freenet AG

XETRA:FNTN

Earnings Call Transcript 2021-Q1

[Operator]

Good day, and welcome to the freenet AG First Quarter 2021 Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Christoph Vilanek, CEO. Please go ahead, sir.

[Christoph Vilanek, Chairman of Executive Board & CEO]

Hello. Thanks for welcoming. Thanks for all of you who joined today. As you have seen yesterday night, we have published our first quarter results. And following our tradition, we would like to give you a bit more insights and details in a short presentation. I myself will start with the more qualitative piece and then Ingo Arnold will continue with a dive into the financials and Q&A afterwards. I go to the distributed presentation. Page 4. I think, overall, I have to say that we're very excited and positive about the first quarter's performance. Given the entire framework of lockdowns, et cetera, et cetera. We have shown very robust performance in all dimensions. You can see that year-on-year, we have gained 200,000 -- 220,000 almost subscribers, which is a great performance over the full period. EBITDA went up by 4% to EUR 108.8 million and free cash flow with a specific event, certainly or specific circumstances is also going really well. What were the key highlights in the quarter? Except for the fact that we had corona crisis meetings every other day and had to manage a lot of details across the entire organization, still, we are obviously working on optimizing tariff plans, specifically on the app-based tariffs. We are heavily working on retail, how to combine, click and collect, click and meet and all the other potential elements. On the TV and media side, waipu has launched a couple of new channels. Among them is kicker TV, which is TV, is a magazine or the largest magazine on football in Germany. We have signed a couple more contracts with media broadcast. And last but not least, we finally got live with 4 more digital audio broadcasting radio channels, and we have started the organization and are up and running in media sales for our channels, not only for our own ones, but also for third party. On a group level, Ingo will refer to the share buyback, which is going well so far. If we go into one more detail on the -- let me start with the subscriber base on Page 6. As I said, overall performance, positive with plus 218 million. We have told you last year that freenet TV will go down anyway. So if we would take that out, the downward trend, then the growing pieces is plus 5% and more than plus 400,000, which I think, plus 380,000, which I think is a great performance given the circumstances and the fact that overall, we have a saturated market. So the team and the entire organization is very focused on customer renewals, retentions and also refilling the customer base. Exceptional, certainly, the performance of waipu.tv also during the first quarter. If we look at the specific performance of the mobile telephony, you can see that during the first quarter, we have a plus of 32,000 from January 1 through the end of March. There is 12,000 coming from the pure app-based tariff plans and another 22,000 coming from postpaid. So overall, on a quarterly basis, we are comfortable with plus 33,000. It's very much in line with -- with the projection and the trajectory that we have anticipated for the full year. And we can see that this performance is ongoing. It's even slightly better or -- yes, so I think it is down to the 0 point something the same as last year. So I think that is significant given the environment. Obviously, the share of online channels, these days have increased. That's a natural phenomenon we have seen in the first quarter. All our shops being closed for a couple of weeks. Same goes for MediaMarktSaturn, but it really turns out that any of our partners and ourselves, we are very comfortable in omni-channel management these days. As a consequence, logically, marketing -- typically or above the line marketing expenses have gone down somewhat. There is no need to do advertising if the shops are closed, which also explains at least a small part of the better results. This will most likely continue during second quarter. We're still more or less in a shutdown scenario, at least for the half of the second quarter. So I expect similar development on the cost side and on the expenses side for the second quarter. Media Broadcast, I think we've always talked about it that on freenet TV, even though we still report the RGUs, we manage it more from a gross margin and EBITDA level. This is why we have compared a full year '19/'20 and first quarter '19, '20 and '21, where you can see that the EBITDA development on the left-hand side, the green graph is doing exceptionally well, even though we have a rundown of customers. It obviously raises the question what is the low level or what is the final long tail? It's hard to say, but I think my prognosis is that we will remain on EBITDA level, we can remain for the next years on that level, but it may well be that subscribers go down even further. I would say, another 5%, 6% is reasonable. But given the price increase and given the higher proportion of direct debit, margin and EBITDA will remain at the current 12 months recurring level. Next to that, Media Broadcast has a significant piece of B2B component working on a number of campuses on -- for locally 5G networks where we do maintenance service and can develop the application. We have won a couple of more races in DAB. We are now -- we have most likely the platform license for [ Northern ] Westphalia. We have won 2 big public requests for proposals from the big public channels. And the company, as such, is broadening their horizon. We have also some changes on the second level of the management, which is important to refresh and to redevelop the company. Overall, we think that is coming back to a really great performing organization. If we move on next page, waipu.tv, as you can see here, we have a growth during the quarter of almost 40,000 units. And this, I think, is remarkable because as of January, we have raised the prices for the big package by 30% to $12.99. And even though we've done that, we did not see a downturn here. So it feels that those people that recognize the benefit and the exciting features of waipu.tv, they -- when -- they accept the higher prices because they compare it with other potential ways to access TV. So I think that is a very good performance. I think the second quarter, we will see a slightly lower increase, but still a positive development in the quarter. And this brings me already to the outlook for the full year, make it simple. We expect a reopening of the shops in a normal level only with the start of Q3. Obviously, the revenue downturn that we have seen in the first quarter and also we'll see in the second quarter, comes from a number of hardware sales in GRAVIS as well as mobilcom-debitel shops. You all are aware that pure hardware sales has a low margin. So we still miss it because we'd like to do it, and we'd like to create upsell opportunities. But at least from a company performance, it does not impact us really. The positive thing is that -- this is why I'm mentioning it here, we have more than 10,000 click and meet events in March in our Mobilcom-Debitel Shop GmbH, and that is only the own shops, but this is not franchise because they do it separate. This is their own business. So this reflects only a number of about 200 shops where it was even possible. So you see that the adoption rate is significant. If you do the breakdown on opening days and the number of stores, it's remarkable. On the TV media side, we certainly look for a strong Q3, mainly because this is when Summer Olympic Games and a lot of other events going to take place. That should be a booster for waipu.tv as well as freenet TV. We expect, as I said, the assumption is that in Q3, shops will be reopening, and that is definitely important for freenet TV because there -- the renewals will start and kick in mainly in July and August. This is the big bunch and the big turnover of the customers during the summer months. On waipu.tv, parallel to the sports events, we will also start with an owned Android TV stick. Will hit the -- hit the road most likely second week of June. This will be a fully integrated Android dongle which you can put into your HDMI access with a remote control. On the remote control, there is the regular 1 to 9 buttons for the kind of old habit of just pressing 1 for ARD and 2 for ZDF and so on. But there's also 2 buttons, one for waipu.tv and waiputhek, specifically, if you press one, by the way, certainly, you get the signal from waipu, but you will have a waiputhek button, and you will also have a Netflix button. So I think with a hardware and the sales price of the hardware anywhere between EUR 30 and EUR 50, I think the sales rate will go up. It will be easier also to go into MediaMarktSaturn, for example. So far, the pure voucher sales is a passive one, whereas if you have a hardware device, it's an active sales and something which we can really discuss with the end consumer. So as I said, I think from Q3 we're going to see a stronger uptake once again on the IPTV side. And having said that, I'd like to hand over to Ingo.

