Swisscom AG (OTCPK:SWZCF) Q2 2022 Earnings Conference Call August 4, 2022 3:00 AM ET
Company Participants
Louis Schmid – Head of Investor Relations
Christoph Aeschlimann – Chief Executive Officer
Eugen Stermetz – Chief Financial Officer
Conference Call Participants
Georgios Ierodiaconou – Citi
Polo Tang – UBS London
Yemi Falana – Goldman Sachs
Luigi Minerva – HSBC
Joshua Mills – BNP Paribas
Steven Malcolm – Redburn
Titus Krahn – Bank of America
Louis Schmid
Good morning, ladies and gentlemen, and welcome to Swisscom’s Q2 Results Presentation. My name is Louis Schmid, Head of Investor Relations, and with me are our CEO, Christoph Aeschlimann and Eugen Stermetz, our Chief Financial Officer.
As usual, our CEO starts the presentation. Christoph’s part consists of two chapters: Chapter one, a quick overview with some highlights and the operation and financial performances of the second quarter, then in chapter two, an update on our network and ESG activities, B2C and B2B operations and financial results in Switzerland before discussing Fastweb’s Q2 results operationally and financially.
In the second part of the presentation, Eugen runs you through chapter three, the Q2 financials, including confirming our guidance for the full year 2022.
With that, I would like to hand over to Christoph to start his part. Christoph?
Christoph Aeschlimann
Welcome, ladies and gentlemen, from my side. This is my first presentation of quarterly results as a CEO and I will start on Slide 4 with the highlights of quarter two. We are very happy with our quarterly results with a solid underlying Q2 EBITDA with minus CHF 1 million year-over-year linked to strong performances in all segments.
We were able to launch a new product portfolio blue on our B2C Switzerland operations with over 50% of our RGU penetration in this segment. We were also able to further grow this IT solutions business on the B2B side with a 6% revenue increase, as well as a strong performance in Italy with Fastweb with the 36th quarter of consecutive growth, both on revenue and on EBITDA.
We are also happy that we were awarded two important awards. One was the strongest brand in Switzerland by Brand Finance and the most sustainable telecommunications company in the world by World Finance. And last but not least, most importantly, we confirm the full year guidance 2022.
I will now move to Slide 5. As you can see, the Swiss and Fastweb performance, I will start with a brief overview of Switzerland, maybe with postpaid mobile strong performance with 37,000 net adds in the quarter and plus/minus flat development on broadband and TV size.
Wholesale was slightly impacted by optimization of Sunrise UPC network optimizations in our blocked FTTH construction site, but overall, also good performance on the wholesale business side. As I mentioned before, we are also happy with our Fastweb performance. We pursue our value strategy on the B2C wireline side with some RGU loss on that side, but sustaining high ARPUs and therefore, keeping our marginality on the broadband business in B2C and we are also able to compensate the loss of lines on the B2C side by increased wholesale activity.
And you can see a net increase by 4,000 lines on our wireline business and we are very happy with the mobile side with a very strong growth also in Q2 with plus 156,000 subs on mobile.
I will now move to Slide 6. You can see our numbers for the first half year with a net revenue of CHF 5.5 billion, which is essentially flat, if you remove or take out the foreign exchange effects. Our EBITDA, we landed at CHF 2.195 billion, which is slightly up regarding – or compared to the previous 2021 first half without the exceptional bookings that we have to do on the regulatory side and the exceptional bookings we had in the last year with regards to sales of fixed and Flash Fiber.
The net income is CHF 785 million, which is also essentially flat without the exceptional bookings I just mentioned with fixed and FiberCop.
Okay. Now I will move to our business review. You can move to Slide 8. So, I took over as CEO on 1st of June and some of you might ask yourself, okay, new CEO, new strategy and I would just like to confirm that the strategy remains unchanged and we have the same priorities for 2022.
The most important one being defending market shares in Switzerland and expanding our position in Italy and also continuously digitizing our customer interaction, both on B2C and B2B. We are also highly focused on our cost saving measures and increasing efficiency throughout our operations both in Switzerland but also in Italy.
And of course, in Switzerland, we are still working with the regulator to find a solution on the fiber optic side. And last but not least, we also have our own transformation going on with two transformation programs to increase our skill change in moving to the IT side in Italy and in Switzerland.
If we look on Slide 9, we can see the overview of where we stand with our wireline construction and the mobile construction. We now have two-thirds of the country covered with 5G+, so our new 3.5 gigahertz spectrum, which we rolled out in about two-thirds of the country and on the wireline side, we are now at a constructed coverage of 39% of 10 gig connectivity.
So moving ahead on our wireline broadband strategy and we also connect more than three quarters of the country with over 200 megabits in Switzerland.
As I mentioned before, the COMCO investigation is still pending. There is no news update compared to last quarter. We are still in discussion with the regulator and we are confident that we will find a solution until the year end that we will hopefully be able to communicate by then.
On the sustainability side, we are highly committed to increasing our very strong position. We are also investing in the recollection of mobiles. For example, we collected over one million devices since the start of this activity in 2012 and we are donating all the proceeds we have from this recycling activity to SOS children villages in – for example, in the Ukraine.
Now I move to Slide 10 to give – talk a bit about our B2C business in Switzerland. So we launched a new product portfolio. Every couple of years, we do a major rehaul of our product portfolio family and we now reunited everything under the Blue brand from cinema entertainment, TV, voice and connectivity and completely digitized the subscription and the customer can do everything online to buy and to modify the subscription himself.
