Good morning, ladies and gentlemen. Welcome to the 2nd Quarter Results 2018 presented by Urs Sheppi, Malle Rossi and Louis Schmid. Louis, the floor is yours.
Good morning, ladies and gentlemen, and welcome to Systems Q2 results presentation. My name is Louis Schmidt, Head of IR, and with me are our CEO, Urs Scheppi and Mario Rossi, our Chief Financial Officers. The first part of today's analyst and investor presentation hosted by our CEO consists of 3 chapters: first, a quick overview of the highlights, operational performance and financial results for Q2 and the 1st 6 months. 2nd, an update on our activities and performance in Switzerland. And finally, some explanations on our FAFSA results for the 1st 6 months.
In the second part, Mario runs you through the financials and the confirmed 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. I would like to start with a short overview of the highlights of the first half year. So financially and operationally, we had a solid first half year, and we confirm our guidance.
On the financial
side, you can see that we are on track with our forecast. Also Fastweb has an appealing performance. The EBITDA went up by 5% year on year. We had success in Switzerland with our converged offer in 1. Interesting is to see that we are really able to even decrease the churn in a competitive market to 5% with IN1.
And we will have the spectrum auction in January 2019. On cost control side, we are on track. We could decrease our cost by $56,000,000 in the first half year. And also TV is developing well, so we are gaining market share in TV. Some remarks to the B2B business.
In the solution business, we had some headwinds, mainly in the banking segment due to price erosion and some projects. But this business is always a bit volatile. And if I look also to the order intake in the Banking segment, I'm positive. So overall, our outlook remains positive to the solution business in the B2B market. So overall, we confirm our guidance for 2018.
If you turn to Slide 5, you can see our operational performance. In a saturated market, Swisscom is able to protect the market position. And our strategy is clearly a value management strategy. This you can see later, we are able to maintain ARPU stable. We have low churn figures, and that's the main pillar of our strategy.
In Italy, we could grow on mobile. We see 120,000 net adds in Q1 and now 95,000 in Q2. And also in broadband in Italy, we had some growth. If you go to Slide 6, some remarks to our financial key figures. On the revenue side, we have EBITDA reported revenue, which went up by €115,000,000 On a like for like comparison, it's the $27,000,000 Mario will explain it later a bit deeper.
The main dynamic is a bit lower revenue in Switzerland, mainly driven by the service revenue in Swiss from Switzerland and Fastweb higher revenue. On the EBITDA side, we had one offs, exceptional. So the EBITDA reported went down by €17,000,000 On a like for like base, we are have or we have a stable EBITDA, so minus 13, but stable. EBITDA, the main impact, the main one offs are IFRS 15 with an impact of €33,000,000 and then the litigation in Italy from last year, which has an impact of CHF 102,000,000. If you look on the EBITDA waterfall in Switzerland, you see that the EBITDA in Switzerland went down by CHF51,000,000.
Dollars The main effect on it is the reduction of the voice line, this structural effect in the market, which has an impact of €35,000,000 Then the converge discount with €44,000,000 dollars some price pressure in B2B with $25,000,000 and then the positive impact of the indirect costs where we could save €56,000,000 So overall, stable EBITDA on a comparable base, and the result is fully in line with our guidance. If you go to Slide 8, you see that the Swiss market is saturated and the 30% penetration mobile, 102% in broadband, 118% in TV. Therefore, or this shows why we have a focus on the value strategy. On Slide 9, our management priorities, I don't want to go deeper in it. They are stable, a network quality, penetrating the potential of order the product in 1, the bunker product and then also costs will remain an important pillar of our priorities in the next month.
If you go on Slide 10, you see that we are upgrading our network to maintain our technology leadership. On the left side of the chart, it's the coverage development on ultra broadband in Switzerland. So we are upgrading our networks and actually we have 30% of Switzerland, which has a bandwidth above 200 megabits per second and 59% above 80 megabits per second. And this will increase in 'twenty one, as you can see on the chart, to 90% or 75%. But also on mobile, we are upgrading our networks to make them faster, 4 gs plus speeds up to 1 giga.
