Morning, ladies and gentlemen, welcome to the f reenet AG conference call regarding the results of the third quarter 2019. 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, Mr. Vilanek.
Thank you for the introduction. A warm welcome to everybody. Thanks for joining for today's call. We are looking back at a strong third quarter 2019. I'm starting on page three. Revenues are slightly up, amounting approximately EUR 2.1 billion. EBITDA, EUR 326 million, steady if we take it from an adjusted view. Ingo Arnold will later on explain what the necessary or the relevant adjustments are. Free cash flow, close to EUR 200 million. The subscriber base growing across the board to approximately 8.3 million subscribers. I'm starting on next page, with the details of the subscriber base during the quarter. You might all remember that during our last call, we told you that we will recover and rebalance the postpaid customer base during the third and the fourth quarter. As you can see, second quarter net adds gain is 32,200 subscribers or subscriptions.
This is balancing out the loss in the first quarter, respectively, we are absolutely convinced and sure that the fourth quarter will then lead to a total number somewhat beyond the 6.9 million. We will have at least a stable, slightly growing postpaid development. We are not taking into consideration freenet FUNK, which is, as we have explained, a kind of a hybrid product with the pause function and the daily use. We still monitor Not the average use, but the use at the last day of the month or respectively, the quarter. On a quarterly basis, this was growing by 10,000 subscribers, totaling to 31,000 active users on the 30th of September. This is 50%+ from the previous quarter. In accordance with Telefónica, we have not pushed it hard.
They have asked us to slow down a bit, letting them start their own unlimited paths, which they did early September, and we're now up and running. On freenet TV, once again, we'll go into more details a couple of pages later. Last year's quarter, we were all, and I have to admit, shocked about the overall development and the churn development, because we had the impact from after the first year of full subscription up and running. You can see in the second round, so 24 months after the launch, we have now a neutral development on the subscriber base, which tells us that we go into a sustainable and very constant business. Whereas waipu.tv was growing by 34,000 subscribers during the fourth...third quarter.
Compared to the previous year, we have been able to grow not only on a nine-month basis, but also on quarterly basis, even though last year, the football championship added interest. We are also seeing a couple of other streaming services growing in Germany, and still our growth is accelerating. Total subscriber base and the best KPI for a very sustainable long-term business is up to 8,299,000 subscribers. A bit more detail on page five on the mobile market challenges. I will not repeat the challenges and the countermeasures as I did the last time, but I will focus on the resolutions. We have new sales agreements on Expert, which is a German retail chain. We have had the strongest nine months result on digital lifestyle ever since we started the segment in 2013.
Really strong results, really very good performance with a stronger focus on gross margin and EBITDA, given the overall saturation of our customer base. A big effort for the second half of this year is to change all and to migrate all customers from previous 3G version to full LTE network connectivity for all the three networks. It is in the middle of a big migration, which helps not only us to satisfy the customers, but also midterm, to clean out the 3G networks in order to re-farm for the network operators. Freenet FUNK, I have already spent a couple of words on it. No marketing expenses, no nothing. Pure word of mouth, which still grew the previous number from 20 to now 31,000 active users.
Third quarter, very positive results. You might also have seen latest results from CECONOMY, which also reflect the positive development of the entire company also in our cooperation. Third quarter was really strong. The measures that we see all over the place happening in CECONOMY on the operation side are reflected also in the sales of MediaMarktSaturn on mobile customers and contracts. Overall, certainly, a rigid management of promotions, commissions, et cetera, contribute to the strong performance of the company. Moving on to Waipu. On the left-hand side of page six, you'll find the number of registered customers, which was growing by 250,000 in the quarter. Registered does not mean downloads, but means downloads plus full registration, including login details and payment details. The subscriber base was growing by 34,000 compared to 28,000 in the respective quarter of last year.
The growth year-over-year is 163,000, so almost 81%. There is a number of qualitative data which we monitor every other month. I'm sharing a couple of those here. We have relaunched the waiputhek, which was the former area with tips. It allows, similar to other services such as maxdome and so on and so forth, access to a full library of stored movies. 31% of all the users have already used this new feature. It's very attractive. It turns out that customer need is there. Once again, the focus on usability has paid back. The average usage of our users is also a significant monitor or significant KPI of the attractiveness of the service. Some of you might have seen the presentation of ProSiebenSat.1 this morning. With them, 69% of the usage is app-based.
In our case, 80% of the subscribers use the service on their big screen in the house. As such, it's a different product because we are the replacement of cable or satellite. The average usage grew by 40%, and usage is a usage time. I'm happy to share with you that in the last month of measurement, was August, we had 882 minutes on average per subscriber during the month, which is the equivalent of about 30 minutes a day, which tells us that this is, for the majority of users, their main and dominant access to linear TV. The consumption of the new TV channels has also grown by 66% from March.
