freenet AG

XETRA:FNTN

Earnings Call Transcript 2018-Q2

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the freenet AG analyst and investor conference call regarding the second quarter results 2018. [Operator Instructions] Let me now turn the floor over to Christoph Vilanek, CEO.

[Christoph Vilanek, Chairman of Executive Board & CEO]

Thank you very much to the host. A warm welcome to everybody on the phone out there on today's conference call. I am starting one more time with a summary overall. We think that the second quarter as well as the first half year worked really well within the KPI setup that we have originally planned and budgeted. I feel very comfortable for the full year outlook. Before going in all the details, top line summary, plus 5.4% in group revenues and approximately 4% in EBITDA. The operational KPIs, which we go into more detail in a second, are all within the level that we have anticipated, with some deviations here and there, which we will outline. Side comment to Sunrise, also doing well, with good performance during the first half year. We will certainly have a chat and some questions on our new shareholding with CECONOMY. And internally, one of the key things that we have changed in the second quarter was that we have introduced 2 new board members, people that have been around for a long period of time but have now taken full responsibility, Mr. von Platen, for all the partnership handling such as network operators, hardware manufacturers as well as Media-Saturn on an operational level; and Mr. Fromme, who is in charge of working with anything that goes around interaction with the end consumer. He's also in charge of the digitalization of those processes, which he did already for the past 2 years but now in full responsibility.On mobile communications overall, customer base on postpaid customers, so the 24 months contractual level and digital lifestyle, continuous growth. On the TV, freenet TV, we are still counting paying users. I'll talk about that in a second as well. B2B on a solid development. You have already seen in our corporate news that there is a one-off effect because we have sold parts of the VHF infrastructure, which is a one-off effect of EUR 7.3 million, causing, really, at the very end of Q2, 30th of June. There will be, obviously, because we have sold this part of the total infrastructure. There will be some compensating EBITDA missing for the rest of the year, order of magnitude, EUR 3 million to EUR 5 million, so partially will be compensated. And on waipu, we're doing -- really doing well, plus 200,000 registered customers and also a growing number of net adds on the registered side. On the next page, Page #4, having a bit closer look on the customer base and the development. Postpaid, year-on-year, plus 246,000 within the quarter, to plus 260,000 rounded, same level as the first quarter. So we have seen a continuous development there. On the no-frills side, you see a bit of a cleanout, minus 88,000 net adds during the quarter. But you will have had a look of the ARPU of those no-frills customers on next page. So service revenues, overall, went up. We have obviously clean out and don't do a number of new customer acquisitions that have been happening in the past. But I think on that end, we look more on service revenues than on the shrinking number of customers.Talking about the ARPU, next page. Call it stable, EUR 21.50. I think, overall, very much in line what we said. There is certain impact depending on products and tariff mix during the quarter, but the relative stability is really solid, as we can see for many quarters now. On no-frills, as just mentioned, the no-frills ARPU post goes up. Well, that's a -- not only a result of less customer base or [indiscernible] customer base but also of new customer acquisition policy. And if you do the math, service revenue is increasing. And on postpaid, we see kind of the same level or same, let's say, development, minus 48,000 on the quarter in terms of customer base but plus EUR 0.30 in ARPU. So I think, overall, in mobile, a very stable, very healthy, that we are on a fully saturated stable market. And you can also see that even though there are -- every now and then, there are some price erosions indicated or there are some aggressive offers from some market participants, the fact that we can stabilize or keep the ARPU stable on postpaid and increasing on no-frills and prepaid shows that you can still act very rational and very much value-driven in that market environment.On Page 6, again, a page which looks very familiar to you. Year-on-year, quarter 2 to quarter 2 '17 to '18, you see plus EUR 4.5 million, so plus 12% year-on-year. You can also see that the typical seasonality that we've seen in the past years, we are a little -- we are not growing so much or we are slightly even decreasing from the first quarter. That's driven by the fact that we have replaced maxdome, which was more on a commission-based third-party product to freenet Video, which is a self-driven product. So we have higher expenses there, and we have a lower uptake in revenues due to like trial periods, et cetera. So we see kind of a stable revenue, but we expect for Q3 and 4, again, increase is similar to previous years. Overall, the entire segment still grows with a significant CAGR. We're very happy that we've developed into that direction.On Page #7, we have a quick look at freenet TV. So you're all aware that the DVB-T2 area, which is the main driver. So far, we are -- order of magnitude, we have 1.4 -- 1.14 million paying customers. It's going to be quite interesting for us seeing now Q3 2018 because it's the first period where we will have renewals from the previous year. We have -- this is why we will most likely change either with the third quarter report, but definitely, with the full year, we will then introduce revenue-generating unit as a -- as the final sales KPI. So far, we are not able to do so because we don't see or we cannot fully anticipate how many renewals -- how -- we have, how many gains. Fact is that we are selling vouchers. And if we sell vouchers, we cannot