Orange Belgium SA

XBRU:OBEL

Earnings Call Transcript 2018-Q1

[Operator]

Ladies and gentlemen, welcome to the Orange Belgium 2018 Quarter First Financial and Commercial [ Event ] Conference Call. For the first part of this call, let me remind you that all participants will be on listen mode and afterwards, there will be a question-and-answer session. I would now like to hand over to Siddy Jobe. Mr. Jobe, the floor is yours.

[Siddy Jobe]

Thank you, operator. Good morning, ladies and gentlemen and welcome at Orange Belgium's Analyst and Investor Call on the results of the first quarter of 2018. My name is Siddy Jobe and I'm the Director of Investor Relations and Treasury at Orange Belgium and we have here with us Michael Trabbia, our CEO and Arnaud Castille, our CFO. As usual, I trust you all have received our financial communication of this morning. Before tackling our operational and financial performance with Michael and Arnaud, let me first come back on the adoption of the IFRS 15 accounting standard versus the previously used by IAS 18 standard as well as the new presentation of our revenues and KPIs.As you know, IFRS 15 specifies how and when we have to recognize revenues as well as requiring us to provide financial statements which are more informative and relevant disclosures in line with the contracts. The application of the standard was mandatory starting from the 1st of January 2018. However, companies can choose how they implement the standard, either entities can apply a full retrospective transition approach that requires prior periods to be restated under IFRS 15 or apply the alternative approach, which is the so-called cumulative catch-up approach or prospective approach. Orange Belgium opted for the full retrospective transition approach. That is why we provided you a while ago with the restated figures for full year 2016 and the quarterly figures for 2017. These figures can be found on our website. The application of this standard in our case mostly has an impact on the timing and if I say in our case I mean in our case as a telco operator mostly has an impact on the timing of our revenue recognition related to subsidized offers as well as on the recognition of some expenses such as sales commissions.An historical downward trend of the subsidy budget triggers a negative impact on total revenue and EBITDA while an historical upward trend of the subsidy budget triggers a positive impact on total revenues and EBITDA. In our case, we are already mentioned you last year, we are decreasing our subsidy budget in favor of installment offers and hence the negative effect of IFRS 15 on our 2017 restated figures as well as on 2018 assuming of course this decreasing trend of subsidy.As mentioned in the introduction, IFRS 15 also requires a more extensive information disclosure and one of the main changes that you have might have noticed this morning is in the change of the revenue split. IFRS 15 requires a qualitative information disclosure that is more based on the economics of contracts with customers and hence you will understand that the new revenue presentation shown in our press release is induced by IFRS 15. That said, I do believe that the new split is very much in line with our convergence strategy and allows you to monitor very well the performance of our retail business versus our wholesale business especially in the context of the declining MVNO revenues, I think this is an important clarification. With that, I would now like to handover to Michael and Arnaud as well for their opening statements. Michael, the floor is yours.

