Earnings Call Transcript - VIV Q3 2023

Operator, Operator

Good morning, ladies and gentlemen. Welcome to Vivo Third Quarter 2023 Earnings Call. This conference is being recorded and the replay will be available at the company’s website at ri.telefonica.com.br. The presentation will also be available for download. This call is also available in Portuguese. To access, you can press the Globe icon located on the lower right side of your Zoom screen and then choose to enter the Portuguese room. Prior to proceeding, we would like to clarify that any statements made during this conference call regarding the company’s business prospects, operational and financial projections and goals are the beliefs and assumptions of Vivo’s executive board and the current information available to the company. These statements may involve risks and uncertainties as they relate to future events and therefore depend on circumstances that may or may not occur. Investors should be aware of events related to the macroeconomic scenario, the industry and other factors that could cause results to differ materially from those expressed in the respective forward-looking statements. Present at this conference, we have Mr. Christian Gebara, CEO of the company; Mr. David Melcon, CFO and Investor Relations Officer; and Mr. João Pedro Carneiro, IR Director. Now, I’ll turn the conference over to Mr. João Pedro Carneiro, Investor Relations Director of Vivo. Please, Mr. Carneiro, you may begin the conference.

João Pedro Carneiro, Investor Relations Director

Good morning, everyone. Welcome to Vivo’s third quarter 2023 earnings call. The presentation will be divided into two parts. First, our CEO, Christian Gebara, will walk us through Vivo’s financial and operating highlights, followed by an update on our new sources of revenue and ESG advances. Then our CFO, David Melcon, will comment on our financial performance and shareholder remuneration in more detail. I now hand the call over to Christian.

