Franco Bernabe – CEO
Marco Patuano – Head, Domestic Market Operations
Luca Luciani – CEO, TIM Participacoes
Franco Bertone – CEO, Telecom Argentina
Andrea Mangoni – General Manager, Telecom Italia Sparkle and Director, International Business
Oscar Cicchetti – Head, Domestic Market Operations
Luigi Minerva – HSBC
Ottavio Adorisio – Société Générale
Giovanni Montalti – CA Cheuvreux
Mandeep Singh – Berenberg
Stanley Martinez – Legal & General
Justin Funnell – Credit Suisse
Frederic Boulan – Morgan Stanley
Tim Boddy – Goldman Sachs
Telecom Italia Spa (TI) Q4 2010 Earnings Call February 25, 2011 4:00 AM ET
This conference call is hosted by Mr. Franco Bernabe, the Group’s CEO; Mr. Marco Patuano, Head of Domestic Market Operations; Mr. Luca Luciani, CEO of TIM Participacoes; Mr. Franco Bertone, CEO of Telecom Argentina.
We would like to inform you that this event is being recorded. All participants will be in listen-only mode during the conference presentation. After Telecom Italia’s remarks are completed, there will be a question-and-answer session. Today, we have a simultaneous webcast that may be accessed over the company website, www.telecomitalia.com. The slide presentation may be downloaded from that website as well. Please feel free to view the slide show during the conference call.
Now, I turn over the conference to Mr. Franco Bernabe. Thank you.
Thank you, and good morning, ladies and gentlemen. Thanks for attending Telecom Italia 2010 results conference call. Today, I would like to review our 2010 results, provide an outlook for 2011, and give you a quick update on our plan, following the consolidation of Telecom Argentina.
I must tell you that I would really like to meet you all in South America later this year in order to give you a sense of the great opportunities we have there and to detail the strategic business plan. Today, I’m joined by Marco Patuano, Luca Luciani, and Franco Bertone. The four of us will take you through the main achievements and the future objectives in our three core markets.
Now, let’s move to the summary of TI Group’s results for fiscal year 2010. For your information, the complete set of slides was published on our website yesterday. In 2010, we improved our free cash flow generation by EUR300 million, reaching EUR6.6 billion, aside from the extra EUR400 million that we paid for the settlement of the Sparkle case.
The organic EBITDA at the Group level was stable in line with the guidance for the domestic market, and yet over delivering in Brazil. Net income at Group level grew by 18.4% year-on-year on a normalized basis. If you look at on a reported term, it grew by 97%, mainly due to the positive effect of TIM Brasil tax assets in 2010 and the negative impact of HNS write-down in 2009.
We achieved at the end of 2010, a net financial position of EUR31.5 billion, well below our target of approximately EUR32 billion, and the average cost of debt declined to 5.2%. Considered that this figure does not include the cash inflow of the sale of Etecsa Cuba that was completed at the beginning of 2011, and amounted to approximately EUR400 million.
Based on these results and on a positive outlook for 2011, the Board of Directors decided to submit to the Annual General Meeting, the distribution of a dividend per share of EUR0.058 to our ordinary shareholders and of EUR0.069 to our saving shareholders for a total amount of EUR1.2 billion, with an increase of 15% year-on-year.
Let’s now have a more detailed look at the year 2010 results. Reported revenues and EBITDA clearly benefited from the consolidation of Telecom Argentina in the fourth quarter. If we do not take this acquisition into account, both metrics remain stable, due to the positive contribution of Brazil. On an organic basis, EBITDA remain stable at EUR11.8 billion. Again, if we exclude Argentina to compare apples-with-apples, this parameter proved to be in line with the guidance for the year that remain stable at EUR11.6 billion.
In 2010, we improved our free cash flow generation by EUR300 million year-on-year, excluding the Sparkle case impact, reaching EUR6.6 billion. Even excluding the contribution of Argentina, cash generation improved by EUR100 million in the year. We also increased our net cash flow by EUR1.9 billion year-on-year.
As anticipated, even without considering non-recurring items, we posted a very good net income result. As already mentioned, our adjusted net financial position reached EUR31.5 billion at year-end 2010. The Group enjoyed a comfortable cash position of approximately EUR6.8 billion, which covers our debt maturities well into 2012. In addition, we count on a further EUR7.8 billion of committed and drawn revolving credit facilities.
Let me turn now to the business outlook in the near future. We firmly believe that the path outlined in December 2008 was the one to be pursued. Given the gloomy macroeconomic environment and Telecom Italia’s highly leveraged balance sheet, our key priorities were necessarily the improvement of cash flow generation and the strengthening of the balance sheet. We achieved this by focusing on the core markets, on capital discipline, on cost reductions, will enforce the fundamentals of Telecom Italia turning it into a company that is now much better equipped for the future.
More specifically, cash cost were reduced by approximately EUR4 billion, working on efficiencies all across the board. This together with a headcount rightsizing plan resulted in a leaner organization. The sound free cash flow generation led to a debt reduction of approximately EUR5 billion from year-end 2007, including the effect of Etecsa Cuba disposal.
The implementation of the new customer-centric organization and the strong investments to recover competitiveness through past repositioning led to a significant reduction in revenues, especially in the mobile business, as well as a constant improvement in customer satisfaction and corporate image. This investment, I’m sure will pay handsomely off in the future.
Last but not least, we rationalized our portfolio, selling assets in countries where we did not have the size to compete successfully, while strengthening our presence in Latin America, by acquiring Intelig and gaining control of Telecom Argentina, thus balancing our exposure to the domestic market. These achievements made us stronger and more confident. We can stand up to the challenges that lie ahead of us.
In the near future, Telecom Italia’s strategic priorities remain the same as in the last three years. We will keep the focus on our core markets with important addition of Argentina, strengthening and reinforcing our presence in each one of them. In Italy, we have to complete our repositioning path and improve the top line trend, while continuing to ensure profitability and free cash flow generation. We also need to continue reinforcing competitiveness and leadership in innovation, both in the fixed and in the mobile businesses.
In Brazil, we aim at becoming the second player in the mobile market in terms of both volume and value. In Argentina, we will intend to strengthen our position, we shall consolidate our market share in the fixed business and grow in the mobile pushing VAS revenues. We confirm our commitment to grow free cash flow generation in order to complete the leveraging program delivering what we promised and generate sustainable growth in shareholders’ remuneration.
Let’s now quickly review the main drivers of our strategy. In Italy, we have to be very determined in protecting the value of access, both in the fixed and mobile businesses. To this end, we need to continue talking to the regulator and move towards an NGAN development. This requires a clever marketing strategy and a convincing dialog with the regulator. We should keep the reduction of line losses under control as our business plan unfolds by increasing the penetration of bundle offers and enhancing the value of access, relying on a superior quantity of service and knowledge of customers.
In the mobile business, we are recovering market share in the consumer segment, while reinforcing our leadership in the public sector and large corporations, as Marco Patuano will fully detail later on. In innovative services, our task is to speedup broadband growth, accelerating the penetration of smartphones, and finding new ways to explore the value of the network. Our home gateway business model is just the starting point.
This is crucial for the future of our industry. This is also the reason why discussions at the GSMA last week have clearly indicated that the industry shares a common vision on the joint efforts needed to foster innovation and defend the Telco industry against the threats coming from new competitors and over the top players. The main competitive advantage of over-the-tops is the customer-centric approach and refocusing on customer-centric approach is exactly what the industry is doing. An example of this; the Rich Communication Suite and the SIM-based NFC services that would be launched in key European markets this year by many companies including ourselves.
In the meantime, we keep making strides on cash efficiencies. The 2011-2013 plan comprises efficiencies for a total amount of EUR1 billion. The plan will allow us to reach our target of around 64% cash cost on revenues in 2013, and much of this will be achieved in 2011. Like our previous plan, also this one is frontend loaded. Our 2011 goal is to generate more than EUR600 million worth cash cost efficiencies, accounting for 64% of the total three-year plan.
Moving to CapEx, the overall strategy is the one we presented thoroughly in April last year. The main development is what we called Dream Project in wireless access through which we plan to deploy approximately 1,300 new B nodes and update approximately 12,000 nodes with a multi-standard approach to prepare our network for future mobile broadband evolution.
As to TI NGAN plan, we will cover 138 CTs by 2018. The NGAN plan rationale is to invest in highly profitable areas and reach efficiencies in the perspective of the total replacement of the copper access lines in the medium-to-long term. The strategy is in line with the recent evolution of the European and domestic regulatory framework.
Our NGAN strategy is open to assessing possible entry into public, private partnerships in co-investment projects. TI’s decision to join this project will be based on the following criteria. First of all, the subsidiarity with respect to our own NGAN plan in the main cities, co-investment initiatives limited to NGAN passive infrastructures, and recognition of TI’s key role in the management and ownership of NGAN assets involved in the public, private partnership.
Now, let me take a quick look at our strategy in Latin America. The drivers of TIM Brasil strategy plan are all about growing a critical mass, targeting over 70 million lines by 2013, impressive boost in usage, and data revenues growth. A solid top line growth combined with continued cost efficiencies and CapEx optimization will deliver cumulative operating free cash flow generation of approximately 6 billion reais in the three-year plan horizon.
Moving to Argentina, we intend to increase our market share of revenues in the mobile business through mobile broadband, while consolidating our position in the fixed market by bundling voice and broadband offers to increase both customer loyalty and ARPU. Our focus on high margin services will improve the revenue mix, leading to a cumulative operating free cash flow generation of approximately 7 billion hours in the next three years.
