Infrastrutture Wireless Italiane SpA

MIL:INW

Earnings Call Transcript 2021-Q1

[Operator]

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the INWIT First Quarter 2021 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Fabio Ruffini, Head of Investor Relations. Please go ahead, sir.

[Fabio Ruffini, executive]

Good afternoon, everyone, and thank you for taking the time to connect to INWIT's First Quarter 2021 Results Presentation. With me today are Giovanni Ferigo, our Chief Executive Officer; and Diego Galli, our Chief Financial Officer.

Before we begin, please allow me to draw your attention to the safe harbor statement on Page 2. The discussion will begin by pointing out the main industrial and financial trends for the quarter before summarizing the long-term opportunity that INWIT represents. As usual [Technical Difficulty]

[Giovanni Ferigo, executive]

Okay. Thank you, Fabio, and welcome, everyone. Since we last spoke in March, INWIT has continued to show progress in its industrial metrics. We delivered a sound first quarter. Hospitalities reached more than 1,200. This is an improvement quarter-on-quarter due to better trends from anchor tenants. DAS remote units for micro coverage grew by more than 400, reflecting growing market interest. Cost focus continued to deliver with more than 400 action of ground lease renegotiation or acquisition.

In terms of financials, organic revenue growth was stable at more than 3%. Revenue run rates have slightly improved compared with Q4 2020. The impact of new PoPs is gradually translated into revenues. Now our focus is on gaining further momentum on revenue growth quarter after quarter with a clear set of programs to achieve that.

Margin and cash flow expanded significantly, confirming a key feature of our business model which show growing predictable cash flows. Finally, over the past 2 months, the external environment has continued to improve, showing significant opportunities ahead. There is a positive investment cycle coming and possibility for reforms, which could simplify the end-to-end deployment process, a positive outlook for the tower sector in INWIT.

As we look in the coming quarters, our focus is on accelerating group with 3 clear programs in mind. First, rollout of new sites; second, release of third-party demand, and third, ramp-up of DAS revenues.

Now looking at our main KPIs on Slide #4. The development of KPIs, which recorded a high volume of new PoPs show different trends. Anchors continued to accelerate. TIM and Vodafone advancing the upgrade extension and densification of their network in line with MSA growth expectations. We expect a continued positive trend in the coming quarters we will roll out more new sites, which quickly translates into revenues with a tenancy ratio of 2. Third-party PoPs were more than 350. Mix is still mostly in favor of fixed wireless access operator. We also recorded more IoT sensor by not mobile clients, which is another opportunity for future growth. Our priority is to improve mix with more MNOs. Looking at this in more detail, demand is strong. We have a significant order book.

The process for site above 35,000 inhabitants is regulated by the remedies and the monitoring trustees. Since October operators have made available more than 500 sites in line with the requirements. But as we shared before, this process has been slower than expected. The process is new and complex. There are multiple parties involved and different element to balance in order to ensure demand and offer are mentioned. There are also technical, commercial and regularity factor to consider.

The process is currently being reviewed by all parties to improve its effectiveness. It's a priority for us. We see strong interest for our location. We remain positive about the opportunity with third parties and improving the process we lend in towns with population of above and below 50,000 inhabitants. We are focused on releasing the demand by improving the process, which is new and complex. It's just a matter of time.

Moving on, fixed wireless access demand continues with new PoPs from all operators. For these clients, Q1 tends to be a soft quarter, and we expect more fatalities in the remainder of the year. To summarize, we made progress and have identified the next step to accelerate revenue growth.

Turning to some of the structural feature of our business model on Page 5. I would like to highlight some basic but important elements of our business model. Beginning with our tenancy ratio, which is among the highest in the industry and also continue to grow. We can achieve this thanks to our 2 Tire-1 anchor tenants and the role of neutral host, which is a unique combination. Also fixed wireless access suppliers are very supportive from this point of view.

If we head to the future, the potential for improvement in ground lease cost, we have a further fast operating leverage, driving margin expansion to top levels in the sector. On ground lease cost reduction, INWIT's real estate team is proving successful. We have a strong track record and are gaining traction rapidly with further opportunity ahead. As a result, gradually, we will deliver a material expansion of margin per tower. We keep on adding new revenue stream to our cost base, which is becoming more and more efficient.

Over the past year, we created value for nearly EUR 1,000 per site in terms of additional EBITDAaL.

