Vodafone Group PLC
LSE:VOD
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Good morning, everyone, and thank you for taking the time to join us, Margherita and myself, at our Q1 trading results announcement. You'll find on our website, hopefully, a comprehensive set of materials to help you understand our results. But I thought I'd just take an opportunity just to touch very briefly, 30 seconds, on just the key highlights before we then go on to questions. We are back to service revenue growth in Europe as well as Africa with over a 3% growth in the quarter, and we're growing in both consumer and business. Around 1 percentage point of that growth was clearly a lapping effect of COVID-19 last year that obviously suppressed our results. But even excluding that, I would say that is a very healthy growth rate for us as a business, and we are firmly on track on our guidance. Now clearly, we're not back to normal yet on our trading activity, our commercial activity and sales volumes. Footfall in the big 4 European countries in aggregate was around 40% below pre-COVID levels. So we've yet to see that retail pickup that we are looking for, and this was particularly evident and heavy in Germany. We have seen in more recent weeks, as retail stores have started to open up, volumes increasing. And therefore, we look forward to the back-to-school season that we're going to see. Obviously, if activity was low, you can see from our churn numbers that in Europe, mobile contracts, if we exclude Spain, which had a specific legislation adjustment in COVID last year, you see that we were down 1.4 percentage points year-over-year. So we have good churn trends across the vast majority of our markets. In business, we saw service revenues grow 2.7%. We saw good growth rate in our digital services. Clearly, the 2.7% was enhanced slightly because of, obviously, again, the COVID impact of last year. But we definitely expect and have been engaging with governments in terms of the EU recovery funds, which we should start to see coming through in the second half of this year. In Europe, more broadly, we grew service revenue in all markets, except Italy, and we had a particularly good rebound in the U.K. and our cluster Europe other markets. Vodacom maintained strong momentum, and particularly in financial services, which were up 34% in Q1. And we are due to launch our Vodacom super app or VodaPay super app in the coming months in South Africa. Clearly more to do, particularly in accelerating and improving shareholder value, and we remain still very focused on optimizing our portfolio moving forward to ensure that we keep shareholder very much in our forefront of things that we are focused on. And on that, Margherita and I will take your questions.
Our first question today comes from Andrew Lee from Goldman Sachs.
Nick, Margherita. I have a question on the revenue growth outlook. In the first quarter, there's great trends with easy comps but suppressed commercial momentum, and particularly in Germany. So the question is, is the first quarter '22 growth rate a high watermark for growth during the year? And how should we think about commercial recovery through the years, especially in Germany?
Well, I'll let Margherita answer in terms of service revenue sort of outlook or view. I'd just say in terms of trading, I mean, clearly, these remain challenging times. I'm not just talking our industry, challenging times for everyone. And it was always very clear that this would not be a linear recovery. So we should expect bumps in the road. We are expecting bumps in the road in terms of how we're looking at things. Clearly, as I said, I'm pleased with the 3% growth and the underlying growth rate that we had, and we're firmly on track on our guidance. I'd say in terms of commercial activity, if I look, it's clearly has been suppressed. If we pick Germany, as your example, what we saw in April, May was footfall down 80%. It did then start to improve to June, but still down 50%. So we are, by far, not there yet in terms of normalization. If you look at examples of Spain, Italy, on mobile net port, these are still down year-over-year. So I would say, overall, you're just seeing a lower level of activity. And as I say, you see that in our churn. So I think this is the case of, let's see as we move into the back-to-the-school period. I think that becomes very important. We've certainly focused on the propositions, the promotions, the above-the-line campaigns, that we will be hitting on back-to-school, and we think that, that will reignite our commercial momentum.
