Brisanet Participacoes SA

BOVESPA:BRIT3

Earnings Call Analysis

Brisanet Reports Strong Client Growth Amid 5G Expansion Challenges

In its recent earnings call, Brisanet highlighted a robust addition of 69,000 new clients in the first half, driven by competition in the Northeast. While the company is seeing strong demand for its broadband and 5G services, it faces initial revenue challenges and increased costs. They project a mature client base by year-end with continued growth in 5G, anticipated to outperform previous fiber service successes. Despite short-term net debt concerns, Brisanet is set for long-term profitability, emphasizing an average ticket increase to around BRL 90, balancing aggressive recruitment and infrastructure investments to foster growth.

Introduction to Brisanet's Current Position

Brisanet, a notable telecommunications operator in Brazil, is undergoing a significant transformation as it expands its infrastructure to include 5G technology. This earnings call reflects both the challenges and opportunities that lie ahead for the company as it navigates a competitive market, particularly in the Northeast region where it has strong footholds in both fixed broadband and mobile services.

New Customer Acquisition and Market Context

In the first semester of 2024, Brisanet marked a noteworthy achievement by adding 69,000 net customers, eclipsing losses reported by larger competitors. The company’s strategy to maintain a competitive average ticket while focusing on attracting clients with a quality service, rather than just low prices, is evidenced by an average ticket close to BRL 90. The strategic positioning in cities such as Fortaleza, where Brisanet added 18,000 new customers, illustrates its success even in competitive landscapes where major players operate【4:0†source】【4:4†source】.

5G Rollout and Future Expectations

With the launch of 5G services in Fortaleza, Brisanet aims to boost its market share profoundly. The rollout has been gradual, supported by infrastructure investments totaling EUR 346 million primarily focused on 5G. The revenue from this shift is anticipated to significantly augment profitability once operational hurdles are addressed. The executive team believes that 5G will outperform fiber in its success, anticipating substantial adoption rates by clientele who are still adjusting to mobile data culture【4:2†source】【4:13†source】.

Financial Health and Investments

Brisanet's financial performance reflects a robust EBITDA margin of 42%, which is promising given the current lack of revenue from its 5G segment. The firm continues to invest heavily in infrastructure without immediate revenue returns, noting that all costs related to the towers and energy have already been factored into their operational expenses. This strategic patience is designed to ensure sustained growth and enhanced market positioning【4:2†source】【4:18†source】.

Debt Management and Capital Expenditure

Brisanet has strategically managed debt levels, leveraging long-term financing with favorable interest rates to fund 5G expansion. An issuance of BRL 1 billion debenture had significant demand, indicating strong investor confidence. The management asserts that the increased debts are in line with projected growth, anticipating that existing investments will yield considerable returns over time【4:16†source】【4:10†source】.

Outlook for Revenue and Profitability

Looking ahead, Brisanet projects that the second half of 2024 will mirror the performance of the first half, with expectations of a robust maturing of sales channels contributing to revenue growth. The company is keen on optimizing its operations to transition quickly from building infrastructure to generating revenue, eliminating the lag in securing new customers through efficiently managed sales teams and marketing initiatives【4:3†source】【4:19†source】.

Conclusion: Positioning for Long-Term Success

Brisanet is solidifying its status as a competitive player in the Brazilian telecommunications sector. While immediate challenges exist, particularly related to the transition to 5G and customer acquisition strategies, the company’s strong foundation in fixed broadband, prudent financial management, and strategic growth initiatives position it well for the future. Investors are encouraged to view Brisanet as a long-term investment opportunity, as the groundwork laid today is expected to yield fruitful returns in the years to come【4:1†source】【4:12†source】.

Earnings Call Transcript 2024-Q2

[Luciana Ferreira, executive]

Good morning to everyone. Welcome to the Earnings Call for the Second Quarter of 2024 from Brisanet. My name is Luciana Ferreira, I'm the Director for Investor Relations of the company. With me, I have Roberto Nogueira, Founder and CEO; Romario Fernandes; and Joao de Araujo from the controllership office. This teleconference is being recorded and will be made available on the company's Investor Relations section of their website where the presentation will also be available. [Operator Instructions]

We'd like to highlight that the information contained in this presentation and other declarations that may be made during this teleconference in relation to business perspectives, first, operational forecasts are based on the company's premises, based on other available information. And they are not guarantees. They involve risks and uncertainties and future events that we are unprivy to and circumstances that may or may not occur. Investors should understand that economic general conditions and market conditions and other operational conditions may affect the future performance of the company and also the results may be different than those expressed in the future statements.

[Technical Difficulty]

Let's start the presentation. The information will be available on our website in the Investor Relations section, brisanet.com.br. We'll start with Roberto. Roberto, you have the floor.

[Joao Nogueira, executive]

Good morning, everyone. I will make a brief -- give you a brief background in the first 2 or 3 minutes, and welcome the new investors that may possibly be here and wish you all a great meeting. Thank you so much for your presence, and thank you for joining.

