Q2 2014 Oi SA Earnings Conference Call (English)

Aug 06, 2014 AM EDT
OIBR4.SA - Oi SA
Q2 2014 Oi SA Earnings Conference Call (English)
Aug 06, 2014 / 02:00PM GMT 

==============================
Corporate Participants
==============================
   *  Zeinal Bava
      Oi SA - CEO
   *  Bayard De Paoli Gontijo
      Oi SA - CFO

==============================
Conference Call Participants
==============================
   *  Paul Marsh
      Berenberg - Analyst
   *  Michael Morin
      Morgan Stanley - Analyst
   *  Sumit Dutta
      New Street Research - Analyst
   *  Rudolf Renault
      RBS London - Analyst
   *  Giles Thorne
      Jefferies & Company - Analyst
   *  Sunil Rajgopal
      HSBC - Analyst
   *  Walter Piecyk
      BTIG - Analyst
   *  Giovanni Montalti
      UBS - Analyst
   *  Carlos De Legarreta
      GBM - Analyst
   *  Eric Oram
      CD - Analyst
   *  Fullerdad Accoroni
      Lorainsile - Analyst

==============================
Presentation
------------------------------
Operator   [1]
------------------------------
 Good morning ladies and gentlemen, thank you for standing by and welcome to Oi SA's conference call to discuss the second-quarter 2014 results. This event is also being broadcast simultaneously on the Internet via webcast which can be accessed on the Company's IR website, www.oi.com.br/ir, together with the respective presentation.

 We would like to inform that during the Company's presentation, all participants will only be able to listen to the call. We will then begin the Q&A session, when further instructions will be given. (Operator Instructions).

 This conference call contains forward-looking statements that are subject to known and unknown risks and uncertainties that could cause the Company's actual results to differ materially from those in the forward-looking statements. Such statements speak only as of the date they are made, and the Company is under no obligation to update them in light of new information or future developments.

 I will now turn the conference over to Mr. Zeinal Bava, CEO. Please Mr. Bava, you may proceed.

------------------------------
 Zeinal Bava,  Oi SA - CEO   [2]
------------------------------
 Thank you very much. Good afternoon and good morning, ladies and gentlemen.

 I will be referring to the presentation that we put on our site this morning. Perhaps I will start on page 4. During this quarter, as I am sure you will have seen in the press release and in the presentation, we remain focused on delivering on the stated business priorities.

 Control our costs, we believe we are controlling our costs. Consolidated OpEx decreased by 6%, excluding the devaluation of the real against the euro and the additional rentals related to the assets that we disposed throughout last year to continue to reinforce our financial flexibility.

 In Brazil, not withstanding a 6% inflation, costs decreased by 2.7%. If one was to exclude the additional rental costs of the asset disposal that we did, the costs would have decreased by 5.2%.

 In Portugal, costs decreased by 4.4% on a recurring basis with a continuous focus on increasing the profitability in that market.

 With regard to CapEx, we continue to invest in strengthening our coverage, increasing our broadband speeds and investing in new businesses such as pay TV in Brazil. However, as we have always said in the past, we want to do more spending less. And we can do that through a much more granular approach to the market, but also network sharing agreements with our peer group companies.

 With regard to asset monetization, that remains on top of our priorities. We have the ambition to be self-funding and we would like to continue to enhance our financial flexibility. The sale of our mobile towers in June 2014 will allow a BRL1.2 billion cash-in in the fourth quarter and that will have an impact of about BRL1 billion in our EBITDA. Obviously, it's non-recurrent, but it's a BRL1 billion impact in our EBITDA in the fourth quarter.

 With regard to synergies, we've identified at least 22 initiatives that we have highlighted for you in this presentation and we believe that a lot more can be done. We -- we believe and we estimate that these initiatives that are now in place and being executed as we speak will allow for an annual run rate of over BRL303 million in terms of impact in our financial performance. I believe and we believe as a team that we can do more, and I will give more color on this later on during my presentation.

 The fifth business priority relates to the business model transformation of Oi. As already shared with the market several times, the business model transformation from a Company that sells mono or single product to multi-product takes time. And obviously moving the Company from voice to data also requires investments and business process reengineering whether we are talking about network, whether we are talking about IT or whether we are talking about field force management.

 We believe that the way that we have started presenting to you information in connection with, for example, our residential segment of the market in Brazil shows that we are moving in the direction of also not only doing more multi-products, more convergence but also reporting in that way as well.

 All-in-all, aligned with our announced priorities OpEx, CapEx under control, we are selling assets and we are looking at various options to accelerate potential disposals of assets to reduce financial risks, enhance our financial flexibility and create option for us to be able to bank on the optionality that exists in the Brazilian market.

 And all-in-all, we believe that then the big challenge for us is to ensure that we do the business model transformation so as to put Oi in the position to grow in the future.

 Let me dedicate a few more minutes on OpEx control. In the second-quarter 2014, consolidated routine OpEx decreased on a pro forma basis and considering the full consolidation of PT Portugal in all the periods, OpEx decreased by 1.9% year on year. If one was to exclude the impact of the depreciation of the real against the euro, which amounted to BRL138 million in the quarter, and the impact of additional rentals related to the asset monetization which amounted to BRL137 million, consolidated OpEx would have decreased by 6% on a comparable basis.

 In Brazil, OpEx decreased 2.7%. If one excludes these additional rentals, the decrease would have been 5.2%. This decrease deflects -- reflects not only lower interconnection costs, but also lower provisions for bad debt and in my view is the testimony of the focus that the Company has had in dealing with cost on all fronts.

 The decrease in provisions for bad debt was achieved through implementation of strict initiatives to improve the quality of sales. You may recall that second quarter last year, we booked significant amounts of bad debt provisions and we indicated clearly that we needed to work in the direction of working those bad debt provisions to levels of about 2% of our sales. We are clearly making good progress in that direction.

 Additionally, through the strong cost discipline, I also would like to emphasize the focus that we are putting on ensuring productivity gains on operations, particularly field force.

 With regard to CapEx, in the first half of 2014, CapEx in Brazil decreased 19%. In the first half, our CapEx amounted to about BRL2.6 billion. We continue to invest in our network and in the development of new services, but we are also being much more granular about it. We are investing in infrastructure of course, but where we can do sharing agreements with established operators, that is clearly the preferred route for us going forward.

 In the first half of 2014, 76% of Brazilian CapEx was directed to network infrastructure. It is worth highlighting that this improvement in quality and coverage of 3G and 4G networks, the investments that we are doing to improve the speeds in fixed broadband as well and the deployment of our TV offering are beginning to have a positive impact not only in the services that we deliver, but also in the perception of Oi as a quality service provider.

 I also would like to mention that we also had to make investments necessary to attend FIFA's World Cup event in Brazil specifically.

 In the first half of 2014 in Portugal, CapEx decreased 31%. CapEx amounted to about BRL167 million in the first half. And that's against the backdrop of strong investments in network modernization that we have made over the last few years. CapEx to sales used to run at levels of around 20% plus. Now we are talking about 10% to 13%, and that's the level where we believe we can run this business going forward, considering that most of the investments have been done.

 Furthermore, the recent agreement that we reached to share capacity in fiber also gives us additional footprint with no additional CapEx involved.

 If one looks at consolidated EBITDA minus CapEx, in the first half of 2014, it amounted to circa BRL1.8 billion and that's a substantial improvement year on year.

 With regard to asset sales, slide 7, throughout 2014 we continued the process of selling non-core assets. This has been clearly a priority for my management team and myself. On the 24th of June, we announced the sale of additional 1,641 towers. And this will translate in a cash-in of BRL1.2 billion that we hope that we will receive in the fourth quarter of this year and will have a positive impact in non-recurring EBITDA of about BRL1 billion.

 In second-quarter 2014, the sale of non-core assets had an additional impact on rentals amounting to about BRL137 million. These transactions, we believe, allow us to extend the maturity of our debt and also optimize financial costs. Bayard later on will refer to this specifically and will highlight that we are currently analyzing all options available in order to continue to monetize assets, so that we can enhance our financial flexibility to reduce financial risks and to continue to invest in growth opportunities and optionality in the Brazilian market.

 With regard to synergies, one of the business priorities is to clearly crystallize the synergies from the combination of Oi and PT Portugal. In this context, it is important to highlight the 22 initiatives that already represent an annual run rate of synergies of about BRL303 million. I could take a lot of time going through each one in detail, but allow me perhaps just to mention procurement.

