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Telefonica (NYSE:TEF)
Q2 2020 Earnings Call
Jul 30, 2020, 4:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Telefonica's January-June 2020 Results Conference Call. [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.

Pablo Eguiron Vidarte -- Global Director of Investor Relations

Good morning, and welcome to Telefonica's conference call to discuss January-June 2020 results. I'm Pablo Eguiron, Head of Investor Relations. Before proceeding, let me mention that financial information contained in this document related to the second quarter 2020 has been prepared under International Financial Reporting Standards as adopted by the European Union and that this financial information is unaudited. This conference call webcast, included in the Q&A session, may contain forward-looking statements and information relating to the Telefonica Group. These statements may include financial or operating forecast and estimates or statements regarding plans, objectives and expectations regarding different matters.

All forward-looking statements involve risks and uncertainties, including risks relating to the effect of the COVID-19 pandemic, that would cause the final developments and results to materially differ from those expressed or implied by such statements. We encourage you to review our publicly available disclosure documents filed with the relevant securities market regulators. If you don't have a copy of the relevant press release and the slides, please contact Telefonica's Investor Relations team in Madrid or in London.

Now let me turn the call over to our Chairman and Executive Officer, Mr. Jose Maria Alvarez-Pallete.

Jose Maria Alvarez-Pallete Lopez -- Executive Chairman & Chief Executive Officer

Thank you, Pablo. Good morning, and welcome to Telefonica's second quarter results conference call. Today with me are Angel VilA, Chief Operating Officer; and Laura Abasolo, Chief Finance and Control Officer. As usual, we will first walk you through the slides and we'll then be happy to take any questions you may have. We face extremely challenging operating conditions and unprecedented economic uncertainty. Still, we remain committed to our local markets and their long-term potential and accelerated execution of our new Telefonica plan. We stayed true to our ideals, keeping in mind the long-term vision without compromising either our strategy nor our profitability. And we did so through different means, strengthening the value proposition in our core markets that proved their resilience within such turbulent times with organic OIBDA minus capex growing 2% year-on-year in the second quarter.

Staying close to our customers also paid off with record NPS levels. Making our core business more sustainable in the U.K. through the deal agreed with Liberty Global, as we are trying to pursue in Brazil, again, with the strongest possible partners or in Spain with good commercial traction and historical levels of profitability. Sustainability and long-term profitability lie as well behind the steps we are taking in Hispam, where we progress in all strategic options, including inorganic alternatives as driven with the sale of Costa Rica only three months after Millicom refused to complete their deal. We, on top, optimized its business model. OIBDA minus capex improved 10 % points in organic terms in the second quarter and neutralized FX impact via increasing debt at the local level. Securing key partners that join as well our fastest-growing proposition, Telefonica Tech, that grows double-digit in the quarter despite COVID-19 impacts and has generated EUR756 million in revenues in the first half.

We also continue crystallizing value and monetizing assets at Telefonica Infra, as proven by the EUR1.5 billion tower transaction in Germany that doubles Telxius' scale to 33,000 towers. And as I said before, we can take all these actions, thanks to our new operating model based on digitalization, agility and efficiency. We paved the way for the future while improving cash preserving despite the extremely challenging conditions. Our OIBDA minus capex margin improved by one percentage point in the second quarter demonstrating the strong execution. Moving to the next two slides, we present the swift and effective actions we have taken in response to COVID-19. In these unprecedented times, managing commercial relationship becomes all the more critical, while introducing a wide range of measures to mitigate top line impacts. We have been able to improve business efficiency and generate savings in opex and capex without compromising our business model.

This has first allowed to deliver strong results at the operating cash flow level. The good news is that our customers stayed with us, allowing for a notable commercial and operational recovery since June, suggesting Q2 will likely be the worst quarter in terms of COVID-19 impact. How can you turn more efficient in the midst of the pandemic? Fostering significant growth in sales through digital channels, while relying in our secure and top-quality networks. This, again, strengthened our customers' loyalty which improved both year-on-year and quarter-on-quarter with NPS reaching 24% in our core four markets. opex was tightly controlled, declining 4.9% in the second quarter year-on-year in organic terms, while capex flexibility and execution slowed down as a result of COVID-19, resulted in a 22.3% annual organic decline. All in all, we have neutralized a negative shock of revenues of EUR1.8 billion, reducing the gap gradually from top line to bottom, and we have generated a very attractive free cash flow while improved debt reduction versus previous year.

On the next slide, we show the support we have provided to all stakeholders during the crisis with actions taken in each and every market. For our customers, we provided additional entertainment and mobile data at no extra cost. For our people, we focused on protecting the safety of all employees with 95% working remotely and appropriate safety measures enacted for key workers. For our suppliers, we acknowledged the need for liquidity and offer flexible payment options. For the wider society, we created a EUR25 million fund to provide medical equipment and monetary aid, made our technologically advanced buildings available for governmental and public use across the majority of our footprint and undertook many other measures across our markets.

To safeguard the environment, we updated our target of 0 net emissions in our four core markets, bringing this forward to 2030 instead of 2050. And for shareholders, we maintain our dividend and offer a voluntary scrip for the 2020 calendar payments. Finally, we are leveraging our state-of-the-art infrastructure to support much-needed economic recovery across our markets. Moving to slide five to review our second quarter performance highlights. As you can see on the left-hand of the slide, revenues declined in the second quarter in organic terms. But excluding the COVID-19 impact, year-on-year revenue growth accelerated. We continue to support this growth, leveraging our high-quality access base, ultrabroadband network and growing our digital revenues, which topped EUR1.7 billion in the second quarter. Mentioned before, effective operational management during the crisis led us to increase OIBDA minus capex in our four core markets by 1.9% year-on-year in organic terms while the margin expanded by 1.3 % points, a remarkable achievement given the circumstances.

To note, our core markets represents more than 90% of Telefonica Group OIBDA minus capex, which amounted to EUR2.1 billion in the second quarter of this year. And importantly, we remain on a clear deleveraging path with EUR one billion reduction in net debt in the quarter leading to a 7.5% reduction in the last 12 months. Moving now to guidance and dividend. Let me start with the 2020 dividend, which is confirmed at EUR0.40 thanks to the high resilience of the business and our solid liquidity position. The dividend will be payable in two EUR0.20 tranches, the first in December 2020, through a voluntary scrip dividend; and the second tranche in June 2021. I would like to note that for the payment made last June, 63% of shareholders opted to receive new shares, further enhancing our financial flexibility as just EUR371 million were paid in cash.

Regarding our 2020 outlook, we reiterate the target of a slightly negative to flat OIBDA minus capex growth year-on-year based on the signs of recovery observed in June and July and the proactive measures taken to reduce operational and capital expenditure. For reference, the first half of the year figure was down 2.3%. I'm also pleased to reiterate our targets for 2022 of year-on-year organic revenue growth and OIBDA minus capex over revenues expansion of two percentage points versus 2019 based on the sustained demand and long-term growth trends for connectivity and digital services.

I will now hand over to Angel to take you with more detail through the group results.

Angel VilA Boix -- Chief Operating Officer

Thank you, Jose Maria. Moving to slide seven and looking at our financial performance, the reported figures this quarter are significantly affected by two factors: currency depreciation and COVID-19. You can see this impact at the bottom of the slide, and we will explain this in more detail later on. To a lesser extent, OIBDA was impacted by the absence of capital gains booked in second quarter 2019. Revenues amounted to EUR10.3 billion, declining 14.8% year-on-year on a reported basis and 5.6% in organic terms. In our four core markets, revenues declined by 3.8% from the previous year. It is worth highlighting the continued transformation of our top line, especially in the context of the COVID-19 crisis, with 67% of our service revenues coming from broadband and connectivity services, four percentage points higher than one year ago.

