Hello, Welcome to the Vodafone Group analyst and investor call. Your host today is Nick Read, CEO of the Vodafone Group. Please go ahead, Nick.
Thank you, Hugh. Good morning, everyone, Welcome to our Q1 trading update call. I will summarize our commercial performance and discuss our strategic progress during the quarter before I hand over to Margherita, who will talk about the trading and financial performance of our key markets. We will both take your questions. Turning to the quarterly highlights on page three. This was a really important quarter for the business, with the biggest lineup of new pricing plans and product launches that I can remember for many years. Specifically, we launched 5G across our major European markets, introduced new speed-tiered unlimited data plans in five markets, including Spain and the U.K., and greatly simplified our pricing plans in Germany.
I am confident that these launches will help to sustain the positive momentum in our service revenue, which started this quarter with our organic service revenue growth improving by 50 basis points sequentially to - 0.2%. Additionally, the new offers should contribute to deeper customer engagement, building on the new record low for mobile contract churn that was already achieved in Q1. Radically simpler pricing plans also help us to reduce IT complexity and lower costs. Together with good progress on digital, we are well on track to achieve our goal of another EUR 400 million reduction in European OpEx during the year. In November, I highlighted the need to improve the returns we are earning on our infrastructure assets. Network sharing is a key lever to achieve this, and we have now signed agreements in Spain with Orange and just this week in the U.K. with O2.
As highlighted by the media, we're also in the final stages of concluding our agreement in Italy with TIM and INWIT. I also said in November that we had started due diligence on our tower assets with a view to evaluating monetization options. Today, we have announced the creation of a new European tower company, which we intend to monetize, potentially via an IPO, in order to unlock the significant value of our infrastructure assets at a time when tower multiples are clearly attractive. Lastly, but certainly not least, we secured regulatory approvals for our acquisition of Liberty's assets in Germany and CEE with minimal changes to the remedies that we originally proposed, completing Vodafone's transformation into Europe's leading converged operator. Both this deal and the sale of New Zealand will now close by the end of July.
We have spent the past 14 months creating a highly detailed plan, enabling us to begin the integration immediately after closing, so that we can secure the EUR 7.5 billion of synergies that are available. Turning to slide four and our trading performance. For the third quarter in a row, we have achieved a meaningful year-over-year improvement in mobile churn, as you can see in the chart on the left. Improvements were broad-based, with only South Africa seeing a pickup in contract churn, albeit from mid-single digit levels. We still have a long runway of potential improvement to ultimately reach our ambition of single-digit churn across our markets. I expect further improvements as the year progresses. One of the key levers to reduce churn is our progress on fixed broadband and convergence. The chart on the right-hand side of the page shows our progress in Europe in recent quarters.
You will notice that our momentum slowed in Q1. In addition to the normal seasonal effect, this also reflects our effort during the quarter to significantly reduce complex promotions as we introduced new simplified pricing plans. In some markets, and notably in Spain, our competitors reacted to our new propositions by increasing promotions, and we had to adapt accordingly during the quarter. I expect our commercial performance to recover in the coming quarters, and I remain convinced that we have a long-lasting opportunity for profitable market share gains in fixed. Moving to slide five. I'd like to spend a bit of time explaining how we are implementing our new radical, simpler, unlimited data pricing plans.
Unlimited data will not be the right solution for every market, but where it is implemented, we strongly believe that a speed-tiered approach is important because it preserves a valuable ladder for ARPU accretion in the future. Our experience in Spain to date illustrates this. Primarily, we have targeted our existing customer base with the new offers as we simultaneously withdrew promotions from the market. Although our competitors reacted initially with aggressive promotions, they've since recognized that this was a more for more move by Vodafone aimed at our own base, and promotions have reduced significantly. We've now migrated about a half a million lines to the new plans and achieved accretion of around EUR 3 per month on average, in line with our plan. In the U.K., we intend to target the base with our new Be Unlimited offers, which launched in July.
We will also target new customers as we are effectively a challenger in the U.K. consumer market. This is why we priced 5G at zero premium, in contrast to Germany, where we're charging an additional EUR 5 per month on our lower plans. As we close the Liberty deal, it's worth taking a minute on slide six to reflect on the importance of this transaction for Vodafone. With the addition of 17 million cable homes in Germany and CEE, we've become Europe's largest owner of gigabit-capable NGN infrastructure. As you can see from the center chart, we decisively shift the group's mix in Europe towards growing fixed and converged services, which will represent almost half of our consumer service revenues going forward.
We will unlock cost and CapEx synergies worth over EUR 6 billion after integration costs, as well as revenue synergies of at least EUR 1.5 billion, a major value creation opportunity for the group, which supports our outlook for double-digit free cash flow per share accretion from the third year post-closing before integration costs. In Germany specifically, you can see on slide seven that we will enjoy a huge network advantage over other players in the market. Following a fast upgrade of the Unity footprint in DOCSIS 3.1, the chart on the left shows that we will be able to market gigabit broadband speeds to 25 million homes by the end of FY 2022, compared to national FTTH coverage, which we estimate will only be around 8 million, given DT's stated target to add just 2 million homes per year.
