Feb 19, 2020
Operator
Good afternoon and welcome to Deutsche Telekom's Conference Call. At our customers' request, this conference will be recorded and uploaded to the internet.
May I now hand over to Mr. Hannes Wittig.
Hannes Wittig
Yes. Good afternoon, everyone and welcome to our Full Year 2019 and halfway CMD Update Conference Call.
With me today are our CEO, Tim Hottges; and our CFO, Christian Illek. Tim will first go through his 2019 highlights and he will present the halfway updates since our 2018 CMD, and this will be followed by Christian, who will run through the quarter's financials.
After this we have time for Q&A. Before I hand over to Tim, please as always pay attention to our disclaimer, which you will find in the presentation.
And now it’s my pleasure to hand over to Tim.
Tim Hottges
Yes, thank you Hannes, and welcome also from my side. By the way before we start with my long speech, I want to say you know happy birthday because Deutsche Telekom is turning 25, and therefore we are celebrating our birthday.
Even our press conference today took place with a cake, so feel shared with a virtual cake today. But we've made two presents for us.
You know today, the first one is this, super performance which we had in 2019. And I think we will go into the numbers in very much detail.
We’re very proud about what we achieved. And the second one is about, the progress we made on the Sprint transaction.
And we see a light at the end of the tunnel, and we are now very confident that this deal is taking place with all the benefits this is going to have for us here at Deutsche Telekom. And even for Europe I think it's very important just having a company like Deutsche Telekom is able to be -- to come into the number one position in the U.S.
at one point in time. This is I think a historical day for us.
Now before I go into the detail, let me talk a little bit about what we're doing. As Hannes said, earlier we have a halfway update of our capital markets day and we just want to you know show you where we stand with the execution of that program, and what has been achieved so far, and how we looking for it on things, and therefore it's a little bit longer, more detailed and even you have seen we have made a special presentation for you.
I would start with some overviews charts, followed by the 2020 guidance, and then I go into the highlights of each of the segments. But please, there's much more details in this presentations about every single item we addressed at Capital Markets Day.
So please have a look into this document again, or discuss the topics with our investor relations team around, Hannes Let me start on page three, and on the left you can see what we call here the telecom flywheel. Investments are driving growth, customer growth and the customer growth with combined with efficiency is driving financial results and the financial results gives us the opportunity to do investments and the investments customer growth and the customer growth with the productivity is creating value.
So this is simply what we are doing over the last years, and step by step we are executing on the -- on the big game changes for our operations. So what were my highlights in 2019?
The first one, we completed two major, multi-year and by the way even multi-million investment programs in Germany. The one is our committed FTTC built out, almost 90% now of Germany covered low churn, and the second one is the All-IP migration, which we hear now formally declare accomplished.
There are certain smaller things on the B2B side, which are following, but nevertheless, the majority is done. And by the way, we're not talking about Germany, we're talking about seven markets in Europe, six of them are already fully IP.
And the last one is now following. We are ramping up 5G at a high space on both sides of the Atlantic.
By the way, for the first time in history, the U.S. team is ahead of AT&T and Verizon, because with our 600 megahertz spectrum we were able to deploy 5G in almost 200 million households already, which is ahead of the others.
We achieved another year of strong growth and financial growth, ahead of our capital markets targets. Look, sometimes you know -- I even you know I can't believe it.
But every year we have overachieved the main KPI's in this regards, and the segment contributions because we are not growing only in the U.S. we are growing in all segments.
The growth is confirmed by today's guidance. And very important because there were some concerns from our shareholders and investors.
We are back in our debt rating comfort zone customer, we'll talk about that later on. But you see, as promised, we are very safe in our BBB plus rating again, which is very important for us.
And as well you see later in the presentation, we also made good progress with regards to agility, obviously I thought, I'm always agile, but that's the new buzzword. But what I think more important you know the digitization is something where we did a digital health check, within the organization, as we called it, and trying to understand where we stand.
And the outcome is very encouraging. Honestly, I didn't know all the digitization efforts within this company and I am very impressed by the magnitude of this initiatives.
ESG, we are number one. And honestly speaking, remember I wasn't in Mexico, I even made it clear here earlier three years ago, you know we made, we started our sustainability and initiatives here within this company.
We made good progress and this one we included ESG into our corporate strategy. The strategy is more or less stable over the last year, but this is a new attempt that we even strengthen, that everybody thinks that way.
So we will have a big attempt at ESG going forward. But let's talk about that later.
And last not least, the biggest thing I ever think is the merger with Sprint. I -- if you don't have enough to do, which I can imagine, please have a read of the Decision Fund, Judge Marrero, the 179 pages.
I'm very impressed. I’m very impressed how he judged the situation, and he was overseeing the competition in this market, and I think he did a great assessment.
Very happy about you know the outcome of this process. So to page four of the U.S.
deal, what an incredible journey this has been. We started -- our business was almost dead.
And everybody told to sell it. It was shrinking.
Then the Uncarrier came. Team effort between the U.S.
and Germany with regard to investments and the Uncarrier strategy, huge investments almost 58 million billion into the assets over the years. The unprecedented turnaround, historical one.
And I'm maybe using this word for the second time, but you know that there hasn't been a turnaround like this in our industry so far. And now, honestly we are, we have all the pieces strategically in place to supercharge this business, to create an even more upside for our customers and shareholders.
And our attempt is going to be to become the number one in the U.S. Not more, and not less, but this is our attempt.
We are very happy about the decision so far and we can confirm the enormous benefits of the merger and the business case. So we are now working for the mining steps to get the merger done.
And hopefully in the second quarter 2020, we are able to close the transaction. Before we go through the details, let's look at a quick summary of our 2019 financial performance, which you can see on page number five.
It's a simple story, and we grow across the board. And this is very important, because it's not only based on one pillar, it's based on all the pillars which we are operating in, all the segments are growing, and all the profitability metrics are growing too.
And if you see the numbers, even more impressive. It is 6.5% revenue growth; it's a 7.2% EBITDA growth.
It's a 15.8% free cash flow growth. It's almost 78% growth on the earnings.
And if you adjust them you know it's still an 8.9%. These are the numbers from my -- from my mind here so, if I’m not 100% correct on every second we know a number here, but, this is the target, and I do not know any kind of other telecommunication operator who’s even coming close to this numbers.
So let's go through the flywheel in more detail. Page six.
Germany we passed 35 million homes with fiber. We passed 28 million lines with supervectoring.
99% of the lines have been migrated to All-IP In the European Union in our businesses, we passed 10 million homes with fiber of which over three millions are already with full fiber. And on the mobile network side, we are leading.
There is only one market where we are not perceived the best network. In all the markets, we have the leadership position in.
So this differentiation by our best quality is paying off. And thank you for letting us invest a bit more than our competition, I think, it's paying off.
We have on the 5G side, 450 5G sites which are up in running, and we will connect all the major cities with 5G by the end of this year. So we are well on track in this regard, 20 big cities going to be connected.
Page seven, our customer growth remains strong. It is the European footprint where we added 2 million converged customers.
And I think 9.6 million, I want to say hello to the number 10 million. Hopefully it's coming soon.
So then we have a really big base of our customer in converged offerings already. 15 million homes are served by our fiber products in Germany.
As I said, low churn on this one, and we saw very solid mobile customer growth on both sides of the Atlantic. Let me spend one sentence on Germany with regards to a fixed line.
It is the task of the organization to now better utilize these investments, which we have taken. It's the task of the organization to create less churn because the base is the utmost most important and there is one thing clear for us, if we want to see a reasonable amortization of this infrastructure, the 40% market share is a must have for our organization.
So the tasks of fighting back on certain initiatives from our competitors is clearly defined. 40% is the number which I'm expecting from our B2C and B2B heads in the German fixed line environment.
Moving on to indirect costs. And by the way since Thomas Dannenfeldt has left and Christian came into office, we are making big progress on costs.
So, and you see that we had 1.5 billion net indirect cost in our Capital Markets Day. Thomas was talking about it, Christian is executing.
