Telefonica Brasil Earnings Call Insights: Fixed vs. Mobile, Music

On Monday, Telefonica Brasil S.A. ADR (NYSE:VIV) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared.

Fixed vs. Mobile

Patrick Kirby – Deutsche Bank: I’d three questions on SFR please. Firstly on the EBITDA, are you giving any indication about fixed versus mobile EBITDA in the quarter or have you dropped that division or that disclosure for good. Secondly could you give us any guidance or indications about how commercial costs will move in Q2 clearly you’ve highlighted that there was a distorting impact in the first quarter. And then thirdly just on the fixed customer base I see that’s down 25,000 in the first quarter but you say that, that has picked up again in April. I wonder if you could just give a bit more color on what’s happening there and how much of a recovery you’ve had in April. Thanks.

Jean-Bernard Levy – Chairman and CEO, SFR, Chairman, Activision Blizzard and Chairman, GVT: So why we decided the not to disclose any more about the fixed and mobile EBITDA it’s due to the fact that more and more with the increase of converge offers quadruple play 4P offers. It becomes more and more difficult to allocate revenues and costs this is getting more and most theoretical and meaningless we since the beginning does not make the difference in between the fixed and mobile and if you look at orange figures you will see that they recalled the fixed part of the quadruple play offers in the mobile revenues. So, it always become theoretical meaningless and this is why we have decided to stop reporting on that, and also something which is very relevant on top of all those cost accounting issues raised by Pierre is that there is no head of fixed and head of mobile within SFR. That’s not the way the company is organized. It’s been fully merged commercially with the same brands, with the same network of stores, and managerially and a network which is more and more IP-based and totally unified, and again, no specific managerial responsibilities at the top distinguishing between fixed and mobile. Just to illustrate what I said relating to Orange recording, the fixed part of its 4P revenues in mobile. If you compare total mobile revenues of Orange and SFR for the first quarter 2012, Orange revenues are minus 1.1% and SFR minus 6.8%. If you restate and if you make SFR comparable to Orange, then Orange is still minus 1.1% and SFR is the only minus 2.6%. So things are getting more and more complex. This was your first question. Second one, some color on the commercial costs on Q2. Due to the fact that it’s true, the basis for comparison with Q1 2011 was not adequate, I would say that now we are in – we are back to normal and Q2 2012 shall be comparable to Q2 2011, maybe less volumes as we now have – as you know a new competitor on the market. Third question about, as Philippe mentioned, very disappointing performance in ADSL with negative net sales of the 25,000 customers. We have – how to explain that, different ways to explain to cancel that. First there has been significant halo effect of the launch of Free Mobile on free ADSL offers. I guess they will announce a very good quarter tomorrow in ADSL. Then you have also the impact of the repricing of Orange ADSL and quadruple play offers as that took place end of 2011 and which are bearing fruit, and the fact that we have been quite poor intrinsically FFO. This has changed, we have taken some new actions about improving quality reducing churn and we have first signals that things are improving and in April we are again positives in terms of net sales. We announced – we shall announce very soon ‘relaunch’ of our ADSL in September with a strong focus on our new box, which has now 15% penetration of our customer base and we should 50% within two years and we shall also put the emphasis on the user interface (indiscernible) of our box that we missed to advertise on this. We expect a strong recovery but more on the last part of the year on ADSL.

Music

Julien Roch – Barclays Capital: Couple of questions of SFR and then music. On SFR if the whole subscriber base was (agreed) to the new tariffs could we have an indication what the ARPU would be either in euros or in percentage decline versus the 372 you reported in Q1? That’s my first question. Second question is the regulatory impact on revenue mobile in Q1 was 7.0 so from minus 6.8 to 0.2. How much revenue on EBITDA impact do you expect in 2012? Then the last question on music, Philippe said it was a small quarter and clearly 6.7 on constant currency, hasn’t been seen probably, since 1999 and 2000. But is it possible to have a sense of how much was the release schedule how much was the underlying market? Thank you.

Jean-Bernard Levy – Chairman and CEO, SFR, Chairman, Activision Blizzard and Chairman, GVT: About the repricing of the existing customer base of course we don’t comment on that so you will be disappointed. About your second question on the regulatory impact, we expect minus €550 million on revenue and no impact on EBITDA if you take Q1 mobile revenues the service revenue of mobile is a decrease of 7% in fact is minus 0.2% if you exclude the regulatory impact. Third question can you repeat it.

Julien Roch – Barclays Capital: The third question was about music.

Jean-Bernard Levy – Chairman and CEO, SFR, Chairman, Activision Blizzard and Chairman, GVT: You may repeat it for Pierre.

Julien Roch – Barclays Capital: Concerning music there are two things one is that the sale performance has been driven in large part with new releases on page 21 you can see that all top five that’s in the appendices. Our top five new releases have amounted to 6.3 million units which is 50% higher than on, than last year of course meanwhile, I suspect that catalog sales have gone down or have been stable and also that there is less concentration in this area than in many others. The top sellers do not explain the whole story, but overall, the market has been supportive as well, because we’ve not – I don’t have it in mind that we’ve gained very significant shares either in the U.S. or in other major territories during the first quarter this year, so the market overall has been more supportive, and in terms of bottom line also of course, keep in mind the impact of the cost cutting we started 18 months ago now.