Koninklijke Kpn Nv

Welcome to KPN's third quarter 2023 earnings conference call. Please note that this event is being recorded. At this time, all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of today's prepared remarks. If you would like to ask a question, you may do so by pressing star 1 on your telephone keypad. I will now turn the call over to your host for today, Reynoud van Heerfluit, Head of Investor Relations. You may begin.

Thank you and good afternoon, ladies and gentlemen. Thanks for joining us today. Welcome to KPN's third quarter 2023 results webcast. With me today are Joost Farwerk, our CEO, and Chris Vigée, our CFO. As usual, before turning to our presentation, I'd like to remind you of the safe harbor on page two of the slides, which also applies to any statements made during this presentation.

Good day, ladies and gentlemen. Welcome to KPN's third quarter 2023 earnings conference call. Please note that this event is being recorded. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's prepared remarks. If you would like to ask a question, you may do so by pressing star 1 on your telephone keypad. I will now turn the call over to your host for today, Renaud von Heerflut, Head of Investor Relations. You may begin.

Thank you and good afternoon, ladies and gentlemen. Thanks for joining us today. Welcome to KPN's third quarter 2023 results webcast. With me today are Joost Vaarwerk, our CEO, and Kees Vigee, our CFO. As usual, before turning to our presentation, I'd like to remind you of the safe harbor on page two of the slides, which also applies to any statements made during this presentation. In particular, today's presentation may include forward-looking statements, including KPN's expectations regarding its outlook and ambitions, which were also included in the press release published this morning. All such statements are subject to safe armor. Let me now hand over to our CEO, Joost Farberg.

Thank you, Reinhard. Welcome, everyone. We will give you a brief update on our third quarter results. We continue to deliver positive results with our current strategy. Group service revenues continue to grow sustainably, with all segments contributing. B2B is being fueled by strong SME growth again. In consumer, fixed service revenues inflicted this quarter, while mobile service revenues continue to grow. Both broadband and postpaid reported ongoing positive base inflow, reaching 70,000 broadband and 30,000 postpaid net adds. This quarter, we added 261,000 fiber households together with our joint venture, Glassport, and this also includes more than 120,000 households from our recent acquisition of Primevest. While our cost base continued to be impacted by energy, wage indexations, and other inflationary headwinds, we delivered solid adjusted EBITDA growth compared to last year. Our year-to-date free cash flow was mainly impacted by intra-year CapEx phasing, but we remain fully on track to deliver on all outlook items for 2023. Chris will give you more details on our financials later. First, I'll take you through some business details. As we are now more than halfway through our ambitious fiber bill plans to reach 80% fiber coverage of Dutch households by 2026, it's time to share our plans for the future. And therefore, we look forward to providing you with a strategy update for the coming years at our Capital Markets Day that will be hosted on Tuesday, the 7th of November at our headquarters in Rotterdam. We look forward to welcoming you there or online for the webcast. As I mentioned, we added more than 260,000 households to our fiber footprint, and so we now cover 55% of the Netherlands with fiber. Our fiber business case continues to deliver results. We've generated €1 billion of fiber service revenues in B2C in the last 12 months, and the double-digit growth rate is driven by a solid base inflow and an attractive ARPU. All in all, fiber remains at the heart of our strategy to create long-term value for all stakeholders. Let's now take a look at our consumer segment. Adjusted consumer service revenues increased for the second quarter in a row. Mobile service revenues kept its growth at 5%. For the mobile portfolio, the 8.4% price adjustment has been implemented in October. Our fixed business inflected in the third quarter, supported by ongoing solid broadband-based developments and the 6.4% price increase per July. Our customers remain a top priority. This quarter, our net promoter score declined to 30. Given the inflation level seen over the last year, the price increases we implemented are also higher than customers were used to. This was one of the main reasons for the drop in MPS last quarter. We continuously strive to provide the best connectivity and customer experience. This is a focus point for us, and I'm convinced we will gradually move up MPS back to its usual level. In the meantime, we're still doing better than other providers in the market, and we were once again recognized as the best internet and mobile provider in the Netherlands through another award by Tweakers. Let's take a deeper look into our third quarter consumer KPIs. Our focus on base management and commercial execution is paying off, as we saw in another quarter of broadband-based growth. In the third quarter, we realized 70,000 net ads, of broadband users, and our fixed RPU grew 2.6%. Post-paid base increased by 33,000, while the post-paid RPU increased 2.8% year-on-year, resulting in sustained mobile service revenue growth of 5%. So that's a good quarter on the consumer. Let's now move to B2B. In B2B, we saw continued strong revenue growth in the business segments. B2B adjusted service revenues grew by 4.2% year-on-year, fueled by SME. SME is doing very well. Business Net Promoter Sport continues to improve and was plus six in Q3. In this respect, we remain the Dutch market leader as customers continue to value KPN for the stability, reliability, and quality of our networks and services. Like I said, SME continues to be the main growth engine in B2B, driven by solid commercial performance in both mobile and broadband, and our cross-sell strategy to ICT services all on the KPN1 platform. The LC turnaround remains a priority. In the third quarter, we saw our revenue slightly declining again after three quarters of small growth. The climb was mainly driven by reduced mobile and fixed traffic, lower roaming-related revenues, and ongoing competitive dynamics in the mobile markets. So it's a difference of 3 million, but we clearly see employees being managed by larger companies, not to misuse handsets. abroad, so especially lower roaming revenues is impacting the LCE a bit. So this remains a focus item for us. And lastly, the tailored solution business remains subject to the timing of project. Third quarter was solid, and we also see that the performance is gradually moving to a more profitable level in this area. So to conclude on business, LCE inflection is a focus point for the B2B management team, while at the same time continuing to deliver SME growth and keep on improving profitability in tailored solutions. Then in wholesale, service revenues increased by 5.4%, with strong growth in both mobile and broadband compared to last year. The wholesale broadband base grew by 14,000%. continuing the growth of the last quarter. So in total, consumer and wholesale together, we activated 31,000 new broadband connections on our network this quarter. The number of postpaid SIMs declined, but this was fully driven by a cleanup of 32,000 2G, so legacy machine-to-machine SIMs, and one single wholesale customer. Let me now hand over to Chris to give you more details on our financials.

