Vodafone Group PLC

NASDAQ:VOD

Earnings Call Transcript 2021-Q3

[Nicholas Jonathan Read, CEO & Executive Director]

Good morning, everyone, and welcome to our Q3 Trading Update. I'm joined by Margherita. Good morning, Margherita.

[Margherita Della Valle, CFO & Director]

Hello.

[Nicholas Jonathan Read, CEO & Executive Director]

And we have an opportunity just to go through the results and Q&A with you. We attached a short presentation on our IR website. We're not going to go through page by page on that. But what I thought I'd do is just give you a sort of 1-minute summary of the key messages. So first and most importantly, we are back to growth. That growth was an improvement in our underlying performance and also a lot of drag from booming. We also had a very good performance in Germany, our largest market. I was really pleased with the consistent level of commercial performance. We saw mobile European contract churn year-to-date down 1.1 percentage points, so continuing trends in terms of customer loyalty and better economic for us as a business. And secondly, we also saw good NGN fixed broadband customer net adds, 330,000 for the quarter. That takes us to over 1 million year-to-date. It's a really good additional momentum on the fixed side. In Germany, we added almost 100,000 cable net adds over the quarter. And importantly, 40% of our cable additions are choosing the 1 gigabit plan, which is key for our differentiation as a business. In Italy, we've seen some recent improvements in the pricing landscape at the lower end as of the start of January, so not in the quarter itself. And importantly, we're starting the migration process of our new MVNO contracts onto our network, which will be a positive for next fiscal year. In the U.K., we continue to maintain good commercial momentum. And as you saw, we put through in December our new pricing of CPI, plus 3.9%, for new customers. In Spain, our service revenues continue to stabilize further, so quarter-over-quarter improvements. And we managed a price increase in the month of November in what was a highly promotional and intensive quarter. And I think we landed that very well. In Vodacom, good strong performance continued in South Africa. And importantly, in the international markets, the zero rating of peer-to-peer has now ended in the month of January for all of our markets, so we are now charging again for M-Pesa. And Vodafone business, which is about 1/3 of our business, really good growing share, strong demand for our products and higher usage given the pandemic. So we've really seen a tailwind business for us. Good overall performance, therefore, underscores our confidence in our full year outlook. And we've reiterated our guidance of over EUR 5 billion of free cash flow. Importantly, we continue to make progress on our strategic initiatives. We were able to commercialize the joint venture with Telefónica in the U.K. on towers, and therefore, allowing us to move our 50% underneath Vantage Towers, which is firmly on track for early this year IPO. So on that, let me hand over to you all to ask questions of Margherita or myself.

[Operator]

Our first question comes from Maurice Patrick from Barclays.

[Maurice Graham Patrick, Managing Director]

A question maybe on the trajectory of service revenues, if that's okay. You saw an improvement this quarter, as you've called out, much of that seems to be the lower roaming drag as it's traditionally a lower quarter, I guess, this quarter. So I guess the question is, I'm not expecting to give guidance for the quarters ahead on Siro's revenue. Maybe you could give us a hand with some of the puts and takes for the fourth quarter and maybe for next year. I mean I'm sure you'll talk about the continuing roaming drag in the fourth quarter. But given you are growing by 1.8% now ex that and as we see a gradual recovery, the hopes are there that you'll see accelerating growth into next year. So maybe thoughts on that would be helpful.

[Nicholas Jonathan Read, CEO & Executive Director]

Maybe, Margherita?

[Margherita Della Valle, CFO & Director]

Sure. So Maurice, yes, we are very pleased to be into growth, back into growth, and I would say firmly back into growth. We have good momentum. Nick mentioned the fact that our growth rate, excluding roaming drags, is now 1.8% for the group. Worth noting that we are also back to growth in Europe, excluding roaming. I think you are right on quarters, I prefer to avoid giving specific guidance. As you know, 1.1 is less than 10 million for the group. So we would avoid that. But we are definitely looking into next year as a year of acceleration for this growth. And I would call out 2 reasons for that. The first one is the strong demand for our services that Nick mentioned. Vodafone business is today back into growth. Including the drag on travel, it's growing 1%. And if you exclude the drag from roaming, it's growing more than 3%. We still see -- we see the strong demand across the whole spectrum of segments in business, I would say, from the public sector all the way to SMEs. And it's particularly strong around fixed connectivity and digital products. We really believe that in fixed, we are seeing a growing market in which we are also specifically growing share. And maybe to give you more information on that, we have, as you know, in Investor Day dedicated to business coming up because it's 1/3 of our revenue. It's an important point. So number one is demand. And number two is also commercial momentum. We have had lockdowns in Europe again in Q3. But as you have seen from the results, we have maintained good commercial momentum, particularly in Germany. As Nick mentioned, almost 100,000 connections in cable, but also similar volumes in mobile. So good performance maintained despite the lockdown. On the back of this, we are really looking forward to coming to Q1, where we will see the underlying performance emerge as the growth rate for the group. And our focus, as I said, will be on seeing this accelerating over time.

