Good morning, ladies and gentlemen. Thank you for standing by and welcome to Oi's SA Conference Call to discuss the First Quarter of 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 you 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 at they're made and the Company is under no obligation to update 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.

Okay, thank you very much. Good morning, ladies and gentlemen and good afternoon for some of you. Allow me to use the presentation that we put on our sites to guide you through the first quarter results announcements of Oi. I'm starting with the progress that we've made against business priorities that we outlined, to a lot of and during the merger that we did. Well starting with the, business priority, as I highlighted a number of times in the meetings that we had. Essentially we have four plus one business priorities, OpEx control, cost control, asset monetization, synergies with Portugal Telecom and plus one is to do the right thing for the Company, so that we can position ourselves to take advantage of the future growth opportunities that exist particularly in the Brazilian market and what concerns broadband and Pay-TV. Then we start with OpEx control, Page number 3 of the presentation. OpEx was down in Brazil, 4.8% in the first quarter. Sequentially if you just look against the fourth quarter, OpEx was also down bear in mind, that we have an impact on rentals of the asset disposals that we did, during the course of the fourth quarter, 2013, but notwithstanding OpEx was down 4.8% fourth compared to the first quarter, 2013 sequentially it was also down. With regard to Portugal likewise, the focus as I mentioned earlier in the presentations and in the meetings that we did is maximizing cash flow generation and therefore maintaining high levels of financial discipline, when it comes to OpEx and CapEx. OpEx in Portugal notwithstanding the fact that we have been cutting cost sequentially for quite a few quarters now, cost also down 6.5% sequentially and 4.4% year-on-year. Now we are able to achieve double these cost benefits on the back…

Thank you, Zeinal. Good morning everyone. Starting with Oi financial review on Page 27. First quarter, 2014 net revenues totaled R$6.9 billion. A reduction of 2.3% in comparison with the same period last year. This performance was due to the drop of Mobile Termination Rate, MTR that resulted in a reduction of R$180 million in the mobile interconnection revenue. It is important to highlight that customer revenues, which means total revenues minus interconnection and handset sales increased R$54 million for almost 1% year-over-year. This is a reserve of Company's focus on quality of sales and profitability as the customer pays. In the next page, Slide 28. We show the evolution of revenues per segment. With eventual segment net revenues totaled R$2.6 billion almost flat when compared to the first quarter, 2013. Although broadband and Pay-TV revenues, had grown 7% and 18% respectively. Fixed voice revenues decreased 3.1% due to the reduction in traffic. As already mentioned our CEO, Zeinal. We remained with focus on sales of bundle services combining fixed-line, broadband and TV. At the end of the quarter, 59% of the households served by the company had more than one Oi product. The growth of 3% points in the last 12 months of this index and yet same initiatives resulted in 7% year-over-year of the residential ARPU, achieving our most R$74. Net revenues from the personal mobility came to R$2.2 billion, 6.5% last January, first quarter, 2013. As I have already explained the drop was mainly due to the MTR cut. It is important to emphasize, that customers revenue totaled R$1.7 billion and moved the by 3.6% year-over-year. This performance were flat to continuous growth in data usage, mainly mobile internet and increased of the base of clients and recharges in the prepaid market. It is worth noting as…

Okay, thank you. Bayard. Let me now take you through where we are in the Portuguese market and then Luis will provide you some financial details as well. In the Portuguese market. The focus for us is convergent and for which is a convergent product that we launched on the 11, January, 2013 continues to be hugely successful in that market. In May, we've gone above 2 million RGUs, roughly 1 million sim cards and as you will have seen on Slide 35, the number of customers with three sim cards and four sim cards is roughly 41%, which is very encouraging because we clearly have positioned our convergent offer as a family package. Looking at the performance in this first quarter of our peer group company in Portugal. I'm sure, you'll have seen that we have done very well in terms of sales, in terms of gross adds but particularly also in the convergent. So the run rate of the growth of the M4O notwithstanding more completion continues to be pretty much the same as we witnessed in the second half, 2013. Convergent is also underpinning our Pay-TV market share. We sell convergent but we also sell triple-play. Is at Page 36 of presentation, you'll see that we added 37,000 customers in triple-play, 22,000 in broadband; 20,000 in TV and the line loss is pretty much if you like stable compared to the previous quarter. If you put this performance along side, numbers that have been put out in the Portuguese market. I believe that this is stellar performance and we've achieved this performance because the mindset of our company in Portugal is to sell triple and quadruple-play. We've achieved this performance because when it comes to maintenance repairs and installation, we've done a superb job in terms of…

Okay, thanks Zeinal. Good afternoon. Ladies and gentlemen. With regards to Portugal, I would like to reinforce such Zeinal just said, which is that PT continues to gain market share in the consumer segment on the back of its successful triple-play and the convergent offer. PT Portugal continue to deliver very strong broadband and TV and postpaid net adds, despite the already high penetration of some of these services. On the personal mobility service revenues, they have improved from a minus 9.9% one year ago, to minus 5.2% in the first quarter. On the back of course, of the success of the convergent offer. On the residential revenues and despite the market environment and high penetration. Revenues remained almost flat in these quarter vis-à-vis the first quarter of last year. As such, business to consumer operating revenues declined just 2.5%, which is a remarkable improvement and achievement vis-à-vis our main competitors and also vis-à-vis, the main southern European peer. Please recall that in the previous quarter, so in the last quarter, 2013 revenues were very positively impacted by significant equipment sale, which were not the case on this quarter. On the business to business revenues, we saw also a considerable improvement from previous quarter having decline a mere 6.5% versus 12.1% in the last quarter, 2013 and 10% in the first quarter, 2013. Also on the back of the increasing penetration of the convergent offer. On the SME segment, as Zeinal mentioned were we of course saw increase weight of this convergent client by 6% points. On the last quarter, segment we also saw a considerable improvement in the trend and as Zeinal also mentioned economic environment improvement has certainly something to do with that. Also another revenues remain flat. The positive growth also domestic and international traffic in the…

