Good morning, ladies and gentlemen. Welcome to the Q2 2019 results presented by Ushappi, Mario Rossi and Louis Schmid. Louis, the floor is yours.
Good morning, ladies and gentlemen, and welcome to Syscom's Q2 results presentation. My name is Louis Schmid, Head of Investor Relations and with me are CEO, Urs Scheppi and CFO, Mario Rossi. The first part of today's analyst and investor CFO, Mario Rossi.
The first part of today's analyst and investor presentation hosted by our
CEO consists of 2 chapters, a quick overview of the highlights, operational performance and financial results of Q2 and the 1st 6 months and an update on our activities and performance in Switzerland and some explanations on Fastweb's network initiatives and first half year results. In the second part of the presentation, Mario runs you through Chapter 3, the financial and unchanged full year guidance. With that, I would like to hand over to Urs to start his part of
the presentation. Urs? Good morning, ladies and gentlemen. If you go to Slide 3, you can see our Q2 in a nutshell. So we were able to close a strategic agreement with Winjet and this will enable Fastweb to get a stronger position in the mobile market.
So we will in a cooperation agreement, we will roll out the 5 gs network. In the B2B business, we were able to strengthen our project portfolio also in the solution area and we could also develop our cloud offerings where we have also grown. We mentioned our business, B2B business also through a small acquisition of security specialists, which will enable us to have even stronger security, cybersecurity portfolio. This is the acquisition of USP. And on the cost side, we are well on track in the market with our new offer InOne Mobile.
After only after 4 months, we have more than 570,000 subscriber, and we have increasing penetration of fixed mobile converged offers, which will reduce or which reduces our churns and customer increases the customer loyalty. So we are well on track with our in one mobile product offers. And the last remark to 5 gs, so we had we were able to get the spectrum as you already know and we launched our 5 gs network in April. The ambition is to have 90% coverage at the end of this year. And we also get the award 5 gs Global Award.
So overall, on the operational side, a good performance. If you go on Slide 4, you see our market performance. I would say satisfying commercial results in a challenging market environment. In Switzerland, plusminus stable and in Italy growing. You can see that the broadband net adds in Switzerland, they are minus 6,000.
Important to say that 3,000 are coming out of the retail market, so it's stable to the Q1 and $3,000 from the B2B business. And there, the main effects on B2B are not the market share losses. The driver behind it is all IT migration and new products, more cloud based products, which increases slightly the broadband connection in the B2B market. TV, we are growing. We are gaining market share and a bit less voice fixed voice losses.
So the substitution is slowing down also because all IP migration is in the retail market done. And then on postpaid, you see that we were able to grow. And in Fastweb, in Italy, we have a good momentum on mobile and on broadband. If you go to Slide 5, our financial performance, the underlying EBITDA went up by 11 $1,000,000 As you can see on the right part of the slide, you see Switzerland, which an EBITDA decline of €30,000,000 So we could compensate a lot of the revenue slowdown through better cost management, but not also we have a decline of $30,000,000 in Switzerland and the Fastweb was growing with $25,000,000 both and then with others this leads to this plus €11,000,000 underlying EBITDA growth. And so also the outcome of the operating free cash flow, you can see on the bottom of the chart, there also the spectrum with CapEx spectrum are included.
So overall, on track to our guidance and also we confirm our guidance. If you go on Slide 6, very short, what are our business priorities and upgrading our infrastructure, there we are well on track in Switzerland and in Italy. Then the second point, and I would say that's actually the most challenging point, is stabilizing the top line in Switzerland through customer base management and some upselling. Important products there are our inONE mobile portfolio, but also the inONE at home. Then operational excellence remain important.
So we will deliver our ambition of more than 100,000,000 euros and further to have to create growth in Italy with Fastweb in all segments. On Page 7, you see our status on the network rollout side. On the left side of the chart, you see that today we have the coverage, an ultra broadband coverage of 68%. That means 68% of our customers has a speed above 80 megabits per second and this will go to 90% in the year 2021. Important is also to have a look to these 200 megabit footprints, which we have.
