Orange Belgium SA

XBRU:OBEL

Earnings Call Transcript 2018-Q2

[Operator]

Ladies and gentlemen, welcome to the Orange Belgium Half Year Results 2018 Conference Call. [Operator Instructions].I would now like to hand over to Siddy Jobe. Mr. Jobe, the floor is yours.

[Siddy Jobe, Director of Treasury & Investor Relations]

Thank you, operator. Good morning, ladies and gentlemen, and welcome at Orange Belgium's analyst and Investor conference call and webcast of the company's second quarter and first half of 2018. My name is Siddy Jobe, and I'm the Director of Investor Relations and Treasury at Orange Belgium. And I have here with us Michaël Trabbia, our CEO; and Arnaud Castille, our CFO. As usual, I believe, you all have received our financial communication of this morning, and you know that you can also follow this session either via webcast or via the conference call audio. After the opening statements of Michaël and Arnaud, we'll provide you with the possibility to fire your questions. We will first take the questions from the audio conference call and then from the webcast. That said, I'm now ready to hand over to Michaël.

[Michaël Trabbia, CEO & Executive Director]

Thank you, Siddy. Welcome, ladies and gentlemen. Turning to Slide 4. I would like, maybe before commenting on the figures and grab a little bit your attention on our challenger positioning that we have started to push in the first half of 2018. We decided to claim a positioning in the market that can be best defined as the one of bold challenger, and with that positioning, we have the ambition to go the extra mile for our customers to focus on what's essential for them and to offer them what they need and not more on their subscription. First milestone was the launch of our Eagle unlimited tariff plan in February 2018, which is, as you know, gone premier in Belgium, it's a huge success and this unlimited offer defines exactly our ambition to meet the customers' needs and to continue simplifying and improving our offers, we have added unlimited calls to our Koala subscription, which is, I would say, mass market offer. We have increased also for that offer mobile data volumes, while adjusting the price. That way, it will be even easier and that's exactly what we aim at to help our customers who are currently in low-end offers to move towards mid- and high-end offers and benefit from full digital value.Thanks to these disruptive offers, we are strongly accelerating data usage growth of our customers. And I would also add that this positioning also applies obviously to our convergent offering with our attractive Love offer and our willingness to see and open opportunities in the market and segment in the market that are currently not well served by the market. Looking at the figures, and as a general summary, I believe that this Slide 4 shows you that we are in very good shape and that our growth drivers are performing well. We are growing our convergent and contract customer base. We succeed in managing our ARPU in a valuable and constructive way despite the final significant impact of the EU Roaming Regulation. From a financial perspective, our revenues are growing in spite of the lower MVNO revenues, and we are keeping our cost basis and CapEx well under control, but we will come back to those financial figures later on. Turning to Slide 5 and 6. I would like to comment a little bit about convergence. We added 14,000 new convergent customers in the second quarter of 2018, compared to 15,000 in the second quarter of 2017, reaching a total of 136,000 convergent customers. I believe, it is important to highlight that this performance has been achieved without promotion. In 2017, we applied 2 times in a year, a promotion EUR 10 discount for 6 months. Another positive highlight is that we succeeded to lower our churn rate, thanks to an improvement in our process and ahead of the improvement that will be driven by the new wholesale regulation. Our convergent mobile customer base increased to 207,000 at the end of June 2018, implying 1.5 SIM cards per household and now represent 9% of the mobile contract customer base. Thanks to a better mix, we were also able to increase the B2C convergent ARPU, which increased by 2.4% year-on-year to reach EUR 73.7 in the second quarter of 2018. On the Slide 7, it's a little bit the same figures in a different perspective. You can see the associated mobile customer base opting for LOVE bundle has increased by 110,000 compared to the -- 1 year ago. And as a result, the convergent mobile customer base reached 9%, as I mentioned, compared to 4% 1 year ago.Turning to Slide 8 and commenting a little bit about the regulation. First, we welcome the emphasis that was put on the need to strengthen competition on the fixed telecom market in the interest of the consumer. I think it's important to mention that because this is also the basis for the future implementation of all the measures that have been taken. The final decision of the regulators with the support, and I feel it is important to mention of the European Commission, will allow Orange Belgium to first benefit from more sustainable financial conditions of our time and starting with temporary wholesale price tariff that is no longer linked to the retail tariffs of the cable operators and that is clearly lower than before in Flanders.As requested by the European Commission, we are now expecting and pushing the regulators to determine as soon as possible the wholesale charges and the cost model that will allow to go even further us from mid-2019. Secondly, the decision will help us to propose a better experience, and this is absolutely key to our customers, thanks to the improvement of operational conditions. For instance, in the future, Orange installers will be allowed to access both the outside and the inside part of the customer's cable infrastructure. In practice, that mean that the large majority of installation will be done by a single intervention. Values under operational improvements described in the decision will make sure that the quality of the LOVE installation, but also on the maintenance and the life of our customers will be improved with nondiscrimination obligation. Thirdly, the decision will provide us with the possibility to build an Internet-only offer, which was not possible under the previous regulations. And while the temporary financial condition don't allow yet to offer such service in an attractive way, we expect that the future cost base wholesale charge will enable the launch of such an offer as of mid -- around mid-2019.Finally, to say a word on fiber. The principles put forward for regulation of Proximus' fiber network, once further developed and implemented, will provide an improved foundation to increase the competition on the fixed B2B market.Turning to Slide 10. You can find our new tariff grid accompanying our bold strategy positioning and supporting our strategy to monetize data increase by improving the customer mix. One of the first milestones obviously was the launch of the Eagle unlimited, I mentioned that earlier, and after wonderful quarter, I can confirm that this tariff plan is one of the fastest growing plans