Vodafone Group Public Limited Company
Q2 2018 Earnings Call Transcript
Published:
- Vittorio Amedeo Colao:
- Good morning, everybody. Welcome to our Results Presentation. I hope you enjoyed the videos. Today, we'll follow the usual order. I will give you the highlight of the announcement, Nick will go through the financial reviews and then I will come back with some update on our strategy and progress on strategy, and then we go into Q&A. And as always, I'm asking you to keep the questions to one and I'm sure it will be one. So, first half, I have to say we had a good start of the year, 1.7% organic service revenue growth, which is really 2.6% ex-regulation. We have got good growth and this is coming from both fixed and mobile, and from most of the markets. 13% growth in EBITDA, it's really 9.3% underlying once you adjust to a number of things, with margin at 32% or probably 31-point-something. Nick will cover all the details about our profitability. But again, very solid profitability. Free cash flow, β¬1.3 billion, up β¬1.4 billion from last year. This is a pre-spectrum number coming, of course, from higher EBITDA and working capital. And finally, the board this morning has announced a 2.1% increase in the interim dividend, β¬4.84. This is consistent with our progressive dividend policy. As a result of all of this, we're raising today our full-year guidance. I will not waste a lot of time on the summary of the strategic progress, but I can say and I will go more in detail in my second part of my presentation. I would say we keep working on the same differentiators, with good success on customer experience excellence, 19 over 21 market leading. Good mobile networks, both voice and data, especially voice, but also both voice and data. And we continue to deploy on fixed β our smart capital strategy, and Nick and I will cover it. And some indicators that we put on this page are indicating that the strategy is working. Increase in ARPU ex-regulation in Europe, still the fastest-growing broadband provider in Europe. And ex-regulation, good growth in Enterprise. But even non ex-regulation, we have anyhow outperformed the market, so β but I will cover more later. Commercially, we continue to have, what I will call, a robust commercial performance. As you can see from the red bars, we had good mobile, the lighter part, good mobile additions in the quarter. This has been helped by GigaCube, which is our German fixed-wireless substitution product. But also in fixed 262,000, this is UK β sorry, this is Italy, Germany and Spain, but this time we also have UK with 33,000 net adds. Europe service revenue growth, 0.8%, 2.1% ex-regulation, with a progressive penetration of broadband users, 61% of whom are on NGN. In AMAP, we continue to grow both in contract and in prepaid, we had a slightly lower growth at 6.2% in the quarter. This is Vodacom, which we'll cover later, and also a one-week outage in Qatar due to network problems. But AMAP, the biggest and most important part remains, only half of the customers have data there, so the opportunity continues to be big. You have the details of the performance in each market in the appendix of the documents, but let me cover at high level both Europe and AMAP. First of all, consumer NPS rank. We continue to lead everywhere. We don't lead in the UK, but at least we have number two network in the UK. We lead in Enterprise. And I have to say, the network, the customer operations, and billing problems that we talked many times about in the past are actually sorted out now and we have good expectation for what Nick Jeffery and his management team are doing in terms of results for the second half. Going market by market, in Germany, we have a stable competitive environment. We are having good performance in mobile contract. But I'm also happy that we have more than 60% now of cable connections coming at higher speeds, more than 200 megabit per second. Good performance in terms of service growth, 1.6%, with strong customer growth driving it. But also almost 8% increase in EBITDA, which comes, of course, from revenue, but also I have to say even Germany now is starting to contribute on the cost front. Italy, competition remains intense. More than a third of the activations are now below the line and very aggressive pricing. But despite that and despite the fact that we're lapping prior year price increases, 1.5% growth and a 9% increase in EBITDA, again coming from