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Vodafone Group Plc (NASDAQ:VOD)
Q1 2020 Earnings Call
July 26, 2019, 4:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Vodafone Group Analyst and Investor Call. Your host today is Nick Read, CEO of the Vodafone Group. Please, go ahead, Nick.

Nick Read -- Chief Executive Officer

Thank you, Hugh. Good morning, everyone, and welcome to our Q1 trading update call. I will summarize our commercial performance and discuss our strategic progress during the quarter before I hand over to Margherita who will talk about the trading and financial performance of our key markets. Then we will both take your questions.

Turning to the quarter, the highlights on page three. This was a really important quarter for the business with the biggest lineup of new pricing plans and product launches I can remember for many years. Specifically, we launched 5G across our major European markets, introduced new speed-tiered unlimited data plans in five markets including Spain and the UK, and greatly simplified our pricing plans in Germany. I am confident that these launches will help to sustain the positive momentum in our service revenue which started this quarter with our organic service revenue growth improving by 50 basis points sequentially to negative 0.2%.

Additionally, the new offers should contribute to deeper customer engagement building on the new record low for mobile contract churn that was already achieved in Q1. Radically simpler pricing plans also help us to reduce IT complexity and lower costs. Together with good progress on digital, we are well on track to achieve our goal of another 400-million-euro reduction in European opex during the year. In November, I highlighted the need to improve the returns we are earning on our infrastructure assets. Network sharing is a key lever to achieve this and we have now signed agreements in Spain with Orange and just this week in the UK with O2.

As highlighted by the media, we are also in the final stages of concluding our agreement in Italy with TI and INWIT. I also said in November that we had started due diligence on our tower assets with a view toward evaluating monetization options. Today, we have announced the creation of a new European tower company which we intend to monetize potentially via an IPO in order to unlock the significant value of our infrastructure assets at a time when tower multiples are clearly attractive.

Lastly, but certainly not least, we secured regulatory approvals for our acquisition of Liberty's assets in Germany and CE with minimal changes to the remedies that we originally proposed completing Vodafone's transformation into Europe's leading converged operator. Both this deal and the sale of New Zealand will now close by the end of July. We have spent the past 14 months creating a highly detailed plan enabling us to begin the integration immediately after closing so that we can secure the 7.5 billion euros of synergies that are available.

Turning to slide four and our trading performance. For the third quarter in a row, we have achieved a mean full-year over year improvement in mobile churn as you can see in the chart on the left. Improvements were broad-based with only South Africa seeing a pick up in contract churn, albeit from mid-single-digit levels. We still have a long runway of potential improvements to ultimately reach our ambition of single-digit churn across our markets and I expect further improvements as the year progresses.

One of the key levers to reduce churn is our progress on fixed broadband and convergence. The chart on the righthand side of the page shows our progress in Europe in recent quarters. You will notice that our momentum slowed in Q1 in addition to the normal seasonal effect. This also reflects our effort during the quarter to significantly reduce complex promotions as we introduced new simplified pricing plans. In some markets, and notably in Spain, our competitors reacted to our new propositions by increasing promotions and we had to adapt accordingly during the quarter. Overall, I expect our commercial performance to recover in the coming quarters and I remain convinced that we have a long-lasting opportunity for profitable market share gains in fixed.

Moving to slide five, I'd like to spend a bit of time explaining how we are implementing our new radical, simpler, unlimited data pricing plans. Unlimited data will not be the right solution for every market, but where it is implemented, we strongly believe that a speed-tiered approach is important because it preserves a valuable ladder for ARPU accretion in the future. Our experience in Spain to date illustrates this. Primarily, we have targeted our existing customer base with the new offers as we've simultaneously withdrawn promotions from the market. Although our competitors reacted initially with aggressive promotions, they have since recognized that this was a more for more move by Vodafone aimed at our own base and promotions have reduced significantly. We've migrated about a half a million lines to the new plans and achieved accretion of around three euros per month on average in line with our plan.

In the UK, we intend to target the base with our new Be Unlimited offers which launched in July. However, we will also target new customers as we are effectively a challenger in the UK consumer market. This is why we priced 5G at 0 premium in contrast to Germany where we're charging an additional 5 euros per month on our lower plans.

As we close the Liberty deal, it's worth taking a minute on slide six to reflect on the importance of this transaction for Vodafone. With the addition of 17 million cable homes in Germany and CE, we've become Europe's largest owner of GB capable NGN infrastructure. And as you can see from the extensive charts, we decisively shift the Group's mix in Europe toward growing fixed and converge services which will represent almost half of our consumer service revenues going forward. And we will unlock cost and capex synergies worth over 6 billion euros after integration costs as well as revenue synergies of at least 1.5 billion euros, a major value creation opportunity for the Group which supports our outlook for double-digit free cash flow per share accretion from the third year post-closing before integration costs.

In Germany specifically, you can see on slide seven that we will enjoy a huge network advantage over other players in the market. Following a fast upgrade of the Unity footprint in DOCSIS 3.1, the chart on the left shows that we will be able to market GB broadband speeds to 25 million homes by the end of FY 2022 compared to national FTTH coverage which we estimate will only be around 8 million given DT's stated target at just 2 million homes per year.

