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Tim Participacoes SA (NYSE:TSU)
Q1 2020 Earnings Call
May 7, 2020, 8:30 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. Welcome to TIM Participacoes 2020 First Quarter Results Conference Call. We would like to inform you that this event is being recorded and all participants will be in listen-only mode during the company's presentation. There will be a replay for this call on the company's website. After TIM Participacoes remarks are completed, there will be a question-and-answer session for participants. At that time, further instructions will be given.

We highlight that statements that may be made regarding the prospects, projections and goals of TIM Participacoes constitutes the beliefs and assumptions of the company's Board of Executive Officers. Future considerations are not performance guarantees. They involve risks, uncertainties and assumptions as they refer to events that may and may not occur. Investors should understand that internal and external factors to TIM Participacoes may affect their performance and lead to different results than those planned.

[Operator Instructions]

Now, I would turn the conference over to the CEO, Mr. Pietro Labriola, so he can present the main message for the first quarter of 2020. Please, Mr. Pietro, you may proceed.

Pietro Labriola -- Chief Executive Officer

Good morning, everyone. And thanks for attending our results conference call. Less than two months ago, on March 16, we were presenting our strategic plan and what we expected for the coming years. At that moment, Italy was already suffering the consequences of the pandemic, while in Brazil, we were starting to see the first impact. Social distance measures were in the very early stage.

At TIM, we were focused on ensuring business continuity and reducing the risk for all our stakeholders.

A lot has changed since then. Some of our assumptions were right and others turned out to be wrong. However, the most important one related to the resilience of the telco business was right. The sector, and TIM specifically, are demonstrating resilience in their numbers.

For sure, the level of uncertainty under which we needed to operate today is much higher. But, again, I'm happy with what we accomplished so far under such unprecedented conditions. I believe we have done a great job to adapt ourselves to this new environment and we are reaping the benefits of being an agile company.

I will start to make comments with a review of our results and then I will give a more complete update on the pandemic effects and what we expect will happen going forward.

Bear in mind, all the figures are now shown under IFRS 16 standards.

The first quarter was marked by a solid execution, mostly in line with our original plan until the outbreak in Brazil. We closed the quarter with service revenue up 1.7% year-over-year, which could have been 3% if it wasn't for the COVID impact in prepay.

EBITDA came in very solid, up 8% versus last year under IFRS 16. In the old standard, growth was 4.5%. TIM continued to show its disciplined cost control and capacity to find more efficient ways to operate.

TIM Live continued to shine bright with another consecutive quarter of 50% growth in revenues. [Technical Issues] that is also developing very well is our family plan, which surpassed the 500,000 customer milestone.

The partnership with C6 Bank as announced in March is being developed and we should see the first product being launched this year.

We also closed another important agreement with Google, taking our big data to the cloud.

And finally, our network continued to grow. We added two additional states, Parana and Santa Catarina, to our list of 100% 4G coverage.

Although our revenues for the first quarter did not expand as fast as we expected due to the COVID impact in prepaid, we were still able to deliver resilient growth, thanks to a solid TIM like performance and a better revenue mix, prepaid versus postpaid, that led positive contribution from mobile client generic revenues.

On the mobile side, total ARPU grew close to 5% year-over-year, with prepaid and postpaid ARPUs posting solid mid-single-digit expansions, demonstrating that our transition from volume to value is under way.

The environment change will pose additional challenges, but we are working to have better value proposition and to give additional incentives to deepen the engagement with our customer, while we shift to a more digital relationship.

On the fixed front, TIM Live's consistency in delivering a solid performance is a very good news. In the beginning of the pandemic in Brazil, we estimated that we could face some hurdle to sell and install, but we were able to sustain a positive dynamic. Digital channel to sell and adding people that don't receive the visit of technicians are helping the acquisition process.

In TIM Live, we closed the quarter with ARPU growing more than 6% and customer base up 20% versus first quarter 2018. As of April, TIM Live's coverage almost doubled versus a year ago.

During the pandemic, we managed to launch two new cities in the State of Minas Gerais, opening a new cluster to be developed. We did not stop the rollout of our network because of the COVID crisis. Of course, our network teams are working much more carefully, but under this new condition, we'll manage to strengthen our mobile access network, increasing our coverage in 4G and for the 5G, while we expanded our presence with [Indecipherable] and for FTTH in new regions.

A flexible approach to our network based on self-provisioning, self-healing and self-caring strategy is proving to be the right choice. We are coping with the new demands of the moment, such as the increased use of video conference apps, maintaining a high level user experience.

Despite these, I sense in the industry a growing concern about zero rating apps. This experience is casting light on the risk for network management that all mobile operators face with these offers.

In the first quarter, we continued to develop the initiatives to grow beyond our core and to innovate in our capex deployments. The partnership with C6 could represent a very interesting opportunity for TIM to benefit from potential growth of the digital financial service segment.

The combination of two types of remuneration, mainly in the form of activation fees and equity attached to targets, create the possibility to generate value in the short and long-terms. Mobile advertising standard revenues continued to grow solidly, more than 70% this quarter.

Meanwhile, we continued to develop new initiatives and capabilities. The partnership with the Ministry of Health was another trial of data reward for prepaid customers.

As I mentioned earlier, we closed contract with Google that will allow us to increase our big data capacity with more artificial intelligence and analytics application, while at the same time taking advantage of cash cost efficiencies.

