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Edited Transcript of OBEL.BR earnings conference call or presentation 24-Jul-19 12:00pm GMT

Half Year 2019 Orange Belgium SA Earnings Call

Brussels Aug 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Orange Belgium SA earnings conference call or presentation Wednesday, July 24, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Arnaud Marie Julien Castille

Orange Belgium S.A. - Chief Finance Officer

* Eric Chang

Orange Belgium S.A. - Director of IR

* Michaël Trabbia

Orange Belgium S.A. - CEO & Executive Director

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Conference Call Participants

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* Alexandre Charles-Edouard Roncier

Exane BNP Paribas, Research Division - Research Analyst

* David Vagman

ING Groep N.V., Research Division - Research Analyst

* Emmanuel Carlier

Kempen & Co. N.V., Research Division - Research Analyst

* Hannah Kleiven

Arete Research Services LLP - Analyst

* Michael Bishop

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Nicolas Cote-Colisson

HSBC, Research Division - Head of European Telecoms Equity Product, Telecoms, Media and Technology

* Paul Sidney

Crédit Suisse AG, Research Division - Research Analyst

* Roshan Vijay Ranjit

Deutsche Bank AG, Research Division - Research Analyst

* Ruben Devos

KBC Securities NV, Research Division - Senior Financial Analyst

* Ulrich Rathe

Jefferies LLC, Research Division - Senior European Telecommunications Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the Orange Belgium Q2 2019 results. (Operator Instructions) I will now hand over to Mr. Eric Chang, Investor Relations Director. Sir, please go ahead.

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Eric Chang, Orange Belgium S.A. - Director of IR [2]

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Good afternoon, everyone. Eric and Ana here from the Investor Relations team at Orange Belgium. I would like to welcome you to Q2 2019 Results Conference Call. On the call today are Michaël Trabbia, our CEO; and Arnaud Castille, our CFO.

As usual, you should have received all of our financial communications this morning. That information is also available on our website. And as usual, you have the Q&A session just following right after Michaël and Arnaud's presentation.

That said, I'm pleased to leave the floor to Michaël.

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [3]

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Thank you, Eric. Welcome, ladies and gentlemen. As the Bold Challenger of the market, Orange Belgium is about breaking telco conventions again and again. Our steady commercial and retail service revenues growth is the result of our consistent commitment to our customers for simple, generous and worry-free tariffs. Thanks to our unlimited and generous offers, we allow them to use more and more data. We fight against bad surprises, be it unjustified price increases or unreasonable out-of-bundle fees. Finally, we always want to give more choice to our customers, letting them pay only for the services they need.

Turning to Slide 3. You can see the succession -- Slide 3 -- the succession of proof points we have been consistently adding over time. To name a few, February 2018, we launched the first unlimited mobile offer in Belgium. In April, we promoted the unlimited convergent offer. In June '18, with our current offer, we offered unlimited voice plus much more data to the vast majority of customers. We also kept the pace on innovation where it matters for our customers with Voice over LTE, Voice over WiFi and FemtoCells to improvise voice quality and guarantee to our customers' mobile indoor coverage.

In 2019, we pushed this customer promise further by making MMS free of charge and by extending our unlimited data tariff plans for use throughout the European Union, which is still unique in Belgium.

Going one step further, we just launched our expected Love Duo offer designed for the cord-cutters, and we promote alternatives such as Chromecast to allow our customers to access to a world of online content, both national and international.

I will now turn directly to Slide 5, skipping the Slide 4 and turning to Slide 5. So you can see that now customers have the flexibility in selecting the convergent pack that is truly adapted to their needs with or without television, with or without fixed voice, with regional data, Love data or even fully unlimited data.

Together with this launch, we also launched the single installer process, which is important because it will allow us to have a full control of our installation to save time and money and improve the customer experience.

Let's now move to Slide 7 to have an overview of the results of this strategy and positioning in the second quarter of 2019. You can see that our commercial performance remains very solid, both on mobile and convergence and that we are able to translate it into a strong financial performance especially looking at the EBITDAaL figure.

Let's have a more detailed view on our convergence results on Slide 9. You can see the continuous growth trajectory of our convergent offer, Love. We added 16,000 new customer in the quarter, reaching a total of 216,000 customers. Our mobile convergent customers now reached 294,000 and represents almost 14% of our total mobile customers. This was achieved with convergent ARPO growing by 4% and much improved costs, as Arnaud will detail later.

Let's now move to mobile. As you can see on Slide 10, our mobile performance was also very solid during the quarter. We added 26,000 new postpaid customers, leveraging both our convergent and mobile-only offers. Overall, our postpaid customer base increased by 7% year-on-year.

Turning to Slide 11. You can see that we accelerate on purpose our customers' use of data, in line with our customer promise. Average data consumption has now reached 4.1 gigabyte compared to 1.8 gigabyte end of 2017 before the launch of our unlimited offers. Additionally, considering the growth of our mobile customer base as well as the growth in average usage, the mobile data traffic also increased very quickly with 66% compared to Q2 2018.