This creates a multi-year opportunity for us to drive high margin on net penetration on the cable network which as you can see from the righthand chart lag far behind other leading cable peers. This means that Germany, which will represent around 30% of our service revenues, 35% of our EBITDA and 40% of our cash flow going forward will be a structural engine of the Group's growth for many years to come.

Moving to slide eight, Germany's contribution to our EBITDA growth should be even greater given the size of the synergies that are available and the speed at which we intend to capture them. The righthand chart highlights our ambition following extensive planning over the past 15 months to move significantly faster than we did with the integrated of KDG. We are confident that we have the capability to do so given the learnings from KDG and importantly the fact that KDG employees are now an integral part of our German team. Specifically, we've already identified the first two layers of management who will be in position on day one post-closing. Integration of back-office and supply chain functions will begin immediately, and we aim to start joint commercial activities within 30 days both in terms of cross-selling efforts and ULL avoidance and migrations. The external rebranding and the harmonization of our portfolios will be completed in early 2020.

As you may recall, at KDG we ended up significantly overachieving our initial synergy object of 300 million euros as we've done in all our cable deals including the Netherlands. With Unity, we have the same cable to mobile opportunity which we will capture faster along with the additional cable to cable opportunities so we are confident that we can, at a minimum, realize the higher 425 million euros target that we have set for run-rate savings by the fifth year post-closing.

Turning to slide nine, in addition to integrating Liberty Global and improving the consistency of our commercial performance, our other key priority over the next 18 months will be setting up our European TowerCo. As you can see on the slide, we will be creating Europe's largest tower company, owning approximately 61,700 towers across 10 countries including our 50% share of Cornerstone in the UK. The primary focus of our efforts on towers has been to achieve industrial synergies through network sharing deals. It's critical to secure these savings before considering monetization in order to minimize future lease costs. So, the rapid progress we have made in Spain, the UK, and Italy is good progress and post the auction discussions are now under way in Germany.

As we've been working through our due diligence in exploring a range of tower monetization options, it's become clear there is high demand and attractive multiples north of 20 times EV to EBITDA. These valuations reflect the strong market positions we enjoy, the expensive historical investments we have made in our tower estates, and our investment-grade rating. All of which makes Vodafone a more attractive anchor tenant than the typical sub-investment grade tenants who have sold towers in the past. Based on market benchmarks for anchor tenant lease rates, our existing third-party tower revenues and the attributable cost base, we estimate that as a stand-alone entity, our European towers could have proportionate revenues of approximately 1.7 billion euros, EBITDA of around 900 million euros, and capex of up to 200 million euros. Note that the actual revenues and EBITDA of the European TowerCo will vary from these numbers depending on the assets that are included, whether the assets are fully controlled, and the anchor tenant's lease rates that we conclude on.

Clearly, given the potential valuation multiples, our towers are extremely valuable assets which are not appropriately valued in the Group's sum of the parts to date. Consequently, we have explored a number of monetization options to unlock this value as you see on slide 10. Before discussing these options, I'd like to explain the important principles that we will follow in ensuring the strategy. First, we will prioritize industrial savings through network sharing wherever possible before monetization in order to maximize the benefits to Vodafone. Second, we will maintain our network differentiation and long-term strategic flexibility. There are many ways to achieve this including maintaining majority control, leaving Golden Towers out of the agreement, and through very well-structured MSAs. Third, we will seek to achieve the most attractive valuations. Finally, we will use the proceeds to repay group debt consistent with our focus on deleveraging.

In this context, we have three clear execution options for monetization. First, we can pursue state disposals by country. This has the advantage of allowing us to find a larger number of potential buyers for each asset as we talk to existing tower players who have industrial synergies and can more as well as financial investors. In order to do this, we need to legally separate our towers from their operating companies which we aim to do by May 2020. As a second step, we could inject these local tower companies as well as any remaining stakes we hold in other tower cos such as CTIL or INWIT into a European HoldCo which we can then IPO. Additionally, or alternatively, we could sell a stake in this HoldCo to a third-party.

Now, let me pass over to Margherita for the trading and financial summary in our key market.

Margherita Della Valle -- Chief Financial Officer

Thank you, Nick, and good morning, everyone. I will start by summarizing our overall service revenue performance on slide 12 before the usual run-through of the main markets. Please note that all of the growth rates presented here are on an IFRS 15 basis. Our reporting is now simpler without the need to provide any underlying view.

As the chart on the left shows, Q4 was indeed the low point for our growth followed by a 50-basis points improvement quarter on quarter. This was principally driven by Italy as we lapped 28-day billing changes in the prior year, partially offset by tougher comparisons in Spain and the full-quarter impact of out of bundle data regulation in South Africa. The chart on the right shows the sequential improvement in Europe led by Italy, while in the rest of the world, the slow down in South Africa was affected by Egypt and Turkey which are now growing faster than inflation. Looking ahead, I expect a continued gradual recovery in Group service revenue growth, underpinning our guidance for FY 20.