We have today a population coverage of 4 gs, which is 99% and 14% plus, which is above 80%. Network quality remains important, very important for Swisscom. If you go on Slide 11, some remarks to the spectrum auction on 5 gs, which will be held in January 2019. On the left side of the chart, you see what kind of spectrum we have today, Swisscom have today. So currently, Swisscom owns 255 Megahertz, and this is a total part of the spectrum of 44%.
And on the right side of the chart, you see which kind of spectrum will be available in 2019. And important is what are the caps in the spectrum auction. And Swisscom has a maximum allocation of 2 35 megawatts, which would be 49%. So Swisscom remains confident that we can deliver a good customer experience with this auction, which will come in January. If you go on Slide 12, only one remark which continues on the multi brand portfolio.
For high end or for value customer, we have the Swisscom portfolio within 1. For smart properties, we have the product brand, Wingo. For upper discount and budget and for lower discounts simply mobile. So we have a broad and segmented portfolio to address the market. Important to say, the majority of the Swiss market goes for quality before price.
On Slide 13, you see the some figures to in one total revenue generating units in in 1 are 3,750,000 subscribers subscription. We have a penetration on mobile, in one mobile of 43%. So you see the increase of Q1 through Q2. And you see also that we are able to increase the penetration from IN-one to 48% on broadband. That's our strategy.
We will have a higher customer loyalty, lower churn figures and higher net promoter score. So it shows that this strategy works. On the bottom of the chart, you see the development on the ARPU. So on mobile, we are able to upsell. On wireline, we are in the region of 0 impact on ARPU.
And then we have the converge discount, which is fully in line with what we guided. On Slide 14, a quite busy chart, but it shows good what is our dynamic in the service revenue in the retail market. Wireless, on the left side, you see that we have approximately stable wireless ARPU. The ARPU revenues, the ARPU in the middle of the chart is from 30 4 from 43 to 41. And this is the main impact here is the mix because we are migrating more and more prepaid to postpaid.
So there is a small dilution in the ARPU. But overall, a solid wireless business. And you see also the part of customers, which are already in fixed mobile bundles. In the middle, you see that we have a stable ARPU in wireline, which I think is a good performance in the market where we are, stable ARPU of CHF41. And on the left side of on the right side of the chart, you see that we are able to grow with our bundled offers.
So we have a revenue increase of 100,000,000. Dollars We are able to get a higher ARPU in the bundled offers from 131,000,000 to 136,000,000 So our strategy to bundling works, and today, we have a bundled share, which is in the region of 60%. On Slide 15, some remarks to our Enterprise business. So overall, we are able to have a stable or slightly increasing subscription base in mobile, so 1,270,000 subscription in mobile, which is 10,000 more than previous year, so stable. In the voice part, we see that the subscription are going down.
This is driven by IP substitution, all IP effects. So this is the structural part that we have also But overall, the service revenue are quite stable if you compare them to previous year, even in a market where we have a lot of price compensation. So that shows that we are performing well on the service revenue side. Some remarks to the solution revenue. It's in Q2, it was $252,000,000 so slightly below the previous year.
The main element of it is price pressure and project volatility. This is always the case. As I mentioned it before, we remain positive for the solution business in the B2B market because digitalization is going forward. Cloud is becoming more important. We have a growth in the cloud business.
We are growing in security. But overall, we remain positive for the solution revenues. On Slide 16, you see a bit more in detail what is behind the solution revenue. So it's quite heterogeneous project portfolio, where we have workplace solutions, digital solutions, but also cloud and security. On Slide 17, some remarks to our cost reduction.
So we
are well on
track to reach our cost savings of €100,000,000 How we do it? We do it through efficient operation, process optimization, all IP process portfolio streamlining these are elements. Digital transformation is also a pillar, an important pillar, virtualization of our infrastructure, shift to online using artificial intelligence to optimize processes. And then also smart investing, so to increase our CapEx efficiency and rollout efficiency. These are the main pillars, and you see that we are on track with our cost savings.
Some words to Fastweb on Slide 19. The Italian market is moving more in a converged market. You see that the fixed mobile converged offers are increasing. In Q1, they were at 25%. You see also that the willingness of customers to go for FMC offers is increasing and this is at 64%.
