Koninklijke KPN NV

F:KPN

Earnings Call Transcript 2017-Q4

[Wouter Stammeijer, Head of Investor Relations]

All right. Good afternoon, everyone. I think we still have some people coming in, but we'd like to start anyway so please take a seat. Welcome to KPN's Q4 and Full Year 2017 Results Presentation. Before turning to the quarter presentation, I would like to draw your attention to the Safe Harbor statement on Page 2 of the slides, that also applies to any statements made during this presentation. In particular, today's presentation may include forward-looking statements, including the company's expectations, with respect to its outlook, which are also included in the press release published this morning. All such statements are subject to the Safe Harbor statement. I would now like to hand over to Eelco Blok, CEO of KPN.

[Eelco Blok]

Thank you, Wouter. Welcome, everyone, and thank you for joining us in person or on the webcast. With me today is Jan Kees de Jager, our CFO. As you know, I shall be moving on in April and this is my last set of results. I wanted to thank you all for your support and challenges over the last 7 years. Your insights, advice and constructive criticism have always been a great help to me and the board. For now, though, it's business as usual until the AGM in April, when I will hand over to Maximo Ibarra. I'm confident that he will guide KPN through these exciting times as the successful execution of our strategy continues. Now let's get started by looking at the highlights of the fourth quarter and full year. 2017 was another year of solid achievement for KPN, in terms of delivering on our strategy and remaining a global leader in corporate sustainability. Our customers are at the heart of everything we do. I'm pleased to report further advances in our leading Net Promoter Scores in Consumer and also in Business, where we continue to raise customer satisfaction, while undertaking a major business transformation. We made big steps with our Simplification program in 2017, achieving run rate savings of EUR 110 million. We are very confident about the future results and have, therefore, raised our target to at least EUR 350 million. But Simplification is about a lot more than cost savings. It's a critical enabler to improving our customer experience, driving convergence and using data-driven marketing. It also helps with innovating our network technologies and service offerings. In June, we performed well in the fourth quarter, as we showed continued growth in convergence and customer base for our KPN brands. The turnaround in business is on track, as we see encouraging results from multi-play in SME, a higher order intake in large enterprise and corporate and an improving revenue trend. Results for the quarter were again impacted by the effects of regulation. EBITDA in Q4, impacted by cost phasing throughout the year and investments related to new customer relationships in business. For the year, our adjusted EBITDA was in line with last year, despite an adverse effect of regulation. Excluding regulation, we grew full year 2017 adjusted EBITDA for the Netherlands by 1.1% year-on-year. We're now 2 years into our Simplify, Grow, Innovate strategy and I can proudly say that we have made excellent progress on all of the priorities we outlined in 2016. We've introduced the concept of convergence in the Dutch market and have made big steps since then. 42% of households are now in fixed-mobile bundles, up from 29% 2 years ago. And more than half of our postpaid base is converged up from a 1/3 at the end of 2015. Also in Business, we are successful with convergence. Multi-play seats in SME have shown strong growth from just over 50,000 end of 2015 to nearly 0.5 million today, and we are well-positioned to accelerate growth. We've grown strongly in areas such as convergence and IT. In Business, we are now positioned as leading ICT service provider. The transformation of the business is on track, reflected by a strong improvement in MPS and improving revenue trend. Our Simplification program is delivering substantial quality improvements and spend reduction, and they are scoped for more in the coming years. Our financial position has strengthened significantly with net debt down by about EUR 500 million since 2016 -- '15. And finally, during the calendar years 2016 and 2017, we've returned nearly EUR 2.4 billion to KPN shareholders through various methods. Simplification has been core to our strategy in the last 4 years, which created a solid basis for digitalization. Results of the first wave of the Simplification program and the establishment of a dedicated data and analytics team already support our results as we will show in the remainder of the presentation. And it's providing a solid foundation for elements of our strategy that remain work-in-progress such as the OSS integration, 5G technologies and virtualization. The next steps in simplification and digitalization will enable us to improve even further our customer experience, for example, through e-care solutions and also virtualized services, which will enable near realtime delivery of a broad range of services. This will be a key driver for KPN's future performance. Alongside quality improvements, we see numerous revenue opportunities and further potential to lower spend. In terms of revenues, an even better understanding of our customers will lead to further up and cross-sell of services to households and businesses and virtualization of services can bring new revenue streams to KPN. On the basis of our simplified network and IT interface, we are able to provide additional value-added services to end users. This includes partnerships such as with Netflix, which have been integrated in our IPTV user interface and where we've included, recently, operator billing; or our innovative partnership with Tencent, through which we offer WeChat Go in Europe. Next to revenue opportunities, advanced data and analytics will also drive lower spend in areas such as marketing and customer service. Furthermore, software-defined networks and network functions virtualization will bring efficiencies in our network and IT infrastructure. This will be reflected in significantly lower IT/TI spend and employee costs. Data and analytics provides a much better insight into our customers and the way they experience our products and services. This helps us to optimize the service and value we generate per household. In our Q2 presentation, we already highlighted an example related to our targeting -- targeted marketing approach. We showed how we successfully deployed data and analytics to up and cross-sell services when customers interact with us. Also in communication around the fixed price increase during the summer, we were able to personalize messaging to our customers. This limited the impact on churn and NPS. On this slide, we show another successful example focused on improving InHome connectivity. Through the use of data and analytics, we identified a group of customers that experienced low Wi-Fi speeds and proactively upgraded their InHome quality. The initial rollout has delivered a 4x higher NPS and 4x lower churn at a relatively low cost. In Q4, we further strengthened our leading convergence position in the consumer market. We now have more than half of our postpaid base in a fixed-mobile bundle and almost 2/3 of KPN brand SIMs. The benefits of convergence remain consistently strong with the doubling in NPS, halving of churn and a significant reduction of marketing expenses. Convergence is now fully integrated with our multibrand approach. For example, since Q4, Simyo customers are able to receive fixed-mobile benefits if they have a KPN-fixed subscription. NPS for converged Simyo customers has risen to a remarkable plus 64. The new residential lineup we introduced at the start of the third quarter has worked out well. To remind you, we've unbundled content like Spotify from our standard packages. We now offer skinny bundles, where our customers have more freedom to choose the content packages they really want. The results in the first 2 quarters are in line with our expectations. The inflow ARPU is somewhat lower than last year because we unbundled content. However, we see that customers are taking up far more content packages than previously, which is delivering a significant increase in the ARPU we generate from value-added services. More importantly, we are seeing that the margins we generate per household are increasing. Let's move to mobile. In the fourth quarter, the Dutch mobile market remained very competitive. We've seen temporary aggressive promotions by our competitors. To isolate ourselves as much as possible from the competitive dynamics in the mobile-only market, we remained focused on convergence and the high-value KPN brand. Our mobile service revenue trend was impacted by regulation, the shift towards SIM-only and lower base growth in the past 12 months. Adjusting for the effect of regulation and the shift to our SIM-only, mobile service revenues actually grew by 70 basis points in Q4. Although, postpaid base growth has slowed down, we've seen continued growth in the KPN brand. This has led to an increase of the KPN brand as a percentage of total service revenues. And despite a competitive mobile market environment, our mobile market share was 1 percentage point higher compared to the same period last year. In Business, we've seen a steadily improving revenue trend in the last 2 years and we remain on track to stabilize revenues. The revenue trend in the fourth quarter showed a strong improvement, supported by growth in integrated solutions and IT services. This was partly supported by customer-driven investments leading to higher hardware revenues, which is reflected in somewhat higher cost of goods sold. Jan Kees will say more about this. Overall, we see that our strategy of moving customers to integrated solutions and growth in IT is working. At the same time, we see that our exposure to traditional services is shrinking considerably. Customer needs in business are shifting from tailor-made single-play solutions towards standardized bundled services and from traditional on-premise to cloud-based IT solutions. And in response to these developments, we significantly simplified our portfolio to focus on converged communication and IT services. We successfully expanded our IT capabilities via acquisitions in the security and workspace services domain, which further strengthened our position as leading ICT service provider in the Dutch market. Last quarter, we launched a specific proposition for the self-employed and small businesses, and we already see that NPS for these customers is improving. In SME, we focused fully on our KPN ONE product and we are seeing steady progress in large enterprise and corporate due to the introduction of a number of focused propositions. The acquisitions we have concluded in recent years are also contributing to the simplification of processes and IT. For example, we didn't integrate RoutIT into KPN's legacy, but now use their distribution platform to deliver KPN ONE services to our customers. This will enable us to phase out some of the traditional environments in KPN and reduce operating costs considerably. The RoutIT distribution platform enables us to process significantly more orders and also resulted in a very strong increase in MPS. This efficient delivery chain forms a solid platform for further accelerate growth and facilitate migrations into 2018. The KPN ONE portfolio is very important to us. It's the basis for up and cross-sell of additional services to SME customers. For example, we have recently concluded a successful pilot involving ISDN customers. We lose part of the ISDN lines due to rationalization, yet we are migrating the remaining ISDN customers to KPN ONE and we are witnessing 2 clear benefits. First, customers entered into longer-term contracts which will reduce churn. And they also signed up for additional services such as broadband and cloud, leading to a 50% ARPU uplift for this pilot group. We consider this to be an encouraging development. In the large enterprise and corporate segment, we are moving away from tenders of single play services with limited returns for KPN. The 14% higher order intake compared to last year reflects our strategic focus on targeting communications and IT services in one contract. We signed several large corporate deals and strengthened our leading position in the financial services and food retail segments. IT services are an important growth area for us and therefore, we have strengthened our positioning in this markets via several acquisitions. When we talk about IT services, we mean security, digital workspace and cloud-based services. We have also received external recognition for our capabilities in this space and are now considered as the leading ICT service provider in the Dutch market. All in all, the improved MPS and revenue trend, together with growth in multi-play and IT services, illustrate that we are on the right track in the transformation of our business segment. Corporate social responsibility is fully integrated into our strategy and is delivering substantial benefits for our customers and KPN. I'm proud of the strong progress we have made in the execution of our strategy over recent years and that we are recognized as the most sustainable telecom operator worldwide. Thank you, and now let me hand over to Jan Kees.

