Telekom Austria Ag

Good morning, everyone. Thank you for joining us for our Q2 2025 results call. We are pleased to have with us our CEO, Alejandro Plata, our Deputy CEO, Thomas Arnoldner, and our CFO, Sonja Wallner. They will walk you through the key highlights of the second quarter and the first half and provide an outlook for the remainder of the year. As always, we'll be happy to take your questions after the presentation. Thank you. With that, let me hand over to Alejandro.

Thank you, Sanne, and good morning, everyone. Thank you for joining us this morning. As you have seen, yesterday we presented Q2 results with mixed feelings, to be totally honest. So total revenues went up 4.1%, which is pretty solid and above our four-year guidance. So we are confident on the total revenue growth. development mostly coming from Eastern European operations that are performing all in all pretty well. And service revenue went up close to 2%. Also, the CEE fully compensated the decline in Austria. You will see more details on Austria later where the market conditions are pretty tough. But I'm very happy with the development of the team instead of customer acquisition, and that we're doing. I will share a little bit more later. Evita, the Evita that really mattered was declining close to 1%. You have to remember that last year we had a special negative one-off due to the penalty in Belarus, and that's why we are reporting plus 3.4%. Remember that that penalty at the end of that provision of that penalty was reverted at the end of last year. So in the year 2024 had actually no impact. But when you compare quarter by quarter through the year, it will have. So a positive impact this quarter, a negative impact in Q4. And what we are very proud is that we are generating very solid cash flow with 333 million euros, which is close to, 100% more than what we did last year. So very solid cash flow generation driven by three things. Slightly lower CapEx execution, better data cash, and a lot of activities around how to optimize utilization of working capital that is providing some boost on free cash flow. On the market environment, We see a very difficult situation in Austria with a lot of competition in a very weak economy. Thomas will give you a bit more color on that situation. And we took the decision last year, at the end of last year, to increase our investments in the market. We see an opportunity to grow customer base faster since the market is so weak and we have so much Financial flexibility to invest, we decided to invest. Part of that investment, you see it as a negative EBITDA development in Q2. We increased advertisement, we increased commissions, we increased subsidies. You will see more details moving forward. So it was a conscious decision that we did. And I think I'm at least very happy on the results that we have seen. Finally, the regulator published the rules for the option. Let's see if it happens this year or not. We are not totally sure yet, but it's good because we desperately need more spectrum in service, so we are happy that it's moving forward. And as we have presented to you many times, we are very much focused on our ICT business, and we're happy to report that in the second quarter grew 11% a week in Austria due to the economical situation, but very strong in CE with a growth of close to 30%. We confirm our guidance Our run rate in the first half of the year is roughly four. And also a spectrum, CapEx excluded a spectrum of close to 800 million euro. If I move to the next slide, you see customer development that has been performing very well. And on the right side, you see mobile postage. We added excluded end-to-end. We added 330,000 new postage. customers, which is a very strong growth. 30,000 in Austria, where we have been focusing a lot to grow our post-paid base. We are the market leader, but I still think that we can grow smartly in this segment. And now we show it with 30,000 positive stats in Austria. And CE, the growth was 300,000, which is also very impressive. in post-paid, I mean, I'm not talking about prepaid here, post-paid customers. And on top of that, we grew more than 2 million new subscribers in IoT. IoT business is growing also very nicely across the group. On the internet, or internet at home, as we call it, where you see broadband, where we have a network, and queues where we don't have a network, basically, You see that even though we had a decline of 35, 37,000 broadband customers in Austria, we managed to grow cubes by 27. And you will see throughout the year that we will push even more migrations from low broadband speed customers in Austria to cubes. So we are actively migrating that base. Unfortunately, Thomas will share more with us later, but we don't see that the environment is set up in Austria to invest a lot more in fiber. So we think that migrating these customers to queues is a much better strategy for us. You know, we have been always reluctant of accelerating fiber in the past because of this. Now you see the evidence. It's too expensive to build fiber in Austria. The uptake is very low, and the outputs are relatively low when we have so much competition And on the east, you see a very good performance in both, so almost 160,000 customers added versus previous quarter last year, driven by BBI, but also in cubes with 53,000. So we are very pleased with the commercial performance, not only in Ostia, but in the rest of the market. Having said that, I will hand over to Sonia, who is going to drive us through more details on our financial numbers.