That shows that also conversion is important for Fastweb. And what we see is that in a converged offer to stickiness is approximately 30% higher. So what is the response of Fastweb in such a market? The priority of Fastweb is to leveraging the existing assets and to become more convergent. So what we will use is our strong footprint in the ultra broadband market, fixed market, so our fiber backhauling, our street cabinets and having a smart deployment of 5 gs in large mainly in very focused in large cities.
It's not our ambition to become a 5th mobile operator in Italy, but smart deployment and it will be self financed by Fastweb. On Page 21, some remarks to the Tiscali transaction, which we announced a several weeks ago. So the main idea of this transaction is to get access to the spectrum, which we can use for 4 5 gs. So this 40 megahertz in the 3.5 gigahertz band. We will get the ability to become to strengthening our mobile proposition.
But it will be a very selective deployment. On Page 22, the performance on the consumer segment. So we have a resilient performance in a tough market. Broadband customer base went up by 4%. The ultra broadband customer base and this is important because we have on this customer base lower churns and also a better ARPU went up by 30%, mobile customer base went up by 45 percent.
And so therefore, you can also see that we have actually a converged penetration of 27%, which will reduce also our churn benefits. On Page 23, to the corporate performance, the corporate segment is important for Fastweb. We are there the clear number 2 in Italy. We have a market share of 40%. And on the right side of the chart, you can see some KPIs in the B2B market.
So order input is increasing and also the revenues and we have a very solid and decent net promoter score in the B2B market. Financially, on Page 24 and on a comparable base, you can see that our revenue went up by 10%, the EBITDA on a comparable base up by 5%. So a solid performance fully in line with our guidance. Now I would like to hand over to Mario for some more details to the financial figures. Mario?
Thank you, and good morning also from my side. As was mentioned, the closing as per 230 is in line with our expectation. And I would like to start on Page 26 and to give you some details on the revenues. So revenues went up by 2%, but we have to take out the exceptional. The main exceptional is the positive impact from the stronger euro.
If you take that out, we have a like for like increase of €27,000,000 Let's say, the flat evolution of the top line and we have the same story as in Q1. The increase of revenues of Fastweb compensates for the decrease of the revenues of the Swiss business. In Switzerland, in the residential segment, we saw a decrease of the service revenue by €95,000,000 in the first half, and the main elements of this decrease are the following: decrease of voice access lines with an impact of €35,000,000 converge discounts with an impact of €44,000,000 roaming from €9,000,000 These are the main effects for the decrease. On the other side, we saw some uplift on the hardware revenues. The mix of both handsets goes more and more towards high end devices, but that has practically no impact on margin or EBITDA.
In the Enterprise segment, service revenue went down by $29,000,000 in the first half. That's as was mentioned, price pressure in mobile and structural changes due to the OL IP migration to fixed line business. The solution business had a kind of a different dynamic in Q2 after an increase of €7,000,000 in Q1. We saw a decrease of €19,000,000 in Q2, which is coming mainly from the banking vertical Urs explained before for the reasons. I expect for Q3 and Q4 in the overall solution business, again, revenues in the area of Q2, meaning $250,000,000 per quarter.
In the wholesale segment, we saw an increase of €12,000,000 Here, we benefit from higher volumes from the broadband connectivity. In the Fastweb, we had an increase of 9.5% of DXL revenues and there all three segments contributed to the increase, consumer segment, dollars 50,000,000 the enterprise segment still a strong position. We are able to maintain this strong position, an increase of $27,000,000 And also the wholesale business increased the revenues by $11,000,000 And you will see on the OpEx of the Swiss business. Acquisition retention costs went down by €28,000,000 2 main effects. We have less subsidized Internet routers, €11,000,000 impact and less subsidized TV boxes, €14,000,000 Then we saw lower outpayments.
There we have lower rates for outbound roaming, an impact of $6,000,000 and lower outpayments for termination because of lower MTR tariffs of €5,000,000 with no impact on the margin. Then we had lower indirect costs. It was explained that we are well on track with our cost program. The main benefit we see on the personnel costs, lower expenses of €32,000,000 external workforce and marketing and IT costs are the other elements of the cost reductions. We had higher costs for goods and services.
