Good day, and welcome to the Freenet AG Q2 2022 Results Conference Call. For information, this conference is being recorded. At this time, I turn the call over to your host today, Mr. Christoph Vilanek, CEO. Please go ahead, sir.
Thanks for the welcoming words. Thanks to all of you that joined today's presentation on our half year results. As you all have seen in the document and also in our press release, we are very encouraged from the past six months and even from our preliminary results of July, which we obviously know, and this is why we have adjusted our guidance. I'm sure that Ingo will give way more details and also discuss some of the questions that we have already collected. We have had a good second quarter. Even though it's summer and it's hot, we are running really well. Today the major topic is the second quarter, and this is why I'm going to the performance chart.
You can see that, during the quarter we have increased the total subscriber base by 57,000. We have year on year, a very positive customer intake of more than 187,000. I think the moderate growth that we have predicted is very well continuing, even though in freenet TV, we are losing a couple of customers. I think that was included in our projections anyway, and we deliver on our internal plans and on our promise. On the EBITDA side, we have closed the first six months with EUR 241 million. Well, if you add last year's performance of the second half of the year of EUR 224 million, we are on EUR 465 million yet.
As I said, Ingo will give some more details, but let me state at the beginning that we feel very comfortable. We will be on the upper end also of the guidance for EBITDA. On the free cash flow side, also a very good performance with EUR 124 million during the first six months. There was an exceptional effect in the second half of the year last year, which will be explained and give background on why we have not adjusted the free cash flow guidance. On next page, the breakdown of the subscribers, you can see that on postpaid, on freenet FUNK and FLEX, and prepaid, we have gained and won additional customers.
In the postpaid, we exceeded the 7.2 million here. The freenet FUNK and FLEX, the purely app-based tariff plans are growing even faster with +36%. We are not exceptionally investing on marketing here. It's more that it grows organically through word of mouth and through positive feedbacks of the individual customers. In the TV segment, if you wanna call it like that, the B2C area, the total net adds is +72, driven by the waipu.tv, which already did 820,000, or exceeded 820,000 by end of June. I've seen yesterday's July numbers compared to previous year, even the summer looks really nice. I think we gain trajectory and pace once again through word of mouth and the overall dynamics.
Whereas in freenet TV, we have on annual basis, we've lost about 12%. We are now moving into price changes and expect a couple of more releases there, talk about it in a second. Some additional information and illustration of the performance on the next page on the mobile net adds. I think very important is that and you have seen the press release, obviously, we have renewed our five-year contract with MediaMarktSaturn in Germany. It's another five years till 2027, still with the existing exclusivities. The performance in specifically in June and July is constantly improving. Some of you might have seen the announcements and documentation yesterday from Ceconomy.
Services and solutions is their path where they can really grow, and they can even outperform previous years. We are a major contributor. We're very happy to work with these guys in a super constructive way, also with the new management team on our field and on our segment there. This works really well. The second, the big thing in that quarter was that we have completed the brand transformation into freenet. Not 100% of the shops are already redesigned on to freenet because of some supply issues. Any information going to the customers, our websites, the entire stationery, et cetera, et cetera, it's all handed over.
There are a couple of initial problems caused by the changes of our websites and the keywords in SEA and SEO, but we feel that everything worked really well. The fact that we will now measure again the captive channel performance, where you can see it, in Q2 it was the same as in first half year last year. It was 71%, so it's like the level of pre-COVID level, which means that it went down a little bit online. It's a bit lower than or retail is a bit stronger than it was before.
We're very happy to state that overall captive performance is still the vast majority, and we control the journeys, and we improve the journeys constantly. It will be interesting to see whether the new branding will have an impact there. Maybe I can illustrate that the prompted brand awareness is on 84%, is already yet higher than on mobilcom-debitel during their entire lifetime. The other thing that we have silently launched end of June was our first freenet internet service. The logic here, I think from an innovation perspective, it's three elements to it. One is these can be activated and ordered only by apps, so similar to freenet FUNK and FLEX. That's the first thing.
The second thing, it's a monthly subscription, so it's a very liberal, very open system. We see that the subscribers are a bit hesitant on long-term commitments, but when they go for an open commitment like this one, the lifetime is almost the same. I think we match here the zeitgeist that we see overall. Same goes for some of the other subscription models we do with hardware these days. That works really well.
The third element is that, even though now it's an LTE-based product, the offer we do at the end of the day is EUR 29.99, and this will be the price no matter whether this is internet, whether this is copper-based, whether this is coaxial-based or cable-based, or this is fiber-based. The approach to the end consumer is this is what you pay, and we take care of the best back-end technology and access technology for you. Have a quick look at waipu.tv. There is, I guess, four things which are important to mention. Overall performance is much better than previous year. We have noted it here, +97 or almost +98 thousand versus +72. The growth is dynamically increasing.
We have cut a deal with Deutsche Glasfaser. Deutsche Glasfaser is, most of you will know them. They are a micro trenching company for fiber connectivity. They connected more than two million houses. They currently have a six-digit number of TV subscribers. We will replace and exchange the existing platform completely. They outsource the entire TV services to us. We will start to do that physically at the turn of the year. The first subscribers will then get a branded packaging, but from Glasfaser, but where inside they will find our dongle and our remote control, and will then seamlessly switch to our services.
