Telecom Italia SpA
MIL:TIT
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Telecom Italia SpA
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Ladies and gentlemen, good afternoon, and a very warm welcome to our Q2 2021 results. I'm here with our CEO, Luigi Gubitosi; and our CFO, Giovanni Ronca. Luigi will provide an overview of last quarter's main achievements and Giovanni will illustrate our financial results. Pietro Labriola connected from Brazil will participate to the Q&A session.
Pointing out to you our safe harbor disclaimer on Page 1, let me hand it over to Luigi. Luigi, the floor is yours.
Thank you, Carola. Good afternoon, everyone, and good morning for those of you connected from the U.S.
Let's start from the presentation title. We're building our future. We're building growth. Yes, we have had quite a few investments and extra costs in Q2. But we did it because they will accelerate our path to growth. Delevering remains our priority, but at the same time, we want to grow. And in fact, our revenue led to growth for the first time since Q3 2018. As you see in the bottom of Page 4, where we summarize what we did in Q2.
Domestic fixed lines remained stable year-over-year, and that's the third quarter in a row. And we had also 1 million UBB net adds in the first semester, quite evenly split between Q1 and Q2. And this is before the boost we expect from distribution of the complete football set, Serie A TIM and Champions League.
In mobile, we were recognized by Ookla as the operator with the fastest 5G network and the widest overall coverage. As you know, 5G will become a differentiation factor between operators at the high end of the market. In the market that remains competitive in the low end, CSI improved further as well as churn. Churn, in fact, reached again the lowest level in the last 14 years. ICT revenues keep growing and they are close to 30% growth year-over-year. And we obviously continued our cost-cutting exercise. We had about 1,000 people leaving the company in H1, and we expect to have more in H2. We upgraded our ESG guidance and increased the renewable energy target, 200% of total energy by 2025.
Last but not least, we accelerated revenues and EBITDA growth rates in Brazil, thanks to our value strategy there. Net debt is on track to reach a 2023 leverage target of 2.6x EBITDA.
On the next slide, you will notice as in last quarter, we focused on 4 growth drivers, 4 key growth drivers. Today, we have evidence all 4 are materializing. Let's see them one by one, starting from football in the next slide.
Indeed, on July 1, we launched our new TIMVISION Vision offering, including the super valuable and the loved football content. This has transformed TIMVISION in the home of football in passions, the richest TV platform in Italy. Serie A TIM, Europa leg, Champions League, are included in the same package, thanks to the agreement signed with DAZN and Mediaset Infinity. And on top of that, we have packages that bundle Netflix, Disney+ and other premium content providers. The slide speaks for itself to describe the breadth of content and the attractive pricing.
And all of this is available for everybody, both for TIM clients and for our competitors' clients. And indeed, I'm happy to report that the antitrust authority today has given the green light. The case is closed. To remind you of the size of the opportunity, in Italy, football viewers are almost 5 million with over 3 million Pay TV, mainly on satellite and the rest pirating. Half of them doesn't have ultra broadband yet. 1/3, in fact, is already a cell, and the rest are mobile-only or voice-only customers. So they will need to get a new BB line.
So the opportunity is not just for us but for the entire country to boost digitalization and for the entire telco sector and TIM to support such process. It's time to modernize. Our revenues would benefit from football subscriptions and equipment sales and from a higher customer base, thanks to lower churn and new broadband customers. We expect EBITDA contribution to be positive and CapEx negligible from next year.
Let's move to the next slide. And here, we are on the second growth driver, mobile-only customer back to fixed. We're glad to see that Italy fixed market is finally back to growth. AGCOM, 2 weeks ago, published market data on Q1 2021 and confirmed what we were anticipating. Fixed line are growing year-over-year plus 450,000 new fixed line as of March 2021, and broadband grew by 700,000 lines year-over-year. Ultrabroadband is accelerating with FTTH and FTTC accounting for 90% of growth and FWA for the remaining 10%. AGCOM also reports that as of March '21, more than 54% of active lines in Italy have a speed higher than 100 megabits per second. And this is a great recognition of the excellent quality of our FTTC network that now reaches 93% of active fixed lines.
Within this positive context, TIM is leading the fight against digital divide and recorded the highest growth rate in FTTx, mostly thanks to the acceleration of FTTH where we gained 4 percentage point of market share in 1 year. That's very satisfactory to us.
Slide 8, our traditional Fix the fixed slide, indeed shows we performed even better than our competitors' UBB, thanks to the mentioned increase in population coverage 93% of fixed lines. Content bread convergent offering and direct form of payments, which made our customers stickier, therefore, reducing churn. Once again, both in fixed and mobile, churn is at historical lows. We are, therefore, confirming our projection for H2 and full year with fixed service revenue expected to start growing and mobile to continue its recovery plan path.
The third growth driver, which is totally on track is our beyond connectivity business. As we said at our full year results, Noovle, Olivetti, Telsy, our cloud, our IoT and our cyber security businesses are expected to more than double their revenues by 2023, with Sparkle targeted to grow revenues by over 20% and football to be added on top, representing the beyond connectivity like in the consumer space.
Growing this part of business is important for 2 reasons. First of all, our clients want these services. We make them ampere and stickier by integrating our connectivity offering with these services. Secondly, expanding these businesses creates value as their respective sectors trade at market multiples ranging from 10x EBITDA to 20x EBITDA and even above, much higher than both TIM and telcos in general.
This means that there is good hidden value in our sum of the bars, and we intend to unlock and grow further, leveraging on the synergies that this business had among each other, and with a more traditional connectivity business. It's a great opportunity, which we'll not miss.
And in fact, if we move to Slide 10, you can see that Olivetti is a good example of what we're doing. It is targeting markets with an aggregate value of almost EUR 10 billion with an ambition of reaching a market share of around 5%. Merchant services are the more traditional space where Olivetti has been operating historically and in fact, has been gaining space for years. IoT and smart services are a great complement for Olivetti and projected to grow double digit. If you do your math, you can see we can extract a lot of value from this factory as well as from Telsy, which is a market leader on securing and encrypting government communication, a small growing segment within the larger domain of cybersecurity, where Telsy capabilities are pretty unique.
