Vodafone Group PLC (VOD) 2018 Q2 法說會逐字稿

Good morning, everybody.

Welcome to our results presentation.

I hope you enjoyed the videos.

Today, we'll follow the usual order, I will give you the highlight of the announcements, Nick will go through the financial reviews and then I will come back with some update on our strategy and progress from strategy, and then we go into Q&A.

And as always, I'm asking you to keep the questions to one, and I'm sure it will be one.

So first half, I have to say, we had a good start of the year.

1.7% organic service revenue growth, which is really 2.6% ex regulation.

We have got good growth, and this is coming from both fixed and mobile and from most of the markets.

13% growth in EBITDA.

It's really 9.3% underlying once we adjust to a number of things, with margin at 32% or probably 31 point something.

Nick will cover all the details about our profitability.

But again, very solid profitability.

Free cash flow, EUR 1.3 billion, up EUR 1.4 billion from last year.

This is a pre-spectrum number coming, of course, from higher EBITDA and working capital.

And finally, the board this morning has announced a 2.1% increase in the interim dividend, EUR 4.84.

This is consistent with our progressive dividend policy.

As a result of all of this, we are raising today our full year guidance.

I will not waste a lot of time on the summary of the strategic progress, but I can say -- and I will go more in detail in my second part of my presentation.

I would say we keep working on the same differentiators, with good success on customer experience excellence, 19 over 21 markets leading.

Good mobile networks, both voice and data, especially voice, but also both voice and data.

And we continue to deploy on fixed -- our smart capital strategy.

Nick and I will cover it.

And some indicators that we put on this page are indicating that the strategy is working.

Increase in ARPU ex regulation in Europe, still the fastest-growing growing broadband provider in Europe.

And ex regulation, good growth in Enterprise.

But even non-ex regulation, we have, anyhow, outperformed the market.

So -- but I will cover more later.

Commercially, we continue to have, we'll call it, robust commercial performance.

As you can see from the red bars, we had good mobile -- the lighter part, good mobile additions in the quarter.

This has been helped GigaCube, which is our German fixed wireless substitution product.

But also in fixed, 262,000, this is U.K. -- sorry, this is Italy, Germany and Spain.

But this time, we also have U.K. with 33,000 net adds.

Europe service revenue growth 0.8%, 2.1% ex regulation, with a progressive penetration of broadband users, 61% of whom are on NGN.

In AMAP, we continue to grow both in contracts and in prepaid.

We have a slightly lower growth at 6.2% in the quarter.

This is Vodacom, which we'll cover later, and also a 1-week outage in Qatar due to network problems.

But AMAP, the biggest and most important part remains only half of the customers have data there, so the opportunity continues to be big.

You have the details of the performance in each market in the appendix of the documents, but let me cover at high level both Europe and AMAP.

First of all, consumer NPS rank, we continue to lead everywhere.

We don't lead in the U.K., but at least we have #2 network in the U.K. We lead in Enterprise.

And I have to say the network, the customer operations and the billing problems that we talked many times about in the past are actually sorted out now.

And we have good expectations for what Nick Jeffrey and his management team are doing in terms of results for the second half.

Going market by market.

In Germany, we have a stable competitive environment.

We are having good performance in mobile contract, but I'm also happy that we have more than 60% now of cable connections coming at higher speeds, more than 200 megabit per second.

Good performance in terms of service growth 1.6%, with strong customer growth driving it.

But also, almost 8% increase in EBITDA, which comes, of course, from revenue.

But also, I have to say, even Germany now is starting to contribute on the cost front.

Italy, competition remains intense.

More than 1/3 of the activations are now below the line and very aggressive pricing.

But despite that and despite the fact that we are lapping prior year price increases, 1.5% growth and a 9% increase in EBITDA, again coming from good cost action, but also a lot of good personalized offers that I will cover later in my presentation.

U.K. U.K. is a stable market.

Actually, there are increases in ARPU, both in mobile and fixed.

And I have to say that I'm happy to report not just that we had good performance on the fixed front, but also that on the mobile front we have an underlying stability of our contract, which is really the result of the growth in the Vodafone-branded connections, which is a strong focus for our team and some phasing out of nonbranded, old contracts that we have in the market.

If you strip out all the handset financing and the underlying one-off, we are back to underlying growth, just about in the U.K., and we are stabilizing EBITDA despite the big investments in operations that I described.

And finally, Spain.

Spain is a good market at the high-end medium end.

It's very intense competition at the low end, mostly mass mobile and the second brand of Orange.

But despite this, we are -- we have generated a 4%, almost 4% growth in the market, with essentially much more-for-more actions, with some hand -- end of the handset financing lapping, but also a benefit from roaming, which, in Southern Europe, has been good over the summer.

And in Spain, again, an excellent drop on cost, almost 10% EBITDA growth despite content cost, which, in Spain, are pretty high, as you know.

AMAP.

Similar picture across AMAP, #1 almost everywhere, except Turkey where we are #2.

South Africa.

South Africa is, what I would call it, a stable pricing environment.

In South Africa, we are proactively working on data pricing.

You might remember we worked on voice pricing a few years ago, now we are doing the same to data pricing.

We are increasing data bundles to reduce the effective data price in the bundle, but we are also decreasing the out-of-bundle data pricing.

So if you want, a self-immunization strategy from a pricing perspective, 4% -- about 4% growth and 2% -- 2.9% EBITDA of growth in South Africa.

Vodafone International is now 22% of Vodacom.

We have a good performance, 4.1% in revenue growth.

This is a combination of Tanzania improving, DRC with macro pressure, but still 8.2% increase in EBITDA.

And finally, Turkey and Egypt.

Turkey and Egypt, today, after deconsolidating India, they are 1/3 of AMAP.

We have very strong positions in both markets.

I have to say 14.7% growth in Turkey and 21% in Egypt are pretty good result.

I'm particularly pleased with Egypt, where the second competitor has a growth of 8 points -- 7, 8 points less than us, and the third one 15 points less than us.

And as you can see EBITDA margins -- EBITDA growth in both markets is pretty good.

So I would say both Europe and AMAP areas doing well for Vodafone.

We need to talk about India, which is a little bit -- deserves a separate page.

As you know, in India, there're still pricing pressure.

Competition is intense.

Prepaid validity has been extended.

And we also have now, of course, some pressure on postpaid.

And as you can see, the quarter posted a minus 17.8% revenue growth.

This is the result of a minus 24% of ARPU.

Also, you have some seasonality.

Also, you have some tax effects from the tax that has been brought from 15% to 18%.

The good news is that we are stabilizing the margins.

The green bars below, 22%, clearly there's a lot of cost control and cost actions taking place.

And we are focusing on retaining high-value users and focusing on our leadership circles.

We are investing the vast majority of our CapEx in the circles where we have leadership.

There are positives in India.

Of course, everybody know that Jio has raised prices recently, again, in October.

That's a positive.

Smaller players are getting out of the market, so there is consolidation of SIMs and customers, and a more rational environment in the long term.

And we are progressing with the Idea merger.

We are pleased to announce yesterday the sale of the tower asset, the orphan tower assets.

We are progressing in the discussions in the future of Indus.

And we have got already SEBI and CCI approval, and we are working to get DoT and NCLT approval in due time.

So we expect the transaction to be completed during 2018.

Looking ahead, in India, we will have some pressure from MTRs . MTR reductions are coming into place.

We will continue to focus essentially on high-value customers and leadership circles until the merger is completed.

And with that, I think I can pass to Nick for the detailed financial review.

Thank you, Vittorio.

Good morning, everyone.

So as Vittorio already highlighted, our financial performance in the first half of the year was very strong, and I was particularly pleased with the broad-based nature demonstrated at operational leverage.

In May, I highlighted that we faced 2 extraordinary impacts during the fiscal year.

First, a material drag from EU roaming regulation; and second, a boost from the commercial decision to follow the U.K. market practice adopting handset financing.

At that time, we had expected those 2 impacts to be broadly similar and offsetting.

But in the first half of the year, we ended up with more handset financing and a positive from visitor revenues.

Combined with the 2 large U.K. regulatory settlements, this contributed to an even stronger performance in the first half.

Therefore, I will refer to our underlying EBITDA and EBIT performance excluding these items, rather than our organic headline results, as we really need to understand the real trends.

Moving to the headline numbers on the left of the chart in green.

Our organic service revenue grew 1.7%.

