© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Hello, everybody, and thank you for joining us today. With me today is my CFO, Markus Huhn, who will first go through the business development and provide a deep dive about the financials, followed by an overview of the status of the national roaming negotiations; and finally, our forecast. After this, we have enough time for Q&A. Before I hand over to Markus, please, as always, pay attention to our usual disclaimer, which you'll find in the presentation. And now it's my pleasure to hand over to Markus. Thank you.
Thank you, Oliver. Good morning, ladies and gentlemen. This is Markus Huhn speaking. Welcome to our call regarding the Q3 results of 1&1 Drillisch. I would like to lead you through the following presentation to give you an overview about the Q3 performance, the financial results as of end of September as well as an update on the outlook for 2020. Please let us start on Page 4 of the presentation with a view on our customer contracts. As of end of September, we had 14.68 million customers under contract compared with the 14.33 million contracts end of 2019. We have acquired 350,000 additional new contracts; 370,000 with our mobile Internet products and a slightly decrease in the broadband contracts of minus 20,000 contracts. The ARPUs have been on a solid level in Q3 in the mobile as well as in the broadband customer base. And the churn situation and the customer base is also on a very steady status. The development in broadband lines was a bit below our expectation for Q3. One reason was that we kept our pricing still on a constant level. Another reason was a weaker performance in the shop channel because of a lower traffic after the lockdown in Q2. The impact out of the shop channels was approximately between minus 7,000 to minus 8,000 contracts in Q3. Let us go to Slide 5 now to revenue. The revenue as of end of September with EUR 2.813 billion is an increase of 3.1% of the total revenues and 2.6% increase of service revenue. Other revenue rose with 5%. The negative impact of the coronavirus pandemic, basically in the roaming revenue, is approximately minus EUR 16 million. The growth of service revenue would have been 3.4% without this negative impact. Other revenue has been below our expectation in Q3. We have seen a lower demand in requests for new smartphones and tablets as well as for tariff changes. This revenue is low-margin revenue, so it doesn't have a big impact on the results. In Q4, we expect a seasonal increase of the hardware revenue, but below the expectations mid of this year. Let us go to the EBITDA on Slide 6. With EUR 456.6 million, we are 10.2% below the EBITDA compared with the 9 months in 2019. The issues that are responsible for this development are mentioned on the slide. First of all, the minus EUR 8.4 million initial costs for 5G wireless network. It was in the previous year, minus EUR 2.5 million. We had minus EUR 17.7 million one-off from changed usage behavior because of the coronavirus pandemic. Then the 2 regulation impact, the minus EUR 8.2 million because of the subscriber line price increase and a minus EUR 5.5 million because of the tax message cost EU. Furthermore, we have the EUR 0.7 million one-off from integration project, which was in the previous year, minus EUR 3.8 million. Then we have the EUR 35.4 million impact, a negative impact from a 1&1 Drillisch perspective, excess of charged services of the MBA MVNO contract. If we adjust the aforementioned effects in the EBITDA, [indiscernible] growth rate of 3.2%. The next slide, we have the P&L as of end of September. We did comment revenue already. Therefore, I would like to step into the cost of sales. This position increased from EUR 1.915 billion to EUR 2.029 billion. It's a plus of 5.9%. The reason for the disproportionate increase are the regulatory effects with minus EUR 13.7 million. The coronavirus effects was minus EUR 1.3 million, and the excess of charged mobile services was minus EUR 35.4 million. The adjusted amount for the cost of sales for the 9 months is EUR 1.978 billion. So the adjusted growth rate is 3.3%. Sales and distribution costs increased from EUR 322.2 million to EUR 331.1 million because of higher spending in media and the first payment for the sponsoring agreement of Borussia Dortmund. The administration costs increased from EUR 64.9 million to EUR 73.3 million, which is driven by spendings in the 5G context. Other operating income is below the level of the first 9 months 2019 with EUR 16.5 million compared to EUR 22.6 million in 2019, mainly raised by lower dunning and collection charges. The impairment losses from receivables fell from minus EUR 58.3 million in 2019 to minus EUR 55.8 million in 2020. The result from operating activities was in 2019, EUR 391.3 million; in 2020, EUR 341.1 million. Financial result in 2019 was driven by negotiating the 5G credit line in 2020, the financial result is more or less balanced. Tax expenses are following the development of EBITDA. Net income with EUR 240.3 million in 2020 is below the 2019 result with EUR 267.7 million, which is driven by the circumstances that we have mentioned on the slide, EBITDA. On Slide 8, we see the balance sheet as of end of September 2020. The balance in total increased from EUR 6.461 billion in 2019 to EUR 6.778 billion in 2020, an increase of EUR 317 million. The reasons for the increase are in the short-term assets, an increase of EUR 266.8 million. There are 2 positions that are responsible for the increase, EUR 207 million additional free cash that we have invested at United Internet in line with the existing cash management agreement. Then we have an increase in the contract as it's short-term with EUR 62 million. Cash dropped