Christian Gebara, CEO

Thank you, João. Good morning, everyone. I appreciate you joining us. I’ll start by presenting the highlights of another very strong quarterly result. We delivered revenue growth of 7.5% year-over-year and an EBITDA increase of 11.7% year-over-year, both well above inflation. The customer base mix keeps improving. Postpaid access surpassed the mark of 60 million customers and homes connected with FTTH summed up six million access. Our high-value subscriber base is fueling our growth engine. This growth was combined with improved profitability; EBITDA was at an all-time high, reaching R$5.5 billion in the quarter with a margin of 42.2%, leading to improved bottom line performance as net income reached R$3.4 billion year-to-date, up 15.9% year-over-year. As we continue to reduce our CapEx intensity to meet the level guided for the year of up to R$9 billion, cash flow generation speeds up. Over the first nine months of 2023, our operating cash flow grew 27.1% year-over-year to R$8.9 billion while our free cash flow expanded 16.7% to R$7.6 billion. As such, we are committed to keeping an attractive level of shareholder remuneration. Up to October 2023, we already declared R$2.6 billion in dividends and interest on capital while also investing R$380 million to buy back our own shares. Moving to Slide 4, we show the breakdown of our revenue growth. Our focus on best-in-class technologies contributed to total revenue growing 7.5% year-over-year, well above inflation. On the mobile side, the continuous upselling to postpaid plans coupled with pricing rationality allowed mobile service revenues to reach an organic expansion of 9.0% year-over-year in the second comparable quarter since the acquisition of part of Oi Móvel’s assets. Handsets and electronics posted a 13.5% annual increase as we outpaced the market in the selling of high-value 5G devices and offered a broader portfolio of electronics. FTTH and corporate data, ICT and digital services continue to grow double digits, meeting the demand for high-quality connectivity and digital services. These services are the drivers for the positive expansion of our fixed revenues. Turning to Slide 5, we can see the improvement of our mix of customers as postpaid already represents 62% of total mobile access. Our mobile leadership has been reinforced as we continue to deliver an unmatched value proposition to our customers. This strong operational momentum, combined with our pricing strategy, resulted in an 11% annual growth in ARPU, reaching its highest value in the last three years. While average spend increases, postpaid churn has reduced 39% in the last four years, reaching a very low level of 1.09% per month. With customers staying longer and spending more with us, we see a clear pathway to deliver sustainable real growth on a consistent basis. On Slide 6, we detail the advance of our top-notch fiber operation. Vivo’s fiber footprint is present in 439 cities throughout the country, totaling 25.1 million homes passed, which keeps us on track to reach the target of 29 million homes passed by the end of next year. In the last 12 months, we added 2.8 million fiber-to-the-home premises and connected 715,000 homes, increasing our network take-up rate after reaching six million users while also improving our ARPU profile. In addition, Vivo Total, our fiber and mobile convergent offer, surpassed the mark of one million customers, more than doubling its base over the last 12 months. This offer has the lowest churn and the highest lifetime value, putting Vivo in a unique position to benefit from convergence in the long term. Going to Slide 7, you can see that the digital B2B services added up to R$3.2 billion in the last 12 months, up 28% year-over-year, already representing 6% of Vivo’s total revenue, even though these services are currently provided by Vivo to only around 10% of our 1.5 million B2B customers. Going forward, we see a significant opportunity to increase the penetration of digital solutions in our existing B2B customer base, mainly in SMEs. With that in mind, Vivo Meu Negócio has a new position and focus on integrated digital solutions for micro, small and medium enterprises tailored by size and sector. We offer accessible products related to cloud, sales management, web presence and efficient tools to help these entrepreneurs adapt their business to compete and prosper. Moving to Slide 8, we give an update on the evolution of some of our new sources of revenue in the B2C segment. Financial services generated R$106 million in revenues during the quarter, up 45% year-over-year. Here we highlight Vivo Money that ended the quarter with a portfolio of R$307 million in personal loans, more than doubling year-over-year. At the end of July, we announced that Vivo Money has a new investor, Polígono, that has committed to invest up to R$250 million over the next two years to strengthen the expansion of our credit services. The distribution of video and music OTTs through our invoice totaled R$144 million in revenues in the quarter, up 33% year-over-year, coming from 2.8 million OTT subscribers. Our partnership with the main content providers allows us to expand average customer spend, decrease churn, and increase lifetime value. More recently, we broadened our electronics portfolio that includes notebooks, smartphone accessories, and smart home devices among others to enhance the experience provided through our connectivity services. This product generated R$79 million in revenues last quarter, up 28% year-over-year. We know that revenues from financial services, OTTs and electronics beyond smartphones put together represented 3% of Vivo’s total revenues over the last 12 months. As they keep this strong growth pace, we are confident that these new businesses will have greater relevance over the coming years. On Slide 9, we highlight some advances in environmental and social fronts. We have a target to achieve net-zero emissions by 2040 and to help us reach this goal we established a program with 125 carbon-intensive suppliers to diagnose, train, and encourage these partners to move towards this commitment. In energy, Vivo is the first company in the sector operating in energy self-production modality. We announced a partnership with Elera in the State of Minas Gerais, which comprises four solar parks. Lastly, I’m glad to share two important recognitions. First, Vivo is the only telecommunications and Brazilian company in Fortune’s Change the World list due to the Vivo Recicle program, our main initiative in the circular economy. We were also highlighted once again in the Great Place to Work ranking, being one of the top 10 best companies to work in Brazil. Now David will walk us through our financial performance.

David Melcon, CFO

Thank you, Christian, and good morning, everyone. On Slide 10, we show the results of our commitment to an efficient cost structure. Total cost was up 4.6% year-over-year, well below our revenue growth. Cost of services and goods sold increased 5.9% year-over-year as revenue from B2B digital solutions, handsets, and electronics increased. The cost of operation, which represents 67% of total OpEx, was up 3.9% year-over-year, accelerating versus previous quarters and below inflation in the period. The performance is explained by the acceleration of commercial activities, continuous efficiency and digital initiatives, bad debt improvements, and a positive net effect of R$175 million on matters related to the Oi Móvel acquisition. Moving to Slide 11, our focus on top-tier technologies such as 5G and fiber is contributing to a better mix of capital spent. In the first nine months of this year, we invested R$6.7 billion, a decrease of 5.3% year-over-year, representing a CapEx to sales ratio of 17.3%, on track to reach our guidance of CapEx below R$9 billion this year. As a consequence of a very strong operating performance coupled with controlled investments, our operating cash flow sums up an impressive value of R$8.9 billion year-to-date, up 27.1%. We are optimistic about the opportunities to further reduce our capital intensity going forward. On mobile, we already covered more than 40% of the population with 5G, while on fiber, a significant part of the home pass footprint we plan to have has already been deployed. On Slide 12, you can see that our profitability metrics keep on improving as a result of a very positive operating momentum and solid financial execution. As such, net income and free cash flow increased every quarter of the year on an annual basis, reaching in the first nine months this year R$3.4 billion and R$7.6 billion respectively, growing at double-digit rates year-over-year. This also resulted in a low debt level. Financial net debt decreased 76% year-over-year. Even considering IFRS 16 leases, leverage remains well controlled at 0.6x EBITDA. All these figures allowed us to keep investing in our growing businesses and maintain attractive shareholder remuneration. Lastly, on Slide 13, we update you on our capital reduction request to Anatel. In September this year, we had a positive outcome as Anatel granted prior consent to reduce our capital stock by up to R$5 billion in one or more events. With this approval, we have more flexibility to decide the best mix of shareholder remuneration for the next few years through the combination of capital reduction, dividends, interest on capital, and share buybacks. 2023 shareholder payments sum up R$4.6 billion year-to-date, including our share buyback program. Our priority is to continue delivering a unique combination of growth, profitability, and return to shareholders. Thank you. And now we can move to the Q&A.

