Jan 25, 2019
Operator
Good morning everyone and thanks for joining us for this Q3 Trading Updates. I'll take you through the commercial and strategic highlights and a Margherita will concentrate on the trading performance in and major markets.
So starting with the highlights on Slide 3, overall we've had executed at pace this quarter as the organization focuses on delivering the strategic priorities I laid out in our November update with momentum across add value drivers. This is not yet translated into better financial performance with service revenues growing by 0.1% in the quarter slightly lower than in Q2 given a slowdown in South Africa.
However, we improve the consistency of our commercial performance in the quarter with clear improvements in Italy and Spain in particular. As we look to deepen our customer engagement selling more products to our existing base, I view churn as an increasingly critical metric.
In Europe, our mobile contract churn declined by 1.4 percentage points in the quarter, which is a good start although there is still significant improvement to target. This supported good European contract customer growth of 201,000.
Our success in fixed line continues with 226,000 broadband ads and 188,000 conversions adds in Europe. In our Rest of World segment, formerly AMAP, data users and usage continue to grow strongly up 8%.
And for the overall group, we maintain our leading IoT position with 27% growth in connections. My second priority was to accelerate and digital transformation and as part of this to move the organization to a radically simpler operating model.
We're making good progress as demonstrated by our restructuring announcements in Spain and the UK. And we are very much on track to reduce net European OpEx by $400 million this year.
My third priority was to improve our asset utilization through partnering. We've announced to exciting partnerships in the past two weeks extending their existing network sharing agreement with O2 in the UK to include 5G and a strategic commercial agreement with IBM for cloud services.
I will touch on each of these later in the presentation. Given our progress, we are confident we will deliver our full year guidance objectives of around 3% underlying EBITDA growth and free cash flow of around $5.4 billion.
Moving to Slide 4, I would like to highlight the improvement in our mobile contraction in this quarter. We now have single-digit churn rates in a number of our markets which is testament to our leading network quality and customer service, have focus on driving convergence and the use of big data analytics to drive effective personalized offers.
As you can see from the chart, the improvement is broad-based across our major markets. I have excluded Italy given is predominantly a prepaid market.
Turning to our European consumer segment on Slide 5, which represents 49% service revenues. The chart on the left shows that a European commercial momentum improved during the quarter led by much improved performance in Spain.
Fixed share gains remain a key driver of European revenue growth with 226,000 net ads in the quarter. This includes 414,000 new NGN customers while it further 188,000 customers adopted converge plans.
The right hand side of the page shows the improving quality of our fixed broadband base compared to last year. $14 million of $19 million broadband customers are now on NGN up by 1.7 million year on year.
Crucially, we now have 10.7 million customers on our NGN infrastructure or in our strategic partner's footprint both with highly attractive economics. As speed advantage versus incumbents remains an important driver of our share gains, with 73% of new customers in Germany now choosing plans with at least 100 megabits per second speeds.
And last but not least, over one third of our broadband customers are in converged bundles, which is one of the drivers of our improved mobile contract churn. Turning to Slide 6 and the business segment which accounts for 30% of service revenue.
Here we continue to outperform most of our global peers. As we take share in fixed and capitalize on our leadership position in IoT grown by 0.5% year-to-date.
These growth opportunities are offsetting ongoing price pressure in mobile both from contract renewals in large corporate accounts and in the SoHo segment where lower consumer prices have an impact. As you can see in the chart on the left mobile revenues have fallen by 0.9% year-to-date as a 5% ARPU decline offset customer growth.
IoT revenues continue to grow strongly up 10% year to date with 17% growth in connectivity, offsetting the impacts of the slowdown in the automotive market on our hardware related revenues. Fixed which represents 32% of segment revenues grew 3.8% year to date supported by a strong performance in our cloud business.
Cloud services are a key opportunity to deepen our customer relations ships with large corporates moving forward, which is why the IBM partnership announced this month is so important. Under the terms of this eight-year managed service agreement, we will retain the cut in customer relationships and our customers will immediately have access to all of IBM's leading multi cloud offerings.
This multi cloud concept is important because it enables corporates to access the best of AWS Microsoft and Google's public cloud services as well as the benefits of IBM's leading private cloud services. From a business model perspective there are significant benefits of Vodafone.
We will reduce our exposure to capital intensive legacy data centers and will instead move to a capital light variable cost model driving substantial long-term cash savings. This is a good example of improving our customer offering through partnering while simplifying our operating model and improving our asset utilization.
Moving onto the emerging consumer segment on Slide 7 which accounted for 16% of group service revenues and grew at 6.4% during Q3. Here, we continue to see good momentum in contracting ads.
