Telefônica Brasil Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
May 13, 2025
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Operator

Good morning, ladies and gentlemen. Welcome to Vivo's First Quarter twenty twenty five Earnings Call. This conference is being recorded and the replay will be available at the company's website at ri.telefonica.com.br. The presentation will also be available for download. This call is also available in Portuguese.

Operator

To access, you can press the globe icon on the lower right side of your Zoom screen and then choose to enter the Portuguese room. After that, select mute original audio. We would like to inform that all attendees will only be listening the conference during the presentation. And then listening conference Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding the company's business prospects, operational and financial projections and goals or the beliefs and assumptions of VIVO's Executive Board and the current information available to the company. These statements may involve risks and uncertainties as they relate to future events and therefore, depend on circumstances that may or may not occur.

Operator

Investors should be aware of events related to the macroeconomic scenario, the industry and other factors that could cause results to differ materially from those expressed in the respective forward looking statements. Present at this conference, we have Mr. Christian Gebara, CEO of the company Mr. David Melcom, CFO and Investor Relations Officer and Mr. Juan Pedro Soares Carneiro, IR Director.

Operator

Now I will turn the conference over to Mr. Juan Pedro Soares Carneiro, Investor Relations Director of Vivo. Mr. Carneiro, you may begin your conference.

Joao Pedro Soares Carneiro
Investor Relations & Macroeconomics Director at Telefônica Brasil

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

Christian Gebara
CEO at Telefônica Brasil

Thank you, Jean. Good morning, everyone, and thank you for joining us today. The first quarter of twenty twenty five was marked by growth both in operations and financially. Starting with our postpaid service, we reached over 67,000,000 customers achieving yearly growth of 7.7%. In fiber, we continued the trend of double digit growth, increasing our customer base by 12.9%.

Christian Gebara
CEO at Telefônica Brasil

Our total revenues increased 6.2% with mobile service revenue growing 6.5% and fixed revenues expanding by 6.2%. This consistent evolution showcases the growing demand for our services. Profitability remains a key focus with EBITDA increasing 8.1 during the period. Our operating cash flow reached BRL3.8 billion in the quarter growing 12.7% year over year, accounting for almost 27% of our total revenues. Furthermore, our net income grew remarkably by 18.1% year over year reaching BRL1.1 billion.

Christian Gebara
CEO at Telefônica Brasil

We began 2025 with a solid distribution to shareholders with payments already amounting to BRL2.6 billion. This commitment underscores our confidence in sustaining strong financial performance and meeting our guidance for the upcoming years. Moving to Slide four, we display how our revenues are outpacing inflation, driven by double digit growth of our flagship services. Our total revenues for the first quarter of twenty twenty five reached R14.4 billion with mobile service revenue being led by postpaid and fixed revenues by FTTH and B2B digital services. We highlight our postpaid and fiber revenues, which are the cornerstones of Vivo's successful convergence story.

Christian Gebara
CEO at Telefônica Brasil

Together, they represent 73% of our service revenues with both growing above Additionally, our new businesses are consistently gaining share in our portfolio and significantly contributing to our growth. This underscores our strategy of moving away from being solidly a connectivity provider to a hub of innovative services. These solutions drive net additions and enhance our market positioning, assisting us in meeting the demands of our customers. On the next slide, we dive into the impact of our successful performance in mobile. Our total mobile access reached 102,400,000 in the quarter with hybrid plus pure postpaid access growing by 7.6% year over year to over 48,000,000 customers.

Christian Gebara
CEO at Telefônica Brasil

This growth features the success of our upselling initiatives, which have effectively transitioned a significant number of customers from prepaid to hybrid and from hybrid to pure postpaid plans. Our five gs access have doubled since March 2024. This widespread adoption underscores our commitment to providing cutting edge technology to our customers. Moreover, our postpaid churn has remained very low over the past years, reflecting our ability to retain high value customers despite increasing prices. This reduced churn, coupled with a steady increase in mobile ARPU, highlights the positive financial impact of our strategic focus on postpaid services.

Christian Gebara
CEO at Telefônica Brasil

Overall, our strategy of migrating customers to better plans is translating into customer loyalty and ensuring we remain at the forefront of the industry. On Slide six, we provide our insights on the performance of our fiber operations and convergence with postpaid. We have categorized our FTTH line into three segments: Vivo Total customers, Convergent customers not in Vivo Total plans and standalone fiber customers. Vivo Total is ramping up its shares in our FTTH customer base, achieving a remarkable growth of 77.4% year over year. Meanwhile, the other two categories are migrating to our fully convergent plans, bolstering both our fiber and mobile businesses, as the lifetime value of Vivo Total's users is much higher than that of customers in standalone offers.

