Swisscom AG (SCMN) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the 2023 Q1 results conference call hosted by Christoph Aeschlimann, Eugen Stermetz and Louis Schmid. Louis, the floor is yours.

Good morning, ladies and gentlemen, and welcome to Swisscom's Q1 '23 results presentation. My name is Louis Schmid, Head of Investor Relations. And with me are our CEO, Christoph Aeschlimann; and Eugen Stermetz, our Chief Financial Officer. Our CEO starts the presentation with Chapter 1 and a quick overview on the highlights of the operational and financial performances of the first quarter. Then, in Chapter 2, Christoph presents the B2C and B2B operational results and update on our network activities and the financial results in Switzerland before discussing Fastweb's Q1 results operationally and financially. In the second part of today's results presentation, Eugen runs you through Chapter 3, with the first quarter financials, including the confirmation of our full year guidance. With that, I would like to hand over to Christoph, to start his part. Christoph?

Thank you, Eugen, (sic) [ Louis ] ,and welcome to the Q1 results call from my side. We are -- I'm very pleased with the results we have achieved in the first quarter with revenues and EBITDA growth in the first quarter and also excellent results in Italy with the 39th consecutive quarter of growth with Fastweb and the appointment of a new CEO with Walter Renna per 1st of October. In Q1 was -- has many different highlights, which we will see throughout the presentation. I think the most noteworthy probably, the -- we won the best connect hotline test. We again won the CHIP mobile test. And we were able to finalize the Salt access agreement in the fiber term. So all in all, a very pleasing first quarter, leading to solid financial results in the -- or end of March 2023. So moving to Page #5. We have a quick look at the Q1 market performance. On the Swisscom Switzerland side, we can see that mobile continued growth story on the postpaid side of 30,000 net adds or increase in RGU base. We have a slightly decreasing RGU base on the broadband and TV side, which is partly compensated by increasing RGU base on the Wholesale side. Fixed voice is continuing the decline we've seen usually over the past years with less and less people using fixed line telephony at home. On the Fastweb side, we have very positive results. On the mobile side, we were the second-best performer in the market and managed to increase our mobile base with 144,000 RGUs, bringing us to 3.2 million mobile subscriber or 4% market share. You can also see the effect of our value strategy on the B2C wireline side with a slight loss of 21,000 on the broadband side, but largely overcompensated by the increase of growth on the Wholesale side with 40,000 RGUs, bringing our Wholesale business to nearly 500,000 lines. Overall, I think a positive picture for Fastweb and Swisscom Switzerland. Moving to Page #6. So we can see the financial impact of these market developments. We had stable revenue of CHF 2.747 million (sic) [ billion ] and a growing EBITDA of CHF 1.164 billion. Mainly, the growth is coming from Swisscom Switzerland. You can see on the right-hand side with CHF 13 million increase in the first quarter, also an increase of CHF 3 million by Fastweb. And then the big effect on the pension side that we talked about already [ new ] results in February due to IFRS accounting effects. And I think Eugen can detail this a bit more, and then slightly negative currency impact, bringing us to CHF 1.164 billion EBITDA in the first quarter. Now I move to the business review moving directly to Page #8. I'm also happy to say that we are continuing our management transition and the renewal of the Executive Committee. We had Gerd Niehage who started 2 months ago as our new CTIO, and his onboarding is running very positively at the moment. And we are excited that Isa will join us in 3 weeks as the new Corporate Strategy and Corporate Development Officer. I think this shows that the continuous renewal of the ExCo is well managed and on the way. And also, I think you've probably seen in the last month, we appointed Walter Renna as the new Fastweb CEO starting 1st of October. Walter is a long-standing member of the Fastweb management. He knows the company very well, is part of the current growth story and knows precisely what it takes to keep Fastweb on the growth track. And I'm convinced that he will successfully succeed Alberto as the next CEO in Fastweb and continue to positively develop our Italian subsidiary. Now on Page #9, you can