Polo Tang

Polo Tang asked for clarification on VMO2's weaker-than-expected guidance, specifically the proportion of decline related to B2B rationalization versus broader UK market weakness, and competitive dynamics. He also sought details on VMO2's commitments in the Netomnia Nexfibre deal, including minimum penetration and wholesale rates.

Answer

Lutz Schüler, CEO of Virgin Media O2, attributed 30% of the guidance decline to B2B restatement (including O2 Daisy) and 70% to a cautious view on the fixed consumer market due to high competition. Andrea Salvato, Chief Development Officer of Liberty Global, clarified that there are no minimum penetration or migration commitments for VMO2 in the Nexfibre deal, and VMO2 receives GBP 1.1 billion cash and a 15% stake in Nexfibre in return for buying 500,000 subscribers and committing traffic on 4.6 million homes at competitive wholesale rates (details not disclosed).

Polo Tang from UBS questioned the weaker-than-expected VMO2 guidance, specifically the -3% to -5% EBITDA decline, asking how much relates to B2B rationalization versus broader UK market weakness and competitive dynamics. He also sought clarification on VMO2's commitments and wholesale rates in the Netomnia nexfibre deal, given the GBP 1.1 billion cash receipt.

Answer

CEO of Virgin Media O2, Lutz Schüler, attributed 30% of the EBITDA decline to B2B restatement (including Daisy) and 70% to a cautious outlook on the competitive fixed consumer market, noting growing wholesale fees to nexfibre. CEO Mike Fries clarified the guidance excludes the Substantial Group transaction. Chief Development Officer Andrea Salvato explained that VMO2 has no minimum penetration or migration commitments in the Netomnia nexfibre deal, receiving GBP 1.1 billion cash and a 15% nexfibre stake in exchange for buying ~500,000 subscribers and committing traffic on 4.6 million homes at competitive, undisclosed wholesale rates.

Polo Tang from UBS Group AG asked about VodafoneZiggo, seeking details on new CEO Stephen van Rooyen's strategy, the customer response to recent price cuts, and the rationale for continuing dividends given high leverage.

Answer

Executive Chairman Michael Fries stated that while the current dividend guidance remains, it will be evaluated, and proceeds from asset sales will aid deleveraging. CEO Stephen van Rooyen outlined his four-part plan: fixing the organization, realigning pricing to be competitive, committing to DOCSIS 4 to remove network uncertainty, and investing in brand differentiators. He affirmed the price cut was a necessary step to arrest customer decline.

Polo Tang asked about the competitive environment in Switzerland, focusing on promotional activity, any remaining financial drag from the UPC brand retirement, and the outlook for H2 growth as the company laps a 2023 price rise.

Answer

Executive André Krause described Swiss promotional intensity as high but noted a 'wearing off' effect among consumers. He highlighted Sunrise's differentiating factors, such as hardware upgrade programs and increased HFC speeds to 2.5 Gbps, which have helped inflow and churn. Executive Michael Fries added that the UPC brand migration is expected to be complete by year-end. Regarding the U.K., Fries confirmed giffgaff serves as their successful flanker brand.

Polo Tang from UBS Group asked for details on competitive dynamics, specifically which players are most aggressive in the budget segment, and questioned the expected trajectory for quarterly revenue and EBITDA given the full-year guidance. He also asked for clarification on the Q2 step-up in share-based compensation.

Answer

CEO André Krause described the budget segment as volatile, with players like Spuzu and GOMO (Salt's brand) active but struggling for sustained volume. CFO Jany Fruytier detailed the revenue outlook, expecting subscription revenue to improve while noting a temporary handset sales boost in Q3 from the 3G switch-off. She clarified the higher share-based compensation was due to a new employee share program, which elevated the quarterly figure.

Polo Tang of UBS Group AG asked for clarification on the players driving aggression in the budget mobile segment, the expected trajectory for quarterly revenue and EBITDA, and the mechanics behind the increased share-based compensation.

Answer

CEO André Krause identified players like Spusu and Salt's GOMO as active in the volatile CHF 10-20 budget segment. CFO Jany Fruytier explained that revenue should improve from Q1's low point, aided by price rises and temporary hardware sales. She also clarified that the CHF 16 million Q2 share-based compensation was elevated due to a one-off employee share program and that dividend growth guidance already accounts for dilution.

Polo Tang of UBS Group AG asked for details on the competitive activity in the budget mobile segment, the expected trajectory for quarterly revenue and EBITDA, and clarification on the significant increase in Q2 share-based compensation.

Answer

CEO André Krause described the budget segment as volatile, with players like Spuzu and GOMO competing in the CHF 10-20 range. CFO Jany Fruytier explained that the full-year guidance implies improving revenue trends, aided by price increases and a temporary Q2 hardware boost. She clarified the elevated Q2 share-based compensation was primarily due to a new, one-off employee share purchase program.

Polo Tang from UBS sought clarification on the Q2 trading outlook, the future trend of non-subscription hardware revenue, and the timing of cost savings from the planned ADS delisting.

Answer

Executive André Krause clarified that the 'softer trading' outlook for Q2 refers to net add volumes, not revenue, which is expected to benefit from price increases. Executive Jany Fruytier stated that the sharp decline in non-subscription revenue should normalize and that cost savings from the ADS delisting will materialize starting in 2026, following a lengthy SEC deregistration process.

Asked about the scale of fiber overbuild in the Dutch market and the competitive dynamics in those areas. Also questioned why postpaid mobile ARPU has remained flat despite price increases and upselling.

Answer

Executives stated that fiber overbuild is manageable, as competitors like ODF have paused expansion, and KPN's incumbent customer base gives it a strong advantage. The flat mobile ARPU was explained by a trade-off: while 'committed' ARPU from subscriptions is rising, it is being offset by a decline in 'uncommitted' ARPU from out-of-bundle usage as more customers switch to unlimited plans.

Inquired about the competitive landscape in the consumer business, specifically regarding promotions from Ziggo and the customer reception of recent price hikes. He also asked for the rationale behind the expected slowdown in SME growth in the second half of the year.

Answer

The Dutch market remains competitive with aggressive promotions, but KPN is focusing on base management and value creation. Recent price increases were well-accepted by customers. The expected slowdown in the high growth rate of the SME segment is a conservative forecast, and the company anticipates that improved performance in the Large Corporate & Enterprise (LCE) segment will compensate, leading to balanced growth across the entire B2B unit.

Asked about the competitive fiber build landscape, KPN's own build rate, the nature of the CapEx guidance, and the competitive dynamics in broadband and mobile, including the potential impact of VodafoneZiggo's Champions League rights.

Answer

KPN continues its fiber build at a solid pace while competitors seem to be slowing down. The €1.2B CapEx guidance is a rounded figure, with the primary goal being the free cash flow target. The mobile market is healthy, while the fixed market is more challenging. The impact from Champions League rights is expected to be manageable due to broadcast regulations and KPN's existing content agreements.

Inquired about German commercial trends, specifically the outlook for broadband subscriber numbers after recent price increases and the anticipated revenue impact from the upcoming changes to MDU (multi-dwelling unit) cable TV contracts.

Answer

Margherita Della Valle expects broadband volume trends to improve as the disconnections were driven by repricing, with one last wave in Q3. The MDU transition will begin in Q1 calendar '24 (Vodafone's Q4), with tests showing conversion rates of 35-65%. The largest financial impact is expected in FY25, and the MDU impact will be reported separately from Q4 to show the underlying business performance.