Event: Tele2 Interim Report January - September 2013

Date: 22 October 2013

Speakers: Lars Torstensson, Mats Granryd and Lars Nilsson

Call Duration: 01:32:26

Tuesday, 22 October 2013

LARS TORSTENSSON: Good morning, everyone, and welcome to Tele2’s Q3 2013 conference call. I

would also like to welcome everyone that has joined us via the web and can watch

us today going through the quarterly results. Together with me today I have, of

course, our president and CEO, Mats Granryd, and also Lars Nilsson, our CFO. But

that is enough said by me. Mats, would you like to take us through the quarterly

results?

MATS GRANRYD: I will do that. Thank you very much, Lars. This is a new setting that we’re trying, so

if it’s not perfect, just bear with us. I will also be fairly quick in my presentation, to

leave enough room for questions later on.

First, third-quarter result. Solid intake, 263,000 customers in the quarter. EBITDA,

SEK 1.5 million, sales SEK 7.5 billion and 3% mobile service revenue growth. The

underlying service revenue growth for the Group was 5%. And Capex pretty much

in line with what we have said. A quarter that we are not happy with, a quarter that

we were hoping to get a stronger EBITDA from. Sales more or less okay but the

profitability is below our own expectations.

Before we go in on the third quarter, though, I would like to highlight the reasons

why we are changing our outlook for 2015. The first thing is that we’re seeing an

increased speed of shift from voice to data, literally across our footprint. The

second thing is that the pay-as-you-go price plans that we have all been brought up

with are diminishing quicker than we have anticipated, in favour of bucketised

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pricing, also pretty much across our footprint. Thirdly is that the deterioration of our

fixed-line business is going faster than what we have anticipated.

These three trends are the reasons why we’re changing the guidance to what you

see now on the slide. Sales not that big of a difference, but on the profitability level

it is a fairly significant decline. We can also see that we have given an indication on

dividends for 2013.

This is, of course, something that we need to discuss fully later on. However, I

would like to emphasise that the strategy is unchanged. We know exactly where we

are positioned in the value chain. We are an access provider. That is core to our

business. Scale is really important for us to get efficiency into our operations.

Thirdly, which is possibly the most important, is to have solid customer relations.

That is why we’re putting a lot of emphasis on it in this report but also in the work

that we’re doing with our customer-care Q4 results. So we’re not here to flip-flop.

We believe that the strategy is intact. We have seen these trends that I described

before previously and we have discussed them with all of you but they’re just

happening faster than what we thought.

If we then go into the report and start with Sweden. A good customer-intake quarter

- 60,000 new customers. Underlying service revenue with 1% increase and an

EBITDA of 30%. We were hoping to get a better result, honestly.

Five areas I would like to go through: Comviq, Tele2 residential, operations, our

business portfolio and customer operations. Maybe I would like to just say one

word on Comviq, where we are seeing a trend shift. Last year, Q3, 2012, we had a

loss of 26,000 customers. This quarter we had an increase of 20,000, so we are

turning the corner when it comes to customer intake on Comviq. But if we look into

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more detail on Comviq, we can see that we have gained the number one price

position in the Swedish market. We can also see the first trend that I talked about,

the pay-as-you-go to bucketised price plans. We now have 31% of our portfolio in

Comviq on bucketised price plans. Fastpris is Swedish for fixed price. That is a

fairly dramatic change. 70% of our sales are online, and, as you can see, the

bottom right-hand graph, portings in and out, and we are now almost on breakeven.

We’re almost porting as many customers in as we’re porting out, from previously

being hugely negative. So that is good work that has been done in the Comviq

department.

In order to increase our transparency to our customers, we have launched an app

that shows easily how much data you have consumed. You can go in and get a

real-time rating on your invoice, you can do upsale of you data or buy more data

once your bucket has been consumed. This is something that we believe is going

to help our upsale of data.

From a store perspective we have now rolled out 108 stores in the To Go concept in

Sweden. We have launched another three or four stores in Sweden. We now have

54 stores open. On the handset side, as you can see, Samsung and iPhone 5 are

the two top best sellers. We have a smartphone penetration of 80%. It looks like

it’s levelling off. It will be really interesting to see what this graph looks like in the

fourth quarter once 5S and 5C have been launched to see what the changes are

there.

Bucket price plans I think is important to look into. In Sweden on the residential

side, we have 48% of our customer base on bucketised price plans and almost 80%

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of all new customers coming in are on fixed bucketised price plans. This is, of

course, a huge shift in the way that we are doing business.

We can also see that 58%, more than half of the consumers that are hitting the roof,

the limit of data in their bucket, are actually opting to buy more data, and that is a

very encouraging sign as well, but we do need to see this flow through to the bottom

line. It is still too early to make any good assumption on if 58% is good or if needs

to be pushed up even further.

On the usage, 4G versus 3G, we are in a huge 4G demand as you can see. It is

almost 50% more data being pushed through in our 4G offering versus our 3G

offering, and this is something that we are proud of. We are continuing to build out

the 3G network. We have a lot of legacy customers, obviously, on 3G and that

needs to be augmented as well, but we are pushing in quite a lot of Capex into 4G.

On the business-to-business side our hero product is soft switch, which is doing

very well. We also have the roaming package in the Nordic countries are doing

very well. We have signed up several big brand names in Sweden and we are

doing good positioning in the market. We have a reasonably good product portfolio,

but what we also need to be aware is that the sales cycles on the business-to-

business side are much longer than in normal residential sales, so we need to have

more patience here in the business-to-business side.

Customer satisfaction is doing very well. You can see we’re approaching 85%, the

world-class level, so it think that has just continued to do the good work that we’re

doing in Sweden. So the forward-looking statement for Sweden for 2013 is intact.

We are not revising it upwards or downwards. It’s the same level.

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Moving on to Norway, 2,000 customers net intake. We added 5,000 mobile

customers. The underlying service revenue growth on the mobile segment was 2%,

pretty much in line with what we had expected. Thing things I would like to go

through in Norway: customer trends, network operations and customer operations.

If we look at some of the customer trends, smartphone penetration is now nine out

of ten being sold, literally the same level as in Sweden. You can see the bucketised

price trend is actually even stronger in Norway than what it is Sweden. 75% of all

residential customers are on fixed price plans, and that is the same number as

Sweden with 48%, so the trend here is even quicker. You can also see the fixed-

line deterioration in favour of our mobile subscriptions. So fixed is going down and

pay-as-you-go is going down in favour of bucketised price plans. Those are clear

trends that are supporting our long-term revised guidance trends.

Important in Norway are obviously sites, population coverage and seeing that we

are managing to move traffic on to our own network, which we are. You can see we

have more sites ready, we have an increased population coverage and we have up

40% of the traffic on our own network. From that perspective we feel confident that

this is the right strategy going forward.

World-class customer service. We are very close to showing world-class customer

service in Norway, a very solid performance from the Norwegian team, very close to

85%.

The forward-looking statement in Norway: revenue is down slightly, SEK 3.9 billion

to SEK 4 billion, earlier SEK 4.2 billion to SEK to 4.3 billion. On the other hand,

EBITDA we’re guiding up slightly. From SEK 70 million to SEK 80 million, now it is

SEK 80 million to SEK 90 million. Cash flow remains the same levels.

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Moving then on to the Netherlands, a strong customer intake on the MVNO side,

56,000 customers. Still losing on our fixed business, obviously, as you can see, net

intake being 38,000 customers. Service revenue underlying on mobile, 74%, very

strong. The trends are trending up except EBITDA which is again trending down,

and that is of concern. One should know that we are investing heavily in the

Netherlands, not only on the network side but also investing in getting the mobile

customers on board.

Four areas that I would like to talk you through: business, residential, network

operations and customer operations. If we start with the business side. In the

quarter we have signed up ABN Amro, which is a prestigious bank in the

Netherlands, as you all area aware of, 600 ATMs and 400 offices are now

connected through our Tele2 fixed access. Our product portfolio is not as strong

here as it is in Sweden. We are lacking a good mobile offering, coupled with our

fixed-line offering, and that is something that we are working with for the coming

quarters.