Thank you, Joost. Let me take you through our financial performance. And let me start by summarizing some key figures for the third quarter. First, adjusted revenues for the third quarter increased 2.2% year-on-year. Strong service revenue growth across all segments outpaced lower non-service revenues. Second, we saw growth in the third quarter on adjusted EBITDA after leases at 1.8% in the plus. despite indirect cost headwinds from wage inflation, higher energy costs, and other inflationary effects. So far, our quarterly EBDA delivery has behaved fully in line this year with the pattern as we indicated at the beginning of the year. And finally, free cash flow decreased by 18% in the first nine months of the year compared to last year, mainly due to intra-year CAPEX phasing and higher cash taxes. I'll offer more detail on underlying cash developments later in the presentation. Group service revenue growth accelerated to 3.8%, underpinned by growth in all segments. Business service revenues grew by 4.2%, mainly driven by the ongoing strong SME performance. Roughly two-thirds of the SME service revenue growth in the third quarter was driven by high-margin access and connectivity revenues, and one-third was related to lower-margin ICT revenues, which of course increases share of wallet and customer stickiness as well. Wholesale showed solid growth again, with service revenues up 5.4% year-on-year. And in consumer, mobile service revenues continued to grow strongly, and in fixed, service revenues finally went to growth modus, supported by a good broadband-based development and a price increase. So fixed service revenues are in the plus for this quarter and will remain so into the next quarter. We have generated €552 million in free cash flow so far this year, making our cash margin hover around 14% of revenues. The decline so far versus last year is mainly explained by different phasing of fibre-related CAPEX and higher cash taxes. In line with our outlook of €870 million that we stick to, free cash flow growth will be weighted towards Q4, reflecting a timing of CAPEX phasing, also relative to last year, and improvements in working capital. Finally, we ended the quarter with a cash position of almost €580 million, absorbing the interim dividend payments over 2023 in August. We continue to have a strong and resilient balance sheet at the end of September. As a result of higher floating rates and debt issuance, the average cost of senior debt increased by 87 basis points year-on-year to 4.1%, and yet our exposure to floating rates was further reduced to only 15%. Leverage remained at 2.4 times net debt to EBITDA, which is below our self-imposed ceiling of 2.5 times. We expect a lower leverage level by the end of the year. Interest cover remains strong at 12.3 times. Net debt increased by €254 million compared to last year, may driven by different phasing of free cash regeneration and the acquisition of Primevest. and our total liquidity remains robust, consisting of about €1.6 billion in cash and short-term investments and our undrawn revolving credit facility. This includes the €600 million senior bond issued in July, which further strengthened our liquidity position and increased the average maturity of KPN's outstanding debt. This provides ample flexibility to pursue bolt-on growth investments as they may arise and to acquire Spectrum in the next coming up 3.5 gigawatt auction expected to take place somewhere next year. Let us turn to our outlook and ambitions for next 2023. As Joe said, we are on track to deliver on our 2023 outlook that we provide to you in January from the metrics you see on screen. On the 1st of August, we paid an interim dividend in respect of 23 of 5.2 euro cents per share. So to summarize, we generated solid financial revenues and results in Q3, with accelerating group service revenue growth trickling down into EBITDA growth. Group service revenues are growing sustainably, with all segments continuing to contribute. With another quarter of positive net ads in broadband and mobile and consumer, especially on broadband, our bases are higher at the beginning of the year and our bases are also higher than last year this time around. Our fiber rollout program remains at a solid base and has a proven attractive return profile. Finally, as expected and planned for, our EBITDA and free cash generation will be back-end loaded this year. Looking ahead, the sustainable service revenue growth run rate, the measures we've put in place, and this quarter's results provide us with confidence to achieve our ambitions in Q4. Therefore, we will confidently reiterate our full year 23 outlook, both on EBITDA and on free cash flow. Thanks for listening to this short presentation. Let's turn to your questions.