In '98, Brisanet begins its operations with a test of radio signal Internet during a moment in Brazil in which there was no technology, either radio waves to reach homes. That was the first operation for Brisanet. For 3 and 4 years, we worked with that. And in 2002, Brazil very quickly began to grow with radio providers, which today there are more than 15,000. And another important relevant movement for the company was 2010 and '14, where the technology was developed for the [ invo ] technology. And so small homes were starting to get Wi-Fi, there were many problems in terms of transfer of data. And so we -- Brisanet looked for new solutions. Meanwhile, China and South Korea were already using optical fiber. In Brazil, there was no perspective to bring optical fiber into homes. The large providers, their forecast was that optical fiber would only be present in people's homes in 2005 and -- 2025, and Brisanet did in 2011. In 2016, the smaller providers also started providing fiber to households. So Brisanet has pioneered this process.

In 2015, we had the first audited balance; in 2018, the first contact with 5G and the decision to expand to capital. That's when Brisanet understood that the future would have also mobile data, otherwise, it would not be possible to operate well in the market without the mobile data. So we started participating in the discussion of 5G in 2018, and we participated as well in the auction that would include the format for regional providers to participate. And Brisanet won in the Midwest and in the Northeast. In 2021, with -- we did the IPO and also we won the auction.

So here, we have a few numbers. Just to refresh our memory, Brisanet, closed 2023 with 6,000 houses passed and Brisanet has -- is a new mobile operator. This graph, what does it show us? It shows us how competitive we are. Today, there are 78,000 optical fiber kilometers just in our area with 20 million inhabitants. So every point that I'm bringing here shows our competitive advantage, includes both technologies, mobile data and fixed fiber data. So fiber where we have a lot of capillarity, always Brisanet built for the whole city, now part of the city, the entire city. It completes the city, we can provide for the whole city. And for 5G, when Brisanet at this moment starts building a tower or an antenna in a location where that tower was projected, there is already fiber present there. So it is a huge level of synergy, which what we built over these years, with the investment of 5G, now practically is an investment at the point of the towers.

So the backbone and all the investment has been done already. So that's one of the main points that set us apart from other companies in terms of competitive advantage, not only in the countryside, but also in the capitals, mainly, although in the countryside, which we are present for many years already. So if any competitor wants to come in, they would have to do a lot of infrastructure.

So we have 44,000 kilometers of backbone. We have a lot of security of -- in large city Brisanet has several teralinks. Today, some cities have 4 to 5, 6 different approaches with terabytes of capacity. It is a format that is very robust that no one else in the northeast of Brazil can provide with [indiscernible]. We also have 280 data centers, which we built for our own infrastructure. With the implementation of 5G, every tower is connected to these data centers with 2 different fiber connections, so if one drops, there is another one. So there are 2 fiber connections, which brings a lot of robustness in the 5G network.

The amount of cities that Brisanet is present in today is 225, and that includes FTTH plus mobile. In 133 cities, we already have 5G. From these 133, 75 only have 5G. So from 133 cities where we have Internet, fiber Internet, we still have 75 cities that need to be explored for 5G. And if necessary, in the future, when Brisanet implements its first technology of 2.3, when we have 70% or 80% of capacity, we will implement the second pass of 3.5, in the frequency 3.5, and when these 2 technologies are saturated, then we come in with fiber if needed. In the large centers in the capital, Brisanet already has come in with both technologies.

Today, the population that we cover is 7 million people. So this network that is highly robust with a very strong data center can be expanded continuously in the future. At this moment, we are not -- we do not have any projects at this moment to explore beyond our present levels.

On this screen, I will talk more about the market in the Northeast. Whoever is a company in this telecom center -- sector, looking at the Northeast, looking at the competition with large and small providers knows that this is an important market. So I'll get into the details. So broadband in the second semester, we were able to close -- in the first semester, sorry, we closed 69,000 clients. So those are all net adds. This went over all of the large operators. The 3 large operators in the Northeast, they had 8,000 new clients or added clients. The small providers, if we consider the fact that we removed 3 regional providers, they also had a high level of new net adds, but that was mainly per acquisitions or with repetitive numbers, a small operator registers 20,000 clients, instead of 20,000 clients, he puts 200,000 clients. So we're removing the 3 small player providers that put -- registered a high number of new net adds that some of all net adds in comparison to Brisanet lost.

So Brisanet was able to reach 69,000 new net adds. And how does the competition work between the large and the small providers? What is the level of aggressiveness in terms of the average ticket? Here, the Northeast, the large operators have worked very strongly in the cities of the Northeast countryside. But their prices are very cheap, BRL 49 plus streaming for one whole year in the cities of the countryside. But these cities that the smaller operators are as well is 62 cities. So there are not so many cities. In these cities of the country side, some of the cities grew more. But in general, in a city where Brisanet operates and also we're a large operator of is -- presented so Brisanet grew more.