We received important approvals for Anatel and CADE for the sharing agreement with Vivo. This project echoes [Phonetic] the necessity to continue to strengthen our infrastructure and enhance our customer experience in the most efficient way.

Our newest project related to TIM Live, which consists in finding the partners to accelerate the expansion of FTTH network and, consequently, the growth of the business [Indecipherable] is developing fast.

We already signed more than 20 NDAs with potential partners to go into more detail. We expect to form a shortlist in the next couple of months, so we can start deepening negotiation in the second half of the year.

Continuing with the innovation initiatives that are changing the way we operate, I want to highlight our digital transformation program. We'll be talking about it for quite a while. But it's importance was catapulted by the scenario we are facing today.

We should look at this from two perspectives. One related to the evolution the company made so far [Indecipherable] new environment and ensuring no service disruption or quality deterioration. And two, the new opportunities that are being opened because of outbreak. Things that will take months or years to be implemented, we are implementing in weeks to cope with the demand of this new world.

The COVID crisis created limitation to our physical channels for sales, caring and payments, but at the same time, it is running faster and deeper adoption of digital channels. This transition is helping efficiency gain back, together with other improvements led cost to decrease by after cumulatively 5% versus first quarter 2019.

It is worth mentioning the evolution of our bad debt, confirming the trend we discussed in the last results call. Nominal numbers were showing a stabilization, while collection was improving until the start of the crisis. We haven't seen a major deterioration since then, but it is possible to have some pressure coming from delinquency in future months.

Well, if revenue are growing and costs are down, the consequence is a solid 8% growth in EBITDA, with a margin expansion of 300 basis points to reach close to 46%. EBITDA minus capex reached a solid number of BRL1 billion, while net profit grew more than 8% year-over-year.

As I finish this overview of the first quarter trends, I will go into more details of the consequences of the pandemic and how we are reacting to it. As I mentioned during the opening of this event, the outbreak started to hit the country in [Technical Issues] when some regions initiated implementation of the quarantines.

Despite the growing number of cases and deaths, experts say the social distancing measure act to buy some time for the cities to have some level of preparation and that the peak of the outbreak could occur in May.

As it happened in other countries, the quarantine completely changed the economic dynamics. In the case of Brazil, GDP consensus [Indecipherable] from 2% growth to a 3.8% contraction for 2020.

Monitoring the situation in Italy, we started to put in place a contingency plan based on business continuity in February. So, when COVID hit Brazil, we were able to quickly respond.

We focus our action on thee perspectives -- our people, our customer and society as a whole. First, caring for our employees and third parties that work for TIM. We managed to have 99.9% of our working from home in just one week. We were also the first to operate 100% of its internal call center working remotely. And for the external ones, social distance measure were implemented. And with the help of our partners, we reached more than 65% under remote working. 100% of our stores were closed across the country, but we didn't not layoff any of our commercial personnel.

We used one of the programs launched by the Brazilian government to suspend their contracts, but we complemented their salaries to guarantee the same income they have.

Second, for our clients, the focus was resilience, reliability and customer engagement. We adjusted our network product to a new shape of traffic, more dispersed during the day and more concentrated in residential areas. We also reinforced mobile coverage in areas near hospitals.

Our digital channels received an additional attention in order to better support the customer demands and some projects had their implementation accelerated to improve that support.

Clients are being incentivated to use digital channel, which benefit [Indecipherable] and easing of collection rules. The goal is to keep customers connected during the pandemic.

In turn, we also supported the society in the fight against the COVID-19 in a broader sense. TIM was a pioneer in giving access to anonymized data to help monitor the effectiveness of social distance measures.

TIM also joined a combined effort with all the operators to provide population movement measurements.

As a sector, the operators managed to discuss with those stakeholders, including OTTs player, to have a balanced approach to the consumption.

And finally, we quickly implemented measures to have governments address communication channel for the population.

The pandemic so far has provoked mixed impacts on the company. Some metrics are positive, some neutral, and of course, others are negative. For sure, we will leave this phase a much more digital company and the relationship with our customers would be even more digital. The resilience of our network is also something that will mark this moment.

The reduced commercial activity in postpaid works both ways. Negative for sale, positive for churn and commercial cost. But that hasn't materialized as an issue yet.

TIM Live is a positive surprise up to this point, with gross addition and installation with no major impact. Clearly, the most significant impact so far come from the prepaid recharges. In the early days, they were down by 25%. By the end of March, the decline decelerated to a minus 20% and now we are seeing a mid-10s up.

The impact on our revenues today is much more modest than what it would have been years ago. So, the shift in revenue mix is helping TIM, but is not enough to completely zero out yet.

During this period, we received a lot of questions related to concern over liquidity position of the company. Having a strong balance sheet and a conservative approach in the business payoffs in this moment.

It is true that delinquency is an important risk for the sector. Therefore, at TIM, we took decisions to strengthen even further our position. We have sizable standby facility that we can access at any moment and we took an additional loan at a competitive cost.

Another important element comes from the government through the flexibilization of fiscal and conditional payments. On top of all of that, the business performance in terms of cash generation, give us confidence that we have a comfortable position to face the challenges of the moment.

Summarizing what I have commented so far. The core of our strategy will not change. So, we will push forward with the initiatives and projects we had in our plan. We are adjusting our approach and adapting the company for the new reality in the short term because we will have to operate under a much riskier environment than anticipated.