Thanks, Chris. And please be reminded to limit your questions to each operator overview, please.

Thank you. Ladies and gentlemen, we will start the question and answer session now. If you'd like to ask a question, you may do so by pressing star 1 on your telephone keypad. Note that if you change your mind and want to withdraw your question, it is star 2. Our first question comes from the line of Paulo Tang from UBS. Please go ahead.

Hi. Thanks for the presentation and taking the questions. I have two. The first one is really just about CapEx, because it's running at plus 11% year-to-date at $900 million. And if I look at the average Q4 CapEx for the past five years, it's been around about $340 million. I know that you've reiterated your guidance for CapEx to be flat at $1.2 billion this year. But can you talk through whether it makes sense to accelerate the pace of your fibre build in order to gain a first mover advantage versus peers and therefore reduce the risk of fibre overbuild? That's the first question. And second question is the Dutch government has proposed a tax on share buybacks as well as a two percentage point increase in terms of the corporate tax rate. So does this impact how you think about the mix of shareholder returns? And also, how should we think about the level of your group tax rate going forward? Are there any factors that could mitigate a rising tax rate for the group?

Thanks. Apollo, let me take both of these questions. First of all, on CapEx, just a bit of a column. Yeah, CapEx is indeed up year-to-date by 90 million. The increase is fully driven by fiber and by customer-driven CapEx. Our non-fiber CapEx was actually below last year, so the dynamics are, in what I feel, in line with our strategic direction, accelerating on fiber and more consumer-related CapEx CPE in line with our commercial strategy. Last year, we had a significant peak in capex. Remember, last year, Q4, we went to 391 million capex in Q4. That is part of the intra-year capex phase that we talk about that's affecting our free cash flow. So, one subtle message is that because of this capex phasing, our free cash flow is running behind last year, but we get back on track onto our target for the full year. Secondly, could we accelerate fiber capex to some extent? At the same time, you know, it's also – it's a matter of also deploying it effectively and making sure we can also convert the homes passed into paying customers. So we are ramping up on fiber capex. As you say, compared to last year, we're 80 million up. And Fiverr takes an increasingly larger share of our total CapEx. I think we're pushing it to the limits. Could we do somewhat more? Yes, but at the same time, we're also very cognizant of the need to protect our free cash flow. So in that balance between free cash flow management, CapEx optimization, and what you can effectively do, we think the acceleration that we're doing this year is a fully balanced approach. On your second question on taxes, well, the government legislation has to be passed by the first chamber, by the Senate. Let's see how that evolves. For us, it means that in any case, we are looking at a potentially increase in withholding taxes on share buybacks if we don't act. I think we talked about it before. Even in the absence of new regulation, there's a pretty complicated withholding tax framework, which means that Going forward, I mean, we'll talk more about it in the capital markets today, but in our policy to pay out our full free cash flow to shareholders, we likely see a mix shifting a little bit more towards dividends and away from buybacks just to deal with this tax effect. And that's already happening. And then whenever the Senate approves or were to approve government regulation, that may actually reinforce that stance because we don't want to pay undue taxes. And on taxes itself, our effective tax rate today is about 23%, with cash taxes about 8%. The increase in tax rate does not hit us at this point. Actually, it increases the value of your net operating losses a bit more. So, in essence, as long as you've got NOLs, it's good. To us, it's more a function of how quickly we go through our NOLs. And you will see already this year about a $60 million increase in taxes this year. There will also be an increase in cash taxes next year, which we'll talk more about the C&D, and gradually burn through our operating losses into like $26, $27. So, The increase in corporate tax rate doesn't really hurt us at this point. It's more something beyond 26, 27 when the operating losses have all been absorbed.