[Nicholas Jonathan Read, CEO & Executive Director]

Just maybe one build on Margherita's point. I mean a lot of momentum as you can see from her summary. I'd also say just the pricing climate. You're basically seeing customers showing a deeper appreciation for quality networks. You're also seeing, I believe, governments, regulators starting to understand the need for investment into high-quality networks. And therefore, the industry needs to earn a return. And I think there's a little bit more latitude to discuss pricing in this environment. And therefore, as I said, the U.K. has got the new formula, which seems to be adopted by most of the players in the industry. You've got Germany now just putting through under the draft rules a simpler way of doing price increasing. You've got ourselves and TEF increase prices over the quarter in Spain, and you'll see in the low end in Italy. So I just -- I think it's a climate when people will start to appreciate the quality of networks and that gives a little bit more, I wouldn't say a strong pricing power, but it just gives you a little bit more latitude to do targeted more-for-more pricing.

[Operator]

Our next question from Sam McHugh from Exane.

[Samuel McHugh, Analyst of Telecom Operators]

Just a quick question on B2B, actually, and apologies if it's asked on some of your Investor Day. I guess BT was one of the good parts this quarter. So you flagged out on fixed B2B growing around 5%. So I guess the implication is mobile still falling 1% or 2%. But I wonder if you could give us some color on that mobile decline. Is that just roaming? I'm just trying to understand if the core B2B mobile business has stabilized in terms of pricing and subscribers. And then do you think your B2B business can outgrow the Consumer business in the medium term?

[Margherita Della Valle, CFO & Director]

Sam, you are absolutely right. The drag on mobile revenues in business is coming from roaming. Excluding roaming, we are also seeing an accelerating momentum there, and I think this is quite important. We are seeing an accelerating momentum, particularly in our main markets of U.K. and Germany. When I was saying there is strong demand, there is so strong demand for some of our mobile products. See it as, for example, IoT, which is within mobile. We have had, I think, the highest quarter of IoT connection in Q3 since at least for 4 years, so a record quarter. And when we also talk about public sector demand, we see an increased demand for mobile connectivity coming from these areas. So I definitely would say that mobile as well is on the up. And the only reason why it's negative is roaming. Again, next year, as we lap into Q1, we'll see the roaming drag fall away. And then at some point in the future, which I think is yet to be determined, the roaming may also become a tailwind, which will be particularly important in business.

[Nicholas Jonathan Read, CEO & Executive Director]

Yes. Again, just one quick build. I do think that a lot of incumbents are associated with legacy, whereas we're seen as more of a front modern set of products and services. And so now all SMEs and public sectors, to Margherita's point, are waking up to the fact they were caught out by the pandemic and they need to digitize. And I think that they are turning to us because I think they see us as a modern solution set, which I think pays [indiscernible].

[Operator]

Our next question comes from Georgios at Citigroup.

[Georgios Ierodiaconou, Director]

I just wanted to ask a follow-up on the pricing comments you made earlier. And obviously, price increase has landed very well in the U.K. because everyone followed. In Spain, it looks like there is a small increase in churn. I don't know if it's directly linked to that or maybe other market dynamics. But will it be possible to give us an idea of how you are thinking about different markets over the next year? And the comment you made about Germany, whether it's something that could be implemented shortly over the next couple of years for the implementation.