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Thank you Siddy. Good morning, ladies and gentlemen and welcome to our Q1 2018 Results Conference Call. Let me begin by reviewing the first quarter operational highlights. After that, I will hand over to Arnaud. As you know, we are rolling out our bold challenger positioning. It is our ambition to challenge the status-quo in the convergent market especially and to allow our customers to use more and more data without worrying and with an enhanced customer experience.The first quarter of 2018 proved us right as we delivered solid commercial results with stronger KPIs compared to the first quarter of 2017 on all the segments while continuing on increasing the mobile ARPU. 19,000 additional customers selected our LOVE convergent offer bringing the total above 120,000 customers. At the same time, 14,000 additional customers trusted Orange Belgium for their mobile contract. While we continue monetizing the growth in mobile data through our value accretive and more-for-more propositions, our convergent mobile customer base increased by 30,000 to reach 186,000 at the end of the first quarter of 2018 and now represents 8% of our contract customer base.In the course of the first quarter, we had a couple of interesting product launches amongst which the launch of the Eagle Unlimited, the first unlimited mobile subscription in Belgium that stands out the most and good illustration of our positioning in the Belgium market. While the Eagle tariff plan was only introduced in the course of February, we are seeing a very positive market reaction towards the offer. At the same time, this more-for-more offer also illustrates our ability to monetize the increasing demand for mobile data. We have also been working on our convergent offering. First of all, we have added more content in particular, live sports content. Orange continues to be the provider with the largest sports offer in Belgium without having to pay extra for this content. We also started offering our LOVE customers with the option to add a fixed phone service to their bundle for EUR 10 per month including unlimited calls to mobile phones and fixed lines in Belgium and to landlines in 40 different countries. As such, we now have a very suitable convergent offering for the part of the market that still [ require a multiply offer ] with a fixed phone line.Finally, with the launch of our Eagle Unlimited tariff plans that I was talking about a little bit earlier, we also created the first fully unlimited convergent package mobile internet and TV on the market. LOVE Unlimited is perfectly suited for customers who are looking for complete peace of mind on the go as well as at the time when watching TV or surfing the internet. And of course we deliver this uninterrupted experience at the sharpest price in the market. On the cable regulation, we are currently not able to provide you with significant material update. As you know, we expect the Belgium telecom regulator BIPT and the regional major regulators to notify the draft analysis on the review of the broadband and TV [ market ] to the European Commission in the coming days. On our side, as you know, we continue to argue strongly to the regulators to substantially and quickly improve the financial and operational conditions for cable wholesale access. Finally and to anticipate maybe some of your questions on VOO, we don't have much to add to our press release communication of March 29. We confirmed I think officially informed Nethys and Brutele about our interest in an industrial partnership with the support of the Orange Group. That being said, it was a declaration of interest fully respecting the governance of Nethys and Brutele and as you know, we received a clear answer stating that VOO is not for sale. With that, I would like to handover to Arnaud for the financial review and the guidance for 2018.

[Arnaud Marie Julien Castille, Chief Finance Officer]

Thank you, Michael and thanks to all of you for joining us on today's call and webcast. In the first quarter of 2018, we have maintained good commercial momentum. Mobile data usage continues to grow strongly amongst our customer base resulting in a growing mobile only contract ARPU in Belgium. Our past investment provide us with a leading 4G network that is equipped to easily absorb and capture the increasing demand for mobile data. This allows us to smartly monetize the growth in mobile data usage through our value accretive and more-for-more proposition.Also, we made a solid progress with our convergent strategy, delivering consistent growth in convergent net additions while addressing the overall profitability of the convergent business case. As a general remark, I am sure you have noticed in our publication of this morning that once accounting for expected headwinds, we actually had a set of strong commercial and financial results. Our first quarter revenues increased by 0.9% year-on-year to EUR 306.6 million despite the expected EUR 10.5 million lower MVNO revenues and the EUR 7.9 million gross revenue impact related to the EU-roaming regulation.Our retail service revenues were up strongly with an increase of 6.2% year-on-year reaching EUR 181.3 million in the first quarter of 2018. Again, this increase was generated on the back of our convergent and mobile data strategy. Our adjusted EBITDA amounted to EUR 60.6 million compared to EUR 68.5 million in the first quarter of 2017. This was the result of the solid increase in retail service revenues and sound cost management, more than mitigated by the expected decline in MVNO revenue and the impact of EU-roaming regulation.We invested EUR 31.8 million in the first quarter of 2018, stable compared to the same period last year even with more cable customer net additions in the first quarter of 2018 versus last year. This was realized thanks to our efforts to improve the cable processes and in particular the refurbishment process of the customer premises equipment, more is to come. The net financial debt decreased by EUR 28.2 million year-on-year to reach EUR 295.5 million at the end of the first quarter of 2018 implying a sound net financial debt/reported EBITDA ratio of 1.As mentioned in our press release, based on the results of the [ first ] quarter of 2018, we are reiterating our full year guidance as provided in February 2018 under the IAS 18 standard. Under the newly implemented IFRS 15 accounting standard and considering the decreasing trend in subsidies over the past year, this guidance translates into a slight revenues growth and an IFRS 15 adjusted EBITDA between EUR 275 million and EUR 295 million in 2018. In addition, the Orange Belgium Group expects its 2018 core investment to remain stable compared to 2017.Finally to help you in forecasting our estimate for second quarter of 2018, I can add 2 more things. Firstly, we expect that the gross revenue and EBITDA impact of the EU-roaming regulation in the second quarter of 2018 will amount to [ EUR 8.7 million and EUR 7.5 million ]. Secondly, as the MVNO revenue will be fairly evenly spread over the different quarters, so [ about EUR 10 million per quarter ], you should still expect a difficult comparison basis in the second quarter of 2018 as we reported EUR 22.4 million in the second quarter last year. With that, I finish our introduction and together with Michael and Siddy, I'm ready to address any question you might have. Operator, could I ask you to now open the call for Q&A.

