Telecom Italia SpA
MIL:TIT
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Telecom Italia SpA
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Ladies and gentlemen, good afternoon, and welcome to Telecom Italia's First Quarter 2020 Results Conference Call. Mrs. Carola Bardelli, Head of Investor Relations, will introduce the event.
Ladies and gentlemen, good afternoon from my side as well. This is Carola Bardelli, Head of Investor Relations. A very warm welcome to our first quarter 2020 results presentation. I'm here with Luigi Gubitosi, our CEO; and our CFO, Giovanni Ronca. Luigi will provide an update on the plan execution and on the main strategic initiatives, and Giovanni will present our first quarter results. A Q&A session will follow.
Pointing out to you our safe harbor disclaimer on Page 1. Let me remind you that our comments are based on IFRS 16 standards and that we are also showing an after lease view on which we are basing our guidance in line with most of our peers. Luigi, the floor is yours.
Thank you, Carola, and good afternoon, everyone. Actually, good morning for those of you connected from the U.S. As you know, we presented our plan the very first week of coronavirus lockdown, a lockdown that lasted approximately 2 months in Italy as well as in many other countries. Actually, yesterday was our first day of exit from lockdown, and we hope you were not overly disrupted by the pandemic.
With regards to TIM, in 2 words, I would say that we were reactive and resilient. I'm proud to say that our clients had no disruption whatsoever, if anything, they had service upgrades. We helped whatever we could in whichever way we could, our country.
So before starting our presentation, let me take a second to thank all my colleagues for the incredible efforts, commitment and passion they showed in this month. Thank you.
So in Q1, we continue to generate cash flow. We continue to deleverage swiftly, once again above our own expectations. With regards to domestic sales and EBITDA, the reduction in customer base due to past repricing has caused revenues to decline as we expected, in addition to which there has also been a mild impact from COVID. Fortunately, KPIs are turning positive, and we are on track to achieve our objective to reduce dramatically, line losses.
Let's now see what we delivered on our plan on Page 3. I was pleased to see the wide attendance to our AGM meeting. And that all shareholders supported our proposals, that have approved with majorities to have never been so high in the past. In fact, if I can make a sidestep, this story is [ telling me ] that was the quietest shareholders meeting in Telecom Italia history. And so the governance issue has been once again shown to be set.
I mention this because many of you mentioned to me governance as the first issue when I took the helm of the company. And now this has been settled. Then debt was considered to be the very biggest issue, and I shared this view, in fact, debt reduction is our priority. I hope that by the end of this conference call, you realize that the debt has been, to a very significant extent, addressed.
We mentioned in the last conversation with you with the annual results that this was going to be the year of operations. And in fact, we do have some operations to be, still be fully fixed and particularly, on the fixed side, and we will. Undoubtedly, it takes some time, some time, but as with the governance and now with the debt deal, you will see that all our issues will be duly fixed and we'll be able to unlock the tremendous value that is in this company.
Going back to the story. I was saying that in the AGM, we were able to strongly improve the remuneration scheme of our management, now fully aligned to shareholders' interest. Stock price performance, both in absolute terms and relative to peer, equity free cash flow and debt reduction as well as customer satisfaction index, employee satisfaction and ESG pillars are now the key parameters of our variable compensation.
We're about to launch a shareholding plan for our staff in response to a survey that gave a very high positive feedback. This is yet another step towards the engagement of people that, as you know, I see as one of the key elements of the company's success. We kept delivering on the objective of transforming team in a leaner, lighter, more aggressive company. We have already scheduled more than 2,000 additional elder retirement in the first half of 2020 after approximately 2.7% exit last year. Those retirements will occur at the end of this June.
We kept delivering on the objective of on transforming team also in other areas. Looking at the revenue side of the business. In Italy, we have finally achieved stability year-on-year on mobile ARPU with the consumer app reporting year-on-year growth and mobile number portability turned positive for the 14 in the month of March for the first time since Iliad entrance 2 years ago. There has been a proper flight to quality since the lock down. In Fixed, we are on track and the objective we gave ourselves to health consumer line losses in 2020 versus 2019, with 0 line losses in the month of April. And we're constantly pressing our organization to improve efficiency and reduce costs, so we achieved an evener Q1, a double-digit reduction year-on-year, both for costs and Capex. And reacting to the lockdown has inspired new savings, some of which are here to stay.
While digital transformation had taken a quantum leap, both in TIM and in the country with implied benefits. Brazil has already reported. So you already know that revenues kept growing despite the COVID impact and EBITDA is a sound growth path as in Q4 2019, thanks to an excellent efficiency program that the Brazilian team is running.
Last but not least, deleveraging my main promise to all stakeholders. Yes, we have delivered even in Q1, which is normally a seasonally tough quarter for debt reduction. Well, under IFRS 16, we have cut our debt by almost EUR 1 billion in Q1. And even if you use after lease figures, the numbers are very flattering. Indeed, equity free cash flow grew 31% year-on-year to EUR 466 million, Q1, benefiting from working capital optimization and more disciplined commercial conduct, which allowed us to reduce outflows by almost EUR 300 million year-on-year. As usual, there have been some trade-off between EBITDA and cash flow. Before updating you on a strategic initiative, let me tell you a bit more on how we reacted to COVID. In fact, writers like [ Aeschylus ] and [ Gaete ] speak about the transformational power of pain. Paraphrasing them, I would like to say that we leave the COVID emergency as a huge transformation opportunity.
First of all, we acted instantly and with no disruption for the business and the safest possible way for our people. We asked over 40,000 colleagues in Italy and Brazil to work from home. It is working well, and I doubt it will be entirely unwound once the emergency is over. It's showing good efficiency opportunities, good savings. It makes people more efficient and happier in certain cases. So a large chunk of this will stay even afterwards.
We kept all our operations running despite a very material increase in traffic, there has been no issue on the quality and reliability of our network. And we even increased bandwidth and rural coverage during the lockdown. We are adding 7,000 incremental cabinets, reaching 1.2 million additional households. In fact, the entire country is being more connected as we speak. I mean there has been a new energy, a new effort in connecting all our citizens. And this, as I said, will continue.
We've launched a number of initiatives to help our customers in the Southern tradition of our digital life. We provided certain free services, extra allowance of voice and data traffic for families, schools and businesses. We've been supportive of the wider communities we live in, in both Brazil and Italy, with donations, technical support to our Civil Protection, schools, hospitals and prison with Project Maestri d' Italia i.e. Italian Teacher. We are directly investing in the digital education of Italian citizen.
In Slide 5, we show that during lockdown, traffic on our networks has peaked, plus 80% in Fixed, plus 30%, 40% in Mobile, and customer in Italy just started to use collaboration tools like Zoom, Hangouts or Teams. So increases were as high as 11x the previous average usage, depending on which base you use, numbers are astoundingly high in all these measures. In terms of short-term impacts during the lockdown, we saw lower handset sales, which have limited impact on EBITDA, but also lower gross additions, both in Mobile and Fixed with lower activation sale fees and modern sales, which instead do have an impact.
