Swisscom AG

SIX:SCMN

Earnings Call Transcript 2020-Q1

[Operator]

Good morning, ladies and gentlemen. Welcome to the Swisscom Q1 2020 results 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 also from my side. As always, our quarterly presentation has 3 chapters: Q1 highlights, business review, financial results, but slightly different to the past, we will not run you through each slide. Our management, Urs Schaeppi, our CEO; Mario Rossi, our Chief Financial Officer just focuses on some key messages per chapter, referring to the corresponding slides.With that, I would like to hand over to Urs to start his part. Urs?

[Urs Schaeppi, CEO, Head of Swisscom]

Yes. Good morning, ladies and gentlemen. I would like to start with Page 4 with the Q1 highlights. So overall, we are performing well in this COVID-19 crisis. So our performance is good. We have 85% of our employees in the home office, and operationally we have no problem and good KPIs.On mobile, we were able to win the 4 mobile network tests in this year. We are also awarded as the leading provider of cloud and security in the B2B market in Switzerland. And also on ESG, we were awarded as one of the most sustainable company.In Italy, we are growing EBITDA growth of 5%. And overall, an EBITDA margin, which is -- which slightly increased.On Page 5, you see our market performance. Like always, Q1 is a bit weaker. And then also compared to last year, on mobile, we had last year the special effect on an MVNO contract on Coop Mobile. So that's why the mobile net adds are a bit weaker. But overall, it's in the region of our estimation. So a bit slight, but no specific or there are specific remarks to it.In Italy, we have a good momentum on broadband, net adds and mobile. Mobile is overall in Italy a bit weak because this home office and nobody is going out. And therefore, mobile net adds are a bit weaker.On Slide 6, you see our financial performance. So solid figures underlying EBITDA stable. So minus CHF 3 million stable EBITDA. So we were able to compensate the revenue -- service revenue decline in Switzerland through cost actions -- cost reductions.In Italy, we have a growth and overall saw a stable EBITDA. Also, you see the free cash flow on the bottom of the chart, which is at CHF 520 million. CapEx are in the round of last year, CHF 516 million. So overall, solid figure of financials.If you go on Slide 8. So you see some information to the COVID-19 situation. So in Switzerland, we have the lockdown mid of March. In Italy, it was earlier. They are, let's say, 2 or 3 weeks before the rest of Europe. And on an operational level, as I already mentioned, no special impact. Maybe interesting to mention is that we were able to digest the volume increase. And we have no performance problems, and we don't need additional CapEx to digest the increase of the volume.The shops, they were partly closed. In the beginning of the lockdown, they were closed. Now we are reopening the shops and today, we have more than 90% of the shops open. This will certainly also help us to get a better performance on mobile in the future. And we also established a kind of health package for our customers. So for customers, which were blocked outside Switzerland, we get roaming benefit. We have special offers for SMEs, for home solutions, home office solutions. And also on the speed side, we made some special promotions. Overall, the Net Promoter Score of our custom base increased through the crisis. So we get very good feedback from the B2B side but also retail side.On Page 9, you see the dynamic on our business of COVID-19, we will certainly have enough time during the Q&A to talk about it. But it's hard to quantify today because it depends on the different factors, like duration of the epidemic and also the behavior of our customers. It's too early to judge it on a quantified level in Q2 or during the Q2 results, we have certainly much more visibility on the impact on it. But we will have a small impact on the roaming because I'm convinced that traveling will be not the big topic in 2020. So we will have a smaller -- lower 2-digit impact on the roaming. And so the major question is what is happening with the payment rates, but that's too early to judge it. And today, we don't see any signs that the payment conditions are deteriorating. So we have a stable cash inflow in Switzerland and in Italy.To Page 10. Here, you see what was happening on our network or is still happening on our network. So 70% more calls on mobile, 65% more calls are on fixed voice. The calls are normally lower, 50% lower. So a high stimulation of the voice volume. And also the data volume increased and this without the performance problem in our network.On Page 11, I would like to skip it. But here, you see how we made the restatement in Swisscom Switzerland because of a reorganization. And the major change is actually the change of the SME department from retail to B2B, and this leads to the restatement, which you can see on Page 12.Let's come to 13, Page 13. Here, you see the figures of B2C. So a solid operation and good performance with our entertainment products is our new TV platform. inOne is continuing to be attractive. We have an increased penetration on fixed mobile converged offers. So this is the main message.On Page 14, some KPIs. So low churn figures. You will see it on the bottom left, low churn figures. In March, they are even a bit improving. And so 8.9% postpaid churn, 9.7% broadband churn and converged also has 7.6%.In the middle of the chart, you see our ARPUs. So the blended wireline ARPU is stable. And the postpaid ARPU is at CHF 54, so minus CHF 4. And what are the reason behind this ARPU decline? CHF 2 are coming from fixed mobile converged discount, CHF 1 out of the revenue generating mix or brand shift and then CHF 1 is because of the debundling, so which is compensated also by lower SAC. On a net basis, it's -- and you could say it would be minus CHF 3.On Page 15, our B2B business. So we are fully on track with the transformation B2B.On Page 16, some KPIs to our B2B business. So we are the clear #1 ICT provided in Switzerland. On the bottom right of the chart, you see our positioning in cloud and security from a research company. So Swisscom is the leading provider for cloud and managed securities, which are both growth areas. And you see that our margin in B2B is stable or, let's say -- yes, it's more or less stable or slightly increasing ARPU -- EBITDA in B2B.On Page 17, you see the financial figures of Swisscom Switzerland. The one, on the revenue chart, you see the pressure on our service revenue and minus CHF 72 million, CHF 40 million is coming out of B2B, CHF 32 million from B2C. EBITDA stable. So these are the main messages to the financials.And then on Page 18. Fastweb performance in the consumer market is resilient. So you see that we have an increased broadband customer base by 3%. Mobile subscription went up by 24%. Fixed mobile penetration increased by 3 percent points. And this is important because then we have a better ARPU and lower churn.On Page 19, B2B performance Fastweb, so a good B2B performance in enterprise, but also wholesale, you see the growth rate a good performance.And on the financial, on Page 20, of Fastweb, you see this growth of 5% of the EBITDA. So this was a bit my main messages. And now I would like to hand over to Mario.

