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Good afternoon, and welcome to Deutsche Telekom's conference call. At our customer's request, this conference will be recorded and uploaded to the Internet. May I now hand you over to Mr. Hannes Wittig?
Yes. Good afternoon, everyone, and welcome to our Q1 2019 conference call. With me today are our CEO, Tim Höttges; and our CFO, Christian Illek. Tim will, as usual, first go through a few highlights, followed by Christian who will talk about the quarter's financial in more detail. After this, we have time for Q&A. Before I hand over to Tim, please pay attention to our usual disclaimer which you will find in the presentation. And now it's my great pleasure to hand over to Tim.
Thank you, Hannes. Good afternoon, good morning, everybody, from Germany. All is good on German fronts here. Quarter was strong and we are quite happy. Another good start into the year on both sides of the Atlantic. All operating segments contributed to our 8% growth in EBITDA after losses, the new KPI is so-called EBITDA AL. Our organic sales are up 3.5%. Our organic EBITDA AL grew by 3.9%. And our ex U.S. EBITDA AL is up 2.1% year-on-year. Our free cash flow is up 9.6% like-for-like, and adjusted earnings are stable year-on-year. CapEx in the U.S. was front-loaded as per guidance, while ex U.S. CapEx was stable, as promised. We are well on track for our 2019 guidance on every key metric. And equally, line by line, quarter by quarter, we are delivering against the long-term growth guidance we gave at our 2018 Capital Markets Day 1 year ago.So I can stop now. But I will dive a little bit more into the topic, so let me continue with Slide 5. The foundation of our strong growth is our consistent investment into the network. And in Germany, I think it's very important to know that we already passed the 20 million homes with super vectoring, enabling speeds of up to 250 megabit per second and we are well on track for our 28 million target by year-end 2019. 2019, we will complete our German FTTC deployment and redirect resources to step up into our FTTH investments in line with the plans we have outlined at the Capital Markets Day.We continue to extend our LTE coverage from its already high level. Here, we clearly lead the industry. In Germany, we added 1,300 new sites in the last 12 months. In 2019, we will ramp up another 1,800 new sites. This is on track for our stated plans to increase our site footprint by 1/3 by 2021.Interesting wise, we have put a new online web page public today at DFMG. You can find it where you can see almost 1,000 mobile sites in Germany which are in a long approval process from governmental or owners or wherever you are. So that shows exactly where we are willing to immediately improve our coverage to close white spots or even areas where we have dropped calls. So we are now even pushing the public environment and make it full transparent how to further increase our great footprint.We made further significant progress with our IP migration, reaching 90% of lines at the end of Q1. So we are well on track to finish the German B2C migration this year. The German B2B migration will go into next year's a bit so that we are almost ready by the end of this year. As mentioned previously, the IP migration not only involves significant extra cost but also weighs on our fixed line KPIs, but the end is now clearly in sight and cost savings will start to kick in already next year.Let me also quickly address here the 2 big elephants in the room. The German auction and Christine [indiscernible] -- no, sorry, the German auction and the planned U.S. merger. The German auction has now been underway for 8 weeks, and we have previously made it clear that we are not happy with the auction rules, which is why we are [ challenging ] them in courts.For instance, the reservation of 100 megahertz for industrial uses creates a needless and counterproductive shortage of supply. Everyone can track what's happening in the auction on the regulatory's website. You remember that in last year's Capital Markets Days, we committed to German mobile network leadership, and we also committed ourselves to lead in 5G. You know that this leadership is, for us, nonnegotiable. But of course, we are bound by auction rules not to comment and we will continue to stick to that. By the way, the German auction is not the only one for us. In the U.S., we have been participating in the recent 28 gigahertz auction as well as the ongoing 24 gigahertz auction. We expect the FCC to reveal the results for both in the coming weeks and of course we cannot comment here either. When it comes to the planned T-Mobile and Sprint merger that we announced almost exactly 1 year ago, again, unfortunately, there is a little we can or should say at that point in time. We're working with the relevant authorities and it would be wrong to provide a running commentary on these conversations. In terms of process, here are a few milestones since our last earnings call. On March 6, we made a filing with the FCC laying out our plans to bring competition to the home broadband market. On April 4, the FCC resumed its short clock. Without further stoppages, this would take us to the 3rd of June. So we still expect a decision by the federal agency in first half 2019. Some of the remaining state approval, most notably California, could extend the regulatory approval process into second half of the year. As before, we remain optimistic that the relevant authorities will appreciate the significant benefits of these transactions for U.S. consumers.Next is our usual slide, Page 6, where we show some of our initiatives to improve customer experience on top of our network leadership.Our German stream on product already has over 2 million customers. We are working to leverage digitization towards a better customer experience. For instance, the penetration of our new European mobile app has quickly grown to almost 40% and we are working to further extend its scope and benefits.We continue to see meaningful improvements in our German customer service parameters. Complaints, waiting times are down year-on-year, punctuality and first-time resolution rates are up, but we won't stop here. We dominated the recent customer satisfaction survey by the Connect Magazine, winning in every single category. So just to mention that I was reading that the morning and we won the service. We won the network. We won the network in Germany. We won it in fixed line. We won it in mobile. We won it in Austria. We won it in Netherlands. Wherever Connect was testing, it was Deutsche Telekom. Only Switzerland, something went wrong, guys. I do not know what went wrong. I asked my people, what the heck is going on in Switzerland. So after the successful auction in Austria, we launched Europe's first commercial 5G network. We also launched our first 5G campus network with OSRAM. Another key strategic pillar for us is growth in B2B. Again this quarter, we outperformed and achieved revenue growth both in Europe and in Germany even despite the drag from the IP migration. In Europe, we grew 3% year-on-year. In Germany, 1.3%. Let me also mention here, 2 important announcements regarding our environmental sustainability.First, we shift to 100% renewable energy already by 2021. Second, we decided to cut our carbon dioxide emissions by 90% by 2030. There is much more on the web page, but even on my LinkedIn stream where I'm talking about sustainability and the way going forward. Please have a discussion there as well with me.Moving on to Slide 7. Our momentum with customers remains very strong. Almost 13 million German homes already subscribe to our fiber products, 2.5 million more than a year ago. In Germany and in our European markets, we added 2 million converged customers in the last 12 months. We added 3.3 million mobile contract customers, of which 1.8 million organically. T-Mobile continues to grow strongly and raised its guidance for 2019 branded postpaid net adds towards a new range of 3.1 million to 3.7 million, another 300,000 more.On Slide 8, we reproduce and reiterate our 2019 guidance. And as you know, our 2019 EBITDA and free cash flow guidance is based on the after lease our short end Al logic. And as before, our guidance is provided based on last year's average exchange rate. In the Appendix of this presentation, you can also find the headline pro forma segment financials and the guidance for each of the segments, all unchanged this quarter. With this, I hand over to Christian Al, who will take you for this quarter's financials in greater detail.
