U.S. Markets open in 9 hrs 27 mins

Edited Transcript of PROX.BR earnings conference call or presentation 24-Feb-17 1:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Proximus NV Earnings Call

Brussels Feb 24, 2017 (Thomson StreetEvents) -- Edited Transcript of Proximus NV earnings conference call or presentation Friday, February 24, 2017 at 1:00:00pm GMT

TEXT version of Transcript

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

Corporate Participants

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

* Nancy Goossens

Proximus NV - Director, IR

* Dominique Leroy

Proximus NV - CEO

* Sandrine Dufour

Proximus NV - CFO

* Phillip Vandervoort

Proximus NV - Chief Consumer Market Officer

* Bart Van Den Meersche

Proximus NV - Chief Enterprise Market Officer

* Daniel Kurgan

Proximus NV - CEO - BICS

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

Conference Call Participants

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

* Roshan Ranjit

Deutsche Bank - Analyst

* Nawar Cristini

JP Morgan - Analyst

* Ruben Devos

KBC Securities - Analyst

* Nicolas Cote-Colisson

HSBC - Analyst

* Luis Prota

Morgan Stanley - Analyst

* Marc Hesselinck

ABN AMRO - Analyst

* Ulrich Rathe

Jefferies - Analyst

* Stefaan Genoe

Degroof Petercam - Analyst

* Michael Bishop

Goldman Sachs - Analyst

* Vikram Karnany

UBS - Analyst

* Usman Ghazi

Berenberg - Analyst

* Parin Shah

Bank of America - Analyst

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

Presentation

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

Operator [1]

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

Ladies and gentlemen, good afternoon and welcome to today's Proximus 2016 Q4 Results Conference Call. For your information, this conference is being recorded. At this time, I would like to turn the call over to Nancy Goossens, Director, Investor Relations. Please go ahead.

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

Nancy Goossens, Proximus NV - Director, IR [2]

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

Thank you and good afternoon, ladies and gentlemen. Thank you for joining us at our quarterly conference call. As a reminder, we have published all the documents on our website, including a full set of slides under results. As usual, we will not run through those during this call as we trust that you have seen the detailed numbers by now.

So, for this call, we will have the usual format. We will go to the Q&A in a couple of minutes, but allow me just to quickly introduce to you the people here on our side. So we have the CEO, Dominique Leroy; we have CFO, Sandrine Dufour; Phillip Vandervoort for the Consumer segment; Bart Van Den Meersche for the Enterprise Segment; the CTO, Geert Standaert; the CEO of BICS, Daniel Kurgan; and also Dirk Lybaert, joined us, the Chief Corporate Affairs.

They will take your questions in just a minute. But before that, just a short introduction by the CEO. Please go ahead.

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

Dominique Leroy, Proximus NV - CEO [3]

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

Good afternoon, everyone, and welcome to our conference call. I'm very pleased that we closed 2016 with another solid quarter and have achieved full-year EBITDA growth for the second year in a row. I will start by commenting on our domestic business, delivering again a solid performance in spite of the regulatory and competitive headwinds we are facing.

In the seasonally promotion-intensive quarter, our commercial drivers remain solid and we realize the strong uptake of our new products portfolio. End of January, so in about three months since the launch date, we counted already 124,000 customers on the 4-play offers Tuttimus and Bizz All-in. Thanks to the success, we realized good growth in 4-play, thereby further improving our customer mix with increasing both the value and the loyalty of our customer base.

Zooming in on fixed products, we realized continued growth, adding 17,000 TV households and 15,000 Internet lines. This was also supported by lower churn levels compared to one-year back even with the rising competition.

On the mobile side, we achieved very good growth in postpaid, adding 45,000 voice calls in the fourth quarter. Alongside these sound commercial drivers, I am proud that we achieved a 5.3% growth off our underlying domestic EBITDA in the fourth quarter. Notwithstanding a significant negative impact from regulation, we kept our direct margin stable. The main contributor to the domestic EBITDA growth was however our ability to lower our cost base.

We pursued with the cost reduction initiatives and continued our transformation toward a more customer focused, agile and efficient company. Our fourth quarter domestic expenses ended 4.9% below the prior year. This includes a reduction in workforce expenses, following a lower headcount, mainly as a result of the early lease plan prior to retirement.

For BICS, our international carrier services, the fourth quarter EBITDA grew by 8% with the comparable base becoming easier and BICS also benefiting from a higher level of settlements.

With domestic and BICS combined, we ended the last quarter of 2016 with a 5.5% growth in underlying Group EBITDA. Alongside a high focus on reducing our cost base, we also pursued our focus on optimizing the long-term sustainable level of free cash flow. Different initiatives in the business working capital domain, combined with the growth of our underlying EBITDA resulted in a good free cash flow of EUR559 million for 2016. This is a 23% increase from last year, when excluding the net cash impact of major one-off items.

The results achieved so far are proof of the successful execution of our strategy. Building on the accomplishment so far, we will go a step further and execute our renewed Fit for Growth strategy. Over the next three years, we are strengthening our ambition and aim at accelerating our transformation towards the digital service provider delivering superior customer experience.