OIBDA reached EUR3.3 billion, down 25.3% year-on-year or 10% organically. This drop was significantly lower in our four core markets with a 6.6% annual decline in organic terms. Thanks to our focus on profitability, OIBDA minus capex was practically flat, declining by only 0.7% in organic terms and growing by 1.9% year-on-year in our four core markets despite the challenging conditions. OIBDA minus capex margin also increased year-on-year for both the group and our core markets, both in the second quarter and in the first half, thanks to the effective operational management mentioned previously. Net income reached EUR425 million in Q2 and above EUR0.8 billion in first half. Earnings per share stood at EUR0.23 in underlying terms in the first half of the year. Free cash flow performance improved sequentially in Q2, nearing EUR one billion. And finally, net financial debt stood at EUR37.2 billion as of June, declining 7.5% year-on-year, thanks to a EUR one billion reduction in Q2.

Slide eight shows the financial and operational impacts in the first full quarter affected by COVID-19 with clear signs of recovery evident from June 2020. The estimated revenue impact in Q2 amounted to nearly EUR730 million with a EUR338 million impact on OIBDA, retracting around six and eight percentage points, respectively, from organic growth. The main impact and challenges at the revenue level came in the form of lower overall commercial activity derived from lockdowns and travel restrictions. We saw lower handset sales and lower service revenues as a result of almost-absent roaming due to travel bans. Service revenues were also affected by a decline in mobile prepaid, a reduction in B2B due to delayed IT projects and certain contract renegotiations, lower SME revenue and overall promotional activity and discounted tariffs. Nevertheless, during the quarter, we leveraged our strengths to exploit opportunities presented by the crisis.

We took proactive steps to improve our opex with as much as 50% of the negative top line effects being absorbed through lower direct and commercial expenses while successfully controlling churn that was down by 40 basis points versus Q2 2019. capex savings, thanks to our flexible operating business model, also supported financial performance. And meanwhile, digitalization has proven key during the pandemic, as shown by the 12 % point increase in the digital channel mix in just one quarter to 39% in our core four markets and by the high rate of growth in the use of online apps in Brazil. I would like to note that to date, we have seen a sharp recovery in postlockdown markets with a strong resurgence in commercial activity as stores reopen. We also believe that the COVID-19 crisis is likely to significantly accelerate the digitalization shift, and we're already registering an increase in underlying demand for cloud, cyber and eHealth services.

Moving to slide nine. As previously stated, we have seen a clear path to recovery. Year-on-year revenue growth trends are getting better by the month, in line with the gradual lifting of COVID-19 restrictions, as you can see in our Spanish operations. We can, therefore, identify May as the month most affected by COVID-19. As such, operating trends remain positive ex COVID-19. Looking ahead, our intention is to further leverage capabilities and infrastructure to capitalize on accelerating trends in IoT, big data and ICT, among others. Moving to slide nine (sic) slide 10. We show how a year-on-year revenue decline of EUR1.8 billion, translated into a EUR1.1 billion drop at OIBDA level as a result of measures implemented by the group to mitigate the negative effects of COVID-19, resulting in outstanding cost management.

As such, opex declined minus 13.7% in reported terms and minus 4.9 in organic terms. Moreover, the OIBDA decline was further reduced to EUR0.5 billion in terms of OIBDA minus capex, thanks to our efficient and effective management of investments during the crisis. All this outlines the resilience of our business in the middle of the deepest economic crisis in this century. On slide 11, we highlight the impact of our proven execution. In Q2, we moved at pace in the operational management of our four core markets, delivering growth year-on-year in OIBDA minus capex to revenue ratio despite the COVID impact. At the regional level, it is worth highlighting the growth posted in both Spain and Brazil, our two largest operations. Turning to slide 12, Telefonica Spain's Q2 results were impacted by strict government measures introduced in response to COVID-19.

Throughout this period, we leveraged the strength of the largest fiber-to-the-home network in Europe to provide reliable service for our customers while leading efforts to support the wider society. Since the lifting of restrictions and supported by a refreshed offering and football competition restart, commercial activity recovered throughout the quarter. Fiber net adds in May were 21 times higher than in April, and mobile and TV improved as well. This is reflected in net adds recorded across all types of accesses. Our segmented offering and differential assets are reflected in the growth seen across different tiers of the retail market as well as in the fiber wholesale arena. On the other hand, despite the challenging environment, our strategy to offer added value to our customers allowed us to maintain robust ARPU and limit churn in our conversion base.

In slide 13, the recovery in commercial activity was reflected in improving revenue trends throughout Q2 2020. For example, the year-on-year drop in service revenue in June was half of the level of the decline recorded during April and May. In this environment, the company prioritized cash generation and showed significant resilience. Thanks to strong opex and capex management, we achieved year-on-year growth in both OIBDA minus capex and OIBDA minus capex over revenues for Q2. However, investments in growth continued at pace with 51% of total capex devoted to next-generation deployment, 12 points above Q2 2019. Translating into 228,000 new premises passed in Q2. Given our leading position in Spain, where we have a well-invested and diversified business, we are confident that we are very well-positioned to continue to deliver solid cash flow generation going forward.

Moving to slide 14. Telefonica Deutschland delivered a solid operational performance despite experiencing some COVID impacts throughout the quarter. Following the reopening of O2 shops from the end of April, footfall and trading dynamics have been experiencing a gradual recovery. O2 contract churn improved by 0.1 % points year-on-year in Q2 and own brand ARPU grew by 0.7% year-on-year in the month of June. In terms of financial performance, the OIBDA minus capex over revenues ratio remained broadly stable versus first half 2019 despite the full COVID-19 impact, demonstrating the robust profitability and cash generation of the business. Finally, the company won several industry awards during the quarter, including a very good rating in Connect Magazine's 2020 Fixed Network test and best MNO in Telecom Handel's reader's choice awards.

Moving on to slide 15 on the U.K. business. Despite being in lockdown for almost all of the second quarter, O2 remains the U.K.'s number one for customers, growing its base by 2.5% to 34.1 million. Contract churn stood at 0.9% as customers continue to value our award-winning customer service, network resilience, brand and unique propositions. Looking at our financial performance, revenue declined by 3.8% year-on-year primarily due to COVID-19 impacts on roaming and calls. And OIBDA declined by 4.1%, excluding special factors in the prior year. Given the situation, we have maintained our opex and capex flexibility to manage operating cash flow, which remained broadly stable in the first half of the year, while continuing to invest in our network to boost 4G and 5G coverage and capacity.

Let's now move to the performance of our Brazilian operations on slide 16. Even though commercial activity was highly impacted by lockdown restrictions during the quarter, with a gradual reopening of stores in June, we are starting to see signs of recovery. Mobile contract gross adds increased 73% in June compared to April, and we reached a new all-time record in fiber-to-the-home net adds in June. This confirms Vivo's high-quality value proposition and demonstrates our ability to steer our business through a difficult environment. In terms of our financial performance despite COVID-19, we delivered a resilient service revenue trend and notable improvements in profitability with an OIBDA minus capex margin above 25% for the first six months of the year. Especially remarkable is the free cash flow generation in Brazil, which has increased by 44.5% in the first half of the year which means that free cash flow in Brazil is growing at double-digit in euros despite the currency depreciation.

