U.S. markets open in 47 minutes

Edited Transcript of O2D.DE earnings conference call or presentation 6-May-20 8:00am GMT

Q1 2020 Telefonica Deutschland Holding AG Earnings Call

MUENCHEN May 24, 2020 (Thomson StreetEvents) -- Edited Transcript of Telefonica Deutschland Holding AG earnings conference call or presentation Wednesday, May 6, 2020 at 8:00:00am GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Christian Kern

* Markus Haas

Telefónica Deutschland Holding AG - Chairman of Management Board & CEO

* Markus Rolle

Telefónica Deutschland Holding AG - CFO & Member of Management Board

================================================================================

Conference Call Participants

================================================================================

* Akhil Dattani

JP Morgan Chase & Co, Research Division - MD and European Telecoms Analyst

* Andrew J. Lee

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Christian Fangmann

HSBC, Research Division - Analyst of Telecoms

* Frederic Emile Alfred Boulan

BofA Merrill Lynch, Research Division - Senior Analyst

* Georgios Ierodiaconou

Citigroup Inc, Research Division - Director

* Jakob Bluestone

Crédit Suisse AG, Research Division - Research Analyst

* Joshua Andrew Mills

Exane BNP Paribas, Research Division - Research Analyst

* Mathieu Robilliard

Barclays Bank PLC, Research Division - Research Analyst

* Polo Tang

UBS Investment Bank, Research Division - MD & Head of Telecom Research

* Stephen Paul Malcolm

Redburn (Europe) Limited, Research Division - Research Analyst

* Ulrich Rathe

Jefferies LLC, Research Division - Senior European Telecommunications Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by. I am Haley, your Chorus Call operator. Welcome, and thank you for joining the Telefónica Deutschland Q1 2020 Results Conference Call. (Operator Instructions)

And I would now like to turn the conference over to Mr. Christian Kern. Please go ahead.

--------------------------------------------------------------------------------

Christian Kern, [2]

--------------------------------------------------------------------------------

Thank you, Haley. Good morning, everyone. As recently appointed Director, Investor Relations, it is my absolute pleasure to welcome you to Telefónica Deutschland's Q1 2020 Results Conference Call on behalf of our management team.

Before proceeding with the management presentation, we would like to inform you that the financial information contained in this document has been prepared under International Financial Reporting Standards. As usual, this presentation may contain announcements that constitute forward-looking statements, which are no guarantees for future business performance and involve risks as well as uncertainties.

Also, certain results may materially differ from those in these forward-looking statements due to a number of factors. We invite you to read the detailed disclaimer included on the first page of this presentation. You can also download the presentation in the IR section of our company web page.

Today, I'm delighted to be here with Markus Haas, CEO; and Markus Rolle, CFO, who will take you through our Q1 presentation, followed by a Q&A session conducted by Marion Polzer, Head of Investor Relations.

Markus Haas, now over to you, please.

--------------------------------------------------------------------------------

Markus Haas, Telefónica Deutschland Holding AG - Chairman of Management Board & CEO [3]

--------------------------------------------------------------------------------

Good morning, ladies and gentlemen. First of all, we would like to express a special thanks to you for joining us during these unprecedented times. We very much hope that you and your families are keeping all well. Before discussing with you another quarter of robust results and, indeed, Telefónica Deutschland delivered a good start to the year, I would like to take the opportunity to share with you some insights on how Germany and, in particular, Telefónica Deutschland are coping with the COVID-19 pandemic, and its reaching far (sic) [far-reaching] implications.

Overall, Germany is managing COVID-19 relatively well. After the early introduction of the government-imposed nationwide lockdown in mid-March, we have seen infection rates gradually coming down and the number of recoveries steadily growing. In fact, the country has already started to ease slowly but steadily some of the lockdown measures. Not only in these challenging times, Telefónica Deutschland is well aware of its responsible business duties. We are focused on supporting our people as well as our customers and assume social responsibility through a variety of COVID-19 initiatives.

Most importantly, I'm very proud to say that our network has been extremely resilient, coping well with the major traffic increases and ensuring highly reliable customer connectivity for our customers. After the initial volume spikes of 20% to 30% in mobile and fixed voice volumes, shown on Slide #3, we continue to see elevated volumes of 15% to 20% compared to pre-COVID-19 levels in early March.

On fixed data, broadband volumes remain at higher levels of around 10%, mainly driven by home office work. While mobile data traffic is also up, we registered less of an increase of around 5%.

As a commitment to the health and safety of our people, we successfully switched to home office work at an early stage and continue to run most of our operations remotely. While we are already preparing the reopening of our office locations, we anticipate the majority of our people will continue to work remotely for quite some time. As such, we keep pushing ahead with the rollout of our home office solution in customer service and sales.

The nationwide lockdown also required the closure of our O2 shops across Germany in mid-March, resulting in softer trading. As you can see, gross adds dropped by more than 1/3, while churn entries decreased by a similar percentage. However, the positive impact from lower churn entries will only show with a slight delay. Also after a strong start to the year, handset demand started to soften post shop closures.

Since some easing of the lockdown became effective on April 20, we have already reopened almost all of our O2 shops nationwide. We are encouraged by seeing early signs towards normalization, with footfall taking some time to recover. Assuming social responsibility and in support of the German government's efforts to return to normality as soon as possible, Telefónica Deutschland is providing the highly regarded Robert Koch Institute with mobility analysis on the basis of anonymized and aggregated data in the fight against COVID-19.

Also in our -- March, headquarters, the O2 tower, we are delighted to temporarily host the crisis management team of the Bavarian Red Cross. At the same time, we are also supporting our customers through a variety of COVID-19 initiatives. For example, as part of the #WeStayConnected initiative, we offer a faster unlimited surfing guarantee until the end of May 2020.

We are also partnering with Germany against corona and launched a series of live-streamed O2 concerts. For a limited period of time, we provide complementary access to apps, such as our O2 TV.

As I have just illustrated, we are assuming the full range of our social responsibilities as a business during these challenging times, while not losing focus to create shareholder value.

Let me now take you through our robust set of first quarter results on Slide #4. We have delivered a robust start to the year and kept our operational and financial momentum during Q1 2020, despite some softer trading towards the end of the quarter, as I already mentioned. We are steering our business on the back of a strong foundation. We are highly committed not only to financial targets but also to concrete goals with regards to the environmental and climate protection. We are driving digitalization and ensure crucial connectivity for our customers, while making steady progress with our LTE rollout. We are also preparing for a ramp-up in 5G as announced in December 2019.

