Good morning, ladies and gentlemen. Welcome to the second quarter results 2018, presented by Urs Schaeppi, Mario Rossi, and Louis Schmid. Louis, the floor is yours.
Good morning, ladies and gentlemen, and welcome to Swisscom's Q2 results presentation. My name is Louis Schmid, Head of IR, and with me are our CEO, Urs Schaeppi, and Mario Rossi, our Chief Financial Officer. The first part of today's analyst investor presentation, hosted by our CEO, consists of three chapters. First, a quick overview of the highlights, operational performance, and financial results for Q2 and the first six months. Second, an update on our activities performance in Switzerland. Finally, some explanations on our Fastweb results for the first six 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. 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 appealing performance. The EBITDA went up by 5% year-on-year. We had success in Switzerland with our converged offer inOne. Interesting is to see that we are really able to even decrease the churn in a competitive market to 5% with inOne. We will have the spectrum auction in January 2019. On cost control side, we are on track. We could decrease our cost by CHF 56 million in the first half year. Also TV is developing well. 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, this business is always a bit volatile. If I look also to the order intake in the banking segment, I'm positive. Overall, our outlook remains positive to the solution business in the B2B market. Overall, we confirm our guidance for 2018. If you jump to slide five, you can see our operational performance. In a saturated market, Swisscom is able to protect the market position. 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 in Q2, and also in broadband in Italy, we had some growth. If you go to slide six, some remarks to our financial key figures. On the revenue side, we have a reported revenue which went up by CHF 115 million. On a like-for-like comparison, it's CHF 27 million. 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 Swisscom Switzerland and Fastweb higher revenue. On the EBITDA side, we had a one-off exceptional. The EBITDA reported went down by CHF 117 million. On a like-for-like base, we have a stable EBITDA, so minus CHF 13, but a stable EBITDA.
The main one-offs are IFRS 15 with an impact of CHF 33 million, and the litigation in Italy from last year, which has an impact of CHF 102 million. If you look on the EBITDA waterfall in Switzerland, you see that the EBITDA in Switzerland went down by CHF 51 million. The main effect on it is the reduction of the voice line. It's the structural effects in the market, which has an impact of CHF 35 million. At the converged discount with CHF 44 million, some price pressure in B2B with CHF 25 million, and the positive impact of the indirect costs, where we could save CHF 16 million. Overall, stable EBITDA on a comparable base, and the result is fully in line with our guidance. If you go to slide eight, you see that the Swiss market is saturated. 130% penetration mobile, 102% in broadband, 118% in TV.
This shows why we have a focus on a value strategy. On slide nine, our management priorities. I don't want to go deeper in it. They are stable. Network quality, penetrating the potential of all the product inOne, the bundled product, and also costs will remain an important pillar of our priorities in the next months. 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. We are upgrading our networks, and actually, we have 30% of Switzerland which has a bandwidth above 200 Mbps, and 59% above 80 Mbps. This will increase in 2021, as you can see on the chart, to 90% or 75%.
Also on mobile, we are upgrading our networks to make them faster. 4G+ speeds up to 1 Gbps. We have today a population coverage of 4G, which is 99%, and 4G+, which is above 80%. Network quality remains very important for Swisscom. If you go on slide 11, some remarks to the spectrum auction on 5G, which will be held in January 2019. On the left side of the chart, you see what kind of spectrum Swisscom has today. Currently, Swisscom owns 255 MHz, and this is a total part of the spectrum of 44%. On the right side of the chart, you see which kind of spectrum will be available in 2019. Important is what are the caps in the spectrum auction. Swisscom has a maximum allocation of 235 MHz, which would be 49%.
Swisscom remains confident that we can deliver a good customer experience with this auction, which will come in January. On slide 12, only one remark. Swisscom continues on the multi-brand portfolio. For high-end or for value customer, we have the Swisscom portfolio within inOne. For smart shoppers, we have the product brand Wingo. For upper discount, M-Budget, and for lower discounts, SimplyMobile. We have a broad 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 some figures to inOne. Total revenue-generating units in inOne are 3.75 million subscriptions. We have a penetration on inOne mobile of 43%. You see the increase of Q1 to Q2. You see also that we are able to increase the penetration from inOne to 48% on broadband. That's our strategy.
