U.S. Markets closed

Edited Transcript of TNET.BR earnings conference call or presentation 1-Aug-19 1:00pm GMT

Q2 2019 Telenet Group Holding NV Earnings Call

Mechelen Aug 6, 2019 (Thomson StreetEvents) -- Edited Transcript of Telenet Group Holding NV earnings conference call or presentation Thursday, August 1, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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

Corporate Participants

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

* Ann Caluwaerts

Telenet Group Holding NV - Chief Of Corporate Affairs & Senior VP of Corporate Affairs & Wholesale

* Erik Van den Enden

Telenet Group Holding NV - CFO

* Jeroen Bronselaer

Telenet Group Holding NV - SVP of Residential Marketing

* John C. Porter

Telenet Group Holding NV - CEO, MD & Director

* Rob Goyens

Telenet Group Holding NV - VP of Treasury, IR & Structured Finance

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

Conference Call Participants

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

* David Vagman

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

* Emmanuel Carlier

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

* James Edmund Ratzer

New Street Research LLP - Europe Team Head of Communications Services & 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

* Ruben Devos

KBC Securities NV, Research Division - Senior Financial Analyst

* Stefaan Genoe

Banque Degroof Petercam S.A., Research Division - Head of Equity Research

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

Presentation

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

Operator [1]

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

Ladies and gentlemen, welcome to the Telenet conference call. Let me introduce John Porter, CEO; Erick Van den Enden, CFO; and Rob Goyens, VP Treasurer, Investor Relations and Structured Finance. Sir, please go ahead.

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

Rob Goyens, Telenet Group Holding NV - VP of Treasury, IR & Structured Finance [2]

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

Good afternoon, everyone. My name is Rob Goyens, Head of Treasury and Investor Relations at Telenet. I would like to welcome all of you to our Q2 2019 earnings webcast and conference call. I hope you have been able to have a look at this morning's earnings release. The release and the presentation for this call can be found in the results section of our investor website. We'll start today as usual with the presentation of the main strategic and operational highlights by John Porter, our CEO. Next up, our CFO, Erik Van den Enden, will guide you through our quarterly financial results. Afterwards, we will be taking questions from the audience. As a reminder, certain statements in this earnings presentation are forward-looking statements. These may include statements regarding the intent, belief or current expectations associated with the evolution of a number of variables that may influence the future growth of our business. For more details on these factors, we refer you to the safe harbor disclaimer at the beginning of the presentation. So John, the floor is yours.

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

John C. Porter, Telenet Group Holding NV - CEO, MD & Director [3]

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

Thanks, Rob. Hi, everybody. It's John here. Let's first go through the key highlights of the second quarter of 2019. Similar to first quarter of this year, we maintained a strong commercial momentum. We expanded our WIGO portfolio in order to cater more effectively to all different types of families, large or small. In that way, we are blurring the lines between different products and move to an ecosystem-oriented approach, which is, besides the commercial upside, also creating more value. The ARPU of a WIGO customer is EUR 98 and a much more loyal customer with annualized churn of 3%, significantly lower compared to a standalone internet subscriber with around 10% churn. On top of that, we continued our commercial push in the city of Brussels with good results. We saw particularly strong sales in the SoHo segment. This underpins the potential of Brussels to increase our market share and capture more B2B and residential customers. Finally, we launched strong tactical promotions on both Telenet and BASE standalone mobile brands, including bigger data bundles and handset discounts. Our standalone mobile net adds improved significantly with the best performance for BASE in the last 2 years.

As already mentioned during Capital Markets Day in December last year, B2B is an important growth driver for us a segment, and I am very pleased to see we gained over the past months several new large customers. Our post-Nextel integration strategy and the expansion of our footprint in Brussels is paying off and is fostering strong growth in both the SoHo and MLE segment. And thanks to the newly launched 4G backup services, our medium enterprise internet customers can now rely on permanent access support.

We are very pleased that our strategy of distinct ecosystems and focus on customer experience is delivering again. The performance of our operational KPIs has really exceeded our expectations. This is underpinned by the highest WIGO net adds in almost 2 years, which also resulted in more than double mobile post-paid net adds compared to the previous quarter. More importantly, I also want to emphasize that our Telenet and BASE standalone mobile business significantly improved in terms of net adds thanks to the upgrade of the portfolio with higher data bundles and tactical promotions.

Another milestone in the quarter was the regulatory approval for the acquisition of the remaining 50% stake in the local media company, De Vijver Media. This acquisition further underpins our connected entertainment strategy and will enable us to respond even more and even faster to innovations in the field of viewing experience or advertising.

In early July, the national telecoms regulator, BIPT, and local media regulators published their draft decision proposing new monthly wholesale rates for access to cable operators' networks. We were extremely disappointed with the current outcome. Telenet has had the highest CapEx-to-sales ratio compared to its European peers, underpinning the investments done to build a future-proof, next-generation HFC network. However, the current pricing for wholesale cable access is not mirroring these efforts and does not encourage investment in the future. We will therefore forcefully challenge this proposal during the consultation period. As the timeline looks today, we expect to have a final decision on cable wholesale pricing by the end of this year and the effective implementation in the beginning of next year.

With that, I'll now hand it over to Erik for the financial highlights of the second quarter.

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

Erik Van den Enden, Telenet Group Holding NV - CFO [4]

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

Thanks, John, and welcome, everyone, to our Q2 2019 earnings call. With 2019 being a transition year, I am pleased to see that after a strong start of the year in Q1, we continued to deliver solid financial performance in the second quarter.

As you can see on the next slide, we achieved revenue of EUR 1.26 billion for first 6 months of the year, which was up 1% compared to the same period of last year. Our reported revenue growth in that period was mainly inorganic, impacted by a full 6 month contribution from Nextel as opposed to a 1 month contribution in the first half of last year and a 1 month contribution from De Vijver Media, which has been fully consolidated in our accounts as of the 3rd of June, 2019. Excluding the aforementioned inorganic effects, our top line decreased modestly by 1% in the first half on the rebased basis. Higher cable subscription revenue was more than offset by lower wholesale revenue following the loss of the MEDIALAAN MVNO contract and lower usage-related revenue. Relative to Q1 2019, the trend in our rebased revenue worsened as anticipated due to the loss of MEDIALAAN MVNO contract, which started to adversely impact our business as of April. However, it's fair to say that excluding the lower wholesale revenues, we would have been very close to achieving flat revenue for the first 6 months. In Q2, we generated revenue of EUR 636 million representing an increase of just over 1%, as you can see on the bottom-right chart.