As a result, our network quality has stepped up remarkably over the last months and quarters. At the same time, we are now using almost 100% of green energy in those parts of our network we are directly procuring from energy suppliers, and we remain committed to constantly reducing carbon emissions. In a dynamic yet rational environment in Q1 2020, we delivered 188,000 mobile postpaid net adds and 39,000 M2M net adds. This was mainly driven by the sustained traction of our O2 Free portfolio, including the speed-tiered unlimited tariffs launched in February and solid partner trading.

Churn continued to benefit from increasing customer loyalty and improved customer experience with the O2 network quality steadily improving. As a result, the annualized churn rate of 15.7 percentage in the O2 brand remains stable at low levels and continues to outperform our self-defined target.

As customers continue to adopt LTE and tariffs with large data bundles driving data growth, this results in another visible uplift in our own brand postpaid ARPU of 0.4% year-on-year.

Now turning to our financial performance in the quarter. It reflects our commercial momentum, not only this quarter, but also throughout the prior quarters with a steadily growing customer base in mobile and fixed. Revenue grew by 3.8% year-on-year in Q1 2020 with sustained trends across all revenue lines. In particular, mobile service revenue showed good traction with visible ARPU accretive effects from the O2 Free portfolio.

Handset sales saw another strong quarter and continued healthy growth. Also, the fixed business built on its positive trends supported by continuous growth of its customer base and an increasing share of VDSL customers. Thus, we have been able to grow underlying OIBDA by 1.6% year-on-year, driven by the flow-through from mobile service revenue and fixed revenues, somewhat offset by higher costs, mainly due to higher supply volumes, both for handsets and connectivity.

Last but not least, our CapEx-to-sales ratio of 12.1% in Q1 reflects the in-year phasing of our back-end loaded CapEx envelope. Nonetheless, and despite COVID-19, we are making steady progress with our LTE rollout and the preparation of the ramp-up of 5G. We are well on track to fulfill our coverage obligation set by the German regulator, BNetzA.

Overall, Telefónica Deutschland had a robust start to the year, while we continued to closely monitor the COVID-19 impacts on our business performance. As usual, Markus Rolle will follow up with more financial details in his later part of the presentation.

On Slide 5, we would like to share with you some early steps with regards to our innovative O2 Free portfolio extension. Our wider O2 Free portfolio drives our commercial momentum and supports our successful ARPU-up strategy in the digital age. Our O2 tariffs cover all customer needs from classical volume-based tariffs with maximum speed, which continues to account for around 85% for the lines of gross adds, to speed-tiered unlimited tariffs, which are attractive to the most data-savvy customers.

There's always a clear upsell path that enhances our strategy, including offering 5G readiness, only in the higher value tariffs at EUR 40 or above. In the classical portfolio, the EUR 30 price point, which offers 20 gigabytes of data, remains the most attractive tariff, while at the same time, we are seeing more and more customers moving into the 5G-enabled larger volume bundles. Also, the boost option to double data remains an attractive upsell option as well as other value-added services such as O2 TV.

In the unlimited portfolio, early starts are confirming a clear trend towards the tariff of maximum speed. As a result, own brand postpaid ARPU maintained its growth path, increasing by a further 0.4 percentage year-on-year in Q1.

Moving to Slide #6. The network remains the foundation for the success of our market portfolios, and thus the future of Telefónica Deutschland's business. As I pointed out earlier, our network has proven very resilient with the COVID-19 related significant increase in traffic volumes. We mainly registered a major step-up of voice minutes while mobile data has also further increased its already impressive growth rate to 63% year-on-year, up from 54% in 2019.

With regards to customer satisfaction and network quality, I'm also delighted to share with you some further good news that just broke this morning. O2 has significantly improved its ranking in the last connect B2B internet survey published today. O2 won second place in the overall ranking, up from 4th last year. In the category customer service, O2 won the first place this year. In the category network, O2 improved to second place.

Last December, in our strategy update, we have presented to you our growth-orientated 2-year network-focused investment program, with a focus on boosting rural network coverage with 4G, while accelerating urban capacity with 4G and 5G.

Let me show you where we stand today with regards to our plans and the coverage obligations set by the German regulator. BNetzA has recently granted the 3 German MNOs a 1-year extension to fulfill the coverage obligation from 2015 spectrum auction until 31st of December 2020. We have set up realistic rollout plan on how we will comply with these obligations by the end of the year. There's no doubt we are steadily making good progress and are constantly improving our LTE coverage. Hence, we are continuously providing more and more people in rural areas with fast mobile internet access.

Let me add that our network planning combines the coverage obligations from 2015 spectrum auction with requirements from the 2019 auction, while at the same time integrating our 5G rollout plans. In 2020, we are starting our 5G rollout activities in Germany's top 5 cities; namely Munich, Berlin, Hamburg, Cologne and Frankfurt. Already today, customer and the interested public can experience 5G technology in our Berlin-based Telefónica base camp, which we opened at the beginning of March this year.

As you can see, we are making steady progress and are well on track to deliver on our coverage obligations, thanks to our comprehensive investment plan and thorough planning. Nevertheless, we need to closely monitor the current COVID-19 developments.

On Slide #7, let me summarize by reiterating our 5 key strategic priorities for the "new 20s", which we discussed with you at our strategy update in London in December 2019. These priorities are all targeted to only one common goal, to generate attractive shareholder returns. We will be leveraging smart investments into our mobile network to further improve quality and, at the same time, fulfill coverage obligations.

In fixed, we will leverage our wholesale access to VDSL and cable, which will enhance our bundling capabilities. We can thus bundle mobile and mobile as well as mobile and fixed in a technology-agnostic fashion for our customers, which will enable us to make strong progress in churn reduction beyond the target we have set ourselves.

Moreover, our investment into 5G will present a strong basis for fixed mobile substitution, which we expect to be a future driver of revenue and profitability.

In summary, we invest to develop our business model and to be able to offer our shareholders an attractive shareholder remuneration, not only today but also in the foreseeable future. Following the recent temporary change in German corporate law, now allowing virtual AGMs in 2020, Telefónica Deutschland has already invited its shareholders to its first virtual AGM.

As initially planned, the virtual AGM will take place on May 20, 2020 and will resolve upon our already announced dividend proposal of EUR 0.17 per share for the financial year 2019.

