TIM - Q3 2024

Transcript

Vicente Ferreira (Head of Investor Relations)

Good morning, ladies and gentlemen, and welcome to TIM S.A. 2024 Third Quarter Results Video 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 S.A remarks are completed, there will be a question-and-answer section for participants. At that time, further instructions will be given. Hello everyone, and welcome to TIM S.A.'s Earnings Conference for the Third Quarter of 2024. Thank you for joining us. I'm Vicente Ferreira, Head of Investor Relations. This video shares the key highlights of our recent performance and the strategic initiatives we are implementing to continue our sustainable cash flow growth. Afterward, we will host a live Q&A session with our CEO, Alberto Griselli, and our CFO, Andrea Viegas.

Before we discuss our results, I remind you that management may make forward-looking statements, and this presentation may contain them. Please refer to the disclaimer on the screen, also available on our earnings materials and investor relations websites. With that, let's move to our results.

Alberto Griselli (CEO)

Hello everyone, I'm Alberto Griselli, CEO of TIM Brazil. Once again, we deliver solid financial and operational results in a quarter marked by cash flow generation. But before we discuss our results in detail, let me introduce a relevant part of our effort to improve our brand perception. In September this year, the Rock in Rio Festival took place. This is the biggest music festival in Latin America, lasting seven days and attended by more than 700,000 people. TIM is a master sponsor, which reinforces a connection between the company and music that dates back to 2003.

Since then, we have kept this connection, but now we are expanding this as a platform to reshape clients' perceptions of our brand. Mobile network operates in extreme conditions during this type of event, so we use the music festival to showcase our 5G network strength and reliability while innovating in how we interact with our clients and prospects. This year's results were remarkable. TIM was the number one brand mentioned with enormous favorability and colossal brand exposure. We expect that investment like this will help us close the gap in brand perception and clear the way for future growth. Back to our financial results. In the third quarter, we achieved a 6.1% growth in service revenues, outpacing inflation and maintaining the sustainability of our revenue dynamics in face of a rarely expected tougher second half of the year.

Our revenues were driven mainly by mobile services, which expanded by 6.3% compared to third quarter 2023. Mobile ARPU is an important lever, rising close to 5%, while postpaid customer base improved with migration and a new record low churn at 0.7%. Our EBITDA grew by 7.5% during the same period, with another quarter of margin expansion. After third quarter 2024, we have 13 quarters of expanding margins, confirming our ability to push the boundaries of efficiency. Our proxy for operating cash flow reached a record high for the third quarter, growing above 20% year-over-year. As a percentage of revenues, we reached 25% in quarter three and more than 21% in the first nine months of 2024. We have the highest cash conversion in the industry. These solid financial results are accompanied by innovation in our offers, consistent infrastructure development, and improvements in our services.

We continue to develop the 3B Concept. So, to build the best offers, we focus on the best value proposition. As we promised last quarter, we launched the best Control Plans in the market. This comes as a part of a full revision of our Postpaid portfolio, establishing new price points to facilitate upselling while reviewing benefits and smoothing customer journey. This proactive approach to managing our customer base is helping to increase loyalty and improve churn. Our Postpaid customer base is sustaining a solid pace, growing close to 8% year-on-year and 2% quarterly. In Prepaid, we launched a new proposition with adjustment to our go-to-market, aiming to improve our performance in this segment and to open opportunities for future growth. The second B of Best Network combines the largest coverage with the best quality and reliability.

As you know, TIM is the only operator to cover all cities of Brazil with 4G, and it's also number one in cities with 5G, very close to 500 municipalities. We are widening our leadership in consistent quality, and we ranked first in reliability, a key metric for customer experience and more important than download speeds. To deliver the best service, we work on addressing today's challenges while building an evolutionary path with artificial intelligence. TIM is increasing first call resolution rates and facilitating digital interaction to maintain service quality at the highest standards efficiently. Therefore, call center NPS is improving, and we continue to outperform the sector in resolution rankings. Our AI initiatives continue to evolve. TIM AIX is 100% rolled out to more than 5,000 attendants. Speech and text analytics are producing insights into consumer complaints to improve and accelerate caring activities.

Before Andrea joins us, I'd like to touch on an important topic for advancing our business. As we presented during our Investor Day a year ago, we have been working on expanding and developing new growth avenues, such as our digital ecosystem and our B2B. The expansion of this digital ecosystem is focused on verticals such as health, mobile ads, data monetization, and education, using partnerships with consolidated companies. Through venture capital investments, we use our 5G funds with Upload Ventures to explore other segments with startups and scale-ups. Mobile ads and data monetization more than doubled the revenues in the past 12 months as we consolidate our position as a relevant player in these markets. In health, after the soft launch, we learned and adjusted the go-to-market, and now we are bringing roughly 20,000 new customers to our partner.

