Swisscom AG

SIX:SCMN

Earnings Call Analysis

Swisscom maintains steady growth and cost savings amid competitive landscape.

In Q3 2024, Swisscom reported stable revenues of CHF 2.7 billion, with underlying service declines offset by increased B2B IT growth. Cost-saving measures delivered CHF 14 million in savings, helping achieve nearly flat EBITDA. Fastweb, its Italian unit, saw robust revenue growth of 4.7%, driven by 92,000 mobile net adds in Q3. Guidance remains confirmed for 2024, targeting about CHF 50 million in operational cost reductions. The acquisition of Vodafone Italia is anticipated to close in Q1 2025, reinforcing growth potential. The company is focused on expanding fiber coverage, aiming for 57% by 2025, which should enhance wholesale opportunities.

Q3 2024 Overview: Stability Amidst Challenges

In the third quarter of 2024, Swisscom reported stable results amid ongoing competitive pressures in the telecommunications landscape. The top line exhibited a flat underlying performance, with revenue slightly decreasing by 1.2% to CHF 2.7 billion. The company confirmed its full-year guidance despite a challenging environment, indicating a focus on stabilizing its overall performance.

Swiss Operations: Mixed Signals

In Switzerland, there were signs of resilience in customer growth, particularly on the mobile front with an increase of 35,000 net additions. However, telco service revenues continued to decline, primarily due to competitive pricing pressures. The overall trend indicates a need for strategic adjustments to maintain market share.

Fastweb's Growth in Italy

In stark contrast to Swiss operations, Swisscom’s Italian subsidiary, Fastweb, showed strong growth with a 4.7% revenue increase year-on-year. The mobile segment gained 92,000 net additions in Q3, highlighting Fastweb’s competitive edge in Italy, driven by innovations in B2C and B2B segments.

Cost Management: A Focus on Efficiency

Swisscom is actively pursuing cost-saving initiatives, confirming a target of over CHF 50 million for 2024. In Q3 alone, cost savings amounted to CHF 14 million, primarily facilitated by infrastructure efficiencies and reduced operational complexities. While revenue challenges persist, cost management efforts are playing a crucial role in maintaining EBITDA stability.

CapEx Insights: Building for the Future

Capital expenditure increased by CHF 105 million year-to-date, predominantly in Switzerland's fiber optic network rollout. This rise is attributed to shifts in technology and a robust focus on increasing coverage, with an aim to achieve 80% fiber connectivity by 2030. The significant upfront investment is expected to pay dividends through enhanced service capabilities in the long-term.

Guidance for the Future: Optimistic yet Cautious

Looking ahead, Swisscom maintains its full-year guidance for revenue growth near 5%, EBITDA stability, and CapEx control. They confirmed that their strategies for innovation and customer service improvements, including enhancing digital offerings and loyalty programs, will be central to driving growth in Q4 and beyond.

Emerging Challenges: Competitive Landscape and Impacts

Despite the positive growth in certain areas, the telecommunications market remains highly competitive, notably in Switzerland, where promotional activities by rivals create price pressure. Swisscom's strategy to mitigate these effects includes an adjustment in promotional tactics and a renewed emphasis on customer loyalty initiatives.

The Convergence Strategy: Expanding Offerings

Swisscom is pushing ahead with initiatives in the insurance and energy sectors to broaden its product range and improve customer retention. Currently, the energy business is profitable, while the insurance segment has yet to scale. This strategic diversification aims to enhance customer loyalty and open new revenue channels.

Conclusion: Navigating Through Complexity

Overall, Swisscom presents a mixed bag of results, reflecting both growth opportunities and challenges. The stable performance in Italy contrasts sharply with the difficulties in Switzerland, showcasing a need for agile strategies. With a focus on cost control, capital investments for future growth, and adaptive pricing methods, Swisscom is positioning itself to weather current market pressures while preparing for future advancements.

Earnings Call Transcript 2024-Q3

[Louis Schmid, executive]

Good morning ladies and gentlemen, and welcome to Swisscom's Q3 2024 results presentation. My name is Louis Schmid, Head of Investor Relations. And with me are our CEO, Christoph Aeschlimann; and Eugen Stermetz, our Chief Financial Officer. .

Our CEO starts the presentation with Chapter 1 and a quick overview on the highlights, the operational results and financial performances of the third quarter. And in Chapter 2, Christoph presents a business update for Switzerland and Italy. In the second part of today's presentation, Eugen gives a short update on the Vodafone Italia transaction in Chapter 3 and then runs you through Chapter 4 with the Q3 financials, including the confirmation of our full year guidance.

With that, I would like to hand over to Christoph to start his part. Christoph?

[Christoph Aeschlimann, executive]

Thank you, Eugen, and welcome, everybody, to this Q3 2024 call on Halloween Day. I will move directly to Page #4, highlighting the highlights of Q3. You can see that we have a flattish underlying top line and EBITDA development but with telco savings picking up and slightly higher CapEx, but overall, we are confirming our full year guidance for 2024.

