Royal KPN NV Q3 FY07 Earnings Call Transcript

| About: Royal KPN (KKPNY)

Royal KPN NV (KPN) Q3 FY07 Earnings Call October 30, 2007 5:30 AM ET

Executives

A.J. Scheepbouwer - Chairman and CEO

M.H.M. Smits - CFO

Analysts

Graeme Pearson - Lehman Brothers

Steve Malcolm - Arete Research

Damien Chew - ING Financial Markets

Luis Prota - Morgan Stanley

Jerry Dellis - JP Morgan

Matthew Bloxham - Deutsche Bank

Russell Waller - New Street Research

Terry Sinclair - Citigroup

Operator

Good morning everyone. Seated beside me are Ad Scheepbouwer, our CEO and Marcel Smits CFO, who will take you through the Third Quarter Results Presentation which we published this morning. The presentation as usual will be followed by Q&A. Let me point out briefly that the Safe Harbor applies to this presentation and any forward-looking statements made in this presentation, to an update from those already made in the press release. I'd now like to hand over to Ad Scheepbouwer.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Good morning. I'll take you through some highlights and then Marcel will take over and I will be back with operational review. We start with the highlights and we've... can conclude a real solid quarter driven by all of our businesses Mobile International as well as The Netherlands.

In Mobile International, we continued to deliver profitable growth in the third quarter and I think we've laid the foundations for further growth and growth at EBIT margin... EBITDA margin of well over 35% and particularly interesting to me E-Plus postpaid net adds accelerating. At BASE, we introduced new propositions and strengthened our distribution with acquisitions of Allo Telecom and Tele2 Belgium.

In The Netherlands, we see the share of new services continue to increase, due to our proactive migration to new services. Encouraging is the net line loss reduction. TV has had record results in the third quarter. Business segment continues to grow at an EBITDA increase of 14%, driven by new services and if we look at the former Fixed, than we see that the revenue and EBITDA decline is decelerating.

Our rollout IP service is well on-track. Preparations for mass rollout are at an advanced stage and we've committed instillation capacity for next year. We're currently considering the sale of real estate top portfolio in the first half of 2008 and we are looking at an estimated vale of the about €300 million. We signed the Memorandum of Understanding with the unbundlers in July for migration to the all-IP infrastructure, and in October we concluded the iBasis merger and the Getronics acquisition.

Now some of the financial highlights, for the quarter the revenues were flat and EBITDA was slightly up for the nine months. Revenue and other income is a little bit down but nearly flat. EBITDA, cumulatively is flat for the year. CapEx is a €1 billion, free cash flow €1.8 billion and we are following the additional half a billion share buyback program. Shareholders returns were increased to €2.5 billion compared to the initial guidance of €2 billion.

Now just two slides on strategic focus: The first The Netherlands and then Mobile International. We have defined strategies and priorities for all of the segments in which we operate. If you look at consumer, there our strategy is to leverage our market shares and we try and bring focus by simplifying our business model. Each quarter we experienced sustained growth of our market shares in Mobile for its program NPV and we started a portfolio rationalization, which are focused on our three brands KPN, Hi and Telfort.

In business, we are moving up the value chain. We are moving the value chain which is an additional... from a traditional call code [ph] to managed ICT services, while expanding our position of voice and data. Through proactive migration from the traditional services to new IP-based services, we are the market leader in IP connectivity, and we closed of course the Getronics deal last week in simply becoming a market leader in managed workspaces in the Benelux.

Another key point is our step-up in Fiber-to-the-Office initiatives, driven by demand for higher bandwidth. In Wholesale & Operations, we deployed our next-generation network and IP combined with a clear eye on operational excellence. Preparations for all IP are at an advanced stage and FTE reductions, hence cost savings are on-track. Next to that, the iBasis merger proactive is IP platform for growth in international wholesale.

Now look at... we will focus on Mobile International. We've made significant progress. If we look at E-Plus then the focus on profitable growth through fixed mobile substitution and operational excellence has paid off. We've seen a strong uptick in new brands to 6.7 million subscribers in roughly two years. There is a high profitability from increased usage and low handset subsidies. We have outsourced non-core activities such as the network operations and maintenance, and of course this has all benefited our margins. All this has led to our market out performance, since we announced our strategy in August 2005.

In Belgium BASE, we have a similar challenging strategy with a key focus on strengthening distribution. Key events in Belgium were the acquisition of a retail chain called Allo Telecom, which expands our distribution footprint in Wallonia, and the acquisition of Tele2Belgium enhancing our sales capabilities. Combined with the step-up in our commercial efforts, we are confident that we can reignite growth going forward.

Mobile wholesale; I know this very well. They are leveraging our successful wholesale partnerships through expanding our business model into other Western European markets. We've experienced continued profitable growth in the Netherlands, while the MVNO in Spain is ready for launch in the near future.

I will have now hand over to Marcel who will take you through the financial results in more detail.

M.H.M. Smits - Chief Financial Officer

Ladies and gentlemen, good morning. Let's start with the profits and loss account. The third quarter is very much in line with the earlier quarters. Now let's turn focus first on the cumulative results for the first nine months of the year. What we are showing here is a marginal decline of revenue in other income. The task of course that we set ourselves was to absorb the decline of fixed line telephony by growth elsewhere. Now fixed line telephony has declined by €340 million in the first nine months, of which we have been able to make good, something like €300 million of new services and growing market share compared [ph] to mobile, of course, but also in the business market and other areas such as TV.

EBITDA for the first nine months cumulatively is exactly equal to last year's EBITDA. Here of course, the same old story, we have to absorb the decline in EBITDA from fixed telephony by new services and cost reductions, and for the first nine months we have exactly been able to do that. The approximately equal revenue and EBITDA is inline with what we have said at the beginning of the year and the third quarter shows a similar picture.

The revenue in the first quarter is fractionally declining. In the EBITDA we are showing a small plus but in this quarter because we have a small plus from real estate gains €30 million, last year we had €9 million, so you could correct for that. Overall the picture is very much the same in the third quarter as it was in the first three quarters.

A couple of other remarks to be made about the third quarter, in particular; as you can see here depreciation declined in the third quarter versus the same quarter of last year. That has everything to do with the accelerated depreciation with Telfort network. We closed the Telfort network down at the end of half year in 2007, and therefore the accelerated depreciation is now gone.

Taxes for the Q3 in '07 is something like €80 million, higher than last year and that has everything to do with the fact that we're currently talking to the fiscal authorities in The Netherlands on settlements of a the over years 2001 to 2005. 2001 and 2002 still have license write-off's, and write-off's in the company loans, all sorts of complicated discussions with the fiscal authorities. We've come to the view that it's probably wise to adjust our balance sheet position for fiscal provisions to the tune of €80 million and that we have taken in the third quarter result. It's a one-off, you'll not see that in the fourth quarter or in subsequent years. And the good news is that we get more clarity on what our fiscal position really is by having these discussions with the fiscal authorities.