We will have a higher customer loyalty, lower churn figures, and a higher NPS. It shows that this strategy works. On the bottom of the chart, you see the development on the ARPU. On mobile, we are able to upsell. On wireline, we are in the region of zero impact on ARPU. We have the converged 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 CHF 43 to CHF 41. The main impact here is the mix, because we are migrating more and more prepaid to postpaid.
There is a small dilution in the ARPU. Overall, a solid wireless business. 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. A stable ARPU of CHF 41. On the right side of the chart, you see that we are able to grow with our bundled offers. We have a revenue increase of CHF 100 million. We are able to get a higher ARPU in the bundled offers from CHF 131 to CHF 136. 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.
Overall, we are able to have a stable or slightly increasing subscription base in mobile. 1.27 million subscriptions in mobile, which is 10,000 more than previous year, stable. In the voice part, we see that the subscriptions are going down. This is driven by IP substitution, All-IP effects. This is the structural part, what we have also in the retail market. 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 confrontation. That shows that we are performing well on the service revenue side. Some remarks to the solution revenue. In Q2, it was CHF 252 million. 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 the digitalization is going forward. Cloud is becoming more important. We have a growth in the cloud business. We are growing in security. Overall, we remain positive for the solution revenues. On slide 16, you see a bit more in detail what is behind the solution revenue. It's a quite heterogeneous project portfolio where we have workplace solutions, digital solution, but also cloud and security. On slide 17, some remarks to our cost reduction. We are well on track to reach our cost savings of CHF 100 million. How we do it? We do it through efficient operation, process optimization, All-IP product 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.
Smart investing to increase our CapEx efficiency and roll-out 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 a FMC offer is increasing, and it is at 64%. That shows that also conversion is important for Fastweb. What we see is that in a converged offer, the stickiness is approximately 30% higher. 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.
What we will use is our strong footprint in the ultra-broadband market, fixed market. Our fiber backhauling, our street cabinets, and having a smart deployment of 5G mainly in very focused and large cities. It's not our ambition to become a fifth mobile operator in Italy, but smarter deployment, and it will be self-financed by Fastweb. On page 21, some remarks to the Tiscali transaction which we announced several weeks ago. The main idea of this transaction is to get access to the spectrum, which we can use for 5G. This 40 megahertz in the 3.5 GHz band. We will get the ability to strengthening our mobile proposition. It will be a very selective deployment. On page 22, the performance on the consumer segment. 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%. 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 two in Italy. We have a market share of 40%. On the right side of the chart, you can see some KPIs in the B2B market. Order input is increasing and also the revenues. 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%. 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. Good morning also from my side. As was mentioned, the closing as per June 30 is in line with our expectation. I would like to start on page 26 and to give you some details on the revenues. Revenues went up by 2%, we have to take out the exceptionals. The main exceptional is the positive impact from the stronger euro. If you take that out, we have a like-for-like increase of CHF 27 million. Let's say we have a flat evolution of the top line, 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 CHF 95 million in the first half, the main elements of this decrease are the following: decrease of voice access lines had an impact of CHF 35 million; converged discounts, an impact of CHF 44 million; roaming for CHF 9 million. These are the main effects for the decrease. On the other side, we saw some uplift on the hardware revenues. The mix of sold handsets goes more and more towards high-end devices. That has practically no impact on margin or EBITDA. In the enterprise segment, service revenue went down by CHF 29 million in the first half. As was mentioned, price pressure in mobile and structural changes due to the All-IP migration in the fixed line business. The solution business had a different dynamic in Q2.
After an increase of CHF 7 million in Q1, we saw a decrease of CHF 19 million 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 CHF 250 million per quarter. In the wholesale segment, we saw an increase of CHF 12 million. Here we benefit from higher volumes from the broadband connectivity. In the Fastweb, we had an increase of 9.5% of the external revenues, there all three segments contribute to the increase. Consumer segment, CHF 50 million. The enterprise segment, still a strong position. We are able to maintain the strong position, an increase of CHF 27 million. Also the wholesale business increased the revenues by CHF 11 million. A few words on the OpEx of the Swiss business. Acquisition retention costs went down by CHF 28 million.
