Ladies and gentlemen, thank you for standing by and welcome to the Telefónica's January to September 2019 Results Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session. [Operator Instructions] As a reminder, today's conference is being recorded. I would now like to turn the call over to Mr. Pablo Eguiron, Global Director of Investor Relations. Please go ahead sir.

Good morning, and welcome to Telefónica conference call to discuss January-September 2019 results. I'm Pablo Eguiron, Head of Investor Relations. Before proceeding, let me mention that financial information contained in this document related to the third 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 in 2019. This financial information is unaudited. This conference call webcast, including the Q&A session, may contain forward-looking statements and information relating to Telefónica Group. These statements may include financial or operating forecast 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 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 Chief Operating Officer Mr. Ángel Vilá. Ángel Vilá: Thank you, Pablo. Good morning and welcome to Telefónica's third quarter results conference call. Today with me is Laura Abasolo, Chief Finance and Control Officer. Following our presentation, we will host a Q&A session and invite you to ask any questions you may have. We are pleased to present a solid set of results advancing on our strategy execution, as summarized on slide one. First, we continue gaining relevance. Through larger and technologically more advanced networks, we are ultra broadband leaders in Spain and Latin America, already accessing 123 million premises passed worldwide of which 54 million with our own network. On top, we are number one in virtualization with approximately 100 million customers already in full stack and artificial intelligence. This makes us more relevant to our customers, which are more valuable and loyal. Churn comes down and average revenue per access grew 4.3% year-on-year in the quarter. Second, we deliver sustainable and profitable growth. Revenues are back to reported annual growth in the quarter at plus 1.7%. Organic OIBDA grew close to 1% year-on-year, with even stronger free cash flow growth in the first nine months, up 40.3% year-on-year. And third, we remain focused on improving returns, through being simpler and more efficient and via enhancing our financial flexibility. We continue switching off legacy, more than 400 copper central offices closed so far in Spain. And during the last few months, we have signed sharing agreements with TIM and American Tower in Brazil and with Vodafone for mobile in the U.K. and cable in Germany. Balance sheet wise this is the 10th straight quarter of net debt reduction with average debt maturity at above 10 years. Let me conclude saying that portfolio management remains a core focus to further improve our returns going forward. As shown on slide two, we are accelerating strategic actions. We're executing on efficiencies. Spain's new workforce restructuring program will result into annual direct savings from 2020 of approximately €210 million. 80% of the group's annual target of digitalization savings for 2019 have already been achieved through September and the copper network switch-off in Spain progressed as well, with 157 central offices closed in the quarter and 2,000 expected by 2021. Second, on portfolio management, monetization of the mobile telco infrastructure is a priority for the next months and we have just started with tower sales during this quarter in Spain, Peru and Chile to Telxius. Brazil, Germany and U.K. are to follow in the coming quarters. Third, we are reaching agreements with new partners to further enrich our value proposition. We created a 50/50 JV with Prosegur, a growth opportunity in the residential/business security services market. We have announced as well the creation of a 50/50 joint venture with Atresmedia to produce and distribute Spanish fiction series for both companies and third parties. And fourth, we are introducing new alternative models to accelerate fiber expansion with less CapEx and reduced time-to-market. As such, we signed a partnership in Brazil with American Tower and are franchising through the Terra brand. Key operating metrics are shown on slide three. Robust momentum continued in high-value accesses, with double-digit increase in both fiber cable and LTE. Fiber penetration of our fixed broadband has reached 67%. It was 59% a year ago. Whilst LTE over total mobile stands at 54%, 44% a year ago. This backs both a 4.3% increase in the average revenue per access and 20 basis points of churn sequential improvement, all helping to make our business more sustainable via increased customer lifetime value, which exceeded eight years for our U.K. mobile contract customers and five years for our Spanish Fusión clients. Turning to slide four, which summarize this quarter's key financial metrics. I would start by mentioning that third quarter reported figures include a significant provision in Spain related to the mentioned workforce restructuring, as well as other non-recurring factors that Laura will explain in detail later on. FX and negative effects from regulation also impact reported figures. Revenues surpassed the €11.9 billion mark in the quarter, showing both organic and reported growth. Underlying OIBDA exceeded €4.2 billion and organic OIBDA grew 1.1% up to September. Free cash flow generation remained solid totaling €1.4 billion in the quarter, or €4.1 billion up to September. Underlying earnings per share reached €0.47 per share. Finally and noticeably, net financial debt decreased 8% in the last 12 months to €38.3 billion. Let's move to slide five. We are right on track to fulfill our 2019 guidance as our nine months' results are aligned with internal expectations. We expect to meet the revenue -- to exceed the revenue guidance. Q4 OIBDA is expected to be solid across regions and we reiterate our full year goal of growing organically around 2% OIBDA level. As for the first tranche of 2019 dividend €0.20 per share in cash it will be paid on the next 19th of December. On slide six, we go through growth trends in revenue and OIBDA during the quarter consistent with our solid fundamentals. Latin America remains a growth contributor with Europe improving its momentum driven by improvements in Spain and Germany and solid growth in U.K. Revenue mix continues its transformation progress with 55% of revenues already coming from broadband and services beyond connectivity two percentage points higher than a year ago. Digital revenues increased at 17.4% versus Q3 18% in organic terms while B2B sales maintained momentum at plus 3.7% all supporting our sustainable growth trends. OIBDA improved trends in Q3 in main markets like Spain, Germany and Brazil while maintaining a very strong performance in the U.K. Moving to slide seven, the B2B segment, which is 20% of group revenues keeps its momentum with a low to mid single-digit revenue growth in both Europe and LatAm. Our strong and flexible portfolio and customer focus set us in a privileged position to gain relevant deals and increase customer satisfaction. As a key partner for the digital transformation of corporates, B2B digital services delivered solid revenue growth of 29% year-on-year to €1.6 billion in the first nine months mainly in cloud, IoT and security where we enjoy a distinctive profile. Turning to slide eight. In the B2C segment, we aim to maximize data monetization applying innovative pricing models such as the new flexible data and handset offer in Germany or the unlimited data first launch in the U.K. aimed at blended ARPU increase. Our device integrated offer plays a key role to foster handset sales. Being remarkable, our handset renewal program Phoenix based on artificial intelligence had already launched in seven countries with very positive results so far. At the same time, we have identified five key spaces to develop our consumer portfolio leveraging our global service and technological platforms. Those five spaces where we will focus our efforts are: My Digital Telco, My Entertainment, My Things, My Home and My Financial Services. Specifically and within My Entertainment, we have proven to increase video engagement while growing ARPU loyalty with continued IPTV and over-the-top growth reaching 10 million video accesses as of September. Moving to slide nine. We continue working on our platforms strategy. On the first and second platforms, we have the largest ultra broadband footprint outside China 123 million premises and 54 million owned and a leadership position in fiber to the home coverage, which coupled with more than two-thirds of our processes already being digitized set us ahead of the pack for 5G. In the third platform, we are capturing the digitalization opportunity and we have already created several unicorns of digital services delivering roughly €2 billion of revenues per quarter with a 17% year-on-year growth. Lastly, our fourth platform enables the application of artificial intelligence to improve the customer experience, revenue generation and efficiencies through different projects. Slide 10 shows the progress done with our digital transformation plan. Digital sales increased 27% versus the first nine months of 2018 with more personalized offers thanks to data-driven models. Cognitive contact centers and digital channels are being increasingly used and a very ambitious processes automation program continues to be deployed all resulting into lower commercial costs and higher customer satisfaction. All in all Telefónica has already captured 80% of the more than €340 million targeted end-to-end digitalization savings for 2019. I now hand over to Laura to take through a detailed review of the business performance.