I will now hand it over to Marco Patuano, who will guide you through the key pillars of our domestic operation, and I’ll be back at the end to wrap up and share 2011 targets with you. Thanks for your attention, and now I will turn it to Marco Patuano. Marco?
Thank you, Franco. 2010 full-year figures confirm that the strong cash cost control allowed us to finance the repositioning of our mobile business and at the same time reach our 2010 profitability target. EBITDA margin increased by 2.3 percentage point year-on-year reaching 48.7%, which is a benchmark for our industry.
In terms of top line, it is clear that 2010 has been a tough year for our domestic mobile business, but as you will see in today’s presentation, we made some very important step towards the recovery. The December campaign was very positive in terms of gross ads, customer base, calling, and traffic, and showed an improving revenue trends versus the previous months. I will elaborate on these in the next few charts.
Next please. In the fixed business, 2010 performance in terms of number of accesses was very satisfactory with just 746,000 line losses, 0.5 million less than in 2009, which was 1.25 million, reaching our updated target of below 800,000. Focusing on fourth quarter 2010, despite the unprecedented aggressiveness of our competitors, I would like to remind you that some others introduced a 24 months promo which I personally doubt can be sustained in the medium and long term. We saw in any case our line losses have reached 233,000 still down versus fourth quarter 2009 levels which was 260,000. Retail revenues stood at minus 5.8% year-on-year, confirming the third quarter improvement. Enhanced quality of service is still the key factor to defend our position.
Next please. Looking at broadband full-year 2010 results, we see an increase of net ads by 180,000, a 22.2% full-year margin and market share slightly higher than 2009. But with the fourth quarter lower than the first three quarters, our market share on broadband is 54.8% and remains one of the highest among our peers, slowing down the year-on-year decrease. As I mentioned before, others have been very aggressive on prices. We instead want to protect prices on fixed broadband since matching their prices would result into a massive value distraction for the Italian broadband market and would be detrimental if we consider the introduction of fiber, whose price premium must be defended. We intend to focus on innovation and quality of service and avoid any price war. In any case, in 2010, we have been able to deliver a plus 2% year-on-year increase in ARPU that resulted in a plus 5.8% year-on-year growth of broadband service revenues.
Next please. Moving to the mobile business, fourth quarter 2010 was characterized by very good KPIs and positive signals of recovery after the weak third quarter financials. Gross addition increased by 16% year-on-year, with the strong fourth quarter boosted not only by seasonality, but also by the attractiveness of our portfolio. At the same time the number of churned SIM cards decreased significantly, proving that we are on the right track to make our customers more loyal. The combination of increased gross ads and lower churn translated into a reversal trend of our full-year 2010 customer base, plus 162,000 year-on-year, with the 386,000 net additions in the fourth quarter 2010.
Next please. In order to fully understand our how sound our strategy is, we need to go more in-depth with the analysis. So let’s have a better look at the key trends behind the mobile service revenues performance. I will split the analysis between traditional services, voice and messaging on one side, and innovative services mainly mobile broadband on the other. In the first half of the year, our outgoing voice revenues followed a sound monthly trend after our investment in repositioning that I already mentioned several times. Yet, in the third quarter, we had negative spike in the customer base value cannibalization. The same happened also in traditional VAS which after the downturn in third quarter is now growing again. Innovative services showed a double-digit increase year-on-year. In this case too, we see a two-speed trend, sound and constant in large screen business, while in the small screen business, it only improved late in the fourth quarter as we shall see.
So two concepts clearly emerge. First, this repositioning strategy based on value for money is necessary and correct. And fourth quarter dynamics confirm this. In the third quarter we had some execution shortfalls, but they were rapidly solved. We knew since the beginning we had to invest in price reduction to close the gap versus the other competitors and provide value for money to our customers. But at the same time, we were aware that this would have brought about a higher traffic volume and a higher number of more satisfied customers. Finally, all these is becoming reality. The price gap has been closed and the outgoing traffic is steadily growing. Gross ads are high and stable, customer base started growing again, the percentage of calling customer is high, and in terms of customer satisfaction we are closing the gap versus best competitor.
In third quarter, there were some execution shortfalls. The launch of promos that were too general and too aggressive, a reduced efficacy and high value customer lock-in, the delay in pushing new generation smartphones, which interrupted our revenue recovery trend. In fourth quarter, we changed the course of action. We resumed our work on CRM adopting a more surgical approach to customer repositioning. We did not renew the most aggressive promos introduced in the third quarter without any significant side effect on churn and most importantly with the benign impact on prices that started to stabilize.
We pushed a much more in bundle offer, the so-called Tutto Compreso, with a very positive effect on our ARPU. And we reintroduced a vast range of smartphones in the Christmas campaign, pushing sales bundle with high value traffic packages and flat Internet rate offers theme for smartphone. Notwithstanding the fact that we kept a strict control on subsidy, in the Christmas campaign alone, we sold almost the same number of smartphones than in the previous nine months.
Slide number 10. As for innovative services, the mobile broadband market continues to be a very interesting growth area. As you know, when we talk about mobile broadband, we in fact refer to different services. The big screen segment shows an interesting ARPU of EUR13.7 but it is characterized by a heavy usage of the network capacity in an addressable market which is limited to laptop owners. In this segment, Telecom Italia is the undisputed leader. Thanks to its strong presence and an excellent quality of service.
The small screen segment instead is different in terms of service usage. It is true that it generates lower ARPU, bundles have 7.8 incremental ARPU, it also use much less network capacity. The ARPU per network capacity of the small screen segment is between four and five times more efficient than the big screen. Moreover, small screen is a business that will reach the whole customer base and therefore has a higher potential in terms of addressable customers, which in the medium term will include the whole mobile customer base.
Telecom Italia’s delay in the small screen segment is not particularly worrying, because recent improvements in screens and operating system triggered a second wave for us to ride. Our refocus product portfolio and the development of a better mobile Internet offer allowed us to report results that are more in line with the market potential in the fourth quarter. We intended to make the most of this and recover our leadership without adding to resort to excessive subsidies that the Italian market currently does not need.
Let’s now analyze the outlook for the next few years by looking at the expectation in terms of the reference market dynamics. All-in-all, we expect the market to remain stable or slightly growing between flat and plus 1% due to the basically stable TLC component in the three years with innovative service growth potentially offsetting traditional service decline, possibly more in the mobile rather in the fixed business. The positive contribution of the addressable ICT segment, which, thanks to our early positioning in cloud services slightly contributes to the overall growth.
The media market led by Internet advertising, pay content and over-the-top services shows interesting growth rates despite the relatively small TI market share. The competitive arena is becoming wider and less dependent on geography. TLC operator besides having to leverage on their specific end-to-end approach to the customers must also recover a spirit of closer collaboration within its industry, working again on to the concept of convergence, multi-device approach and quality of service.
Fixed and mobile broadband are complementary. Focus must be placed on TI’s distinctive position in both, the fixed and the mobile innovative service markets. With the reference to the pure access market, market evidence indicates that mobile broadband big screen does not cannibalize ADSL, especially in the consumer segment. Because of the complementarity between fixed and mobile, the household market over 25 million units reached a penetration rate of almost 50%, given that PC availability is still a limiting factor for future growth. Tablets and connect TV will make the ADSL domestic market grow. TI’s strength lies in controlling both the access with ADSL and dangle and the personal Internet markets through the growth of the smartphone business I mentioned earlier. This complementarity will gradually become a success factor in a market which is becoming increasingly always connected.
Let’s move to the mobile. Let’s analyze our approach to traditional mobile services, where development follows three access. Growth; keeping the focus of gross ads, using promos rationally, and reaching M&P breakeven. These objective is important, because once TI reaches the M&P breakeven, we are convinced that the whole Italian market will decrease the focus on M&P which indeed burns up value in the whole market. Value; protecting the value of our customer base means making an endless offer segmentation and a more targeted approach to an up-selling rationale based on customer value. Our target is a gradual ARPU stabilization within the plan. Satisfaction and lock-in, quality standards, lock-in and retention action will tend to consolidate the relationship between TI and its customers. Our major target remains making our customer base grow in terms of number of active SIMs. This means a market share stabilization since the new multi-device approach to the customer, smartphone, tablets, dangles increases the total number of SIM cards.
Next please. Moving to the mobile broadband, TIM has developed two strategies in their mobile innovative services. Our leadership in the large screen business is to be protected based on keeping the gross ads focus as well as gradual churn reduction, which so far tends to still be high due to scarce level of loyalty, which is typical of a market which is still developing massively and with legal incentives to make a relationship last. Network quality and technological innovation will continue to be distinctive elements. Bandwidth speed growth will have to be coupled with the price-to-quality ratio. In the small screen business, we wish to encourage the market growth by coupling smartphone user with suitable pricing policies based on both, ARPU generation and customer satisfaction. Currently, no need for a generalized set of subsidiary is reported.
Fixed; also in the fixed business, TI three-year target is both protecting its customer base and value proposition. Customer base protection is based on our ability to keep a high flow of gross ads, defending our customer base and increasing flat and bundle penetration. Value proposition instead is based on the ongoing quality of service improvement and on our ability to differentiate through innovation. Our target is to further reduce the line losses rate reported in 2010, and at the end of 2013 reach a customer base of over 14 million users, and a 64% market share approximately.