Operator, Operator

Our first question comes from Fredi Mendes from Bank of America. Please go ahead, Mr. Fredi, your microphone is open.

Fredi Mendes, Analyst

Hello. Good morning, everyone and thanks for the call. I have two questions here. The first one is about CapEx. You already mentioned a few times in the presentation that you keep below R$9 billion for the year. But historically, the fourth quarter is the strongest, the highest in terms of CapEx. Just double-checking because if we use the same numbers for the third quarter, you’ll be slightly above R$9 billion. So just want to double-check that. And how are you seeing this number for 2024? In our calculation here, there is room for some decrease year-over-year in terms of CapEx. But obviously, I would like to – be great to hear your view on that. And the second point on mobile. I’m assuming you’re already doing the budget for 2024 and obviously, the macro scenario can always change. But with the information we have today, do you think there is room for us to continue to see this real increase in terms of price or that’s something that happened in 2023 more like a one-off and should not happen in 2024 as well? Thank you very much.

Christian Gebara, CEO

Hi, Fred. This is Christian. So, going to your questions on CapEx. Yes, we kept what we said. No, we’re going to be up to R$9 billion this year for CapEx. There is a decisionality of the CapEx, but that’s confirmed; the target that we have for the year. Regarding 2024, we are not giving guidance right now. What I said in the past is that last year was the peak that we had in CapEx because of the Oi integration and part of the 5G auction. There are some parts of the obligation that we had to invest. This year, as we said at the beginning of the year, it would be going to be a more reasonable CapEx, up to R$9 billion. Next year, we’re not going to see any peak. So I don’t give guidance now, but I think it’s continued to keep the trend. Regarding the revenues, yes, as you said, no, there is also not giving guidance for revenues. What we see here now that we presented in this call is that we’ve been very successful attracting customers, both mobile and fiber customers. So net adds have been very strong, churn is very controlled, actually easing to the lowest level in the mobile and in the fixed, if you consider Vivo Total that we have more than 1 million customers to date, we are talking about a churn that is lower than 0.5% per month. We’ve been very successful in adding new services to our services in both mobile and fixed. So you see the ARPU evolution. That is also a good sign of our strategy of adding more services or migrating upselling customers within the same segment that they are. So combining all of this, I don’t see any operational or competitive issues in our case, the value proposition that we offer to be different in the next months. So, I’m confident about the future, but not giving you a specific guidance.

Fredi Mendes, Analyst

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

Christian Gebara, CEO

Thank you, Fred.

David Melcon, CFO

Thank you.

Operator, Operator

Our next question comes from Bernardo Guttman from XPI. Please, Mr. Bernardo, your microphone’s open.

Bernardo Guttman, Analyst

Hi. Good morning, everyone. Thanks for taking my question. Actually, I have two here from my side. The first one, when considering margin dynamics, you are experiencing a consistent growth trend. There seems to be significant potential in leveraging the Oi customer base for digitalization and also upselling opportunities. However, I would be able to understand the sustainability of this margin increase for the next year, also considering the fixed part of the business. The second question is regarding basically asking for an update on the network sharing agreement with TIM and if there is any discussion to expand the scope for 5G? Thank you.