 We are now beginning to procure just as one Company independent of the geography. I can also mention to you the work we are doing in B2B around cloud services. I can mention to you obviously the work that we are doing around customer care, in particular in taking advantage of software and services that we've developed that allow us to analyze and screen technical failures remotely. And last but not the least, the advantage that we're also taking from the shared services platform that we have, particularly in Portugal, to in-source certain functions and make sure that we can translate productivity gains into cash flow savings as well.

 So 22 initiatives identified, we will keep you updated on this and we believe that annual run rate is certainly above BRL300 million, and we believe that we can crystallize this and we can achieve this in 2015.

 With regard to financial flexibility, Oi with Portugal Telecom continues to show a solid liquidity position. By the end of June 2014, Oi had consolidated cash of circa BRL6 billion and available lines of circa BRL11 billion, thus achieving a total liquidity of more than BRL17 billion.

 At the end of second-quarter 2014, our consolidated net debt was about BRL46 billion. Consolidated free cash flow was negative BRL300 million. That's a major improvement compared to the second quarter of 2013 when our free cash flow was negative BRL1.3 billion.

 This performance in terms of cash flow just shows the alignment that we have and the focus of our team in ensuring that we can turn cash flow positive sooner rather than later.

 With regard to the transformation of our business model, in a nutshell, what we would like to do in Brazil is more convergence and more data, similar to what we have been able to do in Portugal. But we will have to be much more granular considering the size of this country, but also considering the infrastructure that we have in place in every single state. We are present, as you know, in 4,800 municipalities with fixed-line infrastructure and we need to bring to bear that advantage in making sure that we can crystallize that advantage into superior performance in terms particularly of broadband and TV.

 In the SMEs and large corporates, the focus is on data, IT and cloud services, also taking advantage of synergies with PT Portugal. I will come back to that a bit later.

 Allow me now to move to Brazil and focus specifically on the residential segment of our market. Regarding the residential segment, we've been focusing on the development -- we've been focusing on the repositioning of our offer away from single product to multiple products. I'd like to say bundles as opposed to convergence because work is still being done at the IT level in order to allow us to transform bundles into true convergence where the consumer can have a unique experience seamlessly.

 So with -- in that regard, I think the relaunch of the Oi pay TV was absolutely critical in late March, early April this year. Pay TV, we believe, will allow us to differentiate our value proposition and will also allow us to underpin the sales of double play and triple play services in this market as well.

 Also it is worth mentioning our strategy in this segment is to actually continue to simplify our offers so as to ensure that we can continue toward customer satisfaction to higher levels than in the past.

 If one looks at slide 12, as a result of this service bundling strategy in the second quarter of 2014, the weight of households with more than one service subscribed to Oi reached 60%. This is a growth of 3 percentage points compared to the second quarter of 2013.

 Oi Voz Total, it's a service that bundles mobile voice and fixed line, it's already subscribed by 1.5 million customers. And those customers that subscribe basically take on the SIM cards and the average number of SIM cards has grown from 1.2 second quarter 2013 to 1.5.

 In this context, obviously residential ARPU has also been growing and broadband and pay TV revenues continue to show growth albeit at a level that we believe is still not sufficient to compensate for the decline in our traditional landline business.

 We believe that both in broadband and in pay TV there is still a lot to do, particularly bearing in mind Oi's extensive territory coverage, the 4,800 municipalities that I referred to earlier. Broadband and pay TV growth is key to mitigate these secular trends in the landline and we've seen that happen in other markets and Brazil will not be different in that regard.

 Slide 13, worth mentioning that the new pay TV offer that we launched has been extremely well received by the market. The pay TV gross adds increased 66% quarter on quarter. The Oi TV growth is key to underpin the multi-product strategy. It will drive broadband sales and it will certainly lead to higher loyalty to the landline service that we offer as well.

 Broadband gross adds were down, but there is an explanation for that in part. And part of the explanation has to do with strikes that we saw happen particularly in Bahia and in the southern part of the territory, less working days in June and the work that's been done in the new field force and service provider management system, which is now being rolled out in larger territories in Brazil and is still subject to consolidation in terms of reaching full speed, which we think will happen until the year-end.

 We've already put in place a plan that we believe will look to address the fixed line and broadband installation and maintenance capacity while slightly intensifying commercial momentum through high media presence, more door-to-door popularity and of course the revision of the commissioning policy so as to ensure that the focus is clearly on multi-product.

 Slide 14. In terms of mobility, after a period -- with regard to mobility, perhaps I will mention this, start with personal prepaid. With regards to personal mobility, we continue to grow in the quarter, both in terms of customers and in terms of revenues. Prepaid and data were both growth drivers. Namely, if you look at mobile Internet slide 14, mobile Internet revenues were up 101% compared to the same period last year. Personal mobility revenues were up 6.5% year on year showing a strong take-up vis-a-vis first-quarter 2014.

 Slide 15 specifically on prepaid, the prepaid segment has been the growth driver for us in personal mobility. The prepaid has intrinsic characteristics that we like. No customer acquisition costs, no billing and collection issues, no bad debt issues and a positive impact in terms of working capital. We adopted that from the third quarter last year, an investment strategy consistent with the priority of growing our prepaid customer base focusing not just on voice but also on data, particularly focusing on those customers that we believe have an active consumption of data services and a different recharge profile.

 We launched certain services like Oi Galera and Tudo por Dia. These are essentially prepaid offers that stimulate recharges, but also promote the use of data and SMS packages. In this context, I would like to highlight that the recharge has increased 7.2%, not withstanding less working days in June, accelerating when compared to first-quarter 2014, benefiting not only from the prepaid annual base -- the prepaid annual base growth of 3.9%, but also from the growth of the average recharge ticket of 10.8%.

 The recharge growth also benefited from the use of what we call a tool here, which is the Active Campaign Management tool. This allows us essentially to manage recharge campaigns through a one-to-one marketing concept, creating and executing and managing campaign based on customer's profile, thus improving the context and the relevance of our promotion. Obviously, ACM is a tool that we use below the line.

 With regard to postpaid, after a period in which we focused in restructuring our sales channels and beefing up control processes in order to bring down bad debt provisions, we are now promoting again the postpaid, but through a service that we call Oi Controle. This Oi Controle is a plan that consist of a fixed mobile affordable offer that includes unlimited on-net calls to fixed and mobile in Brazil for circa BRL29.9 a month. This also includes about BRL10.9 a month to be used for the services including off-net calls, and about BRL0.75 a charge a day for data, SMS, and Wifi usage. The payment of the service, and this is the relevant point, is made by credit card. Thus, we believe that by using this credit card, despite it is a postpaid offer, we will continue to benefit not only from higher ARPU and lower churn, but we will also stay away from any potential issues of bad debt.

 Incidentally, the growth in postpaid in the Brazilian market in the last few quarters has been very much on the back of similar products that use credit card as a payment method. With this focus on postpaid customers now, we saw our client base grow 2.3% year on year.

 Turning now over to B2B, this is slide 17. In B2B, we would like to highlight that the turnaround process of the SME segments is well in the -- well underway and in line with our stated plans. The first stage of this restructuring was to focus on the improvement of sales quality. And that led us to change our partners in terms of franchises, commissioning policy, and also it led us to implement quality calls to ensure that customers can actually confirm the service that they bought, and to make sure that whatever we install is in line with whatever they bought as well.

 The second phase consisted of enhancing our competitive positioning in the market by being also more aggressive in the point-of-sale. The third, and the last phase of this transformation will lead us to focus much more in the increase of productivity of the sales channels. And this is clearly one of the focuses in the fourth quarter of this year and first quarter of next year.

 As a result of the work that's being done, we saw an increase of about 25% in gross additions in the second-quarter 2014 compared to the first-quarter 2014. We believe that this is a direct result of the new convergence offers that we have already put in the market. The share of bundled offerings in total mobile gross additions improved from 6% in December 2013 to 26% in March and 50% in June, 2014. This, in my view, also underlines the attractiveness of the convergence strategy and product offering to customers of the segment.

 It is also worth highlighting that the churn in the SME segment has been decreasing. And in the second quarter of 2014, we had the lowest level of disconnections since the fourth quarter of 2012.

 Slide 18, just to mention on the B2B a few highlights for you. First is that with regard to the focus around data center, cloud, and IT we saw 22% annual growth in terms of IT. And we saw so the increase of the contribution from non-voice services to reaching about 60%, which is about a 3 percentage point improvement compared to the second quarter of last year.

 So IT revenues were up 22%, new services contracted were up 176%, non-voice revenues are now 60% of the overall revenues of this segment.

 One additional point I would like to make on page 19 is that in June 2014 we were the official provider for telecom and IT services of FIFA's World Cup. We served FIFA and FIFA's corporate network and media services, including cables and wireless Internet and phone solutions for the media. We offered data and voice communications to meet FIFA's requirements, and media in more than 70 events in about 12 cities that hosted the World Cup.

