Koninklijke KPN N.V. (KPN.AS) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to KPN's Strategy Update 2025. We are now at the midpoint of our Connect, Activate and Grow strategy. And today, we will share our progress so far and provide a vision of what KPN will look like in the future. Before I hand over to our CEO, Joost Farwerck; and CFO, Chris Figee, I would like to outline today's agenda. First, we will reflect on where KPN stands today. Then we'll update you on our infrastructure and transformation journey, followed by how we're unlocking customer value. Finally, we share with you our financial ambitions before moving to the Q&A. Before we start the presentation, I would like to point out that today's presentation, just as this morning's press release, includes forward-looking statements and ambitions. Please note that these statements as well as any other statements made during this presentation are subject to the same safe harbor that was included in this morning's press release. Now let me hand over to our CEO, Joost Farwerck.

Hello, everyone, and thank you for joining us. Two years ago, we introduced our Connect, Activate and Grow strategy, a four-year plan to drive growth and transformation. And now that we're halfway through that journey, it's time to share the progress we've made and show how it sets the stage for our future. As a pure Dutch operator, we offer strategic simplicity, transparency and minimal geopolitical risk. The resilient Dutch economy continues to outperform the Eurozone with inflation slightly higher, around 3% versus 2.1% due to strong domestic demand and wage growth. The Netherlands ranks amongst Europe's most digital savvy economies and our future-proof networks are ready to power the next generation of connectivity. And with best-in-class margins, strong cash flow visibility and disciplined capital returns, we lead among European incumbents. Let's take a quick look at our achievements over the past two years. We are the market leader in fiber for both consumer and business. Our 5G network is recognized with the highest score worldwide. And this year, we launched tower company Althio, and last year, we acquired Youfone. By 2027, 2/3 of our energy will come from renewable sources. We serve over four million broadband and 15 million mobile users and now hold the top spot in both segments. Security is of central importance to us, and we invest heavily to protect privacy. Our customers are our top priority, and we maintained industry-leading Net Promoter Scores. All our achievements are made possible by team KPN, over 10,000 professionals who drive innovation and connectivity across the Netherlands. Our total workforce includes approximately 9,000 KPN FTE and around 1,500 flexible contingent workforce. Employee engagement is consistently high, reflecting strong commitment. And we invest in our people every year, giving everyone the opportunity to grow and prepare for the digital future enabled by our transformation programs. Our purpose is clear. We go all out to connect everyone in the Netherlands to a sustainable future. As launched during our Capital Markets Day in '23, our Connect, Activate and Grow strategy is built on three key pillars: one, we continue to invest in our leading networks; two, we continue to grow and protect our customer base. And three, we further modernize and simplify our operating model. And together, these priorities support our ambition to grow our service revenues and adjusted EBITDA by approximately 3% on average and our free cash flow by about 7% over the entire strategic period. ESG is at the core of our strategy. We've set clear ambitions to be nearly 100% circular by 2025, to have a zero carbon emission fleet by 2030 and to be Net Zero by 2040. And supporting these ambitious targets, we've significantly reduced electricity consumption over the past decade despite rising data demand. And our efforts have earned us top ESG ratings. And our ESG journey covers a lot more. We are fully committed to our mission for a better Internet, fostering a much faster, greener, safer Internet for everyone. And to that end, we've launched nationwide campaigns about online gaming and online exclusion, supporting our belief that Internet should be a safe and social place that connects and empowers people. All these efforts have translated into solid results. Service revenues and EBITDA are growing with industry-leading margins. Operating free cash flow remains strong with further improvement expected in 2027 as CapEx falls below EUR 1 billion. In line with the plan, free cash flow growth has been modest due to cash taxes, but is expected to step up in '27 following the same CapEx step down. And our return on capital employed is advancing towards 15% target, confirming our long-term value creation model, and that's working. And as such, today, we confidently reaffirm our midterm ambitions. Let's now have a look at our infrastructure. KPN is entering a new phase of value creation, driven by our strong infrastructure and digital transformation. We have shown we can monetize our fiber and 5G infrastructure, laying a solid foundation for growth. The next wave of value could come from our edge infrastructure with leading, industry-leading fiber, the best 5G network and a wide footprint of site locations, we're building a distributed platform ready to support the future of digital services. And this platform has launched a private network service, 5G campus and is ready to support new use cases such as AI-as-a-Service, advanced edge services and sovereign data processing. And this positions us and our infrastructure as a clear differentiator in the Dutch market. Fiber is now the leading infrastructure in the Netherlands, holding 47% market share, while copper and cable continue to decline. Nationwide coverage now exceeds 90% with overbuild of estimated around 900,000 or around 50% of Dutch households at year-end. We, KPN holds a clear lead in the Dutch fiber market in homes passed and connected and in business parks through our joint venture Glaspoort. And this ensures that both consumers and businesses have access to the fastest, most reliable network. And this strong position sets us up for sustained growth and future-proof connectivity. We want everyone in the Netherlands to have access to high-speed connectivity. And over the past years, we've built a strong fiber foundation. Together with the joint venture, Glaspoort, we now cover 2/3 of the country. And including call option agreements on small third-party fiber networks, our coverage is even broader. And with most of the country already covered by fiber, the next wave of our fiber deployment will focus mainly on new build and overbuild areas. And with that, we're entering a new phase, shifting our focus from passing homes to connecting and activating them to deliver superior value and profitable growth. And while we remain committed to expanding fiber coverage, this adjusted rollout means that our original target of 80% household penetration by the end of 2026 will most likely take longer. Fiber deployment will continue, but in a more sophisticated and capital-efficient manner, aligned with our transformation programs and the planned CapEx reduction to below EUR 1 billion in '27. Still, nationwide high-speed coverage remains a long-term ambition. And from 2030 onwards, we expect our fiber network to reach up to a maximum of 85% of Dutch households with fiber. The remaining households will be served by hybrid solutions such as high-speed copper supported by fixed wireless access. We are shifting towards connecting and activating homes, which is key to boosting penetration and ARPU. On the right, you see the trends. In fiber areas, we gained about 8 percentage points market share one year after the first connection, and this keeps rising over time. All fiber areas show where we can land, and this is how we turn coverage into profitability. As our fiber network matures, we are moving to a full fiber operating model to drive efficiencies. And by that, we are simplifying our architecture, rationalizing IT, automating networks and digitizing customer interaction. And all of this enables us to run our operations much more efficiently and deliver a first-time right service to our customers. We lead in mobile connectivity with a stronger foundation than ever. Over 5,000 sites, we deliver above 99% 4G and 5G coverage and almost all fiber connected. Our mobile network has been awarded with the highest score globally. And we've boosted