Good morning, ladies and gentlemen, and welcome to the Systcom Health Year Results twenty sixteen with Urs Szczepi, Mario Rossi and Louis Schmid. Louis, the floor is yours.
Good morning, ladies and gentlemen, and welcome to Swisscom's half year results presentation. My name is Louis Schmid, Head of Investor Relations. And with me are our CEO, Urs Schuppi 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 for 2016 and finally, some explanation on our operations, both in Switzerland and Italy.
In the second part
of the presentation, Mario will run 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 on year. Thirdly, positive is also the development of our mobile net adds in Q2, and we have stable market share in the mobile market. On bundling, we have a good growth, still growing bundling business, and we have solid market shares in the fixed line business.
The rollout of our networks, we are on track. Actually, we have 3,300,000 households, which have a bandwidth over 50 megabits per second, so ultra broadband coverage. And also, fastweb is well on track. Overall, we have a slightly up change in our guidance, so stable revenue. EBITDA slightly up to EUR 4,250,000,000.00, mainly because of exceptionals and CapEx on EUR €2,400,000,000 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. So we have overall a stable revenue generating units, strong momentum in TV, where we were able to grow by 13%. And also in broadband, the growth, a more saturated business in the mobile market and a declining business in the fixed telephony business. So overall, stable RGUs with a good momentum on TV and broadband. Italy has grown on the ARPUs, as you can see it on the bottom of the chart.
If we go on Slide six, some remarks to our financials. So a stable revenue and increasing margin. Revenue is up by 0.2%. The EBITDA increased by 4.4%. But there is also this exceptional from TI in it.
But also without this one off, we would have a slightly increased EBITDA. So 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. And if we go to Slide nine,
you can see what we have done in our core business to differentiate ourselves through quality. So 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 3,300,000 households on ultra broadband coverage. Our goal for 2020 is to have 85 of our of the households in Switzerland on the ultra broadband network. That means bandwidth above 100 megabits per second.
Also, on the four gs 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 five gs pilots in Switzerland to see what could be the potential of this technology. We improved our Infinity two point zero offering, included more speed, included more roaming and also some cloud services. And this is also the one of the reasons why we have still a good momentum on Infinity and also a solid situation with our Infinity customer base.
We launched our ultra high definition TV box in the first half year and with a good acceptance in the market.
So
overall, strong positioning on our product and network side. If you go on Slide 10, some remarks to our operational excellence program. So we are on track according our targets and also our savings. Our goal from this year is to save €50,000,000 costs, and we are here well on track. We make consolidation of our call center sites from 14 to eight.
We are streamlining processes and also simplifying our product portfolio. Also on our OIP, 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 in the last weeks, we will increase our fiber to the home footprint from €2,000,000 to €5,000,000 in the year 2020. So overall, we will have an ultra broadband footprint in Italy by 13,000,000 and the composition is 13,000,000 to the street and €5,000,000.5000000 to the home. So 50% of Italy is covered by a fast track 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: commercial pillar where we upgrade our existing fiber to the home footprint of Farfetch and second, where Telecom Italia will get access to some fiber networks of faster.
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. So we have really, we are building only of fiber to the street, fiber to the whole network. So it's in full alliance with our fiber to the street plans. And the company will build in 29 cities.
So that means 3,000,000 households which will be connected with fiber to the home. Swisscom has an equity stake of 20%, and our capital injection will be EUR 55,000,000 in four years. So no change on our CapEx guidance, but we will be able to accelerate rollout of fiber to the fleet and use synergies with Telecom Italia. On the other side, we will sell our stake in MetroWest, where we get a cash of €80,000,000 If we jump to Slide 13, you will see the idea of our mobile plans in Italy. We plan to launch a new offering in the mobile business in January 2017.