So let's use the example of the city of Fortaleza, the capital of Ceara. It's a large city, and the large cities such as the capitals where large operators have a higher number of clients, their prices aren't as aggressive. Fortaleza, in the first quarter, Brisanet grew 18,000 net adds -- 18,000 of new clients. And meanwhile, the large operators lost 5,000 new clients. Vivo lost 940 clients in Fortaleza, in the larger metropolitan region of Fortaleza and Claro won 1,400. So in the city, the large cities where the prices are more equal where the competition is more fair, Brisanet leads in an expressive level with 18,000 new clients in relation to the loss of a few clients of the larger providers. In the countryside, 2 or 3 cities, the other competition had more gains with their prices were BRL 49 plus streaming, very aggressive.

So that is an aggressive movement that call centers are doing. And in the Northeast, they are trying to get more clients, but they are not bringing in much revenue with expressive margins. And for the small providers, Brisanet has been here for a long time. And even though we don't have the cheapest prices, we are still getting more new clients. This shows that we are on the right path, that we are always trying to have an average ticket close to BRL 90. We will not lower our price. And we can see that in the other -- in the last 3 months, Brisanet still had an increase of its client base on the following month of July, what's close to 200,000, but the movement will continue with a higher base than the previous months.

So if we consider looking at Fortaleza, the larger metropolitan region of Fortaleza, where we grew with 18,000 new clients. Ever since January, Brisanet has been announcing 5G in Fortaleza. We worked very hard in the larger metropolitan region of Fortaleza to announce the coming of 5G in the middle of last year. And now we launched, at the end of July, 5G. So this movement for Fortaleza also gave us a lot of adds of new clients. 18,000 were in the larger region in the metropolitan region of Fortaleza with this movement of Brisanet and 5G. This is a reflection of the 5G movements, how it brings the synergy to the growth of broadband -- fixed broadband.

Other cities in the interior had lower volumes because those has been building without performing too many interactions in the media. We were building this very silently. We started off in Fortaleza. That's why we performed more analysis on the launch of the 5G. So we were kind of under the radar and we started doing this without making major advertising initiatives. So in the bottom part, you can see that in the month of July, we've already started continuing the first month which is close to 30,000. But if the growth in this space for mobile is still through the door-to-door channel. And so many of them are expected to come in, in July, some channels already came at the end of July to August, others will still come in, but they was a displacement with the arrival of certain channels.

So this number is a basis for the door-to-door and store channels in person. Other channels still have not been able to bring the customer base, which is something we're going to work on strongly at Brisanet. We also opened up to 66 cities from the beginning of [ FWA ], which was a pilot project, but it's still an assisted sale, right? So over each channel and each product that's launched in 5G comes in as an assisted sale to test the platform.

Brisanet is in the mobile world trying to build its additional platform in the year and all of the new channel products must be tested accordingly. So when we activate this new channel or this new product, it is then sold in an assisted manner for 2 or 3 months until it reaches a more accelerated growth pace.

And then here, you have the curve where in the first semester, for the quarter, we had 42% and quarter 2, 42%. And we're going to have a second semester that will also be similar to the first quarter. So second half will be where Brisanet expected greater growth, but this will be equivalent to the first one. And this is due to this displacement of a few months from the other sales channels. And if the sales channels don't come in, the revenue doesn't come in, and that, of course, impacts the EBITDA. So this moment with the revenue of Brisanet and 5G, there was a displacement, but the expectation is that the channels and products will be all very well aligned until the end of the year. So that's our expectation, that this year Brisanet will leave quite mature as we finish the year.

So for infrastructure, we've already been mature for quite a while, but when we consider the 5G network and the coverage, Brisanet is already 100% ready because we've completed this maturity process, which includes the platform adjustments of products, the channels and until the end of the year, all of these controls. So now getting into our market, our addressable market in the Northeast, 55 million inhabitants and mobile demand is 51 million. We have a population covered of 22 million in broadband, fixed broadband, and a population in mobile, it's already 7 million, but this population of 7 million, the sales channel is basically stores. But now they're coming in with some other channels as well. And by the end of the year, month after month, we'll have even more channels.

So this number of 7 million that's already covered, had an expectation for the year of 14 million. But now we are redesigning this and we'll have this higher than 10 million. So it's going to be over 10 million, but not 14 million due to this change in our displacement from the sales channels and investments will be pretty much the same, despite this shift from the activation of the towers, which was left a little more ahead.

And so moving on now, Romario will present the next slides. Thank you.

[Jose Romario Pinheiro, executive]

Okay. Perfect. An important highlight here, we were to talk about the CapEx. The company continues to generate a lot of cash, as I mentioned. And actually, it's greater than the EBITDA in the semester. So when we look at the CapEx a bit more, in the semester, we had an investment of EUR 346 million that were concentrated mainly in the 5G line, but also reinforcing the infrastructure in the backbone. And also important to highlight the expansion of the subscriber base in FTTH. So this brought in an occupation of the fiber sources of 19.3% in the semester. And so we're expanding the networks with our fiber networks, and that's where the profitability of the investments also takes place. So our investments are concentrated mainly in these 3 topics, profitability of investments made in the past and expansion of the infrastructure as we think about future revenue sources, especially 5G.

