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Wall Street Breakfast

Royal KPN NV (KPN)

Q2 2007 Earnings Call

July 30, 2007, 3:30 AM ET

Executives

Eric Hageman - Head of IR

A.J. Scheepbouwer - Chairman and CEO

M.H.M. Smits - Member of the Board of Management and CFO

Stan P. Miller - Managing Director, Mobile Division

Eelco Blok - Board Member for Business

Analysts

Terence Sinclair - Citigroup

Matthew Bloxham - Deutsche Bank

Damien Chew - ING Financial Markets

Steve Malcolm - Arete Research

Oscar Tijs - Kempen & Co.

John Davies - Dresdner Kleinwort Wasserstein

Christopher Nicholson - Oraca

Presentation

Eric Hageman - Head of Investor Relations

Good morning everyone. And seated beside me are Ad Scheepbouwer, our CEO; Marcel Smits, CFO; and Stan Miller, the MD for International Mobile Business. And they will take you through the half year results and the amount recommended offer for Getronics which we published this morning. The presentation as usual will be followed by Q&A.

Let me briefly point out that the Safe Harbor applies and that any forward-looking statements made in this presentation do not differ from those already made in the press release. I would now like to hand over to Ad Scheepbouwer.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay, good morning. I'll start with the announcement that we made this morning about Getronics. After that the highlights of the half year results and then Marcel will take you through the financial review and I will come back for the operating review.

I'll be followed by Stan Miller who will take you through our mobile businesses and then after that we will have Q&A. I'll first start with Getronics. We've announced our intention this morning to make a recommended cash offer for all of the Getronics shares. The rationale is that today customers increasingly require all telecommunications and IP services from a single end to end vendor and KPN and Getronics have of course partnered before with large contracts for many, many years and most recently we've gained a number of big contracts with them together... ING and the Dutch Railways. By combining these two companies we will instantly become market leader in word space management in the Benelux. Now this is in line with our strategy as we have talked to you... discussed with you many times that we want to move up the value chain in the business market.

Now we think with this combination we will have the skills and the scale to become the prime contractor for converged ICP with a global delivery capability. It's a clear strategic fit in providing... KPN provides telecommunication and Getronics IP.

Now if we look at the profile of Getronics, it's... they hold the number four position in work space services, in 2007 they reported revenues of €2.6 billion and EBITAE operating profit before amortization and exceptional totaled so far [ph] €170 million. They employ about 25,000 FTEs.

Now as you can see about 60% of the revenues is in the Netherlands, 25% in the rest of Europe. They have a strong customer base with the major accounts in national and international. And basically their portfolio is work space management, application integration and the consulting and transformation services. They are in the middle of a restructuring program divesting non-core operation and optimizing their financial profile, and we will proceed and continue this restructuring.

Now the offer itself, it's €6.25 for all outstanding shares; that's a premium of 23% over the last business date before the announcement. We will also make a cash offer for the convertible bonds and the aggregate consideration for that offer is €263 million. It's... the offer is being supported by the board of management and the supervisory boards and we will be able to finance this out of our self-imposed financial framework of net debt to EBITDA of €2 billion to €2.5 billion. Finally we are entitled to a break fee of €7 million in the event that the board will recommend a competing proposal.

Now if we look at the... going forward at the strategy, governance and organization. We will... of course Benelux, particularly on the UK but also on... in UK and North America; the Benelux activities are very valuable to us as is of course clear we are the market leader in telecommunications and we will now also be the market leader in workspace management, and as customers require more and more one single point to do their business, it is a logical development.

Now rather than taking offer Getronics and integrate it into KPN, we will integrate Getronics and we will integrate the KPN ICT activities into Getronics. So we will have a clear IT division that will run our ICT activities. And we will make sure that we will maintain global delivery capability for our multinational companies, and as I said before continue to dispose non-core assets in line with what Getronics has been doing over the last year.

Now is this is a value-creating proposal from our side, we clearly believe it is. It is a real opportunity to create value, the combined businesses to get a very strong strategic position in the Benelux. We see significant cross and up-selling opportunities by leveraging both clients basis. The synergies that we are estimating in the year 2009 are €50 million and there is a net present value... tax losses in Getronics of about €100 million. And further this... we are optimistic that there is EBITDA upside from the progressing turnaround in the UK and the US operation.

Now what's next? We will request the works councils of KPN and Getronics for advice. So that we... I mean they will ask their work council, we will ask ours. There will be approval for requests from competition authorities. We will launch the offer in September. There will be a separate Extraordinary General Meeting of the shareholders of Getronics and we will honor the offer if we acquire at least 80% of the ordinary shares and if there is no material adverse change between now and closing.

Now, I will now continue with the half-year numbers. If you look at the last half year, we first look on the strategic side, then we see that our revenue and EBITDA mix is rapidly changing. We are of course losing customers in the consumer side in traditional voice. But at the same time, we are able to compensate this loss with growth in mobile and new IP-based services. All in all it means that with the new mix we are well on track to meet our guidance. There's a number of events that underpin the strategic transformation. As you know we did sign an agreement with the unbundlers for the migration to All-IP, the VoIP issues are now under control and we will be gradually up-scaling our activities there again.

The acquisition physically was closed in June. We are improving our network efficiency at E-Plus and in the Netherlands through the integration of Telfort and the launch of fixed-mobile proposition in the Netherlands has started and is proving to be successful.

Now if we look at some highlights for the first half, we see that Mobile International is continuing with profitable growth, E-Plus, and Stan will tell you more about that later. It's the fastest growing operator and continues to be the fastest growing operator in the German market with EBITDA margins close to 40%. BASE has increased its revenue market share and pay margin above 40% despite very challenging market conditions and lastly strong profitable growth from our wholesale business in the Netherlands.

If you look at the Netherlands business itself then we see that also that mobile is the locomotive as papers and service revenue growth in the first half and EBITDA margin in the second quarter of nearly 42%. Consumer net line loss is slowing down and we saw, before we have solved the VoIP issues, we are expanding our market share in broadband and in TV and in the business market we continued to see an upward trend due to growth in IP and managed services and our All-IP program is on track.

Let's see if we can get to next sheet. Okay.

Some financial highlights for the first half of '07, about revenue and other income, more or less flat EBITDA is same, CapEx €600 million, free cash of 1.2, dividend of 12.5% to $0.18, our interim dividend that is. We have of course paid a final dividend of $0.34 and the share buyback program is on track and we have done more than half of the €1 billion completed today and the remaining will be done during the balance of this year. Now... I will now handover to Marcel for the financial review.

M.H.M. Smits - Member of the Board of Management and Chief Financial Officer

Right. Ladies and gentlemen, good morning. Let's first go to the group results. Let me just start at the top for the half year. As you know our challenge is to make up for the loss of revenue in the wireline area and first half year is something like €230 million of revenue lost in wireline both in the business segment and in the consumer segment. That's our challenge. As you can see here with the exception of €16 million we've made up for that €230 million of decline and that's entirely attributable to the growth that we have everywhere else and the market share gains that we have everywhere else.

That is in mobile, International Mobile in the Netherlands, it's in TV, it's in IP services. So for the first half year we've done pretty well in terms of making up that decline. Taking you then to the last line, EBITDA and EBITDA of course had challenges even bigger because the wireline business that we're losing is very profitable. The new revenue that we are pulling in is normally initially at least somewhat less profitable. Added to that is the fact that in the first half year of last year as a result of disposals we've had a net positive impact to our EBITDA of €68 million, first half of this year, that's €11 million, so that's another €50 million of challenge added to the idea of maintaining EBITDA flat.