 As you will have seen certainly from the press, the traffic, the volumes were absolutely amazing. And the good news is that Oi was able to deliver these services with quality. In fact, FIFA recognized the high quality of the services that Oi provided in this very complex and very visible event. I also would like to, in this call, highlight the incredible work that was done by the Oi operational team across the board in order to ensure that the World Cup was successful in Brazil in what concerns technology, in what concerns telecoms, and IT as well.

 Turning now over to Portugal, just to mention a few things, slide 20. M4O continues to be a strong commercial success. It has now reached 2.2 million RGUs. It has been an anchor service to transform the consumer market in Portugal. It has allowed Portugal Telecom to differentiate its offering in that market and to take advantage of the first mover advantage. The focus has shifted from prepaid to postpaid. And of course, this differentiation of Portugal Telecom's offering has also resulted in consistent market share gains, given that 42% of M4O gross adds are new customers to Portugal Telecom.

 Of the 2.2 million M4O RGUs, about 1 million are SIM cards mobile with 42% of the customer subscribing to more than two SIM cards, which means that basically M4O is a family plan. In the mean time, we have progressed this offer to include also data as well, additional data. And, therefore, we've already moved M4O to M5O as well.

 Slide 21, with regard to the personal mobility customer segment, it has continued to gain market share, notwithstanding high levels of penetration in the Portuguese market. Since the launch of M4O in January, postpaid net adds have consistently been above 100,000 per quarter. This is a paradigm shift in the Portuguese market. And also worth mentioning, the increasing weight of flat fees and data revenues, which today already account for 50% and 41.7% of the total customer revenues respectively.

 Also would like to highlight the 2.5 percentage point market share gain. Portugal Telecom now has 48% market share in a market environment where the number of active SIM cards also fell 2.4% due to increased popularity of on-net offers.

 Slide 22, in the B2B segment in Portugal, perhaps I would like to emphasize the ongoing business transformation towards convergence and high value added services. Convergent customers in Portugal also rose 6 percentage points and the contribution of non-voice services in this segment's revenue has increased 5 percentage points to 58%. The revenue decline improved when compared to the previous quarter, from minus 6.6% in the first-quarter 2014 to minus 5.7% in the second quarter of 2014. The performance, however, in this very challenging segment continues to be penalized by market condition.

 Slide 23, notwithstanding intense competitive pressure, revenues from the Portuguese Telecom businesses improved when compared to previous quarters; 4.5% year on year in the second-quarter 2014, and that compares with minus 6.1% in the first quarter of 2014. Incidentally, this was the best performance that we have booked over the last six quarters.

 In the B2C segment, there was also an improvement in revenue trends; 3% revenue decline in the second quarter, improving versus the previous quarter, which was minus 3.5%. As I mentioned before, MEO, M4O, M5O continue to contribute decisively to market share gains, both in triple play and in mobile.

 Several indicators continue to demonstrate the success of the transformation we have already implemented. Non-voice revenues in Portugal already represent 55.4%, increasing 2.6 percentage points year on year. The weight of flat fees stood at 90.3% in the residential segment and at 50% in the personal mobility segment, thereby enhancing revenues and making the profile a lot more resilient in terms of the future.

 Let me now hand you over to my CFO so he can shed more light on the financial details of the announcement that we put out this morning. Bayard, please. Thank you.

------------------------------
 Bayard De Paoli Gontijo,  Oi SA - CFO   [3]
------------------------------
 Thank you, Zeinal. Good morning everyone. I will start showing Oi's financial review on page 24. Firstly, I would like to mention that due to the capital increase closed at the end of April, since May PT Portugal assets are being consolidated as Oi. To the best understanding of these second quarter results, we are presenting pro forma numbers for most of the information.

 Now moving to slide 25. Pro forma net revenues totaled BRL9 billion at the second quarter of 2014, an increase of 0.4% in comparison with the same period of last year. Net revenues from Brazil amounted BRL6.9 billion, reflecting a drop of 2% year over year. Excluding the impact of the MTR cut, revenues increased 0.7%, despite the low number of working days related to FIFA's World Cup.

 It's worth highlighting that personal mobility customer revenues grew BRL103 million on the back of the increase of the Oi Controle base of clients and the prepaid recharges as well as improvements in data usage, mainly mobile Internet.

 Mobile data revenues grew 36% year over year and already represents 28% of the personal mobility customer revenues.

 Regarding the residential revenues, the performance reflects both fixed line base partially offset by higher broadband and pay TV revenues. Oi remained with the focus on sales of bundled services combining fixed line, broadband and TV. At the end of the quarter, 60% of the households served by the Company had more than one Oi product.

 The revenues in B2B segment, corporate and SMEs were also impacted by a lower number of working days in the quarter and does not reflect yet the work on turning around the SME segment by revising commissioning model, developing and aligning sales channels, redesigning the offers and improving productivity.

 With regard to Portugal, net revenues totaled BRL1.9 billion. However, excluding FX impact, net revenues dropped 3.4% year over year. The revenue performance was penalized by a deteriorating trend in the consumer segment, mainly explained by lower equipment sales and also by the competitive dynamics and pricing pressure. It's worth highlighting that customer revenues from Portuguese telecommunication business decreased 4.5% year over year, presenting the best performance in the last six quarters.

 In slide 26, we show the evolution of our routine pro forma OpEx with a reduction of BRL124 million in comparison to second-quarter 2013, totaling BRL6.6 billion. Excluding the incremental costs related to asset disposed and FX impact, costs and expenses dropped 6%. The main reasons for this performance were the rollouts in Brazil of initiatives to control OpEx that were already implemented in Portugal as follows.

 Reduction in the mid-sales and churns, improvement in clients' retention, accounts receivable and back office, efficient sales in Q4, increased utilization of online billing, among others. These savings were partially offset by a higher marketing cost due to the World Cup and personnel costs mainly due to the insourcing of internal plant maintenance operations and the collective bargaining agreements signed in last December.

 Now I'll detail the main OpEx items that had relevant changes in the year-over-year comparison. The drop of the interconnection costs is due to both MTR cuts, which resulted in lower costs of BRL183 million, and lower SMS and mobile voice off-net traffic, as a result of the successful offers based on on-net traffic in Brazil.

 The reduction in plant maintenance costs was due to the insourcing of internal plant maintenance operations in Brazil that on the other hand had increased personnel costs as already mentioned.

 The reduction of BRL142 million in provisions for bad debt is a result of the improvement in the quality of sales. Rent and insurance expenses moved up BRL151 million, excluding the incremental costs related to the asset disposed in 2013.

 This increase was mainly due to higher expenses with the rent of satellite capacity, higher expenses with car rentals and insurances related to the internal plant operations and the annual contractual adjustments by inflation.

 Moving on to slide 27. Routine pro forma EBITDA moved to 6.9% year over year, totaling BRL2.5 billion. The routine margin stood at 27%, 1 percentage point over the quarter ended June 2013.

 Routine EBITDA from Brazil amounted BRL1.6 billion, reflecting a growth of 0.4% year over year, mainly due to the focus on cost control as already shown. The non-routine effect in EBITDA is explained by the recovery of ICMS tax.

 Routine EBITDA from Portugal totaled BRL782 million, 24.5% higher compared to the same period last year. Excluding the FX impacts and the adjustments in second-quarter 2013 to reflect the alignment of reporting criteria, the routine EBITDA decreased 2% year over year.

 The slide 28 shows the investments made by the Company. In the second quarter of 2014, we invested in Brazil and Portugal BRL1.7 billion. In Brazil, the focus was the improvement of the quality and coverage of 3G and 4G, the infrastructure for the supply of IT and communication services to the World Cup, the investments to improve quality and speeds of broadband, and investments in infrastructure and in customer equipment related to the rollouts of the TV services.

 It is important to mention that CapEx in Brazil was done into a more granular approach to investment process, with the new models of contracting suppliers and increased focus on infrastructure sharing. CapEx from Portugal decreased mainly due to lower investments in IT projects, infrastructure and technology as a result of the strong investments made in the past two years, both in FTTH and 4G LTE networks.

 Operational cash flow totaled BRL795 million, an increase of 110% year over year. The continuous improvements in operation -- operational cash flow shows management commitment to leverage control and financial discipline.

 Moving on to slide 29. We show the net debt evolution quarter over quarter. It's important to highlight that the information available in this slide is based on the statutory accounts consolidating PT Portugal as from May, not considering the cash investment in commercial papers of Rio Forte, which is expected to be delivered to Portugal Telecom SGPS in exchange of Oi's common and preferred shares as already disclosed by the Company through material facts.