[Operator]

[Operator Instructions] First question comes from Ruben Devos from KBC Securities.

[Ruben Devos, Equity Analyst]

Two questions from me. The first one on cable, so despite now having 120,000 cable subscribers, it's seems that related CapEx and OpEx remained relatively high in Q1. Would it be possible to provide some color on the progress that has been made in cost management and then specifically in terms of content costs, I believe it was once said that this represents around EUR 9 per month per subscriber. So given the agreements with content providers in the last couple of months, is there a reason to believe that this target so let's say is no longer valid, and the second question on mobile, so now that the roaming and MVNO impact is captured by the wholesale revenue line I believe, I would have expected a somewhat higher growth rate at mobile only postpaid ARPU. Would it be possible to highlight what the primary moving factors have been on this end and could you remind me to what degree SMS revenues still affect the reported figures?

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Okay, Arnaud?

[Arnaud Marie Julien Castille, Chief Finance Officer]

Yes, I'm going to take the 2 questions. So on cable OpEx and CapEx, as you know we disclosed 2 months ago for the final result of 2017, a unitary cost, negative unitary cost for 2017 of about minus EUR 24 per customer and we expected a decrease to about minus [ EUR 15 ] per customer. So at the end of Q1, the unitary cost per customer is minus EUR 17.5, okay, if you consider an average base of 112,000 cable customers. So you can see, we have already improve our cost base in the cable and we see still an improvement in the next [ quarters ]. So, yes the OpEx per cable customer are decreasing. Of course, on the whole, the negative EBITDA is higher than last year due to the number of customers. In terms of content, no, till now, we don't see a decrease in content cost. So your EUR 9 per customer is maybe the right level of cost. In CapEx, you can see we improve the CapEx per customer mainly due to the refurbishment of our channel so we can say per customer the CapEx at the end of the year will be far below the CapEx of 2017. In terms of mobile ARPU, so you know now we have 2 ARPUs, if I may, the ARPU on convergent customer and the ARPU on mobile only customer. So today the ARPU on mobile only customer is increasing slightly, 0.2% of growth. So it's a slight increase. It's also, it's thanks to data monetization, but it's also because our best customers are often our convergent customers. So I don't want to disclose an ARPU of mobile convergent customer, but what I can tell and you can do your calculation, today the ARPU -- the only ARPU customer for cable customer as we discussed [ day ] before, it's about EUR 36 per customer. So cable ARPU customer, so without the mobile attach, it's about EUR 36 per customer. So you can do your calculation, we had an attach rate of 1.5 sim card by cable customer. So you can see the ARPU of our convergent customer on mobile is higher than the ARPU of mobile only customer.

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Okay, and then perhaps as a small follow-up on that, you mentioned basically that you would have expected the ARPU to increase more year-over-year and you mentioned that roaming did not have an impact on the ARPU, which is not fully correct in fact because under the new revenue presentation, you're right in saying that under that visitor roaming, basically foreigners coming to Belgium and using our networks, well, visitor roaming is indeed captured under the wholesale line, but what we call customer roaming, being our own customers going abroad well, there we do have an impact of the regulation because well, previously customers had out of bundle revenues when they were roaming under the roam like at home agreement, there is no out of bundle anymore. So, in fact, the EUR 7.9 million impact of regulation that we gave is mostly on the retail service revenues and hence thus impacts the ARPU the -- the ARPU sorry -- and I would even say more -- we guided for several or we indicated that the impact on a gross basis was [ 7.9 ]. So if you translate that to a monthly impact and to an ARPU impact, it's almost EUR 1. So basically, I would say that our underlying ARPU if we would not have had to look at the roaming regulation would have grown by 4%, 5%. So I think that again illustrates the strong mobile data monetization that we have with customers moving from low-end tariff plans at EUR 15 towards the mid-end tariff plans at around EUR 25.