Looking on our cost base on the next slides, our operating expenses for the first 6 months of the year modestly decreased by 1% year-on-year on both reported and rebased basis. The reduction in our cost base on the rebased basis was predominantly driven by a 6% reduction in staff-related expenses, which reflected the trends for over-network field services to Unit-T as of the third quarter of 2018, which is partly offset by higher costs related to our outsourced labor and professional services and higher network-related expenses. In addition, our direct costs decreased 2% year-on-year as higher programming costs at De Vijver Media and higher costs related to the sale of handsets were more than offset by significantly lower interconnection costs. And finally, we achieved a healthy 5% decline in our other indirect expenses reflecting our continued focus on operating leverage and tight cost control.

Turning to EBITDA, on a reported basis our adjusted EBITDA for the first half of 2019 increased 3% year-on-year to EUR 665 million reflecting

(technical difficulty)

with the first half of 2019. On rebased basis, so excluding the inorganic effects and the impact of IFRS 16, our adjusted EBITDA modestly contracted year-on-year by 1% reflecting the loss of the MEDIALAAN MVNO contract and certain regulatory headwinds. But again, if you were to eliminate the impact of the lower wholesale revenues, we would have been very close to achieving flat EBITDA. In the second quarter of 2019, we delivered adjusted EBITDA of EUR 345 million representing a 1.7% decrease year-on-year on the rebased basis and reflecting the aforementioned wholesale contract loss and regulatory headwinds such as the decrease of fixed termination rates and the caps on intra-E. U. calling rates. On rebased basis, we succeeded in maintaining our underlying adjusted EBITDA margin in the first half of the year at 52.7% driven by continued tight cost control.

Then looking at CapEx, we succeeded in substantially reducing our investment intensity as compared to last year. Our accrued capital expenditures reached EUR 308 million in H1 2019 and reflected the recognition of the U.K. Premier League broadcasting rights, which we successfully renewed for another 3 seasons in the first quarter. Excluding this impact, our accrued capital expenditures decreased 12% year-on-year, which is equivalent to 21.1% of revenue in the period. As you can see in the right-hand pie chart, around 64% of our accrued capital expenditures in H1 2019 were scalable and subscriber growth-related. Obviously, we will continue to closely monitor our CapEx in order to make sure that they drive incremental returns.

The substantial decline in our accrued capital expenditure drove a 16% year-on-year increase in our H1 operating free cash flow to nearly EUR 400 million, of which EUR 210 million in the second quarter. Our adjusted free cash flow reached EUR 207 million over the first 6 months of 2019 representing a 23% decrease versus the prior year period. However, our free cash flow in H1 2018 included the significantly higher contribution from our vendor financing program versus H1 of this year. Excluding this impact in both periods, our adjusted free cash flow was actually up 3% year-on-year despite substantially higher cash taxes paid and higher cash interest expenses versus the same period of last year. In the second quarter of this year, our adjusted free cash flow was EUR 187 million representing a robust increase versus the preceding quarter and 1% up year-on-year. Our adjusted free cash flow in the quarter did not include any contribution from our vendor financing program versus a nearly EUR 31 million benefit in Q2 of last year. So excluding the impact of vendor financing also for Q2, our cash flow increased by 20% year-on-year. With that, we remain well on track to deliver on our adjusted free cash flow target for the full year.

We continue to enjoy and solid and healthy financial profile characterized by strong liquidity and a well spread debt maturity profile. Excluding the short-term debt commitments under our vendor financing program, we face no debt amortizations prior to August 2026 with a weighted-average maturity of 8 years at the end of June and a weighted-average cost of debt of around 3.6%. At the end of the second quarter, we had full access to EUR 505 million of undrawn commitments under our revolving credit facilities, which included the issuance of a new short-dated EUR 60 million RCF in June, which can be used for general corporate purposes and is a further add-on to our liquidity profile. On top of that, our cash balance reached almost EUR 140 million at the end of the first half of the year. In June, we successfully acquired the remaining 50% stake in De Vijver Media and redeemed EUR 62 million of their third-party debt at closing. Both transactions were settled in cash. And finally, we redeemed 20% of our facility AB, the senior secured fixed rate note due in 2027, for a total amount of EUR 109 million, which included a EUR 3 million make-whole premium. Through this transaction, we will reduce our 2027 debt maturity while adding an additional EUR 45 million to our adjusted free cash flow over the 2020 to 2027 period. Turning to the next slides, our net total leverage improved from 4.4x at the end of March to 4.3x at the end of June 2019 thanks to the strong cash flow generation of our underlying business and despite the completion of our share repurchase program, the cash paid acquisition of De Vijver Media and the refinancing thereof.

Before opening up for Q&A, I would just like to come back to our medium-term and 2019 financial outlook. As you will remember, at our Capital Markets Day in December of last year we presented our ambition to deliver sustainable profitable growth over the next 3 years. Over the 2018 to 2021 period we target a rebased operating free cash flow CAGR of 6.5% to 8%. This excludes the recognition of football broadcasting rights and mobile spectrum licenses and it also excludes the impact of IFRS 16 on our accrued capital expenditures. Based on the performance in the first half of 2019, we reaffirm our outlook for the full year 2019. Due to the loss of the MEDIALAAN MVNO contract and certain regulatory headwinds, we do expect a more outspoken impact on both our rebased revenue and our adjusted EBITDA as of the second half of 2019 in line with our full year 2019 outlook as presented mid-February.

Turning to the next slide, in 2018 we consistently delivered on our anticipated shareholder remuneration timeline. You will remember that at the end of June last year, we started a EUR 300 million share buyback program. At the end of the first quarter of this year we had repurchased just over 5.7 million shares in this program for an amount of EUR 249 million. On April 24th of this year, the Extraordinary General Shareholders' meeting granted another 5 year authorization to the company to acquire its outstanding shares up to the maximum number as set forth in the applicable legislation. As a result, we were able to fully complete the EUR 300 million share repurchase program 2018bis by the end of June of this year. At the same time, the EGM also approved the cancellation of nearly 1.9 million treasury shares, lowering our total share count by the same amount. Subject to compliance with our objective to remain around the 4.0x midpoint of our net total leverage framework and excluding any material acquisitions and/or significant changes in our business or regulatory environments, we consider to pay an intermediate dividend in the fourth quarter of this year subject to both board and shareholder approval.

