Earnings Call Transcript - VIV Q1 2021

Operator, Operator

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Telefónica Brasil First Quarter 2021 Earnings Conference Call. Today with us representing the management of Telefónica Brazil, we have Mr. Christian Gebara, CEO of the company; Mr. David Melcon, CFO and Investor Relations Officer; and Mr. Luis Plaster, IR Director. We also have a simultaneous webcast with a slide presentation on the Internet that can be accessed on 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. Before proceeding, let me mention that any 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. Luis Plaster, Investor Relations Director of Telefónica Brasil. Mr. Plaster, you may begin your conference.

Luis Plaster, IR Director

Thank you. Good morning and welcome to our first quarter of 2021 earnings conference call. The call will be divided into two parts. First, our CEO, Christian Gebara, will go over main financial and operating figures, initiatives in the digital space, and ESG highlights, then our CFO, David Melcon, will give you more detail on our cost and CapEx structure, digitalization initiatives, free cash flow and shareholder remuneration. Now, I hand it over to Christian.

Christian Gebara, CEO

Thank you, Plaster. Good morning, everyone, and thank you for joining our earnings call. We started 2021 with strong operational momentum and a return to total revenue growth. Consumption and overall market dynamics are beginning to improve, and our core revenues are accelerating. In the first quarter, we delivered 1.1 billion postpaid net additions, the highest since 2017, and our total postpaid customer base now stands at 46 million. In fiber, we posted another quarter of strong growth and take rate, thanks to our best-in-class broadband products. FTTH net adds of 368,000 was the best performance ever for a single quarter, taking Vivo’s total customer base to 3.7 million subscribers, 41% higher than the first quarter of 2020. In total, we closed the quarter with 96 million accesses, including mobile and fixed. Core revenues up 4.7% year-over-year already represent 88.1% of total revenues. This quarter, we saw FTTH revenues break the BRL1 billion threshold due to an impressive year-over-year increase of 61.2%. EBITDA grew 0.5% to BRL4.5 billion, a margin of 41.1%, and free cash flow totaled BRL2.2 billion, up 3.7% year-over-year. The combination of sustainable operating performance and financial discipline are the pillars of our elevated shareholder remuneration, which is characteristic of Vivo. So far this year, we have deliberated BRL700 million of interest on capital, which represents a dividend yield of 7.9% in the last 12 months. Furthermore, we continue to improve returns through our share buyback program. To date, we have 5.4 million shares in treasury, equivalent to 0.32% of the company’s total capital. On Slide 4, total records resumed a positive evolution this quarter due to continued traction of our core businesses. They represent the main factors of growth going forward and are built on cutting-edge high-speed connectivity in mobile and fixed, combined with a differentiated offer of digital products and services for both B2C and B2B customers. At Vivo, we want to offer more than just the best telco experience. Our aim is to deliver on all our customers' digital life needs, whether that be advice, content, cybersecurity, or cloud solutions for their business. Non-core businesses were down 24.1% year-over-year, mainly because they are made up of mature technologies that are becoming less and less relevant for our customers. Turning to our wireless revenues performance on Slide 5, mobile revenues achieved BRL7.1 billion in the first quarter of 2021, with an increase of 1.1% year-over-year, driven mainly by prepaid revenues, which grew 4%, and the ongoing recovery of handset sales, which were close to 11% higher than last year. In Postpaid, we highlight Vivo Selfie, a set of co-branded plans that offer a selection of quality content such as Disney +, Netflix, and Spotify, increasing ARPU and driving a deeper relationship with our customers. Additionally, we focus on younger and increasingly digital mobile users, co-creating the Vivo Easy plan together with DJ Alok. Vivo Easy is a 100% digital experience where we can customize the amount of data, voice, digital services, and other benefits according to your needs. Looking at our prepaid base, we are seeing an encouraging trend of increased recurrence and a positive shift in customer behavior. Digital top-ups jumped 28.8% in the quarter, and the number of customers recharging was 8.3% higher year-over-year. Turning to Slide 6, Vivo’s network quality and focus on improving the customer journey allow us to maintain solid leadership in the mobile segment, with 33.1% market share as of March 2021. Our postpaid journey repeated similar trends seen in previous quarters and stood at a record level of 1.1%. When looking at Convergent and family plan customers, engagement levels increased, and churn is down to 50% lower, boosting customer lifetime value. The volume of postpaid net additions continues its positive trajectory, reaching 666,000 this quarter, the highest level since the fourth quarter of 2017. Turning to core fixed business revenues, we are proud to present a strong year-over-year growth of 72%, given the demand for high-speed broadband and digital services. FTTx revenues were up 20.3%, with FTTH revenues advancing an impressive 60.2% year-over-year, driven by ARPU increases, enhanced sales of OTT bundles, and the ramp-up of new activations. Along with the expansion of our fiber footprint, we continue to see significant IPTV revenue evolution that was up 25.9% year-over-year. Another positive result in the quarter was a return to growth of data and ICT revenues that rose 9.5% year-over-year. This is a promising sign that companies are gradually starting to invest again. Cloud revenues are gaining relevance and practically doubled year-over-year, confirming the large opportunity in B2B with companies engaging in a profound digitalization process to thrive in this new environment. Moving to Slide 8, Vivo