Telefonica Deutschland Holding AG
XETRA:O2D
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Ladies and gentlemen, thank you for standing by. I'm Stuart, your Chorus Call operator. Welcome, and thank you for joining Telefónica Deutschland Q3 2020 Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Christian Kern. Please go ahead.
Thank you, Stuart. Good morning, everyone, and thank you for joining us today. On behalf of the management team, it's my pleasure to welcome you to Telefónica Deutschland's Q3 Conference 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. [Operator Instructions] Thank you so much. And I hand over to Markus now, who will start the presentation.
Ladies and gentlemen, good morning, and welcome to Telefónica Deutschland's Q3 2020 Results Call. During these unprecedented times, my CFO colleague, Markus Rolle, and I are delighted to discuss with you today another solid set of results with improved business dynamics in the quarter just ended. Our business fundamentals also remain strong in the current COVID-19 environment. We are making steady progress with the 4G network densification and have successfully achieved a second milestone agreed with the Bundesnetzagentur at the end of September this year. In fact, we have even been slightly ahead of target. So far this year, we have deployed close to 6,000 LTE elements in the O2 network. Hence, we are fully on track to meet the obligations of 7,600 sites per year-end. Also, Telefónica Deutschland's 5G network went live on October 3 this year and is already operational in 15 German cities. We are rapidly rolling out 5G over the coming months to bring the new technology quickly into urban and rural areas. I will provide you with more details later in my presentation. At Telefónica Deutschland, we are constantly raising the bar not only for our financial performance, but also for our ESG targets. Therefore, we have brought forward our goal to be climate-neutral by no later than 2025. Central elements to reach this goal are modern network technology, combined with smart energy management. With this challenging objective, we are setting a meaningful example for sustainable business leadership and continue pioneering the German telco industry. Our overall ambitious climate strategy also supports the Paris Climate Agreement, contributes to the [ Action Alliance ] Business Ambition for 1.5-degree Celsius. Every new generation of network technology supports further energy efficiency. Hence, the planned 3G switch-off, 4G expansion, 5G rollout and data center upgrades are key for our ambition to increase electricity efficiency by more than 80% by 2025. Also from next year onwards, Telefónica Deutschland's total power consumption across the range from office buildings to mobile sites will be 100% covered by green energy. Already, since 2016, we are buying renewable energy whenever we manage the purchase process, which accounted for close to 85% of our total energy consumption in 2019. We are now keen to achieve 100% by purchasing guarantees of origin for those energy contracts outside our control. For example, the rented O2 partner shops. In addition, the quality of our green energy shall be increased by using power purchase agreement and self-generated electricity. Finally, where CO2 emissions cannot be yet avoided, for example on business trips or building heating systems in rented premises, they will be compensated through CO2 certificates. Now let us take a closer look at Telefónica Deutschland's operational and financial achievements in the period until September 2020. I'm delighted to confirm that our core business dynamics are fully intact and have even improved during tough COVID-19 times. Trading dynamics have recorded close to pre-COVID-19 levels. Historic low churn levels in the O2 brand and the strong traction of the O2 portfolio have been major contributors not only to the 608,000 postpaid net adds so far this year, but also in particular, to the strong trading performance in the third quarter of this year. O2 was ranked top by achieving a very good rating in both the connect magazine shop test as well as the connect service app. In combination with the steady quality improvements of the network, Net Promoter Score continued to increase and the annualized churn rate in the O2 brand became down to 2.2 percentage points to 13.5%. This is an all-time low. While ARPU trends in the first 9 months are reflecting ongoing COVID-19-related roaming headwinds, I'm proud to state that own brand ARPU ex roaming continued its growth path, posting an increase of 0.3% year-on-year. As a result, our solid financial performance in the period is fully on track to deliver our fiscal year '20 guidance. You will recall, we set our guidance before the start of the pandemic, hence entirely absorbing all COVID-19 impacts. In the first 9 months, revenue was up 1.5% year-on-year on improving mobile service and fixed revenue trends as well as a sustained demand for higher-value handsets offsetting an almost minus EUR 70 million impact of COVID-19, equal to a drag of 1.3 percentage points. OIBDA was down 1% year-on-year, including EUR 47 million of COVID-19 effects equal to a drag of 2.8 percentage points. OIBDA returned to growth 0.8% year-over-year in the third quarter this year on improved revenue mix and enhanced cost efficiencies despite a significantly lower roaming contribution due to ongoing travel restrictions. As you can see, Telefónica Deutschland's business is in good shape, even more impressively evidenced by the healthy operational growth trends ex COVID-19. Revenue increased by 