The intention is to strengthen our digital proposition and to rejuvenate the brand, position it in a younger segment, more digital segment and basically geared towards the segments which are active in the market and we are very, very happy with the launch of this product portfolio. We were also able to reduce promotional intensity of the main brands as the product portfolio is very appealing to our customers, being better, simpler, and more attractive with more advantages for our customer base.
On Slide 11, you can see that a total of 51% of our RGU base is now on this new product portfolio and we have very good sales momentum and also a record low churn that we were able to achieve in Q2. And therefore, we have the promotional focus mainly on the second and third brands and less on our main brand, Swisscom.
Moving to Slide 12, some details on our operational performance on B2C. So you can see that the RGU base on wireline is essentially stable. ARPUs have been able to increase slightly and the churn rate has been reduced to slightly over 8%.
On the wireless side, we have a similar picture with a growing RGU base, also reduced churn rate at just over 6% and a flat ARPU, which is an excellent result from my perspective.
On Slide 13, we will now move to our B2B business. You can see that we are defending our leading telco position. We have lost CHF 17 million revenue quarter-over-quarter and stand at CHF 395 million revenues on the telco side, which was driven by ARPU decline both on wireless and wireline. We were able to compensate this loss on the telecommunication side by increasing business on our IT Solutions side by CHF 18 million to now CHF 292 million, which reconfirms our leading position on the IT Solutions side and we heavily continue to invest in our Cloud, Workplace, UCC, but also business application business, which is our strong growth vector for the future.
On Slide 14, you can see an example of one of the portfolios we offer on the IT Solutions side namely security services, which is one of our main growth vectors. We have over 1,000 customers already in this space with over 300 specialists serving these customers.
And this also gives us a solid position for other activities in the IT Solutions side because security services today are basically essentially demanded by every customer we serve and it has excellent synergies both with telco, but also with the IT Solutions Services, and we will continue to invest in this area very strongly as this is a very much growing area of our business.
Now on Slide 15, just a quick remark on our operational excellence update. We were able to achieve CHF 25 million savings on the telco costs. This may seem low at first glance, but it is mainly due to seasonality and higher marketing communication cost in B2C due to the new Blue portfolio launch, and we are fully committed to deliver the CHF 100 million savings by the year-end.
You can see on the right-hand side, the number of initiatives, which are ongoing. We have several more running. They are all on track, but most of the savings are planned for Q3 and mostly Q4 and we are focused on delivering these initiatives in the right way to maximize the benefit of these initiatives and collect the savings when the initiatives are completed.
Now on Slide 16, you have a quick highlight on Swisscom Switzerland financials with net revenue, just over – just under CHF 4.1 billion, which is a excellent result and a flat evolution compared to last year as we were able to essentially stop service revenue erosion on the B2C side. Also in EBITDA, we have CHF 1.7 million, which is stable without the exceptional bookings I was mentioned before with the regulatory cost that we booked in Q2.
Now I will move to Fastweb with the remaining four slides. So on Slide 16, you can see the highlight of Fastweb. As I mentioned before, we are very satisfied with the evolution of our Italian business, which continues to grow both on revenue and on EBITDA in a very competitive market situation with many new entrants.
So we were able to pursue our value strategy on the B2C wireline, strongly grow on mobile with 156k subs. We were able to continue to grow on the wholesale side and also, last but not least, we were able to continue to grow on the enterprise side, both on the telecom, but also on the IT Solutions business, which is very satisfying to us.
And also the network construction, the cooperation with Windtre, the rollout of the 5G network is progressing as planned and we continue to also invest in our fixed wireline access plants and the expansion continues as planned in Italy, as well.
On Slide 18, you can see some details of the consumer business. As mentioned before, on the fixed side, we had a decrease of 2% of the B2B subs as we continue to focus on the value generation and marginality of this business, but we were able to increase the penetration of the ultra broadband base by 7%. The mobile base was grown by 28% to 2.8 million subs and we were the second best performer in the market in portability, just behind Iliad, which is an excellent result in this competitive market.
Also maybe noteworthy that we were able to increase our FMC penetration, which has benefits on increased ARPU and much lower churn in our customer base.
On Slide 19, some details on our Enterprise and Wholesale business. You can see that Enterprise revenue has grown to CHF 250 million in this quarter, which is up by 2% compared to the quarter – the previous quarter last year. We were able to win many new customers in the B2B segment, but also in the public administration area with the European fund projects, which were tendered in the last 12 months in Italy.
On the Wholesale side, we had quite a substantial growth in Wholesale lines. Revenues are slightly down because we had some exceptional revenue linked to Flash Fiber last year, which were at quite low marginality so there is no impact on margins on this side. But the underlying core Wholesale revenue actually increased substantially compared to last year. So this is also very satisfying to my point of view.
And then, last but not least, before I hand over to Eugen on Slide 20, you can see the financial results of Fastweb. We landed at nearly CHF 1.2 billion net revenue, which is up by 2%, slightly lower than we initially anticipated, but nevertheless, a growth of 2% and EBITDA is up by 5%, about CHF 403 million, and we confirm also on the full year that we will achieve the 5% EBITDA growth in Italy on the full year perspective.
And now I hand over to Eugen for the financial update.
Eugen Stermetz
Thank you, Christoph, and good morning, everybody, from my side. Happy to run you through the numbers as usual. I’ll start on Page 22, Group revenues. So, reported group revenues were down by CHF 89 million. However, most of this is due to the euro/Swiss franc exchange rate, net of foreign exchange effects, the underlying revenue was potentially flat with minus CHF 7 million for the group and also Swisscom Switzerland, minus CHF 9 million, essentially flat year-over-year.
