TPG Telecom Limited (TPG) Earnings Call Transcript & Summary

This is Bruce Song speaking from the TPG Telecom Investor Relations Team. Welcome to the presentation for our results for the half year ended 30 June 2023. TPG Telecom acknowledges the traditional custodians of country throughout Australia and the land on which we and our communities live, work and connect. We pay our respects to their elders past and present. Our CEO Inaki Berroeta will begin today's presentation with the results highlights and business update. Our CFO Grant Dempsey will then present our financial performance in more detail before Inaki closes off the presentation with a summary of our strategy and outlook. Other members of the executive leadership team are also here for Q&A. I will now hand over to Inaki.

Thank you, Bruce, and good morning to everyone listening today. The results we are announcing today saw the momentum we've built through 2022 carry into the first 6 months of this year. We recorded a strong increase in EBITDA as we grew service revenue in consumer mobile, focused on profitability in consumer fixed and enterprise business continued to win new customers. We added 39,000 net mobile subscribers in the half, which together with our postpaid plan refresh, helped deliver a strong growth in mobile ARPU. While the market for NBN services remained highly competitive, we increased fixed ARPU and passed 200,000 fixed wireless customers for the first time. In Enterprise, our expertise in delivering on-net Fast Fibre and NBN connectivity to big businesses drove contract wins with customers, including Village Roadshow and Healius. We are strengthening our balance sheet. In August, we completed $2.5 billion of debt refinancing. And we are continuing to explore ways to unlock the value of our fixed infrastructure. While we were disappointed with the Australian Competition Rabanos determination in June against our proposed regional network sharing arrangement with Telstra, we continue to believe network sharing is the best option for regional Australia. The decision has not affected the continuous rollout of our 5G network, which is now available at more than 2,500 sites across Australia. The positive first half has set up for a strong full year performance. So today, we are upgrading our fiscal year '23 profit guidance. Assuming no material change in operating conditions, we now expect fiscal year '23 EBITDA guidance to be between $1.925 billion and $1.95 billion, the top quartile of our previous range. We have positive commercial momentum, because our focus on value, service and a choice of simple connectivity services resonates with customers. We continue to offer highly competitive services in mobile and fixed. And we are strengthening our position in the NBN market with the launch of the fiber connect across TPG and iNet brands. For Vodafone, we have found innovative ways to differentiate. We are now a leading partner for Live Nation, giving our customers priority access to some of the world's most popular live music acts. We also revamped our trading platform this year to make it easier than ever for customers to trade in all devices for big savings when they upgrade to latest handsets. Now turning to our financial results in more detail, which demonstrate a strong operating leverage as the business grows. We achieved service revenue growth of 4.5% to $2.288 billion, driven by our postpaid plan refresh. Combined with disciplined cost management, this translates to gross margin growth of 10.6% to $1.526 billion. And despite inflationary pressure and other cost increases, we delivered EBITDA growth of 12.4% to $941 million. Net profit after tax was $48 million, down on $57 million in the prior first half after adjusting for last year's one-off tax credit. This decrease reflected higher interest cost. Our expectation remains for capital expenditure of about $1 billion per annum through to the mid-2020s. However, cash CapEx of $670 million in the half was a deviation from the usual run rate, owing to the impact of changes in the timing of payments. Operating free cash flow continues to be impacted in the short term by the unwind of our historic handset receivable financing program. This unwind removes third-party financing that was close to $1 billion at its historic peak and of which $329 million remains. The unwind will be largely complete by the end of fiscal year '24. The Board has declared a dividend of $0.09 per share, which is consistent with the prior final and interim dividends. Return on invested capital was up strongly to 6.1%, reflecting higher earnings on a broadly flat capital base. Now turning to our mobile performance in more detail. The postpaid plan refresh was completed 2 months ahead of schedule with relatively low churn impact. As a result, postpaid ARPU increased 6.2% in the half to $44.6 per month, while subscriber numbers were up modestly during the period. In prepaid, we saw a slightly lower ARPU as the first cohorts of post-lockdown international travelers departed and competition from second brands and MVNOs increased. The strength of our brand portfolio was evident as growth in Lebara, TPG and iNet more than offset the reduction in Vodafone prepaid subscribers in the half. In Consumer Fixed, our focus on improving profitability led to a 20.4% increase in AMPU to $25.4 per month as we continue to grow fixed wireless and benefitted from recent changes to our NBN plans. Another 38,000 customers signed up for fixed wireless in the hub showing the ongoing popularity of our award-winning 4G and 5G home internet plans. We now have 209,000 fixed wireless subscribers. Overall, our fixed subscribers base declined 43,000 to 2.18 million as intense competition continues for both existing and new entrants in the NBN market. Looking ahead, we expect our value leading position will play an important role in attracting customers as we participate in NBN's fibre connect program to upgrade premises to higher speed plans. This remains an untapped and important part of the market for us with some 2 million data hungry premises now eligible for upgrades to faster and more reliable fiber connection under the NBN sponsored program. Our Enterprise business continued to perform strongly over the half with key customer wins, including Healius and Village Roadshow. Enterprise and government revenue increased 5.6% to $361 million, underpinned by uptake of on-net fast fiber, NBN Enterprise ethernet and SD-WAN. In wholesale, our NBN platform powered by Imzi, which helps small mobile providers easily access our MVNO platform, has been onboarding new partners, including Ezy Sim. I will now hand over to Grant, who will take you through the key financials in more detail.