good cost action, but also a lot of good personalized offers that I will cover later in my presentation. UK. UK is a stable market. Actually, there are increases in ARPU both in mobile and in fixed. And I have to say that I'm happy to report not just that we had good performance on the fixed front, but also that on the mobile front we have an underlying stability of our contract, which is really the result of a growth in the Vodafone branded connections, which is a strong focus for our team, and some phasing out of non-branded old contracts that we had in the market. If you strip out all the handset financing and the underlying one-off, we are back to underlying growth just about in the UK and we are stabilizing EBITDA despite the big investments in operations that I described. And finally, Spain. Spain is a good market at the high end, medium end. It's very intense competition at the low end, mostly MΓSMΓVIL and the second brand of Orange. But despite this, we have generated a 4% β almost 4% growth in the market, with essentially much more-from-more actions with some end of the handset financing lapping, but also a benefit from roaming, which in Southern Europe has been moved over the summer. And in Spain, again, an excellent job on cost, almost 10% EBITDA growth despite content cost, which in Spain are pretty high as you know. AMAP, similar picture across AMAP. Number one almost everywhere, except Turkey where we are number two. South Africa, South Africa is, what I would call it, a stable pricing environment. In South Africa, we are proactively working on data pricing. You might remember we worked on voice pricing a few years ago, now we are doing the same to data pricing. We are increasing data bundles to reduce the effective data price in the bundle, but we are also decreasing the out-of-bundle data pricing. So it's a, if you want, a self-immunization strategy from a pricing perspective, about 4% growth and 2.9% EBITDA growth in South Africa. Vodacom International is now 22% of Vodacom. We have a good performance, 4.1% in revenue growth. This is a combination of Tanzania improving, DRC with macro pressure, but still 8.2% increase in EBITDA. And finally, Turkey and Egypt. Turkey and Egypt today after deconsolidating India, they are a third of AMAP. We have very strong positions in both markets. I have to say 14.7% growth in Turkey and 21% in Egypt are pretty good results. I'm particularly pleased with Egypt where the second competitor has a growth of 7 points, 8 points less than us and the third one 15 points less than us. And as you can see, EBITDA margins β EBITDA growth in both markets is pretty good. So, I would say both Europe and AMAP areas doing well for Vodafone. We need to talk about India, which is a little bit β it deserves a separate page. As you know, in India, there's still pricing pressure. Competition is intense. Prepaid validity has been extended and we also have now, of course, some pressure on postpaid. And as you can see, the quarter posted a minus 17.8% revenue growth. This is the result of a minus 24% of ARPU, also you have some seasonality, also you have some tax effects from β the tax that has been brought from 15% to 18%. The good news is that we are stabilizing the margins. The green bars below, 22%, clearly there's a lot of cost control and cost actions taking place. And we are focusing on retaining high-value users and focusing on our leadership circles. We are investing the vast majority of our CapEx in the circles where we have leadership. There are positives in India. Of course, everybody knows that Jio has raised prices recently again in October, that's a positive. Smaller players are getting out of the market, so there is consolidation of SIMs and customers and a more rational environment in the long term. And we are progressing with the Idea merger. We are pleased to announce yesterday the sale of the tower assets, the orphan tower assets. We're progressing in the discussions on the future of Indus. And we have got already SEBI and CCI approval and we're working to get DoT and NCLT approval in due time. So, we expect the transaction to be completed during 2018. Looking ahead, in India, we will have some pressure from MTRs, MTR reductions are coming into place. We'll continue to focus essentially on high-value customers and leadership circles until the merger is completed. And with that, I think I can pass to Nick for the detailed financial review.
