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29
7/2018

Fixed broadband in Jun/18, 2Q18 Results of Vivo and others, CIT in Brazil, Oi and other highlights

Eduardo Tude

Fixed Broadband in June

• Competitive operators (all operators except Claro, Vivo and Oi) led growth in the month by holding net adds of 87 thousand accesses, followed by Vivo (27 thousand), Claro (17 thousand) and Oi (-9 thousand).

2Q18 Results: Vivo

Comparing 2Q18 with 2Q17, Vivo's total net revenue 1.1%, being:

• +10.1% in fixed broadband;
• +4.2% in mobile telephony, being 1.9% in services revenue and 60.5% in devices sales
• +0.6% in pay TV
• -16.6% in fixed telephony

Data revenue represented 78.5% of Vivo's services revenue and increased 11.5% in 2Q18/2Q17, due to the growth of VAS (177.2%). Revenue from data packages dropped 13.3% in this comparison.

Vivo's recurring EBITDA margin reached 34.5% in 2Q18.

Vivo started to operate its FTTH network in Concórdia (SC).

Growth of net revenue 2Q18/2Q17 – International Operators

FANG (Facebook, Amazon, Netflix and Google)

• +41.9% in Facebook
• +39.3% in Amazon
• + 40.3% in Netflix
• +25.6% in Google

Despite the growth, Facebook shares fell 24% on the Stock Exchange, as the company reported it expects a decline in revenue in the coming quarters after the measures it is taking to ensure data privacy.

Spotify's revenue increased +26% in this comparison and Twitter's raised +23.8%. The reduction in the number of users drove to drops in both companies shares.

Operators

• +5.4% in Verizon
• +0.7% in France Telecom
• -2.1% in AT&T
• -2.1% in Vodafone
• -4.5% in Telecom Itália
• -6.3% in Telefônica (2.0% organic)

Nokia's revenue had reduction of 5.5% in this comparison.

CIT (Communication Information Technology) in Brazil (2017)

• 61% of the Brazilian homes had internet accesses, 64% of them through fixed broadband and 25% through mobile broadband;
• Lack of Internet availability in the home region was the main reason for not having internet in the residence for only 6% of those who didn't have the service;
• 67% of the population who are 10 years old or more were internet user (120.7 million);
• The main reasons for not being an internet user were: lack of interest (29%), lack of computer skills (26%), being very expensive (17%).

Oi

• Oi announced the strategic partnership with Huawei to promote the operational restructuring stablished in its judicial recovery plan, which is focused on expanding the fiber network and increasing mobile data coverage;
• Brazilian Federal Police opened an investigation to determine whether the investment fund Société Mondiale and PetroRio would have benefited from relevant information not yet disclosed to the market to obtain an undue advantage in the negotiation of shares of the operator earlier this year (source: O Globo);
• Following what was stablished in the judicial recovery plan, Oi announced the closure of the Debt Settlement Procedure with Qualified Bondholders and Non-Qualified Holders;
• Oi's ON shares dropped 1.1% in the week and PN decreased 2.3%.

Anatel

• Anatel authorized the use of the 700 MHz frequency in the metropolitan region of São Paulo (Capital, Santo André, São Bernardo and São Caetano do Sul). The use of this frequency band should improve the coverage of the 4G networks and allow the increase of the speed of the networks with the aggregation of carriers;
• Anatel published a resolution amending the General Plan of Competitive Targets (Plano Geral de Metas de Competição - PGMC). The PGMC establishes guidelines for categorizing markets by defining four levels of municipal competition: competitive, potentially competitive, little competitive and non-competitive. Anatel also published the list of groups with Significant Market Power (SMP);
• Anatel granted prior consent for the sale of 13.3% of the property of Telefônica Brasil S.A to the city of São Bernardo do Campo (SP). It decided, however, to request that the Competition Superintendence prepare a study on the potential economic impact of the sale of properties for the concessions, before opting to comment on other processes.

Other highlights

• America Net's MVNO signed a partnership with Uber in Brazil to offer postpaid plans to drivers who can use the Uber and Waze App without consuming the data franchise;
• Hughes Network Systems announced the successful launch on the Telstar 19 (63 W) satellite in which it has Ka-band capability to expand the service offering in South America;
• Brazilian Federal Court of Accounts suspended the contract between the Ministry of Science, Technology, Innovation and Communications and Telebrás for Gesac;
• Qualcomm gave up acquiring NXP, due to the delay of China in approving the operation.

