May 13, 2015
Executives
Tim Höttges - Chairman of Management Board and Chief Executive Officer Thomas Dannenfeldt - Chief Financial Officer and Board Member for Finance
Operator
Ladies and gentlemen, a very good morning from Bonn and welcome to our conference call. Deutsche Telekom will be presenting its quarterly figures to you today.
But before I start, I would like to point out our disclaimer that we just showed and that you might want to take into account. Now this morning, Deutsche Telekom's CFO, Thomas Dannenfeldt and the Chairman of the Board of Management, Tim Höttges will be giving you the information and we're starting with the CEO, Tim Höttges.
Tim Höttges
A very good morning to you ladies and gentlemen. I'd also like to warmly welcome you to our conference call on the first quarter.
Let me clear right at the start, you've seen the figures for yourselves. We're delighted to present a very good first quarter to you today and we're glad that our strategy has proving to be the right one.
We have built our networks in order to offer even more customers better and where possible integrated services. To do this, we have substantially increased our investments yet again.
In a moment, we'll be talking about the relevant growth figures. We see that, we meet with high demand, wherever we offer fiber optic or hybrid lines.
We see that our LTE rollout goes hand-in-hand with a further increase in smartphone usage and we see that, our integrated office meet our customers need for all in one solutions from a single source. As a consequence, this focus on customer benefit also means successful business and good financial figures which we're able to present to you today.
They feature significant organic growth in terms of both revenue and earnings. And this quite obviously is news that, any CEO would be happy to announce, I guess and I'm very pleased with this result indeed.
Let me start right at the beginning, with the basis for our business which our networks and our services for our customers. We invested the great deal more in the first three months of the year than in the prior year period in 2014 and that was pretty much the same message last year.
Cash CapEx, before spectrum payments increased by more than one fifth, 25% to EUR 2.5 billion. We invested EUR 2.5 billion in the first quarter alone and particularly in Germany.
We massively stepped up our investments. They rose in the first quarter by more than a third, to around EUR 950 million.
So we do what we said, we are investing a great deal of money in our infrastructure particularly the broadband business. You're familiar with our main investment [indiscernible] network build out to increase the population coverage and transmission rates in both mobile and fixed network communications.
We've always been strong in mobile. LTE, optical fiber and vectoring all that are the key terms here.
Then there is, the second very important step which is network transformation towards one overarching technical language, which is all IP and again we have made a lot of headway here. We have raised the proportion of optical fiber households in Germany by another 8 percentage points to 46%.
This fiber optic and vectoring rollout is giving a powerful thrust to our fixed network business. Fiber optic lines increased by 463,000 to a total of just short of 3 million.
This growth is therefore more than double that, recorded in the same period of last year. And it was particularly strong in our branded business, within increase of 295,000.
And this means, that we have also sold a lot of lines through the wholesale channel based on our contingent model and this means, that we recorded an increased 76,000 broadband lines in the quarter, which is a very promising upward trend following a year that featured zero growth in broadband lines. We have quoted a growth target of 100,000 for the full year and that was also communicated to you.
In view of the good first quarter, you might expect us to raise this forecasted quote a new target. In our view, however it is too early to do this after only three months.
But we anticipate that, we will achieve more than the 100,000 broadband customer additions we have quoted to-date. As you can tell, ladies and gentlemen broadband counts for our customers.
But it does not always economical viable to rely on the fixed network alone. We therefore offer our hybrid line especially for our customers in rural areas as part of our integrated network strategy and an innovation that you only get from Deutsche Telekom.
In conjunction with LTE, we can boost transmission rates, in places where the fixed network lines only provides relatively low bandwidths. As a combination of these two technologies, we can offer excellent transmission rates also in rural areas.
We put some 12,000 hybrid lines into service over an extremely short period. I'm very confident in this area.
I think, we give our customers what they want offering excellent broadband coverage across the board. Another important component is MagentaEins.
Niek Jan van Damme who is responsible for our Germany business will be providing information about our new convergence offers and a press meeting next Monday and I don't intent to reveal the contents here. But let me just say that MagentaEins has proved a smashing success.