[Ingo Arnold]

Thank you, Christoph. Good morning, everybody, from my side. So I would like to start on Page 11 with a group view on our financials. Yes, I think it was really a very, very good quarter, what we saw here. And it was such a good quarter behind -- or with the framework what we had with all these closed stores during the 3 months because Christoph was talking about click and meet and click and meet was working quite well. This is what we saw. But in most -- some of the stores were totally closed and some of the stores were there, it was only possible to do click and collect. And it is not very successful. It's nice to have click and collect, but what you see from the revenues here is the result of the environment, what we had, because yes, this is something which looks negative. It's a clear decrease of revenues in the quarter here. But if you compare the quarters, first quarter '20 with first quarter '21, the difference is 100% only from GRAVIS and from the mobilcom-debitel stores. And without this decrease, the revenues will be stable. The gross profit, I think -- and this is a proof of the concept, what we see here, because without the gross profit of freenet digital, what we sold at the end of September last year, which did not generate any EBITDA, but it generated some gross profit. And therefore, we split it here. But what we see without this freenet digital in gross profit is an increase from EUR 208 million or EUR 209 million to EUR 214 million. So what we see here is that the overperformance, what we show is not only based on cost initiatives, but it is based on a very strong business performance. Comparing the EBITDA. Here, the sharp increase from EUR 104 million to EUR 109 million. And yes, it is correct that on the bad debt side, it is still the case that the payment behavior of the customers is quite well. So the bad debt ratio is relatively low. This is what we see. And as you may remember, we built a provision of EUR 5.5 million at the end of '20. It was not -- we have not released it. But if you see how the bad debt ratio is developing, you do not see that many reasons that you need to have it. But I think we do not know how the year will develop. Therefore, it makes a lot of sense to have this provision here on our books. But definitely, it is a cautious view what we took here at the end of the year. Moving to the mobile business on Page 12. What we do see here, and this is something what I already stated before, you see the hardware revenues, which are based on the business, what we do in GRAVIS and what we do in our mobilcom-debitel stores. And you see that the hardware revenues are declining by EUR 26 million. At the end of the day, this is the loss what we do have on revenues. In the other segments, what we show here in revenues, we see that they are relatively stable. In the gross profit, here, again, a relatively stable gross profit. This is something what we saw first in the fourth quarter of '20 and what we commented here. But we see again here that even in the difficult situation because, yes, the -- it is low-margin business, what we lose on the revenue side, but it is margin business. And so we lose the margin from GRAVIS and from the whole hardware business. And even with the loss of this profitability, the gross profit is relatively stable. On an EBITDA side, you see that on the cost side, we are also on a good way. And as I already mentioned, the bad debt remains on a very low level. Moving to the next page to the KPIs of the mobile business. Most of them were already commented from Christoph. So I would like to focus on the ARPU first. Compared to Q4 '20, we see a very slight decrease from 18% to 17.8%. And yes, clearly, we are on a lower level in a lockdown situation because the data volume uploads are much lower because the people use their WiFi at home, and they do not need that much data volume from the mobile. This is something what we see. We still see some effects from roaming. So I think we have to wait and see what the normalized ARPU will be during the year. Digital lifestyle revenue. This is a very positive result here again because it was possible compared to Q1 '20 to increase the digital lifestyle revenues. How is this possible? It is possible because the subscription share of the portfolio, what we do have here could be increased during the last years. So we sell a lot of like options for e-books, music subscriptions and so on. So I think it is more sustainable than it was at the beginning when there were some one-off revenues. On the next page, waipu, or the TV and media segment. Here, what we do see is an increase in the revenue. And waipu.tv is the driver of this growth. Definitely, we already saw the increase in the customer base. And yes, this is the reflection, what we see here. There is this small barter deal, which I think is necessary to show here or to separate but even without it, there's a revenue of EUR 68 million, and we see that is very similar to what we had in Q4 '20. On the gross profit side, yes, I would say, if you compare -- it's the same for the EBITDA, I think it is maybe not the best way to compare quarter -- first quarters. Because the first quarter in '20 was relatively low. What I would say is what we see since the second quarter of '20, it is something like the new normal because we see on a gross profit side, that's something in the level slightly below 45%. It looks like a normal gross profit per quarter. And on the EBITDA side, you see that something slightly above 20% looks like the normal EBITDA at the moment. So I think what we see here is that it is relatively stable. We stabilized it on this level. And I do not see a reason why this should change during the year. We have some initiatives, what we already mentioned before. So maybe there is even a possibility to increase it further. All in, if you see an EBITDA of a level of something like 20 here in this business, what you see is that EBITDA is something like 20% to 25% of our group's EBITDA. So it is very relevant in the meantime. Switching to the effects from the business segments in TV and media from the divisions. Is