We leverage on these capabilities to transform Telsy in the cybersecurity component center for the group, and in a key element, to achieve a leadership profile in 1 of the most promising segment of the ICT space. Margins are good in the sectors. And importantly, there is a lot of money allocated by the recovery fund to this business, and we are candidates to benefit from them.
As you can see on Slide 11, Noovle in Q2 grew revenues by 20% year-on-year, in line with the plan, and signed more than 1,000 contracts. It is on track on its plan to deliver infrastructure for Google regions. And last week, we changed its bylaws to transform it in a benefit corporate, one that does not only profit as a goal, but also sustainability and a positive impact on society and on the environment.
Sparkle grew 13% year-on-year in Q2, and in fact it is targeting for 2023 double-digit growth for its EBITDA CAGR, coming from an expansion in new geographies for the wholesale business and from a complete transformation to achieve higher market share in the international enterprise market. The new operational model, in fact, is already helping us gaining new customers.
On Slide 12, we have the fourth growth driver, i.e., public funding. As you know, the size of the recovery fund to be spent in Italy is unprecedented. EUR 235 billion and telecoms will get $3.9 billion for fiber rollout in gray areas, EUR 2 billion for 5G, EUR 0.4 billion for school connectivity, EUR 1.1 billion demand stimulus in the form of voucher, with the second phase that unfortunately has been delayed a few months, and now we're expecting it to kick off after the summer. On top of that, TIM is very well positioned to benefit from additional funds devoted to the country digitization, e.g. to bring public administration and corporate on cloud. The size is huge and the factories will benefit.
So let me conclude this part of the presentation with the guidance that indeed reflects what I described to you. A number of investment in 2021, OpEx and CapEx for football, start-up costs in our factories, tax realignment costs in order to have benefits in the coming 18 years, prepayment of the spectrum to be used for 5G, all of that to accelerate growth in '22, '23 and even more in the following years.
Importantly, we're expecting Brazil EBITDA growth guidance to move to double digit from mid-single digit after the acquisition with [indiscernible] of all mobile business. But this is not included yet in our guidance because we wait for CADE approval. And even the help we are likely to obtain from the EU recovery fund is not included yet. On the contrary, we have taken out of the guidance any material help from Phase 2 of the government voucher plan. We continue to target EUR 4 billion cumulated equity free cash flow for the next 3 years. Now let me hand it to Giovanni.
Thank you, Luigi. Good afternoon, everyone. As Luigi said, group revenues are back to growth. Service revenue trend improved 0.10 percentage points quarter-on-quarter. EBITDA was affected by a few discontinuities related to labor costs and by the strong cost for football and for the factories. Both of them will support revenues and EBITDA acceleration from 2022 onwards. On labor, the discontinuities explaining of 5 percentage point drag related to the measures taken in 2020 to limit the pandemic impact. For example, we anticipated H2 solidarity to Q2 in 2020 with a total of 12 days versus only 5 in 2021 and all holidays in Q2. This 5 percentage point drag is not expected to repeat in H2. We quantified in a couple of percentage points and the start-up costs for football and factories.
Let's move on cash generation and net debt in the next slide. Equity free cash flow was affected by our investment for future benefits as well. Indeed, we paid in Q2 the EUR 231 million substitute tax that will allow us not to pay taxes for 18 years through goodwill realignment. It was also affected by a payment of almost EUR 150 million fine accrued and provided for in previous years, and therefore already embodied in our 3-year equity free cash flow guidance.
For a better year-on-year comparison, the slide also shows that this continuity related to Fistel payment, payment shift to H2, clouded by COVID measures in 2020 and the benefits on working capital brought about by TIMFin joint venture last year.
Lastly, another COVID-related discontinuity is on CapEx with investment activity much lower than average in Q2 2020, explaining a EUR 220 million swing year-on-year. Net debt after lease improved EUR 3.7 billion year-on-year, much more than in Q2 2020. Quarter-on-quarter performance instead was affected by the prepayment of the 2,100 megahertz spectrum usable for 5G, allowing to save the financial charges and dividends payment. On top of the already mentioned drugs on the equity free cash flow.
Let's now zoom on domestic fixed in the next slide. Fixed KPIs remained strong. Luigi already anticipated many of these KPIs, retail lines stable quarter-on-quarter, ultrabroadband net adds 231,000 in Q2 and 0.5 million in H1, churn down again quarter-on-quarter. All these held by 5 factors: convergent offering, direct payment, fiber rollout are now reaching over 93% of fixed lines, happier customers and hopefully more public vouchers.
TIM got 80% of total resources so far, but as you know, this first EUR 200 million tranche is limited to low-income families, while the EUR 900 million delayed after summer are for all families and corporates, including wholesale lines ultrabroadband net adds worth 366,000 lines in Q2, with 20% increase year-on-year and reaching a customer base of over 9.4 million lines.
Next slide. Total fixed revenues were increasing year-on-year with equipment, which incidentally have positive margins, benefiting from ICT revenues, ultrabroadband net adds and vouchers. Service revenues were down 2.3% year-on-year, with the trend explained by international wholesale group performance, thanks to Sparkle repositioning. National sale impacted by tough comparison against Q2 2020, a quarter that benefited from very strong nonregulated revenues. Retail year-on-year trend was a touch better versus Q1. Customer base impact improved 0.8 percentage points quarter-on-quarter, and we see it progressively stabilizing.
ICT grew at 29% year-on-year. Consumer ARPU pressure affected by activations dynamic is offset on the business side by the push on digital services. Indeed, our retail ARPU, including both broadband and ICT revenues, grew 8.6% year-on-year. And consumer is expected to improve in H2 also helped by football.
