Telefonica Brasil SA

BOVESPA:VIVT3

Earnings Call Transcript 2017-Q4

[Operator]

Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to the Telefônica Brasil Fourth Quarter of 2017 Earnings Conference Call. Today with us representing the management of Telefônica Brasil, we have Mr. Eduardo Navarro, CEO; Mr. Christian Gebara, COO; 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 at the site www.telefonica.com.br/ir and on the MVIQ platform. There will be a replay facility for this call on the website. After the company's remarks are over, there will be a question-and-answer session. At that time, further instructions will be given. [Operator Instructions]

Before proceeding, let me mention that 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 Telefônica Brasil. Mr. Plaster, you may begin the conference.

[Luis Plaster, executive]

Good morning, everybody, and thank you for joining us in this conference call for Telefônica Brasil's fourth quarter and year 2017 results. The call will be divided as follows. To start, Eduardo Navarro, our CEO, will give you an overview of our operating and financial results for the fourth quarter of the year. Secondly, Christian Gebara, our COO, will go over our commercial and CapEx evolution. Finally our CFO, David Melcon, will discuss our efficiency commitments and financial results. We will then move to Q&A.

I now pass the word to Eduardo.

[Eduardo Navarro de Carvalho, executive]

Thank you, Plaster, and good morning to everybody on the call. Today we will discuss and focus on the results for the quarter and for the year. I would also like to remind you of our upcoming Investor Day on March 12, which will take place in the New York Exchange celebrating our [ 20th ] listing anniversary.

In this event in New York, I will provide you in more detail our perspectives and the strategy regarding growth performance, digitalization, competitive position and a number of other topics of important topics.

Regarding our fourth quarter 2017 results, we once again see a solid revenue trend, confirming the consistency of our leadership. Mobile services revenue grew above inflation, 3.8% year-over-year, driven by data and digital services, which jumped 25% in the period.

When you look at the evolution of the fixed ultra-broadband, we see that our impressive performance continues, resulting in a year-over-year growth of 22.4%. In addition, we completely reduced our exposure to traditional voice, with non-voice revenues now representing almost 70% of the total services revenues.

In recurring costs, moving to the mid of the slide, the fourth quarter 2017 was the eighth quarter in a row where we saw a drop, minus 1.5% year-over-year, taking our EBITDA margin to its highest level in the year, 35.8%, 2 percentage points higher when compared to the fourth quarter of the previous year.

We continued to be as committed as ever to controlling costs and the optimization of our cost structures through the digital transformation of the company.

The net income in 2017 presents a year-over-year increase of 12.8%, reaching BRL 4.6 billion for the full year, with dividend also improving 12.8% year-over-year, reaching a payout of 100% and thus providing Vivo an unique position in terms of profitability and commitment to shareholder remuneration.

Moving to the right-hand side of the slide, let me update you on our continuous efforts to improve differentiation and guarantee that Vivo consolidates its leadership by offering a superior customer experience.

Our strong commercial activity in the fourth quarter 2017 resulted in an outstanding number of postpaid net additions, totaling 1.1 million, an impressive growth of 24% year-over-year, while in FTTH we achieved 92,000 net additions, up to 52% higher than a year ago, meaning that we continue to reap the benefits of pioneering the extension of fiber in Brazil.

In regards to our superior network, our accelerated 4G deployment took us to 2,084 new cities in 2017, totaling 2,600, which means that now we recover 85% of the population. In the fixed business, we expanded our fiber-to-the-home network to 4 new cities in the quarter comparing '16 and 2017 and thus further increasing our UBB footprint.

In summary, the combination of a robust revenue trend [indiscernible] together with the cost efficiencies, that meant very focused on growth and solid financial management, resulted in an impressive margin extension and a revived cash flow generation in 2017.

Moving to our key financials in Slide 4, you can see how the positive revenues evolution combining with our FTTH expansion continued to result in double-digit cash flow growth. Both our total and mobile service revenues continues to grow above inflation, 2% and 4.3% respectively for the year and 1.3% and 3.8% in the fourth quarter 2017.

In terms of EBITDA and cost contention, we continued to focus on our competitive driven approach based on a rationale yet accelerated commercial strategy and end-to-end digital transformation of the company.

