Swisscom AG (SCMN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the Swisscom half year results 2020 presented by Urs Schaeppi, Mario Rossi and Louis Schmid. Louis, the floor is yours.

Good morning, ladies and gentlemen, and welcome to Swisscom's Q2 results presentation. My name is Louis Schmid, Head of Investor Relations, and with me are our CEO, Urs Schaeppi; and Mario Rossi, our Chief Financial Officer. The first part of today's analyst and investor presentation hosted by our CEO consists of 2 chapters: a quick overview of the highlights, operational performance and financial results of Q2 and the first 6 months; second, an update on our activities and performance in Switzerland and some explanations on Fastweb's network initiatives and first half year results. In the second part of the presentation, Mario runs you through chapter 3, the financials and full year guidance. With that, I would like to hand over to Urs to start his part. Urs?

Yes. Good morning, ladies and gentlemen. I would like to start with Slide 3 -- 4, a short update on the main highlights. So we are proud that we were able to win all the mobile network tests in the first half year. We had also a very resilient operation during the COVID-19 pandemic. So our networks were resilient and were able to digest the additional load. On the Swiss business, we are satisfying with the overall development. We had some impact from lower roaming revenues. And on the other side, we have an increased Net Promoter Score, customer satisfaction index, and also the Solutions business has a slightly positive development. So overall, a satisfying business in Switzerland and good results in Italy, where we were able to have a quarter of additional growth in all the segments and also important strategic projects, which I will show you later. On the sustainability level, we were able to close a green bond. So this was the first green bond in Switzerland for a listed company. And on cost savings, we were able to deliver our forecast, and in this case, we are also committed our outlook on EBITDA level and CapEx level and slightly lower on the net revenue level because of COVID impacts. But we are committing our EBITDA outlook. If you go on Slide 5, you see our performance. So on broadband and TV, slightly negative net adds. The main reason behind it is the lockdown in Switzerland where our shops had a much lower performance. On the other side, you will see that the business is resilient. If you look closer to our churn figures, we are in a very comfortable situation. On postpaid, slightly increased postpaid net adds and also on wholesale. And in Italy, you see on mobile and on broadband, good growth. So Italian market is not such saturated as the Swiss market and COVID had a good dynamic for Fastweb in the broadband Internet segment. If I look to the months now, I think we will have a better performance on net adds in the next month. If you go on Slide 6, you see our key financials, so net revenue of CHF 5.4 billion, slightly lower than previous year. Main impact is COVID-19 and some price erosion in Switzerland, increasing revenues in Italy. The underlying EBITDA development in Q2, you see that it's approximately stable, minus CHF 17 million EBITDA. Increasing EBITDA in Italy, slightly lower EBITDA with CHF 17 million in Switzerland. And also on the bottom line of this chart, you see the development of the operating free cash flow, which is on the level of our expectations. If you go on Slide 8. So there you see some -- let's say, some impact on COVID-19. I don't want to go through now all through the details, but overall, the main topic is business in Switzerland was solid, good customer satisfaction, a big impact from lower revenues -- from lower roaming revenues and Fastweb is on track. And also on debt level, payment rates, we don't see a disruption up to now. On Page 9, some thoughts about the impact of COVID on our industry. So what's clear and what's not new is that COVID will push digitalization. And for a company like Swisscom, this brings also some opportunities on -- let's say, on the cost side, on the efficiency side, in our operation, but also on the customer experience side and in the different segments. So we will continue to exploit these opportunities through digitalization. It's an important -- it will be certainly important -- an important project. If you go on Slide 10, you see that we are performing on our network side. You see all the tests on the wireline -- wireless side, all the tests we won in the first half year, and also the improvement of our KPIs. On the right side of the chart, you see our plans for ramping up the fiber to the home footprint in Switzerland. Today, we have 30% footprint fiber to the home. In '25, we will have a footprint of 50% to 60%. And we will have a coverage of 90% with speeds above 200 megabits per second. So a good performing broadband network. On Slide 11, you see our B2C performance. So we are well positioned. We are able to defend our market position in a market which is very promotion-driven. So we have a lot of our activity on the promotion side in the first half year. If the market is, I would say, without promotion, nothing is happening. So the promotion activities continued even through the lockout period. On the left side of the chart, what I already mentioned, you see that the frequency in our shops, and this is also the main reason why we had some lower net adds in Q2. But overall, we are well positioned. We