Telefonica Brasil SA

BOVESPA:VIVT3

Earnings Call Analysis

Increased Deposits and Capital Position Strengthening

In the third quarter, total deposits rose by $0.8 billion or 1.9%, while the company's loan portfolio saw a 3% annualized increase, excluding a $159 million loan sale. The available liquidity stood at $19.1 billion, equating to 142% of uninsured deposits. Interest income benefited from $42 million in total accretion from bonds restructuring and loan rates, and the risk-based capital ratios grew by about 25 basis points. This capital accretion is expected to reach the long-term target of 12%, allowing for greater flexibility in returning capital to shareholders. Margin guidance suggests aiming for the low end of the year's projection, which is 3.85%.

Stable Performance Metrics and Financial Ratios

The company maintains stability across several key performance metrics. Their net interest margin (NIM) remains consistent, showcasing an effective balance between the interest income generated and the cost of funding. Their operating efficiency ratio holds steady at 52%, reflecting a well-managed relationship between the company’s overhead expenses and generated revenue, and the return on tangible common equity (ROTCE) is impressive at just over 20%, underscoring the company’s ability to generate profits from its tangible equity.

Sound Balance Sheet Expansion and Capital Management

Signifying robustness, the company’s deposit growth exceeds loan growth by $0.8 billion—a positive signal for liquidity—and the loan-to-deposit ratio is healthy at 89%. Furthermore, the reduction of Federal Home Loan Bank borrowings by $2.3 billion exemplifies a strategic move to improve the company’s capital structure. Capital strength is further mirrored in the improvement of risk-based capital ratios by approximately 25 basis points, coming close to the long-term target of 12%, which paves the path for potential return of excess capital to shareholders.

Earnings Performance and Book Value

GAAP earnings were reported at $0.65 per share, influenced by declining merger expenses and fair value changes due to hiking interest rates. On an adjusted basis, operating earnings were higher at $0.79 per share, reassuring investors that core operations remain strong. In particular, the operating pre-provision net revenue (PPNR) advanced by 6.5% to $259 million. Additionally, the tangible book value, excluding accumulated other comprehensive income (AOCI), grew by $0.45 to $17.48 per share, providing a snapshot of the company’s intrinsic value gain.

Loan Portfolio Management

The company’s loan portfolio grew an annualized 3%—excluding a sale of non-relationship reservoirs—reflecting continued business growth. The total acquired discount marks on the available-for-sale (AFS) portfolio shrank by $93 million due to accretion to interest income and the said sale, which is a testament to the management's prudent financial handling.

Recovery Strategy and Asset Quality

In addressing asset quality, the company is witnessing a gradual decrease in elevated charge-offs related to a sector-specific segment, expecting this trend to continue over multiple quarters. Additionally, a recently offloaded residential loan portfolio, sold at a discount, suggests an active approach to risk management. When faced with borrowers ceasing operations, the company demonstrates a disciplined approach to asset-backed lending and restructuring arrangements that protect its capital position, signifying a resilient risk management system.

Outlook on Net Interest Income and Margins

The company feels confident about maintaining net interest income, even in the face of continuous deposit growth. When discussing the interest-rate environment—the 'higher for longer' scenario—the focus remains on attracting customer deposit balances to mitigate the need for costlier wholesale funding. This strategy is aimed to defend and potentially enhance profit margins.

Prospects for Shareholder Returns

The intersection of solid loan growth, deft management of capital, and an approaching capital target level indicates the potential for excess capital distribution to shareholders, suggesting an investor-friendly stance.

Earnings Call Transcript 2021-Q1

[Operator]

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Telefónica Brasil First Quarter 2021 Earnings Conference Call. Today with us representing the management of Telefónica Brasil, we have Mr. Christian Gebara, CEO of the company; Mr. David Melcon, CFO and Investor Relations Officer; and Mr. Luis Plaster, IR Director. We also have a simultaneous webcast with slide presentation on the Internet that can be accessed on the site, www.telefonica.com.br/ir. There will be a replay facility for this call on the website. [Operator Instructions]

Before proceeding, let me mention that any forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the company's management beliefs and assumptions and on information currently available. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the company's future results and could cause results to differ materially from those expressed in such forward-looking statements.

Now I will turn the conference over to Mr. Luis Plaster, Investor Relations Director of Telefónica Brasil. Mr. Plaster, you may begin your conference.

