freenet AG

XETRA:FNTN

Earnings Call Transcript 2020-Q3

[Operator]

Dear ladies and gentlemen, welcome to the analyst call of freenet AG. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Christoph Vilanek, who will lead you through this conference. Please go ahead, sir.

[Christoph Vilanek, Chairman of Executive Board & CEO]

Thanks for the introduction. Thanks, everybody, for joining on this Friday morning, for me Friday morning in Hamburg for our presentation on Q3 and year-to-date results. I'm jumping into it because I'm sure that you will have already read our publications. Overall, we are very happy with the year-to-date results. Subscriber base in total is still growing. We go into some details later on. EBITDA is plus EUR 3.4 million compared to previous year and free cash flow with EUR 220 million is also performing very well, that's a growth of almost 10% compared to the previous year. Ingo Arnold will explain a little later what our projections are for the rest of the year and what opportunities we might take out of the positive free cash flow. Going into more detail and some of you have already commented it, I think postpaid works really well with relatively good growth, a continuous growth for a lot of quarters. Meanwhile, the buster business is working really well. The -- we have adapted the channel mix towards -- more towards online and direct as a -- not only as a result of the new normal situation, but also on purpose, and it is the result of an ongoing proper management of the channel mix. We have added here Funk and Flex, the pure ad-based tariff plans, we keep it separate for the moment. You see also there, we are still growing. We are not investing here in marketing so far. This is really word-of-mouth and the pure success of the product model. Waipu TV compared to previous year, significant growth. We have told you that in Q3, we do not expect any growth there. So I think the small 1% growth is a confirmation of the success of the product. Still, there were no real interesting events on TV. Freenet TV is certainly a little bit the -- a bit disappointing also to us from a pure RGU perspective. But when we -- when you do sensitivity on the new price tag, you will join our thought that this will -- will be overcompensated by revenue and specifically by the margin growth. So we have expected some of this churn and I will come back in a second again. Some of what I've said is listed on Page 6 of this presentation, what were the key topics and the key achievements of these past 3 months. I think the corona limitations were hitting us in the early days or middays of March. We have soon and fast adapted to the situation. We've told you that even April, 1/3 of our shops were still open. We have changed some of the opening hours. We have combined our outbound activities on telephone. With the new shop system, we have set up a number of initiatives to still use the shops as a primary contact point for those customers who are starving for this kind of methodology, and we continue to do so. Freenet Flex was launched, once again a tariff plan which is pure [ f-] based. The tremendous thing is that the entire very painful and difficult customer journey in Germany with entry of private data, ID data, coping ID, et cetera, et cetera, is bypassed in that product, and we see that adoption rate and Net Promoter Score on these products are really great. We have signed after a long, long discussion and specifically a long, long technical process, we have -- we can now start to put Netflix as a co-subscription for waipu as well as the product portfolio in mobile. And last but not least, GRAVIS is with a very strong year 2020 is now assigned to be an Apple education partner. On TV and media, well, the launch of waipu and the combination bundles with Netflix is certainly a breakthrough also in the perception of our competitors and very much so from the German channels. I think that was a really great deal in -- by all means. And we've started and launched on 3rd of October, so the German national holiday, the second so-called multi -- national multiplex on digital audio broadcast. We are now bringing in the first couple of channels, which are our own, and we have 4 partners that have already launched their channels and are now available nationwide. On group level, and Ingo will talk about some details on it. I think we are very happy that I think next week, there is the new EGM of Sunrise and UPC. We do the proper handover. This all worked really well. We will get the money very soon and then have the respective inflow of almost EUR 1.1 billion, and respectively, we have already started prior to this, the share buyback as a compensation for the non-payout of our dividend for 2019. For the, I would say, discussion -- intense discussion with you, we have tried to give more transparency and more insight into our channel mix and into our multichannel strategy. On Page 7, you see that we have split it in the gross adds and the renewal. You see that on gross adds, the retail with 43.6% is by far more important than on the renewals. The driving force is our partnership with MediaMarktSaturn, which is incorporated and their share on renewals is really low. These renewals are all done directly with non-retail, so not in a brick-and-mortar location. Why do we believe into this multichannel strategy? [Technical Difficulty]We know whether we're still here, still heard? Okay. Just -- I was just told that this was only a strange noise in our phone here. So what is -- what about non-retail and the all kind of direct channels. I mean the amazing thing is that we can optimize, change the campaigns, change pricing, test pricing, test combinations, all these things on a basically real-time daily basis. The majority of this optimization is system based with our -- based on our business intelligence knowledge and it's AI-driven. So we can adapt to any competition to any short-term opportunity really fast, really close, and this is the big advantage of direct-to-consumer activities. By the way, we include here that also our partner, MSH, to Media-Saturn is, meanwhile, contributing a significant part of their gross adds also through their direct channels to their websites and through their apps. So the good thing is that you are very fast. Unfortunately, where there's always the other side of the same coin, in this field, you have way more competition as high transparency and our competitors, you name them, Vodafone, DTAG, Telefónica, United, they have basically the same tool set. So it's a constant rush to work against direct competition. You try to outsmart them, obviously, but it's very transparent, and this is also why the online channel and is not always really cheaper. What is the big advantage in the USP of retail or brick-and-mortar? This is transactions and interactions on a -- with a high human element. It's typically based on relationship. And this relationship creates the opportunity for upselling. Be it warranty, extension, speed, insurances, be at any of our digital lifestyle options, these things work way better with the human interaction. I think we've all experienced this. Most likely, we are all customers of