Good morning, ladies and gentlemen, and welcome to the freenet AG conference call regarding the Q2 2024 results. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Christoph Vilanek.
Good morning, everybody. Thanks for joining today's call. You have all most likely read our announcement, and as always, we will now go through some of the details and are happy to answer your questions. When I prepared myself this morning, I made a note and said, "It's no real news, but it's good news." I think that is really the message from this quarter. You have read and heard a couple of weeks ago that we have concluded with all three network operators' long-term agreements. We are finally expanding the 5G mobile tariff portfolio across all three networks for our customers, which will enable a couple of new campaigns in Q3 and Q4, which I will give a bit more detail in a second.
We've been very successful with our IPTV development in terms of net adds and also in terms of new agreements. We have also no real surprise and no real news, but confirmation of the fact that we have shut down Gravis. It is not included anymore in all the numbers. Let me also say that the related cash flow and the related costs that we have expected are all in plan, even a bit better because we have sold out almost the entire stock, which brought a significant pile of cash. We are currently working on the re-rents of our in total 38 locations.
10 are already signed, and there is 10 more to come, which will also then go against the negative. Even though this is all financial results, I just wanted to clarify that there were no negative surprises or big efforts that keep us busy. The team did a wonderful job there. Going straight to the mobile development, I think no big surprise. We have grown a little bit with + 26 in the first half of the year. I think across all the operators and service providers in Germany, you can see that there is a low uptake.
I would, I would consider this, as a matter of fact, that prepaid migration that has fed the postpaid numbers over the last five, six years is coming to kind of an end. We are comfortable with the current growth, but we are also realistic that we stick to about 100 net adds for the full year. But even though a lot of things change, at least from the headlines, we do not expect a big shift. We have learned, as you have learned from United Internet, that people that they seem to lose a couple of customers. And then the question was, are they all coming to us, or where are they going? Well, first of all, even if you terminate a contract, you're not out the next day.
We would assume that a certain proportion of that is still bound for 12 months or for 24 months. So the negative reaction is certainly an issue and a challenge for 1&1, but they will also now start to try to retain those customers that are not gone yet. So we could not perceive kind of a big wave as a result of the network downtime. What are the things that we are aiming for or working on in the second half of the year? And I will, on next page, go on the Telefónica thing explicitly. There's a couple of things worth mentioning.
We are right now launching similar plans to the family or next plans for Deutsche Telekom across the board, specifically with the Telefonica enabled new tariff plans that we have launched actually a couple of days ago. We are starting from first of September a sponsoring of the so-called Icon League, which is a soccer indoor soccer league that was created and funded, founded by Toni Kroos, the famous German player. We expect there to work with a lot of young influencers as well as sportsmen and are hoping to address a target group, young male professionals that we haven't met before.
And once again, the Telefonica portfolio is helping us there because this is people that go for SIM-only, attractive, full data plans. A word to the ARPU, we expect this to be the ARPU to be stable for the full year of 2024. Coming on the next page, talk a little bit about the agreements. I think we have been talking before, but here as a summary, again, we have concluded a deal with Deutsche Telekom, going or including till the year 2028. Another one with Vodafone, 2029, and the one with Telefónica, which is a 5 + 5, so up until 2034.
I think it's worth mentioning that the fundamentals of the business model, and the fundamentals of also our financial mechanics, has not changed. So we are not expecting a big drop or a big increase of CapEx or any other spendings, but also not on the revenue side, because the fundamental mechanics stay the same. But still, the key changes that result from Telefónica is, first of all, we have full access to their Blau portfolio, which we did not before. Second is, we have full access for all of our customers, we can convert them to 5G. And I have also heard from Tim and the colleagues from IR, that people were asking, or you were asking about commitments.
I mean, any contract always includes vice versa commitments. On the one hand side, the support and the agreement on terms. And on vice versa, the network operator asks us to commit to quality, to volume, to mix to a whole set of activities. And I think it is easy to understand that, first of all, there is an agreement on non-disclosure, and we stick to that confidentiality. For me, personally, and I'd like to add that the most important thing on the Telefónica contract, and that is really the difference from the two that, except for additional to the two points that I've made, is that we have an agreement on the long-term revenue share.
We are not; there will not be a volatile thing depending on a new tariff plan, but it's an agreement that gives us really a very possibility to long-term customer lifetime value planning. And that is a fundamental difference. If you, if you can assume that a renewal will be done, is supposed to be done under the same terms and conditions, then the acquisition; this is helpful because it changes from a short-term, short-sighted, quarter-to-quarter kind of planning to a long-term planning, and I think both companies feel very comfortable with it. So, what are we doing with this new situation?
One thing is, and he has just mentioned, we will launch a number of new discount brands, just as Happy SIM, Dr. SIM, and others. I think it's, and you all know that, Drillisch or 1&1 are working with up to 15 brands. We are not doing that in the past due to the limitations of SIM-only tariff plans applicable to those brands. Now we are enabled, and you're gonna see white label brands in the near future, and a whole number of them, because we see that this is a good way to be more prominent on the Google search, but also on the things like Verivox or Check24.
We are providing currently plans starting with 5G till 25 G, similar to the Blau portfolio. So if you check out the Blau website and then compare that with the freenet mobile, you will find that they are very similar. But we are still providing the bigger ones up until the unlimited, and the unlimited plans were very successful. We see also that we can charge more than we did before. Right now, well, we've concluded the deal in June. We have done technical preparations and selections of customer segments during the month of July, and we have, in the second half of July, started to do a couple of tests. Let me maybe illustrate that.