2.7% year-over-year and OIBDA was up 1.8% year-over-year, even up 4.8% in the third quarter of this year. If we move on, on the next slide, let's take a closer look, and you have seen the chart before, on the key trends after the first pandemic wave of COVID-19. Among the key drivers we have shared with you over the last 2 quarters, all have successfully recovered. But roaming, in particular churn, remains at historic lows. Even roaming shows some green shoots in the third quarter. Visitor roaming has well recovered while the ongoing travel restrictions impacted summer holiday travel patterns across the globe. Hence, we continue to see only limited international roaming revenues with some contribution from EU peripheral countries, such as Switzerland and Turkey, while usage from European roaming increased in the big travel season. Further recovery clearly depends on easing of worldwide travel restrictions, which seems less likely in the short term. Overall, Telefónica Deutschland remains in a solid operational and financial position as we are carefully managing the pandemic impacts while continuing to support our employees, customers as well as the wider society through a variety of initiatives. Let's move on to the next slide for more details on our 5G rollout, as promised before. On October 3 this year, the 30th anniversary of the German unification, Telefónica Deutschland heralded the 5G era by switching on 5G in 15 German cities. Besides the largest German cities, Berlin, Hamburg, Munich, Cologne and Hamburg, we have also launched 5G in major cities such as Stuttgart, Düsseldorf, Essen and Potsdam, using our 3.6-gigahertz spectrum. As mentioned before, in parallel to the 5G start, we have fulfilled the second milestone of our LTE coverage obligations agreed with the German regulator and are on track to achieve the full year target. We will rapidly expand our 5G network by optimizing our spectrum portfolio to include rural areas using new technology, such as dynamic spectrum sharing, DSS. We will use DSS as a bridging technology, which is particularly well suited for expanding 5G coverage with 4G frequencies while simultaneously rolling out a stand-alone 5G network for even superior customer experience. Also, the gradual reallocation of frequencies currently used for 3G to the 5G network ensures a swift 5G rollout. By the end of next year, we expect to set up more than 2,000 5G sites in cities and thus deploy around 6,000 5G antennas by using our high-performance 3.6-gigahertz frequencies, hence enabling speeds up to 100 times faster than 4G. By the end of 2022, we will be supplying around half of the German population with 5G and aim for full coverage by no later than 2025 based on the 4G grid that we already finalized this year. Telefónica Deutschland will be the first German bringing 5G core network as well as 5G basic functions into the cloud. This will enable a much quicker development of new industrial solutions, higher automation of production and logistic processes and real-time applications, such as edge computing. We will be using cloud infrastructure for the virtualization of our 5G core network. Our 5G core network is built by Ericsson components and functionalities. For the radio access network, we will continue to pursue our proven dual vendor strategy. We expect the German government's stance to remain committed to high security standards and not to exclude any vendor per se. We continue to see any potentially required replacement of equipment to be covered within our usual replacement cycle. Let's move on to next slide to our fixed network strategy. Telefónica Deutschland has the most extensive fixed footprint in Germany and has manifested our strong partnerships. With the Deutsche Telekom infrastructure, we are reaching around 34 million German households with DSL and VDSL and the future also with fiber. Our partnerships with Vodafone and Tele Columbus enable us access to around 24 million and more than 2 million households, respectively. We have recently announced our simplified tariff portfolio for O2 my Home services, leveraging our technology-agnostic approach as a basis for further growth in fixed line, now also including cable. Already last year, we successfully demonstrated that we can also successfully establish products beyond our mobile propositions. Our Internet@Home solution uses an intelligent mix of technologies, DSL, VDSL fiber, cable, fixed mobile substitution, to promote our household penetration. Our access to nationwide VDSL and cable networks throughout Germany represents a huge opportunity to further expand the P&L contribution of fixed products and services. We will launch O2 my Home on November 3 this year and hence be the first provider in the German market offering a tariff that applies equally VDSL, DSL, cable, fiber optics and mobile network-based O2 HomeSpot. The 4G/5G router will become an integral part of O2's new home world and the fully fledged takeover substitution solution. A recent online survey confirmed that more than 3 -- or 75% of customers have little or no knowledge of the various fixed technologies, more than 50% have no preference for technology and more than 66% of customers want a recommendation from their provider for stable, fast and affordable Internet access. This demonstrates that our approach to sell a technology-agnostic approach is absolutely right strategy. O2 my Home is fulfilling this key customer requirement. The O2 my Home availability check will cover all 4 technology and O2 gives a clear recommendation for the first solution with regards to customer needs based on household