In education, since the beginning of the partnership, more than 700,000 people subscribed to courses. Our fund now has two investees with promising addressable markets to be explored. In the coming weeks, we will announce initiatives in a new vertical to open further opportunities for TIM. Regarding B2B, we are accelerating our execution to develop a new IoT market in Brazil. We closed this quarter with more than BRL 600 million in contracted revenues, with two very relevant new contracts signed. Additionally, we have a solid pipeline of potential clients for the coming months. Here, we also expect to go beyond the already known agri, street lighting, and highways vertical. Stay tuned for novelties before the year end. Now we move along to more financial details with our CFO, Andrea.

Andrea Viegas (CFO)

Hello everyone, I'm Andrea Viegas, CFO of TIM. I'm pleased to share that our performance continues to be strong, with a clear highlight on our cash generation capacity, as we had anticipated and communicated over recent quarters. Supported by solid revenue growth above inflation, our EBITDA demonstrates robust results, with a 7.5% increase and another quarter of margin expansion. After accounting for lease impacts, EBITDA after leases grew nearly 9%. Our tower decommissioning project no longer has a material impact. A few towers remain to be financially decommissioned, with fines still to be paid. However, these numbers have significantly decreased. As a result, the EBITDA after leases margin expanded by an additional percentage point year-over-year. Driven by TIM's overall strong performance, our net income saw double-digit growth when compared to third quarter 2023, despite a lower interest on equity.

Additionally, operating cash flow grew over 20%, with margin expanding to 25%. Despite the country's challenge with foreign exchange pressure, we managed to maintain our CapEx levels within guidance bands. Our nine months' results are also quite positive, with operating cash flow nearly 30%, growth exceeding 21% as a percentage of revenue. This third quarter confirms what I highlighted in our previous call. Seasonal negative impacts on working capital and CapEx have indeed reverted. Even with nearly BRL 2 billion in debt and interest payments, we generated almost BRL 2.3 billion in cash before dividends. These results underscore the strength of our strategy, and I'm confident we are on track to meet our year-end guidance, even with a more challenging comparison base in the second half. Now, back to Alberto.

Alberto Griselli (CEO)

To conclude our quarter discussions, it is worth recapping some developments in the past three months. We saw some new pricing movements from our peers, but competition remains healthy, and we believe it will remain like that. So much so that we reformulated our postpaid portfolio without using the pricing lever to improve the value proposition. We are carefully looking into our prepaid dynamics and adjusting our offer and go-to-market to regain momentum. We will implement our Gen AI use cases that prove to be promising for our customer experience and efficiency. We will keep developing our business while caring for our people, society, and the environment. The third quarter was marked by outstanding cash flow performance. We were also pleased with the postpaid contribution and the efficiency of our operations. We are positive we will deliver on our promises on all guidance lines.

Therefore, out of our three-year guidance we gave, we confirm our intention to distribute an additional BRL 2.7 billion in shareholder remuneration between dividends and interest on equity, totaling BRL 3.5 billion for 2024. The journey towards our aspiration of becoming Brazil's most preferred mobile operator requires firm commitment and consistency. I'm sure we have the right people to deliver this throughout hard work, creativity, and discipline. Now, let's move to the live Q&A session.

Vicente Ferreira (Head of Investor Relations)

Thank you, Mr. Alberto. We'll now start the Q&A session for investors and analysts. If you wish to ask a question, please press the raise-hand button. If your question has already been answered, you can exit the queue by clicking on the same button. You can also send written questions throughout the Q&A option. Wait while we poll for questions. Our first question comes from Marcelo Santos from JP Morgan. Please, Mr.

Marcelo, your microphone is open.

Marcelo Santos (VP and Equity Research Analyst)

Hi, good morning, Alberto, Andrea. Thank you for taking my questions. I have actually two. The first question is on prepaid. I wanted to get a better assessment on how do you think you're doing in this market. Like, are you losing space? You mentioned in the release some lower recharges in some groups. So just wanted to better understand the performance. The second question is more in general about mobile service revenues. Not all the peers reported yet, but you have been growing a bit below peers. So just wanted to understand the elements here. Do you think this is more of a value-added service if you're growing a bit less, or is this more on the prepaid that's dragging you? So just wanted to get your assessment. Thank you.

Alberto Griselli (CEO)

Thank you, Marcelo. Hi, everybody. So let's go with the first one that is somewhat related to the second one. So when it comes to prepaid, so what we are observing in this quarter, in these last three quarters, that we are sort of going sideways. So if you look at our prepaid revenues, you will see quite similar numbers, quarter one, quarter two, and quarter three. And if you look at our competitors' numbers, you're likely to see a quite similar pattern. When you look at the year-over-year performance, we had quite a good 2023 on prepaid, and therefore the comparison, it's a revenue decrease from quarter starting second quarter this year. And this is basically due to a few factors. So let's recap what happened in the last quarter of last year when we did some price adjustment across the board.