This creates a multi-year opportunity for us to drive high margin on net penetration on the cable network, which, as you can see from the right-hand chart, lags far behind other leading cable peers. This means that Germany, which will represent around 30% of our service revenues, 35% of our EBITDA, and 40% of our cash flow going forward, will be a structural engine of the group's growth for many years to come. Moving to slide eight, Germany's contribution to our EBITDA growth should be even greater given the size of the synergies that are available and the speed at which we intend to capture them. The right-hand chart highlights our ambition, following extensive planning over the past 15 months, to move significantly faster than we did with the integration of KDG.
We are confident that we have the capabilities to do so given the learnings from KDG, and importantly, the fact that KDG employees are now an integral part of our German team. Specifically, we've already identified the first two layers of management who will be in position on day one post-closing. Integration of back-office and supply chain functions will begin immediately, and we aim to start joint commercial activities within 30 days, both in terms of cross-selling efforts and ULL avoidance and migrations. The external rebranding and the harmonization of our portfolios will be completed in early 2020. As you may recall, at KDG, we ended up significantly overachieving our initial synergy objective of EUR 300 million, as we've done in all our cable deals, including the Netherlands. With Unity, we have the same cable-to-mobile opportunity, which we will capture faster, along with the additional cable-to-cable opportunities.
We are confident that we can, at a minimum, realize the higher EUR 425 million target that we have set for run rate savings by the fifth year post-closing. Turning to slide nine. In addition to integrating Liberty Global and improving the consistency of our commercial performance, our other key priority over the next 18 months will be setting up our European TowerCo. As you can see on the slide, we will be creating Europe's largest tower company, owning approximately 61,700 towers across 10 countries, including our 50% share of Cornerstone in the U.K. The primary focus of our efforts on towers has been to achieve industrial synergies through network sharing deals. It's critical to secure these savings before considering monetization in order to minimize future lease costs.
The rapid progress we have made in Spain, the U.K., and Italy is good progress, and post the auction, discussions are now underway in Germany. As we've been working through our due diligence and exploring a range of tower monetization options, it's become clear there is high demand and attractive multiples north of 20x EV to EBITDA. These valuations reflect the strong market positions we enjoy, the extensive historical investments we have made in our tower estates, and our investment-grade rating, all of which makes Vodafone a more attractive anchor tenant than the typical sub-investment grade tenants who have sold towers in the past.
Based on market benchmarks for anchor tenant lease rates, our existing third-party tower revenues, and the attributable cost base, we estimate that as a standalone entity, our European towers could have proportionate revenues of approximately EUR 1.7 billion, EBITDA of around EUR 900 million, and CapEx of up to EUR 200 million. Note that the actual revenues and EBITDA of the European TowerCo will vary from these numbers depending on the assets that are included, whether the assets are fully controlled, and the anchor tenant lease rates that we conclude on. Clearly, given the potential valuation multiples, our towers are extremely valuable assets, which are not appropriately valued in the group sum of the parts today.
Consequently, we have explored a number of monetization options to unlock this value, as you can see on slide 10. Before discussing these options, I'd like to explain the important principles that we will follow in ensuring the strategy. 1st, we will prioritize industrial savings through network sharing wherever possible before monetization, in order to maximize the benefits for Vodafone. 2nd, we will maintain our network differentiation and long-term strategic flexibility. There are many ways to achieve this, including maintaining majority control, leaving golden towers out of the agreements, and through very well-structured MSAs. 3rd, we will seek to achieve the most attractive valuations. Finally, we will use the proceeds to repay group debt, consistent with our focus on deleveraging. In this context, we have three clear execution options for monetization. 1st, we can pursue stake disposals by country.
This has the advantage of allowing us to find a larger number of potential buyers for each asset, as we talk to existing tower players who have industrial synergies and can pay more, as well as financial investors. In order to do this, we need to legally separate our towers from their operating companies, which we aim to do by May 2020. As a 2nd step, we could inject these local tower companies, as well as any remaining stakes we hold in other TowerCos, such as CTIL or INWIT, into a European holdco, which we can then IPO. Additionally or alternatively, we could sell a stake in this holdco to a third party. Let me pass over to Margherita for the trading and financial summary in our key markets.
Thank you, Nick. Good morning, everyone. I will start by summarizing our overall service revenue performance on slide 12 before the usual run-through of the main markets. Please note that all of the growth rates presented here are on an IFRS 15 basis. Our reporting is now simpler, without the need to provide any underlying view. As the chart on the left shows, Q4 was indeed the low point for our growth, followed by a 50 basis point improvement quarter-on-quarter. This was principally driven by Italy, as we lap 28-day billing changes in the prior year, partially offset by tougher comparisons in Spain and a full quarter impact of out-of-bundle data regulation in South Africa.