Broadband, I must say is under serious pressure in the Netherlands. There is a lot

of aggression on the fixed side. Promotions are all over the place. High speeds,

and price levels are decreasing. For us this is a very troublesome situation where

we are not strong enough on our fixed portfolio. So fibre to the home, we’re doing

that through Reggefiber, still several quarters away until we see enough momentum

in that relationship in order to get us to where we want to be, as well as on the

VDSL side. So this is an area of concern. It’s also the third reason why we have

changed the times, as you saw in the first couple of slides.

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However, the MVNO is going very strong, as you can see. Six quarters in a row we

are outperforming the market. We believe we will do that in the third quarter as

well. We haven’t seen the numbers yet from our competitors, but we have a good

healthy mobile subscriber growth in the quarter.

This is a slide that I think you are all very much aware of. We are passive site

sharing with T-Mobile in the Netherlands. We’ve signed a ten-year site-sharing

agreement with T-Mobile and a five-year MVNO agreement with T-Mobile. I think

from that perspective we’re fine.

We’ve also signed up, on the RAN side, NSN, core Huawei and Mavenir on IMS

and voice-over platforms, so that is also taken care of. We are also now starting to

build out the network. We have an increased number of site leases and we’re

starting to do civil works. To the left you can see our first base station being built.

It’s not on air, but it’s being built. That was in August of this year.

Customer satisfaction is, of course, a challenge to have a good level on when we’re

having such a poor offering on the fixed side. However, that’s no excuse. We just

need to make sure that we have a positive trend on our customer voice that needs

to be corrected in the coming quarters.

The forward-looking statement is pretty much the same except cash flow, where we

have taken it down from SEK 2 billion to SEK 2.5 billion, to SEK 1.5 billion to SEK

1.7 billion. All the other guidance is intact.

Moving on to Central Europe and Eurasia. Germany and Austria are doing fine.

Germany is adding a lot of mobile customers. EBITDA is 22% if we exclude the

mobile customers. With the customers it’s down to 8%, again a transition away

from legacy fixed into the more future mobile environment. Austria I would say is

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very much on target where we want it to be, strong on business-to-business in the

quarter.

Just a graph showing the kick that we are having fixed as a service, fixed mobile as

a service and also in our mobile offering when we’re approaching the market

through a service-provider arrangement. It’s never going to be a blockbuster, but

it’s at least bucking the trend of negative customer intake.

The Baltic States, Latvia, Estonia and Lithuania. I think Estonia have had a horrible

ride for 2013. We believe we can see a slight trend shift in Estonia. Customer

intake, the price pressure is easing off slightly. Latvia has had a good strong

customer intake, 24,000, and I think that is also on a better course going forward. I

think we have been skilled to navigate through the Latvia (inaudible) in a good way.

Lithuanian, the star, is going very well at 33% EBITDA margin. We are now number

one regardless of how we measure, in the markets. So, very well done from

Lithuania.

Croatia is actually doing better this quarter. The third quarter is normally a strong

quarter for Croatia. We just need to make sure that the fourth quarter and first

quarter are equally strong. We had a 50,000 new customer intake, which is very

encouraging, and we have a 13% margin. Again, we’re not happy with the duration

that we’ve had to wait for this turnaround, however if the turnaround is now here,

then we’re fine. We have changed the leadership team, as I said before, and I think

that is the right decision in Croatia.

Kazakhstan. You might be surprised with such a low net intake. That is, of course,

nothing that we’re proud of, but it has a very clear explanation, and I will come back

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to that in a little while. Mobile net sales good with 23% and the EBITDA margin is

now down to only minus 10%.

Three areas I would like to go through: the commercial side, the network operations

and customer operations. Price leadership position is for us very important. In

Kazakhstan, being a price fighter in that market, we do need to have the undisputed

price leadership position, and I’m happy to show that we have that price leadership

position. That’s a good foundation to start from.

When it comes to our commercial focus, as you might know we have changed the

commission schemes. We have moved aware from a fixed commission from our

dealers to a more revenue-share scheme with our dealers. Of course, this has

meant that some of our dealers are more apprehensive of pushing the Tele2

subscription, but we’re doing this in order to get a better customer base. There’s no

point in just having a lot of SIM cards, we need to have customers that are actually

spending money on our network. We can see proof points of that. Output, for

instance, is going up 22% year over year, 17.4% sequential from Q2 to Q3, so it

looks like it’s going in the right direction. Obviously we do need to see customer

intake being in the positive territory in the fourth quarter and onwards, but as for

now this is a conscious decision to make sure that we have active customers, not

just SIM cards in the market.

We have opened more stores as well in the market and we have a population

coverage of now approaching 84%, which is good but we need to have even deeper

notwithstanding, meaning more capacity, but also a wider network, having more

population coverage. Us now becoming a mores serious player in the Kazakh

market, we need to continue to build out that network. End-user satisfaction: we’re

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well above 85%, so here we’re world class when it comes to customer care, which

is very encouraging to see.

On the guidance side, I would just like to reiterate that we are targeting to have

breakeven by the fourth quarter of this year. We have said the second half of 2013

all along and we are now approaching the fourth quarter where we will be

breakeven. We have also guided down slightly on the revenue, from SEK 1.45

million to SEK 1.55 million, and that is now down to SEK 1.35 million to SEK 1.45

million.

With those words I will leave the floor to Lars Nilsson.

LARS NILSSON: Good morning everyone. I will just, as normal, take you through our P&L and also

talk a little bit about the balance sheet. The P&L you have in front of you and you

can see the EBITDA we talked about for the quarter of SEK 1.5 billion. What you

should notice also is the one-off items that we have for the quarter. As Mats stated

before, Croatia is doing well, or doing better, but not in line with the long-term

expectations, so hence we had to take an impairment hit for the Croatian efforts.

We had to take a hit of SEK 454 million. You saw actually we did the same

exercise last year for the same quarter and we had a hit of SEK 250 million.

Last we also had costs connected with a settlement, which you can there. The one-

off items for last Q3 was SEK 538 million. So it’s a little bit of contradiction, and

Croatia is doing better but not in line with our long-term expectations.

If you look at the full-year P&L statement, you will also bear in mind that the net

profit year to date is some SEK 14.4 billion, of course fuelled by the deal we did in

Russia.

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Currency movements: actually more stable now. You can see, compared with

before, a stronger euro or a weaker krona, so actually year to date the difference, if

you compare the numbers for euro, it’s less than 2%. As we speak the euro is

somewhat stronger.

Depreciation: no drama at all, in line with expectations and in line with the trends

you have seen before.

Financial items for the quarter: interest costs coming up. Of course, we paid out

this big dividend in May. On other financial items, the SEK 435 million there is our

valuation of the option for Capex. There you can see year to date it’s SEK 123

million, so that means that each quarter roughly adds liability on our balance sheet

of SEK 45 million. Interest paid for this quarter, SEK 99 million.

Taxes for booked expensed taxes, SEK 234 million for the quarter, SEK 668 million

year to date. You can compare that with SEK 543 million last year. Last year we

also had a one-off item in taxes, and that’s normally when we evaluate deferred tax

assets.

If you look at the taxes paid they are only SEK 31 million. There, if you read the

footnote down there, you can see in tax assets we have tax costs in Luxemburg

with a holding company in Luxemburg with no cash-flow effect, so that’s very

important to bear in mind, so these tax costs will sort of meet deferred tax assets. I

know there can be some difficulties in forecast of the tax amount, but I hope that

this will help.

Cash flow for full year, the remarkable thing is of course what you see if you also

add the Russian deal. I think it’s better to look on the company without Russia,

where we have nothing which sticks out. We generated SEK 492 million for the

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quarter. Please note that in the change to working capital year to date, we have an

effect of SEK 320 million due to handset sales. All in all on our balance sheet we

have assets of some SEK 2.4 billion, which is related to us selling handsets.