Once we did this price adjustment across the board, basically we made two things. We created a sort of a better incentive to migrate from prepaid to control, and so in this 2024, we have a faster prepaid to control migration so far. And this is, of course, impacting our prepaid revenues. At the same time, we found out some less frequency of recharges in specific groups of prepaid after the price adjustment, and so a sort of negative elasticity that created a negative impact on our prepaid revenues' growth potential. And so we got something that is intended and something that was not intended, and this explains our prepaid performance in the first quarter, second quarter, and third quarter. A couple of months ago, we launched an upgraded value proposition to improve our prepaid performance going forward that is basically centered around three concepts.

The first one is to be more appealing on prepaid in the market space, so if you look at the prepaid offering, they're quite similar and they've been quite similar for a while, so we put on the market some innovation to be more appealing. The second one is to increase the frequency of recharges for some specific groups, and this is primarily related to the WhatsApp benefit that we included. And the third one is to stimulate the download and usage of our app and Meu TIM, which brings to us basically two benefits: an increased communication mechanisms and a better cost to serve. So when you look at the prepaid performance, what is driving this is prepaid to control migration on one side and on the other side, the lower recurrency on specific lower income subsegments of prepaid. So this is for the first question.

When you move to the second question and you look at our overall revenue performance, you will see that we are quite on the right track on postpaid in line with our peers. And what is dragging us and the lower speed versus them is primarily the prepaid performance for us. So what I've just said to prepaid impacts our overall revenue profile. And that's the reason why we have been launching a new value proposition to capture the opportunities that we have on prepaid. Of course, then you have other revenue opportunities that are primarily related to our customer platform strategy and the business segment that are creative on our revenue growth.

Marcelo Santos (VP and Equity Research Analyst)

Perfect. Thank you very much.

Alberto Griselli (CEO)

Marcelo.

Lucca Brendim (Financial Analyst)

Yes, very clear. Thank you.

Vicente Ferreira (Head of Investor Relations)

Our next question comes from Vitor Tomita from Goldman Sachs. Please, Mr. Tomita, your microphone is open.

Vitor Tomita (Research Analyst)

Hello, good morning all, and thanks for taking our questions. Two questions from our side. The first one would be on the postpaid side now. If you could give us an updated view on how you are seeing competition in postpaid, especially at the lower end of postpaid, the control plans where you have been carrying out prepaid to postpaid migrations and also recently launched a new plan portfolio. My second question would be on the mobile advertising initiative. If you could give us a bit more color on how that has been evolving and how it is being operationalized. In particular, what are the most common ways you usually display the ads to clients if it's mostly commonly done via push notifications or via videos that they can watch or other methods?

On whether your strong growth there in mobile ads has been more concentrated in your own ad inventory or on sale of third-party inventories? Those would be my questions. Thank you very much.

Vicente Ferreira (Head of Investor Relations)

Mr. Alberto, your microphone is muted.

Alberto Griselli (CEO)

Okay. Can you hear me now? It's okay?

Vicente Ferreira (Head of Investor Relations)

Yeah, it's working.

Alberto Griselli (CEO)

Okay. So let's go on postpaid, the first question, and the competitive dynamics over there. So on pure postpaid, that's roughly the higher postpaid plans with an initial price point of around BRL 110-BRL 120. We see quite a rational environment. So there are no big movements or updates there. And if you look at what we call, what we define as the mid-postpaid or entry postpaid, which is the control plans or hybrid plans, we have been executing a price adjustment front book and back book in between the first quarter and the second quarter. Another competitor did something quite similar at a quite similar time period, so in between the first quarter and the third quarter. And Claro did the same sort of movements at the beginning of July, and they decided to roll it back at the end of July, at the end of July.

So they went back to where they were before the upgrade. I would say that is something related to something that didn't work out. So once you do a price adjustment, you are intentional on that. So the fact that they went back signaled to us something that it didn't work out on their side. But the price difference is quite thin among the big players. And what happened, and it's been on the press and your reports over the last few days, is the launch of an MVNO by Nubank which positions the offer in this group of control sort of prices. And they're a bit more aggressive versus us. We tend to look at this offer as a BTL offer that they intend to cross and upsell to their customer base. And in this respect, this offer is quite similar to our BTL offer.

So it's a bit more aggressive in prices, but the offer itself doesn't present at this point in time nothing special. When you look at our strategy, we are committed to the overall more-for-more approach. And to give you an example, Vitor, we just launched our Black Friday value proposition for control, whereby we are not touching the price. What we are giving to our customer is an extra benefit if they subscribe to our promotion. What is this extra benefit? It's one year of Netflix subscription. So we keep on playing on our side the more-for-more approach. And the Black Friday campaign that we just launched, it's a confirmation of this. If we go to your second question, which is related to mobile advertising, so the first point is today is primarily on our own inventory. So we are working on our own channels.

And these channels are primarily our app, another subset of app that we have, our one-to-one communication mechanisms, and the captive portal that is where the customer goes when they finish recharging. And the format is variable depending on the channel. So you can have video in some of them, like the app or captive portal. You can have images. You can have just simple messages. And so we have been working over the last years to build inventory. And we have been working to create the pipeline of advertisers and been working on showing the advertising the efficiency of our communication mechanisms and inventory. And this has been working quite well. And that's the reason why we have been able basically to expand the inventory within our own perimeter, so not outside for the time being, and capturing more customers or more clients on our side.