On top of that there is €45 million worth of VoIP cost that we've had to absorb in the first half year. So the challenge was to make up for about €100 million and as you can see here we have nearly achieved that. Now although that makes us of course comfortable that we will hit the guidance for the full year. And just a couple of other points to make about this P&L. First of all the amortization charges which you can see here sort of at the middle of the page. They are significantly higher than last year, that is due to the accelerated amortization following the Telfort radio network integration. That has now been done. So you can expect that in the third and fourth quarter these accelerated amortization charges will disappear.

Interest costs are slightly up due to a variety of one-offs most notably the refinancing costs. You will have seen the swap transaction that we've done recently. Lastly on tax, tax is slightly down and that's predominantly a reflection of the decrease of the large corporate tax rate from 29.6% last year to 25.5%.

So, in all, the conclusion is that the challenge was to make up for the loss of wireline revenue and EBITDA impacting that vats and triats [ph] and we have done well both on the revenue side and on the EBITDA side.

Now, then let's go to the group cash flow. As you can see here, we have generated $1.2 billion for the first half year and we have promised the market that we would do more than $2 billion, so we are well on track. And there's a couple of material differences of course with last year. Let's just first go to tax paid and received, that's the fourth line in this table. You'll remember that last year in the first half year, we had a significant tax inflow. We have moved into a tax paying position with the net operating losses having run out in the mobile business in particular. We are on our way to the pay something like €300 million for 2007, that's in line with the figures that we've given you in the past and all that €300 million, you have seen for €42 million now in the first half year.

The interest paid is up about €60 million and that is... although that €77 million is attributable to the early interest payments due to the debt refinancing transactions in May. Our CapEx is somewhat lower than last year, something like €100 million. We continue to run a tight ship across the board and the proceeds of real estate amount to €82 million in Q2 and you see that coming through in the half year. And most notably €75 million of that was the sale of the fixed hours through TDF; that was the deal that was recently announced.

In terms of shareholder returns, you can see here that we paid €0.6 billion of final dividend over 2006 and we have executed €500 million of share repurchase. So, that leaves the total cash return to shareholders nearly exactly the same figure as last year.

Now, then the performance versus the guidance. As I said the challenge was to make up for the loss of revenue, and EBITDA from the wireline business, and as you can see here we are pretty close despite the fact that we have had some headwind from the one hand with notable items that we have to make up about €50 million that impacts both revenue and EBITDA. And on top of that in EBITDA line we have to make up for something like €45 million of VoIP cost. And despite that we are just only marginally down.

Let me just hasten to or let me just add to that... for EBITDA we have done 51% of what we have set ourselves as the guidance in the first half year, so we are not back-loaded towards the second half. We are very confident that we will achieve the guidance given.

Now then, couple of other items, headcount reduction excluding acquisition effects amount to 950 FTE, first the guidance of 1200 to 1500, so we are on track there. And for the full year we expect to sell further real estate, as all announced earlier when we announced the 2006 results.

Now then, let me go to the update on roaming. A lot of people have asked us of course in the past as to what exactly is going to be the impact of roaming on our figures in 2007 and 2008. We have made here some calculations; this is the bottom half of this sheet. We intend to be fully transparent. So, what we have done here is we are showing you what would be the impact of the roaming regulation excluding elasticity. So, if you the assume that elasticity is zero, which we do not, so it gives you a sort of worst case scenario of the out bands of what the impact could be and give you flavor of our elasticity impact on that, we have also made the calculation in case of 25% elasticity.

As you can see here for this year the impact is limited, we had included that in our budget, so roughly the same sort of figure. So, that's not impacting our overall outlook for this year. For next year there is a significant impact coming through as you'll have seen from other operators which you have here now a very clear handle as to what it is. I think it's important to note of course that we are firm believers of price elasticity and we have experience with price elasticity in particular in the German market but also in the Belgium market. So, we are stimulating the elasticity by quickly launching new earnings offering, such as holiday bundles and extended discount networks.

Now, then the group financial profile. This sheet is I think uneventful and net debt's up a little bit, we had of course significant cash outs in the second quarter, and €645 million of final dividend and €300 million of share repurchase. So, that's close to €1 billion. And on top of that we have the Tiscali acquisition coming through for €236 million and that explains the increase from 8.8 at the end of the first quarter to 9.3 at the end of the second quarter.

In terms of net debt over EBITDA, we are at 1.9 once the acquisition of Getronics is absorbed because that will increase, it will just go over 2.

Then let's go into the individual businesses, first of all the Netherlands. In terms of revenue you see here a small decline. Let me just focus quickly on the EBITDA, what you see here is a decline of €73 million. Of that something like €45 million is VoIP. So, in all in the Netherlands the EBITDA is slightly declining and that's a composite of the number of effects. First of all the wireless services continue to do extremely well. Service revenue growth was 8% in the first half, and we have recorded record EBITDA margin. So, the acquisition of Telfort, I think, has done extremely... the business has done extremely well, and the Telfort acquisition that we consolidated two years ago is really flowing through with significant benefits.

The decline increase in traditional voice and consumer continued with its downward effects on revenue and EBITDA. I think it's important to note that the line loss in the second quarter was less than the line loss in the first quarter and we have overcome the operational difficulties in VoIP and I think we have become... in the course of the quarter we have become a lot smarter in terms using traditional portfolio, retention offers in order to decrease the line loss.

The business segment re-continuing our upward trends due to growth of IP based and management services and a little bit of help from acquisitions. In wholesale, the external revenues improved slightly compared to Q1; you'll remember that increase Q1 we said we've protected our margin and therefore we have been careful not to buy ourselves in too much revenue. It's gradually recovering, so we did a bit better in the second quarter than in the first quarter.

Now, if we just look at that by segment, and here you can see that in the consumer market we are trending down despite the fact that our mobile business in the consumer market is doing were well. If you look at the split in the press release you can see that we have a significant step-up in mobile, a healthy step-up in internet, healthy step-up in TV, but all of it is not enough to compensate for the decline of traditional voice services.

In the business segment we are up again this quarter 3.3% year-on-year so the business segment is growing and that's very much a function of everything that we have already talked about growth, IP based and managed services and a little bit of help of acquisitions. And also in operations the revenue and other income are down 3.5% mainly as a result of continued line loss in consumer and business. And I think it's important to note for the interpretation of these figures, the €521 million that we are reporting here for Q2 '07 includes €55 million booking on real estate, but some other notable items as well. So, I don't think you should be mistaken to believe that the decline or the declining trend has significantly improves; it's going on as in the earlier quarters.

Now then let's go to mobile international. We have reported 6% service revenue growth for the full half year and for the second quarter 3%. So growth is slowing down a bit. We have got significant termination cuts coming through both in Belgium and in Germany it's clear that the regulators in Belgium and Germany are doing their level best to protect the incumbent. And so we will continue to work very harder on judges, the EU local politicians and local anti-trust authorities; you have seen a number of initiatives coming through, Stan will talk to you later on as to how we intend to step up those initiatives.