Now Slide 12 shows an update on regulatory matters. Regarding cable, as I mentioned, we just implemented the broadband-only opportunity as well as the single installer procedure. In addition, the regulators just published a draft decision regarding future wholesale charges. The new tariffs on this consultation -- on this draft decision depend on the underlying network, the number of customers, the chosen bandwidth profile, the Internet usage of customers during peak time and the number of TV channels. The charges vary per operator and they are defined for 2019, 2020, 2021, 2022, 2023 and beyond. We are pleased that the regulators have confirmed the Cost + model as a basis for their decisions, which lead to much more reasonable tariffs. However, we believe the usage assumptions made by the regulators do not fully reflect the evolution of usage in a competitive market, so we will focus our comments to the consultation on avoiding unjustified price increase in the wholesale price over the years that would lead to inflationary pressure on retail prices. We will also pay attention to avoid overestimating the cost base for some operators, in particular, Nethys, which looks quite high even taking into account their specificities.

Continuing to Slide 15. As you know, we recently signed a term sheet with Proximus on a run sharing agreement. It will help us improve network quality and accelerate 5G rollout. So it will bring significant benefit for the customers and also for the environment with reduced energy consumption by 20%.

This operational transaction will allow us to maintain our focus on real differentiation areas for our customers while preserving an effective competitive environment. Each operator will retain the ownership of their network assets, will keep the control of their own spectrum and operate their core network independently. We will obviously continue to be competitors both on the retail and the wholesale markets.

Now I would like to hand over to Arnaud to better explain the financial benefits of this agreement and continue with the financial presentation.

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Arnaud Marie Julien Castille, Orange Belgium S.A. - Chief Finance Officer [4]

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Thank you, Michaël. Good morning, ladies and gentlemen. So please turn to Slide 16 on the financial of the sharing with Proximus. So Orange Belgium expects the agreement to deliver cumulative OpEx, mainly BTS rental costs as well as energy, repair, maintenance and transmission costs, and CapEx mostly from 5G network rollout, savings of EUR 300 million over 10 years. This agreement were prior the initial setup costs related to decommissioning and enablements. We expect to spend EUR 130 million over the next 2 years for the setup cost. Overall, the expected return over 10 years is in excess of 3x the WACC.

I would like to give you an update on the announcement we made at the beginning of the quarter over the acquisition of BKM, so please turn to Slide #17. The good news, the Belgium Competition Authority (sic) [Belgian Competition Authority] gave their approval on the 2nd of July for the transaction. We hope to finalize it before the end of this month and consolidate this acquisition in our Q3 numbers.

Now let's take a look at our financial performance. As Michaël mentioned, Orange Belgium's financial results are also indicative of its strong commercial success. So let's take a better look at each of the financial KPIs starting with Slide 21. This slide provides a high-level view of our achievements this quarter. Firstly, Q2 '19 revenues increased by 1.9% to EUR 319 million, thanks to consistent strong growth in retail service revenues of 9.6%, offsetting lower MVNO revenues. Keep in mind that MEDIALAAN completed its migration towards our network in June.

Secondly, profitability. Profitability has improved. EBITDAaL grew by 18.2% year-on-year during the quarter, despite lower MVNO revenues. The drivers of the increased profitability were higher retail service revenues, cost control, cable operations improvement and a EUR 4 million tailwind from the seasonality in advertising and IT spending.

And finally, our eCapex for the quarter decreased by 5.6%, but our eCapex over H1 remained stable versus last year, in line with our end-of-year guidance.

In the field of cost efficiency, we have set our focus on convergence operations. We were able to achieve a positive EBITDAaL, and for the first 6 months of the year, the EBITDAaL amount to EUR 1.3 million. Nevertheless, as you can see, on Slide 24, our operating cash flow continues to be negative.

Slide 25. Our net debt amounted to EUR 249 million compared to EUR 305 million at the end of 2018. Gearing remains low with net debt-to-EBITDA at 0.8x.

Slide 26 (sic) [Slide 27]. We maintain our financial guidance for the full year 2019. We remain confident we will reach the targets announced at the end of last year.

With this, I conclude the presentation. Michaël, Eric and I are ready for your questions. Operator, may I ask you to now open the call for Q&A?

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have one first question from Mr. Nicolas Cote-Colisson from HSBC.

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Nicolas Cote-Colisson, HSBC, Research Division - Head of European Telecoms Equity Product, Telecoms, Media and Technology [2]

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I've got 2 questions. The first one is on Love Duo. It seems that the pricing is already assuming some cheaper wholesale tariffs and this is ahead of the end of the consultation process. So I was wondering what does it mean for cable EBITDA. Can you still be EBITDA positive in Q3 and Q4 given you charge EUR 13 less, but costs are not changing?

And my second question is on the network sharing. Can you give us a bit more clarity about the regulatory process and explain how Telenet could join because I saw some statements from Proximus and yourself saying that they could be part of the talks?

