Hello, and welcome to the Vodafone Group Analyst and Investor Call. Your host today is Nick Reit, CEO of the Vodafone Group. Please go ahead, Nick.
Thank you, Hugh. Good morning, everyone, and 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 Margarita, who will talk about the trading and financial performance of our key markets. Then we will both take your questions. So turning to the quarterly highlights on Page 3.
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 5 gs across our major European markets, introduced new speed tiered unlimited data plans in 5 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 negative 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 €400,000,000 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 UK with O2.
As highlighted by the media, we're also in the final stages of concluding our agreement in Italy with CI 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 €7,500,000,000 of synergies that are available. Turning to Slide 4 and our trading performance. For the Q3 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, and I expect further improvements as the year progresses.
1 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.
Overall, 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 5. 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 their own base and promotions have reduced significantly. We've now migrated about 500,000 lines to the new plans and achieved accretion of around €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. However, we will also target new customers as we are effectively a challenger in the U. K. Consumer market. This is why we priced 5 gs at 0 premium in contrast to Germany where we're charging an additional €5 per month on our lower plans.
As we close the Liberty deal, it's worth taking a minute on Slide 6 to reflect on the importance of this transaction for Vodafone. With the addition of 17,000,000 cable homes in Germany and CEE, we've become Europe's largest owner of gigabit capable NGN infrastructure. And 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 their consumer service revenues going forward. And we will unlock costs and CapEx synergies worth over £6,000,000,000 after integration costs as well as revenue synergies of at least £1,500,000,000 a major value creation opportunity for the group, which supports our outlook for double digit free cash flow per share accretion from the 3rd year post closing before integration costs. In Germany specifically, you can see on Slide 7 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 25,000,000 homes by the end of FY 2022 compared to national FTTH coverage, which we estimate will only be around €8,000,000 given DT's stated target to add just 2,000,000 homes per year. This creates a multiyear 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 8. 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 KDDG. We are confident that we have the capabilities to do so given the learnings from KDDG and importantly, the fact that KTG employees are now an integral part of our German team. Specifically, we have already identified the first two layers of management who will be in position on day 1 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 KTG, we ended up significantly overachieving our initial synergy objective of GBP 300,000,000 as we have 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. So we are confident that we can, at a minimum, realize the higher €425,000,000 target that we have set for run rate savings by the 5th year post closing. Turning to Slide 9. 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 tower co.
As you can see on the slide, we will be creating Europe's largest tower company, owning an 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. So 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 estate 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 stand alone entity, our European towers could have proportionate revenues of approximately €1,700,000,000 EBITDA of around €900,000,000 and CapEx of up to €200,000,000 dollars Note that the actual revenues and EBITDA of the European SAILCO 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's 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. And finally, we will use the proceeds to repay group debt, consistent with our focus on deleveraging. In this context, we have 3 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 we which we aim to do by May 2020. As a second step, we could inject these local tower companies as well as any remaining states we hold in other telcos such as CTIL or Inuit into a European holdco, which we can then IPO. Additionally or alternatively, we could sell a stake in this HoldCo to a 3rd party. Now let me pass over to Margarita for the trading and financial summary in our key markets.
Thank you, Nick, and 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. However, 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 July, we were then the 1st operator to launch 5 gs services at a €5 premium to 4 gs. In fixed line, the pace of our broadband net adds 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 Unity Media, 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, so overall revenues and gross profits continue to expand. Finally, during the quarter, we won 90 megahertz of 3.6 gigahertz spectrum and 40 megahertz of 2.1 gigahertz spectrum in the German five gs auction for a total of €1,900,000,000 Whilst I'm not happy about the price we had to pay, this secures our leading network position, and we have now acquired 5 gs spectrum in all of our major European markets. Turning next to Italy on Slide 14.
Service revenue decline improved quarter on quarter to minus 3.8 percent 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 minus 7.4% from minus 11.1 percent 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 customers pinned down.