have the right things in place to also perform in the next quarters. If you go on Slide 12. There, you see some KPIs in the B2C market. And on the upper left side, you see that our penetration in our core offering inOne, inOne, that's our core offering inOne mobile or inOne broadband, you see that we were able to increase the penetration. On the bottom left, you see our churn figures, low churn figures. In the middle, you see the development of the ARPU. So a stable blended ARPU in the wireline business, a slightly decreasing ARPU in postpaid, wireless postpaid, and the ARPU is CHF 52, minus CHF 4 compared to previous year. And this CHF 4 is approximately CHF 1 is coming from roaming, CHF 1 is from a converged rebate and then CHF 2 to revenue mix, a trend to lower tariff plans, our second and third brands, which have a slightly increasing market share in our portfolio. Penetration of fixed mobile conversion products is also increasing. You see we are in the region of 40% to 45% fixed mobile penetration, which is important also because churn figures are in the region of 2% points lower than in single products. On Slide 13, some information about our B2B business. So you see that the revenue-generating unit in the wireless business is slightly going up or slightly growth. On the other side, you see an ARPU of CHF 33. And you see also the price pressure which we have in this market segment. You see also that we are able to reduce our costs. So our costs went down by 2.6%, which is a good performance. So overall, the EBITDA margin in this B2B segment is at 43.6%, so slightly higher than in Q1. Solutions revenues in the last 4 quarters, we were able to have slightly growth on our Solutions revenue, which is a good performance in the actual market condition and also in the period where we had a lockdown. On Page 14, the financial performance of Swisscom Switzerland. Here, I would like to mention that the service revenue erosion which we have through prices and also some impacts from roaming because of COVID. So we had that decline of the service revenue of CHF 157 million. The EBITDA is approximately stable, so CHF 1.8 billion EBITDA in the first half year, which is CHF 22 million below previous year, previous year period. And operating free cash flow, which you see on the bottom of the right side, there, we have -- if you make the comparison to last year, there, you should take in account that last year we had a spectrum auction of CHF 196 million. And overall, as expected, a good robust operating free cash flow. On Page 15, some information about Fastweb. So the strategy of Fastweb is to become an infrastructure-based OTT. There are a lot of different initiatives. And you see on the right side of the chart what we executed in the first half year. So we bought Cutaway, that's a smaller IT company in the cloud and IT business which will strengthening our position in the B2B market. And on the infrastructure side, we were in talks with this FiberCop in Italy. The agreement is still pending, you certainly saw what were the last announcement on it. On Page 16, some more information about this FiberCop, so this network company in Italy. So the main idea is that the Fastweb is bringing in, in this new company the joint venture part of Flash Fiber with Telecom Italia, and for this we get a stake of 4.5% of this FiberCop. For us, this will improve our positioning in the fiber to the home market, and so we will be able to have a better market portfolio. On Page 17, you see our initiatives on the fixed wireless access with 5G. So the idea is to get an ultra-broadband footprint also in digital divided areas. So we want to deliver with fixed wireless access 50% of footprint in the divided areas. And on with this, we will be able to increase also our market shares and our margin structure in this areas, in this digital divided area. On Page 18, some information about this IT company, Cutaway. I don't want to go deeper in it, but it's certainly a good move to strengthen our positioning in the B2B market. Page 19, some KPIs about the performance. So you see that we were able to have a growth on broadband, on mobile on a subscription level. And also during the COVID phase, Fastweb had a good momentum on broadband as the market is still underpenetrated in Italy and with the lockdown and home office, a lot of our customers thought that the broadband Internet would be a good thing. And then therefore, we had a good momentum in the broadband market. And on the right side of the chart, you see our increasing fixed mobile converged penetration. Today, we are at 33%. And you see also that we have a good Net Promoter Score and -- on mobile, but also on wireline. So high Net Promoter Score is an important target for Fastweb, and we are performing on this KPI. The B2B performance on Page 20 of Fastweb. You see also in enterprise segment, we have a revenue growth of 5%, a good momentum and no impact up to now in the cash-in of the B2B business. And on wholesale, you see also that we are able to grow. We had a revenue growth of 19% in this segment. On Page 21, the key financial figures of Fastweb, they are in line with our guidance. On the revenue side, a growth of 5%. On EBITDA side, also a growth of 5%. And an operating free cash flow proxy which is CHF 36 million above previous year or at CHF 63 million. So overall, a good and strong performance in Italy and a resilient business in Switzerland. With these words, I would like to hand over to Mario.