If you can cover this about and then on the next topic, we'll talk about that a bit more. And once again, we'll see in the quarter that there is growth in the level of debt, which was something we already had expected. And once the company accelerates the investment plan, but as we all know, our business plan intends to have organic growth and that does not imply an immediate revenue due to the investments made. The investments made, especially in the 5G networks, there's an expectation for future revenue. So in the short term and throughout '24, we intend to see that there will be a bit more net debt evolving throughout the next quarters as well. But nothing that's not in the company's business plan.

So then about the debt level, we also have our issuance of the debenture, which took place now in this disbursement, which was an operation that had a significant demand, over BRL 1 billion in demand, and that allowed us to capture double the amount from the previous issuance, and we were able to capture this amount in a timing of 6 years.

So in the last few days, we also had an additional [ thresh ] for the hires that we had in [ Sinop ], and we had another BRL 75 million that will be reflected in the report in the third quarter. And we're talking about an operation was 20-year period interest rates at ITR plus 3 and the last payment of the BRL 150 million contract. And we're still missing the contract of BRL 126 million that was made alongside [ P&DS ] in April. So these amounts are mainly going to come in by '24. It's a resource that will be paid out over time due to the execution of the projects. But it's worth mentioning the company continues to work with long-term credits, with funding agencies and institutions, especially the ones I just mentioned, [indiscernible], [ P&DS ] and [ VNB ] as well as other opportunities.

And we have some other projects locked down and registered as well with amounts that are higher than those that I mentioned just now that are underway for the projects in '24, '25 and even a bit of '26. So the trend is that the company will continue to capture long-term resources with competitive interest rates. And Brisanet's projects have synergies that are very relevant with these investment lines. And we intend to take advantage of the standard [ research ] as much as possible and possibly add them on to some issuances in the market or other market conditions with the cost of CTI.

[Operator]

All right, guys. [Operator Instructions] So I'm going to start off here with the question from Fernando [ Abata ] from Itau BBA.

[Unknown Analyst]

Can you hear me well?

[Unknown Executive]

Yes, we can hear you.

[Unknown Analyst]

You mentioned a bit of the sales channels that were ahead of [ space ] and up ahead. Could you explain a bit more of the dynamic and why you have displacement? I think until the end of the year, you said you would have entrance in all the others, but you can maybe get into more details about this.

Maybe a second question is logistical freight and overall supplies. Did they have any significant impact for expansion and that we can look up ahead?

[Unknown Executive]

About mobile operation, you have many different aspects, right? Brisanet always divide this into 3 major parts, right? The network core part, the actual infrastructure building process, which is building the tower radio, activating the radio and working on all of the coverage, the coverage of 100% in each city, and platform with the software to control all of the sales channels and all the products. So from these 3, what I mentioned is a lot more mature, very early in the network core and also in the construction process, which has been a lot quicker nowadays with everything internalized from the tower project, all the way to activating this.

Mapping out the coverage -- the platform is always one of the biggest challenges. And when it comes to fixed broadband, but also in the mobile world as a challenge is all operators. So in 1 year, for Brisanet set up a mobile operator that is selling the market always bet on. And we were able to prove that the network is set up, very well structured, robust, full coverage and we really dominated the -- what the market was betting on that Brasinet would not be able to do.

And so the specialists actually questioned this process. And they weren't really believing we would be able to do this. But we had this displacement of a few months or adjustment of a few months and some projects that were added in like FWA and these are in cities where Brisanet does not have fiber, which has been built for quite a while, ever since the beginning of the year, and now Brisanet is going to be coming in with the FWA to meet these needs. .

So B2B products, Brisanet has been selling the full process and the channel came in, also the product came in due to the platform being approved, and that's why you have the assisted sale. And the channel for partners, which would be stores, home appliances for fixing cell phones and all the electronics and home appliances are partners of Brisanet. So this channel was also released now. But in each of the cities, you have basically dozens of them, and it's taking place in an assisted manner. Some partnerships come in to have the pilot project. And so you have many barriers that are happening.

And then when you have this planning, you can do this displacement in a few months. With many channels coming in, it gives you the possibility to leverage this sale in the second semester, which doesn't impact that much of the financial results. It's a sale where we operate with like 3 months, [ BRL 490 ] in mobile, and you always have the revenue in the second semester that's different than the customer basis that's added in the first semester. So it's not going to bring such a significant result. That's why there is an expectation for greater expenses as it's been projected to be similar.

And so, I think the second question maybe, can you repeat that?

[Joao Nogueira, executive]

Well, the supply of the tower had a bit of a delay. And that's mainly the issues of the data that had already been solved.

But that took place in about 45 days. We have had Brisanet, this was a request that was anticipated, not only a rupture in the manufacturer but also in the supplier. And Brazil -- it was about 45 days of postponement from the [ BRL 14 million ] due to disruption we already had. That was already solved.

[Operator]

I'm going to read another question here from [ Kaio ]. He sent this and he was asking about we had mentioned that the pressure on the margins would be in the first semester. I want to justify the shift in the margins for the second time the levels of debt by the end of the year. Roberto?