[Mario Rossi]

Thank you and good morning also from my side. Only a few additional information remarks to the financials. Jump directly to Page 24, where we show you the main elements of the EBITDA evolution of the last 5 quarters of the Swiss business. And in Q1, the service revenue declined by CHF 72 million, close to 5%, CHF 32 million coming from B2C and CHF 40 million from B2B, and third CHF 21 million from the wireless business and CHF 19 million from wireline business. And we were able to compensate the main part of this decline of the service revenue. I think we did, again, a good job on the cost side. We reduced the indirect cost by CHF 33 million, CHF 14 million coming from workforce costs and CHF 19 million from IT, customer care, field services, communication, et cetera.Then we have a net effect -- a positive net effect of CHF 29 million from the device decoupling and the SAC/SRC savings. And maybe 1 remark to the wholesale business, you see in '19, we had quite a material increase of the wholesale revenue. Then we had the impact of the transfer of the UPC client from the network of Salt to our network, that's had an impact of close to CHF 30 million for the whole year.And overall, I would say, a flat evolution of the EBITDA in Switzerland.And some remarks to Page 21 (sic) [ Page 28 ] to the cash flow development in Q1. There is 2 elements. The change in net working capital to minus CHF 205 million. That's a temporary effect. We had a higher reduction of liabilities due to relatively high payments, and we had in February, January, some prepayments for maintenance, contracts and licenses contracts. Overall, over the whole year, I expect a flat development. Then you see in Q1, we have relatively low income tax paid. The Swiss government reacted very quickly in March and allows to postpone payments of federal and cantonal taxes until Q4 due to the COVID-19 crisis. And of course, we took benefit of that decision.And I think during these days, it's important to have a look at the debt maturity profile on Slide 29. In 2020, we have to refinance Eurobonds of CHF 500 million, which is due end of September and some smaller bank loans. Just to remind you, we have CHF 2 billion committed credit lines still unused. When you have a look at your balance sheet, end of March, you see that we have CHF 1.5 billion cash at hand. The reason was that we draw uncommitted credit lines to secure short-term liquidity mainly to secure the payment of the dividend in April, as we did right after, let's say, the whole evolution of the COVID-19 crisis.Of course, we are committed to our strong credit ratings. We had the credit reviews with the agencies, and Moody's already confirmed A2 stable this week.That brings it to the guidance. So beginning of February, we committed -- we communicated our guidance for 2020. The guidance is still in place. In Q1, we don't see any negative impact on this guidance in both in Switzerland and in Italy, but also slightly a possible COVID-19 impact cannot be quantified at this stage. It's just too early. You see at -- you saw at Slide 9 possible areas of our business where we could see in the next month or quarters impact of the COVID crisis.And with that, I hand over to Louis to manage -- or to the operator to manage the Q&A.Okay. Operator?

