Swisscom AG

SIX:SCMN

Earnings Call Transcript 2019-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to the first quarter results 2019 presented by Urs Schaeppi, Mario Rossi and Louis Schmid. Louis, the floor is yours.

[Louis Schmid, Head of Investor Relations]

Good morning, ladies and gentlemen, and welcome to Swisscom's Q1 results presentation. And my name is Louis Schmid, Head of Investor Relations, and with me are our CEO, Urs Schaeppi; and Mario Rossi, our Chief Financial Officer. The first part of today's analyst and investors presentation hosted by our CEO, Urs Schaeppi, consists of 3 chapters, a quick overview of the highlights and an update of our activities and performance in Switzerland and some explanation on the posted results. In the second part of the presentation, Mario runs you through chapter 3, the financials and unchanged full year guidance. With that, I would like to hand over to Urs for his part of the presentation? Urs?

[Urs Schaeppi, CEO, Head of Swisscom]

Good morning, ladies and gentlemen, and I would like to start with Chart 3. Q1 in a nutshell. So overall, we have a good Q1. We were able to successfully launch our new mobile offer, inOne mobile. After 5 weeks, we have more than 250,000 customers on this product. We also were able to acquire spectrum, 45% of the spectrum -- all the spectrum which we were able to acquire for a reasonable good price. So we have all the ingredients to successfully build out 5G. On TV -- on Swisscom TV, we were able to have a continuous growth. And in all the tests on mobile we performed, so we were the winner of all these tests. Other positive events from Q1 is certainly the revision of the Telecommunication Act. So there is no change on the access regulation. And so we have a stable condition as today. In Italy, with Fastweb, we have resilient performance. So overall, a good Q1. If you go on Slide 4, you see our market share or market performance. On broadband, we have minus 3,000. I am not concerned about this development. There are some spillover effects from Christmas promotions, and we have a clear value strategy on this side. And if I look to our market share on the revenue side, we have here stable condition, and also our churn figures on broadband are on a low level. So overall, I'm not concerned about this development on broadband. On TV you, see that we were able to slightly grow. We have a market share of 35%. On fixed voice. You see that the losses are lower. We are almost through in the retail market on the All IP migration. So we can say that these losses will reduce also -- likely reduce also in the future. And on broadband (sic) [ postpaid ] , we had net adds of 31,000. The main driver behind it is the good acquisition of Coop Mobile, our second -- our third brand of Swisscom where we get a new MVNO contract. On the other side, we are successful with our value management on the postpaid customer base where we have also low churn figures. In Italy, you see on broadband growth and also on mobile. So a good market performance in Italy.On Slide 5, you see the -- our key financial figures, so Q1 is a robust quarter. And we can reiterate our full year guidance. On the net revenue side, we are approximately flat. We have minus CHF 25 million on net revenue. On EBITDA, we have plus 5.8%, so CHF 61 million. I will come later to it. There are some reconciliation effects or IFRS 16 effects. And also the net income is slightly increased by 1.1%. Operating free cash flow is at a stable robust level of CHF 533 million. If you go on the bottom line of the slide, you see the -- a bit more detail to the development of the EBITDA. So on a comparable base, the EBITDA increased by 5 -- by CHF 9 million, so 0.8% on a comparable base, if you took out the reconciliation leases or these IFRS 16 effect. Swisscom Switzerland has slightly decreased on the EBITDA, minus CHF 6 million, so we were able to compensate the reduction of the service revenue by lower costs. And in Italy, with Fastweb, we have EBITDA growth of CHF 11 million. So overall a stable, good Q1.If you go on Slide 6, you see our operational priorities. So no changes in it. We want to keep our technology leadership. We are doing a lot on the rollout of wireline networks but also wireless networks. We launched our 5G network in April -- mid of April. We have now our first 5G smartphone in the shop, an Oppo shop, and our ambition is to have coverage over Switzerland above 90% at the end of this year. Value-based -- or value management of our customer base is the core of our strategy. We are successful in it. On B2B, we are in the face of our IP migration. I will come later to it. And we were able to generate growth on security, cloud and IoT.Operational excellence remains important for us. So these are the key priorities, as you can see that on Slide 6.If we go on Slide 7, you see our -- some remarks to the auction, spectrum auction, which was finalized at the end of January. So Swisscom was able to acquire 200 megahertz spectrum. You see that distribution of the Spectrum. A good distribution in lower bandwidth -- in lower frequency spectrum, 700 megahertz. Also we get a share of 50%. And then also we have the spectrum to also make our 5G network fast. We paid CHF 196 million, so I would say, if I compare it with other countries, for a good price we get the spectrum. And important is to say that from the spectrum, Swisscom has 45% of the whole spectrum.On Slide 8, some remarks to our new offer, inOne mobile. The main idea behind this product is that in Europe, roaming is included. And we have very good momentum on the market, good feedback from customers, good feedbacks from our sales channels. And as mentioned, after 5 weeks, above 250,000 customers on this product. And also the distribution or the mix of the acquired subscription are as we planned it. So we are here on the plan, and we will also have in the future lighter subscriber acquisition, subscriber retention cost.On Slide 9, some more information on our converged strategy. So our ambition is to drive the converged penetration, convergent penetration. And you see that on mobile, we have now a penetration of 56.6%, so it increased on a year-on-year level by 19 percent points. And on broadband, we are at the penetration of 60%. So inOne is very successful. We have 2.5 million customers on inOne. And the average revenue-generating unit per bundle is 1.95. So overall, success story with inOne, also important for our value-based management. On Slide 10, you see some more information on the B2C market and also the dynamic on revenue-generating units. So a solid