Sunrise Communications - Earnings Call - Q3 2025

Transcript

Speaker 3

Ladies and gentlemen, welcome to the Sunrise Publication of Q3 2025 results conference call and live webcast. I am Matilda, the Chorus Call operator. I would like to remind you that all participants will be in listen-only mode, and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. Page two of the presentation details the company's Safe Harbor Statement regarding forward-looking statements. Today's presentation may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including Sunrise's expectations with respect to its outlook and future growth prospects, and other information and statements that are not historical fact.

These forward-looking statements involve certain risks that could cause actual results to differ materially from those expressed or implied by these statements. These risks include those detailed in Sunrise's filings with the Securities and Exchange Commission, including its most recently filed 20-F. Sunrise disclaims any obligation to update any of these forward-looking statements to reflect any change in its expectations or in the conditions on which any such statement is based. At this time, it's my pleasure to hand over to Alex Herrmann, Vice President, Investor Relations. Please go ahead.

Speaker 5

Thank you, Operator, and good morning, ladies and gentlemen. Thank you for joining us today. I'd like to welcome you to our third quarter 2025 results call. As per usual, with me today are André Krause, our CEO, as well as Yannick Fourié, our CFO. We will start the call with a presentation, which will be followed by a Q&A session. With that, I'd like to hand it directly over to André. Please go ahead.

Speaker 2

Yeah, thank you, Alex, and good morning, everybody. Let me just jump right in into our presentation and start off with a summary of our Q3 results. Firstly, we have seen a solid mobile momentum delivering 20,000 postpaid net additions in the quarter, supported also by B2B acceleration in growth. On the internet and net adds, we have seen a decline of 7,000, which was impacted by the software trading in the quarter and also some long-tail impact from the UPC migrations. Financially, we have delivered an EBITDA growth of 2.4%, which was driven by further OPEX improvements in the quarter, which has been fully compensating software revenues declining year on year by 1.1%. The key driver for the revenue decline was, again, the fixed subscription revenue decline that we have observed in the quarter.

Based on these financial results and also the trading that we are expecting in the fourth quarter, we are fully reconfirming our guidance for 2025, including also the DPS growth of 2.7% year-on-year growth. Secondly, in the quarter, we have launched a variety of new services, which will open up new growth avenues for our business going forward, and we will talk about home security and other launches that we did on the consumer and B2B side in the presentation later on. Also, we are executing on our fast follower strategy on the Black Friday and Q4 activities, and as such, we have also launched our own C segment brand called CH Mobile just a week ago, and we will also talk a bit more in detail about that launch in the presentation.

While we have seen the tail end of the UPC migration impact behind us, we are still experiencing some slower stabilization of the fixed consumer business, which is largely driven by softer inflow, some post-promotional repricings, and slower churn improvement. We will also talk a bit more in detail about that later on. Thirdly, if we are looking at all of the moving parts at this moment in time, we are observing a high but unchanged competitive intensity, and as such, we are continuing our strategy across our three growth engines, our main brand, our flanker brands, and also within B2B. The better OPEX evolution that we have experienced, and also we are anticipating further OPEX and CAPEX efficiencies ahead of us, we are very much set to compensate the slower than expected stabilization of the fixed consumer business throughout this year and also the year of 2026.

Overall, we are reaffirming our capital markets' midterm outlook of increasing free cash flows underpinning attractive and progressive shareholder returns. Now, with this overview, let me jump into the commercial performance overview for the third quarter. Essentially, I would like to start with our main brand new product launches in the quarter, where we have launched three new products and services, starting off with the home security launch, which is a unique offering that is bringing together, on the one hand side, affordable devices, but also combined with a high level of service, surveillance services, but also insurance services that can be combined. With that, it is really a unique new offering that in the market is not existing at this moment in time, except our offering.

Secondly, we launched what we call the Iconic bundle, which is a high-end bundle of hardware devices at the same time combined with very attractive global tariffs, and on top of that, relevant services for the high-end consumer. Also on this side of the market, we have been the first one launching a bundle like this. Lastly, looking at content, where a lot of content is available for consumers, but the difficulty is in finding the right content at any given moment in time, we have introduced our Super search functionality, which allows consumers to simply, with one single search engine, search all of the content, not only in our own libraries, but also looking at all the libraries of all of our OTT partners. With such service, we are also the first in market allowing a new level of content search on our TV platform.