- Nicholas Jonathan Read:
- Thank you, Vittorio. Good morning, everyone. So, as Vittorio already highlighted, our financial performance in the first half of the year was very strong, and I was particularly pleased with the broad-based nature demonstrated (10
- Vittorio Amedeo Colao:
- Good. So, let's have a look at how the strategy is progressing. Always useful to start with the customers, what the customers say. As you can see, we continue to lead in consumer NPS, actually a little bit more than the same quarter of last year. Here the good news is that not only we are leading in 19 out of 21 markets, but I'm happy to say that we have improved our position in 15. We have improved the absolute score in 15 and we have increased the gap in 12. So, good on consumer. We continue to be good and solid on Enterprise, where we lead in 19 out of 20 markets. And I have to say the key measures that we look at for assessing how good is our infrastructure, how good is our support, continue to give good results. 91% of our mobile data sessions are above 3 megabit per second. We are offering speeds of 1 gigabit per second in four markets, and of course, we want to extend to all the other markets where we can. We have a good penetration of our digital app, which is very important. I will cover about it later in my presentation. And we have two-thirds of contacts with the customers that are resolved at the first level. This is not fantastic. The fantastic one is the countries which are already at 70%, 80%. So, we want to push everywhere, everybody there. This remains the key thing that we look at in judging our strategy, how happy are the customers with our service. Let me now cover the three areas of mobile, convergence and Enterprise to see how our progress is there. And in mobile data monetization, I would like to cover both the revenue and the cost aspect, because I get a lot of questions from investors on this topic. So, we have continued with our much-more-for-more actions that you are very familiar with. This has been the period of Vodafone Pass. Vodafone Pass is the ability for the customers to pay a little bit in order to get unlimited worry-free access to a service, video, music, chat, social, whatever. We now have around 8 million active customers on Vodafone Pass, and Vodafone Pass is active in nine markets to-date. It says seven on the chart because it's clearly only the first half. So, Pass is good because it's driving both ARPU and usage. The example in the center is the Italian example. In Italy, we have an average usage of 3 gigabytes per month. This cohort, which were clearly the early adopters of Vodafone Pass, was a 5 gigabytes to 9 gigabytes type of cohort. As you can see from the chart, Pass has added 3 gig to 5 gig per month of the specific Pass service to the usage of the customers. But the good thing is it also lifts the usage outside the Pass. And we have early indications that around 30% of the customers would take the Pass, then they stay with us and they continue to pay the β¬3, β¬5 whatever per month additional. The German implementation on the right goes straight into ARPU accretion. We increased the price of the bundle by β¬3. We include one Pass of choice and then customers can add other Passes. So, I would say this is again a demonstration that you can work on both increasing usage and ARPU at the same time, which we think is what customers want. Then the question is how is ARPU going? I suggest we concentrate on the second set of bars, the underlying ones, and the sum of it is that ARPU underlying is up between 2% and 4%. This is very important, because it's up despite the fact that actually we are pushing much more SIM-only in the market. SIM-only, on the right, you see are between 20% and 30% of the base, but they are 40% of the new customers. So, on one hand, they depress a bit service revenue. But on the other hand, they also depress acquisition and retention cost, which is clearly very strategic. So, I would say it's very important that we see our much-more-for-more actions as both customer-friendly because they allow more usage, but also company-friendly because there is some more ARPU attached to it. Then the question I often get is, well, data monetization is also about costs, how are your costs going? And here, I put on this slide a few thoughts about the cost. First of all, data traffic is clearly growing. It's growing because there's more demand. It's growing because we do initiatives like the Passes. It's growing because visitors are clearly β and roaming is clearly being unleashed now. It's also growing because people are moving away a little bit from WiFi. We have seen a decline in usage of WiFi by 4 points. It is obvious because the networks work well and also the allowances are more generous, so people can use them. The result is, as you see in the black dot, a 62% increase in usage and a usage which is now, in a couple of years, went from 1.1 gig per customer per month to 2.1 gig. So, the question is how is the cost handled? On the right, we put our network costs, which are clearly relative to that type European network cost, that type of usage. As you can see, there has been a very, very marginal increase in cost from β¬100 to β¬102. Now, this is a 30% to 35% unit cost reduction per year, which is very good because it allows us to follow the data monetization in a very cost efficient way. Think that 4G+ is around 40% more efficient that 4G. But what we have in front of us is 5G, which is 400% more efficient than 3G due to spectrum efficiency reasons. So, we think that this data growth can be followed pretty well. There is often a question that I get about the density of the network. Often it's in relation to the U.S. examples. Don't forget that in Europe, 5G will be implemented on lower bands, not the millimeter waves. So, the density of the network will be different, and most of it β and Johan can take questions, if you want, later. Most of it will be built on the 1,800 MHz grid. So, we already have the infrastructure β most of the infrastructure that will be needed for 5G. And finally, backhaul and transmission cost, yes, there will be more. But with a smart mix of fiber and high-speed microwave, which by the way is also increasing from a technological point of view, we also think that that trends can be respected (39
