Feb 1, 2018
Executives
Vittorio Colao - Group CEO Nick Read - Group CFO
Analysts
Akhil Dattani - JPMorgan Maurice Patrick - Barclays Polo Tang - UBS John Karidis - Numis Securities Nick Delfas - Redburn (Europe) Dhananjay Mirchandani - Bernstein Robert Grindle - Deutsche Bank Jonathan Dann - RBC Mandeep Singh - Redburn David Wright - Bank of America Merrill Lynch San Dhillon - Exane Andrew Lee - Goldman Sachs Justin Funnell - Credit Suisse
Operator
Hello and welcome to today's Vodafone Group Trading Update Analyst and Investor Call and throughout this all participants will be in listen-only mode and afterwards there will be a question-and-answer session. And just to remind you, this call is being recorded and today I'm pleased to present Vittorio Colao, Vodafone Group CEO and Nick Read, Vodafone Group CFO.
Gentlemen, please begin.
Vittorio Colao
Thank you Hugh [ph]. Good morning, everybody.
Welcome to our trading update for the third quarter 2017/2018. I will take you through the quarters highlight and then Nick will focus on the trading performance in our major market before we move together to the usual Q&A.
So I'll start on Slide 4 with the highlights for the quarter. Starting on the left.
Our financial performance is similar to Q2 with 1.1% organic service revenue growth. Within this, we saw a modest slowdown in Europe to 0.3% and then acceleration in AMAP to 6.8%.
As in prior periods these results include the material drag from EU regulation as well as the negative impact of handset financing in the UK. So our underlying growth was about 2% as Nick will explain later.
Foundation of our growth is the leading our core leading network positions that we enjoy as a result of our substantial in-licensing. Mobile now reach 93% of the population with 4G and we have the best data networks in 14 out of 21 of our largest market.
In fixed, we now reach 63% of our 104 million European homes with fiber of which 42 million are on our own network or via commercially attractive strategic partnership. This network leadership drives our three growth engines the usual ones; first mobile data which is on the third column in the slide which is growing still at 61% in Europe and AMAP supported by ongoing 4G adoption and larger data bundles following our successful more-for-more action.
Second, next column fixed. Here we added 379,000 new broadband users in the quarter including a record 529,000 on NGN.
Third enterprise 1.6% growth excluding EU regulation this reflect good trends in fixed and in IoT in most markets. Then in the final column on the right, we highlight our customer's perception of our services based on Net Promoter Scores we are the leader of co leader in 18 market with a substantial gap brushes the third place player during the quarter.
So I would move to Slide 5, the sustaining NPS performance is translating into good commercial momentum. On the left of the page starting with Europe, our mobile contract customer growth shown in the that's lighter red bars looks down sequentially in a year-over-year.
But primarily this reflects postpaid to prepaid migration in Italy as a result of new committed offer prepaid which is based however on credit card payment at the start of the month. So this is not a significant commercial slowdown.
In fixed broadband which is thicker red bar. Our growth was similar to last year into rate of quarter both in Italy 95,000 and in the UK 39,000.
This quarter also benefited from the accelerating demand from NGN which were capturing with a record 496,000 additions. On the right blue AMAP.
Customer growth remains strong in both contract and in prepaid due to our network quality, distribution rate and high standard of customer service. As usual, I would say that scope for further growth remains strong given that data penetration remains just at 47%.
So next slide moving to Slide 6, you can see here the contribution of our three growth drivers to our overall service revenue growth of 1.1% in the quarter which is the red bar. In the circle above the green bars you can see the change in contribution compared to Q3 last year highlighting whether a growth driver is accelerating or decelerating.
On an underlying basis, European consumer mobile the first block contributed 60 basis points for our growth slightly more than the previous year as we monetize higher data usage to our second year of more-for-more commercial action. The contribution from mobile growth in AMAP second green block was 1%, but slowed by around 50 basis points due in particular to South Africa where we proactively lowered our out of bundle data pricing.
Our fixed growth third block continuous structure rate as you can see just a bit and we remain the fastest growing broadband provider among our peers. And finally enterprise had a slightly weaker contribution primarily due to the UK as we described later.
So all together the underlying core business drivers the green bars contributed around 3% of growth, then on the right of this chart you can see the drags from regulation, handset financing, carrier services and also our strategic charges in containing wholesale revenues which have increased compared to last year reducing our growth by almost 2 percentage points to the 1.1 level which you see in the last bar as I commented earlier. Now clearly overtime some of the drags will remain but in aggregate they should reduce.
Now let me walk you through the progress on each of the growth drivers in detail in the next three pages. On Page 7, you can see a summary of our initiatives to monetize mobile data as you can see on the left.
Data traffic in Europe and AMAP continues to grow strongly up 61% in the quarter, this was driven mainly by higher average smartphone usage which is now 2.2 Gig per month in Europe which is a rise of nearly 50% year-on-year. We're monetizing this growth through more-for-more strategies using a variety of different approaches which we show on the right part of the page.
Spain for example is a good case of classic more-for-more approach. This week we have announced for Europe price increase on our most popular conversion bundles giving in exchange an additional basic mobile line in the Social Pass integrating therefore the Pass into our core offering.