It's mostly revenue driven with a limited impact on the margin. Around $40,000,000 comes from the Retail segment and $18,000,000 from the Enterprise segment. On the next slide, the EBITDA breakdown by segment. Here again, you have to clean for extraordinary items. Reported, we have a decline of €117,000,000 There we have to take out litigation €95,000,000 or CHF102,000,000 The impact of IFRS 15 was CHF 33,000,000 On the other side, we benefit from the stronger euro, CHF 28,000,000 and like for like we see this €13,000,000 decrease, also, I would say, a stable evolution of the EBITDA.
The Swiss business decreased on a comparable basis by €51,000,000 Here on the Retail segment, the EBITDA margin went down by €68,000,000 or 4.7%. As you saw before, service revenue went down by €95,000,000 So part of it, we were able to compensate for this cost reduction. Here we see strong benefits with our on the cost side in the call centers and in field force, we have less number of calls and in the field force less intervention. That's due to digitization, the all IP migration. We are starting to benefit from the all IP migration and also from a very stable network.
Enterprise segment went down by $25,000,000 Here we saw the decline of the service revenue of $29,000,000 So again, half of it, we are able to compensate with cost reductions. And in the Wholesale IT and Network division, this includes also the app log functions. We have on the on one hand side, we have higher connectivity services. On the other side, we have lower indirect costs. We are able to reduce quite a number of SCs in the overhead department.
In Fastweb, the increase of €70,000,000 is mainly driven by higher number of revenue generating units. And you have to take into consideration that we had in the prior year in the first half a positive impact from a change of regulated On Page 29, there's nothing special below the EBITDA. Net interest are at the low level of €70,000,000 per quarter. We have nothing no financing activities, Maturity profile, etcetera, you can find on Page 53. We have all the details on the financing side.
Tax rate is normalized at 20.8% after the high tax rate we saw last year. That brings me to the CapEx. Also here, we have no surprises, quite stable CapEx compared to prior year. One remark to Switzerland, the €711,000,000 are at the prior year level. Helios fiber rollout accelerated, reinvested in the first half SEK 227,000,000 after having only invested €100,000,000 in Q1.
So that means we could accelerate our rollout speed and we think at the year end, we will land at around CHF 0.5. Fastweb in local currency was 1.7% higher than in 2017, and this increase is driven by B2B customer CapEx. Next slide, operating free cash flow. Here on the one remark, we had an increase in working capital in the first half twenty eighteen, mainly as a result of prepayments and the lower trade payables. That's nothing special.
I expect that to be flattening out over the full year. That brings me to the underlying EBITDA trends and the guidance. The EBITDA, the underlying EBITDA trends for Swiss Business we guided for, you can find on Page 33. These are indicative effects for the full year. You see how we performed in the first half.
Overall, for all these side effects, we are confident that the net effect will be at around minus €100,000,000 for the full 12 months in 2018. And having said that, that's of course that we can confirm the guidance with a stable revenue development of €11,600,000,000 and EBITDA of €4,200,000,000 and CapEx of $2,400,000,000 bringing us to a free cash flow proxy of 1,800,000,000 And with that, I hand over to the operator.
Thank We already have some questions. I will start with Frederic Boulan from the Bank of America. Please go ahead.
Hi, good morning, everyone. Thanks for taking the question. I have 2. First of all on Fastweb, if you could come back a little bit on the revenue trajectory, which has been very solid. The EBITDA was very modestly with a substantial increase in costs, the same as Q1.
So firstly, what's driving this? What's driving a weaker or some pretty weak operating leverage? And secondly, what do you expect for H2? I think if I look at your guidance of €700,000,000 for the year, it implies almost 10% EBITDA growth in H2. So what's going to drive that improvement in the second half?
Thank you very much.
Good. My last question on the first half, there are different elements on the cost side. So we have on the first half, we have higher subscriber acquisition costs coming from the mobile business. Secondly, we had a different mix in the B2B segment, a bit more hardware revenues with low margin. I would say that are the main effects.
The other cost element, let's say, like network costs, indirect costs, they are more or less stable. And on the full year guidance, maybe we expect an increase of EBITDA between 5% 8%. It depends again also on revenue mix in B2B, on customer acquisition costs depending is depending on the market dynamics. I would say it will be an increase within 5% 8%, more on the side of 8%.
So anything specifically that you think will improve sequentially in the second half? I mean, you're going to see less of the pressure you mentioned for H1 in terms of SEC or I mean what's going to drive that substantial acceleration in the second half?
