Swisscom Ag Ittigen R/Shs

Good morning, ladies and gentlemen. Welcome to the 2023 Q2 results conference call hosted by Christoph Aschliemann, Eugen Sternmetz, and Louis Schmid. Louis, the floor is yours.

Good morning, ladies and gentlemen, and welcome to Swisscom's Q2 results presentation. My name is Louis Schmid, head of investor relations, and with me are our CEO, Christoph Aschliemann, and Eugen Sternmetz, our chief financial officer. Today's presentation consists of three chapters. Our CEO starts with Chapter 1 and a quick overview on the highlights, the operational and financial performances of the second quarter. Then in Chapter 2, Christoph presents the B2C and B2B operational results, an update on our network activities, and the financial results in Switzerland before discussing FAFSA's Q2 results operationally and financially. In the second part of today's results presentation, Eugen runs you through Chapter 3 with the second quarter financials, including the confirmation of our full year guidance. With that, I would like to hand over to Christoph to start his part.

Christoph? Thank you, Louis, and welcome also to this call from my side. Very happy, very pleased to present to you another successful quarter. and a successful first half year 2023 with a positive EBITDA development and our full year guidance reiterated. On the telecommunication side in Switzerland, we continue to focus on value. Sorry, I am moved directly to page four on the analyst presentation, just for your information. So we continue to focus on value on the telecommunication revenue side, and the evolution is as anticipated. And we're also very pleased with the development of our IT business in Switzerland with a positive organic growth and the successful transaction of the purchase of the ACCEPT company group. We're also very pleased to have received for the third time in a row the Most Sustainable Telco Award, which highlights our large efforts we do in sustainability side, and we were also very pleased with the development of FastWeb in Italy with 40 quarters or 10 years of consecutive growth in number of customers, revenue, and EBITDA. And a very pleasing second quarter. More about this later on in the presentation. And last but not least, we were also able to get an improved credit rating with our strong ratings confirmed. Now moving on to page number five of the highlights of Q2 market performance. First, a word about Swisscom Switzerland. I'm particularly happy about our performance on the postpaid side with 40,000 net ads, which is a strong quarter and improved over Q1, bringing us to 5.2 million subs on the postpaid market segment. In broadband, TV, and fixed voice, we can see similar but improving trends versus the previous quarter. So we still have net losses in broadband, TV, and fixed voice, but on a slightly lower base than last quarter. But you can see that especially the TV and fixed market are kind of peaked, and the market overall is in a declining mode. On the wholesale side, we had a slight loss in second quarter after a growth in Q1. which has sort of two effects behind the slight decrease on the wholesale side. On the one side, we have many customers. We have a growing business on our wholesale segment. But you have one notable exception, which is Sunrise, which has started to optimize its infrastructure and moving selectively customers from our network to their own cable network, which then creates a downward trend. with a slight loss of 6,000 RGUs in Q2. On the fast website, we see the same trends as the previous quarter, with a strong growth on the mobile side, 112,000 net ads, which is the second best performance in the market in Q2 behind Iliad, and with slight losses on broadband due to our value strategy we pursue in Italy on the broadband consumer side, compensated by a growth of plus 34,000 on the wholesale side, bringing us to over half a million wholesale lines in Italy. I'm pleased with this result, and it confirms that the strategy we are pursuing is on the right track. Now, on page six, you can see the Q2 financial performance. We landed with a revenue of 2.7 billion in second quarter, bringing us to 5.45 billion Swiss francs for the first half of 2023, which is a slight decline, but roughly overall stable revenue development, mainly due to currency development, say Euro-Swiss franc. Whereas on the EBITDA side, we have a nice growth of 1.1 billion EBITDA in Q2, bringing us to 2.3 billion EBITDA for the first half year, which is plus 5.1% year-on-year. And what is especially pleasing is that both countries, Switzerland and Italy, have contributed to the EBTR growth, as you can see on the right-hand side of the EBTR bridge, where Swisscom Switzerland added or improved EBTR by 3 million and FASW by 5 million, a slight decrease in the other segments of a softer contribution from other subsidiaries we have in Switzerland, and then the pension effect we already talked about in the previous quarter, which is due to a change in interest rate. bringing us overall to the 1.135 billion Swiss franc EBITDA in Q2 2023. Now, moving on to the business review, I will go to slide number eight in the analyst presentation. We have a successful development of the Swisscom Group, thanks to consequent execution along our strategic objectives. As you will see in the further slides, we pursue four main strategic goals. The first one is investing heavily in NPS leadership in Switzerland, having happy customers and making sure they want to stay with Swisscom. We are very focused also on delivering further cost