Thank you, Urs, and also good morning from my side. I will start on Slide 23 with some remarks on revenues. First, on the Swiss business. The Swiss business was impacted by the roaming revenue decline because of COVID-19. Outbound impact is on outbound roaming CHF 27 million in the first half, this is shown in the service revenue. And less incoming roaming revenue of CHF 14 million, this is shown in the segment wholesale and other. On the other side, we had less outpayments of CHF 27 million. So the net effect of this roaming decline is CHF 14 million on the margin level. On the service revenue development in residential, we saw a slight acceleration of the service revenue decline in Q2 due to the change of the RGU mix, we will see some details on Slide 25. In the B2B segment, we have an ongoing price pressure. Service revenue in Q2 went down by CHF 35 million, but that is CHF 5 million less than in Q1. On the other side, we see growth on the IT business also in Q2. We had CHF 10 million growth in Q1, and CHF 4 million growth in Q2. And as seen before, at Fastweb, we have a very solid revenue performance in all 3 segments. On the next slide, a few explanations on the costs, on the OpEx. So overall, we are well on track to reach our cost targets. On SAC/SRC, in Q2, they are CHF 5 million below prior year, mainly due to the closed shops during the lockdown. And to remind you, in Q1, we had CHF 40 million lower SACs because in 2019, in January, February, we still had the old mobile offering in the market where we were still subsidizing the handsets. So that was the reason for the big saving of CHF 40 million in Q1. The outpayments, I mentioned, CHF 27 million less because of the lower roaming business. On indirect costs, we saved CHF 64 million in the first half. The workforce savings in Q2 were only CHF 5 million because of increase of promotion for holidays because nobody took holidays during the lockdown. Except this single effect, we would have seen the same savings as in Q1. So we are well on track there. And we have some lower costs in Q2 in the area of other indirect costs because of COVID, less travel, less marketing communication. Part of those costs, we will see in Q3, mainly communication and marketing. But overall, we can confirm our cost-saving target of at least CHF 100 million for the full year 2020. On 20 -- on Slide 25, you see the different elements of the EBITDA development of the Swiss business. As expected, you see on the left-hand side, in the B2C segment, the impact of fixed voice line losses and the conversion discount is coming down or the impact of fixed line loss is negligible and also the penetration of the converged customers is going -- or the increase of penetration is coming down. So the impact is less. As I mentioned before, we have an acceleration of the impact of the change of the RGU mix, CHF 29 million in Q2 versus CHF 18 million in Q1. CHF 4 million of that is coming from less revenue of pay-per-view sport events in Q2 because of the lockdown. But overall, we have this pressure because of promotions, a, and b, we have more new customers on second and third brands. Meanwhile, we have 17% of our postpaid customer base on second and third brands. As I mentioned before, B2B we had less impact of price pressure in Q2. And then you see also the details in the roaming, CHF 10 million in Q2 in the B2C segment and CHF 12 million in the B2B segment. On Slide 26. So the underlying performance of the group is almost flat despite COVID, despite the revenue pressure in Switzerland, thanks, a, to disciplined execution of the cost-saving program in Switzerland; and, b, to a growing EBITDA of Fastweb. The overall EBITDA margin stands at 40.6%. It's an increase of 0.7%. I think the dynamics we already discussed. In the other segment, we had a slight decline in the business of Swisscom broadcast and of Swisscom Direct, so it's either in White and Yellow pages. Net income on Slide 27 is at CHF 738 million, 5.6% below prior year. The main reasons are the lower EBITDA, of course. Then we had higher other financial expenses. This includes a CHF 30 million noncash adjustment of the present value of provisions for regulatory cases. Then on the tax side, we have a CHF 20 million positive impact. We still have some reductions of the tax rate in some cantons. But long term, you can calculate this tax rate of 19.5%. We have no remarks on the CapEx. We confirm our CapEx guidance. And then as I also mentioned before, we are well on track with our fiber rollout. On cash flows. So first of all, cash-in in Switzerland and Italy is in line with prior year and our expectations. So despite COVID, we have a very resilient cash generation in both markets. One remark on the income taxes paid. So we have less income taxes paid of CHF 137 million. The reason is that the government allowed to defer tax payments because of COVID-19. And of course, we took benefit of this possibility. But the rest, I would say, is without any surprises. On Page 30 and 31, on the financing side, we had a very successful placement of a EUR 500 million green bond in Q2, several times oversubscribed, attractive conditions and all 2020 maturities are fully refinanced by mid of this year. And that brings me already to the guidance. So we confirm the guidance of CHF 4.3 billion EBITDA and CHF 2.3 billion CapEx. We lowered the revenue guidance by CHF 100 million to CHF 11 billion, and the main reason is the expected full year impact on the roaming business of CHF 70 million to CHF 80 million. And with that, I hand over to the operator.

[Operator Instructions] The first question comes from Michael Bishop.