that we have in our portfolio. At the end of June, we went even further on this bold challenger positioning by enriching and streamlining our range of mobile subscription with the introduction of the new Koala offer for EUR 20 per month, including unlimited calls and SMS and also giving extra mobile data, which was brought to 4 gigabytes of data. Also with the introduction of the brand-new Cheetah offer with 8 gigabytes of mobile data for EUR 40. And also not forgetting, even if it's not on this slide, our business customers with an improvement of our Shape Plus offer, which includes unlimited calls and SMS and 3 gigabytes of mobile data for EUR 20. As you see, we keep the same upsell logic push our low-end customers to move towards to mid-end and then high-end offers. Turning to next slide. I think it's important to note that this positioning and those offers are supported by a very strong and leading network, in particular on 4G. At the end of the first half of 2018, our outdoor 4G network coverage stood at 99.9%, while the indoor coverage reached 93.9%. On top of that, we also pushed innovation in our network, in particular with the ambition to help and support customer experience. We have deployed voice over Wi-Fi and voice over LTE to the benefit of our customer, and we operate since last year, now fully deployed narrowband IoT and LTE-M network on the entire Belgium footprint. But I will come back to that later on. We have seen our smartphone penetration increase to 79% versus 70% 1 year ago, while the 4G smartphone penetration continue to increase strongly reaching 65% compared to 53% 1 year ago.Turning to Slide 12. You can see that the launch of our recent offer drove an acceleration of the average mobile data usage per customer. In the first half of 2018, this average usage -- data usage now reached 2.6 gigabytes per customer. It is an increase of 46% in 6 months compared to an increase of 26% in the 6 first months of 2017. This is clearly wanted, and this is clearly part of our strategy. And we have no capacity issue taking into account both our investment in the network and the departure of some MVNOs from our network.Turning to Slide 13. This shows you the same logic on the data traffic, but now considering from the total perspective on the previous slide, it was on the average customer and this is for the full network and this graph also clearly shows the acceleration we have achieved in terms of total traffic and the fact that this traffic is in the vast majority, now 91% done on the 4G network. Turning to Slide 14. On the ARPU, you can see that the mobile-only blended prepaid and postpaid ARPU amounted to EUR 18.4 in the second quarter of 2018. So this is the blended ARPU, which has increased by 1.4% year-on-year. The first reason is that the portion of postpaid contract -- postpaid customers have increased versus the portion of prepaid customers. Then considering the mobile-only ARPU contract, this ARPU decreased to 20 -- slightly to EUR 21.3 in the second quarter. And so it's a slight decrease of 0.9% year-on-year. However, if you exclude the effect of Euro Roaming Regulation, the ARPU would have increased strongly year-on-year. The prepaid ARPU is -- has increased by 6% to EUR 7.4 in the second quarter of 2018, compared to last year. So knowing that we are now almost at the end of the impact of the roaming regulation, I think this is a clear signal of the way that we are able to manage the evolution and the, I would say, positive evolution of the ARPU supported by our commercial strategy and our upsell strategy that I mentioned and explained earlier.Turning to Slide 15. You can see that following a very solid first quarter, we -- an even better result in the second quarter of the year, the contract customer base, excluding M2M, increased by 26,000 in the second quarter of 2018, which implies an acceleration in net additions compared to the same period of last year. And a year-on-year increase of the ending base in June 2018 amounted to 83,000. The B2C mobile convergent customer base rose to 180,000 customers at the end of the first quarter, and this is an increase of 17,000 in the second quarter and of 91,000 compared to last year. While growing our convergent mobile customer base, we also succeeded this quarter to increase our mobile-only contract customer base adding 9,000 customers in the quarter, compared to the end of June 2017, the mobile-only contract customer base only declined by 7,000 customers, considering the transfer of mobile-only customers to convergent customers. It also shows that our mobile-only offers are performing very well.Finally, the decrease of the prepaid customer base continue to slow down with the decrease of only 6,000 in the second quarter of 2018.Turning to Slide 16. On M2M and IoT. I think it's important to highlight that we now increased our M2M contract base by 71,000 in the past quarter, and we are, once again, above 1,000,000 connected cards on this segment. Our IoT business development was also very active in the past quarter. We introduced a Rapid Development Kit in the market and that is aimed at supporting startups and developers to create new use cases and new products and services in the market. And we also created with -- we also partnered -- sorry, with CommuniThings, which is one of our Orange Fab startups, to launch Smart Parking and develop Smart Parking solution in Belgium using NB-IoT technology. And this Smart Parking solution introduced low-power wireless sensors and open-data application. Finally, we also decided to become partner in the beacon, which is a hub, bringing together leading technology corporations and startups to develop IoT solutions.Slide 17. I think you have seen this important step that we had with the agreement, MVNO agreement with MEDIALAAN, and very happy and proud to have this agreement. MEDIALAAN is the largest Flemish broadcaster in Belgium. And as from spring 2019, they will join our network and the customers of Mobile Vikings and JIM Mobile, to be concrete, and that's 365,000 customers, currently hosted on the Telenet base network, that we're -- going to be migrated to Orange Belgium network. Of course, one of the important parameters was the quality of our network, but this is also more than just MVNO contract because we have shared vision with MEDIALAAN, and we aim to develop other partnership with them, in particular we have a common vision of the development of an internet-only segment in Belgium. Turning to Slide 19. I mentioned the -- this from a technical perspective and a network perspective, but I think it's really important to consider it from a customer perspective. We now have everything, all the tools to guarantee indoor coverage to all our customers. Thanks to a combination of solution and obviously, voice over Wi-Fi that we have just launched, but also combined with our Femto solution that is now -- that has been developed, we now have all the technical tools to answer our customers and to be able to guarantee to them that we are able to support indoor voice coverage without any intervention from the outside. This simply works.I now hand over to Arnaud for the financial results overview.