We have 3 segments and it depends on the mix of the segment. And as you know, the wholesale segment has quite high margin and there we see some business coming also in the second half from the wholesale segment.
Okay. Thank you.
Then I have the next question from Saroop Poureuil from the company Redburn.
Good morning, everyone. I just wanted to ask a question on your CapEx. So could you provide us with kind of an outline or a profile for the next 2 or 3 years considering the spectrum that's coming up in 'nineteen and your 5 gs plans? And then secondly, I have a question on SALT. It seems quite clear that the RGUs weren't really affected by the SALT launch.
But have you Thank
you. I will
Thank you.
I will take the question to Thoth and Mario will take the question to the CapEx. To salt, actually, if you look to our figures, you can see that we don't feel an impact from the launch of salt. So we have a churn in our wireline business, which is below previous year. We have a very good momentum in 1. So we don't feel a negative impact on the launch of salt.
So it shows that still a big part of the Swiss market is looking for quality for integrated offers, and we certainly have a good differentiation in our product portfolio also through our TV platform. So we also remain confident for the second half of the year that we will have a good performance in the white line market. Mario? And on the
CapEx side, in Swiss CapEx, we did see in 2018 CapEx of around $1,600,000,000 And the main elements are maintenance CapEx going into the infrastructure, around €500,000,000 As I mentioned in fiber, fiber to the 3, on fiber to the home less than €500,000,000 and then in mobile between €260,000,000 €300,000,000 and the rest are project driven and customer driven. And I would say for the next 2, 3 years, we see the same CapEx envelope of around SEK 1,600,000,000 maybe some changes in the composition of the overall month. But we are confident that the overall, we can also do the necessary lessons for 5 gs. Maybe you've seen $30,000,000 more, it was $30,000,000 less, but the overall cost will be the same for the next 2, 3 years. And on spectrum, which, as I've mentioned, will take part in January, we, of course, give no details and no guidance.
Okay. Thanks very much.
Then I have the next question from Joshua Miles from Goldman Sachs.
Hi there. Thanks for taking the question. I just wanted to ask a couple on 1 on Retail, 1 on B2B. On the Retail side, so I think as previously mentioned, the net adds haven't come down that much in the Q2. We look at Liberty numbers last week and see they were quite weak.
So I just wondered from your perspective where you have lost subscribers, whether that's been more to Sunrise or Salt over the last quarter and what kind of portability ratios you're seeing going forward as well? And then secondly on B2B, the service revenue, so it looks like they improved actually sequentially in the Q2, notwithstanding the decline in the solutions business, which is lower margin. So what is happening in B2B? Have you won any bigger contracts? Are you seeing an improved outlook on the Enterprise segment?
Or does it still remain quite competitive as Sunrise has recently spoken about having won some contracts?
Good. On the retail, Mark, so as I mentioned it before, we have lower churn figures than previous years. So we don't actually have a feel an additional dynamic on the churn side. And if you look to our to the whole market, the market is totally saturated. And my feeling is a bit on the market that other players are suffering more from salt than Swisscom.
And we feel more in the fiber to the home turf that maybe our net adds are small, small lower in the fiber to the home turf because of the dynamic of salt. But overall, we have a very good dynamic in the InOne and on the churn side. So as I mentioned before, I remain confident for the second half of this year. From the B2B market, so as I explained it on the chart before, if you look to the B2B Market 15 to the service revenue, you can see that we have stable subscription base. That means Swisscom is able to protect the market position in the B2B market.
So our competitors are not gaining overall market share. And we have some price pressure, but you see on a comparable basis that from Q1 'seventeen to Q2 'seventeen to Q2 'eighteen, the revenue went down by $5,000,000 There is not a big impact on it. And therefore, the main question in the B2B market is driven by project renegotiation, which has also a price impact. So the segment will remain competitive as it was always before. But Swisscom has a very large and broad project portfolio where we are differentiated, where we can deliver solution, which is important for this segment.
So overall, long term, I remain positive for these enterprise segments that we can protect our market position and using the digitalization.
Thanks. So can I just come back
on the first question? I guess my point is we're all very focused on what Salt's doing in the market in terms of price competition. But there's been quite a few promotions recently from Sunrise, particularly Ironfix as well. So from your perspective, has Sunrise become more competitive in retail over the last 3 months? Or is it broadly unchanged?