Now the last point then to be made is you can see here that we're reporting a net profit increase of 3.8% which then translates into an 11.8% increase of an extra share and that's because is everything to do with the fact that we've been buying back shares.

Now then let's go to the group cash flow; starting again with the cumulative for the year. We've so far done €1.8 billions, so well on my way to do more than €2 billion as permits. We've got approximately at this point after nine months €350 million less cash flow than last year that's predominantly explained by tax last year, we see tax or we have tax credit of €213 million coming at us in this year. We've paid so far €80 million. There's other items of course which have moved. You can see here that we've spent less CapEx and we've had a larger outflow on other that is predominantly working capital movements.

We've had somewhat more restructuring expenses in '07 and you can see that coming through in our detailed cash flow statements. And other than that, our working capital has moved against us somewhat. We are having adherence to agree payment terms on average. We are gearing up for a structural improvement program in particular, for creditors next year and we don't want to shoot ourselves in the foot with not adhering to payment terms as at this point.

Now then let's look at the guidance. For the purpose of comparing 2007 figures with 2006, in relation to guidance, of this we correct for acquisitions such as Tiscali, Getronics, and iBasis. The 0.5% reported decline on revenue in other income then translates to minus 0.7% year-to-date. And on EBITDA the 0.0% exactly flat EBITDA translates to a minus 0.1% if you exclude Tiscali.

CapEx we have guided for 1.6 to 1.8 so far. We've spent €1 billion. So it's clear that we will end up at the low end of that range or slightly below it. That's broadly where we are going to be. In the fourth quarter of course, we normally we have do have higher capital expenditure and also we are gearing up for implementation of the all-IP access network and that's coming through our CapEx at the moment. Now in all, with the cash flow of €1.8 billion, we are comfortable that we will come in over the €2 billion that we promised to you earlier.

The group financial profile then; net debt in the quarter has increased from €9.3 billion to €10 billion. There's a couple of items to be mentioned here, €300 million of interim dividend, €700 million of share repurchases and we brought in August, 30% of the outstanding shares of Getronics for approximately €200 million. So those were approximately €1.2 billion of expenditure or money spent. We have the cash flow of the business coming in of course. But in total that leads to a net debt increase of €700 million.

Net debt-to-EBITDA ratio increased to 2.1%... 2.1 sorry not 2.1%, its 2.1 that leads to comfortably within the range of 2 to 2.5, that we have defined as the range where we would want to be. Now we thought it would be useful to give you a brief update on the tax position in Germany, because there's lot of news as a result of the tax reform and we've seen people writing about this as well. It looks as if the effective tax is going to come down from 42% to 29%, with both the income... corporate income tax and the trade income tax having been lowered. The German government is apparently is of the intention to finance that by making net operating losses no longer transferable. Now in our case €6 billion of net operating losses or losses that we have... we have to be precise, losses that we've taken as in deals in the past are not effected. You remember when we gave you further details of the deal that we did with the tax authorities in Germany, we told you that certain impairments were not accepted for fiscal purposes. They were left in our books as goodwill, depreciable goodwill and therefore those impairments that we have taken commercially have not been taken fiscally and therefore we can still transfer them, because fiscally they are asset in our books.

Now €80.8 billion... over and above that, we have €18.8 billion of net operating losses for corporate income tax purposes. Now that means that we are not going to be paying any tax, at least, no significant tax in the medium term. There is of course this rule of 60% - 40 %, wherein the 40%... oh sorry, 60% of your gains are shielded against your net operating losses. Overall that's a brief update, to the €6 billion we can take along. The €18.8 billion, we will have to see how that plans out, once we have more details of the new legislation.

Now then briefly NPA, I think a significant data point has been that the glide path that the BIPT proposed, I think something like two months back, has now been postponed. We are back to the decision that they took earlier and that is here in this, the sheet. It is important news for us, because BIPT was moving through symmetry very, very quickly, which we felt was wholly unfair in view of the circumstances in the Belgium market. In Germany, there is a MTA proposal being prepared, by the regulator there. It's too early to tell what exactly the outcome will be. But it's obviously, we expect or we expect that we will have another MTA cost coming through in December.

Now let's go to the financials in The Netherlands. In The Netherlands, our revenue is gradually trending down, with the voice... fixed voice revenue declines, not being fully matched by increases in mobile and other businesses. As you can see here, year-to-date we are trending down by 1%. If you correct that for other income it's actually 2%. The third quarter looks a little bit better, that is function of a couple of things. On the plus, we have Tiscali coming in with an €18 million contribution. On the plus we have improving trends in things like TV, but also many of the product groups in the business market. On the minus as we have a slightly lower growth in our wireless business, lower than in the first half year, partially explained by MTA and a small contribution form roaming.

EBITDA then, the Q3 reported EBITDA figures looks to be better first versus in the comparison with last year's. Then the cumulative figures, if you actually strip out the real estate gains from last year and this year, you will see that the trend is pretty much unchanged. It's worth mentioning that in Q3 this year, we have had something like €10 million of additional VoIP costs. We think that the worst is now behind us as you will have seen. So the InternetPlusBellen issues have been dealt with. Overall we've spent €55 million in '07. Now we think that's pretty much it. Now in terms of cost reductions, we have so far done more than 1300 FTE reductions. We have previously said that we would do anywhere between 1200 and 1500 in this year, so that we are also on track.

We than look at the financials by segments; you can see that in the consumer market or in the consumer business, our revenue is trending down, EBITDA is also trending lightly down in the third quarter of this year. You will see an uptick that is predominantly attributed to Tiscali which is coming with €18 million of revenue in the third quarter. In the business, our revenue line trending up; we have reported a 2.7% year-on-year increase in the third quarter, and it is nice to see that the EBITDA is also trending up. We have had a solid increase versus last years 14%, Ad has already mentioned that. And also in operations of course, our internal revenue or our total revenue that is the top line of these two lines in the bottom left of this sheet is declining, because also an operation takes about half of the declines of the voice revenue's of business and consumers. So that's something like €55 million. The external revenue that's the small line at the bottom end is stable over the last few months, gradually our external hopes revenue is trending up a bit. In terms of interpreting the EBITDA because you again have to correct for the €30 million of real estate gains that we have this year versus €9 million last year.

Then let's have a look at the high lights of Mobile International. In the third quarter, our growth was lower than what we've seen in the first half year. This is probably attributable to BASE, where we're now in negative territory. We've reported a revenue decline for BASE you'll see that in a minute and we find ourselves in good company. At least Mobistar has come out with figures which are very similar to ours, despite the fact that their MTA counts are smaller. So comparatively we still doing okay, but will give you further details on how we're going to regain the initiative and growth to newer and higher platforms.