Thank you, Ángel. As shown on slide 11, our successful value strategy again allowed us to reinforce our leading market position within an increasingly segmented market, our strategy leading services and content proposal, which results into a higher-value customer base continue to deliver growth. We offer increasingly more services to our customers and total convergent accesses grew 5% year-on-year in the third quarter. At the same time, ARPU grew 1.7% year-on-year to €90.6 the highest ever. Moreover, our differential asset namely our FTTH network increasingly deliver returns on the retail and wholesale business with a combined 28% uptake. We continue working to enhance and segment our value offering including adjacent services and tapping new sources of growth. As such, we have added second home Movistar Car, Movistar+ Lite and others to our portfolio of products. And over the next few months, we will start offering home security and insurance services to our customers. We now move to slide 12, where we show the marked improvement in growth during this quarter. Service revenue grew for the ninth consecutive quarter, up 1% versus Q3 2018. The sequential improvement was mainly driven by convergent revenues that grow 5.4% year-on-year from 2.9% in the previous quarter. OIBDA posted as well a better year-on-year performance in Q3 plus 1.8 percentage points versus Q2, reflecting the growth in retail revenues, lower total net cost increase, and higher commercial cost reduction resulting from our digitalization program. Worth to note we booked in the quarter a €1.7 billion provision in personnel expenses mainly related to the voluntary employment suspension plan we already shared with you. This plan will allow us to capture a run rate of tariff savings of approximately €210 million since 2020. As such operating cash flow amounts to €2.6 billion in nine months with further efficiencies already in the pipeline. Moving to slide 13, Telefónica Deutschland delivered a robust commercial performance in both own brand and partners with 392,000 contract net adds. Customer experience continue to improve and the O2 My App was well recognized in the latest connect test with a very good rating. Revenue growth sequentially improved by 0.3 percentage points to 1.9%, mainly driven by the good traction in retail resulting in an accelerated mobile service revenue growth of plus 1.6% year-on-year. Thus OIBDA reduced the decline by one percentage points quarter-on-quarter. Nine months CapEx continue to phase out an increase by 5.7% year-on-year further enhancing customer experience. Moving to slide 14, O2 remained the largest mobile network operator in the U.K. growing its customer base by 6% with positive net adds across all customer segments contract prepay and MVNO. It is also worth highlighting a successful 5G launch including Unlimited Data offers in mid-October. Revenue delivered a healthy growth of 4.1% year-on-year mainly supported by both the innovative Custom Plans proposition and SMIP. As a result, OIBDA strongly grew by 5.7% year-on-year. In the first nine months, OIBDA minus CapEx increased by 6.2% year-on-year, while investment continue in customer experience network and the foundation for 5G. On slide 15, we start reviewing our Brazilian operation where we have again improved our subscribers' quality mix leveraging on our best-in-class networks. We have strengthened our leadership in the mobile arena reaching a market share of 32.3%, almost 40% in contract thanks to our differential assets and customer experience excellence. As for the fixed business, the ongoing transformation process continue with acceleration of the FTTH deployment having already passed 10 million homes. In addition and as already mentioned, we are implementing alternative FTTH expansion models through partnerships and franchises which will further our enhance our reach with very limited impact on CapEx whilst contributing to reduce our time-to-market. This will allow us to gain further exposure to the large FTTH opportunity in the Brazilian market. As a result of this growth in value we continue showing ARPU increase in our main services plus 5% in mobile plus 12% in fixed broadband and plus 4% in pay TV. Moving to slide 16, revenue growth accelerated significantly to plus 3% year-on-year, largest growth seen in 15 quarters thanks to a successful More for More strategy in both contract and prepaid. Fixed revenue remain affected by the legacy businesses. However, fiber and IPTV once again posted sound growth allowing us to confirm that we are on the right track to stabilize overall fixed revenues in the next few quarters. As regards to free cash flow evolution it increased by a remarkable 15% year-on-year in the first nine months, thanks to the OIBDA margin expansion levered on digitalization and simplification and despite acceleration in CapEx driven by the ongoing business transformation. Next slide shows the review of our Hispam operations. In South Hispam, we maintained solid revenue and OIBDA growth in line with previous quarters, thanks to growth in contract and fiber accesses progressive tariffs update and improvements shown in Peru where we returned to positive revenue growth after 2.5 years of revenue contraction. In Hispam North, finances continued to be affected by Mexico where OIBDA is highly impacted by the recognition of the spectrum fees as OpEx, overshadowing the sound commercial performance across the region. It is worth highlighting contract net adds in Colombia that hit a record high for the last 15 quarters along with a sound ground in prepaid and contract accesses in Mexico. On slide 18, we show Telxius' progress during the quarter. Towers portfolio has increased with the acquisition during this quarter of 432 towers in Spain, Peru, and Chile to a total of 1,090 towers acquired so far in 2019. On top of acquired towers, Telxius has built 360 new towers in the first nine months of the year. All of the above translates into a tenancy ratio of 1.35 times at the end of September. Worth highlighting that year-to-date the increase in the number of tenants other than Telefónica has grown 28% year-on-year. Revenue on OIBDA continue showing -- growing at mid-single-digit year-on-year in the first nine months, although affected in the quarter by the seasonality of exceptional capacity sales in cable. We continue seeing ample room for further organic growth going forward. Turning to slide 19, we detail non-recurrent factors in Q3 reported results, which impact negatively OIBDA by €1.5 billion and net income by €1.2 billion. This relate mainly to restructuring costs of €1.9 billion, mainly in Spain that will enhance future profitability and capital gains of almost €400 million from the sale of both Telefónica Panamá and nine data centers. Moving to slide 20, currencies continue to weigh negatively in Q3 by lowering the year-on-year drag due to easier comps for the Brazilian currency. As such, ForEx deducted 1.5 percentage points through OIBDA variation in the quarter, 3.2 percentage points up to September. In the first nine months of 2019, the €391 million negative impact in OIBDA is reduced to €160 million negative feed at the free cash flow level, as ForEx also reduced CapEx, taxes and minorities. As regards to net debt, FX had barely any impact on a 12-month rolling basis. Let's now move to balance in metrics on Slide 21. Our net debt further comes down this third quarter to a total decline in the first nine months of the year of €2.8 billion to €38.3 billion. This has been driven by a strong free cash flow generation that shows an impressive plus 40.3% year-on-year growth to €4.1 billion up to September. A strong free cash flow generation is coupled with inorganic measures and including post-closing events they have declined further with €37.6 billion or 2.46 times OIBDA. Lastly, let me mention that under IFRS 16, net debt would be impacted by €7.3 billion worth of leases. Slide 22 presents how we have actively continued to refinance, taking the advantage of several market conditions, issuing long-term notes at historically low rates, while also diversifying financing sources. Total financing activity was up to €6.9 billion year-to-date, allowing us to extend our average debt life above 10 years and maintain a robust liquidity position of close to €25 billion. Such financing activity at historically low interest rates has also allowed us to lower our effective interest payment costs to 3.30% as of September 2019, 22 basis points lower than in September 2018. I will now hand back to Ángel to recap. Ángel Vilá: Thank you, Laura. To summarize, I would like to again highlight our best-in-class customer value, our focus on digitalization and our technological advantage. As such, we have delivered reliable and solid growth in Q3, whilst lowering net debt for the 10th consecutive quarter, mainly due to strong free cash flow generation. All this allows us to reaffirm the guidance for 2019. Finally, I would like to remark the progress on strategic projects announced last month, such as towers monetization, restructuring in Spain and new products partnerships among others. We remain fully committed to continue working with determination in this and other strategic initiatives in the coming months to achieve the best results. 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 Joshua Mills from Exane. Please go ahead.