The third one is that Roku, which is a hardware manufacturer and also component manufacturer from the U.S., we have signed on their, upon their request a partnership agreement, and we will be on any Roku device pre-installed, from Q4 of this year. We keep expanding our channel portfolio. As you can see on the right-hand side, we have now 188 channels. The RTL Pay TV channels are now also on the platform, and we outperform in terms of value for money any of our competitors. The model that we see with Deutsche Glasfaser is one that we believe we can strategically expand.
We are in talks to a lot of the local fiber providers, whether they are federally owned or city owned, to replace their existing technology. This is something which will not go overnight because those people obviously have built up their own TV units over the years. At the same time, they understand that with the fight around top-end content, you need to scale up and you need to be part of a bigger group. I think that is something that step by step is now understood in the market and we might take big benefits out of this. This is why we are highly optimistic. I think we will definitely exceed the 900,000 subscribers anywhere in Q4.
Some optimistic people say we get even close to 950 by the end of the year. On Media Broadcast, three different dimensions in the business. Meanwhile, freenet TV, I've already said that and you are aware of the price increase that's gonna happen for new customers by the first of September, and for the existing customer base by the first of December. The EBITDA impact will only happen next year, by doing it like that, we hope that we can cope with the churn. By the way, by the end of the year, we will also have a hybrid platform with waipu.tv so that waipu.tv can deliver to the end consumers a dongle which understands three technologies, cable, terrestrial, as well as IP.
This will be then the starting point for us to not cannibalize ourselves, but to kind of like deliver services, IP services from Waipu, even into the Freenet TV customer base. This will allow the same for any cable partner that we can obviously hopefully convince about that step during the next year. Media Broadcast. We're happy that we delivered the first 5G campus solution. We always said that we want to do that on B2B. We have a couple of customers yet, but they are typically in the media sector. We're very happy that we have now done the first operation in a third party. It's called an innovation park. It's a center of high-tech companies in the north of Germany.
Last but not least, the third sector, DAB+, the radio. There is a quarterly measurement of the so-called listeners per hour or an average hour. We have grown second quarter in a row, in absolute terms, fastest in Germany. We're now on 229, and with the other partners that we have under control or under contract, we can deliver 660,000 listeners per hour. For you as a reference, the biggest private channel in Germany is Antenne Bayern. They have about 800,000. We are close to head-to-head with the single biggest one. We are very optimistic that over the next 12 months, we will be the biggest single partner for the industry.
Before I hand over to Ingo, maybe a bit the outlook on for the second quarter. In general, we think that the consumer, there is an uncertainty, there is inflation worries, et cetera, et cetera. History shows that our kind of business is rather resilient to these developments. We are also under pressure with our workers' council on increasing wages, and we also have done our exercise in estimating impact of electricity, gas, fuel, et cetera, et cetera. We have incorporated that already in our early planning for 2023. The impact this year will be minor, or let's say we have anticipated it to a certain extent. For next year, I think the total theoretically cost increase is about EUR 10 million in energy.
It's about EUR 10 million in personnel. At the same time, we know that we will do a lot of measures to reduce the absolute numbers. We have enough time. We have a so-called crisis team working on these topics. On mobile pure, certainly we anticipate even higher SIM-only proportion that is on the one hand side, a result of limited hardware supply. And second, on the slowdown in hardware innovation. S22 is doing really well these days, but we also know that the type of innovation cycle is getting longer and longer. SIM-only is growing, which is, from our perspective, not a bad thing. We expect the net add number in the similar area, as last year, Q3 and Q4.
On TV and media, I've already said, I think waipu will continue to grow beyond the 900,000, anywhere between 900 and 950, I guess, will be the end result. Media Broadcast is, even though there's no impact of the price increase this year, and we see the churn on the freenet TV B2C area, we still believe that there is an increase in EBITDA of up to 5% versus last year. All that together gives you hopefully a qualitative background of why we are optimistic and why we are happy to increase the guidance and are very sure that we will deliver once again on what we promised. Thanks for the time being for listening, and I hand over to Ingo.
Yeah. Good morning, everybody, from my side. I start with the group financials on page 11. I think it is easy for me as a CFO here to comment these results because in all dimensions, it looks very positive what I can show you today. In terms of revenues quarter by quarter, a very slight increase. This is something what we see here on the other side, and this is, I think, more important, where we gain revenues is in the more profitable parts of the business, and where we lose revenues is in the less profitable part of the business.
Therefore, I'm definitely fine with the stable revenue figures. On a gross profit side, again, a very strong quarter, because we could increase the gross profit by 4% quarter by quarter to EUR 218.6 million. This leads to an EBITDA, which is 8.3% above the EBITDA of the second quarter last year. I think if you compare the EBITDA between the first half of 2021 and the first half of 2022, it is very important to put into consideration that last year, we got some funds from this short-time work where we had long closing times of our shops in 2021 in the first half. There we got something like EUR 11 million from the government.