I love that Christian. We have 800 million run rate savings and we are perfectly on track now for this target, as you can see on page 8.
By the way, best greetings to Thomas who sits in Patagonia, and all the best for you. So all the segments, and many activities are contributing to this – this savings.
Look as, I'm making a little bit let's say fun here, but this is a very serious effort in the company. Service efficiency improvements in Germany are helping us big time.
We have again half and the amount of service complaints and cases here in Germany, I’ll come to that in a second. We have made big progress with digitization.
I go to that in a second, and the T-System turn around selling off business, which are not profitable. Focusing the portfolio are cutting out middle layer management.
This is paying off, so we see good improvements on the T-Systems turnaround as well. This altogether, is helping us to reduce our costs.
The digitization is, I say, I do not know whether this is a statement or whether this is our ambition. But I was asked Tim, if I would wake up in the morning at 2 o'clock and I do not know what to do or what the strategy of Deutsche Telekom is, what should I do?
The answer of that would be simple. I would say digitize.
You cannot do enough about that one. Whether you are in the service, whether you are in the marketing with big data, whether you are in the technical area with the softwarezation and the virtualization of our infrastructure, whether you are in the SG&A, wherever you are, just digitize.
Because this is the biggest lever for creating productivity, time to market, best the customer experience. So it’s -- must become the DNA of this organization, and this slide is complex sorry guys for that one.
It is just you know that the peak of the iceberg of the initiatives. And I have asked Hannes to give you a day where you are understanding all the initiatives in the segments, in the different functions, on how we are driving digitization within this company.
And then, you can make your own assessment on how good we are. I think, we are doing a decent job here, and can be always smart.
We have increasing success with our customer. For instance, we have a penetration of 93% for instance in Greece.
In Germany, we’re 30% so we have to do more in this one. I expect more penetration there.
But nevertheless, I think it's understood in the organization. In Germany, we are using almost 3000 bots in different areas, which are helping to become faster, more productive.
And we leverage the digitization to improve the efficiency of our FTTH build out. This entire planning and the entire roll out everything is in a new digital tool.
So this helps us significantly to reduce the bureaucracy and complexity of the planning and build phase. Sales in T-Systems and service activities are getting digitized with our tools from the well-known institutions where the service now, our sales force and others, and our German IT has shifted towards an agile delivery.
So most of our projects are run by eight big tribes in the organization. And honestly, this is something which sounds easy, but it's a very complex and taxing undertaking to integrate all the functions into tribes overcoming the silos in big organizations.
On page 10, let me quickly recap how we think about capital utilization. I mentioned that already and there is one thing which is driving it, and this is sharing.
Our life is for sharing, and we do share a lot of our infrastructure already, and we will do more about that one. We will give others access to our infrastructure, and we will use more third party infrastructure ourselves, so Wholebuy is becoming more relevant in our business.
So this is helping efficient investments in the industry, and it's helping consultation as well. So remember, we called it the alliance they're willing, at one point in time, we are making good progress in this regard.
Whether it's the EWE-Tel deal, whether we have a wholebuy agreement with Net Cologne, whether we are having a deal with Deutsche Glasfaser, in this regard or whether it's the 4000 or 6000 sites, which we are sharing with our telecommunication competitors here in the -- European, German landscape to overcome white spots, which we have to close to offer a very good infrastructure. Page 11, let me talk about sustainability.
And I think, we do not need sustainability as a chapter on page 274 on the annual report. What we need is a sustainable, business model.
And sustainable business model means that everybody in the organization, everybody, is really thinking about how he can address topics like CO2 emission reduction, plastic free environment, renewables and other topics. So therefore, we included that as the major change to our strategy, as well to the Capital Markets Day.
And we are putting even money where your mouth is. We have put money behind that.
Look, to give you one example, that the U.S. is investing into solar panel companies, and using renewable energies to fulfill or to handle their energy consumption, that we have already in Germany 100% of the entire energy consumption based on renewables, and that by next year in the whole business of Deutsche Telekom, 100% to renewables will be used, that we have the task of reducing our CO2 emission by 90% knowing that we have an increasing energy demand.
That we have 25% lower value chain emissions per customers by 2030 as a target, should show you that everybody in the organization should think should try to understand and improve the situation. This is not going away.
We don't want that is going away. We have achieved already some achievements here, but we are we are still at the beginning.
If I talk about plastic free environment, if I talk about the legacy of 26,000 cars in Germany, we make a big attempt towards e-mobility in our company. So this should show you that we are on a good track, and by the way, I’m very happy that the ESG ratings, which were recently published, and Christian, you might go into that one later on as well, showing outstanding performance for Deutsche Telekom, in a lot of rankings we are already perceived as number one position.
Let me move on to Page Number 13, which shows you that we are not only growing in the U.S. For the second year in a row, we are also seeing strong growth on this side of the Atlantic, with all segments contributing last year.
And we are in all the segments ahead of the capital markets guidance. So it's not just the U.S.
as well, the European entities. Now if you go to the page number 14, let me reiterate and give you the new guidance on Deutsche Telekom.
We expect EBITDA after lease for the group to grow by 3% to €25.5 billion and free cash flow to grow by 14% to €8 billion. We stick to this table ex-US CapEx promise that we gave you at the 2018 Capital Markets Day.
As usual, you can find the detailed segment level guidance for our business in the appendix to this presentation. As you know, this year we were €600 million ahead of our EBITDA guidance and ahead of our free cash flow guidance.
So we took that as a new starting point and on top of that, we are now expecting this 3% growth. So, you see us very confident about this very ambitious targets in an industry around me, which makes me always depressive.
Now how are we going to make that? Page 15, you see the German business, which is very important for our activities.
And despite all of the market noise, we are delivering steady, commercial and its operations. In 2019, we added more than half a million contract net adds, and almost 200,000 broadband net adds.
Our mobile customer churn is down to a record of 0 9 per month. 60% of our own branded mobile customers are converged, and thanks to our marketing leading platform, we added half a million new TV customers in the last two years.
Honestly, I believe even our commercials on TV are very strong, and they are working very nicely. Just have a look into this one.
Two comedians are selling the product in a way not seen before. And we grew in B2B despite the headwinds from the IP migration.
This was not an easy task, because you know at the moment while you are talking about analog-to-IP, everybody questions, why do I need this connection? And we discussed that in previous calls, but despite that, we -- we had the net adds just mentioned.
Page 16. I think the numbers speak for themselves.
And for me, this is very important to understand what is happening in the machine now, the engine room of this company. And because this is -- this is the oil of the machines, and just three KPI.
The share of agile projects has grown six fold to 60% in the organizations. When we come to – for instance to our OSS, for FTTH, this was entirely developed in agile mode, and in a very short time to market.
The time to market has halfed in 2019 and 19, and we will further improve this. We have started to ramp up reskilling, but clearly, this is a big challenge for us.
And we have to go. We have even adapted our cultural values, our guiding principles in the company, where we said, that we have to grow our people, but everybody has to stay curious as well because it's not just about the programs.
It has to do as well with our employees. You should be curious about change, and entering into new roles.
And what for me, the most impressive one is how the IT as an enabler for all our business, has improved and has contributed. Peter Leukert and his entire team here in Europe had a outstanding job.
And this is something we can see as a consequence of this good IT performance on the next slide. So for me, very important the service arena.
And there are a lot of areas where we made good progress. Just give me a quick feeling about what's to it, what's going on.
Waiting times down 43%, complaints down 50% after a year where we reduce it already by 50%. Missed appointments are down 84% and by the way, if we don't measure that the way that we ask our people, whether they have missed appointments.
We are the customers, whether they felt we missed the appointment. Faults repairs are down 19% and first time resolution is up 30%.
I think the last topic is for us the most important one, and we want to significantly improve this KPI going forward. It's noteworthy that we achieved this improvements in customer experience, despite the ongoing IP migration, and the associated disruption, which we’re coming with that, and we expect an even further slowdown of complaints and other things in 2020, because of the end of the IP migration for most of our customers especially the B2C customer side.