The result for the quarter was another jump in recurring EBITDA of 7.3% on a year-over-year basis, taking the margin to 35.8%. Looking at the full year, we also see 7.3% growth uptick in our EBITDA margin to 33.9%, another increase of 1.8 percentage points year-over-year.

In CapEx, we invested BRL 2.7 billion in the fourth quarter, resulting in a CapEx to revenues ratio of 24.2% in the quarter.

When you look at CapEx for the full year starting '17, you can see that we are there in line with our investment plan of approximately BRL 8 billion per year, which translate into a rate of 18.5% of CapEx over revenues, a drop of 0.3 percentage points year-over-year.

Finally, as highlighted before, the result is consistently double-digit cash flow generation, taking our operating cash flow margin for the year of 15.4%, an increase of 2.1 percentage points year-over-year, an outstanding number when compared here to the market numbers.

Now, I pass it to Christian, our Chief Operation Officer. Christian, please.

[Christian Gebara, executive]

Thank you, Eduardo. Good morning, everyone. This was another very positive quarter for Vivo, reinforcing our leadership in key segments, and as Eduardo said, we grew 2.2% in total service revenues in 2017.

Before going to the slides, I would like to highlight our key operation initiatives and results for the fourth quarter. We maintained our focus on the expansion of 4G coverage with the largest roll-out in the market. We improved our broadband sales mix, enhancing significantly the average speed rate as well as broadband ARPU.

In the cities where we recently launched FTTH, we think we reached absolute market leadership. We expanded our IPTV footprint to all capitals in which we are present and also launched new IPTV services such as HBO [ World Watch ], ESPN and FOX Premium. We continued to increase data and B2B digital service revenues, mainly driven by IT and security services. And we reached almost 40 million unique users of Meu Vivo, our e-care platform.

Turning now to the details of our main businesses on Slide 5, we present the evolution of our mobile service revenues, which increased 3.8% year-over-year. The strong performance was supported mainly by data and digital services, which grew 25%.

Moving to the right-hand side of the slide, the graph on the top shows that our postpaid brand has maintained a solid growth of 8.7%, driving the trend of real growth of mobile service revenues observed during the last 4 quarters.

On the bottom of the slide, you can see that we were able to monetize data usage growth through our more for more value proposition. As a result, mobile data revenues are consistently increasing and already represent 75% of total mobile service revenues.

There is potential to continue growing given that more than 1/2 of our customer base does not have 4G+ just yet, while a little over 85% of the population could use this technology. Moreover, there is plenty of opportunity for up-selling hybrid and family plans and we also accept prepaid results improving as the economy recovers.

The left-hand side of Slide 6 shows that our mobile market share increased 1.5 percentage points last year, reaching 31.7%, with 42% in postpaid. In the machine-to-machine business, we continued to expand our leadership to a solid 41.5% market share.

Postpaid, we had an impressive performance with 39% of share of net adds in 2017, increasing by 3.4 million our postpaid customer base. I would also like to highlight that our excellent performance in postpaid results in the best customer base mix of the market, with postpaid representing 49.1% of the total, 3.8 percentage point more than a year ago.

On the right-hand side of the slide, you can see that we continue to enhance postpaid customer loyalty, and as a consequence, our churn reduced to 1.69% and postpaid customer satisfaction improved, reaching all-time record levels.

Vivo Familia plan continued to play a key role in our postpaid portfolio, driving revenues and customer base growth. Vivo Familia penetration over postpaid base increased 6 percentage points year-over-year, while additional lines went up by 31%. In addition, the mix of customer paying over BRL 200 had an extraordinary growth of 82% year-over-year.

I would also like to point out that the churn in Vivo Familia is 20% lower than in other [ few ] postpaid plans. And finally, as an operation expansion in our portfolio, we included a net mix in double-play offer in January, reinforcing Vivo's strategy to offer more for more in our mobile Internet.

As you can see, we had positive results in migrating customers to higher plans. In the fourth quarter, we accelerated prepaid migration to Hybrid by 29% year-over-year. As a result of our strategy providing the best use of Internet, we continued to increase data ARPU consistently, which went up 23.1% year-over-year, while overall ARPU increased 2.2%.

Moving to Slide 7, we present our fixed business performance. We continued to focus on broadband services, mainly in ultra-broadband, which grew 22.4% year-over-year. This quarter, service revenues decreased by 2.3% year-over-year mainly due to the accelerated voice decline.