also a very positive picture, what we see here. You see in B2C, which is media broadcast B2C, which is freenet TV. We have the higher gross profit from the price increase. And here, this is the -- here, we see what we saw on Christoph's chart before. So what we do see is that even with the lower number of customers, it is possible to increase the EBITDA here and the gross profit. And as we saved some marketing expenses on an EBITDA side, the increase is even higher with EUR 1.7 million. In the Media Broadcast B2B business, we see the effect from the digital radio business, mainly here, where we see an increase of EUR 2.1 million on a gross profit level. On the other side, the increase on an EBITDA level is a little bit slower because we have more SG&A and so on for the digital radio business. But I think also here a strong sign for the B2B part. EXARING, EUR 3 million above the level of last year's first quarter on -- in terms of gross profit and EBITDA, which looks normal with the number of increasing customers here. Moving to the free cash flow on Page 16. Yes, we have some positive effects from this year -- negative year-end effect at the end of '20. So I was explaining the GRAVIS effect on our last analyst call. It is not all gone now because I was talking about something like EUR 10 million at the end of last year. The stores are still closed. So some of the effects what we had at the end of the year are still there. But I would say 50% of the effect is done now. On the other side, we have some negative effects because if you look into the inventories, you see that we increased the inventories by nearly [ EUR 50 million ] in the first quarter. I think this is normal because we filled our stock here because we -- there were hopes that a finish of the lockdown could take place during the first quarter. It has not taken place. I think we do not have any risk with the inventory. What we do have now because it is very new hardware and so on, what we do have there. But this was definitely a negative effect on a working capital level in the first quarter. Tax payments, no surprises. CapEx, on a comparable level to last year. Here, you see still some investments in the digital radio business. Leases, stable. Interest payments, definitely lower because of the lower debt ratio what we have. And so all in, it is a free cash flow in the first quarter, is on the upper level of the range what we guided at the beginning of the year. So I think we are happy also with the cash flow development in the first quarter. This brings me to the -- to Page 17, where we do see how the bank net debt is developing. We already repaid some promissory notes in March in the volume of EUR 200 million. What we do plan in addition to what we said at the beginning of the year is that we talked to some of the investors in the promissory notes if it would be possible to repay some further tranches, and it was a success now to find some agreements to repay additional EUR 64 million and this will be done during the year. I think we have all the liquidity on the balance sheet. So it makes a lot of sense here to reduce it slightly. Bank net debt on the 31st of March is only EUR 239 million, which translates into a net debt leverage, which is 0.6x only from the bank net debt. On the other side, the net debt and the leverage, including the lease contract is 1.6x. So on a very healthy level. So we are happy that we are where we are. Equity ratio up to 43%. So this is the new normal here, which is much, much higher than what we saw last year. On my last page, Page 19. Yes, we stick to the guidance. We confirm our guidance. But as we already announced during our call at the beginning of March, yes, definitely in EBITDA and free cash flow at the moment, we see the possibility to reach the upper end of the guidance. But it is early in the year. So we have discussed it internally if we should change the guidance now. But I think we need more evidence during the next month and maybe in August, maybe we will have a review, which will be good enough to change anything here. Maybe here some words. I do not have a chart about the share buyback program. As you have seen at the beginning of this year, we were very fast and the limit, what we placed in the market, was that we wanted to buy shares up to EUR 19.95, and this is something which is everybody. It's obvious when you see the publications. Yes, we are happy that we are above EUR 19.95. I think we will -- we have to discuss internally. If we change it, I think it was not possible to change it because we were in the quiet period in the last 6 weeks. So it was not possible for us to increase it or to change anything here. But I think, definitely, we will discuss it. And clearly, I would like to state that we would like to invest this year, the EUR 135 million, what we announced. And I think there is a lot of months open during the year. So I'm convinced that this will work during the year. So long from my side. So I think now we are open for questions, and I would ask the operator to start the Q&A session.

[Operator]

Thank you, sir. [Operator Instructions] Our first question comes from Joshua Mills from Exane.

[Joshua Andrew Mills, Research Analyst]

Two from me, please. So the first is just actually regarding your last chart, Slide 21, and the discussion you've been giving us about the improved margins in mobile, in particular this year. So my question is, what do you think the right level of online versus off-line split is post pandemic? And what's had the better -- what's had a bigger impact on supporting margins? Is it the fact that you're doing more of your sales through nonretail channels? Or is it the captive channel effect? Just trying to understand what's driving the better cost base? And then the second question is on the TV media segment. So you've highlighted that waipu.tv is delivering the bulk of the EBITDA uplift. Could you give us a rough indication of what the absolute level of EBITDA being generated by waipu is now? And where you expect that to be perhaps for this year and also next year to give us a sense of the waipu.tv profitability?

