Good afternoon, 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 you over to Mr. Hannes Wittig.
Yes. Good afternoon, everyone, welcome to our Q1 2019 conference call. With me today are our CEO, Tim Höttges, and our CFO, Christian Illek. Tim will, as usual, first go through a few highlights, followed by Christian, who will talk about the quarter's financials in more detail. After this, we have time for 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 great pleasure to hand over to Tim.
Thank you, Hannes. Good afternoon. Good morning, everybody from Germany. All is good on German fronts here. Quarter was strong, we are quite happy. Another good start into the year on both sides of the Atlantic. All operating segments contributed to our 8% growth in EBITDA AL. The new KPI, so-called EBITDA AL. Our organic sales are up 3.5%, our organic EBITDA AL grew by 3.9%, our ex US EBITDA AL is up 2.1% year-on-year. Our free cash flow is up 9.6% like for like, adjusted earnings are stable year-on-year. CapEx in the US was front-loaded as per guidance, while ex US CapEx was stable as promised. We are well on track for our 2019 guidance on every key metric.
Equally line by line, quarter by quarter, we are delivering against the long-term growth guidance we gave at our 2018 Capital Markets Day one year ago. I can stop now, I will dive a little bit more into the topic. Let me continue with slide five. The foundation of our strong growth, is our consistent investment into the network. In Germany, I think it's very important to know that we already passed the 20 million homes with Supervectoring, enabling speeds of up to 250 megabit per second, we are well on track for our 28 million target by year-end 2019. 2019, we will complete our German FTTC deployment and redirect resources to step up to our FTTH investment in line with the plans we have outlined at the Capital Markets Day.
We continue to extend our LTE coverage from its already high level. Here we clearly lead the industry. In Germany, we added 1,300 new sites in the last 12 months. In 2019, we will ramp up another 1,800 new sites. This is on track for our stated plans to increase our site footprint by one-third by 2021. Interesting wise, we have put a new online webpage, public today, at DFMG you can find it where you can see almost 1,000 mobile sites in Germany, which are in a long approval process from governmental or owners or wherever you are. That shows exactly where we are willing to immediately improve our coverage to close wide spots or even areas where we have drop calls. We are now even pushing the public environment and make it full transparent, how to further increase our great footprint.
We made further significant progress with our IP migration, reaching 90% of lines at the end of Q1. We are well on track to finish the German B2C migration this year. The German B2B migration will go into next year's a bit so that we are almost ready by the end of this year. As mentioned previously, the IP migration not only involves significant extra cost, but also weighs on our fixed line KPIs. The end is now clearly in sight, and cost savings will start to kick in already next year. Let me also quickly address here the two big elephants in the room, the German auction and Christian Illek. No, sorry, the German auction and the planned U.S. merger.
The German auction has now been underway for eight weeks, and we have previously made it clear that we are not happy with the auction rules, which is why we are challenging them in courts. For instance, the reservation of 100 megahertz for industrial users creates a needless and counterproductive shortage of supply. Everyone can track what's happening in the auction on the regulatory's website. You remember that in last year's Capital Markets Days, we committed to German mobile network leadership, and we also committed ourselves to lead in 5G. You know that this leadership is for us non-negotiable. Of course, we are bound by auction rules not to comment, and we will continue to stick to that. The German auction is not the only one for us.
In the U.S., we have been participating in the recent 28 gigahertz auction, as well as the ongoing 24 gigahertz auction. We expect the FCC to reveal the results for both in the coming weeks. Of course, we cannot comment here either. When it comes to the planned T-Mobile and Sprint merger that we announced almost exactly one year ago, again, unfortunately, there's a little we can or should say at that point in time. We are working with the relevant authorities, and it would be wrong to provide a running commentary on these conversations. In terms of process, here are a few milestones since our last earnings calls. On March 6, we made a filing with the FCC, laying out at our plans to bring competition to the home broadband market. On April 4, the FCC resumed its shot clock.
Without further stoppages, this would take us to the 3rd of June. We still expect a decision by the federal agency in first half 2019. Some of the remaining state approval, most notably California, could extend the regulatory approval process into second half of the year. As before, we remain optimistic that the relevant authorities will appreciate the significant benefits of this transaction for U.S. consumers. Next is our usual slide, page six, where we show some of our initiatives to improve customer experience on top of our network leadership. Our German StreamOn product already has over 2 million customers. We are working to leverage digitization towards a better customer experience. For instance, the penetration of our new European mobile app has quickly grown to almost 40%, and we are working to further extend its scope and benefits.
We continue to see meaningful improvements in our German customer service parameters. Complaints, waiting times are down year-over-year. Functionally and first-time resolution rates are up. We won't stop here. We dominated the recent customer satisfaction survey by the Connect Magazine, winning in every single category. Just to mention that I was reading that the morning, we won the service, we won the network, we won the network in Germany, we won it in fixed line, we won it in mobile, we won it in Austria, we won it in Netherlands. Wherever Connect was testing, it was Deutsche Telekom. Only Switzerland, something went wrong, guys. I do not know what went wrong. I asked my people, "What the heck is going on in Switzerland?" After the successful auction in Austria, we launched Europe's first commercial 5G network.
We also launched our first 5G campus network with Osram. Another key strategic pillar for us is growth in B2B. Again, this quarter, we outperformed and achieved revenue growth both in Europe and in Germany, even despite the drag from the IP migration. In Europe, we grew 3% year-over-year. In Germany, 1.3%. Let me also mention here two important announcements regarding our environmental sustainability. First, we shift to 100% renewable energy already by 2021. Second, we decided to cut our carbon dioxide emissions by 90% by 2030. There's much more on the webpage, but even on my LinkedIn stream where I'm talking about sustainability and the way going forward. Please have a discussion there as well with me. Moving on to slide seven. Our momentum with customers remains very strong. Almost 13 million German homes already subscribe to our fiber products, 2.5 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 3.3 million mobile contract customers, of which 1.8 million organically. T-Mobile continues to grow strongly and raised its guidance for 2019 branded postpaid net adds towards a new range of 3.1 million-3.7 million. Another 300,000 more. On slide eight, we reproduce and reiterate our 2019 guidance. As you know, our 2019 EBITDA and free cash flow guidance is based on the after-lease or shortened AL logic. As before, our guidance is provided based on last year's average exchange rate. In appendix to this presentation, you can also find the headline pro forma segment financials and the guidance for each of the segments, all unchanged this quarter. With this, I hand over to Christian AL, who will take you through this quarter's financial in greater detail.
Thanks, Tim, also welcome from my side. I can assure you, I'm not an elephant. Let me go a bit deeper into the quarter's performance to start and start with page 10. What I'm going to do is basically repeat what Tim already said. Reported revenues up by 8.7%. Organic revenue growth was 3.5%, which is pretty much in line with the last quarter. That difference between reported and organic can be attributed to a large degree to a stronger US dollar, which accounts for 75% of that difference. Reported EBITDA AL grew 8.3%, organically 3.9%.
