1&1 AG
XETRA:1U1
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1&1 AG
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Hello to everybody. Oliver here on the line. In short and in brief, we will lead you through a presentation about our Q1 earnings. And Markus will be happy to take your questions after the presentation to lead you through a discussion. So enjoy your time. I hand over to the operator for the first question. Thank you very much. Pardon me. That's my fault. I hand over to Markus for the presentation, excuse me.
Thank you, Oliver. Good morning, ladies and gentlemen. This is Markus Huhn speaking, CFO of 1&1 Drillisch. I would like to welcome you to our call regarding the Q1 results as well. With the following presentation, I would like to give you an overview about the Q1 performance and the financial results as well as on the outlook for 2020. I would like to start on Page 4 of the presentation, where you can see the number of contracts as of end of 2019 with 14.3 million contracts, thereof 9.99 million mobile Internet contracts and 4.3 million broadband lines. In Q1, we have increased the base for about 110,000 new mobile Internet contracts, which is a weaker growth compared to Q1 2019. The reason behind that is a higher number of cancellations in Q1 '20 compared to Q1 '19 because of the higher contract base. If we have a look on the net sales as well on the churn rate, it is still on the same level as in 2019. In the contract base of broadband lines, we had a slightly decrease in Q1 2020 with around minus 10,000 contracts. This is driven by a higher free-to-churn base in Q1 compared with the other quarters in this year. For Q2, our expectation is that we can keep the number of broadband lines on the same level. It depends a bit on the effects out of the lockdown. But at the moment, we feel rather comfortable to keep the contract base stable. Now I would like to go to the revenues on the next slide, #5. You can see the revenue Q1 2020 with EUR 940.7 million. We have increased the total revenue is about 4.2% in the first quarter. Service revenues were 3.7%. And other revenues, especially out of the hardware business, with 6.2%. In Q1, we had already some effects out of the changes in the usage behavior of our customers because of the coronavirus lockdown, which results to approximately EUR 3 million additional service revenues, for example, in the VoIP area. So the adjusted growth before this effect -- adjusted growth rate is 3.3%. The EBITDA on the next slide, #6. For the first quarter was -- or is EUR 164 million. We are approx EUR 4.5 million below the Q1 2019. There are some issues that are responsible for this development, and we have mentioned this issues on Slide 6. First of all, the EUR 2.8 million initial costs for the 5G wireless network was in the previous year, EUR 1 million. We had EUR 0.3 million one-offs from integration projects, was in the previous year EUR 2.1 million. And we have effect on the EBITDA of minus EUR 4.9 million because of the increased usage because of the coronavirus lockdown. The given outlook for Q2, in Q2, we have a different situation. We have less negative impact and some positive impact out of the corona lockdown. That means that the impact on the EBITDA in the Q2 is more or less on the same level as in Q1, just to give an impression, what we expect for the Q2. Beside that, we have regulation effects, EUR 4.2 million because of the regulation of the subscriber line price increase, which means the German tile, and EUR 2.7 million regulation effects out of the text message costs EU. So if we do adjust the EBITDA for the aforementioned effects, we would come to a growth rate of 4.3%. On Slide 7, we've summarized the highlights for Q1. First of all, the stable growth in service revenues with 3.7%, respectively, 3.3% before the coronavirus effects. The 4.3% EBITDA growth adjusted for the effects out of 5G, one-offs and regulatory effects. We've generated 100,000 new customer contracts. And unfortunately, we had a negative impact on the EBITDA of EUR 4.9 million because of the coronavirus pandemic. On Slide 8, we've summarized the 5G activities of the first quarter, more or less they're the same status that we've reported to you in March during our present -- analyst conference so we are still in negotiations regarding the national roaming agreement. We are in discussions regarding cooperation with suppliers for the wireless network. And of course, we are preparing the expansion of the 1&1 Versatel network. So more or less the same status as in March. On the next slide, I would like to go into the financial figures. I will start with Slide 9, the profit situation. I've already commented the revenue, so I would like to step in the cost of sales. Disposition increased from EUR 633 million in 2019 to EUR 668.1 million in 2020. It's a plus of 5.5%. The reasons for the disproportionate increase are the regulatory effect and the effects out of the coronavirus pandemic. So if we do adjust this amount for these 2 