Event:
Tele2 Interim Report January - September 2012
Date:
18 October 2012
Speaker:
Lars Torstensson
Mats Granryd
Lars Nilsson
Call Duration:
01:16:06
LARS TORSTENSSON: Good morning everyone and a warm welcome to Tele2’s third quarter 2012
conference call. The reason for the slight delay was because of a technical snag.
It’s now solved. We feel very comfortable about that. So let’s continue. My name
is Lars Torstensson, and together with me today I have our President and CEO,
Mats Granryd, and our CFO, Lars Nilsson. Now we are able to send this
presentation live over our dedicated web page, so I also would like to take the
opportunity to welcome everyone that has joined us via internet.
After the formal presentation - as always - there will be a chance to ask questions,
either over the phone or it’s also possible to send questions via the web format as
well. But enough said by me. Mats, could you walk us through the third quarter?
MATS GRANRYD:
Yes, thank you very much, Lars. Good morning, everyone, from a rainy Stockholm.
I would like to present the third quarter results. We feel that this is a robust quarter,
robust results, and very much in line with the second quarter result. We had an
intake of 1.4 million new customers, so we’re almost at 38 million customers,
customer base.
Sales grew with 9% to just shy of SEK 11 billion, EBITDA just about SEK 3 million,
and then margin is down 28%. Worth noting is that we have never been as high as
SEK 3 billion before, so this is a record quarter from that perspective. CAPEX SEK
1.2 billion, SEK 1.3 billion.
So let’s move over then to Russia. Russia stands for 30% of our sales in the
quarter. Some of the highlights: we added 710,000 new customers, which is a very
good customer intake; EBITDA margin up 1% from the second quarter. It’s 37% up
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to 38%. I would also like to highlight the fact that ARPU is growing, and the growth
rate is 4% year over year. (inaudible) is up 7%. Revenue, as I said, grew with 8%
in the quarter. New regions margins is up to 14%, old regions is at 47%. So, all in
all, a very stable quarter with a very good customer intake and you can see on the
upper left-hand graph, market share is now at 9.5%. The ARPU development
RUB 234 per month and that is equivalent to the 4% growth, as I said.
Last quarter we added an astonishing 40% of all net adds. This quarter we don’t
know yet, but we have a good chunk of 710,000 to start with and we will see what
the other competitors come in with. Also encouraging is to see that the annualised
churn rate is still on a low level. We are at just shy of 8% per quarter, so it’s around
30%, 32% on an annualised basis, which is significantly lower than our competitors.
And that is one of the positive signs and positive impacts that make our net editions
so very strong.
If we move on then to our sources of revenue in Russia: 92% comes from voice, 8%
from data and, if you look at the year over year growth rate, data grew with 12% and
voice with 8%. Of course we’re happy with the 12%, no doubt, and as you all know
we are only on 2G data on edge, so with 12% we’re happy with that. However, our
competitors are of course growing significantly faster on data. They might be up to
double percentage points than what we have, but 12% on edge is a good result on
data growth.
Moving on to the regulatory update, as you know, we are disappointed on the no
decision on 2 October, or the technology neutrality. There will be another meeting
in December we believe, and there will be further studies conducted between now
and that meeting. We do not think that there will be a decision at that meeting, and
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when techno neutrality will happen is still written in the stars. However, we believe
firmly that it will happen. The question mark is when.
We have also chosen to put in the new regional licences, so it is nine new licences,
so on the 1800 band. They will be distributed some time in the future. We don’t
know exactly when and we do not know exactly the principle if it is going to be a
beauty contest or a paid auction. These are in good regions, regions where we are
not present today, but it is not a whole lot of megahertz. I think it is up to 10 MHz in
a region, and then it can be down to just a couple of megahertz in other regions.
Worth noting as well is that in LTE development EIKS Consulting has done a study
on what percentage of the Russian population that will have LTE by 2015. If you
remember we did a similar study in Sweden and we think that by 2015 roughly 20%
of the Swedish population with have LTE or a 4G subscription, and the same
number in Russia is 5%. We can sort of conquer with that we think. That is a fair
assumption: Sweden 20%, Russia 5% on 4G subscription by 2015. So with those
words I -- you know, we are disappointed but it is not a falling off the cliff event by
no means. We have plenty, plenty of time to make sure that we get the data
licence.
Moving on then to the forward looking statement. In Russia we have increased our
subscriber base slightly from 22 to 22.5. ARPU is still 3% to 5%. EBITDA 37% to
39% and CAPEX we expect that to be between SEK 1.3 billion and SEK 1.5 billion.
Okay, so let’s move over then to the Nordic region: 40% of our revenue comes from
the Nordic, which is Sweden and Norway. Let’s look at Sweden firstly. We had a
service revenue growth of 4% year over year, which we’re very proud of, and you
should also know that SEK 966 million in EBITDA is the highest ever in Sweden.
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So that’s another first and another high which we’re also very proud of. The
EBITDA margin is 33% and of course is affected by the introduction of iPhone 5,
and I’ll go through some of the sales numbers on iPhone 5 later on. We believe that
we have increased our market share slightly on post-paid, and we believe that we
have lost slightly on pre-paid, but very small changes in the market. We have
added 60,000 on post-paid customers and we have lost 30,000 on pre-paid, so we
have added 34,000 mobile subscribers in total, post and pre-paid.
Just a slide on what we believe is going to be the future. We are strong believers in
the bucket price plan, and on 15 August we launched Convik(?) post-paid, where
everything will be on line and it’s only a SIM only offer. You can see that our
volume products, the low, medium and large, has continued in good demand going
forward. I think that with this, what we would like to say is that we believe in bucket
price plans where you include data, voice and SMS in one bucket.
Moving on then to some of the developments on the 4G and 2G networks, we have
today a population coverage of 80% in Sweden and we are committed to do 99% by
yearend on 4G. As you might be aware, we are now moving over all our networks
to the shared network, something called MOCN, Multiple Operator Core Network.
We have activated that in two regions of Sweden and in a couple of weeks’ time or
actually sooner than that, in a week’s time we will move the east coast over as well,
so we will be in a combined network together with Telenor in our joint venture net
formability. By doing this we are saving quite a lot of money and we estimate it to
be around SEK 300 million, SEK 350 million. Now this is gross. This is nothing that
we will see on the bottom line. You can argue that by doing this we are actually
getting one network free of charge. You can also see that the SEK 300 million,
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SEK 350 million and saving on gross means that we will continue to focus on our
marketing activities and continue to be pushing good offerings out to the market.
This is the typical Tele2 way of doing things, of being brutal on costs and making
sure that we have money over to do interesting stuff in the marketplace.
The next slide on the Smart Phone development. I think if you start with the graph
you can see that in April you had a little jump up, and that was the 345 campaign,
and after that it has been a fairly stable growth rate on Smart Phones. We have
now an installed base of little more than 70%. It is worth also noting that iPhone 5
have taken a number three position, and that is only after three days of sales in the
third quarter, which I think is pretty astonishing. This is then a combined top ten list
of our stores, post-paid subscriptions in our stores.
