Good afternoon, and welcome to Deutsche Telekom's conference call. This conference is live streamed and recorded on YouTube. May I now hand you over to Mr. Hannes Wittig.
Thank you. Good afternoon, everyone, and welcome to our live 2023 Q3 2022 webcast and conference call. As you can see with me today are our CEO, Tim Höttges, and our CFO, Christian Illek. Tim will first go through a few highlights, followed by Christian, who will talk about the segments of our group financials. After this, we have time for M&A. Before I hand over to Tim, please pay attention to our usual disclaimer, which you will find in the presentation. Now it's my pleasure to hand over to Tim.
Thank you, Hannes. How are you? Hope you're doing all well in these difficult times. We are happy to share with you another very strong quarter, by the way, on both sides of the Atlantic, and another increase in our guidance. Of course, our dividend proposal for 2022 is coming with the third quarter, which is EUR 0.70, up by nearly 10% year-over-year. T-Mobile U.S. reported strong growth in all metrics and raised their guidance for this year, once more again. We delivered as well outside of the U.S., quite strong numbers. Strong customer and service revenue growth, 4.3% organic EBITDA growth, and already over EUR 4 billion free cash flow after nine months in the European operations. As usual, I will go through our year-to-date performance, and Christian will then show you the details of the quarter.
Let me start with the organic view on the next page. Our strong growth continued and all segments contributed. Organic service revenues for the group are up by 4% so far this year. For our European business, service revenues are up 1.8%. For the group, organic group EBITDA grew by 0.7% and excluding T-Mobile's handset lease unwind, group adjusted core EBITDA grew by 5.9%. By the way, if you just look at the U.S., you know, dollar numbers, we have over the first, you know, nine months, 8.8% growth on the revenues and 8.5% on the EBITDA growth. By the way, on the core EBITDA, even more, 12.2%. You see that, you know, we are lucky to be in the U.S.
It was the right decision to do this, and the strong dollar is helping us big time as well. Nevertheless, we adjust this for the purpose of comparison. I don't see that the dollar is going back again. That is a side comment. T-Mobile U.S. headline is slightly down, but without the ongoing unwind of our handset lease, this would have been 7% growth according to IFRS. Germany remains strong with 3.2% growth. The European segment grew by 3.9% year to date, and this despite the headwinds from energy costs and the Hungarian tax. Group development grew by 21%. This would have been around 9% without held for sale accounting. T-Systems grew by 10% year to date. Germany has now delivered 24 consecutive quarters of EBITDA growth.
By the way, this is six years. Europe with 19 consecutive quarters. Our network build-out continues at an accelerated pace. We now pass over 12 million European homes with FTTH. Of this now 4.5 million in Germany. We are well on track for the planned 2 million additional fiber homes this year. Our ultra-capacity 5G network passes 250 million U.S. homes, way ahead of competition and well on track for the 260 by end of this year. While we extend the reach, we are also increasing the spectrum depth from 120 megahertz currently to 200 megahertz of mid-band in 2023. Speaking of networks, T-Mobile substantially completed the decommissioning of the Sprint network this quarter, one year ahead of schedule. In Germany, we now cover 94% of the population with 5G.
In the European segment, we stand at 41%. Our investments continue to pay off and our customer growth remains strong. Was even stronger than last quarter. Our mobile customer growth accelerated on both sides of the Atlantic. Our fixed line growth was a bit slower, partially due to the temporary impact of the new German telecom law. As you will see later, our broadband customer growth accelerated again this quarter. Moving on with ESG. On October twelfth, we hosted our sustainability day with the full management team. By the way, more than 200 investors joined us. We outlined our ambitions, our clear commitment, and how we will actually walk the talk. We made a few material announcements, for instance, that we now expect to reduce energy consumption for our European businesses in 2020 to 2024 timeframe.
Our previous target had been to keep consumption stable. I'm pleased to report that year to date, we achieved an 11% reduction in energy consumption in Germany compared to 2021. We also announced that we will source half of our European electricity from green PPAs by 2025, and that all new business cars in Germany will from now on be electric. From our Capital Markets day, you know how we measure ourselves against our financial targets with green, yellow, and red traffic lights. I can assure you that we will apply the same strict discipline to measure things, to implement things, to execute things. ESG is now a target for all leaders in their compensation, and we will be as disciplined as to the other KPIs on the ESG targets. We will follow up with you as soon as possible.
Going to the U.S., T-Mobile raised their 2020 guidance two weeks ago. Today, we are also raising our full year guidance for the group for the third time this year. You can see our new guidance on page 8. For the group, we now expect an adjusted group EBITDA of more than EUR 37 billion. By the way, if you do it, take it in dollars, more than $40 billion. Our adjusted EPS of more than EUR 1.50. For group free cash flow, we reiterate more than EUR 10 billion. We continue to expect EUR 3.8 billion outside of the U.S.. When looking at these numbers, please keep in mind that our 2022 guidance is based on a U.S. dollar exchange rate of 1.18, while consensus is based on 1.05.
Also remember that our guidance excludes the first quarter contribution from T-Mobile Netherlands. This was EUR 190 million EBITDA, and it includes any held-for-sale effects. With that, let me hand it over to Christian for his deep dive into another successful quarter.
Thanks, Tim, and welcome also from my side. Let me start with a deep dive on T-Mobile U.S., our biggest operation. As you have seen, they provided excellent financial results, 4.3% service revenue growth on a postpaid basis, even 7%. According to U.S. GAAP, core EBITDA growth of 11%. All targets for 2022 have been raised again, synergies, EBITDA, customer growth, and on top, the mid and long-term guidance is still valid. Before I now come to the operational performance, let me recap on a couple of translation items between T-Mobile and DT's EBITDA. The first one is obviously how do we get from core EBITDA to adjusted EBITDA?
That is obviously that we have to basically include the handset leases if we're using our definition and the core EBITDA, this is excluded. Just to remind you, in the year 2021, the handset lease revenue was $3.3 billion, and it's expected to drop by roughly $2 billion to $1.3-$1.4 billion this year. The second item is obviously the bridge from U.S. GAAP into IFRS, which is basically being driven by two effects. One is stock-based compensation, and the other one is the renewable purchase agreements. Historically, we always were forecasting, let's say a translation GAAP of 150 million a quarter, which gets you to 600 over the course of the year.
Due to some adverse effects on the renewable energy purchase agreements in the U.S., we expect now a bridge somewhere in between EUR 700-EUR 800 for the full year 2022. Let me assure you, it has no impact on the bottom-line results nor on the free cash flow. If you wanna see the comparison between 2021 and 2022, let me refer you to page 30, where we basically give you an analysis between the two bridges. On the operational performance, very strong customer metrics. More than 850,000 postpaid net adds, as you know, the highest since the Sprint merger. ARPU is still up. Churn is on a year-on-year basis down, almost 400,000 new postpaid accounts, which is also best in industry and best ever.