is harvesting from a well-executed strategy to capture opportunities in fiber. After sizable and rapid expansion of homes passed in the last years, it experienced accelerated demand for its premium UBB offering. In the first quarter, we posted record FTTH net adds of 368,000. This is more than twice what we had a year before and over 1.5 times what we saw last quarter. At the same time, Vivo Fibra customers are demanding higher speeds and a wider variety of content options. In fact, around 30% of our gross additions were bundled with OTTs or at speeds above 300 megabits. Moreover, more than 35% of our net additions were Convergent customers. With that, we are able to increase FTTH ARPU by 16.2%, reaching BRL95. In addition, on the top right-hand side of the slide, we show the evolution of FTTH homes passed, up 4.6 million year-over-year, further enhanced by our multiple expansion partnerships aimed at reducing time to market and CapEx allocation. On Slide 9, we give more color on FiBrasil, our neutral fiber network that’s expected to be fully operational by the second half of the year, further accelerating FTTH deployment. FiBrasil is a partnership between Vivo, Telefonica Infra, and CDPQ, and the setup of the company is progressing according to plan. On April 6 and 23, we received approvals from the Brazilian and European Anti-Trust agencies and we are now waiting on Anatel. This initiative will allow us to accelerate our fiber rollout and consolidate our leadership. We will manage all commercial and customer service activities while remunerating FiBrasil for the use of its network. FiBrasil will start with 1.6 million homes passed that we carved out from Vivo and expect it to reach more than 5 million homes passed over four years, taking fiber to both greenfield and brownfield cities. I would like to add we showed the progress of our objectives to build a digital ecosystem. Combining Vivo’s unmatched set of labels, such as customer base, brand, channel capillarity, Big Data, and building capabilities, to mention a few, with partnerships with some of the most relevant players in the digital space, we are creating new platforms that complement our telco services. The aim is for capital growth and to further engage our client base, resulting in increased loyalty and higher recurrent revenues. One of those platforms is Vida V, which is centered on e-health. We have just signed a binding agreement with Teladoc, one of the largest telemedicine companies in the world, which represents another step for us in the creation of a health marketplace around Vivo. Our plan is to provide a set of services such as immediate and scheduled doctor appointments, grant discounts in more than 27,000 drugstores nationwide, pre-screening of symptoms through an artificial intelligence engine, and providing digital certificates, exam requests, and prescriptions to patients. The platform has been established to include and attract other players and partners, and its initial focus will be on people without private health plans. Moving to the right-hand side of the slide, we present our strategic partnerships with Dotz, an engagement platform based on one of the most important loyalty programs in Brazil, and CDF, one of the key B2B2C markets for home assistance and tech support in the country. We are very excited about both. Not only are we strengthening our grasp of customers' digital life through the combination of our businesses, but this is also executing our plan to have equity stakes in companies with great growth prospects that are the champions of their segment. Talking about financial services on Slide 11, we are enthusiastic about the recent launch of our very own digital account, Vivo Pay. This service allows customers to carry out banking transactions like paying bills, making cash transfers via Pay, recharging prepaid plans, and purchasing credits for mobile apps like Google Play, Uber, and Spotify. This initiative allows Vivo to be part of a journey to promote financial inclusion, focusing on prepaid customers who may not have a bank account. Additionally, with Vivo Money, our 100% digital personal loan platform, we are delivering consistent progress, doubling its spread origination quarter-over-quarter. Finally, we launched the Vivo Itaucard, a co-branded credit card created in partnership with Itau, that offers up to 10% cash back and other important benefits that will help us scale our marketplace and stimulate in-store commercial activity. On Slide 12, I would like to comment on Vivo’s most ESG highlights, as we believe that having a social and environmental footprint is key to fulfilling our purpose of digital life to bring people closer together. To help the most vulnerable families still affected by the economic downturn, we are participating in the campaign, United Against Hunger, with the NGO, Gerando Falcoes, to raise funds for the purchase of food kits to support Movimento Panela Cheia. For every donated kit by Vivo’s employees, Fundacao Telefonica Vivo donates two more. Also, in the social sphere, Vivo is the first Brazilian company in the sector with the ISO 26000 certificate, which validates the compliance of our initiatives on human rights, diversity, and social impact with the implementation of the best practices in the market. This alignment encompasses all the measures regarding our employees, partners, suppliers, and society. In addition, we are proud to announce our first solar power plant in the northern region of Brazil, located in Maraba in the state of Para. It has the capacity to generate 2,190 megawatt-hours per year, which will be used to power 632 of our energy consumption units. This is the 16th of 70 renewable power plants we plan to have up and running by the end of the year. Finally, we are rated as having the best reputation in the sector by the poll conducted by Merco, jumping 13 positions compared to 2019. These initiatives enhance our performance and sustainability, which is based on economic, environmental, and social balance and contributes to our main purpose of bringing people together. I now turn the call over to David, our CFO, to take us through the financial highlights.