Coming week

• The privatization of the Telebrás system completes 20 years on 29/7.

22
7/2018

Claro, TIM and other companies in 2Q18, Oi and other highlights

Eduardo Tude

Results 2Q18: Claro

• Claro continues to havea good performance, but faces revenue loss in fixed services (Voice and DTH);
• Claro's total net revenue grew by 0.9%. Mobile services revenue increased 10.5% and the fixed revenue decreased -3.7%, when we compare 2Q18 with 2Q17;
• The EBITDA margin in 2Q18 (29.9%) was higher than that of 2Q17 (27.5%);
• Claro Participações authorized the issuance of R$ 1.5 billion in debentures;
• Claro's HFC network currently provides service to 27 million homes (home passed);

Results 2Q18: TIM

• TIM repeated the good performance seen in the previous quarters;
• TIM's total net revenue grew 5.8%, while mobile services revenue grew 6.0%, in comparison with 2Q17. Data revenue grew 17.9% and voice revenue fell 12.4%;
• EBITDA margin reached 37.6% and net income hit R$ 335 million;
• TIM will activate its FTTH network in city of Salvador (capital of the state of Bahia) on August 2nd, and in cities of Suzano (State of São Paulo), São Gonçalo and Nilópolis (State of Rio de Janeiro) on August 7th;
• Stefano de Angelis left the position of CEO of TIM Brasil and will be replaced by Sami Foguel, an executive who worked in the airline industry.

Resultados 2Q18

Comparing 2Q18 with 2Q17, net revenuw raised:

• + 40.3% at Netflix;
• +17.5% at Microsoft;
• +5.8% at TIM Brasil;
• +3.8% at SAP;
• +3.7% at IBM;
• +3.2% at América Móvil;
• +1.6% at Millicom;
• +0.9% at Claro;
• -0.9% at Ericsson.

Oi

• Once the term for the exercise the preemptive right by Oi's shareholders to subscribe for the common shares to be issued in the capital increase, through the Bondholders' Capitalization of Credits, the subscription of shares exceeded the minimum number of shares of the capital increase approved on March 5th, 2018;
• Oi's Oi shares decreased by 11.4% in the week and the PNs by 9.2%.

Other highlights

• The General Telecommunications Law (LGT) completed 21 years;
• Vivo has announced the activation of its FTTH network in the city of Assis (State of São Paulo);
• Anatel held a seminar on Reversible Goods. As it is not known when the PLC 79 will be approved, it is important to move forward in the definition of this issue. The adviser Emmanoel Campelo defended that Anatel decides on what are the reversible assets of the fixed telephony concessions later this year;
• Minister Carmen Lúcia of the Brazilian Supreme Court decided to review her decision and accepted the request of the Federal Attorney General, overturning the injunction imposed by the Amazon Court against Telebrás. The decision was basically guided by the risk of losses to the state company in case of maintenance of that situation of uncertainty. Telebrás reactivated the stations in Roraima and is resuming the programs Gesac and Internet for All.

Internacional highlights

• US operator Verizon has suspended activation of 3G devices and plans to shut down its 3G network by the end of 2019. Meanwhile, Cuba plans to have 3G coverage nationwide by the end of the year and has begun to package data for selected users;
• In the UK, the number of subscribers to video streaming services, such as Netflix and Amazon Prime, has surpassed the number of pay-TV subscribers. (Source Ofcom);
• Comcast has officially closed its bidding war with the Walt Disney Company for cable assets and 21st Century Fox studios. In a statement, Comcast said it will not attempt to surpass Disney's US$ 71.3 billion bid for Fox and, instead, it will concentrate its efforts on the purchase of Sky;
• Google was fined € 4.34 billion by the European Commission for abusing its dominant market position by asking Android device makers to pre-install the application from their search engine, app store, and Chrome browser on their smartphones;
• The US Commerce Department has suspended a ban on US companies selling components and software to ZTE after the company met all the requirements of a solution agreed in June.

Coming week

• Vivo, AT&T/Sky, Google, Facebook, Amazon and other companies will report their 2Q18 results.