performance on the net adds and a slightly better performance or less negative performance on fixed voice lines. Penetration ratio, you can see in the middle of the chart. So also you can see that the penetration is increasing. Fixed mobile share of our postpaid value base is today at 37.4%.Interesting to see that the ARPU development on the left -- on the right side of the chart. You see that on wireline, we have increased ARPU, high -- on a high level, so good performance on ARPU. And on postpaid wireline, you see that we have an ARPU of CHF 59, which is CHF 3 lower than previous year. And there are -- the main effect behind it is the converged rebate. But on the other side, we have the more -- the higher ARPU on the bundles and the bigger -- the high loyalty. So overall, a good performance on the in the bundle market. On the bottom of the line, you see our churn figures. They are on a low level and in a solid area. So no actually -- a solid positioning in the B2C market.If I come to Slide 11. Some remarks to our B2B business. So we have price pressure in the B2B telecommunication business and some special effects in the solution business in the -- or on the ICT IT business. If you look to our wireless performance, you can see that we have ARPU pressure. This is mainly driven by competition. We will also face in the future some ARPU pressure in the wireless business. But on the other side, it's also driven by all-inclusive model. So overall, I think that we are already today on a quite low level of an ARPU in this B2B market. We have a stable customer base. And we were also able to win back some customers, but the competition in wireless is high, and I would say it remains high, but why is this important for Swisscom to have a good customer base management to a broad product portfolio.In wireline. So we have a solid revenue development on business networks. We have some price pressure on the connectivity side, driven by All IP migration. But you can also see that we are now at 80% of the All IP migration. So this effect of access on traffic cancellation on wireline will certainly reduce in the future because we are now at 80% of the All IP migration. Some remarks to our Solution business. Swisscom is very well positioned in this business. We have a unique positioning, if you look to the product portfolio, the wide product portfolio we have. But we are -- we have a mixed development on -- in some areas, we are growing. We are growing the digital solution, we are growing with security, cloud, data center. On the other side, on workplace, we had less workplaces installed. That's why we have a slight decrease on the workplace. And there is also the migration to unified communication collaboration. And then on the banking segment, we have this effect from last year where we lost a client. So you see this also in the year-on-year comparison. Overall, I remain unchanged for this Solution business. We will face in the B2B market with further price pressure. On the other side, we have opportunities in areas like cloud, security. That's why we say that we are unchanged positive on this Solution business.If you go on Slide 12, you see that we deliver what we actually announced. So savings decreased in the first quarter by CHF 31 million. So we are on the way to deliver a cost savings in the region of CHF 100 million plus, so successful on cost management.If you go on Slide 13, some remarks to the financial performance of Swisscom Switzerland. So you can see that cost savings are compensating the top line pressure. If we have a look to our net revenue, you see that the net revenue decreased by CHF 41 million on CHF 2.16 billion. And you see that the service revenue decreased by CHF 52 million, and there -- half or CHF 30 million is coming out of the retail market and CHF 22 million is coming out of the enterprise market. So we have a service revenue pressure still. And on the other side -- on other segments, slightly increased on the revenue side. On the EBITDA side, you see that approximately stable EBITDA in Swisscom Switzerland, minus CHF 6 million. And you see a -- the EBITDA dynamic in the middle -- or the bottom of this chart. So the reduction of the EBITDA, driven by fixed voice line by CHF 12 million, CHF 18 million from the converge discount and CHF 28 million coming from B2B wireline and wireless, mainly wireline and wireless. On the other side, we were able to compensate this through better indirect costs, plus CHF 31 million and CHF 27 million others. And in these CHF 27 million others, the majority is our lower stocks, subscriber acquisition, subscriber retention cost. This leads to a free cash flow -- operating free cash flow of CHF 520 million.On Slide 14 some remarks to Fastweb. So a resilient growth of Fastweb, increased broadband customer base by 4%. Important to say here that we are able to increase the value of this customer base. So the growth on ultra-broadband is plus 32%. That's important because on ultra-broadband, we have a lower churn and a higher ARPU. So the ultra-broadband penetration in Italy on Fastweb is now at 58%. Also, on mobile, we have a good momentum, and we were able to reduce the churn. So the churn is 22% lower than previous year. You see on the right side of the chart that the performance of the converged offers. We are now at 31% fixed mobile converged penetration. The benefits from this is a 27% higher ARPU and a lower churn in the region of 40%, and that shows that the strategy of converged bundles is working.On Slide 15, some remarks to the B2B performance of Fastweb. So we have a 12% increased revenue in the enterprise market. On wholesale, we are slightly lower but the figures on wholesale are also lower, so we have a revenue of CHF 43 million. There are some seasonal effects in it. So overall, the core wholesale business is in a stable and good situation.Now on Slide 16, the financial performance of Fastweb. So a solid performance and also in line with our full year guidance. The net revenue increased by CHF 22 million to CHF 514 million. You see that we have the growth on enterprise and consumers. And then on wholesale, slightly lower because of this seasonal special effect of last year. But overall, a solid development in enterprise and consumers. On the revenue side, you see that we were able to grow on wireline, wireless but also in the enterprise market with value-added services by CHF 21 million.EBITDA increased by 6%, and our full year guidance of a growth of 5% is so -- on the good way. Now I would like to hand over to Mario to give you some more results on the financial side. Mario?

