Swisscom AG

SIX:SCMN

Q2-2025 Earnings Call

[Operator]

Good morning, ladies and gentlemen. Thank you for joining the Swisscom Q2 2025 Results Conference Call hosted by Christoph Aeschlimann, Eugen Stermetz and Louis Schmid. Louis, the floor is yours.

[Louis Schmid, executive]

Good morning, ladies and gentlemen, and welcome to Swisscom's Q2 '25 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.

Let's now move to Page 2 with the agenda today. As you can see, our CEO starts the presentation with Chapter 1 and a quick overview on the highlights, the operational and financial performances of the second quarter. Then in Chapter 2, Christoph presents a business update for Switzerland and Italy. And then in the second part of today's results presentation, Eugen runs you through Chapter 3 with the second 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?

[Christoph Aeschlimann, executive]

Thank you, Louis, and welcome to the Q2 '25 call from my side. I will directly move to Slide #4, highlighting the successes of the last quarter. As you can see, we've been nominated again as the strongest telco brand in Switzerland, and we were able to win another Connect Test on the mobile hotline with a new record score 490 out of 500, which demonstrates our outstanding customer service that we provide in Switzerland.

I'm also extremely pleased with the launch of beem, our new convergent B2B connectivity portfolio, which unites connectivity with security for our B2B customers, and we will talk a bit more about this later on in the presentation.

I'm also very happy with the progress we are doing in Italy. Integration is going exactly as planned. Synergy ramp-up is as planned. Integration costs are as planned, and we are on track to deliver our full year targets for the second half year.

We all made big progress on integrating Fastweb and Vodafone. On the offering side, we launched or expanded the Energia offer to the Vodafone customer base and have extended our AI offerings as you will see a bit later on.

And overall, after Q2, we are confirming our full year guidance, with revenue being at the lower end of the guidance of CHF 15.0 billion to CHF 15.2 billion, so rather at the lower end. But overall, we confirm the guidance for the full year.

Now moving on to Slide #5. We can see that the keyword is stability. We have a stable RGU base overall in Switzerland and Italy. And we have very similar trends in the second quarter as we had in the first quarter. So on the one hand side, you can see that we have a growing postpaid mobile base in Switzerland, roughly in line with Q1, and a stable mobile base in Italy, mainly driven -- we have growing B2B side, compensating the losses that we have on the B2C side.

On the broadband wholesale side, it's also quite a similar picture. We have slightly lower growth in the wholesale business, both in Italy and in Switzerland but, on the other side, compensated by lower losses on the broadband side, both in Switzerland and in Italy. So overall, a very stable picture and similar to last quarter.

Now I move on to Slide #6. Q2 revenues were slightly lower than in Q1 or the decrease was slightly bigger than Q1. On the EBITDAaL side, the second quarter EBITDAaL was slightly better than in Q1. And overall, we are posting revenues for the first half year of CHF 7.44 billion, down minus 2.3%, and an EBITDAaL of CHF 2.47 billion, down 5.5%, mainly driven, as you can see in the bridge on the right-hand side, by the EBITDAaL decrease in Italy due to all the integration work and what we're doing bringing together Vodafone and Italy, with minus CHF 65 million in the first half year, and overall stability in Switzerland, with minus CHF 3 million in Q2, bringing the overall EBITDAaL to minus CHF 6 million in the first half of the year. Again, we'll, as usual, dive more into the detailed financial numbers later on in the call.

Now moving on to the business update in Switzerland and in Italy. We can jump directly to Page #8 to recap our priorities and the road map for 2025. It's quite easy. We have 3 priorities per country. In Switzerland, we are managing the telco top line, making sure that the service revenue erosion is as low as possible. We continue to execute on the cost savings side and are working hard to achieve profitable IT growth, which faces some challenges at the moment as you will see later on.

On the Italian side, we have similar but slightly different priorities. The first and biggest priority is integrating Vodafone Italia and Fastweb to capture the synergy potential and, at the same time, turning around the B2C mobile business to stabilize the telco top line, accelerating the growth on the energy side. And on the B2B, we want to scale up further the IT business and stabilize the wholesale business so that we have a stability on that front.

Now I'm moving or diving a bit deeper into the Swiss business. We will start with B2C on Page #9. On the B2C side, the main goal at the moment is to drive differentiation further to effectively defend our RGU base. And we can say that overall, the market is slightly less promotional. We can see that clearly Sunrise is sticking to what they announced in their Q1 call being less promotional, while Salt is still very aggressive in the market. But overall, we see the market a bit calmer and are hopeful that it continues in this way for the second half of the year as well.

On our side, we are reinforcing our brand awareness. So we launched a new branding campaign and sort of reworked the Swisscom branding with a new claim, Discover your possibilities, that we launched in the second quarter. The campaign is very well received, and we are pleased with the feedback we are getting and really working hard to further position Swisscom as a premium brand that helps customers achieve what they want to do in their lives.

