Vodafone Group Plc (VOD) Q1 2021 Earnings Call Transcript

Vodafone Group Plc (NASDAQ: VOD) Q1 2021 earnings call dated July 24, 2020

Corporate Participants:

Nick Read — Chief Executive Officer

Margherita Della Valle — Chief Financial Officer

Vivek Badrinath — Chief Executive Officer, Vantage Towers

Analysts:

Georgios Ierodiaconou — Citigroup — Analyst

Andrew Lee — Goldman Sachs — Analyst

Jakob Bluestone — Credit Suisse — Analyst

Nick Delfas — Redburn (Europe) Limited — Analyst

Akhil Dattani — J.P. Morgan — Analyst

Maurice Patrick — Barclays — Analyst

Emmet Kelly — Morgan Stanley — Analyst

James Ratzer — New Street Research — Analyst

Usman Ghazi — Berenberg Bank — Analyst

Robert Grindle — Deutsche Bank — Analyst

Polo Tang — UBS — Analyst

David Wright — Bank of America Merrill Lynch — Analyst

Adam Fox-Rumley — HSBC Bank Plc — Analyst

Samuel McHugh — Exane BNP Paribas — Analyst

Presentation:

Nick Read — Chief Executive Officer

Good morning, everyone. I hope you’re staying safe. Thank you for taking the time to join us. I’ll be joined by Margherita and between us, we will run through the key highlights for the quarter and our trading performance. I’m also delighted that, Vivek, is here to present to you as well. He will introduce Vantage Towers, Europe’s leading tower company.

Let me start with the highlights for Q1. Overall, our performance in the quarter was in line with our expectations. While we have seen the direct impact of COVID-19 on our revenue, largely because of the travel restrictions, we’ve maintained a consistent commercial performance that we’ve achieved through the whole of last year. And in our largest market, Germany, our performance was particularly resilient. As a result, we are reconfirming both our EBITDA outlook and our free cash flow guidance for the year.

We’ve continued to execute at pace on our four key strategic priorities, which will support us in what is likely to be a tough economic environment. We’ve seen a further improvement in customer loyalty with churn down a seventh consecutive quarter, and we have accelerated our digital transformation, fundamentally changing how we operate and engage with our customers.

I’m also pleased with the progress we’ve made on further improving our asset utilization through network sharing deals and optimizing the portfolio with our Greek towers merger announced this week and the completion of the merger between VHA, our Australian business, with TPG in July. We are also dedicated to playing a key role in supporting society, keeping people connected and businesses function through our committed teams and critical network infrastructure. We donated over EUR100 million across our markets, which includes over EUR1.3 million in donations from our employees to local charities. Just as we were there for the emergency response phase, we will continue to support Europe’s economic and social recovery in the next phase. As a result, we’ve evolved our five-point plan and identified key areas where Vodafone can clearly prioritize and simple government’s digital agenda. We are working closely with policy makers on this shared ambition.

I’m delighted announce the launch of Vantage Towers today. A year ago, I set out a three-phase plan for our tower assets. Firstly, to generate industrial synergies from network sharing. Secondly, to facilitate operating synergies and improve asset utilization by establishing a dedicated towers management team. And finally, to realize value for our shareholders through targeted portfolio action. While there is still work to do on the proposed capital structure, which we will update you on in due course, the IPO of Vantage Towers is firmly on track for early 2021. Vivek will take you through the significant progress we’ve made to date, provide a financial overview and update you on the IPO timetable.

Now, looking at our overall commercial performance, which in Q1 has been good. With further consistency of execution, this is reflected in our improved rates of customer loyalty, with churn down year-over-year for a seventh consecutive quarter in Europe. While the impacts of COVID-19 has reduced the number of customers moving provider, the underlying trend is still both clear and encouraging and a strong indication of the commercial actions we’ve taken across each of our markets. In fixed, our broadband performance was good despite COVID-19. Overall, we added 230,000 broadband customers in the quarter, and we added almost 430,000 Indian customers. As a result, our on-net penetration has continued to improve to around 30%. This sustained commercial momentum has been driven by a comprehensive set of commercial actions that we’ve implemented over the past 18 months. We’re now competing effectively across all market segments with unlimited data offers at the high end through to second brands in the value segment. We also have clear relative price positioning versus all other brands in the marketplace, allowing us to rapidly respond to price moves or promotions ensuring we always remain competitive.

We have also reduced our reliance on above-the-line offers. We are instead using a range of digital CRM tools to drive ARPU accretion across our customer base. As Europe’s largest converged operator, we are leveraging a significant mobile base and further deepening the relationships we have with our customers by selling them bundled propositions or additional products to meet all of the communication needs.

