Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Telefonica Brasil Second Quarter of 2022 Earnings Conference Call. Today with us representing the management of Telefonica Brasil, we have Mr. Christian Gebara, CEO of the company; Mr. David Melcon, CFO and Investor Relations Officer, and Mr.

Gabriel Menezes, IR Senior Manager. 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.

It could cause results to differ materially from those expressed in such forward-looking statements. Now, I'll turn the conference over to Mr. Gabriel Menezes, Investor Relations Senior Manager of Telefonica Brasil. Mr. Menezes, please proceed..

Thank you very much. Good morning, everyone. And welcome to Telefonica Brasil's conference call to present the Q2 2022 results. The call will be divided as follows. To start our CEO Christian Gebara will comment Vivo's financial and operating highlights followed by an update about our B2B and B2C digital ecosystems and ESG initiatives.

Then David Melcon, our CFO will go through our costs and capital structure, net income, free cash flow, and shareholder remuneration. Now I'll hand it over to Christian..

Thank you, Gabriel. Good morning and thank you for joining our earnings call. We begin on Slide 3. In the second quarter of 2022, we incorporated assets coming from acquisition of our share of Oi mobile.

The results originated by disasters that there have been considering our numbers since April 1, 2022 coupled with an outstanding quarter in organic terms, let us direct or double-digit growth and key performance indicators by which we measure our business performance, access, revenues, and cash generation.

Our customer base totaled 114 million access as mobile postpaid reached impressive level of 57 million lines, while FTTH connections moved 25% year-over-year to 5 million. With the remarkable acceleration of our operating figures. Our total revenues bolstered the growth of 11.1% year-over-year boosted by our mobile service revenue that expanded 15.1%.

Excluding the impact of Oi's incorporation, mobile service revenue was up 9.4% in this period, considerably ahead in comparison to recent quarters performance.

Our EBITDA grew and currently up 8.3% versus second quarter '21 offset the impacts of the rising cost inflation, driving the operating cash flow generation of the first six months of 2022 to expand 3.3% year-over-year.

Moreover, align with strong top-line performance efficient financial management our free cash flow rose 13.9% in the first half of the year, reaching R$4.6 billion contributed to the distribution of R$3.1 billion back to our shareholders that was further enhanced by R$313 the share buybacks.

This results underscore people's leading position to Brazilian telco landscape that can be recognized not only by our strong financial performance, but also by the strength of our brand. That was considered to be the fourth most valuable in Brazil among all sectors being worth almost $4 billion. Moving to Slide 4.

You can see on the left hand side of the slide, the continued improvement of our revenue mix. With core businesses increasing relevance by three percentage points year-over-year represent 2% of our top-line.

In the right hand side, we show how -- in the market is reaffirmed, as our total revenues yearly performance continues to improve quarter-after-quarter.

Bear in mind that our improving growth phase is happening despite a more challenging macroeconomic environment, highlighting the essentiality of connectivity and inflation proof character of our main services such as fiber and B2B solutions.

On the next slide we'll give more color on our core segments that continue to benefit from their positive momentum as mobile revenues expanded 16% year-over-year, while fixed core was up 10.8%.

We had double-digit growth across all mobile sales, a byproduct of our superior level of another decision that you defer the stay on the next slide with a healthier pricing environment. As a result, our mobile service revenues rose 15.1% year-over-year, the highest expansion of design in over 10 years.

Meanwhile, core fixed continues to move some results leveraged by the nonstop fiber expansion and by our myriad of B2B solutions that place people as the only player in the market capable of offering to enterprise the best connectivity platforms, custom services, and applications from top global partners.

Now on Slide 6, we present our superior breaking results. Our Oi mobile based grow 23% year-on-year, reaching 99.2 million access with the addition of approximately 12.6 million coming from Oi. On top of 1.4 million organic postpaid access.