If you look into the individual segments, the overall development is quite similar to what we saw in Q1. So B2B, CHF 11 million down on the revenue side, that’s a mix of slightly lower service revenue, as Christoph mentioned, very, very small service revenue loss, which is obviously fantastic.
We also had lower hardware revenues and higher other revenues, in particular out of our cinema chain compared to last year and the whole mix gave the minus CHF 11 million in the quarter, the evolution is very similar to – the quarterly pattern is very similar to what we saw in Q1.
Similar on B2B, B2B, again, revenue up by CHF 32 million, a mix of service revenue loss on the one hand and strong growth in the solutions business on the other hand. More than half of this is organic. There is a bit of a tailwind from the MPS acquisition, which provides us with some non-organic growth and the growth in solutions and hardware revenues overcompensated the loss in service revenue.
Obviously, this does not translate as we shall see into interim respective EBITDA effect because the revenues that go out the high margin and the ranges that come in are comparatively low margin, but still very pleasing to see solutions revenue overcompensate service revenue loss in the B2B segment.
On to Wholesale, CHF 35 million down compared to last year. The second quarter gives you the, let’s say, expected number given the loss of the MVNO agreement. I’d like to remind you that the third quarter last year was the first one when we saw the loss of the MVNO agreement, so this effect has now run its course over four quarters.
This is the last quarter where we see the loss of the MVNO agreement. It’s rather the Q1 that was a bit of an outlier on the roaming side. The CHF 10 million is what we – and certainly you expected for this quarter due to MVNO.
Finally, also Fastweb. Fastweb, CHF 19 million after growth of 1.5% Q2 with plus CHF 4 million, certainly a bit weaker than what we would, on average, expect as a quarterly growth. So let me walk you through the individual segments.
Consumer is flat for the reasons Christoph talked about the consumer wireline market is very, very competitive at the moment, no surprise. Enterprise is up again a quarter of growth, 2.5%, a bit weaker than the first quarter, but there are typically some quarterly fluctuations here. So we are quite pleased with the development of the Enterprise segment.
Wholesale is a bit of the outlier here, which also explains the weak quarterly performance. We had wholesale two effects compared to the previous year, which impacted the number. One is, we had the Flash Fiber rollout, which was very low margin, but driving in Q1 2021 and also a bit in Q2. And we had in Q2 2021 high revenues, which are down year-over-year.
So this is why Wholesale in the second quarter did not grow and actually it did go down by CHF 2 million compared to the same quarter last year.
However, that does not change at all our positive outlook obviously, both for the Enterprise segment and for the Wholesale segment and we are very confident in the continuous growth of both segments for the rest of the year and as Christoph mentioned, the EBITDA outlook is not affected by all of this and I’ll get to that in a second.
So let’s move on to Page 23, a more detailed look into the revenue evolution on the Swiss side. If we start on the left hand, the main components of revenue evolution year-over-year.
First column, service revenue down by CHF 44 million, but as we already mentioned, B2C is just CHF 6 million, which is obviously fantastic. B2B, a bit the same pattern that we had in previous quarters over the first half of the year, minus CHF 38 million. So that gives a total of minus CHF 44 million.
Solutions growth of plus CHF 42 million. I already talked about that. So that’s a very nice compensating factor. Hardware, not much of a change, plus CHF 7 million in the first half of the year, although there is a bit of a mix behind there. We had lower B2C hardware revenues due to device availability mainly and higher B2B hardware revenues.
So the mix is a bit different, but overall, not a big change. Wholesale was down by CHF 35 million. I talked about that in the first half of the year and then we have other revenues up by CHF 21 million and the lion’s share of that is actually the pickup of the cinema business compared to last year, which was obviously negatively impacted by COVID.
If we look at the quarterly evolution on the top right, with CHF 19 million, a very good quarter in terms of minus CHF 19 million, a very good quarter compared to our recent past. In terms of service revenue decline, just minus CHF 2 million on the B2C side, basically very much in line with the first quarter but even a bit better on both counts, B2C and B2B.
Now we remain a little bit cautious for the rest of the year, because the first half year numbers already do not reflect our own new product portfolio and also do not reflect the new product portfolio of Sunrise. Not that we would expect a huge impact of either, but still it creates a certain degree of uncertainties.
So we are a bit cautious for the rest of the year. But still, obviously, these first two quarter numbers are not consistent anymore with the minus CHF 200 million guidance for service revenue that we gave in the voice over to the guidance at the full year conference beginning of February, but are consistent with a significantly lower number and this is actually why we can digest in the guidance, and I’ll get to that.
We can digest in the guidance, the exceptional item of CHF 82 million of regulatory provisions that we booked in the second quarter and can keep the guidance constant, but I’ll get to the guidance in the end.
A bit more on service revenue, bottom right, the usual decomposition into the individual drivers on the B2C side and on the B2B side. B2C wireless, you can see that almost the only remaining effect year-over-year out of our – a series of structured effects over the last couple of quarters or years.
The only remaining effect is really the brand shift with a positive impact out of the very good performance of our second and third brands on the market, which gives us an uplift in service revenue, the plus 14 and in the second quarter and the corresponding minus due to the dilutive effect on overall ARPU of this shift from our Swisscom brand to second and third brands.
