Telefônica Brasil - Q4 2025

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and welcome to Vivo's fourth quarter and full year 2025 earnings call. This conference is being recorded, and the replay will be available at the company's website at ri.telefonica.com.br. The presentation will also be available for download. This call is also available in Portuguese. To access, you can press on the globe icon located on the lower right side of your Zoom screen and then choose to enter the Portuguese room. After that, select Mute Original Audio. Para acessar nossa conferência em português, clique no ícone do globo localizado no canto inferior de sua tela Zoom, e selecione a opção Portuguese room. Ao acessar a nova sala, certifique-se de silenciar o áudio original.

We would like to inform you that all attendees will only be listening to the conference during the presentation, and then we'll start the Q&A section, when further instructions will be provided. Before proceeding, we would like to clarify that any statements that may be made during this conference call regarding the company's business prospects, operational and financial projections and goals are the beliefs and assumptions of Vivo's executive board and accurate information available to the company. These statements may involve risks and uncertainties as they relate to future events, and therefore depends on circumstances that may or may not occur. Investors should be aware of events related to the macroeconomic scenario, the industry, and other factors that could cause actual results to differ materially from those expressed in the respective forward-looking statements. Present at this conference, we have Mr. Christian Gebara, CEO of the company, Mr.

David Melcon, CFO and Investor Relations Officer, and Mr. João Pedro Soares Carneiro, IR Director. Now, I'll turn the conference over to Mr. João Pedro Soares Carneiro, Investor Relations Director of Vivo. Mr. Carneiro, you may begin your conference.

João Pedro Soares Carneiro (Investor Relations Director)

Good morning, everyone, and welcome to Vivo's fourth quarter and full year 2025 earnings call. Today, our CEO, Christian Gebara, will start by commenting on Vivo's performance in connectivity and digital services, as well as present our main ESG accomplishments for the year. Then, David Melcon, our CFO, will walk us through Vivo's controlled cost and CapEx evolution, free cash flow generation, profitability, and shareholder distribution during 2025. With that, let me turn the call over to Christian.

Christian Gebara (CEO)

Thank you, João. Good morning, everyone, thank you for joining us today. I'm pleased to share that Vivo's 2025 performance was remarkable. We grew above inflation in all key lines, driven by solid commercial momentum and our continuous focus on offering the best customer experience in Brazil. Starting with mobile, the postpaid segment was a major highlight. Accesses expanded 6.5% year-over-year, reaching 70.8 million customers, now representing 69% of our mobile base. In fiber, we closed 2025 with 7.8 million homes connected and a footprint that extended to 31 million homes. This advance, coupled with our commitment to quality and customer satisfaction, reinforced our leadership in the fiber market and allowed us to accelerate fiber mobile convergence.

Turning to our financial performance, total revenues in the fourth quarter rose 7.1%, supported by balanced growth in both mobile and fixed services. Mobile service revenue progressed 7%, while fixed services improved 5.4%, reflecting the sustained contribution of fiber and corporate solutions. EBITDA grew 8.1% versus fourth quarter 2024. Excluding the effects of the concession migration from both years, EBITDA advanced 17.7% year-over-year, reflecting the success of our day-to-day execution. Operating cash flow also showed solid expansion, up 13.4% compared to 2024, representing 26.1% of our revenues. Net income grew at a double-digit rate in 2025, totaling BRL 7.2 billion for the year, while free cash flow increased by 11.4% to BRL 9.2 billion.

These strong results enabled us to fulfill our promise of paying shareholder at least 100% of our annual net income. In 2025, we paid out BRL 6.4 billion, reaching a payout ratio of 103.4%. Next, on Slide 4, we illustrate how the transformation of our top line continues to advance, driven by diversified revenue mix and the rising contribution of our new businesses. Total revenues in the quarter reached BRL 15.6 billion, supported mostly by postpaid and FTTH, that grew 9% and 9.8%, respectively. Notably, this quarter delivered the strongest growth in our handset and electronics line in three years, up nearly 14% year-over-year, fueled by a broader portfolio, seasonal offers, and a robust demand for electronics. Our new businesses also presented another standout year.

Revenues increased 27% over the last 12 months and now account for 12.1% of total revenues, an expansion of 1.9 percentage points compared to the previous year. Both B2C and B2B solutions contributed meaningfully to this evolution, reflecting the success of our strategy to diversify our portfolio and scale digital services. Moving to the next slide. We continue to see the solid momentum of our mobile business, boosted by Vivo's differentiated network quality and customer experience. By the end of 2025, our mobile base reached 103 million accesses, a year-over-year increase of 0.7%. Postpaid, including M1 and Dongles remained the main growth engine, expanding 6.9% and surpassing 50 million customers for the first time. Adoption of 5G is accelerating rapidly.