We will make our organization fitter, focusing on efficiency and simplification efforts to further structurally reduce our costs. We will grow our core business offering convergent solutions and a growth content offer to our customers in a value conscious manner. We will build the future by bringing fiber to our customers, by using the digital platforms and applications for better service and by developing meaningful innovations in partnership with start-ups.

This will enable us to deliver sustainable, profitable growth. This brings me to our financial outlook for 2017. The impact from regulation and especially Roam-like-at-Home will mitigate our financial growth. In spite of a more important negative impact from regulation, we expect our domestic revenue to remain nearly stable to 2016 and our group EBITDA to grow slightly. We also reiterate our expectations to end 2017 with around EUR1 billion CapEx, including our Fiber for Belgium plans presented in December last year.

We also confirm that we intend to pay a stable yearly dividend of EUR1.5 per share over the period 2017, 2018 and 2019. With this, I have covered both our 2016 results and our 2017 guidance. So we are happy to answer your questions now. Thank you.

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

Questions and Answers

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

Operator [1]

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

(Operator Instructions) Roshan Ranjit, Deutsche Bank.

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

Roshan Ranjit, Deutsche Bank - Analyst [2]

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

Just two questions, please. Just regarding the Tuttimus progression, could we just get a sense of the mix of new adds versus upsell and where the upsell is coming from, I guess, from mainly the triple-play (inaudible) also any single-play ads, which are moving up?

And secondly, just on you network build out, I think you're quite clear in your December call, is it okay just to get a refresher of your stance on co-investment and scope to potentially accelerate the build out given it is quite long-dated? Thank you.

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

Phillip Vandervoort, Proximus NV - Chief Consumer Market Officer [3]

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

So, on your first question, we launched Tuttimus was on October 17 with quite important campaigns around Tuttimus. We did not talk about Familus or Mobilus, our triple-play or our single-play. And as a matter of fact, Internet single-play we simply don't offer anymore. So, the first two months, we had a very strong focus on Tuttimus and we saw very strong uptake with our existing park and I'm lumping here Tuttimus and Bizz All-In to get it Bizz All-In in being the equivalent for small enterprise.

And as Dominique mentioned, as our CEO mentioned, 124,000 convergence -- not just convergence, but a large part of those are convergence done in the first 2.5 months. The majority of that is clearly convergence similar to what we saw with Telenet on WIGO the first two months. If we extend that to more recent insights, we see a very healthy mix of new acquisitions versus convergence. But the focus was on quadruple-play and we see our existing triple-play -- double-play, triple-play customers adding -- converting to Tuttimus and adding the fixed voice. So we see an increase of the average RGUs per household as you see in our reporting and in a quadruple-play, we're now at 4.82 RGUs per household.

We see also the revenue per household going up in average, and of course, I mean they're adding on average the fixed voice in most of the cases. So, very strong uptake on -- upsell on RGUs. Very good tiering on mobile and on fixed and I think that in a nutshell sums it up and very good acquisition, but that's much more recent since the focus of Q4 was on the conversion.

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

Dominique Leroy, Proximus NV - CEO [4]

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

Okay. To your second question on the network, so we announced indeed in December a major investments plan in fiber, Fiber for Belgium plan, where we see we will invest EUR3 billion in the deployment of fiber over the next 10 years. Of that, the purpose is to reach 85% of enterprises and 50% of households. As we have announced that you probably heard that Orange that -- they are interested in doing some co-investment with us.

The answer I gave Orange to that because I received a letter from their CEO and the official answer I gave as well to CEO is as a following that on the dense area where our current investment plan is focused on, we want to continue to develop the fiber investments on our own, but we are very open to do co-investments in the sense that it enables us to bring fiber to bigger parts of Belgian households. So in that sense, we are open to co-investments, but not in the dense area.

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

Operator [5]

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

Nawar Cristini, JP Morgan.

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

Nawar Cristini, JP Morgan - Analyst [6]

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

Just a follow-up on the new Tuttimus portfolio, please. So, we could see this morning that it seems to have had a positive impact on fixed line losses, in particular with fee income on the consumer side, the fixed line as they came back to positive territory. Is there a trend emerging there or am I reading too much into it and how should we think about the run rate of fixed line losses in 2017, please.

And then my second question is about Voo, there is a lot of noise about the governance issues at Voo, which may or may not bring a change of shareholder there. I wanted to ask about your market share on broadband in Wallonia as you're able to share that, that data point. And then more generally, how do you think about protecting the business and how would you think about putting in place proactive action to preempt any change of the competitive environment in Wallonia, if that were to happen at some point? Thank you very much.

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

Daniel Kurgan, Proximus NV - CEO - BICS [7]

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

So, the follow-up on Tuttimus, we clearly see that positive impact on the fixed line. We stopped selling the fixed line as the fixed line as such, but we really sell it as an experience in the pack. If you want to call your mother-in-law, who's spending the winter in Spain here evenings and weekends, call her and (inaudible) in the pack, which is a totally different story than selling a fixed line.