And with that, let me now hand over to the operator for our Q&A session.

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

Questions and Answers

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

Operator [1]

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

(Operator Instructions) The first question is from Michael Bishop from Goldman Sachs.

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

John C. Porter, Telenet Group Holding NV - CEO, MD & Director [2]

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

Mike, before you ask your question, can I just make another comment? That, due to the significant interest in commercial momentum and competitive intensity and De Vijver, I've asked Jeroen Bronselaer, who leads our Consumer group, to attend the report and to make some comments in those areas. A little bit more granularity I thought would be helpful. Similarly, a lot of interest in regulatory and wholesale and so I've asked Ann Caluwaerts to also attend the update. She's been leading that area for us for 5 years now. And I think in the future I may, for the half and full year, bring in the subject matter experts, the people who are at the coal face every day on certain issues that are getting heightened amount of interest. So these guys are also available in addition to Erik and Rob and myself. So sorry to interrupt you, Mike, but I thought I'd let people know that.

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

Michael Bishop, Goldman Sachs Group Inc., Research Division - Equity Analyst [3]

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

Just 2 questions for me. Firstly, kicking off with the regulation. I was just keen to get your major pushback on the regulation. I mean, at least from my perspective, it's quite hard to see at least how a fair margin has been applied given the limited incremental charges for higher speeds. And then also Proximus raised the point around there's some costs of the network in part being ignored where they were fully amortized. But I was keen to see if you have any other things to add on top that you'll potentially be pushing back on. And then secondly, just in light of the Proximus-Orange Belgium network-sharing agreement, really 2 questions. Firstly, is just getting your broader view on network differentiation because it feels like they're deciding there's not really any differentiation and therefore it's better to save cost in the future. And to follow up, could you potentially join their negotiations and effectively pull your network into that one and a bit grids that they're going to end up with after their network-sharing agreement?

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

John C. Porter, Telenet Group Holding NV - CEO, MD & Director [4]

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

Yes. Let me answer the second one and then I'll hand it over to Ann Caluwaerts to address the regulation issue, which I'm sure is on a lot of people's mind including my own, in a little bit more granularity. So on the network-sharing deal, certainly in a more challenging regulatory and competitive environment I think we all need to find ways to optimize our capital investments going forward. We are certainly philosophically not against the idea of network sharing. We think, to your point, Michael, that there is diminishing returns on network differentiation certainly in Belgium where all 3 networks are providing 90% to 95% of their coverage in 4G. We already have networks that are providing download speeds of 50 to 100 Mbps with Telenet having the most performant network in that area. So we've let the parties know that we would certainly be interested in participating in some way in the network optimization of both passive and active network and that we would like to talk to them about that in the future. So I think there is certainly -- this is certainly something which I think you may see more of down the road. Once again, the capital intensity associated with particularly the deployment costs of 5G without a really solid business case particularly in a consumer environment makes it imperative that we try to find ways to reduce our capital profile as we move forward. So we're definitely, we're positive on it. We don't think that given the architecture of the networks today that if we were on the outside looking in that we would have a substantial competitive disadvantage. We think it would be more or less status quo. But the real opportunity is to not build 3 5G networks side by side when there's probably little likelihood that we'll be able to amortize them, at this point anyway. And so we'll see where it goes. But there's a lot of twists and turns to play out in this and we'd like to get under the tent, but we'll see what happens. So Ann, you want to take the regulation question?

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

Ann Caluwaerts, Telenet Group Holding NV - Chief Of Corporate Affairs & Senior VP of Corporate Affairs & Wholesale [5]

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

Yes. On the wholesale tariffs and on the proposed regulation, we will indeed push back on a number of the arguments used and on the model itself. In particular on the fact that the model the regulatory has used the last months very different than what was in the initial proposal end of 2018 is a model which looks at our network and assumes that large parts of it have been depreciated and amortized. It's a methodology which is used for DSL networks, which has not been used for NGA networks or cable networks, yet anyway. And it does not take into account a number of the costs that we have, significant costs. We will give a significant pushback on that element. In terms of your remark on the margin, the fair margin, in the proposal of the regulator there was no margin foreseen for speeds between zero and 200 Mbps. Between 200 and 600 they foresee a fair margin up to 5% and above 600 of 10%. And also there, we think we have a number of arguments to say that, specifically for the lower and the medium speeds, that those margins do not allow us to continue to make the investments needed, which is the whole goal of a margin is to be able to fuel and allow the operators to continue to be able to invest. So on those 2 points we will submit our inputs through the consultation. We are preparing that right now. The deadline for the consultation is 6th of September and we absolutely hope that those points will be taken into account because we think they are very strong arguments and very valuable points to address.

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

Erik Van den Enden, Telenet Group Holding NV - CFO [6]

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

And Michael, it's Erik here. I think one of the things we find particularly concerning is that with the way the BIPT proposes to set the tariffs, I think they take away any incentive for future investments in the sense that we spent EUR 0.5 million to kind of upgrade our fixed network under the Grote Netwerf program to upgrade to nodes and to bring fiber closer to the end consumer. We spent EUR 250 million to bring the BASE network from the laggard towards, as John mentioned, it's bigger in terms of speed. And the proposal now does 2 things. First of all, it says like actually some of these costs like pretty tangible things like digging costs for instance are just not included. So I think that's very difficult because, of course, we don't recover the costs, but also going forward if we do these investments and then a couple of months down the line you were confronted with a proposal for tariffs that does not allow you to kind of monetize these investments, then we think that's very concerning not only for ourselves, but basically for the whole industry in Belgium. So that's why we will be bringing these arguments to the table. I think we'll fight hard. The good thing is we're moving our arguments later in the year. Also the European Commission will take a look at the draft decision of the BIPT and will be able to voice its opinion as well. And we'll take it from there. But I think it's a slightly broader point that I think these tariffs are just not what we need as a society.

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

Operator [7]

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

Next question from Nicolas Cote-Colisson from HSBC.