Christian Gebara
CEO at Telefônica Brasil

Recently, we introduced new Vivo Total plans that include partnerships with leading OTT platforms like Netflix, Global Play and Disney plus adding even more value for our subscribers. In terms of homes passed with FTTH, we expanded to almost 30,000,000 homes, while boosting the rate of net additions. This achievement is driven by the lowest FTTH churn rates we have ever seen and by our commitment to offering the best services on the market. Moving to the next slide, where we detail our B2C new businesses and their positive impact on average spend and lifetime value. Vivo's fifty seven point two million individual customers generated over BRL43 billion in revenues in the last twelve months, with an evolving monthly average of BRL 63 per customer.

Christian Gebara
CEO at Telefônica Brasil

Our new businesses segment has shown incredible performance across various industries, growing 18.6% year over year, reaching BRL1.7 billion and representing 3% of our total revenues. This growth confirms our commitment to diversifying our offerings and meeting the various needs of customers. Furthermore, we have made significant strides in the market of accessories for smartphones and other devices. On 03/21/2025, Vivo acquired i2Go for up to R80 million dollars reinforcing our presence in this segment alongside Ofi. These efforts are part of our broader strategy to enhance customer lifetime value and ensure that our customers continue to benefit from our comprehensive and differentiated value proposition.

Christian Gebara
CEO at Telefônica Brasil

Moving to Vivo's B2B performance on Slide eight, we registers another double digit growth, exemplifying how our focus of being a one stop shop for businesses of all sizes is paying off. With BRL12.3 billion in revenues, B2B already represents 22% of our business. This outstanding performance is largely driven by our digital B2B segment that saw a early growth of 25.5% and now accounts for 7.7% of our revenue. Notably, the Cloud segment experienced a significant increase of 38% year over year as Vivo continues to prioritize the digitalization of customers. The success of Vivo Impreza highlights our position as the leading technological partner of Brazilian companies, serving 1,800,000 B2B clients with over 5,000 sales representatives who market an replicable portfolio that spans from mobile and fixed connectivities to state of the art digital solutions and equipment.

Christian Gebara
CEO at Telefônica Brasil

Now let's move to our ESG highlights for the period. I'm excited to share that Vivo continues to excel in sustainability and social responsibility. We were recognized as the leading Brazilian company in the Dow Jones best in class index and placed sixth among the telcos in the world. Additionally, we are prominently featured in B2B's Corporate Sustainability Index, highlighting our leadership among Brazilian companies in ESG practice as well as being part of CDP's Climate A List, highlighting our transparency and climate ambition. On the environmental front, our Futuro Vivo platform showcases our commitment to environmental protection with a special focus on the Amazon rainforest.

Christian Gebara
CEO at Telefônica Brasil

We also launched a campaign at Lola Palusa twenty twenty five called Raises Vivas, which provided immersive experience on native Brazilian cultures as well as raise environmental awareness. In terms of diversity, our trainee program has reached a new milestone with 56% of selected candidates being black employees and eleven percent having a disability. VIVO was also recognized as number one in Anatel's accessibility ranking for our efforts to support customers with disabilities. Lastly, I would like to invite you to check out on our Investor Relations website the main ESG highlights of 2024. With that, I hand the floor over to David to comment on our financial performance.

Christian Gebara
CEO at Telefônica Brasil

Thank you.

David Melcon Sanchez-Friera
CFO & Investor Relations Officer at Telefônica Brasil

Thank you, Christian, and good morning, everyone. Turning to Slide 10, we present the evolution of our costs. We began 2025 with costs growing less than the inflation for the period, reinforcing our ability to maximize cost efficiencies. Our cost of services and goods sold increased by 4.8% year over year, where the cost of services grew 7.7% by the greater demand of our B2B services and the cost of goods sold remained almost flat as we are constantly improving the margin profile of the products we sell. Cost of operations grew 5% year over year with the evolution of all main lines under control.