15
7/2018

Results 2Q18, Anatel, PGMC, Personal data, Oi and more highlights

Eduardo Tude

Results 2Q18

Claro and TIM will report (18 and 19/07) its 2Q18 results this week. Vivo will release it in the following week (July 25) and Oi only on August 15th. The main points to be followed in the these results are:

• Which company present positive growth in the net revenue of the fixed and the mobile?
• Will the shrinking in TIM's prepaid base affect its revenue growth?
• Will Vivo's postpaid ARPU remain or fall?
• Will EBITDA margins maintain the growth trend?

Anatel approves PGMC and other regulations

Anatel approved new versions of:

• Plano Geral de Metas de Competição - PGMC (General Plan of Competitive Targets), defining Small Provider as the one with a market share inferior than 5% in the national market of each service;
• Regulamento Geral de Interconexão - RGI (General Regulation of Interconnection), establishing the obligation of interconnection points for Internet in each area code;
• Regulamento de Cobrança de Preço Público pelo Direito de Uso de Radiofrequência - RPPDUR (Regulation of Public Price Charge for the Right of Radio Frequency Use), which brings as a novelty the possibility of conversion into commitments part of the public price due to the extension of grant.

The PGMC also established four large groups of Brazilian cities according to the level of competition in the telecommunications sector, ranging from highly competitive to non-competitive in seven retail markets: Passive Infrastructure, EILD, Access Networks, Roaming, Fixed Interconnection, Mobile Interconnection and High Capacity Data Transport and Interconnection.

Anatel also approved the sharing of radio frequencies of the Oi and TIM groups in the 2.5 GHz and 1.8 GHz bands.

The president of Anatel, Juarez Quadros, reminded that next Monday (16th) will be the 21st anniversary of the General Telecommunications Law which established the creation of Anatel and the regulatory framework for the telecommunications sector.

Project to protect personal data

• The Senate approved the project to protect personal data that requires explicit consent for the collection and use of data, both by the public authorities and private initiative, and forces the offer of options for the user to view, correct and delete such data;
• PLC 53/2018 prohibits the processing of personal data for the practice of unlawful or abusive discrimination and included the creation of a regulatory body: the National Data Protection Authority (ANPD), linked to the Ministry of Justice. Anonymous data is considered non-personal;
• The punishment for infractions goes from warning to a daily fine of up to R$ 50 million, in addition to partial or total prohibition of the exercise of activities related to data processing.

Oi in the 1st semester

• Oi will issue R$ 4.16 billion in non-convertible debentures. The new bonds will be delivered to the creditors, as foreseen in the company's judicial recovery plan;
• Oi's ON shares decreased by 3.6% in the first semester and the PN by 16.7%. In the week, ON shares showed appreciation of 15.4% and the PN of 15.9%.

Other Highlights

• The sale auction of Cemig Telecom was postponed from July 25th to August 8th;
• The small providers of the states of Pernambuco and Piauí will have a reduction of up to 75% in the ICMS calculation base in the provision of communication services, similar to what already occurs in Ceará;
• The revenues of the contact center sector in Brazil will grow 3.6% in 2018, reaching R$ 13.6 billion, according to a forecast released by the Brazilian Association of Telesservices (ABT);
• The Court reduced from R$ 211 million to R$ 12 million the fine applied by Anatel to Telefónica in 2010, for non-compliance with STFC obligations. The court considered that the calculation of the fine should be made in accordance with the new regulations instead of the one in force at the time of the infraction;
• Vivo will install six new data centers in Rio de Janeiro, São Paulo, Belo Horizonte, Brasilia, Salvador and Porto Alegre, to be used for the virtualization of its network;
• The proportion of Brazilian Internet users who have had a stolen cell phone has gone from 39% to 49% in the last 12 months. (Mobile Time / Opinion Box);
• The Science and Technology Committee of the Brazilian Chamber approved a Law Project that exempted Fistel from the devices for IoT;
• AT&T is connecting 1.5 million vehicles by quarter.

Coming week

• Claro and TIM will report their 2Q18 results.

8
7/2018

Preliminary balance of the first semester of 2018 and other highlights

Eduardo Tude

The first semester ended and in two weeks the results of 2Q18 should begin to be reported. It is possible, however, to make a preliminary balance of the points to be followed in 2018 by Teleco.

4.5G in the 1st semester

• Claro and Vivo competed in the first half of the year as leader in municipalities served by LTE Advanced. In May the technology was present in 1,244 cities that concentrate (67.9%) of the population;
• Claro led the deployment of LTE Advanced Pro, being present in 153 municipalities (23.9% of pop.) in May;
• 4G consolidated itself as the main cellular technology and in May it already had more cell phones than 3G and 2G together.