Our 5G customer base grows to 23.1 million users across 716 cities in Brazil. This pushed our 5G take-up ratio to 27.8%, an improvement of 8.6 percentage points in one year. This reflects not only the strength of our network, but also the value customers perceive in transitioning to newer technologies. Postpaid churn continues stable at 1%, while ARPU grew 5.8% year-over-year. Together, these indicators highlight the effectiveness of our retention initiatives as customers adopt higher value plans and demand more data. Overall, these results reinforce the strength of our mobile platform, a combination of superior network quality, disciplined commercial execution, and a customer-centric approach that drives continued sustainable growth. On Slide 6, we dive deeper into the strength of our convergent proposition and how it's setting a new benchmark for quality and retention.

As our fiber footprint expands, so does our capacity to attract new customers. Over the last year, we passed an additional 1.9 million homes, bringing the total to 31 million, while our take-up ratio improved to 25.2%. FTTH accesses maintained double-digit growth, increasing 12% year-over-year and reaching 7.8 million connections. This performance is once again propelled by Vivo Total, our flagship offer that combines the best mobile and fiber, which expanded 41% compared to last year in terms of subscribers. Today, 62.7% of our entire FTTH base is already converted to postpaid, out of which 43% through Vivo Total, reinforcing customers' clear preference for integrated solutions while also demonstrating the significant upside that still have to further scale our convergent offer and improve customer loyalty across both postpaid and fiber services.

In fact, fiber churn remains on a downward trend, reaching 1.4%, the lowest level in our history. This sustained improvement reflects both the quality of our network and the stickiness of Vivo Total's value proposition. Heading to Slide 7, we show how the evolution of our B2C segment is supported by the growing relevance of services that go beyond connectivity and positively impact our customers' lifetime value. In 2025, total B2C revenues reached BRL 44.8 billion, up 5% year-over-year. This performance reflects not only the solid resilience of our connectivity services, but also the strong momentum of our new businesses, that grew 20.7% and now account for 3.3% of total revenues. We also saw consistent improvement in revenue per RGU that hit BRL 65.8.

This increase is supported by our ongoing effort to expand customer engagement, drive cross-selling, and extract higher value from our existing base. Looking specifically at new businesses, we continue to see solid performance across all lines. Video and music OTTs remains the largest contributor, advancing 18.1% year-over-year. Consumer electronics delivered another standard result, growing 36%, while the health and wellness category posted remarkable momentum, with revenues rising close to 70% in the year. We are also strengthening the foundation for future expansion. Through Vivo Ventures, we approved an additional BRL 150 million for new investments, with a particular focus on AI-driven initiatives, bringing the total investment capacity to BRL 470 million. Through our partnership with Third Perplexity, we are offering customers complimentary 1-year subscription to Perplexity Pro, reinforcing our commitment to delivering differentiated digital experiences.

All these developments underscore how Vivo is evolving into a broader digital platform, where connectivity remains at the core, but is increasingly complemented by a diversified ecosystem of services designed to enhance our value proposition and improve monetization. Turning to next slide, we provide more details on Vivo's B2B strategy and how the ongoing shift in our revenue mix is quickly gaining traction. In 2025, B2B revenues amounted to BRL 13.5 billion, up 13.7% when compared to 2024. Digital B2B was once again the main growth engine, advancing 29.5% and now representing 8.8% of Vivo's revenues. Connectivity also maintained a healthy performance, rising 5.4% in the same period. Within digital B2B, all products continued to expand at a strong pace.

Cloud revenues soared 37.8%, followed by IoT and messaging at 25.9%, digital solutions at 22%, and cybersecurity at 8.4% year-over-year. B2B continues to gain relevance within our revenue mix, increasing its shares by 140 basis points year-over-year. This strong performance in 2025 marked the segment's fastest annual expansion in recent years and reflects the accelerating demand from companies undergoing digital transformation. Altogether, these results underpin Vivo's strategic role as the trusted partner for companies seeking to modernize their operation, scale cloud and IoT adoption, and strengthen their digital capabilities. On Slide 9, we reinforce our sustainability remains a cornerstone of Vivo strategy, supported by solid advances across environmental, social, and governance dimensions, which is validated by our strong performance in global rankings.

According to Merco's corporate reputation ranking, Vivo placed in the top 10 companies across all sectors and achieved the best position among telcos. We also achieved the fifth best performance in the sector worldwide in S&P Global's Corporate Sustainability Assessment, and earned a place on the CDP A List for the sixth consecutive year. Additionally, we were recognized by Corporate Knights as the most sustainable company in Latin America on the list of the world's 100 most sustainable companies. On the environmental front, Vivo participated in COP30 as a supporter for the first Planetary Science Pavilion, an initiative that brought together leading scientists to advance discussions on climate resilience and the future of life on the planet. Regarding Fundação Telefônica Vivo, which reached over 2 million beneficiaries, with BRL 47 million invested in initiatives focused on education, employability, and digital inclusion.