[Luis Plaster, executive]

Thank you. Good morning, and welcome to our first quarter 2021 earnings conference call. The call will be divided in 2 parts. First, our CEO, Christian Gebara, will go over our main financial and operating figures, initiatives in the digital space and ESG highlights. Then our CFO, David Melcon, will give you more color on our cost and CapEx structure, digitalization initiatives, free cash flow and shareholder remuneration.

Now I hand it over to Christian.

[Christian Gebara, executive]

Thank you, Plaster. Good morning, everyone, and thank you for joining our earnings calls. We started 2021 with strong operational momentum and a return to total revenue growth. Consumption and overall market dynamics are beginning to improve, and our core revenues are accelerating.

In the first quarter, we delivered BRL 1.1 billion postpaid net additions, the highest since 2017. And our total postpaid customer base now stands at 46 million.

In fiber, we posted another quarter of strong growth and take rate, thanks to our best-in-class broadband products. FTTH net adds of 368,000 was the best performance ever for a single quarter. Taking Vivo's fiber total customer base to 3.7 million subscribers, 41% higher than the first quarter 2020. In total, we closed the quarter with 96 million access, including mobile and fixed.

Core revenues up 4.7% year-over-year already represent 88.1% of total revenues. And this quarter, we saw FTTH revenues break the BRL 1 billion threshold due to an impressive year-over-year increase of 61.2%. EBITDA grew 0.5% to BRL 4.5 billion, a margin of 41.1%, and free cash flow totaled BRL 2.2 billion, up 3.7% year-over-year.

The combination of sustainable operating performance and financial discipline are 2 pillars of our elevated shareholder remuneration of its characteristic to Vivo. So far this year, we have deliberated BRL 700 million of interest on capital, which represents a dividend yield of 7.9% in the last 12 months. Furthermore, we continue to improve returns through our share buyback program. To date, we have 5.4 million share in treasuries, equivalent of 0.32% of the company's total capital.

On Slide 4, total records resumed a positive evolution this quarter due to continued traction of our core businesses. They represent the main factors of growth going forward and are built on cutting edge high-speed connectivity in mobile and fixed combined with the differentiated offer of digital products and services both for B2C and B2B customers.

In Vivo, we want to offer more than just the best telco experience. Our aim is to deliver on all our customer digital life needs, whether that be advise, content, cybersecurity or cloud solutions for their business. Non-core businesses were down 24.1% year-over-year, mainly because they are made up of mature technologies that have less and less relevance for our customers.

Turning to our wireless revenues performance on Slide 5. Mobile revenues achieved BRL 7.1 billion in the first quarter '21 with an increase of 1.1% year-over-year, driven mainly by prepaid revenues, which grew 4% and the ongoing recovery of handset sales that were close to 11% higher than last year.

In postpaid, we highlight Vivo Selfie a set of co-branded plans that offer selection of quality content such as Disney+, Netflix and Spotify, increasing ARPU and driving a deeper relationship with our customers. Additionally, we focus on younger and increasing digital mobile users, we co-created Vivo Easy plan together with DJ Alok. Vivo Easy is 100% digital experience where we can customize the amount of data, voice, digital services and other benefits according to your needs.

Looking at our prepaid base, we are seeing an encouraging trend of increased recurrence and a positive shift in customer digital. Digital top-ups jumped 28.8% in the quarter and the number of customers recharging was 8.3% higher year-over-year.

Turning to Slide 6. People's network quality of focus on improving the customer journey, allow us to maintain solid leadership in the mobile segment with 33.1% market share as of March 2021. Our postpaid churn repeated similar trends seen in previous quarter and stood at a record level of 1.1%. When looking at convergent and family plan customers, engagement levels increased and churn is up to 50% lower, boosting customer lifetime value. The volume of postpaid net addition continued its positive trajectory, reaching 666,000 this quarter, the highest level since the fourth quarter 2017.

Turning to core fixed business. Revenues growth present a strong year-over-year growth of 72%, given the demand for high-speed broadband and digital services. FTTx revenues were up 20.3%, with FTTH revenues advancing an impressive 61.2% year-over-year, driven by ARPU increases, enhanced sales of OTT bundles and the ramp-up of new activations. Accordingly, with the expansion of our fiber footprint, we continue to see significant IPTV revenue revolution that was up 25.9% year-over-year. Another positive result in the quarter was a return to growth of data and ICT revenues that rose 9.5% year-over-year. This is a promising side that companies are gradually starting to invest again.

Cloud revenues are gaining relevant and practically doubled year-over-year, confirming the large opportunity in B2B with companies engaging in a profound digitalization process to thrive in this new environment.