Thanks, Tim, and also welcome from my side, and I can assure you I'm not an elephant. Let me go a bit deeper into the quarter's performance to start and start with Page 10. And what I'm going to do is basically repeat what Tim already said. So reported revenue is up by 8.7%. Organic revenue growth was 3.5%, which is pretty much in line with the last quarter. And the difference between reported and organic can be attributed to a large degree to a stronger U.S. dollar, which accounts for 75% of the difference. Reported EBITDA AL grew 8.3%; organically, 3.9%. Also here the difference can be attributed to 80% coming from the U.S. dollar. I think what you also see is, if we move it outside the U.S., that our EBITDA AL is growing in all the other segments. We're on a very similar growth rate as we had during the last 2 quarters, which is 3.3%. And if we would make that comparison on an organic basis, it would be 2.1%. Reported free cash flow up by 18% year-over-year. And the organic growth was 10%. Everything can be explained by the U.S. dollar. If we're taking a look at the adjusted earnings, the adjusted earnings were stable year-over-year this quarter. And the reason being is that last year in Q1, we had an extra and final dividend from Toll Collect, which supported the adjusted earnings number in 2018. And we're taking a look to that slight decrease in net profit. That is clearly impacted by the U.S. merger one-off cost, which Braxton Carter has already communicated to you 2 weeks ago.Moving to the next slide, which is basically showing Germany. What you see is that the headline sales is up by 0.6% and that is very much driven by total service revenue growth of 1%. The EBITDA is up by 2.4% this quarter, which is very consistent with our guidance for '19 and also with our guidance for the whole Capital Market Day. On Page #12, we see the service revenue growth. And let me draw my -- your attention first to the total service revenue growth. So you see that the decline which we have faced over the previous quarters has now been reversed and we're seeing a 1% growth. Obviously, it's very much supported by a strong service revenue growth in mobile but also by better wholesale revenues. Largely to the IP migration headwinds, the fixed retail number has declined by 0.8%. We see that on a later chart. But that is also very in line with the recent quarters.As I said, wholesale revenues were better, they grew by 1.6%. And the mobile service revenue grew by 2.8% year-over-year. And you may remember that we explained during the last quarter that we have some phasing issues with the visitor revenues. And you see now that the trend has been reversed and that we're seeing a almost 3% growth.When it comes to our midterm guidance, no changes here. We're comfortable with our 2% revenue CAGR for the service revenue in mobile. And so there is no change from that one. Page #13. You see the mobile performance on the left-hand side of the chart. The numbers which you're seeing, they're all post IFRS 15. So we're comparing IFRS 15 numbers now with IFRS 15 numbers. And we had very strong and solid momentum both in B2B and in B2C.Next chart, Page #14. Two things I would like to draw your attention to. One is, you see that we have a constant increase in mobile data usage. We're now at 2.8 gigabytes per month. And that is almost an increase of 1 gigabyte year-over-year or 50%. And also, we're making progress on our convergent offerings. Right now, we have 53% of all Magenta-branded mobile contracts in part of a convergent relationship, and that is an increase of 11 points vis-?-vis the previous year. And if we compare this on the broadband coverage, right now, 23% of the broadband households are in a convergent contract and that is an increase of 4 points vis-?-vis the last year. Moving to the next chart, Page #15 shows the commercial performance in fixed line. You see that we have a steady increase on the mobile broadband side. Obviously, that increase is impacted by the IP migration. The IP migration is also clearly highlighted in the elevated line losses which increased to 211,000. But this is very much attributed to the very strong pace we're having right now on the B2B migration. More positive on this side is obviously the net additions on fiber. We delivered now for 14 quarters in a row, an increase of more than 0.5 million net adds. And if you compare vis--vis the previous quarter, we also see a slight acceleration in the net add growth. And finally, on TV, you see that we have increased our customer base by 66,000 customers, which is in slight increase vis--vis the previous quarters, and we attributed this to the rebranding of our magenta TD offering, but also to our enhanced content offering. Page #16, Germany fixed. As I said earlier on, the retail revenues in Germany fixed have fell by 0.8%, which is slightly worse sequentially, but is very much in line with the trend which we have seen in 2018. Our broadband revenues grew by 2.3%, very much comparable to the last -- through the trends of the last quarters. And you may remember, we had headline trends in 2018, which actually showed a higher growth figure, but that change has now rolled over. through the trends of the last quarters. And you may remember, we had headline trends in 2018 which actually showed a higher growth figure, but that change has now rolled over.Let's move to the 2 classical charts from the U.S. which I have already presented to you 2 weeks ago. Again, another very, very good quarter when it comes to customer acquisitions. 24 quarters in a row with more than 1 million net adds. EBITDA growth on IFRS terms grew by 6.1%. That is a difference between what Braxton Carter told you because under U.S. GAAP, he grew by 11%. There are 2 reasons for this. One is last year, our EBITDA -- IFRS EBITDA was supported by hurricane reimbursements and we see a negative drag which has been accounted for in IFRS from a purchase power agreement which had a negative impact of EUR 50 million. Taking a look on the next slide to some performance metrics. Let me start with the stunning churn rate, which is now on an ultimate low with below 0.9%. Obviously, that commercial performance is underpinned by very strong network performance which we're seeing. We also see that the cost of service has come down significantly year-over-year. But please bear in mind, a, this quarter has benefited from some accounting changes; and also, we have seen lower hurricane-related expenses vis-?-vis the last year.Moving over to Europe. Strong commercial momentum in Europe continues. We have added another 196,000 mobile contract customers, a stunning number of 445,000 new converged customers which can, to a large degree, been allocated -- or to a large degree, been driven by Greece. Household penetration in converged offerings is now at 42%, which is a 10 point increase vis-?-vis the previous years. Less strong are, obviously, the TV net adds and also the broadband net adds are more on the lower end vis-?-vis the previous quarters. That is very much driven by an intense competition which we're facing in Romania. When it comes to financial performance, the European segment keeps growing both in sales and EBITDA AL. I would say growth has now become the new normal here. The reported revenues were up by 2.8%, EBITDA AL by 5.2%. And if we make that comparison on an organic basis, which is basically carving out UPC Austria, revenues were up by 0.4%, EBITDA AL by 1.5%.So also on Europe, we're well on track with regard to our full year guidance but also with regard to our midterm targets which we communicated at the Capital Markets Day.So Page #21. Let's move over to T-Systems. I think we're seeing some initial progress with our ambitious turnaround program but clearly there is still a way to go. Our order book continues to develop positively. Unfortunately, that has not translated in revenue growth yet. Nevertheless, we continue to expect stable revenues for 2019 as a whole.EBITDA was up quite a bit this quarter. I think this is driven by 2 effects. One is the basis in Q1 2018 was really weak, but also we're making progress when it comes to cost reductions in our transformation program.So our guidance of roughly EUR 0.5 billion EBITDA AL for the year 2019 is robust and also does that apply for the midterm targets at the Capital Markets Day.Page 22, segment Group Development. The results were obviously impacted by the consolidation of Tele2 Netherlands from beginning of January. And also please be aware that we added 3,200 Dutch Towers into our tower business and we renamed the tower business now to GD Towers. Financial performance. Organic sales growth up 2.2%, EBITDA AL grew by 12.8%. And that was mainly driven by T-Mobile Netherlands which benefited from efficiencies and favorable comps from Tele2.The underlying Dutch mobile service revenues which now includes Tele2 actually moved to a growth of 2.5% in this recent quarter. As Tim said earlier on, when it comes to the tower business on the next page, we added 1,300 mobile sites last year and we're well on track to basically increase the footprint in Germany by 9,000 sites until end of 2021. The recurring revenues grew by 4% and EBITDA AL grew by 2% on an organic basis.So let's move to the 2 final slides on the financials, which basically cover free cash flow, net debt and adjusted income. As I said earlier on, free cash flow grew by 18%. It was very much driven by a higher EBITDA and a better working capital management. And it offset, actually, the frontloading of the CapEx in the U.S. So we had a net increase of 240,000 -- EUR 240 million free cash flow vis-?