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Good morning, ladies and gentlemen. Welcome to the Q2 2019 results presented by Urs Schaeppi, Mario Rossi and Louis Schmid. Louis, the floor is yours.
Good morning, ladies and gentlemen, and welcome to Swisscom's Q2 results presentation. My name is Louis Schmid, Head of Investor Relations, and with me are CEO, Urs Schaeppi; and CFO, Mario Rossi. The first part of today's analyst and investor presentation hosted by our CEO consists of 2 chapters, a quick overview of the highlights, operation performance and financial results of Q2 and the first 6 months and an update on our activities and performance in Switzerland and some explanations on Fastweb's network initiatives and first half year 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 to start his part of the presentation. Urs?
Good morning, ladies and gentlemen. If you go to Slide 3, you can see our Q2 in a nutshell. So we were able to close a strategic agreement with Wind Tre, and this will enable Fastweb to get a stronger position in the mobile market. So we will -- in the cooperation agreement, we will roll out the 5G networks. In the B2B business, we were able to strengthen our product portfolio also in the solution area. And we could start to develop our cloud offerings where we have also grown. We mentioned our business -- B2B business also saw a small acquisition of security specialist, which will enable us to have even stronger security, cybersecurity portfolio. This is the acquisition of USP. And on the cost side, we are well on track in the market with our new offer, inOne mobile. After -- only after 4 months, we have more than 570,000 subscriber. And we have increasing penetration of a fixed mobile converged offer, which will reduce or which reduces our churn and customer -- increases customer loyalty. So we are well on track with our inOne mobile product offers. And the last, the market to 5G, so we had -- we were able to get the spectrum, as you already know. And we launched our 5G network in April. The ambition is to have 90% coverage at the end of this year. And we also get the award, 5G global award. So overall, on the operational side, a good performance. If you go on Slide 4, you see our market performance. I would say satisfying commercial results in a challenging market environment. In Switzerland, plus/minus stable; and in Italy, growing. You can see that the broadband net adds in Switzerland, they are minus 6,000. Important to say that 3,000 are coming out of the retail market, so it's stable to the first quarter, and 3,000 from the B2B business. And there, the main effect on B2B are not market share losses. The driver behind it is the All IP migration and new products, more cloud-based products, which increases slightly the broadband connection, the B2B market. TV, we are growing. We are gaining market share. And a bit less voice, fixed voice losses. So the substitution is slowing down also because All IP migration is, in the retail market, done. And on paid -- postpaid, we see that the -- we were able to grow. And in Fastweb in Italy, we have a good momentum on mobile and on broadband. If you go to Slide 5, our financial performance, the underlying EBITDA is -- went up by CHF 11 million. As you can see on the right part of the slide, you see Switzerland, which has an EBITDA decline of CHF 30 million. So we could compensate a lot of the revenue slowdown through better cost management, but not all though, as we have a decline of CHF 30 million in Switzerland. And Fastweb was growing with CHF 25 million growth. And then with Other, this leads to this plus CHF 11 million underlying EBITDA growth. And so also the outcome of the operating free cash flow, you can see on the bottom of the chart. There also the spectrum, the CapEx spectrum, are included. So overall, on track to our guidance, and also, we confirm our guidance. If you go on Slide 6, where we show what are our business priorities. And upgrading our infrastructure, there we are well on track in Switzerland and in Italy. Then the second point, and I always say that's actually the most challenging point, is stabilizing the top line in Switzerland through customer base management and some up-selling. Important products there are our inOne mobile portfolio, but also the inOne at home. Then operational excellence remain important. So we will deliver our ambition of more than CHF 100 million. And further, to have -- to create core growth in Italy with Fastweb in all segments. On Page 7, you see our status on the network rollout side. On the left side of the chart, you see that today we have the coverage, an ultra broadband coverage of 68%. That means 68% of our customers has a speed above 80 megabits per second and this will go to 90% in the year '21. Important also to have a look to these 200-megabit footprints, which we have. Those 200-megabit footprints will be at 75% in 2021. And you see also that we are on a fast run rate to ramp up this ultra broadband network. Just one example, today we have 2,000 households per day which have an upgrade to ultra broadband. On the right side of the chart, you see our strategy on 5G. So we have a parallel rollout of 5G-wide and 