This, by the way, is then driving costs down and the moment where we have cost down, we have cash flow to invest or even to share that with you guys. So this is the flying wheel again, and that shows how we think about things.
Moving onto the network side on page 19, sorry 18. Here you can see, and in the Middle East by the way the chart Christian likes most, because this is not our slide, it's a slide which is always published and by German journalists, and what you can see here is that we always had a significant mobile data speed advantage, and that we have extended this advantage over Vodafone and Telefonica.
And by the way guys, these guys are loudly announcing by the way, we are carrying most of the data traffic in Germany, and therefore we are the guardhorse of the mobile market. Congratulations.
And the other guys like Vodafone says and we have most of the SIM cards registered in German networks, 50 million. Congratulations.
Guys, I give a shit. The average mobile data speeds is what matters, and the customers who are coming to us matters, and what they're paying as a revenue and are willing to contribute to that, it matters.
And we are by far service market leader. We are by far the quality leader in this network, and we are by far, the perceived network leader in mobile, and that was right.
And that's going to be right. And I think, this slide speaks for itself.
On FTTC, on the next slide, it's a little bit different, but even here I think we took the right actions here. At least the customer numbers are supporting this.
We now serve 80% of German homes with at least 50 megabits per second. Honestly speaking, Hannes, this number's wrong.
I think it's higher already. The 80% but that is just you know I sign them and 60% with at least 100 megabits per second.
We have 28 million households serving up to 250 megabits per seconds, and combined with this super TV offering, which we currently have. It's helping a lot to convince new customers, but at least you know as well reducing the churn in this in this field.
So which brings me to page 20, because we can call the FTTC roll out and vectoring almost finalized and therefore, the big question going forward is now what is happening now on the FTTH side, and we call it the FTTH factory? And you can see that on that slide, and what we are aiming for.
First, we want to ramp up our FTT roll out, our own FTT roll out to 2 million FTT home sales per year, latest from 2021. And that's what we are working on.
We don't want to start from scratch. We have already done some homework.
The first one in Germany, everything is expensive including the FTT [ph] roll out. So we had to work hard to reduce the costs of the -- and cost per home passed.
Now we are below €1000 already. We are still striving for significant further reductions in the way how we are deploying that most of the cost are construction costs, and therefore we are pushing a legal wise but even other things you know to get this cost reduced.
I already mentioned our new Fiber OSS, which we have, which is another piece in the puzzle. And even here, we made important progress in how to this system is digitizing the entire process.
On top of that, we made part progress with the Fiber collaborations. We have a 1.5 million line project in Stuttgart, which is up and running.
And we have a similar sized project together with EWE-Tel, our proud partner in the north, to establish a fiber joint venture here as well. And we got approval for this deal and for the conditions and the way going forward, which makes it important because this is a blueprint for all the other you know partnerships which we are striving for going forward.
We are also working on the right commercial framework for fiber. So we want to be constructive and we are in a dialogue with a lot of players including the regulator to establish that you know they're not inefficient, three of redundant infrastructure being built.
If we can use an infrastructure of a third party we will do so. We do not have to build it ourselves, and we will be always open on wholesale as well, that somebody is using our infrastructure, because you know it doesn't make sense to overbuilt you know fiber infrastructure in areas.
If there is no access, we are not letting it happen. But, this is not the problem which we are seeing right now.
So Page number 21, European businesses. The EU segment achieved 3% organic EBITDA growth last year.
This is the eighth consecutive quarter of EBITDA growth. And guys, do you remember this was one of our problem childs, and we were very brave on the capital markets day to say guys, we are turning that around and we want to have this value enhancing storyline you're on, and please have a focus on that one, because we always found it a little bit like the orphan child in our portfolio.
I think Srini Gopalan and his team did a terrific job over the last year and the way how they turned it into a real gem. And I am very happy it's not just you know cost reduction, which he drove aggressively, it is even you know convergence, fiber and ICT businesses, where he is now driving differentiation.
If you see the fibre to the home built out, which is aiming in these countries, it's significantly beyond 50% penetration. So he has a clear path towards FTTH.
Group development. So our tower business and the Netherlands business.
Talking of good plans. The next slide is clearly showing that you know having a good plan is the start point, but execution is even more.
They did beyond the improvement of the business. They integrated the Tele2 merger very successful in the Netherlands business.
And without remedies, and we proved you know that it's possible to get one player out of the market and at the same time, increasing competitiveness and the profitability of the business. So I think you know hopefully some Brussels authorities are listening to this call here, and looking at this slide 22, because you can easily find out that it was the right thing to let us run and challenge the status quo of KPN and Vodafone in this environment and we are doing terrific.
The mobile service revenue growth is in the vicinity of 3% over the last four quarters. 90% EBITDA growth, 150 million synergies on the merger, realized higher spectrum efficiency and achieving with this the mobile leadership.
We were the winner of the P3 and the Umlaut test for the fifth year in a row. And for me, the most important one is, because sometimes you get criticized of bad network in the country.
I would say, by the way, we know how to build networks. Because the best network ever measured in Umlaut is the T-Mobile network, which is the T-Mobile network in the Netherlands.
So, that's the Dutch business. We are very optimistic with regard to the future.
Very entrepreneurial management running this. Going to page number 23, which shows you the towers.
And I know you're very curious about our towers. There's so much noise on towers and sometimes some voodoo as well.
But let's for a moment focus on the fundamentals of this business. First, you know, that you have a very large and attractive tower portfolio.
And what you know as well with the 5G deployment, this tower portfolio is growing at a high space. We are the lead tower operator in the German market, and by the way even in Europe if you combined all the European towers.
There's no else bigger than we, but let's focus on Germany first. And this market offers above average growth opportunities because of sharing and because of new sites which we're adding to this portfolio.
The 5G build-out obligations guarantee for growth of this business. We collaborate well with our peers and the portfolio we have a 2.3 times sharing co-location ratio on this towers already.
And what you can see, we have even strengthened the entrepreneurship in that business under GD and Thorsten Langheim and his team and [Indiscernible] were able to significantly ramp up the EBITDA from €585 million to €771 million. So, this is significantly increased business of €200 million within one year, which is I think a very impressive achievement.
Now, let's moved to one of the problem childs of the past. I would call a swallow not a spring yet.
So therefore we are in the middle of the turnaround, but with encouraging results, which is T-systems. And let me just pick up a few highlights from the slide here.
First, we have completely and revamped our sales approach. We have massively cut costs to shoring, specially to India.
Digitization, massive overhead reductions. We are aggressively restructuring our portfolio in the way what's in and what's out.
And we decided to integrate the Telekom business into our German operations, which is then fully integrated organization for TC, for Mittelstand bid to the large enterprises which gives us a much more efficient, much more cohesive execution. We had intercompany targets in between and a lot of complexity which we are eliminating by now giving it into one hand.
IoT and security gets carved our to make them even more agile, that they can sell via the T-Systems sales pipe, via the T- Deutschland sales pipe, but even via their own sales pipe, which is helping us and beyond. And we are exiting end-user services where we switch to a new model, how to organized our mainframe services with the partner so that we are not running un-profit or no margin businesses.
So, this is just a piece of the story. But I was most impressed by the order entry, which we have seen by the end of the year, just from my mind, we had more than 40% more order entry than the year before and our targets.
TMUS, on-going momentum. Moving, seeing what's happening there.
And guys, it sounds so easy what we are doing here. 2019 had cost a lot of energies both on the Atlantic [ph] on our side, doing all the negotiations, traveling back and forth, back and forth and every night -- just yesterday night we had another phone call until 11 O'clock in the morning to settle up the things.
So -- but despite this second task which we all had to carry, the U.S. had an outstanding performance.
And we expanded our network. We launched 5G and low-band to 200 million pops in December, I mentioned that at the beginning.
For the first time T-Mobile is ahead of AT&T and Verizon. So we're not small.
We're ahead of these guys. So much earlier than previously planned.