[Nicholas Jonathan Read, CEO & Executive Director]

Georgios, what I would say is pricing is very specific to each individual market and each individual -- where the price table is today, what the competitive intensity and objectives of different players are. So what I'd say specifically about Spain is it wasn't really the price increase that was the key driver. It was more the fact that the market got more aggressive. I think Orange wanted to reassert itself in the marketplace and made a stronger promotional play and some repositioning. There are a number of other low-end brands repositioned as well with Virgin coming into the market. So I would say it's more to do with everyone repositioning around us. And then ultimately, we repositioned to those new prices in early December. So we saw December and January, we went net positive again. So all I'm saying is we've set the Spanish business up to be able to compete if we would lower price. At the same time, where there's opportunity to do more for more, which we did, we did. If others do them, we will take that on board as well. So I consider us a very rational player. I think Italy, I'd call out as a market that wasn't able to do any pricing actions. And normally, we do, do pricing actions. I think next year, the climate could be a bit different. I think all players need to improve performance and returns. I'd say the German market has been pretty benign for a while now. So I'm not saying that you should expect headline pricing action. But I think what you'll see is more for more happens wherever possible and maybe more base actions.

[Operator]

Our next question comes from Carl Murdock-Smith from Berenberg.

[Carl Murdock-Smith]

I wanted to ask about the acquisition of the Kabel Deutschland minorities. In what ways will this help to simplify and improve the efficiency of your German operations? And also kind of why now? Why the decision to acquire the minorities now as it's accretive and credit rating neutral? What stopped you from achieving that previously?

[Nicholas Jonathan Read, CEO & Executive Director]

What I would say is it's not really an operational impact per se. It was a lot more to do with the fact it was financially attractive. Essentially, as you say, it was both adjusted EPS and free cash flow per share accretive immediately, and it was neutral to our credit rating. I think importantly, into your point of timing, look, these disputes in Germany can run decades as you saw with management. So at some point, you don't want the distraction. And at some point, you want to try and eliminate any possible downside scenario, which this did at an attractive price.

[Margherita Della Valle, CFO & Director]

Maybe just to add that in terms of being able to find an agreement at an attractive price, we just then received a favorable ruling from the Munich court, which may have supported our case.

[Operator]

Now the next question is coming from Robert Grindle.

[Nicholas Jonathan Read, CEO & Executive Director]

Clearly, Robert gets specialized treatment.

[Robert James Grindle, Research Analyst]

Yes. You have decided to split your technology division under [ your hand ] into networks unit, and I think it's digital and IT. Please, could you share of your some thinking behind this move? Is it about sort of cost and efficiency? Or are you thinking more along the lines of your NetworkCo and a ServiceCo separately? And if that's the case, does that apply to fixed as well as mobile?

[Nicholas Jonathan Read, CEO & Executive Director]

Yes. Robert, I'm really pleased you asked the question because, actually, these are significant changes we're doing on the operating model of the business. I wouldn't describe them the way you did. So maybe if I could have a go and describe it slightly differently. So what we're doing is we are driving greater standardization across network and IT and digital. So today, we are organized with CTOs in each of the markets and then we have group functions. What we are doing is vertically integrating those functions, network and IT digital for the whole European group. So they act as one organization, driving a standardized road map. I believe what this has delivered for us is it leverages our true group scale. It drives greater efficiency because standardization drives efficiency. And the third is it improves speed to market of the products and solutions we're bringing to market. So there are 4 components. First is it's a new group product development process. So imagine, we will have one group road map for products. So let me pick an example, consumer IoT. You are seeing us develop one platform for the group and one set of products that then can get launched across the footprint. So that's where the speed to market comes from. The second thing is we are focusing on platforms, and we are going to place platforms as Centers of Excellence. So you might have consumer IoT as one Center of Excellence that coordinates in a distributed model across our European footprint. The third is we're going to in-source IT development engineering capability versus what has been historically outsourced. We already have a significant in-sourced activity, but we're really going to scale that to develop our own IP going forward to make our differentiation stronger. And then finally, we're going to use some standardized platforms and integrated European organization from a technology perspective to make it easier for third-party strategic partners, the Microsofts, the Amazons, et cetera, to connect with our platform and go across our footprint seamlessly and at speed. So an example will be AWS and edge computing, as an example, or Accenture and their security product. So this is really turbocharging Vodafone to deliver on a bigger vision of a next-generation telco from more of a classic telco historically. Of course, in the process of doing all of that, there are significant synergies. It will help support the EUR 1 billion OpEx target, the 3-year target we've talked about before. But also, it provides us resources to invest in growth going forward and maintaining that balance. So I think it's a really big move for us.