This underpays our confidence as our leading competitors will not remain excessively promotional despite the more intense quarter we have just seen which Nick will comment more about it later. We also continue to use the Pass on a standalone basis especially in markets where data bundle sizes are more modest.
In Egypt the recent introduction of our hourly passes attracted 570,000 users for an additional 2EGP per hour boosting the number of active users by 7%. Segmentation is another powerful way to boost data value in Portugal.
Our Youth proposition leveraging on the successful Shake gamification [ph] engine this is something that was developed in Italy and we cover already in the past, has had good results driving a 9% increase in top-ups for these customers. Last but certainly not least, the huge opportunity presented by advance data analytics and big data to personalize our personal [ph] customers.
We have many examples here in South Africa, we talked a lot already in the past, is arguably the most successful so far with the Just 4 You campaign with almost triple data bundle sales in Q3 helping to offset the drag from the lowering of the out of bundle data rate. On Slide 8, you can see the benefits from these values initiatives to consumer contract ARPU which is supported on an underlying basis.
Thanks to more-for-more price moves and larger data allowance. In the chart of the left part we show the ARPU on a reported basis which is in general declining and then the same adjusted for regulation handset financing and the large negative mixed effect from the shift from lower pricing only bundles which are now 30% of the base in Germany and the UK and up around 5 percentage points on last year.
Once you do this adjustment you can see that Germany is in fact growing primarily thanks to the more-for-more initiatives from new customers in April 16 and in April 17 together with our focus on profitable directions. However DP did not change its prices following our most recent more-for-more initiative to increase the offers by €3 in October, so we had to introduce a three month free promo in the quarter.
In Italy, our Prepaid ARPU continues to develop positively reflecting the success of our new Above the Line segmented offers in the quarter as well as the success of our targeted efforts to lock in higher spending customers with more generous data bundle. However the BPL [ph] market remains intense and the new entrant is expected to launch in the coming month.
UK customer ARPU is growing as well on underlying basis thanks to more-for-more better inflow mix of higher value customers and inflation link customer price increases. And finally in Spain, the benefit of our refresh moves of last April were offset in the quarter by intense promotional activity from leading competitors resulting in slight ARPU decline.
So Spain is the only one on the slide that you on the right part is negative. So overall I would say that Q3 has been slightly more promotional quarter with a clear industry trend to our larger data allowances, but given our differentiated network quality and the opportunities from deploying advance data analytics we continue to see opportunities for monetization depending of course of the behavior of the higher other top quality providers in the market.
Moving to Slide 9, here we're pleased with our progress in fixed. Where our capital smart infrastructure strategy we can see indicated on the right continuous to deliver strong results as you have already heard.
Fixed now represents 29% of our European [indiscernible]. The chart highlight our fixed scale in each country and some key recent developments in our bid activity as well as our strategic partnerships.
[Indiscernible]. We're delighted CityFibre has recently announced the Milton Keynes will be the city wide built out FTTH.
The next 11 cities will be announced in the coming years as part of our commercial agreement to support a build to 1 million homes and then we have the option to extend to 5 million homes in the future. In Germany, we're scaling up the initiatives behind the €2 billion Gigabit investment plan to reach business parks and to our homes and also upgrade cable.
We have already successfully piloted this switch off analog services to support the upgrade of our cable infrastructure to DOCSIS 3.1 and we're in active negotiations with the number of municipalities and business parks. In Italy, Open Fiber continues to progress as of the end of December Open Fiber has passed 2.4 million homes of which 1.9 are now marketable.
While the number of home passed grew by 400,000 in the quarter the number of homes marketable increased by only 150,000. This is because Open Fiber has begun actually expanding into the 81 new cities in addition to the region 13 and inevitably there is a time lag between building coverage and the point at which for us it is commercially efficient to open in city and start marketing.
And finally in Portugal, we commenced the network share build with NOS. so our progress in fixed creates the platform for us to drive conversions across our combined customer base with just under 200,000 converged customers added in the quarter.
And finally, last slide for me Slide 10 enterprise as I said its 29% of group service revenue. In Q3 overall enterprise service revenue increased by 40 basis points which you can see in the gray bars, on the third gray bar on the left part of the chart.
Excluding the impact of the regulation enterprise group 1.6%, this is the red bar. This performance was impacted by slowdown in the UK which was the result essentially of customer losses during previous quarter and some quarterly project phasing.
The green bars exclude the more volatile UK performance and highlight the positive ongoing movement enterprise across the remainder of our footprint with growth of over 3%. This effect the combination of robust fixed and mobile growth and includes also IoT which is at almost 19%.
On the right you can see the story market-by-market Germany is now back to growth and Italy, Spain and South Africa are all performing well. In the UK now our primary focus is improving with profitability of the former cable and wireless assets by eliminating legacy networks and transforming our cost structure.
So now Nick will comment the different markets.
Nick Read
Thank you Vittorio and good morning, everybody. Turning to Page 12, as Vittorio has already highlighted we maintained a momentum in the third quarter with similar reported service revenue growth to Q2.