[Gabriel Flichy, Chief Technology Officer]

And can I add just one indication, the mobile ARPU for postpaid is globally increasing higher than the mobile -- only mobile ARPU.

[Michaël Trabbia, Chief Executive Officer & Executive Director]

And then on your third question with respect to the evolution of the incoming SMS revenues. So basically the revenues that other operators pay Orange Belgium for ending SMS traffic on our network. As you know, historically, this was quite a huge figure. I think a couple of years ago we were speaking about EUR 200 million. In the meantime and as you followed our publication last year, this figure has come down and I think the full year figure in 2017 probably was closer towards [ EUR 180 million ]. While this figure also in Q1 declined and I think we mentioned in the press release that it was a decline of 2.5 million. So, I think if you [ annualize its ] figure, I think this is a good run rate to know where the incoming SMS termination revenues will be at the end of this year and those revenues you find in the wholesale line.

[Operator]

The next question comes from Daniel Morris from Barclays.

[Daniel Morris, Research Analyst]

Thanks for taking my questions, I've got 2 please. Firstly, I noted your comments on VOO earlier in the conversation. I just wondered if you could give us some further color on why these statements are coming now particularly given we've got elections in October, it seems slightly strange timings. So I wonder just why is this something you've been kind of discussing and pursuing at this stage. My second question was around fiber to the home proposals. We've obviously had a lot of discussions around cable wholesale, an update that we're expecting in a few days, but I think we were also expecting an update on how the fiber proposals of Proximus will be viewed as well? Can you give us your latest thoughts on how focused you are on potential co-financing particularly given the cable wholesale momentum and also your comments around VOO? Thank you.

[Michaël Trabbia, Chief Executive Officer & Executive Director]

So on the first question. Nethys as you know, which is the company behind VOO together with Brutele announced in the beginning of the year that they would have to decide a strategic orientation by the end of March. So that's why we decided to formally express our interest into this partnership at that moment in time. Now they have postponed their announcements. So that's why the [ calendar ] was this one, then we only reacted to a press information as we are obliged to do it to explain exactly what was the interest that we sent to them, it was only a letter of interest. So that's the reason of the timing and that's the reason of the communication that we did in reaction to a press information. Now on the second question, on FTTH and Proximus co-financing, we are still interested and we continue to express our interest in co-financing with Proximus on FTTH. Having said that, it is fair to say that we did not receive any positive feedback on this from Proximus because what we expect is a real co-financing opportunity meaning an opportunity to have a passive access allowing us to have our active equipment and to differentiate ourselves, which is not something that is accepted by Proximus. Then obviously, as you mentioned, the regulation could impose some remedies on this. We don't have any indication on where the regulation will end up on this area. Anyway, I would like to remind that in any situation the FTTH roll out and the plan by Proximus is a very long-term plan, it takes them 15 years to reach 50% of the population. So in any case, in any situation, we would still need a long-term the cable regulation to address the market.

[Operator]

The next question comes from Matthijs Van Leijenhorst from Kepler Cheuvreux.

[Matthijs Van Leijenhorst, Analyst]

Just 2 questions from my side. The first one is a bit of a follow-up on VOO. Although they do not disclose any numbers, but can you shed some light on the synergy potential, if we would see a combination between VOO and Orange Belgium, just some data points. On top of that, during the full year results, there was also announced the cooperation agreement in the business segment. Can you give some color on how that's developing the cooperation with Orange?

[Michaël Trabbia, Chief Executive Officer & Executive Director]

So on the first question, yes, we believe there are synergies with VOO. So obviously we are not going to give any figures there, but we believe that there are synergies in particular and the opportunity to cross-sell the different offers to our respective customers. On your second question, on the business segments and the impact of the business agreement with Orange Business Services, it is still early to give any results on that. As you know, the sell cycle in the business segment in particular in this particular area that's aiming more at large companies is a little bit longer. So it is too early to have and to comment on the results on this agreement.

[Matthijs Van Leijenhorst, Analyst]

Thank you, one follow-up, please. Would it be possible to get the -- how many of your -- how big is the overlap between your customer base and the footprint of VOO. Can you give that number?

