Telefonica Deutschland Holding AG
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Ladies and Gentlemen, thank you for standing by. I am Jota, your Chorus Call operator. Welcome, and thank you for joining the Telefónica Deutschland Q1 2021 Results Conference Call. Throughout today's recorded presentation, all participants will be in a listen-only mode. [Operator Instructions]. I would now like to turn the conference over to Mr. Christian Kern. Please go ahead.
Thank you, operator. Good morning, everyone, and thank you for joining us today. On behalf of our management team, it is my pleasure to welcome you to Telefónica Deutschland's Q1 2021 Results Call. Before proceeding with the management presentation, we would like to inform you that the financial information contained in this document has been prepared under international financial reporting standards. As usual, this presentation may contain announcements that constitute forward-looking statements, which are no guarantees for future business performance and involve risks as well as uncertainties. Also, certain results may materially differ from those in these forward-looking statements due to a number of factors. We invite you to read the detailed disclaimer as included on the first slide of this presentation. Using the provided QR code, you can also download today's presentation in the IR section of our company website. Here with me today are Telefónica Deutschland's CEO, Markus Haas; and CFO, Markus Rolle, who will take you through our presentation followed by a Q&A session. Markus Haas, over to you now.
Thank you, Christian. Ladies and gentlemen, good morning and a warm welcome to Telefónica Deutschland's Q1 21 Results Call. We very much hope you and your families are all well. My CFO, colleague, Markus Rolle and I are pleased to present to you this morning a solid set of quarterly results and give you an update on the latest business trends. Telefónica Deutschland maintained a clear focus on strategy execution to capture growth via its 3 strategic pillars on the back of our investment for growth program. It's running according to plan, and we have just reemphasized the importance of our own O2 brand in the market with the claim O2 Can Do as part of our we change the game campaign. Our business fundamentals are intact and so are the KPI trends. Let me share a few highlights with you. Operating revenue was up by 0.2% year-on-year despite the mentioned COVID-19 headwinds, with sustained momentum across all revenue lines. Excluding COVID impact, revenue growth would have been strong at 1.5 percentage plus. OIBDA growth accelerated to 5.5% year-on-year, mainly due to improved revenue quality and effective cost management, including some phasing of marketing spend in the current COVID environment. Excluding impacts, OIBDA would have been grown by 6.4% year-on-year. After the largest 4G network expansion program in our history in 2020, we are now making significant progress with 5G rollout. Our investment for growth program is on track with the usual back-end loaded annual phasing. Hence, CapEx over sales was 12.3% in Q1, while still slightly higher than a year ago. Good operational momentum is also demonstrated by the strong increase of postpaid net adds in the quarter up 17% year-on-year to 220,000 postpaid customers. We achieved this despite lockdown restrictions due to online channel performance and continued historic low churn levels, providing tailwinds to the good performance of the O2 brand in a rational mobile market. In fixed, we observed some increase of competitiveness, mainly with regards to offer speeds. This is a clear watch out for the regulator that also in the long term, all offers from our competitors in the channels are profitable and allow competition in the fair level playing field. Our ARPU up strategy is paying off. Excluding roaming, O2 postpaid ARPU improved its year-on-year growth to 0.5 percentage. As you can see, Telefónica Deutschland's investment program announced in December 2019, is bearing fruits and deliver strong growth momentum despite Germany having been in lockdown in Q1, nearly completely. As a result, O2 shops have been closed for most of the quarter and travel restrictions continued. Our purpose to democratizes access to the sustainable digital future to create a better everyday life is the driving force behind our daily business activities with our results being the proof. By now you are probably pretty familiar with the framework of my next slide, it's the quarterly update on the key COVID trends that our business experiences to which we have successfully adapted our operations. The KPI impact from the hard lockdown in Germany since mid-December last year followed the previously observed trends. Let me start at the bottom right and take it counter clockwise from there. Due to the ongoing travel restrictions, international roaming is, as expected, the most lasting drag on business performance. We are assuming some roaming recovery towards year-end with the expected easing of worldwide travel restrictions. Demand for prepaid top up has been muted since December and is already showing some signs of recovery with the mobility starting to normalize. As already experienced last year in spring, shop closures weigh on trading dynamics. However, the current lockdown, the related slowdown of cross-sells was somewhat mitigated by strong traction of our online channel. And last but not least, churn stayed at historic low levels, reflecting somewhat lower churn entries due to COVID, but in