immediately see whether they are kind of like renewals or whether they are newly paid ones. So -- but anyway, we are very comfortable with the current development. We believe that we will have more than 1.2 million paying users. And as I said, most likely, we're going to introduce RGU by the end of the year. So that for you, simulations and trajectories are easier to calculate. On the Sat product, the Sat product was only launched during the second quarter. We did a couple of testings on -- at the POS. We have now finally replaced all the hardware that was out there with DVB-T2 only. And we will certainly see an uptake there with Q4, but it's too early to give a real estimate on this and this is why we included both of them in our reporting here.The next 3 pages, 4 pages, around waipus, our IPTV product. By definition, this is the more innovative and more changing product. First of all, by the end of the quarter, we have been able to expand on 4 new platforms. We have a fully enhanced iPad app. Now we are on the Android tablet. Apps have been adopted to it. And the feature set is, well, designed to fully satisfy tablet and iPad users. We are also on the Fire tablet, in accordance and cooperation with Amazon. It's even pre-installed there. And finally, we do have a web client version, which we do not promote as a product but which is automatically included on -- obviously, our current customers are fully made aware of that fact. We see that the usership or, specifically, the usage pattern of our registered customers adapt to the new -- 4 new platforms. And they will also be first time promoted in a TV commercial from mid-September.Apple TV as well as a direct access to Samsung will also be achieved or introduced before the end of the year. Concrete date is not yet available but most likely at the end of Q3.The second thing I'd like to make you aware of is that we took the occasion of the football world championship to explain the specific technology advantage and the reason why, for our own core data networks, we have done a lot of PR around the so-called fastest goal. Unfortunately, it didn't fully work out because the Germans did not score so many times. But we were not guilty for that. But we have, as you can see on the right-hand side, by using our own fiber network, using a very specific client, server technology. When users had our version of waipu.tv in HD, the only ones that had been faster was the satellite. Any other technology was way later. Specifically happy we are -- when looking at Zattoo and MagineTV, our kind of direct OTT competitors, they were like 30 to 40 seconds later than our signal, which proves to me that our technology is far better and the investment into the CDN really works out well. By the way, we could -- if we had the signal -- we had to steal a signal from Sat. If we had it directly, we would have been 2 seconds ahead of Sat. We think that this is [indiscernible] customers really appreciate.A third little story which we think is compelling. We are -- we have launched -- or we are launching now constantly on-demand-content as live linear channels. So what happens, we take the content of any library into our content management system. And when -- and then we introduce a new channel. In this specific case, it was MySpass in Germany, very popular content made from Stefan Raab. The specific thing is that when people choose that channel, they do not -- they immediately have the impression of live content. And only if they interrupt the content, then they can choose within the full library their programs, their series, et cetera, et cetera. But having done that kind of like live appeal, the usage is way higher than in a typical library where people -- it's not a lean back modus if you go to a library. So we have listed here 3 out of a couple of KPIs. This MySpass has a market share of 2.3% in our total range. Some of you are also in the TV, Media and [analysis] business. A market share beyond 1% is really something big and is typically only possible with high investment. This channel immediately ranked #9 out of 90 channels. And what is the economics behind it, the important thing for us is this is still small scale. But for these kind of channels and for these kind of technology and experience that only waipu can deliver at this stage, we will -- we have handled the avenue -- the advertising by ourselves, and we will do in the future. We are in a number of talks and meetings with other media companies to adopt this technology and this presentation to other content as well. And we believe that this -- I hope very much that we will be able to introduce or to make you familiar with some of the most that we are currently preparing with the next quarter report.The -- going back to the pure numbers on the next page, #11. You can see that the uptake on registered increased significantly during the second quarter. And also, the net adds have been 31,000 in the first quarter, and they have been 41,000 in second quarter. Thirdly, we took advantage specifically in the registries from the world championship. And during summer time now, we will see how the conversion and the uptake is going to be midterm. But we strongly believe that the service as such, the very extensive CRM, that the team is developing, and exploiting really helps to grow the business here according -- for the upcoming years.So last page, and, I guess, we'll do some Q&A on that, the summary of our participation in CECONOMY. We currently hold 9.1%. A strategic rationale, I think it's quite obvious, it is one of our most important channels for new customer. Acquisition, we have started with them on a contract level, but we also believe that being a relevant shareholder will help there. There is a number of cooperation sets and talks ongoing. And I believe myself that relationship now beyond the mobile telephony only. Financing, I think that was reported as well. There's a bridge loan. We have a leverage target corridor still be met under those circumstances. And all other details will -- I'm happy to provide based on your questions. And having said that, I'm handing over to you, Joachim.