There's one campaign, for example, where we call the unlimited and big data tariff plan owners and tell them that they can upgrade now to 5G, and we offer them either a price upgrade if they are on a monthly contract and want to remain on a monthly contract, or no price up, if they change to a 24-month contract. And conversion is super attractive, and the reaction of the customers is really positive. We are doing this now also in campaigns on the lower end, and we do a general campaign across any of the churners, where we offer bigger GB packages. And given the fact that we have these offerings right now, we are fully compatible to the other brands.
You might have heard that Magenta has doubled all their data packages in the very first week of August. We have also provided this to our telecom network customers. This is just a mentioning of two or three campaigns, but there is many more in preparation. I think it's way too early to say what the straight impact is, but I think there is a side comment made also in our announcement, that we think that the upside, there is an upside potential, which is not only giving us the confidence to make the net 100K net adds, but we can also imagine, depending on the results of the test, that we go beyond the 100,000, now equipped with the Telefónica deal. Moving on to IPTV, next page.
You can see that, I think very, very strong Q2. I've seen the numbers from Deutsche Telekom this morning, had it +114. Very happy to see that we've done 191,000 net add in Q2. Total for the first half was 330,000. I think the 2 million customers that we have, maybe not guided, but, called an ambition or a personal ambition, are, very likely to be reached. We are also seeing in July, not the fatigue that we have seen in the past years in the Q3. I mean, it's still a Q3, but, we're doing quite well in the first 4 weeks, so it's not a drop down after the European Championship or in summer or something.
But the thing that made me really proud during the European Football Championship, our team was 24/7 up, double checking our service level, and we could maintain a 100%, even 100%, not even 99.9, but 100%. Full service level we have provided. Our peak was 5 Tbps sent to the different connecting points, and all the traffic was well handed over. We did not do campaigns like allowing people basically taking a single day and taking a ticket. So these 191,000 are real customers with a strong commitment. More than half of it has taken a 12-month package, including a stick and a remote control.
We see that the remote-control customers, if I may call them like that, those are the ones that are very sticky and show high loyalty to the product as soon as they have installed it. We will now in August start a campaign with Deutsche Bundesliga. We have agreed with Sky Deutschland to offer a package with the full WOW and WOW! sports package. A part of the channels will be also included in a kind of a live EPG feeling so that people can easily access it and don't need to start with the app of Sky or WOW! But can start right within our Waipu EPG. This is a great test.
We are very grateful that Sky also has accepted us to do that in order to understand how much of our customer base will be attracted by that. So it's mainly a campaign where we expect the customer base to upgrade, and then we want to measure what the churn impact is. It's not so much a new customer acquisition tool, but a loyalty driver. And I'm sure we will give some indication, more details, with the Q3 numbers and an outlook for the next year. Media Broadcast, I mean, customer base still going down, but it was in the first year, less than 40,000, so we are less than 10%. Still losing, but I think we're getting closer to kind of a long tail kind of feeling.
The good thing is that price up is still a valuable tool, and sooner or later we will do another price up in order to stabilize the EBITDA. There is a 5G broadcasting tested with Xiaomi and two public channels in Germany. And there is talks to many other B2B customers. We have also won the first service contract for car loading stations because our field service can provide countrywide technical services in a high quality. So coming to Waipu in a bit more detail as the last topic from my side. While we've been successful with the TV campaigns on with Dieter Bohlen, Modern Talking guy, we started with Dieter für Mieter , so Dieter for lease contract owners.
Pushing a little bit the cable and telling the customers that cable is an old-fashioned access tool and ours is much better. We switched—then flipped, or switched the campaign to Dieter on the football championship. If you want to see the goal faster than elsewhere, then you're right with Waipu TV. This message was also heavily picked up by the press and also by sponsored ads. I think that all added up to 191 ,000 net adds this year. What are we preparing right now? I said one thing is Bundesliga, and also I mentioned on the marketing side, the sponsoring of Icon League.
Here we see the first time, a real interesting synergy between the core mobile business and the TV business. We are sponsors for the Icon League for freenet mobile, but Waipu will also broadcast the Icon League on TV as a specific channel and add it to their service. I think these are the kind of cooperations that we're gonna see even more in the future. On the right-hand side, one is the graph of brand recognition index. So the Dieter Bohlen campaigns still are super attractive and drive recognition. And on the right-hand side, it's a repetition of what I said, 191,000 net adds. And we are expecting for the full year, for the second half of the year, more than 300,000.
My guesswork would be Q3, around 100,000 and Q4, plus 200,000. So, in total, we will cross the 2 million subscriber number by the end of the year. We are also starting to test a couple of advertising replacements, also with the key channels, such as the from the ProSiebenSat.1 Group. So also on the advertising side, we are gaining pace, and we are winning the confidence also on the and the trust also from the channel operators. They stepwise understand that this is also beneficial for them and will create additional margin. Once again, I think in November we will give more details there because then we are going through the test.
But there is a whole number of activities that give us the great confidence that we will go beyond the 2 million subscribers. Having said all this, the numbers are mirroring what I said, and I hand over to Ingo to give you a deeper view on the financials.
Yeah, thank you, Christoph. Good morning, everybody. I start with a view on the group financials. Again, we see a slight increase of the revenues by something like 3%, in the quarter, and also for the first half. So I think we are totally on track here. And I think the good news is that the revenue increase is based on service revenues, which are higher, high valuable. On the gross profit, therefore, we see an increase in the quarter by 6.7%. It is based on the valuable revenue what we are generating, and therefore, all in, we could increase the gross margin further. The EBITDA level what we see here basically is that we have the cost under control.
We see again some increased personnel costs, which is no surprise, and we see the marketing expenses, the higher marketing expenses based on Waipu. But I think no surprises here or what we expected, because this is something where we already guided at the beginning of the year. We guided a stable year, a transition year, 2024, and this is exactly what we see here as we look into the EBITDA after six months. Moving to mobile. Here you see explicitly the increase in the service revenues here. You do also see an increase in the other business, which is partly generated from digital lifestyle business.
