Ladies and gentlemen, and a warm welcome to Swisscom Full Year Results Presentation. Let me quickly introduce to you today's speakers and agenda. On my right, your left, the first person in the row, Urs Sheppe, our CEO. Urs, as you can see from the Slide number two in your presentation, will start presenting with the highlights 2017 before discussing our proven strategy being best in class. Thereafter, he's giving an update on our Swiss infrastructure, presenting the performances and ambitions of our retail and B2B unit before addressing our new cost targets, percent to 20%, to capture maximum benefits.
Alberto Calcanio, the CEO of Fastweb, will then dive into Fastweb's commercial and financial results and its plans going forward. After that, Mario Rossi, our Chief Financial Officer, will discuss in detail our financials, including the outlook for 2018. Before moving into the second part of today's analyst meeting, we have planned a short break of ten to twenty minutes. Thereafter, we go into Q and A session of around one hour. May I therefore kindly ask you to keep all your questions until then, so the second part of the meeting.
With that, I would like to open the conference and hand over to Urs for his part. Urs, the floor is yours.
Well, thank you very much for your interest in Swisscom. And I would like to start with a short overview on a nutshell what was happening. Overall, we had a successful 2017. We delivered on our financials. And also, we have strong and good operational figures also in the market side.
On the cost side, we are on track. We attained the cost savings, which we announced. And also, we made our investments in the infrastructure. So overall, a good year where we delivered in a market which is becoming more and more competitive. Certainly, also a highlight is the market take up of IN1.
So we have a very good response from our customer base. I will come later to it. And we improved also our TV platform, the user interface personalization, which we get very good feedbacks from the market. In the SME market, we enlarged our product portfolio more also in a cloud based ICT product so that we can enlarge our footprint in the SME market. On the Enterprise segment, we improved our portfolio in the cloud space.
So we have today a really broad cloud portfolio for our enterprise customers. And Fastweb had another successful year with strong financials but also with strong figures in the market. Here on this slide, you see the net adds in Q4. So overall, a good performance in Q4. You see we have an increase of 56,000 mobile postpaid mobile customers, 41,000 postpaid.
Also broadband, we have a small growth in Q4. TV also saw overall, a good performance on the mobile side and wireline side and stable market shares. The only point, but that's a dynamic we had already in the quarters before, is the fixed voice business. So this business is declining also with 81,000 in Q4. And if you go deeper in these figures, this is not churn to our customer.
Actually, these customers are leaving the market. It's fixed to mobile substitution. Also, Fastweb, you see growth on mobile and growth also in the broadband market. Alberto will come later to it more deeply. Financial overview, actually quite a boring result.
It's flat. But if you go deeper in it, you see that there are a lot of changes. And so we have a stable EBITDA, but you can see that we are losing in the fixed voice business, 80,000,000. And also outbound roaming, we are losing some revenues. And then we are able to compensate it also over cost and faster.
So that at the end, the EBITDA of Swisscom is approximately stable. The net debt reduction is strong. So we have we reduced it by EUR 400,000,000. Mario will come deep to it. So from the free cash flow side, also a good result.
And the net profit, overall, if you take out all the exceptionals, we are also flat. So good financial results overall, but with this dynamic of in the wireline business and roaming. Strategic update on our industry. So actually, we have two main points which are influencing our business. The one is the structural one.
You know it better than I. We have a trend to a more converging business. So customers are looking for one stop offers. We see this certainly in Switzerland, but also a trend in Italy, more converged offers. And certainly, also some price pressure because competition is running about subscriber market share instead of revenue market shares.
And
the sensitivity for quality is also going up from the customers. That's clear because you are in a world which is always connected. And if you don't deliver the quality, you actually get a problem on the Net Promoter Score. On the other side, this is a huge chance for a quality oriented provider like Swisscom because their customers are willing to pay a price premium from on the quality side. Digitalization on the other side, that's the second main influencer of our industry is a chance.
We are able to increase our efficiency through digitalization, automization, artificial intelligence and all this topic. And on the other side, we are able to improve our products, simplifying the products, personalization of the products so that can bring us additional revenues. But in such a world where you are, let's call it, in a sandwich between the structural changes and the digitalization, much more important the much more important where is it? Yes, customer experience is becoming extremely important in such an environment, but because of the price pressure, also the efficiency. On the market update, I think the important message on this slide is that the Swiss market remains a quality oriented market.
We have a lot of promotions in the Swiss market, but at the end, the market remains a quality oriented market and customers are willing to pay for quality. Convergence is becoming much more important. And the regulatory framework in Switzerland, which is, let's say, an investment friendly environment, there are some discussion in the parliament about the Telecommunication Act. But I'm optimistic that we will not have a deterioration of the regulatory framework in Switzerland out of the perspective of Swisscom. And this process will last for some years.
I think we will not have a new regulatory framework before 2020. In Italy, the market is certainly driven by an additional price dynamic in the second half of twenty seventeen. And the main trigger was the market entry or will be the market entry of Gilead. So it seems that the competition tries to prepare themselves for the market entry of Gilead. So there was price dynamic in the Italian market in the second half.
Alberto will certainly come deep to this dynamic. The strategic focus for Swisscom remains unchanged. You see it on this slide. I don't want to go deep to it. Beside our customer experience, and that's mean quality on the network, that means quality on the product, but also in the customer service area, efficiency is becoming more important and growth out of adjacent business opportunities is also becoming more important.
And this, as an example, is cloud or is the solution business or the ICT business in the enterprise market. Best customer experience, I don't want to go really deep in it. Our strategy remains here unchanged. The strategy works. So we are extending our ultra broadband footprint.
We are improving our four Switzerland of 99% LTE coverage, four gs coverage. And 80% of the population coverage has a bandwidth up to 300 megabits per second. And in 11 cities in Switzerland, we have speed on the mobile network of one gigabit per second. That shows actually that we are investing in a performing mobile network, and it is astonishing what you can do already on the four gs network if you have the right spectrum, if you have the right network strategy. We are able to get out up to one gig speed on the four gs network.
Our technology leadership strategy is also proven in the wireline market, where we are the first player in the world, which is testing now NG. Fast, that's, let's say, a new development of G. Fast, which brings even additional speeds in a hybrid fiber network. So on the mobile side, we certainly continue to increase our performance on the mobile network. And on the product side, you see some examples what we have done.
Operational excellence is becoming more important. That's nothing new. We have to work on different pillars. You see them with these three different pillars. And All IP is certainly also one element which will help us to decrease the cost.
The main impact of our All IP will be in the year 2020 and afterwards. New growth opportunities, I don't want to go deeper in it. You see what we are doing. We are planning quite a lot of new business. And if we stay stable, what is our guidance overall, there is a lot of new business which we create to compensate the price erosion in our traditional business.
So launching new products is a very important topic. On Fastweb, only very short, another good year, increased customer base in broadband and in mobile and a positive or a growth in revenue and EBITDA. Our strategy is to continue to develop Fastweb, and we are optimistic that we can increase our market share in the Italian market. We see it also on the order intake, just as an example, in the B2B market, Fastweb Pass has a strong increase of the order intake in the B2B market in the last year. Some information to our network strategy.
So on this slide, you see the highlights. Some of these points I already mentioned. We are performing on the all these different network tests, but I would like to say that's not the main ambition for Swisscom to only run for network tests. The most important thing for us is to have a good feedback from our customers. So the major driver to shape our mobile infrastructure strategy is NPS Net Promoter Score.
And there, it is very important that you get a broad coverage over Switzerland. And all these tests, which we have, normally, they don't need really measure the coverage. They are just a partial of the market. But even in the partial of the market, we had good performance. It also better than I what were the results of disconnect tests we had on a scale from one to 2,973 points.
That's the best ever measured value. So that should only show that we are committed to have a high quality network in wireline. On cloud, it's interesting to mention that we are rated from neutral agency or market research companies as the leading cloud provider in Switzerland. That's important because we have also an established outsourcing business and the future of the outsourcing business is cloud based. So you need a strong cloud based portfolio to migrate the outsourcing business in the cloud, and then you can even create additional business.
These are our plans on extending the ultra broadband footprint. You see that today, we have a coverage of 55% with speeds above 80 megabits per second today. And you see the mix, 27% of this 55 are speeds above 200 megabits and then 28% above 80 megabit. And on 2021, you see that there will a lot of things will change. The Swiss map is becoming dark blue.
And that shows that the majority of our customer will have speeds. So 75% of the customers will have speeds above 200 megabit. In the cities, you have fiber to the home, you have more than one giga. And overall, 90% of the Swiss households will have a speed above 80 megabits. So in 2020, we will have certainly a superior network where we can compete in the full fledged Switzerland also against cable operators.
So in a lot of areas, we will have a much more powerful network than the cable operators. On the wireless network side, I don't want to go deeply in it. Important is that we are preparing ourselves for the five gs launch. So you need some space in advance to set up also the right architecture and so that we are able to be early with five gs. Also in this year, and that's the next slide, we will have the auction of additional spectrum.
You will see what kind of spectrum is will be in the auction. But the big parts will be big parts will be on 700 megahertz and then 3.5 gigahertz to 3.8 gigahertz. That will be the important frequencies. And the auction will be in second half of twenty eighteen, and we are confident that we get a fair share that we can operate a good five gs network. Virtualization is becoming important.