Thank you, Inaki, and good morning, all. My first slide shows how both service revenue growth and lower telco costs drove a 10.6% increase in gross margin to $1.53 billion. The contribution from Consumer mobile reflected the benefits of last year's strong subscriber growth and our postpaid plan refresh. Our continued transition of customers to fixed wireless contributed strongly to margin growth, with telco costs lower by $47 million or 5.7% compared with the first half of 2022. The Enterprise, government and wholesale segment delivered solid margin growth with strong growth in new business outpacing the negative impact of products delivered over legacy or noncore technologies. The suspension of the sale of handset receivables to third parties reduced device costs, enabling modest growth in handset margin despite a very competitive market, driven by heavy discounting. My next slide shows operating expense performance in the half, with transformation and transaction costs split out on the right-hand side. Approximately half of the increase in OpEx was driven by inflationary pressure across areas like labor and electricity with the remaining coming from investments in key capabilities such as data and analytics, sales and marketing and strengthening our technology systems. Transformation costs were $19 million lower than the same period last year being $16 million in total for the half. This was largely offset by $17 million of one-off transaction costs related to the regional mobile network sharing agreement with Telstra and the strategic review of Vision network. Now turning to CapEx, where cash CapEx of $670 million is higher than CapEx incurred for the half of $479 million. This deviation is unusual compared to historic patterns and reflected changes in the timing of capital payments. Most notably and highlighted at the full year, $90 million of CapEx incurred late in the second half of 2022, fell due for payment this half. Payment was also made for work completed ahead of schedule. We expect CapEx incurred for the full year to end up being in line with our guidance of about $1.05 billion, cash CapEx to be slightly higher at approximately $1.1 billion. We still expect total CapEx to remain about $1 billion per annum for the next few years. This reflects the swap out of Huawei equipment, the upgrade of our mobile sites to 5G as well as significant investment in simplification, which will drive improved operating performance. This slide looks at cash flow, where underlying conversion from EBITDA remains very strong, driven by the normalization of supply chain constraints coming through. The outflow of $214 million in working capital shown above reflects the decision we made last year to suspend selling handset receivables to third parties and fund this activity with bank debt, a much better economic option. We now only have $329 million of handset receivables previously sold, down from about $1 billion at merger, which will continue to unwind over the remainder of this year and 2024. Adjusted for this financing decision, operating free cash flow improved on half year '22 despite the increase in cash CapEx of $185 million. We expect free cash flow to continue to improve over the coming years as working capital movements normalize and CapEx begins to reduce over time. We had an excellent outcome with our recent bank debt refinancing, enabling us to diversify our borrowings and extend average maturity. In July, we refinanced our 2024 maturities with a new $2 billion syndicated debt facility with 4, 5 and 7-year maturities. Demand was very strong and pricing highly competitive, reflecting the quality in which lenders view TPG's credit profile. In August, we closed a $500 million 6-year Asian term loan, the proceeds from which were partly applied to term debt maturing in 2026. We have lengthened and diversified TPG's debt profile, increasing our weighted average maturity from less than 2 years to about 4 years. After the refinancing, we expect the prevailing interest rate for the third quarter of 2023 to remain about 5.5%. I would now like to reiterate our approach to capital management. Our ongoing focus remains to first invest to sustain our critical assets, maintain a strong balance sheet and to support an annual dividend. Current dividend policy has enabled us to pay more than $750 million of fully franked dividend since the merger, while at the same time unwind almost $700 million of handset receivables and invest significant capital into core assets. To support our dividend, we've been able to access historic franking credits whilst at the same time utilize available tax losses. As these balances diminish and our capital structure evolves over the coming years, we will take the opportunity to review our approach to capital management, including our dividend policy. A particular focus, of course, will be the implications of any potential transaction involving our fixed infrastructure assets. I will finish on our upgraded guidance for 2023. Assuming no material change in operating conditions, we now expect EBITDA to be in the top quartile of our original guidance, between $1.925 billion and $1.95 billion, driven by the strong bounce back of earnings in the first half. As noted in June, our EBITDA range now absorbs new one-off transaction costs of $20 million to $25 million, of which $17 million was incurred in the first half. Meanwhile, we're also lowering our guidance for transformation costs to between $35 million and $40 million, down from $50 million in our original guidance. As noted, we still expect CapEx incurred for the full year of approximately $1.05 billion on an accruals basis, albeit cash CapEx is expected to be slightly higher at $1.1 billion. All CapEx guidance continues to exclude and expecting payments. I will now hand back to Inaki.