[Operator]

[Operator Instructions] I will open the first line now.

[Roman Arbuzov, Analyst]

It's Roman Arbuzov from JPMorgan. My first one is just on guidance. So you're saying that you're keeping guidance, but there is some uncertainty related to COVID. If it was some of the other telecoms have done, they have withdrawn guidance due to uncertainty and you're citing the same uncertainty, but you're keeping the guidance. So I'm wondering, does that mean that in the base case and given everything that we know up until this in terms of the impact on the business and also more generally in terms of the development of the situation, is the base case that you're more likely than not to keep the guidance? Is that the right way to interpret it? Just in light of everybody else -- or many others [ forgoing ] the guidance. So maybe a little bit more color there, that would be helpful.And then second one, just a roaming clarification, the 2-digit impact from roaming related to COVID. Is this EBITDA revenues? And please help us understand what is the EBITDA impact on revenues? That would be very helpful.

[Urs Schaeppi, CEO, Head of Swisscom]

Well, I will take the question on roaming and Mario then on the guidance. So in Switzerland -- or Swisscom has a tariff scheme where roaming is included. So in the majority of our postpaid tariffs, we have roaming included. So the impact from there is actually 0. And then the second point is what is happening with inbound roaming. That's clearly the borders are closed. There are -- there is no inbound roaming traffic. And the third effect is outbound roaming additional data package. So -- and at the sum, if you take all of this net we will have a low -- I think we will have a low 2-digit impact on EBITDA level, but a low.

[Mario Rossi]

And on the guidance, our guidance 2020 is still our base case. And we, as a management team, we work hard to meet this guidance also during this crisis. But there's an element which it can be -- which are out of our control. For example, bad debt losses. Today, we have no visibility what might be in Q3 and Q4, how many SMEs have to go bankrupt? We just don't know. So that's the reason why we say we have huge -- or huge, we have uncertainty. Also on the shop frequencies, we opened, as was explained, our shop, but we don't know yet how people behave in the next few weeks and months. Are they afraid to go to the cities to the shop? Or are they coming back? We just don't know it. So I think we need to observe now the situation in the next few months, and then we have much clearer statements at the earnings call of Q2. But the base case for us is guidance 2020 and it's our target to meet this guidance also during this crisis.

[Roman Arbuzov, Analyst]

Can I just ask a follow-up in relation to the guidance, what do you plan in terms of mitigation measures? And have you already started enacting any of those mitigation measures? And do you think it's fair to assume that you will exceed your CHF 100 million cost-cutting target this year?

[Mario Rossi]

On the cost-counting side, we always said that if we say that we can do more than CHF 100 million, then we do more. But we don't -- on the cost side, we don't -- we have not implemented an acceleration program. I think on the CapEx side, we will see some natural lower CapEx because some sites were closed in some cantons during a few weeks. But also there, we will see in the next months, whether this CapEx is fully materialized or not. I think maybe a bit slightly lower just because of these -- of the closing of the site in some cantons, I mentioned.

[Operator]

I'll open the next question.

[Simon Alexander Arulraj Coles, Research Analyst]

It's Simon from Barclays. Just a follow-up on cost cutting. Does COVID-19 make that any more difficult? I'm just thinking from, say, a redundancy point of view. So I'm just wondering if there's any issues there. And then secondly, on competition, we know that online competition has typically been very intense with big promotional discounts. I'm just wondering have you seen any material changes in competition from that point of view in the last few weeks?

