Good morning, and welcome to Telefónica's Conference Call to discuss January to June 2019 results. I'm Pablo Eguiron, Head of Investor Relations. Before proceeding, let me mention that financial information containing this document related to the second quarter 2019 has been prepared under International Financial Reporting Standards as adopted by the European Union. From the 1st of January, 2019 we implemented IFRS 16. In organic terms, the effects of the accounting change to IFRS 16 are excluded and this financial information is unaudited. This conference call webcast including the Q&A session may contain forward-looking statements and information relating to the Telefónica Group. These statements may include financial or operating forecasts and estimates based on assumptions or statements regarding plans, objectives and expectations that make reference to different matters. All forward-looking statements involve risk, uncertainties and contingencies, many of which are beyond the company's control. We encourage you to review our publicly available disclosure documents filed with the relevant securities market regulators. If you don't have a copy of the relevant press release and the slides, please contact Telefónica's Investor Relations team in Madrid or London. Now let me turn the call over to our Chairman and CEO, José María Álvarez-Pallete. José María Álvarez-Pallete: Thank you, Pablo. Good morning and welcome to Telefónica's second quarter and first half results conference call. With me today are Ángel Vilá Chief Operating Officer; and Laura Abasolo, Chief Finance and Control Officer. Following our presentation, we will host a Q&A session and take any questions you may have. I'd like to begin this presentation by highlighting that we have the widest and most advanced ultra broadband network with 121 million premises passed with ultra broadband or fiber to the home, the world's largest footprint excluding China. Our key areas of focus are; first, business sustainability starts with unabated momentum in high-value accesses, growing double digit both in fiber to the home cable and LTE with average revenue per access accelerated its growth to 4.4% year-on-year in the second quarter. Digitalization translates into longer customer lifetime value, benefiting our customer satisfaction from a world-class digital experience. Second, our growth is reliable and sustainable. Broadband connectivity and service over connectivity already account for 55% of total revenues was 48% three years ago and are increasingly less exposed to regulation. Efficiencies and digitalization savings helped to translate top-line growth into improved OIBDA trends in the second quarter with operating cash flow turning positive and free cash flow reaching almost €3 billion in the first half at 78% year-on-year. Third, we have the best technology at the customer service with the most advanced networks in Europe and Latin America. Networks, which are flexible, secure and virtualized, software based and with an open architecture that integrates the element of artificial intelligence. We are number one in digitalization and artificial intelligence and at the same time moving towards 5G though at the right speed. And fourth, our balance sheet continues to strengthen with net debt coming down to -- for the ninth consecutive quarter and standing below €39 billion including post-closing events at the end of June. This clearly reflects our focus on deleverage and our ultimate goal to improve return on capital employed. Through all this we can continue returning value to our shareholders. To review Telefónica's financial achievements in the second quarter, please move to slide number two. Reported headlines were positively affected in the second quarter by IFRS 16 accounting standards and some other special factors whilst negatively impacted by FX movement against the euro regulation and perimeter changes. Consolidated revenue reached €12.1 billion, growing organically 3.7% versus the second quarter of 2018. OIBDA exceeded €4.4 billion, improving its growth rate to 1.6% year-on-year. Operating cash flow as expected totaled €2.6 billion, up 0.9% year-on-year back to growth after the declines in the first quarter, which was mainly due to CapEx phasing. Net income reached almost €900 million in the quarter. And free cash flow again strongly expanded 35.1% year-on-year to €1.3 billion. Net financial debt stood at €40.2 billion at the final of June, 5.7% lower than a year ago. Let's now move to guidance on slide 3. We are well on track to deliver our full year outlook across all three metrics as our first half figures are in line with expectations. We reiterate our guidance of growing revenues and OIBDA by around 2% in the full year with CapEx to sales standing at levels of 15%. Regarding our dividend, we paid the second tranche of 2018 dividends of €0.2 per share in cash on the 28th of June. We confirm the €0.4 per share in cash for 2019, first tranche payable on the 19th of December, and the second tranche in June 2020. On slide 4, we show how we again delivered robust financials in the second quarter. Revenues get their healthy organic growth rate with all regions growing in the second quarter. Europe maintained its momentum and increased by 1.7% year-on-year and LatAm growth by 6.2%. By components, service revenue grew by 2.3% with handset sales accelerating the handheld growth rates to 16.7%. It is worth highlighting the performance posted by digital services and the B2B segment, up 19% and 4.3%, respectively. Reported revenues were almost flat in the quarter, improving the trend from 1.7% annual drop seen in the first quarter. At the OIBDA level, we show sequential improvements with Europe coming back to growth at 0.5% and LatAm growing by 3.2% year-on-year. Excluding regulation and inorganic terms, revenues and OIBDA would have accelerated its growth trends to 4.5% and 1.9% versus the first half of 2018. In reported terms to note, second quarter revenues are almost flat year-on-year after eight quarters of consecutive decline. In reported terms, OIBDA growth is impacted by the second consecutive quarter by IFRS 16 adoption. Finally, operating cash flow reversed the first quarter trend and shows annual growth, improving by 610 basis points due both to the better operating performance and lower CapEx intensity once phasing impacts fade away. Turning to slide number five. Let me share with you some more details for the B2C segment. Customer experience remains our top priority. Through simple, flexible and tailor-made quality offers, we deliver a better customer experience, increasing user engagements and monetization. Video remains the key driver for value and loyalty improvement, with total TV accesses up 5% year-on-year and over-the-top video service Movistar Play expanding by almost 60% after its launch in Mexico and Argentina last quarter. In June, we launched our over-the-top Movistar+ Lite in Spain, which is delivering so far promising results. Ultra broadband uptake is growing significantly in both retail and wholesale. Worth spending some time on Movistar+ leading position in Spain, with through differentiation continues growing in relevance among our client base. Not only total users grew to eight million this quarter, but offer functionalities show as well increases in usage as that audience share defer consumption and other features. All-in, lifetime value for our customer improved through better churn versus non-TV fixed broadband customers more than 30% lower and significantly higher ARPU. Finally, our customized offers also play in prepaid and contract mobile, with more personalized benefits such as data sharing or data transfers that help us to increase usage satisfaction and ARPU. We now move to slide number six where we show how B2B representing 20% of Group revenues maintains its pace of growth. Around 5% year-on-year on the back of strong trends in corporate as much as 8% year-on-year growth in the first half of the year and improving trend in SMEs 3% growth in the second quarter, namely in our LatAm operations. The evolution of the B2B portfolio are on a digital core of communications, cloud and security services, with building blocks of best-in-class portfolio of owned and third-party digital services delivers strong revenue performance. Worth highlighting the agreement signed with Google Cloud and Microsoft during the last quarter further enriching our portfolio. Fit on the best networks, the B2B proposal evolves towards customer-centric end-to-end solutions with operational excellence. Let me just highlight cloud and security services and our virtualized IoT platform widely awarded and considered as an industry reference. Moving to slide seven. In the first platform, we already cover 121 million premises with ultra broadband, having the world's largest footprint ex-China. Furthermore, up to 60% of processes are already digitized and managed in real-time. And 30% of our customers have been migrated to full stack. We continue digitalizing our network, making it more virtual, more converged and scalable, and more efficient with CapEx needs in core representing just 40% of when needed for our legacy infrastructure. The third platform provides an enlarged offering with digital services revenue growing by 19% annually in the second quarter. And lastly, the fourth platform enriches all the above with artificial intelligence and open platforms. New functionalities are available in Movistar Home. And more use cases with big data and data analytics facilitate our decision-making process. I now hand over to Ángel to take you through a detailed review of the business performance. Ángel Vilá: Thank you, José María. On slide eight, we start reviewing the performance of our Spanish operations, which showed remarkable commercial results in the quarter, thanks to a premium quality differentiated offering. Once first quarter tariff upgrades effect was left behind which had an impact on commercial trading, we improved net adds in each and every market segment during Q2. Worth highlighting is the net adds growth in the higher value with 326,000 net adds in mobile contract, 37,000 net adds in conversions, and 11,000 net adds in pay TV, despite the negative seasonality of the end of the football season. Pay TV customers already make for 81% of our total conversion base, a three percentage points increase from the same quarter last year. Furthermore, churn improves as well in all segments, proving our pricing power and backing our More for More strategy and above all increasing our customer's lifetime value. Convergent ARPU shows sequential growth and stands at €88.5 in the second quarter, up from €88.2 in Q1. The year-on-year comparison is penalized by phasing effects of tariff upgrades, which should nevertheless reverse as from Q3 and go back to annual growth once last year's football promotions expire and the impact from recent tariff upgrades in the higher end of our conversion base start to be felt. Finally, it is again worth highlighting that Telefónica España continues growing its share of net adds in Spanish fiber. Putting together retail and wholesale customers, Telefónica España's share