David Melcon Sanchez-Friera
CFO & Investor Relations Officer at Telefônica Brasil

The commercial and infrastructure expenses returned to a normalized expansion level in the first quarter as it was expected. Additionally, the growth seen in personnel and G and A was completely offset by the decrease of 3.6% year over year in provision for bad debt, thanks to improved collection processes and the essentiality of our service. Moreover, the other revenues and cost line registered an expense in the quarter, mainly driven by reduced sales of copper. Looking ahead, it's important to mention that the sale of copper and real estate will gradually resume in the coming quarters, providing a positive support to this line and to our result as a whole. Overall, our ability to maintain costs growing less than inflation led to an EBITDA margin expansion of 70 basis points.

David Melcon Sanchez-Friera
CFO & Investor Relations Officer at Telefônica Brasil

On Slide 11, we detail our increasing CapEx efficiency. In the first quarter this year, we observed a slight year over year decrease in investments with a significant reduction in CapEx over sales by 0.8 percentage points. We also present qualitative research on our investment allocation as most of our mobile CapEx was dedicated to expanding our five gs presence, which now cover 62% of the Brazilian population across five nineteen cities. On the other hand, over 90% of our fiber CapEx is focused on connecting homes, thus accelerating our network monetization. We emphasize that around 76% of our investments are specifically allocated to business growth as we have a wide range of opportunities to generate shareholder value.

David Melcon Sanchez-Friera
CFO & Investor Relations Officer at Telefônica Brasil

Thanks to our CapEx efficiency, our operating cash flow have shown impressive growth, increasing 12.7% year over year and 15.4% when excluding leasing effects. Margins are also showing a positive trend, up considerably in both metrics. This consistent focus on efficiency and strategic investments position us well for continued financial health and operational success. Turning to Slide 12. We present our outstanding net income growth and low debt level that protects us from high interest rate scenarios.

David Melcon Sanchez-Friera
CFO & Investor Relations Officer at Telefônica Brasil

Starting on the left. Net income for the quarter increased by 18% to BRL 1,100,000,000.0, benefited by our strong operating performance and optimized financial results. Our financial debt remains under control with a net cash position of BRL 2,700,000,000.0 at the March. Considering leases, net debt amount to BRL 12,100,000,000.0, equivalent to 0.5 times EBITDA of the last twelve months. Our cash flow generation remains extremely robust despite a year over year decrease.

David Melcon Sanchez-Friera
CFO & Investor Relations Officer at Telefônica Brasil

This annual comparison was mostly impacted by a timing mismatch related to the payment of regulatory fees that the previous year were partially paid in April and this year are fully paid in March. Our last twelve months free cash flow yield remained close to 10%, and our free cash flow accounted for 50% of the revenues we recorded in the quarter. These results highlight our continued focus on maintaining a strong financial position while generating substantial cash, ensuring we have the flexibility to invest in high return projects and provide attractive shareholder returns. Turning to Slide 13. We discuss how we are meeting our shareholder remuneration guidance of distributing no less than 100% of our net income in the coming years.

David Melcon Sanchez-Friera
CFO & Investor Relations Officer at Telefônica Brasil

By the April 2025, we had already paid out BRL 2,600,000,000.0 to shareholders through interest on capital and share buybacks. Additionally, we are committed to distributing another BRL 2,000,000,000 from the capital reduction approved in December, beginning our 2025 remuneration to BRL 4,600,000,000.0 so far, with more to come in the year. We also focus on increasing the liquidity of our stock. We are proud to announce that our stock is one of the top 50 most liquid shares in the Brazilian Stock Exchange, raising 17 position in the B3 Negotiability Index since March. This ensures ease of trading and a strong market presence.

David Melcon Sanchez-Friera
CFO & Investor Relations Officer at Telefônica Brasil

Lastly, as part of our strategy to enhance liquidity, we successfully completed an operation for a reverse stock split followed by a forward stock split on April 14 this year, doubling our share count and therefore, positioning our share nominal price on a more attractive range. This will keep you updates on the final step of operation. Moving on the last slide of our presentation. We are excited to share the successful conclusion of our migration to the authorization regime of our fixed voice service in the state of Sao Paulo. This is a key moment for Vivo and the telecommunication sector in Brazil.

David Melcon Sanchez-Friera
CFO & Investor Relations Officer at Telefônica Brasil

On April, Vivo and Anatel signed a single term of authorization officially transitioning from concession regime to authorization. This milestone marks the beginning of a new area where we can fully leverage the benefit of this transformation. Financially, this transition unlocks significant value. We anticipate around BRL 3,000,000,000 from the sale of copper based on current market prices net of extraction costs. Additionally, we estimate to capture around BRL 1,500,000,000.0 from the sale of our real estate assets net of demobilization costs.