So we still do not have a focus on low-margin hardware sales, but it is an intrinsic part of the business that we do hardware sales, and we need to have hardware sales, but it is definitely not our focus. Moving to the gross profit here. Yeah, this, maybe this is a positive surprise because the gross profit is increasing even stronger than in the first quarter. This is based on the digital lifestyle business, on the service revenues. And it is also based on the contracts what we could conclude with all of the network operators where we have in parts favorable conditions here. Moving to the EBITDA, I think maybe this was...
If there were some critics in the first quarter, there were the critics that the cost increase was slightly high, and therefore, the EBITDA effect was not that strong. I think here it normalized in the second quarter. So most of the gross profit is also arriving on the EBITDA side. So I think I already mentioned, yeah, personal costs are higher during the whole year. But what we already saw last year was an increase in the second half. And therefore, what we do expect in the second half of 2024 is a phasing out of the personal cost effect. Moving to some KPIs of the mobile business. I think Christoph already mentioned the stable ARPU, the growth in mobile subs, in this challenging environment of the second quarter.
What we also see on this page are the digital lifestyle revenues. Yeah, I think we left out the low-margin hardware revenues at the beginning of the year. This is something what we already explained to you, and it is even, the message is even better now because the increase of 3.6% is from valuable business. Moving to TV and media. What we do see here, yeah, we see the strong increase of the revenues, which is based on the number of subscriptions and on the growing customer base what we do have. On the gross profit side, all this revenue increase is arriving, so we do also see here a gross profit increase.
Not only for the quarter, but also for the first half. But as marketing expenses, even in connection with gross adds, is not part of our gross profit. Yeah, definitely, the negative effect in the EBITDA, I think could not surprise us and would also not surprise you. I think in the second quarter, the negative effect in the EBITDA was even a little bit higher, on an EBITDA level than in the first quarter. But yeah, we have invested in marketing. We told you that the additional investment for the whole year would be EUR 20 million. This is what we already planned at the beginning of the year.
I would confirm that this today, because in the first half, the additional investment was EUR 12 million, and for the second half, we do expect another EUR 8 million. But, and I think this is clear, and I think the proof of concept then will be shown in 2025. But I think it is clear that the high customer intake, what we show, that this justifies the higher investments. Moving to the free cash flow bridge. I think no big surprises. Change in working capital, largely stable compared to last year. Taxes, yeah, taxes up to now, a little bit lower because there were some refunds, one-off refunds, what we received in H1 2023.
So therefore, in comparison, the taxes look slightly higher, but I would say this is a normal level, what we see in 2024. On the CapEx side, yeah, the figure definitely looks relatively low, especially in the area of digital radio. We have some phasing effects here, so we will see some of the investments in the second half. Yeah, but yeah, I think that's a good guess that we do not need the whole CapEx budget, what we planned or forecasted at the beginning of the year. Lease payments, yeah, it's relatively stable to last year. Some structural effect last year, but all in all no surprise, interest payments in line with what we planned for the whole year. So I think we already got some of these questions.
With the 151.2 for the first half, wouldn't it be reasonable to increase the free cash flow guidance? We have to decide it for now to stay with the guidance where it is, because we have to, we have to wait and have to see, if there will be a catch-up in the CapEx in the second half. I think we are not that confident today, that, that, that the figure is really lower. But, yeah, I, I think, there are, it is likely that something could be possible here to, to increase slightly this guidance during the, the rest of the year. The guidance page all in is, is therefore confirmed from today's point of view.
As this is my last slide here, I would hand over to the operator to start the Q&A session, please.
Thank you very much. I'm taking over. So dear ladies and gentlemen, if you are dialed in the conference call and have a question for our speakers, please press nine followed by the star key on your telephone keypad now to enter the queue. Once your name has been announced, you can ask your question. If you wish to cancel your question again, please press nine and star a second time. So one moment for the first question, please. And the first question comes from Polo Tang of UBS. Over to you.
Hi. Thanks for the presentation and for taking the questions. I have three questions. The first question is, following your new long-term deals with all three MNOs, you mentioned that you've made changes to your tariff lineup. So can you maybe comment on the commercial trends that you've seen in recent weeks as a result of the change, and also give us some sense in terms of how we should think about the impact in the coming quarters? So do you expect a benefit in terms of ARPUs, or do you think you will take subscriber share? My second question is, are you getting better economics with your new MNO deals? I'm just asking because if I look at your mobile gross profits in Q2, they did see improving trends.
My third question is, what are your latest thoughts on what will happen with a fourth mobile network build in Germany? Thanks.
Yeah, Polo, thanks for the question. I mean, on the first one, well, then, as I said, the tariff lineup, the key thing is that we have a much wider range now with Telefónica than we did in the past. In the past, we basically mirrored the O2 tariff plans only. With the new agreement, we have access not only to the O2 tariff plans, but also to the ones of Blau, which is their key sub-brand. And we have also an agreement and allowance to ask for additional tailor-made tariff plans that we suggest. They are now installed in both our systems and are now up and running. I think the big piece that we were missing out the last couple of years, and where really Drillisch was very successful, was the lower price end of the SIM-only market.
We have not had the possibility to compete them on the Telefónica network, but also only on the premium, so-called premium networks of Deutsche Telekom, and the SIM-only of Vodafone. I think that is a change. And we also see that there is a big potential where 1&1 has obviously grabbed a couple of million subscribers, like, I would even say, without competition, last couple of years. So, we're migrating or we're moving with our campaigns into that segment. And that also gives you, gives you an answer on your question, is this more an ARPU driver or is it more a volume driver? I would say it's a volume driver. And the whole structure of the deal incentivizes us on the combination of volume and quality.