If you see our pickup of Tuttimus indeed, it is a very strong pick up and we have not seen that weakening at all over the period since the launch. So, I think from that perspective that evolution of the fixed line, hence the evolution of Tuttimus, we see that continue. And as I mentioned, where the beginning of the launch was focusing mainly on convergent. We really now see strong pickup on new customers as well.

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

Dominique Leroy, Proximus NV - CEO [8]

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

So, concerning Voo governance issues, I think it's true that there is a lot of fuzz in the press around some governance issue by politicians or active people being remunerated in some mandates for Voo. To be honest, I think for the time being, we do not see that there will be short-term willingness from the government in the south to sell Voo what we see currently, but to be honest, I also only read the press as you do.

But what we feel is that there is a very strong new governance that will be put in place, making sure that the parties in the company are in line with the new governance trying to have more transparency, also on the figures in the way the Company is run, but at this stage, we do not [think] that there is any willingness to separate from Voo from the [NETIS] company. And so far, I think it still reaches of course that we do not see that risk being very much increased short-term. But as you will do, I will continue to read the press and follow that as well because I have no specific information prime hand on that one.

Market share broadband in Wallonia, it's true that, it's the reverse of Flanders, where in Flanders Telenet is the dominant player on the Internet and also the TV market.

If you look at Wallonia, we are the more dominant players in terms of Internet. So, in that sense, I think we have a strong position in Wallonia and we will try to maintain it. What can we do to prevent competitive environment changing, I think not a lot. I think we have to continue to run our business well to make sure that we continue to push projects on the convergent for play hands with Tuttimus that we also have an alternative on the low-end side of the market with Scarlet and in that sense, we can, I think rightly compete with Voo on one hand, and with Orange on the other end and the strategy we have on the whole country and I think we will just pursue it. So far, it has given us good results.

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

Operator [9]

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

Ruben Devos, KBC Securities.

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

Ruben Devos, KBC Securities - Analyst [10]

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

Two questions from me. In terms of roaming, I thought the roaming guidance of EUR61 million was quite substantial comparing it to some of the levels your competitors have published. The press release mentions you've multiplied volumes of last year by the price decrease by the regulator. So, therefore, safe to assume that there is some upside as you would negotiate wholesale tariffs which appears across Europe, therefore achieving lower effective wholesale tariffs.

And then the second question on enterprise. So, the broadband ARPUs declined throughout 2016. I understand that for broadband much has to do with the odd phasing and migration of legacy products and offering new solutions, but could you give an idea of how you are in migrating your back book to these new offerings and at what point you believe this trends stabilize and also at what point would you expect to sort of gain pricing power, let's say as you'll introduce fiber in the business footprint? Thank you.

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

Sandrine Dufour, Proximus NV - CFO [11]

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

Okay. So your first question on the roaming impact. I think first relative to others, two comments on one, first comment is Belgium and other countries where the weight of roaming is certainly higher than what you can see in other countries that has to do business. Five of the countries that has to do with the fact that people are traveling more abroad in this respect then the weight of roaming as a percentage of revenue and mobile service revenue, certainly higher than what you can see in other geographies.

And then comparing Proximus to other domestic players, the exposure might be higher as well due to the weight of our corporate customers. I mean -- and corporate customers, which have the higher proportion as well of the mobile revenue services, which we exposed to the European roaming.

And to your point, the impact that we have shown here is just showing the gross impact of the prices with the price effect that's without any elasticity element. And we are entering in 2017, the period where we will have, I would say, normal revenue and we have the COGS as well. So, this is a bit different from what we've seen in 2016.

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

Bart Van Den Meersche, Proximus NV - Chief Enterprise Market Officer [12]

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

No, there was a question on enterprise also the second question. So, regarding the out phasing of legacy products in the fixed Internet. So it's indeed so that we have, and I told you that in the previous quarter also that we still have a number of legacy -- old legacy products that we are progressively phasing out, which are high ARPU, old legacy Internet products and so that we're phasing out towards more attractive price offerings for our customers.

We expect this to still go on in 2017, but at the same time indeed we will have more and more the positive effect of the fiber rollout and we already had this slightly in 2016, where we increased the numbers of fiber connections that's mainly point-to-point connections. In 2017, we tend to increase the number of fiber connections and do what so in that context and go further in that same direction with the rollout of the fibers announced by Dominique.

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

Operator [13]

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

Nicolas Cote-Colisson, HSBC.

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

Nicolas Cote-Colisson, HSBC - Analyst [14]

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

Two questions, please. Can we just have a follow-up on the roaming costs and especially on the wholesale side? I was just wondering if you can give us more color on how it works and how it impacts your wholesale revenue and costs, and whether you can benefit from some partnerships with Vodafone orders?

On co-investment rapidly, I was just wondering can you start with Orange Belgium rapidly or would it require the regulator to first set the kind of framework before you can start co-investing?