I guess saying it on first up, it would be really good to get your updated thoughts on the potential impact from a Sunrise-UPC combination. I know we went over a lot of the details on various calls when the transaction was proposed before, but things like your latest wholesale exposure and how you think the competitive dynamics in the market might change? Would be really useful. And then secondly, on the cost cutting, I was just wondering if you could give us a little bit more color on how you think the cost-cutting is tracking for the year. It felt like in your presentation, Mario, you were talking about the fact that cost-cutting had actually been hindered by no one taking holidays, so if that's a tailwind for 2H, and you've already done CHF 64 million, then it feels like that's tracking well ahead of the CHF 100 million. So any comments there? And then perhaps, if I could, just a very quick third question. On your comments around COVID being very positive for Fastweb and telecom Italia were quite cautious on Italian B2B. So I'd love to just get a sense of what's driving the better traction for Fastweb given the macro pressure in Italy?

Good. I will take the question on the merge -- possible merge and Mario then on cost. And I will say some words to COVID. Maybe first on the -- on this merge, UPC-Sunrise. I think the dynamic will stay, as we already discussed, when Sunrise would have take over UPC. So the main competitive dynamic will be the same. I think we have a competition today. We will also have competition tomorrow. Swisscom is in a -- is well positioned on the network side, but also on the whole product portfolio side and distribution. So to your question, what will be the impact on our wholesale business? Maybe a bit early to say because we don't know how this merger will come. But certainly, we will not have an impact in 2020. We will have, if this merge will come, a very low impact on '21, then maybe high -- maybe a bit increasing. But overall, at the end, the full impact, I think, will be on wholesale business in the region of, let's say, CHF 50 million or CHF 60 million overall of the total risk. So it's a limited exposure at the end, which we have, let's say, CHF 60 million. And then on our positive dynamic of Fastweb because of COVID. So Fastweb is very well positioned in the B2B market. Fastweb is an agile quality provider in the B2B market segment. We are increasing our market share since a lot of years, and that was also the reason and because you are agile, a high-quality provider that we were able to make infrastructure projects for B2B company. And I'm optimistic that we will also have a good momentum in the B2B market in Italy in the next quarters. Mario, on cost cutting?

And on the cost side, yes, you're right, we will see some tailwinds on the workforce costs. On the other side, we will practically no marketing and communication costs in Q2, that we will see in Q3 and Q4. But overall, we expect that we will see savings north of CHF 100 million that we can confirm today.

The next question comes from Arbuzov Roman from JPMorgan.

Maybe just starting with a follow-up on the previous question. I got cut out when you were talking about costs during the presentation. Have you quantified what was the impact from people taking less holiday? If you could give us a sense of those numbers, that would be helpful. And then a question on Italy as well. So there is a lot of discussions about single network coming into being and the potential merger with Open Fiber and, I guess, FiberCop in which you are now involved. So if we go down the road, do you have a strong preference for TI having control or not having control? And do you think it is possible to have equal treatment of all operators by a single network in a scenario where TI has control? Or these things are just incompatible? And one more. Just wanted to follow-up on the sold Sunrise fiber partnership. Do you think at this stage it makes sense for you to take part, given now you've had a bit of time to think about it? Are you planning to participate in this venture in any shape or form?

So Mario will take the question about -- on this cost and then holiday topic. And first, on this Swiss Open Fiber, so our strategy is to execute our rollout plans as we announced them, and that means we continue to grow, we continue to build our fiber to the home networks and I think it's too early to judge what this Swiss Open Fiber company will do. And as in the past, on a tactical level, we were open to do some partnering but -- as we have done it in the past with utilities. But we don't see that we go now in a close cooperation with Swiss Open Fiber. We will build our network and continue to build it.

And on the cost side, I mentioned and explained at Slide 24, that without this holiday issue, the saving would have been more or less the same as in Q1. That means the impact is around CHF 10 million for Q2, because in Q1 we had savings of CHF 14 million and in Q2 of CHF 5 million.

And then on this question of the single network, FiberCop in Italy, the role of Telecom Italia, the whole control in this. For us, it's important that we have -- that we can have a fair competition in Italy. For us, this deal is value-accretive, it's a value-accretive transaction. We have access to the financials, also to the dividend streams of this FiberCop. And the commercial conditions reflecting Fastweb's participation in this cooperation. So overall, we will be able to ramp up for -- let's say, for good investments our footprint fiber to the streets, to fiber to the home in this combination with FiberCop and differentiate our sales in the market. But important for us is at the end that we have here an organization where competition can be executed on a fair level.

The next question comes from London, could you please state your name.