As you can see on the right-hand side of the slide, we consistently enhance the relevance of our premium products. Our focus on the expansion of FTTH is reflected in an impressive 22.7% growth in revenues, while IPTV, which follows the same strategy, presented a sound 64.6% growth year-over-year.

2017, we were able to reduce significantly our exposure to non-voice revenues, reaching 60.3% of total fixed revenues, a rise of almost 6 percentage points year-over-year.

I would also like to point out that in B2B we increased digital service revenues by 26% year-over-year, mainly driven by security services and IOT, which grew 114% and 25% respectively in the same period. Additionally, we closed our first deal in Big Data and we expect that to be another important new revenue machine for B2B business going forward.

On Slide 8, you can see that we continued to attract fixed customers to premium services. The left-hand side of the slide shows that our FTTH customer base had an impressive growth of 45% year-over-year as we added [ 4,200 ] fiber-to-the-home customers. We continue increasing our premium customer base and sustaining our profitability, which was reflected in our overall broadband ARPU growth of 20.5%.

On the right-hand side of the slide, it's clear that we are focusing on customer utilization for IPTV. We managed to increase by 61% our IPTV customer base, which now represents 24% of the total Pay TV. In the last 12 months, our Pay TV ARPU grew 5.6%. Broadband and Pay TV ARPU have consistently grown for the last 10 quarters.

Finally, we rolled out IPTV in all main capitals in 2017, and in the first half of 2018, this technology will be available in all cities where we have FTTH deployed.

Moving on to Slide 9, we present our capital execution for 2017, which closed in line with our 2 year guidance. On the right-hand side of the slide, you can see that we're maintaining our primary focus on an aggressive expansion plan of premium technologies. In 2017, we had the largest 4G roll-out in the market after expanding the technology to 2,084 new cities, totaling 2,600 cities, in which 118 with 4G plus for 4.5.

Currently, we use the 700 megahertz spectrum in 404 cities and I would also like to point out that we -- 4G coverage in 14 states, including Sao Paulo. Furthermore, we improved the quality of our sites, increasing fiber connected sites in 51% year-over-year.

Finally, last year, we reached 18.4 million home plans with fiber after deploying FTTH in 16 new cities, increasing our footprint to 87 cities, of which 64 already with IPTV.

Now, I pass it on to our CFO, David Melcon.

[David Sanchez-Friera, executive]

Thank you, Christian, and good morning, everyone. Moving to Slide 10, we are pleased to announce that recurring cost reduced for the 8th quarter in a row, decreasing 1.5% in comparison to the same period of last year.

Personnel cost increased 1.1% below inflation of the period mainly due to the savings from rightsizing initiatives that took place in the last few years. Bad debt remains under control, reaching 3.4% of net revenues, having increased in comparison to last quarters due to the continuation of credit and production actions aimed at guaranteeing accessibility.

Commercial expenses excluding bad debt increased 1.5% in the period, in line with our successful acceleration of commercial activities in key segments, partially offset by savings through digitalization initiatives.

Cost of service rendered, G&A and others fell 4.6%, driven by efficiency initiatives and interconnection tariff reduction, partially offset by cost related to the expansion of 4G and FTTH.

As a result, our EBITDA growth reached a solid 7.3% on a year-over-year basis, accelerating our EBITDA margin to 35.8%. Overall, we reduced our recurring cost by 2.9% in 2017 versus 2015, while the inflation in the 2 year period reached 9.4%. These numbers represent and confirm management's commitment to controlling costs through the continuous pursuit of efficiencies and end-to-end digitalization of our company, balancing cost savings and business sustainability.

Moving to Slide 11, we present an update on our synergy evolution. The company has already secured by the end of 2017 an NPV of BRL 19 billion, which represent 85% of the total NPV considered our best cases scenario of BRL 22 billion. We were able to increase the value capture of revenue synergies by 7 percentage points quarter-over-quarter, confirming the upward trend since the beginning of the year. In terms of cash flow, this represents BRL 1.2 billion already achieved in this front.

In OpEx, we maintained improvement in the capture of synergies, reaching BRL 1.4 billion in accumulated cash flow, representing an increase of 7 percentage points versus last quarter.

While looking at the big picture, we delivered BRL 769 million of cash flow this quarter, of which BRL 453 million indirect cash flow. Since the integration, we delivered BRL 4.4 billion, of which BRL 2.5 billion are indirect cash flows.