Good. So then moving on to the forward looking statement in Sweden. We believe
that service revenue growth will be around 3% to 4% and the EBITDA margin will be
between 30% and 32% but do need to say, as well, we believe it is going to be in
the lower end of 30% to 32%.
Moving on to Norway. We have a strong focus on our network rollout in Norway.
Today we have roughly 45% of Norway being built out on our own network and
roughly 30% of the traffic volume is on our network, and we’re aiming for 75% of
Norway to be built out over the third network. We had a good intake of new
customers, 14,000 new customers. Our market share in Norway has increased
slightly. I shouldn’t over emphasise that, but from 18.5% or so up to 19%. As you
can see later on, that we have had -- we are guiding for significantly less CAPEX
expenditure in Norway and that is due to two things: one is that there is a 4G licence
that has been postponed to the future; and the second is that we have had some
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difficulties in being able to co-locate our base stations in our competitor sites. This
is something that we have made the NRA aware of, and it’s not our intent not to
spend but it is our inability, if you would like, to push forward there. So that is
something we are focusing on to continue to build out the network.
Looking at the forward looking statement, the revenue we believe will be in the
lower end of the guidance of 4.8 billion to 5 billion EBITDA. We have increased that
from 2%-3% to 4%-6%, and as I said CAPEX we have reduced the guidance down
to SEK 450 million to SEK 550 million.
Okay. Moving over to Western Europe, 16% of our sales come from Western
Europe. Starting with the Netherlands, I would say a stable financial performance.
Net intake on the mobile of our plan 51,000, so areas that are going well for us is
the mobile as well as business to business. We have in the quarter attracted -continued some strong brand names. Accor is one. A couple of water companies,
the Dutch railway and many more have joined us in the business to business
segment. Where we are feeling pressure is on the residential side. We have
historically been strong with our single and double play offering. Now lately triple
play is becoming more and more important, and we are not competitive enough
throughout the market on our copper lines there. So fixed is under pressure,
residential is under pressure. The mobile side and the business to business side
are going very well for us. So it’s a little bit of a mixed bag in the Netherlands.
Financially it’s stable.
Moving over to Germany and Austria. Germany I think is a fantastic example of
how to milk out as much as one can. We are now at 30% EBITDA margin, pretty
much where we were a year ago from now. This is despite the fact that we have
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lost almost 20% - or actually somewhat more - in fact, 3% of our subscriber base,
but we still managed to keep our EBITDA margin up, which I think is a very
encouraging sign. In Austria we are doing a lot of good activities. We’re focusing
on consumers and on the SME side, on the business to business, and we have
seen improved sales in the Vienna region after we acquired the Silver Server
company, and that is yielding good results for us in Austria. The EBITDA margin, as
you can see in the graph, is slightly improved quarter over quarter.
Moving then over to Central Europe and Eurasia, 13% of our sales is coming from
that region. I will not spend too much time on these, but Estonia a very stable
financial performance, positive net intake of roughly 10,000 customers, and we are
modernising our network and rolling out 4G. Moving over to Latvia, tough
competition in the market, EBITDA margin 34%, customer intake strong with 21,000
new customers, and we will launch 4G when we see that it is commercially
attractive for us. Lithuania then 38,000 mobile customers added in the quarter.
EBITDA margin of 35% and, yes, there is a continued strong performance of
Lithuania. Then if we take the next slide you can see that this is a true success
story. One should know that we started this operation by ourselves ten years ago in
2002, with only licences, nothing, and now ten years later we are the undisputed
number one, literally, regardless of how we measure. We have a market share of
subscribers of 53%. We have a revenue market share that is -- yes, it’s very close
to being number one if we’re not number one, and on EBITDA we are also number
one on market share. So, regardless of how you measure, Lithuania is a true
success story. Croatia is not that much of a success story yet. We have however
had a good quarter of positive intake of 33,000 customers in the quarter, and we are
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focusing to maintain the positive cash flow. As I think you are all aware, we have
changed the management. It is still very early days but we are seeing positive
trends in the market. So a lot of focus and a lot of hard work need to go into
Croatia. The forward looking statement in Croatia is that we believe the EBITDA
margin will be between 4% and 6% for 2012. The last country is Kazakhstan. A
very good strong customer intake of 589,000 customers. We now have 3.1 million
customers in the country and we are continuing to focus on a rapid rollout of new
base stations. One should note as well that we have a very good data network. We
have pushed ourselves further out in the region and we can see now that ARPU is
decreasing slightly. Due to that fact we see the purchasing power out in the regions
is slightly less than the bigger cities, which is to be expected. The revenue growth
over the first nine months is astonishing, 134% which I think is fantastic, and we are
focusing and continue to take a lot of subscribers in Kazakhstan. The market share
now is around 10.5% in the second quarter, and that is after 18 months of
operations or so. I think that is a very good development. The last quarter, as you
can see, we added 55% of all net adds. This quarter we still don’t know. Beeline,
Kcell added slightly more than what we did but we will still have a good chunk of the
net adds in the quarter. So I think we are doing -- posting on very nicely in
Kazakhstan. The forward looking statement is pretty much the same. We have
moved up the subscriber base from 3 million to 3.4 million. We have the same
EBITDA contribution. We have lowered our CAPEX expenditure slightly, from 550
million to 600 million down to 450 million to 500 million. We are committed to have
an EBITDA break even in the second half of 2013, so basically a year from now. Of
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course we believe that we will be able to reach a 30% market share at one-third of
the market in a more longer term perspective in Kazakhstan.
So with those words, I would like to hand over to Mr Lars Nilsson to go through the
financial review.
LARS NILSSON:
Good morning, just a short review around the numbers. First of all, on this PNL
statement you can see that we had net sales of 10.9 billion and then an underlying
growth of 9%, and then as already mention a record EBITDA. Now we are -- we
start with 3 billion and a margin of almost 28%. The normal appreciation is around
10.5%. I will come back to them. Then during this quarter we have three nonrecurring items or one-off items. Two of them affecting the EBIT result, and that we
reported about last week, and then we also have a one-off item when it comes to
taxes, which I will come back to.
So with that I think we can go to the next page, where it’s just the full year
statement, which you also see, and then we go to the currency impact. The
currency impact, as you can see here on this slide you see our three main
currencies, and there you can see that on average we see krona strengthen against
the euro of some 3%, but if you look at the situation when we end the quarter the
euro was down almost 5.5%. You can see the same trend for the rouble: 1.5% if we
compare with the same period last year and then -2% at the end of the quarter.
