Deutsche Telekom Ag S/Adr

Good afternoon and welcome to Deutsche Telekom's conference call. This conference is live-streamed and recorded on YouTube. May I now hand you over to Mr. Anders Wittig.

Thank you. Good afternoon, everyone, and welcome to our live 2023 Q3 2022 webcast and conference call. As you can see with me today are our CEO, Tim Hutkes, and our CEO, CFO, Christian Illig. Tim will first go through a few highlights, followed by Christian, who will talk about the segments of our group financials. After this, we have time for M&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 pleasure to hand over to Tim.

Thank you, Hannes. How are you? I hope you're doing all well in these difficult times. We are happy to share with you another very strong quarter. By the way, on both sides of the Atlantic and another increase in our guidance. Of course, our dividend proposal for 22 is coming with the third quarter, which is 70 cents up by nearly 10% year over year. T-Mobile US reported strong growth in all metrics and raised their guidance for this year once more again. But we delivered as well outside of the US quite strong numbers. Strong customer and service revenue growth, 4.3% organic EBITDA growth, and already over 4 billion free cash flow after nine months in the European operations. As usual, I will go through our year-to-date performance, and Christian will then show you the details of the quarter. Let me start with the organic view on the next page. Our strong growth continued and all segments contributed. Organic service revenues for the group are up by 4% so far this year. For our European business, service revenues are up 1.8%. For the group organic, group EBITDA grew by 0.7%. And excluding T-Mobile's handset lease unwind, group adjusted core EBITDA grew by 5.9%. By the way, if you just look to the realistic dollar numbers, we have over the first nine months 8.8% growth on the revenues and 8.5% on the EBITDA growth. By the way, on the core EBITDA, even more, 12.2%. And you see that, you know, we are lucky to be in the U.S. It was the right decision to do this. And the strong dollar is helping us big time as well. But nevertheless, we adjust this for the purpose of comparison. But I don't see that the dollar is going back again. But that is a side comment. T-Mobile US headline is slightly down, but without the ongoing unwind of our handset lease, this would have been 7% growth, according to IFRS. Germany remains strong with 3.2% growth. The European segment grew by 3.9% year-to-date, and this despite the headwinds from energy costs and the Hungarian techs. Group development grew by 21%. This would have been around 9% without health for sale accounting. Anti-systems grew by 10% year-to-date. Germany has now delivered 24 consecutive quarters of EBITDA growth. By the way, this is six years. And Europe with 19 consecutive quarters. Our network build-out continues at an accelerated pace. We now pass over 12 million European homes with FTTH. Of this now 4.5 million in Germany, we are well on track for the planned 2 million additional fiber homes this year. Our ultra-capacity 5G network passes 250 million US homes way ahead of competition and well on track for the 260 by end of this year. While we extend the reach, we are also increasing the spectrum depth from 120 MHz currently to 200 MHz of mid-band in 2023. Speaking of networks, T-Mobile substantially completed the decommissioning of the Sprint network this quarter, one year ahead of schedule. In Germany, we now cover 94% of the population. With 5G in the European segment, we stand at 41%. Our investments continue to pay off and our customer growth remains strong. It was even stronger than last quarter. Our mobile customer growth accelerated on both sides of the Atlantic. Our fixed line growth was a bit slower, partially due to the temporary impact of the new German Telkom law. But as you will see later, our broadband customer growth accelerated again this quarter. Moving on with ESG. On October 12, we hosted our Sustainability Day with the full management team. And by the way, more than 200 investors joined us. We outlined our ambitions, our clear commitment, and how we will actually walk the talk. We made a few material announcements, for instance, that we now expect to reduce energy consumption for our European businesses in 2020 to 2024 timeframe. Our previous target had been to keep consumption stable. I'm pleased to report that year to date we achieved an 11% reduction in energy consumption in Germany compared to 2021. we also announced that we will source half of our European electricity from green PPAs by 2025. And that all new business cars in Germany will from now on be electric. From our Capital Markets Day, you know how we measure ourselves against our financial targets with green, yellow and red traffic lights. I can assure you that we will apply the same strict discipline to measure things, to implement things, to execute things. ESG is now a target for all leaders in their compensation and we will be as disciplined as to the other KPIs on the ESG targets. We will follow up with you as soon as possible. Going to the US, T-Mobile raised their 2020 guidance two weeks ago. Today, we are also raising our full-year guidance for the group for the third time this year. You can see our new guidance on page 8. For the group, we now expect an adjusted group EBITDA of more than $37 billion. By the way, if you take it in dollars, it's more than 40 billion. And our adjusted EPS of more than 1,50 euro. For group free cash flow, we reiterate more than 10 billion. We continue to expect 3.8 billion outside of the U.S. When looking at these numbers, please keep in mind that our 22 guidance is based on a US dollar exchange rate of 1.18, while consensus is based on 1.05. Also remember that our guidance excludes the first quarter contribution from T-Mobile Netherlands. This was 190 million EBITDA. And it includes any held-for-sale effects. With that, let me hand it over to Christian for his deep dive into another successful quarter.