We’ve worked hard over the past two years to build and develop digital tools that not only make our operations more efficient, but are also better for our customers to engage with. In particular, MyVodafone app has enabled our cost used to top-up, upgrade and receive help from our virtual assistant Tobi throughout the lockdown. We also use the app as a platform to educate customers on our digital services. As a result, we saw our online sales increased by over 50% year-over-year. We are also working closely with our business customers through the COVID crisis and are developing a range of new propositions to support them in managing the more complex hybrid home office environment we will be facing in the foreseeable future.

So, to sum up, our commercial performance has been good and we are tracking in line with the scenario we outlined in May. While clearly, there have been some negative effects from COVID, we have a relatively resilient business model, and I’m pleased with our continued, consistent commercial performance. As I mentioned earlier, we are committed to supporting society and we have further increased our focus during COVID-19. During the initial phase of the crisis, we executed well in delivering on our social contract through our rapid, comprehensive and coordinated five-point plan. Our priorities were to maintain the quality of our networks, support critical services and keep people working, communicating and able to access education and essential information.

As we look at the challenging economic period ahead, just as we were there for the emergency response phase, we’re committed to playing a key role in supporting Europe’s economic and social recovery. As a result, we’ve evolved our five-point plan and identified five key areas where Vodafone can prioritize activity and support government’s digital agenda. These are shown on the slide. This next phase gives us an opportunity, not only help rebuild the economy, but also drive positive sustainable industry change. We need to be bolder, and set our goals higher with a more comprehensive agenda to support societies recovery and resilience in the future. However, we will not be able to do this alone.

In order to achieve our objectives and the actions outlined on this slide, governments and regulators will need to support us, as an industry, with measures that promotes a healthy, sustainable market structure that are supportive of network investment and enables us to make a fair return on the capital we deploy. We have some encouraging initial policy review such as announced stimulus and policy programs with digital infrastructure, reassessment of spectrum auctions and the approval of network sharing agreements across our markets. However, more still needs to be done. So we will continue to work hard on this shared ambition of a more resilient, sustainable and digital Europe.

I will now hand over to Margherita, who will go through our Q1 trading review. Good morning, everyone, and thank you for joining us. I’m with Margherita. We are finally back in the office on a phased basis. And also, Vivek has joined us from a different location. So, look, we’re looking forward to your questions, and maybe we can have the first question.

Questions and Answers:

Operator

Thank you, Nick. The first question comes from Georgios from Citigroup. Georgios, your line is now open.

Georgios Ierodiaconou — Citigroup — Analyst

Good morning and thank you for taking my questions. I wanted to start maybe with two questions related with the China [Speech Overlap]

Nick Read — Chief Executive Officer

Now, Georgios, I’m going to just stop a second, I should have said, really we need to be on one question, or allow this to, but if we could just do everyone have one so we can get through as many as possible.

Georgios Ierodiaconou — Citigroup — Analyst

Very clear. And it will be on one topic and the topic is the Chinese vendors. We already have decisions in France and the UK where the stance is hardening and obviously delaying the decision in Germany, which — and the stand now will probably come around September or the earliest. So I want to try and ask you, from your perspective, whether that changes any of your planning or your expectations? Whether the timeframes allowed are long enough? And also, in general, whether even without formal bans, whether that changes some of your planning? And linked to that, obviously, there is the IPO process going on for the tower company. Does that change your thoughts around active sharing in Germany in the sense that you could share half the cost and processes of replacement with some other player if that would be the case? Thank you.

Nick Read — Chief Executive Officer

Yeah. So, look, I’d probably start with sort of — if I stand back on the Huawei situation, my view is the UK decision was unique to the UK because it’s sort of geopolitical position being a member of Five Eyes, its relationship with the US, etc., if the current political, let’s say, environment. I do not see it as a automatic translation or simple translation across the Europe. In Europe, each of the member states are currently going through a process on the European 5G toolkit. They are then submitting those plans back to the European Commission. So they were supposed to have done that by now. A lot of them have been delayed just because of COVID. So those plans have been submitted. Then what’s happened is by the fall, the European Commission will then come out having seen the plans with a 5G European certification process.

I think importantly within the toolkit they made a distinction between the core and radio, saying radio was less sense that. As you know, we already made the decision to replace Huawei in the core across Europe over the next four to five years at a cost of EUR200 million. If it goes down to the radio, as stance is always that we want to have vendor diversity. So we’re operating with the three major vendors today, Ericsson, Nokia and Huawei across Europe. All we’re saying is we want more diversity and also we want vendor balancing. So we want to ensure that there is a degree of balancing because European countries are really focused on is resilience of the network infrastructure and therefore, do not rely on any one vendor.

Then the other aspect is Open RAN and get an Open RAN up and running. We think we have a rural Open RAN ready for 2021 and we’re looking to an urban, which is a more complex execution 2022, but we need governments and we need operators to scale this to improve functionality and efficiency going forward. So what I’d say is, don’t do a simple extrapolation. It’s not that simple. We’re engaged with each of the government’s, good positive engagement by each country, as an industry as well, not just Vodafone on its own.