particular, confirming the sustained quality improvement and the excellent customer experience on the O2 network. As the vaccination program in Germany is now making encouraging progress, operational activities are expected to further normalize over the coming weeks and months. In the meantime, we continue to monitor and analyze the COVID environment while also continuing to support our employees, customers as well as the wider society. All in all, we confirm our 2021 outlook and are confident to deliver again what we promised. On my next slide, let us turn the focus on our continuous efforts on ESG. ESG has been fully integrated into our overall business strategy for many years, and we have been focusing on its 3 pillars throughout the pandemic. First, helping society to thrive, for example, through the highly resilient performance of the O2 network despite a major step-up in traffic or by providing anonymous data to the government in support of its COVID-19 actions; second, building a greener future by reducing our CO2 footprint by driving digital innovations; and third, leading by example. We are running an exclusive, ethical and fair business. This is reflected and recognized by leading ESG ratings and our inclusion in key equity indices such as the DAX 50 ESG and the Bloomberg Gender-Equality Index. After the successful execution of our responsible business plan 2020, we naturally launched over -- even more ambitious second 5-year business plan in March this year. On the back of 76 targets across all business areas, it underpins our target to be carbon neutral for already 2025. At the same time, we are supporting the United Nations sustainability development goals by striving for digital, sustainable and connected future. To be at the forefront of the ESG momentum with a fully integrated end-to-end responsible business plan is the result of our continuous focus on this topic since our company IPO in 2012. We are appreciative of being highly ranked by several well-regarded ESG rating providers. Also part of our responsive business plan is, of course, the rapid expansion of our 5G network. Let's take a closer look on the next slide. Last year, we successfully executed the largest 4G network expansion program in our company history, deploying more than 11,000 new 4G elements. Building on this success, we have shifted our focus now to 5G and have already made significant progress since our 5G launch in October last year. The O2 5G network already operates in more than 30 German cities with around 1,000 antennas. To offer great 5G customer experience, we are leveraging our 3.6 gigahertz spectrum. Only recently, Telefónica Deutschland's 5G network was ranked by speed check, a close second for available 5G speed with a meaningful margin to the third ranked operator. Our extension 5G expertise is also the foundation for campus solutions for a wide range of industries. Our network plan will have about 35,000 sites by year 2024, is based on sharing opportunities and cooperation. Let's quickly recap how we plan to get there. First, trilateral white spot agreement with Deutsche Telekom and Vodafone provides access to additional 6,000 sites over the next 5 years; our share of 2,000 sites will be built by Telxius or American Tower going forward as part of our announced build-to-suit program. Bilateral MOUs for active grey spot sharing with Deutsche Telekom respective Vodafone are adding another more than 1,200 sites over the next 2 years. Telefónica is 1 of the 4 committed parties to the German Mobile Act from the 2019 spectrum auction, jointly delivering 1,400 4G sites. Again, here, our contribution is covered by the build-to-suit program with Telxius/American Tower. And finally, a selective choice of sites to be provided as part of the German mobile infrastructure fund, MIG. We will continue to rapidly expand 5G coverage also by gradually reallocating 3G frequencies to 5G. By the end of this year, Telefónica Deutschland's 5G network will cover more than 30% of the German population with high speed 5G. We aim for close to full 5G coverage by the end of 2025. I'd like to iterate that our already known mobile network sharing initiatives with DT and Vodafone as well as Telxius' ATC transaction enables us to decrease our CapEx to be normalized to 2019 levels towards the end of 2022. Before handing over to our CFO, who will share with you more details of our Q1 performance, if you let me briefly summarize the first quarter. First, in a challenging COVID-19 environment, we continue to build successfully on operational and financial momentum as well as network equalization and historic low churn rates. Second, Q1 KPIs are well on track and confirm the operational and financial trends of Telefónica Deutschland's business are fully intact despite 19 -- COVID (sic)[COVID-19] headwinds in a lockdown quarter. Third, we are executing our investment for growth program according to plan and the initial return is crystallizing. And finally, as a result, we remain confident in our business performance are confirming our full year '21 outlook. In a nutshell, we have delivered a strong start into 2021 with healthy underlying operational momentum to achieve short, mid and long-term profitable growth across all business segments for Telefónica Deutschland. Finally, let me remind you that our virtual AGM is scheduled for next week, May 20, Thursday. Our strong commitment towards shareholder remuneration stands. The AGM is to resolve upon our dividend proposal of EUR 0.18 per share. And now, Markus, over to you.
