Good afternoon, ladies and gentlemen, welcome to Proximus Q1 2020 results conference call. For your information, this conference is being recorded. At this time, I would like to turn the call over to Mrs. Nancy Goossens, Director of Group Investor Relations. Madam, please go ahead.
Thank you. Good afternoon, ladies and gentlemen, and thank you for calling in. I trust that everyone has seen the Q1 results and the presentation that we published this morning. We will not go through the results in detail, but we will keep the usual format, most of the available time will be spent on your questions. Let me just quickly introduce the participants on our side. We have here the CEO, Guillaume Boutin, on the call, and we have some members of the executive committee. I regret to say that for two of them, this is the very last Proximus results call, for the CFO, Sandrine Dufour, and Bart Van Den Meersche, the chief of the enterprise segment. This after many quarterly iterations, I would say. I think 21 for Sandrine, 37 for Bart, if I'm not mistaken. Indeed. Okay. Yeah.
Furthermore, we have on the call, Jim Casteele, the Chief of the Consumer Segment, Geert Standaert, the CTO, and Dirk Lybaert, the Chief Corporate Affairs, and Daniel Kurgan, the CEO of BICS. They will all be very happy to take your questions in the moment. Before we get to that part, we start with the introduction of the CEO, Guillaume. Please go ahead.
Proximus first quarter 2020 results conference call. I hope that everyone is getting through the pandemic in good health and in good spirits. The virus crisis, no doubt, impacting us all personally and professionally. For the telecom sector, these are crucial times to prove its huge value to society and to take up our responsibility to support our stakeholders in these difficult periods. At Proximus, we have taken up that role to the best of our abilities, and I'm truly proud on how well our networks have been able to sustain the boost in traffic since the confinement. Today, we benefit from the significant investments done over the past years to keep high-quality networks, and we continue to invest.
As we announced at our Capital Markets Day end of March, the first pillar of our Inspire 2022 strategy is to build the Belgian gigabit network of tomorrow, deploying both fiber and 5G, and to be the undisputed Belgian leader in terms of networks. The recent events have even reinforced our belief that investing in the networks of the future is essential for the connected society of tomorrow. At the same time, we have closely followed on the needs of our customers and launched mid-March several proactive commercial measures to support our customers through this time of lockdown. With you, we have also very recently increased the internet upload speed for the vast majority of our residential customers and professional customers. The protection of our employees is obviously a top priority as well.
Therefore, we decided even before any government obligation to close all of our shops and to limit our customer installations and repairs. Especially the limitation on customer installations is reflected in a lower net customer growth for TV and internet in the first quarter. Including nearly 7,000 internet customers that could not be connected in March, but that will be connected in April, our net internet customer growth would have been around 8,000 for the first quarter of 2020, so very much in line with first quarter of last year. Overall, Proximus is showing a good level of resilience in these very exceptional circumstances. From a budget point of view, the effects of the COVID-19 sanitary crisis were very limited so far, with only two weeks of impact in the first quarter.
We closed the first quarter of 2020 for our domestic operations with -1% in revenues and achieved a stable underlying EBITDA, including a strong reduction in cost compared to the same period of 2019. In the mix, our customer segment benefited once more from our conversion to segmentation strategy, further growing our conversions customer base. This was supported by the mobile data boost we have given for prepaid mobile customers, while Epic combo continued to address successfully the millennial segment. I'm also pleased about the results of our revamped mobile portfolio, leading to a steady decrease in mobile cost per share and a good customer growth in the first quarter. Our enterprise segment posted a solid increase too for its mobile customer base, in spite of its already strong position.
At the same time, the further erosion in legacy services notably affected our B2B margin, underlying the necessity of a major transformation that we have set up for this segment in the coming years. Transformation that we announced with our Inspire 2022 plan. While the limited COVID effects so far are reassuring, it's clear we are not fully immune to the crisis, and we expect the impact to become more visible over the next quarter. The economic recovery for Belgium remains uncertain, especially roaming and IT projects are exposed to further negative effects. It's very difficult to have a clear view on what the overall impact. So far, there are no signs that the financial effect will be worse than what we have anticipated, and we expect that the EBITDA impact will be largely offset by lower CapEx.