[Christoph Vilanek, Chairman of Executive Board & CEO]

Yes. Okay. Thanks, Josh. Well, I think that is the $1 million question, what is the right level of the split. So I think -- I mean, overall, when we compare -- and I think we've had it in the chart in the recent presentation. I'm still a big fan of retail. And when I look at our retail channel, when we generate a new customer, we measure what is the total upselling and the margin of the -- the net margin of the total upselling during the 24 months of a contract period. And then we compare this number, this figure across all channels. And it turns out that retail is, by far, the best. Second best is 1 or 2 of our distribution partners, which have also a very long lasting, direct relationship to the end consumer. And the weaker ones or the weaker end of the list is online and MediaMarkt. I think the logic is quite obvious. These people, if they have a relationship to a sales rep, if they get into a conversation, they are ready to be addressed and they signal that they are also from type of purchase or personality people that like recommendations and like ideas given from others. Whereas the hardcore online buyer is very self-decisive, only takes what he or she really wants. So I think that is the difference. And having said that, we will -- we always optimize our acquisition ratio and also the spending on subscriber acquisition and retention costs, not only on a pure ARPU less gross margin base, but on a lifetime margin base. And this determines the split. I think on off-line will remain in an order of anywhere 40-60. I guess that's a fair assumption. And on the captive channels, well, the difference once again is on captive channels, we are more in control of what actually happens to the consumer. For the indirect channels, they might give -- and this is a made up example, they might give extras to the end consumer, which we can't see, and this is then more difficult for us to renew. This is why we drive it to captive channels. And certainly, the way we plan it is that we accept the retail chain. We measure it as a third party. At the same time, it's running costs. So if we have sales reps with spare time, we certainly want them to do the phone calls and do the phone renewals, which is much more value-generating than if we leave that to a third party service provider. So I think that is hopefully, an answer without being super specific on the ratios, but I think 60-40 and 70% to 75% from captives is kind of like what we envision for the full year. On the TV track, I think we have disclosed that last year, we still lost EUR 5 million, EUR 6 million on waipu in total. And I think this year, it's going to be a positive year in terms of full year contribution. We have told you last year that the kind of like turn to a breakeven on a monthly operational, which is not including CapEx or something alike, was in May and ever since we are positive. The first 3 months were positive, and there is no significant investment. So I -- we will have a positive EBITDA contribution definitely for the full year, but we're still talking, I think, EUR 1 million -- 1-digit million lower end this year, but the trend is getting more and more positive, and we are quite excited about that. If I may add here, we are foreseeing also some OpEx optimizations on waipu, most likely we'll change path and give away part of the network that we have engaged with. Technology has developed so fast that it turns out that at least the majority of the network could also be leased to a third-party for similar cost or even lower. So there will be a change by the end of the year, which is -- will also help then for 2022 because I think the -- once again, we'll save a couple of hundred thousand euros a year.

[Operator]

Our next question comes from Ulrich Rathe from Jefferies.

[Ulrich Rathe, Senior European Telecommunications Analyst]

I have 2 questions. The first one is on -- you have talked about sort of the shift towards customer lifetime value and then focusing, in particular here on mobile, could you comment a little bit more about the drivers of that? Is that mainly the acquisition cost? Is it trying to get customers that require a lower service cost on an ongoing basis? Is it that you're trying to acquire customers with a longer lifetime? And in that context also, how is that accounted for?I think in IFRS 16, these costs would -- especially SACs would be distributed overly period. In other words, you would see potentially -- in lower acquisition cost basis, you would see lower ARPU and then also lower cost from day 1. Could you confirm that and quantify this a little bit to what extent that shift is already helping you in the current EBITDA trends, if that is quantifiable? The second question is on Media Broadcast, the project revenues, you mentioned that they had these project revenues in the first quarter. You mentioned Drillisch. Could you quantify the contribution that these project revenues actually made? And also, how -- I mean, that sounds like a very lumpy business. How continuous do you think that source of revenues will be throughout the year through the quarters?

[Christoph Vilanek, Chairman of Executive Board & CEO]

Okay. Well, first, on the CLTV, I think the -- that is kind of like once again, the specifics of our business model. If you're a network operator, you basically run against a fixed cost on your network. In our case, we have, as you all know, a monthly purchasing price for a service, which we resell basically to an end consumer. And this is creating the margin. The fact that we have different contracts with the different operators, we have different sourcing models, also lead to the fact that the ARPU is certainly an indicator. It's easy that -- what it could well be that we have consumers with a lower ARPU, but in absolute terms, better margin than some of them with a higher ARPU. For example, the freenet FUNK and FLEX, the app based, they are from a lifetime contribution, super attractive customers because acquisition cost is -- we keep it very low. We don't invest into marketing. We let it go through word of mouth, et cetera. So we have a very low, not to say, a minimal expense at the beginning. The run on the -- FUNK runs on the Telefónica network, where we have a typical rev share model with a significant share to us. So this is super attractive. And this is why even they are on a low ARPU, the 24 months net contribution is high. And these customers on FUNK, they don't have any service cost because they basically use just the app. So yes. In an ideal world, I could now say, why don't we shift everything to FUNK because that will be the most profitable business? We could basically shut down the customer service, shut down the shops, and we would be in a wonderful life. Well, the fact is that FUNK is only addressing a small piece of the market. And this is why we are addicted and committed to serve all different kinds of customer segments, all different kinds of customers. And when looking at the customer lifetime value, we always have the gross margin out of a specific tariff, then we include into our calculation the acquisition cost and the service cost minus a potential commission bonus or marketing fund from the operators. And then we measure it against specific channel cost. And at the end of the day, we add whatever contribution we can do in upsell. That is kind of the total calculation that we do. We've done that for years, but we're getting better and better. And I think the change that we are now about to make, and that becomes a reality from the beginning of the year, and it's going to be reinforced also in our organization, we will change a couple of KPI responsibilities. We want also in future, we want also to fully include in our model or in our modeling, the churn rate of a specific channel. There are channels that are very aggressive in their acquisition and as a consequence, those customers will -- that their renewal rate is lower because they go for the next attractive contract after 24 months, whereas in other channels, people are super loyal and the reinvest is very minor. So I think in the old days, we looked at life cycle results on 24 months. The last few years, we started to include upselling and cross-selling contributions. And from now on, from 2021 on, we also include into our projection, the likelihood of renewal, the renewal invest, and include this in a full customer lifetime value, which is then not limited to 24 months, but also but to 48, 72, whatever the right term is. I think this is actually what we do. It does not change the fact that we have to allocate acquisition costs alongside the contract lifetime, which typically is 12 months or 24 months. And the subscriber acquisition costs are depreciated over the 24 months, right? Ingo, that there was no change.