[Jan Cornelis de Jager]

Thank you, Eelco, and good afternoon, everyone. I will give you an update of our financial performance in the fourth quarter and developments related to our network and operations. Let's start with our revenues. Excluding the regulation effect of EUR 27 million, we note a 0.7% decline year-on-year for the Netherlands. This is an improvement versus the 1.9% decline in Q3. The adjusted revenue decline was mainly driven by lower international traffic in wholesale as a result of the migration of one of our larger clients earlier this year. iBasis revenues were impacted by about 20% lower voice volumes, continued price pressure and a negative currency effect. Let's move to EBITDA. In Q4, adjusted EBITDA for the Netherlands was 0.7% lower year-on-year, excluding the effect of regulation of EUR 4 million. The decline was driven by higher marketing expenses and higher direct costs in business. Marketing expenses in Q4 were higher due to different intrayear phasing compared to last year. Total marketing expenses in 2017 were 7% lower, compared to 2016. Higher direct costs in business to connect new customers were related to increased order intake. Full year 2017 adjusted group EBITDA was in line with last year. Adjusted for the effect of regulation, we grew about 1% mainly driven by the ongoing savings from our Simplification program. Total roaming impact was EUR 33 million for 2017. This was lower than initially expected, mainly driven by substantial discounts related to roaming agreement with European operators and higher visitor roaming that we received in Q4. Without the discounts, we would have hit the lower end of the guidance range. We continue to see that our company-wide Simplification program is delivering higher quality of service for our customers, while at the same time improving our margins. We have again witnessed a strong improvement in adjusted EBITDA margin for the Netherlands to 40.8% for full year 2017. This brings the total increase to 220 basis points over the last 2 years. The most prominent reduction in operating expenses was visible within IT/TI and personnel. The latter has seen a very strong reduction in external contractors in 2017, partly supported by in-sourcing of certain activities. After a year into the second wave of our Simplification program, we have better feasibility on the potential for savings. We have, therefore, raised the target to more than EUR 350 million run-rate spend savings by the end of 2019. There is scope for more beyond 2019 once we move to virtualization and all-IP software defined networking. We achieved the largest part of the integration of business support systems in 2017 with B2B still to be completed this year. We have just started with the implementation of our project to consolidate the network interaction layer, or OSS, our operating support system. Once completed, this allows us to serve our customers in a more efficient and faster way. It will also enable us to decommission legacy IT platforms leading to about EUR 30 million run rate savings. In Q4, we further expanded a number of metro core location from which content is delivered to our customers. The stability and quality of content through these locations is higher, which improves customer experience. This is important as usage of non-linear services such as Netflix is growing exponentially. And routing of IPTV traffic through these decentralized locations represents roughly 35% spend savings. The content delivery network is one of the first network elements to be virtualized. More on this on the next slide. Last year, we started multiple use cases in the area of virtualization. Network function virtualization will bring lots of benefits for our customers and for KPN. It allows customers to instantly order on-demand capacity based on their needs and gain access to new services faster and at lower costs. For us, this provides revenue opportunities by offering new services to customers. And as an operator, virtualization will enable us to run multiple services on the same generic hardware. This means we need to purchase less hardware and we will -- we get access to a broader range of potential suppliers, which will reduce spend further. Furthermore, network capacity will be used and handled more efficiently. It will be easier to scale the network to cope with rapid traffic growth based on the actual capacity needs instead of revisioning the network for peak traffic. Through the progress we made with our Simplification program, we are well-positioned to be a front-runner with virtualization. We see that fixed and mobile network technologies are converging more and more. We will continue to focus on a mix of technologies to deliver the best customer experience, while at the same time generating an attractive return on investment for KPN and our shareholders. We have rolled out fiber to many street cabinets, mobile sites, business parks and directly into homes. The technology developments allows us to look at fixed and wireless more and more integrated, and are providing us with more options in our rollout decisions. For example, we are looking at several technologies to roll out fiber in a cheaper and more efficient way. This is also likely to be through a mix of technologies going forward as business case benefits will determine which technology should be used in which area. The development of technologies in the area of next-generation wireless also play a role of this.We believe that the transition from 4G to 5G will be an evolutionary development. In order to identify the value of 5G technologies, we are starting pilots with a number of business partners. Through these use cases, we will determine the value of new technologies for different industries. This will be essential in the further development of 5G and decisions on when, how and where to deploy. Let's move to CapEx. The elevated investment levels in recent years resulted in a state-of-the-art network and IT infrastructure. This position gives us the flexibility to lower CapEx further and increase capacity at the same time. We will continue to build on the strong fundamentals by making significant investments in our network. For 2018, investments in the following areas will be visible: hybrid access to business parks via Fiber to the Office and VDSL upgrades; continued rollout of Fiber to Street Cabinets in residential areas; and selective Fiber to the Home rollout to new built houses and areas. It represents an attractive return on investment; and the hybrid DSL/LTE solution we offer in rural areas. In 2017, free cash flow