In Germany, the good news is that all we've got good news in Germany. The third quarter revenue did indeed accelerate a little bit. We had 2.5% revenue increase in the second quarter and we promise that we do better in the second half year. Now the first result that is coming through in the third quarter and as you've seen in the press release, we think that in the fourth quarter we will continue on our upward trend. In terms of EBITDA, despite the fact that we have a decline in BASE, we've got another good quarter with a nice increase, and Germany in particular, is contributing to that that quite handsomely.

If we look at the individual segment then, here you see the three businesses; first of all, E-plus. Service revenue up I already said it 2.9% year-on-year and a good outlook for the remainder of the year. 37.6% EBITDA margin which is comfortably ahead of the 35% that we told you that we would achieve. For BASE, as you can see here, service revenue is down by 7.5% and that is very much the result of a steep cut in mobile termination and also the impact from roaming. The margin of these, or the impact of these regulatory cuts from EBITDA is of course clearly visible and we are doing 36.4% in the quarter, which is quite okay for a number three operator. But we have been higher of course no doubt in the future, we will set our aims higher again.

Our mobile wholesale operation in Netherlands continues to deliver double-digit service revenue growth and EBITDA is roughly flat compared to last year. Now then, the old disclosure as you know doubt, are aware. We don't look at our business internally in this way anymore, we look at our business with two... dividing our business in two service segments and then wholesale operations a bit. But we still do on a pro forma basis, provide both fixed and mobile. Now I am pleased to say that the trends in fixed are improving, you can see that both in the revenue line in 2006 of course termination comps had an impact on the revenue line but the growth of in particular, the business market is helping to improve the trends on revenue. In terms of EBITDA, I think people were taken a back a bit in the first and the second quarter, by faced steep declines before they were back to €60 million in the first quarter, which is so in line with the levels that we experienced in '06, and we have given some guidance as to what we expect in the fourth quarter. And that is looking good.

Now the main item here of course is the fact that we have incurred significant cost in relation to the operational problems on VoIP, in total €55 million for the whole of the year and that was predominantly in the first two quarters. Over and above that, in particular the business market is improving and helping to stem the loss of EBITDA, quarter-on-quarter. Now the same then of course is... or the counterpart of this is the pro forma disclosure from KPN Mobile in The Netherlands. Here you can see that service revenue is up 1.6% in the upper right of this sheet. That's less than we had in the first half year. We've had some MTA cuts and some roaming to absorb. EBITDA is up about 10% driven by reductions in particular in customer acquisition costs and that's a healthy 10% increase. There's a bit of seasonality in the third quarter in '06, was also the lowest quarter of the quarter. So bear that in mind, when you compare our third quarter to the second quarter.

Now let me now hand over to Ad who will continue the operation reviews.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay, thank you Marcel. I will go into some detail first on consumer in The Netherlands. If we look at mobile consumer in The Netherlands, then we see that the year revenue was up... or the number of customers are up 2.2% to 6.1 million, driven by our suite key brands and you will see that the distribution between postpaid and prepaid has improved 3 percentage points to 41% for postpaid now.

Service revenues are up more than 2% despite MTA reduction which came into effect on August 15 and roaming cuts in September. The drivers of the growth are minutes growth in part make fixed mobile substitution and further uptick of data. Non-voice is now about 20% of ARPU, due to more active data users and doubling in average usage, following flat fees for wireless internet, such as surf and email unlimited by telephony.

Sustained profitability growth of wireless services is enabled by a continuously lowering subscriber acquisition and retention cost down 16% this quarter year-on-year; all in all, a solid performance of consumer wireless. We now look at that. The fixed side of consumer than we see that the VoIP market has slowed down to approximately 10,000 per week, after a very rapid uptick as of the end of 2005, which is now 38% of all broadband users conferred to VoIP.

KPN had 53,000 net adds. And we've further consolidated our leading market share of nearly 40%, and of September we resumed national advertising we are upscaling it for order intake with an ambition to do about 8000, 9000 gross adds per week.

In the third quarter, we had 91,000 new broadband connections. Out retail market share up to 44.3%, a 4% point but 0.3% below the previous quarter, as competition increased in KPN's reduced commercial activities in petrochemicals [ph]. To maintain momentum we have now decided to expand the reach of Telfort brand towards bundled broadband offers and the recently acquired ISP Tiscali and Speedlinq will be rebranded to Telfort in order to capture the no frills growth and opportunity in the Dutch markets.

Now the line loss, we have seen a continuing decline. We had a net line loss of 100,000 in this quarter, it's a lowest since the third quarter of 2005. And so we see continued downward trend. Moreover we expect that line loss going in Q4 to be sort of on par with Q2 and Q3 due to increased section of our retention offers and gradual upscaling of KPN VoIP.

TV; TV had a record quarter with 77,000 net adds. We've done that on the back of a new proposition. We have substantially lowered prices compared to cable and we introduced a rental model for set-top boxes. We now charge 695 per month for digital and 995 for interactive TV. Furthermore demand for value-added services is increasing about 10% of our subscribers, now live Dutch football for 6 euros a month. We are expanding our scope of mobile TV, we have a live test now on UMPS and we are also launching a consumer pilot for DVB-H.

Let's now I have to look at these business markets. There we see that there is a continuing migration from traditional services to IP services, and there is a solid performance of wireless services. Not only are we increasing the up selling IP connectivity to managed services and housing but we are now also phasing our traditional services such as SDH. We have started selling more Fiber-to-the-Office. Already 42,000 companies are connected to Fiber-to-the-Office and we plan to connect another 19,000 this year. So nearly 10% of Dutch companies will be connected by the end of '07. Now in wireless, of course, we have some entrants from MTA and roaming, but we've still been able to increase service revenues by 1.8% driven mainly by an increase in subscribers, which are up 14% year-on-year. And a continued growth in data cards like there is a Machine to Machine. That is now roughly 15% of our base.

Now here see some major contracts that we want. You see that we increasingly sell managed data services and shows that we are on the right way is moving up to value chain towards end-to-end ICT services. Now our ICT strategy is to move up the value chain and become a one stop for telecom in ICT. We have introduced a number of online applications for the SME and SOHO market segments and we want to position ourselves as a reliable partner for telecom ICT services. We have been able to up sell our large business customer base in voice and data which provides us with competitive advantages to the other ICT companies. We further extended nine work space management sources, for example online back-up services documents and we have seen strong customer growth following at the national advertising in May and September.

Now let's have a quick look at the Getronics. We only acquired Getronics of course on the 22nd of October. Just to refresh your memory, it is a major step in our ICT strategy. The Getronics is a large global ICT service provider which has a top five position in work space management worldwide, which is strong customer-base. If you look at the revenues of Getronics, about 50% is from workspace management.