We're also working on the value of our subscriptions with the We are Family! proposition. We've updated roaming propositions for the summer and the extended blue Kids offering. So we do a lot of sort of targeted work on the product portfolio to make sure that customers get enough value for the price they pay. And at the same time, we continue to drive the second brand, especially increasing sales presence with sort of a new low-cost type pop-up stores, which allows us to drive -- further drive sales on the second and third brands.

Overall, you can see that the shift to second brand continues. So we have about 35% second, third brand customer base now. It is up 3%. This is also the main driver of the ARPU decline that you see on the next page of minus CHF 1. Penetration rates of blue have increased slightly by 3% on mobile and plus 1% on the blue side, which is a good news, meaning that most of the customers are now on our in-market blue portfolios and on the higher-value subscriptions, and FMC is roughly stable overall at the customer base.

Now on Slide #10, you can see the ARPU evolution. I already mentioned mobile is slightly declining due to the ongoing shift to second brand, whereas the wireline is roughly stable, slightly increasing as we managed to upsell customers into higher-value bundles, higher-value TV products, extending value-added services.

And at the same time, we are really heavily investing in our customer service to make sure that we continuously deliver the best customer experience. And as I mentioned at the beginning, we managed to win another Connect Hotline Test, and this then materializes in NPS leadership. So you can see that we are now -- we managed to slightly increase our NPS regarding to the last measurement, mainly driven by the Swisscom Benefits and loyalty program, which had a positive impact on customer satisfaction, also leading now to a lower churn, both on wireline and mobile side.

So you can see overall, I think, a very pleasing picture on the B2C side, managing to create value position, Swisscom as a premium brand and, at the same time, defend the customer base overall to make sure that we maximize revenues on the B2C business.

Now on Slide 11, we are moving to the B2B, business. On the left-hand side, you see telco; on the right-hand side, IT. The main objective is really to innovate both on the telco side and on the cloud security and AI side for IT and delivering new products to make sure that we can drive revenues in the coming year.

But overall, first, maybe we can say that you can see ARPUs are still declining overall. So the pricing pressure, especially in corporate but also on the SME side is still very strong on the B2B market, which is driving mainly the loss in service revenue.

As I said before, we launched the new beem product portfolio, the new convergent connectivity solution. We did this in May. It was very well received by the market. We had a very big media response. And at the same time, also the sales numbers we see so far are very pleasing. They are in line with our expectations, and we already managed to sell several thousands of subscriptions, which is, I think, excellent news, and we will see now over the coming quarters if we are able to scale the sales of beem as we are expecting.

At the same time, we are continuously launching new features. So this is also maybe a novelty in the telco world. So it's not like a onetime big bang, but every month, we are launching new services. We brought out the new apps. We will bring new features mid of August and then continuously, over Q4, also deliver new enhanced features, which allows us to continuously upsell the customer base towards the future.

I think we are very proud of this world's first. I think it's really changing the way we look at B2B connectivity, really combining security and connectivity in our core network. And I think we can be proud of what we delivered here together with our teams, delivering many world's first in the telco space.

On the IT side, we expanded our product offerings also in cyber, but also in sovereign cloud. We expanded our AI offering, which should deliver incremental IT service revenue in the future. You see that in Q2, we were able to grow organically by plus CHF 2 million. It's slightly lower what we see usually and also what we expected overall when we plan for the year. But looking at the current macro situation in Switzerland and the tariff situation, which is impacting quite a lot of our customers, especially on the manufacturing side, we are still pleased with the results as many B2B customers are now into -- when they do cost saving mode or delaying or redimensioning IT investments, it makes it a bit harder to grow on the IT side, and we do expect this to remain like this for the full year.

As you've seen that the Trump tariffs are now in effect since this morning, 6:00 a.m. And it also led to a slightly lower EBITDAaL contribution of minus CHF 4 million because we are underutilizing our consulting capacity due to also these missing sales that I just referred to.

But overall, still, I would say, a good result. Margin on the IT side is roughly stable at around 6% EBITDAaL. So I think not a bad situation, but let's say, less positive than we hoped for due to the macro -- current macro challenges.

Now I will go to Slide 12, network and wholesale. So we again pushed further our network coverage both on the mobile and the fixed side. So mobile coverage is up by plus 4%. On the 5G side, we are now covering 87% with 5G+, so the new 5G 3.6 gigahertz frequencies. Also, 3G phaseout is completely on track. We will shut off the network end of the year and migrate customers onto our 4G, 5G network over the next month.

On the FTTH side, we are -- the rollout is progressing very nicely, also up by 5% year-on-year, and we now cover 54% of the country with FTTH. And in Switzerland, FTTH means 10 gigs connectivity. So we have excellent connectivity coverage and continue to roll out as we plan to hit our target of 75% to 80% coverage by 2030.