There are two main effects. We have less subsidized internet routers, CHF 11 million impact, and less subsidized TV boxes, CHF 14 million. We saw lower out-payments. There we have lower rates for outbound roaming, an impact of CHF 6 million, and lower out-payments for termination because of lower MTR tariffs of CHF 5 million with no impact on the margin. We had lower indirect costs, Urs Schaeppi explained that we are well on track with our cost program. The main benefit we see on the personnel costs, lower expenses of CHF 32 million, external workforce and marketing and IT costs are the other elements of the cost reductions. We had higher costs for goods and services. It is mostly revenue-driven with a limited impact on the margin. Around CHF 40 million comes from the retail segment and CHF 18 million from the enterprise segment. On the next slide, the EBITDA breakdown by segment.
Here again, we have to clean for extraordinary items. We thought that we have a decline of CHF 117 million. There we have to take out litigation, EUR 95 million or CHF 102 million. The impact of IFRS 15 of CHF 33 million. On the other side, we benefit from the stronger euro by CHF 28 million. Like for like, we see this CHF 13 million decrease. Also, we would say a stable evolution of the EBITDA. The Swiss business decreased on a comparable basis by CHF 51 million. Here on the retail segment, the EBITDA margin went down by CHF 68 million or 4.7%. As you saw before, service revenue went down by CHF 95 million. Part of it, we were able to compensate for this cost reduction. Here we see strong benefits 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 CHF 25 million. Here we saw the decline of the service revenue of CHF 29 million. Again, part of it, we were able to compensate with cost reduction. In the wholesale IT and network division, this includes also the [App Plot] functions. On one hand side, we have higher connectivity services. On the other side, we have lower indirect costs. We were able to reduce quite a number of FTEs in the OV department. In Fastweb, the increase of CHF 17 million is mainly driven by higher number of RGUs.
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 bitstream prices. On page 29, there's nothing special below the EBITDA. Net interests are at the low level of CHF 70 million. Also, we have no financing activities. Maturity profile, et cetera, you can find on page 53. There you 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 CHF 711 million are at the prior year level. Here the fiber rollout accelerated. We invested in the first half CHF 227 million after having only invested CHF 100 million in Q1.
We could accelerate our rollout speed, and we think at the year-end, we will land at around half a billion Swiss francs. Fastweb in local currency was 1.7% higher than in 2017, and this increase is driven by a B2B customer CapEx. Next slide on operating free cash flow. Here, only one remark. We had an increase of working capital in the first half 2018, mainly as a result of prepayments and 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 underlying EBITDA trends for the Swiss business, the guidance 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 five effects, we are confident that the net effect will be at around minus CHF 100 million for the full 12 months in 2018. Having said that, of course, we can confirm the guidance with a stable revenue development of CHF 11.6 billion, an EBITDA of CHF 4.2 billion and CapEx of CHF 2.4 billion, bringing us to a free cash flow proxy of CHF 1.8 billion. With that, I hand over to the operator.
Thank you. Ladies and gentlemen, thank you for your attention. You have now the opportunity to ask questions by dialing star one four on your telephone keypad. Once you are in the question queue, at your turn, you will hear a short announcement saying, "Unmuted." If you have any questions now, please press star one four. 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 two. 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 up very modestly with a substantial increase in cost, the same as Q1. Firstly, what's driving this? What's driving a weaker, well, some pretty weaker margin leverage. Secondly, what do you expect for H2? I think if I look at your guidance of CHF 700 million for the year, it implies almost 10% EBITDA growth in H2. What's going to drive that improvement in the second half? Thank you very much.
Good. Mario, would you take the question? On the first half, I'd say there are different elements on the cost side. We have on the first half is higher subscriber acquisition costs coming from the mobile business. Secondly, we have 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. On the full year guidance, we expect an increase of EBITDA between 5% and 8%. That depends again also on the revenue mix in B2B, on customer acquisition costs. These depending on the market dynamics, but I would say EBITDA increase between 5% and 8%, more on the side of 8%.
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 SAC or, I mean, what's going to drive that substantial acceleration in the second half?
You know, we have three segments, and it depends on the mix on the segments. As you know, the wholesale segment has quite a high margin, and there we see some business coming also in the second half from the wholesale segment.
Okay. Thank you.
I have a next question from Swaroop Purewal from Redburn.
Morning, everyone. I just wanted to ask a question on your CapEx. Could you provide us with an outline or a profile for the next two or three years, considering the spectrum that's coming up in 2019 and your 5G plans? Secondly, I have a question on Salt. It seems quite clear that the RGUs weren't really affected by the Salt launch. Have you seen anything subsequently, and are you seeing anything at the moment in your numbers? Thank you.
