Telefonica SA

Good morning, thank you for standing by and welcome to TelephoneEquals January-June 2025 results conference call. At this time all participants are in a listen-only mode. Later we will conduct a question and answer session. If you'd like to ask a question, please press star followed by 1 1 on your telephone keypad. You will then hear an automatic message advising your hand is raised. To answer your question, please press star 1 1 again. We will kindly ask you to ask a maximum of two questions per participant. As a reminder, today's conference is being recorded. I would now like to turn the call over to Mr. Thorsten Atman, Global Director of Investor Relations. Please go ahead, sir.

Good morning and welcome to

TelephoneEquals conference call to discuss January to June 2025 results. I'm Thorsten Atman from Investor Relations. Before proceeding, let me mention that the financial information contained in this document has been prepared under international financial reporting standards as adopted by the European Union. This financial information is un-audited. This conference call and webcast, including the Q&A session, may contain forward-looking statements and information relating to the TelephoneEqual Group. These statements may include financial or operating forecasts and estimates or statements regarding plans, objectives, and expectations regarding different matters. All forward-looking statements involve risks and uncertainties that could cause the final developments and results to materially differ from those expressed and implied by such statements. We encourage you to review our publicly available disclosure documents filed with the relevant securities market regulators. If you don't have a copy of the relevant press release and the slides, please contact TelephoneEquals Investor Relations team in Madrid or London. Now let me turn the call over to our chairman and chief executive officer, Mr. Mark Murtra.

Results conference call. Is it on? Excuse me.

Sorry about that. Good morning, everyone, and welcome to TelephoneEquals' second quarter results conference call. With me today are Emilio Gallo, Laura Vasolo, Marcus Haas, Lutz Schuler, and Eduardo Navarro. It is a pleasure to have you here as usual. We will first walk you through the slides and will be then happy to take any questions. Six months ago, I joined to lead Telefonica with a clear goal, unlock the values that exist within the company. We're still early in our plan, but the pieces are starting to come together. Today's results show steady operational execution, continued progress on strategic initiatives, and our strategic review, which we're expeditiously advancing on schedule for second half unveiling. Behind the scenes, we're making significant progress, working intensively to get this right. While I can't share the conclusions of our strategic review, I can ensure that every decision we're making follows four fundamental principles. First, customers are the core of everything we do. Second, technology and operational excellence are fundamental to our business. Third, we apply an industrial rationale to our decision making. Fourth, our ultimate goal is to create value across all our decision making, all under strict financial discipline, prioritizing Europe and leadership in Brazil. Despite a variable macro environment, we're focused on managing what is within our control. We are confident that the transformation underway at Telefonica will create value for our shareholders and strengthen our competitive position. The strategic choices we're making will contribute to a stronger, more competitive telecom industry in Europe.