[Ingo Arnold]

I think, good morning, Ulrich, I think what is important, basically, it is -- I think the best measure to steer the business is to work with the customer lifetime value because at the end of the day, this is the margin where you earn. This was difficult in history because what -- the fact what Christoph was just describing that the acquisition costs are capitalized at the beginning and then moving to the P&L over the period of the contract, this is something new what we do since IFRS 15, so we do it for 2 or 3 years. Because before that period, it was much more difficult to steer your business which was very reasonable all the time to steer your business with a customer lifetime value because that time, the acquisition cost, if you had high acquisition cost, you had to show them directly, and then you had a very negative result at the beginning. In this new framework, what IFRS 15 gave us, it is much easier to show the results on a period basis, which makes a lot of more sense. And let me look, and it's not very often discussed in these calls here and with analysts and investors. But what you do see, if you look into the balance sheet is the capitalized contract acquisition costs. And what you see after the first quarter is that these were reduced by EUR 20 million. Why are they that low? Because on the one hand, you have a better mix because you do more retention, which is less expensive than new customer acquisition. On the other hand, you have a better channel mix because you do less acquisition in the very expensive channels like Media-Saturn, and you do more activations in the online channels where you do not have that many acquisition costs. But this is only one side of the picture. The other side is what is the ARPU doing? If the ARPU is lower at the end of the day, this could be a wash. And therefore -- and this is a customer lifetime value that you have on this calculation all the incoming -- the incoming value and the outgoing value. And therefore, I think sometimes it's very focused here in these costs on the ARPU. I -- and maybe this is hard to say, but I'm basically, I do not care about the ARPU. Because the ARPU could be low or high, I do just look into the lifetime value. And if this was -- what Christoph already described, if I have very low acquisition costs, I could live very good with the lower ARPU. So hopefully, this helps.

[Christoph Vilanek, Chairman of Executive Board & CEO]

Yes. And there was a second question on the Media Broadcast project. I think you were referring to the statement that we have won the platform, the DAB platform, for Northern Westphalia. So what does that mean? That is a contract, it's a 5-year contract. Annual revenue is order of magnitude, EUR 3 million. This -- the contribution is hard to say because well, you could either flip it and say, well, the investment in new equipment is very minor. And it's all existing stuff. So the margin is super high. You could also say, well, these people that are doing the maintenance, they have also lost or given up partially on FM and Uk Away. So -- but that's kind of -- that's the sizing. I mean it's -- for the entire full year, [ Northern Westphalia, ] it's EUR 3 million in revenues. I think the internal calculation of contribution or profit is about 1/3, which is great, but we need the same for many others, but that's -- yes, as an indication or a guideline.

[Ulrich Rathe, Senior European Telecommunications Analyst]

That's very helpful. Thank you for explaining the thinking on CLV in particular.

[Operator]

Our next question comes from Polo Tang from UBS.

[Polo Tang, MD & Head of Telecom Research]

I've got some 3 bigger picture questions. The first one is really just about 5G. If I'm not mistaken, I think you've started offering 5G tariffs already. So can you maybe talk through how much traction 5G is getting? And how much impact do you think 5G will have on your mobile business going forward? Second question is really just about the Telecoms Modernization Act. I'm just interested to get your take in terms of changes to the neighbors' costa and [ privilege ] and does the unbundling of the cable TV from the service charge for housing association provide an opportunity to drive growth in waipu.tv? And my final question is really just an update in terms of your thoughts on Drillisch and their project with the network build. What's your latest thoughts in terms of how you think will impact the German mobile market and how it will impact freenet specifically?

[Christoph Vilanek, Chairman of Executive Board & CEO]