Not only on the consumer side, but also on the B2B side, we had a relevant new product launch, this time focusing on smaller retail shops, where we have a solution that is combining a cashless payment solution, which is coming from our partner, Nexi. We are combining that with high-speed internet connectivity, but also security solutions for those smaller shops. We believe that is a very attractive bundle offer that we can do, which is a real attractive solution for all types of smaller retail shops to provide a combination of services. Now, we are in the middle of November, and November is always a high liquidity moment in time, where Black Friday plays a big role. I talked about Black Friday activities in recent calls and previous calls quite often. We were always talking about that we are adopting a fast follower strategy.

We did not want to start first. We did not want to actually put oil to the fire, but we were recognizing the fact that all of our competitors were starting early at the beginning of November. Also, we had a gap in our multi-brand strategy, not having an own solution on the budget segment or the C segment, how we call it. Hence, we launched at the beginning of last week our own C segment brand called CH Mobile. This is a quite simple mobile-only offering that is only available online, and that is a very attractive budget proposition that comes with a launch promo during the Black Friday period and will adopt the regular prices then at the beginning of December.

The proposition is based on an always low price, Swiss service, and the Sunrise network quality as the three, I would say, key propositions that this is bringing to market. As I said, this is a fast follower strategy, so we are not actually adapting price points that are not existing in the markets. We see a variety of offers at similar price points at this moment in time out in the market. Hence, we are just actually swimming in this segment with our own proposition. I think what is important to us is, given the fact that it's our own, we are also fully in control of the activities that this brand is actually executing. With that, we think that we have really brought our multi-brand strategy to full coverage of all of the segments existing in the Swiss market.

Hence, we think we are very well prepared to tap into the liquidity of the fourth quarter successfully and drive a good outcome out of this quarter. I would also like to give you today an update on our recent fixed business dynamics on the next page. Essentially, there are a number of things that I would like to highlight here. Firstly, we have seen a drop to a negative net adds in the third quarter. This is, in our view, driven by the tail end of the UPC migrations combined with a lower liquidity quarter, where we were not seeing the normal inflow volumes, but we were seeing some higher churn. As a result, we have been turning out 7,000 negative net adds. This, in our view, was a single instance and should not reoccur in the coming quarters.

As such, we think this is really just a one-time impact driven by those two circumstances coming together. However, we were also expecting that post the UPC migration, that we could see a stabilization of the fixed business in the second half of this year. Now, we have to observe that the previously expecting stabilization is actually slower than expected. This is driven really by four factors. Number one is the inflow, which we have seen turning out slower and softer than what we had anticipated. To a part, this is driven by our own move towards less aggressive promotions, but we are also not fully yet at the point where we want to be in terms of driving differentiation.

Secondly, also, we believe that there is more opportunity for us to focus more on new FTTH rollout areas, where we think we probably have not been exactly on the ball as we should have been. Looking at outflow, I talked about the third quarter impacts. If we look at the general evolution of churn, we see some improvement of churn. Nevertheless, churn is still on a level that we are seeing as too high, and we think we can do better by actually stepping up our loyalty initiatives and also improving our operational execution. Thirdly, we are observing post-promotional repricings, which is largely driven by the fact that previously we have been very much driving new customer inflow with time-limited discounts. Now, as these time-limited discounts come to term, we have created, of course, a retention engine that was helping us to retain those customers.

This retention engine has also become a bit of a repricing engine, which we have to adjust. We will take a number of counteractions already in Q4, but more to come also next year to rearrange that engine into a more reasonable repricing activity. Lastly, and this is more, I would say, an accounting impact than a real substantial impact on the value that we are seeing in this business, but in fact, with the introduction of the new mobile portfolio, there are also some discounts which are now shifting in the direction of fixed. Hence, mobile is benefiting and fixed is actually being impacted. There will be a gradual increase of that impact over the quarters to come, but again, this will technically impact the financial fixed ARPU, but it will not really drive a substantial value change on the fixed ARPU.

