freenet AG (FNTN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen and welcome to the freenet AG Conference Call regarding the Q2 2024 Results. [Operator Instructions]. Let me now turn the floor over to your host, Christoph Vilanek.

Good morning, everybody. Thanks for joining today's call. You have all most likely read our announcement. And as always, we will now go through some of the details and are happy to answer your questions. When I prepared myself this morning, I made a note and said it's no real news, but it's good news. I think that is really the message from this quarter. You have read and heard a couple of weeks ago that we have concluded, with all 3 networks operators, long term agreements. We are finally expanding the 5G mobile tariff portfolio across all 3 networks for our customers, which will enable a couple of new campaigns in Q3 and Q4, which I will give a bit more detail in a second. We've been very successful with our IPTV development in terms of net adds and also in terms of new agreements. And we have also no real surprise and no real news, but confirmation of the fact that we have shut down Gravis. It is not included anymore in all the numbers. Let me also say that the related cash flow and the related costs that we have expected are all in plan, even a bit better because we will have sold out almost the entire stock, which brought a significant pile of cash. We are currently working on the re-rents of our in total 38 locations. 10 are already signed and there is 10 more to come which will also then go against the negative. Even though this is all financial results, I just wanted to clarify that there were no negative surprises or big efforts that keep us busy. The team did a wonderful job there. Going straight to the mobile development, I think no big surprise. We have grown a little bit with plus 26,000 in the first half of the year. I think across all the operators and service providers in Germany, you can see that there is low uptake. I would consider this as a matter of fact that prepaid migration that has feeded the postpaid numbers over the last 5, 6 years is coming to kind of an end. We are comfortable with the current growth, but we are also realistic that we stick to about 100 net adds for the full year. But even though a lot of things change, at least from the headlines, we do not expect a big shift. As you have learned from United Internet, that people -- that they seem to lose a couple of customers and then the question was, are they all coming to us or where are they going? Well, first of all, even if you terminate a contract, you are not out the next day. We would assume that a certain proportion of that is still bound for 12 months or for 24 months. So the negative reaction is certainly an issue and a challenge for 1x1, but they will also now start to try to retain those customers that are not gone yet. So we could not perceive kind of a big wave as a result of the network downtime. What are the things that we are aiming for or working on in the second half of the year? And I will, on next page, go on the Telefonica thing explicitly. There's a couple of things worth mentioning. We are right now launching similar plans to the family or next plans for Deutsche Telekom across the board, specifically with the Telefonica enabled new tariff plans that we have launched actually a couple of days ago. We are starting from September 1 a sponsoring of the so called Icon League, which is an indoor soccer league that was created and founded by Toni Kroos, the famous German player. We expect that to work with a lot of young influencers as well as sportsmen, and are hoping to address a target group, young male professionals that we haven't met before. And once again, the Telefonica portfolio is helping us there because these are people that go for SIM-only attractive full data plans. A word to the ARPU, we expect the ARPU to be stable for the full year of 2024. Coming on the next page, talking a little bit about the agreements, I think we have been talking before, but here is a summary. Again, we have concluded a deal with Deutsche Telekom going -- till the year 2028, another one with Vodafone, '29, and the one with Telefonica, which is a 5 plus 5, so up until 2034. I think it's worth mentioning that the fundaments of the business model and the fundaments of also our financial mechanics has not changed. So we are not expecting a big drop or big increase of SACs or any other spendings, but also not on the revenue side, because the fundamental mechanics stayed the same. But still, the key changes that result from Telefonica is, first of all, we have full access to their Blau portfolio, which we did not before. Second is we have full access for all of our customers. We can convert them to 5G. And I have also heard from TIM and the colleagues from [ ER ], that people were asking, or you were asking about commitments. Any contract always includes, vice versa commitments. On the one hand side, the support and the agreement on terms, and vice versa, the network operator asks us to commit to quality, to volume, to mix, to a whole set of activities. And I think it is easy to understand that, first of all, there is an agreement on non-disclosure and we stick to that confidentiality. For me, personally, and I'd like to add, the most important thing on the Telefonica contract, and that is really the difference from the 2, additional to the 2 points that I've made, is that we have an agreement on the long-term revenue share. There will not be a volatile thing depending on the new tariff plan, but it's an agreement that gives us really a possibility to long-term customer lifetime value planning. And that is a fundamental difference. If you can assume that a renewal will be done, it's supposed to be done under the same terms and conditions than the acquisition. This is helpful because it changes from a short-term, short sighted, quarter-to-quarter kind of planning to a long-term planning. And I think both companies feel very comfortable with it. So what are we doing with this new situation. One thing is, and here it is just mentioned, one brand, we will launch a number of new discount brands just as Happy SIM, Dr. SIM and others. I think you all know that Drillisch or 1&1 are working with up to 15 brands. We are not doing that in the past due to the limitations of SIM-only tariff plans applicable to those brands. Now we are enabled and you're going to see white label brands in the near future and a whole number of them because we see that this is a good way to be more prominent on the Google search, but also on the things like VERIVOX or Czech 24. We are providing currently plans starting with 5G till 25G, similar to the Blau portfolio. So if you check out the Blau website and then compare that with the freenet mobile phone, you will find that they are very similar. But