5G-fast, so that we will have a coverage of 90%, 5G coverage of 90% at the end of this year. On 5G-fast, we are certainly challenged through pressure by getting some new sites in Switzerland since there are some counter-pressure by the political environment. But even this, we think that we can get a good footprint at the end of this year. If you go to Slide 8, some information about our B2C actions. So we see that we are able to remain our strong market shares and also doing a good job on the value creation. We were able to increase our fixed mobile converged penetration. And we have now 1.27 million, up to 1.28 million subscribers in inOne. And the churn of fixed mobile converged customer is at 6%, on a low level at 6%. Also, with our new mobile offer, we are well on track. We are successful, as already mentioned, 570,000 customers on this product. Important to say that 80% of this new inOne mobile subscription still have an installment plan for devices. And through this decoupling, we were able to save our subscriber acquisition and retention costs by CHF 80 million. Second and third brands are growing. Our strategy is an attack-and-defend strategy. Today, we have 12% on our second and third brands, and approximately 50% of the net adds are on second and third brands. So overall, a good performance, market performance. On wireless, this you can see on Page 9, you see the performance of wireless, so a stable market position. The net adds in wireless is slightly up. We have penetration of inOne mobile at approximately 60%, so it was strongly increased by 15 points year-to-year. And you see also the market share on the left side (sic) [ right side ] of the chart of fixed mobile products is now in the region of 40% and increased by 4% on a year-on-year level. The churn rates are, let's say, even a bit lower than previous year at 7.7%. And on the upside, that we have an ARPU of CHF 58 postpaid. And you see that there, we have a dilution in it. There are 3 reasons for this dilution. The first one is that the converged rebate of CHF 2. On the other side, we have savings on subscriber acquisition costs and high loyalty, so it pays out. That is according to our business plan. Then you see some CHF 1 by brand shift. So that means the second and third brands, this is CHF 1. And then we have some rights tradings of CHF 1, and this leads to this minus CHF 4 ARPU. On Page 10, some information to wireline. So overall, a good performance in TV. You see that the penetration in inOne broadband, so above 60% on this product, inOne broadband. And fixed mobile converged share is at 43%. ARPUs are stable at CHF 41. And you see also the churn rate is stable at 9.4%. So overall, a respectable performance in wireline. On Page 11, some remarks to our B2B business. Overall, we have a good win ratio in the B2B business, but we are facing with price competition mainly also in the telecommunications area. But the dynamics are actually unchanged to the previous quarter. We have on connectivity side this price pressure. We have some pressure on the revenues driven by All IP migration and this leads to this reduced ARPU on mobile to CHF 27 ARPU. But overall from the customer base side here, side from the RGUs, we see that we are approximately stable. Solutions business overall, we are confident. We have different dynamics. On cloud, security, digital solutions, we are growing. In SAP, Workplace and UCC offers, we are facing with price competition, but this is a -- this is not a structural topic. This is more driven by some specific [ also where ] customer projects where we have the contract renegotiations. On Page 12, cost achievements, you see that we are well on track to deliver our cost savings. In the first quarter, we were minus CHF 31 million. In the second quarter, we have minus CHF 38 million indirect cost. So we are well on track to our target. And in B2B, we made a small reorganization. So we put together the SME market and the small corporate unit together so that we can deliver more standardized service and getting more dynamic also in the go-to-market. On Page 13, the financial performance of Swisscom Switzerland. You see that our EBITDA minus this lease line expenses, so with the IFRS 16 impact, went down by CHF 34 million. And on the bottom -- in the middle of the chart, you see the dynamics. So as planned, fixed voice had an impact of CHF 22 million. Fixed mobile convergence rebate, CHF 33 million. And then B2B, despite erosion, mainly in the connectivity area, of CHF 68 million. Then some positive effect on Others and on indirect cost. And this leads to this minus CHF 34 million EBITDAL in Switzerland. On Fastweb on Page 14, so we are successfully executing our strategy to becoming a more converged player. On wireline, we are upgrading our network to a -- ultra broadband footprint. So today we have a footprint, ultra broadband footprint, in Italy of 30%. And we are doing then on the other area of wholesaling with Telecom Italia. In the future, we will have higher own footprint through our strategy, also mainly driven by fixed wireless access, so that we will have a footprint of 60% by '24. And then the rest, we will have a -- have Wholesale offers from Open Fiber and