David Melcon, CFO

Thank you, Christian, and good morning everyone. On Slide 13, we saw how costs in the first quarter remained stable year-over-year. This is a result of our unremitting focus on efficiency measures and the ramp-up of our digitalization and simplification efforts. It’s also important to point out that our cost mix is going through a significant transformation. As Christian detailed before, we are launching new revenue streams and investing in the shift toward becoming a digital hub. Vivo is no longer a pure telco company and already offers B2C and B2B customers a diverse set of services that go beyond connectivity. These segments have their own peculiarities and this quarter we decided to show costs accordingly to provide a more transparent view of how they impact our business. Cost of services and goods sold that are directly linked to supporting and enhancing revenue growth account for 30% of the total cost and increased 19% year-over-year. These costs are a catalyst to underpin the positive revenue trends. In this specific quarter, the increase was driven by the encouraging performance of handset sales, the growth and recovery of B2B, and the growing relevance of digital content and services. OpEx from operations, where we’ve constantly focused on the elimination of non-quality costs, contracted 6.5% year-over-year, benefiting from a significant effort to find efficiency and adapt our operating model to our customers’ ever-changing needs. Network and commercial expenses dropped 1.1% year-over-year, mainly due to savings related to cost centers, billing, collections, and a higher usage of alternative digital channels. On Slide 14, we present some key figures to illustrate how our efficiency-oriented mindset is fast-tracking the digitalization and simplification journey, resulting in enhanced customer engagement, cost reduction, and increased price and value of Vivo’s customer base. In the first quarter of this year, we had 917 robots executing automated processes with an average accuracy of 91%. More than BRL200 million have already been saved since December 2020 from front and back-office processes due to these initiatives. We are also seeing a significant evolution of commercial activity through digital channels. Online FTTH sales, for example, rose 83% year-over-year, and the shares of digital migrations from pre to post jumped 14.9 percentage points in the same period. Shifting to e-care and considering its impact on customer preference, the new Vivo App added 2.7 million unique users year-over-year and now has 19.4 million. E-billing penetration is at 88%, up 13.6 percentage points year-over-year, and payments using digital platforms now represent 65% of all collections. Moving to Slide 15, first quarter CapEx evolution is impacted by seasonality, and we continue to accelerate investment in forward-looking activities. The underlying driving focus is on fiber, and our commitment to quality but mobile data consumption continues to grow. In the quarter, 83% of our BRL1.9 billion of CapEx was dedicated to growth and transformation, while FTTH-related investments grew 40% compared to the first quarter of the previous year. We continue to deploy fiber and connect more customers than ever, resulting in record FTTH net additions, as Christian pointed out. Fiber-to-the-site is also evolving at a similar pace, and more than 90% of Vivo's sites in the 50 largest cities have top-quality backhaul to cope with incremental data traffic expected in the coming years. With the advent of 5G, and the fact that we have the most comprehensive fiber footprint in a continent-sized country like Brazil, Vivo is in a unique and privileged position. We have the best combination of assets to maximize value capture from this opportunity and accelerate growth. I would also like to share a brief update about our RAN sharing agreement with Tim. This operator has already covered an additional 348 sites with 4G coverage, and the ongoing pilots aim at consolidating our mobile network in cities with less than 30,000 inhabitants and are progressing very well. Regarding the 2G switch-off, the tests are advancing as expected, and we intend to roll that out by the third quarter of this year. On Slide 16, we present our strong shareholder remuneration. This is backed by consistent net profit and free cash flow generation. We reported robust net income in the quarter amounting to almost BRL1 billion, impacted by higher depreciation and financial expenses that were partially offset by lower income tax. The payment of 2020 dividends and interest on capital for a total of BRL5.4 billion, equivalent to BRL3.25 per share, will take place as follows: BRL2.6 billion will be paid on July 13 this year, and BRL2.8 billion on October 5. On the right-hand side of the slide, we show that year-to-date, we have already declared BRL700 million of interest on capital based on this year’s net income. In addition, we continue actively executing our share buyback program and have 5.4 million shares in Vivo Treasury representing 0.3% of the company’s total capital. To conclude, moving to Slide 17, the first quarter free cash flow growth of 3.7% year-over-year is due to sound operating and financial management. The result is a solid balance sheet and improved metrics. Net cash as of March stood at BRL5 billion, giving us a unique position to fund the acquisition of OI’s mobile assets expected by year-end. This strong financial position allowed us to positively invest in our core businesses, diversify our portfolio, increase engagement, and as a result, expand Vivo’s relevance in our customers’ digital life. Thank you. And now we can move to the Q&A.

Operator, Operator

Thank you. Our first question comes from Marcelo Santos, JPMorgan.

Marcelo Santos, Analyst

Hi, good morning. Thanks for taking my questions. I had two. The first if you could please comment a bit on the competitive environment in mobile? You had a little bit lower growth this quarter. So, I just wonder if there’s something to do with competition? And the second question is about the fiber-to-the-home adds. You had very strong adds, should we expect the strong base to continue throughout the year? And are these adds coming more from the competition or from conversion of fiber-to-the-curb and DSL subscribers? Thank you.