To the point of Germany on active, we have been sort of engaged. We went through as we explained to you the different scenarios. We are doing some active sharing with Deutsche Telekom. We’ve agreed a reciprocal 1,800 sites. So we have 1,800, they have 1,800 that we will do a reciprocal sharing and moving forward that could be Phase 1. We could look at whether there is opportunity past that.

Georgios Ierodiaconou — Citigroup — Analyst

Okay. Thank you.

Operator

Okay. Our next question is coming from Andrew Lee from Goldman Sachs. Andrew, please go ahead.

Andrew Lee — Goldman Sachs — Analyst

Yeah. Good morning, Nick and Margherita. I had a question just based on one of the stockist data points in your release this morning, which is that churn reduction. So the question was actually regarding your cost base, and just whether you’re seeing any evidence of lasting changing consumer behavior coming out of the COVID lockdown. Your churn is down 320 bps in the quarter. It would be great to hear your thoughts on whether any of this is structural? And how you are seeing physical commission trends as we come out lockdown? Thank you.

Margherita Della Valle — Chief Financial Officer

Thank you, Andrew. I think relative to churn, you may remember what we discussed back in May in terms of our own forecast for the year. And if you look to what we said at the time, we didn’t base our outlook on EBITDA or our cash flow guidance on the assumption that there would be a sort of long-lasting hibernation of the industry. We were keen to maintain our commercial momentum, we were seeing potentially some benefits coming through in the lockdown, but we didn’t backed on long-lasting effects. And I think if I look at what we see in our markets at the moment, we do not see that. So what we see is, benefits from the lockdown, then as soon as the lockdown ends, volumes start to pick up again. If you look at, for example, Southern Europe, after mobile number portability gates have been opened, everyone has been sort of fast of the gates there.

As far as we are concerned, in this environment, we are, number one, very pleased with our own commercial performance. If you look at the numbers that we have released, despite the lockdown, we have had a fantastic quarter. For example, on fixed broadband, and even some really good quarters in Mumbai. So, we are competing effectively.

And on the cost front, which was the first part of your question, we do see the benefits of digital coming through. So, if I look at the execution on cost for the remainder of the year, both on A&R [Phonetic] [0:07:31] through different mix more digital, this is structural, we’ll see the benefit of that, but not the volume sort of substantial drop for a long period of time. And also on opex, we guided to at least EUR400 million of opex reduction for another year in Europe and we are proceeding very well on the execution of that.

Andrew Lee — Goldman Sachs — Analyst

Thank you.

Operator

The next question comes from Jakob Bluestone from Credit Suisse. Jakob, please go ahead.

Jakob Bluestone — Credit Suisse — Analyst

Hi, good morning. Thanks for taking the question. Hope you’re all doing well. Good to see you back in the office. I had a question on the Tower EBITDA that you disclosed. Just if you can maybe help us a little bit with the bridge, you previously disclosed about EUR900 million of EBITDA, it’s now closer to EUR700 million. Obviously, some of that is the reduction in stake in INWIT. Are there some other factors explaining some of the difference as well, some accounting differences, some opex? So can you maybe just sort of help us understand what is it that’s changed? And is it — where is any sort of incremental opex coming from that just helping us bridge the previous tower EBITDA with what you disclosed today? Thank you.

Margherita Della Valle — Chief Financial Officer

So, Jakob, very important bridge today. So let me sort of take it step by step. In our release, we have communicated EUR680 million of EBITDA on a proportionate basis for our Towers as it stands now. As you know, we intend to contribute our stake into CTIL, our UK JV into the perimeter. And once you do that you get to, call it, EUR740 million, EUR750 million. So you are left with a gap versus the EUR900 million we talked about previously of around EUR150 million. And this gap is split quite precisely into two parts. The first one is our monetization of INWIT, which, as you know, since we discussed Towers for the first time, we have progressed at pace. And I think we have already delivered at quite an attractive valuation.

So then you are left with a residual, call it, EUR80 million for scale. So under 10% of what was the original EUR900 million, which is the result of the fact that at the time when we first set out on this project, effectively we try to size it on the basis of what were publicly available data, whatever was out there in terms of prevalent anchor tenant rates in our markets. Fast forward to today, when the tower companies up and running, effectively we have been able to go into a great level of detail and establish specific MSAs on a market-by-market basis. And we have set the numbers on the back of these precise review. We have set them in a position, which is quite important in terms of balance because it allows, on one hand, our markets to be competitive and on the other hand, I think it offers for the tower company a strong baseline to then build on its own growth for the future.

This is really the main reason of this EUR80 million, let me call it, organic gap. As you mentioned, there are all other smaller factors, probably not worth a lot of conversation. There is a little bit of accounting adjustments that again we had to do as we went into more details. We have set out the teams, it’s effectively the — coming to the final framework for the Company to operate that has led to these numbers.

