TNE TNE
Q2 2011 Earnings Call Transcript

Operator: (Michel Morin), Morgan Stanley.

Michel Morin - Morgan Stanley: I was wondering if you can elaborate a little bit on what is causing the churn. I think that you’ve mentioned that you’ve been more active at disconnecting inactive or less active or unprofitable subscribers. So, the question is, how long will this continue for, did we see a spike in the quarter and are we going back to more normal levels of churn in the second half of the year? If you can give us what your own internal targets are for churn, that would be very helpful? Secondly, on the fixed line portion of the business, your service revenue there is still falling, by my calculations, about 11% year-on-year, and your data revenues are also down slightly. So, when should we expect to see your efforts to reduce disconnections and to stabilize the fixed line business start to bear fruit?

Alex Zornig - CFO, IR Officer: Regarding the churn, our target is to be zero, but as you know, it’s not easy. You are right. This spike we have in the second quarter of 2011 was something unusual comparing to our historical cleanup and I would say, it’s unusual comparing to what we are going to have in this next quarters. What we did is, in order to avoid having unnecessary costs, we cleanup all those customers that any operator has in Brazil, but we are the first ones to cleanup, that for the last 90 days they are not using their chip. So we cleaned up 6.3 million customers from our base, that's why our net adds is very low comparing to our peers, but you need to compare the gross adds instead of net adds. So, I would say this quarter sure is unusual comparing to what we expect for the next quarter. Regarding the fixed line revenue decrease, I would say the bad news is that our fixed line voice, revenue is still decreasing. The good news is that the speed is lower than if you compare it to the previous quarters. Of course, that we are working with Oi Conta Total now, and we launched the last quarter of 2010 Oi Conta Total in the South of Brazil and that will help us to slow down the depreciation of our customer base. Also with bundling not only Oi Conta Total, but other products in with TV is one example that something – when the law allows us to bundle TV with our fixed-line plus broadband, plus mobile, we'll be able to slow down. So far what we are doing is try to compensate offset the decrease in our revenue on fixed with increasing broadband and mobile phone.

Michel Morin - Morgan Stanley: If I can just follow-up on the churn on your answer on the churn question, so you disconnected 6.3 million or so subscribers in the quarter and prior quarter was more like 3 million. So, if we’re trying to kind of normalize for what a regular level of disconnection should be, can we assume that there is roughly 3 million people that you took out of the base from this cleanup and that we should not see that happen again in the next couple of quarters?

Alex Zornig - CFO, IR Officer: Yeah, I would say 2 million to 3 million ballpark is a good number.

Operator: Andrew Campbell, Credit Suisse.

Andrew Campbell - Credit Suisse: My question is on EBITDA margins and we’ve seen quite a lot of volatility in recent quarters in the margins. So, I was wondering if you could give any insight into whether or not the 2Q level appears sustainable going forward or any additional color that you can provide in that regard?