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Hello, ladies and gentlemen, and welcome to BT's Q3 2019, 2020 Trading Statement Conference Call for the third quarter ended 31st December 2019.My name is Adrian, and I'm your coordinator for today. [Operator Instructions] I'd like to advise all parties this conference is being recorded today.And now I'll hand you over to Mark.
Thanks, Adrian. And welcome, everyone.My name is Mark Lidiard, from the BT Investor Relations team. Presenting on today's call is Philip Jansen, Chief Executive. And also on the call for Q&A are Simon Lowth, Chief Financial Officer; and members of our executive committee.Before we start, I'd like to draw your attention to the usual forward-looking statements on Slide 2 and our latest annual report for examples of the factors that could cause actual results to differ from any forward-looking statements we may make. Both the slide and the annual report can be found on our website.With that, I'll now hand over to Philip.
Thank you, Mark. And good morning, everyone. Thank you for joining today's call.So we've had a busy third quarter, continuing to improve our competitive position and driving further improvements in efficiency and productivity. I'm pleased with our overall progress and while markets remain competitive and our overall financial performance for the quarter is slightly below our expectations, we do remain on track to deliver our outlook for the full year.Earlier this month, we had a very important update from Ofcom with its consultation on the wholesale fixed telecoms market review. I see this as a very important step forward in incentivizing investment in the U.K.'s digital infrastructure and enabling us to significantly increase our FTTP targets for the U.K. I will update you on how I see progress on the all-important fiber enablers in a moment, but first I want to highlight progress against our strategic pillars.First, on Slide 5. Our focus on delivering a differentiated customer experience is core to our ability to attract and retain customers. I'm pleased to report a 14th consecutive quarter of NPS improvement; this despite some difficult circumstances, particularly in Openreach with the very wet weather conditions. We also saw Ofcom broadband complaints data for the BT brand below the industry average for 2 consecutive quarters. This is an important leading indicator and the first time that we have ever been below the industry average.At the start of the quarter, we launched the U.K.'s ultimate converged plan, Halo, which will give consumers and businesses the best connection and service in and out of the home. We are well advanced with the dual branding of our retail stores, and we have completed the onshoring of sales and service on the BT brand 1 year ahead of our original schedule. These initiatives all support an enhanced customer experience and our premium position in the market.In Openreach, copper fault volumes were nearly 6% lower than last year, and missed appointments for Openreach faults remain below the 2% level year-to-date.Next is our focus to modernize BT and become a simplified, lean and agile business. We are on track with our Phase 1 transformation program to deliver a gross benefit of GBP 1.5 billion of in-year-3 savings by March 2021. As you know, we are now doing a lot of work on the next phase of transformation, which includes system, process and product simplification. IT is a key transformation enabler. It's about getting the right IT in place for our future. We fully understand the challenges and limitations of BT IT estate today. We have 58 system stacks, just way too many. These lack modularity, are inflexible; and we have data scattered across multiple systems.We also understand what the solution is. We put a lot of energy into defining the future IT architecture that we want to move towards, one that is flexible, modular and optimized for solution agility and scalability. The challenge is to get from where we are today to where we want to be. Now what this won't be is one massive IT project. For us, this journey will be a multiyear evolution of our IT estate that will be undertaken in parallel with simplifying our products and processes. The result will support the delivery of brilliant customer experiences, allowing us to build the new capabilities we need faster than ever before; helping us to go beyond limits in the way that we think, we act and we do. We will tell you more about this at our May results.During the quarter, we have seen significant progress around our better workplace program that will consolidate BT's U.K. footprint of more than 300 buildings to around 30 modern future-fit locations. Having confirmed our 8 hub locations last year, we have now confirmed long-term homes in London, Birmingham and Bristol; and have secured temporary accommodation to colocate colleagues in Liverpool and Manchester whilst we secure new buildings. Importantly, to realize the full benefits of this initiative, we have started to announce locations for consolidation to reduce our overall property footprint. This will accelerate as our new office estate begins to come online later this year and into 2021.The third core pillar is having the best converged network. And I want to start by talking about the decision made by the government this week on security standards in 5G and full fiber networks. As you know, the security of our network is an absolute priority for BT, and we are very supportive of what the government is doing here. We already have a long-standing principle not to use Huawei in our core networks. What was announced was an important clarification about the use of vendors in both fixed and mobile networks and allows us to plan with certainty for the future. As the guidance is developed into legislation, there will be an impact on our 5G rollout plans and the equipment used in our FTTP network build. We're in the process of reviewing the guidance in detail to determine the full impact on our plans. At this time, we estimate an impact of around GBP 500 million over the next 5 years.During the quarter, we continued to expand our 5G network; and are now present in over 50 locations. Independent testing has already put the performance of our network ahead of the competition. It is really important to have leadership on 5G, particularly when 5G goes mass market.Sticking with mobile. We are on board with the government's Shared Rural Network, where our leading geographic coverage position will mean a lower financial exposure than other MNOs. This agreement is also important for the rules of the forthcoming 5G spectrum auction. This is an important auction for BT, and while we will remain disciplined, we also know that it's worth investing to maintain our network leadership position.On the fixed side, Openreach continues to add more than 600,000 fiber lines per quarter. [ 66% ] of Openreach broadband lines are now fiber-based. Openreach continues to ramp up the rollout of FTTP and is now passing around 26,000 premises per week while retaining an industry-leading focus on quality and cost. We have big ambitions for our full fiber rollout, and these were given a boost early this month when Ofcom released its wholesale fixed telecoms market review. This will set the regulatory framework for fixed telecoms for the 5 years from April 2021 and is a big change from the previous cost-based regulation, as Ofcom is now looking to support investment in full fiber and a rapid switchover from copper to fiber. As you know, we set out a number of enablers that we need to support a major FTTP investment across the U.K., and Slide 6 gives an update on where we are today.Taking each one in turn and starting with the Ofcom enablers. On the indexation of legacy copper services, we are pleased to see Ofcom propose CPI indexation in areas 1 and 2, the 70% of the U.K. that they view as competitive or prospectively competitive. We believe that this supports switchover and appropriately compensates us for our stranded copper assets. Ofcom has also proposed a reasonable premium of GBP 1.50 to GBP 1.85 per month for FTTP over the FTTC anchor price to reflect the superior quality of the product and cost savings to CPs, with pricing flexibility above the anchor product in area 2.On switchover, Ofcom has proposed that we can stop selling copper products once 75% of an exchange area has ultrafast available. And then 2 years after this, we can fully withdraw copper services and switch customers onto the FTTP network. This will allow us to gain all the benefits of operating a single and highly efficient network. On geographic pricing, while Ofcom has not proposed a full price flexibility that would allow us to compete on a level playing field with alternative network builders, Ofcom has stated that it will consider on a case-by-case basis justification for pricing flexibility. And Ofcom has given us some indication of the factors they would take into consideration. Ofcom has also proposed that any commercial deals that we agree with CPs need to be approved. Of