With this, I would now like to hand over to Markus Rolle, our CFO, who will lead you through the details of Telefónica Deutschland's operational and financial performance in the first quarter 2020. Over to you, Markus.

--------------------------------------------------------------------------------

Markus Rolle, Telefónica Deutschland Holding AG - CFO & Member of Management Board [4]

--------------------------------------------------------------------------------

Thank you, Markus. I also like to extend a warm welcome from my side to you, and I very much hope that you and your families are keeping safe and healthy during these times. I'm delighted to discuss with you our robust Q1 2020 operational and financial performance in more detail. Let me take you through the numbers.

On Slide 9, you see that revenue stood at EUR 1.846 billion, which is an increase of 3.8% year-over-year. We see sustained trends across all revenue lines. And the main driver for that strong performance is the MSR growth. MSR rose by 2.4% year-over-year to EUR 1.311 billion, which is with a EUR 30 million absolute, the largest absolute contribution to the revenue growth.

We again showed visible ARPU accretive effects based on the sustained good performance of the owned retail business, including the further easing of the legacy base headwinds, while trends in the partner business remained solid.

Handset revenue grew 7.7% year-over-year to EUR 339 million. We see continued strong demand for high-value handset. However, the demand started to soften from mid-March onwards as a result of the COVID-19 related closure of O2 shops.

Fixed line revenues are posting 6% year-over-year growth, and it's now coming to EUR 193 million. This is supported by the retail customer base growth on the back of a strong VDSL demand. As a result, fixed retail revenue maintained its upward trend and registered 7.7% year-over-year growth.

On Slide 10, you'll find some softer trading indications due to the government-imposed COVID-19 lockdown, leading to the already mentioned O2 shop closures in mid-March, while ARPU continued its growth path. Mobile postpaid came in with 180,000 of net additions, which is mainly driven by the sustained customer demand for the O2 Free portfolio and the successful launch of the speed-tiered O2 Free unlimited tariffs in February. Partner trading was solid, delivering 61% share of gross additions in Q1.

As of 1st of January 2020, machine-to-machine is separately reported from postpaid for more transparency. For comparability, this change has also been applied to 2019 retrospectively with 39,000 of net adds in Q1 2020 versus 22,000 a year ago.

Our O2 postpaid churn remained stable year-over-year at 1.3%. This is providing clear evidence of a really excellent customer experience in our O2 network. As of the 31st of March 2020, our overall mobile customer accesses reached 43.6 million, which is an up of 1.7% year-over-year. This is driven by strong 6.3% year-over-year growth of the mobile postpaid, excluding machine-to-machine base, which climbed to 22.7 million accesses.

Thus, our mobile postpaid customer base accounted for 52.1% of the total mobile customer base, which is a plus of 2.3% year-over-year. Our own brand postpaid ARPU is up 0.4% year-over-year. The trend remain driven by the visible ARPU accretive effects from the O2 Free portfolio and new value-added services that we offer to our customers.

Fixed broadband came in with 25,000 of net additions, which is again driven by the continued strong demand for VDSL with plus 36,000 net adds in Q1 2020. Fixed broadband customer base is now counting 2.2 million accesses. The VDSL base is now at 1.7 million, which is a step-up of 12% year-over-year and is now 76% of the fixed broadband base. The fixed broadband ARPU showed for the first time growth with 1.5% year-over-year to EUR 20.70. This is reflecting the growing portion of our VDSL customers.

On Slide 11, we show the overall partner performance, which was broadly in line with the expectations. The contribution from partner brands remained solid with some softer trading in Q1. Partners contributed with 61%, a relatively stable share of gross additions in Q1. The postpaid MSR contribution from postpaid partner MSR remained stable at around 28%.

On Slide 12, we explain to you the evolution of the OIBDA, now in a much simpler and cleaner waterfall chart, given all relevant numbers are now reported under the latest IFRS standards. Underlying OIBDA posted EUR 532 million, which is an up of 1.6% year-over-year in Q1. This is driven by the flow-through of MSR and fixed revenues, which are partly offset by higher cost, mainly due to supply volumes.

The underlying OIBDA is adjusted for exceptional effects, which amounted to minus EUR 8 million, including EUR 9 million of losses from sale of assets related with the sale of spectrum assets in line with the agreed merger remedies as well as EUR 1 million of restructuring income.

Underlying OIBDA margin is at 28.8%, which is a down of minus 0.6% year-over-year. This is reflecting the before-mentioned effect, including the strong growth of lower-margin handset revenue.

On Slide 13, you find the evolution of our free cash flow and net debt. The company generated a free cash flow of EUR 241 million in Q1. CapEx reached only EUR 224 million, with a CapEx-over-sales ratio of 12.1%, with a more back-end loaded annual phasing.

Even in tough COVID-19 environment, the 4G rollout made steady progress while we were also preparing ourselves for the ramp-up in 5G network rollout.

Free cash flow dynamics are reflecting some seasonal working capital effects. Working capital movements and adjustments, excluding CapEx payables, were negative in the amount of minus EUR 31 million. This seasonal development was mainly driven by the prepayments for incidental lease cost, low-value and short-term leases in connection with lease line and mobile site rental and other prepayments amounting to minus EUR 33 million; the reduction in restructuring provisions, minus EUR 8 million; and other working capital movements in the amount of EUR 11 million; including silent factoring transactions for handset receivables in the amount of EUR 252 million, which were outweighed by other working capital movements, including a reduction in trade and other payables.

Lease payments, primarily for leased lines and antenna sites, amounted to EUR 259 million. As a result, free cash flow after lease stood at minus EUR 18 million for the reporting period compared to minus EUR 11 million in the prior year.

Consolidated net financial debt stood almost unchanged year-over-year at EUR 3.863 billion as of 31st of March 2020, with a leverage ratio of 1.7x, which is well in line with the self-defined target ratio of at or below 2.5x. That leaves us comfortable leverage headroom with regards to the company's BBB rating by Fitch.

Let's move to Slide 14. Besides our solid balance sheet, I also like to highlight our strong liquidity position of close to EUR 3 billion. Our debt maturity profile is well balanced and diversified with only around EUR 140 million refinancing due in 2020 with no urgency to do so for the next 12 to 18 months.

We are already well advanced in our negotiations with Telfisa to extend our undrawn credit line of EUR 450 million, which is up for renewal this year. Our well-diversified financing and interest mix of 30% floating and 70% fixed rate contributes to our solid financial profile and is giving us a low exposure to future changes in interest rates. The company's average interest rate stands at below 1.5%.