On slide

three, let me walk you through our second quarter operational highlights. We're maintaining momentum across customer growth, network expansion, and portfolio optimization. Each of these areas is part of our future, starting with customer focus. This quarter, we added two million accesses to reach 349 million accesses. Their experience and satisfaction remain a priority, and customer lifetime value is improving with high levels of NPS and low levels of churn. We continue with portfolio renewals and new tariffs, like in Spain with Mimovistar and O2. Our network build continues. We accelerated our fiver to the home rollout with 1.5 million premises added in the quarter, while our 5G coverage expanded by 2 percentage points. The completion of our corporate shutdown in Spain marks an important moment. We're the first major European operator to achieve this milestone. This frees up resources and focus for other endeavors. We're being disciplined on efficiency and portfolio management. We continue to simplify ISPAM. This allows us to concentrate resources and management bandwidth where we can build competitive advantages. In these six months, we've reshaped our Latin America footprint. We completed the sales of Argentina and Peru, signed a binding agreement for Colombia, and recently announced binding agreements for Uruguay and Ecuador. These transactions represent approximately 3 billion euro in firm value. Our approach focuses on concentrating resources in select markets, where we have competitive advantages. The speed of execution matters, and it allows us to be more productive on other fronts. Each transaction strengthens our ability to invest more effectively in our core markets and has been structured to minimize execution risk. This approach is part of our capital redeployment. This approach is an example of what we want our industrial rational to be. We evaluate every market and every investment through the lens of industrial value. We aim for a simplified organization that can move faster and compete more effectively. Our work in ISPAM is not over. Moving to slide five. Revenue reached off almost 9 billion euro in the quarter, growing .5% organically, EBITDA almost 3 billion euro plus .2% and EBITDA minus CAPEX was broadly stable. Free cash flow turned positive to 505 million euro in the second quarter, an improvement of 718 million versus Q1. In the first half, free cash flow was 291 million euro. Free cash flow will continue to improve in the back half of the year, following our typical seasonality. Foreign exchange headwinds impacted reported figures slightly higher than in Q1. Net financial debt decreased .5% year on year to 27.6 billion euro as of June. The first six months reflect free cash flow seasonality and the dividend payment in June. Lastly, earnings per share from continued operations amounted to 7 cents of euro in the second quarter and 15 cents of euro in the first half. Moving to slide number six. Spain and Brazil, which together represent 70% of group EBITDA, showed improving trends this quarter. Spain delivered its best Q2 net ads since Q3 18, while improving EBITDA minus CAPEX. Brazil continues its good run with record EBITDA growth since Q4 23, performing above inflation, although it was negatively impacted by foreign exchange movements. Germany is facing the effects of the B2B transformation while maintaining solid consumer momentum. VMO2 is investing in its network while EBITDA decline slowed on efficiencies. ISTAM showed resilience in declining EBITDA softened and growing contract net ads. While we transform Telefonica, our operations must continue to deliver and improve. What we're seeing across our footprint is operational stability. This will give us space to execute our strategic initiatives while maintaining financial discipline. Our performance in Q2 is in line with expectations reflecting different moving parts in the direction of business. Based on our first half performance, we reiterate our full year 2025 guidance across metrics. Revenue and EBITDA continue to grow in line with our targets. EBITDA minus CAPEX was stable due to phasing and will improve through the year. CAPEX intensity remains within our being below 12.5%. Free cash flow already improved in Q2 and we expect the momentum to build through the second half, which is our typical seasonal pattern. Leverage is currently above guidance target. This temporary uptick is mainly due to free cash flow seasonality in the first half. The FX mix impact on the ratio and the dividend payment in June. We're expecting it to improve the course of the year. These results keep us on track to deliver our guidance. Let me now hand over to Emilio to take you through our operational performance in more detail.