In the fixed broadband, our plan is based on the idea of expanding the market by keeping value to the access. Our value growth number of connection in ARPU is based on offer segmentation coupled with a number of auxiliary services, the development of high-performance connection ADSL and fiber, the use of Internet on new devices like TV sets. We recently launched one of the most innovative over-the-top TV platform that require less bandwidth if compared to IPTV and tablets. The development of open platforms for content distribution. The target of this plan is to reach 8 million broadband access in 2013 with a gradual ARPU growth.
For the next three years, in the business segment, we confirm the approach adopted in 2010, distinctive value proposition, fixed mobile converging offering, mobile broadband professional usage increase, development of collaboration, a unified communication solution, exploitation of the cloud computing business. On the cloud computing, TI turned out to be an early mover and is now particularly focusing on infrastructure of the service and platform of the service, for which our end-to-end network control provides an excellent quality level to customers and a good profitability market for TI. The three year targets are protect our fixed business leading market share, further growth of the already high mobile business market share, and the development of ICT services with approximately 12% CAGR.
The second pillar of our strategy on the domestic operation lies in efficiency programs. Our 2011 target is to maintain domestic EBITDA above EUR9.4 billion, although with a different split compared to the recent past. Revenue decrease is expected to be in the order of minus 4% in 2011 will be partly compensated by a decrease in interconnection costs. Commercial costs will increase both due to handset as well as marketing and commission costs. The remaining efficiency share will therefore be achieved through industrial costs and G&A.
I’d like to spend the last few minutes of my presentation to clarify an issue associated to the impact of tentative review of mobile termination rates different from the glide path currently foreseen by the authority. A quickening decline of the mobile termination rate would cause a virtually no impact on TI EBITDA. Indeed in the mobile, TIM incoming revenues would decline proportionally to MTR decrease. Part of this lower level of revenues is intercompany, in particular fixed and mobile calls from TI customers, and would have no impact on consolidated EBITDA. TIM interconnection cost would decline more than proportionally compared to TIM mobile termination rate percentage, given that it would close the current gap within [inaudible] more quickly. This latter effect makes the net mobile component cost reductions slightly higher than the impact coming from revenue decline.
In the fixed, assuming that the whole mobile termination rate reduction be transferred on customers, a fixed mobile revenue reduction generated by TI wireline customer would occur, but also in this case, revenue reduction is coupled with a decline in interconnection cost. Once more, part of them is intercompany, does not impacting on EBITDA.
What are the takeaways of the plan? The takeaways of the plan are:
First, mobile business repositioning has been kept back on track. I’m confident at the recoveries to come. Customer base and voice revenues are showing the proper trend. Mobile broadband is an opportunity to catch.
Second, in the fixed access, we have to avoid price wars and defend the value, service, innovation and quality differentiation will trigger us to the expected results in terms of customer base and value. ICT service and mobile broadband need to offset the price decline in traditional services in the business arena.
We have been early movers and we have a structural advantage coming from the end-to-end control of the quality of the network-based services.
Four, we have to maintain our discipline on cash costs, investing more on the commercial side and offsetting the higher expenditure with fixed cost efficiencies.
So thank you for your attention, and I’ll [Technical Difficulty]
[Technical Difficulty] and good morning to you all. As a start, let me zoom a little bit on TIM Brasil results, mainly in perspective of our next short-term challenges.
I am at slide three. With the year 2010, we can say that the turnaround phase has completed. We mainly focus on strengthening foundation and balancing growth with profitability. In few words, I will say in equilibrium. In 2010, TIM was the operator with the highest customer base growth combined with an increase of profitability in the range of 290 basis points as EBITDA margin.
With revenues in excess of EUR6 billion, TIM confer to be the second operator in value, in Brazil, that is the fourth largest mobile market in the world. And at the same time, we combined this growth with a better positioning higher market share, and I would say a much more solid economics. With that, the EBIT and the operating free cash flow, net income jumped over EUR1 billion, even excluding the non-recurring impact of deferred tax compared to 2009 organic net income increased by five times. Net debt has been reduced down to EUR0.4 billion with a solid balance sheet and a debt-to-EBITDA ratio of 0.2. In few words, equilibrium of all KPIs, customer base growth, revenues rebound, margins, and cash.
Now, if I turn to slide four, what’s the lesson learned from this year? I would say that in a very competitive market as Brazil, there is the possibility to combine growth and profitability if we act with distinctiveness and innovation. We have some example for prepaid markets. We tried to skip the traditional approach and focus just on two very simple concepts. Charge per call versus traditional charge per minute and consider long-distance call at the same level of local calls. Thus creating the Infinity concept. Well, now Infinity concept for 38 million prepaid customers, the largest community across the country.
And postpaid is the same approach. We tried to skip the traditional handset SAC CV [ph] offering and leveraging the MoU. While Liberty postpaid concept after one year, accounts now for 2 million postpaid customers. As a result, in few, we have more people inverting the customer base erosion trend both on prepaid and postpaid. These people are talking more. We have doubled the total minutes of traffic with a much higher efficiency in the go-to-market, i.e. a solid P&L. In few words, I will say that the lesson learned in 2010 is that in Brazil, that is one of the most competitive market in the world. I think the third most competitive market after US and UK.
Innovation is crucial to create a company distinctiveness escape the pure price competition or the handset subsidy war. I think this is important even in perspective as a fifth operator is now entering in all the countries, and all operators as they need to have a balanced work between growth and profitability.
Well, slide five, a new data, a new source of growth it is the data arena. Markets realized that TIM was in delay in the data arena. Once we entered in this competition, in the fourth quarter, we entered with the same distinctiveness that we adopt in the traditional voice market. I put this slide just to show how innovation is crucial skill to skip traditional approach. We avoided heavy data packages effort and rapid price drop that could be dramatic in Brazil as a consequence of a few strong transmission networks. Well, what we have done, we have copied a successful model that we implemented in long-distance calls and leveraging the incredible hidden demand that there is in the market.
In Brazil, there are 26 million people that use to access through Internet mainly for social networks, but they do not possess a property access. It means that these people used to go in Internet café or LAN houses, spending a lot for one hour connection, and this could be a potential market addressable by the Internet mobilization. Most of these people are Class C people, and Class C people in Brazil worth for 50% of total population, i.e. more than 100 million persons.
Our innovation is trying to close the gap between this incredible high willingness to use Brazil as the highest time spent online in the world and the limited the willingness to pay or the country. For example, Infinity Web that is an offering for prepaid jumped to 1 million unit users per day in four months. I think this is important in perspective as most of the population will have adjusted mobile access to share Internet experience. While the responsiveness of the market is so incredible that I think once again we are showing how we can combine growth with profitability although in a competitive arena.
Let me zoom to the strategy and the perspective, starting from a photo of country characteristic. I’m at slide seven. We believe that Brazil is and will be an exciting country. And one of the top in terms of telecom market, especially in mobile. If we look from a mobile perspective, Brazil is already the fourth largest market in the world, with a total turnover in access of $32 billion and still growing, mainly because of social, economic transformation of the country. Brazil has approximately 200 million people with an average age of 29 years and the middle-class, i.e. the Class C segment that is booming. Well, this transformation is very important in perspective for mobile services evolution.
Class C potentiality depends on the fact that there is a huge demand and a hidden demand for using the mobile services. While we may to leverage these limited purchasing power and on the other side there is incredible high willingness to use mobile services, exactly like we did on the long-distance services. This is what we want to focus on, I mean fill growing demand with innovative approach, reducing the tariff is not enough to grab the opportunity, we need to create the market landing with low cost smartphone and introducing a new marketing scheme.
If I look at mobile and the telecommunication market in general on slide eight, what we do expect is that total market would grow around 4%, but the key drivers of growth are mobile voice and mobile data. I mean TIM is acting in the fastest segment of the market. On top differently from all our main competitors that has solid presence in the fixed line traditional business, TIM has no cannibalization risk or legacies to defend. And if we look at the lack of good fixed line [inaudible], the incumbents of even difficulties to offer that connection. It means that the switch off of traditional single play wire line business has no breaks.
Well, obviously, in a market that is expected to grow with the four players and soon five players, competition is an important point. The pressure by Anatel to reduce MTR cut could reduce the revenues or the margin growth in the very short term, but we have no doubt that in the long run Brazil has a very healthy and attractive market.
On slide nine, I’ll try to summarize our strategy. In few, we are quite consistent of what we did up to now. On one side enlarge our community, leveraging the natural expansion, the word of mouth of our customers, and increasing our market share in weak areas like Rio de Janeiro, Rio Grande do Sul. And this is the TIM distinctiveness, we are the only player that can really push the fixed mobile substitution, because of no legacy in the fixed line business. And it is the reason why we will continuous to increase MoU doubling it versus year 2010 average. And lastly, once we have built this very large community talking more, we need to bring them to the net. And this Internet mobilization is relevant not only for traditional Class A and B customer or postpaid, but even for prepaid and Class C mainly. That’s the reason why we will insist in small screen navigation. The global trend of dropping the handset price will help us and we will leverage our Infinity or Liberty concept in this data arena.
Turning to slide 10, in order to support this high MoU strategy with a fast-growing customer base and entering this data arena, we need to strengthen our network infrastructure. In terms of total capital expenditure, we are planning 8.5 billion reais in next three years, or let me say a CapEx over sales trend stables ratio reducing in perspective. For a perspective in 2013, we do expect a 15%, 16% CapEx over sales.
Which are the priorities we have in front of us? First of all increase network capacity mainly 3G to support voice growth. We will cover most of our current station with 3G technology in order to offer that access to all the customer in all the countries. And I will say most importantly, we need to strengthen our property transmission network, both with the fiber-to-the-antenna solution in main cities or microwaves rollout in the inner part. Well, all-in-all, I think that our capital expenditure are an important budget, but crucial to support this pure mobile infrastructure position in the long run. For 2011, we are planning 2.5 billion reais including the license acquisition for the spectrum acquired in 2010.
