Until now, because we have measured it to make visible what has never been visible before. Our 5G network right here, right now. Because some things you can only grasp if you can see them with your own eyes. O2 can do. It's here in every moment, at any time. You can sense it. Test it. Use it. But never see it. Until now, because we have measured it to make visible what has never been visible before. Our 5G network right here, right now. Because some things you can only grasp if you can see them with your own eyes. O2 can do. It's here in every moment, at any time. You can sense it. Test it. Use it. But never see it. Until now, because we-
Good morning, ladies and gentlemen. Thank you for standing by. I am Francie, your Chorus Call operator. Welcome and thank you for joining Telefónica Deutschland Q2 2022 results conference call. Throughout today's recorded presentation, all participants will be in listen-only mode. The presentation will be followed by a question-and-answer session. If you would like to ask a question, you may press star followed by one on your touchtone telephone. Please press star followed by zero for operator assistance. It is my pleasure now, and I would like to turn the conference over to Mr. Christian Kern. Please go ahead, sir.
Thank you, Francie. Good morning and thank you for joining us today. On behalf of our management team, it is my pleasure to welcome you to the H1 2022 results call of Telefónica Deutschland. Before proceeding with the management presentation, we would like to inform you that the financial information contained in this document has been prepared under IFRS. As usual, this presentation may contain announcements that constitute forward-looking statements, which are no guarantees for future business performance and involve risks as well as uncertainties. Certain results may materially differ from those in these forward-looking statements due to several factors. We invite you to read the full disclaimer on the first slide of this presentation. Finally, today's presentation is also available for download on our IR website.
With me today are Telefónica Deutschland CEO Markus Haas and CFO Markus Rolle, who will take you through the presentation, followed by a Q&A session. Markus, without any further ado, over to you.
Thank you, Christian. Good morning, ladies and gentlemen, and a warm welcome to our half-year one 2022 results conference call. Today we are reporting another very strong set of results while we remain focused on our strategy execution. On the back of the strong half-year 1 performance, Telefónica Deutschland is expanding its full-year 2022 OIBDA outlook range upwards. We are now targeting full-year 2022 OIBDA growth of low- to low mid-single-digit percentage growth versus the initial guidance range of low single-digit percentage growth. We are always in the final six months of our successful three year investment for growth program and well on track to deliver what we have promised in 2019. Here are the key highlights of our strategy delivery.
On mobile growth, we have delivered consecutive profitable growth in mobile service revenues over the last few quarters, expanding our mobile market share. The underlying trends are intact in a rational yet dynamic mobile market, which we expect to continue. On B2B, we see momentum and gain further share in the targeted SME segment. We see growth supported by our mobile core business as well as by our project business with increasing demand for new services and in fixed as well. On smart bundling, we are increasing our household penetration and are growing the share of our customer base with more than one postpaid SIM. On ESG, our ESG achievements are well recognized and remain focused on executing our ESG roadmap laid out by our ambitious responsible business plan 2025.
On the back of our significantly enhanced network quality in 4G and 5G and continuous strong mobile data demand, Telefónica Deutschland is planning more for more price adjustments for new tariffs across its portfolios and segments over the coming quarters. For quite a few years, we have offered our customers more and better services at similar value for money proposition, while simultaneously investing into our network and ESG leadership. In 2020, we achieved network parity. Since then, we have continued densifying our network, added coverage, and doubled available network speeds. At the same time, we are making strong progress with the 5G rollout and achieved our 50% POP coverage target for year-end in 2022 ahead of time. We have recently increased our 5G coverage target to 60% POP coverage within an unchanged CapEx envelope due to rollout efficiencies achieved.
We are proud to say that the O2 network successfully services customers every day with data traffic doubling every two years. Our overall achievements are also reflected in high customer satisfaction and low churn rates. On my next slide, let me highlight the main half year one KPIs while Markus Rolle will discuss our Q2 performance in more detail in the second part of our presentation. Mobile postpaid net additions were more than 660,000 in half year one, driven by continued commercial traction of our core business strength. In Q2, we were also celebrating the 20th anniversary of the O2 brand in Germany with the introduction of our innovative tariff O2 Grow. High customer satisfaction with our services is evidenced by the O2 postpaid churn being broadly stable at 1% year-over-year and a strong NPS for the O2 brand.
On financials, revenues up more than 5% year- over- year. OIBDA posted almost 5% growth on sustained profitable top line growth. CapEx to sales at 14.1% delivered strong progress with 5G rollout. Overall, our strong KPIs reflect our continued commercial traction and sustained financial performance. Moving on to my next slide, Telefónica Deutschland remains highly focused on delivering its ESG roadmap and is on track to reduce its emissions by 90% and neutralizing residual emissions latest by 2025. This quarter, I like to flag our social responsibility and digital inclusion commitment. Especially in these challenging times, social connectivity is even more important with people suffering from war in the Ukraine and economic as well as political uncertainties dominating the daily news. Therefore, we are even more focused on our social responsibilities. Here are just a few examples.