Moving to Slide 15. Telefónica Deutschland's Q1 results were in line with the management expectations while only affected by limited COVID-19 impact. In Germany, we are seeing first signs of easing the COVID-19 lockdown. While closely monitoring the COVID-19 situation and its further development, we confirm the company's full year '20 outlook and the midterm guidance we have given.

Let me sum it up with Slide 16. We achieved a robust start to the year. We are confirming our full year guidance and the midterm guidance while closely monitoring the COVID-19 impact. We delivered strong revenue performance in Q1 with sustained trends across all revenue lines, with visible ARPU accretive effects from the good traction of the O2 Free portfolio.

We are demonstrating OIBDA growth of 1.6% year-over-year, reflecting flow-through from MSR and fixed revenue as well as some investments in MSR growth. Free cash flow after lease dynamics are reflecting the back-end loaded phasing of the network investment this year.

Finally, a solid balance sheet, the strong liquidity position and our ability to generate free cash flow gives to -- support to total shareholder returns.

Thank you for listening, and I would like to hand back to the operator to start the Q&A session. Thank you.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And the first question comes from the line of Georgios Ierodiaconou of Citi.

--------------------------------------------------------------------------------

Georgios Ierodiaconou, Citigroup Inc, Research Division - Director [2]

--------------------------------------------------------------------------------

I have a couple of questions, please. The first one is, I was wondering if you could give us an update of your negotiations with Drillisch. In particular, the last time during the full year results, you mentioned that there was a deadline to the remedy package. Obviously, we haven't heard any agreement yet. So I was wondering whether the negotiations are still ongoing and whether they are based on a remedy package or whether they are more based on a commercial agreement.

And then I have a couple of very quick questions just on the numbers. Firstly, you mentioned the churn reduction coming through in the second quarter. If it's possible to also give us indications of what that could mean for costs and margins, whether there will be a benefit or not?

And then finally, on international call regulation, I appreciate you give us an indication of the impact for the full year. My understanding is that the impact will be more in the first quarter and a bit also in the second quarter. So is it possible perhaps to give us the underlying service revenue growth in Q1? Or roughly the adjustment we should be making to get there?

--------------------------------------------------------------------------------

Markus Haas, Telefónica Deutschland Holding AG - Chairman of Management Board & CEO [3]

--------------------------------------------------------------------------------

Georgios, this is Markus Haas speaking. On your first question, I think we are still in negotiations with Drillisch for national roaming. I think we made a very attractive offer based on the remedy package, and it's now up to Drillisch that to pick this package and build a network or not build a network and continue with the 5-year extension of the MBA.

--------------------------------------------------------------------------------

Markus Rolle, Telefónica Deutschland Holding AG - CFO & Member of Management Board [4]

--------------------------------------------------------------------------------

Georgios, this is Markus. Let me take your second and your third question. With regards to the churn impact, just also from a logical perspective, churn entries come earlier, and you only see the positive effect in churn with a delay of 2 to 4 months once the contracts really expire. And from what we see from the churn entry perspective, we are confident that we can compensate a good portion of the loss in gross adds of the 2 weeks of COVID-19 lockdown in the shops with better churn performance going forward.

With regards to the international call question, we are roughly expecting an impact of 20 million of the international call regulation, which is predominantly in the first half year because then this effect is annualizing. We have reported, for this quarter, a total regulatory effect of EUR 8 million in MSR and EUR 9 million in total revenue. So from that perspective, we are on a similar level than what we have seen in Q1 2019.

--------------------------------------------------------------------------------

Operator [5]

--------------------------------------------------------------------------------

The next question is from Christian Fangmann of HSBC.

--------------------------------------------------------------------------------

Christian Fangmann, HSBC, Research Division - Analyst of Telecoms [6]

--------------------------------------------------------------------------------

So my first question is actually on mobile service revenue growth, which was particularly strong in Q1. And I'm interested what you're seeing in terms of trends in April and what we can expect in Q2. I mean, gross adds are coming down, churn with a delay. But just to manage here our modeling expectations, what you're seeing in terms of trends in April? And then also with respect to EBITDA, so on the margin side, is it fair to assume that the marketing spend has come down in early Q2 and probably Q2 spend will be lower than Q1? So we will have a saving year-over-year, so that EBITDA will benefit?

And the last question is actually on the tower deal. Any update? And if you get the proceeds, what are you expected to do with the proceeds?

--------------------------------------------------------------------------------

Markus Rolle, Telefónica Deutschland Holding AG - CFO & Member of Management Board [7]

--------------------------------------------------------------------------------

Okay. Good. With regards to the MSR performance for Q2, I must admit, this is really too early to tell. We know now from our Q1 performance that we have a very robust underlying trend and that we are continuing on the path with the ARPU accretive effects with our portfolio. We haven't closed now the first month, April, which is -- which will give us more visibility. That will be done in the next couple of days and weeks, and we will then gradually also update the effects that we see.

So definitely, we are monitoring very carefully the COVID-19 impacts to our business, but it's too early to give a judgment on that one at this moment of time. And this also, of course, heavily depends with regards to what Markus mentioned before, how fast is Deutschland or Germany now ramping up. We have confirmed our outlook, and we are confident that we will deliver in the range that we have given.

With regards to your question of commercial activity, this also, of course, heavily depends on the situation that we see now. We saw now the gradually ramp-up of shop turns again, and there will be more improvements in the next couple of weeks. So that will also determine our commercial activities. And let me give you one hint also, Christian, of course, in IFRS 15 times, the commercial activities do not flow through directly onto your P&L. So what you see due to the deferrals that you have a more gradual phasing. I think that gives you also a hint of the direction of travel.

--------------------------------------------------------------------------------

Markus Haas, Telefónica Deutschland Holding AG - Chairman of Management Board & CEO [8]

--------------------------------------------------------------------------------

With regards to the announced tower deal that we are pursuing all options, I think we remain very confident that we will execute a deal in the foreseeable future. I think as you know, that would be the third deal that we will do after we have done with Telxius already 4 years ago and done before. So we are well on track.

--------------------------------------------------------------------------------

Christian Fangmann, HSBC, Research Division - Analyst of Telecoms [9]

--------------------------------------------------------------------------------

And on the

(technical difficulty)

can you mention what you may do with the proceeds?