So the 200 megabit footprint will be at 75% in 2021. And you see also that we are on a faster run rate to ramp up this ultra broadband networks. Just one example, today we have 2,000 households per day, which have an upgrade to ultra broadband. On the right side of the chart, we see our strategy on 5 gs. So we have a parallel rollout of 5 gs wide and 5 gs fast, so that we will have a coverage of 90% 5 gs coverage of 90% at the end of this year.
On 5 gs fast, we are certainly challenged through pressure by getting some new sites in Switzerland if there are some counter pressure by the political environment. But even this, we think that we can get a good footprint at the end of this year. If you go to Slide 8, some information about our B2C actions. So you see that we are able to remain our strong market shares and also doing a good job on the value creation. We were able to increase our SIX mobile converged penetration, and we have now 1.2 7000000 to 8000000 subscriber in IN1 and the churn of fixed mobile converged customer is at 6% on a low level at 6%.
Also with our new mobile offer, we are well on track. We are successful. As already mentioned, 570,000 customers on this product. Important to say that 80% of this new in one mobile subscription still have an installment plan for devices. And through this decoupling, we were able to save our subscriber acquisition and retention costs by $80,000,000 2nd and third brands are growing our strategy is in attack and defense strategy.
Today, we have 12% on our second and third brands and approximately 50% of the net adds are on second and third brands. So overall, a good performance market performance. On wireless, this you can see on Page 9, you see the performance of wireless, so a stable market position. The net up. We have penetration of in 1 mobile at approximately 60%.
So it was strongly increased by 15 points year to year. And you see also the market share on the left side of the chart of fixed mobile products is now in the region of 40% and increased by 4% on a year on year level. The churn rates are, let's say, even a bit lower than previous year at 7.7%. And on the upside, we have an ARPU of CHF 58 postpaid and you see that there we have a dilution in it. There are 3 reasons for this dilution.
The first one is that the converged rebate of CHF 2. On the other side, we have savings on subscriber acquisition costs and high loyalty. So it pays out according our business plan. Then you see some CHF 1 by brand shift, So that means 2nd, 3rd brands and this is CHF1. And then we have some right gradings of CHF1 and this leads to this minus CHF4 Swiss francs R2.
On Page 10, some information to wireline. So overall, a good performance in TV. You see the penetration in InONE broadband, so above 60% are on this product InONE broadband and Sigmobile converge share is at 43%. ARPUs are stable at 41. Percent and you see also the churn rate is stable at 9.4%.
So overall, respectable performance in wireline. On Page 11, some remarks to our B2B business. Overall, we have a good win ratio in the B2B business, but we are facing with price competition, mainly also in the telecommunication area. So the dynamics are actually unchanged to the previous quarter. We have on connectivity side, it's price pressure, we have some pressure on the revenues driven by all IP migration,
and this leads
to this reduced ARPU on mobile or to CHF 27 ARPU. But overall from the customer base side here, aside from the RGUs, we see that they are approximately stable. Solution Business, overall, we are confident. We have different dynamics on cloud security, digital solutions we are growing in SAP Workplace and UCC offers we are facing with price competition, but this is not a structural topic. This is more driven by some specific also customer projects where we have contract renegotiations.
On Page 12, cost achievements, you see that we are well on track to deliver our cost savings. In the Q1, we were minus €31,000,000 in the second quarter, we have minus €38,000,000 in direct €1,000,000 in direct costs. So we are well on track to our target. And in B2B, we made a small reorganization. So we put together the SME market and the small corporate units together so that we can deliver more standardized service and getting more dynamic also in the go to market.
On Page 13, the financial performance of Friscom Switzerland. You see that our EBITDA minus this lease line expenses on so with the IFRS 16 impact went down by €34,000,000 And on the bottom in the middle of the chart, you see the dynamics. So as planned, fixed voice had an impact of $22,000,000 fixed mobile conversion rate, dollars 33,000,000 dollars and then B2B despite erosion mainly in the connectivity area of 68 percent. Then some positive effects on others and on indirect costs and this leads to this minus 34 €1,000,000 EBITAL in Switzerland. On Fastweb on Page 14, so we are successfully executing our strategy to becoming a more converged player.
On wireline, we are upgrading our networks to a broader own ultra broadband footprint. So today, we have a footprint ultra broadband footprint in Italy of 30% and we are doing then on the other areas wholesaling with Telecom Italia. In the future, we will have a higher oil footprint to our strategy also mainly driven by fixed wireless access so that we will have a footprint of 60% by 24. And then the rest we will have wholesale offers from OpenFiber and TIM. On the bottom of the chart, you see that our ambition on mobile.