Support for the Ukrainian people was the main focus of this year's volunteering day. Our employees were highly committed to help refugees from Ukraine with hands-on support, such as providing language services to children and coaching for online job applications. We are proud of some highly committed employees founding the volunteering start-up Civil Relief to offer people from Ukraine transport and organized food as well as accommodations. To help maintaining mobile communication services in Ukraine, Telefónica Deutschland donated mobile network equipment. We are also supporting society by enabling an inclusive digital transition with initiatives such as the German Digital Day, headed by our Berlin-based base camp, or we were promoting digital literacy by teaching digital skills across all generations. Helping to protect and to drive a sustainable environment, our employees also took part in the company's environmental weeks.
Initiatives included collective cleanups and climate workshops demonstrating employees' commitment to local environmental protection. As a result of all our combined initiatives driving our ESG agenda, we are well-recognized with top rankings by leading ESG rating agencies, including Sustainalytics and EcoVadis. On my next slide, I'm excited to highlight the network achievement of having reached our 5G year-end POP coverage target of 50% well ahead of time. Therefore, we have raised our ambition to 60% POP coverage by year-end with an unchanged CapEx envelope. Let me just flag some of our key network achievements. Our strong 5G network expansion includes now a densified grid of 14,000 5G antennas, mainly driven by new technologies and rollout efficiencies. Our network parity is well-recognized by the leading network tests going forward.
Our passive and active network sharing agreements with the current MNOs enhance both network densification and CapEx efficiency. On fixed line, we are benefiting from the rollout progress of new technologies and higher speed classes in our wholesale portfolio, where we are increasingly seeing traction of our 1 Gb services. Finally, let me remind you that Telefónica Deutschland is now in the final year of its three year investment for growth program and has already passed its CapEx peak last year. Before handing over to Markus Rolle to take you through our strong Q2 operational and financial performance in more detail, I like to share with you some more color around our upwards expanded full year 2022 OIBDA outlook range. Our full year 2022 outlook is fueled by strong business momentum in the first half of the year.
This strong first half year performance was mainly driven by the ongoing strength of the core business with high customer demand for the O2 Free portfolio and was supported in the second quarter by the anniversary offers to celebrate the twentieth anniversary of the O2 brand in Germany. Telefónica Deutschland expands its full year 2022 OIBDA outlook range upwards to low- to low mid-single-digit % growth with unchanged assumptions for the regulatory headwinds. We are making this positive change to our outlook after careful consideration of the challenging macroeconomic and geopolitical environment on the back of the war in Ukraine. So far, we have managed the impacts of the inflationary environment well with our core business consistently delivering sustained and profitable growth.
At the same time, we are continuously monitoring and analyzing the impact on the company from further developments of the COVID-19 pandemic as well as the war in Ukraine. Markus, now over to you to take us through the Q2 results in more detail.
Thank you, Markus. Hi everyone, and very warm welcome and good morning, ladies and gentlemen. Let me now take you through our strong Q2 operational and financial performance in more detail. Revenues maintained their growth path in Q2, and they are increasing by 5.8% year-over-year to just over EUR 2 billion. This is driven by the sustained MSR growth momentum despite the tougher comps in the quarter and on the back of strong handset demand. In detail, MSR grew 2.3% year-over-year to just over EUR 1.4 billion. Despite the negative impact from the accelerated MTR path, combined with tougher comps in the quarter, we have been able to deliver underlying growth of 3.4% year-over-year.
The MSR benefited from the ongoing strong commercial traction of the O2 brand, as well as some support from the recovery of international roaming. Handset sales also continued strong demand for high-value devices, and we also had, again, a good device availability. That drove our handset revenues, which is posting 24.1% year-over-year growth to EUR 395 million. Handset margins are broadly margin neutral. In fact, we had a small headwind in Q2 year-over-year. Fixed revenues grew 0.9% year-over-year to EUR 201 million, where retail fixed broadband growth posted a 2.5% year-over-year increase in Q2, reflecting the increasing share of high-value customers in our customer base. On my next slide, let me take a look into our solid trading performance.
Mobile postpaid maintained its commercial momentum on the back of a strong customer demand for the O2 portfolio and a solid contribution from our partner brands. As a result, net additions totaled to EUR 374,000 in Q2, which is stable year-over-year. Churn in the O2 brand was flat year-over-year at very low levels at 0.8%, and the anticipated temporarily higher churn on the back of the EECC introduction started to normalize as anticipated in Q2. The O2 postpaid ARPU was marginally down year-over-year on the back of a combination of the accelerated MTR glide path and some enhanced focus on customer loyalty. This included retention and bundle benefits, for example, for second SIM cards and friends and family offers. Of course, we continue to see strong uplift from the first SIM cross-sells.
