Hellenic Telecommunications Organization SA

ATHEX:HTO

Earnings Call Transcript 2018-Q2

[Operator]

Thank you for standing by, ladies and gentlemen, and welcome to the OTE conference call on the second quarter 2018 financial results. We have with us Mr. Michael Tsamaz, Chairman and CEO; Mr. Babis Mazarakis, Chief Financial Officer; Mr. Grigoris Christopoulos, Chief Commercial Officer, business segment; and Mr. Evrikos Sarsentis, Head of IR and M&A. [Operator Instructions] I must advise you that this conference call is being recorded today.

And we now pass the floor to Mr. Babis Mazarakis. Please go ahead, sir.

[Charalampos Mazarakis, executive]

Good morning and good afternoon to all of you. Mr. Tsamaz will be with us shortly, so I'll start the speech and Mr. Tsamaz will join us in a minute. So we welcome you to this conference call to review OTE's results for the second quarter of 2018. As usual, I will make some brief remarks on the quarter and first half, and then we will go over our performance and financials in more detail. After that, we will be available to answer all the questions you will have. We had a very solid second quarter in line with what we had reported in the first 3 months of the year. It was even better in some key areas in which we are investing, particularly fixed broadband and mobile data in Greece. Romania continued to stabilize with mobile offsetting fixed, and trends in Albania continue to improve. The group's top line was up more than 2%, an improvement of over EUR 20 million, compared to the second quarter of 2017, reversing the slight drop of the first quarter. In Greece, we achieved this with a strong retail performances in fixed and even more so in mobile. Group EBITDA was also up by nearly 2%, so our profit margin remained just about stable compared to the same quarter of last year. This, of course, is due to the healthy situation of our retail revenues. In Greece, the increase in revenues from retail fixed services was even higher than the first quarter, thanks to a jump of nearly 10% in broadband revenue.

In addition, the drop in voice revenues continued to narrow and was less than EUR 0.5 million this quarter, far and away the smallest decline we have experienced in many years. We added 30,000 broadband customers in the quarter, and now nearly 70% of our -- of all of our access customers are broadband subscribers. This still allows significant room for further expansion. We are pleased that the takeup of our fastest speed solutions is constantly mounting. Already, 40% of eligible customers have adopted one of our fiber offerings. This quarter, 41% of our fiber subscribers were enjoying speeds of 50 mega bps or higher. A year ago, it was only 20% off a far smaller base and speeds of 120 -- and 20 mega bps, which are gradually attracting customers who were not available at all then. It was only about speeds of [ 100 ] to [ 200 ] mega bps. Just after the end of the quarter, we reached a new milestone with the activation of our first Fiber-to-the-Home connection in a suburb in Athens. This opens the era of a gigabytes inside Greece. As you know, we are planning to invest EUR 2 billion up to 2022, and part of it is ring fenced to the creation of an extensive network of Fiber-to-the-Home architecture. By the end of 2019, we expect to have the service available at 150,000 households and businesses in major urban areas. Initially, we will target households where fiber-to-the-cabinet coverage has not been possible. And we anticipate the quick takeup, assisted in early years by state subsidies, making up for the pricing differential. At the conclusion of this program, in 2022, households passed should be close to 1 million. The strong demand we are witnessing for fiber-to-the-cabinet is encouraging for our Fiber-to-the-Home investment, which will drive our future growth. Let me remind one thing. Our investment in Fiber-to-the-Home is not determined to the CapEx guidance we have given you all along these periods. It is in included in the budgets.