The chart on the right shows the sequential improvement in Europe, led by Italy, whilst in the rest of the world, the slowdown in South Africa was offset by Egypt and Turkey, which are now growing faster than inflation. Looking ahead, I expect a continued gradual recovery in group service revenue growth underpinning our guidance for FY 2020. Turning to slide 13, Germany grew by 0.4% in Q1. As I highlighted at our full-year results, we are facing increasing wholesale headwinds, which grew to 140 basis points in Q1 from 100 basis points in the prior quarter. I am pleased with the robust performance of our retail business, which grew by 1.8%, driven by customer base expansion in both fixed and mobile. In April, we announced a new range of mobile tariffs designed to simplify our product portfolio and deliver better value to customers whilst also supporting or enhancing ARPU.
In July, we were the first operator to launch 5G services at a EUR 5 premium to 4G. In fixed line, the pace of our broadband net add slowed in the quarter. This was the result of intense low-end DSL discounting by several players at a time when we were actually trying to lead the market towards lower promotions. However, our cable net adds performance was stable year-on-year. Post the acquisition of Unitymedia, you will hear me talk increasingly about our TV performance. Here, we are losing basic customers but are growing in the premium pay TV segment, overall revenues and gross profits continue to expand. Finally, during the quarter, we won 90 MHz of 3.6 GHz spectrum and 40 MHz of 2.1 GHz spectrum in the German 5G auction for a total of EUR 1.9 billion.
Whilst I'm not happy about the price we had to pay, this secures our leading network position, and we have now acquired 5G spectrum in all of our major European markets. Turning next to Italy on slide 14. Service revenue decline improved quarter on quarter to -3.8% in Q1, as we benefited from lapping the shift from 28-day to monthly billing in the prior year. This largely explained the sequential improvement in mobile service revenues to -7.4% from -11.1% in Q4. Competition in the prepaid market continued to cool down, and it is good to see that main brand pricing for new customers improved further. As a result, mobile number portability volumes were 11% lower sequentially and 34% down year-on-year, as you can see in the chart.
However, you should keep in mind that pricing in the low-value segment of the market remained unchanged in the quarter, and we continue to see some ARPU pressure from customer spin-down. In fixed, we maintained good momentum, growing service revenue at 9.2% in Q1 and adding 27,000 net broadband customers. We continued to acquire a strong share of market additions. However, the broadband market slowed as a result of price increases implemented by most operators in the quarter. Looking ahead, our fixed revenues will benefit from the EUR 2.99 price increase on our consumer broadband base that takes effect in July. Moving to the U.K., we maintained our good commercial momentum, adding 66,000 net contract customers and 31,000 broadband net adds in the quarter, as you can see from the right-hand chart.
Q1 was a very significant quarter for Vodafone in terms of new commercial launches, including unlimited mobile data, converged offers, and 5G. In consumer, we grew service revenues by 1.9%, supported by a higher contract customer base and RPI-linked price increases in mobile and by further market share gains in fixed. I'm also pleased with the performance of VOXI, our fully digital sub-brand, which we have now expanded beyond the youth segment. During Q1, we added 60,000 customers on VOXI. This is a prepaid plan, so these customers are incremental to the net additions you can see on the slide. In business, mobile revenues were stable. However, wholesale revenues continued to decline, and as a result, overall service revenues were broadly stable in Q1, a similar performance to Q4.
Moving to Spain, on slide 15, service revenue trends deteriorated quarter-on-quarter as price increases in April last year were not repeated this year. Additionally, as Nick has already highlighted, in April, we launched new simplified tariffs that include speed-tiered unlimited data bundles, a first for the Spanish market. We also removed all promotions, as we focused on migrating existing customers to the new plans in an ARPU-accretive way. Our competitors reacted aggressively to our launch, extending their 50% acquisition discounts to six months from the usual three for most of the quarter. This heavily impacted our net adds performance in May. Once promotions normalized again in June, our consumer mobile ports turned positive, as you can see from the chart on the left. As the new football season commences, our decision not to renew unprofitable football rights may result in some further football customer losses.
However, most of the dedicated football fans left us last summer, and the majority of our remaining 200,000 base have already recontracted with us to benefit from enhanced offers. Meanwhile, new options are being made available in the market for football fans. A new over-the-top football streaming service has just been launched, offering full access to La Liga, Champions League, and Europa League content. Looking ahead, we expect a gradual improvement in service revenue trends from Q2 onwards. As our commercial performance recovers, we benefit from unlimited ARPU accretion and will up the effect of our pricing repositioning last year. Next to Spain, we have Other Europe, which is actually now larger than Spain, as it represents, in aggregate, 13% of group service revenue.