we are still providing the bigger ones up to the unlimited. And the unlimited plans were very successful. We see also that we can charge more than we did before. Right now, well, we concluded the deal in June. We have done technical preparations and selections of customer segments during the month of July and we have in the second half of July started to do a couple of tests. Let me maybe illustrate that there's one campaign, for example, where we call the unlimited and big data tariff plan owners and tell them that they can upgrade now to 5G. And we offer them either a price upgrade if they are on a monthly contract and want to remain on a monthly contract, or no price up if they change to a 24-month contract. And conversion is super attractive and the reaction of the customer is really positive. We are doing this now also in campaigns on the lower end, and we do a general campaign across any of the churners where we offer bigger price, bigger GB packages. And given the fact that we have these offerings right now, we are fully compatible with the other brands. You might have heard that Magenta has doubled all their data packages in the first week of August. We have also provided this to our telecom network customers. This is just mentioning of 2 or 3 campaigns, but there is many more in preparation. I think it's way too early to say what the straight impact is, but I think there is a side comment made also in our announcement that we think that there is an upside potential, which is not only giving us the confidence to make the 100K net add, but we can also imagine, depending on the results of the test, that we go beyond the 100,000 now equipped with a Telefonica deal. Moving on to IPTV, next page, you can see that, I think, very, very strong Q2. I've seen the numbers from Deutsche Telecom this morning. 100 -- plus 114,000. Very happy to see that we've done 191,000 net adds at in Q2. Total for the first half was 330,000. I think the 2 million customers that we have, maybe not guided, but our personal ambition are very likely to be reached. We are also seeing in July, not the fatigue that we have seen in the past years in the Q3. It's still a Q3, but we're doing quite well in the first 4 weeks. So it's not a drop down after the European Championship or in summer or something. The thing that made me really proud during the European football championship, our team was 724 up, double checking our service level, and we could maintain 100%. Even 100%, not even 99%, 99%, but 100% full service level we have provided. Our peak was 5 Tb per second sent to the different connecting points, and all the traffic was well handed over. We did not do campaigns, like, allowing people basically taking a single day and taking a ticket. So, these 191,000 are real customers with a strong commitment. More than half of it has taken a 12 month package, including a stick and a remote control. And we see that the remote control customers, if I may call them like that, those are the ones that are very sticky and show high loyalty to the product as soon as they have installed it. We will now in August start a campaign with Deutsche Bundesliga. We have agreed with Sky Germany to offer a package with the full Wow and Wow Sports package. Part of the channels will be also included in a kind of a live EPG a feeling, so that people can easily access it and don't need to start with the app of Sky or Wow, but can start right within the our waipu EPG. This is a great test. We are very grateful that Sky also has accepted us to do that in order to understand how much of our customer base will be attracted by that. So it's mainly a campaign where we expect the customer base to upgrade and then we want to measure what the churn impact is. It's not so much a new customer acquisition tool, but a loyalty driver. And I'm sure we will give some indication, more details with the Q3 numbers and an outlook for the next year. Media broadcast, customer base still going down, but it was in the first year less than 40,000. So we are less than 10%, still losing. But I think we're getting closer to kind of a long tail kind of feeling. The good thing is that price up is still a valuable tool and sooner or later we will do another price up in order to stabilize the EBITDA. There is 5G broadcasting tested with Xiaomi and 2 public channels in Germany and there is talks to many other B2B customers. We have also won the first service contract for car loading stations because our field service can provide countrywide technical services in a high quality. So coming to waipu in a bit more detail as the last topic from my side, while we've been successful with the TV campaigns with Dieter Bohlen, Modern Talking guy, we started with Dieter for Mieter, or Dieter for lease contract owners, patching a little bit the cable and telling the customers that cable is an old fashioned access tool and ours is much better. We then flipped or switched the campaign to Dieter on the football championship. If you want to see the goal faster than elsewhere, then you're right with waipu TV. This message was also heavily picked up by the press and also by sponsored ads. I think that all added up to the 191,000 net adds this year. What are we preparing right now? I said one thing is Bundesliga and also I mentioned, on the marketing side, the sponsoring of Icon League. Here we see the first time a real interesting synergy between the core mobile business and the TV business. We are sponsored for the Icon league for freenet mobile, but waipu will also broadcast the Icon League as a specific channel and add it to their services. These are the kind of co-operations that we're going to see even more in the future. On the right hand side, one is the graph of brand recognition indexed. So, the Dieter Bohlen campaigns still are super attractive and drive recognition. And on the right hand side, it's a repetition of what I said, 191,000 net adds, and we are expecting for the second half of the year more, than 300,000. My guesswork would be Q3 around 100,000 and Q4 plus 200,000. So in total, we will cross the 2 million subscriber number by the end of the year. We are also starting to test a couple of advertising replacements also with the key channels, such as from the [ proceeding group ]. So, also on the advertising side, we are gaining pace and we are winning the confidence also and the trust also from the channel operators. They step wise understand that this is also beneficial for them and will create additional margin. Once again, I think, in November, we will give more details there because then we are going through the test. But there is a whole number of activities that give us the great confidence that we will go beyond 2 million subscribers. Having said all this, the numbers are mirroring what I said. And I hand over to Ingo to give you a deeper view on the financials.