Christian Gebara, CEO

Hi, Marcelo, this is Christian. So, just to talk a little bit about mobile for your first question, I would highlight first the strong commercial activity that we had this quarter; it’s important that we are comparing this quarter with the quarter last year when COVID only impacted the last 15 days. This year, we started with a strong January and February, not compared to what was pre-pandemic, but then we also had a lockdown in March that impacted results mainly in postpaid and handset. But with all that said, I would highlight our growth in prepaid, which is 4%. It’s important growth. Also, we have to bear in mind that government aid was not there in this first quarter; it has a direct impact on the profit. But even with this situation, we grew 4%, and we also highlighted the decrease in top-ups and also the customers topping up. So, the percentage of customers topping up also had a very good performance. The terminals, all the handsets and accessories, also saw good growth compared to the year before the pandemic and throughout 2020; we could grow 11%, even considering, as I said, the lockdown in the last 15 days of this quarter in 2021. The postpaid revenue was more flat, but the increase in net adds was very accelerated. If you look at the numbers without machine-to-machine, it was close to 700,000. That is the highest number for net adds in postpaid since 2017. If I add to this number the machine-to-machine count, it reaches 1.1 million, that’s also up very high, with churn very controlled. So, I think it’s more a situation of the market, and there is also an impact from the price increase that was made in September last year. So, this year there was no price increase in this quarter that may have varied the performance in revenues. But considering everything that I’ve just mentioned to you, we are positive about the trend and the strong commercial activity, although we had a lockdown in part of this quarter as well. Regarding FTTH, if you don’t have more questions in mobile, then I will go to FTTH. FTTH has been growing a lot. As you know, I think every quarter we’ve been beating the previous number. There are two things here to consider. First, that we are expanding our network as we said a few years ago that we would expand our network. Today, we ended this quarter with 16 million homes passed. Now we are occupying this network. So that’s the first mover. Second, of course, people are now much more demanding for a very good ultra-broadband connection in their homes and offices, and Vivo stands out here because of our leadership, giving us an accelerated demand that ended the quarter with 3.7 million customers in FTTH and a net add of BRL368,000. The new customers, depending on the city they come from, have different characteristics. Some cities we are entering for the first time are greenfield cities. Most of the cities that we launch are greenfield. So, these new customers were not with us before. We are capturing new customers from competition, all types of competitors. Some of them are in Sao Paulo, where there is an overlay of DSL. Some of them were already missed by our competitor and come back to Vivo, and there is also some overlay of FTTC. We don’t give the figure, but it is significant. Depending on the city, you can assess more or less what is the nature of the adds, but there is a lot of greenfield and going forward with FiBrasil, they are going to be just new cities, new greenfield. In this case, there is no overlay and there is no substitution of legacy technologies.

Marcelo Santos, Analyst

Great. Thank you.

Operator, Operator

Our next question comes from Cristian Faria, Bradesco BBI.

Cristian Faria, Analyst

Hi. Good morning, everybody. Thanks for taking my questions. I have two. First is related to attributes and the like. So, we saw that the increase this quarter compensated connections in other technology. If we can look for the credit to continue, can we expect growth in the total user base for 2021? And the other question is related to the new initiatives by the companies regarding Dotz and the new agreement with the telemedicine company. What can we expect in revenue looking for 2022 in terms of the composition and presentation in total? Thank you.

Christian Gebara, CEO