--------------------------------------------------------------------------------

Markus Haas, Telefónica Deutschland Holding AG - Chairman of Management Board & CEO [10]

--------------------------------------------------------------------------------

Well, it gives us several opportunities clearly, on the investment side, on the deleveraging side. So once we have found a deal, I think we will see many opportunities to create more shareholder value going forward.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

The next question is from Mathieu Robilliard of Barclays.

--------------------------------------------------------------------------------

Mathieu Robilliard, Barclays Bank PLC, Research Division - Research Analyst [12]

--------------------------------------------------------------------------------

I had 2 questions, please. First, in terms of the MSR trends in Q1, so clearly, a very solid performance. But we also see the share of partners increase by around 3 percentage points year-on-year. So I was wondering if you could give us a bit of color in terms of the trends on the retail MSR, because we don't have all the data. But simple math would suggest that the improvement in MSR trends comes basically from partners, but I do note that in Slide 9, you say that retail MSR had a positive performance, which may mean it's getting better or it's actually growing. So any color there would be super helpful.

And then a second question, can you remind us what is the revenue and OIBDA net exposure to roaming?

--------------------------------------------------------------------------------

Markus Rolle, Telefónica Deutschland Holding AG - CFO & Member of Management Board [13]

--------------------------------------------------------------------------------

Good. So Mathieu, let me take your question with regards to the MSR trends. So I think the trends, and I try to elaborate in the Christian question already on that one, are intact. We said we focus ourselves on our own retail development, and that is why we have enhanced our portfolio. We have improved the network performance and so on. We see that our ARPU is growing. Our retail ARPU is growing by 0.4%. What you see as an increase in that year-over-year performance with regards to the wholesale business is in line with the trends that we have also seen in the previous quarters. And that is also driven by several factors, amongst others, of course, also the bitstream MVNO agreement that we have in place.

So I can reconfirm that the underlying retail trends are intact and that we are following exactly the strategy that we had already foreseen.

With regards to roaming, we have to now really await the situation, what will happen with regards to border openings, et cetera. But just without giving you the details, we are a net payer in that situation. That means that also from a balance perspective, we do not have limited EBITDA exposure to our P&L.

--------------------------------------------------------------------------------

Operator [14]

--------------------------------------------------------------------------------

The next question comes from the line of Akhil Dattani of JPMorgan.

--------------------------------------------------------------------------------

Akhil Dattani, JP Morgan Chase & Co, Research Division - MD and European Telecoms Analyst [15]

--------------------------------------------------------------------------------

I've got a few. The first is on the new unlimited portfolio you launched in January. Obviously, interested in your comments on the introduction that most of the adds are at the high end. But if you could give us any sort of color in terms of just how much volume you've actually seen on these new portfolios? Is that mainly existing customers upgrading? Is it mainly adds? And what sorts of [deep] consumption rate are you seeing on these customers versus the existing? So that would be the first question.

The second question is just around competition in the market. We've seen in the last couple of months Deutsche Telekom launch a new low-end brand. My understanding is that they've also signed an MVNO deal with Cartland as well, which you have. So I just wondered if you'll see any sort of shift in terms of the competitive environment.

And then lastly, just on Huawei and the ongoing situation there. Deutsche Telekom has come out in the last few weeks saying that they want to push ahead with Huawei, given the urgency of rolling out 5G. Obviously, that's -- it's an important topic for yourselves. Just any sort of color in terms of what you're doing, where the negotiations in Germany are? That will also be really helpful.

--------------------------------------------------------------------------------

Markus Haas, Telefónica Deutschland Holding AG - Chairman of Management Board & CEO [16]

--------------------------------------------------------------------------------

This is Markus Haas speaking. On the unlimited question, clearly, this is well underway of our strategy of ARPU-up. As you have seen, we have a speed-tiered unlimited portfolio launched early February this year. From that perspective, we see healthy inflows from new customers and also existing customers. Clearly the majority of customers still go for volume-based tariffs as we saw. But let's not forget, we introduced the tariffs in February. But we see a healthy interest of these tariffs and more and more customers really going also, especially on the EUR 40 price point. So with the mid speed that we offer, and this is clearly on our overall average ARPU and additional accretive ARPU-up measure that will help us to drive our customer ARPU up as part of the overall strategy. Usage is in line with expectations, so we do not see any excessive behaviors here.

On competition, yes, there have been some smaller deals announced by competition. We are -- we continue with the partner portfolio we have. The German market is still intact from our perspective. There have been no disruptions or irrational moves from our perspective. It is a very competitive market, dynamic but still intact and rational from our perspective, although there have been smaller moves at the low end of the market.

On Huawei, from our perspective, we also continue with our plan to use in the access network 50% of a European vendor, namely Nokia, and 50% with a global vendor, namely Huawei. We now wait for the final confirmation of the German government on the security test that all these companies have to pass. And for the time being, we are protected, so whatever we deploy, we would be on 5G, we are protected. So there's no additional risk, but we clearly continue to execute the vendor strategy that we announced in December on 5G.

--------------------------------------------------------------------------------

Operator [17]

--------------------------------------------------------------------------------

The next question comes from the line of

(technical difficulty)

--------------------------------------------------------------------------------

Ulrich Rathe, Jefferies LLC, Research Division - Senior European Telecommunications Analyst [18]

--------------------------------------------------------------------------------

Can you hear me? My line just went dead here.

--------------------------------------------------------------------------------

Markus Rolle, Telefónica Deutschland Holding AG - CFO & Member of Management Board [19]

--------------------------------------------------------------------------------

No, we hear you, Ulrich.

--------------------------------------------------------------------------------

Ulrich Rathe, Jefferies LLC, Research Division - Senior European Telecommunications Analyst [20]

--------------------------------------------------------------------------------

Sorry. Yes, my first question is about this press release that you sent out when Drillisch withdrew price review 3 and 4. In that press release, you said that you expect this now to be resolved within the next few months. But with 2 price reviews still outstanding, potentially each taking 3 months or more based on some historical delays and also a legal challenge coming, is this an indication -- this particular indication in the press release, is that an indication that there would be an accelerated resolution of some sort? Or did you simply comment on business as usual and the price reviews unroll and then that just will take a couple of months? I'm just wondering how to interpret this information in that particular sentence.

The second one is on the customer intake. Drillisch obviously did already more or less talk about how much intake they expect in the first quarter, and that's down about sort of 70,000 year-on-year, which if I naively simply subtract that from the change that you had in your intake, you would be still down 20,000 to 30,000 in your intake and your retail intake really very rough, roughly speaking. Is that literally all COVID? Or was there any other reasons why in the first quarter, the intake did go down?

