Good afternoon, and welcome to Deutsche Telekom's conference call. At our customer's request, this conference will be recorded and uploaded to the internet. May I now hand over to Mr. Hannes Wittig.
Yes, good afternoon, everyone, and welcome to our second quarter 2019 conference call. With me today are our CEO, Tim Höttges, and our CFO, Christian Illek. As always, Tim will first go through his highlights for the year to date, and then Christian will talk about the quarter in more detail, and then we have time for a Q&A. Before I hand over to Tim, please pay attention to our usual disclaimer, which you'll find in the presentation. Now it's my pleasure to hand over to Tim.
Welcome, everybody, here also from my side. Thank you, Hannes, for introducing. Let's wrap up where we stand. Look, from a summary perspective, I can tell you first half year, all hands on deck at Deutsche Telekom. Just as a preliminary, I can't remember a quarter during my 20 years at Deutsche Telekom, which has shown numbers like this. We had 7% growth on revenues, 8% growth on EBITDA, 24% growth on the earnings. We had a lot of willingness to transform within the company. We have announced changes in our shop footprint. We have announced changes within T-Systems portfolio. Even on the inorganic side, we made a lot of progress with integration of Tele2 and UPC. On top of that, we had this good step forward in our approval process within the U.S.
I think a lot of things are heading towards the right direction, and I'm very happy about where we stand after half-year. All our operating segments are growing on both sides of the Atlantic. Our EBITDA after leases is up almost 8% year-to-date. Organic sales are up by 3.2%. Organic EBITDA after leases grew by 3.7%, and our ex-U.S. EBITDA grew by 1.8% in the first half. Our free cash flow is up by 9%, like-for-like, and adjusted earnings grew by 3.9%. The things are moving. CapEx in the U.S. was front-loaded as per guidance, while ex-U.S. CapEx was partly stable as we promised. We are well on track for our 2019 guidance and every key metric and for every segment. We are well on track for the long-term growth guidance we gave at last year's Capital Markets Day.
Moving on to slide five, the foundation for our strong growth remains our good investments in networks. In Germany, we already passed over 22 million homes with super vectoring, speeds up to 250 megabits per second, and we are on track for our 28 million customers or households being approached by year-end. This year, as outlined at the Capital Markets Day, we are completing our German FTTC footprint, and we are beginning to ramp up our FTTH deployments. Initial focus here is on the subsidized build-out in white spots in the business parks and on collaborations. We made further progress with our IP migration, reaching 93% of German lines, so up from 90% last quarter. We are well on track to finish the German B2C migration this year and the B2B migration next year. German LTE coverage close to 98%, full year target.
Our TowerCo added another 1,400 new sites in the last 12 months. This is on track with our ambitious plans to increase our site footprint by one-third by 2021. This quarter was, of course, big for spectrum auctions, not just in Germany, where we could all watch the daily drama on the Bundesnetzagentur website. In Germany, we acquired 130 MHz of additional spectrum at a cost of EUR 2.2 billion. 110 of the spectrum are additional to our current footprint. 80% of our base stations are already ready for 5G. We have all the ingredients for leading the market in 5G. This is clearly our goal. In the U.S., we successfully participated in the two millimeter wave spectrum auction. We were able to boost our nationwide average holdings to almost 500 MHz at a cost of only $840 million.
While we are busy building our low-band 5G network, at the end of June, we also launched our first 5G offerings based on millimeter wave in six American cities. Moving on to slide seven, our momentum with customers remains very strong. More than 13 million German homes already subscribed to our fiber products, 2.4 million more than a year ago. In Germany and in our European markets, we added 2 million converged customers in the last 12 months. We added 3.1 million mobile converged customers, of which 1.7 million organically. T-Mobile continues to grow strongly, you know the numbers, and raised its guidance for 2019 branded postpaid net adds again towards a new range of 3.5 million-4 million. This compares to an initial guidance of 2.6 million-3.6 million adds.
T-Mobile also raised its 2019 EBITDA guidance to $12.9 billion-$13.3 billion, up from an initial $12.7 billion-$13.2 billion. T-Mobile also said they expect CapEx at the top end of their previous range. At the same time, we are happy to confirm our EUR 13.4 billion 2019 EBITDA after lease target for our ex-US operations here, so the European footprint. However, we only confirm but don't raise our group guidance at this stage. The reason for this is a higher than expected US GAAP IFRS translation, mainly related to the so-called power purchase agreements. These are essentially forward swaps related to our complete shift towards renewable energy. Because of these swaps, we now expect the US GAAP IFRS translation at around EUR 0.7 billion this year instead of an initial EUR 0.6 billion. This pretty much offsets the T-Mobile's EBITDA guidance hike at the group level.
In the appendix to this presentation, you can also find the guidance for each segment, which we again confirmed this quarter. While we are delivering on the financials, we remain busy working on the portfolio. This remains a key focus. Let me start with the big news we had two weeks ago when T-Mobile entered a consent decree with the U.S. Department of Justice. We also announced several agreements with Dish. These agreements mark further important steps towards final approval of this transaction. We continue to see this as a major win-win for U.S. consumers and our investors. You can find the details in the various filings. We reiterate our 43 billion synergy target, but we are particularly pleased that the agreements protect our plans to supercharge the Un-carrier as we intended it.
We will spend an unprecedented $15 billion to aggressively leverage a unique combination of frequencies, a market leading 300 MHz in total. We will create a totally transformative and superior 5G network, so we are ready to successfully compete, and U.S. customers stand to benefit whichever way you look at it. We have now gained many important approvals. We remain confident and optimistic about the remaining regulatory steps in the U.S. Back in Europe, we have fundamentally strengthened our operations in Austria and the Netherlands while we have exited Albania. We have carved out our Dutch towers and are working on our Austrian towers. By the way, our German TowerCo has been legally separated since 2002. I was surprised about the excitement that Vodafone now announced separating their tower business in Europe. Anyway.