In roaming, we've seen lower volumes on wholesale and retail. However, the majority of our retail roaming revenues are including bundles, hence protected while the costs are variable with the volume decrease helping cost reduction. We expect to have some payment delays or increased bad debt from small and medium enterprise, but it's really too early to assess magnitude.
On the positive side, churn is lower in both Fixed and mobile. This allowed us to speed up the ongoing trend of improvement, both in mobile number portability and in fixed line losses.
Net-net, the impact of COVID our financial is negative short term, but we do see positive implication for coming months. It is accelerating digitization. Italy is catching up very fast. Importantly, during a lockdown, everybody, our clients, our politician, the entire community, understood the important -- how important is connectivity, particularly Fixed connectivity, which has led the Fixed market will start growing again and the Fixed to Mobile migration to finally revert.
Slide shows something new for you and also for us. Positive news. The Italian government is intervening heavily to support the economy, and this will have repercussion in the telco industry. EUR 2.7 billion will impact the telco through public funding in 3 areas: schools; voucher, voucher for families and business and step-up in coverage in the gray areas.
The info both are derived from the Minister of Economic Development website. 32 Italian schools are planned to be connected to an ultra-broadband network by 2023. The budget for schools is EUR 400 million that will be assigned to tenders by year-end.
Vouchers to stimulate the acquisition or upgrade of ultra-broadband connectivity will be given firstly to low-income families and then to other families and enterprises. USD 1.1 billion is the budget.
We calculated that in excess of 2.5 million premises will be involved, or 10% to 15% of the broadband market.
Lastly, EUR 1.1 billion will be assigned to tenders at year-end, in order to upgrade broadband speed by 2023 in the main industrial district and industrial cities in gray areas. This is a great news, and we commend the Italian government for recognizing how important is connectivity and for committing resources to the sector.
On Page 7, I'd like to comment on the last consequences of COVID that I want to mention, which is the strong acceleration in utilization process within team. I will not go KPI by KPI, but I think it's important to tell you that we were the middle of our sales channels rationalization, aiming at scaling up pull channels and digital touch points, cleaning up push channel and refocusing our stores on retention rather than acquisition, when COVID-19 gave a strong boost to all our digitalization process.
For example, in April, Fixed digital sales have grown their way to the various channels, 29 percentage point to 34%. All our digital touch points volume are rapidly increasing. And this is a process that not only will continue, but will, in fact, accelerate.
Moving to our strategic initiative. On Page 8, we summarize progress made. I will speak about it within a minute as we have an important piece of news. On the Fixed network side, KKRs continue due diligence with the aim of making a binding offer for approximately 40% of secondary path to our access network. We're on track with the carve out and with the path that we described at our Capital Market Day. I can also add that the perception that we have is that political is increasing in favor of one single network.
I think the second point that I'd like to mention to you is also that the partnership with Google Cloud is up and running, and we have signed the first contracts. We've also partnered with Banca Intesa for joint offering the G Suite TIM edition as my working platform to help small enterprises during these times or lockdown.
The carve-out of the cloud business is also on track, and the Newco setup is planned for October. In Brazil, the momentum for strategic initiative is high. We're seeing good progress in the potential acquisition of our mobile assets, which, as you know, will -- we are starting together with Telefonica, and recently announced a new initiative to boost fiber roll out with a strategic partner.
With regard to our strategic alliances with content producer, TIMvision is starting to bear fruits in internal KPIs. In 1 month only, in March, we had 100,000 new activation of TIMvision Plus, of course, supported by the launch of Disney+ on 24th of March.
On Page 9, as I said, I have some new important news in INWIT. Let me go step-by-step on this. We obtained antitrust clearance and completed the INWIT merger with Vodafone Towers on March 31.
In April, we increased INWIT swift load from 25% to 33% through an ABB, responding to INWIT investors' desire to have more liquidity for the stock. Both Vodafone and ourself placed a 4-point stakes worth approximately EUR 400 million proceeds each, including EUR 214 million and the EUR 42 million extraordinary and ordinary dividends cash in by the end of this week. So far, INWIT brought EUR 650 million debt reduction.
This is not counting, obviously, the debt deconsolidation -- I mean, cash debt reduction. This is what we have called the first wave of monetization, as will be recorded in Q2.
A second wave of monetization is related to the binding offer we received from Ardian and as announced yesterday. We gave Ardian a period of exclusivity, a short period of exclusivity, to acquire a significant minority stake of Newco, a TIM Tower holding company, fully controlled and consolidated by TIM, which will own TIM co-controlling stake in INWIT.
The second wave of monetization will enable TIM to bring the total debt reduction from INWIT to over EUR 2 billion, which is materially above the EUR 1.4 billion target announced to the market so far.
Importantly, we maintain joint control of INWIT with Vodafone to renew holding and nothing changes in the relation with Vodafone. As a matter of curiosity, I'd like to remind something we noticed today that the entire stake was worth EUR 2.3 billion at the moment in which we announced the transaction. So we'll continue to control over 30% of the company, continue to own 51% of the stake and have cash in almost or approximately the same amount that was worth back then.
Slide 10 provides some evidence and detail on the progress of our partners with Google Cloud. We're active in the market. We're proposing solutions to current and potential customers. We're training our staff, pushing our sales force with specific incentive on the TIM and Google offering. And we have started the works in Milan to host Google Region. And for Q3, we're planning to carve out the cloud infrastructure and to kick off the joint Competence Center. As you know, an infra fund will be selected to enter new co-equity with the minority stake, provide further ammunition for expansion.
Initial response for the market has been very positive. For example, we have 2,000 subscriptions for the launch of G Suite TIM Edition that involved Intesa Sanpaolo in their offering, an agile working tools to support business continuity during the COVID emergency and beyond.
In Brazil, as I mentioned, the activity to execute the transaction with Telefonica to join the acquired mobile assets are progressing and are progressing positively. As in Italy, also in Brazil, we see scope to deploy the Fixed network with strategic partners to maximize time-to-market and now return-on-capital-employed. This is very important, boosting ROC, not just by improving returns, but also by optimizing capital invested is one of the main pillars of our strategy, as you know, from day 1. The path is very clear. And as you can see, we are currently adopting this principle, both in Italy and Brazil.
We received the regulatory approval to execute the announced network sharing agreement with Vivo, and antitrust approval is at final stage. Our partnership with Google Cloud has been initiated in Brazil as well. We are kicking off the first telco bank partnership to develop joint financial services solution with the offer to be launched by year-end.
Slide 12 visually shows what I mentioned earlier about the strong improvement in TIMvision KPIs and lead me to speak about our key operational priority at the moment, fixing the Fixed.