in fiber net adds during the quarter stands above its overall market share, with update growing to a combined 27% in the second quarter, bringing in visibility and sustainability to our business. Moving onto slide nine. Service revenues grew for the eighth straight quarter at Telefónica España. The sequential slowdown due to the mentioned negative phasing and tariff calendar effects in B2C and certain seasonality impacts in B2B will be reversed in the second half of the year, mostly driven by an improving mix of customers and ARPU growth in B2C on tariffs uplift and promotions expiring. B2B revenues slightly increased year-on-year growing for five straight quarters already, while wholesale and other revenues continue showing an improving trend, once drags such as MTR cuts and MVNO agreements are removed. We should expect this trend to remain in the second half of the year. OIBDA performance is similar to that seen in the previous quarter. And organic margin improved quarter-on-quarter. Again, we should expect solid margin outlook in the second half once top line trends improve and content comparison base eases. Moving to slide 10. Telefónica Deutschland delivered a strong trading and operational momentum in both owned and partner brands. This commercial performance has been supported by recent industry tests in which O2 showed strong network and service quality improvements. During the quarter Telefónica Deutschland posted 301,000 mobile contract net additions with a significant contribution from partners with a focus on 4G. O2 continued driving to take the growth as much as 41% year-on-year to 4.8 gigabyte per month end user. A key development worth highlighting is the MSR turnaround fueling sustained revenue growth of 1.6% year-on-year together with another quarter of strong handset sales, up 12.9% year-on-year. OIBDA trends reflect regulatory impacts as well as ongoing transformation and market investment for future growth. CapEx strongly increased by 16.9% year-on-year in the first half mainly due to the front-loaded LTE rollout and network densification, a trend we expect to normalize over the year. Moving to Slide 11, Telefónica U.K. produced another robust set of results with healthy top and bottom-line growth on the back of solid commercial trading with 392,000 mobile contract net adds. The company demonstrated once again its market-leading position and remains the U.K.'s favorite mobile network with a sector leading loyalty of 0.9%. Revenues grew by a healthy 4.8% year-on-year as a result of ongoing success of O2's flexible tariffs leading to further traction in handset sales and other revenues. OIBDA delivered a robust annual growth of 9.2% in the second quarter. Operating cash flow strongly improved by 10% year-on-year in the first half, while the company successfully continued its sufficient investment in network capacity and customer experience. On Slide 12, we start reviewing our Brazilian operations, while we continue leveraging on our unmatched assets to maintain and even grow our market leadership. First, and as regards to mobile business, Vivo led the latest connect mobile review. And we are ranked not only as the best mobile network on a national basis, but also showed the best voice and data coverage. This allowed us to increase our market share in the Brazilian mobile market to 32.2%. We have been able to improve our contract net additions from Q1 and also report a significant improvement in prepaid revenue strength which for the first time in the last seven quarters show single-digit annual decline. Total mobile ARPU grows 1.5% year-on-year roughly in line with Q1, ahead of contract price increases of 9% effective in August. As for the fixed business, our efforts start bearing fruits. An improved customer mix results into fixed broadband ARPU growth accelerating to 16% year-on-year in Q2 from 14% in the previous quarter. We have already passed 9.5 million homes with fiber-to-the-home 2.2 million homes already connected. We offer our IPTV service in all cities with fiber-to-the-home 142 versus 130 at the end of Q1 which should be a further driving force to future revenue growth. Pay TV ARPU including DTH ARPU grows already by 5.5% year-on-year in Q2. Next slide shows that our strategy of seeking profitable value results into sound free cash flow growth despite investment efforts. Total service revenue acceleration in mobile contract is to be reversed as from Q3 on the mentioned tariff upgrades. Mobile prepaid revenues on their side improved significantly their trend which coupled with handset sales and a lower drag from the fixed business allow for 0.4% total revenue growth despite tariff calendar and a tough competitive environment. OpEx performance, helped by digitalization savings, stands out for another quarter again being able to beat inflation. OpEx growth by 0.4% year-on-year which compares with 3.4% inflation rate and showing as much as two percentage point sequential improvement. OIBDA margin stands above 40% in the first half of the year. This allows for free cash flow growth of 13% in the quarter no matter CapEx to sales remains at 19% on the ongoing business transformation. Moving on to the review of our Hispam operations and starting with South Hispam on Slide 14, we would highlight service revenue trends improving in the quarter, driven by strong growth in value KPIs with positive contract net adds in all countries. This is the seventh straight quarter of positive mobile contract net adds in the region. Our revenues grew by 17.6% year-on-year in organic terms with Argentinian revenue growth accelerating on tariff increases and value accesses growth. In Peru, our convergent offer Movistar Total the first and only truly convergent option in the market is showing promising results so far with around 100,000 customers having already signed up. OIBDA shows a significant increase from the previous quarter, thanks mainly to the better performance seen in Argentina and Peru. As for North Hispam on the next slide we continue seeing good commercial performance, thanks to an acceleration in contract net adds in Colombia following a More for More strategy and still improving commercial trends in Mexico that shows positive contract net adds for the third consecutive quarter. OIBDA performance remains penalized by recognition of spectrum fees as OpEx in Mexico. Should we exclude Mexico, OIBDA would have maintained similar year-on-year trend versus the previous quarter growing plus 7.6% year-on-year in Q2. On slide 16, we take the opportunity to review not only Telxius quarterly performance but also its success story over the last few years. Telxius has been steadily growing in value leveraging on its brand infrastructure and a well-planned strategy that is bearing fruits. And we wanted to share some of these conclusions with you. In terms of portfolio and after adding almost 800 new towers in the quarter, total number of sites stands at 17,600, 11% higher than 2016. Over this period, tenancy ratio has increased 1.36 times with tenants other than the anchor tenant having grown by 43% since December 2016. Revenues and OIBDA maintained their solid growth rates in the quarter, posting double-digit rates on a year-on-year basis. Telxius has been able to post mid to high single-digit growth in revenue and OIBDA, excluding capacity sales at the cable business for the last couple of years. We see room for further revenue and OIBDA growth, and visibility provided by an enlarged portfolio and room for increased tenancy ratio. This should provide clear support to the value of case. These strong results displayed by regions and OBs are supported by group-wide projects, aiming to increase customer engagement, value and efficiency. Today, I would like to touch upon three of such projects: device relevance, digital transformation, and network optimization via sharing and legacy switch off. Starting with devices on slide 17, we look in more detail at how we can improve customer value via hardware sales. Handset revenues that grow by about 17% year-on-year in Q2 already make for 11% of our total revenues. This does not only bring in revenue and OIBDA growth, but also helps to increase customer engagement and loyalty, and accordingly improve customer value. Looking at our own experience and test cases run in different markets, we can say that customers buying their devices in our channel show lower churn and higher ARPU. This is a sizable opportunity, as only 30% of our customers renew their handsets with us. Through Phoenix, our digital renewal program, we are starting to offer our customers a cyclic app-based renewable process. This does not only increase revenue, as said before. Customer satisfaction improves. And the weight of digital sales in our distribution channels, hence efficiency, increases as well. We are prompting a fast rollout of Phoenix and the program will be implemented in nine countries during 2019 being already active in five countries. The size of this opportunity is not limited to our handset renewal only. We aim to optimize our sales cycle and include other devices accessories and services with significant upside in all geographies. Slide number 18 shows how we are advancing in our digital transformation program, pushing for further engagement and efficiency gains. As such, the execution of the several initiatives set around sales, customer service digitalization and process automation is translating into higher use of digital channels, better customer experience and additional savings to the ones captured in 2018. Among other relevant indicators in the first half of the year, digital channel operations are growing 28% from the year before, while scores to contact centers are down 12%. As a result, we are progressing well on track and already capturing at the end of the first half, 45% of the targeted savings for this year of more than €340 million. Moving on to slide 19, we highlight our focus on optimizing networks. Network sharing agreements are an opportunity to reduce costs and investments, while improving coverage and quality. Our customers will benefit from faster rollout of new networks, and we capture resources which maybe redirected to other investments. Worth to mention is exclusive agreement signed with Germany with Vodafone to gain access to their cable networks, and the recent agreement signed in Brazil and the UK to share both, 2G, 4G and 5G deployments with relevant efficiencies behind. We continue to be open-minded analyzing any potential opportunity on this front. On the other hand, we're already progressing in legacy shutdown, a result of our transformation journey. In mobile, we are reusing two 3G spectrum to 4G, which has a much higher spectral efficiency. In fixed, investment and legacy technologies are reduced, and we are pioneering in the copper, central offices decommissioning, having closed more than 400 central offices so far in Spain and announced more than 1,500 closures. All this is part of a 6-year plan, where we expect to enter savings coming from asset sales, energy savings and lower maintenance costs, and CapEx savings coming from both from deployment and maintenance. I, now, hand over to Laura.