size and usage behavior, in combination with an excellent price/value offer. With the new O2 my Home portfolio, Telefónica Deutschland is once again pioneering innovative products and services, contributing to our strategy of driving top line growth. Let me show you now on the next slide further proof points with regard to the execution of our 5 key strategic priorities, all working towards one common goal: delivering attractive shareholder returns. With 1.5 percentage revenue growth year-over-year, Telefónica Deutschland is well underway to deliver its mid-term ambition of a minimum of 5% accumulated revenue growth between 2020 and 2022. The growth is leveraging our investments and the steady progress of the LTE rollout. We have close to 6,000 new LTE elements on [indiscernible] year-to-date and are on track to achieve year-end 2020 coverage obligations while our 5G network is now operating in the first 15 German cities. O2 prospect churn remains at a historic lows of 13.5%, leveraging enhancements of network quality, products and services. Also smart bundling will further enhance customer loyalty in the future. Leveraging our technology-agnostic O2 my Home portfolio in combination with the most extensive fixed line footprint, we're also pioneering fixed mobile substitution in Germany and O2 my Home will further contribute to customer loyalty and profitability. Finally, the SME operating [indiscernible] remains intact despite the COVID-19 environment. We continue to streamline our portfolio and channel mix and have recently launched the first unlimited B2B offer as well as O2 5G offers for the business segment. Moving to my final slide. I'd like to wrap up by summarizing Telefónica Deutschland's solid performance in the first 9 months of the year as just presented to you. We are fully on track to achieve our fiscal year '20 revenue and OIBDA guidance set at the beginning of the year, pre the outbreak of the pandemic. This is only possible due to the intact operating trends of our core business entirely absorbing the COVID-19 drags, now mainly related to limited roaming on the back of the ongoing travel restrictions. With regards to CapEx, the deployment remains more back-end loaded, reflecting COVID-19 restrictions as well as a shift of some CapEx into next year. There's no change of the overall CapEx envelope within the existing investment program. However, it is likely to see a slight time extension as a result of COVID-19. Overall, we confirm our financial outlook for fiscal year '20. The management team will continue to monitor and analyze the further development of the pandemic and its impact on the company's development in the coming quarters. Finally, before handing over to Markus Rolle for his detailed presentation of our Q3 results of this year, I'd like to mention that, similar to last year, we plan to host a strategic update before year-end. On behalf of Telefónica Deutschland's management team, it's my pleasure to invite all of you to this virtual event. So please stay turned for more details coming in the coming weeks. With no further ado, now over to you, Markus.
Thank you, Markus, and also a warm welcome from me. Good morning, everyone. I hope that you are still keeping safe and healthy in this very difficult time. Let me take you through our Q3 operational and financial performance in some more detail. On Slide 10, I'm very pleased to present to you a solid set of results during these unprecedented times. Revenue is growing and operational trends are intact. Total revenue is posting EUR 1.873 billion in Q3, which is an up of 0.4% year-over-year. We see improving MSR and fixed revenue trends, a robust handset business. And that lets us absorb EUR 30 million of COVID-19 impacts in Q3. Ex COVID-19, operational revenue was up 2.1% year-over-year in the third quarter. The mobile service revenue remained flat year-over-year at EUR 1.361 billion. We see still an improving phone brand performance while we are also facing tougher comps and, of course, the COVID-19 impact in the order of magnitude of EUR 27 million. Ex COVID-19, our operational MSR posted a growth of 2% year-over-year. The handset revenue reflects some delayed smartphone launches while the demand for high-value handset remains strong. As a result, we registered minus 2.1% year-over-year decline, amounting to a total amount of EUR 311 million in Q3. Our year-to-date performance was supported by the good traction in our online channels and is up 6.4% year-over-year, totaling to EUR 972 million. Our fixed revenue further maintained its upward trend and posted a growth of 6.7% year-over-year, coming in at EUR 198 million in Q3. We see still a sustained retail performance driven by the strong demand for our VDSL product. The fixed retail revenue was even stronger with a year-over-year growth of 7.4% in Q3. On Slide 11, we still see positive trading momentum and the continued ARPU recovery. Mobile postpaid showed healthy 261,000 of net additions. We see low churn levels in the COVID-19 environment and a sustained strong customer demand for the well-performing O2 Free portfolio as well as a very solid partner performance. O2 churn improved by 0.4 percentage points year-over-year to historic growth of 1% churn rate in Q3. The postpaid ARPU is coming in at EUR 13.90 in Q3, which is a decline of minus 3.8%. Let's look into the details. Our own brand postpaid ARPU was only down by minus 1.3% year-over-year in Q3. However, it shows also already visible improvements by Q-over-Q growing 1.6%. Excluding COVID-19-related loss of roaming revenues, our own brand ARPU was up 0.3% year-over-year. Now