[Mario Rossi]

Thank you, Urs, and good morning, everybody. A few additional remarks to the financials and revenue on Slide 17. I'd say overall, all trends we saw in Q1 are as expected. Maybe the B2B segment was a bit lighter than expected. On the retail customer, the decline of the service revenue of CHF 30 million or 2.3% consists of CHF 12 million impact from the loss of voice access lines. This comes down. Please remember last year, we had an impact of CHF 64 million. The same is for the impact from the convergence discount, CHF 18 million in Q1, CHF 85 million in prior year. Also here we see a reduced impact that we had a negative impact from roaming of CHF 4 million, which is compensated with additional incoming roaming revenue.On enterprise. service revenue went down by 8.1% or CHF 21 million, CHF 11 million coming from wireless and CHF 10 million from wireline. We also explained the pressure we see in wireless. In wireline, I'd say 50% of the impact comes from price pressure, and the other 50% from the structural effect of the All IP migration. I think that by the end of the year, all lines will be migrated, practically all lines. On Solution and IT business, we have a decline of CHF 14 million or 5%. Two main reasons. Banking, we have this spillover from Q1 2018, and we have lower volume in the workplace business. And we benefit from higher operating revenues. We have there an increase of CHF 18 million. The overall pricing revenue in this segment is CHF 72 million in Q1. On point 4, wholesale, for the increase of the wholesale revenues, we had 3 main reasons: The benefit from the MVNO business; and second point, growth in the B2B connectivity; and the third point that I mentioned the inbound roaming additional revenues of CHF 4 million. Coming to Fastweb. We had the growth -- we see growth in consumer and enterprise for CHF 22 million, and we had a decline in wholesale. As reported the core services in wholesale are stable. We had this noncore low margin revenue from Flash Fiber last year, which is coming to an end in 2019. The full year revenues on this business last year was around CHF 100 million.

[Urs Schaeppi, CEO, Head of Swisscom]

For Europe.

[Mario Rossi]

Europe. Okay. Then on Slide 18, few remarks on the OpEx. On the direct costs, we saw a lower acquisition and retention cost of CHF 21 million. Then on goods purchased, we have this impact that's driven by the higher hardware sales in the enterprise segments. And on the indirect cost, as was mentioned, we are well on track to deliver CHF 100 million cost savings. We saw savings in all Swisscom Switzerland divisions. Workforce costs went down by CHF 22 million and CHF 9 million also is mainly coming from lower IT cost in the network division.And on EBITDA, in the retail segment, minus 2%. The decline of service revenue of CHF 30 million was partly compensated by lower costs and -- lower indirect costs and lower subscriber acquisition costs. The enterprise segment was updated to offset the price on service revenue. We had some higher costs in the IT and Solution business. And on Fastweb, as expected, we had this EBITDA growth of 6% in Q1. A few remarks on Slide 20 on net income. And you see now all details on the IFRS 16 impact on depreciation and interest. Just remember, prior year is not restated. Then secondly, on net interest, it's now down to CHF 15 million per quarter on a comparable basis. That's CHF 14 million less than 2018 Q1. And net income for the group went slightly up by 1.1%.On the next slide, on CapEx. CapEx in Q1 in Switzerland are higher than in prior year as we had a very slow start for the FTTS rollout in Q1 2018. We are well on track for the full year guidance in Switzerland for overall CapEx of CHF 1.6 billion for Swiss business. The spectrum, the allocated spectrum will be booked in Q1 (sic) [ Q2 ] , CHF 196 million will also paid -- in Q2 and also paid in Q3. There are no special remarks on free cash flow.That brings me to Slide #23. On the financing side, there you see, net debt you see the impact of IFRS 16. As expected, the net debt goes up by about CHF 1.3 billion, and we had one transaction -- financing transaction in Q1, a CHF 200 million Swiss bond 10-years tenor at interest coupon of 0.5%, very favorable, thanks to our credit ratings. That brings me to the guidance. As mentioned by Louis and Urs, it's unchanged for the group. Around CHF 11.4 billion, more than CHF 4.3 billion EBITDA and CapEx of around CHF 2.3 billion. And with that, I'll hand over to Louis or to the operator.