Moving to the new services on Page 6. We are continuing to make progress on new services, with more than 400 new small cell and DAS remote units in the quarter, up from DAS 100 in the first quarter of 2020. We secured the top location in Italy, for example, key transportation hubs, stadiums and cultural centers as well as others that you've seen on this slide. To do so, we have a dedicated sales organization targeting corporation, the public sector and location owners. Our connection proposition in single as DAS brings several advantages for indoor coverage. Best connectivity, improved accessibility since no password form is needed, multi-operator capability, strong security of data and the ability to enable smart application and IoT.

This is appreciated by location owners. It improved productivity and satisfaction level for users. It also enhances the value of real estate and enable the use of new digital services within the location.

As installment base is growing, so will the revenues. In the coming quarters, we expect a ramp-up of DAS revenues This will be done with new remote units as well as an improvement in the number of tenants on the existing ones, which will be reflected in an increase of tenancy ratio.

Now let's focus on the Next Generation EU fund, which we expect will support investment in both macro side and on the small cell and DAS.

Moving please to the next slide. INWIT business plan that we shared in November has clear growth pillar. There is a direct fit between the main investment area of Next Generation EU and our specific track record.

Let me share a few examples. On macro side, there are EUR 7 billion in terms of 5G and broadband. This support our clients' investment plan. There will be more resources to roll out 5G and fix our losses. Service will be able to reach more towns in remote location and more quickly. More examples are possible in small cell and DAS. As shown in previous slide, we already have a track record in key verticals from Industry 4.0, which we received EUR 19 billion, to health care EUR 4 billion, on digitalization and transportation more than EUR 25 billion.

There will be additional funds to location owner, including national or local public agency and private companies, manufacturing and warehouses will become digital faster, hospital and cultural size will need indoor and outdoor connectivities, road infrastructure will transition to digital maintenance and monitoring.

These sectors of the economy will transition more quickly to becoming modern, smart, green and connected. This transition will create a natural need and urgency for more indoor and outdoor coverage.

Directly or indirectly, Next Generation EU funds will increase the visibility on the growth trajectory of DAS and small cells.

We have a dedicated team in place and are already working to support our clients, location owners and operators in the best way to take advantage of this opportunity.

As for the next steps, we expect the initial portion of the funds to be distributed by year-end. Now Diego will discuss our financial in more details.

[Diego Galli, executive]

Thank you, Giovanni, and good evening, everyone. Our results show a slight improvement in revenue and expansion in profitability and the further optimization of capital structure.

Beginning with organic revenues at EUR 190 million, they were up 3.4% year-on-year and improved by about EUR 1 million on the previous quarter. This growth was sustained by MSA revenues as the new tenancies were progressively reflected in the P&L. Revenues in Q1 were impacted by a technical element as the MSA fees are now counted flat across the year. Previously, they were accounted based on the calendar days of the quarter. This factor accounted for broadly EUR 800,000 lower MSA in Q1 revenues when considering the quarter-on-quarter sequential growth.

Similar growth in OLOs. There is a slightly higher run rate which will continue growing quarter after quarter. In Q2, the tenancies achieved in the past quarters will contribute more to the P&L. Quarterly figures reflect the impact of a specific set of hospitality termination, more than 300 exercised a contract expiry. This is a one-off and we don't expect similar magnitude of termination in the near future.

New services were slightly up quarter-on-quarter, following the good progress of the previous quarters, and grew by approximately 50% year-on-year.

Looking forward, we target a further improvement in revenue growth, and we have clear programs in place. First, the rollout of new site program, we expect about 100 in Q2, more than 400 in the year that we lost both anchor tenants and turned quickly into revenues. The contribution to growth from these new sites -- from new sites actually was market not so far. While it will provide an additional benefit to the P&L going forward.

Second, the release of third-party demand, unlocking the opportunity with MNOs and shortening the time lag between demand, contracts and revenues.

Third, the ramp-up of DAS revenues to new locations as well as increasing the tenants on existing ones.

Moving to margins. EBITDA improved from 90% to 91%. with operating expenses coming down quarter-on-quarter as expected. Leasing costs continued to gain efficiency with a yearly reduction of 7%. We are now just slightly above EUR 49 million this quarter as compared with nearly EUR 53 million in the second quarter of 2020. This led to a material growth of EBITDAaL net operating cost, up to 8% year-on-year with a margin of 65%, improving by 1 percentage point quarter-on-quarter. Again, this is the result of our distinctive features, high tenancy ratio, high revenue per site, a lean organization and low rental costs.