to the fixed business. Fixed broadband is coming in with 6,000 net additions in Q3. Also here, we have a low churn environment and our customer base is counting now 2.3 million. This is driven by the continued strong demand for VDSL with positive 34,000 of net adds. Our fixed broadband ARPU continued its growth path and posted 2.4% year-over-year growth in Q3, coming in at EUR 23.70. This is reflecting the growth in the customer base, including the steadily growing share of VDSL customers. Our partner performance is in line with our expectations. We continue to see a broadly unchanged contribution to both gross adds and mobile service revenue. Gross additions are in the mid-50s and postpaid MSR contribution is at the higher 20s. Turning to Slide 12. Our OIBDA amounted to EUR 595 million in Q3 and is back to growth with 0.8% year-over-year, driven by the improved conversion. Ex COVID-19, our operational OIBDA showed strong growth of plus 4.8% year-over-year in Q3 and 1.8% year-over-year, year-to-date. The OIBDA margin improved as a result of the revenue mix and enhanced cost efficiencies while it was muted by the COVID-19-related roaming drag, which is evidenced by roughly EUR 23 million of COVID-19 impact in Q3. Our OIBDA margin in Q3 is at 31.8%, which is an up 0.1 percentage points year-over-year and it's 30.5% in the first 9 months, reflecting the beforementioned effect as well as the growth trends of the lower-margin handset business. Year-to-date, COVID-19 impacts amounted to EUR 47 million and are fully absorbed in the beforementioned year-over-year trends. On Slide 13, you can find the evolution of our free cash flow as well as the net debt year-to-date. The company generated a free cash flow of EUR 695 million year-to-date. CapEx came to EUR 251 million in Q3 with a CapEx over sales ratio of 13.4% as the result of the more back-end loaded deployment of CapEx, mainly due to COVID-19 as well as a shift of some CapEx into the next year within the existing investment program. We likely might see a slight extension due to COVID-19. Free cash flow dynamics are reflecting the working capital movements and adjustment, amounted to minus EUR 221 million in the January to September 2020 period, which is comparable to the minus EUR 210 million in the prior year period. This development was mainly driven by a decrease in CapEx payables of EUR 61 million; decreased prepayments of EUR 13 million; net restructuring impacts of EUR 10 million; as well as other working capital movements in the amount of minus EUR 184 million. This includes the development of net receivables, including factoring in the amount of plus EUR 87 million and the received setup payment for the prolongation period of the MBA MVNO contract. These positive line items were outweighed by other working capital movements, especially a decrease in trade and other payables. Lease payments, primarily for leased lands and antenna sites, amounted to EUR 429 million. As a result, the free cash flow after lease stood at EUR 267 million for the reporting period compared to EUR 227 million in the prior year. As of the 30 September, our consolidated net financial debt stood at EUR 3.643 billion with a reduced leverage ratio of 1.6x. Key factors of the more than EUR 200 million reduction in net debt over the last 9 months are, on the increasing factor side, the dividend payment of EUR 506 million and the net addition of lease liabilities/right of use of EUR 453 million, mainly related to the first tranche of Telxius infrastructure deal based on the master lease agreement; and on the decreasing side, of course, the free cash flow after lease of EUR 267 million and the purchase price receivables of EUR 927 million related to the first tranche of the Telxius infrastructure deal, where we received the payment in early Q4. The leverage ratio is well below Telefónica Deutschland's self-defined target ratio of at or below 2.5x. And it's leaving us comfortable leverage headroom with regards to the company's BBB rating by Fitch. Let me sum up the key takeaways with my final slide. Our business dynamics are intact. We confirm our full year 2020 outlook, which we provided before the outbreak of the pandemic. Of course, the management team continuously monitors and analyzes the latest COVID-19 development. Revenue is growing. Revenue growth is fully absorbing COVID-19 international roaming drag with good momentum in our core business. OIBDA is also back to growth and shows an improved conversion rate. Free cash flow after lease dynamics show the usual seasonality. Net debt is well in line with our target leverage and gives us comfortable headroom with regards to our BBB rating by Fitch. Finally, a solid balance sheet, our strong liquidity position and our ability to generate free cash flow support total shareholder returns. With this, I'd like to hand back to the operator to kick off the Q&A session. Thank you very much.
[Operator Instructions]
Yes. It's going to be a maximum of two questions, if that's okay.
Okay. Maximum of two questions. The first question is from Emmet Kelly from Morgan Stanley.
The first question is regarding the EBITDA growth you had in Q3. You said the number was underlying growth of 5%, excluding COVID. Can you maybe just say what the main drivers of the plus 5% are, please, whether it's a lower churn, whether it's postpaid adds or whether it's the MBA MVNO case? And then the second question is can you maybe just give us a rough idea of where partner revenues are as a portion of total postpaid revenues in Q3, whether there's been any meaningful shift since Q2 or since Q1, please?