growth was mainly driven by lower interest rate and lower CapEx partly offset by higher cash taxes compared to the previous year, where we received a large tax reimbursement. In 2018, CapEx will come down further by some tens of millions and interest will be roughly EUR 30 million lower, due to the bond redemption in 2017. On the other hand, we expect some more cash out related to personnel reductions. Just briefly on our financial position. Our financial position remains solid with leverage at 2.5x. Before I go to the outlook, let me spend a few minutes on IFRS 15. As you well know, the implementation of IFRS 15 will impact reported figures. On this slide, we show the estimated deltas for full year 2017 based on IFRS 15 compared to IAS 18. We will provide full restated and audited figures for 2017 in March and are applying IFRS 15 as per the 1st of January, 2018. The lower revenues and EBITDA, as reported under IFRS 15 compared to IAS 18, are mainly driven by the different timing of revenue recognition. Let me briefly highlight the main differences, more detail will follow when we publish our restatements. First, recognition of revenues related to handsets transactions via direct channels such as our own shops and online. Under IFRS 15, handset revenues are directly recognized as non-service revenues on the date of the transaction, instead of service revenues spread in monthly installments over the duration of the contract. This means that revenues will now match the associated SAC/SRC that was already booked upfront. Looking at the concept of IFRS 15, handset revenues associated with contracts concluded in earlier years that we recorded within service revenues in 2017, are removed from 2017 revenues under IFRS 15. And handset revenues from contracts we entered into 2017 are brought forward and fully booked in 2017. Overall, at KPN, we have seen that the number of handset transactions has been lower in 2017 than in 2016 given the increasing SIM-only penetration and relatively low end of contract base in '17. This is part of the explanation for the lower revenues under IFRS 15 compared to IAS 18. The effect is different for transactions via indirect channels. The handset portion of transactions through these channels is no longer recognized in the P&L at all, but only reported in the balance sheet. This is one of the reasons for the increase of about EUR 285 million in our equity position. Finally, IFRS 15 requires a higher threshold probability in revenue-related legal disputes. This means that revenues can only be recognized when classified as highly probable, so over 75% compared to more than 50% under IAS 18, thus, at the short term, negatively impacting reported revenue. Please note that IFRS 15 is a change in accounting standards. Free cash flow is not impacted by the changes. Let's now move to the 2018 outlook. The outlook of 2018 is similar to last year, although we expect CapEx to be some tens of millions lower again. In terms of EBITDA, please note that the outlook of being in line compared to 2017 is already IFRS 15-compliant. For the 2017 and 2018 year-on-year comparison, IFRS 15 is not expected to have a material impact. Simplification will continue to deliver substantial benefits and we have raised our targets by EUR 50 million. On the other hand, we will continue to experience a negative impact from roaming, related to loss of EU roaming revenues and increasing usage patterns, which leads to higher costs. We expect another year of free cash flow growth supported by similar drivers as in 2017. We intend to pay a regular dividend for the full year 2018 of EUR 0.12 per share. On top of that, we intend to pass through the dividend we received from Telefónica Deutschland to our shareholders as we did in previous years. To conclude, our Simplify, Grow, Innovate strategy is driving sustainable results. We have delivered on our promises and made strong progress with our key priorities. We aim to sustain this delivery in 2018. On that note, we would like to end this presentation and Eelco and myself will now take your questions.

[Wouter Stammeijer, Head of Investor Relations]

We will go around with the mic. [Operator Instructions] Fred?

[Eelco Blok]

Start with you.

[Unknown Executive]

[Operator Instructions]

[Frederic Emile Alfred Boulan, Senior Analyst]

It's Fred Boulan from Bank of America Merrill Lynch. I have 2 first. First of all, there is a word going on at the ACM on the regulatory environment around joint dominance. If you can, first of all, just tell us a little bit what you expect will be the outcome and if you think this is something that can pass in Brussels? And then secondly, if their analysis would be to be validated by Brussels, have you done any work on the potential impact it could have for KPN? And then secondly, just looking at your free cash flow guidance for '18 -- free cash flow guidance of growth. If you could give us a bit more color, I think consensus is a bit above EUR 800 million for '18. I think it would be quite useful to have any color on whether you think that's a realistic expectation.

[Eelco Blok]

I will take the regulation question and Jan Kees, the free cash flow guidance question. As you know, ACM is now running a new analysis of the unbundled access market. And draft decision for national consultation is scheduled by ACM, yes, somewhere in the first quarter of this year. We argue -- we will argue in that consultation for a level playing field with less regulation, so not increasing regulation by regulating cable because the fixed market in the Netherlands is very competitive and we have agreed already voluntary wholesale deals on VULA, Wholesale Broadband Access, making regulation no longer needed and giving third parties the opportunity to use the KPN copper and fiber infrastructure already where we have negotiated commercial or long-term agreements. Second part of your question was about EU. The upcoming analysis and the decision takes place under the current EC framework, and the last time at EC pushed back on the joint dominance proposal by ACM, which resulted in ACM having to go back again to the EC based on SMP for KPN. And we expect EC to have not changed their position. So that will be, yes, really a question mark how this will end. And yes, I think it's not smart to start speculating about the potential opportunities. But given the fact that we have already agreed the voluntary VULA and also broadband access long-term commercially agreed agreements, we are confident that we will not be impacted as KPN heavily by the new regulation. Jan Kees, free cash flow.