Thank you, Markus. And ladies and gentlemen, also a warm welcome from me. I very much hope that we jointly master, hopefully the last phase of the pandemic situation. Let me now take you through our good Q1 2021 operational and financial performance in some more detail. As you can see on my first slide, Telefónica Deutschland's business model shows resilience in the pandemic with sustained trends across all revenue lines. Our operational growth trends are fully intact where we, of course, see ongoing restrictions in the hard lockdown quarter mainly weighed on commercial activities and international roaming revenues. Revenues continued to grow and totaled to EUR 1,850 million in Q1, which is an up of 0.2% year-over-year. Our operational trends are intact across all revenue lines, while, of course, reflecting the COVID-19 headwinds due to the ongoing lockdown measures. Ex COVID-19 impact of EUR 24 million, revenue growth would have been 1.3 percentage points higher in Q1. MSR stood at EUR 1.307 billion in Q1, which is minus 0.3% year-over-year, with COVID-19 impact of roughly 25 -- EUR 24 million, offsetting the strong own brand and solid partner performance. Ex COVID-19 impact, the MSR growth would have been 1.8 percentage points higher in Q1, which is confirming the improving trends that we see. Handset revenues grew 2.3% year-over-year to EUR 347 million in Q1 as a result of continued strong demand for high value handset while also reflecting usual seasonalities and shop closures. Fixed revenue also grew and is up 3.9% year-over-year to EUR 200 million in Q1. This is mainly driven by the VDSL customer base growth, with, of course, comps now naturally getting tougher from here onwards. On Slide 10, let's take a closer look at our trading performance. Due to the hard lockdown, O2 shops were closed for most of the quarter, which is, of course, impacting the trading dynamics. However, online channels and historic low churn, largely compensated for the somewhat lower volumes in gross adds. Mobile postpaid continued with strong trading momentum and is posting 220,000 net adds in Q1, which is an up of 17% year-over-year on the basis of sustained strong customer demand for our O2 Free portfolio as well as a solid partner performance despite the much longer lockdown than in previous year. Let's go into the details. Online channels delivered around 40% of the O2 gross adds versus the usual mid-20. At the same time, our O2 postpaid churn continued to improve by 0.3 percentage points year-over-year to a historic growth of 1% in Q1. The annualized churn rate now would be below 12% and is providing a clear proof point for the excellent customer experience on our high quality O2 network as well as some COVID-19-related lower churn increase. The partner business shows also a solid performance and is broadly unchanged contribution to gross adds and also MSR. In Q1, ARPU development mainly reflected the COVID-19-related roaming headwind due to the ongoing travel restrictions, while the operational trends are intact. Our O2 postpaid ARPU, excluding roaming, was up 0.5% year-over-year, and this is, of course, reflecting the success of our ARPU-up strategy. Let's move to the fixed business. Fixed broadband registered with 7,000, a small number of net disconnections in Q1 mainly due to legacy ADSL reductions and limited appetite to switch during the lockdown, while the demand for high speed fixed connectivity continued. That shows the details. VDSL posted plus 9,000 of net adds in Q1 and also early steps for cable and fiber are promising, and there's a strong demand for fixed mobile substitution on top, which is, of course, by default part of our mobile reporting. Also the fixed broadband ARPU continued its upward trend and is reflecting the increasing share of VDSL customers and finally stood at EUR 23.9 in Q1, which is an up of 0.7% year-over-year. Moving to Slide 11. Our OIBDA growth accelerated sequentially and increased plus 5.5% year-over-year to EUR 562 million in Q1. This is mainly a result of the improved revenue quality and effective COVID-19 cost management, while the ongoing COVID-19-related roaming drag, of course, still weighed. With the cost breakdown, let me highlight that supplies are down minus 2.4% year-over-year reflecting the MTR cut, a decrease of connectivity-related costs due to lower roaming revenue as well as lower hardware cost of sales because of a different handset mix. We also saw a decrease of 6.4% in the personnel expenses, which contributed around 2 percentage points of OIBDA growth. This is due to a lower FTE base and received social security payments for employees of temporarily closed phone shops, whose salaries, we topped up again to 100%. Other OpEx is up 1.4% year-over-year, mainly due to minus EUR 30 million of restructuring expenses, while efficiency gains continued. The commercial costs unchanged accounted for around 2/3 of the other OpEx, reflecting trading, channel mix and, of course, some phasing of our marketing spend. The shift of marketing spend also added around 2 percentage points of OIBDA growth. Ex COVID-19 impact of roughly EUR 5 million, OIBDA growth would have even been 1 percentage point higher. Our OIBDA margin stood at 30.3% in Q1, which is an up of 1.5 percentage points year-over-year, reflecting the before-mentioned effects. On Slide 12, you can see the evolution of the free cash flow and net debt in the first quarter of the year. CapEx increased by 1.8% year-over-year to EUR 228 million, with a CapEx over sales ratio of 12.3%. CapEx comes with back-end loaded annual phasing as we are executing according to our planned investment for growth program to capture value revenue and OIBDA growth opportunities in the future. Free cash flow dynamics reflects the usual seasonality, mainly driven by the upfront annual