Swisscom AG

SIX:SCMN

Earnings Call Transcript 2021-Q2

[Operator]

Good morning, ladies and gentlemen, and thank you for joining the Swisscom 2021 Half Year Results Conference Call presented by Urs Schaeppi, Eugen Stermetz, Louis Schmid. Louis, the floor is yours.

[Louis Schmid, Head of Investor Relations]

Good morning, ladies and gentlemen, also from our side, and welcome to Swisscom's Q2 2021 Results Presentation. My name is Louis Schmid, Head of Investor Relations. And with me are our CEO, Urs Schaeppi; and Eugen Stermetz, our Chief Financial Officer. The first part of today's analyst and investor presentation hosted by our CEO consists of 2 chapters. Chapter 1, a quick overview with some highlights of the operational performance and financial results of Q2. Chapter 2, an update on our network activities, B2C and B2B operations, and financial results in Switzerland and Fastweb's Q2 results operationally and financially. In the second part of today's presentation, Eugen runs you through chapter 3, the Q2 financial results and the new EBITDA guidance for the full year '21. With that, I would like to hand over to Urs to start his part. Urs?

[Urs Schaeppi, CEO, Head of Swisscom]

Good morning, ladies and gentlemen, and I would like to start with some highlights. If you go on Slide 4, you see some highlights in Q2. So we proved once more that we are the leading operator in Switzerland. We won numerous test wins on mobile, but also on the customer service side. So as an example, the speed award of Ookla or the service test of PCtipp. So this shows that we are executing on our strategy. Also in the B2B market, we were able to improve our product portfolio of our value proposition to have a more differentiated value proposition. In Italy, one more quarter with growth, solid momentum. Then on sustainability. ESG, we are committed to it and we have a track record. And we have also the awareness in the whole world that we have -- that we are a sustainable company. And then on guidance, we slightly increased our EBITDA guidance because of a better momentum on the operational side, but also one-offs -- on noncash one-offs. If you go on Slide 5, our Q2 performance, market performance. So if you look it from the right side, you see that we are stable in the wireline business. So TV, broadband, approximately stable. I will correlate to it also better churn figures. If you look to mobile, you see that we have a slightly increasing net adds on mobile in Switzerland. What is important to mention is that there were some effects in the first quarter, special effects of phaseout of a product on wireline of a Casa product, which leads to a bit weak performance in Q1 and also to 2G switch-off for mobile. But you see that Q2 is better from market performance than Q1. Fastweb, good momentum. So slightly positive figures on broadband on Q2 and also a good growth momentum on mobile. On the bottom of the chart, you see our market shares, also important to mention the converged part of market share. So 46% of our broadband connections are in a converged offers and 42% of the mobile offers are in converged offers. And in Italy, converged offers is at 36%. I mentioned this because the converged part of the product portfolio has high [ loyability ], normally better ARPU and lower churn.If we go on Slide 6, you see our financial performance. So growth on EBITDA, growth on also the revenue and also on the net income and as a result, also on the operating free cash flow proxy. You see on the right side of the chart the EBITDA development, Q2 compared to previous year. So Swisscom Switzerland was able to increase the EBITDA by CHF 31 million. Fastweb has a growth of CHF 10 million. And so overall, we have an increasing EBITDA. So good operational performance. And on the bottom of the chart, you see also that the operating free cash flow went up by 24%. And on an absolute basis, it's CHF 574 million operating free cash flow proxy. So good and strong financial figures. If you go on Slide 8, here, you can see our business priorities. They are unchanged. We are delivering what we actually announced. So we are continuously investing in our infrastructure to improve the network quality, to improve the coverage or extend the coverage of our offers on mobile, but also on fiber to the home or ultra broadband. Second pillar or second priority is delivering on our leading market position in Switzerland. I will come later to it. So the market performance shows that we are able to deliver what we promised. Then operational excellence, we are committed to operational excellence. So we are on the way to deliver the ambition of over CHF 100 million cost savings this year. And also Fastweb, Fastweb is growing in the Italian, very competitive market. If we go on Slide 9, some remarks to our investments. So you see that we are continuously investing in our networks, it's CHF 2.2 billion to CHF 2.3 billion in CapEx, which we have. And it shows that we deliver and that we are improving. So we won several net tests on mobile and you see here the results. You see also that we are clearly ahead on this topic on the coverage side, but also on the speed side. So our network are certainly the leading mobile networks in Switzerland. On the Internet, you see also that we are performing. And then impressive is to have also a look to the right side of this chart. There, you see the coverage on mobile on these different technologies. So on LTE, we have a population coverage, which is 99%-plus. We have a 5G coverage of the base version with dynamic spectrum sharing, where we have 98%. So increase of the footprint of 2 percent points on a year-on-year base. And on this 5G, faster 5G plus as we call it. That's the technique where we use also the 3.5 gigahertz spectrum. We have now a coverage of 27%, and we increased the footprint by 7 percent points on a year-on-year basis. On the bottom of the chart, you see the coverage on our ultra broadband. So 86% have more than 80 megabits. 