The chart on the left-hand side of the page shows that our underlying performance excluding the drag from the EU regulation and the impact of UK handset financing was materially higher at 2.3% and a gain similar to prior quarter. In aggregate these drags on our reported growth were broadly similar quarter-over-quarter as the reduced drag from roaming post the peak summer quarter was offset by the growing impact of UK handset financing.
Note that our low margin carrier businesses continued to drag on a year-on-year growth by around 70 basis points as was the case last quarter. This follows the implementation of a new traffic optimization engine which has improved profitability.
The chart on the right shows the growth by region, as you can see Europe slowed on both a reported and underlying basis by around 15 basis points. The declining quarterly trends reflects the lapping of price rises in Italy and higher promotion intensity in Spain during Q3.
Our underlying growth rate of around 2% reflects strong fixed growth of over 4% and mobile growth of around 1%. In AMAP growth accelerated to 6.8% from 6.2% reflecting a broad based improvement in Vodacom.
Moving to Slide 13, you can see a summary as the competitive environment and commercial performance of our major European markets in the quarter. In Germany, the competitive landscape remained broadly stable.
Our core leading network quality continued and support good customer base growth with 144,000 mobile contract and 89,000 broadband net additions in the quarter. Reported service revenue growth improved to 2.5% from 1.6% in Q2 reflecting lower regulatory drag through roaming and the lapping of the MTR cut last December.
Ex-regulation underlying performance was a robust 3.4% growth. Looking ahead to Q4, we face tougher prior year comparisons in wholesale and we also begin to lap the inflection in postpaid subscriber growth in Q4 last year.
As a result despite also lapping the remaining MTR drag we expect Q4 reported growth to moderate slightly compared to Q3. Turning to the UK, the competitive environment also remained stable and mobile recovery continue to gain momentum as much improved customer service and a record network performance led to another gain in NPS and 1.6% underlying mobile growth up from 1% in Q2.
Our commercial momentum was solid with 41,000 mobile contract net adds while this was down year-over-year importantly the quality of our customer mix continues to improve, we also enjoyed our best ever quarter in UK broadband. This improvement in consumer was offset by decline in our fixed enterprise business which was the result of both prior year customer losses and project phasing as Vittorio mentioned earlier.
Together with an increasing headwind from handset financing which dragged on growth by 3.6% compared to 1.5% in the prior quarter, this led to a reported service revenue decline of 4.8% in the quarter. In Q4, we expect to see further underlying improvements in mobile together with some reversal of the project phasing impact in fixed which we experienced in Q3.
In Italy, competition remains intense with below the line promotional office continuing. However mobile net port volumes was stable year-over-year following a significant step up in prior quarters.
In mobile and new segment propositions in personalized offers have helped to improve our sales mix in customer retention resulting in low prepaid losses. While in fixed, we had another record quarter.
The slowdown in service revenue growth compared to Q2 was expected given the full lapping of mobile tariff changes from the prior year. And finally Spain, the high end of the market was extremely promotional in Q3, with significant discounts by all the major operators.
This led to higher churn in both mobile and fixed during the quarter. Despite this, our commercial performance remained robust with 30,000 mobile contracts and 68,000 fixed broadband customers added in Q3.
Growth slowed to 2% as a result of promotions as well as around 100 basis points drag from lower visitor revenues quarter-over-quarter. Promotional activity in the higher value segment from the market ended in early January and price risings have been announced by all the operators.
Moving onto AMAP on Slide 14, in general we saw a stable competitive environment. In South Africa we're enjoying strong customer base growth however we have been working proactively to lower alpha bundle data pricing, a key focus area for consumers and regulators with rates reducing by up to 50% from the beginning of October.
We aim to mitigate this impact through growing in-bundle usage which we succeeded in doing throughout the quarter with data revenue growth in December back about 13%. Service revenue in Q3 improved by 100 basis points to 4.9% largely reflecting the lapping of MTR cuts in the prior year.
In Vodacom's International operations we saw a healthy acceleration in service revenue growth to 10.4% supported by growing data demand and M-Pesa. In Turkey and Egypt, our commercial momentum remain strong.
Service revenue in Turkey grew by 13.8% reflecting continued strong consumer contract base growth and data usage, while in Egypt service revenue grew 18.8% following successful segmented campaigns and price increases. Turning to India on Slide 15, the competitive and regulatory environment remains extremely intense.
With the market leader increasing the competitiveness of its tariffs despite price rises by the new entrant. This was further exacerbated by 57% MTR cut in October.
Consequently, as you can see in the top left-hand chart service revenues declined 23.1% in Q3 excluding the 9 percentage points impact from the MTR cuts service revenue decline 14.2% or 1.5% Q-over-Q. Commercially, smaller players have exited the market.
We've ceased the opportunity to win share adding 5.1 million customers in quarter. And as the chart of the bottom illustrates, we have been able to largely mitigate the impact of low revenues on EBITDA margin through effective cost control.
We expect competitive pressures to increase in Q4 given the recent price cuts from Jio in response to Airtel and there was also a further 2 percentage points regulatory headwind from a cut to international termination rates. With this challenging context, the positive move is that we're making good progress on gaining the necessary regulatory approvals for our merger with Idea with the DoT now the last major step before we can complete the merger in the first half of the year.