In Switzerland, the business trends are unchanged, and we delivered Q3 as expected with slightly decreasing telco service revenues, but continuous growth on the B2B IT side. We're also very happy that we were able to win all collect tests both on the wireline network side as well as in the B2C shops topline and best app. We also reached a milestone on the myelin construction site, delivering -- or having built over 50% of Switzerland, and we are now in the second half of our rollout.

On the Italian side, Fastweb is continuing to grow with ongoing commercial success we managed to deliver growth, both in B2C, B2B and in wholesale. And we have continuous mobile growth with second best performer in the market. And in September, we even managed to be #1 in the market on the mobile number portability. Now also, our energy offer in Italy is going very well with the first 50,000 customers and now attention to the offer to SME customers. Overall, also, the acquisition of Vodafone is on for closing in Q1 2025 and more info on this later on by Eugen.

Now I move to Page #5, operational performance. First, I will talk about Switzerland. On the left-hand side, you can see that mobile net add performance is continuously picking up. We have now delivered plus 35,000 connections in the third quarter, which is a pleasing development overall, if you look at the yearly -- the quarterly evolution throughout the year. On the broadband side, we managed to stabilize the situation still losing slightly on connections with minus 9,000, but compensated by growth on the wholesale side, which is delivering continued growth quarter-by-quarter. As you can see, again, wholesale grew by 10,000 connections in Q3.

On the Italian side, we have a pleasing situation with continuous growth on the mobile side with 92,000 net adds in Q3, bringing us to over 5% market share on the mobile side with 3.8 million RGUs in -- in mobile. Broadband also quite a lot better in the third quarter than in Q1 and Q2. So we -- B2C did a good job at stabilizing the business, focusing on the high-value customers, but at the same time, stabilizing RTU performance by increased net adds and reduced churn, delivering or, let's say, resulting in a minus of 9,000 collections, but which is largely overcompensated by our growth in the wholesale side where we grew by 54,000 connections in Q3.

Overall, you can see the financial results on Page #6 with a Q3 revenue of CHF 2.7 billion, a reported decrease of 1.2%. If you look at the stable exchange rates, we actually have a slight increase in revenue and EBITDA is CHF 1.15 billion, minus 1.3% and Eugen will go into all the details later on during the presentation.

I will now move to the Chapter #2, the business update in Switzerland and Italy, starting with our strategic priorities for the group as a recap. So first and foremost, one of the important strategy pillar is delighting our customers with a strong brand with quality, with customer loyalty and the best network. And then for the future, one of the -- or the most important pillar is innovation for growth, generating or building and implementing new B2B and B2C products that generate new revenues in the coming years. For this, we have launched in the past, the insurance offering in the B2C Switzerland side. We launched the energy offering in Italy. We launched new workplace products, security products, and digital trust product, which should all start to -- which are already or will generate revenue in the near future, delivering future growth in not only this year, but for sure in the coming years.

Next to this, we are continuously working on cost savings, achieving more with less, essentially working on efficiency through automation, but also simplification, removing and phasing out old legacy products, tariffs systems and platforms and by introducing AI and Gen AI in all major business processes to become more efficient. And next to this, or last but not least, we also work on our people skills developing ourselves, developing the collaboration between teams and working on continuously working on diversity and talent and leadership development to further improve our overall delivery focus.

Now on Page #9, you can see the individual aspect of this group strategy in action at the results we achieved, starting with B2C telco, where we are working on constantly strengthening the #1 position that we hold in Switzerland. So we have won the Connect Test has pointed out earlier, [ 24 ] for the service app, the hotlines and the shops this one the first time in a row. So really demonstrating our quality lead that we have in Switzerland in all servers dimensions. We also launched a new -- or several new products on the Wingo side in the second brand to further complement the portfolio in the second brand arena. We also work on stimulating ARPU and demand by customers, mainly by a more-for-more approach, where we migrated outdated wireline product onto the new offerings, which typically result in an uplift of ARPU as these new products have more aspects and more content and at a higher price.

To further decrease churn and compensate customer loyalty, we launched a new loyalty program called Swisscom Benefits, which already has over [ 100 ] participants since the launch a couple of weeks ago. And this allows customers to get rewarded with cinema tickets where they can participate in certain events or win new devices and be compensated for their long-standing loyalty and gives us also opportunities to upsell and cross-sell new and additional products.

In terms of results, you can see on the right-hand side that churn is, by and large, stable and very low. And the ARPU wireline is also stable at CHF 89 for fixed bundles and slightly decreasing from mobile by CHF 1 to CHF 50 for postpaid value. As in the past, this decrease in ARPU and mobile is mainly linked to the brand shift. Customers moving from the main brand to the second brand, Wingo and the other third brand.