I will take the question to Salt, 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. We have a churn in our wireline business, which is below previous year. We have a very good momentum in inOne. We don't feel a negative impact on the launch of Salt. It shows that still a big part of the Swiss market is looking for quality for integrated offers. We certainly have a good differentiation in our product portfolio also through our TV platform. We also remain confident for the second half of the year that we will have a good performance in the wireline market. Mario? On the CapEx side, in Swiss CapEx, we will see in 2018 a CapEx of around CHF 1.6 billion.
The main elements are the maintenance CapEx going into the infrastructure, around CHF half a billion. As I mentioned in fiber to the street from fiber to the home, less almost of CHF half a billion. In mobile, between CHF 260 million and CHF 300 million. The rest are project-driven and customer-driven. I would say for the next two, three years, we see the same CapEx envelope of around CHF 1.6 billion, maybe with some changes in the composition of the overall amount. We are confident that in overall, we can also do the necessary investments for 5G. Maybe you see one year, CHF 30 million more; in one year, CHF 30 million less. The overall envelope will be the same for the next two, three years. On spectrum, which as was mentioned, will take part in January, we of course give no details and no guidance.
Okay. Thanks very much. I have the next question from Joshua Mills from Goldman Sachs.
Hi there. Thanks for taking the question. I just wanted to ask a couple on, one on retail, one on B2B. On the retail side, I think as previously mentioned, the net adds haven't come down that much in the second quarter. We looked at Liberty Global numbers last week and see they were quite weak. 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. Secondly, on B2B, the service revenues looked like they improved actually sequentially in the second quarter, notwithstanding the decline in the solutions business, which is low margin. 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? Thanks.
Yeah, sure. Good. On the retail mark. As I mentioned it before, we have lower churn figures than previous years. We don't actually feel an additional dynamic on the churn side. If you look to the whole market, the market is totally saturated. My feeling is a bit on the market that other players are suffering more from Salt than Swisscom. We feel more in the fiber-to-the-home turf that maybe our net adds are smally lower in the fiber-to-the-home turf because of the dynamic of Salt. Overall, we have a very good dynamic in inOne and on the churn side. As I mentioned before, I remain confident for the second half of this year.
From the B2B market, as I explained it on the chart before, or if you look to the B2B market 15 to the service revenue, you can see that we have a stable subscription base. That means Swisscom is able to protect the market position in the B2B market. Our competitors are not gaining overall market share. We have some price pressure. You see on a comparable base, that from Q2 2017 to Q2 2018, the revenue went down by CHF 5 million. There is not a big impact on it. Therefore the main pressure in the B2B market is driven by project renegotiation, which has also a price impact. The segment will remain competitive as it was always before.
Swisscom has a very large and broad project portfolio where we are differentiated, where we can deliver solution, which is important for this segment. Overall, long-term, I remain positive for this enterprise segment that we can protect our market position and using the digitalization.
Thanks. 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. There's been quite a few promotions recently from Sunrise, particularly around fixed as well. From your perspective, has Sunrise become more competitive in retail over the last three months, or is it broadly unchanged?
No, unchanged. I would say unchanged.
Great. Thank you.
I have a 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. 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? Secondly, just on Swiss fixed line, and apologies for coming back to Salt again. You obviously mentioned that your churn fell year-on-year. Can you maybe comment a little bit on what were some of the things that drove that? Were there any below-the-line promotions? Were there bigger retention offers? Were there any particular actions you took to deliver that churn reduction that you can share with us? Thank you.
Okay. I take the question on Salt and, Mario, then the question on mobile Tiscali and CapEx in Italy. To the churn, actually. The main reason why we could decrease our churn in Switzerland is due to our product portfolio quality on networks 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. Also, we don't have bigger 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. Mario, now on CapEx.
On Tiscali, as we mentioned the priority is to leverage on the existing asset base we have in Italy. There, just to remind you, we have 45,000 kilometers of fiber assets. We connect 1,000 cities. We have 22,000 street cabinets. To that, we added this 40 MHz spectrum at 3.5 GHz. As was mentioned, it's not our target to become a nationwide mobile provider. It will be a combination with its own networks in cities and with partnering with other telcos. And we expect that the overall CapEx in Fastweb will remain more or less flat, and we can absorb some additional CapEx in this envelope.
Thank you.
I have the next question from Julio Arciniega from RBC.