And last on EBU, the data revenue turned negative in Q4 year-on-year. I was wondering if there was any particular issue this quarter or is that just kind of a quarterly glitch? Thank you.

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

Sandrine Dufour, Proximus NV - CFO [15]

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

So, on the wholesale and roaming costs, we have a set of agreements with many carriers, among which by the way, Vodafone of course.

Remember that we have a structure in Belgium, which is asymmetrical. We actually receive more roaming in traffic than we generate roaming out traffic. So when we negotiate, we have this in mind. And so, we're trying to make sure that we slow them as much as possible to decrease of the wholesale tariff.

Having said so, the new regulatory environment with the latest announcement on the wholesale price cap for data in Europe with the trend going down is something that is already roughly in line with the pricing structure we have for 2017.

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

Dominique Leroy, Proximus NV - CEO [16]

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

Concerning the co-investments, I think it's obviously true that we first need to have a key regulation framework. First of all from the new European telco reform where co-investments is mentioned that, of course, it's not yet finalized and then we will have to see how this is translated locally.

To be also transparent, I don't think Orange has an intention to co-invest on the very short term with us because I think today, they are very much focused on their co-ops development. The question is much more if we do more investments, would there be an opening to co-invest, then in that sense, we are open, but to be honest, I don't think it will happen on the very short term and we will, anyhow, need to wait for the right regulatory context.

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

Bart Van Den Meersche, Proximus NV - Chief Enterprise Market Officer [17]

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

And then on your question for EBU, the fourth quarter fixed data, it is indeed so that Q4 -- there is a slight negative trend in Q4, but that is due to a number of one-offs. Actually, we had a number of one-offs, positive one-offs in Q4 of 2015 and a number of negative one-offs in 2016. So, this is not stretchable.

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

Operator [18]

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

Luis Prota, Morgan Stanley.

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

Luis Prota, Morgan Stanley - Analyst [19]

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

First question is a follow-up on the new convergent propositions and the strong take-up of Tuttimus. But with also convergent products from Telenet and Orange, I'm just wondering if you had something similar to the portability statistics that we use in mobile, but for these convergent products. So, basically what I'm trying to get a sense is on how many single-play clients you are taking from competition into your convergent product, but also how many single-play Proximus clients are lost to your peers convergent products and why, what are the dynamics behind that? So, that's the first question.

Second question is, if you have any update on the tax reform in Belgium?

And finally, a follow-up again on roaming. I know you're not going to give guidance going into 2018, but just theoretically there should be -- my understanding is that there should be further roaming impact in 2018 as roaming is going to fully disappear from the second half and you still have some elasticity in the first half 2017, but I suspect that in 2018, the impact is going to be lower anyway as most of the impact is concentrated in the third quarter 2017 when everything will be off. I don't know whether that is about right or not, any comment would be very helpful. Thank you.

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

Daniel Kurgan, Proximus NV - CEO - BICS [20]

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

So, I think -- I mean, I cannot give you all the numbers that you gave there, but I can give you some proxies that would highlight where we're heading with that. If you look at our postpaid results, we've had a 27,000 postpaid customers that was our best quarter in the year that was driven certainly also by the joint offers, but definitely by new Tuttimus portfolio.

We did see, of course, I mean, the aspiration of base mobiles and standalone mobiles by WIGO. I mean, we have observed that, but we have also revamped our Mobilus offer with a free app boost that was really capable of countering that.

So, I think the postpaid -- 27,000 postpaid is one sign, but also the very strong tiering that is done to the portfolio is I think another good proxy for how Tuttimus is absorbing the mobiles. Then, I think another component that could highlight some of the aspiration capability of Tuttimus is the market share evolution. If you look at Digital TV.

If you look at fixed Internet market shares, we have -- in the last seven quarters in a row on Digital TV, Proximus has gained market share and the last five quarters in the row Telenet has lost market share. So, again there many of our customers are coming towards us.

And then, I think the other component that I can give you is that in a quadruple-play, but again I mean it's only two months in the market, but we see a very healthy number of 4.82 RGUs in our quadruple-play.

I mean everything in a quadruple play above three, of course, is mobile. So, we are at 1.82 mobiles per Tuttimus customer per convergent customer. I think those are the few highlights that show that Tuttimus is a good absorber for fixed and mobile, and for mobile and fixed and for growing revenue generating units per customer.

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

Dominique Leroy, Proximus NV - CEO [21]

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

Okay, on your second question on tax reform in Belgium, unfortunately, we do not have much visibility for 2017. We don't expect that it will help our effective tax rate this year and 2016 this respect was quite low in MTR achievements.

In your third question on roaming, you are correct in your assumption that in 2018, as of June 2018, we shouldn't see any more the impact of the end of Roaming-like-at-Home and in that sense, we expect much lower negative impact for this 2018.

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

Operator [22]

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

Marc Hesselinck, ABN AMRO.

