Earnings call transcript: Telefonica Q2 2025 sees revenue growth, stock dips

Telefonica SA (TEF) reported its Q2 2025 earnings, revealing a revenue increase to €9 billion, marking a 1.5% organic growth. Despite this positive financial performance, the company’s stock witnessed a decline of 1.56% in regular trading, with further dips in aftermarket activity. The earnings call highlighted strategic shifts and operational updates, including the completion of sales in Argentina and Peru, and ongoing challenges in Germany.

Key Takeaways

• Telefonica’s Q2 revenue grew by 1.5% to €9 billion.
• The company reduced its net financial debt by 5.5% year-over-year.
• Stock price fell by 1.56% with further declines in aftermarket trading.
• Spain and Brazil remain strong markets, contributing 70% of group EBITDA.
• Strategic focus on fiber deployment and digital ecosystems.

Company Performance

Telefonica’s Q2 2025 performance reflected steady growth, with significant contributions from Spain and Brazil, which together account for the majority of the group’s EBITDA. The company saw positive developments in its fiber and 5G network expansions, although it faces transformation challenges in Germany’s B2B sector. The strategic divestment from Argentina and Peru aligns with Telefonica’s focus on markets where it holds competitive advantages.

Financial Highlights

• Revenue: €9 billion, up 1.5% year-on-year.
• EBITDA: Nearly €3 billion, a 1.2% increase from the previous year.
• Free Cash Flow: €505 million, a notable improvement from Q1.
• Net Financial Debt: Reduced by 5.5% to €27.6 billion.
• Earnings per share: €0.07 in Q2, totaling €0.15 for the first half of the year.

Outlook & Guidance

Telefonica reaffirmed its full-year 2025 guidance, anticipating continued revenue and EBITDA growth. The company projects a CapEx intensity below 12.5% and expects an improvement in free cash flow in the second half of the year. A strategic review is set to be unveiled later in 2025, which may further outline Telefonica’s future direction.

Executive Commentary

Emilio Gayo, a key executive, emphasized the company’s commitment to revenue growth exceeding 2024 levels. Marc Murtra highlighted Telefonica’s goal to create value across all decision-making processes and stressed the importance of scale in managing risks effectively.

Risks and Challenges

• Transformation challenges in Germany’s B2B sector could impact growth.
• Competitive pressures in the U.K. market may affect profitability.
• Macroeconomic conditions in Europe could pose financial risks.
• The strategic divestment process may face regulatory hurdles.
• Maintaining low churn rates in key markets is critical for sustained growth.

Q&A

Analysts inquired about Telefonica’s potential in cybersecurity and technology investments, with executives emphasizing the importance of European strategic autonomy. Concerns about leverage were addressed, alongside discussions on ongoing fiber infrastructure strategies.

Full transcript - Telefonica SA ADR (TEF) Q2 2025:

Thorsten Achtmann, Global Director of Investor Relations, Telefónica: As a reminder, today’s conference is being recorded. I would now like to turn the call over to Mr. Thorsten Achtmann, Global Director of Investor Relations. Please go ahead, sir.

Good morning and welcome to Telefónica’s conference call to discuss January to June 2025 results. I’m Thorsten Achtmann from Investor Relations. Before proceeding, let me mention that the financial information contained in this document has been prepared under International Financial Reporting Standards as adopted by the European Union. This financial information is unaudited. This conference call and webcast, including the Q&A session, may contain forward-looking statements and information relating to the Telefónica Group. These statements may include financial or operating forecasts and estimates, or statements regarding plans, objectives, and expectations regarding different matters. All forward-looking statements involve risks and uncertainties that could cause the final developments and results to materially differ from those expressed or implied by such statements. We encourage you to review our publicly available disclosure documents filed with the relevant securities market regulators.

If you don’t have a copy of the relevant press release and the slides, please contact Telefónica’s Investor Relations team in Madrid or London. Now, let me turn the call over to our Chairman and Chief Executive Officer, Mr. Marc Murtra.

Marc Murtra, Chairman and Chief Executive Officer, Telefónica: Results conference call. Is it on? Excuse me. Sorry about that. Good morning, everyone, and welcome to Telefónica’s second quarter results conference call. With me today are Emilio Gayo, Laura Abasolo, Markus Haas, Lutz Schüler, and Eduardo Navarro. It is a pleasure to have you here as usual. We will first walk you through the slides, and we’ll be then happy to take any questions. Six months ago, I joined to lead Telefónica with a clear goal: unlock the values that exist within the company. We’re still early in our plan, but the pieces are starting to come together. Today’s results show steady operational execution, continued progress on strategic initiatives, and our strategic review, which we’re expeditiously advancing on schedule for second half unveiling. Behind the scenes, we’re making significant progress, working intensively to get this right.