Also worth mentioning is that MSR growth from an overall perspective is of course also supported by second and third SIMs, which naturally contribute lower ARPUs. Though ex-MTR impact, our underlying O2 postpaid ARPU continued to grow with 0.4% year-over-year. As Markus has already highlighted, the new gigabit offer and our technology agnostic O2 my Home product remained popular with both cable and fiber gaining traction. Our fixed broadband business registered EUR 5,000 net additions with a churn of 1.1%, which is marginally up mainly as a result of the EECC implementation. Fixed ARPU continued to grow as a result of the increasing share of high-value customers in the base and stood at EUR 24.70 in Q2 2022, which is an up of 0.5% year-over-year. Moving to my next slide.
Our OIBDA grew 2.7% year-over-year to EUR 629 million in Q2, despite tough comps in the quarter. Our underlying OIBDA growth was even 4.7% year-over-year. The OIBDA growth reflects on the one hand, the improved operational leverage, mainly in mobile on the back of the continued own brand band momentum, and on the other hand, further efficiency gains and some international roaming tailwinds. With that, we have achieved several consecutive quarter of OIBDA growth by our focus on profitable growth. Our OIBDA margin this quarter stood at 31.4%, which is down - 1 percentage points year-over-year, mainly reflecting the strong growth of broadly margin neutral hardware revenues. With regards to our costs, let me highlight the following key points.
Supplies increased 12.9% year-over-year as the positive impacts from the MTR cut were more than offset by volume-driven higher hardware cost of sales in context of the before-mentioned strong handset revenues. Our underlying personnel expenses were down -0.6% year-over-year. The other OpEx was up 2.7% year-over-year, and this is reflecting the technology transformation, the commercial activity, and a more normalized marketing spend versus a partial lockdown quarter in the prior year. As of today, we see no meaningful changes in the payment behavior of our customers. We saw only slightly higher, mainly volume-related losses due to the strong handset sales. On the right side of the slide, we show our free cash flow with its typical annual seasonality.
Free cash flow amounted to EUR 373 million year to date. It is following the annual free cash flow pattern. We paid bulk of the annual lease payments, and we also substantially reduced the CapEx payments. This results in a negative free cash flow after lease of EUR -22 million year to date, with the free cash flow after lease already turning positive with EUR 31 million in the second quarter. Let me discuss the free cash flow in more details on my next slide. First of all, we are well on track for a strong free cash flow generation. On the upper right-hand side of the slide, we show that we have achieved a stable operational cash flow trend even during our investment for growth program.
Year to date, operational cash flow amounted to EUR 673 million, which is an increase of 3.7% year-over-year. As mentioned, free cash flow in half year one was broadly stable year-over-year. Free cash flow after lease in Q2 was making already a positive contribution of EUR 31 million, despite the well-flagged additional lease cost from our recent infrastructure transaction. As discussed in the past, Telefónica Deutschland has typically a backend loaded free cash flow after lease profile, illustrated at the lower right-hand side of the slide. The key seasonal factors impacting the free cash flow after lease in half year one were the annual prepayments, for example, leases.
Half year one typically accounts for more than 60% of the full year lease payment and also seasonality driven higher CapEx and handset costs in Q4 of the previous year. Overall, working capital movements of EUR -281 million year to date were on a similar level as in prior years, whereas the composition has changed. Main driver was the reduction in CapEx payables in the amount of EUR 239 million, even more pronounced than usual, given the CapEx peak of the investment for growth program in Q4 2021. Operational working capital movements have improved compared to last year, only showing a consumption of EUR -42 million, mainly driven by the prepayments while trading related positions were broadly offsetting each other.
The outflow of EUR -90 million reflects non-working capital related cash outflows and mainly consists of net interest payments and some financial investments, for example, our equity contributions for the UGG. As a final remark with regards to working capital, once steady state in CapEx has been reached, the corresponding working capital is expected to become neutral on a yearly basis over time. In the light of the rising interest rate environment, it's also worth mentioning that our consolidated net financial debt amounted to around EUR 3.7 billion as of the June 13th, which is down year-over-year. This resulted in a healthy leverage ratio of 1.5x , which is well below the company's self-defined upper limit of 2.5 x. Telefónica Deutschland has secured fixed rates on all drawn debt instruments and facilities.
Hence, any potential interest rate hikes would only have an impact on the company over time. On my final slide, I like to summarize the key points of today's presentation before we kick off the Q&A. As a management team, we are highly committed to deliver long-term shareholder value and achieved again strong operational and financial performance in Q2, driven by the delivery of a continued strong commercial momentum following the revenue growth path on sustained MSR momentum, achieving OIBDA growth driven by improved MSR quality and delivering on our ESG commitments. Hence, we expand our full year 2022 OIBDA outlook range upwards to low to low mid-single digit % growth. Now, as usual, we look forward to your questions. Operator, please go ahead and start the Q&A.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. Anyone who has a question may press star followed by one at this time. One moment for the first question, please. The first question is from, excuse me, the pronunciation, Georgios Lerodiaconou from Citi. Sorry, sir. Please go ahead.