We've also taken steps to strengthen the proposed JV's balance sheet, having agreed to sell of the standalone towers and announced the combined cash injection into the merged company of up to €1.8 billion. And we continue to explore options very actively to monetize both the JVs 11% stake and the group's 42% stake in Indus Towers.
So turning to Slide 16, in summary. We've maintained this year's good commercial momentum through the third quarter and delivered similar revenue growth with improvements at Vodacom mitigating some of the increase promotional activity experienced in Europe.
We also achieved further progress across our three strategic growth engines. In mobile and more-for-more propositions continue to meet our customers' growing at rise for high quality data and contributing to underlying ARPU growth.
In fixed we continued our strong momentum and enjoyed our best ever quarter of NGN net additions in Europe. And in enterprise, our performance was robust as we continue to grow despite regulatory drags aided by our leading IoT platform and global footprint.
In India, the competitive and regulatory environment remains very intense and we're making progress in securing the approvals that are needed to create a PAN India scale player in the consolidated market. In terms of their financial outlook, we expect to maintain our momentum in the fourth quarter which along with good progress of our fit-for-growth programming that we're confident that we will achieve our guidance for the year.
And with that, I'll hand back to the operator for Q&A. given the relatively short period of time available.
Can I ask you to limit yourself to one question? I know that's really hard to do.
To ensure everyone gets an opportunity to speak.
Operator
Thanks, Nick. We'll now start the Q&A.
[Operator Instructions] and the first question over the line of Akhil Dattani at JPMorgan. Please go ahead Akhil.
Your line is now open.
Akhil Dattani
Just a question on the service revenue growth outlook, please. And there's two little bits to it.
The first is just on the data mentalization [ph]. Vittorio you mentioned that with the passes you're now revolving you're thinking a bit in certain markets now incorporate in other tariffs.
So just keen to understand what do you see on the ground that's making you do that, is it competitive lead? Or is it a function of just changing your view.
And the second Nick, mentioned the sim-only effect the handset financing drags. So clearly quite a few factors impacting your service revenue trends at the moment.
I guess what I'm trying to understand is we move to IFRS 15, how will that impact this distortions and how will that impact the growth rate report. Thanks.
Vittorio Colao
Thank you. Definitely the second question I'll leave it to Nick.
On the first one let me - I think you said it, the passes have to be seen as part of our more-for-more strategy and of course they're impacted both by competitive dynamics but also by the type of offers that we have in different market. So it is clear that in certain market they are more standalone offers.
In other markets, we have to include them or we want to include them into our converged offers or we want to include it into our sim-only offer. So at the end of the day, pass is another way to give worry-free usage in exchange for something and something is the underlying ARPU.
At the end I would say comfort there is one slide in my pack, the slide that says taking out the distortions. Actually we see a pretty good net ARPU trend and with exception of Spain which was a bit promotional last quarter, so they're part of growth - overall strategy to monetize data and increase usage and they can be used flexibly in each market, to some extent in some markets even to the hour, they can be used.
So I hope I answered your questions. Nick, IFRS 15?
Nick Read
Yes, thank you. I mean obviously slightly complex topic.
What I would say broadly on F 15 is because when you bring in F 15 you're effectively restating your previous year. You won't see a dramatic impact.
You might actually see a slight improvement on service revenue growth. Mainly because you don't get the sim-only drag effect moving forward because of that restatement.
So I think its important F 15 is sort of like a restated methodology and therefore, when you're looking at growth rate etc. not a big impact.
I would say at the moment probably the most material impact we're getting in our results in sim-only in Germany and that's just under about 3 percentage points of drag given that drive.
Akhil Dattani
Thanks. And Nick, can I just one forward?
Do you think you'd stick to service revenues and ARPU 15 or do you think that would support a change to folks in one total?
Nick Read
No, I think we'll still continue to have service revenue.
Vittorio Colao
I personally think it's healthy, Akhil because again we need to look at stuff on which we make money. It's a little bit like enterprise.
You know the more complex project we have like in the UK, the more we have harder equipment, the more harder distorts the real number like for example this quarter. So for me at the end of the day, I look at what generated cash flow, not at reported number.
So in that sense, it's a positive. And sim-only can actually be good.
It's not necessarily the fact that it looks like a lower number that you don't like it.
Nick Read
Yes, importantly to Vittorio's point. You get a higher correlation with your EBITDA.
Vittorio Colao
Yes and cash and everything, so it's good.
Akhil Dattani
Makes sense.
Vittorio Colao
Make your life harder, but it's good.
Operator
Okay. We're now over to Barclays and Maurice Patrick.
Please go ahead. Your line is open.
Maurice Patrick
Question for me on spectrum please. So you have a number of spectrum auctions coming up.
Some I think were combination of new licenses, some were renewals, some 700 megahertz probably expensive of a high frequency sort of 3.4 gigahertz. So the spectrum in aggregate the cost of spectrum probably goes up by your historical €1.2 billion a year but first on that, but also can you share with us how you expect to see as the bidding intensity across spectrum auctions in your key markets.
You could argue that demand is probably higher given your strong dated growth, but then a lots of stretching coming up to [indiscernible] thoughts on competitive bidding. Thank you.