Thank you for your introduction. Digging a little bit deeper into the financial results of Q2, you see that you had already that our total revenues grew by 4.1% to 1.37 billion in the second quarter. This was mainly driven by equipment revenues and coming also from our international operations. Going to the service revenues that we grew by 1.8% in the last quarter to 1.145 billion in quarter two, you see the strong growth of international operations, especially pointing out Belarus with an excellent performance and Croatia and Bulgaria with a strong growth in this quarter. Austria has already seen a little bit of headwinds also in the service revenues due to commercial and macroeconomic situation as Alejandro pointed out before. Coming to the GDPR. already said that last year Q2 was affected by the one-off provision of sanity. You see that we grow by 3.4, reflecting that only with decreased EBITDA growth by 0.8%. Also here, you see strong operation growth in the international operations and weaker of megabit growth in the Austrian operations. Going to the next page with the sales revenue growth, you see that we were able to grow nearly all segments that we show from mobile core cubes, broadband and TV, and solution and connectivity, whereas the operations that said Bulgaria, Belarus, and Croatia brought a higher growth there, and you see that we have headwinds in fixed-voice higher and lower interconnection as the regulation was figured out last time. That means that we were able to grow by 58 million with 2.6% from quarter-on-quarter view this year. Going to the next page, we see the impacts of the EBITDA growth, and it says revenue contribution shows a good part of the growth. And as already said, we decided last year to start investing into the market. This is represented on one hand side in the equipment margin and on the second side where we still show a decline of OPEX, but doing restructuring measures and efficiency gains activities that could more than compensate all the investments that we did in the market investment. All this resulted in an increase of 3% to 3% by 34 million from 959 to 999 million in the first half of the year. Going to the next page with the free cash flow, that showed a very strong development, and as I pointed out, that comes from one hand side, the better operational performance, and the second side, lower capex operationally, but also coming from the frequency, and the good performance and lower need for working capital that were able to offset the needs for leases paid. This is great. What has been done in the working capital, we see a good development on both sides, receivables and payables. And as said already before, we were investing into the markets. That's also shown in the use of working capital for installment sales that were able to be compensated by a better performance in the past. Having said that, I would like to hand over to Thomas for the next bit of time.