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

Nicolas Cote-Colisson, HSBC, Research Division - Head of European Telecoms Equity Product, Telecoms, Media and Technology [8]

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

Two questions, please. First in mobile, your post-paid performance was very strong in Q2. Can you just tell us if it is driven by retail or B2B, in case you signed a big corporate contract? Same question, by the way, in broadband. Can you explain why you had a big surge in B2B connections and a drop in B2C? And the second question is, can you actually give us your view of the pricing environment in Belgium? And are you confident that your almost 2% increase in prices starting almost now will not increase churn?

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

John C. Porter, Telenet Group Holding NV - CEO, MD & Director [9]

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

Jeroen?

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

Jeroen Bronselaer, Telenet Group Holding NV - SVP of Residential Marketing [10]

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

Yes. I'm just looking. I'll take the first question maybe just on the post-paid mobile performance. It's actually, the performance is strong across the board. It's not a big B2B contract. It is performance in the post-paid and that's both on the B2B level, on the Telenet level and on the BASE level. I'll give a little bit more flavor to that. On Telenet, we see that our WIGO ecosystem or the FMC ecosystem that we have launched still performs very well. We did a spec increase on this one end of December, but we have launched an expansion of the WIGO ecosystem so you could call it a WIGO mid-end lineup at EUR 83 and EUR 93 and that's bringing also in smaller families into this ecosystem. That is absolutely part of this performance because, of course, there again we are taking a large part or a larger part than market share of the mobile SIM movements in the market. There's also strong or there is an improved performance at the BASE level. At BASE as well, we have done some adjustments to the lineup. We have done a spec increase beginning of year. We have launched an unlimited product lineup in February. But both across Telenet and BASE, we have also, let's say, worked with renewed focus on bringing the right promos. They're not always the most aggressive promos in the market, but we've had a lot of them both on handsets and on subscriptions. And we also see that paying off with, as John says, the best mobile performance for BASE retail or residential in the last 2 years. And actually, we see these same elements also coming back into B2B or in the SoHo atmosphere. So it's actually a, call it, a relatively strong performance across the board due to lineup changes, FMC ecosystem thinking and the right promos at the right place. So that's for the first part of the question. On the specific move between residential and I think Rob has the explanation.

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

Rob Goyens, Telenet Group Holding NV - VP of Treasury, IR & Structured Finance [11]

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

Yes. So Nicolas, Rob here. So to your point on the split between the business broadband and the residential broadband, what you actually see in Q2 '19 is a mechanical impact of internal transfers of around 20,000 RGUs that have been moved out of residential into business. So that actually skews the underlying trends. If you look at the broadband net adds that we achieved in the quarter, to Jeroen's earlier point, you saw an improvement compared to Q1. We did 3,000 net adds in total. And that is roughly evenly split between residential and B2B.

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

Jeroen Bronselaer, Telenet Group Holding NV - SVP of Residential Marketing [12]

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

Nicolas, that translates to SoHo customers, right? So it was small office and home office customers for the residential products and that's the chief. So it was purely mechanical so you can think of the 3,000 of being 50% in residential side of the business and 50% in the B2B side.

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

John C. Porter, Telenet Group Holding NV - CEO, MD & Director [13]

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

By the way, we don't normally report bulk SIM sales into MLE and LE in post-paid BASE. So they're handled in a different way. So we won't have that problem.

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

Jeroen Bronselaer, Telenet Group Holding NV - SVP of Residential Marketing [14]

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

And the question on pricing. I think you know you probably have seen that in terms of pricing we announced a price increase that was substantially very close in line with inflation, right? So it was

(technical difficulty)

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

Erik Van den Enden, Telenet Group Holding NV - CFO [15]

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

in the first quarter we were just flat on growth than net adds. I think as we said in the previous call, there was the combination of 2 effects. So first of all, we're still completing the last part of the SFR migration, which, of course, was a drag on the numbers as we lost customers there as we converted them. But at the same time, we already saw that the underlying business outside of the SFR region was basically very positive. So we had already substantial momentum in Q1. So what you see now in Q2 as we completed that migration by the end of March, if I recall correctly, the drag of SFR completely fell away. And so now you see the underlying trends indeed being very positive and that is really across the region. So there's no particular kind of segment or region that is doing, say, materially better or worse than the other ones. Of course, you've seen it in our numbers, that momentum is fueled by a very strong pickup of our FMC bundles, 38,000, which is the best in a long time. And as Jeroen already explained, one thing that we see very clearly is that the broadening of the WIGO ecosystem to also smaller families is something that gets traction in the market and where people see clearly a lot of value. I think it's fair to say that in the old lineup WIGO became very attractive if you had a larger household. So if you could put, say, the SIMS of your children there, it's very attractive. With the extended lineup, that is now also the case if you just have one or 2 SIMS. And we just see that -- that makes all the sense for people; the comfort of having convergent services integrated between voice, broadband and video. That is just something that worked very well and we hope it will continue to do. On the second question of the Vijver Media. So indeed there was a very strong increase if you look at this second quarter versus last year. But that is really driven by seasonality. It's purely a seasonal effect in the sense as we had the launch of a very big and promising format in this quarter called Love Island that attracted quite a bit of advertising attention. I mean we won't dwell of the quality of the program. That's a different question. But I can definitely tell you that from an advertising perspective this seemed to have raised high hopes because it did -- I mean all jokes apart, in '18 we didn't have like such a big format in the second quarter. That was the case now. And that's just why you see a big difference quarter-on-quarter. But it is really seasonal. So it's not something structural.

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

John C. Porter, Telenet Group Holding NV - CEO, MD & Director [16]

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

And I think it's fair to say that De Vijver, the revenue in broadcast is a little lumpier based on the format performances. I mean the underlying, of course, acquired and normal cycle of original programming is there, but the big formats that we have at De Vijver -- we've had the (inaudible), The Smartest Person in the World. It's just an evergreen year-in, year-out. It's one of the best shows in Belgium, in Flanders. And then we have The Mole, which has been revitalized and in a digital -- with the amount of digital bolt-ons that we do with that show, that also performs extremely well. But those are the things that are going to make the revenue a bit lumpy going forward. Now we have Love Island, of course, which we'll see how that goes going forward.

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

Rob Goyens, Telenet Group Holding NV - VP of Treasury, IR & Structured Finance [17]

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

I must confess that 2 years ago, I never imagined I would ever talk about Love Island in an analyst call. But then again, life is full of surprises so here we are.