And then maybe one last just clarification. Is there -- do you consider CapEx a lever to stabilize free cash flow if the top line gets under some pressure? Or is the CapEx budget essentially set in stone given the issues with the coverage obligations? Some color on that, please.

--------------------------------------------------------------------------------

Markus Haas, Telefónica Deutschland Holding AG - Chairman of Management Board & CEO [21]

--------------------------------------------------------------------------------

Ulrich, this is Markus Haas speaking. On your first question, I think this is an important fact. These price reviews have been announced to the market. And if there's any change, I think we feel just responsible to inform the market that there has been a significant change. Clearly, the risk exposure from our perspective has changed because 2 price reviews have been dropped as we said. And we continue with 2 remaining ones. So from our perspective nothing has changed. We are very confident that Drillisch operates on very competitive terms, and there's now less price reviews in the market than have been before the announcement.

--------------------------------------------------------------------------------

Markus Rolle, Telefónica Deutschland Holding AG - CFO & Member of Management Board [22]

--------------------------------------------------------------------------------

Ulrich, Let me take your second and third questions with regards to the topics that you mentioned. To the Drillisch performance I can, of course, not comment on. We do not disclose the details of the performance of our competitors. I can only say that we are very pleased with the underlying performance that we see. And that -- the impact that we saw are predominantly driven by the shop closures of COVID-19 in the last 2 weeks of March, where we basically did not do any additions in these 2 weeks.

With regards to your CapEx question, as a lever for revenue exposure, we have announced an investment plan back in December. That also comes with the growth opportunities that we see in the German market. We just said that we reconfirm our midterm guidance and that we are committed to deliver on that one. But we are also, of course, as a normal company would do, closely monitoring the COVID-19 results with regards to revenue and EBITDA impact. And as all industries, we have to learn as we speak in the next couple of months.

--------------------------------------------------------------------------------

Operator [23]

--------------------------------------------------------------------------------

(Operator Instructions) The next question comes from the line of Joshua Mills of Exane.

--------------------------------------------------------------------------------

Joshua Andrew Mills, Exane BNP Paribas, Research Division - Research Analyst [24]

--------------------------------------------------------------------------------

Yes, I'll stick to 2 questions, please. The first is just on the fixed line business. So obviously, quite impressive revenue growth this year. And you mentioned earlier in the call that the performance in Q1 was in line with management's expectations. So for the full year, you're talking about stable to slightly growing revenues. I'd just like to understand how you think about the mix of fixed and mobile within that. And should we see the Q1 fixed line revenue growth as sustainable through the year? With that, I'll leave it there.

--------------------------------------------------------------------------------

Markus Rolle, Telefónica Deutschland Holding AG - CFO & Member of Management Board [25]

--------------------------------------------------------------------------------

Okay. Josh, let me take your question. Yes, we are very pleased with the positive fixed line development that we see. We do not give guidance on different line items. The stable to slightly growth consists of different elements. But of course, the customer-centric revenues that we do in our own business retail are the most important and predominant for us.

First, of course, and foremost, the MSR growth we have delivered, but also, of course, we said always that we will come back into positive territory on the fixed line side. And definitely, this is a trend that we are also targeting to sustain for the future. We have shown now in the last quarters always positive net adds, and that will, of course, also contribute to the year-over-year performance in terms of fixed line, while we also, the first time since I'm at least in this company, had also ARPU growth on the fixed side in DSL.

--------------------------------------------------------------------------------

Operator [26]

--------------------------------------------------------------------------------

The next question comes from the line of Jakob Bluestone of Crédit Suisse.

--------------------------------------------------------------------------------

Jakob Bluestone, Crédit Suisse AG, Research Division - Research Analyst [27]

--------------------------------------------------------------------------------

I had -- I'll keep it to one question as well. I just had a question on your own brand ARPU growth. You reported that it was up 0.4%, which was the same growth as you saw in Q4. And I guess that it's maybe a little bit surprising given that there should be a positive mix effect from your new tariffs that you launched at the beginning of Feb. So just sort of interested to hear what are some of the things holding back your ARPU growth from accelerating on the own brand side? And do you think that will start to accelerate in the coming quarters?

--------------------------------------------------------------------------------

Markus Rolle, Telefónica Deutschland Holding AG - CFO & Member of Management Board [28]

--------------------------------------------------------------------------------

Jakob, with regards to your questions, yes, we are pleased with the own brand ARPU development, which shows now sustained growth also with 0.4%. But that new portfolio you were mentioning has really limited impact. The overall ARPU development is driven by the customer base, by the big customer base that we have. And those ARPU accretive effects only come through very slowly on the acquisition side. We also see easing out of headwinds, which will also support our further ARPU development, because we always mentioned that we had in the retention to offer customers attractive offers because they were affected by the network topics we had during the consolidation, et cetera. This is also easing out, so our ARPU-up strategy that we are following is sustained and is also reflected in that number. And one last word, also here, the 0.4% growth that we show here is including the regulatory effects. And I think here we are compensating, again, also for the negative regulatory effects and still show growth. So from an underlying perspective, we are even better.

--------------------------------------------------------------------------------

Operator [29]

--------------------------------------------------------------------------------

The next question is from Frederic Boulan of Bank of America.

--------------------------------------------------------------------------------

Frederic Emile Alfred Boulan, BofA Merrill Lynch, Research Division - Senior Analyst [30]

--------------------------------------------------------------------------------

First question is on your network rollout. If you could give us a bit of an update on your target. I mean, where you are in terms of sites upgraded to 4G, what your target for -- I mean, you mentioned a number of new sites for 2020. And if you can share some numbers, midterm 4G, 5G and what it means for your CapEx envelope for the next few years? I mean, you have a very lumpy increase this year and next and then a sharp decrease. If you can just help us frame the number of sites with the CapEx envelope.

And then second thing on your operating leverage. If you can help us a bit understand. I mean, you've seen a very -- I mean, a meaningful improvement in MSR, up EUR 30 million year-on-year. Fixed revenues up EUR 11 million, but your EBITDA is only up EUR 9 million. So if you can discuss a little bit, you mentioned some investments in MSR growth. But if you can help us understand what's going on from a commercial standpoint or cost standpoint to understand the EBITDA development.