Greek Mobile had an even brighter performance with like-for-like service revenues, up nearly 4%, [indiscernible] acceleration from the first quarter. This is due to a notable increase in data revenues, up more than 20% on significantly higher data traffic. We are also experiencing strong double-digit growth in visitor revenues. We continue to migrate customers from prepaid to postpaid and recorded nice ARPU increases across-the-board. Our strategy is working and our investments are paying off. We are particularly proud that Cosmote's network has been recognized once again as the fastest mobile data network in Greece by Ookla, with average download speeds of more than 45 mega bps. We also provide the best coverage with 4G population coverage reaching almost 99% and 4G+ not far behind. Our strong performance is not coincidental. It is mainly the result of our network investments. Another landmark is the penetration of our application now used by over half of all smartphone users as their primary touch point with Cosmote. Smartphones now account for more than 2/3 of our active base. So all in all, we're on track, even if comparisons are going to be more demanding as we enter the second half of the year. Adjusted EBITDA increase was up more than 2%, pretty close to the increase in revenues, demonstrating that our growth is quite healthy. Romania presents a tough situation, though the mobile segment had a good recovery again this quarter. Mobile service revenues, there were, once again, up by more than 5%, resulting in a nearly 1% increase in total revenues. The OTE Group CapEx was down 24% in the quarter and 18% in the first half. So in the first 6 months, our adjusted CapEx of EUR 336 million is in line with our full-year guidance of approximately EUR 700 million CapEx, down nearly EUR 100 million from the prior year. Adjusted free cash flow for each part continued to improve sharply in the second quarter. And we are well-positioned to deliver the free cash flow targets, on which our shareholder remuneration policy is based. Finally, let me add that we have implemented, in Greece, a new voluntary leave scheme during quarter 2. Roughly, 250 people chose to participate in the scheme. And this should generate savings of over EUR 12 million annually with payback of just over 3 years. Our efforts to further reduce our cost base across-the-board and better prepare our workforce for the challenges of the future are ongoing. Before turning to the details for a review of the quarter, I cannot, but spend a minute to express my grief, the grief of our whole company for all those affected by the recent wildfires in Attica, a whole suburb by the seaside less than 10 miles from here has been devastated and over 90 people killed. It is in such instances that telecommunications are critical. Despite local extensive damages, our mobile network has proven its resilience, once again, in circumstances of crisis. And we are working intensively to restore the services in the fixed part, we support the communities in many ways, offering devices and donating food and supplies. For this effort, I would like to thank all OTE Group employees.

Now let's move to the details. Total group revenues in the second quarter amounted to EUR 959 million, an increase of 2.2% or EUR 20 million compared to the same quarter of last year. The increase was fueled by material increases in service revenues in Greece fixed and mobile as well as rebound in Romanian mobile, partly offset by double-digit decline in fixed retail revenues in Romania. Albania was roughly unchanged at the top line level, while in contrast to the prior quarter, all other revenues were up this period, supported by international traffic. Group adjusted EBITDA was EUR 319 million, up 1.6% compared to Q2 of last year, extending the positive performance of the first quarter. At 33.3%, the group's EBITDA margin was at a good level, down just 10 basis points from the comparable quarter of last year, primarily due to the decline in fixed Romania. So this is a set of numbers we can be pretty satisfied with, as they confirm the favorable trends that have been building in recent quarters, driven in large part by good consumer response to the offers, in which we have been investing.

Let's turn now to our results on a country-by-country basis. Starting with Greece. Revenues in Greece were up nearly 3% to over EUR 710 million with topline improvements across all key areas. In comparable terms, i.e. before IFRS 15 impact, revenues from retail fixed services were up 1.4%, while Mobile Service revenues grew by 3.7%. This clearly represents accelerating trends from the already positive readings in the first quarter of the year. In addition this quarter, we recorded a good increase in wholesale revenues. In retail fixed services, the increase was fueled by broadband revenues, up nearly 10% in the quarter, a particularly strong rate of growth. In addition, voice revenues were virtually flat, reversing a negative trend of many years. We seem to be reaching an inflection point in this segment. The number of net access lines for the total Greek market was unchanged from the prior quarter, and we added 1,000 lines. We also added 30,000 new broadband connections in Q2 and were thus responsible for more than 100% of market net adds. As we mentioned before, broadband penetration of our fixed customer base now is nearly 70%. The number of Cosmote fiber-to-the-cabinet subscribers increased by 43,000 this quarter, to reach 449,000. For 3 consecutive quarters, we have achieved year-over-year growth in fiber-to-the-cabinet subscribers of over 60%. Appetite for faster broadband speed is growing quarter-after-quarter. And more than 40% of our total fiber subscriber base enjoy of speeds of 50 mega bps or more. Growth in the Greek TV market as you know has been sluggish, and this hasn't changed in Q2, which is not typically a period of high subscriber additions.