In governance, we expanded the scope of our information security management certification under ISO 27001, is strengthening the protection of data and systems that support our operation. I invite you to check out our 2025 ESG highlights, which compile the year key indicators and achievements, and outline the strategic priority for our ESG agenda. Now, David will give you more color on our financial performance for the quarter ending. Thank you.

David Melcon (CFO)

Thank you, Christian. Good morning, everyone. On Slide 10, we provide an update on the evolution of our cost structure and highlight the strong EBITDA performance in the quarter. On the left side, you will see that total cost reached BRL 8.9 billion in the quarter. When excluding the effect from the concession migration, OpEx was flat, with a year-over-year evolution of 0.4%. This reflects a balanced combination of commercial momentum and disciplined operational management. Cost of services and goods sold rose 9.7%, mainly driven by the higher contribution of B2B digital solutions, continued demand for music and video over the top, as well as the share of handsets and electronics.

Operating costs grew 4.4% year-over-year, led by a 6.4% evolution in personal expenses, reflecting annual salary increase and a higher headcount in strategic areas such as digital tech. Meanwhile, our largest cost line, commercial and infrastructure, declined by 2.6%, due mainly to some one-time infrastructure expenses registered in the same quarter last year. The results in both years were positively impacted by the effects related to the migration of our fixed voice concession to the authorization model. In the fourth quarter last year, we recognized a reversal of provision for contingencies totaling BRL 386 million, in addition to asset sales amounting to BRL 206 million. In the fourth quarter this year, we recorded BRL 96 million in copper sales and BRL 6 million in real estate sales, adding up to BRL 102 million.

Excluding all these effects in both periods, our EBITDA grew 17.7% year-over-year, with a margin expansion of 380 basis points, reaching 42.3%, while reported EBITDA was up 8.1%, with a margin of 42.9%. Moving to Slide 11, we present the evolution of our operating cash flow for the year. CapEx amounted to BRL 9.3 billion, a modest 1.1% raise year-over-year, while our CapEx to revenues ratio reduced to 15.6%. This reflects lower capital intensity and the continued prioritization of investment with the highest return. As a result, operating cash flow before leases reached BRL 15.6 billion, an increase of 13.4% compared to last year.

After leases, operating cash flow rose 17.3%, totaling BRL 10.1 billion, with margins expanding to 17%. This strong performance demonstrates our enhanced ability to convert EBITDA into cash, supported by disciplined CapEx allocation and softer lease cost evolution. Going forward, we remain focused on further optimizing our tower-related expenses and improving contract efficiency. The trajectory of our operating cash flow margins underscore the strength of our return profiles. On Slide 12, we highlight how our disciplined financial management continues to translate into profitability and a strong cash generation. Net income for 2025 reached BRL 6.2 billion, an 11.2% increase versus the previous year. This growth was well-balanced throughout the year, reinforcing the consistency of our execution and resilience of our business model.

Our net cash flow position also improved, ending the year at BRL 2.3 billion, compared with BRL 1.4 billion in 2024. When considering IFRS 16, net debt stand at BRL 13.1 billion, equivalent to just 0.5 times EBITDA, underlying the continued strength of our balance sheet. Free cash flow rose 11.4% to BRL 9.2 billion in 2025. This performance reflects both our disciplined CapEx allocation and the healthy fundamentals of our operations. As a result, our free cash flow yield reached 8.6%, and free cash flow over revenues came in at a solid 15.4%. These results reaffirm our ability to improve profitability and cash generation, while maintaining a very comfortable leveraged profile. Lastly, on Slide 13, we highlight our continued commitment to shareholders' remuneration.

In 2025, we distributed BRL 6.4 billion to shareholders, an increase of 9.1% compared to the previous year, driven by higher share buybacks and capital reduction. Notably, we once again delivered on our guidance for the period, this time with a payout over 103.4% of our net income. Looking ahead, 2026, we have already announced the distribution of BRL 7 billion, including the BRL 4 billion from capital reduction to be paid in July, and the interest on capital of BRL 3 billion declared in 2025 to be paid in April this year. We also declared an additional interest on capital in February this year, that will be paid before April 2027.

Moreover, our board of directors approved a new share buyback program of up to BRL 1 billion, to be executed until February 2027. To conclude, we reaffirm our commitment to distributing at least 100% of net income in 2026, maintaining a clear and disciplined capital allocation strategy focused on value creation for shareholders. Thank you, and now we can move to the Q&A.

Operator (participant)

Thank you. We're going to start the Q&A section 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 leave the queue by clicking on Put Your Hand Down. Wait, while we pull for questions. Our first question comes from Leonardo Olmos, from UBS. Please, Mr. Olmos, your microphone's open.