It's Simon from Barclays. Sorry, one more on Sunrise and wholesale. Could you just give a bit more color about say how the wholesale contracts are structured, the volume discounts, how easy it is for them to get out of the contracts? And if they do migrate a lot of customers, how do the discount, say, reduce? Any color around how that works, would be very useful. And then you said that the impact in B2B was a little bit smaller on price competition this quarter. Do you think that was just COVID-related and companies focused elsewhere so not looking at switching, say, their mobile or their telco operator? Or are you seeing maybe actually a change in the B2B market and competition is just improving?

So Simon, on the wholesale business, I think you get the best details which are public on the Sunrise presentation of last year, September 30, they're talking about the run rate of savings of cost of goods sold of CHF 60 million. That's exactly the number Urs explained or confirmed before, which will be built up over the next 3 years. CHF 60 million, there you have savings from MVNO. Of course, we don't disclose the details of the MVNO contract with UPC. And then you have the savings of the fixed network costs. And there, if the story is unchanged, UPC has not 100% cable coverage. It's around 70%. So part of it, there will always a need to buy from us, from Swisscom. And then the -- let's say, the migration of the customers at the end will most probably not be 100% and it will not be happen overnight. So I would say today, the situation is unchanged as end of September last year, where Sunrise disclosed the potential synergies of this transaction and they are saving that CHF 60 million. And also on the discounts of the access deal with Sunrise, they are not public.

Then on the cost margin.

And on the B2B, the better development of B2B, n, that's nothing to do with COVID. These contracts and the impact of the new contracts, these contracts were closed few months before. So that's a slightly better improvement -- a better development of -- on the price pressure. I wouldn't say that's yet the long-term trend, but…

The next question comes from George in London.

Yes. I have 2. The first question is around the developments in Italy. Urs, I just wanted a bit more color as to the agreement you signed with Wind Tre last year. My understanding is there are certain areas where you will act as their wholesale provider. And obviously, they have some arrangements with Open Fiber. I'm just curious how this will work in areas where there are overlapped, whether you take -- your agreement has priority or whether Open Fiber's agreement with Wind Tre has priority. And then my second question is more broadly on B2B, and thank you for the update on both the Swiss trends and the Italian trends. I think when COVID started, Mario, you are suggesting that you are worried that ICT projects may be delayed and everything else, but over time maybe virtualization and cloud will take over. Do you mind just giving us an update of whether you think this could change the B2B business over time? And whether the net effect could be positive or negative?

Good. On Italy, you know that the agreement, which we have with Wind Tre, there are different elements in it. That's the partnership, the cofinancing partnership for 5G, that's one part. Another part is a wholesale agreement where they get access to our broadband portfolio. And the third part of this agreement is also base station connections, such things. The wholesale business is quite wide. And you are right, there, we are in competition also on broadband with Enel Open Fiber. But we are confident that we will have a good wholesale business also with Wind Tre on this broadband access, retail broadband access. And then on B2B, Mario, on this Solutions business development.

Yes. Yes. So as I remember, we mentioned at your conference that we might see some lower IT business in the second half. So far, we didn't see that. So the business is developing as expected. And as we think midterm, with this crisis and then the whole digitalization, we certainly, let's say, a chance for our IT business thinking about cloud, thinking also about the security. It's more and more people working from home that we see some new aspects in terms of security. So I think midterm, that's a good opportunity for our B2B business. And I think we are well positioned with our large IT organization to create new revenues.

Okay. And if I could ask a quick follow-up on the B2B side. Around back books it was something I think you mentioned at the start of the year, you'll have better clarity by the second and third quarter results. Is it still too early to assess if there will be an impact? Or should we interpret this as meaning probably the impact will be quite negligible?

Yes. What we see today is that the impact is quite negligible here.

Also in Switzerland and in Italy, today, we don't see an impact. So the whole question is what will be the development in -- mainly in the SME market in the next month, and that's hard to judge. Are there a lot of bankruptcy? But at the end, if I look to the Swiss economy, I don't think that the exposure is too big. And in Italy, up to now, we don't see signs. So it's too early to give a forecast on a year level, but we don't see no alarming signs.

The next question comes from Ulrich from Jefferies.

It's Ulrich Rathe from Jefferies. I have one question and 2 clarifications, please. The first one is on the commercial environment, but specifically in the consumer market, it seems that, that has been pretty rough and has stayed pretty rough in the second quarter. Could you confirm that or discuss that a bit? Can you provide a bit of color how you see the competitive environment there? And then specifically, with regards to B2C, I mean, if you had to choose whether a merged Sunrise-UPC is a tougher competitor because it has fixed mobile capabilities or whether it would be a more rational competitor that is ultimately interested in preserving market value, which of these 2 sides would be your base case expectations? Tougher or more rational? And then 2 clarifications. On the wholesale exposure, Urs, when you talked about the CHF 60 million, do I understand this correctly that, that would exclude the UPC MVNO, that the number you mentioned there excludes the UPC? Mario's comment sounded like that was the case. I just wanted to confirm. My second clarification is, when you book wage costs, do you book them essentially as paid? So everybody -- somebody who's fixed employed, just you have the same cost per month because you pay them fixed per month? Or do you actually book the cost when people work and you don't expense wage costs when people are on holidays? Is that what you're saying here?