So before leaving the floor to Giovanni to comment you on financials, let me update you on where we stand on our Fix the fixed craft program aimed at halving line losses in 2020 versus 2019 and stabilize them by -- from 2022. We have good news here because April line losses were 0 in the consumer segment and not far from 0, including business as well. May is on the same path.
So what are we going to obtain these improvements? Our effort are focused on increasing both the customer base and ARPU. What are we doing to increase it? First of all, we are expanding the footprint, both through the FWA offer launch in Q4 in rural areas, emerging market for us dominated by small FWA operators and by opening new cabinets. We opened around 7,000 cabinets in areas between March and May. This will give us EUR 1.2 million in white areas and 1.3 million reachable in FWA incremental addressable market, including both cabinets for TTC and FWA.
Secondly, we are increasing the UBB penetration in our footprint. As we said earlier, the emergency and the ready quantum leap penetration of smart working, e-learning, online gaming, is strongly accelerating the switch to UBB.
With regard to increasing the ARPU, we're not increasing price. If anything, we gave a lot of for free in Q1. So you're likely to see an improvement when clients will start to pay again. But expanding our service offering to content smart home security packages. In other words, we're playing convergence. Convergence is for us a keyword. Not through discount, but by capturing additional market opportunities.
And convert of TIM Unica is our main focus, and it will grow and continue in the coming quarters. Now let me hand it to Giovanni for an update on our financial results.
Thanks, Luigi. Good afternoon, everyone. We have delivered another quarter with a significant debt reduction despite seasonality.
Overall, debt has gone down EUR 923 million, a quite large figure that requires some explanation since it include 2 positives the INWIT consolidation and FX, and 1 negative, EUR 216 million of one-off costs related to the settlement of the Sky agreement that, as you know, we have already provided all for in 2019 and other regulatory items.
Net of all these effects, debt reduction would be EUR 378 million. On an after lease view, debt reduction was EUR 352 million, excluding the one-off payments and FX, which is double compared to the debt reduction in Q1 last year. Importantly, only EUR 49 million is inorganic coming from INWIT debt deconsolidation. The rest is all organic coming from equity free flow.
Looking at the blue box in the bottom right of the presentation, you see that equity free cash flow was EUR 442 million on a clean basis, which is up EUR 196 million year-on-year or plus 80% year-on-year.
And I remind you that Q1 is normally a seasonally low quarter for equity free cash flow generation.
Last year, we did only 16% of full year equity free cash flow in the first quarter.
Slide 16 is an important slide. It shows that in 15 months, we have delivered EUR 2.3 billion debt reduction from EUR 23.3 billion to EUR 21 billion, of which EUR 1.6 billion, organic. Q1 was EUR 21.7 billion after lease. If you subtract in with ordinary and extraordinary dividends and the proceeds from the ABB, which totaled EUR 650 million, you get already to the EUR 21 billion net debt. This is achieved by tomorrow.
Adding up the impact of the EUR 1.5 expected to come by the summer from the second wave of INWIT transaction and the potential cash in from KKR deal, another EUR 1.8 billion, we will end up to EUR 17.7 billion, which would be EUR 5.6 billion lower than the end of 2018. And of course, this is before considering organic equity free cash flow, of which you have saw, we continue to over deliver. All in all, the deleverage will bring us towards investment-grade ratio within the plan horizon, confirming our goal.
Now let's look at the business dynamics that allowed us to reach this strong leverage. Let's move to Page 17.
Mobile service revenues are on an important improving path. As you know, we have done a lot of cleaning, starting from H2 '19. Our commercial conduct is now much more disciplined, both in Mobile and in Fixed. In Mobile, as you know, in Q4, we stopped imposing horoscopes and similar content service provider services to our clients. This cleaning affects revenues, but this is paying off in terms of customer satisfaction indexes.
Net of cleanups, MSR, show a 2.3% decrease over first quarter 2019 versus minus 5.9% year-on-year in Q4. The improvement comes from ARPU that fell minus 1.3% year-on-year versus minus 4.4% in Q4, and would actually have grown by 1.6% year-on-year net of the cleaning mentioned above.
Consumers ARPU was actually growing year-on-year. Handset sales are down 42% year-on-year, primarily due to the lockdown and people just not going in our shops, but also due to the final tail of the cleaning we did even on the handset side by stopping selling negative margin handsets. As you know, we strongly improved our margin on equipment last year as a result of this cleaning.
Let's move to Page 18. The market overall continues to improve in terms of rationality. We're seeing the mobile number, portability numbers halving once again from the previous quarter to 47,000, still the best performer among established MNOs. March MNP balance was positive for us, and the April and May is very good. There was a proper flight to quality which we benefited from.
Where the lockdown impacting us was on the gross adds as our shop are still an important channel, and we add up to 80% less clients in shops. The impact on total lines from lower gross adds is in the region of 200,000 lines due to the closing of the shops and particularly churn, which instead has significantly improved from Q2.
Overall, the effect on net adds was negative in Q1, but we can already anticipate better net adds in April and May. Kena has been proportionately more affected due to the large presence in the shopping malls that were closed, but it will go back applying its role of effective, competitive weapon in value segment, and we know how to use it in the right way.
Fiber lines continue to grow. We know -- and we now reached 7.3 million lines, retail plus wholesale, with an increase of 5% over the previous quarter and 22% year-on-year. Importantly, as Luigi said, we stopped losing fixed lines in the consumer segment in April. May is on the same path. We are on track to halve consumer line losses in 2020 versus 2019. This is the combined result of our Fix the fixed initiative, more than offsetting the negative impacts of lockdown on gross adds. ARPU is affected by stopping the washing machine effect with the related lower revenues from activation fees and stopping price increases.
Moving to Slide 20. Fixed service revenues trend is still affected by all our cleanings. First of all, the Sparkle strategy and repositioning that has its last sale in Q1, explaining about 1 percentage point decline in FSR year-on-year performance. Secondly, the reduced washing machine effect that implies lower gross adds. Hence, lower activation fees, hence, lower revenues and ARPU and [ EBITDA ], but with a strong positive effect on net working capital.
In Q1, on top of the cleaning, we also have COVID, which further reduced gross adds and activation fees. Lower activations were both in consumer and in the SME segment, where we are still suffering from the price rises we have put through at the end of 2018.
As you know, we also had some shift from service revenues to equipment, which is less evident in equipment revenue growth because we sold fewer modems due to COVID. Domestic wholesale keeps growing revenues, thanks to the VULA that more than offset ULL decline. As we said, Sparkles revenues are down for the well-known reduction of voice business contract with 0 margins. Hence, not impacting EBITDA as reported in previous quarters.
Let's talk about OpEx on Slide 21. This quarter, our OpEx reduction is again double digit, minus 10% year-on-year on a P&L view and minus 11% on the cash view, excluding the effect of cost deferral from past years. Sales driven costs are down with the connection down 8% further to Sparkle repositioning on higher-margin contracts, and equipment costs were down 40% as a consequence of the lower sales driven by the lockdown.