Amazon. But we tend to order 3 items a day with Amazon, one by one, not taking into consideration that you get 3 packages, that there's 3x postage handling, there's 3x all this. And even though Amazon is certainly the world expert in dynamic pricing and all these elements, still their cross-selling is very weak. And I think we all experience it. So there is a certain proportion of individuals that prefer the human interaction and our concept of local hero stores really worked out well. So the conversion in these elements of upselling and cross-selling and attachment rate is super high. And this is why if you -- if we continue to do so successfully upsell to the core product, then retail remains a profitable and very important channel. The second perspective that we take on our daily channel split is that we differentiate between captive channels and noncaptive. So how much of those interactions do we have to pay third party? And how many of those transactions are not in full control? On this page, you can see that the total amount of renewals and gross adds is handled by -- we added up 39% plus 31% -- are handled via channels that we are in full control, and we can handle in full control. And the same goals for the TV segment, where only 20% of the transactions are handed purely by third-party where we cannot influence the entire customer experience, the entire customer journey. So this is an overall traction in which we want to continue. And we think this is the most important -- the most important part of the strategy to get into the full control, to deeply understand the customer journey, to optimize the click parts, et cetera, et cetera, as well as to individually talk to the customers and to review how they enjoyed or not enjoyed the interaction. On Page 9, we continue with FUNK and FLEX. I mean these are the perfect example of this direct interaction. There is no intermediate selling these products, just our own team that runs the media campaigns, the social media campaigns, et cetera, et cetera. FUNK was, as you may remember, might remember, the first product in Germany with an unlimited daily data and unlimited -- and a tariff plan, which you could pay on a daily basis and pause within the month at a certain limit. Based on this new architecture, we have implemented FLEX. FLEX is back again to the typical and very well-established monthly contracts. People can cancel it every other month. We offer it as a difference to FUNK on the Vodafone Premium Network in 3 versions, 5, 10 and 15 gigabytes. We have listed here the conversion, 50% is the 5-gigabyte plan, 30% is the 10 gigabyte and 20% goes up to the high-volume, 15 gigabyte. We have on top of the social media campaigning and the word-of-mouth activities, we have done a combined TV campaign for freenet TV and freenet FLEX to test this. We have, well, learned that the combination is difficult to understand and the impact of this specifically on FLEX is in -- not a very high one. But I think it's still an important step that we kind of reunite a majority of our products under the freenet brand, and we will continue to do so. As I said in the beginning, and we are not trying to hide this also in our corporate news, the freenet TV, Page #10, freenet RGUs are going down. Those of you that have joined the half year call will remember that we have predicted this is going down. On the one hand, there is an effect, and this amount, a total of minus 14,000, it is the former satellite customers, which run out of service so -- but there is still another -- around 50,000 of the pure terrestrial customers that have gone away. We have called all these customers or the majority of these customers or send them an e-mail to learn what is the reason why. We have learned that the bigger part of it came out of the voucher customers. And these people said, "Well, I've had the voucher and not -- but we have -- we did not -- the majority of our hours in front of the TV is not on the private channels, not on the extra services that you provide." I think there is things like RTL not continuing to show the Formula 1 and some -- and no specific events and so on and so forth. So people say, "Well, it's not worth paying EUR 7 for the minimal hours that I watch to private TV." So I would argue that it's not about the price as such, it's about the benefit and the price value situation that lead to this. We think that -- and by the end of October, it shows the direction that we will, at the turn of the year, go somewhere in the range of 900,000. Well, when we decided for the price increase, we have a 20% price increase, and we have expected a churn of 5% to 6%. Meanwhile, it looks more than it's going to be 10%. But on the equation, you will easily do the math that it's still a profitable and accretive move with the price increase, and it also shows and demonstrates to us that we might do another one anywhere next year or the year after. Going to next page on waipu TV. As I said, there's only 1% gain of new customer net adds in the third quarter. I think I was positive that we have even created some net adds. This was highly expected. If I look at the recent numbers that I have seen this morning on the third quarter, we are very much going towards the 550. And I'm sure that by the end of the year, we will be able to report these numbers to you. There is some nice topics, which I've explained to you before and mentioned. Also in waipu, we are trying to raise prices. Perfect Plus is going up. We typically add a couple of new features or a couple of new channels in parallel with price increases. Certainly, we also have now to experience what the price elasticity and the price sensitivity of our customers are. But once again, we are positive and we have once again done the same logic; we have raised the prices and incorporated into our business simulation a certain level of churn. But still, as I said, we are expecting 550 by the end of the year. What is the -- what is the outlook for the fourth quarter? And we're in the middle of the fourth quarter. We don't see significant changes in the market, no real price pressure. By the way, we will start 5G, our own 5G offerings early in 2021. If we look at the market, there is a very slow adoption of 5G. The iPhone 12 is not bought for 5G, but because it's iPhone 12, and the demand on the private consumer level is super low, not to say nonexistent, I think different from the big networks that provide their services also to big cooperations that have internal usage for 5G. This is not an end consumer product as such. And our research also show that the majority of consumers do not understand the difference anyway. So we still expect further net add growth in the subscriber base. And GRAVIS has started their Christmas business already early October. [ Ever ] margins are not tremendously high, but we see that there is no downturn from the second light shutdown in Germany so far. On TV and media, I will not repeat the numbers. On group level, we confirm the guidance and the completion of the Sunrise contraction is now becoming real. Having said that, I'd like to hand over to Ingo Arnold to go through the financial part of this presentation.

