1&1 AG (1U1) Earnings Call Transcript & Summary

Thank you, operator. Welcome, ladies and gentlemen. I would like to welcome you on behalf of the Board of 1&1 Drillisch AG. Our CEO, Ralph Dommermuth; and our CFO, Markus Huhn. In the context of this telephone conference, the Board will present the financials for 2020 and the outlook for 2021. After this presentation, the Board will be available for your questions. Thank you very much. Now let me give the floor to Mr. Dommermuth.

Well, good afternoon, ladies and gentlemen. Mr. Huhn and myself have split up this presentation now in that I will give you the development -- company development for 2020 and the 5G network and national roaming development and the forecast for the financial year 2021. Mr. Huhn will then give you the financials for 2020. Let's start with the company development. As you know, we are the largest alternative DSL provider in Germany with 4.31 million broadband connections. We largely market VDSL and FTTH connections, which we offer as complete packages and IPTV from a single source via 1&1 Versatel. And for the land line, we offer the last mile. We have excellent network quality. We were the winner of the connect landline network test in 2020 as we were in 2017 and 2015. In addition to the landline network business, we offer a mobile network business. We are Germany's leading MVNO with 10.52 million mobile service contracts, and we have an extensive market coverage with our primary brand 1&1, our cobrands, GMX and WEB.DE and our discount brands, among them, yourfone, SmartMobile and winSIM. We get our mobile network capacity from Telefónica because we don't have our own network yet and we also get advanced service from Vodafone. We were able to increase our customer contracts by 14 -- to 14.83 million customer contracts. That's a plus of 0.5 million. Mobile internet, we had 10.5 million customer contracts. That's plus EUR 0.53 million and a slight decrease to 4.31 million broadband lines. Our revenue in it increased by 3% to EUR 3.786 billion. And our service revenue increased by 2.6% to EUR 3.02 billion. Due to the coronavirus pandemic, we had lower revenues from international roaming, so the customers travel less, and this is why we have fewer roaming charges outside the EU. And if we adjust this for this, then our revenue would have increased by 4.8%. And then we have other revenue with hardware, with smartphones that we combine with our services, which increased by 4.8%. The EBITDA decreased by 31.5%, as we indicated already, to EUR 468.5 million. On the next page, you can see a breakdown by segments. We have the Access segment, which deals with the connections basically and then the segment 5G. In the Access segment, the EBITDA was EUR 482.4 million, which is inclusive of EUR 204.3 million special effects that weren't included last year or that we didn't have last year. On the one hand, that was a one-off unused VDSL contingent adjustments of EUR 129.9 million. And then we got Telefónica bills that were excessive, and we achieved an agreement with Telefónica. We will have to make an agreement -- a written agreement with Telefónica. Once that has been done, we will then get a refund of EUR 34.4 million from Telefónica. Then due to the altered customer usage, we have a turnover revenue decreased by EUR 25.2 million due to the coronavirus pandemic. Then the TAL increase led to a regulation effect -- or regulation effect led to a decrease by EUR 8.2 million. Then another regulation effect, SMS cost, was EUR 5.5 million. And then a one-off effect from ongoing integration projects was EUR 1.1 million, and that has been concluded all of this now. Then we have an overview of all those figures, 500,000 additional contracts of 14.83 million, 3% extra revenue, 2.6% of this being service revenue. I mentioned that an EBITDA decreased by 31.5%. That has an impact on the EBIT, of course, EUR 313.1 million compared to EUR 528.5 million last year, and the EPS has decreased from EUR 2.12 to EUR 1.25. Our dividend proposal to the Annual General Meeting is identical to last year's proposal, which is EUR 0.05 per voting share, which is the minimum dividend that we had to pay last year, and that is the same suggestion we will submit to the Annual General Meeting this year. Well, then let me pass the floor to Mr. Huhn for the financials.

