Hellenic Telecommunications Organization S.A. ADR (OTCPK:HLTOY) Q4 2016 Results Earnings Conference Call March 2, 2017 11:00 AM ET
Michael Tsamaz - Chairman and CEO
Babis Mazarakis - CFO
Konstantinos Liamidis - CCO, Consumer Segment
Grigoris Christopoulos - CCO, Business Segment
Evrikos Sarsentis - Head of IR and M&A
Stam Draziotis - Eurobank Equities
Vikas Nanda - NatWest Markets
Vikram Karnany - UBS
Thank you for standing by ladies and gentlemen, and welcome to the OTE Conference Call on the Fourth Quarter 2016 Financial Results under IFRS. We have with us today Mr. Michael Tsamaz, Chairman and CEO; Mr. Babis Mazarakis, Chief Financial Officer; Mr. Konstantinos, Chief Commercial Officer, Consumer Segment; Mr. Grigoris Christopoulos, Chief Commercial Officer and Business Segment; and Mr. Evrikos Sarsentis, Head of IR and M&A.
At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I must advise you that this conference is being recorded today.
We now pass the floor to Mr. Michael Tsamaz. Please go ahead, sir.
Thank you. Good morning and good afternoon to all you. I'm pleased to welcome you to OTE's conference call for the 2016 fourth quarter and full year. I'll start with some brief comments on developments at OTE and our markets during the quarter. Babis Mazarakis, our Chief Financial Officer will then review our performance and financials. And after that we will answer any questions you will have.
With another robust quarter, we completed our most rewarding year in a long time and confirmed the trends towards stabilization that we highlighted in the past several quarters. For the first time in aggregate, the Group's full year top line was actually up compared to the previous year. This was largely due to the good performance of our Greek fixed line activities quarter-after-quarter as we successfully monetized our investments. Greek mobile operations maintained strong operative positions with steadily growing data revenues. In Romania we're addressing the challenges we face and we are confident that our position in this market will start to bear fruit.
In the full year, overall revenues and EBITDA increase were up. This reflects good pickup of our new areas of growth. Pay-TV subscriptions were up 50% in the full year and correspondent revenues were up more than 30%.
VDSL subscriptions were up nearly 50%. This helped boost broadband revenues up by 10% in the full year. Smartphone penetration is up quarter-after-quarter. As a result, mobile data revenues rose more than 6% year-over-year and account for a growing serve of total mobile service revenues increased.
In Romania, our revenues have been supported by a strong growth in our fixed mobile convergence offerings, resilience in our mobile services as we improved our 4G activities, wholesale and ICT revenues for the fixed lines.
As a result, full year revenues were essentially changed. We are proud of our success with these services which varies data decision to invest in expanding our network accountant. In the full year group EBITDA was down 1.6% less than one-third the rate of euro in 2015. The Group's EBITDA margin was highly resilient.
This is thanks to the increase of more than 7% of EBITDA while Greek fixed line business resulting in a record setting of 42.3% margin. On a full year basis, capital expenditures excluding spectrum payments rose by more than 10% as we accelerated our investments particularly in VDSL, mobile data and TV content. We met the free cash flow target we gave you at the end of the previous quarter and over the year we reduced our net debt by more than €300,000 million bringing our net debt to EBITDA ratio to just 0.4 times.
Before giving the phone to Babis, I'd like to go over our decision to step up the pace of our investments. We started this in 2016 as mentioned. We will further intensify our efforts in 2017 where capital expenditures should lead the peak of nearly €700 million before gradually returning to normalize more sustainable levels in the full year.
2017 we will see a major ramp up of next generation access [indiscernible] increase which will benefit the whole market and provide all consumers with significantly enhanced infrastructure to support higher RPU services.
The Greek regulator as defined under which Vectoring technology will be deployed in the market. I won't go through the emphasis of their but what I can tell you is that we have eight ones starting now to eventually double another VDSL cabinets. At the end of this process, we will be able to offer retail or wholesale VDSL services to more than two-thirds of all households in Greece.