Meanwhile we are equally undeterred on the distribution side; we are strengthening our distributions; a number of initiatives coming through. And on the back of that we have been able to provide you some guidance for revenue growth for E-Plus in the second half year which we believe will be better than the revenue growth that we've show in the second quarter.

I think that's all for this sheet, let me just add one more thing. As you can see here, our EBITDA is showing a huge step-up of more than €100 million and that is making up for the decline that we've seen just now in the Netherlands. Then the individual countries, E-Plus service revenue up to 2.5%. We are estimating that the market is shrinking by something like three, perhaps a bit more, and these figures out for my competitors are coming out now. We have seen figures this morning of course coming through. So we still have a significant gap with the market, we are still growing our share and we are very proud to say that we have achieved an EBITDA margin of almost 40%.

So we are doing well in the German market and as said... as you have seen in the press release we are estimating that in the second half the growth will be higher than in the second quarter with an EBITDA margin of more than 35%.

And base, you can see that service revenue is now stable year-on-year, there is something like €10 million of MTA cuts in there. Stable year-on-year revenues, by the way is the only company that is reporting stable growth, while two competitors are going down and we have had healthy EBITDA margins coming through. The mobile wholesale operations for the Netherlands and this is of course the MVNO operations as you know, we run them on, on an international basis, continue to do well.

Now then very quickly being pro forma disclosure of fixed; what we are doing here is, we are showing the year-on-year decline both for revenue and EBITDA. We are normalizing here for a couple of items, not the fullest of noteworthy items that we normally normalize for. And the EBITDA trend or the revenue line is not disturbing the EBITDA line would appear to be deteriorating but let me just highlight to you that in the second quarter of '07, we've had some €20 million of VoIP costs to be absorbed which we have to shed now very quickly, having overcome the operational difficulties.

In terms of restructuring and integration and All-IP expenses, the effect is approximately €11 million swing factor year-on-year. And last year we had positive one-offs in Q2 '06 of €13 million eco-tax refund which you can see in our press release of that moment. So until we have something like €44 million, if you deduct that €44 million of €117 million, they are coming down to approximately €60 million, €70 million, that's not in itself a pretty picture but it's at least in line with the trends that you know from us. So, we think that the business is doing or is trending broadly in line with what we have shown earlier.

Now then the pro forma disclosure for KPN Mobile, The Netherlands, and this of course is a story that we can be tremendously proud of. You are seeing here that we have put strong focus on post paid, the share of post paid, the subscribers of... as a percentage of the total is going up. So this revenue up in quarter of 6.3%. We are reckoning that the market is growing by something like 2% to 3%. Second, SRC is a significantly down and as a result of that we are up to 41.8% EBITDA margin which is no mean feat. I think few years ago we were at 36%. We acquired a company which was doing 25% and we are now all the way up again to 41.8%.

Now that's the highlight of the figures. Let me now pass back to Ad.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay, I will take through consumer business and wholesale and operations. Let me first look at the strategic transformation for the company as a whole then we see that of course in 2002. BASE implemented it's a Challenger strategy and has been extremely successful in doubling service revenues and EBITDA of over 40%. Mobile in Netherlands in 2004 we drew the line in the sand and reversed the downward trend in both market share and margins, and supported by the consolidation of Telfort, we are back to a very strong position in the Netherlands now in terms of market share and EBITDA margin.

Now fixed embark on its All-IP strategy. Since the announcement, we are on track, we see objectives that we set ourselves become market leader in consumer, VoIP, and business connectivity and in terms of cost reduction we are on track as well. Now, E-Plus was underperforming due to, amongst others, the lack the scale. We have started to do things differently in this multi-brands and focus on fixed-mobile substitution and Stan will comeback to you on that. But after just one year, we are outperforming the market with very profitable growth and EBITDA margin well above 35%.

Now, if we look at the consumer strategy, here our strategy is focused on maximizing customer value. And there's three pillars for, that's the service portfolio, the multi-brand strategy, and cross and up-sell. On the service portfolio we are proactively rolling out both broadband and TV, and TV has huge response [ph] to the triple play offer. We are also retaining customers in traditional voice and mobile we have also two attractive propositions and all in all, it has led to market share gains in all segments and for example about 50% growth in TV.

And our multi-brand strategy is different brands for different segments and all our brands contribute to growth. And multi brands are combined as a multi channel strategy with a range of distribution channels which are continuing to expand and cross and up sell on a large customer base. It's of course a very profitable exercise and we do this with multiple packages and fixed mobile propositions.

Now we look at wireless. We see an outstanding performance in the second quarter, all brands contributed to growth. We see considerable uptake of fixed mobile propositions with 15,000 net ads for our home-zoning proposition and the introduction of data bundles for our i-customers [ph].

The strategic shift in prior years consolidated value is paying dividends and the continued focus on post paid is different, now the postpaid share is 5 percentage points compared to last year to 41%. And ARPU is trending upwards with 4%... 4.3% gross year-on-year and we've outperformed the market with 6.9% service revenue growth.

On the cost side SAC went down 14% and that's a reflection of lower subsidies and dealer fees. So both service revenue growth and reduced SACs amounted to or let's say led to the strong margin growth.

If we now look at the VoIP, KPN continues to be market leader of VoIP with a market share of 1%. We recorded 83,000 net adds in the second quarter of which 43,000 came from Tiscali. After a record adoption in 2006 market growth is now decelerated, VoIP translation went up 2% in Q2 versus 5%, 6% in previous quarters. But that's partly due to ourselves by not pushing VoIP ourselves, we have really taken the growth out of the market in this particular quarter. We have had some issues around VoIP of course, they are now under control. We incurred €20 million cost in Q2 because of this. In Q3 those costs will be reduced and they will more or less disappear in Q4.

We are also planning to gradually upscale our VoIP order in fact to 8,000, 9,000 per week and that allows us to reach our fair share in the VoIP so we will not scale up again to 20,000 per week as we did in the fourth quarter.

Now if we look at line loss, that improved to 110,000 from 165,000 the quarter before despite lower VoIP net adds and if we include the VoIP customers from Tiscali in Q2, net line loss would have been less than 70,000.

After Q2, we expect net line loss to stabilize or improve by gradually scaling up the VoIP combined recent retention offers for traditional voice. Now broadband; our retail market share increase by 3.6% mainly due to Tiscali. So without Tiscali our market share would have been stable mainly as a result of the lower VoIP effect. Also the rise in broadband penetration slowed down. It was only 1% of growth from Q1.

Now the acquisition with Tiscali was closed in June and will add in 2007 about €35 million in revenues and about €7 million EBITDA including integration cost. Portfolio management, the broadband led to stable ARPU levels and this combined with... combined effect of higher bandwidth for the same monthly fee and higher revenue for value added services, for example, from the football league.

Now TV; over the past quarters growth in the number of TV subscribers is accelerating driven by DVB-T, the IPTV, and furthermore this is the result of continued marketing efforts and growing network coverage which now stands at 65%.

In Q2 the net adds were 41,000, 47% year-on-year. Our share under digital TV market is now 14% and 5% in the total TV market. We are putting emphasis on TV to further drive triple play offers and we are building on that current momentum. TV is a strategic pillar in our offering and as of August the 1st, we will implement a new TV strategy based on triple play, low cost DVB-T at €6.95 a month or a clear 50% discount on cable. The basic package for IPTV will start €9.95 with several add-ons, for example, extra TV channels and movies.