Thank you, Grant. When VHA and TPM agreed to merge in 2018, we did so to integrate 2 highly complementary businesses, fixed and mobile into a more competitive third force. Since that time, we have shown we have the discipline and strategy to make that ambition a reality, whether in the impact of the pandemic while returning our business to growth. But market forces have changed in 2018 with ever increasing need to deliver services digitally, rising funding costs, driving a focus on capital efficiency and opportunity to realize the value of infrastructure assets. Our guiding principles to integrate and simplify Win Smart and maximize our potential, provide 3 main areas of strategic focus as we close out on fiscal year '23 and look to fiscal year '24. First, we are now targeting $140 million of cash benefit from fiscal year '27 from our program to simplify and digitize the customer experience, the cost of which are already included in our long-term forecast. Second, we continue to believe active mobile network sharing is the most economic solution for regional Australia and continue to focus on ways to make this happen. And third, the potential to monetize our fixed infrastructure assets may enable us to unlock value to shareholders and create a leaner, more focused TPG Telecom. So let's look at customer experience simplification in more detail. Following an extensive planning process, we are commencing a multiyear program to simplify our brand portfolio, rationalize products and customer journeys, increase digitization and streamline internal systems and platforms. To give an example, this program will reduce the number of plans we offer from about 6,000 at the time of merger to about 100. It will deliver new and innovative ways to connect with and care for our customers, improving the experience for new and existing customers. And it will establish a more resilient, secure and flexible IT architecture, making us leaner, nimbler and improving our ability to deliver the simple grade value connectivity services our customers need. The CapEx requirement is not incremental to our existing expectation for about $1 billion of CapEx per annum to mid-2020 and will be about $80 million in each of fiscal year '24 and fiscal year '25. OpEx cost of $15 million to $20 million in each of these years will be reported within normal OpEx. From maturity in fiscal year '27, the program is expected to deliver net cash benefit of approximately $140 million per annum compared with fiscal year '23. These benefits will be split broadly evenly across CapEx savings and EBITDA gains from improved margin and lower operating costs. Now turning to our network. Our 5-year rollout is on schedule, with more than 2,500 sites now upgraded inside the 0 to 80% population area. As we continue this rollout, we will now add approximately 250 additional sites in the 80% to 90% population area following the Australian Competition Tribunal's recent determination to not approve our regional network sharing agreement with Telstra. With the addition of these sites, mainly in larger regional towns for our 5-year schedule, we now expect the upgrade program to be completed by 2026. While we won't be seeking judicial review of the tribunal's decision, we continue to believe mobile network sharing offers the best economic solution for customers and shareholders alike. Infrastructure sharing would allow more mobile operators to offer their products and services in regional areas, delivering greater choice to regional communities and driving competition. We continue to explore commercial options to expand our mobile network, which currently reaches 96% of Australian population, an advocate for sensible policy reform for improved connectivity in regional Australia. The last part of our strategic focus I want to touch on is our continued work to unlock the value of our fixed assets. Our tower asset sale last year enabled us to strengthen our balance sheet by securing a long-term lease against long-term assets. The strategic review of our vision network residential wholesale access business attracted a strong interest in vision on a stand-alone basis. But it also demonstrates the broader opportunity to unlock the value of our broader fixed network and our Enterprise business. We are continuing to work with Vocus Group on its offer of $6.3 billion with exclusivity scheduled until the 6th of September. While our fixed assets and Enterprise business are highly profitable and attractive for us to keep growing, the rationale for the transaction is strong. It will make TPG a leaner, stronger, consumer-focused business with great mobile assets. And it will establish Vocus as a much stronger challenger in Enterprise, government and fixed wholesale. Importantly, we will retain all our active mobile infrastructure assets and maintain attractive assets arrangements in fixed. Any potential proceeds could greatly accelerate the evolution of our financial position, enabling us to reduce bank debt while creating optionality for broader capital management. The offer from Vocus remains indicative and nonbinding and is conditional upon a number of matters, including the completion of the due diligence, debt financing, regulatory approval and the finalization of transaction documentation. The TPG Board has not made any decision to accept any offer. And there is no certainty and agree transaction will eventuate. I will close by discussing our growth drivers for the remainder of 2023 and beyond. The benefits of our postpaid plan refresh, recovery of international roaming, fixed wireless growth and new customer wins in Enterprise will all continue to support our growth in the second half, while we maintain our lower cost advantage in an inflationary environment. As we look beyond this year, the underlying outlook for demand for our services remains. We are delivering simpler customer offerings and experiences. We have our new target of $140 million of cash benefits from fiscal year '27 onwards. And we are focused on driving stronger returns through the efficient deployment and use of capital, infrastructure sharing and unlocking the value of our fixed assets. We will now take questions.

