freenet AG

XETRA:FNTN

Earnings Call Transcript 2019-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to the freenet AG analyst and investor conference call regarding the results of the first quarter 2019. [Operator Instructions] Let me now turn the floor over to your host Mr. Christoph Vilanek. Ladies and gentlemen, please hold on a second.[Technical Difficulty] Mr. Vilanek, please go ahead.

[Christoph Vilanek, Chairman of Executive Board & CEO]

Thank you very much. Warm welcome to everybody. We had some connectivity problems. It was fixed line. This is not our core business. So we failed. Thanks for giving us some extra time. And again, a warm welcome for our today's conference call on the Q1 results. I'd like to start immediately with the presentation. Overall, my summary is that the first quarter ran exactly as we had planned it, and we are perfectly on the trajectory for the full year guidance. Revenues are on a absolutely stable level from previous year even though the Uk Away radio program was phased out. So we have compensated that with more service revenues on the other end. EBITDA is up. Certainly, a big proportion of it is from IFRS. But even without IFRS effect we have a slight growth. And following the projection for the full year guidance, free cash flow is up, and Ingo will give you a brief on that one in a second. And most importantly, the subscriber base year-on-year grew 320,000 subs. And quarter-to-quarter, it was also going up. That is seen on the next page. During the quarter, there's a slight growth in the subscriber base. I'll go into the detail of each of the 3 components. Postpaid dropped by 0.5%, but it was an actively managed activity across a number of elements, which led to that, I would say, negligible little downgrade. freenet TV up a little bit and waipu on the growth path, which indicates that the 350,000 will be rather easy one. But I'll come back to that in a second. Let me start with the overall situation or the view on the mobile Telefónica piece, the postpaid piece, which is the most important. As you know there are 4 components where we kind of intervened and actively managed during the past quarter. This was not a singularity to the quarter. This is something which we have already done in the fourth quarter. But with more emphasis in the first quarter. We have let go some of the less efficient channels. There is some minor activities online with partners that we have basically reduced, and we have cleaned out a couple of affiliate partners where for -- or that from the customers was identified later the year, and this is why we switched them off. Second element to the optimization of margin and customer base is that we have reduced the share of low-end tariff plants, and there is more detail on the upcoming page. We also have seen the hardware industry not delivering significant new innovation. This is then -- this impacts then the subsidized posted business mainly on our own retail channels as well as Media-Saturn.And we have had a very strong performance with Vodafone in the first quarter. And that also led to the fact that finally with start of the second quarter, we have their full LTE plans on any of our plans available in Vodafone. DTAG and tariff was a little lower in the first quarter but it reflects also the last year. I would say those 4 elements led to the fact that we have actively managed growth at development and consequently the net at development net to 0.5% down in the quarter-by-quarter plus I -- but still plus 1.4% year-on-year. So we feel very comfortable with that. On the next page, we've given you some more details on the change in tariff mix. I mean the statement I think is very simple. We have -- we let go some of the tariffs below EUR 20 that corresponds to my statements on channel mix, and on subsidies from previous page and the share of those ones came down by 5% of total whereas tariff plans on the higher level EUR 20-plus was growing. This consequently also impacts short term. But more importantly, midterm, the ARPU. The other step that was introduced in March, was -- on next page, we have launched our new marketing campaigns. For the past 4 years, we have -- we had our main testimonial Costa driving the message of good value for money, attractive pricing based on research and a lot of testing. We have now switched to a new very strong campaign stressing the fact of, what I call, the local heroes. So in our shops who will be supported in readjusting your phone, changing your phone and doing all kinds of extra services. The campaign tests really well. The services are very much appreciated and it addresses not only the needs of existing customers but also of the regular footfall. So tracking and recognition and brand [ perception ], all those KPIs tend to prove that this new campaign is really delivering what it was supposed to deliver. And I think it also fulfills the [Foreign Language] of more service and less of a price war in the market. Having said that, even though it does not belong to the first quarter, but to the second one. This week on Monday, we've launched our new product. And this product is addressing a couple of the things that I have just mentioned before. The entire product freenet FUNK or FUNK in German is a product, which you can only order after you have downloaded an app. There is no availability in the shops, there is no availability online. Customers have to download the app. Within the app, they can then choose the number. The entire identification process is within the app, then they tend -- ask for the delivery of the SIM card, either they can pick it up, but typically, the first 3 days, we've seen that they asked for postal shipment. In the bigger metropolitan areas, there is also same-day delivery cooperation with low fee, I think people like pizza delivery and so that would also deliver the SIM. Customers activate the SIM card through reading a QR code via the app. The entire interaction, the entire pausing of -- choosing the pausing of the tariffs, et cetera, et cetera, it's all done within the app. The app delivers also additional information, especially for young people. What is your data consumption on a day? Who is the ones that you talk? How often? What's your overall consumption invoice, SMS and text? Et cetera, et cetera. It is kind of an hybrid product because you -- basically, if you choose the day-by-day tariff plan, you are billed every day and the sole methodology on payment is PayPal. On the next pages, we have given you some indications of what the app looks like. But I highly invite you just to download it and experience it yourself. There's only 2 tariff plans. Super simple. One is unlimited. Unlimited including text data and voice. It's EUR 0.99 a day. You can stop it, you can pause it. People