Coming back to depreciation, somewhat down compared to what you saw in the last
quarter and if we compare the numbers year-on-year we have to add a net
(inaudible) of course, which will impact depreciation with SEK 80 million. Then we
have speeded up the depreciation for the networks in the Baltics, due to the fact that
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we are just in the middle of a swap, and a reduction in Sweden due to the fact that
the old 2G network now is written off, but then of course we have to handle the
growth in Russia and Kazakhstan, and there we have added in SEK 61 million. And
as already mentioned 10.5% of revenue is depreciation.
Financial items, yes, just to explain interest income has cost SEK 259 million in line
with what I think you should assume, and then you can also see that we have added
the cash flow effect. The cash flow effect of interest paid for the period is SEK 154
million. The same numbers for the full year is interest costs net of SEK 710 million
but the cash flow is affected by some SEK 400 million.
To continue with taxes, what you can see here is that we had a normal tax cost of
SEK 380 million for the year, so far almost SEK 1 billion. Then we had a positive
one-off item, due to the fact that we could actually have a devaluation of deferred
tax assets in Austria, where we could add another SEK 262 million on the balance
sheet. Deferred tax assets now amount to SEK 2.5 billion. What you can also see
for the quarter as well as year to date that we have had a positive effect, if you
compare with what we actually have as taxes in the income statement compared to
the cash flow situation. That is just due to the fact that we can utilise our loss carry
forward.
Cash flow, I would say a very stable situation for the quarter. Cash flow from
operations is strong at SEK 2.9 billion and then we also had a positive change in
working capital of SEK 244 million. If you look at the full year we have a negative
outcome of change to working capital of a little bit more than SEK 400 million. That
is mainly due to the fact that we had to put more handsets in the balance sheet to
the handset sales, and the main source of this is coming from Sweden.
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CAPEX for the period, the cash flow statement is SEK 1.1 billion and year to date is
SEK 3.3 billion. There I will fortunately tell you that we have built our forecast
statements a little bit when it comes to -- a little bit we have built up the forecast
when it comes to Kazakhstan because there we actually talked about cash flow
CAPEX. We will make a correction so we can guide you in the right way, but
actually we have from the beginning talked about cash flow in Kazakhstan but that
will change. I apologise for that.
Then we go over to the debt profile. We now have a net debt of SEK 15.2 billion,
and on this slide you can also see the different sources of financing, and you should
note that we are not utilising our revolving credit facility of SEK 10 billion, and you
can see that is a credit for a contingency. We think that we are in a good situation
when it comes to the debt profile, when it comes to tenders and sources.
Finally, I think it is almost there, the debt position. You know that we have our
frames when it comes to net debt to EBITDA and we are close to 125. We are not
there. You can follow the black line. You can see where we are. As I already said,
the net debt was SEK 15.2 billion.
Finally, group financials, I will just focus on return on capital employed. There you
can also see that this quarter was from a financial point of view, and also from other
points of view of course, a very strong and solid quarter.
With that I leave the word ...
MATS GRANRYD:
Thank you very much, Lars. Some concluding remarks then. We continue to grow
as an operator. I think it is important to note that a couple of years ago we took a
strategic decision to move into mobility, and that has paid off. At that time we had
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far more sales on fixed than we had on mobile. Today our mobile portion of
revenue is more than 80%. So I think the growth that we are seeing comes from
mobility and also, the second concluding remark, managing the shift from voice to
data. I think it is really imperative that operators are focusing on - and we are
focusing on - the shift from voice to data. We need to realise that we’re entering
into a data-centric world and that is slightly different of that of a voice-centric world.
The continued migration from pre-paid to post-paid, we believe that having a longer
term relationship with customers is ultimately better than to have a short term
relationship, so we welcome the migration from pre-paid into post-paid.
Of course we do want to exploit new services and opportunities by offering our
customers what they need for less. That is in our vision and in our mission
statement. What they need for less is back to the best deal, to make sure that we
continue to be cost focused, continue to make sure that our customers appreciate
our service from a cost point of view, and also launch new services, like the plus 46,
the roaming buckets, the WyWallet initiative we had in Sweden and other services
like that going forward. So with those words, I would like then to hand over to Lars
Torstensson.
LARS TORSTENSSON: Thank you, Mats. That concludes our formal presentation regarding the result for
the third quarter 2012. I would like to make a small but important disclaimer as the
last quarter we will not be able to answer any questions about the upcoming licence
auctions in the Netherlands today. But of course we are happy to answer any other
questions you might have.
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So with that said, we will now be happy to take any questions you may have.
Operator, let’s start with the first question.
OPERATOR:
The first question comes from Mr Andrew Lee at Goldman Sachs. Please go
ahead.
ANDREW LEE:
Hi, morning everyone. A few questions on Swedish mobile if that’s okay. It was a
good performance in the quarter, but why should we not expect competition to
accelerate here? I mean Telia has just gone ex-growth in the region, and that’s
partly due to your foray into corporate mobile. Do you not expect it to retaliate?
And why should we believe you can continue to grow in Swedish mobile when there
is barely a market or company in European mobile that is managing that? And then
just an additional question there is it a slight change in rhetoric, what you said
earlier in the call, that you will use cost savings from your network turn off to market
more aggressively? Thank you.
LARS TORSTENSSON: Thank you, Andrew, I think those are two excellent questions. I believe that Mats
Granryd could have a stab at them.
MATS GRANRYD:
Yeah. No, on the Swedish side obviously Sweden is a highly competitive market,
four operators with only 9 million people. But I think, as I said in my concluding
remarks, it is really important to be lean and agile and nimble to understand what is
going on, when we’re moving away from voice to data. We think it’s equally
important to focus on mobile mobility. The vast amount of sales is coming from
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mobile in Sweden. We are focusing on the business to business segment to
augment that offering as well, and that is going nicely for us. We believe we are
taking market share in the business to business segment, and I don’t think that I can
say much more than that. We’ll see a continued highly competitive environment in
Sweden, and that is nothing new to us. We do not think however that there will be
the type of price wars that we saw in the spring. We don’t know that obviously but
we don’t see any signs of that.
When it comes to the cost savings on the network, 300 plus depreciation of 50 or
so, the SEK 350 million to SEK 400 million, I think what one should take away from
that is that by sharing networks we save a significant amount of money, and in the
net formability mobility case it is around SEK 300 million to SEK 350 million gross.
We will not see that on the bottom line. You can say that that money will go in order
to get two networks. We have had yesterday a 2G network and today we have a
2G and a 4G network without putting in extra money. So we can do that by saving
on operation and CAPEX costs by moving into a shared network. I also think in -what I tried to express, but maybe I didn’t do that good enough, that the continued
strong focus on our costs leadership position means that we do have
manoeuvrability of launching new products, we’re not going to be aggressive in the
market, and we’re not going to initiate any more price wars, for sure not. But we will
be able to sustain increases in costs slightly, due to the fact that we are so good in
managing our cost portfolio. And we are not launching - and you know that as you
have followed us for a couple of years - new cost savings programmes. That is
something that is inherent in our DNA.
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LARS TORSTENSSON: Thank you and I hope that answers your questions.