The resilience of the business does not mean we are immune to the crisis. Our initial GDP assumption are not valid anymore. The duration of the pandemic and the volatility of events only adds more uncertainties.

So, we expect to have more clarity on impact of COVID-19 on revenues and potential EBITDA versus 2020 guidance only at the end of the second quarter. Meanwhile, we confirm our focus on free cash flow, reiterating the guidance of EBITDA minus capex on net revenues of about 20% for 2020. With this, EBITDA minus capex should grow year-over-year in the mid-single digit range.

In closing, I hope the sector can learn the benefits of cooperating as we are doing during this pandemic. We are competitors, but we can work together to create positive impact for all of society and generate value for all our customers.

Stay well, stay home. Quedate bien, quedate en casa.

We will now open the floor for questions. Please.

Questions and Answers:

Operator

Thank you, Mr. Pietro. Now, we will begin the Q&A session. First, we will take questions from analysts followed by the journalists, both in English.

Mr. Marcello Santos from the JP Morgan would like to make a question.

Marcelo Santos -- JP Morgan -- Analyst

[Technical Issues] charging lower commercial expenses and how much was the normal efficiency gains? Maybe you can say that by how much you've improved in the last two weeks.

And the second question is, if you could comment a bit also on the postpaid sequential deceleration. The prepaid is clear from COVID, but was the postpaid also driven by COVID or are there other factors playing there? Thank you.

Vicente Ferreira -- Investor Relations Director

Hi, Marcelo. This is Vicente speaking. Thank you for your questions. If you can, I'd like you to repeat your first question because I think it was a little bit cut from our end here and we just heard the very last part of your question. So, if you can repeat the first question please.

Marcelo Santos -- JP Morgan -- Analyst

Of course. Sorry about that. The question is, if you could help us to understand how much of the margin improvement came from COVID, so lower -- cheaper channels recharge to recharge the prepaid, lower commercial expenses on COVID, and how much was from your normal efficiency gains initiatives?

Vicente Ferreira -- Investor Relations Director

Okay. Thank you again. Those questions will be answered by Pietro. Please, Pietro, proceed.

Pietro Labriola -- Chief Executive Officer

Yes. Yes, thank you. Let's start from the last one related to the commercial expenses. On the first quarter, the efficiency mainly came from our efficiency plan because the impact of the COVID-19 was only in the last two weeks of March. So, it didn't give us an important impact in terms of efficiencies [Indecipherable], for example, in the second quarter or based on the experience of April, it will allow us to offset the part on which we could be hurted on the revenues.

Related to the first question that this -- on postpaid, what is important to remember that last year we did a price up at the beginning of February. This year, we should price up our customer base, starting from the beginning, middle of March. But due to the COVID situation, we took the decision to postpone the price up at the end of the outbreak.

What is important to share with you is that, in any case, the communication to the customer base related to the price up happened. So, we communicated to our customer base between the beginning of February and the end of February, the price up. It will allow us to do the price up as planned at the end of the outbreak.

So, in the postpaid, the deceleration is also impacted by the comparison with the first quarter of the last year, when at the beginning of February, we started the price up.

Marcelo Santos -- JP Morgan -- Analyst

Okay. Just a follow-up. By the end of outbreak, you mean when the mobility restrictions are over, like May or June? Or we are talking like much more months beyond when there is no impact of the outbreak anymore?

Pietro Labriola -- Chief Executive Officer

I think that we will be back at first level of normality. So, when the restriction in the mobility will be canceled, it will be possible to apply that. Keep in mind, to be clear, that we are used to apply a more for more approach. So, it's not just a price up. It's a price up and giving more giga to our customer base. This is real important because I think that what people are experiencing today during the outbreak is how much is important, the connection, to stay connected with the rest of the world and to communicate with their friends and families. So, I think that, at the end of the outbreak, there will be, let me say, a better feeling toward the telco operator.

Marcelo Santos -- JP Morgan -- Analyst

Perfect, thank you very much.

Operator

Next, Susana Salaru from Itau would like to make a question.

Susana Salaru -- Itau -- Analyst

Good morning, everyone. Thank you for taking our questions. We have two questions. First, on the presentation, you mentioned that you are looking for a partner for TIM Live. Can you elaborate a bit? What would be the role of that partner? What kind of assets are you looking for? That would be our first question.

And the second question on infrastructure, if you could let us know how much the traffic changed before the COVID crisis and during the COVID crisis, if the traffic increased or stable. Or if you anticipate additional traffic increase in data? Thank you.

Vicente Ferreira -- Investor Relations Director

Hello, Susana. This is Vicente again. So, your first question, I will pass to Mr. Adrian Calaza, our CFO. And the second one will be answered by Leonardo Capdeville, our CTIO.

Adrian Calaza -- Chief Financial Officer and Investor Relations Officer

Hi. Good morning, Susana. Yes, you know that we are pretty happy with the results of our ultra-broadband business units. So, TIM Live. We grew significantly during these last years. We're maintaining this almost 30% growth in terms of revenues because you know very well that there are a lot of opportunities in order to service with ultra-broadband in the country. The penetration of fiber is still below 20%. So, we believe a lot of this business, especially for us that it's almost everything greenfield. So, the contribution to growth of TIM Live business is extremely important.