Turning to slide 13, Germany grew by 0.4% in Q1. As I highlighted at our full-year results. We are facing increasing wholesale headwinds which grew to 140 basis points in Q1 from 100 basis points in the prior quarter. However, I am pleased with the robust performance of our retail business which grew by 1.8% driven by customer base expansion in both fixed and mobile. In April, we announced a new range of mobile tariffs designed to simplify our product portfolio and deliver better value to customers while also supporting or enhancing ARPU. In July, we were then the first operator to launch 5G services are the 5-euro premium to 4G.

In fixed-line, the base of our broadband net adds slowed in the quarter. This was the result of intense low-end DSL discounting by several players at a time when we were actually trying to lead the market toward lower promotions. However, our cable net adds performance was stable year on year. Post the acquisition of Unitymedia, you will hear me talk increasingly about our TV performance. Here we are losing basic customers but are growing in the premium pay-tv segment. So, overall revenues and gross profits continue to expand.

Finally, during the quarter, we were 90 megahertz of 3.6 gigahertz spectrum and 40 megahertz of 2.1 gigahertz spectrum in the German 5G auction for a total of 1.9 billion euros. From somewhat unhappy about the price we had to pay, this secures our leading network position and we have now acquired 5G spectrum in all of our major European markets.

Turning next to Italy on slide 14. Service revenue decline improved quarter on quarter to -3.8% in Q1 as we benefited from lapping the shift from 28-day to monthly billing in the prior year. This largely explained the sequential improvement in mobile service revenues to -7.4% from -11.1% in Q4. Competition in the pre-paid market continued to cool down and it is good to see that main brand pricing for new customers improved further. As a result, mobile number portability volumes were 11% lower sequentially and 34% down year on year as you can see in the chart. However, you should keep in mind the pricing in the low-value segment of the market remained unchanged in the quarter and we continued to see some ARPU pressure from customers pinned down.

In fixed, we maintained good momentum growing service revenue of 9.2% in Q1 and adding 27,000 net broadband customers. We continued to acquire a strong share of market additions. However, the broadband market slowed a result of price increases implemented by most operators in the quarter. Looking ahead, our fixed revenues will benefit from the 2.99-euro price increase on our customer consumer broadband base that takes effect in July.

Moving to the UK, we maintained our good commercial momentum adding 66,000 net contract customers and 31,000 broadband net adds in the quarter as you can see from the righthand chart. Q1 was a very significant quarter for Vodafone in terms of new commercial launches including unlimited mobile data, converged offers, and 5G. In consumer, we grew service revenues by 1.9% supported by a higher contract customer base and RTI lean price increases in mobile, and by further market share gains in fixed. I'm also pleased with the performance of VOXI, our fully digital sub-brand which we have now expanded beyond the youth segment. During Q1, we added 60,000 customers on VOXI. This is a pre-paid plan so these customers are incremental to the net additions you can see on the slide. In business, mobile revenues were stable. However, wholesale revenues continued to decline and as a result, overall service revenues were broadly stable in Q1, a similar performance to Q4.

Moving to Spain on slide 15, service revenue trends deteriorated quarter on quarter as price increases in April last year were not repeated this year. Additionally, as Nick has already highlighted, IN April we launched new simplified tariffs that include speed-tiered, unlimited data bundles, a first for the Spanish market. We also removed all promotions as we focused on migrating existing customers to the new plans in an ARPU accretive way. However, our competitors reacted aggressively to our launch expanding their 50% acquisition discounts to six months from the usual three for most of the quarter. This had an impact on our net adds performance in May. Once promotions normalized again in June, our consumer mobile ports turned positive as you can see from the chart on the left.

As the new football season commences, our decision not to renew on profitable football rights may result in some further football customer losses. However, most of the dedicated football fans left us last summer and the majority of our remaining 200,000 base have already contracted with us to benefit from the announced offer. Meanwhile, new options are being made available in the market for football fans. A new over the top football streaming service has just been launched offering full access to La Liga champions league and Europa League content.

Looking ahead, we expect a gradual improvement in service revenue trends from Q2 onwards as our commercial performance recovers with benefits from unlimited ARPU accretion and will up the effect of our pricing repositioning last year.

Next to Spain, we have other Europe which is actually now large than Spain as it represents an aggregate 13% of Group service revenue. Service revenue growth continued to be very healthy at 2.1% in the quarter with Portugal, Czech and Hungary maintaining good momentum while in Ireland growth in mobile was offset by pressure in fixed-line. Customer growth remains robust across both fixed and mobile and we now have single-digit mobile churn in five out of eight markets. We are currently ramping up our integration activities in preparation for the acquisition of Liberty Global CE assets in Hungary, the Czech Republic, and Romania. In total, these assets will provide us with substantial incremental NGN coverage totaling 6.4 million HH passed.

Finally, turning to Vodacom on slide 15. Service revenue growth slowed in the quarter to 1.1% compared to 3.5% in Q4. The slowdown was principally driven by South Africa which declined by 1.2% in Q1. This reflected a full-quarter impact from out of bundle data regulation that came into effect at the beginning of March and accounted for a 250-basis point drop quarter on quarte. Despite the regulatory headwind, we are seeing encouraging usage trends with total data traffic accelerating by over 50% year on year. Combined with the phasing of the Telkom roaming agreement which ramps up in Q2, this gives us confidence that South Africa will return to growth in the second half. Looking ahead the upcoming spectrum auction is very important for us. It will unlock significant additional capacity allowing us to further reduce the unitary cost of data. The spectrum policy directive is due to be published by the government imminently clearing the way for an auction talk toward the end of FY 20.