have full flexibility. And the second tariff plan is a 1 gig a day plan for EUR 0.69 a day. Again, they can pause it, they can stop it, they can -- there is no need to basically cancel the contract. After a certain period, we cancel it automatically, but customers can change that. And by the nature of the tariffs, if we would ever do a promotion or if we would ever have to change the prices by nature all the customers automatically get the benefit of new pricing because otherwise, I mean they basically would cancel and reorder. Feedback in the press on social media has been very positive. So far, we can basically only read the number of downloads, which we will not disclose, but we have a very positive first payee indication bill plan. There were many others put it on their front pages of their online apps and activity. So I'm sure that next round of second quarter call, we will give you more insights on it. But we're very excited and get the positive feedback external, internal. So let me move on to the TV segment. First, the page here, which is Page 11. This is the trajectory of waipu subscribers. So these are -- these customers can take advantage of the full set of private channels, HD, recordings, et cetera, et cetera. You are all aware that there's also free product with the public channels only. We're doing really well. There is a growth of 115% year-on-year. There is plus 34,000 quarter-on-quarter. So we feel very comfortable with the original guidance. We have recently done a survey once again on our customers. The customer age on average is 44 years. It's 2/3 male, 1/3, it's female, which is the one -- this is an indicator of who we relate to in terms of payment. The usage might be a bit different. I myself, I'm the subscriber for my family and obviously my wife and my children watch it. So they would count me as a male subscriber. The average is more than 10 years younger than the regular term and linear TV consumer. So we tend to be a bit younger but not really early adoptive type of thing. These people are majority working and they tend to live in a household with more than two people, which also shows that the mighty room options and the mighty user option is something that is very attractive. Next page, we've shown you what is the current usage that we measure. You should be well aware that any of the subscribers, whenever he or she is using the service, we can identify the hardware, we can identify the type of connectivity. We see even with DSL or broadband provider. And we know all these details. And obviously, we collect those data in order to later on, a, adapt to the individual needs and also to use it to improve targeting of TV advertising. The key message here, 80% of the usage is on big screen, which shows that after a little while people realize that waipu.tv is not a mobile television entertainment, but it is the best alternative for cable or satellite or even TVBP too, in the household. I will not go through the entire details of Page 14. But we'd like to indicate that there is a constant flow of new feature sets and new benefits in 2019 as we have lined out before. Apple TV, Android TV will be launched, and it will be a full, a pure 100% Android TV solution in the third quarter, most likely with freenet-branded remote control and the freenet-branded dongle or little set-top box. The Instant Restart is about to be launched and there is a constant inflow of a number of new channels. There's also some ethnic channels in -- about to roll in. The 2 big steps that we have achieved or the team in Munich has achieved during the quarter was that finally we have signed and installed and launched the cooperation with Axel Springer Verlag. At least, the Germans are well aware of the BILD title and the BILD family comprising also AUTO BILD, Computer BILD and many others. We have over 6 months work with BILD-Zeitung or with Bild verlages on a 724 channel that is delivering political information, the regular news, everything that you can -- you all know from BILD. And there are sub-levels, such as car mobility, documentaries as well, but also a lot on computer and technology. The channel -- if the people choose the channel on the remote control, there's immediately a live program, which indicates there is a constant lineup of program and then people can also, with one click, switch into the full library and stock of BILD-Zeitung. The good thing about that is and it's our pilot program with kind of complexity. The entire thing is based on the robot that the team has created and it's about to be patented, so that we can basically plug into any moving picture library and create a program out of it. We are not only the technical solution provider but we also do the media selling here on those channels, and I think it's the first of, hopefully, a number of new channels that we launch. We have done ADAC before, we have done Mediakraft before and Rocket Beans, but I think BILD should be kind of a lead in of a new dimension of television in Germany. The second real achievement, which is very positive, and from freenet's point of view, a revolution. Finally, after 25 years being a service provider to the network operators, we become kind of the operator and they become our service provider. O2 Telefónica Germany has launched only last week, their own OTT/IPTV solution based on a sales cooperation with the team of EXARING/waipu in Munich. So they act as a sales partner, which I think is very exciting. There was a long work with those guys. There was a public tender on the solution. They had, as far as I know, there were the Telefónica internal solution. There were many other that they have looked and then finally they have decided that working with the guys of waipu delivering our original product to their customers is the best of all. So I'm really very positive about it. Obviously, we will not be able to communicate a lot of details there because they are subject to Telefónica giving disclosed number of customers that they have acquired for us. But obviously, for the entire story of waipu, this is a breakthrough moment, and we're talking to a couple of other big partners that also would love to have waipu as a product for their own sales force. Last but not least, a glimpse on the freenet TV. So the antenna B2C business, there as well if we compare by the end of the year, we have crossed the 1 million RGUs and there is a slight surplus in the first quarter. So I think this proves that, that one drop in Q3 was a unique event that happened, and we have explained that before. But we are positive for the full year that we will have remainder of customers higher than 1 million. After that, kind of qualitative look at products and the performance, I'd like to hand over to Ingo Arnold for the financial review.