I know some of you were not happy about the CapEx here, but I think it was worth doing it. And customer churn came down to record lows.
I think these guys are at the same level now as our European operations, the market leader operations, and we delivered yet another year of strong growth both on postpaid and on profitability. We did well standalone and if this dealer would not have come to a conclusion, I can tell you, we would have not included bankruptcy, but it would it be an different situation.
But nevertheless, we were very confident to find a way in this spaces as well. But together with Sprint and the opportunities about the spectrum efficiency, we are much better off now.
On page 26, we've showed some highlights, how we implement the strategy going forward. And the first thing is, a strategy is a strategy, is a strategy.
And that 82% of our people -- of the 218,000 people in this organization are giving us the feedback. We understand the strategy and can explain the strategy to a third-party, shows me that we have an aligned interest in this organization with regard to implementation.
And having good results give this organization the mental strength and the – toils, the power to get this things executed. And we are now adapting step-by-step the needs of this different activities along that line.
And I do not go into every element of this one. You can easily find out that there are lot of priorities which we have to do.
But there's one thing which we changed and this is the green arrow, which you see on the simplify, digitize, accelerate and act responsibility, which is the act responsibility element. And therefore we want to make that clear to everybody that not only a few people should think about sustainability that everybody has the duty on this one.
Page 27, we won't stop and I hate this graph because this is a silly street, but nevertheless I like the topics on the right side and this are the priorities going forward. We made good progress so far, but there's still a lot to go.
Despite some improvements our customer satisfaction metrics are not yet where we want to have them. I want promoters on the brand more than we have today.
And we have less destructors, but we need more promoters. We need to become more digital and agile.
I said that digitized should be a headline of what we are doing. We should become more diverse and even more innovative to a certain extent.
Braver in the way how we doing things. We need to monetize the good infrastructure better, which we have, because the capital efficiency is not where it should be at that point in time.
We should face the best way to get German's FTTH done. This is a strategic imperative for politics, but as well for us well, which we have to solve.
And as mentioned, we cannot wait to deliver the amazing goodness from the T-Mobile U.S., Sprint recharging effort here, the combination which we are totally excited about. In other words guys, we won't stop until everyone is connected and that is the purpose of this company.
I think if you look to the capital markets results so far, we had good years and a good execution around that one. There are always things which you can improve.
And I can say you, we feel strong today. But if you are having a victory, humility is the name of the game.
And if you suffer or if you lose one time, you should not lose your self-confident. So, we enjoying that moment just for a second, but we know that humility is a good advice not to become complacent.
And I can promise you one thing as long as I'm sitting here, I will keep this guys awake. Thank you very much.
Christian Illek
Thanks Tim. I'm still awake.
And welcome from my side. Look, my presentation looks a bit different today.
We have removed some of the redundant information of the previous presentations and adding more trends analysis. I hope you're going to find this useful.
So let me start with the key financials on page 29. Reported revenues were up in the fourth quarter by 5.4%, taken us to full year growth of 6.4%, on an organic basis that would have been a growth on 3.3% in Q4 and 2.8% [ph] respectively for the full year.
Obviously, the two biggest effects between reported and organic is Tele2 and foreign exchange rates. Our reported adjusted EBITDA after leases grew 8.2% in the fourth quarter and 7.2% over the full year.
Organically, we have grown the fourth quarter by 6.5% and 4.2% in the full year. Let's take a little bit look at the ex-U.S.
EBITDA performance in the fourth quarter. Ex-U.S., we grew our EBITDA by 9.3% and that takes us to a full year growth of 4.7%.
On organic basis, we grew by 8.8% in the fourth quarter and 3.7% on a full year basis. A couple of peculiarities here.
A, this is clearly ahead of what we said at the Capital Markets Day with regard to our corridor 2% to 3%. B, actually guys, ex-U.S.
in the fourth quarter grew on EBITDA levels higher than the U.S. That is not a usual observation which we're having here.
And I think this was coming from all segments. The contribution was coming from all segments.
And I think European team is really happy to provide these kind of EBITDA growth. Free cash flow was up 23% in the fourth quarter and 16% on a full year basis, which is also above our guidance of around 10% and the adjusted EPS grew by 8% year-over-year.
So let's go in to the segment performance and start with Germany as usual. Again, if you take a look at the adjusted EBITDA performance another quarter of 2.4% growth.
So again at the upper range of the communicated EBITDA growth corridor of Germany, the total service revenue improved by 1% year-on-year and that was supported both from the fixed line as well as from the mobile side. And this is what we going to see on the next page, on page 31.
The mobile service revenue actually recovered from the one-off in Q3. So, we've seen a 1.4% service revenue growth in Q4.
On a full-year basis there was a 1.9%, despite quite a bit of regulatory headwinds and we're still remain comfortable with our midterm guides of 2% service revenue growth. Take a look to the other and to the right hand side of the chart, fixed service revenues improved to a 0.7% growth and that was very much driven by wholesale and also by the broadband growth and that overcompensated the decline in our legacy business, as well as the IP-migration headwinds.
Moving to the performance and mobile, as you can see the commercial performance and mobile is really healthy. 57% of all mobile contract customers are now within a convergent offering.
Our B2C churn has come down to 1%. We're still seeing a very healthy data usage growth in Germany of almost 60% year-over-year, and we have no more than -- almost 3 million customers which basically enjoy the stream on service.
Next page, our commercials and fixed. So what you see is another 47% on broadband net adds in that quarter despite the fact that the market has shrunk by about 30%.
Our fiber net adds dropped below €0.5 million and that was actually due to weaker growth in the wholesale, but our retail net adds remain strong. By the way almost 30% of our FTTC subs are already on speeds of 100 megabits and more.
Again, a very continuous growth and good growth in the TD space, so Q4, 74,000 net adds on Magenta DB gets us to a growth year-over-year of 265,000 and also what you see is that the line losses actually have improved between Q3 to Q4 to a 170,000 line losses and we expect that since we have finalized the B2C IP migration that we see further improvements in 2020. Next page.
Take a look on 34. So what you see is actually we had a very strong broadband growth of 4.9%.
You see a very strong wholesale growth which is basically being driven by a higher speed upselling, but also due to the unbundling fee price increase which started in the third quarter. Despite the fact that our total retail revenues are still shrinking, but this will come to an end as the single play migration bill finalized and also the connection revenues will finalize.
And you see that positive trend from negative 1.4% to negative 0.4% and I expect this to continue to improve. Let's move over to T-Mobile U.S.
And as you know T-Mobile U.S. has communicated both their numbers as well as their guidance on Feb 6.
So let me be short here. Again, they won 1.9 million new customers, 27 quarters with more than one million net adds.
The EBITDA was growing by 3.7% and this is very much due to some renewable energy derivatives which actually impact our IFRS EBITDA performance. If you compare their performance on U.S.
GAAP, they would have been grown by 9.2%. What you see in page 36 is some of the key KPIs and Tim already talked about them.
A very low churn rate of about 1%. We have still a very strong network and we are defending this with our 5G buildout strategy and the ARPU levels remain generally stable.
Let's move over to Europe. And again, the performance in Europe was very good from a financial perspective.
Reported revenue is up 3%, EBITDA up 5% in the fourth quarter, on organic basis 3.8% and 5.7%. This is due to the deconsolidation of Albania to a large degree.
If we're taking a look at the commercial figures of Europe, I would say commercials were strong, are strong and expected to be strong. If you take a look at their contract net adds another 250,000 which they added, another 70,000 broadband net adds, FMC net adds another 300,000, their household penetration with convergent offerings in Europe is now 49%, which is a year-on-year increase of nine percentage points.
I think it's very impressive. And also, you see that the TV net adds are trending up.
Moving over to T-Systems, I think we're making good progress on our ambitious turnaround plan. The plan is obviously strongly supported by the significant cost reductions which we're driving in that segment.
We're seeing stable revenues, but the underlying trend is moving in the right direction. So we're basically -- we're strong from some low margin business, but adding some good growth PU revenue into the revenue mix.