Good on wage cost. Mario will take.

Ulrich, I will take that.

Okay. And then on Sunrise, Sunrise-UPC, this -- it’s possible merge. So at the end, the main question is how rational this new player will behave? And I don't know it. But if I look to the industry dynamics and to the -- to this new company with back books, back books in Internet, back books in TV and then also in mobile, I think it should be a rational player at the end. Because the market shares are much more distributed, but I don't know it, but I think it will be maybe more rational than in a current market situation. But I don't know it, we will see. On the competition in Switzerland, you are right. In the first 2 quarters in Switzerland, we have very aggressive promotion and driven by Sunrise, driven also by Salt and some of them also by UPC. So very aggressive promotions, let's say, the red line of it is half price and some hardware in it. And if there is no promotion, there is no liquidity in the market. But at the end, market shares are not turning so much. If you look to Swisscom, so it's a kind of washing machine. And the question is how long this will last? The acquisition cost of these promotions are quite high. But my forecast is that we will also have aggressive promotion in the third quarter and fourth quarter.

And on the wholesale side, so the CHF 60 million, those include the MVNO savings. And as mentioned before, that will not happen overnight, that will be built up over, I would say, 3 years. And on the accounting question, yes, the wages are booked when people work. That means if they take holidays, you have less personnel expenses. That was the reason nobody took holidays in Q2 compared to 2019.

But we are confident that they will take holiday until the end of the year.

Understood. Can I just follow up really quick then. The CHF 60 million sounds quite low compared to how Sunrise discusses the synergies, if it includes the MVNO savings.

So I just referred to the presentation of Sunrise before the merge -- or the potential merger last year. It's a run rate, synergy estimate, CHF 60 million per year and fixed network access cost savings and MVNO savings. And the reason is there is not 100% coverage of the cable operator and that not all customers most probably will be migrated in the footprint. So yes, both effects. And we don't disclose out the numbers, but we confirm this CHF 60 million estimates. And we did already last year. We did that already last year.

The next question comes from Steve Malcolm from Redburn.

Yes. I hope you can hear me okay. I just had a couple of sort of, I guess, Q2 COVID specific questions. One is on your inbound roaming. I'm kind of surprised that it was only down CHF 14 million, CHF 28 million in the -- sorry, 28% in the quarter. I guess in other markets, we're seeing it pretty much zeroing. Can you explain where the inbound roaming revenues that you booked actually came from? Are those kind of take-or-pay contracts? And secondly, just sort of trying to tease out your cost performance. I get the message on personnel. But if I look to your fact sheet, your other operating expenses declined by 17% in the quarter, which was a kind of massive drop versus than what you reported in Q1, down nearly CHF 100 million. Can you maybe just sort of explain what goes into that bucket of other OpEx, which fell so much? And maybe one final one, just on Fastweb wholesale. I mean, that was clearly the big outperformer in the quarter in Fastweb. Very difficult to model. Can you give us an idea of what you think sustainable growth in that Fastweb wholesale revenue line is over the next 2 or 3 years?

On the inbound roaming, yes, we had this impact of -- in Q2 of CHF 13 million. That's roughly 1/3 -- yes, 1/3 below prior year. And you actually had some traffic, we are in the middle of Europe and you still have some traffic. Then you have also some valuation impact because it's always -- there are always bilateral agreements. But I cannot give you the, let's say, by half, the distribution of the traffic by country.

And are you back to sort of normal levels? Now where are you tracking on that inbound roaming in Q3? And how are you thinking about that for the second half of the year?

No, we expect a similar impact in Q3 as in Q2. You have -- in Q3, usually, you have a lot of tourists also coming from Asia and the U.S., usually in Q3. And that will be practically 0. So we will have a similar reduction in Q3 as in Q2.

Okay. But 1/3 of reduction is a kind of normal level given the traffic flows with Germany and France and Italy is what you're saying?

Traveling will be on a low level also in Q3.

Yes, yes absolutely. I'm just surprised the impact is so relatively little, because it's a lot smaller than other markets, but I understand your geographic location may help. Okay. And other OpEx and Fastweb wholesale?