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

Marc Hesselinck, ABN AMRO - Analyst [23]

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

Initial question is on the guidance, which is slight growth in EBITDA, but you will get a feel on the difference between the consumer segment and the enterprise segment. (inaudible) expects some more competition in the enterprise segment, therefore, will it be fair to say that most of that growth for the Group is coming from the consumer side?

Then second question on our free cash flow, very strong in 2016. Could you give a little bit of a feel what you expect for changes to working capital and provisions for 2017 and therefore if your free cash flow, given that your CapEx will be higher, but your EBITDA also will be higher, what will you do directionally year-over-year?

And finally, coming back on a comment you made earlier on Voo, you said you're still at risk, if there would be a change of ownership. Could you explain that, because I almost felt that it's relatively aggressive. So, why would it be a risk if there is a change of ownership? Thanks.

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

Sandrine Dufour, Proximus NV - CFO [24]

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

Okay. So, first question on the guidance. You may have noticed that we do not break down our segments' EBITDA, we manage them through the direct margin and then we manage our operating expenses. So, this nearly flat guidance on revenue translates in somewhat similar pattern for direct margin and the major driver for growth will come from the continued efforts that we plan to do on reducing our net OpEx. As you know, we've guided for the EUR150 million net OpEx reduction in 2015-2019 and we'll continue along this trajectory in 2017.

As for free cash flow, we do not plan to give any guidance on our free cash flow. What we said in December, is that we aim to be able, despite the increase in our CapEx, to generate free cash flow that will cover our shareholder remuneration. We will certainly continue to manage actively the working cap, but as you know, I think we are able to reap the benefits of the optimization of our working cap; our target here is to maintain our position and to make sure we can cover our dividend with cash flow generation.

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

Dominique Leroy, Proximus NV - CEO [25]

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

So, coming back on Voo perhaps I have to highlight a bit more the context for people that are not sitting in Belgium. Voo is a subsidiary of a company, which is owned by municipalities, well US gas, electricity, telecom and some media contents. This whole company is in the hands of the Walloon regions. Because of that, there is not a lot of visibility on the figures, and on the remuneration, because they are not listed on the stock exchange and there is not a lot of publications on the company.

There has been a lot of fuzz recently about the fact that some politicians were remunerated for their mandate in the company without a lot of transparency, sometimes with relatively high amount without effective work. So, it has created a lot of haze around the company in the south. There has been some rumor and speculation that because of that the company that needs to become more transparent, that one way of doing it was potentially to do some stock listing of the company, which would mean that a potential small change of ownership.

So far, as today, there is more an inquiry -- an official inquiry to see how we can run the company with more transparency, but the short-term change of ownership risk that was highlighted by one of your colleague in a question previously, we don't think it will come that fast because it is more today about keeping the current structure but putting more transparence on the governance and not going into a stock listing.

So I hope that clarifies a bit the question. It's a difficult context to explain, but the whole structure comes from the fact that the company is a utility company owned by municipalities and therefore not so much transparency and visibility, neither on the number, neither on the remunerations.

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

Operator [26]

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

Ulrich Rathe, Jefferies.

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

Ulrich Rathe, Jefferies - Analyst [27]

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

Three questions, please. My first one is on -- so you're guiding for a -- you're indicating a roaming impact, which is essentially calculated number of the regulated impact. I was just wondering when you actually guide, you always set out your business plan, what you actually assume to be the actual impact? In other words, what degree of elasticity do you actually expect and what are the actual prices? So the net impact of that would be quite interesting, maybe on EBITDA more interesting than on revenues.

My second question is, in fixed voice, I think previous questions have highlighted the fact that there is no intake and you sort of pointed out that just throwing into the bundling, no longer selling them -- the single player product. I was just wondering to what extent is this throwing in a product that ultimately the customer doesn't want to, no matter (inaudible) forcing them to do it, in other words, do you have indications that people actually enjoy this? Do you see usage on that product or is it effectively a price rise of an unwanted legacy product?

And my third question is, could you comment on the acceleration of the service revenue decline? I think it was minus 8% in the quarter. Is this sort of something odd in the quarter? Is it just the roaming effect and how will this unfold in 2017 from your point of you? Thank you.

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

Sandrine Dufour, Proximus NV - CFO [28]

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

Okay. So, there is certainly in our budget and plan some elasticity impact as well in the volumes that potentially go beyond the calculated impact that we've seen this in 2016. We expect to see this as well in 2017. And with the new regulation, which comes with higher COGS because we have no more revenue. But we have to pay the wholesale price.

Now on the other side, we are also growing in, which benefits from elasticity because our neighboring countries are observing the same trend. And so, this is the balance impact that we take into account in our real projection.

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

Daniel Kurgan, Proximus NV - CEO - BICS [29]

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

So what we've done on Tuttimus is indeed we stopped highlighting the fact that it is a fixed line, but highlighting specifically the benefits of what you can have. So, I mean, the international calling in the evenings and weekends is definitely something that is very much appreciated than the free calling to fixed and mobile is definitely very much appreciated.

