Amos Genish - CEO Christian Gebara - Chief Revenue Officer Alberto Horcajo - CFO.

Susana Salaru - Itau Mauricio Fernandes - Bank of America Merrill Lynch Michel Morin - Morgan Stanley Vera Rossi - Goldman Sachs Valder Nogueira - Santander Will Milner - Arete Research Carlos Akira - BTG Pactual Diego Aragao - Morgan Stanley.

Welcome everyone to the Telefonica Brasil Third Quarter 2015 Earnings Conference Call. Today with us, representing the management of Telefonica Brasil, we have Mr. Amos Genish, CEO; Mr. Alberto Horcajo, CFO and Investor Relations Director; and Mr. Christian Gebara, Chief Revenue Officer.

We also have a simultaneous webcast with slide presentation on the Internet that can be accessed at the site www.telefonica.com.br/ir. There will be a replay facility for this call on the website. After the Company's remarks are over, there will be a question-and-answer session. At that time, further instructions will be given. [Operator Instructions].

Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the Company's management beliefs and assumptions and on information currently available. Forward-looking statements are not guarantees of performance.

They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur in the future.

Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the Company's future results and could cause results to differ materially from those expressed in such forward-looking statements. Now, I will turn the conference over to Mr. Amos Genish, CEO of Telefonica Brasil. Mr.

Genish, you may now begin your conference..

Good morning, everyone. I would like to thank you all for attending the call. Our call will have two parts. We will start discussing quarterly results and then we will share with you the status of the integration initiatives.

In relation to the third quarter, I'm pleased to report solid financial and operational performance which continues to reflect our competitive advantage and sound strategy. Before Christian Gebara, our Chief Revenue Officer and Alberto Horcajo, our CFO, go into details, I would like to share with you my perspective on our results in the business.

As you can see in slide 3 and 4, first we continued to achieve solid revenues growth. On a consolidated pro forma basis, revenue grew year over year by 5.2%. Not considering the reduction in mobile interconnection rates, our growth rate would have reached 7.8%.

Including both the consumer and business segments, our mobile business grew by 6.2%, driven mostly by a 35% increase in data revenues and by double-digit growth in the postpaid segment. We believe we have captured a significant part of the incremental mobile revenues growth generated by the industry in the last 12 months.

Our fixed business, including consumer and end-business segments, grew by 3.9%. I would like to point some relevant underlying trends for the consumer and enterprise markets below these revenues figures.

First, in the consumer markets, we would like to highlight the resiliency of the consumer fixed business which grew by 6.8%, driven by solid 27% growth in Pay TV and 18.3% growth in ultra-broadband.

Consumer fixed growth not only came from the former GVT, but also from the Vivo standalone business in Sao Paulo which grew 3.3%, faster than Q2 when we grew 1.8%. In addition, our consumer mobile business grew robustly.

Our outgoing service revenues growth was 9%; again, consumer mobile business excluding the business side accelerating from the second quarter when growth was 6.6%. Moving now to the enterprise market, I would like to mention that our enterprise business including mobile and fixed services continued to grow moderately at 2.5%.

Mobile enterprise revenues accelerated and grew by 7.2% versus 2.1% in the second quarter, while fixed enterprise revenues declined 1%, less than the second quarter when they had declined 2.4% The second point is we continue to expand our position in key segments.

In the postpaid segments, we continued to gain net addition above our market share, capturing 52% of net addition in July and August and increasing our market share to 41.8%. Both our fiber customer base which include FTTH and FTTC and our Pay TV customer base grew by almost 20%. Third, we continue to improve monetization of our customer base.

Mobile data ARPU continued to accelerate, growing 33.5% year over year compared to only 27.3% in the second quarter and driving 3.3% growth on total mobile ARPU. We used smart promotions and diversified optimization initiatives to improve Pay TV ARPU by 5% and fixed broadband ARPU by 3% year over year.

The fourth point, we maintain high margin in a challenging market environment. We took several cost contention actions to minimize cost in several lines and thus were able to compensate for increase in items that were impacted by the macro environment.

Overall, we were able to contain recurring costs to grow only by -- that grew only by 5.6%, well below the 9.5% inflation in the same period. EBITDA accelerated, growing 4.3% year over year comparing to 2.8% in Q2 and 1.9% in Q1 of this year. Our EBITDA margin was above 30%. Finally, we solidly advanced in the execution of our integration plan.

All synergy initiative are being executed according to the plan we set at the time and early results are in line with the financial expectations of our best-case scenario. In very short period of time after closing out, the organization is fully integrated and operates as a single Company.

With this, I pass to Christian to go in more details about our quarterly revenues. Please..

Thank you, Amos. Good morning, everyone. Moving now to slide 5, you can see in detail the evolution of our mobile revenues. Revenue growth reached 6.2% year over year in the quarter and 9.0% when excluding the MTR reduction. Our mix of revenues reflects our primary focus on data penetration and value.