While we gained 22,000 subscribers compared to the same quarter of last year, our subscriber base was down about 2,000 units, sequentially. TV remains an indispensable component of our offering, and we are working on retaining or even expanding our customer base through cost and programming improvements and targeted pricing initiatives. Mobile Service revenues increased, excluding the impact of IFRS 15, were up by nearly 4%, extending and intensifying the trends we have enjoyed since the spring of 2017. This positive trend should continue in the back half of the year, though, not with the same magnitude, considering that comparables had started trending higher by this time last year. As I'm sure you will recall, in September last year, we introduced a set of ARPU development initiatives, mainly addressing the prepaid segment. In addition, toward the second half of the year, we recorded exponential year-on-year growth rates from visitors. And though, we expected further growth this year, it shouldn't be of the same magnitude. Cosmote is working on simplifying its postpaid portfolio, reducing the number of packages while preserving ARPU. Our mobile data revenues were up double-digit on a 64% increase in traffic and were the main engine of service revenue growth. Smartphone penetration and the number of active data users are continuing to improve. We expect these favorable trends to continue as we benefit from the recognized quality of our networks, continued improving customer service and reinforce our brand image. Wholesale revenues were up nearly 6% in the quarter, mainly due to international transit traffic of OTEGLOBE, our wholesale arm. Total Greek operating expenses, excluding depreciation and amortization and one-offs, amounted to EUR 435 million up less than 3%, roughly in line with increase in revenues, primarily driven by higher connection expenses and device costs. As a result, total adjusted EBITDA increase at EUR 279 million, was up 2.4%, excluding one-off items, this represents a sequential improvement. And the Q2 EBITDA margin was down just 10 basis points to 39.2%, a highly satisfactory performance.

Let's now turn to Romania. In Romania, total combined revenues of EUR 238 million were nearly 1% up, an improvement compared to the first quarter of the year. A comparable increase of more than 5% in Mobile Service revenues and higher other revenues offset a further decline in fixed retail. Revenues from retail fixed services were down nearly 14% or 12% before IFRS 15. Once again, the company has been emphasizing its mobile offering to offset the continuing deterioration in voice, TV and broadband. Mobile Service revenues were up more than 5%, excluding the IFRS 15 impact, boosted by 20% increase in service revenues from the company's fixed-mobile convergent solutions.

Another 47,000 fixed-mobile convergent subscribers were added in the second quarter, raising the total number to nearly 600,000 users. Thanks to netliberare 2 packages, introduced in the fourth quarter of last year and to the company's focus on postpaid solutions, data revenues jumped nearly 42% in the quarter. Wholesale revenues were down again, on lower international transit, while revenue from system solutions had a good quarter. Total operating expenses, excluding depreciation and amortization, and one-offs in Romania were up by more than 5%, reflecting a doubling in bad debt provisions, largely related to a single ICT project in the country. As a consequence of the lower performance in Retail Fixed services and the increase in provisions, total EBITDA in Romania was down 5% this quarter.

At 15.7%, the EBITDA margin in Romania decreased 90 basis points from the comparable quarter of last year. Finally, in Albania, the improving trends of recent quarters continued in the period following the rationalization of the market. Service revenues rose 0.6%, an increase comparable to that achieved in the first quarter. Data revenues were up sharply by more than 45%. As a result of the continued improvement in services revenues and good cost control across-the-board, EBITDA in Albania was up 24% in the quarter. The adjusted EBITDA margin in Albania stood at 15.1% in the second quarter, an increase of 290 basis points, underscoring this unit's gradual return to recovery.

Let's now have a look at the rest of our financials. The Q2 consolidated group adjusted EBITDA totaled EUR 319 million and was up 1.6% with all group units apart from the Romania fixed contributing to the increase. Total group operating expenses, excluding depreciation and amortization and one-offs, amounted to EUR 656 million and were up 3.4%, largely due to the increase in the device cost, a result of the increased revenues and successful commercial policy and the specific bad debt provision in Romania, I just mentioned before. Total depreciation, amortization amounted to EUR 186 million, in the quarter, down nearly 4%. Net financial expenses of EUR 36 million were down sharply at minus 29%, reflecting lower interest expenses, nearly half compared to the same quarter last year, due to the redemption of our EUR 600 million bond in February 2018.