Okay, thank you. Luis. So just to wrap up, we believe that, this quarter once again. We showed progress against the priorities that we've defined OpEx was down, CapEx was down. EBITDA minus CapEx did well. We can rethink that we can and of course we are underpinning that on the back of the cost performance. Having said that, the business mode of transformation is critical for us to put this company in the path of growth. So we are developing a number of initiatives as was shared with you during the road show that we recently did, plus on this presentation. Our synergies with Portugal Telecom, the R$261 million OpEx and CapEx synergies we believe that's the starting point. So we prefer to under promise and over deliver. So we will keep you, posted in that one. And last but not the least, when it comes to asset monetization. We believe that end of 2014 or by the end of 2014. We will certainly have sold our mobile towers at which we're working towards selling another 1,500 to 2,000 mobile towers. Furthermore, we will continue to see what other if you like assets that we have that don't quite fit in our strategy also to monetize as well. So we can continue to beef up our financial flexibility. Thank you very much and my team and I, of course are available to answer any questions that you may have.

Thank you. Ladies and gentlemen. We will now begin the question and answer session. (Operator Instructions). Our first question comes from Paul Marsh of Berenberg. Please go ahead, sir.

Thank you. I hope you can hear me okay, there's a little bit of an echo on the line from this side of the ocean? So maybe, I could start just a bit if there's any updates on Africatel and Unitel and the situation there? And then secondly, you referred in the presentation to the DTH footprint, you know 34% household for which Oi will be the only supplier of Globo channel and I'm just wondering, if there's anything more you can say about, what kind of opportunity that might be. I mean those households that have phone lines with Oi, they have broadband, they've mobile service with Oi already. So is that a cross-sell opportunity or is that a new sale opportunity. And then on the third question would be on the corporate and SME outlook in Brazil. Where I think highlighted some of the sub-segment are showing good growth? I just wanted to maybe if you could remind us, what the split is between corporate and SME. And what is a proportionate traditional services that are still in decline there, compared to the proportionate revenues which is clearly growing and the outlook for that through the rest of the year. Thanks.

Okay, thank you, Paul. With regard to Pay-TV question we have about 12 million landline and we have less than a 1 million Pay-TV customers. When you look at the penetration of Pay-TV in Brazil. It's roughly about 32% of whole the households. Of course, if you look at more developed market that penetration in some cases take for example Portugal is much closer to 80%. I think UK in the same ball park, but I'm not suggesting anyway that kind of stack you should be looking at, but clearly we believe that there's rule for us to continue to grow that Pay-TV penetration overall, but when you think about just our own customer base, we have 12 million landlines, 5.3 million broadband customers. So as you can imagine, we have significant scope to actually move our own customer base from being single-play to double, potentially triple or moving from double-play to triple-play. Worth also mentioning that, when you think about this 12 million landlines that we have, about 40% areas where if you like in terms of municipalities, we are operating in what we call low density areas in terms of competition. The reason why, we went slow last year was because trend was running very high and because we had already bought July capacity on this new satellite and we were in the process of negotiating some of the local content contracts that we thought was a significant, if you like competitive advantage for us. In starting April, we feel a lot more comfortable about the churn levels. We signed up an agreement with Globo and therefore we believe that, our competitive advantage is not just the satellite capacity which allows us to have better HD, but also the local content and local content is absolutely critical. As…

Okay, Paul. How are you? On Unitel, there's no relevant news. If and when there's relevant news, we'll of course let you know.

Okay.

Paul, sorry but the third part of your question was about, was it corporate and SME's?

Yes, it was rarely – I mean – that was some interesting growth in some of the sub segments of corporate. For example IT, data revenues, VPN sales for example. And I just wondered, I was trying to get balance of what's the proportion of the growing revenues relative to the declining revenues in that sub segment or in that sector. How should we be thinking about the outlook here? It can be lumpy from quarter-to-quarter, but is this is a revenue line which is sustainably going to be positive through the rest of the year and into next year or should we be expecting it to be up one quarter down the next quarter?

Just for me to get a sense, when you think what we call B2B and in that we include, SME's, corporate and wholesale. One could work on the basis on the assumption that corporate probably represents about 50% to 60% in terms of contribution and yes, it is going to be lumpy particularly because if you like the turnaround of SMEs, it's still in progress. So one can expect, perhaps us to continue to do better in terms of IT, data, virtualization in corporate, but can see some lumpy performance in terms of SME's in particular which probably represents about 30% to 35% of the overall contribution. So for us, it's very encouraging to see that in the first quarter those revenues were up about 0.6%. Its' difficult to give you better outlook for what may or may not happen. Simply because a lot of times, when it comes to the corporate segment. You're looking at pretty sizable contracts that may or may not come in one quarter, but I would say that what I'm seeing from a business standpoint. In terms of performance in the corporate segment. I'm very encouraged particularly of the work that Portugal Telecom's cloud team is doing with our corporate team here in Brazil and we are beginning to see those revenues actually pick up and I hope that there will be next quarter, when we announce – or in my next conference call. I can provide you with you some color on what we're doing around the cloud and I would say, the success that we're having very much underpinned by the strategic partnership we have with SAP and Cisco. Thank you.

And our next question comes from Vera Rossi of Goldman Sachs. Please go ahead.

Thank you. Could you talk about the decline in wireless revenue? Your decline was higher than your peers because you rely more on MTRs or a consequence of the disconnections in the postpaid users. Thank you.