That’s it. So there was not much of an effect in terms of increased conversion discounts, which was a big effect over the last couple of years in our P&L year-over-year, and there was not much effect either of promotions increasing year-over-year. That is not to say that the market is not competitive, quite the contrary.
Promotions are still pretty much an important part of the game, but at least in the first half of the year, there was no deterioration of the situation compared to last year. So the only remaining effect on the wireless side is really the brand shift.
Similar on the wireline side, there is even an increase, even if it’s small in ARPU, so ARPU is basically stable and the only remaining effect on the RGU side is effectively the voice line losses, which, as you know, is a structural effect we cannot do much about.
On the B2B side, a bit same but different. The good thing is we are not losing customers. So RGUs are pretty stable compared to last year, but there is still price pressure in renegotiation of contracts — and so this gives us the minus 9 in wireless and minus 8 in wireline in the second quarter, compared last year.
Now I move on to EBITDA, Page 24. My first slide, EBITDA down CHF 126 million, but we have a whole list of exceptionals this quarter and actually also in the same quarter last year. So this is why there are top two exceptionals of CHF 148 million, which sounds like a big number.
The drivers are, essentially last year, we had a positive effect, a positive exceptionals in the second – in the first half of the year, plus CHF 38 million, which was very much driven by a change in the pension plan.
So that was last year. And this year, we had a negative effect. We booked CHF 82 million provisions for regulatory litigation and on top of that came the big euro/Swiss franc exchange rate with CHF 28 million. So all of that sums up to that quite large number of CHF 148 million.
If we leave that aside for a moment and focus on the underlying development of the operating business, the picture, as Christoph explained, is quite pleasant with an underlying growth of EBITDA of CHF 22 million in the Group. Also in Swisscom Switzerland with CHF 11 million plus EBITDA is up.
I’ll walk you quickly through the individual segments. So B2C is up CHF 10 million. So that’s a mix of what we saw a very smaller service revenue decline on the one hand and also lower subscriber acquisition costs in the first half of the year. In Q2, we had a minus CHF 7 million. That was mainly due to increased marketing expenses in connection with the launch of our Blue portfolio.
B2B, not much news, basically the same number as in the first quarter. In Wholesale, CHF 8 million down. So on the one hand, you have the negative EBITDA impact of the MVNO loss and there was a bit of a positive win from the roaming revenues and up payments for roaming, which is still a bit in the process of smoothing out after all the distortions of the COVID years. So that gave us a bit of an uplift, but not much news here.
Infrastructure and support functions, EBITDA plus CHF 24 million, which reflects our continuous cost saving initiatives. On to Fastweb, up CHF 21 million in the first half of the year that’s plus 4.9% with CHF 15 million coming out of the second quarter. This CHF 15 million are backed up by other operating income from a regulatory settlement that we reached.
I would like to draw your attention to the fact that we had an effect of similar size and nature in the last year although last year, it was in the third quarter. So this gives us quite a strong second quarter EBITDA evolution for Fastweb despite a somewhat smaller revenue evolution that we just told a minute ago.
I would also like to draw your attention to the fact that this regulatory income is very much a regular if somewhat bumpy part of our Italian business that shows up year-after-year, not always in the same size. That’s it on EBITDA.
I move on to EBITDA of Swisscom Switzerland on Page 25. We talked about revenue. We talked about subscriber acquisition costs which were down. We also had lower outpayments, CHF 18 million coming – plus CHF 18 million out of the plus CHF 24 million coming out of roaming, which might be a bit of a surprise roaming.
Volumes are up, obviously, compared to last year, but prices were down, so that gave us a windfall here. Goods and services purchased. We had higher costs due to the higher hardware revenues. You saw that the hardware revenues were just up by CHF 7 million. So you see a bit of a mix effect here of a different mix of hardware sales as I mentioned before.
Then our indirect cost savings, Christoph mentioned it, plus CHF 25 million in the first half of the year, just plus CHF 3 million in the second quarter. No reason for concern or whatsoever. As mentioned before, we had significant marketing expenses in the second quarter in connection with the launch of our new Blue portfolio.
And I already cautioned you in the full year conference and then again in the first quarter conference that we have quite some strong seasonality this year in the inflow of these cost savings, among others, a completely different phasing in marketing expenses than previous year. To this year, previous year, a lot of marketing expense in the fourth quarter this year, a lot of marketing expense in the second quarter.
So we are fully committed to delivering our CHF 100 million target for the full year and ask you to bear with us in these quarters where the numbers do not fully align with what you would expect in the linear fashion out of these cost savings.
Finally, obviously, Solutions business, CHF 25 million higher costs, which is obvious given the nice growth out of that business area.
I move on to Page 26, CapEx. CapEx is slightly lower than last year, very much in line. The deviation is primarily due to the weak euro/Swiss franc exchange rate, the translation of the Fastweb CapEx into the group accounts. If we look at Swisscom Switzerland, fiber is down compared to last year, that’s as expected because we are completing now the FTTS rollout.
So this gives us lower fiber CapEx, compared to the previous year, has nothing to do or very little to do with the fiber story that I’m sure we’ll talk about later and wireless is also a bit down. We had significant 5G setup investments last year and now we are basically in the rollout phase.
I move on to Page 27. Free cash flow, I’ll start with the operating free cash flow proxy, which is CHF 91 million down compared to last year. This is simply due to the lower reported EBITDA. So this includes all the exceptionals. Then we have a net working capital of minus CHF 354 million. This is still very much driven by what we already saw in the first quarter.