-vis the last year. And on a net debt, despite that strong free cash flow, the net debt has increased based on IFRS 16. And this is mainly due to, a, currency effects, which you can see on the chart; the acquisition of Tele2; additional leases; and valuation effects from interest derivatives. So on the net debt, you may remember as we gave our explanation to you back in January, we indicated to have an IFRS starting point effect of EUR 15.4 billion. Actually, it turned out to be EUR 15.6 billion, which is well on the corridor which we articulated to the outside which was plus/minus 5%. But this is now a solid number. And this is basically giving you a slight difference relative to our forecast back in January.Finally, if we take a look to the net income, which is slightly down year-on-year, this is very much driven by the Q1 effect which I indicated earlier on, Q1 2018, and the dividend from Toll Collect. Last chart, on the balance sheet ratios. Let me focus on the net debt-to-EBITDA ratio. You know that we have changed our corridor from 2.25 to 2.75. We're in that corridor range with 2.65. Also, we are in the range of all the other comfort ratios. Let me just explain to you, we haven't changed the equity ratio. If you would adjust for IFRS 16, which we don't have, that would basically reduce the equity ratio from 25 to 22 and from [ 32 to 30% ] But we're well basically in that comfort range and in that corridor. So bottom line, I think we delivered a solid quarter when it comes to commercial and financial performance. We're absolutely in line with our 2019 guidance and our midterm guidance. And with that, Tim and I are happy to take your questions.
[Operator Instructions] Tim and Christian, now we can start with the Q&A part.[Operator Instructions] Let's see how many elephants we have in the room today. Maybe there's another one. So we start with Mathieu at Barclays, please.
First, I had a question in terms of the German mobile. So obviously a very strong performance and a recovery as you had led us to believe in Q4. When I look ahead, can you maybe give us a little bit of color on the competitive environment? We heard there has been some more promotions in some segment of the markets and one of the players maybe want to leverage a bit more its improved network. So I wanted to know how you think that can play out this year. A simple question on Austria. So you launched a 5G network. Is there any early findings or any color you can give on how that is going?
Mathieu, it's Tim. First, let's talk about Austria because I was there on our rebranding party on Monday evening with Bundeskanzler Kurz and 3 ministers and all these kinds of folks. And we launched the company because we couldn't call the company Telekom Austria. So the company is called Magenta T. The Magenta Telecom is now up and running. Honestly speaking, the auction on the 5G spectrum went pretty well. We paid EUR 57 million. Compare that with Germany, that would've been EUR 600 million. So therefore, we got 110 megahertz of spectrum. We were prepared for the market launch and we were the first one launching 5G in the Austrian market. We started with something like 25 sites. But we are growing now across the footprint in a rapid way. It's by far too early to say this is here a 5G experience. If you look to the tariffs which we launched around our Magenta Telekom launch, we had this unlimited tariff which we brought to the market and the pricing and this kind of stuff. It's not representative of 5G. It's more, let's say, showing the capability for mobile in the market. And it's more the intention to address the data consumption in this environment. So really, it's too early to say what is the pricing, what's the tariffs and how is the take-up. The speed which we are generating is amazing in the Austrian market, beyond 300 megabit per second. So it's quite impressive. But you know that most of the handsets, our handsets are not available yet.Coming to the competitive environment in the German mobile market. Over the last years, the German mobile market has been comparatively stable despite some volatility and always this discount competitions which we have towards the lower end of our B2C market. And I'm especially focusing on the B2C market. This volatility was mainly driven by MVNOs and -- which is now, I think, on its last year of its 5-year glide path how I look from this environment.In 2018, Drillisch invested around EUR 270 million of additional EBITDA in handset subsidies. But despite this money, we were able to post our revenues at a stable performance. So this shows that it's not only about handset subsidies. It has a lot to do with how you are presented, how trustworthy your brand is, how good the network perception is around that one and how the distribution is working.And I think that's a good proof point, 2018, on how we move forward. Last month, we have seen some incremental price aggression from 02 and from 1&1 Drillisch Group. So Vodafone's move seems to be a good sign for the environment in which we're operating. So I think it is more the lower market segment which is fighting for volumes here and the promise we have seen there. So we guided for the mobile service revenue, a CAGR growth of something around 2%. And we remain comfortable with this guidance going forward.
So if I may add a couple of things. When it comes to the 3 consumer segments, still almost no spillover between discount, smart shopper and the premium segment. Obviously, we're closely watching what Vodafone has done with its new data buckets in the Red portfolio. Obviously, they increased the buckets significantly. And be aware, the B2B market is really, really strong.
Thank you, guys. Next question is from Polo at UBS.
It's Polo Tang at UBS. I just have 2 questions. So in terms of remedies for the Vodafone Unitymedia deal, Telefonica Deutschland will be able to get wholesale access to cable. So in your view, how does this impact the German broadband market? And how much of a risk is this to DT's wholesale revenues in Germany? And the second question is really about latest thoughts on a fourth mobile network build because as things currently stand in the auction, Drillisch has spectrum in both the 2 gigahertz band and also 3.6 gigahertz band. So what's your latest view on whether a fourth mobile network build by Drillisch is viable? And if it does go ahead, how will this impact DT?
Let me start with the remedy question first. So we're opposing the merger because of the concentration of the TV market, not the broadband market. So whatever kind of deals which have been struck now between Telef?nica and Vodafone, from our perspective, it doesn't solve the problem on the TV market; it doesn't solve the problem on the housing association. So we don't know in what -- to what degree that remedy can actually help to facilitate a merger.When it comes to that deal, obviously, Voda -- Telefonica is in our network. It has roughly 2 million DSL customers. If you assume that the cable penetration is about 60% in Germany, so let's say 60% of their customers are overlapping with the cable network, Telefonica is locked in with a multiyear deal on the Kontingentmodell. And so we don't expect them to actually force customers from our current network to -- into the cable network. But the ultimate question for me on the remedy question is, how does a -- an opening of a cable network actually solve the questions which we're having on the TV market and the housing association market?So -- and the network, Tim, do you want to answer the network question?