Christian Gebara, CEO

So, Bernardo, I will start and then David may continue if he wants to on the margin, then I’ll come back to discuss the TIM. Look, we are growing EBITDA in a very solid way. So, as we have been discussing with you in the past, we are growing revenues and EBITDA above inflation. That’s a very positive sign. Revenue is growing in all lines. We are growing in mobile, we are growing in what we call smartphones and electronics, and we are growing in fixed. Now, in fixed, if you take out what is called non-core, that is voice and DSL, our growth would be double-digit. So positive growth. Part of this growth is also in digital services. I think I highlighted here 6% of our revenues already in B2B digital services. We can calculate on average here 3% may be in digital services in B2C. So our mix of revenues is changing. Some of the services have a different margin, but they have no CapEx. If you consider the operating cash flow margin that we are presenting here or even their free cash flow margin that we are presenting in the nine months, you can see a significant increase in these two margins. Our objective here is to continue to grow absolute numbers, revenues, EBITDA and improving the margins that we present both in operating cash flow and in the free cash flow, considering the new mix of products that we are selling. That I just described here a summary of them. Having said that, of course, there are a lot of initiatives in reducing costs. We are driving the company to digital – as digital interaction with our customers. That has an impact on customer care, but also has a strong impact on commissions and many other commercial OpEx that we would be reducing when you drive it even further digital. So here’s a combination of factors. Our obsession here is to increase absolute numbers and have operating cash flow and free cash flow margins that are much stronger.

David Melcon, CFO

Yes. Let me also add, Bernardo, the question about Oi. So we have the synergies; as we say, we acquired Oi 18 months ago. We say that we’re going to have synergies from OpEx and CapEx of R$5.4 billion, equivalent to the amount we paid. And this is coming nicely every quarter. That’s why you are seeing, as Christian said, an operating cash flow growth in the quarter of 22.9% and in the first nine months, we are growing operating cash flow by 27.1%. So this is the line that we are looking at and particularly we are monitoring and we are tracking in absolute numbers.

Christian Gebara, CEO

Can I go to the rent sharing, Bernardo, or any other question?

Bernardo Guttman, Analyst

Yes, please. Thank you. Thank you. Very clear, the first one. Thank you.

Christian Gebara, CEO

Okay. So we are very keen on this initiative for rent sharing with TIM. We have three dimensions of this initiative. The first one was to expand 4G coverage. That happened in 716 cities, approximately 360 cities to each of the operators that was successfully implemented. So cities that TIM had a presence, and we didn’t or vice versa. We could do that, and that was great. We may envision doing more in the near future, especially now that apart from 4G, we may have also the 5G deployment. Then there was a single grid model. That is what the first tranche of this rent sharing was focused on in cities of less than 30K inhabitants. Here we had a plan to do more than what we did so far at the end of this quarter. We ended up doing that in 180 cities, but we are now preparing ourselves to do more cities. So it took us more time, technically speaking, especially because we also had the Oi deal in the middle of the process that we put our network focus on migrating customers and also integrating their frequency into our portfolio. Now we are again ready to expand this single grid to more cities. I don’t have a number right now, but there is an opportunity to expand it. And then there is a third element of this agreement that is the 2G network that we want to consolidate and shut down. That also had very good progress. We concluded the rollout almost. I think we have more than 1,000 cities today that we have the 2G networks already consolidated. Here there is also room to expand it. And once it’s expanded, we are close to shutting down 2G infrastructures as a whole. So 1,000 cities that we already have the consolidation in the future, apart from having the consolidation, we may shut down the 2G and use the frequency for other technologies. So that’s the status. Some progress, still room to come, and the last year impacted by the Oi integration for both operators.

Bernardo Guttman, Analyst

Very clear. Thank you very much, Christian, and David.

Christian Gebara, CEO

Thank you, Bernardo, for the question.

Operator, Operator

Our next question comes from Marcelo Santos from JPMorgan. Please, Mr. Marcelo, your microphone’s open.