savings and increasing the efficiency of the group to maintain our EBITDA margin, especially in Switzerland, but also in Italy. We want to further grow our IT service revenue, both in Switzerland and in Italy, and overall achieve profitable further growth in Italy, which is a very tough, let's say, ambition in the Italian market. But we focus on growth on the 5G mobile side, IT and wholesale, which then leads to the results you have seen in this presentation. Now let's have a detailed look at Switzerland on page number nine. As I mentioned before, we are focused very heavily on our NPS market leadership. In our latest surveys, we have landed at the NPS of 22, which is an all-time high and with a substantial lead on all our competitors in Switzerland, actually an increasing lead on our competitors in Switzerland. I think this reconforts me that our B2C strategic execution is right. We are focusing on the products, on service, on shops, and making sure that our customers are well served and pleased with what they get from Swisscom. Our main challenge is our price value perception. This is also one of the main reasons why we decided to not increase prices overall despite the inflation. Next to excellent customer service at the hotline and the shops, we continually invest in our products. So we improved our blue product portfolio offering. We launched new product options like the TV XL. We introduced a low-end mobile offering. We completely revamped the kids' mobile product side and also some of the TV options like the Multiroom Max option, which we introduced newly into the market. And I think this is key for our price-value perception to keep a high level of investment on our product side. Then you can see on the right-hand side, churn is sort of at a good low level in line with historic development, slightly higher than the previous quarter, but still I would say at the excellent low levels with 7 and 8.2%. On page 10, some highlights regarding our subs distribution. You can see that we were able to increase the blue penetration both in mobile and in broadband. with broadband at 80%, and on the post-paid value side, with close to 50% of our customers on the blue product portfolio. The FMC penetration is sort of reaching a plateau. We still have a slight increase on the broadband side, but on the post-paid value base, there is a slight decrease, mainly due to the shift to second and third brands, which we don't count in the FMC penetration. On the second, third brand, you can see that both in mobile and in broadband, the second brands are progressing with a 30% market share of our second brand on the mobile side and 8% on the broadband side. Overall, this led to a satisfying RGU development with plus 144,000 RGUs on the mobile side, bringing us to 3.3 million mobile RGUs and with the slight decreases on broadband and TV with respectively 1.7 million and 1.48 million RGU's on the TV side. On page number 11, you can see our actions we are undertaking to continuously optimize our ARPU levels with a very strong and clear focus on the value strategy. You can see on the left side that the ARPU levels remained nearly stable, both on mobile and on wireline. On mobile, we had a slight decrease of minus one Swiss franc on post-paid value due to the ongoing shift to the second brand from the main brand. But overall, our pools, especially on the wireline, have been stable or slightly increasing even on the blended side, which is a very pleasing result. This was possible due to two or three main actions. The first one is we selectively tuned our offerings, introduced some higher fees on payment of invoices, for example, or setup fees. We have introduced a payment fee if you pay the bill in the shop. We deactivated our simply digital option or introduced new products at higher price rates. We also changed our promotional behavior. we are running less brand or less discounts on the main brand, less aggressive for less duration. We reduce the gifting and also continue to counter the promotional activities, especially or mainly on the Wingo brand, but also there on a higher price level in recent times. Maybe one thought about the price of promotions on the second Brand level, we don't consider the level of aggressiveness on secondary brands sustainable, especially not what we've seen last Black Friday, neither in terms of pricing or duration. So also on the secondary brands, we are thinking about the promotion at the higher price points and maybe also by the duration. Looking at the Black or coming Black November month in the past, we've seen sort of promotions going the whole month, and we don't think this is really sustainable and probably are thinking about reducing those durations to a week or even a black day. What we're also focused on, obviously, is to continue to drive cross and upselling across our customer base, focusing heavily on the blue benefit, the convergence benefits, not only for families but households. We added the KidsMobile in convergence to really drive more and more upselling and cross-selling across our customer base. That was it for B2C. Now moving on to B2B on page number 12. In the B2B space, we have two different businesses. On the left-hand side, you can see the telco service business is developing as anticipated. We had a decline of minus 13 million on both wireline and wireless. This is in line with our guidance of minus 50 for B2B telco service revenue for the full year. Mainly, the decrease in revenue was driven by pricing impacts, more promotions, and lower ARPU. What is positive to