Once again, this is, for us, very important because with BILD and ADAC, who were kind of the front runners, we have now a couple of talks to many other content providers, and they are seeing that this is a more and more attractive field which only waipu can enable. For waipu, it's important because these channels refinance themselves by selling advertising on those channels. We organize these advertising sales, and we share revenues with the respective content owners, not paying anything for the content as such. On page seven, we have listed a couple of feature sets, and I will not go through all of them, but focus on the ones that are upcoming. We have signed an agreement with the federal country of Bavaria to distribute their, in total, 14 regional channels throughout the country. This is in three dimensions interesting.
First of all, it supports regional sales, which was, in terms of regulation and media regulation, an important issue. The fact that we are doing it for one of the leading associations, Landesmedienanstalten, will drive more acceptance across the market and across the institutions. The second element to it is that they pay for this transmission, even though, once again, I'm warning you, it's not huge amounts, but the fact that somebody is paying for transmission is a new element to the service. The third one is that we are testing and training regional advertising and regional ad acquisition within that new program. Second part will certainly be the further increase of channel assets with new genres. The third element is further improvements on our EPG, the search function, et cetera. We are very happy and proud that for the first time we have launched an ethnic package.
We did decide last year that we do not want to start with individual channels, but we want to have the best, the most attractive, and the most concise package for any ethnic group that's attractive to us, compared to anything available. Our package for Turkish channels and the Turkish community in Germany, which comprises about 800,000 households. This package is comprising a bit more than 30 channels, which I think the closest was a package on the German cable with eight channels. This is really a full-size, all you can eat type of package. The original price is beyond EUR 10. We're starting now with a promotion. There was no big advertising so far. We've only launched it two weeks ago with a silent launch, and are now starting with advertising and promotion in the Turkish community. Highly interesting, highly attractive.
Too early to give numbers or to give a statement on the success the first couple of days, but show there is a strong interest. We've got very good feedback, and technically it's working really well. Why am I mentioning it? We have the prep time for this package was technically about three months. The key elements of the preparation work were how can we secure HD quality, and how can we make sure that if we take the signal from the satellite, how can we have a backup on fixed line? We have resolved that problem, and we'll now be able to replicate the solution for any other package in the future. Worth mentioning also that the rights on this package for IPTV is signed for the entire Europe, not only for Germany. We will look after some other partners, maybe in other countries.
Last but not least, I'd like to have a quick look on freenet TV on page number nine. On the graph, you can see the drop that we have seen last year from end of second quarter to end of third quarter. We've lost about 100,000 RGUs. It recovered, but we've learned a lot on this intermediate churn, I would call it, on retention measures, on renewal measures. All these research, qualitatively as well as quantitative, has led to a large number of measures this year. I think the outcome of a flat RGU base from end of second quarter to end of third quarter proves that the team has done a great job there. The number of RGUs served will remain for the full year above the 1 million line, which I think we all were a bit doubting and were a bit skeptical.
I think facts here prove that overall, subscriber management is our absolute core competence and is the proof and the basis of a long-term sustainable development, also in terms of financial KPIs. Having said that, I'd like to hand over to Ingo Arnold, who explains the financial numbers around the qualitative performance. Thanks for listening, and I'm handing over to Ingo.
Yeah. Thank you. Good morning, everybody. I would like to start with page 10. I think all of you do remember that this page was already part of our deck at the end of the second quarter. I think it is just a reminder here that you see that what we expected here is realizing at the moment. We expected, and it was sure that it will happen, these regulatory effects. In the third quarter, what we saw here was a roaming effect of EUR 5 million, which reduced our mobile results. It is totally irrelevant for our business model itself. It is just a regulatory effect where the whole industry has to show. On page 11, we see the overall group development. Christoph already mentioned that it was a very strong, very stable quarter again.
We saw some increases in revenues in comparison between Q3 2019 and Q3 2018. The increase of the revenues is resulting from the mobile business and mostly from low-margin hardware revenues. On the gross profit, we see a relatively stable development. Reduce our view to a figure without any special effects, you see that the gross profit slightly reduced from EUR 222.9 million to EUR 220.8 million. It is a reduction of EUR 2 million, it is also driven by the effects what we have from the regulatory side. In the EBITDA, you see that it was possible to stabilize our result in the third quarter. It was EUR 106.5 million last year, it is EUR 106 million this year. It is out of the regulatory effects, which are already mentioned from the mobile side and from the analog radio side. It's a very stable quarter, what we realized here.
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Okay. Sorry for this. It was our line here in Hamburg, which was broken down. I would start again with page 14, where you can see that the revenues are very stable now. You see in the first quarter 2019, EUR 61 million. Second quarter, EUR 63 million. Third quarter, EUR 64 million. A very stable development, and I think it makes it a lot clearer now that from my point of view, we are on a very good way in the TV and media segment here. This is something what you could also see on the gross profit page. If you leave all the special effects out, then you see in all these quarters it is something like EUR 37 million, what we see quarter by quarter. It's nearly EUR 38 million in the third quarter.