- Vittorio Amedeo Colao:
- And here, I need to remind you two things. One, one question each, please. Yeah, let's start, Maurice, Simon (57
- Maurice Patrick:
- Yeah. Hi, it's Maurice from Barclays. So, only a distribution question. You've talked a lot up in the presentation about changing the distribution mix and more digital interactions, decreasing impacts on indirect channels and so on. Have you seen much mix β so much (57
- Vittorio Amedeo Colao:
- We have reduced, in Germany, our reliance on the indirect channel. As you correctly say, it is still very important, and we are not going to take it to zero, of course. But the reality is that economics from indirect channel, especially in Germany, are not very good. So, it's not that we are ideologically against working with partners. But if the partners take too much money to do the thing that we can do our ourselves in our own shops or even better digitally, over time, this is going to be the trend. I think Germany now is the place where we have is less than half, but it's still the highest. Then, we have Italy for different reasons. There is a lot of indirect, but it's a different type of indirect. It's more a fragmented indirect. And then, in other markets, quite frankly, we have reduced considerably. And I think this is the trend in the market. Sometimes competitors don't follow, so you have to a little bit play, but it's not an ideological position. It's just driven by NPV and return on investment considerations. And my sense is it's going to continue with Digital. Simon β Simon, (59
- Unknown Speaker:
- (59
- Vittorio Amedeo Colao:
- Yeah.
- Nicholas Jonathan Read:
- Maybe a way of sort of explaining is to look at our EBITDA performance underlying in the first half, because I think it really says the story. So, you've got the 9.3% underlying EBITDA growth. That's β¬600 million. Of this β¬600 million, operating cost reduction in absolute is β¬100 million. And then basically, you've got a 50% split between more-for-more, ARPU actions, et cetera. So, Spain is a good example where you saw the β this quarter a full quarter's worth of the pricing action that we took in the previous quarter. And then, the other half, I would say, is more base growth, primarily driven by fixed, but also a contribution from mobile.
- Vittorio Amedeo Colao:
- Polo?
- Polo Tang:
- Yeah. Hi, it's Polo Tang from UBS. Just a bigger picture question really, just about EU regulation going forward, because we obviously had some push-back recently from the European Parliament against a move towards deregulation in return for investment in infrastructure. Separately, we're also seeing a move towards regulation of cable. So, what's your view in terms of how things will evolve ultimately and the impact on Vodafone?
- Vittorio Amedeo Colao:
- Yeah. It's a very good question, Polo, but it will require a separate conference on it. I have here my briefing. I was counting over the weekend when I was preparing, we have 10 key issues that are being debated, and finding a graphical way to represent who spends for what is almost impossible. You need a multidimensional thing. The reality is that most of the proposals of the Commission, we are in agreement with, and we think they are good. There's only one that we have slightly different opinion. And we think that the balance between competition and investment and protection of customers and protection of financial, I would say, health of the industry is pretty good at the Commission level. Parliament is halfway there, and we will know by Q2 next year probably where it goes, especially on this concept of joint dominance and collective power that we are spending a lot of time β I am personally spending a lot of time explaining to them why they're going in a way which, in our view, is not positive. And the Council, i.e., the countries are a little bit depending on the issue either here or there, and it's sometimes more difficult to get agreement there, because they represent more national interest. We think that the line of the Commission is the right one, and we are supporting the line of Commission on almost all issues. And I'm moderately optimistic that we will get out of this process most of the things right. When I say most, I don't expect, for example, on the spectrum life that it's going to be extended as much as we thought, let's say, eight or nine months ago, for example. But on the other topics, I think some balance will be found, and the Commission interprets probably the best β the most pro-industry vision. Stephen? Yeah, Stephen and John? Thank you. (01
- Stephen Howard:
- Thanks. Yeah, Stephen Howard at HSBC. I was just wondering, following on from your announcement of the collaboration with CityFibre, and obviously, you've got the Gigabit Investment Plan in Germany. Just given that you're therefore sort of placing bets on FTTP, it's interesting to see in the release that you're also calling out the success of the GigaCube product in Germany. And so, I was just wondering, to what extent had you considered fixed wireless access solutions as your route to market in places like the UK and more widely in Germany? And why did you wind up rejecting that in favor of going with a more FTTP rate, because obviously it's a slightly different from, say, the U.S. carriers?