Vittorio Colao
Yes, I leave to Nick the answer about the spreading and how much the €1.2 billion. Is an average and how much instead we have, we might have concentration in certain years.
The second part of your question is intriguing because traditionally I would have said, how can I answer that? Auctions are auctions and it's always difficult to predict, how that would go.
The reality is actually in your question, there's already an element of truth. We have more and more technology options.
It's more and more possible to aggregate bands to exploit traffic in different ways. We can shut down certain elements.
So my sense is that we will become more and more sophisticated overtime as long as we have of course some courage to make some decisions in terms of allocations of bands and use of bands. The actual result of each specific auction in the end will depend on how many people want to have the same band.
But we will have more flexibility in the future. Nick on the financial impact of this.
Nick Read
Yes, Maurice I mean just a piece of comprehensive. In terms of our expectation over sort of 2018, 2019 in terms of what are the up auctions coming up.
We do have a large volume, so 2018 we're expecting UK, 2.3 and 3.5. Germany, 2.1 renewal and 3.5.
Italy and Spain, 700 and 3.5. South Africa at some point I know I've been saying that for five years will come hopefully in 2018 and in 2019, UK 700 and Netherland 700 and 2.1.
So you're right to call out the fact that it is heavier 18 months two years ahead of us. What I would say however though is I stress that these September point, the strength of our balance sheet leverage down its 2.2 times.
So we got a strong balance sheet and we're prepared for the spectrum auctions and have planned for those auctions. And then finally I'd say that just in terms of the €1.2 billion long-term average I still feel that's a good number and it's certainly the number the board focuses on when thinking about dividend cover.
Maurice Patrick
Okay, thank you.
Operator
We're now over the line of Polo Tang at UBS. Please go ahead, Polo.
Your line is open.
Polo Tang
Just have one question in terms of the UK broadband market. You obviously have a part of [indiscernible] CityFibre in the UK for FTTH, but does this preclude you from wholesaling from Openreach and what do you think about announcement today from Openreach in overall FTTH to 3 million homes by 2020.
Thanks.
Vittorio Colao
Polo, it doesn't. Actually our commitment CityFibre is for the first million homes and then we'll see, what it'll do.
If in the meantime, Openreach like they announced this morning wants to expand their reach. I mean that's fine as I said we just had 38,000 net adds in the quarter which is frequency that you know we start from small and it's not consumer broadening [ph] is not a traditional area for Vodafone UK, actually it's a pretty good result.
So we're encouraged by the pickup especially from our own customers and there will always be a debate with Openreach about price and conditions and everything else. So per se the decision to expand is good, we will always want to be competitive in the market and also to be able to make some money or at least not lose money on those connections, but there is no - there's plenty of flexibility and they always say that our fixed broadband strategy is smart strategy, capital smart strategy so we'll not preclude any option, if it's economic.
Polo Tang
Thank you.
Operator
We're now over to line of John Karidis at Numis. Please go ahead your line is open.
John Karidis
My question is about India. Now there's a merger with Idea Cellular is near completion, what gives you confidence at execution there will be smoother than that in Australia with Hutchison.
Is Bharti right to think that this merger is a good opportunity for them to poach a good chunk of your customers?
Vittorio Colao
Yes, you would have to believe that if you were Bharti, right? So listen I don't want to answer in an arrogant way.
We have been planning for this for a long time; don't forget that we need to lose some market share anyhow because we're in certain circles above the how you call, the cap, the competition cap. We have been planning for a long time.
The two companies in a way here are more complementary. Don't forget it in Australia that was Canada prepaid versus contracting, that was a very different positioning and to some extent head on positioning of the two brands and then every market is a different story.
So I will be not be arrogant, we have planned as well as we can, we know that we need to lose some, we are more complementary here than in Australia and we're confident that we'll do a good job, the results will be seen in the markets.
John Karidis
Thank you.
Operator
We're now over to the line of Nick Delfas of Redburn. Please go ahead.
Your line is open. Nick you may want to take your phone off mute.
Nick, can you take your phone off mute.
Nick Delfas
Nick Delfas from Redburn. I just wanted to confirm.
Can you hear - [technical difficulty].
Operator
You're feeding in [technical difficulty].
Nick Delfas
[Technical difficulty] apologies. I just wanted to.
Operator
Nick, can I please ask you to dial back from another number because your line is unfortunately not good. We go over to the line of Dhananjay Mirchandani, Bernstein.
Please go ahead. Dhananjay, your line is now open.
Dhananjay Mirchandani
Thanks for taking my questions. I'm [technical difficulty] new trends.
So active prepaid ARPU was up, volumes while negatively improve sequentially and yet MSR is down 3%.
Vittorio Colao
Dhananjay, we didn't hear first 10 seconds. First again please.
Dhananjay Mirchandani
All right, well. Firstly good morning.
Thank you for taking my question.
Vittorio Colao
Good morning.
Dhananjay Mirchandani
I'm really struggling to get my head around Italian mobile service revenue trends active user ARPU is up, volumes while negative is improve sequentially and yet service revenue is down roughly 3% and there is no real material drag from regulation. So I guess two parts of the question.