Let's now move to the business markets. Trends in the business market we see continued decline of course in PSTN and ISDN. In collectivity, traditional services like leased lines and so on are substituted by IP based data services. And in the new business area, managed ICT services, there's growing demand for end-to-end solutions and outsourcing services. And we tap into this by cross and upselling in our large customer base in productivity.

If we look at the business market strategy, firstly we proactively migrate our customers to IP based services. We have integrated customer approach and we are moving up the value chain. If we look at the integrated customer approach with integrated propositions across wireline and wireless, building on fixed mobile integration in The Netherlands since January '07 and this approach has resulted in significant contract wins today.

And we are moving up the value chain towards managed ICT services and building on our strong position in voice and data. And further we have a number of areas that we target, healthcare, safety, and education with end-to-end solutions. And of course, the announcement of the Getronics acquisition, and it perfectly fits into this strategy.

Business voice, if we look at wireline voice, traditional voice market share is just over 55% and that's in line with last year. Wireline voice is the only business line that decreases due to shrinking markets and traditional voice customers are migrating to new VoIP propositions. Large enterprises to VoIP connect and SME to consumer VoIP. The uptake of business VoIP is limited so far. In wireless we see the number of customers are rising 14%... 14% year-on-year with strong growth in machine to machine connections which now accounts for 14% of our subscriber base. And furthermore we are benefiting from fixed mobile propositions; service revenue growth was 5% year-on-year outperforming the market.

The share of data is rising due to the uptake in laptop data cards and a growing number of Blackberry users. If you look at business data, in the business data segment, a significant part of our customers have already migrated to new services and that's evidenced by the slightly continued decline in leased lines which is offset by strong growth in IP based services like IP-VPN, E-VPN and business DSL with growth rates of over 14%.

In the second quarter housing and hosting have continued their growth paths and the demand for that is very big particularly for data storage for large enterprises. Hosting services have grown by about 40% following a partnership with Siennax who are sharing infrastructure in cybercenters. With this partnership KPN has moved further up the value chain into managed ICT services. Now if you look at managed data services, I just showed you housing and hosting, our growth area for KPN for the SME and SoHo segments we have software online, which provides online ICT applications. Examples are online back-up storage and security services, and this positions KPN as a reliable partner for managing standardized ICT applications.

For large, and corporates... large enterprise and corporates, we offer tailor-made housing and hosting services as an addition to connectivity. This allows critical hardware to run the cyber-center reducing the need for our own infrastructure and providing maximum data security.

For large enterprises, we offer services like SAP hosting, application hosting and web hosting. Now we've had a number of contract wins in this quarter listed here giving the range of sectors and span our entire service portfolio. Let's now have a quick look at wholesale and operations.

In the second quarter, our internal revenues were of course down as a result of the line loss in consumer and business, and therefore less originating and terminating minutes. Good news is that external revenues are gradually recovering compared to the first quarter. Price pressure in international and transit traffic was lower than in Q1, and traffic volumes in international are rising again.

We have shown progress in All-IP. I have already told you about the agreement with the unbundlers, our full scale VDSL pilots are in progress and we have started selective fiber deployment; I will come back to that later.

Now, network rollout, integration made good progress. Telfort radio network is now fully integrated. DVB-T coverage is 65%, up 5% from Q1 and we started the rollout of DVB-H for mobile TV in this quarter and it will be commercially available early 2008 when sufficient handsets are available. Lastly, iBasis is finally making progress again, they filed their restated financial accounts in June and we hope to close the merger between iBasis and KPN Global Carrier Services in the third quarter of this year.

Now, update on restructuring, we all take that and you can read the numbers, FTE reductions are on track, which... since the end of 2004 we've reduced this about 4,500 FTEs and restructuring expenses are on the lower end of the range at €37 million in the first half, all IP projects cost were €12 million for the first half verses €5200 million guidance for the full year. We will start a full VDSL rollout in the second half of this year and we expect higher project cost in the first half.

In Q2... in Q1 and Q2, we sold the real estate for €82 million. It's a book gain of €56 million and that's mainly in the telecom towers to TDS. All in all, we are well on track to meet our objectives for the 2007, All-IP transformation program.

A little update on mobile fee regulation and as you know OPTA is supporting this direction. On the 13th of July we MoU with the three main providers and in the coming months we will further detail the MoU with the unbundlers.

In general we provides three alternatives for MDFF... MDF access and also broadband access, maintain MDF access in selected locations. We will maintain MDF access in 138 central network locations which were not earmarked for sale and at 35 other locations. This provides unbundlers with 50% coverage. And then sub-loop unbundling providing core locations. In street cabinets where the unbundler rolls out owned fiber to connect to the street cabinet. The agreement with the unbundlers allows us to proceed this All-IP as initially planned. Furthermore the agreement is in line with previously announced additional CapEx of €900 million and the sale real estate of €1 billion.

Then something on the fiber initiatives; in the Netherlands building corporations are increasingly investing in fiber-to-the-home projects to increase the perceived value of the real estate. In the Netherlands building corporations own 25% of Dutch homes and is fiber-to-the-home projects tie in to the increasing demand for higher bandwidth.

We are selectively participating in deals with building corporations as we do with municipalities. We use an open infrastructure model where we are one of many service providers leveraging scale to drive down cost. In areas where we do provide fiber-to-the-home early signs show that most households take this service and show very low churn rates.

We are selectively in deploying fiber-to-the-home. We already installed fiber-to-the-home in new-build houses since 2006 and we started a joint project in Enschede and this area continues to have our interest as and when we can do interesting deals with either building corporations or municipalities.

If we now look at the Telfort network integration, the radio network integration was completed. All the Telfort customers and now migrated to the KPN infrastructure. The radio network will be switched off and E-GSM spectrum was sold to T-Mobile. We will now continue the integration of the core networks which will be completed by 2008. Now, the radio network integration has led to cumulative accelerated depreciation of €257 million since March '06 when we started the integration. For the core network, we don't expect that kind of integration cost, now they will be limited. This first positive part of savings has been realized with radio network but the majority will come from the core network integration.

I will now hand over to Stan, who will take you through our mobile international business and then I will close up then with the... some concluding remarks.

Stan P. Miller - Managing Director, Mobile Division

Thank you Ad. Good morning ladies and gentlemen. Firstly in Mobile International we've continued to successfully deploy our Challenger strategy in all the markets where we are active. I would like to give you a summary of these highlights for the second quarter. At E-Plus we've continued to outperform the market with strong margins. Our new brands are driving growth at structurally lower costs. For the second half of this year we will continue to outperform service revenue growth with at least equal or more than the Q2 results which was at 2.5% service revenue growth and the EBITDA margin of at least 35%. I will come back to this later.

BASE showed very solid results despite extremely challenging market positions where we are seeing competitors actually making offers that are similar to ours and a regulator that is protecting the incumbent operator clearly. I will also come back to that during the regulatory briefing. In mobile wholesale in the Netherlands we saw very profitable growth from the strong partnerships that we have in Holland. We leverage our brands across all of our markets and we now see brands emerging in Germany, Belgium as well as in Holland and we intend to expand that across Europe.