Income taxes were exceptionally low at EUR 16 million, down about 60% from Q2 last year, mainly due to the tax benefit recognized in the Greek Mobile from realized losses due to the upcoming dissolution of a dormant holding subsidiary. Group net income in Q2 was EUR 49 million, up over 58%, chiefly reflecting the tax benefit I just mentioned. CapEx excluding spectrum amounted to EUR 169 million, down 24% from the second quarter last year. As we said before, this is in line with our guidance of about EUR 700 million for the full year.

Adjusted free cash flow was EUR 95 million in the quarter, up 90% compared to Q2 last year. In the first 6 months of the year, adjusted free cash flow was up 168%, to EUR 104 million. And we are fully confirming our target of approximately EUR 350 million for the full year. All told, we have achieved a good second quarter and first half. And we are confident that trends should remain favorable in the next quarter with the caveats I mentioned. That concludes my remarks. Michael, and myself, and our colleagues here around the table are now ready to take your questions.

[Operator]

[Operator Instructions] And your first question from JPMorgan comes from the line of Roman Arbuzov.

[Roman Arbuzov, analyst]

I had actually 3 questions if I may. The first one is just on the -- it's a bigger picture question just on the Greek fixed services. What do you think is a reasonable expectation for medium-term growth for this part of your business? For example, is small growth, something like 1%, is that a reasonable estimate? And I guess, there is a lot going on within the mix. You have a lot of fixed only voice lines, which is a risk, the TV business is declining as you've mentioned, and also the wholesale market on the broadband side is perhaps turning somewhat more challenging for you. But then on the other hand, you also have the broadband growth in terms of subscribers and also ARPU. So if you put it all together, what do you think, is it a growing business over the medium term? So that's one. The second one is just on the mobile service revenues. Again, similar kind of question. Do you think 1% to 2% or low single-digit growth, is a reasonable estimate for the medium term? And also, if you can maybe just clarify, what do you see as the main growth driver going forward? Do you think it's going to be the prepaid ARPU like it is now? Or do you foresee some other growth drivers emerging, for example, prepaid to postpaid kind of more aggressive migration that will be interesting? And the final one, just on the cost of capital. I was curious if you can, please, help us understand what do you think, is an appropriate cost of capital for your business. And when I say cost of capital, I don't just mean just debt, I mean a mixture of debt and equity. So your weighted average cost of capital. And then, is there a particular number, for example, that you use for internal purposes? Or maybe, Deutsche Telekom sets certain kind of hurdle rates that you need to clear, for, sort of, capital budgeting? So any color on that? That will be very helpful.

[Charalampos Mazarakis, executive]

Thank you for the questions. Let's start with the Greek fixed story. As you can see, if you compare quarter 1 and quarter 2, you see a consistent reflection of what we have been discussing in the previous periods, that the investments we've done on the fiber, are paying off. And the broadband growth, they are reflected through the broadband growth, which is now driving the total retail fixed services in the area of above 1%. Thinking about the future, we are expecting, at least, for this year to continue to run along this nice trajectory, seeing also the expansion of our fiber-to-the-cabinet [indiscernible] is gradually being reinforced with the Fiber-to-the-Home investment, that has just kicked in and is going to start being affecting in the numbers in the coming quarters. On the mobile part, I have to say that we are enjoying the kind of growing in service revenues, which is also reinforced by almost one-off item of the business revenues effect. Since as you know, the new [indiscernible] home situation kicked in late Q2 last year, so it took a bit of quarters before it took off. So right now, we are doing the favorable comparables, versus last year. This is going to fade out as we move on in the years, along in the next quarters. However, the dynamic of the outgoing revenues is there. And as you said, it's a combination between continuous rationalization on the prepaid sector, but also the drive of our postpaid franchise, which is reinforced by the continuous usage of our smartphones. And which -- by the way, which in turn drives the 4G data network consumption, which in turn drives the ARPU. So there is also a combination of reinforcement from the continuous migration of customers from the prepaid segment to postpaid in order to enjoy the more relaxed usage of data. But, however, the numbers -- the increase we posted this quarter, does have the effect of the [indiscernible] home situation, which is going to fade out in the coming quarters, so we should expect much milder numbers in the coming periods. Regarding your third question about the work, this is something that we do not disclose. But any way you measure it through the kind of equation of the weighted average cost of capital, you can reach the point that the continuous, for example, improvement of the Greek economy and the less risk appetite, that one should assign to these current factors, should drive the weighted average cost of capital, at the lower levels than the current ones. Now the exact amount is left to each one calculations in order to come up with the work that makes him or her feel more comfortable.