Virtualization on the network side, but also on the IT side. There, we have quite a big project to migrate our telecommunication networks into telco cloud, but also the end, the service, the internal service enterprise cloud, and this will help us to be more agile, more flexible and faster and also decreasing costs. So virtualization is an important topic for our technical department. On all IP migration, if you look this, let's say, the amount of customer which we have migrate to All IP at the end of twenty seventeen, you see that 90% of the customers are migrated now on IP. So there is still 10% left.
These are mainly voice only customers, which are in this 10%. So we have to do now the last step in 2018 to migrate them all on IP. So we will have first benefits of the all IP migration in 2018, but the big part will come in 2020, and this is the figure of approximately 100,000,000, which we all always communicated. Some messages to the sunset of the two gs network. So we announced it already several years ago that we planned to switch down our two gs network in 2020.
So this needs a lot of time in advance because there are some business applications, as example, elevators, which are on the two gs network, we have to give the corporate time to find solutions on LG or on five gs networks. But 2020 will be the time to switch off the two gs network. Evolution of our CapEx. So you certainly remarked that we have a lower CapEx than in 2016. We didn't reduce our ambition on the rollout of the networks.
We were able to decrease CapEx on project on the project side. We have a bit less project CapEx because we are also we are developing today in a more efficient way through DevOps approaches. So we were able to decrease a bit our project CapEx. We have some lower CapEx in the backbone and transport area and some lower CapEx on the customer driven side. And this results in this minus 100,000,000 CapEx.
On wholesale, Wholesale Switzerland, so we have an attractive portfolio in Wholesale Switzerland. And you see some customers of us, which are using our wireline network. So we are also the biggest and leading wholesale provider in Switzerland. That's nothing new. Regulatory framework.
So as I mentioned it, we will have this discussion in the parliament on the revision of the Telecommunication Act. And there is one part which is important really important for us, that's the access regulation. So the parliament is discussing about technology neutrality on the access network. We are against this and we are also lobbying against this. And because it will actually reduce the CapEx investments in Switzerland.
And I think we have good chances that the success model of infrastructure competition, which we have in Switzerland will remain. So I think we will have also in the future, let's say, for Swisscom, a good regulatory framework. But this will take time. As I mentioned it before, before 2020, there will not be really changes. Now to the retail business.
Some figures of the retail business are in an actual, you see that the figures in the retail market. Overall, a good market performance, some pressure on service revenue. But if I compare this with, let's say, countries or other incumbents, I think it's still satisfying. But we have these structural changes. We have this substitution of in the voice line area to mobile.
We have the roaming pressure. But overall, our market share are stable in retail business. And also ARPUs are on a stable level. And I think that's a good performance if you are able to keep ARPU and market share stable in an environment which is more and more promotion driven. But on the financial side, we have an EBITDA decline of CHF 40,000,000.
So we compensate the part of the service revenue decline through lower costs. So but at the end, a slightly decline of CHF 40,000,000 on the EBITDA level. But overall, a good performance in financial performance in the retail business. One of the main or one of the most important thing in the retail business is actually to maximize our core business. And what does this mean?
That means that we have to keep our market share stable, that we have to try to increase our share of wallet and that we have to protect our ARPU. And how we do it? We have, let's say, a mix of defense and then tax strategy. And in the value segment of Swisscom, we have this defense strategy, and there, the idea is more for more. So we bring more value in our products that we can keep the ARPU high, the churn low and stabilize the market.
That's primarily the brand of the Swisscom products. There, we have a value strategy to have a high customer satisfaction, and we have a high customer satisfaction in this value segment. On the other side, and that's the attacker approach in the more in lower end of the market, we have an attacker strategy through second and third brands. And this strategy works. It works.
And you can see it in the figures. Coming to the importance of the market of convergence. Convergence is really knocking at household doors. And we see a strong increase or a strong growth in this converging business. Bundling products, You see here on the chart some figures that we are able to increase the penetration of this quadruple play offers.
IN ONE is certainly here the main products, which drives this dynamic. And here, you see where we are with IN1. The performance of IN1 is positive. Overall, it's also according our expectation. And you see the penetration of IN1.
It's for mobile, it's at 30% and for broadband, it is at 34%. So we have 1,300,000 customers, which are inOne customers. And we have, from a revenue generating point of view, 2,700,000 customers in this inOne offer. So it's a successful offer. And we were also able to improve our market performance through ONE.
Interesting is also that we are able to increase through IN ONE the Net Promoter Score. Net Promoter Score is extremely important for the customer loyalty. And you see in the old bundles, which we had, these Vivo bundles, triple play offers, we had a Net Promoter Score of 27. And within one, we are at the Net Promoter Score of 32. 32 is a good Net Promoter Score in the telecommunication industry.
And it's important because this has an impact on churn. We also see that customers which are on IN1 have a lower churn. And therefore, if you make the whole calculation of we have a positive impact. Development is certainly important to see. In the wireless segment of InOne, we see that we are able to have a slightly higher ARPU than before.
So we are able to upsell according our expectation or even a bit above our expectation, 3.5 ARPU increase on mobile. In the wireline area, we are able to reduce the decline which we had in the beginning because of optimization. So the revenue decline, which we have in the last month is much smaller. And so we have a positive trend on the declining ARPU in the wireline business. But overall, good performance and according our expectation is development of IN1.
Some remarks to our TV platform. We have today a market share in TV of 33% increasing, still increasing market share. And we are actually always in, let's say, release cycles on a way to further develop this platform. We made some improvements this year through UI, let's say, the usability, the personalization of the product with a good response from our customers. And the main goal is to make it easier to our customer, to make the product more personalized so that he find in the big world of content, the right content very fast according his demand.
So we are we have a content aggregator strategy, which easy to use product. That's the main idea behind our TV strategy. On the content side, we have certainly the broadest content portfolio. And there were some rumors that now if we lost the Hawkeye rights, maybe you remember it, they were absolutely overpaid. And if I now see the impact on our product portfolio or our churn rate, I would say, I don't think that our competitors have a business case on it.
So we had not a lot of churn through the sport rights, and that shows once more that content alone is not the driver in this business. The driver in this business is to have a full fledged portfolio, a good TV platform in a bundle with content and a good experience. That makes the difference in this market and not a single sport rights. On the loyalty, we are working on different areas to increase the loyalty of our customer base. So we don't have a churn problem.
Our churn figures are low, but it's our intention to further decrease or increase the loyalty of the customers. And this we do through several things, through smart home products, this give you a kind of differentiation. Sometimes these are small things, but customer likes it. But also Wi Fi routers are becoming extremely important. In a connected home, normally, one of the big pressure points of customers is the Wi Fi connection.
That's why we developed our own Wi Fi box, and we had a very good launch and very good feedbacks from our customers. Here, remarks to our multi brand strategy. I explained it before that on the value segment, we are operating with the Swisscom brands and in the lower segments with second and third brands. So the Swisscom brand is the high value brand. Wingo is a brand for smart shoppers.
It's a niche product, still a niche product. It's not our idea to push it hard. It's more, let's say, an element or a brand to react of price aggressive price dynamics in the Swiss market. And then we have AmBudget, which has quite a good reach, which is in the upper discount segment. And for the lower discount segment, we have the simply mobile or mobile brands.
So we have quite a broad multi brand portfolio so that we can really have also a fencing between these different brands. Smart ICT is important in the SME market. So the market in the SME, there we see potential for us because today, we are in the telecommunication business. But through ICT, through cloud, there are opportunities to grow in the SME market. And that's why we enlarged our SME product portfolio, as you can see it on this chart.
Good response and good take up from this new SME product portfolio. This is important because the SME market is still that, let's say, the most or the market with the highest ARPU. It's a really attractive segment, and we have here very good market shares. So we have to differentiate ourselves to keep the market shares. Multi channel approach is becoming more important.
So customers, they don't only want to go to a call center or in a shop. Online interfaces are becoming more important. And our ambition is to have really seamless a seamless experience between these different channels. And just to give you some flavor how these channels are visited by our customers. We have inbound calls, let's say, in the call centers of 13,000,000, so a bit more than 1,000,000 calls per month in the call center.
We have 5,000,000 visits in the shops. That's a lot. Only in the shops, we have and you know the population of Switzerland is 8,000,000. So 5,000,000 visits in our shops, that's important from the customer service side, but also from the image side. And then outbound calls, we have a lot of outbound marketing contacts over 50,000,000.
That's a lot of them are also driven by marketing campaigns. But multichannel is important. Digitalization will help us also here to decrease our costs and improve the Net Promoter Score. Some words to our B2B business. Actually a good performance in the B2B business.
We are able to even slightly increase our market share in mobile in the B2B market. We had win backs. So a good performance on mobile side. The ARPU the mobile ARPU is slightly under pressure. So we lost CHF three on the mobile ARPU, and this is also strongly driven by roaming because all with these roaming dynamics, we have some ARPU pressure in the B2B market.
And in the solution business, we are able to grow. We had a successful year in the segment banking. It's a vertical where we deliver solutions for the banking segment. We are a kind of outsourcer for Swiss banks. We won important deals on the security side and cloud side.
And order entry of in the B2B business was strong, was very strong in 2017. So that we overall have a good result in 2017 also if I compare this with other incumbents. And it shows also the broad positioning of Swisscom in the B2B market. Solution business, I don't want to go deeper in it. Important is to mention that we had in October the first time more solution revenues than telecommunication revenues in the B2B market.
And that shows also the transformation which we have in our B2B business. Wireless connectivity, as I mentioned it before, we were able to increase our market share through win backs. That's actually impressive if you see our market shares, which we have in the B2B market and the attacks of some of our competitors. So they it's not the case that we only lose customers. So we have a lot of win backs, and that shows the performance of Swisscom.