Leonardo Olmos (Executive Director and Deputy Head of Brazil Research)

Hi, everyone. Good morning. Congrats on the results. My question will be all centered on distributions, a little bit long, but all centered on distributions. If you could first discuss the drivers for the mix in 2026 between buybacks, interest on capital, and capital reduction, what makes you pick more on, of one than another? For example, we noticed a small reduction, potential reduction, buybacks, but a huge increase in capital reduction. Could that mean you are thinking about continuing on that path of, of increasing, potentially leverage, changing the capital structure?

Still on that topic, and the last part of my question, if you could discuss net income drivers for 2026, as we know that an increase in copper sales, maybe, maybe, maybe there's upside for consensus estimates, and since you guide dividends on back of net income, we want to know that. Thank you.

David Melcon (CFO)

Hi, Leonardo, thank you for the question. The first one, you know, we have a commitment for the last two years to distribute at least 100% of our net income. This is something that we have done the last two years, 2024 and 2025. We always try to combine between what you, what you mentioned, capital reductions, interest on capital, also dividends, and share buyback. If you look our capital structure, we have more than BRL 60 billion capital. We obtained three years ago authorization from Anatel to distribute up to BRL 5 billion. This is something we have already done, we have already distributed BRL 3.5 billion. Now, we don't need any more approval, pre-approval from Anatel.

That's why now we have also approved, that will be paid in this year for another BRL 4, 4 billion. The plan for 2026 is to combine and to continue. Today, we have also approved a share buyback program of BRL 1 billion, that will give us flexibility to continue taking advantage of the interest on capital, which is a situation unique in Brazil, together with also capital reduction, to maximize the value of shareholders. For next year, we're expecting, of course, to deliver more than 100% of our, of our net income. Regarding capital, capital structure, this is something that we are always exploring potential opportunities.

You know, the leverage that we have today in Brazil is very linked to, to the high interest ratio that we have here in Brazil. If we expect that in the next future, the Selic will reduce, today is at 15%, the market is expecting this to, to reduce in the next few years. We could explore opportunities also to, to generate value and to maximize this opportunity. I think this will have a very strong capital generation and net income for next year. Which was also your second question. We are seeing a very stable. We have been growing almost every quarter, double digit. For the next year, we continue growing on EBITDA. We also benefit from the reduction of the depreciation and amortization, starting from the second quarter.

you know, we, we, and we have included also on the financial statements, after July 2026, we will fully depreciate some of the legacy assets that we have in our balance sheet, and this will represent an improvement of BRL 300 million of profit before, before taxes, just coming out of this, plus potential benefit from, interest reduction. We are positive about the evolution of net income. Next year, we will bring additional shareholder remuneration.

Leonardo Olmos (Executive Director and Deputy Head of Brazil Research)

Very good, David. Thank you very much.

Christian Gebara (CEO)

Thank you.

Operator (participant)

Our next question comes from Marcelo Santos, from JP Morgan. Please, Mr. Marcelo Santos, your microphone's open.

Marcelo Santos (VP and Equity Research Analyst)

Thank you very much. Good morning, Christian, David, João. Thanks for the opportunity for asking questions. I want to ask questions about two key topics. The first one is CapEx. Maybe, David, could you please discuss what are the puts and takes for the CapEx outlook in 2026? The second question will be about competitive environment. How are you seeing it, especially on mobile, and what is the outlook for passing price increases this year? Thank you very much.

Christian Gebara (CEO)

Marcelo, I will take the questions, Christian here. CapEx, we are not giving guidance, but as we said, and have been stating, in every call, we are working on CapEx optimization when you consider CapEx over revenues. As you could see, we came from 16.4%-15.6% this year. That's a combination of all the work we are doing to be more effective in the deployment of our infrastructure. Added to that, our ability to sell more services with no CapEx. We already reached more than 12% of revenues coming off services that no require CapEx. That's why we have this strong evolution in operating cash flow.

As we stated here, now we are increasing 13.4% year-over-year, and even when you consider operating cash flow after leases, this growth is even higher, 17.3%. We are continuing to deploy 5G. As I said, we are following our customers, and the penetration of 5G is going up, so we are deploying 5G where our customers are. We've been deploying fiber and penetrating more our, our network. We also saw the take-up ratio going up in the fiber business. That's a good sign. Of course, it involves CapEx, but we are also saving in other linear lines. The idea is this one: to continue to improve infrastructure, keeping our leadership, but being better in the ratio CapEx over revenues. Going to competition. Can I go to the second one, Marcelo?

Marcelo Santos (VP and Equity Research Analyst)

It's now very clear. Thank you, Christian.

Christian Gebara (CEO)

Competition. Here we have different strategy for the different segments. We've been very strong in prepaid. Now, it's still slightly negative, but when you compare what we had in last quarter, revenues this quarter is higher than the previous one. Also, when you compare the year-over-year evolution, we also have a better performance this quarter than we had in previous ones. We are increasing price according to the type of segment, so we are planning March for postpaid and hybrid. For front book, we are expecting customer base price increase in April for both hybrid and postpaid. FTTH, we had price increase in January. We have planned a new one for June. Vivo Total, we are planning 100% customer base price increase in April.