This year, we had shorter periods, so we only got EUR 1 million. There is a negative effect of EUR 10 million. This is compensated on the one side with the restructuring program what we already started in 2021 and therefore with a lower number of FTE which we have on the payroll now. Moving to the mobile business, it is resilient again and still very resilient. What is important if we look into the revenues and you see the split here, it is important that it is still possible for us to increase the service revenues, which are the most important part of the revenue what we generate here. This leads to the positive effect in gross profit.
All in all, only a stable revenue line, but the bottom line is quite well with the increase on the one hand in the gross profit and with the increase in the EBITDA on the other side. I think this is a mix which makes me happy. It is not only cost-driven. Here, I think we have done our homework, so we do a very tight cost management. This is correct. It is not only cost management, it is also gross profit, and so operational performance, which is quite well in the mobile segment. If we move to the mobile KPIs, I think the customer figures already discussed by Christoph, the ARPU is stable in comparison to last year.
If we look into this Digital Lifestyle revenues, I'm not 100% happy with what we see here, but definitely, we are catching up here, because we could increase it from EUR 45 million in the first quarter of the Digital Lifestyle revenues to EUR 48.2 million. This is nearly on the same level as last year. I think with the situation, what we have out there, with the supply chain issues, where we also have, it is difficult to grow anything here in the Digital Lifestyle environment. I'm very happy that we are on a comparable level in the second quarter to last year. Moving to the TV and Media figures, the revenues are increasing based on the increasing number of customers at Waipu.
The gross profit also increasing on the one hand, again, by the increasing number of customers at waipu.tv, but also driven by the Media Broadcast B2B business. Christoph already was talking about the digital radio. This is helping here to increase the gross profit in Media Broadcast. On an EBITDA level, Freenet TV, even with the decreasing number of customers, a very stable result. Here we still see the effect of earlier price increases, and the next increase is already on the street, and we will see the effects in 2023. In B2B, Media Broadcast, a bigger effect here. This is because we have this very tight cost management in the Media Broadcast, and we see the results here.
In waipu.tv, the effect in the EBITDA is smaller than the effect in the gross profit, because especially in the first quarter of 2022, we did some marketing campaign. I think it was reasonable to invest it into the business, but therefore, the effect on the EBITDA line is not as big as on the gross profit line. I think we want to grow here, and therefore we would also be happy if it would be possible to invest more into the waipu.tv business, to increase the customer base further. Moving to the free cash flow. Starting, I think the all-in figure is quite well.
Looking into the working capital, you see an effect which is worse than in 2021 because now we see -EUR 35 million. You have to put into consideration that during the year, we reduced the figure of factoring from EUR 60 million at the end of 2021 to EUR 50 million now. Therefore, you have a negative effect in the working capital of EUR 10 million. We could do more in factoring, but we used the situation of very good cash in to reduce the figure of factoring. It would be possible to increase it again, but actually, we do not plan to increase it again. It is something like a reserve what we do have.
Tax payment similar to last year. CapEx, I think what we already announced at the beginning of the year here, a higher CapEx figure in 2022. On the one hand, mostly driven by the renovation of our headquarters in Büdelsdorf, therefore here, EUR 4.9 million of the CapEx is based on this renovation. It is a one-off effect this year, which will cost up to something like EUR 15 million. This is something that we had already in our plan, maybe on a slightly lower level, it was not surprising to us.
Leases similar to last year, and interest payments strongly lower than last year because our net debt figure does not change that much, but our gross debt was reduced. Therefore we could realize here in interest payments a much lower figure. All in EUR 104.4 million. Moving to page 16. What we saw in the last month was that a lot of people discussed if it could have a negative effect for us, that the interest rate has been increased and maybe will increase further. Therefore, we put this chart in the deck here, which shows that most of our debt is fixed or the interest rate is fixed.
Therefore, the risk is only reduced to something like EUR 180 million of variable debt. Here you also have to net it or to hedge it or however you would call it, with the cash flow or the cash that we have in the bank. I think all in all, the risk here is below EUR 50 million. It is not the interest risk. It is only the debt amount which is at risk. Even with increasing interest rates, the effect will be very low and not relevant for our results. On page 17, I show the guidance and the guidance upgrade. What we decided here is on current forecast.
What we did, that we could increase the EBITDA guidance by EUR 10 million to a range of EUR 460 million-EUR 480 million. Here, maybe this could be a question. It is without release of any bad debt provisions or something like this. This is not necessary to increase it. Why is the range that big? It is not that big because we have so many uncertainties inside freenet. It is more because we see the uncertainties around us. It is a more macroeconomic range what we define here from our view here, and Christoph already did it. We definitely expect an EBITDA above EUR 470 million. Therefore, call it conservative or not, but I think we are in very uncertain times.
Therefore, I think a range even in half of the year, as we already see more than half of the year in our books. This looks necessary. The free cash flow guidance, which we left unchanged. Here I saw some comments yesterday evening and this morning. What is important, without the cost decision on return debit notes, what you have seen some weeks ago. I think with the first quarter results, we already published it. We have to pay something like EUR 12 million. This is not relevant for the EBITDA because we already had a provision here for some years.
What was unclear was the timing of the payment, because sometimes it takes years with the courts, and therefore we have not put it into our guidance because we have not expected.