Now moving to Page #10. You can see further information about B2C. As announced in Q3, we are working on our sales approach. We slightly adjusted the promotional approach to counteract the promotional intensity of Sunrise and Salt. But I would like to point out that as a market leader, we continue to be a price follower, but our main intention is to defend our RGU base and make sure that we are attractive if in the market, and we will continue to act with selective promotions and discounts throughout Q3, throughout Q4 also to make sure that we have the relevant net as an orders in the market. We also extended our insurance portfolio that we launched earlier in the year with additional products, and we implemented the first marketing campaign we can now see that the sales are picking up, although still at a very low level.

We also launched new TV packages and content. For example, one binge option, where we combine Netflix and Disney together allowing our customers to profit from very attractive bundled combinations. Overall, you can see on the right-hand side, the RGU base we have combined in postpaid 3.6 million RGUs, which is a 62,000 increase year-on-year. And on the broadband side, we have nearly 1.7 million customers, minus 25,000 on a year-on-year basis.

Now moving on to Slide #11 and B2B. Our B2B business in Switzerland, which is mainly driven by reinforcing our premium positioning as a trusted business partner. For this, we worked on our branding in the B2B space with a new slogan to better position our trusted business partner aspect and increase the brand awareness and customer loyalty. We also worked on a new offerings on the device side, with a Device as a Service offspring but also we worked or continues to deploy our Swiss AI platform, delivering sovereign AI services, which is now fully installed and scaled up, and we are first customers running on the AI platform and generating first revenues of this new product. We also launched a digital marketplace for SME customers to accelerate sales of our workplace offerings and help SMEs digitize their business faster. In terms of results, you can see on the right-hand side that telco service revenue stood at CHF 374 million for Q3, which is a 2.9% decrease or CHF 11 million year-on-year, mainly driven by decreasing prices, which you can see below in the ARPU line where the ARPU wireless has slightly decreased by CHF 1 to CHF 26 in Q3 2024. On the other side, we have development of the IT service revenue to 269 -- sorry, CHF 296 million in Q3, which is a plus of 3% -- 3.1% or CHF 9 million year-on-year. So this is a very pleasing result with continued IT growth.

Now moving to Networks and IT on Page #12. We are working very hard on creating tomorrow's best network in Switzerland. We increased our 5G plus coverage. We are now covering 85% of population with the new frequencies of 5G, which is an 8% increase year-on-year. And as mentioned at the intro, we also reached a milestone of 50% FTTH coverage, which is up by 6% year-on-year. So this is something I'm really happy about that we are now covering more than half of Switzerland with 10 gigabit connectivity, and we are continuing to deploy according to our rollout plan and confirm or are confident that we will reach our goal of 57% coverage by end 2025.

We also managed to win the connect test on the fixed network and continue to work on the stability of our network, so not only did we not have escalated major incidents, but we also managed to decrease regular incidents overall, which then results again in cost savings because we have less calls in call center, less feed force interactions. So this is not only good for customers in terms of quality, but also good for us in terms of cost that allows us to further improve our bottom line.

Now last page on the Swisscom Switzerland, Page #13. Working on our cost base remains a top priority, not only decreasing cost, but also increasing quality at the same time. So really achieving more with less input. The main levers of this are simplifications and fast automation shoring activities and introducing artificial intelligence. So you can see some examples on the left-hand side. So we are working heavily on the B2C side, both on the digital interaction between our customers and us but also introducing Gen AI support in our call center processes supporting the agents for argumenting the agent to allow the agents to provide better and faster help to our customers. We also expanded our near-shoring activities, both for the own and second brands and with the scale-up of Kosovo, Poland and Bulgaria. And we are seeing pleasing results on that side with good NPS and solution rates. So we will continue to scale up these centers in the future, and this will continue to deliver cost savings. Also, what is really interesting and promising for the future is what we see on the Gen AI chat bot front. So we upgraded our traditional AI chat or traditional chat bots to the latest Gen AI technology. And you can see that we had a jump in automation rate by Factor 2x. We saw an improvement in the solution rate by 3x. And this is obviously a very positive result and yields a great promise for the future, and we will continue to invest on these topics to further improve customer care for our customers because this is also, I think, delivering a very nice benefit for our customers as they can solve their issues any time they want, even if it's 3:00 a.m. in the morning when the call center is closed, they can solve their problems in an easy and fast way.

Okay. So now moving over to Italy. Starting with B2C on the fast website, where we continue to execute our high-quality approach and at the same time, evolving beyond the core. So the most important aspect of this strategy is the launch for what we 3 per day or 3 for you, which is a convergent proposition, wireline, wireless and the energy offering, which is picking up quite rapidly in the market. As I mentioned before, we are close to 50,000 customers in the past 6 months. And you can see on the right-hand side that 81% of these customers are convergent, so they are wireline customers that upsell to the energy offering, but there are also some customers which only buy energy for us, which then gives us an opportunity to cross and upsell mobile and wireline connectivity in these new customers.