see our business priorities on the group level. I think overall, we can say that the priority, that the strategy are largely unchanged. Why is that so? Because it is a successful strategy. It creates positive financial results and returns. And so we continue on our proven and successful track. The main strategy or main focus on the B2C markets -- Switzerland B2C side is to maintain our market position, to maximize value creation and focus on the value strategy. We are super focused on improving even more the customer experience, investing in our brand to make sure that customers are happy and stay with Swisscom. On the B2B side, we are very much focused on retaining value on the Telco business, slowing down the ARPU decrease. And so leading to -- or trying to slow down the decrease of the B2B service revenue. This is a main priority and at the same time, continue to invest on the IT side to compensate the revenue loss by increase in our IT service business and expand our position as #1 IT provider in Switzerland. On the network side, we continue our high investment strategy to make sure that our networks are the most reliable, but most innovative and remain competitive, both in coverage and quality speed to make sure that we continue to win all the required or relevant benchmark test in mobile and on the wireline side. On the Fastweb side, we have a similar strategy focusing on the value on the B2C side, continuing our growth in B2B, both in Telco and IT segments and continue our growth on the Wholesale side, maximizing our investments we do on the infrastructure side and scaling up our 5G mobile business. Now moving on to Slide #10. We can have a quick look at Swisscom Switzerland B2C. Next to many new product features we launched mainly on the main brand, but also on second brands, for example, 5G for Wingo customers, multi-device options. The most notable, I think, change is probably the successful implementation of the adjusted terms and conditions we announced in March, which includes CPI-linked pricing optionality. And you have also seen probably yesterday, the announcement of Sunrise with the new prices. So I'm pretty sure that you will ask us some questions about this. But in anticipation of this, I think we can say that inflation obviously also concerns Swisscom, mainly on the salary side and the energy cost side. And we are trying to compensate this inflation by cost reduction but we are obviously also looking at this topic of price increases in several months but no decision has been taken on the Swisscom side in this regard. What is also very pleasing on the B2C side is the service excellence that we are bringing to the next level. We were able to win the best connected -- or best hotline in the connect test, bringing us to sort of a triple leadership, best app, best shop and best hotline, demonstrating our service excellence that we want to achieve for our customer base in the B2C area. Now moving to Page #11. We can see a summary of the most important numbers. You can see on the wireless side; we have the growing RGU base with 3.288 million subscribers. Stable ARPU on the blended side, but obviously, the growing RGU base comes at a slight ARPU cost on the postpaid value side with a continued shift to the second and third brands. But slightly -- the decline is slightly lower in Q1 this year than it was in the previous year. On the wireline side, we are roughly stable RGU base, slightly lower on the TV side, mainly linked to a bit lower attachment rates on the second brand side. And you can see that we still have a quite a low second and third brand share. But also on wireline, the second brand share is now increasing but not obviously still far away from the shares we have on the wireline side. What we see on the wireline side in the market are very aggressive second brand promotions from our competitors. And we are currently also next to inflation, also looking at scaling back promotional activity on our second brand -- on our second and third brands, especially also looking at lifetime promotions because lifetime is not really promotion anymore, but in effect, the new price points. And we are thinking about how we could better deal with promotion on the wireline side rather than offering lifetime promotions on the second brand side. Now moving to Page #12. We have a look at the B2B side of the business. We have roughly a decline in -- on the service revenue side by minus CHF 12 million, which is completely in line with our guidance we gave in February this year. We continue to execute our value-oriented strategy. We keep