It's worth saying that in the second quarter of 2022, we rested our highest level of organic postpaid excluding machine-to-machine that additions in over seven years with approximately 1 million new lines as of quarter-over-quarter considering hybrid and pure phosphate.

The remarkable outcome, along with the lowest level of postpaid churn ease Vivo's history is proof of our unmatched quality of services and brand positioning as our customer base keeps expanding month-after-month. Regarding fiber, we reached 21 million home paths in 354 cities, totaling 5 million customers.

The FTTH business is our main growth lever and we continue to move forward into segments, we have before converted to offer people will expand our fiber footprint through organic deployment and through Brazil. Moving on Slide 7 gives them an update on our B2B and B2C digital services.

As you can see on the left hand side of the slide, the revenues coming from the sale of digital B2B services continue to outperform 36% year-over-year to reach R$2.3 billion over the last 12 months led by hit demand for cloud, cybersecurity, and digital solutions. Another promising corporate segment we have is Vivo Agro.

Today Vivo Agro delivers high performance breakeven efficiency assurance services to farms. However, we gave you an excellent opportunity to sector and as we develop partnerships with specialized suppliers to create the biggest portfolio of solutions for the modern Agro business.

The results was variable to launch new IoT products to bring back management tools and increase the productivity of our customers operation. And they will be able for example to manage and track capital remotely and use drones to monitor perimeters or apply agricultural inputs on crops.

Regarding our B2C ecosystem people money continues to expand with more than R$80 million in credit considered so far after originations grew more than six fold this quarter on a yearly basis. In the meantime, Vivo is our joint venturing on [indiscernible] is progressing according to plan.

We have already defined the CEO and management team, heavier targets launch a minimum viable product is still in 2022. Lastly, people bankers, our corporate venture capital is on its final steps towards its first round of investments.

After the creation of shortlist of the top 20 potential industries selected according to their growth potential feet with people's digital ecosystem strategy. On Slide 8, we present our first issuance of debentures linked to ESG goals and the recently launched financing framework.

The debentures issuance helped us in taking another step forward into a more sustainable and diverse company as its aligned financial, environmental, and diversity objectives. The debentures remuneration subject to two ESG related goals.

The reduction of our direct greenhouse gas emissions by 40% and had 30% of our leadership roles occupied by black people, both by the end of 2027.

Moreover, the new financing framework unwrapped people's approach to sustainability investment and the market in general allowing for a simplified emission and allocation of future investments of social impact, and low carbon footprint.

With that, we'll be able to continue expanding our contribution to the United Nations Sustainable Development Goals that underpins our ESG overall strategy. Now David will take us through the financial highlights of the quarter..

Thank you, Christian and good morning, everyone. On Slide 9, we detect the company's cost showing the ongoing trends of changing the mix, as we increase the share of revenues that go beyond connectivity. Recurring costs grew 12.9% year-over-year slightly above inflation. This quarter, we had strong results in digital services, handsets and equipment.

And therefore, our revenue driven cost of service of goods sold grew 16.3% year-over-year, representing 30% of our total mix.

Meanwhile, cost of operations grew 11.5% given higher expenses related to personnel due to the annual salary adjustments, coupled with the continued increase of natural usage that drives infrastructure cost up, and acceleration of commercial activities.

In addition, we reduce on a yearly basis for the eighth quarter in a row, the provision for bad debt. This positive outcome results from a well-developed building strategy and superior greatest coding capabilities, as well as increasing relevance of our services for our customers, allowing us to maintain bad debt under control.

On Slide 10, you can see that Vivo once again increased its operating cash flow while we continue to expand investments through deployments of top share technologies such as fiber and 5G. Year-to-date, CapEx reached R$4.5 billion up 6% versus the previous year.

In fact, this ongoing effort was directed towards building the best network currently place us as a player with the largest 4.5G coverage in the country, as we already provide decent data experience to 86% of Brazil population.

