Earnings Call Transcript - VIV Q3 2021

Operator, Operator

Good morning, everyone. We want to welcome you to the Telefonica Brasil Third Quarter of 2021 Earnings Conference Call. Today, we have Mr. Christian Gebara, CEO; Mr. David Melcon, CFO and Investor Relations Officer; and Mr. João Pedro Carneiro, IR Director with us. There's also a simultaneous webcast available on our website, www.telefonica.com.br/ir, which includes a slide presentation. A replay of this call can be found on the website as well. Before we begin, I want to note that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. These statements are based on management's beliefs, assumptions, and current information. They do not guarantee performance and involve risks, uncertainties, and assumptions related to future events that may or may not happen. Investors should recognize that general economic conditions, industry trends, and other operational factors could impact future results and lead to outcomes that differ significantly from those anticipated in these statements. Now, I will hand over the call to Mr. João Pedro Carneiro, Investor Relations Director of Telefonica Brasil. Mr. Carneiro, please proceed with your presentation.

João Pedro Carneiro, IR Director

Good morning, everyone, and welcome to Telefonica Brasil's Third Quarter 2021 Earnings Call. Today's call will be divided into 3 parts. First, our CEO, Christian Gebara, will present Vivo's main financial and operating figures as well as initiatives on the digital ecosystem and ESG highlights. Then our CFO, David Melcon, will give you more information regarding our cost and CapEx structure, net income, shareholder remuneration and free cash flow. We will then move to Q&A. Now I'll hand it over to Christian.