However in South Africa, prepaid gross ads were impacted by initiatives to reduce the one-off use of SIM cards. On the right you can see how data continues to be the key growth drivers for this segment.
Data users grow by 8% to 79 million and 4G customers grew by 48% to 38 million. This supported strong data growth of over 50% in the quarter.
However looking at the bubbles below the chart you can see that we still have a lot of opportunity ahead, only 69% of customers use data services and only 33% of customers used 4G, although this is increasing rapidly up 10 percentage point year-on-year. We’re successfully monetizing this growth in all markets both South Africa, where we are in the middle of a pricing transformation to lower the unitary cost of data, which Margherita will talk about shortly.
Another significant growth driver is our African payments platform and M-Pesa. Active customers grew 14% to 37 million.
On Slide 8, I want to describe the exciting opportunity I see ahead for the group to improve asset utilization through 5G active and passive network sharing partnerships. As we approached the rollout of 5G services, the industry as a window of opportunity to unlock significant industrial savings.
Therefore, we have been actively engaged in discussions across multiple markets. On the left side of the page, I described the key principles, which are shaping our approach.
First and foremost, this is about realizing material OpEx and CapEx efficiencies through sharing both the passive tower grid and the active 5G network elements. Second, we want to work with partners, who share our focus on high quality services maintaining a network differentiation versus value focus players.
Third, we want to share active equipment outside major cities, which we broadly defined cities with less than 100,000 populations. As we've discovered in the UK traffic management in dense urban areas is highly complex and this is especially the case, where one partner takes a different commercial approach to the other.
Typically, this approach still leaves scope to find efficiencies across at least 3 quarters of the total sites in each market, while leaving the scope for differentiation in cities, which is important for the business segment. Finally, this approach naturally dictating market-by-market perspective when evaluating different tower ownership scenarios, it also means that any monetization opportunities must wait until active sharing negotiations have concluded and there is clarity on the plan shape of the newly combined network grid.
The announcement on Wednesday of our intention to extend our existing network sharing agreement with O2 in the UK meets all of these principles. We will share 5G services across 14,000 sites based on our existing combined passive infrastructure.
We will also explore the scope to share fiber transmission networks driving further savings. At the same time, we will unwind existing 4G active sharing arrangements in around 2,500 sites in the major cities outside London.
Once the active sharing group has been finalized which typically takes around 6 months, we will be able to start exploring a potential monetization for CTIL, the joint venture which owns our passive tower infrastructure. Let me finish on Slide 9 by giving an update on our broader thinking on towers.
Clearly given our focus on driving industrial efficiencies through active and passive sharing on a market-by-market basis, followed by the potential monetization at a country level, we are no longer considering monetization options at a pan-European level for our towers. This approach also recognizes the fact that through our due diligence work in some of our markets, there are fictional costs in setting up new independent tower legal entities such as capital gains tax as well as different strategic considerations.
However, on top of the market-by-market sharing arrangements, we continue to see material opportunity to unlock efficiencies and driving improved tenancy ratios through establishing a virtual TowerCo across our European markets with dedicated management focus. During the quarter, we have progressed a detail due diligence on our towers although there is still much to do given the volume and complexity.
What we can conclude at this stage is quite encouraging. While our average tenancy ratio across the towers we control is around 1.4 times, there is a significant difference between urban rooftop towers, which is typically harder to add new tenants given space emission constraints and the landlord leasing issues.
And last, where there are fewer restrictions. In general, we have done a reasonable job of leasing up air masts with an average tenancy ratio of 1.7 times, including two times in Germany.
However, in all market we are convinced that there is still further opportunities to improve given dedicated management focus. And with that, let me handover to Margherita to review our trading performance in the key markets.
Margherita Della Valle
Thank you, Nick, and good morning everyone. I will start by summarizing our overall service revenue performance on Slide 11.
Before getting into the main markets in more detail, as the chart on the left shows on an 18 basis, our organic service revenue growth adjusted for UK and financing slowed quarter on quarter to 0.1%. This slow down was primarily driven Vodacom by which reported negative data trends in South Africa yesterday.
The chart also shows our growth on an IFRS 15 basis, as you know we will be fully transitioning to the new standard next year for our management reporting. Based on IFRS 15, our growth would be slightly higher in the quarter at 0.4%.
Ultimately, the differences between the two accounting approaches are small as you can see from the prior quarters. The chart on the right shows that growth in Europe remains stable quarter on quarter at minus 1.1%, and improvement in Italy was offset by lower growth in Germany with the UK and Spain broadly similar.
In the rest of the world which is effectively the same parameter of the former AMAP region, we continue to good growth in Turkey and Egypt which is partially offset the slowdown of Vodacom. Looking ahead, we expect group service revenue growth in Q4 to be softer and this reflects a number of factors including ongoing solution from the commercial set in Spain and the prior year comparison in UK business revenues.