As you can see in both quarterly and accumulated numbers, the underlying benefits of the synergies have and will continue to be a strong driver of sustainable EBITDA expansion. These excellent results once again prove management's commitment to the successful execution and delivery of previously communicated targets.

Turning to Slide 12, we are pleased to give you an update on our commitment to efficiencies. We have been evolving in the already identified initiatives as well as in new products, which will help to guarantee cost control for the next few years. Last quarter we highlighted that 1/3rd of our OpEx can addressed by the digitalization initiatives currently in progress. This quarter, we share with you some of the most significant developments that are already contributing to our results.

In e-care, the Meu Vivo app, has been one of the main levers of improving customer care and its relevance has been increasing every day as customer begin to use it more and more to solve a number of issues related to the plans, payments, data usage and data sharing.

The unique users of digital channels increased 46% year-over-year, while fixed Meu Vivo unique users increased more than 5x. In e-commerce, we highlight that in 2017, 19% of the total volume of recharges were made through digital channels, helping to reduce commissioning expenses.

The company has been incentivizing the adoption of digital recharges by introducing new payment options, including debit and credit cards, and giving addition data bonuses to customers who recharge through our digital channels.

Installation and maintenance; as we improve the functionalities of Meu fixed Vivo application, we were able to start offering remote support for fixed services, which are already representing 10% of our total fixed supports. The resolution rate of our remote support have reached more than 80%, with customer's rating reaching 4 out of 5 stars.

The evolution of our virtual assistant, Vivi, has also a highlight in the year. Total interactions increased 67% year-over-year, reaching 95% of answers assertiveness. And the feature is now available on multiple channels such Meu Vivo, websites and also Facebook Messenger.

Our commitment to providing the best customer experience aligned with an optimized cost restructure is what will continue to drive our efforts in enhancing the profitability of our business.

Now, moving to Slide 13, net income for 2017 reached BRL 4.6 billion, representing a solid double-digit annual expansion of 13%. The main drivers of these results were the increase in EBITDA, lower interest rates and lower leverage, partially offset by higher depreciation and amortization and tax expenses, but keeping the tax rate stable.

Turning to Slide 14, in 2017 our free cash flow from business activity reached BRL 5.7 billion, BRL 1 billion higher than the previous year. This performance in cash flow generation is a direct result of a solid EBITDA evolution, improved management of working capital and efficiency in CapEx allocation.

The shareholders remuneration to be paid in 2018 will amount to BRL 4.6 billion, representing an increase of 13% year-over-year and once again reaching a payout of 100%.

To conclude, we continued to improve our financial structure with a strong cash flow generation and our net debt remains stable, maintaining a leverage at 0.26x annual EBITDA.

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

[Operator]

[Operator Instructions] Today's first question comes from Maria Azevedo of UBS.

[Maria Tereza Azevedo, analyst]

Can you please comment about competition and especially in postpaid and what internal strategies are you using to avoid trading down within your own subscriber base as you're being more aggressive in terms of data bundles?

[Christian Gebara, executive]

In postpaid, we keep with a strategy that we presented in other meetings. Now, we are trying to convert customers to data usage offering like always more for more and innovating in our offer like both in the hybrid and in a few postpaid. In hybrid, we have like a new offer that we launched this quarter, but last quarter it was similar, including all the services, voice, SMS, data and value-added services. And so you can see in the number that we presented for the fourth quarter. We kept a strong pace in attracting customers. It was actually a record of net adds of more than 1 million customers in the quarter, and also if you compare to what was our performance in the fourth quarter in 2016, that was 24% higher. So we keep also a very solid churn rate, actually lower than what we had a year before, 1.69%. And we're increasing ARPU in total, now represented as prepaid and postpaid together at 2.2%. So the strategy is the one that we presented, data-focused, more digital services because we see the demand for that and also giving more data, but also more -- and with more price. And one -- something that's very unique, Vivo offering the family plans in the postpaid. We kept like a strong focus on that. So as I said, most of the customers that are coming in are getting into these family plans that are -- again, it's a good value for money, but at the same time, we expect more customers to our plans. We keep them much more loyal and also we give some functionalities that are unique in the market that they have the ability to share data among the members of the family. And in the hybrid, migrating -- basically migrating prepaid customers to our postpaid offering, in this case the hybrid in the [ entry 1 ]. And after that, migrating within the hybrid plans and also migrating hybrid to postpaid. So that's the summary. And as I showed in the numbers, we've been successful doing that.