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Yes, what we can say that the footprint -- just to be clear, VOO has mainly fixed customers, so broadband and TV customers whereas you know on this market, we are only starting. So on this market, we have 120,000 customers and you can assume that those customers are quite balanced in the country. So meaning that, probably likely somewhere around 40% would be in the VOO footprint, so it's a very low number compared to the total market and on the mobile market on the contrary, we have I would say close to 30% market share where VOO is only starting on the mobile market. So the cross-sell opportunities are real, but we don't -- we cannot assume that there are significant difference between the market share I would say the mobile market share of VOO customers -- of VOO fixed and internet and TV broadband customers, we don't assume that there are more Proximus or more Orange customers compared to the market. So that's what I can comment on your question.

[Matthijs Van Leijenhorst, Analyst]

Okay, but just to clarify how many of your postpaid subscribers are actually based in Wallonia?

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Well, on our mobile postpaid customer, Wallonia represents roughly 40% of the Belgian market, but it is fair to say that we have a higher market share in Wallonia than in [indiscernible] -- so you can assume that we have a little bit more than the 40% of our mobile customer base that is in Wallonia.

[Operator]

The next question comes from Nicolas Cote-Colisson from HSBC.

[Nicolas Cote-Colisson]

Sorry, another question on VOO because you mentioned in an interview your interest for the service company as opposed to the network, but if I understand properly, you could also inject some cash in the network. So if you could clarify what you think would be the best outcome for you, are you controlling the network or not? And a quick question about the wholesale tariffs. Do you expect any change in these tariffs by the end of April in the absence of regulation due to the appeal court decision back in October? Thank you.

[Michaël Trabbia, Chief Executive Officer & Executive Director]

So on the first question, obviously, once again I would like to clarify the fact that we received an answer on VOO that they are not for sale. So I want just to remind that. Having said that, there are different models that are possible, one of them obviously is that they keep the control of the network. In that kind of model obviously, we would still have some agreements, imagine that we would have some exclusive usage of the network, so we would still have some long-term agreement with the network infrastructure meaning that, when you rent an infrastructure obviously you pay for this renting, this money can be used to invest in the network and part of it can be used to invest in the network, part of it can be used for dividend. On this, that obviously, it's up to the network core to invest at the end of the day, but this investment I would say is allowed by the money that you can give them in renting the network. Then on the wholesale tariff, what we expect, we expect a 2 steps approach and we still expect to have a first step implemented somewhere in July with the regulator on decisions and as you know on there, there are 3 options that were presented in the draft market analysis. So we will see what will be the final option that will be decided, but in any situation we argue and we expect the first decrease in July, but we also expect the full I would say cost plus or fair price as you wish methodology to take another year to be implemented as this need to have cost model analysis and a new decision process.

[Nicolas Cote-Colisson]

And if I may, can I ask just another question on the fixed line side of things. You have added the fixed line product to the convergence product. Was it really to control the churn, was it truly something churns were asking for and also where will you account these customers with every fixed line customers in you KPIs?

[Michaël Trabbia, Chief Executive Officer & Executive Director]

We mainly -- the main reason to add this fixed line to our offer was to address a new segment of the market. In particular, in the [ SOHO ] market but also for some older people that require to have a fixed line option. So this might help a little bit the churn because some people maybe don't understand fully when they took the offer but the main reason is rather to increase the addressable market and also by the way to increase and drive the ARPU and the convergent ARPU because we have decided to offer this as an option. So this will drive the ARPU and I guess this answers your second question on where it will be accounted.

[Operator]

The next question comes from Paul Sidney from Credit Suisse.

[Paul Sidney, Research Analyst]

I just had 3 questions please, some of them sort of following on from previous questions and answers and firstly in terms of regulatory review, obviously a lot of the focus has been on cable wholesale rates, but arguably and the approach to regulating Proximus' fiber build is just as important to yourselves and I was just wondering, if we leave co-investment to one side, what are sort of the best and worst outcomes for you in terms of access in wholesale price and process on the approach to potentially regulating Proximus' fiber network? And the second question, just following up on VOO, I was just wondering, why do you think Nethys came out and said that the VOO wasn't for sale and what do you think needs to change politically or whatever it is and for you know potentially VOO to become up for sale? And just lastly and clearly one of the big drivers of the IFRS 15 changes in terms of the EBITDA is the decreasing subsidies. I was just wondering is decreasing subsidies a feature of the overall Belgian market that you are seeing? Thank you.