Thank you, Ángel. Moving to slide 20, net income reached almost €1.8 billion, up 2.8% versus the first half of 2018, despite the negative impact of ForEx and IFRS 16. Earnings per share stood at €0.32, 12% more than in January to June 2018, reflecting the good operating performance and efficient financial management. FX movements continue waiting as slide 21 shows. Negative impact of FX was nevertheless reduced in the second quarter due to the Brazilian real and Argentinian peso improving trends versus the first quarter. Again, it is important to mention that the FX drag is not really hedged in our business or on local currency spending in CapEx, interest payments, working capital and others. June -- and up to June, a negative FX impact of €332 million at the OIBDA level is mostly neutralized at the free cash flow level, where we have the negative impact of just €91 million. Regarding net debt FX helped to bring it down by €49 million in the last 12 months rolling. On the slide number 22, you can see how strong our free cash flow generation has been over the period. In the second quarter of the year, free cash flow surpassed the €1.3 billion mark to reach almost €2.8 billion in the first half, 78% higher than in the same period last year. This significant growth rate is mainly driven by the better performance of operations and lower working capital consumption, taxes and minorities. For the second half of the year, we expect free cash flow ex-spectrum to improve. As José María mentioned at the beginning of the presentation, free cash flow remains the sustainable driver for further deleverage. Let’s now move to balance sheet metrics on the slide 23. We present another quarter of debt reduction, nine in a row. Thanks to our strong free cash flow generation that as mentioned before reached €2.8 billion in the first half of the year, comfortably exceeding dividends, hybrid coupons and commitments while helping to bring down net debt. Taken into consideration, post-closing events related to inorganic measures also contributing to debt payment journey with free cash flow generation, net debt figure would stand at €38.7 billion, and imply net debt to EBITDA ratio that comes down to 2.56 times. Lastly, let me mention that under IFRS 16, net debt could be impacted by €7.5 billion worth of leases. Slide 24 presents Telefónica's ample and diversified financing activity, totaling €6.5 billion year-to-date, contributing to both an extension of our average debt life to more than 10 years and a robust liquidity position of close to €24 billion. Such financing activity has been executed at historical low interest rate that has allowed us to bring down our interest payment effective cost to 3.35% as of June 2019, 0.2 percentage points lower than in June 2018. I will now hand back to José María for a final recap. José María Álvarez-Pallete: Thank you, Laura. To summarize, second quarter results proved again consistent business plans and execution skills and fundamentals. We continue putting the best technology at our customer service, relying on our network leadership, having the world's largest ultra-broadband fiber footprint ex-China. This allow us for better customer experience and translates into higher revenue per access. Digitalization also benefits our customer satisfaction, whilst helping through efficiencies to translate top line growth into improved operating trends. We can then continue posting good levels of profitable and sustainable growth in revenues, OIBDA and operating cash flow. This helps leverage and we have been able to reduce again net financial debt for nine straight quarters already. And finally, following these results, we can also say that we are fully on track to meet 2019 guidance. Thank you very much for listening. And now, we are ready to take your questions.

