Q&A – Oi & V.tal

How can I monitor the profitability of the Fiber segment and identify the evolution of Oi’s costs with V.tal?

R: Oi quarterly discloses the breakdown of its fiber revenues, although it does not post an income statement by segment.
Even so, the majority of V.tal-related costs is reflected in the Rental & Insurance line of the income statement, including costs related to the use of V.tal’s neutral fiber network for connection and maintenance of the FTTH customer base in the residential and business segments. However, this also includes the costs of contracting fiber network capacity to serve corporate customers, in addition to insurance expenses.
Additionally, although explanatory notes referring to transactions with related parties are present in Oi’s financial statements, including V.tal, in that section are included costs of several contracts between the Company and V.tal in addition to the expenses for fiber services, not being therefore the best information to assess Oi Fibra’s profitability.
A profitability reference was given in the Material Fact with Blow Out of information presented to creditors in the context of negotiations related to the RJ process. In the document, it is possible to observe that the fiber operation is in an expansion phase and thus a more pressured margin is expected in the short term, gradually improving over the years as the operation gains more scale, diluting fixed costs and implementing continuous efficiency actions.

Why is there a faster quarterly growth in Oi’s Rent & Insurance costs if there was a reduction in net additions compared to the previous quarter?

R: The Rental & Insurance line mainly reflects the growth in the residential and business customer base over time. The amount comprises the costs of connecting new customers, deferred over the average time the customer stays in the base, and maintaining the base using the fiber network. Therefore, the annual and quarterly variation of the line is more impacted by the historical growth of the fiber customer base than by the number of net additions in the current period.
Additionally, the Rental & Insurance line also reflects other commercial relationships with V.tal, as previously mentioned, and is also influenced by the growth in other segments such as B2B and wholesale.

What was the reason for the change in Oi’s stake in V.tal, which took place on August 4th? And what is Oi’s current stake in V.tal, after this move?

R: The adjustment formalized in August 2023, widely communicated in interactions with the market, stems from the application and verification of more favorable conditions, negotiated at the closing of the partial sale operation of UPI InfraCo, for Oi in the fiber contract as disclosed to the market through a Material Fact on June 09, 2022, and expected to be completed by the end of July 2023.
With this adjustment, Oi now holds shares representing 31.21% of the voting and total capital stock of V.tal, according to information disclosed by the Company through items 1.12, 6.4 and 6.5 of its Reference Form.

It is possible that there will be future dilutions of Oi’s stake in V.tal?

R: The possibilities of changing Oi’s future participation in V.tal’s capital exist due to events such as (i) possible future capital increases or (ii) due to V.tal’s future performance in certain metrics agreed as part of the asset investment agreement (as mentioned during the 2Q22 earnings call), and such events cannot currently be determined in advance.

What is Oi’s strategy regarding its stake in V.tal?

R: Oi sought the entry of a new partner for its fiber vehicle with the aim of accelerating network expansion investments, thus ensuring asset appreciation without the need to contribute with more of the Company’s own resources. The creation of V.tal, through the arrival of a new stakeholder, also represented the opening of the network to other customers, resulting in better asset profitability.
Considering that V.tal is still in the initial investment phase and presents a strong prospect of appreciation for the coming years, the Company chose to maintain the option of taking advantage of the potential appreciation of the asset, in order to support Oi’s long-term sustainability.
The Company has communicated widely to the market, since the first amendment to the Judicial Recovery Plan, about the possibility of selling the stake in V.tal or using it as collateral, to reduce the Oi’s debt.