Thank you, Christoph. Good morning, everybody. I start with a view on the group financials. Again, we see a slight increase of the revenues by something like 3% in the quarter and also for the first half. So I think we are totally on track here. And I think the good news is that the revenue increase is based on service revenues, which are high valuable. On the gross profit, therefore, we see an increase in the quarter by 6.7%. It is based on the valuable revenue, what we are generating. And therefore, all in, we could increase the gross margin further. The EBITDA level, what we see here basically is that we have the cost under control. We see again some increased personnel cost, which is no surprise. And we see the marketing expenses, the higher marketing expenses based on waipu. But I think no surprises here, or what we expected, because this is something where we already guided at the beginning of the year. We guided a stable year, a transition year, 2024. And this is exactly what we see here if we look into the EBITDA after 6 months Moving to mobile, here you see explicitly the increase in the service revenues here. You do also see an increase in the other business, which is partly generated from digital lifestyle business. So we still do not have a focus on low margin hardware sales, but it is an intrinsic part of the business that we do hardware sales and we need to have hardware sales, but it is definitely not our focus. Moving to the gross profit here. Maybe this is a positive surprise because the gross profit is increasing, is even stronger than in the first quarter. This is based on the digital lifestyle business, on the service revenues, and it is also based on the contracts, what we could conclude with all of the network operators, where we have in parts favorable conditions here. Moving to the EBITDA, I think maybe if there were some critics in the first quarter, there were the critics that the cost increase was slightly high and, therefore, the EBITDA effect was not that strong. I think, here, it normalized in the second quarter. So most of the gross profit is also arriving on the EBITDA side. So I think I already mentioned, yes, personnel costs are higher during the whole year, but what we already saw last year was an increase in the second half and, therefore, what we do expect in the second half of '24 is a phasing out of the personnel cost effect. Moving to some KPIs of the mobile business. I think Christoph already mentioned the stable ARPU, the growth in mobile subs in this challenging environment of the second quarter. And what we also see on this page are the digital lifestyle revenues. And, yes, I think we left out the low margin hardware revenues at the beginning of the year. This is something what we already explained to you, and the message is even better now because the increase of 3.6% is from valuable business. Moving to TV and media. What we do see here, we see the strong increase of the revenues, which is based on the number of subscriptions and on the growing customer base. What we do have on the gross profit side, all this revenue increase is arriving. So we do also see here a gross profit increase, and not only for the quarter, but also for the first half, but as marketing expenses, even in the connection of gross adds is not part of our gross profit. Yes, definitely, the negative effect in the EBITDA, I think, could not surprise us and would also not surprise you. I think in the second quarter, the negative effect in the EBITDA was even a little bit higher on an EBITDA level than in the first quarter. But, yes, we have invested in marketing. We told you that the additional invest for the whole year would be EUR 20 million. This is what we already planned at the beginning of the year. I would confirm this today because, in the first half, the additional investment were EUR 12 million, and for the second half, we do expect another EUR 8 million. But, and I think this is clear and I think the proof of concept then will be shown in 2025, but I think it is clear that the high customer intake, what we show, that this justifies the higher investments. Moving to the free cash flow bridge. I think no big surprises. Change in working capital, largely stable compared to last year. Taxes up to now a little bit lower because there were some refunds, one-off refunds, what we received in H1 '23. So, therefore, in comparison, the taxes look slightly higher. But I would say this is a normal level, what we see in 2024. On the CapEx side, the figure definitely looks relatively low, especially in the area of digital radio. We have some phasing effects here. So we will see some of the investments in the second half, like last year, but no surprise. Interest payments, in line with what we planned for the whole year. So I think we already got some of these questions with the EUR 151.2 million for the first half. Wouldn't it be reasonable to increase the free cash flow guidance? We have to decide it for now to stay with the guidance where it is because we have to wait and have to see if there will be a catch up in the CapEx in the second half. So I think we are not that confident today that the figure is really lower. But, yes, I think it is likely that something could be possible here to increase slightly this guidance during the rest of the year. The guidance page all-in is therefore confirmed from today's point of view. And as this is my last slide here, I would hand over to the operator to start the Q&A session, please.