[Urs Schaeppi, CEO, Head of Swisscom]

Mario you take the cost. I will take the online competition.

[Mario Rossi]

Yes. On the cost side, I think we are confident that we can meet -- or that we will meet our cost target 2020. And looking for '21, that depends on the overall climate, social climate in Switzerland, how will be the unemployment rate at the end of the year that might become a bit more difficult to reduce headcount in the future. But also there, I think it's too early. We stick to our targets also for cost reductions at '21 that we want to reduce indirect costs by at least CHF 100 million and there we are restarting or we're working on different projects like we did in the past to fill the pipeline for the next year. But you're right, we might have some impact to COVID-19 situation on '21, not on '20.

[Urs Schaeppi, CEO, Head of Swisscom]

So on the competitive dynamic, during this COVID-19 crisis what we don't see is actually above the line promotions. There is -- it is much more calm. But you are right on the below the line level, there are very specific -- sometimes very specific aggressive promotions. But -- and that's also the point that you see that the percentage share of net adds over online channel, customer care, direct sales is increasing. But from a high-level perspective, the promotion activities is not totally changing. If you also look to the aggressivity of the promotion before the crisis and during the crisis, there is no big difference. It's with same flavor as in January and February.And I'm convinced also if shops are reopening, shops will remain an important part, certainly on mobile.

[Simon Alexander Arulraj Coles, Research Analyst]

Okay. That's very clear. Just a quick follow-up then because we've seen service revenues improved quite materially this quarter versus the run rate last year. Does that -- does the -- that competition is not changing give you confidence that we're now maybe at a new run rate, if we maybe park COVID-19 for a second?

[Mario Rossi]

We had a better run rate in the B2B area, minus CHF 40 million in Q1 versus minus CHF 48 million in Q4 '19, but I don't see a trend. And also, there's 3 elements in the B2B -- in the B2C area. I think these 3 trends, fixed voice line losses, conversions and RGU mix will continue to be in place also in the next 3 calls.

[Operator]

Next question.

[Georgios Ierodiaconou, Director]

It's Georgios from Citi. I have 2 questions. The first one is around EBITDA and second one on KPIs. On EBITDA, I was just curious on the couple of things you mentioned earlier. If you could be a bit more specific about when do you think the timing of any bad debt recognition will be visible, like if you can talk us through how the accounting works in terms of is there delays in payments and then you start to have to make provisions? And then also on the cost side, there was a significant benefit in SAC and SRC versus device revenues. I think it was around CHF 30 million benefit. Mario, correct me if I'm wrong, but at full year results, you suggested there should be a CHF 5 million perhaps improvement versus last year from the new device plans. Is it something you may get a slightly bigger benefit than what you are budgeting initially?And then my second question is on KPIs. And I think it was partly answered also when you said that with the reopening of the shops, you expect to see a bit better postpaid performance, but I was also a bit curious about is, obviously, you have a very significant broadband base, which some of your competitors don't benefit from that. So I was curious if you think that the lower postpaid net adds is specific to you? Or is a broader market issue around this crisis? And whether it can be explained to us by the use of online channels or not.

[Mario Rossi]

Thanks for your questions. In '19, we had a full year impact -- the net full year impact of SAC decoupling of CHF 75 million. We expect for this year, as you mentioned, CHF 5 million more, around CHF 80 million. On the bad debt recognition from an accounting point of view, whenever you prepare a balance sheet, you have to make a judgment of potential future bad debt losses. I don't think that we will see an impact already in June because we monitor now this payment on a weekly basis. I can tell you, until end of April, both in Italy and in Switzerland, we didn't see any negative impact. I would say, if we see -- if we face problems on the bad debt side, the first time most probably we would see that in the Q3 closing. Q2 would be too early.