David Melcon Sanchez-Friera
CFO & Investor Relations Officer at Telefônica Brasil

We also foresee the potential for recurring savings through cost efficiency related to the reduction of maintenance and network expenses, mainly due to the complete decommissioning of our copper network and real estate premises. These savings and benefits will be realized gradually reaching the full potential by the end of twenty twenty eight, positioning Vivo for sustained growth and increasing profitability. The next step of the transition involves migrating copper based fixed voice services to advanced technology that is already underway. All in all, this achievement is an evidence of our commitment to innovation and excellence, ensuring that we continue to provide unparalleled services to our customers across Brazil. Thank you.

David Melcon Sanchez-Friera
CFO & Investor Relations Officer at Telefônica Brasil

And now we can move to the Q and A.

Operator

We are going to start the question and answer section for investors and analysts. Our first question comes from Bernardo Gutman with XP.

Bernardo Guttmann
Bernardo Guttmann
Equity Research Analyst at XP Inc.

My first question is about the sustainability of margins. You had a solid margin increase this quarter. What are the key efficiency levers the company is working on to sustain or even expand margins? And my second question is on prepaid. We saw a significant drop this quarter.

Bernardo Guttmann
Bernardo Guttmann
Equity Research Analyst at XP Inc.

And it would be helpful to understand how much of that was driven by migration versus lower recharge volumes. What are the main reasons behind this weaker performance? Thank you.

Christian Gebara
CEO at Telefônica Brasil

Hello, Bernardo. I will start with the prepaid. Yes. The main reason behind this, the migration from prepaid to hybrid plans. So as you saw, we did it very aggressively.

Christian Gebara
CEO at Telefônica Brasil

And so we reduced the prepaid customer base. And always, there is like a negative impact on that, because normally, we migrate the customers with more spending power to post place plans. And so that's in the end, it's impacting the revenues in the prepaid. But if you look in the combined way, the evolution is very positive. And also, if you see how much postpaid is already representing also out of the BRL9.2 billion that represented this quarter as mobile service, we already have almost BRL 8,000,000,000 in the postpaid revenues.

Christian Gebara
CEO at Telefônica Brasil

So that's the trend and the trend of continue to migrate. I think we've been very successful doing so. And that's the main reason behind the evolution of the prepaid revenues. And the EBITDA, as you know, it was a very good quarter, as you just described, an increase of 8.1% in the absolute number of our EBITDA reaching 5,700,000,000.0. Here is, of course, there is the positive performance of our revenues.

Christian Gebara
CEO at Telefônica Brasil

Also, we've been able to capture this revenue growth, reducing costs. Now I think here, the main reason is digitalization, both in the customer care and back office tasks that we are incorporating a lot of technology. Now AI, for instance, it's part of it. But also we've been also very good in using our app, now that we reached 27,000,000 users of our Vivo app that is driving not only customer care, but also sales. There's a lot of sales, mostly of our migration is done through the app.

Christian Gebara
CEO at Telefônica Brasil

We're also increasing the sale of fiber. And we are also as you described here also before, there's a lot of OTTs that we sold and most of them are sold also through the app. So digitalization is still there's room to grow. So we believe there is a lot to be still captured in our effort to reduce cost through digitalization and revenues continue to grow. So if you look also in the you asked about EBITDA, but even the operating cash flow, that's positive because the new business that represents more than 10%, we are growing.

Christian Gebara
CEO at Telefônica Brasil

Sometimes, it's lower margin with no CapEx expenditures. So we are very confident that we are following the right strategy to continue to increase everything above inflation.

Bernardo Guttmann
Bernardo Guttmann
Equity Research Analyst at XP Inc.

Very clear. Thank you, Christian.

Christian Gebara
CEO at Telefônica Brasil

Our

Operator

next question comes from Marcelo Santos with JPMorgan.

Marcelo Santos
Marcelo Santos
Equity Analyst at JP Morgan

Christian, David, Joan. Thanks for taking my questions. The first question is regarding, if you could provide a bit more color on your back book price increases this year. How do these compare to the last years, like, I don't know, maybe timing, magnitude, percentage of the days affected? So that would be the first question, some more color on these price increases.

Marcelo Santos
Marcelo Santos
Equity Analyst at JP Morgan

And the second question is if I could get your current stance on M and A. We see that you have been sorry, can you hear?

Christian Gebara
CEO at Telefônica Brasil

Yes.

