Telenet Group Holding NV (OTC:TLGHF) Q3 2022 Earnings Conference Call October 27, 2022 9:00 AM ET
Company Participants
Rob Goyens – VP, Treasury, Investor Relations
John Porter – Chief Executive Officer
Erik Enden – Chief Financial Officer
Conference Call Participants
Roshan Ranjit – Deutsche Bank
Nicolas Cote – HSBC
David Vagman – ING
Martin Hammerschmidt – Citi
Ben Richard – New Street Research
Emmanuel Carlier – Kempen & Co
Konrad Zomer – ABN AMRO BHF
Operator
Hello, and welcome to the 9M 2022 Telenet Group Holding NV Earnings Conference Call. My name is Laura, and I will be a coordinator for today’s event. [Operator Instructions]
I will now hand you over to your host, Rob Goyens, the VP, Treasury, Investor Relations, to begin today’s conference. Thank you.
Rob Goyens
Thanks, operator, and welcome everyone to our third quarter earnings webcast and conference call. As always, all earnings materials, including in this presentation can be found in the Results section of our Investor Relations website. And after this call, we will also provide a replay and a transcript for those that may have missed this call. Before we start the web, I would like to remind you that certain statements in this earnings presentation are forward-looking statements. I won’t dwell too long on the safe harbor disclaimer, but I just will refer you to the beginning of the presentation, where you can find more details on these forward-looking statements. Let me now introduce today’s speakers. As always, we will start with our CEO, John Porter, who will provide you with some strategic insights on the quarter and the current trading environment. Next, our CFO, Erik Van den Enden, will walk you through our operational and financial highlights for the quarter. And afterwards, we will open it up for Q&A and invite you to limit yourself to 2 questions each.
With that, let me now hand over to John.
John Porter
Thanks, Rob. And good afternoon or morning to everyone on the call and on the webcast. As we already hired at the time of our Q2 results announcement, we were expecting an improvement in our financial performance going into the second half of the year, and I’m pleased to see that the third quarter delivered on that expectation. Our revenue growth is driven by a high proportion of recurring monthly subscription and index-linked revenue, respectively, 75% and 60% and so benefited from the 4.7% rate increase we successfully implemented in June. On top of that, we recorded both higher wholesale and higher revenue with our media business. This resulted in a clear acceleration in our year-on-year top line growth in the third quarter to just over 3%. This also translated into an important inflection point for both adjusted EBITDA and adjusted EBITDA after leases increasing respectively, 3% and 4% year-on-year in the third quarter. Year-to-date however, we still see a modest contraction in our adjusted EBITDA, reflecting higher staff and energy costs of EUR 16 million and almost EUR 15 million, respectively. But as Erik will detail later, we remain on track to deliver on our full year outlook. Our operations remain resilient, despite a more intense competitive environment.
We continue the expansion of our FMC customer base via 1 and one up, tactical promotions and managed to keep our broadband customer base stable. Our broadband net adds in the quarter were negatively impacted by the removal of 2,000 inactive TADAAM customers, without which we would have had a very solid quarter in terms of net broadband subscriber growth. Thanks to successful up-tiering and the recent price adjustment, we managed to grow our third quarter fixed customer relationship ARPU by almost 3% year-on-year, reaching EUR 60 for the first time. And finally, growth in postpaid net additions accelerated, driven by both Telenet mobile and base, the latter, thanks to a successful web deal promotion. We’re making good progress in preparing for the NetCo setup with Fluvius. The regulatory process is fully ongoing and the same applies for the internal Fluvius approvals. Meanwhile, we are fully focused on preparing the operational design, systems, and framework. Therefore, we will be incurring certain upfront costs or so-called cost to capture, as Erik will explain later, and which are excluded from our full year outlook. We can consider NetCo to be an important future value lever to us and refer to the recent CMD presentation for more details.
To conclude, let me come back on what we communicated during our September CMD and recap the ample value creation opportunities we see across our company. And this applies to both the commercial Telenet organization as well as to the NetCo. Telenet value upsides are both driven by growth opportunities in all our business domains as well as efficiency gains, thanks to substantial investments that we have already done in our new digital CRM platform. The NetCo can unlock significant value by attracting additional investors into this entity while already benefiting from 60% network penetration as of day one. In addition, we see scope to deploy fiber to the home in a smart and efficient way. And hence, under spend versus the EUR 2 billion CapEx envelope, which we provided earlier. At the bottom of the slide, you can see a snapshot of our long-term consolidated ambitions to which I, my leadership team and the Board are very much committed. I’ll hand it over now to Erik for the operational and financial highlights of this quarter.