lease payments. Free cash flow amounted to EUR 248 million in Q1 compared to EUR 241 million a year ago. Lease payments, primarily for lease lines and antenna sites amounted to EUR 266 million in Q1 compared to EUR 259 million last year. As a result, free cash flow after lease stood at minus EUR 80 million for the reporting period, which is flat year-over-year. Working capital movements were negative in the amount of minus EUR 73 million compared to EUR 54 million last year and were mainly driven by a decrease in CapEx payables of minus EUR 80 million; increased prepayments, minus EUR 32 million; net restructuring impact of plus EUR 11 million; and other working capital movement of plus EUR 29 million. This includes the development of net receivables of plus EUR 124 million, including factoring, which was outweighed by other working capital movements, especially a decrease in trade and other payables. Consolidated net financial debt amounted to EUR 3.405 billion as of 31st of March 2021. The leverage ratio is unchanged at 1.4x, which is well below our self-defined target ratio of at or below 2.5x. That leaves us comfortable leverage headroom with regards to Telefónica Deutschland's BBB rating with a stable outlook, which has just recently been reconfirmed by the rating agency Fitch. With my final slide, I would like to highlight the key takeaways from our Q1 results. We are confirming our full year outlook on the back of a solid start to the year with good operational and financial performance despite the headwinds of a full quarter of hard lockdown. We demonstrated continued core business momentum with intact operational trends across all revenue lines. We reported strong OIBDA growth supported by the better revenue quality as well as effective COVID-19 cost management. We delivered free cash flow after lease with usual seasonality due to the upfront annual lease payments. The low leverage leaves us comfortable headroom to maintain our solid BBB rating. Finally, our solid balance sheet, the strong liquidity position and our ability to generate free cash flow support total shareholder returns. As announced in January, we suggest a dividend of EUR 0.18 a share to the AGM on the 20th of May. We now, of course, look forward to your questions. So operator, can you please open the line for the Q&A session.
[Operator Instructions]. The first question comes from the line of Georgios Ierodiaconou with Citi.
Two questions from my side. The first one is around the Drillisch contract and the mechanism of pricing. Yesterday, Drillisch mentioned that there is a slight difference around the timing in that with a new roaming agreement is set at the start of the year and the price remains relatively constant throughout the period, where in the past, there was more of a dynamic adjustment during the year. I was just wondering if it's something that you think is relevant. Can you confirm that? And then whether that will mean that your wholesale revenues will get a bit of a benefit year-on-year during 2021 as we go through the next few quarters? And then my second question is around the retail business. Obviously, there's been low commercial investment and obviously, lower net adds in mobile and negative in fixed. Is it something you can address quickly? And has there been any challenges in the market over the last few months from behavior? I mean from your competitors or from the way the channels work that are hindering your ability to grow the base in mobile and fixed?
Georgios, let me start with your first question. I think all in line with expectations. I think the commercials have been agreed with Drillisch, we are now on the final technicalities and are confident that everything will be closed in May, as anticipated. Also, there's clearly a stable revenue line coming per subscriber and clearly with increasing net adds on the account and migration from other networks, we clearly also expect positive tailwinds. On the retail side, mobile and fixed. I think on the mobile side, we achieved 17% more net adds than a year ago, although the quarter was 10 weeks more closed. So last year, we had 2 weeks of COVID impact. This year, we had nearly 12 weeks of COVID impact in our shops. So mobile is running well. Especially in the high value tariffs and also on the ARPU-up side, you've seen, we have been able to increase ARPU again, especially on the O2 postpaid side. So in mobile, we are on the trading side, we're able to compensate and also have taken less negative impact than last year. So I think online is performing significantly better and improved in the last weeks. And on the fixed side, we clearly see that -- we clearly see churn also at an all-time low here on the one side. On the other side, clearly, also commercial activities from our competitors in some sales channels with very aggressive offers doing more for less. So not monetizing speed to a certain degree. So this is clearly a watch out also for the regulators going forward. So overall, fixed, we stabilized. We were still able to grow nearly 4% on fixed revenues as you have seen, but it's clearly a constant effort. Let's not forget that we also have mobile fixed substitution products as part of our mobile performance. So the increase of 2 product customers and the result of that is a superior churn in mobile has also accelerated in the first quarter this year. So overall, we are fine with the commercial momentum. And once COVID is behind us. And as I said, we see encouraging trends. The incidents in Germany is growing below 100 in most of the areas. That means that we can open our shops. We are now clearly increasing our commercial efforts. But let's not forget, we had an extremely strong Q1, although we had full lockdown. So we're really pleased with the commercial performance of the first quarter.