The ARPA was going up by more than 2%. The fixed wireless is just having a stunning success in taking out of these close to 600K new customers, almost 50 or more than 50% are coming from cable. Let me move over to the next page 12, and move over to our home market here in Germany. Tim said it already, 24 consecutive quarters of EBITDA growth. The headline financials are really steady with a 2.8% revenue growth and a 3% adjusted EBITDA growth. This growth is coming from very, very strong service revenue growth. As previously flagged, we had two reporting changes in that given quarter.
One is we moved the security business from T-Systems into the German unit, and the other one, we switched basically, the principal accounting to, agent accounting, which basically changes your revenue from a gross basis to a net basis. Has nothing to do with the EBITDA, but that obviously affects the numbers, and all these numbers have been restated also for the previous year. Let me note that the beginning of 2021, we had one extraordinary contract which basically gave us, on a quarterly basis, roughly EUR 12 and a half million of transit revenues, and they will basically terminate, by the next quarter. Let me just focus on two organizational and M&A topics, which we just did. We invested EUR 25 million in an Israeli-based global connectivity company or provider, which is called Teridion.
Teridion is operating virtual networks, which are based on software, and it actually adds to our service proposition in the B2B space and will also help us to defend our MPLS business. The second one was recently announced. That's the move of the MMS business, which is covering roughly 1,700 digital experts, and we move it from T-Systems towards the German segment. This is also to A, strengthen the capabilities in the ICT space in the German organization, but B, also to get more traction in the German Mittelstand. Page number 13. As you can see, service revenue grew both in fixed and in mobile, both in B2C and in B2B. Mobile service revenues grew by 2%.
You know that the Lebara contract has come to an end. If you would add in Lebara, it would have been 2.5%. Similar performance relative to the previous quarters. As promised last quarter, also our fixed line KPIs have improved. You see that the net adds on broadband have increased from 45 to 63. Net adds and also our TV performance has increased from 21% to 32%. This is coming from a fading effect from the telecoms law, the TKG effect. Actually, that's really pleasing us, that proves that the prediction which we have given you in the first quarter was actually right.
What you can also see is on the bottom left of the slide that almost 40% of our broadband customer base enjoys now service contracts with at least 100 Mbps, and that our vectoring platform, it's not on the chart, has grown to 1.7 million customers, which is a year-on-year growth of 50%. The last one on the lower right-hand slide is obviously a steep increase in the number of fiber connections, and that's coming from a migration, a forced migration, which we have done. We forced migrate ADSL customers who were in a VDSL area into VDSL, and this is simply that they are getting a better customer experience. That voluntary migration will continue into the fourth quarter. In the fourth quarter, we expect another 300,000 customers to follow.
On fixed line, you see that the service revenue growth was coming down a bit, despite some stable broadband growth in the retail space. This is obviously driven by the wholesale business, and 50% can be attributed to the headwind from the ULL price cut. Page number 16, please. On the mobile customer base, we're really pleased with the results. You see that our net adds on mobile have increased to almost 370,000 customers, which is double the amount from last year, and it's 90% better than the second quarter. This is coming from basically three sources.
One is B2B, which is attributing 50% to the growth, and the other one is B2C, where we have a significant stronger momentum on our first brand, while at the same time that the Congstar customer momentum remains pretty much on the historic levels. On page 17, please. We're moving to Europe. You see another strong performance despite some meaningful headwinds. I'm getting to this one. Organic revenues grew by 5.5% this quarter. The service revenue grew by 3.5% this quarter, and that growth was pretty much driven equally between the fixed line business and the mobile business. The organic EBITDA after leases has slowed down significantly. This is due to two effects. One is the Hungarian special tax, which costed us 150 basis points.
The other one was the, energy cost increase, which, costed us another 220 basis points. Otherwise, that growth would have been well above, 4%. Our commercial performance, as you can see, is very strong and very consistent, despite the fact that we have introduced price increases in many of the European markets. You see, that is really a reliable commercial engine which is running in Europe. Next page. Page, what is that? 19. Moving to GD Towers. In total, we have added net 900 towers to the tower portfolio in Germany and in Austria. This is coming from 1,200 new builds, while at the same time, we had 300 decommissions. The organic rental revenues grew by 6.7%.
I think it's noteworthy to say that with the non-DT customers, so with the external customers, that revenue momentum is close to 9% on a year-on-year basis. The organic adjusted EBITDA grew by 9%, and the reported EBITDA is up by 40%, but this is due to a benefit which we get from the held for sale accounting. We expect that the tower deal will close beginning of next year, and that leads us to Systems Solutions. Order entry was up 6.5%. Revenue was slightly growing. What you see in the pattern of the business is that we're still facing a reduced infrastructure outsourcing business, but at the same time, this is overly compensated with our digital solutions.
Two days ago, as I mentioned early on, we announced that we're gonna move the MMS legal entity into the German business. While at the same time focusing the T-Systems business on the digital solutions, while at the same time on the cloud services space. That leads me to the financials, and finishing up with the operational review. If we're going to the reported revenues, and Tim mentioned it already, we grew by almost 9% this quarter or 7% year-to-date. Adjusted EBITDA grew by 8.5% this quarter, on a year-to-date basis by 7%. The reported adjusted EPS was growing by close to 80% this quarter.
On a free cash flow basis, we basically, on the IL basis, we're pretty much stable, and this is due to the fact that we are facing significantly higher CapEx. On the AL basis, free cash flow was growing by 14%. Our financial debt, including leases, is up by 16%. That is a total of almost close to more than EUR 20 billion, of which EUR 16 billion can be attributed just to the dollar. Page 23, please. Here you see the free cash flow bridge. On a year-on-year basis, the cash flow from operations was growing by roughly 100. We have less leasing payments due to a prepayment which was happening in 2021. That was American Tower.
At the same time, we have, due to the network integration, a significantly higher CapEx spend, predominantly driven by the U.S., which gets you to that stable development. What is really encouraging is obviously the development on the adjusted net profit. You see that net profit actually grew by EUR 1.1 billion or 84%, very much driven by the operational underlying performance of the EBITDA, by less depreciation. We're having a better financial result, which is pretty much driven by the options we're having with SoftBank on T-Mobile U.S., as well as driven by the increase of the value of the forward.
At the same time, obviously, as the business is developing better, we have to face higher taxes of EUR 300 million, and we have a stronger dilution towards minorities coming from the U.S. Next page. On financial debt, I think this is something where I spent a little bit of time on. You see that the overall financial debt, excluding leases, has increased by roughly EUR 3 billion this quarter, of which the Forex effect in itself is five. If we wouldn't have a very strong dollar, which we really appreciate on the EBITDA and the revenue side, obviously that picture would look differently. The rest of the bridge is obviously 2.9% EBITDA after leases on a quarter-on-quarter basis. Little spend on dividends and spectrum.