Erik Enden
Thanks, John. And good afternoon or good morning to all of you, and thanks for joining our call. As usual, we start with a review of our operational performance. We experienced an intensified competitive environment in Q3. So I’m pleased to see that we managed to further grow our fully converged customer base to over 800,000 customers, driven by the continued success of our One and one-off bundles and successful back-to-school promotions. Growth of our mobile postpaid customer base has accelerated. We added almost 18,000 SIMs in the quarter, boosted by strong performance of our base mobile stand-alone brands. In terms of broadband, we managed to keep our customer base stable despite intensified competition and removal of 2,000 inactive sedan casters. Excluding the town one-off impact, growth in our broadband RGU base would have been accelerated compared to the previous quarter. And finally, our fixed ARPU grew almost 3% in the third quarter, driven by the price adjustment implemented over summer and reaching more than EUR 60 for the first time ever.
Looking at the financial side of things. Our revenue for the first 9 months of the year increased by 1% compared to the same period of last year. Which, at that time, include certain one-off impacts on our video revenue? Our subscription revenue generated from monthly recurring subscriptions and representing approximately 75% of our total revenue showed a similar upward movement versus last year. In addition, our other revenue improved 3% on the back of a strong wholesale performance, higher advertising and production revenue and higher roaming income in the third quarter. And in the third quarter specifically, revenue growth accelerated significantly because of the price adjustment and reached EUR 661 million. On the cost side, our operating expenses increased 3% on a year-to-date basis. This includes a EUR 16 million increase in our stock-related expenses as a result of the mandatory wage indexation at the beginning of the year. In addition, our operating expenses were negatively impacted by almost EUR 15 million higher energy costs. As a reminder, we have hedged almost 90% of our exposure for this year and around 45% of our 2023 exposure. And we will take an opportunistic approach to layering in additional hedges for 2023 if and when appropriate. These negative impacts were only partially offset by lower direct costs, lower outsourced call center costs and broadly stable sales and marketing expense.
Turning to the next slide. You can see that for the first 9 months of 2022, we achieved adjusted EBITDA of just over EUR 1 billion. This is a decline of minus 0.5% on a rebased basis driven by, first of all, inflationary headwinds. Secondly, the impact of higher energy prices and then thirdly, a tougher comparison base as a result of the one-off impact that we had in the first quarter of last year on the video revenue. Please also note that our year-to-date adjusted EBITDA also includes EUR 1.3 million of so-called cost to capture. These are one-off costs incurred in order to prepare for the medical go-lives and are excluded from our full year guidance. Excluding this nonrecurring impact, our adjusted EBITDA would have remained broadly stable despite its inflationary pressures on labor and energy. Similar to our top line trend in Q3, our adjusted EBITDA within the quarter also accelerated 3% year-on-year as a result of the price adjustment implemented over summer, but also our continued focus on costs through which we have been able to offset continued inflationary refreshers.
If we then move to Slide #13, you can find our performance with respect to EBITDA. As you may remember, we sold our mobile tower business to digital bridge on the 1st of June, early this year. And as a part of the transaction, we have entered into a 15-year most-disagreement with DigitalBridge and therefore, have started to incur lease-related tower payments since the beginning of June. Therefore, we have started to include adjusted EBITDA after leases or adjusted EBITDA is a key financial metric, and we started to do that in the second quarter, so last quarter. Adjusted EBITDA includes all of our lease-related costs, out of which earache and the tower MLA with DigitalBridge are the 2 most important ones. So then looking at the results on a rebased basis, year-to-date adjusted EBITDA remained broadly stable and within the third quarter, it was up 4%. Let’s move on to CapEx now. For the first 9 months, our accrued capital expenditure, which excludes the recognition of mobile spectrum licenses, football broadcasting rights and lease-related additions reached EUR 448 million. This was equivalent to around 23% of revenues recorded over this period. The 17% year-on-year increase in CapEx primarily reflects higher network-related investments with respect to 5G and fiber as well as higher CPE-related spends.