[Louis Schmid, Head of Investor Relations]

Operator?

[Operator]

[Operator Instructions] I already have some questions. I will open the first one from Simon Coles from Barclays Bank.

[Simon Alexander Arulraj Coles, Research Analyst]

Simon from Barclays. So the first one is on your new mobile tariffs that you've launched in the quarter. They're clearly very attractive and competitive to pricing from peers, and we've seen some response by them cutting some of their roaming pricing. But your results today show the success that you've had, so I was just wondering how is competitive intensity going in mobile? And do you see a risk that your competitors responded aggressively to try and take back some of that market share? And then secondly, on service revenues. You touched on it in the call, and then you gave us some good clear defined guidance at the CMB in February. I'm just wondering, has anything really changed? I think you said B2B has got a bit worse as fixed losses may be getting slightly better than previously expected? If you could just give us -- get any more color on how you expect that to trend going forward, that will be great.

[Urs Schaeppi, CEO, Head of Swisscom]

With -- on our new offer, inOne Mobile, so that's a competitive offer. I don't think that this will actually lead to a lot of -- or to additional price competition in Switzerland because the market is very promotion-driven. And if you look to the main net adds of our competitors, they are -- a lot of them are coming out of promotions. So I think the reaction will be more on the promotion side that on the list prices of the products. And since we launched inOne mobile, we see some reaction on also roaming on the promotion side, but I don't think that we will have a new dimension of competition in mobile. For us, it is important to improve our price performance ratio to keep -- to have a good value management and to get some customers from prepaid to postpaid. That's the main idea behind it, and I think it's working well.To the service revenue development. Mario?

[Mario Rossi]

If you take details explained on Page 13 of the presentation, I would say that the impact on fixed voice line losses and the fixed mobile convergence in the retail business, there's no big seasonality. You can take them the 4x -- around 4x for the full year impact. And on B2B, as was mentioned, we think that the second half, we should see a better performance. And please don't take the CHF 28 million 4x for the full year impact. It should be lower, what we see today.

[Operator]

Then I'm having another question from Ulrich Rathe from Jefferies.

[Ulrich Rathe, Senior European Telecommunications Analyst]

Three questions please, if that's all right. The first one is on the wholesale revenues. You highlighted some of the factors there. Could you comment maybe whether there are any one-off-ish type contributions there? I'm thinking about things like connection fees rather than sort of monthly recurring fees. So could you give some color on whether the sort of one-off fees compare to the recurring fees in the first quarter?The second one is on the broadband, the minus 3,000. I think in your presentation, you said this is a spillover from Christmas and you're not concerned. Could you just describe that? Could you give a bit more color on that, but what this means, spillover from Christmas and what the dynamics of this is? And then how this could unfold and repair itself in future quarters?And the last one is on the cost savings, CHF 31 million versus the CHF 100 million target. Looks like it's front-loaded. Does this mean the target is maybe looking slightly conservative at this stage, with CHF 31 million already achieved? Or is that sort of a phasing front-loaded in the year?

[Urs Schaeppi, CEO, Head of Swisscom]

Good. I will take the broadband question and then cost question. And Mario then on wholesale.On broadband, this spillover from Christmas, during Christmas time, there are a lot of aggressive promotions in the market. And then normally, the churn in January is a bit higher. That's a spillover effect. But if I look to our net debt, what we have, and if I look to our whole churn figures, I don't feel concerned about the broadband penetration. And then, we are able with a strong bundle inOne mobile and inOne mobile -- inOne home to gain some, let's say, some market share in a saturated market with our strong TV platform and if we bundle it with our new mobile offers. So that's why overall, I think that we will have it in a saturated market with a network which is becoming faster because of the rollout of our ultra-broadband strategy. I'm not concerned about this development and if I look to the last week, I also can say that I'm not concerned about this.On the cost side. Yes, we were able to save CHF 31 million. And we will certainly -- we feel ourself comfortable that we can save CHF 100 million or even maybe slightly over CHF 100 million. But now that in [ factors ] but overall, we feel ourself comfortable to deliver this CHF 100 million plus.