And then moving on to the German market. I think the fundamental question is, is there growth left in the German market for Challenger. You see that service revenues are actually in a decline overall in terms of the mobile market. We believe that they saw significant growth opportunities in Germany. Germany still lags other European countries in terms of both pricing and mobile usage as well as fixed mobile substitution. Let me just give you an insight on that. Prices... although prices have come down in Germany, the German customer still pay 3.5 times a premium for mobile services over fixed while in the European Union the average is around 2.5.

As a result of the lower prices, mobile usage has increased last year as evidence of price elasticity in the German market. However the EU average usage is nearly 40% when the German average is only 20%.

There is therefore an opportunity to actually offer mobile-only services in Germany. The number of mobile-only users in Germany is currently 5%, while in the European Union average is 20%, so we significant growth in that area as well. These characteristics of the German market provide us with a confidence that E-Plus can still grow and that we have a major opportunity.

Moving on to the operating review of E-Plus. We are seeing a very good customergrowth of 14% year-on-year or 422,000 net adds for the second quarter this year, taking our subscriber base to 13.6 million customers. This is... was driven by... predominantly by the new brands that we have introduced, and also we have seen that the new brands that we have introduced together with the virtual network operators actually deliver a much higher ARPU than the classic E-Plus brand. So service revenues for the second quarter has increased 2.5% a year despite the fact that we have had mobile terminating rate cuts. We have swallowed the 3% VAT increase and also we had more revenues last year from the World Cup Soccer.

Moreover EBITDA grew nearly 10% as a result of top-line growth as well as structurally lower costs. The result of some early propositions as for... and the strong distribution channels that we have from our wholesale customers has made sure that we deliver on these kind of margins. Also the outsourcing of the network operations to Alcatel-Lucent has significantly lowered our cost structuring and we have as a result of that transferred 750 staff members to Alcatel-Lucent which is about 25% of the stock that we have in the Company. The EBITDA margin is up nearly 3 percentage points compared to the second quarter last year, excluding the positive one-off impact of holding back on advertising during the World Football Cup as I explained to you last time.

In Q2 we made further progress on several key fronts through our multi-brands strategy which enables us to address individual segments, we have further up-scaled our own new brands and wholesale partnerships bringing it to 5.9 million subscribers or 43% of the total subscriber base of E-Plus in less than two years.

And I would like to remind you as well that despite the skepticism on the handset subsidies in Germany, not one of those customers received a handset from us. In April we expanded the BASE portfolio as well introducing BASE 5 which targeted high-value customers for offering unlimited calls to all networks for €90 per month flat rate. Furthermore we've signed a wholesale partnership with Versatel who will up-sell the broadband and Voice-over-IP customers and link that to a mobile offer of ours under their brand.

Our focus remains on voice and SMS and this has led to a 25% increase in minutes of use per customer as the new brands have significantly higher usage than the traditional E-Plus brand. Moreover, a significantly higher proportion of minutes is on-net; 35%, underpinning the community effect that our Challenger strategy has brought into the market. We remained focused on a strong segmentation. Lastly, in terms of operational excellence we have further reduced our acquisition and retention cost to €76 per customer due to the SIM-only proposition and not having handset subsidies in the market. We also have a very high proportion of internet sales. We have also benefited from the outsourcing of our network as I have told you earlier and we have reduced the staff there by 25% overall.

In terms of the latest developments in Germany, it is true that the market faces price erosion, competition is fierce. We are also dealing with a regulator that seems to protect T-Mobile and Vodafone, maybe they prefer to have duopoly. However, we believe that we are in a strong position to actually continue to deliver on very solid results, growth and margin.

As a result of the lower market growth, operators in Germany are stepping up their distribution efforts. They are actually increasing dealer commissions and they are increasing handset subsidies at a moment in time when service revenues are actually falling. At E-Plus however, we do it in a different way. We have the lowest SACs and SRC in Germany through our SIM-only offers as well as our low cost channels which we do with partners.

Amongst our competitors, we see a tendency towards fixed-mobile convergence and however we believe that the mobile-only offer remains valid and there we enter into partnerships like we have done with Versatel to make a joint offer in the market.

On the regulatory side, the German regulator has continuously brought down the terminating rates and we would like to move towards symmetric. We are totally against that and the reason for that is that our competitors have faith for their networks two times over just from terminating rates. The difference in terms of terminating rates, therefore are used to actually compete with us in a unfair way with the support of the regulator.

And however, we will continue to argue for asymmetric termination rates and to bring our competitors to their real cost level. In short, after the strategy changed in mid 2005, E-Plus continues to do things differently as a Challenger and we are changing the mobile telecommunication market in Germany rapidly.

Looking forward, our objectives for the rest of the year for E-Plus. As I told you before, we believe that service revenue growth will be at least equal or higher than the 2.5% that we have seen for Q2 and we believe that we can meet that despite the MTA reductions of about 20% and price structure of about 15% in the market, including the 3% VAT increase which we did not pass onto our customers.

In terms of EBITDA, you have seen the average margin in the market is under pressure from high acquisition costs and limited cost savings, whereas at E-Plus we have bucked this strength. We've have actually dropped the effect and the SRCs and we will continue to do so through the partnerships as I have just explained to you. Based on item one; I mentioned we provide further visibility on the second half of this year. Service revenue growth would be at least equal or above, the 2.5% as I have said and EBITDA margin will be above the 35% thereby outperforming the market.

Moving onto BASE, what we see in the Belgium operations is that we continue to do well despite the challenging market where we have seen Proximus and Mobistar [ph] making similar offers to what we have in the market, which I have made as of more than 100,000 in the first... in the second quarter, mostly driven by our wholesale partnerships bringing total customer base product to about 2.6 million or up 23% compared to last year.

And we have had several years of double-digit growth in service revenues. Q2 was negatively affected by two consecutive reductions in terms of MTA tariffs that we have seen coming through in the last six months. It has had a total impact of around 35% on our revenues. Nevertheless, we have outperformed our competition with flat service revenues. This is also reflected in our revenue market share which is up nearly 2 percentage points to about 16%. Our longer term target remains at the 20% to 25% service revenue share of market.

Our EBITDA remained healthily above 40% which is not easy if your revenues fall in such a significant way. As I've said before the competition keeps following us. Looking at the market conditions at the base, it is very challenging. In the Belgium market the competition is quite severe at this moment in time, prices have fallen to our estimate 6% this quarter and it was likely driven by the MTA cuts.

We see further MTA and the revenue cuts to come in the next quarter or two and most probably you will see some effects in the third quarter and the fourth quarter of this year on BASE. However, we're stepping up on commercial activities. On the one hand we are strengthening our position and also through partnerships with strong distribution companies and we're focusing on very specific segments.

Also we intend to expand ourselves in distribution channels both organically and through acquisition. We will make announcements in this regard in the next weeks with a clear focus on increasing the distribution and the sales channels that we have in Belgium over and above just through partnerships.

In terms of the regulatory framework as I said before, everything is not equal across all the European community. System regulators are much more aggressive in some markets than on others. In markets such as Belgium and Germany, they are clearly predicting the incumbent, most probably because the state has a significant share in those companies and that dividend is paid out to, for instance, the Belgium government, which I am sure helps to balance the books in a very difficult budget environment for them.

So the regulators in Germany and Belgium have no interest to actually help a Challenger organization such as we. That despite the decision of the member states to create a level playing field and to allow competition within the European Union in the telecommunications area. The Belgium regulator even went as far as to increase... or made a proposal to increase the terminating rates of Proximus in Belgium. Also Belgacom was the only Company or incumbent that actually in the beginning of this year managed to increase their prices.