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

Operator [18]

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

Next question from David Vagman from ING.

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

David Vagman, ING Groep N.V., Research Division - Research Analyst [19]

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

First question on regulation, so on the wholesale cable rate. Could you explain us what are, at this stage, your legal options and also in the coming months what you see as being kind of the important milestones? And in particular, concerning this challenge and the consultation, the ongoing consultation, my understanding was that the ongoing consultation was not about the cost model, but rather about simply the pricing. So that's my first question. Maybe as a quick follow-up on that one is also, do you also have the ability to, in the consultation, to challenge the distinction of the cost and pricing models between the 3 Belgian regions that we see now? And then let's say a second question more on the commercial momentum. Did you see any inflow of customer from a Mobile Viking given that they had a bit of a collapse in recent months of their customer base?

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

John C. Porter, Telenet Group Holding NV - CEO, MD & Director [20]

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

Do you want to start out, Ann?

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

Ann Caluwaerts, Telenet Group Holding NV - Chief Of Corporate Affairs & Senior VP of Corporate Affairs & Wholesale [21]

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

Yes. On the regulation point, so the timeline and our options. So by 6th of September, everyone has to submit their feedback to the regulator. They then have to seek advice from the competition authorities and the Europe Commission. And then we expect by end of the year, based on the feedback from the market, based on the feedback from the Commission, from the competition authorities, for them to finalize the pricing and by end of the year, early next year. In terms of legal options, our legal options start, of course, after that. Until there's a final decision, the efforts will go into challenging some assumptions in the model, ensuring that people understand why all costs need to be included. Once the price has been set, because currently this is a draft proposal, once it's final, we have the options through the normal court cases to challenge the decision, to challenge the way the decision has been done. And we will, of course, look into that if needed. But these decisions, this procedure is not of course -- in the meantime, the price will be applied. So it comes after the fact, of course, which is why our focus currently goes into the consultation. We can give comments on the model that has been proposed in the 5th of July. So both on the model and the pricing because the model changed. Initially, you're absolutely right. It was our assumption as well that the model that was initially proposed end of December we gave our input to that and that now the pricing would be set. But the underlying model completely changed so we absolutely have the opportunity to also comment on that. And we will absolutely also, as part of the challenge and as part of the consultation, challenge the fact that Telenet, Nethys and BruTele have very, very different cost models and have different outcomes in terms of model. Because we also have a network, a small network, in the south of Belgium. We also have network assets in Brussels. And for example, if you think about the south of Belgium where we have network, even though the fact that the geography is different, our costs are still the Telenet costs and not the Nethys costs. So they are linked to the cable operator. They're not linked to the region. And there' some elements we will look into as well.

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

Erik Van den Enden, Telenet Group Holding NV - CFO [22]

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

So very practically, I mean you'll have a situation where in Brussels, but also in Bologna where one house has basically the Nethys price. We're going to be next to it at our price. There's going to be a delta of 20% to 25%. So that obviously is very, very bizarre. And the second thing, as Ann already mentioned, just a couple of months ago the BIPT did this interim update where they came with a EUR 70 plus a fair margin. To Ann's point, the underlying methodology was completely different and the cost base was taken into account at that time. So somehow they made a U-turn on that front and came now up with this new model. So this is definitely something that we find very surprising and we will definitely comment.

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

John C. Porter, Telenet Group Holding NV - CEO, MD & Director [23]

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

The major underlying issue with the new model is that the more efficient and the more performant and the more investment you make in your network, the lower the cost for the access seeker. It's completely upside-down. So I mean it makes no sense at all. And if this model goes forward, it will definitely have significant downward impact on capital deployment.

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

Jeroen Bronselaer, Telenet Group Holding NV - SVP of Residential Marketing [24]

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

And then maybe for your question on Mobile Vikings, of course without knowing the exact details of their commercial performance, I think we can say that Mobile Vikings has suffered probably from 2 elements; continued technical problems that they had over the recent months. I'm sure that has had an impact on their consumer base. Secondly, from a positioning point of view, they were a bit of the challenger and with high data specs. If you look at where the market has gone with our proposal both on mobile-only and on FMC, but also with the other main competitors in the market, I think that data differentiation has probably gone. That has probably also, I'm sure that has also impacted their performance. If I look at what we have seen coming in based on the port-ins, given the numbers we have done on mobile post-paid net adds in quarter 1 and quarter 2, yes there is, of course, a portion of Mobile Vikings coming in, but they are not overly represented. I think that with the combination of our mobile standalone lineups and the FMC, we are taking a quite fair share from all the operators in the market. But yes, there is a part of Mobile Vikings in there. But as I said, not overly focused or present in those numbers.

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

David Vagman, ING Groep N.V., Research Division - Research Analyst [25]

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

It's very helpful. Maybe just a very quick follow-up on this. Did you see them winning back customer after they launched their, let's say, their counterattack on that aspect in pricing?

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

Jeroen Bronselaer, Telenet Group Holding NV - SVP of Residential Marketing [26]

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

It's early days, but we see very little movement on that.

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

Operator [27]

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

Next question from Emmanuel Carlier from Kempen.

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

Emmanuel Carlier, Kempen & Co. N.V., Research Division - Research Analyst [28]

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

Three questions. First of all, could you provide some color on how you expect the free cash flow items below operating free cash flow to evolve year-over-year in 2020? So cash interest, cash tax, working capital and vendor financing. Secondly, more and more telecom operators are selling mobile and fiber infrastructure. How do you look at this? And would you potentially -- yes, do you consider to do something similar? And final question, the mobile ARPU was down quite a lot in Q2, more than in Q1. Could you explain what happened there?

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

John C. Porter, Telenet Group Holding NV - CEO, MD & Director [29]

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

Let me address the infrastructure question and then I'll hand it over to Erik for the free cash flow and mobile ARPU. Certainly, it hasn't escaped us that certain companies are pursuing infrastructure deals for their, particularly their mobile towers, but also extending into their, even elements of their fixed network. When we see the multiples that are being paid. So we're fully aware of what's happening there. We also are quite up-to-date on what assets we actually own and control in relation to our mobile network and our fixed network. I think in summary, our view on this is, though it is an interesting opportunity, the assets that we actually own and control and are not in a joint operating environment with Proximus and Orange are, to some extent, sub-scale. Certainly, under 1,000 of our tower sites would be available for this type of transaction. In addition, I think it's important that there is a catalyst for a transaction of this type. We certainly are not feeling that right now in terms of the need for cash, the need to satisfy an M&A transaction or our dividend policy or anything else. It remains a point of optionality, but it's not something that we're feeling we need to pursue aggressively right now given the scale of what we control. So with that, I'll hand it over to Erik.