Marcelo Santos
Marcelo Santos
Equity Analyst at JP Morgan

Yes. So

Marcelo Santos
Marcelo Santos
Equity Analyst at JP Morgan

the second

Marcelo Santos
Marcelo Santos
Equity Analyst at JP Morgan

question would be just the current stance on M and A. So you have been very active on like smaller deals with digital services. Would something on the broadband area also be considered by Vivo?

Christian Gebara
CEO at Telefônica Brasil

So

Christian Gebara
CEO at Telefônica Brasil

Marcelo, there is a lot of now, you asked about the back book. So just to remind everyone, our front book, we made price adjustments in February 2025. So there was around 7.7% in postpaid and brand, 7.3% in hybrid and 6.7% in Vivo Total. So that was the front. Going to the other one also, in postpaid hybrid.

Christian Gebara
CEO at Telefônica Brasil

We started the price adjustment in the back book in part of our existing customer base in April. So we did around 78% of our customer base of postpaid, a 5.7% increase. 78% of the pure postpaid, 5.7 in April. So you don't see these numbers in March on this quarter. And then in hybrid, we did at 64% of our customer base, 7.2%.

Christian Gebara
CEO at Telefônica Brasil

Okay. In fiber, we did January, we applied an average price adjustment of 4.5% to 14% of our customer base. We do more in June. And Vivo Total, we did 2.9% of 100% of our customers in the first quarter of twenty twenty five. So compared to what we did last year, the percentage is smaller than because the incremental that we had next year was a little bit higher.

Christian Gebara
CEO at Telefônica Brasil

But that's what we did. So some of it is not still captured because it was in April and most of the postpaid in hybrid. And as part of the increase will be also done, as I said, in August for postpaid and hybrid, what we didn't do in April and also in June for fiber that we didn't do in January. So that's the summary of so the M and A, can I go to the second one, Marcelo?

Marcelo Santos
Marcelo Santos
Equity Analyst at JP Morgan

MARCELO Yes, very comprehensive answer on the first.

Marcelo Santos
Marcelo Santos
Equity Analyst at JP Morgan

Thank you.

Christian Gebara
CEO at Telefônica Brasil

So yes, we are looking both, small M and As in digital services. As we just described, we bought IPNET, that was the one in cloud for B2B. We bought A2Go in accessories for smartphones and other devices. Yes, we are always looking for consolidation in the fiber market.

Christian Gebara
CEO at Telefônica Brasil

We there are different type of companies, small, mid sized ones. Some of them are very regional, very local, others are already with a national footprint. And here, again, we need to focus on those that the overlap is not that high. The quality of the network is the one that we want and also the price point that is attractive for us. Now we've been saying that Home Pass or average CapEx is BRL150 million to BRL200 million.

Christian Gebara
CEO at Telefônica Brasil

To connect is BRL800 million. So in the year, the deal is more in the CapEx of connecting customers. We've been doing that very effectively. We're expanding our footprint in the last quarter around HP's Home Pass more than 500,000. And we are connecting we had a net adds of 211,000 fiber customers, continue to be number one, strong leadership in market share of net adds and reducing churn.

Christian Gebara
CEO at Telefônica Brasil

So again, we do believe that there is room for consolidation, but we haven't found so far a target that would comply with all the criteria that I just described to you.

Operator

Question comes from Gustavo Farias with UBS.

Gustavo Farias
Gustavo Farias
Associate Director at UBS Group

Good morning, everyone. Thanks for taking my questions. I have two on my end. The first one about the concession migration. We didn't see it happen in Q1.

Gustavo Farias
Gustavo Farias
Associate Director at UBS Group

But given the migration underway, do you anticipate any pressure on margins or CapEx in the short term as a consequence? And the second one, looking at cash flow, if you could bring more color on the dynamics of leases and working capital we saw in Q1 and if that should normalize in the full year? Thank you.

Christian Gebara
CEO at Telefônica Brasil

So Gustavo, no, there is no pressure on the financial indicators that you just described for the migration of concession to authorization. Actually, decided to give you more color on what we expect of the positive impact of the sale of copper and the sale of real estate. So we estimated based on the quantity of copper that we have, the quality of the copper that we extract, and that's why we gave this number of BRL 3,000,000,000 starting this year. But with maybe the highlights of the impact will be 26%, twenty seven And the same with real estate, note that we are talking about sale of different type of real estate that we have, depending on the migration that we have to make on the customer that's still copper to fiber. And but anyway, very positive impact.

