Ladies and gentlemen, thank you for joining. Welcome, and thank you for joining the Telefónica Deutschland Q1 2023 Results Conference Call. Throughout today's recorded presentation, all participants will be in a listen-only mode. The presentation will be followed by a question-and-answer session. If you would like to ask a question, you may click the Q&A button on the left side of your screen and then click the Raise Your Hand button. If you're connected via phone, please press star followed by one on your telephone keypad. For operator assistance, please press the star key followed by zero on your telephone keypad, or press the operator assistance button on the left bottom side on your screen. I would now like to turn the conference over to Christian Kern. Please go ahead.
Thank you, operator. Good morning. Thank you for joining us today. On behalf of our management team, it is my pleasure to welcome you to the Q1 2023 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. The presentation is also available 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, please.
Good morning, ladies and gentlemen. Also from my side, a warm welcome to our Q1 2023 results call, and thank you for taking the time to join us. We are delighted to present another strong set of results. Telefónica Deutschland is making excellent progress across its three strategic pillars to build the best Telefónica Deutschland. Let me update you on the key building blocks of our strategy. First, on network. The focus is on network densification in cities and rural areas to further improve the 5G customer experience. We are well on track to achieve this within the targeted normalized CapEx to sales envelope. Second, growth. On the back of the sustained network quality, we continue our growth path across all segments to further increase market share.
We are confident about the German macro picture, which remains healthy with a growing telecoms market in mobile and fixed, supported by an overall robust economic outlook. We follow here two main initiatives. First, we continue to gain profitable customers. And secondly, at the same time, we have improved NPS and churn. Third pillar is our transformation. As part of our continued transformation process, we are accelerating digitalization across our business units to enhance our company agility and to be an essential growth enabler for the German economy. Here are two prime examples. First, we are growing the cloud IT-based IT landscape. And secondly, we are promoting and supporting the evolution of our workforce skills. Overall, Telefónica Deutschland also extended its ESG leadership by executing its ambitious ESG agenda, aiming to become net CO2 neutral along the entire value chain.
Let me now highlight our robust start to the year with Q1 results evidencing our ongoing market momentum and confirming the full-year outlook. First, on revenue, we grew 8% year-over-year, driven by sustained mobile service revenue momentum and another record quarter of handset sales. Secondly, on OIBDA, we posted 1.7% growth, supported by enhanced mobile service revenue quality. Third, CapEx to sales stood at 11.7% within the targeted normalized CapEx to sales envelope well on track to deliver 5G pop coverage of around 90% by year-end 2023. Overall, our business model is proving resilient despite a significant increase in inflation. Leveraging effective cost controls, we continue to manage inflationary impacts well.
At the same time, we are consistently implementing our "more for more" strategy across all brands and portfolios, which I will also highlight in more detail on my following slides. On the next slide, let me highlight our latest network achievements. We have made excellent further progress with our network modernization and rollout of 5G network to enhance the customer experience, given the strong and continuously growing demand for mobile data. Two highlights on that operational momentum. First, on network. A few months ago, we have been awarded for the third consecutive time a very good rating by connect Magazine in recognition of our network quality improvements with the biggest incremental gain year- over- year. Secondly, on customer service.
In addition, we are now very proud to have also been awarded by connect with a very good rating for our customer service. We achieved 5G pop coverage of more than 82% while competitively staying within the targeted CapEx to sales envelope. We are well on track for a nationwide high-quality green 5G network latest by 2025. Regarding energy, we continue to deploy successfully our hedging strategy and are now around 70% hedged for this year. In combination with our 3-year energy savings program, we are well on track with regards to our management ambition to benefit broadly stable year-over-year. Just to remind you, our two long-term PPAs are sourcing energy from German offshore wind parks at several prices for more than 2/3 of our annual energy demand from 2025 onwards and improve the quality of our green energy mix.
On the next slide, we provide an update on our "more for more" initiatives across the respective portfolios. Our "more for more" pricing strategy reflects the widely acknowledged improvement of our product, service and network quality, as well as extended ESG leadership. As already announced, we recently launched our "more for more" new O2 Mobile postpaid and prepaid tariff portfolios, with postpaid being the key driver of our future growth strategy. The new postpaid tariff portfolio, O2 Mobile, is priced on average around 10% higher.