[Operator Instructions] Our first question comes from the line of Mathieu Robilliard from Barclays. Please go ahead.

Good morning. Thank you. I had two questions, please. First, with regards to asset sales, so you've done quite a number of asset sales in good condition over the last few years. And I was wondering if you're reaching the end of that process, so you still think there are opportunities to sell assets that are not earning and the desired cost of capital don't have the prospect too? And second, with regards to Spain, I think, you mentioned in the presentation that you expect the revenues to improve in H2, which is potentially in-line with what you've been saying the past quarters. I was wondering if that statement is true also for the EBITDA. Because, I think, in previous quarters you had indicated that you're expecting flexing EBITDA in the second part of the year. Thank you. José María Álvarez-Pallete: Thanks, Mathieu. Regarding your first question on portfolio optimization, over the last year we have reshaped our portfolio actively, managing our assets and looking for profit or growth. We have been investing a few years ago in Germany and Brazil and we have been divesting or optimizing capital allocation like the case of Telxius and tariff or data centers for Central America improving ROCE. We are consistently reviewing our portfolio. And in fact, we have classified all our assets and geographies in an infrastructure in three categories, in order to project this ROCE evolution. And we benchmark -- we have benchmarked the ROCE derived from the organic margin with any potential inorganic opportunity. And that's why we have been taking the decision of divesting in Central America. At the same time, we think that we have been able to reinforce our balance sheet for three quarter -- for nine quarters in a row, thanks to organic free cash flow generation and decent organic move. And as a result, we don't feel forced to sell assets anymore, just for deleveraging purpose. But we would do so in order to try to optimize return on capital employed. We have a balance sheet that totals €122 billion and therefore we think we still have room to optimize return on capital employed. So you should expect from us to stick to this classification of assets into these three categories, the ones that are core, the ones that are to develop and the ones that are to divest and that includes geographies, infrastructure and products and services. And therefore, we are not in a rush, but you should expect from us to keep being very selective and very focused on return on capital employed. And therefore, we still think we have room to grow on this portfolio optimization. Ángel Vilá: And regarding the second question, first, I would like to highlight that service revenue has been growing for eight consecutive quarters in a row in Spain. The gross components, and I said in the presentation but I want to reiterate, B2C will return to growth in half two, with accelerated growth on better comps, solid commercial ARPU uplift coming from the tariff upgrade effective now in the summer and the end of the promos of last year football season and improved trading. In B2B, growth is also expected to accelerate in half two, once the punctual impacts of the second quarter are behind. Wholesale and others is growing nicely. We expect similar trends. So Q2 is expected to be the lowest year-on-year growth in service revenues in Spain and we will recover stronger growth in the second half. Then moving to OIBDA. In the second quarter what we have seen is, OpEx going up due to higher cost of TV content and IT, offset by lower personnel and commercial costs. When we look towards the second half of the year, we're going to have lower year-on-year growth in net content costs comparison in this H2 versus H1. We'll have further efficiencies in commercial channels, call centers, network, IT costs from digitalization, automation, which will allow us to continue posting benchmark margins. OIBDA margin has improved 1 percentage point from Q1 to Q2. And we expect half margins in the second half of the year, broadly similar to the average margins of the first half. So this means, as we have said before that we continue to aim towards not declining OIBDA in Spain in 2019, which would be an achievement not seen for the last years. So we continue aiming towards OIBDA not declining in Spain.