In other OpEx, we had CHF 45 million savings in the first half from marketing advertising. I mentioned before that, that's nearly stopped in Q2, that's CHF 12 million out of the CHF 45 million. Then we have less maintenance repair, CHF 6 million. And then we benefited from lower travel costs, IT costs, I would say, around CHF 15 million. And then in the sense, yes, these are the main elements. And then we have CHF 7 million higher savings in Q2 than in Q1, and that's mainly because of marketing and travel. It's as you say about CHF 2 million per month. So we saved about CHF 2 million per month because nobody was traveling.

Okay. So I mean how much would you say is sort of COVID-specific? Because you call out the COVID revenue impacts, but it's a little harder to see the sort of COVID-specific cost benefits that you got in Q2. Is it possible to put a number on that?

Yes. But at the end, it's not so big.

Yes, you can 5 -- in other OpEx, CHF 5 million to CHF 10 million and maybe another CHF 5 million to CHF 10 million coming from marketing communications. And in marketing communications itself we see a part in the second half.

And then on Fastweb, the wholesale development on Fastweb, so the main growth drivers for wholesale of Fastweb is our companies, customers like Tiscali, Wind Tre but also Sky. So there are a lot of different retail players, so that will bring growth for Fastweb wholesale business. And then also Fastweb wholesale business is the whole base station connection and these mobile networks are increasing. So there is also more base station connection. So these are the drivers behind the wholesale business in Italy.

But you think you can keep growing that business double digits over the next 2, 3 years? Is that fair?

I don't make a forecast on the percentages of growth, but it's -- wholesale will be a growth business, yes.

The next question is from Jakob Bluestone from Crédit Suisse.

I just had a question on the sort of evolution of your service revenue drivers that you outlined on Page 25. Can you maybe just get back to the point about the sort of worsening drag from the B2C RGU mix just to sort of understand how much of that do you think was -- because you mentioned earlier in your presentation that you were seeing more spin down to the second and third brands. How much of that do you see as a temporary effect? And how much of that do you see as a sort of increasingly accelerating drag? I mean it looks like over the last few quarters, there's been quite a step-up in the size of this RGU mix drag.

I would say, of this CHF 28 million, about 50% are coming from the impact of second and third brands, that's a few million higher than in Q1. Then what I mentioned is CHF 4 million is coming from value-added services because we had no sports events to sell. And about CHF 4 million to CHF 5 million are coming from the wireline business, from some pressure on the wireline business and also from -- in that area, from lower number of customers because we lost some customers in the last quarter.

Okay. So it does sound like there was even ex COVID and sports obviously was temporary? It does sound like there is a sort of deterioration.

Yes, this -- yes, the total impact is this CHF 4 million, I'd say. We have a slight acceleration, and that's coming from second -- mainly coming from second and third brands and less subscribers on B2B.

Next question comes from Usman Ghazi from Berenberg Bank.

I just have 2.5 questions, please. The first question was just on the second and third brand topic, I see that you've expanded the distribution of Wingo now to off-line channels with mobile phone. Could you perhaps run us through what your logic is there? And if there is a risk that this general move of spin down in the market goes up even more as a result of that move? The second question was just on the various network disruptions that were widely reported during Q1 and then through a bit of Q2, has that at all impacted your relationships with your B2B customers or resulted in a need to make some special offers to retain these customers as a result of these disruptions? And just generally, I mean, it's quite uncharacteristic of Swisscom to report such kind of disruptions, so could you perhaps indicate whether the issues here have been solved or not? And then my third question was just on the this damages claim between Sunrise and Swisscom. I see that you have a provision in the balance sheet of around CHF 210 million. The annual report also indicates that you expect some kind of resolution within a period of 5 years. Is it -- could you perhaps give any update on how you see this claim situation developing?

Mario will take the claim question. I will take the 2 or 1.5 other questions. And to the first question, the second and third brands, you are right, we also distributed through mobile phone, Wingo, the project Wingo, already without the third brands, we were in other physical channels. And if you look to the whole competitive environment in Switzerland, I think online is an important channel for second and third, but also some physical channels are important. That's why we entered in mobile phone, in the mobile phone channel and it's working well. And on the network stability side. So we had some problems in the first quarter. A lot of different reasons behind it. No structural pattern. And if you look to our Net Promoter Score, we didn't get a hit on the Net Promoter Score. The Net Promoter Score in Q2 is even higher than before and it also reflects our strong performance during COVID. So I think we didn't actually get a hit on the customer side through this stability problem. In B2B, also, we have just some losses on it. But clear stability has priority 1 for us. And the stability of the Swisscom network is very good. If you take some KPIs, you see that in the last 2 years, we were able to decrease our minutes of failures by 40% in the retail market, just as an example. And therefore, I think we didn't get actually a hit through this incident in the first quarter.