As you can see, data and value added service revenues are growing by almost 35% year over year, representing almost half of our total mobile service revenues for the quarter. As you can see in the right-hand side of the chart, all our plans for all segments, postpaid, hybrid, prepaid already include data in the core of the offer.

The almost 29% annual reduction in incoming voice revenues reflects the MTR cuts effective as late of February and without this effect, we would have seen an annual increase of 2%. Outgoing voice revenues increased by around 13% annually in the quarter, a trend that we see in no other country.

But however, due to Vivo's solid position in mobile data in both prepaid and postpaid customers, we're able to offset both negative trends in regulatory and the voice usage, increasing overall mobile revenues and ARPU, as I will discuss in the following slides.

Finally, handset revenues grew by almost 37% year over year, mainly driven by sales to B2B customers. As we move to slide 6, we can see on the top-left side that we had a sustainable and solid growth on our postpaid gross additions as well as reduction in voluntary churn levels which were already very low.

This performance has been driven by our strong value proposition which is based on superior data experience, innovative offerings and strong channels and that allow us to bring and retain valuable customers and most importantly, create resilience in our revenue base despite operating in a competitive market and weak macroeconomic environment.

Actually, to our sound mobile commercial strategy, as seen on the top-right side, we managed to increase our total market share up to 29.1% in August, while we consolidate our leadership in postpaid market share reaching 41.8%.

Out of our total mobile base, 38% of access correspond to postpaid customers, what is 70 percentage points more than the average of our main competitors.

On the bottom-left side, we breakdown the evolution of mobile access which have reached 79.4 million access in the third quarter, 0.5% lower than that recorded one year ago, driven by disconnection of prepaid customers. However, one thing more importantly, we have been able to grow 12% in the postpaid segment which brings more value to the table.

Despite the 7% reduction in the prepaid customer base, our mobile ARPU grew by 5.4% and the total outgoing revenues by 2.7% which clearly shows how Vivo's mobile strategic focusing value is paying off.

Moving now to slide 7, we can see that Vivo continues to lead the 4G market with 38% share of customers versus 28% of close competitor and continues to increase 4G coverage, reaching already 44% of the Brazilian population. We continue to see relevant growth in data adoption within our customer base.

In addition, we also see substantial growth in 4G traffic. 34% of data traffic in key capitals of Brazil is already 4G and 4G smartphones already represent 13% of our base and 66% of our sales. In smartphones in general, 3G and 4G represent almost 90% of our postpaid base.

On the lower-left side, you can see that mobile ARPU grew 3.3% year over year, driven by a 34% increase in data and despite the MTR cut of 33%. In the B2C segment, data ARPU grew 39% year over year, already representing 52% of the total ARPU of the segment.

Now moving to slide 8, we will now present the revenue composition and evolution of our fixed business. As you can see on the left side, we achieved fixed revenue growth of 3.9% year over year and 6% when excluding regulatory impact. Our growth was mainly driven by Pay TV and ultra-broadband which grew 27% and 18.3% respectively.

On the right side, you can see also that not only growth was fueled by strong performance in the former GVT, as Amos mentioned before, but also from the standalone fixed business of Vivo. Moving now to slide 9, we continue to elaborate on the fundamentals of our performance in the fixed business.

We expanded our customer base in the most -- fixed segment, as I said before, with a solid 19% growth in ultra-broadband and 19% as well on Pay TV. At the same time, we continue to grow ARPU with a better mix of speeds due to our extended fiber network. As an example, in the third quarter the average speed in our ultra-broadband sales was 33 megabits.

In Pay TV, we also increased ARPU by improving the mix of packages and leveraging our state-of-the-art IPTV and connected DTH offer. I will pass now to Alberto..

Thanks, Christian and good morning, ladies and gentlemen. Moving on to our cost evolution on slide 10, I present our management of operating costs by the end of the third quarter.

Cost of goods sold rose 33% versus the third quarter of 2014, mainly due to the depreciation of the Brazilian real and the increased volume of high-value devices in our handset portfolio.

The tradeoff between unit prices and ARPU generation coupled with the restrictive subsidy policy continues to be positive, feeding effectively into our quality mobile revenue generation. Services rendered increased less than 3% year over year, benefiting from the 33% MTR cut effective last February, as mentioned before by Christian.

Excluding such effect, we recorded an increase of 9%, attributable to the expansion in the number of sites which stood at roughly 23,000 by the reporting date; besides higher total cost of TV content, the result of the larger installed base, as described before; and an exorbitant increase of close to 46% in energy expenses since March 2015.