ANDREW LEE:
Yes, nearly.
LARS TORSTENSSON: Operator, can we have the next question please?
OPERATOR:
The next question comes from Mr Barry Zetuni at Berenberg. Please go ahead.
BARRY ZETUNI:
Hi, good morning, gentlemen, I’ve got a few questions. Actually, if I just quickly
follow up on one of your answers to Andrew’s question. Could you just tell me
whether the SEK 300 million to SEK 350 million cost savings is incremental to
where we are today, or whether you are actually seeing some of those savings
already? My second question also on Swedish mobile, is looking at the margin that
we’ve done for the quarter of 33%, my understanding is that the exit rate in
September was lower than the average for the quarter. So how can you be
confident that you can do a 35% margin in Q4 and meet the bottom end of your
guidance with that 35%, so how can you be so confident that you will see such a
material pick up in margins as we go to Q4? And how does that make you think
about margins going into next year as well?
Then if I can also just -- I know you won’t answer questions on the Dutch spectrum
auctions, but if I can just take your view in terms of how you think we’re doing in
terms of mobile ads in the Netherlands and whether that has given you any kind of
clarity or given a positive impression on what you feel might make the benchmarks
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of a mobile strategy, were you to continue accelerating additions or try to continue
accelerating additions in the Netherlands?
Then my final question is just on Russia. I just want to have your take as to why
you think the state commission on radio frequencies has delayed the decision on
technology neutrality. Thank you.
LARS TORSTENSSON: Okay, thank you, Barry. That was a lot of good questions there. I think we will do
it like this. So, when it comes to the network savings and how to reach the margin
target, that is of course a Lars Nilsson question, supported by us, and then we have
mobile progress in the Netherlands, Mats. Then I will take the opportunity to have a
stab at technology and strategy in Russia. So, please, Lars would you begin?
LARS NILSSON:
Yes, I don’t know if this will answer your question but I think the way you can see
this is actually as much as we have gross savings around SEK 350 million, but that
also in a way means that we will have one network for free, and that is sort of -- that
we should maintain on the level of what you see right now. I think that is a good
answer. But then we will get a totally new and fresh 2G and 4G network.
LARS TORSTENSSON: But I mean when it comes to the network benefits, I don’t know if we could say
anything there because we’re just working on merging the two networks.
LARS NILSSON:
Yes, just working on merging the two networks and you also know that we have
taken some extra depreciation costs this year. But of course going forward there
will also be depreciation for the new network as well as for the 4G licences. All in all
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we will sort of have a ... I think it’s a good way of saying we will get one network for
free.
LARS TORSTENSSON: Yes, and then when it comes to Sweden mobile.
LARS NILSSON:
Yeah, when it comes to Sweden mobile. I mean you said: how can we be so
confident? A forecast is always a forecast, but based on the performance so far
and based on the portfolio we believe that the guidance we have given you is
achievable. I don’t think we can give you a better answer than that.
LARS TORSTENSSON: No, but you are correct, Barry. I mean September was associated with a lot of
activities. Of course the launch of the iPhone 5 did require a lot of preparatory work
from our side as well, and hopefully when we go into the fourth quarter some of that
has been already taken, or we have invested in that launch as well which is
something that we might not have to do then going into the fourth quarter. The
mobile progress in the Netherlands, Mats?
MATS GRANRYD:
Yes, no, as I said, we have had a good quarter of 51,000 new customers and our
fixed portfolio in the Netherlands is under pressure, and I think that our MVNO
brand is working nicely for us and we’re going to continue to push that and see how
much money we can get out of that. We need to differentiate ourselves and hedge
ourselves, if you would like, slightly away from only being a fixed operator in the
Netherlands.
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BARRY ZETUNI:
Can I just ask how are you differentiating yourself with your mobile strategy in the
Netherlands?
MATS GRANRYD:
Well, I mean we are still a discounter brand and we have launched some new
products whereby you will be able to compose your tariff plan as you wish, with both
data and voice, a little bit more tailored to your own needs, like we had in Sweden
for a while. And I think it’s no secret that the discounter position that we’re having
with our footprint is a very successful position to have, and that is our strategy.
LARS TORSTENSSON: Okay, when it comes to Russian and technology neutrality, I think as Mats said
before we do expect to see support from the regulatory board towards regional
operators going forward. The delay in technology neutrality should probably be
seen in the light that there was earlier on this year an auction around new dedicated
4G licences, and there needs to be some compromising on top of that when it
comes to how technology neutrality should be introduced, in combination with
requiring the new licence owners to free up their spectrum and rolling out their 4G
network over new frequencies. So we are not surprised that technology neutrality is
a topic that is being debated. The only thing that we are asking for is clarity, clarity
on when technology neutrality could be introduced. And as Mats mentioned before,
there is a lot of statistical evidence saying that there is no rush to introduce LTE, but
from our perspective it would of course be appreciated if we could get clarity on
when we could start using it commercially so we could start preparing for that. But
currently, the regulator is asking for more test results and those test results should
be done together with -- between all operators. So you will see us doing tests
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together with the big three and also Ross Telecom, and that result will be presented
on 1 December and then we will discuss during the GQRCH meeting on 7
December, so that is what we see.
But as we have said during this conference call we are still expecting support -- the
region operator model and that technology neutrality would be very beneficial to the
Russian state.
BARRY ZETUNI:
Great. Thanks very much, guys.
LARS TORSTENSSON: Thanks. Operator, could we have the next question, please?
OPERATOR:
The next question comes from Mr JP Davids at Barclays. Please go ahead.
JP DAVIDS:
Yeah, hi. Good morning, guys. Two questions, please, the first one on Russia.
Your guidance implies a slowdown into the fourth quarter. The question there is
why not just carry on pushing for subscriber share while the market seems to be, as
you call it, quite balanced at the moment, and so sacrifice a bit more short term
margin for scale? And then coming back to Sweden, just as a precedent, Mats
mentioned evolution from voice to data. Maybe you can just touch on the sort of
economics you’re seeing pushing subscribers from 3G to 4G, i.e. the cost savings
per subscriber or the data efficiencies you’re seeing as you’re pushing up the
technology bands. Thank you.
20
LARS TORSTENSSON: Okay, thank you, JP. That is a good question. I think they are both well suited for
Mats.
MATS GRANRYD:
Yes, I’ll try. The Russia, if you say why not continue to push more subscribers. I
think, you know, life is grey. It’s not black and it’s not white. We do need to make
sure that we get sufficient amounts of money out of our customers as well. So
having that healthy balance between growth and profitability is what we’re aiming
for. We think that we will be slightly less aggressive in the fourth quarter when it
comes to -- and you can see that from our guidance as well on subscriber growth.
So that’s Russia. On Sweden then the voice to data and 2G, 3G, 4G, it’s still very
early days. As I said, we cover 80% today. We have ambition to cover 99% by the
end of the year. Our 4G network is growing faster than our 3G network when it
comes to data, and you should know that our 2G network in Sweden, our legacy 2G
network on Motorola equipment did not have edge capability, so it was only GPRS.