As a next step in our T-Systems transformation, we have announced to transfer our telecommunications and classified ICT portfolio unit from T-Systems into the German segment by mid-2020. We might discuss this in more detail later on. This is an important step to focus the business more towards the customers in the respective area of telecommunication. This will create a more efficient and customer-friendly setup. We have decided to carve out the Telekom Security and IoT portfolio units to make them more agile and competitive towards the different customer groups which we are aiming. With this, you see that Deutsche Telekom is working hard on all fronts within the very competitive landscape we are facing. I will hand over to Christian, who will give you more details on the financials of the second quarter.
Thank you, Tim, and welcome from my side. Let me start with the Q2 financials displayed on page number 10. Reported revenues this quarter were up by 7.1%. Organic growth was 2.9%, very similar to the last quarter. Reported EBITDA after leases grew by 7.1%, and that would have been 3.5% organically. How do we grow outside the U.S.? EBITDA growth, DT ex-U.S. was up 2.9% this quarter, and that would have been 1.5% growth on an organic basis, which is a little bit below the guided run rate, but it's very much due to phasing in the GHS, and we're absolutely comfortable to meet our full year guidance.
Free cash flow was up by 5.4% this quarter, a bit below the full year run rate, but you know that our cash flow is quite volatile, and you can see this if you make a comparison on the first half year results, where free cash flow grew at 11.4%. Adjusted net profit grew by 7.4%, or roughly EUR 100 million, and the strong increase in the reported net profit obviously is related to the TalkTalk settlement which we faced in the second quarter of last year. Let me move to the operational performance by segment, and let's start as usual with Germany. Total revenue grew by 1.2%, very much driven by total service revenue growth, but also by increased handset revenue growth. EBITDA after leases grew at 2.4% this quarter, same number as you have seen in Q1 and is very consistent with the full year guidance.
As we're moving to the service revenue, you see that the service revenue overall grew at 0.6% this quarter, and that was very much driven by the performance in mobile service revenues, but also wholesale. Headwinds, obviously, we're facing also due to the IP migration in the fixed retail revenue side. Fixed retail revenues declined by 1.4%, which is a bit worse compared to the last quarter. Wholesale grew at 2.1%, and on the mobile side, we had a service revenue growth of 2.4%, and that includes a negative impact of 0.6% coming from regulation. Don't be too optimistic for the next quarter. Next quarter, we're facing two negative effects on the mobile service revenue. Obviously, we're going to see the full quarter impact on the international calling regulation, which we haven't seen in the second quarter.
This will coincide with a tougher comp effect next quarter, mainly related to the visitor revenue phasing from last year. That will probably weigh a bit on next quarter's service revenue results. Overall, we're absolutely confident to meet our 2% CAGR guidance, which we have given to you at the Capital Markets Day. If you move into the next page, you see the steady performance on the mobile side. We had another 140,000 net adds, which was fueled both from B2B and B2C. On page number 14, you can see that the mobile data usage continues to grow, and the last quarter it was 3.2 gigabytes, up from 2.8 gigabytes in the previous quarter. Also, we see a steady growth in the convergent offerings now. In the last quarter, 54% of all Magenta branded mobile contracts are part of a convergent relationship.
That's an increase of eight points compared to the 46% from last year. Twenty-three percent of the broadband households are now in a convergent contract. That's another increase of three points compared to the 20% last year. Moving over to the German fixed performance. As you can see, we had quite a bit of a soft increase on the mobile broadband net adds. This is driven by a couple of factors. One is overall, we're seeing a slower market increase overall in the German broadband market, while at the same time, the IP migration impact continues to be fairly stable. If you exclude the IP migration, we would have been well above 30% in net add growth. To be honest, we're not satisfied with that result, and all operational teams are now, we have all hands on deck to basically increase that momentum going forward.
We had the 15th consecutive quarter where we have more than half a million fiber net adds. This is a very strong performance, as you can see. We have seen some softer performance on the wholesale side in the recent quarter, but that remains a steady growth engine to us. Finally, we added 58,000 TV customers consistent with the better growth which we have seen in the recent quarters. Taking a look at the revenue trends on the fixed line side. As I said earlier on, our retail revenues fell by 1.4%, very much driven by a weaker single play and other revenue performance. On the other hand, the broadband revenue growth remains to be fairly stable with 2.3% growth, also in line with what we have seen in the last quarter.
Let's move on to our usual slides from T-Mobile US, who have already presented their great results, including another guidance upgrade two weeks ago. We won 1.8 million new customers. This is now the 25th consecutive quarter with more than one million net adds. Our EBITDA growth under IFRS was 6%, slightly below the 7% reported by T-Mobile under US GAAP. Tim explained it. This is very much driven by a negative impact on IFRS, driven by the power purchase agreements. Taking a look at the performance metrics for T-Mobile, a stunning post paid churn rate with 0.78%. Compare this relative to the recent year in 2018 or even 2017. I think the commercial results, as we have seen that also in the previous quarters, underpinned by a very strong network performance.
The cost of service were slightly higher compared on a year-by-year basis because we received some hurricane-related reimbursements back in the second quarter of last year. Moving on to Europe, page number 19. 300,000 additional mobile contract net adds, 330,000 new converged customers. That brings us to a household penetration in Europe to 45%. This is an increase year-over-year of 11 percentage points. Steady broadband performance with 63,000 net adds and a slight increase on the TV side, but we have some pretty hefty competition in Romania here. This strong commercial performance obviously continues to fuel the financial growth, which you can see on page number 20. Reported revenues were up by 2.8%. EBITDA on a reported basis was up by 5.9%.