If we maybe recall a picture form the past, the traditional distinction between Telcos and IT providers is ceding. Customers more and more require all telecom and ICT services from a single end-to-end vendor. So that's why the Getronics acquisition has a strong strategic rationale. For us it's a major step at moving up the value chain, in line with our strategy and we will be market leader in work space management in the Benelux. Now the combination of course is a strong platform for further growth. We will start crossing up selling to our Telco customers SME and SOHO toward IT services, and that's a perfect add-on to the portfolio on online applications that I've presented earlier.

Just some more details on the acquisition itself. We closed the transaction on the 22nd of October. The net consideration was €1.3 billion. We have installed a new management and we intent to delist Getronics as soon as we can legally do that. Meanwhile we started our program. The main focus in the coming quarters is on operational improvements. We will focus on short-term cost savings, accelerate existing profit improvement initiatives and further align the strategic service portfolio. The rationalization process that Getronics themselves have going will continue. The earlier announced disposals in Iberia and Hong Kong were signed in the past months and we are in the process of evaluating non-core assets.

After completing the operational improvements there will be a solid foundation to integrate our ICT services and corporate solutions into Getronics. We will run these businesses as an IP company rather then a Telco given the different nature of the business. This is by the way different from other Telcos that moved into IT. In all, as communicated before, we expect substantial growth and up selling opportunities, annual synergies of over €50 million by 2009 and a tax asset on the opening balance of over 100 million.

Now these are the numbers that Getronics have themselves already communicated for the first half of 2007. You can see that the service revenue growth in The Netherlands was about 3.5% and organic service revenue growth net of divestments for the company as a whole was 5.5. Major contracts were Vodafone, Dutch Railways, Ford Motor Company and Kodak. In general, of course margins in the IT business are totally different from Telcos. I mean it's a different type of activity. It's a service activity with higher labor in terms of the unlimited CapEx. Getronics margins continued to be under pressure in the first half and reasons were tight labor markets, high usage of subcontractors and higher firm costs for new projects. The overall EBITDA margin was 2.3% versus 4.4% in the Benelux. Full year guidance that Getronics gave was EBITDA margin of 3% to 3.5%. As of October 23 Getronics will be consolidated into the KPN P&L and we will provide you a separate disclosure for Getronics to allow full comparability with its peers.

Now have a look at Wholesale & Operations; as in previous quarters, internal revenues of course were down due to the decline in access lines and traditional voice traffic and this was partly compensated by growth from new services broadband and Voice over IP. External revenues were resilient with international traffic recovering from the first quarter.

We've made good progress in the rollout of networks; DVB-T indoor coverage is now 67%. We continue to rollout DVB-H and we will start commercially with that in 2008. Our network efficiency has improved we've initiated the Telfort core network integration process after completing the radio network integration in the second quarter. And we further started a rationalization of our products and service portfolio and as a result we switched off the SDH platform for the business market.

Our All-IP program is on-track. In July we signed the MoUs with three largest members. We are participating in selective Fiber-to-the-Home, Fiber-to-the-Office initiatives as already announced during the half year and our restructuring initiatives are on-track, with continued FTE reductions. Now our All-IP efforts, we are preparing a March rollout in 2008 of the VDSL Access network. We have committed building capacity for 2000, and which will be the launch pad for the mass VDSL rollout until 2010. And parallel with the rollout, we are simplifying out network platforms, IP customer propositions and delivery processes, which allows us to achieve cost savings as announced earlier. Fiber-to-the-Home at the moment is building some momentum in The Netherlands driven by building corporations and municipalities, who are operating their real estate. KPN is selectively participating in Fiber-to-the-Home initiatives, together with these institutions. In early October, we announced a partnership with Reggefiber for fiber to 70000 households in Almere.

In the business markets, we have more advanced and step-up our Fiber-to-the-Office initiatives. By the end of Q3, 42000 were connected billion by the end we expect or at the end of the year, we expect 10% of all those companies. Further worth mentioning in the third quarter, we sold one building for €42 million, which brings the total today for €124 million. We are currently considering to sell our top portfolio of real estate in the first half of '08. The value of this portfolio is about €300 million and is part of a total real estate portfolio, sold at about a €1billion.

Now, let me give you some details on another company, we acquired in the month of October. We closed the merger of our carrier base into iBasis, which is an important strategic step within our international wholesale. We announced this transaction already a long time ago, June 2006. I will clarify some details again. International households carriers connect different foreign Telcos with each other to route their international traffic. This market was previously dominated by incumbents who are facing challenging markets now. In general, the international wholesale market is consolidating, driven by the need for scale. iBasis on the other hand is a focused wholesale carrier, different from other large carriers. Even more so since iBasis is as a unique IP-based platform with a lower cost base. It's own infrastructure is limited, as iBasis is mainly active in routing traffic on a wholesale basis.

The customer portfolio is continuously expanding is over 6 million customers ranging from traditional Telcos to new entrants like Yahoo! and Track [ph]. The merger that we did, provides with a KPN state-of-the-art growth platform and an increased scale in the international wholesale. Routing KPN's international traffic by iBasis will significantly lower cost. And we are confident that this merger has created a platform for future growth with combined strength in forth in mobile, the fastest growing segments of global telecommunications.

Now the transaction was closed on the 1st of October. We had a cash plan of $55 million and the transfer of our international carrier assets. KPN now owns 51% of new iBasis shares, with a current market value of about $300 million. As a next step, there are new iBasis expanded position as a premier international force carrier, the addition of our traffic volume significantly increases the scale for iBasis. This is the key driver of 20 million synergies in the medium-term. The new iBasis merger has a strong financial position to drive further growth.

iBasis is already a listed company on the NASDAQ the and as reported in numbers as you see them on the sheets here, the pro forma revenues were up 33% year-on-year driven by increased scale and higher traffic volumes. Due to the scale... increased scale, profitability, increased significantly versus EBITDA up 46% year-on-year. This is evident that the new combined entity shows continued profitable growth. iBasis itself issued guidance for $600 million to $650 million in revenues to 2007 on a standalone basis, which is an increase of 15% to 25% compared to 2006. As we now own 51% of the shares iBasis will be fully consolidated in the KPN P&L as from the first quarter of '07, and the revenue impact for Q4 of iBasis is about $140 million versus small EBITDA configuration, and we will provide separate disclosure for iBasis so you will have comparability figures.

Now this is just because we have two acquisitions, we had a look at some acquisitions in the past and we then look at Telfort for which we paid nearly a billion, nearly about 9% market share and we had a number of benefits leading... we gained a leading position, with value for money. In wholesale segment we had some operational synergies from Telfort integration and of course the acquisition has led to overall lower section in the markets. And if we calculate this, we figure that we have created about a billion of value of this acquisition.

In broadband we have done a string of acquisitions. Total consideration that we paid was about 350 million gaining about 5000 subscribers equivalent to about 9% market share. The impact of the 9% came on top organic growth, so forth. So we're now the clear market leader with 45% market share. Q2 cross and up selling opportunities we have seen revenue and EBITDA gross creating about 150 million of value.