Combined with a reduction in our absolute operating cost, delivered 9.3% underlying organic EBITDA growth.

With the rate of increase in D&A expenses now moderating post the end of Project Spring and normalization of CapEx, we delivered a 36% underlying EBIT growth.

On the right-hand chart, you see how our EBIT margins have inflected from the lows in FY '15 at the start of the Project Spring investments phase now back to around 10%, with further improvement to come given our focus on operational leverage.

As you are aware, each year, there are a number of noncash items that impact our reported earnings.

In order to present a clearer picture of our earnings performance, we adjusted these items as you can see in the bridge shown on the table.

I do not intend to go through the bridge in detail as these items are clearly explained in the press release, but I will cover our cash interest cost and cash taxes later on in the presentation.

However, let me draw your attention to 2 important items.

Firstly, our group adjusted effective tax rate for H1 was 22.2% compared to 25% for the same period last year.

This was primarily driven by a change in the country mix of group profits and a reduction in the corporation tax rates in Italy.

Secondly, it's important to remember that our reported share count has been inflated by the mandatory convertible that we issued at the time of the Verizon-Ziggo merger.

We've almost completed the share buyback of the first tranche, and it's our intention to buy back the second tranche using the proceeds from the remaining $2.5 billion in Verizon loan notes.

Turning now to our service revenue performance.

As the chart on the left shows, we have consistently delivered an underlying top line growth ex regulation of around mid-2s.

On a reported basis, our organic service revenue growth slowed in Q2 to 1.3% from 2.2% in Q1.

There were 3 drivers that accounted for the slowdown.

Firstly, the impact of net roaming regulation, which was 30 basis points, lower than expected given the higher visit revenues.

We now expect the net roaming drag on EBITDA this year to be around EUR 200 million.

Secondly, as handset financing accelerated in the U.K., we saw an increase drag.

The effect was small at the group level in Q2, but is likely to accelerate in the second half, reaching over 4 percentage points at the U.K. OpCo level and 70 basis points at the group level by Q4.

Finally, carrier dragged on our results in Q2 by around 40 basis points quarter-over-quarter.

This was a result of implementing a new intelligent routing system that optimize the internalization of traffic, reducing both third-party revenues and cost, with a net benefit to EBITDA.

The lower carrier offset a better-than-expected performance in Europe.

As you can see on the right-hand chart, excluding regulation, Europe accounted for 70% of group service revenue growth in Q2.

When considering the outlook for the second half of the year, I'll take Q2 growth of 1.3% as a start point, given the new baseline of both carrier and wholesale.

We expect an underlying improvement in the U.K. to largely offset a slowdown in Italy, while the increase in drag from U.K. handset financing should be offset by a reduced drag from regulation as we lap the German MTR from December last year.

As you can see on the slide, we have contribution of our 3 growth drivers to our overall service revenue growth in H1.

In the circles above the bars, you can see the changing contribution compared to H1 last year, in other words, whether that growth driver is accelerating or decelerating.

Excluding regulation, European consumer mobile growth continued to improve, reflecting the impact on ARPU of our more-for-more commercial actions in the period.

Vittorio will be covering these in more detail later.

Data growth in emerging markets remain robust, but it's contribution reduced, reflecting stronger comps and bigger data bundles in South Africa.

Our continued commercial momentum in fixed and convergence provides a long-term structural contributor to growth, a key point of difference when comparing to our European peers as we discussed at the Open Office event in Venice.

And Enterprise continued to outperform declining incumbent peers, delivering resilient top line growth and stable contribution.

On the right of this chart, the drag from regulation and wholesale will clearly reduce over time.

Moving on to our cost base.

I'm pleased to confirm that even with the sustained commercial momentum in both regions, we remain on track to deliver an absolute reduction in our organic operating cost for the second year running.

Our top line performance, combined with lower interconnection cost, supported a strong gross margin performance, offsetting higher year-over-year fixed wholesale and content costs.

Meanwhile, net operating costs reduced in absolute terms by EUR 0.1 billion despite inflationary pressures especially in emerging markets, along with experience in 65% data traffic growth on our networks.

This is a result of our increased focus on direct channels, the mix shift towards SIM-only and the general Fit for Growth initiatives.

On the right, you see the EUR 0.2 billion net benefit year-over-year of regulation U.K. handset financing and one-off regulatory settlements.

The result of that better top line growth, combined with a decline in operating cost, has led to a sharp improvement in our underlying EBITDA margins to 31.1%.

This is now the third year in a row where the group has improved EBITDA margins.

This is the result of key programs you see at the bottom of the slide, which Vittorio will cover in his presentation, along with exceeding the synergy targets from our acquisitions of KDG and Ono.

On average, over the past 3 years, we've expanded our margins by just over 80 basis points per annum whilst reinvesting to strategically strengthen our long-term position.

We believe our Fit for Growth and digital programs provide a sustainable platform to deliver continued margin progression over the coming years.

These programs have enabled us to deliver systematic margin improvement across the group, as you can see from the chart.

Within our larger controlled operations, only one market saw a meaningful EBITDA margin decline, which was South Africa.

This reflected strong low-margin handset sales and cost phasing.

And therefore, we're confident that we can see an improved the second half EBITDA performance.

In May, I said we expected the U.K. business to stabilize EBITDA on an underlying basis in the second half of the year, but I'm pleased to report that our execution is ahead of plan, coming close to stabilizing in the first half.

In our current and future JVs, Vodafone-Ziggo saw an improved sequential performance in the quarter, with EBITDA margins rising year-over-year, thanks to lower handset subsidies.

The JV has raised its outlook for the year.

And despite continued revenue pressures from regulation, mobile repricing and the initial cost of driving convergence, we remain on track with our plans, with a substantial synergies to be reflected in future periods.

As Vittorio has already described, India remains very challenging, although I'm pleased that we have been able to stabilize our EBITDA margins in recent quarters despite further top line pressure.

Fit for Growth has been an important contributor to our ability to invest in new areas whilst improving our margin.

And on this slide, I detail some of the progress we made in recent years.

The program consists of a number of group-led efforts, some of which you see summarized on the left of the chart.

We've increased -- centralized our procurement activities, now up to 77% of purchasing from 60% 3 years ago, releasing very large cost savings.

We have also built and then scaled through centralization our shared service centers, focused on IT development operations, network operations, customer back office and finance HR processes, with almost 22,000 employees now based in India, Egypt, Hungary and Romania.

We have saved around EUR 500 million in annual cost over the past 3 years.

Standardizing network design across OpCos has been another big win for us, worth around EUR 340 million per annum.

And we've reduced our group corporate overheads through ZBB efforts by EUR 200 million.

Finally, on the right, you see the 3-year movement in our large markets, demonstrating our use of A. T. Kearney benchmarking by process to target world-class performance levels.

This is before we talk about the opportunity digital presents for our business.

So let me now turn to the opportunity.

Vittorio will provide you with a detailed overview of the transformation we aim to achieve in customer experience relative to our peers, and along with it the relative revenue opportunities from our new Digital Vodafone program.

So on this side, I would just focus on the potential to maintain our recent progress in reducing absolute operating costs.

There are 3 main areas of opportunity for digital efficiencies: customer touch points, technology management and support operations.

Acquiring, interacting and retaining customers digitally will have the secondary benefit of allowing us to optimize our channel mix, increasing our low-cost direct mix, while saving costly commissions paid to third parties as well as allowing us to reshape our retail footprint.

In addition, supporting customers will be far more efficient and effective given new AI applications, such as chat box and virtual agents.

In total, we spend around EUR 5 billion today on these customer-related areas.

We also see scope for efficiency gains in our network and technology cost by using the power of real-time analytics to enable smarter network planning and predictive maintenance.

In addition, we aim to lower IT costs by moving 65% more than product -- drive more productivity from the capital investment that we have to ultimately drive greater differentiation in network quality and customer experience.

Finally, we spend around EUR 3 billion today on support activities, many of which can be simplified and automated through robotics.

This will be a multiyear effort, which will require some upfront investment over the next 2 years.

And the rate of savings will depend, to some degree, on customer behavior shifts and the need for us to reinvest, but the opportunity is clearly material.

Moving on to CapEx.

Our capital intensity was 14.1% in the first half, 60 basis points lower than the last year.

For the full year, our position remains unchanged, expecting to be in the top half of our 14% to 16% range, with seasonally higher CapEx levels expected in H2.