[Joao Nogueira, executive]

Well, the level of debt, ever since the beginning of the year, we had announced close to 2x that is remaining. This change that took place now was just because we had to adjust the timing for the towers. The investment is the same. Until the end of the year, we'll have all the equipment and everything will already be internalized, but just the activation of the tower, which is when the tower is actually active and available to start commercializing is when Brisanet will actually start announcing this population is covered. So there's a previous displacement as we've seen now.

And also mentioning what was already mentioned before. When it comes to the sales channels that impact the revenue. And if you look at the channels for sales and due to the platform, and even if it's accelerated in the second semester, where we have a 90 day or so, it's not going to impact us that significantly. So that's why the second semester will be an EBITDA that's pretty similar to the first. And so, yes, we did have an expectation that it would be better, but this shift in channels and the towers led to this need to redesign or restructure, which is a temporary period really.

There is not like -- we're not interrupting the 5G process. Brisanet just displaces or adjusted the timing by 2 or 3 months because we performed a more precise assessment and with the channels we're in already, and we then needed to perform some internal adjustments according to the demand in the market. Especially according to the entrance of new customers, we are [ reporting ] this a bit.

So in the Northeast, 60% of the cell phones are prepaid. [ Today ] Brisanet is operating strongly, but there still is like a natural barrier for prepaid plans to drive like monthly bills. And so this is only 1 or 2 times a month, so basically Brisanet will be working strongly and being quite successful. So we consider this a success, and I work to convert this. But there's a necessary planning to ramp this up. The model is already ready.

[Unknown Executive]

And I will just add on to this to mention the perspective here for the company in a year. I think it's a very precise movement, that will give us more comfort to work on this in the next months and quarters based on the operation and in building this infrastructure to support the revenue in the future. And also, an easier, more comfortable situation to work on these and take advantage of the opportunities as much as possible.

So that's pretty much it in line with the company's perspective. And we don't see this as a major risk to our project because the cost of capital is dropping and the average term for the debt has been growing, which is very positive if you think about this in the long term.

[Operator]

Now we have [ Gustavo Pareias ] from UBS.

[Unknown Analyst]

Good morning, everyone. [ Gustavo Pareias ] here from UBS. I actually have 2 questions on my side.

[Unknown Executive]

We were hearing you and we lost you for a bit. Can you repeat?

[Unknown Analyst]

Can you hear me now?

[Unknown Executive]

Yes.

[Unknown Analyst]

Okay. Perfect. So I just have 2 questions. The first one is we saw a drop in the margins and considering the mobile operation costs. And you also mentioned the belief that you expect to recover the EBITDA margin a bit quicker. And then what was observed with the process in the fiber. So I wanted to understand a bit more about this recovery and this expectation as mentioned with the operation. And I would like to know how much quicker you would imagine this operation recovery.

And then I would like to know if you guys can also talk about how you're waiting on 5G development in the Midwest region.

[Unknown Executive]

Well, Gustavo, about this rupture, we've been working on investments ever since '22 on 5G, '22, '23, '24, investing in a network that any city is a lot higher quality than our main competitors. And even in the capital in the Fortaleza region, it covers about each square meter with 5G. And so our user can go from one extreme to another, by using 5G only without shifting to 4G.

And even before that use, older mobile phones can still use our network. So our model where company [ share ], especially after this first experience. And we presented this channel for sales in the sales channel, although it's in every city, it's not -- we haven't approached all of the cities. So like in [ Mossoro ], the PAP channel takes many months until you can have like the first verification process. Always the PAP channels are above 7 million inhabitants. It really takes months to confirm this analysis.

And since we don't have digital channels yet -- we only have the digital channels because the other channels are not active yet, sorry. This seems to be a very good number, where a company's share of the success of 5G, not only for those that have the postpaid plans, but for those of the prepaid plans, we're also trying to convert this major barrier, and it's an important point. The market understands that Brisanet has its fixed broadband process, and that's also another barrier.

Over time, each city we enter, initially the approaches are not that successful. People don't understand Brisanet is also mobile. So sometimes you have like the second approach. And then in the future, with the advances in this approach, comes along with many digital channels and the digital channels, for example, are maybe not as strong as it is in fixed broadband because today, you really need this approach. And over time, the city will have a bigger basis of users registered, and that will make it easier to have a sale through other channels.

So when we say we are going to have a recovery that's going to take place, we're operating in like a whole new company, basically, with major investments, with no revenue paid by any fixed broadband company. So with all of this, with thousands of people involved to build this mobile network without revenue, and our EBITDA up 42% seems to be, in my opinion, a very positive achievement. So no risks for Brisanet in the operation because our fixed broadband is very well structured and very healthy average ticket. And with the competition, this network that structured here brought in the quality and guarantee for the company in the future.

So this allowed for solidity with the deployment of 5G, despite the delays. The network is built, we continue to build it. And day after day, the channels become more mature and even a PAP that at the beginning of the year had a potential for sales, now there's a bigger amount. And so this recovery will happen, no doubt. The company from the moment when the entire 5G network starts reaching revenue, then each tower we're paying lease for advertised beginning of the year and the end of last year. But all of these activated towers have a cost of energy that's already embedded. So the lease of the tower, energy costs and the cost of cash invested, the capital invested. And so basically, all of the costs are already considered in the OpEx or 5G and the network is already included, which is the same as the backbone infrastructure that provides access to the backbones and the FTTH networks that can handle the infrastructure as a whole.