In general terms, I would say the profitability is a bit better. But without indicating the numbers as such, I would just like you to follow the math. If we say this is a EUR 2 billion revenue business, and we have a gross margin the size that you are all aware of, 2 or 3 percentage points, and we are not talking about tens of millions of EUR overnight. There is a structural impact, even if you have 2%. But the 2% lift on one single network is divided by 3, and then you end up with comparable small numbers.
Much more important is that those are kind of set, not in stone, but set on paper and agreed on paper, and that is the big difference. We were never disclosing the monthly, quarterly or biannual struggle that we have had. But it kept a whole part of our organization busy handling and optimizing and balancing the various incentive schemes. And now we have a set of incentive schemes that we can operate orchestrate over a number of years. So in general, yes, it's gonna be a bit better, but it's not fundamentally or significantly a two-digit type of changes that we are facing.
And on what you call the fourth network, I mean, we are relying on the same level of information that you have access to. I think what we hear, what I hear also from kind of, like, day-to-day partners, the entire transfer of the Telefónica customers into the Vodafone network was always seen as a challenge, and I think they have published that they may need to do 50,000 a day. What we hear rumor-wise, they are far off that number. They have much more difficulties. The network down of a couple of hours in countless cases, and even days in a bigger group of customers, is creating some uncertainty, but also public notion is not as big as the notion in expert rounds like we are.
We also hear that still the network building is facing a lot of difficulties regulatory-wise, and also just the German legislation-wise. So, building an antenna is an easy one, but putting power there and fiber there is different authorities, and so on and so forth. So we hear that they are struggling. Like, it's more anecdotal evidence than real evidence that I can share.
Mm-hmm. Thank you.
Thank you very much. Then we are moving on to the next question. Next question comes from Adam Fox-Rumley, HSBC. Please go ahead.
Thank you very much. I actually had a follow-up to Polo's question on this longer term visibility. I suppose rather than the day-to-day trading, I'm wondering if it has broader implications for the company. I mean, with the visibility that you now feel that you have over the course of next, you know, well into the medium term, does that change your thoughts on the OpEx base for the company? Does it change your thoughts on how the balance sheet should be structured, for example? Be curious to know what you think there. Thank you.
Yeah, Adam, thank you for your question. No, the easy answer is no. Because our business model basically does not change. So we have the same business model as before. And therefore, no, I do not expect any changes in balance sheet or so.
Thanks again. I, I guess then the follow-up is, if you've had a lot of people within the organization spending a lot of their time working to manage these contracts on a month-by-month basis, you know, what is the incremental opportunity for them to spend their time on things now?
Good question. I mean, right now, right now, these people are doing the midterm modeling and scenario planning. The intensity of channel mix management has taken up over the last two or three years. If you want to manage bigger volume in the discount segment, there's also more people being busy to making sure that we're doing the right stuff. So, basically monitoring every single campaign in even more detail. And I also mentioned that we're gonna go for more white label sub-brands. So I think there is a lot more people, more, to do in terms of monitoring and balancing, and choosing best offers for the best channels. So I'm not talking about like hundreds of people.
I'm talking about a, maybe a dozen of people that are busy with it, and their job is changing, somewhat, but, nothing else. And once again, let me add to what Ingo said. I think straightforward, we still have a model with Vodafone and DT, which is based on a commission plus rev share, and we have a pure rev share model with Telefonica. And only if any of those would substantially change, then we would be at a structural effect, on the financials. But, we did not do so, and we are not expecting to do so right now.
Got it. Thank you, guys. Thanks very much.
Thanks a lot. The next question comes from Joshua Mills, BNPP Exane. Please go ahead.
Thanks, guys, and thanks for taking the questions. A few from me. One is just on the Waipu TV business, and obviously, so strong in the tabs this quarter. I'd just be interested in any color you can give on how the marketing costs of Privilege impact has come in versus your expectations. And then, I think you mentioned 300,000 net adds in the Q2 and 200,000 for Q3. If you could just clarify that, because I couldn't quite hear that, be great. Second thing was just around the broadband business. You know, a few months ago, or a few quarters ago, you said you'd be looking to offer broadband services as well. We don't have any KPIs on that, but any update would be welcome.
And then the third question, and Chris, off to you, if you're happy to talk about it. Obviously, we saw in the news that you won't be renewing your contract next year. I don't know if you're positioned to share future plans or reasons for leaving, but given the strong position you have put out here of where we are in terms of negotiations with the MNOs and plans for Waipu, just be interested to get your thoughts on that, too. Thank you.
Yeah. Thanks, Josh, for the questions. I think you're putting the finger in the wound on the Nebenkostenprivileg . We are still... We are puzzled. We cannot. We are reading the numbers from Vodafone. Our feeling is that they're cleaning out the database of unknowns, et cetera, et cetera. A lot of people that might still be on some sub-contractual way, but already used satellite or IP before. Because the numbers that they have published over the last two quarters do not fit the uptake, even if we would add Deutsche Telecom and ourselves. I think they have now mentioned twice, 650, and they're expecting 1.5 on top, so, yeah, EUR 1.5 billion.
So, I think it's not so much that they all migrate. It's more clean out, and they might have chosen this before. What we can see—I mean, we do a questionnaire, typically with new customer acquisition. Where do they come from? It's kind of like half, half satellite and cable. And what we also measure is the brand recognition of Waipu in the cable sector, and we understand that cable users, more of a third of those people are aware that there's an alternative called Waipu TV.
But it's super difficult for us, and I'd love to understand it myself much better, because then we and also the team, because then we could do even more targeted advertising or promotions. But it's kind of a fog. Yeah, we know that we're winning from them, but we cannot, we do not see the people inside the fog. So, as long as we're doing this growth, I'm not worried, but it's really hard. It's really hard to understand what's going on. It's too invisible. On the broadband, I think, when we spoke three months ago, I said, "It's not a strategic product anymore. We're selling it opportunistically.