[Roman Arbuzov, analyst]

Okay. I understand that. I was wondering, if you've done the cost of capital calculation yourself for any of the internal projects, or maybe, it's come up in some valuation exercises when stake sales, for example, come up, or something like that. Is there -- has there been kind of an official number behind this, or something you use internally?

[Charalampos Mazarakis, executive]

It's something kind of official or not official. It's, as I said, the work reflects the risk appetite that each project needs to be assigned. And this [ signing up ] is unique to each one of the investors and each one of the evaluators of a project. So I wouldn't like to disclose specific numbers, but I'll leave it to the each one of the investors or kind of analysts to assign its proper work.

[Operator]

And your next question from Morgan Stanley, comes from the line of Luis Prota.

[Luis Prota, analyst]

The first question is on the competitive landscape in Greece and following the acquisition of Vodafone -- the acquisition of Cyta by Vodafone. I would like to understand what are you expecting in terms of the competitive landscape and with also Forthnet being up for sale. What do you think are the potential outcomes, and how this could affect OTE whether on a positive way or a negative way? That would be the first question. Second question is on the tax rate this quarter. You were mentioning exceptionally low due to some benefits. Could you elaborate a bit on the nature of that? And also, whether it was just a proper one-off in the second quarter, whether it was a cash impact, and whether we should expect tax rate to remain above 50% for the next few quarters?

[Charalampos Mazarakis, executive]

Certainly, with a competitive landscape, Cyta acquisition from Vodafone was expecting to happen in the past quarters. We see this as kind of rationalization of the market, and actually, and that sort of development since the size of the country supports a certain amount of players. And we don't foresee any turbulence out of it. On the Forthnet side, I'm afraid I cannot add much other than what has been going ahead. I just want to -- would like to note here that regardless of the particular movement in the landscape, our effort is to kind of reinforce our commercial offerings with unique characteristics that might be the TV, that might be the good coverage, the -- and later on, as we move ahead, the Fiber-to-the-Home offerings. That creates the proper support of our offerings to survive whatever competition forces are trying to be developed. On the tax rate, indeed, we had a one-off benefit. It comes actually from the absorption of a dormant holding subsidiary from Cosmote. It was a dormant subsidiary that borne accumulated tax losses. And after this absorption, with Cosmote those losses will be realized. And will have, not only an impact on the P&L but also an impact on the tax, which will be evident next year when we will declare the tax filings for this year. And this tax benefit comes in 2 tranches. One is booked in Q2, and there would be at year-end when the whole benefit will be crystallized because the absorption is going to happen between now and the end of the year. And the final amount will be benefiting our tax P&L, will be crystallized once the whole transaction is completed by the end of the year.

[Operator]

Now your next question from Eurobank Equities comes from the line of Stam Draziotis.

[Stamatios Draziotis, analyst]

Just 3 questions from my side, please. Firstly, could you just update us on the regulatory landscape in Greece, mainly with respect to the regulated on bonding prices, and the extent of which we may see regulatory pressure in the coming months and timings such -- potential reduction might be implemented? Secondly, on Greek Mobile, could you quantify the impact that roaming revenues, inbound roaming revenues had in the second quarter, please? And lastly, could you just provide some granularity as to the changes you saw in Romania fixed in Q2, which seems to have faced even more pressure in the quarter, even adjusting for the increase in provisions. So I'm just basically, wondering whether you think it's realistic for us to anticipate recovering profitability next year? And if yes, what might be the driver of this?