 Although still pending corporate approvals and the authorization from CVM, the regulator in Brazil, consolidated net debt amounted BRL46.2 billion. Considering only the daily operation activities, Oi's net debt increased BRL300 million compared to an increase of BRL1.3 billion in the same period last year.

 In the next slide, we present our liquidity position that at the end of June totaled BRL17.4 billion, considering cash and credit lines available and approved to be disbursed at any time. The short-term funding requirements are low. Also around 40% of the total debt is due in 2019 onwards and the average debt maturity is four years.

 Moving on to slide 31, we present Oi's cash investment policy. The main priorities of the Company are liquidity, diversification and security of the capital. To keep it, Oi has concentration limits per issuer and rating restrictions as well as the obligation to report monthly to the financial risk committee, an internal group with the participation of executives from several departments of the Company, and every two months to the Board. The same policy was implemented in PT Portugal as well as you can see in the next slide. However, in this case, we need to adapt the rating parameters to the Portuguese sovereign risk context.

 I will now turn back the presentation to Zeinal for his final remarks. Thank you.

------------------------------
 Zeinal Bava,  Oi SA - CEO   [4]
------------------------------
 Thank you, Bayard. With regard to -- as a conclusion, so we can quickly start doing Q&A. Allow me to say the following.

 With regard to business priorities, I would like to say that with regard to the five business priorities that we have shared with the market; OpEx control, CapEx control, asset monetization, synergies and business model transformation, we believe that we continue to deliver in line with and in fact I think you saw in the results that we put out that personal mobility performance has been better. Cash burn has been lower. Synergies are coming through. We are executing the asset disposals. And as my CFO said, we are looking at ways in which we can continue to dispose off assets, very much in line with what we have said in the past, to reduce or to enhance our financial flexibility so that we can reduce our financial risks and continue to invest in growth opportunities and in the market, particularly in Brazil.

 We continue to invest very much in our business. But of course deliver also on the numbers that we have seen out there as consensus. So I would say that when it comes to business priorities, those will be our priorities and we will continue to bring updates to the market quarter after quarter.

 Even though the -- it's not the purpose of this conference call to discuss other exogenous issues, I would like to perhaps make a few remarks about the Rio Forte issue, given its significance during these most recent weeks. Prior to that, however, I would just like to say that the material information regarding this matter, particularly what concerns the MoU and the definitive terms of the transactions have already been detailed in the material facts of Oi that were released in July. On this matter, I would like to emphasize that the Company promptly adopted the necessary measures and acted with appropriate care to protect the interest of its shareholders.

 The proposal, which is what we were able to negotiate with Portugal Telecom, is subject to the approval of the general meeting of PT SGPS, the holdco, the Boards of Oi and Telemar and in addition it is still also subject to authorization of the Comissao de Valores Mobiliarios for the exchange and the call option to be given to PT SGPS. We believe that this agreement in the current scenario is more likely to create the best results for the Company in terms of the future.

 Therefore, I believe that it's perhaps not convenient at this stage to discuss in this call the Rio Forte issue and we hope that we can focus just on the earnings release and I very much would like to in advance thank you for taking this into account.

 I also would like to mention that yesterday the Board of Oi approved the changes that we as management proposed for the governance structure of PT Portugal. We would look to implement these changes in the next up to 30 days, but sooner rather than later. As was -- as was approved yesterday in the meeting of the Board of Directors of Oi, the main objective of this change is to ensure that we integrate completely both companies sooner rather than later, particularly in what concerns treasury management, finance control, et cetera, as was mentioned by Bayard.

 We believe that in addition to that, by combining the teams and by promoting this new governance structure, we can have a management team that continues to be focused in delivering on synergies, better financial flexibility, the Oi turnaround and continue to work to ensure that we can take this Company to Novo Mercado and make this Company a corporation as always been our objective.

 The new CEO of PT Portugal will have a direct report to me. The finance team of PT Portugal will have a direct report to the CFO of Oi, Bayard. And we believe these changes are helpful in the sense that it will help us to reinforce the day-to-day management of the Portuguese business while allowing myself and Bayard to continue to oversee all the major strategic and financial decisions of PT Portugal in the future.

 Thank you very much for being in this call and of course my team and I are now available to answer any questions that you may have. Thank you.

==============================
Questions and Answers
------------------------------
Operator   [1]
------------------------------
 Ladies and gentlemen, we will now being the answer session. (Operator Instructions). Paul Marsh, Berenberg.

------------------------------
 Paul Marsh,  Berenberg - Analyst   [2]
------------------------------
 Thank you very much. I guess I have three questions here. I wonder maybe if you could give us update on the Portuguese market environment from a pricing perspective. Vodafone obviously has been fairly aggressive in the market. [NOSH] has been targeting the SME in the corporate space. I just wonder if you're seeing changes into the third quarter and particularly if you're expecting the deal that you signed with Vodafone to actually lead to any changes in the pricing environment.

 And then secondly, just coming into Brazil on the spectrum auction, may be you could just give us an update with where you think we are now in terms of the timing of the auction and I guess Oi's intention to bid in the auction. I guess we're assuming that Oi is intending to bid, but may be you can confirm that. And then, I wonder if you just had any observations on the move made by Telefonica with GVT and any implications or options that Oi may face in coming months and years arising out of that move?

------------------------------
 Zeinal Bava,  Oi SA - CEO   [3]
------------------------------
 Okay. Thank you, Paul. With regard to the Portuguese market, the agreement that we signed with regard to sharing of capacity with one of the local companies there in my view is a step in the right direction because it brings rationality in terms of where we are investing and also we believe it perhaps brings the coverage of both companies to a level where perhaps going forward the focus has to be in terms of the profitability of the business because clearly we have work to do in that regard. We are not seeing any major changes in terms of the environment.

 Having said that, it is worth mentioning that, we continue to post pretty strong performance in terms of postpaid net adds. We had 130,000 postpaid net adds in the second quarter of 2014. And when you look at, for example, second quarter of 2012, we had minus 4,000. So we have actually -- with the launch of the convergent offer on the 11th of January of 2013, we've made a step change in terms of postpaid net adds from roughly, pretty much zero to about 100 to plus 1,000 every quarter. And this is why our market share is growing, this is why the market share in Portugal is about 48% right now.

 Clearly, our focus -- we are quite happy with the current market shares that we have. Our focus is in ensuring that we can improve the profitability in that market. We continue to enjoy high levels of notoriety of our brands and we continue to enjoy a substantial lead in terms of innovations. So we will continue to work very much in line with what we have done before, which is to enhance the value proposition that we are offering to our customers, the convenience of dealing with the Company that is by far the leader, whether we are talking about triple play, quad play or mobility, and that will remain our focus. And therefore, we hope that this recent agreement that we have signed will work in the direction of making that market more financially sustainable in terms of the future.

 With regard to the auction, I think you probably are following. There have been some legal issues about the publishing of the final terms and conditions of the auction. We will await to see the final terms and conditions of that auction to take a view at the management team level and at the Board level of Oi. So, at this stage, I think it's too early to make any comments other than to say that we will look to be rational and notwithstanding the fact that we believe that we need to continue to invest in our business, but we have to be with clear targets of the returns that we need to achieve as well.

 With regard to consolidation that and the recent move in the Brazilian market, as we have indicated in the past, the consolidation is something that may allow the profitability of the market to improve, may allow thus as a result companies to generate more cash so that companies can continue to invest in their business. We believe that we have very little to comment obviously on this deal that has been announced. We are focusing in our own turnaround and as my CFO said, we are also focusing in ensuring that we can look at all the strategic options available so that we can continue to dispose off asset that allow us to enhance our financial flexibility so that we can also keep the optionality associated with potential future investments in the Brazilian market. Thank you.

------------------------------
 Paul Marsh,  Berenberg - Analyst   [4]
------------------------------
 Thank you very much.

------------------------------
Operator   [5]
------------------------------
 Michael Morin, Morgan Stanley.

------------------------------
 Michael Morin,  Morgan Stanley - Analyst   [6]
------------------------------
 I just wanted to focus on your leverage and your liquidity for a second. If we analyze your second quarter routine EBITDA, we get to a run rate of about BRL9.9 billion. So with BRL47 billion of debt, that's leverage of about 4.7 times. So I just wanted to see if you are comfortable, if you think that that's a fair analysis of annualizing the routine EBITDA levels?