- Vittorio Amedeo Colao:
- Yeah. No, no. Okay, this is clearly inspired by the U.S. β the continuing saga on U.S. fixed wireless access as a 5G concept. Let me try to simplify things. First of all, what is the GigaCube? What is the need for a, let me say, wireless access that you see in normal situations? It's second homes. It's working in multiple locations. It's having some kind of a known permanent secondary, I would say, location where you need to get high-speed broadband. That's the thing. It has to be in a not super highly dense area, because if everybody gets that in a super highly dense area, then you need a lot of spectrum. Hence, it can be a replacement for a fiber. But again, it depends on the place, it depends on the circumstances. So, it's a great product. We will probably roll it out in many more markets, but it's not the ultimate solution for highly populated areas. For highly populated areas, at the end of the day, fiber will be the most efficient way, the best way to deliver broadband in the future. The U.S. 5G story is really a story of not very densely populated areas, places where you can put an antenna on your roof or outside of your window without a big problem and cabinets that are very close to the neighborhood which you want to serve, which could work in Europe somewhere. We are looking at it. And not later than two nights ago or three nights ago, I was discussing with one of the major vendors about this. But it is a very, very specific solution for, say, I don't know, I always say Sardinia (01
- John Karidis:
- Thank you. It's John Karidis here from Numis. I just wanted to ask about India, just some information, please. I just sort of wondered whether you could expand on what's left to be done there in terms of the Idea deal and whether, at this stage, at the end of 2017, you're able to refine a little bit your estimate of when the deal might close.
- Vittorio Amedeo Colao:
- Listen, we had good progress and it was frankly quicker than what we thought in certain aspects. But we still have to get DoT approval and we still have to get the court actually approving the merger scheme. So, those are the two most important things. There is still maybe a RBI, something application for the ownership, but that's a relatively minor thing. But those are the two things that are still to be done. We still expect them to happen in 2018, and we cannot give you β yeah, I don't know, midyear. And then, don't ask me mid calendar or mid financial, because I will play between the two. So, I would say somewhere, so we don't know. I think last year, we said September 2018 or kind of...
- Nicholas Jonathan Read:
- Yeah, 12 to 18 months.
- Vittorio Amedeo Colao:
- Yeah, 12 to 18 months. 12 to 18 months leads to September 2018 really. So, that's what is the status today. Yeah, Akhil?
- Akhil Dattani:
- Yeah. Hi. Just a question, I guess, just broadly on fixed line strategy. Both of you have gone through today some of the interesting deals you've announced in the last few months in a number of your markets. Obviously, fixed line is a big growth tailwind for you as a business. It's very high return on capital in terms of the new initiatives. So, I just want an update in terms of how are you thinking on the overall build versus buy. It's always been case-by-case. But does it at all shift the way you're thinking, given the deals you've managed to sign here? And also, I guess linked to that, it was partly linked to the earlier question from Polo, the joint dominance kind of debate, has there been anything new around that and how are you feeling on that relative to what you told us back at the Investor Day in Italy. Thanks.