[Operator Instructions] And the first question comes from Polo Tang of UBS.

I have 3 questions. The first question is, following your new long term deals with all 3 MNOs, you mentioned that you made changes to your tariff lineup. So can you maybe comment on the commercial trends that you've seen in recent weeks as a result of the change and also give us some sense in terms of how we should think about the impact in the coming quarters? So do you expect a benefit in terms of ARPUs, or do you think you will take subscriber share? My second question is, are you getting better economics with your new MNO deals? I'm just asking because, if I look at your mobile gross profits in Q2, we did see improving trends. And my third question is, what are your latest thoughts on what will happen with a fourth mobile network build in Germany?

I mean, on the first one, as I said, the tariff line up, the key thing is that we have a much wider range now with Telefonica than we did in the past. In the past, we basically mirrored the O2 tariff plans only. With the new agreement, we have access not only to the O2 tariff plans, but also to the ones of Blau, which is their key sub brand. And we have also an agreement and allowance to ask for additional tailor-made tariff plans that we suggest. They are now installed in both our systems and are now up and running. I think the big piece that we were missing out the last couple of years and where really Drillisch was very successful, was the lower price end of the SIM-only market. We have not had the possibility to compete them on the Telefonica network, but also -- so-called premium networks of Deutsche Telekom and SIM-only of Vodafone. I think that is a change. And we also see that there is a big potential where 1x1 has obviously grabbed a couple of million subscribers, I would even say, without competition the last couple of years. So we migrate or we're moving with our campaigns into that segment. And that also gives you an answer on your question, is this more an ARPU driver or is it more a volume driver? I would say it's a volume driver, and the whole structure of the deal incentivizes us on the combination of volume and quality. In general terms, I would say the profitability is a bit better, but without indicating the numbers as such, I would just like you to follow the math. If we would add -- if we say, this is a EUR 2 billion revenue business and we have a gross margin the size that you are all aware of, 2 percentage points or 3 percentage points, we are not talking about tens of millions of euros overnight. There is a structural impact even if you have 2%, but the 2% lift on on 1 single network is divided by 3, and then you end up with comparable small numbers. Much more important is that those are kind of set not in stone, but set on paper and agreed on paper. And that is the big difference. We were never disclosing the monthly, quarterly or biannual struggle that we have had, but it kept a whole part of our organization busy handling and optimizing and balancing the various incentive schemes. And now we have a set of incentive schemes that we can operate, orchestrate over a number of years. So in general, yes, it's going to be a bit better, but it's not fundamentally or significantly 2-digit type of changes that we are facing. And on what you call the fourth network, we are relying on the same level of information that you have access to. I think what we hear, what I hear also from kind of like day-to-day partners, the entire transfer of Telefonica customers into the Vodafone network was always seen as a challenge. And I think they have published that they need to do 50,000 a day. What we hear, rumor wise, they are far off that number. They have much more difficulties. The network down of a couple of hours, in some cases, and even days in a bigger group of customers, is creating some uncertainty. But also public notion is not as big as the notion in expert rounds like we are. We also hear that still the network building is facing a lot of difficulties, regulatory wise, and also just German legislation wise. So building an antenna is an easy one, but putting power there and fiber there is different authorities and so on and so forth. So we hear that they are struggling. Like, it's more anecdotal evidence than real evidence that I can share.

Next question comes from Adam Fox-Rumley, HSBC.

I actually had a follow-up to Polo's question on this longer term visibility. I suppose, rather than the day-to-day trading, I'm wondering if it has broader implications for the company. With the visibility that you now feel that you have over the course of next -- well into the medium term, does that change your thoughts on the OpEx base for the company? Does it change your thoughts on how the balance sheet should be structured, for example? I'd be curious to know what you think there.

No, the easy answer is no, because our business model basically does not change. So we have the same business model as before and, therefore, no, I do not expect any changes in balance sheet also.

I guess then the follow-up, is if you've had a lot of people within the organization spending a lot of their time working to manage these contracts on a month-by-month basis, what is the incremental opportunity for them to spend their time on things now?

Good question. Right now, these people are doing the midterm modeling and scenario planning. The intensity of channel mix management has taken up over the last 2 years or 3 years. If you want to manage bigger volume in the discount segment, there's also more people being busy to making sure that we're doing the right stuff. So, basically, monitoring every single campaign in even more detail. And I also mentioned that we're going to go for more white label sub brands. So I think there is a lot more to do in terms of monitoring and balancing and choosing best offers for the best channels. So I'm not talking about like hundreds of people. I'm talking about maybe a dozen of people that are busy with it and their job is changing somewhat, but nothing else. And once again, let me add to what Ingo said. Straightforward, we still have a model with Vodafone and DT, which is based on a commission plus rev share and we have a pure rev share model with Telefonica. And only if any of those would substantially change, then we would have a structural effect on the financials. But we did not do so and we are not expecting to do so right now.

The next question comes from Joshua Mills, BNP Exane.

A few from me. 1 is on the waipu.tv business and, obviously, saw strong net adds this quarter. I'd just be interested in any color you can give on how the impact has come in versus your expectations. And then, I think you mentioned 300,000 net adds in the 3Q and 200,000 in 4Q. If you could just clarify that, because I couldn't quite hear, that'd be great. Second thing was just around the broadband business. A few months ago -- or a few quarters ago, you said you'd be looking to offer broadband services as well. We don't have any KPIs on that, but any update would be welcome. And then the third question, Christoph, for you, if you're happy to talk about it -- obviously, we saw the news that you won't be renewing your contract next year. I don't know if you're positioned to share future plans or reasons for leaving. But given the strong position you have put out here of where we are in terms of negotiations with the MNOs and plans for waipu, just be interested to get your thoughts on that too.