Finally, our international markets which now represent over a quarter of Vodacom service revenues continued to grow at a high single-digit pace supported by the ongoing success of M-Pesa and by strong data growth.

With that, I will hand back to Nick for the summary.

Nick Read -- Chief Executive Officer

Thank you, Margherita. To summarize, Q1 demonstrated the start of an improving trend and we expect a gradual recovery in service revenue growth to continue underpinning our unchanged guidance for the year. We are making good progress on our strategic priorities with the ambition to deliver sustained free cash flow growth by deepening customer engagement and bringing down churn, sharpening our commercial execution through radically simpler price plans and processes, reducing cost through digitization while driving better asset utilization through network sharing. We are about to complete the major strategic acquisition of Liberty's assets transforming the Group into a converged European leader with an increased exposure to ground fixed and converged revenues and the opportunity to capture large cost synergies. And we will create Europe's largest tower company with the goal of unlocking significant value for shareholders. Depending on market conditions, we aim to achieve this in the next 18 months.

Operator, we will now take your questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, if you haven't already, please could you press 0 and then 1 on your phone keypad now in order to enter the queue. Then, after I announce you, just ask that question. If you find that question has been answered before it is your turn to speak, just press 0 and then 2 to cancel.

Our first question is over to the line of Georgios Ierodiaconou or CITI. Please, go ahead. Your line is now open.

Georgios Ierodiaconou -- CITI -- Analyst

Thank you for the questions. I just wanted to ask about further initiatives you may choose to undertake in order to turn up value. You've already started some initiatives as you mentioned earlier, network sharing. You had that announcement last week of two Brazilian companies setting a common 2G grid. I just wanted to hear your views whether medium to long-term you envisage common grids on legacy technologies, maybe even single network on legacy for all the operators in each of your markets.

And my second question is around fixed-line monetization. Some of your competitors in Spain and some of your peers in France have proceeded with monetizing some of their fixed-line assets. I just wanted to see whether it's something you may selectively choose to do or whether this is entirely different from tower monetization options. I'd be interested to hear your views on that. Thank you.

Nick Read -- Chief Executive Officer

Really good question. Let me start with the latter first. I would say at this point in time our primary focus is on towers. Fixed line, we are seeing other people potentially monetize both. I consider that a more complex area and clearly has implications for our retail positioning in the marketplace. At this point in time, we are not pursuing those opportunities but obviously, we continue to review.

Going back to towers, you make a good point around 2G. In fact, you could argue 2G and then potentially 3G rather than a common grid could there be the option of one operator in a market effectively offering services to everyone else in the market so that you can decommission 2G and 3G. Because ultimately, all operators want to move to 4G, 5G. That would be a very efficient capital option for all the operators, including the one that stays providing the service because obviously, they would get wholesale revenues. So, look. That's an area that we would remain open to and are in some discussions with some operators about the possibility but very early days.

Georgios Ierodiaconou -- CITI -- Analyst

Thank you.

Nick Read -- Chief Executive Officer

End up being the shortest Q1 call ever.

Operator

Akhil Dattani at JP Morgan, please, go ahead with your question. Your line is now open.

Akhil Dattani -- JP Morgan -- Managing Director

Hi. Good morning. Thanks for taking the questions. Can I start first on the tower side, please? Just a few things I wanted to clarify based on comments you've made and things you've said in your release. You've talked about having received unsolicited offers for various parts of your tower portfolio. I guess I was just keen to understand to the extent you can if you could give us some color around what that related to? Was it a strategic buyer? Was it industrial priced assets that are looking at that sort of thing? Also, you've talked the 18-month timeline just to understand why the timeline is that long to realize any sort of endpoint here. And then how you think about IPO versus selling to a strategic buyer. So, that's really my questions around towers.

And then on service revenues, you've been quite clear on the call that you're expecting ongoing gradual improvements. I guess just keen to understand any color you can give us on where those improvements come from. I guess this quarter is a more emerging market. Is that likely to be the case going forward or is more European related? Thanks a lot.

Nick Read -- Chief Executive Officer

Thanks a lot, Akhil. This is a fantastic opportunity for me to say that really, we need to keep to one question. But this is a good question. So, I'll take the towers one and Margherita can take the service revenue one. Just in terms of offers, I really can't go into much more color other than to say that when we came out with the strategy back in November, clearly, we've had a huge demand. Both Tower Companies and InfraFund very keen to engage with us. Either on market cases, so very specific circumstances, or something bigger. This is where there are offers over 20 times is coming from because we've had a sort of consistent demand for these types of assets. I think it goes back to the point I was really making. I think Vodafone is obviously a very high-quality anchor tenant and we've got very high-quality assets. These opportunities don't come around very often, so people are very, very keen to pursue it with us.

