Telefonica Deutschland Holding AG
XETRA:O2D
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Ladies and gentlemen, thank you for joining. Welcome, and thank you for joining the Telefonica Deutschland Q1 2023 Results Conference Call. [Operator Instructions]
I would now like to turn the conference over to Christian Kern. Please go ahead.
Thank you, operator. Good morning, and thank you for joining us today. On behalf of our management team, it is my pleasure to welcome you to the Q1 '23 results call of Telefonica Deutschland. Before proceeding with the management presentation, we would like to inform you that the financial information contained in this document has been prepared under IFRS.
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 several factors.
We invite you to read the full disclaimer on the first slide of this presentation. Finally, the presentation is also available on our IR website.
With me today are Telefonica Deutschland's CEO, Markus Haas; and CFO, Markus Rolle, who will take you through the presentation followed by a Q&A session. Markus, without any further ado, over to you now.
Good morning, ladies and gentlemen. Also from my side, a warm welcome to our Q1 '23 results call, and thank you for taking the time to join us. We are delighted to present another strong set of results. Telefonica Deutschland is making excellent progress across its 3 strategic pillars to build the best Telefonica Deutschland.
Let me update you on the key building blocks of our strategy. First, on network. The focus is on network densification in cities and rural areas to further improve the 5G customer experience. We are well on track to achieve this within the targeted normalized CapEx to sales envelope.
Second, growth. On the back of the sustained network quality we'll continue our growth path across all segments to further increase market share. We are confident about the German macro picture, which remains healthy with a growing telecoms market in mobile and fixed, supported by an overall robust economic outlook.
We follow here 2 main initiatives. First, we continue to gain profitable customers. And secondly, at the same time, we have improved NPS and churn.
Third pillar is our transformation. As part of our continued transformation process, we are accelerating digitalization across our business units to enhance our company's agility and to be an essential growth enabler for the Germany economy. Here are 2 prime examples. First, we are growing the cloud IT-based IT landscape. And secondly, we are promoting and supporting the evolution of our workforce deals.
Overall, Telefonica Deutschland also extended its ESG leadership by executing its ambitious ESG agenda aiming to become net CO2 neutral along the entire value chain.
Let me now highlight our robust start to the year with Q1 results evidencing our ongoing market momentum and confirming the full year outlook. First, on revenue, we grew 8% year-over-year, driven by sustained mobile service revenue momentum and another record quarter of handset sales.
Secondly, on OIBDA, we posted 1.7% growth supported by enhanced mobile service revenue quality. And third, CapEx to sales stood at 11.7% within the targeted normalized CapEx to sales envelope well on track to deliver 5G pop coverage of around 90% by year-end 2023. Overall, our business model is proving resilient despite the significant increase in inflation, leveraging effective cost control, we continue to manage inflationary impacts well.
At the same time, we are consistently implementing our more-for-more strategy across all brands and portfolios, which I will also highlight in more detail on my following slides.
On the next slide, let me highlight our latest network achievements. We have made excellent further progress with our network modernization and rollout of 5G network to enhance the customer experience, giving a strong and continuously growing demand for mobile data.
Two highlights on that operational momentum: first on network. A few months ago, we have been awarded for the third consecutive time, a "very good" rating by Connect Magazine in recognition of our natural quality improvements with the biggest incremental gain year-over-year.
And secondly, on customer service. In addition, we are now very proud to have also been awarded by Connect Magazine with a "very good" rating for our customer service. We achieved 5G pop coverage of more than 82%, while comfortably staying within the targeted CapEx to sales in MNO,and we are well on track for a nationwide high-quality green 5G network later by 2025.
Regarding energy, we continue to deploy successfully our hedging strategy and are now around 70% hedged for this year. In combination with our 3-year energy saving program, we are well on track with regards to our management ambition to broadly stable year-over-year.
Just to remind you, our 2 long-term PPAs are sourcing energy from German offshore wind parks at favorable prices for more than 2/3 of our annual energy demand from 2025 onwards and improve the quality of our green energy mix.
On the next slide, we provide an update on our more-for-more initiatives across the respective portfolios. Our more-for-more pricing strategy reflects the widely acknowledged improvements of our product, service and network quality as well as extended ESG leadership.