However Q4 is expected to be the low points for European service revenue growth given our improving commercial momentum as well as easier comparisons ahead in Q1. Now moving on the individual markets on Slide 12, with Spain.
When we last meet in November, there were a lot of questions about our performance in Italy and Spain, so let me start with an update on our progress in these two markets. In Italy the decrease in service revenue moderated to minus 4.6% in Q3 compared to minus 6.3% in Q2.
This reflected a number of positive dynamics which have summarized on the Slide. Overall competitive intensity is significantly quarter on quarter primarily because the main mobile network operator reviews the promotional offers.
As a result, total mobile number portability volumes in the market where at third lower quarter on quarter and in December monthly volumes were 50% lower than 2018 peak, almost returning to pre new entrance levels. As you can see from the chart on the rights, our commercial performance in mobile improved throughout the quarter with minimum port outs in November and December.
Our second brand launched in June to specifically address the low-value segment of the market continued to enjoy good momentum and we have now reached around 1 million customers. This is worth maintaining a €2 premium compared to Iliad's current offer.
Only around 10% of new customers are now coming from the Vodafone brand well below our fair market share. Our improved performance also reflects last quarter more for more actions in prepaid mobile, which have to mitigate the ongoing ARPU revolution as higher value customers trade down to cheaper plans.
Additionally, we maintained our strong momentum in six of the 78,000 customer in the quarter despite the €3 the price increase at the beginning of October. Turning next to the Spain on Slide 13.
Service revenue declines was similar to the prior quarter at minus 7.4, as the impact of our commercial repositioning continues to flow through into our financials, however we have seen a stabilization of our commercial performance in the period which is highlighted in the right hand side. During the quarter competitive intensity reduced as the aggressive summer football promotions ended.
Typically, the duration of promotional offers has reduced to 3 to 6 months compared to 50% discounts for 12 months in the summer. While net product in October remains challenging due to a large defects on the summer offers.
Our performance improved during the quarter and we achieved broadly stable porting ratios in both mobile contracts and fixed in December. Our portion performance against mass mobile remained inline or better than our targeted level of acceptable losses, and we actually incur that the fewest total to mass mobile of all operators in Q3.
Products versus the incumbent also came back to a new preparation during the quarter and the summer football promotions ended. As a result, our customer trends improved with broadband losses reduce into 6,000 from 69,000 in Q2, and TV customers growing by 13,000.
However, the adoption of new commercial offers across our customer base is driving an ongoing articulation of minus 4.9% year-on-year. We will begin to lap each year prior year comparisons from Q2 next year, when we fully unrealized the impact of our commercial repositioning.
Within this challenging competitive context, the Spanish team has been focused on radically simplifying refining our operating model and that engage with unions on a reduction of up to 1,200 FTEs. Turning now to Vodacom on Slide 14, service revenue growth slowed sharply in the quarter to 1.5% compared to an underlying performance of 4.6% in Q2.
As you can see in the right hand chart, this slowdown was principally driven by South Africa, which declined by 0.9% in Q3 after a long period of steady mid-single digit growth. This was driven by the impact of our ongoing pricing transformation strategy which aims to lower unitary data prices, drive data usage and reduce our exposure to out of down the revenues, which are now only around 5% of service revenue.
As part of this strategy, we offer generous data promotions during the summer period. However, in the current recessionary microenvironment, customers choose to optimize their spend rather than increase their usage, consequently data revenue growth in South Africa was slightly negative in Q3 having grown up 3.9% underlying in the previous quarter.
Although, our summer promotion has now come to an end, improving our underlying performance, new out-of-bundle the regulation will be implemented on March 1st, with a full quarter negative impact of around 3 percentage points on growth. So, we expect South Africa service revenue to be broadly stable for the next few quarters.
Longer term, however, we remain optimistic about the potential for significant growth in data usage which is only 1.1 gigabit per mapped device. In this context, the upcoming spectrum auction is important as it will unlock significant additional capacity, allowing us to further reduce the unitary cost of data.
In addition, the international markets which now represent over a quarter of service revenue continue to grow at a double-digit pace supported by data growth and the ongoing success of M-Pesa. Moving on to Germany on Slide 15, growth slowed to 1.1% in the quarter compared to 1.7% in Q2.
Our retail revenue trends remain robust as you can see in the right hand chart with growth of around 2%. However, declining mobile and fixed virtual network operator revenues from one and one have become a meaningful driver on our headline growth, as their customers migrate from our wholesale DSL to DT's VDSL and from our 3G mobile network to Telefonica's 4G network, this drag will continue.