On the left, you can see we have allocated CapEx across our top 5 markets, which make up about 65% of our local CapEx spend.

The key movement was the increase in the CPE and success-based CapEx, up 9 percentage points year-over-year, reflecting the strong commercial momentum we have in fixed.

Excluding CPEs, our capital intensity was 12.5%.

As a reminder, our midterm mid-teens capital intensity guidance excludes material incremental fiber build opportunities, such as the EUR 2 billion Gigabit Investment Plan in Germany, which we will report on separately in future results.

As communicated in September, we do not expect a material cash impact from this plan in the current fiscal year as we scale up our operational capabilities for a faster deployment in FY '19 and beyond.

We have no more further plans of this magnitude on the current horizon.

Free cash flow on a guidance basis increased by EUR 1.4 billion year-over-year.

This improved performance was principally driven by higher EBITDA, lower capital creditor outflows, reflecting the final Project Spring payments in the prior year and higher net dividends received.

Cash interest expenses were higher than last year, where we benefited from a number of timing differences.

For the full year, we still expect cash interest cost around EUR 800 million and a midterm average net cost of debt of 2.5%.

Cash tax is expected to be slightly higher at EUR 1.1 billion for the full year, given higher profits.

Dividends received grew, primarily due to VodafoneZiggo.

Following their results and their upgrade to guidance, we now expect to receive higher total cash returns this calendar year.

Dividends paid to minorities fell, primarily in Egypt.

Clearly, the true free cash flow available for returns is the cash left after spectrum and restructuring cost paid.

This figure will be highlighted in our presentation and future releases.

However, given that both of these items tend to be volatile, we'll continue to exclude them from our guidance free cash flow, which will be characterized as free cash flow pre-spectrum going forward.

During H1, we had spectrum payments totaling EUR 0.8 billion in both Italy and Germany.

Assuming the U.K. spectrum auction slips into FY '19 and given modest cash restructuring cost of around EUR 300 million expected for the year, we expect free cash flow post spectrum and restructuring costs to exceed our EUR 4 billion dividend commitment this year.

Moving to our balance sheet.

We reported closing net debt of EUR 32.1 billion with leverage of 2.2x.

During the first half, cash outflows included the payment of FY '17 final dividend of EUR 2.6 billion, spectrum purchases in Italy and Germany, and the commencement of our share buyback program for the first tranche of the mandatory convertible.

These items were partly offset by free cash flow generation in the half, the EUR 1 billion of net proceeds from Vodacom stake disposal and FX movements.

For the full year, we expect net debt to be around EUR 31 billion, with payment of the H1 dividend and the remaining share buyback being more than offset by free cash flow generation in H2.

Net debt in India, which is not included in the group's net debt position, declined to EUR 8 billion, almost 80% of which is spectrum-related debt.

This was down from EUR 8.7 billion at the end of last year, entirely due to the devaluation of the rupee compared to the euro.

Capital allocation is a key focus for Vittorio and I, as you can see from the chart.

In Europe, we have further deepened and strengthened our position in fixed, where we signed in the period 3 strategically important agreements using a -- well, capital smart infrastructure strategy, which Vittorio will cover in more detail.

In Africa, we completed the exchange of our 35% indirect interest in Safaricom for Vodafone shares, and the sale of a 5.2% stake in Vodacom.

In other AMAP, we have begun exploring the potential for an IPO of New Zealand.

This is an attractive asset and we anticipate strong demand.

In India, we remain focused on closing the merger with Idea and preplanning to ensure a fast start to realizing the $10 billion of CapEx-OpEx synergies.

Yesterday, we were pleased to announce the sale of the stand-alone towers for a combined consideration of EUR 1.2 billion, which will support the reduction of net debt for the JV.

The combination of this improved pricing environment, tower disposables, targeted synergies and proposed extensions spectrum payment from 10 years to 16 years are all important factors for establishing a sustainable capital structure for the JV.

In addition, we have the 42% stake in Indus.

Using a Bharti Infratel valuation, we value our stake at over $5 billion.

We are active in discussions on multiple options, including tower merger, a partial or full stake sale to a third party or IPO.

All of these options have different timing and tax consideration.

Given the strength of the group's balance sheet, we will focus on maximizing long-term value.

And finally, to finish on guidance.

We now expect EBITDA to grow organically by around 10% compared to our original guidance of 4% to 8%.

This implies a range of EUR 14.75 billion to EUR 14.95 billion at guidance FX, which at the midpoint is around EUR 600 million higher than the original outlook.

Broadly, around EUR 300 million of this improvement in the outlook has come from nonrecurring benefits I described earlier.

However, the remaining EUR 300 million of the upgrade reflects stronger-than-expected underlying European margin performance as well as later-than-expected commercial launch by a new entrant in Italy.

As a result, we are now -- expect underlying EBITDA growth of over EUR 1 billion at the midpoint.

It is worth noting that the U.K. handset financing boost this year does not flow to free cash flow as it reverses out through working capital.

However, the good news is that the stronger underlying EBITDA growth of EUR 300 million, together with the EUR 100 million lower roaming drag, will flow directly to free cash flow.

Together with our unchanged CapEx guidance, we now expect free cash flow to exceed EUR 5 billion.

And on that, I will hand back to Vittorio.

Good.

So let's have a look at how the strategy is progressing.

Always useful to start with the customers, what the customers say.

As you can see, we continue to lead in consumer NPS, actually a bit more than the same quarter of last year.

Here, the good news is not only we are leading in 19 out of 21 markets, but I'm happy to say that we have improved our position in 15.

We improved the absolute score in 15, and we have increased of the gap in 12.

So good in consumer.

We continue to be -- we're good and solid on Enterprise, where we lead in 19 out of 20 markets.

And I have to say the key measures that we look at for assessing how good is our infrastructure, how good is our support continue to give good results, 91% of our mobile data sessions above 3 megabit per second.

We are offering speeds of 1 gigabit per second in 4 markets.

And of course, we want to extend to all the other markets where we can.

We have a good penetration of our digital app, which is very important, I will cover about it later in my presentation.

And we have 2/3 of the contracts with the customers that are resolved at the first level.

This is not fantastic.

The fantastic one is the countries which are already at 70%, 80%, so we want to push everywhere -- everybody there.

This remains the key thing that we look at in judging our strategy, how happy are the customers with our service.

Let me now cover the 3 areas of mobile, convergence and enterprise to see how our progress is there.

And in mobile data monetization, I would like to cover both the revenue and the cost aspect because I get a lot of questions from investors on this topic.

So we have continued with our much more-for-more actions that you are very familiar with.

This has been the period of Vodafone Pass.

Vodafone Pass is the ability for the customers to pay a little bit in order to get unlimited, worry-free access to a service: video, music, chat, social, whatever.

We now have around 8 million active customers on Vodafone Pass, and Vodafone Pass is active in 9 markets today.

It says 7 on the chart because it's clearly only the first half.

So Pass is good because it's driving both ARPU and usage.

The example in the center is the Italian example.

In Italy, we have an average usage of 3 gigabit -- gigabytes per month.

This core, which were clearly the early adopters of Vodafone Pass, was a 5 to 9 type of core.

As you can see from the chart, Pass has added 3 to 5 gig per month of the specific Pass service to the usage of the customers.

But the good thing is, it also lifts the usage outside the Pass.

And we have early indications that around 30% of the customers would take the Pass than they stay with us, and they continue to pay the EUR 3, EUR 5, whatever, per month additional.

The German implementation on the right goes straight into ARPU accretion.

We increased the price of the bundle by EUR 3. We include one Pass of choice, and then customers can add other Passes.

So I would say this is, again, a demonstration that you can work on both increasing usage and ARPU at the same time, which we think is both customers want.

Then the question is how is ARPU going?

I suggest we concentrate on the second set of bars, the underlying ones.

And the sum of it is that ARPU underlying is up between 2% and 4%.

This is very important because it's up despite the fact that, actually, we are pushing much more SIM-only in the market.

SIM-only, on the right, you see, are between 20% and 30% of the base, but they are 40% of the new customers.

So on one hand, they depress a bit service revenue.

But on the other hand, they also depress acquisition and retention cost, which is clearly very strategic.

So I would say, it's very important that we see our much more-for-more actions as a both customer-friendly because they allow more usage; but also company-friendly, because there is some more ARPU attached to it.

Then the question I often get is, well, data monetization is also about cost, how are your cost going?

And here, I put on this slide a few thoughts about the cost.