Jakob Bluestone — Credit Suisse — Analyst

Thank you. That’s helpful.

Operator

Next question comes from Nick Delfas from Redburn. Nick, please go ahead.

Nick Delfas — Redburn (Europe) Limited — Analyst

Yeah. Thanks very much. Can you hear me? Yeah. So, just one for Vivek maybe on CTIL. Obviously, the numbers you’re talking about in there look rather low in terms of EBITDA. Could you talk a little bit about how you anticipate that changing? Obviously, it’s a rather complicated situation given O2 and Virgin with their merger? Thanks very much.

Nick Read — Chief Executive Officer

Maybe, Vivek, just to give a perspective on CTIL, the — if you remember CTIL was set up on a cost basis, so it was not set up as a profit center commercial business. It was just cost-plus basis. So we’ve had to go through a process of converting it into a commercial business. We are going through that process as we speak. Obviously, then the announcements of O2 and Liberty, so we then reengaged with both of them to understand the process. They’re very supportive of the process. They like the strategic direction we’re going. So it is very much our intention to roll CTIL stake to Vantage Towers in due course and hopefully, ahead of any IPO event. But, of course, we have to go through that process.

Nick Delfas — Redburn (Europe) Limited — Analyst

Okay. Thanks very much. Can I just ask a very quick follow-up on physical stores? I just wanted to clarify if your thinking changing about how quickly those might close?

Nick Read — Chief Executive Officer

Well, I think we went out in May talking about retail stores and the fact — I mean, in the COVID world, you’ve seen digital just ramp — online channels of 50% sales up year-over-year. So, we are now looking at how do we optimize our retail stores more as part of the overall channel mix and also indirects as well. What role indirects play and how much of a mix they are. So, yes, I would say — I’d say, more as a mixed acceleration to, let’s say, year one, two, year three, how are we advancing that state to the target operating mode.

Margherita Della Valle — Chief Financial Officer

COVID really gave us the opportunity to make a step change, from that perspective. If you look at the sales numbers in the quarter, which as I was saying before, have remained strong. They’ve remained strong with a 50% increase in volumes on our digital channels across Europe. So quite a big difference. And we have taken the opportunity also to stay close to our customers through the pandemic with campaigns and what I would call as education tutorials on now to access digital and we believe that some of these changes will actually would be long-lasting, which is why I was saying earlier to Andrew, I think the channel mix is definitely a long-lasting opportunity.

Nick Delfas — Redburn (Europe) Limited — Analyst

Okay. Thanks very much.

Operator

The next question comes from Akhil Dattani from J.P. Morgan. Akhil, please go ahead.

Akhil Dattani — J.P. Morgan — Analyst

Yeah. Hi, good morning. Thanks for taking the question. Just a thought on — really on the revenue performance and outlook. I guess, firstly on Italy and Spain, there are some pretty good commercial trends in the quarter. Just keen to understand how much of that is a function of COVID and low activity during the period? And how much do you think is structural and we can extrapolate?

And then, I guess, linked to that, Margherita you talked about the three buckets of COVID impacts on revenues between roaming, B2B and other. Can you maybe give us a bit of color on how you think about those three buckets as we go forward as well, please? Thanks.

Margherita Della Valle — Chief Financial Officer

Sorry, Akhil, I missed — I think you were asking about UK and Spain.

Nick Read — Chief Executive Officer

Yeah. And then…

Akhil Dattani — J.P. Morgan — Analyst

Sorry…

Nick Read — Chief Executive Officer

It was roaming business, how do you think about those three buckets that you got on your slide.

Margherita Della Valle — Chief Financial Officer

Yes. In terms of…

Akhil Dattani — J.P. Morgan — Analyst

Those three buckets — the other bit was just I was saying your commercial trends in Spain and Italy have improved a lot this quarter. And I just wondered, how much was COVID and low activity through the lockdown. And then how much can we extrapolate is may be more structural improvements?

Margherita Della Valle — Chief Financial Officer

Sure. So, if I start from this last question on commercial performance. I think that there is a lot on what you’ve seen in the quarter that I would argue is our structural positioning. Clearly, the volumes of mobile number portability for both markets, stepped down a lot across April and May. As I was saying earlier, as soon as you come to sort of mid-May beginning of June and lift off of the state of emergency in Spain, you could see the volumes for the market step being back up again to substantially the levels at which they were pre-COVID, if not, slightly higher where there was even pent-up demand.

Within this context, what I think is structural is our competitive positioning. You heard I was saying this multiple times in the past, we compete effectively in those markets now at all levels. Right? From the high-end to the lower end with our second brands. And this is the position that we have maintained. I think through COVID, if anything, maybe a bit of an advantage from the fact that having good quality, reliable network has been very appreciated at the peak of the lockdowns. But generally speaking, I think it’s our positioning. Spain has been growing this quarter but has been growing for every single consecutive quarter for the last year on both fixed mobile, broadband. And in Italy, we already guided towards a more neutral mobile number portability numbers as soon as we left the price increases of six months ago. So that’s effectively what you see there.