Obviously, we initiated the share buyback on the T-Mobile U.S. side, which attributed basically $600 million to the indebtedness. If we're taking a look at the ex-lease basis, you see that the ratio, the leverage ratio is pretty much stable compared to the last quarter, which was 2.78. This one here is 2.79. Also on the including leases definition, I think we're on a similar level than we were having on the previous quarter. I think the last thing I wanna mention, which is not on the chart, is our pension deficit has declined by almost EUR 2 billion this quarter due to the higher interest rates which we're having. That obviously reduces our rated debt. Finally, our inflation exposure, and then I hand it over back to Tim.
On the energy cost, I think everything remains stable relative to what we said based on the first quarter. We are well covered in Germany with hedges in the upcoming year and also into 2024. We will obviously enjoy the retirement of the renewable energy surcharge. In Europe, we always said this, we're exposed, and you could see it already in the numbers for Q4. In the U.S., nothing has changed. Two-thirds are basically being covered by the PPAs. Personnel expenses. The biggest tariff agreement which we had to close this year is obviously Germany, so that is kind of fairly stable until 2024. We're facing some salary increases also in the European segment. Leases, we talked about this one.
We have either CPI caps here in Europe, or we have basically fixed escalators based on the agreements the U.S. have taken in the previous two years. Investments, there is one, I would say, slight change. Obviously the construction company is facing inflation as well. They have increased salary costs. They have increased material costs. That obviously puts a lot of pressure on the procurement organization and on the interest payments. We are exposed, obviously, on the 50% variable part in the European ex-U.S. business. But on all other areas, we have kind of fixed rates, which we're seeing.
With that said, I think you have seen us confirming our guidance for this year. We're confident that we're gonna maintain our capital markets day targets also for the ex-U.S. business up until 2021. I hand it over to Tim.
Yeah, well done, Christian. Thank you. Look, no more marketing needed here. I think, you know, the numbers speak for themselves. Therefore, my wrap-up is more about these outstanding numbers in this environment which we are showing, including comparing us with our industry. I can guarantee you we stay grounded. That is definitely the case and we are very consciously working on indirect costs and on the digitization of our activities here and as well on being successful in our marketplace and the execution on the build-out of 5G and fiber. Company is well on track, very concentrated and focused on what they're doing.
I think it is very nice to see the strong execution which we see in T-Mobile in the U.S., with a new fantastic record quarter, where we were able to guide higher again. The growth story in the U.S. is continuing despite, let's say, all, let's say, the bad-mouthing which you sometimes read. Think about our second-best quarter of B2B net adds, over 2 million fixed wireless customers on top of that, in less than two years. I think that's an outstanding achievement. Even, you know, the increase of customers in small and rural market opportunities, which is 40% of the U.S., and we have just started in this area.
Our growth optimism is well intact. T-Mobile was able to announce the first tranche of their promised buyback. Initially we keep our shares, so we don't take cash. We have increased our shareholding during that period, so this helps us by the way as well on our EPS, but we can talk about that later again. We have a very clear path now towards our number one strategic priority to have a controlling majority in the U.S. By the way, we said we have to do that by 2024. We will be significantly faster achieving this target.
It also shows the power of our free cash flow growth this year, but we made a big step in the U.S., and we will make another big step next year. There's even some elements of it which we cannot avoid, yeah. Outside of the U.S., we delivered 4.3% organic EBITDA growth. We should not, you know, neglect, you know, our European activities. I know that the U.S. is always in your main focus, but 24 consecutive quarters in Germany, 19 in Europe, I think, it speaks for our brand, it speaks for our network, it speaks for our customer service.
Inflation is a challenge, but we have good visibility for our key cost drivers, and we believe we can largely manage these headwinds in our operations today. Therefore, we are clearly confirming that we are well on track for our midterm targets. The strong dollar, by the way, luckily, we are in the U.S. as the only telco operator here in Europe. With the strong dollar, this provides us with additional tailwinds for the upcoming quarters and especially 2023. I'm very happy that we can propose an increase in our dividend to EUR 0.70. Now, there might be people here in the room, you know, think, you know, why not more?
Guys, you know, think about the track record we have over the last years. The guidance, you know, is exceeded. I think consensus was something at 68 at the beginning of the year. It's almost 10% year-on-year growth, which we are confirming today for this year. I think a great step forward, and I'm very happy about the whole mix of how we are able to present the set of numbers here. We will continue to invest. There's no reason not to innovate and to leverage our opportunities out of the better infrastructure.
Our flywheel is going, and with these ending remarks, we are ready for your questions.
Thank you very much, Tim. Now we can start with the question and answer session. If you'd like to ask a question, please press star one, as many of you have already done, and announce your name. I will announce your name when it's your turn. Should you require to cancel your question, please press star two. I would be grateful if you could restrict yourself to two questions each. Thank you. The first question is from Akhil at JP Morgan, please.
Yeah, hi. Good afternoon. Thanks for taking the questions. I've got two, please. Firstly, if I could just ask about the German competitive environment. As I'm sure you've seen, we've been surprised to see Vodafone raise their broadband prices about a month or so ago. I guess I'd love to understand how you interpret that and what your own thoughts are on pricing. The second question is just a simpler financial one on the guidance. Obviously it's good to see good numbers again and another nudge up in the guidance. I was intrigued that the free cash flow guide hasn't gone up, particularly when you're running ahead of your U.S. guidance. If you could just help us understand what the moving parts are, and is that just prudence or are there any other factors for Q4? Thanks.
The German fixed line market has historically been always, you know, promotional. Although this has not much impacted our performance in a noticeable way. Vodafone has launched new prices as of 15th of November and raised their cable prices on average by EUR 5 per month for the lower tariffs and EUR 10 for the 1 GB cable DSL prices. There is a promotion behind that as well for a period of six months. The new grid assumes higher upload speeds and includes an all net flat for the cable tariffs. On O2, we have seen they've reshuffled their pricing at the beginning of October with an increased focus as well on high speeds and a reduced convergence discount.
The promotion on cable was terminated. Our own performance in this market has been steady, considering, let's say, the technical hindrance from the telecom law, which we have, I think, very well digested. And what you have seen in this current quarter as well. Now, this is the market environment. We see that, you know, our competition is fighting with their cost structure. I know that they don't have this favorable situation as we have that more than 90% of our energy prices are hedged at a very affordable level. We have our inflation very much under control.
For us, it's, you know, important to see where we are. Now, we have the instrument of price increases as well. We can consider that. By the way, I will not announce a price increase in an investor call. We are observing the market and the situation. We are not totally autonomous when it comes to energy prices and other things. There is an openness from us as well to raise prices. You know, what we do not wanna have is, you know, raising our prices, increase our revenues, but at the same time, spending all the money then into the retention.
That is something which is where we have to be, you know, it should not be a zero-sum game in this space here. That said, we know the rules. We see the market going into less price competition here in Germany on the fixed line side. We are carefully monitoring what's going on. We are facing the inflation and the challenge from energy prices as well. We are open as well to price increases in this market. But for us, customers and customer satisfaction and the retention of our base is the most important criteria.