As already announced, we recently launched our more-for-more new O2 mobile postpaid and prepaid tariff portfolios with postpaid being the key driver of our future growth strategy. The new postpaid tariff portfolio, O2 mobile is priced on average around 10% higher [Technical Difficulty]
Ladies and gentlemen, it seems like we have some technical issues. We'd like to -- thank you for waiting for a second. People out, can you hear us? Can we continue.
Yes. Now, we can hear you. Okay. Then a recap on more-for-more. And our more-for-more strategy pricing strategy reflects the widely acknowledged improvements of our product, service and network quality as well as the extended ESG leadership. As already announced, we recently launched our more-for-more new O2 mobile postpaid and prepaid tariff portfolios with postpaid being the key driver of our growth strategy.
The new postpaid tariff portfolio, O2 mobile is priced on average around 10% higher while offering larger data volumes at faster speeds as well as the innovative growth feature. Customers in particular, value the growth feature which rewards customer loyalty every year.
As you have probably already seen in our recent Grow TV campaign based on the initial trading color, the new tariff portfolio is well received by customers. To complement our overall more-for-more strategy, we have also implemented across most of our prepaid portfolio offering with higher data packages and faster speeds for also around 10% more euros.
For example, Blau already launched in February followed by AY YILDIZ launched in March. We remain focused on capturing profitable growth opportunities across the entire sales part.
Before handing over to our CFO, to take you through our Q1 performance in more detail, let me confirm our confident growth outlook for the full year 2023 on the back of a robust start into the year 2023.
Based on current market dynamics, Telefonica Deutschland expects a healthy pricing environment, both the premium and the discount segment for mobile and fixed. The very received O2 mobile portfolio is the main growth driver for our more-for-more pricing strategy. It stands for our continuous investments in the successful improvements of our products, services and metro quality as well as our ESG leadership.
We are managing the inflationary environment well with our core business consistently delivering sustained and profitable growth. Core business momentum is fully on track to deliver full year '23 outlook with easier comps for energy for the remaining 9 months and the planned annual phasing of commercial activity.
Hence, we confirm our full year outlook of low single-digit percentage growth for both revenues and OIBDA and CapEx to sales ratio at around 14%.
Following the pandemic, we are again holding an on-site AGM on May 17 and look forward to having in-person dialogue with our investors. Our strong commitment to an attractive shareholder remuneration is documented by proposing a dividend of EUR 0.18 per share for 2022, in line with our minimum commitment also valid for this year.
Markus, now over to you to take us through Q1 highlights in more detail.
Thank you, Markus, and good morning, ladies and gentlemen. Good to have you all in that call. It's now my pleasure to discuss Telefonica Deutschland's quarterly results in more detail.
We had a robust start into the year with ongoing commercial traction, which is driving our sustained financial and operational momentum. Revenues posted a strong growth of 8% year-over-year to EUR 2.1 billion in the first quarter. This is reflecting the sustained mobile service revenue momentum and another record quarter for handset sales.
Mobile service revenue grew 4.2% year-over-year to EUR 1.4 billion in Q1. O2 postpaid remained by far the biggest excellent driver to our year-over-year MSR growth and is fueled by the unabated commercial success of the O2 tariff portfolio. The contribution of partners was again solid.
In combination, these 2 factors are more than compensating for the negative impact from the MTR glidepath. Handset sales climbed close to 24% year-over-year to EUR 485 million in Q1 2023. This is Telefonica Deutschland's strongest handset quarter ever. It was driven by ongoing customer demand for 5G-enabled flagship devices as well as a good handset availability at Telefonica Deutschland and an attractive long-term O2 mobile handset contract portfolio, which is supporting the affordability of handsets for customer groups.
Fixed revenues also returned to growth and are up 2.9% year-over-year and standing at EUR 203 million in the first quarter. With fixed retail business revenues posting an even stronger growth of 4.3% year-over-year.