the RGU base stable on the B2B side, but have an ongoing price pressure and a slightly decreasing ARPU. On the IT services side, we had a slight growth, which was not entirely in line with our expectations, mainly due to a lower project business on the IT services side, which was a bit sluggish with some of companies and customers hesitating due to the macroeconomic environment and some of the projects are slightly delayed. But we expect continued growth in the IT services side in the following quarters. On Page 13, you can see the update on our network side. We -- as I mentioned already, we won the CHIP test for the eighth time in a row, and we continue to heavily invest both on the mobile and the wireline side. And I would say we are continuing as planned, now covering over 75% of the population with 5G plus over 43% with FTTH, and we are fully on track to reach our year-end targets and the 2025 targets. Maybe noteworthy also in March, we announced the signing of the Salt deal, as we already talked about in the full year results in February. This has now been executed and implemented in the previous month, bringing us a nice new contract on the Wholesale side. Overall, on Page 14, you can see the Swisscom Switzerland financial results, revenue slightly down by CHF 12 million to CHF 2.044 billion in the first quarter and EBITDA slightly up by CHF 13 million to CHF 943 million EBITDA. And I think Eugen will give us a bit more details later on in the financial sections also about the free cash flow. Now I am moving on to the Fastweb side on Page 15. As I mentioned before, I'm very pleased with the development of Fastweb in the first quarter. We had another quarter of growth, bringing us to 39 quarters of continued growth. I think most noteworthy, is we grew both in customer base, in revenues and in EBITDA. We were -- had a -- we're the second-best performer after Iliad on the mobile side with a 22% RGU growth in mobile, but also the enterprise and Wholesale business performed very nicely with 6% top line growth on the enterprise side, both due to Telco and IT business. And also the Wholesale side delivered a very pleasing growth, offsetting our negative evolution on the B2C wireline development. If we look at it in a bit more detail on Page 16, you can see the consumer numbers. So we had a slightly decreasing RGU base on the broadband side. But the positive news is that we are currently executing a price increase due to inflation across our whole customer base in Italy. And so far, this works out very nicely with no increased churn on the broadband B2C side. On the mobile side, as I mentioned, we have a very nice growth with 22% increase in RGU base, with bringing us to over 3 million mobile subscribers as of end of first quarter and also an increased FMC penetration rate with bringing us the benefit of higher ARPUs and lower churn. On Page 17, you can see the details of the enterprise and Wholesale business, which are our main drivers of top line growth. So enterprise grew by 6%, bringing us to CHF 261 million in the quarter. So the first time over CHF 0.25 billion revenues in B2B. In the Fastweb side, many new enterprise contracts. You can see some of the new logos we have won in the past quarters. But I think we can say that the B2B business is performing very, very well in a difficult Italian market, and the management team is doing a great job. Also on the Wholesale side, we were able to increase revenues by 16%, mainly linked to the increase in Wholesale lines. We managed to sign several new contracts over the past month, for example, with Sky and Windtre. And we now profit from their market entry and growth on the wireline side and can book the higher Wholesale revenues to offset our declining RGU base on the B2C side. On Page 18, you can see the aggregate financial results of Fastweb. I think what is especially noteworthy is that not only did we grow by CHF 28 million in revenues, but we were able to grow in all segments, not only Wholesale and enterprise, but also on the consumer side, we were able to grow the business by CHF 4 million mainly linked to the growth in -- on the mobile side. This brought us an EBITDA growth of CHF 3 million. And I think we can confirm that this is in line with our full year guidance, both on the top line side, but also the EBITDA guidance. Full year is 2% to 3%. We are a bit at the lower end for the moment, but we are confident that we will achieve our EBITDA full year guidance on the Italian side of our business. This was it from my side, and I will hand over to Eugen for the financial results.