Great, thanks. The next question comes from a line of Joshua Mills from BNP Paribas Exxon. Please go ahead.

Hi, guys. Thanks for taking the questions, too, from me. The first one is just a clarification, Chris, on what you were saying there around the CAPEX envelope. Were you saying that you're comfortable with the acceleration you're seeing in 2023 in order to hit your 2023 rollout target? Or is it that you're saying that you're happy with the acceleration and the current level of capex you have in place in order to hit your medium-term guidance, which I know you'll be looking at the CMD, but obviously the coverage target is already out there. So I want to make sure that you're – whether you're thinking this year or this level for future years – And then the second question would just be if you could give any commentary around initial customer reaction to the mobile price increase, which you announced and launched in early October, and any broader comments on the competitive environment would be welcomed. Thanks.

Yeah, Joshua, on fiber, look, for this year, we are on track to deliver organically well over 500,000 homes passed, together with Closport, that's excluding our private acquisition, and well over 300, 340-ish in terms of homes connected. So that's kind of a run rate that we feel comfortable with, and that's by far the highest fiber roller in terms of HP, but also in terms of HC, which I think is becoming an increasingly important metric. um and what i was saying about fibers look we stick to a capex envelope of 1.2 billion plus or minus like a few percentage points of management bandwidth that you will always have um so it's going to be 1200 plus a bit but not a whole lot but that's for practical purposes we stick to that commitment but you see that in that envelope fiber consumes a larger and larger chunk of your your capex so basically What I'm saying is we're confident and comfortable with the current rollout pace that we want to continue. You'll see gradually a shifting more towards AC over HP, so homes connect rather than homes passed over time. And secondly, you see fiber taking up a significant chunk and gradually increasing chunk of our total fiber, our total CapEx, with our CapEx envelope still being centered around the 1.2 billion.

Yeah, so CapEx... fully on speed and rolling out more than 600,000 houses per year is really a lot. So the challenge is more how to connect customers than the rollout itself. Your second question was on mobile pricing. Yeah, so as the 1st of October, we increased prices. By the way, the whole market increased prices, so that is on the one hand the good thing about Dutch market is that we all try to create value and we see a clear increase of prices also coming from Odido and Vodafone Ziggo. On the other hand, the market is a bit aggressive every now and then as well with all kinds of discounts in the market, but all in all. uh our price increase uh landed well uh having said that it's a bit impacting net promoter score because the announcement was already done in the third quarter but of course we expect to benefit from the increase as from the fourth quarter this year great thanks very much the next question comes from a line of george's hero diaconu from city please go ahead

Yes, good afternoon, and thank you for taking my questions. They're both around market dynamics. Firstly, on the promoter scores, and I know on page eight you showed that there was a small decline in your net promoter scores. I'm curious, from the answer you gave, if you expect that the price increases in mobile have already been reflected in the third quarter. Do you expect further deterioration in the fourth quarter? And what I'm trying to understand is how you're thinking about whether you feel the need to improve the net promoter scores in the coming quarters and maybe be a bit more cautious on the price increases going forward, or whether you just monitor the gap between you and the other brands, and that may still give you some room to continue. And the second question is more broadly on market dynamics. It doesn't look like we're seeing the same promotions as we did last year, despite the fact that you guys seem to be winning market share. Just curious to hear comments from you, whether you believe that's fair, whether you see some reactions in other channels, and whether these last two quarters of very strong broadband net are sustainable. Thank you.