[Mario Rossi]

And on the wholesale revenues. There are no one-offs. Maybe the MVNO benefit is around CHF 5 million and the broadband connectivity is also around CHF 5 million. And as I mentioned, inbound roaming, which is compensated by higher outbound costs is CHF 4 million. So you have CHF 14 million of this CHF 20 million growth and perhaps this is currently related to termination fees which is practically no margin.

[Operator]

Then I have the next question from Mike Bishop from Goldman Sachs.

[Michael Bishop, Equity Analyst]

Just 2 questions for me, please. Firstly, again I'm picking up on the margin, but more on the SAC and SRC costs, that they were down in the quarter, which led to the quite strong margin performance in Switzerland. Do you think this is just phasing? Or is this more a structural decline in SAC and SRC just because I noted in your comments that with the inOne mobile tariffs, you mentioned structurally lower SRC costs. And then just secondly, given your very, very rapid progress on 5G, I was really keen just to get some initial feedback from a real-life situation in terms of the speed you're seeing. And then also as a quick follow-up, what sort of pent up customer demand do you think is in Switzerland for 5G and potential early adopters?

[Urs Schaeppi, CEO, Head of Swisscom]

Well, I take the 5G question, then Mario, the question on subscriber acquisition retention cost.On 5G, as I mentioned it, we launched the first -- or the network, the 5G network, and also with the smartphone, the smartphone is in our shop. We have the first smartphone in our shop so we are here in a very early phase. And now your question is how is the pickup. So 5G will have, on different levels, an impact. Certainly on the enterprise market, the industry 4.0 campus networks and all such things, you can do there more IT oriented-projects to 5G. And then on the other side, you have all this potential in the B2C market, the IoT and then also virtual reality, augmented reality cases and so on. And so my belief is that 5G will be an important technology which will change the mobile communication.The key question is how skillful our industry will be in monetizing these advantages? The strategy of Swisscom is to charge CHF 10 more for 5G speeds, but we are not alone in this market, so you will see how skillful we are. But on the other side, you will get more and more SIM cards also in the market. And we will be able to differentiate ourselves. 2019 is still a starting year. We will have now the first smartphones. The majority of the smartphones will be in the market at the end of the -- of this year. And also then we will have a good coverage on our 5G and, I think, to really get a take-up on 5G, you need also first coverage. And so the main impact of 5G will be in 2020-plus. But now we are in the beginning phase and our strategy is to be really a technology leader in this area. Mario, on the subscribers or acquisition?

[Mario Rossi]

Yes. On the acquisition retention costs that went down by CHF 21 million in Q1. 60% is coming from the mobile business, 40% of the fixed-line business. On mobile business, the acquisition costs were more or less stable. On the retention costs, we had lower amount of subsidy per contract, volume was more or less unchanged, let's say. And the saving on -- in the fixed business, in Q1 2018, we have stayed in the middle of the All IP migration, and that's the -- during this migration, you had to grant higher subsidies for router and set-top boxes. Looking ahead in the next 3 quarters, we will see the impact from the new One in mobile go (sic) [ inOne mobile go ]. Then we will have reduced acquisitions retention costs. But that will be compensated in the next 3 quarters by the release of the IFRS 15 assets we have in the balance sheet. So full impact on this changed model, you will see only in 2020.

[Operator]

I then have the next question from Patrick Boulan (sic) [ Frederic Boulan ] from the Bank of America.

[Frederic Emile Alfred Boulan, Senior Analyst]

It's Fred Boulan at Bank of America. So just to follow up on the previous question on costs. So we had almost stable domestic EBITDA in the quarter. I think if we look at some of the one-offs you flagged in Q1 last year, maybe the trend is about minus 2%. What kind of trends can we expect for the rest of the year? In particular, we had very strong wholesale IT. Is this sustainable or you would point to some elements that we need to bear in mind in terms of not extrapolating that more stable trend for the rest of the year?And then the second, strategy, smaller question, if you could just quantify for us the impact of Coop Mobile on your revenue and subscribers.

[Urs Schaeppi, CEO, Head of Swisscom]

Sorry, Fred, can you repeat the second question, it was not very clear.

[Frederic Emile Alfred Boulan, Senior Analyst]

Yes, just the impact of Coop in service and revenue, the migration to your network?

[Urs Schaeppi, CEO, Head of Swisscom]

The migration to ourselves?

[Frederic Emile Alfred Boulan, Senior Analyst]

Coop Mobile, Yes.

[Urs Schaeppi, CEO, Head of Swisscom]

Okay.