TIM.On the bottom of the chart, you see the -- our ambition on mobile. So today, we have 4G roaming. In the future, we will have an own 5G network through the partnership with Wind Tre. And there, the ambition is to have 90% coverage by '26.On Page 15, some more information about Wind Tre. As we already explained in the last call, so it's a deal to enforce our proposition in the mobile market. It's a co-investment approach, but also, we are -- we have some Wholesale business in [ OPPO ] side with Wind Tre. So overall, we will be able to have a cost structure, an MNO-like cost structure. And the whole deal will be free cash flow value-accretive from 2020 onwards. And the CapEx, it's important to say, they will stay in the region of EUR 600 million. And it's all in our guidance, so there will be no change on the guidance. Page 16, the Consumer performance of Fastweb. You see that we have a good performance: 4% more broadband subscription; mobile, 27% more subscription. You will see also on this chart that we are able to have a high penetration of ultra broadband costumers. That's important because they have a higher ARPU at lower churn. On mobile, you see that we were able to decrease our churn by 28%, so also a good result. And on the right side of the chart, you see that our fixed mobile converged penetration is increasing. We are now at 33%. And converged offers have a higher ARPU and a lower churn. So there is a fairly -- a good indication that we were able to increase fixed mobile converged offers by 6%. To Slide 17, the B2B performance. So good performance in B2B, revenues went up by 13%. And also the Wholesale business, if you take really the core, the core Wholesale business, you see that we have a growth of 5%. So good performance in B2B. On Page 18, you see then the financial performance of Fastweb, a solid performance. EBITDA went up by 7%, and we have a positive operating free cash flow. I would like to hand over to Mario for more details on the financials.
Thank you, Urs. And also good morning from my side. I'll start on Page 19, the revenue breakdown. So overall, we saw in Q2 some increased pressure on service revenues, which led to higher EBITDA decline in Q2 in Swiss business compared to Q1. However, this decline was no surprise, came without -- no surprise to us. And as you saw, we had, I would say, an impressive performance on our cost management in the first half. A few remarks on Retail, service revenue went down by 3% or CHF 78 million. The main elements are fixed line loss, CHF 22 million; impact from discounts because of fixed mobile convergence, CHF 33 million. CHF 7 million is from roaming, I would say this roaming decline is more or less over. And then the impact of the wireless ARPU pressure, which Urs mentioned, is in the first half at around CHF 15 million. Then important in the Retail business is in the section hardware and other. In other, we have an impact, a negative impact of CHF 56 million from the device decoupling because of the new mobile offer. It's an IFRS 15 impact. In Q1, it was CHF 14 million, and then we had a full effect in Q2 with, CHF 42 million. That will be -- that's compensated with lower subscriber acquisition costs. And on an EBITDA level, it's more or less neutral this year and it will become positive next year. In the B2B segment, service revenue decline accelerated in Q2. So CHF 34 million decline in Q2, coming CHF 18 million from wireless -- wireline and CHF 16 million from wireless. Again, unchanged dynamics: price pressure in the wireless area, ARPU down by around 10% and then the All IP migration in the fixed line business. In Solutions business, we had a better performance in Q2 mainly in banking. Q2, we had an increase in trading that was not anymore the case in Q2. In Wholesale business, we saw the same trend as in Q1, CHF 22 million in the first half increase of Wholesale revenue in the core business, then CHF 7 million better, inbound roaming revenues and around CHF 10 million coming from the MVNO contract with UPC. On Fastweb, an impressive 4% revenue growth, especially in the Enterprise segment growth of close to 14%. Revenues in Consumer increased by 3.4%. And important in Wholesale, the core business of Wholesale increased. We have this decline on the low-margin business which is slightly -- [ eliminates ] the revenues to Flash Fiber. There, we have a decline of CHF 27 million, but the core business in Wholesale increased by CHF 4 million. On -- a few remarks on the OpEx. Acquisition and retention costs, these are CHF 84 million lower compared to 2018. That's because of the new offering in inOne mobile go. And this compensates the negative impact of IFRS 6 -- 15, which I mentioned before. On outpayment, on goods purchased, services other -- and other, we have an increase of CHF 24 million in Q2. That's mainly because of higher costs for sports rights.Then on the indirect costs, it's CHF 69 million further progress on workforce. CHF 34 million in the first half, that's internal workforce. The external workforce, CHF 13 million cost savings. And in the IT and other area, about CHF 20 million savings. And we are confident that we -- we'll deliver our at least CHF 100 million savings thesis. A