We have a clear path for continuously upgrading and expanding the service we offer to our customers and the overall broadband experience. From VDSL we would be launching Vectoring for year end. This technology entails a low-cost upgrade to the cabinet but doubles the customer speed to speed to 100 mega bps. We will steadily expand this coverage to the areas we are entitled to. We will then upgrade to super Vectoring which will offer speeds of over 200 mega bps.
If it when viable - automatically viable we will upgrade certain customers to find into the home. I expect this will be primarily corporate customers or the future set for specific residential areas if demand exits. We have invested consistently to upgrade the services with consumers experience and to meet their needs. We will continue to upgrade our network. In order to carry out these major upgrades in broadband speeds, we're stepping up our investments in next generation access networks this year.
We expect the good return on this investment in terms of future RPU uplift, as well as in terms of significantly ramping up the customer base and utilization rates. Notably we are in effort to educate the market will be complemented by those of our competitors. We now are mostly on the sidelines.
So all in all 2017 should be an exciting year. We do not competitive pressures to lessen quite contrary we're seen the new promotional activity notably the Greek fixed new taxation or certain services is having additional impact on consumer costs.
Our 2017 cash flow generation will reflect both our increased CapEx and higher income taxes. While at the same time been influenced by the challenging market conditions in risk, our improved trends in the market and our efforts stabilizes the business in Romania. This being said, we are confident that we are taking the right measures to succeed in the current environment and secure a future growth of profitability. This is the reason why the board has accepted our recommendation to raise the proposed dividend to €0.16 this year compared to €0.10 a year ago.
I will now turn the call to Babis who will review our performance and financials in the quarter and full year.
Thank you, Michael. Good afternoon and good day to all of you.
Our fourth quarter was solid, low as expected a bit less by year end down the previous quarter which had benefited from strong growth in our Greek fixed line revenues. We did not expect linear growth for the quarter as several of our businesses tend to be lumpier than others.
As you may remember significant revenue from ICT projects in Greece project in the fourth quarter of 2015 created a high comp. If you taken away this factor, our fourth quarter trends are more aligned with worth we have recorded since the beginning of the year.
Total group revenues were down 1% in the fourth quarter reflecting the effect I just mentioned on Greek fixed line of operations. All mobile activities in Greek and aboard also forces more subdued performances then in the third quarter. Conversely, we had a stronger topline performance in Romanian fixed then in first three quarters of the year.
Greek fixed line revenues were down by 2.4% to over €402 million in the quarter. The drop was due related to revenues which had a particularly strong Q4 of 2015. Overall, we not considered EBITDA trend reverse of Greek fixed given the underlying trends.
Revenue from retail fixed services were up a little over 1%, there six consecutive quarters growth. Voice revenues were down by less than 2% extending the string of moderating declines we have seen throughout the year.
In the full year voice revenues were down about 3% nearly half the rate over the prior year. We had only 5,000 mid ranged connections in the quarter or 26,000 for 2016 as a whole, as compared to 42,000 in 2015 and 126,000 in 2014. Both when revenue growth was consistent throughout the year at about 10% in each quarter including Q4.
Growth in TV revenues however was lower significantly in the fourth quarter up just 3%. This reflects two factors, one we are now coming against pretty small quarters to the prior year period. And second following the 10% tax on paid TV services to reduce last June, we launched promotional offers to attract new customers in the service.
We added a strong 25,000 TV subscribers in the quarter passing lower the 500,000 customer mark and becoming the market leader. At the total Greek market level broadband net additions totaled 59,000 up from the average of the first three quarters of the year. OTE’s net addition totaled 30,000 giving us a market share of 50%. We added 19,000 VDSL connections bringing the total to 219,000 or more than 13% of our total broadband customer base. We are continuing to convert about 30% of our eligible base to VDSL enhancing ARPU, and validating our termination to accelerate investments in this technology as Michael explained.