I think you're putting the finger in the wound. We are puzzled. We are reading the numbers from Vodafone. Our feeling is that they're cleaning out the database of unknowns, et cetera, et cetera. A lot of people that might still be on a sub-contractual way, but already used the satellite IP before because the numbers that they have published over the last 2 quarters do not fit the uptake, even if we would add Deutsche Telekom and ourselves. I think they have now mentioned twice, 650,000, and they're expecting 1.5 million on top, 1.5 million. So, I think it's not so much that they all migrate, it's more a clean out. And they might have chosen this before. What we can see -- we do a questionnaire, typically, with new customer acquisition, where do they come from? It's kind of like half/half satellite and cable. And what we also measure is the brand recognition of waipu in the cable sector. And we understand that cable users, more of a third of those people are aware that there's an alternative called waipu.tv. But it's super difficult for us. And I'd love to understand it myself much better because then and also the team because then we could do even more targeted advertising or promotions. But it's kind of a fog. We know that we're winning from them, but we do not see the people inside the fog. So as long as we're doing this growth, I'm not worried. But it's really hard to understand what's going on. Too invisible. On the broadband. I think when we spoke 3 months ago, I said it's not a strategic product anymore, we're selling it opportunistically. We're doing a couple of thousand a month. It's okay, but it's not worth mentioning as a separate product, I think all went well. Technically, customers are very happy. Everything looks that it's doing well, but it's not really focused. It's 1 of the products that we have put out and they are still on the shelf and they are taken, but did not fulfill our hopes and expectations and plans. I think we also need to be honest on this. Luckily enough, we did not incorporate huge numbers for it in our budget or plan, so it does not impact guidance or something alike. But I think the summary is simple, we were too late. And on the last one, yes, the supervisory board has prolonged my contract last year. The contract is 2 plus 1 year. So by the end of 2025, it's agreed that they can -- basically, both parties could tell the other party that I would be leaving within a 3 month resignation period. In fact, it feels like end of 2025 contract and I have announced that I would prefer not to continue. And even if they would give me an offer for renewal, I would reject it. The reason is that I feel after -- well, by the end of 2025, it would be 16 years. I think we need maybe new inspiration, new spirit, new ideas in the entire executive team, no matter what exactly the mix will look like, or whatever the outcome of the thoughts of the supervisory board are. But they should not plan with me. And I thought -- and the moment was now because I felt like after having signed the deals and also having waipu well on track for the 2 million, I think this is the right point. Everything is well set. Nobody will question what the reason is that I'm leaving now. They can, with total visibility, look for a successor. And I wanted to avoid that, sooner or later, somebody starts to search, and then there are rumors around, what is the reason, et cetera. I think it's a transparent, open fact. And somebody asked me yesterday whether I have plans for the time afterwards and my answer was no. I decided not -- you do not need to have plans if you end something.

Maybe I can add something, Joshua, from my point of view because you were doubting in the call 2 weeks ago if Christoph would participate today, and I told you, yes, he will participate. And now, today, you see that he is participating. And I hear what Christoph is saying about his end. But to make it clear, I do not see 1 minute here internally that he is still impressive in having new ideas, pushing new ideas, and he's totally motivated. So he's, from my point of view, the opposite of a lame duck. I just want to make this clear here. And therefore, I think you all are happy to have his expertise on the call here. And for me, it's the same. And therefore, I do not expect that we will change something here.

It's exactly how I feel. It's also what I told internally, all the people. I will take decisions and influence decisions, as I did the last 15 years, until my last day. Decision on the lease contract of the building in 2028, I would have an opinion, but I will not decide. But everything else -- I mean, the strategic pillars are set up and we're working hard on this. And just as a nice example, on the Sky agreement for waipu, I am still the one. I was still the one that talked to the Sky guys. I know them really well. And also on the Telefonica deal. Obviously, Marcus Haas and myself have a close relationship. At the same goes for Tim Hottges and the others. After such a long time -- I think it would be a very bad signal to step out, and I'm not the person too happy to be bored and go home at lunchtime.

Next question is from Usman Ghazi, Berenberg.

Just on waipu, I guess, I'm just looking at the second half kind of net adds guidance, right, and obviously you might want to be conservative, but I just wanted to make sure it's conservatism rather than something else where we -- you obviously have a lot of initiatives going on and the brand recognition is up significantly, as the chart shows. So why should we kind of expect a sharp moderation in the growth rate in Q3 to, like, 100,000, which you've been delivering well over that over the last few quarters. So, any color on that would be interesting. Also, the specific arrangement that you've done with Sky, you mentioned that it is -- is it like a test arrangement where you're going to see the upsell potential of the existing customers and then maybe it becomes something more concrete or just some color on that would be helpful. And then, the last question was just on mobile. So, Christoph, I'm just paraphrasing you here. You mentioned that -- look, even if the test deal was higher margin, say 2% on a base of EUR 2 billion, that's still EUR 40 million of EBITDA, right? And yes, it won't come through in year one, but over the years, if it's that kind of magnitude for the equity market, that's still fairly substantial. So just wanted to clarify your comments there and if I've misunderstood anything.

On the first question, well, we're expecting 300,000, maybe a bit above 300,000 net adds for the second half of the year. And that relates a little bit to the previous question on my behavior. I think I was never the one that was super euphoric on something and over promising and under delivering. And the same goes here. And thanks to Ingo, we were always agreeing on this all the time. We're very confident on the 300,000. And if it's more, we're happy, but we are always on the safe side. And there is also maybe worth mentioning, if this was going much better, then we would certainly go for it, but we would not stretch the volume target and sacrifice EBITDA. So, I think we spent the money that we want to spend and we want to have incremental customers that are profitable and we would not support the team to do another 30,000 just for the sake of going above the target, and so sacrificing EBITDA or cash flow. So you may call it conservative, and I would not disagree. Second one, on the Sky thing, I think this deal was possible because the current rights period runs out by the end of this Bundesliga season. So, we have approached Sky, saying like, we would love to test into our customer base the volume, the potential, the cross and upselling potential, and also any of those customers will get access to the full app of WOW. So it's kind of a combined campaign effort that was important for Sky. And once again, I think this is an agreement for that 1 season. If we are then super successful and very happy with the numbers, and the same goes for Sky, then as soon as they have the rights issue for the next 5 years, it sorted out -- 4 years, sorted it out with Deutsche Bundesliga, we will certainly start. So I think it was great to come to that agreement right now. By the end of this calendar year, we will both look at the results and have a judgment on what the midterm potential is. And this is then the right time to discuss it because, at that stage, hopefully, the Bundesliga rights topic, which you might all be aware, that there is some struggle between DAZN and Sky and DFL, it's sorted out. So in a sense, it's a test for midterm or long term view from both ends. On the mobile, thanks for the clarification. And I simplify. If we have EUR 2 billion in revenues and we just divided by 3, as a third net share, then Telefonica would stand. And I'm saying would, would, would. This is only mechanics, not real numbers. If they would stand for third, that would be EUR 700 million. If we would then assume a margin, a gross margin, anywhere between 30% and 40%, we're talking about EUR 280 million or EUR 250 million to EUR 280 million. And if I deploy 1% there, we're talking about EUR 2.8 million and 2% would be EUR 5 million, and that would be on a third and on such a margin. So you cannot deploy an improvement of a purchase agreement by 2% on the revenue, but on the cost of goods. And I think that -- thanks for asking because I think the clarification is necessary.