It's been really successful with an increase of 400,000 customers for the quarter. Customers like to buy a product from a single source offering them all the advantages they can get from Telekom as part of a package deal.
This strong trend in our fixed network product portfolio has resulted in yet another substantial reduction in line losses, which were down 39% compared with the same period in 2014. The lowest figures for over 10 years.
In mobile communications, we continue to rollout LTE. Our network, which by the way recently won all key ratings now covers 82% of the population compared with 74% one year before.
This rollout and the excellent network quality are much appreciated by our customers. I always like to have my son's friends around at home.
They sit around my place and what they say about Deutsche Telekom is just excellent, they love it. The number of customers using an LTE enabled device with an LTE rate plan increased by 85% within the year to 6.4 million.
Ladies and gentlemen, in prior quarters we reported that IP migration does not always run smoothly. Some of our customers needed additional support and last year and the first half of last year.
More precisely, we were also facing one major network blackout that we responded to this by increasing our staff above all in the area of technology; our technical customer service has been expanded in order to be able to meet our customer promise. Compared with a year ago, we now have 2,000 new full-time jobs year-on-year and order to offer the best possible service and in order to manage and safeguard all IP migration across the board.
In the first quarter, the number of switches to all IP have gone up considerably and we have defined relevant service parameters and I'm happy to say that, all our key performance indicators are back on track. Ladies and gentlemen, this focus on customer benefit as the basis for our business success has been systematically implemented in past quarter, in particular at our U.S.
subsidiary T-Mobile U.S. the combination of LTE network expansion to a population coverage of most recently 275 million and the various so called un-carrier initiatives have led to major customer growth there.
T-Mobile U.S. published its figures a few days ago.
Before Thomas Dannenfeldt explains the financial figures under IFRS accounting. I would therefore like to emphasize just one especially notable aspect and that is the growth in the U.S.
In the first quarter, T-Mobile U.S. gained a total of 1 million new branded postpaid phone customers.
On the other side, the three other national providers lost a total of more than 600,000 of these particularly high value customers. And I think these figures speak for themselves.
In the Europe segment, we continue to make progress with our transformation program over 40% of our subsidiaries lines have now been migrated to IP. The transformation is already complete in two countries Macedonia and Slovakia with two others, Croatia and Montenegro.
Due to follow suit this year. So you can see that, the strategy we are pursuing in Germany also applies to Europe overall.
And the same holds to for the LTE networks, which now cover 53% of the population in countries in which we offer mobile communication services. One year ago, the figure was 38%, in absolute numbers this means growth of over 19 million residence who can use our high speed mobile communication networks.
A good 6.2 million households have access to our fiber optic lines likewise a major increase year-on-year and again, we are investing more here than in the past. We see positive demand affects above all in the broadband and TV businesses.
Both areas in which we greatly increased our customer base, revenue and earnings continue to improve as well. This is attributable to customer growth, progress in the transformations of revenue towards our growth areas and the integration of GTS in the business customers segment.
At T-Systems, we see improvements in the revenue trend and earnings margin in the so called market unit. So this does not refer to internal IT, it refers to from end unit.
Our restructuring program is progressing well. Ladies and gentlemen, these developments led to very gratifying financial figures in the first quarter.
The Group's net revenue increased by 13.1%. Quite obviously, we also benefited from the strong dollar.
In mere currency translation effect, that is not generated in our operational business fair enough. We were lucky, but even adjusted for this exchange rate effect.
We still achieved organic growth. When you look at organic growth and you will find that it stood at 4.7% in net revenue and compared with the previous quarters, this is very positive development.
We see the same trend in adjusted EBITDA. Where part of the reported 11% increase for the quarter is attributable to exchange rate fluctuations, but nonetheless in organic terms.
We also achieved a respectable increase of 5.6%. I already mentioned the substantial increase in our investments.
I deeply convince that this is the right thing for our customers as well. Accordingly, the free cash flow of EUR 0.9 billion was around 12% lower than in the same period last year.