We also managed to improve NPS on the mobile side, and we were the second best performer in the mobile market in Q3 and managed to surpass Iliad even in September on the MNP balance which is promising for the future, and we continue to work hard to sustain our mobile growth in Italy on the fastest. You can see the number of RGUs in mobile is now 3.8 million, plus 11% year-on-year, and we also managed to increase the convergence or the FMC rate to 43.7%. B2C revenue after some decline in the past years managed to turn around this year, we stabilized it at first. And now this quarter, we see a slight growth of 1% to EUR 292 million in Q3, up from EUR 289 million, which is an absolutely excellent result, looking at the overall Italian B2C market and the results that our market competitors are delivering.

Now moving over to B2B on Page 15 and wholesale. We continue to enjoy a really good market momentum. We managed to win many new customers on the B2B side, and revenues have grown by 6% to EUR 304 million in Q3. And for the for the first time are actually higher than our B2C revenues in Italy. The same you can see on the wholesale side, where we have a growth of 13% to EUR 95 million in Q3 2024. And we have over 830,000 UBB wholesale lines now in active which is also higher than our wholesale business in Switzerland, and we managed to gain a new customer Edison Energy, which will continue to drive growth in the future. We also bought a small company in Italy, ADT, which delivered as Oracle cloud system integration, which complements our capabilities on the [indiscernible] side in Italy, which is an important aspect for the future and complements our AWS activities in the -- in the market.

Okay, this was it, and I will now hand over to Eugen for the transaction update.

[Eugen Stermetz, executive]

Thank you, Christoph, and good morning, everybody, also from my side. very brave update on the Vodafone Italia acquisition. Everything going according to plan. So we received the approval by the European Commission under the EU for subsidies regulation in Q3. So there is 3 more approved is to go. The most important, obviously, being the one by the Italian competition authority, the Italian competition authority opened as expected a Phase 2 investigation. This is a large transaction, so that's completely natural, and we expect the transaction to go, as we said previously, in the first quarter of 2025.

I move on to the financial results and go directly to Page #19. As usual, I'll give overview over the group numbers and then deep dive into Switzerland and Italy and then go back to the group free cash flow and net income and the guidance. So let's start with the overview of the first 9 months. Page 19, talk about revenue. Revenue in the group was down CHF 29 million, net of currency effect that was up CHF 21 million. The mix in the third quarter, similar to what we have seen over the whole year. So year-to-date, Swisscom fees down CHF 101 million and Fastweb with strong growth, up CHF 117 million, as I said, was in the third quarter, similar pattern with Switzerland down CHF 45 million and Fastweb about CHF 29 million. However, the cost debt growth has come down in the first quarter, EBIT as expected and as we discussed already in Q2. Overview of EBITDA development. EBITDA down minus CHF 39 million, underlying minus CHF 32 million. Also here, not dissimilar to the revenue picture, Switzerland down CHF 45 million and Fastweb up plus CHF 8 million. However, as Christoph already noted, the positive development here on the Swiss side is in the third quarter, EBITDA was essentially flat as now in the third quarter, the cost savings started to kick in and compensate at least partly for the service revenue decline and also the IT business in Switzerland came in with a positive contribution to year-over-year EBITDA, so we ended up on the fee side, almost [indiscernible].

I move on to Page 20. CapEx in the group are up CHF 101 million year-to-date, that's exclusively driven by Switzerland and is a mere trading issue, as I shall explain later when I discuss Switzerland in more detail. Operating free cash flow, down CHF 140 million obviously, a mix of lower EBITDA and higher CapEx and the lesser the CapEx part being a transit or a phenomenon as I shall explain.

So I move on to the Swiss numbers on Page 21. Revenue first, down CHF 101 million. That to the individual segment. B2C finally, same number, down CHF 101 million so that's the combination of lower service revenue, but also lower hardware revenues, in particular in the first quarter, but the same basic combination was present also in the third quarter. And by the way, the hardware revenues, both on the B2C side and on the B2B side, contributed to the revenue consensus [indiscernible] that you noted and I repeat what I said already quite often that the hardware revenues has very little impact on the margin, and this is also [indiscernible] no effect coming out of this consensus EBITDA where we are above consensus in the third quarter. On to B2B. B2B revenue year-to-date is up CHF 13 million. So that's a steady service revenue decline on the one hand. For the full 9 months, hardware and software venues flat, but in the first quarter with a decline, as I already mentioned, and IT service revenue is growing and the net balance year-to-date gives the CHF 13 million in the third quarter, a minus CHF 15 million due to the hardware deviation. Wholesale was down CHF 14 million, but this is very much driven by roaming revenues, which are little impact on EBITDA, as you can see in the EBITDA bridge. So let's go there. So the EBITDA of which year-to-date, CHF 49 million down in Switzerland, Q3, just minus 2% as discussed. B2C, very stable big term over the year to minus CHF 13 million EBITDA year-to-date, almost the same number every quarter. So very far picture we serve revenue decline on the one hand, compensated almost completely by cost savings mostly on customer care. I move on to B2B. B2B down minus CHF 34 million. That's quite simply the service revenue decline, dropping down to the bottom line. in Q3, mitigated to some extent by a better EBITDA contribution from the IT business.