I'd say the way we're structuring this is to allow us to do effectively a double monetization. We're doing it at the local level and then we're doing it at the European TowerCo level while maintaining strategic control of the assets. Why does it take 18 months? Well, the most important thing was to get the industrial synergies at the market level. I'm really pleased with the speed at which we've been going to reach agreement on these. We've done the UK. We've done Spain. Italy is imminent. We're not working very hard on Germany. We're also working on a number of other markets we just don't talk about because they're smaller. Clearly, we have to separate out the assets in legal entities, then we have to form a management team. We're saying we can get that done by May 2020. Then, of course, we need financials and some history before we can IPO. IPO versus strategic, what's the better value creation for the company I think is the key answer. We just want to make sure that we give transparency and seep through value of our assets within the company.

Margherita Della Valle -- Chief Financial Officer

As far as revenue growth is concerned, I would start by just commenting quickly on the quarter we have just closed. I think this quarter we were particularly pleased with three areas. First, the moderating competitive intensity in Italy where we are seeing the continuation in the price increase trends which was started in Q4. Second, Germany where retail growth is quite robust. And then finally, Egypt, Turkey, our emerging markets now growing faster than inflation. You asked about the future. Looking forward we do see continued gradual improvement quarter by quarter from now on as we had anticipated in Q3. In terms of where this is going to come from, it's quite broad-based. It's supported by the significant commercial launches that we have now completed and also as you know by easier comparisons. In Q2 we will be hitting the anniversary of our pricing repositioning in Spain and then in Q3, it will be the anniversary of the South African slowdown.

If you step a little bit back from the quarterly performance, I'd like to point out that growth as a Group should be our natural state. If you think about it, we've been growing for four consecutive years and all the way to Q4 19 when we were negative. As we look forward, we delivered integration. This should be increasingly enhanced by the fact that our mix of revenues is moving further toward the growth areas with, as Nick mentioned earlier in the presentation, fixed and converged revenues in Europe being around 45%. So, an upward trend from now.

Akhil Dattani -- JP Morgan -- Managing Director

Thanks a lot.

Operator

We now go to the line of Nick Delfas at Reburn. Please, go ahead. Your line is open.

Nick Delfas -- Redburn -- Analyst

Yeah. Thanks very much. Just one question on the tower sale again. How do you think about partial sale versus full sale? I guess with a full sale capex for the new towers moves off balance sheet. With a partial sale, it doesn't. So, can you just talk about why you're talking about a minority? Thanks very much.

Nick Read -- Chief Executive Officer

I think I've expressed several times before the importance of strategic control of our key assets. I would say that on a partial versus full market level, it comes down to whether there is good supplier towers in the marketplace. Do you feel that controlling the towers is a strategic imperative or actually there's lots of access to lots of towers? In which case, therefore we may be open to a majority sale. Clearly, another factor is going to be on a market-by-market basis is the valuation difference between control and non-control. These are the factors we'll consider at the market level.

At the European level, we are just focused on a minority stake disposal via IPO or financial investors.

Margherita Della Valle -- Chief Financial Officer

Just pointing the starting point of your question, Nick. I would say we're not particularly interested in the accounting implications of this initiative that we are taking. What we are really focused on is overall value creation starting from the loss of synergies as Nick mentioned to the single-tower company with dedicated management. And finally, benefiting from the attractive point in the cycle for the infrastructure investments.

Nick Delfas -- Redburn -- Analyst

Okay. Thanks so much.

Operator

We now go to the line of Polo Tang at UBS. Please, go ahead. Your line is open.

Polo Tang -- UBS -- Analyst

Hi. I've got one question and one follow-up. In terms of the portfolio your secrets to adding value in terms of towers you've divested of New Zealand. Are there other assets in the portfolio you'd consider divesting? Can you maybe talk about your criteria in terms of deciding whether something should be in or out of the portfolio? And then the quick follow-up was really on Germany. Now that the spectrum auctions are over, what are your thoughts on whether Drillisch will build a fourth mobile network and what do you think the impact will be on the market and also Vodafone? Thanks.

Nick Read -- Chief Executive Officer

On the portfolio, I think that we've demonstrated that we are active managers of the portfolio. We strengthen individual positions and at the same time, we work on value realization opportunities. We've always said that our core footprint is Europe, Africa, and we obviously have our joint venture in India that's ring-fenced. Therefore, New Zealand was outside of that footprint. Obviously, Australia is another asset that we were trying to get a consolidation and we still feel that through the courts that we'll get a good outcome there. I would say we just continue to be active managers of the portfolio going forward but essentially, we're getting closer to our core footprints.

In terms of Drillisch, Drillisch is engaging with everyone in terms of national roaming. So, that's a sort of commercially led discussion that they will be having with lots of different players including ourselves. Clearly, there's only an obligation to engage on a commercial basis. That is acceptable to us. So, we will remain very disciplined on the economics there. Obviously, as they go through that cycle you have to think about from their perspective. They bought the high-band spectrum, so I call it more capacity spectrum rather than coverage spectrum. That might be OK for a certain degree of quality of network. I don't think it particularly changes the dynamic of the two-tier nature in the German marketplace.

Polo Tang -- UBS -- Analyst

Thanks.

Operator

Our next question is over to the line of Andrew Lee. Please, go ahead. Your line is now open.