As of the end of the year coverage of over 45% of all Greek households was available through our local exchanges and VDSL cabinets. As I mentioned the biggest factor impacting growth in our Greek fixed line revenue was ICT. We were not able to match the significant uplift experienced in the fourth quarter of 2015 which mainly came from a large E-health project. The lack of video funding is put in a dumper on public sector ICT projects still now we are targeting to maintain or even increase our revenues in 2017.
Let’s now turn to Greek Mobile. Total revenues were €307 million down nearly 2% from the final quarter of 2015. Total service revenues in the quarter were down by at least more than 3% roughly the same drop as in the first half of the year. As I noted in our last call the smaller drop in service revenues in the third quarter was exceptionally so far as we were comparing with the initial period of capital control in 2015. We expect to continue along this path in 2017 and to benefit from improved trends in postpaid in particular. There are signs of postpaid ARPU stabilization as a result of data growth while prepaid revenues are still under pressure due to competitive pressure and disposal income challenges affecting the more sensitive prepaid audiences.
Handset data traffic more than doubled in the quarter as data active usage and smartphone penetration continue to grow rapidly. Data revenues continue to grow, but at lower rates compared to traffic as customers migrate to higher data volume tariffs offering lower effective data rates.
In Romania, revenues from Telekom fixed operations were up nearly 5% in the fourth quarter to €167 million. Consequently full revenues were up slightly to €603 million. In retail fixed services the drop in revenues of minus 5% was in line with the Q3 confirming a notable improvement in revenue trends in the second half compared with the first six months of the year. TVs had another good quarter with revenues up nearly 4% reflecting the continued success of our fixed mobile convergence solutions and major competitive advantage of our business, total mobile revenues from bundles were up more than 40%.
The total number of FMC subscribers grew by another 32,000 to exceed 370,000 at year end. So we are continuing to make slow, but steady progress in Romania in fixed with good pick up of our FMC solution and the improvements in our competitive positioning notably with business customers. Still it is going to take some time and further investments for Telekom Romania fixed to reach our targeted performance.
Telekom Romania mobile for its path posted revenue growth of nearly 1% against a pretty strong quarter last year. Service revenues were impacted by some challenges in the postpaid segment while prepaid suffers from intense competition. These factors were partly offset by good growth in data and revenues from the [indiscernible] offer as well as from the RoNet rural broadband project.
Total revenues with our service revenues at our mobile operations in Albania dropped by 37% the sub drop reflects increased competition in the international traffic and price changes applied by foreign operators for traffic towers in Albania. Finally all other group revenues were up 9% in the fourth quarter mainly attributable total growth.
Let’s now move on to the rest of the P&L. Group adjusted EBITDA in the fourth quarter was down 1.4% at €344 million as a 3% increase in EBITDA from our operations in Greece was more than offset by declines in our international operations. Group EBITDA margin was 33.5% down just 10 basis points from Q4 of last year. On full year basis EBITDA was down 1.6% to over €1.3 billion with a margin of 33.8%.
The full year EBITDA margin in Greece was up 40 basis points to a solid 39.5%. Adjusted EBITDA margin in our Greek fixed line business improved by 140 basis points year-on-year in the quarter and 210 basis points in the full year. This is largely due to the continuing reduction in personal cost down 8% in the quarter as a result of recent voluntary leave schemes and the further the savings in excess of €3 million they generate. In actual numbers full year 2016 EBITDA from Greek fixed was up nearly €46 million.
EBITDA in Greek mobile was down by just €1.5 million or little over 1% and considerable narrowing compared to the first three quarters of the year supported by 10 basis points improvement in our margin. Adjusted EBITDA margin in Romanian fixed line business was 17% in the quarter down more than five percentage points compared to last year. This is largely due to less favorable revenue mix notably large ICT projects and RoNet containing significant costs as well as a large provision for obsolete inventory.