Okay. Thanks, Christoph. Good morning, and welcome, everybody, also from my side. I think I could quickly summarize our Q1 financials with just four words, we are on track. Obviously, nonetheless, I'll be happy to give you some details and some color on the results. And I'll start as usual on Page 20 with group revenue. Net of currency effect, revenue was up underlying by plus CHF 17 million. Swisscom Switzerland, down by CHF 12 million. And Fastweb, up by CHF 28 million. On the Swisscom Switzerland side, B2C, if we walk through the individual segments, B2C basically flat with plus CHF 5 million. The individual component service revenue, close to flat with minus CHF 5 million. Hardware revenues and other revenues, up a bit. So that all adds up to a flat B2C revenue. B2B revenue, down minus CHF 18 million. Service revenue down as expected, as Christoph already explained. Also hardware revenue was down a bit with a very strong hardware revenue quarter in the previous year. So that makes for a negative year-over-year difference. Wholesale is flat as expected. As you already heard, Fastweb, up CHF 28 million, 4.7%. So we had a very good quarter in Italy, which is in line with our full year revenue guidance, maybe even a bit better driven, as Christoph already explained by growth in all segments, consumer, enterprise and Wholesale and as usual, the strongest contribution came from the enterprise segment. Moving on to Page 21. Swiss revenue components, starting with service revenue. B2C, minus CHF 5 million; B2B, minus CHF 12 million. So you may remember in the full year conference, we talked about the B2C service revenue outlook. And I said it's -- flat service revenue is achievable, but not to be taken for granted. So we are squarely in that category with the Q1 results and also B2B minus CHF 12 million is in line with the guidance we gave you in February. IT service revenue, up by CHF 2 million. So we had somewhat sluggish growth, sluggish quarter in IT service revenues. There is no big single reason behind that. One of them is that the first quarter last year was particularly strong, and we do expect further growth from this segment, probably not as high as last year. You might remember that last year, about half of the growth was from nonorganic sources. So it'll certainly be a bit lower this year. Hard and software, down by CHF 5 million. That's a mix of B2C, up. We had some hardware availability issues last year. So hardware sales were a bit higher this year in B2C. B2B down by a bit because it was seasonally quite high last year. And we had other revenues plus CHF 7 million. It's a couple of small items, combined. One of them higher cinema revenues in the first quarter compared to last year. Top right, service revenue evolution over the last couple of quarters. So first of all, the development from Q3, Q4 last year into the first quarter of this year, looked certainly worse than it is. First of all, it's very small numbers anyway we are talking about. And also, as I mentioned in the full year conference, Q3 and Q4 last year were distorted somewhat to the upside due to an uptick in roaming we had in Q3 and Q4. So there is really not much of a change in the underlying dynamic. And we expect, as of today, a similar picture for the rest of the year. I'm not going to talk about the drivers of service revenue on bottom right because they are very much saving and look very much in line with what we had in the previous quarters. So I move on to Page 22, group EBITDA. EBITDA is up by CHF 27 million. My big component here is the plus CHF 24 million of our pension reconciliation. I highlighted this topic when I talked about the guidance at the full year conference, that's CHF 24 million in the first quarter. It will add up over time for the full year to between CHF 90 million and CHF 100 million for the full year. So it's important to really focus on the operating business. Swisscom Switzerland, up CHF 13 million; and Fastweb, up CHF 3 million. On the Swiss side, B2C EBITDA is basically, again, basically flat. Somewhat lower service revenue, but that was fully compensated by lower costs. B2B, down CHF 7 million, obviously driven by the lower service revenue and somewhat compensated, but not fully, by lower OpEx, both direct and indirect. And in infrastructure and support functions, the plus CHF 19 million are the reflection of the cost savings we had in the first quarter due to lower workforce expenses and lower costs for maintenance. Fastweb, plus CHF 3 million or plus 1.6%, so in line with our guidance as Christoph already explained. Obviously, driven on the one hand by higher revenue, but we also had quite some higher direct costs as the mobile share of our consumer business goes up, our direct costs go up and there was also a price increase of the regulated VULA price for Telecom Italia which hit our direct costs. On the other hand, we could compensate part of it with lower indirect costs from marketing and also a bit from energy. So I move on to Page 23. Swiss EBITDA, up CHF 13 million, not really much to mention here. We had somewhat higher SAC/SRC expenses. That's also more related to the previous year, where we had some hardware availability issues and couldn't do as much as we wanted. And obviously, the most important part on this slide is the plus CHF 27 million in indirect costs, so we had significantly lower indirect costs and quite a strong quarter when it comes to cost savings. It does include some seasonal items to be fair. And it's important to note that the salary increase of 2.6% will only hit from April onwards. So that has not affected the first quarter. So I emphatically ask you not to multiply this plus CHF 27 million by 4, when doing your forecast for the full year, but rather stick to our guidance in that regard. Moving on to Page 24, CapEx. CapEx is plus CHF 23 million, a bit higher than in the previous year, in particular, in Switzerland with plus CHF 30 million. If you look at the individual components, wireless is essentially flat. Fiber, slightly lower due to the completion of the FTTS rollout last year, and we had a bit higher investments in our backbone and transfer infrastructure and in IT and others. It's clear we just look at one quarter here, so most of that is seasonal fluctuations. And all in all, we are fully on track to reach our full year guidance also here with regard to CapEx. On to Page 25, free cash flow bridge. So starting with free cash flow proxy at CHF 546 million, plus CHF 3 million compared to last year, also stable. So stable is very much the theme of this quarter. The free cash flow itself was higher by CHF 146 million compared to the previous year. That's due to higher income taxes paid in the previous year, which were a bit high in Q1 '22 and a bit low in Q1 '23. That's the main effect. But as I said, the most important point here is operating free cash flow proxy which is flat compared to last year. Moving on to Page 26, net income. Net income, again, flat CHF 442 million. That's minus CHF 5 million compared to the previous year. So the plus CHF 27 million from EBITDA do not fully translate into net income because the financial result was CHF 30 million lower than last year in the [ first ] quarter of last year. We had a pretty high financial result. This year is normal so this is why the EBITDA plus CHF 27 million do not fully translate into net income. Otherwise, nothing special here on this page. I move on to Page 27, the financing side. Q1 very much confirmed our strong balance sheet. So we did two refinancings at very attractive terms. Also, our rating review meetings with Standard & Poor's and Moody's went very well and even resulted in an upgrade of one notch by Moody's. Moving on to Page 28. Given the results, obviously, we do confirm our guidance for the full year on revenue, EBITDA and CapEx and also, obviously, on the dividend. And with that, I hand back to the operator.