Moving to the next slide. We see that mobile KPIs improved further versus previous quarter. The mobile number portability market volumes reduced again by an overall 2% year-on-year, and TIM recorded the best results among infrastructure operators for the fourth consecutive quarter. Overall, net adds improved further versus Q1, thanks to the very good performance of our machine-to-machine and IoT business. Importantly, stabilization of calling human lives is progressing and negative net adds were further reduced quarter-on-quarter, and churn set a new low record level of the last 14 years.
Next slide. Total mobile revenues trend improved 5.3 percentage points quarter-on-quarter to minus 3.3% year-on-year. Mobile service revenues improved 4.2 percentage points quarter-on-quarter to minus 7.1% year-on-year, supported by customer base stabilization and progressive reduction of one-off tracks. Being more specific, minus 3.3 percentage point drag comes from roaming, CSP cleaning and COVID-related return on sale as a bundle. All these one-offs are expected below 1 percentage points in H2.
Minus 2.1 percentage points, the accounting impact affecting organic revenues not reported related to COVID promotions, which were monetized in organic revenues last year. The second bucket will disappear from Q3. Minus 0.8 percentage points is the lapping of past price moves that should fall to less than 0.5 point in H2. On top of these one-offs, as I mentioned earlier, impact from the customer base was below 1 percentage point. Price dynamics contributed positively and mobile termination rates explained minus 0.9 percentage point drag. Net of all these discontinuities, mobile service revenues underlying would be minus 1.8% year-on-year, improving 3.2 percentage points versus previous quarter.
Let's see next slide on OpEx. While variable costs were up for the increased volumes of traffic and equipment sales, further reduction was achieved on Q2 addressable cost base, down 3.1% year-on-year despite the discontinuities on labor costs that I described previously. Labor cost was up 2.1% year-on-year and was impacted by the lower holidays and lower solidarity days in Q2 '21 versus 2020. Excluding these effects, labor costs would come down more than 10% year-on-year.
We had lower energy call for higher efficiency, lower purchasing prices and commercial costs were down for lower commissioning and bad debt. This increase in G&A is instead related to indirect labor costs.
Let's move to CapEx. A couple of things to say. First, Q2 2020 CapEx was affected by COVID and about EUR 200 million lower than average. Second, in 2021, we pushed on growth CapEx for FTTH rollout, the kickoff of the Zoom partnership and Noovle data centers. On the contrary, we saved our maintenance CapEx through efficiencies. Net working capital year-on-year swing is mainly explained by litigations paid in Q2 2021 for domestic and by the delayed payment of Fistel in Brazil.
In Brazil growth rates accelerated across the board. Service revenues were up 8.7% year-on-year and EBITDA up 6.4%. These results show that the strategy to focus on customers' value continues to pay off and is supporting up ARPU increase both in mobile, prepaid and postpaid and in fixed. TIM Brazil keeps expanding its infrastructure and creating new sources of revenues through valuable partnerships.
Let's move to ESG. Sustainability remains the heart of TIM's longterm strategy. We are putting a lot of effort to continuously improve our impact and that of our suppliers and clients. That's why following the power purchase agreement signed with ERG and announced in previous quarter to increase our target for the weight of renewable energy on total energy to 100% by 2025, doubling the previous target. Consequently, we increased our indirect emission target to nil by 2025.
With that, I leave you to Luigi for an update on strategic initiatives and his final remarks.
Thank you, Giovanni. Let me provide you with some updates on our strategic initiatives. I like the representation of TIM Group you can find on Slide 26 because this shows our breadth of value. Though sum of the parts exceed significantly TIM's market value. It is mandatory to unlock it, and management will make sure this happens.
We're building growth synergies between our business units and factories. Sparkle is benefiting from Olivetti, Noovle and Telsy much more than in the past. And it's bringing back to other parts of our group more than ever before. The same is true for our [indiscernible], and this combined to further efficiencies, allow us to stabilize and then grow revenues and EBITDA. Secondly, we're working on portfolio optimization. We start in 2020, enhancing our towers value to the merger with Vodafone and demonetizing them at well over 20x EBITDA while maintaining joint control.
Similarly, we expect the integration with our mobile assets to enhance EBITDA market multiples within Brazil. We then unlock the value of our secondary part of our access network through FiberCop KKR entering at over 8x EBITDA. It is important to further enhance the value of our network. [indiscernible] announcement for all our factories, starting from the cloud. where, as you know, market multiples range from 16 to 20x EBITDA or plus in certain cases. Annual EBITDA is projected to reach EUR 400 million by 2024.
In fact, its potential value is expected to be further enhanced by the recovery fund and the slightly positive impact on the company value. So we'll take action as soon as we have clarity on the magnitude of the recovery fund potential boost. As you see, we have a vast portfolio whose value we intend to unlock, even through partnerships. And speaking of partnership, over the next few months, we will work with CDP on a number of initiatives to enhance the country digitalization, including the network. Our objective is to make the best out of our assets and the recovery fund. I'm sure we will both work with pragmatism and open mind.
So a few final remarks. Group revenues are growing for the first time in almost 3 years. Domestic fixed lines were stable for the last 3 quarters with ultrabroadband growing fast, convergence both churn at the lowest level in 14 years. We are investing in new business, beyond connectivity, be it football or ICT services to achieve growth and create optionalities.
TIM value is a sum of the parts of all these initiatives. Public funding and macro forecast further improved since last quarter. We're not yet incorporating our guidance nor we are incorporating the all mobile assets acquisition. With that, let me [Technical Difficulty]
We are ready for the Q&A session. First question, please.
[Operator Instructions]
The first question comes from Mr. Pavan from Mediobanca.
Can you hear me?
Indeed we can.
The first 1 is on the football. You were pointing out the new offer for TIMVISION was launched at the beginning of July. So after the first few weeks, I was wondering if there is any feedback you can share with us in order to understand how the market is reacting to this breaking news?