No, unchanged. I would say unchanged.
Great. Thank you.
Then I have our next question from Jakob Bluestone from Credit Suisse.
Hi, good morning. I've got two questions, please. Firstly, on Italy, you talked with the Tiscali acquisition about moving more into fixed wireless access. And I was wondering, can you maybe comment a little bit on the sort of CapEx outlook for that business as well? Do you think over time that you might start to increase CapEx again a bit more in Italy?
And then secondly, just on Swiss fixed line, and apologies for coming back to Salt again. I mean, you obviously mentioned that your churn fell year on year. Can you maybe sort of comment a little bit on what were some of the things that drove that? Were there any sort of below the line promotions? Were there bigger retention offers?
Were there any sort of particular actions you took to deliver that churn reduction that you can share with us? Thank you.
Okay. I take the question on sales and Mario then has the question on mobile physically and CapEx in Italy. So the churn actually, the main reason why we could decrease our churn in Switzerland is driven to our product portfolio, quality on network and quality in the customer service. This brings higher customer loyalty. On the promotion side, we at Swisscom, we don't do so much promotion as our competitors are doing.
And also, we don't have big retention programs. Our strategy is to deliver a superior quality and attractive product portfolio, and that's the best way to protect the customer base, bringing more value, giving more value to our customers. And are you now on topic?
On this call, as we mentioned, the priority is to leverage on the existing asset base we have in Italy. There are just to remind you, we have 45,000 kilometer of fiber assets. We connect 1060. We have 22,003 cabinets. And to that, we added this 40 megahertz spectrum at 3.5 gigahertz.
And as Urs mentioned, it's not our target to become a nationwide mobile provider. So it will be a combination with own networks in cities and with partnering with our telecom. And we expect that the overall CapEx in the start that will remain more or less flat than we can afford Some additional CapEx in this envelope.
Thank you.
Then I have the next question from Julio Arceneyergas from RBC.
Yes, good morning. Thanks for taking my question. Looking at the fixed mobile net adds of Inu in the last 16 months, Q2 has been the quarter with the lowest net adds. So is the company pushing less the fixed mobile conversion bundles or what is behind this acceleration? Thank you.
No. If you look to the penetration of InOne, so it's always going up. So that's clear in the beginning, you have a faster uptake on a product, but then it's becoming more and more saturated. And today, on InOne, we have in the first half year, 500,000. And the
fixed mobile conversion is mid year is 33% and end of Q1 was 31% and 12 months ago, it was 24%. You see the FM conversion is increasing, but no let's say, we did not stop to push for conversions. That was mentioned, you have this take up usually strong at the beginning, but you still see that we are able to grow the F and M converge customers, that will also be happening in the second half.
Yes. The penetration broadband went up from 42 to 48 that shows it continues.
Yes, yes. If I may follow-up on that, the company has roughly 4,600,000 postpaid subscribers, but less than 1,000,000 that are actually fixed mobile convergent. So from your answer, we should expect that basically the company is already like arriving like to their limit of convergence?
No. We continue here. You can see we are increasing the converged amount of customers quarter by quarter.
Julio, perhaps to add there, I mean the 4,600,000 prospects does include also the enterprise segment. So the in one product is only available for the retail sector, for the residential and SME customers. Do you have different numbers, the €3,379,000,000 for the top, not the €4,600,000
Okay. Yes. So it's over the $3,300,000 So roughly less than 33% of penetration currently. Okay. And if I may follow-up in another question regarding Italy and the Discali deal.
Can you give us some color on the conditions in which Discali can access fast web network? Swisscom has a contract of €40,000,000 with Tiscali for the next 4, 5 years. So this contract has a limit of subscribers that actually Tiscali can include in your network? Or for example, does Tiscali has to pay a recurrent fee per subscriber? Just to have some color on what to expect, for example, from wholesale revenues in Italy.
Thank you.
Good. We will have a deal with typically where we buy some assets from them and where they get wholesale access to our networks. And so that's the main idea. So this will on the other side, this will have not a huge impact on the wholesale revenue of Fastweb at Jens, but it will certainly have a slightly positive impact.
Okay. Thank you.