[Margherita Della Valle, CFO & Director]

Yes. Sorry to add something, but I'm very passionate on this as Nick knows. I think it's a great move in terms return on capital because our investments will go further. We will get more growth for our investment by wherever possible investments and deploy many times. I think it's a natural evolution versus where we were, but it's a great step to maximize the potential of the group.

[Operator]

Our next question comes from Adam Fox-Rumley from HSBC.

[Adam M. Fox-Rumley]

I actually wanted to ask about the cost implications of your new greenhouse gas emission reduction targets, please. Because whilst 2040 is a long way off, I think your scope 3 target is very ambitious especially. So I wondered if you could comment on what -- are extra costs involved in the medium term to get that going? Or does the time frame mean that you can just wrap it into your existing operating plans?

[Nicholas Jonathan Read, CEO & Executive Director]

Adam, can I just say, I firmly believe, and our ExCo believes that it's more a question of we can't afford the cost of not taking action, more than obsessing about the cost of action. If you think about the future, the next 10 years, 20 years, as you think about carbon tax, you think about regulation, you think about government, multinational corporate bids and how you qualify, we think inaction would be very, very expensive. Our energy bill, and Margherita, correct me if I'm wrong, is something like EUR 0.7 billion. So we are concerned that, that would have only escalate at a rapid rate with carbon taxes and various other things. So we think this is responsible from a society perspective, but also very rational from a business perspective as well, which is why we feel this is a win for all stakeholders.

[Margherita Della Valle, CFO & Director]

Maybe we're having that we are starting to win some business on the back of our environmental objectives. We have recently done a deal -- probably I cannot specify which one, but you can start to see that our environmental credentials become a critical factor in winning business, in Vodafone business. And Italy and Germany networks are already 100% renewable. The rest of Europe will there by July. And this, I think, is an important step for our most conscious customers.

[Operator]

Our next question comes from James Ratzer from the New Street.

[James Edmund Ratzer]

You have a great set of results and encouraging commentary about returning to growth. So with that in mind, just love to hear an update on your thoughts about potential cash return to shareholders. I think in the past, you've talked about considering incremental return when you got down to 2.5x net debt to EBITDA. I mean is that still your thinking at this stage? Or are you willing to show more flexibility around that, especially with the upcoming Vantage Towers IPO? And if I could ask a very quick extra one. You flag in Italy the Poste and DG MVNO. Could you quantify what the revenue run rate of those will be when they're fully integrated onto your Italian business?

[Nicholas Jonathan Read, CEO & Executive Director]

I will leave both for you, Margherita.

[Margherita Della Valle, CFO & Director]

Thank you, Nick. On returns to shareholders, as you know, James, we have 3 capital allocation priorities. First is invest in our critical network infrastructure. The second is deleveraging. To your point, we have a clear intention to move towards the lower end of our 3 to 2.5x net debt-to-EBITDA range. And the third, this provides attractive return to shareholders. On leverage, we are really focused now on moving down. So that's the priority we are thinking about and you should think about for the coming months. I think the 2 key levers there for us will be the return to growth. We have talked about revenues today, but we clearly see ourselves after the COVID pause to be back into EBITDA growth next year, and this will be a key driver for deleveraging. And then also the IPO of Vantage. And then probably, as you may remember, we have our mandatory convertible bonds approaching maturity, first tranche in March, so we'll have to deal with that. So I think nothing surprising, I would say, compared to what we have always said we would do, focus on deleveraging. On your second point on the MVNO deals in Italy, 2 deals, but 2 very different deals. DG in Italy is very small, ethnic MVNO, whilst Poste is second largest in the market if you take out Iliad or the first pure MVNO. So a very different level of materiality. We have started the migrations now. And of course, I cannot disclose precise number because these are private contracts. But in terms of phasing, I think you should expect Poste to reach run rate around the half year and sort of grow between now and then.

[Nicholas Jonathan Read, CEO & Executive Director]

James, I just -- one buildup on the dividend point. I really feel that lowering our leverage to the lower end of the range will remove the discount I feel we're getting on the dividend we already do pay, given the dividend yield and the share price where it is. So I think it's an important consideration on the share price itself.

[Operator]

Our next question comes from Jakob Bluestone from Crédit Suisse.

[Jakob Bluestone, Research Analyst]

I had a question on your thoughts post the acquisition of Telxius by AMT. Could you maybe share a little bit what you think it means, first of all, for the sort of towers market? But also, what is your current thinking longer term about the impact from Drillisch given there clearly is more coming from more independent tower companies? And how do you think that will impact your retail business more long term in Germany as that becomes more of a reality?