We're doing a couple of thousands a year or a month," sorry. It's okay, but it's not worth mentioning as a separate product. I think all went well technically. Customers are very happy. Everything shows, it's doing well, but it's not really focused. It's one of the products that we have put out, and they are still on the shelf, and they are taken, but did not fulfill our hopes and expectations and plans. I think we also need to be honest on this. Luckily enough, we did not incorporate huge numbers for it in our budget or plan, so it does not impact guidance or something alike. But I think the summary is simply we were too late.
So, on the last one, yeah, I mean, I have the supervisory board has prolonged my contract last year. The contract is a 2 + 1 year, so by the end of 2025, it's agreed that they can basically, both parties could tell the other party that I would be leaving within 3 months resignation period. In fact, it feels like a 2025- end of 2025 contract. This is what I- and I have announced that I would prefer not to continue, and even if they would give me an offer for renewal, I would reject it. The reason is that I feel after, well, by the end of 2025, it would be 16 years.
I think we need maybe new inspiration, new spirit, new ideas in the entire executive team, no matter what exactly the mix will look like or whatever the outcome of the thoughts of the supervisory board are, but they should not plan with me. And I thought the moment was now because I felt like after having signed the deals and also having Waipu well on track for the 2 million, I think this is the right point. Everything is well set. Nobody will question what the reason is that I'm leaving. Now they can with total visibility look for a successor.
I wanted to avoid that sooner or later somebody starts to search, and then there are other rumors around, and what is the reason, et cetera. I think it's a transparent, open fact. Somebody asked me yesterday, will I have plans for the time afterwards, and my answer was no. I decided not. You do not need to have plans to if you end something. So.
Yeah, maybe I can add something, Joshua, from my point of view, because you were doubting in the call two weeks ago if Christoph would participate today, and I told you, "Yes, he will participate." And now today you see that he is participating. And I think I hear what Christoph is saying about his end, but to make it clear, I do not see one minute here internally that he is still impressive in doing in having new ideas, pushing new ideas, and he's totally motivated. So he's from my point of view the opposite of a lame duck. I just wanna make this clear here.
Though, therefore, I think you all are happy to have his expertise on the call here, and for me, it's the same. And therefore, I do not expect that we will change something here.
Well, thank you, Ingo, for saying that. It's exactly how I feel. It's also what I told internally all the people. I will take decisions and influence decisions as I did the last 15 years until my next day, my last day. Decision on the lease contract of the building in 2028, I would have an opinion, but I will not decide. But everything else, I mean, the strategic, the strategic pillars are set up, and we're working hard on this. And I mean, just as a nice example on the Sky agreement for Waipu, I am still the one—I was still the one that talked to the Sky guys. I know them really well.
And also on the Telefónica deal, but obviously, Marcus Haas and myself have a close relationship, and the same goes for Tim Höttges and the others, after such a long time, and it would be... I think it would be a very bad signal to step out, and I'm not the person too happy to be bored, and go home at lunchtime.
Got it. Thank you very much. Thanks a lot. Next question is from Usman Ghazi, Berenberg. Over to you.
Hi, thank you very much for the opportunity. Just on, just on Waipu, I guess, I mean, I'm just looking at the second half kind of net adds, guidance, right? And, and obviously, you might wanna be conservative, but I just wanted to make sure it's conservatism rather than something else where, you know, we, you obviously have a lot of initiatives going on. And, the brand recognition is up, significantly as the chart shows. So, you know, why should we kind of expect a sharp moderation in the growth rate, you know, in Q3, to like 100,000, which, you know, you've been delivering well over that over the last few quarters? So any color on that would be interesting.
Also the specific arrangement that you've done with Sky, you mentioned that it is, is it like a test arrangement where you're gonna see the upsell potential of the existing customers, and then maybe it becomes something more concrete? Or, or, just some color on that would be helpful. And then the last question was just on mobile. So Christoph, you kind of, I'm just paraphrasing you here. So you mentioned that, look, you know, even if the DT deal was higher margin, say 2% on a base of EUR 2 billion, you know, that's still EUR 40 million of EBITDA, right?
Yes, it won't come through in year one, but you know, over the years, it's you know, it if it's that kind of magnitude for the equity market, that's still fairly substantial. So just wanted to clarify your comments there, and if I've misunderstood anything. Thank you.
Yeah. Thank you, Usman. Yeah, on the first question, well, we're expecting 300, maybe a bit above 300,000 net adds for the second half of the year. And that relates a little bit to the previous question on my behavior. I think I was never the one that was super euphoric on something, and over-promising and under-delivering, and the same goes here. And thanks to Ingo, we were always agreeing on this all the time. We're very confident on the 300, and if it's more, we're happy. But we are always on the safe side. And that is also maybe worth mentioning...
I mean, if this was going much better, then we would certainly go for it, but we would not stretch the volume target and sacrifice EBITDA. So I think we spend the money that we want to spend, and we want to have incremental customers that are profitable. And we will not, we would not support the team to do another 30,000 just for the sake of having going above the target, and so sacrificing EBITDA or cash flow. So you may call it conservative, I would, and I would not disagree. Second one, on the Sky thing. I think this deal was possible because the current rights period runs out by the end of this Bundesliga season.
So we have approached Sky, saying, like, we would love to test into our customer base, the volume, the potential, the cross and upselling potential, and also any of those customers will get access to the full app of WOW. So it's kind of a combined campaign effort. That was important for Sky. Once again, I think this is a, this is an agreement for that one season. If we are then super successful and very happy with the numbers, and the same goes for Sky, then as soon as they have the rights issue for the next five years, it sorted our four years, it sorted out with Deutsche Fußball Liga, we will certainly start. So I think it was great to come to the agreement right now.