Commercial costs are significantly down, minus 12% year-on-year on a cash view, thanks mainly to the avoidance reduction of the washing machine effect as well as the improved efficiency in caring and the lower commission paid for the lower growth, as mentioned.
Industrial costs are also down 7%, and G&A are down 6%, thanks to the optimization in different areas, mainly real estate related. On labor, the 4% reduction reflects the impact of the exits of 2019. Let's move to Slide 22.
CapEx are up 2%, further to an increase from TIM Brasil related to investments in IT and network with a different phasing versus last year that will be absorbed in the coming quarters. Domestic CapEx are instead down 9% year-on-year in relation to both efficiencies in a much relatively marginal -- sorry, in a relative marginal slowdown in the deployment caused by the lockdown in March.
Net working capital has improved year-on-year by EUR 296 million despite some headwinds from COVID. For example, higher inventories, and EUR 216 million one-off payment for Sky sentiment and other regulatory items that already provisioned for in 2019.
Such good results derives from better cash management and better suppliers' payment condition terms. Brazil's working capital contributes positively to the year-on-year delta, mainly for the positive impact of exchange rate effects. This is EUR 145 million.
Moving to Slide 23. We see that net debt at the end of March fell by more than EUR 923 million to EUR 26.7 billion, down EUR 1.8 billion versus March 2019. I have already explained the clean dynamics of this reduction related to business performance. I would like to highlight the EUR 51 million improvement in financial charges due to lower cost of debt and lower average outstanding of debt.
On Slide 24, you have evidence of the debt cost reduction in the quarter. The average cost is down -- is now 3.4%, which is down 20 bps quarter-on-quarter and 40 bps year-on-year.
Quickly on Brazil. TIM Brasil posted another quarter with sequential improvement on most KPIs. Service revenues are up 2% year-on-year despite the COVID headwinds with fixed growing double-digit with the TIM Live customer base growing at 20% year-on-year and ARPU plus 6%.
On mobile, we are seeing an improving path for postpaid and some competitive challenges on prepaid, which has been more impacted by COVID distancing measures. EBITDA growing at the same pace as in Q4 2019, plus 8% year-on-year, thanks to the resilient top line and cost efficiencies driven mainly by digital transformation with OpEx decreasing 5% year-on-year.
Slide 26 shows the after lease view of our key indicators, EBITDA, net debt and equity free cash flow. And let me hand it back to Luigi for his final remarks. Thank you.
Thank you, Giovanni. You will obviously want to know what we think about the future following this unprecedented period of health emergency worldwide and with the resulting uncertainty and sign of economic recession. Some of our peers suspended guidance, some decided to update the market post Q2. We want to be transparent and share with you what we know and what we don't know.
What we don't know is how deep and how long the economic downturn will be as well as the impact on our revenues and business. What we do know is that our KPIs are on improving path as well as customer satisfaction index, and that we are confident to be able to Fix the fixed and the government project to upgrade the sector should be further help. We also know that TIM has taken actions to react, including a plan to contain cost and increase investment efficiency. So in short, for 2020, our aim is to offset revenue shortfall with more cost cutting.
Importantly, EBITDA minus CapEx will be buffered by the additional efficiency we are finding at CapEx level. Hence, we expect to be able to reach 2020 EBITDA minus CapEx guidance as well as maintain 2020 -- sorry, 2021, '22 guidance and 2022 accumulated equity free cash flow.
2021 delivery guidance, minus EUR 20 billion improves, thanks to being with ABB and the Ardian transaction. And at the CMD, we gave you debt guidance below EUR 20 billion. We should now be improved EUR 400 million for the ABB proceeds cash, last April, for the additional dividend, EUR 200 million for the cash with the dividend. For the EUR 1.5 billion proceed we expect to have by the summer from the Ardian transaction.
With this, we completed the formal part of presentation and are at your disposal to get some questions. Thank you.
Thank you, Luigi. Thank you, Giovanni. We are now ready for our Q&A session. Thank you.
[Operator Instructions] First question comes from Mr. Andrew Lee from Goldman Sachs.
First question was on your fixed line trends. And then second question, just trying to dig a little deeper into quantifying the COVID impacts that you're seeing so far. On fixed line, can you just help us understand a little better the drivers of the declines in service revenue, if we strip out Sparkle, the equipment accounting and the washing machine effect? I wonder if you could just let us know where the main element of competition is coming from. And obviously, there's reduced churn in April and May, which helps. But what your expectation of underlying trends is going forward there?
And then, secondly, on the COVID impact quantification. A few companies have given us net roaming exposure as a percentage of revenues or EBITDA. I understand there's moving parts there, but if you could give maybe run rate of lost revenues or EBITDA through the kind of highs of the lockdown? And similarly, on your SME exposure with regards to B2B bad debt? That would be very helpful.
Okay. It's -- the answer to your first question is basically related to the trend in ARPU. That is the main driver of the decline on the Fixed side. The customer base obviously was impacted in -- as you know, in 2019, both on the Fixed and Mobile, and so the result is exactly what you see in the first quarter.
On COVID?
Hi, it's Luigi again. Well, on COVID -- quantifying COVID, it's an art, more than a science. Let me explain to you why. There are some direct impacts, and that's relatively easy to calculate. There are others like, for example, we have traditionally, our stores and our fixed, let's say, our physical infrastructure as one critical competitive element, vis-à-vis, other players. And we are all our outbound calls from Italy.
So the shops have been closed in the commercial center because commercial center being closed, and a reduction in foot traffic calculated in terms of transaction up to 90%. So what would have been -- what would have happened if COVID was not there? And yes, we did partially recover through a stronger than usual website. But obviously, it was not sufficient. And not doing activation means that a significant part because of the way we traditionally treat this of our benefits is when -- and I mentioned that a number of times, when you get the new customers. It doesn't give you much in terms of cash flow, but it gives you a boost in immediate EBITDA.
So how much we lose there? And we don't attribute that to COVID. We consider it as a normal course of business. So with regards to roaming, I think probably the rate is 1.5% -- on EBITDA, the impact of roaming should be 1.5% on a full year basis with the biggest impact somewhere in between second and third quarter. So the same is true for SMEs. I mean part of the fixed line issue, and let me recap for you. This -- on mobile, we see an improvement trend that would have happened without COVID or -- regardless, we see an improving trend.
On the Fixed consumer, we are seeing an improving trend. Where we saw a declining was with SMEs. Now is this a beginning of COVID related possibly, at least partially, that we don't know. So on this one, I would not be able to quantify to tell you what is -- whether this is a negative which depends on COVID, we would have had anyway, no matter what, also because at the end of 2018, I think December or January 1, we made the last significant repricing. And as usual, when you are repricing, you get the following quarter very well and then you start deteriorating. So we already had some weakness in that area.