Move on to Page 22, a couple of details on the Swiss revenue and costs. I'll start in the bottom left, the service revenue evolution. So service revenue decline in Q3 was basically stable compared to Q2 with minus CHF 24 million, which puts us on a trajectory of roughly minus CHF 100 million for the full year as everybody can do on their own with simple mathematics. On the drivers, B2C and B2B, overall, no big change to Q2. I would just like to highlight 2 sectors. One is on B2C wireline ARPU. We see a plus here of plus CHF 5 million year-over-year effect from -- coming from the wireline ARPU, that was a negative number in the first quarter and the 0 in the second quarter. So you see the effect of the after stimulating measures that we talked about in Q1 and Q2 finally showing up in the numbers in a positive way. At the same time, and the second point I would like to highlight the price competition is still quite strong. And so what you saw in the first quarter where we had quite a quite sluggish net add numbers now shows up in the ARPU service revenue compared to prior year on the wireless side and on the wireline side. So these 2 factors that basically balance out to a net same number in the Q3 ending in Q2 with minus CHF 24 million. On the B2B side, it's all very stable. The numbers are basically all the same as in Q2. But obviously, we all know that B2B is typically not as small. It's the more fancy of the business. So the smoothness quarter-over-quarter might will be the exception than the rule. Finally, on this page, ever on cost savings, cost savings very bit low in Q1 and Q2. As you remember, now we have plus CHF 14 million in the third quarter. That's a reason average quarterly run rate that we would be shooting for giving our overall target of CHF 50 million plus for the full year, which by the way, we do confirm. So we do confirm the overall target of CHF 50 million plus, which by an implication simply means that we do expect Q4 to still be a bit stronger than what we saw in Q3.

Let's go to CapEx and operating free cash flow in Switzerland. Page 23. So CapEx is up CHF 105 million compared to prior year. Most of this is due to increased CapEx in Switzerland -- sorry, increased CapEx from the wireline excess network so from the FTTH rollout. Why is it so much higher than in the previous year. You might remember that we switched last year from the point of multipoint rollout to the point-to-point rollout, which slowed us down considerably in the first 2 quarters of 2023 when we switched the technology. So that slowed down the rollout so the numbers are higher this year. That's the simple gelatin. However, there is another factor that comes into play with regard to the full year outlook, this deviation of CHF 105 million plus is not going to last for the full year. Certainly not to that example because Q4 fiber CapEx in 2023 was exceptionally high and will almost certainly be lower in Q4 2024. And so this is why we confirm the CapEx guidance for the full year 2024 despite this CHF 105 million higher CapEx in the first 9 months. Operating free cash flow down CHF 159 million. This is obviously driven by the deviation of EBITDA and very much by the deviation in fiber CapEx that will turnaround, as I explained to some extent in the fourth quarter.

On to Page 24, the faster revenue and EBITDA. So faster revenue was up EUR 120 million in currency or in the third quarter, plus EUR 31 million, which is a bit smaller growth than in the first 2 quarters as announced and certainly a bit more sustainable than what we saw in the second quarter. but still a 4.7% growth, which is obviously fantastic. If you look at the individual segments, B2C in Q3 was up EUR 3 million. It's basically mobile growth compensating for losses on the wireline side or overcompensating the boxes on the wireline side. So in the third quarter, it was up EUR 17 million, and the wholesale was up EUR 11 million. So the growth is very much driven as in the past quarters by B2B growth and wholesale growth, which itself is driven by the continuous growth of the UBB business with [indiscernible] bouncing around a little bit. That is all in the second quarter, for example, that was a strong -- stronger wholesale revenue growth. Now the Q3 is mainly driven by the UBB business. So all in, on faster revenue, we are on track to about 5% growth for the full year that we already talked about previously. I move on to EBITDA. Underlying EBITDA is up EUR 8 million year-to-date. Q3 was up EUR 2 million. Looking at the individual segments, B2C EBITDA was actually down EUR 7 million. So what is going on, it's basically the higher margin wireline revenue dropping out and lower margin via less revenue coming in. So please remember that we are still an MVNO in Italy. And so the wireless margin is lower than what we see on the wireline side. On to be also a small minus in EBITDA development year-over-year in the third quarter despite revenue growth, also mix effect going on here, quite simply high-margin connectivity revenues being replaced by lower-margin IT service revenues. Obviously, we don't confuse that we should not grow -- we should not grow because there is no incremental EBITDA to the growth quite the other way around, if we couldn't grow on IT business the picture would be worse than what we see. So whether the EBITDA growth come from in the third quarter, then it's mainly wholesale, again, as in previous quarters, and cost savings in the infrastructure and overhead segment, which then adds up to positive EBITDA evolution.