If you basically make a comparison on an organic basis, which means take UPC out of the equation, revenues were up by 0.4% and EBITDA was up by 2%, which is slightly better than the last quarter. This is why we remain absolutely on track with our full year guidance and also with our Capital Markets Day targets which we have given to you. Next slide, page 21, is T-Systems. On T-Systems, I think we're making good progress on a very ambitious transformation plan. Let me clearly state, there's still a way to go. Our order book continues to develop positively. You see that we have a 15% increase year-over-year. Revenues are fairly stable. On an EBITDA side, let me draw a comparison on a half year performance.
On a half year comparison basis, EBITDA has increased by 19%, and that also keeps us very confident that we're going to reach our full year guidance of EUR 0.5 billion EBITDA, and also we'll be committed to our Capital Markets Day targets. Next segment, Group Development. Obviously, the results here are impacted by the consolidation of Tele2 Netherlands, and we had an intra-segment transfer of Dutch towers from T-Mobile into GD Towers as of January. The organic sales grew by 2.1%, and EBITDA grew by 6.3%. The underlying Dutch mobile service revenue growth accelerated to 3.3% based on steady commercials. As Tim already said, during the last 12 months, we have added 1,400 physical sites here in Germany. We are well on track with our footprint expansion of 9,000 sites in between 2018 and end of 2021.
On the tower side, the recurring rental revenues grew by 3.4%, while EBITDA after leases grew at 2.9%. Everything's on an organic basis. Let's get to the last two financial charts. One is dealing with free cash flow, net debt, and net income, then we get to the balance sheet ratios. As I said earlier on, the free cash flow grew at 5.4%. This was mainly driven by higher operating cash flow, which was overcompensating the front loading of the CapEx spend in the U.S. From a guidance perspective, we're fully on track with the guidance which we have given. The net debt has increased by EUR 3.8 billion Q-over-Q. This is very much driven by three factors. One is the payout for the group dividend. The second one is additional tower leases, which we contracted in the U.S.
The third one is driven by payouts, especially for the millimeter wave auction in the U.S., that drove net debt to a EUR 3.8 billion higher level compared to Q1. Net income, as I said earlier on, was up roughly EUR 100 million. That was very much driven by a stronger EBITDA performance, despite the fact that we have to face higher depreciations and also higher payouts to minorities. We move into the final chart, which is basically showing the balance sheet ratios, you see that all of our ratios, whether it's been rating or whether it been the leverage, are still green. Everyone has to mention that we are really at the upper end of the corridor when it comes to leverage.
We have given ourselves a target of two and a quarter to three quarters, and now our leverage ratio is at 2.74, but we expect a slight improvement towards the end of the year. If I sum it up, I would say it was another good to very good quarter in Q2. We're delivering against our 2019 guidance. We're in line with what we have said at the Capital Markets Day. With that, Tim and I are ready for questions. Thank you.
Great. Thank you, Christian. Thank you, Tim. Now we can start with the Q&A. If you'd like to ask a question, as always, please press star one on your touchtone phone. I will announce your name. If you need to cancel your question, it's star two. You can also send us question by webcast, and sometimes I get some via email, which is also fine. Let's start with the first question, which is from Polo at UBS.
Yeah. Hi. A few questions. In terms of German mobile, now that the German spectrum auction is over, what are your thoughts about the prospect of network sharing in Germany? What are your latest thoughts about the risk from a fourth mobile network build? My second question is really just following up in terms of the German broadband market and the commentary. You obviously highlighted that there's a slowdown in terms of the broader market. We've also heard it from some of your competitors. What is your perspective on why the market is slowing down for German broadband? Has this continued in terms of July and August? Thanks.
Hey, Polo, this is Tim. Let me start with the network sharing agreements and the discussions which we're having. I think we have said publicly that we are open to collaborate in order to improve the capacity utilization of the existing sites. I think Vodafone also stated their willingness to collaborate. There is an obvious place for sharing, which relates to some of the coverage obligations which we're having, especially from the 5G auction, which has been defined, especially the white spots or the waterways where it make totally sense to collaborate. That said, you should know that with our TowerCo, which we have established 2002, we have already quite a few tower co-locations. The ratio is today on our towers is 2.3 times. Then we have to find out where this kind of collaboration and tower sharing in addition is possible.
We are exploring currently alternative sharing options from a technical and from an economic perspective. It's too early to say where we are heading to. In any case, let's share a little bit the principles how we are approaching these negotiations. We are talking about reciprocity. Our Deutsche Telekom is coming with significantly more investments and amount of towers in the German landscape. Therefore, it's not that, I give you one tower, and you give us the access to the rest of the towers. That doesn't make sense. They should be following the principle of reciprocity. 10 from me, 10 from you, that makes totally sense. We have a benefit out of this. This is the one idea. The second one is we haven't decided on the way how we are sharing. There will be definitely a sharing based on the passive side.
That's an easy one. Whether we go into RAN sharing and other sharing capabilities, this is, from a technical base, it's not so easy, and we have to really understand whether this is feasible. One last sentence. Towards white spots, there is an initiative from the government to build sites in rural areas. I think the idea is here to build a passive infrastructure with connectivity, which we can use then for our antennas. We definitely support this idea because these are areas in the very rural areas in the countryside or even in natural reserve areas, where it is very difficult for us to get any house sites. That the government is then supporting us on this makes totally sense.
This will help to reduce the build-out cost, and it will give then full coverage everywhere, perspectively, and that is something which we are supporting as well. We are in a good dialogue with the Minister of Infrastructure on this subject as well.