So the deviation to last year actually came down in the second quarter. But in the first quarter, we already reported about a regulatory settlement payment that we made in the first quarter. No EBITDA impact, neither 2021 nor 2022, it was fully provisioned, but a very significant regulatory settlement payment that we made.
So that is a big part of it and also a couple of prepayments for services to be received over the whole year and in some parts, also over more than one year. So the regulatory settlement payment will stay with us for the rest of the year and the remaining positions will cancel out over time, part of that – part at the end of the year.
Now I know there is a bit of a talk about free cash flow in the telco industry at this moment. So we can report, we do not see any structural effects whatsoever. The effects that you saw are the ones that I mentioned.
Then on pension, we have a positive effect of CHF 33 million. That’s back to normal, so to speak, it will be pay in cash, lower contributions to our pension fund than we have to accrue under IFRS. That was like this for the last couple of years, we had just an exception last year where we had an exceptional profit on the accrual side for the pension due to the change in the pension plan. So we are back to normal here with a positive effect.
And last comment on taxes. We paid income taxes of CHF 344 million, which is obviously much more than our tax expense. This is a mere phasing issue. We had last year lower cash taxes than our tax expense and we’ll have the reverse this year.
On to net income on Page 20 – on Page 28. Nominally, net income is down to CHF 259 million. However, as you know, we had a very significant positive exceptional effect in the financial results last year with the swap of our fresh fiber stake into the fiber cost stake and with the sale of BICS which, in total made up about CHF 200 million positive effects and now we just see the free side of this in the year-over-year effect.
If you neutralize the effect from the financial result year-over-year and our exceptional, net income is actually up year-over-year by CHF 66 million.
Page 29, not much news on our financing portfolio, still a very high proportion of our debt portfolio in fixed interest rates. The evolution, you can see if you look at it in the first quarter, part floating is not structural but has to do with the 13% that we pay our dividend in the second quarter. So every year, our floating percentage goes up a bit during the year and then comes down again.
We still have an average interest rate of below 1%. So we are very, very well protected for a long time against any sustained increases in the interest rate environment.
Finally, Page number 30, we confirm our guidance, as Christoph already mentioned revenue, CHF 11.1 billion, CHF 11.2 billion, EBITDA, about CHF 4.4 billion and CapEx, about CHF 2.3 billion.
Just one note to the voiceover that we gave in connection with the guidance in the full year. The only change here is that service revenue, we talked about minus CHF 200 million at the beginning of the year. This will be much closer to CHF 100 million to CHF 150 million, probably closer to the CHF 150 million over the rest of the year. And this is, as I mentioned, why we can touch the minus CHF 82 million in exceptionals without changing the guidance.
Just one final note, the calculation – the underlying FX rate for the calculation here of the guidance is still the same that we used at the beginning of the year of 1.04 Swiss franc to euro. Obviously, as you know, Swiss franc to euro is quite volatile at the moment. So if there is a sustained change in the exchange rate over the course of the year, this might impact these numbers.
Last word, as usual, if we meet our targets as we plan, we will again propose a dividend of CHF 22 per share at the end of the year.
And with that, I hand back to the operator.
Question-And-Answer Session
Operator
[Operator Instructions] First question.
Georgios Ierodiaconou
Yes, good morning. It’s Georgios from Citi. Thank you for taking my questions. I actually had three very quick ones, hopefully. The first one is on B2B, obviously, a very strong performance from your side, but we’ve seen some of the other telcos in Europe show different trends this quarter.
It would be great if you just go through some of the differences in your business over the years and how maybe you derisked yourselves in terms of some of the legacy revenues, but any disclosures you can give us on what remaining exposure you may have will be great.The second one is on COMCO and if there is any update on the disputes and whether you still expect to compromise in the next – sorry, on COMCO agreement in the next couple of months.
And then the last thing is a comment that I think you, Christoph, as you highlighted during your introductory remarks around the guidance for the rest of the year that both your portfolio and Sunrise portfolios have been out. It kind of sounded like you expected it to be a bit deflationary, but interested to hear your thoughts.
I think in the past, you were highlighting promotions has been an issue, are you seeing promotions on top of these headline offers or is there another reason why you made that comment?
Christoph Aeschlimann
Okay. I can start maybe with the second question on COMCO. So there is no update that we can share publicly. We are in discussion with the regulator and we are confident that we find a solution by the year-end. We will hopefully be able to communicate it by then as well. Obviously, it does not only depend on us, but also on the regulator side and different approvals also on their side, but we are working as fast as possible for them to resolve it by this year end.
Eugen Stermetz
I can take number three. So on the comment with regard to the service revenue guidance for the rest of the year. Yes, I mentioned that we have to be a bit cautious because of the launch of the new portfolios that refer rather to a general uncertainty this creates, because you never know how it plays out in the market. I can confirm that there are promotions being run by our competition on top of the new portfolio.
So the new portfolio is being sold with promotions and I think we commented in Q1 that we saw a bit of an easing of the promotions pressure on the market. That does not seem the case – to be the case anymore at the moment. So that’s why we are a bit cautious when it comes to the service revenue development for the rest of the year.
As for question number one, I must ask again on B2B, you talked about a remaining exposure that we might see for the rest of the year, but I am not sure I understood what the risk exposure is. Maybe you could repeat the question.
Georgios Ierodiaconou
Of course, some of your peers are seeing a change in the mix of revenues with some of the higher margin legacy access revenues being cannibalized. So I was wondering from your perspective, you still have legacy services, whether it’s higher tel lines or whatever else, but you are still exposed to or whether this has been actively phased out as you move people to cloud and other services that you’ve been providing?