I move on to Page 25. CapEx, we can do this quite quickly. CapEx in Italy is in line with the prior year. Operating free cash flow is slightly up EUR 18 million, but if you adjust in the EBITDA for the exceptionals that we paid last year, it's a plus of EUR 5 million since we booked EUR 13 million provision for 4 weeks billing last year. So that's a small plus of EUR 5 million, which is in line with what we saw in the P&L on EBITDA.

I'll move back on to group level. Group free cash flow, Page 26, the same as last year, stable despite the lower operating free cash flow, where the positive effects come from, on the one hand, from a better evolution of net working capital in the first 9 months. And also, we had a very low net cash interest cost in the first 9 months. It's a bit of [indiscernible] effect. Essentially what is going on is that we are investing the funds we raised in order to fund the Vodafone Italy acquisition short term and earn ongoing cash interest on these investments, while the coupons on the bonds that we issued to finance the acquisition will come on stream mostly later this year or start actually only next year. And so this is why we have a very welcome and positive mismatch on the net cash income in the first 9 months.

I move on to the net income bridge. Net income is slightly down CHF 28 million year-over-year, CHF 39 million coming out of EBITDA, slightly higher depreciation for EBIT is down CHF 62 million. Positive effects compensating for that, on the one hand, interest expense also lower in the accrual view due to some carry that we -- that we earn on the Vodafone on the funds that we raised for the Vodafone acquisition or the tax expense was a bit lower.

And with that, I come to our final page on guidance, Page 29 and we do confirm the guidance for the full year for revenue, EBITDA, CapEx and also for the dividend. And with that, I hand back to the operator.

[Operator]

[Operator Instructions] First question.

[Joshua Mills, analyst]

It's Josh Mills from BNP Paribas Exane. I had a couple of questions, please. The first obvious one is around the competitive environment. And I think in the call just now you've talked about some of the moves you're making to try and steer front book pricing more positively. And we heard a similar message from Sunrise yesterday, but looking at your service revenue trends and then also the ARPU development, particularly in consumer fixed line, it looks like there's still some pressure. So short question would be, how are you seeing the market right now? What are your expectations in Q4? And at what point do you think you will start to see some of the benefits coming through in your Swiss service revenues? And then the second question, just on B2B. One of the things which other telcos has been talking about more recently is their ability to improve margins on some of the IT and cloud businesses by bringing the development of those services in-house, given that you've been kind of front leading on this for some time. Perhaps you could give us a bit of color about the incremental margin you're seeing on some of those IT businesses and whether that's actually improving versus where it was in the past?

[Christoph Aeschlimann, executive]

Okay. Thank you, Joshua. So on the competitive environment in Switzerland, I would say that it is still highly promotional, and we see no despite what our competitors are saying in analyst calls, we see no change in behavior on their part. They are actually increasingly aggressive, for example, Sunrise increased promotional duration from 24 to 30 months now. So we don't expect any change in this regard in the company, not in Q4, certainly with flag November starting today or tomorrow and certainly also not in the foreseeable future. So -- so I expect that the service development we see in Switzerland right now, we will probably see a similar evolution in the coming quarters. and we will provide a full guidance of '25 in February. But I don't expect any positive trend reversal on that side in the near future. But that's also why we changed a bit our promotional approach to protect the RGU base we have in place. But on the other side, on ARPU, we are stable, especially on broadband, you see we have a stable ARPU. So the -- all the other measures that we are implementing with changing pricing on some of the options, bringing customers from the back book into the front book like the new tariffs is actually helping us keeping the ARPU stable overall.

Now on B2B IT. I would our cloud business is actually already fully in-sourced since many years, where we are producing this ourselves. We are also reselling obviously, other in AWS, but most of our cloud customers are running on our own private cloud infrastructure that we have built a couple of years ago or many, many years ago and continue to operate. So there is not so much room on that side to increase margin actually to the maybe there's even a risk with the Broadcom pricing moves that they are trying to do on a worldwide basis, you've probably seen that they are increasing price everywhere for in there. This -- we are working currently on this to actually keep margins stable in our cloud business despite the price increases of Broadcom. But overall, I can say that we are obviously, working on also increasing margins in the B2B space as a whole. So this is a permanent priority to increase profitability across all product categories that we deliver, and we have measures in place to continuously improve margins. And so we will not only deliver EBITDA improvement through increasing revenues in the future, but also some improvement went through profitability measures.

[Operator]

Next question.

[Maurice Patrick, analyst]

Maurice Patrick from Barclays. Just a couple for me, please. Just the first thing is, I mean, Sunrise is very topical given the likely spin coming. There's been a big discussion around sort of wholesale dynamics and whether or not Sunrise might use an HSE network or but maybe use wholesaler [indiscernible] and fiber. Just curious like the Swisscom view on the future of the fiber network, whether you consider cofinancing, whether you consider NetCo models would be appropriate. Just wider thoughts on how you see the evolution of your wholesale offering beyond just what you currently do? And second question, just on the MPS side. So I was curious to see KPN calling out on the earnings call, possibly deteriorating NPS trends because of cost of living. And in the sort of light of no obvious price increases in Switzerland, I'm just curious to your thoughts in terms of the importance of price and NPS and how that's trending?