In terms of then the revenue blocks, so taking those may be also in terms, starting from roaming. Roaming, we have seen some recovery in the volumes in starting, I would say, June. However, it’s intra-European roaming volumes that are catching up because travel restriction on long-haul in largely remain, and therefore, we see the roaming drag on our revenues, which, as I would say, as expected to increase further in the coming quarter, because we are going towards the peak summer holiday period. I think over time as travel restriction lift on the — out of Europe, we will see there some recovery and, of course, at some point a roaming will become again a growth driver.

In enterprise, the second area impacted we called out projects being suspended or delayed and a bit of weakness in IoT because we are very strong in automotive and there was less car circulation, car sales and the like. This is actually now starting to recover, we didn’t see significant impacts from macro yet on Vodafone business, probably because the government initiatives have shielded our customers from taking maybe difficult decisions there. So, I think as we move throughout the year, we may see some of that catching up again — catching up, sorry. In the order you have a mixed bag of things, some positive traffic during lockdown, particularly in Spain — sorry, in South Africa and Germany, more than offset by some weakness in areas such as prepaid in the smaller markets or M-Pesa in our international markets, in Africa, where the feed-in fees were zero-rated.

Overall, I would say, if you step back from all these puts and takes but as you have heard very much, the net impact of COVID in line with what our expectations for the quarter were and indeed still very much in line with our expectations for the rest of the year, which is why you have heard us reiterating both our EBITDA outlook and our free cash flow guidance.

Akhil Dattani — J.P. Morgan — Analyst

Thanks.

Operator

Next question comes from Maurice Patrick from Barclays. Your line is now unmuted.

Maurice Patrick — Barclays — Analyst

Hi, guys. Yes. Maurice here. Just a question for me on Vantage, please. Many towers companies are looking at offering additional services beyond just passive access, backhaul services, small cell, distributed antennas, even towers [Phonetic], facilitating edge computing and data centers even. Are these in scope of Vodafone advantage going forward? I mean, take backhaul, for example, I mean, does Vantage intend to offer backhaul services? I mean, does it cover any backhaul services, the Vodafone or Vodafone control those? Thank you.

Nick Read — Chief Executive Officer

Vivek, why don’t you give a summary?

Vivek Badrinath — Chief Executive Officer, Vantage Towers

Yeah. Thanks for the question, Maurice. Good to hear you. We — all of the above are in our intent, services for non-mobile operators, public safety, distributed antenna systems. And I didn’t probably a longer — with a longer time span mobile edge computing, it’s unlikely to be widespread to the geographic extent of a TowerCo in the initial phases, but definitely on the plan.

As regards fiber, it’s obviously a need for all the customers of the TowerCo. So having the ability to offer fiber is a necessity. If you pass the problem, you have sites where Vodafone has fiber and there is no — I mean, when there is a wholesale intent — wholesale offer in the market, the ability to provide this on a wholesale basis is something that we would obviously do. And then we will expect more and more fiberization of these sites as you move towards 5G, you’re going to need more bandwidth, it’s going to — that the operators are going to require an increased fiberization of the sites. We do see that there is lot of scope for increasing the fiberization across some of our geographies. So we’ll be definitely looking into that.

Maurice Patrick — Barclays — Analyst

Thank you.

Operator

The next question comes from Emmet Kelly from Morgan Stanley. Emmet, please go ahead.

Emmet Kelly — Morgan Stanley — Analyst

Yes. Hi and good morning, everybody. So I just — yeah, the one question from my side. So in the press release you have called for a new deal with regulators and governments, which will you say allow you to invest more and also to make higher returns. Can you maybe say a few words, Nick, about how you would like to see that new deal manifest itself? Is it through a change in competition more? Is it changes in regulation or maybe changes in the likes of net neutrality? Thank you.

Nick Read — Chief Executive Officer

Yes. Good morning. I sort of highlighted in the presentation, on the far right of this slide around the social contract, I itemized about six or seven policy areas we want to influence because I want to make it clear. Social contracts is a contract, i.e., a two-way flow. And so, we’re saying we understand what you want to achieve as a government, you want connectivity, you want next-generation connectivity, 5G, etc., you want digitization, you want to create jobs. We want to do all of that too, but what we need is the right framework to be successful as an industry and improve our returns because our returns are at an unacceptable level. And I had spent a lot of time highlighting that and, of course, we added it to our recent results to amplify the publication of the return on capital.