Let's now move to look at our strong cash conversion on Slide 9. In the first quarter of 2021, we reached recurring free cash flow of EUR 93 million or a cash conversion of 54% on EBITDA. The figure results by the absence of cash taxes in Q1, as cash taxes -- as tax payments fall in the second and last quarter each year. The operational drivers of cash generation were an improving EBITDA, the low recurring CapEx, following a significant amount in Q4 last year and an efficient cost base for long leases.

I would also like to point out that the EUR 18 million net working capital move is temporary in nature and will progressively be normalized in the coming quarters of 2021. As a reminder, the cash and P&L benefits of the tax schemes we approved will be visible only from 2022 onwards. And we do confirm our expectation with 46% cash conversion for the current year.

I would like to draw your attention now to the structurally strong cash conversion of INWIT. As you see, on the bottom of the slide. This is based on low recurring CapEx at approximately 2% of EBITDA, a neutral working capital cycle and relatively low on leases. Cash conversion will improve to 62% in 2023, up to EUR 600 million because of strong organic revenue growth, ongoing cost optimization and lower cash taxes.

More on the financial structure on Slide 10. Over the first quarter of 2021, we reduced the net debt slightly, from EUR 3.7 billion to EUR 3.6 billion on the back of a growing cash balance. Financial leverage is down to 5.2x in terms of net debt to pro forma EBITDA.

Regarding the short-term evolution of leverage, please bear in mind that we will have two significant cash out in Q2 the, regard with tax scheme prepayment and dividends.

Our debt structure already quite simple, has been further improved by the recent transactions in April including the first sustainability-linked term loan. We achieved multiple objectives, a lower cost of debt now at 1.7%, longer debt maturity at 6.4 years and an increased portion of fixed debt to 80% as promised.

In terms of leverage trajectory, we confirm our expectation of creating about EUR 1 billion worth of resources by 2023, optionality to capture further growth opportunities or additional shareholder remuneration.

In conclusion from a financial standpoint, the beginning of the year shows a stabilization in revenue growth at more than 3%, an improvement in run rate, strong results on costs and margins. Our short-term focus is on revenue acceleration based on clear programs in place.

With this, back to Giovanni on Slide 11.

[Giovanni Ferigo, executive]

Thank you, Diego. I would like to move to our long-term growth trajectory based on our key strengths. These are supported by further growth drivers. strong demand with rising needs for data usage, 5G rollout and densification, better coverage of the Italian landscape also via fixed wireless access solutions and micro coverage.

We are also seeing support from the external environment and improving investing cycle, a clear fit between Next Generation EU funds, our track record and strategic focus and potential for simplification reforms in Italy.

A few concluding remarks on Page 12, in conclusion, a year after the INWIT was born, we are confident in our future. The industry is evolving from a competitive and technological point of view. We evolve with the industry and want to affirm our role as one of the leading tower companies in Europe. INWIT have the best quality asset in the market, an ideal position to capture growth opportunities, a focus on organic growth, a clear and attractive shareholder remuneration policy and a plan to reduce leverage, gradually creating optionality. We believe this to be a unique set of features. After a sound first quarter, we have a clear path and set of actions to further acceleration in 2021.

Thank you. And now we are ready to take your questions.

[Operator]

[Operator Instructions]

The first question is from Fabio Pavan of Mediobanca.

[Fabio Pavan, analyst]

My two questions. The first one is on the MNOs. We have seen, the improvement is still limited. So I was wondering what makes you confident that the trend will accelerate in coming quarters? And also, I was wondering when the review of this process will be completed.

And then the second question is on the electromagnetic limitation. We have learned that this limitation could be lifted under these assumptions. What would be the impact on your business, which, I guess, will be positive?

[Giovanni Ferigo, executive]

Thank you, Fabio. Okay. Let me say, we can -- I can answer because in MNO growth, okay, one of the most important, our customers resilience, that is our customer from 2019. 2020 has been a transitional year because there is a strong demand, but the transferring process has been -- is very complex because there is multiple -- there is a lot of when you say, parties involved. There is some regulatory items and legal and some technical commercial issue that is on the table in this moment. We strongly believe that the interest of INWIT and Iliad are totally aligned is a big opportunity for us. Iliad announced an important investment in Italy for build their networking. We are ready to upset, let me say, there, let me say, roll out.