What we're seeing right now, and if you compare the net adds of the other competitors in Germany, is that the overall market growth is slowing down. One of the arguments which we are getting is we had, let's say, an artificial migration impact in Germany coming from people from the outside entering Germany, which has slowed down significantly. This is one of the reasons. At the same time as the market slows down, our forced migration rates keep at the same level. The impact of forced migration becomes higher. What we also see is that most of our competitors continue to offer longer promo periods compared to us. Therefore, obviously, we have to think thoroughly through on how we basically change that momentum in order to increase our net add share.
Do we see anything longer term, July, August? I think it's a bit too early to tell. I would say the only thing which we can influence is our play. We have to optimize our go-to market. We cannot do anything on the market development. We'll see that. Expect us that we're working on our net add share, and I think everyone is basically in sync here.
Polo, I think I missed one part of your question, which was with regard to 1&1 and the mobile network build-out of the next operator, which has been seen. Look, the first thing is, we have now an incoming fourth network operator. On the other side, 1&1 Drillisch is not a new player. It's already an established player in the market with over nine million customers. Therefore, he has already, let's say, a base which he can use to utilize a perspective infrastructure he's going to build. As part of the merger remedies, 1&1 has national roaming rights on the Telefónica Deutschland network. He's even enabled during the phase of building his infrastructure, to use existing capabilities of one of the operators. Therefore, we take that very serious. I think there is a decision for a new operator being made.
We will react accordingly here from our perspective without going into the details on this one. We take him quite serious with his ambitions to build out an own infrastructure. Given his 25% build-out requirements by 2025 and the spectrum he has acquired, we expect that at the beginning, he will act regionally limited, so in specific areas. He will combine that then with the national roaming he has on the Telefónica network, to offer countrywide service. I think, all things considered, we will see some impact on the market from this player. It's good to have him because it will even help in the rural areas to have another kind of pillar for building sites and building infrastructure. I hope that the bet the government and the political leaders here made at the end of the day pays off.
Okay, the next question is from Mathieu at Barclays.
Yes. Good afternoon. Thank you. First, coming back to tower and actually network sharing. The EC, I think yesterday, sent a statement of objections to your planned network sharing agreement in the Czech Republic. I was wondering if you think this is a very special situation or special case, or actually you think we should make some read-across for similar deals in other countries and you were just mentioning Germany. I was wondering how you read that statement in the context of Germany. The second question, I am sure you have a little bit of spectrum auction fatigue, but I guess, the outcome of the spectrum auction wasn't exactly what the regulator and the government expected.
I wanted to see if you thought they could be thinking differently, for future renewals, say, maybe 800 megahertz in a few years time, in order to try to avoid the kind of outcome we got. Thank you.
Okay. Let me start with the Czech situation. First of all, let me note that the statement of objection is not a final ruling. Obviously we're strongly opposing the preliminary conclusions which have been drawn by the EC. We strongly believe that the network sharing has vast benefits when it comes to innovation, when it comes to better efficiency by retrieving cost synergies and supports and obviously providing better quality. To your question, whether we're seeing a read-across, no. We don't see a read-across, across different countries. First, we have to see how the final ruling will look like in Czech. Secondly, we're taking things, also, we had that discussion on M&A, for example, in the Netherlands, on a country-by-country basis. The EC has been very clear about this, that they're taking everything on a country-by-country, on a case-by-case basis.
We don't see a read-across on this one.
Look, I would not call it a spectrum fatigue, which we're having here. I think there is a normal course of business here, there are auctions going easier, others are more difficult. I just want to draw your attention to what happened on the millimeter wave auction in the U.S. I think it's a fantastic outcome for the U.S. market and even for deploying high bandwidth for the U.S. citizens. I think the German auction wasn't as easy, and I was clear what it was coming out. I was announcing that even publicly. At the end of the day, the auction was chosen, or the methodology was chosen as we know it. I think the design has contributed to higher costs at the end of the day, because a shortage was created on spectrum, and that was why it took longer.
On top of that, I think reducing the increment, as they did it during the auction, was even another failure of the Bundesnetzagentur in the way how they designed it, which ended then in a very long process of uncertainty. On top of that, I think even taking 100 megahertz of spectrum out, where it's totally unclear how this is getting allocated to the industry and to the players and maybe being fully unused at the end of the day in most parts of the country. I think this is a design failure of this German auction. Without going too much detail, because I think it's not making a big difference for our investors here at that point in time.
We are working on a letter, on a suggestion, a constructive approach towards the Bundesnetzagentur, what in the future should be done differently, in this auction and in the auction designs. I think, we are still contesting the auction in court, in the way how it was designed in parallel, because I think this was, in a lot of areas was unfair how it was designed. Water under the bridge. Management always have to live with their interdependencies. We take it as it is, and we move forward, and we are designing our rollout plan according to this one. There's nothing else to be said, is that we are trying to avoid mistakes, as happened in the upcoming auctions.
Great. Thanks, Tim. Thanks, Christian. Next is Georgios at Citi, please.
Yes. Hi, thank you for taking the questions. I have two. The first one around the U.S. deal. I know you can't comment about the details, but more about your thinking on how to approach the objections that some of the states have expressed. What I wonder is whether you have any plans to engage in a dialogue with them, perhaps in order to find a settlement for, or whether you think, given the support you have from the relevant authorities, it makes more sense to just wait it out and wait for a final court decision. My second question is around the network sharing options that you have.
The two operators that share in Germany, but maybe also in other countries, not just in Germany, have left the door open in their conference calls for some more collaboration in legacy technologies, perhaps even a single 2G network where the other two or three operators can roam. That way you free a lot of spectrum, you get rid of a lot of costs and equipment and everything else. Is that something you are considering also? If that's the case, if you could share with us what's the framework which you think to maximize the synergies from. Thanks.
