Good morning, ladies and gentlemen, welcome to the Swisscom half-year results 2016 with Urs Schaeppi, Mario Rossi, and Louis Schmid. Louis, the floor is yours.
Good morning, ladies and gentlemen, welcome to Swisscom half-year results presentation. My name is Louis Schmid, Head of Investor Relations, with me are our CEO, Urs Schaeppi, and Mario Rossi, our Chief Financial Officer. The first part of today's analyst and investor presentation hosted by our CEO consists of three chapters. A quick overview of the highlights, operational performance, and financial results of the first six months, an update on our priorities 2016, finally some explanation on our operations, both in Switzerland and Italy. In the second part of the presentation, Mario runs you through the financials and the guidance. With that, I would like to hand over to Urs to start his part of the presentation. Urs.
Good morning, ladies and gentlemen. I would like to directly jump to slide four, which gives you the highlights of the first half-year. Overall, we delivered our targets. We have a solid financial performance. The EBITDA went up by 4% year-over-year. Certainly positive is also the development of our mobile net adds in Q2. We have stable market share in the mobile market. On bundling, we have a good growth, still growing bundling business, we have solid market shares in the fixed line business. The rollout of our networks, we are on track. Actually, we have 3.3 million households which have a bandwidth over 50 Mbps, so ultra-broadband coverage. Fastweb is well on track. Overall, we have a slight up change in our guidance, stable revenue. EBITDA slightly up to CHF 4.25 billion, mainly because of exceptionals.
CapEx on CHF 2.4 billion because of a good momentum in our rollout in Switzerland for the ultra-broadband business. If we go on slide five, you can see the market performance, the development of our revenue-generating units. We have overall a stable revenue-generating unit. Strong momentum in TV, where we were able to grow by 13%. Also in broadband the growth. More saturated business in the mobile market and a declining business in the fixed telephony business. Overall stable RGUs with a good momentum on TV and broadband. Italy has a growth on the RGUs, as you can see it on the bottom of the chart. If we go on slide six, some remarks to our financials. A stable revenue and increasing margin. Revenue is up by 0.2%. The EBITDA increased by 4.4%, there is also this exceptional from TI in it.
Also without this one-off, we would have a slightly increased EBITDA. Overall, a solid financial performance. Let's jump to slide eight. Here you see our priorities, our five priorities. We are here well on track on delivering on these priorities. I would like to go a bit deeper in some of these priorities. If we go to slide nine, you can see what we have done in our core business to differentiate ourselves through quality. The main pillar of our strategy is differentiating through quality over a better infrastructure, over a superior customer service, and through products with an excellent customer experience. On the infrastructure side, we have now 3.3 million households on ultra-broadband coverage. Our goal for 2020 is to have 85% of the households in Switzerland on the ultra-broadband network. That means bandwidth above 100 megabits per second.
Also on the 4G network, we are progressing well. We have a very good coverage of 89%. It's also important to mention that we are doing already today 5G pilots in Switzerland to see what could be the potential of this technology. We improved our Natel infinity 2.0 offering, included more speed, included more roaming, and also some cloud services. This is also one of the reasons why we have still a good momentum on Natel infinity. Also a solid situation with our Natel infinity customer base. We launched our ultra-high-definition TV box in the first half year and with a good acceptance in the market. Overall, strong positioning on our products and network side. If you go on slide 10, some remarks to our operational excellence program. We are on track according our targets and also our savings.
Our goal from this year is to save CHF 50 million costs, we are here well on track. We make consolidation of our call center sites from 14 to 8. We are streamlining processes and also simplifying our product portfolio. Also on our All IP, we are on track. Today, the transformation is completed by 60%. Let's go to slide 11. There you see our plans in Italy of Fastweb, how we increase our ultra-broadband footprint. With the partnership of TI, which we announced the last weeks, we will increase our fiber-to-the-home footprint from 2 million to 5 million in the year 2020. Overall, we will have an ultra-broadband footprint in Italy by 13 million, and the composition is 8 million fiber to the street and 5 million fiber to the home. 50% of Italy is covered by a Fastweb network with bandwidth above 100 megabits per second.
On slide 12, you see some information about our agreement with Telecom Italia. Actually, it has two pillars. A commercial pillar where we upgrade our existing fiber-to-the-home footprint of Fastweb, and second where Telecom Italia will get access to some fiber networks of Fastweb. On the other side, we have a co-investment company which will roll out the fiber-to-the-home network. It's a kind of secondary network. Really, we are building only half fiber to the street and fiber to the home network. It's in full alliance with our fiber-to-the-street plans. The company will build in 29 cities, that means 3 million households which will be connected with fiber to the home. Swisscom has an equity stake of 20%, and our capital injection will be CHF 55 million in four years.