[Operator Instructions] Our first question comes from Eric Choi from Barrenjoey.

Thanks, Bruce, and good last result. Grant, back on the upgrade cycle. Just a rapid fire. First question, is it correct to say the EBITDA upgrade is driven by better mobile ARPUs, not any OpEx to CapEx expenses because that would imply you've got more mobile pricing power than we thought. So can you help us confirm that by just giving us an update on your mobile spend? Second question, just on the royalty, it looks like you could be in the mid to high 6s at the end of this year versus your 7 to 7.5 hurdle. So once you hit that should we worry that you suddenly have less motivation to lift NOPAT through price or that you might lift the IC through more CapEx spectrum? And then just a last question on Vocus. I know you can't say much. But can you just confirm what the overhead costs attached to the $550 million EBITDA is? And I ask because if the gross margin is higher, this obviously implies a more compelling multiple for Vocus than the 12 to 13x headline EBITDA multiple.

Thank you, Eric. Look, I'm going to start with the first one. So yes, the EBITDA is really related to our ARPU and customer numbers. And that's really what is driving the EBITDA. There is nothing other to consider. In terms of our return on invested capital, I'll let Grant respond to that one. And then, obviously, on the third question, like you said, we're not going to discuss any of the details of this until we have a conference call to discuss that. Today, we're talking about half year results and we will stick to that. Grant?