We will value the different positions. Then you will see how we are addressing the increased cost situation of our environment. Akhil, on the free cash flow number, I would call it A, one is phasing, B, there's also prudence in there. You've seen that we have faced some significant headwinds, especially due to the increased energy costs in the European segment. From this perspective, that led us to an assessment that we basically don't change the free cash flow guidance. I think that would be my two explanations, phasing and prudence.
Okay. The next question, please from Josh at BNP Exane.
Hi, guys. I'm gonna have both my questions on fiber, please. The first would be just to hear about your thoughts on Vodafone's announcement of the potential upgrade of 7 million homes to fiber. Any opportunities you see there to partner with them, and your thoughts would be helpful, as well as any commentary you can give on the broader impact of fiber optic nets in Germany. Then the second question on fiber is just around recent reports of T-Mobile exploring the creation of a fiber optic network in the States, and how this could maybe be up to a $4 billion investment split between different parties. I don't expect to get into specifics here, and it's more a question for T-Mobile management perhaps.
Given your own experience with similar JVs in Germany and the focus during your presentation on the home broadband opportunity there, be very interested to hear your view. Thanks.
Look, the first questions on the fiber and possible partners. First, we are in a Srini calls us our startup, which is a big startup, by the way, you know, on the way how we are rolling out fiber these days. We are doing our own rollout. We have our own joint venture vehicle. We have partners already across the nation where we are building out. We have wholesale. We have thousands of construction companies who are supporting us by doing this. There is a lot of complexity which we are handling these days. Therefore, we are always open to new partners and to use infrastructures of other builders as we have laid out.
Nevertheless, we have to manage the complexity as well. Always assuming that we have passive access, you know, here on our wholesale side. I think the 7 million upgrade and Patrick Drahi and Altice, I think it's a German company who is doing this. This is something where it is for me too early to say whether this is a partner for us. We do not know the terms. We do not know, let's say, under which conditions. In principle, I'm not interested to use cable infrastructure here. Why should we? We are building out these areas anyhow. I will not exclude that.
My appetite at that point in time as to the complexity of our current efforts is limited.
Look, can I add two things, Tim? One is just from our experience. It's one thing to announce, and the other one is to actually industrialize the rollout process and take a look how long it took us in order to get to that 2.2 million run rate, right? Two years ago, we were at 600,000. The second one is our understanding on the joint venture. It will predominantly focus on the existing footprint, and not go on outside the existing footprint. We'll upgrade the environment in order to continue to support the housing associations.
On the U.S. side, look, we are not commenting on any speculations here. Mike commented how T-Mobile U.S. thinks about fiber opportunities in their Q3 call. Beyond that, we have nothing to add at that point in time.
Thanks, guys. We move on to Robert at Deutsche Bank, please.
Yeah. Hi there. Thanks very much. You mentioned the change to T-Systems' strategy and the transfer of MMS. Is there some restructuring intention here, or is that all to address the digitalization opportunity in Germany? Ex-U.S., are you seeing any economic impact on the consumer in Q4? There doesn't seem to be one in the KPIs, which have been strong in Q3 at least. Thank you.
Robert, on T-Systems. After the tower deal, we had a very intense discussion in our company about, you know, what's the best way of addressing the access plus market, as we call it. How can we help our B2B customers to get not only connectivity, but even create an added value out of that. If I'm talking to customers and, you know, I'm hanging out with them quite intensively. You know, I'm sitting in the room and the first question is not, you know, "Can you provide me with 5G connectivity along, let's say, the motorways?" The first question they're asking is, you know, "How can you help me that my, you know, logistics is fully transparent throughout the whole value chain?
How can you help me that my data is stored, once, you know, decentral data being aggregated in an interesting way? How can I improve my productivity by using IoT services?" This is always the discussion, and we discussed it, and therefore, for me, it doesn't start with T-Systems. It starts with my customers asking me to help them on the way to gain productivity out of digitization. We found out that, look, we have a EUR 10 billion business in Deutschland in the B2B area, and you have seen that most of the German businesses trust in us when it comes to the connectivity. We are by far market leader in this field.
We have a lack of capability of system integration, of software capabilities, especially when it comes to standardized softwares or when it comes to platforms, within this entity. We looked into our portfolio and said, "Do we have, you know, something which we can use, internally, you know, to fill this gap?" MMS is clearly one of the answers. 1,700 people, it's a highly skilled team, very sophisticated software people. We said we can leverage this, we can even increase this business, by enabling MMS into the full ecosystem of our business customers. The second thing what we discussed was the discussion about, if we cannot provide, you know, these digital services, how can we build more global platforms?
You have heard me saying and talking about CPaaS, NaaS layers, all these kind of issues, and we can discuss that in more depth here. We have invested EUR 25 million in an Israeli-based connectivity provider, Teridion. Teridion operates a virtual software-defined network which is giving us access to 500 POPs globally. We do not have to build out, you know, POP infrastructure across the globe for our customers. We can provide that with Teridion without high CapEx intensity. This was a handicap in the past, and here we suddenly have a global offering. We have always global services but local approaches from our customer base, and that is one of the gaps which we are filling by strengthening now the German connectivity piece.
The commoditization of connectivity we compensate by upgrading the infrastructure to high speed and high capacities and by digitalization. That's the main reason. Now going to T-Systems. On the T-Systems side, we said, look, T-Systems always is perceived a little bit as an orphan child. But is it really, let's say, right to have an orphan child in our portfolio that way? Looking into a potential sale of the asset or a sunset of some of the activities, we worked all this through and we came to a conclusion to say, look, we have a big demand for digital services with our big corporate customers in Germany and in the European entity. We have a very strong foothold.
We are, with 27,000 people, one of the biggest or the biggest digitization company here in the German entity. We can provide secure cloud access. We can provide very specific application development in the automotive and the health industries. We said, let's focus this business and focus it on two growth areas. One activity is cloud, where we migrate our MIS business, the outsourcing service into cloud. The second is digital services. This is application development for the customers. These are the two businesses. We said, okay, now we have those two businesses and they should become, let's say, more entrepreneurial in the way how they're acting. How can we do that?
Therefore, we agreed to a master plan, which includes, by the way, further transformation of the entities. There will be even, you know, IDC reductions, as laid out in our plan. On top of that, we said we do not have burdens or obstacles or weight on that business from the history. Deutsche Telekom is helping out here by saying, we take over cost for a headcount reduction company which is carrying people from the past. We said we are caring about pensions of activities which are not existing anymore.
By doing this, we clean up the portfolio and give this company with a very focused approach on two business units, a more entrepreneurial and by the way, a legacy cleaned up capability for growth in the future. This is how we think, you know, we will see a more independent T-Systems in our portfolio, addressing digitization made in Germany. That's the idea. Why should we give up that market while there is so much demand for digital services here in Germany and the European activities? It's an element of everything. That is what I want to say. It's an element of focus. It's an element of strengthening an area which was today mainly focused on connectivity.