Yeah, so first of all, Net Promoter Score. We consider this a very important KPI, although it's not the holy grail for the company, right? I mean, it's super important. It indicates where we are and we are outperforming against competition big time. There is one very big competitor in the Netherlands, even below zero. And so us being above 18 was always a very big difference representing the quality of the service we deliver to our customers. So when we do a minus six in one quarter, that's a very important signal for the whole company. And we had more interactions with top management on this subject. But it's a balancing act one has to do. I mean, our Simio brand is doing 43%. currently, as we speak. So there's a lot to do in Net Promoter Score on pricing. So if you really want to lift up the whole KPN company to a level of 40, we should do a price decrease instead of increase. So that's what I mean. It's not the Holy Grail. Of course, we want to create value. So it's a balancing act. We increased prices, not on the level as competition did, but much higher than previous years. So we expected Net Promoter Score to decline. Last year, we also increased prices on mobile as the first of October, but the net promoter score improved from the third to the fourth quarter. So I don't expect a further decline on net promoter score, taking into account the usual run rate of all this. But it's, like I said, a balancing act, and we also want to differentiate on the way we serve our customers, the way we connect fiber, and the quality of 5G in the Netherlands. So that's where we are, and we will work on the Net Promoter Score, but we're also creating value when it comes to ARPUs. And promotions in the market... We were not impacted that much, I must say, but it's also, of course, a reaction on the inflow on the KPN side. So currently I expect the fourth quarter to heat up a bit again. We have that Black Friday thing coming up. We already announced that we will not join that one for weeks. So we are a bit prudent here ourselves. And also there is more a bit of a balancing act between NetEd growth and the value we try to create with the base. So perhaps the fourth quarter will not be that great when it comes to NetEds, but that's then a decision of us not being too aggressive on the promotional side, because it's all about the value creation we do with the whole base and not only with NetEds.

Very clear. Thank you.

The next question comes from a line of Keval Kiroya from Deutsche Bank UK. Please go ahead.

Thank you. And I've got two questions, please. So, firstly, just going back to pricing, as you've talked about, the Dutch market has seen healthy back-book price increases, but your front-book prices haven't really increased. Do you think front book prices do need to go up at some point, or can that book increase still sufficiently stick without? And then secondly, the regulatory review of Ufone is ongoing. Are you still confident in that deal being approved, and how should we think about the timeline for that as well? Thank you.

Yeah, well, on the Ufone part... We think there's no reason not to approve it. But of course we have to wait and see. At the end it's ACM to approve this and we can't speak for them. But we can't really come up with a good reason why this should be hampered by ACM. But we will see. And currently we're in the process of answering all their questions, so that will take some time. I don't expect this thing to conclude in the fourth quarter. Probably it will slip a bit to next year. But, yeah, we have to speed up our government a bit on that one. Yeah, and the whole theme on back book against front book, that is a relative theme for us also when it comes for the coming years and how to run our base. And it's our intention to focus more on the base and not only on the inflow of customers and to create value on the total base and by that make the difference between back book and front book less than it was yesterday. So that's a challenge. But I must say the front book is not that large anymore as it used to be. So the difference is less than it was in the past.

That's clear.

Thank you. Our next question comes from a line of Conrad Sommer from ABN AMRO, ODO, BHF. Please go ahead.

Hi, good afternoon. Thanks for taking my question. I've got one on the 5G spectrum auction. It keeps getting delayed and delayed, and it may not happen in Q1 next year. It might happen in Q2. Is that given your leverage of 2.4 times, does it have any impact on how you think about the size of the buyback that you might announce for next year?

We have got a policy to basically pay out all our free cash flow to shareholders in a mix of dividends and buybacks. So, in essence, and we have, obviously, we plan for a certain spectrum auction, but we stick to our policy of basically returning all our cash to shareholders. So, in essence, as long as we are able to fund the spectrum auction out of our balance sheet, which we're pretty confident that we can do that, we will continue to follow our policy. So in essence, I don't think the spectrum auction as such has a major impact on our buyback, not next year at least, because basically we stick to our policy, return all our free cash flow to shareholders.