Moving to slide 17, during Q2, Telxius continued to deploy new sites, mainly Brazil and Spain with 91 new towers added in the quarter. Its total tower portfolio reached over 20,400 and the tenancy ratio stood at 1.34 times, all these prior to closing the German deal. Revenues were up 8.1% year-on-year, excluding the exceptional capacity selling cable in Q2 2019, with the tower business growing at a higher pace of 9.7% year-on-year due to both the strong performance in Germany and the towers recently acquired in Latin America. OIBDA grew by 13.5% year-on-year, excluding the sale of cable capacity. A high level of profitability was maintained during the quarter with OIBDA minus capex over revenues ratio of 56.2% as of June, up 0.8 % points year-on-year, excluding the exceptional capacity selling cable and capex related to inorganic acquisitions.

On slide 18, tech services have become even more essential during recent months due to the heightened need for reliable access to communication networks among business customers and for remote management and collaborative work tools. While COVID-19 had a notable impact on SMEs, larger corporates, which account for 60% of our B2B revenue, were less affected. As a result, revenues from B2B tech services grew by a significant 18% year-on-year in the first half. In Q2, our cloud and cybersecurity segments continued to outperform the market, delivering high revenue growth rates of 27% and 20% year-on-year respectively. This was achieved largely thanks to our large distribution platform, high-quality professional services and superior infrastructure which is highly valued by our best-in-class partners including Amazon, Google, Microsoft or SAP. The combinations of these trends enhances our value proposition and increases our relevance in the global market.

I will now hand over to Laura to cover Hispam and financial results.

Laura Abasolo Garcia de Baquedano -- Chief Financial & Control Officer

Thank you, Angel. Moving to slide 19. In Hispam, our focus has been on improving and expanding connectivity and supporting local communities during the COVID-19 crisis. While Q2's performance was strongly impacted by the challenging economic and social environment, commercial activity has been gradually recovering throughout the quarter. For example, new ultrabroadband connections doubled versus the previous quarter to 88,000. Despite the significant impact of COVID-19 on revenue and OIBDA trends year-on-year, increase in synergies and efficient management of opex and capex allow OIBDA minus capex to improve 10% year-on-year in the quarter in addition to preserving cash flow generation.

Slide 20 shows how currency headwinds were limited in terms of free cash flow generation through the effective hedging strategy implemented by the group. During the second quarter, COVID-19 crisis contributed to the depreciation of Latin American currencies versus the euro. FX effects increased, dragging down the second quarter's year-on-year variation by 6.5 % points in revenue and by 6.7 % points in OIBDA. This was mainly due to the depreciation of the Brazilian real against the euro. The negative impact of EUR448 million at OIBDA level was largely contained, with free cash flow generation affected by a much lower EUR111 million. At net debt level, this had a positive impact of EUR one billion in H1 or EUR1.7 billion when looking at net debt plus leases.

On slide 21, you can see the continuous decline in our net debt to EUR37.2 billion at the end of June 2020. Since June 2016, we have reduced our net debt by EUR15 billion, mainly due to a strong free cash flow generation, coupled with inorganic measures during this period. Free cash flow generation reached EUR1.2 billion in the first half and is expected to improve further during the second half of the year. Our decision to offer a voluntary scrip dividend payment, which reduced our cash outflow by more than EUR600 million, demonstrates our clear focus on net debt reduction. slide 22 shows Telefonica's proactive and broad financing exercise completed in recent years with over EUR52 billion raised in total since 2016.

This year, we have issued more than EUR10 billion, benefiting from minimum costs, including a EUR500 million 10-year (sic) 20-year Eurobond with a coupon of 1.864%, a USD500 million 10-year bond out of Colombia and a GBP four billion syndicated loan to back the O2-Virgin Media merger. Telefonica's ample and diversified financing activity has contributed to almost doubling average debt life from 5.7 years in December 2015 to 11.2 years at June 2020 and to a robust liquidity position of EUR23.7 billion, which covers more than two years of upcoming maturities. On top of that, we have GBP four billion of additional liquidity to secure the financing of the JV of O2 with Virgin Media. This financing activity has been executed at historical loan interest rates, enabling us to lower our total financial payments by nearly EUR one billion and reduced our total financial payment cost to 3.41%, 155 basis points lower than in December 2015. In summary, we have been successful in strengthening our balance sheet in the last four years.

The second stage of our balance sheet derisking is to gradually change the FX mix of our capital structure. We are working on two main levers. Firstly, we are reducing overall exposure to Hispam by reducing capital employed and equity in the region. Secondly, we are going to gradually increase our exposure to Brazilian reals, taking advantage of the massive cut in rates in Brazil to their current levels. We are currently working to reduce capital employed and equity exposure to the region via inorganic measures. Execution has been impacted by COVID-19 but will remain on track to execute in due course. And Costa Rica's sale serves as a proof point of such execution. In Brazil, debt in local currency amounted to EUR three billion at the end of June, a reduction of EUR0.9 billion equivalent year-to-date due to currency depreciation. In the context of the historic reductions in interest rates, we plan to gradually increase our leverage in reals.

On slide 23, you can see how Selic and local 10-year swaps have fallen by 1,200 basis points and 943 basis points, respectively, since December 2015 in both nominal and real terms, meaning it now makes sense to gradually increase our debt in reals. Moving to slide 24. Telefonica's credit profile continues to improve by means on, first, robust cash flow generation with an expected improvement in OIBDA minus capex margin and a focus on prioritizing investment; second, a prudent financial policy based on a sustainable and balanced dividend policy, together with a smooth maturity profile and a strong liquidity cushion; third, a solid balance sheet as demonstrated by the significant debt reductions in June 2016 and a clear path to deleveraging; and finally, a derisked portfolio of reduced capital employed and improved return on capital employed.

I will now hand back to Jose Maria to give a brief update on the execution of our strategy and to recap.

Jose Maria Alvarez-Pallete Lopez -- Executive Chairman & Chief Executive Officer

Thank you, Laura. Turning to slide 25, with regard to our first pillar, we are able to clearly show how we are focusing on our four core markets and strengthening our positions. In Spain, we continue growing our fiber-to-the-home network with 526,000 (sic) 517,000 new premises passed year-to-date, expanding the largest fiber-to-the-home network in Europe. We offer attractive differentiated content based on own production, Disney+ and the UEFA Champions League, which has been secured for the next three seasons.

We are also leveraging partnerships to create unique propositions, such as our Prosegur joint venture in the smart security space; our Antenna Atresmedia joint venture in Spain-language content production; our win with Movistar Car, EuroTaller and connected cars; and with Epic Games on worldwide gaming and eSports. In the U.K., we announced a transformative deal with Liberty Global back in May to form a JV between O2 U.K. and Virgin Media that will create the U.K.'s connectivity champion. But we will not remain idle until the deal is approved. We are deploying 5G, now available in 60 cities, and leveraging partnerships including our position as the exclusive distributor of Disney+ mobile content. In Germany, we continue to strengthen the largest mobile network by boosting mobile coverage and increasing urban capacity. We are also strengthening our convergent proposition based on agnostic fixed access and partnership with a range of leading enterprises, including Ericsson and Kidomi.

In Brazil, we are expanding the leading fiber-to-the-home network with two million additional premises passed year-to-date. We have bid for OI's mobile assets to improve our spectrum position nationwide and increase our scale in subscale regions. We are also working on a strategic partnership, such as our agreement with American Towers to offer fiber-to-the-home service in Minas Gerais. There is significant opportunity in our four core markets, and we could, therefore, see further consolidation or the acceleration of network deployment by co-investing with strategic or financial partners. We are also making progress in our plan to optimize our Hispam portfolio and reduce capital employed. We have announced the sale of our Costa Rica operation to Liberty Latin America only three months after Millicom walked away from their contractual commitment.