My next slide shows Telefonica Deutschland also delivered continued commercial momentum in Q1 2023 on the back of a healthy own brand momentum and the return to low churn levels. Mobile cost per postpaid recorded 360,000 net adds and is almost up 30% year-over-year. We see continued high O2 brand sector, which droves the process, while the churn rate in O2 postpaid returned to low levels, improving by 0.2 percentage points to year-over-year to only 1%.
Also partner brands commercial momentum was again solid. The O2 postpaid ARPU posted 0.5% year-over-year growth in Q1 2023. This is reflecting the popularity of high-value of tariffs, while there was a slight offset by the further reduction of the MTR, Underlying, excluding that MTRs cut, O2 postpaid ARPU grew even faster at 1.1% year-over-year.
Fixed broadband net adds were at 25,000 in Q1 2023. This is reflecting the success of our technology-agnostic O2 myHome tariff portfolio.
Fixed churn also improved 0.5 percentage points year-over-year to 0.9%. We are -- with that returning to low levels prior to the introduction of the EECC loan. Fixed broadband ARPU continued its growth path and is up 5.5% year-over-year to EUR 25.9 in Q1 2023. This is reflecting the increasing share of higher-value customers in the customer base.
Let's move to OIBDA and free cash flow on my next slide. OIBDA posted solid growth of 1.7% year-over-year to EUR 612 million. With the improved operational leverage, mainly in mobile based on the continued own brand momentum. This was partly offset by some anticipated increases in OpEx, including higher supply costs related to the strong handset sales, tough comps for energy in Q1 and some anti-air headphones while roaming was a smaller tailwind.
OIBDA margin constituted at minus 1.8 percentage points year-over-year to 29.1% in Q1 2023, mainly due to the particularly strong growth of the broadly margin-neutral postpaid revenues.
With regards to Q1 cost development, it's worth highlighting the following: Handset supplies are the main contributor to higher OpEx. This quarter, the share of handset supplies was 66% of supplies, while the connectivity only accounted for 31%, also reflecting the MTR-cut. Hence, total supplies were EUR 670 million, which is an up of 13.4% year-over-year.
Personnel expenses were up 5.6% year-over-year to EUR 162 million as a result of last year's general salary increase, including the introduction of higher minimum wages in Germany, which is mainly affecting the customer service report. And it is combined with a slightly higher FTE base.
Other OpEx increased 8.6% year-over-year to EUR 663 million with commercial and non-commercial cost accounting for 65% and 33%, respectively. Commercial costs are mainly reflecting the year-over-year stronger trading momentum in the quarter, while non-commercial costs are reflecting technology transformation as well as tough comps for energy for Q1.
Just to remind you, last year, Q1 still benefited from energy supply secured at favorable pricing. For the remainder of the year, we anticipate easier year-over-year comps for energy driven by the market pricing and the continued successful deployment of our hedging strategy. As Markus has already mentioned, we have by now hedged around 70% of this year's energy demand.
In combination with cost has positive results of our energy saving program, we reconfirm our ambition for year-over-year broadly flat energy cost for the full year 2023. Turning to year-to-date free cash flow on the right side of the slide. CapEx was lower, minus 7.2% year-over-year at EUR 246 million in Q1 as we return to a normalized CapEx of sales this year. Free cash flow amounted to EUR 160 million in Q1 2023. The lease payments were EUR 296 million, reflecting a combination of network densification, including new BTS side for white spot coverage and some anticipated year-over-year increases.
Let me remind you that Q1 typically includes more than 40% of the annual lease payments. As a result, free cash flow after leases stood at minus EUR 136 million also included some specific working capital movements, which I will explain in more detail on my next slide.
Operating cash flow improved 8.7% year-over-year to EUR 366 million in Q1. This is reflecting the strong operating and financial performance as well as lower CapEx, successful completion of our ‘"Investment-for-Growth’" program.
Working capital movements were at minus EUR 202 million in Q1 '23. This is mainly driven by the well-flagged decreases in CapEx payables, minus EUR 130 million, following last year's CapEx peak already in Q3 in combination with favorable vendor cash.