While I can’t share the conclusions of our strategic review, I can ensure that every decision we’re making follows four fundamental principles. First, customers are at the core of everything we do. Second, technology and operational excellence are fundamental to our business. Third, we apply an industrial rationale to our decision-making. Fourth, our ultimate goal is to create value across all our decision-making, all under strict financial discipline, prioritizing Europe and leadership in Brazil. Despite a variable macro environment, we’re focused on managing what is within our control. We are confident that the transformation underway at Telefónica will create value for our shareholders and strengthen our competitive position. The strategic choices we’re making will contribute to a stronger, more competitive telecom industry in Europe. On slide three, let me walk you through our second quarter operational highlights. We’re maintaining momentum across customer growth, network expansion, and portfolio optimization.

Each of these areas is part of our future. Starting with customer focus. This quarter, we added 2 million accesses to reach 349 million accesses. Their experience and satisfaction remain a priority, and customer lifetime value is improving, with high levels of NPS and low levels of churn. We continue with portfolio renewals and new tariffs, like in Spain with MIMOVISTAR and O2. Our network build continues. We accelerated our fiber-to-the-home rollout with 1.5 million premises added in the quarter, while our 5G coverage expanded by 2 percentage points. The completion of our copper shutdown in Spain marks an important moment. We’re the first major European operator to achieve this milestone. This frees up resources and focus for other endeavors. We’re being disciplined on efficiency and portfolio management. We continue to simplify ISPAM. This allows us to concentrate resources and management bandwidth where we can build competitive advantages.

In these six months, we’ve reshaped our Latin America footprint. We completed the sales of Argentina and Peru, signed a binding agreement for Colombia, and recently announced binding agreements for Uruguay and Ecuador. These transactions represent approximately EUR 3 billion in firm value. Our approach focuses on concentrating resources in select markets where we have competitive advantages. The speed of execution matters, and it allows us to be productive on other fronts. Each transaction strengthens our ability to invest more effectively in our core markets and has been structured to minimize execution risk. This approach is part of our capital redeployment. This approach is an example of what we want our industrial rationale to be. We evaluate every market and every investment through the lens of industrial value. We aim for a simplified organization that can move faster and compete more effectively. Our work in ISPAM is not over.

Moving to slide five. Revenue reached almost EUR 9 billion in the quarter, growing 1.5% organically. EBITDA almost EUR 3 billion plus 1.2%, and EBITDA minus CapEx was broadly stable. Free cash flow turned positive to EUR 505 million in the second quarter, an improvement of EUR 718 million versus Q1. In the first half, free cash flow was EUR 291 million. Free cash flow will continue to improve in the back half of the year, following our typical seasonality. Foreign exchange headwinds impacted reported figures slightly higher than in Q1. Net financial debt decreased 5.5% year-on-year to EUR 27.6 billion as of June. The first six months reflect free cash flow seasonality and the dividend payment in June. Lastly, earnings per share from continued operations amount to EUR 0.07 in the second quarter and EUR 0.15 in the first half.

Moving to slide number six, Spain and Brazil, which together represent 70% of group EBITDA, showed improving trends this quarter. Spain delivered its best Q2 net adds since Q3 2018 while improving EBITDA minus CapEx. Brazil continues its good run with record EBITDA growth since Q4 2023, performing above inflation, although it was negatively impacted by forex and exchange movements. Germany is facing the effects of the B2B transformation while maintaining solid consumer momentum. VMO2 is investing in its network, while EBITDA decline slowed on efficiencies. ISPAM showed resilience and declining EBITDA softened and growing contract net adds. While we transform Telefónica, our operations must continue to deliver and improve. What we’re seeing across our footprint is operational stability. This will give us space to execute our strategic initiatives while maintaining financial discipline.

Our performance in Q2 is in line with expectations, reflecting different moving parts in the direction of business. Based on our first half performance, we reiterate our full year 2025 guidance across metrics. Revenue and EBITDA continue to grow in line with our targets. EBITDA minus CapEx was stable due to phasing and will improve through the year. CapEx intensity remains within our target of being below 12.5%. Free cash flow already improved in Q2, and we expect the momentum to build through the second half, which is our typical seasonal pattern. Leverage is currently above guidance target. This temporary uptick is mainly due to free cash flow seasonality in the first half, the FX mix impact on the ratio, and the dividend payment in June. We’re expecting it to improve over the course of the year. These results keep us on track to deliver our guidance.

Let me now hand over to Emilio to take you through our operational performance in more detail.