It is stabilizing, I think it's a very good message which we can send here. This is also, if you look into the EBITDA here, it was slightly lower in the first quarter, since the second quarter also here, it is not that long period of stabilization. We see that second quarter, third quarter, it is something around EUR 17 million. I do expect something comparable for the fourth quarter here. Also here, I think the good message is everything is stabilizing. Even on the accelerating side, slightly increasing. These increases you could also see on page 15, where we give you some deviations to the first nine months of 2018.
What you can see here on the gross profit side is that from the B2C business at Media Broadcast, which is mainly freenet TV, we improved our results here because after the second quarter, the deviation was EUR 4.2 million. Now it is only EUR 2.3 million, and therefore you can see a positive effect of EUR 1.9 million. Very comparable in the B2B business at Media Broadcast. It was minus EUR 9.6 at the end of the second quarter. Now it's minus EUR 8.5. Again, here, a positive development of EUR 1.1 million. If you look into EXARING, which was plus EUR 2.5 at the end of last quarter, and it is now plus EUR 3.4, a positive development of EUR 0.9. These positive developments, what we see in the gross profit, is something copied into the EBITDA developments.
In the B2C business, there is still a negative deviation in comparison to last year of EUR 0.8 million, but it is very much decreased because it was minus EUR 3.2 after the second quarter, so it is an increase of EUR 2.4. For the B2B business, we see these negative effects, from the analog radio business, which are shown on this page here, which are not separated here. You see the negative effects, and this is mainly what is the EUR 5.5 million driven by. If you compare it with the figure of the second quarter, it is relatively stable. Here you can see that the B2B business all in, it is a very stable business. There is no deviation to the third quarter of the last year. For EXARING, we are improving further on our results.
Now it is in deviation to last year, we are EUR 1.7 million better, so it is an improvement of EUR 0.6 million in comparison to the end of the second quarter. I think in all dimensions here, we see a stabilization. Yes, we have to deliver it again in the fourth quarter. From all what I see up to now is that, yes, I expect it also for the fourth quarter. This is what I can say here. Very stable now. I think there were a lot of doubts about this business, but I think with the transparency, what we deliver here to you can see that all the doubts are wrong, what we heard. Free cash flow on page 16. Yes, we will deliver the guidance, what we gave you up to the end of the year.
We deliver again here in the third quarter what we promised for the third quarter. I think if I look into the end of the year, on the tax side, the tax payments are still very, very low. I still expect something up to EUR 35 million on a yearly base, even if we only have EUR 12.3 million here at the end of the third quarter, because there are some postponements from the authorities. I cannot say 100% if we get the papers from the authorities, to pay. Up to now, we have not received these papers from them. It could happen in the fourth quarter. Therefore, I would say it is very conservative to say it, but it is possible that it will be EUR 35 million.
On the CapEx side, minus 27 now. There was a pickup in the third quarter, but I would expect a maximum of EUR 40 million in the whole year here. For the other points here, leasing interest payments, I do not see any change to the guidance, what we gave at the beginning of the year. Moving to page 17. What we see here is that the equity ratio is relatively stable to the second quarter. It's 26.2%, so it is higher than our target of 25%. We see the net debt still at four point-- or the leverage is still relatively high at 4.6. Here we do not put into consideration that we do have the assets on our balance sheet from Sunrise and CECONOMY. If we would put this into consideration, the leverage would only be 2.5. Maybe an additional information at this point here.
We had the possibility in the last weeks to prolong, to renew the bank loan, what we have outstanding, which was due in 2023. It was possible, with a very easy process, to change it. It was changed to 2024. Even with the higher leverage, what we see here, we see that there's a lot of trust from the banks in our business. I think it's another confirmation that they agreed to a prolongation of our financing here. This is it from my side. Therefore, I would ask you to raise your questions, and I would ask the operator to start the Q&A session now.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press zero one on your telephone keypad. In case you wish to cancel the question, press zero two. One moment, please, for the first question. The first question is from Polo Tang, UBS. Your line is now open. Please go ahead.
Can you maybe give us your latest thoughts on your stake in Sunrise? Is it still intention to divest of the stake in order to bring down your leverage? Would you be open to revisiting a deal between Sunrise and UPC if it was structured in a different way? The second question is really just about mobile service revenues, because they appear to be down even after adjusting for regulatory effects. How optimistic are you that mobile service revenues can grow going forward? With both Vodafone and DT having put through more for more price increases this year, does that give you headroom to increase pricing and raise ARPU going forward? My final question is, just given the latest news and developments, what's your thoughts on the likelihood of a fourth mobile network build in Germany by 1&1 Drillisch? Thanks.
Yeah. Thanks for your questions. On Sunrise, we're very happy that the deal was not happening. Reviewing today's number of LGI, I think we were very right in our assessment, and we're very happy that there are at least the same number of shareholders as we represent also voted the deal down. We are not in a process of exiting. We believe that the standalone company will be very successful, minimum as successful as it was the past four years. Certainly, the long process has caused a couple of deviations. Let's say they have expected, for example, on the TV side, to take advantage of the integration. As such, there will be a six-month period where maybe some of the products need refreshment and need new focus.