[Unknown Analyst]

So if we're 42% EBITDA and you have a network without revenue yet, but all of the costs are already embedded, then why are we questioning about this if -- so we're sure of this, right?

[Unknown Executive]

Brisanet is doing very well. They're very well positioned. No doubt on the future. We have the best network and in his entire trend, it's the major capitals where Brisanet operated fiber, Brisanet did a lot better than other competitors. And this infrastructure, we were to build in the capital is very robust. When I'm talking about robust infrastructure in the capital, maybe you have dozens of data centers.

And Fortaleza have 16,000 [indiscernible], 67 and others a network that's interconnecting with different routes that provide this robustness and all this is coming to 5G. So our 5G network will also be more robust. The towers are serviced with a much more robust network, a dual approach and everything is already included in the cost. So I have no doubt about our business. It's just a matter of time. The market was to look at Brisanet and see it as a company for the future and not something immediate, right in the middle, we're building this process.

And we are just ramping up and in between all of this, we are becoming a lot more solid as we build this network and the 5G network is cruise flight, and with all of the costs added, right? So just a matter of time and then really make sure investors can view Brisanet differently, right? So we're a very unique company, I don't think a company like this anywhere else in the world, an owner company, that's really engaged in the business with thousands of people that have the main -- same focus in the company, building a perpetual, long, robust and long-lasting business, and we have a different focus, really. So if you want to participate in Brisanet, you have to see the future. It's not a matter of months, but it's really a long-term investment and approach. It's a matter of time only to start seeing the 5G revenue come along.

[Operator]

Well, I was waiting to see if you were going to ask -- did you want to add on?

[Unknown Analyst]

For just a quick follow-up, second question if you guys could talk about your guys' mindset about the Midwest region.

[Unknown Executive]

Sorry about that. So the Midwest, when Brisanet came in the 5G auction process, we had worked on the full planning in the Northeast and how it would be with our construction there and in Midwest as well, as we planned for that. So if we were to move on to another region besides the Northeast, right, and the format we had would be different than the Northeast.

But the product didn't change in any way. We keep up the same plan. And the Midwest will continue a bit more up ahead. But our commitment is going to be with the coverage of cities looking at -- and the regulator will charge this by 31st of December, '26. So we're going to meet our commitments and applications for the coverage in the cities in the Midwest. And it's going to be another region where we will be able to work with local partnerships as well. So we've been operating and planning for this the past 2 years. So understanding all of the networks in the Northeast, who are the most significant providers in each region.

And then we will be consolidating all of these partnerships as well. So the Midwest will be built within the committed deadlines, and we're not going to leave it for the last minute. So it's going to built according to the calendar expected. And we want to take advantage also this window of opportunities, especially in the interior so they can reach way before 5G. So we're going to be taking advantage of this window of opportunities to reach cities in the interior, for example, in 5G. And in the big cities we'll -- so we're going to be doing this directly as well.

[Operator]

We have a question here from Rodrigo. He sent this in writing. So I'll read it. Rodrigo is asking us to talk about the 700 megahertz and obtaining the secondary use license.

[Unknown Executive]

It is going to be a CapEx reduction. And the growth in the mobile numbers and if we could talk about the perspectives for third quarter, we're going to be launching a notice for operational data today. I'm not sure if I mentioned this in the presentation about the numbers in July, but it will be about 700 megahertz. And it's going to be close to 30,000. And we are continuing to keep up this number. And so we haven't been mentioning the growth for the rest of the year yet.

So Brisanet before the auction, ever since that moment when we started to talk about 5G with the regulator, Brisanet had already in the public hearing contributed that the 700 should come with the 3.5. But since it didn't come, Brisanet planned accordingly without the 700. So we're deploying this in the Northeast without the 700 megahertz.

Of course, there may be bigger investments. But at Brisanet have 700, then the density would maybe be a little smaller. Just recently, we discovered that 200 cities in the Northeast and the Midwest. And this number of cities, the guarantee -- or warranty from the agency is 18 months, and at this moment it's underway with the auction for the transition by the end of the year, beginning of next year with the auction of 700 megahertz. So this auction that's expected for the beginning of the year, our expectation is that it will come along with a number that's a lot lower in their commitment for the coverage, and that the 700 it won't -- they're not [ worth ] their commitments and the agency needs to search for a new assessment to bring in an auction for 700 that is compatible with the importance of this frequency. The coverage in the high end [indiscernible] is to be a lot lower. But we've also mentioned that there should be a warning issued to the agency because this auction would have to either leave now or at the beginning of the year or it will have to be reallocated or postponed.