And the main pillar of this offering is or the approach is a full MVNO approach on the network of Telecom Italia. So we get access to four gs networks, and we will be able to make also converged offering with the fast track product portfolio. So a stronger proposition
in the
mobile market will be in place in the beginning of twenty seventeen. If we turn to Slide 14, you see some information about our enterprise business. So digitalization is running, and this is a chance for our enterprise solutions business. With ICT Solutions, we will be able to leverage our customer base, corporate customer base. We will be able to sell more cloud products.
We had in the last month, NICE wins in the cloud business. And we will have or we have an offering in the cloud business of Infrastructure as a Service and Platform as a Service product. 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 business. So overall, midlong term, our Enterprise business has growth potential, certainly, in the Solutions business.
If we go to Slide 15, some remarks to the transformation to IP. In the first half year, we migrated 200,000 connections to All IP. As already mentioned, 60 over 60% of the transformations are completed. Overall, we have 1,300,000 households who are on All IP. So we are on track with our plans, and cost savings will come recurring cost savings will come from 2018 onwards.
Some information on our operations. Slide 17 shows you our revenue dynamic. We have, from 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.
And the main impact of this minus €46,000,000 service revenue is the roaming impact from our new tariffs, from also Nacelle Infinity, where we have more included roaming units. And this leads to a lower, let's say, 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 roaming tariff, and this leads to this slightly declining service revenue in the second quarter twenty sixteen. On the other side, increasing solution revenues, up by EUR 20,000,000, so a good message.
And then a good dynamic in Italy so that overall, the revenue is stable. On Slide 18, you see some trends on the different product areas. If you take mobile stand alone, we have a declining revenue due to rolling price pressure and price pressure in the corporate business. The revenue generating units are stable. Fixed business, a slightly other dynamic, also declining OnePlay revenues, but the prices are unchanged.
On the other side, we have a decreasing amount of voice access, and this is the reason of declining OneClay's business. Strong momentum in bundle, still strong revenue growth on bundle on the bundle business. So the impact of roaming overall, which is a major dynamic in the first half year, is minus €42,000,000 only from Rolling. On Slide 19, you see some information on our wireless business. So 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 plans where roaming is included. Overall, 70% of our postpaid customers have an Infinity product, and 68% of our revenue generating units are postpaid subscription. So that shows that we have a strong postpaid business in Switzerland. Page 20, some information about our wireline KPIs. So quite mixed dynamic, a positive dynamic on broadband and TV, negative dynamic on voice telephony, but stable ARPUs.
And it's also interesting to see the penetration of the different products. TV, as an example, has about has in the region of 70% penetration on our retail broadband footprint. And our fixed revenue generating units in bundles are 66%. So strong momentum on the bundled business. Bundling KPIs, you see on Page 21.
So the ARPU development of the bundled business is slightly, slightly declining due to roaming impact, due to the fixed voice business and to the to a loyalty discount for 4P, which on the other side leads to lower churn and higher ARPU penetration. On the right side, some information about penetration of the different projects in the bundles. Just as an example, TV has a penetration of 92% and broadband 77%. So 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. And the main reason behind it is roaming. So from this CHF 36,000,000 decline is 26,000,000 is coming from roaming. And roaming, we will have also in the second half year some impact from roaming. But as I mentioned it before already, today, a lot of customers are in this new roaming tariff.
So midterm, the roaming impact Fastweb on Page 23. Good momentum on the customer base, primarily and also on the revenue side in each segment, in each market segment, we were able to grow. So a good first half year in Italy. On the top line and customer base, on Page 24, you see the financial performance of Fastweb, solid, good performance.
The EBITDA on an industrial base, that means without the exception from this TI litigation, is increasing by strong 8%, so increasing EBITDA. And we have a free cash flow of EUR67 million. So now I would like to hand over to Mario, which gives you some information about the financials. Thank you, and also 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 stand at €5,760,000,000 We have only minor impacts from M and A and foreign exchange rates. Overall, we can say the decline in the Swiss service revenue of €46,000,000 was practically compensated by increase of Solutions revenue at VENS, euros 20,000,000 and growth in Italy of €17,000,000 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 €17,000,000 There we see an increased impact from roaming.