In fixed, we maintained good momentum, growing service revenue of 9.2% in Q1 and customers. We continue 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 €2.99 price increase on our customer 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 5 gs. In Consumer, we grew service revenues by 1.9%, supported by a higher contract customer base and RTI linked price increases in mobile and by further market share gains in fixed. I'm also pleased with the performance of 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 plants in an ARPU accretive way. However, our competitors reacted aggressively to our launch, extending their 50% acquisition discounts to 6 months from the usual 3 for most of the quarter.
This heavily impacted our NetEgg's 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 on profitable football rights may result in some further football customer losses. However, most of the dedicated football funds left us last summer, and the majority of our remaining 200,000 bays have already re contracted 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.
Customer growth remains robust across both fixed and mobile, and we now have single digit mobile churn in 5 out of 8 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 6,400,000 households passed. And finally, turning to Vodacom on Slide 15. Service revenue growth slowed in the quarter to 1.1 percent compared to 3.5% in Q4.
The slowdown was principally driven by South Africa, which declined by 1.2% in Q1. This reflected a 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. Finally, 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. And with that, I will hand back to Nick for the summary.
Thank you, Margarita. So 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. And 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.
And operator, we will now take your questions.
Thank you. And our first question is over the line of Georgios Viacona of Citi. Please go ahead. Your line is now 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. And you've already started some initiatives, as you mentioned earlier, around network sharing. You had announced the last week of 2 Brazilian companies setting a common 2 gs grid.
So I just wanted to hear your views whether medium to long term you envisage common grids on legacy technologies, maybe even single network on legacy for all the operators in each of your markets? And my second 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 Thai monetization options. I'd be interested to hear your views on that.
Thank you.
Yes. Really good question. Let me start with the latter first. I would say at this point in time, we're 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.
So 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 2 gs. In fact, you could argue 2 gs and then potentially 3 gs. 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 2 gs and 3 gs because ultimately, all operators want to move to 4 gs, 5 gs. 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.
So 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.
Akhil Tathani at JPMorgan. Please go ahead with your question. Your line is now open.
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 Tau 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 price assets they're looking at, that sort of thing? Also, you've talked about an 18 month time line. Just to understand why the time line is that long to realize any sort of endpoint here and then how you think about IPO versus selling to a strategic buyer. So that's really my question around towers. And then 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 is 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. So I'll take the Taos one and Margarita 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 power companies and infra funds very keen to engage with us either on market cases, so very specific circumstances or something bigger. So this is where the sort of offers over 20 times is coming from because we've had a sort of consistent demand for these type of assets.
And 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 telco level whilst maintaining strategic control of the assets.
Why does it take 18 months? Well, 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. So we've done the UK. We've done Spain.
Italy is imminent. We're now Clearly, we have to Clearly, we have to separate out the assets in legal entities. Then we have to form a management team. So we're saying we can get that done by May 2020. And then, of course, we need that financials and some history before we can IPO.
IPO versus strategic, I mean, 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 3 areas. 1st, the moderating competitive intensity in Italy, where we have seen a continuation in the price increase trends, which has started in Q4. 2nd, Germany, where retail growth is quite robust and then finally, Egypt, Turkey are 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. And also, as you know, by easier comparisons, in Q2, we will be hitting the anniversary of our pricing repositioning in Spain. And then 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 4 consecutive years and all the way to Q4 2019 when we were negative. And as we look forward, we delivered 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%. So 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.
Yes, thanks very much. Just one question on
the Tau sale again. How do you think about partial sale versus full sale? Because I guess with a full sale CapEx for new towers moves off balance sheet with a partial sale, it doesn't. So could you just talk about why you're talking about a minority? Thanks very much.
Yes. So I think we 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. So 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.
Clearly, another factor is going to be on a market by market basis is the valuation difference between control and non control. So 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 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 very much, indeed.
We now go to the line of Polo Tang at UBS. Please go ahead. Your line is open.
Yes. Hi. I've got one question and one follow-up. So in terms of the portfolio, you're obviously crystallizing value in terms of towers you divested of New Zealand, but are there other assets in the portfolio you're considering divesting? And can you maybe talk about your criteria in terms of deciding whether something should be in or out of the portfolio?
And then the quick follow-up was really just on Germany. And now that the spectrum auction is over, are your thoughts on whether Drillisch will build a 4th mobile network? And what do you think the impact will be on the market and also Vodafone? Thanks.
