Digital Business Dinner - Miguel Almeida | 2017

Good evening to all. I just want to thank the invitation from the president, to be here with great pleasure. Some numbers came out today, and there are more yet to come. It is not true that we were not already leaders in some types of services. We have been increasing the number of services, increasing our condition in the path we have. How did we achieve this since 2014? For us it is no surprise. We had nothing to do with the publication today; I didn't even know it was going to come out, it seems it was from Ana Clara, not sure. But I think the essential is that they show what we have been producing. We have risen those numbers, quarter by quarter, which is a solid trend that we have been following since the merger. Essentially we reversed many of the negative trends that both original companies had at that time. And it's one more step to add to others, because I still know some trends that have been quite positive for NOS. But it is still a milestone, having a subscriber in the market that passes what I am going to lose a client? I don't know if that has happened to others, but on the day we surpassed the incumbent operator in revenue? No, not yet.

We have converged; it is 48% versus 39%, not in revenue. Total revenues of communications services, the difference is a little bigger, but once again I think it is important to note the path we have made to cut that difference. For us, we can say we never said we wanted to be absolute market leaders; we continue without saying we have that absolute leadership. We have a growth vision; we have been growing and want to continue to grow. But market leadership in terms of assets and competitive position allows us to have that ambition. I'm not sure that it is mandatory for the health and development of NOS. We have been on a path. Recalling the history of NOS, the brand NOS exists since three years ago. What we did was join two companies that had a competitive position but had a scale problem and consequently an investment capacity problem. We made a merger and integration path that typically results in bad news for customers and bad news for employees. None of that happened. Good news for employees who saw an opportunity to valorize and develop. Good news for customers who saw more services, a bet on quality, and never had a problem with service quality. It was also good for the country because the investment capacity since the merger is much higher than the sum of the two parts. And we have been rewarded; since then we have been growing systematically. We have already surpassed 30% market share, a barrier we had set for 2018, and we achieved it in 2016. We are very happy and want to continue progressing, but we are not announcing that kind of ambition.

But how do you grow in a saturated market like this? It's difficult to grow without taking clients from competitors. I have great difficulty in accepting that expression 'take clients'. Actually, only sometimes people look at the market in this sector and think it's a zero-sum game. It's not necessarily a zero-sum game. We can all grow by adding more value to our customers. First of all, the concept of 'taking' I don't agree with, because it implies necessarily taking from another. Everyone can be forced to take more revenue? Because of that, for each client we promise more services, services that have more value. If this value proposition is worthy, we all grow and we don't have to 'take' from each other. Especially because it's true that the market is mature, but more than that, the telecom market in Portugal fell for eight consecutive years. The last year? I already lost count. Last year it grew; we don't know how it will be this year. But the truth is it grew in a context where we have more and more customers, which is a bit of a contradiction. Perhaps part of the explanation for the decrease has to do with this zero-sum game perspective. But it doesn't have to be that way. Evidently we want to be, and we don't forget market share, it's important for our competitive position, and we have defined that goal. We surpassed it for 2018, renewed our ambition, and want to continue growing, but not necessarily by taking from others.

Today I was a customer, I am a customer, and I try to do what I look for in terms of what you offer in terms of service availability. For me it's a commodity. I don't care about the brand, I just need availability, access to network, international TV, phone. But what differentiates an operator from another, and what will differentiate in the future? It depends on us. We have different types of services, different types of clients, different contexts throughout the week. I don't believe when we talk, for example, about a TV experience on an international TV screen, not PC, what we add as a layer of knowledge? It will be for people. An example: television in Portugal, but not only Portugal, five years ago I am not lost on dates, it was something that only at nine o'clock I turned on the TV for that program. And we brought something that said: you have all the programs from yesterday and the day before, and ten thousand titles, you can watch at any time. If this is not added value, it is the presentation, but the value quickly gets copied by others. That is history, and it can also make a difference in the future. These same innovations, like that one, and says: but after some time everyone published that. That is life. But those who manage to bring more innovations, and suddenly a discount? I see people with things that add value have more tendency to win than others that are only myths and just follow what they do. Over time, this seems relatively evident. That is the real business choice: in the capacity to bring services that add value, regardless of not creating with it. And this is a fundamental question: no one in Portugal, no country, will through a variable create a sustainable competitive advantage over time. Only who tried in Portugal got a result, and it won't happen. But it is necessary to build this relationship, treat customers well, because not everything is the same connectivity everywhere with quality. It's not something easy to ensure. I know that the Portuguese, unfortunately, have operators of great quality in all countries, it's not true. And they do it differently. But in Portugal, we are not wrong? We are not causing problems. Looking for a signal in the middle of the street? That doesn't happen today. And perhaps the country should thank not only us, all operators, for making this possible. It's not exactly a commodity in the sense that not everyone has that type of service. I essentially say: I don't know the evolution of tomorrow, I don't know what service we will launch tomorrow, in the sense of tomorrow I still know, but not in the sense of more distant future. But I know the path goes through there. And I am also relatively sure that the path for telecom is a path that would be helpful if it were not thought of as a zero-sum game, as if one takes from the other.