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [3]

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Thank you. So on the first question, indeed, we anticipate some evolution of the broadband-only price, which was already mentioned to be done by the regulators, but you have to take into account that it's -- we also have other costs that we are saving us from now on those offers because it's not only about the wholesale costs that we pay to the cable operators, it's also about the content costs that we are obviously saving. And I remind you that we indicated that they are around EUR 8 per customer and it's also about lower investment. In particular, we saved the set-top box at the customer premise, and we also expect less cost in the customer service, so less costs there. So overall, you don't have to anticipate a negative impact on EBITDAaL this year with this launch of Love Duo.

Now turning to your question on network sharing and the 2 question, the first one on the regulatory process. It is our understanding that there is no preapproval needed on this agreement. I remind you that this is quite common kind of agreement throughout Europe. So we obviously are transparent, and we are informing and keeping the regulators and the competition -- the national competition authority fully aware of the deal, and we will answer to their questions. But we don't need, as far as we understand, any preapproval neither on the competition nor regulation perspective. Still obviously, you mentioned that Telenet has been requesting in the -- publicly to discuss about their possible intervention in this deal. We are open for those discussion depending on technical feasibility, and we will -- it is obviously too early to comment further as the discussion have not yet started.

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Operator [4]

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Next question is from Mr. Roshan Ranjit from Deutsche Bank.

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Roshan Vijay Ranjit, Deutsche Bank AG, Research Division - Research Analyst [5]

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Three for me, please. Just quickly on the marketing or advertising phasing. Is that purely just ahead of the launch of the Duo offer you alluded to? Or can we maybe expect some further tariff launches there through the year? I know you highlighted some of your tariff launch last year are still getting contraction, but is there a kind of refresh to be expected later in the year?

Secondly, just on the MVNO migration now. I think the MEDIALAAN migration was completed this quarter and it seems that around 100,000 subs also were lost in that migration process. Have you got a strategy to try and increase those high margin MVNO revs to try and maybe more towards the upper end of your EBITDA guidance range?

And thirdly, just quickly on the network sharing. Now I understand it's purely on the mobile side, but does this bring some sort of closer collaboration or discussions with Proximus on co-investments on the fixed side because I know that's something you guys have previously been quite keen on doing.

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [6]

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I think Arnaud, you can comment on the first question, if you want us on the second, as you wish.

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Arnaud Marie Julien Castille, Orange Belgium S.A. - Chief Finance Officer [7]

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Yes. On the first one on M&P, yes, we decided to focus of our promotion effort more on H2 compared to last year due to the back-to-school and yes, due to the new offer, our Love Duo. It's true on H1, we have launched a few new product. So we prefer this year to focus on the big period, back-to-school, end of the year and new product with like Love Duo. I'm not going to disclose new tariff plan for mobile, for example, but it's true the second half will be more active in terms of promotion -- advertising and promotion.

On MEDIALAAN, and maybe Michaël, you can complete, but on MEDIALAAN, so we disclosed today less revenues than expected at the beginning of the year due to a delay in terms of first [activation] on our network of MEDIALAAN customers but also a lower customer base than we forecasted 6 months ago. So all in all, it will be an impact of EUR 5 million on our figures for end of the year and that is about MEDIALAAN. But we are sure the traffic is going to increase and also the consumption of data this year and next year.

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [8]

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One additional comment on the MVNO side. So as you may know, MEDIALAAN, since they joined our network, have been -- also have pushed further their commercial push and they are much more present in the market, so we might expect their customer base to grow. Going further, as you know, there is no big -- no other big MVNO opportunities in the market. Still, we are always open to smaller and -- opportunities when they make sense for us.

Finally, on your last question on collaboration and potential collaboration with Proximus on fiber. It is true that today our agreement is only on mobile and this is a big focus. As you know, it will be an important project. It will also require operational focus. As you know, we had a discussion about fiber that failed last year. We cannot exclude to reopen them at some point of time, but it's not the focus for now.

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Operator [9]

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We have another question from Mr. David Vagman from ING.

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David Vagman, ING Groep N.V., Research Division - Research Analyst [10]

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First on the regulation. Can you elaborate a bit more on your thoughts, your conclusion on the lower -- these wholesale cable rates? And 2 quick follow-up on this. Would you be tempted to differentiate your pricing between Flanders and Wallonia given that the regulator is as different for the -- basically actually this [3] region? And then what do you think of the pricing of the peak event with consumption, which seems to be potentially an issue?

And then second question on the single technician visits. So is it already launched? And are you basically happy so far with the implementation of the single technician?

Then maybe your last question on the Love Duo. Could you give us an update on basically whether you expect some commercial momentum -- positive commercial momentum impact from the launch of the Love Duo?

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [11]

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Thank you. So on the cable wholesale, what you can see is at the end of the day, and especially when you look at the Telenet prices in the draft decision, is that what we have been explaining of the amounts and consistently is just happening, which means that it's not magic. It's about looking at the costs and the reality of the cost base. It's about taking into account the benchmark methodologies that have been applied as well in Europe to appreciate the cost to be taken into account. So this is a very important work that has been done by the regulators with -- and maybe you have seen the document. It's very well detailed, justified and with a lot of benchmarks and references. So it's really a qualitative work that has been done. Then obviously, we have still some comments. I mentioned them. The first one is about the price evolution over the years because we believe that the traffic increase that we can expect is probably higher than the one estimated at this stage in the draft consultation. So we will focus a lot of comments there because we believe it's not the intention of the regulators to increase the price without justification in the cost base. So we will further explain the evolution that we can explain -- we can expect on the traffic -- on the data traffic there.