Focusing on our retail revenue growth the quarter on quarter slowdown was principally driven by the business mobile segment, which can be lumpy from quarter to quarter depending on large deals. However, we maintained good commercial momentum adding 165,000 mobile contract customers and 73,000 broadband customers in the quarter.
Our converged customer base also increased by 95,000 and we now have 1.3 million converged customers. This has helped to drive a further notable reduction in mobile contracture, which was down 1.8 percentage point year on year.
During the quarter we also continued to announce our fixed line capability, we have successfully switched off analog TV services from over, for over 70% of our cable customers to support the efficient rollout of DOCSIS 3.1. We are now offering gigabit speed across 6 million homes and we aim to reach over 8 million homes by our fiscal year-end.
Onto the UK on Slide 16, you can see a consistent performance in the UK which grew 0.9% excluding the impact of handset financing similar to the 1.1% reported in Q2. We maintained good commercial momentum across both mobile and fixed, which supported robust consumer service revenue growth of 2.1%.
As you can see in the right hand chart, our customer performance in mobile continued to accelerate with 109,000 contract net adds supported by a 2.3 percentage points year on year improvement in contract churn. This momentum is the result of several successful commercial initiatives.
In November, we launched a new loyalty program, VeryMe, which is accessible via the MyVodafone app. Initial take up has been encouraging with 1.2 million customers currently accessing the broad range of benefits available.
Mobile contract ARPU was stable year on year an impact of APIA linked price increases was offset by the introduction of the new spend capping regulation in October. Around a quarter of our customer base has elected to allow zero monthly average.
Additionally, mobile ARPU remains remain under pressure in the business segment, however, business fixed revenue continue to grow supporting a broadly stable overall business performance. Looking forward, in Q4 we faced a tougher comparison in our fixed business, but the UK remains on a growth trajectory, given a good commercial momentum and record NPS.
I would like to conclude the market review on Slide 17 by touching on the consistently good performance of what I would call our fifth European operating company the Europe cluster. In aggregate, the cluster markets represent 12% of our service revenues which means that they are collectively bigger for example then Spain.
Service revenue growth continued to be very healthy at 2.2% in the quarter similar to Q2. Customer growth also remained robust across both mobile and fixed, and we have now reached single-digit mobile churn in four of our markets.
And with that, I will hand back to Nick for the summit.
Nick Read
Thank you, Margherita. If we just turned to Slide 18, overall, this has been a quarter where we have executed at pace on our strategic priorities.
While this is not yet evident in our near-term financial performance, so I am confident that we are building the commercial foundations for recovery. We have begun to deliver more consistent commercial momentum, particularly in our key Southern European markets and churn starting to come down.
In South Africa data pricing transformation will weigh on our performance over a few quarters, but I'm confident in the medium-term revenue growth outlook. We're accelerating digital transformation and our on track to deliver a targeted $400 million in net European OpEx savings this year and to sustain this performance over the next following two years.
The announcements we've made in Spain and the UK where we are rapidly simplifying our operating model also support this objective. And we have now announced important partnerships to improve our asset utilization with more to come.
This progress means we are very much on track to deliver our full year guidance. So with that, let me hand over to the operator for your questions.
As always, please restrict yourself to one question, holding that temptation for a follow-up, so that we can cover more questions from everyone.
Operator
[Operator Instructions] So we, first of all, go to the line of Akhil Dattani at JP Morgan. Please go ahead.
Your line is now open.
Akhil Dattani
I just wanted to touch on the comments you made around the service revenue outlook from here. You've obviously said, Q4 will be a bit soft and called out why?
When we think about the message thereafter, is the message thereafter that we actually start getting structural rebound if there is? What's driving that or what markets would you call out in Europe that supports that?
And linked to that, in Germany, I think you mentioned some B2B pressures you're facing. What exactly does this relate to that specific contract is that more broadened and I guess it's just linked to the whole message of European revenues?
Do we see Germany getting better too?
Margherita Della Valle
Thank you, Akhil. I will probably start from the second questions of very simply B2B in Germany.
We see this I mentioned before on the slide, more as a lumpy movement. We've ever slow down in Q3 verses Q2 driven by business mobile.
But it is more related to specific deals and therefore we expected this to be if you want an up and down type of trend at the moment. I wouldn't extend it further.
To your earlier question, how do we see the future revenue trends? From a European perspective, as I mentioned we feel that Q4 should be the bottom clearly you can always think there could be changes in the competitive environment, but what we see at the moment in our business is encouraging trends.
We did mention the commercial performance as here that we are talking about a good commercial performance in particular supported by positive churn trends. And this should be the proposer of that revenue performance.