Thank you very much.

Thank you, Mathieu. Next question, please.

Thank you. The next question comes from Jakob Bluestone from Credit Suisse. Please go ahead.

Hi. Good morning. Thanks for taking the questions. Firstly, just staying on Spain, where, as you just pointed out, Q2 was a slowdown in terms of service revenue growth. And you mentioned during your presentation that it's largely ARPU driven. Can you maybe give a little bit more color on the deterioration in the ARPU? So your convergent ARPU went from growing slightly to shrinking slightly. Can you maybe just, sort of, help us understand how much of that is comps? How much of that is competition picking up? How much is dilution from no-frills brands or other factors just to sort of help us understand a little bit what lay behind that slowdown in ARPU? So that's the first question. And then just secondly, I mean, you obviously in your presentation mentioned optimizing networks and I'd just sort of be interested if you could update us on your thoughts on tariff sales across some of your key assets what's sort of your thinking on that. Thank you. Ángel Vilá: Thank you, Jakob. On the first question, let me talk about all the moving pieces in the convergent portfolio. The convergent performance is measured by several KPIs; the customer base, the mix of the base, the churn and the ARPU that you were asking about. On the customer base, we are sustaining the commercial momentum. The customer base in conversions is up quarter-on-quarter and year-on-year, year-on-year plus 4.1%. We have 22.8 million accesses and 4.7 million customers. The mix also remains attractive and skewed towards the higher-value packages which account for 28% of the customer base up 1% year-on-year. Fusión churn has improved significantly from 1.7% in Q1 to 1.46% in Q2. And regarding the ARPU it stands at 8.8 -- €88.5 which is up sequentially 0.3% quarter-on-quarter, but is down year-on-year on the following factors. We have a positive impact from tariff upgrades. But the different calendar and the different size of the tariff upgrades is weighing on this year-on-year comparison. We have a positive impact from upselling. We have a dilutive effect from promos that have taken place in the last 12 months. We have also had a dilutive effect from mobile add-ons migrating to Fusión multiline impacts and less out of the bundle. And we have a dilutive effect from the multi-brand convergent offers. We are not only offering convergent propositions in Fusión, but also in O2. ARPU ex-O2 would be growing year-on-year. José María Álvarez-Pallete: Taking your question on networks mobile networks 5G and towers potential network sharing well, first let me remind you that at a group level we have roughly 130,000 sites, 900,00 just on LTE. And therefore -- and we have probably one of the largest if not the largest ultra-broadband fiber network in our territory. So therefore, we still have a significant room to grow in order to enhance return on capital employed by network sharing. Focusing on towers, I mean, if we were to focus for example in UK CTIL owns and operate roughly 18,500 towers and already has two largest tenant customers of high financial profiles such as Vodafone and O2. Therefore in the current market environment, it has a significant intrinsic value and we and Vodafone are aligning our intention to crystallize that value. We think that tower sales are probably no longer an effective way of executing such transaction because with the new accounting standards it becomes a very expensive way of financing. And therefore, we think there are other more effective ways of executing sales transaction. But if you add to this amount of towers in the UK the fact that Telxius owns and operate roughly 17,500 towers and we have 20,000 towers just in Germany you will have a better idea of the value that such an asset could have and the potential value creation and debt reduction if we were to churn crystallize the value of those assets. So you should expect from us to be very focused on optimizing this value and at the same time preserving our competitive advantage wherever we have that competitive advantage. So yes you should expect us to be very active on those fronts.

Thanks very much.

Thank you, Jakob. Next question, please.

Thank you. The next question comes from the line of Georgios Ierodiaconou from Citi. Please go ahead.

Hi. Thanks for taking the questions. I have two and actually mostly follow-ups. I'd be interested if you could perhaps link the discussion around network sharing with some of the disposal options you have available. In particular, if you could give us a bit of an idea around the agreement you have in Brazil with TIM whether that could be replicated in the rest of your footprint and how that links then with any monetization options you have on the tower side. And then my second question is around network virtualization. And there's been obviously talk about turning off 3G in Europe in the next two or three years. If you do 2G sharing with other operators and network virtualization I just wanted to get an idea of what is the path that you see in the coming years in reducing perhaps both the cost and capital intensity of the industry if there are any numbers you could give us if there are numbers that are out there sound credible to you. Any help with that will be appreciated? Thanks. Ángel Vilá: Hi, Georgios. We'll start with the first question. We announced an MOU in Brazil with TIM, but open to other parties. That has the objective of improving return on capital employed with allocating CapEx smartly by two ways; first, deprioritizing legacy technologies; and second, sharing the cost of investment in new technologies or higher return technologies. So one leg of this agreement is a full 2G network sharing in a single grid format with the objective of switching off one of the two networks or if other people want to join additional networks in each one of the regions. This is purely on the way of deprioritizing and making more efficient the return on legacy technologies. This can be extended to any and all geographies in our footprint. The second leg of the agreement that we announced in Brazil is sharing the deployment of 4G at this stage in a subset of cities. This has to be developed over the next 90 days between the parties that has to be approved by regulators and depending on the sort of this analysis this could be increased to more cities than the ones that are originally envisioned. We also contemplate as a result of the work in the next 90 days opportunities to share in other frequencies the technologies. But here, we will as always be looking not to give away where we have technological advantage. And we will also include reduction opportunities regarding operations and maintenance across the networks of the different players. So this is both on the deprioritizing legacy technologies and on making more efficient investments in new technologies. José María Álvarez-Pallete: Taking your second question. As a sector, we think we have a significant opportunity to enhance ROCE through our network sharing. Every network element that does not represent a commercial competitive advantage is a candidate for churn. That includes infrastructure, access, transport or roaming agreements. Those are all different alternatives that can offer a full range of possibilities. Passive or active sharing are both to be considered depending on markets and the relative market share that we have. It makes no sense to be ready to give access to a brand-new fiber network, because it represents an opportunity to accelerate returns and at the same time to preserve four or five 2G or 3G networks per country. It makes no sense to start deploying 5G without radically simplifying through network sharing legacy technologies. And it is in this framework that you should read all the agreements that we have signed with Vodafone, TIM or the sitting one with Millicom in Colombia. And we are working as we speak on several other projects of the same kind. In terms of virtualization for 5G namely there are two parts of virtualization: the core virtualization or to RAN virtualization. Core is more advanced and we are probably market leaders on that regard with our UNICA technology. And therefore, we are also collaborating with suppliers and with some of our competitors to see which part of the 5G deployment we can optimize, but also sharing that part of that virtualization which again we discussed represent our commercial advantage. And then on RAN, it's going to be depending on the evolution of 5G and therefore the views that we have on non-standalone 5G or standalone 5G. But as a summary, we think that going forward there is a significant opportunity of enhancing returns through sharing. And it is an absolutely no-brainer to share legacy technologies and to decommission as many networks as we can that are not sustainable for the future. And this should represent a significant efficiency opportunity going forward. And on that regard, it's not just mobile networks. Also fiber networks are going to be essential. And remember that we have the largest fiber footprint and therefore accelerating the decommissioning of copper namely in Spain presents a significant efficiency opportunity.