In Q1, we had minus €9,000,000 impact in Q2, minus €16,000,000 In Q2, despite the roaming excluding the roaming impact and the impact of the line loss in fixed line in fixed voice, revenues were flat year over year, and 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 €7,000,000 in Q2 by €10,000,000 and then we had still this air fee impact of €5,000,000 in each quarter. This impact will not be any more after Q3 twenty sixteen. But anyway, in Enterprise, in Q2, net of roaming, we had 5,000,000 more revenue decline in Q2 than in Q1. And the reason is price discount, price pressure in the mobile business.
On wholesale, we lost in Q1 €30,000,000 of revenue. In Q2, we decreased revenues by 6,000,000 That's a positive impact from inbound roaming. Then Urs mentioned already the good performance of the Italian business. I think it's a good performance. We added in Q2 a €6,000,000 net revenues.
It's lower than Q1 because we had less hardware revenues in the Enterprise segment in Q2. A few words on Page 27 on OpEx and operational excellence. The direct costs, Sarkasso, in Q2 increased by CHF 9,000,000. There are two reasons. We are subsidizing TV boxes when customers are migrating from the Swisscom TV platform one point zero to two point zero.
And then we have higher retention volumes in mobile, which is a good thing. Customers signed in this case, these customers signed again a contract with Swisscom for another twenty four months, and that shows also that Swisscom customers still appreciate the subsidized handsets. On the indirect costs, the FTA reduction is on track, approximately 300 bps less than prior year. And also, we are well on track to deliver our €50,000,000 savings in 2016. Just to remind you, we expect another €75,000,000 in 2017, and then in the following three years, an additional €60,000,000 each year.
In Q1, we had extremely low maintenance and repair costs due to seasonality. That's the reason why we had this EUR 13,000,000 reduction in Q1 and, let's say, more or less flat development in Q2. The EBITDA breakdown by segment is on Page 28. The Residential Life and E segment, after a strong Q1, with a EUR 30,000,000 increase of EBITDA we see now in Q2, a CHF70 million decrease. Two reasons or three reasons, impact of the service revenue decline of CHF70 million and the higher COGS and SRC, I mentioned before, of CHF9 million.
Then 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 €2,000,000 In Q1, it was €9,000,000 In enterprise, we see the impact of the decline of service revenue. And 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 200,000,000.
The exceptionals, it's the income, the onetime income from litigation is TI we settled. It's CHF 55,000,000 was settled in Q2, and we had also the cash impact in June 2016. Coming to the net income. EBITDA stands at €2,200,000,000 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, and you see the details about the debt position in the back up on Page 49. A slight increase on net income of €5,000,000 and net income stands at €780,000,000 mid year. Few words on CapEx. On Slide 30, we see an increase of 4.5% to around EUR 1,100,000,000.0 for the first half year.
In Switzerland, 29% go to fiber to the home and fiber to the street, approximately CHF $250,000,000. A few words on fiber to the home, we are not extending the fiber to the home footprint. But there are some reasons why we still have investments in fiber to the home. First of all, then we have an increase in buildings in cities where we already invested in Cyber to Beyond. Of course, we use the same technology, a.
And b, when we have new customers, we need to invest in the verticals. And we are in a multi apartment building, only one customer, of course, then 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. Then we have a good taste on the fiber to the fleet rollout. We are ahead of plan, and that's also the reason why we increased the CapEx forecast slightly from €2,300,000,000 to 2,400,000,000.0 It would not make sense from an economic point of view to stop this good pace, this good rollout.
In Italy, we invested EUR 47,000,000 in the FTTH expansion. Last year was EUR 40,000,000. The operating free cash flow increased by CHF 43,000,000 to CHF $788,000,000 on Page 31. So despite the payment of the sanction or the 87,000,000, if you remember, in Q1 of one hundred and eighty six million euros and we are able to increase the free cash flow development. We felt the benefit from the positive impact of EBITDA, which includes the litigation and the payment of the Perfento and Telekom Italia of €55,000,000 Finally, few words on the guidance.