Can you please be a bit more specific about what's causing this? And secondly, I think more crucially what do these dynamics imply going forward as Iliad already entered the market.
Nick Read
Maybe if I take the first part and Vittorio will take the second part. Just from understanding the trends, I mean they're fairly straight forward and we have been sign posting these.
So the mobile business down 2.9, why was it down? Or why is it being on a decline trend is because we did a series of price actions last year that were introduced over about six-month period.
We were introducing 28-day billing, we started off with prepaid, we've evolved it into contracts, we've evolved it into fixed. And so phased over the years, so what you're seeing is slowly lapping all of those effects and some other more-for-more price actions we would take in.
we're now fully lapping in this quarter, those price rises and of course given the competitive intensity in the market we're not able to do any further actions at this point in time. What I would say is, fantastic performance.
I'd also take on the mobile side a very resilient performance given the pricing environment and I think it shows, the strength of our mobile network differentiated in the market place and the breadth of our distribution and the overall performance and besides being down in our SCM area. What I would say is also fixed is a strong performance 12% growth and has maintained very, very strong performance.
Vittorio?
Vittorio Colao
Yes, looking ahead Dhananjay. There's three things happening one, is the kind of change tariff adjustment that I think all players are making neutral, the 28 days to over month low requirement.
So everybody is making that neutral for the customers and neutral to us. The second thing we are again pleased and we continue to leverage on our strength on fixed line which in Italy was particularly struggled in this quarter.
We had 95,000 additions, we passed just after the end of the quarter. The 1 million fiber broadband homes, so it's clearly becoming Italy again with a different strategic path, but solid Spain or Germany in terms of convergence.
We launched and we're competitive as the first Euro price point, the Vodafone One converged offer. What I see is, in the market we still have this below the line let me say €9, €10, 20 Gig.
€9, €10, 30 Gig offers which of course are a little bit pre-emptive of the Iliad arrival and so we have to be careful not being dragged into this kind of portability games that other operators are deep into. We're ready to see the arrival of Iliad and I guess in May, you, I and all the other people in this call will have something interesting to talk about.
We're just where we are last time, consolidating our base. Being competitive and pushing convergence is the strategy so far.
Dhananjay Mirchandani
Thank you.
Operator
We're now over the line of Robert Grindle of Deutsche Bank. Please go ahead Robert, your line is open.
Robert Grindle
My question is about churn and impact on customer cost. It seems like contract churn has moved up in a few of the European markets.
You flagged commercial activity in Spain etc. and I think Nick said something sim-only in Germany, but should we be concerned about rise in customer cost because of this or is it more about sim-only and we should be less worried about customer cost, which were actually very benign in the first half earlier year.
Nick Read
Robert, I wouldn't be worried about customer cost. I would say that we are being - quite a lot of signs to our investments ensuring the right channel mix is driven as we've discussed before and CRM is targeted on a personalized one-to-one offer basis.
So we're managing it if you like the economic value of the customer. Of course we'd stay focused on churn, we don't like churn and we're constantly trying to work it down.
I would say we had a few promotional hits in the quarter and therefore churn picks up slightly, I don't see that as structural.
Vittorio Colao
Yes. [Technical difficulty] content from a cost perspective the guidance is robust.
We're also don't forget very focused on the transition to digital which is also another way to make sure that customer cost actually go directionally in the opposite direction. So here there are different forces at work.
As I said no concern for the rest of the year, but also longer term the transformation into digital will make less I would say straight to link between promotional activities and customer cost. We can still have a bit of churn, but the cost can be managed better in a digital environment rather than in the street as you all know.
Robert Grindle
Great to hear, thank you.
Operator
Okay, we're now over to line of Jonathan Dann, RBC. Please go ahead.
Your line is open.
Jonathan Dann
It's a question on the de-convergence [ph] trends. It looks each quarter as though net adds as convergence is sort of cracking just below net adds of the broadband base.
So I was wondering would you ever expect to see a sort of rapid expansion of convergence through the back half of existing customers.
Nick Read
I'd say our primary focus at the moment is actually driving fixed net adds performance. I mean in the end customers are switching over to NGN networks and there's a window of opportunity that we're really trying to exploit.
At the same time, we then try and once we have the base convert them across the convergence. So I would say that's why you're seeing trends go up.
Vittorio Colao
Yes, I would say we have an opportunity. We're delivering well on fixed because we have an opportunity we're newcomer to the game and as I said, I think our strategy market-by-market is smart and that is the strategy, then how much you push for convergence depends also a lot on the specific conditions on the market.
In the Netherland where KPN is highly converged is clear that our objective and we're already with Ziggo big in cable. It's obvious that our push is for convergence.
In Italy as I said for example we played a little bit of mix game. The first objective is to get fixed broadband customers.
Now we launch also the Vodafone One and we also have a little bit of acceleration in the converged piece, but it depends on the state of maturity of the market of Vodafone and the opportunities that we have in front of us.
Jonathan Dann
Thank you.
Operator
We now go over to Mandeep Singh at Redburn. Please go ahead.