The increase is fully in line with our full year outlook, where we expect to spend around 25% of revenue for the full year. And on the upper pie chart, you can see that around 62% of our year-to-date CapEx was scalable and or directly subscriber related. Turning to adjusted EBITDA, less property and equipment additions now, which we previously referred to as operational free cash flow. Adjusted EBITDA less property and equipment additions was EUR 570 million for the first 9 months of 2022. The 11% year-on-year decrease was mainly driven by higher capital expenditure and a modest contraction in our adjusted EBITDA as we explained earlier. If we then move on to adjusted free cash flow. On Slide 16, you can see that on a year-to-date basis, we generated EUR 291 million of adjusted free cash flow. This represented a 3% year-on-year decrease caused by two elements. Firstly, we incurred EUR 14 million higher direct acquisition costs. And secondly, we also had a decrease of EUR 8 million in our vendor financing program, fully attributable to phase. These two factors were more than offset were more offsetting EUR 9 million lower cash taxes paid relative to the first nine months of last year. Our adjusted free cash flow was strongly up in the third quarter as a result of strong growth in our adjusted EBITDA and improved trends in working capital.
Our debt maturity profile remains very robust with a weighted average time to maturity of almost 6 years and no debt amortization prior to March 2020. I — in addition, we continue to have full availability of over EUR 555 million of liquidity under our revolving credit facilities. In addition to the cash at hand, this brings total liquidity to almost EUR 1.5 billion at the end of September. Also important to note, especially in today’s volatile market environment is the fact that we’ve substantially hedged all of our floating interest rate and foreign currency risk until the end of the respective maturities. Linked to our financial profile is, of course, also our net total leverage ratio. Under the previous definition, which was based on last 2 quarters annualized EBITDA, our net total leverage reached 4.0x at the end of September. The modest quarter-on-quarter increase was driven by the recognition of the recently acquired mobile spectrum licenses as we have opted for deferred annual payments as opposed to a single advanced payment. And with the current definition, which is based on EBITDA, our net total leverage reached 3.5x, reflecting only 4-month double lease-rate payments and therefore, is artificially low. For more details, we refer to the tool kit on our website.
And finally, looking at the outlook for 2022 based on the solid financial results that we had over the first 9 years, that outlook is reaffirmed at month — yes indeed, 9 months instead of 9 years. We do not expect the consolidation of the Caviar group in our financial accounts as of the fourth quarter to meaningfully impact the projected rebased growth rates. However, the absolute full year 2021 rebased headline metrics need to be increased to reflect the acquisition of Caviar and it is something that we will provide as soon as we have that information available. And with that, let me hand back to the operator for the Q&A session.
Question-and-Answer Session
Operator
[Operator Instructions]
We’ll now take our first question from Roshan Ranjit of Deutsche Bank.
Roshan Ranjit
Good afternoon, everyone. Thanks for the question. First question is regarding the costs. I think you booked this quarter as part of the NetCo integration or start of the integration process. You remind us of what the total impact for the year would be of those costs? And secondly, can you confirm that the around 1% adjusted EBITDA growth is excluding these costs, please? And secondly, on the operational side, we saw a good pickup in the broadband odds, even when we account for that TADAAM cleanup. Now this is a big change from what we saw in the first half of the year, yet you do cite the increased competition in the market. So could we get terms of what has driven that improvement in the broadband ads because your other kind of fixed components still remain under pressure.
John Porter
Do you want to do the cost to capture, or I’ll do that?
Erik Enden
Yes. So on the first question, Roshan, on this cost to capture data linked to the setup of the NetCo and so we have various actions ongoing to be ready for the go-live, ranging from of course, advisory costs and lower costs but also costs to really get the business operational. To give you one example, we are creating a separate ERP that will allow the operations to run. So within the third quarter, we have already recorded EUR 1.3 million of these costs, but the bulk of the costs that we expect on the cost to capture side will come in Q4. So the full year outlook that we expect is around EUR 5 million. So EUR 1.3 million already incurred probably around 3.7% to go. And indeed, the guidance that we gave, which is around 1%, which we will typically interpret us somewhere between plus 0.5% and plus 1.5% — sorry, plus 1.5%. That number is indeed excluding those EUR 5 million because they are clearly one-off and directly related to the setup of the company.