Hi, there. Thank you for taking the questions. First -- two questions for me both on Spain. The first is I'm just interested to hear how you think the MasMóvil-Orange deal could impact on your own wholesale revenues, whether this is a headwind and how many lines could be affected by that? And then secondly, just whether in the aftermath of this you would consider offering a more contingent model style agreement to Euskaltel to access to your fiber network given that currently you're looking to expand the network and would be willing to make some volume commitments. Could you look at offering cheaper than net of fiber in order for you take that? Thanks very much. Ángel Vilá: Thank you, Joshua. On the first question, on the MasMóvil wholesale agreement with Orange, we are not expecting significant impact from the recent MasMóvil-Orange deal because the fiber to the home premises in both were already available by Bitsream and the agreement in mobile is for 5G. What we see is that for 5G MasMóvil maybe designing a strategy in which access to the 5G network is offered by a third party, so minimizing deployment of their own network. This doesn't have an impact on us. Though in terms of spectrum allocation, we think this could be a positive regarding future spectrum options. Again in fiber, what we see is that it's a change of model from OpEx to CapEx. But it could -- maybe Orange base further, but we do not expect a significant impact on us. And MasMóvil said that the savings would contribute to higher EBITDA, so we do not expect extra aggressiveness from them in the market. Regarding the possibility of Euskaltel, well we have been open to reach agreements with different players on fiber always regarding -- or in the terms which are commercially attractive for the parties. This is not underway but we have demonstrated our openness in previous situations.