Well, on slide 11, let me summarize and conclude. What we do expect is to continue to create value for our shareholders, increasing our customer base. We are planning 58 million customers at year-end, i.e. continue to slight increase our market share and revenue share. We will double MoU of voice and we will double the incidence of data versus a current situation in terms of incidence of total service of revenues. Keeping the pace in terms of total top line means that we will pass from the current 5% to a let me say 7%, 8% next year, still with outgoing voice leading the growth and data contribution.
Lastly, but most important, profitability; we will continue to be efficient in the go-to-market and the SAC control. We do expect high single-digit EBITDA growth and progressive reduction of CapEx over sales. As a consequence of it, TIM Brasil will continue to contribute in terms of cash generation. Thank you very much. I will leave towards to Franco Bertone.
Thank you, Luca, and good morning to you all. I will be presenting Telecom Argentina 2010 results and 2011-2013 plan. Please refer to slide number three for the 2010 results.
Revenues in customer base increased for all of our businesses. Consolidated revenues exceeded EUR2.8 billion, posting a 21% or EUR483 million growth over 2009. Pace of growth accelerated in Q4 with 25%, revenue increased to almost EUR0.8 billion. The 12 months aggregate revenues from value-added services, data and broadband reached 35% of consolidated revenues growing at twice the rate. We retained mobile market leadership for the second year in a row, our estimated share of 2010 net ads was 46%. We launched our branded broadband fixed and mobile product for the mass market. This is still unmatched by competition. 2010 EBITDA at EUR926 million is 16% up year-on-year. And the net financial position at year-end is positive at EUR231 million.
Please turn to slide four for mobile business details. By 2010 year-end, we hit 16.3 million mobile lines in Argentina; this is an estimate 31.8% market share among the main three players posting a 1.2 year-on-year increase. 2010 share of estimated net ads was 46%, share of smartphone sales exceeded 50%. 3G devices are approaching 10% of base, and contractor subscription to prepaid ratio stay at 30.70%. ARPU grew 9% year-on-year to 44 pesos.
Text messages grew 34% to about 300 messages per month per user. Value-added services that included text and multimedia messaging, downloads, Internet, and other services posted 46% year-on-year growth to 3.4 billion pesos versus a 13% growth of voice services to 5.1 billion pesos. Combined voice and data services, revenue grew 24% year-on-year to 8.5 billion pesos.
Please turn to slide five for wireline business detail. Line in service maintain a positive low marginal growth as well as estimate market share among the two main players of this market. Those service tariffs and monthly fee remain frozen to year 2002 levels. The average revenue billed to users is up 5% year-on-year. This is because of existing customers increasingly subscribing to flat rate pricing scheme, including free local calls and supplementary service.
Broadband revenues reached 30% of combined wireline revenues, passing voice revenues net of their monthly fee. Broadband ARPU is up 14% year-on-year, partly because of signup discount and promotional running out and a greater proportion of customer base being billed at full subscription rate. Despite of this, broadband churn is under control and as a matter of fact is down to 1.4% per month from 1.8% per month in 2009, 30% of broadband net ad subscribe voice bundled product. And because of double-digit growth of non-regulated revenues, the regulator revenue share of wireline business was 7% down to 44%.
Please now turn to slide seven for an overview of the Latam market. The top chart display domestic telecommunication market size of the countries in the region. Market size is plotted against each country’s GDP per capita and are estimate service revenue growth rate in the 2010-2013 timeframe. The chart at the bottom show the service penetration rate of domestic market over population for mobile and over household for fixed broadband and pay TV. Pay TV figures are relevant particularly for Argentina as cable is a strong competitor of Telcos in the fixed broadband market.
Argentina is a mid-sized marked in the Latin American context, is valued at $10 billion per year. It has a greater than average expected growth rate in the next three years, although it ranks at the top in terms of service penetration. Argentina ranks number two in the region with 129 mobile penetration, being second only to Uruguay 135%. And Argentina ranks number one in both fixed broadband and pay TV with respectively 37% and 65% penetration of households.
Please turn to slide 8 for a snapshot of Argentina telecommunication. There are three main mobile players. Personal is our brand and competes with Movistar and Claro with an estimate of 31.8% market share. Having reached 51 million mobile lines, Argentina stand at 129% penetration of population, significantly above Latam average 97%. There are also three main broadband players among with a number of a smaller enterprises and that is Arnet and competes with Speedy of Telefonica and Fibertel of the Clarin, Cablevision Group. We have estimated 35.3% market share and among the main players that operate a combine ADSL and cable modem of 3.9 million broadband lines.
Argentina broadband penetration stand at 37% of household versus Latam average 23%. Telecom and Telefonica are by far the main wireline players in the market, though a few third parties also exist at regional level. The two main player operate over separate areas with very limited overlapping. Our estimated market share is close to 47% of the combined 8.7 million lines, corresponding to a 67% penetration of our household versus Latam average of 55%.
Please turn to slide number nine to address the Argentina regulatory environment. Current framework for wireline business features regulated voice tariffs frozen at 2002 price, while broadband business operate in market price. Universal service obligation remain in place for the main players with no requirements for cash contributions. Telcos are currently prevented from triple play. Number portability is expected to come into play within the next three years. Video services are likely to be delivered under existing value-added service licenses. Plans have been put in place by federal and local government to deploy telecommunication infrastructures and establish wholesale operation to interconnect existing broadband [ph] with local retail operators such as the telephone cooperatives.
Current framework for mobile business calls for number portability by 2011 year-end. Terms and conditions are being discussed between established operators and the telecommunication authority. Mobile business currently operates at market rates and a 50 megahertz frequency cap is in place. Spectrum is not allocated to specific technology. It’s a 850-1.900 megahertz auction within current frequency cap is expected in 1H11. A subsequent 1.700 megahertz-2.100 megahertz spectrum auction with separate frequency cap has been announced for advanced wireless services. It is expected that fixed to mobile calling party pays shall shifted to mobile termination rates over time.
Please turn to slide 10 for the main goals and action plan for mobile business. We shall consolidate our vast leadership delivering strong growth and better revenue. And we shall aggressively increase the penetration of smartphones and tablets in our customer base and further develop the youth segment and social networking. To achieve these goals, we shall upgrade capacity, quality, and coverage of our 3G network, we shall put in place a handset upgrade plan with 3G devices for existing customer, and bundle data and social networking pricing plans.
We shall also develop appropriate prepaid schemes to extend mobile Internet to the mass market and implement your loyalty targeted customer care programs ahead of number portability due date. We expect our mobile lines to hit 17.6 million by 2011 year-end and to grow at 5% CAGR until 2013, with ARPU growing at 12% CAGR, averaging 50 pesos per month in 2011. I’m sorry there is a misprint in the slides and figures shown as 2009 and 2010 really refer to 2010 and 2011. Our business model shall further evolve being less biased towards new ads and mainly for just to generating value through developments of the customer base and further growth of value-added services.
Please turn to slide 11 for the main goals and action plan for wireline business. In this slide again, there is a misprint about the 2009, 2010 date that should be read as 2010, 2011.We shall increase broadband penetration among our customers, develop the ICT market deleveraging on our state-of-the-art datacenter facility, and we shall market video services. To achieve these, we shall upgrade our local loop infrastructure to increase bandwidth, we shall introduce video-on-demand, content delivery, and connected home applications, and keep migrating our customer base for – from permitting voice charging to flat pricing plans.
We shall develop also supplementary service offers on top of basic telephony. We expect our broadband lines to hit 1.5 million by 2011 year-end, and to grow at 7% CAGR until 2013, with ARPU growing at 14% CAGR, averaging 87 pesos per month in 2011. Our broadband and data revenue should grow to 42% of wireline revenue by 2011 year-end.
Please turn now to slide 12 for revenues and EBITDA outlook. 2011, we expect our revenues to grow 21% year-on-year to exceed 17.7 billion pesos. Value-added service plus data, plus broadband revenues shall grow 32% year-on-year as their share of consolidated revenue shall increase from 35% to 38%. Mobile and wireline revenues are expected to grow year-on-year 24% and 12% respectively. EBITDA is expected to exceed 5.5 billion pesos, keeping a strong focus on efficiency where a leaner cost structure result from integrated fixed mobile operation, lower interconnection cost driving from increasing on net traffic, though labor related cost will keep growing.
Please turn to slide 11 for CapEx. Consolidate, aggregate, commercial and industrial CapEx is expected to hit 3.2 billion pesos and 18% of revenues. Key investment drivers are, expand a deployment of IP backhauling to improve mobile broadband user experience, expand mobile coverage to reduce domestic roaming cost, expand secure and integrate backbone networks and IP platform, deploy content delivery capabilities in our network, and upgrade our IT solution to improve customer care, provisioning and business operation.
Please turn to slide 14 for your Telecom Argentina main takeaways. We expect Argentinean market to grow in fixed and mobile broadband, ICT and data, over-the-top video. This is our competitive edge. We are focused on innovation and customer care. We operate a state-of-the-art infrastructure. We enjoy top brand recognition and we have a full integrated operation delivering CapEx and OpEx efficiency gains, and we have a convergent view on product development. Our business model has proven a track record of sustainable growth of revenues, margin and market share. Our cash generation is strong and we have reduced FX exposure. EBITDA, CapEx evolution shall deliver operating free cash flow in excess of 7 billion pesos in the 2011-2013 timeframe.