Vitor Tomita (Research Analyst)

Very clear.

Thank you very much.

Vicente Ferreira (Head of Investor Relations)

Our next question comes from Gustavo Farias from UBS. Please, Mr. Farias, your microphone is open.

Gustavo Farias (Associate Director of Equity Research)

Hi, everyone. Can you guys hear me?

Vicente Ferreira (Head of Investor Relations)

Yes, it works.

Gustavo Farias (Associate Director of Equity Research)

Oh, good. Well, thank you for taking my questions, too, from my end. The first one on prepaid and in the light of less frequent recharges in the prepaid market, do you guys see any impacts, relevant impacts of bets in prepaid? And my second question, if you guys could give us more color on the increase in leasing expenses quarter over quarter? Thank you.

Alberto Griselli (CEO)

Gustavo, let me take the first one, and then I will pass the second one here to Andreas. On the first one, the less frequency for prepaid, it's related to a sub. When you look at prepaid, you basically have different groups of customers in terms of profiles. From one side, one extreme, you have lower-income customers. On the other side, on the opposite side, you have people without any economic restriction, but people that prefer to pay on a prepaid mode. When I say that there is less frequency, the less frequency tends to impact the lower-income segments. In our view, it's related to the price adjustment that we did last year. The bets impact, we don't have any data that suggests that bets is impacting in a negative way the profile of our recharges.

Andrea Viegas (CFO)

Hi, Gustavo. Related to the leases, we already expect an increase in the second half of this year. We have this increase mainly for three points. The inflation adjustment related to our regular contracts. We also have new sites that came from our 5G expansion. And also, we have new contracts such as the solar energy contracts that we have that also impact the leases. What we are working on is to continue to generate efficiency in this line. And we expect this line growth above the revenue growth. The growth of revenue will be higher than the growth of these leases. So for the next quarter, we still have these impacts, but the expectation is to be under control and lower than the increase of the revenues.

Gustavo Farias (Associate Director of Equity Research)

Thank you very much.

Vicente Ferreira (Head of Investor Relations)

Our next question comes from Phani Kanumuri from HSBC. Please, Mr. Phani, your microphone is open.

Phani Kanumuri (Equity Research Analyst)

Thanks for taking my questions. The first question is regarding how you're pleased for price readjustments next year, considering that Claro has taken back and rolled back its price readjustment this year, and the second question is regarding CapEx guidance, specifically for 2025-26, with the recent depreciation of BRL versus USD. Do you see a risk to the guidance? Thank you.

Alberto Griselli (CEO)

So I got the first one, which is on price adjustment for next year. I'm not sure I got the second one correct. You got it? Okay. So on the first one, when it comes to the price adjustment, so the idea for next year is to repeat what we did this year in between the first quarter and the second quarter, which is, Phani, what we call the Front Book price adjustment and the Back Book price adjustment. And of course, so the distinction about these two is the following. We have been doing this year in 2024 and 2023, the two movements together. So we increased the.

The Front Book prices.

For next year, when it comes to the back book prices, we're going to execute it anyway, as we were executing beforehand. When it comes to the front book price adjustment, this, of course, it's impacted by the overall movement of the industry. Now, if you look at, so on postpaid, we feel pretty comfortable that we are at the right price point. So we should be able to execute both together. For control, today, we are at a price point where Vivo is at 60, we are at 57, and Claro is at 55, so like the entry prices. So they're very close to each other. We, therefore, are 100% sure on back book price adjustment and likely to do an inflationary adjustment also on front book prices, as we did in 2024 and 2023, given the current competitive environment.

Andrea Viegas (CFO)

Related to the CapEx, we are in line with what we expect. CapEx, the vision of a quarter is not the big vision. We have to see the full year, and although we have a lot of efficiency generated by our contracts with 5G, we expect to maintain our guidance in the CapEx of full year. I don't know if I addressed your question correctly.

Phani Kanumuri (Equity Research Analyst)

No, so my question was that since BRL has been depreciating, BRL has been depreciating versus USD, does it impact your CapEx guidance, especially in 2025 and 2026?

Andrea Viegas (CFO)

Oh, okay. The exchange rate, we are in a good place related to our contracts, the band that we have for exchange rates. Until now, we have no impact related to the dollar, and 2025, we are working with the same range, and for now, with this exchange rate that we have now, we don't see any impact for 2025.

Alberto Griselli (CEO)

Maybe it's worth adding, Phani, that we just closed a new round, a big RFQ with the 5G providers, which is a big chunk of our CapEx or network CapEx a couple of months ago. And so the bands that we are looking at and we have, there are bands that are compatible with the current exchange rates. Of course, if they change a lot, then we may have an impact. But in the current status, we are okay even because we just closed the contract for the next three years. And so the real was sort of already depreciated versus U.S. dollars.

Phani Kanumuri (Equity Research Analyst)

Thanks. Very useful.