note on the telco side is that we are completely revamping our product portfolio. Last year, we introduced the new wireline portfolios. This quarter, we launched a new enterprise mobile portfolio, which is a completely new product portfolio for B2B, which is completely digitally enabled, also allowing us to drive further efficiency and cost gains in the future. On the IT business side, we have an organic growth of plus 7 million, bringing us to 292 million revenues in the second quarter of 2023. Some of the projects are delayed with customer orders delayed and also difficulties in hiring enough talent in the market. But on the upside, what is very pleasing is the purchase of Accept, which is a company which is focused on the ERP side, especially in the SME space. So this allows us to expand our footprint and strength in the SME IT space and will enable us to do some more cost and upselling with Swisscom products in the future and strengthen our IT business overall. Now on page 13, you can see some of the highlights regarding our network rollout. On the wireless side, we were able to increase our 5G Plus coverage to 77%, which is plus 12% compared to one year ago, which is very pleasing. And we, I think, made good progress in rolling out 5G Plus, which is the 3.5 gigahertz frequency across the country. And we're also making trials with power-saving features to reduce our electricity footprint. On the wireline side, FTTS rollout is completely done, and we are exclusively building out FTTH footprint at the moment, and we were able to increase the FTTH footprint from 39 to 44% end of June this year, and confirming our 2025 target at 55%, and there is also actually an opportunity to maybe land above slightly the 55%, which is very pleasing, meaning that with the non-Swisscom footprint in Switzerland in 2025, Switzerland would be about two-thirds covered by FDTH, which is an excellent news for the country. On page number 14, you can see the Swisscom financials in Q2. We exactly, it is no joke, it's exactly 2 billion revenue bringing us to 4.044 billion revenue with 913 million EBITDA. And I would say more details to the financial numbers will be provided by Eugen. So I will move directly to page 15 with the highlights of FastWeb in Italy. So FastWeb also had a successful second quarter. We have now 10 years of consecutive growth. where we were able to grow every quarter. Also, second quarter, we were able to win 115,000 RQs overall for 4% more revenue and 2% underlying EBITDA, excluding the one of the regulatory fine due to the four weeks billing decision, which was announced last week in Italy. What is pleasing is that our consumer ultra broadband and mobile consumer-based broadband is growing. especially mobile with a 20% year-on-year growth and second best performer in the market. Also notable is our enterprise performance in Italy with a strong plus 6% growth, thanks to both mobile connectivity, but especially also IT and security services. And as mentioned previously, What is also pleasing in Italy is our wholesale strategy. We're able to compensate the losses we have due to our value strategy on the B2C side. With new lines, we are booking on the wholesale side, coming from Iliad, Enel, Sky, Virgin, Fibra, moving our wholesale business to 432,000 lines at the end of the second quarter. Now, looking a bit more into the details on page number 16, FastWeb consumer business. So as mentioned before, broadband slightly decreasing to 2.6 billion sub. We are really, I would say, one of the highest priced provider in the market, really focused on defending our current price to defend our margin. We've increased also AI-driven customer processes and many more investments we are doing on the product and service customer side. The UBB penetration is going up as in the previous quarters, and at the mobile side, as mentioned previously, we have a very nice growth or outstanding growth of plus 538,000 subs over the year-on-year. What is also a really good win was the UCLA, or for the second time, we were awarded the fastest mobile Italian network by UCLA in Q2. You can see that FMC is continuing to progress in Italy. We were able to increase FMC penetration by 2.4% to 42% with very strong benefits both in ARPU and bringing TURN down. Now, looking at the enterprise business on page 17. As mentioned previously, we had a 6% growth on the enterprise business, bringing it to $266 million in Q2 2023. And we were able to add many new customers, maybe most notably IKEA, Eni, and Boehringer. So we have a good panel of growth in all segments, both in connectivity, security, and mobile. And as Outlined before, the wholesale business is also growing strongly with 6% from 67 to 51 million revenues. We have a very strong growth online, and we had some other business on the wholesale side which was not renewed, but it had very low marginality, so the impact overall is actually quite negligible. Now, last slide, page number 18, sorry, FastWeb Financials. Overall, 628 million revenues in Q2 2023, bringing us to a half-year revenue of 1.25 million, with all segments wholesale, enterprise, and consumer, which are contributing to the growth, which is a very pleasing situation. And you have also a growing EBITDA. You have a reported EBITDA which was slightly declined by way to 210 million due to the four weeks billing regulatory provision. But the underlying operative EBITDA has growing also by 2% to 223 million or 411 million for the first half year. That was it from my side. I would now hand over to Eugen for the financial details.