effects, then we would come to an amount of EUR 653 million. And that would be a growth rate of 3.2%, which would be in line with the growth in the revenues. The sales and distribution costs dropped from EUR 109.4 million to EUR 106.5 million in 2020 because of lower spending in media and commissions. The administration costs increased slightly. That was driven by spendings in the 5G context. Without this effect of 5G, this position is more or less on the same level as in Q1 2019. Other operating income is a bit under the level in Q1 with EUR 4.6 million compared to EUR 6.9 million in Q1 2019. In the position impairment losses from receivables and contract, we see an increase from EUR 14.8 million to EUR 19 million, which is an effect -- we have 2 effects within it. One effect comes from a correction in the contract assets of EUR 2 million. And then we have an increase in the impairment losses from receivables because of the increase in the hardware sales. The result from operating activities for in Q1 2020, EUR 126.4 million; in Q1 2019, EUR 128.8 million. Financial result in Q1 2019 was driven by the negotiation -- by negotiating the 5G credit line, and that was EUR 1.1 million. So in Q1 2020, it is more or less balanced with EUR 0.1 million minus. The profit before taxes is with EUR 126.2 million, a bit under the year before. Tax expenses as well. With the consolidated profit or the net income, we are with EUR 88.2 million in 2020, a bit under the EUR 89 million in Q1 2019. On the next slide, we see the balance sheet, Slide #10. We have an increase in the balance sheet in total from EUR 6.462 billion in 2019 to EUR 6.544 billion as of end of March, which is an increase of EUR 82 million. The increase is a result of increase in short-term assets. Short-term assets are increasing in the amount of EUR 167 million. EUR 116 million comes from free cash that are invested with United Internet, in line with the existing cash management agreement. We have an increase in the payments receivable of EUR 12 million. And we have an increase in the contract asset short-term of EUR 45 million. Cash dropped down from EUR 31.8 million to EUR 9.7 million in 2020. And the long-term assets decreased because of a lower contract asset in the amount of EUR 45 million. So contract asset is more or less on the same amount, but it's a shift between long term and short term. So we have an increase in the short-term asset and a decrease in the long-term asset. On the liabilities, short-term liabilities and long-term liabilities are more or less on the same level as end of 2019. Equity increased, of course, because of the net income in Q1 2020 with EUR 88 million. Next slide, #11, cash flow. We've generated a net inflow of funds from operating activities in Q1 of EUR 105 million. It comes from, you see it in the right column, comments, EUR 120.9 million from operating activities; negative impact of EUR 2.1 million because of changes in contract assets and contract liabilities; with a positive impact of EUR 6.9 million because of changes in trade receivables, payables and other assets and liabilities; then a negative impact of EUR 37.2 million because of changes in receivables and liabilities relating to associated companies. We've reduced the inventories in the amount of EUR 6.7 million, which is a positive effect for the operating activities. The cash flow from investment activities in Q1 was EUR 123.6 million. EUR 7.6 million are driven by CapEx and EUR 116 million are the already mentioned investment of free cash flow with United Internet. In the line cash flow from financing activities, we have a negative impact of EUR 3.5 million. The reason for the EUR 3.5 million are IFRS 16 accounting standards. The main background for this position are rental liabilities that we have to capitalize in this accounting standard, and the rental is shown as amortization of financial liabilities. So we come to the free cash flow in Q1 of EUR 97.5 million. On the next slide, #12, we have shown the bridge from EBITDA to free cash flow. So we are coming from the EBITDA, EUR 164 million in Q1. We have the minus EUR 2.1 million because of the contract assets and liabilities. We have the positive EUR 6.7 million because of reducing the inventories. The effect out of changes in other working capital is minus EUR 25.6 million. We had to pay EUR 37.9 million in taxes, and we spent EUR 7.6 million in CapEx. And so we come to the free cash flow of EUR 97.5 million. Now we come to the outlook for 2020. And I would like to confirm the forecast and the guidance that we gave in March with more than 500,000 new customers for the year 2020, the revenues and profit at previous year's level. And as mentioned in the Q1 as well, this forecast is still subject to uncertainties because nobody knows what will happen because of the current crisis with corona, and therefore, as mentioned before, we have some uncertainties in the business. So many thanks for your attention so far. And now we would like to start with the questions and answers.
