1&1:Quarterly Results/2023 Q4

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Earnings Call Summary

Here is a summary of 1&1 2023 webcast call;

Customer migration to own network

• BNetzA gave them 2 years to migrate customers to own network, 2024 and 2025.

• They expect contract growth at the same level as last year but due to migration to their own network they expect to lose some customers that are hard to quantify. They thus expect 200-300k contracts net addition.
• Customer losses due to migration to own network will have a relatively low impact on the result and revenue since they are old and less valuable contracts.
• They want to increase migration to 50,000 per day once they have data centre 3 and 4. That's migration of a million customers per month
• Migration is not that easy since some customers have an e-sim-card, different smatphones, smartphones that have different softwares.
• Expenses for last year were higher mostly due to device-related tests associated with the migration.
• They tested 6,000-7,000 devices in the past month and they were able to establish that only 4% of the phones cannot be configured online, hence they will have to be configured manually and if that doesn't work, they will have to provide a new phone to the customer.
• They are confident that they can migrate to the new network without causing any lose in the data but the cost will be higher than last year.
• Moving to their own network even with a a limited number of antennas will enable them to save money since they will be able to use their own data centres and will buy international roaming themselves. But the savings on voice will be small in 2024.

Spectrum allocation

• They said market commentaries indicate a decision on the spectrum allocation will come in the summer.

• 1&1 said in the event they miss out on the low-band spectrum allocation, they will have to purchase more national roaming than they do today, which would be expensive.
• They don't expect BNetZa to deny them participation in the spectrum allocation for failling to meet their antenna obligations They think the fine will be enough.
• They are not against the extension. If they get the 800 MHz, they will exchange it for 700 or 900 since their network doesn't care what it runs with.

Antenna sites

• They expect to have 3,000 passive antenna sites at the end of 2024, of which 1,000 will be active.
• They said it's difficult to access the traffic associated with the 1,000 active antennas but it will be around 4% of households. They said traffic at the end of 2025 will not be enormous since they won't have low-band frequency and their number of masts will be few.
• In Q4 2023, they had 243 base stations (equipped with antenna sites). By the end of Q1 2024, they want to have 600 base stations and 200 active ones (equipped with fiber glass).

Vodafone contract

• They said the contract with Vodafone is legally binding and can start on it.
• They said they could start with Vodafone national roaming earlier than 1st of October.

Core business

• They have made good progress in the migration from ADSL to VDS since Q1 2023.
• Broadband contracts have stabilized.
• Hardware is a low-margin business.

Rakuten management changes

• They said their relationship with Rakuten hasn't changed at all following management changes and business restructuring.

Penalty by BNetzA for failing to meet antenna obligations

• They said they had made provision for the penalty expectated to be imposed by BNetZa for failing to meet their antenna obligations in 2023.

White spots

• They are committed to reduction in whitespots.
• They had promised to cover 400 locations in return for interest-free loan associated with spectrum allocation.
• Headwinds associated with the reduction made the allocated expenses only enough for 130 locations instead of 400.
• So far, they have realised 48 locations. 50 additional locations are approved and in the process of being realised while 32 are waiting for building permits.

Management Guidance and Analysts Estimates

Management Guidance

Key Items	Q4 2023	Y/Y Growth	2023	Y/Y Growth
Antenna sites	more than 497		1,000+
New Customer Contracts			500,000	42.9%
Service Revenue	€ 811 million	2.8%	€3.23 billion	~2%
EBITDA	€ 143.9 million	-0.3%	€655 million	-5.5%
EBITDA 1&1 Mobile Network Segment	€ -46.2 million	80.47%	€ - 120 million	129%
Access Segment Revenue			€775 million	4%
Cash Capex			€320 million	28%

Analysts Estimate

Key Items	Q4 2023	Y/Y Growth	2023	Y/Y Growth
Revenue	€ 1,045.9 million	3.2%	€ 4,072.9 milliom	2.8%
Service revenue	€ 818.7 million	3.8%	€ 3,236.2 million	2%
EBITDA	€ 145 million	0.5%	€ 656 million	-5.6%
EPS	€ 0.32	-20.4%	€ 1.74	-16.3%
Access Contracts	16.28 billion
Mobile Internet contracts	12.27 billion
Broadband contracts	4.01 billion
EBITDA 1&1 Mobile Network Segment	€ -46.2 million	80.47%	€ - 120 million	129%
Capex (Cash-Capex)			€ 316.2 million	26.5%
Free Cash Flow			€ -30.8 million	-52.2%
Net adds
Access	499,375
Mobile	589,831
Broadband	-88,375

Competitor Results and Expectations

Telefonica Deutscheland

Key Items	Q3 2023	Y/Y Growth	Analysts estimate
Total revenue	EUR 2.291 billion	4.6%	EUR 2.225 billion
Mobile service revenue	EUR 1.501 billion	-1%	EUR 1.536 billion

Deutsche Telecom German business

Key Items	Q4 2023	Y/Y Growth	Analysts estimate	Y/Y Growth
Total revenue	EUR 6.589 billion	3.6%	EUR 6.478 billlion
service revenue		1.8%		1.9%

Analysts Opinions

Go to 1&1: Analysts Opinions