And the second question is on the cloud. That is my passion. You were mentioning above 1,000 contracts were signed in the first 6 months of the year by Noovle. Can you elaborate a little bit more on this on the type of this contract, the duration of this contract?
Okay. First of all, on football. Well, I will give you a qualitative comment, which is we're quite happy with the way it's developing, both technically because everything has been working out as expected, very smoothly. And in fact, with [indiscernible] for the Olympics introduction and actually for the Olympics, and is working out well with extremely good quality of the image. So happy on this side.
On the commercial side, we are quite happy with what we're seeing. There is a strong interest and we're booking a significant number of contracts. We're not going to disclose the number here. And obviously, we expect to accelerate. But let's put this way, bear in mind that August and September, the second half of August and September are very important months. We are ahead of what we expected originally to do in July. So so far, so good.
As I said -- and we will start with a very catchy, at least that's what I think, advertising campaign, he will be surprised, which starts in a couple or 3 days or so. So we expect that to continue well. It has started well. And as I was saying before, I'm quite happy that we got today the response of antitrust. We've eliminated also some potential disturbances because some people were saying there still uncertainty about who has this right and so on and so forth, and that was never in doubt as a matter of fact. And so as I said, touching good and whatever else you want so far, so good, and we will continue steady as it goes.
Your second question was on cloud. And indeed, as I was saying, cloud is continuing to grow nicely, actually I would say that this is a worldwide trend. So we were not a phenomenon per se, but we always say that we wanted to double our revenues to reach EUR 1 billion by 2024 that would imply at the time, a 16% growth. Since then, we've been growing double digit with the 2 as the first number. That was true also in the second quarter.
Obviously, the 1,000 contract we were mentioning about encompass a very a very varied type of contract, which ranges from Banca Intesa, which obviously is a very large client. Well, we do not have 1,000 bank entities in the countries. So have a smaller -- we're actually starting offering also to small to medium enterprises. And as a matter of fact, I expect this as being part of the recovery fund that will -- should enhance transformation 4.0, which is another important program of the recovery fund, should enhance the moving to the cloud of Italian enterprises. As you know, we are very bullish on cloud. And so far, this seems to be a bet that is paying off.
Next question comes from Mr. Andrew Lee from Goldman Sachs.
I had a couple of questions. Firstly, on the EU recovery fund. There has been some hope that EU recovery funds may start to help and come through before the end of this year, such as through the SME digitization part. Vodafone, for example, in the last week was mentioning that could come through in Spain before the end of the year. So just wondered on your view on when and the -- by how much can help you and why you've taken a recovery out of your guidance?
And then second question, just on competition. You -- Vodafone was citing how aggressive competition was in the market at the moment, particularly in fixed, as the competition has kind of molded from a mobile into fixed line and it expects fixed line competition to remain tough ahead of Iliad's entry. How are you seeing -- how are you expecting competitive intensity to trend through the rest of this year? And have you seen any change in intensity as a run rate today versus what you saw on average through Q2?
Okay. So your first question was on the recovery front. And could this help us? Indeed, it could help us a lot. However, we have decided not to incorporate because we already incorporated in the beginning of the voucher. And in fact, not only us, even we understand other operators, we were expecting voucher as originally stated, would have started by the beginning of June. I think what happened was that this was an Italian program, by the way, it was not a European funded program.
But I think what happened is that they are coordinating the entire effort. So everything Italian, which is a much smaller component and the European one together. So yes, we do understand that something my start before year-end. But we're not sure. We don't want to come back and tell you again that we thought you would have started in September or October and then it do not start.
I believe the voucher should start before year-end, at least that's what they're aiming. The last time we checked, which was recently that they were finalizing those papers, but obviously, nothing thus will start in August. So we'll see immediately after the summer. So if you ask my personal opinion, I think we will see some components and we'll see -- actually, all of the plan should be out before January 1st because then it's when actually the managed [indiscernible] spend in the next 5 years.
So my understanding that there is an acceleration, and they're working very hard in the offices that are preparing all these projects. But I cannot tell you with certainty when it starts. I think when it starts, it's going to be beneficial. But at the moment, we decided that we don't want to bet on which exact date they will start.
Bottom line is that we are sure that when it starts, it's going to be very positive for us. Then you had a second question, which was on competition on mobile.
No, it's on fixed.
Sorry, on fixed. The market since Vodafone spoke, I think there was 1 change, which was the major -- which was that Fastweb, there was a company that really started that has removed its [ 1999 ] offer I think that happened in the last couple of days or so. The market is now in between -- somewhere in between EUR 25 and EUR 28 price point. as I said, not [indiscernible] the promotion so it's back at around EUR 28, about EUR 26, [indiscernible] EUR 25.
So the market is slightly lower than the beginning of the year. where everybody was around EUR 30. But this, I think, was due to the fact that the market after Easter was a bit cool in terms of new activation. And so people that had some volume targets started to be more active in discounting. Q1 instead was actually much better and we saw the price.
So why [indiscernible] was important because, obviously, there was somebody else providing a discount that would have created demand. And typically, where demand is relatively strong, the price discounting is much lower. So I would expect that -- logically speaking, I would expect that in the back-to-school season, we'll see a better environment.
But in the meantime, let me tell you that our KPIs remain strong in Q2 despite all this. And we see a market, as I said, we're accelerating with contents kicking in and voucher on the horizon. I think there could be room for a positive -- a more positive environment for us. And obviously, from Q3 for us, the football kicks in, and that's definitely going to be a positive.
Next question comes from Mr. James Ratzer from New Street Research.
Luigi, I have 2 questions, please. The first 1 was just regarding the new -- I think it's a new target you've given out on Sparkle where you're assuming double-digit EBITDA CAGR out to 2023 in that business on the back of the kind of strong results you've seen in the second quarter. Could you let us know what your current starting point is for EBITDA in that business? And what gives you the kind of confidence around the double-digit target there?