We are moving on to the next question from Ulrich Rathe of Bernstein.

I have 3 questions, please. The first one is, so the full year intake, sort of 100,000, requires the intake to triple in the second half. That comes with additional SACs, I suppose. So that will be higher in the second half. And also, you said already the TV investments will remain relatively high also in the second half. So my question is, are you still comfortable where the EBITDA consensus has settled down? So it has EUR 508 million, EUR 509 million that's within your guidance range. I was just wondering whether the scenario you have sort of planning for and laying out for the second half would mean that you're potentially towards the lower end of the EBITDA range because of these SACs sort of step up in the mobile side. Second question is, could you comment on the loyalty of waipu subscribers? Things like churn, churn rates? Because, obviously, in the initial phase of building a customer base, the churn sort of didn't really play a big role. But as the base matures, you start getting sort of the churn effect. And I think it's pretty unclear to us at this point what the churn rate on waipu might be. And the last question, if I may. So just a clarification. You said there's a fundamental difference in the Telefonica Deutschland agreement with regards to having long term visibility on the revenue share. I'm not entirely sure I understand why that is different, that Deutsche Telefonica and then Vodafone. How is the visibility higher at Telefonica than at the other operators?

Yes, Ulrich. First on the waipu.tv churn, up until today, and this will remain being effective over the next 18 months to 24 months, I think it's grabbing the households. So the focus is on gross adds. Certainly, how do we measure it? We do campaigns, then we have SACs gross adds and then we have SAC net add. Net add is always after -- counted after converting to the big screen, after converting from a maybe 3 months trial period to reality. This is how we steer the business right now. All the numbers on churn, on loyalty, on long term stickiness are available and they're getting, as you well pointed out, more and more stable given the size of the base, meanwhile. But I'd like to postpone the question to Q3 and our idea of having a CMD there. I think we will specifically prepare to that topic. We are asked -- we have looked into the numbers more detailed over the last 6 months, but at the end of the day, you will ask us about the stable outlook and we will provide that next quarter. And I'm not hiding away. We're seeing that they're getting more and more stable and more and more reliable. But I'd love to have 3 more months to then publish them and give you a better feeling on the modeling. And on the comment on fundamental, once again, if we have an agreement with Vodafone or DT, which is still having a commission component, it is obvious that if they change the commission structure across all their channels, for their own shops, for their own online activities, for their third party dealers, whenever they do so, they mirror this towards us. So that is kind of an uncertainty and volatility in the business, which we are acquainted with and which typically balances out between the 2, because, if the one does it, the other doesn't do it and we balance it out. And that was a fundamental difference, but it's even more of a fundamental difference with this 10 years agreement with Telefonica. Because we have an agreement how we mirror their tariff portfolio and we have agreed on the conditions and the full term of conditions, which things like number of promotions, ways to discount individual tariff plans, what do we do if the data included change, all these things are agreed upon and will not be a surprise to us and to them in the coming years. And that is to me a fundamental stability. And I mentioned Magenta, DT has upgraded all the Magenta tariff plans now in August with doubling the data. They decided this, they did it, and we deployed it also onto our customer base, which is okay, which is positive for the customers. If they would have asked us whether we want to do it with our customers, we would maybe have thought about the price up or a positive option. You can upgrade and we would only give it to you with a renewal or something. But that is the difference. In test, we would decide full blast how we handle it, how we do it, when we do it. On the DT and Vodafone side, based on the structure of commission plus incentive plus annual bonus, we are less independent and we are more in a constant conversation and cooperation with them how we do things. I think that is -- and maybe this is why I chose the word fundamental. So I think there was a question --

The first question, Ulrich, I think was about the additional SACs in the mobile business because, in the first half, we only generated something like 25,000 net adds. In the second half, it will be 75,000. So, yes, it will be 50,000 more what we do have to do in the second half. But as you know, based on IFRS accounting, the cost will not be shown on the day when we spend it. It will be shown over the next 24 months. So I think the effect on the EBITDA level will even not be seen by all of us. So I think no change of the guidance because of this.

And so this consensus at EUR 508 million to EUR 509 million, which is already in the upper half of the range, that is not something that you'd be concerned about at this point. Would you have comments on that level?

I do not want to comment on this. We have a guidance out. Yes, you are correct. This consensus is in the guidance range. So this is quite fine. But I do not give any comments on amounts in between the guidance range. So we stick to the guidance range. And then, let's wait and see what happens.

