Orange Belgium SA

XBRU:OBEL

Earnings Call Transcript 2017-Q4

[Operator]

[Operator Instructions] I would now like to hand over to Siddy Jobe, Director, Investor Relations and Treasury. Mr. Jobe, the floor is yours.

[Siddy Jobe]

Good morning, ladies and gentlemen, and welcome at Orange Belgium's analyst and investor conference call and webcast on the result of the fourth quarter and full year 2017. My name is Siddy Jobe, and I'm the director of investor relations and treasury at Orange Belgium. And I have here with me Michaël Trabbia, our CEO; and Arnaud Castille, our CFO. As usual, I trust you all have received our financial communication of this morning. If not, you can still retrieve it from the website. And without further ado, I would now like to hand over to Michaël and later on to Arnaud for their opening statements before heading into Q&A. Michaël?

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Thank you, Siddy, and welcome ladies and gentlemen. So turning to Slide 4, as you can see, the Orange Belgium Group delivered on all its commercial and financial targets for 2017. I am particularly proud that we exceeded our target of 100,000 LOVE customers by the end of the year, an increase of 69,000 Orange LOVE customers in the last 12 months. These results clearly established Orange Belgium as a convergent player in the Belgian market and validates our midterm ambition on this market. We also achieved in the fourth quarter of 2017 a multi-year peak in terms of postpaid net adds by reaching 28,000 net adds in the fourth quarter, bringing the full year of postpaid net adds at 68,000. This result was realized and in line with the solid increase of our postpaid ARPU, illustrating our ability to successfully monetize the increase of mobile data usage by our customers. This performance is the result of our strong product portfolio, our consistent investment in customer experience and our leading 4G network. We achieved these commercial results while also delivering on our financial targets and that Arnaud will comment later on.So let's start now with our first growth driver, which is convergence and turn directly to Slide 6. Slide 6 provides you with the time line of the key convergent initiatives of 2017. You can see that in the first half of the year, the most important highlight was the launch of our integrated convergent offer LOVE. With our EUR 39 triple-play bundle we clearly paved the way for a more competitive and dynamic fixed telecom market. The launch of our double data offer both for B2C and B2C -- B2C and B2B, sorry, towards the end of Q3 further boosted our convergent offer in the market. Parallel to our marketing approach, we have been working on preparing the regulatory ground for an improved fixed-access regulation. As you know, we strongly appeal to the regulators to substantially and quickly improve the financial and operational conditions for cable versus access.Let's turn now to Slide 7. As a result of our initiatives, we managed to increase, as I mentioned, [ and the ] convergent customer base to 103,000 customers at the end of 2017, surpassing the milestones of 100,000 customers. What's important also to highlight is the fact that close to 50% of our new LOVE customers in 2017 were also new customers of Orange Belgium making it clear that our offer is appealing both for our existing customers, but also to new customers.In the past weeks, we have been also adding extra content to our standard offering, such as Eleven Sports 3 featuring live football matches from the Spanish, French and Italian soccer league in addition to many other live sports events.Now turning to Slide 8. You can see that the associated mobile customer base -- associated with the LOVE bundle has increased to 163,000 active mobile customers, an increase of 35 -- 34 and 106,000 in -- respectively in the fourth quarter and the full year 2017. As a result, and this is something that's important to follow, is the ratio of our mobile base that is now convergent and you can see that we have reached 7% of our mobile base that is now convergent compared to 2.5% at the end of 2016.Slide 9. Moving over the convergence from the B2B perspective. As you know, B2B is typically segmented according to business size, although the past years we've been working on the fully converged offering for all business segments, each of them with their specific distribution channel, service level agreements and product offering. In particular, we are addressing our SOHO customers -- so the small companies with up to 5 employees -- with our Orange LOVE [ po ] offer, which is based on the residential LOVE offer, enriched with some additional services. The small and medium account segment is being served by our Shape and Fix offering based on VDSL for the fixed part. The number of mobile Shape subscription per fixed customer exceeds 5 SIM cards per customer. Finally, the corporate and major accounts are also served via owned fiber network and partners' fiber network.Turning to Slide 10. Again, on B2B, in relation to the corporate and major accounts, I'm very happy that we signed end of 2017 a sales engagement agreement with Orange Business Services aiming at reinforcing the commercial collaboration between our 2 companies with the joint objective of serving better our business customers with a wider product offering and a simpler customer relation.It's now time to move to mobile and to the Slide 12. Also on the mobile side, we had an active year 2017. As you have seen in the publication of this morning, we had a very successful commercial fourth quarter, despite strong competition in the market. As you recall, we launched the double mobile data boost for our convergent customers towards the end of the third quarter. This helped us to attract more convergent mobile customers. In December -- in November and December, we also stepped up with a very successful end-of-year campaign, which was very much focused on mobile by offering attractive offers in combination with our subsidies -- subsidized and installment offers.Furthermore, I would like to highlight our strong customer-oriented 4G product portfolio as well as the increasing success of our loyalty program Orange Thank You. All this allowed us to post the highest quarterly postpaid net additions since 2011. Beyond this commercial timeline, the mobile market in 2017 was also marked by some regulatory decisions, amongst which the implementation of Roam Like At Home and the registration of the prepaid customers. I believe we have handled both elements very efficiently and even managed to turn them into positive drivers.Turning to Slide 13. As you can see, the increased