To get a decision from the court already in 2022, but it happened, and we are not unhappy that it happened because it is better to close these things. On the one hand, we do not see an EBITDA effect, therefore it was possible to increase the guidance. On the free cash flow level, there will be a negative effect in the second half of EUR 12 million, and therefore it was not possible to increase the free cash flow guidance now. From operations, the effect in the free cash flow is as good as the effect in the EBITDA. That's it, from my side. I hand it back to the operator and ask him to start the question period.
Thank you very much, sir. Ladies and gentlemen, if you dialed in and you're using a telephone, please press star one on your telephone keypad. Please also ensure your mute function is switched off to allow your service to reach your equipment. We'll pause just one to give everybody a chance to signal. Today's first question is coming from Joshua Mills, calling from BNP Paribas Exane. Please go ahead.
Hi, guys. Hopefully you can hear me. Please let me know if you can't. The first question I had was just regarding the mobile business, and whether you'd seen any impact in terms of Deutsche Telekom's new family plans. General comments on competitive intensity in the market would be helpful. Particularly, I think the Deutsche has been open about the fact they'd look to raise prices. Is that something you think you could do as well? The second question, just on the TV media business. You talk in the report about the fact that it's exceeded certain expectations. EBITDA growth is still very strong. It's quite a difficult business to forecast from the outside, given all the moving parts.
Would you be able to give us a steer maybe on how you see the media and TV EBITDA developing next year and break that down between the waipu segment, Media Broadcast, et cetera, too? Thank you.
Hi, Josh. Thanks for the questions. Yeah, I saw the DT comment as well yesterday. I mean, I compare these statements that Tim made yesterday ongoing more direct with the reality that we face talking to Srini Gopalan and his team in Germany. The way we interpreted it, he says, "I will not push further for a third-party dealership. I will focus on a DT-owned and DT franchisees, as well as online." You're well aware that they still work a lot with Euronics, with Expert and some of the others. It also indicates to me or it's a proof of concept. I mean, I said we have renewed the direct exclusivity contract with MediaMarktSaturn.
There were talks last year between the two parties, and there was even a test last summer. I think we've even disclosed that there was a direct test of Deutsche Telekom in MediaMarktSaturn. The test did not deliver on their internal expectations, and they said that we should exclusively continue also from their standpoint. Fact is that we do not see any changes. It's more the opposite that they encourage us to cover the third-party dealership, and to have them with full focus on their own distribution. On the TSD comment on price increases, I would love it was the case, and you can be assured that if we see any potential to increase the prices, we will definitely do so.
Think there is currently a ceiling on all endless or unlimited data. There is a ceiling which we all keep the EUR 30 plans. You are also well aware that changes to the existing customer base always cause the right of immediate termination by the end consumer. I don't think that we can change or we can raise prices in the customer base, unfortunately. In new customer acquisition, in hardware, et cetera, we are also increasing prices.
Realistically, if you look at the turnover of the customer base in the German market, if this is 120 million SIM cards, and if you assume that maybe 10 million are exchanged on an annual or maybe 20 on an annual basis, even an increase of 5% will only impact the entire base by 1%. My answer is, if there's an opportunity, we will take it, but I do not expect a measurable impact within a period of 12-18 months. On the TV, yes, well, I take this as a positive compliment that you say it's a bit unpredictable, because it's a dynamic market. It's the same for us.
I think we are not in a position today to fully share our expectations for next year on the segment, but we take it as a reminder for our Q3 session in December that we will give you a deeper insight. As I said on Q2, I expect anywhere we are beyond 900,000, maybe close to 950,000. It will all depend on, like, the end of the year raise. There's a couple of innovations and new content that we will also announce in December. We should be able to accelerate there. Next year, we expect that we start with the transfer of the Deutsche Glasfaser customers, and a couple of others.
There will be an, if you wanna call it an organic infusion of maybe 250,000 during the first half of the year, which comes on top of the organic growth. I think there is a strong dynamic, but it's too early to predict. As I said, I take this as a special task to deliver more details with the December call.
Great. Thank you very much.
Thank you, sir. We'll now go to Yemi Falana, Goldman Sachs. Please go ahead.
Good morning, guys. Thanks for taking my questions. Maybe firstly on the TV business, how do you think about the evolution of the cost base in that segment as you balance cost rationalization measures, investments for growth at waipu.tv, and then potential price rises and churn management in freenet TV? Secondly, on free cash flow, correct me if I'm wrong, but if we just think about the effects in free cash flow that won't recur next year, I get to just over EUR 25 million related to the court ruling and CapEx at the headquarters. Is 10%+ free cash flow growth for next year the starting point to build off, depending on kind of EBITDA growth delivery into 2023? Thank you.
On the first one, on any of our TV activities, we pay content on a variable basis per active customer, per active and paying customer. The gross margin remains the same with scale. The things that lose in terms of share of the cost is fixed costs personnel. In Waipu, currently we run the show with 64 people. I guess if we had, we just did an exercise, if we would double the subscribers, we think that we need about 10 people more. I think there is a big scale effect.
The other scaling effect will be marketing, because at a certain stage with a certain size and brand recognition, I think you can slow down a bit. We are certainly planning to spend more money on above the line next year. We think the race is on for 2020 for Nebenkostenprivileg dropouts, and I think we need to prepare. I think we are in a quite privileged position there. Deutsche Telekom is moving their IP platform to Comcast, which is causing a lot of friction and difficulties, not because they're doing a bad job, but it's I mean, you take over big legacy. Comcast is a global player. They have a number of customers.