IoT is becoming also an opportunity for Swisscom. And here, positioning of Swisscom is to be a platform provider for all these different IoT application providers so that we can scale on it. So we have a good product portfolio for IoT and also the networks. We have a low power network, but we have also the four gs network and in the future, the five gs network for IoT applications. Wireline connectivity business, I don't want to go really deep in it.
Here, we are also migrating customers in the IP world from the TDM world in the IP world. This migration is gaining track. So we are not at 90% as in the retail market, we are in the region of 50. But in the B2B market, if it begins to move, then it goes fast because you have the big project, which are migrating to all IP. And we are on the way of software defined networks also here, which will give us the let's say, the chance to be more competitive on MPLS networks.
Cloud services, I don't want to go deeper in it. We made a lot. We have a broad product portfolio for cloud solutions for Swiss corporates. And also security is becoming more and more important. That's like seventwenty four race because the attacks are becoming more and more sophisticated each day.
So you have to ramp up your whole security level. And this you have to do internally, but this is also a business opportunity for Swisscom in the security segment because we can deliver security solution for our corporate customers. New opportunities we see in the banking segment, also through blockchain technologies, we have a small company, which has a spin off small spin off for blockchain technologies. And these technologies you can use very broad, not only in the financial industry, but also everywhere where you need secure, trustful processes, you need blockchain technology. And the ambition of Swisscom is to be one of such a blockchain platform factory.
Digital solutions in the B2B market is also an important differentiator on one side, but on the other side, it's also a growth opportunity. And you see that with digital solutions, we can actually address these four pillars on this chart, new business models, improve the customer experience, process efficiency. That's why we have today also a consultancy department in the B2B market, which works very well, which grows fast, where we actually do consulting business with our B2B customers. And this is normally consulting is normally presales for connectivity and cloud business. So it's important to have such an element like consulting in the B2B market.
Operational excellence, some very short remarks. These were our cost targets in 2017. We delivered what we announced. So the savings in 2017 were in the region of 75,000,000. And we increased our ambition for cost reduction to 100,000,000 per year for the next three years.
We have the plans how to do it. A lot of different actions on it, but we think that we are able to even increase our cost saving targets. And you see how we do it here. These are these different pillars to reduce the costs. So now I would like to hand over to Alberto to give us some inputs on Fast Ship.
Alberto?
Thank you, Urs, and also welcome from my side. Good afternoon, everybody. I would start with 2017. That has been a very strong and solid year. We have been performing significantly in every market basically, in every segment, and also in our infrastructure project.
If we start with that, I think that by far, it's very clear. And also, I think it will be even more clear in a couple of minutes, because there will be a slide dedicated that we are the second ultra broadband network in Italy by far. Also, for us, it's extremely important, the quality positioning. There are a lot of, let's say, competitors that are focusing on price. We rather think that quality will be the key to succeed and lead the market in the next years, especially also in convergence.
Third, FastOb has a strong history in fiber, but also is building very strong capabilities in mobile, specifically in the five gs. We are very proud that we have been awarded with one of the five gs trials, and this is not guaranteed because there are also other big competitors in Italy. But the fact that we have been chosen among all the other shows our seriousness in investing in innovation. Four, very important also, I think this is a kind of disruptive move in Italian market. We launched our Un carrier strategy, be inspired by T Mobile in The U.
S. I think that we share the same philosophy that quality is extremely important, but also transparency in tariffs, transparency in the relationship with customers. And this is something that definitely will pay off in Italy in the future. Basically in the corporate market, also another year of success, basically probably is the eighteenth, let's say, year in a row that we are developing in a very with a very strong growth, the corporate market. And also here in 2017 specifically, we have been hitting one very good ratio because we have increased our order book by 30% year on year, which is something that you don't find as a common, let's say, result normally.
And also in the wholesale market, we are definitely by far the second operator. It's a fragmented market. There are new player coming in this market, but definitely I think that FastUB has a very strong and solid position also in this specific segment. Now if we drill down a little bit, financially, I think, again, very, very strong here, consequence of very strong results in the market. I would say that revenues have done a very strong performances, EBITDA, double digit growth, even if we consider the pure industrial.
So excluding litigation, we have performed a double digit growth. Actually, this is the eighteenth quarter in a row that the company is exploiting steady growth. And I don't think you can find something like that, at least in Italy, but maybe also in Europe. Also free cash flow, it's a very strong performance, it's almost plus 40% if compared with last year. As I said in the overall market, I think we performed very well.
Plus 4% is just the broadband. If we see in a second, the ultra broadband performance is much higher and it's basically where we focus. We are not really interested in just the broadband. We want to be the leader in the ultra broadband and the target that we achieved in 2017. And for mobile, this is a confirmation that our strategy to become also a very strong player in mobile has been very well accepted by customers.
We increased our performance by 60%. Also, we see it's not just an absolute outstanding performance, but also vis a vis the relative performance and competitor is a very strong one. In terms of profitability and growth, I think that also this is a consistent story with our company. As you can see, the EBITDA growth is something that is consistently shown and exploited and there is a quite a difference if compared with competitors. We had not a possibility to add also 2017 because some of the competitors will, let's say, report later on.
But I think that the outlook will confirm the trend that you see in this page. Here, just a confirmation of our full infrastructure strategy. Fiber is just a piece, but we have also a wireless ambition through Wi Fi, through mobile and also in the cloud business through our data center. We are one stop shop for the infrastructure for our clients. Here, we start to dig a little bit.
And here basically, it stands very clear that we are the second operator in Italy when it comes to OBB and NGN footprint. I think that overall, we have been nicely upgrading our network this year and also in 2018, we'll be focusing in upgrading and dedicating our effort to the fiber to the home network. I think that also in terms of performance, roughly, we are able to increase our fiber to the home network by 1,000,000 home passed ready to serve each year. And I think this is quite difference if compared with what others are doing in the market like Open Fiber. After two years, basically, they have built 500 ready to serve home, which means that they have a different pace and we are much more, let's say, quicker in developing and most importantly, connecting customers to our network.
This is again a little bit drill down on overall network. As I said, for 2017 and 2018, it will be important, extremely important to build and upgrade our fiber to the home network in the main the 30 main cities in Italy, where we think that we can make definitely a difference vis a vis the competitors. Also, are upgrading in other areas of Italy, our network. The idea here is to give to the customers the best technology, which is possible. Having said that, definitely, we will focus it on our ultra broadband network where we have a much broader addressable market in terms of giga, for instance, than anybody as Italy.
In terms of overall, also in the strategy, we will continue to accelerate on the penetration of ultrabroadband because we really see a very good momentum, a very good take up. Our ultrabroadband market share is largely the increase is largely positive. We'll see in a second. And I think we can further exploit the leadership on ultra broadband that we have on the market. The good thing is that we are building also a strong competitive advantage also in the wireless, because we really believe in the five gs opportunities.
As we said many times, five gs relies on three important, let's say, ingredients: fiber, because at the end of the day, the huge traffic needs to be conveyed through a fiber network. And we have a huge amount of fiber ducts that can be exploited. Also, need the FTTS cabinets that can host and power the small cell rollout. And also here, we have 22,000 customers that are already ready to serve any type of small cell development. And also, most importantly, we have already a lot of spectrum because we have 40 megahertz at 3.5, which is one of the best spectrum that you can think for the five gs development.
And also, anticipated, we have been granted with the five gs trials. So we have other 100 megahertz that we can use in the next four years in Bari and Matera. For us, the strategy and the it's very clear. So today, we have already strong operations in mobile and also the operation the results in the market will confirm are confirming that, sorry, and we will discuss it in a second. But definitely, the trials will build and are meant to build a very strong knowledge and expertise in five gs.
As a matter of fact, in fact, we are not developing our expertise just in the cities where we have been awarded by the government of the five gs trials, but we have already and we are the only operator that has that did saw an agreement reached an agreement with the municipality of Rome. But I think also that other municipality in the future, in the short future will come because it's our interest to test this technology and also train our muscle in a more extended in the most extended addressable market possible. In terms of performance, consumer, as I said, has been another year of growth. Clearly, there is a difference between simple broadband subscribers and ultra broadband subscribers. Our goal is definitely the ultra broadband because and we will see also in the NPS performance, we think that the way we can differentiate fast food in the market and the way we can really intercept the customer needs is to focus on ultra broadband.
As a matter of fact, you see also the result, we were able to grow almost 30% our customer base. We reached now 45% penetration ultra broadband penetration over our customer base. And this is a trend that we will be further accelerated also in the future. Quality is definitely confirmed and the actually what the customers think about our services in terms of quality is confirmed by the NPS. It's an NPS that is growing.
And the most important thing, astonishing thing is the difference and the gap that our competitors are exploiting in their relationship with our with their sorry, customer base, with their clients. So as you can see, there is quite a huge difference. We are basically the only steady positive NPS operator in Italy. And this is simply a consequence of our infrastructure, a consequence of our focus in upgrading our network. Netflix is just an external reference because sometimes operator tends to be auto referential.
And in this case, we can use also external reference. We are definitely since the beginning, since when Netflix came to Italy, the best operator. Also in terms of customers, we underline this typical aspect that sometimes we forgot to underline. But we also believe definitely in the media and in the broadband convergence, and we are exploiting this opportunity through the partnership of Sky. As a matter of fact, we have fair 500,000 pay TV customers through our partnership, which is extremely important also for churn dynamics and also for loyalty of our customers.