First of all, data traffic is clearly growing.

It's growing because there's more demand.

It's growing because we do initiatives like the Passes.

It's growing because visitors are clearly -- and roaming is clearly being unleashed now.

It's also growing because people are moving away a little bit from WiFi.

We have seen a decline in usage of WiFi by 4 points.

It is obvious because the networks work well and also the allowances are more generous so people can use them.

The result is, as you see in the black dot, 62% increase in usage.

And usage, which is now, in a couple of years, went to from 1.1 gig per customer per month to 2.1.

So the question is, how is the cost handled?

On the right, we put our network costs, which are clearly relative to that type European network cost, that type of usage.

And as you can see, there has been a very, very marginal increase in cost from EUR 100 to EUR 102.

Now this is a 30% to 35% unit cost reduction per year, which is very good because it allows us to follow the data monetization in a very cost-efficient way.

Think that 4G+ is around 40% more efficient than 4G.

But what we have in front of us is 5G, which is 400% more efficient than 3G due to spectrum efficiency reasons.

So we think that this data growth can be followed pretty well.

There is often a question that I get about the density of the network, often it's in relation to the U.S. examples.

Don't forget that, in Europe, 5G will be implemented on lower band not in millimeter waves, so the density of the network will be different.

And most of it -- and Johan can take questions if you want later, most of it will be built on the 1,800 grid.

So we already have the infrastructure -- most of the infrastructure that will be needed for 5G.

And finally, backhaul and transmission costs.

Yes, there will be more, but with a smart mix of fiber and high-speed microwave, which, by the way, is also increasing from a technological point of view.

We also think that, that trend can be respected.

So we see an increasing amount of data usage attached to some increase of ARPU and a very, very good decrease of cost.

Data monetization, I would say, looks good.

Now there's also another aspect of data monetization, which is extending our reach.

We announced last week the launch of Consumer IoT.

Consumer IoT, I expect it to multiply -- I mean, every estimate is valid here, but let's say, between 6, 7x in the next 4 or 5 years.

We launched last week a category brand for that, V by Vodafone.

We launched 4 initial products, V-Auto, V-Camera, V-bag and V-Pet.

These are fixed-price plan, EUR 3, EUR 4 or GBP 1 per month that can be added to the main subscription of the customer.

For the time being, we launched 4 markets.

And of course, we want only in direct channels.

And of course, we want to extend to all markets, all channels, but also the non-telco channels because these are not necessarily products that we need to handle ourselves.

Now why would Vodafone be good and strong in this?

Well, first of all, remember we are leader in Industrial IoT, which is our Enterprise platform, 62 million SIMs active on it, probably the biggest in the world.

The experience of adding this new little object is very easy and very seamless.

I did myself -- my own -- I don't have pets, but I activated on my wife's car so I can see where she is this morning and where she goes.

And she can do the same to me, to be very clear.

And it's very easy.

I mean, I activated literally in 12 minutes just by adding GBP 4 to my subscription.

And of course, then it goes into the charge-to-bill platform, so we can activate also third parties.

And the big ambition here is to invite all third parties to create connected devices.

We will give them billing, we will give them provisioning and it will be very easy.

In the fourth quarter, we will start with developers.

Our ambition is to have a full ecosystem sometimes next year.

Now the second area of growth for us has been fixed and convergence.

Nick has already talked about this.

Left chart is the well-known chart.

We have around 99 million of commercial footprint to for our NGN.

Of this, 42 million are from special conditions; and 36 million, owned NGN network, and we keep building.

On the right hand, you see the progress of our 1.2 million broadband net adds.

We are by far the fastest growing in Europe.

We have around 12 million NGN users, which is 70% of our broadband base.

Added 1.8 million just on NGN in the last 12 months, and this does not include Ziggo.

4.7 million users, 1.4 million including Ziggo is the number.

700,000 is what we added as Vodafone.

So we are pushing with convergence.

Now the important point is we are doing it with what we call a capital-smart strategy, a strategy that continuously optimize itself based on alternatives that we create in the markets.

Since the last time we met, we announced 3 of them.

One is the Gigabit Investment that Nick has talked about.

This is really business parks, rural homes and upgrade of cable.

The beauty of it is it gives us incremental growth in -- with a relatively limited investment, but also very good customer perception in a country that needs the Gigabit plan.

We announced U.K. CityFibre.

CityFibre allows us to go up to 5 million homes, with an exclusivity period and 20% commitment on our side.

Now the other beauty of CityFibre is that, at this point, this will put some trade-offs in front of Openreach.

They would need to decide whether they want to keep prices high, and therefore create a market for CityFibre.

Or whether they want to invest and take prices low, in which case, we will be very happy to work with them.

So again, it's this circle of reinforcing the strategy along the way.

And smaller, but not to be neglected, also in Portugal, we announced a deal with NOS.

Again, same story.

It was not easy to -- or Portugal to find an agreement with PT.

Therefore, we went with NOS.

And the result is that, now, PT will have the competition from both us and NOS in 80% of the homes of the country.

So the strategy works.

We are the fastest-growing, but we're growing with a lot of capital discipline and a lot of smart, strategic deployments.

And finally, Enterprise.

Now Enterprise, the red bar looks like we grew 0.5%, which is true, of course it is a bit less than the previous quarter.

But if you go ex regulation and other impact, in reality, it's really 2.5%, at the same level.

What is going on here?

What's going on here is a decline in mobile ARPU.

And mobile ARPU is under pressure, so 4%, 5% decline.

But we are increasing customers.

And most importantly, we had a strong presence in emerging markets and we have a strong growth in fixed.

And the result is on the right.

You see Vodafone is the red bar.

Here, we take note of the underlying, but the reported number.

And you can see that versus our worldwide competitors, we are doing either a bit better or really much better.

So I'm sometimes asked how come and how can you do it?

In the center, we listed some of our advantages.

What the customers tell us that we have is geographic reach, which is not just the ability to price internationally, but also the ability to support internationally.

It's the fact that we have a greater presence in emerging markets.

17% of the revenues now is AMAP.

We don't have old legacy voice, which -- fixed voice, which of course is dragging some of our competitors.

And we have the IoT platform, which is more and more mentioned as a reason to engage with Vodafone.

So to conclude this part, I would say mobile data monetization, convergence and enterprise, the key elements of our strategy, are delivering and not just financially but also operationally.

Now going ahead, what do we have ahead of us?

Let me remind you the context, as Nick has already said -- Nick had arrows, I have a snake, but the concept is the same.

We started in '13/'14 with Project Spring.

Project Spring was about strengthening the quality of our delivery.

Then Nick has started Fit for Growth.

Now Fit for Growth is a great program to deliver cost, but I would not underplay also the modernization aspect of it and the upgrade aspect of it, which is now important, but I believe will be more important, even more important in the future.

Then a couple of years later, we started with the customer experience program, which is really aimed at making the customers perceive the difference and get rewarded if they are loyal.

And everything is now converging into Digital Vodafone, which is our bigger transformation that will lead the company in the next few years.

Let me talk about it because I think it's very important.

First of all, what is the Digital Vodafone?

Here, I don't pretend to be particularly creative or innovative.

Like every other company, we want to have the most engaging digital customer experience.

Here, we really want to blend the best of our physical assets, which tend to be people or usually retail shops, with a digital interaction that is easy, instantaneous, but most importantly, personalized.

Three main aspects.

The customer side, which is, in the end, the continuation of our customer experience program.

So building differentiated experience.

The technology aspect, based on the data analytics and the use of old digital information to improve and personalize offers, so make the offers more effective with the customers, but also more efficient for us to deliver.

And finally, in operation delivery, better allocation of CapEx, simplifying products and services and platforms to what really delivers the higher return on investment for our money.

And of course, automation, as Nick has described, to drive efficiency.

So Digital Vodafone, it is about cost, and of course the cost opportunities make.

But it is also, and I think as importantly, about revenues and about reducing churn.

Let me give you a few examples, starting from the digital customer experience.

First of all, the marketing.

We really want to max out on Big Data analytics and digital media capabilities to deliver predictive and personalized offers everywhere throughout the Vodafone [Group] (inaudible).

This is about ARPU enhancement.

The best example is the AI engine that we have in South Africa, which has delivered, with Just 4 You, already 800 million bundles sold now.

And of course, allows also much less replicability from the competitors because offers become 1:1.

The second is the sales aspect.