Nevertheless, it's exaggerating a bit the impact that we are seeing on the fixed business. With that, let me conclude the commercial overview by looking at the results one more time. Firstly, we have seen 20,000 postpaid net additions. As I said, we believe a solid result and the best turnout of the year so far. The result was also helped by an acceleration in our B2B segment. Talked about the internet decline. As we said, we think a single instance driven by the lower inflow combined with the tail end of the UPC migrations. Our FMC share continues to climb up, so we are again 0.5 percentage points up compared to the second quarter, now at 59%.

Looking at mobile ARPU, we are seeing an increase in mobile ARPU, and that is a bit of a stabilization benefiting from the price increase and also from our strategy, particularly on the main brand, which is driving a better inflow value as such. On the fixed side, you see the already alluded to fixed evolution. We saw a turn after the Q2 price increase, which was stabilizing the ARPU again back to a declining fixed net ARPU driven by the factors that I was explaining already, but also then exaggerated by the fact of the splitting between fixed and mobile distribution after the introduction of the new mobile portfolio. With that, I hand over to Yannick for some more detail on our financial results. Good morning, everyone. Welcome also from my side, and thank you, André.

Before we dive into the financials, I think as a quick remembrance, last year in Q3 was when we made all of our final adjustments to switch from US GAAP back to IFRS in preparation of our spinoff from Liberty Global. As such, the Q3 results are impacted by the rebasings that have happened to get us ready for that IPO. The positive of that is that this is therefore the last quarter that we will be impacted by that, and as such, from Q4 onwards, it is an easier like-for-like comparison, but we still have to deal with that in this quarter. I will talk about where that impacts and how it impacts, but let me try to focus on the underlying commercial results and how they have translated into our financials.

Revenue down 1.1%, translating into a growth of around 2.4%, which in both items was an acceleration versus what we see in the nine-month period. The revenue decline was mainly as a continuation of the fixed subscription revenue decline that André spoke about, and furthermore, with a slightly softer Q3 non-subscription revenues, particularly mobile. As Q3, we still saw the slower handset renewal cycle in the residential sector, but that was, of course, with only a couple of weeks of the iPhone 17 into that. On the positive side, we saw a partial offset of that decline coming in the B2B fixed non-subscription business.

Gross profit was down 3.6%, but this was distorted by the prior year's IFRS adjustment that I spoke about, and furthermore, was impacted by a hard B2B comparative because last year we had a big switch on of a B2B customer that actually impacted both gross profit and OPEX, as you'll see later on in the slides. Excluding those effects, the underlying residential and B2B business actually are continuing on their trends, with especially the fixed business coming back slower than what we had anticipated. Positively for us, however, OPEX is continuing to drive growth for us, and we believe that there's further potential on that line as we look into the future. Lastly, the result was partially impacted by a reduction of leasing costs, where also in full year, we expect that trend to continue.

CAPEX, CHF 5 million down year over year, which actually is very much in line with the continued reduction that we guided for from 2024 to 2025. Down free cash flow, we generated close to CHF 14 million of free cash flow, which is lower than what we saw in Q2 or what we will see in Q4, and that is because we typically pay our interest payments in Q1 and Q3, but that is why that is impacted. When we zoom into revenue in a bit more detail, 1.1% down, as we said, or CHF 8 million. You can see that in residential, the main drag comes from the fixed business, CHF 60 million.

André spoke about it, which was, of course, a combination of slightly softer in-quarter net adds combined with the continued pressure on ARPU, which was in part impacted by the discount allocation, but also very much by the continued promotional intensity that we see there. Mobile was growing at CHF 1 million, which was on the back of volume growth as well as an improving ARPU. However, in Q3, that is typically where most of the roaming usage is recorded. As we are switching from usage to included roaming in our bundles, Q3 typically is impacted mostly in the year, with other quarters benefiting from the included roaming part. On B2B, you can see subscription down, which is, again, in relation to a hard comparative on the back of the customer switch on that we did last year.

However, the non-subscription parts grew significantly this quarter in B2B, which was in part because of integration revenue as well as our roaming. On the infra and support, that is in part driven by different volumes of, by different phasing of some of our sales and increased fees and other adjustments to our non-subscription pricing. When we zoom into EBITDA, the gross profit down, as I spoke about before, of the total decline, there is around CHF 5 million reclassification between gross profit and OPEX, and so therefore, you can see OPEX also in part being held by that. The residential decline is mostly due to the fixed subscription business. B2B, we spoke about in line with the subscription revenue comparative that is tough, as well as slightly higher integration costs because of the higher integration revenue that you saw on the previous slide.