Thanks for the question, Emmet. Let me take them, both of them. So with regards to the EBITDA development, you mentioned the underlying 4.8%. I can confirm that we had very good trading momentum with our own brands. We have seen historic low churn levels, which are, of course, a major driver also for that good development that we see. We see also solid trading recovery after the lockdown. So as we expected that, we are back to prior crisis levels. And of course, we didn't stop on further cost efficiencies. So we are still working on our digitization initiatives, further improving the efficiencies of Telefónica Deutschland. With regards to your partner questions, and that was also part of your first question, is there an underlying development that drives that growth? I can just say no, we remain here with 29%, which is the exact figure on previous quarters' trends that we have seen. Of course, in the last quarter, we had the negative one-off. But if we correct the negative one-off into an underlying performance, we see a pretty stable development in the partner performance versus the previous quarters.
Next question is from the line of Akhil Dattani from JPMorgan.
If I start, firstly, just on your comments around the December strategy update. I'm just keen to understand kind of high level what you can tell us in terms of at least the thinking around this of last year, this was around providing mid-term financial objectives and shareholder return update. Is it the same this time? And I guess when we think about the balance sheet at the moment, can you just maybe update us on your general thoughts around balance sheet priorities? Obviously, leverage has come down nicely through the towers transaction, the business is growing again, so just keen to get your overall thoughts there. And then the second question is really around your fixed line strategy. You've signed in the last month or so the agreement you mentioned with Deutsche Telekom on fiber. Obviously, information is very limited on this at the moment. But just any sort of commentary you can provide around what sort of commitments or details around that, that are relevant that you could kind of help us better understand the economics of that. And similarly, how does that compare to what you've agreed with Vodafone and the cable business?
Thank you for your questions. On the strategy update, I think we are coming to the end of year 1 of our strategy that we announced last year. So I think it's a good time to share with you where we are after 1 year of strategy implementation and clearly also give color on the use of proceeds that we received for the tower sale that we did earlier this year. So this is more an update and is more a review of year 1 of the strategy and is just sharing the details where we are. And main focus will clearly also be the use of proceeds that we achieved from the tower deal. On your second question on our fixed line strategy, here, what we see is we have flexibility. I think we are growing in fixed. And the commitments that we have entered still give us flexibility to optimize our position as a wholesale acquirer. And we are one of the biggest wholesale customers in the German market in fixed. From that perspective, we gain access to all technologies that are necessary to build this home of fixed I was talking earlier that allows us to sell all technologies and, as a result, have the best fixed broadband coverage in this market. So we can, in every home in Germany, we can sell fixed and broadband products. And this is clearly for us, as a mass market leader in this market, extremely important to clearly up-sell into converged propositions and stabilize this. So we worked very hard and very long to get to that point that we can sell a completely technology-agnostic proposition. And we still have room to maneuver, to switch between technologies and wholesale partners within the commitments we have entered.
Next question is from the line of Georgios Ierodiaconou from Citi.
Two questions from my side also. The first one is around churn. Markus, you mentioned in the previous quarters that you expected churn benefits from the lockdown to have a delayed effect and we are seeing it now. I'm curious if you are expecting these low levels of churn on the O2 brand [indiscernible] to be sustainable beyond this quarter, you are seeing signs of shift maybe are a bit more sustainable than just 6 months, let's say, impact from the lockdown measures. And then the second question I have is around your 5G rollout strategy. I think one of the comments you made earlier was around the fact that you may need to replace some equipment over time, but that will be covered by your ongoing investments. I'm just curious to understand, in the 15 cities where you've launched, if you can share with us perhaps who your radio access network partner is -- vendor is and whether as part of your plans for the next couple of years, you are giving yourself enough room to have more visibility on the vendor decision in Germany before you fully commit to both vendors.
Georgios, on the first question, I think historic low churn levels from our perspective is not only driven by COVID. I think we have seen a year-over-year churn reduction and over-fulfillment of our targets that we've given ourselves already last year. We see now an acceleration. And there is clearly some COVID impact in. But we clearly see, with the best service performance, a network on [indiscernible] level with Vodafone and clearly also with the price/value ratio that we offer to our customers that we really have a satisfied customer base. And so the commercial strategy also now bringing fixed, to the customers to sell a second product to our customers, a mobile-to-mobile or a mobile-to-fixed or other products, it clearly also increases the loyalty of our customer base. So we clearly work hard and continue to see ongoing low churn level. So I think it's a combination. It's not only COVID. So this is also why I believe we will see also lower churn in the future. We would need to see what will be the impact. But clearly, we are pleased with the performance that we have seen up to now. And we continue to work very hard also to please our customers. On the 5G rollout strategy, I think on the core network, as we announced, we have decided to go with Ericsson for the 5G stand-alone solution. On the radio access, we still execute a dual vendor strategy between Nokia and Huawei. But clearly, we only deployed a few hundred sites this year. So once we accelerate to the 2,000 that we mentioned earlier on the 3.6 band, we clearly want certainty. And we also pushed the government to get this final certainty on the vendors just before we accelerate. Just as a recap, we have a full reimbursement clause with all existing vendors. If there would be a replacement needed on 5G, it would not harm us at all because it's a low number of sites, first. And secondly, the replacement would not cover 4G. 4G is out of the discussion. But from that perspective, the earlier we get the clarity, the earlier we could clearly accelerate. So this is we expect Q4, latest Q1 next year, we should have final clarity if all the vendors that we have selected would be qualified and certified for an ongoing 5G rollout.