Thank you very much, Sonja, and Alejandro. As I said earlier, we would like to shed a little bit more light on the Austrian market, which continues to be tough both from a macro side as well as from a competition side. On the economy, we are actually in the third year of recession, or according to some of the latest forecasts, maybe a very slight growth, but really on a very low level. So economy overall remains tough, which affects us in all parts of the business. We're coming from two years of very high inflation of 8% to 9%. And I think also in the previous course, This is not an environment which we really like because essentially it means for us cost is going up, but these increases are not fully reflected in service revenue growth, even though we implement better protecting measures, but these are not fully transferred in service revenue increases. as the price sensitivity of customers has significantly increased, and these value-protecting measures also limit the potential for upselling of new products and services. Again, and also, competition in Austria remains very high, especially from the MVNOs, which put pressure on the low-value segment on the cube market. The same only trend continues, and as Alejandro pointed out also, the environment in the fiber rodent remains very tough. We have amongst the highest rodent costs in Europe, compared with comparably low take rates. We're talking about take-up rates of 20 to 30 percent in the market, and the market which is still very mobile, and especially cube, which is, by the way, also supported by Q-friendly regulation. When you think, for example, how operators can market their services, there is a clear better regulation for mobile product than fixed. Having said this and how we reacted, the good news for us is that we do have the financial power to react on this. As Alejandro already said in his introductory statements, we took a number of measures beginning of the year. Our focus is on defending our mobile subscriber base and preventing churn in fixed. We use technical agnostic products like the HUBES. We had increased investments in communications, in advertising, in commissions. We run regional sales pushes, one example being Vienna, where the fiber utilization is launched and where we launched a regional sales push. in the first half of the year. But also, we are continuously re-evaluating our FIHO program. We are also increasing corporations with other payers. If the conditions, the commercial conditions are justified, one example is a corporation which we have in . There. If we move to the next slide, this is also, reflected in the EVTA bridge for the second quarter of the year, where you see that both the environment but also the measures being implemented affected EVTA, both on OPEX but also affected in . Additionally, what you have to bear in mind that Q2 is always the quarter where the indexation kicks in and in an environment where we have lower indexation this year in the comparison to this towards last year, where we had an indexation of almost 8%. This additionally affects the quarter. One more thing to note is that since Q1 24, we experienced the service fee losses as we stopped charging those to new customers. We also increased the subsidies versus last year, plus in combination with the higher volumes, this resulted in a lower equipment margin. and the extensive market communication measures which we implemented, I already mentioned, with the effect on the EVTA, as you can see them on the slide. The good news is, if you move to the next slide, these measures are really starting to render positive effects. What remains challenging is what we call the Internet at Home segment, as you probably Remember, now we look at our copper segment in a combined way, a technognostic way, where we combine the low-speed copper segment with fixed wireless access to internet at home in bandwidth areas of below 300 megabits still remains overall slightly negative, but we see good growth on the higher bandwidth in the fixed above 300 megabit segment with a 7% year-over-year growth. And on the mobile side, the trend actually since the last 12 months, where we managed to have a positive net edge in mobile core since the last 12 months. RPU is obviously negatively impacted at the moment due to the low incoming RPOs. And finally, if we move to the outlook for 2025, As Alejandro already pointed out, we reaffirm our guidance of 2-3% total revenue growth, around 800 million of capex excluding spectrum on the revenues. Austria, as we just explained, is a bit more challenging than expected, but at the same time, we expect higher positive impact from Central and Eastern Europe, especially also due to the very stable currency development which we have seen so far. With that, thank you for listening and I guess we are open to take questions now.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questionnaires on the phone are requested to disable the loudspeaker mode. Anyone who has a question may press star and one at this time. One moment for the first question, please.

And the first question comes from Ulrich Rathe from Bernstein.

Please go ahead.

Yeah, hello. Thank you for taking my questions. I have several. First one would be when you introduced the full year guidance with the Q4 results, there was an explanation that the 2% to 3% would be mostly from service revenues. Now, obviously, you had pretty high equipment growth now in the second quarter and overall in the first half. So would you repeat that the main driver of this 2% to 3% for the year is still service revenue growth? My second question is the competition in Austria. You gave us a very good overview of the drivers. Could you talk a little bit about your expectations and the outlook? Are there any factors that would give you confidence that the currently high competition would subside and why and over what timeframe? And that's the question for both fixed and mobile. And my last question for now would be the nature of the ICT growth in CEE. Is this mainly equipment revenue? Is there also non-equipment revenue in there? And what is the nature of this non-equipment? Are they sort of one of project revenues or sort of, you know, continuously build service revenue type revenues? If you could elaborate on that a little bit. Thank you.