George, let me start maybe a little bit broader with the view on the U.S. situation and where we are. Look, I think we stepped over a big hurdle recently with the DOJ approval. For us, this is a major milestone which was achieved because we have now, both from the FCC and from the DOJ, we got the federal support. Yes, the process was much longer and more complex than we all thought. Yes, there were remedies being imposed here on us. What I can tell you is the deal mechanics and the deal logic is fully intact. Our deal logic was always to build out a 5G network, which is unique in the U.S. market.
The part of the remedies is that we build 97% upon in the next three years and 99% in six years on 5G services beyond 100 megabit per second. This is part of the package, part of the remedies, part of, let's say, our strategic plan. The EUR 43 billion synergies are confirmed and not tackled, and the profitability and the long-term cash generation is supported or is, let's say, confirmed from us as well. I think the deal logic is intact and having now both federal institutions supporting the deal. What we have had to accept was that there is another operator being created. Dish, as the remedy taker, is taking the Boost, the Virgin Mobile, and the Sprint prepaid business, which is almost nine million customers. He is getting 800 megahertz of our spectrum. He is supported by a seven-year MVNO on this one.
On top of that, if we decommission shops and cells, he even can take this to build his own infrastructure. If we see all of this package together, our logic is intact, but nevertheless, there is a significant opportunity for Dish to build a credible, disruptive fourth wireless carrier in the U.S. with the remedy. I think we found a very balanced approach on all the sides to support the customer interest, to support the competitive interest, and as well to support the network build-out in this environment. I think we are very convinced about this deal logic, when we go now into the court, and when we are trying to get the justification and support for these. Clearly, the states filed their lawsuit before our agreement with the DOJ.
Therefore, we believe that a lot of, let's say, these remedies, which I just described, are addressing their concerns already. Nevertheless, we will be willing to engage with the state AGs, including those who are part of the lawsuit, to find reasonable agreement. Today, we expect that we meet in court, which is now organized or, let's say, for the beginning of December. The 9th of December is the court where the lawsuit is taking place. That is the time or the date where we are working on, George.
Okay. When it comes to the network sharing, especially in Germany, sorry to disappoint you, it's a little bit too early to basically comment on details because we haven't had detailed discussions yet. What we always said after the 5G auction period, to build out the rural areas as we are being obliged to do so, it doesn't make sense for anybody to do it on themselves. There is a rationale, obviously, to go for network sharing option. The easiest way would obviously passive network sharing, but I think that is contingent upon the discussions which we have to have. You see that we have quite a variety of sharing agreements in our portfolio. Just remembering you about the T-Mobile, Czech, and O2 question which we just had. I think when it comes to the German tower market, one thing is very clear.
From a tower perspective, that's going to be a growth business because we're going to see additional demands and build out in the rural areas. We will have another player who has to build out a network. There is obviously a lot of towers to come to the German market. From a tower perspective, it's really attractive market.
Great. Thanks. Next is Akhil at JP Morgan.
Yeah. Hi, good afternoon. Thanks for taking the questions. Can I just follow up on the topic of towers? Obviously, you've talked about network sharing, Tim, you mentioned at the beginning or early on in the call, your surprise at the share price reaction of Vodafone's comment. I guess just keen to understand how you think about that. I guess, network sharing and synergies have been talked about for a long time by yourselves and others. I guess the shift people perceive from their end was an attempt to try and monetize the valuation arbitrage that is perceived between tower valuations and telco. To what extent are those things you're talking about internally thinking about, how do you think about the merits or not of actually financially spinning out towers? I guess that would be my first question. Then the second one is on the U.S.
I guess it's a bigger picture question. You've obviously talked about the deal logic remaining intact despite the remedies. How do you think about the operational performance in the U.S.? I guess one of the things that stands out since the deal was announced is the extent to which Sprint numbers have missed consensus numbers. We've seen, if you look at Street numbers, double-digit cuts to EBITDA midterm. I guess, how do you think about the execution risk that entails? I guess your confidence in actually delivering on the objectives of that transaction financially? Thanks a lot.
Okay. Let me just go again into the tower question here and regarding the monetization. Look, the first thing is that we talk about the towers already since 2002. I mentioned that I was the one, first chairman. I signed even the first contract of this company. Since then we are operating independently. We have now a new attempt to that business, new management, and significant cost savings in our EBITDA. Just to give you an example, after six months, EUR 274 million, I think that was the number, which we have seen. We improve the performance of this company by every day. Which is, by the way, creating value. Second, Christian said it. This business is heavily growing. Today it is 100% owned by Deutsche Telekom shareholders. The moment where we monetize that business, that moment, we might lose this opportunity.
Therefore, you have to find the right timing to monetize this business. I strongly believe that even our towers have a value of 20 times. On what we have seen in the market, and I saw some sell side now, even putting into the sum of the parts here, which I think, I highly appreciate that because it is creating more transparency about the asset base of Deutsche Telekom. Guys, give us some credit. With our GD troops, Group Development with Thorsten Langheim, Christian on this. We have a track record on finding the right way of monetizing assets. Remember, when we did the MetroPCS deal at EUR 15.60, it was the strike price when we did the deal. Remember how we monetized Scout, how we monetized Strato at the right valuation nobody expected.
Look just on the small transaction of Ströer, where we had a loss-making T-Online portfolio, in a shrinking click-rate business, which we exchanged into stock, which is out today more than EUR 550 million worth of equity value. I think we have some track record on how we monetize it. By the way, it is not the question of how. It's not the question of whether we do it's more the question how we do it. Are we considering an IPO at one point in time? Are we trying to merge with somebody on this one, creating synergies beyond the portfolio which we have? Are we selling pieces of that one? Are we going out of a majority at that point in time? Are we developing that business for a while, knowing that this asset is growing?