[Operator Instructions] The first question comes from Christian Fangmann from HSBC.
It's Christian, HSBC. I have a couple of questions. The first one is on the cost side. You mentioned that the EUR 5 million negative corona impact that we had in Q1 will look a bit differently in Q2. Can you maybe explain that in more detail what you exactly mean with that? And is it fair to assume that this is more or less all voice-related rather than data-driven? Would you quantify here explicitly? And then maybe also next question on the operating trends. Mr. Dommermuth mentioned on the Q4 call that he was expecting more or less 150,000 net adds in Q2. Just checking if the momentum has changed, what you've seen in April so far overall in terms of trends, that will be helpful.
Okay. Thank you. Regarding costs out of the corona effect, we had in Q1 in the voice area additional costs because of a higher voice traffic. We had an increase in March of more than 60% in the traffic. In April and May, we see a decreasing of the traffic. So it means that we have lower costs in April and March because of this effect. The costs for -- or the data usage was decreased in April. And in the fixed net area, we had an increase in the traffic. So that the negative impact, the positive impacts are higher service revenues in the VoIP area and due to termination. So in Q2, we have not a negative impact in Q1 because of the lower usage. And we have some positive impact because people can't travel in other countries, and so we have a positive impact on the roaming side. And that, in summary, is the reason why Q2 has not a negative impact as we saw in Q1 because Q1 was more or less 1 month. Regarding your question to the -- that Mr. Dommermuth mentioned in the Q4 call, the expectation for the Q2 is more or less around 150,000 customers, maybe a bit under this number. So at the moment, we do -- we have uncertainty in the indirect sales channel. So at the moment, we do not know how we'll increase the sales figures in that area. So the shops opened this week, but the sales figures are on a low level at the moment. So this is the uncertainty at the moment. So I would say something between 130,000 and 150,000 can be possible.
The next question comes from Louis Rathe from Jefferies.
It's Ulrich at Jefferies. Three questions, please. The first one is just the clarification of what you just said. Do I understand correctly that when you talk about the second quarter effect, you're essentially warning us not to multiply the EUR 5 million by 3, but the minus EUR 5 million could be also the number for Q2? That is sort of the net-net of the different factors. Second question is, in March, I think Mr. Dommermuth said that he sees the network operators dragging their heels a bit in the national roaming negotiations. Is that still the case? Is there any change to the enthusiasm? And at what point would you appeal to the regulator here under the obligation to negotiate in the regulators than with [ a reroll ]? And my last question is the CEO of Telefonica Deutschland a couple of days ago at their Q4 results that he thinks Drillisch are continuing as an MVNO, i.e. without a network, is not off the table. So the question is, what are the circumstances under which Drillisch would stop the network project?
To your first question is more or less the answer I gave in the first question from Mr. Fangmann. So the usage development in Q2 brings us to a lower impact out of the coronavirus. So the usage in Q2 is under the usage in March. And we have some further positive impact in Q2 that we didn't have in Q1. That's the reason why the impact in Q2 is just EUR 5 million and is more or less on the same level from Q1. The situation regarding negotiating the national roaming agreement is still the same status, the same situation as we had in March. So we are talking to the MNOs. The regulator is supporting the process. But in this issue, we do not have any news at the moment. Regarding the last question, we still have the target to build up the own 5G network. At the moment, for us, it's not an opportunity to stay as MBA MVNO. And therefore, this is, for the moment, not an option that we are thinking about. So we are still trying to negotiate a national roaming agreement to go or to follow our strategy to build up our own 5G network.
That's very helpful. Can I follow-up with one question? So you said the regulator is supporting the talk. What is the form initially for the talk? Are they sitting in on the talks? Or are they essentially just sending out letter saying these are important talks? Or what exactly does it mean they're supporting the talks?