[Ingo Arnold, CFO & Member of Executive Board]

Thank you, Christoph. Hello, everybody, also from my side. First of all I'd start on Page 18. First of all, I would like to confirm what already Christoph told you. I think what we've published here today and what we saw in the first quarter is the total confirmation of the guidance for the full year what we are -- what we gave. So we are fully on track on that. So what you see in 18 is the revenues stable at EUR 689.9 million. The gross profit, which is slightly increasing because of some IFRS 16 effect from EUR 223 million to EUR 227 million. Without this effect, it would be also stable. And also if we look into the EBITDA, there is EUR 11.4 million increase quarter-by-quarter, but this is based on IFRS 16. And if you just compare the EBITDA without IFRS 16, it's very, very stable around EUR 96 million, EUR 97 million. If we change to Page 19. So we did it the first time with our last figures that we announced also to give a more detailed view in the segments and to show what the -- in the segment allocation effect is. So on Page 19, on the upper end of the slide, you just see the figures. Including it, there you see that mobile is very stable, TV and Media slightly increasing, other/holding slightly decreasing. But what I think what is more important is to talk about the line without inter-segment allocation and what you can see here is that mobile shows an increase of EUR 8.7 million, and here, partly this is because of lower gross ads and lower cost for SAC and for SRCs. But it is also a good margin, what we saw. So it's a perfect confirmation that this business is very stable and that we do not see any problems, any pressure in this year. So I do not understand these comments, what we see very often because, again, it's a proof of the concept and it's a proof that this business here is very, very stable. Then if we look, and if we change to TV and Media. Here, we see that there is a decline of EUR 6.1 million. This is mainly driven by the analogue radio business here in the first quarter. And -- but as you know, last year, this was not stopped in the first quarter, so we had the analogue radio business last year. So during the year, this effect will go down because there will not be any positive EBITDA. There were no positive EBITDAs in '18. So it is [ obviously ] something, which we will see. In a lower way, in the second quarter, but what we will not see in the third and fourth quarter. Then we see with the other/holdings. There we also see a decrease of EUR 2.9 million in the EBITDA. This is based off some project cost, what we have some personnel cost. It is also -- it's a onetime effect, more or less. So I do not expect it to continue in the other quarters. We have these effects in the first quarter to show here. If we change to Page 20. On Page 20, I think first of all, if you see the revenue, the revenue in the media broadcast, this is something what you see here is decreasing, this again as the analogue radio business. In all the other segments here and without this analogue radio business, you see slight increases in the revenue. If we move to the gross profit. Here, again, you see that the mobile without inter-segment allocation is plus EUR 9 million. Therefore, you see that the EUR 8.7 million, what I showed before from the EBITDA, this has nothing to do with savings on the SG&A side of something like this. It's real profit, which is from the business here. If we change to media broadcast. Here, we see in the gross profit, the minus EUR 4.2 million, again, from analogue radio business mainly. And we see that EXARING, in terms of gross profit and also in terms of EBITDA, it is very stable to what we did last year and so we are steering it in this way. As you know, we are steering EXARING by EBITDA budget. What we grant them, but -- and they have to deliver as much gross adds and as much growth, which is possible in the framework of EBITDA what we give to them. Moving to the free cash flow on this page. This is better than last year's EUR 7 million. You see here, the new leasing part, which is increasing here in this bridge. I think what you see is the EBITDA is EUR 11.4 million higher from IFRS 16, and you see that the leasing is higher, the out payment here is something like EUR 11 million, EUR 12 million higher. So this is something that compensating the effect. If you would see the other changes in comparison to last year, you see slightly increasing interest payments because we have higher gross debt here. And what you also see it is a lower number of CapEx. So we only paid out EUR 6.8 million in the first quarter '19, which was EUR 11 million in '18. And this is because we had less CapEx to pay for media broadcast. Changing to the mobile business on Page 21. Yes, I think Christoph