Marcelo Santos, Analyst

Hi. Good morning, Christian, David, everybody from the Vivo team. Thanks for the opportunity for making questions. I have two. The first, you had some fines on the de-commission of Oi sites. So I just wanted to ask where you are in the process of decommissioning these sites and how much gain – if you could give us an idea, how much gain could we expect in leases going forward? The second question is on fiber adds. The number of fiber adds you are having is growing. I wanted to see the outlook you have for this. I mean, you’re approaching the levels of last year. So it’s a good sign. Is this because of a better competitive environment or better macro? I mean, could you give some color on the reasons for the improvement and the outlook? Thank you.

Christian Gebara, CEO

I’ll go to the second question, Marcelo. There is thinking – is the result of a better value proposition? No. We’re in 25 million homes already. We’re going to get to 29 million by the end of next year. We have 6 million customers. We’ve been able to sell, especially that I think I highlighted here. In our stores, most of the customers buying fiber are buying Vivo Total. That has the combination; either the customer came with the mobile and acquired fiber or had nothing with Vivo and ended up being both fiber and 5G. With the Vivo Total, we have more than 1.1 million. We’ve been very successful also adding digital services to this offer. We’ve been also very successful in providing high-speed experience to our fiber customers. That’s also due to the technical network – the high-quality technical network that we have and the high-quality CPEs that we have. We also have been investing a lot in our technicians. So, a customer is buying not only fiber but is also buying a Wi-Fi experience that we’re expanding to a smart home experience very successfully. So it’s a combination of many factors. Now here, there is no gain because we are promoting anything. I think the gain of customers is related to a better value proposition, leveraging on what we said here before, the customer base, network quality, channel presence, physical and digital brand, strength of the brand, and the possibility to offer convergence in a way that no one can replicate at the moment. So all this gives this very strong result, and we are very positive about the successful trajectory of this strategy going forward. I don’t know if you have more questions on this. Otherwise, David will answer about the addition of the Oi.

David Melcon, CFO

Marcelo, thank you for the question. So first of all, I think the underlying OIBDA growth we have this quarter is very strong, and it’s coming from significant acceleration in the growth of revenues, but also on controlling the costs and the acceleration of digitalization, Vivo app, and so on. We also – as we explained last quarter, we also terminated with the transition service agreement with Oi, which is giving us OpEx savings of around R$140 million per year. So as you mentioned, this quarter, we also have a couple of impacts coming from the Oi acquisition. So we finally reached an agreement regarding the Oi price. So we got R$244 million cash back, plus R$33 million in interest that we are also receiving this quarter. And as you mentioned, we are also still negotiating some of the tower leases that we received from Oi. So in total, we received 2,700 sites, out of which we are going to maintain 800 of those. So the rest, which is something like 1,900 are going to be canceled and decommissioned in the next quarters. So we are progressing well on the negotiation with the towers company. We have already agreed with some of them for cancellation in the third quarter. We are progressing with the rest, and we hope to have everything agreed upon in the next two to three quarters. So, we are very efficient at managing those contracts. And as you mentioned, we had an impact of R$69 million cost this quarter, which are non-cash as we continue negotiating and we will see at the end of the next couple of quarters, the end of the negotiation. But this is what we have so far, but I want to emphasize that the underlying OIBDA growth is very strong.

Marcelo Santos, Analyst

Okay, perfect. Very clear. Thank you very much.

Operator, Operator

Our next question comes from Leonardo Olmos from UBS. Please, Mr. Leonardo, your microphone is open.

Leonardo Olmos, Analyst

Hi. Good morning, everyone. Hope you are all well. I got a single question. Can you please discuss the main potential tax change you’re facing now? And how could that affect your earnings or other parts of your cash conversion? Thank you.

Christian Gebara, CEO

Hi Leo. David can give you more color if you want. But there is no change right now that we are talking about – we’re talking about the interest on capital. That is still under the initial discussion. So David can give you some color. But the other one, the other tax is still waiting to see what’s going to be the outcome, the one more related to consumption. Here, we are now always advocating for the essentiality of our service, the possibility of having a better tax over digitalization connectivity would help the country in many ways. That’s what we try to advocate because, as you know, we pay a lot of tax over the service that we sell to our end customers, on average, 35%. And when there was this decrease in SMS in some states, they were very positive, I think, for inclusion and for many other things that we could calculate here during this period. So this is the tax that we have right now. The one in interest on capital, David can give you some more color.