What we’re now doing is to migrate over to one network in net formability, and that
network will have state of the art 2G, including obviously edge, GPRS and it will also
have 4G in it. So I have no problem saying that we will have, if not the best, among
the best networks in Sweden when it comes to both capacity and coverage, but
exactly how much the financial voice to data, I think that is a very good question but
it’s a little bit too early for us to elaborate on it. Our 4G network is growing faster
than our 3G network. That is so though --
LARS TORSTENSSON: And we do expect a much more efficient network compared to the 3G network.
21
MATS GRANRYD:
Absolutely, and we have done several different studies on how much more effective
it is, and you can say that 3G is three times more efficient than 2G, and 4G is
another three times more efficient than 3G. But I would keep those numbers very
fluid.
LARS TORSTENSSON: Yes, because at the same time we see that we need to cater for much larger
volumes as well.
MATS GRANRYD:
Yeah. Yeah.
LARS TORSTENSSON: And there are moving pieces here that we don’t yet have full control over.
MATS GRANRYD:
What one can say is that in our strategic ambition we are focusing on two things.
We’re focusing on our network to make sure that our networks are fully data
capable and state of the art in all that. We believe network is really critical for us,
and we also believe in the customer relations. That is absolutely critical for our
success to have a tight relationship, and remember what I said in the concluding
remarks, moving from pre-paid to post-paid, even though the pre-paid customer
normally has a higher profitability we believe that in the long term it is better to have
a long term relationship with customers. So customers is key, customer care is key,
shops are key, innovative tariff plans and applications are key, and our networks are
key.
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LARS TORSTENSSON: I guess you can say when we consider the pre-paid to post-paid migration it -margin-wise a prepay customer is better but if you look at absolute contribution over
the term then the post-paid customer is much better, so you’ve got to see a
tendency of that. I mean we need to -- it’s not a margin focus for us of course but,
going forward, as we’re moving on and we see the absolute contribution hence the
absolute value for the group might be lower margin but the value for us over the
longer term is better, so I think that is something we need to discuss further going
forward.
JP DAVIDS:
(overspeaking)
LARS TORSTENSSON: Yeah. Okay, operator, can we have the next question, please?
OPERATOR:
The next question comes from Mr Andy Parnys at UBS. Please go ahead.
ANDY PARNYS:
Yeah, hi, guys. Thanks for taking the question. Two questions, one to just quickly
follow up actually on the post-paid migration. It seems to be that you’re winning
share now in post-paid and potentially losing it in pre-paid. Could you give a bit
more detail on, I guess, what the ARPU uplift is from moving a customer on average
from pre-paid to post-paid? And then also how many of those post-paid, new postpaid customers, are SIM only versus those that are getting a subsidised handset?
And the second question was on Russia. You seem very confident that you will get
tech neutrality. That’s a question of when it will happen. Can you just give a bit
23
more detail on what discussions you’ve had that make you so confident that it is a
question of timing and that it’s not definitely off the agenda? Thanks.
MATS GRANRYD:
Yeah, I can possibly ... oops; I can possibly start with the second question which
was even though it’s difficult maybe it’s slightly easier than your first question. I
don’t know, Lars, if you can take the first question maybe or the post-paid to prepaid migration there.
On technology neutrality, the Ministry of Mass Communication has been out talking
very positively about tech neutrality, on several occasions, both Mr Nikiforov the
Minister and also the Deputy Minister, Mr Denis Sverdlov, in several medias. And I
think that is for us a key point that they believe in shared networks, they believe in
tech neutrality. They believe in regional operators and they believe in united -- or
making sure that Russia is not divided through less good digital means, so to speak,
bridging the digital divided. So I think all those components are talking in the way
that tech neutrality will happen. And when we meet other regional operators they
claim the same thing. They are confident that technology neutrality will happen.
The question is when.
There are several obstacles. One is of course that the proposal was that tech
neutrality on 4G on 1800, the band was 10 MHz. The big three, including Ross
Telecom, I believe got a 4G licence this spring and the band width of that was 7.5
MHz. So that means that they need to share networks in order to make the 4G
spectrum useful. That is of course another sort of constraint that the ministry needs
to deal with. How to handle the 7.5 MHz versus the 10 MHz. Now for us we, as
Lars said here, we would like to have clarity. We might not start pushing out 4G or
24
LTE services for several years but we would like to have clarity, and I think that’s
what the investment community would also like to have. And for us the less
spectrum the better. However, 10 MHz we can certainly handle that as well. In
many regions we have 15 MHz or more spectrum, and so dividing that between 2G
and 4G is certainly doable. So I don’t think I can paint more of a picture than that.
We don’t think that there will be a decision in December but we hope to have more
clarity on the process going forward.
LARS TORSTENSSON: Okay and I would have a take on the pre-paid post-paid migration. I think when it
comes to ARPU and ARPU assumptions, as an operator we like to move away from
that. We are not that focused on what the SIM card can do but what the account
can do and how much money we can make on each individual. I think that that’s
why talking about ARPU and ARPU contribution over time, you end up -- there is of
course a positive movement going from pre-paid to post-paid. We believe that it’s
more important to talk about the total worth of that account. It might be that the
individual has two SIM cards or three SIM cards, and that is what we need to
service. And your second theme(?) and third theme with a yield less than your first
theme but they are still very valuable to us. That’s why I would like not to go into a
specific SIM card for SIM card discussion because that is getting -- that KPI
specifically is getting a little bit old and outdated, because now we need to talk
about can we grow as an operator, which I think we have proved in this quarter, and
how should we cater for that growth going forward as well. So that is more
important.
25
Thank you. I hope that helps. But, Operator, could we have another question
please?
OPERATOR:
The next question comes from Mr Ulrich Rathe at Jefferies. Please go ahead.
ULRICH RATHE:
Thank you very much. Three short questions please. And the first one on the
Netherlands. You mentioned that the market is moving triple play and you’re having
some issues there with the fixed set up. Could you talk about how you actually see
potential for mobile only growth or your standing in the market, when the market is
actually moving triple play. How are you intending to address this trend that you’re
seeing?
The second point is on Kazakhstan. You are attributing the ARPU trends to moving
into the regions, but I think there has also been some price pressure from Beeline I
think, in particular, who has sort of pushed back against you also in the more urban
areas. Was this also a contribution -- was this unexpected and how would you react
to that?
And the last one is on Sweden. I mean just very tentatively putting your service
revenue growth of 4% into the numbers, it looks to me as if the equipment revenues
actually went down maybe SEK 50 million or so sequentially, so significantly less
equipment revenues in the third quarter. How does this gel with the comment about
the iPhone sales and the margin impact, if you had really so much less equipment
revenues in the quarter? Thank you.