Christoph Aeschlimann
Yeah, maybe I can add some color to this question and so on the B2B side, we think Swisscom is in a very strong position, especially on the wireline side as all our new product portfolio is completely based on SD-WAN, for example in all the modern cloud-based technologies. And there are still some remaining risks on MPLS or type products.
But I think compared to other operators in Europe we are much further ahead in the transformation. And most of our product base is already based on sort of new modern products. And we expect, I would say, a similar B2B telco revenue evolution as you’ve seen in the last two quarter or so.
Georgios Ierodiaconou
Very clear. Thanks.
Operator
Next question.
Polo Tang
Yeah. Hi. It’s Polo Tang from UBS. Just I have a few different questions. The first one is for Christoph. I know that you said the strategy is unchanged. But as the new CEO, is there anything that you’re seeking to change or do differently? So in other words, are there different ways to deliver the same strategy?
And then, just my second question is on the Competition Commission case in terms of the fiber rollout. At the Q1 results, the suggestion was that the eventual impact on the CapEx envelope from the situation would be somewhere between the best and the worst cases that you outlined previously, but is that outcome not binary in terms of you will either have to do point-to-point or you will do point to multipoint.
So what I’m trying to understand is, is there a technical compromise between the two, that means you end up sort of midway between the best case and worst case in terms of your CapEx envelope?
And my final question is really just on Fastweb. Can you clarify the impact of the EU recovery fund contract wins of Fastweb going forward, because you outlined some quite large numbers on Slide 19. But if I am not mistaken, you only get a portion of these revenues? And I am assuming that given these are public sector and ICT-related contracts so the margins will be lower.
So just any color in terms of how we should think about the EU recovery fund impact of Fastweb going forward would be great. Thanks.
Christoph Aeschlimann
Okay. So, I’ll take your question on strategy. So I think in 2022, we continue execution as planned and all the focus remains unchanged. Swisscom has a good strategy going forward as well, which is solid and delivering good results. Of course, as a new CEO, we are thinking about some points, maybe adapting here and there and improving some of the points, but there will be no, let’s say, fundamental strategic change on a group level.
But we will certainly look into points also how to generate new growth in other areas, which are adjacent to our core business as we want to obviously also move again on the revenue side. But this will be a topic that we will talk about later, probably only next year. And – but you shouldn’t expect, let’s say, a major rehaul of the strategy. So I think that’s what I wanted to say on that side.
And then, on the COMCO side, there is – I think the discussions are ongoing, so I don’t want to comment too much in detail, but the possible solutions are not just black and white in terms of worse and best case. So there is also – there are options which we’re discussing, which were somewhere between those two far ends and with different shades of gray, I would say, which are indeed possible or viable options moving forward.
Eugen Stermetz
I’ll quickly take the third question. So the EU recovery fund impact. I would think of, first of all, the short-term impacts, speaking 2022 is probably not so material. And so, I would think of it as, if you like, supporting our guidance, but not as a number that comes on top. Obviously, in the mid- to long term, this is a very strong support for our robust growth story in the Enterprise segment in Italy.
Polo Tang
Thanks.
Operator
Next question.
Yemi Falana
Good morning, everyone. It’s Yemi Falana from Goldman. Thanks for taking my questions. Firstly, you flagged Swiss service revenues are clearly running better than you had initially expected. Where was the primary area that you’re performing better? Is that on the volume side, lower churn or better pricing?
Secondly, on COMCO. If my understanding is correct, there will come a point where from a kind of network architecture perspective, you’ll be forced to either take the kind of point-to-point or point to multipoint route but you discussed some gray areas. So maybe if you could update us on when the kind of new hard stop would be just from a network build perspective where you need a concrete outlook from the regulator before you continue?
And then maybe finally on Fastweb. Are you able to quantify the size of the regulatory benefit in the second quarter? And do you have any line of sight on any similar impacts that may occur in the second half of the year? Thank you.
Eugen Stermetz
I can start with the third question. So given that this is operating income out of a regulatory settlement with the counterparty, obviously, we cannot give any details. But you will see from our P&L breakdown in the facts and figures that this is a sizable number. It’s a double-digit effect. We had a – as I mentioned before, we had a similar effect in the third quarter of last year.
And indeed, we have similar effects over the years, although the exact size is not always different, but please understand that we cannot disclose any particular details. I would not expect too much of an effect in the second half of the year. As I said last year, this was very much – this was much – very much biased out about the third quarter and this year about the second quarter.
Christoph Aeschlimann
But I think maybe what we can add is the regulatory litigation is also a part of, let’s say, the business model of Fastweb and we will continue to try to make it happen in the coming years as well. Now going to Swiss revenue, your first question, I think it’s a mixed numbers of effects. So on the 1 side, we have volume effect gaining, for example, increasing net adds on the mobile side, losing slightly on the wireline side.
We have ARPU effects with ARPU slightly up on the wireline, less promotional activity. So less SAC costs and obviously also reduced churn both on mobile and wireline, which helped us very much in retaining our customer base.
On the COMCO side, so, as I mentioned before, we cannot go into more details. Obviously, at one point, we will adapt the network construction to the agreement we have with the regulator – we find with the regulator and we will adapt our network construction as soon as we have – let’s say, a good line of sight and an agreement with the regulator on how the network needs to be constructed in the future. And then when we feel comfortable, we will start moving and to change the network construction.