Thanks, Eric. On the -- yes, so just confirming part of this other question. No real changes between OpEx and CapEx in terms of accounting there. So it is all just ARPU growth largely in customer numbers. On ROIC, I think, yes, look, we are pleased that we're moving in the right direction. I don't think there's any notion internally that we get to a point and we take the foot off the gas as we're -- to use an American term. I think we want to continue to grow that. Obviously, we will continue. And we've got a heavy CapEx investment slate for the next few years that we've put out there and we'll continue to drive that. The spectrum, obviously auction, coming up as well which will require some capital potentially depending on how that goes. So while I think we are moving quickly towards where we want to get to in terms of above our cost of capital in the way that we define us, I think that just gives us opportunities to continue to grow that into actually cost of capital. So we'll continue to grow and drive really hard with investments and also a return on that investment.

Can I fact check maybe then Grant and Inaki, just, I guess, Vocus when it was listed, it used to quote a $10 billion corporate market where they had a 6% share. And I'm just trying to figure out market concentration based on publicly available information. Would you sort of agree Telstra is the biggest 60%, 65% and may be you guys 10, Vocus 6 to 10? Like is that how you see the relative shares?

I think the best answer for us, what we've said before, I mean, I think that $10 million really round number is pretty equivalent to what we've said. I think we've always said we're probably a $9 million to $10 million is we're with quote and we've got a high single-digit market share is sort of what we've said before. And so I think that hasn't changed. Where the other sits those estimates don't seem outrageous. But I mean that's probably more for you than us to get those exact.

Our next question comes from Darren Leung from Macquarie.

I had 2, please, and one was just on the postpaid ARPU as well, so up 5.8%, very, very material obviously, so congratulations. Can you give us a feel as to the drivers for this other than obviously the price increases in January? I'm just cognizant that, that was mainly across the front book. So I'm curious to understand how much of the backlog has been done and how much more can be, please? And then maybe on the second one, just on capital intensity. Just looking at the slide on that 13% to 15% CapEx ratio at the service revenues, based on where incentives is sitting today by the mid-2020s, is it fair to assume that this number approaches the sort of $700 million mark, please?

Thank you, Darren. Look, on the first question, and maybe I can clarify a bit. So it is -- the ARPU is related to our pricing moves that we did in the main of the year for the front book. So we did that in January. And then at the end of the month of February, we started the back book. And we had, at that time, during March and April roughly changed the pricing for about 80% of our postpaid consumer.

And on the second question on the capital intensity, yes, I think we've also put out there, I think last time the number that 13% to 15% of these are guidelines in the next few years. Once we get through the peak, it's probably about $700 million to $800 million range. Obviously, it depends on what assumptions you're making about where our service revenue will or not be in a few years' time. So they're all really just broad guidelines that we think with that kind of capital intensity means we can get returns that, again, cost of capital, so that's why the targets out there. They're also consistent with other telco players. Once they're through peaks like we are at the moment, then that should be the right target. In some years, we'll be at the low end of that, some years will be the high end of that is a reasonable assumption over the long term.

Our next question comes from Kane Hannan from Goldman Sachs.

Firstly, maybe just touching on the postpaid subscriber growth, sort of how that tracked through the half, where there's been any improvement early in the second half by some of the competitive price rises coming through? And then on the $140 million new OpEx CapEx program, I mean, do any of those benefits planned in FY '26? And what assumptions have you made around churn from exiting some of these brands and then some of the planned simplifications? I mean how those benefits split across retail and Enterprise and government?

Thank you, Kane. Look, in terms of the subscriber growth, like we said, this first half within the reference of our plans. And we need to see during this time, a moderate increase in our postpaid. We don't anticipate much change to that for the second half. It is a time where there is, like you all know, the seasonality of the iPhone launch. So I think that a lot of the consumer numbers will also depend on the success of that event, but in principle, that's what we see.