No change on our CapEx guidance, but we will be able to accelerate the rollout of fiber to the street and use synergies with Telecom Italia. On the other side, we will sell our stake in Metroweb, where we get a cash of EUR 80 million. If we jump to slide 13, you see the idea of our mobile plans in Italy. We plan to launch a new offering in the mobile business in January 2017. The main pillar of this offering is, or the approach is a full MVNO approach on the network of Telecom Italia. We get access to 4G networks, and we will be able to make also converged offering with the Fastweb product portfolio. Stronger proposition in the mobile market will be in place in the beginning of 2017.
If we jump to slide 14, you see some information about our enterprise business. Digitalization is running, and this is a chance for our enterprise solution business. With ICT solution, we will be able to leverage our corporate customer base. We will be able to sell more cloud products. We had in the last months nice wins in the cloud business, and we have an offering in the cloud business of infrastructure as a service and platform as a service products. On the other side, we have the potential to increase our solution business. You will see also in our figures that we were able to grow in the solution businesses. Overall, mid, long term, our enterprise business has growth potential, certainly in the solution business. If we go to slide 15, some remarks to the transformation to All IP.
In the first half year, we migrated 200,000 connections to All IP. As already mentioned, over 60% of the transformations are completed. Overall, we have 1.3 million households who are on All IP. We are on track with our plans, and recurring cost savings will come from 2018 onwards. Some information on our operations. Slide 17 shows you our revenue dynamic. We have in Swisscom Switzerland, a slight decrease of our revenue, and the main reason is the declining service revenue. On the right side of the chart, you see the dynamic of the service revenue in Switzerland. The main impact of this minus CHF 46 million service revenue is the roaming impact from our new tariffs from also Natel infinity, where we have more included roaming units, and this leads to a lower revenue in the roaming business.
It's interesting to say that today, 75% of the data volume, roaming data volume, is done through inclusive offerings. That shows that we have a strong take-up of these roaming tariffs, and this leads to this slightly declining service revenue in the second quarter 2016. On the other side, increasing solution revenues up by CHF 20 million. A good message, a good dynamic in Italy, overall the revenue is stable. On slide 18, you see some trends on the different product areas. If you take mobile standalone, we have a declining revenue due to roaming price pressure and price pressure in the corporate business. The revenue-generating units are stable. Fixed business, slightly other dynamic. Also declining one-play revenues, but the prices are unchanged.
On the other side, we have a decreasing amount of voice access, and this is the reason of this declining One Play business. Strong momentum in bundle. Still a strong revenue growth on the bundle business. The impact of roaming overall, which is the major dynamic in the first half year, is minus CHF 42 million only from roaming. Slide 19, you see some information on our wireless business. Overall, a solid performance on the net adds. Positive net adds in Q2. The ARPU of wireless One Play is slightly diluting because we have more customers on our Infinity plan, where roaming is included. Overall, 70% of our postpaid customers have an Infinity product, and 68% of our revenue-generating units are postpaid subscriptions. That shows that we have a strong postpaid business in Switzerland. Page 20, some information about our wireline KPI. A quite mixed dynamic.
A positive dynamic on broadband and TV, negative dynamic on voice telephony, but stable ARPUs. It's also interesting to see the penetration of the different products. TV, as an example, has in the region of 70% penetration on our retail broadband footprint. Our fixed revenue-generating units in bundles are 66%. Strong momentum on the bundles business. Bundling KPIs you see on page 21. The ARPU development of the bundle business is slightly declining due to roaming impact, due to the fixed-voice business, and to a loyalty discount for 4P, which on the other side leads to a lower churn and higher ARPU penetration. The right side, some information about penetration of the different products in the bundles. Just as an example, TV has a penetration of 92%. Broadband 77%. Still also low penetration of mobile with 16% in our bundling business.
On page 22, some information about our service revenue dynamics. You see, and Mario will come deep to it, that the service revenue impact is bigger in the second quarter. The main reason behind it is roaming. From this CHF 36 million decline, CHF 26 million is coming from roaming. The roaming, we will have also in the second half here, some impact from roaming. As I mentioned it before already, today, a lot of customers are in these new roaming tariffs. Midterm, the roaming impact will decline. Fastweb on page 23. Good momentum on the customer base dynamic and also on the revenue side. In each market segment, we were able to grow. Good first half year in Italy. On the top line, on customer base on page 24, you see the financial performance of Fastweb. Solid, good performance.
The EBITDA on an industrial base, that means without exceptional from this TI litigation, is increasing by strong 8%, increasing EBITDA, and we have a free cash flow of CHF 67 million. Now I would like to hand over to Mario, which gives you some information about the financials.
Thank you, good morning from my side. I start on page 26. As was mentioned, we can present financial figures which are in line with our expectations. If you look at the revenue development on a like-for-like basis, we have flat revenues compared to prior year. We expanded CHF 5.76 billion. We have only minor impacts from M&A and foreign exchange rates. Overall, we can say the decline in the Swiss service revenue of CHF 46 million was practically compensated by increase of solutions revenue at 10, 20 million, and growth in Italy of CHF 17 million. Some words on the Swiss business. After a flat development in the residential and SME segment in Q1, we have a decline in service revenue of CHF 17 million. There we see an increased impact from roaming. In Q1, we had minus CHF 9 million impact. In Q2, minus CHF 16 million.