This was my presentation. Thank you for your attention. And I’ll turn the call back to Franco Bernabe.
Thank you, Franco Bertone. Now, let’s go to the key takeaways and the plan targets. As you’ve heard, today we talked about a more diversified group that is now better equipped to capture growth opportunities in two of the most attractive emerging markets, and to strengthen its position in Italy where the bulk of our cash generation still lies.
The weight of revenues from international subsidiaries will reach 36% in 2013 from 14% in 2007 and we underpin a low single-digit top line growth in the plan horizon. All this, given the same regulatory conditions. The results coming from our telecom markets will be key to delivering sound free cash flow generation at the Group level. This was, is, and will remain a key priority to be achieved through a continued focus and cost efficiencies and a selective approach to CapEx devoted to business driven projects.
All the above will allow us to generate the cumulative operating free cash flow of more than EUR22 billion in the period 2011-2013. EUR11 billion of cash taxes, financial expenses, and other non-operating cash items will have to be deducted from the previously mentioned amount. The cumulative free cash flow will therefore amount to approximately EUR12 billion. Strengthening our balance sheet through a continuous deleveraging is indeed confirmed as one of our main targets for the next two years.
Thanks to the significant amount of cash generated by Telecom Italia, we confirm all our deleveraging commitments that will lead us to an adjusted net financial position of approximately EUR25 billion in 2013. And we commit to our growing dividend policy with a pace of approximately 15% of yearly growth in the next three years.
In 2011, the Group expects to maintain broadly stable revenues and EBITDA, attain a lower CapEx level at around EUR4.8 billion, and reach an adjusted net financial position of approximately EUR29.5 billion.
I think this summarizes all the key targets and I want to thank you for your attention.
And now we’ll move on to the Q&A session, which will be divided in the following way. We will have first – we will be answering first the questions that are coming from the web. And we will – and then we will go live and we will answer to all your questions. I think that this session will end approximately 12:00-12:15.
Now, we will go on, from the website, first question is from Micaela Ferruta, Intermonte. The question is, do you expect tough competition in the fixed broadband market to continue in 2011 and line losses to go up as a result? And do you expect your market share in broadband to decrease?
Second question, what kind of price compression should we expect in 2011 in mobile? And is the decline of interactive in fourth quarter 2010 a one-off? These are the two questions from Micaela Ferruta and Marco Patuano will answer to these questions. Marco?
Thank you Franco. Referring to the first question, for the next year, we look for a stable year-on-year growth of the overall broadband Italian market, almost 800,000 net adds. With the market dynamic being less aggressive, that’s what we witnessed the fourth quarter, which we believe it is not sustainable even in the short term. Don’t forget that some of our competitors have raised prices for their entire existing customer base few weeks ago. While they are having promos only for the new customers and probably at some point in time this may create a loss in the customer satisfaction. As I said more than once, we will not follow them. We will keep our focus on quality of service, innovation. We are convinced that quality and innovation can sustain win back from our competitors. The first reason for competitor’s customer churn is related to technical problems. And the other thing we are strongly focused is to sustain the ARPU premium. The access – for the access market, we target of course, a decline in line losses. But for the next year we look less than 600,000 line losses; so still improving versus 2010.
For the broadband net adds, we take a challenge. We assume that broadband net adds should be in the region of 300,000. We want to increase our margin or market share on net adds.
In 2011, and I am going to the second question, which is price compression in mobile. I personally assume significant decrease in competitive price pressure. Lower use of two aggressive promos, I assume an offering rationalization and a progressive price stabilization. So, this is what I assume.
Now I have a second question for Marco that is coming from Adam Gileski of Goldman Sachs. The question is domestic operating expenses dropped by 12.2%. This was a faster pace of decline than in previous three quarters. First, explain the higher than average decline in domestic operating expenses. Second, is the higher than average decline partially explained by a stronger than usual reduction in advertising expenses? And third, it appears that competitors were more promotional and Telecom Italia was less promotional this quarter. Is this true? Marco.
Okay, first. The efficiency program. Well we said when we presented the results of the first three quarters, we anticipated that we would have achieved more than 100% of the full year 2010 efficiency target. And so this means that we already foresee an acceleration in Q4. The extra saving in OpEx does not come from commercial costs. It comes mainly from personal costs. So the – and I answer to the second part of the question. The effort in advertising costs will be stable for the coming months. So, we don’t – we will not reduce advertising and other commercial costs. We will follow a quite rational approach with very high selectivity and target-based segmented approach.
The third is the one I just want to spend a little bit more time. Let me split between fixed market and mobile market. Fixed market, differently from the first three quarters, fourth quarter I said several times has been characterized by an all-out stronger aggressiveness in terms of prices. We assume that it will not be sustainable. We said more than once that no more pressure of this type can be continued in the coming quarters. We are working on channels. But – I mean sales channels, but Telecom Italia level of promotion will remain substantially unchanged.
More interesting is the mobile. Vodafone enhanced their strategy because they had to defend their customer base. And they launched a full range of EUR0.01 options in response to our range of TIM [Pair] and TIM Tutto Compreso offering portfolio. Vodafone massively invested in above the line and below the line to push the new range on the customer base. And they did not apply any activation cost. On the contrary, Wind followed along its strategy. They are still focusing on new acquisition. They are enriching it’s of range of option with offer for high spenders and strengthen the push on postpaid advertising.
We increased the acquisition pressure, but capitalizing on the richness of our existing portfolio. What we changed have been a stronger offering for mobile number portability in which we doubled the value of the recharge. And the second has been a push on the high value postpaid segment adding solutions in which we added the smartphone. And the smartphone is interesting both in terms of service and product lock in, and to make the customer base more loyal. So in general, all competitors are reducing the aggressiveness in seasonal promos, in line with the portfolio strategy. And there is a focus on renewal options.
Thank you Marco. There is another point that Adam Gileski wants to make, is from the web. According to Adam’s calculations, Telecom Italia generated about EUR1.6 billion in free cash flow in fourth quarter of 2010. Of this amount, approximately EUR1 billion EUR470,000 can be explained by the release of working capital. So Adam has got two questions. Please explain whether this release of working capital was unusually large compared to the fourth quarter in previous years. Second question is what are the working capital trends for first quarter of 2011? I will ask Andrea Mangoni to answer to this.
The working capital contribution to the cash flow generation in the last quarter last year was more or less EUR1.4 billion in comparison to the EUR1.3 billion in the last quarter of 2009. So we are more or less in line. Talking about the first quarter 2011, we foresee working capital contribution to our cash flow generation more or less in line with the first quarter 2009.
There is a question coming from Mr. Coco, Banca Leonardo that asks us if we expect – we are expecting to reduce that by EUR6.5 billion in the three years after paying around EUR4.5 billion of cumulative dividends. Can you tell us how much of the 6.5 debt reduction related to TIM Brazil and Telecom Argentina?
Well, you have seen the presentation by Luca Luciani and Franco Bertone. And you have seen that Argentina over the next three years will generate approximately 7 billion pesos of operating free cash flow which is approximately equal to EUR1.4 billion. If you make the proportional contribution of this, you come up with approximately EUR0.2 billion, EUR200 million.
Brazil in the same period will generate more than 6 billion reals of operating free cash flow, which corresponds to approximately EUR2.4 billion. And again, the promotional contribution of this is approximately EUR1.6 billion. So I think that this gives you the right figures to do your math on the debt reduction side.
Then there is another question for myself, which is coming from [Mr. Kardani of Central Banca]. Shares buyback, [Mr. Kardani] is asking, have you got an estimate of the effective size of the buyback and which conditions would determine the size and the timing?
Well, to tell you the truth, I mean the request for authorization for the buyback is simply intended to give management a degree of flexibility with respect to the potential market opportunities. Now of course this flexibility will be only exploited if the margins of the debt reduction targets are met and all the targets that we have announced today are met. So, I mean it’s just an opportunity if and when conditions arise to be ready to seize any opportunity for creating value to our shareholders, but we have no definite plans so far for implementing this decision of the Board of Directors yesterday. So I think these are the questions that are coming from the web. Now we are ready to take questions from the floor. So please whoever has questions, be ready to ask.
(Operator Instructions). The first question is from (inaudible) please.
Hi good morning gentlemen. I have got a couple of questions if I may. And they are both related to the domestic business, the fixed and the mobile side. On the fixed side, my question would be on the contract you lost in 2006 to Consip. Could you please quantify the impact you had ever since on line and revenues for the loss of public administration contract and is it possible to have some color when Consip will award the new framework agreement and is this any – there is anything from this agreement in your guidance today?
The second one is on MTR. On that time I had – unfortunate to ask you to repeat because I was cut off from the call when you were talking through the impact of MTRs on your topline for domestic mobile. Could you just quantify how much the MTR cat will impact your topline? And then you were talking about the sensitivity to your topline for change in the glide path. Thank you very much.
Yes, well Consip first. When we lost the previous Consip bid, we lost approximately 35% of our installed number of lines with the public administration whose acquisitions was under the Consip frame agreement. Now, after the technical evaluation and the economic evaluation, we rank first, which means that we can get the largest, let me call it pack, which is 75% of the total number of lines. Now, the process have to pass through the board of Consip. After the board, there are technical verifications and technical proofs that have to be done with the SNE [ph]. And we assume that starting from July 2011, we will see the new conversion in place. Now since these technical results were known, the answer is yes, the current plan assumes that we are the winner of the part accounting for 75% of the total lines.