 And then on liquidity, you have BRL17 billion of available liquidity. But you also have BRL17 billion of debt maturities over the next 2 1/2 years. So, I think you had previously guided that free cash flow breakeven would be reached by the end of 2016 and now that you have less cash than expected, I'm assuming it's going to be a little bit tougher to get to that free cash flow breakeven by year-end 2016. So I guess the question is what's the plan here to make sure that you don't run into a liquidity problem over the next three years?

------------------------------
 Bayard De Paoli Gontijo,  Oi SA - CFO   [7]
------------------------------
 This is Bayard speaking. Well, let's talk by the leverage question here. Well first, the way we measure covenants and the way we were supposed to measure covenants, it's not by the routine EBITDA, it's by the reported EBITDA. Therefore, as I mentioned in the Portuguese call, we have as of today an index of 8 -- 3.8 times gross debt to EBITDA. So it's comfortable, we are far below of our limit of 4 times.

 In regard to the liquidity, I mean as we mentioned in the presentation, we have around BRL17 billion of liquidity, which gives us as well a comfortable position together with the cash position that we still have within our two companies. Therefore, in our view, leverage is controlled, liquidity is adequate for the size of the companies.

 Regarding the target that we -- or the indication we gave to the market in terms of free cash flow, we still are confident that we are going to be able to achieve that by the end of 2016 because all the objectives in terms of operations, all the goals we have, they are still available, they are still our targets. Therefore, I don't think we have to move that target to other dates.

 We are still analyzing and discussing asset disposals. We still have assets to sell, as we've been doing over the last months. We sold, as you know, a submarine cable that we used to have, the GlobeNet Company, mobile towers, fixed towers and we still have some assets to sell.

 Towers, real estate, even towers in Portugal can monetize as well. So we are analyzing all the alternatives to enhance our financial flexibility and even to move forward with further deleverage of the Company.

------------------------------
 Michael Morin,  Morgan Stanley - Analyst   [8]
------------------------------
 Thanks Bayard, that's very helpful. And just a follow-up on that. I think in the past you've given the financial impact of the asset sales on routine EBITDA. I was wondering what -- if you could share with us what the impact will be of the most recent tower sale on your 2015 EBITDA?

 And also, you made some accounting changes that I think were mentioned on page 2 of the presentation. I was just wondering if you can actually quantify some of the major impacts there. Thank you.

------------------------------
 Bayard De Paoli Gontijo,  Oi SA - CFO   [9]
------------------------------
 Okay. The impact of the tower sales that we closed at March end and we will actually settle in December, it's going to be around BRL1 billion.

------------------------------
 Michael Morin,  Morgan Stanley - Analyst   [10]
------------------------------
 Okay sorry, what the incremental expense, sorry, is what I meant.

------------------------------
 Bayard De Paoli Gontijo,  Oi SA - CFO   [11]
------------------------------
 It is -- let me just check here. We haven't disclosed yet this information. But we will give you to the market later. So we will get in touch with you and the market to explain.

------------------------------
 Michael Morin,  Morgan Stanley - Analyst   [12]
------------------------------
 Okay.

------------------------------
 Bayard De Paoli Gontijo,  Oi SA - CFO   [13]
------------------------------
 And the other question I'm sorry, it was about the accounting policies, right?

------------------------------
 Michael Morin,  Morgan Stanley - Analyst   [14]
------------------------------
 Yes. You mentioned something on page 2 of the presentation, but we didn't really go over that in the prepared remarks.

------------------------------
 Bayard De Paoli Gontijo,  Oi SA - CFO   [15]
------------------------------
 Let me just check here on the page 2 what we -- what we had. I think it's basically here that we are now consolidating PT Portugal under Oi and we have changed the way we used to book Unitel assets to a fair value right now. And for that, the -- I think that those are the only changes we have from the previous announcements of Oi. So it is basically we are now consolidating PT Portugal and we have changed the way we used to book Unitel assets for fair value.

------------------------------
 Michael Morin,  Morgan Stanley - Analyst   [16]
------------------------------
 Okay, I will follow-up offline to see if we can get the actual numbers that were changed. Thank you.

------------------------------
 Bayard De Paoli Gontijo,  Oi SA - CFO   [17]
------------------------------
 It is on the -- on the fair value, it's around BRL4 billion. So the fair value of Unitel, it's around BRL4 billion. But again, we can catch up later.

------------------------------
 Michael Morin,  Morgan Stanley - Analyst   [18]
------------------------------
 Okay, thank you.

------------------------------
Operator   [19]
------------------------------
 Sumit Dutta, New Street Research.

------------------------------
 Sumit Dutta,  New Street Research - Analyst   [20]
------------------------------
 Just two or three questions please. First of all, just on Angola, you're no longer accounting for that as a sort of an equity asset? And could you sort of explain if anything changed there and could you maybe give any update on what might be happening there in terms of the disposal? I think you have a -- you're certainly looking into that.

 And secondly, on the DTH business, the momentum there has improved. You're looking at I think 3,000 daily sales you said and could you may be one, talk a little bit about where the growth could go going forward? And also, give a sense as to did that overall have -- what kind of negative impact did that have on profitability in the second quarter, presumably it did negatively impact numbers?

 And then just finally, on just a detailed question, slightly detailed on net debt. The net debt number you quote for Q1 on slide 29 of the presentation, I think BRL43,612 million, that seems to be slightly different than the one that you quoted for pro forma debt in the Q1 presentation, which was about BRL1 billion or so lower. I just wondered -- maybe I am sort of looking at those numbers incorrectly. I just wondered what the difference was between those two numbers. Thank you.

------------------------------
 Bayard De Paoli Gontijo,  Oi SA - CFO   [21]
------------------------------
 Okay. Let's start by the net debt numbers here. The difference that we have here from that number that we presented in the slide 29 from the one you probably saw in the capital increases is basically because this is a May figure while the other one was April figure, so that's the only difference. Okay.

------------------------------
 Sumit Dutta,  New Street Research - Analyst   [22]
------------------------------
 Okay.

------------------------------
 Bayard De Paoli Gontijo,  Oi SA - CFO   [23]
------------------------------
 Regarding Unitel, the accounting procedure of Unitel, what we think is that in the context of this new -- this new consolidation of PT Portugal by Oi, we do not have at this stage material influence on the Board of Unitel. Therefore, the right way to account that is fair value. So that's the only reason.

 We are doing our homework in terms of all the shareholders' agreements and everything that governs the relationship and we will see how it evolves. But at this moment, for the time being, the right way we see for accounting that asset is fair value.

------------------------------
 Zeinal Bava,  Oi SA - CEO   [24]
------------------------------
 Let me now perhaps take on the operational, the two operational questions. Obviously, the DTH performance is very encouraging. Although what we would like to do is to underpin broadband sales and landline sales on the back of the attractiveness of our TV offer. We are not there yet and it has a lot more to do with the fact that from a field force standpoint, we cannot yet integrate the three services as one. But we are moving in that direction.

 In fact, we expect that November this year -- sometime in November this year, in some sales channels, in some states, we will be able to issue what we call one installation requirement for three services. So it will be a big test on our organization to be able to send one field force guy to be able to implement and install three services as one in one go. That's a big step change.

 But like I said, we will test that around November and I would expect that around sometime in 2015 this will become more common practice at Oi.

 You rightly pointed out that the launch of such a service has start-up costs that are pretty significant. In fact, when you look at our P&L, you certainly will see programming costs weighing a lot more. Obviously, these programming costs have to be depreciated over a number of [subs] which in our view, have not yet reached critical mass. So when you compare us to other companies that are in the pay TV business, clearly the programming costs per subscriber is significantly higher. But we think that over time this will certainly improve.

 Furthermore, you will certainly will have seen as well that our rent and insurance has picked up and part of that is because of the higher expenses that we have with the rental satellite capacity in connection with the SES-6 satellite that was launched in 2013. So we have upfront costs associated with the satellites. We have upfront costs associated with the programming. But I would say that these are the costs that we will have to bear in order to move in the direction of making Oi a triple play and quad play operator, which we believe is the way that this market is going to go in terms of the future.

 I wouldn't like to make a forward statement with regard to how much sales that we are going to be doing with DTH, but what I can say is that the results have been very encouraging. And when you look at in a granular way in those areas where we are competing against some companies that, for example, don't have the kind of content that we have or the kind of HD offer that we have, our share of net adds in my view has been better than we ourselves had anticipated. So it is our firm belief that we need to continue to gather pace in selling pay TVs, but certainly this is not an end in itself, it's means to end. The end game for us is to become a triple or quadruple play Company over a period of time. But that will only happen over the course of 2015. Thank you.

------------------------------
 Sumit Dutta,  New Street Research - Analyst   [25]
------------------------------
 Thank you.