[Maria Tereza Azevedo, analyst]

And as a follow-up question on the regulatory front, can you please comment on the TAC agreement, [ is it a ] new rate for the pending final signings to expand geographically in FTTH this year and also your views on potential upcoming spectrum auctions, both the 700 and also the 3.5 that we saw in the press?

[Eduardo Navarro de Carvalho, executive]

Regarding the TAC, it's not going to change the size of our acceleration. Now, it can move what kind of cities you move to. When you go according to the TAC, we go to a certain level of cities with a certain mode of deployment. In case we don't have this TAC approval, you tend to go to another kind that's more commercially attractive. Next year, we expect the TAC to be approved. It has not been approved. We'll have finally done no more or less the same amount of cities, but you have decided to go to cities that are more market attractive. I think that this is what the TAC moves, this is what kind of city and what kind of deployment even the same city that you do. In the TAC we're trying to cover more. We're trying to cover more and more -- without the TAC, we tend to go directly to more commercially attractive areas. We expect to improve the TAC in the coming months. I think I'd like to give a -- whenever I give the profiles of this data, I think [indiscernible] TAC numbers. And I would like to take advantage here to give more -- provide more transparency about those numbers. There are -- we are talking about BRL 3 billion in fines. But we have reviewed the symmetry of all of those fines according to lawyers, to external auditors, which is not being done by our people. This is absolutely done according to external specialists. However, our best belief is that we too have to pay those fines some day. The total fine will amount to BRL 600 million. This is exactly the number to have registered in our numbers. It means that the numbers that we're expected to pay for the TAC, they are recognized in our numbers. But then you can have 2 different outcomes. If the TAC is approved, that we believe now should be the case, we could revert this BRL 600 million. If the TAC is not approved, what to do? We will question the symmetry of all the fines. It will take many years. And during this period, we could be paying something similar to the final amount -- I believe this is the best information I have now -- closer to this BRL 600 million. I like to make this very transparent because I've seen it -- for us in Telefónica, we want to do the TAC, we want the TAC. We believe that the TAC is very positive for us, it's very positive for the society, because now it makes -- it accelerates -- the cities are more than accelerating the transactions to do that are more needed to society. But I like now to make absolute transparent here that the TAC has to be absolutely transparent in terms of numbers, in terms of geographies. And I prefer it necessary to take more time, but I feel I want to be 100% guaranteed that all the process is carried out 100% transparent. Your other question was?

[Christian Gebara, executive]

And, sorry, about the spectrum. Maria, as always, we will be analyzing anything that comes available. But for the moment, we don't have any specific answer for that. Now, as you know, we participated in all the last auctions and Vivo is the one [ operator ] that has the best spectrum portfolio, not only for the 2.5. The first one that we bought is the 10 megahertz, but also -- the second one the 2.5 and also the 700 that we bought, what was available for us that was 10 megahertz. So if any other auction, when we have the conditions and we will be analyzing it.

[Operator]

And our next question today comes from Julio Arciniegas of RBC.

[Julio Arciniegas, analyst]

I'm looking more at ARPU and I see that basically an increase of 2% is good. But actually, if I compare it versus the ARPU increase of other competitors, which is almost or actually above double-digit growth. Why basically Telefónica is growing below in terms of ARPU than competitors? And my second question is regarding broadband. I see that broadband net adds they have been negative this quarter. So can you give us some color on the competitive dynamics in this market?

[Christian Gebara, executive]

Julio, the second question, I didn't get it. What was it?

[Julio Arciniegas, analyst]

Broadband networks they have been negative this quarter and so if you could give us some color on the competitive dynamics of this market.