In Q2, excluding the roaming impact and the impact of the line loss in fixed voice, revenues were flat year-over-year. I think that's a good development in this competitive market. In the enterprise segment, the service revenue was impacted also by roaming. In Q1 by CHF 7 million, in Q2 by CHF 10 million. We had still this airtime fee impact of CHF 5 million in each quarter. This impact will not be any more in Q3 2016. Anyway, in enterprise in Q2, net of roaming, we had CHF 5 million more revenue decline in Q2 than in Q1. The reason is price discount, price pressure in the mobile business. On wholesale, we lost in Q1 CHF 13 million of revenue. In Q2, we increased revenues by CHF 6 million. That's a positive impact from inbound roaming. Urs mentioned already the good performance of the Italian business.
I think it's a good performance. We added in Q2 CHF 6 million net revenues. That's lower than Q1 because we had less hardware revenues in the enterprise segment in Q2. Few words on page 27 on OPEX and operational excellence. The direct costs, aka sink Q2, increased by CHF 9 million. There are two reasons. We are subsidizing TV boxes when customers are migrating from the Swisscom TV 1.0 to TV 2.0. We have higher retention volumes in mobile, which is a good thing. In this case, these customers signed again a contract with Swisscom for another 24 months. That shows also that Swisscom customers still appreciate the subsidized handsets. On the indirect costs, the FTE reduction is on track, approximately 300x less than prior year. We are well on track to deliver our CHF 50 million savings in 2016.
Just to remind you, we expect another CHF 75 million in 2017, in the following three years, an additional CHF 60 million each year. In Q1, we had extremely low maintenance and repair costs due to seasonality. That's the reason why we had this CHF 30 million reduction in Q1, more or less flat development in Q2. The EBITDA breakdown by segment is on page 28. At the residential SME segment, after a strong Q1 with a CHF 30 million increase of EBITDA, we see now in Q2 a CHF 17 million decrease. Three reasons: impact of the service revenue decline of CHF 17 million and the higher SOC and SRC I mentioned before of CHF 9 million. The cost savings, which are coming mainly from field services and call centers, were compensated by less EBITDA increase of Local.ch in Q2. In Q2, the EBITDA increase at Local was CHF 2 million.
In Q1, it was CHF 9 million. In enterprise, we see the impacts of the decline of service revenue. The savings on the OPEX were limited because we need to invest for new business such as cloud, as it was mentioned right before. Fastweb, I think a good growth of 8% without exceptionals to an EBITDA of CHF 200 million. The exceptionals, it's the one-time income from litigation with TI we settled. It's EUR 55 million was settled in Q2, and we had also the cash impact in June 2016. Coming to the net income. EBITDA stands at CHF 2.2 billion, which is a 38.6% margin. We are benefiting on the net interest from the lower interest environment. The cost of debt stands at 1.6%. We had no major financing activities in Q2. You see the details about the debt position in the backup on page 49.
We have a slight increase on net income of CHF 5 million. Net income stands at CHF 780 million mid-year. A few words on CapEx. On slide 30, we see an increase of 4.5% to around CHF 1.8 billion for the first half year. In Switzerland, 29% go to fiber-to-the-home and fiber-to-the-street, approximately CHF 250 million. A few words on fiber-to-the-home. We are not expanding the fiber-to-the-home footprint. There are some reasons why we still have investments in fiber-to-the-home. First of all, you have an increase in buildings in cities where we already invested in fiber-to-the-home. Of course, we use the same technology, A. B, when we have new customers, we need to invest in the vertical.
If you are in a multi-apartment building, only one customer, of course, we invest in the full building because from an economic point of view, it makes sense. That's the reason why you still see investments in FTTH. We have a good pace on the fiber-to-the-street rollout, and we are ahead of plan, and that's also the reason why we increased the CapEx forecast slightly from CHF 2.3 billion to CHF 2.4 billion. It would not make sense from an economic point of view to stop this good pace, this good rollout. In Italy, we invested EUR 47 million in the FTTH expansion. Last year it was EUR 40 million. The operating free cash flow increased by CHF 43 million to CHF 788 million on page 31.
Despite the payment of the sanction or in the AB Cell case, you remember in Q1 of CHF 186 million, we were able to increase the free cash flow development. We certainly benefit from the positive impact of EBITDA, which includes the litigation and the payment of the settlement with Telecom Italia, EUR 55 million. Finally, a few words on the guidance. Just to make the results comparable, we need to adjust the 2016 EBITDA for two items. It's the sanction we booked in Q3 of CHF 186 million and the provision for restructuring of CHF 70 million booked in Q4. We start with an pro forma EBITDA of CHF 4.35 billion. We see on Swisscom Switzerland, CHF 150 million lower EBITDA for the full year 2016. The main drivers on these changes are lower service revenue coming from roaming.