Thanks, Tim, and welcome also from my side. And let me start with a deep dive on T-Mobile US, our biggest operation. As you have seen, they provided excellent financial results, 4.3% service revenue growth on a post-paid basis, even 7%, and according to US GAAP, a core EBITDA growth of 11%. All targets for 2022 have been raised again. Synergies, EBITDA, customer growth, and on top, the mid- and long-term guidance is still valid. Before I now come to the operational performance, let me recap on a couple of translation items between T-Mobile and DT's EBITDA. The first one is obviously how do we get from core EBITDA to adjusted EBITDA, and that is obviously that we have to basically include the handset leases if we're using our definition and the core EBITDA, this is excluded. Just to remind you, in the year 21, The handset lease revenue was $3.3 billion, and it is expected to drop by roughly $2 billion to $1.3 to $1.4 this year. The second item is obviously the bridge from US GAAP into IFRS, which is basically being driven by two facts. One is stock-based compensation, and the other one is the renewable purchase agreements. And historically, we always were forecasting, let's say, a translation gap of 150 million a quarter, which gets you to 600 over the course of the year, but do some adverse effects on the renewable energy purchase agreements in the U.S. We expect now a bridge somewhere in between 700 to 800 for the full year. 2022, but let me assure you it has no impact on the bottom line results nor on the free cash flow. If you want to see the comparison between 21 and 22, let me defer you to page number 30, where we basically give you an analysis between the two bridges. So on the operational performance, very strong customer metrics, more than 850,000 postpaid net ads, as you know, the highest since the Sprint merger. Oppo is still up. Churn is, on a year-on-year basis, down almost 400,000 new postpaid accounts. which is also best in industry and best ever. And the output was going up by more than 2%. And the fixed wireless is just having a stunning success in taking out of these close to 600K of new customers, almost 50 or more than 50% are coming from cable. So let me move over to the next page, page 12, and move over to our home market here in Germany. And Tim said it already, 24 consecutive quarters of EBITDA growth. The headline financials are really steady with a 2.8% revenue growth and a 3% adjusted EBITDA growth. And this growth is coming from very, very strong service revenue growth. As previously a fact, we had two reporting changes in that given quarter. One is we moved the security business from T-Systems into the German unit. And the other one, we switched basically the principal accounting to agent accounting, which basically changes your revenue from a gross basis to a net basis. Has nothing to do with the EBITDA, but that obviously affects the numbers. And all these numbers have been restated also for the previous year. So let me know that the beginning of 2021, we had one extraordinary contract, which basically gave us on a quarterly basis, roughly 12 and a half million of transit revenues. And they will basically terminate by the next quarter. So and then let me just focus on two organizational and M&A topics, which we just did. We invested $25 million in an Israelian-based global connectivity company or provider, which is called Teridian. Teridian is operating virtual networks, which are based on software. And it actually adds to our service proposition in the B2B space and will also help us to defend our MPLS business. The second one was recently announced. That's the move of the MMS business, which is covering roughly 1,700 digital experts. and we move it from T-systems towards the German segment. This is also to, A, strengthen the capabilities in the ICT space in the German organization, but, B, also to get more traction in the German Mittelstand. Page number 13, as you can see, service revenue grew both in fixed and in mobile, both in B2C and in B2B. Mobile service revenues grew by 2%, and you know that the Labara contract has come to an end. If you would add in Labara, it would have been 2.5%. So similar performance relative to the previous quarters. As promised last quarter, also our fixed-line KPIs have improved. You see that the NetAds edition on broadband have increased from 45 to 63 NetAds, and also our TV performance has increased from 21 to 32 percent. This is coming from a fading effect from the telecoms law, the TKG effect, and actually that's really pleasing us that Proofs that the prediction which we have given you in the first quarter was actually right. What you can also see is on the bottom left of the slide that almost 40% of our broadband customer base enjoys now service contracts with at least 100 megabit per second. And that our vectoring platform, it's not on the chart, has grown to 1.7 million customers, which is a year-on-year growth of 50%. So the last one on the lower right-hand side is obviously a steep increase in the number of fiber connections. And that's coming from a forced migration, which we have done. We forced migrate ADSL customers who were in a VDSL area into VDSL. And this is simply that they're getting a better customer experience. That voluntary migration will continue into the fourth quarter. So in the fourth quarter, we expect another 300,000 customers to follow. So on fixed line, you see that the service revenue growth was coming down a bit. Despite some stable broadband growth in the retail space, this is obviously driven by the wholesale business. And 50% can be attributed to the headwind from the ULL price cut. Page number 16, please. On the mobile customer base, we're really pleased with the results. You see that our net ads on mobile have increased to almost 370,000 customers, which is double the amount from last year. It's 90% better than the second quarter. This is coming from basically three sources. One is B2B, which is attriting 50% to the growth. And the other one is B2C, where we have a significant stronger momentum on our first brand. while at the same time that the conquering momentum remains pretty much on the historic levels. so um on page number 17 please we're moving to europe and you see another strong performance uh despite some meaningful headwinds i'm getting to this one organic revenues grew by 5.5 percent this quarter the service revenue grew by 3.5 percent this quarter and that growth was pretty much driven equally between the fixed line business and the um and the mobile business. The organic EBITDA after leases has slowed down significantly. This is due to two effects. One is the Hungarian special tax, which costed us 150 basis points. The other one was the energy cost increase, which costed us another 220 basis points. Otherwise, that growth would have been well above 4%. Our commercial performance, as you can see, is very strong and very consistent, despite the fact that we have introduced price increases in many of the European markets. So you see that is really a reliable commercial engine which is running in Europe. Next page, page 19, moving to GD Towers. In total, we have added net 900 towers to the tower portfolio in Germany and in Austria. This is coming from 1,200 new builds while at the same time we had 300 decommissions. The organic rental revenues grew by 6.7%. I think it's noteworthy to say that with the non-DT customers, so with the external customers, that revenue momentum is close to 9% on a year-on-year basis. The organic adjusted EBITDA grew by 9%, and the reported EBITDA is up by 40%, but this is due to a benefit which we get from the health for sale accounting. So we expect that the tower deal will close beginning of next year. And that leads us to system solution. So order entry was up 6.5%. Revenue was slightly growing. What you see in the pattern of the business is that we're still facing a reduced infrastructure outsourcing business. But at the same time, this is overly compensated with our digital solutions. And two days ago, as I mentioned early on, we announced that we're going to move the MMS legal entity into the German business. while at the same time focusing the T-Systems business on the digital solutions while at the same time on the cloud services space. So that leads me to the financials and finishing up with the operational review. So if we're going to the reported revenues, and Tim mentioned it already, we grew by almost 9% this quarter or 7% year to date. Adjusted EBITDA grew by 8.5% this quarter on a year to date base by 7%. The reported adjusted EPS was growing by close to 80% this quarter On a free cash flow basis, we basically, on the IL basis, were pretty much stable. And this is due to the fact that we are facing significantly higher capex. On the IL basis, free cash flow was growing by 14%. Our financial debt, including leases, is up by 16%. That is a total of almost close to more than $20 billion, of which $16 billion can be attributed just to the dollar. Page 23, please. Here you see the free cash flow bridge. So on a year-on-year basis, the cash flow from operations was growing by roughly 100. We have less leasing payments due to a prepayment, which was happening in 21. That was American Towers. At the same time, we have, due to the network integration, a significantly higher capex spend, predominantly driven by the US, which gets you to that stable development. What is really encouraging is obviously the development on the adjusted net profit. You see that net profit actually grew by 1.1 billion or 84%, very much driven by the operational underlying performance of the EBITDA, by less depreciation. We're having a better financial result, which is pretty much driven by the stock option, by the, come on, by the options we're having with SoftBank on T-Mobile US, as well as driven by the increase of the value of the forward. At the same time, obviously, as the business is developing better, we have to face higher taxes of 300 million, and we have a stronger dilution towards minorities coming from the US. Next page on financial debt. I think this is something where I spent a little bit of time on. So you see that the overall financial debt, excluding leases, has increased by roughly $3 billion this quarter, of which the forex effect in itself is $5 billion. So if we wouldn't have a very strong dollar, which we really appreciate on the EBITDA and the revenue side, obviously that picture would look differently. So the rest of the bridge is obviously 2.9% EBITDA after leases on a queue-on-queue basis, little spend on dividends and spectrum. And obviously we initiated the share buyback on the T-Mobile US side, which attributed basically $600 million to the indebtedness. So if we're taking a look at the ex-lease basis, you see that the leverage ratio is pretty much stable compared to the last quarter, which was 278. This one here is 279. And also on the including leases definition, I think we're on a similar level than we were having on the previous quarter. So I think the last thing I want to mention, which is not on the chart, is our pension deficit has declined by almost $2 billion this quarter due to the higher interest rates which we're having. That obviously reduces our rating debt. So finally, inflation exposure. And then I hand it over back to Tim. On the energy costs, I think everything remains stable relative to what we said based on the first quarter. So we are well covered in Germany with hatches in the upcoming year and also into 2024 into it. We will obviously enjoy the retirement of the renewable energy surcharge. In Europe, we always said this, we're exposed, and you could see it already in the numbers for Q4. And in the U.S., nothing has changed. Two-thirds are basically being covered by the PPAs. Personal expenses, the biggest tariff agreement which we had to close this year is obviously Germany, so that is kind of fairly stable until 2024. But we're facing some salary increases also in the European segment. Leases, we talked about this one. We have either CPI caps here in Europe or we have basically fixed escalators based on the agreements the U.S. have signed. taken in the previous two years. Investments, there is one, I would say, slight change. Obviously, the construction companies facing inflation as well. They have increased salary costs. They have increased material costs. That obviously puts a lot of pressure on the On the procurement organization and on the interest payments, we are exposed, obviously, on the 50% variable part in the European ex-US business. But on all other areas, we have kind of fixed rates, which we're seeing. With having said this, I think you have seen us confirming our guidance for this year. We're confident that we're going to maintain our capital markets day targets also for the XUS business up until 21. And now I hand it over to Tim.