capacity for gigabit speeds and introduced 5G campus I just mentioned, our private network service. And we also launched a 5G edge service based on a 40 milliseconds latency. And looking ahead, we will monetize this strength by rolling out 5G stand-alone, shifting to cloud native by 2027 and expanding C-band coverage while simplifying our core for greater efficiency. And across the Netherlands, we operate around 130 metro core locations, key assets in our distributed infrastructure. And by combining fiber, 5G and these metro core sites, we enable super low latency, secure and decentralized connectivity, and this unlocks advanced use cases such as enterprise applications, real-time data processing and AI-driven services. And by transforming these sites into strategic edge locations, we're unlocking new revenue opportunities for the coming years. Let's now move to our transformation program. We are driving a bold transformation across every part of our business, across the customer interaction layer, across the platform layer and across the infrastructure layer. And our ambition is clear. First, to become the undisputed leader in customer experience; second, build an autonomous core through AI-driven automation; and third, unlock the full potential of our network turning into a smart, flexible platform for all users. And to make us faster, leaner and more sustainable, we are driving efficiencies across every layer. Customer engagement is shifting to digital. platforms are being simplified. And third, infrastructure is modernized and the results are already here, more app usage, lower energy consumption, a leaner data center footprint and the indirect cost stabilizing this year after increasing in the previous years. Looking ahead, we will accelerate our transformation to improve customer satisfaction and cut costs. And we have set clear goals in each. By 2027, half our customers use digital apps, while call centers will become increasingly automated. IT sourcing becomes 30% more efficient, supported by AI. And infrastructure consolidation continues, cutting energy costs and copper phaseout. We are on track to switch off over four million copper lines this year. And by '27, 90% of our copper lines in our fiber footprint should be done. The copper switch-off is expected to improve quality, reliability and cost efficiency. And these savings are expected to accelerate towards the end of the decade. AI is at the core of our transformation and embedded in the three ways. First, always on AI for seamless customer journeys; second, AI-driven automation for smarter insights and security; and third, AI powers operations for speed and resilience. By '27, we aim to automate more than half of today's operational activities, resulting in lower cost and superior customer service. So, to summarize, a lot is happening at KPN and the transformation is moving faster. Our goal is clear, a multiyear savings program, targeting approximately EUR 100 million net indirect OpEx savings annually by 2030. Let's now move to each of the business segments, starting with Consumer. Consumer is expected to deliver steady low single-digit growth with about 1.5 service revenue CAGR expected through 2027, driven by our fiber expansion, our strong mobile propositions and targeted upsell. Using multi-brand strategy, we address all market segments. KPN serves the mass market with premium quality and security, while Youfone and Simyo address the no-frills segment. Our fiber network keeps driving solid cyber subscriber growth as customers choose secure, fast and high-quality connectivity. And as a premium brand, we deliver top speeds up to 4 gig and seamless, secure in-home experiences with easy setup through the MyKPN app. High-speed adoption is accelerating with about half of new broadband sales at 1 gig and above and with plenty of room to grow. Ongoing upsell and upgrades are fueling double-digit growth in fiber revenues. In mobile, our best-in-class network and multi-brand approach have helped expand our customer base. And unlimited is now the new standard for the KPN brand, supporting ARPU. We stand out with targeted offers such as plans for kids and teens and loyalty features like MB sharing. Premium value is added through high-end security and speed tiering, ensuring a safe and flexible experience. And the focus on innovation and customer-centric features is expected to continue to drive subscriber growth across all our brands. And of course, our strategy remains centered around households with three clear priorities: deliver the fastest and most reliable fiber and 5G networks, redefine convergence with Household 3.0; and thirdly, personalize every customer interaction. A key enabler is the combination of services for customers within the same household. Our Combivoordeel package launched in this year, February. Combivoordeel is a strategic investment in our base. It requires investments upfront, but as more customers adopt it, lower churn and more upsell will drive higher service revenues and EBITDA. And we're already seeing the first positive signs. ARPA is increasing, churn is reducing, customer satisfaction is rising and the household base is growing. Let me now move to B2B. In 2023, we set clear priorities for our business segments to drive service revenues and grow profitability. And this approach has delivered consistent top line growth over the past two years. And by that, we were outperforming the broader market. Looking ahead, our strategy remains focused on protecting core connectivity with pricing and cost discipline. We expand in high-growth areas like security, CPaaS and IoT. And we continue to strengthen our distribution partner network, always with strict margin focus. As a result, we expect B2B to keep growing above the market at approximately 3% service revenue CAGR through 2027. KPN is the trusted partner for SME, built on operational excellence, a strong brand and a top-quality network. We lead in mobile and broadband with over 70% of our SME customers protected by Extra secure Internet. Our integrated KPN ONE solutions enables seamless cross and upselling. And combined with our growing IT business, we are positioned as a unique one-stop shop for entrepreneurs and mid-market clients. We drive growth through our strong multichannel strategy with partners generating over half of SME service revenues. As app adoption accelerates, we expect robust online growth, and we aim to unlock new revenue streams via strategic distribution agreements. Turning to LCE. Our strategy is built on three pillars: first, protect and monetize our core connectivity by focusing on pricing discipline, quality, value-added service and security; second, accelerate growth in high potential areas. Our CPaaS business almost tripled in size and our IoT base will reach nearly 14 million SIMs by the year-end. And third, we operate with a lean, efficient model powered by digitalization, AI and value steering. And these strategic priorities should drive consistent service revenue growth in LCE. And for our largest customers, we deliver tailored solutions built on core connectivity, cloud and cybersecurity. We are a trusted ICT partner in defense and security with mission-critical service revenues growing over 10% annually. And not only for our government, but also for private organizations, we provide secure, reliable connections, for example, through NL-ix, our own Internet exchange. And while partnership opportunities expand, we always stay focused on the value. Turning to wholesale. Our open access portfolio keeps growing with fiber expanding and mobile accelerating. In broadband, we are expanding our fiber footprint while facilitating the copper phaseout and in mobile growth mainly comes from our international sponsored roaming business and travel eSIMs as many MVNOs leverage our existing roaming partnerships for seamless global services. Sponsored roaming has doubled over the past year, and growth is expected to continue, but on a slower pace. Now looking ahead, we expect around 4% wholesale service revenue growth through 2027. Now investing in innovation is key to driving growth. And at KPN, innovation starts within our business segments. And this is further strengthened through strategic partnerships with leading technology innovators via KPN Ventures. And today, our portfolio spans around 23 companies. And through co-innovation, scale and speed, we bring these benefits to customers across all our segments. And with that, I'll hand over to Chris for the financials.