But then what we saw in the first quarter, how much was that. And bear in mind, the 58% of our -- of Italian, actually, enterprises were closed in March. So did some of them, before closing, switch off this cost? We don't know.
So I guess you have to look at the overall results. The number will definitely be better without COVID, but we cannot tell you really precisely to the comma or what has been the COVID impact. I would guess, direct impact is probably going to be a couple of percentage points on sales and between 2% and 3%. And similar to EBITDA, a bit less on EBITDA. But then you have the indirect impact that is very difficult to quantify. Do you see my understanding? I mean do you understand my reasoning?
Yes. That was really helpful.
When I mentioned revenues, on revenues, I meant total revenues because, obviously, we are the biggest seller of phones in the country in which we have limited marginality, but positive. And we -- and obviously, we sell significant number of modems. But I guess what is an unusual thing to understand is that the more customer moves, the better EBITDA looks like and cash suffers. This is a trade-off, which we have not done.
But we continue to see the KPIs improving. We're happy with -- let's put it this way. We think we're doing the right things and eventually, the right things do show.
Thank you, Andrew.
Next question comes from Mr. Georgios Ierodiaconou from Citibank.
Georgios, are you on the line?
Can you hear me?
Yes, we can hear you now. Go ahead, please.
So my first question is a follow-up on what Andrew asked around the broadband market. And I appreciate you gave us some color around the trade-off between volumes that generate EBITDA, but they don't generate free cash flow. Is it possible, given the improvement you're seeing in the KPIs in the second quarter to give us indications of when do you think from an EBITDA and revenue perspective, the comps get easy enough for you to have visibility on this? Or [indiscernible] if you could quantify the effect of the lower volumes in terms of the overall service revenue in the second quarter that could also allow us to have some clarity on this?
And my second question is around proceeds. And I appreciate you gave us already some color on some of the agreements you have in place, I was wondering about INWIT. You will still have, as part of this JV, more than 25%. Does that mean that the subsequent sales down to 25% is not an envisage stride now? Or is that something you could update us in the future?
Okay. On the first one, by the way, in Q1, I didn't mean that we had an opportunity to trade off. The COVID just closed the trade-off potential. And in fact, if we do have new customers, we do activate happily.
What happened -- what's going to happen in Q2 from what we see in April and May, we see again an improving situation for us in terms of net with a lower number of customers, both on line lost and line gained. So we see, in general, the overall market having less churn, which, by the way, intuitively is a positive thing.
So when common sense and accounting don't fall in line, there is something unusual. But what I mean is that your question is one of those that we need to have more data point. We actually -- to answer precisely in a sense that today is the second day of post lockdown, and we see some normalization in the day-to-day activity, people are restarting their activity. That includes our commercial activities are becoming "more normal". How long -- what will happen, however, needs a few more days.
One thing that I think I can tell you for sure or for quasi-sure is that there's going to be more fixed activity in a sense that -- and this doesn't regard us alone, I think the market as a whole will grow because there is a general consensus as there is more connectivity.
Italy was -- is, as you know, the market of more mobile-only families, more mobile-only households. And that was very clear, by the way, by the path in the mobile traffic, where we saw some -- the entire mobile traffic increase was really made by 1/3 of the customers.
But basically, what happen is that you'll see more fixed and the government plan will give a tremendous boost because we'll give subsidies to the -- I'm referring to the plan, the EUR 2.7 billion plan that I showed earlier on. This will give a tremendous boost both to the enterprise business because they're going to get basically EUR 2,000 for -- and by the way, there's an inversion for 1 GB, you get EUR 2,000 and for 30 MB, I would imagine you get EUR 500, obviously has to be related with speed.
So effectively, that would be a big boost for the sector as a whole. And that's a recognition that somehow schooling will be at least in part of the time online, and that will bring the entire Fixed up, and we think this will get our fair share or possibly more. At the same time, that's a different division that Fixed, obviously, with possibly the most qualified company to do the works on the -- cabling the schools and cabling the gray areas.
So going back to your questions on -- when do we see it? I think we're going on the right track, but let's have a more -- essentially more normalized times to give you an exact target. Second half, I would definitely see that happening. But as I said, I need a few more data points, and we're watching that daily.
Then I think you had a second question about INWIT. We will still have -- yes, we will have approximately 30%, but that, I think we're happy to maintain. In transparency will have 16% or so. I think we're happy with that stake. So there is no plan to sell that on the market. In fact, to be more precise, we do not -- we're not going to sell any shares on the market. And I'm talking for TIM at the moment. We will contribute 25.1% to the agreement with Vodafone as it was before, but the holding company will have 30% plus. Did I answer your question?
Yes, in fact, could I perhaps follow-up on the first one. Out of the -- if I could ask you a slightly different way. Out of the 10% decline we are seeing now in broadband and constant revenues, which is -- most of it explained by these factors or is there anything else we should be aware of? Because I think that's the main concern we have, whether it's just a factor, which is temporary or whether there's any underlying reason why [ machine is currently ] declined?
Well, of course, I think we mentioned that ARPU went down. Also, what you should see in the near future, certain services, like, as you know, we have trials, free trials on Disney and other services, you should see that this start adding value. And in June, we also -- we will add other features to our Unica. So the more we can bundle -- and in fact, that's why convergence is important for us. And the more we start bundling services the more, I think you'll see our ARPU improving. By the way, I believe that also some of our competitors have increased prices recently.
So we should have some positive relative effect going forward.
Okay. Thank you, Georgios.
Next question comes from Mr. Charlotte Perfect from Arete.
On the last call, which I think was [ fairly June ], after the -- offer the 40% stake in FiberCop. We -- it was really sort of a [ balancing act but produced plenty of sales ]. I was wondering if you could perhaps give us a bit more color behind the financials for FiberCop now in this call. And then secondly, on the cost reduction plan, it looks very attractive the 5,000 reductions by the year-end 2020. I was just wondering if you could provide any guidance around what the headcount reduction might be for 2021 and 2022.
Giovanni on the microphone. On the FiberCop, I mean, our negotiation with KKR is continuing as planned. Their interest is confirmed. The structure of the deal is, as we presented during the Capital Market Day. So we will put into the joint venture fully controlled and consolidated by us, the last mile. So from cabinets onwards, excluding cabinets of both fiber and copper. And then they will invest something like EUR 1.8 billion with total enterprise value in the range of above EUR 7 billion as disclosed originally. So I think you have on the screen the slide that represents the transaction. Nothing else changed in that respect. Do you have any specific point on that? I am available to elaborate.
Yes. Yes. I wasn't -- I was very specific. I think we will have seen last time what the revenues and EBITDA and CapEx of that business looks like. And I think we got to a level of revenues of being around GBP 1 billion. I think then you didn't want to provide any more at that point. So I was wondering if you would be able to provide a bit more about the revenue, EBITDA and CapEx profile from the side of corporate sale.