We are monetizing assets, including buildings and data centers and towers. 2,400 towers have been sold year-to-date to Telxius in Chile and Peru and to Phoenix Towers in Colombia and Ecuador. We are securing network-sharing agreements to reduce our capital intensity and optimize investment and we are also increasing debt in local units to improve capital structure. In addition, we have a wide range of options to further reduce our exposure to the regions. All inorganic options are on the table as well as a potential operational and financial spinoff. We have achieved significant progress in launching Telefonica Tech. We are creating a new company, and at the same time, maintaining strong revenues with organic growth of 18% year-on-year in the first half of this year. We are reaching strategic agreements with the leading players in the ecosystem, like Amazon Web Services, Microsoft and Google Cloud, leveraging our premium infrastructure.

We are also partnering with companies like GE Healthcare and Fortinet and investing in companies like Nozomi, a leader in industrial IoT cybersecurity. We are already completing the carve-out of the cybersecurity business to create a separate entity with significant opportunity. Cloud and IoT big data will follow soon. We'd also like to highlight the awards we are receiving in cloud and cybersecurity from the likes of VMware and Gartner which are testament to the quality of our offering. As a separate entity, Telefonica Tech will provide a dedicated platform for us to foster the growth of our large-stake operations and provide significant optionality. We are looking at potential M&A targets with complementary capabilities to accelerate our growth. We are assessing new verticals to add to Telefonica Tech, and we have the potential to bring an equity partner on board to crystallize value and add new resources.

Moving to slide 28, we are one of the largest owners of future infrastructure in the sector. The ultrabroadband network reached 131 million premises passed, almost 60 million owned, 10% more than a year ago, with accesses connected increasing by 5% to almost 15 million while we are analyzing new fiber vehicles in Brazil and Germany. One of the largest transaction that this segment witnessed during the first half of 2020 was the sale of more than 20,000 towers by Telefonica Germany to Telxius. This sale will turn Telefonica Infra into the controlling shareholder of one of the largest telco-owned towercos, with close to 33,000 towers. Telefonica Infra has a range of significant opportunities to maintain growth into the future. Telefonica owns 50% of CTIL, the largest portfolio of towers in the U.K. And its aspiration goes well beyond towers. As an infraco that can leverage the demand and capabilities in tech operation, it can develop new business lines like fiber to the home and data centers in addition to its successful submarine cable business, in short, a huge portfolio of highly attractive assets.

Moving to Pillar five on slide 29. We show how we are rolling out a new operating model that takes advantage of digitalization and adapting our headquarters to reflect the new business portfolio. Digitalization has progressed significantly in the period. Digital sales increased 53% versus the second quarter of the previous year, while the number of robots automating internal processes reached over 1,800 million. We have signed significant network-sharing agreements, both in our core markets like in Brazil with TIM and Hispam to add to the highly structural ones we already have in the U.K. and Colombia. Our legacy shutdown is progressing with the closure of around 500 central offices in Spain over the last 12 months. And we are streaming our support functions, both in business lines and at our headquarters. Our headquarters building is being refitted with costs reduced by circa 6% during the first half of 2020 compared to the previous year.

All of these initiatives have contributed to 0.3 % point expansion in organic OIBDA minus capex over revenue ratio in the first half of this year, in line with the 2022 guidance announced back in November 29. To highlight, organic margin increase to 20.8% in the first half of this year. And there is still room for further optimization on several fronts namely centralization, insourcing, outsourcing and more agile ways of working. Looking forward, our priority is to continue executing and creating value with our strategy. In our four core markets, our short-term priorities are stabilizing operating cash flow generation to mitigate the impact of COVID-19, closing the U.K. deal with Liberty Global, strengthening our competitive advantage via fiber-to-the-home deployments and partnerships and continually assessing consolidation options. In Hispam, our focus is similarly on stabilizing organic cash flow generation to mitigate COVID-19 impact, closing the deals in Costa Rica and El Salvador and continuing to develop our strategic options.

At Telefonica Tech, our priority is maintaining a strong growth momentum, strengthening our capabilities through inorganic acquisitions and finalizing trending carve-outs. At Telefonica Infra, our focus is on closing the German towers acquisition, developing strategic option and increasing the towers' tenancy ratio. And finally, in regard to the new operating model, our short-term priorities are accelerating digitalization, expanding network sharing agreements and maintaining a relentless focus on simplification and streamlining. As we move toward a post-COVID era, we are supporting sustainable economic recovery in our markets based on three pillars, which are aligned with the United Nations Sustainable Development Goals. First, building a cleaner future with digital innovation to power a lower-carbon economy. Second, helping society to thrive by supporting communities and customers.

And third, leading by example and running an inclusive, fair and ethical business inside out. The future, now more than ever, will be built on networks and digitalization, and we are well positioned to support all of our stakeholders on that journey. So in summary, first, we have delivered a robust performance for our stakeholders in the midst of an unprecedented global crisis. Second, our commercial and financial performance has proven resilient in the second quarter despite adverse FX impacts and GDP trends, and we continue focus on improving return on capital employed. Third, our outlook for OIBDA minus capex and 2020 dividend has been confirmed. Fourth, we have accelerated our delivery against our strategic priorities. And finally, we are well-positioned to capitalize on the favorable long-term trends accelerated by recent developments.

Thank you very much for listening, and we are now ready to take your questions.

Questions and Answers:

Operator

[Operator Instructions] We'll now take our first question from Michael Bishop from Goldman Sachs. Please go ahead, your line is open.

Michael Bishop -- Goldman Sachs -- Analyst

Thanks, good morning. Just two questions from me, please. Firstly, you had quite a solid revenue and ARPU performance in Spain, particularly as you highlight in June and the exit run rate. So I was just keen to get your thoughts on the Spanish outlook for the second half, both for revenues, but in particular, the trajectory of Spanish EBITDA and the different moving parts there. And then my second question is just on free cash flow in the second half and so for the full year. You delivered EUR1.2 billion in the first half. But could you just give us an indication on whether you expect the usual seasonality in free cash flow in the second half, and in particular whether you can give us any verbal guidance on working capital for the year?

Jose Maria Alvarez-Pallete Lopez -- Executive Chairman & Chief Executive Officer

Thank you, Michael, for your question. I will take the one on the Spanish market. As you have seen in the results, we have had a quite resilient commercial activity and quite resilient cash generation. COVID-19 was impacting the second quarter because we had a lockdown in place for most of the quarter. But if one would adjust for the COVID impacts, top line would have been growing 0.9%. OIBDA, if we take away the property sale of one year ago, would be at minus 3.4 and operating cash flow positive 4.1% growth. This we saw with notable recovery along the quarter. So net adds, positive across the line, which is a great contrast to some of our competitors. And this was improving sequentially across the quarter. We had a record Net Promoter Score during the crisis.

We increased 10 % points, now stands at 28% and we are widening the gap versus competitors. All this we achieved while maintaining OIBDA margin at 40% levels. And operating cash flow margin at 29.9% which is benchmarked across operators in Europe. So we saw improving trends as bonds were going by in the quarter. And what we're seeing also in July, the same improving trend that we saw in June. So when we look at the second half, we have positive expectations in B2C with commercial trading recovering. Sorry, ARPU in the second half, we are expecting it to be higher than in the first half. And churn, which in the quarter was at 1.2%, but even in the last month of the quarter was below what we were seeing in Q1. Churn should also be controlled.