[Michael Tsamaz, executive]

I will respond to you to the first question of the regulatory environment. And Babis will respond to the other part of your questions. So regarding regulations, as you know, we had new regulation committee a few months ago. We have not seen any -- yet any major decisions that we're expecting. However, we believe that the regulatory environment will be much more rational, much more fair. But we still wait to see how the major -- how they will decide on some major issues, which are pending. Although, we don't expect any ugly surprises as we had in the past. Babis?

[Charalampos Mazarakis, executive]

On the roaming revenues for Q2, Greece's roaming revenues were up 30%. And in absolute terms, that was about EUR 2.5 million. Regarding the Romanian fixed, as we clearly said in the speech, this is the challenging part of our franchise. However, the way to look at it is that we are losing on the traditional standalone revenues of voice and a bit of the old technology broadband. And we gain in the FMC customers, which produce revenues, not only for fixed but also for mobile. So the way to look at it is more and more are the integrated level in the country, meaning that since the ways that the factories in the country, it's not easy to see the effects of the FMC, if you just look at fixed or mobile. So it is true that the losses on the traditional side still are not fully recovered by the FMC dynamic, however, the gap is closing. And as we have said in the previous quarters, we expect that in the coming -- in 2019, we'll reach a point where these 2 will offset each other. And therefore, we will start enjoying stable EBITDA. Right now, we are almost at stable revenues, overall revenues. The rate of EBITDA reductions is decelerating, and hopefully, beginning of next year, we would see a much more stabilizing trend in EBITDA. But it's true that fixed is under pressure and the immediate effect here, the immediate action is to push as much as possible the FMC story, which offsets the loss of traditional source of revenues.

[Operator]

[Operator Instructions] Now from Citi, your next question comes from the line of Georgios Ierodiaconou.

[Georgios Ierodiaconou, analyst]

I've got maybe 3 questions. And the first one on Romania and the KPIs in fixed. And I appreciate you have already given some color on this in the previous answer. But perhaps, if you can give us an idea of how the performance looks in areas where you already rolled out fiber versus the rest? And any indications as to, what is the mix of the existing customer base between those that are in those areas, and those that are in areas where you have yet to roll out any fiber? And one question is on the Greek TV side. And if I'm not mistaken, there's been an acquisition of certain rights from the national broadcaster in the last few days. How do you think that changes the environment between you, the other pay TV operators and, obviously, the publicly options that are available? And do you think that could benefit or not your performance versus what we have seen before? And then final question, and on the pricing environment in mobile. I mean there were some price increases last year, I think something announced by Vodafone, reducing the number of days in [ the products ], are valid from -- and I think that was effective as of June. And they are also changing some of the other pricing in both fixed and mobile as of November. Overall, do you think that could perhaps accelerate the growth a bit? Or is there any reason beyond the roaming, that the acceleration might not come?

[Charalampos Mazarakis, executive]

Let me start from the Romanian fixed, I think it was clear said before that the challenge starts from the loss of traditional, let's call it that way, revenues, voice and the other technologies, and is offset gradually by FMC. Now, this by definition, says that we are losing in the areas where Fiber-to-the-Home rollout is not there. And this is mostly the remote areas, and we're gaining in the urban areas where the Fiber-to-the-Home coverage is there. So it's, more or less, in line with what you said, and more in line with what the overall story is. Now for the specific numbers, I suggest we take it off site. If you want to see the -- some additional statistics in order -- not overflowing with numbers. On the Greek TV, it is true that part of the Greek soccer team league will be transmitted by the [indiscernible]. This is something that takes some content out of Nova. We are not affected by that one in terms of the -- of our viewership because we continue to transmit the premium sports on an exclusive basis, talking about the top European leagues and the Champions League and Europa League. But it will be interesting to see how people who were viewing Nova because of the Greek football rights, will behave after 7 teams have chosen to sign a deal with the state-owned TV channel. It's something though given the specific split, that it's not going to create effectual change on the TV market. On the pricing mobile, as I said that during the periods, what we have seen and what is driving, more or less, the reception of the portfolios, is that people want to -- want to do more data and more data exists on the postpaid packages. So naturally, we see a gradual increase of flow between prepaid customers to postpaid customers, which by definition, leads to an overall better ARPU, and therefore, is the main driver for the growth. And we believe that this dynamic will continue to be there, especially as the tendency of the consumers is to spend more and more data because; a, of the smartphone penetration and; b, of the applicability of various applications that require data usage. So it's not one or the other specific changes in the validity period as you mentioned. But it's the overall trend of the data story that is built into the mobile segment that is expected to drive the growth long term -- medium- to long-term. Set aside, as we noted before, and I would like to repeat once more, the comparable we see in the quarter 2, are being reinforced by the visitor roaming benefit that it's going to fade out in the coming quarters. So we will not continue to see 4% decrease in service revenues, but something less that will be delivered mainly by the healthy and organic growth of people switching to contract side in order to enjoy more data.