We also continuously invest in network quality and resilience. And you can see that these investments are paying off. We have record-high network stability scores, both on mobile and on wireline, demonstrating the quality that we deliver on both networks.

This also helps to grow further our wholesale business. So you see that the FTTH penetration in our wholesale business has increased by 5.5%. So now 47% of all wholesale lines are FTTH lines, and I expect to hit the 50% number by maybe still this year, but the latest early next year. We will probably have more fiber lines in our wholesale business than copper lines, which is excellent news for the future, meaning that we can monetize really the fiber rollout. And you can also see it drives our access service revenue, plus 9% to CHF 49 million, and we do expect this access revenue -- access service revenue to continue to grow over the coming years as we are rolling out more fiber across the country.

Now one last slide on Switzerland, Slide 13. Telco cost savings. I think we can keep it short. It's -- the key message is on track for full year delivery. We stand at plus CHF 31 million.

Please don't extrapolate this to year-end. We confirm the CHF 50 million. We are slightly ahead in our savings, but we don't expect much more than CHF 50 million for the full year. So I think it's good if you stick to the plus CHF 50 million number for the full year, but it's obviously a good news that we already managed to bring in over half of the planned savings.

I think one of the topics I would like to highlight is the copper phaseout associated, obviously, with the fiber rollout. So you can see on the slide that we already managed to phase out 300,000 copper lines. If you compare it to our peak copper estate that we had in 2023, about 2 million lines, so we already turned off about 15% of all copper lines, and we are on track to achieve our target for full copper phaseout in 2035. So I think I'm quite happy with the progress on that side as both B2C, B2B and wholesale are phasing out copper lines on their side, and this will continuously help us to generate some savings over the next few years.

Okay. This was it for Switzerland. So overall, very stable, good news, on track with our strategic project or strategic initiative execution. And I will now move on to Italy with Page 14.

I think the key word here is also integration is progressing as planned, and we are on track for synergy ramp-up in the second half of the year. So the most important topic, as you know, in Italy is the migration of our mobile customers from the old -- or the mobile Fastweb customers from the Wind Tre and TIM network onto the Vodafone network.

So the migration of these SIMs is progressing exactly as scheduled. We're making good progress, and we are confident to finalize the migration by year-end so that we can deliver the cost synergies for this year but also and even more importantly deliver the roughly EUR 200 million mobile COGS synergies for next year in 2026.

We completed the organization integration. The design is done. All the management positions are nominated. So now we have a completely integrated and functioning organization so that we can really focus on executing our business tasks, and also all the other integration tasks are on track. We have already first optimizations that we were able to do from carving out the Vodafone Group services, and we will continue to work on all these topics in the coming months.

Next to the synergy realization, which is, I think, going exactly according to plan. Another important topic is the turnaround of the B2C mobile business, which is the main driver of the service revenue erosion in Italy. And if you look at the numbers and also the guidance earlier of the year, we guided EUR 100 million to EUR 200 million service revenue erosion. We will most likely end up at the very high end of this guidance, and it's obviously more than we had hoped for, anticipated for. So this topic is really of key importance as we continue to execute on changing the B2C strategy.

So early in the year, we decided to shift from a volume strategy or the historic volume strategy that Vodafone pursued to a value strategy, focusing really on higher ARPUs, managing the customer base and especially getting down -- lowering churn to decrease the ARPU outflow, increasing NPS and then having lower inflows, but the inflows we have at higher ARPUs.

So we believe that this is a much more sustainable strategy for the long term. It will also help the Italian market to become less promotional and less price driven if all the operators focus on value and the customer base rather than chasing another 1,000 new SIMs and driving down further the price in the market.

So I think we can already see the first signs that this strategy is working. We can also see that the market is becoming much more rational and slowing down. But overall, as you know, telco is quite a slow-moving business. So we also need to be patient as this work requires some time. And I do expect this to last until -- way into 2026. But we can already see the first positive signs as you can see on Slide 16.

So on Slide 16, you see the mobile business evolution. So net adds are still -- or net add losses are still stable. So we slowed down the sales side for higher ARPU inflows. At the same time, we managed to massively decrease the churn. As you can see on the right-hand side, churn has decreased from nearly 24% to 18% in second quarter. So this is an excellent sign, mainly driven by a different handling of the customer base, different handling of the call center. So we invest more in the customer base. We provide more value to our customers and improved customer service at the touch point, mainly driving NPS up and, at the same time, releasing churn. And you can see ARPU is still slightly going down overall but substantially slowed down and is very close to stable evolution.

One other important aspect of this was aligning the front-book prices between Fastweb and Vodafone, which has been done to a large extent. And the next step is now the launch of a completely integrated product portfolio, which we will launch in September so that we have completely aligned prices or one single price point between Fastweb and Vodafone, and we will do this after the summer in Italy to be ready to launch this for our new customer base.