We are expecting, now that our tops are no longer going to be offering soccer, we expect probably football subscriber gains. And August, which used to be in a typical month, football competitions, this year is going to be an active month. We're also launching new services. Our launch of Alarmas with Prosegur is getting very good traction, and we're exploring new lines like insurance and eHealth to contribute to top line. On B2B, we're already capturing opportunities. You saw the growth in the digital services for B2B and wholesale in the second half, we should show better even better figure than in the first half. So we have good expectation on the trend of revenues.

At the same time, the type of efficiencies that we have been capturing in the first half of the year, some of them are going to be continued and will remain so. We're aiming potentially to even improve OIBDA margin slightly versus the first half, and we'll continue with very effective capex management. I hope this can provide you a view of the confidence we have in the resilience of our business, both commercially and financially regarding cash flow generation.

Laura Abasolo Garcia de Baquedano -- Chief Financial & Control Officer

Michael, on free cash flow, as you pointed out, free cash flow in the first half of the year has amounted to the EUR1.2 billion, and it's been EUR one billion in Q2 2020 and will be, in general, back-loaded. So we expect free cash flow being strong and higher in the second half of the year. We do not guide on free cash flow, but let me remind you, we do expect a robust free cash flow generation. It will comfortably exceed dividend payments, labor commitments and the hybrid coupons, and it will continue to be a sustainable driver for continuing deleverage. In this situation, not only we are more resilient at revenue level, although not immune, but we have many levers to maneuver and we will closely monitor our free cash flow generation along the year.

There's plenty of efficiency improvements and capex savings, as you have seen in Q2 this year. We will continue delivering a robust, which is a priority for us. Regarding working capital, it has been impacted by some COVID measures that will fade away in the second part of the year. And in general, it's been higher due to capex phasing and some restructuring payments that took place in Q1 2020, although they were accrued in the previous year. In general, working capital consumption will be slightly higher in 2020 than in 2020 sorry in 2019, but we will also do less supply financing measures so it will be of higher quality. Thank you.

Jose Maria Alvarez-Pallete Lopez -- Executive Chairman & Chief Executive Officer

Thank you.

Laura Abasolo Garcia de Baquedano -- Chief Financial & Control Officer

Thank you, Mike.

Operator

Our next question comes from Jakob Bluestone from Credit Suisse. Please go ahead, your line is now open.

Laura Abasolo Garcia de Baquedano -- Chief Financial & Control Officer

He is no Jacob were not receiving any audio from your line. You may be on mute.

Jakob Bluestone -- Credit Suisse -- Analyst

Hi. Sorry about that. Can you hear me.

Laura Abasolo Garcia de Baquedano -- Chief Financial & Control Officer

Yes.

Jakob Bluestone -- Credit Suisse -- Analyst

Great side. And sir. two questions, please. Firstly, on capex, which, as you alluded to, is down to sort of protect the cash flow generation. Can you maybe just help us understand how sustainable the lower capex will be? Should we be expecting that maybe next year, there has to be a sort of a period of catch up? Or is this something that you can essentially keep at this lower level, so it's not just a delay in capex payments?

And then secondly, just around the sort of prospects of M&A and consolidation, I think you've made some public statements in recent weeks and months. Can you maybe just sort of share with us what your thinking is around the potential for consolidation in Spain specifically? Do you think post the U.K. decision, that's something which is more feasible with acceptable remedies? So just sort of any thoughts you can share on that topic.

Laura Abasolo Garcia de Baquedano -- Chief Financial & Control Officer

I think we have been monitoring capex. First, there was an initial reduction due to the lockdown. That was immediate. But what we have done is through a strict capital allocation, a strict screening and approval processes with a view to prioritize everything which is related to customer service, customer quality and ultrabroadband development. So we have not stopped which it really matters, and we've been much more strict on legacy and maintenance that could be deprioritized in these circumstances. So you can see the ultrabroadband figures, how they have been progressing despite the situation. And you can also see that the revenue in the lines not affecting by COVID have performed well as the case in Spain. So we don't envisage a potential catch-up in the coming years. I think this reduction will be maintained throughout the following month.

Angel VilA Boix -- Chief Operating Officer

In terms of consolidation, overall, you know that our position is that current market structure in Europe is unsustainable. There are more than 400 mobile players, almost one mobile player per million habitants which I don't think it's competitive, neither sustainable in the future. So we think that in-market consolidation should be fostered. In the case of Spain, we don't see any signs yet, but we think that the undergoing transaction around MAsMovil is something to monitor because the multiple at which this transaction is being done enhance the value of the Spanish market and proves the sustainability of the value going forward. So I think it's a good sign for the overall Spanish market.

In terms of the U.K., we the joint venture will create a stronger fixed and mobile competitor in the U.K. market. And I think it has the scale to innovate in this very challenging landscape. This is a move toward convergence and will reduce competition. So we think it should be we are confident that the deal should be quickly approved by regulators without significant remedies, as also proved by precedents on that market. The sooner this happens, the sooner we'll be able to transfer to consumers a very large and ambitious investment program of more than GBP two billion in the Italy infrastructure over the next five years. So basically, we expect close in between the end of 2020 and mid-2021. It should happen without significant remedies, but we'll keep you posted, so to say.

Laura Abasolo Garcia de Baquedano -- Chief Financial & Control Officer

Thank you.

Angel VilA Boix -- Chief Operating Officer

Thank you. Yaakov.

Operator

Our next question comes from Carl Murdock-Smith from Berenberg. Please go ahead, your line is no open.

Carl Murdock-Smith -- Berenberg -- Analyst

Hi, thank you. I just wanted to ask about Other OIBDA. In H1, it's come in at EUR265 million. Is there anything in H1 in particular that's causing it to run higher than normal run rates? Or should we expect it to continue at that kind of level going forward, so maybe EUR500 million in the year? Because that's currently about double where consensus currently sits. So any kind of color on where we should expect OIBDA in Other to kind of be on a regular run rate, because it certainly looks higher in H1.

Laura Abasolo Garcia de Baquedano -- Chief Financial & Control Officer

Thank you for the question. I'd rather not guide on Other for the next half of the year because it also depends on potential capital gains and inorganic moves. But let me explain that probably why it was high was first half last year, 2019. You have to remember that last year was abnormally high, the line of Others, because we have the capital gains of Nicaragua or Antares, for instance. So what you are seeing in H1 2020 is more similar to what it should happen. It was EUR100 million negative in Q1 and EUR165 million negative in Q2. Variation versus last year is explained, as I said, mainly because of the capital gains, changes in perimeter, and also as we are reducing capex, we have a little bit less revenue on OIBDA from our supply company. So that will be it.

Carl Murdock-Smith -- Berenberg -- Analyst

That's great. So I take the point on the year-on-year, but that means that the current rate is kind of normal, which leads to you to around EUR500 million a year, whereas I think consensus for next year is currently at EUR264 million.

Laura Abasolo Garcia de Baquedano -- Chief Financial & Control Officer

This line was actually below consensus because, as I said, last year was abnormally high. So consensus is actually wrong in this line. You are more right in your on your view for the rest of the year.

Carl Murdock-Smith -- Berenberg -- Analyst

That's great, thanks very much.

Laura Abasolo Garcia de Baquedano -- Chief Financial & Control Officer

Thank you.

Operator

Our next question comes from Joshua Mills from Exane. Please go ahead, your line is open.

Joshua Mills -- Exane -- Analyst

Hi guys, thanks for the questions. I'm Just two from my side. First, on Spain, I think you refer, in the presentation, to B2B revenues at group level being down about 3%. It'd be great to get an idea from you on how the consumer versus B2B revenues in Spain have performed relative to one another. I know on the consolidated basis, you've reported down just over 3.5%, 3.4%, but that's going to be very helpful. And then the second question on Germany. I think at the end of the presentation, you're saying that a new fiber deal could be under analysis. Could you give us a sense of what form that might take, whether this is a co-investment scheme, you're looking at partners and your kind of bigger-picture thoughts around the conversion opportunity in the German market right now?