Moving to Slide 8. Vivo is harvesting from a well-executed strategy to capture opportunities in fiber and after sizable and rapid expansion of home passed in the last years is experience accelerated demand for its premium UBB offer. In the first quarter, we posted record FTTH net adds of 368,000. This is more than twice what we had a year before and 1.5x what we saw this quarter.

At the same time, Vivo fiber customers are demanding higher speeds and a wider variety of content options. In fact, around 30% of our gross additions were bundled with OTTs or high speeds above 300 megabits. Moreover, more than 35% of our net additions were convergent customers. With that, we are able to increase FTTH ARPU by 16.2%, reaching BRL 95.

In addition, on the top right-hand side of the slide, we show the evolution of FTTH home passed up 4.6 million year-over-year that were further enhanced by our multiple expansion partnerships aimed at reducing time to market and CapEx allocation.

On Slide 9, we give more color on FiBrasil, our neutral fiber network that expect to be fully operational by the second half of the year, further accelerating FTTH deployment. FiBrasil is partnership between Vivo, Telefónica Infra and CDPQ and the setup of the company's progressing according to plan. On April 6 and 23rd, we received the approvals from the Brazilian and European Antitrust Agencies, and we are now waiting on Anatel. This initiative will allow us to accelerate our fiber rollout and consolidate our leadership. We will manage all commercial and customer service activities while remunerating FiBrasil for the use of its network. FiBrasil will start with 1.6 million home passed and will be carved out from Vivo and expected to reach more than 5 million homes passed over 4 years taking fiber to both greenfield and brownfield cities.

On Slide 10, we show the progress of our objectives to build a digital ecosystem. Combining Vivo's unmatched set of label, such as customer base, brand, channel capillarity, big data and billing capabilities to mention a few ones with partnerships with some of the most relevant players in the digital space, we are creating new platforms that complement our telco services. The aim is to capture growth and further engage our client base, resulting in increased loyalty and higher recurrent revenues.

One of those platforms is Vida V which is centered on e-health. We have just signed a binding agreement with Teladoc, one of the largest telemedicine companies in the world, which represents another step towards the creation of a health marketplace around Vivo. Our plan is to provide a set of services, such as immediate and scheduled doctors' appointment, grand discounts in more than 27,000 drugs national wide, make free screening of symptoms through an artificial intelligent and give digital certificates, except requests and prescriptions to patients. The platform has been established to include and attract other players and partners. And its initial focus will be on people without private health plans.

Moving to the right-hand side of the slide, we present our strategic partnerships with Dotz, an engagement platform based on one of the most important loyalty programs in Brazil and CBF, one of the key B2B2C marketplace for home assistance and tech support in the country. We are very excited about both. Not only we're strengthening our of customers digitalize for the combination of our businesses, but this is also executing its plan to have equity stakes in companies with great growth prospects that are the champions of their segments.

Talking about financial services on Slide 11, we are enthusiastic about the recent launch of our very own digital account Vivo pay. The service allows customers to carry out banking transactions like paying bills and making cash transfer via PIX, recharge your prepaid plans and purchasing credit for mobile apps like Google Play, Uber and Spotify. This initiative allows Vivo to be part of a journey to promote financial inclusion. Focus on prepaid customers on top of recurrency that probably do not have a bank account.

Additionally, Vivo Money, our 100 percentage to personal loan platform, is delivering consistent progress having doubled its spread origination quarter-over-quarter.

Finally, we launched the Vivo Itaucard, our co-branded credit card created in partnership with Itaú that offers up to 10% cash back, another important benefit that will help us scale our marketplace and stimulates in-store commercial activity.

On Slide 12, I would like to comment on Vivo's most recent ESG highlights, as we believe that having a social and environmental footprint is key to fulfilling our purpose of digital life to bring closer. To help the most vulnerable families still affected by the economic downturn, we are participating in the campaign, United Against Hunger with the NGO, Gerando Falcões to raise funds for the purchase of food kits in support of the Movimento Panela Cheia. For ever donated kit by Vivo's employees, Fundação Telefônica Vivo donates 2 more.

Also in the social sphere, Vivo is the first Brazilian company of the sector with the ISO 26000 certificate, which validate the compliance of our initiatives on human rights, diversity and social impact for the implementation of the best practices in the market. This alignment encompasses all the measures regarding our employees, partners, suppliers and also the society.

In addition, we are proud to announce our first solar power plant in the northern region of Brazil located in Marabá in the state of Pará. It has the capacity to generate 2,190 megawatts hour per year, which will be used to power 632 of our energy consumption unit. This is the 16th out of 70 renewable power plants, we plan on having up and running by the end of the year.