Thank you very much for your questions. We see a balance growth between hardware and service revenues. But it's very, very connected somehow. Because as we are more active commercially in Austria, and Austria is a market where wholesale is subsidized. So as we push more customer acquisition, we generate more hardware and more service revenues. So it's a little bit difficult to distinguish that clearly. When you look at the Q2 numbers in Austria, you will see that revenue, hardware revenues is doing better than service revenues because total revenues is doing better than service revenues. So that's what the Austrian case. In the other countries, we see a lot of ICT hardware as well. So that is pushing our total revenues, you know, close to 4%, as you can see. you see that so i would say if our guidance last year was more focused in service revenues i see now more balance between the hardware and service like 50 50 you can say on the competition i wish we knew you know we are in constant responses with authorities and regulation and regulators highlighting the expansion of the markets and and i think we are creating some awareness But from awareness to action, it's some way. So, of course, people, stakeholders are starting to see that with the current regulation, there is not going to be a strong fiber platform being developed in the country, you know, because the regulation, as Thomas said before, is pretty much pro-mobile substitution. And for us, that's very good. We don't think that it's very good for the country of Austria, but that's a separate discussion. But for us as a company, it's very good because the return of capital invest on FMS versus Fiverr is incomparable. Basically, the marginal cost of putting an FMS customer is very small. where the marginal cost of adding a Fiverr customer is huge. First, you need to build the Fiverr, right? And the cost, the average cost in Austria is around 3,000 euro. So imagine you have to build 3,000 euro network for utilization of 20, 30, 40%. So actually per connected customer is 3,000 euro times 10, so it's close to, times three, so close to 10,000 euro per connected customer with an R2 including BIT of 30 euros. So you see, I mean, when you look at payback time is eternity, basically, no? And fixed mobile substitution, the payback is much faster. So for us as a company, not that bad. Of course, we have a lot of competition in FMS that we don't have if you're the sole provider of Fiverr, that's true. But I think for us, it's not very bad. Also, we think that the way that MVNOs are regulated and promoted, yes, it's driving prices down, but it's not driving a sustainable infrastructure market. We are addressing these topics as well. But also we see the opportunity that, you know, when the market is tough, we have a lot of flexibility to invest and not everybody can do the same. So, you know, I think that's something that we need to wait and see what happens, to be honest. But I think that the market will also clean up a little bit when things are tougher. And we have the strength, the confidence, the local presence to go through this cycle without major problems. And what I can tell you is that we keep on focused on and building our customer base as a priority number one, and keep on working in our costs to optimize how we deliver data. So that's what we are planning to do. The ICT is a combination, and it's migrating and depends on the country. Our ambition is to have an ICT business that is less hardware focused. that is more focused on recurring revenues in subscription revenues than one of hardware revenues. We still rely a lot on big projects that includes a lot of hardware. You see it in our numbers in Bulgaria. You see it in our numbers in Austria. But over time, what we want to balance more and more is a more service revenues ICT business than a hardware ICT business, because we don't want to dilute a beta margin so much. So we want to grow ICT in a way that we don't dilute a beta margin. A beta margin is still, for us, a key indicator of performance. So we don't want to see a decline on a beta margin. I hope I covered all your questions with those answers.

Very helpful. Thank you for the detailed answers. I have some more questions, but I'll go back in the queue first. Thank you.

And the next question comes from John Karidis from Deutsche Bank. Please go ahead.

Thank you. Thanks for taking my questions. I have a few as well. Maybe I can take them one at a time. If you'd rather I call them out all together, let me know. The first one is I'm trying to understand the issues you have with regulation. with regard to FTTP. I know they're very forgiving when it comes to marketing of speeds with cubes, but is it the case that the €3,000 average bill is also a consequence of unhelpful regulation? Is there something that the regulators can do to bring that down?

Well, I mean, it's a complex topic because the regulator, the telecom regulator has no influence in the building codes of every municipality in the country. So the municipalities, the majors, or however you want to call it, they set up the rules on how these constructions should be done. And there is reluctancy in many locations, to do aerial cabling, to do microtrenching, to do different things that optimize fiber deployment. So, I mean, the regulator could probably be more vocal about the challenges, but I don't know, Thomas, you can compliment, but I think that it's more a bigger problem on the construction code. The only thing that we can do is to express our concerns and stop investing in areas where it's not profitable, so we make the problem aware and every major start to see that fiber is not happening and maybe they start to think how to make it happen. But Thomas is an expert on this, so I will hand over to him.

covered all the topics already. Maybe one more thing to add is that these excessive broadband subsidy programs, which we have seen in the past years, added additionally to the program because they additionally drove up bid-out costs. They channeled investments in very, very uneconomic areas. So we now have issues that you have good fiber coverage in urban areas, you have increasing fiber coverage in super, super rural areas, but what is lacking is an incentive to build out fiber in those large areas in between, and this is what we're criticizing, and this is part of the reason why we have been against broadband subsidies in the way they have been implemented in the past, and this is, I think, also adding up to the difficult regulatory environment we're facing in Austria.