already explained that we focused on profitability here. It was not -- it was definitely also driven by the finance department here that we wanted to focus on quality here and that we wanted to focus on profitability. So we accept as to see a loss in net at the end of first quarter, but this is something what we feared and what we wanted to have there and what we accepted, but we are aware and we are very confident that in the long run this will optimize our profitability here. The ARPU, it is EUR 18.8 in the first quarter. So it is stable. As you know from the past, it is possible EUR 0.20 lower, EUR 0.20 up. In all these cases, we talk about a stable ARPU, and this is what we also do here. I think in the second quarter, it's also possible that it increases by EUR 0.20. So it is stable. No big change. Moving to digital lifestyle revenue. This is something what we see here that it is a little bit saturated. Yes, you have to -- we have to be quite frank here. So what we do at the moment, we stabilize the revenues in this part of the business. What we try to do, and this is also part of the margin increase what we saw in the first quarter in the mobile business, is that we try to optimize the profitability of this portfolio. And this worked fine in the first quarter, and we try to do so, also in the following quarters. Moving to Page 22. I think most of the parts here, we already discussed. I think what is important is if we look into the revenue is that the postpaid service revenue quarter-on-quarter is increasing. So it's another sign that the business is very stable. And so from EUR 383 million to EUR 387 million. And all-in, the service revenue is slightly increasing from EUR 417 million to EUR 420 million.Moving to the TV business. This is on Page 23. I think on the Page 23, most of the impact, what we show here, we already discussed. Therefore, I would like to directly move to 24 because here we see a little bit -- with more transparency in what segments of the TV business we saw the moves. So what we see here in terms of gross profit is that the loss, what we see in media broadcast in comparison to last year's quarter, it is mainly driven by the analogue radio business, what I already described. So you have EUR 5.7 million loss in the gross profit B2B and you have a EUR 3.6 million loss in the EBITDA B2B. What is important to know here is that we started personnel restructuring because of selling the business. I think we already reported about it. And so we will have a significant reduction of personnel cost here, starting on the 1st of April. So you do not see this effect in the first quarter. You will see the effect first time in the second quarter. So as you have this decrease here and this abbreviation in the first quarter, but this will not continue in the following quarters. In the B2C business. Here, we have some -- we had some additional sales of hardware, et cetera, in the first quarter '18. But what we also have, and I think most of you are aware of the situation, we have something like a glide path here in the conditions with the private channels. So we have slightly increasing cost with the private channels year by year. I think it's not increasing every year. But this year, there will be this slight increase. And we will also see this in the following quarters. But the effect will not be as big as in the first quarter. Moving to the balance sheet on Page 25. What you see on Page 25 is that the equity ratio is slightly decreasing. This is only linked to the start of IFRS 16 because you have higher asset value here with EUR 4.9 billion. And therefore, the equity ratio is increasing. But in itself, there is no other reason for this. Then we have the net debt, and we show it now in a very conservative way. And this net debt is increased from 3.8 to 4.2. So without IFRS 16, it would be decreased. But because of the effects from IFRS 16, it was increasing. And in the last column here, you still see, if we would deduct the market values of the equity investments what we have, it would only be 2.4.I think I already talked about it in the last call, it is important for me to talk about the pressure on us again here because sometimes I think it was a little bit overvalued from you. I think it is important for us, and it is still our target to reduce the net debt to levels below 3.5. But we have a healthy balance sheet here. So it is not necessary to do something in a very short period. All the financials, what we have, all the covenants are in line with what we plan to do in the next month and what we guided and so on. So I think, yes, it is our target to review it and stick to it definitely. But we do not feel any pressure in our daily action here out of this. So that's the financial figures from my side. So I would like to start the Q&A now.