Finally, we are rated as having the best reputation of the sector by the poll conducted by Merco, jumping 13 positions compared to 2019. These initiatives enhanced our performance and sustainability, which is based on the economic, environmental and social balance and contributes to our main purpose of bringing people together.

I now turn the call over to David, our CFO, to take us through the financial highlights.

[David Sanchez-Friera, executive]

Thank you, Christian, and good morning, everyone. On Slide 13, we saw how cost in the first quarter remained stable year-over-year. This is a result of our unremitting focus on efficiency measures as a ramp-up of our digitalization and simplification efforts. It's also important to point out that our cost base mix is going through a significant transformation.

As Christian detailed before, we are launching a new revenue streams and investing in the shift towards becoming a digital hub. Vivo is no longer a pure telco company and already offers B2C and B2B customers a diverse set of services that go beyond connectivity. The segments have the wrong peculiarities. And this quarter, we decided to show cost accordingly to compare a more transparent view on how that impact our business.

Cost of service and good sold that are directly linked to supporting and enhancing revenue growth account for 30% of the total cost and increased 19% year-over-year. This cost our catalyst to underpin positive revenue trends. In this specific quarter, the increase was driven by the encouraging performance of asset sales, the gradual recovery of B2B and the growing relevance of digital content and services.

OpEx from operations where we constantly focused on the elimination of non-quality cost contracted 6.5 points year-over-year benefited by our significant effort to find efficiency and adapt our operating model to our customers' ever changing needs.

Network and commercial expenses dropped 1.1% year-over-year, mainly due to savings related to call centers, billing, collections and higher usage of alternative digital channels.

On Slide 14, we present some key figures to illustrate how our efficiency oriented mindset is fast tracking the digitalization and simplification journey, resulting in enhanced customer engagement, cost reduction and increased price and value of Vivo's customer base.

In the first quarter this year, we had 917 robots executing automated processes with an average assertiveness of 91%. More than BRL 200 million have already been saved since December 2020, from front and back-office processes as a result of these initiatives.

We're also seeing a significant evolution of commercial activity through digital channels. Online FTTH sales, for example, rose 83% year-over-year and the share of digital migrations from pre to post jumped 14.9 percentage points in the same period.

Shifting to e-care and considering its impact on customer preference, the new Vivo app added 2.7 million unique users year-over-year and now has 19.4 million. E-billing penetration is 88%, up 13.6 percentage points year-over-year, and payments using digital platforms represent now 65% of all collections.

Moving to Slide 15. First quarter CapEx evolution is impacted by sociality, and we continue to accelerate investments in forward-looking activities. The underlying driving is set focus on fiber and commitment to quality and mobile data consumptions continue to climb.

In the quarter, 83% of our BRL 1.9 billion of CapEx was dedicated to growth and transformation, while FTTH related to investments grew 40% when compared to the first quarter the previous year. We continue to deploy fiber and connecting more customers than ever, resulting in record FTTH net additions, as Christian pointed out.

Fiber-to-the-site is also evolving at a similar pace. And more than 90% of Vivo sites in the 50 biggest cities have top-quality backhaul, took up with incremental data traffic expected for the coming years. With the effect of 5G and the fact that we have the most comprehensive fiber footprint in a continental sized country like Brazil, Vivo is in a unique and privileged position. We have the best combination of assets to maximize value capture for each opportunity and accelerate growth.

I would also like to share a brief update about our RAN sharing agreement with Tim. This operator has already additional 348 cites with 4G coverage, and the ongoing pilots aim at consolidating our mobile network in cities with less than 30,000 inhabitants are progressing very well.

Regarding 2G switch-off, the tests are advancing as expected, and we intend to rollout by the third quarter this year.

On Slide 16, we present our strong shareholder regulation. This is backed by consistent net profit and free cash flow generation. We reported robust net income in the quarter amounting to almost BRL 1 billion, impacted by higher depreciation and financial expenses that were partially offset by lower income tax.

The payment of 2020 dividends and interest on capital for a total of BRL 5.4 billion equivalent to BRL 3.25 per share, which take place as follows: BRL 2.6 billion will be paid on July 13 this year and BRL 2.8 billion on October 5.

On the right-hand side of the slide, we show that till to date, we have already declared BRL 700 million of interest on capital based on this year's net income.

In addition, we continue actively executing our share buyback program and have 5.4 million shares in Vivo treasury, representing 0.3% of the company's total capital.