It's an element of cleaning up the history of that company. It's an element of becoming more entrepreneurial and independent in the way how this operation is acting. It's an element of transformation and cost reduction as well.
Robert, on your customer sentiment question in Q4, I would say, no, we don't see any material changes. We have a robust net inflow. You have seen it in the Q3 numbers, and we don't see any kind of changes as we have entered Q4 already. We don't see any kind of trend that customers are spinning down with their propositions, nor do we see right now a significant change in the bad debt behavior. We have some early warning indicators on bad debt that basically predict whether we are facing a problem here. Gladly, we don't see this yet. On top, we expect that governments, not in every country, but in many countries, will continue to help both businesses and consumers to going through this crisis.
Great. Next we move on to Stephen Malcolm at Redburn, please. Steve, can we have your questions?
Yeah. Good afternoon. Thanks for taking the question. Two if I may. One is just on cash lease costs. I mean, it looks like free cash flow has had quite a big tailwind this year from relatively light spending on cash leases. I think your expense is about EUR 4.7. The cash outlay is only about EUR 2.9. It's about EUR 1.7 billion down on last year. Can you just help us understand the sort of the moving parts on those cash lease costs as we go into 2023? Clearly, you're gonna have the GD Towers deal, so maybe excluding that. But I know you took a big prepayment in the U.S. last year, but just trying to get a sense of what the real underlying cash lease costs in the business are. Thanks.
Just coming back to German fiber, I mean, it looks like you're gonna have to do 900,000 homes passed in the fourth quarter. Is that right? And you obviously mentioned the impact of rising costs. Are you still confident that you can sort of fulfill your 10 million premise ambition within the CapEx envelope of, you know, adding sort of half a billion EUR? And if you are, you know, are you having to make savings elsewhere to accommodate that? Thanks.
Look, let me start with the second part of the question. First, you know, a lot of, let's say, things are under construction these days, so they're not counted yet. Yes, the number is almost correct, you know, with regard to what has to be delivered in the fourth quarter. Yes, the confirmation of our teams are prior to that call and in the business reviews is clearly that they're gonna deliver on the 2 million number for this year. So, that's what we see. We do not see a problem with regard to the 10 million commitment. The opposite case, I believe with the financial envelope, we will do a little bit more because the productivity of our build-out is now improving.
We learn much faster, you know, than we anticipated. I'm more optimistic towards this 10 than backing away from this commitment. Clear, yes, EUR 10 million is a must and maybe a bit more.
The cash lease cost, if I'm not mistaken, we're calculating roughly EUR 1 billion to EUR 1 billion in a quarter, each quarter, which we're gonna expect. You mentioned the prepayment of ATC obviously helped us this year because it was rolling over from 2021 into 2022. I think that would be my estimate on the cash lease cost.
Okay, we can move to the next question, please.
Hello?
Operator, can we have the next question, please?
Okay. We move to [audio distortion]
Okay. I think the next question is from George at Citigroup.
Yes. Hi, good afternoon, and thank you for taking my questions. The first one is just to understand EPS a bit better, given that going forward, it may be a major driver of your dividend policy. Christian, basically, there's two things I wanted to understand a bit better. There's been a significant increase in the target for this year, to 1.5. If I look on page 36, and I appreciate those disclosures are from the annual report and are not updated, you are expecting significant increase in EPS, in 2023. I just wanted to confirm that is still the case.
The upgrade this year is more organic rather than front-loading of some of the earnings from next year, just to get a better idea of how to model that because your EPS is quite difficult to really model. The second question is just a follow-up on Steve's earlier question on fiber and the deployment and procurement costs. I appreciate you are perhaps running a bit ahead initially, and you have ways to mitigate some of the inflation. It would be great for us to have an understanding how it could affect the whole market, if you can give us any indications of what kind of inflation are you seeing today versus a couple of years ago. How long does it take for this cost inflation to actually impact the operators given the procurement cycles? Thank you.
Okay, George, let me start with the EPS question. Look, what we're gonna see is we have some one-off effects this year on the EPS on the reported figure. Let me call out those, which we're definitely gonna see. It's the held-for-sale effect on towers. It's obviously, the EPS impact of the Dutch business in the first quarter. We're seeing some value increases in our options, which we have from SoftBank, but also on the forward. These are all, I'd say, EPS components which were taken out of the reported number because they have nothing to do with the operations. This is why we're coming to a prediction which is greater than 1.50 for the recurring adjusted EPS.
Yes, I can confirm, we expect that EPS is continue to grow in the next year, at least on the recurring basis. Obviously, the non-recurring effects are hard to forecast on the option side. Obviously the held for sale effect and the Dutch effect is gone. On the modeling, I think sorry to say, but I think we said it last year, there is no model which basically gives you an indication on any kind of dividend payments. The way how we get there is that we're applying our policy, which is 40%-60%, you know, with that floor of €0.60.
We have a, I would say, a business discussion, what we feel is appropriate, and that led us to that 10% increase this year. But that is no read-across for the payout in next year's dividend, because I think we're taking the business performance, we're making an assessment of what's happening in the future, and based on that one, we are calculating the dividend proposal. This year was 70%, or it is 70%.
With regard to fiber, look, we are definitely seeing cost inflation in fiber construction. The good thing is that we have long-lasting contracts with almost, you know, in every detail defined price points. This is the base effect. Nevertheless, some of the construction companies are suffering increased supply costs from their angle, and therefore, they're coming to us and approaching us, and we have to trying to find solutions with this. Independent from the discussions, we remain confident, you know, that we can achieve our stated capital markets targets of getting costs below EUR 1,000 per home passed, the 25% in average cost by 2024. That is, let's say, our assumption, and we are about halfway there already.
What are the reasons for that? Apart from the secured prices, where we have worked to reduce the cost of materials together with the suppliers, and even more standardized the products. We see a lot of good willingness from municipalities to allow us shallow digging. That means that we have not, you know, to dig 60 centimeters or more, that we are now on 30 centimeters. We are more confident, you know, as well that our learning curve is helping us to deliver with a better time to market. Therefore, again, you know, we are very optimistic with regard to passing the 10 million households by 2024, and we are confident that we are able to manage the cost challenge around us.
If there's something new, and we can go into every detail of the indirect cost elements here, but I think that's not the purpose of that call. If this would not be possible anymore, we will let you know.
Generally, when you hear the German competitors discussing the situation, they talk about also increases in costs. They may not have these large-scale, long-term contracts that we have, and they have generally talked about the need for price increases. We've heard that from [V8] and from BREKO, and others.