And then obviously on Nethys, as I mentioned, we are surprised by the level of price. So we will continue to discuss this. Now will it lead to change in our commercial positioning and marketing? It is by far too early to comment. I remind that it is still a draft decision, and we have been, as you know, consistently anticipating an evolution and -- a positive evolution in the wholesale price in our offers. We always refused to increase our prices besides the pressure on the wholesale. So obviously, we will certainly not comment before we have the final version of the decision. On the single...

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David Vagman, ING Groep N.V., Research Division - Research Analyst [12]

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So you're not explicitly excluding the difference in pricing by region? Probably, you didn't comment.

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [13]

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I don't comment on potential marketing evolution. I'm simply mentioning that since the launch of our offer on the cable, and I remind that we are the only operator who made this move to launch because we know that the financial condition are not good enough. So we will launch it with the anticipation of the improvement of the cost. So we will have the discussion. We will have the comments on the price -- on the wholesale price on Nethys, and I would not comment anything more about potential marketing evolution there.

On the single installer, it has started at the same time. Actually both project with the broadband-only were linked from the technical perspective with the cable. So it has started. So far, I would say that it works. Still we have some -- we remain cautious, and we are still in a, I would say, babysitting mode as it is really the early days, and we have no big issues to report so far. And then I think your last question was on Love Duo and...

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David Vagman, ING Groep N.V., Research Division - Research Analyst [14]

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Yes, the potential momentum in Q4 basically.

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [15]

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Yes, potential momentum. So on the potential momentum on Love Duo, I mean, it's not easy to assess because, obviously, it's quite new in the market. What I can say is that we expect over time this segment to be a significant segment in the market. We believe that it might be attractive to -- up to 1/3 of the customers. So we believe in the potential of this segment. Now we also believe that it will be progressive over time. So we are still cautious, I would say, on 2019 even if we could have some nice surprise there.

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Operator [16]

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We have another question from Mr. Ruben Devos from KBC Securities.

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Ruben Devos, KBC Securities NV, Research Division - Senior Financial Analyst [17]

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I've got 2. The first one on the cable CapEx. I believe it was said before that we should expect a 25% cost reduction with the implementation of the single installer process from December onwards. You also made refurbishments for some of the hardware. So therefore, I was curious where that -- you could change the cable CapEx guidance, which used to be EUR 350 to EUR 400 per gross add, if I'm not mistaken? And then additionally, after launch of Love Duo and the exclusion of TV, how should we think of CapEx per user for Duo play customer profile?

And then secondly, following up on Love Duo. Just wondering whether you believe there's potential risk for cannibalization. If for instance, some of your current subscriber base opt to spin down their bundle from Love Trio to Love Duo? And considering the cost that have been mentioned for Love Duo, would that necessarily be negative evolution?

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [18]

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So Arnaud will answer on the CapEx and I will answer you on the cannibalization.

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Arnaud Marie Julien Castille, Orange Belgium S.A. - Chief Finance Officer [19]

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Yes. There are several elements on the CapEx -- cable CapEx. So first on the installation. Yes, we can improve this installation. In the EUR 400 CapEx for cable installation, that is due to STB and modem, and the 2 other -- EUR 200 other cost is due to installation. So yes, thanks to the one installer, we disclosed during the last results, we can decrease by 25% this part of CapEx, installation CapEx minus 25%. Thanks to the installer. It's true for Love Duo and Love Trio. On Love Duo, there is no longer an STB, and, as you know, the STB is about EUR 150 per customer. So there is a saving for this STB. And the installation is also easier than the installation of Love Trio. So all in all, yes, we can expect to reach lower CapEx for Love Duo. Even without the STB, we can decrease also the installation cost.

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [20]

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And your second question on cannibalization, what I can mention is that it is probably a little bit early to have a precise view on this, but yes, we expect that on the gross adds, maybe to start with this, part of it will be cannibalizing somehow the classic Love gross adds, but we might also have some new customers joining because of the Love Duo that would not have joined elsewhere. And then on the existing customer base, yes, we anticipate as much, I would say, share of current Love customers that would move to the Love Duo offers. It is not a big risk for us as our customer base is still quite limited on the first time. And you also have to take into account that we anticipate, and we always mentioned that to have a better EBITDAaL on Love Duo that on Love Trio, thanks to what we explained with the savings that we are doing on the content cost, and also it will be even better with the wholesale evolution and the difference in the wholesale price that will come next year between the Love Duo and the Love Trio.

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Operator [21]

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We have another question from Mr. Ulrich Rathe from Jefferies.

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Ulrich Rathe, Jefferies LLC, Research Division - Senior European Telecommunications Analyst [22]

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I would like to first ask in addition to the seasonality of the advertising, I mean, in particular, on the seasonality of the IT cost. What exactly is that referring to? That was my first question. The second one is on the cable profitability. I think you're highlighting that this swung from a EBITDA loss overall into an EBITDA profit in the second quarter. Could you pinpoint where exactly that swing from the first to the second quarter came from?