down from EUR 31.8 million to EUR 4.9 million, and the long-term assets increased from EUR 5.152 billion to EUR 5.229 billion, which is an increase of EUR 77.1 million. This increase is driven by the initial payment for the prolongation of the MBA MVNO contract with EUR 165 million, and we have 2 positions where we have a decrease. First of all, the contract assets long-term decreased with EUR 34 million, and we have a decrease in the long-term assets with EUR 54 million. Liabilities short-term increased with EUR 58.4 million because of higher accounts payable. The other long-term liabilities rise was EUR 27.6 million, and the increase in the equity is because of the 9 months net income with EUR 240 million. The cash flow, Slide 9, shows the net inflow from operating activities with EUR 390 million. As of end of September, we had minus EUR 400.2 million cash out for investment activities. This position is driven by EUR 207 million that have been invested via the existing cash management agreement with United, Internet, and the EUR 165 million initial payment for the prolongation of the MBA MVNO contract, which is included in the EUR 193 million CapEx position. The cash flow from financing activities is caused by minus EUR 8.8 million dividends paid and EUR 8.3 million repayment of financial liabilities. Free cash flow for the 9 month was EUR 197.5 million. Without a payment of EUR 165 million, the free cash flow would be EUR 362.5 million, which is rather positive. But there is a reason for this positive development. So have a positive impact because of a delay in receiving and paying the invoices for July and August for the MBA MVNO services. So normally, we pay these invoices in Q3. And this year, we paid because of the delay in receiving the invoices, we have paid these invoices in Q4. On Slide 10 we have the EBITDA bridge. So on the left-hand side, we have the EBITDA for the 9 months with EUR 456.6 million. Then we have a negative impact because an increase in the contract assets and liabilities with minus EUR 28 million. We have an increase in the inventories, which has a negative impact of minus EUR 10.7 million. The effect out of the other working capital is positive with plus EUR 70 million. And then we have the taxes with minus EUR 97.4 million, and the CapEx was EUR 193 million. So we come to the free cash flow at the end for the 9 months to EUR 197.5 million. On Slide #11, we have summer the key figures for the 9 months. First of all, the customer contracts with 14.68 million contract end of September, which is net of 560,000 contracts compared with the 9 months in 2019. Then we have the revenue with EUR 2.813 billion, which is a growth of 3.1%. The service revenues increased with 2.6%. Within the service revenue, we have the coronavirus impact. If we do eliminate the impact and we show a comparable service revenue, then you see we would have growth rate of 3.4%. The EBITDA with EUR 456.6 million is minus 10.2% below the year before. If we compare or if we calculate a comparable EBITDA, excluding the influencers mentioned in the footnote, then we come to EUR 532.5 million EBITDA, which is a growth rate of 3.2%. On the next 3 slides, we've summarized the status to the price reviews, 5G and the national roaming on page. On Page -- on Slide 12, you see the status quo of the price reviews. The status quo is more or less unchanged versus August. So the arbitrator is currently working on PR 2. And we are expecting the first draft of his expert opinion early in December this year. The results for the other reviews are expected within the second half year of next year. On Slide #13, we have the activities regarding the 5G network. The result same-state as mentioned in August, we are still in discussions regarding national roaming with Telefónica. We are in negotiations with suppliers for the wireless network as well as we are still preparing the expansion of 1&1 Versatile fiber optic network. On the next slide, we have some more details to the current state of the national roaming. Regarding the status quo with Telefónica, we would like to point out that the national roaming obligation is based on the MBA MVNO contract and Telefónica's voluntary commitments to E-Plus merger approval. So the negotiations on national roaming are ongoing since November 2018. Prices are equal to the MBA MVNO pricing, and the prices offered for the contract renewal from July 2020 lead to significant additional expenses for 20% of Telefónica's network capacity compared to the basic term and are not in line with the market in our point of view. So that basically is the reason why we didn't find the existing offer so far. 1&1 Drillisch considers this is the breach of the MBA MVNO contract and the commitments. And that's the reason why the commission is involved as well and is participant in each meeting regarding the negotiations to national roaming. However, the prices offered are more favorable than MBA MVNO prices built since July 2020. Regarding Telekom and Vodafone, from our point of view, until now, we do not have competitive offers on the table. And that's the reason why we have requested the German regulator, the Bundesnetzagentur as referee as foreseen in the 5G frequency conditions. Now we come to Slide #16, forecast for 2020. We see for 2020, approximately 500,000 new customer contracts. The total revenue approx 3% up on the previous year after the flat at the beginning of the year and approx plus 4% in August. The service revenue, the growth, we see at approx 2.5% after the flat at the beginning of the year and bandwidth of 2% to 3% in August. And the EBITDA, approximately EUR 600 million for 2020. So many thanks for your attention so far. Now we would like to start answering your questions.