Following the inflation ratio, giving more data and more services, and also playing convergence. That's our strategy, and that's why we are positive about the evolution of our revenues going forward.

Marcelo Santos (VP and Equity Research Analyst)

Okay, the back book is on April, right? For postpaid and hybrid. Is that correct?

Christian Gebara (CEO)

Yes.

Marcelo Santos (VP and Equity Research Analyst)

Just to make sure I understood.

Christian Gebara (CEO)

Yes. Part of it is in April, the majority.

Marcelo Santos (VP and Equity Research Analyst)

Uh-huh.

Christian Gebara (CEO)

The, the rest is in August.

Marcelo Santos (VP and Equity Research Analyst)

Okay, perfect. Thank you very much.

Christian Gebara (CEO)

Thank you.

Operator (participant)

Our next question comes from Rogério Araújo, from Bank of America. Please, Mr. Rogério, your microphone's open.

Rogério Araújo (Director and Senior Equity Research Analyst)

Hey. Hi, guys. Thanks very much for the opportunity, and congrats on the results. I have a couple here. The first one, there was a reduction in the lease expenses. If you could please provide some details on why, and also expected trend. This is the first one. Thank you.

Christian Gebara (CEO)

Please ask the two questions, Rogério, and then we answer both of them. What's the second one, please?

David Melcon (CFO)

Yeah, sure. Thank you.

Christian Gebara (CEO)

Rogério, please ask the second question. I don't know if he's still in the line, so I don't know if to answer the question or wait for him to come back?

Operator (participant)

It shows on the line. Rogério, can you please repeat the second question?

Christian Gebara (CEO)

Okay, you're gonna answer only the first question, okay?

David Melcon (CFO)

Rogério, thank you for the question. The evolution of the lease depreciation and interest accrual remain consistent with previous periods. Even in both quarter and even the full year, the EBITDA after leases has grown even more than EBITDA before leases. Regarding the payments, some volatility persists due to the ongoing renegotiation with the towers company that we do every, every quarter. That's why you mentioned the principal and interest payments that we have this quarter amounted to BRL 1.2 billion, which is lower than the previous year, but also lower than the previous quarter. That shows, we are very optimistic about the potential trend of this line.

To give you more, more, more light here, the current tenancy ratio that we have in Brazil is 1.4, that we discussed last quarter, which is significantly lower than other comparable countries. We see a big opportunity to reduce the unitary costs of every tower, to share more the towers, and to fund the new deployment that we need to do here in Brazil to accelerate our revenues in 5G and also our coverage. Optimistic about the trend that we have starting this quarter, even though, we will need to continue renegotiating those contracts, and this will be driving the potential acceleration of the reductions.

Christian Gebara (CEO)

I would add the operating cash flow after leases, no margin. We went from 14.6% 2023, to 15.5 in 2024, to 17% 2025. Sorry, 2024, 15.5 in 2024, 17% in 2025. Aligned with what, what you just said. Also, we're gonna capture the growth of our infrastructure. We're gonna renegotiate our contracts, and we're gonna still generate operating cash flow after this, is that has a strong margin, as you could see the evolution over the last three or four years. I don't know, Rogério, if you have the second question, otherwise-

Rogério Araújo (Director and Senior Equity Research Analyst)

Yes, yes, sorry. My line actually was dropped here. You couldn't hear me on my second one. It's about the prepaid ARPU. It has reverted a negative trend versus the first nine months of the year, also in line with our main peer in Brazil. If you could please clarify what you think were the main drivers for that, and what you expect in the upcoming quarters. Thank you.

Christian Gebara (CEO)

This is Rogério. Prepaid is being performing better quarter-over-quarter. Of course, that's also our ability to motivate customers to top up and also to consume the money that they have in the balance. It's part of our strategic behavior of the company, also being very able to motivate customers to higher average tickets, and also the ability for us to monetize the tickets they have top up. On the other hand, we continue very strong in migrating prepaid to hybrid. It's even quarter-over-quarter, that there is a positive evolution. We are extremely pleased with the mobile service revenue evolution, 7% over the last quarter, growing 9% in postpaid.

That's a combination of bringing new customer, but also migrating pre to hybrid or postpaid. The prepaid absolute number of revenues that went from the fourth quarter, from the third quarter of 25 of BRL 1.364 to BRL 1.394. Churn in the postpaid also in the lowest level. That's the result of a very well segmented and thoughtful strategy for different segment that we have here in the company.

Rogério Araújo (Director and Senior Equity Research Analyst)

Okay, thank you, sir. May I follow up if you could expect the prepaid ARPU to keep increasing every year in upcoming quarters, if you have any.