And then my third one related to this question is would you be willing to potentially outline the OpEx per customer structure which you in the past have fully outlined? I understand there is also cost in there -- there's content cost in there, but there is internal costs in there as well. And my understanding is that a lot of this cable profitability that you're hoping for is also coming from reducing the internal cost. So could you just tell us sort of a snapshot of where that actually is at this point in time?

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [23]

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This is questions for Arnaud.

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Arnaud Marie Julien Castille, Orange Belgium S.A. - Chief Finance Officer [24]

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Yes. The IT seasonality, it's a light IT seasonality. The EUR 4 million is for 2/3 due to the advertising and promotion. So this light seasonality is due to our new CRM and the cloud. You have to pay a license for this new CRM, so it's OpEx. It's not CapEx. And so it will be more in the second quarter -- in the second semester than the first one.

On cable profitability, so cable profitability, yes, we have an improvement between Q1 and Q2. It's mainly due to our own process because the wholesale cost is the same during the 2 periods of time. But we have improved step-by-step our own processes and it's mainly on customer service. We experienced a strong decrease of calls with the process, which is more and more smoother for our customers. And maybe it's better to take H1 -- the full H1 to understand the unitary cost of cable customer because some costs can be put on Q1 or Q2. And so today, as you see in our press release, we had an EBITDAaL of EUR 1.3 million for the semester. When you divided this amount by the number of net adds, it's a unitary cost of EUR 1.1 per customer and per month.

Yes, we expect to improve a little bit this unitary cost per cable customer until the end of the year, not a big increase because, of course, the main improvement would be -- will be next year the new cable wholesale price, but you can still improve this margin. Thanks to, again, better customer service, less repair and better anti-churn policy. So we can, again, a little improve this business case. It will not be more than EUR 2 million or EUR 3 million for the year. And as I explained, we are waiting for the new cable. We'll surprise next year because we don't expect to have a new tariff for this year.

Your last point was about the OpEx on customer -- on cable, I think, and yes, I think I explained that. So mainly better customer journey with less call to our customer service and less churn, so less friction in churn. So some savings in terms of appointments and a little bit in terms of wholesale because sometimes in the friction we have to pay a little bit some of wholesale. So it's, again, our processes which are improving day after day.

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Ulrich Rathe, Jefferies LLC, Research Division - Senior European Telecommunications Analyst [25]

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That's very helpful. Can I just follow up whether you're willing to sort of put numbers on that in terms of a snapshot of the cost per customer, in terms of the buckets of the wholesale content cost versus internal cost sort of where that roughly fits?

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Arnaud Marie Julien Castille, Orange Belgium S.A. - Chief Finance Officer [26]

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Yes. So as I explained, when you divide the EBITDAaL of EUR 1.3 million on H1, you have a unitary cost of EUR 1.1. So it's quite easy. We have revenue of about EUR 42 per customer and below the wholesale is about EUR 22 per customer and the content is EUR 9 per customer and the rest to achieve the EUR 1.1 is mainly repair and customer service, okay? So -- and remuneration for our sales force. So we have about EUR 2, therefore, in terms of remuneration and the rest is repair and customer service, about EUR 5 for the customer service. I'm very precise, maybe too much, but you can I think find this EUR 1.1 per month per customer with this information.

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Operator [27]

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We have another question from Mrs. Hannah Kleiven from Arete Research.

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Hannah Kleiven, Arete Research Services LLP - Analyst [28]

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I just had 2 questions, if I may. Firstly, when do you expect to reach cash breakeven on your cable segment? So I know you've given guidance previously on EBITDA breakeven, but I was just wondering on a cash basis, so including CapEx. And obviously, how would that differ for the Love Duo? Would that be cash breakeven quite early on after the launch?

And then secondly, again, on the network sharing agreements, do you have -- if in the case that Telenet joins the agreement, would that make any differences to the initial CapEx investments and the long-term OpEx, CapEx savings? Or would you still expect EUR 130 million of initial CapEx investments?

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [29]

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So on the cash flow breakeven on Love, it is expected in 2021. Obviously, it is dependent on the evolution of the wholesale price. So that is why we are very attentive to this topic, but we believe that this is the time line and we have more or less a similar time line for Love Duo. We even believe that Love Duo might be a little bit even more profitable than Love Trio.

On the run sharing question, well, obviously, it is far too early to comment about the potential outcome about discussion that have not started. For the moment, we are focused on implementing the term sheet we have signed with Proximus. Obviously, we will in parallel -- and we are open in parallel to open discussions, but I can really not comment about potential outcomes because it will obviously depend on what exactly will be discussed, what would be the option considered and there are a number of possibilities there. Obviously, our intention is to deliver on the operational and financial efficiencies that are linked to this deal and that we have announced. So this is our focus.

(technical difficulty)

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Unidentified Analyst, [30]

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My first question on the opposition to the wholesale prices on the Nethys network. Does this imply that you have actually given up on potentially acquire Nethys? The first question. Secondly, would you -- as a national operator will you be able to offer different kinds in the different regions as previously the questions in the call? And then thirdly, on the customer win, could you indicate where there was still a large part in the former SFR region in Brussels?