Mandeep Singh
So the question I really had was coming back to what Akhil was saying in the beginning, if you focus on net ARPU which is sort of gross margin EBIT sort of metric that you can track better than we can because you don't have the disclosure, we don't have the disclosure. I mean, if ex-regulatory impacts, ex-handset financing.
Would the growth rate that we're experiencing will be substantially better than what we see presented in service revenue trends. I know you can't necessarily give us a number, but just directionally in orders of magnitude please.
Vittorio Colao
I leave the quantitative part of the answer to Nick, who's kind of scratching his head now. But directionally you're right that's what I really look at and that what tell us if the market is healthy and I have to say in that sense, the more-for-more strategy is exactly what is trying to achieve, to achieve that the net income for us would even ground including commercial cost because at the end of the day, the more we are digital, the more we can manage that part in a proactive way, not just being victims of what happened in the industry, the net margin to us is an important thing.
And in the future, we will become more similar to an Amazon or to a one of this players who really look at the net margins that they can derive from any commercial operation after digital acquisition and customer management cost. I understand your life would be more difficult, we'll do our best to be transparent.
Unfortunately there's also accounting changes in the way, but directionally that's what I think our dialog should be on, because this is real measure of their health, of the customer. Nick, did I give you enough time to?
Nick Read
You gave me enough time to think through. I mean, how I look at it Mandeep.
If you take the mobile contract European ARPU, you're talking we're down about 2.6% year-over-year, off that 2.6% and I'm talking broadly I'd say about 2 percentage points, these are regulations or UK handset financing, so we're just slightly down, why we're slightly down. We're little bit sim-only drag and then probably a little bit of I would say end surprised price pressure in the market place on renegotiation.
You're talking for broadly stable as a dynamic. I have to be honest increasingly.
There are so many distortions going on in mobile ARPU. So given example you know in Netherlands did an operational review therefore a couple of days and as we drive as Vittorio said, drive a convergence into the back.
We're applying a €5 discount to the converged package onto mobile. Now it's an allocation methodology that's simple about the same time just looks like mobile's in decline.
When in fact what we're really doing is improving the performance, the economies of the customer and life time value on a converged package. Mobile ARPU in around and mobile service revenue, lots of allocations there overtime.
So I can see this overtime moving more to what's the total revenue of the company, the customer, etc.
Mandeep Singh
Okay. Thank you.
I was just following up for Nick, who had troubled dialing from a busy landline.
Nick Read
Yes, I can imagine.
Operator
Okay, we're now over to David Wright, Bank of America Merrill Lynch. Please go ahead David, your line is now open.
David Wright
Just a question on India, where you've obviously had the deal announced. I guess give or take year ago it initially looked a little stretch from a gearing perspective, you sense out some changes the MTR cuts and obviously the competitive intensity remains volatile, you just announced the recapitalization, is that it now?
Are we done into deal closure? Or can you foresee the need for any more capital into that business?
For instance you think in this etc. or do we think we're done, thank you.
Nick Read
We've taken, David a number of actions as you've seen there's the €1.8 billion incremental equity, we've done the €1 billion proceeds of the standalone towers. We're actively working on Indus Towers so you got the 11% ultimately let's call that another €1 billion going in.
You add on top that we've been working in discussions with the government about spending the spectrum license. We think - that will go through this month, so going from 10 years to 2016 improves if like that liquidity position.
And of course significant synergies to come. So yes it does rely on the direction of the market.
We think the current position is an unsustainable one because we're underneath cost for all players and so let's see if it was just a moment of excessive intensity given a lot of players were exiting the market and I think there was a little bit of land grab for those customers, but no we're confident that any support that we may be required on funding going forward. We've got the Indian Tower efforts and therefore won't have an impact at good reported leverage position.
David Wright
Just to be clear, this is not beyond the original Indus Tower and you're not talking any of your Indus effort outside the perimeter of the original plan, is that correct?
Nick Read
As is point in time, we're exactly per our initial plan. Reports we have, a sizable Indus slate [ph] sitting over in India as well and of course we said all along that slate that could get liquidated overtime and we'll see what we'll do with funds.
David Wright
And still calendar first half or was it, fiscal first half targets of completions.
Nick Read
I think [technical difficulty].
David Wright
Calendar. That's all the questions I guess.
Thank you very much guys.
Operator
Okay. We're now over to San Dhillon at Exane.
Please go ahead. Your line is now open.
San Dhillon
So I guess your thunder was somewhat stolen this morning, given that one of your European telecom player made a larger bid for a content broadcast company. I would love to get your views on kind of convergence of TV and content into kind of fixed mobile bundle whether do you think that is important especially given that you have pretty large TV exposure through your cable acquisition churn in Germany, Spain and in the Netherlands as well.
Vittorio Colao
Well this is big topic. I imagine you're referring to TDC.
First of all I wouldn't call TV I will call video. Because what is TV and what is not, TV is becoming very blurred.
Our position remains the same, we love to distribute video whether it's Netflix, the BBC, what other Sky, YouTube, we love it and we love to have to have the possibility to monetize it, whether it's on cable or on mobile it doesn't make a different. This is very different from the need to own kind of production asset.