Thank you, Christoph, and good morning, everybody, also from my side. I'll start, as usual, on page 20, page 20 with group revenue. Overall, the revenue evolution in the second quarter was almost an exact replay of the first quarter. So if you look at the overall development, revenue is down by minus 17 million, but that's obviously impacted by the strengthening Swiss franc, which is some 3% up compared to the Euro, compared to the previous first half of the year in 2022. So if you look at the underlying numbers, revenue is up by 30 million in the group. Switzerland down minus 23 million and FastWeb up plus 53 million. Both in Switzerland and in FastWeb, the quarterly numbers of Q2 Almost the exact contribution as in Q1, so Switzerland Q2 minus 11 million, Q1 minus 12 million. FASTA Q2 plus 25 million, Q1 plus 28 million. So overall, very much a picture of stability. If we look at the individual segments, B2C is slightly down with minus 4 million. It's mainly driven by lower hardware sales, obviously with very limited impact. on margins. B2B is down by 18 million, so that's a combination of lower service revenue and higher IT and hardware and software revenues. In Q2, it's actually flat, so they're all the 18 million come out of the first quarter, and this was very much driven by a strong hardware quarter in the first quarter, 2022, so it was a tough comparator in the first quarter. in the first quarter. Wholesale is flat overall. It's a mix of wholesale services, which are somewhat up and despite negative contribution from roaming and interconnection. So not much to say on infrastructure and support functions and revenue, obviously. So I'll move on to FASTREP. As we heard, plus 53 million, plus 4.3% growth in the first half of the year. driven by contributions both from enterprise and wholesale, and obviously a more moderate contribution from consumer, where we grow strongly in the mobile segment but face a somewhat sluggish wireline market. That's it on group revenue. I move on to page 21, Swiss revenue. Likewise, you know, revenue in Switzerland very much in line with the first quarter. So, if you look at the left-hand graphic on the page here with the component of the revenue evolution in Switzerland, very much the usual picture. Service revenues are on by 33 million with B2C basically almost flat with minus 8 million and B2B. minus 25. IT service revenue up by 9 million, seven of which from the second quarter. So in the second quarter, we grew by 2%, which is lower than last year, but a bit better than in the first quarter of this year. Please note that last year, a significant share of the IT services revenue growth was driven by non-organic sources acquisition of MTF so you need to take this into account when comparing the numbers. Hard and software sales down by 15 million. Wholesale flat, as I already mentioned, had a positive contribution of 16 million plus from other revenues. It's a bunch of factors. The biggest one is cinema business picking up, and I've raised 15 balances, which fluctuate around with our hardware promotions. So on to service revenue evolution top right, actually not much news, very much in line with Q1. B2C essentially fled with just minus 3 million in the second quarter. Please note that we are talking about a baseline of about 1 billion revenue per quarter to compare these year-over-year changes to. B2B, they have more or less steady run rate of minus 3%. Everything in line with expectations, guidance, and what we have seen in the first quarter. Bottom right, individual components of service revenue evolution. You know all of them pretty well. So I just make a quick summary. On the B2C wireless side, our customer base is up thanks to higher post-bets, higher post-bet customer base. Mostly driven, obviously, by second and third brands at the expense of customers Somewhat lower ARPUs due to the different mix of first brand and second and third brand. B2C wireline, a structural effect on the customer base with fixed baseline losses and the small losses on the broadband base showing up in that number as well. And then over to B2B, a gradual erosion of ARPU in particular in the corporate segment, which is mostly stable quarter over quarter. So with that, I move on to page 22, Group APDR. Group APDR was up by 112 million. Obviously, that's very much driven by our regulatory provisions that we booked in the second quarter of last year. This year, we just booked a net 3 million of provisions. It includes the 13 million in connection with four weeks billing for FASVAB that Christoph mentioned. So, with that out of the way, and also ignoring for the moment the pension reconciliation item that you know well, we can focus on the development of the underlying business with Swisscom Switzerland up 16 million and Fastweb up 18, sorry, 8 million. That's a plus 2%. Within Switzerland, B2C plus 13 million, that's the flat service revenue combined with cost savings in that segment. B2B minus 12 million combination of lower service revenue as expected compensated partly by growth from the IT business wholesale flat. Just one word on