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [31]

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Okay. So on your first question on Nethys, I mean we have been expressing our interest for a strategic partnership with them. This has not changed. So there is no change there. And the regulatory update and the draft decision is not something that would change this. As I mentioned, we have anticipated from the start this evolution of the wholesale prices. So it is not something that is for us a game changer. It is expected evolution towards a more reasonable and fair types.

On the price differentiation, I already answered. I will not comment any more on this. Once again, we will wait for the final decision. We will make our comments to the regulators there, and I will not comment on the potential evolution depending the outcome of -- the final outcome there.

And finally, on SFR footprint. It is for us -- I would say, we obviously continue to have new customers in this footprint. Obviously, in the beginning, we might have an increased market share in the gross adds there, but still we have good acquisition in this region. So this is what I can comment. You need to have in mind that the customers and -- are quite different in these regions than in the Flanders footprint.

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Operator [32]

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We have another question from Mr. Alexandre Roncier from Exane.

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Alexandre Charles-Edouard Roncier, Exane BNP Paribas, Research Division - Research Analyst [33]

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Just coming back on your promotional activity in H2. I was wondering if you were more willing to take price or given the recent trends we've been seeing in the market on more digital and simpler offer such as the Love Duo, would be willing to offer more content and I'm thinking something of the like of the Netflix On Us trend we've been seeing at other competitor across Europe?

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [34]

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Thank you for the question. I'm sorry, but I will not comment on the potential marketing news. We want to keep those elements for us for the moment. What I can say is that, obviously, we definitely want to support our customers in accessing online content and there are several ways to do it. So this is the only comment I will make. This is a trend. The consumption on online content is a growing trend. We definitely want to accompany it, but the mean -- the way to do it, be it on the integrated services on the box or be it with external equipment or direct access via the Internet, is not something I will comment for the moment.

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Operator [35]

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We have another question from Mr. Michael Bishop from Goldman Sachs.

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Michael Bishop, Goldman Sachs Group Inc., Research Division - Equity Analyst [36]

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Just a couple of questions, please. Firstly, just picking up on the MEDIALAAN aggression in the mobile market. I was just wondering whether you feel a bit concerned about that given the price of the access you've given them has allowed them to come back into the market with an unlimited offer. And at least at this point in time, you've got the least converged mobile base, so potentially that could be harder to defend against small aggressive mobile-only offers.

And then secondly, just picking up on the profitability path for the Love Duo. I'm struggling a bit on the implied EUR 24 broadband offer. So that's taking the EUR 64 less the EUR 40 for the unlimited mobile to get to EUR 24. Even with the low wholesale charge and considering you've got some subscriber acquisition costs still and then also the customer service of EUR 5 that you mentioned. I'm struggling to really see how that materially improves and is profitable on a cash basis at any point in time.

And then thirdly just on the phasing of EBITDA, I was wondering given you've had quite a lot of headwinds in the second half and a lot more promotion, I was just wondering what gets you back to the low end of EBITDA guidance because you mentioned that you're not going to get a massive improvement in the cable wholesale EBITDA. So is it more just the profitability on the core business improving a lot in the second half?

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [37]

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I will answer on the 2 first question and Arnaud will answer you about the phasing on EBITDA. So on MEDIALAAN, first, it is obvious that I will not criticize the competition. I mean, the competition is healthy. With the wholesale access that we give to them, they have an opportunity to be competitive in the market, but we are also cautious to preserve the value of our network there. You also have to have in mind that they don't have a distribution network. It's not exactly the same thing, and you know that. By the way, all the operators have different promotions for online offers. So yes, it is, I would say, quite an interesting move in the market. But for the moment, it's not something that we believe is causing destruction -- a lot of destruction in the market. And on the other hand, we also have obviously the wholesale revenues coming from them. So that's the -- my first comment.

Then on the -- your comment on the profitability and the calculation that you made on the Love Duo offer. Actually, if you look carefully at the implied prices, it's rather EUR 34 for the mobile tariff plans. It's EUR 24 only for the Eagle, which is the highest tariff plan. It's the same kind of price structure that we have for the Love Trio. As you know, we give an additional discount -- I mean, in the implied tariff plan for Love Trio. So it's the same price structure. So with EUR 34 -- it's EUR 34, the implied price. So I believe that you can make your calculation with that.

And then on the last question on the phasing of cost and EBITDAaL, Arnaud?

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Arnaud Marie Julien Castille, Orange Belgium S.A. - Chief Finance Officer [38]

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Yes, on our EBITDA -- EBITDAaL, excuse me. So we haven't commented on the guidance and our only comment was, yes, we keep the same guidance as the guidance at the beginning of the year. And yes, there is a big improvement of our EBITDAaL end of H1 but it's mainly due to the comparison with 2018, and we don't have the same seasonality. So at the end of the year, there are different negative impact you have to take into account. As an example -- for example, we pay only EUR 1.3 million in brand fee. We would have to pay in Q4 and Q3 EUR 4 million per quarter. So it's -- it will be so higher in H2.