And then the second question I had, please, was just coming back to the news today around the settlement with the competition watchdog over the DAZN deal. Maybe you could just talk us through a few more of the specifics of that? For example, are you able to or are you forced to resell it to Sky? And could they then bundle that in somehow with their satellite packages? Who books the revenue for this?
Do you own the rights from DAZN and then you would sell it on to the other telecoms operators? Or the other telecoms operators deal now directly with DAZN? And finally, does this in any way affect your revenue and EBITDA guidance to do mid-single digits over the next 2 years?
First, let me say no way. And now I answer in a more orderly fashion. No way was do we have to resell it to Sky. And now let me answer in a more orderly fashion, your question. First of all, on Sparkle. Well, we haven't spoken much about Sparkle over this last couple of years. But the company has been turned around is started that is actually developing some very interesting infrastructural projects. including Blue-Raman, which is a cable that connects Europe with India. And basically -- and others. And basically, the company has been changing scheme, so to speak. And to give you -- you were asking for figures, the EBITDA in 2020 was EUR 130 million and we have a 2023 target of EUR 240 million. Those are infrastructural companies, the 1 like Sparkle and so on.
They tend to have long contracts, typically 5 years or so. And they are somewhat more predictable than other companies. So -- and we see the work that's been done. That's why we say that we continue to expect a double-digit EBITDA growth. We -- actually, I'm quite happy with the work that has been done. We're satisfied with -- we're very satisfied with the results and it's small within the TIM vast empire of companies and so on and so forth. But still a company that, as I said, at EUR 130 million last year, which are going to become EUR 240 million. And already in 2021, they are growing significantly. So -- and that's, by the way, another announcement of value.
When I was saying that we have a vast portfolio which should be very fully valued somehow by the market if we consider EUR 240 million or even if we start from the EUR 130 million of last year, if you take an infrastructure multiple, that's a very different multiple, the 1 typically telecom's traditional -- telecom's operators pay now.
If I answer your question on Sparkle, I would move to the football. I think the press release that was issued by the antitrust this morning was pretty much self-evident, and maybe if you don't have it, we'd be happy to provide you with a copy. But basically, we are not entering any relationship with Sky whatsoever. I mean this has been a misunderstanding from the very beginning, it's somehow somebody fueled.
There was -- has been, as usual, every 2-year, that this happens. There has been a tender. Sky has tendered, DAZN has tendered. The higher number wins. It's as simple as that. And it's like in elections. You get a higher number of votes and in this case, you vote with millions and the number of millions on DAZN were higher than the number of million on Sky, full stop. It should have been stopped there.
And I think it's very unsporty to start then lawsuits and other things. And basically DAZN has no obligation to provide anything to Sky nor we. I think basically, there is a number of engagements that we have undertook. For example, we have to provide DAZN with 50,000 of our set bonds. And then DAZN has an OTT, does not use, is typically set of decoders, but in right areas, our decoders has an interesting peculiarity, a specific peculiarity, which is -- it has incorporated sort of an emergency element, meaning if for whatever reason, there is not enough bandwidth, you can still watch the match on digital terrestrial.
So I think the [indiscernible] to make sure that DAZN adapt in the right areas. Then I think that this another provision we faced is that if 1 of our customers want to leave that want to maintain the service of division, we have to keep it. So this is -- so for example, it could become wind customers, but still retaining at TIMVISION, decoder and subscription. This is the type of things.
But as I said, we'll be pleased to provide an and that's -- and I think it's very well written and self-explanatory. So as satisfaction is that I think it's -- for us has always been clear, but now it's clear and hopefully, to everybody that basically, basically DAZN on the right and there's no obligation, and we basically are the seller of these rights.
And as I said, we think that the matter, for as long as we are concerned, it is settled and we continue to focus now on the numbers. And in fact, I think the future discussion will be on commenting the number of subscribers and so on and so forth. I hope I've answered your 2 questions. If there's any more color you want me to add, please feel free to ask.
Next question comes from Mr. Domenico Ghilotti from Equita.
A few questions. The first, just a follow-up on the football content, particularly on the remedies, because we saw that there is -- you have to give the opportunity for the full unbundled offer. So I wonder if the profitability of these pure football clients is still positive. And so do you expect to say EBITDA accretion also from these kind of clients?
The second is on the ICT trend. So given the stronger growth that we have seen in the past few quarters, I'm trying to understand -- better understand what is really driving. So you were mentioning cloud. So if you can provide some more granularity? And also, we saw the jump in the attached cost, particularly in cost of goods sold, interconnection. So I'm trying to understand if the profitability of these new businesses is -- so what is the profitability of these new businesses? And then maybe just a third question on your discussion with CDP, if you can share what are the areas where you are seeing opportunities?
Okay. First of all, on the football, I wasn't -- exactly clear to me, what were you aiming at? I mean, would you mind repeating the last bit, the question on football? Because it seems to be similar to the previous one?
Yes. Because yes, you are now, say, forced or in some way, there is this unbundled potential unbundled clients. So you were mentioning TIM clients taking TIMVision.
And in fact -- and in fact, I realize that I did not answer fully in my -- the previous question. So let me comment on that, which is also commented somehow you asking. Is that better worth if we keep -- let's say, wind client among the TIMVISION clients. I think you can see it either way in a sense that clearly the TIMVISION people inside are quite happy about it because they see a much wider potentially -- potential markets because we could end up having a bunch of Vodafones or window or Fastweb that could become customer TIMVISION. And on the -- so they're happy. So obviously, we wouldn't get the broadband margin on this.
So the question is, are we going to get more customers than where we will get otherwise. We never know, but we think that TIMVISION is now -- they can't -- and I think that's not debatable, it's a fact that it's the platform that has the most content in Italy. And actually, we are quite pleased with our last addition, Infinity, not only because of the football and Champions League, obviously, it's a big catch.
But for example, people can now watch the Game of Thrones in 4K on our platform. That's -- for those that like that, it's big, and the quality of the picture in 4K is absolutely amazing. So as I said, now it's time of making the TIMVISION, also the widest -- the most widely spread platform. And indeed this is obviously a big task because for the last 20 years or so it was only Sky. And this is new for us.