LARS TORSTENSSON: Thank you. Three good questions. I think, Mats, can you please?
26
MATS GRANRYD:
Yes, I can start. Netherlands, triple play, you’re absolutely right we are under
pressure on our fixed offering. Previously one play and double play worked
perfectly okay on our fixed copper offering. Now with triple play coming more in
vogue we do have a problem there, and the way that we handle that is to focus
more and more on mobile. You know, we have the MVNO set up with Team Mobile,
and then that is what you can see that we’re growing nicely on that set up. And
we’re doing some more experiments on the fixed side, but I would not emphasise
that. I would emphasise the mobility would be our avenue as an MVNO to continue
to grow in the Netherlands.
On Kazakhstan, you’re absolutely right, ARPU is trading down slightly and we see it
-- as I said, we’re going out to the regions. The purchasing power is less, less there
than in the cities, but obviously there is price pressure from our competitors.
They’re not sitting still. Both Beeline and Kcell have been aggressive in the market,
no doubt about that. We have a -- as we have in Russia we have a superior - I
would argue at least - cost structure and a superior operation in Kazakhstan. So we
are competing that nicely. But for sure there is price pressure in the major cities as
well.
And on the Sweden less equipment (overspeaking)
LARS TORSTENSSON: I should say that discussion -- when we talk about underlying service revenue
growth, we talk about service revenue growth excluding the impact of interconnect,
so including interconnect service revenue growth was around 2%, so we still have
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some equipment sales there. So I think that we need to go through that calculation,
Ulrich. So that one we should not step away from, not at all.
We’re quite happy with how things have developed during the quarter and there is
still a large component of equipment in the numbers.
ULRICH RATHE:
Thank you very much.
LARS TORSTENSSON: Thank you. So, Operator, can we have the next question, please?
OPERATOR:
The next question comes from Ms Lena Östberg from Carnegi. Please go ahead.
LENA ÖSTBERG:
Yes. I'm sorry to come back to this question on the gross and net savings from
launching of the new network in Sweden. But if I remember correctly when you
announced this, there should be significant savings from the OPEX line on
electricity because the old GSM network was significantly outdated, and also
currently -- I mean you’re saying you’re getting two networks but you’re actually
running 4G and 2G on the same network. And you’re sharing it with another
operator so, therefore, I find it really difficult to understand why there should not be
any net savings from this?
LARS TORSTENSSON: Okay. Thank you very much, Lena. Of course we need to elaborate a little bit
more on that. We’ll see if we can do that. Lars Nilsson, would you like to start?
28
LARS NILSSON:
No, no, I can say what we pointed out if you look at all costs round the network
going forward compared to what we did in the past, and you should also take into
consideration the depreciation of the licences and all these aspects. And we are
actually now -- if you look at the new network we are running also on 2G. We
actually have more base stations operating there compared with the old network.
So hence, we think that it’s a good achievement that we actually can run this
network on the same total cost, including everything I would say.
LARS TORSTENSSON: Yes, and you should remember we have built - this is Lars - and we try to
emphasise this of course that the alternative would have been building this by
ourselves and now we get a brand new 2G and 4G network for the same cost as we
were running more or less an old network for, the old 2G network for. So it’s been a
great achievement, and something that we will benefit from.
Then it always becomes like that, Lena, I mean that in the end the question is what
if we would not have done this? We are always looking for additional savings in
operations and this has been a significant saving for us, but at the same time we
have had -- the market has been changing and we have been able to maintain
profitability fairly decently during that time period as well, so I think you do see some
of the benefits already today. However, having said that, we are still working on
merging the two networks, yeah, and reaping the benefits also going into next year.
LARS NILSSON:
Once again I would like to emphasise that this is total cost including depreciation for
the licences and all that stuff, and then we are actually having access to more base
stations than before.
29
LARS TORSTENSSON: Exactly. I think we have increased the amount of base stations by around 15% or
something like that, which means that we also get a greater -- or even 20%, which is
giving us an even greater benefit also when it comes to compare ourselves to the
incumbent on the quality side, which is also very important of course when it comes
to gaining interest, for example, from the business to business side where it is
crucial to be able to come up with a very good proposition when it comes to
coverage.
LENA ÖSTBERG:
But if we look at how much you have still left to close from the old GSM network,
should we not expect any additional savings when you close that down?
LARS TORSTENSSON: When we close the full network down in Q1, so to speak, if we get additional
savings then? I don’t know, Lars, if we are ready yet to elaborate on that?
LARS NILSSON:
No, no, no, I think you can see some of the savings now, Lena, when it comes to
the depreciation has come down but now we will gradually move into the new
situation and I think we - going forward - maybe can come with some more detailed
forecasts, but I think right now we can assume that it will be to run the new network
for the same cost as the old one.
LENA ÖSTBERG:
Okay. Can I just ask a final question on Swedish mobile then? You said you’ve
taken some investments ahead of the iPhone launch. Can you say maybe how
30
much they were in the quarter, and what they were if they were sort of built up of
inventory or if there was marketing related?
LARS NILSSON:
Lena, you broke up there. Can you just repeat that question, please?
LENA ÖSTBERG:
Yes. You said that you’ve taken some extra costs ahead of the iPhone 5 launch in
Q3, which you would not have to carry in the fourth quarter. So I was just
wondering if you can say maybe roughly how much that was and what it was related
to? I mean how much was inventory build up? How much was marketing?
LARS NILSSON:
No, Lena, we don’t go into that. As you know, it’s very exclusive what we have
when it comes to volumes, prices and so on. And we are not allowed to talk about
that from that perspective, I'm sorry.
LENA ÖSTBERG:
Thank you.
LARS NILSSON:
Thank you.
LARS TORSTENSSON: So, Operator, do we have another question, please?
OPERATOR:
The next question comes from Mr Thomas Heath at Handelsbanken. Please go
ahead.
31
THOMAS HEATH:
Thank you. A few questions. You mention the long term sort of view on LTE to
reach 5% by 2015, and I believe you’ve previously said that without tech neutrality
you expect growth in Russia to last 18 to 24 months. Does this mean that you in
your internal forecast expect flat or negative growth in Russia before LTE takes off?
First question and the second question is on the new regional licences coming up.
Is it worth bidding cash for these regions without having tech neutrality?
Third question on Croatia. As I understand it, the brand is a little damaged in
Croatia and it’s been tough over the years. Would you consider divesting that
asset?
And lastly, Norway is doing very well on EBITDA. Can you sort of extend this over
the coming years? I previously had a view that you were locked into traffic
agreements with Telenor and Telefonra, which sort of prevented EBITDA from
rising. Thanks.
LARS TORSTENSSON: Thank you, Thomas, so we have two questions on Russia, one on Croatia and
one on Norway. I guess, Mats, whose would be for you, I think?