Vicente Ferreira (Head of Investor Relations)

Our next question comes from Gabriel Vaz de Lima from Morgan Stanley. Please, Mr. Lima, your microphone is open.

Gabriel Vaz de Lima (Research Associate and Equity Analyst)

Hey, thank you for taking my question. Good morning, Alberto. Good morning, Andrea. My question is on 2025 growth. Considering the macro and considering the new plans launched by Nubank, do you see risks of growing above inflation next year? And what's your thoughts on growing above inflation for 2025?

Alberto Griselli (CEO)

Gabriel, our plan is to grow above inflation. We see the elements in place to be able to grow above inflation. The growth is primarily driven by, if you look at postpaid, you look at an increase of customer base, an increase of ARPU, which is in turn related to the price adjustment. We are planning to do this price adjustment as discussed on Phani's question. If you look at our performance on postpaid, you will see that we have a growth driven on postpaid primarily on customer-based growth and ARPU growth. I don't see this changing next year. On prepaid, we put in place the efforts and the commitment required to improve our performance. What I already mentioned, if you look at quarter on quarter, you will see that we are going sideways.

And what we are looking at now, it's a month-over-month increase. And so we launched the offer a couple of months ago. It generally takes a few quarters to kick off. So we're looking now at the operational KPI, and we are positive on a number of them. So the trend should improve going forward. And we have another set of revenues, like the customer platform revenues and the B2B revenues that is increasing constantly over time, not only in the contracted revenues, but also in terms of the pipeline that we are looking at. And so when you look at the inflation projection for next year and the efforts that we are putting in place, we are still comfortable that we are going to grow above inflation, as in our current guidance, that for next year is in between 5% and 6%. Just to remember what is our target.

For this year, it was in between 5% and 7%. Starting next year, it's between 5% and 6%.

Gabriel Vaz de Lima (Research Associate and Equity Analyst)

Crystal clear. Thank you.

Vicente Ferreira (Head of Investor Relations)

Our next question comes from Emilio Rinconi from Itaú BBA. Please, Mr. Rinconi, your microphone is open.

Carlos de Legarreta (VP of Equity Research)

Hi, this is Carlos de Legarreta, actually. Thank you and good morning for taking the questions. So I have two on my end. The first one is, we'd love to hear your thoughts on the evolution of the customer from prepaid to Controle to postpaid. Maybe if you can talk a little bit about the percentage of people who move to Controle and how many of those eventually maybe move to pure postpaid. And what are the differences in churn rates between Controle and pure postpaid? And how also price-sensitive the two different types of postpaid consumers are? That'll be the first question, please. And on the second one, maybe for Andrea, the OPEX control has really been remarkable.

Aside from what you just mentioned, Alberto, about the above inflation ARPU increase for next year, is there any further room that you can see for savings in OPEX so you can deliver further margin expansion? Thank you. I think you're muted, Alberto, though.

Alberto Griselli (CEO)

Carlos, I'm with you now, right? Yes.

Carlos de Legarreta (VP of Equity Research)

Yes.

Alberto Griselli (CEO)

Let's take the first one. When it comes to prepaid to control migration, it's a good proportion of our net addition today. It's something that represents, I would say, on average, something like 50% of our overall number, which is growing double-digit year-over-year. One of the stimuli to that is the fact that we price adjust prepaid and the fact that we are quite able to select the right customers to migrate from prepaid to control, as well as control to control and control to pure postpaid. When we design these migrations, what we look at is a very huge number of subgroups. We are talking about tens. For each of them, we provide the starting point and the ending point, which is different among different groups. We've got quite different landing points in terms of pricing and benefits.

The way we design this migration strategy is roughly the following. We look at ARPU increase, which is one of the drivers, and we look also at not increasing churn and bad debt. That's the reason why we've got all these subsegments that our marketing is working on at a time. We select a group of people. We start migrating people from that offer to another one. We look at the overall effect in terms of ARPU, churn, and bad debt, and when we find a favorable equation, we scale it up. We do the ARPU increase being quite cautious with potential negative impact of churn and/or bad debt, and so this is fine-tuned and optimized on a daily basis by our marketing team. This is the way we look at that.

That's the reason why we keep on growing revenues without growing either bad debt, which is quite stable at 1.9% of revenues, or churn, which is at record low. We do this in a cautious way to increase the accretiveness on revenues, but without impacting negatively our cost or our other operational KPI like churn, so like creating a washing machine. Carlos, that was clear. That was a bit elaborate. I'm not sure I got the points that you were after.

Carlos de Legarreta (VP of Equity Research)

Yeah, I mean, on the first one, very clear. Thank you. And on the second one, it's just thinking about potential margin expansion for next year. I was saying that the OPEX control has been very remarkable. So maybe you can shed light into what items within OPEX you can maybe have a little bit of control to take them down so you can deliver the actual margin expansion, aside from the above inflation pricing, please.