Next question is from Sofija Rakicevic, Goldman Sachs.

So my first question is on waipu.tv. I know you answered a lot of questions already, but I'm just wondering what is a sustainable net adds level from 2025, if you have anything in mind? And how does competitive intensity factor into your balancing of pricing strategy and volume ambitions? That's the first question. The second one is on guidance and uses of cash. So, what do you see as the key downside risks to your EBITDA free cash flow guidance for this year? And when will you start rethinking your share buyback program? How likely is it to be next year given heightened marketing investments?

Yes. On your question, the IPTV market, I would say there's 3 parties involved right now. At least from the net add side, we seem to be the strongest, followed by Deutsche Telekom. I think sooner or later Deutsche Telekom will meet our gross numbers or beat them because just -- at least what they have published, they've invested about EUR 50 million into European Football Championship. So sooner or later, this money will be converted into gross adds and net adds. And the third group is either city networks or fiber and DSL providers that have either proprietary products or cooperate with ourselves or Magenta or [ Sato ]. So I would call it 3 parties. So, local, regional and, with real visibility, Magenta and ourselves. And to a certain extent also 1x1, but still very limited. So that's a competitive environment. Pricing doesn't seem to be an issue. I think we are more confident to do price ups, always combined with either more content or more feature sets. But the 2 price steps that we have done before have shown almost no churn. We have also learned that big or aggressive offers free of charge, 6 months and so on, is not the right tool and it's not the right approach because then you only get people that don't take it serious. You have that German wording, if something is for free, then it's worth nothing. I think this is what we're realizing here as well. And we prefer to charge from day one, but combined packages with hardware and 12-month subscription right now seems to be the best offer in terms of profitability, SACs and conversion. So, again, summary, 3 parties to compete, pricing not an issue. The pricing overall is still low compared to HD. Only on satellite is EU9, terrestrial is EUR 9, cable SD is EUR 9. So I think with our base product, we are below this level. And with our extended product including mobile usage, which is very much appreciated, we are on EUR 14.99. So, I think the range is fine and not a sensitive or critical point. For me, hard to say what the volume will be next year, but we are on the road to do plus 650,000 this year. So I think there's absolutely no reason to assume that we will have lower net adds next year, but I would expect even stronger dynamic. So more than 650,000, that would be my current statement. I think it's too early to state an ambition, even though I could do, but I would not do today.

Okay. Then, Sofija, you had a question around the risks on the free cash flow side. I think part of the deck also is the full year bucket amount, what we published. So if I compare it, what we saw in the first half, yes, I definitely see some changes in the CapEx on the other side. If you ask me where could happen a surprise, this is definitely working capital because sometimes you have effects around year-end where you could have a negative effect. I do not expect it by definition from today's point of view, but all the other parts are easy to plan. And in working capital, I think it is not a real surprise because we see what happens, but there could be a deviation, it could be a positive or a negative one, but this is the only position where I could see a risk. But all in, it's definitely very balanced, what we see here.

And just on the buybacks, do you have any comment on that?

Yes, I think at the moment, and this is what we already said before, I think we have a year where we invest more into the business and we are totally fine with it. And therefore, we have not planned to do any share buybacks this year. In November, as you know, we will give a strategic update, a new ambition for the following years. And I think this would be the good timing to talk again about share buybacks because then we have the longer view and I think we have some ideas around it. And I definitely do not say we would never do share buybacks. It is on our list. But up to now, we have not decided to do so. But I think I can promise some news on this topic for November.

The next question is from Titus Krahn, Bank of America.

2 quick ones from me, if possible. First one is on the mobile outlook and your outlook for stable ARPU. Could you maybe give some color on what kind of the range you're seeing, kind of being stable just after ARPU has been a little bit softer this quarter? And it seems a little bit like your initiatives to accelerate net adds in H2, like family plans, kind of discount plans. They sound a little bit more like low ARPU business, but maybe I'm very wrong on this. Then a second question just on the operating leverage in the TV segment. You -- kind of your gross profit increased by about EUR 8 million year-on-year and EBITDA excluding those EUR 7 million in marketing costs by about EUR 2 million. Do those subscriber acquisition costs explain basically the entire difference in between there? And should we kind of, on an underlying EBITDA growth basis, expect something similar over Q3, Q4, or kind of any big variation you would like to flag?

On the ARPU first, I think, Titus, a change of EUR 0.20 in the ARPU, which is the equivalent of 1%, I would still call stable. And again, if we would add now -- and again, if you would add 200,000 or 300,000 discounts, that's 5% of the total. If those have only EUR 6 instead of EUR 17, the difference on the total is EUR 0.20 or EUR 0.25. So I think that is the maximum range of deviation that I would expect. So that is not a substantial change. And once again, internally, more important than the ARPU is our gross margin on an operational margin on a monthly basis as a difference of procurement and revenue. And this one has been stable. Otherwise, the gross margin would not develop in a positive manner. So, simple answer. For the next 1 or 2 years, we expect to maybe go down by EUR 0.10 a year or so. It may well be, but even that is not sure. But we're talking about the order of magnitude, more like EUR 0.10 to EUR 0.20 than more.