But even though today these revenues account only for slightly above 3% of our total revenues of the company, at the same time, this business today means a significant effort in terms of capex because almost 10% of our capex today are dedicated to the deployment of the FTTH.

So, that's the main reason that we are trying to apply the concept that Pietro was bringing of smart capex. So, we study a lot in the last year especially, so we decided to go to this project of creating an infrastructure vehicle where we will allocate all these secondary assets of the last mile and installation in order to search for a partner that will help us to increase the deployment.

So, the main goal that we are pursuing with this new project is to increase the deployment of FTTH going forward because we believe in this business.

This vehicle will be purely infrastructure. Yeah? It won't be exclusive for us after a period of time. And what we are trying to find, it's the right partner in order to allow us to increase infrastructure, also because there is a need of infrastructure for everybody.

So, as we design and that we showed in our plan communication, we will be -- we are ready [Indecipherable] phase. As Pietro mentioned, we have signed a lot of NDAs. It was more than 20. We are very happy so far with this project. Hopefully, we can close the project by the end of this year.

Hope I answered your first question and then I leave the floor to Leo for the second one.

Susana Salaru -- Itau -- Analyst

Thank you, Adrian.

Leonardo Capdeville -- Chief Technology Information Officer

Hi, Susana. Good morning. Let's see. From mobile perspective, we can see the traffic is almost flat, but we see a huge change in terms of profile. I define that in three different ways. The first is geographically. We can see that the mobile traffic move from the traditional, let's say, downtown and commercial areas to residential areas.

The second one is our deep change in terms of the usage. We can see that the apps that now we are most seeing the increase most related with the streaming and some video conference. This streaming, we can point at Netflix and YouTube. And we can see the reducing of the mobility apps likewise, of course. And others like social network.

The third change is, we can see that there are some kind of [Indecipherable] for the Wi-Fi. So, the people that has Wi-Fi at home is using more of that.

But in the other side, we can see that who depends from the mobile-only connection has been using data in more intensive way. So, with all this change, let's say, we can see that we are compensated the traffic that is more virtual, Wi-Fi, with the increase of the user for people that has just mobile connection. So, overall, we can say that it is flat in volume.

We can see the increase in voice usage on mobile side. And in fixed, we see increase for around 30% of usage comparing the period before and after the COVID isolation, social isolation. So, overall, we can see that all the adjustment that we are promoting on our network is, let's say, handling that and keeping the quality, what is the most important.

So, the big pressure now is not just the volume on mobile, but is the changing of the usage. And what we are seeing in a, let's say, very good way is that the network is performing very well over this new challenge of profile changing.

Susana Salaru -- Itau -- Analyst

Perfect, Leo. Thank you very much. Very clear.

Operator

Mr. Fred Mendes from Bradesco would like to make a question.

Frederico Mendes -- Banco Bradesco -- Analyst

Hello. Good morning, everyone. I have two questions as well. The first one I think is in line with what Marcelo asked in the beginning. But just to understand, when I look here the presentation, in the very first slide you mentioned that it was not for COVID, you would be in line with the target for the year and then 3%. So, I was just wondering if the impact really from COVID on this one is 1.3% on this quarter, give or take. I do understand that you postponed the price increase, but it still -- it looks like a significant impact for basically 15 days. Right? This will be the first one.

And then, my second one on the opex front, when I look at the G&A, it looks like that you increased your IT team to make the company more digital or projects on this line. So, just wondering if you can give us a visibility of the financial impact on the SG&A, if this is correct, this statement and about this project as well. Thank you.

Vicente Ferreira -- Investor Relations Director

Hi, Fred. This is Vicente again. Thank you for your question. First question will be answered by Pietro on the revenue side and then related to the cost, G&A, I'll pass to Adrian Calaza, our CFO.

Frederico Mendes -- Banco Bradesco -- Analyst

Thank you, Vicente.

Pietro Labriola -- Chief Executive Officer

Hi, Fred. I think that the impact in terms of revenues that we explained in the first chart of our presentation can be easily understand if you remember that, on an average basis, [Technical Issues] of our revenues come from prepaid. As we clearly stated in the last two weeks of March, we have an impact of the 25%. So, if you transform the percentage in absolute value, the 1.2% of -- 1.3% is exactly the impact on the prepaid that was around BRL40 million, BRL50 million.

Again, if you get the revenues for prepaid on a quarterly basis, if you divide by 3 to have one month, you divide it by 2 to have the last 2 weeks and you apply the 30%, the number that come out is this BRL40 million, BRL50 million that is approximately what is missing as related to the COVID-19.

We didn't put in this calculation to do something very easy. The fact that we didn't apply the price up. So, again, if we shouldn't have been impacted by COVID, our performance perhaps could be much better than 3% as we mentioned in the first chart.

Then I leave the stage to Adrian about the digital, but I would like to highlight that, sometimes, these kind of events allow us to understand as we can take much more challenges in the process of digitalization of the company. And I think that this is lessons learned that we are applying. And at the end of this COVID, we will have new lines of efficiency in our plan, one of which would be digital work.

But, again, now I leave the stage to Adrian to elaborate.