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

Erik Van den Enden, Telenet Group Holding NV - CFO [30]

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

Yes. So on the question on -- I mean from going from OCF to free cash flow. I think we actually addressed some of it in the previous call I remember well. But let me just take you through the different elements. So starting with vendor finance, as we have said for 2019 we're going to be keeping the program broadly flat. And I think we demonstrated in this quarter that we're well underway to do that in the sense we still have a slight increase in Q1, but then for this quarter it was already completely flat so there was no increase anymore. Of course, if we are saying that for the full year we plan to be broadly flat, it also implies that in the second half of the year, we're going to go down a little bit so that the starting point and the end point will be broadly in line. Cash taxes, I think as we mentioned before, we had the very large corporate tax payment in January actually, in the first quarter of this year, which was the reason that our free cash flow for Q1 was seasonally down. It was less than EUR 10 million, actually. But of course, I mean the bulk of the taxes are paid there so there is not going to be any material tax payments any more in the rest of the year. And then --

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

Emmanuel Carlier, Kempen & Co. N.V., Research Division - Research Analyst [31]

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

Sorry to interrupt. The question is on 2020. For 2019, I think you have given the guidance already. It's more if some of these elements might turn more positive next year, like working capital, for example.

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

Erik Van den Enden, Telenet Group Holding NV - CFO [32]

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

Yes, indeed. So I think again we said that in Q1. So taxes will come down. So it's next year we expect it to be lower than this year. Working capital I think is going to be broadly flat. I mean obviously it's going to have some variations, but is not something where we see huge movements. And then the interest payments, as you know, our coupon is fixed so it's fully hedged. And then it will really depend on the leverage. Leverage is coming down. We started the year at -- well, we ended last year at 4.5x. We're now at 4.3x. The plan is pretty much to be at 4.0x by the end of the year, which is also related to the payment of the interim dividends. So again, as the quantum of the debt comes down also there, you can see a modest improvement. So I think all in all, the direction of OFCF the bridge from OFCF to free cash flow is positive for 2020, again based on these elements. Okay? And then I guess there was also a question on mobile ARPU. So mobile ARPU, I think there are 2 elements. Of course, the revenue splits between subscription revenue and then out-of-bundle revenue. So on the subscription revenue side, I mean we did have some promos especially on the BASE brand. So that definitely -- there was a bit of a promotional impact specifically in Q2. Again, seasonal. I think the way we look at these promos is that we try to do the right promos at the right time, very tactical. So that is one element. And then the second one that's been a more structural one for a couple of years now is that, of course, the out-of-bundle is something that is going down. But at the same time, it's also important to notice last year we had a one-off in terms of revenue recognition on the BASE (inaudible). So that particularly in the second quarter was hitting us. So the ARPU decline in Q2 was quite outspoken. It's not something that we think we should extrapolate for the rest of the year. Again, Q1 is probably a more representative number.

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

Operator [33]

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

Next question from Paul Sidney from Credit Suisse.

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

Paul Sidney, Crédit Suisse AG, Research Division - Research Analyst [34]

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

Just had 3 quick questions, please. Firstly, on BASE. You obviously saw a better performance on post-paid adds, standalone BASE network. You mentioned promotions; the unlimited offer is helping. But I was just wondering, do you think that BASE is starting to benefit from all the investments you've made in the past few years? I mean you mentioned sort of network quality, similar network quality among the operators. But do you think there's now a perception among the Belgian consumers that the BASE network quality has caught up? And then the second question just following on, on the cable wholesale rates. If these rates are implemented, do you think that will change your future investment plans? Again, I think there's been a few comments around that, but just wanted to touch on that again. And then just lastly, John, I was wondering if you can maybe give us an update on M&A opportunities both in and outside Belgium especially in light of those recent cable wholesale rates that have been proposed?

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

John C. Porter, Telenet Group Holding NV - CEO, MD & Director [35]

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

Okay, Jeroen, you want to talk about BASE and quality perception?

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

Jeroen Bronselaer, Telenet Group Holding NV - SVP of Residential Marketing [36]

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

Yes, I'll first talk about BASE. I think indeed what you see is the element of a better lineup, a better promotional focus and actions, but indeed also a general perception in the market about the BASE brand. Specifically on network, I think it does help. We are starting to see first signs, but the perception of network quality just like, how do you call it, trust is something that comes on foot and it goes by horse. So yes, it takes a while. We've done the investments. We're seeing the first green shoots of people saying, “I am starting to indeed experience this improved quality.” So that helps. I think it's taking away a barrier for entry and it's for sure helping with the loyal customers. But I would not exaggerate the effect. It is there. But today if we have a better performance, it is this perceived better network quality, but also I think brand quality. We've invested a lot in the positioning of BASE. We've invested a lot also in above-the-line campaigning and also the perception that with our lineups, with BASE new lineup with the unlimited plan and with the spec increases that we've done and with the promos on specific hardware promos and subscription that were closer to the consumer, closer to the market. I think it is a combined effect of all of them. I do think that with the network investments that we've done and with the quality that we do have, that element will probably continue to feed into that confidence over the coming months and years. But it is a slower process than what you typically see as a marketing, branding or promo tactic.