Thank you. Vera. As I mentioned, in the Slide 22, you certainly will have seen that when it comes to prepaid, I think we did fairly well. In terms of overall RGUs, they were up about 3.8%. In terms of postpaid RGUs, the growth was about 1%. Mobile internet actually showed a pretty strong performance both in terms of prepaid and postpaid. So coming back to your point, we took a deliberate decision to go slow in terms of postpaid sales and that has a lot to do with the fact, that we are running very high churn and as a result, if you like the lead indicator of our performance. Clearly our prepaid recharges, and when it comes to prepaid recharges. We have done better in the first quarter, 2014 than in the fourth quarter, 2013 and as you know that's a lead indicator, what we are doing in terms of prepaid, not just share in terms of overall customers, but also in terms of revenues. Of course MTR is having an impact, I'll ask Bayard here to take you through some of those impacts. As we indicated to you in the past, MTR's will weigh on our EBITDA performance, this year, full year roughly R$200 million negative. So this year, you can expect us to see an impact of roughly R$200 million. We are more hedged than others because we are an integrated Telco, but it will still weigh on our EBITDA performance. Although, it won't be as relevant as it might be for others. Bayard?

I think that's exactly what it is, the situation with MTRs. We are an integrated company, so impacts will be in our case, not as relevant as in a few mobile player and the impact for this year will be around R$200 million as we've already mentioned before.

Allow me to also to add the following, when you look at Page 19, you will see through things here which are worth mentioning. One is recharges of 7.1% and then that market share that we have in some of the states that are seeing substantial consumption growth. So this 7.1% recharges as we I've said before and in the past, suffered from the drag effect that we in the State of São Paulo, where clearly our market share has to grow in the future. So if one was to look at the overall performance that we are seeing in prepaid. It's actually much better than 7.1% in most states other than São Paulo. Thank you.

Just a follow-up question, when do you expect your contract base you have met positive additions?

As I have said in the past, in fact if you go again to Page 22, you'll see postpaid RGUs were actually up 1%, but as I've said in the past, we need to work towards improving our 3G coverage, which we are doing. We need to beef up the processes, which I think we pretty much have done because I think, when I look some of the comparable churn rates that other operators show for their postpaid. I think we're fairly comfortable that our postpaid churn rate is now pretty much benchmark. We are looking if you like at the inflection point in this market, when it comes to convergent to actually get back in this game. So as I mentioned in the Portuguese experience roughly so with convergent. Is that these Portugal Telecom sales of postpaid went up 10 fold on the back of it. So we are not going to be in the business of computing based on, if you like high subsidies or forcing migration from prepaid to postpaid on the back of high subsidies. So that's why we've taken a deliberate decision even in the corporate segment of our business to actually focus more on data, than on subsidization of handsets to grow market share in postpaid. So I think, we'll have to see how the market evolves in the next one or two quarters, but when it comes to conversions. We are frankly just depending ourselves to make sure that we have the product in place and in that regard, I don't want to go into more details for commercial reasons, as well. Thank you.

And our next question comes from Michel Morin of Morgan Stanley. Please go ahead, sir.

Yes, good morning, good afternoon. Two Questions; first on the restatement vis-à-vis first quarter 2013 routine EBITDA, I was wondering if you can confirm, whether or not, this had any impact on the full year number that you had previously disclosed which was R$7.6 billion and if you can give us the quarterly, the updated quick quarterly number?

Okay, let me hand you over to Bayard.

Michel, regarding the changes we had in terms of routine EBITDA. The changes did happened basically in the first quarter, 2013. Therefore, it impacted the full year numbers, but that was specifically in the first quarter, 2013 as I mentioned in my presentation.

Okay, so the full year, 2013 routine EBITDA therefore is roughly what R$7.2 billion?

It was impacted by R$530 million mainly. From which, R$242 million, it is the reversal of employees bonuses that was provisioned in 2012 and it was relieved in the first quarter, 2013 net of the provisions then in the period, before end of first quarter, 2013. So we have now, first quarter, 2013 R$173 million and the total number was R$242 million. Okay, then in addition to that, we had a reversal of R$140 million due to the change in the loss probability in legal disputes of tax liabilities related to [indiscernible] well those are the main ones.

So, the EBITDA number for the [indiscernible] doesn't change. The routine EBITDA obviously changes, as a result of this and we believe that by providing this clarity, it also makes it easier for you to, if you like judge our performance going forward in a more transparent manner.

Absolutely and for the second quarter, 2013. You had a big severance personnel expense, I think about R$130 million. Has that, are you including that and how you think about routine EBITDA?

That was the decision, we've made at that time to pay these smaller portion of bonuses to the employees of the company. So it wasn't wage benefit then in the second quarter, 2013.

Okay and the second question, Zeinal is you focused a lot on the EBITDA less CapEx, but when I look at your Slide 33, I do see that on a sequential basis from Q4 to Q1, it looks like your net debt has nonetheless increased by about R$1 billion, maybe then a little bit more than that, more than deducted fistel, is religious seasonality, also maybe more like R$1.2 billion, is that a fair gauge the cash burn, as your current gain and how you're going to close that gap?

Michel, what happened in the first quarter, 2014 is that we've paid the 3G license. We anticipated the payment of 3G license and with that, we saved around R$25 million to the company because as you know, the cost of that it is around 18% per year, so we decided to anticipate. We think that was an important financial decision although it impacted our cash flow and we have the payment of the fistel fees and the bonuses. Those items, we didn't have those items in the first quarter, 2013. They happened in the second quarter, 2013. Before we anticipated those cash outs, for the first quarter, 2014.

I'm was comparing that, [R$32.3 million] as to the R$31.3 million, you know the middle blue bars in that Slide 33. Which show a R$1 billion sequential change in one quarter. So it does not include any of the effect that you just mentioned. So there's R$25 million improvement from the 3G license, but it's all about continuing the OpEx reduction in the top line growth.

What we had in terms of working capital, Michel in first quarter, 2014 was mainly payments to – we've done in terms of contracts with Globo and [Bundle] and the TV, bundled out in Brazil, where we decided to anticipate the payment for commercial reasons and there was a good negotiation as well for us. The four business, mainly what we have in terms of working capital in that number and then there's also the seasonality of the peers. Normally effects to the first quarter of every year.