Look, there's another element, Hannes. You know, we have a running organization here in Germany with a big, very regional footprint. A lot of, let's say, the cost we have already on board is our people, and they were there already in the past. If you would ask me with regard to the future of this business, I can tell you I believe that, independent from fiber, the municipalities they will have more strategic discussions about rolling out themselves. Because they are heavily hit by the energy side. Therefore, I would expect that they do not have sufficient funding for this long lasting fiber investments. I see that as an opportunity for us rather than an obstacle here.
We have seen some announcement that they are slowing down their investments. I believe that is just the beginning.
Operator?
Now we will go to the question of David Wright from Bank of America, please.
Yeah. Thank you, guys. Maybe Tim, just a little more sort of conceptually, around the U.S. market right now. It does feel like there are one or two tensions rising. Obviously, T-Mobile has been incredibly successful with its challenger status on the mobile side. We do have reports, obviously, in fiber that I know you can't comment upon. But it does feel like, you know, the cable guys have been under a lot of pressure. They obviously could look to be more aggressive on the mobile side. It does feel like, you know, this is a playbook that most European investors or management have seen before, and doesn't tend to end so well.
Just maybe your perspectives on the U.S. market right now, and how you sort of take the temperature, so to speak, of competitive intensity. Thank you.
Look, David, Look, I always want to say something new here. I'm sorry, just to disappoint you here. Look, I hear that now for how many quarters, you know, that there is more tension, more aggressive on mobile side, that the market is changing and whatsoever. Look, you know, this is the U.S. market. It appears that Cable is getting most of its customers from Verizon and from prepaid, on the mobile side. Our customers, you know, are very interested getting, a fully featured postpaid plan, a good, value for money, a great brand, and we have this 5G proposition now, which differentiates us to a certain extent.
Therefore, we do not see any impact to date from their bundled plans. Yeah. Look, we're observing it, but that's where we are. Ultimately, cable has variable costs in a world with high mobile usage growth. You know, their business model is not unlimited. Therefore, by the way, I would make our strategy ridiculous if I would now speak for the cable cos because we always believe in a certain owner's economics, which you need to play in this mobile and fixed line world. Therefore, yes, this is a market play. Yes, there is something happening. Yes, it is always in regional play. But you know how we are positioned.
I do not see that there's more worries than there were over the last quarters.
Great. Next, we move on to Jakob Bluestone at Credit Suisse, please. Can't hear you. Okay. Maybe we take Andrew Lee at Goldman Sachs then, who is next in the list.
Thanks, everyone. I had two questions. Firstly, we have in the last couple of months had a first, which was an incumbent selling a minority stake in an up-and-running fiber business. It's Telenor selling their 30% stake, and that's enabled a bit of de-gearing, but also crystallization of value for what are undervalued assets in some instances across the space. We'll be really interested just to hear your thinking on that, and whether that would be or ever be an option that you guys would think about for your fixed line fiber assets or broader assets. Second question was just on the debt position.
You have been talking in the past few months about potentially changing your disclosure on debt to split out European and U.S. net debt to EBITDA, maybe to buy you some extra flexibility in terms of how you think about paying down debt. It would be great to hear the kind of feedback from conversations you've been having with rating agencies on that and also, you know, other stakeholders, namely mainly your shareholders. If any of those conversations change the timeline over which you think about actually giving us a shareholder returns update with respect to the T-Mobile buyback participation. Thank you.
Okay.
Let me start with the bad debt question, Andrew. First of all, I'm not sure whether we actually wanna be too explicit about the indebtedness of the ex-U.S. business versus the U.S. business. Obviously, the key drivers for the increase in the indebtedness is driven by the U.S. It's very much driven by the U.S. Historically, being the network integration and the big CapEx and restructuring expenses, but also going forward, the share buyback. Look, all our metrics remain the same. I wanna be back in my corridor end of 2024. I know that not everyone likes that. Some of you feel that we are too conservative with our net debt ratio. This is why we also have introduced the ex leases number.
I think we're gonna see a significant cash inflow with the sale of the tower business, which is expected to be roughly EUR 11 billion by the beginning of this year. But I'm not sure if this was the question whether we wanna become very explicit, but it has no impact on the timing. Look, we always said on the share buyback, which is currently running, we don't wanna intend to sell into the share buyback because we haven't secured our 50.1 or our 51% shareholding in the U.S., which secures consolidation. Therefore, I think it's a prudent behavior to not selling into the share buyback, and I don't have to.
Andrew, with regard to your fiber question, it's not our interest in monetization, monetizing fiber. The opposite is the case.
Our approach is to keep the value add in-house of the network, and our ambition is to have owners' economics in this business. That is why we are building up in Germany, in Europe, on our own. There are always, you know, elements of markets which we cannot cover, or there are always elements of the build-out which is getting beyond that, where we are open to partnerships. GlasfaserPlus is the exception here. That is where we have a minority partner, sorry, a joint venture partner in this vehicle. This is the extreme. We might build out with other partners in areas where we haven't planned to build out ourselves.
You know, monetizing our fiber is not on our agenda today.
Okay, thank you. Maybe take another shot at Jakob at Credit Suisse. Can you maybe try again?
Yes. Can you hear me this time?
Yeah.
Excellent. I had two questions, please. Firstly, Christian, you mentioned that the deficit had come down by EUR 2 billion. Can you just remind us, will that have any impact on your pension costs as well? I think looking at your annual report, you're meant to pay about EUR 600 million in pension costs next year. Just secondly, you flagged 900,000 retail fiber migrations in Germany this quarter, so quite a big step up. Can you maybe just comment on the monetization of those migrations? Is this more for same or are you gonna generate incremental revenue from accelerated migrations? Thank you.
Let me start with the second question, because that's gonna be a quick one. It's actually more for the same price. We migrated ex-DSL customers on VDSL in order to increase customer experience, and also to give them the opportunity to further upgrade in the VDSL network. You have seen that we're already close to 40% penetration in the greater than or equal to 100 Mbps thing. I think it's prudent because it pays into customer loyalty, but we are not monetizing this. The 300,000, which are yet to come in Q4, will follow the same track. On the pension cost, look, to be honest, the pension cost has come down because of the interest rate.
The interest rate where we basically calculating the pension obligation has now increased to 4%, and that is the key driver. The payout pretty much remains the same. It's just what you put on the balance sheet. On the debt, on the EUR 2 billion question, look, again, the reduction of the debt is there. It's EUR 2 billion. Next year, we don't expect that the U.S. dollar will further appreciate the same way as it has done this year at $0.16 over the course of nine months. As I wanna enter my corridor end of 2024, obviously the debt, from a leverage ratio, has to come down. Bear in mind, the debt leverage ratio is coming down because of increasing EBITDA.
It's not because of significant reduction of the absolute debt.
Right. Just maybe also going back once more to the fiber question. Just to be clear that once we have implemented this, making customers to turning customers into fiber measure, we don't have many customers left on the ADSL platform. Therefore, this metric will lose significance as a forward indicator going forward. Now we move on to Polo at UBS, please.