[Ingo Arnold, Deputy CEO, CFO & Member of Executive Board]

Yes. Thank you, Christoph. Good morning, everybody, also from my side. I start on Page 13 with the overview of the group financials. I'm very happy that we have such a strong EBITDA development in the first 9 months of the year. The revenue was relatively stable. The gross profit slightly down, but all in, only 1.1% decrease. And the EBITDA was 3.7% up and this in a year where we had the crisis. So I think, again, we showed that we are very resilient to such a crisis and that our business model is very strong. Moving to the mobile segment on Page 14. And definitely, what you can see is that there is no impact visible from COVID-19 and from the situation here. The revenue is very, very stable compared to last year. The gross profit is down by something like EUR 13 million in the first month period. I think we already explained all the reasons to you in the last call. But I think the main reason was in the first quarter that there was an extraordinary hardware bonus in Q1 '19, which was something like EUR 6 million. And then we had some effects in the second and the third quarter from roaming, from lower usage and also from the regulatory effect from the mobile number portability, what we saw there. But I think what we also showed is that we have a lot of efficiency measures. Most of them are recurring. And with implementing these measures, it was possible to overcompensate the loss in the gross profit and to show a very, very positive EBITDA development here in the mobile business. This is based on the figures on Page 15. Christoph already talked you through the increase of the customer base of the postpaid customer base so this year, we gained something like 102,000 customers already, and this is much, much better in comparison to '19. So I think we have a good base here also for 2021 to increase the service revenues on this base. Because what you can also see is that the ARPU is stabilizing again. I think there were some roaming effects, which are not profit relevant for us. But there were these roaming effects, especially during the travel season. The travel activities were much, much lower because of COVID-19, but we see that the effect in the third quarter was even smaller. And so all in, I would say we are on a stable ARPU level. Digital lifestyle revenues slightly up as expected at the beginning of the year. Moving to the media segment. I think what we see here and what is important, and we have had a lot of discussions about it in the past, is that when you were criticizing that the contribution to the group EBITDA would be too small, I think what we see now is that we already have in the first 3 quarters, we generated an EBITDA of EUR 64 million. And if you put this into connection to what we received during the whole year, you see that it's getting more and more important here for us as a group. Moving to Page 17. You see that mainly EXARING is contributing to the increase in the gross profit and in the EBITDA of the TV & Media segment. This is based on the growing number of subscribers, for sure. And I think it's -- we are happy that since May, we only see positive EBITDA contributions month-by-month from EXARING. And therefore, I think we already forecasted it. What we do expect for next year is definitely a positive all-year result from EXARING. Looking into the figures of Media Broadcast. You see that, yes, we saw the RGU slightly decreasing during the last quarter, but we do also see on the back of the price increase that it was possible to increase our EBITDA and our gross profit further. So it is a very successful story here on the B2C business. And in the B2B business, the optimization comes together with the start of the digital radio, the next multiplex, which could be started at the beginning of October. But also in the third quarter, we were more successful with our digital radio here. Moving to the free cash flow. And yes, I do not want to be too optimistic here because we see EUR 220 million here already at the end of September. Yes. I think this is near to what we guided up to the end of the year, but we have some phasing effects here in the working capital. So definitely up to the end of the year, we will not stay with only -- will not stay only with EUR 22 million working capital -- net working capital change here. There will be some negative effect in the fourth quarter. We still expect some tax payments, but this is based on the authorities. So I'm not sure what will happen. But I expect further payments for the fourth quarter. CapEx, I think we had a third quarter where we invested something like EUR 15 million. I think something comparable can be expected also for the fourth quarter because we have still to invest into the digital radio business here. And therefore, the CapEx levels in the third and fourth quarter were higher than in the first 2 quarters here. On the leasing side, I think no surprises. Interest payments slightly lower because the interest rates in our loans are getting a little bit lower, especially with the lower leverage. And I think this is the perfect bridge to Page 19, where we see some other main financial KPIs. On the one hand, the equity ratio is now nearly to 30%. So also from this side, you can see that our balance sheet is much more healthy than it was before. But also if you look into the leverage, we now do have a leverage of 4.3x, which is much better than last year. But what we also see is putting into consideration the values of Sunrise and of CECONOMY, then we do only have an adjusted net debt of 1.4. And if you could, in addition, put into consideration of 1.0 of this leverage is linked to leasing contract, then you see that we do have a, let me call it, a bank leverage or bank financing leverage, which is only something like 0.4. So I think, a very healthy balance sheet, what we see now. And yes, there will be a move when the transaction in Switzerland takes place, hopefully in November, I think there are good signs that it could work very fast. Then it would not only be an adjusted net debt and adjusted leverage, which is so low, but then it will also be the normal leverage, which moves down. Coming to our guidance on Page 20. Yes, we already discussed that in the freenet TV RGU, and we have to -- or had to change our guidance here from a stable view to a significant decrease. When we published our guidance, it was not clear that we do the price increase, and it was not clear how it would work and what the churn would look like afterwards. Now we have a better view on it, and therefore, we had to change it, but without any impact on the financial guidance. So we still expect stable revenue without Motion TM, we expect an EBITDA between EUR 415 million and EUR 435 million. And we are very convenient with the free cash flow guidance, which is EUR 235 million to EUR 255 million. So this is it from the financial side. So I think all in very good figures. And now I do open the floor for your questions.