Andrew Lee -- Goldman Sachs -- Analyst

Good morning. I just had a question around your tower's operational strategy as opposed to the monetization strategy. Do you think your operational strategy changes with your change in ownership structure? Could we some of the Vodafone tower cos become more acquisitive of tower assets across Europe? How much of your tower sharing ambitions can you achieve prior to the spinout versus how much is left to go? Anything that you can give us to give us more color on your targets here and how these fundamental targets are better achieved through the spinout would be helpful. Thank you.

Nick Read -- Chief Executive Officer

Sorry, Andrew. I just missed your second point. I heard the operational strategy and whether it be acquisitive. What was the second point?

Andrew Lee -- Goldman Sachs -- Analyst

The explicit question is around operational strategy. One was on you could either be acquisitive of towers across Europe with the individual tower cos and the second end to it was how much of your tower sharing ambitions can you achieve prior to the spinout? You say you want to achieve active and passive network sharing benefits first prior to the spinout. How much can you do before the spinout and how much more is actually left to go on that opportunity?

Nick Read -- Chief Executive Officer

Let me take the last one first, which is that is the main priority. So, doing the sharing agreements market by market is our priority. We've been working on all of the markets with the exception of Germany since I announced in November. That's why we're making very fast progress. So, we don't talk about some of the smaller markets in Europe but all of those are examining options on the table and addressing discussions. We want to really establish those because it's really important that you reach agreement on the sharing at a market level first so that when you do monetization you're not locked into an excessively high number of sites, that you have more of a target state that you are monetizing rather than the current. So, making very good progress. You'll see more progress over the next 12 months around different markets.

Going to the operational side. Look, if we're setting up a tower company, it's an independent tower company with a focus to drive efficiencies. One of the things I really saw a lot when I was on the board of Indus for about five years was just the efficiency you get with that single-minded focus. That's the sort of second benefit we get. We get this sort of industrial benefit of bringing two networks into one. Then you get the additional operational efficiencies driven out through a dedicated focus and management team. And of course, if we're IPOing a business, a European tower company, it needs to be independent with its own management team. So, if they decide they want to do acquisitions, if they decide they want to rationalization, it creates value for investors. Of course, we will consider that.

Andrew Lee -- Goldman Sachs -- Analyst

Thanks. That's very helpful. Can I just ask one quick follow-up just on the concern on these deals to investors in terms of the price escalator that you sign up to as an OpCo? Is there anything you can give us on your views on whether you have an inflation-linked escalator or an explicit percentage escalator like the Illiad struck?

Nick Read -- Chief Executive Officer

Look. Some people put escalators. Some people put high anchor tenant rates because they want to realize a very high multiple and high price. We're very much focused on making sure that our commercial business afterward can compete effectively in the marketplace. That's why we've said on the numbers we're quoting these are market rates and we have to go through the MSA, and we have to make sure that our commercial business is left in a very strong state post the tower deals.

Andrew Lee -- Goldman Sachs -- Analyst

Thank you.

Operator

We are now over to the line of Jakob Bluestone at Credit Suisse. Please, go ahead. Your line is now open.

Jakob Bluestone -- Credit Suisse -- Analyst

Hi. It's a question and a follow-up as well. Firstly, just in terms of thinking about the pace of recovery in Spain in particular. I guess it's sort of the last of the European markets which is still showing a slightly more challenge to performance. Can you talk a little bit about how you see the revenue recovery coming through particularly in the second half? And then also, what is the magnitude of EBITDA rebound you expect later in the year? Do you think you can see EBITDA stabilizing in the second half of the year? Is that maybe a step too far? And maybe just as a follow-up as well, Nick, I think you mentioned India being ring-fenced. I was just hoping you could expand a little bit on that. The equity value of Vodafone Idea is down about 40% I think in the last three months. You had some comments last week from JO saying their main focus remains to grow subscribers. So, could you maybe just remind us a little bit on how that ring-fencing works and what is the extent of your commitments to India? How much could you be on the hook for potentially there? Thank you.

Margherita Della Valle -- Chief Financial Officer

Jakob, taking on Spain first. As far as we are concerned, Spain remains a highly competitive market and I think the promotional intensity in this quarter proves it. However, for Vodafone Q1 will be the bottom in terms of growth rate. From now on, we should expect to see gradual improvement on the back of essentially three reasons. First of all, our commercial momentum is normalizing. Second, we have seen underlying ARPU improvement in our base through the move to unlimited. Nick mentioned around 3 euros per customer. And then finally, as we move forward through the year, we will lap last year's commercial actions and football losses. As I mentioned earlier, we may have some further losses from football, but the vast majority of our customers are now recontracted in that segment. Also, we are pleased to have seen that now Spanish customer will have choice around football independent completely of Telkom operator with the new over the top offer for Mediaset. So, gradually through the year, you should see revenue improvement.

And to your point on EBITDA, yes. This will also be accompanied by EBITDA improvement as the revenue decrease slows. And also, as you know, in the second half of the year we will exit football costs.