So the impact – now moving to the MTR, the impact on the topline for 2011 is approximately EUR200 million, both fixed plus mobile with the current glide path.
So we do not – let me say, we just made – just give you some color of what could be the result since there is a lot of rumors that a different glide path can happen, but today we don’t want to make any forecast of a different glide path. In any cases I explained any glide path will be decided the effect on our EBITDA is almost zero.
Thank you Marco. Next question please.
Next question from Mr. Luigi Minerva from HSBC. Mr. Minerva, please.
Luigi Minerva – HSBC
Yes good morning. Two questions please. The first one on domestic fixed line and whether you would consider accelerating your fiber plans, as the right strategic response to the pricing pressure that you have seen over the last quarter. And also probably on this subject, if you can make a comment on the last press article talking about an infrastructure company with a private-public partnership on a national level.
And second on the mobile broadband – sorry – mobile – on domestic mobile, whether you would consider to align your strategies to your European peers and start charging for data usage using your data plans which is showing some signs of rise in power in other European markets. Thank you.
Yes, on the first question, acceleration of fiber. Well, first of all, it does not depend on us for a certain degree because as you know we have to have a policy approved by the regulator. So far we have given the improvement for – the approval for commercializing a limited number of lines with a very specific wholesale offering. Before we complete the entire structure of wholesale offering it will take a longer period of time. So certainly this year we will not be commercializing except very limited amount of lines. In the next few years, I think the process will – the pickup of fiber will be very gradual and we will follow the market. And therefore, we don’t envisage any acceleration except there is such an enthusiastic take-up by the market that we will certainly respond appropriately.
On the second point, that is the infrastructure. You know that there is a (inaudible) at the economy ministry. This is dedicated – the work is dedicated to a company that will be providing passive infrastructure. Of course, this company needs to have a business plan that can be financed, that can be supported by all the operators. So far we are in the middle of the discussion. We will see if we come up with a sound conclusion that makes sense for those that will finance the company and those that will be participating to the company. So I think again it will take time to see whether we reach the right solutions.
On the third question that is mobile, I will pass it to Marco to answer.
Thank you Franco. I assume that you are referring to data roaming traffic because in the national broadband mobile, our pricing is one of the most convenient Europe-wide. And also the smartphone pack is really very competitive if you compare with the rest of Europe. Roaming data traffic, of course, does not depend only what we decide. It is also – one component comes from the visited network prices. Of course, there are operators with a European footprint that can leverage on their European network. We are working already with operators in order to offer solutions country by country in which our customers can have data roaming at a very competitive and interesting price. Furthermore, a discussion, let me say a broader discussion is ongoing and also in Barcelona we discussed these at industry level.
Luigi Minerva – HSBC
I apologize, maybe my last question was not clear enough. What I wanted to ask is whether you would take an approach in mobile data tariffs whereby instead of charging say a fixed amount for a limited data usage, subject to the fair usage policy, you would rather consider charging on a – for data usage in blocks of 250 MB per time for example which could be more – reflecting more the pressure put on networks from the increasing data usage.
Well, once again, we have to differentiate large screen and small screens. In the large screen, what you say is absolutely correct. We are looking to different solutions. The market, of course, what the market is asking is for unlimited solutions with a real flat rate. So what we have to answer is have a concept of almost unlimited with the concept of fair use but at a price that have not to cannibalize the ADSL. So keep the price at the proper level and differentiate the quality of service, what I mean is that we have to introduce different prices for different speed at different priorities. And these, I assume that these would be next frontier if we want to differentiate prices in the large screen. In the small screen, I think that it’s really a no problem if we look at the traffic itself today. So what is important is to avoid that operating systems tender to develop or allow the developing of solutions that are too invasive in terms of signaling for example which is very heavy for the network. And the other is machine-to-machine solutions, machine-to-machine solution are growing quite faster. The ARPU is of course relatively limited.
They exchange very little data, but they exchange a lot of signaling. So I think that these are key elements. And by the way our offer is already in the sense you are mentioning. We offer for EUR2, 250 Mega per week. And after the 250 Mega, you pay another EUR2 for the following 250. So we are exactly in the strategy you are mentioning.
Ottavio Adorisio – Société Générale
Okay, thank you.
Thank you, our next question please.
Next question from Mr. Giovanni Montalti from Cheuvreux. Mr. Montalti, please. Mr. Montalti?
Giovanni Montalti – CA Cheuvreux
Yes, sorry can you hear me?
Yes, go ahead please.
Giovanni Montalti – CA Cheuvreux
Sorry, just had a question if I may, the first one quick follow-up on concept. If you may confirm that your market share with the public administration is – the current market share is building inline, let’s say with say with the 75% or at around 70%, I mean the percentage that would be you recognized by the new concept you were mentioning. Second one the buyback, I wanted to, let’s say I understand it is just an option you are considering, but I wanted to understand what are the drivers that push you to consider these option now, let’s say quite record for years. So I don’t know if maybe you might consider or why you are not considering a conversion of the (inaudible)? Thank you.
I would be very synthetic. Your interpretation is correct. So I confirm what you said.
Giovanni Montalti – CA Cheuvreux
On the question of buyback, I think I answered already saying that this is an option that we want to keep, and given the fact that what we have shown in the last year, but also in the years from 2008 is that we have really committed to the deleverage program, and we think that we will be able to achieve the deleverage program that we have given ourselves.
So I think that the progress that we are making in the reduction of that will allow us to find more flexible solutions in order to increase the total shareholders remuneration. We don’t have any specific plan now, but we are certainly encouraged by the fact that our targets are being achieved to explore all options that are available. So we are simply through this decision, the Board of Directors has simply indicated that it wants to keep all options open, because it is confident on the deleveraging program and it wants to optimize the use of the cash that we are generating to the benefit of our shareholders.
Giovanni Montalti – CA Cheuvreux
May I just follow-up very quickly.
Giovanni Montalti – CA Cheuvreux
Thank you. Now about what you were saying, I wanted to understand if you have somehow I don’t know had to portrait it to let’s say assess, use the option you are considering now with your directing agencies. Second, again don’t you find a conversion more of let’s say operational [ph] financially speaking considering your overall situation of the company. And third, if I look at your targets for 2011, I know I mean before we didn’t have 2011 target, we had 2012 target. But let’s say that this target 2012 was somehow pointing to some growth both the top line and the EBITDA level. Now you are forecasting us a 2011 flat both at the top line and the EBITDA level, now depending effect that the perimeter is a much better mix because you are including Telecom Argentina that has much stronger growth profile. So somehow it seems to me that even on the target side let’s say the outlook is that it beats less optimistic probably, because you are more concerned on the domestic side. So I mean it seems to me a bit difficult to mention to use let’s say strong push on the shoulder that markets foreshow will appreciate, but I cannot really understand how these can, fits with the operational momentum you are still facing?
On the conversion, conversion of course is an option that is reasonable to consider, I think that everybody looking at the structure of our capital considers this structure inefficient and therefore we necessarily think at every option that will this structure more efficient. But thinking, that the structure is inefficient and does not mean necessarily that we have plans to convert. Of course achieving the targets that we have given ourselves, deleveraging will mean that probably if we reach a point where we consider that it can be done, we will probably consider this. But at this point in time I think it’s much too early to think about anything like this.
Your question on the rating agencies, of course we have shown this, the rating agencies know about this, but we have clearly indicated to the rating agencies that our key priority remains the deleveraging program and this is simply an option. So it’s simply a flexibility. It only indicates that we are confident about the future outlook and therefore we want to keep our options open, and we want also to be prudent, one of the things that we have done in the past three years and that has allowed us to be very effective in achieving the key targets that we have indicated is the fact that we have been very prudent. And we want to maintain prudence medium term, as long as until we reach a position where in terms of financial structure, we feel we are completely out of the limitations and the constrains that we had in the past.
Giovanni Montalti – CA Cheuvreux
Thank you. Next question please.
Next question from Mr. Mandeep Singh from Berenberg. Mr. Singh, please.
Mandeep Singh – Berenberg
Thank you very much. The question I really had was on the domestic revenue and EBITDA guidance. You’ve guided that domestic revenues will decline around 4%, and you’ve also guided to about EUR9.4 billion of organic domestic EBITDA. If we look into the trends that you’re talking about in terms of operating trends and customer subscriber trends on the mobile business, what we suggest is that your fixed line business will decline quite significantly, but you’ll see a very significant improvement in the rates of decline of mobile. So could you just give me some more color around that, and potentially repeating what you said earlier on how could an MTR cut have implications for the revenue picture obviously fixed line revenue is coming down, and no implications for EBITDA, I just want to send the dynamic of that revenue picture please.
Marco, can you please answer to this?
Yes. In the mobile, the process of the recovery is ongoing. Sorry, last year we did a lot of exercises in telling you when we would be back positive. So this year I don’t want to be in the same position. But it’s clear that we have a part that gradually drives us versus a positive trend. As you correctly said, the key element of this dynamic is the number of calling customers, the number of calling customer we see is on track. We have to be – to look carefully the dynamics of some seasonality’s last year, seasonality have been missed in summer time, and as everybody knows for example, the recent seasonality in the business side at the beginning of the year.
So I would say that if we forecast and sorry, we are looking quite carefully our different markets. So consumer is one story, there is small medium enterprises, there is another recovery story. And top customers we have to defend a very good performance we did last year. So we have three stories quite different, and the story is consumer. We’ve spent almost on my presentation in a strategy that is quite consumer oriented. So I have very little to add. Business, we have to keep our price premium to defend a very high market share we have, and we are working in order to push the adoption of innovative services also for the small medium enterprises, that up to now have been very reluctant in doing it.