Next question is from the line of Polo Tang from UBS.
Just had then two questions. The first question is really about 1&1 Drillisch and a potential national roaming agreement. Can you maybe give us an update in terms of where you are with your talks that also if you do sign an NRA with Drillisch, this means that they're pressing ahead with their network builds and implies that your partner revenues from Drillisch will theoretically for longer term? But are there any scenarios that you see where you can maintain or keep the bulk of your partner revenues with Drillisch longer term? That's the first question. Second question is really just about COVID-19 and how should we think about the impact of new lockdown measures being proposed by the German government today. So how do you think that this will impact specifically consumer and the business segments?
On your first question, I think we continue to be in very constructive talks with Drillisch. I think we are ready to sign from our side. So once the contract is ready, I'm sure both parties will announce at the same point in time from that perspective. On the overall location on the revenue profile going forward, I think nothing has changed from our perspective. I think there will be -- if there will be a network rollout, a gradual shift, with a long-term commitment on the 20% until mid of 2025 and we will be able to replace these revenues in case they are shifted with other partners. So overall, all what's currently been negotiated is fully in line with our plans, and we wouldn't expect any surprises here.
Let me take your second question. I think -- so first of all, in line with what we have said before, we do not expect roaming to recover on the short term. We have said that there was only limited travel into the non-European countries. And I think that will continue also throughout the end of the year, and even now that travels into the other European countries are expected to slow down in the next month. However, let's not forget this doesn't give us a drag in terms of revenue because it's anyhow roam like at home revenue that is made, where customers do not pay for. So that's on the roaming side. And with regards to potential lockdown, I think, yes, you're rightly mentioning, today, it's an important day for Germany. Ms. Merkel and her ministers are discussing that. There are currently talks about a light lockdown. And we have to, of course, see what that means. But from today's perspective, in a light lockdown scenario, we would not see that tremendous impact on our customer base that we have seen in Q2. And we rather expect a continuation of the trends that we have seen in Q3 with the roaming effects that I mentioned before.
Next question is from the line of Jakob Bluestone from Crédit Suisse.
I've got two questions as well. Firstly, just getting back to the partner revenues, given that this was the first quarter invoicing Drillisch at the higher rate and given your comments that your -- that the sort of underlying contribution from partners was pretty similar, should we be expecting a step-up in the partner contribution in the coming quarters? If you could just sort of shed a little bit of light on how the higher invoicing rates impact your partner revenues going forward. And then secondly, can you maybe comment a little bit around the 5G iPhone, what sort of impact or what sort of demand are you seeing so far? And how should we think about any impact on margins over the next few quarters?
Jakob, I will take your first question with regards to the partner revenues. Are we expecting a step-up of the partner revenues? No. We expect also in the upcoming quarters rather stable trends. As you know that the partner revenues are also linked to the growth of the network. The big partner is committed to 20% of the network size. So we expect rather stable trends in the next quarters.
On the iPhone, I think we can make it short. We see very high demand and no negative margin impact.
Next question is from the line of Christian Fangmann from HSBC.
I have a question on the ARPU growth. The underlying own-branded ARPU growth was only up 0.3% after you -- if you exclude roaming. And I think in Q2 was positive 0.6%. So it looks like a bit of a slowdown. So I would like to understand the underlying trends. Is there less demand for higher-tiered products? Any color you could give? And also in terms of trends in October, have you seen major shifts in terms of net adds, gross adds or churn? And then secondly, on the new cable offerings, when are you expecting to launch this? Is there any delay? I think, originally, it was planned for the end of the year. So any update would be helpful.
Let me take your first question with regards to own ARPU growth. I think we see the opposite. And we can compare numbers afterwards with my IR department. Our ARPU growth of 0.3%, excluding roaming, is an improvement, because in the last quarter, we have only been positive in the month of June. We've had seen prior to that some effects of lower usage, et cetera, in our ARPU development due to the lockdown. So here we are on a positive trajectory. And with regards to your question of early trading signs in October, we do not any shifts of trends here as we speak.
On your second question, I think we're going to launch next Tuesday, November 3, the full proposition.
Next question is from the line of Ulrich Rathe from Jefferies.