By the end of this calendar year, we will both look at the results and have a judgment on what the midterm potential is. This is then the right time to discuss it, because at that stage, hopefully, the Bundesliga rights topic, which you might all be aware, that there is some struggle between DAZN, and Sky and DFL, is sorted out. So, in a sense, it's a test for midterm or long-term view from both ends. On the mobile, thanks for the clarifications. I mean, and I simplify.
If we have EUR 2 billion in revenues, and we just divide it by three as third third third net share, then Telefonica would stand, and I'm saying would would would, this is only mechanics, not real numbers. If they would stand for a third, that would be EUR 700 million. If we would then assume a margin, a gross margin, anywhere between 30% and 40%, we're talking about 280 or, what, 250 to 280 million. And if I deploy 1% there, then we're talking about EUR 2.8 million, and 2% would be EUR 5 million. And that would be on a third and on such a margin.
So you cannot deploy an improvement of a purchase agreement by 2% on the revenue, but on the cost of goods. And I think that... Thanks for asking, because I think the clarification is necessary.
Thank you very much.
Thank you, also from my side. We are moving on to the next question from, Ulrich Rathe of Bernstein. Please go ahead.
Thanks very much. I have three questions, please. The first one is, so the full year intake, sort of 100,000, requires the intake to triple in the second half. That comes with additional SACs, I suppose, so that will be higher in the second half. And also the, you said already, the TV investments will remain relatively high also in the second half. So my question is, are you still comfortable where the EBITDA consensus has settled down, so to have EUR 508 million-EUR 509 million, that's within your guidance range? I was just wondering whether the scenario you're planning for and laying out for the second half would mean that you're potentially towards the lower end of the EBITDA range because of these, these SAC sort of step up in the mobile side.
Second question is, could you comment on the loyalty of Waipu subscribers, things like, churn, churn rates. Obviously, in the initial phase of building a customer base, the churn sort of didn't really play a big role. But as the base matures, you start getting sort of the churn effect. And I think it's pretty unclear to us at this point, what the churn rate on Waipu might be. And the last question, if I may, so just a clarification, you said there's a fundamental difference in the Telefónica Deutschland agreement with regards to having long-term visibility on the revenue share. I'm not entirely sure I understand why that is different at Deutsche Telekom and Vodafone.
Well, how is the visibility higher at Telefónica than at the other operators? Thank you very much.
Yeah, Uli, first, on the Waipu.tv churn, up until today, and this will remain in effect over the next 18-24 months, I think it's grabbing the households. So it's the focus is on gross adds. Certainly, we-- So how do we measure it? We do campaigns, then we have SAC gross add, and then we have SAC net add. Net add is always after, counted after converting to the big screen, after converting from a maybe three months trial period to reality. This is how we steer the business right now. All the numbers on churn, on loyalty, on long-term stickiness are available, and they're getting, as you well pointed out, as more and more stable, given the size of the base meanwhile.
But I'd like to postpone the question to Q3 and our idea of having a CMD there. I think we will specifically prepare to that topic. We've asked, we have looked into the numbers more detailed over the last six months. But at the end of the day, you will ask us about the stable outlook, and we will provide that next quarter. And I'm not hiding away, it's just, we're seeing that they're getting more and more stable and more and more reliable, but I'd love to have three more months to then publish them and give you a better feeling on the modeling.
And on the comment on fundamental, I mean, once again, the. If we have an agreement with Vodafone or DT, which is still having a commission component, it is obvious that if they change the commission structure across all their channels, equal for their own shops, for their own online activities, for their third-party dealers, whenever they do so, they mirror this towards us. So that is kind of an uncertainty, uncertainty and volatility in the business, which we are acquainted with, and which typically balances out between the two. Because if the one does it, the other doesn't do it, and we balance it out. And that is the fundamental difference. Was a fundamental difference, but it's even for, even more of a fundamental difference with this 10 years agreement with Telefónica.
Because we have an agreement how we mirror their tariff portfolio, and we have agreed on the conditions and the full terms and conditions, which things like a number of promotions, ways to discount individual tariff plans, what do we do if the data included change. All these things are agreed upon and will not be a surprise to us and to them in the coming years. That is, to me, a fundamental stability. I mentioned the Magenta; DT has upgraded all the Magenta tariff plans, this change now in August, with a doubling of the data. I mean, they decided this, they did it, and we deployed it also on to our customer base, which is okay, which is positive for the customers.
If they would have asked us whether we want to do it with our customers, we would maybe have thought about the price up or a positive option you can upgrade, and we would only give it to you with a renewal or something. But that is the difference. In TEF, we would decide full blast, how we handle it, how we do it, when we do it. On the DT and Vodafone side, based on the structure of commission plus incentive, plus annual bonus, we are less independent, and we are more in a constant conversation and cooperation with them, how we do things. I think that is, and maybe this, right, this is why I chose the word fundamental. So I think that was the question.
The first question, Uli, I think, was about the additional facts in the mobile business, because in the first half, we only generated something like 25,000 net adds. In the second half, it will be 75,000. So yes, it will be 50,000 more. What we do have to do in the second half, but as you know, based on IFRS accounting, the cost will not be shown on the day when we spend it. It will be shown over the next 24 months. So I think the effect on the EBIT, EBITDA level will even not be seen by all of us. So I think no, no, no change of the guidance because of this.
So this consensus at EUR 508 million, EUR 509 million, which is already in the upper half of the range, that is not something that you'd be concerned about at this point, or are you sort of would you have comments on that level? Thank you.
So I do not want to comment on this. We have a guidance out. Yeah, you are correct. This consensus is, it's in the guidance range, so this is quite fine. But, I do not give any comments on amounts in between the guidance range. So we stick to the guidance range, and then let's wait and see what happens.