I think to answer the second question. Look, we probably don't want to get too detailed into those benefits in a few years' time. We've called out '27. You're right to point the fact that '26 is the gap in between sort of when we finish and when we start, that's largely because of the ramp-up and largely because there's some benefits coming in '26 that are still netted off against some costs. So where we're confident in the '27 and beyond, there's about half of that $140 million is sort of CapEx savings, which we've talked about before, where our run CapEx is higher than we would like as a percentage of revenue as a percentage of activity, you got 12 billing systems to maintain. You've got lots of applications, maintain lots of products to maintain. So we see about half the benefit coming out of CapEx and the other half is out of sort of a combination of sort of margin and OpEx. Obviously, OpEx will also be positively impacted to supporting those things. And the benefits are in that benefit of our view a long way out mind you. But our view of what potential migration risk is versus benefits as we migrate people. So it's a fairly detailed business plan that's been worked through, that's the high-level number. To split between ANG and consumer again, we're probably not going to get to that level of detail, to be honest.

Our next question comes from Entcho Raykovski from Evans & Partners.

So my first question is around mobile. I'm just interested in whether the response of your customer base to the postpaid plan refresh. Does that give you some comfort that the market can absorb future price increases given that you continue to grow postpaid subs in the first half, even though prices went up?

Thank you, Andrew. Look, I think the refresh was well taken because at the end of the day, there's been significant upgrades to the service. The customers are using the services more. They are getting better performance, larger amounts of data. And there are many factors that the customer considers when they are into one of our services. And when they balance, the value that is being provided to customers continues to grow. The service levels continue to improve. And I think that this is what is making customers attached to our brands. And that I think is the expectation also that we had when we did the plan refresh.

I guess what I was getting to -- sorry, I probably wasn't very clear. If you went again say in 12 months' time, do you think we've got scope to do that given the way that the customer base has responded? So could you increase prices then and see a similar sort of benign impact?

And do you mind asking all your questions at once as well?

Yes, of course. Okay. That will be -- and then my other question was on CapEx. Cash CapEx has obviously been impacted by the timing of payments. I'm just interested in whether accruals' CapEx has also been impacted to some extent, given it's slightly higher than the guidance you provided 6 months back? Are you bringing some spend into '23 from future years? Or do you expect it sort of to stay at these levels in '24 as well? And then maybe as a second part of that second question, if the Vocus deal goes ahead, what's the profile, the CapEx profile for the remaining TPG business? I don't know if that's color that you can provide. But I think there's a lot of interest in the market as to what a TPG post-Vocus transaction looks like from a CapEx perspective?

Yes, I'm going to let Grant tell you a little bit about your CapEx questions. But to complete your initial question and to keep loyal to my tradition, I don't really mention any future pricing moves, so I'm not going to do that.

And then on CapEx, look, I think it's a good question in particular of the timing. So there are 2 elements going on. It is some of the CapEx we pushed out from last year as we talked about that was incurred late last year and was due this year. There has been an improvement which is a really good new story. There has been, I think, quite a dramatic improvement over the last 12 months in our ability to deliver CapEx and to deliver it efficiently. Now I'm sure you've seen other businesses that I've been in this business. You sort of assume you're not going to deliver a property. So you start a whole lot of things where we actually delivered. So that did bring forward some things in the first -- from the second half to the first half. And we are actively now recognizing that we don't have to run hot as we call it, that we actually can deliver what we think we're going to deliver. So we will start to slow those things in the second half. So there was amount of that. And that actually also delivered sort of the mix of payments we made that some of those things become more efficient on a different payment schedule than others, so that also for some of the cash part. So that said, it's a good learning for us in terms of how we plan it. It does give us much more confidence in our ability to execute and plan it. And we still think we're in the same motion for the next few years that as we implement the RAM acceleration and also the simplification project will continue around the sort of circa $1 million dollar CapEx over the next few years. And I think your last question was about the Vocus transaction. And you're all going to get the same answer every time, which is we're not going to be talking about any details on Vocus. I think the only thing on CapEx is reasonable to assume that 13% to 15% of service revenue is dramatically different between the 2 businesses. So ultimately, whatever you assume that the ongoing TPG business that's a reasonably long-term view. What happens in the next few years, we think we'll talk about if we get to the point of the transaction.

Our next question comes from Tom Beadle from Jarden.