Well done, Christian. Thank you. Look, no more marketing needed here. I think, you know, the numbers speak for themselves. And therefore, my wrap up is more about this outstanding numbers in this environment, which we are showing, including comparing us with our industry. I can guarantee you we stay grounded. That is definitely the case. And we are very consequently working on IDCs and on the digitization of our activities here and as well on being successful in our marketplace and the execution on the build out of 5G and fiber. So companies were on track, very concentrated and focused on what they're doing. I think it is very, very nice to see the strong execution which we see in T-Mobile in the U.S. with a new fantastic record quarter where we were able to guide higher again. The growth story in the U.S. is continuing despite, let's say, all, let's say, the The bad mouthing, which you sometimes read. Think about our second best quarter of B2B net ads, over 2 million fixed wireless customers. On top of that, in less than two years, I think that's an outstanding achievement. And even, you know, the increase of customers in small and rural market opportunities is which is 40% of the US, and we have just started in this area. So our growth optimism is well intact. T-Mobile was able to announce the first tranche of their promised buyback. Initially, we keep our shares. So we don't take cash. We have increased our shareholding during that period. So this helps us, by the way, as well on our EPS. But we can talk about that later again. We have a very clear path now towards our number one strategic priority to have a controlling majority in the US. And by the way, we said we have to do that by 2024. We will be significantly faster achieving this target. It also shows the power of our free cash flow growth this year, where we made a big step in the U.S., and we will make another big step next year. So there's even some elements of it which we cannot avoid. Outside of the U.S., we delivered 4.3%. percent organic ABDR growth. We should not neglect our European activities. I know that the US is always in your main focus, but 24 consecutive quarters in Germany, 19 in Europe. I think it speaks for our brand. It speaks for our network. It speaks for our customer service. Inflation is a challenge, but we have good visibility for our key cost drivers. And we believe we can largely manage these headwinds in our operations today. And therefore, we are clearly confirming that we are well on track for our midterm targets. The strong dollar, by the way, luckily, we are in the US as the only teleco operator here in Europe with a strong dollar. This provides us with additional tailwinds for the upcoming quarters and especially 2023. I'm very happy that we can propose an increase in our dividend to 70 cents. Now, there might be people here in the room, you know, think, you know, why not more? But guys, you know, think about the track record we have over the last years. The guidance, you know, is exceeded. I think consensus was something at 68 at the beginning of the year. It's almost 10% year-on-year growth. which we are confirming today for this year. I think a great step forward and I'm very happy about the whole mix of how we are able to present the set of numbers here. We will continue to invest. There's no reason not to innovate and to leverage our opportunities out of the better infrastructure. So our flywheel is going. And with these end remarks, we are ready for your questions.

Thank you very much, Tim. Now we can start with the question and answer session. And if you like to ask a question, please press star one, as many of you have already done, and announce your name when it's your turn. Should you be required to cancel your question, please press star two. And I would be grateful if you could restrict yourself to two questions each. Thank you. And the first question is from Akhil at J.P. Morgan, please.

Yeah, hi, good afternoon. Thanks for taking the questions. I've got two, please. Firstly, if I could just ask about the German competitive environment. As I'm sure you've seen, we've been surprised to see Vodafone raise their broadband prices about a month or so ago. So I guess I'd love to understand how you interpret that and what your own thoughts are on pricing. And then the second question is just a simpler financial one on the guidance. Obviously, it's good to see good numbers again and another nudge up in the guidance. But I was intrigued that the free cash flow guide hasn't gone up, particularly when you're running ahead of your HUS guidance. If you could just help us understand what the moving parts are and is that just prudence or are there any other factors for Q4? Thanks.

Okay. So the German fixed line market has historically been always, you know, promotional, although this has not much impacted our performance in a noticeable way. And Vodafone has launched new prices as of 15th of November and raised the cable prices on average by five euros per month for the lower tariffs and 10 euros for the one gigabyte cable DSL prices. And there is a promotion behind that as well for a period of six months. But the new grid assumes higher upload speeds and includes an all-net flat for the cable tariffs. So on O2, we have seen they've reshuffled their pricing at the beginning of October. with an increased focus as well on high speeds and a reduced convergence discount. And the giga promotion on cable was terminated. And our own performance in this market has been steady. Considering, let's say, the technical hindrance from the telecom law, which we have, I think, very well digested, which you have seen in this current quarter as well. Now, this is the market environment. So we see that our competition is fighting with their cost structure. I know that they don't have this favorable situation, as we have that more than 90% of our energy prices are hedged. at a very affordable level. We have our inflation very much under control. And for us, it's important to see where we are now. We have the instrument of of price increases as well. And we can consider that. By the way, I will not announce a price increase in an investor call. But we are observing the market and the situation. And we are not totally autonomous when it comes to energy prices and other things. There is an openness from us as well to raise prices. But, you know, what we do not want to have is, you know, raising our prices, increase our revenues, but at the same time spending all the money then into the retention. That is something which we have to, you know, it should not be a zero-gum game on this place here. So, therefore, that said... We know the tool. We see the market going into less price competition here in Germany on the fixed line side. And we are carefully monitoring what's going on. We are facing the inflation and the challenge from energy price at the same price as well. And we are open as well to price increases. in this market. But for us customers and customer satisfaction, and the retention of our base is the most important criteria. And we will we will value the different positions. And then you will see how we are addressing the increased cost situation of our environment.