So today, we have 4 gs roaming. In the future, we will have a known 5 gs network through the partnership with WindChain and there the ambition is to have 90% coverage by 2,000,000 fixed. On Page 15, some more information about WindJ as we already explained in the last call. So it's a deal to enforce our proposition in the mobile market. It's the coinvestment approach, but also we are we have some wholesale business in opposite with Windchay.
So overall, we will be able to have the cost structure an MNO like cost structure And the whole deal will be free cash flow, cash flow value accretive from 2020 onwards. And the CapEx, it's important to say they will stay in a region of 600,000,000 euros And this is all in our guidance, so there will be no change on the guidance. Page 16, the consumer performance of Fastweb, you see that we have a good performance, 4% more broadband subscription, mobile 27% more subscription. You see also on this chart that we are able to have a high penetration of ultra broadband customers. That's important because they have a higher ARPU and lower churn.
On mobile, you see that we were able to decrease our churn by 28%, so a good result. And on the right side of the chart, you see that our fixed mobile converged penetration is increasing. We are now at 33 percent and converged offers have higher ARPU and lower churn. So there is certainly a good indication that we were able to increase fixed mobile converged offers by 6%. So Slide 17, the B2B performance.
So good performance in B2B. Revenues went up by 13%. And also the wholesale business, if you take really the core wholesale business, you see that we have a growth of 5%. A good performance in B2B. And on Page 18, you see then the financial performance of FASK, we have a solid performance.
EBITDA went up by 7% and we have a positive operating free cash flow. I would like to hand over to Mario for some more details on the financials.
Thank you, Urs, and also good morning from my side. I'll start on Page 19, revenue breakdown. So overall, we saw in Q2 some increased pressure on service revenues, which led to higher EBITDA decline in Q2 in Swiss Business compared to Q1. However, this decline was no surprise came without no surprise to us. And as you saw, we had, I would say, an impressive performance on our cost management in the first half.
A few remarks on retail. Service revenue went down by 3% or SEK 78,000,000. The main elements of fixed line loss, SEK 22,000,000 impact from discounts because of fixed mobile convergence, euros 33,000,000, euros 7,000,000 from roaming. Would say this roaming decline is more or less over. And then the impact of the wireless ARPU pressure, which Urs mentioned, is in the first half around CHF 15,000,000.
Then important in the retail business is in the section hardware and other. In other, we have an impact, a negative impact of €56,000,000 from the device decoupling because of the new mobile offer, it's the IFRS 15 impact. In Q1, it was €14,000,000 and then we had a full effect in Q2 with €42,000,000 That will be that's compensated with lower subscriber acquisition costs and EBITDA level. It's more or less neutral this year, and it will become positive next year. In the B2B segment, service revenue decline accelerated in Q2.
So €34,000,000 decline in Q2 coming €18,000,000 from wireless and 16 wireline and $16,000,000 from YOLS. Again, unchanged dynamics, price pressure in the YOLS area, output down by around 10% and spend the all IP migration in the fixed line business. In the Solution business, we had developed performance in Q2, mainly in Banking. Q2, we had an increase in trading that was not anymore the case in Q2. In Wholesale Business, we saw the same trends as in Q1, dollars 22,000,000 in the first half increase of wholesale revenue in the core business, then $7,000,000 barrel inbound roaming revenues and around $10,000,000 coming from the MVNO contract with UPC.
On Fastweb, same impressive 4% revenue growth, especially in the enterprise segment, growth of close to 14%. Revenues in consumer increased by 3.4%. And important in wholesale, the core business of wholesale increased. We have this decline on the low margin business with slightly said deliveries through revenues to flash cycle. There is a decline of €27,000,000 but the core business in wholesale increased by SEK 4,000,000.
A few remarks on the OpEx. Acquisition retention costs, these are €84,000,000 lower compared to 2018. That's because of the new offering in 1mobilego. This compensates the negative impact of IFRS 15, which I mentioned before. On out payment goods repurchased services, AFFO and AFFO, we have an increase of €24,000,000 in Q2.