course, once an area is deemed competitive, then we would have full pricing flexibility within general competition law.Fair bet is another area where we have not received as much clarity as we would have liked. Ofcom has clearly stated that it accepts the principle of the fair bet and that it would take this into account in any future regulation on FTTP. We were also encouraged by Ofcom's comments from their conference call that they had no intention to return to cost-based controls for at least 10 years. However, there is a lack of clarity around the specific return that would be allowed on the investment. The period of forbearance before regulation would even be considered, and we remain of the view that FTTP is a riskier investment than FTTC.And finally, in area 3, the 30% of the U.K. where competition is less certain, we were very pleased with the commitment from the government to provide GBP 5 billion of subsidy for harder-to-reach premises; and we now need to work through the detail of how this will be implemented. We are also encouraged that Ofcom is prepared to extend indexation into area 3, subject to commitments from Openreach to build in this area. Again, we need to work through the detail of what this means in practice, but in principle, we fully intend to build in the final 1/3.Government is clearly supportive of investment in the U.K.'s digital infrastructure. And in October, there were some welcome changes proposed to wayleaves and building access and mandating full fiber to new build homes. Access to buildings and land are critical to efficient delivery of full fiber.And on cumulo business rates, we and industry continued to engage constructively with government on the need to exempt FTTP from business rates for at least 20 years to help secure investment. A 20-year exemption is worth around GBP 1 billion to BT or, put another way, is an additional 3 million premises passed. Given the importance that this government has placed on building fiber at pace across the whole of the U.K., we would encourage it to commit to this in the March budget.And finally, a new issue that has emerged is on long-term contracts. As we have said from the outset, to underpin this investment, we need rapid take-up of the platform. As mentioned by Openreach at its business briefing last month, they are in -- deep in discussions with major CPs, including Sky, TalkTalk, Vodafone and BT, for long-term volume commitments to Openreach FTTP network. These are key to underpin our investment and are also really important for the CPs' business plans. So we have willing buyers and a willing seller but constraints on our ability to enter into long-term contracts, a constraint that is not applied to any alt net builder of what are brand-new networks.So overall, whilst we have taken significant steps forward, there are still some important outstanding issues to work through. If the fixed access market regulation is enacted as proposed, with some further refinement, particularly around fair bet and long-term contracts, and we see progress on business rates, then together with the progress we are making on the physical build and long-term take-up discussions with customers, we should be in a very strong position to increase our FTTP build targets right across the U.K.Turning to Slide 7 now. I'd now like to move back to the results.Our quarter 3 financial performance was slightly below our expectations. Good performances in Consumer and Openreach were not enough to offset slightly weaker results in Enterprise and Global. However, we are on track to meet our outlook for the full year.Revenue fell 3% due primarily to the ongoing headwinds from regulation, competition and legacy product declines, partially offset by increased handset sales in Consumer, growth in new products and services and higher rental bases in fiber products and Ethernet. EBITDA was down 4% from the fall in revenue, higher spectrum fees, investment in customer experience and higher operating costs in Openreach, which are partly offset by reduced costs from our restructuring and transformation programs. Reported CapEx was up 2% primarily due to increased fixed and mobile network investment.Normalized free cash flow was down 48%, reflecting increased cash capital expenditure, the deposit for UEFA club football rights and changes in working capital, partly offset by one-off cash flows. We expect a much stronger quarter 4 as a result of an improved working capital position that includes the partial run-down of inventory stockpiled ahead of the potential hard Brexit and the phasing out -- phasing of our CapEx spend this year. This will enable us to deliver our full year outlook, although we do expect cash flow to be in the lower half of the guidance range due to increased CapEx and increased handset sales.Looking at Consumer on Slide 8. Revenue fell 2%, reflecting known headwinds from regulation and the continued decline in the fixed base. This was partly offset by increased equipment sales due to handset launches in the period. EBITDA was down 4% due to the revenue decline, increased spectrum license fees and investment in customer experience. Excluding the impact of regulation, EBITDA would have been up 1%. Quarter 4 EBITDA will be impacted by increased costs as we start the bulk upgrade of ADSL customers to superfast at no cost to the customer.The actions we have taken to enhance customer experience have supported a year-on-year reduction in fixed churn to 1.3%, while mobile churn was flat at 1.3% despite the introduction of auto switching. During the quarter, we secured the renewal of the UEFA club football rights until 2024. This gives us certainty over these rights for the next 5 years, which we are delighted with, particularly after the success of English clubs in last year's competitions.In October, we launched our new brand purpose. And I spoke to a number of you about the new products, service and propositions we will be launching, including Halo for homes and businesses, home tech experts and bringing BT back to the high street. I am pleased to report that initial indications are very positive, particularly for Halo where sales momentum has continued from the success of BT Plus.Moving to Enterprise on Slide 9. Revenue fell to GBP 1.5 billion, which is a 6% fall at a headline level but a 2% fall when adjusted for disposals, including the sale of BT Fleet Solutions. Apart from disposals, the fall was mainly driven by legacy fixed voice. These declines were partly offset by revenue growth in mobile, despite continued challenging market conditions; voice over IP; and networking. EBITDA was down 4%, or 2% adjusting for disposals as the revenue headwinds were partly offset by our ongoing restructuring program.4G Assure continues to go from strength to strength. And during the quarter, we won the Internet Services Providers' Association's Best Customer Solution award for 2019. We now have over 100,000 small businesses in the U.K. connected to this always-on service, and sales continue to grow each month. Around 60% of SME broadband sales are now being sold on an enhanced 4G Assure plan, supporting higher ARPUs.As I mentioned earlier, leadership on 5G is really important, and I'm pleased to say that Enterprise 5G sales are ahead of expectation. Customers of all sizes and sectors are showing significant interest in what 5G technology can bring to the transformation of their businesses. We are now working with 60 large customers on 49 different use cases. A number of these have already been demonstrated publicly on our live network. Of these, we have had significant interest in our remote ambulance trials showing remote triage and ultrasound; and separately, remote education, which I recently demonstrated to the First Minister of Scotland, Nicola Sturgeon, who used virtual reality over 5G to join a University of Glasgow lecture from her office.Order intake in the quarter was down 13% to GBP 700 million in retail, with some slower decision making amongst our larger customers; and down 3% to nearly GBP 200 million in wholesale. On a rolling 12-month basis, retail order intake increased 4% to GBP 3 billion. And on a similar basis, wholesale order intake was up 11% at GBP 1.1 billion.Moving to Global on Slide 10. The 10% revenue decline primarily reflected legacy portfolio declines, together with noncore divestments and further reductions in low-margin business. EBITDA in the quarter was also down 10% to GBP 155 million due to the lower revenue and one-off benefits last year, partially offset by lower operating costs from the ongoing transformation, supporting continued margin stabilization.Order intake for the quarter was GBP 1.2 billion, up 37%, benefiting from a number of large renewals, including Zurich Insurance. On a 12-month rolling basis, the order book was up 21% to GBP 4 billion, the highest level for around 2.5 years. This reflects not only a very high renewal rate but also increased new business wins. We also agreed the sale of our domestic operations in Spain, which is in line with our strategy and allows for increased focus on our core operations.Finally looking at Openreach on Slide 11. 