Oi in the 1st semester

• Oi made advances towards the corporate reorganization after approval of the judicial recovery plan by the creditors and the results of 1Q18 already incorporated the reduction of net debt to R$ 7.3 billion with the capital increase resulting from the exchange of debt for shares;
• The challenges in court have been overcome and Oi said this week that Cade has not filed any objections regarding Oi's capital increase. The judicial recovery process is expected to be completed by the end of the year, when resources to increase investments may become available. Without these resources Oi continued to lose market share and revenue in the half year;
• Oi's ON shares decreased by 3.6% in the first half and the PN of 16.7%. In the week, ON shares decreased by 3.1% and the PN appreciated by 0.3%.

Changes in regulatory framework

• The changes in the regulatory framework did not advance in the first half of the year and PLC 79 continues to remain in the Senate, making it impossible to convert the fixed-line concession obligations into broadband investments;
• There is no sign of a reduction in the tax burden and the Brazilian Telecommunications Federation (Febratel) published this week an advertisement in major newspapers in the country criticizing the use of Fust to subsidize diesel.

Mergers and acquisitions

• The highlight was the United States' approval of Time Warner's acquisition of AT&T, which could make Anatel to impose restrictions on the sale of SKY in Brazil. SeaC Law prohibits the same group from acting in pay TV and in the production and programming of content in Brazil;
• AT&T, controler of SKY, presented to Anatel this week its defense to justify the legality of the merger between the company and Time Warner in Brazil. Anatel's analysis should be extended for at least two months;
• AINMT gave up its participation in Nextel Brasil, which led its controler (NII) to hire an adviser in order to sell its stake in the company;
• The sale of the assets of Cemig Telecom is expected to take place by the end of July.

Competitive operators of fixed Broadband

• The three main providers of Fixed Broadband (Claro, Vivo and Oi) continued to lose market share in the first semester of the year for all the other operators (competitive operators);
• Competitive operators continue to lead the growth of fixed broadband in Brazil with 82.4% of the net additions in the first five months of the year;
• This week Algar Telecom opened an office in Fortaleza (CE), arrival point of the underwater cable in which it has a stake.

Pay TV Streaming

• The offer of pay TV content via streaming is might be accelerated with AT&T's acquisition of Time Warner and the competition between Disney and Comcast for Fox in order to fight against the growth of Netflix;
• In Brazil, cable TV continued to shrink in the first half, losing 145,000 subscribers in the first five months of the year.

From data to voice

• The transition from voice to data was completed in the first half, with data consolidating itself as the main source of revenue for operators;
• Revenue growth is the matter to be observed, since voice revenue losses have less impact on total revenue. In the first quarter, Vivo (1.6%) and TIM (4.8%) presented revenue growth in relation to 1Q17, while Claro (-0.6%) and Oi (-7.3%) presented losses.

Migration from prepaid to postpaid

• The prepaid migration to postpaid control plans was accelerated in the first half with postpaid net additions reaching 4.5 million handsets in the first five months of the year. In the same period of 2017 it totalized 2 million accesses. Panorama Mobile Time/Opinion Box survey pointed out that 62% of postpaid are control plans;
• Migration accelerated prepaid losses of 4.0 million (Jan-May / 17) to 5.5 million in the same period of 2018. TIM continues to be the operator with the highest losses in this segment.

Internet of Things (IOT)

• IoT solutions are growing in Brazil with applications in areas such as asset tracking, smart cities, agribusiness and industry;
• Brazil ended May with 16.7 million M2M terminals, 15.2 million in Dec/17;
• TIM announced that a pilot in NB-IOT started to operate and SigFox is expanding its operations.

MVNOs

• The cellular base of authorized MVNOs in Brazil increased from 781 thousand in Dec/17 to 926 thousand in May and should finish the next semester of 1 million;
• IoT consolidates itself as the great application of MVNOs. 81% of MVNO cell phones are M2M;
• J. Safra is the newest authorized MVNO in Brazil. It will use Claro's infrastructure and had its authorization published by Anatel this week.

Analog TV shutdown

• Analog TV shutdown advanced in Porto Alegre, Florianópolis, Curitiba and major cities in the interior of São Paulo. It has also advanced the number of cities in which the 700 MHz is available for use by operators.