Nick Read -- Chief Executive Officer

And Jakob, regarding India, I think about it as two separate assets. We obviously have Vodafone Idea and we have our tower assets. In Indus, that's going through a process of merging with Bharti Infratel. That approval process for that merger is imminent so we would expect to see that at least by the end of August at the latest. At that point, you've got a tower business that we can monetize easily. The valuation of over 2.5 billion euros. On the commercial business, we obviously did India's largest rights issue. So, we've got the funding and they're pursuing the 10 billion euros in cost in capex synergies. They're doing a very good job of accelerating the network integration. Originally, we said we would do that in four years. We're going to two years. So, they're moving at pace in terms of restructuring the cost base of the company.

How we look at it is we're going to monetize the towers, the 2.5 billion-plus. Initially the 1.4 billion that we get out we then repay our contribution to the rights issue. And then the residual sits there as an asset whether we hold it in the tower company in terms of shares or whether we've monetized to invest in the commercial business if needed. If it's not needed, it comes back to Group. But one way or the other, India is ring-fenced to those two assets.

Jakob Bluestone -- Credit Suisse -- Analyst

That's very clear. Thank you.

Operator

Okay. We're now over to the line of James Ratzer at New Street Research. Please, go ahead.

James Ratzer -- New Street Research -- Analyst

Good morning. Thank you very much. Had some questions on Germany, please. So, firstly on towers there, would you in principle be interested in offering a tower deal to United Internet Drillisch for them to get access on your towers in Germany as a way of boosting your operational performance of that asset? Secondly, would be willing to offer them a commercial wholesale access deal to your cable infrastructure? I know you signed a regulated one with Telefonica Deutschland. Would you be interested in doing follow on commercial ones? And then finally, you put a slide up showing the gap between retail revenue growth in Germany that's nearly 2% compared to the reported service revenue of 0.4%. Can you help to give us some indication on the timeline for those two to close? How much more wholesale drag do you believe you have in Germany at the moment? Thank you.

Nick Read -- Chief Executive Officer

James, I consider that question a complete abuse of the one question just because it stages Germany. The argument is-

James Ratzer -- New Street Research -- Analyst

One too many questions.

Nick Read -- Chief Executive Officer

Exactly. I'll leave Margherita just to cover your last point. I mean, to the two first questions in terms of would we offer towers to Drillisch? Look, at this point in time, I would sort of step back from Germany and look at it in the following way. I think that first of all there's what we call white spots. So, I think that ends up being an industry solution that we all come together and find a way of covering the white spots in the most economically rational way possible. I think all operators are open to doing that. I'd say, secondly, the conversation with Drillisch about roaming is a very specific conversation on commercial terms that were in discussions. And then I think the third one is more how can we do something similar to what we're doing in our countries in terms of tower sharing? On a tower sharing basis, I would think that DT would be more the automatic partner of choice but obviously, TEF are also engaged with us. If there is a tower company formed, obviously, then there are conditions about offering to the general market. But we're a little away from actually shaping what that could look like. Clearly, we won't want to do anything that strategically undermines our strategic position in a market that's going to be 40% of the free cash flow of the Group.

I'd say in terms of the commercial wholesale, we're obviously in terms of mobile commercial wholesale open to conversations as we move into 5G. We could be increasingly open to say what could be available in 4G because ultimately, we want to come off 3G longer-term. In terms of cable, we only needed through the remedies to offer to one player and we have an agreement with TEF, and we are not in discussions with anyone else.

Margherita Della Valle -- Chief Financial Officer

In terms of wholesale revenues in Germany, we have about 400 million euros between fixed and mobile wholesale revenues with United Internet, 200 million euros on fixed, 200 million euros in mobile. The one you're really interested in is the mobile MNVO revenues. These have accelerated the pace of decrease as we were expecting. We are now running them off at around 30% decrease year on year and we expect this trend to continue throughout the year and more to come in the following year. Clearly, to your point, as the weight of wholesale revenue on the total service revenue of the company will decrease over time, then you will see a gradual closing of retail and wholesale. But there is more gap in the coming quarters.

James Ratzer -- New Street Research -- Analyst

Great. Very clear. Thank you very much.

Operator

We are now over to the line of Jerry Dellis at Jefferies. Please, go ahead.

Jerry Dellis -- Jefferies -- Analyst

Good morning. Thank you for taking my question. My question is really on towers again. I was interested in the asset perimeter that you sort of have in mind implicit within your proportionate EBITDA figure of 900 million euros. Is there scope, for example, to include backhaul or other fiber related infrastructure within the perimeter? If so, would that be sort of incremental to the numbers that you've provided here?

And then if I could just add a little addon, please. In respect to your slide on GB buildout in Germany, would you imagine that that could be achieved within the perimeter of your current German capex Vodafone plus Unitymedia adjusted for the capex synergies that you've guided on, please? Thank you.

Margherita Della Valle -- Chief Financial Officer

On the tower company first. You mentioned the proportionate EBITDA perimeter. In reality, the EBITDA that we have quantified based on benchmarks to 900 million euros is not proportionate. It's the indicative value of 100% of our circa 62,000 towers in Europe. The way that we have formed this number is on the back of three elements; anchor tenant leases which at the moment are just an assumption as Nick highlighted earlier. We've taken market benchmarks. And then two, our due diligence. Real third-party revenues today and operating costs. In terms of the perimeter, this is just towers. It does not include tenancy improvement or older elements as the backhaul that you mentioned.