We'll now move to our first question over the phone, which comes from Polo Tang from UBS.
So I have 2. The first question is really just about your longer term EBITDA. So do you believe that longer-term EBITDA at Drillisch can be higher than the EUR 600 million that you're guiding for this year? So what are the key building blocks that you need to achieve this? For example, do you need nifty lower unit costs on national roaming or an MBA MVNO? Or do you need to press ahead with the network build and transfer as much as your data traffic on through own network as fast as possible? So that's really the first question. The second question is you mentioned that the unit price for national roaming is more favorable than the MBA MVNO terms. But can you give us an indication as to how much more favorable the unit prices are? Is it 10% or 20% lower or more?
Thanks for your questions. To your first question, the EBITDA for the next year depends on the result out of the national roaming agreement. So as we have mentioned in the call in September, if we have a look on the pricing model in the last of our Telefónica Deutschland, we have the situation that we have a sinking price per unit. And with net growth -- with additional net growth in the future and this pricing model, we will also have an increase in the EBITDA within the next years. Regarding your question, what are the unit prices the existing offer from Telefónica so far, please understand that we can't communicate this information right now.
We will now move on to our next question, which will come from Joshua Mills from Exane.
So 2 from my side. So I guess the first one would just be on the -- on this point you make on Slide 14 about the fact that the price is more favorable for the national roaming and the MBA MVNO deal. Could you give us an indication of what your EBITDA for 2020 and 2021 would be if you were to take the national roaming deal that's been offered today? And just could you confirm also that the EUR 600 million EBITDA guidance for this year is assuming the extension of the MBA MVNO terms on the worst conditions rather than taking the national roaming, which sounds like it's slightly better. That's the first question. And the second question is on the reference you made using the Bundesnetzagentur as referee. I know you've requested this, but are they actually involved explicitly in the process now? Are they actually sitting down at the same table with you in Telefónica Deutschland in negotiations? And what legal powers do they actually have that we definitely know about and both you and Telefónica Deutschland would agree, that is something that we – within the [indiscernible] just a kind of point of opinion.
Thank you for your questions, Joshua. The EUR 600 million guidance are calculated on the current billing or current prices that Telefónica’s billing to us. So if we would choose the national roaming offer from Telefónica, then, of course, the EBITDA would be better. It would be under the year 2019, but please have understanding that I can't mention the exactly amount of the EBITDA on base of the existing offer of Telefónica Deutschland. Regarding the German regulator and the Bundesnetzagentur. So we've called them as referee. So at the moment, they are, let's say, in a preparing phase. So they would like to understand where we stand in the negotiations. At the moment, they do not play an active role in the negotiations. I would say that it will happen within the next weeks. But at the moment, for us, it is not transparent what will be the next step for Bundesnetzagentur regarding the negotiations Telekom and Vodafone.
Okay. So maybe just on the first question, yes. The side there, you said, EUR 680 million that was your guidance. If you took the NOA date -- if you took the NOA offer, would you be able to get to that? Or would you still be delivering a lower EBITDA at the end of this year than you initially expected to when you gave the outlook for 2019?
Sorry, but please have understanding. I can't give you an EBITDA on base of the national roaming -- of the current national roaming from Telefónica Deutschland because these information within the offer are not public at the moment.
We'll now move on to our next question over the phone, which comes from Ulrich Rathe from Jefferies.