To conclude, moving to Slide 17. In the first quarter, free cash flow rose 3.7% year-over-year due to solid operating and financial management. The result is a solid balance sheet and improved metrics. Net cash, as of March, stood at BRL 5 billion, giving us a unique position to find the acquisition of Oi's mobile asset expected by year-end. This strong financial position allowed us to considerably invest in our core businesses, diversify our portfolio, increase engagement, and as a result, expand Vivo's relevance in our customer digital life.

Thank you. And now we can move to the Q&A.

[Operator]

[Operator Instructions] Our first question comes from Marcelo Santos, JPMorgan.

[Marcelo Santos, analyst]

I have 2. The first is, if you could please comment a bit on the competitive environment in mobile, you had a little bit lower growth this quarter. So I'm just wondering if there's something to do with competition?

And the second question is about the fiber-to-the-home adds. You have very strong adds. Should we expect the strong pace to continue throughout the year. And are you guys coming more from the competition or from conversion of your fiber-to-the-curve and DSL subscribers?

[Christian Gebara, executive]

Marcelo, this is Christian. So just talk a little bit about the mobile, for your first question. I would highlight, first, strong commercial activity that we had this quarter. Important that we are comparing this quarter with a quarter last year, the COVID was just impacting the last 15 days. This year, we started with strong January and February not compared to what was pre-pandemia. But then we also had a lockdown in the -- in March. Note that impacted the results mainly in postpaid and headsets.

But with all that said, to highlight our growth in the prepaid, it's 4%. It's important growth. And also have to bear in mind that the government aid was not there in this first quarter. That has a direct impact in the prepaid. But even with this situation, we grew 4%. And then I think we highlighted the increase in the top-ups and also the customers topping up. So the percentage of customers topping up also had a very good performance.

And the terminals of the handsets and accessories, they also had a good growth comparing to the year that was before pandemia. However, in 2020, we could grow 11%, even considering, a said, lockdown in the last 15 days of this quarter in 2021.

The postpaid was more flat revenues, but the increase in net add was very accelerated. So if you look the numbers without machine-to-machine, it was close to 700,000. That is the highest number for net adds in postpaid since 2017. If I add to this number, the machine-to-machine is 1.1 million. That's also a very, very extremely high with churn very controlled.

So it's more, I think, a situation of the market, and then there is also the impact of the price increase that was made in September last year. So this year, there was no price increase in this quarter that may provide a little bit the performance in revenues now. But considering what everything that I just mentioned to you, we are positive with the trend and the strong commercial activity, although we had lockdown in part of this quarter as well.

Considering FTTH, if you don't have more questions in mobile, then will go to FTTH. FTTH has been growing a lot. As you know, I think every quarter, we've been beating the previous number. There is 2 things here to consider: First that we're expanding our network, as we said a few years ago, that would expand our network today. We ended this quarter with 16 million home passed. Now we are occupying this network. So that's the first move.

And second, of course, people are now much more demanding a very good ultra-broadband connection in their homes and offices and Vivo stands out here because of our leadership and because we have reached where no one has in Brazil, giving us an accelerated demand that ended the quarter with 3.7 million customers in FTTH and the net adds of 368,000.

These customers, depending on the city, they come for different nature. Some cities we are entering for the first time. It's greenfield cities. Most of the cities that we launched in greenfield. So these customers were not people before. So we are capturing new customers from competition, all type of competitors.

Some of them are in São Paulo that there is an overlay of DSL. Some of them were already missed to our competitor and come back to Vivo, and there is also some overlay of FTTC. We don't give the figure, but it is slanted. Depending on the city, you can assess more or less what is the nature, but there's a lot of greenfield. And going forward with FiBrasil, they are going to be just new cities, new greenfield. So in this case, there is no overlay. And there is no substitution of legacy technologies.

[Operator]

Our next question comes from Cristian Faria, Bradesco BBI.

[Cristian Faria, analyst]

I have 2. First, it is related to the attributes and like. So if -- we saw that the increase in this quarter compensated connections in other technologies, if we can -- looking for the traces to continue. So if we can see a growth in the total user base in 2021. And the other question, this is related to the new initiative that the company is doing. So regarding the Dotz and the new agreement with the telemedicine company. So what we expecting the industry revenue looking for 2022 in terms of composition in the presentation in the total?

[Christian Gebara, executive]

Okay. Just one second Cristian, just getting here, better that first question I take. The first is okay. I think the first question that is about the -- I think what -- I'll try to answer what I got here, Cristian, if you have more questions about.