I've got 3. Just firstly, just I had a clarification from Darren's question on postpaid ARPU. Just how should we think about how the timing of those price increases impacts ARPU in the second half? So obviously, you raised those prices during the half. So you should see some sequential growth. So can you quantify that, if possible, please? Secondly, just on the NBN, can you just talk to some of the competitive dynamics you're seeing there, specifically, I guess, what the non-telco entrants are doing there? And also just how much of your net adds in fixed wireless were migrations of existing NBN or Vision Network customers? And then, just finally, on fixed wireless, that's obviously growing nicely. I guess the question is how fast can you grow that business? I know in the past you've spoken to constraints like hardware and you obviously need to have appropriate network capacity. So just anything there, any color there would be very helpful.

On the first question about ARPU, look, we did implement them for you in January and the back book sort of in the second quarter. So look, there's likely there's some period annualization benefit of that. But it's largely material, to be honest, in terms of -- and it's obviously already been factored into our upgraded guidance. So I wouldn't assume it's a material difference between the second and the first half in terms of ARPU impact. On the NBN?

Yes. Thank you, Tom. On the NBN, look, we have been saying this for some time. The NBN market remains quite competitive. And we do see a significant number of new entrants coming from other industries. And definitely that is having an impact on the NBN. I also think that the NBN entrants now probably a different phase with the rollout of fast fiber connect. So I do think that the market will probably pivot toward that activity around customers upgrading to faster connection. So we are quite excited about that. We launched this week I think on iNet, as on iNet, we're launching on TPG and Vodafone brand will follow as well. So that's an activity that I think will be quite important during the future years. And I think that on our own vision, I think similar things we've seen in terms of a high competitive market, which also ambition, we have been doing some changes to our wholesale pricing. This also has been reflected ultimately on the retail. The prospects of Vision continue to be very good for us first because the quality of the assets. The fact that we have now upgraded most of these premises to G fast and there is now also an opportunity to really commercialize these high-speed plans as customer demand grows. And the greenfield and brownfield opportunities remain there. So that's really where the focus is. In terms of the fixed wireless, looked at the opportunity, we have always used the New Zealand market, we view it as a benchmark of roughly 20% of premises connected through this technology. That's probably where we think that the market will go. If you look a bit into the reports of our competitors, it is a technology that is growing. And then if you add all the current premises connected on fixed wireless in Australia will probably close to 0.5 million premises. And then, in our case, the number of fixed wireless still split between customers changing technology, existing customers and new acquisition. And we're probably close to a half-on-half on that sense. The constraints of fixed wireless is more around the geographical location of where we want to use this technology. And that is to make sure that we preserve our capabilities for mobility. So that is really the constraint rather than any other thing. And then, the evolution is also around the new technologies that are coming, new spectrum bands, et cetera, et cetera.

Our next question comes from Roger Samuel from Jefferies.

I've got 2 questions. First one in relation to your 5G rollout and CapEx, if I look at your FY '22 results presentation in February, you had a target of 3,000-plus sites to the upgrade to 5G by the end of 2023. And as this result, you mentioned about 2,500 and another 250, so that lower than the 3,000 targets. So I just want to clarify your CapEx spend in 2023 and whether you're still committed to the 5,000 sites by 2025. Second question is on the mobile market. Can you explain to us the dynamics happening in the mobile market right now? I mean you mentioned about the moderation in postpaid adds in the first half. I'm just trying to understand if you see any impact from the macro environment and perhaps consumers are turning down to prepaid. I could see that your Vodafone prepaid is up, but then, your TPG iNet prepaid down. So yes, just interested to be here what's going on in the mobile market?

Thank you, Roger. So maybe I -- so the rollout that we have achieved so far, 2,500 sites, that means that we maintained our target to end the year of 3,000, so there is not really a change in anything that we have said. The rollout of sites on this market on average takes about 50 weeks to do the rollout of a site. And we are quite -- we have good visibility into what we think will be delivered this year. So we can say that plus/minus a few sites, we will end up in the number that we anticipated. There is no change for that. And then in terms of the mobile market dynamics, look, I think that, therefore, the second half, the iPhone launch is an important event that we see every year that more of a seasonal thing. I think probably the changes versus last year had to do more with the inflow outflow of international business. So we did see last year a significant increase of the inflow into temporary residents and now we see that inflow maintaining, but there is also outflow. So that change is reflected, I think, on the numbers on the industry. And probably we entered a market environment that is a bit different, a bit more challenging. We are in an industry that is quite resilient, because of the amount of value that we provide. And at the end of the day, the connectivity is a prime necessity service. So I think that from that perspective, we are confident. But at the same time, we do see a macro environment that is probably a bit more challenging.