Yes. Let me talk a bit about, let's say, my thoughts about fourth entrant and what's going on. I cannot comment on the auction and nobody should do that at that point in time. But let me give you some general observation. Look, our -- the first thought is that, look, if there's a fourth entrant coming, he has build-out obligations both on 2.1 gigahertz, 50% of the market, and as well on 3.5 gigahertz, which is 25% of the market.So in addition to the price for the spectrum, there will be, let's say, minimum requirements for building out the network. And this is something which is a business case which has to be amortized in the Drillisch portfolio. These people are not new in the market so they have 9 million customers already in their footprint and they might amortize it with revenues coming from that angle. Luckily, we have no MVNO with Drillisch or 1&1, so we are not affected by the migration into this infrastructure.If I would be, let's say, in their shoes, I think it's hard to amortize their business case and it would be hard even to build out a network. And it is even hard to find, in areas where I haven't built an infrastructure, a decent economics to get access to another network. So I -- it cannot be that this is coming on the expense of the existing infrastructures which are sitting there and you know our position on the national roaming.Now looking to the auction design and the current auction, I was very explicit on this one at the beginning. Said, look, we have 400 megahertz of spectrum. If it would've been allocated to 4 players, it would've been an easy task. Taking out 100 megahertz of this auction and giving it to industrial purposes without knowing who that is and where that is and limiting it to 300 to the others, this is only creating additional proceeds to the government, but it's not building networks. And exactly that is happening in the auction right now. If you take the total lump-sum of the auction of the day, it has taken out almost 50,000 mobile sites which could've been built with this money.So I think this shows that this is a kind of additional tax for the government, but not something which is helping the industry to build out a full-fledged network. U.S. or even Austria are better examples how that could be done in another way.And now in this case, everybody is part of it. So it will not be only Deutsche Telekom, Vodafone or Telef?nica but even Drillisch who has to pay this tax to the government. So that's where we are.
Thank you, Tim. And with that, we move to Ulrich at Jefferies, please.
Yes. Oh sorry, sorry. Yes, my question is regards to all-IP migration. It's sort of very good to see that you are making very good progress and you are closing in towards the finalization. I'm just wondering whether you could explain a bit better the link to the broadband. The broadband intake was probably a bit on the soft side in the first quarter and I think that sort of part of the explanation is the all-IP migration. But I'm not entirely sure why the loss of legacy voice lines sort of has such a big impact on the broadband side as well. And sort of linked to that, would you sort of say that the broadband intake would recover once the all-IP migration is over? Or are these levels that you're currently seeing on the Internet side and in broadband, retail broadband, are they sort of the new normal?
Again, just to reflect on where we are right now, on average, we have migrated 90% of all customers. Obviously, consumers are moving ahead of B2B customers. But also in B2B, we're close to 80%. So we're not at the very starting point. But we have accelerated efforts right now in the IP migration especially when it comes to B2B. And obviously, we will close the factory once we have migrated the very complex customers finally.So if you take a look at the broadband growth, I think our understanding is that our broadband numbers would basically be 5% to 10% higher if we wouldn't have an IP migration on a roughly basis. You can't do that mass 100%. And if we're taking a look at the line losses in our legacy business, you see that, that share of B2B is continuously growing. So and that is clearly allocated and attributed to the all-IP migration.
Let me add one word to the IP migration. Look, we are very happy that we are finalizing on the IP migration, the B2C area, by the end of this year, not only from a productivity perspective. I always remind us that if you come to remote maintenance, if you come to fixing functionalities at this -- at the street cabinets, when it comes to network quality on big data in the network and when it comes to the migration into vectoring and super vectoring, all of this would not be possible without IP migration. So the customer and productivity gain which we drive from IP is already helping us today big time because super vectoring would not be possible without it. 20 million households in Germany have already passed up to 250 megabits now with super vectoring. Now, if I look to the broadband numbers and the customer intake which, Ulrich, you refer to, we have a steady intake of something around 700,000 on a quarterly basis. So this is very, very strong. So wherever we have built it, we approach the customers and they like the product very much. So we are creating high loyalty with our customers. Our churn on this is very, very low and the intake is good on this one. Now, with super vectoring, which we have just started, we have a big, big up-selling opportunity on top of that. So therefore, I think you should challenge us on this number going forward. I want to be measured by our success on super vectoring to sell/upsell the speed into the base. This is definitely one of the key marked issues which we should focus on going forward. But overall, I think the numbers, the broadband numbers speak for themselves.
Thank you, guys. Next is Steve at Redburn.
Yes. Guys, can you hear me? Guys, sorry. So yes, I'll go through 3 if I can and you can respond to them or not. First of all, just following up on the points on 02 and the Kontingent lock-in. Can you just give a bit more color as to how long that is? And what your ability is to migrate customers away from you should this remedy prove -- get the Vodafone Unity deal over the line? Secondly, just on the auction. I mean I totally understand your frustration, Tim. I'm sure your comments aren't aimed completely at us. I'm sure they're aimed at the German government and regulator. And I'm just wondering if this is a process of the auction so far. If this fits in your convention to pursue [Technical Difficulty] versus what you think that might be. I also [ heard ] that Telef?nica Deutschland earlier were saying that they're looking at collaborating on network build in rural areas. Is that something you're giving greater consideration to, given the cost of the auction going forward? And just finally, one on Holland, if I can. Just early days over T-Mobile and coming through there. But very clearly, that your mobile -- your fixed line share is way below your mobile share. Any thoughts as to how you might address that over time? And I guess the shoe is on other foot with cable access there and thoughts on using wholesale cable access in that market to maybe try and redress your lack of fixed line market share?
Let me start just with the first question and then we make sure we've got the second question right. But first question is on the contingent lock into the standard contingent model lasts through 2021. And then there is a 3-year extension. Are you paid in this model upfront for 8 years. And during that time, you get then a reduced fee on a sort of cash basis. And clearly, if you are Telef?nica you would broadly adhere to this. There are some, let's say, exceptional contract stipulations related to Telef?nica in the fixed line side. Because as you may remember, they have also as their fixed line network to us, so that creates a bit of a tighter relationship. But we won't go into the detail there.In terms of the auction, there was one moment when you broke up. So we didn't quite hear that. In terms of collaborations, I should let Tim answer that in a moment. But maybe before we go there, maybe you can repeat the question related to the auction process, if you could. Or maybe we do this at the end, and I just pass on to Tim, and he will first answer the question on collaborations.
Look, the consequence of an auction which is becoming more expensive than expected is that the business case for everybody who is part of that one is changing. And now you cannot spend the euro twice. It's impossible. Here we are. So and therefore, I'm always reiterating that with the money which is on the table for adjusted, the spectrum, stands for 50,000 sites already as the whole industry. And if this is not anymore available for the industry, the only way of building the infrastructure is then for more collaboration on the sites. So we have been already been clear and publicly said that we are willing and open to collaborate in innovative ways to fulfill the auction coverage obligations. I can imagine for instance white spots where nobody has coverage today that we are jointly building passive infrastructure together. The waterways, I said it clear, nobody needs 3 mobile infrastructures across the motorway -- the waterways in Germany. So if you find collaborations in this area, it makes totally sense, I think. And you know me, I'm very open on cooperation models, but it should be fair. It should be fair. That means for me that on the build-out, I would clearly address the issue of reciprocity which is an important criteria. It cannot be that some player is only offering one site while all the others are building hundred sites. I think there should be a fair share of the infrastructure, independent from the market share of the players when it comes to the collaboration. And to prove that we are serious on this one, I just wanted to remember us that we have a sizable backhaul agreement signed last year with Telef?nica Deutschland on the backhaul here, which is working.So let's then after the auction trying to understand how and where we can collaborate, but Deutsche Telekom is open.