If I could ask a follow-up on the first question, I was just wondering whether you can confirm whether the fee remains stable for the whole year? Makes it easier for us to know what to anticipate in the coming quarters in terms of headwinds and tailwinds on the partner revenues.
Well, as I said, we have included once we signed the national roaming, then finally, we would not expect a negative or a positive impact. It's all in line with expectations. And clearly, the contribution per customer remains stable. And clearly, with increasing number of customers and migration from third-party networks we clearly see also increasing gross margin and revenue contribution from this account.
The next question comes from the line of Polo Tang with UBS.
I have 2. The first one is really just a clarification in terms of the new MBA MVNO or NRA agreement with Drillisch. So if we look over time, would you expect your MBA MVNO revenues per subscriber to be growing over time, given rising data usage? Or would you expect the revenues over time to be more stable with rising data usage offset by falling unit prices? So just kind of bigger picture. Just some clarification on the mechanics and the dynamics would be helpful. And my second question is really just about the recent Telecoms Modernization Act that was obviously approved. There obviously have been changes to the maintenance cost and privilege, given the unbundling of the cable TV fee from a tenant service charge. But do you think this provides an opportunity for Telefónica Deutschland on the broadband side, in terms of housing associations? Or do you just think that the status quo in the market will remain?
Polo, thank you for your questions. On the first one, it clearly depends how much the network is growing in the next years. So from that perspective, we have clearly -- there's a declining price going forward that we agreed with the party, of course, but we are close to see a massive traffic increase coming forward. So it clearly depends what you believe with regards to traffic growth. So from our perspective, as we always said, we have taken extremely conservative view with our outlook. And from that perspective, we at least expect a stable development on the account, but it clearly depends on rollout speed and also traffic growth. So from our perspective, if one of them is more traffic growth and lower rollout speed, we will clearly outperform on our expectations. If it's all in line with the key assumptions that have been published, then we could clearly stabilize and go forward with the inflow that we currently see. So from our perspective, it believes on the assumptions. But as said, we have taken extremely conservative assumptions. So whenever something is going stronger or faster or slower, in that instance, we would clearly overperform on the specific account. On the Telecommunications Act, clearly, it has lights and shadows as always. We see there's clearly a strong trend of consumer protection that has been managed. So we will be able also going forward to offer all kind of contract durations. I think that's important for us. Telefónica always has been the company with the most consumer-friendly contract durations in the market. So we will be able to completely maintain our existing business model, especially under the O2 Free, so we expect no impact coming from that. And on the opportunity side, with -- we would need to see -- we clearly appreciate that there will be more competition on IPTV. O2 TV was launched 2 years ago. It's a very successful product as part of our bundles and clearly increases customer loyalty and drives mobile data usage and fixed usage, of course. So from that perspective, we really appreciate from that perspective that we will be able to market to more than 10 million households O2 TV because they are not forced to pay cable TV going forward. So we clearly expect more competition, not this year, not next year, but I think from 2024 onwards, we clearly see that as a liberalization of the TV market in Germany, so all IPTV players could give the customers more choice. And our offer roughly costs EUR 5 gross and the normal TV payment is more than EUR 10. So there is clearly for consumers, a significant optimization potential to have a full range of TV channels with 50% less that they pay today.
Next question comes from the line of Mathieu Robilliard with Barclays.
I had a question about your EBITDA, how you performed and looking ahead. I mean, you posted a very strong performance in Q1. You did flag that part of that was due to furlough benefits and also slightly lower commercial costs. But at the same time, I guess the pandemic affected your revenues. And you do flag that maybe the swing factor due to the pandemic is about 2%, so let's call it, EUR 25 million negative impact. While the commercial costs being lower are maybe EUR 10 million, if we think it's 2% of the EBITDA. So what I'm trying to get here is you have a very good performance in Q1. You have very easy comps in Q2. Yes, you will have higher commercial costs, but then you will have higher service revenues. So I think your confidence on your EBITDA guidance must have increased quite a lot. Also made you feel very happy about the trends. But maybe I'm not getting the full picture, and then that's why you didn't raise your guidance this quarter. So that's the first question, hopefully, understandable. And then I had a second one, which was directionally, could you give us a sense of how postpaid MSR coming from wholesale partner as a percentage of total postpaid MSR have progressed year-on-year. If I remember correctly, you were in the high 20s in Q1 2020. I'm just curious if that has changed materially.