Financial balance sheet: it’s what you see here. Of course, a new change after we

paid out this big dividend and also received the cash from Russia. The debt

maturity profile is stable. You have also read that we have extended the revolving

credit facility by a year. We have taken down the absolute number a little bit

because, as you can see, we’re not using this, but it continues. This is how you can

see us on the debt capital markets.

Finally, before we leave the floor to remarks for Mats and for questions, just to see

where we are on the balance sheet. The level right now is just close to SEK 1.25.

If you saw the report, which you did, you see we are talking about a dividend of SEK

4.40 for 2013 to be paid out in May 2014.

I actually will flip through the last slides, because I assume that there are a lot of

interesting questions.

MATS GRANRYD: Thank you, Lars, for a speedy financial report. I would just like to have some

concluding remarks. I think the industry trends that we have seen are still very

much valid. What we have been surprised always is the speed of those changes.

Now there’s no time for panic or flip-flopping. Our strategic direction remains firm,

and we have gone through the three areas where we are still focusing our efforts

from a strategic perspective. We have therefore updated the long-term guidance.

With those words, Lars, I will hand over to you and to everyone for questions.

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LARS TORSTENSSON: Yes. Thank you very much Lars and Mats and wee would like to open up to

questions from both the web as well as the telephone conference. Let’s start with

the telephone conference. Operator, do we have any questions?

OPERATOR: Ladies and gentlemen, if you have a question for the speakers, please press 01 on

your telephone keypad and you will enter a queue. After you are announced,

please ask your question.

Our first question comes from Mr Peter Nielsen from Kepler. Please go ahead.

PETER NIELSEN: Thank you. Two questions, please. First one, could you elaborate a bit and explain

a bit on why it is that the change from old pricing plans to the new bucket plans are

so costly for you in the near term in terms of also raising your operating costs?

Secondly, obviously on the reduction side, the revision of the 2015 guidance, could

you elaborate a bit on where you are seeing it? I mean, it’s quite a significant

change, and where it is that you are seeing the majority of these changes, and why

it is that these accelerated developments have no impact on your 2013 guidance,

but impact so materially on the guidance two-year outwards?

LARS TORSTENSSON: Two good questions. The first one was with reference to Sweden, I think - or

generally we can say, but Sweden as an example - the effect of the new pricing

plans on our business and why that effects our guidance, and then also what have

caused the main deviations in our guidance and why do we change our guidance

and where is that coming from. Mats, would you like to start and Lars can follow up.

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MATS GRANRYD: Sure. This is something that we have been debating quite a lot internally, and the

pay-as-you-go, as you know, are a very profitable product for us. When people opt

into a fixed bucket, the revenue we get is fixed but the consumption can vary.

Previously we’ve had consumption in the fixed bucket, there were few fixed buckets

and more pay-as-you-go, where you would have a balance between revenue and

costs. When you enter into a fixed bucketised price plan and you are consuming a

very little amount of data, voice and text, that product is still profitable, if you like.

But the more the consumer adds on on data approaching the ceiling, of course our

production costs then increases to deliver that type of service.

This is something we have seen all along, so there’s nothing new in this, but what

we now need to do is to reduce the buckets, obviously, and to get it up-selling.

That’s why we have been talking about up-selling for many quarters. It has been a

difficult journey to get that in place. It is now in place and, as you saw, we have this

application that we’ve launched in Comviq just recently for our prepaid and post-

paid customers within the Comviq brand so they can transparently see where they

are and how much they have consumed and do an extra additional purchase of

more data if and when needed. So those are the trends.

Should I start with the -- and then Lars can correct me later on. The strategic

guidance is, of course, only six months old, and I’m sure you’re asking yourself why

are we changing it now. We have an annual process where we look through the

numbers on a three-year horizon. Of course, it’s very difficult to be accurate,

obviously, in such a long period of time, especially in such a dynamic industry as

telecom, but we can see that the reductions are fairly even in Sweden, Norway,

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Netherlands, the Baltic, Kazakhstan as well, even though the trends in Kazakhstan

are slightly different from the ones we have in the rest of our footprint.

LARS NILSSON: I would say there are of course different reasons. For example in Kazakhstan for

sure we see the competition there sort of defending their position in a better way

than we had expected, so there you actually see it’s coming up to revenue growth.

In Holland, as we talked about before, we had fixed broadband, which we are sort of

now shifting, as Mats was also saying. We are growing from low speed to high

speed and that is a transition period and it goes faster than expected.

In Norway we can say that we are somewhat late in the plan. It also shows that we

have not grown as we had expected, and I think we have done that in a controlled

way, but that means that this would take a somewhat longer time.

Also for Sweden there are trends we talked about before with CCC(?) mobile, also

somewhat more slow on business-to-business. But I think we have just now really

scrutinised the numbers and we see the trends we are talking about and they are

just coming faster than we saw before.

LARS TORSTENSSON: Do you have any follow-up on that one or are you okay?

PETER NIELSEN: No, it was just if these trends are materialising sooner than anticipated, wouldn’t it

normally be expected to impact the near-term guidance as well, and perhaps even

not so much the medium term rather vice versa?

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LARS TORSTENSSON: When it comes to how it’s impacting this year, 2014, 2015, what we are seeing is

small deviations currently from our guidance, but as we are going into next year with

slightly lower customers than anticipated, for example in Kazakhstan and Norway,

you see more impact in 2014 and 2015 as a result of that.

Then, of course, we have recently seen a pickup. That is partially something that

we have inflicted on ourselves, the move from pay-as-you-go to bucket pricing is

something that we are driving much harder now in for example Sweden than we’ve

done before. It’s the first time that we have moved from 3G to 4G, so it’s one

reason.

LARS NILSSON: Maybe I can also add here that the third quarter we are somewhat okay with sales,

we are not okay with the EBITDA. I think if you extrapolate that in I don’t know how

many quarters but through the guidance 2015, you will have a fairly big deviation.

That’s what we’re just trying to make sure that everyone is aware that we’re

changing that long-term view. You can possibly see some of the trends already

now, but we believe that they will be increased in 2014 and 2015.

MATS GRANRYD: And of course, as you all know, our guidance for 2015, we have given us and you a

range because there is more uncertainty when we talk about next quarter or we’re

talking about 2015.

PETER NIELSEN: Okay, thank you.

LARS TORSTENSSON: Thanks. Operator, can we have the next question, please?

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OPERATOR: Our next question comes from Mr Stefan Gauffin from Nordea. Please go ahead.

STEFAN GAUFFIN: Hello. A couple of questions. First of all, I would like to follow up on PK’s question,

and start with Kazakhstan. There’s a proposed massive interconnect cut of 60% to

70% in the beginning of 2014. Is that implemented in your guidance?

Secondly, Norway, there you will move to your own network end of or during 2014.

Could you just give us some indication on where the margins are heading after you

move to your own network?

Then finally, mobile Germany, there was quite weak EBITDA there. The EBITDA

margin has fluctuated quite substantially from minus 35% to plus 35%, I think.

Could you just give some indication on where we should be in the near future, and

perhaps midterm for this business?

LARS TORSTENSSON: Yes, thanks, Stefan, three good questions. Kazakhstan and the mystical

interconnect cut that has been discussed. Does that include no guidance or not.

That’s for you, Lars.

Norway, when we are moving to our own infrastructure, second half of next year,

what kind of a margin assumption should one have as a result of that? I think that

may be also you, Lars. And then Germany mobile margin development. Maybe we

can talk a little bit about mobile, Mats, and then hand to Lars or would you like to

start, Lars?

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LARS NILSSON: I can start and I start with the easy one. No, in our projection we have assumed the

mobile termination rates we have communicated before. We have not taken into

account the proposal which is that out there. If that goes through, that will be an

upside for sure when it comes to the result. It will have some negative impact on

the revenues, but that doesn’t matter. So that’s clear.

LARS TORSTENSSON: And then it comes to moving to own network in Norway, is there any indication we

can give regarding what improvements we are anticipating in 2014 or is that too

early?