I'm sceptical about the need to one production asset. I'm sceptical about the ability to monetize exclusive content drive typically football or Soccer, which is usually very expensive and has become more and more expensive very hard to monetize in a direct way.
That does not mean that some operator especially in particular kind of linguistic or cultural areas of the world might see a value in doing it. I still remain not convinced that at the end of the day content should go to everybody and I don't see few synergies in owning exclusive production or rights for a telecom operator.
Unless you think you cannot distribute to your competitors and use it in a let's say anti-competitive way which usually the regulators don't allow. So we remain on our - we like to distribute, if we're forced we can also bid but we don't think it's value creating.
San Dhillon
Okay, thanks guys.
Operator
We're now over to Andrew Lee at Goldman Sachs. Please go ahead, Andrew your line is now open.
Andrew Lee
I just wanted to follow-up on Robert's question around churn. I wondered can we go back to cost reductions and EBITDA today, if we could give us an update on your digitalization improvement on the top line and when we should start to see that coming through.
If there is any stats you could give us on customer perception improvement from your digital tech you've incorporated so far, the NPS scores, churn, your cause into call center, successful conversion rates of upselling. If any, you could give us the - -can you show us the impact of any positive impact of digitalization on your top run today and if not, when should we start seeing that come through?
Vittorio Colao
We prefer to give those details a little bit more time and a little bit kind of explanation, so probably May would be the right time and kind of in person presentation would be probably better. Let me say from my point of view this is a multiyear program.
We are very optimistic about the ability to deliver real actual cost reduction from the digitalization and real actual improvements from the customer point of view in terms of the experience. Initially more on the consumer side and the enterprise side will take longer and we have I would say, we're already ahead of our implementation plan with more and more up cost coming onboard between now and April and whole of the Vodafone being full in the program next year.
it's a multiyear program, so we had this topic over and over again, but I would say rather than giving kind of gross target that in the end complicated for you guys because then you need to see how much is really invested. I think you will see the benefits in net actual cost reductions.
Nick, you want to give out more today or you were prefer to wait for May.
Nick Read
I think we wait for May, I think you've summarized well.
Operator
Okay, due to time constraint. The final question for today is over to line of Justin Funnell, Credit Suisse.
Please go ahead your line is open.
Justin Funnell
I just wanted to touch on margins a bit. I mean without drawing you into conversation about next year's guidance.
So if we can just take a look back at Slide 6, just to understand the margins of these different revenue segments a little bit more. So European consumer was growing presumed that's a decent margin business, same for AMAP, consumer fixed line because your cable assets a good margin.
Enterprise I suppose some margin there. And then if you look at the negative drag, you got regulation, you get good margin on inbound, roaming but less on outbound.
Handset financing I think you essentially [indiscernible] margins negative in this segment because of [indiscernible] so is it strategic because this could actually boost your EBITDA and then carrier presumably is low margin business. So ultimately kind of get to the implied EBITDA growth coming out to this sort of revenue mix.
You got about 3% growth from the green boxes. The gray is sort of very low margin.
I sort of rule thumb take 3% times by two to get to EBITDA growth from operational gearing and then add on savings. Well I'm getting a sort of mid-to-high single-digit EBITDA growth rate.
As before obviously impact of Iliad and so what I'm getting wrong when I make that sort of calculation, please?
Vittorio Colao
And I love your way of saying I don't want to drag you into next year guidance and then try to backward engineer me into a question that gives you that. Let me say, I think your analysis is not wrong and that's why we wanted to say that you're confident about our delivery for this year not for next year.
You also confirmed more or less the what we said, was we said so far in the year that we see a modest revenue growth but a more sustained mid single-digit EBITDA growth. Of your comments again I don't want to go too much in detail.
If one wants to be really picky you would say probably the wholesale MVNO part of the gray is real profit that you didn't mention because of course that money that comes in and goes to the bottom line, but everything else you've said directionally right, I would say.
Nick Read
Justin I'm just sitting here and little bit confused while you're saying growing at 10% is somehow we're not pacy [ph] enough for you.
Justin Funnell
No, I think the basic issue with your share price is that, people love the 10% but don't really think it's sustainable. Whereas your slide there on Slide 6, it's the maths of the margin, [indiscernible] different columns is right.
Then there I say perhaps it is, at least before we think about impacts of Iliad initially.
Vittorio Colao
We're not going to give guidance for next year. I think we basically said that you're apart from this comment on wholesale, your comments are directionally right, but we're not going to change guidance or to even talk about guidance.
For this year, we're confident we can deliver.
Justin Funnell
Okay, thanks a lot.
Vittorio Colao
And we need to leave something for May apart from digital [indiscernible].
Operator
Okay, as that was the final question for today. [Indiscernible] back to you for any closing comments.
Vittorio Colao
I mean I think we covered really lot of ground I would say good delivery, growth give and take more or less in line with previous quarter and I would say happy about the convergent momentum especially on fixed line but also on mobile once you look into the details, we're continuing to deliver and we're confident that we can confirm the guidance and then have a good discussion in May about next year. Thank you very much for all of your questions and I look forward to seeing you in the coming weeks.
Operator
This now concludes the call. Thank you all very much for attending and you can now disconnect.