Ladies and gentlemen, it seems like we have some technical issues. I would like to thank you for waiting for a second.
Can you hear us? Can we continue?
Yes, now we can hear you again.
Okay. A recap on "more for more" . Our "more for more" strategy, pricing strategy reflects the widely acknowledged improvement of our product, service and network quality, as well as the extended ESG leadership. As already announced, we recently launched our "more for more" new O2 Mobile postpaid and prepaid tariff portfolios, with postpaid being the key driver of our growth strategy. The new postpaid tariff portfolio, O2 Mobile, is priced on average around 10% higher, while offering larger data volumes at faster speeds, as well as innovative Grow feature. Customers in particular value the Grow feature which rewards customer loyalty every year. As you have probably already seen in our recent Grow TV campaign, based on the initial trading color, the new tariff portfolio is well received by customers.
To complement our overall "more for more" strategy, we have also implemented across most of our prepaid portfolio offerings with higher data packages and faster speeds for also around 10% more EUR. For example, Blau already launched in February, followed by ALDI and Ortel in March. We remain focused on capturing profitable growth opportunities across the entire sales funnel. Before handing over to our CFO to take you through our Q1 performance in more detail, let me confirm our confident growth outlook for the full year 2023 on the back of a robust start into the year 2023. Based on current market dynamics, Telefónica Deutschland expects a healthy pricing environment, both the premium and the discount segment for mobile and fixed. The well-received O2 Mobile portfolio, the main growth driver for our "more for more" pricing strategy.
It stands for our continuous investment in the successful improvement of our products, services and network quality, as well as our ESG leadership. We are managing the inflationary environment well with our core business consistently delivering sustained and profitable growth. Core business momentum is fully on track to deliver full year 23 outlook, with easier comps for energy for the remaining nine months and a planned annual phasing of commercial activity. Hence, we confirm our full year outlook of low single-digit % growth for both revenues and OIBDA, and CapEx to sales ratio at around 14%. Following the pandemic, we are again holding an on-site AGM on May 17th and look forward to having in-person dialogue with our investors.
Our strong commitment to an attractive shareholder remuneration is documented by proposing a dividend of EUR 0.18 per share for 2022, in line with our minimum commitment, also valid for this year. Markus, now over to you to take us through Q1 highlights in more detail.
Thank you, Markus. Good morning, ladies and gentlemen. It's good to have you all in that call. It's now my pleasure to discuss Telefónica Deutschland's quarterly results in more detail. We had a robust start into the year with ongoing commercial traction, which is driving our sustained financial and operational momentum. Revenues posted a strong growth of 8% year-over-year to EUR 2.1 billion in the first quarter. This is reflecting the sustained mobile service revenue momentum and another record quarter for handset sales. Mobile service revenue grew 4.2% year-over-year to EUR 1.4 billion in Q1. O2 postpaid remains by far the biggest absolute driver to our year-over-year MSF growth and is fueled by the unabated commercial success of the O2 tariff portfolio. The contribution of partners was again solid.
In combination, these two factors are more than compensating for the negative impact from the MTR glide path. Handset sales climbed close to 24% year-over-year to EUR 485 million in Q1 2023. This is Telefónica Deutschland's strongest handset quarter ever. It was driven by ongoing customer demand for 5G-enabled flagship devices, as well as a good handset availability at Telefónica Deutschland and an attractive long-term O2 My Handy contract portfolio, which is supporting the affordability of handsets for all customer groups. Fixed revenues also return to growth and are up 2.9% year-over-year and standing at EUR 203 million in the first quarter, with fixed retail business revenues posting an even stronger growth of 4.3% year-over-year.
My next slide shows Telefónica Deutschland also delivered continued commercial momentum in Q1 2023 on the back of a healthy own brand momentum and the return to low churn levels. Mobile post-postpaid recorded 360K net add and is almost up 30% year-over-year. We see continued high O2 brand entry, which drove the growth rates while the churn rates in O2 postpaid returned to low levels, improving by 0.2 percentage points to year-over-year to only 1%. Partner brands commercial momentum was again solid. The O2 postpaid ARPU posted 0.5% year-over-year growth in Q1 2023. This is reflecting the popularity of high-value tariffs while there was a slight offset by the further reduction of the MTR. Underlying, excluding that MTR cut, O2 postpaid ARPU grew even faster at 1.1% year-over-year.