infrastructure and support functions. It's up by 14 million. This is cost savings showing up, but there is quite a strong swing from the first quarter to the second quarter. Second quarter was down with minus 5 million. Now, one factor driving this is the salary increases that kicked in on 1st of April, as explained previously. Obviously, that doesn't account for the full swing. We also had quite some seasonality in personnel expense accrual in the previous year, which explains the strong swing from the first to the second quarter. Then on to FastTrap, as mentioned, plus 8 million growth. We're quite happy about that. Plus 2% in line with guidance that's driven by higher margin from the enterprise and from the wholesale segment, compensated by lower margin from the consumer segment, and obviously also some cost savings, as you have seen, among others, from advertising and from energy expense. Finally, on the EBITDA page, minus 25 million in the other operating segment, quite a big number for that segment. That's very much driven by a one-off provision we booked in connection with customer projects, so it has a bit of a one-off connotation if you try to project that going forward. I move on to Swiss EBITDA on page 23. Really not much to say. I'd like to mention is on the indirect cost savings in telco, where we now stand at 40 million with plus 13 million in Q2, and therefore a bit ahead overall in terms of expectations. Q2 was lower than in Q1, given the higher salary costs kicking in in the second quarter. As I mentioned, and I always caution you against that, taking quarterly numbers here too seriously. But having said that, I think the 13 million plus in the second quarter come reasonably close to what you can expect on average over the coming quarters. And that gives you an indication of where we are going to land by the end of the year. I move on to page 24, CapEx slightly up in the group, driven by CapEx on Swisscom Switzerland. If you look at the individual components on the Swiss side of the business, the right hand of the page, I'd like to note just one thing. You see the fiber investment of 193%. That's actually a bit on the lower end as we transition from the point-to-multipoint rollout to the point-to-point rollout in the first quarter of the year. Expect this to pick up again in the second half of the year. It will come close to the $500 million to $600 million range that we gave you for the fiber cup example. It will probably be a bit below that range this year. which doesn't change the fact that the 500 to 600 million still remain the relevant number to look at when you look at the years ahead. I move on to page 24, free cash flow bridge. Free cash flow was up 169 million compared to prior year, almost entirely driven by a different phasing of tax payments. I'd like to make just one other comment on this page. If you look at the net working capital change at 346 million, this looks like quite a sizable number. It's actually very similar to what we had last year, and it's reasonable to expect that most of this will revert over the course of the year. The minus 50 million that you see in the year-over-year bridge in change in defined benefit obligation, with connection to the pension expense, they are expected to grow to the minus 90 million full-year effect that you also have as a non-cash effect in EBITDA. And you'll see the balance here in the year-over-year numbers with obviously no year-over-year impact on free cash flow. Moving on to page 26, net income bridge. EPITDA was up by 112 million, but that does not fully translate into net income year over year. Net income year over year is 64 million. On the way from the EPITDA to the net income, the only difference that is relevant is the lower financial result in the first half of this year compared to prior year. We had a particularly high financial result in the previous year. as the financial result last year was impacted by market-to-market of interest rate swaps. We didn't have this this year. And so the 112 million EBITDA increase translate into a 64 million plus on net income. Finally, page 27, guidance, given the set of numbers, we obviously confirm the guidance for the year for revenue, EBITDA, and capex. There is just two points. I'd like to make point number one essential to the guidance this year, as you know, is the balance between service revenue decline and cost savings in the Swiss business with some upsides and some risks on the side. And this balance between service revenue and cost savings is very much intact, even if service revenue looks a bit lower and at the same time cost savings look a bit higher than originally anticipated. Second point, the guidance is based on the Euro-Swiss franc exchange rate of 1.0. So given where the Swiss franc is going at the moment, we are obviously trending towards the lower end of this range, in particular on revenue, where one basis point of exchange rate accounts for 25 million change. So finally, upon meeting these targets, we plan to propose again a dividend of 22 Swiss francs per share. And with that, I hand back to the operator.