And to add on Thomas, it's something that I'm very proud of what we've done because, you know, many stakeholders were pushing us, you know, investing fiber, you are running behind, investing fiber, you're running behind. And when we were looking at the numbers, you know, this doesn't make any sense, you know, because in order for the case to fly, we need to have, you know, 80% connect to pass ratio. you know, which is very difficult to get in a couple of years. I mean, we have some networks that after years, we still have 40%, you know, and are increasing our push. So customers willing to, you know, pay much more for the extra bandwidth. And we were very, not very sure. That's why we were basically pushing back this, you know, all these calls for investing for more. And I'm very proud of what we did, because if we would have done the opposite, we would have probably €2 billion invested in fiber that we would not use, and we would have €2 billion in debt. Now, we did not do that investment, we don't have the debt, and still we can be very competitive in the market. I would agree that we need to have, with all the stakeholders that we are having, a discussion with the current environments Fiber will not happen at the speed that the country needs it. And that's a discussion that I know Thomas is having like on a daily basis, trying to make all the stakeholders aware of the challenges that we have.

Thank you. Spectrum auction in Serbia. I don't expect you to tell me what your bidding strategy will be. Can you simply confirm what the minimum or the reserve price will be for the spectrum that each of the players will go after?

I don't know if there is a minimum price in the, because there is like a consultation period. I know the number, of course, but I'm not sure if I can share. If we can share, we will share it afterwards. But I don't know if it's included in the prospectus. So I don't know if we are allowed to share it. But if we can, we will do it afterwards.

Okay, thank you. Then Belarus. How do you and your auditors get comfortable that the FX rate that you use for the period is the right one?

Well, there is an official exchange rate that we are using.

I think it's one international bank that is publishing this, but I need to come back to you on the name.

that we use for the balance sheet and for the official reporting and it's nothing that we use and it's in permanent discussion and also in the internal control system that we have to discuss the auditors. May I ask you what's your concern in regards of the exchange?

Okay, can I ask you clearly the value of the ruble seems to be holding up at the beginning of the year. Of course, it was very difficult to forecast, but the forecast that you gave was that it will come down. Do you think that it might come down in the second half? And then I've got one more question.

In our forecast, we are anticipating a small devaluation of the currency. We have been forecasting that for quite a while now, and it didn't happen, to be honest. But it's very difficult to predict. We are always watching how inflation is developing, and inflation is more or less under control, between 5%, 7%. So we always check to this, to have that as a reference to see if the currency will be under pressure or not. If inflation is accumulating, or a center rating, and the currency is not officially being devaluated, we have more risk. But that we are not seeing today.

Sonia, do you want to add something? We watch closely the Google development because it's closely connected to the Google.

And that's true. The currency is closely related to the Russian bubble, so we also take a look at that. We have cash in Belarus, and we try to protect it as much as possible, trying to invest in all available tools, and think we will be able to start paying dividends again, which we will try soon.

Okay. And then on that point, so you've got about, by my estimation, 24% of group cash and equivalents stuck in Belarus. Are you hedging to make sure that whenever it is that you eventually repatriate, you will do that at the rate that you've recognized now and to date. Can you have that?

Of course, we cannot answer that. I mean, we don't know. It's a little bit of guessing, but we will do our best to go back to the previous state where we were paying dividends you know, where we were doing that at the available current exchange rate. And yeah, I can tell you, but I cannot see, I cannot promise or I cannot commit to anything different.

Okay, so just to be clear, when you repatriate, you repatriate on the rate at the time. You can't sort of lock exchange rates in advance.

I cannot tell you, I cannot give you all the details, unfortunately, because the money that we have in Belarus is invested and not only local currency. But I cannot give you all the details. Sorry for that.

No problem. Thank you very much for everything.

And the next question comes from AJ Soni from JP Morgan. Please go ahead.

Hi, guys. Just a couple of questions from me. You mentioned you were investing in your proposition. I just wanted to know if you've been reducing your front book prices at all in order to become more competitive, or it's more that you're investing in retention offers. And the second one is just around the OPEX side. Is there anything more you could do there to kind of stabilize the Austrian EBITDA growth? And if there is anything that you're looking to do, what are the main buckets of cost saving within that space? Thank you.