Thank you, Marc. Let me start by giving an overview of the main themes in our core operating businesses. First, commercial momentum remains steady. We are showing very strong levels of net adds. Low churn and our digital ecosystems continue to gain traction. To highlight, in Spain, we achieved the highest quarterly net addition since the third quarter of 2018, and we’ve increased the number of OTT subscribers by 55%. Second, our networks are a key differentiating factor for the quality of our services, product offerings, and customer satisfaction. As an example, in Spain and Brazil, we have superior NPS compared to our competitors. Also, the lifetime value of our convergent customer is the best in our domestic market, which is the figure of our closest competitors. Third, our performance in key markets and our investment in Hispanoamérica show our focus on execution.

In Spain and Brazil, we have improved financial trends year-over-year in the second quarter. In Germany, we are focused on mitigating the impact of the migration of 1&1, showing growth in underwriting terms. Finally, in the U.K., Virgin Media O2’s decline in EBITDA improved, reflecting cost efficiencies. Onto slide nine. Performance in Spain was excellent, with accelerating growth in customer and financials. Momentum in Q2 was again very strong, achieving the highest net adds in more than six years. The year-on-year growth of our key services accelerated. There were several drivers behind this. We saw a convergent churn reaching 0.8%, its lowest level in more than 11 years. There was an improved portability balance. Finally, we had 89,000 TV net adds, the highest number in more than six years. This has been possible thanks to Telefónica España, reinforcing its market position during Q2 with a cemented commercial strategy.

We improved O2’s and Movistar’s value proposition with additional features such as new TV content, increased the fiber speed, and more mobile data. On top of this, we launched Movistar Por Ti, a personalized customer care plan that deeply changed the way we serve our subscribers. This approach is a structural change in the market. It will drive a further expansion of our best-in-class NPS in Spain and a sustained reduction in claims, which were already on the decline. This proves our commitment to excel in customer experience in a market where trust and quality are key loyalty factors to drive commercial performance. Meanwhile, convergent ARPU remained the best in the market, above EUR 90, despite the end of the football season and the higher OTT penetration. Strong financial performance continued with improved growth across metrics.

Q2 revenue growth increased year-on-year thanks to sustained growth in services and higher handset sales. Retail revenue increased above inflation, driven by customer growth, price upgrades, and higher weight of services beyond connectivity. We delivered growth in both B2C and B2B. There was double-digit growth in IT sales, which already accounts for over 50% of B2B revenue, with a record-high IT backlog. As expected, wholesale and other revenue declined due to the renewal of wholesale agreements, which added long-term sustainability. The year-on-year growth in EBITDA in Q2 also accelerated. This performance is driven by several factors: revenue growth, stabilization of leases, efficiencies in network transformation, and hyperautomation. Also, Copper Network’s add-on was completed in May. EBITDA minus CapEx increased by over 2% in H1, showing our leading cash conversion in the domestic market. In summary, in Spain, we continue to leverage our solid fundamentals to deliver a stronger performance.

Onto the next slide. Telefónica Brasil’s performance in Q2 was again marked by solid growth both in operations and financially, thanks to our sustained leadership in a quality customer base. Upselling initiatives from prepaid to contract plans, our focus on convergence, and our commitment to offer the best services led to a 6% increase in our contract accesses and more than 60% increase in Vivo Total. Our ability to retain high-value customers despite increasing prices is reflected in postpaid churn, which remained very low in Q2 at 1.1%. The growth in TV accesses and the 42% increase in revenue from cloud services are two examples of the increasing traction of our digital ecosystem in Brazil. Revenue increased by 7% and continues to outpace inflation thanks to two factors. Firstly, strong growth in postpaid and fiber, showcasing Vivo’s successful convergence strategy.

Secondly, growth in real terms of our fixed and mobile revenue. Despite this strong commercial momentum, we were still able to maximize efficiencies, which resulted in OpEx growing below inflation. Vivo delivered the highest EBITDA year-on-year growth since Q4 2023, with margin expansion. In Brazil, we have expanded our fiber footprint to 30 million premises passed. To highlight, on the 10th of July, Telefónica acquired the 50% stake of Fibercell, owned by CDPQ, strengthening Vivo’s leadership in fiber. This cost BRL 850 million. In addition, we have integrated the IoT and big data businesses into the cloud business. This change will allow greater simplicity and increased efficiencies. In summary, I am happy to report that Brazil is performing excellently. We expect to maintain these results throughout the next quarters.

Moving to slide 11, Telefónica Brasil’s reported financials were impacted by the migration of the 1&1 customer base and the partner businesses’ transformation. While we continue looking for additional growth and efficiency measures to mitigate this impact, the underlying performance showed growth across revenue, mobile service revenue, and EBITDA. Higher promotional activity continued across segments in what is a more mature market. In mobile, we saw robust commercial additions, with contract net adds increasing double-digit quarter on quarter. Additionally, O2 contract churn remained stable year-on-year at a low of 0.9%, reflecting the strength of the O2 brand. In the B2B segment, we signed a major new customer, a German and European market leader in shoe retail. Also, Telefónica announced a strategic partnership with Siemens. Together, both companies will transform the water industry with the first fully integrated connectivity solution based on 5G network slicing.