But of course very importantly also from an ARPU perspective, what we see is that as we get into next year between Q1 and Q2 we should see Southern Europe ARPUs lapping in Spain in Q2 we were lap in full the commercial repositioning that we made last year. You may remember we announced it in May.
And in Italy into run we will not lap the impact of the 28 days. So generally speaking encouraging customer trends combined with lapping ARPU trends is what we are looking forward into next year in Europe.
Operator
We now go to the line of Robert Grindle at Deutsche Bank. Please go ahead, Robert.
Your line is now open.
Robert Grindle
I'd like to ask a question about CapEx. You've flagged today, Nick, on your strategy for greater asset utilization on your progress there, more network sharing, assets like cloud with IBM et cetera.
On the other side, you've got an issue with Huawei I think you're on the tapes this morning saying, a suspended use of them in the core. And how are you feeling about CapEx looking forward with these initiatives?
Is that Huawei issue a risk at all? Are you comfortable [Technical Difficulty] a better outlook to CapEx given all your initiatives?
Nick Read
Yes, Robert, thanks for the question. I would say that, we -- I really do believe that this as we approach 5G there is this window of opportunity and therefore we are really moving at pace with many players predominately around Europe to understand where there an opportunity to more passively share and actively share.
And I think we have the right formula in our mind now, as to what that looks like and we're seeing some good alignment with a number of other operators. So I think all that just underpins the fact that as we move into a 5G world, we feel very confident in our mid teens capital intensity guidance.
Specifically on Huawei, what I was really trying to make clear is, I think we need to move to more a fact based conversation, I think at the moment is a simplistic political level and there is a big distinction between radio and core. We are predominately using Huawei in radio.
We are continuing to use them in radio for 5G. However in the core, we have put them on pause.
They are not significant in the scale of our operations in the core and therefore it's not a big financial implication. Though if we were having to replace in the core that would take a couple of years to execute.
So, it's more a execution complexity more than it is a financial consideration. Clearly, if there was a complete ban at the radio level then it would be a huge issue for us, but it would be a huge issue for the whole European telco sector.
And what, Huawei have probably, what 35% market share through the whole of Europe, so I think that is a totally different consideration, but we now need to make a lot more fact based conversation. And I think you're going to see more and more operators doing that.
We’re putting the call on pause. We’re not replacing at this stage because we now is the moment to engage with the security agencies with politicians and with Huawei to improve everyone's understanding and make it clear these steps Huawei are doing in terms of the engineering processes that they are committing through for the security agencies.
Operator
Okay, so we now go to the line of Nick Delfas at Redburn. Please go ahead.
Your line is now open.
Nick Delfas
A question on towers, could you just explain a bit more on the timing of monetization in the UK? Also you don’t list the split between mosques and rooftops.
I just want to understand, what’s scope you see for increasing tenancy in the UK and where you think the tenancy would come from?
Nick Read
Nick, just in of specifically on timing, we are going with a non-binding heads of terms. I think we have very strong alignment between us about the various aspects of what we want to agree.
However, we do need to now convert that into a detailed contract between the two of us typically going through all of those details takes up to about six months to do that. Once you're at that stage, you really have a very clear.
If you like inventory, MSA understanding of why you’re setting anchor tenants fees, what control points you want and therefore we can have a more informed conversation on the monetization side. Just broadly I'd say rather than just the UK in terms of my tenancy rooftops, I would say from the presentation you can definitely see the opportunity to lease up further.
So this is why we still want to go with the virtual tower company in Europe.
Operator
Our next question is from the line of Georgios Ierodiaconou at Citi. Please go ahead with your question.
Your line is now open.
Georgios Ierodiaconou
My question is around Germany, and yesterday, we had some news that one of your main wholesale partners would be participating in the auction and is looking to morph into an MNO. I was wondering if you could share with us.
What are your existing contraction obligations? What are your thoughts around this kind of moves, whether it entices you more to be generous with the MNO terms or not to be there at all?
Anything you cans share on that would be great.
Nick Read
Obviously, the current contract is commercially sensitive and confidential. But I would say broadly speaking on that it's a 3G only contract.
We are able to serve notice any time on that contract. And then there's a orderly transition period because obviously we wouldn't want to disrupt the business around.
So I would say, it's a contract that has the right terms and conditions in it. More broadly, I think, for drillers to go and change to an MNO, I think is more a question for them.
I think important considerations stable obviously be going through is the coverage obligations that they will have to meet. The fact that there is no firm obligation from existing MNOs to offer international roaming, clearly, I can imagine that MNOs may engage at right commercial terms.
But whether that ends up meeting the financial requirements is a different thing. And this is a big move for them to go from what has looked to be a very successful asset light strategy into a slightly less predictable asset heavy strategy.
And therefore, what type of returns they can get as a fourth infrastructure going in. So look, I think these are early days and let's see how the spectrum auction turns out.