Fixed broadband net adds were at 25K in Q1 2023. This is reflecting the success of our technology-agnostic O2 my Home tariff portfolio. Fixed churn also improved 0.5 percentage points year-over-year to 0.9%. We are with that returning to low levels pre the introduction of the EECC. Fixed broadband ARPU continued its growth path and is up 5.5% year-over-year to EUR 25.90 in Q1 2023. This is reflecting the increasing share of higher-value customers in the customer base. Let's move to OIBDA and free cash flow on my next slide. OIBDA posted solid growth of 1.7% year-over-year to EUR 612 million, with the improved operational leverage mainly in mobile based on the continued own brand momentum.
This was partly offset by some anticipated increases in OpEx, including higher supply costs related to the strong handset sales, tough comps for energy in Q1, and some MTR headwinds while roaming was a small tailwind. OIBDA margin contracted at -1.8 percentage points year-over-year to 29.1% in Q1 2023, mainly due to the particularly strong growth of the broadly margin-neutral hardware revenues. With regards to Q1 cost development, it's worth highlighting the following. Handset supplies are the main contributor to higher OpEx. This quarter, the share of handset supplies was 66% of supplies, while connectivity only accounted for 31%, also reflecting the MTR cut. Total supplies were EUR 670 million, which is an up of 13.4% year-over-year.
Personnel expenses were up 5.6% year-over-year to EUR 162 million as a result of last year's general salary increase, including the introduction of higher minimum wages in Germany, which is mainly affecting the customer service segment. It is combined with a slightly higher FTE base. Other OpEx increased 8.6% year-over-year to EUR 663 million, with commercial and non-commercial costs accounting for 65% and 33% respectively. Commercial costs are mainly reflecting the year-over-year stronger trading momentum in the quarter, while non-commercial costs are reflecting technology transformation as well as tough comps for energy for Q1. Just to remind you, last year, Q1 still benefited from energy supply secured at favorable pricing. For the remainder of the year, we anticipate easier year-over-year comps for energy driven by the market pricing and the continued successful deployment of our hedging strategy.
As Markus Haas has already mentioned, we have by now hedged around 70% of this year's energy demand. In combination with positive results of our energy saving program, we reconfirm our ambition for year-over-year broadly flat energy costs for the full year 2023. Turning to year-to-date free cash flow on the right side of the slide. CapEx was lower -7.2% year-over-year at EUR 246 million in Q1 as we return to normalized CapEx over sales this year. Free cash flow amounted to EUR 160 million in Q1 2023. The lease payments were EUR 296 million, reflecting a combination of network densification, including new BTS sites for wide spot coverage and some anticipated year-over-year increases. Let me remind you that Q1 typically includes more than 40% of the annual lease payments.
As a result, free cash flow after leases stood at minus EUR 136 million, also included some specific working capital movements, which I will explain in more details on my next slide. Operating cash flow improved 8.7% year-over-year to EUR 366 million in Q1. This is reflecting the strong operating and financial performance as well as lower CapEx successful completion of our investment for growth program. Working capital movements were minus EUR 202 million in Q1 23. This is mainly driven by the well-flagged decreases in CapEx payables, minus EUR 130 million, following last year's CapEx peak already in Q3 in combination with favorable vendor terms. Other working capital movements of minus EUR 71 million are mainly reflecting a temporary increase of inventories. As mentioned on my prior slide, lease payments were EUR 296 million.
As a result, the free cash flow after lease amounted to negative EUR 136 million, with a typical back-end loaded profile, which you can see at the upper right side of the slide. This year, the quarterly phasing is even a bit more pronounced, mainly due to two effects. CapEx payable were consuming additional EUR 50 million of working capital year-over-year, reflecting the before-mentioned Q3 2022 CapEx peak. Inventories were temporarily higher, plus EUR 90 million year-over-year, due to the very good flagship handset availability. For the full year, we reiterate our strong confidence in the company's free cash flow after lease generation, delivering at least dividend coverage from this year onwards. Let me highlight a couple of key free cash flow drivers for the remainder of the year. Our "more for more" strategy is underpinning the revenues and also the OIBDA growth.