[Operator]

And you now have a question from the Royal Bank of Canada from the line of Jonathan Dann.

[Jonathan Dann, analyst]

It's a question on the CapEx outlook. If we look at the guidance for this year and then I suppose the relatively -- I suppose the plans around fiber-to-the-premise as opposed to fiber-to-the-cabinet, do you think we'll still see CapEx stepping down a small amount in 2019, 2020? Or do you think CapEx will stay at, sort of, an elevated level?

[Charalampos Mazarakis, executive]

Thank you for the question. That gives me the opportunity to repeat that, first of all, EUR 700 million for this year is confirmed, approximately, that means some decimals up or down. Secondly, as we have guided, the 2019 will be a tad less, rather closer to the, let's say to the run-rate we have. And this includes the necessary investments in the Fiber-to-the-Home in order to deliver our promises of the Fiber-to-the-Home penetration for the market. So the EUR 2 billion that we mentioned before, which is the overall CapEx for the next -- 4 years on average, this includes the necessary investments in the Fiber-to-the-Home. And right now, we don't foresee any increase in this guidance because of the Fiber-to-the-Home investment.

[Jonathan Dann, analyst]

Can I ask a follow-on if that's okay? So if there's -- is there any other cost that are rising to consume, I suppose, cash flow should be or if CapEx is EUR 200 million lower, I guess, cash flow would be higher unless there are any other costs? And would...

[Charalampos Mazarakis, executive]

Please go ahead, sir.

[Jonathan Dann, analyst]

I had a second part, which was, would we still assume that in 2019, there's a 100% payout of the cash flow in 2019? And then if there's a bias buyback versus dividend, I guess based on, what you guys have seen with the share price this year?

[Charalampos Mazarakis, executive]

Okay. Let me just clarify your first numbers you mentioned, the EUR 700 million, EUR 500 million. EUR 700 million of CapEx is the guidance for total OTE Group for 2018. The EUR 2 billion CapEx we mentioned is for Greece only. So divided by 4 makes EUR 500 million, but this is not comparable with the EUR 700 million because we also have to add what we spend in Romania. So let's clarify that it's not EUR 200 million less CapEx from '18 to '19. What we have said is that EUR 700 million is the total OTE Group CapEx for 2018, includes Greece, Albania and Romania. This will go down, how much we will guide later on in the year, but it will go down in 2019. And whatever free cash flow is left after that, as we have guided, the market will be fully distributed to the shareholders in the means of direct dividends and share buybacks in the split of 2/3, 1/3 respectively. And we have guided in our dividend policy. So there is nothing changed on these fronts. Just that we should be a bit patient to wait up until the next time we meet towards the end of the year for the Q3 results in order to discuss the specific numbers for 2019.

[Operator]

And gentlemen, at this point, there are no further questions. So I shall now pass the floor back to you for closing remarks.

[Michael Tsamaz, executive]

Thank you, everyone, for being present at today's conference call. We look forward to see you in our next quarter. So have a nice holiday or summer holiday for those of you who haven't had them yet. Operator, thank you.

[Operator]

Thank you, sir. And with many thanks to all our speakers today, that does conclude this conference. And thank you all for participating. You may now disconnect. Thank you, gentlemen.