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

John C. Porter, Telenet Group Holding NV - CEO, MD & Director [37]

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

Okay. And on the wholesale and its impact on investment plans. I mean I think we've certainly made it clear to the government and to the regulator that it's impossible that these prices, which we find to be based on poor assumptions, won't affect investment plans. And we are singularly committed to managing to the operating free cash flow profile that we've communicated to the market. Obviously, we would love to outperform it. And that's OCF minus CapEx. And if there are things outside of our control -- things inside of our control we're very comfortable with. But things outside of our control, like these wholesale pricing, it's clearly going to impact our investment plans. Now do we -- where will it affect our investment plans and how? I mean you see it's affecting the whole industry, the over-regulation and the hyper-competitive environment that we all find ourselves in. Hence, the Proximus-Orange potential joint venture. Hence, our interest in optimizing the capital profile of 5G going forward. So we do have a lot of levers to pull, particularly in capital expenditure, and we'll be looking for ways to mitigate the impact of wholesale pricing, which hopefully we will be able to influence between now and the time it's implemented. But we'll be able to mitigate it, to some extent, on OCF and, to the extent that we can't, we will mitigate in our CapEx profile. There's no 2 ways about it. So on the M&A front, clearly the files that people are most focused on, VOO has sort of gone quiet and there's, to the best of our knowledge, no formal process going on right now of significance. There have been mentions in the press about, I sure think we could speak of, about Nethys and BruTele trying to get together. But that seems to be the limits of the activities there. Certainly an oppressive wholesale pricing regime isn't going to do anything for the value of that asset. So it remains to be seen where both the Nethys story and the wholesale outcome go. But based on what we can see today, it's not helpful to them ultimately deriving value in a potential transaction. I've said it before that the longer they go, the longer they wait, the more downward pressure there's going to be on valuation when it comes to VOO. The discussion about other transactions, I think everything else that we can see within Belgium is well within our capacity to manage without any impact on -- without significant impact on our leverage or our dividend profile that we've already committed to. So nothing there. And then we've spoken before about the industrial logic associated with the cross-border deal to the north and that's obviously in the control of the shareholders in Ziggo Vodafone. And so from our standpoint it's quiet. So yes, that's kind of where we are in M&A and everybody seems to be taking the summer off.

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

Operator [38]

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

Next question from Ruben Devos from KBC Securities.

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

Ruben Devos, KBC Securities NV, Research Division - Senior Financial Analyst [39]

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

I got 2, actually. The first one has to do with the churn levels. That's come down significantly in Q2. I understood that some of it might be explained by the completion of the customer migration of SFR. But are there other elements that you've seen throughout the quarter that have led to that improvement? And then maybe related to that, you've been quite active in the first half here with new launches, features and so on. Just wondering whether you could share some feedback on how comfortable you are with Telenet's position today in the residential market and maybe specifically on the naked broadband front. And then secondly, just a small question. After the finalization of the wholesale tariffs on the cable networks at the end of this year, what would be the opportunities basically to wholesale cable services yourselves inside of the country?

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

John C. Porter, Telenet Group Holding NV - CEO, MD & Director [40]

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

Let me just knock the first one -- I'll knock the third one over and then hand it back to Jeroen for the rest. We're against wholesale access and continue to be. We don't think it's conducive to investment in what's critical infrastructure for the country in the decades to come. I mean it's just counterintuitive. If you had these headwinds when they were trying to build canals and ports and airports and highways, we'd still be just a bunch of farmers. So it doesn't make any sense at all. And for those reasons, we're not going to be the first ones to take advantage of any wholesale opportunity. But we do have optionality, of course, in the south of the country on the wireless side. And we'll be exploring our options there if there's no other way that we can participate in the fixed network in the south going forward. So over to you, Jeroen. Talk about churn and broadband competition.

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

Jeroen Bronselaer, Telenet Group Holding NV - SVP of Residential Marketing [41]

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

Yes. So on the churn, I think you've already mentioned one of the biggest difference drivers, let's say, between quarter 1 and quarter 2. It is indeed the fact that we, of course, have the SFR migration behind us. As we stated already last year and the beginning of this year, that the underlying churn trends were actually not that bad. And it is indeed confirmed in Q2 where with now SFR gone you see this. One of the biggest drivers there is the fixed mobile convergence and the ecosystem thinking that we've already talked about a lot with the introduction of WIGO, now also YUGO. It is continuously confirming that people who make the quadruple-play choice for Telenet as an operator churn at very low levels, lower than the triple-play world and certainly lower than the YUGO-play or the one-play world. And of course, as we grow our base there, that effect has to -- is showing month after month. It's small, but it is a continued trend. So I think that's one of the biggest explanations. On the other hand, I think also in this competitive market we're getting better at targeting and segmenting the customers that are not necessarily going into that FMC world. Although, we do think the bulk of the consumers will go there. But both in retention offers, as in proactive promotion offers, as in recognition of the customers, we are getting better at identifying these customers that will not go in there, that are a little bit at risk, and we are contacting them more proactive, I think, and with more tailored offers. And that also shows -- it's again, I think small elements. It's hard work. But that's driving this churn level consistently down. For that reason also on the broadband-only threat or the broadband-only model, it is, of course, something that we are tracking. As I said, we are absolutely convinced that the FMC, the fixed mobile converged, approach and the ecosystem approach is there for the bulk of the customers, that we're on the right track. We will only reinforce it. So we will continue to reinforce the ecosystems and expand them as we have done with WIGO. And we still have some potential to go with YUGO. For the customers who would be interested in broadband only, of course, I think today we already competitive. We have an offer at EUR 27.8 today, the basic internet offer, which is a very, very performant offer. It's the lowest price in the market. We have student offers there. We have settlers offers there. So even for the groups -- and again, it's more of this segmentation approach I think that we are getting better at and more focused at, at Telenet. So we also think that we are competitive. But it's a competitive market. We'll see what it brings. But we're quite confident that on the combination of these 2 fronts with a strong ecosystem FMC approach and lineup and with the right segmented focus and tactical sharpness we can tackle that threat.

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

Operator [42]

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

Next question from James Ratzer from New Street Research.

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

James Edmund Ratzer, New Street Research LLP - Europe Team Head of Communications Services & Analyst [43]

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

I had 2 questions, please. The first one was just regarding your overall revenue growth. I mean you've reiterated the guidance minus kind of 2.5% for the full year. I mean that would really imply quite a sharp slowdown into the second half. So I just wanted to kind of stress test that a little bit more. I mean you've announced the price rise to come through from August. We've already seen some of the MEDIALAAN drag in Q2. So I was really just trying to understand why things would get so much worse in the second half at the top line. This doesn't seem consistent with your commentary about the market structure and churn getting better. And then the second question, just to come back to the topic on wholesale, please. I mean I understand your frustration and disappointment with the ruling. But am I not right in thinking that, going forward, quite a bit of the wholesale fee is going to be driven by rising usage? And so, as a result, be interested to understand how much impact you actually think that could have on the future wholesale rate, whether it -- could we even get scenarios where it leads to a better outcome on the wholesale rate than the initial proposal from BIPT last year?