Thank you, Joost, and good afternoon, everyone. I will now walk you through our financial framework and our outlook. Let me start by highlighting some of our key figures. We've delivered so far on nearly all our financial promises, reflecting strong execution across the board. Over the first half of our plan period, group service revenues have grown by 3% or more annually with all segments contributing. While consumer growth has been softer than initially expected due to competition, both business and wholesale markets have outperformed expectations. Our contribution margin decreased slightly, mainly driven by third-party access costs from Glaspoort and from service revenue mix effects. Our indirect cost savings have been slightly below plan, primarily due to inflationary pressure on labor costs. While we've reduced our workforce by over 500 FTEs since 2023, our personnel expenses have increased by around 5%. And in spite of these inflationary effects, we've delivered more than 4% EBITDA growth on average and our margins of around 45% remain best-in-class from a European perspective. Also excluding the contribution from Althio and IPR benefits, our EBITDA growth was still north of 3%. Operational free cash flow grew at a high single-digit rate, and our margins remained very strong despite being in the midst of a fiber investment cycle, demonstrating our underlying strong cash conversion. The attractive operational free cash flow profile did not yet fully trickle down into our free cash flow, mainly due to higher cash taxes, which are driven by the consumption of our historical operating tax losses. Free cash flow growth so far was low single digit per annum, in line with our CMD guidance. For the remainder of the strategic period, our focus is clear: operational excellence with a strong emphasis on profitable growth. We're accelerating our transformation to drive down costs, targeting EUR 100 million net indirect OpEx savings by 2030. And we see CapEx step down of about EUR 250 million in '27. Our main message here is that we are on track to reach our 337 ambition set in 2023 over the full period, also excluding the contribution from Althio. Total shareholder returns, including dividends and buybacks, are now targeted at about EUR 4 billion, up from around EUR 3.8 billion guided in 2023, driven by the operational performance and IPR benefits. This implies a further distribution of almost EUR 2.2 billion over the next two years or around 15% of our current market cap. And our return on capital employed remains very solid and industry-leading. We aim for around 15% ROCE during the plan period, maintaining a 700 to 800 basis point spread over our cost of capital. And we're fully on track to reach that objective. So, in short, our strategy is working. KPN remains a healthy company with robust margins and a proven track record of operational delivery and value creation. We reaffirm the 3% EBITDA CAGR ambition at group level announced two years ago over the full plan period. And looking ahead, over the next two years, group service revenue growth is expected to moderate somewhat towards 2% to 2.5%, a trend already visible in the Q3 figures. And within the mix, consumer is projected to grow around 1.5% annually, business around 3% and wholesale about 4%, supported by Joost said, international sponsored roaming business. Direct costs are expected to stay under pressure due to third-party access fees, service revenue fix effects and inflation. At the same time, our transformation programs are fundamentally reshaping our operating model, enabling us to structurally reduce indirect costs. As we said, via this multiyear transformation program in 2030, our indirect OpEx will be about EUR 100 million lower than today. For this year, we target EBITDA of at least EUR 2.63 billion, representing growth of around 5%. Obviously, our financial performance this year has partly benefited from IPR statements, which are unlikely to recur next year. For 2026, we'll provide you with a detailed outlook during the presentation of our full year '25 results. Our disciplined approach to capital expenditure is central to our plan. Through 2026, CapEx will be stable at around EUR 1.25 billion despite inflation. And in '27, after completing the heavy lifting phase of our fiber rollout, we expect a significant step down of around EUR 250 million to below EUR 1 billion. In recent years, we've operated with one of the highest CapEx intensities in Europe, over 23% of our service revenues, excluding investment in Glaspoort. And by '27, our CapEx intensity is expected to normalize to around 70% to 80% of service revenues while maintaining fiber leadership. Add note, please, that we manage our CapEx not as a percentage of revenues, but as a nominal hard euro envelope each year. With EBITDA growth of 3% and the CapEx step down in 2027, operating free cash flow is set to grow by about 10% annually on average over the strategic period. This strong cash conversion will lift operating free cash flow margins from 24% today to approximately 30%, placing us amongst the top cash performers in Europe. Beyond 2027, CapEx is expected to remain stable at around EUR 1 billion with a clear focus on infrastructure leadership, customer enablement and simplification. Free cash flow CAGR is reaffirmed at around 7% for the entire strategic period, driven by EBITDA growth and the CapEx step down. Let's look at the key moving parts. Cash taxes