As a result, our operating cash flow which we believe is a key metric to check the profitability of our operations amounted to R$4.6 billion year-to-date, up 3.3% versus the previous year. This lets us reach an operating capital margin of 20.8% over the last 12 months, maintaining the above 30% level seen in recent years.

Moving now to Slide 11, the real evolution of our net income was impacted by higher debt linked to the precision of 5G frequencies and mobile assets, which while improving our capital is total results in higher financial cost, especially with the recent hikes for the local interest rate.

Additionally, the year-over-year net income comparison is affected by non-recurring effects that impacted the results from the first half of the previous year.

Regarding financial debt, we ended June 2022 with R$3.9 billion of gross debt and includes R$1 billion of bank debt issued in April this year, as well as commitment related to the 5G licenses acquired last year, part of which we already paid for during this quarter.

Nonetheless, given our solid operating results, an increase in financial management, we managed to generate R$4.6 billion of cash in the first six months of 2022 increasing 13.9% year-over-year and reinforcing our ability to convert a standard operating performance into cash.

Finally, on the left hand side, you can see that we maintain a solid level of shareholder remuneration that was supported by the execution of our share buyback program which we have been accelerated, but we will continue to direct resources for that in line with R$330 million already invested this year also which R$271 million was included in the current buyback program that expires in February 2023.

To conclude, on July 19, we make the first payment on the 2021 paid remuneration with a cash out in amount of R$2.7 billion that will be complemented by a further payment of R$3.5 billion as scheduled for October 2022. Thank you and now we can move to the Q&A..

Thank you. The floor is now open for questions. [Operator Instructions] Our first question comes from Bernardo Guttman. Please, Bernardo Guttman, XPI, proceed. Your microphone is opened. Okay, we are going to the next question from Andre Salles, UBS..

Hi, guys. Good morning. Thanks for taking my question. I have a question in terms of margin, we saw some pressure coming from cost of goods sold and personnel expenses going above inflation.

Are there any costs or expenses related to the integration of voice clients based on this quarter? And how should we see the margin dynamic going forward? What could drive margin recovery in this case? Thanks..

So hi, Andre, yes. Yes, the market they were impacted by cost of goods sold, I think is good also to highlight what we would said about the digital services. The relevance that these services are taking into our numbers in B2B reports in the R$2.3 billion and also as you can imagine these services, they come with a lower margin.

There's no CapEx in most of them. So it's lower margin as the same as we are also increasing digital services in the B2C segment also being selling a lot of entertainment-as-service, we are now opening up the numbers in B2C. But we are growing as well, the services.

So what we're to highlight here is that this service again in a relevant volume in our results, our absolute number of EBITDA is growing, now is above 8%. And going forward, I think what we're going to see is more sales of services in different margins. But at the same time digitalization is still playing an important role in our cost decrease.

So we also want to see some benefit of more digitalization in the customer care and also in sales commission, or since we are driving our sales on today's around 30% of B2B sales. In the e-commerce channel, we see room to increase its much more, now much over 30%. So it's going to be a combination of two things.

It is important to highlight, now the impact in CapEx of challenges to services, there is no impact because these services we built all over the infrastructure of connectivity, they were really deploying. The numbers of Oi, they are included. Of course the margin of the Oi is much higher.

Because we are serving this customers with our channel that we already have in place, especially in the Northeast, where we inherited most of the customers, the network is capable of observe these customers as well. So the margin is much higher of the Oi Incorporation..

That is clear, thank you..

Our next question comes from Vitor Tomita, Goldman Sachs..

Hello, good morning, everyone. Thanks for taking our questions. We have a couple of questions on our side. The first one is on M&A, there has been some M&A, kind of some noise on M&A activity involving ISPs lately, and even a transaction between ISPs announced today, do you see opportunities to participate in M&A on that front.

And the second question is that this quarter is on Oi, this quarter a large number for users have been migrated to their new operators.

So are you seeing a relevant movement in the market of users recently migrated from Oi requesting portability from one operator to another or changing operators more generally? And was this reshuffling of Oi subscribers a relevant factor at all for the strong organic postpaid performance you had at this quarter? Thank you..