On the financial side, revenue declined year-on-year, mainly due to lower mobile service revenue. EBITDA declined 6% year-on-year, reflecting the impact of the 1&1 customer migration. We expect this impact to continue as more customers migrate off our network. In summary, while financials reflect temporary pressures, Telefónica continues to execute on its strategy to position the company for growth once the impact of the 1&1 migration is over. We aim to achieve this growth, investing in network leadership, applying efficiency measures, and driving sustainable commercial performance through focused growth initiatives in all the segments. All of this will help drive profitable growth. Moving to slide 12, the U.K. mobile market remained competitive in Q2, and Virgin Media O2 stays focused on customer loyalty and protecting value. O2 contract churn improved to 1%, driven by an enhanced customer experience and ongoing investment in network quality.

In fix, we are stepping up our retention efforts as we adapt to the evolving market conditions, including the implementation of one-touch switch. At the same time, we expanded our fixed network footprint to over 18.5 million premises passed, with more than 7 million on fiber. Consumer fixed RPU also grew year-on-year for the fifth consecutive quarter. During the quarter, we received regulatory approval to create a new B2B company, with the transaction expected to close on August 1. We also announced an agreement to acquire 78.8 megahertz of spectrum from Vodafone UK for GBP 343 million. This acquisition will be partially funded by last year’s minority stake sale in Cornerstone. This transaction will bring our total mobile spectrum share to around 30%, strengthening our network capacity. It will also support greater balance across U.K. operators, enhancing competition, improving coverage, and elevating the customer experience.

Spectrum transfer is expected to begin in the second half of the year, subject to outcomes approval. Financially, revenue declined by 5.7% year-on-year, mainly due to three factors: the phasing of price increase under the new pounds and pence approach, lower handset volumes, and reduced next fiber bill activity. However, EBITDA declined due to the reduction in next fiber construction. Excluding this, EBITDA growth accelerated in Q2, reflecting the cost optimization efforts following the 2024 investment in IT and digital transformation. In summary, the U.K. business is progressing with steady network expansion, early signs of financial stabilization, and continued focus on customer value. Moving on to slide 13 and the operating performance in Hispanic, which now includes four countries. For the second consecutive quarter, we posted positive contract net adds in the region.

These positive results are driven by the improved network quality in Colombia due to the launch of Movistar Antigos single mobile network, our great performance in Mexico, and a better regulatory environment in Chile. On the fixed business, almost 100% of our broadband customers already have fiber. Revenue decreased year-on-year, mainly due to sales of copper in Chile in the first half of 2024. EBITDA decreased 2.8% year-on-year but improved sequentially due to Colombia. Onto slide 14 to review our transversal units. Firstly, regarding Telefónica Tech, revenue growth rate improved quarter on quarter to over 12% year-on-year in Q2, with bookings growing in line with revenues. By sector, the performance is driven by the solid demand in financial services, healthcare, and public administration. We have also reinforced our AI and data capabilities to expand our offer. Secondly, onto Telefónica Infra.

Our fiber costs have already reached 29 million premises passed, representing 35% of group deployment. Our submarine cable business delivers sustained profitability with margins of around 50%. Telefónica has signed a partnership with Google to provide the necessary infrastructure to land the new subsea cable in Spain. In summary, consistent execution continues across our markets and businesses. I will now hand over to Laura for the main financial topics. Thank you, Emilio. Free cash flow has improved by EUR 718 million to EUR 505 million in the second quarter and EUR 291 million in the first six months of the year. Free cash flow follows its usual seasonality in the first half, and this has been reflected in the evolution of the net financial debt and the leverage ratio, which has increased to 2.78 times. However, as the year progresses, free cash flow will gain traction heading toward targets.

Furthermore, net debt will be reduced to EUR 26.0 billion after the sales of Telefónica Ecuador, Uruguay, and Colombia, and acquisition of the 50% of Fibercell. We maintain ample liquidity, which covers debt maturities over the next three years. The average cost of debt has been reduced year-on-year from 3.64% in June 2024 to 3.30% in June 2025. We continue with our present financial policy and free cash flow management, which are key priorities for us. Turning to page 16. This quarter, we have made significant strides in our sustainability efforts. On the environmental front, we have published an updated climate action plan, marking a clear pathway towards our ambition to be net zero by 2040. Furthermore, Telefónica has been included as a supplier engagement leader by CDP for the sixth year running in recognition of our efforts to reduce value chain emissions.