David Melcon, CFO

Yes, Leo, thank you for the question. So at this moment, it’s too soon to talk about any potential impact. This matter is not solved nor defined at the executive or legislature level. Anyhow, in the end, if the interest on capital goes through in anticipation of a broader income tax reform, we believe it will aim to reduce our current corporate tax rate. So we have relevant alternatives to maintain our solid levels of shareholder remuneration, such as reducing our capital stock, leveraging the company, and speeding up share buybacks. But anyhow, we are not expecting any change this year.

Leonardo Olmos, Analyst

Got it, thank you. And since you are on regulation, can you talk a little bit about the secondary spectrum, the use of secondary spectrum by local ISPs? How are you seeing that? What do you expect?

Christian Gebara, CEO

I don’t know if there is – there is no demand. I don’t have anything relevant to share with you all right now. We haven’t been demanded. And so I really don’t have anything new to share about what’s the specific question if there is demand or because so far, there is nothing new to share.

Leonardo Olmos, Analyst

No problem. Thank you very much. Have a good day.

Christian Gebara, CEO

Thank you, Leonardo.

David Melcon, CFO

Thank you.

Operator, Operator

Our next question comes from Vitor Tomita from Goldman Sachs. Please Mr. Vitor, your microphone is open.

Vitor Tomita, Analyst

Hello, good morning all. And thanks for taking our questions. We have two questions from our side. The first one is on your recent price up to prepaid plans. Did you notice any elasticity impacts such as lower recharge frequency or other impacts after pricing up your plans on prepaid? And do you see room for pricing up other prepaid offerings this year or for making other movements on the pricing side? That would be our first question. Our second question would be on fiber-to-the-home. This quarter saw not only some improvement in volumes for fiber-to-the-home, but also some interesting improvements in the transfer of fiber-to-the-home ARPU with year-on-year growth turning positive. Should we see that as a turning point with FTTH ARPU now potentially maintaining a positive growth trend for more quarters? Thank you very much.

Christian Gebara, CEO

Vitor, going to the second one, we are not giving a trend on that. But as what I said before, we’ve been very successful in increasing the penetration of digital services overall offers. So, selling a lot of OTTs together with fiber. We also are increasing the speed of our offer and also increasing prices related to that. The average speed of our customer base is also going up. We shared numbers in the last quarter, and we can share those numbers. So it’s always positive, not only the entry level of the speed but also the mix that we have in our customer base. Also, we are selling more Vivo Total as a way to bundle more services to the same customer. So the trend is positive when you consider that we have a very low churn and customers are choosing our offer in a broader sense, fixing more mobile and also adding digital services and going up in speed. I think also another room to growth is that we are growing stronger in this concept of smart homes. Apart from selling the fiber itself, we’re selling Wi-Fi connectivity in different rooms; we are also selling the possibility of customers paying for a service to install more devices of smart homes. So all this area of home connectivity, we see strategically room to grow. That was the first. I don’t know if you have any more questions on this. In the second, the prepaid, we are moving the offer; I think you mentioned that the top-up face value that we increased. We’re increasing the top-up face value. But we are also increasing our – we have different offers now, but we are increasing the value of the biweekly offer that was 15. We are moving already in many states to 17. The idea is to go to 17 internationally along November. So 17 biweekly offer.

Vitor Tomita, Analyst

Very clear. Thank you very much.

Christian Gebara, CEO

Thank you, Vitor.

Operator, Operator

Our next question comes from Phani Kanumuri from HSBC. Please Phani, your microphone is open.

Phani Kanumuri, Analyst

Hi, thanks for taking my questions. I have a couple of questions. The first one is regarding the timing of the process for the capital reduction process. When is it expected to complete, the capital reduction process? And how would it benefit your shareholder remuneration? The second question is related to the concession agreement. Do you have any updates on what is happening on the concession process? Thank you.