Andrea Viegas (CFO)

Hi, Carlos. Working in efficiency is always a continuous action chain. We are always looking for another opportunity. Now we are working with some trials reference to artificial intelligence to work, especially in the maintenance of the network and the caring of the customer, the call centers. We always try to find another opportunity. Of course, we already have a very high margin, but our intention is to continue to grow OPEX lower than the growth of the revenue. Room for improvement, we are always looking for. Our focus is to deliver at least maintain the path that we have. Especially in the EBITDA, we think we expect to increase a little bit our margin.

Alberto Griselli (CEO)

And Carlos, if I may add, if you want to look at the different, let's say, categories we are looking at, you've got discipline, so having everybody sort of committed to spend something and deliver something on top of the expenditure. And then we have the technology that Andrea just mentioned, like artificial intelligence is the last wave that we are implementing. So where we stand, we demonstrated that we have the efficiency on a limited scale. And so we already moved this year from limited scale to full deployment. And so we are working to capture the synergy at full scale. The third lever that I think is worth mentioning is the continuous make versus buy decisions. And for example, we implemented in the past several business process outsourcing initiatives for tower, fraud, and billing.

We just closed another one for a piece of our infrastructure services and are working on another one on customer value management. So it's discipline, it's technology, and it's a constant review of make versus buy activities in search of productivity increase and quality increase.

Carlos de Legarreta (VP of Equity Research)

That's super helpful. Thank you for your answers.

Vicente Ferreira (Head of Investor Relations)

Our next question comes from Daniel Federle from Bradesco BBI. Please, Mr. Daniel, your microphone is open.

Daniel Federle (Lead Analyst of Technology, Media, and Telecommunications)

Good morning, everyone. Thank you very much. Alberto, do you see room for making plans more simple, like easier to understand or removing SVAs? And do you see any reason for making them simpler this way? Additionally, if you see room for any significant improvement in the customer experience in store and in the app, and what the timeline for making those experiences much better if it's something that takes time or that you could change from one year to the next? And the second question is, given that we have new players coming to the markets, pure mobile players, how do you see the importance of a convergence offer, like bundle or fixed and wireless? Thank you.

Alberto Griselli (CEO)

Daniel, let's go to the first one. When it comes to the quality of the service that we provide, this is an imperative of our strategy and an important element of the more for more strategy. So we say, okay, if we compete less on price, of course, we need to compete more on the perceived quality and value perceived by the customers. So when it comes to the more for more strategy, what we have been doing and what we did with the new postpaid portfolio, both pure postpaid and control portfolio that we just mentioned, is include benefits that the customer value. And generally, this falls into the categories of bundle. And when we say that the customer value, we know that they value because we know how many of them are subscribing to something else versus a mobile service.

If you look at our presentation, you will see that in postpaid, we have been growing this penetration 11%. And we say, okay, but what is the starting level? We are talking about something in the range of 30%-40%, depending on the group, of bundle penetration in our customer base. So it's pretty high. And so customers value this. And this is about the benefits and the bundling of the benefits. The other thing that we are working, so it's not just perceived value, but perceived quality, is to simplify a number of processes. And so when you look at the control plans and postpaid plans that we just reformulated, they have significant improvements in what we identified that we know are some customers' hurdles. So it's a continuous process that started years ago, and we keep on working every month to improve the customer experience.

You will see this reflected in the increase in NPS as is presented in our results. It's a long journey, but it's a journey that is critical to us. So we've got different activities and levers that we are deploying to achieve our objectives. When you go to the app improvements, just an example that you mentioned, we are now working on a new app that we are going to deploy at the beginning of next year. The app, it's the app and the captive portal. The captive portal is where you go if you are prepaid and you finish your credits. This captive portal is already being implemented this year. The app with a much simpler interface and the better flow is going to be implemented at the beginning of next year.

This is part of our strategies and intrigue our part, and we are quite committed to it. Just for you to have a reference, NPS, it's part of the management of the short-term incentive of all the leadership team and all professionals in our company. So it's quite an important KPI. When you go to the second question, which is related to the pure mobile approach, I think that this is something that, like FWA, every year we check and recheck. The convergence today in Brazil, it's a sort of limited in scope and in intensity depending on the segment where this is intended to and the geographical scope of it. At the end of the day, 65% of the broadband market is in the hands of fiber of somebody that doesn't have a mobile value proposition.

It's offer driven by some players, but this player represents 35% of the overall offer. When you look at the potential results or the potential difference in results of a pure postpaid versus a convergent approach, I think it's important to mention that we are growing our postpaid customer base faster than the market leader. And so we don't see any slowdown in that. And when you look at churn, we are delivering the best churn ever. So from an overall strategic point of view, I don't think this is something that is impacting us now. And from a results point of view, I just confirmed what I said.

Marcelo Santos (VP and Equity Research Analyst)

Thank you, Alberto.

Vicente Ferreira (Head of Investor Relations)

Okay. Our next question comes from Lucca Brendim from Bank of America. Please, Mr. Luca, your microphone is open.