Let me take your 2 questions. So yes, indeed we are very pleased with the operational and financial performance we have seen in the first quarter. But as you also rightly mentioned is that we had some additional tailwinds, which we do not have in normal quarters. So first of all, accounting for roughly 2 percentage points of EBITDA growth, we have deferred our commercial activities into the next quarter because you can imagine then in a lockdown quarter, it is not the best thing to restart significantly your commercial activities. As Markus has mentioned, we are now out, again with our O2 Can Do campaign. And we see now that commercial activities ramping up, and that will be, of course, then also transferred into the next quarter. With regards to the security payments, which account also for 2 percentage points, we, of course, hope that we all do not get them in the next quarters again because we want to reopen our shops and restart our commercial actions, and we are very confident that this will rapidly increase once we reopen our shops, as we have seen it also in the last lockdown. With regards to the confidence level of our outlook, of course, we are confident that we can deliver our outlook that is clear. And also as part of the good business practice, we continue to monitor the swing factors going forward. For example, the COVID-19 recovery in terms of commercial activities, the roaming recovery throughout the years and of course, the competitive environment. If we would see changes to our current view, of course, we would update the market immediately. And your second question with regards to the partner revenue in terms of percentage EBITDA, I can confirm that this is a very stable revenue stream. And the high 20s that you mentioned are also applicable for that Q1 performance that we have seen in 2021. So a stable revenue stream in the high 20s, yes.
The next question comes from the line of Joshua Mills with Exane.
I got 2 on fixed line, please. So you talked about weaker broadband net adds being the result of customers moving to higher speeds. But also your VDSL net adds have slowed down as well. So it would be great to know exactly what's going on and who in the market is being more competitive and why you feel despite having a lower back book or smaller back book with many other players, you're not in a position to compete with that? And then as a second question on this, you hinted a couple of times, Markus, that you think this is something the regulator needs to look at. Now you agreed to a 10-year contingent model pricing structure with Deutsche Telekom back in October last year. I'd just be interested to know what -- whether you think that there's any negotiations to be had around that? Whether that's even possible? Or if you're referring to some other action or potential action you think the regulator could take on this if and when you continue to see broadband declines as you have done?
Thanks, Josh. On your first question, I think in order to drive profitability in our converged offer, we have this technology-agnostic approach. So we use fixed mobile substitution in areas where -- with an unutilized network or we have 1 or 2-person households. We use VDSL and we use cables and also FTTH to a certain degree. So the pure fixed net add number that we publish is still based on the wireline infrastructure. So if you take all in all and the fixed mobile substitution customers, and there are also significant ones in the 220,000 net adds that we published in mobile. So overall, if you take a converged view on fixed broadband, including FMS, we are growing. And I think that's the most important part. We want to decrease churn and have 2 product customers. And this strategy is working. Clearly, we would not invest in channels, and we were missing clearly the physical shop performance in fixed. This is a very important sales channel for us to sell DSL and cable. So we clearly expect with the shop closure that we will get back to strong levels. So that was from our perspective, the key reason behind it. So overall, the strategy is working. We have been able to sell fixed mobile substitution and with the opening of the shops we clearly will also see improving fixed -- real fixed wireline numbers. On your second question, I think the wholesale deal that we signed with Deutsche Telekom is a win-win deal. Of course, it's a long term deal. But clearly, the regulator still has the duty to look if in certain sales channels, especially in e-retail, also Deutsche Telekom is not undercutting its own cost. So I think these are 2 pairs of shoes the wholesale deal per se have been win-win deal. It allows to invest into fiber, gives access to fiber, heads us to upgrade to bigger customers. But if the ARPU upside is not achieved because speed is more or less a more for less offer that speeds are not monetized to a certain degree, then clearly, the regulator should clearly check if the offers competitors are selling to are competitive with regard to the wholesale shops. The wholesale deal per se, I think is a win-win deal going forward. So that was my remark to clarify.
And just to -- maybe if I can ask a small follow-up. In terms of the momentum now that you're coming out of lockdown and the stores are starting to reopen, has that picked up on the fixed line side?
Yes, I think we are selling cable since February. As you're aware, so we have -- we are fully armed and weaponed with all access. We are starting to sell [UGG]. And so -- the joint venture fiber. We also had first sales in the beginning of Q2. So I think on all fronts, we will see momentum. And clearly, once we are fully open on the physical sales and store side, hopefully, by the end of this quarter, we will be able to have all shops open. Then we clearly will also see further improvements.
The next question comes from the line of Jakob Bluestone with Crédit Suisse.