Christian Gebara, CEO

Thank you, João. Good morning, everyone, and thank you for joining our earnings call. We start on Slide 3 with the highlights of a very positive quarter for Vivo, where we saw fixed revenues return to year-over-year growth after four years, and mobile service revenue achieve its highest annual growth rate in six years. Our solid profitability results allowed us to maintain a strong interest in capital distribution and accelerate our share buyback program. In mobile, we reached 82 million accesses in September, reflecting a year-over-year growth of 7.2%. As a result of this rapid growth in accesses, our mobile service revenue increased by 5.7% year-over-year in the quarter. Both the number of accesses and the rate of mobile service revenue growth are the best since 2015, showcasing the strong momentum we are experiencing in mobile alongside improved portability and market share leadership. In fixed services, we reported year-over-year growth for the first time in four years, rising by 0.4%, marking a significant turning point for a segment that accounts for about one-third of our total revenues. This growth was driven by a remarkable 14.8% increase in our core fixed business, with our fiber-to-the-home broadband expanding by 37.2% compared to the third quarter of 2020. We have accelerated our monthly net adds, averaging over 100,000 in the first nine months of the year. Our robust revenue performance enabled us to achieve EBITDA growth even amidst rising inflation, with EBITDA increasing by 2.1% year-over-year and a margin of 40% due to effective financial management and digitalization efforts. Collectively, these factors yielded a net income of BRL1.3 billion in the quarter, an 8.5% increase compared to last year, allowing us to continue to offer leading shareholder returns in the industry through dividends and capital returns as well as share buybacks. Moving to Slide 4, our total revenue saw a year-over-year increase of 2.2% in the third quarter, supported by strong core revenue growth of 5.9%. Excluding handset sales, the service core revenue expanded by 80% year-over-year, driven by increasing demand from both B2C and B2B customers for high-quality connectivity and cutting-edge technology solutions, further solidifying Vivo's position in the digital ecosystem. Now turning to Slide 5, we can see that our mobile revenue performance in the third quarter was markedly strong compared to previous periods. The mobile service revenue growth of 5.7% year-over-year was the highest since the second quarter of 2015, driven by a 7.3% growth in postpaid customers. This growth was bolstered by a robust customer base and price adjustments made in July and August for certain postpaid segments. Prepaid revenue did see a slight year-over-year decline of 0.6%, but sequentially grew by 3.9% as more customers shifted to our weekly Vivo Turbo offer, which promotes higher usage than daily packages. It's also important to note that our handset revenue dropped by 19.8% year-over-year due to ongoing chipset supply shortages affecting the smartphone industry and the challenging comparison with the previous year's high sales. Consequently, mobile revenues grew by 3.2% year-over-year in the quarter. Moving to Slide 6, based on the latest public data, Vivo continues to lead in overall mobile market share, maintaining its position in both postpaid and prepaid segments. This is reinforced by our outstanding network quality, strong brand recognition, and extensive distribution network. Our competitive advantage was enhanced during the third quarter as we added 1.3 million new mobile customers, consisting of 996,000 in postpaid and 292,000 in prepaid. This growth allowed us to surpass the milestone of 82 million mobile accesses for the first time since the second quarter of 2015, with a 7.2% year-over-year increase. Notably, our customers are not only remaining with Vivo, evident from the low 1.2% postpaid churn rate, but we are also attracting clients from other operators, as highlighted by a 134% year-over-year increase in postpaid net adds. On Slide 7, we are pleased to report that total fixed revenue grew by 0.4% year-over-year in the third quarter, marking the first growth since the third quarter of 2017. This reflects our years of investment in fiber-to-the-home technology, positioning us to meet the growing demand for high-speed connectivity while building a comprehensive portfolio of digital solutions for businesses. Through strategic decisions to focus on our core fixed business, we have seen the core segment grow by 14.8%, with all service lines achieving double-digit growth: FTTx broadband increased by 11.6%, IPTV by 23.4%, and corporate data and ICT by 17.1%, with the latter generating almost BRL800 million in revenue for the quarter. Moving to Slide 8, our fiber-to-the-home business generated BRL1.5 billion in revenue in the third quarter, driven primarily by broadband and IPTV, with fiber revenues increasing at a rate of 40.3% per year over the past two years. Broadband has seen a 46.3% CAGR from 2019 to 2021, exceeding BRL1.1 billion, while IPTV also experiences solid growth. For the first nine months of 2021, we added 978,000 new FTTH broadband customers, exceeding the total net additions from 2020 and enjoying an average of 109,000 monthly net adds, significantly higher than in previous years. It’s worth noting that while our fiber access base has a CAGR of 32.3%, it is currently outpacing revenue growth due to factors such as pricing power and improved customer mix. On Slide 9, we are reinforcing our commitment to fiber expansion, updating our 2024 homes passed target to 29 million, which involves adding about 11 million new homes alongside our existing 18.3 million. This organic expansion will focus on deploying our FTTH network in new and existing markets while optimizing our existing FTTC and copper networks. We have achieved a 60% reduction in our cost per home pass over the past two years, which currently averages around BRL160, thanks to our deployment expertise and increasing scale. Our home passed expansion will also involve partnerships, adding nearly 6 million to our target through new infrastructure companies like FiBrasil, allowing us to expedite market entry in mid-sized cities outside of São Paulo. Moving to Slide 10, we delve into the impact of B2B digital services on our revenue growth. Over the past year, 3% of our total revenue has originated from the B2B sector, with 20%, or approximately BRL1.9 billion, generated through cloud, security, IT solutions, and IoT services, reflecting year-over-year growth of over 35%, which aligns with the trends seen in high-growth B2B tech firms globally. In Brazil, we've observed companies of all sizes digitalizing their operations, creating demand for various process management services. At Vivo, we aim to transition from merely providing connectivity to establishing a digital solutions ecosystem that includes both service design and product offerings in partnership with top-tier companies like Microsoft, Amazon, and Cisco. We strongly believe that B2B digital services will continue to grow, delivering a high-quality and recurring revenue stream with significant growth potential and high customer lifetime value. On Slide 11, we present our latest initiative to implement a B2C digital solutions ecosystem that includes entertainment, financial services, health and wellness, connected homes, marketplace, and education. We've signed a memorandum of understanding with Anima, Brazil's largest education company, to create a joint venture aimed at providing digital courses focused on lifelong learning and employability in fields such as data science and programming. The courses will be available not only to Vivo customers but to anyone seeking accessible, quality content to build skills aligned with their interests and careers. This joint venture will be co-managed by both Vivo and Anima, with a dedicated team overseeing operations. Additionally, Vivo will leverage its customer acquisition, go-to-market strategies, and operational capabilities, alongside Anima's educational expertise, to enhance learning experiences. This initiative further positions Vivo as a company committed to fostering inclusive growth through education. On Slide 12, I would like to discuss our ongoing ESG initiatives. We are expanding our distributed energy generation program and plan to have 83 renewable energy plants operational by the end of 2022, with 19 already functioning. A highlight is the inauguration of our first biogas plant in the Northeast region, capable of generating over 18,000 megawatt-hours per year. In terms of diversity, we've launched a new initiative offering 750 internal roles, with 50% aimed at black students. We are also focused on increasing diversity in our leadership team, targeting that 20% of leadership positions will be held by women by the end of 2021. Furthermore, we are collaborating with Wayra, the innovation arm of Telefonica's Group, to support disruptive startups. Recent investments include Olivia, which offers an AI-driven financial advisory solution, Gabrie, a security startup focused on technology for monitoring and safety, Alicerce, a social ed-tech providing affordable tutoring, and GamerSafer, a cybersecurity firm for online gaming. All of these ventures present significant cross-selling opportunities with Vivo. As always, it is important to emphasize that ESG considerations are central to our operations as we strive to create value for society and all stakeholders sustainably and responsibly. Now I will turn it over to David to provide an overview of the financial highlights for the quarter.