I think — in the short-term, I think there is an opportunity around spectrum. So we had a good outcome or a decent outcome, let’s say, in Hungary. An okay outcome in Netherlands. We’ve got Spain and the UK that were engaged in saying could we do different models, take a different approach. We’re engaging in Italy in terms of the payment is due next year, September, I think 2021. Can we do that either deferred or stage payments? How can you support the industry? I’d say, governments are now heightened aware of the state of the industry and how critical we are and understand the need to support us, especially because they want 5G rolled out as quickly as possible.

So, I’d say, spectrum is in a media, there is some things around regulation, whether it’s the rules and regulations around deployment, how can you make life easier for us, but also there’s regulation around, let’s say, disruptive value players that ride off the back of people that are willing to put hard money down in investment. And I think there is increasingly an understanding that we need to earn a return and that need — that regulation needs to be supportive of pro-investment and innovation. So, I’d say, these are the sort of more immediate ones. And then you can look further out about market structure. Can we have more infrastructure consolidation? We’re doing a lot more sharing going forward versus retail. So making the distinction between the two and sort of supporting the industry going forward.

Operator

Next question comes from James Ratzer from New Street. James, please go ahead.

James Ratzer — New Street Research — Analyst

Yes. Thank you very much indeed, and good morning. And thank you all so for the — all the extra detail you’ve given around Vantage Towers. I was wondering if I could ask, particularly about how you see consolidation in the European tower market going forward. I mean, I see something you’ve been involved in. So far you’ve announced another deal in Greece this morning. I was wondering, in particular, are there other markets where you see more opportunities to do tower deals with the Vantage portfolio. Is it Vodafone’s intention to always keep a longer-term majority in Vantage Towers? And how would you see the opening balance sheet of Vantage Towers? Will it have enough balance sheet capacity to go and undertake deals of its own if it wishes to? Thank you.

Nick Read — Chief Executive Officer

Yeah. I — we’ll always differ to Margherita on balance sheets. But just — it — if I were simplifying it, what I would be saying is, the primary focus is driving the big organic growth opportunity we have. Vivek was highlighting the various elements that we see in terms of coverage, in terms of densification, third-party tenancies, etc. We really see a big opportunity there, he highlights fiber to the site, various other things. So I think there is a big organic opportunity. And then what we would say on top of that is, yes, there will be targeted disciplined M&A that we will consider, and I think Greece was a good example where we felt, that was a very healthy development for Vantage Towers and we wanted to take that opportunity.

In terms of balance sheet?

Margherita Della Valle — Chief Financial Officer

I think you’ve made the perfect summary, Nick, really. We will always look at opportunities of what I would call disciplined M&A, and you have seen the case today with Greece. And we will look at our funding options for those. But the bulk of the growth will come from the organic progression and just growth in sites and tenants per sites.

Nick Read — Chief Executive Officer

And clearly, we’ve not determined yet level of leverage and where we set the balance sheet. We’re clearly reflects on that on the run up to the IPO. But we would want it to be efficient, let’s say.

James Ratzer — New Street Research — Analyst

Thank you. And just to confirm, it is still your long-term intention to hold a majority in Vantage Towers?

Nick Read — Chief Executive Officer

Absolutely. Absolutely.

James Ratzer — New Street Research — Analyst

Great. Thank you.

Nick Read — Chief Executive Officer

Look, and the reason is very simple. First of all, we think it’s a fantastic asset, a strategic asset with a great opportunity to create real value for shareholders. So we want to have Vodafone shareholders to reap that benefit as well. And then secondly, of course, technology, we’re in a fast-moving developing industry. And so, we want to make sure that we have the right flexibility for both Vodafone and Vantage Towers. And so, ensure we can compete going forward.

James Ratzer — New Street Research — Analyst

Great. Thank you.

Operator

Next question comes from Usman Ghazi from Berenberg. Usman, please go ahead.

Usman Ghazi — Berenberg Bank — Analyst

Hello, everyone. Thank you for taking my question. I just had a question around possibly the late order impacts of COVID. And I just wanted to ask if you’re seeing any changes in terms of bad debts or request for an extension of payment terms increase over the last few weeks since lockdowns have been lifted? Or have been fairly stable? Thank you.

Margherita Della Valle — Chief Financial Officer

Sure. I think the summary is things have remained fairly stable. We have not seen any material change in behavior in our business customers. Some request for suspensions of service here and there during the lockdown phase, but nothing material. And I think this is probably due to what I was describing earlier, which is our own customers weren’t faced with difficult choices just yet. And so, things have progressed as normal. And we will have to see in the coming quarters if that changes in any shape or form.

Usman Ghazi — Berenberg Bank — Analyst

Okay. Thank you.

Operator

Next question goes to Robert Grindle from Deutsche Bank. Robert, please go ahead.