86% of the households have more than 80% -- 80 megabit per second speed, 68% has more than 200 megabits, and 33% on fiber to the home, they have speeds from 1 giga to 10 giga. And this footprint, you see it also they are increasing steadily and will continue so that we can achieve our goal to have 60% fiber to the home coverage in 2025. On Page 20 -- on Page 10, sorry. Some remarks to our product portfolio in the B2C market. So we made several developments or several improvements. So we improved our broadband offer. We refreshed our inOne offer, the Hero product, the main product. We refreshed it. We gave more speed. We put more speed in it. Also on FMC, we improved a bit our benefit for our fixed mobile converged offer. On customer satisfaction, we had some small innovations, but which are important, as an example, a mobile call filter so that you get less spams. And then also with our attack brand, Wingo, the second brand, we have a good momentum. If you go on Slide 11, some remarks to our operational results in the B2C market. So we have robust KPIs. And wireline, you see on the top, the wireline KPI, so approximately stable RGUs on broadband and TV. Important to mention is that our second and third brand, Share, in wireline is at 5%. And the inOne penetration is 80%. The churn figures are lower than in Q1. There's also a bit of seasonality in it, but some special effect, phaseout effect from Q1 as I explained it. So we are back at ordinary levels. We have a churn in broadband of 9%. ARPU, you see that our ARPU figures are stable. On a wireline blended, but also wireline bundle, so a stable market shares. On wireless, also the RGUs, they are slightly growing. The second and third brand share is at 20%, slightly growing. The churn figures are lower than in Q1 at -- on the FMC part at 7.2% on a low level, on postpaid at 8%. And the ARPU postpaid, you see it at CHF 54, the ARPU. It's on a year-on-year basis CHF 2 lower. The main reason here is the RGU mix, the dilution of more second and third brands. But overall, Q1 to Q2, stable ARPU. So overall, robust operational figures. If you go on Page 12 to our B2B market and our market positioning. Here, just 2 examples, what we are doing to further differentiate in the B2B market, where we have already, by far, the most differentiated product portfolio. As an example, in the SME market on the right side of this chart, you see that we are continuously improving our security portfolio. Swisscom is the most advanced operator. This gives you also extraordinary reports on the security proposition, which we have. And we extend now also the proposition -- security proposition for our SMEs with cybersecurity. That's a constant uphill battle and especially also for our SME customers. And that's why we are investing in such a broader value proposition in the SME market. So we have a portfolio of managed security services, managed backup services. We are doing security assessments, and we will further enlarge our product portfolio with other security services for, as an example, phishing. If we go on Slide 13, the B2B results. So overall, a slightly soft service revenue due to price pressure. And then on the other side, a growing Solutions business or growing IT business. So you will see the service revenue development, we had CHF 21 million lower service revenue in Q2, price driven. Again, we'll come to it later, what are the major factors behind it, but it's strongly driven by mobile. Solutions business, a slightly growth in Solutions business. On the top, you see in which -- in which areas, so cloud is developing well, security is developing well, some growth on Workplace and on SAP. So overall, a good performance in the B2B market. If you go on Slide 14, our cost initiatives. You see that we are on track to achieve our cost target 2021. We have savings in the first half year of CHF 67 million. So our ambition for savings above CHF 100 million. There, we are on track. On Slide 15, financial results of Swisscom Switzerland. So overall, slightly increased net revenue with different dynamics. Our Solutions earnings is harder and wholesale revenues went up and then the pressure on the service revenue, which is driven by price. So this minus CHF 89 million price-driven reduction on the service revenue. EBITDA went up by approximately 1% at CHF 1.8 billion. And also you see the operating free cash flow proxy. From the first half year, it's CHF 927 million. So overall, good financial results in Swisscom Switzerland. On Fastweb on Page 16, our network and commercial update. So on the product side, we launched the new TV, the new Internet box, which is a high-performing box with a good usability, with nice feature in it, as an example, Alexa. So that's a differentiated Internet box, which will keep our customers more loyal. Then on the sustainability side, you can also see that Fastweb is investing in sustainability and is recognized as really a sustainable company. So as an example, Financial Time ranked Fastweb as a climate leader. On 5G and fixed wireless access, so our ambition to roll out these networks to increase the footprint is on track, and we plan to enter the enterprise market with mobile, with 5G mobile in the second half of this year. On Page 17, the consumer performance of Fastweb. So solid performance. Important to mention is the share of our -- or the penetration of our ultra broadband customers. So they went up by 16%. That's important because ultra broadband customers are more loyal and have also a higher ARPU. On mobile, you can see that we have also a nice growth, 20% subscriber growth. Churn went down by 12% and data usage is increasing. On the converged area on the right side of the chart, you see that there is an uplift. If we get customers in a converged offer, we have an uplift of 26% on ARPU and a joint benefit or which -- where we have a much lower churn figures. So the penetration of converged offer is at 36%. On Page 18, Fastweb on the enterprise and wholesale market segment. So continuous growth. So revenue went up by 9% on enterprise and on wholesale by 21%. In wholesale, it's mainly driven by year-over-year rate revenues. Then on Page 19, Fastweb financial results. So Fastweb, they are in line with our guidance. So the revenue -- net revenue went up by 7%. EBITDA went up by 5% and operating free cash flow is at CHF 56 million. So good financial performance in Italy. Now I would like to hand over to Eugen for the financial results.