Yeah, hi. Thanks for taking the questions. I have two. The first question is just about your tower divestment. So you mentioned the tower deal is due to complete at the start of 2023, but can you give your latest thoughts on what you'll do with the EUR 10.7 billion of proceeds? Would you consider using the tower proceeds to increase your stake in T-Mobile U.S.? Because this would actually allow you to participate in the T-Mobile buyback sooner rather than later and start upstreaming the cash from T-Mobile U.S.. My second question is just about German spectrum. What is your view on the proposals from the BNetzA to extend the 800 megahertz spectrum in return for putting the 900 megahertz spectrum up for auction?
Okay, Polo. First of all, let me tell you what we're gonna do with the EUR 10.7 billion. I'm gonna send my treasurer on a sabbatical because that will obviously be super helpful to lower the refinancing demand here in the ex-U.S. business, and that is how we predominantly wanna use this. Obviously, the second one is we wanna use it to improve our leverage ratio. Therefore, there is no clear indication when we're gonna sell into the share buyback. You know the announcement. Up until Q3 next year, we don't intend to sell in through the share buyback in order to make sure that we have our 51% or 50.1% shareholding in the U.S.
We see whenever we launch another share buyback program how we basically behave then. Right now, up until end of Q3 next year, we don't intend to sell into the share buyback.
Okay. With that, we move on to James at New Street, please.
Yes, good afternoon. Thanks very much indeed. Two questions, please. The first one was just to come back to the topic of FTTH in Germany. Rather than the deployment, I'd be interested in what you can say about the take-up of the service. What kind of demand are you actually seeing from customers for this product, especially in some of the areas where the fiber's been in place for a little bit longer? Secondly, would love to come back to the point around the dividend. Christian, I hear what you were saying around the EPS this year being affected by some of these one-time items. I think even adjusting for that, I'm working out that your EPS this year is up around 20% year-on-year.
Given that underlying increase, I was wondering just why as a board, you're only willing to approve a 10% increase. What should we kind of read into that? What was holding you back, let's say, from doing a 20% increase aligned with the underlying EPS? Thank you.
James, let me start with the dividend question. I think it's a fair question. We're absolutely consistent with what we said last year. We have two vectors on which we can work on. One is obviously the dividend payout is oriented along the EPS growth, and you're right, there's a significant increase to be expected this year. The other one is also the payout ratio. I think, given the environment we're currently working in, we have a lot of adverse effects hitting us. I think we're performing well, and we expect to perform well. We have taken a more prudent approach. What you've seen last year, we basically had kind of a payout ratio of 52% according to the EPS.
This year, we will be above 40%, definitely, but we will be below 50% because we felt that is kind of a prudent.
Allocation of EPS also to the dividend. Always bear in mind, it's two dimensions where we can work on. One is the payout ratio, and the other one is EPS growth.
With regard to your first question, I like to bring that in a bigger context of broadband demand. One or two years ago, when we talked about, let's say, broadband demand here, and we said, "Do we need really 100 Mb or 250 Mb per second?" Today, most of our customers are on this high broadband speeds already. 80% of the retail broadband base is in fiber infrastructure today, so 11.7 million customers. You have seen the upgrade of speed in the customer base.
Now, with regard to FTTH, it was your question in specific, you know, the take-up rates today are comparably low, you know, in the beyond 10%, 11, 12% utilization rate. That is not, we know, what we are, you know, aiming for, but this is an infrastructure game. It's the same true for 5G and other service or 4G and 3G, you know, in history. You know, it is coming over time. The moment where the demand is there, you know, you cannot build it for everybody. Therefore, you have to do it in front of them. Most of the customers today are going into the 100 Mb tariff rather than going into the high gigabit tariffs.
We expect that this is gonna change throughout the years, and then we are ready to serve our customers. The interesting way is how we did it in the past was exactly the right way. Because if you see our churn rate, in this environment, you know, it has gone down ever since. Therefore, I think, the way of upgrading customers constantly into higher speeds is the right approach.
Also, maybe let me add, you know, the speed of our deployment, of course, means that we will have lead lags between the build-out and the customer penetration. We currently are accelerating our build. We had last year just over 1 million new homes passed. This year is over 2 million. So that means that since connecting customers takes about 6-12 months, you will see a slower penetration growth than you see a coverage growth. The other point to make is that we're also building out in cities. So when you compare it to a typical overbuilder who goes, does pre-marketing in rural areas where there are long ADSL loops, we are also operating in places where we're not doing pre-marketing, where we are just building. So that's a completely different business case.
With that, we move on to.
We had.
Yeah, sorry.
We had, you know, 90,000 fiber net adds in that quarter, of which something in the vicinity of 50,000 were on FTTH. Now, if I think about what's behind James' question, you can argue, you know, you had a step up from 250,000 to 900,000 in that quarter on fiber net adds. Why don't you have more FTTH customers? The question is valid. Look, I expect now that with this 900,000, we are now able to increase our FTTH retail net adds throughout the upcoming quarter. That is what I'm expecting. That's what we're steering for. Now filling the pipes, that's the title of our program.
I'm ready to report about the numbers.
I think relative to the debates that we used to have three, four, five years ago, I think we can say the strategy is working, and we are proceeding at the right pace. With that, maybe we can have the questions from Ottavio at SocGen, please.
Good afternoon. A couple of questions on my side. The first is on domestic mobile. You had a pretty good quarter in contract mobile net adds. Combined with the fact that churn has increased, it looks that the gross net add's been even better. During the intro, you mentioned B2B and B2C in a sort of a strong momentum in the premium brand. I just wondered if you could give a bit more granularity of what really has driven this net adds and how sustainable it will be if you look in the future quarters. The second one is on the EPS, and the free cash flow, actually. You had one of the main drivers on the free cash was the CapEx was going up.
One of the drivers on the EPS has been the D&A going down. Now, of course, this divergence cannot really remain. You don't guide on D&A, and it's pretty difficult for our side to project because, of course, there is a bit of discretion how you depreciate and amortize. The question to Christian is, could you give a bit more granularity how we can expect on D&A future years considering our CapEx has been going up this year. Is D&A also going back into upward trajectory? Thank you.
Good question, Ottavio. Let me say, by the way, first, we are very happy about the development which we have in mobile, because we have these new tariffs. You know, we have exported our idea from the U.S. here to the German environment, and this new Magenta tariff portfolio is well taken from the customers. Your question is interesting because it's not the only effect which we have seen in that quarter. From the strong growth which we are seeing, something like 130,000, you know, were coming from our B2C own brand. This is mainly the new piece of it, 70,000 out of the Congstar situation.
Interestingly, 160,000 coming from B2B, so very strong quarter on B2B, some very new customers like Mercedes or Deutsche Bahn. On top of that, we had some effects from the telecommunications law, which we had to digest as well in this quarter. You see that our gross adds, you know, were very strong in the environment, 50/50 between B2C and B2B, which I think is good. There is a strong demand for the new tariffs. You know, a lot of customers are sitting with their second or with their third card in duration contracts, and therefore they cannot migrate immediately. The pipeline we see is interesting as well for the next quarters.