Thank you, Mark. Let me start by giving an overview of the main themes in our core operating businesses. First, commercial momentum remains steady. We are showing very some levels of low chance and our digital ecosystems continue to gain traction. To highlight, in Spain we achieved the highest quarterly net addition since the third quarter of 2018 and we will increase the number of O2T subscribers by 55%. Second, our networks are a key differentiating factor for the quality of our services, product offerings and customer satisfaction. As an example, in Spain and Brazil, we have superior MPS compared to our competitors. Also, the lifetime value of our convergent customer is the best in our domestic market. To ease the figure of our closest competitors. Third, our performance in key markets and our development in hispan show our focus on execution. In Spain and Brazil, we have improved financial trends year over year in the second quarter. In Germany, we are focused on mitigating the impact of the migration of -on-one, showing growth in underwriting terms. Finally, in the UK, budget-media tools declining a bit and improved reflecting cost efficiencies. On to slide nine, performance in Spain was excellent with accelerating growth in customer and financials. Momentum in Q2 was again very strong, achieving the highest net ask in more than six years. The -on-year growth of our key services accelerated. There were several drivers behind this. We saw a convergent trend reaching 0.8%, its lowest level in more than 11 years. There was an improved portability balance. And finally, we had 89,000 TV net asks, the highest number in more than six years. This has been possible to Telefonica España, reinforcing its market position during Q2 with a segmented commercial strategy. We improved ODOs and Movistar value proposition with additional features such as new TV content, increased the fiber speed and more mobile data. On top of this, we launched Movistar Porte, a personalized customer care plan that deeply changed the way we serve our subscribers. This approach is a structural change in the market. It will drive a further expansion of our -in-class MPS in Spain and a sustained reduction in claims, which were already on the decline. This proves our commitment to excel in customer experience in a market where trust and quality are key loyalty factors to drive commercial performance. Meanwhile, convergent value remains the best in the market, above 90 euros, despite the end of the football season and the higher O2 penetration. A strong financial performance continued with improved growth across metrics. Q2 revenue growth increased year on year as to sustain growth in services and higher handset sales. Retail revenue increased above inflation, driven by customer growth, price and higher rates of services beyond connectivity. We delivered growth in both B2C and B2B. There was double-digit growth in IT sales, which already accounts for over 50% of B2B revenue, with a record high IT backlog. As expected, wholesale and other revenue declined due to the renewal of wholesale agreements, which added long-term sustainability. The year on year growth in EBITDAO in Q2 also accelerated. This performance is driven by several factors. Revenue growth, stabilization of leases, efficiencies in network transformation, and hyper automation. Also, copper networks of dawn was completed in May. EBITDAO minus cap is increased by over 2% in H1, showing our leading cash conversion in the domestic market. In summary, in Spain we continue to leverage our solid fundamentals to deliver a stronger performance. Onto the next slide. Telefónica Brazil's performance in Q2 was again marked by solid growth both in operations and financially, thanks to our sustained leadership in a quality customer base. Upselling initiatives from prepaid to contract plans, our focus on our commitment to offer the best services led to a 6% increase in our contract accesses and more than 60% increase in vivo total. Our ability to retain high value customers despite increasing prices is reflected in post-paid churn, which remained very low in Q2 at 1.1%. The growth in services are two examples of increasing traction of our digital ecosystem in Brazil. Revenue increased by 7% and continues to outpace inflation, thanks to two factors. Firstly, strong growth in post-paid and fiber, showcasing vivo's successful convergence strategy. Secondly, growth in real terms of our fixed and mobile revenue. Despite this strong commercial momentum, we were still able to maximize efficiencies, which resulted in OPEC's growing below inflation. Vivo delivered the highest beta -on-year growth since Q4-23 with margin expansion. In Brazil, we have expanded our fiber footprint to 30 million premises past. To highlight, on the 10th of July, Telefónica acquired the 50% stake of FiberCell, owned by CDPQ. Extrasoning vivo's leadership in fiber. This cost 850 million reais. In addition, we have integrated the IoT and big data businesses into the cloud business. This change will allow greater simplicity and increased efficiencies. In summary, I am happy to report that Brazil is performing excellently. We expect to maintain these results throughout the next quarter.

Moving to slide 11.

Telefónica Toysland reported financial were impacted by the migration of the -on-one customer base and the partner business transformation. While we continue looking for additional growth and efficiency measures to mitigate this impact, the underlying performance showed growth across revenue, mobile service, revenue, and EBITDA. Higher promotional activity continued across CERNEM in what is a more mature market. In mobile, we saw robust commercial additions with contract net ads increasing double-digit -on-quarter. Additionally, O2 contracts remained stable -on-year at a low of 0.9%, reflecting the strength of the O2 brand. In the B2B segment, we signed a major new customer, a German and European market leader in true retail. Also, Telefónica Toysland announced a strategic partnership with Siemens. Together, both companies will transform the water industry with the first fully integrated connectivity solution based on 5G network slicing. On the financial side, revenue decline -on-year mainly due to lower mobile service revenue. EBITDA declined 6% -on-year, reflecting the impact of the -on-one customer migration. We expect this impact to continue as more customers migrate off our network. In summary, while financial reflects temporary pressures, Telefónica Toysland continues to execute on its strategy to position the company for growth once the impact of the -on-one migration is over. We aim to achieve this role, investing in network leadership, applying efficiency measures, and driving sustainable commercial performance through focused growth initiatives in all segments. All of this will help drive profitable growth. Moving to slide 12, the UK mobile market remained competitive in Q2 and versioned Q2 stays focused on customer loyalty and protecting value. O2 contracts improved to 1%, driven by an enhanced customer experience and ongoing investment in network quality. In FIX, we are stepping up our retention efforts as we adapt to evolving market conditions, including the implementation of one-touch switch. At the same time, we expanded our FIX network footprint to over 18.5 million premises past, with more than 7 million on Fiber. Consumer FIX Antium also grew -on-year for the fifth consecutive quarter. During the quarter, we received regulatory approval to create a new B2B company, with the transaction expected to close on August 1st. We also announced an agreement to acquire 78.8 MHz of spectrum from Vodafone UK for £343 million. This acquisition will be partially funded by the last year's minority state sale in Cornerstone. This transaction will bring our total mobile spectrum share to around 30%, strengthening our network capacity. It will also support greater balance across UK operators, enhancing competition, improving coverage and elevating the customer experience. Spectral transfer is expected to begin in the second half of the year, subject to FCOM's approval. Financially, revenue declined by .7% -on-year, mainly due to three factors. The phasing of price increase under the new pounds and pence approach, lower handset volumes and reduced next Fiber build activity. However, EBITDA declined due to the revolution in Fiber construction. Excluding this, EBITDA growth accelerated in Q2, reflecting the cost optimization efforts following the 2024 investment in IT and digital transformation. In summary, the UK business is progressing with a steady network expansion, early signs of financial stabilization and continued focus on customer value. Moving into slide 13, and the operating performance in Hispán, which now includes four countries. For the second consecutive quarter, we posted positive contract net ads in the region. These positive results are driven by the improved network quality in Colombia, due to the launch of Movistar Antigua's single mobile network, our great performance in Mexico, and a better regulatory environment in Chile. On the fixed business, almost 100% of our bank customers already have Fiber. Revenue decreased -on-year mainly due to sales of copper in Chile in the first half of 2024. EBITDA decreased .8% -on-year, but improved sequentially due to Colombia. On to slide 14 to review our transversal units. Firstly, regarding telephonic attack. Revenue growth rate improved -on-quarter to over 12% -on-year in Q2, with bookings growing in line with revenues. By sector, the performance is driven by the solid demand in financial services, healthcare, and public administration. And with that, also reinforce our AI and data capabilities to expand our offer. Secondly, on to telephonic infra. Our Fiber costs have already reached 29 million premises past, representing 35% of group deployment. Our submarine cable business delivers sustained profitability with margins of around 50%. Telsius has signed a partnership with Google to provide the necessary infrastructure to launch the new subsea cable in Spain. In summary, consistent execution continues across our markets and businesses. I will now hand over to Laura for the main financial topics.