Robert Grindle — Deutsche Bank — Analyst

Thank you. Good morning, everyone. I was looking at your mobile data trends in Europe, you’re usage growth, it actually accelerated by 12% in Q4, but it slowed down by 5% in Q1. I wonder, do you know why that is. Is it because we’re all just sending us silly memes to each other? Is more of that data going over home broadband Wi-Fi and is that a material benefit to your network and capex? Thanks.

Margherita Della Valle — Chief Financial Officer

I’m actually caught off-guard on this one because the — we would need to sort of look back into the details with IR. I was looking at the trends of traffic through the lockdowns.

Nick Read — Chief Executive Officer

Yeah.

Margherita Della Valle — Chief Financial Officer

Link to revenues and frankly, I was going to say, we have seen the increase that we had originally sort of lasting all the way through the month of June. But we can’t…

Nick Read — Chief Executive Officer

Sorry, in other words, it peaked and sort of slightly juristic down but I don’t remember it materially moving.

Margherita Della Valle — Chief Financial Officer

I think we need to see if there was something in Q4, but we need to look into or the trend. IR can give you may be more details later.

Robert Grindle — Deutsche Bank — Analyst

Okay. The data over — well, that was my calculation, so I’ll follow-up on that. Is more of the traffic going over home broadband?

Margherita Della Valle — Chief Financial Officer

Yes, for sure. During the lockdown the biggest peaks we have experienced were in fixed traffic. Yeah. Fixed increased much more than mobile because people effectively were working from home. And it was interesting also that it was a peak that was lasting throughout the day. But we have seen increases in both. And again, to my understanding is that, in Europe, certainly they are continuing.

Nick Read — Chief Executive Officer

Yeah. I wouldn’t — so — because I think actually if you decompose it a little bit, yeah, there probably is some people using more Wi-Fi. But at the same time, there’s a lot of people as we penetrate unlimited plans that are having an exponential growth in mobile and they’re happy to stay on the mobile network and not pulled Wi-Fi. So, I would say, it’s a number of factors. It’s probably also business as well. People that are business customers, obviously, at home more.

Robert Grindle — Deutsche Bank — Analyst

Okay. Is there a capex benefit or headwind or tailwind?

Margherita Della Valle — Chief Financial Officer

No. Don’t think about anything material from all this.

Robert Grindle — Deutsche Bank — Analyst

Okay. Thank you.

Operator

Next question comes from Polo Tang at UBS. Polo, please go ahead.

Polo Tang — UBS — Analyst

Good morning, everyone. Just have a bigger picture question in terms of consolidation. So, what’s your view on the recent European General Court ruling that overturned the EC decision in terms of the O2, Three UK merger? Do you think this will lead to a new wave of consolidation in the sector? And are you detecting any change in terms of a sentiment or attitude from politicians and regulators on the topic?

Nick Read — Chief Executive Officer

Yeah. I think when I sort of reflects on it, I’d say, that the ECJ decision itself, in my view, is sort of an incremental positive but not transformational. I do think that the Netherlands decision was really important. So, if you are a failing operator being allowed to lead the market and then not have remedies on the other players to create another player. So, I think that was a very important decision.

And then I add on top of that, the COVID environment and the feeling that this is critical national infrastructure that actually scale is important and earning returns and have been rolled out, having the right financial environment for operators is important. And therefore, you add all of it together and then you’d sort of say that I think there is a general acceptance that the European market broadly is highly fragmented with over 40 groups of operators versus US with three, China with three, India with three, etc. So, I think there is a feeling that there need to be better formulas going forward.

Now, does that automatically mean there’s a stampede for consolidation, I don’t necessarily think. But you’re seeing infrastructure consolidation led by us taking place, a network is coming together. I think this sharing more of network and infrastructure will definitely happen. And then there is a case of what happens with retail brands and what level of competition that is felt necessary in the marketplace, that does not hold back investment.

Polo Tang — UBS — Analyst

Thanks.

Nick Read — Chief Executive Officer

So, I’d say, positive momentum, but not necessarily overnight transformation.

Polo Tang — UBS — Analyst

Clear.

Operator

Next question comes from David Wright from Bank of America. David, please go ahead.

David Wright — Bank of America Merrill Lynch — Analyst

Yeah. Thank you very much for taking my questions today. Yeah. It’s actually a question that follows on from some of your comments in the last question, Nick. And it regards to the Netherlands and your current JV there with the Liberty. It does feel like Ms. Vestager has in recent times talked about the potential for more cross-border deals and as you’ve said, those look very fragmented versus maybe all the major regions. You obviously have the JV with Liberty, I believe, there is some optionality around that. One of the options that has been discussed with Liberty management has been the potential for a cross-border deal with Telenet. So I just did wonder whether you would have to be open to structure a transaction, perhaps going down to minority stake as long as the existing dividend upstream sort of leverage agreement, which was sort of broadly maintained.

I wondered if you had any views on that. Goodness me, that’s a very generous photograph you just put up, by the way. 20 years of European telcos have weathered me a little more than that. Thank you.