So I think bottom line, I will be careful about doing the math that you were doing in terms of what the cash burn, maybe for 2014. As we've indicated in the past, that we don't think that the cash burn will be the R$1.2 billion, R$1.3 billion that this company was showing in the fourth quarter, 2012. Likewise, we don't think it will be the R$600 million that we showed in the fourth quarter. But there is some seasonality, when it comes to working capital, furthermore with this additional financial flexibility that we have from the disposal of the assets, to look to take advantage to pay some of the more expensive liabilities. So going back to your earlier comment. It's of course, all about us improving our cash flow. So whilst, we do look as you could imagine the EBITDA and so on and so forth. We are clearly focusing on EBITDA minus CapEx as if you like a first derivative for you to ascertain whether, we are making progress in terms of delivering on what we said, as a priority which is to change the cash flow profile of company. And in that regard, we did make significant progress not just in Brazil, but also in Portugal.

And your management, this compensation is based primarily on EBITDA less CapEx or are there other metrics you're going to share with us?

We have five drivers of our annual bonus and those five drivers are, top line, delta. So revenue delta, EBITDA, net debt, EVA-Economic Value Added; which as we move towards. If you like move [indiscernible] could be something else, but right now it's EVA and the fifth, if you like driver of annual bonus is Anatel complaint because we want to tackle, if you like the quality of service as an issue for the whole company and we like to, walk the talk. We've decided to allocate 30% of our annual bonus towards achieving certain targets for Anatel complaints as well. Now we have two sets, if you like drivers of our annual bonus. So for everyone, that's in the headquarters are these five and then at each region, we have another five. If you like specific objectives. One of the key advantage of the Oi, is that, that in the past. Is the fact, that we are in present 4800 municipalities in Brazil and we want our regional teams to lead the charge in terms of the implementation of our strategy locally. So each one of those regional teams will have an additional five targets and 60% of their bonus will be driven on the back of company numbers and 40% on the regional numbers. And when it comes to dare, if you like objectives. One will include things like churn, market share of gross adds, net adds and so on.

Thank you. Our next question comes from Giovanni Montalti of UBS Bank. Please go ahead, sir.

Good afternoon, thank you for the question. A couple from a ongoing cost of the these MTR rates. Do we expect specific change in the operating dynamics? I guess that's more price pressure, with a lack of using cash because of the sudden disappearance of the community concept? Thank you.

I think the clearly declining termination rates, in my view could end up becoming more beneficial or if you like players that have lower market share, particularly in some regions like ourselves. I have no doubt in my mind, that regulation right now is focused on on-net, off-net device, which in Brazil is pretty substantial. So in that regard, if you like termination rates coming down. We'll pave the way, for this market to end up having if you like all net flat rates and as a result, those operators that are enjoying from the network in fact, will find it more difficult to sustain that performance just on the back of it. So Brazil will not be different from any other market in that regard. Clearly in our case, we have a hedge in the sense that we are fixed in mobile and we integrated and as we've told the market before. We estimate this year, the net impact at the EBITDA level of falling termination rates will be circa R$200 million. So it will not be material in the overall context in terms of the performance of the company, financially speaking, but strategically it could have an important and a positive impact in our positioning in the market. Simply because, we think we will be better able to reposition our offers to address what we think consumers want, which is on-net in a flat rate. Thank you.

So I may, on the African asset side. Could you consider, the disposal of these assets going forward into the end of 2014 and if you can share with us some update about potential consideration, a deal you think that all the conditions are in place or let's say the environment positive for, these evolution in Brazil. Thank you.

We said, we have five business objectives and clearly one of them is asset monetization. So we will continue to work towards monetizing assets, that allow us to reduce financial risks, beef up our financial flexibility and improve if you like our financial ratios. After the recent offering that we've done. We continue to have leverage, which in the context of the sector is in terms of net debt to EBITDA, if you like ratios is still high, but we enjoy we financial flexibility of R$24 billion. So under no circumstances, we will be taking short term decisions that may impair us from being competitive on the medium and the long-term. And what is our strategy, our strategy is clearly to focus in the Portuguese market, where we in this quarter are beginning to see improvements. Clearly despite, the environment whether it's macro, whether its competitive our performance I think was stellar and therefore, we hope that we can benefit from tailwind in terms of economic recovery particularly in mobility to deliver a better performance, but I think it has a lot more to do with the way, that the consumer behaves rather than what is it, that we can or we cannot do. When it comes to the Brazilian markets. The focus is on repositioning the company, cutting cost getting more efficiency out of CapEx and running after those synergies that we believe exists with Portugal Telecom. So we have and our plate full between Portugal and Brazil and that will be our focus, if you like from a management standpoint. And we will continue to look at ways in which we can, if you like monetize asset that don't quite fit that strategy. When it makes sense and that's what I can say now. We will come back to you on frequently basis. I've spoken to you very openly about, what we're doing around mobile towers and I prefer not to go into more details about other things that we have in mind at this stage. Other than to say that, asset disposals is clearly or monetization of assets is clearly one of the five business objectives that we have for 2014. Thank you.

And so it might be on the Brazil with relation.

We seem encouraging, if you like signs about some market repair in Brazil, when it comes to prepaid and mobility in the last few weeks. We are all in favor of working towards improving profitability of this sector. So that we can generate more cash, so that we can invest if you like in beefing up our coverage, improving the reliability of the network, providing better speeds to people. So our general view, when it comes to improving profitability of the sector. We are of course, always in favor. With regard to consolidation [indiscernible], as you can imagine I will not comment other than to say, that other markets have seen consolidation and it has been beneficial, not just for the overall profitability of the sector, but also for the if you like the health of the sector and with clear benefits for consumers overall. Particularly in terms of the ability of the companies to execute their digital agenda and move infrastructure to in terms of modernization to a new level. So that's all I can say in that regard and just continue to re-trade that we will work towards improving margins and this is what, we would like to do and we would like to see and we think that this market requires.