Thank you, Emilio. Free cash flow has improved by 718 million euro to 505 million euro in the second quarter and 291 million euro in the first six months of the year. Free cash flow follows its usual seasonality in the first half, and this has been reflected in the evolution of the net debt and leverage ratio, which has increased to 2.78 times. However, as the year progresses, free cash flow will gain traction heading to our targets. Furthermore, a net debt will be reduced to 26.0 billion euro after the sales of Telefónica, Ecuador, Uruguay, and Colombia, an acquisition of the 50% of fibrocell. We maintain ample liquidity, which covers debt maturities over the next three years. The average cost of debt has been reduced year on year from .64% in June 24 to .30% in June 25. We continue with our present financial policy and free cash flow management, which are key priorities for us. Turning to page 16. This quarter, we have made significant strides in our sustainability efforts. On the environmental front, we have published an updated climate action plan marking a clear pathway towards our ambition to be net zero by 2040. Furthermore, Telefónica has been included as a supplier engagement leader by CDP for the six-year running in recognition of our efforts to reduce value change emissions. On the social side, our customer-centric approach has led us to launch a new personalized service model in Spain. We also remain committed to diversity and inclusion initiatives, and this quarter we achieved 34% female executives. Looking at governance, we have been recognized for our transparency, receiving awards for both fiscal and sustainability reporting. Finally, I'm pleased to share that Time Magazine considers Telefónica as the second most sustainable company in the world. I will now hand back to Marc, who will wrap up.

Thank you, Laura. To summarize, our second quarter offers data to show how we're managing this transition period. We're maintaining operational performance while we prepare for the changes ahead. We are making progress on portfolio focus with fine ESPAM transactions. Our networks continue to evolve, including completing the corporate shutdown in Spain. We're on track to meet our financial guidance. Our strategic review continues on schedule. We're taking a hard look on how to position Telefónica in a changing industry. I look forward to sharing our conclusions in the second half of the year. Thank you very much for your attention, and we are now ready to take your questions.

Thank you. If you would like to ask a question, please press star followed by 1-1 on your telephone keypad. Once again, that is star 1-1 to register a question. You will then hear an automatic message advising your hand is raised. To answer your question, please press star 1-1 again. We will kindly ask you to ask a maximum of two questions per participant. There will be a short silence while questions are being registered.

We will now

take the first question. From the line of Andrew Lee from Goldman Sachs, please go ahead.