If I could quickly ask a follow-up around Brazil. I'm guessing you have similar discussions for a single 2G grid in other countries. But why has Brazil been successful in the negotiation while other countries haven't reached that agreement yet? Ángel Vilá: Well, Brazil has announced an MOU. They will be now developing it over the next 90 days. You need a willing partner. TIM has shown lots of interest, but you should expect us to be looking at this type of agreement in each one of our geographies. So we will be working and in due course presenting to the market our progress on this front. As José María said, it's a no-brainer.

Thank you.

Thank you, Georgios. Next question please.

Thank you. The next question comes from the line of Michael Bishop from Goldman Sachs. Please go ahead.

Thank you. Just two questions from me please. Just moving to Spanish content, as you go into the football season and we just had Orange, we're talking about potentially promoting more, it'd just be good to get your high-level thoughts on how the content strategy has evolved over the last year and the sort of attach rate you're seeing from content customers that you're winning back from competitors, and then secondly, just moving to the U.K. performance. I was just wondering if you could give us any indication on how much of the performance is being helped by the Sky MVNO. At least locally it feels like Sky is really pushing mobile and that should be benefiting your trends? Thank you very much. Ángel Vilá: Thank you, Michael. On the first question on Spanish content, one year ago, there was a lot of concern about the purchase of the sports rights, the cost of those, whether we would be able to wholesale them, the potential to attract retail customers from those players not taking the content. Well what we can say is that one year after we are stronger. We are in a much better place. We have been able to capture customers both the initial expectations we had from players that didn't have the football. These have been customers that have come with ARPUs higher than our average ARPU. And both in the base, but also in the new customers that we have acquired what we see is that these are customers that have a significantly lower churn rate. Now we're getting to the third quarter scenario, which we're going to start a new season of La Liga. Last year, Vodafone managed to retain a certain number of customers, because they still had eight weekly games from La Liga. From this month of August onwards, that would not be the case. So football fans that stayed with Vodafone will have to look for football elsewhere. And we have control of the whole premium football rights, which we have packaged now into one La Liga package, not anymore separating the best match of the week and the others including the second division. And then we have the champions including Europa League. So we believe that there's going to be an active and dynamic back-to-school time no doubt. Maybe promotional intensity could be lower than what was seen last year. And I need to ask you to please repeat the second question.

Yes, the second question was just around the impact of the Sky MVNO on the O2 U.K. performance, because it feels like at least locally in the U.K. Sky is pushing quite aggressively on mobile. Thank you. Ángel Vilá: Thank you. Well you have seen the results of our U.K. operation, which is having one more quarter of very robust results outperforming the market. And this is resulting in strong commercial traction, it's resulting in single-digit -- or high single-digit increases both in revenues and OIBDA. This is coming mainly from our own commercial activity. And I'm afraid, we cannot due to the agreements we have signed in place with Sky disclose figures regarding that MVNO relationship. You should have to ask them directly, I'm sorry.

Not a problem. That's still very helpful. Thanks.

Thank you, Michael. Next question please.

Thank you. The next question comes from Akhil Dattani from JPMorgan. Please go ahead.