In the full year the EBITDA margin in Romanian fixed was down four percentage points at 15.5% and as I mentioned last quarter we continue to expect that to represent a low from which we should see further stabilization and then a recovery going forward. In the fourth quarter the EBITDA margin in Romanian mobile business was up 10 basis points the investment deterioration of the first quarter reflecting therefore to stabilize the business which caused in earlier calls.
For the full year, the EBITDA margin was 17.9% down two percentage points. We still need to drive a major turnaround in Romania and our investments in fiber, in 4G, in TV content and our commercial presence are aiming to this direction. In the fourth quarter group operating expenses excluding the depreciation and amortization and one-offs totaled €713 million unchanged from the fourth quarter of 2015.
For the full year they are up less than 1% on the back of high interconnection expenses at Romania operations in [indiscernible]. Group personal costs were down 4% in the full year thanks to reductions in the Greek fixed and mobile. In the quarter depreciation and amortization totaled €266 million up 21% compared to the same quarter of 2015. This primarily due to a €59 million impairment charge related to the current value of some Romanian assets. In the full year at €881 million depreciation and amortization was up 6% reflecting the above charges as well as a significant investments for present years.
Interest expense was €37 million in the quarter down more than 20% from last year reflecting deleveraging. Our effective tax rate in the year was 67%, I remind you though that our loss in Romania do not give rise to deferred tax assets. Group net income was €17 million in the quarter less than half the level for the fourth quarter last year. This primarily due to Telekom Romania impairment charge I noted earlier and to a high income tax I just discussed.
Consolidated adjusted net profit was €80 million in the quarter up more than 11%. In the full year it was €230 million, down about 4%. In the fourth quarter, we generated adjusted operating cash flow of €424 million up 8% compared to the same quarter last year. CapEx excluding spectrum in the quarter was €141 million. Full year CapEx at €627 million was up just over 10% in line with a revised guidance we gave you last quarter where we decided to accelerate our infrastructure network investments in Greece and Romania.
Adjusted free cash flow which I remind you includes interest, but excludes voluntary leave scheme, spectrum reflecting one-off litigation payments totaled €283 million in the fourth quarter and a total of €459 million in the full year in line with the guidance we gave you the last quarter. We have seen in our press release guidance for full year 2017 is approximately €250 million. Let me explain how we get to this number which is about €200 million lower than the level we generated in 2016.
First of all, as Michael pointed out, we expect our CapEx to peak in 2017 at nearly €700 million. The increase compared to the past year primarily reflects the acceleration of VDSL and Vectoring investments which is translating into increased future revenues.
This represents in one-off charge of roughly €85 million in 2017. In addition, thanks to the use of tax loss carried forward in the past years, we have been able to minimize income tax payments in our Greek fixed operations. Having depleted of losses, we will have now additional payments of about €50 million in 2017.
Additionally, due to the way the Greek taxation is designed, we will also face a tax prepayment of the same amount, €50 million on the following year's taxes thus bringing the total incremental tax payments to roughly €100 million Euros for 2017.
Now, we expect to return rapidly to a more normalized or sustainable free cash flow level in the coming years as the CapEx peak in the tax fee will overcome and as our international operations starts generating high level of free cash flow again.
This sums up what we want to highlight in our opening remarks. And Michael and us, we are now ready to answer your questions. Operator?
[Operator Instructions] Your first question comes from the line of Stam Draziotis of Eurobank Equities. Please ask your question.
Hi, this is Stam Draziotis from Eurobank Equities. Three question if I may please. Firstly on the Greek market. Obviously you said there seems to have stabilized in 2016 in terms of topline as mobile declines were offset by the fixed segment. I was just wondering, do you share a view to express recently by one of your competitors that we've basically reached a kind of a tipping point, and therefore the market might actually be able to hedge a bit higher this year.