Adrian Calaza -- Chief Financial Officer and Investor Relations Officer

Thank you, Pietro. And hi, Fred. Regarding G&A costs, notice that this could be an important question coming from you. The fact is that G&A is a mix of different costs. Clearly, IT, maintenance is one of it. But I repeat, it's IT maintenance. What's happening. Our company, as Pietro mentioned and as we've been mentioning a lot in the last years, is becoming much more digital. It's not that we started to be digital now because of the COVID. We've been working since a long period of time on this area.

And, of course, our industry has been switching a lot of importance from network also to the IT side. So, of course, our infrastructure in terms of network is extremely important, but today the industry and ourselves especially, we are much more intense in terms of IT. So, it's a kind of logic issue that you will also have additional impact in terms of maintenance of IT.

It is what happened in the last years. We reduced significantly the opex on network. But at the same time, we did a lot of effort on capex on the IT side. Well, of course, these IT projects or infrastructure needs to be maintained. So, you will find additional maintenance going there.

G&A has also an additional impact [Indecipherable] different issues that also can hit specifically in some quarter around that. But you should expect some additional -- or this level going forward because the grouping of accounts that we do inside G&A also includes IT.

Anyway, G&A accounts for 7% of our total opex. The growth -- or the decrease on this line contribute less than 1% in each quarter. But again, this shows the importance for us of the IT infrastructure.

Frederico Mendes -- Banco Bradesco -- Analyst

Perfect, very clear. Thank you, Pietro. Thank you, Adrian.

Operator

Ms. Maria Tereza Azevedo from Santander would like to make a question.

Maria Tereza Azevedo -- Santander -- Analyst

Hi, guys. Thank you for the call. My first question is to Leo on the capex flexibility. How much do you think you can cut the capex in 2020 depending on how long the economy headwinds grow and how relevant can the network agreement with Vivo be in terms of opex, but also especially in terms of capex savings? Is it going to add flexibility to your capex already in 2020?

Leonardo Capdeville -- Chief Technology Information Officer

Hi, Maria Tereza. Let's see. In fact, we have a note in our plan in terms of infrastructure, how we are planning to get, let's say, a structural solution for the future. What can happen in 2020 -- again, I guess that we had analyzed that weekly, because of the environment can change very significantly, is how we, let's say, will move all the logistic chain. So, when we're talking about the capex, we have to understand that we're dependent on our suppliers that depend not for, let's say, the local manufacturer, but sometimes abroad. So, we need to understand how it will be work during this period of the COVID and after that. At the same time, we are seeing, as the previous question, that the traffic stop at the explosion growth and now is more, let's say, flat. We need to understand how will be the economic impact after the COVID crisis because probably it, to you, let's say, bring some kind of change in terms of growth. So, we are discuss every week about what this plan can be -- keep working to be change.

So, I guess, that is uncertainty that right now to talking about what happen on the next month because the environment is not so, let's say, clear. But, again, what we are seeing is there is some kind of postponement or have this kind of impact from the supply chain. But, again, we are talking about something that happened five weeks ago. So, it's very difficult to [Indecipherable].

The second point about Vivo, we are waiting for the final answer from the regulator and the CADE And after that, we really believe that we can push this project because, again, the opportunity for reducing not just the capex, but the mainly the opex is very interesting for both sides. So, again, it is part of our smart capex approach. We are keeping that on our [Technical Issues] and we hope that after this official, let's say, answer, we can even start the project and it will take, let's say, a very important piece [Phonetic] on our second-half deployment.

Maria Tereza Azevedo -- Santander -- Analyst

Perfect. Thank you very much. And my follow-up question is on the M&A strategy, if you guys can comment a bit on your initial views on the timing, how the due diligence process is working, if you have any funding strategy and expected synergies that you can share with us as of now. Thank you very much again.

Vicente Ferreira -- Investor Relations Director

Thank you, Maria. This is Vicente again. I will pass the floor to Mr. Pietro Labriola and then Mr. Adrian can also give some of his views. Pietro, please.

Pietro Labriola -- Chief Executive Officer

Thank you, Maria. This is Vicente again. I will pass the floor to Mr. Pietro Labriola and then Mr. Adrian can also give some of his views. Pietro, please.

Thank you. Hi, Maria. You very well understand that we are covered by an NDA, so we cannot disclose too much. But I think that -- also in your sentence, there were some key elements. We are proceeding with a due diligence. So, it means that things are moving on. And I think that this is the most important fact.

We image that if we proceed, then what we find during the due diligence is what we were expected. In the following month, we can think that we can move forward. But, again, I think that the most important element is that we are proceeding with the due diligence.

Before to leave the stage to Adrian, just to complement what Leo told before related to the capex, I would like to highlight that, first of all, the MOU with Vivo is not just a way to do efficiency between two telco player in Brazil, but it's an important sign for the market that there are rooms to cooperate, to put and do -- to spend money, capex in a more efficient and intelligent way where there is no need to compete. And I think that we will be -- everybody open to further player that want to participate to this kind of approach in the future, giving a sign of better maturity of the market.

The second that -- at the beginning of this year, we completed the bid to choose our supplier for the mobile network that were finalized at the beginning of April. So, I think that we'll have further saving that will come on this important bid that was announced also by Mr. Gubitosi during the call of our main shareholder.

Now I leave the stage to Adrian.

Maria Tereza Azevedo -- Santander -- Analyst

Thank you.