LARS NILSSON: I think that’s too early because we haven’t sort of guided on 2014. For sure that

would be an upside in us coming to our own network, but it’s also about finding the

right roaming partner and agreement when it comes to roaming, which is still too

early.

LARS TORSTENSSON: Because one of the issues that we have in Norway currently is of course the

negotiations which are currently ongoing but we need to see improvements there.

Currently there is a lot of work on that topic when it comes to roaming costs.

LARS NILSSON: As stated before, going forward we need one roaming partner and not two.

LARS TORSTENSSON: Then, Mats, maybe on Germany and our mobile ambition there. Of course, the

loss has increased a fair amount in Q3 but we’ve also done a lot, I guess, in that.

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MATS GRANRYD: We have moved the needle when it comes to subscribers in Germany, but again

this is a very low-risk experiment where we are targeting voice-only customers. We

have 14,000 subscribers or so on our mobile service provider role, and then

140,000-plus on our fixed-via=mobile offering. So if we wouldn’t have done

anything, we viewed the German business as really stalling and going completely

stale. Before that happened, we wanted to try to become a mobile player. Again,

this is just an experiment. It’s not going to change the needle dramatically, but we

see that there is room for a voice-only player in the German market.

LARS TORSTENSSON: Should one continue to assume losses, then, Lars, in the German business going

forward, on mobile?

LARS NILSSON: We will build up the customer base and then, depending on how successful we are

adding customers, of course you will see negative numbers. But, for example, in

2014 and 2015 we will see profits there.

LARS TORSTENSSON: Stefan, just the continued losses in Q4 and then moving in profits for the German

mobile business in 2014. Would you like to follow up, Stefan?

STEFAN GAUFFIN: No, that was very clear. Thank you.

LARS TORSTENSSON: Thank you. Operator, could we have the next question, please?

OPERATOR: The next question comes from Mr Laurie Fitzjohn from Citi. Please go ahead.

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LAURIE FITZJOHN: Thank you. Three questions, if I may. Just returning to the new bucket-plan tariffs,

Telia have said that the shift to take to data-centric mobile tariffs is working very

well, so just wondering why you think you’re experiencing such a different impact

from this industry trend.

Then secondly, staying with the bucket-plan tariffs, you say this is leading to higher

data usage, and so hence to high costs, but running a network has pretty high fixed

elements, so what are these rising costs you’re experiencing from high usage? Is

this to do with the cost-sharing agreements you have in the network JVs?

And then just lastly, more broadly, just to give a sense of your confidence in the

guidance. Clearly, the previous guidance was too optimistic. The new guidance,

would you put this as fair, or are you now erring on the conservative side? Thanks.

LARS TORSTENSSON: Thanks, Laurie, three questions. Bucket-plan tariffs, comparing ourselves to

Telia. Are we saying that transition is going good and we’re experiencing market

pressure and why is that? Then also when it comes to reference to bucket plans,

the high data usage leading to high operation costs related to that. Does that have

something when it comes to cost sharing in the network? That’s with the joint

venture. Then our view on the new guidance, are we confident on it or conservative

or how do we view it? Mats, if you would like to start.

MATS GRANRYD: Yes, good questions. I’m not sure what Telia is experiencing. We’re just seeing

that our bucket price plans -- I think we were among the first in possibly even

Europe but at least in the Scandinavian countries to introduce bucket price plans.

21

As I said, in Sweden we have 48%. Almost half of our customers’ talk is not on

bucket price plans. 80% of new customers are on bucket price plans. I’m not sure

how that sticks up against our competitors, but for us this is faster than what we

have anticipated. That is, of course a drag down on margin.

Again, then, on the cost side, of course delivering more data-intense offering to our

customers means that we need to redo some of the operational activities in order to

cater more for this increased data. Some of the agreements we have with our

partners, you’re absolutely right, they are to a large extent fixed costs but there are

variable costs there as well, and we need to fully understand exactly how this is

hitting us, positive or negative, both on the 3G co-operation as well as on the 4G co-

operation. So there is an element of people using more data within the bucket and

we’re not managing to get that extra money out of that customer. That is something

we need to correct.

On the confidence of the guiding, that is really difficult. I think we have, as we were

last time as well, done a very solid job when it comes to calculating upwards and

downwards and backwards and forwards. I would estimate that this is a fair

guidance that we have given, with upsides, obviously, and also with some

downsides, but I think it’s fair. Lars, I don’t know what you think.

LARS NILSSON: I would say the same. As I said before, we have a range in our guidance and I think

there is a sort of description of the uncertainty.

LAURIE FITZJOHN: Great, thank you.

22

LARS TORSTENSSON: Thanks, Laurie. Maybe also when it comes to the difference between us and our

competitors, one is of course that we have gone to bucket pricing, but we’re also

making a lot of -- we have worked really hard on working our prepaid base over the

Comviq brand into the post-paid arena as well, and that does come at a certain

cost. But as Mats said, we’re extremely happy with the development that we’ve

seen as well now, that even though this is costing us some money to do the

transitional Comviq, Comviq is now for the first time almost keeping a zero net-

porting statistic, which is extremely good.

LARS NILSSON: Still negative but we’re very close.

LARS TORSTENSSON: Exactly, still very close. That of course has come at a come at a cost, but now we

are where we would like to be.

LARS NILSSON: I think if I can elaborate a little bit more here, please bear in mind that we are

rebuilding Tele2 in a way. I mean, we are investing in Kazakhstan, we are changing

the business in the Netherlands from being fixed to become more mobile and

eventually fully mobile. And we are launching a new operator, you can almost say

in Sweden, and that is the Comviq brand. At the same time we’re building up the

network in Norway. So we aren’t fully built. There’s a lot of moving parts and one

should just have respect for the complexity in that transition.

LARS TORSTENSSON: Okay, thanks. Operator, do we have another question?

23

OPERATOR: Our next question comes from Lena Osterberg from Carnegie. Please go ahead.

LENA OSTERBERG: Good morning. I was also wondering a little bit about the Swedish mobile business.

What gets me a little bit is I can see that your EBITDA margin is under pressure due

to the transition from prepaid to post-paid, but what I was struggling to understand is

why revenue growth is not picking up, it’s going down a little bit in the quarter. What

I would think is that as you have so many low ARPU customers, they would

generate a significant ARPU pickup when they move over to bundled price plans.

And then the second question I have is what’s the remaining book value of Croatia?

LARS TORSTENSSON: Thank you, Lena. I think the last one is definitely a Lars Nilsson question when it

comes to remaining book value and then when it comes to Swedish mobile

business, revenue growth not picking up as we’re moving from pay-as-you-go to

bucket pricing.

LARS NILSSON: Yes, I can start with that one. We have an underlying service revenue growth of

1%, which is still growth, but I understand what you mean, that we should have

expected a stronger growth. I think there are a couple of trends here. For instance,

the bucket price plans. We have seen previously that the Comviq users opted to

become post-paid. They’re moving away from Comviq into a post-paid

environment, and then you get the uplift, because you normally tend to go into a

bucket that is slightly higher than what you have spent on a monthly prepaid

subscription.

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With Comviq re-launching itself and as we’ve shown that the porting in and out of

Comviq are much better, much healthier. That includes post-paid as well as

prepaid. I think the answer is that we have a more controlled prepaid stock that is

not migrating away, and hence we don’t see that uplift from the same sort of

movement of people from the prepaid into the post-paid environment and bucket

pricing. That will continue but it’s not going to be that much. So the revenue

increase we’re going to see will be from us being able to up-sell on data, prices

possibly go up, us launching other types of service.

MATS GRANRYD: Yes, I think one should bear with us a little bit, because on the Comviq side, Lena,

we have recently introduced -- you have two moving components, you could say,

when you move to bucket price. You have the pay-as-you-go plans where you pay

a lot of money, which are maybe trading down when you go to a bucket plan. But

then you also have the low end where we are of course quite strong when it comes

to the more price-segments in pay-as-you-go, which is trading up. We have

recently introduced both the 145 Comviq offer and also a 195 Comviq offer, which is

quite new to the market and it’s being promoted by the Comviq people. So if you

bear with us it’s going to be interesting to follow those products and see what they

can do as well. I think that movement we still have to watch.