So on the pricing strategy, basically what we're doing is the following.

In areas where we define that we have a very competitive network, we try to promote a lot the fiber proposition. That's primarily in the cities where we compete with primarily HST networks. And that is the standard fiber product. I think today you can see we are $29.90 for 300 megs. That's the promotion that we have in the cities. That is working actually pretty well. And as an example, Magenta is my competitor in those areas, and they are promoting a 600 meg product for $39.90. So that's to give you an idea. areas where we are focusing on fish, we have other competitors promoting cubes. In the rest of the country or in areas where our network is not that competitive, our copper network, we have a technology-agnostic strategy, as Thomas presented, where we have the same pricing and the same promotions for BBI, all cubes, and we let the customer choose. So that's what we're thinking about. You want to comment on OPEX?

I can comment on OPEX. As in Austria, the biggest part of the OPEX is composed out of total workforce cost. We are working on that. And as in previous focus topics, there are two topics discussed. There are two areas. One area is the cross of co-group synergy that we call delivery centers. where we use cost leverage and also scale effects to explore now and in the future. And the second topic is optimization, automatization, efficiency, and effectiveness growth, where we reduce employees in Austria by automation and artificial intelligence. Those are the biggest topics on the one hand side. And the second are these into the deeper OPEX where we demanding or requiring to be questioned every single project spent from our own, in the past and also in the future.

Great, thank you.

And the next question comes from Rohit Modi from Citi. Please go ahead.

Hi. Thank you for taking my questions. Most of them are answered, maybe just a couple of follow-up questions. Firstly, on the ICT revenue in the international segment, If you can clarify, like, the stickiness of the ICT revenue, given it was more hardware-driven than service revenue, the stickiness of this service revenue for next quarters and particularly next year, if you can give a bit more color around that, how you see ICT developing in international markets for the rest of the year. Second, on the EBITDA margins in Austria, again, any color around how do you see margin development for the rest of the year, given high investment going into the churn churn, you know, protecting the churn. Do you see this is the kind of run rate that we see now for the rest of the year on the beta margin side in Austria? And lastly, on the investment, CAPEX, around 800 million guidance that you have given at the start of the year. Now, since you're signaling there is, you know, lesser focus on the fiber investment side, Is there a downside to this $800 million that you see? If not, then where is this capex going into? Is it going into Austria mobile or are you investing more into international segment, particularly as we saw hardware and ICT has been much higher. Is that something kind of where you're investing more? Thank you.

Well, I'll start with the last one. So we are guiding $800 million, so that's what we're planning to do. this year, around 800 million, excluding the spectrum. There is certain uncertainty on the spectrum, if it's going to happen or not. So that's why we guide without the spectrum, because we never, we cannot control the timing exactly, you know. So that's why we guide without the spectrum. What I see on the big picture, we will slow down fiber in Austria, as we said before, because of what Thomas explained before. And we will maybe accelerate a little bit C-band deployment in Austria because we see that the shift from fields to cubes outside the cities, we want to push that more. We want to push more the migration from low bandwidth copper lines into better C-band 5G cubes experience. I think it would be a good proposition for customers and a good investment for us. So then we will reduce fiber a little bit. You will see more C-band. If you see more C-band, you see more CPE capex, for example, right? So that you need to take into account. In the rest of the market, it's very, very balanced. It's people modernizing HFC in where we have HFC, Macedonia, Croatia. because we think that in the long run HFC networks will not be competitive, so we want to slowly but surely keep on modernizing those and increasing greenfield where it makes sense. Still, when we look at our fiber investments outside Austria, the utilization is still relatively low, so I think we have a lot of opportunity to penetrate those networks better. And energy bond building, since the cost of building in the Eastern European countries is, you know, 15, 20% of what Austria is. So then doing more C-band doesn't make so much sense. You know, we can compete. The investment on fiber makes much more sense because the rollout cost is much lower compared to Austria. Do you want to comment on it? We are continuously working on our costs. You know, in order to deliver ETA in Austria, even the revenues are challenging. And as Sonia said, unfortunately, in Austria, cost is very much related to employee cost, since the majority of the cost is employee cost. And that we are always addressing. Today, we have very good tools to transform that cost. We call it CDCs. which is competence delivery centers when we do tasks for the whole group from one location, and that gives us a lot of flexibility to address the total workforce costs, particularly in Austria. Of course, we want to do this in a social, responsible way, so we're in constant discussions with the staff council and with the unions to do this properly, but we have a good cooperation with them, and we will keep on working to have a total workforce cost makes the company competitive in the market, and we have a long way to go there. ICT, we have three pillars for ICT, and the three pillars are working very well. One pillar is cloud. Cloud is growing very nicely. Some markets better, some markets not that good, but all in all, it's growing very well. That's service revenues. It's no hardware by definition. It's cloud services, so it's only service revenues. Security is growing very well, and security is mostly service revenues. You might have some hardware components, but the portfolio is shifting more into more and more services and less hardware. And then you have the third pillar, which is vertical segments, vertical solutions, as we call it, which has two components. One is the connectivity IoT component that is purely service revenues. And all the integration services around customer projects is maintenance, is integrations, is consulting, which is service revenues. And then you have, within the BMS, the hardware components. And there we have won many big contracts. We have won contracts in Bulgaria with the custom service, for example, where we installed big machinery for X-rays, analysis of trucks, And that has a very big hardware component. Or, for example, we are winning smart grid contracts. I cannot give you the details because it's not yet public. Where there is a big hardware component by the definition of the solution. So on security and cloud, pretty much service revenue driven. On VMS, 50% hardware, 50% service revenue.