David Melcon, CFO

Thank you, Christian, and good morning, everyone. On Slide 13, we show our recurring cost evolution in the quarter. As presented in the previous slide, Vivo is speeding up the growth of its revenue based on focusing on core businesses that deliver both connectivity infrastructure and digital solutions. Our cost base is changing accordingly, but annual growth remains well below inflation due to our continued digitalization and simplification efforts. As a result, this quarter, our total cost grew 2.3% year-over-year, where inflation for the last 12 months reached 10%. Cost of services and goods sold that are directly impacted by the site revenues mix represented 28% of all costs we had in the quarter and contracted 3% year-over-year as the cost of goods sold fell 18%, impacted by the lower volumes of handset sales in comparison to the previous year. On the other hand, cost of services grew 8.7% as a result of higher volumes of licenses and digital content sales. Now moving to our cost of operations that represent 72% of the expenditure we had in the quarter. Here, we saw a year-over-year growth of 4.5%, impacted not only by a double-digit inflation registered over the last 12 months but also by the strong commercial activity posted by Vivo in the period. Now moving to Slide 14. Here, we show how the year-over-year evolution of our revenues and cost base led to a recurring EBITDA of BRL4.4 billion, reporting an annual growth of 2.1% in this quarter with a margin of 40%. This positive performance was delivered as we continue to strive with the capture of operating efficiencies through the digitalization of processes related to the client acquisitions, customer curve, billing, and collection among all others, giving us an edge, not only in terms of results but also when it comes to overall customer satisfaction and experience. Here, we also showed that this quarter, we had a positive nonrecurring effect of BRL417 million related to the partial sale of FiBrasil. The fiber infrastructure company we created in partnership with CDPQ and Telefonica Infra. Considering this effect, we had EBITDA growth of 11.8% year-over-year in the quarter. On Slide 15, we can see that this quarter, we invested BRL2.2 billion in our operations, representing 19.5% of the sales we had in the quarter and leading on 9 months capital expenditure of BRL6.3 billion. This quarter, around 88% of the amount we invested was directly to growth and transformation projects, meaning we continue to accelerate our fiber to the home deployment and hence, our mobile network capacity and quality have improved our IT systems and data platforms to optimize our day-to-day operations. To update you on the network sharing agreement we have with the team during this quarter, we successfully completed the 50 cities pilot for the full network consolidation. This was a very important step between the scope of this agreement and how both parties are negotiating the potential extension of the single grid initiatives to a much larger number of cities. Moreover, the joint 4G coverage expansion was concluded while the 2G switch-off continues to advance as planned. We are also investing to prepare a network for the upcoming 5G technology. And at the end of the quarter, we had 5G DSS fully operating in 8 major cities with more than 90% of our sites were fiber in Brazil's 50 largest municipalities. Additionally, almost 2,400 cities already have VIVO's 4.5G coverage guaranteeing an enhanced 4G experience that drives to higher data usage. Moving to Slide 16. During this quarter, our net income reached BRL1.3 billion after growing 8.5% year-over-year, taking our 9 months profit to BRL3.6 billion, up 3.6%. This strong performance allowed us to maintain our trend of providing one of the highest and most consistent shareholder remuneration among Brazilian companies. During the first 9 months of this year, we declared BRL1.9 billion of interest on capital. And when we consider all the dividend plus interest on capital deliberation that took place over the last 12 months, our dividend yield amounts to 7.4%. We are also accelerating the buyback of our shares, investing almost BRL400 million to repurchase 8.9 million shares between January and September this year, thus closing the quarter with 11.7 million shares in treasury, which translates into 0.7% of our total equity. Note that in order to keep increasing shareholder returns, Vivo's evaluating canceling the shares in treasury in the near future. On October 5, we also paid out the second tranche of the dividend plus interest on capital delivered through 2020 in the amount of BRL2.8 billion, totaling BRL5.4 billion in remuneration related to the last year’s results, a solid BRL3.19 per share. Now moving to Slide 17. As of September, we generated BRL6.7 billion of free cash flow, reinforcing our very strong balance sheet profile and allowing us to fund the acquisition of both OI mobile's assets and the spectrum being auctioned next week. These figures represent a free cash flow yield of 10.2% and a free cash flow margin of 16.9%, even with CapEx growing in the period. As a result, and to conclude, we closed the quarter with a net cash position at least of BRL7.1 billion, representing a considerable and constant improvement year-to-date. Now we can move to the Q&A.