Hi. Good morning. Thanks so much for taking my questions. I've got two follow-ups as well please. The first was just stimulation to some of the comments you've been giving around network virtualization and tower sharing. I mean if I understand correctly, what you're saying, let's say correct me if I'm wrong here. It sounds like you're saying that you're increasingly of the view that network differentiation, is maybe not as let's say, core in the way it once was perceived. You don't need to own all the different components to differentiate your network. And also there are many different parts which you'd be happy to share divest et cetera. I guess what I'm trying to understand is as we -- as you look at the business going forward, what do you think are the key pillars to differentiating? I mean is the network still as core as it once was? Obviously in Spain content is one of your key pillars to differentiating this digitalization, so there's a lot of different pillars there, how do you think about differentiation and trying to protect your business and growing going forward? So that's the first question. And the second one, just really following up on the various topics we've been discussing on Spain. Midterm you have been doing much better than your peers. Obviously, you're confident on H2. But the broader question I guess on Spain is that, if we look at the Spanish market versus the rest of Europe. One of the big differentiating points is that the deployment cost of infrastructure is much cheaper. It's been one of the big advantages you've had, in terms of your capital intensity. How do you think about your ability to protect your business against that backdrop? Obviously, we've got change of management that used to tell where they seem to want to go national. You've got MásMóvil being aggressive unless you've got Vodafone struggling a lot in that market. And Orange also had bad numbers this morning in Spain. So I guess I'm just trying to understand, differentiation in Spain and how do you maintain and protect your returns. Thanks a lot. José María Álvarez-Pallete: Thanks for your question. I will take the first one on network virtualization or network sharing. We do think that network is a key differentiating factor. And in fact we have been pretty consistent on that, because we have invested roughly €29 billion in CapEx during the last three years. And therefore we are going through one of the highest CapEx investment cycles in the history of Telefónica. As a result of that, we have built the largest ultra-broadband network outside China. We have doubled the number of LTE sites. We have doubled the number of customer base in ultra-broadband. We have more than doubled our LTE customer base. And we have built the largest Spanish-speaking pay TV platforms. So we do think that, network is a key differentiating asset and we are investing very heavily in transforming our network from legacy, networks like copper or 2G or 3G into state-of-the-art large-generation IP network that are ready to be virtualized. And subject to be run through artificial intelligence. The factor that we stress around network sharing is the fact that it makes no sense to have four or five antennas in each roof when you can share. And therefore that's not a differentiating factor. And it makes no sense to preserve four or five 2G or 3G networks in every country when you can have -- you can move the traffic and namely the data traffic from those networks into 4G or to come 5G networks. So we think that you need to be served network differentiation when you have a competitive commercial advantage. But every other part of the network was that to be infrastructure, was that to be a backbone -- backhaul that is not a differentiating factor it's a candidate for divesting. Because it makes no sense to invest in seven different mobile technologies at the same time, because that would significantly affect return on capital employed. So, my point is that, network differentiation is a key factor. But multiplying the number of network by four or five, when you don't have a competitive advantage makes no sense and namely on the legacy part of the network. So we are investing very heavily. And we will keep doing that in order to preserve that competitive advantage. But we will be sharing anything that is not differentiating us from our peers. I hope that that answers your question. Ángel Vilá: And regarding how we're differentiating and keep differentiating in Spain, this has different components on the different segments. So for instance on B2C, but we see some market which is increasingly segmented and polarized, as a consequence of the five convergence penetration. So, you have a low end which is significantly more crowded with four national players present, sometimes with multi-brands with MVNOs and local players. But then you have the medium to high end which is what we make most of our revenues and OIBDA which is less crowded. It's more rational. This requires larger investment, spending in network quality IT services, contents and functionalities. And here we have those of differentiating capabilities which allow us to continue applying More for More strategy, which by the way is also being applied by competitors for them to raise prices both in Orange and Jazztel brand. Vodafone went around their portfolio also doing More for More. MásMóvil and Yoigo have been applying, More for More. Euskaltel, you talked about them they have raised prices in services of different brands. So, B2C a market which is more segmented convergent more polarized and where we hit much higher in revenues, OIBDA than our share in accesses. In B2B, we have a very strong position in Spain. We are clear market leaders here. We are focusing on digital transformation. And helping our customers transform digitally. And here, being able to provide services like security, cloud, IoT, big data, digital workplaces is something that differentiates us from our competitors. And it's allowing us to have the performance that you've seen with the business growing for the last five quarters. And then, the third component is wholesale. And other where our base of fiber that we are wholesaling and our figures are growing significantly and they are obviously revenue accretive to the old copper. And then, the further wholesale of content that we have are going to trigger our ability to differentiate us from our competitors. A competitor that has presented results this morning had been growing in previous quarters on the base of wholesale revenues that has been slowing down. For us it's accelerating now. So, we continue to be able to differentiate after having invested substantially, in our business in all the platforms.

Thank you, Akhil. Next question please.

Thank you. The next question comes from David Wright from Bank of America. Please go ahead.

Yeah. Thank you, a couple of questions. Firstly, just on Spain, I just wanted to get my understanding of this right. Just reviewing I think one of the earlier questions. So, we could expect the revenues to accelerate or to return to growth in H2, B2C, B2B a little better wholesale similar. And you're also saying net content cost growth also slows. So I'm wondering, why if you're getting some relief from the pricing on the content costs that you're only really expecting margin to be broadly, similar why wouldn't it be better? And I'm really sorry to stroke away with EBITDA not in decline. Does that mean stable? Does that mean growth not in decline I'm struggling with? And then my second question just a little bit more high level probably José María is you've seen a fairly precipitous drop in the share price of your German subsidiary over the past few months. And I think – do you guys look at that and consider that whole framework of asset divestment but also asset acquisitions? Could there ever be an opportunity to take advantage of that share price and perhaps even look to buy more share in the market or even consider acquiring minorities given that the market I'm sure you would feel doesn't value that asset correctly? Thank you. Ángel Vilá: Hi. David, on the first question, again may I reiterate that we expect acceleration of service revenue growth in the second half compared to what we have seen in the first half. And regarding the margin you have different moving pieces that will be lower year-on-year growth in net content cost in the second half versus the first half, but still some growth in the gross cost. The efficiencies from the people plans that we have been applying in the last years have peaked at the in the first half of this year. That is with the current or existing plans are not going to be improving or having additional savings to the ones that we have achieved because we are already in the run rate. So we have different moving pieces. For us, we have been able to achieve in the second quarter, an improvement of one percentage point in OIBDA margin to 39.8% organic ex IFRS, which is remarkable. Maybe we could have expected this to be a bit lower. So what we see is that what we are achieving in the second quarter is again back to the pre-IFRS levels around already close to 40% is a very strong OIBDA margin. So that's where I think that, why we say that we expect margins to be broadly on that level. And then we expect OIBDA which has been declining in Spain, since 2009 we expect it not to decline in 2019. We have been declining for a decade in revenues. Last year 2018 we started increasing revenues in Spain. 2019 we're accelerating the increase of revenues and what we are aiming to do is revert and what we saw as declines. So this could be stable.