Just to make the results comparable, you need to adjust the twenty fifteen EBITDA for two items. It's the sanction we booked in Q3 of €186,000,000 and the provision for restructuring of €70,000,000 booked in Q4. So we start with an EBITDA, pro form a EBITDA of EUR 4,350,000,000.00. We see on fiscal Switzerland EUR 150,000,000 lower EBITDA for the full year 2016. The main drivers of these changes are lower service revenue coming from Roving.
We lost in Q in the first half EUR 42,000,000 of Roving revenues or margin. We expect slightly higher impact in Q3 and Q4 because of seasonality. July, August and October are travel intensive months. Then we have higher costs, mainly SoC in the second half. Two reasons: we expect the launch of the iPhone seven In fact, there's an ongoing migration from TV one point zero to TV two point zero.
This will be partly compensated by the CHF 50,000,000 cost saving program. And 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 26,000,000 EBITDA, and you see there, we have kind of an accelerating impact. Fastest will have a growing EBITDA, and then we changed the EBITDA estimate for this extraordinary income from litigation we discussed before. So we expect an EBITDA of around EUR 4,250,000,000.00.
I mentioned the increase and the reason for the increase of the CapEx guidance from 2,400,000,000.0 to $23,000,000,000 to €2,400,000,000 That means we will deliver a free cash flow proxy of around €1,850,000,000 for the full year 2016. And as we mentioned several times, that means that we will distribute an unchanged dividend of €0.23 per year. And with that, I hand over to the operator for the Q
A
I have a first few questions coming up. I'll move to the first one, which is coming from Matthijs van Leghenhorst.
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 Italy will most likely will enter the Italian market, what is in your view a long term what is your long term strategy on Italy, especially since you were focused on getting some of the remedies from the Wynn Hutchinson 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 in Switzerland, the competitive dynamic in the mobile market. So we see promotion oriented business certainly driven by salt. But overall, we see stable market shares and still low churn figures. If I look to our churn figures, we are in a very comfortable way, 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 a low moderate level. Italy 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 to 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. And we will launch a new mobile offer in the 2017 on the network of telecom Italia.
So we will be much more credible also on the quality side. We look to the remedies of Iliad, of the emerging parties, Chitin Wind. But this was always our message on a rational way. It must make sense. So 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 Sareep Pirval.
Morning, everybody. I just have a couple of questions on Italy. So my first question is your choice of partner in building out fiber. So can you just let me know what your decision and how your decision is formed choosing PI over an o open by that email. Then the second question is just on your MVNO launch.
And can you give us just an update on the post office MVNO and the 3,500,000 subs there and your plan to
Sarah, can repeat the second part of the question again?
So just your an update on the post office MVNO and the 3,500,000 subs there. Is that something that you still plan to acquire?
Post mobile, you mean post mobile? Okay. I will start with the first question. And that's why do we went for a partnership with TI instead of Enel? So it was always a strategy of Fastweb to own infrastructure.
And with the partnership of TI, we have an extension to our fiber to the street footprint. And we will not only be a wholesale offer, but we have our own infrastructure. And so we will build out our network in 29 cities and have a more differentiated approach. And that was the reason why we decided for the partnership TI. On the other side, we don't know exactly the plans of Enel, but I see also different forms of cooperation with Enel in other areas.
And on the MVNO, we are well on track to launch commercially in January 2017 on the TIM network, and that gives us access to a low radio access, the core platforms, etcetera. We can also deliver all produced services. That's the advantage, the first advantage. And the more important advantage is that we can deliver four gs to our customers. That means that we have clear plans to increase our customer base of 500,000 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 T network compared to the HUBs network, which couldn't deliver four gs services to the customer base.
Okay. Can I just have a follow on on the fiber question? What are your plans in Milan? Because you've excluded them from your kind of joint venture with TI. Could that possibly include a partnership with Enel going forward?