[Operator]

[Operator Instructions] And the first question received is from Polo Tang of UBS.

[Polo Tang, MD & Head of Telecom Research]

Just have 2 questions. The first question is really just can you clarify what's happening with your churn in terms of your postpaid mobile base going into Q4. So has it started to move higher and normalize after the low levels that you saw in Q3? And can you clarify what is happening with your shops? So do they all remain open during the new lockdown or some of them closing? So that's the first question. And the second question is really just a bigger picture question on the German mobile market, which is, what's your view on what will happen with a fourth mobile network build in Germany? And if it does go ahead, would you be willing to distribute and resell one-on-one contracts?

[Christoph Vilanek, Chairman of Executive Board & CEO]

Yes. Thanks for this. I mean on realized churn, we have -- we continuously see that churn intake compared to previous year is lower, and this is started in March and is continuing. So we do not expect this to change to the old version. Once again, that is compared to previous year. If we -- if we take a view on free to turn potential, we also see that it's -- compared to previous years, it's going down as a result of a couple of measures as well as, I would say, a certain fatigue on changing the tariff and optimizing themselves. People do have LTE tariffs. They have a data package which is suitable to them. So we see that continuing, which at the same time means that the ratio of renewals and gross adds, the balance is more going towards the renewals. So no change to this. Second question or second part of this question, as of today, all our shops are open. That is the case for mobilcom-debitel shops as well as GRAVIS, but also our biggest partner, Media-Saturn. So far, the German government continues to claim that retail will not be shut down during the next couple of weeks. There's no reason to disbelieve. I think that's working. But at the same time, we see that the footfall came down in any of the channels. But the number of tickets that we do at the cashier is the same. So obviously, people are not going out to do shopping as an entertainment. And do some -- now and then to do some spontaneous buy, but those ones that have a reason and the purpose to walk that the -- you can generate about the same number of revenues and tickets. So far, we do not expect an impact on transactional level and on revenue level. On the United Internet, well, obviously, they are getting under time pressure to provide their services. They're also getting under time pressure to find a proper agreement with Telefónica. We are not really participating in any of this. But we are based on our old -- long-term relationship with United Internet as an anchor . We have spoken to them. They have reminded us that any way any of the holders of frequency needs to give access to us, and we would certainly consider reselling their products. But I think that is still rather far away.

[Operator]

The next question we received is from Christian Fangmann of HSBC.

[Christian Fangmann, Analyst of Telecoms]

This is Christian. I have 3 questions. First one is on the very strong Q3 net adds. My question is, how do you see the value mix within that one developing? And is there any color you can share with respect to -- is more coming from the Vodafone network, more from the DT network, how are consumers purchasing these days? And is the strong momentum that you have seen in Q3 kind of also staying in place in early Q4? What are you seeing in terms of the mobile net adds? My second question is on free cash flow. Your guidance is EUR 235 million to EUR 255 million. You've seen yet a very strong and much better-than-expected free cash flow development. Is it fair to assume -- I mean you mentioned some remarks with respect to working capital and so on in the fourth quarter, cash taxes potentially going up. But is it fair to assume you will be towards the mid- to high end of that guidance range for the full year? And my last question would be on the outlook for 2021 with respect to the lower commercial spend and costs that you've seen throughout this year and you said some of it is structurally still to remain. So maybe can you shed a bit of light on what you're expecting in terms of commercial spend and the underlying spend, which could also positively impact 2021 in terms of the cost base? Cost serve.