Second question would be regarding Romania. We've seen that this business remains under pressure you also took an impairment in Q4. On the other hand, you mentioned signs of stabilization in the press release. Could you just clarify what this means exactly? Do you expect the run rate will decline to moderate? Do you have indications that margins are kind of flat anymore close to reaching the chaff? And related to that, it also appears that this business was quite dilutive in terms of free cash flow in 2016. Are you optimistic this will not repeat itself in next year?
And from a strategic point of view in this context, would you consider a potential disposal of Romanian operations or are you sticking with your strategy of turning this around before considering any covert action?
That's pretty much it. And sorry, last question would be the usual one actually about the dividend policy. Just wanted to ask what will the trigger be for you to consider a more normal, if I may say, payouts and 10% to 20% of adjusted free cash flow declared as dividend in the last two years? Thank you.
Okay. Let me start with your last question about dividend policy. I think we have been sufficient in communicating that we are living in an environment where prudency matters. And therefore, the more we see any type of stabilization and normalization, we are confident to say that we are increasing the payout according to the experience from the market. However, we are still living in challenging times. And therefore, our short term strategy, middle strategy to use our test price our kind of hedging material is still hold.
So the more we go into the coming years and more we would see this certainty unfolding. On Romania let me say first of all that Algeria government, however generic views at normal business is 6% and we are always looking for ways to optimize the operations and the value for shareholders. For time being in Romania we have been experiencing couple of years of decline because of the challenges we have been describing in the past and this year we are searching of course stabilization at albeit low level, that comes after being consistent in reinforcing our corporative advantages which is the FMC for fixed offering foreplay and replay and also the mobile recovery after launching the 4G services.
So we continue to also visit the elections that we continue to focus on improving the operational performance and market share are low, they are in mid-teens, high teens and we think that from here onwards 2017 and 2018 we should see gradual recovery of the margins reflecting the payout of the investments we are doing fiber-to-the-home and 4G.
Now on the Greek market in 2016, we talked about tipping point, I would say that the Greek market has been always been very competitive and we always consider that we need to stay on the edge of competitiveness in order to win both in mobile and fixed. And we are using all the commercial weapons we have with TV, broadband and VDSL and in order to become relevant to the market and stay in the areas of market success we have.
This also explains why we are consistent in keep investing in the revenue generating areas and the pick in CapEx in 2017 aims at sustaining always competitive advantage that we have throughout our investments in order to further improve the service to the customers.
So we will see how it unfolds also with macroeconomic challenges that exist, I mean we have been very elaborating in saying that we have seen two special taxes left on our business one in TV summer and one in the broadband this January all this needs to be digested and set in the market where reported income is always under attacks and under challenging.
But we feel that we are doing the right thing investing in the area of where matters to the consumers and allow us to offer competitive services.
Thank you. That's actually very helpful. Thank you very much.
Thank you. Your next question comes from the line of [indiscernible] of Goldman Sachs. Please ask your question.
Yes, thanks for the presentation. Couple of questions, so the first one is how should we be thinking about the normalized CapEx on free cash generation assuming that unchanged market environment. Do you believe that €500 million CapEx and free cash flow which was the case say in 2015 is the reasonable assumption going forward beyond 2017 obviously.
And the second question is on the Champions League auction, do you expect major impact on the CapEx profitability of the group following the upcoming auction? Thank you.
CapEx is almost clear from presentation that we in deed fix CapEx in 2016. We are picking CapEx further in 2017. 2018 we will be - we will set laser of CapEx since our full VDSL deployment around most in this year but also in the first two quarters of 2018. Thereafter we expect the CapEx and free cash flow to normalize back to the levels that we saw in let's say in 2015 and 2016. Now the exact amount of course need to be will be guided properly as we are approaching 2018.
But I just want to confirm for one more time that 2016 is exceptional not only because of the investments that we are doing which we described but also because of the one off taxes that we need to pay because we have the depleted our deferred tax assets and this one-off item as well.