We lost in the first half, CHF 42 million of roaming revenues or margin. We expect slightly higher impact in Q3 and Q4 because of seasonality. July, August, and October are travel-intensive months. We have higher costs, mainly SOC in the second half. Two reasons. We expect the launch of the iPhone 7, and secondly, an ongoing migration from a TV 1.0 to TV 2.0. This will be partly compensated by the CHF 50 million cost-saving program. If you look at the dynamics per quarter, in Q1, we had more or less stable EBITDA development in Switzerland. In Q2, we lost CHF 26 million EBITDA, and you see there we have an accelerating impact. Fastweb will have a growing EBITDA. We change the EBITDA estimates for this extraordinary income from litigation we discussed before. We expect an EBITDA of around CHF 4.25 billion.
I mentioned the reason for the increase of the CapEx guidance from CHF 2.3 billion-CHF 2.4 billion. That means we will deliver a free cash flow proxy of around CHF 1.85 billion for the full year 2016. As we mentioned several times, that means that we will distribute an unchanged dividend of CHF 22.3 per year. With that, I hand over to the operator for the Q&A session.
Ladies and gentlemen, you have now the opportunity to ask questions by dialing star 14 on your telephone keypad. Please push star 14 for questions. I have a first few questions coming up. I'll move to the first one, which is coming from Mathis van Leggehurst.
Yes, good morning, all. Two questions. First, if I look at the Swiss market, can you give some more color on the competitive dynamics in mobile, especially since you launched this new SIM-only proposition in Q2? The second item is on mobile in Italy regarding Fastweb. Given that Iliad most likely will enter the Italian market, what is your long-term strategy on Italy, especially since you were focused on getting some of the remedies from the Wind Tre-Hutchison deal, and you missed out on that one. Can you give some more color on your mobile strategy in Italy?
Okay. Coming to the question, Switzerland, the competitive dynamic in the mobile market. We see promotion-oriented business certainly driven by Salt. Overall, we see stable market shares and still low churn figures. If I look to our churn figures, we are in a very comfortable situation. The take-up of SIM-only in our customer base is quite limited. We introduced SIM-only because there is a small segment which is asking for SIM-only, but the take-up is on a low, moderate level. Italian mobile business in Italy. It's a bit early to say what would be the approach of Iliad in Italy. On the other side, the Italian market in the mobile business is a very competitive market, and it's also a market which is strongly prepaid-oriented.
For Fastweb, it's important to have a mobile offer around our products, our core business, the ultra-broadband business, and that's why we go for a full MVNO. That was always our strategy. We will launch a new mobile offer in the beginning of 2017 on the network of Telecom Italia. We will be much more credible also on the quality side. We look to the remedies of Iliad, of the merging parties, Hutchison and Wind. It was always our message, on a rational way, it must make sense. We think we will be able to be competitive in the Italian market also with MVNO.
Okay, thank you.
I'll move on to the next question coming from Saroop Purewal.
Morning, everybody. I just have a couple of questions on Italy. My first question is your choice of partner in building out fiber. Can you just let me know how your decision was formed choosing TI over Enel, Open Fiber, Enel? The second question is just on your MVNO launch. Can you give us just an update on the Post Office MVNO and the 3.5 million subs there, and your plans to-
Saroop, can you repeat the second part of the question again?
Just an update on the Post Office MVNO and the 3.5 million subs there. Is that something that you still plan to acquire or?
PosteMobile, you mean PosteMobile?
No, no.
Okay. I will start with the first question. That's why do we went for a partnership with TI instead of Enel?
It was always a strategy of Fastweb to own infrastructure. With the partnership of TI, we have an extension to our fiber to the street footprint. We will not only be a wholesale offer, but we have our own infrastructure. We will build out our network in 29 cities and have a more differentiated approach. That was the reason why we decided for the partnership with TI. On the other side, we don't know exactly the plans of Enel. I see also different forms of cooperation with Enel in other areas.
On the end, we are well on track to launch commercially in January 2017 on the TIM network. That gives us access to an own radio access. It's COPA-funded, we can also deliver our own produced services. That's the advantage, the first advantage. The more important advantage is that we can deliver 4G to our customers. That means that we have clear plans to increase our customer base of a half a million subs. We don't disclose the numbers of our plan, but it will be a material increase, and that's mainly because of the superior quality of the TIM network compared to the H3G network, which couldn't deliver 4G services to the customer base.
Okay. Can I just have a follow-on the fiber question? What are your plans in Milan? Because you've excluded them from your joint venture with TI. Could that possibly include a partnership with Enel going forward or?
Milan is excluded-
Yeah
in this partnership with TI. We see a lot of commercial pressure from the competitors on fixed line in Milan. If you look at the number of cities, we can confirm that we have deal arranged to keep our strong market share in Milan will always stay. We will do it on our own.
Yeah. We will continue our partnership with Metroweb in Milan. That's clear.
That's clear. We've been the largest customer of Metroweb in Milan as in the past. We secured these commercial arrangements with Metroweb.