Based on our hedging strategy, we are benefiting from easier comps for energy for the remaining nine months. Q1 already covers more than 40% of the annual lease payments. We continue to work towards normalized inventories and CapEx over sales levels with a positive impact on working capital consumption. Telefónica Deutschland has a strong balance sheet with a smooth debt maturity profile. We only have limited short-term rework financing needs. All drawn facilities have been agreed at fixed interest rates. Consolidated net financial debt remains broadly unchanged at around EUR 3.3 billion. The leverage ratio of 1.3x remains well below our self-defined upper limit of 2.5x. Fitch rates Telefónica Deutschland with a BBB outlook and stable, reflecting our strong balance sheet and financial flexibility.
Before we kick off the Q&A, let me summarize the key points of today's presentation. As a management team, we are well on track to build the best Telefónica. We remain highly committed to drive free cash flow growth and long-term shareholder value. We are focused on our strategy execution to drive profitable growth and outperform the market. Our high network and service quality supports the customer growth as a key driver of the continued operational and financial momentum, and is further underpinning our "more for more" initiatives and strategy that we have launched. We remain fully focused on our ambitious ESG roadmap to promote a sustainable digital future. Following a robust start to the year, we confirm our confident full year 2023 outlook. We look forward to your questions. Operator, please go ahead and start the Q&A session.
Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may click the Q&A button on the left side of your screen and then click the Raise Your Hand button. If you're connected via phone, please press star followed by one on your telephone keypad. If you wish to remove yourself from the question queue, you may press star followed by two, or please press the Lower Your Hand button. Anyone who has a question may click the Q&A and Raise Your Hand button or press star followed by one at this time. Please limit yourself to two questions per participant. 1 moment for the first question, please. The first question is coming from David Wright from Bank of America. Please go ahead.
Thank you very much, gentlemen, for hosting the call today. A couple of questions. Just the first is relatively quick. Just to understand the new momentum in the fixed line operations, just what's driving that? Where do you feel you're really winning new customers with what particular angles, whether it be price, product, et cetera? Then my second question is just a little more generic. You've obviously had this extraordinary demand for handsets and have configured your inventory and with the working capital impact from that. Now, obviously you've reiterated the guidance.
If the handset demand is so strong and there are clear NPV positive benefits, whether it be lower churn, whether it be winning net adds, et cetera, Is there not an opportunity to pursue more growth this year, maybe at a cost to some of that guidance, given that you guys have got very strong balance sheet? Is there not a case to actually maybe push on here and build even more subscriber growth momentum for 2024 and onwards? Is the guidance really so sacrosanct when there is clearly an opportunity? That was my second question. Thank you.
Good morning, David. Thank you for your questions. On fixed line, we clearly see the flow-through on all technologies that we provide. We see first OXG customers being connected and coming through the retail to the home customers. We also launched FTTH with Deutsche Telekom , so we see high ARPU customers kicking in. At the same time, we clearly leverage the cable infrastructure. I think there's a mixed bag from all infrastructures who contributed to the positive fixed growth momentum. Clearly, all new customers are coming with a significantly higher ARPU than the existing fixed wireline base. On your second question, clearly we see the opportunity, especially our 36 and 48-month installment plan on MyHandy makes high-end and high-quality hardware affordable for more customers.
This, in combination with our higher price plans, is a good match in order to keep the momentum and clearly get a fair share in trading. We are confident for the full year, and we will go as we see. I think we have strong handset sales on the back of the two key vendors. They are both very well represented in our portfolio. Let's see how Q2 comes in. Clearly, we will not stop. We see good momentum with the new portfolio and the lower hardware price with the 36 and 48, so we can make still with the higher monthly O2 Mobile postpay portfolio very That clearly allows us to drive the momentum. We don't exclude here the growth path.
From our side, we will not stop, and we clearly see very good momentum with the new portfolio.
Okay. Thank you.
The next question is coming from Polo Tang from UBS. Please go ahead.