Yes. Thanks, Polo. First one, yes, we have started to sell 5G contracts on the Vodafone network. I think the traction is not really visible yet. There is no real benefit to the end consumer. And I think that goes for anybody, I think it's more a marketing message. We will push it now on wireless Internet. I think that could be helpful, but we're still talking really invisible numbers. The early adopters have taken it, but it's -- and I mean, even though the networks mentioned extending, in coverage it's still very low. So I think in 2021, we do not consider this a significant impact, neither positive or negative on the business. The people don't show up and buy [ the phone, ] they take this as a next step. So I think it's very relaxed. And you also could see that nobody has really been able to charge a price up, which is already a strong indicator for no real demand. In that sense, we take it opportunistically. We offer it, we're happy to offer it, and we can provide the service to the ones that ask for it. And that's -- I think that's as far as we do right now. Yes, the unbundling and the [ NIM Costa Privilege ] is something which is definitely creating an opportunity. Still, we have to anticipate that Vodafone who run today those contracts with the house developers, they are in a position to make attractive offers to the house developers and owners and administrators to give a new contract to their existing inhabitants. In that sense, I think they are in a privileged situation. But overall, we all will take a benefit because it will become more obvious. It will become more talk of town, the fact that people have to pay for television. The normal German 45% cable household might not even be aware that they are charged every other month. And we have done recently a survey that people start to realize that they have to pay for it. And then they say, well, if I have to pay for it, and I'm -- I realize that this digital, including a set-top box is EUR 25 a month. Then I will review the opportunities and I might be changing. So all the indicators speak a positive language. But at the same time, I am skeptical about how much this will help this year. I think the next step will be that Telefónica will offer the cable, which they have out of the regulation from Vodafone. So overall, the entire momentum of what is the right access method goes into a very different dimension. So I'm seeing it positive, but I don't think that there is kind of an overnight flood of people changing because, I mean, the cable will be there and they will not be switched off. The third one on Drillisch, yes. I mean, we see that they are working really hard on getting their things done. The fact that they have cut the deal with Rakuten, they're also sourcing. We know that they are -- have a public tender offer out there for the servicing and maintenance of the 5G network. And we know this. It was a public tender. So it was obvious what they asked for, what their time line is. I think for us, it's going to be -- it's not -- it's too early to have concrete talks on terms, but we are in good favor with these guys, and they know us, and they've been working with us really well over the past years on broadband. At the same time, I think we will definitely take a benefit either by having a competitor who will push us as well or by a defender, namely Telefónica that will give us favorable offers. When we look -- we have recently reviewed on all the public information available. Our terms and conditions with Telefónica and the ones that most likely Drillisch has gotten in their contract, and it looks as if at least on the bigger packages, on bigger data packages, it will be very hard for them to be -- to provide lower or more attractive prices than we are. So I think we are -- competitive wise, we are protected. But we see the upside of the competition between them and Telefonica, which we would certainly try to take benefit from.

[Operator]

[Operator Instructions] Our next question comes from Usman Ghazi from Berenberg.

[Usman Ghazi, Analyst]

Got a few questions, please. The first question was just on your slides, you were indicating that you were offering a 5G solution in the media kind of broadcast business. I didn't quite understand what exactly was it that was being offered. If you could just go into a bit of detail on that, please. The second question was just on the TV, the trajectory of the TV business and specifically with regards to Ingo's comments that TV is a business now with roughly EUR 45 million of gross profit, EUR 20 million of EBITDA. I'm just wondering whether that's a bit too conservative because what we are seeing, obviously, is quarter-on-quarter, the performance is getting better as waipu is scaling. You've obviously got the contribution from the digital radio stuff coming in. You're winning a few more contracts on the MBG side. You've got the price increase benefit coming in on the freenet side on a net basis. So yes, I mean, it just seems quite conservative to say that TV is a business where we should expect roughly EUR 20 million of EBITDA on a quarterly basis, and then that's it, [ CSA ] , if you could clarify that. And then finally, just on the guidance itself. I mean, you have indicated you'll revisit it. But certainly, I think, if I look at -- if we look at the second half of the year, in particular, last year, you were impacted by a EUR 4 million gap on the TV side because of lack of sporting events. You took a EUR 5 million provision on the bad debt side, which you're saying it might reverse. And it seems like you've taken quite a conservative view on how much additional marketing you will push in the second half. So it just feels like there is EUR 20 million, EUR 25 million of buffer that you're keeping, which you might not actually need. So I mean, is that kind of a right way to think about how much buffer you've got in your current guidance?

[Christoph Vilanek, Chairman of Executive Board & CEO]

Well, Usman, yes, thanks a lot. I'll take the questions in the row as you asked them. First one, 5G Media Broadcast. What we have installed in our -- one of our main locations in Nauen close to Berlin. We have a demonstration area for campus solutions. So if you have any campus speed, whatever industrial conglomerate or a big company or university or a technical development center and things like that are now looking for 5G solutions, maintenance, service, et cetera, et cetera. We have a demonstration area in-store there, and we bring B2B customers into the place and show them what's possible. We are currently in a number of RFPs on the subject matters in order to provide service maintenance, build up, et cetera, et cetera, because we can do that. We don't do this -- Media Broadcast does not only do it for internal purposes, but they have also got letters of -- or kind of memorandums of understanding with local authorities in order to build up these kind of things. But it's basically capitalizing the existing maintenance and installation sales force and maintenance force technicians that we have there. They have been working on DAB and DVB-T for the last 2 years, and now they should work on servicing whatever kind of 5G-related technical demand is -- so this is why we have mentioned it. And I think implicitly, I also said that on the RFP of United Internet Drillisch, we are also offering them maintenance services. The second one is the trajectory on TV. Yes. Go ahead.

[Usman Ghazi, Analyst]

Just is it that -- is it the end customer would install their own private network or whatever it is and you're offering repairs, maintenance, servicing of that network? Is that what's going on because I guess...