But you also sees a strong EBITDA performance after leases of 36% year-over-year. And again, T-Systems has delivered more than half a billion of adjusted EBITDA, which is very much in line with the guidance which we have given at the Capital Markets Day.
Next chart is Group Development. And again, Group Development strong performance organic.
Revenue growth for the segment was up 0.9% and that was very much driven by some intergroup revenue phasing between DFMG and Germany. The organic even after leases grew by almost 10%.
And the commercial performance which you're going to see on page 41 is really impressive. So, very strong contract net adds and the Netherlands, also very good broadband net adds.
The mobile service revenue growth is 2.8% plus the market is shrinking by 2%. So you see that they're really performing against the overall market trend.
And you also see that the adjusted EBITDA year-over-year was growing by 13%. On the tower business, we actually added 1800 towers in 2019 of which 1400 were new builds.
The recurring revenue only grew by 2%, but that is due to the intergroup phasing and the EBITDA after leases grew on 7% basis and that is organically. So that's close out on the key financial figures on page 43.
So you see the free cash flow bridge on free cash flow after leases which has grown Q4, 2018 over Q4 2019 by almost 23%. You see it's very much driven by the strong cash flow contribution from the operations.
And we have add our free cash flow guidance despite the fact that we have to absorb some U.S. merger related one-offs.
The EPS grew by 23% or 24%, which you can see on the lower right hand side of the chart. And that is another increase of $0.08 over the year which means an 8% growth.
And the final chart is obviously the net debt chart. We reduced net debt from almost 90 -- €79 billion to €76 billion.
There are two major root causes for this. The good one is the very strong support from the cash flow out of the operations.
And we were a little bit lucky also on the ForEx side because that helped us buy another billion reducing the net that from almost €79 billion to €76 billion. And it got us back into the ratio as I said it, after or during the Q3 call into our leverage corridor which is two and a quarter to two and three quarters and we're back into a ratio which is 2.65.
So, with that, I would like to open it up for Q&A. Thanks.
I hand it over to Hannes.
Hannes Wittig
Thank you, Christian. Now, we can start with the Q&A part.
Sorry, the presentation was a bit longer than usual, but I hope you find it useful. [Operator Instructions].
So we start the Q&A today with Akhil at JPMorgan.
Q - Akhil Dattani
Yes. Hi, good afternoon.
Thanks for taking the questions. I've just got to please.
Firstly, if we can start with towers. You mentioned the strong growth potential you're seeing on tower business.
But I wanted to talk about the strategic thoughts around towers. We've seen Vodafone at the results commenting that you weren't keen to share towers in Germany.
Just some comments as to why? Is it a structural issue or is it strategic?
And how you think about monetization of towers in general as well? And then secondly, just a question around Germany pricing.
We've seen Telefonica Deutschland very recently moved to unlimited plans. Just keen to understand how you think about that?
Would you think it's a threat? Or would you think it's complementary in terms of more for more?
Thanks.
Christian Illek
Let me. Akhil, let me start with the tower question.
Look, I don't share the point of view that we're not sharing, because I think Tim already presented this. We have an agreement among all three competitors to actually share a 6,000 passive infrastructures towers in the white spot area.
We also communicated our gray spot sharing agreement with Vodafone where we're basically exchanging 2,000 towers on each side in order to improve the overall network. So I would say, there is a significant sharing already.
And so, I'm not sure where this is coming from. But what we've always said on the tower business is, let's solve the business model first.
There was one -- for us it was a big question on how to basically share the pain in the white spots. We have found a solution for this, how we upgrade our network performance by having gray spot sharing.
And bear in mind, there is a big growth opportunity in the German market with all these buildout obligations which we're having and with a fourth player coming in. So, I think we have a lot of value creation ahead of us.
And what we always said is on towers, we keep the options open. And since we have carved out the business beginning of 2000, you can take a look at the numbers and how they evolve.
So we're not ruling out that we're going to do anything with towers. Everything is basically for us possible.
But right now for us it's important to actually get to the optimal business model when it comes to developing our tower business. Tim, do you want to do the pricing.
Tim Hottges
Okay. So a telephone -- telephone Germany has made a few changes recently on pricing.
And the first one is I think the doubling of the data allowances for 20 gig you know €30 per month and for 10-gig as it was for 10-gigs before. And they have introduced the speed tiered unlimited pricing in the market, removing this six months for free promotions.
That's what we are talking about. Now, for the speed tiering [ph], surely this could appeal to some customers.
There's no doubt about one. But we always thought, we are the market leader.
And it's not, as you know, starting. We had a pricing in this regard and we set the high price bar on this one.
But this is something which we expected. We have now to see how attractive two megabits unlimited are for the customers and for 30 bucks that is something which we will carefully watch for us.
What we have done is we have doubled the allowances which was our initiatives in -- as reaction on this one. And what we learn from our side is that from a pricing perspective and from our customer service perspective the customers appreciate it, let's say, our offers.
You've seen our decent churn. You have seen even the net add numbers which we were able to generate in the fourth quarter.
So therefore, you'll see the convergence numbers which are always including mobile and fixed line services as well. We have this stream on option in it as another you know offer.
So, we keep confident that with the strategy which is different to the O2 strategy that we are comfortable to generate our 2% medium term mobile service revenue growth. So let's say, how we look at that point in time.
Hannes Wittig
Thank you, Tim. Just maybe also one thought of mine on the Vodafone comment.
I think there were also primarily referring actually to the active network sharing side rather than the passive side. And on that, we think that we found the right balance and the right agreement for ourselves to balance network leadership and efficiency considerations with the gray spot sharing that we have agreed, which is also complemented of course by the white spot sharing on the active side.
And then we move on to Polo at UBS.
Polo Tang
Hi. I've just got two questions.
The first one is on German broadband. What impact are you seeing from Vodafone and their push on one gigabit broadband speeds.
And is there more pressure on you to accelerate your FTTH rollout? Second question is really just about the German all-IP migration.
Now that it's complete, can you maybe talk in more detail about how we should think about voice line loss and broadband net adds going forward? Or another way of asking the question is, how much of a drag each quarter was all-IP on line losses and broadband net adds in Germany?
And could you remind us in terms of quantum of cost savings benefits we should expect from all-IP migration? And when should we start to see the speed through into Germany EBITDA?
Thanks.
Tim Hottges
First question. Look, it seems an aggressive move from Vodafone.
So, I got it the way that they have they're closing down the Unitymedia branch and therefore they have to do some things to attract the attention to the Vodafone brand. In this regard is by far too early to say what the impact of this one is.
They call it the promotion through 5th of April. Let's see how this is working and how is that affecting us.
Look, my assessment is, why do they have to reduce their premium product by price cut of almost 50%. That seems to be that they have problems on selling their products.
Is that the sign of weakness here. What we see there?
So let's wait. For us, it's very clear.
We have an ambition of 40% and I said that earlier with regard to our broadband net adds. We have an infrastructure which can easily be filled with this market share and the churn.
And we will react accordingly if we see the impact of this one. So that's where we are.
I do not see an immediate impact on the FTTH business case or whatsoever because we have a mixed calculation. Let's see how this is evolving over time.
But today I would not have sleepless nights because of that.
Christian Illek
Okay. On the all-IP migration.
Let me just repeat what Tim said. In any case we want to defend our ambition to achieve 40% net adds here, and I think that is that is important to us.
So, if you take a look on how we assess the forced migration -- the negative impact on the net adds on broadband due to the IP migration, we always said that's in the vicinity of around 10%, which basically drags our net add share down. So that should at least be -- should improve to a large degree.
If you take a look on the IP migration, we have now migrated about 99% of all lines. So the only area which is still left is the more complex B2B area.
And I would say, on your specific questions on line losses, take Q4 versus Q3 as an indication. So we expect significant improvements over the course of the year.
And I think we should show you these numbers once we have finalized Q1.
Hannes Wittig
Okay. With that we move on to the next question and that's from Christian at HSBC, please.
Christian Fangmann
Yes. Good afternoon.