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

Erik Van den Enden, Telenet Group Holding NV - CFO [44]

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

So let me take the first question in terms of the revenue growth profile for the full year. So I think one thing that is quite clear is that we're -- I mean we said after the first quarter this is a good start to the year. I think with now 6 months in I think we still feel very much on track. So I think we're happy with the numbers that we see so far. Especially when you back out the MEDIALAAN loss, it's, I think, a quite robust performance. So I think we start off for that full year guidance clearly from a strong base. But having said that, there are a couple of elements that will make the second half tougher for us. First of all, going back to MEDIALAAN, of course in the first half year, we had MEDIALAAN from January until somewhere in April so there was more than a quarter of revenues of that wholesale contract still in, which, of course, is not going to be the case anymore in the second half. So now we're going to have the full 6 months' impact. So just on a relative comparison that is definitely going to be a drag. Secondly also, if you look at just the comp basis, of course last year our performance in the second half was better than it was in the first half so for there that is going to be a tougher comp. And then thirdly, I mean just in terms of commercial -- I mean competitive environment, you're right that at this point in time we feel confident, but at the same time, the broadband-only offer -- well, [inaudible] actually. It's not a broadband-only proposition. But that is just I think the markets. I think so far we feel confident that we have the lineup there. And so that is a potential upside. But again at least between the full effect of MEDIALAAN and tougher comp, the second half will be a little bit more difficult than the first half.

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

Ann Caluwaerts, Telenet Group Holding NV - Chief Of Corporate Affairs & Senior VP of Corporate Affairs & Wholesale [45]

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

Yes. And on the second question in terms of the volume usage component in the wholesale proposal. You're absolutely right that there is a silver lining perhaps that in this new proposal both speed tiering and tiering on peak volume has been included. And we think that on itself is a good thing. Unfortunately, the whole base has been lowered and so that according to our calculations certainly for the speeds up to 500 Mbps -- and the previous consultation did not go higher than 500 Mbps so we have no reference point there. Still even with these positive elements, the wholesale price is lower than what was initially proposed in 2018. And remember in this proposal, the margin was to be included, which was not the case in the proposal in 2018. So the fact that those components are in is a positive evolution. However, we would like all the costs that we have also on the base tariffs to be included of course.

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

James Edmund Ratzer, New Street Research LLP - Europe Team Head of Communications Services & Analyst [46]

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

I mean how much would volumes need to rise by for the wholesale rate to get back to the proposal from last year?

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

Ann Caluwaerts, Telenet Group Holding NV - Chief Of Corporate Affairs & Senior VP of Corporate Affairs & Wholesale [47]

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

It depends on a number of components. It's very hard to put a figure like that on it because it depends not just on volume, but also on speeds. There are a number of variables in the model. But if we would take a peak volume of 1 megabit and a speed of 500 Mbps, at that point our rates would still be over EUR 2 lower than what was proposed in the end of 2018.

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

Operator [48]

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

Next question from Stefaan Genoe from Degroof Petercam.

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

Stefaan Genoe, Banque Degroof Petercam S.A., Research Division - Head of Equity Research [49]

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

First a follow-up on BASE. You mentioned you've got optionality with mobile in the south. Could you explain how you see the performance of BASE in the south? And do you believe longer term this is viable mobile only in the south? Or do you believe you need a larger cooperation with other players? And secondly, on the 5G you state that there is no solid business case in the consumer environment, but with the consumers on things like Internet of Things, automotive driving, consumer end business, I would say convergent or overlapping. How could you clarify a bit more your stance there and your investments in 5G timing longer term?

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

John C. Porter, Telenet Group Holding NV - CEO, MD & Director [50]

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

Look, on the 5G front, I would concede that is an evolving topic. But what you've -- the companies that you've seen that have come out and committed spectrum and big spectrum investments and big capital investments to 5G are companies that require, first of all, require more spectrum to run their core business, companies like Kelster and Verizon, who are also looking not only to augment their existing wireless business, but are looking down the road towards wireless fixed substitution. And that's clearly an opportunity. But we have 98% of homes packed in our territory today with a 1 gig fixed network. So that is not an opportunity for us other than in the south of the country. So it kind of goes to your first question. So we obviously keep an eye on it. We're obviously going to be involved in the spectrum auctions. But I said that there are still certainly challenges. On the more industrial applications, one of the risks, I think, for operators is that, similar to 4G where we invested all the capital and then got disintermediated by the GAFFAs who are the ones that made all the money on 4G and we've gone backwards hundreds of billions across the industry. We have to be very cautious that that doesn't happen to us again. So I'm just very cautious of how we build an industrial framework where the companies that are making capital investments in new technologies are the ones who are actually able to monetize it and not getting disintermediated by solutions-based, cloud-based providers. So it's a very complex conversation. And you can certainly have a conversation with companies like Ericsson or Huawei, who will give you 100 different use cases for 5G. But sitting here where we're sitting and having gone through the experience of 4G where the twin pincers of commercial disintermediation and regulation have basically destroyed any return on capital for the operators, it's a bit scary. And just finishing off on your first question, the opportunity in the south is wireless fixed substitution. We just recently had public drive tests through the BIPT that showed that our 4G platform is delivering average download speeds of 85 Mbps. Now obviously, there are issues about scalability of broadband to the presence -- or involving video and other broadband applications. It's still an opportunity that we may be interested in pursuing outside of our footprint if we're unable to make progress in other ways. So that's it, in a summary.

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

Operator [51]

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

We don't have any more questions. Back to you for the conclusions.

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

John C. Porter, Telenet Group Holding NV - CEO, MD & Director [52]

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

Okay, Rob?

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

Rob Goyens, Telenet Group Holding NV - VP of Treasury, IR & Structured Finance [53]

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

So I would like to thank everyone for having joined this call. Obviously, the replay and also the transcript will be made available on our Investor Relations website very shortly. But Dennis and I, we're still available in the next few days if you guys want to have some further follow-ups or additional questions. And otherwise, we'll be happy to see you in September during one of our conferences or roadshows, which you will find on our Investor Relations website. So thanks again and bye for now.

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

Operator [54]

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

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