stanley

And just to follow up on that, I think in that past you have given the financial impact of the asset sales on routine EBITDA. I was wondering what if you could share with us what the impact will be of the most recent tower sale on your 2015 EBITDA? And also you made accounting changes that I think were mentioned on page 2 of the presentation . I was just wondering if you can actually quantify some of the major impacts there.

Zeinal Bava

The impact of tower sales that we closed at March and actually fell in December it’s going to be around R$ 1 billion.

Michel Morin – Morgan Stanley

Sorry the incremental expense area is what I meant?

Zeinal Bava

We haven’t disclosed this information but we will give you -- to the market later so we will get in touch with you in the market to explain. And the other question I am sorry -- it was about the accounting policies.

Michel Morin – Morgan Stanley

Yes, that you mentioned something on page 2 of the presentation, but you didn’t really go over there in the prepared remarks?

Bayard Gontijo

I think it’s basically a year that we are now consolidating PT Portugal, under Oi and we have changed the way it used to book on-retail asset, to a fair value right now, and for that – I think those are the only changes we have from the future announcements of Oi. So it’s basically – we are now disconnecting an PT Portugal and we have changed the way we used to book on-net retail assets for –

It is – on the fair value it’s around 4 billion, but again we can catch up later.

Operator

The next question comes from Sumit Dutta with New Street Research.

Sumit Dutta – New Street Research

First of all, just on [Angola], you are no longer account for that as equity assets. Could you explain as I think change that or can you maybe give updates on what might be happening in terms of a disposal, I think you also have a looking into that. Secondly, on the DTH business, the momentum here has improved, so you’re looking at the thing 3000 to 80 say you said, but could you maybe one, talk a little bit where the gross could go going forward and also give us a sense as to did that overall have a – what kind of negative impact did that on profitability in the second quarter. I think it’s really impact numbers. And then finally on just a detail busses, slightly the net debt, the net debt number you quote for Q1 2009¸ of the presentation 43.62, that seems to be slightly different than one you quoted, for most didn't really go over them in the prepared remarks mortgages or so lower, just wanted – maybe I am sort of look at number things, and I wandered additional spots between the two questions.

Bayard Gontijo

Let’s start by the net dividends numbers in there, there difference – we have here from that number that we presented in the July 29 from the one you broadly saw in the capture increases, basically this is on coming days a few years – so that’s the only difference.

Regarding Oi, the accounting procedure of—what we think is that in the context of this new consolidation of 84 billion to go buy ‘08 we do not have at this stage material influence on the board of Oi – therefore the right way to account at is fair value, so that’s the only reasons. We are doing our homework in terms of all these shareholder agreements, and everything that governs the relationship, we will see how it evolves but at this moment for the time being the right way we see for accounting that asset is fair value.

Zeinal Bava

Let me now perhaps take the on the two operational questions. Obviously the DTH performance is very encouraging, although what we would like to do is to underpin broadband sales and landline sales, and on the back of the attractiveness of our TV offer. We are not there yet and it has a lot more to do with the fact that from a field force standpoint we cannot yet if you like integrate the three services as one but we are moving in that direction. In fact we expect that November this year -- sometime in November this year in some sales channels in some states we will be able to issue what we call one installation requirement for three services, so it will be a big test on our organization to be able to if you like to send one field force guys to be able to implement it and install three services as one – in one go. That’s a big step change. But like I said we will test that around November and I would expect that around sometimes in 2015 this will become more common practice at Oi.

You rightly pointed out that the launch of such a service have to stop the costs that are pretty significant. In fact when you look at our P&L you certainly will see programming cost playing a lot more, obviously these programming costs have to be depreciated over a number of – which in our view have not yet reached critical mass, so when you compare us to other companies that are in the pay TV business clearly the programming cost of subscriber is significantly higher but we think that over time this will certainly improve. Furthermore you certainly will have seen as well that our rent and insurance have picked up and part of that is because of the higher expenses that we have with the rental satellite capacity in connection with the six satellites that was launched in 2013. So we have upfront costs associated with the satellite, we have upfront costs associated with the programming. But I would say that that these are the costs that we will have to bear in order to move in the direction of making Oi a triple play and quad play operator which we believe is the way that this market is going to go in terms of the future.