So, Akhil, on the free cash flow number, I would call it A, one is phasing, B, there's also prudence in there. You've seen that we have faced some significant headwinds, especially due to the increased energy costs in the European segment. So from this perspective, that led us to an assessment that we basically don't change the free cash flow guidance, but I think that would be my two explanations, phasing and prudence.

Okay, the next question, please, from Josh at BNP Power Exxon.

Hi, guys. I'm going to have both my questions on fiber, please. The first would be just to hear about your thoughts on Vodafone's announcement of the potential upgrade of 7 million homes to fibre, any opportunities you see there to partner with them and your thoughts would be helpful, as well as any commentary you can give on the broader impact of fibre on nets in Germany. And then the second question on fibre is just around recent reports of T-Mobile exploring the creation of a fibre optic network in the States and how this could maybe be up to a $4 billion investment split between different parties. So I don't expect to get into specifics here, and it's more a question for T-Mobile management perhaps, but given your own experience with similar JVs in Germany and the focus during your presentation on the home broadband opportunity there, I'd be very interested to hear your view. Thanks.

The first questions on the fiber and possible partners. First, we are in a startup, which is a big startup, by the way. you know, on the way how we are rolling out fiber these days. We're doing our own rollout. We have our own joint venture vehicle. We have partners already across the nation where we are building out. We have Holdby. We have thousands of construction companies who are supporting us by doing this. So there's a lot of complexity which we are handling these days. So therefore, we are always open to to new partners and to use infrastructures of other builders, as we have laid out. But nevertheless, we have to manage the complexity as well. I'm always assuming that we have a passive access, you know, here on our wholesale side. I think the 7 million upgrade and Patrick Drahi and Altissimo are, you know, I think it is a It's a German company who is doing this. This is something where it is for me too early to say whether this is a partner for us. We do not know the terms. We do not know, let's say, under which conditions. In principle, I'm not interested to say. um to use cable infrastructure here um why should we we are building out these areas anyhow um so um but you know i i would not i will not exclude that uh but um my appetite at that point in time due as to the complexity um of our current efforts is limited

Look, can I add two things, Tim? One is just from our experience, it's one thing to announce and the other one is to actually industrialize the rollout process and take a look how long it took us in order to get to that 2 million run rate, right? Two years ago, we were at 600K. And the second one is our understanding on the joint venture, it will predominantly focus on the existing footprint. and not go on outside the existing footprint. So we'll upgrade the environment in order to continue to support the housing associations.

On the US side, look, we are not commenting on any speculations here. And Mike commented how Timur thinks about fiber opportunities in their Q3 call. And beyond that, we have nothing to add at that point in time.

Thanks, guys. Then we move on to Robert at Deutsche Bank, please.

Yeah. Hi there. Thanks very much. You mentioned the change to T-Systems strategy and the transfer of MMS. Is there some restructuring intention here or is that all to address the digitalization opportunity in Germany? And ex-U.S., Are you seeing any economic impact on the consumer in Q4? There doesn't seem to be one in the KPIs, which have been strong, in Q3 at least. Thank you.

Robert, on to systems. After the Tower deal, we had a very intense discussion discussion in our company about what's the best way of addressing the excess plus market, as we call it. How can we help our B2B customers to get not only connectivity, but even create an added value out of that? And if I'm talking to customers and, you know, I'm hanging out with them quite intensively, you know, I'm sitting in the room and the first question is not, you know, can you provide me with 5G connectivity along, let's say, the motorways? The first question they're asking is, you know, how can you help me that my, you know, logistics is fully transparent throughout the whole value chain? How can you help me that my data is stored once, you know, decentralized data being aggregated in an interesting way? How can I improve my productivity by using IoT services? So this is always the discussion. And we discussed it. And therefore, for me, it doesn't start with the systems. It starts with my customers asking me to help them on the way to gain productivity out of digitization. And we found out that we have a 10 billion business in Deutschland in the B2B area. And you have seen that most of the German businesses trust in us when it comes to the connectivity. We are by far market leader in this in this field. But we have a lack of capability, of system integration, of software capabilities, especially when it comes to standardized softwares or when it comes to platforms within this entity. And then we looked into our portfolio and said, do we have something which we can use internally, you know, to fill this gap. And MMS is clearly one of the answers. 1,700 people. It's a highly skilled team, very sophisticated software people. And we said we can leverage this. We can even increase this business by enabling MMS into the full ecosystem of our business customers. The second thing what we discussed was the discussion about if we cannot provide, you know, these digital services, how can we build more global platforms? And you have heard me saying and talking about CPaaS, NAS layers, all these kind of issues, and we can discuss that in more depth here. And therefore, we have invested $25 million in an Israeli-based connectivity provider, Teridian. And Teredian operates a virtual software-defined network, which is giving us access to 500 POPs globally. So we do not have to build out POP infrastructure across the globe for our customers. We can provide that with Teredian without high capex intensity. So this was a handicap in the past. And here we suddenly have a global offering. So we have always global services, but local approaches from our customer base. And that is one of the gaps which we are filling by strengthening now the German connectivity piece. The commodization of connectivity, we compensate by upgrading the infrastructure to high speed and high capacities and by digitalization. That's the main reason. Now, going to T-Systems. And we said, look, the systems always is perceived a little bit as an orphan child. But is it really, let's say, right to have an orphan child in our portfolio that way? And looking into a potential sale of the asset or a sundown of some of the activities. We worked all this through and we came to a conclusion to say, look, we have a big demand for digital services with our big corporate customers in Germany and in the European entity. a very strong foothold. We are with 27,000 people, one of the biggest or the biggest digitization company here in the German entity. We can provide secure cloud access. We can provide very specified application development in the automotive and the health industries. So we said, let's focus this business and focus it on two growth areas. One activity is cloud. where we migrate our MIS business, the outsourcing service into cloud. And the second is digital services. This is application development for the customers. These are the two businesses. But then we said, okay, now we have that two businesses and they should become, let's say, more entrepreneurial in the way how they're acting. How can we do that? And then we agreed to a master plan, which includes, by the way, further transformation of the entities. So there will be even, you know, IDC reductions as laid out in our plan. On top of that, we said we do not have burdens or obstacles or weight on that business from the history. So Deutsche Telekom is helping us here by saying we take over cost for a headcount reduction company, which is carrying people from the past. And we said we are caring about pensions of activities which are not existing anymore. So by doing this, we clean up the portfolio and give this company with a very focused approach on two business units, a more entrepreneurial and, by the way, a legacy cleaned up capability for growth in the future. So this is how we think we will see a more independent tier systems in our portfolio addressing digitization made in Germany. That's the idea. Why should we give up that market while there is so much demand for digital services here in Germany and the European activities? It's an element of everything. That is what I want to say. It's an element of focus. It's an element of strengthening an area which was today mainly focused on connectivity. It's an element of cleaning up the history of that company. It's an element of becoming more entrepreneurial and independent in the way how this operation is acting. And it's an element of transformation and cost reduction as well.