So Milan is exclusive in the partnership with ETI. And we see a lot of commercial pressure from the competitors on fixed line in Milan. But if you look at the number of facilities, we can confirm that it has been arranged to keep our strong market share in Milan or all these statements. And we will do it with our own. And we will continue our partnership with MetroWest in Milan.
That's clear. That's clear. But we've been the largest customer of MetroWest in Milan, as in the past. We secured these commercial arrangements with Metrohead.
Thanks very much.
All right. We'll move on to the next question coming from Mills Joshua.
Hi there, it's Joshua Mills here. Just a
couple of
questions. Firstly, to the improving postpaid net add trends. I wondered if you could give a kind of some extra color on where those are coming from. Is it swisscom main brand? Or have you seen an increase in some of the end budget net additions as well?
I think you've given those kind of details in the past. And on the second point, I just wanted to check on where exactly these UVB investments are being spent. So my understanding is that is 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? And then finally, just on the GFAST 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 GFAS service around that point in time? Thanks very much.
So on the mobile net adds development in Switzerland, the net adds are or we have a stronger momentum on the Swisscom brand because also we improved our product portfolio in the lower end of our portfolio, so an up delight. And so we have a better momentum on the Swisscom brand. The dam budget was approximately stable. So the improvement is coming from the Swisscom brand. On G.
Fast, it's still our plan to give to deploy G. Fast at the end of this year. And on CapEx, Mario, maybe The composition of the CapEx in Brazil, I would say, was, in general, unchanged compared to prior year, except that we have higher CapEx in fiber. So we invested €250,000,000 in fiber, which is €37,000,000 more than in prior year. And if you look at the composition of this €250,000,000 we invest around CHF100 million in fiber to the home, what I explained before, the reason that I explained it before, and around CHF150 million to have the fiber to the screen.
That's this conversation in the future will increase in favor of fiber to the street. And the investments in the mobile network were more or less stable compared to prior year and also in projects.
That's very good. But can 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 interested to hear the Swiss perspective given some of the broader regulatory discussions around that topic.
No, the regulator is quite neutral on this different technology. Regulators are interested in having an excellent modern network, and that's why it's supporting the development of four gs and five gs. And on fixed, it's only it's still under the actual law. It's only the top line regulated. And we have now this discussion about changing the regulation environment, but there are now conversations in the end maybe in Q4 first discussion in the parliament.
But the Swiss regulator, 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 fixed network. So we are confident that discussions in the parliament will be going in decent changes of the telecommunication there.
You.
All right. Next question coming from James Ratzier.
Yes. Good morning, everybody. Thank you very much. First question I had is just regarding your costs in Switzerland. So on Slide 27, you
show how
your costs have developed year on year. And the biggest change actually seems to be in your roaming out payments as you're saying data volumes have more than doubled. I was wondering if you could then give us some comfort, or guidance on how that kind of cost line item might continue to develop as I mean 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.
And then 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? And secondly, your consumer ARPU in Italy was down around 3% year on year.
How do you see that ARPU trend developing for the rest of the year given competition in Italy at the moment?
But maybe on the cost, Mario, On roaming, yes, we have higher data volume, more than doubled, but we also have a decline in prices. And as you mentioned correctly, you have to look at it together with the inbound rolling because these contracts are always or include always outbound and inbound. And I would guess, I would estimate that more or less the impact is neutral as we before it in Q2. The impact of higher outpayments more or less compensated by the impact of higher inbound roaming. On the partnership or cooperation forms with Enel.
So there will be areas in Italy where we don't have an old ultra broadband network. And in such regions, we there are win win situations for both. So there, we can imagine a cooperation with Enel. And on the ARPU development in Italy, we will have a slightly, let's say, pressure on our ARPU, but 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.
So 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. And also on net adds. And if I look to net adds development in the beginning of the second half year, it's we have a good one. And in the second quarter, it was more a bit lower because we didn't push so fast the outbound calls also to get a better churn mix. So overall, I'm positive for Italy.
So you think that ARPU trend of minus 3% could be slightly better in the second half?
I would say,
Great. Thank you.