[Urs Schaeppi, CEO, Head of Swisscom]

On the second question, the postpaid performed. So I think in a saturated market, we should look much more to revenue market shares on mobile than only subscription market share. That's point one because the value of the SIM card is very different. And that's the first remark. The second remark is, if I look to the B2C performance, a very good indicator for me is always, on the topic of market share, is net portings, net porting balance. And if I look to the net porting balance, I don't see really changes.And then the third remark to it is B2B. On B2B, if you look to the KPIs on B2B on Slide 16, you see our revenue-generating units in B2B. So they are stable or slightly increasing or stable. But on the other side, we have sometimes you are winning customers, sometimes you are losing customers. And this will have an effect on the value side or on the amount of SIM cards which are changing. But overall, I think we are in a quite stable market relation in postpaid, but the market is saturated. And if you want to get a customer, you have to do it through aggressive promotions, and then you have a dilution on your ARPU.

[Operator]

Next question.

[Ulrich Rathe, Senior European Telecommunications Analyst]

This is Ulrich Rathe, Jefferies. Again, on the -- in the -- on the mobile postpaid customer losses in the first quarter, in the prepared remarks, you suggest that you sort of look at seasonality, it's always a little bit lower in Q1 and that is true. I'm just wondering, like why has the shop closure not helped more? Is it that most of this, sort of, seasonal loss happens usually in January and February, and therefore, March doesn't really matter that much? Or is it that you didn't see a churn benefit during the lockdown? Or am I misunderstanding the situation overall a bit on the mobile postpaid, maybe you have pulled back marketing expenses and sort of just look at that from this value perspective and decided that Q1 is entirely okay. I'm wondering how to interpret this, in particular vis-à-vis the churn impact from the lock-on -- lockdown onwards?

[Urs Schaeppi, CEO, Head of Swisscom]

The Q1 performance has actually not really a big impact from the lockdown because this is for only 2 weeks. And my message is Q1 is always a bit weak because there you have the spillover of this very aggressive promotions through Christmas time and then also January and February normally is also typical strong promotion month. And this -- then you have a spillover in March. And -- but if I look to the trends, I mentioned it on the churn figure, March is it has a bit a better trend on churn. So we see a small effect on this lockdown. But that's -- I would say that the major dynamic in our market is not this lockdown, it's the overall promotion and competition activities.

[Ulrich Rathe, Senior European Telecommunications Analyst]

That's helpful. Can I ask a follow-up question, a separate one, please. Could you highlight who in Switzerland still installs broadband when it's not just a question of sending somebody a modem or router to plug into an existing connection, but when it all involves a truck roll? Do you do that? And do any of your customers do that still -- sorry, your competitors do that still?

[Urs Schaeppi, CEO, Head of Swisscom]

So the broadband market in Switzerland is totally saturated. So everybody in Switzerland has a broadband connection. So if there are changes in net adds, from the one side to the other side, this is churn. And we still see that the cable operators are suffering a bit on the net adds. But overall, the broadband market is -- I would say, is becoming more calm. And if you see to the movements in the customer base, they are, I would say, 100% driven by promotions from the one or the other side. And so the dynamic is that's a bit -- overall dynamic is coming -- is approximately stable. Cable operators are slightly losing. And then there is a small increase on the 2 other telco players.

[Ulrich Rathe, Senior European Telecommunications Analyst]

Okay. So -- but so there is migration between technologies, right? There's still some migration to fiber, there's some churn between cable and other technologies.

[Urs Schaeppi, CEO, Head of Swisscom]

Yes, but the main dynamic is -- I would say the main dynamic is not technology driven, it's promotion driven. And yes, because the bandwidth in Switzerland for the majority of the customers, there is enough bandwidth on the hybrid copper networks or fiber networks and cable operators have enough speed. The main dynamic is not fiber to the home and dynamic market promotion.

[Operator]

Next question.

[Stephen Paul Malcolm, Research Analyst]

Can you hear me guys?

[Operator]

Yes.

[Stephen Paul Malcolm, Research Analyst]

It's Steve from Redburn here. I just wanted to come back to roaming. I was kind of surprised by your relatively muted exposure. Can you just help us understand exactly what your roaming exposure is? Are you a net payer or a net receiver? And maybe just tell us what proportion of revenues and EBITDA was made up from roaming, that would be great? And just on cash taxes, I heard your comment on the Swiss government support. Do you still expect to pay the same absolute level of cash taxes this year, but just all loaded into Q4? Or will they be lower than your original expectation?