[Christoph Aeschlimann, executive]

Okay. So I'll take the second question first. So I can confirm what the KPN has said on their call. So we also see a slightly deteriorating NPS numbers on the B2C side due to price. So we can probably say that in the current setting, the economical and inflation setting or cost of living, I think price is becoming increasingly important for customers. So obviously, the work we are doing with sort of more for more moves and things like this, also have at least a short-term impact on NPS, where we see a slight, but I would say that over time, we expect to keep NPL stable at a good level. .

On the Sunrise or wholesale dynamics question you had earlier, I think we see the wholesale business as a positive evolution. So we continue to build out the fiber footprint. So we announced up to 80% coverage by 2030. So this will give us more opportunity to wholesale fiber connectivity also, for example, to competitors like salt, which only buy fiber in the market. So this will increase or stimulate our wholesale revenue in the future. And on the construction side, I mean, we are already partnering with quite a lot of companies in Switzerland to build out the fiber footprint. So cofinancing or co-building is something that we are used to execute in the market. but we have no intention to spin out the NetCo or something like this. So we believe in a fully integrated or vertically integrated telco operator model. and we will continue to operate on this model, owning our own network build-out and owning the network for the future as we believe that is an important aspect of our offering and also delivering revenues from the wholesale business, which are growing.

[Operator]

Next question.

[Titus Krahn, analyst]

It's Titus Krahn from Bank of America. Just 2 questions on my side, please. First one, maybe following up on fiber as a topic just because we had so much commentary during this Q3 earnings season about kind of smaller fiber alternate consolidation also infra owned by municipalities being potentially taken over by incumbents, for example, in the Nordics. And I just wondered if you had any updated view on this in Switzerland as well, given that we know kind of Swiss fiber net, for example, with a couple of municipalities and energy providers. Would this be a consolidation opportunity for you at some point in the future? And then secondly, a question a bit on the economics of the loyalty program that you've introduced now. Maybe I'm showing a bit of ignorance on my side. But can you talk a little bit about how these economics work and how the payoff works between the costs, I assume you have put for offering the special events or discounted tickets and the benefit from kind of lower churn and cross-selling and how those additional costs are split and booked?

[Christoph Aeschlimann, executive]

Okay. Thank you, Titus. So on the fiber side, so we are -- this is not something that we see in the Swiss market consolidation of all net or at least not on a larger scale. Next to this, the 50% Swiss footprint, there are about 8% altnet footprint that has been constructed in the past. So it's not a huge footprint. Obviously, if the municipality wants to sell a network, we will look at it. But we don't see really big activity on that side and -- or not a lot of intention of altnets trying to sell off their network. So we will continue to focus on the build-out of our -- or upgrading our existing copper net to FTTH and continue to build out our new -- our fiber footprint.

In terms of the economics of the benefit program, so -- or the loyalty measures this will be financed, so this will not create incremental costs. The objective is to finance it within our current cost envelope by also decreasing churn, resulting in lower , for example, service acquisition costs or taking out or modifying other activities that we have done, like maybe financing devices or financing device has been moved under the benefits program. So it's positioned in a different way, but it doesn't generate incremental cost. And on the -- for example, the movie ticket side, this is a business we own. So typically, customers can buy a reduced -- or tickets at reduced rates. But then once they are in the cinema, they also generate new revenue buying popcorn or drinks. So overall, it is not just like a cost measure but also a revenue opportunity for us, but still perceived as a benefit by the customer because they get a discounted or free entry into the movie theater.

[Operator]

Next question.

[Andrew Lee, analyst]

It's Andrew Lee from Goldman Sachs. I had 2 questions. Just first question, just your commentary around fiber. We had Telenor yesterday saying that it's seeing an increased preference across for fiber over cable in Norway seeing a step-up there. Just wondered if you're seeing any shift in trends for consumer preference on fiber versus cable in Switzerland. And then second question, just on the cost saving opportunities. Obviously, you scaled back your positions earlier this year in terms of cost savings. Wonder if you've found or are seeing any greater scope for cost savings than the kind of low end of your guide, the 50-plus going forward from AI digitalization, softwarization, you're starting to get more confident in your ability to expand margins.

[Christoph Aeschlimann, executive]

So thank you for your questions. The first one, fiber versus cable preference. I wouldn't say that we see a change in preferences yet. The cable network in Switzerland is of good quality. So for the moment, I would say it is pretty much stable, but we will see how it plays out in the future once the fiber footprint is even bigger and customers get more used to fiber. I wouldn't exclude that this could change in the future. But at least for the moment, we don't see a big change in customer preferences.