John Porter
On the broadband ads, I would say, on the positive side, we certainly have had some successful campaigns, and we’ve seen a tick up in our acquisition rate through the quarter, particularly going into the last month of the quarter. We have very successful campaigns targeted at young people or people who are establishing new homes. We have a campaign of a fixed discount for anyone who’s under the age of 30 until they turn 30, which has been quite innovative and highly successful. And our back-to-school campaign is working extremely well also. So very pleasantly surprised that despite some of our competitors, particularly flanker brands like mobile Viking, et cetera, targeting the specific group that we’ve had a very successful period focusing on young people establishing homes or new residences for the university period during that time. Typically, and if you look back pre-pandemic in the quarter in which we implemented a rate increase, we always sort of best case was to have a relatively stable net position in broadband. During the pandemic of course, we gained about 50,000 broadband customers across the 2-year period. So a lot of people establishing fixed services in second homes and in places where they might have been subsisting on a 4G broadband in home. So not surprising that during this period that broadband would be relatively stable.
But churn is still on a relative basis quite low. Acquisitions are ticking up. And we’re cautiously optimistic about Q4, which is usually a very active commercial period for us with a lot of aggressive campaigning as we finish the year. So those are some of the dynamics, some good tailwinds and obviously, a very competitive window with back-to-school and everything else. So we’ll see how things go in.
Roshan Ranjit
That’s great. Super helpful. If I may just a quick follow-up on the first question around the cost. Does that suggest that the kind of regulatory process is going according to your expectations at this stage? And do we know if that is a decision, which is going to be held within Brussels or at the wider European level?
John Porter
Yes. So I would say that the preparation, obviously, I mean there’s very tracks that we are preparing. Of course, the regulatory track is a very important one. So that is fully running, and we don’t have clarity yet there. So there’s not much that we can say about it today. But having said that, the set the NetCo by itself is very important and it’s a complex transaction. As you know, we’re going to be carving out all of the network assets out of the company and setting them up as a separate entity, so that is operationally very large and also a complex operation. So we are fully moving ahead of that, also because we want to be ready as soon as we can. And so these costs are incurred as we speak really with the idea to be able to move forward as soon as we can and also as soon as we have clarity on the process.
Operator
We’ll now move on to our next question from Nicolas of HSBC.
Nicolas Cote
Hi, everyone. Just a follow-up on the previous question. I’m interested in a bit more details on the competitive environment. Do you tend to see much activity on the retention side at your competitors? And also, if you can’t precise what is happening with the cheaper brands. You mentioned mobile Viking. Anything else happening? And maybe last, on your range of products, do you see some down speeding, i.e., clients trying to downgrade to cheaper offers?
John Porter
Well, there certainly is high activity in customers looking to right size their bundles. You can see in the quarter; we did have very good success in moving an additional 15,000 customers into fixed mobile converged packages. And these packages can in, with the right combination of the households can actually be extremely cost-effective and even more cost-effective than trying to call them together the cheapest stand-alone a la carte prices in the market. So we — the one on offering, in particular, has been very successful as a landing area for customers. So the hierarchy of need is very much obviously fixed telephony. Well first of all, premium TV is something that people are looking to cut back on, not just streams, but other streaming services. So we — there’s definitely a lot of activity there. Not so much in sports, which is — remains relatively stable despite the high price. That’s a very sticky product. And then we move on to TV more generally. So there is pressure on TV as a category with some of the existing customers, but we’re still selling in TV, even though it’s not hard bundled in the one offer at pretty high rates at around 85% of new acquisitions to one and one of taking a TV product. And then I think finally, you do see the potential for people taking unlimited 1-gig broadband maybe saying, on maybe they don’t need all that.
Maybe I’ll move down to the basic Internet, which is 200 mgs — but I think in the one-piece stand-alone area, I think we compete quite favorably with the pricing for our basic Internet to be a little bit over EUR 30, but for 200 megs of service. I think that’s maybe a slight premium to 1 or 2 of the low-end offers, but with much higher specs. So look, we look at the whole pricing Pino end-to-end, and we’re always — if we see a gap in our offering, we’re always looking to close that gap. And obviously, I can’t say anything about what we’ll be doing in 2023 or at the end of the year. But let’s just say we’re not prepared to see any particular segment of the lineup; particularly in a period of time when people are looking to optimize their household spend. So it’s important that we have a strong landing area for people who are looking to move slightly down in their household spend on telecommunications.
But as a percentage of GDP, Belgium generally is quite low, even though people say, okay, Belgium’s higher price compared to the surrounding countries as a percentage of GDP, we’re actually in the middle to lower end of European spend. So we think we’re in pretty good shape, although down-spinning is a factor. And — but when you look at the fact that our ARPU is actually increasing. You can see that we’re doing a reasonably good job of offsetting it.