I'm sorry. I missed the second part of the question on the synergies, I think.

Jerry Dellis -- Jefferies -- Analyst

GB Germany?

Margherita Della Valle -- Chief Financial Officer

The GB plans?

Jerry Dellis -- Jefferies -- Analyst

Yeah. So, in other words, the DOCSIS 3.1 rollout. Is it within the capex on the local plus then?

Margherita Della Valle -- Chief Financial Officer

Sure. As you know, we've already rolled out DOCSIS 3.1 to most of our KDG estate and we are now going to start as quickly as possible rolling it out onto the Unitymedia estate. This was considered within our integration costs and expect to be completed by FY 21 across the whole of the footprint.

Jerry Dellis -- Jefferies -- Analyst

Thank you very much.

Operator

We now go to the line of Stephen Howard at HSBC. Please, go ahead.

Stephen Howard -- HSBC -- Analyst

Good morning. Thanks for taking the call. So, some encouraging operational trends, but I just wanted to ask about potential headwinds coming up. Two spring to my mind. The first is I'd just be interested to know how you're preparing for the prospect of Sky pushing on broadband in Italy? And secondly, you've got announcements from UK Today about 5G with no price premium and no speed caps either. Is that in line with what you had been planning on? Do you think you can maintain the positive ladder that you were discussing earlier? Thanks.

Margherita Della Valle -- Chief Financial Officer

If I can Italy first. Italy for us is a really differentiated two-tiered market with a top tier infrastructure in fixed and mobile for us and TI and we are growing fast at the moment in fixed and convergence. We see Sky as one of the competitors that may play in the second tier of the market. We are actually currently very, very happy with the competitive environment in fixed in Italy. All the players in the market have raised prices recently. The entry-level is now 35 euros per month. Our fixed-line service revenue growth is over 9%, as I was mentioning earlier. So, a very good evolution and we are taking share fast as I said in a two-tier context.

Nick Read -- Chief Executive Officer

I just do one build which is generally on the concept of speed-tiering. We're putting in speed-tiering because we think that this is a way of being accretive to ARPU over the longer-term and it's an opportunity for high-quality networks. In other words, our sales and let's say the incumbents going that route. If the incumbents don't go that route, then maybe we would have to adjust our plans. I think it's less relevant. We would expect all value players to go unlimited on the quality of the network that they can support.

I think we are open to one last question.

Operator

Yes. The last question is over to the line of Maurice Patrick at Barclays. Please, go ahead, Maurice. Your line is open.

Maurice Patrick -- Barclays -- Analyst

Thanks very much. Good morning, guys. Sorry to ask another tower question but it's a big deal. On the 900 million euros of EBITDA, you're looking at more than 20 times, half your market cap. In terms of the 900 million euros number, can you help us understand a bit about what's in there? How much of that is internal, for example, those that are past external revenues? Should we expect some of it to grow over the coming tower bonds before you look to monetize it? I'm assuming INWIT is not in that number? It's pre any Italy deal? Some sort of more color on those metrics would be super helpful. Thank you.

Margherita Della Valle -- Chief Financial Officer

Sure. Starting from your last point, Italy is included in the number. As I was mentioning before, it's built out of the totality of our towers in Europe, clearly taking the UK as proportionate. In terms of potential evolution, this is indeed a world where numbers can change from quarter to quarter as people continue to work through the infrastructure. As I was mentioning before, we have taken a picture as things are today with no increases, for example in terms of the number of tenants. You asked about the composition of the revenue and the majority is indeed I would say intercompany. It's based on this assumption on market anchor tenant rate. I think you should look at the revenue number of 1.7 billion euros. You can assume that the third-party component of that, which is what we are getting in actuals today, is around a quarter of that number. As I was mentioning before, from 1.7 then to the EBITDA we also have our actual current running cost of the estate. I hope that helps.

 Maurice Patrick -- Barclays -- Analyst

That's great. Thank you.

Operator

Okay. As that was the final question we had time for, could I please pass it back to you for any closing comments.

Nick Read -- Chief Executive Officer

Thanks a lot, Hugh, and thanks for everyone for joining our Q1 trading update. I look forward to seeing many of you in person at our upcoming Digital First open office event in Central London. I say Central London because clearly, it's a shady part of London but we're calling it Central London, on September the 10th. See you there.

Operator

This now concludes today's call. Thank you all very much for attending. You can now disconnect your lines.

Duration: 60 minutes

Call participants:

Nick Read -- Chief Executive Officer

Margherita Della Valle -- Chief Financial Officer

Georgios Ierodiaconou -- CITI -- Analyst

Akhil Dattani -- JP Morgan -- Managing Director

Nick Delfas -- Redburn -- Analyst

Polo Tang -- UBS -- Analyst

Andrew Lee -- Goldman Sachs -- Analyst

Jakob Bluestone -- Credit Suisse -- Analyst

James Ratzer -- New Street Research -- Analyst

Jerry Dellis -- Jefferies -- Analyst

Stephen Howard -- HSBC -- Analyst

Maurice Patrick -- Barclays -- Analyst

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