I think in a way they are blocked. If I look at the growth rate, I think they had this quarter around 20,000. If you see their sheer size and compare it to us, then I think you will immediately realize that we can much more focus on growing the customer base, and we are not that busy with technology. On the cost base, as I said, biggest chunk is variable cost on content, and everything else scales to a great extent. On freenet TV, I think we have now 745. I think our internal projection is that we're gonna lose through the price increase maybe 5%-6% till the end of the year.
That would lead to effect that we are still beyond the 700,000 at the turn of the year. I guess that is, that's kind of our internal expectations. You never know. I'm pushing personally very, very hard on this hybrid platform that I've mentioned during my statement. I think that will help because we want these customers, when they leave, they typically leave to IP. 50% leaves to IP. We are not in full control whether they change to the local fiber provider, the Deutsche Telekom, GigaTV, Zattoo, or any other. I think we take our typical market share, but we cannot really take a benefit out of the fact that we are currently their provider on terrestrial.
Something on free cash flow, Ingo?
Yeah. Yeah, I think, Yemi, your calculation definitely is reasonable. If we have one-off this year and we do not have these one-off next year, there should be an increase of 10%, so it's an easy calculation. But we just started the budgeting process here for next year, and I have not discussed with the operational people if there is any need for additional CapEx next year. I do not know now. I do not have any idea what this could be at the moment, to be quite frank here. It is possible that there will be an increase, but I think we have to wait and see a little bit.
On the other hand, I already discussed it during my presentation. In the last 18 months, we have heavily decreased the figure, the factoring figure.
Which is not part of the balance sheet. I think here also at the moment we have EUR 50 million in factoring. If there is some room in the free cash flow next year, maybe, and it's not yet decided, but maybe I use part of the additional free cash flow, at least part of it, to reduce the factoring figure further. We have not yet decided, but your calculation definitely is correct.
Thanks, guys. Maybe one quick follow-up. It seems like you're trying to push harder with waipu.tv. How much will supply constraints be a limiting factor on your ability to invest in growth? I know you flagged it through the second half of this year. Do you expect kind of full normalization into next year, or do you think that's gonna continue to be a limiter on the growth from here? Thank you.
Yeah, thanks for the question. It's a good one, actually. The first thing we did now is we found out that one of the constraints was that we had in certain generation of Wi-Fi chips. We have upgraded it because the supply on the later one, which is $2 per unit more, is better. Currently, we could or we can order with a three months notice period, we get about 50,000 units. Which means that we have now done the full order for the migration of the existing customer base with Deutsche Glasfaser. We expect at the turn of the year to have significant stock and then distribute it during Q1.
We are more or less, on a daily basis, recalculating the forecast. As I said, currently, we have a three-month period, which looks reasonable, and compared to other businesses, it's rather fast, but we cannot really determine whether this holds. We have also from the suppliers, we had some indicators or mentioning that if we increase early orders, that we would be in a privileged position, but it's a moving target. I do not expect a slowdown from that because we are preparing.
Great. Thanks for taking my questions.
Thanks so much, sir. We'll now go to Polo Tang, calling from UBS. Please go ahead.
Yeah, hi. Thanks for taking the questions. I have two. The first one is really just to come on to your guidance. If you look at the midpoint in terms of your EBITDA guidance, it implies that your EBITDA growth will slow from +8% in the first half to something like around about +2% in the second half. So are you being conservative given the macro environment, or are there factors to explain the slowdown in terms of EBITDA growth? My second question was really just can you maybe just talk through the competitive environment in mobile in terms of what you're seeing currently? Thank you.
Well, on the first one, I think you've listened well to Ingo and myself. We both said that we see it more on the upper end of the new spread. At this moment, we're expecting EBITDA being beyond the EUR 470 million line, which would immediately imply that there is a growth, maybe not the same. If it's the same growth, we are more on the upper end. We don't think it's uncertainty in the sense of unmanageable, unforeseeable circumstances. I think it's just a matter of mentality and tradition in this house that we love to slightly over-deliver instead of rowing back in December and explaining that things have changed for whatever reason. I don't know.
German angst led to the fact that we have a shutdown of all the retail in November and December. This happened, yes, it can. Then we will still be beyond EUR 470. If everything is perfectly well, then I think your question is valid. Why should we not have same trajectory in the second half of the year than the first one? Maybe it's a mentality that we prefer. On the competitive environment, well, I mean, I already commented a little bit on Telefónica. I think they're doing a great job overall.
To be honest, I think the fact that Wolfgang Metze was already leaving is certainly a little damage to them because he is the father of a lot of these improvements. Even if it was not confirmed, he seemed to go back to Deutsche Telekom. I think that you can argue whether this has a negative effect on TEV and a positive on DT, I don't know. As I said, he did a lot of changes and made a great job there. Still we all have to appreciate that the TEV-D network is much better now, in Connect Test, et cetera, you can see that.