Next question is coming from Jacob Bluestone. I'll open up.
Hi, good morning. I've got a couple of 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? So maybe if you could explain a little bit how that rate is set and so we can sort of model out what the impact will be on OpEx as you migrate customers over
to
FTTH? And then 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 sort of developing as you'd expected. So perhaps if you can quantify how big a roaming effect we should be looking for in Q3 and Q4? And then maybe just a final question.
In your outlook slide, you talked 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?
Good. On the commercial wholesale terms of our JV, we still don't disclose them. And actually, it's a joint venture. So we will have more flexibility in pricing. And on the Swiss market, on the stocks.
The stocks are going up in the second half year because of iPhone seven and because of migration from our TV one product to the TV two product. That's these are the main assumption behind the SARC increase. And on roaming, Mario? I mean, first half, we lost CHF 42,000,000 margin. And for the second half, I expect a 15% to 20% higher loss that has to do with something seasonality in July, August and October, we have a lot of people on Friday, on Thursday.
Thank you very much.
All right. Next question is coming from Patrick Morris.
Yes. Hi, it's Morris from Barclays. So on your RGU development in Switzerland, you were running at sort of 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 a greater one play losses and less bundling taking place.
So 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 will be helpful. And just on the bundling point, I mean, 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.
So the big picture on the revenue generating development. So we have we will have a continuing positive development on TV, on broadband, on mobile, more stable. And fixed voice will decline also in the future, and this will lead overall to not a to more stable development on the revenue generating units. But we will be able to increase our ARPU in bundles. From this, I'm convinced, and you can see that we had also in the second quarter a good development on the ARPU of our bundling business.
And on the penetration on mobile, we have a prudent approach on making for play bundles. The big momentum today is on three on triple play bundles, and that's good. So and on mobile, as long as we have a good dynamic on mobile and a very low churn figures, we are not actually incentivized to push the mobile penetration because this will actually lead to an ARPU reduction. But you see on Page 36 in the back half that the last four quarters, we increased the ARPUs in cost base by 15% without pushing customers mobile customers to cross play. That means over time, we will see an increase in cross play but with a limited impact on the ARPU, as Urs mentioned.
Got it. Thank you.
And our next question from Andrew Hogway. 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. I 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. So what we see is that UPC gained track in the first half year because, in my view, of two reasons. They extended their retail channels. They are selling now through mobile phone. And second, they had a very aggressive offer in the beginning of this year.
But still, the figures are on a low level. And if I look to the to our outportings and importings to UPC, I'm still in a very comfortable situation. But I think UPC will be able to increase their mobile business, but more on a low end customer segment. And on the wholesale line, first of all, I think that the wholesale contract is our customer, Sunrise, wholesale customer, Sunrise works for them. But we don't see, let's say, a retail impact on that on our side.
That means Sunrise has a good performance against the cable operators or other operators. Then secondly, we are actively migrating CPF, carrier preselection customers, from which still has the line with us to Sunrise. That's an agreement between Sunrise and Fritzcom that we actively migrate these customers because these customers decided years ago, years ago, to have a relationship with Sunrise to just catch 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 Vikram Karanai. I've
got a few questions. Firstly, on the dynamics that you're 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 with the ongoing pressure you're 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 stakes in the particular segment as well?
And then 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 thirty percent of the household, and you were looking to expand in other regions by the cheaper FTS and VDSL vectoring? On
the competition in the enterprise business, corporate business, your first question. So we see stable market shares in the B2B business. And we have on the ICT business, a strong order intake. But this B2B business is on the price pressure because mainly of two reasons. The companies are under pressure in Switzerland, cost pressure because of the foreign exchange rate.
And the whole ICT business is under price pressure. And the second thing is see limited impact of Sunrise in the mobile business, but without gaining market share at the end in the mobile business. So that's a bit more competitive environment we have in the Enterprise business. But I'm very confident that with the project portfolio we have that we will be strong and that we will defend our market share in the Enterprise business. And on the fixed CapEx expectation, so we see the necessity to invest probably in five to 6%.