I had 2 questions. Firstly, you mentioned in your presentation that 40% of your gross adds came through online, which is clearly an improvement from the sort of mid-20s percent that you've historically done online. And I just wanted to understand a little bit better. I mean, 40% in the sort of environment when all your shops are closed for pretty much the entire quarter. It's clearly better than it was, but I would have expected it perhaps to be a little bit higher. So can you maybe help us understand, first of all, what are the other 60%? So what are the other sort of major distribution channels you saw through the quarter? Is it direct telesales or something? And then secondly, I mean, you obviously have a plan for digitization of the business. Can you just sort of remind us where do you think that 40% can get to? So that's the first question. The second question, just very briefly. Could you share with us what was the partner share of gross adds this quarter? I think last time you gave a number, it was kind of in the mid-50s percent. So if you're able to share anything on that, that would be helpful.
Jakob, this is Markus Rolle speaking. Yes, indeed, we were pleased with the online performance and the increase that we have been able to achieve. And this was much better than in the first lockdown phase because we adapted also our go to market, really focusing on the online environment now in the second lockdown. And indeed, the other portion that you are mentioning in terms of process, of course, there were also some shops being reopened, that is depending on regional level, but this was a minor one. But of course, the call center sales, the telesales that we had, be it we access when customers call us or even access the outbound campaigns was also a big contributor to the gross adds that we have achieved. And also with regards to the gross adds own brand performance, I can confirm a stable performance. As we have seen it in the previous quarters, we are always in the mid- to high 50s. And so it has been also in the first quarter. So also here, a stable performance level with regards to the partner performance. This is also the reason why we do not mention it explicitly because it's really no news on that topic.
The next question comes from the line of Akhil Dattani with JPMorgan.
Just a couple of clarifications, if I can, please. Firstly, you talked on the relationship with Drillisch and the trade-off between data usage and the unit pricing. But I guess I was just trying to understand how we should think about interconnect and roaming. So are those gross revenue impacts that drop out, even if they don't really impact EBITDA, are those things we should be thinking about on revenues? And if so, can you just give us a bit of color as to how we should be thinking about it? The second one is just -- you mentioned earlier on the Q&A session, hopes of shops opening towards the end of the quarter. But I just wondered, given the state of play, whether that means we still get further furlough payments into this quarter into Q2 before they then drop out into H2? And then the final bit is just on pricing. We've had inflation expectations across Europe going up again. I just wondered what your general thoughts are on the pricing environment in the sector and whether you feel there's the possibility or the appetite to try and take up pricing given what inflation is doing?
Thanks for your question. Let's start with the first one. I think with the launch of national roaming, there's a gradual shift of customers. Interconnection revenues are very low margin revenues, very, very low. Also on roaming, this is only a pass-through mechanism that we have. So from that perspective, we wouldn't expect any huge impacts on the account and on gross margin level, nearly no impact. On the last question on pricing, we clearly monitor the market very carefully. We've been able to upgrade our customers and clearly have an ARPU-up strategy in order to sell more data volumes and have attractive upsell mechanisms in our portfolio. That's currently the main driver, and we clearly watch the market very carefully. If certain macroeconomic effects will lead to actions going forward.
Let me take your second question, Akhil, with regard to the shops. So first of all, we all hope that we will have just -- we really limited and reduced the number of furlough payments because we have eager sales team out there, which wants to reenter the shops again and create for us adds on the commercial side. But of course, we are depending on the incidence level and that on a regional basis. We need to monitor now the further progress. Currently, it looks good, but it can go into the second quarter, as Markus was mentioning. And if so, we would, of course, clearly again, apply for that because we use that as a reduction factor to mitigate, of course, our COVID-19-related effects that we have. Because you have seen it. We had EUR 24 million on the revenue side, but just EUR 5 million on the EBITDA side. So you can clearly see here that compensatory effect that has also -- giving us that good operational performance, including COVID-19 developments that we have seen. So to answer your question, we hope that we will reduce it significantly with the reopening of the shops. But of course, if the shops are closed, we would again apply for that.
The next question comes from the line of Ulrich Rathe with Jefferies.
First question is, if I turn around the sort of the idea that the first quarter was a bit soft, I thought it's actually pretty solid intake. And given that you have phased some of the commercial investment of the advertising out a little bit, and it shows in higher EBITDA. Could you comment whether you've used other acquisition incentives, for example, discounts that wouldn't show in EBITDA to drive the intake in the first quarter? My second question is, it's a about clarification. But in the presentation on Slide 9, it looks as if the ex COVID service revenue growth rates have been restated from the information you gave during the quarters of 2020. Is this something you can comment on already on the call? And just a clarification, you mentioned high fixed mobile substitution sales contributing to the 20,000. Could you quantify that? Or maybe just all of magnitude, that would be helpful.