Provisions for bad debt increased 27% on a year-over-year basis, representing 2.2% of our gross revenues. We're keeping a close watch on delinquency ratios on the back of restrictive credit policies and more effective collections, creating the conditions for an improved cash conversion of sales going forward.

As of September 30th, 21.7% of the balance of accounts receivable was covered and all of those due over 105 days, in-tune with prudent provisioning policies.

Selling costs excluding bad debt provision increased just 2% year over year, a fine performance taking into consideration the growth in base and incentive ways of selling and re-pricing, as explained earlier by Christian. The simplification of plans and offers continues to positively impact expenses with call center.

Payroll costs grew less than 4% year over year, reflecting the 7% wage adjustment implemented as of January 2015 and the sequential headcount reduction which added R$90 million to the cost beyond the R$112 million provision created as of December 31st of last year.

With expenses rising at roughly half the prevailing inflation rate combined with an annual increase in revenues of 5.2% in the quarter which is an increase of more than 4% in EBITDA, securing a 30% recurring EBITDA margin in the quarter reported, tensions remain but we have a positive outlook for a steady cost evolution when excluding impacts already mentioned associated with the current Brazilian economic contraction.

Now moving on to slide 11, where we present the net income evolution in the quarter which decreased to R$886 million, 16% less than the same period in 2014, explained mostly by the increase in depreciation and amortization charges to account for the larger fixed asset base.

On financial expenses for the third quarter, we showed an increase in net financial expense of roughly R$57 million, with a positive contribution from the mark-to-market, the debt coupons and FX hedging which was positive contribution of R$25 million -- and an increase of R$78 million attributable mostly to inflation-related adjustment of contingencies.

Nearly all related to dated liabilities on the Telefonica Brasil legacy business.

For the first nine months of 2015, the increase in net financial expense reached R$660 million, of which R$486 million are associated with the formerly un-hedged euro intercompany debt of GVT up to the date of the purchase and R$174 million mostly attributable to the inflation related adjustment already mentioned up to September 30th, taking into account the roughly 400 basis points increase in reference rates in the Brazilian real in the year over year comparison.

In addition, a larger provision for corporate income tax when compared to the same quarter of the previous year reflects the difference in interest and capital declared over both periods. Finally, moving on to slide 12, I'm now referring to the first nine months of 2015 and as of September 30th.

On the top-left side, we show that our CapEx in the nine months of 2015 reached R$5.9 billion, representing 19% of sales, with a growth of roughly 5% over the previous year despite exchange rate deterioration in the period.

In the third quarter, CapEx reached R$2.1 billion, a 1.8% increase over the same quarter in 2014, reflecting even execution across time and an improved match of demand to investment.

We continue to be focused on supporting our quality leadership and our aim at expanding ultra-broadband accesses and transmission infrastructure, increasing 3G capacity and 4G coverage to guarantee the best network experience available.

EBITDA minus CapEx stood at R$3.5 billion, 0.8% lower than we accumulated in the first nine months of 2014, keeping with a sound liquidity position. In the third quarter, cash flow from operations grew 9.6%, 5.3 percentage points more than EBITDA, anticipating an improved outlook for operational efficiency.

Gross debt by September 30th decreased 21% year over year, thanks to debt repayment in the period. At R$10.7 billion, it represented about 16% of total equity capital on the same date.

Net debt also recorded a decrease of 41% over the same period, due to the mentioned repayment and proceeds from the capital raised for the acquisition of GVT, partially counterbalanced by the payment of the 700 megahertz license to Anatel at the beginning of this year.

By September 30th, net debt represented just 0.29 times the trailing EBITDA of the previous 12 months and close to 4% of the total asset base. It is important to highlight that our focus on monetization is also reflected in the shareholder remuneration.

We have surpassed R$2 billion paid as interest on capital and dividends so far this year with another R$1.9 billion already declared and to be paid before year-end. Now, I hand over to Amos..

Thank you, Alberto. Other than the integration, I'm pleased to inform you that our synergies program summations continued to advance according to the plan. Christian and Alberto will go in detail about that in the next couple of slides, but I would like to highlight a few points.

On the revenue side, we've started cross-selling activities in all segments and are expanding these activities to maximize the results.

IT is an important enabler of the long-term revenue synergies as we need to integrate and develop systems to integrate our 3PO, triple-play offering, nationally to migrate Vivo fixed customers to GVT IT system, to leverage former GVT IT, CRM and full services systems to improve service in Sao Paulo and to build convergence quad-play offer.

All the projects related to this topics have been started and are evolving according to plan. On the OpEx side, we have integrated sales management of triple-play nationally we concrete benefits -- with concrete benefits Alberto will mention later.

We're starting to rollout a new field operations model for triple-play customers in Sao Paolo, partially insourcing installation and maintenance activities. Also very importantly, we anticipated and completed the rightsizing of the Company in September. We already operate as one linked dynamic integrated and aligned Company.