That's mainly because of higher costs for Sport Trine. Then on the indirect costs, it's €69,000,000 further progress on workforce, €34,000,000 in the first half, that's internal workforce and external workforce, €13,000,000 cost savings and in the IT and other area about €20,000,000 savings. And we are confident that we will deliver our at least $100,000,000 savings this year. Few remarks on Page 21 on the EBITDA breakdown by segment. So in the Retail segment, we have this EBITDA decline of €34,000,000 That means that over 40% of the service revenue decline that was compensated with cost management in this segment.
I think that's impressive. The main part is coming from lower number of interventions on the networks. That means lower costs for field services. B2B EBITDA, cumulated EBITDA down by 13.6%, slight acceleration in Q2, we have 14 point 3%. So the cost base for the high margin telco business in Q2 is quite low in this segment.
Therefore, it was not possible to compensate in the same magnitude as in the retail business. And the contribution margin from the solution business is not high enough to compensate for the decline in service revenue. Wholesale IT and Network, we have a lower EBITDA contribution in Q2 than in Q1, €21,000,000 versus €39,000,000 we have a softer contribution from incoming roaming around €5,000,000 and the lower cost savings in Q2 seasonality, €8,000,000 in Q2 versus €15,000,000 in Q1. And as was mentioned, Fastweb, good growth momentum in local currency growth of 6.6%. On Page 22, the bridge to net income, 2, 3 remarks, net interest, the net interest expenses are only €31,000,000 for the first half.
The average interest rate decreased to 0 point 8 5% and around 70% of our debt portfolio is fixed. So we are quite safe. On that side, then the interest leasing, you see that separate items because of IFRS 16. Then a remark on the tax charge. Tax charges in Q2 quite low.
The tax charges of EUR 158,000,000 include a positive non cash, non cash impact of €33,000,000 that's due to lower tax rates in some cantons because of the Swiss tax reform. The deferred tax liability has to be adjusted accordingly. We expect some additional cantons that will change their tax rate also in half in the second half. In most cantons, public votes are necessary for that and any impact will be booked after final decision in the second half. On CapEx, I think everything is going as planned.
We have now included the so mentioned €196,000,000 for the spectrum, the higher CapEx in Switzerland, because we had quite a low start last year in the FCTS rollout, so there's nothing special. On free cash flow, on Page 24, The free cash flow is €87,000,000 below prior year. The reason is that we paid Spectrum in Q2. Without Spectrum, we will see an increased free cash flow of around €100,000,000 compared to 2018. That's because of a better development of the net working capital.
I don't think that you need to discuss our maturity profile. I mentioned, let's say, the very favorable interest rate, Ian Choi. That brings me over to the guidance. The guidance is unchanged on the revenue around $11,400,000,000 EBITDA expects more than $4,300,000,000 and CapEx, including €200,000,000 for spectrum is also unchanged at €2,500,000 And with that, I hand over to the operator for the Q and A session.
Okay. Thank you very much. We already have a few questions. I will open up the lines. The first one is from Simon Cowles from Barclays.
Good morning, guys. Simon from Barclays. Just a couple from me, please. So on postpaid, showed a bit of a slowdown this quarter. Obviously, there's some seasonality in there.
But I would have thought the new in one tariffs that you launched earlier this year would have helped you maybe gain a bit more momentum there. So if you could provide a little bit more color on what's happening in mobile competition, that would be great. And then on the drivers of EBITDA, you very helpfully gave us some indication at the CMD back in February about how you expected that to develop. It looks like B2B is probably a little bit worse than expected, but the rest seems to be tracking in line. Could you just update us on that and how you think that's going to develop in 2H?
And linked to that, it looks like cost cutting is actually running ahead of expectations. I was just wondering how much of that is you finding new areas to take out costs right now and how much is maybe bringing forward some of the cost cutting that you might have delivered next year? Thanks very much.
Well, I will take the first question on forward state, the whole market dynamic and then Mario on top and B2B. On the dynamic in the mobile market, the whole market is totally driven by promotions. And if our competitors don't act with aggressive promotions, I think not a lot will change. And for us, if you look to the performance of InOne Mobile, we are very happy with this performance. And our strategy is to increase the fixed to mobile converged penetration.