- Vittorio Amedeo Colao:
- Yeah. I can only say that, by definition, the strategy on fixed has to be country-by-country. It has to be country-by-country because the way it works, because the infrastructures available are different, because the cost of building in certain areas in Portugal, in Spain is completely different than the cost of building in Central London. This morning, I read that we might use the sewage system in London, which by the way is what they also do in Spain. And in some places, you can put fiber on the poles, and in other places, the poles fall apart, fall down if you put them. So, it is so local that it has to be a case-by-case, a country-by-country analysis, and sometimes even within a country, it's also region-by-region, point number one. Point number two, it also depends a lot on the strategy of the incumbents. Incumbents tend to resist and tend to say, I do it but it's for me only, and if it's for you, it's very high price. Quite frankly, we have demonstrated country after country after country that this is a strategy that eventually leads to more competition, and we are very happy to have that chance to exploit new competition, to then realign the prices to a good commercial level. So, it has to be country-by-country because it depends on physical constraints and also competitive behaviors that are different by country. What I'm happy with today is that, I know that there was, two, three years ago β three, four years ago, skepticism about the ability to deliver this strategy. It's actually becoming real and the numbers show it. So, we think that we have been successful without having to invest massive amounts. Now, an M&A opportunity arise, of course, we will look at it, because of course it's make versus buy, and we will look at what is the time and the return that we can expect from M&A. On joint dominance, I spent a day in Brussels talking to all the kind of relevant proponents of it. I have to say they have concerns that I don't share, and most importantly, there needs to be a methodology to define what is the joint dominance risk. It seems to me that today, the real problem in most places is to create competition to the usual formal monopolies we use (01
- Unknown Speaker:
- Yeah. A point of clarification first on the CityFibre question. Do you have to book the liability to CityFibre on your balance sheet for that transaction? And my question (01
- Nicholas Jonathan Read:
- So, fairly straightforward, in terms of CityFibre, it's a wholesale arrangement. So, there's a contractual obligation in terms of minimum commitment, but it's not like we are internalizing that CapEx. It's a wholesale arrangement. I would say in terms of UK handset financing, it's building just through sheer volumes. It's not to do with iPhone at all. If anything, when you look at iPhone volumes, this phase, I wouldn't call them particularly strong relative to previous cycles. So, I would say this is more to do with demand in the marketplace. As Vittorio has said, the UK has been really improving performance. It's commercially on the front foot. Therefore, volumes are rising.
- Vittorio Amedeo Colao:
- But let me take the broader side of your question, is handset financing and installments a good thing or a bad thing? And I do believe that it is intrinsically a good thing, because this makes customers think, do I need to change a phone, do I want to get the new iPhone X. If they do, great. If they don't, what's the next best thing they can do, maybe I can increase my allowance, maybe I can put my dog and my car and my whatever on my plan, maybe I can get a higher, whatever, fiber broadband. So, it separates more clearly a telecom broadband connection type of decision from a harder decision, and the beauty is that this is happening, not by coincidence, when we are investing in customer relationship with the CXX program, we're investing in network with the Spring program, and we're trying to digitize the experience as best as we can. This will have a positive impact on commissions, subsidies, and in general, commercial cost. And it's starting to show. It will take time, but it's starting to show. Yes, I think let's go there. Yeah, James (01
- Unknown Speaker:
- Yes, thank you. (01
- Vittorio Amedeo Colao:
- James (01
- Nicholas Jonathan Read:
- Yeah. I'd just say, just to build on that, the fixed in terms of the quality mix of the gross adds, in terms of higher speed 60% on the 2 megabits per second product and above is a good mix. And Enterprise was historically very challenging, has improved, as a market environment (01
- Vittorio Amedeo Colao:
- Andrew (01
- Unknown Speaker:
- Yeah. I just wondered if you could talk about how much of your digital cost savings you think you actually get to keep? Are there markets in which everyone else is doing this and you think that the benefits is just going to be passed through to the customer in lower prices like we've seen in previous cost cutting examples, or is there a reason why Vodafone is going to be better able to deliver substantial cost savings than its peers in each market? And then just as an add-on question on that, what can the regulator do to get in the way of the returns enhancing moves you're making?
- Vittorio Amedeo Colao:
- Yeah. Let me take the first (01
- Unknown Speaker:
- Just on β how can the regulator stop your gains? And just to your point...