[Jan Cornelis de Jager]

Yes, so we have guided for free cash flow growth for 2018. Although we do not specifically comment on consensus figures, I can give you some more granular information bottom up on how we look at free cash flow deltas. First of all, CapEx will be about EUR 40 million lower. Free cash interest rate and free cash flow roughly, as I said also, verbally about EUR 30 million lower as growth. That level is coming down. This will be partly offset by extra reorganization charges because -- related to FTE reductions in 2018 compared to 2017. Adjusted EBITDA will be in line with 2017, so no big influence on free cash flow there. In working capital, though, we continue to see an impact because of the further reduction in spend levels. That can also be some tens of millions. And in tax paid, we have seen a charge on cash about EUR 13 million in 2017, whereas our longer-term guidance is, for the next few years, that cash tax paid annually will be about EUR 20 million to EUR 30 million. So that gives you a rough picture of the granular approach of free cash flow.

[Yin Kin Tang, Managing Director and Head of Telecom Research]

This is Polo Tang from UBS. Just have a few different questions. The first one is on consolidation in the Dutch market. We've obviously had the announcement of Tele2 and T-Mobile merging. So just wanted your perspective in terms of whether you think a regulatory approval will be granted and how you think the competitive dynamics in the Dutch markets will actually change. The second question is really just about Business. The revenues there improved quite sharply in Q4 versus Q3. But I'm just trying to work out how much of that improvement was underlying because you also talked about hardware revenues benefiting Q4. And that's obviously quite lumpy and low margin. So I'm just trying to work out whether if we fast-forward into 2018, can Business revenues be stable at some point? And the final question is really just about your stake in Telefónica Deutschland because I think you're now at roundabout 8.6% in terms of stake from 9.5% before, so how should we think about the stake going forward? Are you just planning to dribble it out onto the market? Or would you consider distributing it to KPN shareholders? So just any thoughts and perspectives.

[Eelco Blok]

On the consolidation question, yes, I think it's not smart to start speculating about the outcome of the approval process. We'll have to see how the EU will deal with the situation in the Netherlands. And if they -- and if so with which revenue package they will approve the deal, it will take probably till the end of the year before we know. And therefore, we continue with our current strategy focusing on convergence, both in the consumer and in the business market with a strong focus on the KPN brand, our value brands in consumer and in business focusing on our KPN ONE, our integrated products on the one side for growth and on the other side to migrate legacy portfolio to KPN ONE, helping us to facilitate customers in their digital -- their own digital roadmap and helping us to increase our [indiscernible] because of the cross-sell and upsell opportunities with the KPN ONE product as we have seen in the pilots we did last year. Will you take the...

[Jan Cornelis de Jager]

Yes, about Telefónica Deutschland. Of course, we cannot give a forward-looking statement on the short term. But let me just reiterate that this is a financial asset, we will dispose of it. Probably, you have seen it also now as being qualified as a current asset. Secondly, use of receipts. Let me also reiterate, we will optimize shareholder value there. And excess cash is treated in what we always have said, financial operational flexibility, some in-country M&A and shareholder remuneration.

[Wouter Stammeijer, Head of Investor Relations]

Just come back to that B2B point, though...

[Eelco Blok]

Yes, yes, yes. That's -- so if you look at the B2B revenue trend 2 years ago at the Capital Markets Day, we shared with you that we expect in the medium-term revenue inflection in the business market. So as of today, that means 1 to 3 years. And we are really on track to deliver on the promises we made 2 years ago. We are doing that well. We did that well in 2017 because all the investments we have been doing in the transformation of our portfolio, acquisitions and improving our, well, distribution power resulted in the, well, improving trend in 2017. And yes, hardware is part of that, but it's hardware part of integrated contracts we sell to large enterprise and corporate customers. So yes, we have seen some additional hardware revenue in the fourth quarter but as an element of the integrated solutions, where we have seen an increasing order intake and its, well, not fair because of the contract terms to continue the trend we have seen in 2017, a straight line going forward, but we are confident that we will deliver on the promises we made 2 years ago. So within 1, 2 to 3 years.

[Dimitri Y. Kallianiotis, Research Analyst]

Dimitri from Redburn. Just coming back to the point made by Jan Kees on restructuring, just want to ask you if you could give us any insight of how much restructuring we should expect for 2018? They were quite high in '17, about EUR 100 million. Just wondering if this similar order of magnitude? And if that's so, what we should expect in terms of cash outflows on -- in the free cash flow statement? And last question, regarding iBasis where the revenues are collapsing, just wondering what you think if it's some of your peers have sold their international wholesale businesses, because they're just a drag on revenues and don't generate much EBITDA, would you -- I mean, would you consider selling that business? Or do you expect the trends to improve materially going forward?

[Eelco Blok]

Jan Kees, on the restructuring?

[Jan Cornelis de Jager]

Yes, on restructuring changes, the P&L showed in 2017 a high amount, but in cash, it was just the other way around. So that's why in provisions, you've seen a cash flow positive outcome in the cash flow statement in 2017. I expect that to actually reverse in 2018, so the cash out in 2018. So we have some people on the bench of leaving the company at the end of 2017, but we will receive the cash in the beginning of 2018, so there will be somewhat higher cash out in 2018, even in comparison to the P&L charge. So it will -- probably that provision line with just reverse, right? It was a benefit on cash relatively from the EBITDA to cash overage in '17. It could reverse in '18. That's why I made that comment. So in cash, it will certainly be high. That doesn't mean that the P&L effect will be higher, though, but in cash, it certainly will be higher.

[Eelco Blok]

And on iBasis, it's -- well, it's not one of our core activities. We will do everything to turn around the trend, but it's a very competitive market also impacted by the decline in voice revenues. But from an EBITDA perspective, it is not a major impact on the KPN EBITDA. And we will -- yes, we look at several things we can do with iBasis, so improving current trends, improving the cost structure. And as I said, it's not one of our core activities.

[Unknown Executive]

Josh?