So the regulator is informed about that what we are talking about with the other MNOs. And the regulator is talking to all MNOs with all MNOs and with us and is in a function, I would say, as a moderator. And yes, we don't want to start an escalation process because an escalation process will take a longer time. So our target is still to find a way with the MNOs with the support of the regulator to come to a solution now.
The next question is from Joshua Mills at Exane.
Two quick ones for me. The first was just on the approach you've taken to challenging previous price reviews. So [indiscernible] withdrawn 2, you're keeping 2. What was the rationale behind that? And if the latest appeal fails, are there any other avenues you can take to try and get price discounts retrospectively? Or is that going to be it? And then the second question, just on the quarterly guidance. You've given some detail, obviously, on net adds, but how should we think about the EBITDA phasing this year? Obviously, Q1 tends to be a slightly lighter quarter. Is this going to be a back-end year -- a back-end-loaded year of EBITDA? Or should we start to see a pickup in Q2 as well?
So the -- for your first question regarding price reviews, we've price reviewed 2, we are looking on the period until mid of 2020. And with the price review 1, we are looking to end of 2019. So in our opinion, we -- it makes sense to go on with the price review 2, just to keep the whole period under the work of the -- or under coverage. The 3 and the 4 would be a double work. That was the reason why we stopped 3 and 4. And with the price review 5, we are starting in January 2020, and then we are looking into the future for the next 2 or 2.5 years. So that was the reason why we stopped 3 and 4 and is the reason why we will also go on with the price review 2, just to be sure that we have the whole period under coverage.Regarding the EBITDA development or comparison with the year before, in the first year -- first half year, we have, in the comparison, the problem that we have the additional costs out of regulation in the second half year compared to the second half year in 2019. We will not have this negative impact in the EBITDA because the regulation effect, additional cost starts in July 2019 for the toll increase and in June 2019 for the increase out of the EU regulation regarding the short message costs.
Sorry, just one follow-up. The -- so the challenge that you've made on price review 1 to ask for replacing the expert opinion that you announced on 30th of April, when do you expect to get an update on whether that challenge has been successful?
So we started the process end of April, and the expectation is that we will get a result earliest in 12 to 18 months, at least that's what you can expect out of such a process.
The next question is from Wolfgang Specht from Bankhaus Lampe.
Two additional questions from my side. The first one on payment behavior or, let's say, your fear of default. Did anything change going into April, May? Or is it the same pattern that you envisaged in the first quarter? Second question would be on project or service initiatives. We haven't seen a lot from you year-to-date. Do you have anything larger planned? Or is simply not the right time to do so? And then third question on the review #2. So what is your best guess when you hear something from the agencies? So how's the timing for that?
Regarding the first question to bad debt, at the moment, we do not see a higher risk in that area because of the coronavirus. We have approx 5,000 customers who asked us to postpone the payment, and they have to write to ask for postponing the payment until end of June. Most of the customers are asking for paying 4 weeks later or so. And it's an amount in the range of EUR 300,000 that we have to postpone until end of June. So for the moment, we do not see a risk in that area in the customer base. We have the same behavior as we had in the period before. So yes, low risk. Regarding the projection of services, for Q2, we didn't plan anything new. With the new broadband campaign will come with some further features regarding services that we are offering to the customer. But at the moment, it's not public. We will come with information with the new campaign that we will start in June or July. And regarding the situation with the regulator of the Bundesnet AG, it's difficult at the moment. I can't say when will he change anything or will he come to a decision. In my opinion, he can't do a decision. It depends on that what we are doing, do we ask for an escalation process or not. And I explained it before. At the moment, we won't start an escalation process. We would like to try it with the support but not with an escalation now.
The next question comes from Stephane Beyazian from MainFirst.
Two questions, if I can. The first one is could you quantify in any way how much different is in terms of pricing or disadvantage the period for the review #5 versus the period of the review #1? And my second question, I just wanted to come back on the EBITDA trend. And is there any, let's say, big impact or not that we could see from the move for EBITDA this year to the new reviewed MBA contract? If you could make any comments around this?