- Vittorio Amedeo Colao:
- The regulators clearly are signaling that they don't like markets to go to three. They β as soon as they go to three, they recreate a four. So, that to me is already the answer, the joint dominance is clearly a possible risk that we are signing off. But honestly, the rest which is left is international calls, which is not big for us at least, it's bigger for the fixed guys, for the traditional fixed guys. There could be something on content renewals and these things, but there's not a huge amount left apart from spectrum, spectrum can be expensive, but. Yeah, David?
- David Wright:
- Yes. David Wright from Bank of America. One question, kind of spanning two markets, but it's essentially the JVs. You've increased the cash distribution or I should say the JV has in the Netherlands. And that's come with a credit downgrade, I believe over the last 24 hours. It does feel like you're clearly then willing to run a higher gearing, but actually, I guess, my question is more about India. Since you've announced the deal, you obviously announced the leverage on the full-year 2016 EBITDA, which clearly full-year 2017 is a very, very different level. So, we're talking 5 times cost leverage. The MTR decision's arguably β the termination rate decisions, they've just probably gone against your expectations I would have thought. So, what I'm trying to understand is the need for more capital in that business, it feels like you're struggling a little bit on the CapEx side, Bharti is certainly attacking you, and that's a very essential cost of business in India. So what's the potential for that JV needing more capital is ultimately my question.
- Nicholas Jonathan Read:
- Yeah. I mean, the answer is it's too early to say. Because if you stand back, as Vittorio has said in his summary for India, I mean, Jio started charging at the start of the fiscal year, July, put prices up. September, put prices up. Who knows what happens in the next quarter and the next quarter. So, they're putting prices up quite significantly, I mean, the last one at the half-year was 15%, 20%. So, the material increase is going on. On top of that, we're definitely seeing traffic flow from the value players exiting the market to the other players and we're taking our reasonable share. So, yes, I understand the MTRs is a drag in the second half, but we've got some fundamentals that are starting to improve. And if you cast your memory all the way back to when there was a 14-player price war going on seven-odd years ago, yes, it went down and then it came back very quickly as well with price increases. So, I think, firstly, the market's showing some promise. So, I'd say, secondly, don't forget 80% of the share (01
- Vittorio Amedeo Colao:
- Yeah, I do remember...
- Nicholas Jonathan Read:
- Can I just β you mentioned Netherlands. I mean, and what is common to both of these is very sizable synergies. So β and both of them have a lot of infrastructure. So, if you think about it, India has got its spectrum, big network; in Netherlands, we already had national cable build, national 4G. So, a lot of the infrastructure's in the ground here, and therefore the synergies have a big leverage effect from both of these which allowed us to talk very highly leverage.
- Vittorio Amedeo Colao:
- So there β then Nick (01
- Unknown Speaker:
- Hi there. (01
- Vittorio Amedeo Colao:
- You have the answer. It's very difficult for us to say today where we want to go, because as I said, our strategy is a very iterative strategy. You would develop an option, you exploit the option, you see whether you have an alternative and you keep going. So, we'll look at the first million, decision to go to 5 million will depend on how things go. If Openreach insist in saying we need to raise wholesale prices because we need to invest, I think they're creating room in the market for CityFibre and for others, by the way, because the more they insist on that strategy, the more room there would be for other entrepreneurs to do like whatever. Deutsche Glasfaser in Germany or other initiatives of that kind. If Openreach change, they change their stance and they change their conditions, then, of course, it will depend on the levels. So, it's difficult to answer that question. In fixed unfortunately it's not like in mobile where you say, I do this and I will do it and in three years is done, you have to change along the way. Nick?