[Michaël Trabbia, Chief Executive Officer & Executive Director]

So on the first question, what's the best outcome, what would be the best outcome on the regulation regarding Proximus. So what we are asking for is the co-investing scheme that allows us to co-invest progressively with and we refer to the French system and the French model that allows to buy I would say parts [ by 5% ] of the network capacity and another element that is important for us is the ability -- the passive access that we are looking at meaning the opportunity to install our own active equipment. I think in the Belgium market, all the operators are being a little bit disappointed by the active offers that have always been pushed by Proximus at the end of the day, never allowed those operators to success in the market. So that's what we are asking for 2 elements possibility to invest progressively as I remind that in the Belgium market, the openness to competition was not done while it was done in the other countries meaning that no operators, no alternative operators today has a strong customer base allowing them to have possibility to co-invest at a very large scale from the beginning and second is the possibility to differentiate via a passive access to the network. On the second question on VOO, so what could make them change their mind. I think that [ the smaller ] the question you are asking and why did they answer that. While obviously it's a little bit complex to answer that question, but what I can say is that they still need to come back with some strategic orientations. So this has been postponed and I think that this is something that could come later on. So I think we will see depending on those strategic orientation whether this trigger or not any change in the situation. On the question on the evolution of subsidies throughout the market, what we, I think it's very different player by player and we still have the impression that Proximus is very strong on subsidy and maybe a little bit stronger, but it's not necessarily the same for the other players in particular Telenet, but I don't want to speak for them, I can only say that as far as we are concerned, we -- as it was recalled, we are decreasing the amount of subsidy in the market.

[Paul Sidney, Research Analyst]

Just a quick follow-up, do you expect that to continue?

[Michaël Trabbia, Chief Executive Officer & Executive Director]

So there are [ 2 ] question in your question is this, [indiscernible] accounting impact of those subsidies so you know we disclosed the impact of these subsidies in 2017, it was about EUR 5 million decrease of our EBITDA due to the trend decrease. It will be a about the same impact in 2018 and in terms of seasonality quarter-by-quarter, maybe you can take the seasonality we disclosed the in our IFRS for 2017, we will follow about the same seasonality with some quarter with more subsidies than as the last quarter of the year. And some quarter we [indiscernible] is sometimes a quarter we less subsidy in the market. So in terms of forecast you can follow the 2017 seasonality.

[Operator]

[Operator Instructions].

[Stephane Beyazian, European Telecoms Analyst]

This is Stephane Beyazian from Raymond James. I have one question on the agreement with the Orange Business Services, actually couple of questions, can you expand a little bit on that. First, do you see more corporates open to a bundle of connectivity and added value services and the second question is, can you expand a bit on how you're going to share the value of contracts with Orange Business Services, how it works in principle and finally, can you remind us what is your an estimate of your market share into B2B market today and where you think you could go thanks to the agreement, thank you.

[Michaël Trabbia, Chief Executive Officer & Executive Director]

So this agreement will allow us to distribute and sell some OBS services to our customers and vice versa, I would say also to have our connectivity and some services that we can push more towards OBS multinational companies customers. On the question do we believe that there is some room for bundling or selling together connectivity and value-added services, yes, we think that it is an opportunity. It also can depend a little bit on the segment, on business segment of the market especially in the SOHO and the SME segment, I think it is something that you can probably do a little bit more bundled, but still there is an opportunity on the cross-sell on the higher segment of the market. On the market share, we have good market share on the mobile, which is current on the business segments, which is currently on I would say the same that the one we have on the B2C roughly around 30% and we have ambitions on the business markets to continue growing in particular as we do in the B2C while also selling more fixed connectivity to our customers and also with selected value-added services that we can propose to our business customers and we are working on that.

[Stephane Beyazian, European Telecoms Analyst]

And so what about sharing the value on contracts and one follow-up, on the go to market because I think in the SOHO and SME, you're using indirect channels, if I'm right, how does that work in this agreement with indirect channels? Thank you.