[Operator Instructions] First question coming.

It's Polo Tang from UBS. I just have three different questions. The first one is just about Sunrise and their announcement of a 4% price increase. In addition, they've also included the option of annual CPI increases in their contracts. Were you surprised by the move? And how do you think this will impact the broader Swiss market? And in your earlier comments, you mentioned that Swisscom will consider price increases but what are the key indicators that you're focused on that would make you more likely or less likely to increase pricing? Second question is really just about what you're seeing in terms of competitive dynamics in the Swiss market in Q1? And what have you seen thus far in Q2? If I look at your Swiss net adds, in terms of postpaid and broadband, they were slightly softer in Q1. So can you maybe talk through what happened and how we should think about the subscriber trends in the coming quarters? And the third question is really just about Italy. What's your view on the potential for consolidation in the Italian market? And would Swisscom be willing to participate?

Okay. Thank you, Polo. I'm going to take your questions in sequence. So first about the Sunrise announcement. I think yes, we were to some extent surprised. We didn't expect this move at this timing. With regards to the impact on the industry, I would say it is too early to tell. We will see in the coming weeks and months now, what the reaction will be of the market, the different participants and how this will evolve over time. What is for sure, I think we can say it is probably not negative for the development of the market. And it is somewhat a change in -- after 20 years of declining prices, it's basically the first time that headline pricing -- prices have been increased. So we will see if this sort of is really a trend change now or if it is a onetime event, and we can probably talk about it in a couple of months again when we have a better view on the picture. In terms of competitive dynamics, we can say that headline prices is one thing, but promotion is another thing. And on the promotional aggressiveness side, we see no change in our competitor stance. They are as aggressive as ever with promotions going sometimes even beyond 70% discount and in many cases, for a lifetime, which is effectively not a promotion anymore, but sort of a new price point in the market, which somehow contradicts, let's say, the inflationary price move on the announced general move. So this is, I would say, the situation, very, very aggressive promotional activity. And the result was a bit softer numbers on our side. And this is also why we are thinking about also removing or reducing promotional aggressiveness on our second brand because we definitely need to look into this topic to see how we can deal with promotions going forward because, I mean, 70% discount is not really sustainable, and it is not desirable as a market because it somehow affects the value perception of the product by the customers if you offer such high discounts in -- on a very long time basis. On the Italian side, situation, pretty much unchanged, I would say, on our view on consolidation. I think we are happy with our evolvement of Fastweb stand-alone, and we will continue our stand-alone path. As we already discussed in the past, obviously, there is a lot of value also in the consolidation, and we will look at any opportunity that can create value. But in the absence of concrete opportunities, I would say, we continue our successful for stand-alone path to continue to grow Fastweb along this year.