So 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 sort of value realization opportunities. We've always said that our core footprint is Europe, Africa, and we obviously have a 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, we're just continuing we'll just continue to be active managers of the portfolio going forward, but essentially we're getting closer to our sort of core footprint.
In terms of Drillisch, look, Drillisch are engaging with everyone in terms of national roaming. So 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. So 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 2 tier nature in the German marketplace.
Our next call is 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 towers 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, could we see some of the Vodafone tower codes become more acquisitive of tower assets across Europe? And how much of your tower sharing ambitions can you achieve prior to the spin out versus how much is left to go?
And if just anything you can give us on 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 second point. I heard the operational strategy and whether it be acquisition. What was the second point?
Yes. So the explicit questions around operational strategy, one was on could you ever be acquisitive of towers across Europe with the individual tower And the second 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. So how much can you do before the spin out? And how much more is actually left to go on that opportunity?
Yes. So let me take the last one first, which is that is the main priority. So 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. So and that's why we're making very fast progress.
So 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. So 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 5 years was just the efficiency you get with that single-minded focus. So that's the sort of second benefit we get. We get this sort of industrial benefit of bringing 2 networks into 1. Then you get the additional operational efficiencies driven out through a dedicated focus and management team. And of course, if we're IPO ing a business, a European sour company, it needs to be independent with its own management team.
So if they decide they want to do acquisitions, if they decide they want to do rationalization and 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? If 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?
Yes. Look, some people put escalators. Some people put high anchor 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. So that's why we 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.
We are now over to the line of Jacob Bluestone at Credit Suisse. Please go ahead. Your line is now open.
Hi. So I've got 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?
And then also 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? Or is that maybe a step too far? And 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 the last 3 months. You had some comments last week from Barti saying that the main focus remains to sorry, from GEO is saying their main focus fencing work? And what is the fencing work? And what is the extent of your commitments to India? How much could you be on the hook for potentially there?
Jacob, 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 gradual improvement on the back of essentially three reasons. First of all, our commercial momentum is normalizing. 2nd, we have seen underlying ARPU improvement in our base through the move to unlimited.
Nick mentioned around €3 per customer. And then 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 re contracted in that segment. And 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. So gradually through the year, you should see revenue improvement.
And to your point on EBITDA, yes, this will also be accompanied by EBITDA improvement as the revenue growth the revenue decrease slows. And also, as you know, in the second half of the year, we will exit football costs.
Yes. And Jacob, regarding India, I'd really look at it as I think about it as 2 separate assets. We obviously have Vodafone Idea and we have our tower asset in Indus that's going through a process of merging with Barti Infratel. That approval process for that merger is imminent. So 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 €2,500,000,000 On the commercial business, we obviously did the India's largest rights issue. So we've got the funding and they're pursuing the £10,000,000,000 of cost and CapEx synergies, £10,000,000,000 NPV of cost and CapEx synergies. They're doing a very good job of accelerating the network integration. So originally, we said we'd do that in 4 years. We're going to 2 years.
So 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 GBP 2,500,000,000 dollars plus. Initially, the $1,400,000,000 that we get out, we then repay our contribution to the rights issue. And then the residual sits there as an asset, whether we hold it in the tower company 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.
But one way or the other, India is ring fenced to those two assets.
That's very clear. Thank
you. Okay. We're now over 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. So firstly, on towers there, would you, in principle, be interested in offering a tower deal to United Internet Drillisch them to get access on your towers in Germany as a way of boosting the operational performance of that asset?
And secondly, would you be willing to offer them a commercial wholesale access deal to your cable infrastructure? I know you've signed a regulated one with Telefonica Deutschland. Would you be interested in doing follow on commercial ones? And then 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 2 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 the one question. Yes, exactly, exactly. I'll leave Margarita just to cover your last point.
I mean, so to the 2 first questions, in terms of would we offer towers to Drillisch. Look, at this point in time, I would sort of 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. So I think that ends up being an industry solution that we all come together and find a way of covering the white spots in the most economically rational way possible. And I think all operators are open to doing that.