[Mario Rossi]

Okay.

[Urs Schaeppi, CEO, Head of Swisscom]

Okay. Good. The question of Coop Mobile, that's the third brand. So we are gaining customers with this new product. But overall, if you take the whole amount of it from the network cloud and so that's neglectable. So we get some additional data, but this will also a bit flattening out, you have the first peak because we could get a lot of customers back. And this is flattening out, but the offer is an attractive one. So that I think we also have in the next month, a good momentum with Coop Mobile. But that is not -- certainly not the main pillar of our strategy. The main pillar of our strategy is the value management on postpaid. And then on the second part of the question was cost, what are the trends? And so actually, as Mario already mentioned, we have some now saved CHF 31 million and we are really confident that we get CHF 100-million-plus at the end of the year. And there are a lot of different actions behind it to make the savings, and there is not really a very special seasonal effect in it.

[Frederic Emile Alfred Boulan, Senior Analyst]

Okay. If I may follow up. If I may follow up on mobile. So you -- on the nonconversion offer now at Swiss mobile, you have co-offers with mobile status CHF 65. If I look at the range, you've had of offers historically on mobile only, you are deterring on speed. You had offers which were priced substantially higher than that, above CHF 100. Can you talk a bit about dynamics here going on in terms of, is there any repricing at all or you manage to keep customers or to move them to inOne mobile with no significant impact on ARPU?

[Urs Schaeppi, CEO, Head of Swisscom]

Yes. The inOne mobile go with the CHF 60, that's the converged offer, so that's the -- less CHF 20 discount, so the face value of the value for mobile-only customers is CHF 80. That you can compare to the former end subscriptions which stood at CHF 99. But don't forget, we don't -- we have now the savings on the acquisition costs. So as we mentioned when we introduced the inOne mobile go, we think that the overall impact of the introduction in 2019 on the full year will be EBITDA neutral and we continue some more color on the ARPU development after Q2. Now, it's too early, it's just 5 weeks in the market, it is too early.

[Operator]

Right, then I have the next question from Nicholas Prys-Owen from UBS.

[Nicholas Prys-Owen]

I have 3 on Swiss enterprise and then one on Fastweb, please, if I may. Firstly, I wonder if you could talk a bit more about competition you're seeing in the enterprise mobile space. Have you seen any change in the behavior of your competitors given there appears to be a renewed focus on B2B for each one of them? Then you highlighted how our fees are explaining some of the ARPU pressure you're seeing in B2B. I appreciate, it may be commercially sensitive, but I wonder if you could give us any color on what portion of your enterprise mobile base could perhaps re-tender next year? Or any other way of quantifying the potential ARPU risk from the future RFPs?Then finally, on Solutions. The disclosure around the different moving parts for the Solutions business was interesting. But I wonder if you could give us any color on how much your Solutions revenue is still from workplace and UCC Solutions?And then just finally the one on Fastweb, was obviously your wholesale revenues under pressure in Q1 and you mentioned how this basically reflected the phase-out of Flash Fiber-related project. At the full year, wholesale was an area management was quite confident about. Also, you highlighted, the core revenues were stable this quarter. So I just wonder how we should expect core wholesale revenues to trend during the rest of 2019.

[Urs Schaeppi, CEO, Head of Swisscom]

Well, I take the question on enterprise and Mario will give some flavor on the wholesale revenues.The competition in the mobile space in the B2B market is, let's say, it's a very, very fragmented one. What we are seeing is attacks from Sunrise, not with a clear pattern, but on very specific customers with really very aggressive prices. And that is the dynamic in this market. Overall -- and that's why I think we will -- the competition or the price pressure on mobile will continue, maybe a bit on a lower level, but we will have further pressure on mobile and service revenue. Because also in the B2B market, the contracts are normally 2-year contracts and then you have a renegotiation on this contract.On the other side, we are at an ARPU of CHF 26, and this is already low. So I think the effect can't be huge one. But competition will remain on wireless business in B2B. Our strategy is to differentiate ourselves through excellent customer service, to fuller portfolio solutions, and this is actually working out because if you look to our churn figures in the B2B market, they are really low.On the solution side, your question was how many businesses we are doing in the workplace area on solution. We don't disclose this figure. But it's not -- what we are seeing in the workplace area are actually 2 dynamics. The one dynamic is that you have workplaces in a traditional model, on-premise workplaces, which are migrating on a cloud-based solution. So that's one effect. And then on the second effect, and that was the effect with which we see in our figures, is actually that some customers have less workplaces, volume effect on workplace. And this was the case which Mario explained. But overall, I think workplace remains an attractive business unit for Swisscom because it's moving more in workplace. It's getting more connected with the connectivity part. And with the migration to unified communication, we will be able to get there a good business out of workplace. Mario?