Adrian Calaza -- Chief Financial Officer and Investor Relations Officer

Yeah. Thank you, Pietro. Still regarding the first question about both capex and if we will be able to cut capex this year, just let me complement only one thing. Our capex plan, it's not a yearly capex plan because it could be extremely difficult to project yearly infrastructure development only in one year. Our capex plan is of three years. And on top of what Leo and Pietro mentioned, this is something that is extremely important. So, if we need to postpone something, we can do it. It's not that the end of the infrastructure plan is in December 31 of 2020. So, it's important anyway, as Pietro mentioned in his speech. Our target is our EBITDA minus capex and we know how to work in terms of efficiency.

On the M&A side, regarding -- I think that Pietro answered very well the question. The important thing to think here is that we are doing the due diligence of Oi mobile assets and it's not a minor issue. This situation today of everything and everyone being vehicle is not creating any issue. As a matter of fact, [Indecipherable] vehicle. So, we are managing things very well. We'll see. We analyze information and we'll see in terms of timing what could be in the following months to have some more news. Okay?

Operator

Mr. Rodrigo Villanueva from Bank of America would like to make a question.

Rodrigo Villanueva -- Bank of America Merrill Lynch -- Analyst

Thank you. Can you hear me well?

Vicente Ferreira -- Investor Relations Director

Yes.

Pietro Labriola -- Chief Executive Officer

Yes.

Rodrigo Villanueva -- Bank of America Merrill Lynch -- Analyst

Okay, thank you. Good morning, Pietro, Adrian, Leo, Vicente. I hope you are well and your families as well. I have a couple of questions. The first one is related to the potential savings in commercial activity. I was wondering if you could please quantify any potential savings that you could achieve. I don't know it's in the second quarter or in other quarters remaining of the year, given the Coronavirus lockdown and also the potential recession.

And the second question is related to bad debt. I know that you have taken several measures already in order to keep bad debt under strict control. However, the macroeconomic environment that we are facing today is completely different than we have seen in the past. So, I was wondering if there are some measures to prevent bad debt to materially increase that you have already taken as we speak. Thank you.

Vicente Ferreira -- Investor Relations Director

Thank you. Rodrigo. So, both questions are related to opex, on commercial savings, potential commercial savings and then bad debt. So, I will leave the answers to Pietro and Adrian. So, they can elaborate a bit on both topics.

Pietro Labriola -- Chief Executive Officer

Hi, Rodrigo. Related to the potential savings on the commercial area, I think that what we can expect our material saving in the period of this kind of lockdown -- also if we cannot say that in Brazil we are in lockdown, like in Italy. But in any case, you can image, for example, having an acquisition, the saving on the acquisition cost is more or less 100% on the physical channel. And you know better than me that on the digital, the cost is much lower. We are receiving there something close between minus 10% and minus 20% of calls to the call center. And so, this will be reduced. But in the meantime, we're experiencing an increase of the use of the digital application.

Advertising, it's clear that, in this period, if you cannot call people to come in the shops, makes no sense to spend all the money of the budget that you have on advertising. So, also on this area, we are having significant reduction.

So, I think that these are material saving that can allow us to offset the risk that we have or mainly offset the risk that we have on the top line.

Related to the bad debt, we must be satisfied because, with the exception of what can happen now with the COVID, we promise, and we told to all the market, that we were putting under control this area of cost for our internal procedure. And this is something we were delivering.

Now, going ahead, it's difficult to say what we can expect, also because in the month of April, we had a strange situation. It seems that the customer reduced the payment in the first 17 days from the expiry date of the bid and then recovered. It's like if everybody [Technical Issues] perhaps telecommunication now is in the shortlist of the things you cannot miss. And so, it's better to pay to avoid to stay without.

Now, if Adrian want, he can better elaborate and complement what I told you.

Adrian Calaza -- Chief Financial Officer and Investor Relations Officer

Yes. Hi, Rodrigo. I think that Pietro answered perfectly well. On the first question, if I can put something on top of that, is that, of course, there will be significant savings on the commercial costs, but at the same time, we are also considering a lot the medium and long-term because all of the commercial costs, a portion of those are related to our distribution channels. And most of these distributors are our partners, and some of them are in exclusivity. So, everything we are doing, everything we are doing, it's also considering not only this quarter or the next quarter, but also in the medium and long-term. So, this is extremely important because we are talking of our strategy going forward.

On the second side of the bad debt, I think that Pietro mentioned everything. It was extremely important in these days what happens with a lot of the initiatives in the Congress, in some states of declaring our service as an essential service and that the service cannot be suspended if the customer wasn't paying. We managed to solve this issue. It was extremely important in the resolution against the State of Sao Paulo in this area. So, it's not that we are optimistic with the situation, but we think that the impact, if this doesn't extent significantly, shouldn't be important.

Anyway, it's something that, as you know, we monitor every day. We have every day the collection numbers. But, again, the good thing here is that we've been doing last year in terms of systems, in terms of processes on the collection side, put us in a different situation.

Pietro Labriola -- Chief Executive Officer

Sorry. If I had one point that I think can add to once again to you, Rodrigo, to Maria Tereza and to Fred. I think that Adrian stated very well, we are not disposed to shutdown cost and capex that cannot be future of our company. What we are doing, we are managing in a clever way our cost and capex base remembering that we will come out from this outbreak and we will continue to compete and grow. So, to avoid any kind of misunderstanding, we are not cutting cost or capex that can hurt us in the medium, long-term.