Sky is definitely a traditional and historical partnership. And also in the future, we will be adding other partnership. One will be the one with E and I, where we will bundle broadband and energy together, but others also will come in the future. In terms of mobile, this is where the company has done one of the most, let's say, solid and strong performances. We have been growing 60%.
I think that what is astonishing, it's not just the absolute growth per se, but also the relative one. These are the data at the end of twenty seventeen. But actually, if you when there will be also the data available for our operator for Q4, the outlook will be confirmed. Basically, we are the only player that is significantly growing in the market where all the others, excluding some other MVNO, but there are more than one included in this row. But all the big three players are losing in the market.
And also here, interesting enough, are company with the highest NPS. Here, it's a combination certainly not only of technology or technological performance, but also it's the Un carrier strategy that is paying off. NPS is not only an expression of technological solidity, but also I think a good sign of a very transparent and stronger performance with the customer base. And here, I think we have been able to double the performance if compared with the last year also because of our new strategy in the mobile. And the new strategy on the mobile relies basically on a very simple thing to be completely transparent, and simple vis a vis our mobile customer base.
This could be this could, let's say, look something normal. But if you look at what's happening in the Italian mobile Italian market, actually, this is not normal at all. Because in a let's say, in a world where the above the line mobile prices in Italy are decreasing significantly, the ARPU of the market of the big players are increasing. And this is something that it's not really logically consequent. And the reason is that there are a lot of hidden charges.
And basically, customers are subscribing for an offer of, let's say, 10 a month, but at the end of the day, the bill is much higher and sometimes significantly higher. As Fastweb, we want to play, let's say, a kind of champion for the customers. And so we are abolishing and actually we have never used these hidden charges since we launched really the mobile operations in May. But actually every quarter, we are delivering a new feature that goes in the direction of transparency and fairness versus our competitor. And every quarter also in 2018, we will build on this trustful relationship with our customer.
Just a quick look on the B2B leadership. This is a story of a very strong success. We could have had also other ten years or fourteen years before. And this is a story of steady, constantly growth in the private and in the public. And the reason of success relies again on the NPS.
Here on the NPS, we have almost 60%, which is the highest NPS that you can find for a corporate. Apple has a 60% or used to have 60% NPS, this type of companies. And this is where Fastweb is making the difference. This is why our order book growth by 30%. Today, Fastweb has a unique proposition because in the public administration sector, for instance, we are the only one that has won basically all the big framework contract.
And so I think that we represent in front of public administration, but in customer in general, really one strong and one stop shop partner for our clients. The last slide, basically it is shaping our ambition. I think also for you, it's important not just to have next quarter or next three, four quarters, let's say, outlook, but also something more. We think that in the broadband, we will be able to boost significantly our operation by leveraging definitely on the ultra broadband adoption and clearly to leverage with the new partnership. But I would say that the vast majority will come from the ultra broadband adoption.
On And mobile, this is something that we already anticipated in the past, but definitely we see that fast food has a strong momentum in the market. We will we are rightly positioned. Also in the future, there will be room for growth independently by what will happen in the short term in the market. For corporate, this is an easy story. In a sense, it's another chapter of growth.
We will continue to deliver to increasing by increasing our share of wallet of our customer base through also the new services, the new cloud services, the overall value added services where we are building also a competitive advantage versus all the other company. And the competitor and lastly, wholesale, I think that wholesale has been traditionally for us a very, very strong market. So traditionally, we have been always delivering infrastructure project that we will continue also in the future. We do think that in the future, there will be very nice and important opportunities. Clearly, the BTS fiber connection are hanging fruit for us and we will do our best to get it.
Thank you. And I leave the floor now to Mario. Thanks.
Thanks, Alberto. I'm happy to give you some details on the financials. You saw it this morning. Overall, I think we delivered our financials in line with the expectations. A few words on the reconciliation.
We had in both years, 2016 and 2017, some one offs, litigation at Fastweb, you see that CHF 102,000,000 in 2017, 60,000,000 in 2016. Then restructuring charges, 61,000,000 this year. And then we benefited from a stronger euro exchange rate of CHF 17,000,000. Maybe the level of restructuring charges might be a bit surprising, but that reflects the impact of the increased cost reduction targets we announced. Details on the CHF 61,000,000, CHF 45,000,000 will be on the segment, Swisscom Switzerland and CHF 16,000,000 in the segment, also.
They have included CHF 10,000,000 for the restructuring of the BILAC, this a factorization company, which we won't have anymore in 2019. The underlying EBITDA was flat, minus 0.5% or CHF 23,000,000. Fastweb increased the EBITDA by Industrial by close to 10%, and we had a decrease in Switzerland of 2.3% or CHF 88,000,000. Some details on revenue. So the revenue decline in Switzerland for the full year was CHF 200,000,000 or 2.1%.
On retail, the main drivers for the decline of CHF 150,000,000 was, as Ulf mentioned, loss of voice access line, 70,000,000, and there, revenue is also impact on EBITDA roaming impact on revenue of €24,000,000 discount for conversions, 38,000,000 and less activation fees of €20,000,000 We had a slight acceleration in Q4 of conversion discounts, 5,000,000 more Q4 than Q3 and also a slight acceleration of the excess losses, 4,000,000 more in Q4 compared to Q3. Enterprise customers, the overall service revenue went down by around CHF 40,000,000, more or less 50% on fixed, 50% on mobile. We saw there a slight acceleration in Q4 due to the all I migration in fixed. Solution business increased by CHF 24,000,000. I think we had a quite strong performance in the second half, mainly in the banking area.
As I mentioned, Fastweb revenue up by 8% despite the price decrease or the price competition and all the promotions we had in the market because all operator already anticipated the market entrance of Iliad. I think it's clear for you, we benefited from the four weeks billing in the second half. But we had also an overall strong performance in wholesale and in the B2B segment. A few words on the OpEx. On direct costs, direct acquisition and retention costs in Q4 were £20,000,000 below prior year.
We had less retention cases, nothing alarming. And then we had more SIM only customers in Q4 twenty seventeen compared to 2016. The outpayments went down for the full year by CHF 40,000,000. There are two effects. We had lower MTR tariffs, which have no impact on EBITDA, 58,000,000.
But these effects were compensated in the second half by higher outpayments for roaming because in our inOne subscriptions, roaming is included for our customers in Europe. So 80% of all data traffic is not billed anymore. And therefore, we have higher outpayments. And that has a negative impact on EBITDA. On the indirect cost, our CEO mentioned it.
We delivered our targets, net savings of CHF 62,000,000. Maybe a few words on Q4, where we had a net increase of CHF 50,000,000 after we had we were able to reduce for three consecutive quarters the costs. We had some seasonal effects in Q4. We had higher marketing and communication expenses of CHF 15,000,000 in the residential segment. You saw that also we had a better market performance in Q4.
Then we had some extra pension costs of CHF 15,000,000 for early retirement. We had a huge amount of early retirement in Q3. And then we had some project costs in enterprise of CHF 4,000,000 in Q4. If you take these three effects out, I would say we would have a normal quarter with a reduction of about CHF 15,000,000 to CHF 20,000,000 of indirect costs. The EBITDA breakdown by segments.
So retail customers, the EBITDA suffered a bit by 3.8% or 139,000,000 not CHF 39,000,000, as was mentioned before. There we have, let's say, three main elements. Service revenue went down by CHF 154,000,000. We have higher roaming out payments, what I mentioned before, 27,000,000, but we were able to reduce indirect costs by CHF 42,000,000. But of course,
it was not
possible to fully compensate these effects on service revenue and roaming. I mentioned it in Q4, we had this acceleration of discounts and line loss amounting to CHF 9,000,000 and the higher marketing expenses of CHF 15,000,000. So if you compare the decline of CHF 67,000,000 in Q4 to the CHF 36,000,000 in Q3, if you take these effects out, it's more or less a stable development. On the the Enterprise segment, I think it was a strong performance in 2017. EBITDA going down by CHF 16,000,000 or 2% on the full year.
The service revenue decline of €43,000,000 was nearly compensated with cost reduction and additional margin for the solution business, which was always a target to contribute additional margin in the solution business to compensate structural losses in the service revenue. I mentioned it at Fastweb. Despite price pressure, promotions, etcetera, in the market, we have a steady growth of EBITDA. And I think that's also thanks that we serve all three segments: retail market, B2B segment and wholesale. And there, we clearly benefit from our investments in the fiber infrastructure.
Maybe back to the underlying structural changes in Swisscom Switzerland, that's for both segments, mass market and enterprise. You see fixed voice line overall, 80,000,000. I expect them that to come down in CHF 18,000,000 to CHF 60,000,000. Outbound roaming, 6,000,000, that will come down next year to CHF 20,000,000 to CHF 30,000,000, this effect. Discounts on convergence impact of CHF 37,000,000, that will increase because IN1 will be penetrated within the customer base also in 2018.
We expect that CHF 70,000,000, 80,000,000. Indirect cost savings, this target has been increased by CHF 40,000,000 to CHF 100,000,000. And then we expect for the next year some B2B price pressure, etcetera, of about CHF 40,000,000 negative. We will come back to that again on the guidance. But that shows also the importance of the cost management and the growth of the B2B solution business.
These structural changes need to be compensated by these two effects. There's not much to say below net income. We had last year extraordinary income in financial income. We had the benefit from the sale of MetroWeb that amounted to CHF 41,000,000 in 2016. We don't have this anymore this year.