Yes, good morning, and thank you for taking my questions. I have two. The first one is around pricing. Obviously, I think, Markus, you mentioned during your introductory remarks that you are planning to look at more price adjustments. I'm just curious to hear from you your thinking on that. We heard from one of your competitors the other day that they expected other players and maybe the market leader to lead the way. It would be interesting to hear your thoughts and also whether you expect any of these price adjustments to have financial impact already this year. Or is it something that's mainly gonna benefit 2023? My second question is on the cost side, again, for this year and next, if you don't mind.
I just wanted to note that your guidance implies a small slowdown in EBITDA growth in the second half versus what you've delivered already. I know it's not a very precise guidance, and there may be a bit of movement here and there. You do have some tailwinds from the Lebara contract and also from high commercial expenses in the fourth quarter of last year. My question is, are you already seeing some energy and other expenses mitigating these positives in the second half? If you could perhaps give us an indication about your 2023 expectations of energy costs. Thank you.
Good morning, Georgios. I will take your first question. I think you stated on the back of now full network parity, especially in mobile, we clearly see opportunities on more for more cross-portfolio. That means all brands. Not only your two brands, cross-portfolio in the segments where we operate in order to offer new tariffs with more for more logic included, and the journey already starts this year. We clearly expect flow-through effects not before end of this year. Clearly starting this, especially in acquisition and also an extension of contracts, but especially also in the prepaid segment. We take a full portfolio view on the back of really high quality network being built on 4G, 5G, more data demand, and clearly see opportunities cross-portfolio and more for more.
Georgios, let me take the second question. First of all, we expect commercial momentum to continue also into the second half year. That is, of course, including some tailwinds, as you were mentioning, from Lebara, but also some less pronounced roaming advantages versus the prior years that we have to take into account. The overall trend and momentum is fully intact. That gives us also the room to expand our guidance to low mid on the upper end. Here we are confident that all topics around inflationary we can definitely compensate. As said before, in Q1, we had already roughly two-thirds been hedged.
Now we are at 80%. If you have a reminder, even if we were to buy it at today's spot market prices, you are coming to a very low double-digit to mid-double-digit million amount, which we will fully compensate within the guidance range that we have given. That is also the reason why we are comfortable with the actual consensus, which is out there. With regards to energy costs, 2023, we are currently preparing long-term agreements over the next years. Which on the one hand, build on our ESG positioning, going further to really get good energy that we buy.
That will help us then also to further improve that positioning and makes us also independent from spot market prices. We will update you as soon as we have finalized the concepts around that.
If I could ask a follow-up. What is roughly the current level of hedging you have for next year? Is it something you can share with us?
We see this as a package, Georgios. I think we have access to long-term PPAs that allows us also to override additional commitments we have. That gives us the flexibility going forward, as Markus said, to combine the ESG strategy with very favorable long-term independent energy cost.
Thank you.
Ladies and gentlemen, we kindly ask you to ask maximum two questions per participant. The next question is from Polo Tang from UBS. Please go ahead, sir.
Yeah, hi. Thanks for taking the questions. I have two. The first one's really just about Huawei, because there have been press reports suggesting that there could be a full ban on the use of Huawei equipment. What's your view on this? Can you talk through the potential impact on Telefónica Deutschland? My second question is really just to kind of clarify the impact of Lebara. How much of a benefit did you see from the Lebara MVNO in Q2? Can you remind us as to whether you need a SIM swap to migrate the subscribers? Thanks.
Morning, Polo. On your first question, I think I stated we have the lowest exposure in the market, and we have full refund agreed with Huawei in case on 5G there would be a replacement needed. On core, we already deployed Ericsson, and as said, our share is below 50%. Fundamentally, nothing has changed. The government confirmed that the position is still in place, despite the press articles, and there are no facts on the table. Overall, we feel very comfortable. In a nutshell, lowest exposure in the market. Our plan B is cost neutral for Telefónica Deutschland. As said, on the core, we're already on Ericsson.
Polo, let me take your second question with regards to Lebara. I can confirm that the migration has started in Q2, and we expect that to end at the end of Q3. That's the current estimation that we can give to you. In order to answer your question properly, yes, it requires a SIM swap for the Lebara customers. That is also the reason why it takes time. That answers also your follow-up question with regards to the benefits we have seen. We see a negligible contribution of Lebara to our P&L in Q2. As always said, these effects will build up now through 2022, and the full effect of that will be visible from 2023 onwards.
Great. Thank you.
The next question is from Akhil Dattani from J.P. Morgan. Please go ahead.