Christian Gebara
CEO at Telefônica Brasil

And there is all the numbers that just presented that we just presented. The net of all the costs involved in migrating, removing equipments from real estate and also doing the extraction of the copper. So no other impact, as we just said before. Regarding free cash flow, David, you follow?

David Melcon Sanchez-Friera
CFO & Investor Relations Officer at Telefônica Brasil

Yes. Gustavo, so regarding the question on free cash flow. I mean during the last few years, we have consistently show a very strong cash flow. However, if we look across quarters, there is always some seasonality. This quarter, we have a strong free cash flow margin of almost 15%.

David Melcon Sanchez-Friera
CFO & Investor Relations Officer at Telefônica Brasil

But the working capital is mainly impacted from some delay phasing of payments that have to do with regulatory taxes that the previous year, we ended up paying in April, and this year, we pay in March. This is something that should be compensated in the coming quarters. Regarding the looking at evolution to the leases, the first comment I want to make is that if you look to EBITDA and EBITDA after leases, you see that both are growing very strongly, 8.1% both. However, when you look to the payments, there is always, again, some volatility. We are keep negotiating with the towers companies better conditions, and sometimes that requires some cash payments.

David Melcon Sanchez-Friera
CFO & Investor Relations Officer at Telefônica Brasil

So it's difficult to analyze the effect on one quarter for the last twelve months. But in this particularly quarter, if you look to the total amount we pay in terms of principal and interest, we pay BRL one point two four nine That's even though it's higher than the previous year. This number is lower than the last two quarters. This gives you an idea of the trends that we might be able to achieve for the coming quarters. And just the last comment here is that we have some specific initiatives in place to reduce the costs have to do with tower leases that should benefit future trends.

Gustavo Farias
Gustavo Farias
Associate Director at UBS Group

Very clear. Thank you very much.

David Melcon Sanchez-Friera
CFO & Investor Relations Officer at Telefônica Brasil

Thank you.

Christian Gebara
CEO at Telefônica Brasil

Thank you.

Operator

Our next question comes from Luca Beringin with Bank of America.

Lucca Brendim
Lucca Brendim
Equity Research Associate at Bank of America

Hi, good morning everyone. Thank you for taking my questions. I have two on my side. The first one is a follow-up on Bernardo's question. He asked about what happened to prepaid in the first quarter.

Lucca Brendim
Lucca Brendim
Equity Research Associate at Bank of America

And what I wanted to understand is what do you expect for prepaid going forward? Are you guys seeing any space for price hikes in prepaid? Or is it still difficult? And in terms of revenues, what can we expect? Is this the level of decline we should expect for the remainder of the year?

Lucca Brendim
Lucca Brendim
Equity Research Associate at Bank of America

Should we see an improvement? How are you looking at this? And the second one regarding broadband, how are seeing pricing dynamics? We continue to see other competitors also having some trouble increasing offers in the front book. So how do you think this should be going forward?

Lucca Brendim
Lucca Brendim
Equity Research Associate at Bank of America

Do you see also space for price hikes in the front book for broadband?

Christian Gebara
CEO at Telefônica Brasil

So

Christian Gebara
CEO at Telefônica Brasil

prepaid, we believe it's going to keep It's not going to go worse. Always, there is like opportunity for pricing as we have been doing in hybrid on postpaid. But I cannot tell you about any decision that we may take, commercially speaking. So we're going to continue working very hard on migrating customers, the best customers to hybrid.

Christian Gebara
CEO at Telefônica Brasil

We've been doing that in a very good way. So the idea is to continue with the same strategy and always trying to offer new services even for prepaid. So we're expanding entertainment, we're expanding health, we're expanding financial services like insurance. So we are also working a lot on the CRM of prepaid to be able to capture more value out of not only the traditional core, but also expanding the sale of digital service to this customer base as well. So what we're seeing is that we are gradually increasing customers that are recharging with us.

Christian Gebara
CEO at Telefônica Brasil

So we can offer more and more benefits as well to keep loyalty. Also, we are doing many benefits with Body Bonus as an example of one that just partnership with them, giving points to customers who have a higher top up with us and remain recurring will remain with the same recurrences. So that's part of the strategy. I cannot share a lot more about our commercial decisions for the future. But again, the migration will be the driver for us to keep customers in the with the recurrency of the hybrid.

Christian Gebara
CEO at Telefônica Brasil

I don't know the second question was about pricing. No, about sorry. Can you repeat this second one?