Operator
[Operator Instructions]
We’ll now move on to our next question from David Vagman of ING.
David Vagman
Good afternoon, everyone. And thanks for taking my question. The first one is on cost. Could you give us your view on the development of employee and energy costs, so the delta for next year or at least a big picture view. And could you envisage some specific cost-savings measure — so on top — coming on top of your ongoing digitalization effort and the IT transformation. And the second question is on the potential scenario for recessionary impact we could see on your different source of revenues. So I’m referring to business revenues and on the revenue line. And then for the — basically for TV, for broadband, et cetera, what type of price adjustments could you be envisaging for next year?
John Porter
On the cost side, as you know, on labor, in particular, this is an indexed fixed index market last remaining on earth. And we’re anticipating that, that’s going to be a little bit over 10% in January. Obviously, that’s a fairly big impact on our labor costs, which are the largest indirect costs that we have in the business. Now there are mitigating factors because over the years, we have outsourced and partnered on some key cost components in our business. For example, 85% to 90% of the total phone traffic is handled through third parties. 100% of the maintenance and installation activity that requires a home visit is in our Unity partnership, and we don’t have fixed indexation elements in some of these key outsourced managed service agreements. Also a huge amount of the work being done on Earth, on the digital and data front is also outsourced through managed service contracts.
So that mitigates an — our exposure to the labor indexation. We have — in terms of direct employees, we have around 3,500 direct employees as a direct employee to revenue, we have, I think, one of the best ratios in the business. So we also have also a range of internal strategies. Certainly, some of them, as you alluded, coming out of the increased utilization of our digital customer journeys. Some of the technologies that we’re putting into a virtual contact center moving to a digital-first environment and some very interesting results this year in terms of uppers digital-only offers, certainly, we’ve taken base postpaid net adds to sort of all-time highs since the acquisition by having customer journeys through the digital channel with exclusive offerings, which we’ve moved a huge amount of the acquisition activity from retail into digital for our base products. That’s giving us the opportunity to right size our retail presence in both base and Telenet. So there are mitigation strategies, which we think we can accommodate at least in the short term, this big impact of labor indexation.
And on the — sort of recessionary impacts on revenue, I think there are pluses and minuses, certainly in the B2B and LE, certain parts of our B2B business. I don’t think we’re expecting big impacts there. Actually, to the contrary, we’re seeing a pickup in potential opportunities around managed services, migrating customers to the cloud, improving the security solutions and things like that. So growing, stable to growing revenues in SME and LE for coming up. Soho is a little bit different. It responds more like the consumer market where we’re seeing SOHO customers looking to right size their solutions. And — in terms of price on our products, we’re not giving any guidance on that. But I think history is the best guide there. We’ve fairly consistently had annual rate adjustments for most of our products. And because we don’t have a back or front book kind of set up here with no fixed-term contracts. A lot of our recurring revenue is exposed to any price adjustments we might do.
David Vagman
And a very quick follow-up on the price. Could you change the timing, for instance, so moving into over the year rather than summer?
John Porter
We have changed the timing in the past. During the pandemic, we delayed the rate increase during the first year of the pandemic. And last year, we moved it up. So it’s happened in the past, but it’s not — once again, as I say, in your business, past history is or isn’t an indicator of future performance in this case.
Operator
We’ll now move on to our next question from Martin Michael Hammerschmidt of Citi.
Martin Hammerschmidt
Hey, thanks for taking my question. Yes. The first one is on CapEx for this year. I think I mean, the guidance for 25% of revenues. But if I look at the first 9 months, it seems you’re falling sort of short of that a little bit, and that implies sort of a very, very big step up in the fourth quarter. I’m just wondering, so what is the reason you’ve not been sort of spending that much actually possibly have initially targeted? And is there sort of an indication that sort of next — CapEx next year, is that going to be as much as sort of what you thought at the beginning. And then the second question is, how should we think about sort of the working capital and other line for next year, given that you might end up with a much lower outflow this year versus last one. And in addition, you will sort of get some cash savings from the leases related to the net coal.
John Porter
The CapEx question is a very simple one. It’s almost all related to the supply chain. So particularly around the 5G upgrades, which are running 10% to 20% below expectations, but still at a pretty high rate. And in some cases, the deployment of next-gen household equipment like set-top boxes and modems. But it’s a question of degree. I mean it’s not really anything that’s impacting us operationally or causing us to slow down on go-to-market or CVP strategies. It’s just a timing issue relating to the supply chain.