Thank you. Ladies and gentlemen, to ask questions, please dial star 14 on your keypad to withdraw star 15. Thank you. We already have first requests. I will now open the lines one by one. As soon as you hear the announcement unmuted on your own line, I kindly ask you to introduce yourself before posing your question. Let's first Go to Polo Tang.

Hi, it's Polo Tang from UBS. I just have three quick questions. Firstly, can you comment on the Swiss competitive dynamics in Q3? So have you seen any changes in the market post-sunrise, increasing prices by 4% in July, and SALT recently announcing 3% price rises in mobile? And were you surprised by the move by SALT? Second question is just on cost savings. So your cost savings are running ahead of expectations in terms of the run rate. But is this because you're doing better on gross savings or because cost inflation is lower than expected? My third question is really just about Swiss EBITDA growth. So you're seeing underlying Swiss EBITDA growth amid near stable revenues. whilst at the same time realizing cost savings. But is there any reason why Swiss EBITDA cannot continue to grow as we look into 2024 and beyond? So won't Swiss EBITDA growth actually accelerate? Because, for example, you flagged your intention to lower promotions, even if you're raising pricing, and you've also got easing cost inflation. So should that lead to higher cost savings from 2024? Or are there any other moving parts to consider? Thanks.

I'm happy to start with question number three. Obviously, we are not trying to give a guidance for 2024 or 2025 at this point in time. I would like to refer to what I said on the guidance. The main drivers for the Swiss business and Swiss EBITDA going forward is the balance of service revenue and cost savings. And it's, you know, most important focus to manage that balance. I wouldn't go any further. Obviously, there's always moving parts beside of that balance, like wholesale and IT growth, et cetera. But we'll talk about when we get there next February. On cost savings, very good question. You know, it's hard to pin down in detail, to be honest. You know, what comes from increased gross savings and reduced inflationary pressures. My best guess would be that most of it is from increased gross savings rather than reduced inflationary pressures. Because inflationary pressures are pretty clear. It's a 2.6% salary increase. You know, that came in exactly as expected. Energy costs we knew about. So if anything, it's more on the gross savings side than on reduction of inflationary impact.

Okay. Thank you. Again, it may be on the Swiss competitive dynamics. So we don't see a lot of changes. We see some or less promotional activities on the main brands. But despite price increases, the promotional activity, especially on second brands, is as aggressive as ever, both in price point and duration. And we expect this to stay pretty much the same now until the year end. So we will see how it develops, but I would say competitive dynamics are pretty much unchanged, even though competitors have slightly increased prices because the market movements are mainly driven not by, let's say, regular list prices, but mostly by the promotional behavior of the second brands. And so to see an improved dynamics, you would need to see an improved promotional behavior on second brands.

Thanks.

Next question.

Yes, good morning. It's from CT. Thank you for taking my questions. The first one is a follow-up on Polo's question around pricing. And maybe from a slightly different perspective, you mentioned, Christophe, in your opening remarks, the intention to be perhaps a bit less promotional going forward. How quickly? Can this better fund book, let's say, pricing contribute to better service revenue performance, or are you worried that the mix will still be skewed towards the second, third brands, and therefore these effects may not be as significant when it comes to the overall service revenue trends? And then perhaps on that, if you could also give us a bit of an indication of How quickly do people tend to refresh their offices in Switzerland? Because I'm getting some that go way beyond the two-year contract period without ever refreshing their tariff transfers. I was curious to understand the dynamics of that. And then the second question is around FastWeb. Perhaps one element which is quite disappointing is the acceleration of the retail broadband losses. if I can ask a question in two parts. The first one is, do you envisage that to stabilize or could it get worse? And then the second element is, how confident are you with the visibility you have on the wholesale and the business side that they could mitigate even if the consumer element continues to get weaker? Thank you.

Okay, so I start with FastWeb. So it's completely right that the acceleration of the broadband loss is not particularly positive. And we are looking into this in great detail to see how we can stabilize the loss of the broadband lines on the B2C business. But it is a fact that the Italian market, especially in the broadband side, is very competitive and competition is further increasing. with a new market entrance like NL Sky or Iliad. So I expect probably similar trends in the coming quarters. And that is why it is so important that we focus on the wholesale side to be able to compensate at least a number of lines. Obviously wholesale line is not generating the same amount of revenue as the B2C line, but that we are able to at least partly offset the loss we have on the B2C broadband side with an increase in wholesale. And on that side, we are very confident that we can continue our growth on the wholesale side because I think we have a competitive offering in the market. We have won many new customers, or many of the new entrants are booking lines with FastWeb, which is very positive and then compensates at least part of this loss. And the other Compensations come from growth on the mobile side of B2C, which overall has led to the growth, growing B2C segment revenue in Italy, even in Q2, despite the losses we have on broadband. Now, on the promotional activities in the future and the impact on service revenue trends, It's a very hard question to answer. So we will try to be less promotional. We are at least thinking about further reducing promotions. But obviously the impact on the service revenue trend overall then depends on how well we are able to maintain our RGU base being less promotional or how much RGU losses you're willing to accept to compensate for, let's say, higher price points. And this mix, how it evolves exactly, is very hard to predict. and obviously depends on customer behavior in the next quarters. And we will see how it develops over time. I don't know, Eugen, I missed the second question.