I would like to make a forward statement with regard to how much sales that we’re going to be doing with DTH but what I can say is that the results have been very encouraging and when you look at in a granular way in those areas where we are competing against some companies that for example don't have the kind of content that we have, or the kind of HD offer that we have, our share of net adds in my view has been better than we ourselves have anticipated. So it is our firm belief that we need to continue to gather pace in selling pay TV but certainly this is not an end in itself, it’s a means to an end. The end game for us to become a triple or quadruple play company over a period of time but that will only happen over the course of 2015.

Operator

The next question comes from Rudolf Renault from RBS London.

Rudolf Renault – RBS London

I cover the credit side things and obviously post the download I followed the Rioforte on payment, I was wondering whether you target to regain investment grade credit ratings at some point and over what timeframe?

Bayard Gontijo

We are working very hard to improve the financial flexibility of Oi, through our asset sales, throughout our OpEx control, throughout CapEx control, of course we don't think we’re going to regain that investment grade in the short term, that is work that we’re going to have to do present the evidences off of improvement and then regain the confidence of the market and rating agencies as well .We are very close to the 3 rating agencies, we have close contact with them, every month we speak to them. so this is the work we are going to continue to do, we’re going to show what we are doing, present the figures and let’s hope can manage to regain the investment grade which is extremely important for our company in an capital intensive industry. So this is how we plan to manage that.

Operator

The next question comes from Giles Thorne from Jefferies.

Giles Thorne – Jefferies

As you look at three competitors, you each have very high quality fixed infrastructure well in your regions, coupled with the -- tax could be about to gain GVT’s quality footprint outside – part of the region, you look at your fairly limited fiber footprints overwhelming but lines of copper and wire that you invested in fixed, while also being exposed to an acceleration medium the fixed to mobile substitution with the new and aggressive – has been proposed – do you think your pay TV offering which obviously circumvents all these issues because it’s the advanced satellite is compelling – these other issues?

Zeinal Bava

As we have explained in the past we look at this market – kindles areas where we have intense competition and areas with high concentration of people and low concentration of people. And in that regard I think when you look at the coverage currently what you see is that half of the market we are perhaps in areas with low density of people and half of the market where we have high density of people. In those areas where we have high density of people the strategy is very simple – provide people with more value for money and continue to improve speeds with Internet access and work towards if you like providing them infrastructure possibilities or technological solutions whereby we can for example work the condos and so on and so forth using coax and even fiber for that matter. Obviously that needs to take into account, the fact that we need to achieve certain levels of penetration and ARPUs and so on and so forth. So I would say that in those areas where we have infrastructure is advantage, we want to lead based on price, we would like to ensure that our customers feel that they are getting value for money and this is why we talked about Oi Voz Total which essentially is what is us giving a fixed mobile bundle to those customers that have fixed at a pretty attractive price and we – you will all have seen Internet in the press release -- we have significantly improved the number of customers of Oi that have more than five megabits per second in terms of Internet access.

And in those areas where we have low density of population, we are also reinforcing significantly our position if you like in order to ensure that we can be the preferred supplier of the people independent of whoever penetrates that market in the future. So we believe that we need to look at this market between low and high density areas. We also need to be granulating the way that we invest, and this is why for example when you take mobility, we are clearly investing in those markets where we believe we have a significant market position and we can further enhance that position. One good example is Minas where our market share is pretty good. One good example is Ceara in Pernambuco in the Northeast. One good example is Bahia where for example, in Salvador which is the main city we are now leader. So I think one has to be granular in a market of this size but we don't think we are at -- we don't think that obviously we can go out to every single customer but we can certainly benefit from the fact that we already have an installed customer base which is pretty significant and if we are successfully monetizing that customer base with better retention offers and cross-selling and up-selling we can continue to deliver on the numbers.