Jose Maria Alvarez-Pallete Lopez -- Executive Chairman & Chief Executive Officer

Thank you for the questions on revenues in Spain. Revenues in Spain were affected by COVID. In the second quarter, we saw handset sales declining by 50% on the drop of COVID and service revenues, minus 3.9% on the back of lower conversion revenues and business communications not compensated by the growth, both in IT and the wholesale. These service revenues were improving month by month in Q2. So this was minus 2% in the month of June. We are also seeing that upselling has been contributing to revenue improvement. And although the trend worsens in Q2 versus Q1, we have different COVID effects in retail. So in consumer, to your question, it dragged two percentage points and in business, dragged 1.5 % points in the year-on-year trend. Also, we have lower wholesale growth.

We have positive wholesale revenues but a lower rate of growth, mainly from interconnection and roaming, roaming decline. So if one were to remove the impact from COVID, this top line would be growing 0.9%. But minus 3.9% was 0.6 % points positive in wholesale and was 4.5 % points drag in what is retail services, combining consumer and B2B. The second question was on a fiber deal in Germany. Germany is a market which is underdeveloped in terms of fiber. We have very good position from Telefonica Deutschland with wholesale agreements to access the fixed network from Deutsche Telekom, an exclusive deal to access the cable network of Vodafone and also with Tele Columbus. With this, we have access to the largest footprint of ultrabroadband in Germany. But we have also seen that there is an opportunity, which we're going to develop mostly from Telefonica Infra, and potentially Telefonica Deutschland can take an equity stake, but it would be mostly developed by Telefonica Infra. An opportunity to develop fiber in areas which are underserved in Germany, aiming for a neutral model.

Absolutely wholesale, open to all the players, with a very tight geographic segmentation, going to areas which are not covered because we want to avoid overbuild, and this would be done along financial partners. The philosophy is a neutral company with a modular model of deployment, depending on the demand, along with financial partners, which would not be consolidated with full integration into Telefonica, and with limited financial exposure on our side, but at the same time, making Telefonica Deutschland an anchor customer of an anchor client of this wholesale company, but it being open to all the players in the market. We have launched already the process. We have received indications of interest. And as the process progresses, when there is more retail news to give to the market, we will do.

Joshua Mills -- Exane -- Analyst

Thank you. And spikiness thank you, Josh.

Operator

Our next question comes from Fernando Cordero from Banco Santander. Please go ahead, your line is open.

Fernando Cordero -- Banco Santander -- Analyst

Hello and good day. Good morning and thanks for my two questions, the first one is related with also with infra assets and in that sense, trying to understand if there has been any change on your views on what kind of assets should be fully controlled and when I say fully controlled, it's 100% ownership within the group, namely, for example, the Spanish fiber and which assets can be open to have not only minority stakes, but also even losing the control of those assets.

And the second question is related with the Spanish opex looking into the second half. As far as I understand, you have been including the full cost of the premium content, particularly the football, during the first half of the year. And I would like to know just that we should see any kind of cost regularization during the second half, given the lower content delivered by the different sport properties, not only football also, for example sorry, Formula One and so on. So in that sense, trying to understand if there is any kind of tailwind on the opex for the second half in the sense.

Angel VilA Boix -- Chief Operating Officer

Thanks for your question. I'll take the first one. Our view hasn't changed in terms of the strategic ownership of strategic assets and the fiber being one of them. But it is also true that telecom infrastructure assets are generating lots of interest from new long-term-oriented capital. And Telefonica is one of the largest owners of our next-generation network. Just in terms of ultrabroadband assets, let me remind you some key facts. We own 58.2 million premise passed. And this figure keeps growing every quarter. In the last 12 months, we have passed more than 6.3 million additional ones. We have 14.6 million homes connected, which means that despite these networks are relatively new, we are filling in them rapidly.

As you know, this is the key for improving the profitability. In the last 12 months, we have connected 1.4 million new homes. Demand is on the rise and the current situation has, if any, brought forward that demand in the last quarter. And despite COVID crisis, or maybe as one of its consequences, we are seeing historical demand levels for customers willing to be connected. In Hispam, demand for fiber has multiplied by two times in one quarter. Brazil has its best month ever in June in terms of fiber-to-the-home net adds. 80% of our market, next-generation network net adds in the first quarter were connected in Telefonica's network in Spain.

And in addition, we have been, for years, operating wholesale agreement with our peers in fiber to the home. And this is another critical factor toward future profitability of these assets. So we know how to implement long-term profitable wholesale models without generating market distributions. And all these factors demonstrate basically two things. The first one is an unparalleled experience in executing fiber-to-the-home business model. And probably second and second-to-none opportunity in terms of the size of the assets we have already up and running.

Obviously, under these metrics, our assets are generating interest for these big pockets of capital that I mentioned before. And it is now public that, as we have been saying, we are exploring options in Brazil and Chile, and there could be other projects under analysis. It's also a fact that it has happened with all the telco infrastructure asset, there is big arbitrage opportunity by transferring these assets to private market. But we will always do this, analyze our options with long-term perspective. We think these types of assets are critical, and therefore, control is essential. And they have very long life periods. So we believe some financial models are probably underestimating that factor. To sum up, we started before anybody deploying fiber. And at the time, a lot of people questioned us. But now we own one of the largest network worldwide, and these assets are attracting a lot of interest from capital providers willing to put capital at work.

So we think that what we have ahead of us is a lot of optionality, and we think this is a good place to be.

Jose Maria Alvarez-Pallete Lopez -- Executive Chairman & Chief Executive Officer

And regarding the second question, Fernando, on opex in Spain, first, we have seen in the second quarter, opex year-on-year decrease, thanks to efficiency measures and cost reduction in several elements like roaming and commercial. On personnel cost, since we had the the people plan, the PSI, we already saw in Q2 the same savings as in Q1. When we look at supply costs which includes content, the second quarter was having half the increase that we saw in the first quarter because the new cycles with deflation are starting to kick in. Commercial costs were sharply declined from lower activity and we had, in the rest of opex, similar trends. The content costs, to your question, they are they have peaked in the first half.

And then we will see better trend or stability in Q4. It's very important to see that we had previously achieved slight decline in La Liga when we renewed the last cycle. Now we have achieved 15% deflation in the Champions League and some other relevant sports, which are being, at this moment, auctioned. We will most likely be able to show double-digit deflation as well. In addition to this, as you were saying, some sports didn't take place. So for instance, some tennis competitions, different calendar and structure for Formula One races and so on. So we are managing each content as the situation clarifies in each one of the competitions. So initial savings have been achieved already and some more may come. All of this allows us, as I was responding before in your question about the outlook, to be optimistic that the OIBDA margin in the second half could be slightly higher than the one we had in the first half.

Fernando Cordero -- Banco Santander -- Analyst

Okay, thank you.

Jose Maria Alvarez-Pallete Lopez -- Executive Chairman & Chief Executive Officer

Thank you. And Fernando. Next question please.

Operator

Our next question comes from David Wright from Bank of America. Please go ahead, your line is open.