Stephane, it's Oliver. Sorry, we didn't catch your second question. Pardon me.
The second question is just if you could quantify the impact from the reviewed MBA agreement that you reviewed and re-signed at the end of December.
Regarding your first question, please have understanding that these information are confidential, so I don't want to say anything to prices -- the -- or price effects. Regarding the postponing the MBA contract in December, we did it at the end of December for the next 5 years. And I think we already mentioned it in the March call that we have currently the discussion regarding the price model within the 5-year period. So on this point, we do not have the same understanding with Telefonica. And we are just in discussion how -- which price model is correct for the next 5 years.
The next question comes from Jakob Bluestone at Credit Suisse.
I was just hoping if you could give a little bit more clarity on the EUR 5 million COVID effects. So is that a gross number? So is that basically just taking the higher costs that you mentioned as a result of the increased traffic? Or is it a net figure? So do you also include the benefits that you mentioned, so for example, lower roaming costs? And then secondly, sort of related to that, can you just sort of explain kind of what's happened with your commercial costs over the during the lockdown periods? Have you had furloughing of staff? So are there any sort of shared support from government measures that are helping your costs? So just any clarity you can give around how that EUR 5 million is broken down.
To your first question, the EUR 5 million are net impact on the EBITDA, so on the cost side. So it's the net effect out of higher service revenues, higher costs as well as effects out of the roaming. So I've mentioned that we had EUR 3 million additional services revenues means that we have EUR 8 million additional costs, so we come to the EUR 5 million negative impact on the EBITDA. Regarding your second question, I understood your question that whether we get any support from the government because of the coronavirus crisis, and we decided as a company that we don't want to take any advantages out of these programs because, of course, yes, we have some negative impacts but our business model is still stable in this situation. And therefore, we don't want to ask for any advantages from the government.
Our next question comes from Georgios at Citi.
I've got one question about these few, say, [ part in it ]. It's regarding the process with Telefonica Deutschland and the MNO remedy. My understanding is that, obviously, that has been extended several times. So I'm just trying to understand when do you think is the deadline at which you have to either make a decision to go ahead with it or give our way chance of using that MNO remedy. Linked to that, I mean you mentioned that Bundesnetzagentur's intervention will take time, does that mean that probably you won't be able to take advantage of that intervention, if I understood that correct correctly? And then the final part of the question will be, in the event that you decide not to roll out the network, what can you do with the spectrum? Can you talk us through the options? And I appreciate your best cases, you'll use it. But in the event that you don't, can you perhaps give us an indication of what's your likely course of action?
Regarding the deadline to the MNO option, your first question, we have the clear understanding that there is no deadline. If all details are clear in the MNO option, then, of course, you have to come to a final agreement within a certain time. But at the moment, there is no deadline. Regarding your question to the frequencies, if we would not use them, it is possible to sell the spectrum to the other MNOs. So it is a theoretical option that we have. It's also part of the auction regulations. So we can do this. But as I mentioned before, at the moment, it's not an option where we are thinking about. And at the moment, I couldn't say what would be the cost for such a process or what would be a possible price to sell the frequencies.
If I could ask a follow-up. I mean last year, we're discussing about there being a deadline, perhaps at the beginning of 2020, for the MNO option. What has changed since then? Why is that now something that's readily open-ended?
It was not a clear or it is not a clear regulation within the MBA contract. So in last year, we thought there is a deadline, but we talked to the commission and the commission has a clear understanding of this regulation in the contract. And that means there is a deadline where you have to start with the MNO option negotiations and that what we started in last year. But there is no deadline until we have to finish the MNO option. And that was the reason, let's say, for a misinterpretation of the contract in last year.
The next question comes from Usman Ghazi from Berenberg.
Just want to make sure you can hear me, please, first?
We hear you, but it's a very bad line, Usman.