Yeah. Hi. Thanks for taking the questions. I have two. The first question is in terms of the 800 megahertz spectrum. Do you have any update or any sense in terms of when we can expect the regulator to give a comment on the process? That's the first question. Second question is on 1&1, they're asking for a 5G national roaming agreement. Is there any legal or regulatory basis for this to happen either under the terms of the E-Plus remedies or the terms of the 5G spectrum auction? Thanks.
Thanks, Polo, for your question. On the first one, we expect no decision of an extension or swap auction this year. The regulator will take its time and analyze carefully. Except the extension, the full extension is still on the table. As the developments are currently progressing, we still see a very high likelihood of a spectrum extension on the facts that have been provided, and clearly also the need for spectrum to supply the current coverage for the country. On your second question, we see no legal basis coming out of the E-Plus remedies for any ask for 5G national roaming. Also the latest request to the regulator has no legal basis from our perspective. From that infrastructure competition between the 5G operators.
This has always been acknowledged also by 1&1, where they said in 2018, they go into infrastructure competition. They do not need 5G national roaming. Surprisingly, we do not see this as a legal basis. Clearly, if an attractive offer is on the table, we will always analyze very carefully if any offer would be in the interest of our company and our shareholders. There's no legal obligation for that. Thank you.
Thanks.
The next question is coming from George lerodiaconou Please go ahead.
Yes, good morning, and thank you for taking my questions. I have two. The first one is just to understand some of the drivers on OpEx. I realize you highlighted, the increase in supply costs, but handset revenues went up a bit more than, hardware costs have gone up, year-over-year. I'm just curious, when we look at your revenue profile, your growing service revenue is close to EUR 60 million year-over-year, but EBITDA is only up about EUR 10 million. I understand the comment you made on energy costs and the fact that this will normalize during the year and could be a tailwind. I'm guessing the gap between the two is not down to energy because significant. Is there any other expenses that are driving this?
If you don't mind giving us a bit of an indication of how you expect those to trend in the coming quarters as well. My second question is on the commercial momentum. Obviously you launched a new portfolios at a higher price point, but looks like operationally the momentum is quite solid. I'm just curious to get a bit of an idea from you as to how you are thinking about your next moves in terms of pricing, whether you are encouraged by these, do you think there's more that can be done to raise ARPU? Any comments around the timing as to when we see significant part of the base rolling over to the new contracts? Is it like over a period of 24 months, or could it be a bit more front-ended loaded? Thank you.
Good morning, George. Let me take your first question on the OpEx driver. Indeed, I can reconfirm that we had really good traction on the growth margin from the improved MSR quality that we are gaining. We had a record quarter of handset sales, and that is also, of course, reflected in higher cost for handsets. Just as a reminder, net next, this is broadly margin neutral because next to the direct cost, you also have to deduct some commercial costs, some bad debt, et cetera. For us, this remains a margin neutral factor, and therefore it's not contributing to the EBITDA growth.
With regards to the other cost line, we had, of course, in commercial activity that is also reflecting the very good Q1 momentum that we had in the cost development. We were up on the net add side 28%, that is also visible on the commercial cost side. Apart from the energy topic that you were mentioning, which has tougher comps now in Q1 and then easier comps in the coming quarters, all other cost lines are developing in line with our expectations. Personnel costs driven by the increase in personnel costs that we mentioned from the last salary round and the minimum wages increases. All more or less developing in line with our expectations.
If you compare also the growth that we have seen in Q4 last year from an underlying perspective, we were growing 2.3% roughly. That growth that we are presenting here is more or less in line with the growth that we have seen in previous quarters. From an overall perspective, cost line's developing in line with our expectations.
The second question on "more for more", we clearly plan to roll out in "more for more" on the full portfolio. The last brands will follow in the coming months. On the benefits, clearly in prepaid, we see them earlier because with portfolio changes, we have immediately the switch. On the post-paid base, all contract extensions in the base are done on the new portfolio. We see on the one side acquisition upside, but we also see clearly that contract extensions in the base, we execute also on a reasonable amount of extensions every month are already done on the new portfolio, and clearly they are immediately upward prices.
In fact, for a lot around the commercial side, is there room for commercial expenses to be allocated more less year on year in the coming quarters? Or as you roll out more brands, is commercial activity that we've seen an investment in commercial expenses, is it likely to remain more or less at the levels we've seen in Q1?