Just one second Cristian, just getting better the first question, okay, I think the first question is about the – I think what I’ll try to answer what I got here Cristian if you have more questions about. I think when you see how much net what is non-core business, we call the non-core revenues and more legacy and mature technologies. They are all in the fixed side of the business and are reducing their relevance in our total revenue. Also, consider that fixed voice, xDSL and DTH represented like 15% of our total revenues in 2020, now in 2021, in the same quarter it represents a little bit less than 12%. So what is new and here it’s adding mobile and FTTH and advanced data from B2B is growing and replacing yes, for your question, yes, it’s replacing revenues coming from what we call non-core businesses or legacy which includes fixed voice, DSL, and DTH. The combined revenues are decreasing 24%. Our perspective and that’s why the figure that you see in the fixed business is improving quarter-over-quarter. Here, maybe there is something that changes quarter-to-quarter because of B2B deals, but the essence of the revenues, the core of the revenues. You see a replacement of FTTH over what is legacy, and this replacement is making each quarter more impact in the positive numbers that represented in the growth. If you consider that FTTH already represents BRL1 billion in the quarter in revenues, that’s a very strong number. If I add to this number what is IPTV, which is very combined with FTTH, we are already talking about total revenue contributing more than 10% or 13% coming from this service. So the replacement is there. It’s going to happen because we continue to accelerate the footprint of our network with this partnership, not only the one that we signed with CDPQ FiBrasil but also the one that we have with American Tower, the franchise, etc. This is improving our reach and will give us more revenues related to fiber and all the services that go beyond fiber. Now, so it relates a little bit to what the second question. When we signed a contract with CDF, it gives technical support and they are connected to people who have doubts and need assistance in connecting their homes. So we are selling fiber. But we’re also selling a service to help customers automate their homes. So, CDF comes with this perspective on what we can build beyond this fiber and the connected home. That’s one of the deals that we are presenting today here. Dotz is a different type of deal; it’s more related to prepaid and hybrid customers. We want to give them more engagement in our platforms with our company. So if you give the point, it’s good because they are going to use Dotz and they are going to top-up, recharge, and use more of my service to get Dotz. Then I receive engagement and it’s profitable because I have more customers in their current expenditure. The same can be said about our loan platform, Vivo Money, that’s going to be also connected to Dotz. So it gives us opportunities to create joint efforts with the two companies, generating value around our digital ecosystem. The third thing that we are announcing today is the health partnership we talked about before. We already included the first communication about the binding agreement that we just signed with Teladoc, one of the largest telemedicine companies in the world, and it will not be the only partner. We are open to other partners to create a real ecosystem. Again, we’re going to leverage our footprint, our customer base, our Big Data, and brand, and our capabilities to drive customers, engage with customers, and increase the lifetime value of these customers with the Vivo platform. So I don’t know if I answered all your questions because the first one I may have missed some of it, but that’s the general perspective, both fiber and new partnerships and the results of the new partnership will be the sum of different ones. So, just in this call, we are talking about health, Dotz, CDF, Vivo Money, Vivo Pay, and also the co-branded with Itau. We are open to doing more, and we may announce more every quarter because that’s the perspective that we have going forward to create this ecosystem around the connectivity that we are delivering. So, connectivity in homes, offices, not to mention also cloud deals that we are doing in cybersecurity. It’s home, offices, and also beyond mobile data segments for Dotz. The same is for Vivo Easy on our digital plan, which we are also blending to get partnerships with large digital companies like Spotify, Uber, Rappi, and many others.