And the contract value of this wholesale service is public, as that's around $40,000,000 As Ross mentioned, it's not material. And then please consider it. We cannot give any more details because the our transaction is not yet closed.
Then I have a next question from Mr. Von Leggenhorst from Kepler Cheuvreux.
Yes, good morning. Matthijs Schaller with Kepler Cheuvreux. Yes, a lot of questions have been answered. I have one remaining question, Horn, Italy. How should we look at the strategic positioning of footprint and especially regarding its broadband role because obviously we have possible unblending of telecom materials network.
You have the JV with telecom retail. We have OpenFiber. How should I look at this for the coming years and then especially at your CapEx as well?
Good. As Mario already mentioned before, the CapEx in Italy will stay in a region where we are. Once they are going up a bit and then going down a bit, but we will not have a big change in the CapEx envelope in Italy. Our strategy is to have a known footprint in Italy. So we have already a good footprint, but we are also use wholesale products from competitors.
So overall, there will be no big change in the campaign.
And I have the next question from James Ratzer from The New Street Research.
Yes, good morning. Thank you. I had two questions, please. The first one is, I mean, in the Swiss market, I think one of the standout figures from this quarter was the strength of your bundled ARPU, which was up 6% year on year CHF 136. I wonder if you could kind of just talk a little bit more about how you see that developing going into the second half And specifically what's driven that uptick in Q2?
Because I think that was only flat year on year at Q1. I mean, are you now seeing less discounting going on within the market? Just interested to kind of discuss that a little bit further. And then secondly, in Italy, could you give us an update please on progress and your happiness with the flash fiber JV with Telecom Italia? Are you still happy to persist with that?
Or have you got any interest in also developing business with Enel Open Fiber? And on the fixed wireless access product, could
you talk
a little bit about where geographically you're going to launch that? Doesn't that actually overlap and compete directly with your own fixed proposition? So do you plan to roll that out in more rural areas? Thank you.
I will take the question on Fastweb and Marty then the ARPU question in Switzerland. On Flash Fiber, so the intention of Flash Fiber is to using a synergy between our existing infrastructure we have already in Italy and upgrading them to drive to the home. And so therefore, we are happy with the partnership in flash fiber business is still a valid partnership. On a possible partnership with Enel. So Enel could also be a supplier for us in areas where we don't have our own network.
So we are open to partner or to using products from them. It could also be a chance for faster paint in a new area. And the main idea of the deal with Tiscali is not fixed wireless access. The main idea of this deal with Tiscali is to get to strengthen our mobile proposition in cities, in areas where we have also our own footprint in the broadband business.
Mario, on the ARPU? And then on Form 6, mobile bundle output which stands in Q2 at 136, I don't expect a further increase in Q3 and Q4. I think at the beginning, you have all the optimizers which are coming to the new bundle.
The value has still had
the impact from Q2 2017 at the level of $128,000,000 Now I think we are able to bring the customers to these bundles. They are upgrading their mobile subscription and also take some higher bandwidth, but I don't expect for the next few quarters there a further increase. It's quite a considerable level at 136 for a bundle.
Is that changing in Q2 specifically kind of your ability to now be less promotional if you actually think kind of Salt is having less of an impact than you thought in the market?
No, no. It is impacted. It's just a good job at the sales front. They are able to convince the customer to go to higher speeds to take mobile subscription. I think that's the main impact.
And I was mentioned several times in Q2, we really didn't see any impact from SOL, both on fixed and then at mobile.
Great. Thank you.
Then I have the next question from Nicholas Frisehoven from UBS.
Hi, good morning, everybody. I have a couple of questions, if I may. The first one is on cost savings from All IP migration. You mentioned that we'll start to see that benefit delivered in Q2. I was just wondering if we're still expecting to see around CHF 20,000,000,000 of benefit in 2018.
And I was wondering if you could give any more color on the form of these savings that you can help us understand how much is going to come through lower labor expense and how much will come through other cost lines? And then secondly, it looks like you've derived around CHF 16,000,000 of benefit from lower marketing and advertising in the quarter. I was just wondering if there's a timing effect or if we should comment on the sustainability of this in H2 and if we should extrapolate the accelerated cost reductions through the remaining quarters? And then just finally, as a quick follow-up on churn. In 2016, you showed a chart that fixed churn on your quarterly base is around 4 times lower than the double play base.