[Christian Gebara, executive]

So in the first one, I think any ARPU proposal I think we should start from the base. So as we presented in different calls, really our starting point the ARPU is much higher than our competitors or can be 50% higher than some of them. So I don't think we should compare because I think the evolution is different. So we start from a very strong base and we've been consistently increasing ARPU and I don't think it's the same in others. So we grow over a very strong base. And as I said before, we keep growing with migration of prepaid to hybrid and also we keep growing giving more for more and upgrading customers that are in hybrid and in postpaid. So I think -- and also if you consider the inflation, the inflation is much lower, so our ability to increase price is also more limited than it was in the past. So compared to the past on our own performance, I think inflation is playing along. Compared to our performance versus other peers, I think the base from -- starting base is what played the big difference that is seen in both cases. And also as you can also observe, in some of the base cleaning, I think we did that in the past and we followed the ANATEL rule 100% for prepaid disconnection. And as we observed in the market, some players were disconnecting a lot of customers, that also implies in a better ARPU because their base started to be lower. Going to the broadband, I think here there are 2 different movements. As you can see, our growth is in FTTC and FTTH actually mostly. So we've been very aggressive deploying FTTH. And here I think the -- what's the important law that we have is in pure ADSL. Some of them is because we are getting to new cities and we are giving and overlaying what we had in copper and then we are attracting customers to our new technology and also there is a market dynamic. So here the loss is more in legacy and a strong growth is in what we believe for the future that is FTTH.

[Julio Arciniegas, analyst]

May I follow up? Can you remind me how many home plans are you currently covering with FTTH?

[Eduardo Navarro de Carvalho, executive]

Altogether, yes, 18.4 million in FTTx, 18.4. So out of that, 7 million are FTTH and 11.4 million are FTTC. Going forward, we only deploy FTTH as we did in the last quarters. So you're going to see this number growing, but growing in FTTH.

[Eduardo Navarro de Carvalho, executive]

Just to add more information here. The penetration that we have in our FTTH business is 18%. Like Christian has said, we have 13 million households out of that and 1.3 -- approximately 1.3 customers collectively [indiscernible] the penetration is 18%. If you consider of our more major FTTC cities, the penetration is around 30%. Just by penetration in our recent [ initiatives ] of FTTH that's much more new, we can almost double the base of customers. In addition to this, we are growing very fast. Our advantage is not only by entering new cities, but also by expanding our FTTH footprint in others that now is covered by older technology. Yes, this is only to reinforce that you should have a huge potential for FTTH and meanwhile to concentrate an important part of our strategy and our growth on the FTTH growth. And if you would like to know, we will go in more detail on this on our New York meet.

[Operator]

And the next question comes from Susana Salaru of Itaú.

[Vitor Tomita, analyst]

This is actually Vitor speaking here. So I have 2 questions. The first is that the synergies in revenue level seems to have advanced quite a bit in 2017, and so could you elaborate on the key initiatives that you think should benefit this going forward in 2018? And our second question if you may, is whether you could elaborate the performance of the corporate data and IT line in revenues, if there is any macroeconomic effect there or if this is just usual volatility in closing a large contract?

[Christian Gebara, executive]

On B2B, all these lines, as you've said, also in the last quarter, there is a lot of changes depending on big contracts that we close. So on the third quarter, there was a hike because we had an important contract and mostly the same in the fourth. So I think we're going to see always this variation in this line because big deals and big contracts may change the form of the curve. Now, what I highlighted here was in the digital service that we see that we are expanding security and IoT, in cloud and also in Big data to corporations. We see a very important growth on these lines. And then corporate data you always grow, but some of the seasonality of the contract will change the form and the curve shape. In your first question about revenue synergies, it always depends on a lot of -- in unbundling fixed mobile and cross-selling. So we've been very wise in doing that. We want to give to customers even more benefit. We haven't been aggressive in having a bundle offer with everything included, so that's you don't see this big change in this line. We do that in B2B, where we have like the ability to capture more contracts because you have footprint -- fixed footprint outside Sao Paulo that before was not available before the purchase of GVT. But in the B2C, we are doing cross benefit in a very conservative way, giving benefits, but not giving discounts.

[Operator]

And our next question comes from Marcelo Santos of JP Morgan.

[Marcelo Santos, analyst]

The first question is about the revenue growth outlook. So in a couple of past representations, for example, like 5, you mentioned a prepaid rebound with the expected economy pick up. You're also entering new cities. So could we expect some acceleration in overall total revenue growth in the coming quarters? Is that something reasonable? And the second question is, if you could discuss a little bit more the change in strategy regarding handsets, which were mentioned in the release. So you said mobile handset revenue increased 7.4. What's the change in strategy, making greater emphasis on handset sale? So could you just discuss a little bit of that? That were the 2 questions.