[Arnaud Marie Julien Castille, Chief Finance Officer]

Thank you, Michaël. And let's start with Slide 21. So as mentioned by Michaël, we are in a very good shape with all of our commercial growth drivers performing well. From a financial point of view, we're growing our revenue in spite of the lower MVNO revenues. And we're keeping our cost basis and CapEx well under control. So let's dive a bit deeper, but quickly, in each of those financial KPIs.In Slide 22. You see an overview of our retail service revenue and our total revenue. Retail service revenue, which aggregates our revenues from convergent services, mobile-only services and fixed-only services to EUR 189 million and EUR 370 million in the second quarter and first half of 2018. As such the growth in retail service revenues amounted to 7.2% year-on-year in the second quarter of 2018, bringing the year-on-year growth rate in the first half of 2018 at 6.7%. This strong increase was mainly realized, thanks to robust increase in convergent revenues and a sound value management of the mobile business with a strong increase in contract customers. As you know, the year-on-year comparison was still heavily influenced by the anticipated decline in MVNO revenues and the gross impact of EU Roaming Regulation. The MVNO drop-off will ease in the second half of 2018, but we'll still have an impact in 2018, of course -- '19, of course. The new deal we signed with MEDIALAAN will help us to smoothen this impact. So roaming regulation will, in the second half of 2018, still have a gross revenue impact of close to EUR 10 million, but the gross EBITDA impact should be limited to EUR 1 million or EUR 2 million, close to 0.So Slide 23. The adjusted EBITDA of the Orange Belgium Group was 66.7% and EUR 127.3 million in the second quarter and first half of 2018, the decrease of 14.6% and 13.1% year-on-year, respectively. The adjusted EBITDA margin amounted to EUR 21.3 million and EUR 20.5 million of revenue in the second quarter and first half of 2018. This slide, Slide 23, provides you with a waterfall chart, in which we tried to isolate a number of floating parts of our H1 adjusted EBITDA. Firstly, there is a EUR 15 million gross impact of EU roaming. Once corrected because this -- the year-on-year decline is reduced to minus 3.5% year-on-year. Secondly, this result has been strongly impacted by the EUR 23 million decline in MVNO revenues, so basically this implies that our underlying EBITDA growth was very strong. This was realized, thanks to a solid increase in revenue, and sound cost management. So direct cost increased by EUR 26 million, fully in line with increase in convergent revenues triggering higher wholesale access fees and content. Labor expenses increased driven by the headcount increase following the acquisition of several distribution partners in 2017 and it has basically related to customer service and sales activities. Indirect cost remained fairly stable. On CapEx, Slide 24, our total CapEx amounted to EUR 77.3 million, of which EUR 21.3 million were cable-related capital expenditures, implying core CapEx of EUR 56 million. So total CapEx remained flat year-on-year, while core CapEx increased in the first half of 2018 due to a different seasonality. For the full year 2018, the year-on-year growth of the core CapEx should be relatively flat. Cable CapEx declined by 18.1% year-on-year in the first half of 2018. This can be explained by a different inventory buildup and a more efficient cable CapEx management, mainly with the refurbishment process. In Slide 25, it's net financial debt at EUR 305.1 million, resulted in a sound net financial debt on reported EBITDA ratio of 1.1x. The increase of our net financial debt in the end of the first quarter is a net result of a sound cash flow generation in the second quarter balanced by the payment of the 2017 dividend of EUR 13 million, and the final payment of the 2016 income tax. So on guidance, in Page 27, we are reiterating our full year 2018 guidance pointing to a slight revenue growth and an adjusted EBITDA between EUR 275 million and EUR 295 million under IFRS 15 accounting rules. Further, we expect our 2018 core investment to remain stable compared to 2017. Comparing this guidance to our H1 result, you can see revenues on track perfectly with our guidance with respect to the adjusted EBITDA, we feel comfortable as we will reach our target.The adjusted EBITDA in the second half of 2018 is expected to come out well above the H1 adjusted EBITDA, thanks to the solid revenue growth realized in the first half as well as the full benefit of the cost saving initiatives launched since the start of the year. Further, we also expect the impact of lower MVNO and roaming revenues to ease significantly. With that, I finish our introduction and together with Michaël and Siddy, we are ready to address any questions you may have. Operator, could you -- I ask you to now open the call for Q&A.

[Operator]

[Operator Instructions] The first question comes from Nicolas Cote-Colisson, HSBC.

[Nicolas Cote-Colisson]

You did not mention the debate around the fourth entrant. Can we have your view on this? And do you think you can still try to convince the government that the fourth player would be quite toxic for the market? And secondly, I was wondering on the labor costs. They were up in Q2. I was just wondering if you have been too far in outsourcing, or is it essentially about adding frontline staff? And if you can provide us with a kind of a full year guidance, that would be helpful?