I think they are in full control of what they're doing, and the growth tells us that they're doing a good job. Vodafone, Philippe Rogge is only starting on first of September in his active role. They have changed a lot of individuals in the management team, which is an indicator on the one hand side that they want to change something, but also that they need to change something on their TV side. They're losing customers. Which is obvious to me because there's new technology out there, and since they have, aside from satellite, they had 40% market share. I mean, the fact that they lose a little bit is clear, and satellite is not reporting on their performance.
I guess it's just a technology shift. I expect from the new team that they will, and that the early conversations show us they will, start to rationalize a little bit more their business. But I think they have a challenging 12-18 months where they will be a bit passive compared to the others because they need to sort out their things. DT is doing this really well. I think different to the past is that they're doing well in Germany, but they are not taking this as granted, and they are not starting to overspend based on success. I think that is the difference from the way Srini Gopalan is managing the company and some of his predecessors.
I think he has a brilliant idea on what's possible and where to put the money and how to push it, and not overspend. 1&1, we see them in two fields, or the observations is two fields. On the very low super discount, they're still aggressive. I think that's not where they make money. I think this is they just wanna take in customers in order to migrate them later onto their own network and to fill it. But with EUR 2.99 and EUR 3.99 per month, you cannot really make a margin. On the real 1&1 offers, the other ones are the Drillisch ones. On the real 1&1 offers, we saw them increasing the prices. On the big 10 gig, 18 gig, unlimited.
I mean, their unlimited is 40% more expensive than ours on the same network. I think they are busy with building the network. They are preparing the launch of their own 5G offer. I haven't spoken to Ralph Dommermuth recently in order to understand when exactly the launch date will be, but everything that I hear is that they're working hard. We have flagged that we will be ready to start with them as soon as they have the availability of the SIM cards and their network. I think you could say overall, there's no big changes, rather stable environment, and I'm expecting this to remain the fact for the next 12 months.
Thanks.
Thank you much, sir. We'll now move on to Mr. Martin Hammerschmidt calling from Citi. Please go ahead, sir.
Hello, and thank you for taking my questions. I have three, please. The first one is on the use of excess cash. I think previously you mentioned that your first priority is to invest it into customer growth and especially on Waipu. Now that Waipu is growing nicely and getting more traction, brand recognition, et cetera, and you mentioned that maybe marketing spend can in fact come down a little bit. I was wondering, what are sort of your current thoughts on possibly new share buyback program or other forms of shareholder remuneration? The second one is sticking with Waipu. I mean, you said you take the homework for the EBITDA to give us a bit more color on that.
Could you share with us, though, what the current EBITDA contribution of an average waipu.tv customer is? And should that margin increase or sort of be a bit diluted given that you'll have more customers coming from Deutsche Glasfaser? The last question is on the freenet Internet launch. This EUR 29.99 per month in terms of profitability profile is that changing depending on the technology? Or is that sort of stable? If you could maybe provide us with some of the first data points in terms of customers et cetera, and PS. Thank you very much.
Maybe I start with the question on the excess cash. I think it is. I can only repeat what we already said during the last quarters. Yes, you are totally correct. It is our first idea to invest the cash flow into the business. We asked the management of waipu.tv to invest whatever is possible to grow the base. This is something what they do at the moment, and this is something what you saw in the figures, that the increase of the EBITDA was not as high as the increase in the gross profit. We did some investments into marketing and so on.
Up to now, the investments are not that big, and we are looking for chances to find ways to invest it reasonable in the growth, because this is, it is not only to invest it should make some sense to invest it, and this is what we are looking for. It is still the answer that first idea to use the 20% of the free cash flow, which are not paid as a dividend, to invest it into the business. We are talking
Around in the company and wherever we see good investment possibilities, we will do so. Second, there is still the M&A side where we are discussing projects. I think there is nothing hot at the moment, but this is something what we do for years and in all time. But up to now there's nothing to invest. I think we have to. After the year, then we can see what happens, and what ideas we had and what ideas we will have. Then we can decide if there is a other possibility to invest the 20% if we have not used them. There is a possibility to invest them into reducing the number of factoring.
There is a possibility to reduce the number of net debt. Yes, there is also the possibility to do a share buyback, but I think it is not on the list at the moment, and I do not expect anything to happen here during this year. I think first of all, we have to generate the cash flow and then we will discuss what will be possible with the additional 20%.
Well, maybe I would like to add on a daily basis, I mean, with the situation on capital markets, on PE markets, on VC markets, on valuations of tech companies, I mean, obviously, there is more opportunity. I would love to have a bit more cash on balance sheet. Also in order to signal the market that we would have the immediate firepower to do small things here and there. I'm not claiming that there is something, as Ingo mentioned, there's nothing in reality today, but we see that the offers we get and some of the opportunities get more attractive because of a more rational valuation environment than we saw in the past.
On the other question, the way I understood your question was, what is the impact of different business models, in the TV, IPTV market? Well, I mean, for sure the biggest gross margin is generated if we fully own the customers, if we acquire the customer and we manage the customer, which is the vast majority of today, and I think it will remain the majority. The margin is a bit less with, for example, Telefónica working with our product. We get, they pay us. Well, we hand over the content cost and then we get an additional margin for the service.