On the social side, our customer-centric approach has led us to launch a new personalized service model in Spain. We also remain committed to diversity and inclusion initiatives, and this quarter, we achieved 34% female executives. Looking at governance, we have been recognized for our transparency, receiving awards for both fiscal and sustainability reporting. Finally, I’m pleased to share that Time Magazine considers Telefónica as the second most sustainable company in the world. I will now hand back to Mark, who will wrap up. Thank you, Laura. To summarize, our second quarter offers data to show how we’re managing this transition period. We’re maintaining operational performance while we prepare for the changes ahead. We are making progress on portfolio focus with fine SPAM transactions. Our networks continue to evolve, including completing the copper shutdown in Spain. We’re on track to meet our financial guidance. Our strategic review continues on schedule.

We’re taking a hard look on how to position Telefónica in a changing industry. I look forward to sharing our conclusions in the second half of the year. Thank you very much for your attention, and we are now ready to take your questions. Thank you. If you would like to ask a question, please press star followed by one one on your telephone keypad. Once again, that is star one one to register a question. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one and one again. We will kindly ask you to ask a maximum of two questions per participant. There will be a short silence while questions are being registered. We will now take the first question from the line of Andrew Lee from Goldman Sachs. Please go ahead. Good morning, everyone.

I had two questions, one on Spain and one on the U.K. Just noting Emilio’s, I guess, pretty bullish comments on the strong KPIs in Spain, but revenue and EBITDA growth still remains pretty low versus peers across Europe. So the question is, do you expect growth to accelerate meaningfully, organically to more encouraging levels, or does Spain still need fixing, and what are the potential opportunities to fix that, if so? Secondly, on the U.K., the KPIs weakened again, but the fiber market looks ripe for consolidation. I know your net creation process keeps stalling. But the question is, is VMO2 in a position financially to be able to pursue what it wants to do on fiber consolidation, or are there still inorganic things that need to be done to put yourself into a position to succeed there? Thank you. Thank you. Andrew, regarding the question about Spain.

I will say that we aim to deliver revenue year-on-year growth higher than 2024. Fostered by the handset sales and retail. We see B2C growth ahead driven by a better customer experience, best-in-class churn, January 2025 price increase, and solid mix of convergent and KPIs supporting customer lighting value. New subscriber on O2 and direct-to-consumer Movistar Plus, and a solid new service ecosystem increasing the traction of our portfolio. In B2B, we have a strong B2B momentum. As communication and IT coverage, we are the player with the best commercial offer. It is the growth engine, while communications are protected by portfolio revamps. In terms of wholesale, we expect the wholesale and order to decline year-on-year. Nevertheless, we have more sustainable wholesale businesses delivered from the agreement signed in 2024.

In terms of EBITDA and the part of the cost and cost, we expect to continue capturing savings from efficiencies, such as network transformation, simplification of processes and systems, and optimized commercial costs by front automation and higher use of online channels. As a result, we expect 2025 EBITDA and EBITDA to show higher year-on-year growth than in 2024. Regarding the VMO2 question, Andrew, there are different opportunities in the U.K. market, some of which you have mentioned. I think we have different ways of capturing the opportunities we’re interested in, but I cannot comment on any specifics due to us wanting to keep confidentiality with regards to what we want to do on the M&A side and to maintain flexibility with regards to how we pursue those opportunities. I’m sorry for the ambiguous answer. No, thank you. Thanks, thanks anyway. Just on the Spain, just.

Is 2025 having higher growth than 2024 in revenue and EBITDA, I guess that’s the minimum that you’d want to see from that business. Would you expect further acceleration organically into 2026 and beyond, or does something need to change in the market for you to be able to achieve that? Absolutely. We have commenced that we have the strategic review during this part of the year, and we will talk about the objectives and the targets of 2026 at the end of this strategic review. Understood. Thank you. Thank you. We will now take the next question from the line of Joshua Mills from BNP Paribas Exane. Please go ahead. Hi guys. Thank you for the questions. I have two as well, please. Mark, I understand we won’t get much more detail on this until we arrive at the strategic review.

I’d love to hear some high-level thoughts about the tech and cybersecurity opportunities for yourself, but also telcos more generally in Europe. It’s an area you’ve talked about, but it’s also one investors have been skeptical around the ability for telcos to create value in historically. I guess the question is, when you talk about adjacent areas, industrial rationale for your strategic review, what makes tech investments different now to in the past? And more specifically, what strengths do you think Telefónica brings to the table versus some of your telco peers? That would be the first question. The second question, just on the U.K. If I come back to the results we saw this morning, it’s slightly weaker revenue than expected. EBITDA is still growing in absolute terms. Look, to meet the guidance for revenue growth for the year, you’ll have to accelerate in the second half of 2025.