And here, really, it's about focusing on digital channels and giving instant access to services at a much lower cost.

We are selling these days, in Italy, a product which is called Shake Remix.

Now it's not really a product, it's more than 400 different products that the customer can choose among data options, minute options, SMS options, self-select from the My Vodafone app, which is very instrumental in this.

Shake the phone and get it done on the [beat].

A little bit like the consumer IoT thing that I was describing before.

This is delivering much lower commissions and a much better commercial efficiency, but also more effectiveness.

Since October 4, we had activations up 12%.

And the third is clearly care, through the use of more artificial intelligence and chatbots.

In the U.K., we introduced it over the summer.

It's faster and easier for the customer, so with a higher NPS result, but it's also much cheaper for us.

We are already at a point where the chatbot in the U.K. understands 90% of the time correctly what the customer request is, and this is just a few months in operation.

So a lot of digitization will happen on the commercial front.

What about technology and operations?

First of all, Nick mentioned smart CapEx.

This is really about deploying based on profitability.

In Germany, we use a customer profitability model to increase CapEx efficiency.

CapEx are very high or relatively high in Germany.

We want to be sure that they are deployed in the right place.

So this is a financial allocation of CapEx as opposed to pure technical parameters defining where CapEx go.

The second aspect is introduction everywhere in Vodafone of what is called in DXL.

It's a digital experience layer.

This is a layer you put on top of your legacy systems to avoid having to touch every time the big IT systems, expensive IT systems that we have, and also to give a much faster time to market.

We introduced it in the U.K. first.

The example on the slide is Alexa.

We developed the Vodafone Alexa skill just in the weekend.

So without touching the main systems, but working at the layer above.

This is going to be introduced everywhere in Vodafone and is a big change in the architecture of our systems to deliver a better digital experience and lower costs.

And again, Johan is here, I think he would happy to take questions on that.

We are, like many companies, introducing the agile operating model in our units.

This is mixing, in essence, commercial and IT people within the units to go to very, very fast delivery cycles.

The example on the slide is the U.K. We -- from the first idea to the first customer, we developed in 8 month a full, complete internal MVNO on the youth proposition called VOXI.

And again, this is what will power in other markets, which I will not mentioned here, the ability to develop second brands and other offers in a very, very quick cycle and inexpensive cycle.

And finally, automation and simplification.

Nick mentioned the 22,000 people that work for us in shared service centers.

We're introducing automation -- we have introduced automation everywhere.

The improvement in productivity is between 4 and 6x the processes that they replace.

So again, it's speed, but it's also costs here that will change completely.

So what's the ambition for Digital Vodafone?

I would say the ambition, first of all, is big.

But we don't start from nothing.

As I said, we already have 60% of penetration of the app in Europe.

We have chatbots already everywhere, it's not just in the U.K. Just to give you an example, in Italy, we have already between 500,000 and 600,000 interactions per month, which are managed by chatbots.

We will increase the number of bots in operation from 100 today to more than 300 -- by 200, sorry, by year-end.

And we are progressively changing the organization everywhere.

We have 4 big ambitions here, and these are real numbers.

We want to increase the amount of customer marketing campaigns powered by data analytics from 15% today to 100%.

Now 100% is the future, but we have a short-term objective of 25%, which will be sometimes next year.

We want to move our digital share of mix from around 10% today in terms of channels to more than 40%.

This is not just for following the customer.

This is also because, especially indirect channels have economics, which are pretty bad for us, and therefore going digital will also improve the economics there.

Move the support channel from, today, which is mostly human and a bit digital to mostly digital and very good human in the future.

And introduce customer profitability analytics to drive commercial CapEx and -- commercial investment and technical CapEx allocation from 4 markets to all markets.

Now Nick has said that this is a multiyear program.

Of course, it is a multiyear program, but the beauty of what we are experiencing in the first year of implementation is that early gains are very quick and very possible.

So the ramp-up, especially in the commercial front, will really be in the next 12 to 24 months.

So before concluding, one final word on the brand.

You watched to the new videos.

We moved the positioning of the Vodafone brand, and we did it on after a lot of study and a lot of thinking, from the empowerment space where we were before to the -- which was "Power to you" to "The future exciting.

Ready?" Why did we do it?

I mean, there's 3 reasons for this big change.

The first one is really a strategic reason.

Empowerment is a great concept, but we had evidence that technology in some areas is becoming more complicated and more frightening.

We wanted to put Vodafone into the space of inspiring optimism and inviting people to readiness, to be ready for innovation and be the reassuring entity.

There's a lot of concerns out there on privacy and security and other things, Vodafone is making big investments there.

So far, we have been also good and we are recognized as good in that area.

We thought it was a great idea tone that space and put Vodafone into the positive optimism for the future with an invitation to be ready.

The second is to be -- was, quite frankly, to be much more branded in our communication.

I mean, we want customer benefits to be clear.

As you can see, whether you talk about unified communications on the right, working from home in the middle, deploying fiber or even applying for a job, the customer benefit of being associated with Vodafone has to be very clearly spread because we want to strengthen our brand consistently with our MVNO, direct channel and digital strategy.

And third, quite frankly, I think our colleagues here did a wonderful job in making it a little bit more modern and a bit more elegant in terms of appearance.

And I say the early acceptance is very good.

And again, it's going to reinforce our focus on NPS and customer excellence.

So to conclude, I think we had a pretty good first half, which I'm pleased about.

We continue to have leading customer experience and network quality as our big pillar.

We progressed well market-by-market in our smart NGN strategy that we've been describing for many years.

Our 3 growth engines continue to work well: mobile data, fixed convergence, enterprise.

Fit for Growth is delivering cost savings, but most importantly, is also delivering a modernization, which is very important for the future of Digital Vodafone.

And then Digital Vodafone, we have a big ambition there to generate not just cost reduction but also incremental revenue.

And as a result, we increased the full year guidance at around 10% of organic EBITDA growth and excess of EUR 5 billion for the free cash flow.

So with that, I would conclude and say the future is exciting.

Ready for questions.

And here, I need to remind you 2 things.

One, one question each, please.

Yes, let's start.

Maurice, Simon, Akhil, and then we go back there, yes.

Yes, it's Maurice from Barclays.

So on the distribution question, you talked a lot in the presentation about changing the distribution mix and more digital interactions decreasing impact on indirect and so on.

Have you seen much mix -- so much change in that so far this year?

I see freenet's still delivering very strong growth in Germany, for example.

It feels like in markets like the U.K. and Germany, there's still a very strong reliance on the indirect sector.

So have you've seen most change in that this period?

And how quickly should we expect to see a change in the coming periods?

We have reduced in Germany our reliance on the indirect channel.

As you correctly say, it is still very important, and we are not going to take it to 0, of course.

But the reality is that the economics of indirect channel, especially Germany, are not very good.

So it's not that we are ideologically against working with partners, but if the partners take too much money to do the thing that we can do ourselves in our own shops or even better digitally, over time, this is going to be the trend.

I think Germany now is the place where what we have is less than half, but it's still the highest.

Then we have Italy, for different reasons, there's a lot of indirect.

But it's a different type of indirect, it is more a fragmented indirect.

And then in other markets, quite frankly, we have reduced considerably.

And I think this is the trend in the market.

Sometimes competitors don't follow, so you have to a little bit play.

But it's not an ideological position.

It's just driven by NPV and return on investment considerations.

And my sense is it's going to continue with digital.

Simon?

Simon, Akhil.

(inaudible)

Maybe a way of sort of explaining it is to look at our EBITDA performance underlying in the first half, because I think it really sets the story.

So you've got the 9.3% underlying EBITDA growth, that's EUR 600 million.

Of the EUR 600 million, operating cost reduction in absolute is EUR 100 million.

And then basically, you've got 50% split between more-for-more ARPU actions, et cetera.

So Spain is a good example where you saw the -- this quarter, a full quarter's worth of the pricing action that we took in the previous quarter.

And then the other half, I would say is more base growth, primarily driven by fixed but also contribution from mobile.

Polo?

It's Polo Tang from UBS.

Just a bigger-picture question, really, just about EU regulation going forward.

Because we obviously had some pushback recently from the European Parliament against a move towards deregulation in return for investment in infrastructure.

Separately, we're also seeing a move towards regulation of cable.

So what's your view in terms of how things will evolve ultimately and the impact on Vodafone?

Yes, it's a very good question, Polo, but it will require a separate conference on it.

I have here my briefing.