Good morning, everyone. I had two questions, one on Spain and one on the UK. Just noting Emilio's pretty bullish comments on the strong KPIs in Spain, but revenue and e-dial growth still remains pretty low versus peers across Europe. The question is, do you expect growth to accelerate meaningfully organically to more encouraging levels, or does Spain still need fixing and what are the potential opportunities to fix that, if so? Secondly, on the UK, the KPI is weakened again, but the Fiber market looks right for consolidation. I know your net co-creation process keeps stalling, but the question is, is VMO2 in a position financially to pursue what it wants to do on Fiber consolidation, or are there still inorganic things that need to be done to put yourself in a position to succeed there? Thank you.

Thank you,

Andrew. Regarding the question about Spain, I will say that we aim to deliver revenue and energy growth higher than 2024 and fostered by the hands of sales and retail. We see B2C growth ahead, driven by a better customer experience, best in class chance. January 25, price increase and solid mix of conversion and KPIs supported customer life in value. New subscriber on O2 and direct to consumer Movistar Plus, and a solid new service ecosystem increasing the traction of our portfolio. In B2B, we have a strong B2B momentum. As communication IT coverage, we are the player with the best commercial offer. It is the growth engine, while communication are protected by portfolio revamps. In terms of wholesale, we expect wholesale and others to decline year on year. Nevertheless, we have more sustainable wholesale businesses delivered from the agreement signed in 2024. And in terms of the data and the cost and cost, we expect to continue to capture savings of from efficiencies such as network transformation, simplification of processes and systems, and optimize commercial cost by automation and higher use of online standards. And as a result, we expect 2025 data and data to show higher year on year growth than in 2024. Regarding

the VMO2 question, Andrew, so there are different opportunities in the UK market, some of which you have mentioned. And I think we have different ways of capturing the opportunities we're interested in. But I cannot comment on any specifics due to us wanting to keep confidentiality with regards to what we want to do on the M&A side and to maintain flexibility with regards to how we perceive those opportunities. So I'm sorry for the ambiguous answer.

Thank you. Thanks. Thanks anyway. Just on the Spain, just 2025 having higher growth than 2024 in revenue and EVA data, I guess that's the minimum that you'd want to see from that business. Would you expect further acceleration organically into 2026 and beyond or does something need to change in the market to achieve that?

Andrew, we have comment that we have a strategy review in this part of the year. And we will talk about the objectives and the targets of 2026 at the end of this strategy review. Understood. Thank you.

Thank you. We will now take the next question from the line of Joshua Mills from BNPP Exxon. Please go ahead.

Hi guys. Thank you for the questions. I have two as well, please. Mark, I understand we won't get much more detail on this until we arrive to the strategic review. So I'd love to hear some high thoughts about the tech and cybersecurity opportunities for yourself, also telcos more generally in Europe. It's an area you've talked about, but it's also one investors have been skeptical around the ability to telcos to create value in historically. So I guess the question is, when you talk about adjacent areas, industrial rationale for your strategic review, what makes tech investments different now to in the past? And more specifically, what strengths do you think Telefonica brings to the table versus some of your telco peers? That would be the first question. And then the second question just on the UK, if I come back to the results we saw this morning, slightly weaker revenue than expected, even if it does still growing in absolute terms, looks in order to meet the guidance for revenue growth for the year, you'll have to accelerate in the second half of 2025. What will drive that acceleration in revenue growth on a guidance basis with the MO2? And how's in that context, if you could give a bit of color around competition in the fixed by market as well, that'd be great. Thank you.

Okay, thanks. So with regards to the first question, yes, markets have been skeptical. And I would say with good reason. In the past with regards to what telecom operators can do in the tech and cybersecurity part of the world, I would say specifically in the product area, not so much in the integration area. And what I do or what we do think and what we're analyzing are two large changes that have happened occurred in the last six to 12 months. The first is the invigorated notion of strategic autonomy. Europe and the different nation states have stated we need technological strategic autonomy. And that in our mind means having cybersecurity technology in Europe, which does not exist. And the second are is the announced, I would qualify as huge defense investments. And a lot of the announced huge defense investments will be in creating technology. Cybersecurity, of course, is a twin brother of a cyber defense. So with regards to the first point, we expect conditions regarding the cybersecurity market to change driven by European political will. And if that happens, we would react accordingly. And the second, we expect large investments in the area of cyber defense, which we think those that operate in cybersecurity can capture. What strengths do companies like Telefonica bring to the cybersecurity area? We have and other large telecom operators have a large, long and deep experience in integrating and managing cybersecurity products. So we are near the cybersecurity space. And we are part of the cybersecurity space. But it is true we haven't created cybersecurity products.