In France support, that's where that reclassification between OPEX and direct cost happens, and so therefore, on an underlying basis, broadly stable. On OPEX, CHF 25 million or approximately 10% down year over year, which is predominantly driven by a continued cost focus, and so therefore, significant savings, which are recurrent in part due to the mobile core switch-off that we had. Also, the annualization of the B2B project that we spoke about before that had higher costs in prior year, and those costs are now not there anymore, as well as some phasing between Q3 and Q4, mostly on marketing, in relation to when we execute our campaigns.

Lastly, the result was helped by the fact that our ESPP program, that was the program where employees are able to save some of their salary in order to acquire shares at a discounted price, was mostly seen. Leasing, as I said before, CHF 2 million down year over year or an improvement to EBITDA, which is in line with the full year expectations that we have. When we go to first adjusted EBITDA, less P&E additions, some growth coming from EBITDA, further supported by a reduction of CAPEX. A couple of things to point out here. Again, coverage lower in relation to that same B2B customer.

Capacity is lower as we have now completed our 5G standalone rollout and the 3G switch-off, and therefore, coverage is expected to come down with the baseline slightly higher because of some transport network investment, but broadly stable across the years. When we go to the right and we look at the adjusted free cash flow, you can see a significant growth of CHF 31 million, where actually the main benefit comes from lower interest costs. We pay our interest in Q3, as I already stated before, yet in Q3 last year, we had not repaid our CHF 1.5 billion debt reduction that was part of the spinoff of Liberty, and therefore, in Q3 last year, we were still paying the higher interest costs, whereas only at the end of October we then repaid that debt.

Lastly, working capital has to do with some higher vendor financing repayments, but underlying nothing to highlight. When we get to the guidance, André referred to it already before, so a reconfirmation of all the guidance metrics. I continue to like to focus on the fact that when we guide, we talk about rebase financials. We spoke about it before, a lot of items that have happened in relation to becoming a standalone company. As such, the especially EBITDA guidance that we're giving is in comparison to a rebase 2024 number, which includes the standalone cost of approximately CHF 30 million. CAPEX to sales ratio of 15%-16%. Also important to note here is that in Q3, we signed the extension with the Hockey League to get the rights for an incremental eight years.

As such, we had to report in our capital expenditures, in our financial statements, the total incremental cost of the Hockey League rights on a discounted basis, but as per definition, we're excluding those from our P&E additions. Therefore, there is a mismatch, if you will, between the P&E additions that we use for our guidance and the way we look at our business and the capital expenditures as reported in our financial statements because of the Hockey League rights accounting that has to happen. Lastly, we are continuing to reaffirm our CHF 370 million-CHF 390 million adjusted free cash flow guidance, which then in turn will be able to provide us or to provide to you a CHF 3.42 dividend for our Class A or CHF 0.34 dividend on our Class B, which is a 2.7% increase on a year-over-year basis.

On the debt, also a couple of important points to highlight, which we were able to execute in Q3. We approximately refinanced around CHF 1 billion, CHF 385 million add-on to our senior secured note, and we also increased our term loan AAA with around $650 million. By doing so, we now have 84% of our debt coming due after 2031 and 60% only coming due in 2032. We were able to do these extensions at approximately flat cost of capital, and furthermore, we have our debt continue to be fully hedged and swapped into Swiss francs, and so no exposure from that perspective.

Lastly, as we have guided from the beginning, we are committed to gradually repaying our debt, and as such, we are in the process of repaying CHF 180 million of debt in Q4, of which CHF 70 million is in the process of being executed and the remainder to be done later this year. Before I hand back to André, let me give you an update on the ADS. As you are aware, we communicated somewhere in August the final termination of the sponsorship of the program, which will take effect this Thursday on the 13th of November. Since that communication, we are now at 93% of the Class ADS shares that have been converted, i.e., 7% left, which translates into approximately 5 million shares.