Lucca Brendim
Lucca Brendim
Equity Research Associate at Bank of America

Yeah. On the dynamics of pricing for broadband going forward, if you see space for front book offers and how you're seeing also the competition on the Sorry.

Christian Gebara
CEO at Telefônica Brasil

Go to no. Because I was yes. Please Yes. Please go ahead. Sorry.

Christian Gebara
CEO at Telefônica Brasil

Luca.

Lucca Brendim
Lucca Brendim
Equity Research Associate at Bank of America

Okay. It's about the dynamics for the the pricing for broadband going forward. How do you see it on your end and also on competition?

Christian Gebara
CEO at Telefônica Brasil

Yes. Think we have a slightly different strategy from competitors. As I said, in January, we adjust 4.5%, fourteen % of our customer base and may increase the second round in June. But as I said also, Luca, eighty seven percent of the sales that we have in our stores that represent important part of the sales that we have with fiber, we are doing Vivo Total. So we are driving the market with different dynamics.

Christian Gebara
CEO at Telefônica Brasil

Now we are very focused on convergence. And of course, we are also selling with higher speeds. Now we are launching now we have like the 600, we went to 700. Now in some areas, we are offering also one gig as speed. We are expanding also Wi Fi with more devices now and Wi Fi six as also differentiation of our offering.

Christian Gebara
CEO at Telefônica Brasil

So it's difficult for me to answer in one line what's going to be It's a very segmented strategy driven by the best experience of Wi Fi and also with convergence. So I think we've been very positive achieving that. Also, that's why our revenues in fiber already represents almost EUR 2,000,000,000 of our quarter revenues, and it's growing over 10%. That's the same growth that we have also in postpaid.

Christian Gebara
CEO at Telefônica Brasil

So the combination of the two is what is driving our revenues up, and we are continuing being very segmented and precise in the price increase, always benefiting customers who have more services with Vivo.

Lucca Brendim
Lucca Brendim
Equity Research Associate at Bank of America

Very clear. Thank you.

Christian Gebara
CEO at Telefônica Brasil

Thank you. And the float book also increased price. So that's also important to highlight. Thank you.

Operator

Our next question comes from Vitor Tomita with Goldman Sachs.

Vitor Tomita
Vitor Tomita
VP - Equity Research at Goldman Sachs

Good morning, all, and thanks for taking our questions. Two from our side. The first one is on the migration. Now that you are starting to migrate concession customers to newer technology to prompt them to migrate before dismantling the networks. Any initial view on how well that is being received initially, on how it in the art to migrate and the pace at which you are planning to go over these migrations?

Vitor Tomita
Vitor Tomita
VP - Equity Research at Goldman Sachs

And our second question would be a bit of a follow-up on the fiber point. Besides the pricing points, do you see sorry, any updates on your growth strategy for the fiber segments in terms of potential expansion of homes passed? Do you still see much room to expand coverage there, either organically or by M and A, as you discussed in another question? Thank you.

Christian Gebara
CEO at Telefônica Brasil

So, Mito, it's been very successful that we are piloting a lot of migrations, it's been very successful. As I said before, we have 1,200,000 customers in copper in basically voice because the one that is still in ex DSL is a very small part of it, is we're talking about 155,000 customers. So the ones that are with voice, when we have fiber, we've been working in a very industrialized model to migrate customers with minimal hassle to from copper to fiber. So very positive that we can do that in a very fast way. So up to now, it's doing very well.

Christian Gebara
CEO at Telefônica Brasil

And then we may give you more results in the next quarters. So very positive about our ability to do it very fast. So that's why we are putting the highlight of the impact in 2026, '20 '20 '7 because with our ability to migrate customers and liberate copper and the real estate that is assigned to provide the services. Regarding expansion of our fiber network, we continue in a very accelerated pace. We had 26,800,000 in the end of first quarter.

Christian Gebara
CEO at Telefônica Brasil

Now we have 29,600,000 home passed. Last quarter or the first quarter, the one that represented results, we built 500,000. We continue to penetrate our network, and we had accelerated net adds in the first quarter compared to the first quarter of last year. And we continue to build, but of course, we are very attentive of M and A opportunities. Again, Victor, it's not easy to find what we are looking for.

Christian Gebara
CEO at Telefônica Brasil

So while we don't find, we build. If we find, we may stop building so much. But at the moment, we continue building. But I think there are opportunities that we're looking at them with a lot of focus. And again, they need to follow and comply with the criteria that we have: overlap, technical quality of the network, but also of the CPE, because if I need to replace all the CPEs, my CapEx is much more concentrated in CPEs.