In terms of electromagnetic limits, okay, the new industry minister, Paolo, announced many times that probably the most severe law that is present in Europe, that is in Italy, will be changed. For us, it's an important opportunity because in this moment, the limit -- recommended limits are really a problem for us to roll and set our, let me say, customers. So I'm very confident that within the end of the year something will change and that Italy will have the same limit that are common in the other European countries.

[Operator]

The next question is from Roshan Ranjit of Deutsche Bank.

[Roshan Ranjit, analyst]

Great. Two for me, please. Maybe just a follow-up on the previous question. Last quarter, you were saying initially, a lot of the OLO growth is going to be dominated by FWA. So is it possible to get a split of where we stood this quarter versus last quarter. I think last quarter, you said there was broadly 2/3 FWA. And to your point around the third-party demand, you talked about a cruise in run rate -- quarterly run rate of 1,500 PoPs being added. This quarter, we saw a strong contribution from the anchor tenants and a slightly lower contribution from OLOs. So are you confident that this third-party demand will be there in Q2 for you to hit the 1,500 quarterly run rate, please?

And secondly, just a quick one. You talked about this contract termination. Is it possible to get a bit more there? Was it a FWA or was it MNO? And are these normal occurrence? I mean for me, it's first time I've heard about this, but it's just baked into your guidance.

[Diego Galli, executive]

So yes, the mix of OLO was mostly due to fixed wireless access in the previous quarter and is the same in this quarter is, the vast majority MNOs are limited in the quarter.

And in terms of cruising speed, what is going on, as Giovanni said is the fact that the remedies process is taking longer than expected. It's new and complex, but there are a lot of activities going on, discussion, and -- what can I say, work, to make it work better because it's interest of all parties to make it more effective. So we do expect to see some progress starting from Q2, and this will contribute to the overall MNOs and new PoPs in the quarter and going forward.

With regards to the terminations. they are mostly MNOs, is a one-off in the sense that we've got good visibility on -- in advance on terminations. And in MNOs, let me say, related to not high-value locations. So I would say middle value, mid value. And yes, they were included in our plans.

[Roshan Ranjit, analyst]

Okay. Great. So just to push a bit more. So are you still to combine this 1,500 quarterly run rate -- full run rate from Q2?

[Diego Galli, executive]

That's absolutely the target what we are working on and is supported by the fact that we do expect progress on the remedies process that will also flow through the hospitalities with MNOs below the 35,000 inhabitants.

[Operator]

The next question is from Andrew Lee of Goldman Sachs.

[Andrew Lee, analyst]

Just one for me, really, which is, it's clear that the process of converting the KPIs of OLOs into actual revenue-generating units is little bit slower than you expected. You mentioned high demand on your -- in your earlier comments. So I just wondered, the process is slower than expected, but is the demand you're seeing so far in the year in line with guidance ahead? Below? Or can you give us a comment on that versus your original expectations.

[Giovanni Ferigo, executive]

Thank you, Andrew. Yes, we have an important order book with. Very interesting, demonstrated by MNOs and fixed wireless operator, that I repeat, in Italy is a characteristic of Italy because there are 4 fixed wireless operators that are pushing a lot to digitalize the remote, let me say, village, cities, okay.

[Diego Galli, executive]

And with regards to the process, yes, we already shared in the past, this -- the time lag between the contractualization of the contracts and the finalization and therefore, the invoicing and revenues is basically more than a quarter, so longer than expected.

There are external factors and internal factors. Clearly, the external is the time for permits. Clearly, overall, electromagnetic limits is part of the context. In general, and there are internal ones. And between -- among the internals, we need to consider that we scaled up really dramatically the volume of activity.

Now we are running -- talking about cruising speed. Our current speed is more than 1,000. That is not comparable with cruising speed of 1 year ago or even 6 months ago.

So clearly, we are working and we are keen now. We are -- and there is room to improve and optimize the internal process and shortening the time lag or the lead -- the cycle that lead the time. Let me also add that this time lag is more visible now that we are in dramatic acceleration. but will smoothen on over time and when we will achieve a steady state and the steady flow of new contracts will regularly and smoothly flow into the revenue cycle quarter-by-quarter. So there is also, can I say, mathematical impact that if I can call it like that, from the acceleration of this quarter.

[Operator]

The next question is from Jakob Bluestone of Crédit Suisse AG.