2% revenue growth was driven by higher fiber and Ethernet volumes, partly offset by price reductions and increased auto-compensation. EBITDA was down 1% compared to last year, as revenue growth was offset by higher operating costs, mainly higher business rates and higher salary costs from pay inflation and as we invest in more colleagues to deliver better service, partially offset by efficiency savings.Openreach again increased the pace of FTTP rollout, now adding about 26,000 premises per week to what is already the U.K.'s largest FTTP network. We have now passed over 2.2 million premises with FTTP and at the lower end of the GBP 300 to GBP 400 per premises passed cost range. We are on track to exit this year at a run rate of around 30,000 premises passed per week and are on target for 4 million by the end of March 2021. Following successful trials launched at the tail end of last year that saw engineers developing new tools and techniques to help Openreach extend its full fiber network into areas previously considered too complex or expensive, Openreach last week outlined plans to make FTTP available to around 250,000 homes and businesses in 227 market towns and villages across the U.K., with building to commence by the end of next financial year. In Scotland, Openreach was awarded 2 of the 3 R100 contracts to provide superfast speeds across the country, and we are the preferred bidder in the third area. The vast majority of this build will be FTTP.So to summarize on Slide 12.We have delivered results slightly below our expectations for quarter 3, but we are on track to meet our outlook for the full year, albeit with normalized free cash flow in the lower half of the guidance range. As I have said many times before, we enjoy strong positions in our Consumer and Enterprise markets and are focused on delivering market-leading converged connectivity and services at fair prices to ensure the loyalty of customers across our businesses. This value-for-money, customer-led approach, coupled with our modernization plans and our strong ambition to roll out fiber and 5G across the U.K., are further demonstrations of how we can be bolder, smarter and faster to really ensure we are more successful and create a better BT for the future.We are already well on track to hit our target of building FTTP to 4 million premises by March 2021. We welcome the direction of this month's consultation from Ofcom, which is a significant step towards a widely shared ambition to deliver FTTP to the whole of the U.K. We will continue our discussions with government, Ofcom and industry so that we can have the confidence to significantly extend our role in this important national mission and increase our FTTP target to 15 million premises and potentially beyond.I'm really excited about the long-term prospects for this great company. So thank you for engaging with us today, and we look forward to answering your questions. [Operator Instructions]So now, operator, can I please ask you to open the lines so we can take some questions?
[Operator Instructions] The first question is from Akhil Dattani of JPMorgan.
I just had a first question, on Huawei. You've given us an update today in terms of the impact you're expecting following the U.K. government decision. I guess I just wanted to better understand the assumptions you've made behind that. So I guess, 2 things. One is, what can you tell us in terms of your fiber build; your 4G, 5G spend; the mix of Huawei versus non-Huawei. And then you've clarified in the release that it's a gross assumption over the next 5 years. What would be the difference in the gross and net? So what are the things that might alter the real impact that you end up seeing?
Sure. Thanks, Akhil. So look, obviously there's been a long debate about the role of Huawei in the communications network of the U.K. We've been planning and thinking about all the different scenarios, so I think, notwithstanding the obvious comments about how important security is to us and our previous policy, which you know about, about not having Huawei in the core, this clarity from the government that was issued 2 days ago is extremely helpful to allow us to plan properly. So whilst there are still a few questions to be resolved on what they've announced, we can see a path to maintaining our 5G leadership; and rolling out very, very fast; and delivering the same plans that we've implied on our FTTP. So the 4 million homes for FTTP will be delivered by March 2021 despite this announcement 2 days ago, and we will continue to build our 5G estate as quickly as possible. We're the leader today. We're going to maintain that leadership. As a result of those comments, we do need to accelerate some of the rebalancing that we were already down the path on. So the main impact is on the mobile side, not on the fixed side. And the main impact within the mobile side is, frankly, it splits -- it sits in 2 categories, but the biggest one is we're going to have to take out some 4G boxes and replace them with providers of -- other than Huawei. That's basically the biggest chunk of it. There are also some assumptions around pricing, but that's really what it comes down to.And, I'm sorry. The other thing, on the gross assumption, what we're saying is the collection of all those costs of pricing assumptions, ripping out certain bits for certain reasons, is GBP 500 million over 5 years, but it will be front-end loaded. And what you'll work out is to get to that 35% in 3 years means we need to redeploy in a certain way, which would involve what I described, for some of the 4G boxes that are Huawei to be removed. Akhil, does that answer it? I'll -- he may have gone, so I'll assume it's answered. Thank you very much.
The next question is from Michael Bishop with Goldman Sachs.
Yes. Just picking up on the quarter and your comments about the quarter being slightly below expectations. It feels, at least versus consensus, if you strip out the M&A impact, or the disposal impact, in Enterprise, then there's not a huge difference versus consensus expectations. So could you just give us a bit more color on sort of why you're making this slightly more cautious commentary? And as an extension of that, I did notice that the revenue run rate year-to-date is slightly less than the 2%. So if you could sort of tie those 2 things together and just give us a bit more color on the outlook.
Yes, Michael, I'll let Simon just give you his perspective on it. Just very briefly, though, what we're saying is it's very, very slightly. We just -- in the spirit of full transparency, it's slightly off. By the way, quarter 2 was slightly above, and what we're saying is for the full year we're comfortable with our outlook. So I mean that's the reason we've done it. Simon, do you want to just comment on some of the detail?
I mean I think actually Michael picked it up in the question that, if you look at the reported numbers but also bear in mind there are some -- with the revenue lines, some impacts from divestment. I mean for example the divestment of the fleet business has an impact on the revenue line, very little impact to the cash flow line. And we remain confident in our full year revenue guidance, Michael.
Thanks, Michael.
Next question is from Polo Tang of UBS.
I just had a question about CityFibre, has obviously signed a wholesale deal with TalkTalk. And there's also reports about a potential deal between Sky and Virgin Media, so what are your thoughts in terms of how these will impact BT and Openreach? And what you think the implications are in terms of the competitive landscape. And just to pick up on the competitive landscape, did you specifically talk about what you're seeing at the moment in Consumer? Is there much change ahead of the introduction of end-of-contract notification in broadband?
Okay, let me give you a quick perspective, then Clive can add his. And Marc can add his on "end of contracts" question. So look, what I'd say is the market is, across the board, extremely competitive; within infrastructure, as you well know, very competitive too. Our strategy is crystal clear: Get the right regulatory framework in place. Get the enablers in place, and we will build the very best network at the lowest possible price. And we will deliver exceptional value to our customers. I believe that customers will value that network, and we will end up with a very strong position over the next few years as a result of that. So Clive is building -- at a very fast pace, he's building incredible quality, and that is checked and verified. And the cost line is really, really encouraging too. So I'm confident that, over time, customers will flock to it. Remember the real game isn't to build it. The real game is to connect people to this new platform for all the benefits it will provide. And so I'm hoping that the industry will work together to deliver that for the whole country. Clive, do you want to add anything to that on the competitive landscape?