It is true that there will be probably lower consumption by certain consumers, but the overall advantage of what they can do with fixed line is very much appreciated. Now, will there be a shift in technologies and there definitely will be a shift in technologies over time and the fixed line will migrate to Voice over IP and then later on to probably other services in the future. The importance for us is to have the customer visits quadruple-play with us, so that we can guide them through that convergence of technologies on our platform.

Similarly 2G has made place for 3G and 3G is making place for 4G and those is the evolution of technology. It is the use that people get from it that we want to highlight what technology we fulfill it to it. At this point in time, will change from today to the future. But we want the customer with all this communication experiences with us in a quadruple-play.

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

Bart Van Den Meersche, Proximus NV - Chief Enterprise Market Officer [30]

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

And then on your question on the evolution of the mobile services revenue in EBU, it is so indeed that in Q4, you see that decline is a bit higher than in Q3, linked to three elements. One, you have the effect of roaming, of course, that you have seen as of Q2 more in Q3 and then in Q4.

In Q3, we had, I would say, a little bit more elasticity in volumes than we have in Q4, because there is less holidays and there is also one week less than the year before because the Christmas holiday, there was only week in 2016.

Second is the changing travel or the changed travel behavior where indeed less people are traveling and less people -- when they travel, they travel mainly to Europe and not the rest of the world due to the terror threats. But there is also a third element that increasing competition pressure that is also happening in the market. So, those are the three elements that explain the impact.

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

Operator [31]

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

Stefaan Genoe, Degroof Petercam.

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

Stefaan Genoe, Degroof Petercam - Analyst [32]

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

Two questions. Orange Belgium indicated that in their bundled offer, they saw mainly customers coming from the different operators. We do not really see this in your numbers. Could you indicate on which product lines you see most impact and on which brands you see most impact from Orange Belgium and how this is perhaps different in Flanders versus Wallonia?

And second question on the B2B, how do you see competition going into 2017? Competition has been quite pronounced or as indicated we want to move quite strongly in 2017 in the B2B segment. Could you indicate for B2B how you see competition in 2017? Thank you.

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

Daniel Kurgan, Proximus NV - CEO - BICS [33]

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

So on Orange, they have done their gross gains. Let's spin to consideration that there is a growth of the fixed and Digital TV market. So, they've taken a nice part of that growth. We have not seen churning out towards Orange. We haven't seen that on the Proximus (inaudible) but on the gross gain side, it is clear that Orange has taken a position.

If we look at -- and that's probably technology driven, it is easier to migrate towards Orange from Voo or Telenet from a cable operator and that is what we indeed see as well in the market shares.

So, in summary, we see Orange activity on the gross gain side. We see them taking parts of the growth of the market and we see them hitting into to turn it and Voo customers. Really big difference between the north and the south maybe a little bit more on the northern part than on the south, but no remarkable difference there.

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

Bart Van Den Meersche, Proximus NV - Chief Enterprise Market Officer [34]

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

And then on your question on the B2B and how competition is evolving and how I see this. Quite honestly, I don't see a difference than last year because they were very outspoken also last year that they would affect the enterprise markets and it's the same this year. And so we try to anticipate that by differentiating as much as possible.

So differentiation is really the key elements against competition to sustain our leadership and we have been successful in doing so in 2016. And we have all the -- how would I say the intent to do so also in 2017. When I talk about differentiation, it's on different elements. It's not one element, I mean, it's a combination of many elements.

First and most important is definitely customers' interest and customer experience. So we're putting in lot of efforts on delivering the best customer experience in the markets. By the way, we have launched therefore also an important business transformation project that we call Excite that should deliver the best customer experience in every touch point that the customer has with us.

Second, we want to offer the best SLAs in the market and one of the most important in that context is business continuity. Business continuity is still the most important priority for enterprises.

Third is, of course, we want to do that based on the high quality of our networks. In mobile, I think it has been proven at many times that we have the best network in the market. We were the first in 4G; we were the first in 4.5G, and by doing so, we have been able even to reinforce our position in mobile. Fixed, of course, we're putting a lot of efforts on fiber. So, Fiber for Belgium and the rollout for B2B is very important where we see a lot of traction.

Fourth, we fully leveraged convergence in between fixed and mobile, but also telco and IP and deliver end-to-end solutions and that is how would I say increasingly important in the markets where customers expect this end-to-end solutions.

Fifth is sales, what I would call sales and servicing coverage. We have a very important coverage from customers, from the government agents with every mid-service people and sales experience is still the Number 1 influence around buying behavior.

Sixth is a very high focus on innovation to develop new revenue sources, but also to be relevant to our customers. In that context, you have Internet of Things, you have data analytics, you have enabling company, digital service company -- the digital service provider security, very important, Smart City, Smart Mobility.

And seventh, I would say, cost efficient organization. So, we -- like the whole Group, we're working our costs and making sure we have the best costs search. Last, but not least, I would say, also be proactive and try to anticipate disruption as much as possible and that's what we're doing. So are we going to be impacted by this is disruption? Probably, yes, but we try to minimize the impact by doing what we did until now.

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

Operator [35]

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

Michael Bishop, Goldman Sachs.