Thank you, Mr. Dommermuth, and good afternoon on my behalf as well. I'd like to take you through the financial figures on the following pages of the last year. On Page 12, we see the earnings overview. Mr. Dommermuth has already commented on the turnover. You see the 3% increase in turnover that Mr. Dommermuth had explained earlier. The sales costs have grown by 11.9% in the last fiscal year from EUR 2,574 million to EUR 2,881.8 million. And due to the over-proportional growth of cost of sales, the gross profit has dropped to EUR 905 million, the main reason for this being the special effects of the last financial year. One is the active accrual for the VDSL contingents paid in advance, amounting to EUR 129 million and the effect of the corona pandemic of EUR 25.2 million, and the regulation effects were EUR 13.7 million and the excessive billing of Telefónica. So if we adjust these effects in the result, the position of EUR 1.1 billion would have increased, respectively. The sales cost in the business year 2020 have grown from EUR 426 million to EUR 442.3 million. The reason is that we have the sponsoring of Borussia Dortmund, a football team, another EUR 8.3 million have derived from additional HR costs. In the administration costs, we have the administration costs plus the expenses for the preparation of the 5G network. And this increases this item to EUR 99.4 million. If we eliminate the 5G, we would have had a small drop in this position. The other operating expenses and income have grown from EUR 30.3 million to EUR 32.2 million and the impairment losses of receivables and contract assets have dropped slightly from EUR 83.3 million to EUR 82.4 million. And this takes us to a result of the operating activities of EUR 313.1 million compared to EUR 528.5 million the year before. The financial results has considerably improved compared to the year before. It was at EUR 0.5 million in 2020 after minus EUR 6.1 million in 2019, and this is mainly due to the fees for the provision of the credits for the 5G auctioning, which were not needed. This was about EUR 6 million that were due in 2019. The profit before taxes is, therefore, at EUR 312.6 million. And consequently, the tax expenses have dropped from EUR 148 million to EUR 93 million. So that means we can get a consolidated report, a result of EUR 219.6 million compared to EUR 373.6 million the year before. On the next sheet, we see the balance sheet on the past fiscal year. The balance amount from 2019 was EUR 6,461.9 million grown to EUR 6,690.3 million. We have the short term liabilities, which have grown from EUR 1,277.4 million to EUR 1,570.8 million. And this is mainly due to the increase of cash and cash equivalents, which were due to the cash pooling when the sales costs in the IAS -- EUR 15 million have been increased by EUR 33 million. And these results are from requirements to -- from repay of revenue taxes. The cash flow has grown from -- the long-term assets have stayed at EUR 5,152.7 million to EUR 5,137 million. On the liability side, we see that the short-term liabilities of EUR 584.9 million have increased to EUR 574.5 million. This is mainly due to liabilities from services rendered. Long-term liabilities have hardly changed with EUR 1,272 million at the end of 2020 to EUR 1,262 million in 2020. The equity, due to the positive group results of EUR 220 million from 700 -- 7 -- 4.7 has grown to EUR 4.8 billion. So looking at the cash flow now on Page 14. Here, we see the net inflow of funds from the operating activities with EUR 450.7 million of 2020 compared to EUR 375.7 million in 2019. And how do these compose? On one hand, from the EUR 511.3 million cash flow from the operating activities and then we have minus 40 -- EUR 84.2 million from contract assets and liabilities. And we have an additional EUR 33.5 million from trade accounts, which are payable. And also the accrual is a positive effect with EUR 45.9 million is positive and the buildup of receivables and other assets as well as the receivables from associated companies plus others add to the minus factors. Beyond of that, the decrease of the other liabilities with EUR 14.7 million and the others, and up to another minus EUR 4.9 million. The cash flow from investment activities in the past year was at EUR 397.4 million after EUR 230.5 million before. The main drivers for this being EUR 42 million CapEx expenses, EUR 165 million for the extension of payments to extend the MB and A [sic] ( MBA ) MVNO contract and EUR 190 million investment of free cash at United Internet. The cash flow from financing activities has come from EUR 117.3 million to minus EUR 80.7 million in 2020 and EUR 71.9 million is a repay of financial liabilities. The biggest position of this are the EUR 61.3 million, which are due for the second installment of the frequency auction, and EUR 8.8 million as a dividend reimbursement that we have made. And this gives us a free cash flow of EUR 243.7 million after EUR 355.4 million. On Page 15, we have built the bridge from the EBITDA to the free cash flow. On the left-hand side, you see the EBITDA for 2020 with EUR 468.5 million and then EUR 129.9 million from the derecognition of the advanced payment for the VDSL contingents, which we have bought from Deutsche Telekom, which had a positive effect, negative with minus EUR 84.2 million were from contract assets and liabilities. The change in the other working capital is positive with EUR 63.8 million. That is mainly driven by higher liabilities due to services rendered. Taxes are negative with EUR 127.3 million. The payment in the context of the MBA MVNO contract extension was EUR 165 million and other CapEx with minus EUR 42 million. And that takes us to the free cash flow of EUR 243.7 million for the business year 2020. And now I'd like to give back to Mr. Dommermuth.