We therefore reiterate our 2020 full-year guidance of group EBITDA minus CapEx landing between EUR 780 million and EUR 800 million. Before opening the line for questions, I would like also to thank our senior colleagues, to thank Sandrine and Bart as representing today their last quarterly results for Proximus. Thank you, Bart, and thank you, Sandrine.
May we open the lines for questions, please?
Yes. Ladies and gentlemen, if you wish to ask a question, you may press 01 on your telephone keypad. We have one first question from Mr. Nicolas Cote-Colisson from HSBC. Sir, please go ahead.
Thank you. I'll start with the mobile market. Two things, please. First, you had a good run in Q1 in terms of postpaid net adds, but ARPU has dropped massively despite only two weeks of COVID. Could you explain a bit more what is happening there beyond the ePress effect? Secondly, still on the mobile market, Orange Belgium has launched new offers that are quite attractively priced. I can see some promotions on your website matching Orange Belgium pricing. I wonder, what is the end game there? How can you differentiate on other criteria than prices in a context of network sharing eventually? If I may, just before saying goodbye and all the best to Sandrine and Bart, I was wondering if you could share the process for the succession plans. Thank you.
Good afternoon. This is Jim Casteele speaking. On the first question, linked to the good results on postpaid adds, but the impact on ARPU with only two weeks of COVID-19. Indeed, mobile ARPU is impacted by three big elements. The first one is international regulation that continues to put pressure on our mobile ARPU year-over-year. The second one is linked to the good performance that we had commercially with the data boost that we did on January 1st, which has an impact, of course, on our out-of-bundle revenues. As we all know that it takes some time before customers adapt to new volume limits. We expect to ease out this effect in the coming quarters. On top of that, but indeed only for two weeks, we gave an additional 10 gigabytes of data to our customers during the COVID-19 confinement period.
The third element that impacts the mobile ARPU are the internal accounting allocations that are linked to three big elements. First of all, the ePress. Secondly, also the continued push to convergence, and also the impact that joint offers has on mobile ARPU. I think these three elements together explain why mobile ARPU continues to be under pressure.
This is Bart for enterprise. The good news is that we have been able to grow our park again. We added 8,000 mobile cards, so even increasing our market share that was already very strong. The other good news is that we're able to keep our churn pretty stable. Indeed, there is pressure on ARPU, actually for three reasons. The first reason is competitive pressure. I mean, it's not a secret the result that Orange tried to take a stake in the enterprise mobile market, so that puts pressure on prices. Next to that, it's also that customers are moving more and more to bundles, including more and more data allowance at competitive prices. Traditional out-of-bundle revenues are decreasing and have a negative effect on ARPU. Last but not least, indeed, there is much lower roaming revenues due to COVID-19.
Those are the elements.
On the second question, this is Jim speaking again. On the Orange offer and how do we see ourselves differentiating going forward? For the moment, we don't really see a big impact of Orange Go on our commercials. As you know, our commercial strategy is to boost convergence where we bundle different products into one and the same offer towards the consumer. That gives you additional opportunities to differentiate when you bring a proposition to the customer. Even if we are doing network sharing with Orange, even then, we still have capability to differentiate our mobile experience towards the customer. I think these elements for us allow us to continue to differentiate in the market, even if we are sharing a network with Orange.
Regarding the succession plan, Jim speaking. The process is ongoing since for a few weeks now. We are actively screening the market, and I hope I will be able to give you more news on that front during the next quarter for those positions.
Got it. Thank you very much.
Thank you, sir. Next question is from Mr. David Vagman from ING.
Yes, hello. Good afternoon, everyone. Can you hear me properly? Yes. Yes. I've got two questions on my side. The first on the wholesale cable regulation . What is your view and how do you think this will impact the commercial dynamic in Belgium? Secondly, what would be your wholesale commercial strategy for fiber? I think Orange Belgium has been quite vocal about their desire to have passive access. What is your view on this? Maybe a last question on broadband net adds. Could you come back on the performance, which was a bit weaker than consensus was expected? Thank you.
Last question.
Broadband.
Yes, the last question was on broadband net adds. If you could just explain us a bit what was explaining the weaker performance in net adds in Q1. Thank you.