Cristian Faria, Analyst

Okay, thanks.

Operator, Operator

Our next question comes from Victor Gomez, Banco UBS.

Victor Gomez, Analyst

Good morning, everyone. Congratulations on the results. About the Vivo Easy partnership, can you give us any color on how it worked for Telefônica? Will you have a stake in the new company? Will you earn revenue – a revenue share for the company acquired? Thank you.

Christian Gebara, CEO

We just signed a binding agreement. It’s not a joint venture for now. What we’re going to do in the beginning now is check the market and prove the value proposition. What we are trying to do is to sell a service that’s going to have a monthly payment. So, we’re trying to adapt our ability to have recurrent services and also to build customers. The customer will have a monthly payment that will give them access to our e-health platform. Now, depending on the type of service that they hire, we may have small, medium, and large plans. Not only are we providing telemedicine services, but they also get benefits from partner drugstores, diagnostic services, etc. At this point, it’s still a binding agreement between Vivo and Teladoc with this perspective in Brazil, bringing in other partners, and depending on the results, we’re planning a possible joint venture where we’re going to have a stake in the company. It’s too early to give you details about that, but for now, it’s our position to increase in this marketplace. Teladoc will be powering all the digital capabilities, allowing us to provide digital prescriptions, and enabling customers to engage with the services and benefits we've mentioned.

Victor Gomez, Analyst

That’s perfect. Thank you.

Operator, Operator

Our next question comes from Carlos Sequeira, BTG Pactual.

Carlos Sequeira, Analyst

Hi. Good morning, Christian, David, and team. Thank you very much for taking my questions. I have a couple, please. One is, I’m wondering if you can give us an idea of what is the marginal cost for Vivo to increase the FTTH speeds to 1 gigabit per second, for instance? And depending on the costs and assuming that is not that high, why not just start promoting this type of packages, which as we know some competitors cannot match and that will put tremendous pressure on these competitors? So, that’s the first one. And the second one, leveraging Vivo’s gigantic client base, sharpening your service. You’re doing a fantastic job adding more and more services every quarter. My question is, it’s not a question really, it’s if you can share with us your view for these type of services looking maybe 5 years down the road, how much you expect that to represent of Vivo’s business? Just an idea of what your goal is or what you’re doing on these types of services? Thank you.