Okay. I'll try. So just the first question was just on the -- like you said, the misinterpretation of the MBA contract or what the rate should be for the next 5 years, which you said you and Telefonica are both in discussions with. I guess what breaks the deadlock on who is right on the interpretation of the contract? I mean is the commission involved or -- I mean how does this get resolved, I guess, is the first question. And who -- which party would resolve it? The second question is just on the migrations from the Vodafone MVNO to the MBA MVNO. I was just wondering if you've seen the pace of these migrations slow at all because of COVID or do they continue to be at the higher run rate that we were seeing last year. And I think I'll leave it at that.
So regarding your first question to the 5 years prolongation of the contract, the commission is involved, and we are in discussion with them to -- yes, get an understanding who is right. Regarding the migration from Vodafone into the MBA MVNO, it's still on the same level. So there are no changes because of the coronavirus pandemic. So on the side, we have a business as usual. So we are migrating the same numbers of customers as we did it in the last month.
Great. Can I have a follow-up, please? On -- so am I right in thinking that once the commission comes back and clarifies who is right on the pricing within the MBA for the next 5 years, at that point, there will be kind of a deadline to end negotiations on the MNO option? Is that the correct interpretation?
There is nothing agreed in the contract or in the remedies that if the commission comes to resolve that there is a certain deadline. So it's open. It depends on what the commission will say after they come to a decision. But at the moment, there is no deadline mentioned -- which can be used for such a situation.
And you would expect the commission to come back, I mean, in a few months? Or could it take longer than that?
This is difficult to say. I don't believe that it will take a lot of months. But at the moment, I can't see that we will get any response within the next 2 or 3 weeks. So difficult to say at the moment.
The next question is from Jonas Blum at Warburg Research.
Yes. I got three questions, two follow-ups first. Just wondering around the price reviews. Can you clarify if you could potentially reactivate price review 3 and 4, which you withdrew recently? Secondly, around increased wholesale costs. Just wondering, your higher voice usage, does that mean that you actually exceeded the 20% capacity threshold with Telefonica Deutschland? Or is there a risk in your opinion of doing so within the next couple of weeks or months? And finally, around that, how sticky would that be once home office effects fade? And [ past here ], as a third question, just around broadband. I mean so you basically expect your customer base to be stable, although obviously, there is some higher competitiveness in the market driven by Vodafone and also potentially by Telefonica Deutschland in the future. Any more color on how you to try to sustain your commercial momentum here would be helpful.
So regarding your first question, price review 3 and 4, it is a final decision, so we can't reactivate these 2 price reviews. So they are finished. Regarding the expenses from -- for voice for the next month in the Telefonica area, therefore, that the customers in the Telefonica net or Telefonica's customers are also using more voice in the last month, so the net is growing. And therefore, we will have in June and July, more capacity as we had in the past. So we do not see a higher risk for the period in the second half of the year. So it's all included in the projection we did for the Q2. So on the EUR 5 million are all these risks calculated. Regarding the broadband lines, we mentioned it already in the first quarter call or in the call in March. We have -- our commercials in the broadband area are very good. And if we would increase the customer base significant, we -- it would be necessary to attack the cable prices, which are below under our current prices, and that doesn't make sense from a commercial point of view. And therefore, our target is to migrate more and more customers to VDSL and works rapid at the moment. So we have a progress or an improvement in the commercials of the customer base, and it makes more sense to keep this commercial base on a stable base, whether to attack the market and cannibalize the customer base with lower prices and -- yes, with lower prices and sales actions. And therefore, our strategy is, yes, to keep the base stable and to keep also the commercial stable in that area.
[Operator Instructions] The next question comes from Polo Tang from UBS.
I just have two questions. First question, just really a clarification in terms of the timing of the price reviews. So in terms of price review 1, I think you made it very clear that there's an appeal process. But I think you said it could take 12 to 18 months. So my question is really, can you do price review 2 if you're still waiting on an appeal from price review 1, which could take 12 to 18 months? So any clarification on the time line, much appreciated. And my second question is really just -- can you comment in terms of capacity dynamics in terms of both the German mobile market and the broadband market? Because specifically, if I look at the fixed line side of things, you're actually being quite aggressive in terms of you have a EUR 10 per month offer for 10 months for 100 megabits per second. So should we expect to see actually an improvement in terms of your broadband net adds in the second quarter? Or is the focus just trying to keep a stable broadband base? If you could talk about competitive dynamics in broadband and maybe also German mobile as well.