Our strategy is not to get as much as possible low, low end postpaid customer. That's why we push the migration to in 1 mobile and then fixed mobile converged offers. And with our second and third brands, we are active in the lower end of the market, but it's not our ambition to be there too much aggressive. So overall, I would say that the dynamic in mobile in the consumer market hasn't changed from Q1 to Q2. And overall, I'm happy with the performance which we have on mobile.
You can also see that the ARPU, so that the ARPU in adjusted churn rate went even down compared to previous year, so or to Q1. So we are happy with the postpaid performance. Mario?
And maybe on the drivers and then the cost cutting. So Urs gave you the drivers for the first half on Page 13. And what's our expectation for the whole year, I would say on fixed voice lines, full year impact of around SEK 40,000,000, dollars Conversions impact, we would expect around 60,000,000 that's B2B before cost cutting, okay, around SEK100 1,000,000, slightly better performance in the second half. And on the cost side, we expect more than €100,000,000 we realized already €68,000,000 and the drivers behind the cost, we are in this cost program 2018 to 2020 that we said we reduced our indirect cost by €300,000,000 and there has been mentioned several times, there is a couple of elements. And I would say this year, the benefit really benefits from that the all IP migration in the mass market is over That brings us less intervention, very stable network.
We also have a very stable team platform. We see that in the customer satisfaction, service, there is practically no breakdown and no downtime on the TV platform that helps in the interventions. That's the first point in the residential market. Then on the network side, we benefit from automation, from robotics and these programs will go on and we know that we also have to deliver in the coming years material cost cutting.
Okay, great. So it's not necessarily bringing anything forward. Everything is on track?
Okay. Then we have another question from Roman Arbuthov from JPMorgan.
You cite this interesting statistic that more than 50% of the net adds are coming on the postpaid are coming from the 2nd and third brands. It's appreciated that you're not looking to stir things up too much. But I was wondering if you could give us a little bit more color on whether you think on temporary you think this development is? So for example, would you is it, for example, driven by some offerings in co op mobile and therefore, you would expect the proportion of net adds from the 2nd and third brands to decline, let's say, next quarter? And also if you can give us maybe some sense of history, what has it been And That's the first one.
The second one was just on the soft broadband net adds for the Q2 running. You did mention last quarter that the spillover from the Christmas campaign. So I was wondering if you can give us a little bit more color on the competitive environment there and whether the campaigns remain quite intense? And then thirdly, it's just a technical question. It's a question on one specific revenue line, which is within the Retail segment and its other sales.
So it's below the service revenue line. It's other sales. And in the quarter, it was minus EUR 15,000,000, which is a very unusual number for this line comparing it to the historics. I was just wondering if you could give us an explanation of what happened there please and what to expect going forward? Thank you so much.
Well,
I'll take the first two questions and Mario then the last one. On wireline, the wireline market, So as you mentioned, we have a saturated mobile market in Switzerland. And the dynamic or let's say the volatility in this market is mainly on the lower end of the market. So through promotions, through second and third brands, actually it's I call it normally like a washing machine. There is a lot of customers which are very price sensitive and they switch from one to the other.
And that's actually you also see in our postpaid value segment. So we have quite a stable situation in the postpaid value segment. But on the lower end, there we are present with our second and third brands. The percentage of second and third brands in the whole postpaid portfolio will slightly increase because, as I mentioned before, approximately 50% of the net adds are coming from 2nd and third brands. But our strategy is to keep value, to increase the penetration fixed to mobile on value customer and there you see we are well on track.
To the second question on the dynamic on the competitive dynamic and promotion, so they are on the same level and aggressive level as in Q1. If I look to the promotions, they are normally the rest or let's say the common sense of this promotion is 50% discount. And if there are no promotions, I think there is no move in the market and that's a bit the competitive dynamic which we have in the market. I don't know what will happening in the future, but I think it's not too sustainable. If you look at what money some of our competitors are putting in promotions.
I don't mention now which competitor, but you see hardware subsidies in the region of CHF900 to CHF1000 to get the broadband connection. It's a bit strange for me, but that's the situation which we have. And for us, it's important to execute on our strategy, converge strategy with our in one off portfolio.
Can you just follow-up on the first one, sorry, at this stage? So the 50% postpaid net adds or 50% of customers coming from 2nd and third brands on the net adds. Is this an elevated number? Do you think it comes down or it's actually a normal number?