Now on the Champions League of course we haven't disclosed our strategy what will be for bidding but Champions League subtle in offering meaningful content and meaningful TV services to our customers. The score whenever it comes for the auction time, we will consider it as part of our strategy. As you can discuss, I can disclose further prices and strategy because that's not appropriate now.
Okay. Thank you.
Thank you. Your next question comes from the line of Vikas Nanda of NatWest Markets. Please ask your question.
Yes, hi there gentlemen, thanks for taking the questions. My question is on normalized ARPU of prices. I mean Q4 and I know seen a lot of promotional activity, as well as some price increases. So what I'd like to get to bottom of what sort of a normalized ARPU level for post paid and fixed broadband if you smooth out the initial discount on the contracts and factoring the full impact of the price increases.
Hi, this is Konstantinos taking. As far as pricing is concerned what we actually follow is our value based pricing strategy. We're always trying to address the increasing needs of our customers for data. Our growth for both postpaid and prepaid segments it will be appropriate pricing designs and of course in - sink with a growing penetration of 4GB device in the customer base. At the same time, we are working on the [indiscernible] line up once again trying to address household needs for increase bids or multiple devices requesting extra capacity that would be.
Okay. Can you quantify in terms of percentage, I mean percentage growth on average for the two segments postpaid mobile and Greece interest in postpaid mobile and fixed broadband.
We can take it offline if you want too. I mean we are going into very detail, I'm not sure I understand exactly what you are after.
Sure, okay. And maybe second one on the Vectoring investments and what sort of average return on investment or return on capital employed are you targeting there.
What we have seen so far in the - now from almost couple of years of experience is that the payback is roughly between six and seven years.
Okay. So on 15%, 16% something of that.
No way to look at Vikas
Okay. Thank you.
[Operator Instructions] Your next question comes from the line of Vikram Karnany of UBS. Please ask your question.
Yes, thank you. I just had two question. First in terms of cost cutting potential in Greece, you have come a long way in terms of reducing your personnel cost to now below 20%. I was wondering how much room you are still have further in terms of OpEx efficiencies especially in terms of our lower headcount and move to all IP. And if you could just give any type of targets well in terms of - this personnel cost to sales or EBITDA margin going forward in terms of Greece.
Secondly, coming back to the CapEx point, you have laid out previously in terms of VDSL coverage target of around 70% by 2019 if I recall and your current coverage is somewhere around 46. So if you're ramping up aggressively in terms of CapEx in 2017, are you reaching the target in the next couple of years ahead of lots, are have you increased that target beyond 70% just wanted to understand that roll-out plan. Thank you.
So firstly on the cost cutting front, I mean looking back you're right our track record has been exceptional. In those times while we were deploying our growth strategy by investing in the proper areas, we were kind of fuelling the EBITDA margins when revenues were still declining by the aggressive cost cutting that we did both in personnel cost through the voluntary retirement schemes and also on all other lines.
And so this was used in the past 2 to 4 years to fund the EBTIDA margins. Now as you can see we are especially increased we are reversing the currency revenues by monetizing the mentions we are doing in the past 2 to 4 years and other time with ADSL and then with 4G and that TV content.
So this doesn't mean that we are done with the course there is always room to improve cost and we are running various programs in the – we've seen the footprint we have but certainly once we didn’t expected 10s of millions of Euros that we have been experiencing in the past years. Yet as I said, there are other projects to reduce the entire course.
Now on the investment, the current coverage we have on the household is about 45% in the end of 2017, 2016. And with the ramp up of the CapEx that we have been describing in 2017 and a bit of 2016, we are going to go to the area of 80% coverage in the households. Of course this most of it - most of this coverage we have been achieved by early 2018 when we have completed the major little part of the CapEx program. And thereafter of course there are always areas where we will expand our network according to the demand in the commercial priorities. So all of this expansion is well into the CapEx envelope that we have been putting forward.
That's helpful. Thank you.
Thank you. And your next question comes from the line of [indiscernible]. Please ask your question.