Christian Gebara (CEO)

No, Rogério, what we expect.

Rogério Araújo (Director and Senior Equity Research Analyst)

color on that.

Christian Gebara (CEO)

What we expect is revenue to continue to grow the way it's growing. We don't expect. We're not giving guidance for ARPU per segment.

Rogério Araújo (Director and Senior Equity Research Analyst)

Okay, no worries. Thanks so much. Have a good one.

Operator (participant)

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

Phani Kanumuri (Equity Research Analyst)

Hi, everyone. Thanks for taking my questions. The first question is on the total net adds and the market share in mobile. If we exclude dongles and M2M, your number of subscribers has been coming down. Any reason for that? Your market share is down, like, 1 percentage point from last year. What does, I mean, what is driving this trend? The second thing is that, if you look at your B2B strategy, you know, it has been growing really well. What are the further, what are the further steps to maintain this growth in Brazil? How is the penetration coming in the SME segment? Thank you.

Christian Gebara (CEO)

Hey, I don't see mobile market share changing. That's very stable. There are some corrections maybe in prepaid. Some companies disconnect, like, later than we do, so we are very confident about our performance in market share, and actually in our performance in revenue growth. Also we, we measure our good performance in ability to increase net adds, and fourth quarter 2025 was a record number, 930,000. That's a combination of bringing in more customer, but also reducing postpay churn from 1.3% in the fourth quarter 2021, to the 1% that we've been keeping at this level for the last four years. That's important for us, and mobile ARPU is also going up.

If you compare what we had in the fourth quarter and what we had in the fourth quarter, 2025, sorry, 2024 and 2025, there was an improvement of 5.8%. We are not falling, like, the small variation in market share. Important thing is to keep attracting customers, retaining customers, and growing revenues. Regarding B2B, that's a very strong quarter, as I said. We had in the year B2B, as I don't know if you are more interested in the digital service, at BRL 5.3 billion revenues. It's at 29.5% year-over-year increase. It's already know what's digital service, 8.8% of the total revenues from Vivo, and it's 39.1% of the B2B revenues of Vivo. It's getting very fundamental for our strategy going forward.

Penetration is growing in all segments. SMEs is where we have more challenges to penetrate more the digital services, but at the same time, we are growing a lot connectivity in these segments. We have a variety of products being offered to these segments, coming from location, like renting rental of notebooks up to cyber solutions. That's part of our strategy, and we're growing in all segments with more acceleration in the top. At the same time, the volume that we have in the SMEs, we are very, very, very happy with the results that we are having also in these segments, with a combination of connectivity plus digital services, as I described it before.

Phani Kanumuri (Equity Research Analyst)

Okay. Yeah, thanks. Maybe on the connectivity part, right, so you've grown, like, 5%, or, you know, year-over-year. What is driving the growth in the connectivity part? The digital solutions was more understandable, but what is driving this growth in the connectivity part?

Christian Gebara (CEO)

SMEs, but also in advanced data solutions for top to corporate customers. To going up in the pyramid, we also have other connectivity solutions up to very dedicated links. We've been growing in all lines. I think we gave some color. Fiber, of course, it's B2C, B2B, but when we said that we are growing 9.8%, that also includes our great performance in SMEs, and when you grow 10.2% of data ICT digital services, it's also including corporate data solutions, so it's in both.

Phani Kanumuri (Equity Research Analyst)

Okay. Thanks, everyone.

Operator (participant)

Our next question comes from Maria Clara Infantozzi, from Itaú BBA. Please, Mrs. Maria Clara, your microphone is open.

Maria Clara Infantozzi (Head of Brazil TMT (Technology, Media, and Telecommunications))

Hi, everyone. Thanks for the opportunity. I have two questions here. The first one, can you please provide us an update of how you perceive the competitive environment in the fiber industry, and also refresh us how you see any potential M&A in this industry? The second one, could you please share your thoughts on how you see profitability expansion going forward? Are there any specific areas of the business in, in which you see some potential for further efficiencies, and how should we balance f-future efficiencies with the expansion of B2B? Thank you.

Christian Gebara (CEO)

Sorry, the second question is related to cost in B2B or cost in general?

Maria Clara Infantozzi (Head of Brazil TMT (Technology, Media, and Telecommunications))

Costs in general, and how you balance this with the B2B expansion, as it has a lower margin. Thank you.

Christian Gebara (CEO)

Okay, B2B doesn't have a lower margin, we, we can address this. Let's go to the first one. Maria Clara, the market is still very fragmented. If you see the performance of the fiber business in Vivo, we went from 18.8% market share in the end of 2024, to 19.3% market share in the end of 2025, 0.5% increase in market share. Our net adds for the whole year was 834,000 customers. If you look, other competitors, some of the leading ones had very strong negative net adds for the year. It's still very competitive environment with too much fragmentation in our opinion.