[Joachim Preisig, CFO & Member of Executive Board]

Yes, thank you, Christoph. As usual, I will talk you in details of the financials and I think it's adequate to refer a general to the figures here to date. Let's have a first look on the overall group's performance. Group revenue in Q2 without IFRS increased by around about EUR 55 million, mainly due to increasing hardware sales. So, obviously, there is no impact to the EBITDA from that transactions. Nevertheless, I mean, you have to report off the IFRS group, that the revenue amounts there to a solid EUR 1.386 billion. Gross profit amounts to EUR 445.8 million, and is compared to the first half year 2017, definitely lower. The reason for that is a simple one. And we will find it on the next page in the Media and TV segment. In 2017, we had this so-called barter media. This is marketing support from RTL and ProSieben, which has to be shown, on one side, to the revenue line; on the other side, to the cost -- to the direct cost side. So we were inflating by using more of these barter deals in 2017, the gross profit at the point of time. We have now less spending and less barter deals in 2018. That's the reason why gross profit in that segment came down. Obviously, no impact to the EBITDA, very clear message. EBITDA amounts to a solid EUR 224.4 million. Well, Sunrise contributed with around about [ EUR 90 million ]. And as Christoph already reported, we had a one-off contribution of the disposal of the VHT (sic) [ VHF ] infrastructure of EUR 7.3 million, which is included. Depreciation decreased to EUR 66.8 million, mainly as a result of lower inventories of property, plant and equipment in the TV and Media segment. Interest then amounts to EUR 23.1 million. And we see there general lower numbers compared to the last year because of the refinancing activities carried out in the previous years. Pretax earnings amounted to EUR 125.1 million. And taxes on income are with EUR 16.1 million in the P&L. The current tax expense of EUR 19 million is slightly offset by deferred tax income of EUR 2.1 million, which is mainly a result of write-up of deferred tax assets from tax losses carryforward, as we have seen that also in the first quarter. Already, group result finally amounts to EUR 108 million.Let's shortly talk on the next page about segments Mobile and TV. As already mentioned, in Mobile, the revenues have to be shown on a lower level because of IFRS 15 without an impact to the EBITDA. And that's what we see then and which is much more important. We see the level of gross profit is absolutely stable. And also, the level of EBITDA in the Mobile business is a stable one as well. For the TV and Media segment, we see that revenue has EUR 148.7 million. It's lower. And as a consequence, also, the gross profit is lower. One reason I already set out on the first page is this is -- these barter deals. The second one, also to remind that we had that in the first call already. In the last year, we also had addition from selling boxes, obviously. Technology change was in 2017. These license fee revenues are missing as well in the revenue line, as well in the gross profit line, which just explains that we have a decrease there. Nevertheless, the level of EBITDA is growing because we have more than 1 million paying subscribers on one side. And on the other side, I mean, it's included, these EUR 7.3 million, in these numbers, which are from the disposal of the VHF frequencies. The split of EBITDA between EXARING and Media Broadcast, we have around about a negative EUR 9 million EBITDA portion from EXARING, which is still in a startup mode. And on the other side, Media Broadcast, we have a positive EUR 37 million EBITDA.Let's touch then the balance sheet shortly on the next page. It's business as usual. We just see that intangible assets came down to EUR 542.9 million, which is, again, the depreciation of the exclusive distribution rights with Media-Saturn. That's basically what we see from time to time. What's happening in intangible assets, it's most of the time driven by this exclusive distribution right. Goodwill remains unchanged. We see a small decrease to EUR 224 million in the area of trade accounts receivable, which is attributable to the familiar seasonal effects of accruing annual bonuses with the network operators. Then definitely, cash and cash equivalents came down to EUR 246.4 million. There are 2 impacts or main reasons basically. The one is the payment of the dividend of around about EUR 211 million. And on the other side, we have to offset that a little bit by the addition of the free cash flow with around about EUR 111 million, which brings them to this amount. And then on the level of other assets, we almost see no change, and the change we see is basically driven by smaller inventories compared to the last quarter. Liabilities side. Shareholders' equity came down to EUR 1.327 billion, also mainly driven by the payment of the dividend of the EUR 211 million and slightly offset by the net group result. Borrowings basically remains unchanged. Trade accounts payable came slightly down as a result of lower liabilities to network operators. And the other liabilities is on a normal level. I mean, what we see there, again, is basically the payment of the exclusive distribution right to the MSD, just the other part of what we have already explained on the intangible assets. This brings me then to the cash flow statement on the next page. Cash flow from operating activities amounts to EUR 189.4 million, which is lower compared to the first half year 2017. And the main reason for that, and then you'll see that on the next page on the detailed bridge then, our working capital position is a negative EUR 30.8 million so far, mainly driven by the fact that we have paid this exclusive distribution rights for MSD. This is an ongoing impact to the working capital position year-for-year and for many years. You have seen that right now. So EUR 70 million there and around about EUR 6 million because we just reduced our factoring position to manage the net working capital, at least, at the end of June. So I think this is the general explanation. Cash flow from investing activities amounts to EUR 23.8 million instead of you have to see it CapEx position with EUR 23.5 million, which is definitely below the number we have seen in 2017 and which is mainly driven by less investments in the TV, Media area because, obviously, the huge technological change between DVB-T and DVB-T2 has taken part in 2017. Cash flow from financing activities amounts to EUR 242 million, where we find now again the dividend payment up to EUR 211 million. We find interest payments of EUR 16 million and [just in case] leasing payments of around about EUR 15 million. And all this leads us then to a solid free cash flow of EUR 165.8 million, which is fully in line with the quarterly guidance we have given at the beginning of the year.Turn next page. We have a detailed bridge from EBITDA to free cash flow. You see the negative EUR 30 million in net working capital. I just explained the reasons there. Then we see the tax payments, which is around about EUR 14 million. We have predicted EUR 50 million. I mean, let's see how purchase -- or payment orders from financial authorities will drop in, in the second half year. But we still think that the EUR 50 million is a valid number. CapEx, we have EUR 23 million. Forecast of EUR 50 million. I think that's fine. This will turn out. We have to deduct in the Sunrise EBITDA because, obviously, there is no cash impact. On the other side, we have got the payment of the dividend from Sunrise, which has to be added at the end of the day with EUR 37 million. And here, on the other, we have the one-off EBITDA contribution after disposal again of the VHF infrastructure because we have -- we had to book that already to the EBITDA. But the free cash flow, we will see in the second half of the year. So it's just a shift there. But I think that's for good reason. We have to bring it here to the paper and to keep it as indication to end up with EUR 165.8 million. Having reported now the full set of figures. We fully confirm our financial guidance, as outlined on Page 18, as well as the operational KPI guidance outlined on Page 19. We are, I think in a good shape. And again, we will deliver our guidance at year-end. And for the moment, I think I have to say thank you for your attention, and let's open the floor for the Q&A.