So, Robert, on your customer sentiment question in Q4, I would say no, we don't see any material changes. We have a robust net inflow you have seen in the Q3 numbers, and we don't see any kind of changes as we have entered Q4 already. We don't see any any kind of trend that customers are spinning down with their with their propositions nor do we see right now a significant change in the bad debt behavior and we have some early warning indicators on bad debt that basically predict whether we are facing a problem here so gladly we don't see this yet on on top we expect that governments not in every country but in many countries will continue to help both businesses and consumers to going through this crisis.

Great. And next we move on to Steve Markham at Redburn, please. Steve, can we have your questions?

Yeah, good afternoon. Thanks for taking the question. Two if I may. One is just on cash lease costs. It looks like free cash flow has had quite a big tailwind this year from relatively light spending on cash leases. I think your expense is about 4.7. The cash outlay is only about 2.9. It's about 1.7 billion euros down in last year. Can you just help us understand the sort of the moving parts on those cash lease costs to go into 2023? Clearly, you're going to have the GD tariffs deal, so maybe excluding that. But I know you took a big prepayment in the U.S. last year, but just trying to get a sense of what the real underlying cash lease costs in the business are, thanks. And then just coming back to German fiber, I mean, it looks like you're going to have to do 900,000 homes passed in the fourth quarter. Is that right? And you obviously mentioned the impact of rising costs. Are you still confident that you can sort of fulfill your 10 million premise ambition within the CapEx envelope of adding sort of half a billion euros? And if you are, are you having to make savings elsewhere to accommodate that? Thanks.

Let me start with the second part of the question. First, you know, a lot of let's say things are under construction these days, so they're not counted yet. Yes, the number is almost correct, you know, with regard what has to be delivered in the fourth quarter. And yes, the confirmation of our teams pre that call and in the business reviews is clearly that they're going to deliver on the 2 million number for this year. So that's what we see. We do not see a problem with regard to the 10 million commitment. The opposite case, I believe with the financial envelope, we will do a little bit more. because the productivity of our build-out is now improving. We learn much faster than we anticipated. So I'm more optimistic about this 10 than begging away from this commitment. Clear, yes, 10 million is the must and maybe a bit more.

So on the cash lease costs, if I'm not mistaken, we're calculating roughly a billion to a billion and a quarter each quarter, which we're going to expect. And you mentioned the prepayment of ATC obviously helped us this year because it was rolling over from 21 into 22. I think that would be my estimate on the cash lease costs.

Okay, we can move to the next question, please. Hello? Operator, can we have the next question, please? Okay, I think the next question is from George at Citigroup.

Yes, hi, good afternoon, and thank you for taking my questions. The first one is just to understand EPS a bit better, given that going forward it may be a major driver of your dividend policy. Christian, basically there's two things I wanted to understand a bit better. There's been a significant increase in the target for this year. And if I look on page 36, and I appreciate those disclosures are from the annual report and are not updated, you are expecting significant increase in EPS in 2023. I just wanted to confirm that is still the case, so the upgrade this year is more organic rather than front-loading of some of the earnings from next year. to get a better idea of how to model that because UREPS is quite difficult to really model. And then the second question is just a follow-up on Steve's earlier question of fiber and the deployment and procurement costs. I appreciate you are perhaps running a bit ahead initially and you have ways to mitigate some of the inflation, but it would be great for us to have an understanding how it could affect the whole market. If you could give us any indications of what kind of inflation are you seeing today versus a couple of years ago, and also how long does it take for this cost inflation to actually impact the operators given the program cycles? Thank you.

Okay, George, let me start with the EPS question. Look, what we're going to see is we have some one-off effects this year on the EPS on the reported figure. And let me call out those which we're definitely going to see. It's the health for sale effect on towers. It's obviously the EPS impact of the Dutch business in the first quarter. And we're seeing some value increases in our options, which we have from SoftBank, but also on the forward. So these are all, I say, EPS components which were taken out of the reported number because they have nothing to do with the operations. So this is why we're coming to a prediction which is greater 1.50 for the recurring adjusted EPS. And yes, I can confirm we expect that EPSs continue to grow in the next year, at least on the recurring basis. Obviously, the non-recurring effects are hard to forecast on the option side. And obviously the hold for sale effect and the Dutch effect is gone. On the modeling, I think that is, sorry to say, but I think we said it last year, there is no model which basically gives you an indication on any kind of dividend payments. The way how we get there is that we're applying our policy, which is 40 to 60 years, you know, with that floor 60. And then we have, I would say, a business discussion, what we feel is appropriate, and that led us to that 10% increase this year. But that is no read-across for the payout in next year's dividend, because I think we're taking the business performance, we're making an assessment of what's happening in the future, and based on that one, we are calculating the dividend proposal, and this year it is 70%.

With regard to fiber, look, we are definitely seeing the cost inflation in fiber construction. The good thing is that we have long-lasting contracts with almost, you know, in every detail defined price points. So this is the effect base. But nevertheless, some of the construction companies are suffering greatly. increased supply costs from their angle and therefore they're coming to us and approaching us and we have to try to find solutions with this. But independent from that discussions, we remain confident, you know, that we can achieve our stated capital markets targets of getting costs below 1,000 euro per home passed. the 25% in average cost by 2024. That is, let's say, our assumption, and we are about halfway there already. What are the reasons for that? Apart from the secured prices, where we have worked to reduce the cost of materials together with the suppliers and even more standardize the products, um we see a lot of good willingness from municipalities to allow us shallow digging so that means that we have not you know to dig 60 centimeters or more that we are now on 30 centimeters And we are more confident, you know, as well that our learning curve is helping us to deliver with a better time to market. So therefore, again, you know, we are very optimistic with regard passing the 10 million households by 2024. And we are confident that we are able to manage the cost challenges around us. If there's something new, and we can go in every detail of now the IDC cost elements here, but I think that's not the purpose of that call. If this would not be possible anymore, we will let you know.

But generally, when you hear the German competitors discussing the situation, they talk about also increases in costs. They may not have these large-scale, long-term contracts that we have. And they have generally talked about the need for price increases. We've heard that from VATM, from Breco and others.

There's another element, Hannes. You know, we have a running organization here in Germany with a big, very regional footprint. So a lot of, let's say, the cost we have already on board is our people, and they were there already in the past. If you would ask me with regard to the future of this business, I can tell you I believe that independent from FIBA, the municipalities, they will have more strategic discussions about rolling out themselves because they are heavily hit by the energy side. And therefore, I would expect that they do not have sufficient funding for this long-lasting fiber investments. I see that as an opportunity for us than rather an obstacle here. But... We have seen some announcement that they are slowing down their investments, but I believe that is just the beginning.