However, it is still within the range that we have announced at the Capital Markets Day and it is still within what we had planned. Net profits stood at EUR 0.8 billion in the first quarter, this is below the prior year figure of EUR 1.8 billion, which however included as a major factor the sale of our 70% stake in the Scout Group accounting for around EUR 1.7 billion back then.
Calculated on a comparable basis, net profit adjusted for special factors increased by 75% to over EUR 1 billion and this is the number that we should be focusing on because this is what the number that reflects the operating trend and it is a very positive trend. Adjusted EBITDA and net profit both include a positive non-recurring affect of EUR 175 million.
Which Thomas Dannenfeldt will be detailing in a moment. I just want to say here, that we explicitly omit this positive non-recurring effect to the tune of EUR 175 million from our forecast.
Ladies and gentlemen, these figures are both gratifying and impressive confirmation of the fact that our strategy applies the right levers in investment and product planning. By focusing on the needs of our customers.
We achieve excellent business success. Our strategy is effective, our growth profile is visible and therefore, we are happy to confirm our guidance for the full year.
In other words, adjusted EBITDA of around EUR 18.3 billion based on constant exchange rates and free cash flow of around EUR 4.3 billion. More about this now, from Thomas Dannenfeldt who will explain our financial figures to you in details.
Thanks a lot for listening so far.
Thomas Dannenfeldt
Yes, thank you very much and good morning for my part ladies and gentlemen. I would like to welcome you to our presentation's day.
Let me follow-on directly from Tim Höttges speech. Below the line adjusted net profits stood at a good EUR 1 billion.
This figure as well as the adjusted EBITDA figure of EUR 4.6 billion includes a positive one-time effect of around EUR 175 million attributable to a payment resulting from an agreement to settle legal proceedings. Since, it's a one-time effect and not a special factor.
This amount is included in the respective adjusted figures. This effect is not included in free cash flow for the first quarter because there is not yet been an inflow of cash.
We're mentioning this point expressly to make it clear that our guidance for the full year is based on earnings excluding this one-time effect. We expect adjusted EBITDA for the full year of some EUR 18.3 billion based on constant exchange rates.
This additional factor effectively runs in parallel. The same effectively runs parallel to this also applies to our free cash flow target of around EUR 4.3 billion.
For the sake of completeness, please note that following the agreement with the BT Group. The reclassification of our joint venture EE in the United Kingdom has held for sale.
Had a positive impact of around EUR 280 million on adjusted and reported net profit. Having stated this, I would like to take you through the development in the individual segments.
In the Germany segment, we held EBITDA margin close to our target value for the full year of 40% at 39.6%. Adjusted EBITDA declined slightly by 0.9%, while revenues grew by 1.9%.
This was attributable to an increase of around 3.6% in the adjusted cost base. We picked up the pace again in converting our network to IP and migrated more than 1 million lines in the first quarter.
This is two-thirds more than in the prior year quarter. In addition, we forged ahead with our integrated network build out which is clearly reflected in the increased investments.
Of course this also creates increased work volumes for service in order to maintain our high quality standards. We increased the workforce by more than 2,000 FTE's compared with the prior year period.
This caused additional money, invested wisely in the best customer service in the industry. Tim Höttges has already named the key cornerstones for strong development in the German fix network.
Let me add two more facts that demonstrate how our integrated network strategy and the issues of cross selling and upselling are increasingly running through our business. As of the end of the quarter, we reached 46% of households with a fiber optic line.
That is almost 4 million more households than in the previous year. The increase in fiber optic based lines and rising bandwidths also further increase the number of entertained customers, which grew by 74,000 in the quarter and now stands at more than 2.5 million.
In mobile communications, we continue the trend of the previous quarters and one additional market shares in service revenues. With an increase of 2.8%, we were around 1.5 percentage points ahead of the market trend as we expected it.
Overall, our customer base increased by 289,000 contract customers in the first quarter of 2015. The breakdown of branded customers and customers served by service providers was significantly impacted by the reallocation of a net 288,000 customers.
Our LTE network now covers 82% of the population, 8 percentage points more than a year ago and this is paying off. 6.4 million customers are currently using an LTE enabled device with an LTE rate plan.