Roger, it's James Hall speaking. I just want to add something to clarify your question there around the 250 sites additive to the 5,000 over the course of the program as a result of us upgrading some more peril-urban sites having not got approval for the Macon. It's not -- that 250 is in relation to what gets delivered this year. I think that's where the slight misunderstanding might have been.

Our next question comes from Brian Han from Morningstar.

First question, just on the decline in your Vodafone prepaid subs, was that loss mostly recaptured and reflected in the growth of your budget brands and MVNOs? And second question is can you please talk about the reasons for the lower-than-expected transformation costs in '24 and whether that's just deferring those costs to NextG?

Look, like -- thank you for your question, Brian. On the Vodafone, the reality is what I was saying before, which has to do with the seasonality of the prepaid business. And the fact that it's also influenced mainly last year through having pretty much only inflow and now we see both components. It does have a significant seasonality effect and that is what we see. In terms of our other brands that are probably less exposed to the international market, the performance of iNet, TPG, Lebara have been having good during the first half.

And in terms of transformation costs, now, look, $50 million was just the best estimate we had at the time through the plans last year. We've continued to do what we expected to do, probably done it more in-house than external than we probably thought. Last year, we spent a little bit more on consultants helping us to set up the capabilities to do it. And we moved that in-house this year in terms of our transformation capabilities. And as you've heard about from Inaki, we're now -- we'll probably stop -- we will stop separating this out from next year. I suspect because it'll become much more just part of the program and the simplification where we're largely through the transformation now. And we're just going to spend less this year than we expected.

So just to confirm, Grant, so that $15 million to $20 million extra cost from that customer simplification program. You're just going to absorb that and there will be no more transformation costs associated with that?

Yes, that would just be part of normal OpEx from an ongoing basis. We may still talk about it, just to make sure that you understand it that it's there and that it's probably on there for a couple of years. But it's rather than -- we've done in the last couple of years to highlight that it was a big capability build for us now that it's becoming a bit. We've built that capability. It's becoming more of a project only. We'll just think from next year, I will start to just talk about the guidance of EBITDA level.

Our last question comes from Lucy Huang from UBS.

I've got 2 questions. So just a bit more on the prepaid market. I think you highlighted that competition is increasing in that statement. So I just wonder if you can give us some more color into the dynamics at the moment and whether your view is that over time, the rationality we're seeing in postpaid could come into prepaid. And then just my second question, just for the NBN AMPUs, they've gone up quite a decent amount. Just how much was it from fixed wireless migration versus some of the price increases that you put through earlier this year?

Thank you, Lucy. I'm going to ask Kieren who is on the line to answer to the first question. Kieren?

I won't speak overall from what we're seeing our competitors doing. But from what we are seeing and picking up on some of the points Inaki was saying, the international market is -- remains a big driver for us. And it does have -- it's not a homogenous market. So that really comes in 3 different forms, students, short-term visitors and longer-term visitors. It's really students and the short-term visitors that the shape of the dynamic of the prepaid market from the international perspective from our point of view. And there is a real seasonality. We are probably better suited than many of our competitors for that market because of our international brands and our international reputation so that we generally benefit pretty well from that. The dynamic that we're seeing competitively is there are both new entrants and there are traditional players competing really aggressively in that space as to what rationality or changes to pricing will go going forward. It's probably too early to say. And also I couldn't really comment on what we observe competitors are doing on that. And would you like me to pick up AMPU as well, Inaki?

I'll take that one, Kieren.

Okay.

Just that's a shorter one. So basically, it's about half of half. So you would see a benefit coming from our fixed wireless migrations of customers and the other are related to our NBN plan refresh.

We have no more questions on the line. Thank you for joining us for the call today. You may now disconnec