usage of mobile data services in all aspects of people lives has meant that customer expectation have increased and that they typically expect an even better network quality. At the end of the year 2017, our outdoor 4G network coverage stood at 99.9%, while indoor coverage was also very good at 93.5%. Moreover, we started in the course of the fourth quarter of 2017 with using our network data to identify customers with poor indoor coverage and offered them phone to cell to solve the issue.So as you can see, we are clearly keeping our leading 4G network and connectivity position. We have seen, at the same time, our smartphone penetration increase to 73% versus 68% 1 year ago, while the 4G smartphone penetration continue to increase strongly reaching 59% in the end of 2017 versus 48% 1 year ago.When you look at Slide 14. You can see that the use of mobile data keeps growing as a result of the growing popularity of smartphone and tablet, but also of other connected devices. And moreover, customers are each month using more and more data. This has resulted in a further increase of mobile data consumption, resulting in average smartphone data usage by 1.8 gigabytes per month in December of 2017 versus 1.3 gigabytes 1 year ago, which is an increase of 35%. This growth has clearly contributed to a rebalancing of our customer base throughout the mid-end offers.Turning to Slide 15. You can see that the total data traffic increased by 43% year-on-year. And that 4G now accounts for almost 90% of total data traffic. That is also why we put a very strong focus and highlight on 4G.Looking at ARPU on Slide 16. You can see that our postpaid ARPU increased to EUR 40 in the fourth quarter of 2017 from EUR 29.1 a year ago, which is an increase of 3.2% year-on-year. And this result is, I think, quite remarkable, especially when you look at it with the good strong growth in the customer base -- in the postpaid customer base. How did we achieve this? This growth was achieved partly thanks to a progressive rebalancing of customers, as I mentioned, through our [ demidend ] offers. The implementation of the Roam-Like-At-Home had a significant impact, though the decline was mitigated by an increased usage of mobile data outside Europe, and more important by an increase in visitor roaming traffic, meaning obviously, the traffic that customers from other operators do when they roam in Belgium.Further I can mention that the postpaid ARPU in the fourth quarter of 2017 was adversely impacted by the decline of SMS traffic. And -- however, as you know, the SMS interconnection revenues come at a 0 margin.Looking at Slide 17. You know that throughout the past 15 years we have developed a very solid knowledge of the mobile -- the machine-to-machine segment. We not only were able to offer the services of a dedicated team offering 24/7 services, but we also are recently integrating the first narrowband IoT and LTE-M network on the entire Belgian footprint, reaching immediately nationwide coverage, both indoor and outdoor. This so-called mobile IoT technology [ are over ] a wide area [ set along ] network layers. They can connect millions of objects with the internet and they are designed -- specifically designed for IoT applications that are low-cost -- you need low-cost connectivity. You have low data rate. You don't need very high throughput, but that require deeper coverage and also longer battery life meaning less energy consumption.At the end of December 2017, the number of active SIM cards hosted on the Orange Belgium IoT/M2M, machine-to-machine network increased to 949,800 -- an increase of 124,000 year-on-year.When you look at Slide 18. As I mentioned, we only just launched our mobile IoT network, which is by the way, a grand premiere in Belgium because we have a network covering 100% of the population and which deepened our coverage. But we already have some projects running amongst which we can mention a project on connected bikes with the City of Antwerp as well as a project with connected boilers and smart parking projects.Let's now turn to the third growth driver with customer experience and turn to Slide 20. In the past 2 years, we have seen a steady increase in the number of mobile applications that are downloaded and used by our customers. Of course, we want to increase and continue to increase the overall customer satisfaction, thanks to those services.The MyOrange app is by far the most used application, and we constantly upgrade it. For example, recently we allow a direct payment via connected bank account from the application.Turning to Slide 21. We are moving forward with our digital transformation plan. Our plan aims at delivering agility efficiency and enhanced customer experience through [ the lot ] offer an integrated omni-channel user experience: on the desktop at home, on mobile devices on the go, over the phone with a customer service agent, and in your Orange stores. In 2017, we worked very hard on the design phase and we're now about to start the progressive implementation phase with the aim to move towards the operational run in 2019 and 2020, but with already progressive deliverables that will come in as soon as 2018.Looking at Slide 22 and the increased use of big data capabilities. We are also progressively rolling out our big data platform. The use of big data allows us to enter into better targeted campaigns, but it also allows better targeted investment in the network, as I explained earlier with the phone to cell, for example, but also improved churn management as well as an increased effectiveness of revenue assurance and fraud detection.Turning to Slide 23. Part of our digital transformation and our drive towards innovation, we launched Orange Fab, which is part of an international program running in more than 15 countries. The main objective of this program is to create commercial acceleration between the scale ups and the business units of Orange Belgium and Luxembourg and to help the start-up growth, thanks to Orange worldwide footprint. Out of 60 subscriptions, we selected 3 promising company with whom we plan to work very closely to develop a joint win-win business.Just to give an example, we started to have joint offers with 1 of the 3, which is CommuniThings, on smart parking offer leveraging our mobile IoT network.On Slide 24, I mentioned earlier the loyalty -- our loyalty program. I just wanted to highlight the success of our loyalty program with a lot of emotion with movies, with also live events that -- and now our reward program ranks first in Belgium among both postpaid and prepaid customers.And now it's time to hand over to Arnaud for the financial results.