So did I. So did I. I just need to repeat it.

I'm sorry. No, those are perfect questions, actually. But if I could ask a follow-up on the service revenue side in Switzerland. Just two reasons. And why you would be less promotional if it doesn't really move the needle that much in terms of service revenue?

Well, I mean, it will move the needle. Assuming we can keep the same RGU performance, it will obviously positively impact the service revenue over time. And we just believe that the promotional activities we've seen on second brands, especially in the third quarter last year, or a fourth quarter, actually, around the Black Friday month, are not sustainable in the long run. So, this is why we are looking into this. But the assumption, let's say, positive impact on service revenue is assuming that you can maintain RTO performance.

Okay. Perfect.

Thank you. Which then depends on the behavior of the other market participants.

Thank you. We go to the next question.

Hi, good morning. This is Nuno from Societe General. Just two questions from my side. First, on the B2B side, there's quite a few questions on B2C already. We noticed this quarter that there's been a bit of a flip in terms of wireless versus wireline trends. It seems wireline was quite a bit weaker this quarter. While we've seen wireless sort of perform a little bit better and we've seen quite strong net ads on wireless. So I was wondering what's driving this net ads on B2B and also the weakness on wireline. And then a question on the working capital, because you mentioned a lot of prepayment of expenses. I was wondering what exactly is driving this, and is it coming from Switzerland or from FastWeb? And where would we land in by year end? Would we expect to see another sort of minus 60 million overall net working capital? And the final question is just on this, because we saw press reports recently that you might have received a final decision from CO on this point-to-point investigation topic. I don't know if you can say anything on this, but it would be interesting. Thank you.

I can start with the working capital one. I didn't get the full question, but I think I got the end. So on networking capital, as I mentioned, I would not read too much into the quarterly numbers. Most of what we have seen in the first half of the year will revert back by the end of the year and will not have an impact on free cash for the full year. We had pretty much the same story in the previous year. There is very little in terms of structural effects on networking capital, and this is why we can say so with confidence. There is two bigger elements in the year-over-year change. One of them I mentioned, that's the pension position. That is a non-cash increase in APTR and has a respective impact, negative impact when it comes to going down to free cash flow in the end. And then at the end of the last year, so if we look at the full year at the end of the last year in Q4, we booked a $75 million regulatory provision, which will give you a respective uplift in EBITDA year over year, which is non-cash and which will show up, obviously, as a negative net working capital effect in the full year. But all the rest will pretty much even out over the quarters. So that's on Birkin Cape, then it was Comco, I believe.

Yes. So on the Comco side, we have received preliminary instructions from Comco what they want to rule, like a preliminary ruling. We are currently analyzing the preliminary ruling, and according to the process, we can actually comment and request for changes or points which we are not in agreement. And then the Comco will issue the final ruling, probably just before Christmas or early 2024. And then this final ruling is actually what really counts. So at the moment, we cannot comment on anything, but we are continuing our FTTH rollout in point to point, so we don't expect major changes on the rollout side, irrespective of the ruling.

And maybe the third or rather the first question on B2B service revenue and the relative contributions of Wireless and Wireline and RGU and ARPU over the previous year. I didn't mention that on page 21 where we show the year-over-year changes in service revenue in B2B. There is indeed quite a marked effect, at least given that we're talking about low numbers anyway. on Viola and ARPU with minus 8 million. Now, what you need to know is behind the B2B numbers, there is actually two different segments. There is the SMEs, small and medium enterprise segment, and the corporate segment. The SME segment behaves pretty similar to the B2C segment, both in annual evolution and also in character in terms of many, many tens or hundreds of thousands of contracts. The corporate side is a much more chunky part of the business. So year-over-year evolutions, both in ARCHU and ARPU, can be driven by changes in individual large accounts. So renegotiations of contracts with a large customer, either in terms of pricing or in terms of number of ARCHUs. And this very much impacts the year-over-year comparisons. So I would not read too much into the quarterly fluctuations on the B2B side, because it's very much driven by large contracts being renegotiated. Obviously, important is the overall trend, and that has been pretty steady over the last couple of quarters.