Overall, also our conversations with management there tells us that they are in a good mood for the standalone version. We're not intending to sell the shares. We are not intending to do an exit in the upcoming period. Never say no. If there is an opportunity, we would certainly consider. There is no need, no plan, and no activities at all going into that direction. I also am not aware of any conversations or attempts to create a different deal. I think the [SPA] needs to be taken down in the next week to clarify the position for each and everybody, and then be up and running again. On your third question on the fourth network, there is no indication to me that United Internet is not planning and intending to run and to build a full scope network.
From what we hear from the market and the conversations that we have with United Internet, no changes to their plans. The recent results with the claim they had against Telefónica, I think, would even support the ambition to get independent from the close relationship to Telefónica. As we all know
I guess it is in August 2022, the current remedy will, in large proportions, run out and a full renegotiation among the two is necessary. I cannot imagine that United would be in a good position unless they are up and running to create their own network. Other than that, and that's all qualitative statements, outside in, I guess, United Internet will certainly clarify their activities in their, I think they are reporting next week. On the postpaid service revenue, Ingo, you want to comment on this?
I think, yes, you are correct, Polo, that we see a decrease in the postpaid service revenues between the quarters. It was EUR 396 last year, and it is EUR 8 million lower this year. If as the EBITDA effect of the roaming is EUR 5 million, you can imagine that the revenue effect is much higher than EUR 8 million. Therefore, what we can say is without the roaming effect, the service revenues would be slightly increasing.
Okay, thanks. Actually, maybe just to follow up, do you think that service revenues can grow going forward, given that we're seeing more from more price increases elsewhere in the market?
I think generally, yes. As expected and as announced, there will be some further effects from the regulatory side, and, I think this is something what we will see. Out of this, yes, I do expect slightly increasing service revenues as we grow our base on a stable ARPU base.
Thanks.
The next question is from Jonas Blum, Warburg Research. Your line is now open. Please go ahead.
Yes. Good morning, gentlemen, and thanks for taking questions. I just had one follow-up. Firstly, could you perhaps give us a bit more color on the postpaid ARPU development? We saw a dip year-on-year, and I was just wondering if it's fair to assume that this is partly related to your efforts in order to gain further customers in your mobile postpaid segment, and should we also expect a similar development for your Q4 in order to achieve your full year guidance? Secondly, I read in your presentation that you were also expecting or planning to implement your FUNK technology for further mobile tariffs. Just a bit more color here on what to expect in the upcoming year. That would be helpful. Thanks a lot.
I think the answer to your ARPU question, Jonas, is linked to the answer what I gave to Polo before about the service revenues. We see the dip in the ARPU, which is based on the lower roaming revenues. Without the roaming revenues, I think it is relatively stable, what we see as an ARPU, so there's a very small dip only afterwards. This is something what we do also expect for the future.
On the FUNK side, the core functionality of FUNK is a straight activation cost or order and activation of the SIM card via an app. You can order the SIM card. Typically, it's shipped by a proper letter, which then goes out within 24 months. When customers receive the letter, they scan the QR code, and the SIM card is activated within one hour. Mobile number portability is available and automated in a secondary process. We have learned that these customers do not interact at all with us via phone, email, or any other of the traditional interfaces, but only with the app. It saves a lot of cost in terms of activation cost, installation cost, service and maintenance cost. We attract a certain, let's say, I don't like the word target group, a certain level of consumer, which we did not before.
This is independent, I guess, from the functionality or the tariff plan as such. These functionalities are now adopted to other tariff plans. Most likely, we will start with freenetm obile. There is three plans available right now. On Vodafone, the tariff plan as such will not change, there will be a two, four, and eight gigabit flat rate on the Vodafone network. The pricing will remain the one that is available online currently, the functionality and the customer experience and customer journey will change. What are the things that we need to do? That's a typically deep dive into legacy versus later systems. These customers, in freenet FUNK, they're complete separate from our traditional database. If we expand the functionality now in the traditional SIM-only tariff plans, we need to mirror them in the traditional mediation and customer service
A database, because we will in parallel still sell the same SIM card plans on the other channels. As a result, the launch will most likely be end of the year or in early January.
Thanks a lot.
The next question is from Joshua Mills, Exane. Your line is now open. Please go ahead.
Hi there. Thank you for taking the question. Just a couple from me. The first is on the TV business, just to understand what's driving the EBITDA improvement in beating the quarter. Looking through the slide deck, it appears that EXARING, or waipu.tv TV, is one of the key drivers here. I'd just like to understand whether it's that you're seeing less advertising spend on that part of the business, or if there's more profitability coming through on an organic basis from the business. In that context as well, if you could give us an update. I think previously you said waipu.tv would spend about EUR 10 million negative EBITDA this year and stabilize next year. Has that changed? Have things got better?