Guys, please give us the credit for what we have done and the benefit of the doubt. Be aware that we are looking for every opportunity which is rising in the marketplace. I'm very open on that one. That is why I pushed the business into Group Development, where it is suited today. Let's comment when we realize value rather than announcing something and then running after all commitments. The second question, let me think. The U.S. bigger deal logic intact. Operational performance in U.S. Sprint, missing consensus. Look, I'm not commenting on any kind of internal discussions whether this business is intact. It's delivering on OpEx and CapEx synergies. If you want to realize the value you need on the total business and not only half of it, you need it all.
Look, customers in Spectrum are more or less at the amount of what we have in mind. I'm not commenting on any retread here in the conf call, please understand that.
Yeah, we have clearly confirmed the OpEx and CapEx synergies of the transaction. I think you also had Braxton on the call where we are in terms of our leverage assumptions and EBITDA business case. Next question is from Ulrich at Jefferies, please.
Yeah, thanks very much. My first question is about the remedy deal. I think in the past, we've heard you discuss the risks that Dish has a bit of a litigious track record. What is it that protects you from this in the current deal? Is it the structure of the contract? Is it maybe The industrial logic of this deal aligns you better? Or what gives you the confidence that this is a good deal partner from this particular angle? The second question is, going back to the broadband slowdown, I was just wondering, is there an element in the reasons also that you are now discounting in the test the best by discounting the offers initially, and that when customers sort of get back to paying full price, that there's a bit of a bill shock there?
Is this simply not an issue when you look at the numbers of what's happening in your own customer base? Thank you.
Yeah. With regard to the first question, not easy to answer. First, you meet in these deals, always new partners, and you never know how the future is looking at that point in time. I know Charlie Ergen now already for years. We once had a discussion to merge our businesses. That's quite some time ago. I meet him on a regular basis. I think he's a great entrepreneur in how he has driven the business. We know about his reputation and therefore, the only thing what we can do is to protect ourselves by drafting and agreeing to contracts, which is giving us and our shareholders appropriate protection in that deal. Now, you have seen the 8-K filings, and have read them. You know about what has been said about the protection rights.
I do not want to disclose, I'm not allowed to disclose anything which is going beyond that, with regards to protections in general controls and other things. Therefore, please trust us on that we have an appropriate and diligent way of how we are drafting contracts here.
When it comes to the broadband question, specific answer to a specific question, no, we don't see a bill shock. We don't see a significant increase in churn once the customer has to pay full price. What we're seeing is that competitors are still significantly more aggressive on promos than we are. I think, we have to think through how we get to an operational full potential when it comes to go-to-market activities, whether it's going to be an upsell or whether it's going to be specific offers to specific reasons in order to bring up the net add ratio on the broadband side. It's not like customers are leaving us once they're seeing the full price.
Great. Thanks. Next is Mandeep for Medran, please.
Hey. Thank you for taking the question. Just a quick question on the dividend. Is it reasonable assumption, should the T-Mobile deal complete this year, that we should just assume the dividend for Deutsche Telekom will be EUR 0.50? Is that a reasonable or fair assumption to make? If you could maybe just help us with that. Thanks.
Look, I can only come back to our dividend policy. We said there's a floor, which is EUR 0.50. I have been asked the question, especially if the deal closes this year, what's going to be the full impact of the combined entity? We said it's EPS dilutive, since we don't have full visibility in the Sprint books, we can't tell you the exact number. I cannot confirm a EUR 50. I cannot confirm anything else. I think we just have to simply take a look into the combined entity and then take a look how EPS is impacted.
Knowing how important that question is for our shareholders, Christian and myself, we have said that by the Q3 results, after discussing that with the supervisory board and giving a direction towards this, and knowing exactly where our business is heading to, which looks quite positive at that point in time, we will give you an indication by the next quarterly results on how we think about the dividend for 2019.
Okay. With that, we move on to Christian at HSBC, please.
Yeah, thank you. A couple questions. First one is on your earlier statement, on the U.S., where you said basically, I think literally, "We don't raise our U.S. guidance yet." Do you see that there's upside, if they hit the higher end of their own guidance? Is that why you're still a bit cautious where they end up? Secondly, there was a decision on StreamOn, and I think you are now basically allowing EU roaming, so all the customers can use it outside of Germany. Can you quantify maybe the financial impact from that? You already guided for a lower H2. Is that one of the reasons? Lastly, on T-Systems, there was some announcement that you're transferring the connectivity business over to the German unit. Can you maybe quantify the EBITDA impact?
I think the total business of T-Systems is around EUR 500 million or so this year, which would be transferred, just to have a feel. Is it fair to say generally that you're a bit behind maybe on your restructuring plan? Was that transfer always part of the plan or was it a new development? Thank you.
Let me start with the StreamOn question. Obviously, there were quite a bit of intensive discussions on whether we would allow roaming, yes or no, on the EU, on the StreamOn proposition. We finally came to the conclusion that we will include this because we're forced to, but we don't make a statement on the financial impact of that, I would say, proposition expansion.
Let me give you a little bit further about what we're doing at T-Systems and what's happening there. By the way, we announced to our employees that we are working on this one. The work group has not been finally negotiated with the unions, and we will need as well the support of our supervisory board, which is meeting beginning of September. We are working on this project, and I think it's worth doing this. What are we doing here? Look, there were the dark times of Deutsche Telekom when a lot of battles took place, and where the question was, which kind of business belongs to A and which kind of business belongs to B? There were some artificial borders being built in the company. One of the leaving ones is the telecommunication services business.
Because just to give you an example, if we are negotiating governmental contracts, these governmental contracts are discussed with T-Systems. The execution with the municipalities or even with the states is taking place in the Deutschland business. This is creating interfaces. Another example. I remember that battle when Rene sent me that battle 2006, when he said, "We will never give up our T-Mobile business. It will never be negotiated by T-Systems." I was successfully negotiating that at that point in time. The entire sales organization and even the pricing for every big customers on mobile is in the German business and not at T-Systems. The T-Systems business only handles the margin when they are selling to the big corporate customers mobile services. On top of that, we have product houses who are developing the latest products like the MPLS substitution products, the SD-WAN services.