On service revenue growth, of course, Q1 was a very, very special quarter. We have seen roaming moving from being a headwind to a tailwind now. And on top of that, we have had this, what I call, one-off effect from last year at this time, seeing the effectively shock of the pandemic in our markets. If you remember the presentation we did a year ago in Q1, we were calling out a number of effects, particularly things like business projects being delayed from Q1 into Q2 or prepaid top-ups being more difficult in some markets. And I would say probably the market which was most affected by the beginning of the pandemic was Spain, where the emergency decree was particularly severe. Taken in aggregate, these one-offs are worth about 1 percentage point, which, as we say, is not going to recur as we move into the next few quarters. But we are well on track to deliver growth this year, both in -- in Europe and Africa. And we are pleased with the momentum, as Nick was mentioning, on service revenue. One data point I would call out from that perspective is that now we have all the data from the last 12 months. And what we have seen is that if you take the 12 months to March '21 through the pandemic, we have outperformed in retail service revenue growth, all the incumbents and all the scaled players in our major European markets, both in fixed and in mobile service revenue growth. So we are pleased with where we are. Now you asked about the coming quarters, of course. And I would say, different growth drivers are affecting the profile for the remainder of the year. If I take in turn consumer and business, I'd say, in consumer, near term, we are going to get the headwinds coming from the lighter sales driven by the pandemic in the last 12 months. As Nick said, we are now focused on reaccelerating after the summer with the back-to-school perioded. And then it's very much fee per queue. So volumes, but also price. And on price, we need to see how the balance between the more -- for more inflationary pricing actions that we are taking works against the competitive pressures. In business, we are set for acceleration throughout the year. You have seen the good results already in Q1. We are also gaining market share clearly in business. And I think there, the speed of the acceleration will very much depend on the European recovery fund and how it will support our demand for, in particular, digital services. And so timing of that will be critical, and in particular, how much of that will fall into the second half of this year and how much will be phased over the coming years. But if I step back, I'd say, definitely, as Nick mentioned already, on track to deliver our guidance this year.
Our next question today comes from Nick Delfas from Redburn.
So just a question on African fintech, really. Obviously, you've got a fantastic business there, particularly in Safaricom, but also in Vodacom. And it could be worth well over 10p per Vodafone share. How do you think about -- how you illustrate that value to, I guess, the London market as opposed to within Nairobi, where it is relatively well reflected perhaps within Safaricom?
Yes. Nick, I think this is a really important topic. You know that I have spoken about and paved them out for 10 years. I mean I'm very passionate about the transformational nature of it. We've committed resource investment. We have never constrained the M-Pesa platform and really try to evolve it. I am super excited. I really think that the pandemic -- I mean, we have -- it's one of those platforms you have to do an awful lot of investment over 3, 4 years to gain scale and then become the default player within each of the markets. And we've done that investment over the last 10 years. We are the #1 player in all of the markets that we are in. So whether it's DRC with [indiscernible]. The [indiscernible] you say. So having built that position. And now to the question of how you can truly scale through more, if you like, user cases going forward. You saw that transaction volumes are materially up. I mean you've seen that in Vodacom International, the service revenue for M-Pesa was up 43%. I mean these are staggering numbers for a platform that's already #1 in the marketplace. And this is because we're really breaking out of just peer to peer. This is now companies paying their payroll using M-Pesa, people doing their utility bills using M-Pesa. So we really do think it's an ecosystem, a platform, that's our mindset. We're investing heavily behind it. One of the things we needed to start thinking about is that transition journey between feature phones and smartphones. So we're now doing mini apps that then will allow us to do things like savings, micro loans, funeral insurance, et cetera. And so this is a new product set that is coming to M-Pesa. And clearly, in South Africa, the financial services component will be done through what we're calling VodaPay, which is a super app, execution is slightly different. You add all of this together, it's talking 15% of Vodacom's service revenue. So when I've spoken to Shameel and we've strategized about where we want to take that, we've said, look, we really need to start separating this business out into separate legal entities, make sure that we show complete transparency of this business and what it means to growth and margins. And then that also allows us other opportunities inorganically going forward. And so I would say, at this moment, we're driving hard. We're investing heavily. We're doing commercial partnerships with Alipay. We may do other commercial partnerships with other people. I think there's an opportunity to take M-Pesa outside of our footprint in Africa because it's really getting traction. So many opportunities, organic, maybe inorganic in the future, separate out the platform and then think about how we drive for shareholder value.
How long will it take to separate out the platform legal entities?
We're running through that process, we have been for the last, I want to say, 9 months. We moved the platform down from the group down into Africa because that was an important component as well, hosting locally. And then -- so it's a -- there's a number of parts of the execution.
Our next question today comes from Georgios Ierodiaconou.
I have maybe a follow-up on some of the comments you made around back-to-school and commercial momentum. If we look at these results, perhaps the one area of weakness has been some of your KPIs, particularly in fixed. So I just wanted to ask maybe a general question about what are the issues you see in different markets, and particularly in some of the more competitive markets like Italy and Spain, whether there is a point in time where the KPIs take priority and you could perhaps take a bit more action in order to stabilize your KPIs and be more promotional. And then maybe a slightly separate question for Germany. Do you expect when the footfall returns back to normal levels for the KPIs to fully recover? Or are there any other headwinds you may be facing?