Nick Read — Chief Executive Officer

Yeah. And you don’t have the COVID beard on that photo. Look, David, I would say that — look, if I stand back, I’m really, really delighted with the performance of our Dutch business. It’s been a really successful integration, good growth. I mean, and really good performance. Obviously, they’ve got their results coming off for us. So, I can’t really talk about it. But we are really pleased with the delivery under Jeroen, the CEO. So, we’re very happy with the construct of the market, an excellent market where we’ve got a fantastic asset within the market and we have co-control. So, I would struggle to see why I would want to give that up for a minority position in a cross-border combination. Clearly, if Mike feels as something compelling, that’s a question more for Mike that it is for me. So, we’re really pleased with where we’re at.

We remain in a very disciplined investor. So, clearly, if people are going to step forward with offers, we would always consider at the Board level. But at this point in time, we’re very delighted with the business and its performance.

David Wright — Bank of America Merrill Lynch — Analyst

Okay. Very clear. Thank you very much.

Operator

Next question comes from Adam Fox-Rumley from HSBC. Adam, please go ahead.

Adam Fox-Rumley — HSBC Bank Plc — Analyst

Thanks very much. I was wondering if there are any more thoughts on monetizing tower assets at the individual country level, whether there are any processes still ongoing there or if the portfolio is roughly set as is. And then, I suppose, looking at the numbers this morning, you can see that 90% of Vantage Towers revenues are coming from the Vodafone MSA, would it be right to think about a medium-term target to get that to a lower number 80%, 85% over time? Thanks.

Nick Read — Chief Executive Officer

So, I’ll let, Vivek, talk about the second part of the question. In terms of monetization, really the only one that could potentially be is the UK. Do we monetize that? Really, we’re focused on the IPO of Vantage Towers. So, at some point you have to say, let’s focus on that and just move forward with your IPO. So that is determination that we might make, so it’s the only one. Vivek?

Vivek Badrinath — Chief Executive Officer, Vantage Towers

Yes. On the second point, yes, we start with a high percentage of our revenues coming in from Vodafone and that provides the stability with a pre-agreed MSA. So it gives the certainty on — a good level of certainty on those revenues. But, of course, the management team will be focused on developing other sources of revenue. We haven’t put out the targets in this area yet. We are analyzing the market. We are having a dialogue already with several of the operators in the different countries to look at the potential for growth. But the clear focus which will also be translated in the way we drive the Company and set its targets will be the development of revenue sources other than Vodafone. So, very clear. No number yet.

Operator

Our last question for today comes from Sam McHugh from Exane. Sam, please go ahead.

Samuel McHugh — Exane BNP Paribas — Analyst

Thank you very much. Just one on the perimeter of Vantage, if I can, and apologies, it’s slightly off topic. If I look at previous slide on towers, I did notice that the number of sites you’ve got in different places has changed slightly. I wanted to hit because you may be, a, not putting all your towers in Vantage, or maybe it’s just because you’ve made a clear distinction we kind of owned or rented. And also Vantage has agreed a BTS agreement with their operator in Greece. So I think you highlighted EUR150 million, EUR200 million of kind of growth capex of Vantage, and is that still the kind of right number when we think about what they could do?

And then just a follow-up on Maurice’s question earlier about small cells and fiber, are there any action being put in what is Vodafone Group really not have a material amount of these today? Thanks very much.

Nick Read — Chief Executive Officer

Vivek, do you want to…

Vivek Badrinath — Chief Executive Officer, Vantage Towers

Yeah. So, on the number of towers, that would be the adjustment for the fact that in the scope you would now have the towers coming in from Wind Hellas. So, I mean, that would be one of the reasons for the fluctuation, because that was not in initial — in previous versions, that might be one of the reasons you see the discrepancy. And yes, we have been going through a very detailed inventory of the assets in every country to ensure that we’ve got the right number. So this would be the number that we came out with today is our pro forma ’20 — end of financial year ’20 entry position on the perimeter that we’ve disclosed.

The other question was on fiber, we are not putting in the basket any fiber assets per se. The option that we are taking is to work on having a wholesale offering that enables operators alongside their rental on the tower to benefit from access to fiber. So that’s a service offering but it’s not in the assets that are transfered. And that’s the option we’ve taken for that.

Margherita Della Valle — Chief Financial Officer

I think there was a third part on the growth capex, we will share much more about all these once we come to our Capital Markets Day end of the IPO. So, it’s — together with the funding structure we will give you more details at the later stage. Today, it was about sharing the current perimeter.

Nick Read — Chief Executive Officer

Look, on that, I’d like to thank you all for joining us. As you can see, we’ve been very busy burning a lot of hours. We need to rest. So, we’ll take a small vacation at some point over the coming months. And look, we all look forward to seeing you in September and beyond various events and our results. All right. Take care and I hope you all have good and safe summer.