------------------------------
Operator   [26]
------------------------------
 [Rudolf Renault], RBS London.

------------------------------
 Rudolf Renault,  RBS London - Analyst   [27]
------------------------------
 I cover the credit side of things and obviously post the downgrades that followed the Rio Forte CP non-payment, I was wondering whether you target to regain investment grade ratings at some point and over what timeframe?

------------------------------
 Bayard De Paoli Gontijo,  Oi SA - CFO   [28]
------------------------------
 Thank you, Rudolf. I mean, we are working very hard to improve the financial flexibility of Oi throughout asset sales, throughout OpEx control, throughout CapEx control. Of course, we don't think that we are going to regain that investment grade in the short term. It is a work that we're going to have to do, present the evidences of improvement and then regain the confidence of the market and rating agencies as well.

 We are very close to the three rating agencies. We have close contact with them, every month we speak with them. Well, this is the work we're going to continue to do. We're going to show what we're doing, present the figures and let's see how we can manage to regain the investment grade, which is extremely important for our Company in a capital-intensive industry. So this is how we plan to manage that.

------------------------------
 Rudolf Renault,  RBS London - Analyst   [29]
------------------------------
 Thank you.

------------------------------
Operator   [30]
------------------------------
 Giles Thorne, Jefferies & Company.

------------------------------
 Giles Thorne,  Jefferies & Company - Analyst   [31]
------------------------------
 Thanks for taking my question. I just had one question. As you look at your three competitors, you each have very high quality fixed infrastructure in most of your regions coupled with the likelihood that the test could be about to gain GVT's quality footprint outside of its core Sao Paulo region. If you look at your fairly limited pie of the footprints and overwhelming reliance on corporate and while that you're under invested in fixed, while also being exposed to an acceleration medium term in fixed to mobile substitution with the new and aggressive MTRs that have been proposed, do you think -- do you think your pay TV offering which obviously circumvent all these issues because it's delivered by satellite is compelling enough to outweigh these other issues? Thanks.

------------------------------
 Zeinal Bava,  Oi SA - CEO   [32]
------------------------------
 Thank you very much. As we have explained in the past, we look at this market within those areas where we have intense competition or areas with high concentration of people and low concentration of people. And in that regard, I think when you look at the coverage of Oi, what you see is that half of the market -- we're perhaps in areas with low density of people and half of the market where we've high density of people.

 In those areas where we have high density of people, the strategy is very simple. Provide people with more value for money and continue to improve speeds of Internet access and work towards providing them infrastructure possibilities or technological solutions whereby we can, for example, work the condos and so on and so forth using coax and even fiber for that matter. Obviously, that needs to take into account the fact that we need to achieve certain levels of penetration and ARPUs and so on and so forth.

 So I would say that in those areas where we have infrastructure disadvantage, we want to lead based on price. We would like to ensure that our customers feel that they're getting value for money and this is why we talked about Oi Controle Total, which essentially is what, is us giving a fixed mobile bundle to those customers that have fixed at a pretty attractive price. We -- you'll have seen in the Internet -- in the press release, we have significantly improved the number of customers of Oi that have more than 5 megabits per second in terms of Internet access.

 And in those areas where we have low density of population, we are also reinforcing significantly our position in order to ensure that we can be the preferred supplier of the people independent of whoever penetrates that market in the future. So we believe that we need to look at this market between low and high density areas. We also need to be granular in the way that we invest. And this is why, for example, when you take mobility, we are clearly investing in those markets where we believe we have a significant market position and we can further enhance that position.

 One good example is Minas, where our market share is pretty good. One good example is Ceara in Pernambuco in the Northeast. One good example is Bahia, where for example in Salvador, which is the main city, we are now leader. So I think one has to be granular in a market of this size. We don't think we are at -- we don't think that obviously we can go after every single customer. But we can certainly benefit from the fact that we already have an installed customer base, which is pretty significant. And if we are successful in monetizing that customer base with better retention offers and cross-selling and upselling, we can continue to deliver on the numbers.

 Now, of course, it's a challenging process because we are going through a major restructuring of channels. We are repositioning our commissions with the key points of sale, we are transforming our field force. So, as I always mentioned, that this year there are four things that you can hold us accountable on; OpEx control, CapEx control, synergies and we said also that asset monetization. Those were four things that you can count us on and you will see in the results that we posted, we delivered on OpEx, we delivered on CapEx, we delivered already on synergies however we are giving already significantly more information in terms of synergies and last but not the least when it comes to asset monetization, we sold the towers before the market expected at a pretty, I would say, at a good price, so that's good timing.

 And you know that there are other companies that we looking to do the same. So we were quick to actually get our deal done and we will continue to look at other options as Bayard mentioned to continue to reduce our financial risk and improve our financial flexibility.

 On the previous point about the rating, ratings are important to us. So we will continue to work with rating agencies to evaluate all options for us to be able to continue to position Oi as a Company that has financial risks completely under control, not only because we have high levels of liquidity as was mentioned, but also because we do take ratings very seriously in this Company. Thank you.

------------------------------
 Giles Thorne,  Jefferies & Company - Analyst   [33]
------------------------------
 Thank you.

------------------------------
Operator   [34]
------------------------------
 Sunil Rajgopal, HSBC.

------------------------------
 Sunil Rajgopal,  HSBC - Analyst   [35]
------------------------------
 I wanted to understand what are the next steps or -- and dates in order to formalize the merger?

------------------------------
 Zeinal Bava,  Oi SA - CEO   [36]
------------------------------
 I think it is difficult to be precise in that regard at this stage considering a number of other things that are happening. What I can say to you is that we are all committed and we are all working to move this Company to the Novo Mercado. This is one of the reasons why we did these governance changes in Portugal. The idea is for me and Bayard to focus very much on the future core challenges, to focus on the Oi turnaround, to focus on the delivery of the synergies, and to focus on enhancing the financial flexibility so that we can continue to review all options that are available for our Company to continue to grow in the future.

 But at this stage, difficult for us to actually provide you a specific date, although we are working as hard as we can to continue to deliver on the 2014 calendar. But I think at this stage, please don't hold me accountable on the dates because we have lots of moving parts. But what I can guarantee you is the commitment on all our team to do it sooner rather than later.

------------------------------
 Sunil Rajgopal,  HSBC - Analyst   [37]
------------------------------
 Sure. Thanks for that. And just one more thing if I can. I mean, on your I think opening remarks with regarding to the change in the MoU and the required approvals from various Boards, I just wanted to check out because I think earlier we read it, it would be sometime before 8th of September. So, just wanted to reconfirm that the MoU would need approval from Boards of Oi, PT and then Telemar, all these three Boards and as well as shareholders. Am I right in this understanding?

------------------------------
 Zeinal Bava,  Oi SA - CEO   [38]
------------------------------
 The date that we have already made public in the material facts that we put out actually does mention that the Portugal Telecom shareholders meeting will happen somewhere between the 28 of August and 8 of September. That's actually in the material facts that we put out, and in the press release in fact you'll find that as well.

------------------------------
 Sunil Rajgopal,  HSBC - Analyst   [39]
------------------------------
 Okay. Okay, thanks.

------------------------------
Operator   [40]
------------------------------
 Walter Piecyk, BTIG.

------------------------------
 Walter Piecyk,  BTIG - Analyst   [41]
------------------------------
 I was wondering if you can give us an update on whether you plan to bid in the upcoming auction. I don't know if you had mentioned that in the prior comments. There is also I think a line item in the balance sheet that you call authorizations and concessions payable. There is a -- if there is a current long-term amount that's just about auction payments that are still due to Anatel. And I was wondering if there is a timeline from when that's due and if you did participate in this auction that's upcoming, could we expect that line item to go up? Thanks.

------------------------------
 Zeinal Bava,  Oi SA - CEO   [42]
------------------------------
 Okay, thank you. With regard to 4G as I said earlier in the call, we are waiting to see the final terms and conditions of the auction. And once those are made public and are known, we will of course do our own internal due diligence with the boards and so on. We will certainly revert to the market with our final position on the matter. At this stage, I think all we can say is that work is progressing and we will wait and see the final terms and conditions to take a view on it.

 With regard to your second part of the question, Bayard please.

------------------------------
 Bayard De Paoli Gontijo,  Oi SA - CFO   [43]
------------------------------
 Yes. The amount of BRL1.2 billion, it is the outstanding of the -- when we acquired the 3G license, we financed the value. For this, this is the outstanding amount that was financed in the acquisition of the 3G license. It is important to highlight here that this year, we anticipated the payment of that amortization that was supposed to happen in April, we anticipated for January to actually reduce the financial expenses on that line.