[Christoph Vilanek, Chairman of Executive Board & CEO]

Thank you, Christian, for this question. I mean if you look at the detailed numbers, the fact that -- I mean there is some of the net adds is coming out of free Netflix and FUNK -- free Netflix only started; this is a Vodafone. Overall, Vodafone is the strongest partner at this very moment. We will also start the 5G with Vodafone. So I think they gain internal share as a result of a very close interaction, cooperation and high willingness of them because they -- they see that we basically broaden and widen their sales platform. Deutsche Telekom is a bit more distinctive in working with us at this very moment. That may change again. So yes, we are gaining a bit more in Vodafone at this -- they become more important. And on the other hand, we have -- we are -- we have gained a couple of thousands more than we did before when we signed a closer -- nonexclusive but a closure midterm agreement with CHECK24, which is a price comparison machine on the Internet. So I think if we look at the value mix, well, on the one hand, we have the premium network, Vodafone, which we -- where we can attack with Flex and so on and so forth. But since this SIM-only not on a -- on a reasonable price level but not premium. And at the same time, some of these gains on the broader level come from CHECK24. So I would say it's maybe stable, but -- or a slight go down in the ARPU, which we will not see as it is out EUR 50,000 of EUR 7 million or EUR 8 million is not making a big difference.But if I look at deeper numbers on like the second- and third-digit level, I would say, ARPU of these new customers is somewhat down compared to the base. And on a value contribution level, we still remain to see that we only acquire customers with a positive life cycle within the, at least, the first round of their contract, and we are even more careful on those ones that can cancel their contracts. So I think value-wise, so LTE -- lifetime contribution wise, we're okay. We stay at the same level, but they are a bit lower on ARPU. If I may, and Ingo, you will certainly continue on this on the cost base. I think it's hard to say what's going to happen in 2021. We are certainly trying to freeze ending of SG&A, marketing, et cetera, et cetera, where we were very efficient this year. At the same time, nobody knows when kind of the market is opening again, what will be the technical moves of any of our competitors, and certainly, be prepared to react. There's one element out of the market or completely disappeared which helped in the previous year and also at the start of this year, at least, on the hardware side. You basically are confronted with the duopoly of Apple and Samsung. So the -- like 5 years attack of Huawei, who created a bigger competition on Android, driving Samsung opening -- being open for marketing funds, driving Huawei to really ambitiously gain market share. I mean that's a momentum which I don't see any replacement of this for 2021. And that, at a certain level, may cause that we have to invest a bit more. So if we look at gross margin, I think there will still be some pressure coming from that end because the hardware industry is not contributing to a growth in the market.

[Ingo Arnold, Deputy CEO, CFO & Member of Executive Board]

Maybe I can add from my side, Christian. I think, yes, is definitely our ambition to make some of these efficiencies, what we saw during the year to make them recurring. But it is a little bit early to quantify it now because we all know that the world will look a little bit different, hopefully, that we can say after the virus then. And therefore, it's difficult to quantify it, but it is our ambition here. On the other hand, it's coming to your third question, I think it was not really a surprise. And I already prepared the answer during my presentation, as you also mentioned. I think yes, it looks difficult not to meet the guidance range. This looks difficult if you do only have EUR 220 million. But as I tried to figure out is, we still have some open ends. Therefore, I do not want to narrow the range in this call now. But I'm definitely sure that we will land between EUR 235 million and EUR 255 million.

[Operator]

And the next question received is from Yemi Falana of Goldman Sachs.

[Yemi Falana, Business Analyst]

Congratulations on the quarter. Just one for me on the use of proceeds. Could you remind us on your priorities as you receive the Sunrise cash in? Is there an expectation that you regear the group? Also is fixed wholesale an attractive prospect in your mind? Do you see any attractive M&A opportunities? Or is there potentially upside to shareholder return? Any color on that would be great.

[Ingo Arnold, Deputy CEO, CFO & Member of Executive Board]

So maybe I start. I think we already discussed it during our last call. I think we definitely have to repay EUR 800 million of debt. Then there is an amount of EUR 300 million where we have not yet decided how we will use it. But definitely, we would like to do something in the interest of the shareholders. This could be that we -- I think we have these share buybacks out up to the end of the year. The program is running now. I think this is an opportunity I think we have to discuss internally. And on the other hand, I think the net debt is already relatively low. Maybe short reduction could be reasonable. I think we have not yet decided. But definitely, I think on the M&A side with the opportunities, we do not have a long list at the moment, what we could do. And definitely, we do not have 1 item on the list which could be as big as the EUR 300 million are. So I think at the end of the day, I do expect something like a mix, how we will use the EUR 300 million. But definitely, we stand to what we told everybody before that when we will create or generate a gain out of the investment of Sunrise, we will let the shareholders participate in it.