So there is no logic to have it in the end of the '25. Who's going to participate in the beginning of the year and have this in a more accelerated way. So if the auction is at the end of '25, then Brisanet, we're not invested in such a speed. We'll be a little more cautious. And to better reduce the density in certain cities or capitals with a plan B. If the auction by the end of '25 and Brisanet is not champion, filling out the gap, which in the planning from now until the future, if there is 700 at the end of '25, if Brisanet does not win the 700 auction, it will redo its density process. So the deepening or density process in the Northeast. And the end of '25, if Brisanet is not the winner, we will redo the process.

So this is Brisanet's plan to participate in the 700 now, this year. And with the plan of 700 will be more for the Midwest. For the Northeast we will use it, but not as relevant or not as much as in the Midwest. If we do not win, we will redo the process and continue to operate.

Not with more investment, with the already defined investment. So we will have a plan for the Northeast or the Midwest. If the 700 comes in, we will lower the investment. So the investment is already set. It's not that we are going to add more investment over what is planned if we do not win the 700. If the 700 is won by Brisanet, we will invest less. If we don't, we will invest what was already planned.

[Operator]

[ Rodrigo Ferreira ] from [ Suramerica ] will ask a question.

[Unknown Analyst]

Hello, everyone. Can you hear me?

[Unknown Executive]

Yes.

[Unknown Analyst]

Congratulations on the results. We know that the cost issue has to do with an initial being one step further. So my question about -- my question is about the new clients. So at the end of last year in -- August, did the clients come in with a promotional package for them to experiment it first? Can we say that this August, the price has changed to the normal price for those clients from last year? Are those clients having any churn? You talked about 30,000 in June. So is there any churn? Or do we still -- are we still working with the gross adds, not net adds?

[Joao Nogueira, executive]

Well, Rodrigo, for the revenue for the base of 490 that is the base is a small base that has a promotional case. That's what happened in the previous months. That is why we are not announcing this yet. We will announce it at the moment in which it is more expressive, the 5G revenue.

On churn, Brisanet has not experienced any churn yet with 5G because we are in the movement, in the initial moments still of adding clients, taking into account the time that it takes to mature the numbers. So we will start observing churn probably only at the end of the year. So we do not have a number yet. And we are waiting to have a more precise number instead of announcing an unprecise number, according to the model that we are working with today, things seem to be within our expectation, within the regular levels. We are very satisfied with the entrance of new clients, with the revenue -- the revenue is not expressive, but we will only be announcing it once it is more expressive.

[Unknown Analyst]

Bet Just going back. There are already clients paying the full price that have left the promotional level? It's just a small amount, right?

[Joao Nogueira, executive]

Exactly. We are -- it's the beginning of the base that are leaving the 490 and going to the 590, remembering that most of those clients are the clients that did not have the culture yet of paying for mobile. They were always paying only for broadband. Luciana can share this number with you as well, actually it's non a number, new information that 60% of broadband and 60% of the mobile clients in the Northeast, there's a huge percentage that have an account, a fixed broadband account. So they have a paid account and then a fixed account. But with the mobile data, they're not used to paying it -- prepaying it -- they're not used to paying it later. So the combos that we are launching, they are still getting used to it.

There's a lot of synergies when the client -- the broadband clients and mobile clients for prepaid that do not have a monthly account for mobile, but they already have a fixed account for broadband. So when we are able to give them a discount for both when they are approached and the account just adds the combo of fixed broadband that they already pay and we add the 5G, they usually like it. So we believe that this approach will bring us a lot more synergies between fiber and mobile. Since they do not have the culture of prepaying -- of post-paying the mobile, we believe that it will be very successful.

So we are bringing this new approach. So they're still getting used to paying broadband and mobile in a single bill, so we are still converting these clients, and we will -- we believe that this will bring a lot of good sales. So it's a cultural issue for now. But in general, we are very satisfied with the payments made for the [ 490 ], raising it to [ 5990 ] but we will not announce it yet. We will only announce it at the end of the year.

[Unknown Analyst]

Wonderful, Roberto. Maybe I could ask one more question. changing from revenue to cost to the cost of personnel. So first of all, you have to hire a lot of people to begin capturing revenue. And how much do you expect to have in the structure of personnel that is already complete? Or how many more new people do you need to hire so you have -- what is the team that you need, the increase in the team that you need to expand in terms of your fixed structure of personnel? Can you give me this number?

[Joao Nogueira, executive]

Well, Rodrigo, right now, we have the largest -- we have the largest bottleneck. We have around 15 new people that are going through training, but we already doubled, during this year, the sales and our personnel are learning how to approach clients better. So we're already dealing with the highest costs every day. We have to pay further rents, and now we are adding them to the sales force that it will still take us a month.

Now looking into the future, when Brisanet builds a new tower and implements new CapEx. We already start selling. So building a tower, not having sales yet is because our team is not selling yet. Let's say, we cannot say that they are selling to the tower to the entire level -- at the full levels yet, they're still undergoing training. But in our next month's plan, for every tower installed, the next day we already start selling. The entry of new employees will not generate a cost because they already come in knowing.