Regarding the price reviews, so our suggestion would be to set the price review 2 on hold until we would have a result out of the legal act against price review 1. But the decision is the arbitrator don't want to -- or doesn't want to postpone the price review 2, so it will start within the next weeks. So we have -- at the end of the day, 2 processes, one is the legal act against price review 1, and the second is the, let's say, normal price review via the arbitrator for price review 2. And what we try to explain is the mistakes and the method we did. And we hope that he will change his mind during the work in price review 2. But at the end of the day, it's open, and we can't give any protection, whether it will be successful or not. Regarding the prices in the market, we have, let's say, some special offers because of good commercial conditions. For example, a good offer with Samsung S20 with the watch, something like that. But the prices in the portfolio, we keep stable. So we don't want to be too much aggressive in the portfolio because of the risk of cannibalization in the contract base. And we are working with special sales offers, for example, for 1 or for 2 day, to get more customers, but not to be too aggressive in the market.
The next question comes from Simon Bentlage from H&A.
Just a quick follow-up on the national roaming topic. So I understand you're in negotiations still, and you don't really have a view on when this will be finished. My question is, is there a point in time where you think you would have to be finished in order to fulfill the requirement and in order to ramp up the network in a timely manner also to keep up with your peers? So if you -- yes, just asking for a point in time where you would have to be finished with your negotiations.
Yes. As we mentioned before, we do not have a deadline. Of course, to fulfill the requirements regarding the net rollout, it would be necessary to have it at the end of this year. But also this issue, we are quite clear that we have not a deadline, and that we will go on with negotiations to get good commercials for it.
The next question comes from Christian Fangmann from HSBC.
Yes. And actually following up on Josh's question earlier on the EBITDA phasing. I understand that the regulatory effects are easing and the second half is an easier comp because you're not comping against the negative regulatory effect. But my understanding is that you have incremental costs. I mean you signed a new sponsorship deal with the football club [indiscernible]. My understanding is that the annualized cost for that deal is around EUR 20 million of, let's say, marketing spend. Is it fair to assume that some, I don't know, EUR 6 million, EUR 7 million, EUR 8 million, EUR 9 million, EUR 10 million will negatively impact the cost base in the second half?
Yes. It is liabilities out of the contract will come on top in the second half with the proposed -- the mentioned EUR 10 million. So it's additional on the current cost base.
The next question is from James Ratzer at New Street Research.
I had a couple of questions, please. So the first question was just regarding your kind of structural outlook for mobile net adds. And I suppose as a challenger in the market, I'd like to think that actually if we see some economic pressure in Germany, you might actually start to be a beneficiary from customers looking to spin down to take advantage of your more appealing tariffs. I mean are you seeing any evidence of that starting to come through as shops reopen? And is that a thesis you would share and might help to provide acceleration in net adds in the second half? And then secondly, I had a question about national roaming options. You've mentioned negotiations with MNOs in the plural. But just to understand, I mean, could you switch to a national roaming agreement with another MNO given that you have now legally signed up for the MBA MVNO agreement with Telefonica Deutschland until 2025? Doesn't that lock you into future payments with them for the next 5 years, so it might be hard to switch to a national roaming deal with another MNO before then?
Regarding your first question, it's very difficult to give an answer what will happen in the Q2 and Q3 because of the customers' behavior. At the moment, we see that we are getting less cancellations as in the past, as we've expected. So our impression is that the customers are, at the moment, not willing to look for better offers or to cancel their contract. Whether it will lead to an accelerating demand in the second half of the year, it's also difficult because nobody knows how long will the current situation go on. So at the moment, we see a lot of changes in Q2, where it is difficult to make a projection for the Q2. And it's also difficult to give a projection for the second half of the year. So regarding new customers, we do not see a big change. I would say it's a bit less under than what we saw in the first month. We see, as I mentioned before, that less customer are canceling the contracts. But yes, as I said before, it's difficult to give a clear projection for what we expect what can happen in the next month. Regarding the national roaming agreement, just to ask the colleague. Your question was whether it is possible to make a national roaming agreement with another MNO. That's still possible because we've committed 5 years agreement for the MBA MVNO, but the national roaming agreement is independent. So of course, we can do national roaming agreement with Telefonica -- Telekom or Vodafone, it would be possible.