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

Michael Bishop, Goldman Sachs - Analyst [36]

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

Just two questions, please. Firstly, following up on a couple of the questions on potential co-investments in the non-dense areas. Clearly, there's going to be a range, but is it possible to give us a sense of the cost per home of rolling out FTTH as you go into the non-dense areas. So maybe if you were to say do another 10% or 20% of Belgian homes beyond the 50% indicated before December.

And then secondly just around that, should we assume that your sort of cost threshold to pass those homes similar to the one you've announced and therefore you would need the equivalent co-investment percentage from Orange Belgium to get your cost down to being in line with what you've announced already.

And then just a quick point around cost cutting. It seems like you're making very good progress on the Fit for Growth extension. Should I read there is potentially a good level of cost cutting to come beyond the EUR150 million that you've indicated between 2015 to 2019 as well? Thanks very much.

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

Sandrine Dufour, Proximus NV - CFO [37]

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

Okay. So on your first, actually, on even second question, I think, it's a bit premature to get into this type of detail. I would suggest that we first have this discussions with potential co-investment partners and as Dominique said earlier, it's not going to be short term. So, it's premature to answer any question on the cost for connecting the home in these areas and the framework into which we would operate.

On your third question on cost cutting, I think, it's maybe worth reminding that when we gave you guidance at the end of last year on our EUR150 million net OpEx ambition for 2019, we had a pretty good view at that time of what we were able to deliver for 2016. And so, we're updating and actually even upgraded the previous guidance in this number. So, I think we are sticking for the time being to this ambition for the next years.

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

Operator [38]

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

Vikram Karnany, UBS.

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

Vikram Karnany, UBS - Analyst [39]

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

I've got a few questions. First in terms of the 4G data usage overall in Belgium remains low and for US, it's around 1.2 gig, which represents a clearly a good growth opportunity. But when I look at the 30% year-on-year growth, it's still low in terms of run rate compared to your peers like Orange Belgium. So, I was wondering if you could highlight any of the factors that leads to kind of the structural low-growth for you and how do you plan to stimulate the usage going forward?

Then in terms of the prepaid drag, as a result of this new legislation, do you expect the trend to worsen further in the first half of 2017?

And finally, in terms of the cost reduction plan, is it possible to break down what sort of impact is expected in 2017? And if there is any cast related restructuring cost to it? Thank you.

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

Daniel Kurgan, Proximus NV - CEO - BICS [40]

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

So, on 4G data, I mean compared to some other countries, it is low. Compared to US, it is high. It depends on what structure there is in the market. I think we see a very steady growth and talking about the stimulation of usage. One of the things that we observed is, I mean we've migrated a majority of our customers to the new Mobilus part or in Tuttimus sale. They also have same free application.

What you see there is, that indeed the outer bundle goes down for a while and then people start using the data more and more and more, and what you then see is after a few months, that starts flattening out again and then it started to go up again. So, it is pretty much getting people, getting the customers making use to use data. And we see through our efforts and through our plans and packs that is working.

If you look at prepaid ID, will it worsen? Yes, I mean, let me give you a few -- a little bit more color on that. We did indeed saw that continued decline of the prepaid market. We have -- and that was driven to a large extent indeed by the ID law. We have put in place in the Belgium market, the best identification process in place if you compare it with the different ways how you can get your ID certified.

We have four, five different ways that we can touch every single customer. We have a very outspoken and very clear way of communicating with our customers, but that volume pressure will continue. Now, to give you maybe one number, I mean 40% of our customer base, we have been able to identify. Then there is also a large extent of cards that are being used for the lawnmower and the alarm central and the garage doors et cetera. So those we cannot touch.

We are driving that migration to postpaid and full control and we are driving that to a very specific communication. Up to today, we're losing less than we predicted, but will that volume grow, continue to go up or continue to go down on prepaid definitely, but we think we have put all our measures in place and proactive contacts to already today have 40% of our prepaid customers contacted and secured.

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

Sandrine Dufour, Proximus NV - CFO [41]

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

And your last question on the cost reduction expectation. So out of the EUR150 million, we delivered on the first year 2016 and on the remaining, we expect to do roughly a third in -- a third of what remains to be delivered in 2017.

And to your question, whether there are any restructuring costs behind these efforts? Remember, what we said on how we account for the early lease planned cost; it is being spread over a certain period of years and it's accounted for below the underlying EBITDA and we had disclosed the expected provision for 2017, which is in the tune of EUR70 million for 2017.

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

Operator [42]

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

Usman Ghazi, Berenberg.

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

Usman Ghazi, Berenberg - Analyst [43]

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

I have four questions, please. The first question was just on the pricing model for fiber. I mean, has anything been communicated on whether households will pay an upfront connection fee or not?

The second question was on roaming, some of your -- not the Belgian competitors, but some of your peers have indicated that they will not, for example, give the Roam-like-at-Home to all the corporate customers on day one as in their Roam-like-at-Home will be made available over time as contracts renew. So, I was just wondering what Proximus' stance on that is and whether the impact includes giving this to all the corporate customers or whether this will be an impact over time in the business segment?