[Christian Gebara, executive]

We don't give projections, as you know. But as I mentioned before, we see good opportunities starting with the mobile. We still have 1/2 of our customer base with 4G and we cover 85% of the population and we're going to keep growing. So we see an opportunity to bring more customers to 4G, bringing more customers to 4G to consume more data, consuming more data. They are going to buy higher plans. So we still have like a positive trend in all segments, that's also in prepaid, hybrid and pure postpaid. Of course the economy recovers, as I said, can be a boost for consumption. So we expect that not only in the base of the B2C, like -- I mean, prepaid if we see unemployment going down, but also in SMEs and even large corporation. There we see a trend to consume more because over the last year there was a lot of tension, companies closing and very tough negotiations with contracts. So if all this comes along, we see a positive trend. In the fixed, now as I said, also there is an impact of the voice, that is declining, but it represents 40% today and is going down. Also, we've been much more representative of what we sell in data and other services. And we see growth, as I said, in FTTH now that we are putting a lot of impact. And also I think it's important to point out some of the decline in TV revenues is due to our focus in IPTV rather than DTH that has economically -- is much more viable and profitability is higher for the company. But doing this exchange, we are changing -- losing some customers in the base bringing them to IPTV. And with that, in the next quarter we're going to see this presence of IPTV of our customer base going up. And as you saw, our growth in revenues for these services are going up. So ARPU is going up in TV channel, but IPTV taking place of DTH will bring a better evolution for the future. So in not giving you a trend, we are long-term optimistic. Sorry, handset. We are going to put focus in handset growth with profitability, not so much with subsidies. Subsidies, we still play with the same rules, same commercial rules. Very focused in high-value postpaid customers, but reaching now the opportunity to be more of a handset seller even without subsidies for hybrid and prepaid customers. And we are betting on this strategy as well.

[Operator]

And our next question today comes from Masha Kahn of Deutsche Bank.

[Maria Kahn, analyst]

Just I've got a question about your G&A expenses that dropped quite a lot in the fourth quarter. Is that something sustainable that we should see into next year?

[David Sanchez-Friera, executive]

I think the G&A evolution is showing all the activities that we are doing to the company if you look overall. The reason why in this quarter the drop is higher is seasonality in previous year. There was an increase in Q4 2016 that now is showing that now we're having a higher drop. But I would say -- I would look to the full year evolution. And we will continue to do those efforts to keep it going down negative. But potentially we need to look to the full year evolution.

[Maria Kahn, analyst]

And the full year number is also down, so is it something that you think you can continue cutting?

[David Sanchez-Friera, executive]

For the full year, yes.

[Operator]

And our next question comes from Fred Mendes with Bradesco.

[Frederico Mendes, analyst]

I have 2 questions as well. The number one, I mean, this is not the first quarter that we observed a reversion -- I mean, when I look at the gross revenue, it decreased 1% and the net revenue increased by 1.5%, which is probably related to the plans because you're probably putting more on your plan. But you also saw a decrease when you look at the mobile services revenue, so 3.8. What can we expect from this dynamic? I mean, can we -- can you -- you think you've reached the peak in terms of adding [indiscernible] plans or you can continue to benefit from these, let's say, more efficient tax incentives? This is the first one. Then the second one, if you could go back to the question that Maria asked about the TAC. I understand that you recognized several fines in only 1 quarter. Can you give us an idea about the quarters or years that are being considered in this BRL 600 million for the TAC that you will recognize?

[David Sanchez-Friera, executive]

I mean, regarding your question, the first question about the evolution of the gross revenues. I think here again we need to look to the full year because we have an impact that also took place in fourth quarter last year. But to have the comparison quarter-on-quarter perhaps is not really showing the right trend. So if you look to the full year, the gross revenues this year grew 1.9% versus net revenue that grew 1.6%. I mean, that we grew 0.3 percentage points. If you look to last year, 2016, we grew 1.1% in gross and 0.9% in net, so we grew 0.2%. So we are seeing a stable evolution between gross and net and this is what we are also expecting for the future now. So all the tax impact that explain the difference between gross and net will be stable and will go along with our regular business.