[Joshua Andrew Mills, Equity Analyst]

It's Joshua Mills from Goldman Sachs. I have 2 questions: 1 cost cutting; and 1 on CapEx. So just coming back to the Simplification targets of EUR 350 million, I really want to understand whether -- how you think about it in terms of being a net or a gross figure. And the reason is that, I guess, since some of this is being reinvested, be it directly through P&L or through taking provisions, and if I look at consensus, over the next 2 years, we've got revenue declines of just over EUR 100 million. Looking at the chart you've put up on screen, you've got another cost cutting another EUR 200 million to come through. So when can we start to think about real EBITDA growth. Is it really going to be that back-end loaded in 2019? Or is there the option to get that at the end of this year? And then secondly, on CapEx, you've laid out at your Capital Markets Day, correct me if I'm wrong, but a target of 15%, 17%. You're so quite way above that, and it feels like the shift is moving from laying out fiber to putting in some more of these back-end service, et cetera. So do you still feel confident giving that guidance on CapEx to be quite a bit lower? Or are there new areas of investment you're finding that you need to put more money into?

[Eelco Blok]

Jan Kees?

[Jan Cornelis de Jager]

Yes. So first, the -- your first question on Simplification, we do expect the EUR 50 million, or extra, of course, to be delivered as structural OpEx and CapEx savings. It's both OpEx and CapEx, but mostly, it's OpEx. That's a real figure. The net figure could also mean that on the bottom line, you will automatically see it translating, but we also are investing in new areas as well. So we're also spending more OpEx on new services, for example. So that's -- it's a bit difficult to say it's a net figure, but it's a real figure. It's a real savings figure on the business that we are doing now. Although it doesn't mean that ultimately, one-on-one is translation in the total OpEx you see at the group because we also keep investing in totally new services, which also will bring in new revenues as you see it, for example, in the growth, which was quite significant in new services also in Q4 year-on-year. So that's about the Simplification. Then the CapEx question, we do see CapEx coming down, trending down, and I do not see at this moment a deviation from the longer-term trend that we say it will trend towards industry averages, which is about 15% to 17%. But it -- and it is trending down. Again, also this year, it will also be some tens of millions lower in 2018 compared to last year.

[Joshua Andrew Mills, Equity Analyst]

So just to be very clear on CapEx, it's -- the message is this is trending down towards industry levels, but not -- it sounds like it's a little bit -- previously, it was quite explicit guidance on 15%, 17%.

[Jan Cornelis de Jager]

No, we always mark this exactly the same goal. It's trending down towards industry averages that translates into 15% to 17%. So there's no light, I think, there.

[Unknown Executive]

Keval?

[Keval Khiroya, Research Analyst]

This is Keval Khiroya from Deutsche Bank. I've got 2 questions: 1 on Consumer; and 1 on B2B, please. First, you've been quite clear in splitting out the revenue impact from handsets to SIM-only. Can you talk a little bit about what the impact has been, specific on the SACs for EBITDA in '17? I understand, obviously, it's less important with IFRS 15. And second, on B2B, obviously, there have been a few small acquisitions. Can you tell us what the underlying revenue decline was in '17, excluding M&A?

[Eelco Blok]

Jan Kees?

[Jan Cornelis de Jager]

Yes. So actually, in the whole of 2017, we have seen lower SAC/SRC levels for the full year. In Q4, the trend was a little bit different, though, so I will explain about that. Still, I'm talking under IAS 18 now. So for the full year, SAC/SRC levels have been significantly down because of few trends. First of all, because of a new regulatory framework of the Dutch financial legislation, which now handles a free handset as a part of the subscription, as a credit facility. That means more stringent rules surrounding that credit facility. That has resulted in different consumer behavior. And on top of consumer behavior, we already witnessed, actually, before this regulation was tooking -- took place. So it probably strengthened something we already we saw that is lengthening of handsets, so that means handset life is a little bit lower than the typical 2-year. People now extend SIM-only after a 2-year handset contract because they say, "Well, my 2-year handset is already okay, still okay." Secondly, people pay also more upfront at the closure of a -- at the conclusion of a contract. So in order to keep the credit facility a bit lower, because the credit facility actually has a direct influence on the mortgage level you can take in the Netherlands, with quite a high [ NOL pool ], because mortgages look up on to 30-year periods, a handset for a 2-year period. So roughly, there's a 15x multiple on a lower mortgage you can take for every credit facility you take at a 2-year contract. So that has a big impact. When we have to explain this to the customer in shop, he's, what, a little bit surprised about this. So he also tries to pay a little bit more in front. And thirdly, we see also less expensive handsets, more mid-level or lower-level handsets. So that -- and fourth, more SIM-only contracts as well, also because of the life handset lengthening. So all these trends, including the regulatory trend, is bringing in more SIM-only, which is okay for us because on the handset part, we didn't have a significant margin, anyway. It was a service to the customer. And it means lower revenue, certainly. On EBITDA, it doesn't have a meaningful impact. And of course, you will -- in restatements going from IAS 18 to IFRS 15, you will also have something in the bricks to explain because this trend is coming, and R&D influence on a year-to-year comparison is also there. So we will be very clear in our restatements in March to try to explain you these effects. This is happening in Q4, though we saw a little bit higher SAC/SRC than the trend within the whole year. That was probably incidental, and that had to do in that Q a little bit more of end of contract year, whilst the whole of 2017 wasn't a large end of contract year. 2018 will be a little bit more end of contract. And secondly, we also have sold some more expensive handsets there, especially 1 very expensive handset from 1 typical manufacturer, which was sold in our shops and online. So that means that we have seen a little bit more SAC/SRC in the Q4. But that doesn't mean that the trend is changing.

[Eelco Blok]

The B2B acquisition impact.

[Jan Cornelis de Jager]

The acquisition -- yes, so in B2B, the acquisition impact in Q4 or revenue is roughly 2% to 3% of -- on the revenue. So that's the -- it's -- and on EBITDA, it's not extremely significant.

[Daniel Morris, Research Analyst]

I'm Daniel Morris from Barclays. First question would just be on midterm need for fiber. We've seen quite a lot of governments around Europe talking more and more about the needs for kind of full-fat fiber, if you like. What are you seeing domestically in terms of the politicians? And what do see as the lifetime of your upgraded VDSL plan? Obviously, I appreciate you got the 2 coppers, et cetera. You can do a lot more than others. The second question is just really a follow-up to the previous one, which is, are you seeing any impact on a churn levels now that you're moving quite actively towards SIM-only? Or does the kind of convergent bundling more than offset there?