Thanks very much.

Thank you, Josh. Next question, please

We will now take our next question from the line of Mathieu Robilliard from Barclays. Please go ahead.

Good morning, thank you. First I had a question about EBITDA trends or OIBDA trends. You reiterated the guidance for the full year to present revenue growth. You're pacing slightly below in the nine months. Where should we expect an acceleration of EBITDA in Q4? Is it from Spain, something you -- I think you said in the past should materialize? Or is it coming from other geographies? And then in terms of the cost savings at Spain, you do mention that by 2020 you would have already €210 million cost savings annually, which is very close to the full run rate that I think you guided for €220 million. Does it mean that a very large portion of the employees have already taken the plan and that's why you're so confident about your outlook for 2020? Thank you. Ángel Vilá: Thank you, Mathieu. On the first question regarding the group OIBDA guidance and specifically your question was in OIBDA. Let me address this question in full. So we are reiterating our full year guidance. This guidance is built on lots of moving parts. We have different revenue lines with different attached margins from very different geographies. So what we see at the top line level, we are delivering stronger-than-anticipated revenues based in handset sales, which are growing 17% in the first nine months and we are seeing roughly line service revenue growth. Most geographical units at the service revenue are performing as expected including Spain and Brazil. Some others are doing a notch better, some others doing a notch worse, including smaller contributors such as Mexico. In fact, Spain has posted this quarter the highest growth rate since 2016. At the OIBDA level, the largest drag in growth is explained by Mexico performance that this is acting close to one percentage point to the quarter's growth on a weaker top line and impact of changes in the spectrum accounting. If we were to exclude this negative Mexican contribution results are very much in line with expectations to date and we would be posting a one percentage point higher EBITDA growth rate no? I would like to highlight that for four largest divisions, three of them are accelerating trends of the OIBDA, Spain, Brazil and Germany. And the U.K. which is the fourth large one continues to show very strong results. So what do we expect looking at Q4? At the operating revenues level, we will be very likely continue to be above guidance at the end of the year, including top line growth in the quarter in both Brazil and Spain. Again, breaking down service revenue, performance IT and digital services will contribute more than initially anticipated with different margins though. Group OIBDA should show continued growth in Q4 towards the full year target. Despite stronger revenue growth and slightly different mix, we are confident in meeting our guidance. Thanks to efficiency mainstreams including the workforce restructuring in Spain. In addition, the impact of spectrum fee accounting in Mexico will start to annualize from Q4. So to conclude on this guidance question and despite tough competitive environments in some of our markets, macro political headwinds, we would be today comfortably meeting the OIBDA guidance when excluding Mexico and we are confident that our efficiency gains will help us overrun these factors and meet the full year group OIBDA guidance.

Sorry, if I can follow up just on Spain excuse me. Should we see already in Q4 in Spain some of the benefits of the employee reduction or are you expecting... Ángel Vilá: Yes that was your second question, which I was about to answer. We -- the €210 million annual savings will be the run rate from next year. We will see part of those savings already flowing into Q4 because the employees that have left with these programs have already left the company at the end of last month. So those savings are ready to start flowing in the month of November and December of this year.