[Eugen Stermetz, CFO & Member of Executive Board]

Many thanks, Urs, and good morning, everybody, also from my side. I'll move on to Page 21, starting with an overview over group revenue development. Group revenue in the first half of the year is up by CHF 140 million. Underlying performance out of this is plus CHF 107 million, contributing both Swisscom Switzerland and Fastweb, Switzerland up by CHF 19 million and Fastweb up by CHF 81 million. As Urs already mentioned, the revenue growth at Fastweb of CHF 81 million had contributions from all 3 segments, consumer segment, enterprise segment and wholesale, obviously. Percentage-wise, enterprise and wholesale with much strong growth than the consumer segment, which still grew but grew with 2% in the first half of the year. Over to Swisscom Switzerland. Contributions to revenue growth from the B2C segment, it's the usual mix of, on the one hand, service revenue decline. On the other hand, the decoupling effects we're going to talk about in a second and strong hardware sales, particularly in the first quarter. If we look at quarter-over-quarter numbers, CHF 25 million in Q2, CHF 10 million, the difference is mainly the service revenue decline easing in the second quarter. We going to talk about service revenue on the next page. B2B, CHF 20 million down. Revenue, mix of service revenue decline and Solutions increased with a net impact of minus CHF 20 million. And on wholesale and the segment infrastructure and support functions, not much news in the second quarter. I'll move on to Page 22, and I'd like to spend some time on this one because it's important to understand this page in order to understand what is going on and in order also to look forward what might come in the next couple of quarters. I'll start on the left-hand page with the drivers behind the first half of the year. Revenue in Switzerland, you know the major components. I'll run you quickly through them for the first half of the year. So there is service revenue decline of CHF 89 million with B2C and B2B contributing. In absolute numbers, PPP contribution higher in percentage terms as already in the past, B2B with a stronger decline of minus 4.4%. Overall, Swisscom Switzerland, minus 3.1% service revenue decline. Compensating for that, to some extent, plus CHF 50 million is the same device decoupling effect in IFRS 15 reconciliation line that by now most of you know well. That's an effect that we had over the last 2 years or so. Important to note, this effect is about to run out. So this will be the last quarter where you have any significant effect out of this. And this is also an important information looking ahead because this compensating factor that we had over the last 2 years or so will not be around starting from the third quarter. There might always be a small number here and there, resulting from dynamics in promotions and resulting in IFRS 15 reconciliation. But the big effect of our subsidized subscriptions, mobile subscriptions from 2 years ago has run its course. Next line, Solutions up. That's nice and expected. On hardware sale, wholesale and others, there is not much news compared to the first quarter. Most of what you see here was already here in the first quarter, so I'm not going to comment in detail. I'd now like to move on to the right bottom side of the page, where we show you, as usual, the main drivers behind the service revenue decline of the second quarter. So in the second quarter, service revenue decline was "only CHF 38 million." And I'll walk you through the drivers of those minus CHF 30 million beginning at the bottom left, wireline, B2C, fixed voice plans, minus CHF 5 million. That's the usual suspect that has been around for a while and will be around for a while. It's a mix of single voice lines running out, but also and even more importantly, opt-outs of voice lines out of bundles. That's a pretty stable number, fixed voice line losses. Next one, B2C wireline change in RGU mix, CHF 3 million up. That's very nice. But this is up if you compare it also to the second quarter of last year when it was minus [indiscernible]. So that is good news. We've talked about the stable ARPU or even increasing ARPU in B2C wireline. We had some heavy promotions out there in the first half of last year. And we found that once the promotions run out, many customers do not downgrade to a lower ARPU, which is very good news because it means that the customers take the benefit of the promotion. But once they get used to the product and its quality, they are also willing to pay up for it. So that's certainly good news. On to the next column, B2B price pressure. There, I would say we are kind of back to normal. Those of you who will remember in the first quarter, this was a minus CHF 3 million only, and now we are at minus CHF 12 million. That effectively means that the COVID tailwinds of traffic revenues that we talked about in the first quarter, which has been with us for something like second quarter of last year to first quarter of this year, this effect has run its course. And we are back to a more normal figure of B2B wireline service revenue decline. But it gave us a bit of a lift in the first quarter and maybe first months of the second quarter. But now this effect seems to be over for the moment, at least. Moving on to wireless. Starting with B2C change in RGU mix. That's the usual suspect. We've mentioned it, it's the usual mix of -- in particular, brand shift, customers moving from the Swisscom brand on to second and third brands, promotions, prepaid losses. So this whole mix of ARPU pressure on the B2C wireless side. In the first quarter, the number was a bit bigger for a couple of reasons, one of them particularly structure. So the truth going forward is probably between this number of CHF 12 million and the minus CHF 23 million of the first quarter. Next line, also well known, fixed mobile convergence, minus CHF 5 million. That effect has come down over time as the curve of convergence adoption flattens out over time. Just to remember, last year, this number was around minus CHF 9 million, minus CHF 10 million. Now it's more around minus CHF 5 million. So that is an effect that has come down over time. Then an interesting one, on to roaming. We talked about roaming effects for the last couple of quarters due to COVID. We are now comparing for the first time in the whole COVID saga a full COVID quarter with full COVID quarter in the previous year. And so there is not much of a roaming effect anymore. Actually, the roaming effect has turned slightly positive, but it's plus/minus 0 in the second