Service revenue growth continued to be very healthy at 2.1% in the quarter, with Portugal, Czech, and Hungary maintaining good momentum, whilst in Ireland, growth in mobile was offset by pressure in fixed line. We now have single-digit mobile churn in five out of eight markets. We are currently ramping up our integration activities in preparation for the acquisition of Liberty Global CEE assets in Hungary, the Czech Republic, and Romania. In total, these assets will provide us with substantial incremental NGN coverage totaling 6.4 million households passed. Finally, turning to Vodacom on slide 15. Service revenue growth slowed in the quarter to 1.1% compared to 3.5% in Q4. The slowdown was principally driven by South Africa, which declined by 1.2% in Q1.
This reflected the full quarter impact from out-of-bundle data regulation that came into effect at the beginning of March and accounted for a 250-basis point drag quarter on quarter. Despite this regulatory headwind, we are seeing encouraging usage trends, with total data traffic accelerating by over 50% year-on-year. Combined with the phasing of the telecom roaming agreement, which ramps up in Q2, this gives us confidence that South Africa will return to growth in the second half. Looking ahead, the upcoming spectrum auction is very important for us. It will unlock significant additional capacity, allowing us to further reduce the unitary cost of data.
The spectrum policy directive is due to be published by the government imminently, clearing the way for an auction to occur towards the end of FY 2020. Our international markets, which now represent over a quarter of Vodacom service revenues, continue to grow at a high single-digit pace, supported by the ongoing success of M-PESA and by strong data growth. With that, I will hand back to Nick for the summary.
Thank you, Margherita. To summarize, Q1 demonstrated the start of an improving trend, and we expect a gradual recovery in service revenue growth to continue underpinning our unchanged guidance for the year. We're making good progress on our strategic priorities with the ambition to deliver sustained free cash flow growth by deepening customer engagement and bringing down churn, sharpening our commercial execution through radically simpler price plans and processes, reducing costs through digitization whilst driving better asset utilization through network sharing.
We're about to complete the major strategic acquisition of Liberty's assets, transforming the group into a converged European leader with increased exposure to growing fixed and converged revenues and the opportunity to capture large cost synergies. We will create Europe's largest tower company with the goal of unlocking significant value for shareholders. Depending on market conditions, we aim to achieve this in the next 18 months. Operator, we will now take your questions.
Thank you. Our 1st question is over the line of Georgios Lerodiaconou of Citi. Please go ahead. Your line is open.
Yes, thank you for taking the questions. I just wanted to ask about further initiatives you may choose to undertake in order to unlock value. You've already started some initiatives, as you mentioned earlier, around network sharing. You had the announcement last week of two Brazilian companies setting a common 2G. I just wanted to hear your views whether medium to long-term, you envisage common grids on legacy technologies, maybe even a single network on legacy for all the operators in each of your markets. My 2nd question is around fixed-line monetization. Some of your competitors in Spain and some of your peers in France have proceeded with monetizing some of their fixed-line assets. I just wanted to see whether it's something you may selectively choose to do or whether this is entirely different from tower monetization options. I'd be interested to hear your views on that. Thank you.
Yes. Really good question. Let me start with the latter 1st. I would say at this point in time, primarily focused on towers. Fixed line, we are seeing other people potentially monetize, but I consider that a more complex area, and clearly has implications for our retail positioning in the marketplace. At this point in time, we are not pursuing those opportunities, but obviously we continue to review. Going back to towers, you make a good point around 2G.
In fact, you could argue 2G and then potentially 3G, rather than a common grid, could there be the option of one operator in a market effectively offering services to everyone else in the market so that you can decommission 2G and 3G. Ultimately all operators want to move to 4G, 5G. That would be a very efficient capital option for all the operators, including the one that stays providing the service, because obviously they would get wholesale revenues. Look, that's an area that we would remain open to, and are in some discussions with some operators about the possibility, but very early days.
Thank you.
Ends up being the shortest Q1 call ever.
Akhil Dattani at JPMorgan, please go ahead with your question. Your line is now open.
Yeah. Hi, good morning. Thanks for taking the questions. Can I start firstly on the tower side, please? Just a few things I wanted to clarify based on comments you've made and things you've said in your release. You've talked about having received unsolicited offers for various parts of your tower portfolio. I guess I was just keen to understand to the extent you can, if you could give us some color around what that related to. Was it a strategic buyer? Was it industrial players they're looking at? That sort of thing.
You've talked about an 18-month timeline, just to understand why the timeline is that long to realize any sort of endpoint here, and then how you think about IPO versus selling to a strategic buyer. That's really my question around towers. On service revenues, you've been quite clear on the call that you're expecting ongoing gradual improvements. I guess just keen to understand any color you can give us on where those improvements come from. I guess this quarter's more emerging market. Is that likely to be the case going forward, or is it more European related? Thanks a lot.