Thank you, Mathieu. Next question please.

Our next question comes from the line of David Wright from Bank of America. Please go ahead.

Yes. A couple of questions please guys. First of all, I think I saw your Spanish business, your TV customers decline. And I think that's the first time for a couple of years and even back in 2017 I think it was a digital-plus drag if anything. So just wondering, if we could expect that dynamic to evolve a little and if there's a shift from the kind of mid-tier customers down to the lower connectivity segment? And then I have to admit, I'm still a little bit confused about the group OIBDA guidance. By definition, you've done 1.1% through the first nine months. You've done 0.8% in Q3. To make 2% you're going to have to do over 4.5% even to make 1.5% I guess your guidance is around 2%. You'd have to do sort of closer to 3%. It's not really obvious how that works. I know you've given some answers but the 1% Mexico unwind on its own doesn't really get us there. So what are the big drivers, the more material drivers divisional towards that please. Thank you. Ángel Vilá: Thank you, David. On the TV commercial performance in Spain and in general commercial performance in the quarter, we had a quarter with contained commercial trading, which was impacted by some tariff upgrades at the beginning of the quarter for premium customers and the end of promos -- promotions. And it's always a quarter with back-to-school commercial activities. Now we have seen a fixed broadband positive net adds for second quarter in a row with good performance in premium fiber. On pay TV to your question, one has to bear in mind that pay TV penetration our conversion base is already high at 93%, and regardless of the overall number, the mix is very important. We are running higher value pay TV customers with better mix and better ARPU growth. So we have a base of TV and they were penetrated. We are seeing improvement in the mix of that one. And this is reflected on as you can see in slide 11, the convergent customer base actually shows a move up with high end customers being 30% of our conversion base, two percentage points more than in Q2, and convergent ARPU is 1.7% up. With respect to group OIBDA guidance, what we see -- what we're expecting is a strong fourth quarter. You've seen the trends, improving trends that we have in our four big units in the group. Both -- or three of them Spain, Germany, Brazil improving and accelerating their OIBDA growth. We have specific factors for instance helping us in our -- one of the operations in Spain, the comparison of content cost and the fourth quarter is going to experience the lowest growth rate in content costs. We're going to start seeing benefits from the recently closed personnel restructuring plan. Germany already yesterday confirmed their OIBDA guidance. Brazil shows strong growth, and they were confident in their call yesterday that this is to continue. The U.K. is performing strongly. And then we will have easier comps in some of our Hispam units, such is the case with Mexico with spectrum accounting. And we are on track for progressive turnaround in some of our units in the region such as Peru.

Okay. And just maybe -- just a quick expansion on Spain, I think you gave some interesting stats in the Q2 around 28% subs high end and I think it was 30-odd percent midrange €80 and around 40% lower end €55 customers. Can you give us an indication on how that mix is continuing to shift please? Ángel Vilá: Well, the mix is if I would say, polarizing. On the upper end, we have grown the high value customer from 28% to 30% -- sorry, let me get the specific figures. What we call our end, which is an ARPU that equals to the average ARPU of our closest competitor is now 41%. And the mid end or the intermediate is at around 29%.

Okay. Thank you.

Thank you, David. Next question, please.

Our next question comes from the line of Nawar Cristini from Morgan Stanley. Please go ahead.

Thank you very much for taking my questions. I have two please. Firstly, on Spain competition. I'm hearing mixed messages from your competitors about the competitive landscape in Spain. So it would be helpful to have your views on this. And also to have any color about whether you are seeing any change of behavior from competitors? And secondly, on Brazil momentum seems to be building for market consolidation there. Could you elaborate a little bit on your views on the topic and in particular the level of involvement that you'd be willing to pay and possible implications on leverage? Thank you very much. Ángel Vilá: Thank you very much for your questions. On first one, competitive environment in Spain. We believe that the market is remains competitive, but has a rational structure. And we see no structural change despite intense activity in the lower end and despite some of our peers' comments. What we do see is more polarization or if you want more market segmentation. On the high end, it's a rational segment with Orange and us being the only ones having access to football and targeting the highest value customers. In the mid to low segment, the promotional intensity increased as a result of Vodafone needing to position after abandoning football in an effort to turn around their operation. And in the low end, it's very competitive. There is intense competition with MVNOs, low-end brands from commercial players and the fight between MásMóvil and Vodafone. Of course, we are not immune to competition, but we are far more protected than others, thanks to our positioning and differential assets within a market structure that is very well-defined and segmented. In Q3, we have seen promotional activity as always in the third quarter, but it was milder than one year ago. These -- the promos that we saw were less intense and for a shorter period. As a proof portability volumes continue going down. So, for us being high-end focused makes us more protected from these competitive dynamics, proof of this is our performance nine straight quarters of service revenue growth with acceleration -- clear acceleration in this quarter. Convergent revenues growing mid single-digit for the last 15 quarters, including this quarter at 5.3%. As we said before in this quarter, we have achieved the best year-on-year revenue growth since 2016, and this with 40.1% organic OIBDA margin. So, yes, we think it's a competitive market, but rational and a market in which we are outperforming. On the question on potential M&A in Brazil there is speculation on -- especially regarding OE and mobile part of OE. First here within Brazil, it's a very attractive market, from the macro point of view where they have recently approved the pension reform and this is the future for balanced finances, public finances, it's attractive on sector structure and recently there has been approval of PLC 79 which is very good news for the industry. And third, Brazil is a very attractive market because of our position of leadership. We have always -- so we think it's a market where we want to -- we are strong and we want to be stronger. We have always defended the market consolidation in the sector as a catalyst to improve returns, but also to accelerate sector transformation towards a digital society. And Brazil of course is not an exception. So we -- although OE has not formally said that they are selling mobile assets, we will closely monitor the situation. We think there could be significant value creation from synergies, but we are hoping that, if in market consolidation where possible none of the three players in Brazil would be capable of doing it alone. It would also require if OE's intention to and capacity to do so the company sends judicial intervention. So, lots of moving parts so if although this may sound like deja-vu lots of stars need to be aligned. But it looks like this time they may actually align at some point.