That's the reason why net income goes slightly down. On accounting, IFRS 15, as all tailed, of course, we have a certain impact from these new accounting rules. We have a positive impact on the net equity of CHF 400,000,000. And on the EBITDA 2018, we expect a negative impact of CHF 50,000,000. You will see that impact in the retail segments of Fastweb and Swisscom.
There's no cash flow impact. Coming to the ARPU, we will provide ARPU in line with old IFRS rules and new IFRS rules. The reason is because we steer the day to day business, for simplicity reason, with the existing old methodology. But we will provide you also in order to be comparable with also Telcos, both ARPUs. On CapEx, Urs gave you the split up of our CapEx.
As was mentioned, the savings were done on project CapEx and lower unitary costs in the FTTH rollout because we used their new approach to rollout so called total contractor model, and that helped us to reduce the cost per unit by 10% to 15%. So we did not cut our rollout targets. On cash flow, we had an excellent cash in, in Q4 twenty seventeen. And you know we paid in 2016 the sanction of CHF 186,000,000. And if we compare the two years, we have a double effect, which boosts the free cash flow from CHF 1,100,000,000.0 in 2016 to EUR 2,200,000,000.0 in 2017.
So one extraordinary effect in 2016 and second, extremely high cash in Q4 twenty seventeen. How we use this cash flow? We have quite low interest payments. I will come back to that later. Paid taxes of close to CHF 300,000,000.
And after the dividend payment, it allowed us to reduce the net debt by around CHF 400,000,000, which brings us to a leverage ratio to 1.7. Last year, we stood at 1.8. This free cash flow, of course, covers the dividend well. We pay out about two third of the running free cash flow this year. On financing, so we were able to refinance during this period of low interest rates quite an amount of all our outstanding bonds.
We have still one big one outstanding in 2018. It's a ten years old bond with a coupon of 3.25%. So we will have some savings there. We need to refinance in 2018 approximately 1,000,000,000 to EUR 1,100,000,000.0. We will come to the euro market, but also come to the Swiss bond market.
You see we are well protected against potential interest hikes. So 84% of our portfolio of our debt portfolio is fixed. So if you would see interest hikes, wouldn't mean a problem for our debt portfolio and our interest cash outs. Nothing new on the dividend front, stable and predictable. 'll propose the AGM of next of this year dividend of '22 as anticipated.
And that brings me to the guidance, which targets again a dividend of CHF 22. If we will meet the guidance, then, of course, we will keep this stable dividend. The overall guidance is revenue at around CHF 11,600,000,000.0, EBITDA around CHF 4,200,000,000.0, CapEx slightly below CHF 2,400,000,000.0, say, without the impact of IFRS 15, negative EUR 50,000,000 on EBITDA, can say it's a fairly flattish development, a fairly flattish guidance. I can give you some explanations to the guidance. So Swisscom without Fastweb will be at around CHF 9,200,000,000.0 on revenue.
Again, loss of fixed voice lines, 80,000,000 roaming CHF 60,000,000 sorry roaming, CHF 20,000,000 to CHF 30,000,000. Converge discount, around CHF 80,000,000 negative impact and B2B price pressure on all IP effects, approximately CHF 40,000,000. Total negative impact of CHF 200,000,000 on revenue, and we will see the impact of cost reduction of CHF 100,000,000. That means in Switzerland, declining revenue of around CHF 100,000,000. Fastweb, in our guidance, the guidance implies an exchange rate of 1.16 for the euro.
The average rate 2016 was CHF 1.11. We will see, again, revenue and EBITDA growth. You see there are numbers, excluding litigations. Revenue north of €2,000,000,000 and an EBITDA of around 700,000,000 CapEx, we will see in Switzerland a decrease because of CapEx efficiency and more or less stable CapEx in Italy at Fastrab. Of course, these numbers do not include any CapEx for spectrum.
And with that, I think I hand over to Louis. Thank
you.
Thank you, Urs, Alberto and Mario for the presentations. Let us stop the first part of the meeting right now here and have a short break. Outside the room, there will be coffee and cakes available. And I suggest, as we are a little bit ahead of time, to restart a little bit earlier. So I would suggest a quarter past three, we restart.
So the presentation starts fifteen fifteen sharp. Thank you.
Hello?
All right. Before opening the Q and A session, let me quickly also welcome the two new people on stage, Dirk Wirsbitski, our Head of Products and Marketing and Urs Lehner, Head of Enterprise Customers. So the difficult questions will be on my left side. They will support the management during the Q and A session. One additional remark, which is key, there are two people around.
Please ask for the microphone because there are also people on the webcast. They would like to follow our discussion. And an additional remark, please let us know your name and bank representing so we also know to whom we are talking to. And now let us start. Who can I give the floor for the first question?
Jacob?
Jacob Bluestone from Credit Suisse. So maybe just if we can follow-up a little bit on some of the guidance assumptions you mentioned. If you could maybe elaborate a little bit on some of the things you outlined in terms of sort of changes, financial drags and tailwinds for next year. I think you mentioned you expect the fixed voice line drag to moderate from, I think it was CHF 80,000,000 to 60,000,000. Why is that?
I don't think your line loss is sort of necessarily coming down. And then also, if you can maybe just talk through what was it that actually drove the change in your cost cutting targets, so the increase from £60,000,000 to £100,000,000 And then just sort of linked to that as well, Urs, I think you mentioned that CapEx in Switzerland was going from about 1,650,000,000 down to about 1.6 Again, what's driving that reduction in the run rate of CapEx going forward? Thank you.
Shall I
start with the fixed voice lines? So in 2016, we lost €80,000 per quarter, and that had the impact of CHF 80,000,000. And for next year, we think that we will lose around CHF 60,000 per quarter. I know we were a bit this year, we were in 2016, we are not 100% correct is our prediction, but we are confident that the 60,000 per quarter are okay if we look at the customer base, if you look also at the voice only customers, which over time disappear. So today, we feel confident with this CHF 60,000,000.
And on the cost side, why came it to the conclusion to increase the cost target? Just when we looked at these structural changes to secure, let's say, a healthy EBITDA level in Switzerland and also secure the ability to further invest in our infrastructure. We reviewed our cost reduction plans, looked at the different processes as we did in the past, looked at the IT organization, which system we can turn off, etcetera. So it was, let's say, a reassessment of the management of the cost base, which you have to do every second, third year. And I think it's normal that so we gave us a five years target.
And after two years, we came to the conclusion to push a bit harder in the organization.
And on the CapEx side, as I explained it, there are three elements. The one is the cost of rollout. We are able to decrease them slightly because of another setup with a partner in the rollout, so a more efficient rollout process. And the second is a bit less investments in the core network. So that's a bit, let's say, a phasing topic.
And then the other is lower customer driven CapEx, but no reduction of the ambition of the rollout of our networks.
ARNAUD Okay. Next question, Fred.
Hi, thank you. It's Fred Boulogne from Bank of America. Quick question on your ultra broadband targets for 2021. If you can elaborate a little bit the technological mix we you have embedded in those assumptions. In particular, are you doing a bit more fiber to the home?
And then within your fiber to the street, it's a building, if you can elaborate a bit more the mix, the costs associated, that would be very useful. Thank you.
Good. The mix is actually approximately 30% of the footprint is fiber to the home. So in the next year, we will not build a lot on fiber to the home. The majority of the rollout will be on fiber to the street. And the cost for fiber to the street rollout are much lower than fiber to the home.
It's less than 50%. So that's the main dynamic. And important for us is that we are going fast in a broad coverage. That's much more important than speed because with fiber to the street, we are able to get normally above 100 to 500 megabits, and that's enough for the next years. And then you can upgrade fiber to the street long term.
You could also go from fiber to the street to fiber to the home or chip on technologies. There are a lot of ways to go then. UNIDENTIFIED Okay. Next question, please.
Thank you. It's Luigi Minerva from HSBC. Firstly, regulatory debate in Switzerland. You did say you are confident, especially on the wholesale access terms for fiber not to go towards cost orientation. Maybe can you tell us a bit more what makes you confident that the debate will go in the right direction?
And second question is on Italy. And clearly, your pace is faster than Open Fiber. And so I'm wondering whether you would still be interested in any circumstance to cooperate with them. And also, just to get your views on a comment from a former minister this morning, Gasparri, saying that it makes sense in Italy to have all the networks in one company and that parallel deployments are nonrational. So again, are you interested?
And what's your view on that statement? Thank you.
Good. I will take the question to the Telecommunication Act and then I'll bear with Fastweb. What makes me confident on the access regulation, the actual Telecommunication Act is a success model. So we have a very high investment ratio. We have the highest investment ratio per capita in Switzerland or, let's say, Switzerland in the world.
And the parliament is very aware of it. And for them, it is important that we have a fast rollout of a new generation network in Switzerland. And I think that this is a very strong argument, this investment dynamic. And the second point is that we have a well functioning competition in Switzerland. That's also even the parliament say this that we have a good function in competition.
So I think there are a lot of arguments against such regulation, but we will see the debate.
And Luigi, I think that our strategy is We want to have control over quality. We want to have control over infrastructure. We believe that difference is going to be not just based on advertising and on price, the difference and the differentiating factor will be for our point of view mainly on services. So definitely, we will continue to focus on our rollout.