Thank you very much. Thank you also for the answers from Christoph. Much appreciated. Thank you.
Thank you. Next question is from Sofija Rakicevic , Goldman Sachs.
Yes. Hi, good morning, everyone. So my first question is on Waipu TV. I know you answered a lot of questions already, but I'm just wondering, what is a sustainable net adds level from 2025, if you have anything in mind? And how does competitive intensity factor into your balancing of pricing, strategy, and volume ambitions? That's the first question. The second one is on guidance and uses of cash. So, what do you see as the key downside risks to your EBITDA free cash flow guidance for this year? And when will you start rethinking your share buyback program? How likely is it to be next year, given heightened marketing investments? Thank you.
Yeah, on your question, I mean, the IPTV market, I would say there's three parties involved. Right now, at least from the net side, we seem to be the strongest, followed by Deutsche Telekom. I think sooner or later, Deutsche Telekom will meet our gross numbers or beat them, because just, at least what they have published, they've invested about EUR 50 million into European Championship. So sooner or later, this money will be converted into gross adds and net adds. And the third group is either city networks or fiber, and DSL providers that have either proprietary products or cooperate with ourselves, or Magenta or Zattoo.
So that's I would call it three parties. So local, regional, and with real visibility, Magenta and ourselves, and to a certain extent, also into 1&1's, but still very limited. So that's the competitive environment. Pricing doesn't seem to be an issue. I think we are more confident to do price ups, always combined with either more content or more feature sets. But the two- price steps that we have done before have shown almost no churn. We have also learned that big or aggressive offers, free of charge, six months and so on, is not the right tool and is not the right approach, because then you only get people that don't take it serious.
You have, like, that German wording, if something is for free, then it's worth nothing. I think this is what we're realizing here as well. We prefer to charge from day one. But combined packages with hardware and 12-month subscription right now seems to be the best offer in terms of profitability, SAC, and conversion. So again, summary, three parties to compete. Pricing, not an issue. The pricing overall is still low compared to HD only on satellite is EUR 9 , terrestrial is EUR 9, cable SD is EUR 9. So I think with our base product, we are below this level, and with our extended product, including mobile usage, which is very much appreciated, we are on EUR 14.99 .
So I think the range is fine, and not a sensitive or critical point. For me, hard to say what the volume will be next year, but, I mean, we are on the road to do +650 this year. So I think there's absolutely no reason to assume that we will have lower net adds next year, but I would expect even stronger dynamic. So, more than 650. That would be the—that would be my current statement. I think it's too early to state an ambition, even though I could, I could do, but I would not do today.
Okay, then, Sofija, you had a question around the risk in the on the free cash flow side. I think part of the deck also is the full year bucket amount for what we published. So if I compare it, what we saw in the first half. Yeah, I definitely see some changes in the CapEx. On the other side, if you ask me where could happen a surprise, this is definitely working capital, because sometimes you have effects around year-end, where you could have a negative effect. I do not expect it, by definition from today's point of view, but all the other parts are easy to plan, and in working capital, I think it is not a real surprise because we see what happens. But there could be a deviation. It could be a positive or negative one. But this is the only position where I could see a risk, but all in, it's definitely very balanced what we see here.
Thank you. Thank you so much. Just on the buybacks, do you have any comment on that?
Yeah, I think at the moment, and this is what we already said before, I think we have a year where we invest more into the business, and we are totally fine with it. And therefore, we have not planned to do any share buybacks this year. In November, as you know, we will give a strategic update, a new ambition for the following years, and I think this would be the good timing to talk again about share buybacks, because then we have the longer view. And then, I think we have some ideas around it, and I definitely do not say we would never do share buybacks. It is on our list, but up to now, we have not decided to do so. But, I think I can promise some news on this topic for November.
Thank you very much.
Thank you. The next question is from Titus Krahn, Bank of America.
Good morning, everyone. Thanks so much for taking my question, even after we're running more than an hour. Two quick ones from me, if possible. First one is on the mobile outlook and your outlook for stable ARPU. Could you maybe give some color on what kind of the range you're seeing kind of being stable just after ARPU has been a little bit softer this quarter? And it seems a little bit like your initiatives to accelerate net adds in H2, like family plans, kind of discount plans. I mean, they sound a little bit more like low ARPU business, but maybe I'm very wrong on this. Then the second question, just on the operating leverage in the TV segment.
I mean, your kind of, your gross profit increased by about EUR 8 million year-over-year, and EBITDA, excluding those EUR 7 million in marketing costs, by about EUR 2 million. Do those subscriber acquisition costs explain the, basically the entire difference in between there, and should we kind of, on an underlying EBITDA growth basis, expect something similar over Q3, Q4, or kind of any big variation you would like to flag? Thank you.
So on the ARPU first, I think it is a change of EUR 0.20 in the ARPU, which is the equivalent of 1%. I would still call stable. And again, if we would add now, and again, I mean, if you would add 200,000 or 300,000 discounts, that's 5% of the total, if those have only EUR 6 instead of EUR 17, the difference on the total is EUR 0.20 or EUR 0.25. So I think that is the maximum range of deviation that I would expect. So that is not a substantial change. And once again, I mean, internally, more important than the ARPU is our gross margin on the operational margin on a monthly basis.
There's a difference of procurement and revenue, and this one is, has been stable, otherwise the gross margin would not develop in a positive manner. So simple answer for the next one or two years, we expect to maybe go down by EUR 0.10 a year or so. It may well be, but even that is not sure. But we're talking about the order of magnitude, more like EUR 0.10-EUR 0.20 than more.
And your question about the TV and media EBITDA in the second quarter, yeah, your calculation is correct. But I would like to mention, even without the additional marketing costs, we are in a growing business, and even without marketing, we would have a growing business, and we would take the fruits out of the business in the following years.