So on the question with regard to cable wholesale in the Dutch market, you know that the ACM has mandated carbon wholesale by our next past regulation. However, VodafoneZiggo has appealed that ACM decision and we expect that we get clarity on whether this can be now mandated, yes or no, within 3 years. So for the time being, we're happy with our multiyear agreement we're having with KPN and our little DSL business which we're running by ourselves, until we get clarity on that one.
Well, it's not even that little anymore with 0.5 million and 550,000 in fact, and we have committed some infrastructure build as well as part of the merger agreement. So let's see where that takes us.In terms of the next question we have, Jakob at Cr?dit Suisse. Jakob?
I've got a couple of questions, please. Firstly, could you maybe comment a little bit on the sort of outlook for ARPUs in the fixed line business? I think you had some price hikes in May, you're pushing super vectoring. So just to sort of -- again, you've obviously commented on the line loss but maybe if you can just comment a little bit about what sort of revenue per line trends we could see? I mean could we see these accelerate? And then secondly, just if I could just maybe just follow up on the network sharing. I think Tim said at the beginning of the call that you see network leadership as nonnegotiable but you're also open for network sharing. Could you maybe just sort of help us understand a little bit more what are the things you're not willing to share? Is it urban areas? Or what are your sort of redlines in any potential network sharing arrangement?
Jakob, very good questions. First, let me start with the up one fixed line and where we are standing there. Fixed market has been fairly steady on the commercial level. And our performance was impacted by the IP migration to a certain extent. The German broadband market as a whole had a slower growth over the last quarters here. Some of our resellers have been quite aggressive at the end of last year and continue -- had continued really to offer longer promo periods compared to, for instance, Deutsche Telekom.However, in February, there have been some price moves been triggered by Eins & Eins up to EUR 5 per month broadband price hikes for the second year. So I see that as a positive sign that even these companies have to reimburse the contingent model. And Vodafone recently reduced the online discounts. So even here we see some developments. I think this is reflecting the higher build-out costs which we have. Moreover, our offers, special tariffs, our discounts has been taken out as well. So there is a little bit of, hopefully, stabilization in the -- in this very highly competitive environment. Our way going forward is to stabilize and to increase the ARPU by upselling of super vectoring FTTH and additional services into the base. We have today launched, by the way, another tariffs kind of entrance tariff for 25 bucks in the fixed line environment. So therefore, I think this environment that everybody's investing into infrastructure is prospectively even reflected in the offers. For us, I think it's more relevant that we are -- have good -- let's -- we include More For More for our customers, being it TV services, being it higher speed uptakes, being it, let's say, elements of hardware which we include than rather sacrificing on the monthly subscription. That is, let's say, our strategy going forward. And we have guided some 3% to 4% broadband revenue CAGR for the upcoming years. And this is absolutely consistent with the recent performance which we have shown, and therefore we are comfortable with this guidance. Please keep in mind that super vectoring is just coming to the market with these additional speeds which gives us new market optionalities.
Okay, let me try to answer the network question and the network sharing question. So first of all, we have to find a set of rooftop and towers which we call differentiating in our internal terms which we call Golden sites. And these are sites where we believe we're differentiating from competitors which we will never share. So where we are open to share is actually where you don't create a possibility of differentiating from the competition. And therefore, we wouldn't basically endanger our market leadership, our network leadership.The second point I think we have to bear in mind, especially when it comes to rooftops, many of those can't be shared and there's -- and it will become even more difficult when we move into 5G because there are emission standards which we have to adhere to. So from this perspective, we also have to take a look where it's technically possible to actually share. But wherever there is a nondifferentiating possibility or a site where the customer experience is nondifferentiating between the different competitors, we're willing to have a discussion. And please bear in mind, if you exclude the rooftops, our sharing ratios en mass and the very large towers is already 2.3. So we're sharing quite a bit.
Great stuff. So next question from Ottavio at SocGen please.
So I have 2 follow-up questions on answers being already given. The first is on The Netherlands. I appreciate that the [ Balkan statehood ] is challenging the relation in court. But I would like to know what's your take on the wholesale reference offer? One was proposing the 1st of January and T-Mobile has been very vocal against. So they came out with another one on the 1st of April. So could you tell us what you think about this offering? Does it give you enough margins for you to compete?And the second one, it's basically going back on the Vodafone Liberty Global. You said that the remedy had been proposed by Vodafone of course it doesn't address at all the TV markets. From memory, you have 3 key issue in the TV markets, the access to the cable of your full infrastructure and the long-term nature of the TV contract with the associations and the carriage fees. Could you tell us if during the -- because it's been a very long process over the last year -- if any of the markets, has Vodafone has given any concession on any of these 3 points?
So Ottavio, I just start with the question. Both of them to some extent relate to a cable wholesale access which is something that we systematically do not think is a great idea, frankly, because we don't need more regulation on infrastructure. We need less regulation. And in the specific case of Germany, this is not the right remedy for the kind of issues that we are seeing. I think we leave it to Tim or Christian to comment in more detail on that.When it comes to The Netherlands, I think you will understand that we will not comment in detail on how we operate there. As I say, we are, in principle, not those who have shouted the loudest here because we are -- we don't like this intervention and we have a good agreement with KPN. It is a long-term agreement. And the rates are something for others to discuss. So maybe, Christian or Tim, you comment on the second half of Ottavio's question.
Look, let me -- I think the issue is -- I think there is an unacceptable media concentration with the merger which is taking place for Germany. And there is an unacceptable position in the housing associations, it's a stranglehold which is taking place in this front, which is up to more than 20% of the households.And independent from this, I expect that remedies coming around this subject. And effective remedies coming around that subject because they are -- antitrust authorities already decided against this put remedies on Liberty during the takeover of Carl Van Rutenberg. And at the end of the day, remedies which they enforced were not effective at all. So therefore, this time, hopefully, the instruments are stronger in the way going forward.I think on the cable wholesale side, I think what we'll see across the globe is that more regulation is not building networks. It is less regulation and infrastructure competition, which is driving networks. So if we would have more freedom, less wholesale access obligations, less price regulation which is dominating even our retail pricing, if we would have, let's say, more freedom to compete, I would love to have that position.So having a kind of 70% of German market where cable is present, no regulation for Deutsche Telekom, I would say this would create more infrastructure competition and more fiber build-out than trying to regulate everything and inviting wholesale access models, more MVNOs into the market, which is using a regulated infrastructure. So therefore, I think we have a very balanced approach. It's an approach towards a customer orientation that customers getting better services prospectively. And that's what we are trying to fight for. But look, it's not us deciding on this one. And sometimes, I even have the feeling, the clearer and louder we are on asking for something, it's always wrong because people want to see not a merger coming, they want to see, let's say, that Deutsche Telekom is getting weakened, which has nothing to do with improving the situation for the customers or for the citizens in Germany. So therefore, we do it in the back. We are doing it -- that loudly, publicly. But I think different horses for different causes is what we need in this environment here.