Open Fiber is doing their project. I think that in terms of, let's say, speed of the rollout, it's pretty clear that we are on another order of magnitude in terms of rolling out the network. And it will take some time for them to fulfill their ambition to get 10,000,000 almost 10,000,000 household passed ready to serve in the next years. And for commenting the politicians, I think that this is a long story. A lot of people are saying that we should have just one fixed network.
I think that this kind of comments are quite instrumental because I could say also why nobody has ever mentioned something like that for mobile. Why all mobile operators are developing their own mobile technology every time three, four, five times depending on the operators. But on the fixed, there is always this necessity to find synergies. I believe that at the end of the day, everybody should follow their strategy. From our point of view, we will continue.
It makes sense to have different network. Also, I think that to have different infrastructure network helps competition, helps the innovation, helps the quality of the services and it's very, very healthy for the
country. UNIDENTIFIED REPRESENTATIVE:] Okay.
Next question please.
Simon Coles from Barclays. I had a question on enterprise. I think last year you said that margins on your cloud business are four times lower than traditional telco. But you said that's upfront cost because you have to have a lot more customer service ready for the new solutions, but then it improves. Are we seeing that improve already?
Because I think you said margins were improving in enterprise. And how can we expect that to trend going forwards? And then in mobile or competition in general in Switzerland, looked like second marketing came down in the Retail division this year. Was just wondering, has competition eased? Or is digitalization allowing you to be more efficient on the second marketing side?
Thanks.
You. Good. On the cloud side, on the margin side of the cloud, that's clear. The margins for the cloud business is lower than for the telecommunication business. And it's a bit too early where the long term margins will be because we are still we are in an early phase of this business.
But we gain now attractive customers, and we will gain scale, and then the margins will be coming better. But the margins are certainly better or they must be better than in a system integration business because it's infrastructure based business to cloud. That was a bit my message. And the second one on Mario?
Yes. On FAC and also acquisition and retention costs, I think the decline on a year on year basis was not dramatic. We had a decline in Q4 of CHF 20,000,000. As I mentioned, less retention cases, but that's because of seasonality. And then we had more SIM only new as a SIM only customers.
But if I look at the overall number of acquisition and retention cases, it's more or less stable. The average costs per new customer are also overall stable. I think we have the pure SIM only customers, they go to Sunrise. And we have the main, main part of our customer base still wants to have a subsidized handset. We offer SIM only.
We have a part of the customer base on SIM only, but the main part of our customers wants to have a subsidized handset. So we don't see a dramatic change. And I don't know whether you want to add something regarding eSIM or something like that, Stijlk, what do expect there? ESIM. ESIM in the future?
No. But eSIM, we look more as an opportunity to provide more SIMs per customer, not necessarily as any disruptor and change to our disadvantage, if anything, then to our advantage because it lowers down certain logistical costs that we would have. But in the meantime, I think mobile network operators have managed to make it a process that is favorable to our business model, be it for the core business model and then also more particularly as we enter into multi device types of businesses where we want to make a push in 2018 into.
Okay. Thank you. Is it good, Simon? Okay. Next question here, David.
You. David Lopez from New Street. My first question is on Switzerland. What do you expect for service revenue trends in Switzerland in 2018? Are you expecting the trends to improve a bit or to deteriorate compared to 2017?
Second question about Italy. You had a decent EBITDA growth of 9% this quarter. But given the price rise, why this was not better? And also the broadband net adds were down 50% year on year. What's the main driver behind that?
And last one on IFRS 15, you mentioned a drag of €50,000,000 on EBITDA this year. I was just not sure I understand well, but given that should imply a revenue boost, I would expect a positive impact on EBITDA from IFRS 15. And can we already assume for 2019, if this is only temporary, that the EBITDA guidance will have a EUR 50,000,000 positive impact?
Mario will take the IFRS question, Alberto, for Fastrip, and I will say something on this ALVAREZ service revenue DE development. Actually, the main drivers of service revenue in 2018, Mario explained during the guidance. We will have an impact from roaming. It will be in the region of CHF 20,000,000 on the service revenue side.
And then this voice losses, which is slightly lower than in the last year, in the region of CHF 60,000,000 and then the converged discount in the region of CHF 80,000,000. And then some pressure on B2B and as compensation, lower costs, which leads to a lower EBITDA, as we mentioned it in the guidance in Switzerland. That's approximately the story. But we will have an erosion in service revenue in 2018.
Alberto? And on IFRS sorry, ahead. On IFRS 15, you have this negative impact because we did not restate 2017. If you would have formally restated 2017, you would have seen a flat development. And in 2019, if we have, let's say, the same composition of the business, the effect will be neutral.
You won't see any more positive impact. So assuming same new customers, same retained customers, same channels because you have to account differently for commissions and revenue from handset, it will be flat in 2019 compared to 2018. And we don't have a reason that we have other assumptions for 2019.
Okay. Then I take the question first on the net adds performance. And the answer is quality. Again, we wanted to focus on ultra broadband, and we really think that this is the right strategy. Also our competitor are targeting to maximize the number of customers.
But if you dig down into this assumption, you will see that a lot of these customer are connected through perform to technologies that are not really performing. We have a completely different strategy. We prefer to upgrade our network and to migrate our customer base to best technologies. So for us, clearly, we want to do as much customer as many customer as possible, but we want to do ultra broadband. In fact, if you check, we progress in our ultra broadband and actually performance, we accelerate the number of customers acquisition.
And so the gap, if compared with last year, is just on broadband, but non performing technologies. It's just focusing on delivering the best technology possible. Second, I would say that on EBITDA margin, I would say that overall, a 10% industrial growth for the fourth year in a row is not bad. I think that during the quarter, there might be some fluctuation. Remember that we are a combination of different businesses.
We have retail revenues, enterprise, we have connectivity, value added service revenues, and then we have wholesale revenues. So the overall marginality depends very much about of the mix of the revenues. But I think that overall, you should expect always a strong growth year after year.
Thank you. Carolla?
Good afternoon. Carolla Bardelli from Deutsche Bank. A question on Italy. I was wondering what market size is implied on the Italian broadband market share that you are targeting 20%, 25%. What size for the Italian broadband market do you see there?
And same question on mobile when you are targeting three five percentage points of market share, what assumptions are you making for Iliad? And then the very last one on Italy, if we could have an idea of how much you spent on advertising in 2017 that should be a good indicator for how much Gilead should spend in 2018 for their launch. And moving to Switzerland, if I can, I was interested to understand something about the MVNO contract with Salt that, if I'm not mistaken, is moved from sorry, with UPC that is moved from Salt to Swisscom? So what is the order of magnitude in terms of a benefit for you? And what do you expect that they will do in terms of behavior on the market when they improve the quality of the network?
And lastly, maybe there is a read across on the potential consolidation on the Swiss market on UPC potential buyer rather than seller or whatever? Thank you.
Okay. I'll start with Italy. Then I'll say that roughly you can assume around EUR 3,000,000 for the wireline market. Whilst on the mobile, as we always said, we stay between, let's say, 3,000,000 to EUR 4,500,000.0, something like that EUR 3,500,000.0 to 4,000,000, let's say, sorry. In the regarding the Iliad impact, this is a big question.
I do think that they will have an impact in Italy. Definitely, it will be difficult that they will repeat the performance that they have exploited in France because I would say that the three conditions that were important for their success in France. So the fact that they have a wireline, huge wireline customer base to upsell a very good, let's say, network to exploit, I mean, the orange one. And also the fact that the prices were very high, those are three conditions that they will not find in Italy. But having said so, I think that there is an opportunity to disrupt the market in Italy.
And I think they will have an impact, but clearly not the one that they have in mind at the beginning of the story when they got the remedies. In terms of advertising, I think that every company is doing its own strategy. I think that we relatively invest much lower than if compared with the three big players. I think that Iliad will have to invest more than what we invested because the brand of Fastweb is already very, very strong. I think that they will need to invest in the setup, I would say, of the brand, the setup of the or the positioning, the setup of the company.
So definitely, I think that they will invest much more. I don't know how much they will invest, but I think it's reasonable to say in an amount of EUR 50,000,000, something like that. But it's something that you should ask them.
Good. On the MVNO contract with UPC, it's certainly one of the bigger MVNO contract in Switzerland, but we don't disclose the figures. And the contract will be in place in 2019. So for 2018, there will be no impact. On the influence on competition because UPC has now access to our network, we think that this is will be handleable, this impact, because at the end, quadruple payoffs are becoming more important certainly for a company like UPC to have a stand alone strategy on mobile for UPC, in my view, will not be an easy one.
So you have to judge the whole portfolio on quadruple play. And there, we have a strong proposition. So we are gaining market share there. I don't think that we will suffer. And consolidation, that's another topic.
Actually, I'm not the consolidator in Switzerland. I can't be the consolidator. But for Swisscom, we are well positioned to handle different kind of consolidation in Switzerland. I think we have the size. We have the skills to do it.
And more important for the competitiveness is actually what is the behavior of the consolidator at the end. I think that's the most important thing. And if it is a rational player, I think this would be good for the Swiss market. And at the end, I think a consolidator must behave rational because he has an established customer base. And we see what is happening if you take down the prices too fast in Switzerland.
We have an example from Salt. Didn't win market share, but lost some ARPU.
Okay. Thank you, Urs. Perhaps on the
third row.
Hi, thanks very much. It's Nick Pruczern from Jefferies. When you announced your launch last year, you talked about 1,000,000 mobile SIMs in Swisscom homes that you weren't currently serving. We announced a ten months post the launch of InOne. I guess I'm just wondering how successful you've been in cross selling into this mobile opportunity.