Operator, Operator

Our first question comes from Andre Salles, UBS. Please proceed.

Andre Salles, Analyst

I have a question on the business, digital segments. How relevant do you see the digital revenues during the upcoming quarters? And how do you plan to sustain the current pace of growth in this opportunity?

Christian Gebara, CEO

Hi Andre. It's Christian here. For the first time, we are detailing our digital service offerings in two segments: B2B and B2C. Starting with B2B, we have experienced strong and accelerated growth over the past 12 months. This segment includes cloud security, IoT, messaging, IT equipment, among others. We believe this growth will continue, as demand for these services is increasing, particularly after the pandemic, with companies wanting to move their content online and accessible to everyone. We are well positioned due to our own portfolio and partnerships with companies like Microsoft, Cisco, and Amazon. In the B2C segment, we are following a different business model that involves distributing digital services similar to how we do with entertainment. We have successfully distributed video OTT services over fiber, with around 30% of our fiber customers choosing these OTT bundles, including Netflix, Amazon, Disney+, and STAR+. We also include these OTT services in our mobile postpaid plans, with Vivo cell customers benefiting from this. Additionally, we are launching new independent business ventures, such as our healthcare partnership with Teladoc, which focuses on telemedicine and creating a health marketplace. We recently announced a collaboration in education, establishing a memorandum of understanding to create a unique educational offering focused on delivering brief content to help individuals gain new skills, particularly those seeking better employment without a university degree. While we cannot currently estimate how much these initiatives will contribute to our revenues, we believe they will add independent value. Our goal is to enhance customer loyalty to Vivo by creating a digital ecosystem around our 97 million access points, utilizing both physical channels and data analytics to engage customers more effectively with digital services, ultimately driving loyalty in the telecom sector as well.

Operator, Operator

Our next question comes from Marcelo Santos from J.P. Morgan.

Marcelo Santos, Analyst

I wanted to ask a question about the incremental increase in the outlook for fiber homes passed. So now you're targeting BRL29 million. Are these 5 million incremental homes passed to be done by Vivo and not FiBrasil because you continue to mention 5 million, 6 million homes in FiBrasil, which was what you said in the second quarter, but you had a different guidance for homes passed and Vivo. So are these new home passed, being passed entirely by Vivo? A follow-up question is, what's the impact on CapEx that we should expect from this plan to 2024? And maybe the last one would be related to what are the target cities? What kind of regions or cities, could you share some description of what kind of cities that you'll be entering with this extra home path?