I think when you see how much net was -- is non-core business and then we saw that the non-core revenues, the more legacy and mature technology, they're all in the fixed side of the business and we are reducing the relevance in our total revenue. And also, if you consider that fixed voice in DSL and DTH, represented like 15% of our revenues -- total revenues on mobile fixed in 2020. Now in 2021 in the same quarter, it represents a little bit less than 12%. So what is new? And here it's adding mobile and FTTH and advanced data from B2B is growing and is replacing, yes, for your question, yes, it is replacing revenues coming from what we call non-core businesses or legacy that fixed voice, DSL DTH that combined are decreasing 24%.

Our perspective, and that's why the figure that you see in the fixed business is improving quarter-over-quarter. Here, maybe there is something that changes quarter-to-quarter because of B2B deals. But the essence of the revenue, the core of the revenues, you see a replacement of FTTH over what is legacy. And this replacement is making a each quarter more impact in the positive numbers that we represented in the growth.

If you consider that just FTTH, already represents BRL 1 billion in the quarter in revenues. Now that's a very strong number. If I add to this number, what is IPTV that is very combined with FTTH. We already talking in the total revenue more than 10% or 13% coming from this to service. So the replacement is there. It's going to happen because we continue to accelerate the footprint of our network. With these partnerships, not only the one that we signed with CDPQ FiBrasil, but the one that we also have with American Tower, the franchise, et cetera, is improving our reach and will give us more revenues related to fiber and all the service that go beyond fiber.

Now so it relates a little bit to the second question. When we signed a contract with CDF, it gives technical support. And they are very connected to people who have doubts, and they need support in connecting their homes. So we are selling fiber, but they are also selling a service to help customers to interact and to automate their home. So CDF comes with this perspective. So what can I build beyond the fiber, beyond the connected home, and that's one of the deals that we are presenting today here. Dotz is a different type of deal. It's more related to the -- to prepaid and hybrid customers. We want to give them more engagement in our platform with our company.

So if you give the point, it's good because they're going to use Dotz and they're going to top up, and they're going to recharge and they're going to use more of my service to get more Dotz. And then I have engagement and it's profitable because I have more customers, will also upsell for the current expenditure. The same can be said about our loan platform, Vivo Money that's going to be also connected to Dotz. So give us opportunities to joint efforts of the 2 companies, both of us trying to generate the value around our digital ecosystem.

And the third thing that we are announcing today is the health partnership. We talked before that we have interest in health and its patient. This time, we are able to already share further communication about the binding agreement that we just signed with one Teladoc, one of the largest telemedicine companies in the world. It is not going to be the only partner. We are open to other partners to create a real ecosystem.

Again, we're going to leverage on our footprint, our customer base, our big data, our brand, our building capability to drive customers, engage customers and increase lifetime value of these customers with the Vivo platform. So I don't know if I answered all your questions because at [indiscernible] first when I did pick some of it, but that's a general perspective of fiber and new partnerships.

And the result of the new partnership is going to be a sum of different ones. So just in this call, we are talking about health, Dotz, CDF. We are talking about Vivo Money, Vivo Pay and also they co-branded with Itaú. We are open to do more, and we will announce more every single quarter because that's the perspective that we are going forward to create this ecosystem around the connectivity that we are the leader.

So connectivity in homes, offices that's -- not to mention also cloud deals that we are doing and the cybersecurities. So it's home, offices and also beyond the mobile data segment and what [indiscernible] for Dotz. The same is for Vivo Easy, on a digital plan that we're also blending together. Also partnerships with large digital companies like Spotify, Uber, Rappi and many others.

And the number of customers, it's like -- you also asked about the customer base. So I think for the value of the customer base that we are bringing, I think it's important to say that we are bringing more customer in postpaid net adds and ultra-broadband. But beyond the positive number is also the ARPU that is increasing because we are combining new services together with our core connectivity service.

[Operator]

Our next question comes from Victor Gomes, Banco UBS.

[Unknown Analyst]

Congratulations on the results. About the Vivo Easy partnership, can you give us any color on how it works for Telefónica? Will you have a stake in the new company? Will you earn revenue per share -- revenue share per companies acquired?

[Christian Gebara, executive]

We just signed our binding agreement. It's not a JV so far. What we're going to do in the beginning to check the market and to prove the value proposition is -- sorry, what we are trying to say is to sell a service that are going to have a monthly payment. So what we're going to try to adapt here is our ability to have our recurrent services and also to build these customers.