Now of course it’s a challenging process because we are going through a major restructuring off channels, we are repositioning our commissions with the key point-of-sale, we are transforming our field force. So as I always mentioned that this year there are four things that you can hold us accountable on – OpEx control, CapEx control, synergies and we set also that asset monetization, those are four things that you can count us on, and you will be seeing the results that we delivered on OpEx, we delivered on CapEx. We delivered already on synergies, we are giving you already significantly more information in terms of synergies and last but not the least when it comes to asset monetization, we sold the towers before the market expected at a pretty -- I would say at a good price, at good timing and you know that there are other companies that are looking to do the same. So we were quick to actually get our deal done and we will continue to look at other options as Bayard mentioned to continue to reduce if you like – reduce our financial risk and improve our financial flexibility.

On the previous point about the ratings, ratings are important to us. So we will continue to work with the rating agencies to evaluate all options for us to be able to continue to position Oi as a company that has financial risks completely under control not only because we have high levels of liquidity as was mentioned but also because we do take ratings very seriously in the company.

Operator

The next question comes from Sunil Rajgopal from HSBC.

Sunil Rajgopal – HSBC

I wanted to understand what are the next steps or -- and dates in order to formalize the merger –

Zeinal Bava

I think it is difficult to be the precise in that regard that at this stage considering a number of other things that are happening. What I can say to you that we are all committed and we are all working to move this company in a moment ago add this is one of the reasons why we did these governance changes in Portugal, the idea is for me and Bayard to focus very much on the future core challenges, to focus on the Oi turnaround, to focus on the delivery of the synergies and focus on enhancing the financial flexibility so that we can continue to review all options that are available for the company to continue to grow in the future, but at this stage difficult for us to actually provide you with specific date, although we are working as hard as we can to continue to deliver on the 2014 calendar but I think at this stage please don't hold me accountable on the date because we have lots of moving parts but what I can guarantee you is the commitment on all our team to do it sooner rather than later.

Sunil Rajgopal – HSBC

And just one more thing if I can. I mean, on your I think opening remarks with regarding to the change in the MoU and the required approvals from various boards, I just wanted to check out because I think earlier we read it, it would be sometime before 8th of September. So, just wanted to reconfirm that the MoU would need approval from Boards of Oi, PT and then Telemar, all these three Boards and as well as shareholders. Am I right in this understanding?

Zeinal Bava

The date that we have already made public in the material facts that we put out, actually does mention that the Portugal Telecom shareholder meeting will happen somewhere between 28 August and 8 of September that’s actually the material facts that we put out and in the press release, in fact, you will find that as well.

Operator

The next question comes from Walter Piecyk from BTIG.

Walter Piecyk – BTIG

I was wondering if you can give us an update on whether you plan to bid in the upcoming auction. I don't know if you had mentioned that in the prior comments. There is also I think a line item in the balance sheet that you call authorizations and concessions payable. There is a -- if there is a current long-term amount that's just about auction payments that are still due to Anatel. And I was wondering if there is a timeline from when that's due and if you did participate in this auction that's upcoming, could we expect that line item to go up?

Zeinal Bava

With regard to 4G as I said earlier in the call we are waiting to see the final terms and conditions of the auction and once those are made public and are know we will of course do our own internal due diligence with the board and so on, we will certainly refer to the market with our final position on the matter. At this stage I think all we can say is that work is progressing and we will wait and see the final terms and conditions to take care of you on it.

With regard to your second part of the question –

Bayard Gontijo

The amount of 1.2 billion is the outstanding of – when we acquired the 3G license we financed the value, outstanding amount that was financed in the acquisition of the 3G license. It is important to highlight here that this year we anticipated the payment of that amortization that was supposed to happen in April, we anticipated to January to actually reduce the financial expenses on that line. And we are always analyzing if we can only or if we should anticipate other payments. If we do expect this line to go up, with the 4G auction it would depend on the terms and conditions as Zeinal has mentioned. I mean we’re still waiting to see the final terms and conditions to see how we’re going to – how we see it and the way we will participate on it.

Walter Piecyk – BTIG

And can you comment on when -- I don't think -- it doesn't appear that you've made the payment to the controlling shareholder as part of the transaction. I think that was supposed to be about R$ 4.5 billion. When is that -- and correct me if I am wrong, because maybe you have made the payment, but if you have it, when do you expect to make that payment to the controlling shareholders as a part of this transaction?