At the same time, we are also moving into a multi-brand positioning, clearly repositioning Fastweb, Vodafone as a premium brand and ho. Mobile as a second brand for sort of the value seekers or smart shoppers. And we will -- as we -- similar to the strategy we are executing in Switzerland with the main brands, Swisscom and Wingo, and we will execute a similar strategy in Italy to make sure that we have the higher-value customers on the main brand and then for the people who are chasing the lowest prices, we will use the ho. brand, and we expand the sales footprint of the ho. brand to make sure that we can sell it more at touch points.

On Slide 17, you can see the same picture for the wireline business in B2C. Here as well, you can see that churn is going down from 20% to roughly 18.4%. NPS is also going up, and ARPU is already stable. As we have aligned also the new front-book prices between Vodafone and Fastweb, we already managed to align or stabilize the ARPU, whereas broadband losses are still there, with minus 52,000 in the last quarter, but also slowing down as the churn is going down overall.

So you can see that overall, the strategy seems to start to take effect. But as you know, overall, until you really see this in the numbers fully, it will take several quarters still to come. So we need to be patient on this side, but we are confident that we are on the right track to minimize the service revenue erosion in Italy.

Another important piece on the wireline side is also the energy offer that we continue to push. So we opened it up to all the sales channels on the Vodafone side in the second quarter, and we were able to double the sales speed with this move, and we are confident that we can continue to scale up this offer. This will also generate new service revenues, compensating some of the losses that we still have on the wireline or the mobile side.

Now moving on to B2B on Page #18. As for Switzerland, you can see telco on the left-hand side and IT on the right-hand side. Telco is still growing quite heavily on the mobile side, plus 11%, mainly driven by the TM9 government agreement, while the broadband side is roughly stable overall.

We're also cross-selling energy for the SME customers, which is driving new service revenues on the B2B side and launched a new product portfolio in the private MPN side, where we did a contract with University of Palermo.

On the IT side, similar to Switzerland, we also launched new offerings on the AI space with the FastwebAI Suite for SMEs, enterprises and public administration. This is a full platform allowing for AI infrastructure, but also agents, FastwebAI for work, really helping both private customers, but especially SMEs and enterprises to use AI in a sovereign way in Italy, and we are quite confident that this will be a positive move in the IT space in Italy.

On Page #19, you can see the achievement on the network side. So I will first start with the network rollout. We also continued to roll out 5G+ in Italy. And due to the move from the Wind Tre and TIM network under the Vodafone network, we managed to increase our 5G+ coverage by 14 percentage points, and we now stand at 87% 5G+ coverage in Italy. And also the FTTH expansion continues with FiberCop and Open Fiber building out more fiber, and our FTTH coverage is up by plus 14%, with now 53% of the country covered by FTTH overall.

And really one of the highlights of the quarter in Italy is the surpassing of 1 million UBB lines on the wholesale side. So we now have 1,018,000 lines sold to wholesale customers in Italy, which is plus 31%. I think really an outstanding achievement of the Italian team. And also the CoopVoce customer is steadily onboarding new customers onto our mobile network, and this is going also as planned. And you can see that the wholesale revenues were up by 9% to EUR 173 million revenues.

This was it from the Italian piece. So overall, I would say, Italy with some challenges that we need to tackle, but we are on track. We have a strategy, clear plan and overall synergies, and integration work is going according to plan.

I will now hand over to Eugen for the financials.

[Eugen Stermetz, executive]

Thank you, Christoph, and good morning, everybody, also from my side. We'll start right away with Page 21, group overview. So I'll start with revenue. Revenue was down CHF 173 million in the first half year, CHF 60 million of which is due to currency. So the net effect is really minus CHF 107 million.

Switzerland contributed minus CHF 77 million. If you look at the quarters, Q2 looks like an acceleration of revenue decline. Actually, this is very much driven by hardware sales without any impact on margin as we shall see. Italy, minus CHF 13 million, minus CHF 8 million in the first quarter, minus CHF 5 million in the second quarter, almost stable revenues.

EBITDAaL group overview. Group EBITDAaL was down CHF 144 million. There is a number of adjustments totaling minus CHF 64 million. We have this year, obviously, integration costs. In Italy, we have pension reconciliation, which we put into adjustments. Last year, we had a release of a regulatory provision in Switzerland, et cetera, et cetera. So there's quite a number of adjustments in there. So it makes absolutely sense to look at the adjusted number first, which is down CHF 80 million compared to prior year.

In Switzerland, practically stable EBITDAaL, with minus CHF 6 million in the first half year and stable development over the quarters. In Italy, minus CHF 65 million. This is mainly due to the B2C business as we shall see. Q2 looks a bit better than Q1 with minus CHF 15 million to the minus CHF 50 million. But part of it is not recurring. So the minus CHF 15 million are certainly not the new rate of EBITDAaL evolution in Italy.