[Operator]

[Operator Instructions] First question comes from Josh Hallett from Redburn.

[Josh Hallett, Research Analyst]

I guess, the first question is, now we had a couple of quarters and IFRS 15. And if you could tell us -- I know you're saying it's small, but a rough idea on what the impact has been from that transition on EBITDA, maybe just if it's been a positive impact or a negative impact. And then my second question was just on the comments by the Federal Cartel Office about allowing a new MNO in as part of the new spectrum auction. Do you think that's realistic? Is there space for a fourth MNO in Germany? And what are you expecting yourselves in terms of mobile service provider obligations after the 5G spectrum auction?

[Christoph Vilanek, Chairman of Executive Board & CEO]

Okay. Thanks, Josh, for your questions. I have to be honest. The first one, I didn't get what the measure or what activity should have caused which impact, but you can repeat that in the second. On the whole auction thing, I mean, what do we see? Well, obviously, the network operators want to hold to the 3 are very unified in that opinion. We have participated in a number of meetings with the minister as well as the [cartel] office as well as the regulator. We were participating in the open hearing there. I think I would like to answer twofolds. First one is, we have commercial agreements with all operators. And on Telefónica, on top, we are covered with the existing remedy. So we do not panic, but we still believe that a service provider obligation would be one of the potential solutions. An equally good alternative would be like extension of the existing commercial agreements with the operators. So we would see for freenet itself, both solutions would be equally good. We have seen a certain preference with the operators for individual agreements because that would protect them from the typical fear of [GAAP or FILA] whatever you call them, the big ones coming in and then taking advantage. So we honor that approach. I personally do not believe from the meetings we've had and I was participating that there will be a national roaming agreement. And I have also relatively -- the relatively clear statement that the artificial combination of regional networks that will then combine and exit a fourth operator, I think this is not very likely, because politicians as well as a number of other authorities do not believe in the solution, let me put it that way. So we -- at this very moment, we believe that we will either end up with the service provider obligation going for everybody or commercial agreements on individual level for us as well as our dear colleagues from United Internet. That's kind of my view. There is the first so-called consolidation paper due by the 14th of September. Then there is the consultation periods, which will take about 2 months. And there is, in total, 32 people involved in the whole process. From the political side, 16 out of the parliament and 16 from the individual countries. So we are in close talks with all of them. And there's a clear understanding that service provisioning, the way we've done it the last 25 years, is a driver of innovation as well as of competition. And I think all the participants had also clearly understood that we are contributing massively to the invested capital with our payments to the wholesale agreements. So overall, certainly, we will only learn about the final results after end of November, but we're very positive that there will be an agreement that will protect our business for the next 2 decades.