Now let's have a look at the Mobile. International, first, E-Plus; E-Plus continues to outperform on all key metrics and came in ahead our half year guidance comps and if you look at some of the drivers, customer growth of 15% year-over-year, we now have 14.1 million customers, particularly coming from the new brands, we have 2.9% service revenue growth and it was 2.5% in the second quarter. Our revenue market share therefore has further increased to 14% in the third quarter up 0.8% in the same quarter last year. EBITDA has grown over 16% and that's resulting from a whole range of things along with strong distributions channel, wholesale, and the outsourcing of our network operations and maintenance.

EBITDA margin is up 2% compared with the same quarter last year and that is after excluding the 23 million of restructuring that's impacted last quarter, last year. Now, if we have a look at E-Plus in more detail then you'll see that the value for money segment is now growing fast in Germany and it's currently about 10% of the German mobile market. Although SME our key market leaders and we think this segment will become more significant. Now this now also finally acknowledged by all our competitors, who have launched new brands to tap into this attractive segment; nevertheless, we've seen continued growth of our new brands to 6.7 million subscribers in the third quarter, nearly 50% of our base. Now postpaid net adds accelerated after by increasing customer pool for the base brands, also following expansion of the base portfolio which at the launch of base to zero. This all of course in our view, that have the right platform for continued revenue growth.

In addition to fixed mobile substitution, we focus on mobile data. We experience a record increase in data usage following the launch of flat fees at the end of 2005. Data bundles are mainly used for Internet connectivity as speed wireless interest in portals. We also have some UMTS investment, in selective regions with proven data amount. This will however not impact our overall CapEx. As part of operational excellence we continued to reduce SAC and SRC which were down 16% to €74 driven by an increasing proportion of SIM-only propositions. Another pillar of our operational excellence is the outsourcing of our network operations and management, for which we've extended the contract until 2012 following successful deployment in prior quarters.

Now let's have a look at Belgium. In Belgium we've delivered a solid performance despite very challenging market conditions, most notably the significant mobile termination cuts as well as a roaming impact. Net adds of more than a 140,000 the highest since 2001, fueled by our household partnerships, I mean our customer base of 2.7 million up 23% compared to last year. Half years of double-digit growth and service revenues, the second quarter was negatively affected by two consecutive reductions in MTA tariffs in the past 12 months and the impact on roaming, which had total impact on service revenue growth of 10%. This is reflected in our service revenues which showed the decline of 7.5%. This is by the way inline with the markets. Consequently our revenue market share, as we mentioned at par versus the prior quarter. However our EBITDA margin was effective and ended up at 36 in the firs half which is of course okay for a third operator that we've seen better times before.

As we look at the some more retailer-based then we see a continued solid performance in a highly challenging market, our underlying revenue growth was 2% as I told you on the last sheet, minus 10 because of MTA and roaming. Our revenue reduction was at 7.5. Our market share went up 1% compared to the same period last year. So it was equal to the previous quarter but 2% up on the same quarter last year. As I said before, considering significant headwinds because of the MTA and roaming tariff cuts, we've done a number of new commercial launches and our competitors have been copying our successful efforts. However, we are confident that we can regain the initiative and reignite growth. In order to face the challenging market, we stepped up our commercial efforts by launching BASE platinum and BASE gold and we've continued to expand our wholesale partnerships and with the mobile we are targeting the U.S. market.

While we did acquire Allo Telecom and a retail chain in Tele2Belgium, to sanction our distribution particularly in Wallonia. And finally, it's interesting to know that BIPT decision on low MTA tariff asymmetrically going forward has been suspended and as a result the old proposal up to July '08 is still valid.

Last mobile wholesale NL was we see 81000 new customers equally split between postpaid and prepaid ethnic segments as a key driver. Total customer base is now 1.8 million, up 25% on last year. While you see they are back in our revenue growth 14% year-on-year driven by minutes, EBITDA margins we remained well above 25%.

Now to conclude, we are on track to meet guidance this year. We've laid foundations for further profitable growth in mobile international both in Belgium and Germany. We add market share gains in new services in Holland. We see that in the old fixed divisions as we look at their pro forma, we see a deceleration of revenue and EBITDA decline and preparations for the All-IP massive rollout are at an advance stage. Our business profile has been sanctioned by the iBasis and Getronics transactions and our shareholder returns are 2.5 billion this year, on far with respect to previous years.

We are now more than happy to take your questions.

Question And Answer

Operator

Thank you sir. Ladies and gentlemen, we will start the question-and-answer session now. [Operator Instructions]. Today's first question is from Jonathon Dann, Bear Stearns. Go ahead please.

Unidentified Analyst

I am Jonathon Hughes [ph], two questions. The first one, you mentioned Marcel some structural change in creditors next year, if you could elaborate? And secondly Marcel, could you remind me there was a 5 billion in German tax, there was 5 billion of tax deferrals that you'd to grade about a year ago. Is that different to the 6 billion and then the 18.8 I see it's prudent to see that's worked a little, could you? That are my three questions.

M.H.M. Smits - Chief Financial Officer

Yes, first of all structural change on creditors, we think that we can get your own on working capital. Basically what we're doing is we are making sure that we are currently paying exactly as agreed with our suppliers and there will be time when I know that we are going to back to or suppliers and say we would like to have experience credit terms and that should start to yield some benefits in 2008 and 2009. So that's a bit of background there. The exact difference between 5 billion and 6 billion I have to come back to you Jonathan because I don't know where that exactly is.

And than the last 18.8 billion of net operating loss is pretty much worth as well, that of course remains received because basically means that our fixed tax rates in Germany is going to be nil going forward or virtually very low because apart from the limitations on taking your taxable profit against net operating loss we still have those net operating losses for ourselves. So as long as we own this business, we are not going to be paying loads of times and that's of course is a valuable asset to us.

Operator

Does that conclude your question sir?

Unidentified Analyst

If I could ask at what point you'll feel comfortable to give 2008 guidance?

M.H.M. Smits - Chief Financial Officer

Well we always give 2008 guidance when we publish our annual results, and we plan to that in the early February next year.

Unidentified Analyst

Okay, thank you.

Operator

Next question is from Graeme Pearson, Lehman Brothers. Go ahead please.

Graeme Pearson - Lehman Brothers

Thanks. Good morning. Couple of questions, the Dutch Mobile business seems pretty weak in the quarter in terms of the revenue progression in the margin based at least on the iBasis. Apart from the regulatory impacts what are the reasons for that because if the regulatory stuff doesn't seems to account for all of the weakness. But I may have the wrong. And secondly you don't seems to be spending much CapEx at E-plus at the moment, can you just talk a bit about how much spare capacity you have on the network in Germany regarding traditional voice and also given that the date is also starting to ramp as well. Thanks.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay. Well on the Dutch Mobile, we have 2% revenue growth and if you add the regulatory back then the underlying it's over 4 and I think we had the quarter before we have 5 or 6?