Regarding CapEx, we have solid advances. Also as planned, we started to integrate our telecom networks and are leveraging our new scale to improve terms and conditions with our supplier.

So in general, we're very pleased with the initial and early results of all these activities that are all in line with the best-case scenario that we estimate a few months ago and we believe that in 2016 we will start to see some visible results, financial results relating to synergies.

With this, I will pass to Christian to go into more details about revenue synergies..

Okay, thanks, Amos. In slide 15, we can see some details of the progress on revenue synergies. As Amos mentioned, we're very pleased with the evolution and our results so far.

Among the commercial initiatives, I would like to highlight the success of cross-selling actions already in place, where we offer Vivo mobile service to GVT customers and GVT service to Vivo customers through all sales channels used by the three business units -- I mean B2C fixed, mobile and the B2B.

In B2C specifically, we ended the third quarter with 45 Vivo stores and dealers selling GVT products and we're expanding this number gradually. Other channel such as telemarketing and online are also working on cross-selling activities.

We also continue evolving all activities related to brand identification and the IT product that we enable, a national integrated 3P offering and a conversion 4P offer in 2016. Finally, we've got positive results on testing GVT's FTTC model in Sao Paulo.

In B2B, we have successfully closed 16 new contracts in large corporations to leverage our combined national network and have many additional opportunities on the pipeline. We're also intensifying cross-selling activities through all SME channels. I pass now again to Alberto to talk about the OpEx and CapEx synergies..

Now, moving on to slide 16, I present the state of OpEx and CapEx synergies and how we're moving fast in all fronts. On the commercial side, we're in line with the best-case scenario, having already unified 3P sales management with consequent reductions of subscriber acquisition cost.

We also started promising Pay TV counter negotiations and launched a RFP to unify advertising agencies, anticipating the optimization of our communication investments. In operations, where we include network, IT and customer care activities, different initiatives are being executed in line with expectations, with some early effects in OpEx and CapEx.

Thus, we have already migrated over 2,000 last mile circuits for our infrastructure, reaching 26% over the plan.

We also started implementation of a revamped field operation model in Sao Paulo with promising results, building on the experience accumulated over the years in the GVT business and a project to provide segmented customer care to our clients.

In addition, we have rolled out a Company-wide quality plan with the customer-centric focus and several Lean Six Sigma projects have been launched in the various parts of the operation. On the CapEx front, we connected more than 2,500 sites over the mobile network to the expanded fiber backhaul layout and we're already sharing backbone routes.

In human resources, most of our integration key milestones have been already executed. We have anticipated the organizational redesign from January of next year to September of 2016. And among other actions taken to ensure competitiveness of our personnel expense, we changed our health plan to a different model.

As a result, we have almost completed all the HR activities, surpassing the best-case scenario. Lastly, on the finance initiative and procurement fronts, we're executing activities in line with expectations.

We have started real estate and logistic optimization projects, improved credit analysis and collection actions which will show in the progress in impacted contention, using best practices of both companies and continue to advance in procurement negotiations and leveraging the scale with suppliers. I now hand over to Amos..

Thank you, Alberto. As I mentioned in the second quarter call a few months ago, the macroeconomic scenario in Brazil continues to go through a difficult phase and there's no clear visibility on how it may affect our business in the future.

However, we're pleased with the positive third quarter results which prove how we've been able to continue growing in key segments while containing costs in a high inflation environment.

In addition, we're already operating as one integrated and single Company after a very short period of time and continue to solidify our advance on our synergies plan which is allowing us to build a very strong foundation for a sustainable and strong business model for the coming years. Now, we can start the Q&A session..

[Operator Instructions]. The first question comes from Susana Salaru of Itau. Please go ahead..

Actually, we have two questions; the first one on slide 10 when Horcajo was describing the initiatives on the cost progress. Specifically, on the selling expenses, you mentioned that there was a rational commercial strategy that helped to contain the growth in selling expenses.

So could you elaborate a bit more what does it mean? Because I mean you keep growing on the postpaid and typically gross paid -- postpaid net adds incurs in a high commercial commissions. So I just wanted to understand how to conciliate this rational commercial strategy with the growth in the postpaid segment. That would be our first question.

And then our second question relates to the market dynamics. Recently, we saw two other players announcing a flat fee net-of-net for all-night and off-net calls. I just want to hear your thoughts on that, if Telefonica intends to follow and present something similar to those players. Thank you..

I'll talk quickly about the first point, then I will hand to Christian to talk about the off-net, on-net point you mention. In general, we have synergies coming from GVT already with respect to commercial activities in general.

We mention, for example, substantial reduction in the commercial activities on the fixed business as we start to combine the businesses together. But many other activities and also in the communication front which is a very heavy cost line. We optimize communications as both companies are now working, operating together.