If you compare, for instance, we are the leading company in fiber in Brazil. We have 19.3%. When I see the leading company in Spain has 34% of market share, when I see the leading player in France has, like, 39%. If I go to Japan, the leading company has 57%. I think there is room for consolidation. I don't see any, any rational reason to have so many players competing in same geographies. We have 31 million home pass. We aim to have more. We see addressable 60 million, but we don't see ourselves reaching this number, but we could reach something more closer to 45. We could do that building ourselves, or we could add to consolidating. Consolidating is still a question mark.

We have to find the right target with the right pricing. We have the right network, not overlapping too much with ours, with the good quality. I see that clearly we require more consolidation in this market because it doesn't seem to be sustainable for most of the players who presented negative net adds over the last year. Regarding costs, I think we've been showing a good, very good number in cost of operations. The evolution was 4.4. That includes all the personal growth that we had, like, because we want to, to be more digital in some areas, we want to expand our penetration in some commercial areas.

Even increasing 6.4% in personnel, we were able to just increase 4.4 in the cost of operations, because we are bringing more efficiency in different areas, especially in our customer care, that the app and other initiatives that we are deploying now, even using AI, is helping us to reduce other commercial and customer care costs. The combination of both is that presented this 4.4, that is below, very well below what we presented in revenue growth. In the cost of service and cost of goods sold, both of them are very related to our sale of services.

Most of it, like, I can give examples of video that I said before, or goods sold that is related to everything that we've been performing so well, that I also presented our strong growth in this quarter in handsets and consumer electronics in general. Going forward, we're gonna still focus in digitalization, and now with AI, we are very positive bringing great results in cost efficiency. Sorry, B2B, you stated. Now, B2B, depending on the product, we're having very, very positive margins. As I showed, we are growing 5.4% in connectivity. Connectivity in B2B represented in the year BRL 8.2 billion. That has a very good and positive margin. Digital B2B, it depends.

We have also gone through markets in some of the, you know, some of the services. When we say, when we sell cloud, yes, it's the, the margin is not that high, but when I have managed services over cloud, the margin is much, much better, and the same I can tell about cyber and even IoT. Also very confident on our ability to grow. All these services, some of them even having lower margin, they are very positive operating cash flow since they don't require CapEx. Again, we should look at the, the, the, the bottom of the results, where operating cash flow and free cash flow, operating cash flow after leases or free cash flow, we presented a very strong positive trend.

Maria Clara Infantozzi (Head of Brazil TMT (Technology, Media, and Telecommunications))

Great. Thank you for your answers.

Operator (participant)

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

Daniel Federle (Lead Analyst of Telecom, Media, and Technology (TMT) and Payments)

Hi, good morning, everyone. Thank you very much for taking my question. Congrats on the strong results. I, I just want to hear your thoughts on how important is for a telco to have a convergence operation at the moment in Brazil. We see Vivo focusing on the Vivo Total, it seems to be a big success. How important is this for the whole strategy? Secondly, if you could just provide a little bit more information about your expectation for AI as a, a source of savings for costs in the upcoming years. Thank you very much.

Christian Gebara (CEO)

Oh, Daniel, thank you for your initial comments. I cannot answer for all the other operators because I think we have different strategies. I can answer about convergence for Vivo. Convergence has always been our focus, and if you look the numbers that we have today. We have 7.8 million FTTH customers, 62.7% are convergent. Out of the 7.8%, in Vivo Total, we have 43.2%. There is still this number between the 43 and the 62 that are convergent, but are not in Vivo Total, and we are working to drive them to Vivo Total. Why? Because I think when you are Vivo Total, I think switching costs for customers is even high, higher, sorry.

We also have the ability to have a closer relationship with these customers and monetize even better, selling also the digital service. When you see the number that you presented of the new ventures, in B2C, you see our ability to cross-sell, not only mobile and fixed, but also the ability to sell video OTTs, to sell health services, and also to sell smartphones, player consumer electronics, only to give you some examples. Our churn ratio is also proving that is the right decision. FTTA churn is 1.4%. If I look years ago, it was 1.6, 1.8. When I compare the churn rate of fiber customers that are in Vivo Total, is 1 percentage point lower than those that are independent fiber customers. For us, it makes a lot of sense.

Also even having record addition of new customers in mobile, our churn is also in the lowest level of 1%. Our strategy continue to be the one who can have the customer with more services with people. That's why you'll also be presenting this number that we call services, that we've for RGU, also with data customer, and we try to add all the revenues that we have in B2C, divide by the number of customers of RGU, and we see also a positive trend there. That's convergence, but it's also added to that, the ability to sell the new businesses. That's the strategy that Vivo is following. I cannot answer for others, but I think for us, that's the right one and the one that we're gonna still continue to put all our effort.