[Jakob Bluestone, analyst]

I had a question on disconnections. I think you had relatively high disconnects in quarter. And I think you mentioned in the presentation that you didn't expect that to recur. So can you maybe just give us a little bit of color around why you had high disconnections and why -- what gives you the confidence that you won't see these kind of levels again.

[Diego Galli, executive]

Yes. Terminations are related, as I said before, mostly to MNOs, is a one-off impact. There is a cycle where we've got good visibility of terminations. As they would say, is part of the course of the business. But we don't expect -- it's really -- we don't expect this level for going forward. It was included and expected and included in our plans. And in terms of value, again, the value is -- the number is more than EUR 300 million. The value is the kind of locations at mid value, so not, let me say, top level in terms of pricing for an MNO location -- for an MNO equipment.

[Operator]

The next question is from Simon Coles of Barclays.

[Simon Coles, analyst]

If we just think about the revenue guidance for 2021, if we extrapolate today, that would suggest you need to find another EUR 25 million in revenue growth from the rest of the year. I was just wondering how you see the mix because, obviously, there's a lot of focus on this OLO growth, but given the MSA and the anchor tenants on TIM and Vodafone are accelerating very quickly. Just trying to understand the flex in the guidance really. Are you comfortable that most of the growth is that really committed from, say, TIM and Vodafone? And so anything else that comes from the OLO is picking up as you hope to sort of improve the remedy process and so on. That's what drives you to the top end of guidance. And so yes, just trying to understand sort of your profitability on the guidance for this year on revenue.

[Giovanni Ferigo, executive]

Thank you, Simon. Okay. As I said, guidance is absolutely confirmed. Okay. And let me say, we in the first quarter, we did a step up and -- but we have to continue it for the next quarters with a different combination of new sites, that is an important target for us. And new site is very important from a revenue point of view, because are immediately -- the new sites carry new revenues immediately. The increase in the hospitalities in the existing sites, we have important to book. We are able to push in the -- our indoor solution, Thus, we have a lot of, let me say, propositions in the market. And let me say, continue, continue to enjoy working, enjoy and working with our customers that are the OLO, fixed wireless operators and, let me say, MNOs. This is our trajectory to gain to confirm absolutely our guidance.

[Simon Coles, analyst]

Okay. Can I just follow up because I think if I think back to the business plan, half the growth you were giving in the sort of 3-year plan was already contracted. Can we sort of get an indication of how much you think is contracted this year already, and that's why you have such good visibility on hitting the guidance, no problem.

[Giovanni Ferigo, executive]

Yes. Similarly, it's more than 50% in the year, already contracted with the anchor tenants.

[Operator]

The next question is from Georgios Ierodiaconou of Citigroup.

[Georgios Ierodiaconou, analyst]

Two questions from my side. Both, follow-ups on some of the previous questions. The first is on the withdrawals. I was just curious whether we have already seen the revenue impact of that in Q1 or whether it's something that could follow in the coming quarters. I'm conscious of the fact that, obviously, there's been some organic growth to replace it, but just to see whether -- when we are tracking growth from third parties, whether that could be something that affects, particularly given the mix?

And then my second question is on the remedy process. And I appreciate that you commented earlier that already in the second quarter, you expect to see some improvements in -- it has as part demand. I was curious if that already means the remedy process is working and this relate to MNOs.

And if not, what will be a period where you will have better visibility as to whether these bottlenecks can be addressed. I'm also asking this question, if you don't mind, as a follow-up. When you discuss this with your prospective customers, is there patience from their side? I mean do you get the feeling they could wait for this? Because obviously, we've committed a rollout program, is there a possibility that by the time this bottomness are addressed, the demand may not be there.

[Giovanni Ferigo, executive]

So on the termination, we have seen some of the impact in the quarter. Not yet 100%. We will see the 100% in Q2.

[Diego Galli, executive]

And about the remedies process, okay, we will see some progress within the Q2. I underline that the demand -- the demand of hospitality is very, very interesting. So it's a common interest to push, to solve, to go on in the rollout of the hospitalities that Iliad need to build their own network. Okay.

[Operator]

The next question is from Sam McHugh of Exane.

[Samuel McHugh, analyst]

First one is just on cost savings. I think you said you're ahead of your lease cost saving target. I just wanted to understand why. Is it because you found more expensive site to acquire in first half? Or are you optimizing just more sites than you expected? And in that, what is the constraint on going faster on lease optimization? Or do you think you can continue this process basically?