George, just maybe add a few comments and then Margherita can do some builds. Look, I think we, as a company, have always been focused on value rather than chasing volume. So we are a good rational player in the marketplace. We compete in a structural way now increasingly on a dual brand strategy. So for every market, from a pricing perspective, we go through an exercise where we identify the various brands that we're competing against and decide how we're going to position pricing versus those brands. And then we held that position. So if they move up, move down, we adjust accordingly, to ensure that. We have made it very clear what point of differentiation we have and where we need to match. So I'd say we stay disciplined on that. Clearly, if shops are shut and footfall's down, the worst thing you can do is throw lots above-the-line marketing money into a market that's pretty quiet. And this is an example in Germany. So when we saw that the retail activity was low, footfall was low, what we said is, for quarter 1 we're not going to go above the line. This would be wasted marketing resource. And what we'll do is we'll store that up for later in the year when we felt that all the stores would open. So I look, as an example, in Germany. Generally, this has been our approach across all of the markets. If footfall -- so U.K. retail has been open. We've been above the line. We've been commercially front-footed because it was appropriate to do that. Clearly, we manage our base, the lower churn, and you're seeing that in statistics. If I look at Germany specifically, I would turn around and just say, look, we have clearly shaped a series of propositions and promotions for the back-to-school. So I mean we're good to go as we are through the whole of Europe. We have worked our TV portfolio. I think it's a strong portfolio. We've been disappointed. We've not been able to get the retail stores because that's a really important part of the TV portfolio in stores. So we're good to go on the TV portfolio. We've harmonized our propositions and pricing. We've integrated our sales channels. These are all things we've talked about over the last couple of quarters, it's just we haven't had the retail estate to really drive this. So our view is as soon as that retail estate is fully open, we are on the front foot again and we are confident that we have compelling propositions to drive.
Just maybe to add that fixed is not exactly the same in all the markets. I think there are different dynamics across different markets. And there were just a couple of points I wanted to point out. One is related to consumer, and it's the fact that if you take a market like Italy growth has now moved very much into FWA as a source of expansion. And for us, FWA is reported within mobile. So just to keep that in mind when you look at the numbers because the market growth has really shifted there in consumer. And the other aspect is business. 1/3 of service revenue in fixed are from business, which is driven by very different factors. It's as much as 40% in certain markets now in Southern Europe. And as you have seen from our reporting in business, we are growing well. And we expect further acceleration because all the areas of growth in fixed that distinguish us, we have very little legacy products, we are focusing on SD-WAN. And other new products will be even more propelled by the European recovery fund. So I think it's just something to keep in mind when you project the fixed growth in the coming quarters.
Our next question today comes from Jerry Dellis from Jefferies.
Yes, I have a question really related to what you're seeing as the retail store footfall recovers in the months of June and July. How are you seeing that better footfall translating into net adds recovery? I mean, obviously, what happens in the rest of the year is highly uncertain. But perhaps if you could comment on what you're seeing in June and July, please, that would be helpful. And if you could make particular reference to the German situation, please, where I think we saw about 30,000 cable net adds in the last quarter, and those were essentially only migrations from DSL. It would be very interesting for us to understand what recovery you may be seeing in June, July there?
Well, Jerry, I don't think it's appropriate to get down into weekly projections, results, et cetera. I think on a slightly higher level, I would say, that as stores have opened, footfall is not bouncing back across retail, not our retail, but just the retail, full stop. And I think it's because a lot of that has been the fact that the stores have opened back up just as we're moving into the vacation period. And so I'd say people are prioritizing other things at the moment, I don't know. But -- so I would say this is very much -- the test will be back-to-school period. I'm seeing it more towards the end of August and September as being a more normalized activity going forward. You've seen everyone talking about the double jab, the certificates. You've seen what's happened in France, et cetera. So I just -- I just think at the moment, we are nowhere near normalization if we look at the month of June, July yet.
Our next question today comes from Jakob Bluestone from Credit Suisse.