M.H.M. Smits - Chief Financial Officer

No, I think we had a little bit higher. But I think what you have to bear in mind that the market dynamics is also changing. In the first half year, all of the growth of the markets basically came to us, because the markets I which we are at sort of 2% to 3% we were with 37% share, we were doing 6%, 7% of service revenue growth. In the third quarter no doubt market growth is going to come down, because everybody is experiencing the cuts from termination and from roaming. So I don't think that from a competitive point of view performance has deteriorated significantly. And of course, if you keep gaining market shares, by the time there is so much you can do before you drive people up the hill. So it's questionable whether or not it's a sensible strategy to try and grab all the growth indefinitely and basically drive all your competitors into really big problems. So I don't think that from a competitive point of view the performance has deteriorated all that much, given the fact that market share or market growth know no doubt is coming down.

In terms of the EBITDA, quarter-on-quarter there is a seasonality in the Dutch markets that has to do with roaming and terminations pattern in holidays which fall into the first quarter. And you see that back in the 2006 figures as well in 2006 [ph] you see drop. So you really have to look at the quarter-on-quarter increase where we're showing a 10% increase despite the fact that we have a termination cost coming through and a little bit of roaming coming through.

Okay. I guess that was the question on the Dutch Mobile, then the question on CapEx in Germany. While there is a few factors there that help our CapEx in Germany. General prices have continued to go down. The outsourcing deal no doubt helps to be more efficient and I guess the question is related to the next question on spare capacity. Well we have enough spare capacity on the voice. We have 14.1 million customers and we have a network that a principle can carry as many customers as our competitors and some of those have 25 million customers. I did mention in my presentation that we are building some additional UMTS sites for those areas where the use is heavy. But on the whole, we are in the regular pattern in Germany of investing as and when necessary and we don't expect a big change to that next year.

Graeme Pearson - Lehman Brothers

Okay, thanks very much.

Operator

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

Steve Malcolm - Arete Research

Yes hi, so two questions. I will sort of go back in to Dutch Mobile, I am afraid. It looks like the after trends in sort of the business were particularly bad. Is that roaming-driven and if so, should we assume that Q3 has got a full impact of roaming or if there some more to come in Q4? And secondly on the consumer side you sort of seem to go back into prepaid quite aggressively from Summit. Is that the case is that deliberate or is that just a function of the other operators may be taking their foot of the gap. Thanks a lot.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Let's say this for certain that it's not a full quarter of roaming impact. I think it started 15th of August if I am not mistaken. So it's half an impact. But it is... I suppose MTA cuts and roaming. And the MTA cuts was also half.

Steve Malcolm - Arete Research

So we should expect another sort of like that in the fourth quarter on roaming. Is that fair?

A.J. Scheepbouwer - Chairman and Chief Executive Officer

It's a different season, but let's say the effects of roaming and MTA are only 50%.

Steve Malcolm - Arete Research

Okay, thank you.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

And on the prepaid, well I'm just checking the numbers for you at the moment. Come back to that.

Steve Malcolm - Arete Research

Okay, thank you.

Operator

The next question is from Damien Chew, ING. Go ahead please?

Damien Chew - ING Financial Markets

Good morning; Damien Chew at ING. Two questions on the fixed business please. Earlier this month, we had some press comments that KPN was cutting back on the development of IMS. Just wondering if you could comment on that and how that impacts the cost benefit and the CapEx for the All-IP network all out. And the second question on the business market overall. Clearly you're doing quite well. Could you just comment on competitive pressures and where you think you have done in terms of market share, let's say over the past 9 to 12 months? Thank you.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay, Marcel.

M.H.M. Smits - Chief Financial Officer

First on IMS, we are at this moment going through a detailed planning on the exact specifications of how we will implement the All-IP Access network, for Fiber-to-the-Office regions and Fiber-to-the-Home regions. We have announced couple of smaller initiatives on the Fiber-to-the-Home. We're going through detailed planning now on how do we implement these new technologies in such a way that we when we implement the consumer market we want get rid of older infrastructures, PSDN, ISDN line sharing and a whole range of different services that we are going to revising.

In determining the exact specifications we have come to the view that we have to rely less on IMS than we did in the past. We had been building an IMS platform and which we will continue to use but the usage will be less expensive in the early years than previously it was. So that will making less use but were not moving away from it but the implementation in terms of the actual take up will go slower than earlier anticipated. That does not have a colossal impact on our cost in terms of not having to run the IMS platform and by actually running it more economically, we think we can save a couple of million, but it's not really moving the needle in either in our fixed businesses in The Netherlands.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay. Damien your market share; our business segment is of course is a big mix of data for --. But I think in general are can take it a bit. That segment is growing again and EBITDA has really improved, that doesn't happen if your market share doesn't go up.

Damien Chew - ING Financial Markets

Can I just ask a quick follow-up on the IMS, on the IP side of things. You just touched your guidance for CapEx for this year slightly down towards the low end of the range. Is that anything to do with that? Are you seeing more cost savings? Do you see your planning than you earlier anticipated?

M.H.M. Smits - Chief Financial Officer

No. The standards practice in the company is to be fairly careful with the committing CapEx. So we keep evaluating everything we do. And in the fourth quarter we are bringing in fair amount of investment in order to lay the foundations for the rollout of the Access network next year.

Damien Chew - ING Financial Markets

Thank you very much.

Operator

The next question is from Luis Prota of Morgan Stanley. Go ahead please?

Luis Prota - Morgan Stanley

Yes hello. I have two questions please. The first one is from the Dutch Mobile business. What's your view on the consolidation that we are seeing in the market between T-Mobile and Orange? Are you expecting any short term improvement to the competitive environment, and may be EBITDA margin? What's your view on the dynamics of the market on the back if this? And the second question is on E-plus. We have seen growth in postpaid customers this quarter. Is this by coincidence, or is it basically that you are promoting more of the E-plus brand as you are foreseeing that the growth from the new brand is slowing down, or supposed to slow down in the short-term. I am curious to find out whether the growth from new brands is going to be there for the next few quarters, or?

A.J. Scheepbouwer - Chairman and Chief Executive Officer

I guess you are concluding that somehow E-plus is growing faster than the new brands. I don't think that's the case. I mean we have had one of the best quarters, I guess ever in Germany on the new postpaid ads and that is basically, because I think the launching of all these new brands also by our competitors make the German public more and more aware that it is something to be had, as we are now... as we are the absolutely the first company on value for money, and other propositions. We are benefiting more than others. So we are experiencing a very good time in postpaid as well as prepaid. Our total gross is... even if you look quarter-on-quarter, even though the totally different seasons, you see that now the minutes in E-Plus are also growing quarter-on-quarter. So we are doing fine there. This mobile, we have, of course we have a few in general, if you wish to, as we operate the market should in the long run create more efficient market than for '05. So in the long run these developments should help the margin development of all the operators including the one who has nearly 50% of the market.