Thanks a lot, Akhil. This is a fantastic opportunity for me to say that really we need to keep to one question, but this is a good question. I'll take the towers one and Margherita can take the service revenue one. Just in terms of offers, I really can't go into much more color other than to say that when we came out with the strategy back in November, clearly we've had a huge demand, both tower companies and infra funds, very keen to engage with us, either on market cases, very specific circumstances or something bigger. This is where the sort of offers over 20x is coming from, because we've had a sort of consistent demand for these type of assets. I think it goes back to the point I was really making.
I think Vodafone is obviously a very high-quality anchor tenant, and we've got very high-quality assets, and these opportunities don't come around very often, so people are very, very keen to pursue it with us. I'd say the way we're structuring this is allow us to do effectively a double monetization. We're doing it at the local level, and then we're doing it at the European TowerCo level whilst maintaining strategic control of the assets. Why does it take 18 months? The most important thing was to get the industrial synergies at the market level. I'm really pleased with the speed at which we've been going to reach agreement on these. We've done the U.K., we've done Spain, Italy is imminent. We're now working very hard on Germany. We're also working on a number of other markets, we just don't talk about because they're smaller.
Clearly, we have to separate out the assets in legal entities, then we have to form a management team. We're saying we can get that done by May 2020. Of course, we need their financials, and some history before we can IPO. IPO versus strategic, what's the best value creation for the company, I think is the key answer. We just want to make sure that we give transparency and see through value of our assets within the company.
As far as revenue growth is concerned, I would start by just commenting quickly on the quarter we have just closed. I think this quarter we were particularly pleased with three areas. 1st, the moderating competitive intensity in Italy, where we have seen a continuation in the price increase trends which have started in Q4. 2nd, Germany, where retail growth is quite robust. Finally, Egypt, Turkey, our emerging markets now growing faster than inflation. You asked about the future and looking forward, we do see continued gradual improvement quarter by quarter from now on, as we had anticipated in Q3. In terms of where this is going to come from, it's quite broad-based. It's supported by the significant commercial launches that we have now completed.
Also, as you know, by easier comparisons, in Q2, we will be hitting the anniversary of our pricing repositioning in Spain, and in Q3 it will be the anniversary of the South African slowdown. If you step a little bit back from the sort of quarterly performance, I'd like to point out that growth, as a group, should be our natural state. If you think about it, we have been growing for four consecutive years and all the way to Q4 2019, when we were negative. As we look forward with Liberty integration, this should be increasingly enhanced by the fact that our mix of revenues is moving further towards the growth areas with, as Nick mentioned earlier in the presentation, fixed and converged revenues in Europe being around 45%. An upward trend from now.
Thanks a lot.
We now go to the line of Nick Delfas at Redburn. Please go ahead. Your line is open.
Yeah, thanks very much. Just one question on the tower sale again. How do you think about partial sale versus full sale? I guess with a full sale, CapEx for new towers moves off balance sheet, with a partial sale, it doesn't. Could you just talk about why you're talking about a minority? Thanks very much.
Yeah. I think I've expressed several times before the importance of strategic control of our key assets. I would say that on a partial versus full at a market level, it comes down to whether there is good supply of towers in the marketplace. Do you feel that controlling the towers is a strategic imperative or actually there's lots of access to lots of towers, in which case, therefore, we may be open to a majority sale. Another factor is going to be on a market-by-market basis is the valuation difference between control and non-control. These are the factors we'll consider at the market level. At the European level, we are just focused on a minority stake disposal via IPO or financial investors.
Just pointing to the starting point of your question, Nick. I would say we're not particularly interested in the accounting implications of this initiative that we are taking. What we are really focused on is overall value creation, starting from the industrial synergies, as Nick mentioned, to the single tower company with dedicated management, and finally benefiting from the attractive point in cycle for the infrastructure investments.
Okay, thanks so much, indeed.
We now go to the line of Polo Tang at UBS. Please go ahead. Your line is open.
Yeah. Hi. I've got one question and one follow-up. In terms of the portfolio, obviously crystallizing value in terms of towers, you've divested of New Zealand, but are there other assets in the portfolio you're considering divesting? Can you maybe talk about your criteria in terms of deciding whether something should be in or out of the portfolio? The quick follow-up was really just on Germany. Now that the spectrum auction's over, what are your thoughts on whether Drillisch will build a fourth mobile network, and what do you think the impact will be on the market and also Vodafone? Thanks.
On the portfolio, look, I think we have demonstrated that we're active managers of the portfolio. We strengthen individual positions and at the same time, we work on value realization opportunities. We've always said that our core footprint is Europe, Africa, and we obviously have our joint venture in India that's ring-fenced. Therefore, New Zealand was outside of that footprint. Obviously, Australia is another asset that we were trying to get a consolidation, and we still feel that through the courts, that we'll get a good outcome there. We'll just continue to be active managers of the portfolio going forward, but essentially we're getting closer to our core footprint. In terms of Drillisch are engaging with everyone, in terms of national roaming. That's a sort of commercially led discussion that they will be having with lots of different players, including ourselves.