Other working capital movement of minus EUR 71 million are mainly reflecting a temporary increase of inventories. As mentioned on my prior slide, lease payments were EUR 296 million. As a result, the free cash flow after lease amounted to negative EUR 136 million with a typical back-end loaded profile, which you can see at the upper right side of the slide. This year, the quarterly phasing is even a bit more pronounced mainly due to 2 effects.
CapEx payable were consuming additional EUR 50 million of working capital year-over-year, reflecting the beforementioned Q3 2022 CapEx speed. And inventories were temporarily higher, plus EUR 90 million year-over-year due to the very good flagship handset availability.
For the full year, we really reiterate our strong confidence in the company's free cash flow after lease generation, delivering at least dividend coverage from this year onwards.
Let me highlight a couple of key free cash flow drivers for the remainder of the year. Our more-for-more strategy is underpinning the revenues and also the OIBDA growth. Based on our hedging strategy, we are benefiting from easier comps for energy for the remaining 9 months. Q1 already covers more than 40% of the annual lease payment. And we continue to work towards normalized inventories and CapEx over sales level with a positive impact on working capital consumption.
Finally, Telefonica Deutschland has a strong balance sheet with a smooth debt maturity profile. We only have limited short-term remark financing needs and all drawn facilities have been agreed at fixed interest rates.
Consolidated net financial debt remains broadly unchanged at around EUR 3.3 billion. The leverage ratio of 1.3x remains well below our self-defined upper limit of 2.5x. Fitch rated Telefonica Deutschland with a BBB outlook and stable, reflecting our strong balance sheet and financial flexibility.
Before we kick off the Q&A, let me summarize the key points of today's presentation. As the management team, we are well contracted to build the best Telefonica. We remain highly committed to drive free cash flow growth and long-term shareholder value. We are focused on our strategy execution to drive profitable growth and outperform the market. Our high network and service quality supports the customer growth as a key driver of the continued operational and financial momentum and is further underpinning our more-for-more initiatives and strategy that we have launched.
We remain fully focused on our ambitious ESG road map to promote a sustainable digital future. Following a robust start to the year, we confirm our confident full year 2023 outlook.
Now we look forward to your questions. Operator, please go ahead and start the Q&A session.
[Operator Instructions] The first question is coming from David Wright from Bank of America.
A couple of questions. Just the first is relatively quick. Just to understand the new momentum in the fixed line operations, just what's driving that? Where do you feel you're really winning new customers with what particular angles, whether it be price, product, et cetera?
And then my second question is just a little more generic. You've obviously had this extraordinary demand for handsets and have configured your inventory and with the working capital impact from that.
Now obviously, you've reiterated the guidance. The handset demand is so strong and there are clear NPV positive benefits, whether it be lower churn, whether it be winning net adds, et cetera. Is there not an opportunity to pursue more growth this year, maybe adding cost to some of that guidance, given that you guys have got a very strong balance sheet. Is there not a case to actually maybe push on here and build even more subscriber growth momentum for 2024 and onwards? Is the guidance really so sacrosanct when there is clearly an opportunity? And that was my second question.
David. Thank you for your questions. On fixed line, we clearly see the flow-through on all technologies that we provide. We see first digital customers being connected and coming through the real fiber to the home customers. We also launched FTTH with Deutsche Telekom. So we see high ARPU customers kicking in. And at the same time, we clearly leverage the cable infrastructure.
So I think there's a mixed bag from all infrastructures who contributed to the positive fixed growth momentum. And clearly, all new customers are coming with a significantly higher ARPU than the existing fixed wireline base.
On your second question, clearly, you see the opportunity, especially our 36 and 48-month installment plan on My Handy makes high-end and high-quality hardware affordable for more customers. And this in combination with our higher price plans is a good match in order to keep the momentum and clearly get a fair share in trading.
And we are confident for the full year. And we will go, as we see, I think we had strong handset sales in the back of the 2 key vendors. So we -- they are both very well presented in our portfolio, and let's see how Q2 comes in. But clearly, we will not stop.
We see good momentum with the new portfolio and the lower hardware price with the 36 and 48. So we can make still with the higher monthly O2 mobile postpaid portfolio, very [Technical Difficulty] that clearly allows us to drive the momentum. So we don't exclude here the growth path. So from our side, we will not stop, and we clearly see very good momentum with the new portfolio.