Well, thank you very much, Mr. Huhn. Let me report to you on where we stand with the development of our 5G network. In 2019, we acquired frequencies in the 3.6 gigahertz and 2.1 gigahertz ranges. We have rented 2.6 gigahertz from Telefónica in Germany. And recently, we reached agreement with Telefónica on the roaming conditions. We are about -- we're in the process of making a formal agreement and we should conclude that soon enough. We are now creating a national roaming contract, which we should conclude in the next quarter. And then over the last few years, we have also been developing the network of our partner, 1&1 Versatel, so that we can tie into these locations. We would like to start expanding our network in order to meet our obligations in this respect. Let me show you -- explain to you the architecture that we're planning. You can see the architecture of traditional mobile networks. And on the right-hand side, you can see what we are planning to do. We are planning to build a virtualized antenna network. And we'd like to build it in an Open RAN technology, i.e., with standardized interfaces so that we can work with different suppliers. This is indicated by the graph. You can see that there are antennas by different manufacturers. They're not smart antennas, so there is no smart box with a computer connected to this antenna. Instead, these antennas will simply transmit the radio signals to data centers where these signals are then processed. And in addition, there will be central units or core systems. And what's novel about this is that we only use standard computers and the software is running in data centers rather than at the antennas. The benefit, of course, is that you have the computers closer to the antennas and the application software can be located in the data centers, of which we were with hundreds across Germany, and we have proximity to the antennas. We will only build antennas that work in the range of 3.5 to 3.7 gigahertz, so they will have at least a speed of 1 gigabit per second. The forecast for this year, we expect a slight increase in service revenue to 1.3 -- or to EUR 3.1 billion. The EBITDA is expected to be EUR 650 million, including EUR 30 million worth of initial 5G network setup costs and about EUR 25 million effects from the coronavirus pandemic due to restricted traveling and, therefore, decreased international roaming revenues. This forecast does not include EUR 34.4 million positive effects that we expect from the retroactive price adjustment of the contract with Telefónica. We will probably activate this in 2021 out of period. On the next page, you can see this broken down by segments, by the segments' Access and 5G. If you take a look at 2020, you can see the EUR 482.4 million EBITDA that we are showing here. We would have to add EUR 34.4 million from the price adjustments from Telefónica, which will be shown out of this period, but really refer to the period 2020. Then the one-off effects of unused DSL [sic] ( VDSL ) contingents, EUR 130 million, then EUR 25.2 million due to the coronavirus epidemic effects and then EUR 10 million brand budgeting. If you compare this to this year's figures, what we're planning to do this year, then we're planning an EBITDA of EUR 680 million for this year. We are planning EUR 25 million again from the changed usage due to the coronavirus pandemic. And our branding budget has been increased to EUR 30 million. As you know, we not only sponsor the Dortmund soccer club, but also Mick Schumacher as our brand ambassador for the Formula One. So that results in our EBITDA of EUR 680 million on 5G. You can see that we invest a lot of money. And it shows that our traditional business with DSL and mobile network are working very well so that we can finance this. Right. Thank you very much for your attention. And Mr. Huhn and myself will be happy to take your questions now.