Victor, I just talk to the second and then I go to the first one. Of course, that we have seen portability going up. So we have like if you look, the share of portability in our net debt numbers, in the second quarter of the '21, the portability represents at a 15%, 16%, sorry, of our net ads, and [indiscernible] represented 31%.

It's not only portability for an Oi, it's portability -- complete portability from all operators. So, but if you look net ads in our case, now it was 1.4 million postpaid net ads this quarter. And that not considering now the movement of the always customers to our customer base. So that shows that yes, it can be impacting the profitability.

And never but it's not only that, now, I think we are strong commercial performance of Vivo, that's also reinforced. If you look at our churn number, that was 1.1%, the postpaid churn that is the lowest also compared to the second quarter of '21. That was 1.3. But if you compare two years ago, it was 1.5.

So I think it is a combination, but I will highlight our superior value proposition that is attracting more customers to our customer base. So that's the first and second question. And then if you want I can complement a little bit more. About M&A, look we are always attentive on market opportunities in many fronts.

And of course, it also includes the fiber. Now, we have a plan to get to 29 million homes passed by the end of 2024. And we said already the 6 million will be for Brasil's responsibility and the rest will be part of our own strategy. Now, today, we are in 21, a little bit more than 21 million.

So we are on pace, and we are completing the target that we set ourselves to get to 29. So if you're going to face any M&A decision in the future is also always depends.

It depends on the overlap of the network, it depends of the quality of the network, it depends on the quality of the companies being sold, it also needs to see how are we going to integrate these customers, our customer base, because one is buying the network, the second decision is buying the customer. So it's complex.

And when the companies are too large, it's even more complex because they will collapse even independent higher. So we are always open to see. But we have a clear plan to get to 29 and that's building together with by Brasil..

Very clear. Thank you very much..

Our next question comes from Bernardo Guttman with XPI. Please proceed..

Hi, good morning, everyone. Thanks for taking my question. Actually, I have two questions here. The first one about the solid growth in mobile, it seems to have been accelerated by the rationality in the segment. The market consolidations seem to have brought greater rationality to price.

On the other hand, your guidance for synergies was conservative, and they did not consider revenue synergy.

Is it fair to assume that this train is in its early stage, any view on the potential market repair of this view? The second one related to the subject of tax reduction? I understand the telcos concern off passing all the benefits to customers by making services cheaper.

But I would like to understand, does the price reduction make the room for a gradual margin rate composition? Historically the sector has had difficult, we've searched price adjustments and now it seems to open up a greater room to pass through. I would appreciate it if you could comment a little more on the subject? Thanks..

Bernardo, I don't think the market has changed. No, I think what our performance in the mobiles are consequence of our strategy for the last two years. And also we've been very keen on always adapting our value proposition to the needs of customers. We've been investing in networks in order to provide now 4g, 4.5g and now preparing ourselves for 5g.

So and also now we are saying we also started to play the convergence of people to tow and also adding to our value proposition that digital service that I think we've been doing that very successfully. Now you can see how important then I think, these are in our value proposition.

I think it also gives us some highlights of like that we are in the right direction. Now so of course, I think all the players are looking for returns.

So we can see a more rational approach in general is not something specifically for this quarter, I think that the movement that's been going on for many quarters, and also there's inflation that's going up. So we've been adjusting price according to inflation, on the plans that we have this annual possibility of being adequate in the plan.

So I think it's more condition that we seen in previous quarter. And reinforcing our value proposition that stands out. I know being the best in the market. And regarding synergies, yes we didn't give synergies in revenues for the Oi operation. We keep with the numbers that you saw before.

That is the 5.4 that is vision AI that was based on the OpEx and CapEx. Yes, we said that so that we see the possibility of customers migrating know the way that they're going to be in our customer base, that you'd have the possibility to spend more, because we have a value proposition.