 And we are always analyzing if we can or if we should anticipate other payments. If we do expect this line to go up with the 4G auction, it would depend on the terms and conditions as Zeinal has mentioned. I mean, we are still waiting to see the final terms and conditions to see how we are going to -- how we see it and the way we will participate on it.

------------------------------
 Walter Piecyk,  BTIG - Analyst   [44]
------------------------------
 Thank you. And can you comment on when -- I don't think -- it doesn't appear that you've made the payment to the controlling shareholder as part of the transaction. I think that was supposed to be about BRL4.5 billion. When is that -- and correct me if I am wrong, because maybe you have made the payment, but if you have it, when do you expect to make that payment to the controlling shareholders as a part of this transaction? Thank you.

------------------------------
 Bayard De Paoli Gontijo,  Oi SA - CFO   [45]
------------------------------
 Well, let me clarify here. We won't make any payment to controlling shareholders that was part of the transaction. Portugal Telecom capitalized the holding companies before we had the capital increase, and then when Portugal Telecom was contributed to Oi, it came together with the leverage. So that was -- that was it, I mean we won't make any payment to controlling shareholders.

------------------------------
 Walter Piecyk,  BTIG - Analyst   [46]
------------------------------
 Understood, thank you.

------------------------------
Operator   [47]
------------------------------
 Giovanni Montalti, UBS.

------------------------------
 Giovanni Montalti,  UBS - Analyst   [48]
------------------------------
 Thank you for taking the question. Actually this is Giovanni Montalti from UBS. Just wanted to verify if you can share with us some thoughts about mobile consolidation in Brazil. Many investors have (inaudible) your rights issue also on the whole potential mobile consolidation in Brazil. So I wanted to just understand if you see these materializing over the next six to 18 months, if you think your balance sheet is strong enough to do -- to do it and if you see any scenario in which this could happen without your involvement? Thank you.

------------------------------
 Zeinal Bava,  Oi SA - CEO   [49]
------------------------------
 Okay, thank you. With regard to consolidation, I will just reiterate what we said in the past that we think that consolidation can enhance the profitability of the sector and the cash flow generation so that the industry can continue to invest profitably to develop the market considering all the challenges that we all have in terms of capacity and so on. I think we all know and I think the World Cup here was a great example for everyone to understand.

 If you build capacity, the demand will come. And I think the traffic flow, the volumes that we saw were unprecedented. And in my view, only confirm that there is a market out there and if we get the pricing right, I think there are certainly ways in which we can continue to grow profitably.

 With regard to mobile consolidation in Brazil, I mean there is very little other than that that we can say. We are monitoring whatever is happening in the market. What I can say to you is Oi is committed to continue to enhance its financial flexibility. When we did our capital raising, one of the objectives was actually to do that, so that we can continue to have the option to review how and where we would like to grow in the future.

 As my CFO said very well, we are taking ratings very seriously, we are taking our financial flexibility very seriously. So we will continue to look at asset monetization, working very closely with our Board and so on and so forth so as to ensure that we always have the ability to continue to invest in our business assuming opportunities do arise. Thank you.

------------------------------
 Giovanni Montalti,  UBS - Analyst   [50]
------------------------------
 So just a follow-up, if I may. Again I mean if your balance sheet is already at [threshold] it is, considering as you said that you care about credit ratings, how would you afford your part of the potential target for the consolidation? Are you going to try to offer your paper to the potential seller, are you targeting another rights issue, what are the options that you are assessing? And also if you can, sorry, share with us your thoughts about a potential scenario in which actually this consolidation happens, are you just going to take part to it or eventually will you become a target of the consolidation? Thank you.

------------------------------
 Zeinal Bava,  Oi SA - CEO   [51]
------------------------------
 Thank you. I think the -- with regard to what financial flexibility we have, I think it is at the stage premature to even discuss it. I think it's -- your question is very fair and it's a very relevant one. But as you also understand, there is only so much we can talk about other than to say that we are looking to enhance our financial flexibility, we are looking to beef up our cash flow.

 You heard our comments about keeping cost under control, CapEx under control. You heard our comments about looking to monetize assets, all of that is aimed at ensuring that we can have financial flexibility to continue to invest in our business. We are obviously mindful that our stock has been under pressure, and as you can imagine, we think that these exogenous factors have weighed in an unprecedented way in our stock and we hope that by focusing the Company on operations and focusing on the delivery of better financial flexibility in the future, our stock will continue to reflect the potential of our Company and the fundamentals of our Company. But it is not for us to say the market is there, but we continue to believe that these exogenous factors have weight and we are looking to correct some of these imbalances so that we can have our shares trade where we believe they should be trading.

 And this is why in this call, we wanted to focus solely on our fundamentals so that the market can acknowledge what those are, but clearly understand that we know where we place the stock, when we place the stock and currently we are well below where we are. So as you can imagine when it comes to thinking our financial flexibility, it's much more in line with what we said about finding assets that we can dispose off, assets that we believe are not core. Thank you.

------------------------------
 Giovanni Montalti,  UBS - Analyst   [52]
------------------------------
 Thank you.

------------------------------
Operator   [53]
------------------------------
 Carlos De Legarreta, GBM.

------------------------------
 Carlos De Legarreta,  GBM - Analyst   [54]
------------------------------
 Thank you for taking the question. Just very briefly, regarding your optical fiber network in Portugal, I just want to confirm the number that I see in your filings. It's of 890,000 kilometers. That seems like a lot honestly considering the volume in Brazil, which is much less, it's circa 300,000 kilometers. So I just want to understand a little bit of the -- how this network in Portugal is made of, and I mean, if you can talk about that, that would be great. Thanks.

------------------------------
 Zeinal Bava,  Oi SA - CEO   [55]
------------------------------
 Thank you very much. I apologize but I don't have on top of my head these numbers that you are referring to, but I think offline we can certainly come back to you on that. What I can say, however, is the following that it is very difficult for you to establish a parallel between such different markets because there are lots of differences in terms of how the network has been rolled out in each country because of its size, because of its history and so on and so forth. If you take for example Portugal, it's a multi-dwelling unit to market with high levels of concentration of population where the local loops are very short.

 And this is why with the copper you can drive speeds of about 24 megabits per second without any problem and not only -- and with copper you can service like pay TV customers and yet give people a pretty good Internet speed. The Brazilian market is very different, the local loops here are much longer. So I think each market has its own story and even within Brazil, each state has a very different story. But allow me to come back to you offline because frankly top of my head I don't have the numbers that you are referring to. But I will just caution you that some of these comparisons are -- can be misleading because markets are extremely very, very different not only in terms of Portugal and Brazil, but also within Brazil and our own starting point in each market is very different.

 What I can say to you is that in the expansion of the network that we are doing, we are certainly using state-of-the-art technology. So when you think about us building infrastructure, new condominiums and so on and so forth, we are working a lot more with fiber and coax and so on and so forth. So I think one of the big advantages that Oi has and I think it brings to bear one of the synergies with Portugal Telecom is that we feel very comfortable in working with different types of access technologies and make sure that whatever technology we are using is the one that will serve the best our customer, but at the same time will mean less CapEx for us and less OpEx for us. Thank you.

------------------------------
 Carlos De Legarreta,  GBM - Analyst   [56]
------------------------------
 Thanks for the comment. Now really just want to understand the trade underlying value in your assets. So in that regard, it would be very helpful if you could disclose any further assets that you could be divesting in the near future and that includes the number of smaller towers you have in the country including Portugal and obviously Brazil. So that will be very helpful. Thanks.

------------------------------
 Zeinal Bava,  Oi SA - CEO   [57]
------------------------------
 Rightly pointed out. You -- as you know, we sold our submarine cables, GlobeNet. And that was the transaction that we executed last year. And in line with what we said before, we would look to monetize assets in order to enhance our financial flexibility. But we will certainly come back to you on that one. What I can say to you is that if some of these investments, particularly in Portugal are pretty recent, but we will come back to you on that one offline if that's okay.

------------------------------
 Carlos De Legarreta,  GBM - Analyst   [58]
------------------------------
 That's perfect. Thank you.

------------------------------
 Zeinal Bava,  Oi SA - CEO   [59]
------------------------------
 Thank you very much.

------------------------------
Operator   [60]
------------------------------
 Paul Marsh, Berenberg.

------------------------------
 Paul Marsh,  Berenberg - Analyst   [61]
------------------------------
 Thanks for coming back to me again. I just have a couple of other questions. I just wondered since you mentioned the fair value of Unitel, what fair value did you ascribe to Unitel in the accounts? And then secondly, I just wondered if there was an update on the deal to buy the stake in Sport TV. I think there had been some news on that in recent weeks.