few remarks on Page 21 on the EBITDA breakdown by segments. So in the Retail segment, we have this EBITDA decline of CHF 34 million. That means that over 40% of the service revenue decline, that was compensated with cost management in this segment. I think that's impressive. Main part is coming from lower number of interventions on the networks. That means lower costs for field services. B2B EBITDA, cumulated EBITDA down by 13.6%. Slight acceleration in Q2, we had 14.3%. So the cost base for the high-margin telco business in Q2 is quite low in this segment. Therefore, it was not possible to compensate in the same magnitude as in the Retail business. And the contribution margin from the Solutions business is not high enough to compensate for the decline in service revenue. Wholesale, IT & Network, we have a lower EBITDA contribution in Q2 than in Q1, CHF 21 million versus CHF 39 million. We have a softer contribution from incoming roaming, around CHF 5 million and the lower cost savings in Q2 is seasonality, CHF 8 million in Q2 versus CHF 15 million in Q1. And as was mentioned, Fastweb, good growth momentum in local currency, growth of 6.6%. On Page 22, the bridge to net income, 2, 3 remarks. The net interest expenses are only CHF 31 million for the first half. The average interest rate decreased to 0.85%. And around 70% of our debt portfolio is fixed, so we are quite safe. On that side on interest leasing, you see that, that was tightened because IFRS -- because of IFRS 16. Then a remark on the tax charge, tax charges in Q2 quite low. The tax charges of CHF 158 million includes a positive noncash, noncash impact of CHF 33 million. That's due to lower tax rates in some cantons because of the Swiss tax reform. The deferred tax liability has to be adjusted accordingly. We expect some additional cantons that will change their tax rate also in half -- in the second half. In most cantons, public votes are necessary for that. And any impact will be booked after final decisions in the second half. On CapEx, I think everything is going as planned. We have now included, as Urs mentioned, CHF 196 million for the spectrum. The higher CapEx in Switzerland, because we had quite a low start last year in the FTTS rollout, so there's nothing special. On free cash flow on Page 24, the free cash flow is CHF 87 million below prior year. The reason is that we paid spectrum in Q2. Without spectrum, we would see an increase, free cash flow, of around CHF 100 million compared to 2018. That's because of a better development of net working capital. I don't think that we need to discuss our maturity profile. I mentioned, let's say, the very favorable interest rate [ already ].That brings me over to the guidance. Guidance is unchanged on revenue around CHF 11.4 billion. EBITDA, -- we expect more than CHF 4.3 billion. And CapEx, including the CHF 0.2 billion of spectrum, is also unchanged at CHF 2.5 billion. And with that, I hand over to the operator for the Q&A session.
[Operator Instructions] The first one is from Simon Coles from Barclays.
Simon from Barclays. Just a couple for me, please. So on postpaid, showed a bit of a slowdown this quarter. Obviously, there's some seasonality in there. But I would have thought the new inOne tariffs that you launched earlier this year would have helped you maybe gain a bit more momentum there. So if you could provide a little bit more color on what's happening in mobile competition, that would be great. And then on the drivers of the EBITDA, you very helpfully gave us some indication at the CMB back in February about how you expected that to develop. It looks like B2B is probably a little bit worse than expected, but the rest seems to be tracking in line. Could you just update us on that and how you think that's going to develop in 2H? And linked to that, it looks like cost cutting is actually running ahead of expectations. I was just wondering how much of that is you finding new areas to take out costs right now, and how much is maybe bringing forward some of the cost-cutting that you might have delivered next year?
So I will take the first question on postpaid, the whole market dynamic. And then Mario on costs and B2B. On the dynamic in the mobile market, the whole market is totally driven by promotions. And if the -- if our competitors don't act with aggressive promotions, I think not a lot will change. And for us, if you look to the performance of inOne mobile, we are very happy with this performance. And as our strategy is to increase the fixed to mobile converged penetration, our strategy is not to get as much as possible, low-end postpaid customer. That's why we pushed the migration to inOne mobile and fixed mobile converged offers. And with our second and third brands, we are active in the lower end of the market, but it's not our ambition to be there too much aggressive. So overall, I would say that the dynamic in mobile in the consumer market hasn't changed from quarter -- Q1 to Q2. And overall, I'm happy with the performance which we have on mobile. You can also see that the ARPU, so the ARPU in -- and the churn rate went even down compared to previous year. So -- or to Q1, so we are happy with the postpaid performance. Mario?