Also here, the difference can be attributed to 80% coming from the US dollar. I think what you also see is if we're moving outside the U.S., that our EBITDA AL is growing in all the other segments on a very similar growth rate as we had it during the last two quarters, which is 3.3%. If we would make that comparison on an organic basis, it would be 2.1%. Reported free cash flow up by 18% year-over-year, the organic growth was 10%. Everything can be explained by the US dollar. If we're taking a look at the adjusted earnings, the adjusted earnings were stable year-over-year this quarter. The reason being is that last year in Q1, we had an extra and final dividend from Toll Collect, which supported the adjusted earnings number in 2018.
We're taking a look to that slight decrease in net profit. That is clearly impacted by the U.S. merger one-off costs, which Braxton Carter has already communicated to you two weeks ago. We're moving to the next slide, which is basically showing Germany. What you see is that the headline sales is up by 0.6%, that is very much driven by total service revenue growth of 1%. The EBITDA is up by 2.4% this quarter, which is very consistent with our guidance for 2019 and also with our guidance for the whole Capital Markets Day. On page number 12, we see the service revenue growth. Let me draw your attention first to the total service revenue growth. You see that the decline, which we have faced over the previous quarters, has now been reversed, we're seeing a 1% growth.
Obviously, it's very much supported by a strong service revenue growth in mobile, also by better wholesale revenues. Largely to the IP migration headwinds, the fixed retail number has declined by 0.8%. We see that on a later chart, that is also very in line with the recent quarters. As I said, wholesale revenues were better. They grew by 1.6%, the mobile service revenue grew by 2.8% year-over-year. You may remember that we explained during the last quarter that we have some phasing issues with the visitor revenues, you see now that the trend has been reversed and that we're seeing an almost 3% growth. When it comes to our midterm guidance, no changes here. We're comfortable with our 2% revenue CAGR for the service revenue in mobile, there is no change from that one. Page number 13.
You see the mobile performance on the left-hand side of the chart. The numbers which you've seen, they are all post IFRS 15, so we're comparing IFRS 15 numbers now with IFRS 15 numbers. We had very strong and solid momentum both in B2B and in B2C. Next chart, page 14. Two things I would like to draw your attention to. One is you see that we have a constant increase in mobile data usage. We're now at 2.8 GB per month, and that is almost an increase of 1 GB year-over-year or 50%. Also, we're making progress on our convergent offerings. Right now, we have 53% of all Magenta-branded mobile contracts in part of a convergent relationship, and that is an increase of 11 points vis-à-vis the previous year.
If we compare this on the broadband coverage, right now, 23% of the broadband households are on a convergent contract, and that is an increase of four points vis-à-vis the last year. We're moving to the next chart. Page 15 shows the commercial performance in fixed line. You see that we have a steady increase on the mobile broadband side. Obviously, that increase is impacted by the IP migration. The IP migration is also clearly highlighted in the elevated line losses, which increased to 211,000. This is very much attributed to the very strong pace we're having right now on the B2B migration. More positive on this side is obviously the net additions on fiber. We delivered now for 14 quarters in a row, an increase of more than a half million net adds.
If you compare vis-à-vis the previous quarter, we also see a slight acceleration in the net add growth. Finally, on TV, you see that we have increased our customer base by 66,000 customers, which is a slight increase vis-à-vis the previous quarters. We attributed this to the rebranding of our MagentaTV offering, but also to our enhanced content offering. Page 16, Germany Fixed. As I said earlier on, the retail revenues in Germany Fixed have fell by 0.8%, which is slightly worse sequentially, but it's very much in line with the trend which we have seen in 2018. Our broadband revenues grew by 2.3%, very much comparable to the trends of the last quarters. You may remember we had headline trends in 2018, which actually showed a higher growth figure, but that change has now rolled over.
Let's move to the two classical charts from the U.S., which I have already presented to you two weeks ago. Again, another very, very good quarter when it comes to customer acquisitions. 24 quarters in a row with more than 1 million net adds. The EBITDA growth on IFRS terms grew by 6.1%. That is a difference between what Braxton Carter told you because under US GAAP, he grew by 11%. There are two reasons for this. One is last year, our IFRS EBITDA was supported by hurricane reimbursements, and we see a negative drag, which is being accounted for in IFRS from a purchase power agreement, which had a negative impact of EUR 50 million. Taking a look on the next slide to some performance metrics. Let me start with the stunning churn rate, which is now on an ultimate low with below 0.9%.
Obviously, that commercial performance is underpinned by very strong network performance, which we're seeing. We also see that the cost of service has come down significantly year-over-year, but please bear in mind, A, this quarter has benefited from some accounting changes and also, we have seen lower hurricane-related expenses vis-à-vis the last year. Moving over to Europe. The strong commercial momentum in Europe continues. We have added another 196,000 mobile contract customers. A stunning number of 445,000 new converged customers, which can, to a large degree, be being driven by Greece. Household penetration in converged offerings is now at 42%, which is a 10-point increase vis-à-vis the previous years. Less strong are obviously the TV net adds and also the broadband net adds are more on the lower end, vis-à-vis the previous quarters. That is very much driven by an intense competition which we're facing in Romania.
When it comes to financial performance, the European segment keeps growing both in sales and EBITDA AL. I would say growth has now become the new normal here. The reported revenues were up by 2.8%, EBITDA AL by 5.2%, and if we make that comparison on an organic basis, which is basically carving out UPC Austria, revenues were up by 0.4%, EBITDA AL by 1.5%. Also in Europe, we're well on track with regard to our full year guidance, but also with regard to our midterm targets, which we committed at the Capital Markets Day. Page 21, let's move over to T-Systems. I think we're seeing some initial progress with our ambitious turnaround program, but clearly, there is still a way to go. Our order book continues to develop positively. Unfortunately, that has not translated in revenue growth yet.
Nevertheless, we continue to expect stable revenues for 2019 as a whole. EBITDA was up quite a bit this quarter. I think this is driven by two effects. One is the basis in Q1 2018 was really weak, but also we're making progress when it comes to cost reductions in our transformation program. Our guidance of roughly half a billion EBITDA AL for the year 2019 is robust and also does that apply for the midterm targets at the Capital Markets Day. Page 22, segment group development. The results were obviously impacted by the consolidation of Tele2 Netherlands from beginning of January. Also, please be aware that we added 3,200 Dutch towers into our tower business, and we renamed the tower business now to GD Towers.
Financial performance, organic sales growth up 2.2%, EBITDA AL grew by 12.8%, and that was mainly driven by T-Mobile Netherlands, which benefited from efficiencies and favorable comms from Tele2. The underlying Dutch mobile service revenues, which now includes Tele2, actually moved to a growth of 2.5% in this recent quarter. As Tim said earlier on, when it comes to the tower business on the next page, we added 1,300 mobile sites last year, and we're well on track to basically increase the footprint in Germany by 9,000 sites until end of 2021. The recurring revenues grew by 4% and EBITDA AL grew by 2% on an organic basis. Let's move to the two final slides on the financials, which basically cover free cash flow net debt and adjusted income. As I said earlier on, free cash flow grew by 18%.