[Christoph Vilanek, Chairman of Executive Board & CEO]

Yes. That's it. If -- I can give a concrete example there. In Berlin, there is a huge area where we had these 30,000 people working in one place, different companies, a technology hub, and they want a 5G network for the technology hub where they do all kind of testing, IoT testing and so on and so forth. You need the service provider for that. You need somebody to install it, to maintain it, to put the right boxes there, and we're doing these kind of services. So it's not the technology, it's the maintenance and the service. The trajectory on TV, you consider it as conservative. Honestly, I would agree. I think it is conservative, but there is -- we tend to be -- you know us for many years, we tend to be a bit more -- yes, we tend to be careful on projections. Business is working really well. Pricing is accepted. Even though we have seen advertising revenues in the first quarter of 2021, crossover have gone down by 25% on radio and 35%. We have a plan on how much revenue we're going to generate from advertising this year on DAB and also on IPTV. But we have seen that the first quarter was weak. So if there is a recovery in general, that we will do better on advertising, then obviously, the margins on all these businesses will go up. Because the marginal costs on advertising are not -- is basically 0. I think overall, yes, it is conservative, and I think the segment could -- if we have EUR 23 million in the first quarter, I think it's more likely to cross the EUR 100 million for the full year. It's going to go up. I think it's conservative. I would -- Ingo said it, we did not officially change the guidance, but I think you all heard him say that we believe that we definitely be on the -- more on the upper third of the guidance than in the middle or in the lower one. But once again, I mean, we don't see what the German government will invent the next couple of days. And this is why you always ought to be a bit careful. I would not reconfirm the EUR 25 million that you have mentioned. But as you rightly said and pointed out, we have taken some conservative views on how things would go and put something on the balance sheet to be on the safe side. So I think we are in a good position to grow the EBITDA this year. And -- but more important for me is that we are working hard on a projection for the next 5 years. And I want the proper trajectory and not up and down. So let's be a bit conservative here, but let's go for the next 5 years and have a constant ramp up.

[Operator]

Our next question comes from Titus Krahn from Barclays.

[Titus Krahn, Analyst]

Good morning, everyone. Just 2 quick ones from my side. The first one is just on your costs. You mentioned in the presentation that you have positive EBITDA growth benefits from cost savings, which are partly sustainable. What share of the savings would you expect to persist in a post COVID world after the lockdowns? For example, in relation to the EUR 3.7 million and lower overhead costs you reported this quarter compared to Q1 2020. And the second question would be on the freenet TV segment. Since you mentioned that you expect a normalization in customer churn after the second half of 2021, do you mean that we should expect to continue it out during the second half even after the price increases annualizing in Q2? Does this not represent a change in the outlook? And why I may ask?

[Ingo Arnold]

Yes. Thank you for your questions. I think on the cost side, yes, I think I believe that something like 50% to 75% of the cost savings will be sustainable. I'm still very unsecure about the situation from the bad debt situation, how this will develop after the crisis and therefore, we had built the provision at the end of last year. So there -- I have some unsecurity there -- uncertainty there. On the other side, we do have this short-term work compensation plan from the government, where we received something like EUR 5 million in the first quarter. So this will -- after the crisis, definitely, this will not be there. But what we do also see, especially on the personnel cost side is that we see some efficiencies, which could be [ gapped ] in the next quarter. So it's something comparable to what I said at the beginning of March. I would say, something like 50% to 75% should be sustainable. But I cannot be concrete here because I have still some open ends, but I'm really optimistic. And definitely, for example, like travel expenses will not be as high as before the crisis. This is what we see that we learned that investor talks, analyst talks work quite well online. And so I think we will not fly around that much afterwards. And this is something which is comparable in other parts of the business. To your freenet TV question, yes, definitely, there will this annualizing effect because we increased the prices at the beginning of May. So there is some development, what I do expect up to the mid of the year. And yes, hopefully, afterwards, it could be stable. But I think, and Christoph was very clear here, it is not a business which is -- where we find new customers. It's not -- I think it is possible to stabilize it further but I think for this year, a slight decrease even after May is possible. And I think earlier or later, we have to think about further price increases. But what I do also confirm what Christoph said is, I do expect that the EBITDA, what we generate there, even with a reduction in customers will be stable during the next -- let me say, years, this is what I do expect here.

[Christoph Vilanek, Chairman of Executive Board & CEO]

And if I may add an illustration? I'm the guy here for the daily work. I mean, give you one example. We've seen now that our -- the guys who serve Media Saturn, who serve the franchisees, who serve our third-party retailer. For the restrictive reasons of COVID, they were not able to visit their customers, so their dealers every other week, which they usually do. But we have also seen that the performance as such was not suffering. So I am right now reviewing our visiting calendars and the frequencies, and it turns out that if you serve a total of 1,000 outlets today with about 80 or 100 people, well, it may well be that we can do it with 80 or 75 next year. We see a lot of stuff being replaced by pure digital, not only meetings, but also process designs. And we are trying to conserve those ones. And this is, I think, the -- in factual illustration to what Ingo mentioned that it is not only a belief that we will save or will maintain 50% to 70% of the savings, but it's also a commitment as a management team that we have to go for this. It is obvious that there is potential, and there is upside potential or downside potential if you take costs. Across the entire company, we can get even more efficient. We have to restore our -- the one only building that we own in Büdelsdorf. And in the future, we have -- the space was reduced, the number of people remain the same. We will not have a full seat for everybody. I think all these effects will then contribute to several millions a year. And I think our ambition is still to go on personnel SG&A and everything to have a reduction of EUR 5 million, EUR 6 million each year for the next 5 years, definitely. That is the ambition. And this only will contribute already a positive effect on EBITDA.

[Operator]

We'll now move to our next question from Simon Bentlage from Hauck & Aufhäuser.

[Simon Bentlage, Analyst]

Just 2 quick follow-ups. The first one is on ARPU again. You guys mentioned that it's -- it makes more sense to look at the customer lifetime values. So I'm wondering if you could quantify on that? Or if that's something you might even be reporting going forward, making it a bit easier for us to follow-on what you're saying basically? And the second question, a follow-up on the cost base question earlier. I think if I heard it correctly, you mentioned that there was a EUR 5 million positive impact from short-term work in Q1. I'm wondering if that's like a pure Q1 effect? Or if it's -- if this is -- seem to continue going forward? And also how it compares to Q4 last year because the personnel expense has really been down quite remarkably in Q1.