On a monthly OpEx or gross margin level, this is less attractive, but we do not do investment in tax or subsidies and so forth. I think, let's say, on a 20-month basis, it's somewhat the same. If the customer lifetime is way longer, then these customers are less contributive than our own ones. I think the mix is fair. At this stage, the structure that we have chosen with Deutsche Glasfaser is the same. They do the billing. They pay for the infrastructure. They pay for content, also for content price increases, if necessary. Then we get the margin for the service and the handling, CRM, et cetera.
There's a couple of things which we do not share with these B2B2C partners. For example, revenues generated out of advertising. If I add them, I mean, you can add them on both ends, but I think still the gross margin we do with third-party is highly attractive and it's. If you wanna say so, it's the price for scale. But it's still an attractive margin, which is attractive two-digit. You will understand that I will not disclose the details because then some of the partners might take the opportunity to call us and question current contracts.
It's both is very attractive and the focus is on we always want to keep the majority of the subscribers on our own, fully owned, billing, and CRM path.
Thank you. On the internet, possibility profile of the various technologies?
The answer is you're right. They're different. It was a long discussion internally whether we should differentiate prices or potentially differentiate prices by access technology. We think it is the uniqueness of that product that we don't do it. We have done an average of all the anticipation of future split. We said that with EUR 29.99 we will have an attractive margin on any technology. From today's perspective, I would say the most attractive would be the ordinary copper tail and the mobile. You never know what the wholesale price is on fiber where you're gonna be in two years' time. I think there is also changes yet to be seen.
Great. Thank you very much.
Thank you.
We'll now go to Titus Krahn, calling from Bank of America. Please go ahead.
Good morning, everyone, and thanks for still taking my questions. I got just a couple, partly follow-ups, if I may. The first one is just coming back on your broadband offer and the EUR 30 price point, which is valid across all technologies. Just trying to understand a bit better what kind of speed does it imply. Does it mean the speed you reach for each of the products is pretty much the same, even with fiber cable and DSL? A second question, also follow up on the working capital and the reduction of factoring, which could kind of even continue in the next year, depending on the cash availability. Why do you really focus on this right now?
Do you think there's kind of an impact from higher interest rates on you targeting to reduce the factoring going ahead? Maybe, if I may, just a third quick question on your partnership with Ceconomy. You already talked about a generally positive outlook for services and solutions within the business, but on the other side, the operator quite recently reduced its five-year guidance, citing weaker demand in the DACH region as a reason. I just wondered, do you see a similar impact on your business in the MediaMarkt or Saturn stores with, let's say, lower footfall? Or do you see the mobile business quite insulated compared to other parts of the MediaMarkt or Saturn stores?
Yeah. On the first one, EUR 29.99 today, it's 100 Mbit/s. The throughput or the capacity will depend on the technology. I mean, if you really can deliver a constant 100 Mbits, we all know that this is highly sufficient for private use. As I said, I mean, if this would be a fiber to the home, then we would adapt it, and we would maybe give it to 250 or 500 or whatever is available. I mean, given the price point, the variable in the procurement will be the speed. I think you rightly pointed that out.
On Ceconomy, I mean, they are suffering like any other in entertainment, technology, TV. I mean, you all have access to GfK numbers. I mean, TV is down, I think, by 30%. White goods are down because they have been replaced for the past 18 months in German households. I think this is where they suffer, and this is where they don't generate the necessary volume and margin. The footfall is coming down, but the conversion is higher. You see the people on purpose go there and purchase and the tickets per visit are increasing. In total, I mean, in our business, we do not see any impact.
People do not go these days to MediaMarkt. They did not do it for the last couple of years. They did not go in and then suddenly realize that they might wanna have a mobile contract. Guess what? They also take your hardware. That's not how things work. People go there, they see an offer, they do the research, and they realize that MediaMarkt is doing a good offer, and this is when they get up and go to the shop. We are not seeing an impact from the other end, and we are not expecting any from the future. Maybe the opposite, some of the new formats, such as the Lighthouse, which I think the first one will be opened in Berlin in September.
I mean, these locations are attractive for us. We think that they will. They might even perform a bit better because there is more footfall, but even those people will not go there for like in a museum or for entertainment, but for shopping. Yeah. I think the answer is the damage from the market is on TV and entertainment and white goods and not on our business. Ingo is gonna comment on the factory.
Yeah. I think as you know, we already started to reduce the factoring at the end of 2020. That time we had more than EUR 100 million in factoring, so we reduced it dramatically. To be quite open, when we started, we were not aware of the situation that there would be an increase in interest rates. So I think definitely, what we always said is we would like to optimize our balance sheet. Now you can argue that factoring is not part of the balance sheet, but all in all, it's part of our financials, and we try to reduce the risks that we do have in our financials. Therefore, we decided to reduce the factoring.
One risk of a high factoring position definitely is an increase in interest rates. It was not that we foresee this development, but yes, we wanted to reduce risk. This is something what could be also reasonable in the future, but we have not yet decided to reduce this, and this is the situation today.
Thank you very much.
Thank you, sir.
We'll now move to Adam Fox-Rumley calling from HSBC. Please go ahead.