And maybe on drivers and the cost-cutting, so Urs gave you the drivers for the first half on Page 13 and what's our expectation for the whole year. I would say on fixed voice lines, full year impact of around CHF 40 million. Convergence impact, I would expect around CHF 60 million. B2B, it's B2B before cost cutting, okay, around CHF 100 million, slightly better performance in the second half. And on the costs side, we expect more than CHF 100 million. We realized already CHF 68 million. And the drivers behind the cost cuts, we are in this cost program, '18 to '20, where we said we reduced our indirect costs by CHF 300 million. And there, as we mentioned several times, there is a couple of elements. And I would say this year, the benefit, real benefits from the All IP mitigation in the mass market is over. That brings us less interventions, very stable network. We also have a very stable TV platform. We see that in the customer satisfaction, service: practically no breakdown and no downtime on the TV platform. That helps in interventions. That's the first point in the residential market. And then on the network side, we benefit from automation, from robotics. And these programs will go on, and we know that we also have to deliver in the coming years material cost-cutting.
Okay. Great. So it's not necessarily bringing anything forward, everything's on track.
Okay. Then we have another question from Roman Arbuzov from JPMorgan.
I had 3 questions as well, please. So the first one is just digging in a little bit deeper into the lower end of the mobile market. You cite this interesting statistic that more than 50% of the net adds are coming -- on the postpaid are coming from the second and third brands. It's appreciated that you are not looking to stir things up too much. But I was wondering if you could give us a little bit more color on whether you think -- on how temporary you think this development is. So for example, would you -- is it, for example, driven by some offerings in Coop Mobile, and therefore you would expect the proportion of net adds from the second and third brands to decline, let's say, next quarter? And also, if you can give us maybe some sense of history, what has it been historically? And are we going through some sort of a peak that would therefore subside? Or is this kind of structural? That's the first one. The second one was just on the soft broadband net adds for the second quarter running. You did mention last quarter that this is spillover from the Christmas campaign. So I was wondering if you can give us a little bit more color on the competitive environment there and whether the campaigns remain quite intense.And then thirdly is just a technical question. It's a question on one specific revenue line, which is within the Retail segment and its other sales. So it's below the service revenue line, it's other sales. And in the quarter, it was minus CHF 15 million, which is a very unusual number for this line comparing it to the historic. So I was just wondering if you could give us an explanation of what happened there, please, and what to expect going forward.
I'll take the first 2 questions, and Mario then the last one. On wireline, the wireline market, so as you mentioned, we have a saturated mobile market in Switzerland. And the dynamic, or let's say, the volatility in this market is mainly on the lower end of the market. So through promotion, through second and third brands, actually it's -- I call it normally like a washing machine. There is -- there's a lot of customers which are very price-sensitive and they switch from one to the other. And that actually you see -- can you also see in our postpaid value segment. So we have quite a stable situation in the postpaid value segments. But on the lower end, there we are present with our second and third brands. The percentage of second and third brands in the whole postpaid portfolio will slightly increase. Because as I mentioned before, approximately 50% of the net adds are coming from second and third brands. But our strategy is to keep value, to increase the penetration fixed to mobile on value [ across demand ]. And there, you see we are well on track.To the second question on the dynamic, on the competitive dynamic and promotions, so they are on the same level and aggressive levels as in Q1. If I look to promotions, they are normally -- the rates or let's say the, the common trend of this promotion is 50% discount. And if there are no promotions, I think there is no move in the market. And that's a bit the competitive dynamic which we have in the market. I don't know what will happen in the future, but I think it's not too sustainable. If you look at what money some of our competitors are putting in promotions, I won't mention now which competitor, but you see hardware subsidies in the region of CHF 900 to CHF 1,000 to get a broadband connection. It's a bit strange for me, but that's the situation which we have. And for us, it's important to execute on our strategy, converged strategy, which is our inOne portfolio.