Despite this, there are as myself other avenues for us as well. We have approached the competition authorities at the European Union, the competition authorities of Belgium raided the offices of Proximus and Belgacom last year, and we expect the guys to come forward from that. Challengers as you know have actually brought down the prices of mobile telecommunication for the consumer in all the markets where we operate, and we will continue to do this.

We believe that there should be a level playing field in all the European markets, and there should be no discrimination against Challengers that actually compete with incumbents, which benefit the consumer ultimately. We will take action to ensure that the regulators in the different European markets actually do their job and look after the consumer, which will also of course benefit us.

In terms of the Netherlands, you can clearly see that in Q2 we have really performed very well, we've had net add of 65,000 customers, and the key driver was the ethnic segments. Our total customer base in the Netherlands from wholesale is now 1.7 million customers, or up more than 30% compared to last year. We have had strong growth in this market segment and it's also reflected in our service revenues which are up 15% year-on-year driven by ongoing growth in total minutes. The EBITDA margin is well above 40% with a strong wholesale focus and our partners are really into the niche areas and building alternative distribution and sales channels in the Netherlands.

We believe that we have got a very efficient and effective business model in terms of wholesale and we intend to leverage this across all our markets and new European markets such as Spain. In the Dutch, business continues to grow and it's really value for money and the ethnic segments that drive this. Pricing is slightly under pressure as all Dutch mobile operators have now entered the wholesale market and they are all trying to capture their fair share of this attractive and growing segment.

Nevertheless this is more than offset through volume growth driving this segment to about 17% of the Dutch mobile market according to industry sources. We believe that it can grow as high as 30%. Contrary to most incumbents we are strong believer in wholesale. We view it as a complimentary flow of revenue and a low cost distribution channel. This proactive approach has enabled us to capture the most attractive partners in the market making us the clear market leader in the wholesale segment; also in Germany and also in Belgium.

As you will remember we have brought the mobile wholesale operations of our three markets under one management team and we now intend to deploy it in other European markets as well. Based on the success of this business model in all our markets we will continue to explore the opportunities that are available to us being a clear leader in this area. Thank you, Ad.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay. Thank you to Stan. Just concluding, this has been a longer presentation but we always give you a broader presentation. As Stan mentioned on this, we were of course planning to do that tomorrow in London, but we now going to do... we now going it on the telephone, first the Getronics acquisition of course takes time as well. Thus all in all, as we look at the Company now, I think we are ahead of the pack in delivering value over the last five have. We are making very good progress on the strategic priorities, Mobile International is continuing its profitable growth.

Performance in the Netherlands is resilient, particularly mobile and business are doing well and we are set for the future in All-IP network with the agreement with the unbundlers and on the back of the first half we can say that we are well on track to meet guidance and shareholder returns are on track as well. And thank you for your attention and we now will be pleased to take your questions.

Question And Answer

Operator

Thank you sir. Ladies and gentleman, we will the start the question and answer session now. [Operator Instructions]. Today's first question is from Terry Sinclair with Citigroup. Go ahead please sir.

Terence Sinclair - Citigroup

Good morning and thank you for that. I want to ask two questions about the term business, can you hear me by the way?

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Yes we can hear you.

Terence Sinclair - Citigroup

Thank you. First of all I am sure you are aware if you haven't seen the details that Telefonica has downgraded guidance in Germany today. Now you seem to be warming up your own expectations for E-Plus. And I just wondered if you are of the view that there is likely to be a much stronger competition in the second half that we've seen recently. I am thinking also that T-Mobile has made some recent cuts to tariffs and Vodafone has not yet reacted to those; quite different issue. Given the information you have given us about the agreements you've made on IP and the further disclosure on slides 83, 84 round about there, can you just remind us what total CapEx you are expecting, what are the dates for completion of this project we should have? And also if there is a point at which costs accelerate a decline, for example, through personal reductions, when that would really start to bite? Thank you.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay. Well maybe we can start with Germany and Stan can give his up-to-date view on the second half.

Stan P. Miller - Managing Director, Mobile Division

Yes Terry of course the competition is heating up in Germany that's very clear. However we believe that we are well placed because of... as I have just explained the partnerships that we have already, to actually grow the Company and do so profitably because we have structurally changed the cost structure and we have a different strategy in Germany. So, I am very confident that we can outperform the market. Hope that answers your question?

Terence Sinclair - Citigroup

Yes I mean you are presuming that things will get worst rather than stable for the environment?

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Absolutely. But we can believe with this for two years now. So, we expect that it to come in any case. And I guess we have given our own outlook on how we think we will do in the second half and we think we will continue on the path that we are at, at the moment. Now the second question Eelco Blok, our Board Member for Business is here as well and I think it's probably best if he tries and formulate the answer on that one.

Eelco Blok - Board Member for Business

Good morning. We have scheduled to have the OIP program ready by 2010, so the investment program will be closed at the end of 2010. We have earlier announced an additional €900 million CapEx for VoIP program on top of our normal €700 million investment level of the fixed activities.

Terence Sinclair - Citigroup

€900 million over the period.

Eelco Blok - Board Member for Business

Over the period, yes.

Terence Sinclair - Citigroup

And I guess the other question was whether across at some point cost reduction will accelerate?

A.J. Scheepbouwer - Chairman and Chief Executive Officer

We have announced in 2005 our cost reduction target and as Eelco already mentioned we are on track and we expect to announce cost reduction figures to appear in the next years as we have announced in 2005.

Terence Sinclair - Citigroup

If I could disclose on that, upon that, I mean do you think, Eelco, that it is likely to be as... I mentioned it is not like to be a smooth transition and it's possible that what you have agreed with Tele2 and the others would have changed the timing. So should we assume a step function, for example, in 2009 or --

Eelco Blok - Board Member for Business

No, we don't expect a timing issue due to the agreements we have signed with the three unbundlers.

Terence Sinclair - Citigroup

Very good, thank you very much.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay, thank you Terry.

Operator

Next question is from Matthew Bloxham, Deutsche Bank. Go ahead please.

Matthew Bloxham - Deutsche Bank

Good morning, a couple of questions. Firstly on Getronics, it seems if the deal goes through, is there any kind of significant revenue elimination that will be generated where Getronics is selling through KPN services? That's the first one. On the TV, I was just wondering if you could give us like an idea of how aggressive you plan to be with the new pricing and campaigns. I guess I was just wondering whether there's an issue or potential issue about implementation in the way we've seen the Voice-over-IP particularly on the IPTV side of things. And then on the Alcatel-Lucent benefits that Stan mentioned through on E-Plus; just wondering whether the second quarter has a kind of full run rate effect of that deal within the profitability?

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay. Well maybe starting with the last one Stan, we've reached a full effect of the Alcatel-Lucent deal in the second quarter?

Stan P. Miller - Managing Director, Mobile Division

No.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay.

Stan P. Miller - Managing Director, Mobile Division

It will continue as it is. But... so the third quarter will be at a similar effect as the second.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay. That's... well on TV we will be very aggressive in trying to push TV and we don't expect the same implementation problems as with VoIP because it's a simpler... much simpler there... proposition. And so we don't expect big overflows in call centers and so on. And I understand from Marcel that no the revenue side between Getronics and us, there's not the big --

M.H.M. Smits - Member of the Board of Management and Chief Financial Officer

No. It's not a big elimination... haven't looked into it but talking tens, but certainly not hundreds. So €10 million, €20 million something like that.