[Operator]

[Operator Instructions] And the first question comes from Christian Fangmann from HSBC.

[Christian Fangmann, Analyst of Telecoms]

I have a couple of questions. First one on the postpaid net add trend. I mean the results were a bit weaker than expected. I get the point regarding refocusing on more valuable customers, and you've shown the pie charts that are very helpful. But if we look out for the rest of the year and also, given your new launch of mobilcom-debitel FUNK. What can we expect in terms of trends for the rest of the year? Are they staying around 0 level? Or are you anticipating a step up in the rest of the year? I mean I know you can't give exact guidance but if you give us a rough indication would be helpful, I think. And then I think the other one was on TV revenue. That was EUR 10 million drop year-over-year, just from a reported standpoint. What is a bit of a [ black box ] for us is clearly the legacy B2B business. Now obviously, without the analog radio business. But what is kind of the trend for that kind of part of the business? I think if you could give a bit more granularity around that. It would be helpful. And then lastly, maybe on waipu TV with the new cooperation that you have now with O2. Isn't your waipu TV target a bit conservative? I mean is there -- are you seeing that it could be substantially higher? Or was it already part of your guidance anyway? That's it for now.

[Christoph Vilanek, Chairman of Executive Board & CEO]

Yes. Thank you, Christian. I think all valid questions. First one on the postpaid. I mean the guidance was that there was -- we were planning to be a bit higher than by the turn of the year. And I think it still remains on that level. If I look at -- if I compare our development with the one of Deutsche Telekom, I think they lost 1% quarter-on-quarter. We are down 0.5% for maybe somewhat different reasons, but we still believe that the market overall will absorb the volumes that we plan. So we stick to the guidance which said that there will be by the end -- by the turn of the year, we will be a bit higher than on the first of January. So that also indicates that we need to -- we foresee more -- we foresee growth. Again, mainly in the second half of the year because that also corresponds a little bit to our churn rates, et cetera, et cetera. And I think freenet FUNK is a little bit of a hybrid because it's in a way, it's postpaid. And in a way it's paid by per use. We will need to see how we incorporate that depending on the size. It will deliver. But that's something which we have not made our mind up.On the TV revenues, the media revenues, the downgrade by EUR 10 million is the [indiscernible] business, which was dropped. So given the fact that we had last year, we had 2 quarters, first and second, [indiscernible] revenues. That is the driver -- driving force for the drop this year. For the first half here and the second year and this will wash out and the increase on waipu will not fully compensate this year. So overall, I would say year-on-year, I would assume a wash for the full year. So a downgrade on first and second and then a slight upgrade from the day-to-day business in the second and then the wash. And the last question that I have seen was -- or I've heard was waipu. Again, we are not -- while this -- the sales cooperation with the Telefónica was not part of our plan because back then the contracts were not signed. I cannot guarantee whether we will only show our internal revenues or whether we will also show kind of the subscribers and users on Telefónica because that's something which we have not discussed yet because certainly they will also have to report on it and we don't know exactly what the granularity will be because part of their customers will have it as a triple play offer, et cetera, et cetera. So we have to come back. But definitely, the 350 was a standalone without Telefónica, and we will -- but the revenues that are generated will be reflected in our business. I think we can be -- we have to beg your patience until after the second quarter.