Thank you very much. I had three questions briefly, quickly to you. I wondered if we could talk about the relative gross margin of the FUNK and FLEX tariffs and whether it's worth pushing those a little harder. From Ingo's mobile slide, it looks pretty positive to me. I just wondered if there are any trade-offs for doing that. Secondly, I had a question on the phasing of the customer growth with the Deutsche Glasfaser transition. I think you said 250,000 or so in the first six months of next year. Perhaps you could just confirm that, and then I can ask if there are any commitments from the Glasfaser side to you to then try and cross-sell into the remainder of their base. I don't know how we do that. Thank you.
On your Deutsche Glasfaser question, what I said, thanks for double-checking. I said that I'm expecting 250,000, I would call it inorganic net adds, next year for waipu.tv. Inorganic would be people that are already using a service with anybody else and will be switched. One of this role model would be a Deutsche Glasfaser customer who is currently at home consuming TV access through a set-top box, and we will straightforward replace the set-top box and tell the customer, "Just please change the hardware and continue the service." The 250 that I've mentioned, this is not all Deutsche Glasfaser. I think Deutsche Glasfaser has never really disclosed the exact number of their existing TV subscribers.
This is why I need to continue because we have agreed on confidentiality. I said it's a six-digit number. This is how it works. The end consumer has it. We send our hardware or his provider, in that case, Deutsche Glasfaser, is sending it over and says, "Hey guys, new technology, please replace it. If you want to return the old one, you can return it to me. We will take it for you." Overnight they will become our customers. This is how it works.
Maybe concerning I don't know if you got your question right, Adam, but to talk about the gross margin, yes, you are definitely right that in mobile as we change the structure of the revenues, as we increase the part of the service revenues in our revenue. We see stable mobile revenues, but we optimize the structure because we have more profitable revenues here now. Therefore we could increase the quality of the revenues, and therefore we could increase the gross profit. I think this is the follow-up of the structure changes. I'm not 100% sure if this was the question.
Thanks again. I was wondering about the FUNK and FLEX tariffs in particular. I mean, I know they're not a large portion of the volume, but it looks like they're contributing a fair amount of gross margin, if I read your slide right.
Yeah. No, no, I got it. Okay. Yeah, definitely the profitability. As we do not have any acquisition costs there, the profitability is relatively high. And yeah, but the share is small because the number of customers is small, but we are trying to increase it further. Definitely the profitability is high, even with the attractive pricing structure what we offer here.
Yeah. In a sense, I think that is the delicate balance. As soon as we start investing, over-investing into advertising or acquisition costs, then the profitability is on the same level as in SIM-only. That is kind of the decision-making. You see an attractive gross margin, you're saying, "Well, why don't we do more of those?" Well, if we do more of those, we need to spend money and then to whatever level the gross margin is eaten up. Yeah.
Yeah. That's.
If we take it
Could I just ask one follow-up on the hybrid platform that you're thinking about for the freenet TV to the waipu.tv platform? I mean, seems like a really interesting challenge to see how many of those customers you can keep. Have you done any work looking into that base, which I assume is fairly high inertia versus a more tech-savvy kind of waipu.tv base? Do you think there is a good overlap there?
Well, what we keep doing is that we ask, we do normal research on, like, what people do, and you're always careful on your existing customer base you, because you don't want to wake them up and push them away. The biggest source of information is those ones that cancel the contract or don't renew it. We ask them, "What are you doing in the future?" About a third of those people say, "Well, I gonna continue using it, but I'm not happy to pay for private channels because at my usage of private channels is minor." If they change technology, then 50% goes to IP, and they tell us they go to IP. That's the fascinating thing.
What you said, are they less technology-driven or tech-savvy? It's interesting that they really say, "I'm moving to IP. I'm switching to IP." The other ones that switch technology is basically because they move their flat. Yeah, and moving into a flat where satellite or cable is already available. Then it makes no sense for them to basically double the price by using a technology which they have already included in their lease or in the price of the flat. It definitely seems to be attractive.
The idea that we have is if let's take the those two groups, the one that is switching to IP, well, we make them switch or enjoy IP access prior to the switch by giving them a hybrid platform. And on top, if they would have that platform and they would move into another flat where a cable was available, they could still use the same technology, the same dongle. They would just plug the cable connector into our dongle instead of straightforward to the TV set. That is the idea behind it, so that silently people consume our IP services, and whenever they change or switch, they realize, "Oh my God, something's gone. Where is it gone?" Then they realize, okay, well, that's the IP thing which is integrated.
We haven't tested this yet, yeah, but, I mean, to me, it sounds reasonable, and the technology is almost ready. I would not at all predict the impact because it's too early, but I think the logic of the product is compelling.
Really interesting. Thank you.
Thank you, sir. Ladies and gentlemen, as we have no further questions, I'd like to call back over to Mr. Christoph Vilanek for any additional or closing remarks. Thank you.
Well, thanks to everybody. Thanks for your interesting question. Thanks also for the preparation that our internal team did. I think that's a very good way to handle this. Some of you asked the questions the night before and in the morning. It gives us a bit more prep time, but it also gives us additional indications on where your interests are and where your doubts, hopes, and worries are. Thanks for this very cooperative style and constructive style to work together. Thanks to Tim and his team for the preparation and thanks for your time. Goodbye.
Thank you much, sir. Ladies and gentlemen, that will conclude today's conference. Thank you for participation. You may now disconnect. Have a good day and goodbye.