David Wright -- Bank of America -- Analyst

Hello, guys. Thank you for taking the questions. Just I guess the first one, obviously they're actually related. The first one is about the dividend, really. You've obviously had huge pressure from Latin American currencies, also the operations have deteriorated somewhat over the last couple of years. S&P sounds very much like they're about to downgrade you. But even Moody's on the lowest level of IG, I think they have an outlook for EBITDA this year, EUR15.5 billion. And I think your commentary this morning, from IR, suggests that you're comfortable with levels below EUR15 billion right now. So it does feel like the Moody's number could be missed. In which case, are you worried about the current balance sheet rating? And if so, if Moody's were to take a more cautious view, does dividend become part of the equation? You've obviously moved to scrip, but that does feel quite an expensive offset right now given the current share price level.

And then my second question, just on I think you mentioned before, Angel, the ARPU growth in Spain H2. That seems, given the current trend, which has seen the ARPU declining year-on-year at an accelerated fashion Q4, Q1, Q2, that seems extremely difficult to achieve especially given the current dilutive effect that the O2 adds, unless you're pricing some kind planning some kind of price rises. Could you confirm that? Otherwise, how do you expect ARPU to get better in the second half?

Jose Maria Alvarez-Pallete Lopez -- Executive Chairman & Chief Executive Officer

Thanks for your questions. I mean I'll start with the dividend. We feel comfortable the current level of EUR0.40 per share. Even with our revised figures reflecting full COVID impacts, our dividend shows very prudent organic free cash flow coverage, even if it was to be fully paid out in cash terms. Allow me to say that free cash flow will be significantly above current market expectation this year. These dividend levels allow us additionally to keep enough financial flexibility to keep reducing debt levels. It is a strategic decision of the company to keep reducing debt levels and preserve a strong credit rating profile. As you know, we do not have a long-term dividend policy, as we think that with the current volatile macroeconomic scenario, an additional level of caution is required. But we feel comfortable with the current dividend level. In order to preserve additional financial flexibility, you know that our shareholders approved in our last shareholders' meeting to introduce this scrip dividend option to shareholders.

And this option was approved for the last tranche of 2019 dividend, which was paid last month, and the first tranche of our 2020 dividend that will be paid in November this year, both tranches each of EUR0.20 per share each. In the last June payment, 63% of shareholders decided to opt for shares and 37% in cash. And that means that out of a total dividend of EUR one billion, EUR371 million was paid in cash and EUR631 million in shares. So in summary, we think that dividend is comfortably covered with expected free cash flow generation. And still allow me to stress that free cash flow our estimate for free cash flow for this year, it's significantly above current market expectations. And even if we were to include all COVID impacts, scrip has been introduced to produce to provide additional flexibility. And the option, the scrip dividend option looks like have been welcomed by investors, by shareholders because 63% opted for shares. I hand it over now to Laura for rating outlook.

Laura Abasolo Garcia de Baquedano -- Chief Financial & Control Officer

On rating, let me remind you that we maintained stable outlooks, both with Fitch and Moody's. So we have a stable outlook with Moody's at present. The negative outlook of S&P reflects the risk of downgrade. You are right, if they no longer expects Telefonica will make significant progress in reducing its leverage in 2020 as an intermediary step for returning to comfortably below the maximum adjusted debt-to-EBITDA under S&P methodology. We are in constant conversations with rating agencies. They have welcomed Telefonica's measures undertaken to protect the credit rating. They know our commitment to solid investment grade. They have welcome also the script dividend. And it's also worth highlighting the strong financing activity that we keep undertaking with the maintenance on appropriate level of liquidity and the active portfolio management we have done.

So many things we have done in organic as well. In the last year, partial disposal of Telxius, agreements for the sale of Central America, sale of 11 data centers, sale of towers in Brazil, Ecuador, Colombia. But also in Q2, in the midst of COVID, we have undertaken the sale of towers in Germany to Telxius and the sale of Costa Rica, both reducing net debt slightly below EUR one billion. Also, you mentioned FX as a reason for a credit rating and we have shown how FX has reduced free cash flow only by EUR111 million, and we pay down debt with free cash flow, not with OIBDA. You know we are not very fond of the OIBDA-to-debt ratio, first, because the FX move in different rates, in the numerator and denominator. And also because you have to look at the ratios in the light of the revenue prospects going forward. And in the light of the capex commitments going forward. And as Jose Maria explained, we are well ahead in fiber deployment.

So our capex going forward should be lower than many, many of our competitors.

David Wright -- Bank of America -- Analyst

If I may comment sorry, if I could just check then. So you're not expecting S&P to cut? And if you do miss the Moody's EBITDA target, you're not expecting a more cautious outlook there? Is that correct?

Laura Abasolo Garcia de Baquedano -- Chief Financial & Control Officer

I think we have to go to the facts. We have a stable outlook with Moody's and we have a negative outlook with S&P, and that's obviously as a risk. If we are in negative outlook, there could be a downgrade. So it's there it's for them to judge and it's for us to explain everything we are doing in the leverage and confirm our commitment to solid investment grade.

Jose Maria Alvarez-Pallete Lopez -- Executive Chairman & Chief Executive Officer

Allow me also to remind that we have inorganic transaction that has been that are under approval process. And that would imply sources of fund and capital gains and would also accelerate debt reduction. Notably, out of the U.K. merger, when approved, it would generate between GBP5.5 billion and GBP5.8 billion of funds for Telefonica and a significant capital gain. We have announced today the sale of Costa Rica. We have under approval process in El Salvador. And in addition, you know that we have Telefonica Infra, which on Telxius that has a significant amount of towers that could put into value.

Telefonica Tech is growing significantly, has a sizable size and we are also looking at it as a potential source of value. And then we have Telefonica Hispam process of inorganic measures that would also be a source of additional comfort. So overall, we think that we have enough organic and inorganic measures to preserve a strong credit profile and to make sure that all the components of the financial equation of the company, dividend and debt reduction and preserving a strong credit profile is preserved.

David Wright -- Bank of America -- Analyst

And can I just ask as a follow-up I'm happy to drop my Spanish question given I'm taking some time here, but just on you mentioned about potential demerger optionality around the Hispam asset. It's hard to imagine that you could demerge the business with the same level of credit that you currently have, the same level of leverage you currently have in Telefonica Group, I would have thought way over three times. So could a demerger even be a releveraging event for the Telefonica core business? How are you thinking about that?

Laura Abasolo Garcia de Baquedano -- Chief Financial & Control Officer

Yes, you're right. It will be very difficult to maintain our actual credit rating in a Hispam-only vehicle. But the Hispam demerger movement will take a releverage effort. And in fact, we are already working on a releveraging effort in Hispam because that's nonreserve move, and we can do it also organically.

Angel VilA Boix -- Chief Operating Officer

Okay. I'll answer the Spanish ARPU question because I have been preparing for it. So now I would like to respond it. So if one looks at the evolution of the conversion ARPU in the first half, it has had negative and positive impacts in this evolution. On the negative side, you have COVID-19 effects like downgrades, some promotions to hold the mix, some disconnections and also the closing down of social venues, bars basically that were showing football packages to their customers. Also, we had smaller dilutive effect from multi-brand options. And we had consumer upselling of new services and higher ratio of additional high-value lines. In the second half of the year, many of these impacts are not going to be there.

Actually, downgrades regarding football probably will become upgrades because with the reopening of the season also, August, which used to be a very muted month even in which some customers disconnected and then rejoined, this is not going to be the case this year. Also without soccer on over-the-top, we are going to get a fair share of those customers that will improve the mix. The reopening of the social venues is also going to help us. We are seeing big demand, for instance, of Internet in second homes and all the services that go along with those. And we are expecting less impact of promotions. So all of these factors are the ones that make us confident in an improvement in the ARPU versus what we've seen in the first half.

David Wright -- Bank of America -- Analyst

Appreciate all the answers. Thank you, guys.