Christian Gebara, CEO

Marcelo, thank you for the question. I will try to answer what we can answer. The cities, as you may understand, we are like already in the large cities, we are just focusing now on the mid-sized cities. So we continue with this strategy worldwide along all the regions of the country. And in some of the cities that we already have presence, we may reinforce our presence in some neighborhoods that we still haven't reached. And also considering these numbers, the overlay of DSL and FTTC, if we still have room to do that, and that it's more focused on the state of Sao Paulo in FTTC, some of the cities that we have the acquisition of GPT. And this number that we accelerated, especially the CapEx will be the same trend. So there is no change in CapEx. I think what we want to highlight here is the CapEx related to home passed that we are presenting a drop. Also, if you consider what we have as a number in the third quarter '19, was BRL400, representing now BRL160. So as leverage on that scale that we have been able to capture a lower price in HP and also in homes connected with still room to accelerate what we previously presented BRL24 million for '24, now going to BRL29 million. It will be a combination of the model that we have today, organically built by Vivo and FiBrasil. At this moment, we don't share how much is going to be coming from each, but it's going to be a combination of both, also using the other partnerships that we have and the one that we have in Minas Gerais with American Tower. So it's a combination of the three. What is not in this number is franchising that we are doing separately because we don't get all the full heavy. But just the franchisee payment of royalties. So the number that we are presenting here is building on what we have as partnerships today, more on our organic and overlay over FTTC and DSL.

Operator, Operator

Our next question comes from Freddie Mendes, Bank of America.

Freddie Mendes, Analyst

I have 2 questions as well. The first one, you mentioned the network sharing agreement with team is doing well. So for '22, are you planning to give any disclosure about the NPV from this partnership? And I know you don't give guidance for the digital initiatives on the B2C. So just trying to measure here for '22, what do you believe will be more relevant, the impact of this partnership with team, or all of the B2C partnerships combined, right? That would be my first question. And then my second question, when I look at the arc the FTTH, it's basically flat, right? It's a very, very small decrease in this quarter. Do you believe we are already reaching a peak with this BRL9 ARPU? Or maybe there are things to see for this quarter with more competition and then a slight pressure on price. Thank you.

Christian Gebara, CEO

Fred, this is Christian. So the rest team goes according to plan. We are very positive about the opportunity that we may get from this and maybe the opportunity to even expand what we're doing. So I think we've presented in the past that it has 3 big areas. The first one was the 4G in small cities. We already know we already deployed it in 716 cities, 360 more or less for each operator. We are providing coverage in places where they don't have coverage, and they are providing coverage for us in places that we didn't have coverage. So that's the first one that we did. And that's a single grid model that is maybe the most complex one in terms of deployment. We did a pilot in 50 cities, 25 each operator. Results are being measured out right now. They are good. So we expect to do it in more cities. And then you have a plan for more than 1,000 cities next year. This year, we may start deployment in maybe 100 cities each and having like this 1,600 cities for the future. In the 2G, there is the shutdown, here also, we are preparing our systems for doing something like this. The plan is again under the schedule that we defined before. And the objective here is to do the shutting in some of the cities that we both 2G and the other one will be offering the solution to the other one in 2022. So that's basically how the plan is. And of course, all these initiatives will bring us CapEx and OpEx savings for both companies. We don't give a figure, but we are positive and also to open at some fronts for the future, not only more 4G cities with larger sizes but also considering 5G could also be an opportunity going forward. There is a second piece in this part. But going to the FTTH ARPU. I think the FTTH ARPU if you see in the year, in the 9 months of the year we are growing ARPU around 6%. If you go to the specific quarter, we may have some like promotions in a specific month that could be impacting ARPU and some smaller cities where the entry point will be a little bit lower in speed than we had in the previous quarter. What we believe here is that we need to accelerate. We are gaining a lot of momentum. Our net adds are accelerating. Our total revenue is growing a lot, as you could see in all the numbers presented. And we believe we should all be very rational about pricing in fiber. So now with the inflation that we are seeing maybe next year, a price adjustment will be needed, and we are very open to do so and rational in a business that requires investment. We should be very wise about how competitors also will behave because I believe we all need that. We also are reinforcing our presence in the convergence arena that I think we are the leader in this one. So offering attractive but not irrational offers for customers that are both mobile and fixed with us. And also, as I said before, accelerating the bundled offer with IPTV, all customers want it, but also if we are totally open, because we're not defending the Pay-TV business because of our market share, but we are very open to fiber with video OTT being very successful. They had a good impact also in improving our ARPU. So doing that with Netflix, Amazon, now launching Disney+ and Star+, and other business sorts and other offers will be coming in the next months.