[Arnaud Marie Julien Castille, Chief Finance Officer]

Thank you, Michaël. And thanks to all of you for joining us on today's call and webcast.So let's start with Slide 25. As mentioned by Michaël, we ended the year 2017 with strong commercial results, demonstrating the success of our commercial strategy and execution. Moreover, we delivered on all our financial and commercial targets for 2017, while at the same time directing resources towards the company's future growth by investing in our convergent positioning. We guided early 2017 for growing total service revenues and we delivered a growth of 1.5% year-on-year, despite lower MVNO revenues and EU roaming impact. Our adjusted EBITDA landed north of the midpoint of our 2017 guidance range of EUR 219 million, EUR 310 million. Finally, we guided on our core CapEx of around EUR 148 million. And at the end of 2017, we ended at EUR 142 million. Finally, we also lowered our net debt position to EUR 313 million in 2017, which takes into account the EUR 30 million dividend payment related to 2016 as well as the higher amount of paid income taxes, mostly driven by the changed tax incentives for early tax payments.Let's move Slide 27. On revenue Orange Belgium Group realized a total turnover of EUR 1,251,200,000 in the full year 2017, an increase of 0.8% year-on-year. This solid performance over the period was entirely realized on the back of our strong development of our total service revenues, which increased 1.5% year-on-year. This growth was realized thanks to a 0.1% increase in mobile service revenues, which means our retail business compensated for the EUR 9.2 million decrease in MVNO revenues and the EUR 36.4 million growth adverse impact from EU roaming regulation. Obviously, we work out a steady growth in fixed service revenues driven by the increase of our TV and internet offer.For the EBITDA, in Slide 25 -- 26 -- 28 I provide a waterfall chart in which we try to isolate a number of floating parts. Firstly, there is this net positive impact booked in the fourth quarter of 2016, of EUR 15.5 million related to the agreement signed with the Walloon Government in December 2016 adjusting the 2016 result of [ position ] tax. The 2016 adjusted EBITDA amount to EUR 300.2 million as we disclosed also a year ago. Consequently, you see the growth EBITDA impact of EUR 32 million related to EU roaming. So total turnover adjusted for the gross revenue impact of regulation amounted to EUR 46 million, illustrating the strong underlying mobile growth as well as increase in fixed service revenues. Consequently, you see an increase in direct cost adjusted for the growth cost impact of EU regulation. The increase in direct cost is mainly the result of higher wholesale access cost -- access and content cost -- related to our cable offering. Labor costs have been relatively stable. And finally, the indirect cost improved by EUR 28 million year-on-year. This improvement of indirect cost is mainly the result of lower commercial expenses due to the rebranding in 2016 and lower IT and network expenses in line with our IT outsourcing project and the improved efficiency network management. And finally our property optimization. Moreover, I believe it's also important to [ redistinguish ] our result in parallel with the very strong solid commercial performance realized throughout 2017 as explained by Michaël earlier.For the CapEx in Slide 29, our total CapEx amounted to EUR 188.4 million of which EUR 46.8 million were cable-related capital expenditures, implying our core CapEx amounted to EUR 142 million. Clearly, total CapEx increased, but this is entirely due to the growth of our cable business. Our core CapEx declined by 4.8% year-on-year, but still holds at 12.8% of total service revenues, proving we continue to invest in the quality of our mobile network.So in Slide 29, you basically have the summary of the 3 previous slide in table, though it's provided me with the opportunity to summarize a key takeaway of our operational performance; namely, that we haven't been able to generated a very underlying results, once accounting for the MVNO, EU roaming and cable impact, as at the same time we lowered our core CapEx.Look now below the EBITDA on Slide 30. I want to comment 2 elements. Firstly, we have seen our depreciations increase mainly due to the depreciation of the activated customer premises equipment related to cable. So useful life of this kind of asset is typically lower than the traditional network investments, which have a greater useful life. Secondly, we also took the decision to book EUR 17.9 million impairment related to Orange Luxembourg. You probably know that the acquisition dates back to 209 (sic) [ 2009 ]. Each year we pay for an impairment test and this year we decided to book this impairment. With that I would like to hand over back to Michaël.

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Thank you, Arnaud. So let's now turn to the guidance and the 2018 guidance in Slide 33. Related to our 2018 outlook, the first thing I will like to highlight, and I think it's the most important, is that we expect our mobile commercial momentum to continue in 2018, resulting in a further increase of the postpaid customer base. In addition, we also ambition to further increase our convergent customer base. Convergence remain a strategic focus and we reiterate our midterm target of 10% broadband market share. Furthermore, to aim at turning our cable business breakeven, we actively work on improving our efficiency, and at the same time we clearly appeal the regulators to substantially and quickly improve financial and operational condition for cable wholesale access in Belgium. Strong regulatory progresses are required to ensure a sustainable competition in Belgium.More precisely on our guidance, we expect our total service revenues to grow in 2018 for the third year in a row. Furthermore, we aim at an adjusted EBITDA between EUR 280 million and EUR 300 million in 2018. This takes into account that the 2018 financial year will be affected by the loss of close to EUR 30 million of MVNO revenues and the remaining gross impact of EU roaming regulation of EUR 26 million revenues and EUR 17 million EBITDA.As you can see, this guidance highlights that we expect the adjusted EBITDA of our retail business to grow substantially. Finally, we expect our 2018 core investment, that's to say total investment excluding cable-related investment, to remain stable compared to 2017.Then on Slide 34. I also wanted to share with you that the board of directors has decided to propose the Annual General Meeting of Shareholders to distribute an ordinary gross dividend for the financial year 2017 of a EUR 0.5 per share.Before moving to the Q&A, I would like to add one more thing, turning to Slide 35. We decided to adopt a bold challenge of positioning, focusing on what's essential for our customers. We believe indeed that we have a different [ calc ] to play in this market compared to our incumbents like competitors. The launch of our convergence and internet and TV offers at EUR 39, EUR 49 was already indicating a first flavor. The Panther limited edition in the summer of 2017 was the second one. And now, if you move to Slide 36,I'm very happy to introduce the first fully unlimited mobile subscription in Belgium as from February 12, which will underline further our positioning, as from EUR 40 per month meaning EUR 1 more than our current Eagle tariff plan. We will now include unlimited mobile data to allow our customers to surf carefree, anytime, anywhere they want, without having to worry about their Internet use anymore. This new offer is perfectly in line with our value management and our strategy to monetize mobile data because it will allow us to further improve the customer mix between the low, mid and high-end offers. This offer can also be combined with convergence with the LOVE offer and as such provide the first full unlimited package -- voice call, SMS, mobile data, fixed internet and TV -- for only EUR 79 per month. This first example of our bold positioning clearly illustrates our challenger positioning and we want to take both in the mobile market as well as in the convergent market.With that, I finish our introduction and to get a [ resounder and citi ] we are ready to answer your questions.

[Operator]

[Operator Instructions] So we have our first question from Mr. Ruben Devos from KBC Securities.