[Michaël Trabbia, CEO & Executive Director]

I will answer on the fourth entrant and Arnaud will comment on the labor question. So on this debate, to be absolutely clear, and we have been also vocal towards the government and towards the public debate. We are clear on the fact that there is no room and no sustainable position in the market with 4 networks. There is no sustainability with a 4-player network, and I think that this is also something that is confirmed by the regulator study that has been done and by all the analysis by the way when -- that has been done and also by the European trend, when you see the number of countries with 4 MNOs is decreasing towards 3 MNOs per country. So there is -- obviously, the only risk is that there is some disproportionate favorable condition that would be made for a new entrant. And we believe that the government should now come to a decision on this point. And we hope that there will be a decision that will avoid some financial speculation risk by a new entrant that could enter the market with very low level of investment. However, it is good to mention that there is no candidate that has publicly expressed its intention in Belgium. I think we are far away from a real entry in the market, but obviously, the decision from the government will be important. And I think it's also a decision that will be looked at in Europe and in the rest of the world. We also asked the government to consider the problem with the methodology that has been done until now because there has been a report that has been done in a very short period of time without taking into account some very strong elements without any hearings, and in particular without taking into account the market's dynamic that I mentioned earlier in the first half of 2018. It is also -- there has been no hearing and consultation on the disproportion -- disproportionate measures for a potential new entrant. At the end of the day, I think that everybody recognize that the real issue in competition, in Belgium, is in the fixed market, not in the mobile market, especially when you take into account the dynamic that we have been accelerating in the first half of the year, thanks to our new offer resulting in accelerating data consumption by our customers.And Arnaud, you want to come?

[Nicolas Cote-Colisson]

If I can just follow-up, do you think that your questioning by the methodology on [Audio Gap] why the government has not come back yet with an answer? And do you expect this answer from the government to come back after summer eventually or before?

[Michaël Trabbia, CEO & Executive Director]

We -- I mean, it's government decision, of course. But it is usual in Belgium to have this kind of decision taken before the summer. However, it could be done rather next week then today from what we understand. And then we hope that those messages will be taken into accounts into the decision because until recently, there was no intention to have disproportionate favorable condition for a potential new entrant induction. This has been recently introduced in the debate. So we hope that the government will take the good decision to allow the sectors and the players to have their long-term investment plan in the market and not being pushed into an uncertainty period for the months to come.Arnaud, the labor cost?

[Arnaud Marie Julien Castille, Chief Finance Officer]

And the labor cost was -- the increase is mainly explained by the acquisition of our indirect distribution network and we bought 2 companies last year. So it's mainly explained by this new people in our staff, and also, but in a lower part, by the new skills we need with our new business, mainly cable and our IT transformation. And yes, we can imagine the same trend for the end of the year. But you can imagine this increase of people is compensated mainly by lower commission in indirect cost.

[Operator]

The next question comes from Ulrich Rathe, Jefferies.

[Ulrich Rathe, Senior European Telecommunications Analyst]

I would sort of -- would like to go on this cost phasing here. In the first -- it looks as if in the first quarter, the indirect costs were actually down year-on-year EUR 5 million and in the second quarter, were up by EUR 5 million so sort of a EUR 10 million swing between Q1 and Q2, not a huge number. But still I was wondering if there's a simple way to understand why it was so different in the first than the second quarter, particularly because you are highlighting that you actually didn't push very hard and people were convergent in the second quarter, so not entirely sure what the change in the costs trend is there.

[Michaël Trabbia, CEO & Executive Director]

In terms of indirect cost, as you can see, the indirect costs are flat on the H1. So there are some seasonality question on the -- between the 2 quarters. So no we don't see any change in our indirect cost in -- during the 2 period of times. So we can imagine exactly the same level for the next H2. So it's just a question of seasonality. No -- there is no main trend in terms of indirect cost.

[Ulrich Rathe, Senior European Telecommunications Analyst]

That's very clear. Can I follow-up with another question then? I mean with regards to this fourth entrant, I mean, you described your position and what you would like the government to do and why, but could you maybe give us some insight and obviously, you will have talked to them about it, right, inside why they ultimately tried to do this, is this because, I mean, the regulator takes a very strong stance on the fixed business and on the fixed market and says, prices are too high, that's the reason why we're doing what we're doing. Is there a similar argument in terms of price levels in the mobile market that they're making and to justify this fourth entrant or what ultimately is the main thrust of the argument that they are making?

[Michaël Trabbia, CEO & Executive Director]

Could you repeat your question, please? We had an issue with the sound?

[Ulrich Rathe, Senior European Telecommunications Analyst]

My apologies. Yes, so the question is BIPT make the case that the fixed pricing level in the Belgian market is high and, therefore, the regulatory steps they are taking sort of make sense, right? They are justifying it partially with the price level in the market. Now with this proposal for a fourth entrant in mobile, is there a similar argument about price levels in the market that they are making? Or is there some other justification they're giving when you discussed the issue with them, why a fourth entrant would be a good idea in Belgium?

[Michaël Trabbia, CEO & Executive Director]

Well, obviously, there is a difference in the market situation and competition depending on the fixed and the mobile. The regulator clearly states that there is an issue on the fixed, and I would say rather not on the mobile, even if the regulators consider that the mobile offers with high allowances with a lot of data are more expensive in Belgium. So this is, I would say, the main point that is raised. However, we believe that once again the current dynamic in the market in 2018 is not taken into account. And we mentioned the fact that with our new offers, we are increasing and accelerating the increase of mobile data in the market. In any situation, I would say that there is no comparison between both markets, also knowing that the access to the mobile network is easy on a commercial basis. We have a lot of MVNOs in Belgium that are able to choose their host and their network operator. There's a lot of competition between us. So at the end of the day, we are surprised by this -- we were surprised by this intention that is not confirmed for the time being. But yes, it is not consistent with the competition analysis in the market.

[Operator]

The next question comes from Michael Bishop, Goldman Sachs.