And as Ulf mentioned at the beginning, we have to go by to cover 85% of homes and businesses by the year of 2020 with 100 megabit or more. That means that for the next three years, we would expect Swiss CapEx flattish at around CHF 1,800,000,000.0 per year. And on FTTH, as I mentioned, we will still have some investments in FTTH. Not new cities, but these cities have changed. We have some construction activities, and then we need to invest in verticals whenever we have new customers.
But midterm three years no material decrease of CapEx in 2020.
And what about sorry, just to follow-up on that CapEx point. What about Fastweb? Because that was expected to slightly come down in the medium term. Is that the case still?
Yes. In the medium term, I would say they can slightly come down. But from an overall point of view, it's not material. Until 2020, we are building out now our network to 50% ultra broadband coverage, so the CapEx has gone down.
Okay. That's clear. Thank you.
I got a next question from Georgios at Citi.
Yes. I've got a couple of questions on the Telecom Italia Francois JV. First of all, and I think Jacob asked the question earlier, I was just wondering whether the economics will be dramatically different on the subloop and bundling arrangement that you had before. So 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? And the second element is around the wholesale arrangement.
I believe you are allowed to offer wholesale services as part of the agreement. So I was wondering whether you see a market for that given a, where the pricing is right now on the regulated price of TI and secondly, given that Vodafone and Wind have signed an agreement with Enel? And then my second question is around the Enterprise segment. And I think you kind of answered it earlier, Rus, but I just wanted to make sure. From what I understand, the the pricing dynamics have remained competitive.
Does that mean that the repricing is more or less done, most of the contracts have already been renewed and we're now waiting for the comps to get easier? Or are you still seeing incremental cuts to the contract agreements even at this point?
First, 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 continuous continuing pressure on the price. But on the other side, and that's a positive thing, we have also an increasing business. So overall, the ICT business is a competitive one, but also one which overall stable margin because we will have new business in the IT business.
On mobile, the main impact that what we've seen in the first half year on mobile is also is driven by three factors. Fact number one 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 mid term declining the impact negative impact on roaming. And then we have the competitive dynamic in the mobile business. And I think this will continue because I don't think that Sunrise will stop to try to get customers.
So overall, a bit, let's say, less decline, but it will be remain competitive than the prices. And on wholesale On the wholesale, so we have payment and Saumstad, both are allowed to do wholesale in these areas, but not the new company. We do wholesale, we'll be TIM or faster. And that means or today, we have material wholesale business in Faster. That means also in the future, we'll have chances to get customers in these cities for wholesale services and mainly also for retail, connecting retail.
And on the margin, it's a change from the subloop on capital to the subloop on fiber. That means we will have slightly lower margins in these areas, slightly lower margins. I cannot tell you the number exactly. Also high revenues, and I already have lower CapEx. You.
All right. I got our next question from Frederic
Frederic Boulogne from Bank of America. Thanks for taking the question. So firstly, I just wanted to come back on the comments you made on the enterprise side. You said some positive message in the long term in terms of products you could sell to the cloud, IT, etcetera. 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?
And 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, whether the main hurdles were related to networks, coverage, etcetera. And a follow-up on the previous question on the JV. So I know you don't want to say too much in terms of economics, but just to understand the way it works. So the JV you will book you will sell access to the different partners, including TI and yourselves. So 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, the enterprise business, the enterprise business is in a transformation. So today, in the ICT business, we are a strong outsource for, let's say, for banks, for industry industrial companies. They outsource the ICT business to Swisscom. And now there is a transformation ongoing. That means the transformation of the cloud.
So the 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. So not all of the cloud business will be on top business. And 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.
But cloud business will not all will be on top. A part of it will be also substitution. And then on the JV, so it's a legal entity. There are funds that are below 20%. The equity in charge, as described, will be €55,000,000 and 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. And this company will wholesale or to be in U. And then wholesale on a pay per use basis to Telecom Italia and to Fasten. That means we will have fasten cost of goods sold. And in the same amount, we will have revenues as this new entity.