[Operator Instructions] The first question is from Ulrich Rathe, Jefferies.

I have three short questions. The first one being, in the press, we could read that you want to contract another company that would increase your staff. You won't speak about this, but which expertise are you planning to build internally to expand your network? The question being, will that mean that the network will be built by a third party or will you use internal know-how in order to support? The second question is, the structural modifications make it difficult to estimate the cost structure. Mr. Huhn, can you say something about the gross margin for 2021, generally speaking? And the third question is, the -- where are you in your negotiations with Telefónica? Are you on schedule with your negotiations there?

Okay. Let me start with the last question. We're doing well in terms of our negotiations, with our national roaming negotiations with Telefónica. Concerning Rakuten, I can't tell you what service provider we will contract. We have different quotes available. We are now negotiating the terms concerning the know-how that we need to build. There are topics here that we will certainly not address. And there are some things where we will build our own know-how. Let me try to explain it to you. Our plan is, for instance, not to operate our own antenna sites, rather we will rent these sites from a tower company. So the antenna supports the cabling and the building will be outsourced and then rented. So we don't have to deal with that. The data centers that we need, we will need numerous decentralized data centers, some hundreds. We will operate them ourselves, and we will do that through our sister company 1&1 Versatel. And 1&1 Versatel also has a lot of experience in operating networks. We have our fiberglass -- fiber optic network. We have voice, IPTV, we have our own cloud applications, et cetera. So the entire transportation network will be taken from 1&1 Versatel. The operation of the network system will be handled by ourselves. We are in the process of building a team from existing resources within our company, from existing human resources with our company. So we also have to build the sales, the distribution team, in parallel with the expansion of the network. The hardware, which we won't develop ourselves, will be purchased, of course. And the first installation of this network will not be built by us. We will be supported by a network supplier who will handle the software development and initial setup and who will also be responsible for planning the sites, because the antennas will have to be spaced at certain distances and some capacities will have to be provided. And this is something that we will outsource as well. That's something we need only once when we first set up the system, the network. So the idea is to do a few things ourselves, such as operation and the transportation network and operations of the software. But other things such as acquisition of sites or planning of site location, antenna location, we would outsource these. Concerning your question on the gross margin, Mr. Rathe, I assume you're talking of the gross margin of our revenues. I had explained earlier that even if I take out the special effects for 2020, this position has increased only slightly. In 2021, it will increase disproportionately. The profit forecast that Mr. Dommermuth had indicated on Page 21, where we could see that the EBITDA before the coronavirus special effects and the branding budget increases significantly is largely driven by the growth profit results that we expect for 2021. That has, of course, to do with the national roaming offering. As we mentioned, some conditions or framework conditions of this offering will only bear fruit in 2021. And this is why we expect a much better development for the gross margin for 2021.

The next question is from Jonas Blum.

Yes. I would have a follow-up question on Rakuten and question on Telefónica. Here, we've read in the media that the network that was not expensive in the beginning is becoming more expensive now. So now the question is, whether you have a lesson taken home from this, or whether this is a special situation as in Japan, where the situation was different? And the question concerning Telefónica, which you mentioned in your last conference call. With respect to the roaming, you said it would be flattish until 2020 -- 2030. I somehow am puzzled that at the end you have more data on your own network. So the question is, if there's components that will change these figures towards the end.

Well, let me start with the Rakuten network. I can't tell you why the network has become more expensive, because I don't know the original calculation. All I can say is that we have a calculation and that currently we are within the bandwidth that we have presented the Supervisory Board as a target in 2019 before we entered the auction. Of course, we created the business model and we are still within that business model. Of course, we have to take care of the operation costs in the end. But concerning the rental of the antennas, we are in the planned range. So currently, let me knock on wood, I can't see any deviation, any increase of costs here compared to our original planning. It looks all quite okay so far. Concerning the payments that Telefónica expects until 2030, that's something I can't really argue. Of course, you're right. By principle, we would, of course, generate our own traffic, and that is something that we don't have to purchase. And of course, I think that should lead to a reduction of cost in roaming. But why Telefónica sees that flat until 2030 is the question. I can't answer it at this moment because I don't know the assumption they have taken to arrive at this idea. We are assuming something else here.