[Christoph Vilanek, Chairman of Executive Board & CEO]

And let me add a little bit of color on M&A. I mean if I look at it, what feels would we look into, well, telco in Germany, there is not much to buy. Media, anything around content. We think that telcos are not good -- no experts in content development or content generation, so we should limit ourselves. And then we could look into something like IoT. Well, it's a very fragmented market with some big bets. But once again, we think that we are strong on the distribution and on the -- on the sales side, on the sell side, but not on the production side. And then the third one, the fourth learning is that if you find profitable companies at a reasonable size, well, then prices are high up. So -- and the fifth point is that we certainly want to focus on Germany. So if we look at these 3 or 4 things as a filter, then the optional space is rather limited. Things that we are investigating on is, e.g., on the new multiplex, we have just founded with our partner, Tochter Media Group, a company to sell ad space. We have also thought about joining them with 2 or 3 or more channels. I think we have some more room to move there. It's not CapEx investment, it's not M&A, but it's maybe a bit more investment into extending our value creation in this field. But I think that it. As Ingo described, there is -- but there is maybe a long list of ideas, but there's not a long list or a short list of targets.

[Operator]

The next question is from Joshua Mills of Exane.

[Joshua Andrew Mills, Research Analyst]

A [Technical Difficulty] detail you've given us on Slide 7 and 8, which is very helpful. My question is, how has this share of online/offline and also captive versus noncaptive trended over the last year or 2 years? Just trying and get a sense of particularly on the captive side, is this kind of a stable split or is it one that's been changing one way or the other? And then just so I understand the point you're making here, I believe, on Slide 7, is that online profitability may be lower given the competition with your competitors, but it's still an important sales channel, given the kind of flexibility. Is that the right read of this or not? Would be great to hear. And then second question, just on the EBITDA this quarter. So you called out in the press release that overhead costs were down about EUR 6 million this year in the quarter. Could you give us a kind of rough estimate of how much of that is due to things like COVID-19? And how much is underlying cost cutting? Just to get a sense of what we should expect the run rate of that cost and therefore, the run rate of the EBITDA to be for next year.

[Christoph Vilanek, Chairman of Executive Board & CEO]

Yes. Thanks, Joshua. Yes, I mean the captive as well as the nonretail both have grown over the years. I think we've never been very transparent. It is -- it was always a strong -- it was always stronger direct than everybody thought. So yes, it has grown. And I think it will continue to grow. But at this level, we are not talking about the big chance. It's like 0.5%, 1% or maybe 2% or 3 maximum per year, but it's the ambition in both in the captive feeling in the captive to do even more, expect for our main partner, Media-Saturn. And we are always very happy when they are strong, and they do a great job. And I think in many of their assortments, they are even a winner coming from the crisis. So yes, we want to continue to do so. But -- and I think you do the proper reading, I think a balance of these 2 -- the multichannel balance is strength because we know how online can become a very tough channel overnight if one or the other player opens his wallet. So I think your reading is perfectly fine.

[Ingo Arnold, Deputy CEO, CFO & Member of Executive Board]

I think to answer the other question, Josh is, it's a little bit difficult to be quite frank here. Because what cost-cutting is clearly linked to COVID-19, yet, it is easy to say where we had short-term work and where we got some money from the government, it's something like EUR 3 million, yes, this is definitely linked to COVID-19. But for example, if I do save some marketing expenses, wouldn't it be possible to do it without COVID-19? Is it only possible because of it? So this is a little bit difficult. I think -- and this is what we tried to explain earlier. We look into all of these things. And we look into it and make it hard for the next year. So we try -- we are just in the process of doing our budgeting. And I think at the end of this process, we have a much better view what of it will be recurring and what will be nonrecurring. But it's difficult to say today. I think definitely, there is a COVID-19 effect, but it's too difficult to quantify.

[Operator]

And the next question we receive is from Ulrich Rathe of Jefferies.

[Ulrich Rathe, Senior European Telecommunications Analyst]

I have 4, I think, very short questions. The first one is on the very strong EBITDA in the quarter. Could you confirm that there were no very clear one-offs like provision reversals or anything of that sort in there? The second question is on this online/offline comments that you made that were interesting, already been debated so far. Could you comment whether there is a difference, a notable difference in age profiles? In other words, whether that mix shift essentially just is an aging thing. And that -- that obviously then influences your view on the long-term future. I would just like to touch an aspect of it. My third question is the share buyback that you mentioned, the EUR 100 million. That is progressing very slowly, according to the releases you've put out. It sounds like you won't be able to make EUR 100 million with the sort of rate at which you buy.What is holding you back? Is that just liquidity and if it is liquidity, could you comment to what extent that informs your views on how to return cash to shareholders? Because if the liquidity is low, is it the right thing to sort of look at share rollbacks at this point? And then my last question, if I may. The freenet TV is sort of making a comment that the churn is higher but still accretive. But still it's accretive, essentially 5% less to revenues than you thought it would be when you planned the move. So that must be a net hit to your earlier business plan. Where have you absorbed this in the full year guidance? Is this a stronger bits coming out of TV media elsewhere? Or is that the mobile business? Or is it just the room that you had in the guidance in the first place?