So we're quite excited by this opportunity. And we like to see the the glass half full. And so we will try to interpret these remedies, so called remedies of the antitrust as a positive because we will be able to enhance a number of participants to our network. And in football, as I said, it's going to be positive in terms of equity free cash flow. And so the more people we have, the more it becomes positive. So for the next 3 years, yes, it will be positive.
And let me move to your second question that was about ICT. Well, ICTs are quite positive. Margins are -- let me also remind you of 1 other of our [indiscernible]. We don't do loss leaders. So all businesses, all activities have to do profitability on their own. Now in ICT, you can have the cloud, which obviously is very profitable, [indiscernible] 40% or so and you have activity that are less so, but they're all profitable. Clearly, the marginality is less than EBITDA.
But let me remind you of another aspect. ICT requires much less CapEx. So if you judge the business on EBITDA minus CapEx, the comparison, it's more flattering. Having said that, as we're becoming a more sophisticated supplier of those services. And as I said, when you move to cybersecurity to IoT to those activities. And basically, the marginality improves. At the same time, we're working on cost.
And by the way, let me make a point on cost. Clearly, sorry, just to complete your question one other, but I wanted to make sure and transmit that obviously, when you get new clients, you have more expense at the beginning, you provide them with devices. So you see cost. As these clients stay, you don't have these expenses and costs that you get at the beginning over time. And so even your profitability over longer term improves.
The second aspect that I wanted to mention is that, as I said, these are less CapEx intensive and they tend to become also -- they're going to become a very useful tool now that the recovery fund calls for digitalization of our companies and our economy. So being in the field of these services connectivity has a good chunk of allocation from the recovery fund. But if you take the digital as a whole, it's a much larger pool and we're basically going to be able to tap also in those other pools. And I think you had a third question as well?
Related to your talks with CDP.
Yes. What are we talking with CDP? Well, we will be -- CDP, least likes to be discrete. And I think that a better way, characteristic in general of this government not to be a lot not to talk a lot and so on and so forth. I will try to respect this. I have to then tell you something that is public I mean, there will be a number of articles that we're working with them on this PSN, so-called [indiscernible] cloud. I cannot give you any detail nor I can represent you what will be the final outcome, but it's a very interesting discussion and we're quite happy to participate in this discussion and hope that they will be will bear the fruits that CDP and the government expects.
At the same time, well, of course, we'll be discussing the network. I will not -- again, I will want to be myself also very much bound by confidentiality. And -- but as I said in my speech, we are starting this discussion with them with an open mind and a very pragmatic approach.
Clearly, there are benefits incorporating. And we hope that this will be the same opinion of CDP at the end of our conversations. And at the same time, we, how could I say, eagerly wait for the conclusion of the Enel Macquarie saga, which is now almost 20-year old. It is going to become 1-year-old on September 4th. So that at least we have a single interface, and we can hopefully find solutions, which are beneficial for us and for the country. And thank you for your question and ask for the next one, please.
Next question comes from Mr. Mandeep Singh from Redburn.
I have 2 questions or 3. Hopefully, 1 of them is very quick. So first of all, you talk about how the Italian fixed line market is growing. The broadband market is growing. So I think 450,000 lines growth year-over-year. But if I look at your sort of KPI spreadsheet, you're losing around 80,000 wholesale lines per quarter. So can you go ahead and marry the 2, if the market is growing, but you're losing wholesale lines, Obviously, we can't explain the delta with your retail line. So what's kind of going on? Is this like a substitution to fixed wireless access? Is that the main delta? Or is open fiber taking a few hundred thousand lines a year? Maybe just give us a little bit of color on bringing those numbers together.
Second question I have, please, is on Noovle. Can you talk about the monetization of that. Lots of your peers in the market, whether it be Telia selling their carrier business? Obviously, you've got Sparkle. You have Telefonica monetizing assets, left right and center, reducing debt. How far are we from monetizing or crystallizing real value from assets like Noovle or any other of your infrastructure assets that you think the market is missing in your sum of the parts?
And then the third question is coming back to the single network. I mean most of your previous presentation slides have included some reference to the single network, if you look at your Q1 slides, you talked about how the single shareholder makes things easier. There's no reference to the single network anywhere in your presentation slide. Is it fair to conclude that the momentum behind the single network is significantly less now than it was maybe a few quarters ago?
Okay. Let me start from the last one. And the answer is no. It's just that it's -- we would like to look -- hello, can you hear me?
Yes, I can hear you.
Okay, sorry. It looked like we had a technical problem, but it was not. So I was saying, no. I mean, our intention remains unchanged. And as I said, there were some activity at Open Fiber that somehow made it more complicated. As you know, Enel has been a major bottleneck in these discussions. And so the -- and so the the news that Enel is on its way out, obviously, make us more convinced that this is achievable. So we didn't want to put reference in the sense that I think you will see much less news flow on newspapers and you'll hear more from us when we'll be ready to tell you something. .
But in this respect, our, as I say, eagerness willingness and approach, it has not changed. And as I was saying before, we think we like also the pragmatic approach by CDP. So we'll be talking with them and we report to what the result is. But if we give you the perception that anything has changed in our results to value our assets, including the network then I didn't express well our event. We do intend to value our assets, including the network.
Now this allows me to answer to your other question about Noovle. You might recall that we said in the recent past that in the first semester of this year, also, we could have monetized part of renewal and having an investor entering, entering a Noovle on a capital increase to fuel further growth. Now it is very clear that cloud, it's 1 of the milestone of our recovery fund, both because of the fact that the public administration needs -- at least it's intention of the government to modernize very quickly public administration and and that will also happen by utilizing ICT, in particular, the cloud. And so there is a reference to various projects, I mentioned 1 of them before, which could be potentially a significant further boost. Regardless of the public administration, there is going to be sizable incentives for private companies in the program, which is called transformation 4.0, which I think has an allocation of EUR 18 billion, which is quite relevant.