[Joachim Preisig, CFO & Member of Executive Board]

[indiscernible]. On the first question, I think you asked about now we have experienced over the last 6 months with IFRS 15 and what are the consequences. And, I mean, actually, we see that it happens exactly what we have predicted. I mean, it's sheer reclassification of provisions from network operators. They will not be shown anymore as revenues. It's a deduction right now on the cost of goods sold. So we do not see any impact at the end of the day on the level of gross margin. And there is no negative impact on the level of EBITDA.

[Operator]

Next question comes from Joshua Mills from Goldman Sachs.

[Joshua Andrew Mills, Equity Analyst]

I have 3, please. The first one, just apologies if this is straightforward, but just on the guidance. You're still saying EUR 410 million to EUR 430 million of EBITDA, and I just wanted to make sure that I'm thinking about this right. Does that include the EUR 7 million, which you've already received from sale of the radio antenna? And does it include the other kind of EUR 5 million to EUR 10 million, which we should expect for that to come through in the third quarter as well? Or are you just saying, look, our guidance is the same as it was before any of this happened and the incremental benefit on the EBITDA and free cash flow line, some asset sales should be completely set for it? And that's the first question. The second question, just regarding the CECONOMY deal. So last year, you were on the call talking about the strength of the existing agreement you had with CECONOMY lasting 5 years from the end of 2017. I wonder if you could just remind us what guarantees are already included in that 5-year deal and how these can be improved, if at all, by taking a 9% stake in CECONOMY. It would be good to hear some specifics about how the partnership or a great involvement you've announced and I think the interaction to help the bottom line here. And then third and finally, just interested in your latest thoughts around potential consolidation in Switzerland given your 25% stake in Sunrise and whether there's been any movement there or change in thoughts following some of the headlines around joint ventures, et cetera, the last few months.

[Christoph Vilanek, Chairman of Executive Board & CEO]

Well, thanks again. It becomes kind of my attitude to always start with the last question first. Consolidation Switzerland, I mean, I have said that before, and I've actually said it even at the very early stage when we took the stake. I think the country is most likely one that will demand for a consolidation. Specifically, the ambitions around 5G, et cetera, and the demand that Swiss population has in terms of quality will drive that. We are fully convinced that Sunrise would be the best and the most relevant partner in a potential deal for either combination possible. And we believe that the company, in either combination, will be the stronger part and the driving force of the future value creation because of the outstanding quality of the network, the exceptional quality of the management team and the entire very professional setup that we have seen. There are many talks, there are many rumors, there are many informal meetings among the entire industry. So I think the speculation is still valid, given the numbers that we have seen with UPC Cablecom. I tend to believe that for them, the reason why is more -- is growing, because they obviously have some challenges to master in Switzerland, and that might drive them faster to a decision where they would be ready for a consolidation. I think that is as much as I can say. And I think that's all based on public knowledge and observations. Second question you've asked about the CECONOMY. Well, I think there's -- this is -- there's 2 things we need to fully split. There is a 5-year contract. This 5-year contract is an exclusive contract for the sales of Deutsche Telekom, Vodafone and, by the way, E-Plus, on their sales platform offline as well as online. There has been no changes, no exit clauses, no other -- nothing has changed. Now you can argue, why do you -- why did you still take a share? Well, first of all, given the contracts -- well, even the contracts -- bid contract might run out in 5 years. And once again, we will have a negotiation. I think that we might be in a bit of a different position if we do so. Second, I think if -- by signaling this kind of common interest also in terms of our and their performance in the field of telephony services, I think one or the other activity towards the network operators could be strengthened from -- when in the past, we went there and said we would like to have this and this. We have seen that the network operators every now and then have tried to kind of split our interest. There is integrated products that are not sold in Media Markt at all. So I think on the pure service side, mobile and fixed line, I think that we have -- we speak more common language because we have even more combined interest in some areas such as renewing original contracts, such as integrated products. I think more important for me, and this is kind of like hopefully answering your questions on what is the benefit, I give you the very obvious example. We are trying to sell the waipu product in CECONOMY. As long as they are pure and we have a pure dealership relationship, they will ask us for marketing funds, for lifting fees, for big commissions, et cetera, et cetera. Whereas we would like to have a common sense that the product could be a beneficial one for both because it's an attractive add-on for new TV sets, but at the same time, the revenue -- could be a revenue generator midterm for both of us. But we have to overcome the [different identities in ] DNA, which affects -- just outlined that like big payments at the beginning, high commitments by the product company and no commitment on the side of the dealer company. So I think that is one field where we think we can do much better, so on the pure TV products, all the 3 of them. We also are -- need to talk about how can we together handle or apply our entire knowledge about CRM and customer management. CECONOMY/Media-Saturn, we have a German member club of 3 million members. They have asked us to support them in handling it in driving loyalty and higher stickiness. This is very much in terms of a best practice sharing. But certainly, again, as a preferred partner and as a shareholder, we will be able to take benefit and access their club members. But there is also many other aspects like their attempt to have a European purchase or procurement alliance. There's elements in the area of click and buy, click and collect where we can cooperate. And we even started to share a little bit on which other -- how could we -- how could they repeat the success that we have generated over 25 years with our services in other countries. So we're helping them there. So I think we can be -- I mean, we can play an important role to improve their business, not only in Germany but also in other countries. So that we take benefit as a shareholder. But given closer relationship, we will also expect to cooperate with them specifically on a [ GP access ] product, but as I tried to explain and outlined, on the access to their customers and to their club members. And finally, to your first question on the guidance, when we created the guidance and we published the guidance, EUR 410 million to EUR 430 million, we will not -- we did not yet know how the entire VHF thing would work. Fact is that we have -- in the second quarter, we have sold parts of that infrastructure. We have put that out as a onetime effect because as Joachim and myself explained part of this. Well, we've sold the infrastructure, so we will miss part of the service revenues that would have had been generated beforehand. So in the original guidance, we have -- we take the anticipation that the whole thing would work for the full year. Now we have sold parts of that infrastructure. We have to show there's a onetime so that nobody will just extrapolate for the fourth quarter, because it will be partially -- be compensated. So at the end of the year, I would say we stick to the EUR 410 million and EUR 430 million, but part of the -- of whatever the outcome is going to be might be one-off that might then be compensated at a later stage by a decrease. So I think that is -- this is how we look at it, this is how we see it and this is how we will report it, which also means that if there are additional one-offs or additional sales infrastructure and final -- there's a ruling from the regulator, but there is no filing contract on all levels, we will make that transparent and show you the impact not only on this year but also on the upcoming years.