Well, simply from an Openreach perspective, it is true that the environment -- the competitive environment, is -- the temperature is rising, but our position on this is really simple. We will build faster than anybody else. We'll build to a higher quality than anyone else. We'll achieve low cost points because we have a skilled and experienced engineering team. We will price sharply to encourage take up. And we already have, through the VDSL platforms, IT systems. We have the wholesale interfaces to make it easy to trade into Openreach to buy connectivity services. And we shouldn't underestimate the value of that to our CPs and the translation of that to very good customer experience. So I think we're in good shape to meet the competitive challenge.
And one thing I'll add to that, Polo, is this is a national mission, to build full fiber for the whole country. It needs many operators. And I think, if all operators can build quickly to a high quality in a competitive pricing formula, they'll all be successful. And there's nothing wrong with that. Marc, do you want to make a comment on competitive landscape in Consumer and pick up the end-of-contract notification point?
Yes, Polo. So it still remains a very competitive market. We haven't seen any signs of the temperature reducing on that front over Black Friday and indeed into January sales, both on the mobile and fixed side. Specifically on fixed, to your point around the end-of-contract notifications, just a reminder for you and everyone on the call, the massive reshaping that we are doing on the BT pricing model, value for money, how we're dealing with that customer base. So we've already led the way on CPI pricing. And I put on the Consumer chart the proportion of our base already on those new contracts, so over 40%, which is good progress. Our Halo base, which as Philip said we've still got really good momentum there which has continued, there are no out-of-contract price rises for those customers. And all of the existing customers get better prices than new, so that really helps put really good value for money there to mitigate against the changes in February. And we've also got the significant upgrade and migration of copper customers to fiber as well as the proactive price-down of those copper customers that can't move to fiber coming in the summer as well. So a significant amount of activity on the customer base to improve satisfaction, loyalty. We've managed to, I think, deliver a respectable result on churn in a very competitive market and prepare for the new regulations in a very customer-focused way.
Thanks, Marc, brilliant. Thanks, Polo.
Your next question is from Carl Murdock-Smith from Berenberg.
On the FT article yesterday about charging leaving customers up to GBP 50 if they don't return equipment. I just wanted to ask about the accounting of that. According to the article, you'll now retain ownership of the hardware. Does that mean that the costs of set-top boxes and routers will now be capitalized instead of being expensed? If so, how large is that cost line today? And when will we -- when will that start to shift from OpEx to CapEx?
Carl, I'll ask Simon to answer that question.
Thanks, Carl. Yes. So we have indeed, in the process of just starting to introduce a different form of relationship on equipment with our customers, we're moving to a [ process actually ] which is pretty well adopted across the sector, and its primary purpose really is to ensure that we encourage return of equipment. And we think that's responsible for us and for our customers. In terms of the accounting treatment, as we introduce this, we will capitalize the equipment rather than expense it. And so you will see that flowing through. This is not a material cost item in the Consumer business P&L or capital item. I hope that helps, Carl. Thanks very much.
The next question is from Maurice Patrick from Barclays.
Yes. It's just a question on the ARPU side. So I think mobile ARPU is still minus 5% and has been for 3 quarters now. I think quite a bit of that is due to regulation changes rather than competition. I mean fixed ARPU stepped down as well. Again, I think that's the anniversary of pricing. So I guess the question is how much of the ARPU moves are regulation and due to pricing and how much is increased competition in the marketplace? It seems quite mathematical.
Okay, Maurice, thanks for the question. Let's -- I think what we'll do on this is let Simon give you his view, and then maybe Marc can provide a little bit of perspective on that too.
Well, probably actually Marc should focus on the dynamics in the individual markets. I mean the headline point is we've indicated that there's a reasonable chunk of this which is related to regulation. And that's why we've tried to indicate what the EBITDA and revenue trends would be if you strip out the impact of regulation. And as we've said, EBITDA would have been up in the quarter if you strip out the impact of regulation. And you're quite right. We're also annualizing on the lack of price rise in broadband. Do you want to talk, Marc, to the specifics in the 2 parts of this?
Yes. I mean there's a lot going on in mobile, as you say, Maurice. So regulation, we've had spend caps. You've got the IDD in terms of the regulation. That's certainly had an impact. Also, we've had the RPI this year. It was 2.7% versus 4.1%. So that's 4.1% in the prior year. So that's had an impact. We've also got the growth of SIM-only because that's a blended ARPU of handset and SIM-only customers. So you've got the growth in SIM-only as a proportion of customers. We've got customers holding onto handsets for a little bit longer, so the ability to upgrade and enrich ARPUs there is also a factor. So it's a blend of all of those things, plus of course the need for us to deliver competitive pricing to keep the churn, again I would say, a respectable level given a very competitive market with a lot of regulatory changes. And on the fixed side, you're absolutely right to point to no price rise this year. So that's the anniversary does have an impact. We've got the voice-based declining. We've had some upsides in terms of sport and TV as well as some regulatory in there as well, but I would say the big impact is the no annualized price rise as we shift that whole base to a CPI-linked contract. And as you've seen there, we're progressing that well, touching, getting close to half the base already on those new contracts.
The next question is from Paul Sidney of Crédit Suisse.
Just a question on the FTTP [ bill ]. You've very helpfully set out the further reassurances that BT and Openreach need to convince the 15 million, particularly business rates, long-term contracts and the fair bet. I was just wondering if you could give us some idea on timing of when we could expect further clarity on these issues. I presume the Ofcom may be some way off given that they only updated us 3 weeks ago. And just feeding on from that, when we could actually expect a final decision on whether you actually commit to the 15 million or not?
Paul, that's a million dollar question. Unfortunately, I can't give you -- I just don't know. And that's sort of my -- my sort of main message is we're really committed to trying to find a way of achieving -- or contributing massively to the government's ambition of full fiber to the whole of the country as quick as possible, with this target you know of 2025. That is an incredibly ambitious target. It is possible, but I'm not saying it's not likely. And therefore, to make it a reality, we have to move fast. Waiting another year, as an industry, for clarity around what actually the enablers are, whether it be fair bet, long-term contracts or cumulo rates, is not good enough, so we really need to have more certainty as quick as possible so we can even further accelerate our planning and commit to more fiber build. So I can't tell you when I'm going to get that certainty, but as soon as we get it, we will move even quicker. Cathryn, do you -- Cathryn, can you add anything to that? I've got Cathryn Ross with me, so maybe she can give you a perspective. Maybe she's got a magic crystal ball.
No, I don't have one of those, but I can add a couple of points. I mean the first is obviously that the Ofcom remedies do need to come into force in April 2021. So Ofcom said that it's expecting to put out its statement, its final decision on those early in 2021. Obviously, earlier than that would be good, but that's the timescale they are working back from. The other thing I'd say is just to draw your attention to what Ofcom is saying in its consultation document about how it's going to be treating commercial contracts that Openreach wants to enter into with CPs because I think they're very clearly flagging in the document that they're going to take a case-by-case approach to that. And that has pros and cons, but one of the upsides of that is it does mean that we can engage in constructive conversations with Ofcom on a case-by-case basis on those contracts as and when we need to. And of course, as you would expect, that's what we're doing.