Yeah, but if you already know, let's say in January, February, what the end result of the auction might be, then it might... give you another view on the size of your free cash flow that you still have available for a buyback.

Well, we run a system like most other tokens, our free cash flow is excluding Spectrum Auctions. So as long as we know what our free cash flow is, we know what our shareholder return will be. And secondly, it's unlikely that by Q1, by January, when we announce our annual results, it's very unlikely for the auction to be behind us. So I think the best expectation is that we project a free cash flow for next year, return that to shareholders in a dividend and buyback mix, which is slightly more tilt towards dividends. And even when the auction happens, we can revisit what our balance sheet looks like. But that then very much depends on the auction. So I think given the timing of things and given our typical payout policy, issue an unchanged policy for now.

Right, right, okay. Maybe just one quick follow-up. You had a 25 million pension contribution in Q4 last year. Do you expect to make another pension contribution this year?

Well, Conrad, allow me to take your question and broaden it and talk a bit about free cash flow to tell you what's going on in free cash flow last year. The This year, our free cash flow is obviously a little bit behind last year. We expect, however, and are confident to meet our free cash flow targets. If you look at what's happening year-to-date, EBITDA is kind of flattish. It's up a tiny bit, but it's effectively flat. We spend somewhat more CapEx at this point due to inter-year phasing. And then on the other drivers, we had lower interest, higher taxes, and some deterioration of working capital. And that one is mostly due to higher trade payables. And that's a function of the CapEx spike we had last year. So in Q4 last year, we had a CapEx increase. And obviously, you pay your bills, your invoices in Q1 and Q2 this year. And we had a gradual decline in inventories. That caused a negative working capital delta this year. So that explains the free cash flow gap year-to-date. Then if you turn into Q4, you'll see EBITDA growth, right? We stick to our guidance for the year. We see a bit of upside, not massive, but there's a bit of upside. So EBITDA itself will start contributing to cash. I see in Q4 a slightly larger portion of what I call cash earnings. If you take the delta and provisions in our cash flow sum up, I think the cash portion of earnings also go up. So that means more EBITDA will trickle down into cash. You'll see less capex in Q4 than last year. And in working capital, the increase in trade payables will run down. When you move into Q4, inventories will start to be running down because we ordered inventories in Q1 and Q2 and did not order anything in Q3 and Q4, so we started running down in inventories. And we've launched an acceleration program also on trade receivables. And those measures we started in the summer will start kicking in in Q4 as well. So that basically is like not an answer to your question, but I'm just telling you because that's what I like to do on how our free cash develops. And on to your question, we don't expect another pension contribution, which will also, because we've done that last year and the U.S. Pension Fund is effectively closed, so that means it also helps in the year-on-year comparison on cash. So apologies for abusing your question to give you the free cash flow story, but I didn't want to let the opportunity go unpassed. And gave me some time to grab a cup of coffee.

Thanks so much, Chris. That's very clear. The next question comes from a line of Titus Crand from Bank of America.

Please go ahead. Hello, all. Thank you very much for taking my questions as well. Just two topics to touch on as well. The first one would be actually that Dutch inflation has come down quite significantly, I think, and was even flat in September. Can you maybe talk a little bit about the implications it has on your wage negotiations and scope for future price increases? Maybe are you shifting more towards upselling or more for more rather than inflation adjustments into next year? And then a second quick topic was just on the prime investment. acquisition that is now on your Fiverr numbers this quarter. Can you maybe talk a little bit about the experience you have integrating the network into your wider group, maybe on the technological or sales perspective and based on those learnings and on the integration phase, what does it imply for future appetite for any further Fiverr acquisitions?

Well, on the Primevest part, it's good to see that all third-party fiber networks are built according to the KPN architecture, to put it that way. We started with fiber a long time ago. slow rollout speed, and we moved to PON recently, but more or less all fiber footprints in the Netherlands are not that difficult to connect to our networks, but it asks the rollout of a backhaul to our point of presence to make sure that we can all use the same active layer, but that's all a bit technical. So to really connect the Primevest level network on our active layer and on our consumer service level instead of as a wholesale interconnect interface, we roll out backhauls ourselves and then we start selling in the KPN way on the Primevest network. And that will be launched perhaps this quarter, so soon. So it's pretty okay and easy for us to connect such a prepared network to the KPN fiber footprint.