Lucca Brendim (Financial Analyst)

Hi, good morning, everyone. Thank you for taking my questions. I have two here from my side. The first one, usually working capital has a positive dynamic for TIM in the fourth quarter. I just wanted to confirm if that will be the case in a similar manner this year as well. And the second one, you had a very strong performance in other mobile revenues. This quarter, it was up more than 20% year-over-year. You mentioned it was related mostly to some IoT projects. So we wanted to understand a little bit if that is something recurring, is that a one-off, and if there are other initiatives in this line that could be helping results going forward. Thank you.

Alberto Griselli (CEO)

Okay, Lucca, so let me start from the second one because sort of you already gave the answer also besides the question. So other is something that is there to stay. It's intentional and it's part of our strategy. So when you go to others, you have a number of things inside, like the customer platform strategy, the IoT strategy. We discussed, I think it was the first quarter, the roaming revenues that, by the way, are coming because we have a better position in postpaid. So it's something that is growing. It needs to grow. It's intentional and will keep growing. This is for the second question. For the first question, when you look at our dynamics, I would say it depends on what KPI you are looking at. So we are trying to balance revenue growth, margin expansion, and free cash flow growth.

So we will see in the fourth quarter the same dynamics happening. And this is basically we're talking about revenue growing above the inflation, margin expanding, and free cash flow growing. When it goes specifically to the revenue dynamics, what is likely to happen at this point in time is that you will see what we are seeing today. So we will see the postpaid performing well, the others keep growing, and the prepaid sort of going sideways. And it was going to be a tough comparison because in the last quarter of 2023, we priced up. And so our prepaid revenue line is likely to perform sideways on a quarter. Sideways is probably not the right because there is some seasonality in the first quarter in November and December. But nonetheless, we got a difficult comparison because we priced up prepaid in the last quarter of 2023.

Andrea Viegas (CFO)

Related to the working capital, we have this particular dynamic that in the first half of the year, we have a negative working capital. In the second half, we have a positive. So this has always been like this. And I confirm that the fourth quarter, we will have a positive working capital. If you look from the first one to the fourth, we increase the working capital. This is, like I mentioned, related to our dynamic, especially the dynamic with our major suppliers.

Lucca Brendim (Financial Analyst)

Very clear. Thank you for the answers.

Vicente Ferreira (Head of Investor Relations)

Our next question comes from Carlos Sequeira from BTG Pactual. Please, Mr. Carlos, your microphone is open.

Carlos Sequeira (Head of Equity Research and Managing Director)

Hi, good morning. Morning, guys. I have a few questions. One on pricing. Alberto, you mentioned that the price points on the control package here are very similar between TIM, Vivo, and Claro. And yeah, that's true. But then came Nubank and made an offer that is like BRL 10 lower than the cheapest one out there. So my question is, do you think this price point, usually control plans, especially the entry-level clients, they're price sensitive, right? Do you think this price at like BRL 10 less would be enough to change the price dynamics going forward? I mean, how do you see that evolving? I know maybe it's too early, I don't know, but just how you think about now that we have this new guy out there. I know we have to blame Claro on that, but anyways, it is what it is.

Alberto Griselli (CEO)

What I will do is, so if you look at, if you do the comparison like 60 versus 45, of course, or 55 versus 45, there is a difference. Now, I think that as always in life, you have different customer groups, and so you got people that value the more for more strategy, so the offers are not quite comparable because if you look at the 55 offers, you go there are bundles like the Netflix bundles that I was just mentioning, and so there is extra value there, and we know that customers like that. Of course, there are a subset of customers that are more sensitive to price, and for these customers, this sort of offer may be appealing, but you need to remember that we are comparing a BTL offer to what we call front book offer. We do have BTL offer.

So when you migrate a prepaid to a control plan, you don't move it from BRL 30 to BRL 60 or BRL 55 because this step is too big. So you got a number of offers in between there. And therefore, I think it's fair to compare BTL with BTL. And if you do that, the gap is not that big. And therefore, we will need to see how this plays off. For the time being, the scope is quite limited. If you are a customer, you want to change, you can make number portability. It's quite a difficult process. You don't make number portability. You need to call. When you call, we know what to do. So I don't think that with what we have on the table today, the pricing dynamics will change.

Carlos Sequeira (Head of Equity Research and Managing Director)

No, perfect, Alberto. Okay. And another question that I always wonder too is, I mean, you're growing top line super nice above inflation for several quarters, which is amazing. We know how tough it is to grow above inflation in this sector. But then there are other maybe bigger growth opportunities out there on maybe broadband or B2B. How are you seeing these opportunities going forward? I think how meaningful you think that can be?

Alberto Griselli (CEO)

So let's start with the two that you mentioned. They are both meaningful. So let's start with the B2B one. So the B2B one, if you look at the contracted revenues, we are accelerating quite fast. We have a robust pipeline. We got a lot of actions going on. We identified nice verticals where we moved first. We got some kind of advantage. And when you look at that, you have the organic opportunity and you have the opportunity to enhance our set of capabilities to capture a wider set of the B2B revenues. And this could go, as we said on our Investor Day and in many meetings through organic growth, which is material and non-organic growth also to enhance the set of capabilities that will allow us to provide a larger portfolio. So on B2B, I think the answer is quite straightforward. It is important for us.