I think we have 2 effects. The one is certainly we had in Q1 and Q2 a higher momentum from go buy. That's you're right. On the other side, because these promotions will continue, I think we will be in a region in the next month, which is comparable to the first half year. Maybe a bit lower than 50%, but it will not go down to 20%.
All right. Thank you very much. And the third one, please?
And on your technical question, the third one. So that's coming from the so mentioned IFRS 15 effect. So we have a negative revenue number in Q1 2019 of €14,000,000 and in Q2 of minus €42,000,000 And that's that's coming from the past. Whenever you have a new subscription, you have to put or to book on the assets, the acquisition costs and then distribute it over at the contract period as a negative item on revenue. And because we stopped now with the new world in e mobile go, we stop this subsidy, you have this negative impact.
It's not replaced with new contracts. And you will
have This line is equipment sales essentially. Is that the explanation?
Sorry?
So this line relates to equipment sales, is this right?
No, it's awful. It's really awful. It's let's say, it's the technical evolution of the asset which comes from the acquisition cost in the past. And we see a similar number in Q3 and Q4 of around minus €40,000,000 to €50,000,000 And that will last more or less until the end of 2019 and then the whole thing is washed through.
All right. Thank you so much. That's very clear. Thank you.
Okay. Then we have another question from Oleh Reit from Jefferies.
Yes. Thanks very much. I have 3 questions as well, please. First one is, you highlighted the the P and L tax impact or the tax reform. Would you be able to shed a bit of light on the eventual cash tax impact with or without the Canton that they'll have to change the local taxes?
If you could sort of just comment on that a bit. 2nd one is, you said that the B2B broadband customer loss is because of all IP and cloud migration. Could you explain the commercial mechanics of that? Why exactly would a broadband line be lost because of an OLAP migration? I'm not entirely sure what the connection is.
And the third one would be you sort of commented I think sort of between the lines, but if you're willing to take that on a bit more explicitly, the current improvement of the UPC KPIs that we have seen reported from Liberty Global, do you think this is a sort of a lasting trend change of one of your competitors or is this a result of a fairly one off ish push at this point in time? Thank you.
I will take question 23. Mario, the tax reform question. I start with question 2, the dynamic B2B on broadband. As I mentioned it, we had a slightly decline in the B2B connection of 3,000 subscription in Q2. And there are these 2 recent product portfolio and all IP.
If you do an all IP migration, then a lot of companies are looking, what kind of broadband connection I have, do I need it or not. So they do a kind of cleaning and they do a cleaning of the portfolio. That's one reason. And the second reason is, if you go on cloud based solution, you have another product portfolio and depending to the customer, then you redesign a bit your network. Maybe you go from a more from MPLS network to another kind of more cloud space product portfolio.
There are a lot of different elements. But I think overall, because we are also through with that 75% to 80% all IP migration in B2B, I think we will have a more stable dynamic on broadband driven by all IP. On this cloud dynamic, this will be a topic which continues, but this will be very slow because all this migration of network will take a lot of time. I think we can stay approximately stable in the broadband business. The main impact on V2B, as Mario mentioned, that's the price level, the erosion of the prices which we have on our connectivity portfolio.
Then on UPC, KPIs from UPC, I don't want to comment this KPIs, but my view is that the whole dynamic in the market was not really changed to Q1. If I look to the dynamic, which we have on TV in the whole market there, we noted the figures. I think there is not really a big change in the whole market from Q1 to Q2. And on the tax issue,
the $133,000,000 on non cash because we had to calculate deferred tax liabilities with new tax rate and going forward 2020 depending on some both in the second half, but I would expect that the tax rate for Swisscom Group will come down from 21% to 19%. And these two percentage points would be a direct cash impact. I would expect 19% going forward.
Okay. We have another question from Michael Bishop from Goldman.
Yes, thanks. Good morning. Just two questions for me, please. Firstly, on B2B, you still sound confident that we should start to see a bit of an inflection in the trends in the Q2, but you do sound equally quite cautious on B2B Mobile. So I was just wondering if you could recap and walk us through the improvement in trends through the second half of twenty nineteen and into twenty twenty.