Clearly, there's only an obligation to engage on a commercial basis that's acceptable to us. We will remain very disciplined on the economics there. Obviously, as they go through that cycle, you have to think about, from their perspective, they bought high-band spectrum, so I'd call it more capacity spectrum rather than coverage spectrum. That might be okay for a certain degree of quality of network. I don't think it particularly changes the dynamic of the two-tier nature in the German marketplace.
Thanks.
Our next question is over the line of Andrew Lee. Please go ahead. Your line is now open.
Good morning. I just had a question around your TowerCo's operational strategy as opposed to the monetization strategy. Do you think your operational strategy changes with your change in ownership structure? To be more maybe explicit, we see some of the Vodafone TowerCos become more acquisitive of tower assets across Europe. How much of your tower sharing ambitions can you achieve prior to the spin-out, versus how much is left to go? If just anything you can give us to give us more color on your targets here and how these fundamental targets are better achieved through the spin-out would be helpful? Thank you.
Sorry, Andrew, I just missed your 2nd point. I heard the operational strategy and whether it be acquisitive. What was the second one?
The explicit questions around operational strategy. One was on could you ever be acquisitive of towers across Europe with the individual telcos? The 2nd element of it was how much of your tower sharing ambitions can you achieve prior to the spin-out? You say you want to achieve active and passive network sharing benefits first, prior to the spin-out. How much can you do before the spin-out, and how much more is actually left to go on that opportunity?
Yeah. Let me take the last one first, which is, that is the main priority. Doing the sharing agreements market by market is our priority. We've been working on all of the markets, with the exception of Germany, since I announced in November. That's why we're making very fast progress. We don't talk about some of the smaller markets in Europe, but all of those are examining options on the table and progressing discussions. We want to really establish those because it's really important that you reach agreement on the sharing at a market level first, so that when you do the monetization, you're not locked into excessively high number of sites, that you have more of a target state that you are monetizing rather than the current. Making very good progress. You'll see more progress over the next 12 months around different markets.
Going to the operational side, look, if we're setting up a tower company, it's an independent tower company with a focus to drive efficiencies. One of the things I really saw a lot when I was on the board of Indus for about five years, was just the efficiency you get with that single-minded focus. That's the sort of second benefit we get. We get this sort of industrial benefit of bringing two networks into one. You get the additional operational efficiencies driven out through a dedicated focus and management team. Of course, if we're IPO-ing a business, a European tower company, it needs to be independent with its own management team. If they decide they want to do acquisitions, if they decide they want to do rationalization, it creates value for investors. Of course, we will consider that.
Thanks. That's very helpful. Can I just ask one quick follow-up just on the concern on these deals that investors have in terms of the price escalator that you sign up to as an opco? Is there anything you can give us on your views on whether you have an inflation-linked escalator or an explicit percentage escalator like the one Iliad struck?
Yeah, look, some people put escalators. Some people put high anchored tenant rates because they want to realize a very high multiple and high price. We're very much focused on making sure that our commercial business afterwards can compete effectively in the marketplace. That's why we've said on the numbers we're quoting, these are market rates, and we have to go through the MSA, and we have to make sure that our commercial business is left in a very strong state post the tower deals.
Thank you.
We are now over to the line of Jakob Bluestone at Credit Suisse. Please go ahead. Your line is now open.
Hi, it's Jakob. A question and a follow-up as well. Firstly, just in terms of thinking about the sort of pace of recovery in Spain in particular. I guess it's sort of the last of the European markets, which is still sort of showing a slightly more challenged performance. Can you maybe just talk a little bit about how you see the revenue recovery coming through, particularly in the second half? What is the sort of magnitude of EBITDA rebound you expect later in the year? Do you think you could even see EBITDA stabilizing in the second half of the year? Is that maybe a step too far? Maybe just as a follow-up as well, Nick, I think you mentioned just India being ring-fenced. I was just hoping you could maybe expand a little bit on that.
The equity value of Vodafone Idea is down about 40%, I think, in the last three months. You had some comments last week from Bharti. Sorry, from Jio, saying their main focus remains to grow subscribers. Can you maybe just remind us a little bit on how that ring fencing work and what is the extent of your commitments to India? How much could you be on the hook for potentially there? Thank you.