Yeah. Hi. Morning. I've got two questions as well, please. Can I ask a first question just as a follow-up on the topic of pricing? So what I really wanted to understand is that, you know, you've mentioned quite clearly in your previous answer that you're confident in a more for more approach, which, is understandable. I guess the real thing I wanted to understand is what makes you confident to do that ahead of your larger peers taking those sorts of moves? I guess normally we would see the incumbent go first. Is it that you just think your discount relative to the incumbent peers is too great given your network quality parity, or is there some other rationale behind that? I guess the question is, you know, what's giving you that confidence?
Linked to that, I guess there's been a lot of discussion around family plans given Deutsche Telekom's tariff proposals earlier this year. I guess I'd love to understand if you have that data point, what your average number of SIMs per household is across your footprint, just so we know where that is. The second thing was just around working capital. You made some comments in your introductory presentation around handsets and the fact that that is not just been low margin, but I think if I understood correctly, you said that there's been some drag related to handsets on EBITDA and cash flows. If you could just qualify what that was.
In terms of just cash flow, working capital overall, are you able to give us any sort of sense as to what you think the full year working cap number would be? Thanks a lot.
Thank you for your questions. I'll start with your first one. What makes us confident that is for Telefónica the right time for more? First of all, clearly we see fully equalized churn rates after EECC. We are through the first wave as we see, as expected. The technical effect of Q1 has completely neutralized in the second quarter. This is clearly based on extremely high customer satisfaction, high NPS, high service, high satisfaction also with our cross-channel delivery and performance that we show, and clearly also on the back of equalized network quality. On that level, this combined with additional significant increased data demand that we see coming also on the horizon with new devices, with new products, new streaming services implemented. We believe we deliver also in the future value for money.
We are not giving up our value proposition in the market. Having said that, where we currently stand, we see more for more initiatives in a new portfolio coming up where we will clearly step up the ladder. It's not only in with one brand. It's a cross-brand portfolio approach on the brands that we operate here in Germany. Also in the prepaid area with additional services and additional data, but also in our second-tier brands like Blau and others. I think it's a cross-portfolio that we see because everybody benefits from this great network where we have now nationwide coverage with 100 Mbit by the end of the year, and clearly significantly increasing 5G footprint for our premium customer.
On the back of that, I think from our perspective, we are serving our customers well, and we are prepared to give more and even better services for more. I think that's the basic concept. On your second part of your first question, I think if you look at the facts, only 25% of households in Germany have more than two people, or only in 25% there live more than two people. From that level, our SIM penetration is lower than, of course, three SIM cards. It's between one and two in the whole customer base. From that level, we are very well positioned with our bundle benefits that we give for mobile and fixed.
We are, from that perspective, well positioned and also do not see any exposure to recent moves of competitors in that level. Because at the end of the day, 75% of the market are not addressed with these propositions. It's more niche if you take it from us as a mass market player in mobile.
Hi, Akhil. Let me take then the working capital question. First of all, your handset and topics, I would start with the P&L impact that I was mentioning. We had, again, very strong handset revenue. This is very clear, but we had, despite maybe than in prior quarters, where we have been able to skim, we had this quarter a broadly neutral margin on the handset.
My comment was meant that from a year-over-year perspective, due to the slightly higher margin in prior year, we have now a slight headwind, which is negligible, but on the other side, we also do not generate our margins from the handset business. This comes clearly from our MSR development and the quality of the MSR development that we are able to deliver.
With regards to working capital, here also our program is meant to be neutral from a handset perspective, because on the one hand side, we have our My Handy program to the customer, where we give the customer installment plans over time, and we neutralize that via our silent factoring program that we have in place in order to have barely any effects on the working capital, apart from some phasing depending on the number of silent factoring transactions that you do. With regards to working capital for the full year, of course, we do not guide on working capital. Here I want to again reiterate the comment that I have made before on the call.
We have that back-end loaded cash flow profile as in prior years, also, and we are confident on a strong free cash flow development from an overall perspective. On top of that, we expect after the CapEx payables outflows from the CapEx peaks in the past, working capital to be a rather neutral position for the next years. Normalizing to a neutral position within the next years.
The next question is from Ulrich Rathe from Jefferies. Please go ahead.
Yeah, thank you. My first question would be the wording of the EBITDA guidance is maybe a bit labored to this low- to low-mid-single-digit. Sort of if you look at it a different way, would you say that 4% consensus that you collected prior to results is reasonable or maybe a bit aggressive? Second question is coming back to macro uncertainties. You're saying you're seeing only volume-related impact so far. Could you describe a little bit what outlook you have, where you see the risks and what you have baked into the guidance at this point? Thank you.