quarter of this year. And as you remember, this was a significant negative effect over the last couple of quarters because we still compare with pre-COVID quarters and that effect has gone now and has an influence on the dynamics I'll talk about in a second. B2B price pressure. Unfortunately, as usual, in the wireless segment, not much news on that one. So these are the major components. I'll move up to the top right part of the page, where we show service revenue dynamics over the last 6 quarters. And I'd like to spend a word on this one. At first side, you might be tempted to see an upward moving trend and somehow draw a line from the minus CHF 85 million in the second quarter of last year up to the minus CHF 38 million in the second quarter of this year and then maybe further ahead. I would caution you not to do so. We did a little analysis and stripped out the roaming effect out of that number and the small line that you have below the chart. And if you look at this line, you see that service revenue decline in the last couple of quarters was actually net of the roaming effect, a pretty stable number, around CHF 40 million, maybe CHF 50 million in the third quarter of last year, but around CHF 40 million in the last 3 quarters or so. So net of roaming, we're in a pretty stable situation and suddenly not in one where service revenue decline would further ease. Quite to the contrary, looking ahead, we do expect an acceleration of service revenue decline starting from the minus CHF 38 million level that we saw in the second quarter. And I'll walk you through our reasoning. First of all, there are things that will not change. So fixed mobile conversion is not going to change. Voice line loss, not going to change. Roaming, whatever the COVID situation will be in detail, but roaming probably no impact on service revenue dynamics in the upcoming quarters. However, we do expect increased service revenue pressure on the wireline B2C side. We will see what UPC Sunrise is going to do in the second half of the year. You saw that there is certainly no major positive impact coming from net debt to service revenue in that regard. So we'll also have some promotions out there. And so we do expect service revenue pressure B2C wireline. And also on the B2B wirelss side, we have obviously some visibility on large accounts, and we do expect increased pressure on the B2B wireless side. So we would caution you not to simply take the CHF 38 million and assume it will stay the same. In our view and in our best estimate, service revenue decline will increase or get worse, to be precise, in the second half of the year. Okay. So much on service revenue dynamics, and I'll move on a bit further, but it was important to spend some time on this one. I'll go to Page 23. Group EBITDA. EBITDA is up in the group by CHF 109 million. Important to note, CHF 49 million out of those CHF 109 million in the first half of the year are exceptional effects. The most important one is an exceptional effect coming out of a change in our pension plan. And the change in our pension plan had a positive impact of CHF 60 million noncash that we booked in the second quarter of this year. And obviously, we show it as an exceptional item. There is FX adjustments that we talked about already in the first quarter. And on the negative side, we had an increased provision for regulatory topics, and we noted also that effect under exceptionals. So net of exceptions, an underlying increase of EBITDA of CHF 60 million, CHF 20 million out of which Fastweb, CHF 20 million EBITDA increased in line with expectations and communication, plus 5% in the first half of the year. But also Swisscom Switzerland up by CHF 38 million underlying performance in EBITDA. If you look at the segments, the EBITDA development, also quarter-over-quarter, basically follows or mirrors the revenue development that we talked about before. In the infrastructure and support function column, the plus CHF 25 million you see reflects the cost savings we had in the first half of the year, and I'll talk about those also on the next page. Quarter-over-quarter, you have a certain seasonality in personnel expenses due to vacation accruals, et cetera. But I wouldn't worry too much about quarter-to-quarter numbers. The important thing is, and we'll come to that on the next page, that we are on track to our CHF 100 million cost saving targets for the full year. So I'll move on to Page 24 where we explained the Swisscom Switzerland underlying EBITDA performance, not by segment, but by P&L line item. We talked about revenue, plus CHF 19 million, direct cost minus CHF 48 million driven by SOC, S-O-C, outpayments and COGS. Not much news on target SOC and outpayments, if you look at quarter-over-quarter numbers. On COGS, there is a certain variation between the third quarter and the second Quarter. It's simply driven by different hardware sales dynamics in B2C and B2B in the first and second quarter. The most important topic on this page is obviously the indirect cost column. We are up -- or rather down with indirect costs with a positive effect on EBITDA of plus CHF 67 million, CHF 70 million out of which personnel expense, workforce and CHF 50 million of OpEx, some seasonality in the personnel expense, which I mentioned before, vacation accruals. Quarter-over-quarter, we had very low vacations in the first quarter because nobody wanted to take vacations during lockdown. So that has adjusted itself to a more normal level now, and we are well on track to our cost savings target of CHF 100 million for the full year. Moving on to Page 25. CapEx is broadly in line with guidance, maybe a bit below the expected run rate in Switzerland, but we expect this to catch up for the remainder of the year. Another note, there is no impact yet of the Salt deal. For those of you who asked the question, Salt deal will not impact our numbers anytime before end of Q3 with the major impact coming in Q4. So no impact from that side. And finally, the third note, CapEx -- sorry, fiber rollout CapEx is as it was and is expected at about 1/3 of our total CapEx, maybe slightly behind expectations. But as I said, expected to catch up in the second half of the year. Moving on to Page 26, free cash flow. I'll start from operating free cash flow proxy, where we are CHF 100 million ahead of last year. If you look at the rightmost column, cash flow will be CHF 150 million, down over last year. So what happens in between? There are 2 main effects to talk about. One is the pension adjustment that I mentioned before. So we have this extraordinary noncash benefit of CHF 60 million