And in the large customer, so the problem is very simple, every time there is a renewal of a contract, the customer asks for a significant discount that we have to respond. In the fixed, once again, we gave a target of almost 600,000 line losses. We gave an indication of what we intended to do with the broadband which is higher marginal market share. In order to do these, so those two elements joined with the dynamic, we never talk about dynamic of the wholesale, also the wholesale is continuing to perform substantially in line with the previous years. So we assume that these are the key elements of the story for the top line.
For the EBITDA, let me give some more color on how much, so I’ll give you an idea of how much we have to reinvest in order to be on track with this plan. We assume to spend more in terms of marketing and sales. Today we are planning something around EUR300 million in the next year. And we have on the other side some measured costs that can be optimized like for example, customer care. We are still in a process of saving money from the customer care, both internally and externally.
And so the key drivers of the savings are personnel, almost EUR200 million and industrial and G&A. In industrial and G&A we assume another EUR200 million, more or less. And that’s it.
Next question please.
Mandeep Singh – Berenberg
Okay, could I?
Yes, please. Go ahead.
Mandeep Singh – Berenberg
Sorry, I just had a follow-up question actually on the Telecom Italia savings, can I go ahead.
Mandeep Singh – Berenberg
Okay, so look I appreciate the answer you gave to the pervious couple of questions but on the savings, clearly your incremental leakage on dividend is around EUR65 million per annum, in NPV [ph] terms, depending on however you want to discount that, it’s potentially 4% or 5% accretive to the group equity value to do a conversion. So I’m sort of struggling to understand the lack of interest in doing something, I mean I appreciate you don’t want to make a commitment, but I don’t understand the logic behind not giving a clear direction on that?
Yes, there is a very simple logic. I understand that the savings are inefficient. We are all aware of this and we think that in perspective, value could be created but we have no plans at this point in time.
Mandeep Singh – Berenberg
Okay, thank you very much.
Next question from Mr. Stanley Martinez from Legal & General. Mr. Martinez, please.
Stanley Martinez – Legal & General
Hi good morning gentlemen and thank you for taking my questions. I have two questions please and both pertain to the South American operations. First in Argentina, I know that Telecom Italia had further increased their economic stake during the quarter to 18.3%. Do you intent to be able to increase TI’s economic stake further still, and if so how might that occur and at what timeframe? And secondly in Brazil, the potential for TIM Brasil to convert to Nuovo Mercato [ph] structure, would not only improve governance but the look through valuation for Tim Brasil and to TI as a whole. And as TI is committed in a very long-term way to Brazil, I don’t think giving a 100% tag-along rights is really in the money option. So therefore would TI support TIM Brasil’s potential conversion to a Nuovo Mercato listing and if not why not?
I didn’t get the last point. Excuse me, could you repeat the last point.
Stanley Martinez – Legal & General
Well given the advantages that would seemingly accrue to Tim Brasil relisting as under a Nuovo Mercato, I would be interested in whether Telecom Italia would support that potential listing and if not why not?
On the first on Argentina, the answer is as I’ve declared in the past as well, that if and when opportunity arises we will be increasing our participation in Telecom Argentina, of course you know that we have first to understand much better the company. We have regulatory constraints, but definitely it’s something we want to explore very thoroughly, but of course it will take time.
On the second, the Nuovo Mercato, we consider that the Nuovo Mercato is an option, but again we have no plans yet for the Nuovo Mercato.
Stanley Martinez – Legal & General
If I can just ask a brief follow-up on the fixed question to Bernabe, would you anticipate that if you were able to increase your stake in Telecom Argentina that it would simplify the control structure and at what point would you anticipate that you would actually be able to upstream dividends to Telecom Italia from Telecom Argentina, might that be in 2012?
Yes, I think that we have – by 2012, we will be, excuse me, now look, we will be exploring the possibility of increasing if and when the opportunities are there. I think that we will be considering of course a larger share than we have now, but there are no precise plans so far.
Stanley Martinez – Legal & General
Okay, thank you very much.
Next question from Mr. Justin Funnell from Credit Suisse. Mr. Funnell, please.
Justin Funnell – Credit Suisse
Thank you, a couple of questions please, maybe I missed it. Do you have any numbers on what your calling customer base did – your active calling customer base did in the time of during Q4, that’s the first question? Secondly, your interactive VAS revenue in domestic mobile weakened in Q4, a slightly surprising trend despite, and despite smartphone sales. Could you explain that at all? And the finally in Brazil, I guess about three years ago you had huge falling growth but you’ve ran into network quality issues, you’re obviously planning to expand network quality which is understandable, but you’re actually running into quality issues today given the success you’ve had. How’s it going with drop calls and customer satisfaction please?
First Marco and then Luca, or Luca do you want to answer first?
It’s the same.
Thank you. Well the problem of the network two years ago or three years ago was that mainly because a lack of 2G capacity. Most of the effort we put in our investment plan up to now was exactly to strengthen the traditional 2G access, I mean we basically remix the capital expenditure in two direction. We squeezed the commercial part dedicated to the subsidy and we increased the company dedicated to the infrastructure. Within the infrastructure, we delayed the 3G rollouts and on the other side we doubled the 2G capacity in terms of TRX installed. This choice let me say quite a regional consider what a regional two years ago in the market, net after two years so we are the only company reporting eighth month consequently top scoring in terms of network quality.
What does it mean? It means that the effort we put on the old traditional 2G network is crucial for us, and is the key reason why we continue to invest a lot in it. On top, 3G rollout in terms of access is let me say quite cheap, because of the price of electronic equipments dropping fastly. What is crucial is the transmission. In Brazil, you don’t have an wholesale market for the fixed line so that is crucial to develop for property transmission. That’s exactly the reason why would both interlink, that’s the exactly reason why we are developing property backhauling infrastructure.
Okay, on the active customer base or calling customer base, we are – we improved. We now are above 80% which is I would say extremely good if you have in mind that such a huge percentage of our customer base consumer is prepaid and just few time ago, it was around 70%. So this is a good result. When you ask about prices, I assume that your main focus on prices consumer. Prices consumer have showed a stabilization starting from, I would say beginning of December, which is not 100% correct, because during the Christmas campaign prices tend to go a little bit up for some disoptimization in the traffic routes by the customer.
In the business and enterprise, prices of course are going a little bit down as I mentioned, given the fact that there is an important pressure every time there is a renewal. What is extremely important is that the renewal of the concept mobile has been down without any price discount to be more precise, the outgoing towards other operator increased slightly which is particularly good for us. So and this is a sizable agreement.
Justin Funnell – Credit Suisse
Okay, just to clarify my question, if you can still help me. There were some interactive VAS revenue, I guess it’s totally unsecured [ph] question but the revenues year-on-year worsened and fell sequentially in an industry where we’re seeing smartphone adoption booming. Can you explain that at all please?
Yes, the portion of these – well there is a portion which is we have to see it together revenues and costs. We dismissed some agreements like for example, the one for the soccer and which was a related to the DVB-H agreement that gave us revenues and costs with approximately no marginal or even negative margin I would say, negative margin. And the other traditional interactive services tend to go down given the fact that they are substituted by the web access. So people search this content directly in their web which is quite common. So we have to push more in the packages for the sale of access, mobile web and access.
Justin Funnell – Credit Suisse
Thank you very much.
Justin Funnell – Credit Suisse
Thank you. Our next question please.
Next question from Mr. Frederic Boulan from Morgan Stanley. Mr. Boulan, please.
Frederic Boulan – Morgan Stanley
Hi good morning, two quick questions please. First of all, on the domestic EBITDA, you almost stabilized the trend in Q4, only 0.5% reduction year-on-year, your target for next year is on minus 4%. So you’re being conservative or do you tend to inject some of the OpEx into commercial efforts. And if you could touch on your 2012 target which is to be above EUR10 billion for domestic EBITDA, I guess it’s something which is not fully accurate any more. Second question on the mobile side, there is fairly aggressive plan to grow subscribers in the next three years, I think four million additions, similar growth rates we saw in ‘06 and ‘07 when the markets was very strong. Is this a pickup in market growth and increase in share or is this driven mainly by a machine-to-machine and iPad etcetera with lower ARPU levels? Thanks a lot.
On the EBITDA, but then I’ll ask Marco to answer. On the EBITDA, I think that we are not being conservative I think that the economic turnaround, the macroeconomic turnaround in Italy is not yet there. We have to be prudent, we have to be – we need to invest in our commercial operations which we have not start doing in the past of course, but we need to sustain the commercial effort of the company, and therefore I think that what we stated in terms of EBITDA is a fair expectation of the combined actions that we are planning for the year. On the mobile, I’ll ask now Marco to answer.
Yes, you are right, when you say that there is an increase of multi SIM card for the same customer. And which is – the difference is that today this multi SIM environment starts to add ARPU on every SIM. When I was in Barcelona during the GSMA meeting, talking with tablet producers, they were forecasting this whole 2011 which is let me say not just the starting, almost one million tablet sold in our market, (inaudible) goals will continue to increase. So we assume that these will be a phenomenon exactly, machine-to-machine is another important element. Today, just to give you a figure, we have three million SIM cards that are machine-to-machine. And we assume that this is extremely important for the future.
The demonstration that you’re right is in the market share. So we are forecasting an increase in number of SIM, but we are keeping the market share substantially stable.
Frederic Boulan – Morgan Stanley
Okay, thank you very much.