The next question is coming from Polo Tang from UBS.
I have 2. The first question is in terms of the 800 megahertz spectrum. Do you have any update or any sense in terms of when we can expect the regulator to give a comment on the process? That's the first question.
Second question is on 1&1, they're asking for a 5G national learning agreement. But is there any need or regulatory basis for this to happen, either under the terms of the E-Plus remedies or the terms of the 5G spectrum auction?
On the first one, we expect no decision of an extension or swap auction this year. The regulator will take its time and analyze carefully. I said the extension -- the full extension is still on the table. And as the developments are currently progressing, I think we still see a very high likelihood of a spectrum extension on the fact that has been provided and clearly also the need for spectrum to supply the current coverage for the country.
On your second question, we see no legal basis coming out of the E-Plus remedies for any ask for 5G national roaming. And also the latest requested the regulator has no legal basis from our perspective. And from that infrastructure competition between the 5G operators, this has always been acknowledged also by 1&1 where they said in 2018, they go into infrastructure competition. They do not need 5G national roaming. So surprisingly, we do not see this as a legal basis. Clearly, if an attractive offer is on the table, we will always analyze very carefully if any offer would be in the interest of our company and our shareholders. There's no legal obligation for that.
The next question is coming from Georgios Ierodiaconou.
I have 2. The first one is just to understand some of the drivers on OpEx. And I realize you highlighted the increase in supply cost, but handset revenues went up a bit more than hardware costs have gone up year-on-year. So I'm just curious, when we look at our revenue profile, your growing service revenues close to EUR 60 million year-on-year, but EBITDA is only up about EUR 10 million. And the standard comment you made on energy costs and the fact that this will normalize during the year and could be a tailwind. But I'm guessing the gap between the 2 is not [indiscernible] it was significant.
So is there any other expenses that are driving this? And if you don't mind giving us a bit of an indication of how you expect those to trend in the coming quarters as well?
And then my second question is on the commercial momentum. And obviously, you launched a new portfolios and you have price points, but it looks like operationally, the momentum is quite solid. I'm just curious to get a bit of one idea from just to how you're thinking about your next moves in terms of pricing, whether you are encouraged by this? Do you think there's more that can be done to raise ARPU? And any comments around the timing as to when we see a significant part of the base rolling over to a new contracts? Is it like over a period of 24 months? Or could it be a bit more front end loaded?
One, and let me take your first question on the OpEx driver. So indeed, I can reconfirm that we had really good traction on the gross margin from the improved MSR quality that we are gaining. We had a record quarter of handset sales, and that is also, of course, reflected in higher cost for handset.
But just as a reminder, net-net, this is broadly margin-neutral, because next to the direct cost, you also have to deduct some commercial costs from that debt, et cetera. So for us, this remains a margin new-drill sector, and therefore, it's not contributing to the EBITDA growth.
With regards to the other cost line, we had, of course, a commercial activity that is also reflecting the very good Q1 momentum that we had in the cost development. We were up on the net add side, 28%. And that is also visible also on the commercial cost side. And apart from the energy topic that you were mentioning, which has tougher comps now in Q1 and then easier comps in the coming quarters, all other cost lines are developing in line with our expectations. So personnel costs, driven by the increase in personnel costs that we mentioned from the last February round and the minimum wage increases. So all more or less developing in line with our expectations.
And if you compare also the growth that we have seen in Q4 last year from an underlying perspective, we were growing 2.3% roughly. Also that growth that we are presenting here is more or less in line with the growth that we have seen in previous quarters. So from an overall perspective, cost line is developing in line with our expectations.
And your second question on more-for-more. We clearly plan to roll out in more-for-more on the full portfolio. The last brands will follow in the coming months. And on the benefits, clearly, in prepaid, we see them earlier because the portfolio changes we have immediately the switch. And on the postpaid base, all contract expansions in the days are done on the new portfolio. So we see only one set acquisition upside, but we also see clearly that contract extensions in the base we execute also a reasonable amount of extensions every month are already done on the new portfolio and they are clearly there immediately [indiscernible]
If I can follow-up around the commercial side. Is there are room for commercial expenses to the abated more or less year-on-year in the coming quarter? Or as you roll out more brands this commercial activity that we've seen and the investor in course expenses, is it likely to remain more or less at the levels you've seen in Q1?