I've got another question on Germany as well. Just trying to understand the weakness in net adds and a little bit more detail for fixed. Your net adds were down 70% year-on-year. Footfall in the shops is down 70%. The retail stores aren't your only distribution channels, you've got online, you've got phones and so on. So it just seems like that the net adds drop is bigger than the footfall. So presumably, there's something else going on. I presume your online sales aren't down 70% as well. So can you just sort of help us understand, is it literally just low footfall in the shops and low conversion? Or is there something more broad happening here in Germany that explains quite why the net adds are quite so weak? And maybe if you can also just contrast it a bit with the numbers we saw from DT last quarter, and DT is showing a much stronger fixed line performance. So if you can maybe just help us understand the differences in your trends versus what they've disclosed so far?
Jakob, I would say just in simple terms, when you're in lockdowns and restrictions, it's always going to favor the incumbent because they have a base. And they are constantly marketing to the base. Of course, we can market to our base, but what we're looking to do is take share in the marketplace. And that's why retail is a very important part to take share within the market. So what I would say is that effectively, churn levels are down, activity levels are down. If you were a customer at this point in time in semi-lockdown, are you really going to change your fixed broadband provider? It's not going to be top of mind. So this is what I mean. We made a conscious decision. We're not going to run above-the-line campaigns because in the end stimulating -- try and stimulate demand when people are saying, "You know what, I might think about it, but I'm going to do it when we're out of lockdown restrictions." So it's a very natural thing, in my opinion, that people would say, in that particular product, I'm going to wait until I know we're back to normalization and then I may consider a provider, in which case we will be very much on the front foot.
I'd say that for fixed in particular, you can subscribe online. But in most cases, you still need an engineer to come into your home to do the modification. And again, not something I think people would have wanted to do, particularly in April and May in Germany and probably not something you are very inclined to do at this particular point in time.
There's a real -- I think there's a real -- so you get the hard facts of COVID and then you get the sentiment around concerns. And I think the Delta variant coming into Europe has, if you like, suppressed a little bit because people are concerned. And I think it's only when they see, yes, okay, it's come through, maybe the cases go up, the hospitalization doesn't really move, confidence returns. It's a confidence thing. So I just think at the moment, people are saying, I'm going to stick with my current provider, as evidenced by our historically low churn in Germany. I mean it's not like we're underperforming on churn.
Our next question today comes from Ottavio Adorisio from Societe Generale.
Could you hear me?
Yes, absolutely.
Yes, loud and clear.
Perfect. Yes, just moving away from Germany and going to another country in Italy. Reduction in churn in -- has damaged Vodafone because in the market where you're winning market share, that has helped you in a market where you're losing market share, particularly in mobile. So I was just wondering if you can give us a bit of color what you would expect over the next few quarters, considering that the economy reopen, Iliad is very likely to be -- to remain aggressive. And in fixed, they're going to launch and much very likely the offering you have, particularly going to use the same wholesaler. So on the other side, you've got also competition from the incumbent, has recently signed their partnership with premium content with DAZN. So you got basically 2 different drivers coming against you. So how your retention policy is going to evolve in that market? And what you reckon will be your trends you're going to experience over the next 2 or 3 quarters given what the circumstances are today? And there is a quick one, unfortunately I've not been able to ask in the past, but I want to ask this one on India. India this week has filed with the Supreme Court saying that no public sector bank is willing to offer guaranteed Vodafone Idea. And the asset -- all the assets already secured to the -- with banks. Since September, they tried to raise funds. Now it's almost a year, no one has come with fresh funds because they want the controlling shareholders, i.e., Vodafone, to basically help out as well. So if you can tell us what's the strategy as it is now? You've been very firm in the past, at least over the last 12 to 24 months, not to bring fresh funds but -- and you try to look in the market. But so far, nothing. And of course, [indiscernible] been deteriorating, to say the least. So how are you going to break the impasse from here? Could it -- there could be some repercussion on to the other investment in interest consider that you guarantee the sales coming from Vodafone Idea?
Very comprehensive. I'll tell you what, Margherita, you take your home market and I'll take India. So do you want to go first?