[Urs Schaeppi, CEO, Head of Swisscom]

Okay. Mario, do you take on the cash taxes question?

[Mario Rossi]

The cash taxes, we expect to have this normal payment in Q4. It will not be lower. It's just -- the government just help the companies, let's say, in the kind of short-term financing. And I think most companies took benefit on it.And on roaming?

[Urs Schaeppi, CEO, Head of Swisscom]

Yes, the government, what's the plan of the government? First is, ensure the liquidity for this company which has a lockdown, that's the major point, and they were very fast. And the second topic is, you get some payments if your employees are having to work. So you don't have to do a layoff. Capitalizing off the market. These are the 2 major impacts, and that's why you don't see actually a real increase of the unemployment rate in Switzerland. And this stabilize overall the market. And now the whole question is how fast we will have recovery of the business in Switzerland and how is the attitude of the consumer to spend money because at the end, the Swiss people, they have money. And they can't travel now. So they could spend the money in Switzerland. You don't know is how the take-up will be.

[Mario Rossi]

And the whole roaming revenue is around CHF 300 million, of which CHF 200 million is inbound. And overall, we are a net payer. But as Urs explained, we also have some revenues from -- mainly from data roaming packages outside of Europe. And on that, we make, of course, a margin. And there, we might suffer a bit. And that brings us to the expectation that the negative impact could be in the low double-digit numbers. And the overall markets of roaming is not public.

[Stephen Paul Malcolm, Research Analyst]

Okay. But when you say you're a net payer, I mean, if no one travels at all in and out of Switzerland, would your EBITDA go up or down?

[Urs Schaeppi, CEO, Head of Swisscom]

Yes, but we don't have outpayments too.

[Stephen Paul Malcolm, Research Analyst]

Of course, you would miss the outpayments, but I'm trying to understand, you're saying there's an EBITDA hedge, but if you're a net payer and no one traveled, your EBITDA would go up.

[Louis Schmid, Head of Investor Relations]

Steve, the normal situation would be that the outpayments are there. But as also inbound is not anymore around. So the outpayments will compensate the inbound revenue losses. But as Mario explained, and also Urs explained, we still have the exposure in outbound meter revenue, which is a certain margin. So therefore, it helps, let's say, overall, not a positive, but a slightly negative impact.

[Operator]

Next question.

[Usman Ghazi, Analyst]

It's Usman Ghazi from Berenberg. I just want to make sure you can hear me okay.

[Louis Schmid, Head of Investor Relations]

Usman, we cannot hear you. Can you speak clearly or more loudly or...

[Usman Ghazi, Analyst]

Can you hear me now?

[Louis Schmid, Head of Investor Relations]

Very good. Clear. Thank you.

[Usman Ghazi, Analyst]

Okay. Great. And I just have 2 questions, please. Firstly, just wanted to understand...

[Louis Schmid, Head of Investor Relations]

No, Usman, it got worse.

[Usman Ghazi, Analyst]

Sorry, now?

[Louis Schmid, Head of Investor Relations]

Now.

[Usman Ghazi, Analyst]

Okay. Great, great. I just wanted to point, firstly, on -- I mean, some companies have disclosed what the exposure is to sectors that are most affected, so hospitality, leisure, travel, et cetera. I mean, are you willing to disclose how much of your revenues are coming from those specific sectors?

[Urs Schaeppi, CEO, Head of Swisscom]

Good. It's a -- yes, a very different dynamic in this market. So we have industries which are booming. And other ones, which have really a tough time. And the industries which will have the most tough time in Switzerland, these are traveling -- the traveling industry and the events businesses. And -- but these are not too big industries in Switzerland, that's point one. And the second point is even if they have problems, they -- the revenues of this industry will not just go away because they would have to make a bankrupt it, and then we would lost or would have more bad debt. And that's why it is, as Mario mentioned, it's too early to say what will be the impact on this bad debt, and we don't disclose the revenues by industry.