Okay, thanks very much.
All right. We'll move on to the next question coming from Joshua Mills.
Hi there. It's Joshua Mills here. Just a couple of questions. Firstly, related to the improving postpaid net add trends. I wondered if you could give some extra color on where those are coming from. Is it the Swisscom main brand, or have you seen an increase in some of the NATEL budget net additions as well? I think you've given those kind of details in the past. On the second point, I just wanted to check on where exactly these UBB investments are being spent. My understanding is that it's predominantly for fiber to the street, but any kind of additional areas or new technologies which you're focused on would be useful to know about.
Finally, just on the G.fast plans, I think previously you've said that you would be looking to launch the product commercially either at the end of the third quarter or the beginning of the fourth quarter this year. Should we still expect Swiss customers to be getting that G.fast service around that point in time? Thanks very much.
Good. On the mobile net add development in Switzerland, the net adds, we have a stronger momentum on the Swisscom brand. Because also we improved our product portfolio in the lower end of our portfolio, so not Natel light. We have a better momentum on the Swisscom brand. The NATEL budget was approximately stable. The improvement is coming from the Swisscom brand. On G.fast, it's still our plan to deploy G.fast at the end of this year.
On the CapEx, Mario maybe.
The composition of the CapEx in Switzerland, I would say, was more in general unchanged compared to prior year, except that we have a higher CapEx in fiber. We invested CHF 250 million in fiber, which is CHF 37 million more than in prior year. If you look at the composition of the CHF 250 million, we invest around CHF 100 million in fiber to the home, what I explained before, the reason I explained before. Around CHF 150 million to FTTS, fiber to the street. This composition will in future increase in favor of fiber to the street. The investment in the mobile network were more or less stable compared to prior year, and also in projects.
That's very clear. Could I just ask one follow-up, which is when you have conversations with the regulator and also with the government about your broadband upgrade plans, do they have a preference for one technology over another, or are they technology neutral? Just be interesting to hear the Swiss perspective, given some of the broader regulatory discussions around that topic.
laws. The regulator is quite neutral on this different technology. Regulator is interested in having an excellent modern network. That's why he's supporting the development of 4G and 5G. On fixed, it's still under the actual law. It's only the copper line regulated. We have now this discussion about changing the regulation environment. There are now consultations. We'll have maybe in Q4 first discussions in the parliament. For the Swiss regulators, as Urs mentioned, all is important that we have a dynamic which allows investment security for the operator who invests, which gives a good performance on the Swiss network. We are confident that discussion in the parliament will be going in decent changes of the telecommunication there.
Thank you.
All right. The next question coming from James Retz here.
Yes. Good morning, everybody. Thank you very much. First question I had is just regarding your costs in Switzerland. On slide 27, you show how your costs have developed year-over-year, and the biggest change actually seems to be in your roaming out payments. As you were saying, data volumes have more than doubled. I was wondering if you could give us some comfort or guidance on how that kind of cost line item might continue to develop as roaming volumes presumably continue to grow. Will that put further pressure on your margins in Switzerland, or is that offset by rising wholesale revenues? I know you'd mentioned on the previous slide that your wholesale performance had improved because of incoming roaming volumes. The second question I had was regarding Italy.
Firstly, a quick follow-up, you mentioned on an earlier question you could cooperate with NL in other areas. Could you give us a bit more color on that, what you meant by that? Secondly, your consumer ARPU in Italy was down around 3% year-over-year. How do you see that ARPU trend developing for the rest of the year, given competition in Italy at the moment? Thank you.
Could maybe on the cost, Mario.
On roaming, yes, we have a higher data volume, more than doubled, but you also have declining prices. As you mentioned correctly, you have to look at it together with the inbound roaming because these contracts include all this outbound and inbound. I would estimate that more or less the impact is neutral as we saw it in Q2. The impacts of higher out payments more or less compensated by the impact of higher inbound roaming. On the partnership or cooperation formed with NL. There will be areas in Italy where we don't have an own ultra-broadband network, and in such regions there are win-win situations for both. There we can imagine a cooperation with NL. On the ARPU development in Italy, we will have a slightly, let's say, pressure on our ARPU.
We can also increase our ARPU. If I look to our acquisition mix in the areas where we have ultra-broadband connections, we are able to increase our ARPU and decrease our churn. Our main ambition must be to penetrate the ultra-broadband amount of customers, and then we will have a better dynamic on churn and ARPU. Also on net adds. If I look to the net add development in the beginning of the second half year, we have a good one. In the second quarter, it was a bit lower because we didn't push so fast the outbound calls also to get a better churn mix. Overall, I am positive for Italy.
You think that ARPU trend of minus 3% could be slightly better in the second half?
I would say, yeah.
Great. Thank you.
Next question is coming from Jakob Bluestone. I'll open up.