Martin Hammerschmidt
No.
Erik Enden
I’ll take the question on the working capital and on the outlook for the free cash flow. So — we’re not giving guidance yet today. So we won’t be able to give yet precise numbers that we will do on the back of the full year results. But if you think about free cash flow and also when we look at where consensus is for 2023, that is coming down as a result of higher CapEx as we’re going to be rolling out and further investing into the network.
In terms of working capital, typically an increased CapEx spend gives you a bit of a buffer because normally, payment terms on CapEx are typically higher than operational expenses. So that should be positive in terms of working capital. If you look at the other key lines leading from operational free cash flow to free cash flow at all, being interest and taxes. First of all, on the interest, we expect that one to be relatively stable given the fact that we have fully hedged our debt stack. So no material changes to be expected there. And also in Texas, we expect a fairly stable environment. So those are, by and large, what we think about the key elements, but we’ll come back on that at the beginning of next year.
Martin Hammerschmidt
Just to confirm the stable interest expectations that is sort of excluding the net core because I think there will be some interest savings there. Just to confirm that.
John Porter
Yes. So Martin, I think there, of course, the main impact is the removal of the lease with lives that we have. So then obviously, depending on the completion of the network transaction is going to be — could be an important lever for free cash flow. The impact actually is on every part of the P&L, I would say. So as we discussed before, I also had in previous disclosures, there is, of course, a positive impact on EBITDA as a result of the removal of the so-called market that we have within the previous contract. There is, of course, the end of the lease-related payments, which actually triggers both interest and depreciation, so that would be EUR 70 million delta for the full year. And then those elements, of course, also trickle down in the free cash flow. So I think that, of course, will be an additional layer to put on top. So — but that, of course, is dependent on the completion of the alternator transaction. And also, I hope I’m stating the obvious, but if you look at the free cash flow versus the dividend, I mean, in 2023, the dividend is going to be very well covered with free cash flow. So that should not be a concern.
Operator
We’ll now take our next question from Ben Richard of New Street Research.
Ben Richard
Hi, thank you. So firstly, on the potential price rise next year, with Belgium inflation running at double digits. I’m just wondering about the scale of the price rate that you think you could be able to put through next year. And then second question, I into many thoughts on the impact you’re seeing from Proximus is fiber deployment. So in areas where they’re building, are you seeing any impact in your KPI churn or subscriber losses? And are you seeing any sort of impact perhaps on your wholesale partner as well? Are they still using your cable network in areas where Proximus is built further?
Erik Enden
I’ll maybe take the question on price increases. So price increases are something when we decide on it, we take a lot of data into account. So it’s not a decision that we take lightly. And of course, inflation is a key input to that decision. And of course, on a historic basis, we’ve always been very close to inflation. But the key element that we also take into consideration is also our expectations in terms of the expected churn. So we’re always trying to find a very good balance between doing the right price increase, but also making sure that we don’t give up part of that price increase through increased insured. So of course, we came out of a long period of extremely low inflation. And so we’ve seen in the past couple of years, we were always somewhere between 1% and 2%. And — we also saw that; indeed, the churn was very low. So it was clearly a very good balance between price increases and as an insured.
John Porter
2022 was the first year where we saw much higher inflation. And so when we took the decision on the 4.7%, we do quite a bit of data analysis, but also research on the ability and the kind of absorption rate that our customers would have on that price increase. And so what we’ve seen, and you see that in our net adds is that we continue to find a good balance between doing now a much higher price increase, of course, almost 5x what we did the year before, arguably slightly lower than what inflation was at that time. And when we did the 4.7%, inflation was not yet running at 10%. So we took something that was close to it, slightly lower. But it has proven to be a good balance for us. So you see that in our Q3 results, both from the fact that our top line and our EBITDA have improved a lot. And actually, the year-on-year increase is quite close to the nominal price increases that we took on the one hand. But on the other hand, we also had a good net add performance. In the past, we have seen quarters, we have seen a pattern where within the quarter that you took the rate increase temporarily, we went into negative territory when it came to net ads. That is not something that happened this year. So of course, it was more or less flat, but it also included 200 — a correction of 2,000 subscribers on TADAAM.