Thanks. A couple of questions.
First is actually on the deal. It was rumored that you may renegotiate the price.
I mean, can you tell us at least anything on timing on that process generally speaking whatever you can say in that respect it would be helpful. And then on the German business there's a huge debate on Huawei in Germany.
Is anything you can share with us in terms of details, what the -- let's say the worst case impact would be? And then also in terms of the political debate what you're hearing that would be helpful to get an update from you and your view on this?
And then lastly, Polo already touched on the FTTH point. But I'm asking a slightly different question here.
I mean, Deutsche Glasfaser announced that they would roll out FTTH to 6 million homes in Germany. So what's your take on this?
It's a meaningful number. So I would be interested in your strategy in that respect?
Thank you.
Tim Hottges
Okay, Christian. First thing is on the deal.
Look, as you know, we had -- the longest update in the business combination agreement has expired. So both parties have right to walk away.
Nevertheless you know both parties are very interested to get this thing done, especially after all the efforts we made and all the approvals we got and the business case of this company going forward and the cost synergies, all of this is very well intact. Therefore we are quite excited about this deals.
Nevertheless, we have a face now for closing mechanisms. We have discussions among ourselves to formalities.
And I'm not disclosing whether we are renegotiating the price here or anything else, it's is something which has to take place between partners before something is getting announced here. So therefore no comment on M&A.
Second thing is the German business and the Huawei debate in Germany. Look the assessment is as follows; we have seen recently that Brussels and [Indiscernible] the new commissioner has offered a tool box to the industry.
I think it's a very reasonable package and it makes a lot of sense what's in there. It demonstrates one thing.
It demonstrates, guys, we have to do something our own with regard to encryption and with regard to the software steering. Second, it stresses clearly that one of the big negative sway, we have this difficulties with regard to different infrastructure is the lack of Open RAN and the Open RAN software.
So enforcing open line is something. The third one is the idea about penalties synchronizing mechanisms, which should be embedded in to legal enforcement, into the legislation is another topic which makes totally sense.
So this is the way going forward. I do not see from what is discussed in Brussels nor in Germany, any kind of impact as we have heard that from DT [ph] or Vodafone on their regulation.
Yet we have a clear position that Germany wants to see the core network being Chinese free. That is for us an easy effort going forward to make that possible.
And the rest is up for the governmental decision. The conservative party has come to conclusions on this one.
And now there's a debate on the governmental body. But it looks like we'll find a solution here.
The German government finds a solution which we are able to implement.
Christian Illek
So, let me dwell on the question of Deutsche Glasfaser. First of all, if I'm not mistaken, currently they're passing around 600,000 homes passed.
So if they want to build out they will be at 7 million. So that sounds quite like a challenge, but we appreciated that Appreciate this to a large degree because we always said, we cannot build out fiber for Germany just coming from Deutsche Telekom.
So, I think there will be some overbuilt also into our vectoring infrastructure which we expect. But bear in mind, we have to a large degree very performing cable network.
We just are already over building our vectoring network. So that would be an additional competitor.
And the third one is I think a point which, Tim, made clear in the very beginning, we're open for whole buy. So we have struck the first contract with Deutsche Glasfaser in a small city called Lüdinghausen where we have a whole by contract.
But I think you always start small and then you embark from there. So I think it's going to be a combination that we're probably we'll see some overbuilt that we will rely also on their infrastructure, but it appears to be quite a big challenge from 600 to almost 7 million.
Hannes Wittig
Yes. And have super vectoring of course.
So Georgios at Citi is next please.
Georgios Ierdiaconou
Good afternoon and thank you for taking my questions. Firstly, Tim, congratulations for your 20-year [ph] anniversary the other day.
I have two questions. The first one is around Sprint.
And then obviously, the closer we will get to the deals being approved, the more we have to think about the impact on our financials. So, I was wondering if there was anything you could share with us around the EBITDA transition from Sprint to TMUS to Deutsche Telekom numbers?
Or whether at least you can give us an idea of whether the impact on leverage you identified a couple of years ago is similar to the one we should expect now whether something may have changed? And then, my second question is really a follow-up from Christian's earlier question on fiber.
I mean, your wholesale revenues are now growing over 3% in the last couple of quarters. I just wanted to understand whether you expect that to be 2020 maybe the peak in terms of wholesale tailwinds because of these overbuild?
And then on similar angle in a way with these agreements with Deutsche Glasfaser, I was just wondering moving from on net to off net for you, do you think the premium you can charge to the retail customers is sufficient to keep the profitability of the customers more or less the same? Thanks.
Tim Hottges
Unfortunately on the impact on financials with Sprint, there is no new news, because we don't know anything further. We will have full access to their numbers, to all of their accounting numbers and so forth whenever we have closed the deals.
Prior to that we are not allowed to talk to them. So therefore we can't give you any kind of more transparency on those numbers.
We would love to, but we can't. So, and on wholesale revenues, look, I think first of all, I'm happy with that 3% growth which we're seeing in the wholesale area.
We have some structural tailwinds, which is obviously, the ULL price increase which we have seen. What we also see and you see it on the fiber numbers that the wholesale numbers have come down.
So it looks like that the competitors are moving on their platform as well, so we have to closely watch this. But I think it's too early to tell you whether it's going to be having an impact, a dramatic impact.
I think we have to watch out in the upcoming quarters how this evolves.
Hannes Wittig
Thank you, Christian. Next is Steve at Redburn please.
Unidentified Analyst
Yes. Good afternoon guys and -- [Indiscernible] congratulations.
So mostly congratulations. I’m not giving a shit about your other few competitors in Germany.
That was great to hear. Yes.
Couple of questions. Just coming back to fiber, I read the sort of slides and heard your comments.
But I guess like every operator you want to maximize return on fiber. But they're not always able to do that.
And that's the sort of modeling challenge that we have. Can you just sort of maybe give some early thoughts on how you go about doing that?
Do you think JV is the way forward? Do you think you can charge a premium for FTTH over your current super vectoring wholesale products?
Do you think you need copper switch off? All those sorts of issues.
And maybe just give us an idea of when you think you can still lay out the enablers and the parameters that you think about maximizing returns? And secondly, just on U.S.
EBITDA reconciliation. I mean, the sort of gaps got steadily bigger on this sort of power purchasing agreements in the U.S.
You started your last year at 600 and ended up I think at 900. You're flagging for another $900 million gap this year.
Can you just remind us what this gap is? And which EBITDA measure you think is better and whether you think EBITDA as a whole for U.S.
is trustworthy given the sort of growing nature of this gap? Thank you.
Tim Hottges
So, Steve, let me start with the fiber question and how we see the world going forward. The first one, I hope you would agree that it was the right thing to deploy vectoring and super vectoring first.
And talking about more than 80% of the households being covered with 250 megabits seeing the nice numbers on the net add side despite the IP migration, which we have seen. And on top of that even the revenue development and the integration with TV service, I think you would easily grief from a commercial perspective that this was the right thing to do.
Second, we had to prepare ourselves for the fiber buildout, the fiber factory, and on top of that the subsidization policy, which the government has laid out. There are tons of money which are laying there and not being freed up yet for subsidization which makes it much more viable for us to invest and to build fiber in this regions.
Now, we will burn the chips and we'll move into the fiber factory very soon. And then, what we're doing is fiber wherever it makes sense and wherever it is possible.
Up to 2 million households prospectively being deployed on this one. We will drive costs down so that we make it cheaper.
That is something learning curve issue. And by the way, I saw that at BT as well.
How they were able to use this learning patterns here. And there's definitely our willingness for collaboration.
So, wherever somebody has built a fiber infrastructure being a Deutsche Glasfaser whatsoever. If he's coming with reasonable terms for us, we will utilize the infrastructure with our customer base.
And what is what is lacking today. So, subsidization is there, and collaboration works, fiber factory is improving.
So what is lacking, I think is a clear regulatory environment in Germany. And it's still unclear under which conditions the German government [Indiscernible] is willing to regulate.