Sure. Italy, very competitive, as you mentioned. We have some ups and downs regularly, particularly in the prepaid market. But I would say the last few weeks, the last couple of months in Italy have certainly seen an increase in competitive intensity. More allowances in mobile. We even had one of the -- of the 3 top mobile network operator going on TV with the headline of 5.99 for 100 gig, which clearly wouldn't see as sustainable. And the competitive pressure on pricing has also hit fixed. By the way, fixed is another dimension of what we were discussing earlier in Italy. We have seen, after a spike at the beginning of the pandemic in the fixed market, we have seen demand drying up, moving towards FWA. And in that context, price competition has heightened. And to your point, I don't see this as reversing imminently given that there is an upcoming launch of Iliad. So very competitive. Amongst the various factors, you mentioned the agreement with DAZN, I need to say, I wouldn't put in this intense competition, football on TV as a key factor in the Italian market, much less B2B subscribers, even less paying for football. It's nowhere near a market like Spain. And of course, also, football is available fully over the top as well. So I don't think this is going to be a critical factor. But back to what we see in terms of growth in the coming quarter, competition will continue to be intense. But at our end, you have seen the results improving. We are benefiting now, of course, from lapping the roaming drag, which was particularly strong in Italy. But in the coming quarters, we will also see the benefit of our new wholesale deals coming into line in service revenue. And then a little bit more in terms of medium term, the European recovery fund. We're mentioning it many times today, but Italy is the market that we get the largest allocation, EUR 190 billion, of which EUR 70 billion is grant. And it's fair to say that we are very well positioned ourselves in Italy to benefit from the increased demand on business services from the European recovery fund. I was mentioning earlier, 1/3 of our service revenue is business. We are consistently taking share of the market. And therefore, we have a really great asset to get advantage from this. We need to see how it will phase in terms of timing, but a general improving trend on the back of these factors.
Yes. And just turning to India. Really, India is a question for Vodafone Idea. So -- but within the going concern statement, they highlighted very clearly, they are dependent as a going concern on refinancing of debts that are coming due in terms of monetization of assets, in terms of government support, so AGR or floor pricing, et cetera, and raising funds. So I mean it is, as you say, a highly stressed situation, a difficult situation that they are trying to navigate. I mean we, as a group, try to provide them as much practical support as we can. But I want to make it very clear, we are not putting any additional equity into India.
Our next question today comes from Emmet Kelly from Morgan Stanley.
Nick, Margherita. I had a question just on your introductory comments, Nick. You mentioned that you, the management and the Board, are still looking at the portfolio and options relating to the portfolio to deliver shareholder value. Can you maybe just expand a little bit on your remarks and what options are open to you and the Board, please?
Yes, look, I think we have demonstrated over the last 2.5 years since I've been CEO and Margherita CFO that we are constantly optimizing the portfolio to drive shareholder value, and we will continue to do that very actively. What do I mean by very actively? I mean if I give you some sort of examples of areas. So Vantage Towers, we are really pleased with the fact that Vantage Towers is now up and running. What the share price has moved on just over 20% since the IPO. So I think that was vindication of the fact we kept the initial sale quite moderate, retaining approximately 82% of the interest in that company. I think we did -- the timing was a good timing because now we're poised to help drive 5G but also consolidate in, if you like, the early rounds of the sector in Europe. So I think that is a really good growth opportunity for us going forward and we would want to take that. We are clearly open to, as I've said before, co-control scenarios. We're sort of like-minded industrial players wanting to do combinations in the future, so we would certainly explore and entertain those type of discussions. So we've definitely want to do more things with Vantage Towers going forward. I'd say second space would be in Africa. Clearly, we have Egypt, and you saw that we did a new shareholder agreement with Telecom Egypt. That gave us the optionality, not obligation, but optionality, to move it within the group. We could potentially move it to Vodacom. That could always be a scenario. You know we did that with Safaricom and I think that was very successful. Clearly, no obligation, but it's an option for us to explore. And then finally, I would just say, just in general, consolidation through Europe. I still think that there's opportunity to consolidate. I think that in terms of how governments are now viewing consolidation, I think they've seen how critical we are as critical national infrastructure. They understand the returns issue of the sector now. I really think they understand that. I'm having a series of very good conversations. I was talking to the Secretary State for the U.K., as an example, earlier in the week on this particular topic. And I think they want to make sure we are a healthy sector because they understand that we enable world sector of sectors. So we enable all other sectors. And therefore, they need to have competitive infrastructure for the country to be competitive globally. So what I'd say is that conversation around what is the right amount of infrastructure in the country, whether infrastructure can consolidate versus retail and other permutations. We're exploring a lot of different aspects, I would say, to see what can be realized. So I'd say very, very active in this area and we'll see. Of course, it comes with complications because you've got EU Competition Commission. But even Commissioner Vestager was commenting, saying that she was holding a meeting in October to really sort of stand back and start the conversation around the competitive framework that exists today. Now it might not change at all, it might be slightly moderated or they might do something more substantive. But I think conversations around things like the definition of the market in which you participate become a more relevant conversation. We argue they more too tightly define it at the moment and it's broader than it looks. And things like ensuring that they are reinforcing and enforcing our competition law when needed more rigorously than they do in certain situations to stop abuse. These type of things, I think, could be all positives in terms of direction.