And then secondly, switching to Italy, it's clear that you now believe that you have network economics, which I think is very clear from the deal with Wind and 3. But I was just wondering how you envisage the network quality of Wind 3 potentially catching up with that of Vodafone and Telecom Italia in the market? Thanks very much.
Would I take the second question on Italy and Mario will take the B2B question on the dynamics of this different market area. In Italy, if you look to the benchmarks, if you look also to the neutral test in the Italian market, after in areas where wind made the, let's say, the migration of the network or consolidate the network that the quality of wind is wind trade a good one. So we are confident that we will have strong networks with wind and will be competitive.
Mario? And then on B2B, so on service revenue, we expect slightly lower revenue decline in the second half. And on the solution business, we see positive momentum, I'd say, in 2 areas that the cloud business, we see their growth. And in Q1, we had a weak banking that was because of expiring contract in the prior year. Also in the banking, we see in the second half good momentum and that makes us confident for the second half.
But The service revenue will remain under pressure.
We have to face that issue.
Thanks. That's great.
Okay. Then we have a last question from Georgi Georgioucounou from
T. P.
Actually, most have been answered, but I just wanted to just go through the B2B side just for our understanding to get a better idea of how things could trend going into next year, is it possible to maybe give us any indications of how far around the repricing side you feel you're going through right now? What could be the incremental you mentioned now the cloud services and some of the banking agreements. What could be the incremental other areas that you could use in 2020 to offset the pressures? Any color on that would be great. Thank you.
Maybe on a very high level dynamic, You see on in the connectivity space and totally with Mario, we will have pressure on the service revenue also in the future. But maybe we have we could have some hope on mobile because the average ARPU in mobile is now on a level which is already low. So maybe if you also bundle in roaming, I think you have to calculate, otherwise you will have a loss. So maybe that the down dynamics on the wireline is low, but this will continue because the competition will continue and you have to make contracts renegotiation. On this solution side, we are overall positive that we can create some growth.
But you have to know on the one side, if you go to a cloud solution, you get new business. On the other side, you are replacing some outsourcing business. So it's not a one to 1 net. So we have a positive and negative impact. So that's why we think that the solution business will not explode in the next month, but we have a good dynamic, a positive dynamic and we can differentiate ourselves strongly in this market where we have strong competition on the connectivity side.
So I think the mix of IT and connectivity, there we have a strong approach in B2B, but we will have challenging months also in the future in B2B.
And I know this is a very simplistic way of asking the question, but from your contracts, would you say the majority have now been repriced or do you still have some that are we past the worst in a way or?
In B2B, the mechanic is the same normal connectivity contracts last for 2 or 3 years. That means you have this continuous renegotiation of the contract. And now the main question is how strong the competition will be, how broad the competition will be on these different accounts. And yes, that will show us the future, but I think that the price level in B2B is in Switzerland on a low level. There is not so much room to do aggressive promotions if you want to earn money.
That's been my math.
Thank you.
Okay. Then we have another question from Ulrich Rathe from Jefferies.
Thanks for letting me on for a follow-up. Just coming back to Ron's question on the negative revenue item, please feel free to delegate that to an offline conversation. But just wanted to make sure I fully understand. Is this effect that you report there because you're reporting service revenue growth and then subtracting IFRS 15 effect outside of sales revenues? Is that sort of the mechanics in your accounts?
Because obviously we're seeing IFRS 15 transition everywhere. And in most companies, it's essentially just a headwind on service revenues for the well understood known reasons. And I'm just wondering whether you might have a different sort of way of booking that into the different line items or is that a complete misunderstanding? Thank you.
I don't think that is the service revenue was always without the impact of IFRS 16 And that means we have now we have to book now also the negative impact outside of service revenue. And I think that gives you also a clearer picture on the ARPU. And in the backup on where we showed the ARPUs, you have the full detail of the ARPU including forward out IFRS sixteen in Incbank. And I think we have now this transition year because we changed our offering. And as I mentioned, it will be washed through more or less by the end of this year.
Okay. I think I understand. Thank you for that clarification. Appreciate it.
Okay. Then we have no more questions.
All right. Thank you, operator, and thank you, everyone. And with that, I would like to conclude today's conference call. If you should still have any further questions, please do not hesitate to contact us from the IR team. Speak to you soon and have a great day.
Thank you.
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