[Eelco Blok]

We see no major chain in -- change in churn levels compared to before the new legislation was in place. So -- and we believe that convergence and the high percentage of converged mobile customers in our base is supporting the continued low churn numbers on mobile. And on the first question, given the -- well, competitive infrastructure situation in the Netherlands and the high penetration of fiber already, there is no real push from the government to increase the CapEx in Fiber to the Home. We have already in the Netherlands penetration of around 31%. All new build houses are connected to fiber, and in areas where the business case is positive, we will invest in fiber. And there are some regional initiatives also investing in fiber. So it's more about bandwidth, quality of service and broadband in rural areas, then there is a major push for fiber from the government given the situation we have in the Netherlands.

[Unknown Analyst]

It's [ Dan Anjay ] with Bernstein. My question is related to your B2B margin. So we saw a 430 basis point erosion of B2B margins year-over-year. It seems to be correlated with the shift in revenue mix away from small and medium enterprise to large enterprise in corporate revenues. Now this accounts for about EUR 100 million of EUR 160 million in contribution erosion year-on-year. I guess, the question is based on your own analysis of your internal pipeline, where are we expecting to land in terms of B2B margins in the midterm? And what time horizon are we looking to get there?

[Eelco Blok]

Jan Kees?

[Jan Cornelis de Jager]

Yes. So increasingly, it's very difficult to look at a segment EBITDA level alone. When you look, for example, to the other sheet, you look to the OpEx in TI and IT spend in our network and operations segment, you see a decline of 12% year-on-year in OpEx in Q4. And a big part of that is related because of the simplification that we are also pursuing and achieving in Business market. So whereas, on a reported segment basis, you see some decline in the margin. In Business market, a significant part of it is related to the margin improvement in operations. So it's increasingly more apparent that we look at the margin through the whole chain, value chain in the Netherlands, and then you see a quite a significant increase of 50 basis points, again, in 2017 for the full year for KPN the Netherlands. Also, at Business market, we see improvements there. Yes, in Business market also is somewhat affected by, for example, partly hardware-related sales and IT, typically, has somewhat lower EBITDA levels than telco. Although on EBIT, it already is better because many of those IT products are CapEx -- more CapEx-light than telco. So looking at what's -- on what results below the line, the difference can be much smaller. But very significantly, I think, is looking at through the whole value chain, we see that the segment EBITDA doesn't tell you the whole story. That's why it's better to look at the full profitability throughout the chain that we've also probably in this year gives you more information about that and a more -- somewhat better disclosure on that as well to make that clear.

[Unknown Analyst]

So can I just briefly follow up, since you are talking about the aggregate margin health of the business? So if I look at your cost structure, excluding cost of goods sold, it's about EUR 1.8 billion after the EUR 240 million run rate savings exit year 2019. As you move into your virtualization program, what's the order of magnitude of run rate savings in a fully virtualized environment on that cost baseline of EUR 1.8 billion to EUR 1.9 billion that you expect to achieve?

[Jan Cornelis de Jager]

Well, we didn't guide yet the market about the total potential savings beyond 2019. But as I already -- I gave you a small hint in my presentation. It will be significant. The EUR 350 million -- more than EUR 350 million run rate savings, a small part of that is already also explained by SDN, software-defined networking, and virtualization. But many of the benefits of a full All IP network and virtualization, network functionality virtualization, will be rolled in beyond the scope of the current second Simplification wave, so on top of the more than EUR 350 million run rate savings. And it will be significant, I believe. I'm very confident it will be very significant. In 2 aspects, first of all, let me start with the customer. We have done already pilots internally and demonstrations, and some of the services that now require 3 weeks or even 4 weeks to deliver to a customer and maybe between 7 until 12 touch points can, in that SDN and NFV world, be delivered instantly. Ordered by the customer online, just paid online, and instantly within seconds, that service can be provisioned without any engineers requiring you to install or draw wires, drill a hole in a wall somewhere. That brings in, of course, an enormous potential on MPS improvement. Customers that are also choosing certain services for certain areas, which now it's not even possible to do because it requires you such a long time. So first of all, it will open up a whole new kind of market and also improve hugely, immensely the service experience for the customer. Secondly, deleting all those touch points and a lot of the FTE involvement there will also be a significant OpEx reduction as well. Thirdly, it will also enable us to work on generic x86 type of hardware instead of specific for a single-purpose built piece of hardware, which is already almost, you could say, legacy when it's already -- when it's installed. And also, it's much less flexible to provision for your capacity. And also, the price of that specific hardware is much more -- per capacity is also much higher. So there will be a lot of cost savings and spend savings related to the SDN/NFV. We do not give specific figures, to be honest, also because nobody knows at the moment. No telco knows specifically. It is huge. We know that. It could bring us easily into margins on fixed network comparison to cable or even maybe better. So that gives you a little -- roughly because there's still a big gap between income at telcos and cable. But we will give you, maybe later this year, in the second half, we are planning another update, as I did here, for you, sell sides, probably on a combined meeting on sell-side and buy-side analysts to give you more granular information about the future of SDN and NFV and also what it can do on cost and spend levels.

[Stephen Paul Malcolm, Senior Analyst]

It's Steve Malcolm from Arete. Can I ask one question on wholesale, a couple of quick ones on B2B and maybe sneak one in on handset upgrade cycles as well at the end? Just -- can you just get us under the bonnet of the wholesale division a little bit? And you've got a 65% gross margin business that's shedding revenues at only 18%. You lost 56 of revenues. You only lost 10 of EBITDA this year. Can you just sort of give us a sense as to -- I guess, some of that's probably done in roaming. But what's going on there? And how we should think about the operating leverage in that business going forward as you lose revenues? And on B2B, we talked a lot about Consumer mobile, but B2B continues to sort of shed revenues at an alarming rate, down 20% year-on-year in the fourth quarter. I guess that's partly sort of SME to residential migration. Can you just sort of get us -- let us know when that may end? And how we should think about that going forward? And then on the government contract, you're losing, I think, the VodafoneZiggo. When they come in, they've talked about that. So how do we think about that in the B2B division? And then finally, just on the handset replacement stuff we've been talking about, what do you think the impact of Apple replacing batteries at EUR 25, EUR 30 is? Will that materially lengthen the upgrade cycles and possibly reduce your costs?

[Eelco Blok]

Jan Kees, will you take the wholesale and...

[Jan Cornelis de Jager]

And the third one?

[Eelco Blok]

Yes, the handsets.

[Jan Cornelis de Jager]

Yes. So the -- on the wholesale, it's best explained by actually 1 big impact on revenue that didn't have a significant impact on margin, on EBITDA, and that was the loss of the international traffic of a big wholesale client of KPN the Netherlands. And that wholesale client continued to do its business on our network in the Netherlands, which is good margin, high margin. Our wholesale -- doing our wholesale on our own networks is a good margin. But the business that we have to procure for to other networks are very, very low margin, the international margin. That customer we lost on its international business, which is a big revenue hit, but not on margin, and that's -- most of it is explained by this customer alone.