Our next question today comes from James Ratzer from New Street.
Yes, Nick, Margherita. So a question really on your business outlook that you are seeing in the commentary you've given there. So firstly, I suppose at the full year results, you announced an increase in your CapEx spend focused on business initiatives, and you said some of that was going to be success-based. So would love to hear an update on what success ratios you are seeing at the moment in some of those IoT and campus network project. And then secondly, you talked a bit about the European recovery fund, which I think, we all agree, has the potential to be very significant. Would love to hear kind of what you're seeing now bottom up on the ground on your ability to actually then bid for some of these contracts. What are you hearing from the SMEs who some of these funds are going towards to digitalize and your ability to then win some of the contracts from them indirectly?
Yes, James, let me -- I mean, first of all, so we announced saying we're going to invest in digital services. It does take us a while to build these digital services. If you remember, we were talking about a lot more integration of other people services onto our platform so that we can bring those services to life. So can I give you a tangible example because it sort of somewhat answers both. Spain is a really good example of the EU recovery funds. So they -- the Spanish government, I mean, I've been impressed at the speed that the government has moved out. I mean since I met them in April, and I went through here's what you could do to make a difference for our sector, I mean they have hit every single point that I discussed with them. So whether it was the good spectrum outcome that we have with lower pricing, et cetera, whether it's lower taxes that we're going to get sort of tens of millions benefit moving forward. The third was around where could you really make a difference on accelerating digitalization and SMEs? So they have badged EUR 3 billion for the digitalization of SMEs, but already have said that they will release EUR 0.5 billion in November. They are setting up effectively a digital hub to claim your subsidy. And what they're doing is they are targeting that first EUR 0.5 billion on companies with employees 1 to 49, so let's say, SoHo and small at the S part of SMEs. And they are going to give a 90%, 90% subsidy level on digital services. So what does it mean? And we formed a consortium, as have Telefonica, so really the 2 of us. I mean, this would be the same you're going to see in all markets, ourselves and the incumbents, because of our business profile, tend to be the 2 operators that can form consortiums. So then we form a series of companies that come behind us in terms of offering digital services integrated with our offering that we can bring to our customer base and they can use a 90% subsidy against those services. And importantly, the 90% is paid upfront. And then we put the customer on a 2-year, 3-year contract for those services. So we're really working very hard to -- I mean we've contributed a lot to the shaping of this, but also to the ensuring that this will be a seamless experience for our customers. So I would say this is the best case we have at the moment. And what we're doing to other governments around Europe is saying, please replicate this. This is a really good model for us. And we're hearing good traction across the board. Now everyone might do it through tax vouchers, whatever. So some of the other countries might be more complicated. But this is a really good example of volume now. I don't know if you've got some deals?
No, the only deal would be the type of services that will be bought with the bundles. You will have, I don't know, a security bundle and e-commerce bundle, a business support systems bundles so that it's easy for companies of this size to know how to satisfy their needs. And within each bundle, you will have a combination of services readily available from the consortium.
And one final deal, because you specifically mentioned it, was mobile private networks, of which again I think we've taken a real leadership position. We believe in mobile private networks. We're investing behind it. We're standardizing it. The key thing here is how do you make it a series of products as opposed to it's always a bespoke expensive solution. We want to make sure that we can do this at scale. So we're productizing effectively through pilots. And what you're going to see, I think, is traction in dedicated mobile private networks. Then there's the more sophisticated version. So that's like a customer's campus factory, et cetera, manufacturing plant, logistics, support versus a sort of hybrid one. So you've got a dedicated and you've got sort of hybrid. And the hybrid then mixes the ability to use our main macro network and the dedicated. And that's a slightly more sophisticated. And that needs some more technology road map development.
So it's really a...
[indiscernible] because yes, these are really -- I think we have a really exciting proposition road map ahead of us. So I think the hardest thing we have at the moment is prioritization. The demand is there. It's shift in that you can hear, what we're saying shift in our proposition prioritization and sequencing for the EU recovery fund. Where the money moves, we want to make sure we've got the strongest proposition and partners lined up, and it's a good seamless experience for vouchers or whatever and then develop more broader, strategic differentiated products over time.