So let me take your first 2 questions. So first of all, on the acquisition side, you asked for, is there anything that you have done with regards to discount. Yes, usual business activity that we are anyhow doing. And of course, we always monitor the market and look for the best value intake that we can generate in certain channels. So there is normal business activities, I would say, predominantly, as discussed before, focused into the online environment. And with regards to the COVID restatements, we do not see any restatements. Ulrich, that's -- follow that up with the IR team. And Marion will call you after the meeting to follow that up with you. We see a stable development of the COVID effects in the first quarter. This accounted for roughly 1.8 percentage points predominantly driven by roaming, as discussed before, because the roaming annualization only takes place now in the second quarter because you still remember that in the first quarter of last year, there were still roaming activities to a bigger extent than in the upcoming quarters of 2020.
Yes, your last question. If you would take into account VDSL, cable and fixed mobile substitution customers, we would have been clearly positive, net positive on the overall technology-agnostic approach. So from that perspective, FMS is outweighing the negative net adds that we see on VDSL and brings us into positive territory on that front.
The next question comes from the line of Mr. James Ratzer with New Street Research.
Kind of follow-up question a bit from Ulrich's last question. I mean on the fixed side as well, are you able to give us an update, please, on how you're progressing with the cable side as well? Now you've got that wholesale agreement in place. Is that starting to become a more meaningful contributor to ads? And secondly, on your net debt figure this quarter, I see there was a EUR 171 million increase in the lease liability, which looks like it's a 6% increase just in one quarter alone. So I was wondering if it's just possible, please to explain what's happened there this quarter?
On cable, yes, we see momentum. We started in February, and clearly, a part of our gross add share is already coming from cable because cable gave us a bigger footprint of high speed Internet. So we now can make every household in Germany a fixed offer and clearly utilize in our mobile base. So we clearly market it, especially in our base, so that customers, we were not able to address so far with high-speed VDSL, we could now offer high-speed cable. And clearly, as part of this, we have seen it. We clearly need to note that the shops so far have not been opened in the first quarter. And secondly, that fixed churn was extremely low because clearly, no one wanted a person or a technician coming into your home in COVID times. So I think we clearly see a ramp-up, but we had a good start above our expectations, and we are looking forward to sell cable access also to our consumer customers under the O2 brand.
And let me take your second question, James, with regards to the lease liabilities. Well, this is, from my perspective, the outcome of the new IFRS 16 regime. You will always have this -- peaks at a certain moment when you prolong or renew or have new contracts in place. And in Q1, there was some more activity, but I would say, in the course of the normal business. But that's led to the increase that you have seen here. As we have not significantly changed our leasing portfolio, as Markus has described it, we have basically a normal trend that we are following. But of course, these renewals lead them to nonlinear peaks in the first quarter reflected.
Can I just a follow-up on this, just the change you've seen in Q1. Is that because of the lease contracts you're now renewing tend to be of longer duration or the actual fees on those leases have gone up?
No. That's basically the durations play a role. So from an overall perspective, and this is why I said this normal course of the business, we do not see big swing factors that year. We are following the normal course of the business. So it's the duration, of course. But also, let's not -- let's assume because if you have a certain contract that creates a lease liability and that is then, as we know, is depreciated over or amortized then over time. And once you renew it automatically, you have a higher increase in your debt and in your liabilities as a logical consequence. Even if the contract prolongation is at the same time frame that you had before because it's amortized, and then you are building it up with the renewals. And of course, needless to say, it has no cash effect from that. So I think that is also important to mention.
The last question comes from the line of Keval Khiroya with Deutsche Bank.
I just got one question. Some of the talkers have called out that whilst COVID last year, obviously, saw the negative impact from roaming. There were also some natural benefits to revenue. So for example, higher core volume-related revenues, both in retail and termination level. But also some one-off usage benefits as well. So as we think about your revenue trends, hopefully, obviously, the roaming drags annualize. But looking back to last year, do you think there are actually any other benefits to the revenue line, which match that to headwind for this year?
There have been some positive effects, as already mentioned, with regards to especially interconnection. So there was basically the renaissance of the SMS due all that online shopping done that were used via SMS and also voice traffic increased. But also here, we need to monitor that now going further. But of course, also, the negative and the positive effects were also included in the COVID-19 reporting that we have. You always see there the net effect. So from that perspective, we do not expect any drag from that going forward. We even see now the opportunity, and that depends now on how travel restrictions will develop, et cetera. That roaming will start to recover throughout the year. We need to see that how the situation will turn out from a worldwide perspective on the pandemic. But of course, this could be rather a tailwind than a headwind.
There are no more questions at this time. I hand back to Mr. Markus Haas for closing comments.
Thank you for dialing in this morning. On the set of a very strong Q1 2021. We're looking forward to report to you the next quarter, most likely in July. Thank you very much for dialing in.
Thank you. Goodbye.