That was very much driven by a higher EBITDA and a better working capital management. It offset actually the front loading of the CapEx in the U.S. We had a net increase of EUR 240 million free cash flow vis-à-vis the last year. On a net debt, despite that strong free cash flow, the net debt has increased based on IFRS 16, and this is mainly due to, A, currency effect, which you can see on the chart, the acquisition of Tele2, additional leases and valuation effects from interest derivatives. On the net debt, you may remember as we gave our explanation to you back in January, we indicated to have an IFRS starting point effect of EUR 15.4 billion.
Actually, it turned out to be EUR 15.6 billion, which is well in the quarter, which we articulated to the outside, which was ±5%, but this is now a solid number. This is basically giving you a slight difference relative to our forecast back in January. Finally, if we take a look to the net income, which is slightly down year-over-year, this is very much driven by the Q1 effect, which I indicated earlier on Q1 2018 and the dividend from Toll Collect. Last chart on the balance sheet ratios. Let me focus on the net debt to EBITDA ratio. You know that we have changed our corridor from 2.25 to 2.75. We're in that corridor range with 2.65. Also, we're in the range of all the other comfort ratios
Let me just explain to you, we haven't changed the equity ratio. If you would adjust for IFRS 16, which we don't have, that would basically reduce the equity ratio from 25% to 22% and from 32% to 32%. We're well, basically, in that comfort range and in that corridor. Bottom line, I think we delivered a solid quarter when it comes to commercial and financial performance. We're absolutely in line with our 2019 guidance and our midterm guidance. With that, Tim and I are happy to take your questions.
Tim and Christian, now we can start with the Q&A part. As always, if you would like to ask a question, please press star one on your touchtone telephone. I will announce your name when it's your turn. Should you require to cancel your question, please press star two. You can also send us questions via webcast, and I even sometimes get them by email. That's all right, and let's see how many elephants we have in the room today. Maybe there's another one. We start with Mathieu at Barclays, please.
Yes, good afternoon. Thank you. I had a question in terms of the German mobile. Obviously a very strong performance and a recovery as you had led us to believe at Q4. When I look ahead, can you maybe give us a little bit of color on the competitive environment? We heard there's been some more promotions in some segment of the market and one of the players maybe wants to leverage a bit more its improved network. I wanted to know how you think that can play out this year. A simple question on Austria. You launched a 5G network. Is there any early findings or any color you can give on how that is going? Thank you.
Hey, Mathieu. Tim. Let's talk about Austria, because I was there on our rebranding party on Monday evening with Bundeskanzler Kurz and three ministers and all these kind of folks. We launched the company because we couldn't call the company Telekom Austria, the company's got Magenta T. Magenta Telekom is now up and running. Honestly speaking, the auction on the 5G spectrum went pretty well. We paid EUR 57 million. Compare that with Germany, that would have been EUR 600 million. Therefore, we got 110 megahertz of spectrum. We were prepared for the market launch, and we were the first one launching 5G in the Austrian market. We started with something like 25 sites, but we are growing now across the footprint in a rapid way. It's by far too early to say this is here a 5G experience.
If you look to the tariffs which we launched around our Magenta Telekom launch, we had this unlimited tariff which we brought to the market and the pricing and this kind of stuff. It's not representative for 5G. It's more, let's say, showing the capability for mobile in the market, and it's more at the intention to address the data consumption in this environment. Really, it's too early to say what is the pricing, what's the tariffs, and how is the take-up. The speed which we are generating is amazing in the Austrian market, beyond 300 megabit per second. It's quite impressive, but you know that most of the handsets are not available yet. Coming to the competitive environment in the German mobile market.
Over the last years, the German mobile market has been comparatively stable, despite some volatility and always this discount competition, which we have towards the lower end of our B2C market. I'm especially focusing on the B2C market. This volatility was mainly driven by MVNOs, which is now, I think on its last year of its five-year glide path, how I look from this environment. In 2018, Drillisch invested around EUR 270 million of additional EBITDA in handset subsidies. Despite this money, we were able to post our revenues at a stable performance. This shows that it's not only about handset subsidies. It had a lot to do with how you are presented, how trustworthy your brand is, how good the network perception is around that one, and how the distribution is working. I think that's a good proof point, 2018, on how we move forward.
Last month, we have seen some incremental price aggression from O2 and from 1&1 Drillisch group. Vodafone's move seems to be a good sign for the environment in which we are operating. I think it is more the lower market segment which is fighting for volumes here and the promos we have seen there. We guided for the mobile service revenue a CAGR growth of something around 2%, and we remain comfortable with this guidance going forward.
If I may add a couple of things. When it comes to the three consumer segments, still almost no spillover between discount, smart shopper, and the premium segment. Obviously, we are closely watching what Vodafone has done with its new data buckets in the Red portfolio. Obviously, they increased the buckets significantly. And be aware, the B2B market is really, really strong.
Thank you, guys. Next question is from Polo at UBS.
Yeah. Hi, it's Polo Tang at UBS. Just have two questions. In terms of remedies for the Vodafone Unitymedia deal, Telefónica Deutschland will be able to get wholesale access to cable. In your view, how does this impact the German broadband market, and how much of a risk is this to DT's wholesale revenues in Germany? And the second question is really about latest thoughts on a fourth mobile network build, because as things currently stand in the auction, Drillisch has spectrum in both the two gigahertz band and also 3.6 gigahertz band. What's your latest view on whether a fourth mobile network build by Drillisch is viable, and if it does go ahead, how will this impact DT? Thanks.
Let me start with the remedy question first. You know we're opposing the merger because of the concentration of the TV market, not the broadband market. Whatever kind of deals which have been struck now between Telefónica and Vodafone, from our perspective, it doesn't solve the problem on the TV market. It doesn't solve the problem on the housing association. We don't know to what degree that remedy can actually help to facilitate a merger. When it comes to that deal, obviously, Telefónica is on our network. It has roughly two million DSL customers. If you assume that the cable penetration is about 60% in Germany. Let's say 60% of their customers are overlapping with the cable network. Telefónica is locked in with a multi-year deal on the contingent model.
We don't expect them to actually force customers from our current network into the cable network. The ultimate question for me on the remedy question is: how does an opening of a cable network actually solve the questions which we're having on the TV market and the housing association market? And the network, Tim, do you want to answer the network question?