This is 85% more than a year ago. Thanks to another strong quarter of smartphone sales, the percentage of consumers under the Telekom and Congstar brands with a Smartphone increased further to 78% up 4 percentage points against the end of 2014.
These figures clearly speak for themselves. Let's turn to our U.S.
business. T-Mobile U.S.
is the U.S. provider with the strongest customer revenue and earnings growth.
The customer base grew by 7.8 million year-on-year. At the same time, retention of branded postpaid phone customers improved further with the churn rate reaching a record low for the company of 1.3% in the first quarter.
This trend more than offset the decline in average monthly revenues from postpaid phone customer's service revenues increased by 9.1% in the first quarter. Earnings increased substantially, adjusted EBITDA rose by 18.4%, all figures are prepared on the basis of IFRS and presented in US Dollars and that's exclude exchange rate effects.
As you know, T-Mobile U.S. has just raised its full year targets for customer acquisition to between 3 million and 3.5 million branded postpaid customers up from the previous guidance of 2.2 million to 3.2 million.
The earnings guidance remains unchanged. Even at the lower end of the target range, this would mean growth of more than 20% in the full year.
In other words, the earnings trend should pick up even more speed compared with the first quarter as the year progresses. This brings me to the Europe segment.
Here the developments of revenue and earnings continue to improve slightly against the last figures presented. Reported revenue fell only slightly be 0.6% after a decrease of 3.4% in the prior quarter.
The consolidation of GGS, had a positive effect here. Adjusted EBITDA fell 1.9%.
in organic terms, it decreased by 3.8%. This is also an improvement compared with the decline of 4.7% in the last three months of 2014.
Thus we recorded improvements in both the reported and organic revenue trends. This is thanks in part to the continuation of our revenue transformation towards growth areas.
Who's share of total revenues increased by 3 percentage points year-on-year. Take for example, mobile data business which accounts for 22% of all mobile revenues.
This is also 3 percentage points more than in the previous year. Year-on-year mobile data revenues increased by 10% more than offsetting the decline in revenue from traditional text messages.
Increasing the number of LTE base stations by 144% to 16,500 and thereby increasing network coverage year-on-year from just under 50 million to around 70 million therefore had a positive impact. At the same time, we continue to drive forward the migration of the networks to all IP.
Two countries have already completed the migration to IP, two more are expected to follow in 2015. Migrated lines now account for 40.4% of all lines, 11 percentage points more than in the previous year.
Investments produce rising customer numbers. We recorded growth in broadband lines of 3.9% compared with the first quarter of 2014 to 5.3 million and growth in TV customers of 2.8% to 3.7 million.
In mobile communications, we increased the number of contract customers by 24,000. Now to T-Systems, revenue for the quarter stood at EUR 2 billion adjusted EBITDA at 154 million.
The market unit increased its revenue slightly by 1% to EUR 1.7 billion. Order entry declines in the first quarter as expected by 9.1% to just under EUR 1.3 billion.
As this is well known, this is due to our communicated market approach of applying strict to profitability criteria. But restructuring also means addressing areas of opportunity more strongly.
One example is the growth area of cloud services in which revenue increased by some 20% in the first quarter. We're seeing the first positive results in the markets unit.
Adjusted EBIT margin which increased to 2.0% compared with minus 0.4% in the first quarter of 2014. To close, let's take a look at our financials and in particular at the development of free cash flow and adjusted net profit.
Based on free cash flow of EUR 865 million in the first quarter. We confirmed our guidance for the year around EUR 4.3 billion.
Why then, you'll ask me is Deutsche Telekom not raising its target. If it plans record additional income of EUR 175 million.
One example of a negative one-time effect in the first quarter is the payment that Slovak Telekom made in connection with the settlement of EU legal proceedings. This effect did not alter our guidance either.
And here you can see the increase in adjusted EBITDA of EUR 453 million which includes the described effect of EUR 175 million. The improvement in profit loss from financial activities of EUR 244 million relates to the changed accounting for our investments in EE, until now dividend payments from EE had been posted directly in the statement of financial position against the carrying amount of our share in the company.
As part of the equity method accounting, after agreeing together with Orange on the sale of the UK company, EE. The investment was reclassified is held for sale and the carrying amount of the investment was in the fact frozen.