What will drive that acceleration in revenue growth on a guidance basis with VMO2? Perhaps in that context, if you could give a bit of color around competition in the fixed-fine market as well, that’d be great. Thank you. Okay, thanks. With regards to the first question, yes, markets have been skeptical, and I would say with good reason. In the past, with regards to what telecom operators can do in the tech and cybersecurity part of the world, I would say specifically in the product area, not so much in the integration area. What I do think, or what we do think, and what we’re analyzing are two large changes that have occurred in the last 6 to 12 months. The first is the embiggered notion of strategic autonomy.

Europe and the different nation-states have stated we need technological strategic autonomy, and that in our mind means having cybersecurity technology in Europe, which does not exist. The second is the announced, I would qualify as huge defense investments. A lot of the announced huge defense investments will be in creating technology. Cybersecurity, of course, is a twin brother of cyber defense. With regards to the first point, we expect conditions regarding the cybersecurity market to change driven by European political will, and if that happens, we would react accordingly. The second, we expect large investments in the area of cyber defense, which we think those that operate in cybersecurity can capture. What strengths do companies like Telefónica bring to the cybersecurity area? We have, and other large telecom operators have, a large, long, and deep experience in integrating and managing cybersecurity products. So we are near the cybersecurity space.

We are part of the cybersecurity space, but it is true we haven’t created cybersecurity products. Okay. Regarding the revenues in the U.K. During the conference, we explained some factors that explain the evolution of the revenue, and I’m going to hand over to Lutz to give you more color about that. Thank you, Emilio. Good morning. Yeah, the fixed market in the U.K. is impacted by one-touch switch and also by high promotions from AuthNet and also some direct competitors. As a result of that, we had the second quarter in a row negative net debt, so that is correct. What we are doing is we have a very sophisticated machine to manage retention in the right way, and now we turn this machine to prevention. We have made good progress in the second half here. Now, to your question.

How do we come to service revenue growth during the course of 2025? Obviously, we have guided revenue excluding hardware and construction revenue, which has been flat in the first half year. Within that, consumer has been growing, so consumer service revenue has been growing, and B2B revenue has been shrinking a bit. We have a pretty encouraging funnel on the B2B side, so we think we will get some bigger deals closed in the second half of this year, and therefore we stick to our target. Thank you. Thank you very much. Thank you. We will now take the next question. From the line of Akhil Dattani from JPMorgan Chase & Co. Please go ahead. Hi, morning. Thanks for taking the questions. I’ve got two, please, as well.

The first is just on the strategic review that you’re running, and I guess I wanted to stand away from the industrial side, where I appreciate it’s going to be hard for you to comment specifically, but I wanted to ask a more philosophical question around the balance sheet. There’s been a perennial debate in the market around leverage across the sector and whether that constrains the ability to invest freely or to take proactive measures on acquisitions to drive strategic growth. I just wondered now you’re six months into the process of reviewing what you want to do. Can you just talk us through how you think about the balance sheet? The context being Telefónica is probably at the upper end of the peer group on leverage. Do you think that is any sort of constraint?

Do you think it is important to create more financial flexibility, or conversely, do you think, given cash flows improving, it is not a relevant factor? I would love to understand that a little bit better. The second one is actually just in reference to a comment you made in the press on the industrial plan. I guess I just wanted to understand how we should interpret it. Specifically, it was in Spanish, so maybe there is a translation-related issue here. Effectively, what the article seemed to quote you as saying is that you are looking to place a lot of bets to make sure that a few succeed. I guess what I was really trying to understand is, what is that in relation to? Were you talking about industrial journeys across different markets? Is that specifically in relation to M&A?

Can you maybe just clarify what you meant by wanting to take a multitude of bets to make sure a few of these deliver? Thanks a lot. Sure, Akhil. Actually, the philosophical questions are the ones I really enjoy. Regarding your first and philosophical questions, I break it down to different points. The first one, we will not compromise our grade, our grade, our net debt grade. We have, of course, net financial debt. We have hybrids, and we have other liabilities. We are not going to move with regards to the ratios we have and we have promised we will keep. With regards to operations, of course, operations also include acquiring EBITDA. Any acquisition can include the acquisition of EBITDA. If the target one is acquiring has a larger leverage than our leverage, that is a leverage problem.

If it has a lower leverage, that is not necessarily a leverage problem. It is our technical belief that if we have good targets, the market offers good options to finance those. With regards to your final sub-question, the way we see it, our leverage and being on the upper end of the leverage is a constraint. It is relevant, but we do not think it will be strategically limiting to us. We can find solutions for good operations. That is always under the initial constraint that we will always be investment-grade. That would be my answer to your first question, Akhil. With the second one, the answer that you read that was originally in Spanish, it has to do with assuming more calculated risks. At the end of the day, risk goes with return.