[Stephen Paul Malcolm, Senior Analyst]

Regarding to the contract next year, does it work?

[Jan Cornelis de Jager]

This is -- of course, for 1 one year, we will see this. And after that, it's -- it doesn't have any effect year-on-year anymore.

[Stephen Paul Malcolm, Senior Analyst]

So 70% product margin is roughly the right way to [indiscernible]

[Jan Cornelis de Jager]

Well, it's high. We have good margins in wholesale on our own network. Wholesale on what we have to procure for internationally is completely different, so that's why it -- so this has been less relevant for our margin. As to the handsets replacement, yes, this could be very helpful. I think both for the customer that he doesn't have to buy a very expensive handset alone on the fact that the battery isn't very functioning anymore, and we are not in the business of earning profit on handsets alone. So if handsets in any way or form can be lengthened, it's good for the customer, it's good for the share of wallet with the customer between the telco and the handset manufacturer, good for the environment. We will be in favor of it because we earn our money on pure mobile service revenues, excluding handsets.

[Stephen Paul Malcolm, Senior Analyst]

Are you able to influence the customer [indiscernible] explicitly?

[Jan Cornelis de Jager]

Not as KPN alone. We have seen that in the past, a few years ago that we have tried to do that, and it was very difficult. But now as the whole market also fueled by the new regulation, yes, the telco industry as in the Netherlands is now, well, helped with the regulation is moving the customer more and more to a SIM-only subscription and also the customer itself, of course. So we cannot do it alone, but looking at all the developments in the market, yes, I think we are moving towards the right direction.

[Stephen Paul Malcolm, Senior Analyst]

Okay. On the B2B question...

[Eelco Blok]

Yes, yes, so the B2B question, let's start with the second part of the question, the government contract VodafoneZiggo made a big story about, that was just a renewal of the contract Vodafone already had. So it was not a loss for KPN. It was just a renewal of the contract. And they -- from a communication point of view, they, well, did a great job in just making a press release, but it was about a renewal of a contract that they had -- already had. So that -- on that part -- and we continue to do really well in the government area, especially on National Security Ministry of Defense where we are able to continue contracts we have in the current environment. And if you look at the revenue trend in B2B, minus 9% in the fourth quarter of 2016 and minus 1% and yes, partly impacted by the acquisitions we did. But underlying, we are doing well in the Corporate segment, the SME segment, maybe driven by KPN ONE, the integrated product. And in large enterprise, it's moving in the right direction driven by, well, good underlying KPIs.

[Stephen Paul Malcolm, Senior Analyst]

Yes. So there's no -- the government contract [indiscernible] it's pure renewal.

[Eelco Blok]

Yes. Yes. And in the financial services sector and the retail food sector, we have won some interesting integrated contracts helping us to increase order intake and improve the revenue trend.

[Stephen Paul Malcolm, Senior Analyst]

B2B [indiscernible]

[Eelco Blok]

Yes, that's not a share issue, but that's a price issue. We see continued price pressure in the B2B, especially in the corporate and large enterprise segment where Tele2 and T-Mobile are very aggressive leveraging the low utilization in their network. And that's also the reason why we have taken the decision to focus on integrated solutions and contracts and not to focus on potentially loss-making, single-play contracts.

[Simon Weeden]

It's Simon Weeden from Citi. Could you touch quickly on whether you've gone below 8.5% in TEF Deutschland since the end of the quarter and give us any thoughts you can on what the use of proceeds there might be? And then perhaps a slightly longer one on, I wonder if you could elaborate a bit more on your plans for fiber build direct to the home and premises for the residential and business customers that you've talked about. How much that might cost this year? What sort of cost per home or building past brings it into economically viable territory? And I think we've got anything from EUR 200 to EUR 700 or EUR 800 behind past being operated out there in the European markets.

[Eelco Blok]

Jan Kees, will you take the TEFD?

[Jan Cornelis de Jager]

Yes. So on TEFD, we just -- we only disclosed our optimal 2017 figure, and I will reiterate that, but you have read it. And also, as to the use of proceeds, again, financial operation flexibility, smaller-country M&A and shareholder remuneration. It means that we can be mix, but we will keep, of course, always a keen eye on how to create real sustainable shareholder value in those scenarios on the use of proceeds. It's now classified as current, so that gives you also an indication.

[Eelco Blok]

And on the fiber -- investments on Fiber to the Home, as I said earlier, 31% penetration in the Netherlands increasing with small steps year-on-year because we invest in fiber in new build areas. And when the business case is positive and as we will see an increase in new build houses in the Netherlands going forward, we will see an increase in the Fiber to the Home rollout. We've also -- we have some opportunities to increase the number of Fiber to the Home connections in certain areas where we have invested in the past in specific corporate networks in plastic tubes where we easily can replace for a low CapEx per household to copper for fiber. So that will drive the number of fiber connections up. And since the changing regulation in B2B, we have increased the investments in business parks, both by upgrading them with VDSL VPLUS. And in areas where the business case is positive, we increased the investments in Fiber to the Office. All included in the CapEx budget of last year and the CapEx guidance we have given for this year. So there will be no additional CapEx. Well, the additional CapEx is part of the CapEx guidance Jan Kees has shared with you.

[Ulrich Rathe, Senior European Telecommunications Analyst]

It's Ulrich Rathe, Jefferies. I have 2 questions. One is coming back to fiber, you answered it in terms of sort of no political pressure or in terms of some of the ongoing activities on a relatively slow scale. But of course, cable is talking about DOCSIS 3.1. It will potentially give them quite a step-up. Now their history is, of course, that they move relatively slowly putting higher speeds into the market because they want to monetize it as well. But it does sort of -- it is a bit of a step-up in terms of the relative position of what they can offer to customers compared to what you can do outside of the fiber footprint. So I was just wondering how do you view that? And is that a factor that might lead to higher Fiber to the Home investments on your side? My second question is on the push to higher value, to convergence into higher value, you're sort of giving us the economics benefit, the economic benefits on a per customer basis. But it is, of course, also true that the volume KPIs overall, for example, all have been fantastic. So I'm wondering, where is the right balance here? How do you see this? I mean, you almost sort of seem to leave the low-value market sort of behind by conscious decision. But what point is that the wrong thing to do to sort of just focus on this high-value segment and let the other players sort of soak up the really broad-based of low end?