And can I just follow up on the -- can I just follow up on the first one, sorry, at this stage? The -- so the 50% postpaid net adds, or 50% of customers coming from second and third brands on the net adds, is this an elevated number? Do you think it comes down, or it's actually a normal number?
I think we have 2 effects. The one is certainly we had in Q1 and Q2, a higher momentum from Coop Mobile. That you are right. On the other side, we -- because these promotions will continue, I think we will be in a region in the next months, which is comparable to the half, first half year. Maybe a bit lower than 50%, but it will not go down to 20%.
All right. And the third one, please?
On your technical question, the third one, so that's coming from the -- so I mentioned IFRS 15 effects. So we have a negative revenue number in Q1 2019 of CHF 14 million and in Q2 of minus CHF 42 million. And that's coming from the past. Whenever you have a new subscription, you have to put -- to book [ on the rest ], that's the activation costs, and then distribute it over the contract period as a negative item on revenue. And because it stops now with this -- with the new one, in mobile go, it stopped these subsidies, you have this negative impact. It's not replaced with new contracts. And we will have...
So this line is equipment sales essentially. Is that the explanation?
Sorry?
So this line relates to equipment sales. Is this right?
No, it's to -- it's other. It's really other. It's -- let's say, it's a technical evolution of the asset -- of the asset which comes from the acquisition costs in the past. Similar number in Q3 and in Q4 of around minus CHF 40 million to CHF 50 million. And that will last more or less until -- the end of 2019. And then the whole thing is washed through.
All right. That's very clear.
Okay. Then we have another question from Ulrich Rathe from Jefferies.
I have 3 questions as well, please. First one is you highlighted the P&L tax impact of the tax reform. Would you be able to shed a bit of light on the eventual cash tax impact with or without the canton that don't have to change the local tax system, if you could sort of just comment on that a bit?Second one is you said that the B2B broadband customer loss is because of All IP and cloud migration. Could you explain the commercial mechanics of that? Why exactly would a broadband line be lost because of an All IP migration? I'm not entirely sure what the connection is.And the third one would be you sort of commented, I think, sort of between the lines, but if you're willing to take that on a bit more specifically. The current improvement of the UPC KPIs that we have seen reported from Liberty Global, do you think this is sort of a lasting trend change of one of your competitors? Or is this a result of a fairly one-off-ish push at this point in time?
So then I will take question 2 and 3, and Mario the tax reform question. I start with question 2, the dynamic, B2B on broadband. And I mentioned it, we had a slight decline in the B2B connection of 3,000 subscription in Q2. And there are -- and these 2 reasons, product portfolio and All IP. If you do an All IP migration, then a lot of companies are looking, "Oh, where -- what kind of broadband connection I have? Do I need it or not?" So they do a kind of cleaning, they do a cleaning of the portfolio. That's one reason. And the second reason is if you go on cloud-based solution, you have a -- another product portfolio. And depending to the customers, then you redesign a bit your network. Maybe you go more from a MPLS network to another kind of more cloud-based product portfolio. There are a lot of different elements. But I think overall, because we are also through with -- at a 75% to 80% All IP migration in B2B, I think we will have a more stable dynamic on broadband driven by All IP. On this cloud dynamic, this will be a topic which continues, but this will be very slow because all this migration of network take -- will take a lot of time. I think we can stay approximately stable in the broadband business. The main impact on B2B, as Mario mentioned, that's a price level, the erosion of the prices which we have on our connectivity portfolio. Then on UPC, KPIs from UPC, I don't want to comment these KPIs. But my view is that the whole dynamic in the market was not any change to Q1. If I look to the dynamic which we have on TV in the whole market there, we noted the figures. I think there is not really a big change in the whole market from Q1 to Q2.
And on the tax issue, so the CHF 133 million are noncash because we had to calculate deferred tax liabilities with new tax rate. And going forward, in 2020, depending on some votes in the second half, but I would expect that the tax rate for Swisscom Group will come down from 21% to 19%. And these 2 percentage points would be a direct cash impact. I would expect 19% going forward.
That's very helpful.
Okay. We have another question from Michael Bishop from Goldman.