[Michael Bishop, Equity Analyst]

Just a couple of questions, please. Just picking up on the fourth operator point and specifically spectrum auctions, which is the likely mechanism whereby they will encourage a fourth operator potentially. It looks like for meeting the regulatory document stat, potentially spectrum reserve could be worth about EUR 115 million. And I think that's based on the total reserve price that the government has consulted on before, which is EUR 700 million. So that would still leave potentially EUR 200 million worth of spectrum for each existing operator to buy. I mean, could I just confirm whether you would actually be willing to spend that amount of money, if you knew a fourth operator was coming into the market? Or whether that would potentially alter your investment plans with regards to spectrum? And then, on the Eagle unlimited packages that you said were doing very well. Are you seeing most of the new customers onto that tariff spinning up from within your own base? Or is it more customers coming over from other operators? And then just finally, could you confirm what you think the total restructuring charges might be for the full year?

[Michaël Trabbia, CEO & Executive Director]

Okay. So I will answer the first 2 questions, and then restructuring actually Arnaud will comment. So on the new entrant and the spectrum, because you're right and thank you to mention that, actually the government is not deciding whether to have a fourth network in Belgium or not. It's simply the condition of the auction for the spectrum that has to be decided. And that what we criticize is not the fact, obviously, that this auction is open to anybody, which is obvious, and we don't have any problem with that. It is the disproportionate advantages that would be given because the decision is not yet taken that would be given to a potential new entrant. And those advantages include, obviously, very high amount of reserved spectrum, which is a little bit strange and it's quite unique to have that amount of spectrum being reserved for a new entrant knowing that new entrant, in any situation, has the possibility and the opportunity to participate in the auction and to win some spectrum. And then the other conditions and disproportionate conditions, they are linked to roaming, national roaming that would be granted to this player without any real incentive to invest in the network. So for sure, I would say there would be a big question mark, would a new entrant come in the market with those condition. There will clearly be a question mark on the investment by the players taking into account this new situation. I cannot comment on our potential and future strategy and what we would do on the auction, but for sure this would have impact on our investment capacity.On your second question on the unlimited offer and the question, does customers, do they come from our internal customers or from competition? I would say that it is clearly an offer that is driving our portability and our mobile portability. Obviously, we have a lot of -- also a lot of Orange customers that are migrating and upgrading their current offer towards this unlimited offer. So actually it's both. We have a lot of migration from our customers, but it's also an offer which clearly drives mobile portability in favor of Orange. And then on the restructuring...

[Arnaud Marie Julien Castille, Chief Finance Officer]

Just on this tariff, Eagle, yes, there is very, very positive portability vis-à-vis, all the other operators, Proximus, Telenet/Base. Just on restructuring costs. So it accounted for minus EUR 3.7 million in H1. It will be a little below in H2, and it's mainly an accrual provision for social residency, so nothing special, but the level will be a little bit below in H2.

[Michael Bishop, Equity Analyst]

Maybe just follow-up on one thing. It's just the net MVNO impact in 2019, overall, incorporating the MEDIALAAN MVNO coming over to yourselves?

[Michaël Trabbia, CEO & Executive Director]

So how do you know we are going to lose the revenue coming from Telenet. And in -- it is has been -- for '18, it will be -- for '18, EUR 40 million. So we are going to welcome the MEDIALAAN on our network. You know today, the customer base of Walcom is 1/3 of the customer base of Telenet. And as you know, in -- '16 -- 2016, we had all the customers of Telenet. It was -- the revenue was EUR 60 million. So now with 1/3 of this customer base, you can imagine the amount of revenue, and they're going to start to be on our network in March. So you can -- we can expect something above EUR 10 million next year, increasing, of course, in the coming years.

[Operator]

The next question comes from Roshan Ranjit, Deutsche Bank.

[Roshan Vijay Ranjit, Research Analyst]

Just 2 quick operational ones for me. The net ad run rate for your convergent customers slowed down this quarter, and you do comment that there weren't any promotions. Given the change of the regime in August, should we expect some a bit more aggressive pricing on the fixed side in order to, I think you'd previously said, achieve 70,000 or so convergent ads for fiscal year '18? And secondly, just going back to the Eagle tariff. Now when you launched it back in the Q1, you commented that the momentum was good. We've seen another good quarter of momentum now. I am just puzzled by the introduction of those 2 intermediate tariffs, I think, Cheetah and Koala. If we've seen such good momentum, why put immediate -- intermediate step there to bridge the gap? Would you want your own customers continue to go to top end of your product range?

[Michaël Trabbia, CEO & Executive Director]

So on the H2 and convergence and the improvement in regulation, as I mentioned, our ambition is to have more net ads in 2018 than in 2017, meaning that, obviously, there should be an acceleration in H2 compared to H1. But this is also linked with the stronger quarter at the end of the year. I also mentioned in my previous calls that our ambition was to improve the financial condition and the sustainability in the margin of our offer that was an -- that is negative and that is improving. So this is also something that we are working on very closely as that was commented. The last element I would like to add on your question is the fact that we will probably have even more benefit also from an operational perspective starting at the end of the year or beginning of next year, in particular with the single installer, and in 2019, also with the ability to offer the internet-only, meaning that our ambition is to continue with the good pace and the good trend that we have currently in 2018, and to have maybe even more push with improved operations and also internet-only offers in 2019. Then your second question on Eagle and the fact that we decided to add new tariff plans, so it's rather the improvement in the mid-end segment. I think this is fully consistent. It's the same strategy actually. It's to improve the mix. So we have started it with the high end, with the Eagle unlimited offer, and now we are pushing the same strategy with the mid-end to have an upsell path that is much more powerful. We have seen that this upsell path has been working very well with the Eagle. Now we wanted to have also the same upsell path from the low end to the mid-end, and that's what we did with the Koala and the Cheetah offer.

[Roshan Vijay Ranjit, Research Analyst]

Just a follow-up there quickly. Are you seeing more competition in the mid-end of the mobile-only market? Or is it, as you said, just purely a strategy to upsell?