[Mario Rossi]

And on your question on Fastweb wholesale, so as I mentioned, the decline in Q1 revenues was fully attributable to the -- to this low-margin Flash Fiber revenue. And full year in 2018, we had revenues out of this business of CHF 100 million out of the CHF 275 million wholesale revenues we have in Fastweb and for the full year this year on Flash Fiber we expect, I don't know, CHF 30 million to CHF 40 million from this business. And so in the core business, in the high-margin core business of wholesale, we still expect small growth in 2019.

[Operator]

Then I have the next question from Ratzer, James from the New Street Research.

[James Edmund Ratzer, Europe Team Head & Analyst]

I had 2 questions, please. First one just from a market...

[Urs Schaeppi, CEO, Head of Swisscom]

Could you speak a bit louder, please?

[James Edmund Ratzer, Europe Team Head & Analyst]

Yes, sorry. Can you hear me now?

[Urs Schaeppi, CEO, Head of Swisscom]

Yes. Yes.

[Mario Rossi]

Yes.

[James Edmund Ratzer, Europe Team Head & Analyst]

Great. So the first question I have is just about the competitive impact you're seeing in the market noted on the fixed line side from Salt, whether you're already seeing any pickup at the moment? I know there's a question earlier around some of the broadband customer losses in Q1. And do you think any of that can be attributed to slightly higher loss to Salt? And then the second question I had, please, was around plans and timetable for rolling out your 3.5 gigahertz network in Italy on Fastweb, have plans on that firmed up a little bit more? When can we think about you being able to reduce some of the MVNO costs you paid to TI and migrating on to your own 3.5 gigahertz network?

[Urs Schaeppi, CEO, Head of Swisscom]

So on the competitive dynamics of Salt, we, let's say, we don't feel actually Salt as the reason why we have the -- this minus 3,000 net adds in Q1. As I mentioned, it's more an overall very aggressive promotion topic in the market. And we have more value-based approach. If you look to the figures, at the end, if all figures are out in the market, I am quite confident that you can see that we kept our market share in this B2B broadband market. And that is more a question of a volume-driven topic here. And the impact of Salt on the side of Swisscom is, let's say, is slower.And then on this -- on our plans of the 3.5 gigahertz in Italy, it's too early to disclose it, but what I can say you is that we are operating successfully the mobile business in Italy also with the contract on -- which we have today as an MVNO. So and it's not our intention to cross-subsidize mobile with broadband. So we are happy with the developments also on the margin side on mobile in Italy. And currently, we use the 3.5 gigahertz spectrum for the fixed wireless access business from Tiscali, it's a small one, but we use it and, as it was mentioned, we are now starting and planning the future potential roll out in the cities. But it's too early.

[James Edmund Ratzer, Europe Team Head & Analyst]

But is it your intention then to be able to use that to help save costs on your MVNO by ...

[Mario Rossi]

Yes, that's the ultimate target. Yes, yes.

[James Edmund Ratzer, Europe Team Head & Analyst]

But is that a 2020 impact we'll start to see that? Or is it further beyond that?

[Urs Schaeppi, CEO, Head of Swisscom]

We don't -- I think it's too early to give here a clear message. The main idea is and that's the strategy of Fastweb to use assets which we have in the wireline market and now some spectrum assets, to get a better positioning in the mobile market. But today, we are on an MVNO and we are doing fixed wireless access offers out of the business of Tiscali, which we acquired.

[Operator]

Then I have next question from Guy Peddy from Macquarie Bank.

[Guy Richard Peddy]

Just a couple of quick questions, please. Could you just elaborate on what your pitch to the consumer is for your 5G services? Are you just selling speed or capacity, or what else are you doing in order to try and sell it? Secondly, with the IP migration now to the consumer SME market complete, what do you think that means for your cost-out going forward in 2019 with regard to duplication of spend? Or are we going to have to wait until 2020 for when all the IP migration is done before we see the visibility of that coming through?

[Urs Schaeppi, CEO, Head of Swisscom]

Well, I'm taking the question on 5G and Mario then on the All IP migration and costs. The pitch to our customer, it's very different on B2B and B2C. On B2B, we have a strong value proposition which we can deliver through campus networks, industry 4.0 solution optimization of the whole production. Then we have also -- we already made some nice showcase with B2B customers. And this is very compelling. But this approach of the business, you know, this is a business which need specific projects. On the B2C market, this is -- the pitch is also a fragmented one. On the one side, you have speed, that's important for downloading, for cloud solutions and such things, but I think that's not the major value-add we can bring in the beginning. The lower latency is certainly another point, and this will bring us new forms of application. Maybe some of them will be virtual reality, augmented reality. This will take us a bit time. It's actually -- we are in the same situation as when we launched 3G. When we launched 3G, there were a lot of, IT switch application will be successful. Nobody has thought about the smartphone in the way we have it today in the market. And I think we will have exactly same effect. Mobile will be becoming more important, will be more central in the digitalization and will drive the whole multimedia world. And this will lead actually at the end to more SIM cards.Maybe last point to this pitch to our customer. Another strong pitch is the service level or quality, which we can bring through 5G. Today, mobile is a shared medium. With 5G, we'll be able to deliver stronger service level agreements. And this is also important for a lot of different application and the digitalization. Mario?