That is, it's broader than the one that they used to have in the Oi for many reasons for investment fibers -- this agreement. So of course, we can see that, but now we are just assessing the assets that we get. We're going to see what the activity of this axis if some of them are not active as the way we consider active, especially with prepaid.

So I think it's still early to say what's going to be the revenue synergies impacting, but of course, customers working in for other operators may see here an opportunity to increase their telco expenses, because our valuable proposition is broader than anyone else in the market. I think I answered your question. Now regarding the ISMS.

I think here, the first thing that was very positive no to see that telco now are considered essential services. And then we're going to charge last. No, I think we've been talking about that for a long time, even before the pandemic, that we couldn't be taxing so much a service that could enable people to do so many things.

So we are very now focusing comply with all the govern determination and authentic customer needs that's investing over the tax reduction to everyone in every segment was to or falling on. The states that would I still have two states that haven't they haven't approved yet. Four states that recently approved.

We have different tax in different states, different reduction in different states. So there's a lot of complexity, but we are doing as best as we can. What we believe going forward is that if customers did they have the possibility of acquiring more services, because now the price will go down.

I think we will customers that we're running out of data because it couldn't afford more data now they will be able to afford more data. And then finally, the inflation that we are passing over to customer maybe mitigated by the tax reduction. So customer that would downgrades when inflation would play a different price in their plan.

We will now be able to keep the plan that they have. So I think it's positive overall it's positive for the consumer, and in the end is positive for us as well..

Very clear accretion. Thanks a lot..

Our next question is from [indiscernible], Bank of America..

Hi, good morning, everyone. And congratulation on results. So I have a question on my side from for ARPU.

So if you could give us some further color on how did the app organically did so not considering Oi's for postpaid and for prepaid? And also looking for the next quarters? Not that only there are only three players, if you believe this will also have a positive impact on ARPU and also looking at churn because as you mentioned, you reach a lower churn rate chosen than before if you expect this to continue going forward? Thank you..

I think going forward, yes, I think we are not giving any trend about a performance of an indicator, but I think what about the position is getting even return also believe that loyalty and lifetime value of customers with people will increase.

So we're positive no as we are like changing and adapting and including your service to a value proposition. Being though a real convergent player in the market with FTTH and leadership in the mobile, it gives us like a greater opportunity to be with customers even more loyal. No ARPU it's impacted by Oi. Yes.

They come with lower ARPU as you know, but and that is may impact the postpaid ARPU. So yes, there are two effects. Those are postpaid ARPU.

First there's a lot of migration from prepaid to postpaid that is impacting in a negative way, the mix of the postpaid ARPU and also the customers that we are putting our customer base and postpaid are also impacting in a negative way. The average ARPU.

We don't -- we're not giving all this detail, but if we excluded the ARPU, the oil integration here, our movement would be positive in the ARPU evolution. Okay, in both prepaid and postpaid, that's something that I can tell you.

But again, here also not only Oi, but there isn't the postpaid very robust and very accelerated also migration for prepaid to postpaid, and it's very positive. That's why we are giving these very solid numbers in both revenue evolution of the prepaid that was 18.3% and the postpaid that was 14.4%.

So both of them are very positive gives us 15.1, if exclude Oi is 9.4 Someone as we can have the calculation. ARPU be positive, moving, if it was not considered in this calculation..

Okay, thank you..

Our next question comes from [indiscernible], HSBC..

Hi, thanks for taking my question. My major question is on working capital. Seems that this quarter has been positively impacted by a significant working capital change of 1.4 billion. So what is driving that positive working capital? And how sustainable is it going forward? Thank you..

Thanks for the question. Look if you look the working capital this year. This is positively impacted by the tax benefits that we had last year in the second quarter, which is related to the physical feelings where we've got the credits around R$2 billion. So we're benefiting around 500 million per quarter. So this giving us an upside.