Do you still see it as an opportunity? And how many of the ads you've been adding are actually new to Swisscom? Secondly, in terms of kind of peak cost cutting, once we get to 2020, do you think we'll be passed or through the peak cost cutting phase? Because it sounds like there's some fairly material opportunities from the likes of the two gs switch off and virtualization, digitalization that might start to have a larger impact from 2020 onwards. And just on that, how big do you think the opportunity is from turning off the two gs network?
Well, N1, we are certainly able to increase the penetration in the household on mobile. But this doesn't change from in one day. So this needs time. But if you look to our net adds, which we have in the value segment, So you see that we had a good momentum on mobile. So actually, it's working.
And but we will not be able to get CHF 1,000,000 in just two or three months. It needs time, and then we will not have all of them. But the penetration is increasing. On costs, you're right, virtualization, artificial intelligence and all such things can help telecom operator to decrease costs long term. But we have to do now we have to attain now our goals of this 100,000,000.
I think we have enough to do.
And two gs switch off, that's not the cost case. That's just the reason to free off space on the frequencies. That's not the cost case at all.
Will not gain
a lot of It's few millions.
Thank you. George?
It's George Jones from Citi. I've got three questions, please. The first one is on the spectrum. When do we get details on the auction terms? And one of your competitors has gone out publicly saying they want caps on price and caps on amount of spectrum that one can acquire.
Do you mind just giving us your views on these? What are you asking for? And when we find out effectively what the framework will be? My second question is on Italy. And some information perhaps on the wholesale and business opportunities.
Obviously, now with the Tiscalco acquisition, you have the sub selling opportunity in the public administration. If you can talk us through the dynamics there and what you are seeing, how long before the impact comes through the numbers? And on wholesale, you have a significant market share increase embedded. If you can talk us through what's driving that? And then maybe a clarification on the guidance.
In the slide, you show that you expect revenues outside of Fastweb to decline from 9.5% to roughly to 9.2 and then EBITDA to decline around €100,000,000 with €100,000,000 of cost savings. So I was just wondering the other, is it reduction in SAC? Is it other drivers in costs that make the delta? Thanks.
Okay. I take the question to the spectrum and then Mario to the guidance. On spectrum, actually, we want or we are lobbying for an auction. I think the likelihood is very high that we will have an auction. We are lobbying in the direction of caps that everybody can get a fair amount of spectrum.
And an auction which we'll place in this year. So that's a bit the main goals we have. And it's a bit too early to say what will be the result, but I think it goes in the direction what I said.
And what do we find out?
We will have the last consolidation. And I would say, in April maybe in April, we have clarity on the criterias.
And on the guidance, we explained this EUR 200,000,000 on service revenue. And then the rest of fluctuations in trading revenues, MTR, stuff like that, there's no margin. So please take the CHF 200,000,000 service revenues deducted by the 100,000,000 cost savings, giving CHF 100,000,000 EBITDA loss or reduction. And CARLOS on Italy
Yes, wholesale and also he mentioned public administration. So there are two different things. On public administration, we are talking about corporate, enterprise type of revenues. I think there, can exploit a very strong competitive advantage because, yes, it's true. Through the Tiscal acquisition, we got one contract related to the public administration, but actually we won many other contract.
And today effectively, we cover each single services that the public administration could look for like voice, connectivity, security, infrastructure, maintenance and also equipment. And basically, we won all of them. So I think we are definitely in terms of, let's say, offer, we have the broader offer if compared with all our competitor. Remember that also in this sector, I think Telecom Italia is out from the all main, let's say, framework contract. So it's a very strong and huge opportunity for us.
And also, would say that the other competitor are not as focused as we are in this. I would say that overall, you look at the market share in the public sector, but also in the private sector shows that we can make really a difference between the expectation and the needs of the customers if compared with all the others. And you could, let's say, apply similar growth or similar increase of market share also in the next year. It's just really a very, very simple model for us. In terms of wholesale, I think that as in the past, remember that we are operating the wholesale market since the beginning.
So it's eighteen years that we are doing wholesale type of services. If I look in the future, I think that definitely the BTS, dark fiber backhauling will be one very good opportunities. There are one new player that is coming into Italy, the French one that they will need definitely once they will build their network to have dark fiber becholing. Actually, we start to get the first order from them. So I think it shows that we are much more flexible than a competitor, most importantly, quick and reliable in delivering.
But also, I'd say that beyond the BTS, also in the merger of wind and three, they will have need of clearly of dark fiber becholing. They have an ambition to increase the quality of their network. So definitely, they will need dark fiber becholing. And the moment is now because you will need to be well prepared for the traffic increase in the next years. And so I think the good opportunity will be in 2018 and 2019.
Another opportunity will be on the access network because as we have seen before, we have by far the largest attacker OBB network. And this is something that we can make it available also for competitor and it's an opportunity REPRESENTATIVE:] that we want to exploit in the future as well.
Thank you. Question, Markus, Osman.
Great. Thank you. It's Usman from Berenberg. I've just got three, four questions, please. The first one is just on B2B.
You said that you're expecting around a €40,000,000 impact or a headwind this year. Is that in mobile or in fixed? And then just related to that, I see that you've got around CHF300 million of business connectivity revenues. I mean are you seeing any impact on those from pushing software defined wide area networks? I mean is there a deflation going on in that revenue stream?
Or are you managing to hold the revenue stream flat? So that was on the business segment. Then on convergence, on Slide 30, I mean, there is some encouraging trends shown where you're being able to upsell in wireless and in wireline, the headwind from convergence isn't getting any worse. So when I look at that and then I look at the guidance, which implies that the convergent headwind is going to go from 30,000,000 to 70,000,000 to €80,000,000 I don't know whether you are being conservative or what's driving that. And then my final question was just again on when I look at the KPIs, the convergent household, the big additions in the convergent households are actually coming from 2P rather than 4P, which is which has declining trends.
So again, just any color on that would be interesting. Okay.
I will take the B2B question and Mario then on the rebate or discount on convergence. So this EUR 40,000,000 price pressure is coming out of connectivity on, let's say, broadband networks and mobile. So it's the sum of both. So we will have some pressure on mobile, but we will also have some pressure in the wireline business. And the software defined network approach, that's more an opportunity because we will be able to deliver in a more efficient way networks.
Maybe I'll make a few comments around inOne and convergence and how all that plays out, yes? On Page 30, I mean, as Urs had shown, yes, initially, we got some optimization in the wireline side of inOne Home, which is due to the fact of how the portfolio was constructed, which is basically like a pick and choose. And initially, there were certain customers that were trying to kind of seek for a deal. And but over time, we got that under control, and we actually recommended the customers not actually to save on price but to increase in value, yes? And by now, let's say, our operations in terms of sales and hotlines and so on and so forth are quite well trained to give the customers the right guidance as they migrate from whatever they have into the N1 portfolio.
On the wireless side, the way the portfolio is constructed is that the eligibility for the convergence advantage only kicks in when you are on the inOne mobile S tariff on excess tariff, yes. So it basically means a CHF 20 uplift on the monthly subscription, and only then you're actually eligible for the discount, yes. So there's effects that balance themselves out, yes. And with respect then to the outlook for 2018, I think the financial impact that we see, obviously, is mostly the net impact that you see on many more customers are eligible for the entering into INBAN and therefore, eligible to the discount advantage. But at the same time, we also make quite some big efforts around customer base and value management.
There's quite a few customers that we think we can develop, let's say, from lower tier tariffs in one the in one scheme into higher tier tariffs, yes? So there's a lot of potential, for instance, on broadband side, where people right now could easily get 100 or more megabits but only are sourcing 40 megabits. Similarly, on TV, they are in an entry TV package and can be developed into higher tier TV packages, yes? To the point around is it a 2P play or a 4P? Obviously, it's increasingly less a 4P play.
On new attaches, we see roughly onethree of customers take a voice landline, which, by the way, is also one of the biggest effects. As customers leave, roughly twothree take a landline sort of with them and not signing up anywhere else. Or if they sign up anywhere else, they're mostly into schemes where the landline is provided for free. So that gives an RGU, but there's no value behind the RGU that is presented by competitors that take up these customers. And those customers that come in then only to assert and take a landline.
And I think that is the effect that is playing in there. And on TV, we have an opt out rate of roughly twenty twenty five ish percent or so, And these are the effects. So in a way and that is due to the flexibility of the portfolio. Yes, it is true that for certain customers, conversions means a 2P, which is broadband and mobile. But the vast majority actually takes also the TV with us, the vast majority.
And then to a smaller proportion, it's a 4P play.
Thank you.
And you
see it also in the back up on Page 82, you see the number of bundles we have or the number of RGUs we have in the 3P and in the 4P. Both were growing and both are the main part of our RGUs. So it's still 3P and 4P growing.
All right. Thank you, Mario. Next question, Matthijs?
Yes. Matthijs Vallaio, Kepler Cheuvreux. One quick follow-up on this move to convergence because you make it easier for the customer to opt out. So in that context, why are you assuming that the fixed voice lines will decline or actually the decline will become less the coming year?
Well, you see, there's one correlation here, which is not a big correlation, but there is a correlation, for instance, towards All IP. Yes. And as Uoz explained, we are like to 90% through of it. It is not so that customers come just out of the blue and say you ring up and say, by the way, please cancel my voice line. Actually, that is almost not happening.