So you could say that our Tenet business, broadband business probably expanded by 2,000 RGUs. So long story short, we think that not only we found a good balance between price increases and churn was in a period when inflation was super low. We think we also found a good balance this year, and we will definitely consider doing the same next year where we know that inflation is a lot higher than what it was in 2022. And therefore, we’ll consider that as a kind of a reference and see how we find the balance again between churn and price increase. So on the fiber impact from Proximus I think, first of all, starting from a real macro point of view; Proximus’ fiber build has been increasing over the last few years. But if you look at 2021 and ’22, we’ve actually gained far more broadband subs than we did in ’18, ’19 sort of time frame. So we haven’t seen it on a sort of net-net basis. I mean, we took — in the CMD, we took through you guys through a lot of reasons why we think we’re pretty well positioned.
First and foremost is that 100% of our network is 1 gig and Fibro or Proximus builds are not offering any products in excess of 1 gig and in a GPON architecture. Very difficult to do so but secondly, we arguably have a superior TV product. We have 12 channels of sports taken by like around 0.25 million of our customers. We have a superior integration of premium sports and streams and of our direct-to-consumer apps. We have a really proactive singular approach to in-home connectivity, which we think with the use of data allows us to have a proactive and deeply engaged relationship with customers on an individual basis on the performance of their Wi-Fi and their in-home experience, which is really kind of second to none in the industry that we know of our ability to right size and cross-sell, up sell or downgrade, if necessary customers into the right package through the segment of one and our CRM platform, which provides every customer contact, next best action next best option capability, whether it’s self-service through digital or through voice or through retail channel. All of these things combined to deliver us some of the lowest churn in the industry.
Now on a sort of neighborhood-by-neighborhood basis, we’re seeing that just this is glass, and that is HFC is the impact is quite limited. What is an impact is very, very aggressive offers on a street-by-street basis? So obviously, to justify the investments that are being made that they need to get that migration and the offers are getting stronger and stronger. On the other hand, we’re offering making offers, too. And we have a very good idea, obviously, an almost complete idea of where the fiber is being built. So this is an area that we put a lot of focus on. We need — we’re not seeing a lot of movement today, but we’re not naive to the fact that if we don’t keep doing these things and more and in fact, also build our own fiber over the next 5 to 7 years, that we could be exposed. So we’re doing all of these things. And to the best of our knowledge, Orange is accessing our network, the HFC network exclusively, except for a small bit of fiber that there where they’re doing a POC with Fluvius in Flanders. So that’s the extent to which to our knowledge, proximate — I mean, excuse me, Orange is working. Right now.
Operator
We’ll now take our next question from Emmanuel from Kempen.
Emmanuel Carlier
Yes, hi, good afternoon. My question is about costs. So you will have around EUR 30 million higher salary costs next year. I think on top of that, probably something like EUR 20 million higher energy costs. The question I have is how do you look at the MVNO with food that you will lose will that be a full EUR 25 million negative EBITDA impact already in 2022? Or do you believe it will be spread? And secondly, how do you look at the remaining cost base? Is that something that will also go up? Or how do you look at it?
Erik Enden
Well, Manuel in terms of the MVNO revenues. So that contract is today still running with full. Of course, orange is still going through a regulatory process to complete the acquisition of, and that has not finalized yet, which means that the contract is kind of ongoing, and we expect also in 2023 for substantial — for actually the most part of it to continue to keep full as a customer on the Adenosine. Then I think on the cost side, we have also shown that in the Capital Markets Day. So I think as probably anybody in our industry and probably around the globe or at least in Europe, we are seeing pressures on labor and on energy. An important lever for us already this year but also next year is our ability to at least partially offset these inflationary cost pressures with the benefits from all the investments that we have done over the last couple of years and that we continue to do. So I think we have already indicated in the Capital Markets Day that in our outlook for this year, which is leading to an expectation of around 1% or around 10% EBITDA growth. We see our cost base — operational cost base, excluding energy and labor going down, so improving by 5%.
And half of that improvement, so almost 2.5% points are directly linked to the investments that we have done in the past so that self-install that’s less cost in the cold centers and it is also less IT licenses. Now we are also really coming to the completion of our CRM overall, where we’ve taking about the fact that we are taking out the entire legacy, all the systems of the past and replacing that with one unified system. It’s been a journey, and it’s been a journey that has always been IT has taken longer and probably was also more expensive than we expected. But the base today is fully running on it, and we also have plans on the very short term to bring all of our telnet customers on that new platform. Then also in 2023 will give us continued ability to take out costs, but also, of course, have improved CRM capabilities towards our customers. And so that should be a continued a powerful lever to offset some of the inflationary pressures.