Clearly, what we have been seeing is that conversion has accelerated over the last couple of weeks, and as such, we expect a further reduction until the 13th. What will happen subsequently to that is that the following determination is that the depository bank or JPMorgan will be selling the Class A underlying shares on the market as defined by the Class A deposit agreement, and we as Sunrise are not a party in that. Lastly, on the Class B shares, their 99% has been converted, and we will be further terminating it at a later stage, but given that that is not a publicly traded instrument, we are taking our time to further cancel that as well. With that, André, let me hand it back to you.

Speaker 5

Thank you, Yannick, and let me summarize the key takeaways one more time. Firstly, as we have explained, we think we are very well positioned for a high liquidity fourth quarter. We have completed our segment coverage with the launch of CH Mobile, and we have added a number of new growth avenues with the recent product launches. On the basis of the performance that we are anticipating and what we have seen up until Q3, we are fully reiterating our 2025 financial guidance, including the 2.7% DPS growth. Secondly, while we are observing a slower than expected stabilization of the fixed business, all countermeasures have been taken into place. We are now anticipating that the stabilization of the fixed business is going to be delayed, but should appear during the course of 2026.

In the meantime, we are also seeing that the cost and CAPEX efficiencies are reaffirming our midterm outlook of increasing free cash flows. Lastly, Yannick talked about the termination of our Class A ADS program. Let me reiterate the message that the cancellations are still possible until the 13th of November and that the program will end thereafter, and hence we are reiterating the message to all of our shareholders that are still in possession of any Class A ADS shares. With that, Operator, we are opening up for Q&A.

Speaker 2

We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn off the volume from the webcast while asking a question. In the interest of time, please limit yourself to two questions. Anyone who has a question may press star and one at this time. The first question comes from the line of Robert Grandell from Deutsche Bank. Please go ahead.

Good morning, gentlemen. Thanks for the questions. André, you were upbeat last quarter on both the quality and efficiency benefits of standalone 5G. Are you still seeing, are you seeing B2B interest follow through in these new services after the largely completion of the network? Then related to the network, there seems to be new noise in the EU about the risk and the need to replace high-risk vendors. Is there any new vibe on this issue from the Swiss authorities, perhaps that's still a non-issue where you are? Thanks.

Speaker 5

Thanks, Robert, for your question. Firstly, B2B is slow moving onto 5GSA. So far, I think we haven't seen really a large inflow of new demands or specific projects utilizing the benefits that are sitting in 5GSA. Also true that on the other hand side, we are now just ramping up our sales activities on these new products, like for example, the ability to provide specific security solutions for certain customers. That is stuff that we think is very interesting to B2B customers, but we see slow evolution only on that one. No major inflow in terms of sales on B2B on 5GSA side. On Q&Y, I mean, we have observed the increased conversation again in the EU, but not really in Switzerland. From our perspective, it's an unchanged situation. No imminent need to react here from our perspective.

Of course, we are observing the activities also in Switzerland.

Thank you.

Speaker 2

The next question comes from the line of Polo Tang from UBS. Please go ahead.

Speaker 6

Yeah, hi, it's Polo Tang at UBS. I just have two questions. The first one is just in terms of Black Friday sales. I'm just interested in terms of hearing your thoughts in terms of how the Black Friday sales period this year is shaping up and how it differs to what you saw kind of last year, and are there any notable promotions from any of your competitors to call out? Second question is really just for more commentary in terms of the fixed ARPU weakness. You referenced that several times in terms of your presentation and how the improvement here was being delayed. Do you think that these pressures in terms of fixed ARPU can stabilize, what's going to help it improve?

If you just look bigger picture in terms of your revenue trajectory for 2026 and beyond, or even your EBITDA trajectory, can weakness in fixed ARPU be offset by other areas, for example, B2B growth, mobile growth, or cost savings? What are the puts and takes? Thanks.

Speaker 5

Yeah, thanks, Polo, for your question. Let me start with the Black Friday question. I mean, honestly, we are at the early start of this Black Friday period. I mean, what was interesting to see is that while we have, I think, been pretty vocal about that we did not see Black Friday as a very value-driving activity for all of the market, we nevertheless had to observe that all of our competitors choose to go very early, i.e., at the very beginning of November. We followed with our activities only thereafter. If I look at the aggression level on the promotions, we do not really see a change compared to the prior year. We do observe that in the different segments, the different brands are staying in their swimming lanes, if you want, right?