[Ruben Devos, Equity Analyst]

I have got 2. Second one is a bit bigger than the first. The first one is on your guidance. So we're aware of the loss in MVNO revenues and the crossing impact of EU roaming on the EBITDA. But considering the midpoint of your guidance, I was wondering what are sort of the moving parts that suggests that you will be able to compensate a large part of that impact? And then if possible could you give us an update on what is still possible in terms of cost management? The second one regarding cable CapEx. So you've added around 70,000 cable net adds in 2017 with a relatively stable run rate in quarterly net adds. So I was wondering whether you could give an indication of the evolution in churn for fixed mobile conversion subscriber and for mobile-only clients. The reason I'm asking is that besides the potential impact on the SAC, is that I'm trying to get an idea of the variability in cable-related CapEx for 2018. And then also the balance between variable CapEx and IT was 80-20 in 2017, I believe. Yes, is it safe to assume that variable CapEx will take a larger share in this mix going forward?

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Arnaud will answer.

[Arnaud Marie Julien Castille, Chief Finance Officer]

Yes. Thank you for your question. So on guidance, yes, there is this impact of those of MVNO from Telenet and Lycamobile in 2018 and this impact will be EUR 30 million. So we think we can have an increase of our core revenues. So it's a main positive impact to reach this guidance so -- mainly mobile and fixed. And in terms of costs, there is -- there will be a big effort in terms of efficiency in the 2 businesses. First in the cable business, we are going to see -- and I'm going to speak more -- deeper on the cable business P&L, but -- so efficiency on cable -- cable optimization of our own process. But also we see some improvements in our customer service with contact avoidance. Also in our own -- in our distribution network -- commercial distribution network because we have internalized and we're going to internalize our distribution -- of our own distribution so we are saving -- we're going to save some commissions. And in the B2B also, we have just bought a bigger partner. So internalization of our sales force from B2B, also an increase of shop productivity. So all in all, it's a lot of efficiency for all the lines of our P&L. And thanks to the digital transformation.

[Michaël Trabbia, Chief Executive Officer & Executive Director]

And if I could just add one word on the topic of guidance, Michaël speaking. As you perfectly pointed out, we are bullish on the core business when you exclude the MVNO, that's perfectly true and this guidance is exactly reflecting this commercial momentum and efficiency that we want to continue. Arnaud, the second question?

[Arnaud Marie Julien Castille, Chief Finance Officer]

Remember we have succeeded in having a growth of EUR 30 million efficiency plan in 2017. So again -- and we think there is room for improvement. In terms of cable, I think I can disclose a little bit more on cable. As you have read in our press release, we had an EBITDA -- a negative EBITDA on our cable business of EUR 18.5 million. So if I disclose the average, the customer base average -- average customer base, it was in 2017 about 65,000 customers. So during 2017, the cost by customer was about EUR 24 -- minus EUR 24. We've an ARPU of about EUR 36. Okay? So we think we can improve these negative unitary costs by about EUR 8. Okay? So due to mainly our own process, again, yes, there is a lot of process we can improve in terms of installation, customer experience, refurbishment and so on. And in this EUR 8 improvement, we can include an impact of the transitory period in terms of rules and regulation. So we see a positive impact, but it's a slight positive impact because it's only the mid-year impact and it's just a first step, it's not a cost-plus wholesale cost. It will be the cost for the transitory period. Just to be clear, when I spoke about the EUR 24 million -- minus EUR 24 million in the EBITDA, it's a margin of the cable business. It's not the cost.

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Minus EUR 24.

[Arnaud Marie Julien Castille, Chief Finance Officer]

Minus EUR 24 per customer. Okay? Is it clear?

[Ruben Devos, Equity Analyst]

Yes. If you could just give some more color on the cable-related CapEx, as well as on the churn, maybe?

[Siddy Jobe]

So Ruben, Siddy here. I think as you said we disclosed EUR 46.8 million of cable CapEx in 2017, which is an increase from EUR 18.9 million in 2016. I guess the bulk of the increase is related to the variable CapEx that we always disclosed. It is a modem set-top box installation. And as such, I think out of the EUR 46.8 million, 80% is related to this set-top box, through this unitarian CapEx. And the remaining part is basically related to what we always mentioned, the IT provisioning, the development of the modem software, the provisioning systems internally, where -- as Arnaud mentioned, I -- we increasingly start to become more efficient in anticipating also our customer expectations and so on. So I think those investments in IT help also to drive efficiency. Going forward, we continue to see the variable CapEx remaining at the same levels from an unitarian point of view. The IT-related CapEx, as you know, we still have the plan to launch the mobile live TV and so on and perhaps some other additional services that can come. So I think, the formula for 2019 is probably the same variable CapEx in function of our growth. And then the IT CapEx in the same ballpark figure as this year. That's 2018 -- 2017, sorry.

[Operator]

So we have another question from Mr. Nicolas Cote-Colisson from HSBC.

[Nicolas Cote-Colisson]

First question is on the MVNO revenue. So you said you're about to lose EUR 30 million this year. So how much of the EUR 40 million left will come from the guaranteed revenue from Telenet? Or another way to ask the question, how many MVNOs will be left from Q2 after Telenet has migrated over the customers? And I've got a second question, actually a follow-up question on cable. So Arnaud, you explained a bit of the bridge year. But I was just wondering what kind of wholesale price are you thinking of for the transition period? And can you confirm that currently you are paying around EUR 24?

[Arnaud Marie Julien Castille, Chief Finance Officer]

Okay. So for the first question on MVNO. Yes, there is about EUR 40 million of MVNO coming from Telenet in 2018. Okay? And honestly, it's the main part of our MVNO revenue in 2018. So the other MVNOs are very, very small MVNOs. So -- yes, they won't impact strongly our P&L. So it's an amount of EUR 40 million for 2018 coming from Telenet. It's the end of the commitment of EUR 150 million taken 3 years ago.