Yes. So Ulrich, I can confirm again that we are comfortable with current consensus level, which is around the percentage that you have described. With regards to macro preparation, I think we have a well-established system in place with good credit check mechanisms, et cetera, that filter out, as it has done also in the past, customers who have a low probability to pay. We are of course always looking into the different ratios. As said, currently, percentage-wise, we do not see any effects. We also see that there is a good commitment of our customers to pay their bills, et cetera.
From today's perspective, everything fully intact, but also all mechanisms in place to protect us from negative developments by really being careful on the transactions that we are doing.
Maybe to add on that one: We have now on all channels implemented trade-in programs, also to fuel the next wave of high-quality smartphone that we expect to arrive soon in the German market. We have now on all channels trade-in programs installed together with the handset manufacturers in order to clearly make the affordability of handsets possible. We also have these installment plans very flexible from 12, with one-time payment, 12, 24, 36, and even 48 months for high-end smartphones in order clearly to have affordability in these uncertain times for everybody, also for high-value smartphones. This is running extremely well. That's also USP that we have in the market, and that clearly also driving the successful hardware business that we have recently seen again in Q2.
Thank you very much.
The next question is from Andrew Lee from Goldman Sachs. Please go ahead.
Yeah. Morning, everyone. I just want, if possible, to follow up on Georgios's question at the start, just on the OpEx headwinds. It's obviously the biggest debate across the market right now, and just really struggling to get any sense of context or sizing on those headwinds into 2023. I just have two very specific questions. One is on the lease price escalators. What is the inflation link cap on those lease price escalators? Even if it's just a range, that would be good to know, because we obviously know them for all the tower cos themselves.
Secondly, just on the energy headwinds, obviously you've got PPAs that can help from 2024 onwards, and there are puts and takes. If we just take the spot price today and what you know today, which is the best I guess any of us can do, what kind of extent is the energy headwind in 2023? Just a range of numbers would be great because it's very hard at the moment to get a sense as to the scaling of it from your answers earlier. Thank you.
Thanks, Andrew, for your questions. I can fully understand that the uncertainty currently that you see in the energy market is very difficult to model from your perspective. What we can say up to now is we have access-
To cover the full decade starting next year with a long-term PPA. We are an attractive customer for energy companies because we have rising, slightly rising demand coming from 5G and additional sites that we build, and clearly also in recession times, our industry is not at risk at all because mobile demand and mobile usage is given at any time. And also clearly the ratings that we enjoy clearly help us to have access to extremely attractive conditions for the full decade, including next year. We will go out once we have signed the deals that are currently underway. From that perspective, it's clearly our target is to neutralize any impact. I think that's clearly our ambition level.
Let's see how much we can do, but we don't see really major impact for next year and the coming years. From that level, as said, we are really in a preferred position to manage this situation with the circumstances I mentioned extremely well. We will go out once we have signed the deals going forward. From that level, we don't expect big headwinds. On the leases, I think also as well, we do not have automatic escalators that just take the current situation into our contracts. We have half of our sites are parts of the deals of the rooftops. The other part of the rooftops is still controlled by us completely.
On that level, you have the rent for the ground lease, you have the lease for the steel, and you have different elements in there, and they all apply different parts. From that level, there's not an automatic escalator that you could apply. So far, I think we managed this extremely well, and this is also a dialogue with the tower companies, how we will continue that one. Also on that level is clearly management attention to achieve the best outcome for Telefónica Deutschland going forward. There's not an automatic escalator, just to be very clear, that applies to our full lease cost.
Okay. I'm still struggling a bit just on the scaling. Obviously, you're in a good position on the energy costs, but if you take that into account, as I'm sure you are, what's your anticipated numerical headwinds? What's the current hedge at the moment, the percentage of your energy costs that are hedged? Obviously, you're gonna do more, but what's the current level? You know, we know for most of our other companies, it's about 30%-40% and rising.
Well, as I said earlier, we will override existing commitments with a long-term PPA. From that level, we are in a good position. As said, we don't publish a detailed percentage for the commitments we have given for the coming years up to now, so we will come out with a full concept once it's ready.
Okay. Thank you.
The next question is from Mathieu Robilliard from Barclays. Please go ahead.
Yes, good morning. I had two questions, please. First, in terms of the free cash flow, I think you explained very clearly that it is back-loaded this year as it was in the previous year. Maybe given the focus on this topic, I realize you don't guide on free cash flow, but obviously you've disclosed some consensus numbers for free cash flow for 2022, which I think is around EUR 482 million after lease. If you could indicate if you're comfortable with this level one way or another, that would be very helpful. The second question was on the wholesale contribution. Any big changes in how much the wholesale revenues are contributing to your total revenues? Thank you.
Okay. Mathieu, let me take your questions. Indeed, I can confirm that with the consensus published on our website, we feel comfortable. With regards to the handset revenues, it's for us, Mathieu, a non-event because it remains in the high 20s as a revenue share of the postpaid. That's no fundamental changes to it. Our growth that we are generating, I think that is important, is high-value MSR growth, and that comes from our O2 growth that we are able to accelerate further.