The next question is from Nick Lyall from SocGen.
Yes. It could be a bit similar actually. I was -- your comments, Philip, on the long-term contracts. Could you just expand a bit on what's the constraint now and what you're being held back from doing? I still don't quite understand what this new enabler might be. And a little bit like Paul's point there, given this is new, doesn't this just mean a big extension to any discussions you have with Ofcom? Is this not a bigger risk than before given it's a new enabler?
Well, again I'll get Cathryn give her perspective. I mean, Nick, what we're really saying is this is -- and again you've got -- everybody on this call will understand this, that this is a very, very long-term investment and has enormous numbers to it and massive implications. And we need to get it right, okay? So we're talking about billions of pounds of shareholders' money that needs to be very thoughtfully invested. Do I believe there's a very strong business case in it somewhere? 100%, but I've got to make sure that the framework and the enablers allow that. This specific is a new development. And again it's a complicated program, right? So it's a new development, which means, indicates that we will have difficulty signing up our customers to long-term contracts. And ironically, all our customers want to sign long-term contracts and we would like to sign long-term contracts. What that means is it gives us a bit more certainty. There's huge risk in this by definition, but it means we could build quickly, very importantly migrate quickly and deliver exceptional value for the end consumer. So I feel like we are close as an industry to aligning around that sort of focus, which is a massive build, massively quick migration and a fantastic consumer proposition at really compelling prices for a product which is way better. We're just struggling to find a way to get that agreed because, I think, there's a resistance to -- from Ofcom for us to sign those long-term contracts. And I understand some of their perspectives on it. What we're really looking for is that contract term, those volume of lines to migrate and the speed of migration make a big difference to everybody. Cathryn, is there anything I've missed on that or anything you want to add?
No. I mean I think you've covered the ground pretty well. I mean I think what's become increasingly clear over the recent months has been the importance of getting those long-term contracts in place in order to underpin the risk that we will be taking in making the FTTP investment. If you remember what I was saying a few minutes ago about being in ongoing discussions with Ofcom about the sort of commercial deals that Openreach can put into the market, one of the things that has become clear is that Ofcom, for entirely understandable reasons, does have some potential concerns about the duration of those contracts, which is why we're really calling that one out now as a specific issue. But as I said, on the upside, we are in constructive discussions with Ofcom right now about the nature of those contracts. And you can see from what they've written in the document that they are up for that, but we're not over the line.
Yes. And I've -- I'll just -- sorry, just to underline what Cathryn -- it's a really key point. We're in an incredibly good situation in that the conversations across the industry, all providers and Ofcom are very collaborative, very constructive. What we're really saying is, against the target the government has set, we haven't got time to waste. And all we're saying is can we -- since we are -- seem to have a lot of alignment, can we agree things so we can push the button even harder? That's really the main point. And this is just a sort of a new issue that's come about. I'm sure we'll get it resolved somehow, but it just takes time.
The next question is from Nick Delfas of Redburn.
Just a quick follow-up on Huawei. You mentioned that there was a net figure, as opposed to the gross figure of GBP 500 million. Can you just explain what you're netting off if you were to net off? And also, on the front-end loading, could you talk a little bit more about why that is. And presumably it has to do with stripping out 4G equipment.
Yes. And Nick, it's Philip here. I'm a bit confused by the gross now. I think all we said is it's GBP 500 million over the next 5 years, but it will be very much front loaded for obvious reasons. So I don't think there's any -- unless I've missed something, I'm pretty sure there's no net anywhere, so can we just stick with one number? It's GBP 500 million. That's the number. It will cost us around GBP 500 million, our current estimates, over 5 years, mainly front loaded. On the second part of your question, why don't I let Howard, who's here, give you his perspective on the way we're going to transition to make sure that we keep building but also not incur any costs that we don't need to?
Thank you, Nick. And I think, as Philip mentioned earlier, the key implication, particularly on mobile here -- and Philip mentioned the need to replace 4G equipment. I think it's important that I remind everybody that the way we deploy 5G in the industry today means that we have to use the same vendor for both the 5G and the underlying already existing 4G. So as we go to a site to rebalance and add 5G from a new vendor, we will be at the same time replacing the 4G equipment. That is essentially why there is a premium here in terms of a part of that GBP 500 million. A long-term benefit here is we are refreshing that 4G infrastructure in the plan, so I think over the longer term there is some benefit there but certainly not within the 5 years and hence the GBP 500 million.
Yes, Nick. Sorry, I just had Marc Allera just whispering. Maybe the net thing that people have referred to, maybe that sort of some mitigating actions point, I don't know if that's right, but I'll make a comment on it. The way that Howard described it is it being 3 years does mean we move very, very fast to do what Howard has just described. We would have been refreshing the 4G anyway at some stage, by definition. We had a plan for that. What Howard is saying is we're going to have to do it quicker. So there's some benefit to it because it will be upgraded kit, but at the end of the day, we're ripping out working 4G kit from Huawei and replacing with someone else to make the 5G work. So that's how we got to the major amount of the GBP 500 million, is in that category. Does that help, Nick?
Yes.
Next question is from David Wright of Bank of America London.
And I'm just going to come back to the long-term contracts a bit, I suspect this will become quite a debate. But I guess it's very easy to understand why you guys would want it, because you're committing the capital. It's very easy to understand why Ofcom, I suspect, will be a little bit more cautious. But in any case, can you give us any indication on your current volume-based discounts? On the -- any potential early exit fees? Is that a standard early exit fee across these contracts, or is it contract by contract? How should we be thinking about any resellers who are maybe with you now but look at alternative wholesale providers and then decide to swap over? What is the kind of materiality of exiting the current volume-based discounts?
I'll let Clive just comment on the volume-based point. Let me just make one other comment. If the national mission is to build full fiber across the whole country, and this is the central point, BT cannot do it all. I mean, at best, we're going to cover in the time frame -- I don't know, let's say, let's call it 2/3 to make it easy. And we're saying today we will make a commitment to building the rural areas if the circumstances are right, if we get all these enablers and the cumulo. So we're building as fast as we can, say, until 2025, which is the notional target. We can't cover the whole country in that period of time. So other people need to build, which they are doing, and they will then offer those services to CPs, so there's room for everybody to do a good job here. That's the key point. So when we're doing sort of volume discounts and long-term contracts with our customers, it's not in a way which is dampening competition in the way that you might think it is because there's plenty of room for everybody. Clive, do you want to talk about the specifics on migrating?
Yes. So David, I think what you're referring to is the existing volume price deal, which was really about encouraging all of the CPs to move their base at pace from old exchange-based ADSL broadband mostly to VDSL. And we have a huge footprint across the U.K. that addresses up to 28 million, in fact more than 28 million, homes. But also to G.fast and also to the early FTTP footprint. The discounts that we gave under the volume deal are very significant and have encouraged a rapid move from ADSL, particularly, to VDSL. So we're pleased with the outcome. We do preserve and defend the right of the small alt nets to take portions of the base. So we have a carve-out arrangement that makes that possible and doesn't stop the big CPs from putting their volumes with alt nets. If, though, alt nets fall short of the migration targets that they have agreed, they do lose their very significant discounts. So the volume price deal is a 2-way deal. You get big price reductions, but you have to give me the volumes, all right? But there is a carve-out for the smaller alt nets so we protect those new players in the market. And as Philip says, we recognize that if we are to FTTP the nation at breakneck speed, whilst we will do the bulk of the heavy lifting, we do expect others to have to play a role...