And our next question comes from Ric Prentiss of Raymond James. Please go ahead, sir.

Thank you. A follow-up question, what is the current status of auction in Brazil as far as your thoughts for timing?

Anatel as you know, thank you for your question. Anatel, as you know is in the process of consultation of the sector. We – I think we all have the same thing that the plans are being made for the auction to occur in August and that's public info. So I'm just relating to you, what's in the public domain. We as a company, as we said in the past. We believe that, these sculpted value associated with the spectrum and therefore, we will continue to monitor, whatever development happened in the market and then take decisions, when they're required. Thank you.

And then, the tower sale that you mentioned you'd like to get done by year end 2014. It looks like there could be some other tower portfolios coming out with Tim and maybe some of the private sponsors. Any thoughts about, how much you want to get from your tower sale or if you might pull them, if you don't get enough?

I think we were very quick to actually get going with those asset disposals. We took over [CL] in the 4, June. Like I said, we've sold assets worth about R$4 billion. Yes, we do understand that there will be more demand out there, but it is what it is. I think we're looking to dispose of those assets. As you know, if we were solely because I was asked earlier the question about the key drivers our sort of bonuses. It's worth mentioning that, if one was just focused on maximizing EBITDA. Some of these assets disposals end up having a negative. In fact, I just saw a research from an analyst but initially, in his numbers, he forgot to mention that this year for example, we will have an impact of about R$650 million from asset disposals, which in terms of, if you like our OpEx performance. So, but for me that's financing cost. So when I just saw this research and this analyst just ignored that. I think, it's slightly misleading, but so I think it's worth keeping at the back of your mind. That we as management, want to do the right thing for this company and therefore asset disposal will allow us to get funding with longer maturity and more cheaply than actually tapping the markets or the banking system. So therefore, expect us to continue to drive aggressively our agenda of asset disposals. So as to allow us to not only improve our financial flexibility, but use that financial flexibility to pay some of the expensive liabilities that we carry on our balance sheet, which will allow in turn, us to improve our cash flow. And therefore, we remain confident that we will be able to sell our tower this year.

Now you've made excellent decision. Can you kind of quantify, what you think the effective interest rate is for having sold the towers? Since it does EBITDA instead of financing cost.

If you can imagine, and you also rightly mentioned, the demand out there, the other people looking at this, I prefer not to provide you, allow me not specifically answer that question, but to refer you to Page 5 of our presentation, where we've indicated that the cost of this funding to us about 7% overall. Okay, this includes disposal to submarine cables, mobiles towers and so on. So we continue to believe that it's much cheaper funding that we can have access right now in the banking systems, where as you know interest rates are running about 11%, 11.5%.

Our next question comes from Luigi Minerva of HSBC. Please go ahead.

Yes, good morning. A question, on your fiber footprint in Portugal. So on the back of the merger between Zon and Optimus and the investments that Vodafone is doing. Do you feel it's scope to increase your fiber footprint and do you sense that, the regulator would give you the opportunity to not wholesale fiber beyond the current 1.6 million homes? Thank you.

Okay. Thank you. We are quite happy with the footprint that we have today because that footprint was built on the basis, that we had segmented regulation. So it's worth mentioning that was the underlying assumption that allowed us to actually look at the fiber business and convince our board and our investors that, that was the right investment decision. Exactly, I think we've been able to deliver on results. Having 42% market share in Pay-TV as a new entrant in that game, in 2008. I think it's pretty good achievement, but going beyond 1.6 million with no regulatory visibility and so on and so forth, it's something that it's not in our plan. So, short answer is, no we are not looking to build more fiber in Portugal under current conditions. With regard to, others building fiber and the potential for they're being if you like infrastructure sharing in the future. We've never ruled that out, in the past. However, we believe that infrastructure sharing should be done on the basis of economics that make business sense. With regard to regulation, we also believe that one should not distinguish fiber from DOCSIS 3.0 we think that, this new generation network should be treated the same, simply because they can actually offer pretty similar services. So when you think about regulation it would belief that, if you want to promote investment in terms of upgrading of technology fiber and DOCSIS 3.0 should not be distinguished because the customer in the end doesn't quite distinguish them as well. So yes, we are happy with the 1.6 million that we have today. Yes, we are happy with the progress we've made in terms of penetration of our own fiber plans. Yes, we are quite happy with the fact that fiber has allowed us to reduce, if you like the cost of servicing our customers, but right now our focus is in driving penetration in the plan that we already have, thank you.

And our next question comes from Mathieu Robilliard of Exane BNP Paribas. Go ahead, please.

Good afternoon and thank you for taking the question. I had three questions, please. The first one, was with regards to the initially Vivo to the fixed wireless outside of São Paulo, now they're taking quite a bit of subscribers/ I wanted to know, if you see any impact of these initiative on your customer base or rather that taking customers that didn't even have a fixed line and that's the first question. The second one, is with regard to SME's and corporate in general in Portugal. Still revenue decline but quite an improvement from the previous quarters and kind of in the line of the same question for Brazil. I was wondering, if we should expect that to be an ongoing trend or should we expect some lumpiness and finally going back to the free cash flow, it's more for more to understand some of the necessities of Brazilian taxes, but you show in this quarter, big contribution to fistel and I understand this is for the full year. So there is some seasonality there, but you exclude it from kind of normalized free cash flow generation. My question is, isn't that the cost of doing business here in and churn be included what we consider regular free cash flow on a yearly basis. I understand, why you extract it, but on the quarter, but on a yearly basis. Using that just another drag on the cash flow. Thank you.