We do see that the certain price bands of the segments are maintained pretty much the same, and we have not seen yet any further aggression beyond those swimming lanes. I think it feels like a usual Black Friday activity. I mean, we would have hoped for a smaller activity by our competitors in terms of length of the period, but we are where we are, and we are responding. From that perspective, I think we did the right moves by following the competitors, and of course, I am now trying to be as successful as possible, and I am pretty comfortable with the launch of CH Mobile that we have a tool to drive good volume in combination with our other segments. On the fixed ARPU, I mean, at this point, we are not giving concrete guidance for 2026.

We'll do that with the Q4 results when we understand really how we are exiting the year. As I have alluded to in the presentation, we clearly see that there is a delay in the stabilization driven by the inflow component being softer than what we had anticipated, a couple of levers for us to improve there, which we are executing on. Also, looking at churn, we think that we are still at an elevated churn level. Of course, it was partially driven by the tail end of the migration, but we have also taken additional actions to improve that. We have these post-promotional repricings that have been a burden, which I think we have to really change the model, which we are about to do while we are speaking.

Many actions are taken to impact the stabilization going forward, and hence it's not happening. It's just delayed. As I indicated in my final remarks, we are anticipating that we will stabilize that trajectory during the course of 2026. Now.

Speaker 2

Go ahead, Command.

Speaker 5

Yeah, please.

Speaker 6

No, sorry, continue. I have a follow-up.

Speaker 5

Yeah, no, I just wanted to add to the fixed business evolution that we clearly see that there is OPEX and CAPEX opportunities that will enable us to continue our free cash flow growth trajectory that we have indicated in the capital markets day. Further detail we will then provide when we come to our 2026 guidance at the end of Q4.

Speaker 6

Okay, can I just come back to the first point about promotional activity? You said promotions have started with other brands. My impression is that this was in the smart shopper and budget segments, but can you talk about what's happening in terms of the premium segment, which is still obviously the bulk of the market?

Speaker 5

Yeah, I think in the premium segment, we probably haven't seen the launch yet. At least ourselves, we haven't really started our activities, and I will not reveal, of course, in the call what we're going to do. As I indicated, expect that we are not leaving the swimming lane of pricing from prior periods. I think we also haven't seen really Swisscom's move yet. What we have seen is what Salt is doing, which is pretty much in line with what they have done in prior years. Again, also not deteriorating the pricing ranges that we would have anticipated from prior actions.

Speaker 6

Thank you.

Speaker 2

We now have a question from the line of Joshua Mills from BNP Paribas. Please go ahead.

Hi guys. Thanks for the questions. I've got two. First one on the mobile sub-brand launch that you announced, and then the second one on the fixed line trends that you're discussing in today's call. I'm a little bit confused about the brand strategy you have in mobile going forward. If I go back a year ago, you laid out your capital markets day. You had a multi-brand strategy, which was already fully fledged with Sunrise, Yellow, Swipe, and Lebara across all of the different brand segments, and then also TalkTalk, Aldi, and Galaxus in the MVNO branded reseller segment. To launch a new sub-brand now, given some of your price increases and commentary earlier in the year about encouraging price rationality, seems a bit strange. My question is, why are you doing this?

Is it a sign that we're seeing more and more customers in Switzerland move to the lower end of the market? That's what's changed? Do you think that your competitors have taken a more aggressive approach to pricing? That's the first question, whether it's structural or a response to competitor activity. The second question on fixed line. I think in the slide where you discuss the fixed line turnaround, you highlight that you will continue to focus on fiber rollout areas. What does this mean exactly? Are you going to be marketing more in these areas? Are you trying to proactively migrate customers off of Coax and onto fiber? Perhaps if you could give a bit more color about how your customer inflow is split between fiber and cable at the moment, that would also be great. Thank you.

Speaker 5

All right, thank you, Joshua, for your question. Let me start with the brand strategy confusion that you are seeing. I actually, I'm not seeing the same confusion, but let me clarify. We have actually talked about Swipe and Lebara being two brands that we are operating that we are seeing in the budget segment. However, the propositions of those are, on the one hand side, Swipe is a very specific proposition where you can flexibly swipe in and swipe out, and also the price point is somewhat higher compared to where the low end of the market really is. Lebara has specific strengths in the ethnic market, and as such, it's also price-wise slightly higher positioned, and it's also not addressing the entirety of that segment.