Ottavio, potentially that's a disappointment to you, but we don't declare a lot of details on the D&A. Let me tell you, if you just make a comparison on the EPS in terms of impairment in D&A, we see some significant swings, especially coming from the U.S. I think they have been explicit about this. We had an impairment of the wireline business in the U.S. as we were selling this business to Cogent. We have some impairments on lease contracts because we are basically retiring mobile sites. From this perspective, I think this impact is being very much driven by the integration of T-Mobile U.S..
I think we have never done a detailed explanation how we depreciate in the given business and what kind of categories.
What we can say is that the EUR 6 billion or so that we had in the third quarter is a pretty good run rate going forward, we think. Yeah. Next, is Emmet at Morgan Stanley, please.
Yes. Good afternoon, everybody. Thank you, Hannes, for taking my questions. I have two questions from my side. The first question is on the wholesale access revenues, which you talked a little bit about in the call. Just looking at slide 15 and the revenue trajectory on these wholesale revenues in Germany. Clearly, 2021 was a tougher year for revenue dynamics in this business, and obviously the revenue here has taken a bit of a turn downwards again in Q3. Can you talk a little bit about the outlook for this business as we go into 2023 and maybe tie this into some of the guidance that you gave at the CMD last year? My second question is on your TV business, so an adjacent business in Germany.
Are you seeing any kind of tailwinds in this business or any benefits from some of the struggles that Vodafone is having in their German cable business? I see revenue growth here is still trending at around 7%-8%, but is there any kind of upside here to customer net adds or market share wins on the revenue side? Thank you.
[Masood, you wanna start with this?
I can. No, no. I start with TV, Emmet. Look, TV net adds increasing in Q3. Strong promotions are ongoing with our partners here, especially the 12-month for free promotion with Disney+, as one example. On top of that, we have advertising going on for all the games of the world championship. You would enjoy that, Emmet, you know, being on MagentaTV because you can watch all games from the championship in HD quality on MagentaTV. On top of that, look, we are number one in the tests, and we are the only player in the German TV market with a growing TV customer base. This is encouraging.
I cannot compare, you know, talk about the what I think it was something 80,000 TV losses at Vodafone. That is something you have to ask them. Nevertheless, we are, you know, happy with the new promotion, the way how we promote live content. I'm not talking football only, I'm talking as well about music and other things on this platform, which is attracted by this. We have won the third Fußball-Bundesliga. You know that the first league is a money game. People are really looking for the real football in Germany, which is second and third football league. Therefore, you know, the third football league is important for us.
We're happy to have this content now exclusively to make regional traction on our TV platform. Yes, we are perceived as a very solid player in the TV market. We are happy with the development which we saw recently.
Oops. Emmet, on wholesale. First of all, our guidance remain valid. We got it for stable wholesale revenues in between 2020 to 2024. Obviously, we gave you a little bit of an explanation that we had a drag due to the ULL price cut which we had to face, which is obviously a regulated pricing. Going forward, we also expect that those revenues will increase because you know that we have struck these new contracts with the wholesale providers.
Due to the contract structure, we expect that those revenues will go up again. We'll remain with our stable revenue guidance for wholesale.
Thanks, Christian and Tim. We move on to Usman from Berenberg, please.
Hi, guys. Thank you. Just two questions on German mobile, please. Just coming back to the B2C performance, as a result of the family offer acceptance. Are the customers that you're gaining, are they, I mean, like, completely new customers, for example, that didn't have a previous subscription? I'm thinking about children, et cetera. Or, are these actually coming from, you know, customers that had tariffs already with, I don't know, or the, or some of the value players in the market? So, you know, are the new tariffs actually helping to, you know, increase penetration growth in the German market, or is this share gain that you're seeing?
The second question was just going to the spectrum, ongoing kind of spectrum consultations that are going on in Germany, and the proposal by the Bundesnetzagentur, you know, on swapping the 800 for the 900 for potential auction next year. Any thoughts on whether this is a reasonable proposal or not would be, you know, interesting. Thank you.
Usman, thank you. Look, first, as said, we are happy with what we see. Strong demand for additional household cards and little downselling and little dilution on our base. B2C contract customer growth on our main brand is what we are aiming for. That is, by the way, supported by these developments to our 2% mobile service revenue growth ambition which we have. The focus of this activity around these new cards is to upsell multi-cards, which are typically provided not from the MNOs. They're typically provided from prepaid or from MVNOs. Therefore, the MNOs is not, let's say, our prime target here.
That is why we are not surprised that there was not much of a reaction from our competitors on this offer yet, because we are looking for the 50% of the markets which are in the hands of MVNOs here in Germany. That is exactly what we are addressing these days. Right development. With regard to the consultation with the Bundesnetzagentur, I love your chili in the soup now at the end of the investors call here. Now I can go up like a rocket. Look, I think it is ridiculous what's going on, you know.
The telco industry in the basket, the inflation basket, is the only industry which is not contributing to the inflation so far. Now, that's good. That said, if these guys are now pushing, you know, for a very expensive auction, you know, they do the opposite. They give the totally wrong impulse and regulatory indication to our industries.
I can tell you, I find this totally questionable that, you know, with all the build outs which our industry is carrying, with all, let's say, the cost increases which we have seen, from an energy price perspective, with the challenges which we have for, you know, with our construction companies, that on top of that, now the German regulator thinks it's a great idea, to have an auction in 2024 on this spectrum. We are totally against it. Look, if they wanna play it, we play it. We have the biggest situation.
We don't believe it's helping the smaller players, but nevertheless, you know, I'm lobbying heavily at all, let's say, political deciders to avoid an auction and to extend the spectrum use beyond 2024. That is definitely what we think is the better way for our industry, that we support non-inflationary tenets and at the same time building out this country. We are leader in 5G network deployment in Europe. I think it should be a political purpose to secure this leading position which we have initially reached. That's where we are.
I don't think that this consultation is ready yet. You have heard my position on that one. Let's see how this is turning out. Another regulatory fight.
Okay, that's a spicy soup at the end. To cheer ourselves up, maybe you go back to the so what page of the presentation and look at the good things that have come through this quarter. I think thank you everybody for participating in the call. Thank you, Tim and Christian. Before we end the webcast, I would like to bring your attention to a new feature of our homepage. We have upgraded our YouTube channel and have introduced navigation that allows you to simply go to whatever you're looking for in the recordings. You can check what has been said, not just for this call, but also for previous calls in a very convenient way.
With that, we come to the end of today's call. Should you have further questions, please contact the IR team, and we look forward to seeing you all soon, many of you next week. Thanks again. Have a great rest of the week.
Thanks, and see you next week. Bye.
Bye-bye.
We'd like to thank you for participating at this conference. We are looking forward to hear from you again. Goodbye.