are set to increase as we utilize our deferred tax assets. This will result in a step-up in cash taxes of around EUR 80 million in '26 and a further EUR 80 million to EUR 90 million in '27. After that, cash taxes will align with P&L taxes. Interest expenses are expected to remain broadly stable, assuming, of course, no significant change in the shape and level of the yield curve. Working capital is expected to remain steady over the plan period, though, of course, periodical fluctuations may come from time to time. For next year, keep in mind that we won't benefit again from the IPR settlements. So excluding the IPR, our free cash flow is still expected to grow low single digit, in line with our CMD guidance, driven again by EBITDA growth and partly offset by a step-up in cash taxes. In 2027, as capital intensity normalizes to EUR 1 billion, we expect a material inflection in free cash flow. This supports a 7% CAGR over the '23 to '27 period. Later in this presentation, I'll share some more details on cash flows beyond '27. We continue to have a strong balance sheet. At the end of September, our leverage ratio stood at 2.5x, fully in line with our self-imposed ceiling, and we expect this ratio to improve to 2.4x by year-end, supported by increased free cash flow generation in Q4. Credit rating agencies continue to recognize our solid financial position, reflected in investment-grade ratings and a stable outlook. We plan to maintain a net debt-to-EBITDA ratio below 2.5x in the short term. Looking ahead, as major fiber investments wind down and capital intensity declines, we may consider gradually raising the leverage ceiling after '27, whilst remaining fully aligned with a strong investment-grade profile. This financial flexibility enables us to continue our policy of in principle, distributing all free cash flow to shareholders while still investing in growth and preserving strategic optionality. In short, our healthy balance sheet supports long-term value creation. Now let's turn to our outlook and financial ambitions. We reiterate again our outlook -- our 2025 outlook as we already confirmed at our Q3 results last week. Looking further ahead, we also reaffirm our midterm ambitions for the period 2024 to 2027, sustained service revenue growth, continued growth in EBITDA, sustained free cash flow generation and a CapEx maintained below EUR 1 billion in '27. For the next two years of the plan period, this implies annual service revenue growth between 2% and 2.5% EBITDA growth of about 3% per annum on average over the next 2 years based on the 2025 EBITDA, excluding IPR benefits. Most of this growth will likely come in 2027 as cost measures planned for 2026 take full effect. A free cash flow growth in 2026 of about 2% to 2.5% based on the '25 cash flow, again, excluding the IPR upgrade and a big step-up in cash flow growth in '27, fully in line with the guided CapEx step-down. Looking beyond 2027, we expect mid-single-digit free cash flow growth, driven by strong fundamentals and disciplined execution. This ambition aligns with today's free cash flow growth, normalized for changes in CapEx, interest and taxes. And beyond '27, KPN will enter a new phase of sustainable growth with capital intensity stabilizing at around EUR 1 billion. Free cash flow rests on a solid foundation, namely EBITDA growth from service revenues and cost discipline, stable CapEx and interest payments and normalizing taxes at an effective rate of 23%. This positions us for consistent mid-single-digit cash flow growth well into the future, fully aligned with a strong investment-grade profile. And there's more. Consolidating our joint venture Glaspoort at the end of this decade adds roughly 1% of incremental free cash flow growth from the end of this decade onwards. Organic deleveraging from EBITDA growth will allow to absorb the impact of full consolidation, which is about 0.3x leverage. So the bottom line is KPN is well positioned for healthy, sustained free cash flow growth, giving us flexibility to invest for shareholder returns and continued balance sheet strength. Our shareholder distribution policy is simple. We return all the free cash flow we generate to our shareholders. Today, that means 7% annual dividend growth with the remainder through share buybacks. In 2025, this translated into approximately EUR 690 million in dividends and EUR 250 million in share buybacks completed in July. We feel very confident in the group's ability to deliver sustained free cash flow growth. And as this free cash flow growth, it's natural for a dividend to step up as well. That's why in 2026, we are increasing the share of free cash flow distributed via dividends to about 80%, a level that still strongly covered and leaves room for buybacks. This shift brings an immediate uplift to the dividend per share of around 10%, targeting the dividend per share to about EUR 0.20 in 2026 on a declared basis and a further uplift of 25% to around EUR 0.25 per share in 2027. Through this, we doubled the committed DPS growth over the plan from 7% to 14%. And looking ahead, this also means that over the 2026 to 2030 period, we expect to return approximately EUR 6 billion through dividends and share buybacks to our shareholders, equal to about 40% of our current market cap. In summary, our capital allocation policy remains clear, disciplined and focused on shareholder value. With that, let me turn back to Joost for some final remarks.