As the result, the EE dividend payments are now recognized through profit or loss and profit in loss from financial activities. Hence this factor now affects net profit, but not EBITDA.
Net debt increased by EUR 3.8 billion compared with the end of 2014. A key factor here was the expenses for spectrum especially in the United States of EUR 1.9 billion.
There is also a technical factor of a similar magnitude which resulted entirely from the weak Euro and also increased debt by EUR 1.9 billion. We've seen this issue in the past.
It relates to the translation of financial liabilities mainly held by T-Mobile U.S. in denominated in U.S.
Dollars at the exchange rate as of the reporting date March 31, 2015 and in the same connection, the yellow light for the ratio of net debt to adjusted EBITDA as shown on the net chart, which indicates our balance sheet ratios and that's also related to this effect. The ratio stood at 2.6 in the first quarter compared with 2.2 a year earlier.
Net debt rose by around EUR 8 billion year-on-year. Around EUR 3.7 billion of this relates to the affect of translating financial liabilities denominated in U.S.
Dollars. In other words, the Euro exchange rate as of the reporting date declined by around 22% year-on-year, which impacted on in full on the currency translation of financial liabilities.
The weakness in the Euro only began to affect the other parameter in the ratio adjusted EBITDA from around the end of November, 2014. In another works, the ratio is of substantially affected by the fact that the exchange rate effect has a very lagged impact on one parameter namely adjusted EBITDA.
If we fully adjusted the exchange rates and the adjusted EBITDA trends to those in the statement of financial position. The ratio would stand slightly below 2.5.
For the second quarter, we expect the ratio of net debt to adjusted EBITDA to remain above 2.5 due to the described lag effect and the dividend payment. In the second half of the year, however we expect it to drop back into our target core AGR [ph].
This is partly because the lag effect from the calculation will wear off and partly because the earnings forecast for T-Mobile U.S. suggest that the growth rate of the first three months will accelerate even further as the year progresses.
In summary, owing in part to non-operational reasons. One of the four ratios of our financial strategy is slightly outside the target quarter set by us.
Of course, we will keep an eye on it and we will know how to evaluate and with that, I'd like to hand you back to Tim Höttges.
Tim Höttges
Thank you. Ladies and gentlemen.
We continue implementing our plans at Telekom. Pretty much in line with what we announced at our Capital Markets Day and I think, in the first quarter we've done a good job across all segments and therefore, I would say that we've had a really good quarter.
Let me remind you of the core elements. First of all, in Germany and our European subsidiaries.
We want to be the number one integrated provider and that is part of our strategy and it is most noticeable in our MagentaEins product. Secondly, we are investing more in networks in order to assure the best customer experience.
Increasing network coverage in LTE and optical fiber and the excellent ratings that we repeatedly receive for the quality of our network, all speak for themselves. Thirdly, we're driving the IP transformation and as you can tell.
We are the leading provider in Europe, when it comes to switching over to all IP, as an overarching technical language. Fourthly, transformation goes hand-in-hand with disciplined cost management.
Which to my mind is reflected in the earnings trend for the first quarter and by the way, higher expenditure in Germany is not a contradiction here. Since, we must always keep an eye on service quality.
Fifthly, in the first three months of 2015. We showed that, we have made a great deal of progress in reaching the forecast growth in ROCE revenue adjusted EBITDA and free cash flow and I hope that this will create some confidence out there in the markets and this is why, we announced our ambitions for the years up to and including 2018 and promise to allow our shareholders to participate in the expected positive development.
This will continue to be part of our focus. So these are our goals, they are very clear cut.
We are extremely confident and we will now be approaching the next coming quarters, with a great deal of confidence and we're happy to take your questions now. Thank you very much.
Now couple of remarks on the Q&A session.
Operator
[Operator Instructions] first question. Mr.
[indiscernible] from Dow Jones.
Unidentified Analyst
Good morning, gentlemen. I've got three questions.
First of all in terms of net debt, you said that you will continue to keep an eye on net debt. Now, is there a threat.