Okay and how do you think about indication for leverage please? Ángel Vilá: Sorry can you repeat that question?

And how do you think about - if you were to be involved in Brazil how do you think about implications on leverage?

I think it's too soon to say and being a transaction in which more than one party is involved. It shouldn't be really, really sizable. In any case, we will look at that within our overall target of maintaining a solid investment grade credit rating and also aligned with the performance you have seen regarding the leverage so far in which we have accelerating the pace and we have again posted a very sound net financial debt reduction in the first nine months of 2016 of almost €3 billion.

Okay. Thank you very much.

Thank you, Nawar. Next question, please.

Our next question comes from the line of Mandeep Singh from Redburn. Please go ahead.

Thank you for taking the questions. They're primarily related to free cash flow and net debt. You talk about factoring benefits and free cash flow in the text of your report. Can you just sort of help quantify that for us? And relating to sort of organic deleveraging versus inorganic, if you exclude hybrid asset sales and potentially any benefits from factory that you will tell us about, it doesn't look like there's been any organic deleveraging in the first nine months. So if you could just like bring us up-to-date with what's going on with deleveraging organically and inorganically so we just understand the moving parts? Thank you.

Yes. Thank you for your question. Regarding free cash flow we are indeed believe we have reached a very sound free cash flow in the first nine months of the year. It's been €4.3 billion and that has a strong year-on-year performance. And the drivers behind that free cash flow are various; and our first the solid revenue and OIBDA organic growth, obviously they're very positive past contribution. Also the lower financial payment and working capital generation, regarding working capital generation there has been a big improvement but it's mostly due to the deferred spectrum payment in Germany. Excluding that, it's also being helped by the positive effect of the Brazilian court decision in 2018. But in fact the working capital measures they are being lower than the ones, we did in 2018. So we have been very less active in that front. And regarding supply financing for instance that we published a figure, it's been below what we had in 2018. It's been slightly above €300 million and for the full 2019 it should be below what we did in 2018. If I give you a little bit flavor of working capital. Working capital has been affected obviously by seasonality which is there are some measures that are unwind through the remainder of the year. We also do sale of receivables commercial and financial agreements to postpone payment and I haven't specifically mentioned the supply financing figure being below last year. We also do monetize in our handset financing and other measures. And we do that. This is pretty much in line with what we do every year. But as I said in the first nine months of the year, there's been less measures and working capital has proved -- been better because of the deferred payment of the spectrum and the judicial review of Brazil. Regarding the net debt figure and evolution, we again believe it's the free cash flow being the main driver. There's been other impacts of course as always, I mean the net debt figure and the solid investment grade credit rating target has been achieved through a combination of free cash flow and also inorganic measures as has been the case also in this year. And we are already accounting for the sale of the data center the sales of Guatemala, Nicaragua and Panama and more is to come because we are still not accounting for Panama and Costa Rica whose regulatory approval, we expect by the end of the year. Hybrids have indeed helped for these nine months as we have the liability management positive impact. And also the €500 million issuance we did in September. But this is a temporary improvement. So we definitely do not count on that for our net financial debt deleveraging, but you are already seeing it.

Thank you.

Thank you, Mandeep. Next question please.

Our next question comes from the line of Jakob Bluestone from Credit Suisse. Please go ahead.