 And then finally, it's a little bit of a [Lester field] question, but bear with me. Do you have any view on how realistic further mobile and wire line consolidation could be in Portugal? I mean, is there any scenario under which Portugal could become just a two-player market with each player having the ability to offer three or four services or is that just a regulatory no, no?

------------------------------
 Zeinal Bava,  Oi SA - CEO   [62]
------------------------------
 Yes, let me -- Bayard will answer the first one on Unitel and then I will certainly answer the second one. The third one, I am not sure if I will be able to give you any specific answer. But Bayard, please.

------------------------------
 Bayard De Paoli Gontijo,  Oi SA - CFO   [63]
------------------------------
 Okay. So for the fair value of Unitel, it's around BRL3 billion and plus the dividends that are retained, which are BRL750 million for the stake Oi has in the asset.

------------------------------
 Paul Marsh,  Berenberg - Analyst   [64]
------------------------------
 Thanks.

------------------------------
 Zeinal Bava,  Oi SA - CEO   [65]
------------------------------
 With regards to the Portuguese transaction, I think public information has been made available in this regard that that deal has fallen through. So I think that that's gone from at least what I understand because of the competition issues.

 With regard to your third point, it's a very difficult point to comment. I think probably the answer is much broader in the sense that I think it is a European positioning as opposed to a country-by-country positioning. So I think in Europe all of us know what the position has been in these sorts of consolidation movement. So I think very difficult to answer that question.

 What I can say is that in Portugal, we are increasingly looking at ways in which we can share infrastructure in order to monetize some of the infrastructure investments we have made ourselves. And we continue to feel very good about the progress that M4O is making, albeit that we believe that the overall dynamics of the market can certainly improve in the future. Thank you.

------------------------------
 Paul Marsh,  Berenberg - Analyst   [66]
------------------------------
 And could the sale of the PT assets be something that's on the list of possible options?

------------------------------
 Zeinal Bava,  Oi SA - CEO   [67]
------------------------------
 I think on this, I think what I can say to you is that we are working here to look at a number of the monetization of assets. We talked about mobile towers, we've talked about the submarine cables. Bayard mentioned to you the possibility of us maybe doing depending on the scale and what is possible to do with the mobile towers in Portugal. I think the previous question also talks about the fiber assets. So I think we will continue to work with our Board to review all possibilities in line with our stated 4+1 business priorities, which is -- and one of them is actually asset monetization. Don't forget the other one is synergies and I think we went through very quickly on the synergy number, not that we said that synergies would be about BRL261 million run rate as part of this combination. We are already showing to the market about BRL300 million of the 22 initiatives that we put together and we believe that there is clearly more work to be done in that regard.

 So I think governance changes in Portugal that we have announced will allow myself and Bayard to focus on some of these strategic objectives that we have. And hopefully next time we speak to the market, we can give you an update report on where we are vis-a-vis the synergies and asset monetization. But the fact that we got the mobile towers done in a timely manner was great for us and we will continue to explore some of these non-core asset sales as well in the future. Thank you.

------------------------------
 Paul Marsh,  Berenberg - Analyst   [68]
------------------------------
 Thanks.

------------------------------
Operator   [69]
------------------------------
 [Eric Oram], CD.

------------------------------
 Eric Oram,  CD - Analyst   [70]
------------------------------
 Just the Rio Forte exposure, where is that listed on the balance sheet currently and what is the current -- the carrying value for that? I see on slide 29 you have the net debt calculation and you add it into your net debt. But where on the balance sheet in the press release or the financial statements will we find that, would that be under other investments or is that somewhere else? Thank you.

------------------------------
 Bayard De Paoli Gontijo,  Oi SA - CFO   [71]
------------------------------
 It is exactly in the other investments in the shorter. So you are right, it is in the other investments, it's BRL2.7 billion as of June 2014.

------------------------------
 Eric Oram,  CD - Analyst   [72]
------------------------------
 Okay. So, you are still showing it on that as BRL0.100 on the dollar more or less.

------------------------------
 Bayard De Paoli Gontijo,  Oi SA - CFO   [73]
------------------------------
 Okay. It is not anymore in the cash and cash equivalents. That was the change we've done. As you know and we have mentioned here, we are in the process of finalizing that negotiation of PT SGPS, therefore our decision at this moment was to maintain accounting the way it works at the best way possible for them to implement the whole transaction.

------------------------------
 Eric Oram,  CD - Analyst   [74]
------------------------------
 Okay, perfect, thank you.

------------------------------
Operator   [75]
------------------------------
 [Fullerdad Accoroni], [Lorainsile].

------------------------------
 Fullerdad Accoroni,  Lorainsile - Analyst   [76]
------------------------------
 Thank you for taking my question. I wonder if you can give us an estimated amount of the assets that you are planning to sell.

------------------------------
 Zeinal Bava,  Oi SA - CEO   [77]
------------------------------
 Well, as we have mentioned in the call previously, I mean, we are still analyzing all the alternatives we have. We have mentioned that we will sell mobile towers, fixed towers and in the past, the submarine cable as well. We have until now raised about BRL5 billion already, we still have assets to monetize. Of course for strategic reasons, we won't talk about values here because it is part of the negotiations, right.

 But again, we have towers to analyze or to sell in Brazil, in Portugal. We have mentioned in this call the fiber network in Portugal that could be an option as well. We have our guarantors in terms of real estate, may be more to the medium term, nor to the short term, but this is also an alternative and all the assets that we are evaluating here.

 So we are not in a position here to provide any guidance in terms of values. Basically because, I mean, this is strategic and that's how we are going to negotiate with our -- with the potential buyers of those assets.

------------------------------
 Fullerdad Accoroni,  Lorainsile - Analyst   [78]
------------------------------
 Okay, I understand. And in terms of timing, are those short-term sales that you are planning to do or more medium term?

------------------------------
 Zeinal Bava,  Oi SA - CEO   [79]
------------------------------
 As we have announced, we still have the settlement of the mobile towers sold in March. So in December we are going to have BRL1 billion positive impact in our results. And but again, we don't want to get into that specific details of timing and value because again this is part of the negotiation. And we will do it once we see good opportunities for the Company and our shareholders.

------------------------------
 Fullerdad Accoroni,  Lorainsile - Analyst   [80]
------------------------------
 Okay. Thanks.

------------------------------
 Zeinal Bava,  Oi SA - CEO   [81]
------------------------------
 Okay.

------------------------------
Operator   [82]
------------------------------
 I would like to turn the floor over to Mr. Zeinal Bava for his final remarks.

------------------------------
 Zeinal Bava,  Oi SA - CEO   [83]
------------------------------
 Okay. Thank you very much for being on this call. And we, of course, my team and I are available offline to answer any questions that you may have. And once again it has been a pleasure to speak to you and we hope that we can maintain a close dialogue considering the results that we put out and we look forward to seeing you soon. Okay, thank you. Bye-bye.

------------------------------
Operator   [84]
------------------------------
 This conference is now concluded. You may now disconnect and have a good day. Thank you.




------------------------------
Definitions
------------------------------
PRELIMINARY TRANSCRIPT: "Preliminary Transcript" indicates that the 
Transcript has been published in near real-time by an experienced 
professional transcriber.  While the Preliminary Transcript is highly 
accurate, it has not been edited to ensure the entire transcription 
represents a verbatim report of the call.

EDITED TRANSCRIPT: "Edited Transcript" indicates that a team of professional 
editors have listened to the event a second time to confirm that the 
content of the call has been transcribed accurately and in full.

------------------------------
Disclaimer
------------------------------
Thomson Reuters reserves the right to make changes to documents, content, or other 
information on this web site without obligation to notify any person of 
such changes.

In the conference calls upon which Event Transcripts are based, companies 
may make projections or other forward-looking statements regarding a variety 
of items. Such forward-looking statements are based upon current 
expectations and involve risks and uncertainties. Actual results may differ 
materially from those stated in any forward-looking statement based on a 
number of important factors and risks, which are more specifically 
identified in the companies' most recent SEC filings. Although the companies 
may indicate and believe that the assumptions underlying the forward-looking 
statements are reasonable, any of the assumptions could prove inaccurate or 
incorrect and, therefore, there can be no assurance that the results 
contemplated in the forward-looking statements will be realized.

THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION
OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO
PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS,
OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS.
IN NO WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER
DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN
ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S
CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE
MAKING ANY INVESTMENT OR OTHER DECISIONS.
------------------------------
Copyright 2018 Thomson Reuters. All Rights Reserved.
------------------------------