I have several questions. The first one is, how would you characterize the negotiations with Telefónica Deutschland? I think if I was not mistaken on Q2 results, the description was constructive and things are moving. Again, after this sort of stands early in the year, where there seems to have been a bit of a stand. Could you sort of just describe the general nature and whether the issues are moving or whether it's sort of old stock? The second question is with regards to Bundesnetzagentur as referee, could you describe when you invoke them as referee for Deutsche Telekom and Vodafone. And also, could you just please confirm the previous question I seem to sort of extend what you actually said and say that you have invoked them as referee in the Telefónica Deutschland negotiation. That's not what you actually said. Could you confirm that you just invoke them as referee for the Deutsche Telekom and Vodafone negotiations? And then my last 2 quick questions would be, what exactly are the 5G costs at this point? Is it just consultants' fees? Or what exactly is in this amount? And then the last question is, you had to cut back the revenue guidance a little bit, and you're saying it's just the hardware sales. But could you just explain a bit why the hardware sales lower? Is that because of somewhat lower customer intake than you expected? Or is it the device renewal cycle and models? Or is it some other reason why the hardware sales are actually lower than you thought even at Q2?
Thanks for your questions. Yes, the negotiations are still constructive. But regarding commercials, we are in a situation where Telefónica doesn't want to do anything more. And we have the opinion, as we have expressed on Slide 14 that the prices that Telefónica has offered in their last offer doesn't bring Drillisch in a position where we are competitive to prices, it doesn't reflect that what is happening in the market. And therefore, we have involved the commission to check whether we have a situation where the prices are market confirm or not. So the commission is just doing a review on the current situation and on the current offer. And that what we have to do to bring us in a position where we have a chance to get a better offer than that what we have on the table right now. So the situation regarding Telefónica, so the atmosphere and the discussions are constructive and good. But as I mentioned before, regarding the prices, we need assistance from the commission. Regarding your second question -- your second question to the referee. So we've called the referee. I think it was the 19th or 20th of September? The 18th? And we just called the referee for Telekom and Vodafone, not for the Telefónica. Regarding the expenses for 5G, the mentioned EUR 8.4 million are consultants' fees and third-party fees. So we have just little -- small team of own employees and a team of third parties and consultants, and that's the main background for the EUR 8.4 million. Regarding the fourth question, hardware revenue in Q3. We had 2 very strong quarters, the first quarter, the second quarter with approx 8% to 10% growth compared with the year before. And we have been very convinced that we will go on in this development also for the Q3 and the Q4. And what we have seen in Q3 is a lower demand and requests out of the customer base. So the net sales from -- or the net sales and the hardware of the net sales is quite in line with that what we have expected a bit below. But in summary, rather near to our expectation. But in the customer base, as I mentioned before, lower demand, lower requests for hardware. And the product mix brings us to a lower revenue per smartphone. That's the main impact for the situation in Q3. And we see also lower revenue than that what we have expected for Q4. But of course, we see an increase in Q4 because of the seasonal effects that we have each year in the Q4, so basically coming from the customer base.
We'll now move on to our next question on the phone, which comes from Jakob Bluestone from Crédit Suisse.
Had a couple of questions. Firstly, just around the payment for the -- step-up in payments to Tefd? I mean in your guidance, do you intend to pay the full amount that's been invoiced? Or are you holding back a payment because you obviously disagree with what you've been invoiced? And also, if you can maybe just clarify your net working capital for the year. I think you mentioned in your presentation that it was quite strong in the quarter because of being invoiced later. So just to help us understand what should we expect for net working capital for the full year, will that be reversed in Q4? And then my second question is, can you maybe just give us a little bit of an update around your thinking on 5G vendor selection? I appreciate you can't make a decision until national roaming issues settled, but would just be interested in hearing how you're getting on with selecting a vendor and sort of what's their status -- the discussions are at?
Okay. Thanks, Jakob, for your questions. To your first question, we have paid the full amount of the invoices built by Telefónica for July, August this year. And we have reflected them so in the P&L or on the cost of sales as well as in the guidance for this year. We have expressed to Telefónica Deutschland that we do not see the as a correct invoice. But as I mentioned before, we paid the full amount. And the reason for the strong net working capital is the effect out of the delay in payment of these 2 invoices for July and August. Normally, we would have paid them in Q3 because of paying in Q4, we have a strong working capital in Q3. And if we would eliminate this effect, we would come to a working capital, which is approx minus EUR 5 million to minus EUR 10 million instead of the plus EUR 20 million -- sorry, instead of the plus EUR 70 million. And if we would correct the free cash flow, so I have mentioned in the presentation earlier. So if we eliminate the EUR 165 million for the MBA MVNO contract for the prolongation, we would have a free cash flow of EUR 362 million. So if we would adjust this amount for the 2 invoices, then we would come approximately to EUR 270 million. If we compare this against that what we have mentioned at the beginning of this year, so that our free cash flow for the full year will be more or less in the same range as in 2019, which was EUR 355 million, then I would say we are fully in line with our assumption. And that even Telefónica Deutschland has built a higher amount for July and August. Regarding the 5G vendors. So we are talking to summary, I would say, 5 to 6 partners right now for antenna sites and also for the architecture. So we are very far, in my opinion, in these discussions, but to finalize immediate agreements and the negotiations, it is necessary that we have national roaming agreement because we can't sign a contract regarding the 5G network without any national roaming agreement.