Rodrigo Villanueva -- Bank of America Merrill Lynch -- Analyst

Understood, Very clear. Thank you very much, Pietro, Adrian.

Operator

Mr. Carlos Sequeira from BTG Pactual would like to make a question.

Carlos Sequeira -- BTG Pactual -- Analyst

Hi. Good morning, everyone. Thanks for the call. I hope you are all safe and well. My question is a follow-up on the ultra-broadband strategy, please. And then also trying to clarify. So, there are more than 6,000 ISPs in the country and other operators are doing deals with them now, trying to work with franchise models and some type of partnerships. Are you looking at that possibility too under this strategy? Or this vehicle that you are putting together will be funded by a partner and that money would allow for the fast deployment of fiber? And then, this partner will be a shareholder in this new vehicle. Thank you.

Vicente Ferreira -- Investor Relations Director

Thank you, Carlos. This question I will pass to Adrian as well. So, Adrian, if you can elaborate a little bit on TIM Live project please.

Adrian Calaza -- Chief Financial Officer and Investor Relations Officer

Hi, Carlos. How are you? Clearly, it's the second alternative. We know that, yes, there are a lot of ISPs, small ISPs in the country. Their approach is different than ours. Won't say that it's worse or better. It's different. We feel more comfortable of growing on greenfield because, as we were saying before, there are still a lot of opportunities [Indecipherable] in the country. And we think that there is a lack of infrastructure. So, if this vehicle could work initially for us, but then without this exclusivity, it could be much more efficient, but always oriented to our growth tactics and strategy. So, yes, this partner should help us to increase the deployment of fiber. Probably also with higher focus in terms of the deployment of the last mile.

So, our design of this growth in terms of fiber and we think that it could be extremely interesting in terms of infrastructure. The fact that we signed a lot of NDAs, more than 20, as we mentioned before, indicates that probably we are in the right direction.

Carlos Sequeira -- BTG Pactual -- Analyst

Okay, thank you very much. Very clear. Adrian, thank you.

Operator

Without any more questions from analysts, we will now start the Q&A session with the press and individual investors in English.

Vicente Ferreira -- Investor Relations Director

So, the first question comes from Gabriela [Phonetic] from Reuters. And she's asking what is the percentage of the impact from COVID to the prepaid recharge. I think we already addressed that during the Q&A with analysts. But, Pietro, if you can maybe elaborate a little bit more, I think will help, Gabriela. Please, Pietro.

Pietro Labriola -- Chief Executive Officer

Yes. Thank you, Gabriela. As we stated back, it's just also to try to understand what we think was the impact. In the last weeks of March, we experienced a reduction of the recharges year-over-year at around 25%. I think that, perhaps, also there was a kind of -- let me say, I don't want to be misunderstood, panic mode that put people on too much safe side. During the month of April, going ahead, we experienced an improvement. So, we reached something close to 20%. Then between the end of April and the beginning of May, this reduction is further improving. So, I think that people are coming back to normality.

In the meantime, I think that there were also two behaviors that hurted [Phonetic] this kind of situation. The first one, it's an higher use of the Wi-Fi because everybody is trying get a little more in -- are trying to exploit more Wi-Fi.

And the second, the fact that some of the traditional channel were shut down. And so, it was more difficult for a part of our customer base to recharge.

In the meantime, it pushed a lot also our same customer base to move toward digital channels that are much more efficient. What we think that, in the medium and long term, what will happen, all the people that are experiencing the digital today, we think that will continue to be digital when we'll be out from the COVID situation. And this will be a real good news for us and for the system because a more digital system means, generally speaking, economic system, it's much more efficient. Then it will open opportunity for new way of working and new business model.

Vicente Ferreira -- Investor Relations Director

Okay. The second question that we received from a journalist comes from Rodrigo Cajo [Phonetic] from Volvo Newspaper [Phonetic]. And it's related to the progression in the negotiation for the acquisition of service of mobile Oi. Again, I think we addressed it to a certain extent this question, but I'll ask Pietro to give some additional words in this topic as well.

Pietro Labriola -- Chief Executive Officer

Hi, Rodrigo. As I mentioned before, I think that the real good news is that, finally, we were able to access the data room [Phonetic] and to proceed with the due diligence. Until now, there were a lot of discussion, but nothing was materialized. The fact that finally, thanks also to the collaboration of Oi, we were able to enter, we are starting the element. And as I stated before, [Indecipherable], we think that in the next month, we can do the next move if everything happens in the right way.

Vicente Ferreira -- Investor Relations Director

Thank you, Pietro. Now we have a question from an individual investor, Albert Tavarez [Phonetic], and maintaining the same topic related to M&A. He's asked, if the COVID to a certain extent has changed our interest in acquiring the mobile part of Oi.

Pietro Labriola -- Chief Executive Officer

No, absolutely not. Also because what we told -- we do not expect that COVID will be forever. It's just a window, a strategic window in our life experience, but is something that is going to end, that will be extinguished. And when you manage a company, you want to create value for your shareholders. You have to look always in the medium, long-term. And in the middle, long-term, the M&A process makes a lot of sense for us, for all the telco market in Brazil, and I think also for the country of Brazil. Three [Phonetic] strong player can allow to Brazil to be a better place and to be a more digital country.