All of this on this page, very much in line with expectations. And in particular, the EBITDAaL also in line with our full year guidance.

I'll move on to Page 22. CapEx was below prior year, CHF 127 million positive impact on operating free cash flow. This was very much driven by Q1 that both in Switzerland and in Italy, in particular, Vodafone had very high CapEx in Q1 2024. Q2 is a much more normal quarter as you can see from the numbers. So Switzerland in Q2, plus CHF 10 million. Italy, Q2, 0, so same level as last year, with first half year numbers are completely driven by what we talked about already in Q1.

If you look at operating free cash flow, adjusted, plus CHF 17 million. In Switzerland, plus CHF 26 million. So as a result of stable EBITDAaL and lower CapEx. So not only stable free cash flows from Switzerland but, in the first half year, even improving free cash flows from Switzerland. Italy, minus CHF 7 million, almost stable operating free cash flow, but very much driven by the lower CapEx that I talked about in Q1.

Let's dive into Switzerland, Page 23, starting with revenue. So as I said, revenue is down CHF 77 million in Switzerland. If you look at the individual segments, B2C, minus CHF 18 million, not much news, small and steady service revenue decline. We'll talk about service revenue on the next page. B2B, minus CHF 68 million, down from prior year. In the second quarter, minus CHF 43 million . So that requires an explanation.

It's exactly here that you see the impact of the lower hardware/software revenue. B2B had about minus CHF 40 million hardware/software revenue compared to prior year. This is part of a strategy that we implemented in Q1 to focus on high-margin business rather than sometimes very low-margin hardware deals. So that's very much intended and does not have an impact or certainly not a negative impact on the bottom line.

If we look at EBITDAaL, the adjusted number is almost stable at minus CHF 6 million. Split between the segments, B2C, small decline, even stable in Q2, which is obviously very good. So the service revenue decline in B2C that there is could be compensated by lower subscriber acquisition costs and indirect costs. That's excellent. B2B, minus CHF 31 million. That's almost exactly the telco service revenue decline. And as I mentioned, no impact from lower revenues that we see above. And finally, wholesale, very small and steady growth, both on revenue and EBITDAaL, which is obviously due to the growing wireline business that Christoph already alluded to.

I move page -- on to Page 24, the deep dive into the Swiss P&L, a very busy slide. Let's look first at the bottom left corner with the service revenue evolution over the last couple of quarters. A very steady picture as Christoph already explained. So we had minus CHF 31 million in the second quarter after minus CHF 26 million in the first quarter. This is all very much within the usual range of ups and downs that we have seen over this year and last, so not much of a trend to be seen there. Rather, no news is good news.

The drivers of service revenue decline in the second quarter are the ones we know quite well on the B2C side. Wireless, we do increase our subscriber numbers, but ARPU is being diluted by the second brand share that goes up. On the wireline side, we have the fixed wireline losses and also some limited broadband losses, but ARPU is holding up nicely due to all the measures that Christoph mentioned before.

Also, B2B, not much news. ARPU, by and large, steady certainly on the wireline side, a slight decline on the wireless side. This is here, ARPU effect, driven by postpaid value only. So the ARPU number is a bit different from the one that Christoph mentioned before. The major impact on B2B is some customer losses in wireless, mostly in the SME segment. And in wireline, we had some corporate customers migrating sites away, actually a bit faster than in the prior year, which shows up in the wireline RGU number.

Overall, we confirm our service revenue guidance of about minus CHF 100 million for the full year. So that's the service revenue.

2 or 3 other things to note on the slide, on the top left corner, you see the telco P&L, and you see the cost savings. So in the first half year, we had plus CHF 31 million in the books, CHF 22 million of which in the second quarter, as Christoph already explained, not necessarily the run rate to expect per quarter. So the guidance remains about CHF 50 million plus for the full year.

And finally, top right, you see the P&L for the IT business. And there, you can see the minus CHF 38 million, which is the hardware revenue that are lower than previous year, all as intended and without the impact on the margin.

With that, I move on to Page 25. CapEx, a bit lower than previous year. We had a bit higher fiber CapEx in the first half year, with full year still as expected. So the lower CapEx was very much driven by some one-off items in the previous year that we already referred to when we talked about it in the first quarter.

And finally, in operating free cash flow, with stable EBITDAaL and lower CapEx. Free cash flow from Switzerland, as I mentioned, is not only stable, but even slightly growing.

Let's dive into Italy now, Page 26. Starting with revenue. Revenue is almost stable year-over-year, minus EUR 13 million in the first half year. The B2C decline was almost compensated by growth in B2B and wholesale. So B2C down minus EUR 44 million. The service revenue decline is higher as we shall see, but there is the growing energy business that compensated part of this. B2B, a plus of EUR 23 million. Here, it's due to the IT business, mostly which offsets the telco decline. And the wholesale business with a growth of EUR 15 million in the second quarter, very nicely. The growth in the UBB business and from the MVNO business showing up in the numbers.