Let me talk a bit about, let's say, my thoughts about fourth entrant and what's going on. I cannot comment on the auction, and nobody should do that at that point in time. Let me give you some general observation. Look, the first thought is that, look, if there's a fourth entrant coming, he has build-out obligations both on 2.1 gigahertz, 50% of the market, and as well on 3.5 gigahertz, which is 25% of the market. In addition to the price for the spectrum, there will be, let's say, minimum requirements for building out the network. This is something which is a business case which has to be amortized in the Drillisch portfolio. These people are not new in the market, they have nine million customers already in their footprint. They might amortize it with the revenues coming from that angle.
Luckily, we have no MVNO with Drillisch or 1&1, we are not affected by the migration into this infrastructure. If I would be, let's say, in their shoes, I think it's hard to amortize the business case and would be hard even to build out a network. It is even hard to find in areas where I haven't built an infrastructure, a decent economics to get access to another network. It cannot be that this is coming on the expense of the existing infrastructures which are sitting there and you know our position on the national roaming. Looking to the auction design and the current auction, I was very explicit on this one at the beginning. Said, "Look, we have 400 megahertz of spectrum. If it would have been allocated to four players, would have been an easy task.
Taking out 100 megahertz of this auction and giving it to industrial purposes without knowing who that is and where that is, and limiting it to 300 to the others, this is only creating additional proceeds to the government, but it's not building networks. Exactly that is happening in the auction right now. If you take the total lump sum of the auction of the day, it has taken out almost 50,000 mobile sites which could have been built with this money. I think this shows that this is a kind of additional tax for the government, but not something which is helping the industry to build out a full-fledged network. U.S. or even Austria are better examples how that could be done in another way. Now, in this case, everybody's part of it.
It will not be only Deutsche Telekom, Vodafone, or Telefónica, but even Drillisch, who has to pay this tax to the government. That's where we are.
Thank you, Tim. With that, we move to Ulrich at Jefferies, please.
My question is regards the All-IP migration. It's sort of very good to see that you're making great progress and you're closing in towards the finalization. I'm just wondering whether you could explain a bit better the link to the broadband. The broadband intake was probably a bit on the soft side in the first quarter, I think, part of the explanation is the All-IP migration thing, but I'm not entirely sure why the loss of legacy voice lines sort of has such a big impact on the broadband side as well. Sort of linked to that, would you sort of say that the broadband intake would recover once the All-IP migration is over? Are these levels that you're currently seeing on the net add side and in broadband retail, broadband dialer sort of the new normal? Thank you.
Again, just to reflect on where we are right now. On average, we have migrated 90% of all customers. Obviously, consumers are moving ahead of B2B customers, but also on B2B, we are close to 80%. We are not at the very starting point. We have accelerated efforts right now in the IP migration, especially when it comes to B2B. Obviously, we will close the factory once we have migrated the very complex customers finally. If you take a look at the broadband growth, I think our understanding is that our broadband numbers would basically be 5%-10% higher if we wouldn't have an IP migration. On a roughly basis, you can't do that math 100%. If we have taken a look at the line losses in our legacy business, you see that that share of B2B is continuously growing.
That is clearly allocated and attributed to the All-IP migration.
Let me add one word to the IP migration. Look, we are very happy that we are finalizing on the IP migration, the B2C area by the end of this year. Not only from a productivity perspective. I always remind us, that if you come to remote maintenance, if you come to fixing functionalities at the street cabinets, when it comes to network quality on big data in the network, and when it comes to the migration into vectoring and supervectoring, all of this would not be possible without IP migration. The customer and productivity gain, which we derive from IP, is already helping us today big time, because supervectoring would not be possible without. 20 million households in Germany have already passed up to 250 megabits now with supervectoring.
If I look to the broadband numbers, and the customer intake, which also you referred to, we have a steady intake of something around 700,000 on a quarterly basis. This is very, very strong. Wherever we have built it, we approach the customers, and they like the product very much. We are creating a high loyalty with our customers. Our churn in this is very, very low, and the intake is good on this one. With supervectoring, which we have just started, we have a big, big upselling opportunity on top of that. Therefore, I think, you should challenge us on this number going forward. I want to be measured by our success on supervectoring to upsell the speed into the base. This is definitely one of the key marked issues which we should focus on going forward.
Overall, I think the broadband numbers speak for themselves.
Thank you, guys. Next is, Steve at Redburn. Steve?
Hi there guys. Can you hear me? Guys, sorry. Three, I'll go for three if I can, and you can choose to answer one or not. First of all, just following up on the point on O2 and the contingent lock-in. Can you just give a bit more color as to how long that is and what their ability is to migrate customers away from you? Should this remedy prove, get the Vodafone Unitymedia deal over the line. Secondly, just on the auction. I totally understand your frustration, Tim. I'm sure your comments aren't aimed completely at us. I'm sure they're aimed at the German government and regulator. I'm just wondering if the process of the auction so far has strengthened your conviction to pursue what you think that might be.
Also, Telefónica just mentioned earlier was saying that they're looking at collaborating on network build in rural areas. Is that something you're giving greater consideration to, given the cost of the auction going forward? Just finally, one on Holland, if I can. Just early days, obviously with T-Mobile and Tele2 there. Very clear that your fixed line share is way below your mobile share. Any thoughts as to how you might address that over time? I guess the shoe's on the other foot with cable access there and thoughts on using wholesale cable access in that market to maybe try and redress your lack of fixed line market share. Thanks a lot.
Let me start just with the first question, and then we make sure we've got the second question right. First question is on the contingent lock-in. The standard contingent model lasts through 2021, and then there is a three-year extension. You pay in this model upfront for eight years. During that time, you get then a reduced fee on a sort of cash basis. Clearly, if you are Telefónica, you would broadly adhere to this. There are some, let's say, exceptional contract stipulations related to Telefónica in the fixed line side because, as you may remember, they have outsourced their fixed line network to us. That creates a bit of a tighter relationship, but we won't go into the detail there. In terms of the auction, there was one moment when you broke up, so we didn't quite hear that in terms of collaborations.
I should let Tim answer that in a moment, maybe before we go there, maybe you can repeat the question related to the auction process, if you could. Or maybe we do this at the end, I just pass on to Tim, and he will first answer the question on collaborations. The consequence of an auction which is becoming more expensive than expected, is that the business case for everybody who is part of that one is changing. Now, you cannot spend the euro twice. It's impossible. Here we are. Therefore, I'm always reiterating that with the money which is on the table for just the spectrum, stands for 50,000 sites already as a whole industry. If this is not any more available for the industry, the only way of building the infrastructure is then for more collaboration on the sites.
We have already been clear and publicly said that we are willing and open to collaborate, in innovative ways, to fulfill the auction coverage obligations. I can imagine, for instance, white spots where nobody has coverage today, that we are jointly building passive infrastructure together. The waterways, I said it clear, nobody needs three mobile infrastructures across the waterways in Germany. If we find collaborations in this area, it makes totally sense. I think, you know me, I'm very open on cooperation models, but it should be fair. It should be fair. That means for me, that on the build-out, I would clearly address the issue of reciprocity, which is an important criteria. It cannot be that some players only offering one site while all the others are building 100 sites.