I'd say secondly, the conversation with Drilish about roaming is a very specific conversation on commercial terms that we're in discussions. And then I think the third 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. But obviously, Teff are also engaged with us. So now if there is a tower company formed, obviously, then there are conditions about offering to the general market.
But we're a little bit away 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 5 gs, we could be increasingly open to say what could be available in 4 gs because ultimately, we want to come off 3 gs longer term. In terms of cable, we only needed through the remedies to offer to 1 player, and we have an agreement with Teff,
and mobile wholesale revenues with United Internet, €200,000,000 on fixed, €200,000,000 in mobile. The one you are really interested in is the mobile and VNO 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, and we expect this trend to continue throughout the year and 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, then you will see a gradual closing of retail and wholesale, but 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. The question is really on towers again. And I was interested in the asset perimeter that you sort of have in mind implicit within your proportionate EBITDA figure of €900,000,000 Is there scope, for example, to include backhaul or other fiber related sort of infrastructure within the perimeter? And if so, would that be sort of incremental to the numbers that you've provided here?
And then, fine, 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 sort of the perimeter of your current German sort of CapEx, Vodafone plus Unity Media sort of adjusted for the CapEx synergies that you've guided on, please? Thank you.
On the power company first, you mentioned the proportionate EBITDA perimeter. In reality, the EBITDA that we have quantified based on benchmark to circa €900,000,000 is not proportionate. It's the indicative value of 100 percent of our circa 62,000 towers in Europe. The way we have formed this number is on the back of 3 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, our real 3rd 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 second part of the question on the synergies, I think.
So gigabit, Germany?
The gigabit plan?
Yes. So in other words, the DOCSIS 3.1 rollout, is it within the CapEx envelope of Bus Plus then?
Sure. As you know, we have already rolled out DOCSIS 3.1 to most of our KDDG estate. And we are now going to start as quickly as possible rolling it out onto the Unity Media 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. So some encouraging operational trends, but I just wanted to ask about potential headwinds coming up and 2 spring to my mind. The first is, I'd just be interested to know how you're preparing for the prospect of Sky pushing on broadband in Italy? And secondly, you've got announcements from 3 UK today about 5 gs 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 2 tier market with a top tier infrastructure in fixed and mobile for us and TI. And we are growing faster at the moment in fixed and convergence. We see SKYY as one of the competitors that may play in the 2nd tier of the market. We're actually currently very, very markets have raised prices recently.
The entry level is now €35 per month. And our fixed line service revenue growth is over 9%, as I was mentioning earlier. So very good evolution, and we are taking share fast, as I said, in a 2 tier context.
Yes. I'd just do one, Bill, which is generally on the concept of speed tiering. I mean we're putting in speed tiering because we think that this is a way of being accretive to ARPU over the longer term. And it's an opportunity for high quality networks. So in other words, the sort of ourselves and, let's say, the incumbents going that route.
If the incumbents don't go that route, then okay, then maybe we would have to adjust our 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. That last question is over to the line of Maurice Patrick at Barclays. Please go ahead Maurice. Your line is open.
Yes. Thanks so much. Good morning, guys. So I guess, sorry to ask another tower question, but it's a big deal. I mean, on the €900,000,000 of EBITDA, you're looking at on more than 20 times half your market cap.
But in terms of that €900,000,000 number, can you help us understand a bit about what's in there? I mean, how much of that is internal, for example, versus 3rd party external revenues? Should we expect that number to grow over the coming 12 months before you look to monetize it? I'm assuming Inuit is 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 numbers. So as I was mentioning before, it's built out of the totality of our towers in Europe, clearly taking U. K. As proportionate.
In terms of potential evolution, this is indeed a world where numbers can change from quarter to quarter as people continue to work through the infrastructure. As I was mentioning before, we have taken a picture as things are 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. It's based on this assumption on market anchor tenant rates.
I think if you look at the revenue number of €1,700,000,000 you can assume that the 3rd party component of that, which is what we are getting in actuals today, is around the quarter of that number. As I was mentioning before, from €1,700,000,000 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. 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, Kew, 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 10. So see you there.
This now concludes today's call. Thank you all very much for attending. And you can now disconnect your lines.