The reason we want to acquire a larger scale is because there are larger economies of scale. We think that is good for Europe, and we think as part of the idea of, "Please let us. Gain scale. Let us consolidate the European market," and then we will be able to invest in. Technology. And investments in technology. Have. High risk. So I’m not discussing launching huge operations with high risk because that is not the nature of what we do, but having the balance sheet and the capability eventually of launching small. Operations that. Might have a higher risk profile, and then detecting those that have or create traction and being able to double down. What I was saying is. Risk goes with return, and we need scale or we want larger scale to be able to take on more calculated risks.

Any high-risk operation that we ever take would be of limited scope initially. If that works, we would scale it up. Appropriately. I was not referring to. What we imagine like large or significant M&A operations. It had to do with technology or more limited operations. That’s really clear. Thanks very much. Thanks. Thank you. We will now take the next question. From the line of Nick Leal from Berenberg. Please go ahead. Hi, there. Morning. Could I ask two as well, please? Just. Firstly, on Germany, is it possible for you to give us the underlying ARPU move of the. Remaining 17.6 million. Contract subs on the Telefónica. Brand, please? And then secondly, on Spain, you mentioned copper savings as you shut down the network and that you’re first in Europe.

Could you give us more details on what you’ve found so far in terms of savings and maybe a bit of help on what future savings you might be able to take as you shut down copper? Thanks very much. Thank you, Nick. Regarding the Telefónica Deutschland question, I’m going to hand over to. Markus to give you more explanation about that. Thank you. I think in the reported average postpaid ARPU, you clearly see the wholesale customers included. With the phase-out and the migration, there’s a technical effect. The ARPU will finally grow to the ARPU by year-end, and then you will see next year the full-own postpaid ARPU with the reduction of the wholesale customers. It’s clearly, we always said, is significantly higher than the reported number that you see.

While we don’t have a segment reporting through the different customer types, you will clearly see a constant improvement. What we can say is we have a broadly stable ARPU with our own customers, as reported and presented earlier. The small reduction is mainly driven by family cars and second SIM cards, but the overall ARPU trend in the O2 postpaid base, and it is clearly the major or the lion’s share in the 17 million that you mentioned, is broadly stable. Nick, regarding the copper question, just to remember that Telefónica is the European leader in copper switch-off, having shut down the entire copper network. Today, we are a fiber company with not even a single copper subscriber. We have consolidated structural efficiencies from copper switch-off. We have total benefit of more than 1 percentage point in 2024 EBITDA margin.

These efficiencies are derived from lower energy consumption, lower technical failures, optimized cost in call centers, lower maintenance costs, and staff resigning enabled by technological upgrade. The end of the fiber rollout and copper switch-off does not mean the end of the network transformation. Telefónica has to continue dismantling copper facilities. In fact, we are into reaching a run rate with an additional half a point in margin when transformation is over. That will be around three more years. Okay. Great. In summary, is it 1 percentage point margin improvement this year, EBITDA minus CapEx, and then 0.5% over the next three years? Is that roughly what you are guiding to with that copper move? No, no. It is 1 percentage point in 2024, and in the next coming years, after all the transformation that it will take three years, it will see an additional half a point in margin.

Okay. That is clear. Thanks very much. Thank you. We will now take the next question. From the line of David Wright from Bank of America. Please go ahead. Hello, guys. Thank you for taking my question. I just noticed in the release and the Telefónica Deutschland section, you talk about, and I quote, "mounting consumer reluctance to spend." I guess independently, we have seen, perhaps with the Einstein’s profit warning recently, consumer desire to maybe raise usage. How should we think about that? Is the consumer looking to grow data but really does not want to spend anymore? Are you finding major opposition? Do you think that is a barrier to wider price increases in the near term in Germany that some of your competitors are maybe considering? Thank you.

David, thank you very much for the question. I am going to hand over to Markus to give you more explanation with more detail. Thank you for your question, David. I think we see twofold. If you look at the prepaid and the postpaid segment, what we clearly have seen is that in the prepaid segment, we have been able to increase our promotions and tariffs by 10%. With the launch of unlimited on demand in the last quarter, it was a very successful proposition. We see the willingness to pay more for more data if the proposition is right. Clearly, we need to model smart models and also smart tariff plans that we saw, but especially the unlimited on demand that Telefónica introduced to the German market last year is clearly a way to monetize data by not giving the full unlimited.

The full unlimited plans are currently set at EUR 60. Clearly, there are promotional activities on them, but every unlimited customer on our network grades is ARPU equative. Whenever customers choose unlimited, we increase the average ARPU of the customer base. There is still demand for 20, 50, and 100-gigabyte tariff plans, and that is still the majority of the inflow that you have seen of the 180,000 postpaid net adds that we delivered in the last quarter. I think it is a mix. There is a higher willingness to pay for unlimited. I think that is the first conclusion that we take, but clearly, we need to play it smart. Clearly, we have different underlying economics if you play like an MVNO with unlimited, of course. From that perspective, there is value up, and we are currently realizing that. Okay. Thank you. Thank you.