I think there should be a fair share of the infrastructure, independent from the market share of the players, when it comes to the collaboration. To prove that we are serious on this one, I just wanted to remember us that we have a sizable backhaul agreement signed last year with Telefónica Deutschland on the backhaul here, which is working. Let's then after the auction, trying to understand, how and where we can collaborate, but Deutsche Telekom is open.
On the question with regard to cable wholesale, in the Dutch market, you know that the ACM has mandated cable wholesale, via our next post-regulation. However, VodafoneZiggo has appealed that ACM decision, and we expect that we get clarity on whether this can be now mandated, yes or no, within 3 years. For the time being, we're happy with our multi-year agreement we're having with KPN and our little DSL business, which we are running by ourselves, until we get clarity on that one.
Well, it's not even that little anymore with half a million and 550,000 in fact, and we have committed some infrastructure build as well as part of the merger agreement. Let's see where that takes us. In terms of the next question, we have Jakob at Credit Suisse. Jakob?
Hi, good afternoon. I've got a couple questions, please. Firstly, could you maybe comment a little bit on the sort of outlook for ARPUs in the fixed line business? I think you've had some price hikes in May. You're pushing Supervectoring. You've obviously commented on the line loss, but maybe if you could just comment a little bit about what sort of revenue per line trends we could see. Could we see these accelerate? Secondly, if I could maybe just follow up on the network sharing. I think Tim said at the beginning of the call that you see network leadership as non-negotiable, but that you're also open for network sharing. Could you maybe just sort of help us understand a little bit more, what are the things you're not willing to share?
Is it urban areas or what are your sort of red lines in any potential network sharing arrangement? Thank you.
Jakob, very good questions. First let me start with the ARPU on fixed line and where we are standing there. Fixed market has been fairly steady on the commercial level, and our performance was impacted by the IP migration to a certain extent. The German broadband market as a whole had a slower growth over the last quarters here. Some of our resellers have been quite aggressive, at the end of last year and have continued really to offer longer promo periods, compared, for instance, to Deutsche Telekom. However, in February, there have been some price moves being triggered by 1&1, up to EUR 5 per month broadband price hikes for the second year. I see that as a positive sign that even these companies have to reimburse the contingent model. Vodafone recently reduced the online discounts. Even here we see some developments.
I think this is reflecting the higher build-out costs which we have. Moreover, our office special tariffs or discounts has been taking out as well. There is a little bit of, hopefully, a stabilization in this very highly competitive environment. Our way going forward is to stabilize and to increase the ARPU by upselling of Supervectoring, FTTH, and additional services into the base. We have today launched, by the way, another tariff, a kind of entrance tariff for 25 EUR in the fixed line environment. Therefore, I think this environment that everybody's investing into infrastructure is perspectively even reflected in the offers. For us, I think it's more relevant that we include more for more for our customers, being it TV services, being it higher speed uptakes, being it, let's say, elements of hardware which we include, than rather sacrificing on the monthly subscription.
That is, let's say, our strategy going forward. We have guided some 3%-4% broadband revenue CAGR for the upcoming years. This is absolutely consistent with the recent performance, which we have shown, and therefore, we are comfortable with this guidance. Please keep in mind that Supervectoring is just coming to the market with its additional speeds, which gives us new market optionalities.
Okay, let me try to answer the network question, and the network sharing question. First of all, we have to find a set of rooftop and towers, which we call differentiating in our internal terms, which we call golden sites. These are sites where we believe we are differentiating from competitors, which we will never share. Where we're open to share is actually where you don't create a possibility of differentiating from the competition, and therefore, we wouldn't basically endanger our market leadership, our network leadership. The second point I think we have to bear in mind, especially when it comes to rooftops, many of those can't be shared, and it will become even more difficult when we're moving them to 5G because there are emission standards which we have to adhere to.
From this perspective, we also have to take a look where it's technically possible to actually share. Wherever there's a non-differentiating possibility or a site where the customer experience is non-differentiating between the different competitors, we're willing to have a discussion. Please bear in mind, if you exclude the rooftops, our sharing ratios on masts and the very large towers is already 2.3. We're sharing quite a bit.
Great stuff. Next question from Ottavio at SocGen, please.
Hi, good afternoon. I have two follow-up questions on answers being already given. The first is on the Netherlands. I appreciate that VodafoneZiggo is challenging the regulation in court. I would like to know what's your take on the wholesale reference offer. One was proposed on the 1st of January. T-Mobile has been very vocal against. They come out with another one on the 1st of April. Could you tell us what you think about this offering? Does it give you enough margins for you to compete? The second one, it's basically going back on the Vodafone Liberty Global. You said that the remedies being proposed by Vodafone, of course, it doesn't address at all the TV markets.
From memory, you have three key issue in the TV markets, is the access to the cable layer 4 infrastructure, the long-term nature of the TV contract with the association and the carriage fees. Could you tell us if during the, because it's been a very long process over the last year, if any of the market test Vodafone has given any concession on any of these three points? Thanks.
Ottavio, I'll just start with the question. Both of them to some extent relate to a cable wholesale access, which is something that we systematically do not think is a great idea, frankly, because we don't need more regulation on infrastructure. We need less regulation. In the specific case of Germany, this is not the right remedy for the kind of issues that we are seeing. I think we leave it to Tim or Christian to comment in more detail on that. When it comes to the Netherlands, I think you will understand that we will not comment in detail on how we operate there. As I say, we are in principle, not those who have shouted the loudest here because we don't like this intervention. We have a good agreement with KPN. It's a long-term agreement. The rates are something for others to discuss.
Maybe, Christian or Tim, you comment on the second half of Ottavio's question.
I think there is an unacceptable media concentration with the merger, which is taking place for Germany. There is an unacceptable position in the housing associations. It's a stranglehold which is taking place in this regard, which is up to more than 20% of the households. Independent from this, I expect that remedies coming around this subject and effective remedies coming around that subject because the antitrust authorities already decided against this put remedies on Liberty during the takeover of Kabel Baden-Württemberg. At the end of the day, the remedies which they enforced were not effective at all. This time, hopefully, the instruments are stronger in the way going forward. I think on the cable wholesale side, I think what we see across the globe is that more regulation is not building networks. It is less regulation and infrastructure competition which is driving networks.
If we would have more freedom, less wholesale access obligations, less price regulation, which is dominating even our retail pricing. If we would have, let's say, more freedom to compete, I would love to have that position. Having a kind of at 70% of German market where cable is present, no regulation for Deutsche Telekom, I would say this would create more infrastructure competition and more fiber build-out than trying to regulate everything and inviting wholesale access models, more MVNOs into the market, which is using a regulated infrastructure. I think we have a very balanced approach. It's an approach towards a customer orientation, that customer is getting better services perspectively, and that's what we're trying to fight for.