For instance, copper switch offs and copper switch offs, which are driving definitely the profitability of the fiber network or to which conditions is the German government willing to change the housing association privilege, which is a very important point for the profitability of fiber to the home in Germany. Cable is blocking that.
But I think if Germany wants to see more fiber deployment, they have to overcome about this restriction in our market. So, I think there's not only us who can do something.
There's even the regulator was forced to give us a constructive competitive oriented infrastructure piece here. And that is what we are working on in parallel.
I'm not worried about this issue. Because I see that with 250 megabit with a good price offer, you can win and convince customers in a lot of let's say areas -- in a lot of areas where fiber is needed, we are ahead of the game.
Take just example of the business parks and schools. So we are moving on.
We are now accelerating our FTTH buildout. We are using more and more money for that, which we free up from the former FTTC buildout.
And this is helping us. We keep the envelope of 5 billion stable for the German entities, the footprint here for the upcoming years, but more and more money is going into this one.
Collaborations is definitely part of that and we are negotiating with a couple of people at that point in time initiatives around it.
Christian Illek
So on the second question, U.S. EBITDA reconciliation from U.S.
GAAP into IFRS, three major factors, which basically explain for the bridge. One is stock-based compensation which is around 400 million.
One is different leasing treatment which is around 400 million. And the third one is the renewable purchasing agreements which hit us about 100 in this year, so this is why the bridge was 900 in 2019.
In our guidance, we basically plan for bridge of 850. So, we reduce the impact of the renewable energy contract.
And that is the explanation on the drivers. On your question, what's the right number.
Obviously, the team although you ask folks comparing themselves with their local competitors. So therefore you have to do it from a U.S.
GAAP perspective, and we have to translate it into an IFRS perspective. So I would say, it depends on against which competitive battlefield you compare yourself and I would always say, compare yourself against the relevant competitors which is an AT&T and Verizon and therefore U.S.
GAAP is obviously the adequate accounting principle.
Hannes Wittig
Thanks, Christian. So next is Fred at Bank of America, please.
Fred Boulan
Hi. Good afternoon.
Two questions, two follow up, please. First of all on the U.S.
You say you need to wait for the Sprint accounts. But if you should look at the performance of those TMUS and Sprint in last two years, you've seen some pretty large valuations.
So for instance, you targeted year one for cash flow of 1 billion to 2 billion and year four, 10 to 11. Is it still the right ballpark for NewCo?
And how can we think about the loss of business from the subscriber base disposed versus wholesale revenue recovered? And then follow-up on the FTTH debate, we've seen a lot of your peers like KPMG, Swisscom, [Indiscernible] fiber-to-the-home to focused on fast FTTB rollout now pushing back to its fiber-to-the-home as the right strategy to face cable.
So are you should confident with your phasing of 2 million lines a year? Do you feel further political pressure to deploy FTTH faster?
And from a commercial standpoint you seem reasonably relaxed about Vodafone pushing a good product, but you can comment on whether you're seeing increasing pressure here as well? Thank you.
Tim Hottges
So, let me start with the U.S. question.
And obviously that is a M&A related question we usually don't comment on. But let me flesh a little bit of data on this.
Look, we have redone the case back in summer July 2019. And the U.S.
team clearly said that the whole case stays intact, although some line items obviously deviate from the original assigning case. For example, the underperformance of Sprint.
The over performance of T Mobile U.S. refinancing costs has significantly come down.
Ever since then, I think we haven't seen any additional remedies. And what we're doing right now is that we're saying the case is in total intact, but we cannot give you more granularity on that one, because again, we have to take a look into the details and look under the hood of Sprint to really figure out how it looks like.
So, obviously, there is a delay in the case that obviously impacts also the signing case versus what we're going to see at the end of the day once we're moving over the finish line. But again, bear with us a bit until we have the details in front of us and then we can elaborate more on these topics.
Hannes Wittig
Just on the FTTH question, I think Tim has addressed these questions largely. I mean, we are not today guiding for anything different than what we have shown in the presentation or communicated in the Capital Markets Day.
We have a plan for fiber. We will we allocate resources as stated.
We are focusing on the key pain points at this point in time rather than big headline rates. We have 1.6 million lines passed and now we have leverage all the tools that we have described in the presentation to deliver.
We monetize our super vectoring. We have 28 million homes with speeds up to 250 migs and that number will also increase further in the coming years.
So let's see how that works. Politically there's no shift in the debate at this point in time.
So next is James at New Street.
Unidentified Analyst
Thanks very much. Good afternoon.
I had two questions please, following on with regards to potential impact to the Sprint transaction. When you put the slide up.
When the deal was announced in 2018, you showed that you would be willing to go above your leverage threshold for two years. I wanted to check if that was still the case that you'd be willing to go above the 2.75 times just for a two year period.
And as a follow up to that, is could you comment assuming the deal does go through on what your appetite would be to buy spectrum in the C-band auction, or do you feel that with the 2.5 gigahertz spectrum, you would acquire from Sprint, that your spectrum portfolio would be pretty adequate and there will be less need to bid in the C-band auction. Thank you.
Christian Illek
So I think as you as you're eluding also the Capital Markets Day, the impact of Sprint and leaving the quarter of 2.75, what we said is we are reaching the corridor in year 3, absolutely correct. And we have no further indication to deviate from that perspective.
And on C-band, I think it is too early to comment on C-band right now. Let's figure out how the auction design will look like, when it’s going to take place.
But right now, I think we're ideally focused on getting the final things out of the way, and get the merger over the finish line.
Hannes Wittig
Okay. Next we like to hear Ulrich at Jefferies please.
Ulrich Rathe
Yes, thanks. My first question would be in the Indiana report, when you sort of break down on the division and basis that the different guidance items.
I think the indication is that the CapEx in Germany would actually be down in 2020. Is this in the context of the items you listed earlier, Tim about what the necessary sort of move do you expect on the legislative and the regulatory front.
Is that essentially sort of a signal that you're cutting CapEx until these things are settled i.e. a sign of strength or how would you sort of frame a CapEx cut in a situation where I think there's some political debate about the quality of the mobile networks and the need in Germany to rollout fiber at an accelerated pace?
That would be my first question. The second one is, on the on the other sort of 40% market share target.
You haven't mentioned it for some time. I think this was a very high profile target for some years, and then it sort of didn't pop up in the communication.
Where do you see yourself at the moment in terms of overall market share, and does this actually mean you have a bit of catch up to do i.e. you might potentially get a bit more aggressive at this point, or am I misinterpreting this?
Thank you.
Tim Hottges
Ulrich, this is a very semantical question, but anyway, I would not know rate it as a statement. It's a question.
Look, our German CapEx is 4.2 billion for the Deutschland entity where we are building fiber and the network and 5G services and like. And this 4.2 billion stay absolutely flat 4.2.
There is no decrease on this one. I hope that we can even build more because of the productivity gains, which we have at the factory, and other things that we get more out of the CapEx than what we had so far.
Why have we said in the annual report, and the prognosis that we have a slight decline and remember that one, there is in the overall footprint of Germany and we always show the CapEx of the whole German inclusive of the two systems activities, this is the 5.5 billion? We have a decline from 5.5 billion to 5.4 billion, so 100 million less and the total footprint, and to be precise in our German mentality, we said there is a slight decline.
So that is, that say, how you should understand that.
Christian Illek
Tim, let me add to that. I think on that -- on this 4.2 we have a slight decline for 2020 in TDG, but we increase the CapEx envelope in DFMG.
And this is exactly because we want to comply with the build out obligations. So overall you're right, it's the 5.4, but there is a shift between DFMG and TDG in 2020, a slight one.
On the 40% market share target where we are pretty close. We are also despite the All-IP migration pretty close in terms of the net add share in 2019.
I think you have -- you know you have surely tracked this over the last few years. We have been responsible and steady in our approach to this.
We have a chart that shows, we have 300,000, 300,000 and 200,000 broadband net adds in Germany 200,000 last year was severely impacted by the IP-migration. And so I think this is a very steady development.