We are always, George, trying to find the OpEx , for example, from a channel mix, perspective, et cetera. That is of course, also heavily depending on the market environment, that is around us. Where we can optimize, we will definitely optimize. I can assure that. We have really value-based steering on a daily basis in the different teams, where we exactly look into what is our room to maneuver, how much do we have to invest in order to sustain our commercial momentum. Where we can optimize, we will always do that.
Thank you.
The next question is coming from Joshua Mills from BNP P Exane. Please go ahead.
Hi, guys. Thanks for the questions. Two from my side. One was cash flow, and then I'll ask one on the national roaming side. On the cash flow, I understand you don't guide explicitly, but the Q4 results, you did say that working capital should be flat for the year. Given what we've seen in Q1 and the comments you've made around handsets, could you just let us know whether flat working capital for this year is still the expectation or whether that's changed since February? Also on the cash flow side, I know you don't give the specific number, but on leases, you've kind of steered people to consensus of EUR 686 million-EUR 690 million in recent meetings and presentations. Is that also the expectation for the full year for 2023?
The second question just around the addition to follow on to 1&1 for national roaming 5G on either your network or Deutsche Telekom's or Vodafone's. In the event that they were able to get another roaming deal, either through the regulator or perhaps on commercial terms, what safeguards do you have in place with your current deal to stop them from switching traffic to other players? Basically, if they were to sign with someone else, would they be able to shift traffic off your network and pay you less, or they're blocked from doing that until the current deal expires? Thanks.
Josh, good morning. Let me take your free cash flow question. First of all, we are building again on a very strong operational performance that is visible in the operating cash flow, also with a lower CapEx intensity that we see. It's also clear and well-reflected that this lower intensity comes with the usual delay of the February payment terms that we have totaled. For Q1, nothing unexpected has happened. We saw in working capital outflow, mainly from the well-reflected reductions in CapEx payables from the CapEx peak in Q3 of last year, the higher inventory levels, which we see as a temporary effect, and also the anticipated lease costs cash out, which is more than 40% of the total yearly payment.
It's up EUR 20 million year-over-year. If you do the math and extrapolate that for the next quarter, you can see that we are in line with the expectations, with the consensus level out there, slightly shy of EUR 700 million. From an overall perspective, nothing unexpected has happened. We are fully on track. To answer your question, of course, after having passed the CapEx peak, CapEx payables coming back to that normalized level will also lead to broadly neutral working capital movements in the future.
On your second question, I think we signed a long-term national roaming deal that could last until 2034. Commercials are committed until mid of 2025. This is clearly underpinned with capacity commitments within the deal. The rest is confidential, as you will understand from that perspective.
Thanks. Markus, just to come back, just to be clear on the working capital. You're saying broadly neutral, i.e., flats for 2023 or could this slip into 2024? I just want to make sure that we're getting the framing right because I think the message from Q4 was that working capital should be around here for this year. I wanna make sure that's not changed.
That is the overall target to neutralize that over time. If it will exactly happen in one quarter, that is really depending also on the suppliers, the payment terms, et cetera. We can reiterate our commitment to have at least the dividend covered via the free cash flow that we deliver. From that, you can take the math what the minimum working capital movement is that we need to deliver.
Thanks.
The next question is coming from Ulrich Rathe from Société Générale. Ulrich.
Thank you. Thank you very much. My first question would be on the coming back to the handset sales. I understand there's a sort of good part of wholesale handset sales, so distributing it not directly to end customers in there. Could you confirm that and also explain a little bit to what extent you can control to what customers these handsets are ultimately sold? Because the thinking is if it's done neutral, right, and you are pushing these handsets into the channel, and ultimately they get sold to customers who are ending up on other networks, I mean, you are very indirectly helping other networks. Could you just explain that expansion of activity, in particular on the wholesale side, in terms of the logic?
The second question is on the postpaid price increases. I think the part of it is sort of through for a month now, or for the O2 brand. There was some debate on the freenet call whether these price increases are "real" or not. Could you maybe comment whether your intake portfolio, so the new customers coming in on these new tariffs, will on average have a higher ARPU than the ones on the tariffs that you're replacing? That would be helpful. If you could even get quantitative about it in terms of, sort of, how many euros upside or % that would be even more helpful. Thank you very much.