Okay, thank you. With regards to the Vivo, fixed wireless. I'm actually quite glad that you're asking this question. We also have a fixed wireless offer ourselves and so we are monitoring, whatever is happening in this market, in this regard. As you know, in some of the markets. Fixed wireless have not been very successful. If I understand correctly, at the end of the first quarter. They had about 653,000 customers. So I think and the run rate I think was about 30,000 a quarter. So in the context of those bigger numbers in Brazil. One obviously has to keep an eye on it, what mentioned most of the fact that, if you think about our DTH footprint, don't forget we also cover São Paulo. So I think, one has to look at the market, in a way that we can actually create value and improve profitability. So we are keeping a watchful eye on it. We have not ourselves given as a business. We have not done much in terms of fixed wireless, but it is something that we will continue to look at, but worth mentioning that I think end of April. They had done about 28,000 net adds. Second thing with regards to Portugal, SME's and revenue decline and lumpiness. The corporate segment as I said in one of the earlier questions. The corporate segment also has some lumpiness with regards to SME's. In Brazil, to turnaround in Portugal clearly you're seeing an improvement in performance, but being very candid with you, that improvement is against the backdrop where our revenues last year were down 11% to 12%. So obviously having fall in the 11% to 12% last year, we are certainly doing better this year and if you like the major concern continues to be…

So regarding the maintenance fistel fees. I mean, this is a cost of R$13 per client in the mobile base. It happens normally in the first quarter of the year, as it happened this year. In last year in 2013, for specific reasons. It happened in the second quarter, 2013, but normally as I now mention it happens in the first quarter and we've paid roughly R$589 million in maintenance fistel fees in 2014. So it is R$13 per client in the mobile business.

Thank you. Our next question comes from Giles Thorne with Jefferies. Please go ahead, sir.

Good afternoon, thanks for the question. I had two of these, first to do with Brazil. I wanted to start again with the impacts of the MTR and finally coming down, is probably fair to expect you were going to see a fresh acceleration in fixed to mobile substitution. Could you frame for us the risk, because you said you want to offset the headwind by pushing the convergent agenda indeed. It will be good to know, how much revenue you still generate from fixed voice and fixed voice traffic in Brazil base and judging by [5717] and it looks about a third of revenues in residential and secondly, it's quite notable. I was interested to hear you pick up on it as well around the importance of Anatel, later on complaints in mobile quality. There's a definite gap and a sustained gap, which is build up between you and your peers. On mobile quality and complaints and indeed on 4G coverage. Now all of these are clearly crispy for the data monetization and convergent strategy and indeed, it will probably be more important as ramp to pass a more price differential environment with the MTR coming down, can we have some color on how you think you can close the gap given your financial flexibility? That was just.

Great, thank you. With regard fixed voice revenues in the split. I think we already provide substantial amount of, if you like information about our business compared to some of another peer group companies here. So we don't quite give you that specific number in terms of breakdown, what I can say to you. Is obviously the trends in Brazil are not going to be very different to trend in other market. In the resident segment, you see declining. If you like voice revenues and increasing broadband and TV revenues and this is how you get your B2C to actually grow. So that's why, I've always said that we needed to work towards improving or if you like we needed to transform our business model away from being seller of single-play to becoming a multiple play service provider and the good news is that, the penetration of services in our own customer base, seems to be increasing. And therefore, we are beginning to deliver on that strategy. Granted there's a lot of work to be done. And in particularly, if you like one of the biggest challenges that we have is cultural, which is to get our people to focus on selling triple-play, as oppose to selling if you like single-play or double-play. So watch that phase, I think you'll see us talk a lot more about it and in some cases, with some levels of frustration because we believe that we can do a lot more, but the speed at which we can get done, will also depend on our ability to be better at execution of triple-play. With regard to termination rates, termination rates coming down. I frankly believe that, your point about fixed mobile cannibalization. My personal view is that, with penetration of mobile voice already well…

That'd be really great to hear the update. Can I just follow-up on something you said around same penetration being comfortably over 100% in Brazil, to my mind. It's not how many people have a sim, it's actually how much they're using it and the MTR finally coming down, it's going to reduce that community effect and drive data voice usage in mobile. So again, I just wanted – you basically said you're quite comfortable on the rest of the large amount of traffic coming off that big network on the mobile.

If you look at the minutes of usage in this market. They oscillate somewhere between 100 minutes and 160 minutes. So it's pretty high from that standpoint because it is a market that's very much driven on the back of promotions. Okay, traffic promotions. Obviously, in order for to live up to the challenge of having, if you like the best performance in terms of Anatel compliant, which I repeat, we actually were able to do in the month of March. So just to get, to get this preconceived idea about quality of Oi out of the way. I think the minutes of usage are quite high in this market already, what we are doing in that regard is targeting our promotions below the line, where we have capacity available and where we can offer this minutes without affecting the overall quality of service that we deliver. So my personal view and I take your point about, minutes of usage. Minutes of usage is high, termination rates coming down, opens up a slightly different discussion in my humble opinion and that is, that's the current divide between on-net and off-net. If you like carrots in Brazil, one have to collapse. Right now, some operators are leveraging if you like their performance on the back of the on-net, off-net divide and as termination rates come down. We will move to a market, where you will have a lot more on-net, unlimited plan. Now that has happened in Europe, for example in Portugal. Most of our, if you like offers right now with termination rate circa R$0.01 all net oppose to distinguishing on and off-net because if you don't in the end, consumer want. They want a flat rate and they want to be able to talk to any customers independent of the network operator that they're calling on. So my first note view, is that perhaps it's much more relevant. How the market will evolve between on, off to all net as oppose to fixed mobile cannibalization. If you're thinking about termination rates, at least that's my opinion. Thank you.

Our next question comes from Sumit Dutta of New Street Research. Please go ahead.