Then secondly, would the lifting of the EMF rules make this transparency registered issue with Iliad, go away, and also help with the conversion of KPIs to revenue quicker? I wonder if it would be kind of a fix all for you on those things?

And then just a last question on the disconnections again. Just would like to understand why Wind you think disconnected? Did they come back and try and negotiate on price? Or was it just a hangover from consolidation and they were just waiting for the contract to end before leaving?

[Diego Galli, executive]

Thanks. Yes, I'll take the first one on cost. Yes, the program is going well. The team in charge is a mix of people from Vodafone towers and INWIT. They started working together very well. There is a regional network of agencies, strong, strong governance, and the pace is steady, sustained. So the results are already visible, and we do expect to continue with the same rate. It is a mix of renegotiation and led buyout. Yes, we want to keep the base if possible to go even faster, though we need to play carefully, particularly on the land buyout because we need to keep the market well, how can I say, in control without firing up any pressure or the price pressure. So we are hefty with the current base, and we are aiming to continue it.

[Giovanni Ferigo, executive]

Okay. About EMF limits, okay, we will see some benefit in the medium-term because today, these kind of limits, let me say, is the most difficult problem to solve. And starting with the new limits, probably in the medium term, we see some benefits in terms of tenancy ratio, hospitalities and so on, okay?

[Diego Galli, executive]

And with regards to the last question, yes, we think nothing honestly, not much to read behind it, is -- I mean, it's a tail of programs that probably have been just finalized. It's something that, again, was visible to us since starting time and really no further insights of comments from our side.

[Operator]

Next question is from Stefano Gamberini of Equita SIM.

[Stefano Gamberini, analyst]

A few questions also from my side. First of all, regarding the recovery fund. Could you elaborate a little bit more about how does it work? You underline that at the end of the year, the funds could arrive? Are you bidding or are you preparing some projects in order to receive this money mainly related to DAS or what else? And in this case, is there the risk that having this money then at the end of the day, you have not to ask rents from your tenants?

The second question regarding the trend from your competitors in Italy, they are declaring a growth from Iliad to 200 new PoPs during the first quarter and no Ask no demand from FWA. Could you comment on that? Why there is this difference probably because your network is better placed and demand from FWA is mainly concentrated on your assets?

And the third, regarding terminations, you see some other risk of other situation that you said was the peculiar, but is there some other situation where some other termination could emerge?

[Giovanni Ferigo, executive]

Okay. Thank you, Stefano. Starting with the second question. The fixed wireless access operator are really a very important actor in our order book. They are asking a lot of, let me say, hospitalities. I remember that it is a very important characteristic of Italian markets. Okay, there is of Open Fiber, Fastweb, Linkem, EOLO, that is very -- easily very important, let me say, pushing by them in terms of hospitalities.

About the second question, okay, we have to, let me say, different, let me say, environment. With the 5G rollout, we will participate indirectly because the operator will be, let me say, involved in the, let me say, in the rollout and to keep the -- for the digitalization. Then there will be the public administration tool. So we are ready. We proposed our solution to the public administration to, let me say, come back, let me say, the digitalization of the country.

And third, there are the location owners that surely will ask to us to improve the indoor coverage to rehabilitate, for example, in Industry 4.0, healthy transportation and so on. So we are really directly or indirectly to participate to this very, very, very important investment cycle that is coming on. Yes...

[Diego Galli, executive]

Stefano, I'm sorry. One of your questions was around terminations, if you could please repeat that?

[Stefano Gamberini, analyst]

Yes. If in your view, are there some other risks of situations that are similar because you stressed that this trend, terminations are mainly a one-off?

[Diego Galli, executive]

Okay, clear. Yes. No, we don't see any significant risk. We have a historical trend for the last several quarters with very, very limited, if not nil terminations. This has been a specific one off.

Yes. Yes. Sorry, just on one thing on fixed wireless access, you made a specific comment to Q1 that actually has been a little bit softer than Q4. We have seen a little bit of seasonality. And we don't expect -- again, we expect to pick up again as Giovanni was saying in the next quarter. So I think it's interesting in the quarter to mention that we had also other kind of hospitalities related to what we call OTMOs or other than mobile operators related to IoT sensors and mostly related to energy utilities company, which is a line of business we will take more also in the past -- in the future.

[Operator]

The next question is from Ben Rickett of New Street Research.

[Ben Rickett, analyst]

Questions on the business plan OLO target specifically for 2023. I think you've suggested you're targeting 8,000 to 10,000 OLO tenants. Is that net of disconnections or does that number include disconnections?