The next question is from Martin Jungfleisch, category [sic] ( Kepler Cheuvreux ).

Just a question on my side on the selection of the equipment providers. Can you figure the invest for the core net? Is there the one-off invest for 2021, or could you spread that out over several years or outsource it all together?

We know the investment as of today. And we know the running costs, the operation costs that we expect for the first decade. That's all fixed and clear. We will, of course, deal with these costs over the years. Every antenna that's delivered has to be paid. That's going to be a process that is going to carry on over a couple of years. We have to pay for the core system, but we don't see that we are going to stretch this out. We will do the investments as they come up. And we have a good impression that we can handle this well.

Is there any rough figure on the percentage of the cost the core system will add up to?

There is exact figures as what the core system is going to be. But it's difficult for me at this point to share this now. A core system costs a couple of hundred millions, just to give you a magnitude.

There's no more question from the German room. So now we would hand over to the English room. Just a moment, please. And the next question is from Polo Tang, UBS.

I've got three quick questions. The first one is, can you clarify the scope of your mobile network build? So specifically, if you look beyond 2030, are you looking to build to close to 100% of the population? Or is your ambition focused only on covering 50% of the population? Or do your coverage ambitions depend on the spectrum that you acquire in the future? And my second question is really just clarifying how close you are to selecting equipment vendors, but also tower providers for your network build. And are you still focused on having 2 tower providers? And my third question is really just to clarify the level of mobile data usage per subscriber per month. What is it currently? And can you give us a sense in terms of how it has evolved over the past year?

Let me start with the coverage ambitions. We have aimed for 50% until 2030, 25% until 2025. And that's the line we want to work along with. If we are faster, we'll be happy. But I don't want to throw my hat out too far here. The -- with respect to the negotiations with the vendors, we are well on schedule here. Currently, we are planning to work with one tower company. As far as the data usage per customer is concerned, it has been stable over the past 2, 3 years of 25% to 30%. And that is what we are seeing currently as well. And our expectation is that we will stay within this range, maybe even a little increase, but in the base and the customer base, we don't see a big increase in the data usage so far.

Can you clarify what the level of data usage is currently? So is it 2, 3 gigs? Could you give us maybe a rough idea in terms of quantum? And then just to clarify, you said you're likely to work with one tower company. I think on the call, back in February, you suggested you can work with two. So can I clarify, kind of, what has changed to your thinking on towers?

While the usage show for the customer base is about 2.5 to 3 gig, to give you ballpark figure and the usage is also driven by the fact that in the 1&1 segment, we are handling more and more customers. But 2.5 to 3 gig is the usage per customer over the entire customer base. Well -- and concerning the tele-companies, I might say the following. We are planning to work with a prime contractor. But it will be possible for this prime contractor to adding further sites that they do not own or build. But we're still negotiating whether this is a good option in order to increase the level of safety so that we can develop the sites fast enough.

And the next question is from Jakob Bluestone, Crédit Suisse.

I had two fairly short questions. And firstly, is it possible to give a little bit of guidance for some of the other, sort of, nonoperating cash flow items for 2021 around things like working capital, tax? And specifically on tax, can you maybe comment on why your cash taxes rose? I think they went up about EUR 20 million despite the sort of fall in profitability. So if you can just clarify your tax payments for 2020 as well. And then finally, in the call last month, I think you suggested that we could get an update on, sort of, a more detailed deep dive on your 5G network build over the summer, because you expect it by then to have more visibility on the vendor selection and should have completed the national roaming discussions which has the -- is that still kind of what we're expecting? Or is it a little bit? We're not quite sure when we will get that update.