Bayard Gontijo

Well, let me clarify here. We won’t make any payment to controlling shareholders that was part of the transaction. Portugal Telecom capitalized the holding companies before we had the capital increased and then when Portugal Telecom was contributed to Oi, it came together with the leverage. So that was – I mean we won’t make any payment to controlling shareholders.

Operator

The next question comes from Jose Amed [ph] from UBS.

Giovanni Montalti – UBS

Thank you for taking the question. Actually this is Giovanni Montalti from UBS. Just wanted to verify if you can share with us some thoughts about mobile consolidation in Brazil. Many investors have set forth -- your rights issue also on the whole potential mobile consolidation in Brazil. So I wanted to just understand if you see these materializing over the next six to 18 months, if you think your balance sheet is strong enough to do -- to do it and if you see any scenario in which this could happen without your involvement?

Zeinal Bava

With regard to consolidation, I would just reiterate what we said in the past that we think that consolidation can enhance the profitability of the sector and the cash flow generation so that industry can continue to invest profitably to develop the market, considering all the challenges that we all have in terms of capacity and so on. I think we all know and I think the World Cup here was a great example, for everyone to understand – if you build capacity the demand will come and I think the traffic flows of volumes that we saw were unprecedented. And in my view only confirm that these are markets out there and if we got the pricing right and I think there are certainly ways in which we can continue to grow profitably.

With regard to mobile consolidation in Brazil, I mean there is very little other than that, if we can say, we are monitoring whatever is happening in the market. What I can say to you is Oi is committed to continue to enhance its financial flexibility, when we did our capital raising, one of the objectives was actually to do that, so that we can continue to have the option to review how and where we would like to grow in the future. As my CFO said, very well, we are taking ratings very seriously, we are taking our financial flexibility very seriously so we will continue to look at asset monetization, working very closely with our board and so on and so forth so as to ensure that we always have the ability to continue to invest in our business assuming opportunities do arise.

Giovanni Montalti – UBS

So just a follow-up, if I may. Again I mean if your balance sheet is already at flexibility it is, considering as you said that you care about credit ratings, how would you afford your part of the potential target for the consolidation? Are you going to try to offer your paper to the potential seller, are you targeting another rights issue, what are the options that you are assessing? And also if you can, sorry, share with us your thoughts about a potential scenario in which actually this consolidation happens, are you just going to take part to it or eventually will you become a target of the consolidation?

Zeinal Bava

Thank you. I think with regard to what’s financial flexibility we have I think it is at the stage premature to even discuss it. I think it’s-- your question is very fair and it’s a very relevant one, but as you also understand there’s only so much we can talk about other to say that we are looking to enhance our financial flexibility, we are looking to beep up our cash flow. You heard our comments about keeping cost on the control, CapEx under control. You heard our comments about looking to monetize assets, although that is aimed at ensuring that we can have financial flexibility to continue to invest in our business. We are obviously mindful that our stock has been under pressure and as you can imagine we think that these exogenous factors have weighed in an unprecedented way in our stock and we hope that by focusing the company on operations and focusing on the delivery of that, if you like, financial flexibility in the future, our stock will continue to reflect, if you like, the potential for our company and the fundamentals of our company but it is not for us to say the market is there but we continue to believe that these exogenous factors have weight and we are looking to correct some of these imbalances so that we can have our shares trade where we believe they should be trading and this is why in this call we wanted to focus solely on our fundamentals so that the market can acknowledge what those are, but clearly understand that we know where we place the stock, when we place the stock and currently we are well below where we are. So if you can imagine when it comes to thinking our financial flexibility it’s much more in line with what you said about finding assets that we can dispose of, assets that we believe are not core. Thank you.

Operator

The next question comes from Carlos de Legarreta from GBM. Please go ahead.

Carlos A. de Legarreta Díaz – GBM

Yes. Thank you for taking the question. Just very briefly, regarding your optical fiber network in Portugal, are you want to confirm the number that are in chain, in your filings? It’s up 890,000 kilometers. That seems like a lot honestly considering the volume in Brazil, which is much lesser against Circa 200,000 kilometers. So I want to understand a little bit of how this network in Portugal is made of and if we can talk about that, that will be great? Thanks.