I think it was one of your colleagues that tried to get us to confirm that there would have been EUR 1 billion of revenues. And he was guessing about the EBITDA. So we didn't give any formal guidance on that. I don't think you're materially far away from -- in terms of revenues. And what's your guess on EBITDA at this point?
So I'll guess a EUR 700 million number.
I think you could be a bit more generous, maybe. Not much, but a bit more generous. But I will stop here. Let me just say on this deal because otherwise, I'll just tell her and we just do that, who would have to tell you the numbers? And bear in mind that -- what I would say is that the deal is closer -- definitely closer today to completion than it was when we spoke last time. But as usual, this is some of the things that we are negotiating as we speak. So although the perimeter carve-out and so on, has been defined. So the exact figure will depend by the final round of negotiations, but I don't think you're materially wrong in this assumption.
And you were asking about the employees and the cost related. How many employees were going to leave? Is that what you're asking?
So I suppose it's the outlook more for '21, 2021 and 2022 because it looks though you're well on track to hit your 5,000 number.
I got your question. You're asking about the employees, besides this year, if there are going to be other employees to leave?
Yes, exactly.
Yes. This is something that we typically discuss before with the unions, so we tend not to look -- let's say that we have an agreement that covers 2020, and we're going to have 2050 people that are exiting this very June. Going more in the future in this environment without discussing first internally, the unions would be considered a lack of courtesy, vis-a-vis the unions. And so inappropriate. But I think one point that I would like to point to your attention, it's that year-on-year, we are labor costs which are minus 5%, while they typically increase over time because of seniority and so on and so forth. And we've also done in-sourcing with the very same labor.
So I think the labor side represents one of our -- one of the part -- successful part of our story and will continue to be so. And we have all voluntary early retirement. And so it's done absolutely with very amicable terms with all the employees and the unions. And I think one other important aspect to the employees is that we did show that the company did care for all the employees during this crisis. And that strengthened the relation between the company and its employees.
It might not be easy to show it on the financials in the short term, but I think having a motivated and the fully committed workforce that indeed does help when you're in the service business. Thank you.
Thank you, Charlotte.
Next question comes from Mr. Keval Khiroya from Deutsche Bank.
Just got one question on cost-cutting and one related on EBITDA. So you mentioned that obviously cost cutting will be an opportunity in the coming quarters. Just when we think about the cost-cutting opportunity versus what you imagined when you originally set the 2020 guidance for the low to mid-single-digit EBITDA decline, can you walk us through to what degree your hope on cost-cutting have increased? Any scope of the magnitude? At least a discussion of that would be useful in terms of size.
And then secondly, on EBITDA, I understand that, obviously, we do have a bit of an uncertain outlook given COVID this year. But when you look at the EBITDA decline for Q1 and we consider that, on the one hand, you may do more cost cutting, but on the other, maybe the caved impacts are slightly worse as you at least look to Q2, do you have any ambitions that you could share on how we should think about the EBITDA for the full year? Or is it just too difficult given the environment?
Okay. Well, I guess, with regards to the cost, basically, we have certain ideas that are born out of the crisis. For example, I think -- I don't know if I did mention already that we have some over 70 offices have been closed. And we're not necessarily going to reopen all of them. In fact, we are unlikely to reopen all of them. One of the things that we were most surprised, it was how smooth was the transition of customer care from office work to smart work from home. And we are studying how to make it permanent or at least to make it -- I would say, one of the ideas that we are entertaining is that people having 50% of their time in office and 50% of time doing home because you also need to have certain moments of training, spending time with their supervisors and so on and so forth. So the short story is that, yes, indeed, we will maintain some of the things we were doing.
At the same time, the change in channels -- in sales channels, I mean, it's also a very powerful way to save because clearly, the web channels or anything which is pull rather than push is less expensive and less -- it's more manageable, let's say. We are gaining a lot in terms of productivity. I think actually, something that we did not discuss much, but our operations have done a tremendous improvement in productivity. And they are probably -- in fact, without probably, they are the most productive outfit in terms of operation fix in the country. And there is a number of initiatives that we're making. When you say which costs, the reality is that we're looking at all costs, from saving on energy to shipping, improving logistics.
The basic idea is that with the exception of, obviously, cost of goods sold, which we hope to increase because it means we're increasing more sales. We're going to revise everything in order to make sure that we have a thorough decline on the cost side. By the way, EBITDA is our gate to MBO. So if we don't reach a certain level of [ NBA ], no management, no manager gets an MBO. So everybody is very motivated to improve EBITDA. In this respect, I can assure you that we are on the -- we are all on the same side. The interests are definitely in line.
I think you also had a second question? -- the other thing I wanted to mention is that we will also work on the workforce to make sure that we make savings on insourcing, reducing the amount of outsiders as much as we can. And as I said, on the cost side, we continue to remain confident that you'll see good news and potentially, better news every quarter.
You also had a second question?
I did. So just going back to the point on EBITDA. I know it's an uncertain time. And as you mentioned, some other companies have even stopped giving EBITDA guidance. But as we look at Q1 and also think about the full year EBITDA. Could you help us at all, try and give a sense of as you see things today? How would you think about the full year EBITDA?
Because, I guess, on the one hand, you do have, potentially, extra cost-cutting on the other, maybe there's more favored impact? Or is it too difficult to give a view on the full year EBITDA?
I would say it again, we have -- today is the second day of post-COVID. So it will be a bit too early to give you a clear view. My perception is that yesterday, we had the lowest number of deaths, 99% -- 99 deaths in the entire country. So if that continues, we're going to go back to normality relatively quickly. Now certain habits will take some more time. People maybe will not go in crowded place for some time. But the longer it takes to go back to normality, the most difficult it is to answer your question. I'm fairly optimistic today given the numbers that we see on the pandemic. And given the interest that people have in connectivity.
So on that, I have a positive vibes. But again, quantifying today, we've been -- with the unusual situation of having to announce just when COVID was starting, and now we have to be again on the mic when the lockdown finishes. But -- by the way, the budget is something internal, but even in our internal budget, with the first half of the year, which was obviously affected more directly by the reduction in customer base that then would have been helped by the action that we are taking and the additional of revenue streams that are moving over -- moving on. And so far, other than the COVID, we've been more or less on track.
As I said, we even generated more than we were expecting. So I can tell you that we continue to see debt deleveraging. Again, if you look at the value that is inside this company that we need to unlock, it's tremendous. And we need to find all the opportunities, both organic and inorganic to continue to do so.
Thank you, Keval.
Next question comes from Mr. Jakob Bluestone from Crédit Suisse.