Yes, good morning. Thanks for taking my question. Looking at the fixed mobile net adds of inOne in the last 16 months, Q2 has been the quarter with the lowest net adds. Is the company pushing less the fixed mobile convergent bundles, or what is behind this deceleration? Thank you.
If you look to the penetration of inOne, it's always going up. That's clear. In the beginning, you have a faster uptake on a product, it's become more and more saturated. Today on inOne, we had in the first half year, 550,000.
The fixed mobile conversion this mid-year is 33%, end of Q1 was 31%, 12 months ago, it was 24%. We see the FM conversion is increasing, even though we have not stopped to push for conversions. As was mentioned, the take-up is usually strong at the beginning, you still see that we are able to grow the FM converged customers. That will also be happening in the second half.
The penetration broadband went up from 42% to 48%. That shows it continues.
If I might follow up on that. The company has roughly 4.6 million postpaid subscribers. Less than 1 million that are actually fixed mobile convergent. From your answer, we should expect that basically the company's already arriving to their limit of convergence?
No. We'll continue. You can see we are increasing the converged amount of customers quarter by quarter.
Julio, perhaps to add there, the 4.6 million prospects does include also the enterprise segment. The inOne product is only available for the retail segment, the residential and SME customers. You have different numbers, the 3.379 million postpaid subs, not the 4.6 million.
Okay. Yeah. It's over the 3.3 million.
Yeah.
Roughly less than 33% of penetration currently. Okay. If I might follow up in another question regarding Italy and the Tiscali deal. Can you give us some color on the conditions in which Tiscali can access Fastweb network? Swisscom has a contract of CHF 40 million with Tiscali for the next four or five years. This contract has a limit of subscribers that actually Tiscali can include in your network? For example, does Tiscali has to pay a recurring fee per subscriber? Just to have some color of what to expect, for example, from wholesale revenues in Italy. Thank you.
Good. We have a deal with Tiscali where we buy some assets from them and where they get wholesale access to our networks. That's the main idea. On the other side, this will have not a huge impact on the wholesale revenue of Fastweb at the end, but it will certainly have a slightly positive impact.
Okay. Thank you.
The contract value of this wholesale services is public, and that's around CHF 40 million. As was mentioned, it's not material. Then please consider we cannot give any more details because the whole transaction is not yet closed.
Okay. Understand. Thank you very much.
Thank you. I have a next question from Mr. van Leijenhorst from Kepler Cheuvreux.
Good morning. Matthias with Kepler Cheuvreux. A lot of questions have been answered. I have one remaining question on Italy. How should we look at this strategic positioning of Fastweb, and especially regarding its program roll-out, because obviously we have the possible unbundling of Telecom Italia's network. You have this JV with Telecom Italia. We have Open Fiber. How should I look at this for the coming years and especially at your CapEx envelope?
Good. As Mario already mentioned before, the CapEx in Italy will stay in a region where we are. One day it will go up a bit and then go down a bit. We will not have a big change in the CapEx envelope in Italy. Our strategy is to have a known footprint in Italy. We have already a good footprint, but we are also use wholesale products from competitors. Overall, there will be no big change in the CapEx.
Okay. 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, in the Swiss market, straightaway, one of the standout figures from this quarter was the strength of your bundled ARPU, which was up 6% year-over-year to CHF 136. I was wondering if you could just talk a little bit more about how you see that developing going into the second half and just specifically what's driven that uptick in Q2. Because I think that was only flat year-over-year at Q1. Are you now seeing less discounting going on within the market? Just interested to discuss that a little bit further. 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? 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? Do you plan to roll that out in more rural areas? Thank you.
I will take the question on Fastweb and Mario then the ARPU question in Switzerland. On Flash Fiber, the intention of Flash Fiber is to using synergies between our existing infrastructure we have already in Italy and upgrading them to Fiber to the Home. Therefore, we are happy with the partnership in Flash Fiber. This is still a valid partnership. On a possible partnership with Enel. Enel could also be a supplier for Fastweb in areas where we don't have our own network. We are open to using products from them. It could also be a chance for Fastweb in rural areas. The main idea of the deal with Tiscali is not fixed wireless access. The main idea of this deal with Tiscali is to extend our mobile proposition in cities. In areas where we have also our own footprint in the broadband business.
Mario on the ARPU.