Thank you very much.
The next question is from Joshua Mills, from BNP. Please go ahead.
Hi, guys. Thanks. For the questions, I've got two. The first is going back to the Huawei question. I think in the past, what you've told us is that around 45% of the radio access network is Huawei. Then with regards to the core, the comment you make is that the new network, the new 5G core network is being built with Ericsson. My question is really, of the legacy 4G core network, how much of that is currently Huawei? Where does that come down to? Because I understand you're upgrading it, you're going through the process. Given the headlines, just understanding your percentage exposure to Huawei in the core, I think is pretty important. Then the second question is hopefully more straightforward.
On the broadband net adds last quarter, you gave a helpful breakdown of where they were coming from by technology, and you could see that the cable net adds were particularly strong. I'd be interested to see if you could give us a bit of color around where the growth is coming in your fixed broadband numbers, which are obviously positive now, and an approximation perhaps of where the cable number came in as well. Thanks very much.
Hi, Josh, and thanks for your questions. On your first ones, yes, you're absolutely right. In radio, our exposure to Huawei is the lowest in the market with below 50%. As said, we are completely reimbursed in case the government would take actions. Just to be clear, there's no change. The government hasn't changed its position, and up to now, we don't see any changes coming. If so, and that's your question, what would be in the hypothetical scenario? We clearly would be reimbursed. 4G would not be part of any legacy technology under this definition. It would not be affected at all. Clearly, over time, we would renew our network as we do also here. There's nothing additional to the normal renewal cycle that we have.
In the core network, we are up and running, so we have replaced more or less all key systems up to now. There's not any additional cost that we have. Also here we are in the renewal cycle. Our 5G standalone network is ready. We switch it on when it's mass market relevant, already built. On that level, we are fully underway and in the plans that we have foreseen. In the hypothetical scenario, we wouldn't see any additional costs or any additional exposure, less than the swap time and the efforts that we would have on swap, but also on that one, we would be completely indemnified by the vendor you mentioned.
On your second question, cable composition is part of our gross performance, and we clearly see that the birthday campaign has been extremely successful. 30% of the gross adds that we are currently doing are on cable. They will flow through once the customers are active. The order becomes active after several weeks. With the Q3, where we are already up and running, we would clearly see a significant higher increase of cable intakes, as part of the fixed wireline gross add volume. You know, we have internet at home also contains, it contains fixed mobile substitution. On the pure wireline, we currently see up to 30% of intake already coming from cable.
That's a significant increase to the status before we renewed our wholesale contract with Vodafone on cable and also Tele Columbus. They're also part of the promotion that we have carried out. On that level, we are pleased with the positive development that we clearly now see on cable intake.
Thanks. Sorry, just to come back on Huawei. I understand your points about having the lowest exposure. It sounds like you're talking there about just the radio access network. On the core network, if you had a U.K. style scenario where you were required to remove a rip and replace strategy on that, the refund terms of Huawei, I'd assume, only refers to the equipment. I'm alright in thinking you'd still have to pay extra in order to get in there and swap the equipment out. Again, understand that nothing's actually changed, but it's clearly becoming a bit more of a topic of discussion in the German press.
Well, the replacement cycle of core ends this year, so I think it's all underway, Josh. There's no additional risk also on core.
Great. Thank you.
The next question is from Pilar Vico from Credit Suisse. Please go ahead.
Hi. Good morning, and thank you for taking my questions. I have two on my side, please. The first one, it's around SMEs. I'm not sure if you could give us a bit of color on how it's evolving and what is the current market share achieved. The second one, sorry to come back again, but around handsets. We saw last quarter gross margin flowing through to EBITDA. Why this trend has not continued this quarter? Thank you.
On SME, we clearly have a double-digit market share, but it's a low double-digit market share, as we always say on that level. We are really pleased with the growth that we see. The key growth that we see is coming in this segment, so customers up to 500 employees. Companies with 500 employees. On that level, we grow step by step, quarter-over-quarter, and the funnel is filled up. In that level, we constantly grow our market share. That's the key growth source of our B2B growth under the current plan.
Pilar, good morning. Let me take your second question for the handsets. I think we reflect very clearly in, for example, the first quarter, that we had good availability where the market had not good availability, and we used that, of course, to optimize and skim. Markus mentioned last time we are businessmen, of course, we use that also to optimize the margins. We have seen that now evolving in the second quarter. We had, again, very good demand, as you can see from the strong traction that we are doing and the increase in handset revenues.
However, there was also good availability in the overall market, and that means that this optimization that we did in the times where we had just availability of the handsets, we couldn't pursue in the second quarter. That's simply it. We are back. Also, here we are not in negative territory. We are back to normality, I would say it with broadly margin neutral business on the handset side.
Thank you.