Then your question about the TV and media EBITDA in the second quarter, yes, your calculation is correct. But I would like to mention, even without the additional marketing cost, we are in a growing business. And even without marketing, we would have a growing business and we would take the fruits out of the business in the following years. So whenever you have a growing business, then you have higher cost at the beginning, and then you get back what you invested later. This is 1 reason, from my point of view. The other reason is that the media broadcast business, we already were talking about freenet TV, we see the shrinking base. Therefore, we see a decreasing EBITDA. And Christoph was talking in his presentation about a possible price increase in the future. Yes, this is something what we did in the past, and therefore, we could keep the EBITDA stable. But what we see at the moment, shrinking base, stable ARPU, therefore, we see decreasing EBITDA here. So I think if you put all in a line, you can explain why it is only EUR 2 million, but definitely we expect much more in starting 2025.

I think that's well known. But on waipu, we expense all the SACs straightforward in a month, which is then always a difference when we look at it and compare it to mobile business. Mobile business growth is always basically stretched or expensed over 24 months, whereas in waipu, it all hits the bottom line straightforward.

Correct.

And that also relates to 1 of the previous questions. In December, it may well be that we say, like, we slow down a little bit and do not do marginal contracts, just also because we want to satisfy the shareholders and not going back and say, okay, we are not meeting -- or we are more on the lower end of the guidance because of. I think if we make EUR 2 million, everybody should be happy and then we would certainly go for EBITDA as a preferred KPI if we hit the EUR 2 million.

And now the last question in our queue is from Simon Stippig, Warburg Research.

I have a couple of questions. First one would be in regard to the waipu figures. I think you mentioned it before, but could you please repeat what was the number of the 190k that are actually hooked on your waipu.tv stick? And then also here, what's your number of your total subscribers that do have the hardware already? And then, also in regard to the waipu, you mentioned that you're expecting 100k in Q3 and 200k in Q4. Could you please explain the drop here? Any explanation in that regard? And then, I have 3 quick ones. 1 is in regard to the media and broadcast. I know you're doing the maintenance for the antennas of the potentially fourth network. Could you here mention how many you are actually servicing at the moment already? And then, in the mobile segment, 1 clarification question. You mentioned you are introducing new contract brands and tariffs and you mentioned that you're potentially getting above 100k net. Is that for this year or is it rather a medium term expectation? And last one is housekeeping. I think it's Gravis. Your Gravis discontinuation here, did everything go as you planned or any additional unforeseen costs? That's all from my side.

First one, I understand that your question was like what is the share of hardware, new customers with or without hardware on waipu. Own hardware right now is around 60% of the sales are done with hardware. And we can prove that with the hardware is better than without. On the total base, the biggest single hardware is still Amazon Fire. That's from the first years. But we are close to overtake with our own one. So we have Amazon Fire followed by right now own stick. And I think the third hardware is basically the Samsung native app store where people activate it straight on the Samsung device and then a lot of small ones such as Apple, Roku, LG, Sony and the like. The second question was, like, why are we going basically down from 330,000 to 300,000 in the second quarter? Well, because we have seen in the previous years that the third quarter is always the weakest. So we have, in our planning, still the assumption that this will happen again, that the third quarter is the weakest one due to summer holidays, no big events, and people not watching so much TV. So that is the current assumption. And I repeat myself, maybe it's a bit conservative, but we've always preferred to be conservative instead of being on the euphoric side. Third one, I like your question on the maintenance. You have well observed that I was hiding away from doing a comment on the previous question on this. We certainly have. On that single data point, we have an insight. By the way, we do not share it inside the company, it's only media broadcast that knows it and, obviously, Ingo and myself who are in charge of running the company. But you will fully understand that we will not do any disclosure on this and any even qualitative comments. The third one was the plus 100,000 we would expect for 2025. The bigger impact of number of white label shops will then be -- sorry, the plus 100,000 was 2024. The bigger impact of these white label shops will be in 2025. And beyond that, because anytime you launch a new website and a new white label shop, it takes a little while till Google and all the others, search engines and price comparison engines relate to these shops. So, I think it's a build-up phase for the future, mainly for 2025. And on the Gravis, I think you were missing out the interest statement. Everything went fine. It's outside our numbers. The planned cash impact of severance payments, and down payments on lease contract repair and reverse building, all within the planned level. Selling the entire stock went really well. We have discounted all in 3 steps in our shops. We were absolutely sold out in our stores a week or 2 weeks before we shut them down. The total leftover stock was EUR 1 million. And what is that is everything was sold out well. It's like minor stuff that you have anywhere in the warehouse, old stuff and so on and so forth. This is now sold to specific wholesale dealers. So no impact. If at all, improvements, because any lease contract that is sold to a third party or replaced by a third party gives us on the -- due to IFRS on the specific EBITDA side and positive impact, but this will be also not shown in the regular one, but will only go against the exceptional ones in the financial result.

Just 1 quick follow-up in regard to the first question, the split or the percentage share of hardware in regard to Amazon Fire, what would it be of your total users?

Again, we are not disclosing that number.

Thank you also from my side. And with that, I would like to close the Q&A session as there are no more questions in the queue. So I'm handing the floor back over to the hosts.

Yes. Hey guys, thanks a lot for joining and thanks for the open questions and thanks for the opportunity to clarify those topics. We're looking forward to the next encounter in November, and we have put all your questions on the list that we did not answer and said we're going to answer them in November. So looking forward to have you all very curious on that session. Bye.

Bye.