Secondly, on the mobile side, I think in the past you've spoken about the opportunity which 1&1 Drillisch entering the market could present you as a sales partner. My question is, has there been active discussions between yourself and 1&1 Drillisch or United around entering a mobile reseller agreement? Thank you very much.
Hi, Josh. First on your point to EXARING, definitely you are correct that the results are increasing at EXARING. This is what you can see very good on page 15. You see from quarter to quarter, it's increasing because on the one hand, and this is something which is obvious, we have more and more customers there, and with each single customer we earn a monthly amount. On the other side, we are continuously trying to increase the ARPU of these customers. For example, with this Turkish package and different other things. We are also here on the ARPU side, we are relatively successful. I think from both sides, ARPU and number of customers, the results are increasing. I think up to the end of the year, still there will be an EBITDA of something like EUR -12 this year.
It will be definitely, we are just budgeting the next year, we do not have final figures. As we see that the customer base is increasing quarter by quarter, definitely we will expect something for the next year like this. Yes, I do expect a much better result next year. I think it is a continuous process, what we see at EXARING, improving our results. First, this step every time is necessary, first step is improve the business, you have to invest into the business at the beginning. Now, we are getting more and more fruits out of these investments. On the other side, you asked about sales partner, if we are interested in partnering with Drillisch.
I think you can see a lot of statements from us that we are open, that we work together with everybody who is offering tariffs in this market. We would be happy to work together with Drillisch, but I think at the moment is not the time to decide it. Definitely there will be a chance from our side.
Thank you. Could I maybe just ask one follow-up on the mobile segment? As you said, there's a lot of different moving parts with the international calling revenues, with the inter-segment allocation. It still looks like on an underlying basis, if you adjust for that gross profit, in the mobile segment is down mid-single digit. I just wanted to understand if that's partly due to a change in contract mix, or if you're seeing any change in commissions from the big operators?
Well, this is.
This is normal course of business.
Yeah. I think this is something what I tried already to explain earlier. The effect what you are describing is not seen on an EBITDA base, because on an EBITDA base it's relatively stable, and this is what I tried to explain. It's just a switch from costs from the one side to the other side. It is just a question of what channels we use, how we structure our offers and so on. Therefore, we saw a switch of five million from the indirect cost side into the direct cost side. This is the only reason, yeah.
Understood. Thank you.
Okay.
The next question is from Christian Fangmann, HSBC. Your line is now open. Please go ahead.
Yeah, good morning. Thanks. Couple follow-ups on the mobile momentum. We had losses, postpaid losses in the first half, now we return to 30,000 net adds growth again. What did you change exactly in terms of the sales channels? You mentioned you do less discounting. Just generally would be interested in just operationally what you changed exactly. Maybe if you could give a bit of a broad outlook for Q4, how you see things developing so far, at least on the mobile side for you in terms of postpaid adds. On waipu.tv, do you expect a similar trend in Q4, will there be more of a step up? Typically, the winter months are TV months, therefore interested in your view there. Thanks.
Yeah. Thank you. On the first one, I am referring to the explanation after this first and the second quarter on why did we shrink. There were a couple of sources. One was that last summer we had, with one of our direct mail partners, a strong campaign. It turned out after six months that those customers were not contributing positively to gross profit and EBITDA, so we stopped that kind of campaign. We go back to the partner. Partner has to review the promotion, needs to find a new way to attract customers. This is a constant flow of test and AB testing and tryouts, et cetera. I think at the end of the day, that is the daily life of our campaign and product managers to review single campaigns and to optimize the same goals for our online campaigns.
It's also some adjustments on promotions on the SIM-only side versus the postpaid side. I couldn't list two or three major changes. It's hundreds of smaller pieces that add up to an improved performance. Once again, we have also had a strong quarter with MediaMarktSaturn. Basically, our sales reps did another round with the local promoters, reviewed their part of the problem, part of the challenge that we're facing. I think that's really detailed, everyday work on all channels. On waipu.tv, while, as you said, the first quarter tends to be a stronger one. Oh, I'm sorry, you asked me for first quarter postpaid. I'm definitely convinced that the net adds in the first quarter will remain beyond the 30,000, maybe a bit stronger than Q3, so that we in total will add another, I would say, minimum 35,000. I would say maybe 40,000 or 45,000.
That's what I can say based on the data that we have seen yesterday for the first five weeks of the quarter, and the Christmas campaigns are well prepared and ready to be launched. I think that should all be fine. Same on waipu.tv. We have seen the last six weeks, continuous growth at a similar level. My personal guesswork would be that we end up around 416,000-420,000. It should be a quarter which is, once again, a bit stronger than the third one. At the same time, we're facing a bit of competition on Google AdWords and Facebook since Joyn came in, the Netflix is relaunching, Apple has launched their service. I'm not saying that we are straight competing for the customer, but we are competing for the same ad space. We are not willing to raise our investment there.