Jakob, taking on Spain first. As far as we are concerned, Spain remains a highly competitive market, and I think the promotional intensity in this quarter proves it. However, for Vodafone, Q1 will be the bottom in terms of growth rate. From now on, we should expect to see gradual improvement on the back of essentially three reasons. First of all, our commercial momentum is normalizing. Second, we have seen underlying ARPU improvement in our base through the move to unlimited. Nick mentioned around EUR three per customer. Finally, as we move forward through the year, we will lap last year's commercial actions and football losses. As I mentioned earlier, we may have some further losses from football, but the vast majority of our customers are now recontracted in that segment.
Also, we are pleased to have seen that now Spanish customer will have choice around football independent completely of telecom operator with the new over-the-top offer for Mediaset. Gradually through the year, you should see a revenue improvement. To your point on EBITDA, yes, this will also be accompanied by EBITDA improvement as the revenue decrease slows, also, as you know, in the second half of the year, we will exit football costs.
Yeah, Jakob, regarding India, I think about it as two separate assets. We obviously have Vodafone Idea, and we have our tower asset. In Indus, that's going through a process of merging with Bharti Infratel. That approval process for that merger is imminent. We would expect to see that at least by the end of August, at the latest. At that point, you've got a tower business that we can monetize easily. The valuation over EUR 2.5 billion. On the commercial business, we obviously did the India's largest rights issue. We've got the funding and they're pursuing the EUR 10 billion of cost and CapEx synergies, EUR 10 billion NPV of cost and CapEx synergies. They're doing a very good job of accelerating the network integration. Originally, we said we'd do that in four years. We're going to two years.
They're moving at pace in terms of restructuring the cost base of the company. How we look at it is we're going to monetize the towers, the EUR 2.5 billion, plus initially the EUR 1.4 billion that we get out, we then repay our contribution to the rights issue. The residual sits there as an asset, whether we hold it in the TowerCo in terms of shares or whether we've monetized to invest in the commercial business if needed. If it's not needed, it comes back to Group. One way or the other, India is ring-fenced to those two assets.
That's very clear. Thank you.
Okay, we're now off the line of James Ratzer at New Street Research. Please go ahead.
Yes, good morning. Thank you very much. Had some questions on Germany, please. On towers there, would you in principle be interested in offering a tower deal to United Internet Drillisch, for them to get access on your towers in Germany as a way of boosting the operational performance of that asset? Secondly, would you be willing to offer them a commercial wholesale access deal to your cable infrastructure? I know you just signed a regulated one with Telefónica Deutschland. Would you be interested in doing follow-on commercial ones? Finally, you put a slide up showing the gap between retail revenue growth in Germany that's nearly 2% compared to the reported service revenue growth of 0.4%. Can you help to give us some indication on the timeline for those two to close? How much more wholesale drag do you believe you have in Germany at the moment? Thank you.
James, I consider that question a complete abuse of the one question, just because it stayed in Germany. Was that the argument?
That was it. It was actually a one-country question.
Yeah, exactly. I'll leave Margherita just to cover your last point. The two 1st questions, in terms of would we offer towers to Drillisch. Look, at this point in time, I would step back from Germany and look at it in the following way. I think that first of all, there's what we call white spots. I think that ends up being a industry solution that we all come together and find a way of covering the white spots in the most economically rational way possible. I think all operators are open to doing that. I'd say secondly, the conversation with Drillisch about roaming is a very specific conversation on commercial terms that we're in discussions.
I think the 3rd one is more how can we do something similar to what we're doing in our other countries in terms of tower sharing. On a tower sharing basis, I would think that DT would be more the automatic partner of choice. Obviously, Telefónica are also engaged with us. If there is a TowerCo formed, obviously, then there are conditions about offering to the general market. We're a little way from actually shaping what that could look like. Clearly, we won't want to do anything that strategically undermines our strategic position in a market that's going to be 40% of free cash flow with the group. I'd say in terms of the commercial wholesale, we're obviously, in terms of mobile commercial wholesale, open to conversations.
As we move into 5G, we could be increasingly open to say, what could be available in 4G, because ultimately we want to come off 3G longer term. In terms of cable, we only needed, through the remedies, to offer to one player, and we have an agreement with Telefónica, and we are not in discussions with anyone else.
In terms of wholesale revenues in Germany, we have about EUR 400 million between fixed and mobile wholesale revenues with United Internet, EUR 200 million on fixed, EUR 200 million in mobile. The one you're really interested in is the mobile MVNO revenues. These have accelerated the pace of decrease as we were expecting. We are now running them off at around 30% decrease year-on-year. We expect this trend to continue throughout the year. More to come in the following year. Clearly, to your point, as the weight of wholesale revenue on the total service revenue of the company will decrease over time, you will see a gradual closing of retail and wholesale. There is more gap in the coming quarters.
Great. Very clear. Thank you very much.
We are now over the line of Jerry Dellis at Jefferies. Please go ahead.