There were some gaps, if you want, in the coverage that those two brands had, combined with the fact that we had observed that there is more activity on price points in the range between CHF 10 and CHF 20, which we were not fully capturing the opportunity of that market. Hence, we felt like that the new offering that we are doing is really spot on addressing that market segment, not leaving a certain part of that segment to our competitors, but having a tool that we are controlling to actually play there. From our perspective, it's not really, if you want, changing our multi-brand strategy. It's completing our segment coverage with that new proposition, and it's also not changing, if you want, the price dynamics in the market because we are only adapting what is already being played by competitors.

That's kind of the proposition that we are launching here. I don't really think it's confusing anything that we are saying. It's more or less completing the coverage that we were not fully having before the launch. Now, to the fiber question, clearly, if you look at the marketplace, then there is a new rollout fiber areas where there is a higher liquidity than in other areas because there is a reason to reconsider which provider you are with. While we have been focusing on those areas before, I think our execution was not as good as the execution of our competitors. We were potentially somewhat later addressing the customers, hence some of the customers had already made the decision.

I believe that while there is a big chunk of customers that decide early, you also need to stay on the ball, which I think we can also improve on. That is kind of the opportunity that sits in the new fiber areas where area by area, town by town, if you want, the new playing field is opening up, and we just have to up our game. We sense that we have been a bit behind our competitors, hence an opportunity for us to increase. On your question in regards to HFC, we still are seeing a very good inflow on HFC, so still unchanged around 50% of our total inflow. The proposition, as we alluded to a couple of times, is very competitive, 2.5 gig at very attractive price points available on both of our brands, Sunrise and as well as Yellow.

Structurally, I think we have the right tools, but on the inflow side, we probably can actually do a better thing in the regional marketing, which is a bit of a new game for us that we have not perfectionized at this moment in time.

Got it. Thanks for that. Just on the first one then, so you're saying it's your competitors who've moved first or been more aggressive in the value segment, which has prompted this move. Which brands in particular would you highlight have been more aggressive at that end of the market before you did this launch?

I think if you look at things like Gomo, if you think of things like Spusu or Post or even other retail brands that are operated at branded resellers like Coop Mobile or even the relaunch of Migros Mobile, I think those are all examples of everybody's trying to exploit the opportunity beyond the traditional B brand pricing range. We were observing, as I said, that we were having some tools, but we're not necessarily playing really smart compared to the opportunity that we observed.

Understood. Thank you.

Speaker 2

The next question comes from the line of Molly Withcombe from Goldman Sachs. Please go ahead.

Speaker 0

Hi, good morning. Sorry to come back again on the CH Mobile product. Looking at the other brands that you mentioned there, if I'm right, it looks like your offerings are really at the budget end of budget and at the budget end of the range that you previously were not capturing. Is that right? I'm just wondering kind of why you decided to undercut on that, if I've understood correctly. My second question is just on the building blocks for Q4. It looks like you require a little bit of an acceleration. I was just wondering, could we have a little bit more color, please, on how we're going to get to that acceleration? Thank you.

Speaker 5

All right. Can you maybe repeat your second question because I'm not sure I really got the point?

Speaker 0

On revenues, I think you require a little bit of an acceleration in Q4. Just thinking about Q4 specific building blocks to get to that. Thanks.

Speaker 5

All right. Let me take on the CH Mobile question first, and then Yanni will answer the revenue question. We have really undercut. I mean, if you look at the price point that we communicated, we are talking for the full flat rate on CHF 14.95, which is a price point, sorry, CHF 14.90, where you actually see a number of players that are at the same price point. Now, true, at the launch promo in the Black Friday period, we have chosen to go with CHF 9.90. This is only a four-week period where we will actually have that price point. It is reflecting the reality also that there is quite a noisy time period, if you want.

Of course, we wanted to actually clearly also have a successful launch and not just start with something that is just me too at the moment of launch, which I think is not unusual. It is also not indicating that on a constant basis, we will be undercutting others. That is absolutely not our intention. We want to be a follower here. Yes, in the period of November, where there is more liquidity out and we are launching into that liquidity period, we also wanted to be visible and have an attractive offer out. Yanni?