I think it will be a reasonable good month. We have tested a number of local campaigns to the Turkish community with the new package. Even given some uncertainties, I'm very sure that, as I said, we're going to go beyond the 410,000 subscriber number by the end of the year.
That's very helpful, thanks. Maybe just one last follow-up on the UPC deal. It's a big topic. I think I read an article last week in Finanz und Wirtschaft where you, Christoph, flagged, we're not willing to sell our stake within the next six months, and only at a very high price. Would be interested, if there's a renewed deal for whatever reason, would you change your mind, or are you just not willing to sell at this stage and the deal is 100% dead?
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Yeah, I'm very happy that we are in the mobile business, not fixed line. I heard your question on Sunrise UPC. You said that you read in Finanz und Wirtschaft. What did you read?
Yeah. Basically, you're not willing to sell within the next six months and only at a very high price. My question is there no willingness at all to reengage if there was another approach? Basically saying, is the deal 100% dead or not? That's just the question, I guess.
Well, I think there was a clear vote from the EGM, or not the EGM, but the shareholders against the deal. Certainly, you can now speculate it was against the current deal, and there could be tons of improvement, and so on and so forth. What I can say is, the last two weeks, I haven't seen an improvement. We have had the conversations with management in Sunrise. We are heading for a standalone strategy meeting next week. Everything is up and running. We haven't seen LGI moving in any way for the last nine months. They were well aware that there is some heavy criticism. Nothing has changed to that. I made the statement to clarify, we are not in a mode of selling. Why should we? There is a positive outlook on the business. There is a strong dividend yield.
There is a year-by-year increasing dividend amount. The numbers are extremely solid. I just wanted to signal we have no pressure, we have no intention, we have no plan. At the same time, your question, you can always speculate. Well, if somebody is suddenly showing up and give us a super attractive offer, we certainly will review it, but nothing is there. There's no substance. It's only speculation.
Okay. That's very clear. Thanks.
The next question is from Ulrich Rathe, Jefferies. Your line is now open. Please go ahead.
Yeah, thank you very much. My first question comes back to this gross margin issue in mobile. I understand there's a shift from COGS to OPEX. I'm just wondering, usually OPEX is more sticky and COGS is sort of just seen as really scaling with revenues. Is that also happening here? Are you essentially converting costs? I'm not entirely sure how to think about that shift. Also I was wondering, could you give us some indication where the gross margin might actually then settle once you are done with the shift? My second question is on the freenet FUNK product. That was a bit slower in the first quarter than the second quarter. Should we read anything into that, or is it just sort of a bit of volatility back and forth?
My last question is, could you just clarify the comments you made in your prepared remarks at the very beginning about holding back on sort of Telefónica's request on a particular product? I didn't quite catch what the context was for Telefónica asking you to hold back on a product there. Thank you.
Yeah. I'm starting with that FUNK question. Thanks for letting me know that this was not fully clear to you. In fact, we have launched an unlimited product. In an unlimited product, you attract misusage. The top 200 users, which we have measured after two weeks, the top 200 had an average consumption of more than 30 gigs a day, which you easily can detect this is nothing to do with mobile usage. We figured out that some of them were testers in Deutsche Telekom that were testing network speed. We had misusage in public locations with Wi-Fi connectors, et cetera. In agreement with Telefónica, we have identified those customers, we have localized those customers, and we have shut them down. What do those people when they are shut down?
They order a new SIM card. They order five SIM cards because they're testing whether our algorithm is only detecting them with their total consumption or daily consumption. Well, this is like a cat and mouse game, which we had to run through for about six or eight weeks. This is something which we're in agreement with Telefónica. We said, unless we have figured out those loopholes and we have closed them, we would not continue to promote the product. We have also agreed that on kind of what is an average consumption, which we would accept, both Telefónica and us. We take no advantage if five super users are blocking a base station and an entire city quarter of Berlin is moaning because Telefónica network quality or network reach is down.
This is what I meant. We have, in agreement with Telefónica, have taken the effort down. We are now in a much better position to monitor those things. We are also changing some of the functionality and the POS availability of the product. It's the typical things you ought to do when you launch a complete new product with full innovation in the market.
Hi, Ulrich, coming to your question again. Thank you for the additional question to the mobile development. Maybe I would ask you to remember the first quarter when the normalized gross profit was EUR 9 million higher than last year. What we told you then was, for us, this is misleading. Please look into the EBITDA. It is only EUR 3 million up. You have these moves in the figures here between indirect and direct costs. It is based on the strategy that we have. I think if you look into the whole year result, you see that we are still on a 9-month basis. We are still in front, even in gross profit, on what we saw last year. I'm sure that up to the end of the year, there will be an improvement of gross profit for the whole year.