Okay. So next is Fred at Bank of America, please.
Firstly, quick follow up on the German markets. You have extended data allowance in your offers you had before flat EUR 20 promotions. But you moved away from those. Meanwhile, [ OTE ] is still out there with pretty aggressive 6 months of free offers. If you could qualify with these markets I felt on your previous comments you seem pretty comfortable around competitive environment, but whether you think you can carry on with your move for more strategy based on network differentiation. And then secondly, we talked about the negative impact of the all-IP migration online loss, et cetera. If you could recap a little bit for us the cost engaged, for instance, in 2018 for this migration and what kind of savings we could expect from 2020 as the B2C migration is completed.
So let me start on the German market when it comes to mobile. First of all, do we carry on with the More For More strategy? Yes, that has been a proven model, and if you take a look what Vodafone has done now with its Red turf, it's actually following our past. But our performance, our commercial performance is not only built on the attractiveness of the proposition. It's also being built on our network leadership and it's being built on our service experience. And you heard Tim saying that all -- we've won all tests. So obviously, there's a strong underpinning that we are the network leaders in all the countries we're operating in. And that also our service KPIs have significantly improved year-over-year. And I think this is the portfolio which a customer buys and it's not only the More For More strategy. And you see our very strong service revenue performance and we don't withdraw from our midterm guidance, which is that 2%. So we're basically comfortable with the competitive environment yet.When it comes to the all-IP migration, let me repeat what I said, we want to finalize B2C end of this year and B2B end of next year. We assume that we have roughly, if everything has been finalized, a cost saving of EUR 400 million in the German footprint, that would include T-Systems as well on an annual basis.So that would be the full benefit of the all-IP migration.
And there will be less CapEx and also some customer-facing benefits. Of course, Tim has already referred to the enabling of super vectoring. But there's more to come with this leaner infrastructure.So next question from Andrew at Goldman.
A question on towers and just a follow-up question on fixed line. Just on towers, there's been a lot of questions on network sharing, but since we last spoke, there's been quite a lot of either asset sales announced or completed in terms of towers with pretty high multiples. So just wondered if you could share any new thoughts on tower valuation and the strategic rationale fees to continue owning them following those deal announcements. Just any color you could give on your decision to maybe as to how you benefit most from your towers, through your network sharing, or selling them or IPO-ing the asset. Any help there would be greatly appreciated. And just is there any reason why your towers would be worth less than comparable deals because more of them are on -- more of them are resale towers?And then the question on fixed line was just a follow-up to Jakob's question on ARPU trends and one of the kind of bull arguments or bull hopes 2 years ago was that customers would spin off the test -- the best for less promotions and go up to much higher ARPUs. And it took us time to see that, i.e., we didn't see that as soon as we might have expected. Are we starting to see that now?
I'll do the first question and give you a little bit glimpse on this, Andrew. The first one, DFMG and our tower operation is the largest telco tower operator in Europe from its size, just by definition, because we are the biggest European telco and we have mobile business in all our footprints across Europe. I think we have a super portfolio even from sharing purposes. Everybody is approaching us on this one. And we are now working very intensively that DFMG is not only good in building sites but even in the running sites. So we are improving the state-of-the-art IT services. We are reducing the overhead cost in the organization big time. And we have now, and I mentioned that already, a good -- especially in Germany, a good position even to support third parties to build their towers. So we can be even a service company towards build-out of new towers in the 5G environment. Now, that said, for Europe, is the value of this business different than the value of Americans? Maybe the multiple is a bit lower because there is a few sites which are not ready to share. I think it's in the vicinity of, is it 10%? Is it fair to say? Which -- where we say these are golden sites which we are not willing. Is it -- yes, it's up to 25% which we are not willing to share. And the rest is open.And the second one is the towers are different from its architecture and the use cases as the ones in the U.S. But in principle, there is an indicator as well here in Europe on valuations for towers. This footprint is not losing value, it's gaining value. Because we talked about 1,300 sites last year, 1,800 sites this year. Up to 10,000 sites up to 2021. So we're extending the footprint. So the monetization optionality is a given, it's possible. But the question is, when and how to play that? I'm open. I let this company being very, very independent in the way how it's operating even with third parties. And we will do everything that we are ready for whatever market transaction we're going to pursue. But we even have to consider that with the new accounting standards, there is now automation as long as we only sell minorities of this one, this is helping us on deleveraging purposes, yes. But anyway, these are the considerations. This company is getting more advanced and more professionalized every day. And when we think it's needed, when the window is right, we might even consider a market transaction. But nothing to be speculated in short-term notice right now.
So let me try to answer the question on ARPU trends and let me try to answer the following way. I think we -- if I recall it correctly, we introduced Test the Best back in 2016. And I think we have seen in the consecutive quarters a decline in the broadband revenues which was going below 1%. But now it's back to 2.3%. So the rollover has already been taken -- has taken part. And therefore, we don't expect that there is going to be a significant negative impact from Test the Best.The second point is I would like to point your attention on Page #16 of the presentation. And if you take a look at that page is you see that obviously the upsell strategy in fiber is working. And Tim was basically saying we just started to market super vectoring. So there is lots of potential in order to bring the ARPU up in the broadband environment. And even in TV, we continue to have an upsell path. And from this perspective, since these are the growth areas, we will be focusing on bringing the average ARPU per customer and per household up.
Great. So next, we have George at Citi, please.
Yes. I have 2. The first one is around fixed line regulation. I think a few weeks ago, there was some news about the German Cartel office is looking into the EWE Tel JV. If you don't mind just giving us an idea whether -- what's their role in this procedure. And whether they could perhaps reverse some of this arrangement. And then my second question is again related to regulation, and I appreciate that you already commented on the action you are taking in the court against the current spectrum process. Is there something tangible that could come out of that? Or is it now a done deal in a way?And then perhaps linked to that, part of what we're having now is certain coverage obligations you are accepting is the -- if you take the spectrum -- start the rollout. But perhaps in the future, at least that's the hope that Drillisch have, they are hoping that it could be something imposed around national roaming. In that event, which I know you don't think is very likely, is there any way of you reversing on some of these commitments around coverage obligations?