We are always, George, trying to find [ the ops mix ] for example, from a channel mix perspective, et cetera, but that is, of course, also heavily depending on the market environment that is around us. Where we can optimize, we will definitely optimize. I can assure that we have really value-based steering on a daily basis in the different teams where we exactly look into what is our room to maneuver, how much do we have to invest in order to sustain our commercial momentum and where we can optimize, we will always do that.
The next question is coming from Joshua Mills from BNPP Exane.
2 from my end. Probably one was cash flow and then I'll ask one on the national roaming side. So on the cash flow, I understand you don't guide expectedly, but the Q4 results, you did say that working capital should be flat for the year given what we've seen in Q1 and the comments you've given beyond handsets. Could you just let us know whether the [ planned ] working capital for this year is still the expectation or whether that's changed since February?
And then also on the cash flow side, you don't give the specific number, but on leases, you've kind of stated people seeing consensus of [ EUR 86 million, EUR 90 million ] in the recent presentation. Is that also the expectation for the full year for 2023?
And then second question just around [ additions -- ] follow-on requests for [indiscernible] either your network or [indiscernible] in the event that they were able to get another [indiscernible] deal either through the regulator or perhaps on commercial terms. What safeguards do you have in place with your current deal to stock and restricting traffic from the players, basically, if they were to sign someone else would they be able to ship CapEx up your network to tell you that or are the blocks at in doing that [indiscernible]
Josh, let me take your free cash flow question. So first of all, we are building, again, on a very strong operational performance that is visible in the operating cash flow also with the lower CapEx intensity that we see. But that's also clear and well flagged that this lower intensity comes with the usual delay of the favorable payment terms that we have total. For Q1, nothing unexpecting has happened. So we saw a working capital outflow mainly from the well flagged reductions in CapEx payables from the CapEx peak in Q3 of last year.
The higher inventory levels, which we see as a temporary effect. And also the anticipated lease cost cash out, which is more than 40% of the total yearly payments and it's up EUR 20 million year-over-year. But if you do the math and extrapolate that for the next quarter, you can see that we are in line with the expectations, with the consensus level out there, which is slightly shy of EUR 700 million.
So from an overall perspective, nothing unexpected has happened. We are fully on track. And to answer your question, of course, after having passed the CapEx peak, CapEx payables coming back to that normalized level will also lead to broadly neutral working capital movements in the future.
On your second question, I think we signed a long-term national roaming deal that could last until 2034. Commercials are committed until mid of 2025 and this is clearly underpinned with capacity commitments within the deal. The rest is confidential, as you will understand from that perspective.
And Markus, just to come back, this is clear on the working capital. You're saying broadly neutral, i.e., that for 2023? Or could this slip into 2024? Just trying to make sure that we're getting the [indiscernible] imagine Q4 was [indiscernible] pricing capital should be around [indiscernible] this year, which have not changed.
So, that is the -- overall target to neutralize that over time, if it will exactly happen in one quarter that is really depending also on the supplies to payment terms, et cetera, but we can reiterate our commitment to have at least the dividend covered via the free cash flow that we deliver. And from that, you can take the math with the minimum working capital movement is that we need to deliver.
The next question is coming from Ulrich Rathe from Societe Generale.
So my first question would be on the -- coming back to the handset sales. I understand there is a sort of a good part of wholesale handsets socially distributing it not directly to end customers in there. Could you confirm that and also explain a little bit to what extent you can control, to what customers these handsets ultimately sold? Because if it's a sort of thinking is, if it's EBITDA neutral, right? And you are pushing these handsets into the channel and ultimately, they get sold to customers who are ending up on other networks. I mean you are very indirectly helping other networks. So could you just explain that expansion of activities in particularly on the wholesale side in terms of the logic?