It's an important pillar of our strategy. We are pursuing it with assertiveness and we want to succeed in that. When you go to broadband, the answer is a bit more complex because you have a marketplace which is quite competitive. It keeps being competitive, and as a matter of fact, competition is expanding because you have two levels of competition. You got the national level whereby everybody's sort of stable with the entry level, entry with the price at around BRL 100 per subscription, but when you go on the regional level, you have a number of municipalities where the price competition is quite strong, and you see prices going down to BRL 50 or something like that, then the number of places where this is happening is increasing.

So you have a situation whereby the market environment is not attractive because of a lot of competition that is pressuring churn and ARPU. So the point is, we, of course, have the opportunity to grow in a space where we have 2% market share, but the time is not right now to accelerate. And that's the reason we maintain ourselves selective. And when it comes to non-organic opportunities, they need to have strategic fit at the right price. So it's something that I think is less relevant in the short term versus the B2B focus that I just mentioned.

Lucca Brendim (Financial Analyst)

Perfect. That's very clear. And if I may, one last question on CapEx for sales. And it has been falling as a percent of sales quarter after quarter, year after year, right? I mean, we've been seeing that happening, not only TIM, other companies, other geographies as well. In your case, we are probably this year, maybe CapEx for sales will be a little higher than 17%, somewhere between 17% and 17.5%. How low do you think it can get? I mean, looking longer term, right? I mean, can it be around 15%? What is the number that you think it's a reasonable number for CapEx for sales going forward, please? I know it's not a direct question. It can be anything, but just an idea.

Alberto Griselli (CEO)

I remember that a couple of years ago, we were discussing with investors, well, it's very difficult to go below 20%. We went below 20%. Now we close 18.9%. We are going down this year, another point likely. We see that our CapEx are quite under control. When we look at CapEx, you got the situation whereby we want to deploy our CapEx and we want to maintain our lead in terms of network quality and reliability. We want to do both things together. It's playing quite nicely on our side because in terms of coverage, we sort of did a big chunk of the job already because we are the only operator with 100% of municipalities covered with 4G. The second one, I think, is 4,900 out of 5,570 municipalities.

There is a big gap. On 5G, we are deploying faster. Everything that we are doing is to increase quality. We are doing it. We are managing to keep a lead. With the last negotiation we have with our vendors, we have an extra bundle of security that the intensity that we have today. It's good to increase and to maintain a competitive advantage as we have today. We didn't have this in the past. It's more an effort of communicating this to the customer base rather than delivering it on a technical point of view. To make a long story short, basically, we see our CapEx constant over the next years with revenue growing.

If you do the math, you will see that the ratio will keep going down in the medium term, in the next two to three years. I don't see significant risk that may derail this trend.

Lucca Brendim (Financial Analyst)

Perfect. Thank you very much. Thank you, guys.

Vicente Ferreira (Head of Investor Relations)

Once again, if you wish to ask a question, please press the raise hand button or send it in written form via the Q&A button. Wait while we poll for questions. Our next question comes from Gabriel Gusan from Citi. Please, Mr. Gusan, your microphone is open.

Gabriel Gusan (Director and Equity Research Analyst)

Hello, a quick one on my side. Kind of inverting the question from Carlos on broadband. If it doesn't make sense to invest and grow more in this market, would it make sense to sell this operation to someone else, help deliver the parent company, special dividends, and things like this? Thank you.

Alberto Griselli (CEO)

Today, we got an optionality at the end of the day, right? We are a telco player. We have 2%, so we got quite a credible brand. We got a huge customer base. We got quite a widespread commercial network. If you look at broadband, it's an adjacency that we may pursue, we say, with sort of ease given our set of competencies. It's an optionality. If we get to the conclusion that broadband, the current context won't change, we may want to sell it. But at the end of the day, if we don't see from a consolidation point of view quite an attractive market, that would be valid for selling as well. We see the market consolidating in the future on the service core level and on the network core level, and we believe that we can play a part in it.

If we change the mind in terms of we don't want to play a part on it, the sale could be an option.

Vicente Ferreira (Head of Investor Relations)

Perfect. Thank you. Ladies and gentlemen, since there are no further questions, I will turn the floor to Mr. Alberto Griselli for his final remarks. Please, Mr. Alberto, you may proceed.

Alberto Griselli (CEO)

Everybody, thanks for staying with us today. We are nine months into the year. We have been delivering across the board in terms of revenue growing above inflation, margin expanding at the EBITDA level, EBITDA after lease level, and the free cash flow level. We got a sound strategy going forward. We got two months to go to finalize this year's results. I want to thank the entire team for the effort so far and the last couple of months to conclude 2024 according to our plans. Thank you, everybody.

Vicente Ferreira (Head of Investor Relations)

This does conclude the third quarter of 2024 conference call of TIM S.A. For further information and details of the company, please access our website at tim.com.br/ir. You can now disconnect and thank you once again.