So Georgios, let me start with the fixed line regulation and especially on the EWE Tel deal. As you know, we have signed our contract on the joint venture in March this year. The company called it Glasfaser NordWest. And with the signature, we have officially approached the German Cartel office. They have to get involved into this one from a size perspective. And this is currently taking place. The approval for this moved quickly into Phase 2, into a detailed revision and is recently under investigation. We hope that in short notice, during the course of this year, we will get an approval on that one. The precondition for that project, as was said, is the regulatory framework for FTTB and FTTH rollout. And this is something which has to be decided from the Bundesnetzagentur. And this is as well in parallel on its way. And as you know, the pre signals we got already before we announced the deal was that they are willing to support and approve this transaction.The company will become active in 2020. So we are now in full preparation of this one to build the fiber axis here. And in parallel, we take the approval phases. So we do not lose time at that point in time. The second thing which I want to mention to you is that apart from the auction process, there has been a regulation on the FTTH prices and on the bitstream prices going forward. 250 megabit bit stream charged [ 4 u 80 a ] monthly premium. This is implying a EUR 23 monthly wholesale price. And also the ULL hike, and you have seen the improvement there, seems to be a supportive move for a more investor-friendly environment. You know the FTTH rollout in Germany is not comparable with the FTTH rollout in Spain or in other markets or even in the U.K. because there is a lack of ducts. And there is a high request with regards to the construction. We have to go deeper and we are not able to trench the streets. And on top of that, the construction anyhow is more expensive. And therefore, this higher prices compared to other European countries is reflecting even the higher costs which you will find for build-out in the German environment. So we appreciate the discussion and this decision from the [ Bundesnetzagentur ], the premium, especially on the 250 megabit bitstream.
So let me comment on the coverage obligations and the question with regard to national roaming. So if we take a look at the current auction design, I think we have to split the coverage obligation into 2 phases. There is a phase until the end of 2022. And this is pretty much covered with our self-committed 8 points plan. So we're comfortable in order to comply to that one. But it becomes tricky in the years '23 and '24 where we basically have to support seaports, waterways and all this stuff. And I think that it comes back to that previous question, probably it is a good idea to think about whether we can share the pain by a cooperation with other network operators. But this has to be obviously discussed and negotiated once the auction is over. So on the court actions, so everything which we have filed in court will be decided on after the auction, but not throughout the auction. And therefore, we have to wait until we get any favorable terms given a ruling from the court. And on national roaming, and we said this so many times, there's no legal obligation to national roaming. You take a look at the exact terms of the auction regulation, it says we have to negotiate in good faith, but not that we have to strike a deal. This is what the translation says. But in any case, if there's a good business case for somebody, we will see. So we will not rule it out. But there is no obligation to provide national roaming from a legal basis. And we're -- we have been firm on this one since months.
Okay. Thank you, Christian. And with that, we move to another Christian to Christian at HSBC, please. And just before I give him the mic, we've got -- we are in a good mood, so we'll take all the 4 remaining people that have further questions. So we start with Christian now and then we have -- but we, I think we'll take no more further questions from here. Thank you.
Yes. Christian here. I have a question, actually I have 2, one is more kind of accounting-driven. I was wondering about the IFRS conversion from the U.S. GAAP, U.S. business. I mean there was a kind of a weird movement in Q1. And historically, we had always a EUR 500 million to EUR 600 million delta between the U.S. reported and the IFRS one. So is there any terms of guidance you can give us for the rest of the year how to model this? I mean there was this NG purchase agreement. How is that going to develop for the rest of the year? A bit of guidance would be helpful. And then I think the other one is on the Sprint deal. There has been a lot of, let's say, a bit more negative news flow recently. I would be interested in your view, what's the latest there? I mean you mentioned that the California State may lead it into kind of H2. So what's the latest? I would be interested in your view.
Shall I start?
Go ahead.
On the accounting question the difference between U.S. GAAP and IFRS after leases in the first quarter was EUR 242 million. Approximately EUR 100 million can be attributed to different treatments of stock-based compensation. Another EUR 100 million can be treated -- can be attributed to a different treatment of leasing and others. And finally, EUR 50 million were in effect through a power hatch which happened in the U.S. and which basically confronted us with a negative hit of EUR 50 million in the first quarter. And that explains the EUR 240 million.So on the stock-based compensation and the lease differences, that will carry through the year. How a swap will develop, I will not comment on. That can also turn into a positive thing or it remains to be negative, so it's really hard to judge.
So if you would have been growing up in a German environment, you would know what [foreign language]. A [foreign language] is a kind of treatment or rehabilitation where you get always cold and hot water. And if I'm looking back to the last 12 months with regard to, let's say, this transaction, I can tell you it's the longest [foreign language] ever took place in history. So -- and I am sitting in the bathtub and enjoying it.So guys, I'm sorry, but there is deal flow coming positive. There's deal flow coming negative. And it's going on and going on and going on. So guys, I think our team in the U.S. is very well-connected. We are very transparent in the communication going forward. I think we have been very clear and outspoken in our hearings about the benefits of this transaction. I really admire what our U.S. team is doing. They are sitting on an operational business, big size, and outperforming the environment. And then at the parallel, they are driving this very complex approval process and that's all in a great positive spirit. So I'm not speculating on negatives or positives here. By the way, I even haven't had the feeling that we got some really negative news flows recently and that California may delay things. I think that was something which we were expecting from their position earlier already. So let's do the following. Let's enjoy the [foreign language] for another 2 weeks or 3 weeks, then we are in June. We expect the clock is over at 3rd of June. And then we will anyhow have a clear sight on whether the treatment has worked out or not.
Well, I can only say it really worked on Tim. So he is very lively. So in English it's call contrast hydrotherapy. But if you want to know more about [Foreign Language] and the German spa towns where you can enjoy that, then please get in touch. Tim lives in [ Bads Gutenberg ], it's called [ Bads Gutenberg Spa ], so actually it's known for its hot water. So anyway, next question from Sam at Exane, please.
Couple of quick questions if I can. First on German broadband again, sorry. I guess big picture you talked historically about taking your fair share of net adds but in the last 2 or 3 quarters you kind of slipped down as O2s fall back a bit. Do you think you need to do a bit more or do you think all the price moves that the other guys are doing will just be enough to get you back towards your fair market share, if you like? And secondly, on T-Systems, I mean there's been a turnaround for as long as I can remember, so Adel's pitch last year was actually pretty good. You've seen some of your peers, however, accelerate transformation through M&A recently. Are there any triggers that would make you consider M&A acquisitions or disposals of some of the classic IT business? Then if I can try and address one of the elephants, the Sprint deal, clearly Sprint results this week are deteriorating quite a lot and I guess you had a bit of a range of expectations that you built into your initial guidance. Would you say that their results is still within the initial kind of range of expectations that you had outlined a year ago when you first outlined the deal?