The average part before a Comviq customer is 85 krona. Of course, there is a

potential here to up-sell that kind of a customer to a bucket plan, but we still need to

prove it.

25

LARS NILSSON: And then, as I said, with us increasing the focus on the prepaid, there will be fewer

of those moving up to a higher bucket price plan and they stay with a prepaid.

In the future the borders between prepaid and post-paid will be highly blurred. Our

Comviq prepaid offering is today almost like a post-paid subscription, and in coming

quarters we’re going to see that there is really limited difference between the

prepaid and the post-paid subscription.

LENA OSTERBERG: It just feels a little bit like you’ve moved the high ARPU customers over to post-paid

and get the negative impact on top line, and now you’ve stopped the migration

before you get the positive benefit on top line from the low ARPU customers.

LARS NILSSON: I understand exactly what you’re saying there, and that would be horrible if that

happens. Timing-wise, we will just have to wait and see, but obviously there is a

trending down. Just look at my wife. She had a pay-as-you-go and we paid a

fortune every month on our Tele2 subscription and then we took out a Volym and I

think we reduced our amount between one-third or two-thirds. So it is that trading

down as well from pay-as-you-go to bucket pricing. Then of course you need to

make sure that you trade up as well to do that in a controlled manner. Maybe we’re

slightly off on the timing, I don’t know, but I think we’re roughly right. But you’re

absolutely right with these two trends that you have identified.

MATS GRANRYD: If I may continue, the 145 offer on the Comviq side has been around since August,

September, and Volym has been around for more than a year, so the Comviq side

is of course working on this. Then trading up-wise, if you take the mobile data, the

26

wifi routers, for example, they will have the opposite, where you see quarter over

quarter we had an 18% uplift in ARPU on the (inaudible) product, the 4G product on

ARPU side, which is also showing that people that start using 4G use a lot,

especially when they use 4G routers and they trade up from smaller buckets to

larger buckets. So you have the mix of everything. But we are elaborating and

expanding our offers a lot to this group.

LARS TORSTENSSON: And we’re reducing the bucket sizes and we’re doing up-selling. I think an

encouraging sign - it’s still early days - is that 58% of the people that have been

blocked -- previously we didn’t block people when they hit the ceiling, we just

throttled them down to a very limited speed, which of course irritated a lot of

customers. Now we’re blocking them so everyone understands that they are now

into a no-go zone, basically, and then they need to do an up-selling or buy more

data.

LARS NILSSON: And then we have 400 million.

LENA OSTERBERG: Okay. All right, thank you so much.

LARS TORSTENSSON: Operator, could we have the next question, please?

OPERATOR: Our next question comes from Mr Anders Johansson from SEB. Please go ahead.

LARS TORSTENSSON: Anders, are you there?

27

Okay, I think we’re a bit limited on time, so let’s take the next question, operator.

OPERATOR: The next question comes from Mr Nick Lyall from UBS. Please go ahead.

NICK LYALL: Good morning, it’s Nick at UBS. Can I ask you a couple on Sweden first, please,

Lars? The first one was just on rebalancing prices in Sweden. Do you see yourself

either reducing data allowances or increasing prices, and does that mean you can

sustain the discounts versus Telia particularly at the top end, or do we have to see

those reduced?

The second one on Sweden, is it possible for you to give us an idea of the SAC in

SEK millions this year, so in krona millions, versus last year, just to get an idea of

maybe how that trading up effect from pre- to post-paid has hit the margin, and

maybe we could remove that for future quarters if you say that’s going to slow?

Thanks.

LARS TORSTENSSON: Thanks, Nick. I think the last question when it comes to acquisition costs in

absolute terms, in millions, we need to check, because that we don’t have. But we

can do that, I think. We’ll come back on that one. Nick, I will send you an email for

that one.

Then when it comes to Sweden and rebalancing of pricing in Sweden, when it

comes to the possibilities of working with data pricing or do we need to give away

more data to keep the absolute pricing stable, so to speak, versus competition. The

problem that if you are up-selling that you lose competitive edge versus, for

example, Telia.

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LARS NILSSON: We haven’t seen that much of price pressure in Sweden. There’s been some but

not a dramatic downturn on data prices. It is very difficult to raise prices, obviously.

However, what we are doing, as I’ve said before, is reducing the sizes of the

buckets and relying more on up-selling. You get an SMS saying, “You have

consumed 80% of your data allowance. Do you wish to buy another package?”

And then you do that or you don’t do that. Of course, we would duly hope to see an

increased data price level in all our countries. That is the future.

It’s very difficult also to see the ARPU differences between voice, text and data,

since it is all in a bucket and it becomes more of an allocation of what ARPU is

going up and what is going down, but I think the trend is as we have described and

the price pressure is more moderate now than what it was a year ago when we had

the Maxi Unlimited campaign. I don’t know if that answers your question.

LARS TORSTENSSON: Nick, would you like to follow up there?

NICK LYALL: No, that’s okay, thanks, Lars. I’d love an answer on that SAC, though, if you have

it; that would be great.

LARS TORSTENSSON: We will come back on that one, of course.

NICK LYALL: Thanks very much.

29

OPERATOR: The next question comes from Mr Barry Zeitoune from Berenberg. Please go

ahead.

BARRY ZEITOUNE: I have three questions. The first is really on capital allocation. It seems that you’ve

had some difficulty in forecasting your businesses. In the list of businesses

impacting the downgrade to guidance it’s notable that it includes the Netherlands,

Norway, and Kazakhstan, which are three regions where you’re allocating new

capital. So I’d just like to get a view of how you’re thinking about allocating new

capital in the future, and whether you’re taking the lower visibility that you have into

account in the way that you allocate capital?

My second question’s on Kazakhstan, and just a view on your long-term

expectations for market share assumptions, because what’s been new over the last

couple of months is that Kazakhtelecom is going to be re-launching the Alltel brand

in Kazakhstan at the end of this year. I think they’ve got about something like a

14% market-share assumption, or around that kind of number, over the next couple

of years. I was wondering whether that impacted your own market-share

assumptions.

And my final question, again just returning to this issue of bucket plans and

Sweden, being upfront, it simply sounds like you’ve mispriced your packages

slightly. You were the earliest in Sweden to move to bucket plans, and thus you

should be later on in that trend. So what I’d like to understand is is it simply that in

coming to your price points they’ve simply been too low for the amount of data

usage that you’re seeing or is this the sort of trend that you would expect we’ll see

for the wider Swedish market. Thank you.

30

LARS TORSTENSSON: Thanks, Barry. Let’s see if I can repeat your questions correctly. When it comes

to capital allocation versus our difficulty of having correct forecasts, is that affecting

our willingness when we look upon high-risk projects such as the Netherlands as

well as Kazakhstan, for example, whether that has changed our view? Do we see it

as attractive as we did before? Maybe that’s both Mats and Lars on that one.

Then when it comes to Kazakhstan, a view on long-term expectation, we know that

Kazakhtelecom is planning to launch their brand Alltel into the market, and is that

having an impact on our general view on the Kazakh market?

Then when it comes to bucket prices, if this is the result of us mispricing, so to

speak, giving too big allowances on data for too low expense with the consumer

and that is now what we are facing, so to speak.

Mats, would you like to start?

MATS GRANRYD: Yes. Should I start with the Kazakh Alltel activity? You’re absolutely right there are

activities that Alltel is moving away from CDMA and launching 4G in Kazakhstan,

Alltel being a subsidiary of Kazakhtelecom. This is obviously something we are

monitoring carefully. As of now there is no impact to our business and we will just

have to see how quickly they will roll out and what spectrum they will use, but as of

now there is no impact. I think it will fuel the market even more with the

consumption of data. In that respect it will be good for us. But, of course, we need

to monitor this carefully on Alltel.