On the cost savings side, we said that we will deliver north of CHF 50 million. So there is an opportunity to deliver a bit more, but it also depends on the phasing of the individual initiatives. So some of the cost savings might come in this year or next year, depending on this phasing, the number will be more or less north of CHF 50 million. But anyway, cost savings will continue over the coming years. And the technologies you mentioned like AI and automation and other activities will continue to deliver cost savings in the future. also the fiber rollout, copper shutdown. So I'm -- so we are confident that we can continue to deliver cost savings in the coming years, which is an important aspect of keeping the Swiss telco EBITDA or cash flow at a stable level.

[Operator]

Next question.

[Unknown Analyst]

This is [indiscernible] from Bernstein. Two from my side. One, firstly, on Switzerland B2C broadband because I've noticed the churn trends have actually worsened quarter-on-quarter. So third quarter in the year used to be your lowest churn quarter it actually picked up quite a bit from second quarter, the churn on broadband. So just wondering what effect. I realized that you said the market is very competitive, but that was the case already in Q2. So just wondering why it worsened so significantly year-on-year. And then a question on [indiscernible] sort of ongoing investigation wonderful onto deal because we saw reports in the press last week that Iliad was interested in potentially buying you B2B fixed for Vodafone Italy, sort of cater B2B business in Italy. I know you might not be able to say much on this, but this is something you would consider, and why do you still feel confident on the first quarter close when it seems that remedies are still being discussed and the process is still in a sort of not so advanced age?

[Christoph Aeschlimann, executive]

Okay. So on the B2C broadband churn question, from my perspective, actually the churn numbers are pretty stable. They're sort of fluctuating around somewhere between 8.5% and 9% something. And right now, we are at 8.8%. And depending a bit on the quarter and phasing, it goes up and down, but I am I would say, overall flattish. And I think in Q3 last year, churn was actually at 8%, now it's at 8.8%. So there is a slight increase, but it's, I would say, not overly concerning. And also has a bit to do with what competitors do in 1 quarter or not versus 1 year and the other. .

On the Italian question, obviously, we cannot comment on the ongoing investigation and discussion with [indiscernible]. But I mean I can only say Iliad has a, let's say, a habit of communicating through press releases. They also wanted to buy Vodafone through a press release and it didn't happen. So I wouldn't put too much weight on what they communicate in the press, and we are focusing on our discussions with the ICA and confident to close in Q1. And we are also confident that the deal is really pro-competitive for Italy and helping Italy to have a more competitive telco market with a better infrastructure over time.

[Operator]

Next question.

[Usman Ghazi, analyst]

It's Usman Ghazi from Berenberg. I was just wondering if you could perhaps give an update on the price competition that you perceive is going on in Italy, please? And whether things are stable or getting worse? Any -- any view on that would be helpful, please.

[Christoph Aeschlimann, executive]

Okay. So easy answer. I would say, stable highly competitive, very -- a lot of targeted win-back campaigns or below-the-line offers. But overall, market is not worsening, but price levels, I would say, are remaining stable.

[Operator]

Last question.

[Unknown Analyst]

It's [indiscernible] from UBS. A couple of quick ones, if that's okay. First is on Switzerland. And if there's been any update with regards to a potential Huawei ban in terms of the network. So just any update or color there would be helpful. And then secondly, if you could kind of share some more color on the insurance business and then separately the energy business in Italy. So are they already contributing to revenues in Q3? But more importantly, do they have a positive margin contribution? Or are you really seeing these as more of a tool to drive convergence and customer loyalty?

[Christoph Aeschlimann, executive]

Okay. So on the Huawei ban, so there is -- there will be -- or let's say, the government is working on a new law to allow them to potentially introduce ban of certain vendors or country based on country. But this law has not yet been changed and still needs to go through parliament, but we expect this law to go through probably somewhere next year. But this then just introduces the possibility for the government to introduce a ban. So -- and we don't expect the government to actually introduce the ban, but it is just for the case, if, let's say, a geopolitical situation should worsen so that actually the government has a way to act, which is not the case today. So if today, even if they wanted to do a band, they couldn't implement one because there is no legal basis for it. But even when there is a legal basis at the moment from what we see from the government there is no appetite or intention to actually introduce such a ban currently.

In terms of the new businesses, so the intention is obviously to make them profitable so that they don't only deliver a top line contribution, but also a bottom line contribution on a stand-alone basis. This is already the case for the energy business in Switzerland, not yet for the insurance business because it's still quite a small and young business and needs to deliver more sales first. But next to this sort of stand-alone profitability contribution or EBITDA contribution, we also expect positive effects on the churn level which are a bit hard to quantify, obviously. So we are really more focused on measuring, let's say, the stand-alone profitability of these businesses in the future.

[Louis Schmid, executive]

Right. Thank you. 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. Thank you. .

[Christoph Aeschlimann, executive]

Thank you. Bye-bye.

[Eugen Stermetz, executive]

Bye.