Just to clarify the point that you made before because you mentioned a figure that is I think minus 4% on EBITDA, but if you do the math, it comes out at minus 3%, not minus 4%.
Frederic Boulan – Morgan Stanley
Okay, I just took 9.4% or 9.8% but I guess, yes. Okay, excellent.
Okay, next question please.
Next question from Mr. Tim Boddy from Goldman Sachs. Mr. Boddy, please.
Tim Boddy – Goldman Sachs
Yes, thanks, a few questions if possible. Could you talk about whether you’ve included spectrum purchases both in Italy and in Brazil in your guidance for the coming years? Could you comment a bit about foreign exchange, what rates you’re assuming in Argentina in terms of inflation, and how should we think about the growth you’re seeing in Argentina translating into reals euros? Thirdly, could you just talk a bit more about OpEx flexibility? If competition is sustained and the reduction you hope for doesn’t take place, how much flexibility do you have to pull forward your cost cutting plans as we saw you do successfully in 2010? Thank you.
On the spectrum, I think we have fairly complicated situation because before auctioning the spectrum, I think it has to be freed up for use. I’ll ask however Oscar Cicchetti to give an answer on the future spectrum auctions in Italy. And then I’ll ask Luca to talk about the spectrum auctions in Brazil. And finally on Argentina inflation and the macroeconomic environment, I’ll ask Franco Bertone to answer. And then I’ll answer on OpEx flexibility. Oscar?
Yes, there is an auction for a new spectrum that for the time being is forecasted within this year. The spectrum bands and blocks that will be auctioned should include six blocks of 5 megahertz paired in the 800 megahertz band. Three blocks of 5 megahertz in 1.8 gigahertz band, and 14 blocks of 5 megahertz paired in 2.6 gigahertz band. The proceeds that are expected from this auction should be at least EUR2.4 billion. The auction is likely to be held in September 2011, but we believe there are still many uncertainties some days because for many reasons. First of all Educom [ph] public consultation process is late and the timeframe seems really very, very tough.
Second, the frequencies in the 800 bandwidth that is I think the most important should be available for the (inaudible) before the end of 2012. But there are a lot of doubts on the day, given the turbulence on the real – and the spectrum real location driven by local TV broadcasters. So all those uncertainties tell us that we have to wait to understand that this auction will really take place within this year or will be postponed. Luca.
Thanks you Oscar. Brazil spectrum, as you know last month of 2010 Anatel entering the auction of spectrum. TIM be it just for a small 2G frequencies spending let me say roughly, 1 million reals that will be paid in 2011, and included in the 2.9 billion reals capital expenditure that we reported. We spend a very few reals compared let me say obviously Nextel [ph] that invested in excess of 1 billion reals or even Vivo that invested the roughly 0.7 billion reals. This is because TIM is already very near to the spectrum cap that is a 70 megahertz in Brazil. So that we were not in the condition to buy any frequency more and this is the key reason why we don’t have this capital expenditure.
Well in perspective, nothing will happen in 2011. It is reasonable that starting from 2012, the spectrum cap limit is going to be removed. The issue is directly linked with the government broadband development plan because of their lack of fixed line broadband in Brazil, so that to match the government objective of internet universalization it is important to remove these spectrum cap. The process will be quite similar to the Italian domestic market, i.e., there is a need to return this digital dividend from traditional TV business. And obviously there is a general consensus among all the operators, I would add the government that no matter what without a new spectrum cap or a higher spectrum cap and an important digital dividend, there is no possibility to match the government broadband plan. So this is the perspective in all. Franco Bertone?
Yes, our plan assumption for consumer prices inflation in the range of double-digit. It’s just over 20% for 2011, dropping down to around 15% in 2013. For the exchange rate, I guess you want to.
Yes, on the exchange rate just to give you what we have used for the guidance reals to the euro 2.33 for organic, and the last year for the reported, it will be 2.43. For Argentina pesos 5.19 for the organic guidance, and then 6.11 for the reported 2013. On the last point because you asked about OpEx flexibility, I think that as you have seen we have been very good at achieving our OpEx objectives, although I mean this has taken a great deal of effort, we think that there is still some flexibility in terms of OpEx. I don’t think that we will be able to repeat the massive reduction of OpEx that we quantify in EUR4 billion in the last three years, but certainly we can do a good job also in cutting cost in the next three years.
Tim Boddy – Goldman Sachs
Okay, thank you so much.
So next question please.
Next question from Mr. (inaudible) from JP Morgan. Mr. (inaudible) please.
Good morning, quick question to the domestic DSL revenues, you had mentioned that you intent to grow DSL subscribers in 2011, I wonder if you see the trends of declining revenues in the fourth quarter, is that something which would continue in 2011 or what the trends will be, as you can see them. And secondly I think the TIM Brasil, in the presentation they had mentioned that moving to IFIs [ph] you started capitalizing handset costs. So I wonder if that is true if you can start to capitalize handset cost in Brazil from the fourth quarter of 2010. Thanks.
Well as I told during the presentation, the relatively lower performance, or the lower performance in Q4 is due to a really very aggressive promotion of our competitors just to give you the figures, they gave the 7 Mega broadband for EUR4 for the following two years. So this is – In my view, this is not a promotion, this is a repricing, and I assume that nobody in this world can sell the internet flat at EUR4. So this has been of course, I assume it has been a spike in their aggressiveness and it have to come back to reality.
So what are we going to do given the fact that we will not replicate those prices. Keep in mind that if I want to sell the fiber at an important price premium versus the ADSL, the price premiums cannot be 15 times in ADSL price to EUR4. That’s something that is not feasible for any market. So what are we doing, we are working on the sales channel. The sales channel last year has been limited to our customer care. And so we are going to use more sales forces on a variety of sales channels. We are back with the advertising. The advertising is planned in 2010. It has been very front-end loaded in the first half of the year, and relatively weak in the second half. This year it will be much more equilibrated in the 12 months.
So we are working on all the elements. And of course there is an hypothesis underlying which is also the competitors will understand that destroying the market of the broadband is not a good idea.
Thank you very much. Luca.
Okay, capitalization. There are no accounting changes in capitalization as Telecom Italia in IFRS or ES always capitalized the handsets subsidy. The only change you have is the local GAAP, I mean in Brazilian GAAP it was not possible to capitalize handset. Now Brazil by low entering IFRS standards so that the handset subsidy is cannibalized. So that the first of all no changes in Telecom Italia. Second point, business wise, subsidy let me say is now relevant in Brasil – in TIM Brasil. If you take fourth quarter for perspective, the total handset subsidy capitalized amount to EUR12 million. That is a reduction of 70% seven zero, versus a year ago, just to understand the perspective.
What does it mean? It means that if you look our EBIT, you have the full effect of no subsidy policy. When we decided to reshape the prospect, we decided to exit from these traditional business model. As a consequence of it, we are investing in pricing i.e., reducing the ARPU, but the more that you go down we are improving the MARPU because don’t have the bad debts for example. And even more if you look at the cash per line, we are escaping this subsidy. This is the key reason why we are doubling the operating frequency flow versus a year ago, this is the key reason why we are doubling the EBIT versus year ago. So that subsidy let me summarize is a no material issue in TIM Brasil.
Thank you Luca. We are taking now the last question.
The last question from (inaudible) from Citi. Mr. (inaudible) please.
Hello, thank you. I just have a couple of questions. First on you’re the line loss guidance you gave in fixed, your last year was improvement and obviously the fourth quarter has significant duration [ph] because of this promotions. How confident are you that this promotions will be withdrawn early enough in the year for you to be able to meet this target, and it is something that you believe you can deliver if promotional activity continues. My second question will be on your priorities between revenue revival and EBITDA, whether if you have to choose between the two during the year or during the three year period, you will prioritize investing in order to revive your service revenue or that you’ll prioritizing delivering the margin. And my final question is on M&A. Can you talk us through your logic (inaudible) Argentina versus a buyback in terms of how would you look at it, how would you characterize for the risk in Argentina? Thank you.
On line losses, I will ask Marco to answer.
Well if I look at the beginning of 2011, even if some of the aggressive promos are still there, we are losing less lines and this is just a fact. So and on top of this, I’ll add that – once again I assume that this pricing is not sustainable because soon or late, our competitors will start to have self-cannibalization also on their customer base, because people start to move to churn out and in, in order to do these. Keep in mind as I told at the beginning of the Q&A session, that the (inaudible) have increased their monthly fee EUR2 at the beginning of the year.
So this is another element that doesn’t work in order to have a satisfied customer on the other side. So this is the reason why we have given such a guidance. Priorities, as I told you, priority is to stay on track. Stay on track means, add customers but avoid promos, avoid all those stuffs that when you try to accelerate what you learn is that you end up cannibalizing and destroying value. So we have to work step by step, there are no shortcuts.
On the last question on the Telecom Argentina buyback. Well, first of all Telecom Argentina we just gained control. We have the management team in place. We need to understand much better the state of the art in the company. I think that the company has a great potential for improving the economics and we will be working on this – in the months to come. On the buyback, I mean we are talking about a completely different thing, completely different measure, completely different size so that I mean these are two completely different things and we need to compare apple-with-apples.
On Argentina we will go along, we will see, we will understand and then we will decide what to do. On the buyback, it’s as I said before it’s just an option. They are not alternative and whenever there will be the need and the time to make more proper assessment of the real options that we have, we will make this assessment and we will disclose our decisions.
Thank you very much. So I think – are we taking one last question probably. Yes, let’s take one more question. No more question. So thank you very much. Thanks for attending this call, and very nice weekend to all of you. Thank you.