So the customer will have a monthly payment that will give them access to our e-health platform. Though depending on the type of service that they hire when I have -- I did not know, small, medium and large, not only to give you some color on type of plans that we may have here, we may have some doctor appointments already included, all of them with telemedicine but they also get some benefits in other partners that we are putting together in this marketplace.

So they have discounts in drug store, and they may have also any other type of benefits related to other services like diagnostic or even physical doctors because we are also considering having some partnership there. So at this point, it's a binding agreement with exclusive agreement having Vivo and Teladoc together with this perspective and objective in Brazil, bringing other partners together.

And depending on the results, we're also planning a possible JV, we're going to have a stake in the company. It's too early to give you details about that. So for now, is our positioning create in this marketplace. And Teladoc will be powering all the digital capabilities because you can also give digital prescription, digital information that customers may use to buy prescribed drugs or even also to do some analysis that they may need in some of the partners that we're putting together in the marketplace.

We're going to also have content. Content very related to health and well-being, and we're going to leverage all our channel capabilities, including our Terra portal, the portal that is also one of the largest in Brazil to promote and to create this ecosystem around Vida V and the health and well-being content that we are just describing with some services included in the monthly payment of the customer.

[Operator]

Our next question comes from Carlos Sequeira, BTG Pactual.

[Carlos Sequeira, analyst]

I have a couple, please. One is I'm wondering if you can give us an idea, Christian, of what is the marginal cost for Vivo to increase the FTTH speeds to 1 gigabit per second, for instance? And depending on the cost, I'm assuming that is not that high, why not just start promoting this type of packages, which, as we know, some competitors cannot match and that would put a tremendous pressure on these competitors? So that's the first one.

And the second one, on leveraging Vivo's gigantic client base shop on your service, you're doing a great -- fantastic job adding yield with more and more services every quarter. My question is, general question really is, if you can share with us your view for these type of services, looking maybe 5 years down the road, how much you expect that to represent on Vivo's business? It doesn't -- just an idea, just what your goal is or you're doing maybe on this type of services?

[Christian Gebara, executive]

Carlos, for the first question. We just launched 600 megabits. And I think we'll experience additional cost to offer such a high-speed to customers. So we need to be very rational, how we do it and to which customers are willing to pay more to so. So in B2B, more room for 1 giga. We already have this as an offer to companies requiring that even SMEs, they can have it.

In the B2C, we are now with the 600 and also not in every place. As you said, there is some costs involved, and we need to be careful and also careful about the pricing. Now we need to depreciate pricing to keep the value of the ones willing to pay for 600 megabits our offer right now. We've been very conservative, and we hope the market is also conservative and the technology is impacted. And the cost is important to be able to offer such a speed to customers. So we are doing that in a very thoughtful way and segmenting our customer base and offering that to customers that are willing to pay more even because they live in places where they need -- it's more demanding.

Now let's talk about some countryside homes that people are now living. And they are very large homes that they want to have a very high-speed because they are offices there in the schools are there now because they keep them at home, that maybe the billing to pay more and then we have to price in the right way and do so. So balancing the additional cost with the real demand and not minimizing or taking value of the 100 megabit, 200, 300, that's also very good speed and much above other technologies and that respond to most of the demand of most of the customers that we have.

In the second one, we're going to start giving more color on digital services. But I hear the most difficulty that we have in the nature of the services are different. Not just defining what is B2C and B2B that's already a huge difference. Now in B2B, it's hard to find a customer that we don't have a digital service already as part of the relationship that we have with this customer. That goes from antivirals, a cybersecurity solution to local solutions. So we are leveraging and penetrating digital services in most of our B2B customers.

So there are different type of customer, size of customers in B2B. So it's difficult to tell you the percentage, but I understand that the penetration will be very high, almost in 5 years. I believe all our B2B customers need to have digital services that is built and sell -- sold and taking care by people's workforce and both the sales rep but also the customer care.

In the B2C, I would also segment in the 2 types of customers. In the top B2B testing, we're going to distribute services from very well-known brands. And if you look, the number -- the percentage of fiber already sold to Netflix, Disney+, we just said, 30%, and this number is growing. So I think our ability to bundle together with our services, service that are very connected to our core will be very high. And I also think in fiber that every single customer, people may have something that they bought together with their connectivity that is not our core and is the digital service. And that goes entertainment but can be gaming and can be also -- I just mentioned about the CDF, that's a support -- technical support that we branded Vivo Guru.