Christian Gebara, CEO

Hi, Carlos. For the first question, we just launched 600 megabits. I think there is additional cost to offer such high speed to customers. So we need to be very rational about how we do it and which customers are willing to pay more. So in B2B, there’s more room for 1 gigabit. We already have this as an offer to companies that require that. Even SMEs can have it. In B2C, we are now at 600 megabits, and that’s not in every place. As you said, there is cost involved, and we need to be careful, especially about the pricing. We need to price properly to offer value for those willing to pay for 600 megabits. In this case, that’s our offer right now. We’ve been very conservative and hope the market remains that way. The technology impacts pricing, and cost is crucial to offer such speed. So we are doing that thoughtfully, segmenting our customer base and offering that to customers who are willing to pay more, either because they live in places where they need it or because they have larger homes where higher speeds are necessary due to office spaces, and schools being present. Now, regarding your second query, we’re going to start providing more color on digital services. The nature of these services is different. In B2B, it’s hard to find a customer without a digital service as part of our relationship. This includes IT, pharma, cybersecurity solutions, etc. We’re leveraging digital services across our B2B customer base. It’s tough to specify a percentage, but we foresee high penetration in 5 years. I believe all our B2B customers will demand digital services built and sold by our team. In B2C, I would also segment between two types of customers. In the upper tier, we will distribute services from notable brands. Looking at our fiber, the percentage of bundled services such as Netflix, Disney+, and so forth is growing, and I believe our ability to bundle together core services will also remain high.

Carlos Sequeira, Analyst

Thank you very much, Christian. Very clear. Thanks.

Operator, Operator

Our next question comes from Marcelo Santos, JPMorgan.

Marcelo Santos, Analyst

Hi, thanks for the follow-up. I have two questions. The first one is in the fiber expansion. We are seeing all players expanding in fiber with plans to expand fiber aggressively in the next couple of years. What do you think is the potential market for homes passed to fiber in Brazil? And do you see the risk of overlapping networks or not that there might be difficulties for the players to execute their plans? And that’s the first question. The second question is regarding the 2G shutdown. How much savings could you get on that? Would that be more CapEx or OpEx? Thank you.

Christian Gebara, CEO

Marcelo, in terms of fiber, we announced that we aim to have at least 24 million homes passed by 2024. We already have close to 17 million. We announced the first quarter figure as 16.3 million. We have the largest customer base and the highest market share in mobile. We have the combination of all the assets to be the leader in this market. So we are very confident about our plan. Brazil is huge. I think we have a gap in homes needing ultra-broadband digitalization. So if you consider the target market of 60 million, 65 million homes and offices that’s going to be the addressable market for fiber. Some of this market is covered by smaller players. For your second question regarding the 2G switch-off, it will bring savings mainly on OpEx. This is something we will start seeing in the next quarter.

David Melcon, CFO

The second one, I would say, is about the savings that we are expecting with the 2G transition with Tim, so there are going to be three different savings areas. The first have to do with 2G switch-off. It will bring savings, but mainly on OpEx, and this is something that we will start seeing this third quarter. The second one, we are going to have, we already have 348 cities that have already implemented coverage expansion. So, this is a CapEx savings that again will materialize as we speak. And the third one, which could have big potential again, will be decommissioning some of the network that we jointly operate with Tim in more cities. This will likewise create savings on both OpEx to run those networks and CapEx to maintain those networks. We see the next three years as a big opportunity to focus on quality, particularly to cope with incremental traffic and also start to evaluate how we can accelerate growth in the mobile space.

Marcelo Santos, Analyst

Perfect. Thank you both. Thank you very much.

Christian Gebara, CEO

Thank you very much.

Operator, Operator

This concludes the question-and-answer session. I would like to turn the floor back to Mr. Christian Gebara for any closing remarks.

Christian Gebara, CEO

Thank you all for joining us. As I said before, we delivered solid results, especially in commercial performance in both the net adds in postpaid and the net adds in fiber, which are our core products. This gives us optimism about 2021 as the situation hopefully improves with the vaccine rollout and the economy recovering, and we are in the right position to take advantage of the accelerated growth we see in these technologies. Combined with the new ventures that are started to become more concrete, I think we have opportunities to create a real ecosystem around our brand that brings loyalty and engagement with our customers. So, if you have any further questions about anything, you know our team is here at your disposal. Thank you and see you next quarter.

Operator, Operator

Thank you. This concludes today’s Telefónica Brasil 1Q ’21 results conference call. You may disconnect your lines at this time. Have a great day.