A realistic threat that you're rating may actually go down meaning that you would have to pay higher interest rates? Secondly, Mr.
Höttges, it's reassuring what you told us about this situation in the U.S. against this backdrop though, I was just wondering whether it still makes sense to even consider a disposal of your U.S.
business. Don't you think, it might be better to keep this business?
And the third question is, can you confirm that you're and going to buy or intent to buy a 49% in Slovak Telekom for EUR 900 million?
Tim Höttges
Well, good morning. So I don't know how you do it, but you're always the first person to raise a question here.
Anyway, let me start with a question on Slovakia. We've always said that we're interested in acquiring minority stakes based on favourable terms.
The Slovak Government has withdrawn its plans to do an IPO. Whether or not, this will lead to a transaction we don't know, at this point in time.
It would be premature to comment on that. Having said that, obviously the Slovak Telekom is part of the very core of our strategy.
It is also a company that is part of our European map if you will, but it would be premature to speculate about any possible transaction or not. Secondly, about the U.S.
yes it's true that we have a fantastic management in the U.S. Our strategy helps us to stand apart, vis-à-vis customers, customer growth is unprecedented and unrivalled and by the way, all that in a phase where other providers need to use Christmas as a major promotion and sometimes the first quarter tends to only post sluggish growth, not so at T-Mobile U.S.
churn is at an all time low in the history of T-Mobile U.S. and you're quite right.
I think it's quite impressive what our U.S. American team is doing there right now.
We do not feel that we are under pressure at all to sell our U.S. business.
Our strategy is de-risking, self-funding and key making [ph] asset. These are the three elements of our strategy for the U.S.
and we are very consistent here. The company has refinanced itself, we have adequate liquidity and we are well prepared for a low band spectrum auction that is likely to take place in the first half of 2016 and will be authorized by the FCC.
Thirdly, Deutsche Telekom doesn't have to fund the further rollout of the LTE network in the U.S. that is happening anyway there.
And towards the end of the year, we will certainly improve the network rollout further to ultimately include 300 million in the U.S. and we always feel obliged to pursue the best value strategy vis-à-vis our shareholders.
If any opportunities were to come up in the U.S., that help us to create even more value than we're creating right now, then and we've always been quite clear about that, we will at least consider such options. But we're not facing any time pressure and it certainly would not be the right thing to speculate about it.
Right now.
Thomas Dannenfeldt
Good morning, Mr. Porshat [ph].
You also asked about net debt. There are four thing, I would like to say about that.
First of all, at the Capital Markets Day in late February. We talked about our expectations and we said back then, that in 2015 in particular we will be scratching the 2.5 mark and therefore, that should not come as a surprise.
Secondly, as far as refinancing is concerned. Even if there were a change in our rating, it would not have a major bearing on our interest payments.
I'm not saying that I wouldn't care, of course I would if it were to materialize, but it wouldn't have a major effect. And we also said, that we expect to be back in the comfort zone once the situation of the currency situation Euro against the Dollar has eased.
And then you asked about the rating agencies, well we recently were in talks with rating agencies very constructive talks, I shall say and we communicated a clear cut profile. Quite obviously a company a such as Deutsche Telekom enjoys a very stable rating.
And therefore, I'm not worried about the situation here at all. We also have a very comfortable situation in terms of credit default swaps.
Peter [ph] [indiscernible] next question, please.
Unidentified Analyst
Good morning, I have a couple of questions. First of all on the situation in Germany.
The last frequency auction in Germany took place in 2010 looking back, would you say it was a successful auction. You spent EUR 1.4 billion back then, has this investment paid off?
And we're now expecting another spectrum auction, I think May or June. Do you think, you'll have to spend about the same kind of money or do we have to anticipate a very expensive auction there are various theories circulating around that?
Unidentified Company Representative
I'll be happy to take this question. First of all, looking back to the last auction in 2010.
We would say, yes it was a successful auction that was five years ago, but it made it possible for us to acquire the spectrum we needed back then in order to provide our customers with excellent service. I think by now, everybody in Germany has understood that a good reliable network with higher transmission rates is indispensable.