Clearly at this point, we can't engage ahead of the spectrum auction.
Operator
Okay, we now go to James Ratzer at New Street Research. Please go ahead, James.
Your line is now open.
James Ratzer
Question on Spain please and take you the kind of commentary or making around Q4, getting a little bit softer. I want to understand a bit more behind that.
And the reason I am asking is try to look at your Spanish trends and try to desegregate between what's happening with losses on football customers at the high end. And then what might be happening across the broader base?
Is it looks to me, if I just ripped out the impact of football losses? Actually, your trend this quarter has improved maybe by up to 100 basis points.
So, I'm trying to just get a better understanding on, what specifically it is that then is causing more of a slowdown in Q4, that didn't happen in Q3?
Margherita Della Valle
Well, James in Q4, we will effectively continue to see the impact of the pricing realignment that we did back in May last year. And we will continue to see the impact of the football customer losses.
The impact on football should be seen in two ways by the way. We have the customer losses on one hand, but we also add also the specific issue once revenues coming from football on certain customers that have been impacted.
Looking ahead to Q4 at the moment, we do not see materializing in the market right, a wide spread more, four more times that we had last year at this time. And therefore, we would expect to see, if you want an inflection in trends with the visibility we have now more into Q2, where we will lap in full the prices of last year.
James Ratzer
Are you able to give us any gear on the magnitude is a slowdown, you might see, therefore, in Q4?
Margherita Della Valle
We're not giving specific market-by-market guidance on a quarterly basis.
Operator
We go now to the line of Maurice Patrick at Barclays. Please go ahead, Maurice.
Your line is open.
Maurice Patrick
Just on the UK markets. So, if I'm not wrong you added about 40,000 -- 46,000 fixed broadband customers another strong quarter.
I saw CityFibre recently talking about acceleration they've build and they're talking about a very strong 2019 build. Can you share with us, early thoughts in terms of the uptake in those CityFibre areas?
I mean, the loyalty penalty appears your major issue in UK pricing right now, your thoughts about sort of UK growth going forwards and CityFibre will be helpful.
Nick Read
Look we’re pleased with the progress on CityFibre. They're building in 10.
We're live in three. Quarter four we'll be live again with another two.
So in terms actual commercial performance, it's just too early to comment, but I'd say we're pleased with the collaboration. So I can confirm I think that they are doing a decent job and now we need to commercially ramp up behind them.
Operator
Okay, we now go to RBC with Wilton Fry. Please go ahead, Wilson.
Wilton Fry
German manufacturing PMIs have been steadily falling from 62 in early 2018 to breakeven most recently. How can we be confident that the mix this quarter in Germany just lumpiness as you said it was?
If it isn't is there any split to address the purchase price with German assets you'll be getting from Liberty?
Margherita Della Valle
I can take the questions, thank you. I think if we look at our trend in Germany clearly we have continued pressure in enterprise in Germany as we have in previous quarter in terms of two areas particularly, the soft market where there is a degree of competitive pressure and the large corporate cost on those where there is continued competition on refine.
But in terms of the change in this trend which had been present in the market for a period of time, this is not the driver of what we have seen in the quarter I was explaining earlier. Now, this being said I think looking forward and talking about manufacturing slow down I think it's important that we remember that our business is increasingly resilient, we have a large proportion of our revenues more broadly if I look at consumer and enterprise which are now coming from fixed line and even more so after the Liberty deal and increasing proportion of the customer base is also converged so the mobile is linked to fixed.
So I think it's important to keep this trend in mind when we, you look at the economy evolution.
Nick Read
And just to build on the Unity acquisition, look the Unity assets continues to perform very strongly in the marketplace, and this is about a penetration execution. Customers want high speed broadband and you can see that we are winning and they are winning share in the marketplace off the back of a superior product in the market.
And that product is a very resilient product because effectively the superior one in the marketplace. So, we remain very confident on the asset, on the process and on the synergies and business case that we're holding.
Operator
We now go to Polo Tang at UBS. Please go ahead, Polo.
Polo Tang
Hi, just got a question about the joint venture in the Netherlands. It doesn't make sense to divest of the asset in order to reduce group leverage.
Or is the asset strategic? And are there any levers that you have to reduce leverage?
Nick Read
Polo, I'm very pleased with the progress in the Dutch JV. I think that as they move into a growth profile now going forward, clearly, I can't talk about the results that do out shortly.
But pleased with the momentum, they've got, we have another important year ahead in terms of synergy realization. So we're not at the full run rates of tracking well, and I'm sure that they will update on the results.
So look, I think this is a very strong asset and a strong marketplace. I mean, clearly marketplaces now going down three players and we're very pleased and we think that it plays a good role in the portfolio we have, and so we're happy with status quo.