Also, if you compare the working capital of last quarter, last year, fourth quarter last year was negative 628. So that means that at the end of the day, the working capital is made off in fact to have seasonality that you can see the free cash flow, if you look overall the last two, three years, we have a very robust capital generation.

So the seasonality is not really impacting the figure that we have on an annual basis..

Yes, thank you..

Thank you..

Speakers, you may proceed, if you may. Our next question comes from [indiscernible] from JPMorgan..

Hello, guys, can you hear me? Hello..

Yes..

Perfect. Thank you for taking my question. Could you give us a little bit color on the dynamics that we're seeing in broadband, we saw a slight slowdown in your net ad pace. Is this a reflection of slower economic activity overall or just competition increasing? That's my first question.

And second question on margins or in this quarter, are we seeing the full benefit of the migration of Oi or this is something that will take some quarters to actually translate and we should see some year-on-year margin extension in the coming quarters just on the effect of Oi? Thank you guys..

Hi, this is Christian. I think the market as a whole in the broadband it's not as growing as what's going before maybe because after the pandemic there was a hype in the market.

So, we are very confident that we continue to lead know this market, so not only like building and expanding our network but also connecting customers and keeping the rationality of our pricing. So for us like we continue to penetrate the network and increasing the penetration actually got to five million customers.

So that was our closer to the situation now in FTTH. But the market as a whole is not growing as much as it was just after like the most severe time of the pandemic. I think that's a movement. Let's see how it evolves.

Now, we are confident that we have a unique value proposition that combines a very good quality of our network with a channel footprint and presence that is digital and also the presence of physical stores and door to door and now we started to play the convergence with plus digital services.

So, I think natural movement and that we are here in a very attentive to how to respond to demand and to keep our plans to get to 29 million as I said before, and keep the penetration at a high level that expect to have in the next year.

So natural movement, leadership, but although the market is not as accelerated as it was just after the pandemic, for the margin like of Oi, David can help me, okay..

So regarding the second question, look the deal from Oi as we say is accretive, although the synergies and the margin will continue improving quarter-over-quarter.

Now, just to remind you the first 12 months, we need to pay as part of the dealer transition service agreement around R$150 million to Oi because they are looking after the customers, 12.5 customers that are going to be migrated in the next 12 months.

So, once we have 100% of those costs internally we will be lower than that, also product network particularly in the regions where we are receiving the customer from Oi during 2022 we are investing in CapEx. Some amounts that this will not need to continue for the next year.

So we say that the margin will be above 70% coming from those, the revenue from Oi customers. And so the numbers that we are showing in Q2 now we margin will improve in the coming quarters..

Perfect. Thank you so much, guys..

Our next question comes from Luis Azevedo, Safra..

Good morning everyone. My first question is regarding the revenues from Oi, it seems that the revenues from Oi customers is lower than the rate it was indicated by the time of the close in year, do you agree with that? And besides you see potential basically enough from Oi customers? This is the first question, thank you..

I would take that one, look when we publish the information around integration of Oi, we said we're going to have around R$155 million revenues per month, this was based on the numbers coming, the numbers coming from March.

So, we integrate the company starting in April and the number that we are seeing could be slightly lower, but anyway the exceptionality configured that most of the customers are prepaid customers. So the activity will not have an impact on in theory on the revenue that we already saw in March and in April.

So what we are seeing is that some of those customers are migrating organically from Oi to each one of the acquirers in the case of Vivo as we can say we are accelerating the portability so migration customer from an organic Oi.

So overall, when you look at Vivo overall, I do believe that the numbers that we're saying R$135 million per month are still there, so doesn't need to be one, it could be on the jobs under report line as Vivo now.

So in the next few quarters, we are going to accelerate immigration so there's going to be 100% working, or operating in Vivo network and they are going to be also with the care that we will do for the customer will be as part of the rest of the case, so we will protect the revenues and even though we continue analyzing the activity of customers, this will not have an impact on revenues, could be even on upside because now we will try to integrate and also to upsell and cross sell those customers.