The second question is on the post price increases. I think the part of it is sort of through for a month now for the O2 brand. There was some debate on the free net call whether these price increases are real or not. So could you maybe comment whether your intake portfolios or the new customers coming in on these new tariffs will, on average, have a higher ARPU than the ones on the other tariffs that you're replacing that would be helpful.
And if you could even get quantitative about it in terms of sort of how many [indiscernible] upside a percentage over there, it would be more helpful.
On your first question, I think we clearly use our warehouse with elderly model sites also to sell off had capacity to distributors in the market. I think that's normal course of business. And clearly, also, this is what we have done in the first quarter. So the models that we believe we can sell easier or into the latest and greatest model into their own base and colors or models that are not so sold, we can also sell them to the open market.
On your second question...
I think we have proven again that our postpaid ARPU, the O2 postpaid ARPU is increasing. So on that front, we can also confirm that the new portfolio will drive further ARPU growth with the new inflow customers. So the inflow of the new customers, maybe again be higher with the former portfolio. So we will have flow-through in the base, the contract extensions and with new customers, and that's really see we are maybe the only operator currently. There is an increasing postpaid ARPU in the market and clearly reflected by the execution of the portfolio.
Can I just get some clarification on the first point. So is it EBITDA neutral, why would you shift volumes into distributors? What's the logic?
At some point, before if hardware models are not attractive anymore, it's obviously the trade off what can we sell in all channels and what will we sell to the open market. So it's a normal trading business. So you always have supply on all models, all colors and whatever. And from time to time, if a new model is coming or a new price round is coming on hardware, you say this hardware off before. So I think it's a normal course of business.
The next question is coming from Pilar Vico from Credit Suisse.
So the first one is regarding cash taxes. If I recall correctly, there were some sort of impact, which was delayed from Q4 '22 after incorporating the last tranche of the [indiscernible] So I'm not sure how should we look into this line and what to expect over the next quarters? And just coming back as a bit of a refresh in terms of the competitive activity in the market, how does your [indiscernible] promotional activity being -- how is it being on mobile? How has it been fixed? Have you seen the rest of the peers a bit more active on that front? And in terms of the ARPU, it's still that is improving the sensor of postpaid deterioration quarter-on-quarter. So could you please give us a bit more light on how much does the MTR cut track to this ARPU?
Land let me answer your question with regards to taxes. So indeed, I can reconfirm what you said roughly 50% of the assumed capital gain taxes for that infrastructure deals that we had in 2020 and 2021 have been paid. For the remainder as well as always, normal spillover through the year, we are depending on the tax assessments and when we received those from the respective authorities. This is, of course, fully reflected again in the commitment that we deliver at least a free cash flow after lease covering the dividend. So we cannot give you any hint on the exact quarter when that will happen and which amount. So here, we are really depending on the assessments that we receive and there is [indiscernible] ask for money.
I think the ARPU growth is including the MTR cut. We have a full published ARPU and did a yearly effect of roughly EUR 20 million to EUR 30 million, I think, on the outer line coming from the MTR cut.
And in terms of the promotional side in the market?
So from our perspective, as you see on our front, still many promotions out there. They are all reflecting the rationale but dynamic environment from our perspective. And as I said, some of the promotions and also being seen by the results of competitors will not grow or lead to ARPU growth on a consistent basis. So I think what we clearly see from our level, we are able to run price increases, promotions and drive ARPU growth. But net-net-net, I think nothing different from the years before.
The next question is coming from Mathieu Robilliard from Barclays.
The first question was about the energy hedging. So you guys indicated about 70% was hedged for the rest of the year. I think for 2022, you kind of said that energy cost or the price of the hedging is below EUR 150 per how maybe what -- and I wanted to know if the hedging in place now for the remainder of [ 723 ] is lower in terms of the average price paid? And then I had a second question, the usual one about partner revenues. You did mention during the presentation that it was one of the contributors of growth, but I want to check that the weight of those revenues had remained similar than in previous quarter or whether kind of pulled down?
Yes, Mathieu. Thank you for the question. So indeed, we are progressing very well with the energy hedging. And if you look at current EEX levels, it was right to not buy too early, but to await that decrease. And yes, for example, if you now look into the next quarters, what is there, definitely, the price levels are below the EUR 150. And I can also confirm that we are buying in that range of what is visible in the EEX development.