Operator
We're now over the line of Jakob Bluestone at Credit Suisse. Please go ahead.
Your line is now open.
Jakob Bluestone
I had a question on Spain, Italy together, I guess in both markets you serve in the process of migrating customers across to new commercial offers. Can you maybe give us a feel for how long, you are with your back book re-pricing?
So, what percentage of subs have you migrated across to new offers to sort of get a sense of and how long we should be modeling out ARPU drag?
Margherita Della Valle
Thank you, Jakob. I would say very different dynamic across the 2 markets, first of all.
If I think about Italy, clearly, Italy is a prepaid market which I would say ongoing price movement which are both positive and negative. So as much as we are seeing within our base still the drag, it's shown the migration to the more competitive environment that we have seen at the beginning of the fiscal year with after the entrance of the Iliad, we're also seeing the opposite.
And when you look at our service revenue profile in the quarter, which is better than the one of the previous quarter. It is very much driven by the fact that there has been more for more initiatives in mobile.
In Italy over the summer, we have the added €2 more for more ARPU increasing mobile. And then on the fixed side, also, there was a €2.50 price increase.
So I would say in Italy, we work on a net, which is highly flexible on that basis. Spain is different and in Spain, we have effectively the dynamic that you were describing, which is gradual adoption of the new offer, of the new offers in May.
It is also a very, a faster movement, I would argue than compared to all the traditional contract markets simply because in Spain, you do not have long-term contract and before the customer are freer to move than they would be for example in the UK. We do expect, as I was mentioning before to really see the difference in the evolution once we lap the re-pricing in May.
Operator
We now go to Jerry Dellis at Jefferies. Please go ahead.
Your line is now open.
Jerry Dellis
So follow-up on Italy really, I really wanted to try to understand exactly, what it is that might sort of course the revenue tends to sort of inflect from next summer onwards? Based on your disclosure looks like the retail ARPU of your mobile customers, including VAT, would be between about €15 and €16 at the moment.
And obviously Iliad has a price point of 8. So even if you lap the 28-day at billing point.
What really is there to stop back-book customers continuing to sort of drift down to lower price points for really quite some time to come? I'd be grateful if you could sort of explain that please.
Margherita Della Valle
Well, first of all let me say that thinking about timing of the movements really, -- we are in the prepaid market once again, so I need to make that caveat upfront. In terms of confidence in the trends, we are seeing the impact of our own pricing initiative and when we look at the migrations that we see towards our competitors.
First of all, we have seen that in the last couple of months, if you take November and December, we are talking about a position which is effectively net neutral from Vodafone towards the rest of the market. And then when you think about the customers that are actually move in Italy, you need to see that there is a chance of days which is actually particularly, how can I say, sensitive to the competitive dynamics.
There is a certain degree of recycling of customers across operator in the set of the same price bracket. For us, if we look at the one which have been more sensitive to the movement, we look at the €7 to €13 part of the customer base.
So this is the dynamic part, then you have the other extreme less movement.
Nick Read
Yes, I mean just to build on Margherita's points. So, I just make a couple of things, I think the point she is making about segmentation is really important, don't be generic on the base.
Yes, so, you have high value consumers they very much care about the quality of the network and there is a huge difference in network quality between us and Iliad. And frankly, Iliad's quality of network experience has been deteriorating as basically they've load it up with very high allowances.
So I'd say just think about more the value seekers that tend to move around the market, it's very interesting really. Iliad is just experiencing now a churn themselves of value seekers saying, I can tolerate this quality of network.
And actually, I could go to second brands like ours. So, I think this is why our net ports are also improving.
I think our positioning in second brand has been really effective in the marketplace. And one of the important thing is we've been managing, if you like cannibalization from our main brand over time and now in the most recent months, is down to about 10%.
So, 10% as effectively as second brand customers are coming from Vodafone. So I think we've managed that.
And then finally I'd say, Iliad sustainability at that current price point has to be questions given the fact, that they're not doing any network bills. So they're on a wholesale variable model at the moment.
And given the usage profile of their customer base, I think that this must be painful for.
Operator
We are now over to Andrew Lee at Goldman Sachs. Please go ahead.
Andrew Lee
So, one is a question on your visibility on the top line. So you've given us, your great visibility on your cost outlook and on your CapEx outlook.
And on the top line, I guess what the market saying today is not confident in your current session or your Q4 trough. So, you've mentioned customer trends and lapping ARPU is giving you that confidence that you also mentioned that obviously competitive cycles can change.
So just wanted to kind of ask you or test your confidence level in calling a structural trough in 4Q. I think you've mentioned that churn reduction aides that.