Okay. Thank you. Ángel Vilá: Very slightly positive OIBDA for 2019. José María Álvarez-Pallete: Taking your question on Germany. The German – or Telefónica Deutschland share price has been affected during the last months by maybe three factors, I would say. First is the KPN selloff. Now it's over but has been pretty consistent and affecting the share price evolution during the last months quarters. Second was uncertainty around the German auction. I mean, what would be the outcome of the German auction in terms of how much spectrum, we will be gaining out of the auction and if that spectrum will be enough to maintain our performance. And now I think that concern is now over as well. And the third would be the potential fourth MNO. All those concerns are progressively fading away and most of them were addressed yesterday by our team in Germany during their conference call. So we think that the share price of Telefónica Deutschland should evolve positively going forward. We are happy and strongly committed with our stake in Telefónica Deutschland. And we are deep believers in Telefónica Deutschland's intrinsic values. So for the time being we are comfortable with the state that we have.

Very clear, gentlemen. Thank you.

Thank you, David. Next question please.

Thank you. The next question comes from Keval Khiroya from Deutsche Bank. Please go ahead.

Thank you. I've just got a follow-up question on Spain. You mentioned the high end accounts 28% of the overall customer base at the one percentage point on the prior year. Could you tell us how the low and mid-end segments have compared versus one year ago as well? And would you also be able to comment on how large the OT base is now as I think last quarter you did say it's 50,000 to 60,000 subs? Many thanks. Ángel Vilá: Yes. Thank you, Keval. The high end which is ARPUs of €140 what we call the package Fusión Total is 28%. In the mid-end which is average ARPU of €85 is 32% was 41% one year ago. And the low end which has ARPUs around €60 is 40%. It was 32% a year ago. So the ARPU that we call low end is the average ARPU of the operator which is closest to us. So one has to bear in mind that we are using this terminology of high mid and low end but low end for us is the average ARPU for our closest competitor. And this is the result of our More for More strategies. We are describing this segments according to which package is going to each segment. But the ARPU of the average ARPU of each one of these segments high medium low has been going up in the last year. So this is the detail. And regarding O2, let me get the figure one second. Regarding O2 we have over 100,000 fixed broadband subs; over 185,000 mobile subs at the end of Q2; and we have the lowest churn at 0.8%.

That's very cleared. Thank you.

Thank you, Keval. Next question please. Operator The next question comes from Carl Murdock from Berenberg. Please go ahead.

Hi, thank you. I've got two questions on the U.K. Could you help us understand the split of handsets and other revenue, the growth there between handsets and the smart metering program? Are you able to give any color regarding how much of the revenue growth you're getting from that smart metering program and how much of the growth is that and how long will it continue to be a growth driver before starting to flatten in time? And then secondly, again in the U.K. in terms of the Ofcom pricing review, how much will it cost to reduce out of contract customers to the equivalent 30 days SIM-only deal? And just like 12, why have you only committed to do that for direct customers and not contracts taken out with third-party retailers? Thank you. Ángel Vilá: Thank you for your questions. What the first thing I would like to say is that mobile service revenue is symmetric. It's now less comparable and applicable in the U.K. due to the increasing range for propositions in the markets -- that we have in the market basically custom plans, which are selling the device along with a plan. This has 36 months' life and these results through the new IFRS accounting into the reclassification of revenues into mobile service revenue and hardware. So what we are focused on is looking at the total revenue figure. And here, also what we're looking is about the growth of our base, the topline and the bottom line growth of our U.K. operation. And all three of these have been growing in the first half. What we see is a very strong traction of custom plans, which is allowing us to capture value and outperform the market. And from an accounting issue, we're not going to slow down our commercial performance. This means, it's also adding to the growth in our revenue in our U.K. operation. We at this stage cannot disclose the detail on how much it is accounting. Regarding your second question, I would -- sorry again ask if you can rephrase it because I'm not sure I got all the details and it being so specific, I'm not sure I have the information to respond. But please if you can repeat it. Thank you.

Okay, don't worry. It was asking around Ofcom and the actions they're doing at the moment regarding pricing reviews in the U.K. So, O2 today announced that at the end of mobile handset contracts that you would reduce the pricing of customers automatically to the equivalent 30-day SIM-only deal. But it was also announced that you'd only be doing that for customers that you sold to directly and not for contracts taken out with third-party retailers. And I was just wondering, why that decision was made only to the kind of favorable pricing move for direct customers and not those that you sell to through third parties. Ángel Vilá: Okay. Thank you. In the U.K., in direct channels we already sell handset and service into different contracts. So once handset contract is finished, we no longer charge for the handset. So, this has been a very clear and transparent proposition from our U.K. operation. And I think that this differentiates us from some of our competitors. So, we will not be expecting any impact from this.

Thank you, Carl. We have time for just one final question please.

Thank you. Our last question comes from the line of Mandeep Singh from Redburn. Please go ahead.

Hi, thank you for taking final question from me. I'd like to come back to the German question in a different way, similar to what David asked however. I mean, obviously if you look at sort of capital allocation, when you look at your portfolio of assets, I mean you are leaking about €250 million of a 12% dividend yield from Germany to minorities. I mean, you've made so many great efforts across your portfolio to optimize returns. How is that acceptable allocation of capital to leak that much dividend from Germany which has negative bond yields to minorities? Thank you. José María Álvarez-Pallete: Well thanks for the question. And we rank the capital allocation decision around the different returns. And therefore, we'd prioritize the ones that have the highest returns. So for the time being, we think we have better options that go before the ones that you were mentioning. We agree. And as I was saying before, it's not just a question of financial or cash returns or the dividend leakage, it also has to do with the relative value of the different assets. So, it is in our radar, but we have priorities that go before the one that you were mentioning.

Thank you. Ángel Vilá: Thank you, Mandeep.

Thank you. At this time, no further questions will be taken. José María Álvarez-Pallete: Well, thank you very much for your participation. And we certainly hope that we have provided some useful insights for you. Should you still have further question, we kindly ask you to contact our Investor Relationship department. Good morning and thank you.