So the fact is that Noovle is going to be 1 of the way or 1 of the conduits through which TIM is going to benefit of the recovery fund and in turn is going to benefit the country. And so we'll want to go ahead with monetization. But as I said in my comments earlier on, we will want to have some sort of quantification and timing of the impact that the recovery fund will have on Noovle in order to avoid either we are too shy and therefore, we don't capture it. or that we can be perceived by potential investors as too aggressive in our calculation, and they give us a discount.
We do have a strong belief that the number, it's going to be important, and it's going to reflect in a further acceleration of Noovle growth. So after that will happen -- as long as we have enough information, and I guess by year-end, we should have all this information and then we shall be eagerly looking for way to monetize, as I say, or to have new investors entering the company as a investor, investor or investors.
The second, you were mentioning the same thing about Sparkle. Now we didn't mention Sparkle in the past because the basic idea was the company to be put on the path of growth and completed a sort of, let me use the word turnaround, which probably too much here. But anyway, and overall of the operations. And now this -- I feel that this is getting to be completed. So we closed a good 2021 as Sparkle. And because of its nature of infrastructure and long-term trends, it's going to be in a good path.
So I would think that we will examine the opportunities for both Noovle and Sparkle of potential alliances, opportunities of having investor entering. At the end of 2021, I think both companies will be in a position to assess what's the next step for growth. One of the things I said in my initial speech is that there is now a significant disconnect between multiple that we are actually valued at and some of the parts. We need to bring this more in line. And I would expect that would imply some asset -- might imply some monetization. I think you had a third question as well. And Giovanni, I think will answer you now. Have I satisfied you with the first 2 answers?
Yes. Just the final question was on the -- your line losses versus the actual line growth in the market.
Yes. Our CFO, will answer that momentarily.
Yes, absolutely. So to answer in 2 pieces. The first 1 is that in the spread should you have wholesale lines are partially [indiscernible] is mainly explained by Fastweb wholesale lines switching from FTTC to FTTH and. Hence accounted on our side on FiberCop fiber and not included in the spreadsheet. On the other side, the -- based on AGCOM data, that grow -- the 2.5 million lines growth on UBB can be speak this way. More than 30% is TIM retail, another 1/3 is TIM wholesale. SWA is slightly less than 10%. And only the rest of 20% is other FTTH. So the performance is pretty significant on our side.
Next question comes from Mr. Jerry Dellis from Jefferies.
I got 2 questions, please. The first question is to do with retail ARPUs in your fixed line business. You spoke of the first quarter results about how you anticipated broadband ARPU recovery in the second half before taking into account football. In light of the broadband pressure that we saw in the second quarter, do you still expect to drive an improvement in retail broadband ARPU trends in the second half, excluding football? And how would you anticipate that being achieved?
And my second question comes back to football again briefly, please. As I understand it, you are required to make the DAZN football service available to customers who don't take a Telecom Italia broadband subscription. So in light of that, how are you going to commercialize the offer in a way that -- in a way such a football is incremental to your retail broadband effort?
Okay. So let me start from the consumer ARPU in Q2, that was decreasing. The 1 you have highlighted in the slide is the ARPU retail, including the ICT1 that is increasing by 8%. The first consideration is that it is important to consider that kind of view because it's fully consistent with the bundle strategy with services, the strategy of reducing churn. And so you should see it consumer and business together and have a look to that as part of our strategy. So the important thing is how the ARPU performs. If you look into the pure ARPU consumer that was decreasing in high single digit in the quarter was mainly impacted by activation dynamics that is the counterbalance of the very low churn rate. But it will turn to positive year-on-year in Q4, thanks mainly to football.
Business service revenues are growing and are part of our strategy of upselling, in particular on the business side with products with a low investment in CapEx. So the combination of broadening the revenue base also through ICT is supporting the stickiness of the client and is contributing to the reduction of the churn rate.
On the consumer side, let me end up adding that, obviously, the postponement of vouchers introduction will come from June, July to, say, after summer, will only move forward the effect of support on ARPU -- on the consumer ARPU at voucher are expected to have as they already did in the end of 2020 and as Luigi already anticipated before.
Was there another question, Jerry? Or is that all?
Yes. Maybe if I could just come back, just -- first of all, just to clarify that the first quarter, it was stated that retail broadband out would improve in the second half irrespective of football. So now football is part of the ARPU improvement envisaged in the second half?
And my second question had to do with football. Again, you're selling football packages to customers who don't have a TIM broadband line, and that will be the situation going forward. So it'd be interested to understand, commercially, what's going to be the incentive to take a TIM broadband line if you're subscribing to football?
Well, first of all, it's going to be an easier -- I mean, let me step back and explain that about 40% to 45% of people that are watching now on the satellite do not have an ultrabroadband. So they will need a new one. The easiest for them is going to be to come to us. We are the only 1 that can advertise. I can talk about football. Our competitors have not such rights. Basically, we see that an opportunity, as I was saying, to widen the market and to basically utilize people that could stay with other operator otherwise.
Then we'll see as we move on how the market is reacting. But as I said, we see that as an opportunity to enlarge the public that could potentially watch our product. We -- by the way, we are more prepared than others. I think we are the only 1 that have multicast available. Our basically technology has been prepared very much for that. We shall see what other operators. But I think in terms of, even on scale, we have organized dedicated call centers and the servicing. I mean, you can -- of course, there are multiple operators. But I guess people tend to associate now football with us. We've been the sponsor of Serie A, which is called Serie A TIM and now TIMVISION, for the last 25 years. We are the sponsor of the European championship winner national team, which, by the way, I think is a positive.
And even -- Italians always loved football. Now in this summer, they're even more happy of talking about summer. We are on the air pushing for that. So you will see that we will get good results as compared to other alternatives. And basically, the first month of July seems to confirm that. I'll be happy to go dialogue on this and give you a periodic update and see what you think.