On the cable wholesale pricing, the formal new notification shows that the BIPT indeed has taken good note of all the focused comments that we did as Proximus, but also that other did. The depreciated asset valuation, the link with fiber. Fiber can be ignored in that reflection of the wholesale cable pricing, and also the importance of steering. Just for you to know that the timing now is few months for the European Commission to react. We should have more news by the end of Q2. What is the takeaway for us? I think rather good news, and those pricing are in the right direction. I think also putting more in balance the south and the north of the country. I think that's pretty much what I can say at that time. We have to have the confirmation, and we see how it goes.
It's rather good news for us. In terms of commercial strategy for fiber, we announced that during the Capital Markets Day of end of March. We want to build a fiber network, which is an open network, open to wholesale activities, to wholesale partners. I'm confirming that we want to pursue in that direction. That we want to build a network that will be open to partners, commercial partners, but also partners who co-invest with us in that network. There are discussions that could happen, and that will happen definitely with Orange on both sides of the equation. When we can have more advanced discussions with Orange, we will get back to you.
Thank you.
Yeah. Go ahead. We have a new question?
Maybe first on the third question on the broadband net adds. Indeed, as we mentioned, the lockdown has impacted our operational results. The closing of the shops has impacted the sales. More importantly, the onboarding of new customers, internet and TV, were impacted by our strict application of limiting the field technician activities to urgent interventions, which has significantly reduced the installation capacity. As you know, to protect our employees, we have applied the guidance of government very strictly, more strictly I would even say. We closed our shops sooner than competition. At the same time, we have also limited over the period, broadband installations to urgent installations only. Of course, we continue to do full repair service to our customers. We expect indeed that these customers will be installed in the next quarter.
Keep into account, of course, to try to project it to the next quarter, that in April we were still in a strong confinement period as well. On top of that, we of course have limitations on our production capacity. I would say that the customers that we didn't install over the last weeks, they will be installed, like Guillaume said, or are being installed already today as we speak.
Okay. Thanks very much. A quick follow-up on the wholesale cable, sorry, on the co-investment. Do you see a rising appetite from the local players in Flanders and Wallonia to co-invest together with you in fiber? Can you already tell us a bit more on that, on potential partners for the fiber rollout?
I will not comment on the evolution of all the discussions we do have as we speak with different types of partners. It's too soon to comment on that question, but I hope I will be able to comment later this year on that front.
Okay, thank you.
Next question is for Madam Maya Ranjet from Citi. Madam, go ahead.
Hi. Thank you so much for taking my question. First of all, can you quantify some of the COVID impact seen so far, in particular impact in churn and savings and also on Slack and/or has been an impact in marketing costs? My second question is on football subs that have been paused and Proximus is trying to get a rebate on this. Can you help us quantify how much will be the revenue impact and also how much you expect to recover in costs? Thirdly, do you have an update on the spectrum auction, if any? The BIPT has granted Proximus and four other companies temporary 5G licenses today. Do you still foresee this as a risk of a new entrant?
Yeah, I am not sure I understood all your questions. I understand that you wanted some quantification of the COVID impact, but I could not get all the details of your question. I must say that in Q1, there is a limited financial impact of COVID. We have said that it really had an impact in the measures that we have taken, and also the benefit that we give to our customers, granting some more data and fixed voice. That has had an impact on out of bundle. It also had an impact on our roaming revenue, where we saw the decrease in traffic. This has had an impact. There have been a couple of savings as well, of course. This is true for Proximus, this is true for BICS as well.
This has helped a bit, but net, it's limited to a couple of EUR million for the last 16 days of March.
On the update of the 5G spectrum auction. First of all, on the temporary licenses, we think that the agenda, which is currently foreseen or published by BIPT, the regulator, will be respected. That is to say that the temporary licenses would become available as from July 1st, and operators have to activate the license then between July 1st and the end of the year. On the real auction, there, we have to wait for a government in full power. For the moment, we don't have a government in full power. We have to wait for a government in full power, we don't expect this auction any more in 2020. It will be for next year somewhere.
I think Jim wanted to also add.
On the churn impact related to COVID. Indeed, we have seen, as all the other operators, reduced commercial activity in the last two weeks of March. This has positively impacted the churn on the fixed part. On the mobile part, we have very good churn results in the first quarter. These are driven more thanks to the commercial changes we did on the portfolio on January 1st, where we boosted the data for our customers, which has really given a very good impact on churn. This is more important on mobile churn impact than the COVID of the last two weeks. I would say on fixed, the churn reduction is thanks to this. Due to, I would more say, COVID on mobile, it's mainly the changes on the commercial portfolio that have driven churn, and also impacted by COVID reducing churn as well.