Yes, good morning. Thank you for taking my question. Question is really on towers again. I was interested in the asset perimeter that you sort of have in mind, implicit within your proportionate EBITDA figure of EUR 900 million. Is there scope, for example, to include backhaul or other fiber-related sort of infrastructure within the perimeter? If so, would that be sort of incremental to the numbers that you've provided here? Finally, if I could just add a little add-on, please, in respect of your slide on gigabit build-out in Germany. Would you imagine that that could be achieved within the perimeter of your current German CapEx, Vodafone plus Unitymedia sort of adjusted for the CapEx synergies that you've guided on, please? Thank you.
On the TowerCo first, you mentioned the proportionate EBITDA perimeter. In reality, the EBITDA that we have quantified based on benchmark to circa EUR 900 million is not proportionate. It's the indicative value of 100% of our circa 62,000 towers in Europe. The way we have formed this number is on the back of three elements, anchor tenant leases, which at the moment are just an assumption, as Nick highlighted earlier. We have taken market benchmarks, and then through our due diligence, are real third-party revenues today and operating costs. In terms of perimeter, this is just towers, does not include tenancy improvement or other elements as the backhaul that you mentioned. I'm sorry, I missed the 2nd part of the question on the synergies, I think.
Gigabit in Germany?
The gigabit plan?
Yeah. In other words, the DOCSIS 3.1 rollout, is it within the CapEx envelope of us plus them?
Sure. As you know, we have already rolled out DOCSIS 3.1 to most of our KDG estate, and we are now going to start, as quickly as possible, rolling it out onto the Unitymedia estate, and this was considered within our integration costs and expect to be completed by FY 2021 across the whole of the footprint.
Thank you very much.
We now go to the line of Stephen Howard at HSBC. Please go ahead.
Good morning. Thanks for taking the call. Some encouraging operational trends. I just wanted to ask about potential headwinds coming up, and two spring to my mind. The 1st is, I'd just be interested to know how you're preparing for the prospect of Sky pushing on broadband in Italy. Secondly, you've got announcements from Three UK today about 5G with no price premium and no speed caps either. Is that in line with what you had been planning on? Do you think you can maintain the positive ladder that you were discussing earlier? Thanks.
If I can take Italy first. Italy for us is a really differentiated two-tier market. With a top-tier infrastructure in fixed and mobile for us and TIM. We are growing fast at the moment in fixed and convergence. We see Sky as one of the competitors that may play in the second tier of the market. We're actually currently very happy with the competitive environment in fixed in Italy. All the players in the markets have raised prices recently. The entry level is now EUR 35 per month. Our fixed-line service revenue growth is over 9%, as I was mentioning earlier. A very good evolution, and we are taking share fast, as I said, in a two-tier context.
Yeah. I'd just do one build, which is generally on the concept of speed tiering. We're putting in speed tiering because we think that this is a way of being accretive to ARPU over the longer term. It's an opportunity for high-quality networks, so in other words, ourselves and let's say, the incumbent going that route. If the incumbents don't go that route, then okay, then maybe we would have to adjust their plans. I think it's less relevant. We would expect all value players to go unlimited on the quality of network that they can support. I think we're open to one last question.
Yes. Last question is over to the line of Maurice Patrick at Barclays. Please go ahead, Maurice. Your line is open.
Thanks so much. Morning, guys. I guess, sorry to ask another tower question. It's a big deal. On a EUR 900 million of EBITDA, you're looking at on more than 20x half your market cap. In terms of that EUR 900 million number, can you help us understand a bit about what's in there? How much of that is internal, for example, versus third-party external revenues? Should we expect that number to grow over the coming 12 months before you look to monetize it? I'm assuming INWIT's not in that number. It's pre any Italy deal. Some sort of more color on those metrics would be super helpful. Thank you.
Sure. Starting from your last point, Italy is included in the number. As I was mentioning before, it's built out of the totality of our towers in Europe, clearly taking the U.K. as proportionate. In terms of potential evolution, this is indeed a world where numbers can change from also quarter to quarter as people continue to work through the infrastructure. As I was mentioning before, we have taken a picture of things as today with no increases, for example, in terms of the number of tenants. You asked about the composition of the revenue and the majority is indeed, I would say intercompany, is based on this assumption on market anchor tenant rates.
I think if you look at the revenue number of EUR 1.7 billion, you can assume that the third-party component of that, which is what we are getting in actuals today, is around a quarter of that number. As I was mentioning before, from EUR 1.7 then to the EBITDA, we also have our actual current running cost of the estate. I hope that helps.
That's great. Thank you.
Okay. As that was the final question we had time for. Nick, can I please pass it back to you for any closing comments?
Thanks a lot, Hugh, and thanks for everyone for joining our Q1 trading update. I look forward to seeing many of you in person at our upcoming digital-first open office event in Central London. I say Central London because obviously it's clearly a shady part of London, but we're calling it Central London on September the 10th. See you there.
This now concludes today's call. Thank you all very much for attending. You can now disconnect your lines.