Our next question today comes from Adam Fox-Rumley from HSBC.
You mentioned that the above-the-line marketing is pretty limited at the moment. And I think the reasons you put forward there make a lot of sense. But I wondered how you think that's affecting customers' perception of and desire for 5G? There's not so much talking about -- I'm not so much talking about customers on the bleeding edge here, but more the larger pool of customers. Or do you think it's kind of unlimited tariffs where bill worry and bill shock is being removed? That's really the thing that's driving upsell at the moment?
Adam, can I give a view on this? Because for a consumer customer, 5G makes no difference, no difference on performance. But any user case that they are using today and what we can see over the next 5 years. So 5G is not for consumers. I mean it's nice to say I've got 5G, I've got an icon. But this is a business application. You heard my passion around mobile private networks, et cetera. That's where the monetization is. And so what we're focused on is building our 5G network for businesses; and secondly, in cities to lower our unitary cost where it goes to your point about unlimited, because it has a lower unitary cost, which case unlimited we can deliver at a lower unit cost. So we want to build the lowest unit cost factory in the industry in Europe so that we can compete at any level against any player and earn superior margins. So we're building it for that. So we are not doing some of these deployments that some of our other peers are doing, which is using DSS, which is just trying to run a coverage claim for 5G. And actually, what we've seen is a degradation in performance on the blend of 5G, 4G on that network with DSS.So I would say -- so going back to your marketing point, I think what we want to be marketing is the merit of a high-quality network that is a blend of 4G, 5G. You just want to know it's there, you want to know it's reliable, that you've got the coverage, that you've got the performance you need, that you don't get drop calls, et cetera, it's a seamless experience. We want to deliver that for our customers. And that's our priority. So our priority for consumers is high-quality network. But businesses, we are targeting 5G because we think that, that is a monetization and transformational for our customers' experience. Of course, above the line, we can talk about network more broadly, high-quality network, we can talk about propositions depending on which quarter we're in and whether we have exciting things to talk about.
So we have time for one more question today from Carl Murdock-Smith from Berenberg.
Carl, you're on mute. But they are impressive headset there. I mean it really -- you do look like you're flying some sort of spaceship.
Carl, maybe just make sure that your headset itself isn't muted. There might be a thing on the wire.
No, it's not. Now you could hear me. There we go. No, idea what happened there. No idea what happened there. But I'm not giving up on my trustee headset. I just wanted to ask about the decision to stay with Carphone Warehouse in the U.K., and kind of what the new agreement gives you? I suppose it's particularly interesting, Nick, given your personal history with that given that when you were CEO of the U.K. business, you actually left Carphone. So I was just wondering if you could add some comments there.
Okay. I mean, clearly, it's a confidential commercial contract, but let me give you the essence to answer your question. I mean, I think there was a feeling that a lot of operators have left Carphone and we're exiting the indirect channels. The answer is no, they're not. They just left Carphone and went into a lot of other, I would argue, more aggressive and more expensive indirect channels. And so if you stand back in the U.K. setting, indirect channels, I've always felt, even though I did exit Carphone, I've always felt, have a role to play to complement operators, because they are offering something to a different target audience. The issue I always had was we made no money on the first life of the customer. And secondly, there was a high churn profile. So those 2 together are not good economics for us. What I wanted was something where we worked together to develop a loyal base. And this is the agreement we now have with Carphone. So the big difference is we make money day 1. It is SIM only. So they carry on selling their handsets, but this is SIM-only. So you pick your handset and then come to Vodafone on a SIM-only offer. Importantly, we are working together on the base to improve the loyalty, lower the churn, give more products and services. So what I'd say is it's a fundamentally different arrangement between the 2 of us. I think it proved to be successful for both of us because it has the right construct at the start which is, these are our customers together and how do we take them on a journey of more products and services and embed loyalty over a period of time. And I think we could do that better together. And so that's why we were pleased to move forward on that basis. And we would rather work with indirect channels that have that philosophy rather than a high-sell, high-churn let's say, not so ethical, what would I say, approach to commercials. Look, You were the last question, I think. So look, thank you all for taking the time to join us. I hope that you all take a bit of time out over the summer, because I think everyone needs a little bit of a break one way or the other. And look, we look forward to the back-to-school. Please, if you are not a Vodafone customer, I can't think why you wouldn't be, you need to become one. We're going to have great propositions in the marketplace. And I look forward -- we look forward to seeing you all in November. Take care.