I've only got a couple of questions. Firstly, just in terms of what you're seeing on sort of the consumer side, I was curious whether there are any signs of people moving more towards some of the cheaper brands in the market? You mentioned that Kena had a big slowdown, but that sounds like it was more because of the distribution and the sort of closures of the malls. So just sort of interested to hear if, with consumer incomes being squeezed, you're seeing any signs of downshifting?
And then secondly, you talked about how there's sort of a rising demand for Fixed. And you outlined some of the incentives from the sort of the public funds for EUR 2.7 billion. Which includes things like connecting schools and gray spots -- gray areas. Do you see any sort of upside risk to CapEx as a result of having to invest a bit more to deliver that rising demand for Fixed?
Not really. No, because basically -- well, first of all, you asked about the Mobile and what's happening there. I would say that you really have 2 markets. The lower segment continues to be a market where there is fight at the bottom of the market. But Kena is well positioned. Again, its distribution, grossly disadvantaged in the period, but otherwise, will be a good competitor as it has been in the recent past. We -- you have seen the other operators' results as well. So it was very much a question of the lower part of the market. And we had limited even before the COVID, we were on an improving path.
So I would say that our -- let's say, your theory is not proven, at least not as we speak. We shall see in the coming months, but I don't think so. The market seems to be stabilizing, and we will continue to maintain the second brand very active, but our objective is to protect ARPU. With regards to potential CapEx impact of having to do works? No, because we will be a contractor, but we don't -- this is basically cabling works that do not imply any significant working capital to do that. So the answer is no. I think if there were -- when this project of more connectivity will be implemented. And obviously, we will tender for those. And that will be simply good news. There will be no negative collateral effect.
Thank you, Jakob.
Next question comes from Mr. Mathieu Robilliard from Barclays.
Some follow-ups on the previous questions. In terms of the fixed broadband volumes, obviously a bit early to see what the trends are going to be post-the-lockdowns. But if I take a step back and think about how this continues to roll out network, I scout how it's probably going to launch a broadband product. It seems that there's going to be some tailwinds to volume growth. So I was wondering if most of the job can be done on ARPU, and you highlighted that for the moment, some of the new products you were giving for free, so to speak, but I was wondering what kind of outcrops you think those that new products can generate in the weak trends.
And then a question on Mobile, where -- obviously, I saw on the slides that you have not achieved a very good -- for the recent weeks and months. And you talk about a flight to quality. But again, maybe after COVID that kind of reverts. And so wondering where you see most of the growth coming from? Again, is it -- do you believe that the volumes can stabilize in the normal situation. Because it does seem like [ what you have to do ] is quite competitive, or do you think it's going to be more ARPU driven to growth in service revenues.
I'm sorry, could you go again to your second question because we lost you at some point?
So basically, I guess, the question was similar to the first one, which is what is the driver of growth going ahead? Because your volumes seem to be improving in the last few weeks. That post-COVID would maybe good trending starts. And it seems that some of your competitors sound very ambitious in terms of market share gains. So my question is really do you believe that trends improve?
I think I got your question. Now you are making reference to Open Fiber and Sky. These are 2 very different operators in the sense that obviously, Open Fiber competes against ourselves on the wholesale market. And frankly, we're holding on our own quite reasonably against Open Fiber. We -- Open Fiber tends to have lower prices. And higher costs. So we'll have to see how sustainable that is in the long term. But in general, I would say that our wholesale has done a very good performance this quarter, and we'll continue to do so. Going forward.
Sky is different. Obviously, Sky is direct competitors on broadband. They will launch. But we -- it will launch possibly this summer, but we see them as just another competitor. It's a rationale competitor unlike other markets.
Frankly, we see that the Fixed market is going to be a better market for everybody because it's going to be a growing market overall. But not many other operators are producing free cash flow. And at the end of the day, you can talk about increasing customers, increasing EBITDA in whatever you want, but you need to produce cash. And if they undercut their pricing, they wouldn't necessarily bring to higher cash regime. In fact, as I was mentioning before, we see a trend, which is slowly starting, of prices going up rather than down.
With regards to the ARPU, we think that we should be able to -- through other products to get EUR 3, EUR 4, EUR 5 more over time, and you should see that over the next few months. Hopefully, we'll discuss that again. You remind me about this question, and I'll update you in that respect.
With regards to the Mobile, in Mobile, as I said, it is a story of 2 segments: upper segment market, which is relatively stable. And in fact, where we see some trend up in the lower segment. Number of Giga is increasing. So that is making more difficult to Iliad because, as you know, Iliad is paying those Giga to Wind.
So the more time passes with the same tariff, the more losses they get. And traffic was increasing 40% a year anyway even before COVID.
So eventually, as a matter of fact with the possible exception of Vodafone, I don't think any other player has significant free cash flow, which is a problem in the long run. Again, it's a very competitive market, but I think we're holding on well.
So what makes us different is that we are pushing on a convergent product. We believe this converting product allow us to build on new features and that reduces churn.
And by the way, churn reduction, it's something that you don't see immediately in the revenue side. But over the following quarters, it's extremely positive.
We are used to a market where an enormous amount of customer moves from a different operator to other one. The only one who makes really a profitable result is the agent. But for operators, a more stable market is definitely a better news. So we -- on this side, as I said, while we've been cautious on giving you other data and other prediction on the fact that we see KPIs improving over the next few quarters, we are fairly comfortable at this stage.
Thank you, Mathieu.
Next question comes from Mr. James Ratzer from New Street Research.
I have 2 questions, please. So the first one is regarding the government public funding scheme, and in particular, the vouchers of around EUR 1.1 billion. I'm saying about EUR 200 million of that relates to tablets, but it still leaves about EUR 900 million left potentially for spending on connectivity. So just interested to understand how you see Telecom Italia benefiting from this? Or is this designed as purely something that is benefiting the consumers financially and saving them money? Or will there be a financial benefit to Telecom Italia from this?
And then, secondly, just to go back to -- I suppose one of the topics that was discussed earlier in the call, but I'd like to focus on the retail wireline service revenue trends. Those were declining 9% year-on-year in the fourth quarter. But then in this first quarter, that trend has slipped to minus 13% year-on-year. So that's from Slide 20 in your presentation.
Could you help us understand kind of precisely what has caused that to slip from minus 9% to minus 13%? I mean can you break that down as to how much is from the washing machine effect that you referenced, how much is weaker underlying pricing? How much is specifically related to SME? Just interested to kind of try to break down why that slowed by a further 4 points, please?
Okay. I'll answer your first question first, then Giovanni will answer the second. Your question was how Telecom Italia would benefit by the public proposed intervention and for the sector, for effect, for the consumer, the schools and so on.
Well, on A and C, i.e., the school cabling and gray areas, I think, is self-evident. We obviously would tend to be the one to do the job. On the vouchers, and basically, those vouchers are for people to get new lines or to upgrade their existing lines. So in this respect, we would imagine that we will make a bigger market because people that were only using mobile today that they don't want to have connected. And they're thinking about getting a new line or people in areas where they did not have broadband and now have broadband, can now afford to have a line. And it's not clear yet where this will be paid directly to an operator that will sell them a contract or whether they will buy a contract and then get the refund. But this would benefit us indirectly in creating a bigger market. And consider the same is true for the companies. Obviously, they will get new broadband connections.