[Eelco Blok]

Let's start with the second question. We are not giving up the low-value part of the market. We think we manage value in the market, and the service market revenue share is 1 of the key KPIs to see if we continue to -- or have taken the right decisions. And in the fourth quarter with -- well, the current multi-brand strategy where convergence both on the KPN but also on the Telfort brand plays a very important role, has resulted in an increase of 1 percent point of service revenue compared to the fourth quarter of 2016 at a level of 43%. So it's not 1 KPI we are managing. It's about value, the total value in the market where we leverage our multi-brands, so KPN, Telfort, Simyo, where convergence plays an important role on the KPN and the Telfort brand. And as you have seen in the fourth quarter, we have added Simyo to the convergence play. If you are a Simyo customer and also having a KPN-fixed connection at home, you will get mobile benefits and huge success with the -- in the Simyo customer base, resulting in an MPS of plus 64 of Simyo customers that became a multi-play customer. And that's the way how we manage, well, the consumer mobile market and the multi-brand convergence play we are doing. And yes, we have created some room in the low end of the market, but also, always within the perspective that we want to create value and continue to focus also on the service market revenue share of the total. So -- and then on fiber, we have already a 30 -- yes, around 31% footprint in fiber. So DOCSIS 3.0 will not be a threat in those areas. And with the upgraded copper road map we have in place, we are able to increase speeds to 400 to 500 megabit download speed at relatively low cost. And if that does not be enough to continue to sustain our current position in the market, then it's relatively cheap to upgrade the last part of the corporate network to fiber. But on the short term, we don't believe that, that's necessary given the upgrade opportunities we still have using VPLUS and Bonded VPLUS and other copper upgrade technologies.

[Wouter Stammeijer, Head of Investor Relations]

Yes. Since we're almost out of time, there's still a few people to ask question, could you please limit to 1 question per person? Thank you.

[Irina Idrissova, Assistant Vice President]

Irina from RBC. So my question is on convergence as well. You are currently at 42% of household. And of course, VodafoneZiggo also pushing their converged solutions. Are you seeing any impact from that yet? Is it getting a little bit more difficult to sell fixed mobile converged bundles? And what's your outlook for 2018 in terms of speed of up-selling?

[Eelco Blok]

Okay. Jan Kees?

[Jan Cornelis de Jager]

Well, of course, as our percentage in total is growing and growing, you see some leveling off, but still, we do very well there. And actually, having a second large copper player in the market could move to total market more to a full fixed mobile converged market because, on a per household basis, people will more and more select -- also, if they select VodafoneZiggo, the other households will be more KPN products fixed mobile. So I do not see the entrance of a second fixed mobile convergence player a hindrance for the percentage of -- in our base on fixed mobile. Maybe it could even be somewhat helpful in the sense that the total market moves more to a fixed mobile converged market.

[Eelco Blok]

And lowers the churn.

[Jan Cornelis de Jager]

And of course, we continue to see levels of very, very low churn in fixed mobile.

[Paul Sidney, Research Analyst]

It's Paul Sidney, Crédit Suisse. You mentioned a more targeted household customer service approach to reduce churn, following the July price increase. Can you just give us a bit more detail on what that entailed in practice what you actually did? And just as a sort of very quick add-on, do you think...

[Eelco Blok]

It's very simple. We personalized the mails and letters. We sent it to the customers to inform them about the price increase, and we were able to personalize the letters and mails based on the customer information we have and the data and analytics capabilities we have. And that really helped us to lower the churn compared to previous years where we had increased our prices and also helped us to limit the impact on MPS, just via the personalized letters using data and analytics.

[Paul Sidney, Research Analyst]

And just very briefly, does the 2018 EBITDA guidance assume a price increase in July '18?

[Jan Cornelis de Jager]

Well, we don't -- we expect no big difference, but we don't give a specific long-term price increases. We cannot comment on that on price increases. But of course, everything we expect to be doing in 2019 is included in the EBITDA guidance we gave for 2018, sorry, it's 2018.

[Guy Richard Peddy]

Guy Peddy from Macquarie. Just 1 quick -- I want to go back to this O2 selling of that stake. Isn't -- in reality, isn't the reason you're doing that because you need the cash to pay the hybrid? Because if you don't pay the hybrid, you have to incur more debt charges through your P&L and then have to cut your free cash flow target. So is that the reason why effectively you've moved it as to a short-term asset. That without that, you'd have to change your free cash flow guidance for the second half of the year and you go x growth again the free cash flow? If you pay about the hybrid, that's assume you can afford to pay about the hybrid without selling O2.

[Jan Cornelis de Jager]

Well, actually, coupon on debt hybrid is not part of the free cash flow because it's a negative...

[Guy Richard Peddy]

Yes. If you raise more money, it would be. So if you raised the debt, that coupon would go in your free cash flow and, therefore, cut your free cash flow. The dividend from O2 is x. The coupon on the hybrid is x. So I'm just thinking, optically, in order to avoid the downgrade of your free cash flow target or to avoid an increase in your leverage, materially, you're going to have to sell that stake because otherwise, you can't do it.

[Jan Cornelis de Jager]

No, because looking at our total cash position is quite comfortable even without the selling of this Telefónica Deutschland to be able to make decisions about hybrid. We will make decisions, of course, about the hybrid, but we will be signaling that when it comes, and of course, we will review all the possibilities, including also the permanence of the hybrid instruments and how create shareholder value because it can be an expensive way to [indiscernible]. But we still did not make any final decisions about what to do with the hybrid, although, even, of course, calling is very outdated. But if then, refinancing it or not, that's still a decision that has to be made, and that is a separate part from the Telefónica Deutschland because we always have reiterated that it is financial stake, we had to sell it, we will dispose of it, but we will do it in a wisely and timely manner. And that's also what we have showed, I think, in the statements that we only sold a small part of it now again.

[Usman Ghazi, Analyst of Telecom]

It's Usman Ghazi from Berenberg. I just have 1 question on business mobile service revenues. If I look at Q4, they're only down by around EUR 4 million. I mean, your roaming impact in Q4 was bigger than that. That should -- that suggests that underlying business mobile service revenues are actually up in Q4. Is that sustainable? Or what is driving that?

[Eelco Blok]

As I said earlier, the mobile business market, well, we see competitive pressure resulting in a very aggressive price levels in the high end of the market driven by Tele2 and T-Mobile, especially, and we don't expect major changes going forward. So that's what I can say about the -- at the mobile market. And of course, you will see quarter-over-quarter fluctuations because of end of contract, renewal of contracts with additional discounts and things like that. So you have to look at a trend of several quarters to conclude on what's going on in this part of the market.

[Wouter Stammeijer, Head of Investor Relations]

Okay. With this, we would like to end the Q&A session. Thank you all for coming over or looking at webcast. And see you in April again. Thank you. Bye-bye.