Operator, Operator

Our next question comes from Carlos Sequeira, BTG Pactual.

Carlos Sequeira, Analyst

I would like to follow up on Fred's question regarding FTTH. I have a couple of inquiries. First, could you provide an overview of the competitive landscape? There has been a lot of discussion in the market following the IPOs from some ISPs, and I would appreciate your insights into how you perceive competition and your strategies for competing against these expanding players who now have greater resources. Additionally, I'd like to ask about FTTH and your expansion strategies. You've been growing in three primary ways: through your own investments, via FiBrasil, and in partnership with American Tower. Are there any other potential avenues or partnerships you are considering to accelerate growth, perhaps by exploring additional neutral networks or collaborating with larger ISPs? I'm curious if there are other measures you could take to expedite this impressive expansion.

Christian Gebara, CEO

Thank you for your question and comments, Carlos. There are quite a few topics to address. Yes, there are numerous ISPs with varying focuses; some cater specifically to small towns, resulting in limited overlap with us, while others directly compete with us. I believe we possess certain advantages over them, particularly with our network capabilities. I won't specify ISPs, but many lack the technology we have. As customer demand for higher speeds increases, our network configuration and customer premise equipment position us to meet this demand effectively. Additionally, in the IPTV space, we cater to many customers who need IPTV services. In this competitive landscape, we are well-equipped to serve these customers. We have agreements for over-the-top video services, which can add value for users compared to what others offer. Our mobile services are not our primary focus right now, but they do provide us with a competitive edge, especially as a leader in both postpaid and prepaid offerings. This, combined with our extensive distribution channels and new digital ecosystem partnerships, places us in a strong position to continue achieving significant net additions while being prudent with pricing. I prefer not to lower prices aggressively; maintaining a rational approach to fiber ARPU is essential, as price wars can harm smaller players even more. Looking ahead, we are optimistic about our collaboration with FiBrasil and are committed to the plans we've set together. Our partnership with American Tower is ongoing, particularly in Minas Gerais, and our franchising model continues to expand into new smaller cities. We're also encouraging partners in our reseller channels to invest in fiber, creating a good synergy where they can sell both fiber and mobile services. We're receptive to exploring various partnership opportunities, particularly with neutral fiber companies now emerging in the market. The situation with smaller ISPs will depend on the quality of their assets across technical, physical, and customer retention aspects.

Operator, Operator

Our next question comes from Alejandro Gallostra.

Alejandro Gallostra, Analyst

Could you please provide a further explanation about how you managed to decrease the cost per home passed that much over the past 2 years? If those costs are exposed to FX fluctuations and how much you can decrease this cost in the future. And I was wondering if this is the actual cost of passing a new home? Or if you're averaging that cost with the homes passed that you gained through partnerships as well. And third, if I may, I was wondering if you could provide us with the additional cost of interconnecting each home once you acquire the customer?