Good afternoon, couples of questions, please. First of all on Brazil, looking at the cost base, that's been a very good performance this quarter and last quarter and if I can just in terms of the cost base, if we were to adjust or interconnect and adjust for the new level of rental payment coming on this year. Do you feel comfortable about that adjusted cost base can be flat or down in 2014? And secondly, if I could ask about, cash flow on the judicial deposit payment and they're I think running at R$199 million this quarter and doesn't sort of appear to be any sign of that easing. Can you give any potential outlook on that particular cash flow item going forward, please? And then a final question, if I could again to go back to termination rate. The R$200 million the negative impact you indicated for this year, can I just check. Are you incorporating, assuming that the idea was fixed mobile retail price also being cut or is that just strictly on the MTR rate? And can you confirm, have got the fixed mobile retail pricing in line with the MTR rate? Thank you.

Okay, thank you. With regard to cost, again two-thirds of our costs are inflation length. Where inflation running at about 5.96% it means that, we have a headwind of about, 3.5% beginning of every single year. We therefore, have made productivity if you like one of the biggest challenges of our company. Now that's in the field course, that's in all the sales channel and so on and so forth. There's of course in our view also a low hanging fruit, which we are going after and therefore some of the – if you like improvements that you saw, third quarter, fourth quarter, first quarter are on the basis that we can some of these things happen faster, but this doesn’t mean that we are not working on more structural projects that will allow us to underpinned, similar sort of performance in the past. So we are working towards having a flat cost base in 2014. That's if you like, what we are looking to do, granted that's first quarter, we actually did much better. Even if you ignore if you like, any adjustments that was done to routine EBITDA and so on and so forth, our cost were flat. If you take into account, if you like the rentals. So I think for, the reason why we do business just to make it easier for you to follow the progress that we're making, but even if you were to ignore that. Okay, the 5167 [Abruptly disconnected]

Ladies and gentlemen and please hold on the speakers are reconnecting their line, please do not disconnect your phone.

Okay. Thank you. So apologies for this. With regard to so coming back to cause. We are clearly working towards having a flat, cost base which as I mentioned to you means that, we will be able to fend off the headwinds of inflation. If you look at our first quarter performance. Even if you forget about the adjustments that were done around, if you like rooting EBITDA, in order to facilitate your reading of all performance and making more transparent. If you think 5.167 that was impacted by R$166 million of rentals. So if you're just for what I believe is routine in that regard keeping first quarter, 2013 exactly the same as we reported. Our cost were flat, okay. And that in my view is all the key drivers, of what we're trying to achieve for 2014. Likewise keeping CapEx under control and by the way cost is not just Brazil but also in Portugal and CapEx under control both in Brazil and in Portugal. So if you look at the run rate of the CapEx that we posted in Brazil and in Portugal. It's actually looking much better than even if you like any number we've given to you in the past. With regard to judicial deposits. Bayard, you can add something but basically they're saying pretty much flat.

So over the last quarters, I mean we've been depositing around R$200 million was being able to control judicial deposits and that's our goal for the future. So we believe, numbers should remain flat.

With regard to the mobile termination rate, that's the number we've given to the market, that if you like factors in the drop that we are seeing and I frankly prefer to leave it at that. We think that, we can do slightly better than R$200 million, but that's the good number for you to be working in your model. Thank you.

Do you have time sorry for a quick follow-up on the cost question and can I just confirm when you're talking about flat cost, that is and sort of as reported not adjusted interconnect or anything, in which case then sort of bearing in mind the Q1, restatement? Your cost base last year was given or take about R$21.2 billion that's basically the number you're targeting for the cost base in 2014.

If you look at example again interconnection I agree it's marginal, but so I'm thinking about our overall cost, if you like and okay, but look at Page 30 of the presentation that we put out. We showed significant improvement in personnel, in others on discretionary spending. So line-by-line, if you look at the cost base of Oi, we are working towards, if you like improving our efficiency, lowering cost, renegotiating contractors, suppliers, line-by-line. One other thing that it's difficult for you to capture, but it has a material the impact of churn. If you like our ability to improve our efficiency of turning less gross adds and more net adds, has a very significant impact in our commercial cost and that can underpin profitability. So that's why I understand the focus on gross adds, that clearly. I mean I look at the conversion rate, then in that regards that will also allow us to, if you like do better in terms of commercial cost going forward. So when I think about, my space and gains us to make it clear about picking cost flat, it includes everything. Okay, so our top deck is including everything and but again, I believe that the way to look at it is the way that we have shown the adjustments that we have shown, why because we think that the routine EBITDA in 2013 included some events that were if you like not repeating and by giving you more transparency, I think it will make it easier for you to understand whatever effort that we are making or not making in the future to keep those under control. Thank you.

Thank you. Our next question comes from Carlos de Legarreta of GBM. Please go ahead, sir.

Thank you very much for hosting this conference. Just have a quick question regarding the Pay-TV markets in Brazil. If I'm not mistaken, you currently have a market share of own 5%. Do you have goal for this metric and if so what timeframe?

Thank you. It's difficult at the stage to tell you what we are driving for simply because we just re-launched our Pay-TV offer. So yes we have, what I can say to you is having 4.5% market share is clearly mediocre and we certainly should do better. If you work on a basis that we have less than a 1 million Pay-TV, 12 million fixed line customers, 5.3 million broadband customers and that we have a DTH platform that gives us international coverage. And when you look at some of our peer group companies when it comes to DTH HD and the 5 million customers as well. We can certainly do better, but having said that, allow me to say this. Our Pay-TV prices are aligned with other prices in the market. We think that marketing dollar should be spent not to compete if you like on price, but to promote the advantage of the people buying Pay-TV. So when you look at the read across, if you like – for us in terms of prices. Our prices are the same as our competitors, but we think that we a much better proposition, why because we more supply capacity as a result we can give you better HD and we can give you more global content. So we are not, if you like competing on price. We have not wish of competing on price. We believe that organically, the penetration of Pay-TV in Brazil can grow and on the back of that growth, we think that we can growth together. Now penetration of Pay-TV in Brazil, it certainly was 33% more or less. In terms of households, maybe less 30%. We can certainly do much better than that. I think, we have overall about 34 million Pay-TV customers in this…

Thank you. If I may just a final one. You mentioned very specific or at least synergies in the IT segment because of the Portugal Telecom. Do you have any other particular business that is clearly going to be positively impacted by say know how of the merger? Thank you.