[Christoph Vilanek, Chairman of Executive Board & CEO]

Yes. Well, thanks. I mean on the freenet TV, we have to be realistic. The price change was in May and July. So we have only half year effects. Anyway, then these vouchers that now run out and create churn were still vouchers paid a year earlier. So the immediate impact this year is not that big, I'd say. But Ingo will give more details on the share buyback. Also, Ingo will give some comments. I can just say, I mean the best thing is that the volume is low. And certainly, for the shareholders, the share price is low. But for the program, the low share price is certainly something which helps us and also our biggest shareholder is still telling us that he thinks it's the right move. And we go the right direction. But I mean I think we spent so far about EUR 28 million, EUR 29 million, and it will be hard to spend the EUR 100 million, but we still believe that on this share price level, it is the right measurement. On the on/off-line, well, yes, it would be an easy answer to say it shows you that these are the young ones, these are the old ones, no it's not. It's -- a major driver is SIM-only versus subsidized combination with hardware. That's one driver. It's different a little bit from the -- from the -- where people live. We are -- traditionally, our shops work really well and are in smaller cities. And I would even say kind of rural central of rural areas. These kind of people, whether they are old or young, still are more traditional, and they remain to be traditional. So I think in midterm, I believe, and once again, I mention Media-Saturn, where we are a shareholder, and we are in very deep discussions about how retail overall will work out. We see that the shopping centers suffer most from the corona situation and the shopping centers also suffer because the associate demographics is widespread age-wise, but spending power is rather low. We do not hold the shops, only a very few ones on the real expensive high street where the mixes tend to be younger than in small countries -- small counties. So overall, my projection would for the next -- for the next 3 to 5 years, that this will remain the same. Retail has a -- is a strong element. And I think midterm, it's more of a mix, people might come into the shop, buy and then combine it on the website and do additions. We have -- for 3 years now, we have the possibility for the consumers to set the date or to ask for a meeting at a set date in the shops. And this is not only used by those that have bought in the shop, but also by the online users when they need some help, et cetera, et cetera. So I think we need to transform the shops into a meeting place, into a place where we can do service, where we can do help desks, et cetera, et cetera. And by having it, we create an interaction and relationship between the -- the customers and our shop representatives, and then they will take these upsells and cross-sells. So I think it's not so much a matter of demographic, but of the proposition of the shop.

[Ingo Arnold, Deputy CEO, CFO & Member of Executive Board]

I'm not 100% sure if you got your first question correct. But if I got it correct, I just would like to confirm that there are no extraordinaries in the results. So it is ordinary course of business what we see here. To your second question, the share buyback, yes, I think we are also a little bit disappointed that it could not go faster. But I think there's a regulation out. You are not allowed to buy as fast as you want. It is all based on the daily volumes, what you see. And therefore, what we do is we just do it in the framework of the rules. And we do as much as what is possible inside these rules. So we do not stop it or we do not reduce the daily volumes. We ask our bank to buy whatever is allowed to do. And it's -- I think we have 1/3 of the volume now. And yes, if it goes in this speed, it would be difficult to do the whole program up to the end of the year, but maybe the volumes will increase, and then it could go much faster. Your last question concerning freenet TV, yes, we see small impacts on the gross profit side, where we are a little bit lower in comparison to what we budgeted. But on the other side, the marketing spendings are much lower than we expected. And so it is overcompensating the effect that the churn is a little bit higher than we basically expected at the beginning.

[Operator]

The next question received is from Steve Malcolm of Redburn.

[Stephen Paul Malcolm, Research Analyst]

Three, if I can. First of all, thanks very much for Slide 7 and 8; they're really helpful and interesting. I just want to go back to those and refer to the comments you made on the sort of the retail and non-retail mix. I mean given that -- given the shift, given what's happening in COVID, is that making you think more fundamentally about the number of stores that you run? Does it make you think you could have less of those going forward as the mix moves away from retail? So that is question one. Question two, can you just define exactly what a captive can is? I assume that's kind of medium marketer, the mobilcom-debitel stores and any online transactions that come through your direct website, but could you confirm that? And then just going back to TV, I mean with the benefit of hindsight, do you think you've got that pricing decision wrong? And looking forward, should we expect that business to suffer quite a lot of margin squeeze if you can't take price? Or I assume your content costs are probably rising, and when you try and take price, it appears that the consumers are pretty resistant to it and want to leave, so I'm trying to understand why you don't see sort of growing margin pressure in that TV business going forward?