You've been selling in 1 now for around or in 1 converged tariffs now for every year. So I was wondering if you could update us on your fixed churn dynamics on your quad play base and perhaps give us an idea of what your quad play churn is? Thanks very
much. Mario will take the question to the cost. I will come to this churn topic. So we don't disclose churn figures on different products. But what I can tell you is that we have low churn figures, stable or slightly lower than previous year.
And they chose actually that a customer which is in a quadruple play offer has a lower churn than a single play customer. So that's actually in each market a bit the same. And then also in Switzerland, that's the case. That's why we are driving our in one offs. We are in a saturated market.
In a saturated market, it's important to look on ARPU, on joint figures and on the market share on the service revenue and not only on the subscription and the revenue generating units. I on cost
and on the cost side, as we mentioned, first half, we had cost reduction of 56,000,000 dollars with that accounting $32,000,000 from personnel $4,000,000 from external workforce. That's capacity cost. That means around 70% of the $50,000,000 plus are coming from capacity costs. And the rest comes from other cost elements like marketing, IT, etcetera. And I expect more or less the same composition also for the second half, but we don't manage our costs and the cost elements on a quarterly basis.
So it is necessary to do more marketing in Q3 due to market conditions than we do it, but we stick to our overall cost saving target of around $100,000,000 per year. We manage this cost base more on a year over year basis than on a Q over Q basis.
Brilliant. Very clear. Thank you very much.
Then I have one last question, a question from Georgios Irdiaconou from Citibank.
Yes, good morning and thank you for taking the questions. Just a follow-up on earlier questions on 5 gs in Italy. I just wanted to make sure I understand when you talked about rolling out in the cities, is it mainly in business parks in order to support your B2B business? Or is it more of a product consumer product you think could be there could be demand for on a 5G basis? And with that, if you don't mind clarifying, since the Iliad launch, you didn't react on price, but you did increase some of the data allowances in your products.
Do you have enough protections in your contract with Telecom Italia to make sure that you still deliver a small margin on mobile? Or is that a risk we now start to see maybe negative margin on mobile over time? And my second question is on the in-one plans. I think on Page 13, you show that they are less dilutive now than they were initially. Based on what we've seen also with Infinity a few years ago, at what point do you expect it to stop being dilutive or perhaps even be accretive because of more upselling?
And is it something that we're getting close to now? Or is it something we'll have to wait for a few years before we see that?
Thanks. Good. On this or maybe I can take the D1 question. We will have to give some answers to Italy. So our main target in Italy with 5 gs is to be able to have a converged offers for our broadband customers.
So we have an MVNO contract today in Italy, which enables us to have a margin on it. So we are doing a margin on mobile in Italy, not the high one, but we are doing one. And with 5 gs, we will be able to have an improvement of our margin base and also the flexibility to offer projects, mobile products in Italy. The aim is to also offload, to have an offload in cities and then to be stronger in the mobile parts and more details I don't want
to get. It's
too early. And on N1 N1 dynamic.
I think you cannot compare the in one product with Infinity. So in one is the converged products and there you will always have a discount and that we will also see in the future. So as we mentioned, the peak of the impact of the convergence in 2018, we've described €80,000,000 that will come down because we'll have less and less commerce customers. But you did not see a positive impact from the inbound. We were able to minimize the negative impact we saw at the beginning with the negative impact on wireline, it's more or less 0 right now or slightly positive.
We still have the positive impact on YOLF, but the discount for the converged customers in remaining place. That brings you an excellent question.
Okay. Could I ask a follow-up on mobile in Italy? Are you starting to also convert some of the B2B customers to the mobile offers? Can you give us some color as to what's the mix in consumer and B2B and what we are in to achieve in the next couple of years? Thank
you. The main priority
in Italy today is to focus ourselves on the mass market. And long term, mid term, if we have a more decent mobile portfolio, we certainly also get our opportunities in the B2B
market.
Okay. This was the last question. There are no more questions in the queue.
Okay. Thank you, operator. And with that, I'd like to conclude today's conference call. If you should have any further questions, please don't hesitate to contact us from the IR team. Speak to you soon, and separate
The conference recording has been stopped.