in EBITDA in our pension expense, that's an accrual item. Our pension contributions in cash are still the same. They are CHF 138 million in the first half of the year. You have all the details on Page 34. Other noncash pension expense came down from CHF 160 million to CHF 100 million. That's a one-off exceptional item. But -- so contrary to the normal situation, our cash pension payments are higher than our accrual pension costs, and that gives us a negative impact in the free cash flow statement of minus CHF 36 million. In the last year, it was a normal situation, the other way around, the positive impact of plus CHF 29 million. So the minus CHF 65 million is a year-over-year effect out of this change, nothing operating in there. The second effect that contributes to the change between operating free cash flow books and free cash flow is out of income taxes. We paid more income taxes in the first half of the year than in the first half of last year. That cash tax paid has nothing to do with the tax expense. And the simple reason for that is that last year, we kind of delayed some of the payments around March, April last year when nobody knew how the whole COVID situation will develop on the capital markets. And so we are back to normal here and that gives a negative impact of minus CHF 73 million. Net working capital, nothing out of the ordinary, and as I mentioned, are certainly no Salt effect yet. As you might remember, starting next year, already second half of this year, we will have a structural net working capital effect negative out of the Salt deal, but it's not there yet. I move on to Page 27, net income bridge. Starting with EBIT. EBIT is CHF 106 million up compared to last year. Net income is CHF 300 million up compared to last year. So what's happening in between? We talked about it in the first quarter, and it's mainly take out of the first quarter. We sold the participation in Belgacom International Carrier service in the third quarter and we swapped our fresh fiber participation in Italy into a FiberCop -- interest stake in FiberCop and that led to an extraordinary effect in the financial result of about CHF 220 million overall the M&A effect. So that's the main driver. Compensating for that, to some extent, is that we have higher tax expense for the simple reason that we do have a higher earnings before tax. The tax rate of 16.1% is not indicative of what you should expect in the normal course of events, which is closer to 19%. Moving on to Page 28. A quick look at the financial structure. We issued a CHF 100 million bond in the second quarter. It was our first green Swiss franc bond. We had a green bond issuance of CHF 500 million on the Eurobond market last year, which was very well received. And also this first green bond in Switzerland was extremely well received. You see the financial terms we could achieve with 25 basis points of interest rate for a 12-year bond. That's exceptional, even compared to our own very good yield curve. So it was very nice to see that our long-term efforts in the area of sustainability, in particular, in the area of the environmental part of sustainability, we're very well received by the capital markets once more. Our overall debt maturity profile on the right-hand page, very healthy and interest rates -- average interest rate of 93 basis points. Certainly very attractive. Finally, I come to Page 29, outlook guidance. So guidance on revenue, first of all, guidance on revenue is unchanged and guidance on CapEx is unchanged. We do change our EBITDA guidance from CHF 4.3 billion to CHF 4.4 billion that we had so far, up to CHF 4.4 million to CHF 4.5 billion. The only reason is from Swisscom Switzerland and the main items for this upgrade in the guidance are as follows: number one, exceptionals. You saw the exceptional figures that we reported. So we'll have about CHF 38 million of exceptionals. We don't account for the currency effect in here because we mentioned the currency effect already in the third quarter guidance. So without currency effects, CHF 38 million exceptionals. Point number one. Point number two. Some of you might have spotted that the decoupling effect that we have already guided for already in February came in a bit stronger than expected, about CHF 10 million more than we guided. So that's the second effect. And the remainder comes from the overperformance in the second quarter in service revenue, CHF 20 million to CHF 30 million. So these 3 factors combined lead to our upgrade in the guidance. Why it's still the range? Because there is still some significant uncertainty around some of the items here. We talked about service revenue development in the second half of the year and competitive dynamics in Switzerland, which is still a bit of an unknown, also the implementation of the Salt agreement needs to be done. So that's why we give you a range. Now even if it takes a minute, I would like to walk you through step by step, the guidance starting from EBITDA last year, as we did in February. Just for those of you who want to make the bridge from EBITDA last year to this new guidance. It's a couple of steps, but I think it's worthwhile. So compared to EBITDA last year, the major effects leading to the new guidance are service revenue, minus CHF 200 million to minus CHF 250 million compared to last year; decoupling effects, plus CHF 50 million, already in, as you saw; indirect cost savings in excess of CHF 100 million; MVNO loss from UPC Sunrise that we guided already for in February, minus CHF 20 million; compensating for that positive effects out of the Salt deal, plus CHF 20 million. So that's the main effect on the Swisscom side. Fastweb, as before, about CHF 50 million EBITDA impact. So this gives you a Swisscom overall 0 impact compared to last year, plus, and that's now the important part, plus the exceptionals, the CHF 38 million I mentioned, CHF 20 million of FX, and this gives you the total bridge from EBITDA last year to the new guidance. Final word on the guidance. For those of you who make the quick calculation from EBITDA first half of the year to EBITDA of the full year, please be aware of the following effects. Number one, service revenue dynamics in the second half of the year that I discussed. Number two, end of decoupling effect, don't forget that, that will not be around in the second half of the year. And finally, some seasonality in indirect costs that might change a little bit the dynamics between first half and second half of the year. No change to Fastweb guidance, no change to dividend guidance. With that, I hand over back to the operator.