Look, it's not us deciding on this one, sometimes I even have the feeling the clearer and louder we are on asking for something, it's always wrong because people want to see not a merger coming, they want to see, let's say, that Deutsche Telekom is getting weakened, which has nothing to do with improving the situation for the customers or for the citizens in Germany. Therefore, we do it in the back. We are doing it loudly, publicly. I think, different horses for different courses is what we need in this environment here.
Okay, next is Fred at Bank of America, please.
Hi, good afternoon. Firstly, a quick follow-up on the German market. You have extended data allowance in your offers. You had a bit before flat 20-year promotions, you've moved away from those. Meanwhile, O2 Germany still out there with pretty aggressive six months for free offers. If you could qualify a bit this market. I felt from your previous comments you seem pretty comfortable around competitive environment, whether you think you can carry on with your more for more strategy based on network differentiation. Secondly, we talked about the negative impact of the All-IP migration on the line loss, et cetera. If you could recap a little bit for us the cost engaged, for instance, in 2018 for this migration, what kind of savings we could expect from 2020 as the B2C migration is completed. Thank you.
Let me start on the German market when it comes to mobile. First of all, do we carry on with the more for more strategy? Yes, that has been a proven model, if you take a look what Vodafone has done now with its Red tariff, it's actually following our path. Our performance, our commercial performance is not only built on the attractiveness of the proposition, it's also being built on our network leadership, it's being built on our service experience. You heard Tim saying that we've won all tests. Obviously, there's a strong underpinning that we are the network leaders in all the countries we're operating in, that also our service KPIs have significantly improved year-over-year. I think this is the portfolio which a customer buys, it's not only the more for more strategy.
You see our very strong service revenue performance, and we don't withdraw from our midterm guidance, which is that 2%. We're basically comfortable with the competitive environment yet. When it comes to the All-IP migration, let me repeat what I said. We want to finalize B2C end of this year and B2B end of next year. We assume that we have roughly, if everything has been finalized, a cost saving of EUR 400 million in the German footprint, that would include T-Systems as well, on an annual basis. That would be the full benefit of the All-IP migration.
There will be less CapEx and also some customer-facing benefits. Of course, Tim has already referred to the enabling of supervectoring, but there's more to come with this leaner infrastructure. Next question from Andrew at Goldman Sachs.
Question on towers and just a follow-up question on fixed line. Just on towers, there's been a lot of questions on network sharing. Since we last spoke, there's been quite a lot of either asset sales announced or completed in terms of towers with pretty high multiples. I just wondered if you could share any new thoughts on tower valuation and the strategic rationale for you to continue owning them following those deal announcements. Just any color you could give on your decision tree, maybe, as to how you benefit most from your towers, through network sharing or selling them or IPO-ing the asset. Any help there will be greatly appreciated. Just, is there any reason why your towers would be worth less than comparable deals because more of them are rooftop towers?
The question of fixed line was just a follow-up to Jakob's question on ARPU trends. One of the kind of bull arguments or bull hopes two years ago was that customers would spin off the best for less promotions and go up to much higher ARPUs. It took us time to see that. We didn't see that as soon as we might have expected. Are we starting to see that now? Thank you.
I do the first question, and give you a little bit glimpse on things. Andrew, the first one, DFMG and our tower operation is the largest telco tower operator in Europe, from its size. Just by definition, because we are the biggest European telco, and we have mobile business in all our footprints across Europe. I think, we have a super portfolio, even from sharing purposes. Everybody's approaching us in this one. We are now working very intensively that DFMG is not only good in building sites, but even in the running sites. We are improving the state-of-the-art IT services. We are reducing the overhead cost in the organization big time. We have now, and I mentioned that already, especially in Germany, a good position even to support third parties to build their towers.
We can be even a service company towards build out of new towers in the 5G environment. That said, for Europe, is the value of this business different than the value of Americans? Maybe the multiple is a bit lower, because there is a few sites, which are not ready to share. I think it's in the vicinity of 10%. Is that fair to say? Which where we say, these are golden sites which we are not willing-- It's up to 25 sites, which we are not willing to share. The rest is open. The second one is, the towers are different from its architecture and the use cases as the ones in the U.S. But in principle, there's an indicator as well here in Europe on valuations for towers. This footprint is not losing value, it's gaining value.
We talked about 1,300 sites last year, 1,800 sites this year, up to 10,000 sites, up to 2021. We're extending the footprint. The monetization optionality is a given. It's possible. The question is, when and how to play that. I'm open. I let this company being very independent in the way how it is operating, even with third parties. We will do everything that we are ready for whatever market transaction we are going to pursue. We even have to consider that with the new accounting standards, there is now automation as long as we only sell minorities of this one. This is helping us on deleveraging purposes here. Anyway, these are the considerations. This company is getting more advanced and more professionalized every day. When we think it's needed on whether window is right, we might even consider a market transaction.
Nothing to be speculated, in short-term notice right now.
Let me try to answer the question on ARPU trends. Let me try to answer the following way. I think, if I recall it correctly, we introduced Test the Best back in 2016. I think we have seen in the consecutive quarters a decline in the broadband revenues, which was going below 1%. Now it's back to 2.3%. The rollover has already taken part, and therefore, we don't expect that there's going to be a significant negative impact from Test the Best. The second point is, I would like to point your attention on page number 16 in the presentation. If you take a look at that page, you see that obviously the upsell strategy in fiber is working. Tim was basically saying we just started to market Supervectoring.
There is lots of potential in order to bring the ARPU up in the broadband environment. Even in TV, we continue to have an upsell path. From this perspective, since these are the growth areas, we will be focusing on bringing the average ARPU per customer, and per household up.
Great. Next we have George at Citi, please.
Yes. Hi. Thank you for taking the questions. I have two. The first one is around fixed line regulation. I think a few weeks ago, there was some news that the German cartel office is looking into the EWE TEL JV. If you don't mind, just give us an idea what's their role in this procedure and whether they could perhaps reverse some of this arrangement. My second question is again, related to regulation, and I appreciated you already commented on the action you are taking in the court against the current spectrum process. Is there something tangible that could come out of that or is it now a done deal in a way? Perhaps linked to that, part of what we're having now is certain coverage obligations you are accepting if you take the spectrum, start the rollout.
But perhaps in the future, at least that's the hope that British have, they are hoping that there could be something imposed around national roaming. In that event, which I know you don't think is very likely, is there any way of you reversing on some of these commitments around coverage obligation? Thanks a lot.
Georgios, let me start with the fixed line regulation and especially on the EWE TEL deal. As you know, we have signed our contract on the joint venture in March this year. The company called Glasfaser Nordwest, and with this signature, we have officially approached the German Cartel Office. They have to get involved into this one from a size perspective, and this is currently taking place. The approval process moved quickly into phase 2, into a detailed revision and is recently under investigation. We hope that in short notice, during the course of this year, we will get an approval on that one. A precondition for that project, always said, is the regulatory framework for FTTB and FTTH rollout, and this is something which has to be decided from the Bundesnetzagentur. This is as well in parallel on its way.