The next question is from Steve Malcolm from Redburn. Please go ahead.
Hi there. It's actually Steve. Can you hear me okay?
Yes, we do.
Yeah. Hi. Got a couple of questions. I wanted to come back to Andrew's questions on energy and leasing, if that's okay. Excuse my ignorance, but can you just help me understand how these power purchase agreements work? Maybe give us a sense of the proportion of your energy needs that would be covered by these sort of long-term deals. I get, you know, in simple terms, if energy prices double between 2021 and 2022, you know, how do you avoid that doubling if you're not hedged. If you haven't hedged much of your exposure at 2021 prices, how do you avoid that cost doubling in 2023 when those hedges expire? Is it because the power purchase agreements are at a substantial discount to current prevalent prices, and it's a large part of your energy needs?
That'd be really helpful. Just coming back to the leasing question. If I look at consensus, I think consensus expects your lease costs to rise about 4% in 2023. I guess the simple question is if inflation stays where it is, do you think that's about the right level, or would it need to go up if inflation stays at the current levels? Thanks a lot.
Thank you for your question, Steve. On your first question, I think how PPAs work is in every other industry. There's nothing unique to our industry. From that level, the more we bring to the party, also the long-term horizon and go together and wind parks with the partners and give commitments there, we can clearly neutralize on an average level any impact from that level. Clearly the question is how much volume do you commit now? How much volume do you commit in the future? I think there's full flexibility and as we have access to extremely favorable terms that also help us to mitigate short-term impacts. Once we have signed a deal, we will clearly share with the markets the key frameworks.
Markus, any sense of the proportion of your total energy that you can source in this way? I mean, is it the majority of it? Is it, you know, a small portion? That would be really helpful.
Well, it's a crystal ball question. I could allocate a lot. I'm not sure if this is wise now. From that level, from our perspective, we could cover significant parts. Significant parts we could lock in also for a longer horizon to take out any volatility. This is now the question when and how. We have choices, and I think that's good.
Let me take the second part of the question with regards to the leasing cost. As Markus has said, not the full lease amount that we are having is automatically exposed to leasing. It's on demand very often, and also not all components are included. The development of the lease cost going further, of course, also depends on the number of tower sites built then via the agreement that we clearly reflect also that will increase the run rate over time. It's also of course subject to us managing our portfolio, optimizing our portfolio, trying to further improve the deals. There are many elements that we have to take into account.
The assumption that you do not see a full inflationary cost flow through that the market takes is a right one.
Thanks a lot.
Ladies and gentlemen, in the interest of time, we can only take one final question. The final question is coming from the line of David Wright from Bank of America. Please go ahead, sir.
Thank you everyone for taking the question. Just, I think you renegotiated your cable terms with Vodafone quite recently. I just wanted to understand those contracts. In the event that network migrates to fiber with any kind of overbuild, do you have automatic rights to an option to break essentially to move those customers away? Or do you get automatically piggybacked into the new fiber network? Are you getting any sort of sense from the likes of Vodafone or even Tele Columbus that they're looking to secure higher volumes in wholesale as they move into fiber build? Thank you.
Thanks, David, for your question. I think any fiber deployment needs scale. We currently have covered the cable infrastructure. While the plans of Vodafone are currently not finalized and published to the market, we are very confident that any scale that we bring to the party on the cable network would also be highly welcome on a potential fiber network.
Okay. Do you have the right to choose customers? When they overbuild fiber, do you have the right to then go back to the market and tender wholesale, or do you automatically move on to their fiber network?
We have signed. Yes. I think the deal was based on remedies, and it's now translated into more commercial relationship to really push the business and bring volume on Vodafone's cable network. That's the intention. From that level, we have signed a cable deal. So far, FTTH was not part of the negotiations because the overbuild plans and the deployment plans are not concrete. We do not know where and how and in which speed it will be built. We also need to analyze if these are complementary plans or are these cannibalizing plans to other fiber deployments in the market who might be faster. I think on that level, we have the full flexibility.
I'm sure the scale we bring to the table is highly welcome for everybody who wants to deploy fiber because it's a scale game. We still have flexibility in case fiber would be deployed to decide where we want to put customers, especially in urban areas where we do not build with UGG.
Very clear. Thank you.
I will now turn back to Markus Haas for any closing comments. Please go ahead, sir.
Thank you. We really highly welcome your interest in our Q2 call. You have seen that the momentum continues on Telefónica Deutschland. We have been able to extend our EBITDA guidance. We are extremely confident, on the back of the first insights we saw from Q3 to continue the success story of profitable growth going forward and clearly finalize and overdeliver on our investment for growth program finally, compared to the figures and midterm guidance we gave, end of 2019. From that level, we have full momentum in a healthy market, and we clearly see opportunities coming on the More for More program that we are going to start already this year. Thank you for your interest, and we keep in touch. Thank you. Bye-bye.