Hi. Good morning. I've got a couple questions, please. Firstly, just staying on Italy, could you perhaps elaborate a little bit more on what are the wholesale terms that you'll actually pay for renting an FTTH line from the joint venture? Maybe if you could explain a little bit how that rate is set so we can model out what the impact will be on OpEx as you migrate customers over to FTTH. Secondly, can you perhaps give a little bit more guidance on what sort of roaming impacts you expect later in the year? You said they'll increase, but also that things are developing as you'd expected. Perhaps if you can quantify how big a roaming effect we should be looking for in Q3 and Q4. Maybe just a final question.
In your outlook slide, you talk about higher SAC in the second half of the year. Is that mostly referring to the iPhone or are there other impacts that you're looking for? Thank you.
Good. On the commercial wholesale terms of our JV with TI, we don't disclose them. Actually, it's a joint venture, so we will have more flexibility in pricing. On the Swiss market, on the SACs. The SACs are going up in the second half year because of iPhone 7 and because of a migration from our TV1 product to the TV2 product. These are the main assumptions behind the SAC increase.
On roaming, Mario.
In the first half, we lost CHF 42 million matches, for the second half, I expect a 15%-10% higher loss. That has to do with something seasonal in July. August to November, we have a lot of people traveling outside of Switzerland.
Thank you very much.
Right. Next question is coming from Maurice Patrick.
Hi, it's Maurice from Barclays. On your RGU development in Switzerland, you were running at 40,000, 50,000 quarterly additions the last few years. It's now declining at 10,000, 15,000 per quarter the last couple of quarters. It seems like you've got a combination of greater one-play losses and less bundling taking place. Just your thoughts on the extent to which you can still increase bundling. You talk about saturation of bundling, I think, in some areas, but the extent to which you can grow RGUs in the future would be helpful. Just on the bundling point, you made the point that mobile is low at 16%, TV and broadband much higher. Just wonder where you thought mobile could end up longer term in terms of how bundled it could be. Thank you.
Good. A big picture on the revenue-generating development. We will have a continuing positive development on TV, on broadband, on mobile, more stable, and fixed voice will decline also in the future. This will lead overall to more stable development on the revenue-generating units. We will be able to increase our RGU in bundles. From this, I'm convinced, and you can see that we had also in the second quarter a good development on the RGU of our bundling business. On the penetration on mobile, we have a prudent approach on making four-play bundles. The big momentum today is on triple-play bundles, and that's good. On mobile, as long as we have a good dynamic on mobile and very low churn figures, we are not actually incentivized to push the mobile penetration because this will actually lead to an ARPU reduction.
You see on page 36 in the backup that for the first quarters, we increased the RGUs in quad-play by 15% without pushing mobile customers to quad-play. That means over time, we will see an increase in quad-play, but with a limited impact on the ARPU, as Urs mentioned.
Got it. Thank you.
I got the next question from Andrew Hugley. I'll open it.
Hi. Good morning. It's Andrew from Mirabaud. Looking at the wholesale trends in Switzerland, it seems there's been a real turn over the last two or three quarters, and that the number of wholesale lines is starting to grow. Wonder if you could give some color behind that. And I wonder if you have any comments on UPC and its mobile strategy. Numbers are still very low, but they still seem quite committed to that. Are you seeing any impact at all yet?
I first start with the UPC mobile business. What we see is that UPC gained traction in the first half year because, in my view, of two reasons. They extended their retail channels. They are selling now through mobilezone. Second, they had a very aggressive offer in the beginning of this year. Still, the figures are on a low level. If I look to our outportings and importings to UPC
I'm still in a very comfortable situation. I think UPC will be able to increase their mobile business, but more on a low-end customer segment. On the wholesale line, first of all, I think that the wholesale contract with our wholesale customer Sunrise works for them. We don't see, let's say, a retail impact on that on our side. Sunrise has a good performance against the cable operator or other operators. Secondly, we are actively migrating CPS, carrier pre-selection customers which still have the line with us to Sunrise. That's an agreement between Sunrise and Swisscom, that we actively migrate these customers because these customers decided years ago to have a relationship with Sunrise, just kept the line with us. It only makes sense that we migrate these customers also in the light of the All IP migration.
Thank you.
Next question is coming from Vikrum Karanai. I'll open up.
Hi, thank you. I have got a few questions. Firstly, on the dynamics that you are seeing in the domestic business segment currently. You highlighted in the presentation that competition has actually intensified. Have you seen any additional impact in Q2, or was it the ongoing pressure you are talking about? At the same time, your net adds in enterprise was actually back to positive in Q2. I was wondering, have you increased any SACs in the particular segment as well? Secondly, on the CapEx outlook medium term, can I check if the domestic CapEx can actually moderately come down at all in the medium term? Because your plans earlier this year, you highlighted, was not to deploy fiber to the home beyond 30% of the households. You were looking to expand in other regions by the cheaper FTTS and VDSL vectoring. Thank you.