Exactly. And just, David, to make sure -- just to try and make sure that -- answer from another angle. Put another way, if we're to do what Clive just described as an industry and fiber the whole nation, if you were a CP, you will have to do deals with other people than BT, Openreach. And there is no way around it. And I -- so we'll always probably be the largest provider, but we will not be the only provider. And there'll be many others delivering, hopefully, equally good products and services.
And if I could just add onto that. That's very useful answer. And this may sound a little bit basic, but does a long-term contract -- are we talking, what, 5 years-plus? Is that the kind of contract we're -- you're discussing with Ofcom?
No, longer than that. I mean I think you've got to -- I mean again you'll know this. If you look at just the cash flow profile of this, this is massive upfront investment. It takes a long term -- long time before we see any cash back. Now obviously the benefits of having an infrastructure will go on for, hopefully, decades. So no, we're looking for much longer term than 5 years.
Next question is from Stephen Howard of HSBC.
I wonder if we could return to this government clarification on the use of certain vendors that you've costed at GBP 500 million. Now I imagine there must be a flex here between spending more and spending the same but over a longer period, and I'm just wondering sort of how you decided on the right balance to strike there. Because I -- well, certainly from my perspective, I'm pretty unclear as to the monetizability of 5G. And -- but therefore, what I'm wondering is why the response to this isn't simply to simply deploy 5G at a somewhat slower pace. If on the other hand you're insistent that you have to be rolling out 5G very, very rapidly, then it would be great to see some evidence for your confidence there in terms of the outlook you're providing.
Sure, okay. Great question. Thank you. Well, a couple of things. Firstly, I think we see 5G as a significant opportunity over the medium to long term. It will take time for it to ramp up. And again one of the great things, as you can -- heard from what I said today on Enterprise, we see opportunities on 5G in the future which are very significant, okay? They need to be tested and rolled out, but there's big upside, we think, from 5G in Enterprise and, of course, in Consumer. It will take a little while for those propositions and products and services to emerge and, again, for us to get the revenue from those things. So -- and I'll let Gerry give you a little perspective on that in a minute. In terms of your question around the spend and the rollout of the network. Again it's -- I sort of said it in the original, first answer. I think the reason it costs us this money is twofold. One, it's partly the 3 years as opposed to, say, a 5-year time frame, but more importantly it's what Howard said, which is if you have to hit 35% both of masts and of traffic, that's the thing that, if you can imagine, if we're building with one supplier in highly urban areas where the number of masts might be significant but lowers the share but the traffic is very high, we need to rebalance. It's -- that's the key point. So we need to make sure that we have fantastic 5G coverage in urban areas where it's very, very competitive and where most people build first. So that's where most people are. Given that the traffic is also a determinant of the 35%, we'll have to take some stuff out of there and replace it with other providers. That's why it's costly. Gerry, can I ask you to make some comments on the benefits of 5G in Enterprise?
Yes. I mean I think you -- what we've seen is what we always thought, that 5G would be of immense interest to enterprises. The thing about 5G is, though, it's -- you've got to think about it as broader than just a mobile technology in terms of handsets. What we see is part of an ecosystem of artificial intelligence, machine learning and software-defined networks. And it's been really interesting, what we've seen over the last 6 to 9 months, is high volumes of customers coming to us, not just because of 5G but because of leadership across all of those things, looking to work with us to see how they can use 5G to innovate within their businesses and looking at what software -- what solutions they can find in there to their business problems. And we've got -- and I think we've talked a couple of times about this, Philip mentioned some of it in the commentary at the start, but everything from broadcast, health, manufacturing -- and we're going to start to see manufacturing. We already started to have some conversations about how we use edge technology in 5G but, much beyond that actually, about how we get to private networks around 5G and software-defined networks. So we see it as a major opportunity, but 5G will develop over a couple of years. So we're using a mix of 4G and 5G technology today, but that will evolve as we get the new standards coming through. So medium to long term, real opportunity there. And actually we see the seeds of that just now with a lot of large customers.
Stephen, is that okay?
Well, I mean I guess the pushback is just when do we see that reflected in your outlook?
Yes, we understand that. So that's always the nature of the game. We understand it. It's challenging. You have to build the network first and the revenue comes later. I understand the pushback. It's a very valid one. We've still got to do the work with our customers to size that benefit, but unfortunately we're absolutely certain we need to build a 5G network right now.
Your next question is from John Karidis of Numis.
If you can, Philip, if you can't answer this directly, if you could sort of talk around it, please. I mean the question essentially is, if you don't get the clarity that you're looking for on cumulo and the fair bet and the long-term contracts, if you don't get that by May, are you likely to leave shareholders hanging with regard to the dividend just for fiscal '21? So since 2011, BT has been giving at least 1 year's worth of dividend guidance. And it doesn't look like you'll get this clarity in May. Shall we prepare ourselves for no guidance? Are things really so tight that you might be able -- that you might actually do that?
John, thanks for the question. I appreciate it. And I know how important that is to all of us, right? I guess, in terms of your point about what do we get based on the sort of outstanding obstacles that need to be resolved, I guess it's -- like anything in life, it's a balance. And it's a package of things. So we need to get the answer in the round that makes sense for our company and for our shareholders and such that, when we get that clarity and we make a decision, we have conviction in what we're doing. And I can look at the shareholders and say this is a very, very good way of deploying capital. So that's the fundamental answer.On some of the specifics, do we need it all? I mean, ideally, of course, yes. I mean, if I simplify one -- I mean let's simplify it. Cumulo rates, it's GBP 1 billion. That is 3 million homes. It's that simple. So if I look at that one. If the government is really, really keen to make it a national mission, GBP 1 billion equals 3 million homes. I mean just make a decision. So -- and I understand, of course. And again, I don't want to sound harsh there, but the point is I understand that everybody's finances are under pressure. The country has the same, need to balance their books as we do. So look, I'm very well aware of the implications for our shareholders and indeed our colleagues in terms of the uncertainty around all our colleagues, the shareholders and -- are going to be in that same situation. So I can't be certain when we will make that decision. As soon as we get to a point where we have enough clarity to feel comfortable of doing it, we will then decide. And at that point, we will communicate how we would fund the investment profile that's involved in the FTTP and anything else that we've talked about. So again, I don't want to dodge the question, but I can't give you the answer that I think we'd all like me to give.
Sorry. I wasn't actually asking about a dividend cut for a number of years. I was asking about the dividend for just fiscal '21. So if you don't have the clarity for just in May, will you not give dividend guidance just for fiscal '21?
I don't -- at this moment in time, John, we can only react to the facts we have. And I just don't know. So I don't know what's going to happen in May.
Next question is with Sam McHugh of Exane.