[Nicholas Jonathan Read, CEO & Executive Director]

Yes. Look at -- look, it was an interesting transaction and it did make me reflect. I think, first of all, I feel, 2 years ago, we made the right decision to stand up our towers as a separate business with a dedicated focus because we took the view that consolidation will play out in the European market, that this would be an important asset in a sort of digital world going forward in our digital society. So number one, I'm very pleased that we did the action when we did because now we're very much in a position to shape the market with Vantage now. So I think it's well equipped to do that. I think, secondly, the multiple was an attractive multiple and so a nice reference to have out there. And I think third for me is just it really highlighted just what an opportunity the German market is. And I think Vantage now is very much positioned to do well in the German market. So from my standpoint, these are all positives. I don't think it overly changed the competitive landscape. It was always going to stay. These players were there already. I think us having a dedicated team, a dedicated focus, having the high-quality assets and the ability and balance sheet to grow both organically and inorganically, I think, was really important to position at this moment in time. So look, they will examine German opportunities. One-on-one will be one of those opportunities that they will actively review and participate in as you I expect. I think from a one-on-one perspective, look, the good news out of the telecom draft, telecom law, was that there was still no mandatory obligation on national roaming. It's still to be commercially negotiated. And of course, we are actively participating in that. So they have to decide to stand up their network and the costs associated with standing up their network. Clearly, their focus is going to be in the more urban areas. And they only have a certain amount of spectrum. So spectrum will not be the same. And so therefore, the network quality will not be the same. So I see them as participating in an area of the market where there are second brands and other value brands today. And of course, we will have to adjust our strategy to compete on different value segments with our position. But I still think strategically, we stand back on our own position, and we have a truly unique differentiated gigabit network now covering 22 million homes already with DOCSIS 3.1 rolled out with high-quality mobile network and you see the momentum in our most recent quarterly results.

[Operator]

Our next question comes from Akhil Dattani at JPMorgan.

[Akhil Dattani, Managing Director and European Telecoms Analyst]

Just a quick question on the topic of end-market consolidation, please. I guess as I'm sure you've seen, there's a lot of speculation on Spain at momentum and the prospect of potential deals there. I'm sure there are limits in terms of what you can say. But I guess some high-level comments in regards to thoughts around the organic versus inorganic options in the market? And the only specific question around is just to understand if you ever were to consider a deal, is consolidation a mandatory requirement for any transaction? Or would you consider other options, which could lead to deconsolidation like in Ziggo.And then just a kind of a follow-up question, which is a bit broader. When we think about regulation here, you already talked about the regulatory issues in Europe. To what extent does the U.K. consolidation decision from the European parliament matter? How significant is that when we think about the prospects of border consolidation in Europe?

[Nicholas Jonathan Read, CEO & Executive Director]

Okay. I think I got a multilevel question. Look I'd say, with Spain, I'm not going to get drawn into what has been long-running speculation. I think you see from our results, our Spanish business maintained its momentum. I think the repositioning we did really did strengthen us both commercially, but also from a cost base perspective to allow us to compete at all the tiers. Now clearly, we have been still working on how can we improve returns further. And you've got digitization, you've got network sharing, those benefits still to come within our numbers within the Spanish business. I think if -- so I'm pleased with our organic execution. And of course, we will always examine opportunities to enhance and strengthen our business. We've laid out 3 core principles for all of our assets. The first principle was, do we have local scale? And then do we, in addition, leverage -- does that asset leverage our regional scale? In Spain, we are now #2 on retail in the Spanish market. We have scaled in Spain. And it leverages a lot of the European regional scale, going back to the question around our new operating model, very much driven benefits for Spain. I think, secondly, are we sitting with a credible and actionable plan to get return on capital above market WACC? You've seen the progress we've made. We think there's additional benefits still to come. And I'd say the third is then are we the best custodian of the asset or can someone else derive more value? And of course, we've always said we will look pragmatically at the situation of any situation in any market to ensure that we're doing the right things for our shareholders. So look, I don't eliminate anything. We evaluate, we consider as to what's the best for our shareholders. But importantly, understand the intrinsic value of the business in Spain and the value that's brought through the synergies that we have as part of the overall group. I take then, secondly, just sort of your point about the U.K. regulation. Actually, this week alone, so Monday, I spent 1.5 hours with the Director General of [ SIRI ], the policy setting of EC. Yesterday, I was with GSMA and another 8 CEOs through Europe, talking to Commissioner Breton about, importantly, 2 things. One is, how do we improve returns in the telecom sector to encourage more private investments to match some public investments? And what are the things that would unleash investment, one of which was consolidation, at the Europe level, at the in-market level and at the infrastructure level. So discussing the importance and differences of those 3 as one of the aspects. I'd say the second thing we were talking about was just -- and by the way, that was one of several things that we feel are needed to be done. And the other important topic is where are the areas that the EC should be investing with the member states, the EUR 750 billion recovery fund and the 20% going to digital, of which I've talked about in the 5 areas before, things like that rural coverage, open RAN, things like digitalization of SMEs and public sector. So we've been clear about the different area. I think we're making really good progress on the allocation of funds from the recovery to the right target areas. I think the commission is really trying to understand how these components like consolidation, collaboration, more cooperation amongst the industry could be a better model to ultimately encourage more private investment. And so I would say, some early days. So I think that's more important than, per se, the U.K. decision. I don't see the U.K. -- it was incrementally positive, but it's more this conversation that we're having is more shaping. If you allow us to do the following things, this is what it's going to mean in terms of investment coming into the sector.