Thanks, Chris. Let me briefly summarize the key takeaways. First, our mission for a better Internet is at the core of everything we do. Our focus shifts from infrastructure expansion to connecting and activating households, and we expect to cover up to a max of 85% of the Netherlands with fiber by 2030 with hybrid speed solutions for the remainder. We reaffirm our 3-3-7 financial framework, and we confirm the CapEx step down in 2027, unlocking strong cash conversion. Our transformation is accelerating, targeting around EUR 100 million in indirect OpEx savings over the next 5 years. And beyond '27, we expect mid-single-digit free cash flow growth driven by strong fundamentals and disciplined execution. So we remain fully committed to our shareholders, returning all free cash flow through growing dividends and buybacks. We're delivering on our strategy with disciplined execution, fiber leadership and attractive shareholder returns, positioning us for sustainable growth well into the future. And with that, we now welcome your questions. Matthijs?

Yes. Thank you, Joost and Chris. Please note, before we start the Q&A, that the presentation will be available on -- is now available on the website. And we will now open the floor for the Q&A session. Please as always, limit your questions to two, please. Moving to you, operator.

[Operator Instructions] First question is from Keval Khiroya of Deutsche Bank.

I have two, please. So, firstly, you've pushed out the target to cover 80% of homes with fiber, but the CapEx spend out to 2027 remains the same, implying fiber rollout costs per premises are higher. Can you talk a bit more about what you're seeing on fiber rollout costs and also how much of the EUR 1 billion of annual CapEx from 2027 is still on fiber? And then secondly, slowing down the fiber rollout means you avoid early overbuild of the altnets in some areas, but you still have copper customers in the areas covered by the on. How do you think about the vulnerability or not of your retail and wholesale copper base in the altnets footprint?