Operator?

Now we move to the question of David Wright from Bank of America, please.

Yeah, thank you, guys. Maybe Tim... just a little more sort of conceptually around the U.S. market right now. It does feel like there are one or two tensions rising. Obviously, T-MOS has been incredibly successful with its challenge of status on the mobile side. We do have reports, obviously, in Fiverr that I know you can't comment upon. But it does feel like, you know, the cable guys have been under a lot of pressure. They obviously could look to be more aggressive on the mobile side. And it does feel like, you know, this is a playbook that most European investors or management have seen before doesn't tend to end so well. So just maybe your perspectives on the U.S. market right now and how you sort of take the temperature, so to speak, of competitive intensity. Thank you.

Look, David, I... Look, I always want to say something new here, and I'm sorry just to disappoint you here. Look, I hear that now for how many quarters, you know, that there is more tension, more aggressive on mobile side, that the market is changing and whatsoever. Look, I... You know, the U.S. market is the U.S. market. It appears that cable is getting most of its customers from Verizon and from prepaid on the mobile side. Our customers are very interested in getting a fully featured postpaid plan, a good value for money, a great brand. And we have this 5G proposition now, which differentiates us to a certain extent. And therefore, we do not see any impact to date on from their bundled plans. So, look, we're seeing, we're observing it, but that's where we are. Ultimately, cable has variable costs in a world with high mobile usage growth. So, you know, their business model is not unlimited. And therefore, I By the way, I would make our strategy ridiculous if I would now speak for the cable cause, because we always believe in a certain owner's economics, which you need to play in this mobile and this fixed line world. And therefore, yes, this is a market play. Yes, there is something happening. Yes, it is always in regional play. But, you know, how we are positioned, I do not see that there's more worries than there were over the last quarters.

Great. Next, we move on to Jacob Bluestone at Credit Suisse, please. I can't hear you. Okay, maybe we take Andrew Lee at Goldman then who is next in the list.

Thanks, everyone. So, I had two questions. So, firstly, we have in the last couple of months had a first, which was an incumbent selling a minority stake in an up and running fiber business. So, it's Telenor selling their 30% stake. And that's enabled a bit of de-gearing, but also crystallization of value for customers. what are undervalued assets in some instances across the space. We'll be really interested just to hear your thinking on that and whether that will ever be an option that you guys would think about for your fixed line fibre assets or broader assets. Second question was just on the debt position. So you have been talking in the past few months about potentially changing your disclosure on debt to split out European and U.S. debt. net debt to EBITDA, maybe to buy you some extra flexibility in terms of how you think about paying down debt. It would be great to hear the kind of feedback from conversations you've been having with rating agencies on that and also other stakeholders, mainly your shareholders. And if any of those conversations change the timeline over which you think about actually giving us a shareholder returns update with respect to the team as buyback participation. Thank you.

Okay. Let me start with a bad-dad question, Andrew. And first of all, I'm not sure whether we actually want to be too explicit about the indebtedness of the ex-U.S. business versus the U.S. business. Obviously, the key drivers for the increase in the indebtedness is driven by the U.S. It's very much driven by the U.S., historically being the network integration and the big capex and restructuring expenses, but also going forward the share buyback. Look, all our metrics remain the same. I want to be back in my corridor end of 2024. I know that not everyone likes that. Some of you feel that we are too conservative with our net debt ratio. This is why we also have introduced the ex-leases number. I think we're going to see a significant cash inflow with the sale of the tower business, which is expected to be roughly $11 billion by the beginning of this year. But I'm not sure if this was the question, whether we want to become very explicit, but it has no impact on the timing. Look, we always said on the share buyback, which is currently running, we don't want to intend to sell into the share buyback because we haven't secured our 50.1% or 51% shareholding in the U.S., which secures consolidation. And therefore, I think it's a prudent behavior to not selling into the share buyback, and I don't have to.

Andrew, with regard to your fiber question, it's not our interest in monetizing fiber. The opposite is the case. Our approach is to keep the value-add in the house of the network, and our ambition is to have honest economics in this business. So that is why we are building up in Germany, in Europe, on our own. But there are always elements of markets which we cannot cover, or there are always elements of the build-out which is getting beyond that, where we are open to partnerships. Glasfaser Plus is the exception here. That is where we have a joint venture partner in this vehicle. But this is the extreme. We might build out with other partners in areas which we haven't planned to build out ourselves. But, you know, monetizing our fiber is not on our agenda today.

Okay. Thank you. And maybe we take another shot at Jacob at Credit Suisse. Can you maybe try again?

Yes. Can you hear me this time? Yes. Excellent. Two questions, please. Firstly, Christian, you mentioned that the deficit had come down by $2 billion. Can you just remind us, will that have any impact on your pension costs as well? I think looking from your annual report, you're meant to pay about $600 million in pension costs next year. And then just secondly, you flagged 900,000 retail fiber migrations in Germany this quarter, so quite a big step up. Can you maybe just comment on the monetization of those migrations? So is this more for same or are you going to generate incremental revenue from accelerated migrations?

Thank you. Let me start with the second question because that's going to be a quick one. It's more for the same price. We migrated XDSL customers on VDS Bell in order to increase customer experience. and also to give them the opportunity to further upgrade in the VDSL network. And you have seen that we already have close to 40% penetration in the greater equal 100 megabit per second thing. And I think it's prudent because it pays into customer loyalty, but we are not monetizing this. And the 300,000, which are yet to come in Q4, will follow the same track. On the pension cost, to be honest, the pension costs have come down because of the interest rate. The interest rate where we basically calculate the pension obligation has now increased to 4%, and that is the key driver. But the payout pretty much remains the same. It's just what you put on the balance sheet. And on the debt, on the $2 billion question, look, again, The reduction of the debt is there. It's a two billion. Next year, we don't expect that the dollar will further appreciate the same way as it has done this year at 16 cents over the course of nine months. And as I want to enter my corridor end of 24, obviously, the debt has from a leverage ratio has to come down. But bear in mind, the debt leverage ratio is coming down because of increasing EBITDA. It's not because of significant reduction of the absolute debt.

Right. Just maybe also going back once more to the fiber question, just to be clear that once we have implemented this, making customers to turning customers into fan measure, we don't have many customers left on the ADSL platform. Therefore, this metric will lose significance as a forward indicator going forward. And now we move on to Polo at UBS, please.