We will now take the next question. From the line of James Ratzer from New Street Research. Please go ahead. Yes. Good morning. Thank you for taking the question. Two, please. The first one goes back a little bit to what I think Josh was asking earlier on cybersecurity, but would just love to dig in a bit more on what your current investments are in areas around sovereign cloud and what is included in your CapEx at the moment for kind of data spending or gigafactory spending. I mean, I noticed with interest, Deutsche Telekom recently signed a large deal with NVIDIA to expand some of their investments in Germany. I am really kind of wondering whether you take your current levels and see the need to increase the spending in that area in Spain.

The second question was I would just love to get a process update on the fiber pass stake sale. Is that currently on pause at the moment as part of a strategic review like the U.K. Netco sale? Or if not, and that process is ongoing at the moment, could you give us an update on expected timing for that transaction to close? Thank you. Yeah. I’ll have a first quick answer. Then I’ll pass to Emilio. With regards to the future, regarding data centers or opportunities like that, that is part, of course, of the strategic review. You mentioned the Netco. The U.K. Netco is not paused, and it’s not part of the strategic review. That is a decision we made and announced, and that has to do with our industrial strategy and industrial way of working. Emilio. Yes.

Regarding the fiber pass, I would say that this process is ongoing and is not based in the strategic review. We have an agreement with Vodafone, and we are working on that in the same plan that we had before. Regarding the first question, talking about cybersecurity or cloud, we do not see the need to invest CapEx in an important amount of cloud because these kinds of businesses are not considered or not so important to invest in CapEx. Regarding gigafactories, as I can say at this moment, Europe launched an initiative to invest in establishing up to five AI gigafactories. There was a call for expression of interest. We have responded to this expression of interest because we are interested in hosting one gigafactory in Spain.

At this moment, it’s too early to give you more details because this is a process that will really start to be in our consideration during the last part of the year where the government or the E.U. finally launched the process with RFPQ, RFPP, or whatever process they consider. Good point. We have time for one last question, please. Thank you. We will now—sorry. Yeah. We will now take the next question from the line of Keval Khiroya from Deutsche Bank. Please go ahead. Thank you. We’ve got two questions, please. Firstly, TEF Deutschland had the 2025 outlook for broadly stable EBITDA, but understandably, we’ve seen the EBITDA falling 4% in the first half. Is the business tracking in line with your expectations, and when do you think EBITDA in Germany will stabilize and then grow? Secondly, just a question on infrastructure.

Telefónica has historically had different structures on infrastructure from fully-owned JVs to having minorities. Do you feel it’s more important to fully own infrastructure than before? I noticed you bought out your JV partner in FiBrasil. Thank you. Yeah. Regarding the first question, I’m going to hand over to Markus. Thank you, Emilio. I think it’s fair to note on the German EBITDA that the migration of the national roaming and MB&O revenues is a two-year journey. I think the combination of growth and efficiency measures started already bearing fruit in early 2024. It supported last year’s EBITDA growth for Germany alone by 4.3% full year year-over-year. While one-on-one customer migration was suspended, as we all know, last year by several issues on technical reasons on the partner side, we faced in 2025 tough comps on EBITDA with the pre-delivery already in 2024.

Coming back to your question, broadly stable is a range that goes from the minus to the positive, so it’s around a zero point. Overall, we feel comfortable with what we have said in the past. As said, it’s a two-year journey, and we deliver the efficiencies not on a linear basis as outlined. Overall, we are on track with the accelerated growth and efficiency plan. Regarding the second question, I would say our position is and will be. As the result of the strategic review that we are an industrial operator, and therefore, core infrastructures of our business are better run near our business and in a simplified way so that we can coordinate the different areas of our business, including monitoring demand and making, servicing that demand with infrastructures and, of course, with a convergent offer. I won’t comment too much with regard to that.

That is more or less than what we used to say. That is the way we operate, and that is the way we see we operate in a more efficient way from a cost point of view and from an offering in services for our clients to keep ARPU high and churn low. That’s clear. Thank you. At this time, no further questions will be taken. Okay. Thank you, everybody. I’m sorry we didn’t. I’m sorry for the answers we didn’t answer. I think there was maybe a. One of you tried to reask a question, and by the time we realized, we jumped on to the next question. We’re happy to answer that offline. I hope this was a useful time of your hour, and we’re looking forward to having a deeper conversation once the board approves the new strategy and we make it public. Thanks very much.

Have a good day. Telefónica’s January-June 2025 results conference call is over. You may now disconnect your line. Thank you.

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