If I can ask a follow-up just on the vendor topic. I mean, I guess, Open RAN a sort of fairly fluid topic. And I guess since you originally announced your intention to enter the market. Many things on that topic. Is there anything that's changed in your thinking around how to build a new network since your original, I guess, as you've sort of gotten more into discussions with these various vendors? Is there anything that's changed on the timing or the structure or anything since -- over the course of that process?
The main thing that has changed to our initial business case or initial plan that we had before we went into the auction is that we have now a right clear picture to the Open RAN architecture. So 2 years or 1.5 year ago, we -- if we would have been started with the 5G network rollout a year or 1.5 years ago, then we would have decided for another architecture. So the main thing and the main changes that what we have planned is that we will go the way with the Open RAN architecture. So that it's a decision that we made, I think, 2 months ago. And regarding our calculations for the necessary CapEx, which, I would say, in line with that what we have expected some 2 years ago when we decided for the taking part in the 5G auction.
We'll now move on to our next question over the phone, which comes from Stephen Malcolm from Redburn.
I'll go for 3, if I can. I just want to come back to Jakob's questions on working capital. I mean, I think you've done a good job explaining the movement in accounts payable. But I noticed that your inventory also seemed to go down a lot in Q3. Was that kind of -- does that reflect the decision maybe to push customer growth less aggressively because of the higher cost? Should we reach something into that and sort of need to preserve cash. So that would be just a good question one, just on the inventory move in the quarter. Secondly, just coming back to roaming. I mean, I think we all remain baffled and confused. But can you just sort of give us an idea of what your desired outcome is here? I mean, do you think you could have more than one roaming agreement? Do you anticipate having just 1 roaming agreement? And should we assume that your desire to try and do something with DT and Vodafone is simply down to a lower network cost build as you get better coverage on their network. That would be helpful. And then just finally, the cash that you placed with United Internet. Can you just tell us why you do that? I mean, do you get -- do they pay your interest on that? Just interested in some sort of intercompany cash management.
Yes, thanks for your questions. Regarding the inventories, I would say that it is a normal effect out of the business. So we have each quarter increases and decreases in the inventories. And the background for this is kind of that we have to the main campaigns for new smartphones. So for example, in Q2, we have a strong increase because of the Samsung launch. Then in Q3, we have lower inventory because we have sold the smartphones in the stock of smartphones. In Q4, we will have an increase because we have to buy iPhones for the iPhone launch, which is currently ongoing. And it depends on the quantity that we can get from Apple or from Samsung, whether the inventory is increasing or decreasing. So it's not controlled by us in sense of we have to save money or we have to save cash, it's just reflecting that what's happening in the business. We took the third question first, your question regarding the cash that we have invested with United Internet. From a 1&1 Drillisch perspective, it makes much more sense to invest the money United Internet with the existing cash management agreement because we are getting interest. So the interest that we have received for the first 9 months was between EUR 200,000 and EUR 250,000 that we have received from United Internet. If we would invest the money or the cash with a bank, we would have to pay interest. And therefore, it's not a big amount that we are receiving. But it definitely makes much more sense to invest the money with United Internet because of getting positive interest or positive result out of it. Regarding your question to national roaming, we are aiming for getting one national roaming agreement that makes much more sense than having 2 or 3. And I think that it wouldn't work and would not be senseful. So we are aiming to have one national roaming agreement.
We'll now move on to our question over the phone, which will come from Christian Fangmann from HSBC.
I have 2. One is on the EBITDA. The guidance is on the current basis, at least around EUR 600 million. If I look at the year-to-date performance, looking at Q3 and the implied EUR 35 million that you pay incrementally to O2 Germany, it looks that the EUR 600 million is -- looks ambitious from my perspective. So can you maybe explain what we can expect in terms of the cost base developing in Q4? I mean you have the incremental Borussia Dortmund cost that you already had, the marketing agreement that you already had in Q3. Are there are other elements that we need to consider marketing or anything because otherwise, I think the EUR 600 million looks more on the high side from my perspective. The second one is operationally in terms of your subscriber mix, are you seeing any changes in demand in terms of the Drillisch brands or the 1&1 brands? Is your New Borussia Dortmund deal, for example, helping the 1&1 take up? And is the ARPU that you're getting similar compared to the beginning of the year? Or is anything changing? That would be helpful.