[Michaël Trabbia, CEO & Executive Director]

Obviously, there is competition and there is animation in the market, I would say. It's also based on a lot of promotion. It's also based on subsidies, and our competitors are pushing also subsidies. It's rather, I would say, our own strategy and that we pursue. It is not something we react to the market, but we have decided to take the lead on the market evolution and to be rather market-maker on this -- with this evolutions.

[Operator]

The next question comes from Alexandre Roncier, Exane.

[Alexandre Charles-Edouard Roncier]

I just had a quick one on fiber and fiber investment within the country, if I may. We've seen some press report, you know, in the past few months about some local utilities planning or, at least, you know, deciding or discussing about launching their own fiber network. I was wondering if you had any discussion with local utilities, or if you're seeing -- if you were seeing that trend really being implemented, and if you were willing, maybe, to participate within some sort of fiber deployment scheme by those same utilities?

[Michaël Trabbia, CEO & Executive Director]

So indeed, there has been an announcement by Eandis and [ Watz ], which are the local utilities in Flanders to roll out limited proof-of-concept on fiber-to-the-home in Flanders. So it's clearly something that we support, and we decided to work with them to be able to offer our services on their network. Still, it is a very limited proof-of-concept for the time being. So it's very small in terms of population coverage. And it is important to wait until the decision by Eandis and [ Watz ] and the Flemish government, I would say, to see if this initiative will be extended or not, so we remain cautious. We support and we participate to this as -- for us it is an opportunity to have a third-party rolling out a network, meaning that the access condition are fully nondiscriminatory, and we do not compete with them on the service level. So we will see if this proof-of-concept is later on extended with a stronger ambition, but it is too early to have a clear view on that today.

[Alexandre Charles-Edouard Roncier]

I have got a second question, if I may. Just on the SFR footprint that, I think, you just got recently access. Any color, or is that too early to say what's the commercial momentum here? I guess you know, particularly within the more Telenet network branding of the old SFR customer base, if you're seeing or grabbing some share in the churners or...

[Michaël Trabbia, CEO & Executive Director]

Yes, just to give you color indeed, I can tell you that our offer is really attractive in the SFR footprint. Maybe there is an effect that it was not available before, so you have people waiting and expecting our entry into that footprint. But there is also at the same time, Telenet pushing those customer towards their own plans and offers, which are, obviously, more expensive than the SFR ones. So all-in-all, I can tell you that we have a lot of activity in our shops in that footprint.

[Operator]

The next question comes from Stefaan Genoe, Degroof Petercam.

[Stefaan Genoe, Head of Equity Research]

Yes. The -- from August 1, you will have better wholesale conditions for your fixed offer. You indicated in the first half, you've had no real promotional exits on the Love offer? Do you intend to use these more favorable conditions to become more aggressive? Or should we see improvement in profitability on the fixed offer in the second half of the year?

[Michaël Trabbia, CEO & Executive Director]

As I mentioned in the beginning of the year, our effort is to improve the financial profitability of our offer. So I would not make any final decision or commitment on promotion or marketing decisions. But once again, the main focus is on profitability, knowing that our ambition is to keep the steady pace of growing the customer base by at least the same number of last year.

[Arnaud Marie Julien Castille, Chief Finance Officer]

On profitability, because you have our EBITDA on cable-only business, it's minus EUR 10.8 million for H1. So you can calculate with an average customer base, now the unitary cost per month and per customer is minus EUR 15, so it's an improvement. We announced at the beginning of the year minus EUR 16 per customer and per month. So we can imagine to have lower unit costs than announced at the beginning of the year, a little bit lower. So yes, we are continuing to improving our processes, and, of course, we are waiting for the new intermediary price from next August.

[Stefaan Genoe, Head of Equity Research]

Okay. And related to that on the ad adds from the Love offer in the second quarter, could you indicate a bit regional trends? And have you seen actually specific reactions, perhaps also in anticipation after more favorable regulation in H2 of your competitors?

[Michaël Trabbia, CEO & Executive Director]

Well, as you know, we are more -- we are stronger in the mobile in Wallonia and Brussels. And in convergence, it's much more balanced. Obviously, the market is different and then the Telenet positioning with higher prices is also supporting the fact that we have more market share in the fixed in Flanders than we have in the mobile. And then, obviously, the price increase that has been announced is also supporting, obviously, our commercials. Now I think it's, once again, rather balanced customer portfolio that we have related to the population split within the -- between the different regions.

[Operator]

The next question comes from Matthijs Van Leijenhorst, Kepler.

[Matthijs Van Leijenhorst, Analyst]

Just one follow-up of possible fourth entrant. Could you give us some color on the timeline? When do we have more clarity, whether -- actually, spectrum will be reserved for a fourth player?

[Michaël Trabbia, CEO & Executive Director]

Currently, it is expected that might be a decision on the principle, I would say, next week. Now I think it's really important not to consider a black or white decision, meaning it's not a decision where we want a new entrant or we don't want a new entrant. Actually, once again, it's a decision on the auction principles and the auction rules, so it's important to consider, whereas the decision has very strong, I would say, privileges for new entrants or not. This will be what will be more looked at. And there are several elements. Obviously, the spectrum that could be reserved is one of them, but also the national roaming is really important, as this provision could be used by a potential new entrant to offer -- enter the market without investing and without rolling out really a network, just waiting for speculation and consolidation in the mid-term.

[Matthijs Van Leijenhorst, Analyst]

Yes. But do you expect that this will be clarified as of next week? The spectrum auction rules or...?

[Michaël Trabbia, CEO & Executive Director]

That's the expectation that we have currently, but, obviously, it's not in our hands. But that's currently what we expect, yes.