And on the inflation, Chris, maybe... Well, yeah, inflation is indeed coming down. Let's see where it ends up. It's notably the energy coming down. The core inflation is still stubbornly high. What I mean for waste negotiations... to say we have not started those. In this, we'll look at inflation, both headline and core inflation that will play a role. Also, we have to take note of other wage settlements that are still in the 5% to 7% area in the Netherlands that no doubt will play a role in these bargaining situations. So it's early to say what will be the outcome, but it will be a function of the actual inflation and what is common practice. But as I said, Data points are headline inflation, core inflation, and what happens elsewhere. What does it mean for price increases next year? Honestly, that's kind of too early to say. Obviously, I'd love to be less dependent on price increases and more on volume increases and more for more sales. That is what we're doing. I mean, for example, in broadband, about 50% of fiber new sales is 1 gig and 40% of all broadband sales is 1 gig. In consumers, about 40% of all annual sales are limited. So that push is actually continuing. We've launched a four gig proposition. So underlying strategy always is to pursue more for more and have clients go for higher data bundles and higher speeds. That is an underlying support on ARP use. And that could be accelerated based on our price increase. But Let's see where next year how things develop before you make that call. It will be a function of what the wage increase outcome is. It will be a function of where inflation is. I think in our society that poor inflation will play an increasingly important role rather than just headline inflation.

Very clear. Thank you.

Our last question comes from a line of Usman Ghazi from Barenburg. Please go ahead.

Hi. Thank you for the opportunity. I just had a question on the consumer segment where I can see that both the legacy revenue declines as well as the decline in the copper revenues moderated this quarter. And I just wanted to understand if this is kind of a structural trend that we should be looking out for or whether this is just a quarterly blip. Thank you.

No, look, this feels actually pretty good. I mean, on the legacy, look, the legacy revenues are in structural decline. There is a core that will probably not go away. So the declineable portion becomes smaller and smaller, and that will be core of legacy revenue that will probably stay for longer. So the decline in the decline, so to speak, the improvement in the second derivatives for those technicians among us, is actually a positive and not completely unexpected. And when it comes to broadband service revenues, obviously price increases have helped there a bit. Also churn went down. So that means that For example, on consumer fixed service revenues, they were up this quarter. It feels it will be up again next quarter. Actually, I wouldn't be surprised if next quarter Q4, when you look at total service revenue growth, that consumer service revenue growth is very close to business service revenue growth or even a bit higher. If I look at the underlying trends in mobile and underlying trends in fixed, so that means As I said, on broadband, we expect another positive growth number in fixed service revenues in the second quarter, and I wouldn't see why it wouldn't spill over to Q1. And thereafter, of course, visibility becomes a bit less. But overall, that feels pretty supported by the P and the Q, so to speak, and also supported for total consumer service revenues, which would look quite good in Q4, for example, comparing to the business markets.

Yeah, and copper broadband in decline is following exactly the line of our strategy. So we deactivated 25% of the Netherlands on copper, and we will continue by switching off copper and speeding up the fiber rollout. So we expect copper broadband to decline further, but that's exactly in line with our plans.

Can I perhaps just maybe ask one more? On the business segment, In the LCE segment, obviously, there's a bit of weakness this quarter. Again, I mean, does this kind of reflect, you know, the macro situation or is it something else?

Yeah, well, in B2B, it's mainly traffic and specifically roaming traffic. Last year, we saw a spike, a huge increase of roaming traffic. I think it was a bit after the COVID wave. And that didn't happen this year. So I see two things. Less than last year because of no COVID reaction. And also what we see is that larger companies are more prudent on the usage of mobile phones, as we are, by the way. So stricter usage in other countries and more usage of Wi-Fi. So this is a trend we keep an eye on. At the end, it's a difference of 3 million, something like that. But, yeah, that's the main difference.

Thank you very much.

Okay. Thank you very much, everyone. This concludes our call. We hope to see you at our Capital Markets Day on the 7th of November at our headquarters in Rotterdam or otherwise via webcast. If you haven't registered yet, please contact the KPN Investor Relations team. Thank you very much.

Thank you. Thank you. Ladies and gentlemen, this concludes today's presentation. Thank you for participating.