[Joshua Andrew Mills, Equity Analyst]

That's very clear. So just on that last point then, so what you're saying is the EUR 410 million to EUR 430 million of EBITDA guidance remains unchanged despite the fact that you've realized a EUR 7 million one-off this quarter and may do the same next quarter. And the reason that it's unchanged is that further down the line, at some point, you're going to make less revenue, less EBITDA so you're not having the radio business. It sounds like -- I mean, I guess, if you reported this on a like-for-like basis, should we be looking for a midpoint of the EBITDA guidance be a bit lower now, given that it's being propped up by at least EUR 7 million of one-offs according to today's results?

[Christoph Vilanek, Chairman of Executive Board & CEO]

Well, I'm not sure. Let me explain it again because we need to make sure that there's a proper understanding. In the original EUR 410 million to EUR 430 million, we have anticipated that, let's say, even those items that we have now sold would have been available for the full year, and they would have delivered a certain contribution. Since these [indiscernible] have now been sold in the second quarter, we will -- they will not generate EBITDA in the third and the fourth. So we have taken that money earlier on board, but we will miss part of the EBITDA due to that. And I said anywhere between EUR 3 million and EUR 5 million for the rest of the year. So we've taken in EUR 7 million, but we will miss from those and then there's an impact for the rest of the year of EUR 3 million to EUR 5 million. So in that sense, well, the EBITDA or the entire EBITDA might be a bit higher because -- well, in this case, EUR 2 million or EUR 3 million by one-off, but overall, this effect offset each other. That's as far as we can state it today, because I'm expecting somebody else asking the question, are there further of those sales? Well, I can't tell you today because we are still in a final negotiation process how this going to work out, what the [indiscernible] contract is going to be, which of the service contract around the antennas stay with Media Broadcast. Some of the investors have said that they would do the service themselves. I mean, this is something which we will only learn in the course of the next 3 or 4 months. But let me make sure, yes, these EUR 7 million have not been planned. We have planned more EUR 5 million. But those -- or EUR 3 million to EUR 5 million. But those EUR 3 million to EUR 5 million will be eaten up by the EUR 7 million.

[Operator]

Next question comes from Martin Jungfleisch from Kepler Cheuvreux.

[Martin Jungfleisch, Junior Equity Research Analyst]

First of all, on your TV business. How should we think in terms of profitability for the second half of the year? Do you expect more investments? Or can we at least assume the same adjusted EBITDA run rate for the second quarter -- for the second half? And then on your mobile business. You mentioned that about 45% of contract-related transactions in mobile happened in your online sales channel. Can you say how this compares to previous years or quarters and if you're now focused more on the online channel? And also, do you still feel comfortable with your store setup?