And the number, they will deploy they will develop over time in line with the deployment of fiber, and then we will start now with the planning in Q3, Q4 how this rollout will work. It also depend a bit on the competitive dynamics, how the annual rollout will develop. So it's to model it right now, it will be quite difficult. So we will need to have more color on the rollout in Q3, Q4. And we didn't get exactly the first question.
We had some problems with the connection.
Yes. The other point was on just to come back on previous question on the remedies. And if you could comment a little bit more specifically on why you decided to pass on the opportunity?
Good. The Italian mobile market is a very competitive market. And I think you need a good remedy package with a good risk opportunity profile to really enter the Italian mobile market. And we look to these remedies, and we have an idea of what remedies would be fine for us. And now we will always behave rational on this in this mobile business.
And now I'm looking forward to see how the EU Commission will decide. It's not yet decided, but I think the likelihood that the
deal is going in the direction
of Gilead is much bigger than it will go to Fosters. But we will have a good offer on the mobile side, which fits in the strategy where the core is also broadband business fixed or fast track.
Okay. Thank you very much.
Operator, perhaps a very long question before we get to an end.
Okay. So well, expect the last question is coming from Gazi Usman.
Great. Thank you, guys. I have a few questions, but feel free to cut me off if we're running short of time. The first question I just had on the CapEx outlook. I mean, you're looking out to 2018 now, I mean, should we be considering $2,400,000,000 as a better range to be looking at?
And 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?
And my third question was just on the Infinity two point zero migrations. I mean, as at Q2, we've had 19% of the subscribers migrated into Infinity two point zero. What do you think this figure could look like by the year end? I mean, do you expect all of your customers to have moved in by the year end? Or is that too aggressive?
Well, I start with more of the commercial question, and 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. And the market shares are mainly coming from the cable operators. So that's the dynamic we have in the fiber to the home footprint.
Utilities, if utility rollout is network, in the most cases, we are part of them. So we're doing a shared rollout where they have some fibers and we have some fibers. So that there is no it wouldn't make sense for Swisscom to go on their network because we have our own network in this footprint. But we are cooperating with them.
But does it not just on that, does it not make sense to 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 in wholesale pricing?
Yes. They could do wholesaling. And but on the other side, they have also to monetize their investments. And up to now, we don't see very aggressive offers from the utilities. And there are wholesale there could be wholesale customers for them.
There are other players in Switzerland who could rent their network. And on the Infinity penetration, two point zero, it will increase, but not 100% will be on Infinity two point zero at the
end of this year.
But it will increase. And that's also one of the reasons why we will have some pressure on the rolling in the next month. And on CapEx, so we don't disclose no official new CapEx guidance during the year for 2018. But as we discussed right before with Vikram, so in Switzerland, we see a flat development at around CHF 1,800,000,000.0 more or less and then stable or slightly decreasing in faster, both depending now on all the rollout plans and the impact of the trading. And in maybe one additional remark on the 50%, the cable operators, you saw the numbers of UPC.
They have they lost broadband connections last quarter, and then we added 10,000, and we assume that we gain these connections from the cable operators.
If I could just have one follow-up. Just 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. But you have spoken in the past that maybe the utilities just dump fiber pricing because they're not winning any customers. So 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?
Yes. First, they are not willing to sell today. Second point, it's not the case, so we don't have to take a decision today. And on the other side, it's not our or it's our strategy to leave space to the utilities in the wholesale market also. And there could be solved as a customer.
There could be other ones who use their network. And you see different dynamics in cities. You see some cities where they are quite successful, where I think they are they have a business plan, business case behind that, and then you have other cities where nothing happens. So it really depends on, let's say, on the local management of the utilities.
Thank you very much.
Okay. Well, thank you, operator. Thank you to everybody. And with that, we would like to conclude today's presentation. And thank you again for your participation.
If you should have any further questions, please don't hesitate to contact us on the IR team. Thank you, and have a great day. Bye bye.
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