As you know, the pre-signals we got already before we announced the deal was that they are willing to support and approve this transaction. The company will become active in 2020. So we are now in full preparation of this one to build the fiber access here. In parallel, we take the approval phases. We do not lose time at that point in time. The second thing which I want to mention to you is that, apart from the auction process, there has been a regulation on the FTTH prices and on the bit stream prices going forward. 250 megabit bit stream charge for EUR 80 monthly premium. This is implying a EUR 23 monthly wholesale price. Also the ULL hike, and you have seen the improvement there, seems to be a supportive move for a more investor-friendly environment.
The FTTH rollout in Germany is not comparable with the FTTH rollout in Spain or in other markets or even in the U.K. because there is a lack of ducts. There is a high request with regard to the construction. We have to go deeper, and we are not able to trench the streets. On top of that, the construction anyhow is more expensive. Therefore, this higher price is compared to other European countries, is reflecting even the higher cost which you will find for build-out in the German environment. We appreciate that discussion and this decision from the Bundesnetzagentur towards the premium, especially on the 250 megabit bit stream.
Let me comment on the coverage obligations and the question with regard to national roaming. If we are taking a look at the current auction design, I think we have to split the coverage obligation into two phases. There is a phase until end of 2022, and this is pretty much covered with our self-committed 8-point plan. We are comfortable in order to comply to that one. But it becomes tricky in the years 2023 and 2024, where we basically have to support seaports, waterways, and all this stuff. I think that comes back to that previous question. Probably, it is a good idea to think about whether we can share the pain by a cooperation with other network operators. This has to be obviously discussed and negotiated once the auction is over.
On the court actions, everything which we have filed in court will be decided on after the auction, but not throughout the auction. Therefore, we have to wait until we get any favorable terms, given a ruling from the court. On national roaming, we said this so many times, there is no legal obligation to national roaming. If you take a look at the exact terms of the auction regulation, it says we have to negotiate in good faith, but not that we have to strike a deal. This is what the translation says. In any case, if there is a good business case for somebody, we will see. We will not rule it out. But there is no obligation to provide national roaming from a legal basis. And we have been firm on this one since months.
Okay. Thank you, Christian. And with that, we move to another Christian. Christian at HSBC, please. Just before I give him the mic, we are in a good mood, so we will take all the four remaining people that have further questions. We start with Christian now, and then I think we take no more further questions from here. Thank you.
Hi, Christian here. I have a question. I actually have two. One is more kind of accounting driven. I was wondering about the IFRS conversion from the U.S. GAAP, U.S. business. There was a kind of a weird movement in Q1. Historically, we had always a EUR 500 million-EUR 600 million delta between the U.S. reported in the IFRS one. Is there any terms of guidance you can give us for the rest of the year how to model this? There was this energy purchase agreement. How is that going to develop for the rest of the year? A bit of guidance would be helpful. I think the other one is on the Sprint deal. There has been a lot of, let's say, a bit more negative news flow recently. Tim, would be interested in your view. What is the latest there?
You mentioned that the California state may lead it into H2. What's the latest? I would be interested in your view. Thanks.
Shall I start or Go ahead.
On the accounting question, the difference between US GAAP and IFRS after leases in the first quarter was $242 million. Approximately $100 million can be attributed to different treatments of stock-based compensation. Another $100 million can be attributed to a different treatment of leasing and others. Finally, $50 million were in effect through a power hedge, which happened in the U.S. and which basically confronted us with a negative hit of $50 million in the first quarter. That explains the $240 million. On the stock-based compensation and the lease differences, that will carry through the year. How a swap will develop, I will not comment on. That can also turn into a positive thing, or it remains to be negative. It's really hard to judge.
If you would have been growing up in a German environment, you would know what a Kneipp cure is. A Kneipp cure is a kind of treatment or rehabilitation, where you get always cold and hot water. If I'm looking back to the last 12 months, with regard to, let's say, this transaction, I can tell you, it's the longest Kneipp cure ever took place in history. I'm sitting in the bathtub and enjoying it. Guys, I'm sorry, but there is deal flow coming positive, there is deal flow coming negative, and it's going on and going on and going on. Guys, I think, our team in the U.S. is very well connected. We are very transparent in the communication going forward. I think we have been very clear and outspoken in our hearings about the benefits of this transaction.
I really admire what our U.S. team is doing. They're sitting on an operational business, big size, and outperforming the environment. At the parallel, they are driving this very complex approval process. That's all in a great positive spirit. I'm not speculating on negatives or positives here. By the way, I even haven't had the feeling that we got some really negative news flows recently. That California may delay things, I think that was something which we were expecting from their position earlier already. Let's do the following. Let's enjoy the Kneipp cure for another two weeks or three weeks. We are in June. We expect the clock is over at 3rd of June. Then we will anyhow have a clear sight on whether the treatment has worked out or not.
Well, I can only say it really worked on Tim, so he's very lively. In English it's called contrast hydrotherapy. If you want to know more about Kneipp cure and the German spa towns where you can enjoy that, then please get in touch. Tim lives in Bad Godesberg. It's called Godesberg Spa, so actually it's known for its hot water. Anyway, next question from Sam at Exane please.
Good afternoon, everyone. A couple of quick questions if I can. Firstly, on German broadband again, sorry. I guess big picture, you talked historically about taking your fair share of net adds, but in the last two or three quarters you kind of slipped down as O2's fought back a bit. Do you think you need to do a bit more? You think all the price moves that the other guys are doing will just be enough to get you back towards your fair market share, if you like? Secondly, on T-Systems. It's been in turnaround for as long as I can remember. I thought Adel's pitch last year was actually pretty good. You've seen some of your peers, however, accelerate transformation through M&A recently. Are there any triggers that would make you consider M&A, so either acquisitions or disposals of some of the classic IT business?
Then if I can try and address one of the elephants, so the Sprint deal. Clearly Sprint results this week are deteriorating quite a lot, and I guess you had a bit of a range of expectations that you built into your initial guidance. Would you say that their results are still within the initial range of expectations that you had outlined a year ago when you first outlined the deal? Thanks very much.
On the German broadband deal, German broadband situation. I think, we have been very explicit and clear about, let's say, the market share which we are striving for, which is the 40% net add market share which we want. By the way, we have not changed our assumption on this one. If you relate that to the build-out costs and of the infrastructure, we need a decent amount of fair share to amortize this infrastructure build-out which we are driving. Therefore, the teams internally know that there are quarters which are doing very well and there are quarters who are not that strong. I would have said first quarter could have been a little bit better. If I look now to your analysis on the net add share of O2, I would say this was in a very low end of the market.