So the cost is higher than the revenue right now because of the training because we are growing the level of coverage. In the future, that won't happen. We have 800,000 inhabitants, the employees that join us, we already have a model. We already got things wrong and right. So now we can be more assertive and these employees come in already bringing in revenue, all of the employees. So from now into the future, the investments in 5G are already made. We will -- we only have to gain. That will be neutralizing the cost as the revenue. In the past, we had to increase their level in order to reach these numbers.

Okay. So summarizing the margins in the second quarter is the basic costs that will remain. It will -- the turnover will not increase. The second semester -- in the second semester, our expectation is to be similar to the first semester, which is maturing the additional clients. So I'm not going to add a channel of partners of cell phone -- a cell phone store. So the maturing of the channel will become mature, and then we'll add more and more partners.

We are implementing a model and a platform and so that is maturing when we talk about. So clients will come in and we will sweep the entire area for Brasinet. So this is a ramp-up. So you can consider that this year, the construction of these channels are being matured. When we say that our operation and everything that was built will bring new revenue with the same cost, the entire area that is already built, the costs have already been dispensed, so door-to-door, energy and rent. All the revenue that is going to be generated next year is going to be transformed directly into EBITDA because the costs have already been inserted.

I'm -- in the next year, we are very mature. And whatever we will still build this year and next year is already paid for. So we consider that at the 5G moment, we are spending a bit more because we are increasing the area with the creation of channel and maturing the channels with these products. And all of this is a challenge for Brisanet that -- in which we know we are on the right path. Brisanet has always had its plan very clear. And the focus has always been very clear. And the plan ever since the beginning of 5G has been that. So obviously, we are maturing this over the time of our journey.

[Unknown Executive]

Roberto, we have several questions still, but they are all kind of the same question. So maybe Eric and Joao or Marcelo, if they could allow me, I'm going to kind of try to summarize them because it's a lot of what Alberto already asked in terms of 5G.

What are the difficulties in accelerating the 5G sales, the average ticket, the forecast for profitability, how are the adds and competitiveness for 5G and the evolution of market share? Where we've already seen some changes in Fortaleza after June, are we already having discount on the average ticket? I think you already talked about this a lot. But maybe if you could talk more about it on the ticket and acceptance of the product, I think that would help us answer the questions that are coming.

[Joao Nogueira, executive]

Well, the first difficulty in accelerating was what was the rate said. So accelerating today, involves improving the channels when I talk about channels and the B2B channel is selling chips to companies with packages. And what needs to be mature in the platform.

For the other channels, it's the same thing. So the entrance of channels is what's going to accelerate. What will accelerate is not building new towers. So it's not the construction of were infrastructure but the 7,000, what's going to accelerate is the strength of sales. So what we are hiring is the sales force.

We already have a fixed ready pipeline for sales. That's our focus. That's what we have done for accelerating selling. And of course, the platform needs to be reinforced. The average ticket with the first launch of BRL 19.99, now that Brisanet is going to be incentivizing clients to increase their average ticket as they -- as we join in the new cities, as we get into the new cities, we'll be charging more. But our plans always start with an average of BRL 29.90. Brisanet is very conservative. We have our plan all based on the average ticket of BRL 29.90, which is the lowest ticket. So of course, we will be trying to increase the ticket in the future, those who already are paying the ticket, we will be raising it BRL 10. And in the large centers, we start off with a higher ticket. So yes, Brisanet based its business plan on [ BRL 990 ]. This is giving us very satisfactory payback.

[Unknown Executive]

If there are no further questions, as a final message, reinforcing to our investors to look at Brisanet as a business. We are in a segment that changes very quickly. Every 3 years, it's like 20 or 30 years from another sector. However, Brisanet is highly tuned into all of these changes, and we are always very assertive in technology. We are never behind. We are always at the crest, at the forefront of the new technologies. So this is a moment for us as a company.

It's challenging for the entire market, I think. For Brisanet, the challenge is one that we are used to, it's a known challenge since we started out with this challenge. And the model is already in the right direction. There have been no changes yet. The issue is only time with the bottlenecks that come up, we slowly work on solving them. So we are trying to -- we would like to ask all our investors for understanding because at this moment, the moment is very demanding in terms of revenue. So maybe there is not so much revenue at this moment, but the investments for 5G is a huge challenge. So I think there's no place in the world that was going from broadband to mobile I think we're the only ones in such a short period of time, we've built ourselves up to be a operation with broadband and 5G.

With new technology and we are doing all of this very well. So that is the message I would like to leave you with. Please bear with us because we are building something that will last for a long time, and we have no doubt on the future of Brisanet, only strengthening itself in the Northeast as we did with the fiber. And now with 5G, we are using all of our experience and this will be more and more successful. So our success of 5G will be even more successful than fiber, which was much better in terms of quality than any other provider, be they big or small, that came in with a very aggressive form of sale.

So there are operators that are selling at very low prices. for 12 -- in the first 12 months, and that does not impact us in any way. because we are still building infrastructure in the Northeast. It's a challenge to build in the Northeast for any operator, even those who have more revenues. And Brisanet is still coming out above and beyond its competitors.

Thank you so much, and we are available for any questions. Luciana is always available to answer any questions you may have. Thank you so much. Thank you, everyone, and have a great day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]