Now of course, we want to maintain our 40%. So we've said that a few times today and we mean it.
But, we have also shown that we have a good way of you know managing that and being responsible overall.
Hannes Wittig
So I would say, we said, we move on to Robert [ph] at Deutsche Bank.
Unidentified Analyst
Thank you. Going back to Chinese matters, where there is trouble on a couple of fronts.
Are you seeing any impact yet from supply chain difficulties in China on your German enterprise Corp customers and their ICT plans and spending or even on your own supply chain at this stage? Thanks.
Tim Hottges
Robert, look we took the decision considering you know the health and the situation for employees to step out of the Mobile World Congress, which was a tough one. But we don't want to see people have a flu, being put in quarantine and then isolating the organization.
A lot of concerns of the people, so we took this tough decision despite the fact that there haven't been so many cases in Spain or in Europe yet. So this has to be just caring about our people here.
The second thing is you know the Coronavirus is definitely something, which we should all be worried about. This is touching all value chains because the production of most of the industries is somewhere you know happening over China.
And we have seen that a lot of companies after New Year breakdown have started much slower and later than previous year. The Apple announcement yesterday is related to the Foxconn situation.
Foxconn has had started very slowly. Now we do not have a shortage of Apple handsets at that point in time, because of our storage which we have here, and the products which are on its way to us.
So the longer it takes, it might affect us. We do not see any impact on Samsung.
We have talked to these guys with our task force. And we do not have even shortage of Huawei or other phones here, so that is not an issue.
On the network side, the task force gives us the feedback that there might be some components later being affected. You should know that most of the areas we have at least two vendors.
So we have a certain hitch in the way how we doing it, and on top of that we have storage as well. So look, the longer this coronavirus will take, and the more this will affect the Chinese industry then it might affect us today.
Today, we do not have any shortage on our network not on handsets. And we keep you posted.
Hannes Wittig
Thanks Tim. With that, we take two more questions.
So one is from Joshua at Exane, please.
Joshua Mills
Hi there. Thank you for the questions.
Just two from me. Firstly, on the tower side, you talked about the growth opportunity from building new towers in Germany.
I’d like to hear a bit more about the other organic growth opportunities maybe through increasing co-location and specifically whether you're learning anything new via your part there with Deutsche Telekom Capital Partners, and Sonics in Switzerland. And then secondly, just on the factory point, you talk around the €1000 per home pass number, which I assume is the average.
We've seen that come down already. Given some of the new initiatives which you've talked about, what is the range of fibre-to-the-home deployment costs now in Germany?
Are we looking at 500 to 1500, 110 to 1200 just be great to get a sense of where this could fall to longer term? Thanks very much.
Christian Illek
So let me let me start with the with the tower question. Obviously as I said the biggest opportunity is basically coming if I may say opportunity from the builder obligations, which you all have to comply with, which is build obligations, which will heavily touch the white spots, but will also affect our rooftops when it comes to 5G.
Look on the co-location potential, the current co-location ratio of DFMB is 2.3 among three competitors. So there if you want to reach two full potential, it can be moving up towards three, but that is I think what's been left, and the open question is, to what extent the fourth player will get into play, whether they basically will be seeking for additional co-location, but we haven't seen a clear indication from this one.
On partnerships is part of the option space going forward, but since we haven't defined the option space, I would basically leave it there and say yes, that's part of the option space. On FTTH, look the target is obviously on average to get to below €1000.
But let me be clear, if you take a look to the build out cost in the different areas, if you go into dense urban areas, obviously you were seeking more towards €500 to €600. If you go into some urban areas and more in the vicinity of €1000 to €1500.
And if you go to rural areas, it can go up to 30,000 areas. But this is subsidized obviously, right.
So it very much depends on the mix, where you want to build out, and I think an average number doesn't tell you a lot. I think you have to really cluster it down in which area you want to build out, and you want to have target costing in metropolitan areas, which are well about below a €1000 which are more in the vicinity of 500 to 600.
Hannes Wittig
Okay. And with that the last question I am pleased from Ottavio at SocGen.
Ottavio Adorisio
Hi, good afternoon. Couple of questions.
The first is a fallout from the deal in the U.S. I appreciate that it's difficult to comment on financials.
But it's basically less related to Sprint, more related to other players. When you present a deal, you basically give a target of $15 billion for integration costs.
And the reason why it was relatively high is because you actually included all the contractual penalties for breaking the lease for the Tower you have to decommission plus also all the contractual penalty to renegotiate the debt. Now considering up two years to talk to Tower call in the U.S.
and of course the debt holders, do you recon that $15 billion is still relevant or there could be some savings on that integration cost? And a follow-up also on the intercompany debt with TMOS.
When you present a deal a couple of years ago, you said that you were planning to reduce the intercompany loans by half, recognized between €6 billion to €8 billion sorry. What's the plans to reinvest its liquidity when it reached you in Germany?
And the third one is on the legal challenge you actually brought to the deal been approved between Vodafone and Liberty Global. Where you [Indiscernible] if I’m not wrong.
If you can share the rationale and which sort of remedies you want to achieve through this a lot of challenges? Thanks.
Tim Hottges
Look Octavio, I understand that you have this question with regard to the business integration plan. And I can tell you only one thing, we have to do the closing.
We have to put the plans together. There are a lot of plans still in the clean room, which we have to also bring together and then we come back to the market.
I am not now one that Christian and myself are speculating about is this in, on this is out, or whatsoever. The only thing what I can tell you, what we know, and we had a board meeting last week, I was in the U.S.
for four days. We had an intensive discussion about what we see.
The logic of this deal is fully intact with all what we know. And it's intact from the cost synergy perspective, what we see, and it is even intact from the spectrum position which we have in place.
It's intact when it comes to the interest in refinancing costs, because when we did the deal, our and we anticipated a significantly higher interest cost for this high yield refinancing. It's the best window at that point in time to get this thing up and running.
We had even anticipated our business case, which you probably don't know that we might have additional remedies or legal costs to us to carry, which are not foreseen at that point in time. But there's still a little bit of way to go, and therefore I would find that with and I like your position here.
I would find it initiative [ph] to make a pure statement on one single item here. Look, if you asked me for my stomach, my stomach tells me that the case has even improved compared to the 22 months ago when we -- when we started with our business case here at the communication to the capital markets.
Christian Illek
So on the intercompany debt from T-Mobile U.S. and the 8 billion, which will flow in our direction here at DTAG -- dollar sorry.
Obviously, we have maturities of about 5 billion which we have to refinance every year and that will probably create a lesser amount of work in the treasury department because this thing is coming back. But look, we have clear CapEx plans.
We have clear net debt plans, and I wouldn't expect any kind of changes even if there are $8 billion coming from the U.S. into DTG [ph].
Hannes Wittig
Okay, Christian thank you very much. I think we also have a question on Vodafone Liberty Global and potential remedies.
We have always said you know the housing what the issues are from our perspective is the dominance in the TV market, and the dominance in the housing market. And we feel those were not adequately addressed in the merger ruling.
And so, that's why we -- why we feel this needs to be reassessed. And with that, I pass back to Tim.
Tim Hottges
Okay. I just want to say happy birthday Deutsche Telekom.
We just crossed the 100 dollar and the U.S. market.
So therefore you know we start at 15 60 as we all recall. It's an unbelievable story, and we are very confident of the way how we move forward here.
We enjoy the moment here at Deutsche Telekom as well and a good year 2019, but a lot of things to be done. Going forward I think, I hope you get some more details on where we stand with regard to capital markets, commitments.
We are going on roadshow now, hopefully to see you are on tour guys. And thank you for listening and supporting us over the last year.
Thanks.
Hannes Wittig
Thanks, Tim and Christian. And don't forget we own 63% of T-Mobile right, which is now at 100.
And so with that, thanks also from my side. And if you have any further questions, please contact us at the IR department.
And have a good rest of the day.
Operator
We like to thank you for participating at this conference. We are looking forward to hear from you again.
Goodbye.