Regarding the revenues in the UK, during the conference, we explained some factors that explain the evolution of the revenue. And I'm going to hand over to Lutz to give you more color about that.

Thank you, Emilio. Good morning. Yeah, so the fixed market in the UK is impacted by one touch switch, and also by high promotions from all and also some direct competitors. So as a result of that, we had the second quarter in a row negative net debt. So that is correct. What we are doing is like we have a very sophisticated machine to manage retention in the right way. And now we turn this machine to prevention. And we have made good progress in the second half year. Now, to your question, how do we come to service revenue growth during the course of 25? So obviously, we have guided revenue excluding hardware and construction revenue, which has been flat in the first half year. Within that, consumer has been growing. So B2B revenue has been shrinking a bit. We have a pretty encouraging funnel on the B2B side. So we think we will get some bigger deals closed in second half of this year. And therefore, we are still forward-guided. Thank you.

Thank you very much.

Thank you. We will now take the next question from the line of Akhil Atani from JPMorgan. Please go ahead.

Hi, morning. Thanks for taking the questions. I've got two, please, as well. The first is just on the strategic review that you're running. And I guess I wanted to stand away from the industrial side, where I appreciate it's going to be hard for you to comment specifically. But I wanted to ask a more philosophical question around the balance sheet. There's been a perennial debate in the market around leverage across the sector, and whether that constrains the ability to invest freely or to take proactive measures on acquisitions to drive strategic growth. And I just wondered now you're six months into the process of reviewing what you want to do. Can you just talk us through how you think about the balance sheet? And I guess the context being telephonic is probably at the upper end of the peer group on leverage. Do you think that is any sort of constraint? Do you think it is important to create more financial flexibility? Or conversely, do you think given cash flow is improving, it isn't a relevant factor? So I'd love to understand that a little bit better. And then the second one is actually just in reference to a comment you made in the press on the industrial plan. I guess I just wanted to understand how we should interpret it. Specifically, it was in Spanish, so maybe there's a translation related issue here. But effectively, what the article seemed to quote you as saying is that you're looking to place a lot of bets to make sure that a few succeed. So I guess what I was really trying to understand is what is that in relation to? Were you talking about industrial journeys across different markets? Is that specifically in relation to M&A? Can you maybe clarify what you meant by wanting to take a multitude of bets to make sure a few of these deliver? Thanks a lot.

Sure, Akhil. And actually, the philosophical questions are the ones I really enjoy. So regarding your first philosophical questions, I break it down to two different points. The first one, we will not compromise our grade, our net debt grade. We have, of course, net financial debt, we have hybrids, and we have other liabilities. So we're not going to move with regards to the ratios we have, and we have promised we will keep. With regards to operations, of course, operations also include acquiring a bid debt. So any acquisition can include the acquisition of a bid debt. If the target one is acquiring has a larger leverage than is a leverage problem. If it has a lower leverage, that is not necessarily a leverage problem. And it is our technical belief that if we have good targets, the market offers good options to finance those. So with regards to your final sub question, the way we see it, our leverage and being on the upper end of the leverage is a constraint. It is relevant, but we don't think it will be strategically limiting to us. We can find solutions for good operations. That is always under the initial constraint that we will always be investment grade. So that would be my answer to your first question, Akhil. With the second one, the answer that you read that was originally in Spanish, it has to do with assuming more calculated risks. So at the end of the day, risk goes with return. And the reason we want to acquire a larger scale is because there are larger economies of scale. We think that is good for Europe. And we think as part of the idea of please let us gain scale, let us consolidate the European market, and then we will be able to invest in technology. And investments in technology have high risk. So I'm not discussing launching huge operations with high risk, because that is not the nature of what we do, but being having the balance sheet and the capability eventually of launching small operations that might have a higher risk profile, and then detecting those that have or create traction and being able to double down. So what I was saying is risk goes with return, and we need scale or we want larger scale to be able to take on more calculated risks. Any high risk operation that we ever take would be of limited scope initially. If that works, we would scale it up appropriately. So I was not referring to what we imagine like a large or significant M&A operations. It had to do with technology or more limited operations.