[Matthijs Van Leijenhorst, Analyst]

Okay. And then just one other question. At the start of the year, you mentioned you would like to make more inroads or more traction within the B2B market with the help of Orange. How is that developing in the first half of the year?

[Michaël Trabbia, CEO & Executive Director]

Yes, we had a good half of the year in B2B. So it's improving compared to last year, since we believe that we have further opportunity to grow in that market. However, we need also to continue developing our B2B offers and to be able to follow on with our strategy to offer our B2B customers with some additional services, in particular with security services, with convergence and unified communication solutions. So this is what we are currently working on in order to also take the full benefit and the full potential of this market.

[Operator]

The next question comes from Paul Sidney, Crédit Suisse.

[Paul Sidney, Research Analyst]

I actually had couple of follow-up questions, please. Firstly, on the fourth entrant. I just really wanted to follow-up on the timing. If the spectrum is reserved for a new entrant in the upcoming auction rules and sort of mandated national roaming as part of the 2G, 3G license renewal process. What is realistically the timing of the actual entry of a fourth entrant? I mean, presumably it's some years away, just picking to get your thoughts on that. And then just secondly following up on, I think, Michael's earlier question on the MVNO impact. Obviously, a lot of moving parts with also VOO moving to Telenet as well as Telenet's own base moving on to their own network, but you're getting something back on MEDIALAAN. I know you mentioned some figures earlier, but I was just wondering, could you pull it all together and give us a net impact of those 3 movements in '19 versus '18 on EBITDA, please?

[Michaël Trabbia, CEO & Executive Director]

Okay. So I will answer the first question and then Arnaud will comment on the second one. So on the timing. So there are, first, several steps to consider. The first one, obviously, is the decision by the government, which is, once again, which might come in next week about the principles, then this will be translated into a decree with precise rules. Then, it is expected to have, in October, in the current text, I would say, the candidates that would declare and that would apply to enter into the auction that would be known and that would have to put some guarantees and some financial guarantees to participate to the auction. And the auction is expected rather, I would say, around March, somewhere around March next year, meaning that, obviously, it is not possible to consider any potential entry, even if we believe that there is no sustainability on this. But it is not possible to consider any entry before 2020.

[Siddy Jobe, Director of Treasury & Investor Relations]

Perhaps, if I can add on that Michaël as well. Also if you look at what kind of spectrum that is being auctioned or reallocated, the existing spectrum blocks are owned by the operators until March 2021. So to some extent, it would mean that any new operator will only be able to use those kind of -- those licenses, though spectrum bands as of March or April 2021. So to some extent, that also probably complexifies a bit the game for any potential new player.

[Arnaud Marie Julien Castille, Chief Finance Officer]

Okay. On MVNO, I am going to try to do the calculation for you. As I explained, this year, the revenue coming from Telenet and VOO because VOO was behind Telenet, Telenet being our customer, so the revenue was -- will be at the end of the year EUR 40 million, 4-0, okay, for the full year. But it was -- it is decreasing compared to 2 years ago, where we had whole the customer base of Telenet. It was EUR 60 million 2 years ago. So next year, we will have only MEDIALAAN on our network, starting beginning of March. And the customer base of MEDIALAAN is about 1/3 of the customer base of Telenet in '16. So all-in-all, we can expect mathematically, but it depends on the conception of the MEDIALAAN customer. We can expect about EUR 15 million revenues coming from MEDIALAAN. So it was EUR 40 million this year. It will be about EUR 15 million next year. So it's the impact, it's minus EUR 25 million in 2019. I hope, I have been clear.

[Paul Sidney, Research Analyst]

That is very clear. Thank you. Siddy, could I just follow-up on your comment. Should we read into your comment you think that for fourth operator to launch seriously, they will need some of the 2G, 3G spectrum that's currently owned by the existing operators?

[Siddy Jobe, Director of Treasury & Investor Relations]

I guess that the 2G is still used in Belgium for voice. I think that's the 900 and the 1,800 spectrum bands. So without those bands, okay, you have to go to the market in a different way than the current players are doing, using all of the different frequencies. So implicitly yes, if the spectrum is only available as of March 2021 because until that moment it's ours, and then afterwards we will see what happens with the spectrum. It means that they don't have access to those frequencies.

[Operator]

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

[Nicolas Cote-Colisson]

You mentioned earlier on the call that you were sharing a vision with MEDIALAAN, and you are mentioning some opportunities in the internet-only segment. Can you elaborate a bit, I'm not sure I understand what you want to do with them?

[Michaël Trabbia, CEO & Executive Director]

Well, obviously, it is a little bit early to comment because there is no contract or agreement on that. It's rather intention and shared vision. But obviously, their intention is also to develop internet-only offers based on their own OTT content offers. So that's, I would say, their ambition, and I don't want to speak for them, but that's what they mentioned. So we could work together to have those offer in the market. Obviously, this can be done also via the cable regulation, which we already operate. So we could do something for them in that perspective, but that could also be done in -- with other scenarios. So this kind of collaboration can be envisaged. And of course, it is also analyzed, I would say, on the lobbying and on the -- because the MEDIALAAN is already a strong player in Flanders on this matter.

[Nicolas Cote-Colisson]

I understand. And what I'm trying to -- would you mind updating us, sorry, on VOO. Where are you with your discussions? Have you heard back from VOO? Have they made some progress on their side about the future of the company?