Yes. Thank you, Keval. I will start and then hand over to Chris. So, like I said in my presentation, we will continue fiber rollout, but at a more moderate pace. And that's very important because we have to slow down the rollout to connect our fiber rollout system more to the transformation programs and the copper switch-off. So it's very important for us to slow down, to improve the fiber co-steering to improve customer processes, et cetera. And we're already seeing a coverage of 90% fiber in the Netherlands. Altnets that already stopped selecting new areas. And we don't stop. We continue, but we think it's more healthy for the company to go to a slower pace and end up north from 80% in five years from now. And I think that's the most healthy strategy for KPN, more smarter and prudent approach and all kind of small projects to finalize the switch-off of number exchange areas for the copper decommissioning. So that's important. We stepped down EUR 250 million in CapEx in '27. That's mainly fiber CapEx of a total of, I would say, EUR 550 million, but there's also a lot in customer equipment as well. So we will still keep on investing in fiber in the years to come, and we do a step down of EUR 250 million.

Yes. Keval, on the fiber side, I would say the land grab phase has stopped. So we can take a moderate pace in rolling out. We have more HC rather than HP orientation, I think, as well. And we'll connect it more to our copper switch off and that all is aligned. And then from a tactical perspective, that means you start doing smaller projects, more precise in the country, more granular, so less large countrywide building programs. And that also enables us to increase our cost reductions related to that. On your question, what does it mean for your CapEx? I mean our fiber CapEx going forward will be around EUR 150 million to EUR 200 million a year. And I think implicit what's the rest of the EUR 1 billion look like? So think about EUR 150 million to EUR 200 million on fiber, EUR 50 million to EUR 100 million on remaining broadband-related backhauls, some remaining copper, some service tickets or what have you. EUR 100 million will be linked to mobile typically every year. We do spend about EUR 200 million or something, EUR 250 million on customer-related CapEx, both for business and consumer, EUR 200 million to EUR 250 million in digitization and the remainder tends to go into network optimization. Your other question was what do we do with the customers in those fiber areas? And how do you protect churn? It's mostly around convergence. We have a strong convergence program. Joost talked about the Combivoordeel proposition that is really aiming to reduce churn. And I think we're seeing the benefits from that in the last Q3 and Q2, we saw churn gradually coming down. So basically, protecting your base in these areas where other altnets are present is all about convergence, Combivoordeel and speed upgrades where we can.

And perhaps to add because you also asked on our position in copper areas. We have a very interesting proposition in those areas, combining two copper lines, so bonding two copper lines for household and adding fixed wireless access on top of that. So we're developing new high-speed services for the non-fiber areas and some of these are very rural areas. So we're confident that we can also serve our customers in non-fiber areas in the coming years.

And our next question is from Polo Tang of UBS.

Thanks for the presentation. I've got two questions. The first one is, if you're getting EUR 100 million in new savings and you're building out your fiber footprint at a slower pace, why have you not increased your free cash flow guidance? So can you maybe just talk about what some of the offsets might be? And the second question is really just on content and TV. How important a differentiator is TV for your broadband business? And can you remind us what exclusive content KPN has? And what do your competitors have that is exclusive?

Yes, Polo, on the question we have a net savings program of EUR 100 million. We're slowing down our fiber. I mean the slowdown of fiber is fully embedded, of course, in the EUR 1 billion CapEx guidance going forward. So I just gave you kind of the rough break on what the EUR 1 billion consists of. I think against the net indirect OpEx savings is an upward pressure on direct costs. So direct OpEx that has to do with a couple of things. It's traffic and roaming-related costs. It is, to a large extent, it's content costs. It is a bit of business mix. And importantly, it's the increase of cost allocators to Glaspoort. So you see that the Glaspoort allocated costs are increasing about EUR 25 million to EUR 30 million every year, almost 1% of EBITDA growth. So basically 1% of EBITDA growth is allocated towards Glaspoort that we own 50%. But as long as we do not consolidate, that only shows up below the EBITDA line, not above. So these numbers are all excluding Glaspoort consolidation. If you add a Glaspoort consolidation, suddenly, the EBITDA will jump up significantly and at some point start to add growth. So basically, the completing element of the equation, if you wish, is direct OpEx, and that increase is mostly driven by some content costs, inflation on direct costs, some product plus activation costs, but mostly the class allocation.

And Polo, on our content strategy in -- so to -- in my words, six years ago, seven years ago, we were doing less on infrastructure quality, and we were doing less on content compared to the main competitor. And nowadays, we are running the best network in the Netherlands, and we are at least on par when it comes to the content proposals. So for us, it's not that we want to own exclusively content. But in Combivoordeel, in households, it's very important that we facilitate our customers in the most easiest way to content. And that's done in Combivoordeel. You can select whatever you want, swap from one to the other. The choice is broad. So we are an aggregator and we facilitate content to the households. We don't want to own it exclusively.

And our next question is from Joshua Mills of BNP Paribas.