Thanks for your questions. Regarding the EBITDA in Q4, we have 4 things that are responsible for the increase of the EBITDA in Q4 compared Q3 EBITDA. So first of all, the negative impact, we will have higher costs for mobile services because of a higher customer base. It's approx minus EUR 6 million. And we have lower spendings in marketing compared with the Q3. It's a plus of EUR 8 million. And in the support environment and in the third-party environment, we have approx EUR 5 million lower costs compared with Q3. We have EUR 4 million positive impact that we see for end of year regarding -- coming from IFRS 15 adjustments. So we have to make corrections in the IFRS 15 context, which will lead to a positive impact of approximately EUR 5 million in Q4. And we EUR 2 million additional, yes, positive margin impact because of higher service revenues. So these are the main issues that bring us from around EUR 127 million in Q3 to approximately EUR 144 million for the EBITDA in Q4. Regarding the demand in -- from the customer side on the 1&1 side as well as on the 1&1 Drillisch side, the ARPUs that we are generating via the new customers are in the Drillisch context, higher than at the beginning of this year. In the 1&1 brand, we are on a quite stable situation. So the ARPU in is on the same base at the beginning of this year. And the total ARPU in customer base is also -- even we have the negative impact out of corona, the ARPU is for the whole year on the same level. So what we not see at the moment any positive impact because of our sponsoring of Borussia Dortmund. I would say it's too early to see any positive impact. And the situation that no people can go into the stadium to watch the football game. We do not see the situation that we have more and more traffic or more demand out of this sponsoring relationship at the moment. Hopefully, it will change within the next month. But at the end of the day, it depends on the situation of the coronavirus pandemic.
We'll now move on to our next question over the phone, which comes from James Ratzer from New Street Research.
I've two questions, please. First one, actually, to kind of directly follows on from Christian's question just now. So I mean interested in discussing the competitive dynamics in the German market at the moment. I mean you were just suggesting your mobile ARPU year-on-year was pretty stable, which is encouraging. And given your mobile subscriber base is up about 6% year-on-year. I mean, that would imply around 6% mobile service revenue growth. Does that then imply you are seeing more pricing pressure on your fixed line business at the moment? Just interested to kind of understand if that's the right conclusion to draw and, therefore, what kind of competitive dynamics you're seeing in fixed line right now? And then the second question was just regarding plans to move towards FTTH wholesale agreement with Deutsche Telekom. I mean, we saw just recently Telefónica Deutschland signed one with DT. I mean do you think we should see you being in a position to sign a similar style agreement in the coming months.
Thanks for your questions. Regarding the ARPU, the situation, for example, compared with the year before is that in the mobile environment, the ARPU is slightly below the ARPU in the last year. But the biggest impact is because of the coronavirus pandemic. If we would eliminate the coronavirus effects in the roaming environment, I would say we are more or less on the same ARPU that we had in last year. So in the Drillisch brands, we have the situation, there is more pressure on the price. So if I compare Drillisch with the year before, we are below the ARPU. And if I compare the 1&1 brand with the year before, we are above the ARPU in the last year. In summary, we are satisfied with the situation. But the market dynamic or the pressure in the market is high at the moment. So Telefónica’s offering very attractive tariffs or bundles. And also in the discount area, there is also much pressure on the prices. Regarding your second questions to the contract with Deutsche Telekom, FTTH that move or we decided not signing a current contract at the moment because we are not satisfied with that what we have offered. So we are in discussions with Deutsche Telekom, and we have to decide it within the next months how we will go on at the beginning of next year or in the second quarter and next year.
And I mean, what do you think the kind of outcomes could be there on your -- I mean discussions with DT. So I think BNetzA of, at the moment, is looking for those to be commercial agreements. I mean is this something you could also call in BNetzA an arbitrator on as well if needs be?
No, that's not what we plan at the moment. We are discussing contract model that we -- which is quite comparable to the contract model that we have today. That what we are talking about with Deutsche Telekom.
Our next question now comes from Usman Ghazi from Berenberg.