On the competition in the enterprise business, corporate business, your first question. We see stable market shares in the B2B business. We have on the ICT business a strong order intake. The B2B business is under price pressure mainly of two reasons. The companies are under pressure in Switzerland, under cost pressure because also of the foreign exchange rate. The whole ICT business is under price pressure. The second thing, we see a limited attack of Sunrise in the mobile business, but without gaining market share at the end in the mobile business. That's the bit more competitive environment we have in the enterprise business. I am very confident that with the project portfolio we have, that we will be stronger and that we will defend our market share in the enterprise business. On the Swiss CapEx expectations.
We see the necessity to invest further in fiber to the street. As Urs mentioned at the beginning, we have to go by to cover 85% of homes and businesses by the year 2020 with 100 megabits or more. That means that for the next three years, we would expect Swiss CapEx flattish at around CHF 1.8 billion per year. On FTTH, as I mentioned, we will still have some investments in FTTH. Not new systems, but these systems is changed. You have some construction activities, you need to invest in verticals whenever we have new customers. Midterm three years, no material decrease of CapEx in Switzerland.
What about, sorry, just to follow up on that CapEx point. What about Fastweb? That was expected to slightly come down in the medium term. Is that the case still?
In the medium term, I would say it can slightly come down, but from the overall point of view, it's not material. Until 2020, we are building out our network to 50% ultra-broadband coverage, so the CapEx will not come down.
Okay, that's clear. Thank you.
I got a next question from Georgios Ierodiaconou.
Yes. I've got a couple of questions on the Telecom Italia-Fastweb JV. First of all, I think Jakob asked the question earlier. I was just wondering whether the economics will be dramatically different than the sub-loop unbundling arrangement that you had before. When we look at Fastweb's margins, should we still expect that if you go from ADSL to this kind of product, there will be some margin improvement in the process? The second element is around the wholesale arrangement. I believe you are allowed to offer wholesale services as part of the agreement. I was wondering whether you see a market for that, given, A, where the pricing is right now on the regulated prices of TI. Secondly, given that Vodafone and Wind have signed an agreement with Enel.
My second question is around the enterprise segment, and I think you kind of answered it earlier, Urs, but I just wanted to make sure. From what I understand, the pricing dynamics have remained competitive. Does that mean that the repricing is more or less done, so most of the contracts have already been renewed, and we're now waiting for the comps to get easier? Are you still seeing incremental cuts to the contract agreements even at this point? Thank you.
On first I go to enterprise, then Mario goes for this wholesale margin topic. The enterprise business, there are a lot of different segments in the enterprise. In the ICT business, we will have a continuing pressure on the price. On the other side, and that's a positive thing, we have also an increasing business. Overall, the ICT business is a competitive one, but also one which overall stable margin, because we will have new business in the ICT business. On mobile, the main impact, what we see in the first half-year on mobile is driven by three factors. Factor number 1 is this airtime fee, and this will be off because it was an impact in the second half-year last year. The second impact on mobile is roaming, and this will also midterm declining the negative impact on roaming.
We have the competitive dynamic in the mobile business. I think this will continue, because I don't think that Sunrise will stop to try to get customers. Overall, let's say less decline, but it will remain competitive, the enterprise business. On wholesale?
On the wholesale, TIM and Fastweb both are allowed to do wholesale in this area, but not the new company will do wholesale, will be TIM or Fastweb. That means we already today we have a material wholesale business with Fastweb. That means also in the future, we will have chances to get customers in these business for wholesale services, and mainly also for connecting BTS. On the margin, it's a change from the sub-loop on cabinet level to the sub-loop on street level. That means we will have slightly lower margins in this area. Slightly lower margin.
Also high revenue.
High revenue from lower CapEx.
Yeah.
Thank you.
All right, I got a next question from Fred Boulan.
Hi, Fred Boulan from Bank of America. Thanks for taking the question. Firstly, I'd just like to come back on the comments you made on the enterprise side. Some positive message in the long term in terms of products you could sell in terms of cloud, IT, et cetera. Can you help us in terms of potential market size, market share, potential you've identified, and when we could see that flowing through and delivering growth in the enterprise segment? Secondly, if we can come back on Italy, if you could share with us a bit more details on the reasons to pass on the opportunity to go for network solution, what the main hurdles were related to networks, coverage, et cetera. The follow-up on the previous question on the JV.
I know you don't want to say too much in terms of economics, but just to understand the way it works. The JV, you will sell access to the different partners in TI and yourselves. You will both generate revenues, generate cost base. You could help us a little bit in terms of overall model to drive profitability for those customers. Thank you very much.
Well, on the enterprise business. The enterprise business is in a transformation. Today, in the ICT business, we are a strong outsourcer for, let's say, for banks, for industrial companies. They outsource the ICT business to Swisscom. Now there is a transformation ongoing. That means a transformation in the cloud. Cloud business will grow, and Swisscom is in a good position for it. On the other side, cloud business will be also a substitution of the outsourcing business. Not all of the cloud business will be on top business. On the other side, we will be able to increase our share of wallet in the ICT business. That's why I think we will be able to increase our market share in Switzerland. Cloud business will not all will be on top. A part of it will be also substitution.