I was counting off -- the weekend, when I was preparing, we have 10 key issues that are being debated.

And finding a graphical way to represent who stands for what is almost impossible.

You need a multidimensional thing.

The reality is that most of the proposals of the commission we are in agreement with, and we think they are good.

There's only one that we have a slightly different opinion.

And that we think that the balance between competition and investment and protection of customers and protection of financial, I would say health of the industry, is pretty good at commission level.

Parliament is halfway there.

And we'll know by Q2 next year, probably, where it goes.

It's -- especially on this concept of joint dominance and collective power that we are spending a lot of time.

I'm personally spending a lot of time explaining to them why they're going in a way which, in our view, is not positive.

And the council, i.e.

the countries, are a little bit, depending on the issue, either here or there.

And it's sometimes more difficult to get agreement there because they represent more national interest.

We think that the line of the commission is the right one, and we are supporting the line of commission on almost all issues.

And I'm more than optimistic that we'll get out of this process most of the things right.

When I say most, I don't expect, for example, on the spectrum life, that it's going to be extended as much as we thought, let's say, 8 or 9 month ago, for example.

But on the other topics, I think some balance will be found.

And the commission interprets probably the best and most pro-industry vision.

Stephen?

Yes, Steve and John.

Akhil.

It's Stephen Howard at HSBC.

I was just wondering following on from your announcement of the collaboration with CityFibre, and obviously, you've got to the Gigabit Investment Plan in Germany, just given that you're there for sort of placing bets on FTTP, it's interesting to see in the release that you're also calling out the success of the GigaCube product in Germany.

And so I was just wondering to what extent had you considered fixed wireless access solutions as your route to market in places like the U.K. and more widely in Germany?

And why did you wind up rejecting that in favor of going with a more FTTP rate because, obviously, that's slightly different from, let's say, the U.S. carriers?

Yes -- no, no.

Okay.

This is clearly inspired by the U.S. -- the continuing saga on U.S. fixed wireless access as 5G concept.

Let me try to simplify things.

First of all, what is the GigaCube, what is the need for a, let me say, wireless access that you see in normal situations?

It's second homes.

It's working in multiple locations.

It's having some kind of nonpermanent secondary, I would say, location where you need to get high-speed broadband.

That's the thing.

It has to be in a not super highly dense area, because if everybody gets that in super high-dense area, then you need a lot of spectrum.

Hence, it can be a replacement for a fiber.

But again, it depends on the place, it depends on the circumstances.

So it's a great product.

We'll probably roll it out in many more markets.

But it's not the ultimate solution for highly populated areas.

For highly populated areas, at the end of the day, fiber will be the most efficient way and the best way to deliver broadband in the future.

The U.S. 5G story is really a story of non-highly, not very densely populated areas, places where you can put an antenna on your roof or outside of your window without a big problem, and cabinets that are very close to the neighborhood, which you want to serve.

Which could work in Europe somewhere, we are looking at it.

And not later than 2 nights ago or 3 nights ago, I was discussing with one of major vendors about this.

And it is a very, very specific solution for, say, I don't know, I always say Sardinia or a place where you don't have a density, which allows the build-out, the efficient build-out of fiber.

Yes, John, Akhil, Robert.

It's John Karidis here from Numis.

I just wanted to ask about India, just some information, please.

Just sort of wondered whether you could expand on what's left to be done there in terms of the Idea deal?

And whether, at this stage, the end of 2017, you're able to refine a little bit your estimate of when the deal might be -- might close?

Listen, we had good progress and it -- frankly, quicker than what we thought in certain aspects.

But we still have to get DoT approval and we still have to get the court actually approving the merger scheme.

So those are the 2 most important things.

There's still maybe RBI, something, application for the ownership.

But that's a relatively minor thing.

But those are the 2 things that are still to be done.

We still expect them to happen in 2018.

And we cannot give you -- yes, I don't know, midyear.

And then don't ask me mid-calendar or mid-financial, because I will play between the 2, so I would say somewhere.

So we don't know.

I think last year, we said September '18 or kind of...

12 to 18 months.

Yes, 12 to 18 months.

12 to 18 months leads to September '18, really.

So that's what is the status today.

Yes, Akhil.

Yes, just a question -- I guess, just broadly on fixed line strategy.

Both of you have gone through today some interesting deals you've announced over the last few months in a number of your markets.

Obviously, fixed line is a big growth tailwind for you as a business.

It's very high return on capital in terms of the new initiatives.

So I just wanted an update in terms of how are you thinking on the overall build versus buy?

I mean, it's always been case by case, but does it at all shift the way you're thinking, given the deals you've managed to sign here?

And also, I guess linked to that, it was part linked to the early question of Polo, the joint dominance kind of debate.

Has there been anything new around that?

And how are you feeling on that relative to what you told us back at the Investor in Italy?

Yes, the -- I can only say that, by definition, the strategy on fix has to be country by country.

It has to be country by country because the way it works, because of the infrastructures available are different, because the cost of building in certain areas, in Portugal, in Spain is completely different than the cost of building in Central London.

This morning, I arrived that we might use of the sewage system in London, which, by the way, is what they also do in Spain.

So -- and in some places, you can put fiber on the poles.

And in other places, the poles fall apart.

They fall down if you put them.

So if it is so local that it has to be a case-by-case, country-by-country analysis.

And sometimes even within the country, it's also region-by-region.

Point number one.

Point number two, it also depends a lot on the strategy of the incumbents.

Incumbents tend to resist and tend to say I'd do it, but it's for me only; and if it's for you, it's very high price.

Quite frankly, we have demonstrated country after country after country that this is a strategy that eventually leads to more competition, and we are very happy to have the chance to exploit new competition to then realign the prices to good commercial level.

So it has to be country by country because it depends on physical constraints and also competitive behaviors that are different by country.

What I'm happy with today is that I know that there was -- 2, 3 years ago or 3, 4 years ago, skepticism about the ability to put -- to deliver this strategy.

It's actually becoming real and the numbers show it.

So we think that we have been successful without having to invest massive amounts.

Now an M&A opportunity arrives, of course, we will look at it.

Because, of course, it's make versus buy, and we will look at what is the time and the return that we can expect from M&A.

On joint dominance, I spent a day in Brussels talking to all the kind of relevant proponent of it.

I have to say they have concerns that I don't share.

And most importantly, there needs to be a methodology to define what is the joint dominance risk.

It seems to me that, today, the real problem in most places is to create competition to the usual former monopolies who used -- who controls the fiber.

So for me, the idea of creating joint dominance in the moment, where Vodafone actually is bringing more competition to the system and Liberty also, to be fair, I think is -- would be wrong.

So our position is wait, tell me which problem you are trying to solve.

If there's no problem, just allow competition to flourish.

Yes, I don't remember who I said was the next.

Robert maybe.

A point of clarification on CityFibre question.

Do you have to book the liability to CityFibre on your balance sheet for that transaction?

And my question -- doesn't know, was it?

My question is about handset financing.

You mentioned that, that is increasing.

It's offset by better roaming, but if that's increasing as an effect.

Is that a multi-market thing?

Is it U.K.?

And what's driving that?

Is it iPhone related?

Is it people stopping moving to SIM-only, for example?

So they're fairly straightforward in terms of CityFibre's wholesale arrangement.

So there's a contractual obligation in terms of minimum commitment, but it's not like we are internalizing that CapEx.

It's a wholesale arrangement.

I would say, in terms of U.K. handset financing, it's building just through sheer volumes.

It's not to do with iPhone at all.

If anything, when you look at iPhone volumes, this phase, I wouldn't call them particularly strong relative to previous cycles.

So I would say this is more to do with demand in the marketplace.

As Vittorio said, the U.K.'s been really improving performance.

It's commercially on the front foot, therefore, volumes are rising.

But let me take the broader side of your question.

Is handset financing and installments a good thing or a bad thing?

And I do believe that it is intrinsically a good thing.

Because this makes customers think, do I need to change the phone?

Do I want get to the new iPhone X?

If they do, great.

If they don't, what's the next best thing they can do?

Maybe I can increase my allowance, maybe I can put my dog in my car, and my whatever on my plan.

Maybe I can get a higher, whatever, fiber broadband.

So it's -- so far, it's more clearly a telecom broadband connection type of decision from a hardware decision.

And the beauty is that this is happening not by coincidence when we are investing in customer relationship with a [6-6] program, we're investing in network with a Spring program and we are trying to digitize the experience as best as we can.