What other factors have improved to give you satisfactory confidence in the top line outlook? And maybe if you want to refer specifically to Spain and South Africa, which are the biggest uncertainties for investors, how can we share your confidence structurally that things are improving rather than just lapping into FY '20?
Nick Read
Can I do the simple version and then Margherita, correct me and do the proper version. I think we have called out really the pluses and minuses because you look at it that we got good commercial momentum.
We said that we would compete in a more consistently in the high the mid to low. And I think you'll start to see evidence of that.
You've got the technical lapping effects of Spain and Italy so that you know as you can see that we are on an improving trend in those markets ultimately commercially. And once we start lapping the pricing and the commercial actions that we took last year you'll start to see I mean what you want to call that easier comps.
We have several markets that have been performing robustly whether that's Germany, whether it's U.K, whether it's other Europe. So I'd say that's on the plus side and then I'd say we've got Germany wholesale which obviously will continue to decline moving forward.
We've got you know macro in emerging markets which can be more variable given the uncertainty in the climate. So these would be the big ones I'd be calling out.
I don't know Margherita if you've got more, okay.
Margherita Della Valle
Good summary.
Operator
Okay, so we now over to Stephane Beyazian at MainFirst. Please go ahead, Stephane.
Your line is now open.
Stephane Beyzian
It's a bit speculative, but in the event of merger of networks in Italy between Telecom Italia and Open Fiber, I was just wondering if you can make any comment on possible implications for you. I guess, what I'm trying to ask here is, what sort of guarantees you have in your contract regarding access to the network at the attractive pricing that you've been able to sign with the Company, and for how long?
Nick Read
What I’d say is, I mean, I can't really go into the specifics of a confidential agreement, but what I'd say is we've got the right protections provisions in the contract that make us comfortable. I would say that really if you look at the subject generally i.e.
Are you in favor of the combination going together? What I would say is, fundamentally, you would be because you'd say one network open access to all players on a level playing field is a positive development.
However I'd have a lot of question marks about how it would be executed. I think we'd have to be very careful on the governance, would it be true separation and then the second one for me is would there be any artificial loading of costs into the wholesale business.
In other words you transfer in economically benefits in CI and loading the wholesale a disadvantage with higher wholesale costs for the rest of the marketplace. So I think there's a lot of work that needs to be come on what looks like a simple.
And I think it’d be a very, very long process as well which is clearly distracting. So, we stay focus on driving with open fiber.
Let's see how it develops. Okay.
I think we're on to our last question.
Operator
Okay. In that case, our final question is from the line of Adam Fox-Rumley at HSBC.
Please do go ahead. Your line is now open.
Adam Fox-Rumley
I had a question on South Africa actually. I wondered, if you could talk about ways that you might be able to mitigate the asset bundled data revenue loss, which I guess we've seen will come in Q4 as the new regulation comes into force.
And then Vodafone management -- the Vodacom management yesterday, sorry, made it clear that their assumptions were premised on an economic recovery in South Africa. So I wondered, if you could talk about potential downside risk, if South Africa doesn't see a recovery in the next 12 months?
Nick Read
Let me just sort of take the -- our view is, South Africa obviously has challenging macroeconomic at the moment. However, I would say that from a -- the President's perspective, I think they are pulling the right levers to improve the situation, whether we call a economic recovery is another thing, but I think that you would see in the right conversations taken place.
A good example would be the Huawei as an example. I think that really is getting re-discussed as to whether it's the right thing, the right formula going forward.
In terms of South Africa itself, look, we have been really good at doing transformations on pricing. We did this in voice for five years.
We did it in a way that we improved the unitary cost while holding well the ARPU. We are going through that for data, how to bundle data, yes, it is an element that we have to manage through.
We have to get more value. The most important thing we could get as a management team in dealing with the issue is more spectrum because if we got more spectrum it allows us to have a more efficient cost base and therefore we can move the propositions quicker for the customer, which helps on that transition.
And so, we're actively working on that spectrum. We hope for good news this year that we go ahead with an auction and we get enough at an appropriate price.
Margherita Della Valle
Just a couple of build on South Africa, just one short-term of the promo that the summer promo is now terminated and that was a significant impact on our growth. And then longer term, I think supporting the trends commercial momentum there as well and then very specific to South Africa, the roaming deal with Telecom, which is building at the moment and will come into fully fledged impact at the beginning of next year.
Nick Read
Thanks very much. Just to close, I'd say, look, I think it's clear from the Q3 results, we are executing at pace on the strategic priorities we outlined.
It's not yet evident on the near-term financials, but we are confident we're building those commercial foundations for recovery going forth, and I am sure that there will be news flow over the coming quarter. So look forward to seeing you all soon.