So there's many -- you can go to dealer commissions and others, but no doubt we've rationalized our commercial cost in order to deal with the inflation pressure we have as well as our need to continue to maintain and improve our low margins. That's the best I can give you in detail.

With this, I will let Christian to add if he can and going to the off-net, on-net..

Yes, I think, Susan, in line with what Amos said, we're trying to optimize the usage of the different channels to the different services. And in some expenses, you're right, we're increasing the gross of postpaid. We're being very precise in the use of commissions and also in subsidies.

And also can point out that we will be very successful with buyback. So we're now having a different model for customers to buy their new device, bringing back their old device. That also gives an advantage for the customers and it reduces our pressure on cost of the new cell, of the new device.

So there are many other examples that we can say that it's part of our strategy to be more efficient in commercial costs. About the offers that you mentioned before of our competitors like -- as you follow the market, you always bring new offers in the market. The telco sector is very competitive.

There is -- always the new offer seems to be more aggressive than the previous one. And I think we're confident that we can keep our value proposition; that is very driven innovation and data usage. And that is not so much in price.

We'll be constantly adjusting it to be the best offer for our customers and we keep the edge and the momentum that we have in the markets in the postpaid and the prepaid. So we continue growing, as I said, that we believe is the right one; knowing data and value proposition, that is more than only price and very focused in quality..

The next question comes from Mauricio Fernandes of Bank of America Merrill Lynch. Please go ahead..

Two questions if I may, Amos, Alberto.

The first on the -- I would like to know how you've seen so far the launch of the new portfolio pricing plans launched by TIM over the weekend and if you plan to make any action as a result if you feel the need to do so and if you've seen any impact in churn -- even though it's just a few days, but if you've seen an impact in churn as a result? The second question is on bad debt.

Yes, we saw the increase -- Alberto commented on the fact that second quarter was low.

I was wondering given you show a chart with the provision for bad debt falling during the -- even though slowly but during the month, how do you see that going forward if the level that we saw in the third quarter should be the normal to expect for the next few quarters? Thank you..

I will take those two questions.

The first one with respect again to the launch of the new offer by two of our competitors, I want to remind you and the rest that many competitors launched in Q2 a free service of social networks, social media -- there's Facebook, Twitter, WhatsApp and so on and there was excitement -- in our last call about what does it mean to Vivo.

And at the same time in June, one of the players launched a very aggressive postpaid product and you remember it very well because I will receive the same question about what does it means to us.

And we're here talking in November about Q2 results and I can tell you including October, all these initiatives that kind of been -- seems problematic to some of the analysts did not affect our ability to continue outperform the markets and continue to lead the postpaid and so on.

So again, with this new offer that came on, it's another initiative to try to change the trends that are strongly positively to Vivo. We feel very comfortable going forward. We don't have any initial results on any churn on our side, even again as I mentioned it's a few days relating to the -- those initiatives.

And we strongly believe we have enough to offer to our customers and many new news coming soon in November, December or January. We have many new offers coming for our mobile subscribers, to our triple-play customers. There's the quad-play initiative that we're going to be strongly pushing in 2016.

We're very comfortable with the direction we're taking which really values, not volume and that hopefully will be always our pillar in our strategy. With respect to the bad debt, I think, as you mentioned well, the slides demonstrating a slight reduction month over month in Q3.

I can also confirm that October, as expected, is showing additional significant reduction in bad debt and we expect that Q4 will have a positive number with respect to bad debt compared to Q3.

So many actions we took in Q2, Q3, as you know, the cycle of receivable is longer and in order to have effect on bad debt, we have always a delay of three to six months between the action you take and the actual results in the financial statement.

So a very -- more -- I will say, cautiously optimistic that Q4 results will have a better performance on bad debt..

The next question comes from Michel Morin of Morgan Stanley. Please go ahead..

Two questions; first, on CapEx. Just wondering if you can give us a preview of how to think about your plans going forward in the context of the FX impacts, but also considering what your competitors are doing with one of them planning to cut and another one in a weaker financial position. So you obviously have financial strength on your side.

And then secondly, on the synergy plans, you've talked about initiating the rollout of the new field operations in Sao Paulo. Can you give us a little bit more granularity as to what that really means from the customer perspective and where the savings come from that? Thank you..

Thank you, Michel. With respect to CapEx, again we probably will maintain CapEx in reais for next year. In general terms, it might be a little bit up, but again in the area of what we invested in 2015.

We believe that in one end we need to have the right rollout of 3G, 4G, fiber and so on and we will use smart big data analysis to optimize CapEx whenever we can in order to make sure we're rolling CapEx in the most -- to the most attractive customer in the most attractive areas. So we will do it in a more intelligent way.