[Christian Fangmann, Analyst of Telecoms]

And as a follow up to that one. And -- but is my understanding right that the customer ownership is with you and not with O2? Is that correct on waipu?

[Christoph Vilanek, Chairman of Executive Board & CEO]

Well, it's actually a split one. On that -- so we can address those customers within the waipu platform, and that includes any revenues generated out of upsell, cross-sell on VOD and on advertising. But O2 also has those customers in their own ownership because they -- at least that was the intention that typically they would sell it into their customer base. So it's a double customer ownership. But we can market those customers on -- within the TV application.

[Operator]

Your next question comes from Usman Ghazi from Berenberg.

[Usman Ghazi, Analyst]

I've got three questions, please. The first one was just on waipu. You mentioned in the presentation that waipu is approaching breakeven. And I was just wondering if you could perhaps give a bit more clarity, I mean given that the EBITDA for waipu this year I think you've guided to slightly above minus 10. I mean are we talking about breakeven at some point this year on waipu? Or is it a more further out statement? The second question was just on the personnel cost in the TV and Media business. So am I right to understand that in H1, the loss of the EBITDA from the analog sale is offset by the personnel cost. But in H2, when you will just have a net benefit from the personnel cost reductions given that the loss from the analog sale was already booked in H2 last year? Final question was just on the mobile gross profit. Obviously, encouraging development given the reduction in SAC and FRCs. When you do look to go back into the market, do you expect the benefit on the EBITDA from the second FRCs to reverse out through the end of the year? Or is there a structural reason why that might not happen?

[Ingo Arnold, CFO & Member of Executive Board]

I think -- Usman, thanks for your questions. I think on the personnel cost at Media Broadcast, I think yes, your interpretation is totally right. So in the second half of the year, there should be a positive EBITDA effect from the loss of -- from the decrease of personnel cost. So this is totally right. Concerning the mobile gross profit, I think a lot of things were running fine for us in the first quarter. And so we had different positive effects as I already mentioned -- also from digital lifestyle. But also from [indiscernible]. So you are totally correct here. And I think -- I do not expect every quarter now with such EBITDA. And I -- as we already said, we would like to pickup on the growth here again. So I think I would not expect it to see it again. I think part of it, yes, should be stable for the year and should be not -- should not be eaten up by increasing net adds during the year. But I think this will only be a small effect, which would be stable. And on waipu TV, your question was, I'm sorry?

[Usman Ghazi, Analyst]

Yes. On Waipu, I think the guidance has been that waipu is on an EBITDA minus...

[Ingo Arnold, CFO & Member of Executive Board]

Yes. Yes, I got it. So what we do at the moment is we steer the business with an EBITDA target. So with sales and management minus EUR 15 million EBITDA a year is fine and they should grow the business as fast as possible. And what we see at the moment is that there is a still a dynamic and there is a big dynamic. So it makes a lot of sense to use the money to grow the business. So it could be possible to be breakeven this year, but then I would not see any growth. So this would not make sense with the starting business to steer it in this way. Therefore, I would not promise to have breakeven next year or this year. And as long as we steer it in this way, and as long as we see the dynamic, I would expect a better EBITDA in '20. So I would expect something which is below minus 10. And then in '21, I think there is a good chance to see a breakeven.

[Operator]

The next question comes from Heike Pauls from Commerzbank.