Yemi Falana
Very clear thank you.
Operator
Thank you. Next question.
Luigi Minerva
Yes, good morning. It’s Luigi Minerva from HSBC. I have three. The first one is on your dividend policy. I think it’s an important factor, the delta between your dividend yield and the Central Bank rate in Switzerland. So as the Central Bank increased their base rate, I was wondering whether there was conditions you would consider increasing the dividend, especially given the fairly prudent balance sheet structure that you described.
The second question is on Fastweb, it’s more of a broader one for you, Christoph, being the new CEO. How core is Fastweb to Swisscom? In the past, the disposal has been considered at times. So interested to hear your views on the ownership of the asset.
And lastly, on the regulatory provisions booked in this quarter, can you give us a bit more details about them and particularly whether we can expect more in H2? Thank you.
Eugen Stermetz
Okay. So I’ll take the first question on dividend policy. Obviously, there is nothing we can do about the Central Bank’s policy rates and the overall interest rate environment. We obviously strive and did so always strive to maximize our free cash flow and given free cash flow to pay out the substantial share of free cash flow in dividends.
And that so far over the last 10 years, has yielded a very stable dividend, as you know, of CHF 22. This is what we can influence free cash flow in the future, and this is what we strive to do. On Central Bank’s policy, unfortunately, there is nothing we can do.
I’d also take the third question and then leave the floor to Christoph. So on regulatory provisions, the CHF 72 million out of the CHF 82 million, there was a press release around that from June. All the details on this case are in there. It’s a very old case, some 10 years older where we now got the ruling from the Federal Administrative Court and therefore had to pay the fine to the Competition Commission.
It’s related to content in the TV business, very old stuff. And then, there is a balance of CHF 10 million to the total of CHF 82 million that I mentioned. That balance of CHF 10 million comes out of our quarterly review of all ongoing regulatory and other litigations. And on those CHF 10 million, unfortunately, I cannot give you any further details for obvious reasons, but it’s the result of a quarterly ongoing process where we book with these provisions. Christoph, number two?
Christoph Aeschlimann
Yes. So my comments on how I view Fastweb. So from my perspective, Fastweb is core to our Swisscom Group strategy. So on that side, there is no change compared to the view Urs has also delivered in the past. I think Fastweb has always delivered its growth targets in the past and we are very happy with the Fastweb performance.
We have a good position in the market, strong standalone position, and we are fully committed – or I am fully committed to the Italian market and we will continue the story together in the coming years.
Luigi Minerva
Okay. Thank you.
Operator
Thank you, Luigi. Let’s take next question.
Joshua Mills
Hi there. It’s Josh Mills here from BNP Paribas Exane. A couple of questions. One, just a follow-up on the litigation income that you are reporting at Fastweb. Forgive me if you’ve covered this before and I understand that you can’t talk in detail about specific counterparties. But what exactly are you receiving cash for?
Is it something you have to proactively go out each quarter each year and push forward? Or is it something which should just naturally continue to occur. And I know you’re talking about this as a normal course of business. But just from a kind of practical perspective, understanding what is driving it would be helpful.
And then secondly, on kind of cost cutting and inflation, it does look like you’re managing the situation well. I understand the inflation risks in Switzerland are somewhat lower than in other European markets. But are there any areas where you are seeing a bit more pressure? And if so, can you give us some highlights of how you are planning to offset that with underlying cost cutting. Thank you.
Eugen Stermetz
Okay. I’ll start with the second question. So yes, you are right. We are in a comparatively favorable environment in Switzerland when it comes to inflation. We have expected inflation in the area of 3%, compared to rather close to 10% in other markets. Where we do see, right now already particular pressure is obviously on the energy cost side.
I think I highlighted that already in the full year conference. It’s fully reflected in our guidance. So it’s not any sort of on top risk and we always tend to buy our energy and electricity requirements very long in advance. So this helped us in this spike of energy prices. Mid-term, obviously, if inflation remains at current levels, it will almost certainly drag itself into personnel expenses one way or the other.
And that’s certainly a point of attention for, let’s say, 2023 plus, not for 2022, but 2023 plus, which is something which we clearly have on the radar screen. Also an impact right now already, but with not much impact on the bottom-line is some increases in hardware costs, which at least in our B2B business, we should be able to pass on to customers much more easily than some general inflationary pressures on the whole cost base.
So that’s maybe on point number two. Point number one, litigation income in Italy is connected to individual cases that sometimes yield revenues one-off and sometimes yield income in tranches also over years. It’s by no means automatic or natural in any way. So it needs to be fought for. But apparently, our team at Fastweb is very, very good at doing this and in consistently delivering incomes from that source, although it has to be fought for, as you mentioned, each and every time.
I hope that added some color. We obviously, as you mentioned, cannot go to – into the details.
Joshua Mills
Got it. And sorry, maybe one final follow-up. I know you talked about mix shift in sub-brands you won 1 billion the negative impact on ARPU this quarter as it usually is. Are you seeing any change in consumer behavior on the Swisscom main brand and perhaps people taking fewer premium services or down spending as a result of the macro backdrop? Or is it the fact that you’re relatively well insulated?
Eugen Stermetz
No, we don’t see any shift in customer behavior on the B2C side in Switzerland.
Christoph Aeschlimann
Yeah, which is probably also tied to the – inflation is not that high yet. Unemployment is at all-time lows. So there is at least so far, no super tangible driver in changing customer behavior.
Operator
Okay for you Joshua?