When it comes to connectivity services in FreeMove and other areas. We do that twice. We do that either on one side and on the other side in the organization. You could question, and you could criticize me for why, Tim, have you waited so long on bringing this business together? Honestly, we had so many other big things to get resolved over the path that it was always on my list, but never on the priority list. Now, cleaning up all the garage here, we are now even in that corner. There's another element. We even want to make sure that the classified business, all the business which are related to secure service for governmental issues, that they are very close to the core network and how we are operating.
We decided, and we are aiming for bringing this two business together, to be more efficient, to be more customer oriented, to make it out of one hand with one leadership, and with an even stronger attempt to grow the business. I think pro forma financials will be provided with the 2020 numbers coming out. I think there is no change in the financial guidance on a pro forma basis here. I think we're talking about one third of the revenues of T-Systems, which are affected by this reorganization within the organization. On top of that, the TC business, the telecommunication service business, is very close to two other businesses. One is the security business, because networks should be always secure.
The second one is very close to the IoT business because a lot of, let's say, business applications are in the IoT running over this infrastructure. We do not want to create another now silo organization here. Therefore, we take this company independent. We build own companies around T-SEC and own company about the IoT, so that this company has three kind of areas which they're selling to. The first one is Germany, the second one is T-Systems, and the third one is to markets outside of this footprint. We put a P&L behind that. You know that I'm a big fan of this individual entrepreneurial ownerships of businesses and just pointing on the Netherlands or looking to other areas where we have done that. We see that there is a correlation even with the success we are having.
Therefore, this is a second attempt to grow significantly these two areas in our B2B portfolio. This is the reason behind T-Systems and what we are doing there, and we will report in the next quarters about the success and the process we made. Coming to your third question and coming to the U.S. and coming to the guidance. Look, T-Mobile US has increased this guidance by $150 million in the midpoint. However, we now expect that the bridge between the IFRS and the US GAAP results will be around 0.7. In our own plan, it was just $0.6 billion. I laid out where it's coming from, mainly from this bonds for renewable energy. You know that we have a total new attempt towards the sustainability in that group.
We want to be based on renewable energies by 2021 already for all CO2 emission within the group. Our ambition is by 2030 to reduce our energy consumption by 90%. This was one pillar of our big sustainability program which we have laid out here. Maybe it's worth that we put that into one of the next quarter results to show you what we are aiming for. Therefore, we have an additional cost, which is showing up in the IFRS numbers but not in the US GAAP numbers. This is the reason that we haven't increased our guidance. If this would not have been the case, probably would have done that. That is the reason that this guidance is intact. Let me say another sentence on where we stand. You have seen the numbers. Honestly, we worked hard into the year.
We have a new management team here. We have a new CFO. We have a lot of new managers in the business, and we had to sort out who is doing what and to gain our traction. If I'm now looking after the second quarter on the business, I think we have tractions on all angles of the business. Inorganic integration of acquisitions doing very well. The track which we have on cost side, you have seen in Germany, the indirect costs are improving towards the targets we've laid out. Even the operational business doing very nice. Eight consecutive quarters now in a row for our German and Europe business where we are growing revenues now. This is not only just a one-quarter event, this is already a sustainable progress. I see that this company is forward and working forward.
If we're moving, the likelihood that we see exceeding is higher than failing. That is clearly my assessment for 2019.
Okay. Thank you, Tim. Next is Frederic at Bank of America, please.
Hi. Good afternoon. A couple of questions. Firstly, on the U.S., if you could share with us expectations on timings. You gave us a date of the state AGs, but, once this is past this, what's your updated view on timing? It's interesting comments on your commentary on Q3 dividends. Will you be in a position by that time to have had that look into the numbers and refreshed your math? Lastly, on leverage and dividend outlook. Are you looking at a one year or more kind of multi-year dividend outlook? Second point on broadband. Just more general strategic view. As a market leader, your message used to be, focus more on upselling. Shouldn't the focus be on share of revenue instead of net add more specifically?
Do you think you have to continue to be at around that 40% target share of adds as an important milestone? Very quickly, whether you had any thoughts into 5G pricing. Vodafone has launched its 5G price premium on all the price points in Germany. You have that EUR 85 price point, but if you could tell us a bit more about your pricing strategy in Germany on 5G. Thank you.
Okay. Fred, let me start. First, U.S. expectation on timing. The first thing is, there has been a delay, you know that. For the trial, the 9th of December, is now the time which has been defined. That said, this is what we are working on. What the implications on the closing is going to be, that is too speculative at that point in time. We are focusing now on the 9th of December, with regard to the next milestone, and almost the last milestone in this long procedures here. It's not good that we have a so long time period of uncertainty. If you look to our operational performance, if you look to the T-Mobile business, I'm not so worried too much because we are working on a very strong operational track here.
I do not see why this should break within the next four or five months. Second question. What I've said on the dividend. We have a dividend policy. We had a Capital Markets Day, and we have clearly said that our dividend is following the earnings per share growth for the next years. This is intact. What we haven't foreseen is that because everybody was expecting the closing in 2019, what is happening if the closing of this year is not taking place? What is then the dividend? What is the logic behind that? We know that there is some uncertainty in the market at that point in time. Look, we had so many things to do in parallel. You cannot define a dividend if you do not know what you earn at the end of the year.