I just want to make sure I understand the cash tax implication. So you basically have a incremental $100 million in 2017 which puts your kind of tax rate in the mid 50s. What do we expect for 2018 so does that I just - I assume you're prepaying as an 2018 for 2019, so how should I think about the cash tax rate for 2018 assuming no change in tax policy and from here.
No, actually all this tax effect is not created by specific change as of now. It's the result of two things, one is that in the Greek business in the past we had losses which were cumulated as carrying forward losses. And of course all this losses were allowing us, were enabling us to not to pay cash taxes up until 2016.
Now the profitability of course in the good quarter of the business has now depleted - profit of the stability this carrying forward losses and with the tax declaration of 2017 on the better profitability of 2016, we will pay for the fifth time around $50 million income taxes that Romanian would have paid in any case because of the course of the business, and according to the prevailing tax law which was revolted in 2015 actually, there is a prepayment of 100%.
So not only we will pay the € 50 million which is the normal less tax rate - tax expense but also we'll prepay €50 million which 100% of the tax bill which of course this will be offsetting the coming year. So that basically distorts - if we try to do the mathematics of effective tax rate in 2017 just by that of course distorts the tax, cash outlay.
Now in the 2018 onwards always we have been normalized for Greece we expect that the tax outflow will be in the area of 30% to 35%. The normalized tax rate is 29% whether you know always adjustments that drive up a bit the effective tax rate. So an estimate of around between
30%, 35% going forward for Greece is something that is a safe assumption.
And none of this incremental capital that you are spending which is pretty material at the moment is driving any sort of tax breaks whatsoever and so we should think of Greek no? Okay, so we should think of...
The tax breaks of the investments.
Right. So that we should think of that 30% to 35% assuming nothing changes is it good sustainable level on a cash tax rate going forward post 2017?
Of course these tax rates will be applied on the income before taxes. So that are the elements above and there is no any specific tax incentives or tax breaks for this investment unfortunately. So whatever it comes down as a profit before tax should be multiplied by an effective rate of 30% to 35% to find out the cash outflow.
Okay. And so let me just understand so by the mid-2018 this accelerated CapEx on the build-out will be hopefully complete, what are the specific goals that you want to reach at the end of the second quarter in 2018 in terms of coverage et cetera that gets you to where you want to be?
The main element of the investment is the NGA network the next generation access, VDSL and Vectoring. And the target let's see coverage by mid, just put it other way by mid-2018 will be close to 80%, 80% of the Greek households will have a name to offer VDSL and by the end of 2018 we expect this to be surely 80%.
I'm sorry you said 80% by mid-2018 or 80% by the end of 2018?
I said it's going to be close to 80% because the bulk of the CapEx rule will happen till the time but as always there are some neighbors and some smaller cities that will be left later in the second quarter - in the second half of 2018. So therefore while at the mid-18 we expect a close to 80% coverage by the end of 2018 we expect a solid and clear 80%.
And it was mentioned earlier approximately 15% to 16% return on the spend that you've done thus far. Do you expect to have that same level throughout the whole - entire spend.
As you may have noticed in the past quarter, the more the cabinets come out, the more we increase the VDSL customers. So there is acceleration of the VDSL net customers that gives confident by the way these trends continues also in Q1. So we expect that this in every VDSL customers brings a nice ARPU uplift so we see that now with 45% coverage of the customers in the country, we have no reasons to believe that this returns will be impact.
I mean we'll continue to see the demand, the demand from the Greek households to have higher speeds. So we are matching this demand and we feel comfortable and confident that at least till the mid of 2018 we will have a very good use of our investment.
Thank you very much.
Thank you. There are no further questions at this time sir. Please continue.
Thank you very much everyone and we'll see you in the next quarter. Thank you, operator.
Thank you, sir. Thank you. Ladies and gentlemen that does conclude our conference for today. Thank you all for participating. You may now disconnect.
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