This will have a positive impact on commissions, subsidies and, in general, commercial cost.

And it's starting to show.

It will take time, but it's starting to show.

Yes, I think -- let's go there, yes.

James.

So a wider-ranging question about Germany in general.

I mean, it looks like, relative to expectations, that was one of the ones to beat expectations.

Most significantly, it's your biggest market.

So just wondering if you could talk a bit about how you see that market developing for you over the next 6 to 12 months?

I mean, in the past, you've talked about indirect competition being aggressive, maybe you're suggesting that's now a little bit less so.

What's happening with United Internet potentially migrating some of the MVNO way?

Are you picking up share from O2?

Deutschland, at the moment, on contract adds?

So kind of broader-reaching question on how do you see in Germany over the next 6 to 12 months, please?

James, I'm optimistic on Germany, otherwise, we wouldn't be putting EUR 2 billion extra money in Germany.

I think Germany has a good market structure.

And credit goes, if we're honest, to both us and Deutschland.

There's 2 players who are doing fully integrated, and in a wise way, convergence.

We are serving customers, corporate customers in a, I would say, disciplined way.

And we clearly are the quality providers of the market.

I was comparing to last night the pricing levels of Deutsche versus us, we are a little bit cheaper on the service, and they are a little bit cheaper on the handsets.

So it's hard to really say.

But we're clearly competing on quality, we're competing on innovation, we're competing on branding.

And we are, I think, competing, as Vodafone, well as the numbers show.

Then there is another part of the market, which we tend to defend through second brands and other stuff -- Otelo and congstar and other stuff, which is more in the hands of other players.

And my assessment is that the wholesaling and MVNO-ing your own network in the long term does not strengthen the operation.

We have to see what will happen in Italy, which is another market where the #3 is playing the same game and the results don't seem to be particularly good.

It doesn't surprise me.

Because when you give away too much of your own infrastructure and your own service for a price which is not in line with the market, customers eventually switch.

So convergence is intelligent.

There are richer, higher-end bundles, now include the Vodafone Pass.

Deutsche includes the, how would they call it, the (inaudible) German thing, which is fine.

Because again, it goes in the direction of creating a better experience and then you manage the cost implication of it.

And so I'm optimistic about the structure of the market, provided that both us and Deutsche continue to run -- to be running in a disciplined way.

Yes, I'd just say 2 builds on that.

The fixed in terms of the quality mix of the gross adds in terms of higher speed, 60% are on the 2 megabits per second product and above, so a good mix.

And enterprise was historically very challenging, has improved as market by (inaudible).

Andrew?

Then we come back here in the middle.

Yes, I just wondered if you could talk about how much of your digital cost savings you think you actually get to keep.

Are there markets in which everyone else is doing this and you think the benefits are just going to be passed through to customer on lower prices, like we've seen in previous cost-cutting examples?

Or is there reason why Vodafone is better able to deliver substantial cost savings than its peers in each market?

And then just as an add-on question on that, what can the regulator do to get in the way of the returns-enhancing moves you're making?

Yes.

Let me take the first -- well, probably both.

But I'd give you the answer that I like to believe in because I have to believe in that answer.

Digital cost savings come -- I mean, there's a part that comes anyhow, but they don't come with very deep transformations and very radical changes on organizations and technology infrastructures.

I like to believe that Vodafone will do it by -- and is doing it by contaminating in a much quicker and much deeper way each operating unit.

The examples I gave, and here we have Johan, we are, again, seen by the partner market that pay a fee to Vodafone to be part of the club as source of technology expertise.

So they asked me -- they asked to see separately, but they want to see a lot of Johan now, because the introduction of digital layers, because of massive MIMO, because smart CapEx allocation is becoming the name of the game.

We have many, of course.

We can learn from Italy, learn from U.K. And very quickly, put them -- the other day, I was in Uruguay, there was a Spanish team kind of learning things.

So we can really do that probably quicker than others.

It doesn't mean that we do it better than us.

So hopefully, we'd also do it better there, but quicker we should.

Will this be competing in a way?

That is a revenue question.

And my comment related to Germany or Italy is we see the #3 players typically giving away more, but not necessarily getting much more in terms of financial performance, at least if I compare their recent announcement.

I'm not really impressed by what I hear, which means, at some point, there will be a squeeze on that.

Different story with low-cost providers, very low-cost providers, the mass mobile, the potential (inaudible) in Italy, those we need to counter in the market with very focused initiatives because these guys will, unfortunately, with good conditions that they got from the others, and so we will need to be very focused.

Which is why having agility, having the DXL layer is very important because we need to be able to roll out fast in every market to handle the new entrants.

But this flexibility is what I think will make us a little bit better.

The second part of your question?

Just how on the -- how can the regulator stop your gains?

And just to your point...

The regulators, clearly, are signaling that they don't like markets to go to 3. They -- as soon as they go to 3, they will create a fourth.

So that to me is already the answer.

The joint dominance is clearly a possible risk of that we are fending off.

But honestly, the rest, which is left, is international cohorts, which is not big for us, at least it's bigger for the fixed guy, for the traditional fixed guys.

There could be something on contract renewals in these things, but there's not a huge amount left apart from spectrum.

Spectrum can be expensive.

But -- yes, David.

Yes, David Wright from Bank of America.

One question that's kind of spanning 2 markets, but it's essentially the JVs.

You've increased the cash distribution -- or I should say, the JV has, in The Netherlands and that's come with a credit downgrade, I believe, over the last 24 hours.

It does feel you like you're clearly then willing to run a higher gearing.

But actually, I guess, my question is more about India.

Since you've announced the deal, you always announce to leverage on the full year '16 EBITDA, which clearly full year '17 is a very, very different level, so we're talking 5x cost leverage.

The MTR decision is arguably -- the termination rate decision has probably gone against your expectations, I would have thought.

So what I'm trying to understand is the need for more capital in that business.

It feels like you're struggling a little bit on the CapEx side, Bharti is certainly attacking you, and that's a very essential cost of business in India.

So what's the potential for that JV needing more capital is ultimately my question.

The answer is it's too early to say.

Because if you stand back, as Vittorio said in his summary for India, I mean, Jio started charging at the start of the fiscal year.

July put price is up.

September put price is up, who know what happens in the next quarter and the next quarter.

So they're putting prices up quite significantly.

I mean, the last 1.5 years was 15%, 20%.

So the material increase is going on.

On top of that, we're definitely seeing traffic flow from the value players exiting the market to the other players, and we're taking our reasonable share.

So yes, I understand MTRs is a drag in the second half, but we've got some fundamentals that's starting to improve.

And if you cast your memory all the way back to when there was a 14-player price war going on 7-odd years ago, yes, it went down and then it came back very quickly as well with price increases.

So I think, firstly, the market is showing some promise.

So secondly, don't forget 80% of this debt is to the government for spectrum payments, of which they're already talking about rescheduling from 10 years to 16 years.

So we'll have to see that reprofiling go on.

We're working very hard on the towers.

So I think we landed, I think, a good deal for us on the orphan towers.

We're now working on the Indus options, and we're progressing those.

So I think -- I'd say I think the answer is, look, we've still got, who knows, anywhere between 9 months, 12 months still left to run to close out the deal.

We're being very active and we're aware of needing to have direct capital structure when we go in, but there's a lot happening in the market as well.

Yes, I don't remember...

Can I just...

Sure.

You mentioned Netherlands.

I mean -- and what is common to both of these is very sizable synergies.

So -- and both of them have a lot of infrastructure.

So if you think about India's GoT-IT spectrum, big network.

And Netherlands, we already had national cable bill, national 4G.

So a lot of the infrastructure is in the ground, yes, and therefore, the synergies have a big leverage effect on both of these, which allowed us to tolerate high leverage.

So there, then Nick, you had a question?

No?

Yes.

And then Andrew.

And then we go -- yes, back to Jerry.

It's Wilton Fry from RBC.

A quick one on the scale of the U.K. in terms of CityFibre and that deal you just announced.

The Phase 1 of that is for 1 million homes passed, with Phase 2 getting up to 5 million.

Is that an automatic flow-through from Phase 1 to Phase 2?

Or are there any certain conditions you need to meet to do that?

And secondly, within that, obviously, the size of that 5 million homes passed as determined by the sort of 42 cities that they're currently in.

Would you have any aspiration to go beyond that, say, to the top sort of 100 cities and much more than 5 million homes?