Shall I continue with the bucket plans on Sweden? I think your question was very

well put and fairly spot on if we priced the bucket too generously - too big buckets or

31

too low prices. We then need to go back in time to remember what happened. We

had this Maxi Unlimited campaign from a little bit more than a year ago, a year and

a half ago - the spring of 2012 - and that sort of fuelled our ambition to launch the

volume family of packages. At that time there were several campaigns with, I would

argue, almost unlimited amount of data. So we have come from a situation where

we were first introducing buckets but in the market there were already unlimited

amount of data in a package, if you like.

So I think we were the first out. Maybe by being first we felt that we had to be first

and we suffered an unproportional amount of damage, if you like. Because I agree

with you the pricing is too generous. The bucket sizes are too generous. If you

look at the regular consumption if you’re a Swede and you always choose the in-

between things - because we’re Swedish and we normally do that - and we have

our 1GB, 3GB and 5GB, people tend to choose the 3GB data, and the consumption

is roughly half of that. It’s slightly more than 1 gigabyte in the 3GB bucket of data.

So again I think we have an opportunity to reduce the bucket size and make sure

that we keep the same price points and then have an up-selling.

That will also be fairer for the consumer. It will be more granular. If you are

interested in consuming a lot of data, obviously you need to pay for it. Or if you are

interested in consuming much less data, you shouldn’t need to pay for that bigger

bucket size.

LARS TORSTENSSON: Then when it comes to capital allocation, your view on risk projects.

32

MATS GRANRYD: Yes, risk projects. As we all know, we have three big projects where we invest a lot,

but even despite the fact that we have a new forecast now, we see this as a very,

very healthy investment. It’s not that if we see new things coming up we say, “We

shouldn’t invest in this country”, they are still a very, very good opportunity.

When it comes to capital allocation, we also have our frameworks when it comes to

profit, when it comes to return on capital employed. These three projects,

Kazakhstan, Norway and Holland, they will deliver according to our own guidance.

BARRY ZEITOUNE: Can I just ask a follow up on Kazakhstan? Have you built in some room for error in

terms of Kazakhtelecom’s new launch, into your guidance expectations?

LARS NILSSON: When it comes to us building in buffers, so to speak, when it comes to the Alltel

launch -- and almost think about Alltel as when we discussed Rostelecom once, and

them launching. It’s the same feeling I get.

LARS TORSTENSSON: When we have done new plans we have done that and we also have considered

that Alltel will do something, that they will launch.

BARRY ZEITOUNE: Okay.

LARS NILSSON: We have included that in our forecast that we may have some impact from Alltel in

our forecast.

33

MATS GRANRYD: As I said earlier on, it’s about competition when it comes to Kazakhstan. We are

aware of Alltel.

LARS TORSTENSSON: I hope that helps, Barry. Do you have any follow-up questions?

BARRY ZEITOUNE: No. No, that’s fine. Thank you.

LARS TORSTENSSON: Thanks. Operator, could we have the next question, please?

OPERATOR: The next question comes from Mr Jakob Bluestone from Credit Suisse. Please go

ahead.

JAKOB BLUESTONE: I’ve got a few questions. First on the guidance, how much of the guidance

downgrade would you put down to a delay in earnings coming through, say, for

example, you mentioned Norway perhaps running a little bit behind schedule, and

maybe the Netherlands is as well? How much of it is a delay and how much is

actually a permanent loss of revenues and earnings?

Secondly, on the deterioration in the operating outlook, would you consider

launching a strategic review to sell some of these assets which are not performing

as well as you expected?

Thirdly, on the Dutch business, and particularly on the fixed-line side, could you

maybe just explain how you intend to turn around fixed-line margins there? You talk

about pushing more fibre, but presumably that’s going to have a lower gross margin

34

because you have to pay higher wholesale fees, and launching mobile to improve

the product portfolio is going to take some time to turn that around. So can you give

us something on how you’re going to turn your fixed-line business around in the

Netherlands? And then finally, just on Sweden, could you maybe just tell us where

you think margins could go long term for Swedish mobile?

LARS TORSTENSSON: Thanks, Jakob. I’m seeing here if I can just repeat number 1. Guidance

downgrade or revised guidance is just a result of delay in Norway and the

Netherlands or is it a result of lost revenues, meaning that we have had few

customers going into next year and that’s leading to an adjustment in our guidance?

Maybe that is for you, Lars.

Because of the deterioration of some mobile assets, will we do a strategic review on

them to see if there’s something we will dispose of? Maybe that’s more you, Mats.

Then when it comes to fixed mobile margins in the Netherlands, of course going

through video sell to the home, resell products have lower margins, so what we will

do to turn this business around and how long will it take.

The last one is a view on margins in Swedish mobile in 2014 and 2015. That’s

maybe Lars. Shall we start with more maybe on the guidance in Norway and

Netherlands versus permanent loss of revenue?

LARS NILSSON: In a way you can see the permanent loss of revenues you see in the guidance for

these two years, 2014 and 2015. I will say that it’s a mixed bag and it differs for

different countries here. For example, there are elements of delays, for sure. We

are a little bit later, I will say, when we turned a corner in Norway for sure. But we

35

also have the difficulties, as Mats will come back to you, when it comes to what we

see in Netherlands, when it comes to the fixed broadband. So it’s a mix, I would

say, but there are elements of delay as well in the forecast.

LARS TORSTENSSON: Then when it comes to review of strategic assets.

LARS NILSSON: I think that time is coming closer. Even though we always say that everything is for

sale, we wish it is. I think that focus is so important in this highly dynamic and

volatile market, so possibly we do need to possibly re-energise those activities. We

have a couple of properties that are not developing the way we were hoping they

would. We will come back to that later on, I think.

On the Dutch mobile, I can take that one as well. You’re absolutely right. Fixing the

fixed business in the Netherlands is not a quick fix, and I think you said it rightly.

You can almost say that we will eventually -- I’m pulling it a little bit, but we will

become an MVNO on our fixed business, as we are an MVNO today on our mobile

business. On the mobile business we are becoming and MNO in a couple of years’

time. The fixed business will be more from a resale perspective, a wholesale

perspective, through Reggefiber fibre to the home. We also will have VDSL

activities going on, also through a wholesale arrangement.

Remember we’re building out fibre to our base stations and when we pass a village

we can of course connect that to the cabinet, our fibre, and then buy the last mile if

you like, so it’s not as bad as if it would be a total MVNO, but we’re not going to own

the last mile on fibre. And we believe fibre will be the future. It’s sort of the same

36

thing on fixed as it is on mobile. You need to be on 4G. You can almost forget the

other technologies.

So it is not a quick fix. We are going to stop the decline and we are going to couple

it with a fully-fledged MNO in the Netherlands. Again, we’re transitioning Tele2 in

the Netherlands from being a slowly declining fixed business to now recently

increasingly quick deterioration on the fixed, but we’re fixing that with making sure

that we become a mobile operator.

LARS TORSTENSSON: Of course, Sweden mobile margins, I don’t know, we are not too big fans on

margins these days, but I don’t know what you say, Lars, on these.

LARS NILSSON: I think that’s where I should start, that we really don’t try to guide on margins in

percentage. We focus on the bottom line. Bear in mind that in the mobile margins

we have today you have quite a big component of equipment sales impacting the

margin as well. What we focus on in this plan going forward is to grow the EBITDA

in absolute terms and hence growing the revenues, not least when it comes to

mobile in Sweden. We see huge potentials in this possibility.

LARS TORSTENSSON: Very good. Jakob, would you like to follow up?

JAKOB BLUESTONE: No, that’s great. Apologies for the long list of questions.

LARS TORSTENSSON: Okay, thanks, I appreciate that. Operator, could we have the next question,

please?

37

OPERATOR: The next question comes from Mr James Britton from Nomura. Please go ahead.

JAMES BRITTON: Thanks very much. My first question is on the medium-term guidance. You haven’t

mentioned anything related to moving timetable in Dutch mobile, so I just wondered

whether or not that had anything to do with the change, given that 2015 is probably

going to be the peak investment year in Dutch mobile now.