Vicente Ferreira -- Investor Relations Director

Thank you again, Pietro. We have the last question from individual investors from Rodrigo Pazinato [Phonetic]. And he asks about the perspectives for TIM for 5G in Brazil and if we have any preference in terms of the technology to be adopted in the rollout of 5G. I think Pietro can elaborate a little bit on this topic and then Leo Capdeville, our CTIO as well. So, guys, please go ahead.

Pietro Labriola -- Chief Executive Officer

Hi, Rodrigo. Thanks for the question. And I think that I will do no mistake if I report what all the telco player are telling to the market. 5G at this stage is more a choice for the economic system and not an opportunity for the telco player.

What I mean? We invest and we put money on the 4G. We are still exploiting the 4G. I read yesterday an interview of [Indecipherable] that was declaring exactly the same. Today, they are investing a lot on 4.5G, but there aren't enough handsets to exploit that. So, today, 5G is a technology that can open new business model and that can allow to the Brazil, to the economic system of Brazil, to develop new business model, to create new jobs, new opportunity.

One, for the telco player, the risk is that it's not directly something that can generate data revenues. So, for this reason, as we stated constantly, as telco player, we can follow what can be, and as for the country if we will have an option that will be not expansion and we can take commitment about the coverage. But what is important that, at this stage of technology, I think that the 5G is more an element important for the economic system, but not for all the telco player.

Now, I leave the stage to Leo to elaborate more on the technology side.

Leonardo Capdeville -- Chief Technology Information Officer

Thank you, Pietro. Rodrigo, one important statement that we did was our contribution for Consulta Publica from Anatel for the 5G auction. And we start exactly in the line that Pietro mentioned. In a situation when we bring again one report that was done by Minister of the Economy -- economy minister about what can be the impact for the general economy, on the country. And it's talking about BRL243 billion. And, let's say, the lower part of that is related with the telco operators, but other economy can be impacted positively about that.

Talking about technology. We have, let's say, talked that, in the last three years, all the investment, the data we have moved on the network, is already thinking about the future and actually preparing the network for the 5G generation. We have to remember that we did last year three different lines of pilot in Brazil in three different cities with the three different technology about how the 5G can work and how our network is prepared to deal with that. So, if we add these, if the new part of the core virtualization, the new data center, we are, let's say, very positive that we are in the direction to prepare the network for the 5G and if we own the technology. So, we are preparing our network to work with independently or what kind of technology we have to face on the future. So, I guess, that it's going to be a very good opportunity. Again, not just for us, but for the country.

Vicente Ferreira -- Investor Relations Director

Thank you, Leo. So, now we have some other questions. I will put them together as they are all related to our partnership -- the partnership that we are looking for in the TIM Live project. So, the questions come from Bruno from Teletime [Phonetic] and from Anna Lobo, Convergence Digital [Phonetic].

Basically, what they would like to understand is if we are not following the path of franchisee in the model that we are studying. So, this is the first part of the question. And the second one is about the exclusivity of a potential agreement that we would have in this project. So, I will leave that questions to Adrian. I think he addressed those two points as well. But maybe, Adrian, if you can clarify a bit on the franchisee topic and as well as exclusivity or not of this potential project.

Adrian Calaza -- Chief Financial Officer and Investor Relations Officer

Okay. Thank you, Vicente. Regarding the exclusivity, clearly, this will be infrastructure vehicle that we will create and, of course we would like to have an initial exclusivity period in terms of the use of this infrastructure. At the end, we are interested in the growth also of this vehicle. So, it's important that it will be also efficient in the usage of the fiber. You know that one operator only uses a small portion of the capacity over fiber.

So, at the end, it will be, of course, an initial period of exclusivity in terms of the usage of the infrastructure. But the purpose is, after this period, we'll be open to other operators. So, I think this is the most important issue. On our side, this is the most correct approach in order to increase the infrastructure.

Vicente Ferreira -- Investor Relations Director

Thank you, Adrian. So, now, please, operator, we can proceed.

Operator

Ladies and gentlemen, without any more questions, I am returning to Mr. Pietro Labriola for his final remarks. Please, Mr. Pietro, you may proceed.

Pietro Labriola -- Chief Executive Officer

[Technical Issues] in Brazil has the very solid fundamentals to face these adversities. Focus, innovation and agility will be key to making the right decision to prepare the company for the reopening of the economy.

We will be ready to take full advantage of the recovery, independent of the shape it will take. Until then, we will maintain our focus on execution.

I would like to thank you, the dedication and commitment of our team who are overcoming many challenges to make sure we serve the country in the best way during this moment of hardship.

Together, we can do more. [Foreign Speech]

Thank you once again for participating in our conference call. Stay safe and healthy. I hope we can virtually meet in the coming events we'll be doing with the financial market. See you soon.

Operator

[Operator Closing Remarks]

Duration: 71 minutes

Call participants:

Pietro Labriola -- Chief Executive Officer

Vicente Ferreira -- Investor Relations Director

Adrian Calaza -- Chief Financial Officer and Investor Relations Officer

Leonardo Capdeville -- Chief Technology Information Officer

Marcelo Santos -- JP Morgan -- Analyst

Susana Salaru -- Itau -- Analyst

Frederico Mendes -- Banco Bradesco -- Analyst

Maria Tereza Azevedo -- Santander -- Analyst

Rodrigo Villanueva -- Bank of America Merrill Lynch -- Analyst

Carlos Sequeira -- BTG Pactual -- Analyst

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