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Perhaps if I can add on that is that within this termination agreement with Telenet obviously, there is also the revenues included from VOO in 2018. So as you know, when we signed the agreement with Telenet in 2012, we allowed them to sign a step-in agreement with VOO, and as such the contribution of VOO is part of the EUR 40 million that we will still get from them. And then secondly, on the phasing I would say throughout 2018, I'm not sure you should expect the entire EUR 40 million to take into P&L in Q1 in relation to their migration. It's probably most likely we will have a phasing effect throughout the rest of the year as -- yes, throughout the rest of the year.

[Arnaud Marie Julien Castille, Chief Finance Officer]

So yes, in terms of wholesale costs for cable. So as I said, we see for 2018, just a slight decrease of the wholesale cost due to -- it will be just a midyear decision and you know because a transitory period we'll start only maybe in June. So it's not -- it will not be very impacting. And in terms of the real cost-plus wholesale price we are waiting for, we are waiting for receiving of about EUR 10 per month and I'm sure we have already disclosed such amount.

[Nicolas Cote-Colisson]

And [ could you continue what you're paying ]EUR 24?

[Arnaud Marie Julien Castille, Chief Finance Officer]

Today, sir, it's a little bit more, due to the issue about the profile -- we have to pay. We don't have a limited profile with Telenet. So we have to pay capacity on top of the unitary cost for each consumer. So it's a little bit more. EUR 26, EUR 27.

[Nicolas Cote-Colisson]

If I may, can I just follow up on the first answer to my question on -- at the end. I was just wondering what prevented you to get the VOO contract?

[Michaël Trabbia, Chief Executive Officer & Executive Director]

So on the VOO contract, first thing important to understand is that VOO is currently a Telenet customer for the [ Etenbiena ] contract, and it's only via Telenet that they end up in our network. And by the way, we don't see VOO traffic and revenues directly. They only come up within and via the overall Telenet traffic and revenues. Then obviously, it's their choice to go with Telenet, so we cannot comment their decision. What we can say is that, obviously, it might look a little bit surprising that they make this choice that is presented as a strategic choice while the Nethys board is still looking at various strategic opportunities for the future. But now, once again, that's their decision, and that's all what we can comment.

[Operator]

So we have another question from Mr. Ulrich Rathe from Jefferies.

[Ulrich Rathe, Senior European Telecommunications Analyst]

I have 3, if I may. The first one is on the sort of outlook for retail growth. You're talking about significant retail growth to continue in 2018, mitigating the revenue loss that you talked about. It sounds a bit as if you're aiming at share growth in the market. Could you confirm that is true? And if it is true, where sort of do you see the weakness in the market? Do you think that, that they're sort of more likely from a strategic perspective -- the other players are going to hold still? Or do you think they're sort of weak compared to your product set? Or what makes you believe that you can get share growth, if that's really what this guidance implies? Second question is on visitor roaming. In your bridge, you're showing quite significant impact implicitly from the visitor roaming impact. Could you quantify that separately? And also how do you think about the risk to that visitor roaming? It sounds as if roaming in rates across Europe are coming down quite sharply. So I was wondering what's the risk that the rates for visitor roaming come down for Orange Belgium as well. And what would that do for the figure that's sort of contributing nicely at the moment? And my last question is the flat-rate Panther plan that you introduced today, that's obviously throttled down to -- I understand now to 100 -- or 500 [indiscernible] kilos per second after the 4G allowance expires. What has sort of informed that particular rate? It sounds like a fairly limited rate. Is that effectively to get the marketing tool out, and you don't think people will use that very hard? Or what has led you to choose 0.5 megabit per second there?

[Michaël Trabbia, Chief Executive Officer & Executive Director]

So on your first question on our retail business evolution and outlook and guidance. What we can say -- now talking about share growth -- is that, obviously, we expect the commercial momentum that we know already, as you can see in 2017 and, in particular, in the second half of 2017, to continue. We believe that we are supported by this new positioning, and once again, this is also highlighted by this new offer that you mentioned in your third question, but by order -- also offer -- that you not necessarily see but are -- that are very impactful in the market. Still having in mind that those offers are not only looking at volume, but they're also very keen on further improving the customer mix, and this is how we succeed and we plan to continue to succeed in 2018. We believe that the absorption by Telenet of BASE also limit this player clearly in the market, and that we have our [ calc ] to play with very different positioning that is well-received by the market. Then on the fixed side, obviously, we still have a lot of customers to gain. Our market share is still quite low. So we expect to continue growing on this business, while at the same times, and Arnaud mentioned it, focusing on lowering our costs and thus improving our margin on this business, aiming in the longer term to turn to breakeven on this business. Looking at visitor roaming, I will not disclose the part of the visitor roaming, but talking about the risk I would like to highlight 2 elements. The first one is that being part of the Orange Group clearly is an advantage because we can benefit from the visitor roaming agreement with many operators in Europe, which is clearly helpful. Then on the risk side, you have to also take into account that this is mitigated by the fact that our own customers are traveling abroad. So if there is a decrease, which is likely, as you mentioned, of the customer roaming unitary cost, even if the volume is also expected to increase, at the end of the day, this also limit our cost for our own customers. So the risk is rather limited. And we take -- obviously, we have taken this into account in our guidance. On the Eagle unlimited offer, you rightly mentioned that is throttled above a certain threshold, which is 20 gigabytes. We believe we have set this threshold in order to protect the quality of the connectivity for our customers. So this is when you look at operators offering those kind of offer, there are always at some point of time some quality protection. We believe that we have set this limit very fairly compared to the Belgian market usage, meaning that it is not aimed at concerning many customers. It's really a very, very limited part of the customers. And we also obviously have the possibility to increase it whether the usage would lead to do so. So this is really aimed at being a full unlimited offer as perceived by the customers.

[Operator]

So we have another question, from Mr. Roshan Ranjit from Deutsche Bank.

[Roshan Vijay Ranjit, Research Analyst]

Just a quick follow-up on the MVNO point. So I think once we see the Telenet migration at the end of next year, we'll -- you'll have 3 MVNOs on your network. What is your strategy going forward for wholesale partners? Will you still be looking to work with wholesale partners, potentially try and win some back? Or should we think about the free capacity to be consumed via the new tariffs, such as the Eagle unlimited deal, or is that more than in the retail [ frequent spend ]?