My first question is on the Chinese supplier. You're discussing this mainly in the context of security decisions by the government. But there are -- it's also the question of technology sanctions impacting their capabilities. The situation sounds a bit as if the performance of the Chinese equipment will suffer at the very least if they move to the technology they would have available in the future. So how do you view that question? And do you have insights based on your conversations with them how the equipment will actually look in 2021 and beyond based at least on the current situation? And then my second question is I know there's this update coming. Maybe it's the wrong question at the wrong time. But what can you say already about 2021 when you look at the COVID scenarios? I mean there is a scenario that COVID doesn't slow. There's a scenario that we might get a vaccine and things get better. How does this actually affect your strategy? Would you adapt your business plan for this? And what are the main levers you would use to adapt in these scenarios?
On your first question, we clearly take into account all impacts that could come from this geopolitical discussion. So once we have security from the certification from the government, we will also need to take a final view on the sustainability and the future proofness of certain capabilities also of Chinese vendors. So this is why we said we need all bits and pieces together before we take the final ramp-up decision on 5G. So this is clearly also a valid effect, where we need certainty and future proofness also on capabilities with regards to the semiconductors that you mentioned. On your second question, so far, our strategy has been seen very robust. The biggest impact that we saw was on roaming, of course. And roaming is not part of our -- it's not a fundamental part of our strategy that we announced last year. So overall, our strategy has been seen very robust. It focuses on growth in our customer base, on increasing loyalty, bringing broadband to rural areas in order to generate growth levers. So especially while the digital infrastructure has become even more important with COVID-19, we see -- we could not foresee that clearly once we announced our strategy last year. But we see even more motivated to accelerate with our strategy, and we will share with you the details, of course, in our strategy update.
The next question is from the line of Joshua Mills from Exane.
Two questions from me. One, on the broadband side, so I think on Slide 6, you're laying out the plan for my Home offers. Could you just give us an idea of what kind of broadband speeds people are taking on your network at the moment, where you're seeing highest demand? And just a sense of the competitive environment on the fixed line side as well, that would be great. And then the second question, just regarding your 5G network plan. So on Slide 5, you're laying out your ambition to have full coverage by 2025. I think Deutsche Telekom is saying they'll have 2/3 of the population covered by the end of this year. So do you see any rationale to accelerate your 5G rollout? And if you were to do that, is the constricting factor the CapEx budget you have in place? Or is it more of a technical issue and you're just not able to speed up the 5G upgrades?
Thanks, Josh, for your questions. On the first one, we clearly see that the VDSL currently in the portfolio that we have now is the winning technology. So we clearly see high demand on the 100 product mainly. The 250, and there has been recently a study that only 8% of broadband households have speeds of 250 and higher, so 8% of 42 million. But we clearly see an increase in the up-sell to the speed part. Particular product is clearly the 100 MB in these days. And we are well positioned because we could offer all these speeds with all available technologies. I think this is really very important now, all that the complete technology-agnostic propositions will be in the killer speeds that are currently being taken by customers available. But we could clearly also go to the higher speeds that we have secured with our wholesale contracts. On the 5G rollout, I think despite a lot of marketing around coverage, I think it's important not to forget the customer and also see a demand-driven rollout. We clearly see demand in cities where we have high mobile data growth and so also usage-driven, so in order to offload capacity. Most of the rollouts that you mentioned is driven by DSS. So we have started with a 3.6-gigahertz rollout. We will catch up next year heavily. And also we'll have at least 40% of coverage covered by 5G, supported by DSS in a combination with 3.6 gigahertz in cities. So from our perspective, while we can use existing sites and towers that we built on the nationwide rollout, so we benefit from the 4G nationwide coverage, we will benefit by -- once we roll out 5G, we will clearly be significantly faster. I think we started 4G 10 years ago in 2010. And it took us nearly 10 years to get all players to nationwide coverage. I think on the backbone and the sites that we already built, I think it will only take us 5 years now to get to nationwide. So I think this is an improvement by 5 years. And I think the customer speed and the customer demand is driving our rollout.
Next question is from the line of Frederic Boulan from Bank of America.
So just to come back on the Huawei discussion, if you can update us on what is the timeline from the German government. And what is your current base case in terms of what they will announce? And if you can maybe explore the impact on your business if we see more stringent measures. I mean I guess you've seen what Sweden has said recently. And equally, on the previous question on the technological risk, if you think that Huawei will not be a suitable vendor on a 2- to 3-year view, if you can kind of run through as well what the impact would be on your business to switch provider.
Thank you. And very briefly on the timeline, so we expect first results from the certification already this year after U.S. elections. And on the impact on us, as said, on core network, we're in the normal renewal cycle. We expect also Nokia to be certified. 4G is not part of this equation. And also on the 4G equipment we have, we see forward-looking as the capability to deliver. So the key question is would we need in case an additional 5G RAN vendor or not. And this is under evaluation. And as said, we only have deployed a few couple of couple of hundred sites with Chinese vendors on 5G. So before we accelerate beginning of next year, we clearly should have clarity. So we wouldn't expect any additional financial impact in whatever direction the discussion is going.