In qualitative terms, what I can say to you and this is not capturing the R$261 million run rate in terms of synergies in operations. In qualitative terms, all I can say to you is that the fact the transformation that we wish to do in terms of business model and technology in Brazil. We've done it before, certainly makes it easier. With this if you like, we will certainly make mistakes going forward, but there will be different mistakes, not the same mistakes. So that is something which has a lot of value in terms of time to market and therefore if you like the – let me just give you one example, as it goes to generally about. If you look at our DTH offer in Brazil, that we just re-launched that work was done together between Portugal Telecom and Oi and why because in Portugal, we also run a DTH service and as a result, what we did, we used that experience, we innovated on it. So what we're doing in Brazil is actually even more innovative in the sense that we will have three types of setup boxes and one of them will be a hybrid setup box, which will allow our HD customers that have our broadband to also enjoy, if you like some interactivity as well, in terms of services. So it's not just about read across our technology from one market to the other. It's actually innovating the process and avoid making the same mistakes and do it and get it right, first time. So there'll be lot of areas, but ultimately it comes down to a number and I hope that, next time we speak second quarter's results, we hope that we can give you already some clarity, as to how much of that R$261 million we are beginning to realize. Thank you.

And our next question comes from Luis Prota of Morgan Stanley. Please go ahead.

I've two questions on the domestic business on Portugal sorry. First is on Pay-TV business. Your Pay-TV customers are already above your broadband customer base. So I wonder whether, you could us a split of IPTV versus satellite customers and what's the growth expectations you have here and in this regard, what's the cheaper play ARPU, that you're recording in the residential segment and how you're expecting this above taking into account your comment in the press release, that the TV growth might come from price sensitive segment. And the second question is on the prepaid to postpaid migrations. Thanks to M4O, I wonder if you could give us some data points in terms of ARPU, to figure out how [active], is this migration for mobile customers. So what's the ARPU for prepaid customers and what's the average ARPU you're accounting for mobile within this and follow-up for the difference impact? Thank you.

Okay, thank you Luiz. On DTH. We have about 295,000, 296,000 subscribers. Which I think, it's even slightly high as what our competitor has in Portugal, which means that when it comes to DTH our market share is actually above 50%. With regard to how you should think about pricing of mobility. If you like, our quadruple-play services in Portugal leaving to one side any promotional that we may and may not do, cost about €79.99. If we work on a basis, that's triple-play costing about €45 that has interest if you like on our pooling including VAT, of about €17.5, if you're just buying two sim cards, but if you're buying four sim cards, that would take you to for €12.5 including VAT. Which means that in circa €7 of ARPU. So as you can imagine, this represents an uplift in terms of ARPU compared to where we are and what we report today, as mobility standalone and this is why, what we have said in the past. Is where as triple-play is about churns quadruple-play is about re-pricing of mobility. So I think as we continue to push in to direction of making M4O. A family package, the benefits for our customers improve and this is why it's good to report that 41% of our customers have more than two sim cards. So they have either three or they have four, which goes to actually in the direction of the point that I made earlier, that the more you buy from us, the better deal you end up getting. That was two of your questions and I think you had a third one, what was it?

It's about the potential.

What are the thing which you mentioned in the presentation and you must have seen, is that M4O is also allowing us to gain share for about 40% of that customers that we are 35%, 40% of the customers that we're getting are new customers from Portugal Telecom. So these are people that are coming into our ecosystem. So and this is why our market share is growing, that's why in mobility. Our market share GAAP vis-à-vis, the second operator has actually grown substantially in the last 12 months to 15 months. Sorry, you were asking?

No, I was trying to get a sense on what could be the potential growth for Pay-TV customers and the Portugal taking into account, the high penetration. You were giving me the 295,000 DTH customers, so that is some room, until you have 100% penetration of your broadband customer base. I don't know whether that was reading or in the – that we are expecting some market growth that could pressure the growth in your HD customers in Portugal? Thank you.

I think what we have experienced is that as we move from analog to digital in Portugal. Clearly that was if you like on trigger event for customers to query, whether they wanted to buy into Pay-TV because they would have to had to buy the coder anyway. So from that standpoint, that was a positive event at least in the Portuguese market. The second thing is, yes it did have significant amounts of competition between us and other companies that are operate in Portugal, but that was very beneficial in promoting the advantage of a few having one triple-play and two Pay-TV. Like as I mentioned earlier in connection with the Brazilian market, the fact that this year, 15 million TV sets are expected to be sold most of them will be HD, HD Ready and the World Cup is likely to all about HD. And assuming that, we are using our marketing dollars to promote the advantage of having Pay-TV as such they will help you increase penetration, but we are at 79%. So clearly our growth in the future will come in the back of some market share growth, that we continue to see, but also one should not move out that 80% actually growing a bit in the future, but certainly not that related assuming the path. As far as we are concerned, one of the big positives of Portugal Telecom in the domestic market is that, culturally speaking we are sellers of voice, we are no longer sellers of voice, we are sellers of content and TV and that is something, which is very much engrained in the DNA of the company and it's not something that happens overnight and from that standpoint, the fact that we do have significant experience on cable in the past, it helped us a lot.

Thank you.

Okay, thank you very much for being on the call. Again sorry to actually kind of allot your time. My team and I are very grateful for you being on the call and of course, they're all available to answer any more questions that you may offline. I look forward to seeing you in the future or if not in our next conference call. Thank you, bye.

This concludes Oi's SA conference call. Thank you very much for attending today's presentation. You may disconnect your line. You have a good day.