Secondly, on Sweden, can you just clarify how much additional distribution in store

costs is a drag on margin at the moment?

And then thirdly, on the dividend, can you just explain the rationale behind the SEK

4.40 re-based dividend level? I think even on the mid point of the 2015 guidance

this still amounts to about 100% of free cash flow, so I just wonder why you feel the

need to pay out 100% of free cash flow.

LARS TORSTENSSON: Thanks, James, all good questions. Dutch mobile, is that a moving timetable, so

to speak, that we are delaying a launch and hence we are seeing peak investments

in 2015 and that is a result? Mats would like to take that one.

Then the rollout of stores, both shopping shop as well as Tele2 stores, which we are

continuing to do, if that has a drag on margins. I don’t know if we would like to

collaborate on that one. I’m not certain on the answer.

MATS GRANRYD: I think we will come back to the SAC cost development.

38

LARS TORSTENSSON: Exactly. Then we have the dividend payout ratio, and that’s definitely you, Lars.

Let’s start with Dutch mobile and moving targets.

LARS NILSSON: Dutch mobile, no, we are not changing. The change to long-term guidance is not

due to us changing the Dutch mobile launch or anything related to that. That is still

very much on track.

LARS TORSTENSSON: And now we have a dividend explanation.

LARS NILSSON: As you know, we have some policies. We have a dividend that we should pay out

at least 50% of profit, and then we also have an idea about how we should structure

the balance sheet so we have a net debt to EBITDA. Then, of course, when we are

doing these statements, we don’t only have plans for 2014 and 2015, we have long-

term plans as well. We believe that this is a good starting point because we will

have a balance. If you look at the leverage structure, we will be within our

(inaudible) during this period. Then of course we have ambitions also after 2015.

So I think this is a well-balanced proposal.

LARS TORSTENSSON: Then when it comes to acquisition costs, let’s do it like this. We will come back to

all of you, when it comes to acquisition costs, later today and then see if we can

also share insights into store rollout costs as well if it’s possible. I don’t know if

Sweden is too keen on that, but let’s see if we can.

Is that okay, James?

39

JAMES BRITTON: Can I just ask one follow-up question on the dividend? Is it your expectation that

the dividend grows in 2014 and 2015 at the moment?

LARS NILSSON: If you look at our dividend policy, the statement is still valid that we will

progressively like to increase the dividend.

JAMES BRITTON: Okay, thanks.

LARS TORSTENSSON: Operator, could we have another question?

OPERATOR: The next question comes from Mr Andrew Lee from Goldman Sachs. Please go

ahead.

ANDREW LEE: Good morning, everyone. I’ve got a couple of questions just around the competitive

environment and how that’s shifting in Swedish mobile, given what you’ve been

saying. Firstly, as you move to bucket pricing, do you think your price position, your

store portfolio or anything else puts you at a disadvantage in this new kind of

economic model? And following on from quite a few questions, can you just give us

some more colour on do you think the hit from this shift to bucket pricing hits you

disproportionately?

And then second question, do you think we’re seeing, or do you expect to see,

increased competitor intensity in Swedish mobile, either on price or cost, as this

shift accelerates, not just for you but for everyone else? Thank you.

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LARS TORSTENSSON: Thanks, Andrew. I think both are more for you Mats. When it comes to bundling

price, is that a disadvantage for Tele2, maybe especially for Comviq which has

been more a prepaid operator and now has to go through a more bucket-type

pricing, and if we are being hit disproportionately in such a move.

Then when it comes to if there is a risk for increased competition as the market

moves more into bundled pricing as well.

MATS GRANRYD: Yes. I think that if you look at bucketised pricing, your first question, as Lars said,

what sets us aside is that we have had and still have a very large portion of prepaid

customers. That’s why we have these movements up and down. I think Lena

started that debate on having a prepaid customer opting for a larger bucket and

then you get the underlying service revenue growth by just lifting that customer up.

But then you have the other version as well. People are trading down in the high

output buckets down to lower output buckets or lower usage buckets. So I think we

are being hit unproportionately compared to our competitors due to the fact that we

have so large prepaid customer base in Comviq. I mean, we’ve sort of come from a

prepaid base. That is good, but now it is somewhat hindering us until we have

made this realignment of our base into more bucketised price plans. That’s why we

have launched fixed price in Comviq. You saw on my slide 31% of our subscriber

base in Comviq are now on fixed price plans.

On the mobile competition in Sweden, I think that it all depends. We have not seen,

as I said, aggression on the market. We see Three coming with their sub-brand

Hallon as far as we can tell not making a big splash in the market - rather

unsuccessful when it comes to subscribers, at least from what we can see. We see

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Telia being moderate as well. One can hope with new leadership at Telia that they

will launch new and more innovative packages to lift the price points on data and we

will follow nicely.

But I don’t think that we can conclude that the pricing has changed. It is more

moderate now than it has been before. We don’t see that big an aggression in the

market.

LARS TORSTENSSON: Andrew, would you like to follow-up on that one.

ANDREW LEE: No, that was great. Thanks.

LARS TORSTENSSON: I have a question now from (several inaudible words) interactive modelling, so if I

can ask them. When it comes to the trends that we’re seeing now in 2013 to 2015,

if they are accelerating should one assume EBITDA growth in 2014? Because

Kazakhstan and Norway should be better next year but there’s more uncertainty

around the Netherlands, especially around the launch date and so on. Maybe that’s

something for you, Lars, to take.

Also, when we see data growth in the mobile network as we’re seeing, is there also

an increased need to invest in the network as a result of that, more so than

yesterday? Then also as fixed is now obviously not developing as we have

planned, is there a need of a right kind of value as well in the fixed-line business

generally. The last one is if we have seen any signs of (inaudible) launching in the

Dutch market as well, on mobile. Those are four questions.

Lars, would you like to start with guidance in 2014?

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LARS NILSSON: Exactly. As you know, we don’t guide so early, but as you said there are different

plans. Of course we expect Kazakhstan to do better, of course we expect not do

better, as an example, but I don’t think we can go closer into that. We have a

guidance now for 2015.

LARS TORSTENSSON: I think that’s for you, Anders, as we will of course give clarity on 2014 as we get to

2014. That’s how we view that. Then when it comes to investment needs, when it

comes to our data network?

MATS GRANRYD: I think we have been foresightful in investing heavily in the networks, both in

Sweden and we’re investing, as we speak, in Norway, where the big data is

happening. So I don’t think in the foreseeable -- this is really dangerous, but for the

foreseeable future I think we are okay with the levels we are today at on Capex or

sales of some 12% or so. I think that will be okay. If it’s going to continue to be an

explosion of data, we certainly need to come back and revisit it. It’s also linked to

how much spectrum we have, obviously, how much sites we need to have or how

much we can push up the capacity in each site. So the more spectrum we have,

the cheaper the enhancement would be.

Then on fixed in the Netherlands.

LARS TORSTENSSON: Yes, generally when it comes to the value of our fixed business.

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LARS NILSSON: I don’t see any real need, if I understand the question correctly, about impairment of

fixed assets. No, that is not in our plan.

MATS GRANRYD: No, we’re not seeing any impact from that on the mobile side.

LARS TORSTENSSON: Okay, good. Operator, do we have any more questions?

OPERATOR: The next question comes from Mr Jakub Dubaniewicz from New Street Research.

Please go ahead.

JAKUB DUBANIEWICZ: Thank you very much for taking the question. Yes, my question is about this

year’s guidance for Dutch mobile. Previous guidance implied that you were going to

invest SEK 1 billion into the mobile network this year. Now, with the guidance being

brought down to SEK 1.5 million to SEK 1.7 million, it basically looks like you’re not

going to book any Capex in 2013 at all. I was just wondering is it just purely

accounting issue related to booking of the Capex expense or is there an underlying

delay in mobile rollout? And also what do you think about your competitors’ 4G

coverage targets? Are you still confident you’ll be able to differentiate yourself with

4G once you have the network next year? Thank you.