Angel VilA Boix -- Chief Operating Officer

Thank you, David.

Operator

Our next question comes from Luigi Minerva from HSBC.

Luigi Minerva -- HSBC -- Analyst

Yes, good morning and thanks for taking my questions. The first one is on the announcement in Brazil yesterday about the option for a neutral fiber network available to wholesale customers. But perhaps a similar plan to what you described for Germany, but can you please elaborate on what it actually implies? And then I was wondering, just following up on previous comments, I understand that the Spanish fiber is core and strategic but whether you would be interested in the minority investors in the Spanish fiber. And second question is on what you are seeing in the business, B2B segment, whether there is some evidence of customers, for example, missing payments or downgrading their packages. I presume that the impact there will be will come with a lag. So it will be more important in the second half as the government support starts to diminish.

Angel VilA Boix -- Chief Operating Officer

Luigi, on the Brazilian fiber call that was described yesterday in Telefonica Brasil's call, it's a project which is also in motion. Brazil our Brazilian operation first is showing record levels of deployment and connections in fiber. We are, at this moment, connecting every month, 140,000, 150,000 homes with fiber which is about the highest we ever achieved when deploying in Spain. There is a very healthy demand. But of course, it's a huge market. We cannot cover all the market with our capex. So we have decided to segment three type of situations. There is a first tier of cities and markets that we are investing directly from the capex from Telefonica Brasil.

Then there is a second-tier that we are looking to address with new models that I will describe in a second. And then there is a third tier of towns in Brazil that we are going to a franchise model in which the capex is made by the local partners and we provide the technology and we have some revenue share. But in the mid-tier, we are doing different models. The first one, for instance, is the agreement that we reached with American Towers to deploy fiber in Minas Gerais. But also, we have launched a process to attract financial partners to do a fiberco that would not be consolidated into our accounts. Here would be a joint opportunity or a joint project between Telefonica Brasil and Telefonica Infra, aiming to bring onboard a partner that would take 50% of that company and between Telefonica Brasil and Infra would have 50%.

The difference with the German project is that the German project is purely greenfield. The project in Brazil will be mixed, will be having part brownfield by contribution of some of the fiber that Vivo has in the regions that are going to be object of this project, and the rest will be greenfield build-out, will be also a model which will be open to wholesale, to all the players in the market. We think that there is a huge opportunity in Brazil. We are showing the high double-digit growth in the fixed broadband, ultrabroadband services in Brazil. And again, we are even with the cuts in capex that were commented before, we are deploying at the highest, and connecting, by the way, at the highest level we've ever done in Brazil.

Laura Abasolo Garcia de Baquedano -- Chief Financial & Control Officer

If I may complement Angel, because we are also doing fiber projects in Hispam. As you know, we are completely focused on ultrabroadband, and we are progressing very well and having beaten previous quarters, this quarter despite COVID, we have agreements with ATC and ATP in Chile, Colombia and Argentina, but we are going a step further in the line of the other infra projects. And we have we are working on the carve-out of FTTH and related assets in the case of Chile. And we will sell a majority stake of that vehicle as a way to monetize, but also and more important, accelerate the transformational deployment plan in Chile. And more projects of this kind could come in, in the rest of the Hispanoamerica region.

Angel VilA Boix -- Chief Operating Officer

Yes, regarding the B2B business, we are quite well-positioned in markets like Spain, in Brazil in this segment. And we are very well-positioned to capture the post-COVID opportunity, especially in services in IT, such as cloud, cybersecurity, elements linked to smart working scenarios. And we leverage this on our bigger share in corporates. What we see or where we see more difficulty in some of our customers is in the SME segment. Here, we have been ready to financially facilitate life to those customers. Obviously, this we are doing with a very thorough monitoring of the potential bad debt risk, which is not an issue at this moment.

And with a progressive return of activity, we think that this segment should be performing nicely in the next quarters. So monitoring very carefully some of the segments and the financial impacts that may come from those, but we think that there are opportunities that we're already capturing in cybersecurity, cloud that you have seen in our presentation are growing at a very substantial double digit.

Luigi Minerva -- HSBC -- Analyst

Okay, thank you.

Angel VilA Boix -- Chief Operating Officer

Thank you.

Operator

Our last question will come from Jerry Dellis from Jefferies. Please go ahead, your line is open.

Jerry Dellis -- Jefferies -- Analyst

Yes, good morning. Thank you for taking my questions. I just had a first question just following up on the Spanish sort of ARPU issue. And I just wondered whether you could clarify for me one particular point. I remember that in July last year, you applied a rather large price increase, about EUR10, to about 1.5 million sort of high-end Fusion customers. That seems to me to create a fairly difficult comp for the second half of this year. Is it correct to sort of think about that or is there some offsetting issue particularly with in relation to the high-end Fusion base and the comp into the second half?

And then my second question is in the U.K. If we understand it, the Project Lightning investment is included within the proposed U.K. joint venture. What is your attitude to accelerating the deployment of Project Lightning and perhaps investing more capital in that project to get the to accelerate the current run rate of build above what's been achieved over the last four years?

Jose Maria Alvarez-Pallete Lopez -- Executive Chairman & Chief Executive Officer

Thank you for your questions. Regarding the Spanish ARPU, you're right. It's we had a price increase or an offer increase in the third quarter last year, which will not be repeated this year, and that is one of the drags that we will have in the third quarter. Roaming potentially will also be one of those. We think that there are some positives that I was describing before, and I would not need to repeat myself from the previous answer. And I and bear in mind that the answer that I was giving before was relating to the second half, was not relating to the third quarter. And regarding your question on Project Lightning, our merger in the U.K. aims to build one of the leading converged players in the market. It was one of the main attributes that attracted us to combine our business with Virgin Media. And Project Lightning is a very important part in that.

We have shown in our markets and in the markets where we are converged that we are firm believers in fiber. So if and when the transaction is concluded now at this moment each company is operating independently and we cannot share or revise or do anything with respect to making plans together. So once the transaction is closed, we will assess if there are opportunities to accelerate that deployment that are value creative for the shareholders, we will look at them. I think it was evident in this call that not only we have one of the largest fiber footprints globally, but that we are analyzing vehicles to and deploy fiber in an operationally and financially effective way across our footprint. And the U.K. should not be any different from that once the transaction is concluded. Thank you.

Jerry Dellis -- Jefferies -- Analyst

Thank you.

Jose Maria Alvarez-Pallete Lopez -- Executive Chairman & Chief Executive Officer

Thank you, Jerry.

Pablo Eguiron Vidarte -- Global Director of Investor Relations

Well, thank you very much for your participation, and we certainly hope that we have provided some useful insights for you. Should you still have further questions, we kindly ask you to contact our Investor Relations department. Good morning, and thank you.

Operator

[Operator Closing Remarks].

Duration: 93 minutes

Call participants:

Pablo Eguiron Vidarte -- Global Director of Investor Relations

Jose Maria Alvarez-Pallete Lopez -- Executive Chairman & Chief Executive Officer

Angel VilA Boix -- Chief Operating Officer

Laura Abasolo Garcia de Baquedano -- Chief Financial & Control Officer

Michael Bishop -- Goldman Sachs -- Analyst

Jakob Bluestone -- Credit Suisse -- Analyst

Carl Murdock-Smith -- Berenberg -- Analyst

Joshua Mills -- Exane -- Analyst

Fernando Cordero -- Banco Santander -- Analyst

David Wright -- Bank of America -- Analyst

Luigi Minerva -- HSBC -- Analyst

Jerry Dellis -- Jefferies -- Analyst

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