We also believe a high percentage of our customers should have this customer care, Vivo Guru already included in the plan, and we'll charge for that. In the base of the period, there I think, we can launch new business now that are totally -- not always connected to the relationship that the customer has with us. So when I launch Vida V, of course, and I'm selling to my customer base, but I'm not bundling it with a plan because I'm talking about prepaid to hybrid customers that there is no bundle. Because the value of this new service can be similar to the value of the money they spent with a prepaid recharge.

So it's a new business. So this new business will be -- you have valuing 2 sites, because I'm selling it and because I may have a stake in a new and different company that can have its value by itself. So I see financial service going this direction, maybe health for sure, education, for sure. So it's a different type of business and not combining and launching new platforms and new ecosystem.

So once we have more clarity how to explain and to give you more detail and color about the numbers, we certainly do that differentiated B2C, B2B what is totally bundled because has value and a combine Netflix plus fiber versus what is the new business, like it's Vivo Money, this is a new business that is a long platform and Vida V that is a new business and many other things they will be launching in the following quarters. Don't know if I answer like I do, but it's what I can share at the moment.

[Operator]

Our next question comes from Marcel Santos, JPMorgan.

[Marcelo Santos, analyst]

I have 2 questions. The first one is on the fiber expansion. We are seeing all players expanding fiber or which plans to expand fiber aggressively in the next couple of years. What do you think is the potential market for homes passed to fiber in Brazil? And do you see the risk of overlapping networks or not be like difficulties for the players to execute their plans? And that's the first question.

The second question is you're going to have the 2G shutdown. How much savings could you get on that? And would that be more CapEx or OpEx?

[Christian Gebara, executive]

Marcelo, in the fiber, we announced that we aim to have at least 24 million home passed by 2024. We already have close to 17, though we announced for first quarter, 16.3%. We have the largest customer base, and we have the highest market share in the mobile. We have the combination of all the assets to be the leader in this market. So we are very confident about our plan. Now Brazil is huge. I think we have a gap in home ultra-broadband digitalization.

So if you consider the target market of 60 million, 65 million homes and offices, that would be the market is addressable by fiber, some of these market is covered by the smaller players. Some are uncovered today or they have a technology that is not fiber. So this is the number that maybe we should bear in mind. So we are now aiming for 2024 to get to 24 million.

And the risk of overlapping, I think, is there. I think it's not good because some of these deals that you just mentioned, there is someone behind that needs to occupy their network. They are neutral networks, but you need to have a tenant, an anchor tenant and additional tenants. So for them to come through and to be profitable, I think the ones controlling this network should be very wise and not overlap.

So in our case, we have a company that we co-control. So we may define what are going to be the target cities, and we will try to be as rational as we can. Although, as I said, we are the leader. We have the largest customer base, and we have a lot of stake. And we will have to do that because we've done that before, and we are the #1, doing that successfully.

The others should be also -- I think they are, and they should be very attentive not to do or not to make a mistake of covering similar areas because I don't see more than 1 or 2 tenants covering different networks, neutral networks to give the profitability that's regarded by this type of business.

That was your first question. The second question was...

[David Sanchez-Friera, executive]

The second -- I would say the second one. It's about the savings that we are expecting with the ratcheting with team. So they refer to be like 3 different savings. The one have to do with 2G switch off, it will bring savings but mainly on OpEx, and this is something that I will start even this third quarter. So we will see a ramp-up in the next couple of years, but it's going to start right now.

The second one, we are going to have and we already have 348 cities that's already implemented with coverage expansion. So this is a CapEx saving that, again, this is something that we have already, as we speak, we are already having these savings.

And the third one, which has a big potential again, it will be a decommissioning some of the network that today, we are joining with the team in more cities. So again, this will bring both OpEx to run those networks also CapEx to maintain those networks. So we see the 3 as a big opportunity to focus on quality and particularly to cope with incremental traffic and also start to see what else can we accelerate here within the mobile space.

[Operator]

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

[Christian Gebara, executive]

So thank you all for joining us. As I said before, it was like solid results, especially in the commercial performance in both the net adds that we had in postpaid and the net adds that we had in fiber that our core products and core revenue that give us optimism about 2021. As the situation, hopefully, is getting better with the vaccine and the economy recovering, and we are in the right position to take advantage out of the accelerating growth that we see in these technologies and this business where we already have the leadership.

Adding to that, the new ventures that are started to be more concrete and it gives us room to create a real ecosystem around our brand and bringing loyalty and engagements to involve all customers. So if you have any more further questions about anything you know, our team is here at your disposal. Thank you, and see you next quarter.

[Operator]

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