I've got 3 questions, please. The first question was just your comment that the European Commission, you expect the European Commission to come up with their opinion on the Telefónica pricing, I think, you said in a week. I mean it would just be good to know, do you think that, that opinion could help in closing the gap between yourselves and Telefónica on the national roaming discussions? Or would this be a kind of a nonbinding opinion that either party would ignore. So that would be the first question. The second question is on Open RAN. I think you mentioned that the CapEx that you envisage would not be changed as a result of the different architecture. But I mean, would your -- the operating costs of running an Open RAN network would they be coming in below what you had expected a network to cost 2 years ago? And if not, I mean what -- why choose this model over something else? The third question was just going to the the revenue trend. So in Q3, we have seen a bit of a slowdown relative to Q1 and Q2. And I was just wondering what has driven that specifically in Q3. I mean, are you seeing any spin down either in the broadband or in the mobile segment. So people feeling a pinch in their wallet and trading down on the prices.
Thanks for your questions. Regarding your first question, maybe I was too unclear in my presentation earlier. So what I tried to explain or to express is that we are talking to the commission regarding the current or the actual offer from Telefónica Deutschland. And at the moment, we can't give an indication or we do not have an indication what will be the next steps of the commission, what will they do? And therefore, it is very difficult to give an indication when will -- what will the commission do in the next weeks? And how far can we have a decision from the commission or from Telefónica Deutschland regarding the prices. So the situation is, for us, also in the moment unclear. We are in -- yes, in discussions with the commission. We are explaining our point of view, and then we have to see what will be the next steps in terms of what will the commission do or talk to Telefónica Deutschland. Regarding Open RAN, thanks for your comment to this. Of course, the operating costs are lower than that what we have expected for, let's say, a traditional network. So CapEx is in the range that we have expected, but the operational costs are lower than that what we have expected in our first calculation. And we we see the chance to build up a 5G network with Open RAN, which leads to the possibility that we don't need a real big own staff and own employees so that we can do a lot of things with partnerships, with partners. And therefore, we do not plan to build up 100 of employees to build up a 5G network. So we are quite sure that we can control and extrude the partnerships or the partnership that is necessary for an own 5G network with a rather small team here in our organization. Regarding the revenue trend, Q3 compared with Q1 and Q2, we had in Q1 and Q2 a bigger impact because of a positive development of the ARPU in the broadband area. So we had more customers that we have migrated from ADSL to YDSL (sic) [ VDSL ]. This trend was in Q3 lower. Also the negative impact of the minus 10,000 broadband customer contracts. In the mobile area, the ARPU is on a very stable level. The biggest impact in Q3 was the negative impact because of the coronavirus. So it was in the Q3 minus EUR 12 million. And in the first quarter, it was plus EUR 1.6 million. The second quarter, minus EUR 6 million. So one of the biggest impact was the EUR 11.8 million negative impact because of the coronavirus. If we do the calculation before the coronavirus impact, so we are more or less in the same situation that we have 3.3% to 3.4% additional service revenues. That's the main revenue where we have a look on. As I have explained earlier, the hardware revenue was below our expectation, and we had a lower performance in Q3 and Q4. But the service revenue on a quite stable situation, in my opinion.
Great. Can I just have a follow-up, please. So the offer from Telefónica that's on the table on national roaming. Is that offer sufficient -- let's say you don't get another option to lower the price? I mean, if you take that offer, is that offer sufficient in terms of giving enough cash flow to be able to build your own network or is that offer just that won't allow your flexibility to be able to go down the network group.
It's too early to give an indication on this issue right now. I think we have to come up with the details to this question. If we have a clear understanding or if we can sign national roaming and then if we can make also the whole 5G calculation public. At the moment, we can't give these details to the market.
We'll now take our next question from George Ierodiaconou from Citi.
It's a couple of follow-ups on previous questions asked. Firstly, around the negotiation with Telefónica. I'd be interested if you could perhaps comment, in the event that you reached an agreement, you highlighted the EBITDA will be higher for this year and next year. Could you also comment whether the review process will stay or whether reviews will be suspended? I'll be curious, so we know if there is uncertainty remaining even if you sign a deal with them or whether some of these binary things get out of the way. And then linked to the question just asked by -- was around the negotiations you're having with Telefónica. Is it exclusively national roaming? Or are you negotiating perhaps a different MBA MVNO model as well. So the possibility of not rolling out your own network? And then just a quick clarification, and I think you kind of touched on some of these points on earlier questions. But on Page 6 and 7, you show some of the one-offs and then some of the operating cost lines. Can you perhaps give an indication about the growth in distribution and administrative costs and the decline in other operating income, which are the drivers that are moving some of these lines and whether 2020 is an anomaly or whether that's something could carry on into next year.