Christian Gebara
CEO at Telefônica Brasil

And finally, the right pricing.

Vitor Tomita
Vitor Tomita
VP - Equity Research at Goldman Sachs

Very clear. Thank you very much.

Operator

Our next question comes from Fani Kanomori with HSBC.

Phani Kanumuri
Phani Kanumuri
Analyst at HSBC

Hello? Can you hear me?

Christian Gebara
CEO at Telefônica Brasil

Yes, sir. Please go ahead.

Phani Kanumuri
Phani Kanumuri
Analyst at HSBC

Yeah.

Phani Kanumuri
Phani Kanumuri
Analyst at HSBC

Thanks everyone for taking my questions. So the first question is regarding competition in mobile. Are you seeing some kind of increased competition from regional operators or new sale, at least on a regional basis? My second question is regarding the use of cash that you have from the from sale of copper and real estate. What are the planned uses that you have for the cash that you'll get over the next three years?

Phani Kanumuri
Phani Kanumuri
Analyst at HSBC

Thank you.

Christian Gebara
CEO at Telefônica Brasil

JEAN So, Tony, the mobile is always very competitive. But I think as we highlighted, we've been growing very positively in the additions of postpaid. In the number of access of five gs, we also gave a good number that we are also again going up. So if you look, for instance, now cost paid access compared to the other year, we grew 7.6%. In M2M and Dangles, we grew at 8%.

Christian Gebara
CEO at Telefônica Brasil

We have a reduction in prepaid, of course, because that's due to the migration. Now ARPU also is increasing of 3.5%. And the postpaid churn is, again, at the level of 1%. And our ability to migrate customers from prepaid to hybrid or hybrid to prepaid continue very positive and very accelerated. Now what we migrated one year ago was increased by 18.3.

Christian Gebara
CEO at Telefônica Brasil

So yes, it's very competitive. But again, I think we have a right strategy very well segmented with all the portfolio that can give to customers a selection that is not only based in the mobile, it's merged with the fixed, it's merged with the digital services and it's merged also with the quality and the customer experience that we give in all points of interaction that we have with our customers. So that's what we have. And of course, we have also MVNOs coming up, but I think Vivo can differentiate itself by the superior quality and perception of value proposition that we offer. That's what I would answer about the mobile.

Christian Gebara
CEO at Telefônica Brasil

The second one was about the remuneration. Yes. Here, what I can share with you, Fanny, is that we're going to keep remunerating our shareholders a minimum 100% of net income. So last year, it was above 1.05%. This year, we're going to follow with the guidance of minimum 100%.

Christian Gebara
CEO at Telefônica Brasil

Net income increased already 18%. We made many payments of interest this year and already also with share buyback. We already announced some other interest on capital for next year. So like for just this year, in 2025, we already paid shareholders BRL2.6 million, BRL2.2 million in outstanding interest capital declared in 2024 that we paid in April, and we have BRL3.26 million of share buybacks. And on July, we will pay BRL2 million reduction.

Christian Gebara
CEO at Telefônica Brasil

We already declared, as I said, BRL 500,000,000 that we're going to pay before April 2026. So that's what we're going to do with the proceeds. And again, we want to also have the flexibility as was asked before to continue to be active in M and A in digital services and why not in fiber assets, if we find something that comply with the criteria that I described before.

Phani Kanumuri
Phani Kanumuri
Analyst at HSBC

Thank you. Very clear. The

Operator

question and answer section is over. We would like to hand the floor back to Mr. Christian Gebara for the company's final remarks.

Christian Gebara
CEO at Telefônica Brasil

So thank you again for everyone to participate in our call. As you could see, very strong results in line of our strategy of growing the new technologies, highlighting all the more than our 70% of our revenue, service revenues, is related to mobile and fiber, and we in both, we are growing above 10%. Digital services, in general, B2C and B2B more than 10% and also the double digit growth. And again, with EBITDA growing way above inflation. And again, as we described here, the concession with good returns on the sale of copper and real estate for the next quarter.

Christian Gebara
CEO at Telefônica Brasil

So if you have any additional doubt, please reach us. And our investor relationship is also at your disposal. Thank you, and talk to you soon.

Operator

VIVO's conference is now closed. We thank you for your participation and wish you a nice day.

Analysts
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Earnings Conference Call
Telefônica Brasil Q1 2025
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