[Christoph Vilanek, Chairman of Executive Board & CEO]

Thank you very much. On the first one, simple answer is, yes, you should expect same kind of profitability on TV for the upcoming 2 quarters. There will be some marketing expenses here and there as well, the same way we've done it now in the second quarter. But overall, I think the picture is going to say the same. On the online, well, we have kind of mentioned in the report that this is the first time because there was a strong wish from your side to do so. The share was increasing over the last, I would say, well, 3 or 4 years. On a quarterly basis, I would say 1% or 2%. With 45% in total, I think we are any way more on the upper end of the -- at least the operators that have both sides. There will be always a big proportion offline, not only due to our own shops but also to Media Markt/Saturn, and the fact that we are more on -- we have a bigger proportion of subsidized handset business than online pure-plays have. So this also, I think, gives you the answer on our retail setup. We are very convinced that the retail setup is a good one. We see that some of the change such as the [ earphone ], et cetera, kind of disappear from the market, which is good because it leaves enough potential for the other -- for any brick-and-mortar activities, ours as well as those ones of the operators. So no change in the policy or in the strategy there. We continue to believe that the combination of the two, and you can see now from the report that we are close to 50-50 range, is a very healthy one and makes us taking benefits of both of them as we also can manage risk. Fact is that online sales is not cheaper than retail. Everybody who sells them saying different doesn't know retail or doesn't know online. And we can compare both of them.

[Operator]

Next question comes from Simon Bentlage from H&A.

[Simon Bentlage, Analyst]

I have two. One -- the first one would be, could you elaborate a little bit more on the gross profit? I didn't quite catch that in the presentation. And the second one would be, could you maybe elaborate a little bit more on the waipu segment? I think at some point, I heard you say that this will be contributing about EUR 60 million to EUR 70 million of EBITDA in 3 to 4 years. So maybe you can tell us a little bit about the following steps and how that's going to happen.

[Christoph Vilanek, Chairman of Executive Board & CEO]

Okay. Once again, I'll start with the second one. And for the gross profit or gross margin, I will hand over to Joachim. What do we -- what's the experience after like 4, 5 quarters running with IPTV? I think overall, the uptakes that we have planned, that we originally launched, some people were a bit disappointed that we would not plan a steeper curve than we did. And I think we were right not to do so. We see that the adoption of the product is slowly but surely growing. We do almost a monthly Net Promoter Score questionnaire with our customers, and they are still extremely happy about the quality of service. Actually, when we asked them, why do you use it, they say that -- it works. Many of those apps and IP solutions don't work. The second thing is that we have experienced now with the increasing number -- or increasing sources of content and the increase of platforms, we see that the usage pattern, once again, I think, by the end of the year, we will start reporting usage patterns there with minutes and averages, et cetera, et cetera, I think these features do really -- are really appreciated by the end consumers. They really like it, and we need now to differentiate more and more our communication, which means that at the very early stage, we said this is a new version of TV. And we've learned from our research that a majority of people did not fully understand what is the new version of TV. Then in the second wave, we have very much promoted mobile watching, our mobile version of it. Once again, we've learned that in the research, people said, well -- but we replaced our sat and cable or we used -- we reported or we decided for waipu, where we changed our [ flat or our pipe ] because, suddenly, we did not have an alternative and we started to use this. So what I'm trying to explain is, we need more -- we have -- we understand now different motivations to use the product. We understand more and more the origination of the need and the adoption pattern. And this is why we believe that, overall, our performance will go up. Experts believe that in 2023, up to 1/3 of the full population will access any kind of IPTV mobile as well as kind of like at home. A big proportion of it will be covered by the cable operators because they will just do it as an add-on to their cable setup. But there will be -- the bigger proportion of people that have no cable and will use it as either complementary or midterm supplementary service. So we're clearly targeting those people that have cable now because we have a better feature set. And we really target the satellite people in the future because, again, we have a superior service, including video recording, et cetera, et cetera. So I think -- and if we assume that there is about 1/3 of the population using it, there will be anywhere between 20 million and 30 million. If we assume a 10% to 20% market share, anywhere between 2 million and 6 million users, that will be 70 million paying months a year times EUR 1 to EUR 2 margin, then we are in the order of magnitude where I think Joachim and myself, we have both stated that in the press. But I have to admit, I mean, 5 years, 5 years is a long period. But I think it's very, very much in line. And if any of the variables have not worked out as well, well, still with 10% to 15% market share, we are by far -- far away from being the absolute market leader. So I think we were humble on that end. So if the overall adoption rate is lower but we can create closer to 20% or 25%, then we will cover it up. And last statement. I mean, there is many, many sources of additional revenue not even test. We are now experimenting with a number of new channels. They are not on the service yet. We are testing them. And I'm not in a position to quote the partners there yet. But we see that there is an adoption within business services. There is adoption and needs with basically brands on and offline. There is people approaching us, whether they could license our platform as they're kind of a white label and software solutions, because they want to reach a very specific target group or audience. And maybe just to give you a flavor, if maybe Saturn would ask us tomorrow to create a specific contract -- content -- channel for them, which would be exclusive to their club members, that would be a service which we would have within 24 hours available. So our -- the platform is such -- allows a huge number of unknown revenue streams from today.