The next question is from the line of Steve Malcolm from Redburn.
I just want to come back to the partner revenues because I think we're probably a little confused as to how you -- what your guidance baked and the 1&1 Drillisch baked in. So can you just confirm that your guidance -- how you set your guidance, was it based on the new pricing from the 1st of July? Did you anticipate any NRA being signed this year? And if you do sign an NRA before the end of the year, will that have any retrospective impact on the numbers you report in Q3 and potentially Q4? And maybe just one quick one to add on, do you think it makes sense to guide on OIBDA going forward, given the sort of growing lease costs you'll face with the new towers deal? It strikes me as being a somewhat irrelevant number.
Your partner revenue question, so let me make one thing clear. This is one partner in our overall portfolio that we are always discussing about. And of course, our guidance is made on all of the elements, both our own revenues, our own contribution of own customers and, of course, the according partners. We expect no impact from a potential national roaming agreement on our guidance, neither in the positive nor in the negative direction. And the detail -- this question in the terms of times, I would recommend to follow up with the IR team later on or in our call on Friday once we have more time because this needs more attention and more time.
Malcolm, we have to move on. Can you give us a call later on? Thank you.
The next question is from the line of Andrew Lee from Goldman Sachs.
Just a question -- another question on CapEx, so just on the timing or the phasing of your CapEx. So what we've seen, the difficulties in rolling out this year in terms of the 5G network, does that just simply delay your 2-year CapEx plans by a year? Just any kind of comments you could give around timing that you can right now would be really helpful.
Let me take the CapEx question. Yes, it's right that due to COVID-19, we see some delays in the investment program that we have announced. However, we still think that the overall envelope of our strategy is suitable. Markus said, there's no change in strategy. And so there is also, from the overall envelope, no change in terms of investment profile. It might, as you rightly mentioned, be somehow delayed into the later years. We will, of course, now bring all the bits and pieces together for that one. And this could be also something that we then clarify further in our update in December and make it more concrete. But yes, investment envelope unchanged. But some delays are foreseeable due to the rollout that we have achieved this year.
The next question is from the line of Mathieu Robilliard from Barclays.
Just a quick follow-up on the NAR agreement -- sorry, NRA agreement with Drillisch. You said a bit earlier that if you were to sign that deal with Drillisch, you would have revenue secured until 2025 in any case. I'm not sure I get that right. Because my understanding was that if they go for a network build-out, after a limited number of years, they actually move out of roaming gradually in some regions. And so I would have assumed that the revenues start to fall before 2025. Maybe if you could clarify that.
We have the 20% expansion on the MBA until mid of 2025. Let's see how long an NRA agreement would be. I think this is confidential, we can only share together once we have agreed on an agreement with the partner. And from that perspective, let's not forget, the roaming -- the traffic is increasing. So overall, we have a base case. And from our perspective, the base case will be met. So we would not see significant changes going forward, even in observation of network traffic.
The last question is from the line of Mr. James Ratzer from New Street Research.
Yes. The question I just had to come back on revenue growth, please. I mean given the comments you've made around partner revenues and tying that to what Drillisch have said, it would seem to imply that your partner revenues from other MVNOs, other than Drillisch, is coming down at the moment. Is that a fair assumption? And secondly, just if your partner revenue comments you're making -- based on the partner revenue comments you're making, it implies there's a pickup in the own brand service revenue growth. But trying to tally that with the fact that the ARPU has only improved by 30 basis points sequentially, in fact, your postpaid year-on-year customer numbers, actually the rate of growth is slowing slightly. So is there some other source of revenue that's not being picked up in the ARPU trends that is driving that recovery you're talking about in Q3 own brand revenues as well?
Yes. So let me take your question. It's right. And we have always said that this is the integral part of our strategy that we are focusing on our own brand performance. I can confirm that the partner performance overall for all partners in our portfolio is relatively stable over the last quarters. And of course, I do not comment on our specific partners in more detail. I think with regards to the own brand, we see a positive trajectory Q-over-Q. So you see that our ARPUs are increasing. We see also next to the consumer business, which is, of course, the most important driver, but we see also that our B2B business is kicking in step-by-step. It's also part of the strategy that we have announced now that we have the service and the network in place. So from an overall trajectory, we are very pleased with the development that we see amongst our own brands.
How much -- how big is your B2B revenue then that are not included within ARPU?
Sorry, James, can we follow up? We have 5 minutes over already. I think Markus answered the question very well. I appreciate everyone's discipline on the call so that we were able to go through a very long list of questions, which we appreciate. There's a lot of interest in the name. So please follow up with any more details which you might require with us in the IR department. Really appreciate it, and have a good day. Thank you so much. Take care.