--------------------------------------------------------------------------------

Markus Haas, Telefónica Deutschland Holding AG - Chairman of Management Board & CEO [31]

--------------------------------------------------------------------------------

It's Markus Haas speaking on the first question on network rollout. I think we clearly want to pass the 98% POP coverage target on 4G as defined by the regulator by year-end. That means that we would need to add 7,500 additional LTE sites. And I think the investment profile also going forward remains the same, because we over then have to densify. And with the 2022 rollout obligation, we have to upgrade from 50 to 100 mbit on a nationwide basis. So I think the site profile on LTE, last year, we had 8,000, this year, 7,500. And this is -- we need to build more sites. So last year was LTE elements. These are more physical sites now that we need to build and the same profile we would also expect for 2021. And then also the trilateral sharing will kick in from 2022 that will allow us to also normalize the CapEx envelope as we have announced in December. So we aim for clearly for competitive 4G network. And also on 5G, we aim for 20 million customers by end of 2022 with high-quality 5G provided on the 3.5 gigahertz and that on top gives us the opportunity to deploy 700 megahertz, and that also then gives us additional 5G capacity on top of the 20 million we will reach with 3.5 gigahertz.

So from that perspective, I think we are in an investment phase right now, and we would expect to deploy roughly the same or a stable number of sites in the coming 2 years.

--------------------------------------------------------------------------------

Markus Rolle, Telefónica Deutschland Holding AG - CFO & Member of Management Board [32]

--------------------------------------------------------------------------------

Fred, let me take your second question with regards to the EBITDA development. So let's not forget that also part of the 3.8% of growth, and to be specific on that one, EUR 24 million, comes from an increase in handset revenues, which is low to 0 margin. And of course, this is then also reflected in the increasing supplies that we see that do not contribute so much additional EBITDA, as for example, MSR would do. On top of that, we also see usage-driven increases in supplies, especially also now even accelerated by the COVID-19 topic in the last 2 weeks with the increasing usage profiles that Markus Haas was mentioning before.

And with regards to our commercial activities, here we are consistent. We always said that we invest in getting the fair share of the market, and we are always adapting to the current market circumstances that we see. And of course, due to IFRS 15, you see commercial effects only kicking in over time due to the deferrals of those costs to a big portion.

--------------------------------------------------------------------------------

Frederic Emile Alfred Boulan, BofA Merrill Lynch, Research Division - Senior Analyst [33]

--------------------------------------------------------------------------------

And if I may, a follow-up if we have time. I'd love to have a bit more color on the commentary on the negotiation with Drillisch in terms of the alternatives that you've offered and any time line that we could watch out for.

--------------------------------------------------------------------------------

Markus Haas, Telefónica Deutschland Holding AG - Chairman of Management Board & CEO [34]

--------------------------------------------------------------------------------

As mentioned earlier, I think Drillisch extended the MBA for another 5 years. The 5-year season starts on July 1 this year and ends 30th of June 2025. So I think this is the de minimum of 20% that has been committed by Drillisch for the coming 5 years. They can revert this international roaming to the same commercial conditions, and we have now put a national roaming package with all the technical details on the table, and it's now up to Drillisch to take this package and move on to become an MNO or to stay an MBA MVNO. So -- and the time line, clearly, there is not a fixed time line, as we said, there was an indicative time line. And I think it's now up to Drillisch to decide to take the initial roaming package or to continue with the MBA.

--------------------------------------------------------------------------------

Operator [35]

--------------------------------------------------------------------------------

Next question comes from the line of Steve Malcolm of Redburn.

--------------------------------------------------------------------------------

Stephen Paul Malcolm, Redburn (Europe) Limited, Research Division - Research Analyst [36]

--------------------------------------------------------------------------------

Yes, let me just -- guys, yes, a couple of questions. First one is a bit of a multipart, so I'll cheat a little bit, but there you go. I'll try my luck. Just on the stores, I mean, you mentioned that most of the stores opened on the 20th of April. Can you just give us an idea of what that looks like in terms of footfall versus pre-COVID footfall? I mean, what is an open store? Is it 20%, 30% with social distancing? And when you sort of expect or hope to get back to the more normal sort of physical distribution position?

And then maybe just, could you give us a bit of extra color on what your distribution looks like in terms of the split between physical and digital? Split between direct and indirect, just to help us understand how things might change as we move out of lockdown? That would be great.

And one final one on furlough. Did you -- I think you're taking some furlough from government. Can you help us understand how you book that money, that cash that comes in and how we -- in terms of modeling the business going forward?

--------------------------------------------------------------------------------

Markus Haas, Telefónica Deutschland Holding AG - Chairman of Management Board & CEO [37]

--------------------------------------------------------------------------------

Thank you for your question. I think clearly, the frequency that we see in stores is still lower than before COVID. That's true. But I think the good news is that all our competitors and all the whole industry, the whole retail opened again. So yesterday, the government announced that all shops, it doesn't matter which industry, branch can be open. So there's now more frequencies in the cities. Malls will reopen again. So I think we get back to this new normality quite quickly here in Germany. And from that, we also expect to get back to more normal frequency levels than before. But it's important to show that there's an offer there. Many people now they waited. They need new handsets. They need to extend their contracts or also need more data or more speed classes, especially in fixed. So I think also this physical offer is now fully available in direct and indirect. So it's not only our own stores, also our indirect sales channels are now fully under fire. So from that perspective, we are quite pleased that this lockdown period was now quite limited, and now every shop can be opened. And while also other industries open, there will be also more natural frequency in malls and city centers again.

On sales distribution, I think it's roughly still a little bit more physical centric that we have, although online is increasing step by step. And also here, direct and indirect performed strong, but clearly could not compensate the physical impact completely, of course.

--------------------------------------------------------------------------------

Markus Rolle, Telefónica Deutschland Holding AG - CFO & Member of Management Board [38]

--------------------------------------------------------------------------------

Steve, let me take your question with regard to furlough and the bookings that go along with that. We are -- it's right that we have applied in the time when our shops have been closed. There will be some relief of the cost situation now in the month of April, and that is also where we will book the positive effects out of that. But let me also clearly point out that this is limited because, a, our shops are fully reopened again; and b, also that we increased ourselves then to the 100% of the salaries for our employees. So there will be no bigger relief, but the smaller portion flowing through April.

--------------------------------------------------------------------------------

Stephen Paul Malcolm, Redburn (Europe) Limited, Research Division - Research Analyst [39]

--------------------------------------------------------------------------------

Can I just have a quick follow-up, Markus, with -- just on -- going back to the stores? I mean, does the experience of the last 6 weeks make you rethink your distribution strategy at all? It appears you've seen very little impact in Q1. You're reiterating guidance for the full year. You've managed to do that with the shops being closed for a month and much lower footfall. Are you thinking more sort of strategically and structurally around the way you try and sell your products to customers and whether there's a more efficient lower cost way of doing it?