Okay. Thank you very much.

The last question.

Hi. This is Usman Ghazi from Berenberg. Thank you for the opportunity. Just going back to the the answer to the B2B question. I mean, I guess if I look at the Swiss service revenue trend, which is, you know, at this minus one level, which you had indicated, you know, post Q1, that look, this is probably a reasonable level to be at given last year benefited from some roaming benefit in the revenues. However, that minus 1%, I mean, consumer is stable, right? I mean, this is really being driven by B2B. In B2B, you're saying that Q2 don't look at the Q2 performance because driven by some, you know, chunky corporate renegotiations. So, I mean, if the B2B trend kind of improves over the next few quarters, is it possible that service revenues kind of come in at sub minus 1%? Or is that, would that be too optimistic? And if so, why, please? And then my second question was on Huawei. I know that Swisscom doesn't have a lot of exposure in mobile, but could you clarify if you have any exposure there on the fixed site and what the latest is on the Huawei debate in Switzerland, please? Thank you.

Okay, so on the B2B service revenue, I'll start with Q3 and Q4 in the service revenue evolution overall. So as you mentioned, Q3 and Q4 2022 was positively impacted by the final roaming rebound after the COVID years and some other factors. So back then already, I cautioned against taking this as the run rate going forward into 2023. Now, within 2023, I think the quarterly numbers we have seen in Q1 and Q2 a reason ever estimate for what to expect for the rest of the year. At the beginning of the year, we talked about the minus 50 million B2C plus B2B service revenue decline when we talked about our guidance. If you look at the numbers now of Q1 and Q2, it looks like that this number will be a bit higher because B2C is not exactly at zero, but slightly declining with minus five and minus three in the first and in the second quarter. For B2B, I think the trend is stable. I'm not saying necessarily that the quarterly evolution in B2B will change quarter over quarter. What I'm saying is the individual contribution, if you break it down into wireless and wireline and into R2 effect and R2 effect, These things are very much driven by individual contracts being renegotiated, so I wouldn't take the composition within the B2B decline for granted, but the overall trend is certainly what we expect for the rest of the year. Having said that, we slightly higher service revenue decline than the originally 50 million mentioned at the beginning of the year. are equally matched by our expectation that cost savings will also be a bit higher over the full year. So the basis of the guidance, and that's why I mentioned it at the end, the fundamental basis of the guidance for this year is a balance between these two factors, and this balance is very much intact.

Okay, so regarding Huawei, so as you pointed out, on the mobile side, we have nearly no Huawei equipment in use. It's mainly focused on the wire line side. We are very happy with Huawei as a supplier. It's good quality. They're delivering what we expect of them. We use the equipment predominantly on the FTTS side. So as we are now overbuilding the FTTS footprint of FTTH, we will continuously and then remove the copper infrastructure over time. This exposure will decline over time. But at the moment, we have a stable situation with them, and we are very happy with their performance. There is some ongoing discussion in Swiss Parliament to forbid Huawei equipment in Switzerland. At the moment, it is stalled in the Senate, and we will see how this discussion goes over time now, what the decision will be of Parliament. But in any case, We expect, even should there be a ban, to have timelines over time, sort of grace periods to actually deal with the situation properly. So at the moment, I'm not overly concerned with this topic.

Great. Thank you. Could I just ask a follow-up on this? When you say the debate is stalled in the Senate, do you have an expectation of when when and if any conclusion to this debate is going to take place?

Yeah, so it was discussed in a sub-commission of the Senate in the summer session, and they requested additional information to the government now. And we don't exactly know when this report of the government will come, but until the government has done or provided the report to the commission, the discussion is sort of paused in the Senate. It's hard to predict how much time this takes, but it probably will be at least a couple of quarters, I would expect.

Okay. Thank you.

Thank you. And with that, I would like to conclude today's conference call. If you should have any further questions, please do not hesitate to contact us from the IR team. Speak to you soon and have a nice day. Thank you very much. Thank you. Bye-bye.

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