Thank you.
Thank you, madam. Next question is from Mr. Emmanuel Carlier from Kempen. Sir, go ahead.
Yes. Hi, good afternoon. Three questions from my side. The first one is coming back on the fixed subscriber additions. I think it's since a couple of quarters that they're quite weak. You mentioned the COVID-19 impact, but given that that only started to take place by mid-March, it cannot just be the only reason, I think. I would love to get a little bit more explanation on what is resulting in these weak fixed subscriber additions and how you intend to turn that around. Secondly, on cost savings. I've seen quite solid cost savings. Is that base sustainable, and is that mainly driven by the recently announced layoffs, and how should that evolve in the coming quarters? Lastly, on the fourth entrant, do you believe that politicians have generally less appetite for fourth entrant because of the importance of good networks in a COVID-19 environment?
Thank you.
I'm going to start on the fixed part. I understand your question and the hesitation that two weeks of COVID can have such an impact on the net adds. You know the broadband market is a very saturated market, where we do quite some acquisitions to compensate quite some churn at the same time. If you calculate the churn rates on the installed base, and you look on the volumes that it drives over a quarter, you will quickly realize that indeed in two weeks' time, if your production machine is nearly stopped, that it can have quite an impact on the net adds of the quarter.
On your question on cost savings. It's true that we had indeed a very good year-over-year cost reduction in Q1, and that was mainly the result of the lower headcount. Of course, we continue to take actions everywhere in the company to focus on our costs, Q1 decrease should not be taken as a run rate for the rest of the year. We certainly expect further savings by end of year, not at the same rate. I can give maybe a bit more color on that. First, we had versus Q1 last year, it's a higher comparable basis in 2019. If you look at the Q2, Q3, there are about EUR 20 million lower, it was Q1, we've worked on the costs at the next quarter in 2019. That's one element.
There are also some tightening effects through in the commercial means where some media campaigns have been postponed. Remember, as of 1st of April, we had wage indexation in Belgium. The year-over-year for the next quarters will be impacted by this element. As part of our SFP plan, we had many FTEs which departed 1st of March. We've always said that there were some specific skills that we needed to rehire, and this has not really had an impact in the month of March yet, but this is ahead of us. I think that's a series of explanations to guide you not to multiply by four the performance of Q1 in cost increase.
On the fourth entrance question, this is for sure, there will be a world post-COVID that will be fully different from the world before COVID. This is one element, because we proved the importance of network, as you mentioned, as being crucial for the economy. That's the first element. Second element, you know that we've announced a massive investment plan to upgrade the network to Belgium and to roll out fiber, which you know will be instrumental to make sure that the recovery of the economy will be accelerated. Without good connectivity, without the fiber network, the 5G network, there will be no speed, fast recovery of the economy. We're going to be a central element also with our investments to create a good momentum for the economy of Belgium. This is the second element.
Third element, the more you wait, the less attractive is the Belgian market for entrance. All those three elements together, I think that probably lower the risk of having a fourth entrance into the market. That said, we never know, but for sure, I think, I might say that the risk is a little bit lower compared to the risk we had a few quarters ago.
Does that mean that the government kind of gave their word that they appreciate that if you do fiber to the home investments, that makes it quite tough if there would be a fourth entrance? Is that a step too far?
Not for the moment.
Okay. Thank you.
Thank you, sir. Next question is from Mr. Ruben Devos from KBC Securities. Sir, go ahead.
Yes, good afternoon. Thank you. Two questions, just. The first one on potential additional lockdowns. I can imagine you don't take it into account in your current outlook, of course, I'm curious whether you could expand a bit on a scenario where there would be additional lockdowns. How much of a strain that could be for your business, you think? Some businesses say such a scenario may be very disruptive. I was curious for telco, would it be much different from what we've already seen, in your view? Secondly, just on 5G and sort of the press reports or the concerns by citizens around health and environmental issues. Much has been written on the topic, refuting the arguments that the rollout of 5G would be harmful. Still, how do you think the development could hinder the rollout of 5G technology, the granting of mobile permits?