Then if there is no additional color you would like, I would ask for another question.
Okay. Sorry, sorry, [indiscernible] addition to your...
ARPU to be more precise in your -- on your third question. So let me say there are 3 factors. 2 of them are incorporating the projection that we originally gave you. one of it is related to the growth in -- on the business side, it continues on in terms of revenues and broadening through the sale of ICT and that supporting the growth of ARPU.
The second one that it's very supporting the overall growth. The second factor is related to the -- on the consumer side when an important factor was related to vouchers. And vouchers will come later on in the year. So the growth in ARPU facilitated by vouchers will happen. It didn't happen in June, July, will happen going forward. On top of this, you have football that is playing on the consumer side, obviously, that was not part of the gross ARPU projection originally, but now is, by definition, will be part of the revenue we will get -- when we'll get that.
The business accretion is greater than consumer in retail. So we do expect that factor to be very positive.
Thank you, Jerry. I think we have time for another couple of questions.
Next question comes from Mr. Sam McHugh from Exane.
I just wanted to ask 1 question on the medium-term guidance. So I know you recently -- we saw the EBITDA expectations to write down, CapEx slightly higher over this 3-year period. And if I done the math, it's about EUR 300 million or EUR 400 million headwind to see cash loan. But then the cumulative free cash flow guidance hasn't changed. So I was just wondering if you could give us a bit of detail on what's improved within the mix?
And then a very short question. I think you finalized the acquisition of BT Italia assets in June, which were about EUR 100 million of extra revenue on your guidance. Is it on a kind of M&A adjusted basis? Or is that kind of included in the organic growth for this year and next year?
Okay. Yes. So on the equity free cash flow, I mean, we confirmed the EUR 4 billion equity free cash flow generation in the planned horizon. Obviously, we'll have a shift of a portion of that from 2021 to the rest of the plan that is related to what we announced at the beginning of the week, a lot of last week. But we do confirm our ability to reach the target.
On BT, I'm not sure I got your question guidance is in organic terms. So I think that this was the answer you were looking for. If we look for that acquisition in terms of EBITDA minus CapEx, it is negligible in the total amount of numbers. Luigi?
Yes. Let me explain you about this very small BT acquisition. In fact, that's very much a declining business. The reason why we bought this business was because for reasons that we fail to understand that Telecom Italia lost or did not renew its tender for Consip. Consip is the purchasing agent for the Italian government. So somehow, we were notwithstanding the fact that we are the largest company in the field, we were not able to bid for a number of Consip contracts.
Now BT was 1 of those that had this contract. So for us, the strategic interest of any BT was not to have a small amount of SMEs, which is what we got them. And a few people was actually to get this contract. So the impact that you'll see, hopefully, going forward is not so much from those business that we acquired, which is going to be a rounding error. It's going to be more, hopefully, from successful tenders, they will now be able to participate in as we have now this [indiscernible] license.
Hopefully, that was helpful. And with that, I think we move into the next -- last question, please?
The last question comes from Mr. Luigi Minerva from HSBC.
The first one, if I may, is just going back to the antitrust document published this morning. I'm just trying to really the bottom of the advantage, the competitive advantage that TIM has versus the other players. So now if I understand well, the document from the antitrust [indiscernible], what they are saying is that DAZN will now have to allow the alternative operators direct interconnection to its servers. And then for those operators that have the CDN obviously done, so they can directly interconnect to DAZN.
And then DAZN have to provide a cash copy of the content there. And also with regards to multicasting, my understanding is that the antitrust is asking for the same multicasting capabilities to be available for TI retail business and for the alternative operators. So eventually, the advantage for TIM, if I understand well, is that in the case of TIM, DAZN is embedded in the setup, while for the alternative operators, they can only offer it over the top. Would that be a fair summary of what is your competitive advantage after the antitrust decision?
And then secondly, a question on the recovery fund. And just looking at the medium term, I just wanted to get your views on whether eventually the recovery fund can translate in structurally lower CapEx for TI after 2023?
Let me start from your second one. I don't know why you say it from 2023 and not from 2022. Is there a specific reason why 2023?
Well, because you have the guidance until 2023 and I was wondering beyond the current guidance term.
Yes, yes. No. Okay. I see your point. Actually, as I said, the recovery fund, we would get benefit, let's say, 3 ways. One is through subsidies for CapEx that we do, let's say, for example, for the gray areas. If we were to receive a subsidy that would lower our CapEx. So I would imagine that that would lower our CapEx from 2022, if that happens going forward.
Then we could get it through revenues, meaning direct incentives for exchange for services, or it could benefit through our customer getting either voucher or tax deduction for buying services, say, the cloud and so on and so forth. So there is a number of ways. But going to CapEx and logically speaking, there would be a reduction.
Actually, there's going to be anyway, after 2025, reduction in CapEx. And CapEx will tend to structurally decline because we will have vastly completed our program of coverage. But yes, of course, anything coming from the recovery fund will actually accelerate this trend.
Then your other question was what is our -- what is our position versus other operators? Well, we're really commenting an antitrust decision. So my comment cannot be what, obviously, antitrust has achieved, I think, a fair and level playing field.
Having said that, yes, the other operators, I don't think can offer the service. The customer or other operators can buy the service. So our TIMVISION can be linked with, let's say, a Vodafone connection. Vodafone cannot sell TIMVISION. I don't know if I explained myself. So we're selling the service, we have the contract with the client. But clearly, other operators will be able to connect.
And with that, if -- assuming that Luigi is fine with the answer?
Yes.
You're most welcome, and I'd like to thank everybody for their attention today, and we'll see you in exactly 3 months on October 28 for the third quarter results. Thank you very much. And for those who are going to take them, we wish you a very nice holidays. Bye-bye.
Thank you from my side as well. Bye-bye, everybody.
Ladies and gentlemen, the conference is over. Thank you for calling.