Thank you. On your first question, I think we clearly use our warehouse with elderly models or others also to sell off hardware capacity to distributors in the market. I think that's normal course of business. Clearly also this is what we have done in the first quarter. The models where we believe we can sell easier or into the latest and greatest model into their own base and colors or models that are not so sold, we can also sell them to the open market. On your second question, I think we have proven again that our postpaid ARPU, the O2 postpaid ARPU, is increasing. On that front, we can also confirm that the new portfolio will drive further ARPU growth with the new inflow customers.
The inflow of the new customers may be again be higher with the former portfolio. We will have flow through in the base with contract extensions and with new customers, and that's really clear. We are maybe the only operator currently with a an increase in postpaid ARPU in the market, and it's clearly reflected by the execution of the portfolio.
Thank you. Can I just for clarification on the first point. Since it became neutral, why would you shift volumes into distributors? What's the logic?
At some point, before if hardware models are not attractive anymore, it's always a trade-off. What can we sell in own channels and what will we sell to the open market? It's a normal trading business. You always have supply on all models, all colors and whatever. From time to time, it's, if a new model is coming or a new price round is coming on hardware, you sell this hardware off before. I think it's a normal course of business.
Thank you very much.
The next question is coming from Pilar Vico from Credit Suisse. Please go ahead.
Hi, good morning, thank you for taking my question. The first one is regarding past taxes. If I recall correctly, there was some sort of impact which was delayed from Q4 22 after incorporating the last tranche of the Cellnex deal. I'm not sure how should we look into this line and what to expect over the next quarters. Just coming back as a bit of a refresh in terms of the competitive activity in the market, how is the promotional activity being? How is it being on mobile? How is it being on fixed? Have you seen the rest of the peers a bit more active on that front? In terms of the ARPU, it's true that it's improving, but seeing some sort of post-paid deterioration quarter-on-quarter.
Could you please give us a bit more light on how much does the NPR cut drag to this ARPU? Thank you very much.
Good morning, Pilar, and let me answer your question with regards to taxes. Indeed, I can reconfirm what you said. Roughly 50% of the assumed capital gain taxes for that infrastructure deals that we had in 2020 and 2021 have been paid. For the remainder, as well as always normal spillover through the year, we are depending on the tax assessments and when we receive those from the respective authorities. This is, of course, fully reflected again in the commitment that we deliver at least a free cash flow after lease covering the dividend. We cannot give you an hint on the exact quarter when that will happen and which amount.
Here we are really depending on the assessments that we receive and the request that is asked for money. I think the ARPU growth is including the NPR cut. We have the full published ARPU, and we had a yearly effect of roughly EUR 20 million-EUR 30 million, I think, on the upper line coming from the NPR cut.
In terms of the promotional side in the market?
From our perspective, we clearly see on our front, still many promotions out there. They are all reflecting the rational but dynamic market environment from our perspective. As said, some of the promotions and also being seen by the results of competitors will not grow or lead to ARPU growth on a consistent basis. I think what we clearly see is on our level, we are able to run price increases, promotions and drive ARPU growth. Net, net, I think nothing different from the years before.
Thank you very much.
The next question is coming from Mathieu Robilliard from Barclays. Please go ahead.
Good morning, thank you for the presentation. The first question was about the energy hedging. You guys indicated that 70% was hedged for the rest of the year. I think for 2022, you'd kind of said that energy cost or the price of the hedging was below EUR 150 per hour per megawatt. I wanted to know if the hedging in place now for the remainder of 2023 is lower in terms of the average price paid. I had a second question, the usual one about partner revenues. You did mention during the presentation that it was one of the contributors of growth, but I wanted to check that the weight of those revenues had remained similar than in previous quarter or were they up or down? Thank you.
Yes, Mathieu. Thank you for the question. Indeed, we are progressing very well with the energy hedging. If you look at current EEX levels, it was right to not buy too early, but to await that decrease. For example, if you now look into the next quarters, what is there, definitely the price levels are below EUR 150. I can also confirm that we are buying in that range of what is visible in the EEX development. With regards to the partner revenues, indeed nothing unexpected, solid, but stable development.