[Joachim Preisig, CFO & Member of Executive Board]

So I will elaborate a little bit about the gross profit. Let me start with the fundamental statement. I mean, our operating gross profit is developing well and very healthy. This is very important to understand. And therefore, we see on the level on mobile a stable gross profit as we have predicted over time and as what we are delivering right now. And you see that in the TV, Media segment, the gross profit is lower compared to the last year. This is because in 2017, the gross profit was inflated by a so-called party transaction between freenet and ProSieben and RTL. This is media support. And accounting-wise, this has to be treated alongside as a revenue, which is inflating the gross profit, and will be offset at the same time on the level of target profits. So means on the level of EBITDA, there is no relevance at all. But, obviously, gross profit in 2017 was inflated. We also have positives in 2018. But most of the marketing spendings and positives have taken place in 2017 to push now to get all these paying customers at the end of the day. And the second reason, which was there also in the last year, we were -- I mean, everybody who changed technology from DVB-T to DVB-T2 has to purchase a new set-top box. And with the new set-top box, we were earning also a small license fee. Obviously, this was reflected on the level of revenues. But because all these purchases took place in 2017, there's only a minor portion in 2018. Obviously, also, there was a slightly higher gross profit, which is I think less than EUR 1 million at the end of the day and which also is less than EUR 1 million, which is reflected on the EBITDA. So it means that we have an inflation basically mainly because of the positives in 2017. No relevance for the EBITDA in 2017. No relevance on the EBITDA in 2018.

[Operator]

Next question comes from Simon Coles from Barclays.

[Simon Alexander Arulraj Coles, Research Analyst]

I just wanted to go back to your mobile gross profit. So that's obviously stable year-on-year, which is great, but your revenues grew. And when you look at your subs and your ARPUs, subs and ARPUs have gone up. So service revenues went up. So I'm just trying to understand what the moving parts on your cost of sales are. And I know you alluded to on prior calls that, sometimes, data revenues and lower margins. I'm just wondering if you could give us a bit more color around what the moving parts are there.

[Christoph Vilanek, Chairman of Executive Board & CEO]

Well, maybe this is not the answer you want to hear, but it's difficult to explain because there is so many moving parts. There is the mix of channels. We have, for example, we had -- maybe in Saturn, we had a very strong Q2. On these -- with a very aggressive offer. We have had a different setup with the contracts in euros with a bit more expensive hardware. But we have sold and we have used more of what we call hardware options. Some parts of the so-called digital lifestyle services, that some of them are accounted on the monthly statement and bundled within this service revenue and then they are counted, if they are separate from the service and they are not. So we know that there is, I would say, a bit of a challenge in communicating and explaining to it. And we understand that there is a need, and we will have to come back to that. But so far, we were -- I think we were always trying to escape a little bit from it because it's not 2, not 5. It's 2 dozens of minor effects, and it's difficult even for us to anticipate part of it. This is why we always keep saying we are managing the company on EBITDA level and not on gross profit or gross margin level, which I think is, well, from our internal point, appropriate. But I understand, from a transparency and from a -- your perspective, it's a bit of a difficulty. But I have to apologize. It's not -- there is not a single answer to this. It's so many components. We cannot really report on this in more detail. But I invite you very much to speak to our IR team again, that they will give you a bit more of a flavor and a bit more detail.

[Simon Alexander Arulraj Coles, Research Analyst]

I understand on that color. It's very helpful. I just -- a follow-up then is, on operating cost within mobile, do you see a big opportunity for digitalization to drive some savings? I know you talk about it a bit in the press release. Just wondering if any other comment you wanted to add.

[Christoph Vilanek, Chairman of Executive Board & CEO]

Well, not on an SG&A level or the marketing level. If this is the background of your question, I will -- we -- I mean, I keep saying that cost consciousness is like part of our DNA. We certainly look into all details in trying to minimize on all ends. At the same time, right now, we are shifting some of the -- some of our external sources in marketing and specifically in online marketing back again in-house. But there is no -- I do not foresee a certain area or a certain element of our cost base where we can save significant, which means 2-digit millions at a certain point. There will be an ongoing piece of reviewing cost but not a big chunk or a big step.

[Operator]

There are no further questions. And I would hand over back to the spokesman.

[Christoph Vilanek, Chairman of Executive Board & CEO]

Well, thank you very much, everybody, for joining. I hope in your offices, it was not as hot as it is here in the far north of Germany at 36 degrees. But we've still enjoyed the call. I'm glad you did not see us because we are all in T-shirts and with sweat on our heads. But that's more informal part. Thanks again for listening. Thanks for joining and asking your questions. And look forward to see and speak to you again. Bye.