[Christoph Vilanek, Chairman of Executive Board & CEO]

Well, the first thing on the stores, no, I don't think that we will bring stores down. The number, I do not see a need. If local or regional shutdowns will continue or remain an element for the entire society, I think our approach is more bringing the cost per store down. How can you do that? Well, first of all, you can talk to the landlord because also the landlords noted demand is going down. So they have -- compared to a couple of years ago, they are quite flexible. Second thing is we are trying to optimize opening hours. Yes. We do -- for almost all the shops, we do measurements on footfall, and we are learning now that when -- traditionally, our shops open 9 or 10:00 and are open till 8:00 in the evening. We have a couple of shops or a reasonable number of shops yet where we limit these. We have a dozen of shops where we test now that we only really open them in the afternoon 4 to 5 hours. And the rest of the day, we only do meetings which are preplanned. And our guys in the shop do interact with the customers either by phone, WhatsApp calls, video call chats, et cetera, et cetera. So we're trying to -- and it's easy to imagine that I would say, the typical shop in our -- the typical shop cost today is -- and this is averaging across the entire shop chain, about 1/3 is lease and maintenance, about 2/3 is personnel. So if we go into shorter cycles, into lower number of sales reps at the same time, while we work on 60% or 65% of our cost base. And at the same time, we talk to landlords. So I think currently, my team in the shop -- in the retail unit is more working on how can we keep the sales at the existing level or even increase it, but how can we optimize the cost side without impacting consumer perception. Captive is any channel where we do not have a third-party immediate, so that's our own website, that's our own apps and customer service. This is our equity campaigning on the telephone. And noncaptive is media markets at all, it's third-party retails. It's even third-party online shops that only get a commission, and we are not in control of what they actually do. So the characteristic of the captive channel is that we define the offer, we define the prices, we define how and when things are done. So we are in full control, and we design and optimize customer journey. In MediaMarktSaturn, it's our people and it's our promoters, but still MediaMarktSaturn, they do the advertising, they do particularly local or national campaigns. The third thing on the content cost, no, we don't experience an increase or a pressure on content cost. We have long -- and this is like 3 to 5 years deals with all the major content providers. And these are set deals at set prices. So any price increase we do goes to not 100%, but to the majority, big majority of the increase remains with us. There is a couple of content costs, which are variable, and there's also a couple of other third-party costs like technology, et cetera, which slightly variable, but price increases, yes, tend to go straight into our pocket and deliver more than 80% gross margin.

[Stephen Paul Malcolm, Research Analyst]

Grow the margins in the TV business going forward?

[Christoph Vilanek, Chairman of Executive Board & CEO]

I think it's stable margins or increasing margins, if you take price increases in consideration. But content costs are not increasing. We haven't seen that.

[Stephen Paul Malcolm, Research Analyst]

And do you think this year's price rises was just too much with hindsight? Or you can get away with smaller ones going forward? Or...

[Christoph Vilanek, Chairman of Executive Board & CEO]

Well, I mean you do not do price increases without testing. And the testing shows it makes no difference whether we increase it by 5%, 10% or 20%. So certainly, you go for the biggest one because we will prefer one significant step instead of constantly repeating. The German rules tells -- the legal environment tells us that we need to send the customer a letter or an email saying and the header must be price increase, and then you must inform them that this price increase allows them to immediately cancel the contract. So you don't want to do that every other month. You want to do that like, if you do it once, then you do it in a significant way. On waipu, for example, we do 25%, but we say that if you're an existing customer, you get more content and you get a discount on the price increase, yes. I mean we're doing all these kind of mechanisms in order to avoid the visibility within the possibility framework.

[Operator]

The last question for today is from Wolfgang Specht of Bankhaus Lampe.

[Wolfgang Specht]

Two follow-ups from my side. You saw during the quarter, freenet [ digitalia and Beha ], is there anything of that, that ended in the Q3 reporting? Or can we expect something for Q4? And the second one, you probably already had some prelim talks with the mobile operators. Do you can already share some indications how your purchase conditions for 2021 should look like?

[Ingo Arnold, Deputy CEO, CFO & Member of Executive Board]

I would like to start with the freenet digital question. It's with a small sale here. Therefore, I think we did big reporting about it, and also in our financial figures, you will not have any big impact here, not for the future and not for this year. So therefore, no, there's nothing to expect for the fourth quarter.

[Christoph Vilanek, Chairman of Executive Board & CEO]

Yes. And I think the proceeds were only paid in shares and we're having these shares here. On the conditions, I mean we are not reviewing the conditions on the tariff level on either monthly, quarterly or yearly basis. If we implement a tariff, let's say, FUNK or FLEX, we have a purchase agreement with Vodafone. And this is not limited for the year, but it's kind of limited for the tariff plan. So I do not expect any significant changes. The bigger part is the one where we talk about annual bonuses, et cetera, et cetera. All the indications that we see so far is that we will continue to be on the same level, I'd say. So no, we do not expect short answers. We do not expect any relevant changes.

[Operator]

And if there are no further questions, I hand back to the speakers for closing remarks.

[Christoph Vilanek, Chairman of Executive Board & CEO]

Yes. Thanks, everybody, for participating and listening and contributing with your questions. Thanks also for the feedback on the management presentation. We wish you all the best, stay healthy, and see you soon.

[Ingo Arnold, Deputy CEO, CFO & Member of Executive Board]

Bye-bye.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.