Thanks, Anirudh. If I may, just to follow up on the CAPEX envelope, I understand you don't guide for future years, but in terms of where should we look at given the lower focus on the fiber investments, that kind of CAPEX envelope should go down from here? How should we look at that if we can give any comments?

Well, we don't want to do guidance in the next year because we are planning to do a capital day event where we will give forecast. Now we feel confident with 2025 with this around 800 million. You know, that's what we are thinking.

Thank you. Thank you.

Then the next question comes from Nora Waganagi from Erste Group Bank. Please go ahead.

Hi, thank you for the presentation. Only one question left from my side and this is related to the upselling strategy. How is it different in Austria and the CE markets? In the presentation you also mentioned that there is a lack of upselling potential in Austria. Could you please explain that? Thank you.

I think what Thomas was referring was that in previous calls we commented that We are, as a company, we perform much better when the indexation is lower and then there is share of wallets available in the customers for us to upsell versus a situation than the last two years where indexation is pretty high, like 7%. And then we got the impression that there was very little room to upsell the base after such indexation. And what Thomas was referring to, we feel much more comfortable. This setup that we are entering now, where indexation is going to be 2%, 3%, and then we have a lot of room for app selling. And we see that a lot. We launched in one of the countries a concept that now we are replicating that is called Swappable, where the customer can, based on the connectivity business, add several services with a lot of flexibility. So you can add Next list, you can add security service, you can add insurance, you can add other content components in a flexible way. And we started to measure internally. So probably we will start disclosing this data in a couple of quarters when we feel confident on the numbers. the level of ARPU that is coming from the core business and the level of ARPU that is coming from swappable services. So we started to do it internally, and as soon as we feel confident, we will start sharing more and more information. And we have a target that 30% of the ARPU should come from non-core services.

All clear. Thank you very much.

The next question comes from Ulrich Rate from Bernstein. Please go ahead.

Thanks for letting me on again. So, smaller questions. The first one is, could you clarify a little bit how you see the cubes volumes? I mean, the main argument in most markets that operators make is that, you know, fixed wireless kind of solutions of which cubes is one form simply don't work in the long term because volumes on the fixed line are so much higher factor 10 or even more so that in the longer term you're just getting overwhelmed in your mobile network could you just address that you mentioned a little bit already more investment in in mid-band coverage um but that's just a plaster on the overall issue because there's orders of magnitude that you need to absorb there. So how do you feel about that? Do you think cubes is a long-term solution even as these fixed volumes are growing very, very fast still? Second question is just clarification. Are you capitalizing cubes or are you expensing them like mobile devices? And my last one is... I know you're not disclosing the mobile versus sex revenues anymore, service revenues anymore, but still there is a mention in the report that the Austrian mobile ARPU is in decline. Could you indicate whether the rate of that decline is better or worse than in the first quarter? In the first quarter, I think it was minus 1.9%, minus 2%. So has that turned worse or better? Thank you.