[Usman Ghazi, Analyst]

Okay. And the follow-up question was just on B2B. I guess from your experience in previous cycles, in the wake of a recession, I mean, how long does it take for your clients to start requesting contract renegotiations, et cetera? Or do you think that because of the financial support being provided by the government, this crisis might be different in that you don't see that kind of impact?

[Urs Schaeppi, CEO, Head of Swisscom]

No. Up to now, we don't see the changes there. As Mario mentioned, we don't see changes in the payment behavior. And we don't see an additional activity on renegotiating contracts. So it depends all on the development of the economy. If the economy comes under big pressure, that clearly we'll have step-by-step negotiation on some contracts. But on the other side, I think everybody saw how important telecommunication and IT is and we had a lot of companies where we were able to do additional projects, IT projects to ramp up their infrastructure. I think there are 2 dimensions, a risk and a chance.

[Operator]

Next question.

[Michael Bishop, Equity Analyst]

It's Michael Bishop from Goldman Sachs. Just 2 questions, please. Firstly, following up on the comments that you've seen a much higher NPS. We've also heard this from a couple of other big European telcos through the crisis so far. And so the big picture question is, do you think this higher level of NPS can continue potentially post crisis, in a sense, do you see a sort of fundamental mind shift from customers in terms of realizing what value they're truly getting from telco connections?And then the second question is, you're flagging that you've completed the move to All IP and residential and B2B and the subsequent decommissioning will complete by 2022. Could you just walk us through the next practical stages on that? And to what extent can you effectively monetize any of the old infrastructure like some other European telcos have done in terms of selling buildings and things like that?

[Urs Schaeppi, CEO, Head of Swisscom]

Well, Mario will take the question on IP, and I will say something to the Net Promoter Score. So I think it's normal that during a crisis, if you are very close to your customers, if you are agile, fast reacting on the demand, that the NPS has a good development. But on the other side, on total review, our industry should now be able to use the good momentum which we have because everybody saw that our industry is crucial and that we should work on the differentiation and Net Promoter Score that we come out of the area where we only talk about prices. I think that should be a chance for our industry. But yes, unfortunately, our industry prefers to talk about prices and value. I think we should really work now on the -- on the momentum to show the value of our industry, and then we will be able to increase the Net Promoter Score also in the future.

[Mario Rossi]

Yes. Then on the decommissioning, I'm not so optimistic about monetizing the decommissioning of All IP. The equipment maybe some part you can sell, but that will not impact. You won't see in the cash flow statement. It's not material. And on the buildings, in main technical buildings, those we cannot leave because they are also data centers, et cetera. Maybe you have some free space afterwards. But you cannot rent those spaces and most probably we use them for additional data center capacity. And then you have a lot of free space in small buildings and these buildings are not very attractive. They're not nice buildings, and they are not on central locations in the landscape. So also there, of course, we try to monitor to do some monetization but I really don't expect a material cash inflow. Sorry about that. But I think that's a matter of fact here in Switzerland.

[Urs Schaeppi, CEO, Head of Swisscom]

Then from the All IP migration, there are certainly positive effects on the cost side, the volume side on call centers, as an example, shops. So it's much more convenient for the customers so we can decrease cost in call centers. So that's not that new. And we see it already today.

[Mario Rossi]

And the huge part of this All IP savings, we realized in the last 2 years. You saw the lower number of calls, the lower interventions that we really realized in -- that was part of our cost-saving programs, where we took out CHF 250 million net in the last 2 years was one important element.

[Operator]

Next question.

[Andreas Müller, Research Analyst]

Andreas Müller from Zürcher Kantonalbank. I was wondering, can you discuss the 5G antenna emission measurement discussion basically in Switzerland where the regulator hasn't set really good measurements out. I mean does that change anything short term in your investment plans? And also, when do you expect when these emission regulation are out?