Also, we disclosed in our guidance and in part of the MVNO of EUR 20 million at the beginning of the year. It will be eventually EUR 25 million due to the delay with MEDIALAAN. So I don't want to comment more on this guidance, but yes, we are quite confident to achieve this guidance, but you have to take into account some negative impact on H2.

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Michael Bishop, Goldman Sachs Group Inc., Research Division - Equity Analyst [39]

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Great. If I could follow up on the second question because it's really interesting so in terms of the split pricing. On my right, even if you got a lot of customers on to the EUR 24 implied with the Eagle, then the upside to Orange Belgium is you're just getting more upsell on the mobile side, and therefore, you'd argue that it's still profitable. Even though when you just do the basic math on the fixed line, it looks like it's not profitable at EUR 24. Is that the missing ingredient?

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [40]

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Yes. Obviously, with the profitability on our higher-end mobile tariff plan is to be taken into account as it is the convergent pack. So yes, it is total price for the Eagle plus the mobile-only. And so we are happy with this price because we obviously have more value in the mobile part that is considered in the overall value of this offer.

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Operator [41]

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We have another question from Mr. Emmanuel Carlier from Kempen.

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Emmanuel Carlier, Kempen & Co. N.V., Research Division - Research Analyst [42]

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So I was a bit late on the call. So apologies if I ask questions that have already been asked. So the first one is on the fourth entrant. How do you look at it? So we don't have a new government yet but do you believe there's more political support to have no fourth entrant today versus 1 year ago, because I think it's fair to say that Belgium has other issues than having a fourth entrant?

Second question is on fixed. Could you disclose the current churn level on your fixed business?

And then lastly, what have you said about the launch of Mobile Vikings and the impacts on your subscriber net adds so far?

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [43]

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So on the fourth entrant, I mean, the situation has not really changed as it is linked to preparation of the auction for the 5G. And this preparation is still stuck, I would say, waiting for the new government to take a position there. This is from the political and the governmental perspective. What we believe is that it is -- what has changed since last year, first, I think people have seen the pressure and the competitive pressure we put on the market on the mobile. The increase in the data consumption by the user, as I mentioned, that had been accelerating. So this is a new element. Second element that is new or that we have been mentioning but I think that is confirming is that there is no business case, and we don't see any company claiming publicly their interest in being a new player in Belgium. It's a lot of investment in a market that is already quite saturated, and we know that the value -- the total value of the market will make it difficult, not to say impossible, to have a profitable entry in the market. So that's all what I can comment up to now. Obviously, the uncertainty remains both from the political perspective and from the potential candidate that would not have said anything before. So we will have to live with that until then. Obviously, we continue to argue and to ask the government and the politics that it makes no sense to reserve some very important and key assets such as spectrum for a player that would probably not use it or probably would have used. That would be underleveraging this very important asset.

On the churn level, on the fixed, we don't disclose this. What I can tell you is that it is still higher than the market, which is normal, I would say, for Challenger, but it is also -- the second element that I can mention is that it continued to decrease, so it's going into the right direction. And this is the result both of our improvement in operations and quality and also the result of the aging of our customer base as we know that new customers have a higher churn than older customers.

And then your last question on Mobile Vikings. Yes, obviously, I've answered this one a little bit earlier. So yes, they pushed -- they have pushed a little bit more in the market. What I can comment is that it's a different kind of player. They are pure online. They don't have a distribution network. So it's not exactly -- you cannot exactly compare this, and you could compare to also online channels where we also have promotions for online. Still they are quite competitive in the market. The good news is that, obviously, we will benefit on the wholesale part from their success.

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Emmanuel Carlier, Kempen & Co. N.V., Research Division - Research Analyst [44]

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But given the price that they pay, do you think that the current offer is something that can be sustainable in the long run?

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [45]

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I will not disclose.

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Emmanuel Carlier, Kempen & Co. N.V., Research Division - Research Analyst [46]

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Or do you think it rather would impact customers in the short run?

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [47]

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Okay. I will not disclose the price that we have with them, obviously, the pricing agreement. What I can say is that it is not abnormal that they don't have exactly the same costs as, I would say, an operator with the distribution network. So this comes with -- distribution network comes with obviously the benefits in reaching and in the reach and in the number of customers you can achieve. Obviously, being pure online has some advantage on the cost for them. So I will not make any additional comment on that. That's their pricing policy and it's not upon us to have any control on that.

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Emmanuel Carlier, Kempen & Co. N.V., Research Division - Research Analyst [48]

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Okay. And then a very quick final one from my end. If I remember well, the operating free cash flow losses on fixed in 2018 was in the range of EUR 55 million. Is that more or less correct?

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [49]

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Arnaud will you answer you on the -- so the question on the operational -- the operating cash flow on the fixed, is on the cable operation?

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Emmanuel Carlier, Kempen & Co. N.V., Research Division - Research Analyst [50]

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Yes, because you try to be breakeven by 2021. So I just want to get the delta.

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [51]

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Okay. I think we answered on this, but Arnaud, can you...