That's really clear. Thanks very much. Thanks.

Thank you. We will now take the next question from the line of Nick Liel from Barenberg. Please go ahead.

Hi there, morning. Could I ask too as well please? Just firstly on Germany, is it possible for you to give us the underlying ARPU move of the remaining 17.6 million contract subs on the Telefonica brand please? And then secondly on Spain, you mentioned copper savings as you shut down the network and you're first in Europe. Could you give us more details on what you've found so far in terms of savings and maybe a bit of help on what future savings you might be able to take as you shut down copper? Thanks very much.

Thank you, Nick. Regarding the Telefonica it's a long question. I'm going to hand over to Markus to give you more explanation about that.

Thank you. I think in the reported average postpaid ARPU you clearly see the wholesale customers included. So with the phase out and the migration, there's a technical effect. So the ARPU will finally grow to the ARPU by year end and then you will see next year the full own postpaid ARPU with the reduction of the wholesale customers. It's clearly, we always said, is significantly higher than the reported number that you see. While we don't have a segment reporting through the different customer types, you will clearly see a constant improvement. But what we can say is we have a broadly stable ARPU with our own customers as reported and presented earlier. The small reduction is mainly driven by family cars and second sim cars but the overall ARPU trend in the year old two postpaid base in the scale, the major or the lion's share in the 17 million that you mentioned is broadly stable.

Nick, regarding the copper question, just to remember that Telefonica is the European leader in copper switch-off. Savings have downed the entire copper network. Today we are a fiber company with not even a single copper subscriber. We have consolidated structural efficiency from copper switch-off with a total benefit of more than one percentage point in 2024 EBITDA margin. These efficiencies are derived from lower energy consumption, lower technical failures, optimized cost in call centers, lower maintenance costs, and a stable sizing enabled by technological upgrade. The end of the fiber rollout and copper switch-off do not mean the end of the network transformation. Telefonica has to continue dismantling copper facilities. In fact, we are into reaching a run rate with an additional half a point in margin when transformation is over. That will be around three more years.

Okay, great. So sorry, in summary, is it one percentage point margin improvement this year, EBITDA minus CAPEX and then .5% over the next three years? Is that your, is that roughly what you're guiding to with that copper move?

No, no. It's one more, one percentage point in 2024 and in the next coming years after all the transformation that it will take three years, it will see an additional half a point margin in margin.

Okay, that's clear. Thanks very much.

Thank you. We will now take the next question from the line of David Wright from Bank of America. Please go ahead.

Hello guys, thank you for taking my question. I just noticed in the release and the Telefonica Deutschland section, you talk about, and I quote, mounting consumer reluctance to spend. I guess independently we have seen, perhaps with the Einstein's profit warning recently, consumer desire to maybe raise usage. So how should we think about that? Is the consumer looking to data but really doesn't want to spend anymore? Are you finding major opposition and do you think that is a barrier to wider price increases in the near term in Germany that some of your competitors are maybe considering? Thank you.

Thank you very much for the question. I'm going to hand over to Marcus to give you more explanation with more detail.

Thank you for your question, David. I think we see two-fold. If you look at the prepaid and the postpaid segment, what we clearly have seen is that in the prepaid segment we have been able to increase our promotions and tariffs by 10% with the launch of unlimited on-demand in the last quarter. It was a very successful proposition. So we see the willingness to pay more for more data if the proposition is right. Clearly we need to model smart models and also smart tariff plans that we saw but especially the unlimited on-demand that Telefonica introduced to the German market last year is clearly a way to monetize data by not giving the full unlimited. The full unlimited plans are currently set at 60 euro. Clearly there are promotional activities on them but every unlimited customer on our network grades is up or creative. So whenever customers choose unlimited, we increase the average output of the customer base. So clearly there's still demand for 20, 50 and 100 gigabyte tariff plans and that's still the majority of the inflow that you have seen of the 180,000 postpaid net ads that we delivered in the last quarter. So I think it's a mix. There's a higher willingness to pay for unlimited. I think that's the first conclusion that we take but clearly we need to play smart and clearly we have different underlying economics if you play like an MBO with unlimited of course. So from that perspective, there's value up and we are currently realizing that.