Well, concerning the question on the taxes in 2021, we expect to have a tax rate similar to 2020, around about 30%. That is the same tax rate we had in 2020. Concerning the free cash flow for 2021, we didn't guide this key figure in the past. And it depends on how fast we can roll -- start the rollout in the second half of the year. So this is why I don't want to give you more detail on this. Now concerning the activities or updates on the activities in the 5G network rollout, the national roaming negotiations are to be concluded by May. We are also negotiating with the vendors in parallel. And we would like to conclude those by the middle of the year, around about. So our forecast is that when we communicate the semiannual figures, we will give you an update on where we stand with our contracts and what we can expect on the investment side.

And the next question is from James Ratzer, New Street Research.

Yes. I had a couple of questions, please. The first one, just interested if you could comment about your future shareholder remuneration strategy. And obviously, you've reiterated the dividend for this year of EUR 0.05. But I mean, it looks like you're sitting on a cash -- net cash position at the moment, and you're going to start to have pretty good visibility on what the network costs are. And especially if you're renting towers now rather than building, I would have thought you could cover a lot of the network build cost from organic free cash flow. So I was just wondering what you could say about then how that will affect your thoughts around future shareholder remuneration? And then the second question I had was just on the network build side. I mean, are you able to say at this stage whether you are interested in taking on any RAN sharing with existing operators. And with regards to picking a tower vendor, I mean, what will be the kind of key variables you will be looking for? Is pricing going to be most critical? Or will network quality in spite of locations be something that's more important to you?

Let me start with the last question concerning the tower vendor. We strive to look at both pricing and quality. Of course, we have to have good locations and they need to fit into our grid. RAN sharing, we haven't considered that yet. That could become an issue at some stage. But right now, the issue is to build our own network. Now concerning the dividends, I continue to see the minimum dividend for the next few years. That may be surprising if you see our cash position. And we don't have an investment to shoulder that we believe is overburdening us, but we do have to purchase additional frequencies. The 800-megahertz frequencies will be tendered as per the 1st of January, 2028. I don't know when the auction will happen. If we expect a similar run-up period for the auction, this would be in the Spring of 2024 that the auction will be held. And at the time the auction is held, we have to have the ability to move so that we can actually win some of these frequencies. So we on the Board don't see any dividends until we have reached that point in time and can be sure that we have enough firepower, if I may say so, to buy those frequencies.

Maybe just to add to this. In 2019, we had a credit line of EUR 2.8 billion on top of our cash from United Internet. And our objective is that in 2024, we still don't have any debt in the company so that, if necessary, we can tap into potential credit lines.

And the next question is from Usman Ghazi, Berenberg.

I've got three questions as well, please. The first question was on the spectrum comments that you've just made. So just wanted to understand, does the 50% pop coverage that you're targeting, is that -- does that require you to get this -- the low band spectrum? Or do you believe that, that would be upside on your existing plan? That was the first question. The second question was just on the tax again. I guess maybe asking it a different way, do you expect to get a tax deduction on the EUR 131 million -- or EUR 130 million write-off that has been done on the VDSL-contingent balance on the balance sheet? And then my final question was just on the marketing costs, I guess, for 2021 in terms of the -- the football sponsorship plus the Formula One sponsorship. I mean, what is this trying to achieve? I mean, is the objective of this to see a step-up in your growth side? Or any comments around that would be helpful.

Yes. Well, sponsoring the football club, Dortmund, and then the Mach and Mick Schumacher, are designed to make our brand more visible. We measure the awareness factor of our brand in the population, and the unsupported brand awareness puts us head-to-head with O2. And Telekom and Vodafone are still a little bit ahead of us. And we would like to increase our brand awareness. We would like to charge our brand. Our objective is to build a first-class 5G network rather than a low-cost network. Our objective is to achieve what we have in the landline network, to build a mobile network, a 5G network that has top quality. This is why we want to continue charging our brand and hence, the sponsoring.