Matthew Bloxham - Deutsche Bank

Okay. Great. Thank you.

Operator

Next question is from Damien Chew, ING. Go ahead please sir.

Damien Chew - ING Financial Markets

Good morning. Two questions or two sets of questions, please. Firstly on Getronics. The first thing there is have you completed due diligence on Getronics and what's your view on the Getronics downgrade to its full year guidance and release this morning? And the second question on fiber-to-the-home, Ad you were talking about residential fiber-to-the-home, but could you just comment on the... mentioned in the press release about fiber-to-the-home deployments in industrial parks. Do you think that's likely to continue, and what's your thinking behind that? Thanks.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay. Marcel is in charge of due diligence, so --

M.H.M. Smits - Member of the Board of Management and Chief Financial Officer

We have completed due diligence and in respect of the guidance that Getronics has given. And we are basing our sums on the last 12 months' results, that's why it's included in the press release. So we do all our evaluations from there and we take note of the outlook or the trading statements of Getronics, but we have no opinion on it.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay, the fiber to... the fiber to the industrial assets?

M.H.M. Smits - Member of the Board of Management and Chief Financial Officer

We started to roll out fiber in industrial parks two years ago, and we have planned to continue implementing fiber to the office in industrial parks in the Netherlands.

Damien Chew - ING Financial Markets

Have you seen any competitor activity in this area?

M.H.M. Smits - Member of the Board of Management and Chief Financial Officer

Yes, there is for sure competitive activity. I guess fiber is doing the same and also some of the municipalities are investing or co-investing in fiber-to-the-office parks and BBnet and Versatel are also investing in fiber-to-the-office initiatives in the Netherlands.

Damien Chew - ING Financial Markets

Thank you.

Operator

Next question is from Steve Malcolm, Arete Research. Go ahead please.

Steve Malcolm - Arete Research

Yes, hi, there. Three questions please. First, could you just update us on the proceeds and profits phasing from the property disposals, 55 was a bit more than I thought for this year, just where you think the billings are going to come into the next three years now the process will launch there? Secondly just on MTA convergence, can you just sort of I guess argue the consistency of having symmetry in Netherlands and arguing so vociferously against symmetry in other markets? And finally a question on Alcatel-Lucent, and forgive me for being a bit stupid, but what's in this deal for Alcatel-Lucent because you seem to get all the benefits, and I can't see much for Alcatel-Lucent? Thanks a lot.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Well, we'll employ the campy answer. We're mainly interested in what it does for us. I mean I think it's really a question you should ask Alcatel-Lucent. And on the MTA, symmetry and asymmetry, we are very able to have a different hat in the Netherlands as we have in other countries, because the attitude and the policy of the regulator in the Netherlands is totally different in all aspects from many of the other countries. And so we can argue our case very well there, and you know we have a bit... totally different position in Belgium and Germany where we are the number three operator. And on the proceeds from property --

M.H.M. Smits - Member of the Board of Management and Chief Financial Officer

Yes on the proceeds from property, we are exactly in line with what we have said so far, page 44 of today's presentation gives you the sale that we have so far done and what we had guided for the full year, and we are on track to do that guidance. You will remember that when we presented the 2006 figures, we had a similar sheet, which showed the real estate gains or the real estate proceeds of €1 billion. And then there was a column saying, and for the first year 2007 there is €100 million to €200 million. So, in short, in total we are expecting to do a €1 billion, we are expecting to do €100 million to €200 million in the year 2007. This is proceeds, and for the first half we have done €82 million.

Steve Malcolm - Arete Research

But I mean it sounds like it's the higher end of that range. Is that fair for this year?

A.J. Scheepbouwer - Chairman and Chief Executive Officer

No... no because we've done a significant single transaction, so I'd be happy, we'd all be happy if we do 150 or 125 or 117 and that's... so it's a bit open. So I don't think you should draw a conclusion that we are conservative or anything. We're just in the guidance.

Steve Malcolm - Arete Research

Okay. And then as far as the MTA stuff because you don't think you're smaller compared to the Netherlands might sort of see it --?

M.H.M. Smits - Member of the Board of Management and Chief Financial Officer

No because in the Netherlands because there is a significant asymmetry.

Steve Malcolm - Arete Research

Okay.

M.H.M. Smits - Member of the Board of Management and Chief Financial Officer

And I think we are taking a much more balance for you in the Netherlands.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

But I think I also don't feel we have been made a... in fact there was a voluntary proposal from all the operators on the new rates until 2009, I think.

M.H.M. Smits - Member of the Board of Management and Chief Financial Officer

And that was asymmetrical.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Asymmetrical and the new regulation that has come out is asymmetrical. Bear in mind that the Dutch market of course has... is a much more mature market, rates... calling rates are much lower than in Germany, so there is much less reason to deal with market in perfection. The German market is clearly imperfect and therefore needs work. I don't think that in respect of other regulatory issues... our position in the Netherlands is much more sensible. When we acquired 900 megahertz spectrum from Telfort, we sold some of that to T-Mobile. So there's nothing... we're perfectly happy with the level playing field in the Netherlands. We just like to have the level playing field that we have in Netherlands, in Germany and Belgium as well.

Steve Malcolm - Arete Research

Can I ask one final question, one quick follow-up on Getronics. Can I ask what the position of Getronics management is post the deal? Do you expect to keep those guys on to run the business, so will they sort of go as it's fully integrated into KPN? Thanks.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Now, we've mentioned... it is mentioned in the joint press release that we will appoint new management upon closing and that would have current management makes a statements in there that they... we'll make place for a new management team to run the new deal.

Steve Malcolm - Arete Research

Okay. Thanks a lot.

Operator

And next question is from Oscar Tijs, Kempen & Co. Go ahead please sir.

Oscar Tijs - Kempen & Co.

Yes good morning. Could you please elaborate on the impact of the MTA tariff cuts in the Netherlands on sales and EBITDA in the second half of 2007 and 2008?

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay, is that the only question?

Oscar Tijs - Kempen & Co.

Yes.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay. We will reply to you in a few minutes as we get this information together, maybe we can have another question in between.

Operator

We have another question from Mr. Elora Chelar at Gren Partners [ph]. Go ahead please.

Unidentified Analyst

Yes, hi. I would like to have a kind of a long-termish view on your deal with Alcatel-Lucent, what makes you believe that your current cost level will be maintained if we take assumptions such as inflation and the costs of labor that they are using? My other question was regarding Getronics. I would like to know what is the... your plan to transfer 3,500 employees there. What are your intentions toward this enterprise service entity going forward?

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay, thank you very much. Maybe Stan can get a long-term view on Alcatel or Lucent.

Stan P. Miller - Managing Director, Mobile Division

When you do, do you like this, clearly you don't do it for the short-term. So, we have a seven-year agreement in place with Alcatel-Lucent. And they have the scale and the ability to manage it significantly cheaper than what an operator can do by themselves. The scale we have to ask them how they do it but it's certainly written into the contracts. So structurally, these costs remain with us until the end of this contract.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay on the Getronics and the intentions, too, what was your question exactly? Sir?