On the fixed mobile bundle ARPU, which stands in Q2 at CHF 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. There you still had the impact on Q2 2017 at the level of CHF 128. 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 CHF 136 for a bundle.
Is that change in Q2 specifically kind of due to your ability to now be less promotional? Do you actually think Salt is having less of an impact than you thought in the market?
No. I think it's a good job at the sales front. They are able to convince the customer to go to higher speeds, to take Natel infinity mobile subscription. I think that's the main impact. It was mentioned several times in Q2, we really didn't see any impact from Salt on fixed and mobile.
Great. Thank you.
I have the next question from Nicholas Freeseven from UBS.
Hi, good morning, everybody. I have a couple questions, if I may. The first one is on cost savings from All-IP migration. You mentioned that we'd start to see that benefit delivered in Q2. I was just wondering if we're still expecting to see around CHF 20 billion of benefit in 2018. I was wondering if you could give any more color on the form of these savings, perhaps you can help us understand how much is going to come through lower labor expense and how much will come through other cost lines. Secondly, it looks like you've derived around CHF 16 billion of benefit from lower marketing and advertising in the quarter. I was just wondering if this is a timing effect, or if we should comment on the sustainability of this in H2, if we should extrapolate the accelerated cost reductions through the remaining quarters.
Just finally, as a quick follow-up on churn. In 2016, you showed a chart that fixed churn in your quad-play base was around four times lower than your double-play base. You've been selling inOne now for around or inOne converged tariff now for over a year. 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. We don't disclose churn figures on different products. What I can tell you is that we have low churn figures, stable or slightly lower than previous years. It shows actually that a customer which is in a quadruple play offer has a lower churn than a single play customer. That's actually in each market a bit the same. Also in Switzerland, that's the case. That's why we are driving our inOne offers. We are in a saturated market. In a saturated market, it's important to look on ARPU, on churn figures, and on the market share on the service revenue and not only on the subscription and the revenue generating units. Mario on cost.
On the cost side, we mentioned first half we had cost reduction of CHF 56 million. There are coming CHF 32 million from personnel and CHF 4 million from external workforce. That's the same. That's capacity cost. That means around 70% of the CHF 50 million plus are coming from capacity cost. The rest come from other cost elements like marketing, IT, et cetera. I expect more or less the same composition also for the second half. We don't manage our costs and the cost elements on a quarterly basis. If it's necessary to do more marketing in Q3 due to market conditions, then we do it. We stick to our own overall cost-saving target of around CHF 100 million 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.
I have one last question. Question from Georgios Ierodiakonou from Citi.
Yes, good morning, and thank you for taking the questions. Just a follow-up on earlier questions on 5G in Italy. I just wanted to make sure I understand. When you are talking 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 there could be demand for on a 5G basis? 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 on 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 there a risk we now start to see maybe a negative margin on mobile over time?
My second question is on the inOne 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 and perhaps even be accretive because of more upselling? 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. Or maybe Mario can take the inOne question. I will have to give some answers to Italy. Our main target in Italy with 5G is to be able to have a converged offer for our broadband customers. We have an MVNO contract today in Italy, which enables us to have a margin on it. We are doing a margin on mobile in Italy, not a high one, but we are doing one. With 5G, we will be able to have an improvement of our margin base and also the flexibility to offer mobile products in Italy. The aim is to also offload, to have an offload in cities and then to be stronger in the mobile part. More details I don't want to give. It's too early. On inOne dynamic, I think you cannot compare the inOne product with Infinity.
InOne is a converged product, and there you will always have a discount, and that we will also see in the future. As we mentioned, the peak of the impact of the conversion is in 2018. This is guided CHF 80 million. That will come down because we'll have less and less converged customers. You will not see a positive impact from the inOne. We were able to minimize the negative impact we saw at the beginning with a negative impact on top line. It's more or less zero right now or slightly positive. We still have the positive impact on bottom line. The discount for the converged customers will remain in place. That brings you a negative.
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? Could you give us some color as to what's the mix in consumer and B2B and what you are aiming to achieve in the next couple of years? Thank you.
The main priority in Italy today is to focus ourselves on the mass market. Long-term, midterm, if we have a more decent mobile portfolio, we certainly also get opportunities in the B2B market.
Thank you.
Okay. This was the last question. There are no more questions in the queue.
Okay. Thanks, operator. With that, I would 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 have a great day. Thank you.
The conference recording has been stopped.