[Michaël Trabbia, Chief Executive Officer & Executive Director]

So on the value sharing and that's a part of the agreement that we signed with OBS meaning that we agreed on the value sharing I would say principles to allow our sales not to wander each time [ were an ] negotiate endlessly what would be the value sharing, but to allow them to concentrate on the customer and selling the offer, so that's really, that was the objective of this agreement and that this question should not be an issue for our sales guys. On the second question on the indirect channel for the SOHO and SME, actually, it is yes or no because on the SOHO you have to keep in mind that we have also many SOHO customers that simply go to the shops and simply and all the digital -- all digital tools and takes our offers and on the SMEs, we also as you know have taken over some of our distributors that were on B2C that also on B2B. So we are starting also to have a part of the distribution channel that is controlled.

[Stephane Beyazian, European Telecoms Analyst]

Thank you and just a final one, if I may, do you have the impression there is an increase of competition in the B2B market you also launched the 100 gigabit offer for the B2B market? Are we seeing an increase and do you expect actually more competition in this market over the next 12 to 18 months?

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Well, we expect Telenet to indeed to push in the markets starting with low SOHO and the low SME. Yes, but then it is a market that is still very much dominated by Proximus. So we believe that we have an opportunity to grow because the market share of Proximus is very high, around 70% in the mobile and likely around 90% in the fixed. So we believe that we have still opportunity to grow.

[Operator]

The next question comes from Ulrich Rathe from Jefferies.

[Ulrich Rathe, Senior European Telecommunications Analyst]

I just wanted to gauge a bit your feeling of how the competitive situation is evolving in the convergence -- B2C convergence area. It's probably fair to say that your main competitors are showing signs of answering the efforts that you're putting into the market. And to know, what you -- sort of how you gauge that? Do you feel any of the competitive reaction to your efforts are reaching levels that sort of make you change plans or increase your spending levels or in fact the other way around? Is there anything sort of unexpected about what the competition is doing that would force you in sort of to adjust your own plans and also, do you foresee any of that happening during [ 2018 ] or would you say everything is evolving according to plan and what we're trying to do, we are achieving and there is nothing sort of particularly noteworthy about the reaction? Thank you.

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Okay, so yes, it is true that our competitors have reacted and I've commented on that. I think it is something absolutely normal and expected and as you see, we have been able in the first quarter of 2018 to continue our steady growth in the market with 19,000 net adds in the convergence. What I can say is that we clearly reiterate the targets that we mentioned about the 10 -- reaching 10% market share [ mid-term ]. So obviously we might adjust to the market, but today as you see, we didn't need to make at least offer I would say a change -- we still improved the offer, we had some content, we had some options, we can improve the features of the offer, but as see we are not in a necessity with the current net adds to have radical changes in the offer to sustain our growth.

[Operator]

Your next question comes from Stefaan Genoe from Degroof Petercam.

[Stefaan Genoe, Head of Equity Research]

2 questions, please. First your retail service revenue growth has been very strong in the first quarter. Could you give us some more details on the dynamics you see between the different offers, Dolfijn offers, vendor offers and your Eagle offers and the users for example, in the network users in the Dolfijn offer and how you see customers move from the lower offers to the mid to the higher, first question? And then second on the cable regulation, could you give perhaps a little update on the timing you expect and also the changes both perhaps on the cost-plus or on the intermediate offer you've got in your budget or you expect to get in probably the coming weeks?

[Michaël Trabbia, Chief Executive Officer & Executive Director]

So on the postpaid offer, what I can say is that it should be reminded to you that there are some adverse impact meaning that the underlying trend is even better on the ARPU. We see an improvement of the mix, a continuous improvement of the mix that we managed to sustain thanks to our marketing strategy, which is pushing the mid and high end offers and having more attractive mid and high-end offers to push our customers and allow them to migrate to offers with more data and more abundance, which is working. So on that, once again the comment I made in the beginning about the Eagle offer is that it is an offer that is very well received by the market. So this trend is continuing and we continue in improving the mix of our customers and we have more and more customers that are now beyond the Dolfijn offer, so it is a continuous trend that we see. On the cable regulation timing and what do we expect on that? We obviously have a strong request towards the regulators and it's not something new. We explained and Arnaud mentioned earlier about the margin of the offer that even if its improving thanks to our efforts, is still negative and [ are negative ]. So we are still claiming for a strong improvement in the conditions both by the way on the wholesale price, but also on the wholesale operations and conditions that can also trigger some cost at our side. We expect the decision in July and we expect to have already some improvement In July, but we also counted on our own efforts -- ongoing efforts mainly to which the ambition that we have for 2018 knowing that the improvement will in any situation be only for part of the year, so it's not the full year impact and knowing that the full impact with the move towards cost-plus fair price is expected to [ rather mid-2019 ].