Luis Prota - Morgan Stanley

Okay. Thank you.

Operator

Next question is from Jerry Dellis, J.P. Morgan. Go ahead please.

Jerry Dellis - JP Morgan

Hi good morning, I have got two questions please. Firstly on E-Plus, I think you are guiding towards a more aggressive start from post-payment additions in the final quarter. I think the trend in post payout has generally improved from sort of 22,000 to 88,000 over the last couple of quarters. Are you implicitly guiding to a much more aggressive start in Q4 or really are you're just using up the margin headroom that you have created for yourselves by the better margin performance of the Q3 stage? And then within that, what sort of contracts do you feel you will be promoting most heavily, will it be this sort of time, multi tariffs or maybe little more aggressive -- type offerings. And then my second question just relates to the line loss. Obviously, we have seen an improvement Q3 vis-à-vis Q2, but you seem to be guiding to Q4 on par with Q3, I am just wondering given the Voice-over-IP adds were actually quite low this quarter, why we shouldn't... while shouldn't anticipate a further improvement actually in the Q4 stage? Thank you.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Yes well I think. I agree with your last comment that logically that's what it would be, but for the time being, we may miss the guidance that Q4 is going to be to look something like Q3 and hopefully we can surprise you with respect to numbers. But at the moment, these things are difficult to forecast, what will decisions to once. So we stayed on the conservative side and said this is look something like, what it was in Q3. There is really no more, not more I can add to that. E-plus, the net add is going from 22,000 to 88,000. That is because of more interest in the markets, a better selling effort, and we are not particularly more aggressive than we have been in other quarters. We have just been more successful, and what sort of contracts, we think that the contracts that will win today are the mainly the contracts in the new brands, in sort of the base flat fee offers that are in the market are very popular. So we expect the growth to come from that.

Jerry Dellis - JP Morgan

Can I just follow up on E-Plus, just to get some sense as to just to the how aggressive do you anticipate that and could we have that return to the days of sort of high single-digit service are going to very... in your view over the next six to nine months?

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Well the underlying growth or the actual growth in Q3 was nearly 3%. We forecasted more for Q4. So, and then, if you look at let's say, what we compared to last year, last year we absorbed the number of MTA cut and we have absorbed VAT, but we also have to keep in mind there is a MTA cut coming up in December of I think at the moment not totally certain proportion. We think it could be another $0.01 or something like it. So it is that will take a few percent off again. So I would say double-digit is a not on the horizon in the next six to nine months.

Jerry Dellis - JP Morgan

Thank you.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Butcould be significantly better than what we have today.

Jerry Dellis - JP Morgan

Thank you very much.

Operator

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

Matthew Bloxham - Deutsche Bank

Yes, good morning a couple of questions. One is on Getronics, but you mentioned this kind of conversions -- to deliver the things end-to-end customers. But you're saying that you're actually going to virtually, run Getronics etcetera IT Services Company. So could you just kind of clarify a bit more how that's going to work against that kind of trend of providing end-to-end solutions. And then second point just on the kind of additional market expansion opportunities, I mean I guess the fact that you said little just as not much progress to report, but are you actually still actively looking at opportunities to enter new markets?

A.J. Scheepbouwer - Chairman and Chief Executive Officer

You are talking about geographic new markets?

Matthew Bloxham - Deutsche Bank

Yes.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

For Getronics what we envision is that we will have, basically two businesses in the business market. One is infrastructure business which provides infrastructure services such as, data and IPVP and also voice infrastructure and next to that you have ICT business which will integrated efforts of infrastructure components, but also IT components built on top of that, in particular workspace management. So what you will see are going forward as we will have two separate sales force in the Dutch market and about those customers do tend this for integrated businesses as we coming through more and more will be serviced through Getronics and people just buy, who want to buy a separate IP GPM, they are going to be serviced from our interest book of business that's broadly the sort of model that we think we should be running. We think that one of the lesson to learn from acquisitions in the ICT space is that you should be careful not to run these acquired businesses as ICT companies rather than as infrastructure businesses, because so far people who have allowed these acquired units to be taken over by the people who come entirely from an infrastructure business have not been very successful. So we're very keen to keep Getronics as a really focused ICT provider who can rumble in infrastructure wherever customers are required.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay then your questions on new markets well off course I have mentioned Spain that we hope to announce that to and for the rest we always look at the also at some things I mean we had many offers from banks onto and also to companies over the last couple of years. We have not done most of those, we did the ones that I mentioned to Telfort and ISP's and we continue to looking whether there are things that suit us at the right price and so on but. So far we've always had to say no to everything.

Matthew Bloxham - Deutsche Bank

Okay that's great thank you.

Operator

Next question is from Michel Collet of KDW [ph]. Go ahead please?

Unidentified Analyst

Good morning, just a quick question on the plan rationalization process in The Netherlands consumer business. Just wondering how far along you are with that prices and where do you expected to fetch in and do you customers acquisition cost.

M.H.M. Smits - Chief Financial Officer

We are we've taken recessions. We're currently going through what that means in terms of organizational consequences. Because obviously if you run a fewer brands and you want to organize yourselves slightly differently. We cant' do these things overnight, you don't to migrate your customer base overnight from one brand to another. So it's a matter of shutting down the number of sales channels and than gradually migrate and rationalize it, and that's a process that we are now starting. It's as first as that takes plant the whole machinery actually has to come along. For example on the retail side, we've started high shops in the early part of this year. We already have a number of -- we had a number of other shop assortments as well and we are gradually converting all of those also to the three brands that we have now picked as for this brand. So it really comes in, and it takes a while before all of that comes through. I wouldn't expect that it will have a huge impact on long term and if anything in terms of customer acquisition, it should help to join the customer acquisition at reasonable cost, because you have got a more focused approach.

Unidentified Analyst

Okay. Thanks you.

Operator

Next question is from Russell Waller, New Street News. Go ahead please.

Russell Waller - New Street Research

Hello it's Russell from New Street Research. Just a quick question on E-Plus to you; I mean talking about being more aggressive on the postpaid outside and I was wondering if that format is potentially come across as right the expensive margin. Q4 margin last year were slightly weaker than the rest of the year and is that something that we would likely to see repeated this year? And than the second question is just on BASE; I was wondering when are we likely to see the impact of the ALLO & Tele2 acquisition. Are the benefit is going to be coming through so in H1 next year and again you say you are going to be targeting this SME and SOHO segments, is that going to be at the expense of say SAC and therefore we are going to see some mid-term margin pressure in Belgium. Thanks very much.