Clearly, we have pressure of dollar compared to 2015, something we're trying to mitigate with our vendors and we have some advances. But not -- we don't have the full picture of this yet, so we cannot inform you about where we're in exchange rate effect.

I think we will continue to be prudent on our investments to make sure that we also generate the needed cash flow and return on investment and believe we have the right optimal CapEx investment -- taking into consideration again return on investment, generation of cash flow and meeting our customer demands.

With respect to the field operations, I think it's generally an item relating to the overall triple-play transformation we're planning to do at Vivo. That the real -- I would say, the point of change will happen around April 2016.

And this is because in 2016 we will migrate all the IT -- all the fixed customers of Sao Paulo of Vivo to the former GVT IT system. That will be opening new possibilities and opportunities. One of them of course will be that finally we will have a national -- a single national triple-play offer, we believe very attractive.

It will also enable us to offer a quad-play, even live, but we'll start off with quad-play. Then it will enable us to apply the former GVT methodologies on field service customer care with respect to the Sao Paulo concession contracts which means we'll have two things happening on the field service.

One is we'll have more insourcing than the current 1% outsourcing that Vivo used in Sao Paulo. So we will be able to balance between those two models and making sure that we're reducing unitary cost and installation cost, improve quality of installation productivity and so on.

And the second is really applying a field service management software system, yes, enabling better control on the field service. So those two will happen in April.

Meanwhile, we started already this quarter some pilot and we took one region of Sao Paulo and started the insourcing of it using the GVT model, even though without the full software and the full model that will be happening only in April. So that's what's happening now.

The effect will be substantially on quality to customers and reduction of unitary costs. The saving will happen in the call center; though in Q1 we expect to start insourcing. By this, the areas in Sao Paulo will serve top customers -- I may not enter now what I'll define top customers -- with our own call center and our own installation team.

So we believe that quality of service and network will be a key differentiator for us in the next coming year and we're trying to runway from the pricing war -- we just talked about that a few minutes ago -- and focus on a full value proposition, even quality of experience and network and benefits coming in every offer will be a key pillar in our strategy..

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

In broadband, you provide a breakdown between the FTTX technology and others in terms of subscribers. Can you talk about the difference in ARPU between the two technologies and if others include mainly DSL? Thank you..

Yes. On page 9, Vera, you have the broadband ARPU, the difference between the two. So it's R$37.8 in broadband; that is, as you said, mainly DSL. And the R$42.4 is ultra-broadband, that's FTTX, as I said, FTTC and FTTH. Both of them is R$42.4..

But there's no big difference between the ARPU of FTTX, FTTC -- there's no big difference..

And the other one, as I said, is copper..

I will say that in general the FTTC of GVT has a higher ARPU, a little bit than FTTH. But that's mostly pricing policy of the two companies. They have not been integrated. And again, as I mentioned, in April when we will integrate the two products, we will have a one -- one products line and one ARPU. At this stage, FTTC is generating more ARPU..

And in terms of when I look at your net additions of FTTC -- FTTX, I'm sorry, are they mainly in the GVT area or they are evenly distributed between GVT area and Sao Paulo state?.

Yes, they are in both areas, okay, they are in both areas. It includes the GVT area and also fiber. Note, that fiber to the home that what we're selling in Sao Paulo is the Vivo brand..

But of course due to the footprint of -- the GVT footprint is much bigger. There's more net adds coming from the old GVT network than the FTTH. However, we have the nice, nice plans for growth in FTTH net addition quarter by quarter. So we're very pleased with the performance we're seeing in Sao Paulo in the last six to nine months.

Things are really getting better with respect to penetration and net adds. And we don't have the split now to give it to you, but we might do that in offsite, maybe --.

Yes, we have the record sales, as Amos said, of fiber in September -- that is in Sao Paulo and its Vivo brand. But we don't open the split between the two..

Yes..

The next question comes from Valder Nogueira of Santander. Please go ahead..

One question, do you believe that it is too early to jump into a forced reduction of the on-net, off-net price spread? Because if it works fine, okay, but if it doesn't work fine, you are entering into a trade that you are paying upfront three months until the next MTR reduction comes in in order to make your proposal for the long-term Vivo, because you try to get in the clients into your portfolio.

You offer a value that right now they don't have. But in the future if you don't maintain that client, you pay three months of more interconnection specifically to guys like you and Claro upfront.

What's your view on this invisible hand behind this offer which is the interconnection?.

I will say that clearly this is a tough question for us to answer as we did not launch that product. And somebody probably did his own calculation that we're not aware of. However, I can tell you on our side we ought to see a trend of growth in incoming call revenues due to these initiatives. So we might be benefiting from that kind of product line.

I don't have much to say today. It's clearly a question that the two players that launched the product should really answer you..

The next question comes from [indiscernible] of New Street Research. Please go ahead..