And how does content come in? Content can be a differentiating part. For me, to see if a value offer, if someone thinks that from content, which is one of the variables here, we have in mind television, it will create a sustainable competitive advantage and will unbalance the market and will create the silver bullet that will allow creating an advantage. That will not happen. Already in Portugal, for a long time, whoever thought that saw the result. I am sure that all companies with intelligent people are capable of learning from history. The world seems to learn a lot, but I think here, based on recent history, sincerely, it is possible to create a differentiating offer through the combination of content, service, social, of these contents. An example service: it is possible to create a sustainable differentiation in the lost temple? But how do I make this? Later I'll start with another idea about content: are you regretting the investment you made in football? Very satisfied, each day that passes more. Any decision, whether it was too much money to invest or not, any decision must be evaluated, and after time passes it's easier to evaluate. Looking back, it must be evaluated in terms of what the consequences of alternative decisions would be. In this case, the consequence of another decision that we didn't make would be slowly worse for Portuguese consumers, for us, for the market in general. We are not very satisfied that there was no need for 70? and tourism. Our opinion with the reasons I just referred: from the moment we were confronted with a certain competitive context, the decisions we made were clearly the best, and certainly the best for the Portuguese consumer, because we managed to create the conditions so that all consumers, all clients, regardless of period, had a certain amount of fundamental content to have differentiation. But again, if someone thinks they can differentiate through content, it's replicable, like Netflix, for example. Can you do that? For example, no, I don't think Netflix can; no one will deactivate a service because of Netflix. It's not enough. First, it's not a competitor of operators, it's a complement. The service needs operators; operators don't see it as a competitor, it needs a service or product to all. Netflix only needs a service; operators, clients need more services than that service. Does Netflix clearly solve all content needs? Far from it. They think that television in the future passes through them, or even with your help? In large measure, if we look at what traditional television was, we have our parents, it happened during many years, and what television is today in Portugal is very different. In my perspective, there will always be a combination of linear content with time context (live) and content without time context. There are contents for universal consumption and contents that are more local. I think there is room for everyone.

Today we all have that experience at home. Television is increasingly less an aggregator instrument; it still has some paths, people sat around dinner to watch TV. Today, it's funny, each one in front of their own screen watching their own content. But if we talk about television as that equipment at home, I think has its days relatively numbered. Although I believe it returns for moments. One thing is families all together watching TV, I think that will continue in some moments, like the Champions League final. But in day-to-day life, it happens less and less. But we can talk about television in terms of video services. Video consumption is not decreasing, it's increasing, but on different devices. The market is there, demand is there. How do you solve the problem of those who offer content? Because the truth is, the happiness that sustained content producers is now more fragmented. But the truth is that happiness also now changes easily from channel to channel. That is true. The traditional business of channels and advertising? In magazines? That doesn't have a great future if not altered. Now we will see things. I think advertising, in a different form, will be able to sustain a generalist TV channel, but it will have to be much more targeted, much more contextualized than today, which is totally a 12-minute block. And I think all independent players in the market chain, from content producers to operators themselves, will have to find models that allow them to monetize those assets. Advertising used to be blocks that everyone saw the same thing at the same time. In ten, fifteen, twenty years that will not be the model. That doesn't mean there won't be a model sustained by advertising, but it will have to be a different speed. And what is the great advantage? Advertising feeds a lot of things on the internet. The great advantage of being targeted and contextualized so that the user on television can have advertising according to their profile? Yes, we can learn, we can achieve. As we were watching television almost didn't exist individually? I know if I'm watching TV on my mobile, I can already target a person or segment based on what they are watching or searching for. It's possible. The same tools used for advertising on the internet are growing, and I think it will be possible to use them to sustain business models for television, not with the same studies but in a different form. That is also a revolution in the way of watching television. Content is present, but people today open the internet, go to any site with advertising, and it bothers them. Tomorrow they may want to pay or subscribe. That is a model already used by Netflix. I think there will be content that is always subscription, and content supported by advertising, different advertising. That business model exists on the internet, and if television, combining the assets of content producers and distributors, has the technical possibility to do the same type of targeting, why not?