Christian Gebara, CEO

Okay. I’ll go to the first and go to the second. The first in the capital reduction. As you all know, we got approved by ANATEL, up to R$5 billion in capital reduction. So that’s where we stand. We are planning to announce the first tranche of this reduction in the next weeks. To do so, we need to first know, as a management, or submit a proposal to our Board of Directors that we may do in the next weeks, as I just mentioned. After that, we should call the general shareholder meeting. That has to be realized 45 days after this call. After the GSM, it is approved, the company should grant another 60 days as a period for authorization of creditors. So considering that we may approve in the next weeks in our Board, then we’re going to call the GSM. So we have to estimate another 120 days to have it executed. So this is the plan for next steps in capital reduction. In the other question specifically about the migration, I don’t know what your question is about, because as you know, we have two things here going on. We have one that is a discussion about the value of the migrations that we discussed with ANATEL; we came up with the number, the R$8.7 billion that we want to discuss this number because there is some – not a convergence in the value. On the other hand, we also have an arbitration process with ANATEL, where we discussed a financial equation of the concession that’s more about the unbalance of the original contract and the sustainability of the contract. For this, we are demanding more than the R$8.7 billion. We don’t give the number, but it’s a high number where we see the sustainability and balancing of the concession. That is an arbitration. Now there is a solution or an alternative, not a solution, as an alternative, the TCU opens up for a consensus solution where we could put the two discussions on the table and try to come up with a consensus. We are betting on that solution. To do so, we have a suspension of the arbitration process because we want to discuss with the TCU mediating it, and the solution consensus with ANATEL. ANATEL submitted this request to the consensus solution to TCU. We are now waiting for TCU to accept it. If they accept it, we’re going to have a commission installed, and we’re going to have 120 days to reach this consensus. After this final approval by the court, it may last up to another 90 days to get everything approved, so 210 days. Now what we are waiting for is TCU to approve that we can establish the consensus solution or start discussing the consensus solution. So more or less, this is where we stand in the process. If you need more details, then our team here can give you more color on that.

Phani Kanumuri, Analyst

Very clear, thanks everyone.

David Melcon, CFO

Thank you.

Christian Gebara, CEO

Thank you.

Operator, Operator

Our next question comes from Carlos de Legarreta from Itaú BBA. Please Mr. Carlos, your microphone is open.

Carlos de Legarreta, Analyst

Hi, thank you. Good morning. I have two questions from my side. The first one regarding your personnel expenses; I would like to understand what has been the driver year-to-date. And also how do you see personnel expenses evolving in 2024? Secondly, talking about the B2B business, obviously, you’ve done very high growth, 28% in the last 12 months. I just want to get a sense if that is because you’re adding new services or you’re just overall growing faster than the market. Thank you.

Christian Gebara, CEO

I’ll go to the second, Carlos, and then I will let David go to the first question, okay? B2B is – yes, we are always launching new services, but we are very focused on the verticals that you know; there is cyber, there is IoT, there is cloud, and there is also the sale of equipment. So that’s the main focus from a product perspective. But within this family of products and services, we are always adding new ones, especially when to customize that to specific verticals that we are very structured on now by vertical. So the Agro business has some demand different from the retailers. We’re also always trying to adapt to the need of a specific vertical and the need of the different sizes of companies. As you know, Vivo has 1.5 million customers in B2B, ranging from micro companies and small companies up to the largest companies in this country. So we structure also our value proposition based on the size of the company. I highlighted it in my speech, Vivo Meu Negócio, which is very focused on the small company. Here we add cloud services, and cybersecurity services, very tailored to this size. What we’re doing here is always innovating but increasing the penetration. I said that we sell through Vivo digital services in these categories that I just mentioned to less than 10% of our customer base. There is room to sell to more customers and also room to sell more services to the existing customers. So the growth will come this way; more services to our customer base and always innovating in these categories and also considering new categories if they come along in a relevant way for us to address digitalization. I don’t know if I answered your question, but that’s what we have right now, R$3.2 billion annual basis of revenues, more than 6% of total revenue, double-digit growth in the last quarters, one after the other.

David Melcon, CFO

And Carlos, taking the first question on personnel costs. I mean, the main driver for this growth had to do with insourcing of activities. These are mainly areas related to IT and B2B, and also accelerating the growth in new services and new businesses as, of course, we need to also recruit the best people to drive those businesses, plus the salary increase that we normally have as part of our business as usual. I think regarding the trends, if you look at the number this quarter, I mean, we are growing less than we were growing in the second quarter and also less than what we were growing in the first one. So we are seeing a positive trend. But as we said before, total cost is what we are looking at. So no matter perhaps if it’s one line or another one. We are seeing a very controlled cost and growing below inflation. So that’s it.