Just a couple of questions please; firstly, on one of the line items within OpEx, taxes and contributions. That's down in the third quarter.

Is that to do with the accrued FISTEL payments and again, is that to do with the falling number of prepaid subscribers and should we expect that to continue therefore as the industry loses second SIMs? And then secondly on the fixed business, the performance in, if you like, the old incumbent business, Telefonica Brasil, has had another good quarter showing some modest growth.

Historically, that has been a business which is showing 3%, 4% revenue declines. What exactly has changed in the last couple of quarters there please? We don't get a huge degree of granularity on the old business. Any help would be appreciated. Thank you..

I will answer the second question and then I may hand over to Alberto for the first one on tax. I'm Christian talking, sorry. On the fixed business, I think it was a combination of good actions in the three main businesses.

I think in voice we were able to package innovative and good voice plans to customers that also helped us maintain a good level of the voice revenue.

In broadband -- not in the ultra-broadband, in the broadband, we also were able to offer attractive like services of 2 megabits and even 4 megabits and 10 megabits in some regions that we didn't offer before.

And mainly I think the growth was driven by, as we said before, good penetration and good sales of fiber and also not only in the ultra-broadband fiber, but also IPTV. So I think in the last quarters, we had a robust increase on sales. September was our record of sales in fiber. So I think we've driven revenues to this upper value now in this case.

Ultra broadband that in the future combined with our offer for GVT and FTTC, as we said before, will position us as we're together now as two brands, leader in ultra-broadband. So I think it was a combination of actions in the different lines and that helped us have these better results as you point out in this quarter..

On the question of the contribution and taxes, if you look at our net additions, it was negative 3.2 million for the third quarter 2015 which obviously is a very different number from the roughly 470,000 positive net additions we had in the third quarter of 2014. So that explains the big difference in the quarters..

The effect of the FISTEL, yes..

Okay, so we should expect that to continue to come down essentially overtime?.

Yes, we're rationalizing the base of the prepaid and whenever needed we will continue to have a base that has positive value for our business. And if needed, that base will continue to get lower and as a result, we might see a lot of FISTEL, but that we will have to see within the next few months how the prepaid base is evolving..

The next question comes from Will Milner of Arete Research. Please go ahead..

I have got a couple of questions. Firstly, thanks for the color on CapEx going into next year.

But can you just remind us what proportion of your total CapEx on the enlarged Group is priced in Brazilian reais and what percentage is foreign currency and hence impacted by the devaluation? And then my second question is just -- going reading through your press release, obviously the impact of the recession in Brazil on your results, you mention the financial volume of prepaid recharges has continued to increase and I think the overwhelming impression given is that there has actually been a very minimal impact of the economic slowdown so far on your results.

I just wonder if you can comment on that if whether that's an accurate reflection of where you see the business today. And then looking ahead given the impact is usually relatively late on telecom companies, where you might expect to see evidence of a sort of extended recession on your results going forward? Thanks..

With respect to your first question, we have about 34% of our total CapEx linked to foreign currency, okay, 34%. And that's what I mentioned at beginning. It's an ongoing process with providers and vendors to be able to minimize any effect of exchange rates on our deployment plans for 2015.

With respect to the economy and results, I think what we've been able -- I think if you look on the telecom sector as a whole, no doubt the economy already affected generally that sector, even though itself was maybe late and lower. I think the telecom sector is probably more resilient than other sectors.

But still I don't think we can say that the economy did not affect the sector. I think we have been able so far to benefit from taking a bigger share of revenues of the market growth -- of the incremental market revenue growth than others and that has helped us to kind of showing different trends than the economy.

So I think that the challenge will continue to -- need to manage, yes, as market in my opinion has some -- been depressed by economy to some degree and we need to continue to be smart in -- outsmart our competitors then and growing by taking a bigger share of revenues. That's not a simple task, but I think we have the right ingredients to do so.

In respect to each one of the segments, I will say we're seeing a fantastic demand for fixed business, broadband and Pay TV. We could grow it even faster. It's not issue of demand. We don't see the crisis there yet. I mean Pay TV and broadband are in high demand. So we're managing CapEx and revenues and installations.

But anyhow, I will say that that's really very resilient so far. On the mobile side, postpaid is continuing. The B2C represents very [Technical Difficulty] I mentioned 9% higher than the second quarter. So postpaid is still going in a resilient way. Prepaid is less, more affected by the economy.

Despite what you mentioned now, I think that clearly the prepaid has more issues than postpaid. And when leaving the B2C, going to B2B, as I mentioned, B2B even though has better results in Q3 than Q2, that's a segment that has more been effected by the economy and for various reasons companies are more suffering the initial phase than consumers.