Well, on the long-term sustainability of the cube strategy, it's a very good question. One part of me says yes, one part of me says maybe not. Time will tell. On the yes, technology is evolving a lot. And now I was with a company from India the other day that now they launched a Wi-Fi unregulated spectrum type of service in the 26 gigahertz spectrum, and it is performing excellent without line of sight, you know? So, and then you have, we still have, even in Austria, we have a spectrum in the millimeter way that we have not even started to use. So, That's on the positive thing that, you know, it looks like still there is a lot of spectrum available, still looks like technologies evolving very quick. So that would tell me, yes, maybe it's sustainable, not in the cities, but outside the cities. Not in the cities because of density of number of connected customers per site, no? But when you go outside the cities, yes. Then you see that especially in Austria, sooner or later, there's going to be a big shift of payload or traffic that is going to be migrated from satellite TV into networks. Because today there is a huge amount of customers using this free-to-air satellite TV. And I don't think that that service will be with us the next 10 to 20 years. Because if you look at all the other markets where We used to have satellite DTH business. This satellite DTH business is slowly disappearing because it's not competitive anymore. You don't have interaction. You don't have OTT services. You cannot have one-to-one sessions. So there are a lot of negative things. So for the offshore market, if change is happening that the content in the free-to-air satellite business is less attractive. People start having to pay for certain content. This is not the case today, but I'm talking long run. And maybe you will see a lot of that traffic being migrated to fixed and mobile networks. If that happens, I don't know, maybe fixed will become more relevant for customers. Because today, the problem that I see in Austria is that the video content is not going through the fixed networks. The TV content, in the majority of the cases, not every case, of course, is going through free-to-air satellite dishes, you know? So when you say the fixed network payload is much bigger than mobile, it's correct if you assume that people are watching content through the fixed network, which is not entirely the case in in Austria because there is a lot of free-to-air DTH. I think it's a matter of time that that business will disappear as far as I know, except Africa. I think most of the rest of the continent, DTH is disappearing slowly. So I don't know why in Austria and Germany, DTH will stay. It's very much related to how attractive the free-to-air content is. And today in Austria and in Serbia as well, the free-to-air content is very attractive. You have Formula One, you have, you know, in RS here in Austria, you have such a great content that it's free for people to watch it. So that's, it's a little bit an outlier. In most of other countries, the public TV, they don't have this very expensive content anymore. Maybe it changes all the time, I don't know. In the meantime, I think it's a very competitive solution. I think that technologically it's not only the spectrum that we use, it's also you can migrate from indoor cubes to outdoor cubes, and then you have another big gain in terms of customer experience, so that there are a lot of tools. And also now we have a start link on top of that, you know, that is also very competitive for rural areas.

Do you want to comment on the cubes? Yes, please. We do not capitalize cubes. Very simple.

Do not. Sorry? Yes.

And then comes to the mobile auction decline. Do you want to?

We see a very soft conditions in Austrian Q2. I think it's probably the worst. A quarter, probably, because it's where we suffer the indexation gap the most, because we index at the end of Q1. So Q2 2024, the index was 7%, 7.6, if I remember correctly. And this year, the indexation was 2%, 3%. So you have a delta of 4%, you know, just by the pure fact of a lower indexation. And the peak of that effect is in Q2.

Very helpful. Thank you for the very detailed answers. Thank you.

Ladies and gentlemen, as a reminder, anyone who wishes to ask a question may press star and one at this time. So it seems there are no further questions at this time. So I'd like to turn the conference back over to Susanne Aglas-Reindl for any closing remarks.

Yeah, thank you, everybody, for joining our Q2 results call. Thanks for the presentation and the Q&A session, and have a good day. Thank you.

Thank you.