How have discussions been with policymakers really, and communities in general on this topic? Thank you.
Okay. On your first question of the potential lockdown and the impact on the business, we are, of course, as all companies, working on various scenarios of how this will evolve, what is going to be the length, what is going to be the depth of the impact over our business, and how should we best prepare to make sure that we can minimize the impact. Of course, beyond what we've seen so far, we can expect to be impacted in the business most exposed to the crisis. On the B2B front, we are closely monitoring the evolution it can have from the various customer base. Also in the ICT space, we certainly expect that some decisions will be postponed and that there will be an impact on the traction, on the type, on our ability to execute some of our potential projects there.
Travel certainly will not be the same. For sure, our roaming business part is going to be impacted for a certain period of time as well. That's certainly part of the scenario. At the same time, what we're doing is that we're very closely looking at how we can best absorb this and see how we can manage and better manage our costs to make sure that we can minimize the impact on our global cash expectations. That's the type of very close monitoring that the company is putting in place on a very regular basis, and also, of course, on the cash aspect.
Okay. With respect to your second question, it is Pierre speaking. First of all, when we launched 5G, I would say we had very good press coverage. Of course, afterwards, we got many negative reactions followed on social media and mostly driven by fake news. A number of observations there. This is a global trend, of course, in Belgium, that is one. A second observation, a very big difference with respect to the reaction between the north of the country and the south of the country. With respect to our reaction, we have chosen to decide, in fact, to softly react. We're bringing more information, and we are now preparing, because clearly the south has easily asked for more information. We're now preparing that with all the different stakeholders. The next steps that are scheduled is we continue with 5G.
The first roll-out that we will now do will be in the north. That is one step. The other step is that we will do the tour with the stakeholders in Wallonia to bring the necessary information so there we can bring comfort with respect to 5G and further roll-out that we want.
Okay, thank you.
Thank you, sir. Ladies and gentlemen, I would like to remind you that if you wish to ask a question, you may press zero one on your telephone keypad. We have a next question from Mr. Stefaan Genoe from Degroof Petercam. Sir.
Yes. Thank you. Stefaan Genoe , Degroof Petercam. Two questions. Overall, you've seen a limited COVID impact on the results in the first quarter, but could you give a bit more color what you've seen on the different cost levels of the company and the cost layers of the company in terms of impact? Could you draw, I would say, lessons from this going forward that could benefit you in terms of saving, going forward? Second question, has there been a sell-up from clients having lower broadband connection, lower capacity broadband connections, such as the Scarlet customers that have requested for higher bandwidth offers, in view of the home working that we've seen in the country? Thank you.
Well, on the cost side, there are the obvious one, because everyone working from home. You can expect to see that anything which is linked to supporting the business, the travel, the shows, events, all this has stopped. That's immediate impact in some of our part of the company. As we said, we stop as well some installation and the provisioning. These are elements which have had an impact as well on our OPEX and part of our CAPEX as well, where we have stopped deploying. Of course, when you see that there is less traffic going on, sometimes there is a cost associated to this. What does that mean for the future? Of course, the question is how digital we will continue to go.
There will be a portion of this which might be leveraged, but will go back at some point to a physical interaction and team meetings and connecting with customers. I think it's certainly lessons to be taken. A bit early to say, we look at this and see how we can leverage the experience. Maybe it has been an accelerated journey to digitalize the way we work, and we'll certainly learn from this for the future. Hopefully not to the magnitude of what we've been living over the past weeks.
On the second question, linked to tiering on broadband. We haven't seen a lot of short-term impacts on the broadband tiering due to the COVID-19 crisis. Of course, I think we all agree that this crisis has shown the importance of good performing connectivity for both consumers and businesses. What we do have seen, however, on the consumer side is, I would say, an increase in the TV options. The Netflix, Be tv, or family bouquets and VOD consumption, there we have seen some traction over the last week. In Enterprise, we have indeed had several customers who asked us to increase their bandwidth because of employees working from home, which we have been able to accommodate all of them.
Okay. Thank you.
Thank you, sir. We have no other questions.
Thank you. I think we can leave it at this. Should there be any follow-up questions, we can obviously address these to the investor relations team. Thank you very much, and have a nice day.
Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.