For me, if we measure in unit cost, in the case of data, per megabit or gigabit, they have dropped exponentially. But needs have also increased. The consumer continues? These types of prices in Portugal are curious. Over ten years, revenue? Number of services increased, traffic per subscriber increased, even voice increased, data we don't even talk about. Operators' revenues decreased. More services, more stuff for the service, revenues down. Now someone explain to me mathematically how that corresponds to price increases, because I can't with my basic math. It's possible. It's true that prices have dropped more in Portugal than in other markets? Technology and I pay less per megabit today than 10 years ago is normal. But in Portugal, compared to markets, have they dropped too much? Really because of the history of 'taking'? It doesn't have to be that way. There must be a point where revenue increases. That's basic economics. People want increasingly more services at a cheaper price. Competition leads to that. If you want to change operator, you can call and they will try to keep you. It's much easier to keep a client than to take one from another. These natural market forces are healthy and contribute to the increase in efficiency of companies. For operators, no problem. The market works well as I think the telecom market in Portugal works. We have some sectoral rules that function, we have regulators that also deliver a lot. As long as efficiency gains allow, there is no problem. Clients want to pay less. But there are limits, limits of science. Beyond that, what counts in the end is the degree of utility: build value for people. Basic economics: a product or service that people can't take their eyes off the mobile must have some utility for them, more utility than going to the cinema, or eating a pizza. Other types of expenses are also available to pay for something that gives pleasure. Having that utility curve, we post it, I think the limit is efficiency. I don't know when we reach it. After that, the good news is that what we sell has value for people and for companies.

I think it's difficult. We consider that there are three operators in the market. In a reasonable time horizon, it is practically impossible to have a fourth. I excuse the one not present here because it's not from PDC. It seems that we have a scale problem. Could there be some change in the perimeter or structure of the market due to a fourth operator? No, more than one of the existing? That has already been discussed a bit. I think that will be avoided. The ones that are most visible and have greater dimension are the three operators. And with the scale we have, I think there are conditions for the structure to change? No. Now I just want to warn you: we are almost at our time limit, two minutes. I am very strict with time management. But I wanted to talk a bit more about the future, specifically about what are the main areas of investment for the coming times, in an activity where investment is always high.

We will continue investing in what seems most relevant to have a solid competitive position and a healthy relationship with customers: first, in the access network and modernization of the access networks we have today. We will make large investments to ensure we continue at the forefront. Consumer demands increase, and our competitors are not idle. We combine investing heavily in the development of products and services, in innovation. We invest many millions of euros per year in innovation, which is a productive investment for the reasons I mentioned earlier. We will maintain and continue growth. We will invest in the transformation of the company, returning to the theme of five years and the future. For example, today when we look at what is paradigmatically digitalized? Not many businesses are digitalized in the client relationship. Ours is not a Portuguese issue; generally, the relationship between companies and consumers in many other sectors, some of them non-technological, is clearly on a path of digitalization, maybe faster. I think this will change. Just one example: the digitalization of the client relationship, from billing to issuance of invoices. Today, if you ask operators, I won't give specific numbers, but ask how many acquisitions of new clients were done exclusively through digital channels, without a golden tooth? Other telephone and digital channels. The number is low today. It is possible to open an account via videoconference. For example, I started by saying that our industry has changed with digitalization. Industry 4.0 is an example of internal transformations we will invest in to ensure our client relationship tomorrow is more adapted to the trends we discussed. Because there are increasingly generations that don't want to talk to anyone and solve everything online. We have to respond to these needs. These are the three major areas of investment. Certainly we will continue, maintain a very high level of investment as we did in the past century. We will continue to ensure that the growth that brought the results we started our conversation with maintains its mission and commitment to win on the revenue side. I don't have the numbers in front of me. It only lacks when you need it and don't have. We don't have that ambition: we are not returning to the theme of market with three operators. We have two large multinationals and the Portuguese company. Two large multinationals have the possibility to substitute development, management capacity, technology from large global systems. We here, with the difficulties we see, also have benefits. We don't implement what someone did in Paris or London; we adjust to the market. We believe that with the investment capacity we have, we can respond better to the needs of the Portuguese market. That is important: we gain local scale. The industry needs global scale, but it is more important to have local scale. We achieved that after the merger. We will continue to grow to maintain our competitiveness. Our local capacity, local management, better adaptation to the market, in the end we win, not in the sense of being number one, but in the sense of making a path with value. It's not an obsession. I think we want to be in the group. It's not mandatory for our vision; we have a company focused on the needs we have, motivation of our people, establishment of correct partnerships, relationship with shareholders — I didn't mention them once but they are also important. We think the scale we have today satisfies us. That doesn't mean we didn't set clear goals. We had a clear goal, number one in the company to get ahead, the president didn't get there by accident. We achieved it earlier. Now we have ambition and never had the need to be number one as a description. And that was very good.