[Michaël Trabbia, CEO & Executive Director]

Okay. So on VOO, there has been little evolution on the subject. The main one is rather related to Brutélé, actually, which is the -- there are 2 companies together on the VOO brand, one is Nethys and the other one is Brutélé with the footprint in Brussels and Charleroi. And on Brutélé, you may have seen surely -- surely, you have seen that Telenet has made a proposition an offer and that Nethys has reacted to this offer. Just to comment on these, I would like to say that we do not consider relevant to separate, so now Brutélé from Nethys, as they are really linked, operationally speaking, on the VOO brand, a lot of interaction between companies, and we believe that it is, I would say, more relevant to have them together. However -- and then our proposal was on the overall VOO -- I would say, the overall VOO brand and so that's to the both footprints. There has been little evolution on this, but we will see in the coming months because now we know that Nethys is -- has made some decision. For instance, they have separated and then getting out RESA from Nethys. They intend to buy Brutélé. So there will be also capital cash needed to do this kind of operation. We know that there are other also businesses in -- within Nethys that might need some cash. On the other hand, that might be considered for divestment. So I think the situation may still evolve in the coming months, but I don't expect any evolution in the short term and, at least, before the summer break.

[Operator]

The last question comes from Louis Citroen, Arete Research.

[Louis Citroen, Analyst]

The first one is on the Orange brand fee. I was wondering if you had any update on that topic, when it would start. What the amount would be? Anything would be interesting. And second question is, again, on the fourth license. If you found the conditions unfair, would there be any legal resource -- recourse, sorry, available to you?

[Michaël Trabbia, CEO & Executive Director]

So on the first question, on the brand fees, what I can mention is that it's something that will be -- that will start progressively in 2019. So the full impact will be in 2020. On the second question, about the potential legal challenge, yes, definitely we are considering this depending, obviously, on the outcome of the decision. Once again, we believe that the methodology and the short timeframe and the fact that there are some missing elements in the analysis that has been done in a very short period of time is not satisfactory and that strong and too strong disproportionate privileges that would -- that could be granted to one player could lead to legal questions.

[Louis Citroen, Analyst]

Okay. And just on the brand fee, in terms of amounts you had mentioned in the past, I think 1.5%, 1.6%, is it still this kind of range?

[Arnaud Marie Julien Castille, Chief Finance Officer]

So 1.6% of not on all the revenues. So maybe we can disclose the amount because you don't take all the revenues and apply your 1.6%. So for next year, starting in May, it will be close to depending our revenue but could be -- between close to EUR 10 million about, depending the revenues.

[Operator]

There are no questions in queue. [Operator Instructions].

[Siddy Jobe, Director of Treasury & Investor Relations]

Okay. I think we still have one question open from the webcast. I think all of the other webcast questions have more or less been answered already through the call, but there was one outstanding question from Stephane Beyazian from Raymond James. The question was, Proximus has made a couple of acquisitions in IT, do you see any sign that bundling telecom and IT is increasingly attractive and important to corporate customers?

[Michaël Trabbia, CEO & Executive Director]

Well, to answer this question, I think it's definitely something that we see in the B2B market and Proximus, obviously, has done a number of move into that direction. It's also good to mention that OBS, was in the Orange group, is also making some acquisition on the ICT part. Obviously, it's not only a question of acquisition. I mean, by the end of the day what's important is not to acquire businesses, but it's the ability to offer to our customers some ICT services. We believe that we don't necessarily need to have a full portfolio of ICT services, but some dedicated services that are close to the connectivity and that are becoming more and more core for our business customers, and that's why we focus on those services. I commented a little bit earlier on the first question on B2B, and we want to provide those services. It can be partnering with Orange group or with local partners. It could also be with other means. I mean, acquisition is one of them, but it's, obviously, not the only possibility to offer those services.

[Siddy Jobe, Director of Treasury & Investor Relations]

Okay, operator, can you confirm there are no other questions anymore?

[Operator]

We actually do have another question. So from Mr. David Wright, Bank of America.

[David Antony Wright]

I'm just sneaking one quick question in the end. Surprisingly, it's about the fourth operator, maybe feels like 9 out 10 questions. If there was -- if the government was to approve the spectrum for the fourth operator and that was to be taken up, would you offer yourself as a network potentially host it, or that would be something you would decide against?

[Michaël Trabbia, CEO & Executive Director]

I think it is really, really early to answer this kind of question. We are currently fighting against, once again, not the fact that the auction are open, but the fact that there are privileges to a new entrant. Then, if -- would we have some obligation, then all of us would be forced somehow to discuss on this. But it is really, really, really, too early, and it's really not the scenario that we want to envisage. I think that the impact on the sector and the impact for the customers and the quality in the investment are far too big. And that the -- there is, once again, no business case, no industrial business case for a new entrant. And I believe and I hope that the government will listen to this and take the right decision for the sector and for the Belgium customers.

[David Antony Wright]

That's very fair. Just to be clear, on what basis do you decide there is no industrial business case when new entrant operators have proven themselves successful in the market?

[Michaël Trabbia, CEO & Executive Director]

There has been a number of studies that have been done. It's not only ours but including some study by analysis [indiscernible] based on -- done by -- for BIPT mentioning that there are -- there was no business case to enter into the market for a new entrant. So I refer to those studies and to the fact that when you look at the profitability of the different players, including ours, you can consider that if you divide the overall revenues in the market into 4 players and not 3 players, obviously, then you have a big problem of profitability. And when you look at other countries, you can see that there you have operators that are cash flow negative when you have a 4-player market. So that's the references that I use for this comments.

[Operator]

Thank you. There are no further questions. I would like to return the floor to Mr. Siddy Jobe.

[Siddy Jobe, Director of Treasury & Investor Relations]

Okay, thank you, operator, and also thanks to all of you, analysts, out there. I think we had quite a lot of questions, interesting questions. If you still have any further questions, don't hesitate to reach out to us. With that, I conclude the call, and goodbye.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you all for attending. You may now disconnect your lines.