So I believe that the key things for us is of course to maintaining revenues growth and taking better [indiscernible], but also the recession of the economy affecting some items relating to net debt and inflation that's affecting some cost items. We need to be very prudent in efficiency, cost cutting and improving bad debt, as I mentioned.

We will see better strength now in order to contain that affect in our P&L. I hope that answers your question, Will..

Yes, that was really helpful. Thank you. And just one very brief follow-up just on the cost that you mentioned at the end. I mean I saw the collective bargaining agreement affecting -- the personnel cost line was 7.3% this year and I imagine you have another one coming in January of 2016.

Is it reasonable to think given where inflation is now that that's going to be quite a bit higher for 2016?.

We did two things. One, in September, we did the rightsizing which you will not see the benefits of that this year. So you will -- being able to -- and I think, as I mentioned, many of the synergies actions we're taking will have visible financial results only in 2016. That's one of them. It's substantial.

And second, clearly we're in the middle of negotiation with the union on next contract adjustment. It's a sensitive issue and I prefer not to discuss it publicly. But we're doing our best to contain that growth in cost for next year as well..

The next question comes from Carlos Akira of BTG Pactual. Please go ahead..

So I have two questions please. The first one on -- we saw some deceleration on GVT's revenues growth this quarter compared to the previous two quarters. It was a very small deceleration I know, but I was hoping to see GVT reaccelerating given the Vivo's backbone, advantage that it will have by using Vivo's backbone.

So my question is what can we expect going forward in terms of growth outside Sao Paulo for the fixed line products? And another one which I think maybe just premature, but anyway, if you can give us an idea of how much savings you had in the third quarter related to the synergies or to the initiatives you already announced on the synergy side?.

So about the GVT side, it's a very tiny difference, 10% compared to 9% quarter over quarter. But to be very honest with you, [indiscernible], as mentioned, our biggest issue today relating to the fixed business in general, Vivo and GVT, is really CPEs. CPEs, Customer plus equipment, went with the dollar change by -- it went to the roof.

And until we will find a more permanent solution with lower CPE cost -- something we're working on and we hope we will have in 2016. We had an initial shock on the CPE cost while we were negotiating with suppliers because mostly CPEs are of -- Pay TV and ultra-broadband are dollar based and it's hard to negotiate it.

It's a very short-term delivery compared to core networks and others. We had to slowdown some installation. And that again, in summation, is not about demand. It's about managing and mitigating CapEx and growth. And that's really the biggest things we need to deal in the next few months, finding how to continue meet the potential in the market.

There is pent up demand and almost for GVT and Vivo both in Sao Paolo and outside Sao Paolo. The new cities that we launch that are extremely -- are well -- been well accepted. We launched I think two cities in Q3 that we're in waiting line already after a few weeks. People just are in line to get the product.

So clearly it's something that we need to resolve within time in order to have the right CPE prices to meet demand. The second question was about the synergies cost. We're trying not to give these numbers because the things with numbers is that we have only initial results and a few things and it's ongoing.

The only thing that is, I will say, is a onetime shot, is agile, rightsizing and all benefits relating to debt. And that's generally not ongoing. That will bring us a saving of about R$200 million a year starting next year, the rightsizing and all benefits line.

So that's just a number that is -- we can share with you and the rest as it's a one time, while the rest cost saving, migration of last mile and others, is just an ongoing. Hopefully, 2016 we will be able to provide more financial numbers than in the first quarter after integration..

The next question comes from Diego Aragao of Morgan Stanley. Please go ahead..

Yes, yesterday I think together with the new portfolio of plans TIM said that it's not planning to increase price to offset the plan, a tax increase related to the ICMS and ISS in a few states.

So my question is what should we expect from you? I'm just wondering whether or not are you still comfortable to pass this tax increase to price in these markets? Thank you..

Question, I don't think we will discuss our tax policy on the call. I think we will continue to be prudent on maintaining margins from products and if in some places we have the opportunity that we're seeing -- the need maybe sometimes to really pass this kind of taxes to consumer. But again, that's something we need to evaluate.

It will be effective from 1st of January 2016. We have some time to look into that and we're not in a position to discuss new pricing at this point, okay. Sorry for that. Not maybe full answer to your question. Always that's a -- pricing is a delicate strategy; things that we will have to keep it internally are largely products portfolio and pricing..

This concludes the question and answer session. At this time, I would like to turn the floor back to Mr. Genish for any closing remarks. Please go ahead..

Again, just want to thank everyone for taking the time to participate in our call. Again, we had in our opinion a positive solid result, showing a clear premium position of Vivo in the market. We believe we have the solid foundation to continue outperforming the market in the next coming years.

We believe that synergies will be an important factor and will be more visible in 2016. And with that, I will end the call for this semester. Thank you so much..

Thank you. This concludes today's Telefonica Brasil third quarter 2015 results conference call. You may now disconnect your lines at this time..