Yeah. Hi. Thanks for taking the questions. I have two. The first question is just about your tariff divestment. So you mentioned the tariff deal is due to complete at the start of 2023. But can you give your latest thoughts on what you'll do with the 10.7 billion euros of proceeds? So would you consider using the tariff proceeds to increase your stake in T-Mobile U.S.? ? because this would actually allow you to participate in the T-MIS buyback sooner rather than later and start upstreaming the cash from T-Mobile US. My second question is just about German Spectrum. What is your view on the proposals from the BNXR to extend the 800 MHz spectrum in return for putting the 900 MHz spectrum up for auction?

Okay, Polo, first of all, let me tell you what we're going to do with the $10.7 billion. I'm going to send my treasurer on a sabbatical because that will obviously be super helpful to lower the refinancing demand here in the ex-US business. And that is something how we predominantly want to use this. Obviously, the second one is we want to use it to improve our leverage ratio. And therefore, there is no clear indication when we're going to sell into the share buyback. And you know the announcement. Up until Q3 next year, we don't intend to sell into the share buyback in order to make sure that we have our 51% or 50.1% leverage. a shareholding in the US. So and then we see whenever we launch another share buyback program, how we basically behave then. But right now, up until end of Q3 next year, we don't intend to sell into the share buyback.

Okay, with that, we move on to James at New Street, please.

Yes, good afternoon. Thanks very much indeed. Two questions, please. The first one was just to come back to the topic of FTTH in Germany. But rather than the deployment, I'd be interested in what you can say about the take-up of the service. What kind of demand are you actually seeing from customers for this product, especially in some of the areas where the fiber has been in place for a little bit longer? And secondly, would love to come back to the point around the dividend. Christian, I hear what you were saying around the EPS this year being affected by some of these one-time items. But I think even adjusting for that, I'm working out that your EPS this year is up around 20% year on year. So given that underlying increase, I was wondering just why, as a board, you're only willing to approve a 10% increase. What should we kind of read into that? What was holding you back, let's say, from doing a 20% increase aligned with the underlying EPS? Thank you.

James, let me start with the dividend question. I think it's a fair question, but we're absolutely consistent with what we said last year. We have two vectors on which we can work on. One is obviously the dividend payout is oriented along the EPS growth, and you're right, there's a significant increase to be expected this year. The other one is also the payout ratio. And I think given the environment we're currently working in, we have a lot of adverse effects hitting us. I think we're performing well and we expect to perform well. We have taken a more prudent approach. So what you've seen last year, we basically had kind of a payout ratio of 52 percent, according to the EPS. This year we will be above 40 definitely, but we will be below 50 percent because we felt that is kind of a prudent approach. allocation of EPS also to the dividend. But always bear in mind, it's two dimensions where we can work on. One is the payout ratio and the other one is EPS growth.

With regard to your first question, I like to bring that in a bigger context of broadband demand. And one or two years ago when we talked about, let's say, broadband demand here, we said, ah, do we need really 100 megabit or 250 megabit per second? And today most of our customers are on this platform. high broadband speeds already. 80% of the retail broadband base is in fiber infrastructure today. So 11.7 million customers. So you have seen the upgrade of speed in the customer base. Now, with regard to FTTH, and it was your question in specific, You know, the take-up rates today are comparable low, you know, in the beyond 10%, 11%, 12% utilization rate. That is not, you know, what we are, you know, aiming for. But this is an infrastructure game. And it's the same true for 5G and other services or 4G and 3G, you know, in history. You know, it is coming over time. But the moment where the demand is there, You know, you cannot build it for everybody. So therefore, you have to do it in front of them. Most of the customers today are going into the 100 megabit tariff than rather going into the high gigabit tariffs. But we expect that this is going to change throughout the years. And then we are ready to serve our customers. The interesting way is how we did it in the past was exactly the right way. Because if you see our churn rate in this environment, you know, it has gone down, down, down ever since. So therefore, I think the way of upgrading customers constantly into high speeds is the right approach.

And also maybe let me add, you know, the speed of our deployment, of course, means that we will have lags between the build out and the customer penetration. We are currently accelerating our build. We had last year just over 1 million new homes, past this year is over 2 million. And so that means that since connecting customers takes about six to 12 months, you will see a slower penetration growth than you see coverage growth. The other point to make is that we're also building out in cities. So when you compare it to a typical overbuilder who does pre-marketing in rural areas where there are long ADSL loops, we are also operating in places where we're not doing pre-marketing, where we are just building. And so that's a completely different business case.

We had 190,000 Fiber Net Eds in that quarter, of which something in the vicinity of 50,000 were on FTTH. Now, if I think about what's behind James' question, you can argue you had a step up from 250,000 to 900,000 in that quarter. on fiber net ads. So why don't you have more FTTH customers? The question is valid. But look, I expect now that with this 900,000, we are now able to increase our FTTH retail net ads throughout the upcoming quarter. And that is what I'm expecting. That's what we're steering for. Now filling the pipes, that's the title of our program. And I'm ready to report about the numbers.

And I think relative to the debates that we used to have three, four, five years ago, I think we can say the strategy is working and we are proceeding at the right pace. And with that, maybe we can have the questions from Ottavio at SockGen, please.

Good afternoon. A couple of questions on my side. The first is on domestic mobile. You had a pretty good quarter in contract mobile net ads. And combined with the fact that churn has increased, it looks at the growth net ads being even better. During the intro, you mentioned B2B and B2C in a sort of a strong momentum in the premium brand. I would just wonder if you give a bit more granularity of what really has driven these net ads and how sustainable it will be if you look in the future quarters. The second one is on the EPS and the free cash flow, actually. You had one of the main drivers on the free cash flow, the CapEx, was going up. One of the drivers on the EPS has been the DNA going down. Now, of course, this divergence cannot really remain. So you don't guide on DNA, and it's pretty difficult for our side to project because, of course, there is a bit of discretion how you depreciate and amortize. So the question is, could it give a bit more granularity how it can affect on DNA future years? Continuous cap has been going up this year. So is DNA also going back into upward trajectory? Thank you.

Good questions, Ottavio. Let me say, by the way, first, we are very happy about the development which we have in mobile because we have these new tariffs. We have exported our idea from the U.S. here to the German environment. and this new magenta tariff portfolio is well taken from the customers. But your question is interesting because it's not the only effect which we have seen in that quarter. From the strong growth which we have seen, something like 130,000 were coming from our B2C own brand. So this is mainly the new piece of it, 70,000 out of the Kongstar situation. And then interesting wise, 160,000 coming from B2B. So very strong quarter on B2B, some very new customers like Mercedes or Deutsche Bahn. And then on top of that, We had some effects from the telecommunication law, which we had to digest as well in this quarter. So you see that our gross ads were very strong in the environment, 50-50 between B2C and B2B, which I think is good. There is a strong demand for the new tariffs. But a lot of customers are sitting with their second or with their third card in duration contracts, and therefore they cannot migrate immediately. But the pipes which we see are interesting as well for the next quarters.