And could you just maybe comment on what would make you more likely or less likely to increase prices? What are the key indicators you're looking at?

Well, I think, it's too -- we don't really want to discuss this in public. But obviously, one aspect is evolution of prices. I mean as Sunrise, Swisscom is also confronted with rising energy costs with rising wages. That's one thing. Question is how much can you offset this with cost savings? And when -- or what kind of actions are required on the pricing side, but we will see this a bit more in the -- we didn't take any decisions on that side, and we will see in the coming -- in the future, how this evolves.

Next question.

I hope you can hear me. It's Georgios from Citi. Just a couple of questions on pricing. The first is a followup on the previous question. Perhaps if I could ask a bit differently, what we've seen in the first quarter and what you show on Slide 5 is the fact that you have a bit of a decline in retail, but a bit of growth in Wholesale. And I'm guessing especially as far as broadband is concerned, that could become a bit more extreme in the coming quarters with Salt getting access to your network and so on. So I'm curious if you are willing perhaps to see the bit of market share in retail. If that's something you can live with in your efforts to improve pricing over time or whether that's really the limit of losses you can take? Just curious to hear how you're thinking about that. And then the second question is around pricing on business, which is less transparent as a market for us. If you don't mind just giving us an indication from what I can see in the first quarter, there is no real encouragement in terms of pricing. But whether what we are seeing in the consumer market from some of your competitors is also similar to what they're doing in B2B, they're perhaps becoming a bit less promotional? Just curious to hear from you now.

Thank you, Georgios. So on the -- I mean on the -- so regarding market share versus pricing and value orientation, I think, we have a clear value-oriented strategy. And we are losing market share or slightly declining market shares in the past years. And I think overall, the strategy is successful, protecting value at the expense of slightly declining market shares. This is our strategy. And so far, and -- we intend to keep this strategy as we believe it is a better strategy rather than trying to increasing RGU gains and decreasing the pricing. So we will most likely continue to see sort of a similar picture and then trying to offset, let's say, the broadband losses through Wholesale increases as we are executing in Italy. And then on the B2B side, I would say, yes, there is a bit less transparency on the B2B pricing side. But I think we can say the promotional aggressiveness in the market is very high, even higher than on the B2C side. And this also leads to this continued decline of B2B service revenue that we guided on a full year basis of around minus CHF 50 million.

If I could ask a follow-up, in the event that Wholesale run rate improves in the coming years, so quarters to years, will that make you accept maybe slightly weaker retail trends in Switzerland? Or CHF 50 million, let's say -- 50,000 broadband losses a year is roughly where you want to limit any damage beyond that?

Well, I mean, we don't communicate any precise numbers where we see the limit. Obviously, in an ideal world, we would gain market share or keep it, let's say, stable. So we try to keep the loss as small as possible. And then on the Wholesale side, it also depends a bit on what the competitors are doing and which types of networks they are activating their customers. And then, we will see how much growth we can generate on the Wholesale side. But obviously, a customer on the Wholesale side is not as valuable as a customer on the B2C side. So let's say, making sure that the market share loss is as small as possible is still quite a high priority on our side.

Next question.

It's Yemi Falana from Goldman Sachs. Maybe firstly, on Swiss service revenue growth trends. In the past, you said flat service revenue growth in Switzerland was achievable, but should not be taken for granted. When you reflect on competition in the first quarter, the price -- the headline price rises announced by Sunrise later this year and your own plans to reduce second brand promotional intensity, do you view that flat service revenue growth as more or less achievable than it was a quarter ago? And then secondly, on the wholesale deal maybe just taking a step back a bit. How are you thinking about the larger scale opportunity that, that presents? And how fast will that ramp-up takes?