Hi. Good morning. Thanks for taking the questions. I've got two questions please. Firstly on Spain, can you maybe comment a little bit on the outlook for convergent ARPU obviously accelerated this quarter as you highlighted with price hikes and sort of past promotions rolling off, but we also had Orange who were highlighting the sort of negative effects from spin down on ARPU. From your comments on the market being sort of increasingly polarized it sounds like you are sort of expecting that. You're not seeing a big impact from spin down on ARPU. But I would just be interested, if you could maybe share a little bit how you see the outlook for the Spanish convergent ARPUs? And then just secondly in Brazil, you announced these fiber franchise and partnership agreements. And I'd just be interested if you saw a similar model being applicable elsewhere particularly in Spain. Would you look at similar sort of deals or setups or indeed other forms of monetization in Spanish fixed line? Thank you. Ángel Vilá: Thank you, Jakob for the questions. The ARPU Fusión as you saw €90.6. It's up both year-on-year 1.7% and up quarter-on-quarter 2.5%. This is the result of a positive impact from tariff upgrades that we have had in more formal moves during the year. It also has a positive impact from up-selling. And it's – has the dilutive effect from promos. And has a dilutive effect from what we call multi-brand which is the lower ARPU from our O2 conversion brand. But the impact from tariff upgrades, but also up-selling is more than countering the dilutive impact of promos and multi-brand. In Brazil with fiber building agreements that we have reached first it's a very different situation from Spain. Spain we have already 22.7 million homes passed with fiber. The penetration is very high already. While in Brazil, which is a huge country penetration is still much lower. So what we have done we are prioritizing the cities in Brazil across to three categories a category of cities that we're going to do the fiber deployment from our own CapEx. Then a second tier, which is cities where we're going to partnerships like the first one we have announced with American Tower Corporation, but others to follow. And third, the third tier of cities that we are going to address via franchises. This is allowing us to do a faster deployment in the market with limited or limiting the impact on our CapEx, because the partners are going to be investing in passing the homes and then we will take care of connecting the customers and the partnerships. This can also – these partnerships can take the format of this type of commercial agreement like we've reached with American Tower Corporation, could also take the format of JVs or of equity partnerships into fiber growth. So we're exploring all options in Brazil, and in countries where still fiber penetration is low, but not in Spain.

Can I just follow-up just on the Fusión point? Is your expectation that when you take all those pluses and minuses that you can continue to grow Fusión ARPU? Is that sort of your assumption? Ángel Vilá: Well, we are going to continue applying the same kind of strategies that we have been using up to now, including More for More. Of course, this will be depending on market conditions we are getting into a quarter where we will have Black Friday and Christmas campaign. But we have seen also ARPU increases in fourth quarters in previous years. So we would like to continue playing the same strategy. I cannot forecast the ARPU on a quarterly basis.

Thank you very much. Very helpful.

Thank you, Jakob. Next question, please.

Our next question comes from the line of Michael Bishop from Goldman Sachs. Please go ahead.

Yes. Thank you. Good morning. Just two questions for myself. Firstly, could you give us a bit more color on the U.K. mobile trends going forward because it seems like you've got very positive contract net-add momentum, but clearly there's also some headwinds going forward and we've seen 5G being Germany launched at no premium by operators. And then secondly, I was just keen to get your latest thoughts on the tower strategy. And you mentioned that you transferred some towers in particular in Spain into Telxius. But I was wondering, if I could get your updated thoughts and your broader thinking of the towers you identified and how quickly we might see those transferred or even sold externally? Thanks. Ángel Vilá: Thank you, Michael. On U.K., U.K. reported one more set of strong quarterly results with top line growth 4.1% at revenue line bottom line 5.7%, sorry, bottom line it is OIBDA and overall customer base growth. Mobile accesses 5.6% up year-on-year to more than 34 million. And this allows us to maintain the market-leading position and the largest network carrier also the U.K. most favorite mobile network with the highest sector leading loyalty. The contract base of this 34 million the contract base is 17.4 million growing 8.7%, and prepaid base, 8.6 million. MVNO partner base 8.1 billion, growing 8%. So we are growing customers more in the contract base than through the MVNOs. So we have very good traction in the U.K., which is reflecting into sound revenue growth and ARPU improvements. This though as you said can be affected by a number of factors. On the one hand, there is a regulatory focus on revenue spending measures such as roam like at home also lower out of bundle revenues. And then some decisions that have been taken to -- going into 5G not applying a premium pricing versus 4G. So lots of moving parts, but still we expect to continue outperforming the U.K. market in our U.K. business. With respect to the tower strategy we announced in early September, a push to accelerate the monetization of our tower portfolio. We had already set up Telxius a few years ago, a company that has 15,000 towers where we have -- where we own 50.1% and we have as partners KKR and one of the largest family offices in Spain. The total number of owned towers by Telefónica is around 69,000, of which 18,000 are in Telxius, 51,000 owned by Telefónica SOVs [ph]. The four largest markets Germany, U.K., Spain, Brazil account for around two-thirds of that number of towers. What we are planning to do is to monetize the remaining portfolio of towers that can be transferred. And as in any tower portfolio, one needs to conduct the divisions of, which towers have more or less ability for collocation, technical capabilities and so on, so one has to filter the portfolio of towers. But we are going to be monetizing those progressively. We have already in this quarter transferred to Telxius the remaining towers we had in Spain, Chile and Peru. This is de facto because some people have asked why is this monetization? This is de facto monetization because our partners have taken 50% of the equity of this monetization be it through less dividends payout by Telxius, and therefore, less leakage for us on that on those dividends or depending on the size of the deal pie the equity contributions. So we have transferred the remaining towers in Spain, Chile, Peru. The next batches that -- or lots of towers that you should see will be in Brazil, in the U.K. where we are already in advanced talks with our partner Vodafone and in Germany. So you should expect us in the coming quarters to give you a consistent update on the monetization of those towers. We are going to be open to different alternatives of monetization. We think there is value in doing these transactions through Telxius because we get the double benefit of monetizing the towers and at the same time keeping the controlling stake in a larger and more valuable infrastructure company. But we remain open to different monetization avenues.