Could I -- sorry, can I follow-up on that? I mean if you did that though, is there any benefit for you doing it? Because aren't you locked into kind of ongoing payments with the MBA for at least 5 years that would be hard to be reduced?
It depends on that what we negotiate. It will not bring us in the near future an advantage, but it will bring us in the next 2 or 3 years, when we start with the rollout of the 5G network, then it will bring us advantages. So -- and therefore, it can make sense to make a national roaming agreement with another of the 3 MNOs.
The last question comes from Steve Malcolm at Redburn.
Can you hear me okay?
We can hear you, Steve. Yes.
Okay. Great. I just had a question on the prolongation of the MBA and the price base, I guess, on the renewal in July. Can I just be clear, is your guidance based on a continuation of the current situation? Is it based on the assumption of an improvement? And if -- will the ruling have any bearing from the commission on your decisions to carry on the price reviews 2 and 5? I mean if it goes against you, do we assume you carry on with the reviews? If it goes in your favor, do we assume that you may abandon the reviews for better pricing? Just that be good to understand the linkage between the commissioner's decision and any decision by you to carry on with price reviews 2 and 5, which obviously create a lot of uncertainty around your share price.
So our projection is based on the price and condition model that we had in last year in the MBA, on the last 5 years of the MBA MVNO contract. And regarding your question to the price reviews, whether we will go on with price review 2 and 5 after the decision of the legal claim against price review 1, it depends on the decision. So for example, it can be -- if we are successful in price review 1, that we have a decision that the 2 and 5 is not necessary. But as I said before, it depends on that what we will get as a result out of the process.
Okay. So just to be clear, a favorable decision by the commission on the extension of the MBA and the cost base would be upside to your current guidance, is that right?
It's -- of course, it could be. But at the moment, we can't give any projection or we don't have any ideas or information. It can be but the decisions for price review 1 and the decision for price review 5 will not come, in our opinion, within this year. And the problem will be that we will not get a decision, which will have an impact on the year 2020.
No. But I'm talking about the extension of the MBA MVNO in July and your discussions with the commission on the right cost base on the renewal from 1st of July. I'm not talking about price reviews 1, 2 and 5.
As I mentioned before, the guidance based on the current price model. And regarding this price model, we are still in discussion with Telefonica. And I'm quite sure that we'll have an idea within the next 3 months what will be the price model for the next 5 years. And then we would make an update, as we mentioned in the outlook, at the mid of this year with our half year report.
Okay. But the guidance at the moment is based on a continuation of the framework from 2015. It's not based on any improvement based on the current situation?
Yes.
We have a final question from Usman Ghazi at Berenberg.
Just following up on the MBA model after July. So as the model stands right now, my understanding is that the price per gigabit from July will basically be the average in the last 12 months going into June 2020, which would imply that the price per gigabit would go up in the second half of the year, which obviously could lead to -- which should lead to, in theory, higher wholesale cost. I mean how significant would that be? And I mean given your guidance is for flattish EBITDA, would that inflation in H2 under the current pricing model be significant? Or is this manageable?
As I mentioned before, the guidance is based on the price model, the current condition model that we had in 2019. And this is also what we are discussing with Telefonica. And in the price review 2, of course, we do also have a look on the period beginning July 2020 where the next 5 years are beginning. And please have understanding that we will come with an update on the guidance when we have this information and if we report the half year figures.
We have no further questions, so I'll hand back to the team.
So thank you to everybody participating in our Q1 conference call. As always, we are happy to take your questions or your remarks later from this afternoon on and maybe discussing arranging a call with my CFO from next week. Thank you very much, and stay healthy and take care. Bye-bye.