David Melcon, CFO

Hi Alex, The cost is our cost, it's not considering partnerships is the cost that we were deploying and the home pass. FX has a very limited impact. And I think here is the combination of our expertise, the scale of the equipment that we are using, our ability to be able to because now the expertise, not only local but also international as we are one of the leading groups in fiber in the world. So it's a combination of many things. And also, we are very positive about the possibility of going down in the future. It's also important when we compare our number with other numbers that it depends a lot on the city that we're deploying when deploying a very small city, maybe the cost may be a little bit lower than the one that I'm presenting here. So that's why sometimes some companies present a number that's different from ours. Also, we are building infrastructure. We are not renting for instance, wholesale traffic or backhaul. So that's why we also are building on and also want to go to CPE and the home connected that you were describing here, we use top equipment. And the price also is going down and is around BRL800 today, they're on connected, okay, without IPTV, fiber-connected.

Operator, Operator

Our next question comes from Marcelo Santos, JPMorgan.

Marcelo Santos, Analyst

I wanted to ask you about the prepaid to postpaid migration. You have been having a lot of success. And I think that's part of your strong postpaid revenue growth. How much more space is there for you to fish in the prepaid aquarium? And is the fact that the economy is deteriorating and the macro outlook is not good? Does it slow down this process?

Christian Gebara, CEO

So we're still being very positive commercially in acquiring new customers from prepaid. So the lake that we could use for migration is still very large. That's why we're still being very successful in migrating. So I see the possibility still there. So we continue to do that. And again, after all this movement that we have and the competitive moment that we are having in the market may also give us the opportunity to get more prepaid customers and also migrate to the future. I think here, it's much more how do I migrate, and also there is a possibility to upsell within the hybrid that we are also doing that and also adding to this hybrid customer new digital services. So also, I think they see the opportunity to increase the ARPU. So positive that we still have room to go. Of course, the economic situation of the country impacts the prepaid. Now we have the new government ad that was approved. That's positive for the prepaid. So once that's in place, it will be a positive impact on the prepaid. So going forward, commercially, we continue to be strong, and the possibility to migrate is still there, and we should consider incremental ARPU in the hybrid commercially successful in giving more services to the customers already in our customer base.

Operator, Operator

The next question comes from Carlos Sequeira, BTG.

Carlos Sequeira, Analyst

Now switching to mobile and the 5G auction. We all saw yesterday that there were 15 bidders for the upcoming auction, and Vivo is one of the bidders. My question is, do you anticipate any increase in competition from these potential new bidders? Or do you think they will focus more on niche opportunities? How do you see the interest shown by these potential bidders in the upcoming auction? Additionally, I understand this might be a sensitive topic, but there have been reports in the news regarding a discussion between CADE Ventures and the three telecoms that made an offer to purchase way. Is this a negotiation? How do you expect this to progress, or are you just waiting for CADE Ventures likely in February next year?

David Melcon, CFO

Carlos, regarding your second question, the approval process for an operation of this scale is standard. We have been in communication with lawyers and the technical team at CADE as expected. The operation is well-structured, with careful attention to both spectrum and customer distribution, meeting all regulatory requirements. These discussions are typical for an operation of this magnitude. With 5G being a large auction, it encompasses many different aspects. Some of the blocks have varying configurations; for instance, some begin as national and shift to regional, while others are entirely regional from the outset. We're also considering very high-frequency millimeter waves. The variety of configurations creates numerous opportunities for players, but this means there won’t be an overwhelming number of participants. We need to see the auction itself, as we can't anticipate who will bid for what until the day of the auction. We will know the interests of various bidders then, including those already established in the telecommunications market. Auctions have many complexities and obligations, with significant investments required for each block. I believe we are in a strong position to be competitive because we have been investing in the country for many years, and we possess a unique customer base along with existing infrastructure that provides us with scale and synergies going forward. We will need to wait until next week for more clarity.

Operator, Operator

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

Christian Gebara, CEO

So thank you, everyone. As final remarks, just to highlight that we are very excited about our fixed revenues, now growing after so many quarters that we've been talking about this transition and reverse trend. Also very optimistic about our business going forward, totalizing customers in mobile and fixed, but also in the digital opportunity that we see ahead, being a key player in a digital ecosystem in our country. So thank you all, and we are always here available for any further questions you may have.

Operator, Operator

Thank you. This concludes today's Telefônica Brasil 3Q '21 Results Conference Call. You may disconnect your lines at this time. Have a nice day.