Only to complement the Vivo Total, 84% of the sales that we have of fiber in our stores, get out of store with 84% in Vivo Total, so it makes a lot of sense. Gross ARPU of Vivo Total in the fourth quarter was BRL 230. That's also a great measure to follow, and the average in a Vivo Total, we have 1 fiber connection and 1.7 postpaid connection. That also makes sense to see it that way. It's proving the customer wants to be loyal to Vivo in all the access. AI, AI, we used to have very well-deployed AI here before the Gen AI, so WhatsApp was already driven by AI Vivo, and was 1 of very important channel.

We had 4 million customers interacting with us per month in WhatsApp using AI. Now, with Gen AI, I think the possibilities are even higher. We are using that to optimize internal processes. For instance, when we need to go to B2B public solicitation, there was, like, this deep complexity to understand what was required by the operator in some of these auctions. We now have AI to understand it much closer to what we have here as inventory, and then we have a response that is much faster and our ability to participate in many more licitation than we used to do before. We're also using AI as copilot to all our call center agents and store agents, and now we are piloting AI agents to answer directly to customers.

That's a very important project that we're gonna start having the first results in May, this year, that we're doing with partners. Also we are doing many other things in network optimization. It's a variety of actions that we are taking here to implement AI as core for our business. Again, answering to the second, the first question that I had before, I think from our in efficiency, we also believe AI will bring a lot of efficiency for us as well.

Operator (participant)

Thank you very much. Our next question comes from Gustavo Farias from UBS. Please, Mr. Farias, microphone is open.

Gustavo Farias (Associate Director)

Hi, everyone. Thanks for taking my questions. The first one, maybe a double click on a previous, previous question about M&A. We've been exploring M&A in fiber in most of our recent notes, and V.tal, obviously, stands out particularly now without Oi as a shareholder. My question is, would you consider a large M&A to strengthen your fiber footprint? The second question, we've seen stronger portability figures for Claro in the fourth quarter, mostly impacting TIM, and likely related to new sales. My question is: How are you perceiving this competition driver in mobile? If this by anyhow, changes your commercial strategy?

Christian Gebara (CEO)

Hi, Gustavo. Thanks for the question. No, it doesn't change our strategy. You know, we have competition, and it's a very competitive marketing market, sorry, and I cannot point out a specific player and the evolution of portability due to this player. No, I think that's the market that we face. I think there is a lot of variation of profitability month-over-month. What is important that we keep growing net adds, and we keep ARPU going up, you know, because also getting more customers with ARPU decreasing is not the strategy that we are following.

If you look, we had 4.4% increase in postpaid net adds, if I compare the year-over-year quarter, and also we have a 5.8 ARPU evolution, if I compare again, the year-over-year ARPU, keeping churn level at 1%. We're not gonna get into this war, if someone is trying to put the service in a lower value or try to use our service to acquire other service in different sectors. No, we shouldn't get to that, because we're here preserving the quality and experience that we offer to our customers. A positive evolution of net adds, positive evolution of ARPU, and extremely positive evolution of our churn. And again, we're gonna face competition of different types, and that's, that's normal.

It's a very competitive market, and telecommunications has always been very competitive in Brazil. Can I go to the other one, M&A?

Gustavo Farias (Associate Director)

Yes, thanks. Of course.

Christian Gebara (CEO)

Yes. M&A is what I said. Well, again, Oi still has a stake at V.tal. Now, they are in the process, but they still have a stake. I think the market is very fragmented, as I said before. I think there is room for consolidation, but in our case, it's not s- the size. No- none of the players is large enough not to allow us to, to, to integrate, because as I said, I have 19.3%. The, the, the next one has 8.2%, and I think adding the second, the third, we're still gonna be below what we see as market leader in markets like Spain, France, Korea or Japan. It's more of the quality of this network, the quality of the customer base, the overlap with our, with, with our network, and the price.

We have the ability to, to deploy network, and as I said before, much more of the CapEx is related to connecting the customer than passing the fiber. I'll, I'll, but we don't want to be passing fiber where we see so many players. That's why we are open for analyzing targets. So far, we haven't been able to get to an agreement or getting to the real interest in any of the targets that we see in the market. Let's wait, Gustavo, but the trend seems positive for consolidation.

Gustavo Farias (Associate Director)

Thank you very much.

Operator (participant)

Thank you. The question and answer section is over. We would like to hand the floor back to Mr. Christian Gebara for the company final remarks. Please, Mr. Christian, the floor is yours.

Christian Gebara (CEO)

Okay, thank you, for everyone for participating, for so many questions. As I stated in the beginning, we're extremely pleased to share such a strong set of results in all dimensions of our company. Again, we are always here at disposal to answer any additional question that you may have. Thank you so much for your participation.

Operator (participant)

Vivo's conference is now closed. We thank you for your participation, and wish you a very good day.