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Arnaud Marie Julien Castille, Orange Belgium S.A. - Chief Finance Officer [52]

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Yes. So our operating cash flow, it's EBITDAaL minus CapEx. So EBITDAaL will be positive at the end of the year. So it is already positive. It's EUR 1.3 million. It will improve a little bit and the CapEx part will be about EUR 40 million. So yes, all in all, the cash flow -- the operating cash flow will be negative -- highly negative, if I may, about -- yes. You can do the calculation.

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Emmanuel Carlier, Kempen & Co. N.V., Research Division - Research Analyst [53]

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Is that an improvement?

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [54]

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Yes, significantly from 2018.

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Operator [55]

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We have another question from Mr. Paul Sidney from Crédit Suisse.

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Paul Sidney, Crédit Suisse AG, Research Division - Research Analyst [56]

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Just a couple of questions from me, please. Just firstly, really sort of bringing together a lot of the questions you've had already on the call. And I think at the Q1 stage, you said you were relatively happy with the run rates of your mobile postpaid adds and also the cable wholesale subscriber growth. I was just thinking how should we think about the balance between your profitability and your subscriber growth. Is it you have a set marketing budget and that's allocated each year? And then you see how you can grow the base within that budget? Or if you see opportunities to grow faster than your current run rate, would you take those opportunities?

And then secondly, we discussed the fourth entrant but we just have Belgian federal and local elections over the past year or so. I was just wondering is there any changes that you think could affect Belgian telcos outside of the subjects we discussed? Or could something emerge that perhaps isn't a topic that's widely discussed at the moment? Or do you think really we're talking about cable wholesale and the fourth entrant? Do you think there's anything really outside of that, that could emerge over the coming months once a coalition formed?

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [57]

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Thank you. So on your first question on the run rate, what I have been commenting, indeed, is that we are happy with the run rate on the cable? Obviously, the run rate on the cable is something that we want to be quite steady because this comes with some industrial processes behind with the installation and so on. So it's quite difficult to have big bursts in the cable operation. In the mobile activation, it's quite different, we can have some much more seasonality. And by the way, you see that it is quite regular that some quarters are higher than others, in particular, Q4, which is traditionally a very big quarter in the industry.

Then on the mobile, we mentioned in Q1 that the figure was impacted by the loss of an important B2B customers. It is still impacting Q2, and so this is also to be taken into account as we mentioned in the Q1 results. And then on the profitability, the promotion budget and so on, we push rather the communication when we have something to say, rather than just to push sales. Obviously, we have a continuous budget to -- on awareness and communicating on our offers, but the big shout and with the big impact the cost they come with, obviously, big shouts on the offer is the one we're launching, for instance, now with Love Duo, and then that is what I can comment. We don't restrain the sales with A&P budget restriction. Where we can have some impact is on the subsidies where we can have more flexibility in pushing a little bit more or a little bit less there.

Then on the impact on the elections and the political environment, what I can mention is that, yes, there have been new elections but still -- since then, no new government and no coalition has been formed except in Brussels. Now in Brussels, there is a new government that has been agreed and that will take -- that has been just agreed and it will take the roles right now. But at the federal level, it's still a very complex situation in Belgium and it might take time to find a solution between the different parts of the country. But without entering into politics, what I can say is that as far as we understand, there is no big change in the political perception about the fourth entrant. There is one political party that was the party of the former minister in charge of telco that is or that actually is still advocating publicly even if he probably is less vocal than before for this opportunity. So we will wait for the new government evolution. But today, honestly, it does not really change from this perspective and there is no -- we don't anticipate neither impact on the cable wholesale the shape on this political situation and potential evolution.

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Operator [58]

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(Operator Instructions) We have another question from Mr. Nicolas Cote-Colisson from HSBC.

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Nicolas Cote-Colisson, HSBC, Research Division - Head of European Telecoms Equity Product, Telecoms, Media and Technology [59]

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Very short one. It's on BKM, obviously, we have the EV. Can you give us some idea about the profitability and for the contribution to CapEx that it could have this year or next?

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Arnaud Marie Julien Castille, Orange Belgium S.A. - Chief Finance Officer [60]

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So it's single-digit EBITDA. Yes, it's very close to the market in terms of EBITDA. So you know the revenues, so you can imagine the EBITDA. So it will not be a big impact on our EBITDA. In terms of CapEx, there is very, very little CapEx -- few CapEx on such business you see. So there is no impact on our CapEx.

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Nicolas Cote-Colisson, HSBC, Research Division - Head of European Telecoms Equity Product, Telecoms, Media and Technology [61]

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Okay. Understand. And just to be clear, the full year guidance, even it is a small contribution is excluding this acquisition?

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [62]

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It's excluding this acquisition.

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Operator [63]

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(Operator Instructions).

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Eric Chang, Orange Belgium S.A. - Director of IR [64]

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Ladies and gentlemen, Arnaud and I will remain at your disposal for further calls. We will speak to you in 3 months.

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Michaël Trabbia, Orange Belgium S.A. - CEO & Executive Director [65]

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Thank you.

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Operator [66]

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Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.