Just 2 questions for me, please. Firstly on B2B, you still sound confident that we should start to see a bit of an inflection in the trends in the second quarter, but you do sound equally quite cautious on B2B mobile. So I was just wondering if you could recap and walk us through the improvement in trends through the second half of '19 and into '20. And then secondly switching to Italy, it's clear that you now believe that you have network economics, which I think is very clear from the deal with Wind Tre. But I was just wondering how you envisage the network quality of Wind Tre potentially catching up with that of Vodafone and Telecom Italia in the market?
Well, I take the second question on Italy, and Mario will take the B2B question and the dynamics of the different market areas. So in Italy, if you look to the benchmarks, if you look also to the neutral test in the Italian market, after -- in areas where Wind Tre makes the, let's say, the migration of the network or consolidate the network, that the quality of Wind Tre is a good one. So we are confident that we will have strong networks with Wind and will be competitive. Mario?
And then on B2B, on service revenue, we expect a slightly lower revenue decline in the second half. And on Solutions business, we see positive momentum, let's say, in 2 areas. That's the cloud business, we see their growth. And in Q1, we had weak banking. That was because of expiring contracts in [ prior year ]. Also in the banking, we see in the second half good momentum. And that makes us confident for the second half. But the service revenue will remain under pressure, there -- that we have to face that issue.
Then we have a last question from Georgios Ierodiaconou from Citi.
Actually, most have been answered, but I just wanted to just go through the B2B side just for our understanding, to get a better idea of how things could trend going into next year. Is it possible to maybe give us an indication of how far along the repricing side you feel you're going through right now? What could be the incremental? You mentioned the cloud services and some of the banking activity. What could be the incremental other areas that you could use in 2020 to offset the pressure? Any color on that will be great.
Maybe on a very, very high level, the dynamic. You see on -- in the connectivity space, and totally with Mario, we will have pressure on the service revenue also in the future. But maybe we have -- we could have some hope on mobile. Because the average ARPU on mobile is now on a level which is already low, so maybe -- and if you also bundled in roaming, I think you have to calculate, otherwise, you will have a loss. So maybe the down dynamic on the wireline is low, but this will continue because the competition will continue and you have to make contract renegotiation. On the Solutions side, we are overall positive that we can create some growth. But you have to know on the one side, if you go into a cloud solution, you get new business. On the other side, you are replacing some outsourcing business. So it's not a 1:1 net. So we have a positive and negative impact. So that's why we think that the Solutions business will not explode in the next month, but we have a good dynamic, a positive dynamic. And we can differentiate ourselves strongly in this market where we have strong competition on the connectivity side. So I think the mix of IT and connectivity, there we have a strong approach in B2B, but we will have challenging months also in the future in B2B.
I know this is a very simplistic way of asking the question, but from your contracts, would you say the majority have now been repriced? Or do you still have some that -- do you see what I mean? Are we past the worst, in a way, or...?
In B2B, the mechanic is the same. Normally, connectivity contracts last for 2 or 3 years. That means you have this continuous renegotiation of the contract. And now the main question is how strong the competition will be, how broad the compensation will be on the different accounts? And yes, that will show us the future. But I think the price level in B2B is, in Switzerland, on a low level. There is not so much room to do a drastic promotion if you want to earn money. That's a bit my message.
Okay. Then we have another question from Ulrich Rathe from Jefferies.
Just coming back to Roman's question on the negative revenue item, and please feel free to delegate that to an offline conversation, but I just want to make sure I fully understand. Is this effect that you report there because you're reporting service revenue gross and then subtracting the IFRS 15 effect outside of sales revenues? Is that sort of the mechanics in your accounts? Because obviously, we're seeing the IFRS 15 transition everywhere. In most companies, it's essentially just a headwind on service revenues for the one understood known reason. And I was just wondering whether you might have a slightly different sort of way of booking that into the different line items. Or is that a complete misunderstanding?
No. I don't think that is -- the service revenue was always without the impact of IFRS 15. And then that means we have now -- we have to book now also the negative impact outside of service revenue. And I think that gives you also a clearer picture on the ARPU. And in the [ back-up ] on where we show the ARPU, you have the full detail of the ARPU, including for results IFRS 15 impact. And I think we have now this transition year because we changed our offering. And as I mentioned, it will be washed through more or less by the end of this year.
Okay. I think I understand.
Okay. Then we have no more questions.
All right. Thank you, operator, and thank you, everyone. And with that, I would like to conclude today's conference call. If you should still 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.
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