Unidentified Analyst

Sorry. Yes you plan to transfer 3,500 workforce their, I would like to know what are your plans regarding this enterprise services entity going forward in terms of footprint ambition, in terms of services?

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay, [multiple speakers].

Stan P. Miller - Managing Director, Mobile Division

We will integrate our current corporate solutions and ICT services activities into Getronics and as Ad already mentioned we are sustaining the strategy that has been announced by Getronics and we really believe that integrating the KPN activities into Getronics will help us to achieve the objectives and they will help us to get the synergies out of the combined entity.

Unidentified Analyst

Do you have a kind of cost... total cost transfer to this entity, do you have any specific information regarding the sales component and the cost component?

A.J. Scheepbouwer - Chairman and Chief Executive Officer

In the press release we have announced that we expect €50 million on a yearly basis on synergies out of this transaction.

Unidentified Analyst

Okay.

Stan P. Miller - Managing Director, Mobile Division

In respect of the MTA cut, that was just asked, the cut in terms of cents per minute, I think, we have in the information pack or in an earlier information pack we're looking that but we'll send you an email. You can sort of roughly work out yourself what it is, but we'll send you an e-mail just because it's not selective disclosure. So if there's any other volunteers then let Eric Hageman know and then we will make sure that you got your calculation right.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay. Next question please.

Operator

Next question from John Davies, Dresdner. Go ahead please.

John Davies - Dresdner Kleinwort Wasserstein

Good morning. I have got two questions please. One, could you give a little more detail on your thinking behind the timing of the Getronics deal, why now rather than waiting for them to do a bit more of the tiding up of the business themselves. And second one is very simple. On the DVB-H network in the Netherlands, is that going to be wholesale or is it going to be exclusive to your own retail operations? Thank you.

M.H.M. Smits - Member of the Board of Management and Chief Financial Officer

[Multiple Speakers]. The last... the answer to the last question, yes, it's going to be wholesaled and it's going to be wholesaled on exactly equal basis to all mobile operators in the market. So we are not taking any advantage of the fact that we own the DVB-H network or just opening it up... wide open because we are going for a penetration strategy. So, Vodafone, T-Mobile and Orange have all been invited to share the benefits of that network with us.

John Davies - Dresdner Kleinwort Wasserstein

Okay, thanks.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

And as for the detail of the timing, that's always a... these things happen but I mean major factor has been that Getronics has become a much more transparent company in the last 12 months. They have divested many assets. And in the process of divesting more assets they have a clear strategy to work... for workspace management and a global delivery at that and at some point you think it's the right time to try and come to a deal.

John Davies - Dresdner Kleinwort Wasserstein

Okay, thank you.

Operator

The next question is from Christopher Nicholson, Oraca. Go ahead please.

Christopher Nicholson - Oraca

Hello yes, two questions. The first question is how would you react to the comment or observation that the E-Plus brand has essentially been unwound, or it's being unwound in Germany. And does it matter? And the second question is the scaling back of the VoIP offer in the Netherlands. Obviously, we understand clearly why you had to scale that back. But scaling it back up, you seem reluctant to move up to sort of open door policy whereas many people as possible can sign up as quickly as possible. Is that related to your earlier statements about managing the decline in margins of new product in comparison to the decline of the fixed line services results [ph]?

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay. Well, maybe we can start with the last question?

Eelco Blok - Board Member for Business

On the VoIP scaling down and now again scaling up, we have decided to scale down the VoIP offering because we first would like to have everything under control. Now we have under control, we are scaling up again. Up till now we were able to keep a power of market share in VoIP market and we are scaling up, we think we can again increase our market share. And in the meantime we have developed some attractive offers on our traditional PSDN and ISDN, and those offerings are doing really well in the marketplace and the combination is not only good for our top line and bottom line but also for our market share, so that's the strategy going forward.

Christopher Nicholson - Oraca

So, can I just come back on that for clarity? Should I therefore understand from that, that you are managing to achieve similar margins in your VoIP offerings that you were able to manage with the traditional fixed line?

A.J. Scheepbouwer - Chairman and Chief Executive Officer

No, it will be impossible to have the same margins in the VoIP business than in the traditional PSDN and ISDN business. So it's a balancing act on market share top-line and bottom-line gross decline.

M.H.M. Smits - Member of the Board of Management and Chief Financial Officer

If I may add something, there is a machinery underneath this which is a marketing intelligence machinery. There's some customers where it's from a customer value point of view more profitable to give them a retention offer. You can imagine that already people who are less technologically inclined, it's much more profitable to give them a retention offer. And some customers from an anti-churn perspective, it's much better to give them a VoIP offer. So if there is an optimization machinery underneath, we recognize that on the VoIP, we have lower profitability, we have lower margins. But we are managing the overall value on the basis of a refined customer intelligence machine.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay, let's move to Stan for the E-Plus brand.

Stan P. Miller - Managing Director, Mobile Division

In all our markets we have a multi-brand segmented approach. E-Plus is one of those brands, and I would like to also remind you that it's still 57% of our customers in Germany. As a result of that we intend to maintain the E-Plus brand and continue with it. And there are different perceptions regarding the different brands, and we want to capitalize on that, so we stick with E-Plus as a brand in Germany.

Christopher Nicholson - Oraca

Thank you.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay, next question.

Operator

Next question from Shap Degerlin [ph], Natexis. Go ahead please.

Unidentified Analyst

I have two questions regarding Getronics. First the amount of synergies you are announcing, your €50 million starting 2009. Is this past-tax or a pre-tax? And then a clarification, should we expect the deal to be closed by Q4 2007? Thank you.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Now we do expect the deal to be closed by Q4 and I guess the €50 million is pre-tax.

M.H.M. Smits - Member of the Board of Management and Chief Financial Officer

The €50 million is pre-tax. Yes.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay, next question please.

Unidentified Analyst

Thank you.

Operator

Today's last question from Mr. Dun Lott [ph], Cazenove. Go ahead please.

Unidentified Analyst

Good morning gentlemen. Just wanted to clarify just a couple of issues on the Getronics offer. Could you just describe how the price... was it great, was it just a process of negotiations or was there an exhaustive auction? And also you mentioned that you would have instant market leadership and I think in workspace management as a result. I was just wondering if there maybe potential anti-trust issues and possible delays to the merger as a result?

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Well, as far as I am aware, there is no... we don't expect anti-trust issues, no. And how price was agreed that's the big secret of myself. [Multiple Speakers].

Unidentified Analyst

Fair enough. And just when I was looking at Getronics shareholder base, there are some larger shareholders at the top and I was just wondering whether you are able to obtain their views before announcing the offer today?

M.H.M. Smits - Member of the Board of Management and Chief Financial Officer

No, the answer is no. We believe that we have presented a fair offer to the shareholders of Getronics and we believe that the proposal as is on the table is in the best interest of all stakeholders and that's not in the least the current shareholders of Getronics.

Unidentified Analyst

Okay. So this is the first time they've heard of the offer as well?

M.H.M. Smits - Member of the Board of Management and Chief Financial Officer

Yes.

Unidentified Analyst

Okay. All right. Thank you very much for your trouble.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay. I guess that was the last question.

Operator

Yes it was. No further question right now.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay. Well thank you all very much for attending and we will see you again. Bye, bye.

Operator

: Ladies and gentlemen, this concludes the KPN conference call. Thank you for participating. You may now disconnect.

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