1&1:Quarterly Results/2024 Q2

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Earnings Call Summary

Webcast: Q2 2024 Earnings Call

Customer Contracts , revenue developments during the quarter

• CEO Ralph Dommermuth said they were able to win 90,000 new contracts in H1 2024 but lost 20,000 broadband contracts.
• Dommermuth said they had some regulatory effects on service revenue which grew by 3.8%. Excluding regulatory effects, it would have grown by 4.4%.
• Dommermuth said capex was 34 million euros in H1, significantly lower than last year due to phasing effect.
• Dommermuth pointed out that the number of cancellations have slowed in August though still higher than the level they would like to see.

Q2 and Outlook

• Dommermuth said they expect higher capex in the second half of the year.
• Dommermuth said the additional 80 million euros capex guided for 2024 is due to the phasing effect. Due to the delays in the rollout of their network, Rakuten held onto it for too long and now they want to upgrade their stock. Though they aren't obliged to pay for infrastructure that hasn't been installed, they decided to do so since they value the long-term partnership they have with Rakuten. He pointed out that it's not that they need more antennas than planned or that the price per piece has changed, it's purely due to a phasing effect.
• Markus Huhn they plan to sell the Rakuten hardware and do leasing agreements so that they don't have the capex. But they haven't found a buyer yet.
• Huhn said in 2025, they expect to have lower capex than in 2024, around 10% less. This is because they aggressively invested on data centers and servers over the past years. They, however, expect investments on antenna sites to go up. He said that if they don't find a partner to purchase the passive infrastructure, 2025 capex will exceed that of 2024 by 100 million to 150 million euros.
• Dommermuth said the decision to sell and leaseback antennas will ultimately depend on the terms of the leaseback and the interest rate environment. He pointed out that they are currently in a position to obtain cheap financing.

Mobile Network

• Dommermuth said two core data centers are currently operational. Two others will be operational soon.
• In Q2, 1&1 increased the number of antenna sites by 450 (to 1781). 280 sites were added in Q1.
• They now have 456 fully equipped antenna sites. Also, 300 sites are now receiving their glass fiber.
• Dommermuth pointed out that 250 locations were cancelled by Vantage Towers (location owner terminated the contract).

Network Failure At the End of May

• Dommermuth said the network failure came as a surprise to them.
• Dommermuth said the network failure was due to a failure in one of the data centers and failure of redundancy measures to kick in. "When one data center fails, the other one will take over. And this redundancy didn't work out not because we don't have enough servers or the software fails or because we haven't tested it before but because in the data center that failed, we had a file that we needed in that other data center. So that was a bad configuration," he said in the Q&A.
• Dommermuth pointed out that they learned from their mistake and that the issue will never happen again.
• Dommermuth said that the data center issue took one day. However, they had some additional implications for two more days caused by overcapacity. "The reason for that is that some customers could get in and others couldn't, and that was due to the capacity that we had at this point in time. This capacity issue we had was a 2 G data signaling issue," he said. "We solved the issue by shutting this off because you don't need any data on 2G...Had we shut this off the very first day, then we would have solved it sooner," he added.
• Dommermuth pointed out that the issue wasn't related to Open RAN but affected only the core. "Our Open RAN technology wasn't even affected by this because one might say, "Well, you are pioneers, you're doing something new," but no, it affects the core. And the core comes from Mavenir...But it simply wasn't configured correctly. Now we configured it correctly, and that's why this issue will not come up again."

Customer Migration

• Dommermuth said they paused customer migration in order to ensure that the network is operational first. "But we said, for security reasons, we are not going to add on more customers on this network than necessary. New customers are necessary, but I don't have to migrate existing customers right away. That's why we said we'll leave the existing customers where they are right now, and we try to be 100% on the safer side first," he said.
• Dommermuth pointed out that though they are 100% on a safer side now, they don't want to run out of capacity for new customers (by migrating additional customers) since data center 3 and 4 have "a bit of a delay". "In our existing data centers, we have a certain capacity. And I don't want to run out of time by filling this capacity with existing customers. I want to add new customers into that first, so that in case everything will take a little bit longer, I'm more relaxed, even if it takes 1, 2, 3 months more," he said.

Vodafone Contract

• Dommermuth reiterated that precontract with Vodafone is binding.
• Dommermuth pointed out that they fully agree with Vodafone (that he is not aware of any aspect where they have different opinions) and that the team is almost finished finalizing the annexes. "So I think it's a matter of days, I would say, but it's not just under my control. It's also under Vodafone's control, so maybe a matter of weeks. At the same time, all the technology is set up. Vodafone has built up everything. We built everything on our side. Concurrently, we're doing a friendly user test, and we would be ready to go in a couple of days. So we said it last year, we want to start in the summer, and we will start in the summer," he said.
• Dommermuth reiterated that the contract is complex since he wants to cover everything to avoid issues in future. For example, he wants to contract to describe how certain things such as future technology will be handled.
• Dommermuth said they haven't had any discussions with Vodafone on sharing infrastructure but agreed that doing so particularly in rural areas would reduce costs.

Low-band Spectrum

• Dommermuth said BNetzA is expected to publish consultations submissions in its website in the next couple of weeks since they have to make a decision in the next couple of months.
• Dommermuth said their submission states that they are open for frequency extension provided they make sure that 1&1 can get a sub-usage. He added that what matters is the amount of frequency they will get as well as the terms and conditions of the sub-usage.

Webcast Information

• No questions from the webcast were allowed.