We are talking about 25 megabit per second and upwards. Very low. I'm more focusing our sales organization on the upselling into the vectoring and the supervectoring areas. As I mentioned earlier, 20 million are on supervectoring already today. If you ask me about the customer numbers, still very slow on this area. Please challenge me on how we are able to increase our penetration in the segment, and this is then automatically helping us to get a higher share of the net adds perspectively. On the T-Systems side, look, we are not commenting on any M&A speculations here. As you see, we are improving on the operations. A swallow doesn't make a spring, as we say in Germany. The developments are encouraging, and we make good progress. It is a very radical reorganization, which we are driving.
This radical organization is not only addressing EUR 600 million cost savings and planned headcount cut of 10,000 people, which is, by the way, ongoing. We even consider doing a sale of parts of the business. As you might recall, we have triggered a deal with IBM on the mainframe business, which we are not pursuing any further, and I am not excluding M&A in this regard. We do everything in order to deliver on the improvements. The good thing is that our order entry is up by 7% year-over-year, and our EBITDA is up by 53% year-over-year. We are very consistent on our guidance with regards to this full year links.
I can tell you, even the resale of AWS or the exit of our desktop business are signals that we are not stopping in areas where we cannot turn around the business, finding a better owner.
Good. There is a third question on the Sprint deal.
The third question on Sprint deal. Look, our expectations into our guidance. Our guidance is not including the Sprint deal at all. Only the costs which we have for the approval process and for all the additional work which we have to done are part of our calculation. We have given a clear guidance with regard to EBITDA and profitability for this year. This is including these costs. We feel very well on this track for the remainder of that year. Anything beyond that is not part of our going concern assumption.
When it comes to the combined entity, I think you have followed what T-Mobile has been reporting, and you have followed what Sprint has been reporting, and I think that speaks for itself, and when you add it together. Track that over the last few quarters, I don't think it has moved a huge amount. In terms of next question, may we have Mathis from Kepler Cheuvreux, please. Mathis?
Yeah. Can you hear me? Yeah. Just one question. Could you tell us what you would do when the deal or if the deal with Sprint would fail? Could you give some color on strategic options or anything you consider?
What we said is exactly what we said at the Capital Markets Day. We will continue with our share buyback program, which is two, three, four. We obviously will focus on a standalone operation, T-Mobile US. You have seen the outstanding numbers of the U.S. folks over the previous quarters. That's going to be the alternative, which is still a good alternative, but the better one is the deal.
Great. Thanks, Christian. Next is Guy from Macquarie, please.
Hello. Thank you very much. A very quick question. If I look pro forma to the end of June, regardless of whether the Sprint deal is consummated or not, you're likely to be in breach of your new 2.75 net debt to EBITDA, given you've likely to have spent on spectrum, and of course, you've got the dividend payment, and your cash flow is relatively small at the moment. Does this actually create any incremental implications for you with regard to your credit ratings, which are clearly both on sort of negative watch at the moment? Thank you.
First of all, I think if it comes to rating, it's not being judged on a quarterly basis. Our numbers don't indicate that we're going to leave the corridor. Obviously, you won't see that 2.65 just given the fact that we have to include the dividend in Q2, as you mentioned. We don't have any indication that we're going to leave that corridor, but there is going to be very little wiggle room to the upper end of the corridor, which we expect in Q2.
In any case, IFRS 16 for us, it just moves the metrics, the rating agencies have always considered it, there is no fundamental change in our indebtedness because of a change in the rating standard. All we do is that we provide the pre and, by the way, also the post IFRS net debt, right? The net debt AL, if you want to look at that, is EUR 54.9 billion at the end of the quarter. Next we have Emmet from Morgan Stanley, he also concludes today's call. Before I hand back to Tim.
Thank you very much, Hannes. Just one question from my side. You touched on T-Systems briefly earlier from the kind of M&A side. I know you said that one swallow doesn't make a spring, could you maybe just talk a little bit about the EBITDA swing, it's obviously pretty impressive. I know it's only one quarter, it can be lumpy. Can you maybe say a few words on some of the cost-cutting initiatives in particular that Adel and his team are undertaking at the moment, what the outlook there is for the next couple of years, whether you think we've gone past the trough for T-Systems? Thanks.
On T-Systems, as I said earlier on, I think, the comparison is based on a weak quarter in Q1 last year. If you may recall, we had EUR 60 million EBITDA in Q1 2018, now it's EUR 19, you see that 50% increase. The second one is, the turnaround program is not in full swing yet. We're focusing on G&A functions. We're focusing on executives. Whenever it comes to the heavy loading, when it comes to cost reduction, automation in the factories, the whole offshoring, this is still in the process. We expect improvements over the course of the year. We're happy with what we're seeing so far, both when it comes to order entry and the initial cost reduction effects, which we're seeing. Again, as I said, it's not in full swing.
Okay.
I give back to Tim, he has a bunch of concluding remarks.
Look, guys, long debate today. Thank you very much for your questions, and your support. I'm very happy that we have started strong into 2019. If I look to DAX and other environments, haven't been easy for most of the companies here. If I look to the telecom sector, same story. Deutsche Telekom is, with its footprint and business, started very well in this environment. This is the good thing. Nevertheless, I see it's quite important that 2019 is a really relevant year, for a lot of things happening here. There are things where, I would say, we have to live with the interdependencies which are giving from the environment. The first one is that I see this U.S. deal coming to a conclusion. The second one is the auction in Germany, which is very relevant coming to a conclusion here.
You have seen that the increments are growing very slowly at that point in time, but nevertheless, it would be good to have clearance on this one soon. The third one are the issues around the T-Systems turnaround, which are very relevant in this year. The visibility of this one is something which materializing throughout the year. We have all these customer issues which we are driving at the same time. To be clear, I'm very happy about the momentum which we have on the customer sides, both on B2B and on B2C, especially when it comes towards our network propositions. Nevertheless, there is still a lot of things to do. The first one is, for me, the customer experience, and the service quality. We have good momentum in Germany. I'm very happy what's happening there.
When it comes to TRI*M or our Net Promoter Score issues or even the KPIs. I want to see a little bit more that we appreciate the base, our customer base, in an even stronger way. The loyalty, the focus on the base, the churn, is something which is very relevant for me throughout this year. Second, we have to monetize our fixed infrastructure in Germany better than we did in the past. I think this is something we have a lot of investments over the last years. Now it's time to show the money. Monetizing infrastructure by selling the fixed line services in vectoring and supervectoring is super tricky. What you have even seen is, we had a good start on the efficiency targets. I'm not talking only T-Systems, I'm talking everywhere, especially Germany here.
I want to deliver on the efficiency targets or even beat them. That's our program. All hands on deck at Deutsche Telekom. All people are in good spirit moving on. Thank you for your support and hope to see you soon on the roadshows.
Okay. Thank you, guys. Conference call is now about to end. If you have any further questions, please contact us in the investor relations department. Have a great rest of the day. It's been a lot, I think, for everyone in last couple of days and weeks and in our sector.