Just probably to follow up on that point, and apologies, it's a slightly long-winded question. You've talked in the past about potentially reviewing the dividend policy if you did see the opportunity to invest in fiber.
Yes.
And I just wonder if you still feel comfortable with that. And I say that because, if I look at this year, you expected to do around GBP 1.9 billion of free cash flow. Something like GBP 100 million of that has come from [ sale mix ]. If we take off GBP 100 million for Huawei in the next 5 years. You take out the lost Virgin Media contract. You're averaging at around GBP 350 million of restructuring, which all then probably leaves underlying free cash flow of GBP 1.2 billion versus the dividend of 1.5. And that's really before pension or spectrum costs or from the impacts of any of these wholesale deals between your competitors. So to me the dividend looks pretty unsustainable before we even think about fiber CapEx. So I just wonder where I could be wrong. And I wonder if you could actually cut the dividend before the fiber confirmation. And then I wonder whether the upcoming pension triennial review has any bearing on the dividend policy as well.
Yes. And look, thanks for your question. I mean we've sort of given the answer before, but I do appreciate what you've just said. Why doesn't Simon give you his view on that?
Certainly. So a number of factors, Sam. Firstly, we've been clear in the outlook we've provided that we're confident in our outlook for this year. And we sort of stand -- remain confident in our outlook that we'll see some EBITDA growth into next year. More importantly, coming back to the cash flow point, do bear in mind we had always guided to this being a challenging year on cash flow. Firstly, we had a significant ramp-up in our CapEx at the back end of last year. And therefore, quite a lot of that CapEx cash flowed into this year; and so our CapEx, cash CapEx, this year is particularly pronounced. Secondly, the continuation of the higher tax payments have flowed through into this year as well. So I wouldn't be thinking of this year as the baseline from which to think about cash flow, for those 2 reasons and because we see a business that needs to drive EBITDA momentum moving forward. Secondly, in terms of how we consider the pension deficit, we've also made that point clear, which is that we look for the normalized free cash flow to cover our reinvestment in the business and our dividends and a level of sort of through-cycle restructuring charges, but the pension deficit payment, we essentially meet from raising financial debt and reducing the pension debt. And that will remain our policy. The wider unknown, which I'm not going to talk to, clearly, is what happens to macro, interest rates and therefore what happens to the overall pension deficit and therefore credit metrics. And that would -- if we had a change in that regard, then that could be a factor which cause us to reconsider that policy. But that's where we stand today.
Can I just follow up? With the trustees, are they asking you for clarity on CapEx and dividend, kind of -- I know as we approach this period, is that an important factor to those guys?
We go into a -- every 3 years, as you know, we have a engagement with the trustees where we agree the valuation of the deficit and we agree a long-term funding plan. That process starts in June this year. And one of the sort of key components of that is for the trustee to understand BT's longer-term strategy, the strength of BT as a sponsor. And the trustees are very supportive of investments that BT makes in building long-term infrastructure that provides a strong return because that's exactly aligned with the pension trustees' interests as well. And they also understand that it's a decision that we have to get right with the right enablers in place, and we'll be patient to ensure that the right decision is made and they've got us investing in the right long-term assets.
Yes. And Sam, it's Philip here again. And John, just to say I don't think we're being evasive on the question. We're not. We're just -- what we're really saying is we want all the facts that -- and lay it all out. It's all connected, by definition. And inherent in your question, it sort of says that. And what Simon is really saying is we need to lay it all out, look at the whole picture. And then when we've got that, we'll have some clarity on what's required, and then we'll work out how we fund everything. Good. Sam, thanks for the question.
Next question is from Jerry Dellis from Jefferies.
Question is really on what will be your fallback position in the negotiations with Ofcom. So if you were unable to secure a package which in the round works for you, you've presumably thought about the scenario as to how much you would invest, how much you would focus fiber build perhaps some of the cable areas where your market share is on the lower side and the consequences for capital spending into next year. Would be interested for clarity on that, please. And just as an adjunct to that. Under the terms of the existing FTTC volume contract, would a demerged Project Lightning entity count as a qualifying alt net? In other words, an alt net that will be small enough that CPs could carve out some volume to it without the loss of their discounts.
Great questions, Jerry. The alt net one, I think the answer is probably yes, but you guys can think about it while I -- the answer is yes. So...
The answer is yes.
The answer is yes. I thought it was. So the answer is yes on that, on the alt net one. On the fallback, I mean what I'd say is there is a scenario that isn't that attractive versus the overall target that the Boris Johnson government has set out, right? And it's sort of what you've implied. I have to tell you that, over the last year, the industry has worked so well together under the guidance of Ofcom and DCMS. And I have every confidence that Ofcom and DCMS and the industry will find the right answer here. So of course, there are scenarios that are far less attractive, both from a national mission point of view and full fiber in the whole country but also for specific operators, including ourselves. So at this moment in time, whilst I'm very clear there are some big hurdles, there are not that many anymore. We've been very specific and clear on them. I'm actually confident that we'll get a package of things that make it attractive to do what we want to do. The challenge is can we do it quickly enough to allow the industry to hit the target that's been laid down by the government. So it's a really important question. If things roll out differently and we fail -- and I mean -- when I say -- we, collectively Ofcom, us and the rest of industry, fail to find a way forward, then we'll have to come to you and explain what our alternative options are. Of course, have we thought them through? Have we got different scenarios planned out? Of course, we have. I'm still going for the best scenario for everybody, which is what we're implying by what we said today.
Is it possible perhaps, to lay out for us, because I think the visibility will be appreciated, what the alternative scenario might look like, please.
No, Jerry. Sorry. I mean again the thing is there are so many different assumptions in that scenario planning. We'll create a whole industry of even more uncertainty. So we're doing it for scenario planning so that when we make the decision, we've got complete convictions. We understand every moving part. You'll probably have to work it out for yourself. I mean it's not that complicated, but you can get yourself torn up in knots when you start moving those assumptions around. So very happy for you to have a go on your model. And the 2 [ Marks ] are nodding. They'll talk to you about your model, but as you know, there are so many moving parts and assumptions that can make things very, very different. Sorry, Jerry.
Next question is from James Ratzer of New Street Research.
Yes. Can I come back to the question about Huawei, please, and the kind of upfront box removals you're having to do on 4G? Could you just run through today what market share Huawei actually has in your 4G access network, how many sites specifically you are going to be upgrading during this period where you're going to have to strip out that equipment and if we are, I suppose, approaching the end of the quarter, I've got a quick second question. Could you give us an update on what's happening with you launching the Sky Sports and other Sky content channels because that now seems to be about a year overdue. So I just wanted to hear an update on what's caused that and when that launch is scheduled for?
Yes, that delay is Marc's fault, by the way, so I'll let him talk to it. Why don't you -- Marc, why don't you -- Marc -- cheers. Marc, why don't you answer that question? We're about to launch. And then we'll answer the other one.
It's happening -- I'll be very -- I'll say it in a word: imminent, yes.
Do you mind -- just what -- why -- what caused the delay on that, please?