Other Highlights

• 3.1 million telephone numbers were ported in Brazil in the first half of 2018, 21% more than in the same period of 2017. 2.4 million cellular numbers (+ 24.6%) and 711 thousand fixed telephones (+10.4);
• The injunction obtained by ViaSat suspended new decisions of the Justice of the Amazon, but did not annul the previous decisions;
• The Argentine government approved the merger between Telecom Argentina and Cablevisión, of the Clarín group;
• ZTE announced the new composition of its board of directors, one of the requirements of the United States government to suspend sanctions against the company.

1
7/2018

Mobile Telephony, Fixed Broadband and Pay TV, Anatel, Oi and others

Eduardo Tude

Mobile Telephony in May

• Mobile telephony continued to have negative net additions in May (-254 thousand). Net additions of 894 thousand postpaid were not sufficient to offset losses in prepaid (1,148 thousand);
• Claro was the growth leader with net additions of 65 thousand mobile accesses in May/18, followed by Nextel (42 thousand), Oi (38 thousand) and Vivo (27 thousand). The TIM (-438 thousand) had negative net additions;
• Vivo led in postpaid net additions (369 thousand) followed by TIM (212 thousand), Claro (145 thousand), Oi (123 thousand) and Nextel (31 thousand);
• These positions had little change if discounted M2M net additions of these operators. Vivo (198 thousand), TIM (193 thousand), Oi (93 thousand) and Claro (68 thousand);
• TIM led losses in the prepaid (-650 thousand), followed by Vivo (-342 thousand), Oi (-85 thousand) and Claro (-80 thousand);
• 4G already represents 53.5% of the Brazilian handset base (excluding data terminals). There are 116 million 4G mobiles, more than the sum of 3G (71 million) and 2G (28 million).

Fixed Broadband and Pay TV in May

• Claro was the growth leader in fixed broadband in May (+39 thousand), followed by the competitive companies (+33 thousand) and by Vivo (18 thousand). Oi presentes losses of 55 thousand accesses, Fixed broadband registered net adds of 26 thousand accesses in April;
• Pay TV continued to present negative net adds in May (-52 thousand), totalizing losses of 145 thousand accesses in the year. Sky presented the biggest losses (-53 thousand), followed by the competitive companies (-16 thousand). These losses were partly offset by the growth of Oi (+10 thousand), Vivo (+4 thousand and Claro (4 thousand).

Oi

• The Final Balance of Oi's Financial Cashier had reduction of R$ 1,011 million in April/18, totalizing R$ 4,820 million. The payment of the Fistel fee to Anatel significantly affected the Operating Cash Generation;
• Investments reached R$ 536 million in April/18;
•  Oi's ON shares decreased by 3.8% in the week and the PNs by 2.4%.

Other Highlights

• Anatel published its annual report for the year 2017;
• NII Holding, controler of Nextel in Brasil, hired the Rothschild group as an adviser on the sale of 70% of Nextel Brasil shares;
• The government has published in the the Ordinance that establishes the Basic Productive Process (PPB) for semiconductor components that will be used in IoT;
• E-commerce sales in the State of São Paulo grew by 4.4% in 1Q18/1Q17, reaching R$ 4.06 billion. (FecomercioSP / Ebit);
• Telefónica presented the second edition of its Digital Manifesto, a document that points to the fundamentals to guide public policies towards digitalisation in the midst of an environment of strong technological, political and social changes;
• Telefónica acquired in Spain the rights to broadcast the Spanish Championship. This type of acquisition by pay-TV providers is prohibited in Brazil;
• Telebrás' Board of Directors decided to authorize the participation of a legal representative of the company in a new conciliation hearing to be scheduled by the Justice of the Amazon at the request of Via Direta.

Eduardo Tude

President and partner at Teleco (consultancy company), works since 2002 as analyst of Telecom market, coordinating consulting projects, publishing weekly articles, preparing sector reports and presenting workshops.

Telecom Engineer (IME 1978) and MSc. in Telecom Engineering (INPE 81), Tude is member in the Mobile World Congress’s judging commission for the Global Mobile Awards, in Barcelona, and was also a visiting specialist professor at Unicamp.

Tude had many positions in the management of Telecommunication companies in areas like Mobile Systems (Ericsson), Optical Networks (Pegasus Telecom) and Satellites (INPE).

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