[Mario Rossi]

And the impact of the completion of the All IP migration, now that's included in our cost-saving targets, in our cost-saving program '18 to '20. We said that we save each year CHF 100 million. Last year, we delivered CHF 121 million. This year, as Urs mentioned, at least CHF 100 million. And also in 2020, it will be at least CHF 100 million. If we can deliver more, then we deliver more. But the savings are included, the benefit is already last year from lower interventions on the network, lower number of calls because of the migrated customers. So that's part of this program.

[Operator]

Then I have the next question from Ghazi, Usman from Berenberg Bank.

[Usman Ghazi, Analyst]

I've got 4, please. So the first question was just on 5G again. I mean you mentioned that you'll reach a coverage rate, presumably of the population of 90% by the end of the year. I was just wondering, I mean what kind of 5G are we talking about here? Because presumably, you won't be going around deploying massive MIMO on all your -- or new network radio in all your sites so quickly. So just trying to get a feel for what kind of 5G is being -- are we talking about here.The second question was just on churn levels in mobile. So admittedly, the apps -- the churn levels are low, but they have been trending up over the last few quarters. And that's obviously despite convergence being accounting for a bigger proportion of the base. So I was just wondering if you would explain why these churn levels are trending up as opposed to trending down? Albeit, they are at low levels, as we can see.So the third question was on the TV market. I think in one of the appendices where you show the overall development of the market, I mean, the TV market as a whole seems to be shrinking. I'm just wondering if you could -- if you had a view on actually what is going on. Are people just not watching TV anymore, are they -- so just any thoughts on that would be interesting. And then finally, I just wanted to ask a very quick one on UPC. They are -- they did indicate towards the end of last year a fairly aggressive turnaround plan. They changed their tariffs around as well. So are you seeing them more visible in the market now than you have over the last couple of months or not?

[Urs Schaeppi, CEO, Head of Swisscom]

Maybe on 5G. Our ambition is to have coverage, as I mentioned, of above 90% at the end of 2019. And we call this 5G wide. So we see 5G wide solution and 5G-fast solution. 5G-fast solution is mainly done out of the 3.5 gigahertz. And wide is done through the lower frequencies and also in combination with our very strong 4G, 4G-plus network. So that's actually a combination. But you will have very good speed and a low-latency with 5G wide.Then on the churn, on the wireless. Yes, it went slightly up. But if I look to the area, this is in the lower end of the margin. So these are -- this low-end postpaid products where we -- you see a kind of washing machine. And our ambition is certainly to increase the share of fixed mobile conversion share. We are now at 37% and this will continue to increase. And then we -- but then this effect, you will see mainly on the value on the more of the top end of the postpaid market. In the low end of the postpaid market, through all these promotions, you will have this washing machine. But still on a very good churn level compared to other countries.On TV, you say that the market is shrinking. What we see in Swisscom is actually not these people who are leaving the TV market because of Netflix or other OTT solution, we see still a momentum on TV. Important for us is to have a very attractive platform where we can have an excellent customer experience, where we aggregate all the different content and have a good usability. And I am convinced that this we'll be working out also in the next years. Mario?

[Mario Rossi]

You mentioned the appendix, I think, Page 30. The overall market. It's from 2014 to 2019, the overall market went down by about 3%, but that's all coming from satellite, like you spoke, and I don't know where these customers went from satellite, maybe to the PC. But for us, it's important as the market on cable and on fixed line was more or less stable in that area we were able to grow our market share.

[Urs Schaeppi, CEO, Head of Swisscom]

But and then on UPC, turnaround on UPC. I'm the wrong man to ask this question. What I can tell you is that we don't feel UPC stronger than in the past quarters. So we don't see a change actually. Operator, we can ask one last question.

[Operator]

Yes, I have one last question in the queue, even. I will take it. It's from Leijenhorst from the company Kepler Cheuvreux.

[Matthijs Van Leijenhorst, Analyst]

Yes, my questions have been answered.

[Louis Schmid, Head of Investor Relations]

Okay. Thank you. All right. Thank you. With that, I would like to conclude today's conference call. Should you have any further questions, please do not hesitate to contact us from the IR team. Speak to you soon and have a great day. Thank you.