Okay thank

you. Thank you. We will now take the next question from the line of James Rutter from New Street Research. Please go ahead.

Yes, good morning. Thank you for taking the questions. Two please. So the first one goes back a little bit to what I think Josh was asking earlier on cyber security but would just love to begin a bit more on what your current investments are in areas around sovereign cloud and you know what's included in your capex at the moment for kind of data spending or gigafactory spending. I mean I noticed within Trust Deutsche Telekom recently signed a large deal with Nvidia to expand some of their investments in Germany and I'm really kind of wondering whether you take your current levels and see the need to increase spending in that area in Spain. And then the second question was just love to get a process update on the fiber pass stake sale. Is that currently on pause at the moment as part of a strategic review like the UK net co-sale or it's not and that process is ongoing at the moment. Could you give us an update on expected timing for that transaction to close? Thank you.

Yeah so

I'll have a first quick answer and then we will and then I'll pass to Emilio. So with the future regarding data centers or opportunities like that, that is part of course of the strategic review. You mentioned the net co-sale. The UK net co-sale is not paused and it's not part of the strategic review that is a decision we made and announced and that has to do with our industrial strategy and industrial way of working. So Emilio.

Yes so regarding the fiber pass I would say that this process is ongoing and it's not based on the strategic review. We have an agreement with Bobathon and we are working on that in the same plan that we have before. Regarding the first question, talking about cybersecurity or cloud, we don't see the need to invest in an important amount of cloud because this kind of business is not so important to invest in cloud. Regarding the factories, can I say at this moment that Europe launched an initiative to invest in establishing up to five AI factories. There was a call for expression of interest. We have a response, this expression of interest because we are interested in hosting a one-year factory in Spain. But at this moment it's too early to give you more details because this is a process that will really start to be in our consideration during the last part of the year where the government or the UA finally launched the process with RQP or whatever process they consider.

We have time for one last question please.

Thank you. We will now take the next question from the line of Kval, Kiroja from Deutsche Bank.

Thank you. We've got two questions please. So firstly, Tep Deutschland has a 2025 outlook for a broadly stable EBITDA but understandably we've seen the EBITDA falling 4% in the first half. Is the business tracking in line with your expectations and when do you think EBITDA in Germany will stabilize and then grow? And then secondly just a question on infrastructure. Telefónica historically had different structures on infrastructure from fully owned JVs to having minorities. Do you feel it's more important to fully owned infrastructure than before? I noticed you bought out your JV partner in FI Brazil. Thank you.

Regarding the first question I'm going to hand over to Marcus.

Thank you, Emilio. I think it's first to note on the German EBITDA that the migration of the national roaming and MBA, MBNO revenues is a two years journey. I think the combination of growth and efficiency measures started already bearing fruit in early 2024. So it supported last year's EBITDA growth for Germany alone by .3% full year, year over year. While one in one custom migration was suspended as we all know by last year by several issues on technical reasons on the partner side, we faced in 2025 tough comes on EBITDA with the pre-delivery already in 2024. Coming back to your question, broadly stable is a range that goes from the minus to the positive. So it's around a zero point. So overall we feel comfortable what we have said in the past and I think it's a two years journey and we deliver the efficiencies not on a linear basis as outlined. So overall we are on track with the accelerated growth and efficiency plan.

Regarding the second question, I would say our position is and will be as a result of the strategic review that we are an industrial operator and therefore core infrastructures of our business are better run near our business and in a simplified way so that we can coordinate the different areas of our business including monitoring demand and making offers, servicing that demand with infrastructures and of course with a convergent offer. I wouldn't comment too much with regard to that is more or less than what we used to say. That is the way we operate and that is the way we see we operate in a more efficient way from a cost point of view and from an offering in services for our clients to keep our pull high and turn low.

That's clear, thank you.

At this time no further questions will be taken.

Okay well thank you everybody. I'm sorry for the answers we didn't answer and I think there was maybe one of you tried to ask a question and by the time we realized we jumped on to the next question so we're happy to answer that offline. I hope this was a useful time of your hour and we're looking forward to having a deeper conversation once the board approves the new strategy and we make it public. Thanks very much, have a good day.

Telefónica's January-June 2025 results conference call is over. You may now disconnect your line. Thank you.