MATS GRANRYD:
Yeah, absolutely. The first one, LTE Russia 5% 2015, and what we said before is
that our 2G offering we believe will continue to grow for several more years. You
said 18 to 24 months, and maybe that is being pushed out a little bit, but in that
region. Then we’re going to see a levelling off we believe on our 2G offering. I think
that is where we are and tech neutrality or a way of achieving a data licence will be
important for us in coming years. And I say that just because I want to make sure
that everyone understands that we’re not pushed against the wall here. We still see
32
good growth in our 2G offering. LTE is growing 12% year over year. However, in
the future having a good data offering will be, you know, pivotal of course to our
success but it’s quite some time in the future.
On the new regions, the nine new regions, obviously we don’t know if it’s going to
be a beauty contest or if it’s going to be a paid auction and obviously it needs to be
a business case per auction, the business case per auction to see if we’re going to
participate or not. And we would need to see the process as well, which is not clear
at all for us.
LARS TORSTENSSON: It could be said, though, that the licences that have -- with the auction out it’s
something that is a suggestion from our side.
MATS GRANRYD:
We have been pushing it but that doesn’t mean that we have to buy everything.
LARS TORSTENSSON: No, exactly.
MATS GRANRYD:
Okay. And Croatia, you’re absolutely right, we have a slightly damaged brand and
then we’ve had a rocky ride, and we’re not happy with the progress. Seven years
and we still only have a 16%, 17% market share. As I say, everything is for sale at
the right price. So, I don’t know, I don’t think I can comment more on that. But we
are working with new management there to make sure that we get back on track,
regardless of what happens in the future.
And then Norway, on the EBITDA margin, we have increased the guidance and as
we talked about yesterday there is a Christmas season in Norway as well, so I think
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that we need to be not overly joyful over the 10% EBITDA we achieved in the third
quarter. We will see more investments going forward in the fourth quarter. So, you
know, that’s why we increased the guidance but we didn’t take the full potential
there.
LARS NILSSON:
No, and you talked about what will happen next year. I mean next year we will still
have these MNO agreements with commitments, so you will see the EBITDA
expansion coming in 2040, hopefully.
LARS TORSTENSSON: Very good. Thank you, Thomas. And Operator, can we have another question,
please?
OPERATOR:
The next question comes from Mr Terrence Tsui of Morgan Stanley. Please go
ahead.
TERRENCE TSUI:
Yes, thanks very much. I’ve got two questions, please. On the Russian 4G
landscape there has been some speculation in the local press on Yota potentially
opening up its LTE network for other operators. Is that something that Tele2 is
discussing with Yota, and do you think this could be a satisfactory near term
solution, given the uncertainty right now on the timing of tech neutrality?
And secondly, on Norway regarding regulation, can you remind us again when we
should expect a decision on your appeal against symmetrical NCRs, due to be
implemented at the end of next year, and the arguments that you have put forward
to support that? Thanks very much.
34
LARS TORSTENSSON: Okay, a question on Yota and a question on Norway on interconnect. We will
start with Yota.
MATS GRANRYD:
Yota, yes, I mean as you might have read they have opened up to have more
operators. I think up to six operators now in the Yota network, and we’re obviously
discussing with them. But it needs to be financially viable. It needs to make sense
for us to go in there. So it’s still early days but discussions are ongoing with Yota.
And on the regulatory, maybe, Lars, you can take that?
LARS TORSTENSSON: Yeah, sure, I mean we -- the base case is of course that we will have symmetrical
interconnect by the beginning of next year in Norway. We are still arguing for a
prolongation of symmetry when it comes to Norway, and we are basing that on that
would help us building out a more complete network in the Norwegian market. With
the current regulatory glide path we would build around 75% population coverage,
but if we see a prolongation of that asymmetry we could see ourselves reach as
high as 90% population coverage as well.
So I hope that answers your question, Terrence.
TERRENCE TSUI:
Thank you.
LARS TORSTENSSON: Thank you. Okay, Operator, could we have the next question, please?
OPERATOR:
The next question comes from Mr Peter Nielsen at Cheuvreux. Please go ahead.
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PETER NIELSEN:
Yes, thank you. Just two questions, please. The first one relates to a comment by
Lars earlier on, on Swedish mobile revenue growth. Just to make sure. The
guidance for 3% to 4% service revenue growth in Sweden, that is reported revenue
growth, yeah, reported service revenue, it’s not some underlying revenue growth?
And the second one relates to Mats’ comments about the Dutch triple play market,
which sort of suggests you’ve given up being competitive here, Mats, which I find a
little surprising given where you’re coming from. You have no plans for sort of
upgrading that -- the cover network on your video sales side, etc, to be more
competitive on the triple play market? Thank you.
LARS TORSTENSSON: Okay. Thank you. I would like to start with the first question and, Mats, if you
could take the second question.
When it comes to revenue growth in the Swedish market, we talk about excluding
interconnect in that assumption, and that means that what we had in the third
quarter with that assumption we grew by 4%, and we included we grew by 2% or a
little more than 2% in revenue.
So, Mats?
MATS GRANRYD:
On the Dutch side, absolutely. You’re absolutely right we have not given up, by no
means. We are doing experiments. We’re hoping to see more wholesale
agreements. We will be able to buy fibre to offer then the -- or offer the triple play
solutions to our customers, so we have not given up - absolutely not - on the fixed
side in the Netherlands.
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PETER NIELSEN:
Okay. Thank you.
LARS TORSTENSSON: Thank you, Peter. And Operator, can we have the next question, please?
OPERATOR:
The next question comes from Mr James Britain at Nemura. Please go ahead.
JAMES BRITAIN:
Hi, it’s James from (inaudible). Good morning, guys. I’ve got two questions, please.
On Sweden, can you just give us an update on how LTE is going in terms of
customer ads and whether the customer feedback is that this is now good enough
to substitute fixed broadband for them? And then in Norway could you just clarify
for us what revenue you get from interconnect in that market, so that we can just
assess how important the termination rate decision is for profitability? Thanks.
LARS TORSTENSSON: Yes, I think those are good questions, James. I would like to hand them over to
Mats.
MATS GRANRYD:
Well, at least the first one, I’ll try. You said customer feedback on LTE. I am not
100% sure how many customers we have on LTE. We’ll see if we can find that out.
LARS TORSTENSSON: Around 80,000.
MATS GRANRYD:
80,000, 80,000, yeah. And then when it comes to customer feedback, I only hear
positive feedback, maybe just that’s because I'm the CEO of Tele2, but if you look at
37
myself and what type of solution I have at home, we don’t have any fixed solutions
at all. I have the home router, and that is backholed through 4G and I have a wi-fi
solution at home and that is the product that is actually selling the best in Sweden.
It is sort of the BT home hub but not a fixed backhole. It’s a 4G backhole. And you
typically get -- it’s not the 4G network that is putting the limitation on capacity, it is
the router. So I get steady 25/27 megabits per second. On my 4G handset I get
various speeds but never lower than 20. I get 30. Here in the office in downtown
Stockholm I get 70 or maybe even 80 megabits per second, with a latency of 20
milliseconds or 30 milliseconds.