So whenever you have a growing business, then you have higher costs at the beginning, and then you get back what you invested later. This is one reason from my point of view. The other reason is that the Media Broadcast business, we already were talking about freenet TV. We see the shrinking base, therefore, we see decreasing EBITDA. And Christoph was talking in his presentation about a possible price increase in the future. Yes, this is something what we did in the past, and therefore, we could keep the EBITDA stable. But what we see at the moment, shrinking base, stable ARPU... yeah, therefore, we see a decreasing EBITDA here.
So I think if you put all in a line, you can explain why it is only 2 million, but, definitely we expect much more in starting 2025.
I'm thinking, I think that's well known, but I mean, on Waipu, we expense all the SACs straightforward in the months.
Yeah.
Which is then always a difference when we look at it and compare it to mobile business. Mobile business growth is always basically stretched or expensed over 24 months, whereas in Waipu, it all hits the bottom line straightforward.
Correct.
That also relates to one of the previous questions. If we would decide in December, it may well be that we say, like, we slow down a little bit and do not do marginal contracts just also because we want to satisfy the shareholders. And not going back and say, "Okay, we are not meeting or we are more on the lower end of the guidance," because I think if we make 2 million, everybody should be happy, and then we would certainly go for EBITDA as a preferred KPI if we hit the 2 million.
Okay. Makes sense. Thanks so much.
Thank you. And now the last question in our queue is from Simon Stippig, Warburg Research. Please, over to you.
Hi, good morning. Thank you very much for the opportunity to ask questions. I have a couple of questions. First one would be in regard to the Waipu figures. I think you mentioned it before, but could you please repeat what was the number of the 190,000 that are actually hooked on your Waipu TV stick? And then also here, what's your number of your total subscribers that do have the hardware already? And then also in regard to the Waipu, you mentioned that you're expecting 100,000 in Q3 and 200,000 in Q4. Could you please explain the drop here? Any explanation in that regard? And then I have three quick ones. One is in regard to the media and broadcast.
I know you're doing the maintenance for the antennas of the potentially fourth network. Could you here mention how many you're actually servicing at the moment already? And then in the mobile segment, you, one clarification question. You mentioned in the, you are introducing new contract brands and tariffs, and you, you mentioned that you are potentially getting above 100K net adds. Is that for this year, or is it rather a medium-term expectation? And last one is housekeeping. I think, it's, it's Gravis, your Gravis discontinuation. Here, is, did everything, go as you planned or any additional unforeseen cost? That's all from my side. Thank you very much.
Okay. Yeah, thank you very much. First one, I understand that your question was like, what is the share of hardware, new customers with or without hardware on Waipu? Owned hardware. Owned hardware right now is above around 60% of the sales are done with hardware. And we can prove that with the hardware, it's better than without. On the total base, the biggest single hardware is still Amazon Fire. That's from the first years, but we are close to overtake with our own one. So we have Amazon Fire, followed by right now, own stick, and I think the third hardware is basically the Samsung native app store, where people activate it straight on the Samsung device.
And then a lot of small ones such as Apple, Roku, LG, Sony, and the like. The second question was like, why are we going basically down from 330,000 to 300,000 in the second quarter? Well, because we have seen in the previous years that the third quarter is always the weakest. So, we have in our planning still the assumption that this will happen again, that the third quarter is the weakest one, due to summer holidays, no big events, and people not watching so much TV.
So that is the current assumption, and I repeat myself, maybe it's a bit conservative, but, but, we've always preferred to be, to be, conservative instead of, being, on the euphoric side. Third one, I like your question, on the maintenance. You have well observed that I was hiding away from doing a comment on the previous question on this. We certainly have on that single data point, we have an insight. By the way, we do not share it inside the company. It's only, Media Broadcast, knows it, and, obviously, Ingo and myself, who are in charge of running the company. But, you will fully understand that we will not do any, disclosure on this, any even qualitative comments.
The third one was the +100 we would expect for 2025. The bigger impact of a number of white label shops will then be... Sorry, the +100 was 2024. The bigger impact of these white label shops will be in 2025 and beyond that, because anytime you launch a new website and a new white label shop, it takes a little while till Google and all the others, search engines and price comparison engines relate to these shops. So, I think it's a build-up phase for the future, mainly for 2025. And on the Gravis, I think you were missing out the interest statement. Everything went fine. It's outside our numbers.
The planned cash impact of severance payments hit and down payments on lease contracts, repair, and reverse building all within the planned level. Selling the entire stock went really well. We have discounted all in three steps. In our shops, we were absolutely sold out in our stores a week or two weeks before we shut them down. The total leftover stock was 1 million, and what is that? Everything was sold out. Well, it's like minor stuff that you have anywhere in the warehouse, old stuff and so on. And of course, this is now sold to specific wholesale dealers.
So, no impact, if at all, improvements, because any lease contract that is sold to a third party or replaced by a third party gives us, due to IFRS, on the specific EBITDA side, and positive impact. But this will also not be shown in the regular one, but will only go against the exceptional ones in the financial result.
Great. Thank you very much for the long answers. Just one quick follow-up in regard to the first question. The split or the percentage share of hardware in regard to Amazon Fire, what would it be of your total users?
Again, we are not disclosing,
Okay.
- that number.
Okay, great. Thank you.
Thank you also from my side. With that, I would like to close the Q&A session as there are no more questions in the queue, so I'm handing the floor back over to the host.
Yeah. Hey, guys, thanks a lot for joining. Thanks for the open questions, and thanks for the opportunity to clarify those topics. We're looking forward to the next encounter in November. And we have put all your questions on the list that we did not answer and said we're gonna answer them in November. So looking forward to have you all very curious on that session. Bye.