[Michaël Trabbia, Chief Executive Officer & Executive Director]

So on the MVNO side, obviously, it's a complex and limited market with a very limited number of players. So we will not -- we're not able to disclose anything further. What we can say is that we don't expect any new element in 2018. We see this as already known for 2018. Everything is set up. Then I will not comment further because, once again, it's -- we can have some strategy and some proposal, but this is very -- a market with a very limited number of players. What we can say is that our main focus obviously is on our retail customers. And as you have seen, we are quite bullish and offensive in this market. And we also intend to take advantage of the quality of our network while our competitor is migrating their customers into a network that is still not as good as ours. So we believe that, in 2018, we clearly have also window of opportunity to leverage on the difference of quality of our network.

[Operator]

So we have another question, from Mr. Stephane Beyazian from Raymond James.

[Stephane Beyazian, European Telecoms Analyst]

My first question is regarding subsidies in the market. I think, and you stop me if I'm wrong, that you are -- were more active in the fourth quarter. That worked, I think, well looking at your customer additions. So I was just wondering whether you could say a few words on the market for subsidies, and possibly if you could be tempted to be a bit more aggressive in 2018 in order to accelerate top line, even if possibly that would put you in the lower end of your EBITDA guidance. My second question is regarding spectrum with quite large -- I would call jumbo -- sort of auction coming. I was wondering whether you could share with us any intuition on how could be the phasing of the cost for the spectrum auction? And my third question, and I know it's not an easy one, but I was just wondering whether you can say today that you have evidence in your work with the regulator that a cut in the cable cost is definitely coming. Sorry, to ask the question, but we've had negative surprises in the past, so I just wanted to ask this one.

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Maybe Arnaud on the subsidize and if you want to comment on the cost split on spectrum as I can take it, and I will take the regulation.

[Arnaud Marie Julien Castille, Chief Finance Officer]

So on subsidize, as you know on 2017, we have decreased a little bit our subsidies. But yes, Q4 -- in Q4, the subsidize increased. So why did we succeed in decreasing for all the year, it's mainly due to the installment. So in 2018, we are going to continue our policy to push the installment solution, mainly for the high-end handset. But honestly in 2018, it depends, of course, on our competitors, but we don't see a strong disruption in terms of a subsidy on the market.

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Okay, to continue and just to -- also to add that on subsidy, you have also some seasonality and obviously the end of the year is the period where you know you have to put your gifts under the Christmas tree, so there are a lot of people willing to buy some devices, so it's not unexpected that the subsidy is increasing in the end of the year. Looking at the spectrum auction and the cost split, as you know, the regulator is forecasting to start the auction by the end of the year. However, the cost and the amount will be paid progressively with the frequency when the frequency will be freed and that we can use them. So it's not -- it will not impact 2018. On regulation, of course, this is not fully dependent on us, but I can say that I am rather confident that the regulators has perfectly understood as well as the Belgium authorities and as well as the European Commission that there is a real and strong e-competition issue in the Belgium market. So that's why we are confident in the fact that there will be a cut. It's too early to evaluate to what extent. And as you know, there are 2 steps that are forecast in the regulation. The first step, that is supposed to occur midyear with the transitory pricing, and then a more, I would say stable, cut with the cost-plus implementation. But yes, we are confident that there will be an improvement both on the operational conditions because they're also very important, and don't forget that some of the costs we have -- and Arnaud disclosed this earlier, some of them are linked to a bad and inefficient process at the wholesale level, but also, we expect a clear improvement in the wholesale price.

[Operator]

So we have another question, from Mr. Paul Sidney from Credit Suisse.

[Paul Sidney, Research Analyst]

Just 3 – follow up questions, really. Firstly, could I just clarify on the MVNO revenues: everything else being equal, would it be fair to say that you would lose the majority of the EUR 40 million of MVNOs revenues in 2019? Just to -- try and think about the drag in '19. I know you've obviously given us the number for '18. And then the second question following up on the spectrum question. You talked about the phasing and the timing, but could you give us an idea of the expected total cost of the upcoming auction, because I'm just looking sort of very ballpark figure, if you have any ideas. And just lastly, could you confirm that if you did receive a lower cable wholesale rate, is the plan for Orange Belgium still to retain the benefit and reduce the cost rather than pass it on to the consumer?

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Maybe Arnaud on the first 2 questions, and I will...

[Arnaud Marie Julien Castille, Chief Finance Officer]

Yes, obviously, we're going to have a decrease of the MVNO from Telenet in 2019 of 14 -- EUR 40 million, 4-0. So the main point in 2019 -- of course, we're not going to disclose the figures of 2019 but -- will be the growth of our revenues, mobile and fixed revenues. And of course, we are expected a new regulation -- the cost-plus regulation. We are waiting for this cost-plus regulation in 2019. So all in all, these 2 main impacts can be higher than the only MVNO impact. So yes, it's the 2 main parameters for 2019 at this stage. But again, it's too early and [ many on a regulation ] as you know it's too early to know what it will be. On auction of spectrum, so always very difficult to speak about timing and price, but we can expect an auction for the spectrum 700 maybe in 2019 and for the other frequencies, maybe in 2020. The IBPT, the Belgium regulator, did a survey by a consultant in 2016 and maybe the average cost per operator could be close to EUR 250 million. But again, not before end of 2019, we think, and the main amount will be for 2020.

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Perhaps, if I can just quickly follow up on that. So I -- they do plan the auction towards the end of 2018, but then the associated cash-out is only when the spectrum gets activated. And as a result of that, I -- the expectation is that the spectrum will not be activated in 2018 but rather in 2017 -- 2019 for the 700 megahertz, and then for the 3 other spectrum bands Arnaud mentioned, so the 900, the 1,800 and the 2.1. We currently still have the license available up until March 2021. So it's only toward that moment that we then have the associated cash-out related to the renewal of the spectrum of those 3 spectrum bands. So that's why I think I, clearly, for this year, we don't see any cash impact. It could well be that the auction starts but then that, yes, probation of the spectrum only happens in 2019. And the payment is probably balanced somewhere between end of 2019 or even 2020. And then the renewal of the existing spectrum, that is only for March 2021.