[Heike Pauls, Analyst]

I have two questions. Firstly, on your TV cooperation with Telefónica. Would it also work with Telefónica's new cable products i.e. can their customers in theory get an Internet-only cable line and combine it with waipu, do you have insights? And the second question is on Sunrise. I wanted to know if it is possible based on the legal situation to in theory pool your voting rights with other Sunrise shareholders under the Swiss law without basically acting in concert?

[Christoph Vilanek, Chairman of Executive Board & CEO]

Well, on the first one. Certainly, I think it is the origination of the Telefónica Germany ambition to go into the OTT/IPTV is that they have a customer base of 2 million in DSL. The potential access to the cable network would enlarge their potential. And furthermore, if -- in our customer base, of waipu, we can see and identify whether the customer has a copper or a glass fiber or a cable connectivity and we can go give them a very specific offer either through change but also to address them and to let them know that cable might be more expensive than our offering. So I would highly anticipate that this is definitely Telefónica's ambition, and it is also something which we foresee if the cable market is opening. So it's definitely creating an extra opportunity. On Sunrise, that's a tricky question. I would say, whatever our opinion will be and whatever our voting will be at the end of today, we would certainly announce it prior to the actual event and then whoever shares our opinion is free to join our -- or well, to express the same opinion. So in that sense, it's not a pooling. If we would -- I think what is not according to my understanding of the Swiss law, we could not go to others and ask them whether they vote with us. But an exchange of opinions is not only possible but already happening.

[Operator]

The next question comes from Ulrich Rathe from Jefferies.

[Ulrich Rathe, Senior European Telecommunications Analyst]

Three questions, please. The first one is when you describe the net adds, the postpaid net adds in the first quarter, you focused very much on decisions you've made, discretionary decisions it sounds like. But oddly, there is sort of a bit of competition, in particular I think from Telefónica at the moment in terms of promotional activity. So could you comment to what extent that has directly influenced your trends and/or your decisions in terms of what Telefónica has decided to do and what you're seeing in the market? That's my first question. My second question is, it's a slightly technical thing. But on the slide on the ARPUs and mobile, I noticed that in the new definition, the ARPU without hardware -- so the one we are now focusing on -- that actually has declined. And admittedly only about EUR 0.20, but it has declined to EUR 18.8. The ARPU in the old definition is shown as actually having grown by EUR 0.30 year-on-year. So could you explain the discrepancy in the trend between the older and the new definition? I think that's not directly a question of the hardware sales, but also of the structure of the tariffs and the subsidy clawback, but I would be interested in the reasons. And my last question I'd like to run is ever since you changed into segment allocation for the full year retrospectively in the fourth quarter. Now in the first quarter, it looks like some of the intersegment allocations are going a different way from the full year. Does this mean that the full year intersegment allocation that we're actually seeing as reported, irrespective of what the quarters of 2018 looked like, that the full year one isn't representative of the full year intersegment allocations to be expected in 2019? My understanding was the full year '18 allocations were actually the clean ones that is representative of what is to be expected in '19. But I'm not entirely sure after the first quarter now.

[Christoph Vilanek, Chairman of Executive Board & CEO]