[Operator]

[Operator Instructions] First question coming from Ulrich Rathe, Jefferies.

[Ulrich Rathe, Senior European Telecommunications Analyst]

I have 2 questions, please. The first one is on the other sales in residential. So that was plus CHF 21 million versus minus CHF 9 million last year. Can you just confirm that, that is mainly the decoupling effect? And then if you take the decoupling effect out of that, do you consider the other sales level in the second quarter representative of that line item? So is that sort of a good guide for what is to come or are there other effects in the second quarter that might just be the unusual. That will be my first question. The second question is, you mentioned competition stepping up potentially a little bit from UPC Sunrise. We see this just looking at the rates and the offers. How do you currently see that developing into the second half? And how do you see that unfolding? I think they haven't really operated in a sort of proper consolidated form yet. And so presumably, they have held back commercial investments on their end a little bit because they don't really have a single brand. So I was just wondering how you sort of accommodate that and then what do you expect in the second half from that source?

[Urs Schaeppi, CEO, Head of Swisscom]

I will take the compensation question and Eugen should start with the other sales.

[Eugen Stermetz, CFO & Member of Executive Board]

Okay. So yes, your observation is correct. The B2C revenue increase is indeed a mix of service revenue decline and the decoupling effect. As I said in the first quarter, we also had a plus in hardware sales. And yes, there is one more factor in the second quarter. We do have a cinema chain that had no revenues basically whatsoever in the second quarter of last year. And revenues are picking up again in the second quarter of this year. So I can confirm your observation.

[Urs Schaeppi, CEO, Head of Swisscom]

good. Then to competition, actually, you are right. The whole promotion activities is quite stable. So we don't see much more aggressive promotions. They are and they were already aggressive. But normally, the second half of the year is more, let's say, promotion-driven each year. So that's a bit one-off explanation of Eugen. I think we will have more events where promotions, strong promotions will be in place. But overall, yes, the situation, competitive situation in Switzerland is approximately stable.

[Ulrich Rathe, Senior European Telecommunications Analyst]

Sorry, would you think that if they -- if Sunrise and UPC start to operate as one, that they would step up the overall competitive intensity? Or do you think what you see now is what you put into your business plan going forward? Because you're talking about where it is at the moment, but I'm sort of more thinking about what your expectations post merger are for them?

[Urs Schaeppi, CEO, Head of Swisscom]

Yes. I think that's quite obvious. If they have a single brand, if they have a new product portfolio, they will certainly be louder to position the new brand, to position their new story. I think that will be the case. The question is that's hard to judge, what will be the commercial offers at the end. And they will certainly try to leverage the different customer base. They have the mobile customer base, mobile-centric customer base from Sunrise and wireline customer base from UPC. We try to do cross and up-selling and -- but I don't have visibility -- more visibility on it. But if I would be CEO on this side, certainly you would position the new brand, that's clear.

[Operator]

Next question, Georgios from Citi.

[Georgios Ierodiaconou, Director]

The first one is on the service revenue trajectory for the second half. And I just had one question. I mean earlier, you went through the drivers of what could get worse and maybe roaming being the only thing that gives you a [ B21 ] improvement. But I was curious to understand how the device decoupling worked in the past on service revenue. I was under impression that, obviously, you generated more hardware revenues because they were [indiscernible] differently, but it had a net other effect on service revenue. So if I'm not mistaken, the second half, should have a lower negative effect from device company and service revenues on the first half. Just wanted to -- maybe correct me if I'm wrong, with that assumption. Can I understand B2B, you mentioned the wireless segment in B2B being particularly competitive and you have visibility on the contracts that are coming in. Is it something that has to do with the comparisons of last year? Or is it something that we should worry about going into 2022, that the market maybe gets a bit more competitive? And then my final question is around Fastweb. And since you were providing the details around the business, the access business of Fastweb or wholesale lines. Is it possible to give us an idea roughly of what the economics of that business are, like is the [ Vila ] rate that in companies earning a good proxy for the revenues you generate? And if you could perhaps talk a bit about the margin.

[Urs Schaeppi, CEO, Head of Swisscom]

Good. I will start with the B2B question, and then Eugen will take the device coupling question. And on wholesale, did you get the question on wholesale?

[Eugen Stermetz, CFO & Member of Executive Board]

Yes. But the [indiscernible] is there. It's a reasonable proxy for them [indiscernible]

[Urs Schaeppi, CEO, Head of Swisscom]

[indiscernible] So the mobile dynamics, so we have the strong competition, we have high market shares and competitors try to enter this B2B market. So that's why we have high price competition. This price competition, if you look forward, I think it will stay in the same region as it was in the last month or quarter. So no fundamental change and no really acceleration on competition on wireline. The message of Eugen was more that we think that on some specific accounts, we will have a bit more pressure in the second half of this year. That's a message, but that's a special effect. Overall, I would judge that the competition wireline will stay as it is as it was in the past.

[Eugen Stermetz, CFO & Member of Executive Board]

Okay. I'll take the first question on device decoupling. So first of all, and sorry if I created a wrong impression. So first of all, obviously, the IFRS 15 line is a line separate from service revenue. So if there is an impact, and there was an impact of the device decoupling line and the IFRS 15 line, it's separate. It has an impact on our revenue dynamics, but not on our service revenue dynamics. So if I mixed it up before, sorry for that. Now the genesis of this effect, if you say the discount mobile phone together with the subscription, IFRS 15 requires you to defer the discount on the mobile phone over the life of the contract. And we had many such contracts outstanding when IFRS 15 was introduced, but stopped basically selling this type of contracts and went to SIM only about 2 years ago. So we had a huge stock of contracts with this negative revenue line going forward for the next 25 months. And with that stock of contracts going down, that negative revenue line went down and gave us a positive effect year-over-year. I'm sorry, it's a bit complicated, but that's what it was. And now with the stock of contracts gone, with the 24 months gone, and the last contract that was sold this way 24 months ago, this effect will not show up anymore in our revenue bridge. But yes, service revenue -- purely service revenue is unaffected by this effect. I hope I answered the question. If not, please come back again. I wasn't sure I got it precisely. Then on the wholesale lines, we sell in Italy. obviously, we cannot disclose any commercial terms. But as Telecom Italia is the biggest seller of wholesale lines in Italy. And so the [indiscernible] price they charge is a certain point of obvious reference for any other deals of this sort done in the Italian market.