Joshua Mills
Yes, that’s great. Thank you very much.
Operator
Thank you. Thank you. Next question.
Stephen Malcolm
Yeah, I hope you can hear me okay. It’s Steve from Redburn. Sorry, I’m going to go back to Fastweb if that’s okay. So firstly, on the revenue side and I think the guidance is still for 5% growth for the full year, which implies, I think, 8% for the second half after barely doing 2% in the first half. So can you just confirm that you still expect to do the 5% growth, and you can get to 8% year-on-year growth in the second half and maybe add some color as to where that’s going to come from because it’s not obvious that the consumer business is suddenly going to turnaround. I guess a large weight will fall on Wholesale.
And then secondly, just to come back, sorry to the litigation income in Italy and this was very lumpy numbers that dropped into your results. Is it fair to say that if one looks at the sort of underlying rate of other income and capitalized costs for this number that drops in and it looks like it’s $15 million to $20 million a quarter.
And then what’s on top? Can this be litigation income? And if one normalized for this quarter, one would assume or one would calculate that Fastweb’s EBITDA actually declined by 13% in the second quarter.
And when we look into the third quarter, you’ve clearly got a very big headwind. So if that is the case, you’re not expecting litigation income. Should we expect Fastweb’s EBITDA to decline sort of high-single-digit, low-double-digit as the impact from last year drops aside?
Eugen Stermetz
Okay. So, let me start with the first question. First of all, I think we mentioned or I hope we did that the revenue outlook for the rest – the revenue outlook for Fastweb’s revenue growth outlook is from our point of view, from today’s point of 3%, not 5%. We mentioned 5% at the beginning of the year. But we have it somewhere on the paper if we didn’t mention it today to be 3%.
You’re absolutely right. Since consumer is flat, the remainder of growth needs to come from the other segments. Enterprise is growing very robustly at above 3%. So by definition, Wholesale has to grow by a smaller number. And that is indeed what we said. So we confirm to expect a 3% revenue growth over the full year – over the full year with the respective remainder coming in the second half of the year.
And in particular, we confirm the EBITDA growth of 5% for the full year, just to avoid any confusion. Now on the litigation, I would focus on the full year. I would focus on the full year. It’s very difficult to go by quarter.
I would focus on the full year. As we mentioned, we expect 5% EBITDA growth for the full year. In the full year compared to previous year, we had in the previous year, a sizable impact from regulatory income, and we have this year a sizable impact from regulatory income. It is a bit bigger than last year. That much I can say and the rest is the growth of the underlying business.
Stephen Malcolm
Okay. Just to clarify, in the 5% growth in the full year, do you expect further regulatory settlements in the second half? Or should – I mean it looks like the size of the second quarter settlement is very large, about 35 million, 40 million Swiss francs but you don’t expect anything in the second half?
Eugen Stermetz
Not anything of significance, correct.
Stephen Malcolm
Okay. Thanks a lot.
Operator
Next question.
Unidentified Analyst
Hi. It’s [Indiscernible] from Credit Suisse. I have a question around the broadband market in Switzerland. Both Swisscom and Sunrise have reported broadband net add losses in Q2. I am interested in finding out if you are seeing another player gaining traction in the market or what are the underlying reasons?
And if you could give us any color about how we should be thinking about the broadband market in Q3 and Q4? That would be helpful. Thank you.
Eugen Stermetz
So, on the broadband market, we – at this time I cannot comment on Sunrise numbers, obviously, but on our side, we continue to focus on our value strategy on the broadband side. And we don’t see any underlying other trends that the market is contracting on the broadband side and we expect, I would say, a similar behavior in the second half of this year for the B2C RGU base as we have seen in the first half year.
Christoph Aeschlimann
And we don’t see any particular competitor gaining a lot of traction in exchange. It seems that the overall market is quite, let’s say, sluggish. You saw our churn numbers, which are exceptionally low. So there doesn’t seem to be too much movement in this market at the moment. That’s the data we have.
Unidentified Analyst
Yeah, thank you.
Operator
Our last question for today.
Titus Krahn
Hi, everyone. This is Titus Krahn from Bank of America. Thanks first of all for taking my question. I had just a very quick follow-up one, since you already talked about the energy costs and outlook. And maybe could you just remind us, at the end of 2021, how much of your 2022 energy costs were actually hedged already given that you said you buy them in advance and at the moment after half the year, and how much of 2023 costs are now actually hedged or bought in advance for you?
And is there any difference between Fastweb and the Swiss business in terms of those energy contracts?
Eugen Stermetz
Yes, without going into super specific numbers, the major part of our energy needs on the Swiss side for 2022 was already bought end of 2021 and we are now in the same situation with respect to 2023. So we know pretty much what we have on the Swiss side. On the Fastweb side, we traditionally bought a bit more short-term.
So we didn’t have the full 2022 energy needs covered by the end of 2021 and this is also why we have an effect this year. I think I mentioned it at the full year conference, a single-digit euro number out of energy costs that is on top of 2021 as far as we can see right now. The situation is still very volatile and prices in Italy are extremely high.
In the bigger picture of Swisscom, it’s certainly for 2022, it doesn’t make any difference and this is fully reflected in our guidance.
Titus Krahn
Alright. That’s very helpful. Thank you.
Louis Schmid
Thank you to everyone, and with that, I would like to conclude today’s conference call. If you should have any further questions, please do not hesitate to contact us from the IR team. Speak to you soon and have a nice day.
Thank you. Bye-bye.
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