[Eduardo Navarro de Carvalho, executive]

Regarding your question for provisions for the TAC fines, last year -- in last quarter, we decided to hire external lawyers and auditors to get a review of our fines [indiscernible] by ANATEL, the judge in a similar case, what could be the expected number to be paid for those fines. And those kind of people they come to the conclusion that the correct number that you will reflect now with current -- with the existing current situation will be BRL 509 million. We have already recognized in our numbers something along the -- more than BRL 400 million. Then we decided to increase this provision from what you have. We could be even more conservative -- we could be very conservative [indiscernible] as we are expecting the TAC to be proved not to increase the provision. But we decided to be very conservative. We decide to recognize all the provisions. As the TAC didn't occur, it means that you -- that wasn't the reason that we increase our provision for the existing year awarded BRL 400 million, with the existing number now BRL 509 million. That's what explained this number correct, increase in the provisions due to regulatory fines. Now, we believe that we are 100% covered. In the case of the TAC, we only have upside, but we rather be cautious.

[Operator]

And our next question comes from Mauricio Fernandes of Merrill Lynch.

[Mauricio Fernandes, analyst]

Two questions please; first, a follow-up to what Fred was asking. When you say a lot of it -- there is only upside risk to what's recognized as provision, that almost BRL 600 million -- there is -- what I am just trying to understand what if the negotiations with ANATEL lead to something higher than BRL 600 million? It means there is no agreement or there is a potential agreement as long as the value is not much higher than BRL 600 million? That's one question. The second is on CapEx. CapEx is being consistently around BRL 8 billion. It seems it will continue to be the same in 2018. But I am wondering what in your view could drive that number up or down relative again to the BRL 8 billion that are being spent a year?

[Christian Gebara, executive]

Our CapEx for 2018 is up to BRL 8 billion as such. If we are able to save in a way we are going to reinvest in the business and taking opportunity of things that we discussed before. So for now that's the guidance, up to BRL 8 billion. And any saving, as we mentioned, going down we are going to reinvest in some opportunities obviously both in mobile and [indiscernible].

[Eduardo Navarro de Carvalho, executive]

And regarding the TAC, Mauricio, I see that -- of course the negotiations that are here will not be even to this. And we like to believe there's some advantage to clean out all such liabilities. But I think that when I mention this numbers -- because we just want to make clear that -- in fact I know there is some kind of believe that we will be cleaning, shrinking of our balance sheet. Yes, we will be cleaning a number of issues in the balance sheet. I have to be very careful in all the numbers because in the worst scenarios this will be the impact. We are able to negotiate numbers higher the proof. The numbers that we are discussing for the investments are much higher than this under this theory. That may have a -- no, we have to be under ANATEL discussions. And more the negative NPV -- but, yes, we [indiscernible]. We need to need to further this in order to sort out all of this.

[Mauricio Fernandes, analyst]

Just one more follow-up. How much to your [indiscernible] how much of the BRL 600 million provision has been set aside cash, if anything, already?

[Eduardo Navarro de Carvalho, executive]

Can you repeat?

[Mauricio Fernandes, analyst]

Sorry. How much of the -- of the BRL 600 million provision so far, if there has any been -- has there been any cash business accounting, accounting provision, how much -- if there has been any cash deposited in escrows or anything required by ANATEL or any judge related to this or not?

[David Sanchez-Friera, executive]

This has not being cash. This is just a provision. This is based -- as Eduardo said, based on accounting rules, so what are the probable outcome. So it will be cash in the future. And in case of a negative outcome, there will be some appeal, so we are not expecting any...

[Eduardo Navarro de Carvalho, executive]

In a positive outcome, no cash, just provision. In a negative outcome, there will be some cash disposal that will be very forward. Because we build here -- no, no, we are still in administrative discussion. We can enter in a more legal discussion. If we to pay a part of the total of those amounts, will take many, many years from now. Means that [indiscernible] the TAC has no cash expense in the short-term, neither on one side, neither on the other side.

[Operator]

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

[Eduardo Navarro de Carvalho, executive]

I would like to also thank you very much for the participation in this call and invite all to our meeting in New York. Actually, been a very good opportunity here to share with you much more perspectives on what we'll be doing here in 2018, in our last few year period. We are going to share with you on our plan for our fiber deployment for digitalization. Again, I think that will be a very good opportunity to discuss how [indiscernible] and also to commemorate our 20 anniversary as a listed company in New York. Hope to see all of you there and thank you for participation on this call.

[Operator]

Thank you. This concludes today's Telefônica Brasil 4Q '17 results conference call. You may disconnect your lines at this time.