Anyone, who wants to have that should choose Deutsche Telekom and of course, this is also based on the spectrum that we have and therefore, with hindsight, we can yes the last auction in 2010 was the right thing to do. The next auction will probably be quite similar.
The regulator has chosen an adequate set up. There is no discrimination at all.
Yes, entry rates are much higher than in 2010. There is one frequency cap to 900.
No player will be getting more than two times 15 megahertz. I think it's a reasonable set up, but it certainly wouldn't make any sense at all to speculate about the outcome of the next auction now.
Operator
Ms [Indiscernible] please ask your question.
Unidentified Analyst
You said that, the mobile data revenue figures have increased to such an extent that they've over compensated declines in the classical area. Is this in tune with the times because is this really in tune with the times?
Unidentified Company Representative
Good morning, Ms. [indiscernible] first of all, yes that was very successful how we performed in mobile in the first quarter.
We had a great growth in service revenue at 2.8% and the data revenue was up 9% and so, that's correct. But what remains is that, I always I'm in favor of fair competition and fair competition means that we're obligated to provide inoperability and fair competition means that, we have to provide text messaging services to Vodafone and others and we have to provide for emergency calls and other services that cost a lot of money.
And why don't other over the top providers do this? For example, who offer the same services through internet protocols on top of this usage of data.
Which are financed by business models and if I look at the decline in text messaging revenue of 19%. You see the affect of free of charge over the top services and if we want to maintain our investment capabilities in our industry and we build very expensive networks that makes it possible.
We're the ones that make it possible in the first place through this infrastructure for these internet services to function and I think that, as a result there should be, other company should be required to take part in these cost too. So I'm lobbying only for fair competition really and free options for Telekom as well.
But at the same time, my pragmatic side says, Europe and Germany. We're not moving in the direction of less regulation.
We're moving in a direction of more regulation. But we're just urging that all players be treated equally in this.
Operator
[Indiscernible] please ask your question
Unidentified Analyst
Good morning, on my part. I've a couple of questions.
The first one is, whether you expect this dynamic development in the first quarter to continue in the second quarter and how did the first few weeks of the second quarter look, so far and secondly you said, you have assigned 2,000 or higher 2,000 additional workers for the IP service. But on the whole, your headcount is stagnant is staying the same.
Did these 2,000 come from within the group or did you hire them from outside? How many people are employed in this area altogether and the other question is, how far of talks proceeded with employees regarding the reduction in the training ratio in Germany.
Unidentified Company Representative
So there is three questions actually you asked there. The first one, this momentum from the first quarter is continuing.
When you see the first few weeks in the second quarter also developing very well and not only in Germany but all the markets we're operating in and that's very encouraging. The second question you asked, the additional staff for the IP switchover.
Their internal staff partly trainees but also temporary agreements that we have concluded with service providers and also staff to meet the high demand, which the high demands in requirements we have because of the IP switchover. So in the technical area, we're expanding our customer service to cope with this switchover to IP and then the next question was the training ratio.
Let me note the following, our industry is changing quicker than any others. It's got an incredible pace of change and this also means changing requirements for the next generation of persons who will be managing this company and who will be working at this company, just to take an example.
Security experts software, software experts for cloud services, our networks and our applications are much more driven by and will be driven much more by software in the future and that means, that we have to adjust our training programs to meet these new requirements and secondly, I want trainees at our company to also have realistic chances of being taken on permanently at our company after they complete their training. And thirdly, the question needs to be raised.
Is the type of training we have today in tune with the times or should we modernize it? And it's true, that we haven't an overall training concept and strategy which we're discussing on how to adjust our training programs to this dynamic industry.
We train much higher than the average rate for the industry as a whole than and we have a much higher "ratio" than for all other companies in the branch. And another question is, how many people do we want to train and in what professions do we want to train people in and we will be continuing to analyze this, but I can say this.
We are keenly aware of our responsibility to society at Deutsche Telekom and we will remain one of the biggest training opportunities in Germany.
Operator
[Indiscernible], please ask your questions. Mr.
Coveleski [ph].
Unidentified Analyst
Yes, my first question is, what do you mean with fiber optic cable? You said, we have 46% fiber optic in Germany and you mentioned the number of connections as well.