Therefore, I think with the diligent approach and with some patience, and I know, guys, I know you're all not patient, but this is what I can only tell you at that point in time. We will have now in the next eight weeks an intense discussion with our board, looking to the numbers while we foresee how the performance of this year are going to look like. Expecting that maybe the closing is not going to take place during the course of this year. What would be an appropriate dividend to be paid off to our investors? This is the path which I described and to give you an indication because it's anyhow subjected to the board approvals and to the annual meeting.
Giving you an indication as we always did it in the past, in the third quarter, is something which Christian and myself are aiming for.
Let me take on that broadband question, Fred. I think it's not an either/or, it's a both. We always had an ambition to have a 40% net add share, and we always said that we want to have our organization to focus on more upselling given our great opportunity which we have on super vectoring. I think they have to basically handle both vectors, volume and upselling.
I think what you've seen in the recent quarters and years is we have always shown a steady hand when it comes to pricing. There's a difference between promotional activities and structural pricing activities. Don't expect any surprises on this one. On the strategy on 5G pricing, I think it is way too early to discuss price points, and if we discuss price points, we discuss price points with everyone. I think we have a strategy in mobile, which is more for more, and I think we should apply that strategy, which has been proven successful also for the 5G environment. Since this has given superior experiences, I would expect a continuation with the more for more strategy when it comes to 5G pricing.
Excellent. Thank you, Christian and Tim. We take two more questions. I think the next one is from Andrew at Goldman.
Thank you. Good afternoon, everyone. My first question again, back on towers and on the efficiencies. One of the perennial problems is operators retaining efficiencies that they've achieved. What gives you the confidence that you can retain tower efficiency benefits, especially when the typical response we see when operators in a market each make savings, is that they end up giving these benefits to the customer in the form of lower prices? A second question just on tower densification. You've highlighted, I think you're highlighting a more towers to customers approach, and you obviously highlighted some more deployed sites in Germany. What do you think is the increase in densification of towers you need in Germany in the long term for 5G, and how does that differ across markets? Thank you.
Okay, Andrew. I think, whatever we will do with the towers, will always be subject to protecting our network leadership. I think we have a clear leadership in Germany. We intend to protect and extend this leadership. 5G is a great opportunity for this. I think, at this point in time, you referred to our 9,000 site expansion plan, which we first laid out at the full year results 2017, in February 2018. That plan is intact, but frankly, it mainly relates to coverage rather than densification. Of course, there's always a bit of densification going on, but the plan of the 9,000 sites plan, is mainly related to motorway coverage, railways, white spots, to the extent that they're economical for us, together with other carriers. That's why they usually, actually also are macro sites rather than rooftops going forward.
In the first years, more focus on rooftops, going forward, it's more macro sites. That's all in the guidance that we gave at the Capital Markets Day. I think we will then, of course, also consider the build-out obligation, related to the 5G auction. I emphasize that this 9,000 plan preceded the auction, and the coverage obligation, those will add to the build-out plan that we have. Again, they are more related to coverage rather than densification. I think the focus will, for the next few years, will still be on coverage rather than densification. I think with that, I just move on to, Wolfgang Specht, who is at Bankhaus Lampe, who wants to ask the next question. Wolfgang?
Yes. Hello. Good afternoon. Two questions from my side. One again on system solutions. Can you give us an idea how your plan for the classical IT part of T-Systems are? We learned that you pulled the sale of the mainframe business to IBM. Is there still an idea of a bigger deal, for the complete classical IT part? The second one, on the German fixed business. You indicated ongoing problems going into Q3. Are you however confident that the sub-segment can grow into the second half? Do you expect some kind of Christmas business here?
Christian.
First question with regard to the system solution. If we're moving on with the TC part and with the classified business, the governmental security service, we will have a kind of IT service company, which is the T-Systems part of it. In these areas, we have a lot of business where we have applied a kind of portfolio strategy approach. This portfolio approach means a very focused approach towards the markets which we have behind that. It means as well the cash accretive business, these portfolio elements have to develop over time. As we have said, we are not tolerating any kind of losses anymore in the T-Systems business. If a business is not performing in the right angle, we even consider portfolio measures to move forward.
Now, the sale of the mainframe business was a disappointment, and honestly, we oversee the antitrust side on this one because we thought it's in better hands if IBM would run it. We will now find a solution. We are working on a solution. It's too early for me to disclose that, but I think we are very close to solving that issue. And for the other classical IT areas, we have our turnaround plan, which is intact. Adel is doing a great job. You have seen the numbers. Order entries growing. We have seen profitability rising. We have planned 10,000 layoff in these areas. We have a very clear strategy towards offshore facilities. On top of that, improving quality. All key parameters are in the right direction, in green. We will move on delivering on the commitments which we have given you.
IT service [Foreign language] on the one set and the telecommunication service on one hand on the other side. This is, let's say, the way how we are moving forward. If the business is not performing, if cash losses are existing, we take decisive actions, not excluding even a sale of parts of the business.
On the German fixed performance, let me elaborate a bit on Q2 and then give a direction towards Q3. In Q2, we had quite a bit of a weak IT business, and we expect this to increase in the current quarter. As I said earlier on, we're working on plans in order to increase the net adds as well as the upselling. I don't have any specific indications right now on the Christmas business. We haven't discussed that in great detail yet. Let me leapfrog from the fourth quarter to the first quarter. As we said, the B2C IP migration is going to be finalized at the end of the year. Obviously, the forced churn effect from consumers will disappear in the first quarter of 2020.
Okay. Something to look forward to. A few things, I hope. With that, we come to the end of the conference call today. If you have further questions, please contact us at the investor relations department, as always. With that, I thank Tim and Christian, and I hand back to the operator.
Thank you. Goodbye, guys. Thanks. Bye.
We like to thank you for participating at this conference. The recording of the conference will be available for the next seven days by dialing +4918052047088 via reference number 524203#. We are looking forward to hear from you again. Goodbye.