EBITDAaL, adjusted number of minus EUR 68 million. So this is the euro number now to the Swiss francs we talked before, minus EUR 68 million. As you can see, immediately, almost entirely driven by decline in contribution margin in B2C, which is the same in Q2 as in Q1, and driven by the same drivers: service revenue decline on the one hand; and also, still in the first half of the year, prior to the migration of the Fastweb customer onto the Vodafone network, higher mobile COGS out of the existing MVNO agreements for the Fastweb subscribers.

Contribution margin, B2B slightly down, minus EUR 12 million despite higher revenue. So this reflects a change in business mix, both IT business replacing the telco business but also, within the telco business, the impact of the public administration TM9 contract, which has very low prices and margins, which then show up in the bridge.

Contribution margin from wholesale, a plus. That's very good. Indirect costs were a bit lower than previous years, but there is a very big difference that you see between Q1 and Q2, with Q2 plus EUR 20 million. Unfortunately, this Q2 is driven mainly by high cost at Vodafone in Q2 in the prior year and is more of a one-off. So for the moment, at least, a EUR 16 million EBITDAaL run rate per quarter is not sustainable in Italy, and we stick to our full year guidance of minus EUR 150 million adjusted and EUR 50 million integration costs. So fully confirm the guidance for the full year. Don't overextrapolate some of the detailed numbers of this Q2.

I move on to Page 27, deep dives into service revenue on the Italian side. Top left, you can see minus EUR 100 million in the first half year. 3/4 of which from B2C, in the amount of EUR 77 million from B2C. If you look at the quarterly evolution at the bottom of the chart, same, same, minus EUR 47 million in the first quarter, minus EUR 53 million in the second quarter. B2B, stable. B2C, a bit worse in the second quarter than in the first quarter. So while the operating KPIs start to improve as we implement the volume-to-value strategy, we do not expect those improved operations to show up in revenue year-over-year changes before 2026. And so we fully confirm our guidance on service revenue, as Christoph already mentioned, on the upper end of the EUR 200 million -- EUR 100 million to EUR 200 million for 2025.

Drivers of service revenue decline in the second quarter. B2C mostly, as I said, minus EUR 42 million; wireless, minus EUR 25 million; wireline, minus EUR 17 million. On the wireless, there is ongoing ARPU dilution, even if the spread between inflow and outflow ARPU is narrowing, and the washing machine, as Christoph already explained, is declining or decreasing. So the exchanges are decreasing as both sales and churn come down, but there is still RGU decline obviously, also driven by lower acquisition even if compensated by -- partially by better churn. So all the operating improvements to show up in the telco service revenue year-over-year numbers will obviously take a bit.

On wireline, it's mostly the impact of the lower customer base. ARPUs are, by and large, fortunately stable.

I move on to Page 28, CapEx. CapEx, EUR 78 million below prior year. Adjusted, about EUR 60 million. So that is mainly because of the very strong Q1 CapEx at Vodafone in the prior year, with a major IT project being completed. We already talked about that. And Q2 was basically at prior year level. Q2 adjusted CapEx was at prior year level.

Operating free cash flow, adjusted, minus EUR 8 million, almost stable. That's thanks to the Q1 CapEx effect as explained.

On to Page 29, synergies and integration costs. So we realized the first synergies in the first half year of EUR 14 million. This is mostly from Vodafone disentanglement. We confirm the full year target. The big ticket this year will obviously be the first tranche of synergies that we see out of the migration of the Fastweb mobile customers on to Vodafone, which will hit the numbers from H2 onwards this year, mostly in Q4, obviously.

Integration costs also confirm the full year target. We have EUR 40 million in the books so far, EUR 20 million OpEx, EUR 20 million in CapEx. There's a lot more to come, among others, in connection with the network expansion cost as we host the Fastweb customers also on the Vodafone network.

I'll now move back to group numbers, Page 30, with the free cash flow bridge, which is compared to reported numbers. So far, we talked about comparison to pro forma numbers 2024. This is compared to reported numbers. Free cash flow is up CHF 143 million compared to prior year, driven mainly by 2 factors. One is net working capital. Although we had a negative effect from delta net working capital, as we always have in H1, we had a positive deviation or favorable deviation to the prior year number by CHF 153 million. So that is one part of the equation. And the other part is, on the negative side, higher interest payments due to the Vodafone acquisition, and net-net, with all the other effect, that's a plus of CHF 143 million on free cash flow.

On net income, Page 31. Also this one is compared to prior year reported figures. So it's a bit messy this year given that the first-time consolidation of Vodafone shows up everywhere, in particular, the additional lease expense that shows up in 3 places at least. So we'll focus straight on the deviation of the net income versus prior year, which is minus CHF 211 million. And it's basically driven by 2 factors, this minus CHF 211 million. One is the amortization of purchase price allocation assets of minus CHF 123 million, which is part of the D&A bucket on this slide, so that's minus CHF 123 million. And then there is additional interest expense for the additional debt out of the Vodafone acquisition of CHF 79 million.