[Urs Schaeppi, CEO, Head of Swisscom]

Maybe to give a bit more flavor on this question. In Switzerland, there is a big debate on 5G, a lot of fake news around 5G. And the government actually is -- let's say, it's not very supportive on this topic. So we have still not an established method to measure been forming. The 5G has new antenna types. And for this, you need a new mechanism to measure the radiation. And the government hasn't established the specification. And this leads to the challenge that a lot of regional government, say, they block the building of antenna. And for deblocking this, I think we need the specification from the government, from the state. I think this will take time. I don't understand why, but it takes time. And I don't think that we will have, before the end of this year, a clear specification. So that means in several districts in Switzerland, we will have problems to build 5G networks. This is mainly in the French part of Switzerland. And so we will have slowly like the CapEx, as Mario mentioned, but this is not too big at the end. But we will have a bit of slower rollout on 5G in several areas. And now I hope that government will be much more supportive.

[Andreas Müller, Research Analyst]

Okay. And then last night, I think you lost the trial against Init7 for IP interconnection price. Is that having financial impact going forward besides the payments, I think it's CHF 0.5 million you've got to pay for them, but is there more kind of impact on pricing there on interconnection?

[Urs Schaeppi, CEO, Head of Swisscom]

No. No. It's a very, let's say, political-driven topic. So we had the claim of 1 of the player in Switzerland asks for free access to interconnection. So that's not normal in our industry. And now that the court decided that they have to pay something for interconnection. But the regulator has now to define how much. So at the end, we will get a bit more money because up to now, we haven't charging, but that's [ negligible ]. It's more a political competition-driven game.

[Andreas Müller, Research Analyst]

Okay. And then my last question, working capital was going up. I mean, has that to do that you couldn't sell that many devices into the lockdown or what was the reason behind it?

[Mario Rossi]

No, I mentioned it on the cash flow statement, we had a negative impact of -- a bit more than CHF 200 million. That has to do with some prepayments on maintenance contracts and license contracts and some higher payments of accounts payable in the first 2 months of the year.

[Operator]

Let's go to the probably last question.

[James Edmund Ratzer]

It's James Ratzer from New Street Research. Two questions, please. The first one is regarding business service revenues. So in Italy, you have disclosed that churn on your enterprise business was down 24% year-on-year. What kind of churn reduction you're seeing in the Swiss business in enterprise? And if there is a sharp reduction in churn, I mean, could it be in Switzerland that even though the economy might weaken you might actually see an improving trend in business service revenues from lower market share losses? And secondly, just on your mobile net adds in Italy, could you talk about the changes you're seeing at the moment in number porting? Are you seeing less ports in at the moment from people like Tim and Vodafone specifically, is that what is impacting your net adds at the moment?

[Urs Schaeppi, CEO, Head of Swisscom]

So on B2B churn trends in Switzerland, we don't see changes. Our churn figures in B2B are low. And if we lose a customer, it's a very specific business, if a competitor of us wants to, let's say, buy a customer, then there is -- maybe we will lose it. Overall, we have a very good win ratio. We really want to fight for a customer. We have a very good win ratio and also win-back ratio. The main development of this churn level in the B2B is related to the aggressiveness of our competitors. And I don't see changes there. And then the second question on mobile dynamic in Italy, maybe very high level, the market is more calm during the lockdown. And I don't see general changes in the last month. But Mario, maybe on it.

[Mario Rossi]

No. First of all, we have a very low market [ share ]. So I think the porting dynamics are difficult to see from our low -- the porting dynamics in the overall Italian markets are difficult to see from this low market share in Italy. And then I think on the mobile side, we suffered from the COVID because Italy is 2 weeks ahead. So I think there we are really missing 1 full month with open shops and open retail, I think there results. On the other side, we got a quite good performance on broadband.

[Urs Schaeppi, CEO, Head of Swisscom]

And as Mario mentioned that the whole net porting during the lockdown went down. So that's a bit our visibility, but I don't think that are -- there were changes in the market share. In the net porting or the whole net porting dynamics, there's -- in my view, there were not big changes during the crisis.

[Operator]

So this was actually the last question. Back to you, Louis.

[Louis Schmid, Head of Investor Relations]

Okay. Thank you very much. And with that, I would like to conclude today's conference call. If you should have any further questions, please do not hesitate to contact us. Speak to you soon, and have a great day. Thank you.

[Operator]

The conference recording has been stopped.