And then a second part to the question. How should we think about the split of those tenants between MNOs, fixed wireless access and OTMO?

[Diego Galli, executive]

Yes. Thank you for the question. Yes, the connections are -- the terminations are included in our targets. So the numbers are net of the terminations. As in terms of split, the -- let me say, the majority of the volume will come from fixed wireless access. So for sure, more than 50% up to broadly 2/3 in the range between 50% to 2/3 of the volume will be coming from fixed wireless access.

[Operator]

The next question is from Fernando Cordero of Banco Santander.

[Fernando Cordero, analyst]

The first question is related with the small cells market. In that sense, you have said, that you are in line or expecting additional push on that market, but particularly indoor small cell solutions. I would like to know as well as your current outlook on outdoor solutions based on small cells and at which extent that segment of the market is starting to be more visible or not.

My second question is on -- as a follow-up on the electromagnetic emissions potential revision. And in that sense, also considering your 2021, 2023 plan, business plan I would like to understand what would be the major impact of -- sorry, the current restrictions on electromagnetic emissions could be revised upwards towards the European benchmark.

Is that impact to come in your business plan to the CapEx, avoiding new sites to be built is going to be reflected in incremental revenues from new tenants. I would like to know what are your views on potential impact on your business plan.

And the third question is, let's say, as a collateral or trying to understand a little bit better the issue of the disconnections. I would like to understand which is the current length of the secondary tenants close. And in that sense, in order to understand if that end of the contract is the same for MNOs than for fixed wireless players.

[Giovanni Ferigo, executive]

Thank you, Fernando. So about small cell and DAS, okay. Today, we are totally concentrated in the indoor because the business is asking to have the indoor solution. And secondly, because to install and sell the outdoor small cell solution we have to wait for the finalization of the 5G outdoor network by the operators because there is a team of, let me say, interference that we have to solve with the operators. So we are waiting the completion of the 5G outdoor rollout by TIM and Vodafone, and then we can start to install -- we started in Milan with a few numbers and in general. But now the plans -- the operator's plan is, let me say as an interesting speed, I think that by the end of the year, I think that we can see some interesting numbers.

Secondly, the impact of the EMF, let me say, limits in the business plan. Okay, there is -- I think that there will be an acceleration of the business plan with an increase of the tenancy ratio surely. And let me say depending by the roll out of the operator always, and also because there is always a coordination with them. But to solve the EMF limits really speed the our business plan, increase the tenancy ratio and, let me say, push up all the environment to create the right solution for the digitalization of the country. and then the third question was...

[Diego Galli, executive]

On termination and contracts. Our contracts duration is a minimum 6 plus, 6 years. And as I said before, we have not seen in the past a significant termination. We don't have visibility for -- as well for the future. So that's to be considered a one-off event, which as I said, has been -- has had an impact on the revenues in the quarter and the full impact will be visible starting from the next month.

[Giovanni Ferigo, executive]

So just to confirm the comment on the visibility. We have visibility that they will not be repeating themselves in the short term, that's what we meant.

[Operator]

The next question is from Luigi Minerva of HSBC.

[Luigi Minerva, analyst]

I wanted to understand whether the delay in the regulatory process may actually have a structural negative impact on the demand from Iliad because they could get more sites from your competitor on a commercial basis without any problems. And so eventually, they may find that they need less of the INWIT sites. And perhaps related to this, whether there are any penalties that the European Commission can impose if the issues and the delays persist.

[Giovanni Ferigo, executive]

Thank you, Luigi. And -- okay. I want to underline that the Iliad demand is very interesting at the moment because it's based on our assets, the location and the structure of our assets. I'm convinced that in the second quarter, we will start to touch something in terms of hospitalities for Iliad. So let me say, we are pushing a lot to solve this team Q2 will show this step-up.

Secondly, in terms of compliance, we are totally compliant with the remedies. We have to publish 75 sites monthly, and we are doing it. So there is no, let me say, risk about penalties and so on. The -- we are, I'm sure, totally, that we are absolutely compliant this team is a temporary issue that we want all together to solve quickly. And I repeat, absolutely no risk in terms of penalties.

[Operator]

[Operator Instructions]

Gentlemen, there are no more questions registered at this time.

[Giovanni Ferigo, executive]

Thank you very much.

[Diego Galli, executive]

Thank you.

[Operator]

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.