So these 2 factors basically explain the deviation in net income. Everything else at the level of EBIT with just minus CHF 20 million, so Switzerland, Italy and others combined. So it's really those 2 factors that drive net income this year.

On to Page 32. In Q2, we successfully issued 2 eurobonds at very attractive conditions. So our average interest rate is still very low, stands at 1.89%. The net effect of these bond issuances was a further flattening of our maturity profile, in particular, reduction of the 2027 maturities that we had in connection with the bank loans that we took on for the Vodafone transaction and the further reduction of the interest expense.

I'll move on to Page 33, guidance. Very simple. We confirm the guidance with just one comment on Swiss revenue and, by implication, group revenue. Based on the H1 results, in particular, the lower hardware/software revenues in B2B IT, we expect full year revenue to come in at the lower end of the guided range, and we may even undershoot the guided range slightly. But if we do so, with no impact on EBITDAaL or on operating free cash flow.

And with that comment in mind, we confirm the full set of numbers, including the dividend of CHF 26.

I hand back to the operator.

[Operator]

[Operator Instructions] So let's take our first question.

[Polo Tang, analyst]

It's Polo Tang from UBS. I just have 3 questions. The first one is on Switzerland. So on competitive dynamics. You mentioned there were some signs that Sunrise was being rational but that Salt was still being promotional. However, the market is going to focus on value rather than volume. Is Swisscom willing to see some subscriber market share just given your high starting point? It seems like you're pushing harder with family plans on the Swisscom brand. You're also pushing harder on secondary brands, too. So therefore, how do you think about the balance of value versus volume?

And then on Switzerland, can I clarify for Swiss service revenue declines or telco revenue declines? Are we still expecting minus CHF 100 million? And is there anything to call out in terms of quarterly seasonality?

Second question is just in terms of Italy, Telecom Italia was flagging how price rises from last quarter are landing well. If you look at both the Fastweb and Vodafone brands, you've put through price rises. But can you talk through how these price rises have been received? What is the average quantum of price rise? And roughly, what proportion of the subscriber base does it cover? So I'm just trying to get a sense of the overall quantum of benefit from the moves that you've made. And does this add upside to the minus EUR 200 million of Italian telco revenue declines that you've guided towards?

My final question is on Italy again. Can you comment on trends in terms of both IT service revenues and wholesale? And is there anything to call out in terms of seasonality for the rest of the year? So for example, on wholesale, have you hit full run rate for the Coop MVNO? And also in IT service revenues, there was a slowdown in Q2. So is this the dropping out of EU recovery funds? Or is there something else in terms of quarterly seasonality?

[Christoph Aeschlimann, executive]

Thank you, Polo. So I will start with question number one on Switzerland. So on the competitive dynamics, so it's I think -- and your question, if we are willing to give up some market share, so the answer is clearly yes. So I mean, you can see the effect of this on Page #5, where we have the RGU numbers and the RGU market shares. So you can see that both in broadband and in postpaid, we are actually losing our RGU market share. So we are down 1.2%, for example, on the postpaid side.

So although we have an increasing customer base this year, we are still relatively growing slower than the other market participants in the market. And this is exactly like what we intend to achieve our value strategy, focusing really on ARPU and maintaining value in our customer base and not necessarily like driving volume and acquisition.

But of course, we also need to ensure a certain level of acquisitions so that market share doesn't decline too rapidly, which wouldn't be good as well. And as the market is still -- I mean we say it is better and more value focused, but it is still very promotional. And you can still see 70% promotions by Salt, and this also requires some actions on the sales side. So we need to expand a bit our sales footprint because also our competitors are still increasing their sales footprint. So we have to somehow align with those market developments to make sure that we don't lose too much on the RGU market share side.

On the service revenue decline full year, so I would say the guidance is still minus CHF 100 million, but it is also maybe fair to say that multiplying the decline of the first half year is not completely wrong. So of course, there is always some seasonality, but you can see that we are slightly -- at a slightly higher run rate compared to the full year. So maybe it is safer to just multiply the first year by 2, and then you get to somewhere around CHF 110-ish million for the full year.

In Italy, so price rises, we didn't execute price rises in our customer base yet. So TIM did this, in the first half year. We didn't do back-book price increases so far. What we did is we increased our front-book pricing to align it between the 2 brands. And we can see that our inflow ARPU is now higher. So I think overall, price decrease are well received. We have slightly lower inflows. But I think overall, still very good sales numbers.

So the market, I think, is positive with regards to the price increases that we did on the front-book prices. And we intend to continue to work on the front book to make sure that it is more aligned with the back book. And then overall, we will see -- we'll be able to give you a bit more information in the Q3 call once we launched the new portfolio.