So thank you for -- on the Swiss service revenue side. I think as Eugen mentioned, the situation from our point of view is pretty much unchanged. It's still -- it's a lot of hard work to keep service revenue flat and a lot needs to be done in every dimension on RGU base, but also on pricing side. We discussed it in the past. We did some minor price changes on options or in service fees, and we continue to work on topics like this to try to keep the service revenue flat. But as we said, not to be taken for granted. And as we see in the first quarter, when you hover around the 0 line, CHF 2 million, CHF 3 million deviation certainly looks like a big change. But I would say on the full year, we still -- I would say, we confirm that it is achievable. But depending on how the quarters go, also depending how the promotional activity continues in the market and obviously a huge effect also on to the B2C service revenue. But the Wholesale deal we've sold is a regular wholesale deal where we book revenues as the lines are ordered. So the revenue uptake pretty much depends on, let's say, the market success of Salt. But in any case, we are talking about low single-digit millions. So you shouldn't expect like a huge sort of hockey stick development in Wholesale revenues, but more likely sort of a continued either flat or slightly continued growth in the Wholesales.

Next question.

It's Steve Malcolm from Redburn. I just want to follow up on Georgios' question quickly and ask a question on Fastweb as well if I can. Just -- I know it's difficult to be precise on this, but looking at the Q1 KPIs, you lost 10,000 broadband lines. Your churn was up in wireless and wireline by about 54 basis points in both, I think, which are kind of slightly worrying with indicators I guess. When you think about the sort of the different aspects of your consumer strategy and whether or not you kind of pull promotional activity, are those numbers kind of what you expected in Q1 that sort of accelerated broadband loss and churn increase? Or are those kind of a little bit worrying and part of the calculus for price rises and promotional decisions going forward? And then just moving on to Fastweb. The numbers look a bit odd. Your gross margin appeared to go down by about 500 basis points. I think your direct costs rose by about 20% and your indirect cost seem to fall by about 5% or 6%. So the blend was a 6% cost increase but the sort of mix was a bit unusual with the gross margin seeming to fall very sharply. Can you just help us understand what we're seeing on those cost lines in Fastweb in Q1?

Yes. Thank you. So I'll take the first question. And Eugen will answer the second question. So I would say the increased churn in Q1 is very much linked to activity in Q4 last year where we have seen very extensive promotions during the Black November. It was not really a Black November day or week, but more sort of a month or nearly a 6 weeks' period. This led to, let's say, slightly increased churn on our side in Q1 as -- after 2 months' notice period, the lines are switched over in January and February.

Maybe on question number two. Yes, indeed, it looks a bit odd in the first quarter. I tried to explain the main moving parts when I talk about Fastweb, maybe just once more and with slightly more detail. Obviously, we had the higher revenue. But on the cost side, we had a significantly higher direct cost this quarter, which has to do with 2 or 3 things. One is the higher share of our mobile customers. And obviously, on the mobile side, you have higher direct cost than on the wireline side. But also on the wireline side, the regulated access fee for copper went up in Italy, and that hit the direct cost. And also the base of VIVO customers in our total customer base goes up and that also somewhat increases direct cost. Then there is the balancing factor, as you mentioned correctly, on the indirect cost side, we could reduce our costs. One element was marketing. Another one was energy to that -- let's say to the -- that go to the complete set of numbers that you see. As mentioned [indiscernible] for the full year, we confirm the guidance of 2% to 3% EBITDA growth for Fastweb.

Okay. Just on that gross profit, I mean, I'd say the revenue point, but I think your gross profit fell by about 3% or 4% in Q1. Is that something that we should extrapolate for the rest of the year? Or were there any sort of particularly elevated direct costs, that means that the gross profit impact for the rest of the year will not be quite as sharp as it was in the first quarter.

I wouldn't extrapolate too much from one single quarter. There are always costs that instead of fluctuating around, I would rather stick to our full year guidance for the EBITDA than focusing too much on individual lines.

Next question.