Speaker 1

Yeah, sure. If we look at Q2 and Q3, and then indeed, as you say, if we get to Q4 in order to land in the range, I think there's a couple of things that are perhaps more exceptional or non-recurrent in Q4 than what we have seen in Q3. I think André spoke in length about the volume, which we expect to pick up a bit. That's one. Secondly, we spoke about, especially in Q3, the longer renewal cycles on the mobile hardware. I think, as I made in the comment, that renewal cycle for Q3 is very much excluding the iPhone 17 performance, i.e., given that I think in general, the market is seeing that the 17 is landing well, one could expect something there. Lastly, then two more things.

On the one hand, you had the hard comp in B2B, which very much was a one-off revenue that was sitting in Q4 because of the activity of Q3 2024. That as such is not, therefore makes the comparative to 2025 hard. Therefore, that should normalize in Q4. Lastly, as I spoke about with the roaming, in general, Q3 is where we typically get most of our incremental roaming usage on a pay-go basis. As we are bringing more roaming into our bundles, we are impacted typically mostly in Q3. It is those four effects that partially normalize and as such get us to our revenue guidance without going into too much detail.

Speaker 0

That's very clear. Thank you very much.

Speaker 2

We now have a question from the line of Christian Bader from Zürcher Kantonalbank. Please go ahead.

Yes. Good morning, gentlemen. Three questions for me, please. First of all, on your new mobile product, CH Mobile, I was wondering if you could share with us any targets or which expectations do we have for this new brand. Secondly, I realized that your share-based compensation has increased in the third quarter and comes up to almost CHF 47 million in the first nine months. I was wondering if this is a good run rate for the full year. Thirdly, you have been emphasizing that you do expect incremental cost savings in the future. Could you maybe give more color from where these cost savings may come from?

Speaker 5

All right. Thanks, Christian. Let me take your first and last question, and Yannick will allude on the share-based comp evolution. Firstly, we do not have any specific targets really on CH Mobile. As I said, for us, what is important is we observe that the segment got a lot more lively over the last 12 months, and we want to participate in the liquidity that we are observing there. If there was a target, then there was a target of participating well in the evolution of this segment. That is kind of the target, but there is no absolute market share or size number that I would target at this moment in time. On the incremental cost saving opportunities, firstly, we are on a lower run rate than what we had expected previously.

Hence, I think we are also benefiting in 2026 from a run rate upside in regards to OPEX. Additionally, we are looking at a number of, I would say, opportunities which are sitting around introduction of AI and driving benefits throughout that. We are also looking at organizational opportunities that may exist, and we are also looking at the way in how we spend our marketing money most effectively. There are three examples amongst others that we are exploiting, and we think we have more potential. Additionally, also important, CAPEX. We have seen that there is a CAPEX reduction year on year, which will further grow into Q4. After we have, I would say, done our 5G rollout to the largest extent, there is still some evolutionary CAPEX necessary.

In comparison to other operators, our 5G rollout CAPEX is behind us, and we are now benefiting from the fact that we have done the investment.

Speaker 1

All right. Thanks, André. On the share-based compensation, so just to frame the question, I think you said CHF 39 million. I think important to note that that is for the nine months, and there's a number of things that are playing in here. On the one hand, and we spoke elaborately about that, is the ESPP, which by now we spoke about CHF 5 million this quarter. We previously gave around a CHF 10 million total investment in the program. We also said that the majority of that saving sits between Q2 and Q3 from an OPEX perspective or therefore from a share-based compensation perspective. That is what we did this year, and therefore that is helped by that.

Excluding that, you are closer to CHF 29 million, which of course is impacted by the way we reported here, past grants that are now sort of being recorded as costs. That included also the one-off incentivization that was granted last year as part of the spin and also previously granted grants as well. Therefore, CHF 39 million, correct, as a cost for this year, impacted by a number of events that were spin-off or as the employee share program related and so forth. Therefore, the granted value going forward, one should expect to be lower. If that answers your question.

Speaker 5

Okay. Thank you.

Speaker 2

Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Alex Herrmann for any closing remarks.

Thank you for your questions. That concludes the call for today. For any further questions, please do reach out to the investor relations team. We would like to thank you for your participation and wish you a very good week.

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