[Stefaan Genoe, Head of Equity Research]

When you talk about your own efforts to be implemented, is there anything in particular?

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Well, we have several strong improvements there. There are processes improvement, we are automating some manual steps that we currently have. We are also obviously improving our churn on the convergence, which is obviously helping also obviously the costs that we have. And on the CapEx side, Arnaud mentioned the refurbishment process that we now have in place and that allows us to reuse the set-top box and modem for our new customers and we are still also optimizing some processes in particular in the activation and the other and activation of the customers are a key step where we can improve and lower our costs.

[Operator]

The next question comes from [ Vijay Ranjit ] from Deutsche Bank.

[Unknown Analyst]

Just a very quick question for me, please. Is it possible to get your latest view on leverage? I think you previously said you are targeting round 1.5x net debt/EBITDA. Admittedly, that was I think a year ago. So might be good just to get your updated views on that, please? Thank you.

[Michaël Trabbia, Chief Executive Officer & Executive Director]

So at this stage, there is no new view on this leverage. Yes, we can reiterate correct leverage. You know today our leverage is 1, so, yes, 1.5 without new investment except our core investment, 1.5 could be right leverage, but today we don't need this 0.5 plus leverage with 1x, it's okay and maybe at the end of the year we will be [ at the ] same leverage 1x EBITDA. Obviously, yes and I think it's clear the one 1.5 remains for us the area where we think would be a good leverage in the mid-term.

[Operator]

The next question comes from Nicolas Didio from Berenberg.

[Nicolas Didio, Analyst]

I have one question on the cable. You mentioned in a press release that you have achieved in Q1 solid gross additions and improving churn. Considering that the level of net additions is broadly the same [ in Q4 in Q3 ] and the churn is going down, does it mean that your gross additions are basically not improving and would it be possible to know a bit about the discrepancy between North and South of the country in terms of these gross additions? And I would be very original by asking 1 or 2 questions on VOO. I was re-reading the interview of John Porter, which seems to have a bit more contact with Nethys board when he says that they have initiated some discussions regarding the capital structure, innovation technology for Wallonia. So I was just wondering what would change in your strategy if Telenet was convincing enough to purchase VOO and [ ultimately if ] VOO was for sale, would you rather buy them or continue this partnership proposal you mentioned recently in the press? Thank you.

[Michaël Trabbia, Chief Executive Officer & Executive Director]

So on the cable gross adds, well, you have to take into account that we are in the process of growing our base, meaning that obviously the churn in fact is [ higher every quarter ] because the base is growing fast. So it's not I mean in your reasoning, you should take this into account and you would see that the gross adds are still steady and I think that also you have some seasonality that is usual in this business, in particular on Q4 and our Q1 results where we are very happy with our Q1 results and don't forget that you should apply the churn in Q1 2018 to higher customer base, much higher customer base than in Q1 2017. So if you do that, you would see that the gross adds are at a very good level. On VOO and the what if, somewhere well, I will not comment on potential deal between VOO and Telenet I think it's absolutely nothing that is demonstrating a potential deal in that direction. The question what if VOO were for sale completely, if I understand correctly, your question, and not only for I would say the service part for instance, then obviously we would consider it and what we mention about the opportunity to build something together remain in different configurations and that's what we mentioned, we are not close on one scenario and we would consider different and alternative scenarios including a full sale if it was something that was favored by the shareholders.

[Operator]

There are no questions in queue. [Operator Instructions] There are no further questions, I would like to return the floor to Mr. Siddy Jobe.

[Siddy Jobe]

Okay, well I would like to thank you all of you. Obviously, if you have follow-up questions with regard to the restatements and with respect to definitions of all the new revenue lines, don't hesitate to reach out to me, I'll be there for you guys and girls. That leads me to end this call. Thank you for the interest in our company and we are obviously looking forward to meet all of you in the coming weeks on the road. And with that, I wish you a very good day and bye-bye.