[Georgios Ierodiaconou, Director]

If I could quickly follow up on the device decoupling. Maybe I misunderstand the way the accounting works. I was under the impression that if I opt for a SIM-only contract, I end up paying a bit lower. So the last 2 years, you had a lot of customers on the table the device. It had a negative effect service revenue because everything was bundled together, including the subsidy into one expensive contract. Am I confusing something or was there something that changed the mix between handset devices, let's say, in service revenues as you have customers migrate you over?

[Urs Schaeppi, CEO, Head of Swisscom]

Our device decoupling line is actually tied to the bundled products. And the bundled products have run out. So without the bundled products, simply speaking, that there is always without bundled products, now IFRS 15 reconciliation line. I'll now talk about the exception. If we do have promotions, then we get this IFRS 15 reconciliation again, but not in the amount and not in the dimension that we had when we principally sold bundled products. So device decoupling is really tied to the bundled products and not to the price difference between a bundled product and the SIM-only product.

[Operator]

Next question, Steve Malcolm, Redburn.

[Stephen Paul Malcolm, Research Analyst]

Yes. Just a couple, one on Switzerland. Obviously, you reported a big drop in your personnel expenses in Q2. Can you just help us understand what the underlying move in personnel expenses was adjusted for the pension credit and adjusted for the vacation accruals you talked about, clearly, it was a big accrual in Q2. But it looks at it, but you reported like a 10% reduction despite by the workforce is actually growing in B2B. So just help us understand the underlying price.

[Urs Schaeppi, CEO, Head of Swisscom]

Yes, I I'll be happy to take the questions. So on the -- first of all, the pension effect is separate. You will not find it in the indirect cost line. It's in a separate segment altogether. So you don't see it on Page 24 at all. So what you see in the indirect cost column and in the workforce column is really the expense related to the workforce. Then the vacation accrual was a change quarter-over-quarter between first quarter and second quarter. So the first half of the year compared to last year, there shouldn't be much of an effect. So it's really a quarter-over-quarter thing. So you can look at the first half of the year numbers as numbers, by and large, unaffected by these vacation accrual. So the plus CHF 17 million is the effect to look at. Then on personnel expense, FTEs and the effect we show here. Now it's important to note that we -- that we report personnel expense and capitalized expense internally as separate lines. We count it as separate lines. And obviously, personnel expense is tied to the number of FTEs we have, but capitalized expense -- but the overall workforce expense has to be netted for capitalized expense because they go as the name sales into CapEx. So when you look here at the plus CHF 17 million is the combination of a gross personnel expense reduction, which is smaller, CHF 7 million, if I have the numbers correctly, and capitalized expense line of plus CHF 10 million. And that has to do with the fact, among others, that while our FTE numbers in Switzerland seem overall stable, it's not necessarily the same people here within these FTE numbers. And we do in-source a number, for example, a number of software developers who do different work from the people who were in the FTE number before, who gets CapEx via capitalized expense and end up in CapEx. So the number you look at here, plus CHF 70 million, is a gross personnel expense change and a capitalized expense change, and the total is the relevant number for OpEx coming down year -- half year over half year last year.

[Stephen Paul Malcolm, Research Analyst]

Okay. That's great. Just on Fastweb. Clearly, a lot of the growth came from wholesale. So 2 questions. I mean, at what point do you think you can improve consumer growth in the current sort of relatively low 2%? And how long do you think you can maintain wholesale growth in the sort of high teens? Because that's really the biggest driver of the growth we're seeing in Fastweb and it's notoriously difficult to predict just how enduring growth in wholesale tends to be.

[Urs Schaeppi, CEO, Head of Swisscom]

On wholesale, we think that we can further have a growth because there are a lot of elements which pushed actually the wholesale business. On the one side, we have these networks, 5G networks, which are rolling out in Italy. This needs backhauling, base station connections, that's the business for software, where we are strong in. Second one, there are new players on the market, which actually get wholesale products from Fastweb, retail players. So that's the second element. And I would say these 2 elements will continue. So that's why we are confident that the wholesale business will continue to grow.

[Stephen Paul Malcolm, Research Analyst]

And on that reselling lines, I mean, should we presume that most of the lines you're reselling, you are effectively reselling TI lines on to other operators and making relatively low margin on those? I mean how many of the REIT if the wholesale lines are actually Fastweb-owned end-to-end lines?

[Urs Schaeppi, CEO, Head of Swisscom]

We have -- as you know, we have a good own footprint. So it's not only reselling of part, it's actually using our own fiber to the home footprint or ultra broadband footprint. That's the only reselling.

[Stephen Paul Malcolm, Research Analyst]

I was under the impression that Fastweb's sort of total fiber inventory was only about 1 million lines. So owned inventory as opposed to resold by...