Carlos de Legarreta, Analyst

Thank you for the color. I guess as a follow-up to that, is that in-sourcing process expected to finish in the near future, or should we continue seeing this as a driver to perhaps drive personnel expense growth above inflation for next year?

David Melcon, CFO

I mean, this is something that we – I mean ad hoc, depending on what we see in the evolution, there is no big program for insourcing that could drive this cost up. But I would say this ends up being more business as usual.

Carlos de Legarreta, Analyst

Okay, it’s just an ongoing process.

David Melcon, CFO

Yes.

Operator, Operator

Our next question comes from Carlos Sequeira from BTG Pactual. Please Mr. Carlos, your microphone is open.

Carlos Sequeira, Analyst

Hi, good morning. And congratulations on the results, they were amazing. I have a couple of questions really. One is Bernardo asked earlier a question on the rent-sharing agreement. I saw that ANATEL put up for public consultation rules that prevent the big telcos from executing rent-sharing agreements in cities with less than 100,000 people. My question is does that change in any way your plans or capital requirements, assuming it’s approved, right, to deploy 5G in these smaller cities, please? That’s the first one. The second one is a more straightforward one. Oi put up for sale its fiber client base, and I’m wondering if that makes sense for you eventually. Thank you.

Christian Gebara, CEO

Carlos, thank you for the comments and the question. The first one is a public hearing now that ANATEL has in place. Yes, I think we’re going to give our opinion. I think rent sharing is a very positive way to optimize CapEx and to increase coverage. I think the country needs more coverage and needs to find new models of network expansion, especially now that we have 4G, 5G and in the future we’re going to have different technologies. Our opinion here is that rent sharing should be available, and we are doing that in 2G. That is technology that we can shut down. We are doing that in single grid, we are doing that in 4G with TIM, as I explained to Bernardo. Of course, we imagine doing that with different technologies in more places. Again, that’s necessary for a country the size of Brazil to reach everyone. Now there’s a lot of discussions also about schools being covered, suburban areas being covered, remote areas in Amazonia being covered. We are keen on covering that, but we need to save CapEx in other places to be able to reach this coverage that is also demanded and we want to fulfill. Again, participating and having a very strong opinion about coverage and the need to optimize investments. The second one, we’re going to – it’s a new process now of the sale of Oi customer. We need to understand, especially because we don’t have any details to understand that these customers today are using the infrastructure of a neutral network. So what is the relationship and what are the conditions of the contract of these customers that Oi has today with the neutral company, not the Vita in this case? Who buys customer buys the contract? We have many questions to be answered. We participate in everything related to any opportunity in the fiber business. So far, we haven’t been a buyer of anything, but again, being the number one company in network and in customers in Brazil, we need to see what is there and understand all the details, especially related to the contract of the usage of the neutral network that I mentioned before.

Carlos Sequeira, Analyst

Okay. Thank you, Christian. So on the rent sharing, my understanding is that you hope that this possibility will not materialize, right? ANATEL will understand that there are bigger goals they should be looking at rather than preventing companies from doing rent sharing, right? That’s your view.

Christian Gebara, CEO

Yes, that’s my view.

Carlos Sequeira, Analyst

Yes. And on the Oi process, do you have an idea on timing for that? Or is it so new that you don’t have any idea? Just wondering, I don’t have any.

Christian Gebara, CEO

We don’t have any official timing that has been presented to us, only in the press; nothing official.

Carlos Sequeira, Analyst

Okay, thank you very much.

Christian Gebara, CEO

Thank you.

David Melcon, CFO

Thank you.

Operator, Operator

Thank you. This does conclude the question-and-answer section. I would now like to hand the floor back to Mr. Christian Gebara for the company’s final remarks. Please, Mr. Christian, you may proceed.

Christian Gebara, CEO

Thank you all for participating. We are very satisfied with a very strong quarter, now the third in this year with strong results in all lines. We’ll keep on with our strategy now based on having the best infrastructure for digitalization in the country and the ability to go beyond telco and add new digital services. I believe we are being able to prove that is also successful and a relevant part of the revenue going forward. So again, we have all the team here available for any additional questions that you may have. And once again, thank you for your participation.

Operator, Operator

Vivo’s conference is now closed. We thank you for your participation and wish you a very good day.