So I shouldn't -- can I just do it? I was just joking, obviously. The delays to do it, it's complicated IT technology between both us and Sky. We're working really well together. There's no other reason. It's just on the stack of stuff, on the pipeline. We do it with both companies doing so much, it got delayed because it's, as ever, a little bit more complicated than we thought. So I shouldn't have made that joke because everyone -- it'll appear in some analyst report now. So I apologize. Marc, do you have anything to add to that?
No, no. It's very close now.
It's coming. By the way, I should say, I mean all joking aside, it's a significant move, right? We're going to have a very much more powerful TV proposition, which is great for our customers. And we're really pleased about that. And it's a good deal with Sky as well, so it's good for everybody.James, I'm probably going to disappoint you a little bit on your first question. I think I can only repeat what I said before. We are the leader in 5G today. We've got more sites than anybody else. We've got better coverage. We've got better speed, better performance, and we're really pleased with that. We're going to maintain it. But the challenge is, when you put a 3-year time window on it, which is -- it's fine but it has implications, by definition, the first part of what we did has been skewed heavily towards Huawei, of course, on 5G. And we've got quite a bit of 4G more than the 35%, obviously. So migrating it to that 35%, both on number of masts but also traffic, when the traffic metric is defined, will cost us the kind of money I talked about, circa GBP 500 million over 5 years but the vast majority of it front loaded in the first 3 probably. But again, we haven't worked out all the detail of the phasing of how to do it. And that's all the detail we can really share with you today.
But is it [ nearing ] several thousand sites you're going to be stripping out? Or is this kind of north of 10,000?
No, no, no. It's nowhere near that. And actually Howard gave you a very important bit of information, which is there is -- although the cost is disappointing, of course, what it does do is we refresh our estate in the way that everyone would. And so as we take out those 4G boxes, are we taking them out earlier than we would have done otherwise? Of course, we are, but we're replacing them with the very latest kit. And it will be enhanced, by definition, because things move quickly in technology. So there's a silver lining to a certain degree.
The next question is from Charlotte Perfect of Arete Research.
Yes. On the FTTP rollout. Just bearing in mind both the government's ambitions and your comments around needing many operators to achieve this and then the press article around achieving alternative models in the final 1/3 potentially, are you considering alternative business models for FTTP, for example, a spin-out [ infra fund ] investment, deconsolidation of CapEx? I'm just thinking this could overcome some of the potential concerns or issues that you -- that investors face. So would you consider? Are you considering this? Are you discussing these kinds of business models with the government to achieve their ambition?
What we're considering is using the government subsidy in the best possible way. And again it sounds obvious, but trust me, using that GBP 5 billion wisely and making sure that the mechanism that is used to roll out those funds on the build across all players needs careful thinking through. But again, we need to get on with it and the industry and Ofcom and DCMS need to agree how that works. So that is a funding part which is really important. And that is a -- there will be some collaboration on that from the industry. We're really focused on Openreach delivering its plans as quickly as possible for the country in the way we described before. So we're not looking at new business models from that point of view, with one sort of mini exception, which is in that final 1/3 there is going to be a requirement to ensure no overbuild that's uneconomic or irrational because lack of transparency. So what we're advocating is in the final 1/3, the industry should collaborate to declare what they're building so that we don't accidentally overbuild each other in places that are uneconomic and would normally get a subsidy. It's that nuance which is important to land for all of us, and that's what we're working through.
And your next question is from Siyi He of Citi.
I just wanted to circle back to the Consumer, please. I've noticed that the EBITDA trend in Consumer seems to be down similar to last quarter despite you mentioned that CapEx will be high in second half and the service revenue trend is weaker. So I'm trying to understand whether this has been better cost controls to offset the higher OpEx. Or we should expect the OpEx increase to come through in the coming quarters. And a second question, also on the consumers, is that on the fairness agenda and the related back book repricing issue, the industry seems to thin -- seems to suggest that the front book prices could be too aggressive. So I was thinking whether, BT as incumbent, you will see that you could take the lead to restore the front book prices. Or you think that, for the moment, customer retention remains the priority to your business plan.
Okay, thanks. Well, let me just make a comment on fairness. And maybe, Marc, do you want to give your perspective on the EBITDA trend; and also the front book, back book thing? I mean, that fairness agenda, I think it's really important. And front book, back book is a real challenge. So I think what we are -- we've made a number of moves Marc can tell you about on the fairness agenda. And I think we are leading in a whole host of areas, right? So the amount of things we do for vulnerable customers, I think I would argue we take a really strong leadership position on that. So we take that very, very seriously, but you're right to point out the front book, back book. And there has been some movement on the front book a little bit over the recent 6 months or so, and we hope that will continue. So yes, of course, we understand we play a leadership role, but it's also a very competitive market. And it's often the case that in many, many markets people run promotions to try and attract new customers, particularly in places which are very, very competitive. So it's trying to strike that right balance. Marc, do you want to give a comment on EBITDA trend; and then your view on fairness; and the front book, back book thing?
Yes. And I suppose they are related because part of the fairness agenda is the very significant number of customers we are going to be migrating from copper to fiber, which has started but does really ramp up over the next couple of quarters. So our costs that we pay to Openreach for that migration, you'll see increasing as the customer numbers increase as well. So I think efficiency, productivity, we've still got opportunity to improve that. We have a very close eye on the overall cost base. We've made some big investments which will help efficiencies for the longer term, both in retail and in bringing back all of our call center teams to the U.K. and Ireland as well so that we'll see that, happier customers, lower churn, a much more efficient CPI-led price model, will reduce a lot of the spend and inefficiency we've had in the previous pricing model. But offsetting that and certainly over the next couple of quarters, we've got this big migration happening of customers.Just to build on some of the fairness points as well. Philip has touched on a lot of them. Just a reminder, those customers without access to superfast, they will pay no more than entry-price fiber. That's happening over the summer. We've got a one-off automatic price reduction for vulnerable customers. We're going to be capping the out-of-contract price rises that customers historically received. And this building of the Halo base, which is really important, that's the base of the future; converged customers getting a premium service, many of them already with mobile, a growing number, taking mobile, which does impact the mobile ARPU. But overall, net-net, we're getting incremental customers and much more valuable customers that way. And existing customers on Halo will always get a better price than new. So not all of our base has been addressed yet through the fairness agenda, but we're making great progress through it. Over the next few quarters, you'll see that impacting on the EBITDA line as the costs improve -- costs increase, rather. But you can see in the churn and the lead indicators that Philip has touched on in terms of customer complaints, which is a great lead indicator of satisfaction, improvements starting to come through as we change the base agenda.
Great. Thanks, Marc. Well, I think we've got one more question I can see on the -- it's Nick again, I think. Is that right?
Sorry. There's no further questions actually.
Brilliant. Okay, thank you very much.Well, listen. Thank you very much, all of you, for your time and contributions and, as ever, very, very good questions. I hope we've managed to give you some of the answers that were helpful to you. And we look forward to engaging with you over the coming months. Many thanks.
Thank you for that. That does conclude the call for today. You may all now disconnect. Thank you for joining, and enjoy the rest of your day.