[Urs Schaeppi, CEO, Head of Swisscom]

No, we have our own network in the bigger cities. We have everywhere our own network. So we have a good coverage on our network.

[Operator]

Next is Polo Tang, UBS.

[Polo Tang, MD & Head of Telecom Research]

I just have 2 questions. The first one is a follow-up in terms of competitive dynamics in Switzerland. So can you maybe talk about what you're seeing from Salt currently? Also, is there any indication that your FTTH footprint expansion is helping your broadband net adds? And my second question is really just about 5G. So can you remind us how the 5G rollout is impacting your CapEx envelope? So is it leading to any incremental CapEx? Or is it more evolutionary in nature?

[Urs Schaeppi, CEO, Head of Swisscom]

So first on the competitive dynamic in Switzerland, it's only out of the perspective of Salt. So this partnership with Salt is just in the starting phase. So actually, the footprint extension through fiber to the home is still on a low level. The bigger rollout will be in 2022 onto '25. And then we have 2 separate impacts. We have the impact that Salt will compete in the fiber to the home turf, too. On the other side, we are also -- we have also a stronger value proposition to compete against cable operators. And these are these 2 elements. Overall, fiber to the home will tension the competitive footprint of Swisscom. What will happen on the pricing side, that's another question. So we will certainly have further aggressive promotions, that's for sure.

[Polo Tang, MD & Head of Telecom Research]

If I can follow up though on that specific. You've obviously been expanding your footprint since the beginning of 2020. So have you -- so what have you seen in the areas where you have expanded with FTTH? Are there any signs that you are gaining market share, for example?

[Urs Schaeppi, CEO, Head of Swisscom]

In areas where we -- it depends region by region on the local competition. It's very fragmented. But we have regions where we gain market share in the fiber-to-the-home area. And we have other regions where we have mainly ARPU pressure. It's really a very fragmented picture. But overall, we are more competitive against cable operators if we have fiber to the home.

[Polo Tang, MD & Head of Telecom Research]

The 5G question?

[Urs Schaeppi, CEO, Head of Swisscom]

Yes, 5G question, sorry. The rollout of 5G, Eugen showed that the CapEx may actually -- you shouldn't assume that we will now have a peak on CapEx because of 5G because what we are doing is actually replacing investments in 4G through 5G. So overall, the CapEx for the 5G rollout is in a level where we were in the past with our mobile CapEx. And you should also assume that we made a lot of investments in the network already today. So all our base station have a fiber backhauling. A lot of operators in the world, they have to do this. So that's why we don't get these big peaks on 5G [indiscernible].

[Operator]

Next question, Jakob Bluestone from Credit Suisse.

[Jakob Bluestone, Research Analyst]

I just had a question on the Salt payments. Can you maybe just share with us what is your expectations about how they will ramp up over the next few years, just to help us with the modeling.

[Urs Schaeppi, CEO, Head of Swisscom]

So I'll refer you to -- and I'll explain it briefly. I'll just refer you, for reference, to the slide we showed in the first quarter presentation where we detailed all the individual effects. I'll quickly repeat it. The most important piece to understand, and I'm talking about the full year impact of Salt, so I'm not talking about 2021. Okay, that's important to know. I'm talking about a theoretical full year effect of the Salt deal on our financials. The most important thing to understand is that there will be a positive impact on free cash flow long term in the mid-double-digit million numbers. So that's the baseline. That's the most important thing to understand, a long-term mid-double-digit free cash flow positive impact. Then there is a whole series of effects on the P&L due to IFRS 16 accounting. So we will book wholesale revenues. We will book OpEx. So we have a positive impact on EBITDA. We'll have a positive impact on CapEx. So we'll net out some of the CapEx that is being spent to build what we sell to Salt. So there will be a positive operating free cash flow proxy impact, but that will be much higher than the real free cash flow impact that we show. So there will also be a structural net working capital effect. So it's a bit of a complicated mix. If you take a look at -- I don't have the slide number, I think it was Slide 29 in the Q1 presentation, where we see that it all out. But the most important thing is the bottom line that I mentioned.

[Operator]

Next question, Francesca Schild from Exane.

[Francesca Schild, Research Analyst]

So just digging a little bit deeper there on the partnership with Salt. Specifically, I think the slide you're referencing the split between feeder and dropped from last quarter. So there's a multipart question, but it would be great to know, firstly, how many feed is you're going to have to build under the agreement with Salt? Secondly, how much does it cost you to build each feeder and how much each drop? And finally, how many drops are you building for Salt?

[Urs Schaeppi, CEO, Head of Swisscom]

Yes. So thank you for the question. But you just certainly understand that I can't answer these questions. We have a commercial contract with Salt, and we don't disclose the details.

[Eugen Stermetz, CFO & Member of Executive Board]

The one thing that we can say is that the deal covers the rollout turf that we communicated also to you over the next 3 years. which is from 30% of households in Switzerland up to 60%. That's 1.5 million households. But I will say, the rest is commercial and confidential.

[Operator]

This was actually the last question. So let me hand back to Louis for the closing.

[Louis Schmid, Head of Investor Relations]

Thank you, operator. 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 from the IR team. Speak to you soon and have a nice day. Bye-bye.

[Operator]

The conference recording has been stopped. Dear participant, your conference call has come to an end. Thank you for attending. Goodbye.