And then I was trying to say on an earlier question that the experience of going from
3G to 4G is a fairly big jump actually. The 4G experience is a different thing. It is
really truly like turning a page in a book. It is that fast and there is no -- it’s
completely seamless. So I only hear good feedback from customers and I have an
experience for myself. Yeah.
LARS TORSTENSSON: And when it comes to interconnect we have not disclosed the absolute amount of
revenue that has been derived from interconnect in Norway. What I could say,
though, is that we did have an interconnect cut as of 1 July and as you can see we
still did quite well on the margin side. The last cut would then be at the yearend. Of
course it has an impact but once you remember we are working really, really hard
when it comes to realise the synergies between the two companies, and also
moving more volume, as much of a volume as we can towards our own network
when possible. So I think that we will be able to manage that in a good way.
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JAMES BRITAIN:
Okay, thanks.
LARS TORSTENSSON: Thanks, James. And Operator, could we have the next question, please?
OPERATOR:
The next question comes from Mr Sasu Ristimaki of Merrill Lynch. Please go
ahead.
SASU RISTIMAKI:
Yeah, good morning. I wanted to come back to this issue of mobile data in Russia.
You talk about 5% LTE penetration by 2015, but surely if we think of mobile data
revenues as a percentage of ARPU we’re going to be talking about much higher
numbers, and I would like to propose something like 25% to 30%. Now, if your
competitors are going to be looking at replacing voice ARPU with data ARPU, and
you’re stuck in a voice-centric revenue model, how are you going to address this?
And specific to that, if your ARPU actually gets on a negative trend, what strategic
alternatives do you have apart from still talking about this technology neutrality?
LARS TORSTENSSON: Thanks, Sasu, those are good questions. Mats, would you like to elaborate?
MATS GRANRYD:
A very good question but not completely simple to answer. But 5% in 2015, I think
that is the proof of a fairly slow pick up, at least from Swedish eyes, and I think it
sort of proves the point that things do not happen overnight in telecom. The world is
changing quickly, for sure, but as consumers we are fairly lazy, within brackets, to
change technology. I think it is more important for us to focus on - as you rightly
said - ARPU and how we continue to grow that ARPU and the minutes of use. And
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I guess that question is: how can you have such a positive trend in Russia? I think
that we have got the recipe right with a transparent approach, good solid network
and a very, very healthy discount brand name, or discount approach. I think those
things are -- will not change, regardless of 2G, 3G and 4G.
Edge, as I said, on our network is growing with 12% but you’re absolutely right the
data growth in our competitors that have 3G is growing faster, maybe with 20%,
25%. That’s just a fact of life. And tech neutrality will of course mitigate that, but if I
would get a 4G licence tomorrow, and I would start burning a lot of CAPEX, you
would then turn around and ask me, “Mats, why are you spending all that CAPEX?
There’s not going to be any 4G pickup for years to come”. So I think one needs to
be mindful of the fact that it takes a lot of time and, as I said on a previous question
here, 2G will continue to grow and our forecast is it will continue to grow another two
to three years. But we might be wrong. It might continue to grow even longer. We
don’t really know that. I don’t think it’s going to stop growing shorter than that. I
don’t think so. The importance is to have a good network, good solid customer
relations and a good brand name in the market. Then you will be able to handle
quite a lot of disturbances, both on price wars and new technologies.
I don’t know, Lars, maybe you can --
LARS TORSTENSSON: No, I think that is a very good answer. Would you like to follow up on that
question?
SASU RISTIMAKI:
No I think that’s fine. Can I just ask a follow up on just CAPEX? If I look at your
overall CAPEX guidance, your comment, it seems that you may be doing a little bit
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of a pull back on expenditure this year and I was just curious is that reflecting any
kind of all overall strategic thinking on CAPEX at the moment or is it just more kind
of opportunistic and timing related things?
MATS GRANRYD:
I can say it’s the last thing. We can see that we are for different reasons late in
some areas. For example, we talked about Norway where we actually have
planned for this LTE licence as well as -- and then some other problems with the
rollout and we are also somewhat late when it comes to CAPEX in Kazakhstan, for
example. So it’s not sort of that we have said that we should slow down for any
other reasons.
SASU RISTIMAKI:
Right. Thank you very much for that.
LARS TORSTENSSON: Operator, can we have the last question, I think, for today, please?
OPERATOR:
The last question comes from Mr Henrik Herbst at Credit Suisse. Please go ahead.
HENRIK HERBST:
Yeah, thanks very much. I just want to double check, really, firstly on Russia.
When you’re saying you’re focusing on a more balanced approach between
subscriber growth and profitability, is that just for Q4 or is that kind of more -- a
bigger change in strategy?
And then I wanted to follow up on LTE in Sweden as well. Of those 80,000 LTE
customers, how many of those are LTE wi-fi modems, and if you can give a bit of
colour in terms of what you’re saying in uptake is it accelerating and where are the
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customers coming from? Is it Tele2 fixed line customers migrating to mobile only or
are you taking customers from other fixed line operators? Thanks very much.
LARS TORSTENSSON: Thank you, Henrik, also good questions. When it comes to that I think Mats could
take both of them, please.
MATS GRANRYD:
At least the first one. The Russia balanced approach, and that is for the fourth
quarter. We need to have split vision, sometimes your foot on the gas and
sometimes foot on the brake, and we’re sort of in between there now.
And then on the LTE Sweden, where they come from, I don’t have that.
LARS TORSTENSSON: Well, the (overspeaking) wi-fi routers as I understand it, the longer(?) distances
are probably not as attractive anymore. We allow tethering on mobile phones as
well, and that’s what people can do. So when you look at 80,000, that is
predominantly cut the cord products, which is a very good alternative to your ADSL
VDSL connection, which has been quite popular. Now, having cleared that, we are
assuming a lot of interesting handsets coming in here during Q4 as well, based on
other operating systems than IOS, which could also be pushing the needle but we
see good solid interest for 4G services today, and it’s quite easy to sell those as well
because we can provide such good quality and such high speed on that service as
well. And of course you get the mobility on top of that, which is excellent.
MATS GRANRYD:
Mats here. I know there are a lot of Swedes at their summer houses somewhere
out in the Archipelago, or up north or south, and the home router is a fantastic
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product to bring with you to both enjoy wi-fi in the car if you have a battery, and also
when you actually arrive at your summer house. So it is a good product, and as
Lars said easy to sell.
LARS TORSTENSSON: Yes. Thank you very much. I think even though we have a few more questions in
line, we do need to rush to the physical meetings. Of course we would love to
follow up with those who still have questions, so feel free to give me a call at any
time. And just as a reminder, we will release our result for the fourth quarter on 5
February.
Thank you all for participating in today’s analysts’ conference call. Have a great
day. Thank you.
MATS GRANRYD:
Thank you.
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