Zeinal Bava

Thank you very much. I apologize that I don’t have troubled my head at these numbers that you’re referring to, but I think offline we can certainly come back to on that. What I can say however is the following that it is very difficult for you to establish a parallel between into different markets because there are lots of differences in terms of how the network has been rolled out in each country because of its size, because of its history and so on and so forth. If we take the example in Portugal, it’s a multi-dwelling unit in market with high levels of concentration of population where the local offs are very short and this is why I would with copper you can drive this to about 24 megabits of the second without any problem and then with copper you can service like pay TV customers and yet these people have pretty good Internet speed. The Brazilian market is very different. The local books here are much longer. So I think each market has its own story and even within Brazil it’s state has a very different story, but allow me to come back to you offline because frankly troubled my head I don’t have the numbers that you are referring to, but I would just caution you that some of these comparisons can be misleading because markets are extremely very, very different not only in terms of Portugal, Brazil but also within the zone in our own stocking point in each market is very different. What I can say to you is that in the expansion of the network that we’re doing, we’re certainly using state-of-the-art technology. So when you think about of building infrastructure, a new condominiums and so on and so forth, we are working a lot more with fiber and coax and so on and so forth. So I think one of the big advantages that we have and I think it brings to back, if you like, one of the synergies with Portugal Telecom is that we feel very comfortable in working with different types of access technologies and make sure that whatever technology we are using is the one that will serve the best of our customer and at the same time will mean less CapEx for us and less OpEx for us. Thank you.

Carlos A. de Legarreta Díaz – GBM

Thanks for the comment. Now really just want to understand the trade underlying value in your assets. So in that regard, it would be very helpful if you could disclose any further assets that you could be divesting in the near future and that includes the number of smaller towers you have in the country including Portugal and obviously Brazil. So that will be very helpful.

Zeinal Bava

Yeah, rightly pointed out. As you know we sold our submarine cables, Globenets and that was the transaction that we had twittered last year. And in line with what we said before, we would look to monetize assets to enhance our financial flexibility, but we’ll certainly come back to you on that one. What I can say to you is some of these investments particularly in Portugal are pretty recent, but we’ll come back to you on that one offline if that’s okay.

Operator

The next question comes from Paul Marsh from Berenberg. Please go ahead.

Paul Marsh – Joh. Berenberg, Gossler

Yeah. Thanks for coming back to me again. I have a couple of other questions. I just wanted-- as you mentioned the fair value of the Unitel, what fair value did you ascribe to Unitel in the accounts? And then secondly, I just wonder if there was an update on the deal to buy the stake in Sport TV. I think there had been some news flow on that in recent weeks. And then finally, it’s a little bit of a less the field question that’s there with me. Do you have any view on how realistic for the mobile and wireline consolidation could be in Portugal? Is there any scenario under which Portugal could become just a two-player market with each player having the ability to offer through your full services or is that just a regulatory note?

Zeinal Bava

Yes. Let me buy both-- answer the first one on Unitel and then I will certainly answer the second one, but third one, I’m not sure if I’ll be able to give you any specific answer, but I’m pleased.

Paul Marsh – Joh. Berenberg, Gossler

Okay. So for the fair value of Unitel, it’s around R$ 3 billion and plus the dividends that are retained which are R$ 750 million for the stack Oi has in the asset?

Zeinal Bava

Thanks. With regard to the Sport TV transaction, I think public information has been made available in this regard, but that deal has forward through. So I think that’s gone from at least what I understand because of the competition issues. With regard to your said point, it’s a very difficult point to comment. I think probably the answer is much broader in the sense that I think it is a European positioning as opposed to a country-by-country positionings. So I think in Europe there were personnel with the positions half in these sorts of consolidation and movements. So I think very difficult to answer that question. What I can say is that in Portugal we are increasingly looking at ways in which we can share infrastructure in order to, if you like, monetize some of the infrastructure investments we’ve made ourselves and we continue to feel very good about the progress that Mforo [ph is making. All these, we believe that the overall dynamics of the market can still do improvement in the future. Thank you.

Paul Marsh – Joh. Berenberg, Gossler

And could the sale of the PT assets be something that’s on the list of possible options?