M.H.M. Smits - Chief Financial Officer

To start with Belgium we expect the impact there indeed to comes through in order at the end of first half and we also have every intention to keep our margins above 35%. So we will report to you every quarter on the developments as they are and we are very positive that we can get the gross in those marketing and can do it in a profitable way. As to the E-Plus, we word more aggressive as used by one your colleagues, I call it more successful and the Q4 margin normally is somewhat lower because of the Christmas season and the holiday season and all these seasons together. But we don't expect to go to the level that we had last year, which I think was blow 30%. So we expect a better quarter in that.

Russell Waller - New Street Research

Okay thanks.

Operator

The next question is form Terry Sinclair, Citigroup. Go ahead please.

Terry Sinclair - Citigroup

Good morning. Can I ask two questions in the package and one separate. First of all, on VoIP on the situation in Holland, you seem to have got about 38% of broadband lines on VoIP I understand but we're still seeing consumer revenues fall and I wonder if it's reasonable at any point broadband... the VoIP conversion will help consumer revenues to be stable. With that I'm trying to understand some of the concepts and trends in Holland, because clearly there is quite a lot of increasing pressure on traditional revenues and basic consumer in the business segments traditional revenue have accelerated. Despite the fact that you've got good conversion to VoIP and despite the fact that you moderated line loss. And obviously the conversion to VoIP does not help that but is there any... can you explain why traditional revenue loss has accelerated?

M.H.M. Smits - Chief Financial Officer

I'm not sure that I understand your comment about traditional revenue accelerate, because if I do the sums for 91 million decline of DST and in consumer, those 273 for the whole of the year, so that's exactly one-third and in the business market I will go to slight deceleration actually, because it led to third quarter.

Terry Sinclair - Citigroup

If I look at the fact you said around, traditional revenue let me to say consumer traditional revenue year-on-year change for the third quarter 27.5%, we got in excess traffics but that's a faster loss than we had...

M.H.M. Smits - Chief Financial Officer

No okay, so you're talking percentages rather than the declines.

Terry Sinclair - Citigroup

It looks like a traditional revenue loss and the same story in business. This acceleration pressure there despite the fact the market has to a certain extent consolidated and --

M.H.M. Smits - Chief Financial Officer

What we just we'll do is, we will talk to you offline because....

Terry Sinclair - Citigroup

Thank you.

M.H.M. Smits - Chief Financial Officer

Press release the figures that in terms of millions or ones that I have quoted. Let's go to the next one.

Terry Sinclair - Citigroup

Okay. The other is that just whether at any point your success in converting broadband lines to VoIP should allow overall consumer revenues to stabilize or whether we should see that as a revenue lines that's in perpetual decline?

M.H.M. Smits - Chief Financial Officer

No I think that's one of reasons because why we are very aggressively moving towards VoIP. Of the 4 million or so lines we have about 800,000 have VoIP so that's the reason why we are doing that is because we feel that once you got the people over there and they are more secure and they are less inclined to migrate at to the cable, and so over the time, that showed we should. So don't extrapolate the sure that CNN and ISDN, extrapolate them of the decline, extrapolate them forward to eternity that conclusion. At some point in time, once you got control to VoIP then things stabilize. We have seen the similar thing on dial-up, in dial-up we converted people to mobile and we had a long time where the additional revenue from... not mobile front the broadband and we had long time where the additional revenue from broadband was all eaten up by the declines in dial-up. Dial-up is now all that gone and broadband something is to grow; therefore, now the language is positive. Something similar should happen with the migration of or wholesale VoIP products and new voice products.

Terry Sinclair - Citigroup

Okay thank you.

Operator

The next question is from Lora Sierra of Edwin Partners [ph]. Go ahead please.

Unidentified Analyst

Good morning a couple of question but first one on Germany on the ARPU, I have seen a good ARPU in Q3 and just I was just wondering what is attributable to roaming on that and I would like to now if you are already noticing similar trend for Q4. My second question was on tax, the group level because I'm quite confused by what you said about Germany. Should we start expecting even lower group level for that which are now 26% at the group level?

M.H.M. Smits - Chief Financial Officer

No. that's not what we said. What we have said is if you want to move our...the tax that we pay in Germany, you have to take into account, first of all the net operating losses of course that we have. The second thing that you have to take into account, the lower rate since Germany is implementing. And thirdly because you have to take a view on the restrictions on using your net operating losses as a cover for profits in the future. Overall, it means that in Germany in the medium term we are not going to be paying any meaningful facts and that's been position that we have taken in the past it's the same position that we are taking now.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

You also requested on the ARPU in Germany and I think, you did I understand that the question was why the ARPU was so high or what?

Unidentified Analyst

Yes, I was expecting a lower ARPU in Germany in Q3.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay well the ARPU in Germany is driven mainly by minutes or years. You can see that, if you look quarter-on-quarter, the same quarter last year, there is a big growth and if even if you look quarter-on-quarter there is growth. So I mean the minutes of years go through the roof.

Unidentified Analyst

Okay, so it's not a roaming impact.

A.J. Scheepbouwer - Chairman and Chief Executive Officer

No.Roaming impact is there off course, but that's for the part of the quarter. I mean it not the roaming impact in itself is negative, because we have a roaming reduction and maybe it's less negative then we thought, because people use more minutes of roaming, but it's roaming itself is negative.

Operator

The next question is from Will Trafford, Execution [ph]. Go ahead please.

Unidentified Analyst

Hello, Good morning. It's Will Trafford at Execution [ph] calling. Two things one on your free cash flow guidance and the second on tax, can I just ask on free cash flow when do you have 1.8 billion in the bag, you have not chosen to raise your guidance when it looks very obvious that you easily beat your guidance. I wondered what's holding you back from raising? And secondly on tax, just a little bit of clarity, the tax rate has gone up to 33% in the third quarter. What should we expect in the fourth quarter for the tax rate for the group to be? Thank you

A.J. Scheepbouwer - Chairman and Chief Executive Officer

Okay Will Marcel has left because he has to talk to some German press people. I feel there is no reason to, that they will not be as far as we know at the moment a one-off additional tax charge because of some settlements with the tax demand. So you should look at the tax rate in the third quarter minus the one-off and then there is no reason to assume that the forth quarter will not be something similar than the underlying percentage in the third quarter. That's what I can tell you on that. And on the free cash flow I am surprised with the question, because our guidance is more than 2 billion and we are not... I mean what should we say than a more specific number like 2 billion, 353 or so. I mean we always come in... we always get more than 2 billion guidance and both years we come in with higher number and I don't think we've specifically increased the guidance for that. But I can be mistaken, but it's not intended to put you on the wrong foot. So that's a... if we have a normal cash flow quarter, than of course we will significantly exceed $2 billion.

Unidentified Analyst

Okay. Thank you very much.

Unidentified Company Representative

Thank you everyone for attending this call. If any of you have still outstanding questions, we are more than happy to address those after this call. Thank you. Bye-bye.

Operator

Ladies and gentlemen this concludes the KPN conference call. Thank you for attending. You may disconnect your line now.

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