- Nicholas Jonathan Read:
- It's right. All the terms from the 1 million to the 5 million (01
- Vittorio Amedeo Colao:
- Nick and Andrew (01
- Spyros Nicholas Delfas:
- Yeah, thanks. Nick Delfas from Redburn. It's another difficult-to-answer question which is about this issue of the lower-priced entities in each market. So, you've got quite a nice structural improvement here with the MNOs consolidating and many of the MVNOs being under pressure, but you still have the MΓSMΓVILs, the Iliads in Italy, the (01
- Vittorio Amedeo Colao:
- I can tell you what we are doing in Spain or in Italy, which are the two markets where we have one live case and one to-be case. First of all, look at the market prices, I mean, if you look at the promotions that are available in Italy today, I mean, 20 gig β¬10, 32 gig β¬10, 30 gigs, I mean, it's already a market which is incredibly low in terms of opportunity. So, there's β the real bottom end of the market is already kind of followed (01
- Spyros Nicholas Delfas:
- (01
- Vittorio Amedeo Colao:
- In Spain, we ceded some market share, us and TelefΓ³nica, to the second brand of Orange and MΓSMΓVIL. It's interesting that if you look at the first, the main brand of Orange, actually they're not doing particularly well. This is the problem. When these guys start doing β enabling other guys, you suffer. We are going into this more articulated set of responses everywhere. I don't have a target. I think it's good to β I mean, you don't kill anybody in the business. You allow everybody to survive. But it's good to leave as little oxygen as possible, so that eventually sanity has to come back into the market. Andrew, (01
- Unknown Speaker:
- Sorry. Just in terms of a longer-term question around 5G, and I guess that's now coming on to your investment horizon. Is there an opportunity do you think to get ahead of the curve in 5G and perhaps do some things that either the wireline incumbent might not choose to do, or three or four might not be able to afford to do. Can you achieve some lasting differentiation that way? And if so, can it be done within the existing CapEx envelope that you have?
- Vittorio Amedeo Colao:
- Listen, the 5G topic is a complicated one, because when people ask me this question, first of all, be assured that we talk to every single possible person everywhere in the planet who knows anything about it, whether this is Chinese people or manufacturers, or Americans, or whatever, Koreans, everybody who pretends to be ahead on 5G. Somebody in this room, (01
- Unknown Speaker:
- And just, I mean, is there anything on the preplanning side where it makes sense to do further densification or other activities β or are there other activities to do?
- Vittorio Amedeo Colao:
- No, it makes sense to β of course, it makes sense to have the network readiness, it makes sense to get transmission in the high capacity, high traffic side brought up to fiber. We have this target of 95%. We are on the way there. It makes sense, of course, to prepare the platforms that will deliver the services, IoT in particular earlier, because in any case, we are β I mean, as we say, the reason why we launch consumer IoT in November 2017 is not really for what we are going to do in 2018 or 2019, but it is to prepare a strong platform for the next following 10 years. So, all those things we're doing, so it's more platforms, it's more enablers, and then in the meantime, talk to whoever in the world is doing the different pieces so that we can apply the best one. And we might be first in one city or in one country, but I'm not sure I see a generalized consumer early adoption.
- Jeremy Dellis:
- Okay. Good morning. It's Jerry Dellis from Jefferies. I've got a question mainly on Italy, please. In the context of the UK, you described how the joint venture with CityFibre is logical approach to keeping Openreach's feet to the fire in terms of their pricing strategy and their fiber ambition. And I wondered whether the Vodafone strategy on Italian fiber is similarly open-minded as you think about the potential sources of supply going forward, be it Telecom Italia or Enel. And then within the Enel coverage area currently, which is, I suppose, no longer particularly trivial, are you actively switching existing Vodafone fixed broadband customers across from indirect wholesale access from Telecom Italia onto the new Enel network. Are there any practical economic constraints to switching customers over quickly?
- Vittorio Amedeo Colao:
- Let me start from the end of your question, the answer to your question is yes, we're switching customers, and no, there's no constraints. Actually it's an obligation, contractual obligation that we have with them. And so, whenever the lines are made available to us, we see who is there and we switch. And then going back, the answer to the question is, yes, I mean, we don't have any ideological resistance to working with any incumbent. And sometimes, if they give us good conditions and they work in a transparent and completely neutral way, we're very happy to work with them. The problem is that most of them, they get there only when there is a real threat. And now, there is a real threat everywhere. So, if I were the parliament or the commission, I would celebrate (01
- Vittorio Amedeo Colao:
- I would like to thank you very much. I would like to reiterate, good half, very solid strategic process and increased guidance to reflect all of that. But most importantly, the future is exciting really.
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