In 10 of postpaid MSR, we remain in the high mid-20s. Nothing has changed there, stable development. By far, the biggest portion of our mobile service revenue growth comes from the O2 postpaid, which is driving our growth. The partner development is rather stable.
Great. Thank you very much.
The next question coming from Steve Martin from Berenberg. Please go ahead.
Steve, we can't hear you at this moment. Could you check if your microphone is unmuted?
We can just continue with the next one in the queue.
Okay. You can register again, Steve. The next question is coming from Yemi Falana from Goldman Sachs. Please go ahead.
Morning, everyone. Thanks for taking my questions. Maybe just taking a step back from the tool when we think about the moving parts in the wholesale side in the German mobile market, kind of taking into account some of the potential moves on the spectrum side and 1&1 requests with respect to 5G national roaming, when do you think we will be on the other side of these negotiations? I.e., when do you think you have line of sight on both the kind of long-term spectrum outlook but also in kind of long-term network outlook in Germany? Is that a 6-12 month event? Is that more like 18 months? It would be great to understand your perspective on that at this stage. Thank you.
Hi, Jimmy. Thank you for your question. First one, on the spectrum side, we expect Q1 next year more clarity. Roughly a 9-month period. On the national roaming, I think we have a contract in place. We are currently implementing. We will clearly support the amounts launched in September of the, of the fourth network, with a full-fledged national roaming solution, where the teams are currently building for more than two years with the 1&1 team to get this implemented. From our perspective, national roaming is at the start. As said, we have a commercially binding agreement until mid of 25. That could last until 2034 until it gives nationwide coverage to the fourth network.
Thank you.
The next question is coming from Adam Fox-Rumley from HSBC. Please go ahead.
Thank you. I've just got one quick one on UGG teams. I was wondering if their build progress was in line with their expectations or, you know, about their commitments to you, understand, you know, competitions obviously costing, in fundability in general terms?
I think we would, like, Telefónica Deutschland expect to report tomorrow more details on UGG. As I said, business is built up. We have a good inflow in the areas where UGG is building. As that is developing well from our perspective, we have a very, as said, very strong growth, market share and growth edge share in the areas where UGG is building as anchor customer. From that level, we also see now step by step also flow through in our P&L as is customers' revenues and then also clearly cash contribution.
In the interest of time, the last question is coming from Keval Khiroya from Deutsche Bank. Please go ahead.
Thank you for taking the questions, and I've got two, please. Firstly, at the full year, as you said, you've taken quite a conservative view on the 1&1 traffic migration for 2023. 1&1 subsequently detailed its rollout targets. What are your latest thoughts on how the 1&1 contribution may trend this year and what that means for your guidance? Secondly, you talked through a number of moving parts and highlighted the energy comps for these and that hopefully the price rise impact should help more during the year two as they work their way through the base. Appreciate it's difficult to be precise, but should we see the Q1 underlying EBITDA growth as a trough level for 2023?
What we expect is now that for the first three quarters, zero traffic will be absorbed to the potential network. Even with the announced number of sites that 1&1 might build or might not build, we see a very small possibility to absorb traffic actually in these areas. From our perspective, we've taken a conservative view. I think we'll see what is actually really going to happen from Q4 onwards, after the launch. As said, we are taking a very conservative view. If the traffic is absorbed on a very low level, then we would clearly see upsides.
Let me take the second question. Q1 is in line with the guidance that we have given. If you take actual analyst view for the full year, that would anticipate some acceleration in the next three quarters to come. We do not guide on a quarterly basis. I can reconfirm that we are comfortable with the consensus published on our website for the EBITDA development.
Okay. Thank you.
We come to the end of the scheduled Q&A time. Markus Haas, I would like to turn the call back over to you for closing remarks.
Thank you very much for joining us this morning. I think you've seen the business has momentum. We continued the growth story from 2022 onwards, especially on mobile service revenue growth, operating revenue growth, but also fixed growth. The business has momentum, and it's growing in all its segments. Also on the B2B side, there's what we could not cover today during the Q&A session. We also see very strong inflow, especially on new customers. Overall, business has momentum, well on track with network deployment, and as said, underlying trends on the way to deliver full year guidance as we've given for the full year. Thank you.