In the second quarter, we exactly were on the level of last year, but it was by accident. We have these changes here, and on a percentage basis, the differences are relatively slow. I would not say that in every quarter you will have small differences here. Now there is a difference. We do not steer our business by saying, okay, is it now improving the gross profit or is it improving the indirect cost? We are steering our business by the EBITDA, and this is what we are focusing on. Therefore, you will see such moves in the gross profit. I only can ask you again to believe me, this is no structural change, what we see here. It is just a switch between the parts of the business.
Great. Just to follow up, could you just give an example of a sort of activity that shifts COGS into OPEX or the other way around?
Yeah.
Usually people think about OPEX as being more sticky, right? That's, I suppose, the question.
I could have a normal marketing payment, or I could use the marketing money and give it to my partner, which is out there. If I pay the marketing money to MediaSaturn to ask them to do marketing, then it is negative for the gross profit. If I do the marketing on my own with the same offer, then it is marketing in my case.
Got it. Thank you very much.
The next question is from Martin Jungfleisch, Kepler Cheuvreux. Your line is now open. Please go ahead.
Yes, hi. Good afternoon, I think by now almost. I think you mentioned the partnership with the Expert group where you would include the freenet brand in 420 stores. I was wondering if this has any implications on your own store network, or is this to potentially offset the potential store closures of MediaMarktSaturn in Germany? Secondly, it's on distribution and competition in mobile in general. How do you see the competition in market in general in the offline and online market? Also, if you can elaborate a little bit how the partnerships with the operators have evolved and if you see any meaningful shift from offline to online or vice versa. Thank you.
Well, I would say, first of all, there is no material shift from offline to online. We have seen a very constant distribution across channels for at least, I would say, the last three years. The big change was in online that it went from individual websites to bigger platforms such as CHECK24 tariff search, et cetera. On the retail side, there is a couple of things happening. Obviously, Deutsche Telekom and Vodafone are closing some of their stores. Telefónica also is cleaning out some of their storefront. They do it silently and very specific to locations. They try to start to de-duplicate some of their locations. There's, once again, no big shift. The Expert relationship is one which we're really working hard for many, many years. They are kind of married almost exclusively to Deutsche Telekom.
We have always knocked their door and said we would like to add Telefónica and Vodafone in their storefront, and they could have both of them at once if they worked with us. They have now recently agreed to launch that with us. I think we have so far connected about 30 shops. By far not all of them. This is not a hedge move to anything that MediaMarktSaturn might be doing. It's just extending the coverage and trying to maximize the impact on the local level. We know that we have certain kind of white spots across the country due to whatever historic reasoning. We did never have a strategic facility management on our own shop chain, but more of an opportunistic one. By adding a couple of more channels, as I said, we are filling wide gaps and creating a double network for our customers.
In overall relationship to network operators this year, with no significant changes. I think they all appreciate our effort to close down 3G as fast as possible because it will save money for them as well. Once again, they realized that if they tell us we should close it down, they give us the right measures, we're doing it much faster than they do it by themselves. I think the relationship is still based on the fact that if they need extra volume or if they want to shift and test things, we are able to do that much faster. During IFA, we have met with all of the three. We had top level meetings with the respective CEOs, they were all positive. I could say it's boring a little bit, no changes, it's good if it's boring.
Great. Thank you.
The next question is from Wolfgang Specht, Bankhaus Lampe. Your line is now open. Please go ahead.
Yes, hello. Good morning. Most of the questions have been answered, two follow-ups. One on media and one on mobile. On mobile, once again, on the gross profit level, you told us that you plan to migrate the remainder of your base on LTE contracts. Will that have any effects on the gross profit per user, or is that, let's say, rather a minor effect? On media, regarding Media Broadcast B2B business, where you're indicating that there's some upside from additional channels. How do you expect other prices private channels are paying going into 2020? Is there a counterbalance, or do you expect EBITDA can grow at Media Broadcast B2B in 2020?
First one, LTE, no, it's a wash. LTE and 3G, the same conditions or same commissions, provisions, and margins. I think on the B2B, maybe we were misleading. The B2B that I was referring to with additional channels was on waipu.tv and EXARING. There we have the ability to do, now we've created the first time, those local channels in Bavaria where the Landesmedienanstalt pays carriage fees. I said that this is a new level of cooperation. I cannot predict how relevant or important this is going to be. We are opening new areas of potential revenues and the respective functionality, which I think was the core message. Sorry for messing this up with Media Broadcast.
You expect rather a stable business for Media Broadcast B2B going into 2020?
Yes, definitely.
Okay, thanks a lot.
Next question is from Usman Ghazi, Berenberg. Your line is now open. Please go ahead.
Hello. Thank you for taking my question. I have three questions, please. Firstly, just going back to Sunrise. Christoph, in some of the press articles, I've read that you are pushing for a more active kind of involvement in the management of Sunrise itself. I didn't know whether you wanted more operational, say, in the company or what that comment was regarding that was being quoted in the press. If you could clarify that, please, and how that is consistent with your messaging around Sunrise, which is effectively that this is a financial investment for you. The second question was for Ingo. Ingo, could you remind us, I can see that you have raised more debt in the quarter, presumably to settle the 2020 maturities. Could you indicate to us what kind of interest costs are associated with the new debt issuance, please?