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Talking about the last question about how we would react, and then on our marketing policy with the cuts in the wholesale price, and just -- we are consistent in what we always mention on that perspective. Of course we are not going to commit anything because this is market-dependent. But it is clear that we always mention that our objective is to turn breakeven on this offer. So we will, obviously as far as we can, have this first objective clearly in mind, taking into account that we have currently a very good traction in the market. So we don't have any issue with the pricing of our offers to continue attracting customers and achieve our targets in that perspective.

[Operator]

So we have another question, from Mr. Stefaan Genoe from Degroof Petercam.

[Stefaan Genoe, Head of Research]

Stefaan Genoe, Degroof Petercam. First a small follow-up question, on the -- in the call it was mentioned that the MVNO revenues 2018, we should see a phasing. Could you explain why and from the EUR 4 million left in 2018, could you indicate what is the roughly the part of VOO, because the amount of EUR 40 million looks quite high for me compared to the EUR 30 million loss you expect for 2017? And then, perhaps I missed it in the call, but what's the EBITDA contribution -- negative EBITDA contribution you expect from the convergence product in 2018? And then finally, excluding spectrum for 2019/'20, what do you expect CapEx to be? I believe you indicated stable CapEx for this year. And when would you see 5G CapEx coming in?

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Arnaud?

[Arnaud Marie Julien Castille, Chief Finance Officer]

Okay. First question, it's on MVNO 2018 and this EUR 40 million. I want to be very clear, there is a commitment by Telenet to pay EUR 150 million. They have already paid EUR 110 million. So they are to pay EUR 40 million. So I don't want to disclose and we don't have to disclose if it is VOO traffic or Telenet traffic. But all in all, it's just what Telenet has to pay to Orange, and we are going to build all these revenues quarter-after-quarter, about the same level for each quarter. So it's more a question of accounting than traffic at this stage. Okay? But it's clear the Telenet is going to leave our network step by step, but in terms of accounting, we're going to account this -- for this EUR 40 million quarter-by-quarter, about EUR 10 million per quarter. Okay? And the cable business case. So again, I repeat, maybe I was not clear. The EBITDA for 2017 for our cable, the EBITDA -- the total EBITDA was minus EUR 18.5 million. So if you have an average base on 2017 of 65,000 customers, that means we have imagined an EBITDA by customer of about 44 -- EUR 24 and -- per customer -- minus EUR 24 per customer. And you know in this margin, there is the ARPU. The ARPU is about EUR 37 per customer. The wholesale cost, as I said, is between EUR 26 and EUR 27 and all the other costs, but bottom line, it's minus EUR 24 per customer. And what I said, in 2018, thanks mainly to our own efficiency, we can decrease this negative margin by about EUR 8 per customer. In any case, it will stay very negative, but we can improve this negative margin by EUR 8 per customer. And on the other side, CapEx side, also we are going to improve our efficiency to decrease our churn. So the conclusion will be a slight decrease of our CapEx per customer. And the CapEx per customer will amount for about EUR 400 per customer. So I think I have been clear this time.

[Stefaan Genoe, Head of Research]

Okay. That's very clear. And then perhaps the final question on an overall group CapEx for the 2018/'19 period and then potentially for [ when we could 5G next term ].

[Arnaud Marie Julien Castille, Chief Finance Officer]

Yes. Because we don't see at this stage in this 2019 and '20 an impact of the 5G on our network, we can forecast a stable CapEx -- overall CapEx for Orange Belgium.

[Michaël Trabbia, Chief Executive Officer & Executive Director]

What's clear is that our current network and 4G coverage is excellent. So we don't need to have extra investment above the one that are needed to ensure the capacity increase with the increase of the traffic year-on-year, which is what we are currently doing on the network before the arrival of the 5G that is expected from 2020.

[Operator]

So we have another question, from Mr. Nicolas Didio from Berenberg.

[Nicolas Didio, Analyst]

I'm pretty new to the story, so hopefully I'm not going to ask a stupid question, but on the -- how do we have to think about the return on capital on your potential fiber investments long term, and squaring that with your dividend policy? I mean, keeping the dividend policy when you have 1x net debt. Is it something that we have to interpret as, you don't really know what will be made the next 5 years in terms of 5G investments in fiber, and it's just too uncertain for you? Or it's a strong conviction that the -- that you will have effectively, clearly more CapEx at midterm, and you don't want to cut the dividend at some point?

[Michaël Trabbia, Chief Executive Officer & Executive Director]

So on this element first, currently, we have not decided to enter into CapEx in fiber, to be absolutely clear. And we mentioned that we would not roll out a fiber network on our own because we believe it is not economically sustainable to do it unless it is shared with other players. Then on the return for the shareholders, what we -- the Board of Directors proposed to maintain as you see -- as you saw the dividend of EUR 0.5 mainly because the outlook of the EBITDA obviously is impacted in 2018 by the MVNO drop, meaning that if you look at the guidance, it will be an EBITDA that will be slightly decreasing. Then in -- that's why the Board of Director preferred to maintain the dividend. Now we will examine and look every year with the same outlook -- the dividend and our policy there is clearly to provide appropriate cash returns while maintaining a balance and sound financial position. We have been saying that we wanted our leverage and debt ratio to be maximum 1.5, so this mean that we have obviously some headroom, as you can see. But this obviously take also into account the opportunities that might arise. So this is a decision that is taken each year depending on these elements.

[Stefaan Genoe, Head of Research]

Just to follow up on that -- on the return on fiber, putting that in with a conditional. But in France, even someone with 10% market share in broadband, even on the co-investment scheme with Orange, we'll have deflated return on capital. Can you tell us what's your calculation of your return on capital today and how do we -- how should we see that in the next 3 to 5 years?