The next question is, [indiscernible] has announced that they will be assigning priority to fiber optics in rural areas. What is your opinion on this, do you think you will do this yourself or will you find a compromise there?
Another question because of EUR 246 per customer to keep customers. Does that relate to the iPhone will that remain that way?
Unidentified Company Representative
Mr. Coveleski [ph], thank you for your questions.
I'd like to answer as follows. Germany needs bandwidth.
We need to improve bandwidth available to our customers in Germany as quickly as possible not only in mobile. But I have the opinion that mobile is fiber optic because you can't attain high bandwidth in this area and when I refer to fiber optic, I'm talking about the fixed network.
We want to have high bandwidths throughout the country as quickly as possible and that's why, the fiber optics were first attached to the grey connecting boxes and then we had copper as well. And we built new boxes to connect new customers and that increases bandwidth as well.
The closer they are to house and the greater the cushioning on the copper, the more the bandwidth we achieve. So what we're doing is, we're pushing fiber optics in the public area as much as possible and that allows us to achieve higher bandwidth from a lot of customers more quickly.
VDSL 50 megabits. We're using that, we're achieving 150 megabits with vectoring.
We're with vectoring plus, we're achieving 250 megabit and I just came back from Israel, where I looked at companies who are using line cards to the grey boxes to achieve more than 150 megabits. On top of this, there is LTE on the hybrid routers and you see, we have a bandwidth as a result of all this that is nearing where we want to be.
We want our customers to have bandwidth fast and I'm talking about 100 megabits to 200 megabits. Deutsche Telekom can achieve this with over 80% of the German market and on top of this.
Through the central offices and the main distributing points. We're installing vectoring and if we do this, we can also serve 6 million additional customers with high bandwidth very quickly and then Deutsche Telekom would have achieved 80% of the expansion targets for Germany relating to digital expansion and bandwidths, which are significantly greater than 50 megabits.
You had a question about higher cost of customer, retaining customers. We've been communicating this very clearly for some time now in the market, we're in and it's very important to be very good with customer loyalty and customer service and you always have to keep in that in mind and not just focus on new customers.
That's a pivotal point for us. So it's not surprising that, we are investing a lot more in this area of customer retention.
And secondly, you see a trend and the figures not in just Q1, but Q2 year-on-year that showed that the amount we spent per customer to retain them is increasing. It's because customers are willing to pay significantly more, if they get significantly more, they'll pay more for terminal devices.
But they want more network, more bandwidth and this is reflected in the cost per customer. But also in greater revenue, which we generate as a result.
It's important to also understand in this connection that the relationship between the investment per customer and revenue will continue to improve. So we're financially speaking better off because of this greater investment.
So it's actually a very positive situation when customers recognize that they're getting better services and premium value products than they're prepared to spend more money on their tariff and their devices.
Operator
There are no further questions. [Operator Instructions].
Mr. [indiscernible] from Dow Jones.
Unidentified Analyst
Yes, I have a brief follow-up question on net debt. If the amount goes down in relative terms.
Do you also expect net debt to decrease in absolute numbers or are you expecting a higher adjusted EBITDA meaning that, this will help you to drop below the 2.5 mark?
Unidentified Company Representative
Well, your first question was are we talking about an absolute decrease or a relative decrease, it's a relative decrease. There is currency translation effect between Euro and U.S.
Dollar and then we have the growth situation in the U.S. effecting the profile and let me repeat what I said at the Capital Markets Day in February.
This is a very positive development. Some three years ago in 2012, we were saying at the Capital Markets Day that A minus 2, BBB is the range that we see ourselves in and there is no reason to get nervous about this situation here at all because we're still within that range.
Operator
Apparently there aren't any further questions at this point time. I would like to point out two additional events on Monday.
Telekom Deutsche will be holding a conference together with Claudia Nemat. The conference will be held in Berlin at around midday and I would also like to point out an event that will be held on Thursday and that is Deutsche Telekom's Shareholders Meeting.
Thank you very much for joining us this morning. I wish you a pleasant day.
Good bye.