But at the same time, we are also working on the back book to make sure that the customers that we have with higher ARPU or in higher ARPU brackets that they actually receive more value than lower-ended price -- lower-price customers to make sure that the churn continues to go down in the back book and everybody gets the value they pay for.

In terms of service or trends on the IT and wholesale side, to your third question, we do expect some acceleration on the IT side in the second half of the year, but it is quite hard to predict IT revenue overall because sometimes it's also driven by singular contracts and orders. But overall, IT service revenue anyway has -- doesn't have a big impact on our EBITDAaL guidance and free cash flow. So it's -- overall, I think we expect it to be as guided.

And on the wholesale side, it's similar. So the Coop run rate is not yet at full run rate. So we are still migrating customers onto our network from CoopVoce. So we will still see further increases from this and also full year effects and carrying into 2026.

[Operator]

Next question?

[Joshua Mills, analyst]

It's Josh Mills here from BNP Paribas Exane. I will stick with one question, please, and it's related to the copper switch-off that you talked about earlier in the presentation. Could you just give us a bit more color on what level of copper savings you've seen so far from the lines you have switched off, both in absolute terms, then perhaps on a per line basis and, then going forward, what you think that copper switch-off could result in, in terms of overall savings by the time you get to full shutdown? I know it's in 2035, but just to get an idea of what that could look like would be very helpful.

[Christoph Aeschlimann, executive]

Thank you, Josh. So on the -- so we don't calculate or also communicate per line savings. And overall, the copper savings are -- unless you really shut down a complete network in like a complete central office, savings tend to be quite low. And at the moment, we are shutting down copper lines across the whole of Switzerland. We, so far, didn't shut down complete central offices yet. So this will be sort of the next focus '26 going onwards that we can really then shut off the equipment, which is in the central office, shut off the G.fast equipment that we have running, which consumes quite a lot of electricity. But so far, we are not yet there because this requires, in one municipality, to migrate really the full set of copper customers to fiber.

So this will take another 1 or 2 years until we are there to be able to shut down really complete municipalities. And until then -- so overall, until now, copper savings, I would say, limited and smaller than the costs of copper shutdown because we also have migration costs, CPE costs, et cetera, that we need to replace. So at the moment, I would say copper phaseout is still slightly a net negative issue. But in the long run, I think we communicated this 1 or 2 years ago, we had CHF 100 million run rate cost savings that we do expect from the full customer shutdown.

[Eugen Stermetz, executive]

As a combination of energy savings, customer care savings and lower field service interventions.

[Operator]

Next question?

[Ajay Soni, analyst]

It's Ajay Soni from JPMorgan. I've got 2 questions. First is around Italy. You talked about a more rational market. So just wanted to understand what you're seeing here when you say that.

And then the second one is around the Italian energy offering. You said your sales -- I think you said your sales have doubled in the Italian energy. So could you provide some context on what size the revenues are here and what the margins are on the service revenues?

[Eugen Stermetz, executive]

So I start on the energy question. So far, we haven't given any -- haven't disclosed any numbers, but it's a solid double-digit number already in revenues. That is growing quickly, as Christoph mentioned, and we expect to grow further into the next year. And when it takes on certain size, we would also comment on the precise figures. That's as far as I will go on energy.

[Christoph Aeschlimann, executive]

So I think on your Italian question, what we see in the market is that both TIM or all the operators seem to be working on back book and front book and trying to make sure that prices are more aligned in the market, and we also see less aggressiveness in acquiring new customers. So what we feel is that all the operators are more in the mode of, okay, we have a customer base and how can we value this customer base in a better way through up and cross-selling rather than chasing the next customers at the lowest price.

So I think this has a very positive effect overall in the market. It also helps us to drive down churn, and driving down churn is inherently positive because it limits the ARPU outflow because typically, customers flowing out are rather the high-ARPU customers rather than the low-ARPU customers. And this is, I think, for us, a positive sign overall in the market in Italy. And we will see how it evolves now in the second half of the year, but we are quite confident that the market will remain at the current level.

[Ajay Soni, analyst]

That's great. Can I just have one follow-up on the energy margin? Maybe if you could just give an indication whether these margins are dilutive to the segment or not. I understand you don't want to give too much detail on that.

[Eugen Stermetz, executive]

No, it's a healthy margin. Obviously, it's a reselling business. So you would need to compare it to, say, a reselling business on the telco side. You can't compare it with an infrastructure business. But we are quite happy with the margins we are seeing. So it's clearly accretive to our absolute EBITDAaL and operating free cash flow numbers, and this is what counts most.

[Louis Schmid, executive]

All right. That was the last question. And with that, I would like to conclude today's conference call. Thank you. And should you have any further questions, we are available for you. Thank you, and have a nice day.

[Operator]

Dear participant, the conference call has come to an end. Thank you for your participation. Goodbye.