On the German broadband deal, I -- join [indiscernible] situation. I think we have been very explicit and clear about, let's say, the market share which we are striving for, which is the 40% net add market share which we wanted. By the way, we have not changed our assumption on this one. If you relate that to the build-out cost and of the infrastructure, we need a decent amount of fair share to amortize this infrastructure build-out which we are driving. So therefore, the teams internally know that there are quarters which are doing very well and there are quarters where are not that strong. I would have said first quarter could've been a little bit better. But if I look now to your analysis on the netted share of O2, I would say this was in a very low end of the market. It -- we are talking about 25 megabit per second and upwards. So very, very few. I'm more focusing our sales organization on the upselling into the vectoring and the super vectoring areas. So as I mentioned earlier, EUR 20 million on super vectoring already today. If you ask me about the customer numbers, still very slow on this area. So please challenge me on how we are able to increase our penetration in the segment and this is then automatically helping us to get a higher share of the net adds prospectively. On the T-Systems side. Look, we are not commenting on any M&A speculations here. As you see, we are improving on the operations. A swallow doesn't make a spring, as we say in Germany. So the developments are encouraging and we made good progress. And it is a very radical reorganization which we are driving. And this radical organization is not only addressing EUR 600 million cost savings and planned headcount cut of 10,000 people, which is by the way ongoing. We even consider and doing a sale of parts of the business. As you might recall, we have triggered a deal with IBM on the mainframe business which we are not pursuing any further, not excluding M&A in this regard. We do everything to deliver on the improvements. The good thing is that our order entry is up by 7% year-over-year and our EBITDA is up by 53% year-over-year. So we are very consistent on our guidance with regards to this full year earnings. But I can tell you, even the resale of AWS or the exit of our desktop business are signals that we are not stopping in areas where we cannot turn around the business by finding a better owner.
Good. There's a third question on the Sprint deal.
The third question on Sprint deal. Look, our expectations into our guidance, our guidance is not including the Sprint deal at all. Only the costs which we have for the approval process and for all the additional work which we have done a part of our calculation. And we have given a clear guidance with regard to EBITDA and profitability for this year. This is including these costs. And we feel very well on this track for the remainder of that year. But anything beyond that is not part of our going concern assumption.
When it comes to the combined entity, I think you have followed what T-Mobile has been reporting and you have followed what Sprint has been reporting. I think that speaks for itself. And when you add it together so and track that over the last few quarters, I don't think it has moved a huge amount.In terms of next question, maybe have Matthijs from Kepler Cheuvreux, please. Matthijs?
Yes. Can you hear me? Yes. Just one question. Could you tell us what you would do when the deal -- or if the deal with Sprint will fail? Could you give some color on strategic options or anything you consider?
What we said is exactly what we said at the Capital Markets Day, then we will continue with our share buyback program which is 2, 3, 4. And then we obviously will focus on stand-alone operation, T-Mobile U.S. You have seen the outstanding numbers of the U.S. folks over the previous quarters. That's going to be the alternative, which is still a good alternative, but the better one is the deal.
Great. Thanks, Christian. Next is Guy from Macquarie, please.
A very quick question. If I look pro forma to the end of June, regardless of whether the Sprint deal is consummated or not, you're likely to be in breach of your new 2.75 net debt-to-EBITDA given you've likely to have spent on spectrum and of course you got the dividend payment and your cash flow is relatively small at the moment. So what -- does this actually create any incremental implications for you with regard to your credit ratings which are clearly both on sort of negative watch at the moment?
So first of all, I think if it comes to rating, it's not been judged on a quarterly basis. Our numbers don't indicate that we're going to leave the corridor. Obviously, you won't see that 2.65, just given the fact that we have to include the dividend in Q2 as you mentioned. But we don't have any indication that we're going to leave that corridor, but there's going to be very little wiggle room to the upper end of the corridor which we expect in Q2.
Well, in any case, IFRS 16 for us is just -- it just moves to the metrics but the rating agencies have always considered it and so there is no fundamental change in our indebtedness because of a change in the rating standard. All we do is that we provide the pre, and by the way, also the post IFRS net debt, right? So the net debt AL if you want to look at that is EUR 54.9 billion at the end of the quarter. Next, we have Emmet from Morgan Stanley and he also concludes today's call before I hand back to Tim.
Yes. Hannes, just one question from my side. You touched on T-Systems briefly earlier from the kind of M&A side. I know you said that one swallow doesn't make a spring, but could you maybe just talk a little bit about the EBITDA swing? It's obviously pretty impressive. I know it's only one quarter, it can be lumpy, but can you maybe a few words on some of the cost-cutting initiatives in particular that Adel and his team are undertaking at the moment? And what the outlook there is for the next couple of years? Whether you think we've gotten past the trough for T-Systems.
Okay, on T-Systems, as I said earlier on, I think the comparison is based on a weak quarter in Q1 last year. You may recall we had EUR 60 million EBITDA in Q1 2018, and now it's 90 and therefore you see that 50% increase. The second one is the turnaround program is not in full swing yet. We're focusing on G&A functions. We're focusing on executives. But whenever it comes to heavy loading, when it comes to cost reduction automation in the factories, the whole offshoring, this is still in the process, so we expect improvements over the course of the year but we're happy with what we're seeing so far both when it comes to order entry and the initial cost reduction. In fact, it's what we're seeing, but again, as I said, it's not in full swing.
Okay, okay. So I give back to Tim and he has a bunch of concluding remarks.
Look guys, long debate today. Thank you very much for your questions and your support. I'm very happy that we have started strong into 2019. If I look to ducts and other environments, haven't been easy for most of the companies here. And if I look to the telecom sector, same story. Deutsche Telekom is with its footprint in this business started very well in this environment. So this is the good thing. Nevertheless, I see -- it's quite important that 2019 is a really relevant year for a lot of things happening here. There are things where I would say we have to live with the interdependencies which are giving from the environment. The first one is that I see this U.S. deal coming to a conclusion. And the second one is the auction in Germany, which is very relevant coming to a conclusion here. We have seen that the increments are growing very slowly at that point in time. But nevertheless, it would be good to have clearance on this one soon.The third one, the issues around the T-Systems turnaround which are very relevant in this year, the visibility of this one is something which is materializing throughout the year.And then we have all these customer issues which we are driving at the same time.To be clear, I'm very happy about the momentum which we have on the customer sides, both on B2B and on B2C, especially when it comes towards our network propositions. But nevertheless, there is still a lot of things to do. The first one is for me, the customer experience and the service quality. We have good momentum in Germany. I'm very happy what's happening there when it comes to TRIM, our Net Promoter Score issues or even the KPIs.But I want to see a little bit more that we appreciate the base, our customer base in an even stronger way. So the loyalty, the focus on the base, the churn is something which is very relevant for me throughout this year.Second, we have to monetize our fixed infrastructure in Germany better than we did in the past. I think this is something that we have a lot of investments over the last years. Now it's time to show the money. So therefore, monetizing infrastructure by reselling -- sorry, by selling the fixed line services in vectoring and super vectoring is super tricky. And what you have even seen is we had a good start on the efficiency targets and I'm not talking only T-Systems, I'm talking everywhere especially Germany here. And therefore, I want to deliver on the efficiency targets or even beat them.So that's our program. All hands on deck at Deutsche Telekom. All people are in good spirit moving on. Thank you for your support and hope to see you soon in -- on the roadshows.
Okay. Thank you, guys. And conference call is now about to end. And if you have any further questions, please contact us in the Investor Relations department. Have a great rest of the day. It's been a lot, I think, for everyone in the last couple of days and weeks and -- in our sector. And have -- and with that, I hand back to the operator.
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