So although indirectly, this is indirect to us, but helps create a larger market, which is why I was saying that together with the post-pandemic influence of getting more connectivity and ensuring oneself more connectivity, I think this is something that will make the Fixed market grow in the next few quarters.
I would ask now...
Is that a onetime gain to the industry of like EUR 100 million?
I was just going to say, if that's paid by the consumer and reversed by the government? I mean isn't that a EUR 900 million uplift to your retail and wholesale business?
Well, we would not expect to take all of it because, obviously, you would imagine that our competitors will get a share. But yes, we would expect to have a benefit if the market grows and people get new lines, we will get, hopefully, at least our fair share.
Fair. And then on the retail trend one.
Giovanni will answer your question.
Yes. I mean I would say that there is a combination of at least 3 factors. The first one is related to the price trend. I mean as you may know, you already see in the market some competitors going up in prices. And I think this trend will be the trend that will prevail going forward. So a benefit will come from that. What happened in the quarter is that the lower level of activation in the last month of March, why? Because of the COVID effect, obviously, limited in that period of time and the activation income. And -- but this is what [ temporarily ] related to that factor.
In this very same period at the beginning of the lockdown in the first few weeks of the lockdown. Obviously, there have been some support to the system through free gigabytes. This is what recommended by institutions, so on and so forth. That was a temporary effect that as worth -- I mean, at this weight in the -- on the EBITDA level. But this ended quite -- at the end of the lock down. Today it is not anymore in line.
So the combination of these 3 effects has characterized the drop in retail revenues that you highlighted.
Thank you, James.
Next question comes from Mr. Domenico Ghilotti from Equita.
A follow-up on the previous comment. So if I understand that properly, so basically, you are saying that you are now starting to or we should start to see a monetization of the mobile data traffic more visible on the ARPU side compared to the Q1 trend. And could you give us the sense of what was the contribution from the activation on the ARPU, on the fixed line on the other side in Q1?
The second question is on the line losses for both Mobile and Fixed. So what this puzzle means that -- so when you see in the moment where the connectivity is really mandatory, so I was expecting to see some kind of jump to the Fixed line, so to see really an activity, maybe online, but an activity to get this kind of traction, and then I didn't see in the comment for Q1.
Last question is on the SMEs and the potential working capital risk. Could you remind us what is the size of the business that you are generating with really, the small, medium enterprises and the ballpark indication of what can be, in your view, the working capital strain from this kind of customers?
Sorry, Domenico. Can you repeat the last question because your voice disappeared.
Yes. So the sales generated with SMEs and if you see -- if you can give us a ballpark indication of the working capital risk or kind of working capital absorption due to possible delay in payments?
Okay. Let me answer your question. So the first one is are we going to monetize data traffic? Yes, basically, during this period, we did not bill for extra Giga to people that were part of our network, out of impacted -- because of the situation. The main reason was also that students are working -- studying from home. So now from yesterday on TIM networks, school application are not counted for Giga.
So as we -- the free Gigas that we offered were for 30 days rolling. So as they expire, they will start to be monetized. So you would expect that within 30 days from yesterday, there will not be any more free Gigas for consumer, basically.
And the second question that you had was what -- how much is our exposure to SMEs in terms of sales. And I think the number that basically -- on our sales, they represent approximately 14%.
With regards to what the impact could be on net working capital, implying that if they were late with payments and so on and so forth. As I said, we do not have enough evidence because we have analytical indication that some SMEs have issues. But bear in mind that we send the March builds at the end of March, and in fact, the mail was even a bit late in certain cases. So we'll see that at some point basically between May and June to start assessing it. We are monitoring that very carefully. But at the moment, it's too early to assess properly what the impact is going to be.
The other things that you mentioned was the jump in fixed activations in Q1. Well, actually, there was the old churn. As you know, churn is a lagging indicator and therefore, basically, we are seeing it now, the one that was in Q1.
And the activation contribution to the ARPU?
Sorry, it's about EUR 200 per activation, the line.
Thank you, Domenico.
Last question is from Fabio Pavan from Mediobanca.
Actually, 2 very quick ones. The first one, it has been being a long presentation, we didn't discuss about dividends. So I was wondering in this new environment, your dividend policy is concerned. Could you elaborate a little bit on that?
Second question on the single network. You were plugging more support maybe from the government, even in this case, could you add something more?
Okay. Well, with regards to dividend, we'll discuss later in the year. But we would expect that we continue to deleverage. We told you in previous meetings, we are comfortable to do INWIT, we did actually more than we expected.
Yes, we need to close the transaction and we had the given exclusivity, but we were quite comfortable because price is agreed and a number of other key items have been agreed. So we're comfortable that, that should happen.
I think we're on a good path also on other things that we are doing. So if that's the case, we'll see at the end of the year, a much lighter structure in terms of debt. Probably, if I would have told you, everything happens. And I would have told you that last year, you would have not believed me. So if that's the case, we would expect that at least the same dividend could be confirmed.
But again, we need to fulfill all the things that we have said and make sure that those transactions do happen and our cash position and our delever is fine, our deleveraging -- well, we don't -- our position is going to be fine. But what I mean is that our deleveraging is actually occurring. You've seen some figures, 17.5% and so on and so forth. And if we see that, I don't see why we should not.
And you had also a question about support. Well, I think everybody, almost everybody things that there should be one single network. I mean there have been a number of declaration that we can point to you. I guess the question is that how do we do it rather than should we do it, according to most sources. On this, we spoke a lot about open fiber in the past. I feel that we should do more facts now. And we hope that the government has expressed interest in a single network basically help solving this puzzle, or should we do one or should we maintain 2 or more. That's that. Then I guess that by the time we're close to complete the KKR transaction, which should be by the summer, I think you'll have a more full picture about the entire network systems in Italy.
With this -- I think we've answered all your questions, and I'm sure that you'll have more. Carola and her team are available 24/7 as well as ourself. We have also booked a number of other meetings one-on-one. If any one of you wants to discuss and follow up to the conversation we have today, we are happy. I think we're going through a challenging time and went through a challenging time. Hopefully, in Italy, we're improving -- now situation is improving. And I believe even a situation will look continuously better with the continued deleveraging, with continued equity free cash flow being delivered and with the KPIs being stabilized, solidified and transformed also into some income statement figures that will be of everybody's satisfaction.
I thank you very much for your attention and look forward to continue our dialogue. Have a nice evening. Bye-bye.
Thank you very much from my side as well and from everybody from Telecom Italia and speak soon. Ciao. Bye.
The conference call is over. Thank you for calling.