[Christoph Vilanek, Chairman of Executive Board & CEO]

Yes. Thanks for that. I think on the first one, we actually have talked about it internally how we could show that. That's not a trivial thing, but we're working on it. And we certainly would like to add -- I mean, we will remain to provide the ARPU because you all will compare this to the industries. But we're working on how we can give you more flavor to the CLTV, maybe on an index basis or so. But well, we take this as a positive idea, and we're working on it, but I'm not promising anything yet because it should be -- well, anything we give you asks for more transparency. And there's also some logic behind it, which will distinguish network operators and so on and so forth. And I want to make sure that we do not disclose competitive relevant information here. Yes, you're right. We had the quota by the short-term work funding, amounted to approximately EUR 5 million. I think in the second quarter, it will not be EUR 5 million, but it will be close because we still have -- we have just only prolonged the internal measurements till the 15th of May, and then we will see how it goes. But then at least for 6 weeks, we will have it again. So I think there will be effect, maybe not EUR 5 million, but EUR 3 million anywhere in that range. But as I said, we are taking advantage of fluctuations right now. We do not do internal replacements at the moment. In order to conserve that in order to -- also for the entire employee base to do these, let's call it, personnel cuts in a fair manner. So I would assume this is going on. As you rightly managed in Q4, we did not have the effect. In that amount, it was about half of it because we've only had the effect out of the shops. And this year, we have also the effect across the entire headquarters and in the entire employee base.

[Operator]

Our next question comes from Adam Fox-Rumley from HSBC.

[Adam M. Fox-Rumley]

I have 2, please, one detailed 1 and a higher level one. So on the -- I think in your prepared comments, you mentioned that in June and July, there is a kind of big chunk of renewals of freenet TV. And I just wondered if that -- kind of how material that was and whether or not you could help us quantify that? And then secondly, I wanted to ask about equipment sales as the lockdowns eventually end. Do you think that there are sales that have been delayed or have customers moved to purchase things via other channels? I guess, another way of thinking about it is, are you expecting a pent-up demand for equipment once the shops reopen?

[Christoph Vilanek, Chairman of Executive Board & CEO]

Yes. Thanks for that. This kind of like climax of freenet TV is July, August because this is -- this is -- when we launched it originally, we had the 3-month trial period and that ended in July. This is why it is. That's about 15% of the base is in this -- no, it's about 20 -- sorry, it's 20% of the base, 20% to 22% of the base within 6 weeks. And certainly, we would hope that these days, then the retail is open again because there is a chunk of people that buy the vouchers really in shops, retail, MediaMarkt, whatever. We see a constant shift into direct debit, but there is still a significant number of conservative customers be -- trying to be anonymous. This is the challenge here, but I'm positive and optimistic for summertime in retail. And that is, I think, a perfect lead into the second question. What we have seen in between, we had like 2 weeks open, almost open in Germany, I think that was early March or so. And we saw like an overnight uptake, and that's exactly what you have described. There is very obvious delayed demand on the one hand side. And if I look at GfK numbers and all kind of consumer monitoring, that was not such a shift, so it was not replaced by other channels. Online has obviously taken benefit and profit and was growing, but it was not absorbing the entire volume. And on GRAVIS, we have also seen that as soon as we are open, sales kind of like kick start and kick in at the higher level. So I think my guesstimate would be 2/3 of it is delayed, and 1/3 is either delayed long-term or being replaced by whatever alternative, not always a channel, but also people that said, well, at the end of the day, the TV set still works or my phone is still fine. So -- but I think if we are positive right now and reopening in Schleswig-Holstein tomorrow, I think we will see a strong uptake and then 2/3 will be recovered.

[Operator]

[Operator Instructions] Our next question comes from Martin Jungfleisch from Kepler Cheuvreux.

[Martin Jungfleisch, Junior Equity Research Analyst]

Just 2 quick ones, please. First one is on -- in terms of postpaid service revenues, can you quantify the impact from lower roaming and data top-ups in the first quarter? And then second question is on TV. I mean, the EBITDA was quite strong. Can you disclose the level of marketing expense you had in Q1? And was that much lower compared to Q1 last year? Would you expect this to increase again over the coming quarters?

[Christoph Vilanek, Chairman of Executive Board & CEO]

Yes. Thanks, Martin, for these questions. The marketing expenses in Q1 on the TV segment were equal to last year. So no changes. I think on the postpaid, we have -- on the ARPU of postpaid, we have 2 effects, as Ingo said, one is roaming. And the second one is over usage. What is that?

[Ingo Arnold]

I think like 50-50 is what I would say.

[Martin Jungfleisch, Junior Equity Research Analyst]

So ARPU would be flat...

[Ingo Arnold]

so half-half.

[Martin Jungfleisch, Junior Equity Research Analyst]

Okay. So ARPU would be flat without its effects year-on-year?

[Christoph Vilanek, Chairman of Executive Board & CEO]

Yes, nearly.

[Operator]

And there are no further questions in the queue, I would like to hand the call back over to Mr. Christoph Vilanek for any additional or closing remarks.

[Christoph Vilanek, Chairman of Executive Board & CEO]

Well, thanks, everybody, for joining this call. Thanks for your questions. I appreciate it very much. We have arranged a number of meetings and talks with a couple of you over the next few days to dig even deeper. Thanks also for some of the ideas that you have given to us, and we wish you all the best, stay healthy and see you soon.

[Ingo Arnold]

Bye.

[Operator]

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.