--------------------------------------------------------------------------------

Markus Rolle, Telefónica Deutschland Holding AG - CFO & Member of Management Board [40]

--------------------------------------------------------------------------------

There has been clearly learnings that you normally would not have. So clearly, to have from one day to another a lockdown and then see what happens in online, and clearly, the online market was not growing. I think pure online players will get more under pressure because we have taken more learnings and also gained share from pure online players. And these are also the numbers that have been discussed earlier on the call. So I think we will clearly concentrate and continue to accelerate our online share as always. And clearly, also from time to time also review the offline strategy.

So far, I think we get healthy volumes from all channels. And finally, also, the customer decides. So we now need to watch carefully if the mix that we had before, I'm sure, will change into more online-centric. I think that's for sure. And then we would need to see if we would also take a change here. Let's not forget, we only have 280-ish own shops and the rest is franchise. So from that side, we have a high flexibility in case we would like to change the mix.

--------------------------------------------------------------------------------

Operator [41]

--------------------------------------------------------------------------------

In the interest of time, we'll take 2 final questions. The next question comes from the line of Andrew Lee of Goldman Sachs.

--------------------------------------------------------------------------------

Andrew J. Lee, Goldman Sachs Group Inc., Research Division - Equity Analyst [42]

--------------------------------------------------------------------------------

I just had one question on CapEx, and it's just a follow-up to Fred's question. I just wonder if you could give a little bit more color or maybe direction on what COVID-19 does to your thinking on your absolute CapEx spend plans for 2020 and 2021. And also in terms of the timing of those plans, should we see this as downside pressure to your CapEx absolute spend? And should we see it as a back-end loading -- as likely back-end loading that spend?

--------------------------------------------------------------------------------

Markus Rolle, Telefónica Deutschland Holding AG - CFO & Member of Management Board [43]

--------------------------------------------------------------------------------

Andrew, your CapEx question, so we have announced that investment plan with a 17% to 18% CapEx over sales ratio for the next 2 years and that for good reasons. We want to accelerate our 4G rollout activities, fulfill the license obligations, which are now due with that 1-year delay by the end of this year, while also starting in the 5G environment with the first 5 cities in this year and then ramping up also in 2021.

So basically, what we have announced is in parallelization of the investments into 4G and 5G. Then annualizing for the reasons that Markus was also describing in 2022. This is, from today's perspective, unchanged. We are following that growth plan, that's also why we have confirmed the guidance that we have given. We will still, of course, monitor the COVID-19 impact. And if we see substantial business to our profitability, of course, as you usually do, you would need to review the strategy at this moment of time. But as said, the impact for Q1 was very limited, and it now depends really on how fast Germany ramps up again.

--------------------------------------------------------------------------------

Operator [44]

--------------------------------------------------------------------------------

Final question comes from Polo Tang of UBS.

--------------------------------------------------------------------------------

Polo Tang, UBS Investment Bank, Research Division - MD & Head of Telecom Research [45]

--------------------------------------------------------------------------------

Yes, I have also 2 questions. The first question is really about the macro environment. I mean, if it gets materially worse, do you see a risk of consumers spinning down into a new fill segment. And the second question is really just about broadband. Did you see any impact from the 1 gigabit offer from Vodafone in terms of the broadband market? And can you remind us when you're going to be launching a cable broadband product, and do you expect this to be a big driver for broadband for you guys going forward?

--------------------------------------------------------------------------------

Markus Haas, Telefónica Deutschland Holding AG - Chairman of Management Board & CEO [46]

--------------------------------------------------------------------------------

Polo, it's Markus Haas speaking. On the macro, I think the latest outcome, and I think I'm sure you're aware of it, it's a typical hockey stick. So we will see a dip now in the GDP in Germany, about 5 to 6 percentage points, but also then a very steep increase again, up to 6% already starting in Q4 this year, and next year, a GDP outlook of also roughly 6%. So as said, we are hopefully resilient to these developments because we are clearly the consumer champion in this market. And we have a customer base who is, I think, in a very good place now. I think we could offer more data, we can offer more speed. So I think we have enough flexibility. And we've also seen, as I said earlier, with a 30% lower cancellation income during the crisis that the price value ratio is very attractive to our customers.

So far, I think we have been resilient, and we also assume that the resilience that we have seen to us will continue. On broadband, on the concrete offer, yes, this has been an offer that we noticed in the market. It has been timely limited. It has been renewed to different terms, and we watch out very carefully what has happened in the broadband range. Clearly, from that perspective, we want to grow in broadband, and we would now need to see if this level of aggressiveness will be continued or not. So we watch this very carefully.

--------------------------------------------------------------------------------

Polo Tang, UBS Investment Bank, Research Division - MD & Head of Telecom Research [47]

--------------------------------------------------------------------------------

And then in your own cable product?

--------------------------------------------------------------------------------

Markus Haas, Telefónica Deutschland Holding AG - Chairman of Management Board & CEO [48]

--------------------------------------------------------------------------------

Sorry, once again?

--------------------------------------------------------------------------------

Unidentified Company Representative, [49]

--------------------------------------------------------------------------------

Own cable product.

--------------------------------------------------------------------------------

Markus Haas, Telefónica Deutschland Holding AG - Chairman of Management Board & CEO [50]

--------------------------------------------------------------------------------

Yes. I think we want to launch at the end of the year. I think we are not providing anything, and then we would be able to launch our fully technology-agnostic product. So we will have then independent from technology, we'll be able to sell speed classes depending between fixed mobile substitution with the highest profitability for us, cable with the next and then VDSL. So I think by the end of the year, we will be ready to have this full technology-agnostic product and will also then be under fire with cable.

--------------------------------------------------------------------------------

Operator [51]

--------------------------------------------------------------------------------

At this time, no more questions will be taken. I turn the call back over to Mr. Christian Kern for closing remarks.

--------------------------------------------------------------------------------

Christian Kern, [52]

--------------------------------------------------------------------------------

Thank you, Haley, and we have had a very good proactive Q&A. We appreciate your participation in Telefónica Deutschland's Q1 2020 results today. We hope you found the discussion of our results helpful, and the IR team, obviously, remains at your disposal for any further questions you might have.

Again, thank you and speak soon. Take care.