Emmanuel Carlier
Okay. And then my second question would be on price as well. How do you look at pricing, considering that you will have the new entrant that will launch in the coming? Yes, maybe it will take quite some time. But let’s say, maybe it will take 12 months. Would you already anticipate on that because that is what you typically see in the market that operators are a bit more prudent in putting price up ahead of a new entrance?
Erik Enden
As I probably mentioned in my previous answer, I mean, when we consider a price adjustment, we take lots of stuff into account, that is customer data, also, obviously, the competitive environment. Digi is not expected to enter the market into 2023. But having said that, I mean, there’s a lot of focus on Digi, but I think we sometimes forget that in the market, there is already a very vibrant spectrum of value-orientated brands. We have Scarlet; we have mobile Vikings probably more in the market. So give a base. Yes. So when we take decisions on price, obviously, we look at the full spectrum in terms of offers in the market, but also needs of the customers and that we will continue to do next year when and if we decide to adjust prices.
Emmanuel Carlier
Okay. And maybe a third very quick one if I may. KPN mentioned that there were some labor shortages slowing down the fiber build-out. I know that your plans are quite recent, but could you give an update on this topic in the Belgium market?
Erik Enden
Yes. So it’s — obviously, we are gearing up — well, I mean we are preparing for the NetCo. But I think we’re all quite aware that we have created a unit a couple of years ago together with solutions strand. That’s an entity where we have a 30% ownership stake, and which is working extremely well. So I think we’re very happy with the services that Unity is doing for Telenet. And by the way, we’re also very happy and impressed with the way they have been able to build the business beyond the Tenet business. So in terms of — I mean, they do business for a whole range of other customers. So I would say that definitely that structural linked with Unity is something that is also expected to be very beneficial in the fiber rollout. And as such, we do not, at this point in time anticipate real shortages in our rollout capacity.
Operator
Now take our next question from Konrad of ABN AMRO BHF.
Konrad Zomer
Hi, good afternoon. Just one question, please. I understand that we took a EUR 4 million provisions in Q3 related to additional taxes on antennas. Can you maybe explain the background of that provision? And can you share with us if you expect more provisions to be taken in the coming quarters?
John Porter
Yes. So it’s correct that we have adjusted our provisions for balance taxes within the third quarter. Of course, in terms of the pylon taxes, this is a file that is already there for a long time. So there are kind of court cases with — on various fronts. What we do every I would say, every month, but basically, every quarter, it’s really together with our lawyers, I look at the latest legislative environment. So we do monitor very closely if there are verdicts done by judges or whether any other factors around those files have changed. And if that is the case, we also adjust our provisions. So what has happened in Q3 is that there has been additional kind of verdicts, or I mean, outcomes of the court, if you will. And on the back of that, for some of the cases, we have adjusted the probabilities that how the outcome would fall.
It means that for some of the cases, definition all, but for some of them, we think it — based on the latest inputs, it will be harder to argument against the taxes, and therefore, we have adjusted that. But needless to say, that these are provisions. So it means that it’s always a kind of theoretical assessment of what we think will happen in the future, obviously, considering all of the facts and taking into account all of those expert opinions, legal expert opinions, but of course, combined with all the knowledge that we have on it. And so on the back of that, we have now increased the provisions of it remains to be seen how these files will play out, but that’s what we have done.
Erik Enden
Also content, in addition to this. So we, of course, had stars disposal transactions for Telenet earlier in the year, which will also trigger some changes. So in essence, the historical pilot tax risk stays with Telenet, but all the — I would say, the forward-looking pylon taxes will be for the tower co. So that is also a bit of a hedge that is part of the overall transaction, which is relevant to also consider.
Operator
That’s all the time we have for Q&A. I will now hand it back to Rob Goyens for closing remarks. Thank you.
Rob Goyens
Okay. Thanks, operator, and thanks everyone, for having joined today’s call. As I mentioned in the beginning soon, we will provide a replay and the transcript on our website. And as always apart of myself, we are available to answer any recent questions that you may have. So I wish you all a great rest of the day, and bye-bye for now.
Operator
Thank you. Ladies and gentlemen, this concludes today’s call. Thank you for your participation. Stay say. You may now disconnect.
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