Thanks Ulrich. On the first ones on the net adds. I think on the charge, we said that all these effects and measures are interrelated, and it's very difficult to fully separate them. We have seen on blau and on some of the O2 promotions, aggressive price downs. And as a consequence, we always have to decide for ourselves whether we follow such a -- or we mirror such a promotion or whether we step back. And as a consequence, the share of higher-value tariffs [ reside ] from it. So yes, that's -- so then you can ask the question, well what was prior -- so who was following whom? Were we stepping back prior to the activity or the other way around? I couldn't tell you to be honest. And I think to be honest, the level of promotions every now and then is a little bit overstated. If we look at approximately 8 million so-called new subscribers acquired a year in Germany, a 2-weeks promotion by O2 or in MediaMarktSaturn is a drop not in the ocean but in lake. So yes, we'll look at those. We have also seen -- and I can give you a different indicator. Last year, very -- we had a very prominent new player in the field, which was CHECK24, they really have grown heavily last year. According to our knowledge, and they do not publish anything because they're private, their level of acquisition on mobile dropped by 20%. And if we look at today's hit list on best price, then you will find 20 different tariff plans from the Drillisch-United Internet Group. So then we take a position whether we would follow this, and say we will put in a new offer, and we have tested it actually early April. So we put our offer EUR 0.02 below what Drillisch offers. And it took 4 hours for Drillisch to go EUR 0.01 below ours. So I mean this is kind of the daily games. We decided that we would test it. We see whether the others react and what the volumes are, but we also take that decision to step out of it. So it's a -- I think it describes our activity. I cannot really give you the answer whether it's one or the other or who was first. It's kind of an overall mix. And as Ingo said, we sit down every other week on the offers, there is the controlling guys that say, "Well, life cycle on this offer resulting from the real airtime CBO, the acquisition cost, the delivery cost, the promotion effort, the price downs. This is how it looks like. It's like big columns, tables every other week. And then Ingo was a bit more rigorous than they were before. And I think it proves to be right. So I will -- we will continue in that policy. But that's it. On the ARPU, your observation is an obvious one. The hardware -- the level of hardware within it is a result of the hardware pricing. And implicitly, the hardware price is an indicator of the acquisition mix from hardware. So if you do a lot of iPhones and a lot of Samsung S10, it's a bit different than if you look at -- I mean EUR 0.20 by 6 million customers is about EUR 1 million. So if we look at this, if you have 50,000 or 80,000 a month, where the mix is different, this immediately impacts this hardware-included ARPU.

[Ingo Arnold, CFO & Member of Executive Board]

Ulrich, hearing your question about allocation, I asked myself, if transparency makes life more complex or not. But what I think what I understood and, therefore, I try to answer your question is, I think the main way of doing these segmentations -- these allocations in the past was that the mobile business -- there was a profit on the mobile side and there was a decrease of the TV and Media side because on mobile there were a lot of marketing things and so on, what they did for TV and Media. And this was already decreased in 2018. But this will further decrease in 2019. And this is what you see if you see the figures of the first quarter that there is still an effect and with -- if you watch into the figures without internet -- intersegment segment allocation there you see that the mobile results are increasing by it. And this is still the same effect what we saw last year. That will be this effect in this year because the allocations will be lower during the year. But I think it is something what we planned and what is mirroring the business.

[Ulrich Rathe, Senior European Telecommunications Analyst]

That's very clear, and I understand what you are describing there. It's simply not the same allocation. The allocation overall sort of changes. And 2018 wasn't just sort of a new normal, it was just a step in that direction.

[Ingo Arnold, CFO & Member of Executive Board]

Yes. Definitely.

[Operator]

At the moment, there seem to be no further questions. [Operator Instructions] And the next question comes from Martin Jungfleisch from Kepler Cheuvreux.

[Martin Jungfleisch, Junior Equity Research Analyst]

I have two. First one just on the focus on more valuable customers that you mentioned. If I look correctly, other players such as Drillisch, they also want to focus on higher-value customers. But also, I suppose that the [indiscernible] want to keep their higher-value customers in their retail brands. So what makes you confident that your strategy will be successful? You also mentioned that you had a low performance with DT and O2 in this quarter. Can you also provide some color on how the relationships with the operators have developed over the past few quarters? And the second question is on your TV and Media segment. You mentioned that you're getting close to breakeven. So what would you say is a good mid-term EBITDA margin assumption for the TV and Media segment, given that you expect further increase in content cost? And how do you rate the operating leverage in that business?

[Christoph Vilanek, Chairman of Executive Board & CEO]

On the first one. Well, my conclusion would be that everybody understood that discounting and feeding [ snaps and jager ] is not a wise strategy. I think overall, the market -- the regular German consumer is ready to pay anywhere between EUR 20 and EUR 35 net a month. I think everybody hopefully more and more will come back to a reasonable level. So in that sense, I feel very comfortable to be on the same page as our dear colleagues. As I mentioned before, I just looked at the DT figures this morning, they have had quarter-on-quarter also a loss of 1% in their mobile postpaid base. On Telefonica we cannot see it because I think they do it -- they show it blended. But yes, I think the market is ready to pay for a reasonable service. And overall relationship, I think there's no big change. Vodafone is currently the ones that is the easiest to work with[Audio Gap]