Usman, I can answer your tax question. Let me just jump to the first question concerning the low band spectrum. We need this low band spectrum even if we don't strive for more than 50% coverage for the deep end supply. The frequencies that we've acquired allow us to make it possible for people to use mobile telephony outside of a room, but also within a building. But you must not move away too far from the external shelf on the window of the building. And if you want to have deep end coverage, then we need low-band frequencies. And that's what we want to do because, otherwise, we would have to purchase roaming capacities for deep end provision. That's certainly not a huge capacity because everybody's necessarily standing around in their -- in their stairwell or sit in a large room, far away from the window. But we would have handovers again and again, because we would go from ourselves switching to the roaming partner sell and back and forth, et cetera. And that is not necessarily helpful for quality improvement and user experience. And this is why our objective is to become completely a target for the first 50% coverage. And that's what we need the low-band frequencies for. And once we've made this investment, then these frequencies are then, of course, the basis for full coverage, if and when we extend the network coverage. But we're thinking of 50% right now and to provide excellent coverage with our own means. Now concerning the EUR 130 million of impairments and the tax coverage there, we expect this item to be taxable, which would, under German commercial code, which would bring down our tax burden. This is also why I said, when I spoke about the balance sheet, that in our short-term assets we have an expectation of EUR 37 million of income tax refunds. They're, of course, directly due to the EUR 130 million impairment costs.

And the next question is from Yemi Falana, Goldman Sachs.

It's clear that you still plan to pay the majority of your investment in network out of free cash flow. You spoke about the spectrum auction coming up in 2024, maybe 2025. Could you kind of give us a bit more color around what kind of level you'd be comfortable leverage getting to over the medium-term if you do invest faster than maybe people expect today? And secondly, kind of touching on the points you about mentioned earlier, are the -- kind of sponsorship deals that you signed with both Formula One, Borussia Dortmund, are they even attempts to kind of premiumize the brand, as you kind of, data costs come through, network rollout coming -- costs come through, is there more focus on profitability in the business as opposed to just volume?

As far as leverage is concerned, of course, we aim for the industry usual leverage with foreign capital, but only after we have a clear overview of the investments that are necessary just to make sure that we don't run out of steam on the way there. And concerning the sponsorship, we want to develop our main brand, 1&1. We have a spread of pricing between 1&1 and our discount brands. And that is what you want to carry on with. And for that, it is important to charge the brand. We are not perceived as a premium brand as yet. And I don't know if we will need to strive for that at all. I rather see us in a value segment and the discount brands then -- in the discount segment, and that's the segment that we are home in.

And the next question is from Martin Hammerschmidt, Citi.

Yes. I have one question on the Open RAN and then on the fixed line. So maybe on the Open RAN. So to what extent do you think the Open RAN technology and the vendors have matured? Or do you get a sense in your conversations with them, in your negotiations, that there's still upsides and -- would achieve here? And then second, on the fixed line business. I mean, you've seen you put out quite aggressive offers, I think, since the beginning of March. Could you maybe just walk us through your thinking behind it? Are you trying to repair, sort of, trends after losing 30,000 in 2020? Or are you looking to sort of keep that stable or maybe even slightly growing?

If I understand the Open RAN question correctly, then our consideration is that we assume to use state-of-the-art hardware. And the next chip generation is going to be important, which is coming out next year, with respect to the power consumption concern in relation to the performance. And here, we have a very good impression that we'll get into the range that we have planned for right from the beginning. With respect to the question on the landline business, we follow the strategy that we had already explained in the last calls. Our aim here is to get high-value customers and keep the customer base stable, and not to be too aggressive in order to avoid any negative effects on the customer base. Here, we have rather increased the offers in the past compared to the time before that. Currently, we are a bit more aggressive. But as far as the value is concerned, it's a bit above the level of last year. So there has not been a change in our strategy with respect to the current offer to obtain a sustainable customer base and keep it at a stable level.

And there are currently no further questions. So that concludes the Q&A session.

Okay. So I thank all the participants. As usual, our Investor Relations; and Mr. Huhn, as the CFO, will be available for more individual questions. E-mail or call, we'll be happy to answer that. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]