And with regards to the partner revenues, indeed, nothing unexpected, solid, but stable development in percentage of postpaid MSR, we remain in the high mid-20s, so nothing has changed their stable development. And by far, the biggest portion of our mobile service revenue growth comes from the O2 postpaid, which is driving our growth. The partner development is rather stable.
The next question is coming from Steve Malcolm from Redburn. Steve, we can't hear you at this moment.
We can just continue with the next one in the queue.
Okay. You can register again, Steve. The next question is coming from Yemi Falana from Goldman Sachs.
Maybe just taking a step back in terms of when we think about the moving parts on the wholesale side in the general mobile market kind of taking into account some of the potential moves on the special side and 1&1 requests with respect to 5G national roaming. When do you think it will be on the other side of these negotiations, i.e., when do you think you have line of sight on both kind of long-term protection outlook, but also in terms of long-term network outlook in Germany. Is that a 6 to 12 month event? Is that more like 18 months? It would be great to understand your perspective on that at this stage.
Yemi, thank you for your questions. The first one on the spectrum side, we expect Q1 next year more clarity. So roughly a 9-month period. On the national roaming, I think we have a contract in place. So we are currently implementing. We will clearly support the amounts launched in September of the fourth network with a full fledged national roaming solution where the teams are currently building for more than 2 years with the 1&1 teams to get this implemented. And so from our perspective, [ we make sure we're on ] at the start. And as I said, we have a commercially binding agreement until mid of 2025 that could last until 2034 and clearly this is nationwide coverage to the [ fourth network ]
The next question is coming from Adam Fox-Rumley HSBC.
I just have one quick one on OIBDA team. So I was on and what progress was in line with our expectations or represent comments to you understand competition of [indiscernible]
Yes, I think we would at Telefonica expect to report to more and more details on OIBDA. As I said, business is built up. We have a good inflow in the areas where OIBDA is building. And that is developing well from our perspective, we therefore said, very strong gross market share and gross add share in the areas where we keep building as anchor customer. And from that level, we also see now step-by-step also flow through in our P&L as with customers' revenues and then also clearly cash contribution.
In the interest of time, the last question is coming from Keval Khiroya from Deutsche Bank.
I've got 2, please. So firstly, at the full year, as you said you've taken quite a conservative view on the 1&1 traffic migration for 2023. 1&1 subsequently detailed at [indiscernible] targets. And what are your latest thoughts on how the 1&1 contribution may trend this year and what that means for your guidance?
And then secondly, you talked through a number of moving parts and highlighted the energy comps we lease and that hopefully, the price rise impact should help more during the year to as they work their way through the base? I appreciate it's difficult to be precise, but should we see the Q1 underlying EBITDA growth as the trough level for 2023?
What we expect is now that for the first 3 quarters, 0 traffic will be absorbed to the potential network. And even with the announced number of sites that 1&1 one might build or might not build. And we see a very small possibility to absorb traffic actually in these areas. So from our perspective, we've taken a conservative view, we now I think we'll see what is actually really going to happen from Q4 onwards and after the launch. And -- but as I said, we have taken a very conservative view. So if the traffic is absorbed on a very low level, then we would clearly see upsides.
Let me take the second question. So Q1 is in line with the guidance that we have given. If you take actual analyst view for the full year, that would anticipate some acceleration in the next 3 quarters to come. We do not guide on a quarterly basis, but I can reconfirm that we are comfortable with the consensus published on our website for the EBITDA development.
We come to the end of the total Q&A time. Markus Haas, I would like to turn the call back over to you for closing remarks.
Thank you very much for joining us this morning. I think you've seen the business has momentum. We continued the growth, sorry, from 2022 onwards, especially on mobile service revenue growth, operating revenue growth, but also fixed growth. So the business has momentum and is growing in all its segments. Also on the B2B side. That's what we did not cover today during the Q&A session. We also see very strong inflows, especially on new customers. The overall business has momentum, well on track with network deployment, and they set underlying trends on the way to deliver full year guidance as we have given for the full year.
Thank you.