It's only like ten percent of cases where that happens. Mostly, is when for one way or the other, you have an interaction with the customer. And with all IP, you do have an interaction with the customer or when a customer cancels, as I said, many of the voice cancellations come with when people leave. They don't leave then for voice. They leave for like altogether.
Because I mean, as you know, we have churn. What looks as static there, there's still like on broadband, 200,000 people that leave, and they leave they take with them to like 70% of voice line. And another 220,000 come, so it gives you like the 20,000 net adds, but they only then take to 30%. And that spread alone is the vast that's the majority of what is happening in terms of voice line losses, yes? It is that change in terms of customers leave and as customers come.
And then there's an element that is associated with all IP. And then on business to business, there's a piece of element where actually we are stating that we lose voice lines, but we are not losing the customer. It has to do with the way you count on the customer. In the future, we're counting the customer as a site, irrespectively how many channels as a voice line. So it can easily be that and that is obviously true only for small, medium enterprises and business to businesses, where you think you lose like, whatever, 20 voice line and you count only one, but the customer is actually still there.
And that process, by the way, is mostly revenue neutral, yes.
One other question. Maybe difficult to answer, but it's regarding the upcoming spectrum auction. I believe there were some discussions in Switzerland regarding the shareholding of the government in Swisscom. Can you give some color or shed some light on the commitment of the Swiss government?
No. The Swiss government has nothing to do with this auction. That's actually the commission who has to set the rules for this auction.
Yes. But what I understood is that some people were saying in Switzerland, well, maybe the Swiss government shouldn't have a stake in Swisscom anymore.
Okay. But that's a different law. That's another story that there are some political parties who say that the government should go in a minority. But if this would be the case, there would be a referendum because that would mean to change the telecommunication law. And then there would be a referendum.
And this would be a very long process. And I don't think that this has a likelihood to pass in an election. So that's a political discussion.
Clear. Thanks.
Well, we have another question here in the first row.
Thank you. It's Ramanar Abuja from JPMorgan. So the first question is on cost. You showed on one of the slides how you have a lot of customers calling in and you have a lot of customers going into shops. And given how quality focused the Swiss consumers are, do you think you have a small opportunity to take out to reduce the customer interaction cost compared to some of the other operators in Europe?
Or would you actually think, for example, you have more opportunity because you by moving online, for example, you will further improve NPS? And the second question is just a refresher on the potential launch of salt in the wireline markets. Can you just remind us how do you think about it, please?
Good. On multichannel, you know that to have a strong, convenient online channel is not only a cost initiative, that's also a customer experience initiative. There are a lot of customers who like to have an online channel because it's convenient and fast. So that our strategy is to have different channels and to let them work in a seamless way. So you we don't just go for one channel.
So we try to bring an integrated proposition to our customers. And not each customer has the same demand. Younger people are more keen on online, or they want to go in a shop. So we have to deliver both. And on salt, launch of wireline, I'm the wrong people to ask.
That's already last year and one point five years ago, we had this question. So we are prepared. And that's one point. Second point is we would certainly observe what is happening, and we would not get nervous. So we would observe what will be the impact, the reaction.
I think within one, we have a flexible tool to be competitive in the market because customers can actually optimize their product portfolio.
If I may, the customer movement on mobile between Swisscom and salt nets out to zero. Some have gone, and most of them are now coming back and saying, I've been there. I've seen it. Thank you very much. I'll come back.
Yes. I think the I mean, broadly, the Swiss consumer is still oriented towards great quality in network and products and customer service, and they're just not offering that, yes. And even at price discounts towards our prices of 5060% and more, it doesn't need to it doesn't move the needle substantially. So it's kind of like fundamentally the wrong strategy. It's fundamentally the wrong strategy now.
GOMES
Okay. Thank you, Dirk. Perhaps one last or the second last question.
CARLOS Two separate questions. Firstly, to come back on Fastweb, we had very nice pickup in consumer growth in H2 on the twenty eight day billing, etcetera. Wholesale reestablished itself at a higher level. When we look at twenty eighteen, twenty eight day billing is supposed to go. I think all operators are talking about mitigating measures.
So what's the outlook here in terms of consumer, wholesale and overall growth perspective for Fastweb? And then secondly, at the Swisscom level, more a longer term question on the five gs. But at this stage, if you could share with us what you've identified in terms of use cases, business case, implications for your CapEx architecture densification, so where you stand on that? Thank you.
FRANCOIS
it's Alberto. I Alberto, and then I will take five gs. Or do you like to, I will take five gs. Otherwise, you create a new product here.
On the spot. The spot.
Would say that Too dangerous. I would say that overall, again, the impact on the four weeks billings in Italy was very, very limited. Remember that we were the last one to adopt it differently from our competitors where they have exploited at least for this type of strategy for eighteen months. We were forced because at the end of the day, it was not comparable. Our offer were not anymore comparable in the market.
So I would say that in 2017, the impact, I would say, that in the overall performance is contributing, but it's not definitely the only growth, let's say, engine. And also in 2018, we will continue to grow basically based on our on the volumes, which is the most important driver for our revenue growth.
Okay. Dirk?
On five gs, question was another one. We should have one more question for B2B because we have a very competent manager on the left side. That was my remark. Now on five You know five gs, what can you do with five gs? On one side, you get more bandwidth.
And I would say that's the biggest application, mobile broadband. Then but you can also do IoT. That's the second I would say the second big use case is IoT for a lot of devices. The third point is slicing, network slicing. That means you can deliver much more segment specific solutions for, let's say, for a specific industry, for a security organization or such things.
I think you have some topics to do. And then the big advantage of five gs is also the latency. So on real time application where you need a low latency, you can use it. And so it's for real time application, there are a lot of new use cases also in the consumer market. And the CapEx, they will be slightly increasing, but don't think that we will have per year a substantial increase because this will be also an evolutionary path.
And we already today are rolling out four gs, and then we compensate this with five gs. So the overall CapEx envelope will not increase.
ARNAUD Okay. So
we had around 4%, 5% revenues in consumer in H1. Now we are at 13%, 14% in H2. So we had a very strong acceleration. So I just trying to put that in perspective to the degree there was some twenty day billing or is just because you haven't seen a step up in broadband subs. I mean it seems
Yes, I would say that
take the average growth also for and it's fine. Thank you, Alberto. Usman, the B2B questions.
Hi, Usman from Berenberg again. So I guess two questions. One is kind of B2B. So how far does your guidance take into account an improved GDP environment in Switzerland? And I guess you would see that in B2B more than anything else.
So that was the first question. And then the second question was just on Italy. I find it slightly confusing when you say that you think Idiot will have an impact, will have to spend around €50,000,000 given that Fastweb's own kind of mobile ambitions with the brand spending the money over the midterm is only 3% to 4%, right, from 1% today. So either your guidance on mobile is too conservative or Iliad won't have an impact. So just any comments on that?
Thanks.
Okay. I'll start with the GDPR question. So within our guidance, we don't have any special uptake in 2018, but I'm fully convinced that it is an opportunity on two sides. First of all, to be able to deliver such environments for our customers. But I definitely see an uptake on this opportunity perhaps slightly in the second half in 2018 in our revenue figures coming with some additional services, but there is no special, let's say, uptake in the guidance for 2018 based on GDPR.
And for Italy, my sentences are perfectly consistent because you don't have just to consider Iliad or Fastweb, but there are other player in the market. So I do think that Iliad will have an impact and will have an impact on the three big player much more than they could have on our. And And so there is a perfect story of growth for Gilead, which will have an impact and also for Fastweb, which will have an impact. So our estimate, our growth is not, we think, overlapped with the Gilead one.
Thank you, Alberto. The very last question, I would say, before we close the conference. George?
It's not going to be on B2B. I remember two years ago when EBITDA was minus 10%, all the questions were on B2B. So that's a good sign, I would say. I wanted to ask about subscriber retention costs because both the volume of handsets and the costs have been coming down and especially this quarter with the iPhone X, given that Switzerland is relatively high and you would have expected to see some impact from this. Is it a shift in behavior and the renewal cycles?
Is it the same only tariffs you have that make a difference? Is it going to continue next year? Any indications on that will be great.
For us, on a whole
year, I would assume the same amount of acquisition and retention costs. We had a higher number of SIM only, I think, about 30,000 more SIM only new customers' subscriptions in Q4. But I think it's too early to see a trend in customer behavior. So if I look at the overall customer base, we had an increase in SIM only, but not it's not so significant. And as I mentioned before, major part of our customer base really wants to have the subsidized handset.
And it helps us also to differentiate in the market.
And I think the other thing that sort of helps,
if
you wish, is that people are keeping even in subsidized tariffs, their devices longer than they used to, yes, which is just due to the fact that for many people, there's not any more substantial significant new innovation. Devices have a big screen. You touch upon them, and that's it. And then we don't think it's our mission to have the iPhone X to sell, to be honest. So we look at that from a flat subsidy perspective.
So if there is additional cost to the device, then the consumer will need to bear it if they fenced the device. It's not on our bill.
Okay. Thank you, Dirk, and thank you to everyone contributing, well, to the questions but also to the answers. Before closing this year's analyst and investor presentation, two last remarks. First, we would like to invite you for some drinks and snacks outside. Most of the people will be around, so you can do some informal chatting.
And secondly, for those who need to transfer to the airport, we kindly recommend to take simply a taxi. At this point, it is it from our side. Thanks again for attending and looking forward to seeing and hearing you soon. If not here, then certainly on the phone. Have a nice evening.
Thanks.