If there is expected to be any change in the overall weighted average cost of debt for freenet as a result. My final question was maybe just to address the elephant in the room here. Covering Vodafone, they had a digital open office a couple of weeks ago, where they highlight that they're paying around EUR 2.5 billion in commissions to third parties in Europe, and they feel that there are savings in that pot going forward. I'm just wondering, when you as management see that kind of communication from Vodafone. Is it that you feel that saving is not really talking about Vodafone's relationship with freenet as such, but is talking about other third parties? How do you see that from your side? Thank you.
Yeah. Thanks, Usman. On the Vodafone thing, the overall commissions are really high, and that they need to change it. That's crystal clear, that's the same for us. When we look at, we have not had any conversations with them over the last four or five months in cutting down the commissions. We have also not experienced it. The thing that they experience is that historically, if you are a franchise partner of them, you get marketing funds, you get reopening funds, you get extra funds for changing the front window and the back window, and then you get money for new furniture, and so on and so forth. There is multiple sources of money for third-party dealer, for franchisees, et cetera. I think that is something which they want to clean out. We have seen the same with Deutsche Telekom.
Specifically, according to German law, Vodafone has addressed a topic. According to German law, if they would ever cancel their relationship with a retail partner, this retail partner has the ability to claim for the equivalent of a severance payment if you were an employee. They have anticipated the close down of a lot of their partnerships over the next couple of years and have changed their provisioning and their air time rev share model. I think this is what they were referring to, and this is what we hear from some of our franchise partners that also run Vodafone shops. Any of those does not impact the relationship and the commission structure and the revenue streams between Vodafone Germany, and freenet.
On Sunrise, I guess the comments that you're referring to were, I said that by nature, if the senior management, Olaf Swantee, and André Krause, as well as Elmar Grasser, being in charge of the network. They have, for the minimum of the last 12 months, they have always worked with the anticipation of a joint network effort from whatever, 1st of January 2020. This leads to the fact that they might be a bit reluctant on, as I said, reviewing their TV strategy. They have an OTT product, which is kind of outdated, but they have, by the way, in accordance with the board and also our consent, not fully invested in a new product because we said, "Well, if the deal would turn to be implemented, certainly we would not want to have big investments right before that." Now things have changed.
Now they have to return to this and see what efforts need to be done. There was also a discussion where we said we still feel that on the commercial side, they could be a bit more active. On the cost side, for example, customer care, a couple of improvements are available on paper, but not yet implemented because they were busy with other things. My reference was, by nature, if you prepare for a huge transaction, top management focuses on road shows and on the future, whereas the day-to-day operational business is a little bit left aside, and now they have to return to do so. You will have certainly seen the latest press release that they have now more than 300 sites fully equipped with 5G. They are on the full throttle once again on that implementation.
It was a reference to the status of the business. Just to give you also a flavor of us, for sure, Ingo and myself from 16th of August to last week, the entire Sunrise thing captured more of our time than it usually did. Thanks to our team of five board members, this did not impact day-to-day business. Certainly, part of our attention was taken away. That was my reference. We are in talks, and we are also in talks to the board, on the indication that Olaf said if the deal was finally down, he would not see his long-term future in Sunrise. He didn't say that he would dismiss the job or we dismiss, but it's for sure that his tenure will not be another five years or four years as he did before.
We are in simulation and scenario planning for those things. We have seen management being very professional, behaving on the results of the potential EGM.
To your second question, Usman, thank you that you give me the possibility to clarify it, the financing. I think we have not changed anything in the maturities between 2020 and 2022, because the maturities there are promissory notes and the promissory notes are structured products, so it is difficult to renew them before they are maturing. What we did is there's a bank loan which is due in 2023, and we implemented an option to prolong it after one year, for one year. We took this option now, and therefore we renewed this bank loan from 2023 to 2024 without any cost for us, one-time cost, and without any changes in the interest rate there. We do not see any difference in the average weighted cost.
Okay. Thank you. Just can I clarify on that? If I see the schedule on page 24, the total financing that you have has gone up from EUR 1.7 billion to EUR 2 billion, right? That's from 2018, end of 2018 to the nine months of 2019. You've got more funds available. Are those more funds available designed to meet the debt maturity that's coming up in 2020 or?
What we mainly changed was that we increased the revolver line from the bank financing. This is what you see.
Right.
The maturity in 2023 was increased from 780 to 1080. It is just a line which is available, but which is not yet used.
Okay, great. Thank you very much.
Okay.
Thank you. There are no further questions for today.
Well, thanks to everybody. Thanks for your patience, and thanks also for your understanding of dropouts on the fixed line. I will immediately call Tim Höttges to fix that. Thank you very much. Bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.