Otavio, potentially that's a disappointment to you, but we don't declare a lot of details on the DNA. But let me tell you, if you just make a comparison on the EPS in terms of impairment in DNA, we see some significant swings, especially coming from the U.S. And I think they have been explicit about this. So we had an impairment of the Fix9 business in the U.S. as we were selling this business to Congent. We have some impairments on lease contracts because we are basically retiring mobile sites. And from this perspective, I think this impact is being very much driven by the integration of T-Mobile US. But I think we have never done a detailed explanation how we depreciate in the given business and what kind of categories.

But what we can say is that the 6 billion or so that we had in the third quarter is a pretty good run rate going forward, we think. So next is Emmet at Wong Stanley, please.

Yes, good afternoon, everybody. Thank you, Hannes, for taking my questions. I have two questions from my side. The first question is on the wholesale access revenues, which you talked a little bit about in the call. So just looking at slide 15 and the revenue trajectory on these wholesale revenues in Germany, clearly 2021 was a tougher year for revenue dynamics in this business. And obviously the revenue here is taking a bit of a turn downwards again in Q2. Sorry, Q3. Can you talk a little bit about the outlook for this business as we go into 2023 and maybe tie this into some of the guidance that you gave at the CMD last year? And then my second question is on your TV business, so an adjacent business in Germany. Are you seeing any kind of tailwinds in this business or any benefits from some of the struggles that Vodafone is having in their German cable business? I see revenue growth here is still trending at around 7% to 8%. But is there any kind of upside here to customer net ads or market share wins on the revenue side? Thank you.

No, no, no.

I start with TV, Emmett. Look, TV net ads increasing in Q3. Strong promotions are ongoing with our partners here, especially the 12-month for free promotion with Disney as one example. On top of that, we have advertising going on for all the games of the World Championship. So you would enjoy that, Emmett, you know. being on Magenta TV, because you can watch all games from the championship in HD quality on Magenta TV. On top of that, look, we are number one in the tests, and we are the only player in the German TV market with a growing TV customer base. So this is encouraging. I cannot compare, you know, talk about the what I think it was something 80,000 TV losses at Vodafone. That is something you have to ask them. Nevertheless, we are, you know, happy with the new promotion, the way how we promote live content. And I'm not talking football only. I'm talking as well about music and other things on this platform, which is attracted by us. We have won the third Fußball Bundesliga. And you know that the first league is a money game. People are really looking for the real football in Germany, which is second and third football league. And therefore, you know, the third football league is important for us. We're happy to have this content now exclusively available. to make regional attraction on our TV platform. Yes, we are perceived as a very solid player in the TV market. And we're happy with the development which we saw recently.

So I'm at on wholesale. First of all, our guidance remain valid. We got it for stable wholesale revenues in between 2020 to 2024. Obviously, we give you a little bit of an explanation that we had a drag due to the ULL price cut, which we had to face, which is obviously a regulated pricing. But going forward, we also expect that those revenues will increase because you know that we have struck these new contracts with the wholesale providers. And due to the contract structure, we expect that those revenues will go up again. But we remain with our stable revenue guidance for wholesale.

Thanks, Christian and Tim. And then we move on to Usman from the House of Bernberg, please.

Hi, guys. Thank you. Just two questions on German Mobile, please. Just coming back to the B2C performance as a result of the family offer acceptance, are the customers that you're gaining, are they completely new customers, for example, that didn't have a previous subscription? I'm thinking about children, et cetera, or are these actually coming from You know, customers that had tariffs already with, I don't know, Orbi or some of the value players in the market. So, you know, are the new tariffs actually helping to, you know, increase penetration growth in the German market, or is this share gain that you're seeing? The second question was just going to the spectrum, ongoing kind of spectrum consultations that are going on in Germany. and the proposal by the BNICSA, you know, swapping the 800 for the 900 for potential oxynexia. Any thoughts on whether this is a reasonable proposal or not would be interesting. Thank you.

Usman, thank you. Look, first, as I said, we are happy what we see. Strong demand for additional household cards and little downselling and little dilution on our base. B2C contract customer growth on our main brand is what we are aiming for. And that is, by the way, supported by this contract. and developments to our 2% mobile service revenue growth ambition, which we have. The focus of this activity around this new cards is to upsell multi-cards, which are typically provided not from the MNOs. They're typically provided from prepaid or from MVNOs. So therefore, the MNOs is not, let's say, our prime target here. So that is why we are not surprised that there was not much of a reaction from our competitors on this offer yet, because we are looking for the 50% of the markets which are in the hands of MVNOs here in Germany. And that is exactly what we are addressing these days. So right development. With regard to the consultation with the Bundesnetzagentur, I love your chili in the soup now at the end of the investor's call here. And now I can go up like a rocket. Look, I think it is ridiculous what's going on. You know, the telco industry in the basket, the inflation basket is the only industry which is not contributing to the inflation. So far now, that's good. But that said, but that said, if these guys are now pushing, you know, for a very expensive auction, you know, they do the opposite. They give the totally wrong impulse and regulatory incentives. indication to our industries. And I can tell you, I find this totally questionable that, you know, with all the build outs, which our industry is carrying with all, let's say, the cost increases, which we have seen from an energy price perspective, with the challenges which we have with our construction companies, that on top of that now the German regulator thinks it's a great idea to have an auction in 24 on this spectrum. We are totally against it. Look, if they want to play it, we play it. But we have the biggest situation. We don't believe it's helping the smaller players. But nevertheless, you know, that's what's real. I'm lobbying heavily. at all, let's say, political deciders to avoid an auction and to extend the spectrum use beyond 24. That is definitely what we think is the better way for our industry, that we support non-inflationary trends and at the same time building out this country. So We are leader in 5G network deployment in Europe, and I think it should be a political purpose to secure this leading position, which we have initially reached. So that's where we are. I don't think that this consultation is ready yet. You have heard my position on that one. And let's see how this is turning out. But another regulatory fight.

Okay, so that's a spicy soup at the end. To cheer ourselves up, maybe you go back to the so what page of the presentation and look at the good things that have come through this quarter. And I thank you, everybody, for participating in the call. Thank you, Tim and Christian. Before we end the webcast, I would like to bring your attention to a new feature of our homepage. So we have upgraded our YouTube channel and have introduced navigation that allows you to simply go to whatever you're looking for in the recordings. And so you can check what has been said, not just for this call, but also for previous calls in a very convenient way. And with that, we come to the end of today's call. And should you have further questions, please contact the IR team. And I look forward, we look forward to seeing you all soon, many of you next week. So thanks again. Have a great rest of the week.

Thanks and see you next week. Bye. Bye-bye.

We'd like to thank you for participating at this conference. We are looking forward to hear from you again. Goodbye.