Or is that dependent on Openreach's response?

You have the answer.

It's very difficult for us to say today where we want to go because, as I said, our strategy is a very alternative strategy.

You develop an option, you exploit the option, you see whether you have an alternative and you keep going.

So we look of the first million, decision to go to 5 million will depend on how things go.

If Openreach insists in saying we need to raise wholesale prices because we need to invest, I think they're creating room in the market for CityFibre and for others, by the way.

Because the more they insist on that strategy, the more room there would be for other entrepreneurs to do like, whatever, Deutsche Glasfaser in Germany or other initiatives of that kind.

If Openreach change, they change their stance and they change the conditions, then, of course, it will depend on the levels.

So it's difficult to answer that question.

Obviously, in fixed, unfortunately, is not in mobile where you say I'll do this and I will do it, and in 3 years, it's done.

You have to change along the way.

Nick?

Sorry, all the terms from the 1 until the 5 route, so there's a...

Nick and Andrew then, and then Jerry and then we come back.

Nick Delfas from Redburn.

It's another difficult-to-answer question, which is about this issue of the low-priced entities in each market.

So you've got quite nice structural improvement here with the MNOs consolidating and many of the MVNOs being under pressure.

But you still have the mass mobile the MásMóvils, the Iliads in Italy, the Drillisches.

So what I'm not quite clear on how you strategize around how much oxygen to give those guys or to allow them?

Or put another way, how can you be confident that your customers on the main brand are actually a little bit sloppier than you might like?

They might just actually take the price cut at some stage.

So is there anything you can tell us about NPS about how you strategize about that?

Because very often in telecoms everything can look good until suddenly everyone starts to turn down to the lower price.

I can tell you what we're doing in Spain or in Italy, which are the 2 markets where we have one live case and one to-be case.

First of all, look at the market prices.

I mean, if you look at the promotions that are available in Italy today, I mean, 20 gig, EUR 10; 32 gig, EUR 10; 30 gigs -- I mean, it's already a market which is incredibly low in terms of opportunities.

So there's -- the real bottom end of the market is already kind of followed in a very aggressive and very, I would say, promotional way.

Which does not mean that nothing will happen there, but I'm not so sure how much oxygen is really left.

What we do on the higher end of the market, again through advanced IT systems, we analyze customers.

We are analyzing conditions.

We analyze the reason for growing.

And for example, in Italy, we have covered already more than 1.5 million of -- sorry, 1 million, 1 million, not 1.5 million, we will 1.5 million by then, customers.

Therefore, with analytical reasons, we know that they have pain points or some reasons potentially to go, and then we intervene and we change conditions to those.

But they change one by one by one.

So it's an incredibly sophisticated.

And as you see, all these maps -- and then you go down, you'll (inaudible) them and you get to Nick and say Nick needs this.

So you immunize at the high end by removing the higher end by moving the pain points.

You do more conversions, so you offer converged.

We launched, in Italy, the one converged product at, I think, a relatively aggressive price, because it's a good price with mobile and with a Vodafone Pass included.

Some of them you lock them in the family, some of them you give them more, some of them you compete with the euro thing.

And then, eventually, you can also consider other brands or second brands or sub-brands, which, again, have to cost nothing.

And hence, again, the agility and the importance of having these engines.

There's no single answer, I would say.

In Spain, Lowi is clearly going after much mobile because we need to respond.

Overall, is there any kind of market share of SIMs or revenue that you want to maintain in each market?

Because I guess, in Spain, maybe a market share -- well, actually, this quarter might be okay.

But you've ceded some market share over the last couple of years in Spain, I think.

In Spain, we see that some market share, as in Telefónica to the second brands of Orange and mass mobile, it's interesting that if you look at the first, the main brand of Orange, actually, they're not doing particularly well.

And this is the problem.

When these guys start doing -- enabling other guys, you suffer.

We are going into this more articulated set of responses everywhere.

I don't have a target.

I think it's good to -- I mean, you don't kill anybody in the business, you allow everybody to survive.

But it's good to leave as little oxygen as possible, so that, eventually, sanity has to come back into the market.

Andrew, Jerry, I think we have 2 more I think.

Can we get the microphone here to the right, please?

Or push the button and speak.

Sorry, just in terms of a longer-term question around 5G, and I guess that's now coming onto your investment horizon.

Is there an opportunity, do you think, to get ahead of the curve in 5G?

And perhaps do some things that either the wireline incumbent might not choose to do or the 3 or 4 might not be able to afford to do?

Can you achieve some lasting differentiation that way?

And if so, can it be done within the existing CapEx on the level that you have?

Listen, the 5G topic is a complicated one because when people ask me this question, first of all, be assured that we talk to every single possible person everywhere in the planet who knows anything about it, whether this is Chinese people or manufacturers or Americans or whatever, Koreans, everybody who pretends to be ahead on 5G.

Somebody in this room, it's certainly you and myself, Nick, we are in contact with.

So I think it's hard to see a single strategy to be first, because you need to align spectrum, technology and devices.

Probably the area where you will see earlier implementation of 5G will be IoT, and maybe in the areas of smart cities, maybe in the areas of industrial IoT depending on whom you talk to.

I don't think that for consumer normal use, there will be a particular reason to really rush ahead.

What you can do with 4.5G is very good.

Now that does not mean that, for example, in Milan, because of the tender conditions, we are not already experimenting, and I will probably say a few things more in Barcelona in February about it, with very advanced solutions.

But I don't believe that other than segments or pieces of it, it's going to be really worth trying to be first in 2018 or 2019.

Different thing to say, how much of 5G we can use to reduce our cost, increase our capacity and go in the monetization, the right part of my chart, which Johan believes very strongly on and you can talk to Johan after, because that is a serious reduction of cost versus 4.5G.

But that's more capacity and cost really than -- more than that.

Augmented reality, maybe, but how long will it take again.

So I don't think that for consumer applications, you're talking about much earlier than 2020, 2021.

And just, I mean, is there anything on the preplanning side where it makes sense to defer the densification or other activities to be...

No, it makes sense to -- of course, it make sense to have the network readiness.

It makes sense to get transmission in the high-capacity, high-traffic side brought up to fiber.

We have this target of 95%, we are on the way there.

It makes sense, of course, to prepare the platforms that will deliver the services, IoT in particular earlier.

Because in any case, we are -- I mean, let me say, the reason why we launched Consumer IoT in November '17 is not really for what we are going to do in '18 or '19, but it's to prepare a strong platform for the next the following 10 years.

So all those things, whether -- so it's more platforms, it's more enablers.

And then in the meantime, talk to whoever in the world is doing different pieces, so that you can apply the best one.

And we might be first in one city or in one country, but I'm not sure I see a generalized consumer early adoption.

It's Jerry Dellis from Jefferies.

I've got a question mainly on Italy, please.

In the context of the U.K, can you described how the joint venture with CityFibre is logical approach to sort of keeping Openreach's feet to the fire in terms of their pricing strategy and their fiber ambition.

And I wondered whether the Vodafone strategy on Italian fiber is similarly open-minded as you think about the potential sources of supply going forward, be it Telecom Italia or Ono?

And then within the Ono coverage area currently, which is I suppose is no longer particularly trivial, are you actively switching existing Vodafone fixed broadband customers across from indirect wholesale access from Telecom Italia onto the new Ono network?

Are there any practical economic constraints to switching customers over quickly?

So let me start from the end of your question.

The answer to your question is, yes, we are switching customers.

And no, there's no constraint.

Actually, it's an obligation, a contractual obligation that we have with them.

And so whenever the lines are made available to us, we see who's there and we switch.

And then going back, the answer to the question is, yes.

I mean, we don't have any ideological resistance to working with any incumbent.

And sometimes, if they give us good conditions and they work in a transparent and completely neutral way, we are very happy to work with them.

The problem is that most of them, they get there only when there is a real threat.

And now there is a real threat everywhere.

So if I were the parliament or the commission, I would celebrate saint Vodafone because, thanks to saint Vodafone, there is competition in Italy, in Germany, in Spain, in the U.K. now, in Portugal, in Greece, in Ireland and on and on and on.

So it is not an ideological thing, we just want to get good conditions and good prices, so happy to consider.

Do we have one more or we close it here?

We close it here.

I would like to thank you very much.

I would like to reiterate good half, very solid strategic process and increased guidance to reflect all of that.

But most importantly, "The future is exciting.

Ready?"