[Operator]

Our next question comes from John Karidis. John Karidis is from Numis.

[John Karidis, Analyst]

If I may, I wanted to ask a question about unlimited tariffs. Simply because in the States, every quarter, Verizon and AT&T highlight the various net present value benefits while getting more of their customers onto unlimited tariffs. So I've got 2 parts to it. One, I'm after some numbers, and two, I'm after some words. On the numbers, I'm trying to understand in your top 4 markets, probably not Italy, but the other 3, what proportion of your contract customers are on unlimited now? And then secondly, what I'm trying to figure out is if -- whether the intensity of competition for customers on unlimited tariffs varies meaningfully versus the intensive competition for customers on meter tariffs? And I appreciate that's not the case in Spain, but could it be the case in other markets?

[Nicholas Jonathan Read, CEO & Executive Director]

Margherita, would you like to...

[Margherita Della Valle, CFO & Director]

Have a go? Yes. I'll start from the numbers, John. You asked what proportion of our customers are unlimited. You know the overall number is around 10 million now and it's growing fast. In terms of offer, slightly different position across our main markets. Unlimited is not a feature of the German market, as you probably are already aware of. Across the other markets, about 1/3 of the eligible base of postpaid contract has now taken up unlimited. And this back from Spain, which is at the highest level of penetration of around 70%, and then slightly lower in Italy and the U.K. However, I would say, Italy, also going very strongly. And for us Italy, it's a great more-for-more initiatives that customers speak up and move on to. So good progression in terms of number quarter-after-quarter and also in terms of ARPU. We have not put it on the slide in this quarter because we wanted a short presentation. But as you know, we do get ARPU uplifts whenever we move customers to unlimited. From a competition perspective, I would say the key feature of unlimited probably is customers want it. It's a very simple proposition for customers also in terms of interactions with us. You don't have big problems. You don't have all the sorts of questions that you can have with other offers. So it's a great simplification, which drives good Net Promoter Score. And then we focus our activity more-for-more in an unlimited environment, which is to move customers across tiers from the lower end of the megabit per cycle to the upper end of unlimited. Overall, we really see this as a key driver of our acceleration in performance. We were talking at the beginning of the call about the fact that our underlying performance has kept accelerating throughout the year. And in mobile, unlimited has been a great driver for that.

[Nicholas Jonathan Read, CEO & Executive Director]

John, I would also just one last build, which is I think unlimited opens up a bit of a gateway. We talk about that we won a multiproduct relationship with our customers, and therefore, to have an anchor of unlimited is helpful for then building up the products and services on top of that, so in an ARPU-accretive way, to Margherita's point. So it's strategic. It's just we would like to go as quickly as possible depending on market conditions. But Margherita has correctly said, this -- we're doing it in an ARPU-accretive way, and then having the speed tiers allowing us to then take the customer on a journey of ARPU accretion over the years to come as well as we roll out 5G, et cetera.

[Operator]

Our final question comes from Andrew Lee at Goldman Sachs.