I just wanted to quickly dig into the free cash flow growth on Slide 42. So it looks like the mid-single-digit CAGR by the end of 2030 includes a contribution from Glaspoort. Could you confirm how much that's going to be? And I do understand that that's equity free cash flow will be consolidated once you buy Glaspoort in? Or does it include anything like dividend payments from Glaspoort? Related to that, it does look like the mid-single-digit free cash flow growth between 27 and 30 is a bit back-end loaded. So if you could give a bit of color there? And then finally, all in the same question, what would the CAGR for free cash flow if we just looked at the green bars, for KPN stand-alone be?

Well, Josh, on the free cash flow, let me first, if you take a look at the '24 to '27 period, so the current plan period, our free cash flow growth is driven obviously by EBITDA growth. And there are a few big moving parts. Obviously, we start to pay more in interest. So the entire period, our interest expense has gone up by about EUR 30 million. Over the entire period, we pay a lot more taxes as we burn through net operating losses towards EUR 330 million. And obviously, at the end of the period, the CapEx step down of EUR 250 million. Interestingly, if you think look at the delta in taxes, the impact of the using of net operating losses is almost of equal size as the CapEx step down. It just happens earlier. So that means the underlying free cash flow growth over the current plan period, if you were to normalize for all these effects, is around 5% to 5.5%. So if you normalize for interest rate, the operating losses that we use and the CapEx step down and you CAGR it out, you're looking at that 5% to 5.5% free cash flow growth over this period, which is what KPN roughly delivers. If you then look forward to the period after that, we assume something similar like that. So the numbers we present are basically all mid-single-digit numbers is about KPN. It's KPN delivering that growth. Glaspoort could add about 100 basis points of CAGR over that time period, but that's back-end loaded as we expect to consolidate Glaspoort towards the end of this decade, '28, '29, think about that year. But even if you were to strip out Glaspoort, KPN stand-alone, which is the bulk of it, would still deliver, I would say, mid-single-digit free cash flow growth in line with what we delivered in the past. And obviously, looking forward, there's no detailed plan towards 2030, right? That would be -- this is not a nostradamus approach to cash flow forecasting. But if you look at the moving parts of our cash flow, if you look at what's reasonable, I think it's fair to say that KPN stand-alone will continue to deliver similar free cash flow growth that we've done right now. And there could be a kicker of about 100 basis points CAGR at the end of this decade as we consolidate Glaspoort. Is that clear?

Yes. So you're saying that the green bars, the CAGR for the KPN stand-alone free cash flow is still going to be mid-single digit even if you don't buy in Glaspoort. And then...

On Glaspoort, the Glaspoort -- it's really the free cash flow of Glaspoort, not the dividend, so the consolidated free cash flow. And Glaspoort will be cash flow positive around '28, '29, and we start to add real cash in 2030. So the bulk of it is really driven by KPN and Glaspoort is the kicker that could be happening at the end of the period.

And our next question comes from Andrew Lee of Goldman Sachs.

I wanted to follow up on quite a lot of the questions on the free cash flow growth that you've guided from out to 2030 over the last couple of years out to 2030. So I hear your points on the traffic and roaming costs and content costs. But can I just maybe challenge you a little bit on the kind of mid-single-digit free cash flow growth. If we kind of just build the blocks of what drives that growth, I think you're kind of increasingly saying kind of 2% to 2.5% service revenue growth. I know you won't explicitly guide on that now, but just bear with me on this one. And then we typically get operational gearing in the sector, which adds another couple of percentage points to get to EBITDA growth. And then further operational gearing to get to free cash flow growth, plus you're doing this cost transformation program. It just seems to me that the traffic and roaming costs, there has to be a big acceleration and content cost also seems a bit of a strange drag in terms of explaining why you're getting to a kind of mid-single-digit free cash flow growth and a mid-single-digit free cash flow growth even when you include with the kicker as you put it, the Glaspoort costs. So is there something else I'm missing? Or is there something specific about the traffic and roaming costs and content costs that is disproportionate for KPN versus every other telco?

I think we noticed a couple of components. It's roaming and product -- roaming cost is one thing, content cost is one thing. It's a bit of a margin mix, right? So some of the growth is to slightly lower margins that we take into account. It's acquisition cost in broadband that feeds in there and there's the Glaspoort allocation cost. So it's a sum of multiple things. I'm not sure whether we're different from others. I think the Glaspoort element is unique. I think the other things are probably in line with what others have. But we've given you a reasonably conservative, feasible outlook for the midterm based on historical trends in these direct costs that we've extended and extrapolated, including the known or reasonably predictable allocation of cost to Glaspoort. And again, the moment you consolidate that business, that suddenly comes back in and then you suddenly add about -- I think the moment you consolidate Glaspoort, you probably add over EUR 100 million of EBITDA overnight consolidated to the group. So it's the historical trend of contribution margin, and that's just -- it's roaming, it's content, it's discounting and product plus. It's a bit of revenue mix effects and then a class allocation to get that all feed into this. Numerically speaking, give you one example, for 4% free cash flow growth, you need to get around 2% EBITDA growth. If you get to 2.5% EBITDA growth, you could get to 5% free cash flow growth. So that's kind of the -- the 5% free cash flow growth is actually quite reasonable given the amount of EBITDA growth that we -- that you have to assume for that. So I hope that gives you a bit more color on the ingredients for modeling out towards 2030.