But that will be let's say for the next 12 months..

Thank you.

The second question I have regarding the dispute on roaming, right can you give more color on how is it disputes?.

Yes, what we are -- what we are discussing here is the model that was used to calculate the roaming, we agree with the decision of them that we need to present tariffs of roaming. But in our view that they are based on what are the model that was defined in the BGMC, the general plan of conception goals.

So based on this that we presented our first offer now, so, here what we are discussing is how we should calculate the roaming tariffs, not the remedy itself because we have the remedy, because this question here is about the model used to define the tariffs.

And that wasn't for the moment, nothing more I can add on that because it's where we stand at the moment. No, we use the regulation that exists today. There is a top down one, there is fully allocated costs, historical cost accounting. And that was the one that we use to present our offer as well as the other operators.

No, it seems that there was a new proposal based on a different calculation model that is not in the regulation, that is a part of bottom up long run incremental cost. That's what we are debating at the moment. And hopefully we're going to get to an agreement..

Thank you..

Our next question comes from Andre Salles, UBS..

Hi guys, thanks for the follow-up here.

Could you please comment a little on the sites coming from Oi Mobile acquisition and the decommissioning plan that you guys have for them? Do you estimate any costs due to contractor lease termination?.

They're for sale. And that was part of the obligation, so I think we have like a period of four people to answer no, and to comply. No, so we are like 60% of that will be divested to comply, they get remedy. And we have to wait until like all the offers will come to table and decide on that. And we can complement on that, Andre..

Just to complement on that, Andre, I mean the people we have in our balance sheet shows the liability that we already have for those 2,700 sites coming from Oi, so let's say the scenario is already considered in our balance sheet.

So now we are on the way to renegotiate with the service company, whether we can I mean, we are going to decommission as we say more than half of them because there will be for sale. So we need to negotiate. But there was numbers already there. So we see just opportunities to manage this process over the next 12 months..

Got it, just to confirm, is that is related to that close to R$700 million that is booked on your balance sheet right now, right the provisions?.

Yes, we are not, the provision in two lines, one have to do with IFRS 16, which is R$700 million and we have another R$700 million which is booking in other provisions.

And those are the ones related to the site that are for sale, as part of the remedy from guidance, so we have 50:50 and booking two lines because we have two strategies on 50% of the site and defensive strategy for the rest of the other 50. But everything is considered..

Okay, got it. Thank you..

Our next question is from the webcast from Cesar Medina, Morgan Stanley.

How do you expect the rollout of 5G back to your CapEx trends as CapEx is density CapEx versus revenues?.

So like it's part of the business, I think it's evolution of technology. We continue investing in the new technology. So investing for 4.5G was to like implementing a broader coverage. We started with 5G in the cities that are included in the obligation, we may go beyond that. Also, that's a commercial decision that we decide.

But I think once we start doing that we're also not doing other investments in previous technologies such as 2G.

As I said before also, we are taking the opportunity to strength our position as the leading infrastructure provider in Brasil in both mobile and fiber and that we believe, as we believed in the past to engage the results today, that we are going to bring more revenues once we continue to differentiate ourselves as a leading value proposition for connectivity plus digital services in our country.

So it's been a part of our CapEx, but it's going to be a combination of reduction also in previous technologies..

Thank you. This concludes the question-and-answer session. At this time, I would like to invite Mr. Christian Gebara for any closing remarks..

Okay, so thank you all for attending our call.

As I said in the beginning, we are extremely satisfied with the robust results that were presented, especially highlighting the unique growth that we had in all lines of our revenues, that like meeting double-digit results, and also the increase in our EBITDA results as well and the free cash flow, that is bringing robust results.

We are open here for any further question for the team, as you know, and again thank you all for participating. Thank you..

Thank you. This concludes today's Telefonica Brasil's second quarter 2022 results conference call. You may disconnect your lines. Have a nice day..