On the JV, It's a legal entity where Fastweb will own 20%. The equity injection, as described, will be CHF 55 million. The remaining part will be financed through third parties. We have no obligation to finance or to guarantee any of this debt in this company. This company will wholesale or to be invested, then wholesale on a pay-per-use basis to Telecom Italia and to Fastweb. That means we will have Fastweb cost of goods sold, and in the same amount, we will have revenues at this new entity. The numbers, they will develop over time in line with the deployment of the fiber. We will start now with the planning in Q3, Q4, how this rollout will work. It will also depend a bit on the competitive dynamics, how the NL rollout will develop.
To model it right now, it will be quite difficult. We will need to have more color on the rollout in Q3, Q4. We didn't get exactly the first question. We had some problem with the connection.
The other point was on, just to come back on previous question on the remedies. If you could comment a bit more specifically on why you decided to pass on the opportunity.
The Italian mobile market is a very competitive market. I think you need a good remedy package with a good risk opportunity profile to really enter the Italian mobile market. We looked to these remedies, and we had an idea what remedies would be fine for us. Now we will always behave rational in this mobile business. Now I'm looking forward to see how the European Commission will decide. It's not yet decided, I think the likelihood that the deal is going in the direction of Iliad is much bigger than it will go to Fastweb. We will have a good offer on the mobile side, which fits in the strategy where the core is also broadband business fixed or Fastweb.
Thank you very much.
Operator, perhaps a very last question before we get to an end.
Okay. Well, that's the last question. It's coming from Usman Ghazi.
Great. Thank you, guys. I have a few questions. Feel free to cut me off if we're running short of time. The first question I just had on the CapEx outlook. When we're looking out to 2018 now, should we be considering CHF 2.4 billion as a better range to be looking at? Just related to that CapEx question, you mentioned today that you seem to be gaining share in multi-dwelling units, probably at the expense of cable, which is why you're building more vertical fiber. I just wanted to confirm that. The second question I had was on the Swiss utility fiber build. At least from the outside, it seems that the utilities seem to be increasingly interested in monetizing that investment. Is there any chance in you striking deals with the utilities to buy out their fiber networks?
My third question was just on the Infinity 2.0 migrations. As at Q2, we've had 19% of the subscribers migrated into Infinity 2.0. What do you think this figure could look like by the year-end? Do you expect all of your customers to have moved in by the year-end, or is that too aggressive? Thank you.
Could I start with more the commercial question, Mario will go then to the CapEx outlook. The fiber-to-the-home in Switzerland. In areas where we have fiber-to-the-home, we see that we can increase our market share and also our ARPU. The market shares are mainly coming from the cable operators. That's the dynamic we have in the fiber-to-the-home footprint. If a utility rollout its network, in the most cases, we are partner of them. We're doing a shared rollout where they have some fibers and we have some fibers. It wouldn't make sense for Swisscom to go on their network because we have our own network in this footprint. We are cooperating with them.
Just on that, does it not make sense? Because if you don't take them out, if they want to monetize that investment, the alternative left for them is to be very aggressive on wholesale pricing.
Yeah. They could do wholesaling. On the other side, they have also to monetize their investments.
Up to now, we don't see very aggressive offers from the utilities. There could be wholesale customers for them. There are other players in Switzerland who could rent their network. On Natel infinity penetration 2.0, it will increase, but not 100% will be on Natel infinity 2.0 at the end of this year, but it will increase. That's also one of the reason why we will have some pressure on the roaming in the next months.
On CapEx, we don't disclose officially new CapEx guidance during the year for 2018. As we discussed right before with Swisscom, in Switzerland, we see a flat development at around CHF 1.8 billion, more or less, then stable or slightly decreasing in France. That also depending now on all the rollout plans and the impact of the JV. Maybe one additional remark on the cities and the cable operators. You saw the numbers of UPC. They lost broadband connections last quarter, and we added 10,000, and we assume that we gained these connections from the cable operators.
Okay. Thank you. If I could just have one follow-up. I think my question on with the utility fiber build probably wasn't understood. I understand that the utilities can gain wholesale customers to monetize their investment. You have spoken in the past that maybe the utilities just dump fiber pricing because they're not winning any customers. To prevent that risk from happening, does it not make sense for you to just buy out the utility fiber networks where they are willing to sell?
Yeah. First, they are not willing to sell today. Second point, it's not the case, we don't have to take a decision today. On the other side, it's our strategy to leave space to the utilities in the wholesale market also. There could be Salt as a customer, there could be other ones who use the network.
You see different dynamics in cities. You see some cities where they are quite successful. Where I think they have a strong business case behind that, you have other cities where nothing happens. It really depends on the local management of the utilities.
Thank you very much.
Okay. Well, thank you, operator. Thank you to everybody. With that, we would like to conclude today's presentation. Thank you again for your participation. If you should have any further questions, please don't hesitate to contact us from the IR team. Thank you and have a great day. Bye-bye.
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