Thanks for your questions. Regarding the current offer from Telefónica Deutschland, of course, in summary, we are aiming for finding a solution where we do not need any further price reviews in future and that we can enter the existing price reviews. At the moment, we are not on the point where we can -- where we have a negotiation or a draft where we stop all these price reviews. So in our opinion, our point of view is if we have -- if we take the current offer from Telefónica Deutschland, then, of course, we would need the process for price reviews in future. Regarding your...
I just -- kind of clarification. You will need price reviews in the future, but does that mean the existing price reviews, the 126 will not be necessary, like it's just for future safety nets?
This is still open. At the moment, we would go on with the existing price reviews. We do not see a need to stop them. Then your question regarding do we negotiate in national roaming? Or do we also in negotiating MBA MVNO contract, which leads to a situation where we do not build up our own 5G network. So our target is still that we have or our strategy is that we will build up our own 5G network. Therefore, we are negotiating national roaming. National roaming conditions will also be used for the MBA MVNO contract, but we do not negotiate a real MBA MVNO contract. Regarding your questions for the operating costs and the administrative costs. So the main reason for the increase in administration costs is the 5G network. So at the moment, of course, we do not generating any revenue with 5G network. Therefore, we can't post it into the cost of sales. We put the EUR 8.4 million costs for the 5G network in the administration costs. So that's the main reason for the increase from 2019 to 2020. The other operating income is lower in 2019 because of lower dunning and lower collection charges that we are billing to the customers. And the reason is why -- the reason is that we have also a lower number of customers that are in the dunning process or that are in the collection process and that can you see in the losses of -- or in the impairments of payments receivable in the next line in the P&L. This amount also under 2019. So the biggest impact in the other operating income and the losses out of payments receivables is because of a lower number of customers in the dunning process, that's the main reason.
We'll now move to our next question over the phone, which will come from Andrew Lee from Goldman Sachs.
Just a couple of questions on network build costs. Just wondered if you'd learned anything from your network build testing that's giving you any view on whether the cost rollout is going to be more expensive or less expensive than you'd previously assumed. And then just following on from that, just wondered if you'd noticed any greater willingness from the network operators in Germany today to allow you to share on their towers?
Thanks for your questions. Regarding the network build costs, though, of course, we have 2 antennas installed as test equipment. But with 2 antennas, yes, it's too early to have a picture for the whole investments that are necessary for the 5G network. What we see is that we are with the CapEx and the investment in some -- in summary, we are in the range that we have expected. But there is a shift. So some issues are more expensive than we have expected, and other issues are lower than that what we have expected. But in summary, we are in the range of the plan that we have calculated before we decided to take part in the 5G auction. Regarding partnerships with the other MNOs or there is -- at the moment, there are no discussions for any sharing of equipment or any further cooperations because it's -- so what is necessary to step into such negotiations is that we have a national roaming agreement at the moment. We do not have a base to negotiate sharing deals or other cooperation deals. To do this, it is necessary to have a national roaming agreement, and they have a clear picture where we would like to build up the antennas and how we plan the network rollout for the 5G network.
We'll now move to our next question over the phone, which will come from Simon Bentlage from H&A.
There is just one basically coming back to fixed line. I'm wondering, you mentioned that you are in discussions with Deutsche Telekom. Are you also speaking to other wholesale partners, for instance, Telecolumbus? Or are you basically keeping to just talking to Deutsche Telekom with regards to fixed line wholesale?
So thanks for your question. Of course, we are also talking with other players in the market. But that's not a new situation that what we are doing for more than 3 years right now because when we build up the open access platform with 1&1 Versatel network, we build up some partnerships with carrier -- city careers. For example, NetCologne, Mnet, Wilhelm.Tel in Hamburg. And therefore, we are also talking to Telecolumbus, and we make the decision on a base of how big is the business opportunity for us. And therefore, we are talking to some partner or possible partners in the market. But on the other side, it's also -- it will never lead to a situation where we do not Deutsche Telekom. And therefore, it is necessary to talk to Deutsche Telekom as well to the other partners in the market.
Ladies and gentlemen, this does conclude today's Q&A session. I would now like to turn the call back over to Mr. Keil for any additional closing remarks.
Thank you very much, Simon. Thank you, everybody, and thank you, Markus. With that, our conference call is now ending. As usual, should you have further questions, please contact us at the Investor Relations department by mail or you all know my mobile. Have a great day. Keep safe. Speak to you soon, and hopefully meet you in-person from next year again. Thank you very much.