Thank you, Michael. We have time for one last question please.

Our last question comes from the line of Jerry Dellis from Jefferies. Please go ahead.

Yes, good morning. Thank you for taking my questions. First question has to do with consumer convergent segment in Spain please. You highlighted how the proportion of Fusión customers at the high-end has been increasing. And on a year-on-year basis it is indeed up one percentage point to 30%. But when we look at the medium and the low-tier segments, we see much more material shifts year-on-year. Looks like the medium segment is now nine percentage points less as a proportion as to where it was in Q3, 2018 and the low-end segment is now 41%, which is up eight percentage point year-on-year. So it looks like there's been quite a lot of shift from medium down to low. And perhaps that puts more and more pressure on you to keep raising prices on Fusión customers at the high end. Is that the right way of thinking about the pressures that you face in keeping the convergent business going – growing, or is there another way of looking at this? And in particular is it possible to see a situation, in which going forward the Fusión business or the convergent segment can grow revenues without such reliance on price increases please? And my second question has to do with the B2B segment in Spain. I think we understood that B2B revenues were rather flat at the Q2 stage because of some issues around invoice phasing. The third quarter progression in B2B revenues is also flat. So it will be interesting please to have your thoughts on the outlook for B2B revenue growth in Spain? Thank you. Ángel Vilá: Thank you for your questions. From the first one on the consumer convergence segment in Spain, you have to look at Fusión through different metrics and KPIs. One is the base or the number of customers then the mix of that base, the ARPU and the churn. We have sustained momentum on our base. It's up quarter-on-quarter and year-on-year. Year-on-year, the customer base in Fusión is growing 2.4% to 22.9 million accesses and 4.7 million customers. The mix that you were pointing out is polarizing. Here I would like to quantify how we have defined this mix, because what this mix is defined by types of products and seems these types of products move their prices up what we call low -- could have been at the bottom-end price-wise of what would have been mid one year ago. So, when this €50 to €72 products, median is €95 to €105 products and high-end range from €110 to €190. So, our share of -- or in our customers of -- customers that have products above €95 that would be adding up the medium and the top segment is 59%, which is resulting in an increase in ARPU. So, because that is not only increase in the number of customers, but also increase in the ARPU of each one of these segments. And this is sometimes overlooked. And this we're achieving with churn, which is the fourth element of how we look at Fusión of 1.6%, which is controlled. It was 1.7% in the first quarter, 1.5% in the second, 1.6% in the third. So, we believe that we have a solid and resilient mix in -- which is making us less dependent on the price have of the lower end. So, are our services expensive given the substantially higher ARPU that we have with respect to our customers? I think your question is regarding is this too expensive can -- will you see downgrades or will you find it harder to More for More. So, the first question will be are these services too expensive. Well, 98.6 convergent ARPU includes five services per customer with an average of less than four services for the one we have saw for competitors. We have higher number of mobile lines per customer. And pay TV penetration is also higher. So on a per service basis, our prices -- on a per service basis, our prices are similar, slightly higher than those of our peers. So, we think that we have a very competitive offer and very importantly which is well priced. Is there still room to grow through More for More books? Well, we have been leading the market in the last years to offer upgrades. All our competitors have followed and they continue to do so, not only the five telco operators have put prices up this year both from book and back-book, but also all of the top players have been putting their prices up. So depending on market conditions, we think that there is room for selective More for More. On B2B, which is your second question and it's 27% of service revenues in Spain. We are growing for the sixth consecutive quarter and the growth is 0.4% year-on-year with sequential improvement of 0.3 percentage points versus the previous quarter. Here what we see is pressure on the traditional communications. Part of this -- this has two parts, traditional communications and IT services. We see pressure on traditional communications impacted by contract renewals basically. And at the same time, we see IT continuing to grow at double-digit. We have a very strong position in B2B where we are clear market leader. We have competitive advantages due to scale band, convergence network and digital services. So, we think that momentum is good and we will continue to see growth in B2B segment.

Thank you very much.

At this time, no further questions will be taken. Ángel Vilá: Well, thank you very much for your participation. We hope we've provided you with some useful insights. Should you still have further questions, we kindly ask you to contact our Investor Relations department. Good morning and thank you.

Telefónica's January to September 2019 results conference call is over. You may now disconnect your line. Thank you.