Zeinal Bava

I think on this I think what I can say to you is that we are working here to look at the number of the monetizaton of assets. We’ve talked about mobile towers, we’ve talked about the submarine cables and Bayard mentioned to you the possibility of that maybe doing depending on the scale and what he is possible to do with the mobile towers in Portugal. I think the previous question also talked about the fiber assets. So I think it will continue to work with our board to review all possibilities in line with our stated 4+1, if you like, business priorities and one of them is actually asset monetization. Don’t forget the other one is synergy. Then I think we went through very quickly on the synergy number not as we said that synergy would be about 261 million run rates. As part of this combination, we are already showing to the market about 300 million of the 22 initiatives that we put together and we believe that there is clearly more work to be done in that regard. So I think that we announced changes in Portugal, that we’ve announced that we’ll allow myself and Bayard to focus on some of these strategies, if you like, objectives that we have and hopefully next time we speak to the market we can give you an update report on the way we are vis-a-vis the synergy and asset monetization, but the fact that we got the mobile towers done in a timely manner was great for us and we will continue to explore some of these non-core asset sales as well in the future. Thank you.

Operator

The next question comes from Eric Oram from CD. Please go ahead.

Eric Oram – CD

Yes. Hi, good afternoon everyone. I guess it’s good morning. Just the Rio forte exposure, where is that listed on the balance sheet currently and what is the current – the carrying value for that? I see on slide 29, you had the net debt calculation and you added into your net, but where on the balance sheet in the press release for the financial statements? Where we find that? If that be under other investments or is that somewhere else? Thank you.

Zeinal Bava

Good morning. It is exactly in the other investments in the sorter. So you’re right. It is in the other investments, it’s 2.7 in as of June 2014.

Eric Oram – CD

Okay. So you’re still showing me that on that gate as 100 cents on the dollar, more or less?

Zeinal Bava

It is not anymore in the cash-on-cash equivalents. That was the change we’ve done. As you know and we have mentioned here, we’re in the process of finalizing that negotiation of PT SGPS. Therefore, our decision at this moment was to maintain accounting the way it was at the best way possible for them to implement the whole transaction.

Eric Oram – CD

Okay, perfect. Thank you.

Zeinal Bava

Thank you.

Operator

The next question comes from Fullerdad Accoroni from Lorainsile. Please go ahead.

Fullerdad Accoroni – Lorainsile

Hi everybody. Thank you for taking my questions. I wonder if you can give us an estimated amount of the assets that you’re planning to sell.

Zeinal Bava

Good morning. Well, as we have mentioned in the call periods, we’ve been analysing all the alternatives we have. We have mentioned that we sold mobile fixed towers in the past and submarine cables as well. We have until now raised about R$ 5 billion already. We still have our assets to monetize of course for strategic reasons. We won’t talk about value share because it is part of the negotiations. Right? But again we have towers to analyze or to sell in Brazil and Portugal. We have mentioned in this call the fiber network. In Portugal, there could be an option as well. We have alternatives in terms of real estate maybe more to the medium term not to the short term, but this is also an alternative and other assets that we are evaluating here. So we’re not in a position here to provide any guidance in terms of values basically because this is strategic and that’s how we’re going to negotiate with the potential buyers of those assets.

Fullerdad Accoroni – Lorainsile

Okay. And is there an intent of signing? Are those short-term sales that you’re planning to do or more medium term?

Zeinal Bava

As we have announced, we still have the settlement of the mobile towers sold in March. So in December we’re going to have R$ 1 billion positive impact in our results, but again we don’t want to get into that, specifically it pays off timing and value because again this is part of the negotiation and we will do it and also see good opportunities for the company and our shareholders.

Fullerdad Accoroni – Lorainsile

Okay, thanks.

Zeinal Bava

Okay. No further question.

Operator

I would like to turn the floor over to Mr. Zeinal Bava for his final remarks.

Zeinal Bava

Okay. Thank you very much for being on this call and of course my team and I are available offline to answer any questions that you may have and once again it’s been a pleasure to speak to you and we hope that we can maintain a close dialogue considering those obviously put out and we look forward to seeing you soon. Okay, thank you. Bye bye.

Operator

This conference has now concluded. You may now disconnect and have a good day. Thank you.

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