The third question was just on potential for price increases in mobile to offset some of the impact? Actually, I will leave it at that. Thank you.

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

Daniel Kurgan, Proximus NV - CEO - BICS [44]

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

So, on your first question, we clearly drive fiber through enterprise where customers will be benefiting mostly from the increased speeds, the latency and the symmetricity of the offer. I think overall the network in Belgium is very good. If you look at the Netflix ISP index, Switzerland worldwide is Number 1, Belgium worldwide is Number 2, and in Belgium, we're Number 1. So, we're offering already to our customers a very, very solid infrastructure.

So what we will -- how we will position ourselves is from a speed perspective. We will allow ourselves not to be discredited anymore compared to our competition. So, we put ourselves on the same speed as the competition. The Tuttimus project will be at a similar price, at the same price actually, and the customers will have an option or are having an option to get a speed boost for an additional fee.

So, that's how we are pricing, that's how we're pricing the product. We are taking a two-step approach for the connection in the home, I mean the physical connection in the home. It is when we are opening the roads and when we are active in the streets, we offer to various customers a free installation or free termination of the fiber in their home and that is while we are doing the works. Once those works are over then the customers will have to pay for the connection in their homes. So, that is basically our approach for the consumer business.

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

Bart Van Den Meersche, Proximus NV - Chief Enterprise Market Officer [45]

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

Your question on roaming and the impact for corporate customers, we are implementing Roaming-like-at-Home -- one in line with regulation. Now what we have is that sometimes we have bundles for customers, there is a number of data, data bundle that is including as well Europe, our top destinations or rest of the world, but those bundles remain valid and applicable then for top destinations rest of the world, but we are applying Roaming-like-at-Home for Europe as of day one, like regulation is imposing.

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

Daniel Kurgan, Proximus NV - CEO - BICS [46]

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

And on the third question, the potential price increase on mobile to offset the impact, not directly in our plans specifically for that, what we do see is, with Roam-like-at-Home, our data consumption increase where customers, of course, when they are traveling will have their Google Maps active and they will be on TripAdvisor looking for where is the next restaurant. and for that, there will be more data consumed. It will get people more used to using data also when they are in their home location, and that increases the opportunity for us to do uptiering and to migrate people either with their mobile in our packs where we offer more data or towards a higher tier in the kind of mobile standalone.

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

Operator [47]

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

Parin Shah, Bank of America.

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

Parin Shah, Bank of America - Analyst [48]

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

I just have two maybe slightly bigger picture questions. Just on the towers, do you have any plans for monetizing your tower portfolio and maybe using the proceeds to accelerate your fiber build?

And the second question is, is there a meaningful way in which you can differentiate yourselves in a 5G world? How do you think about network investment? Is this more about trying to kind of go alone or do you see a lot of potential for co-investment considering the amount of spectrum that might call for auction and the number of small cells that need to be invested in? Thank you.

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

Sandrine Dufour, Proximus NV - CFO [49]

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

So, on your question on towers, we do not have any plans to dispose of our towers. I think just maybe one was on our balance sheet. I don't think we have an issue in terms of unable to fund any fiber plan. We are probably one of the lowest incumbent in Europe with one-time our net debt-to-EBITDA and there are certainly available first from very cheaply to fund any CapEx program.

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

Bart Van Den Meersche, Proximus NV - Chief Enterprise Market Officer [50]

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

Then with respect to 5G, it is for sure already with our Fiber for Belgium plans. One asset and crucial asset that we bring in place is the fiber backhaul because 5G will be about small cell densification, but these small cells will be fiber backhauled. We said at the end of last year is that while we will do the fibers to the home rollout that we will foresee the necessary flexibility points. So, there is a synergy between fixed and mobile and mobile becomes fixed. With respect to potential for co-investment that is too early to make any comment about that.

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

Operator [51]

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

Ulrich Rathe, Jefferies.

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

Ulrich Rathe, Jefferies - Analyst [52]

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

I was just really following up on earlier questions. You hopefully highlighted the components of the net impact of the Roam-like-at-Home regulation on your financials. I was just wondering whether you are willing to sort of share how this all ultimately adds up in your business plan net? Is it a drag? is it even a support? I don't really know what assumptions you realistically make. I understand that elasticity is actually quite high. So that's really the main question, yes. Thank you.

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

Sandrine Dufour, Proximus NV - CFO [53]

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

I think it's clearly a drag on our business for sure. I mean the net impact we gave -- the gross impact we gave is not far from the net impact.

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

Operator [54]

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

Thank you. We currently have no further questions.

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

Nancy Goossens, Proximus NV - Director, IR [55]

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

Okay. I think that we can end the call for now. Thank you very much. If there would be any follow-up questions, you can contact the Investor Relations team. Thank you and have a good weekend.

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

Operator [56]

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

Ladies and gentlemen, this concludes today's conference call. Thank you all for attending. You may now disconnect.