And on provision for regulatory cases, you will understand that we cannot disclose more that will be disclosed in the half year report. And there you will see the explanations, our expectations in Note 8. And I'm sure you will understand that I cannot disclose any more details.

So perhaps, can I just follow up on the network question. I see that Swisscom will be shutting down the 2G network, I guess, earlier than your peers to free up capacity for 5G. Has that project anything to do with the disruptions that you're seeing at the moment? Or is it really unrelated?

No. It's nothing to do with that. With this, we announced it 5 years ago that we will take out the 2G network at the end of this year. The main reason is the reduction of the complexity, which also leads to lower costs. But that's one part. The second point is we get actually space on the sites for new technology for 4G and 5G and spectrum. And then today that the usage of 2G is extremely limited. So the majority of all the traffic of the voice calls are on 4G.

We have 2 more questions. Next one is from Müller Andreas from ZKB.

Yes. I have 2 questions. One is on FiberCop. What kind of cash impacts you foresee going forward in terms of CapEx, for example, for Fastweb, but also in terms of increasing maybe the stake at some point or in general, the cash impact? And then on the Swiss market, TV subs and broadband subs, you mentioned that the shop closing had some impact there. Do you see that for the whole market? Or are there also market share shifts going on in Q2 and also going forward?

So on the question of the net adds, market share shifts during the lockdown period. I think Swisscom has a customer base, which is -- where online is still relatively low. So that's why during a lockdown of physical channels, we have a bit lower performance. If I look now to July and August, I think we are in a better situation to have a better performance. I don't really see big changes in market share on the Swisscom side on the whole market. And also a very good indication normally is the net portings, where you see the importing and outportings, and there, I don't see really big changes on market share. But I think you don't have to look only on net adds, you have to look on service revenue market shares. Well, what is the main dynamic there is that because of price pressure, service revenue is coming down, as Mario explained it before.

And on FiberCop, it's a -- so first of all, it is newco, it's a contribution in kind of our 20% stake in Flash Fiber, and that brings approximately 4% to 5% of newco. And in the future, as of today, we don't have any intention to increase that stake. So there's no negative cash impact on that. And on the CapEx. So in that area, where we will improve our network from FTTS to FTTH, there will be some CapEx, but they will come over the years, and that has room in our existing CapEx analogue. It will be a reshifting, so no negative but also no positive cash-in. But at the end, more performance network, meaning FTTH, it will be certainly be more competitive and will result in lower churn rates.

The last question comes from Frederic Boulan from BoA.

A quick question on mobile. So first of all, on 5G, if you can give us an update on the 5G debate in Switzerland with the opposition and EMF concerns and maybe an update on your 5G build-out? And then secondly, on your mobile ARPU, so the CHF 4 impact you flagged from convergence and mix. What's your -- what can we expect in terms of development going forward? And in particular, on 5G, I mean, you seem to have removed the premium for 5G. So where do you see that ARPU outlook going forward?

So on the network rollout of 5G in Switzerland, we have a very emotional debate in Switzerland. In a lot of regions we are blocked to roll out the network. Today, we have a coverage of 90% on the base of dynamic spectrum sharing. So we have a coverage on 5G. But we have problems to roll out or to densify the network now because of all this debate. In the last 2 or 3 weeks, I think there is some hopes that the debate is becoming more rational and we have now some parties in Switzerland which really are supporting 5G. Well, I think midterm, we will be in a better situation, but the debates on building mobile networks will stay an emotional one in Switzerland. On 5G, additional ARPU, we will -- it's in our ambition to charge for additional speed, additional money. But at the end, it's a question, how does the whole market will behave on this topic? And overall, I don't think that 5G will be -- really be an ARPU increase, it will lead to more SIM cards, and higher penetration of mobile, which will bring us additional business. And on the channel ARPU development, I think we will have some pressure also in the future driven from the B2B segment and driven by more second and third brands.

And if you look at the CHF 4, CHF 3 decline, so about 50% comes from the RGU mix, and the other 50% comes from roaming and convergence and say, over time, roaming in convergence, that will reduce. But as it was mentioned, on the RGU mix, on the second and third brand this decline, we expect that will continue also in the future.

And this concludes the last question from the Q&A session. I give back to Urs Schaeppi.

Sorry, do you have another question?

No, this was the last question from the Q&A session.

Okay. Well, then thank you. And with that, we would like to conclude today's conference call. Should you have any further questions, please do not hesitate to contact us from the IR team. Thank you, and have a great day.

Dear participants, your conference call has come to an end. Thank you for attending. Goodbye.