[Andrew J. Lee, Equity Analyst]

I had a question. You obviously showed strong commerciality in the quarter. So I just wanted to ask about the efficiency improvements on those sales. And specifically, the digital sales as a proportion of the total, I think it's 26% in the quarter. Is that as high as you would have hoped given lockdowns? And how is the underlying trend going here? Is it better underlying than you would have expected, the same, worse? Any comments you could give on that would be really helpful. And as far -- just any comments to a similar question on churn and how you're seeing that going.

[Nicholas Jonathan Read, CEO & Executive Director]

Margherita?

[Margherita Della Valle, CFO & Director]

Sure. Andrew, we do many underlying. I was trying to think how do we do the underlying on the digital share. I think it's quite difficult to split the impact in a very analytical way. But we are pleased with the progression. As you said, 26%. I think the most notable results are in the U.K., where it's now almost 40%. And with the iPhone 12 launch, where we have been very successful in the U.K. recently, we have seen 55% of those sales happening online, which is an absolute record. Clearly, to your point, part of this is driven by drop-down. But if you look at the U.K. performance, we have sold 33% more iPhone 12s this year than when the latest iPhone launched a year ago despite the lockdown. And therefore, it's not just gain of share online, but it's also a gain of absolutes. We see this as continuing. We mentioned that when COVID started, we immediately sat down with all the markets to ensure that we have plans in place to make sure that the benefits of COVID and the changes of customers' behavior would become locked in our own plans, and this is what we are progressing towards at the moment. Clearly, with benefits in terms of efficiency, I talked about the fact that we were seeing the opportunity now to see commissions in our P&L to stabilize and then start decreasing over time, and this is a key element in driving this.

[Andrew J. Lee, Equity Analyst]

Are you surprised it hasn't -- you were seeing in retail a kind of fundamental shift in how consumers go and buy their products elsewhere in other sectors. Are you surprised it hasn't shifted more in telco?

[Nicholas Jonathan Read, CEO & Executive Director]

Well, I mean, I would say on -- retail has not been as aggressively impacted the second time through. And I would say that people still need to interact with retail for different activities. I think what -- if you look at what we're trying to do, we're trying to drive a standardized My Vodafone app, so capturing all of the important customer journeys from a service experience perspective. If we can capture everything you need and you can execute it through the app, that is great. We also want to have click and collect into retail, so we are finding -- so U.K., as an example, 230 stores are available and open for click and collect. And I think you're going to see us play more into that strategy moving forward, more click and collect, more express, smaller formats, very specific purposes. So we talked about, I want to say, 18 months, 12 months ago about reformatting our retail estate and making it complementary to a digital-first execution. So rather than saying we're retail first and we've got digital, we're saying, no, no, no, we're digital first in all of our channels and that then retail complements that execution. And you'll see enough pivot towards that in our current execution. So whether others are doing it, I can't comment, but that's definitely what we'll be doing.

[Margherita Della Valle, CFO & Director]

Andrew, you also asked about churn and -- which was just conscious, we didn't give you an answer on that. You have seen the numbers. Any particular angle there?

[Andrew J. Lee, Equity Analyst]

No, it's just a similar question. Would you expect that to come down more or are you happy with the underlying trends? I realize I'm being greedy with a second follow-up question there. So yes.

[Margherita Della Valle, CFO & Director]

No, just to say, very happy with the trends. You may remember that when we gave our guidance in May for this year, we said we are not backing on structural reduction of volumes or churn because of COVID. And I think in reality, we have seen that this has not really happened in most markets. So the fact that we continue to see structural churn reduction, 1% down year-on-year, year-to-date is positive. And then when you look at it by driver, you can really see why structural because unlimited has lower churn. Convergence products have lower churn. Vodafone business, we were talking about the recovery in mobile. One of the drivers there is also lower churn. And it is supported by a leading NPS, which has been, again, the highest in business for a long time. So I think we'll see this trend continuing as well into next year.

[Operator]

At this point, I would like to hand over to Nick for any closing remarks.

[Nicholas Jonathan Read, CEO & Executive Director]

I just wanted to say thank you very much for taking the time to join us. I'm glad to see so many of you are fit and strong. And look, returning to growth is a good positive for us. And now our focus as a management team is accelerating from this point onwards. We talk to many of the reasons why we believe that will happen and the actions we're taking. And we look forward to updating you on our full year results in May. Take care and stay safe.

[Margherita Della Valle, CFO & Director]

Bye.