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Okay. So once again, this will be decided and announced each year. However, what we can say is that we obviously did not reinitiate the dividend last year to cut it afterwards. So we are confident with our policy and we are confident with our dividend, and once again, as I mentioned, our target on the debt ratio is 1.5x. So you can see we have headroom in the dividend, but we don't want to commit on this element because this depend on the opportunity that might arise in the coming years, and we will take this decision year after year.

[Stefaan Genoe, Head of Research]

The question was more on the return on capital invested, not the yield, the trajectory of the return on capital employed or return on investment, if you want.

[Arnaud Marie Julien Castille, Chief Finance Officer]

Your question, if I understood well, it was on fiber, the return on fiber. I think Michaël explained exactly where we are in terms of fiber, and no decision has been taken at this stage. But as every investment, it's just a question of value creation. If there is a value creation, why not. If there is no value creation, it will not be a business for us. So it depends, and we will see what value creation can create fiber compared to other business where we are, and mainly cable at this stage. We have actually this cable business. And it will be always a comparison between the 2 business and all those business are to be value-creative.

[Operator]

So we have another question, from Mr. Ulrich Rathe from Jefferies.

[Ulrich Rathe, Senior European Telecommunications Analyst]

I was wondering on the roaming whether you're willing to sort of talk about the following: and when you look at the average rate you charge other operators for roaming in per megabyte, is that very much different from the rate you pay for roaming out to other operators in Europe at this point? Is there an asymmetry? Or are these rates quite similar to each other?

[Michaël Trabbia, Chief Executive Officer & Executive Director]

Well, obviously, as you know, there is the possibility to have a lower rate than the regulated rate there. And obviously being part of, once again, an international group, also with agreement with other big players in Europe, this clearly helps us. What we can say is that, obviously, there is some kind of symmetry, obviously, in that perspective, and you can imagine that, when we have agreements one with the other, this is something that is important for everybody.

[Arnaud Marie Julien Castille, Chief Finance Officer]

Perhaps if I can add, from a retail perspective, from a consumer behavior, there is obviously a different behavior depending on the country of origin. As you know, in Belgium mobile data usage, while although it's increasing, it's still below the European average. So to some extent, I think people that live in a country where there is more abundance in terms of data and in terms of price per gigabyte, well, obviously, if those people come to Brussels to visit our complex, well then, they typically also seem to have a higher behavior in terms of data usage than a Belgian that is going abroad because obviously roaming is still linked to your national bundle. And for instance, they're looking at the Dolphin 15, you have a EUR 15 offer with 1.5 gigabyte. In some other countries, where they have been a bit more free in pricing their offers, for EUR 15 you might get a bit more data. And obviously again, as those customers come to Belgium, well, they use more data as well. So that does make -- that does have an impact on the balance of traffic in versus traffic out.

[Operator]

There are no more question in queue. [Operator Instructions] So we have another question, from Mr. Michael Bishop from Goldman Sachs.

[Michael Bishop, Equity Analyst]

Just one question from me. It looks like your net debt was quite a bit higher than consensus was looking for. And if I look at the cash flow statement, it seems to be that the cash tax is quite a bit higher because of higher prepayment. So I was wondering if you could detail exactly how much that was, and what that means for the cash tax guidance in '18 and '19? And then secondly, I think the net debt was higher because potentially consensus doesn't reflect the fact that cash CapEx was higher than [ Mercury ] CapEx and also ongoing operating taxes and levies paid in the cash flow. So could you give us some guidance on those items for 2018 and '19 as well, please?

[Siddy Jobe]

Michael, thanks for the question. It's Siddy here. With the permission of Arnaud, he allows me to answer this treasury-related question. So on the cash related to the income tax. It's true that this year we paid EUR 52 million, of which half of that is probably related to the [ rest ] balance. We still had to pay on the tax for 2015. And then the remaining half is prepayments that we have done I -- related to the fiscal year 2017. And there I think it's perhaps important to mention, and that's what we also written in the press release, is that the Belgian Government basically gave some incentives to corporates when they make prepayments. And so that's the reason why we decided to make bigger prepayment than was the case, for instance, in 2016, to give you -- well, I think we paid more than double the prepayment for the fiscal year 2017 compared to the prepayment in 2016 for the fiscal year 2016. So it means that in 2 years from now or in 1 year from now, depending upon when we have to pay the [ rest ] balance, we will have to pay less taxes related to the fiscal year 2017. So I hope that is clear. And then your second question was also on cash -- remind me, again.

[Michael Bishop, Equity Analyst]

Yes. Just looking at the operating taxes and levies paid item in the cash flow, which was about EUR 25 million again -- I'm just wondering again on the guidance of that going forward.

[Siddy Jobe]

So I think your question was on fixed asset payables given that, that was higher in the quarter. Okay, that's just a matter of timing. I think perhaps last year there was a bit more. Typically, CapEx is back-end loaded, yes. So we typically have a peak in CapEx towards Q4. And then depending on the moment you pay the cash -- the CapEx, it falls within the fourth quarter or within the first quarter. And I guess this year it's probably a bit more in the fourth quarter.

[Michael Bishop, Equity Analyst]

Yes, and then just on the operating taxes and levies paid for '18 and '19?

[Siddy Jobe]

I think there's not a lot of changes to be expected there. I think, as you know, all the agreements are done last year. So I don't see any changes going forward there.

[Operator]

So we have no more question in queue. [Operator Instructions]

[Siddy Jobe]

So I guess -- operator?

[Operator]

Yes, there are no further question. I would like to return the floor to Mr. Siddy Jobe.

[Siddy Jobe]

Okay. So thank you for your participation today. Like always, if you still have any outstanding questions, we are there for you to provide you with some extra guidance. With that, I finish this call and looking forward to meet you in the coming weeks when we are on the road. Thank you, and have a good afternoon.

[Operator]

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