And we're building our I mean the way we're building our plans on different building blocks, for us, it's very important to deliver on the plans every quarter and deliver on what we promise to project where we are in 2030 is always more difficult than to project where we are next year. So mid-single digit, if we meet all the targets we have built in the plans or we do better than that, then of course, we can do better. But we prefer to overperform than to, yes, surprise the market in a negative way. So I think it's a good plan we built with different building blocks, and let's see if we can accelerate.

Can I just ask a quick follow-up? Just your -- obviously, your 3-3-7 plan out to 2027, you had identical service revenue growth outlook and EBITDA growth outlook. Do you expect to see a very similar service revenue growth and EBITDA outlook between '27 and 2030 as well?

Well, I think we both explained that looking forward from '27 to 2030, we expect top line to be lower than 3% on average for the whole KPN Group. But of course, it's very important there to give you more guidance in '26.

Yes. I think it's -- I mean, looking forward, next year, we said 2% to 2.5% service revenue growth to me in the medium term, 2% service revenue growth would be the lower end of what I find a reasonable expectation. Obviously, who knows what the world looks like in 2030. But in terms of reasonable assumptions, at least 2% to -- but towards 2% to 2.5% service revenue growth should be feasible. And then EBITDA growth probably in line with where we are these years.

And our next question is from Maurice Patrick of Barclays.

Just one for me on the CapEx side. So you've signaled you're likely going to stick around EUR 1 billion, just below EUR 1 billion CapEx for the '26 through 30 period. Just curious to understand if there's any sort of view in there in terms of any projects which might shift the mix of CapEx that you indicated. So things like, for example, I think you've been modestly densifying your wireless network with 5,500 sites now. Is there any sort of desire to kind of densify that further for growing capacity? Is there anything in there for sort of data center related projects? We talked a lot about sovereign cloud and how that might drive the CapEx cycle. Curious for your thoughts on that. And then just one very small follow-up. On Slide 21, when you talk about the ongoing copper switch-off, is it fair to assume that your 2030 guidance doesn't really assume the full benefit of the copper switch off, which will come beyond that? Or is that mostly baked into that guidance?

Well, on the copper switch off, I mean, what we currently are doing is decommissioning through the Netherlands, and now we want to sweep fiber areas empty up to 90% in the coming years. That's a couple of years, we already explained to the market that we run like EUR 30 million OpEx and EUR 70 million CapEx still around copper. So there's savings to do there. And also important to understand that we will keep 15% to 20% of the network open depends on where we land on the fiber rollout. And that will be an important component of the transformation program. On the CapEx mix, well, there's not a super capital-intensive program facing us. I mean, we've just -- we're in the middle of rolling out fiber, which is super capital intensive. Almost 23% of our revenues we invest. So it's very important for us on a certain moment to go to a more decent level, but it's still 70% of CapEx we do compared to our revenues. And of course, we keep on investing in mobile, but we have an excellent mobile network, best in the world. The coverage is super good. You don't need 7,000 sites in the Netherlands. The Netherlands is a small fed country where we're in a good shape there, perhaps a couple of hundreds. In the transformation programs, we already invested a lot. That's all related to AI tools to new software. So especially in the digital customer layer, we have to invest a lot, but that's we're shifting a bit from capital-intensive investments to more less capital intensive. So that's an important shift, and that's why we can step down to EUR 250 million.

Yes, to add, I think mostly on the product side, the products to sell are all there. So you talk about 5G campus, hybrid solutions, CPaaS solution, the products we have ready to be sold. So there's less product development CapEx. You will see from time to time a temporary emphasis. So at some point, there will be a revisit of our radio access network and it runs. So at some point, when you think about 6G, it's far out, but at some point you think about that. At some point, you have to look through, Joost talked about our edge solution, our data centers. We have 133 decentral locations that are very well suited for low latency and ultra-low latency solutions. You don't need to upgrade all of them, but 20 to 30 are probably eligible for an upgrade and then you take the rest more gradual. So I would say, in the years within the EUR 1 billion, you may see shifts from time windows of one to two years where you have different emphasis and then going back again. And I think underlying gradually, I see more investment into, let's say, customer solutions, customer CapEx and innovation for clients. And next to that, network shifts from time to time depending on which part of your network is subject to an upgrade or redevelopment.

Just very quickly, so the things like a potential rent swap that does sit inside the EUR 1 billion number.

Yes. it will all be done inside the EUR 1 billion. That's something you get time well it's all inside the EUR 1 billion envelope.

We'll now take our next question from David Wright of Bank of America.