LARS TORSTENSSON: Thanks. That’s mobile. Of course, we have changed investment levels a lot this

year. Now we are looking at quite low numbers when it comes to investing in

mobile. Is that delay or accounting?

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LARS NILSSON: I don’t think it’s delay. It’s not delays and it’s not accounting, it’s real fact. But we

are following the plan we already have when it comes to building out the network.

It’s more that now we have more clarity. For example, we have all these network-

sharing partners and network-sharing agreements and we also have signed

agreements with our vendors. So we have to pay but we will pay a little bit later.

But no change in plan and no accounting. Over all, investment levels we talked

about in Holland, for example, when we had a (several inaudible words), that’s what

we see right now. No change.

LARS TORSTENSSON: Good. Then also differentiation 4G in the Netherlands. Of course, our

competition is already now pushing 4G a lot. Will we be able to differentiate?

MATS GRANRYD: I think so. We are the only one building out the 4G-only network, and we think it’s

great that all our competitors are paving the way and educating, if you like, the

market on how to use 4G devices, so we see no problems with that.

LARS TORSTENSSON: Operator, do we have any more questions?

OPERATOR: Our next question comes from Mr Erik Pers from Danske Markets. Please go

ahead.

ERIK PERS: Okay, thank you. I just have one question left, and that’s regarding mobile traffic in

Norway. How much of the traffic you expect to be on own in 2015, and beyond?

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LARS TORSTENSSON: The mobile traffic on our own network in 2015 and beyond.

LARS NILSSON: That’s a very tricky and good question. We will have a population coverage of --

we’re not going to have 100% population coverage, maybe 85% population

coverage, and I would think that our traffic on our own network would be slightly

higher than that, but it’s not going to be 100%, obviously. Maybe 90% on our own

network and a population coverage of 80% or so. I mean, we’re obviously going to

cover the areas where you have the most amount of traffic first.

ERIK PERS: Okay, that’s pretty good. On your slide, if I remember correctly, it seemed like you

had a significantly lower share of traffic than population coverage. Is that just an

effect of your existing floor levels in your existing roaming contracts?

LARS TORSTENSSON: When it comes to level of traffic that we have around that, I think it’s 40% but we

cover 70%.

LARS NILSSON: That’s very observant of you. The reason for that is the 70% population coverage is

not ubiquitous, it’s very spotty, so you cannot really say that if we would switch on

everything we have that we would reach 70%. It is too spotty to make a commercial

proper launch everywhere, and that’s why we only within brackets have 40% traffic

on our own network.

ERIK PERS: Okay, that’s clear. Thanks.

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LARS TORSTENSSON: Thanks, Erik. Operator, could we have the next question, please?

OPERATOR: The next question comes from Mr Sasu Ristimaki from Merrill Lynch. Please go

ahead.

LARS TORSTENSSON: I guess that Sasu is no longer with us there. Operator, can we have the next

question, please.

OPERATOR: Our next question comes from Mr Stefan Gauffin from Nordea. Please go ahead.

STEFAN GAUFFIN: Yes, hello, just a couple of follow-ups. There was talk about the EBITDA margin in

Sweden, and you stated you’re not going to give guidance on EBITDA margin. But

you have stated that all mobile operations should deliver above 35%, excluding

handset sales. Currently you are operating below that level for the first nine months

of 2013. Does this imply that you will raise the margins going forward, and is that

included in the plans?

Secondly, regarding the subscriber intake in Kazakhstan, and just how to phrase

this, but how long time will it take until you have the higher quality in the subscriber

base so that you reach a lower churn level; i.e. how long time can we expect quite

low subscriber intake in Kazakhstan? Thank you.

LARS TORSTENSSON: Thank you, Stefan. EBITDA margins in Sweden, service revenue definition.

Maybe you should take that one first, Lars, so we have that clear. I think it’s

excluding operator revenue and excluding equipment revenue. I think we’re guiding

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for service revenue, if I’m correct, the 35% EBITDA margin. Stefan, you’re saying

we’re below 35% and will we increase it to get to 35%?

LARS NILSSON: We are quite close to 30%. If you also exclude the equipment sales then we are

talking about the same levels in a way. But it’s very important, as I stated before,

we will not guide on the margins, we will guide on EBITDA on absolute terms.

LARS TORSTENSSON: For these regional operations, but we are quite close to 35%. I can maybe dive

into that with you, Stefan, a little bit later as well if we can chat to each other.

Then when it comes to subscriber intake in Kazakhstan, how long will it take until

we see churn coming down and we can start seeing an improvement?

MATS GRANRYD: We do need to give this the fourth quarter as well, no doubt. We’re going to try all

the tricks that we can in order to ensure that we’re back on track when it comes to a

good healthy subscriber base that are willing to pay for our service, but also have a

healthy intake. I think we have done the first step, which is to go to revenue share

schemes with our dealers. Then we’ve have launched a whole array of different

types of services - micro-credit. We have launched rebates, we have launched --

etc, etc, in order to make sure that we have much less internal churn.

What has happened, you should know as well, in the third quarter is that we have

had a good gross intake but the net intake, as you saw, is very weak. So the

commission levels have been fairly strange, but it’s been actually more

advantageous for our customers to go and pick out a new SIM card instead of

topping up the already existing SIM card. Then, of course, if you’re really cost

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conscious, you will then prefer to have a new SIM card, pay less and then take the

hassle of getting a new phone number, but that can be okay. That’s why you have

a huge churn. We have corrected that and then we have done the other stuff as

well. I do think, though, you need to give us at least one more quarter in order to

see a better growth rate in the subscribers.

LARS TORSTENSSON: Okay, Stefan, I hope that helps. Operator, can we have the next question,

please?

OPERATOR: The next question comes from Mr Fredrik Thoresen from DNB Markets. Please go

ahead.

FREDRIK THORESEN: Just back to the Swedish buckets, you’re saying that you would like to reduce

them even further, and that they are currently too generous. Is this something that

you’re prepared to pioneer in the Swedish market?

And then to Norway, in the media you are indicating that you gained about 10,000

subs from the campaign that you ran during the last week of September. Are you

seeing churn increasing now that we’re seeing more active campaigning in the

Norwegian market, both in Q3 and Q4, so far? Thanks.

LARS TORSTENSSON: The Swedish bucket, then, if we are pioneering smaller bucket sizes in the

Swedish market. That may be something for you, Mats. And also a follow-up on

the Norwegian market, we had a campaign through (inaudible) in the Norwegian

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market, gaining us around 10,000 customers, which would indicate that there’s

been churn in the market since then. If you can comment on that one as well.

MATS GRANRYD: Sure. With the bucket sizes, yes, we are pioneering and we’re sort of

experimenting with different bucket sizes to get this right. We haven’t really been

able to do that before we have this ability to do real-time rating on data so we can

up-sell on data. We’ve had that in place since a couple of months back, so we are

experimenting with larger and bigger buckets.

It’s also a way for us to adapt to us as Swedes or us as human beings getting more

fluent in how much data we are consuming. Obviously we are much more literate in

how much data we’re actually using. So of course we need to adapt this

continuously and we’re going to continue to be creative and be the challenger that

we are and try to find new ways of addressing that segment.

Churn in the Norwegian market. Yes, we have seen churn, true. Again, there is no

massive price reduction. We don’t see any price fights coming our way, but there

has been churn and we just need to adapt to make sure that we get the churn

down.

LARS NILSSON: Would you like to follow up?

FREDRIK THORESEN: No, thanks, that’s good. Thank you.

LARS TORSTENSSON: Thanks. Operator, could we have the last question, please?

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OPERATOR: The last question comes from Mr Thomas Heath from Handelsbanken. Please go

ahead.

THOMAS HEATH: Thank you. It’s Thomas Heath here. Two questions, if I may. Firstly, on Sweden

mobile, we now have ARPU flat, and next year you have the old Maxi Unlimited

subscribers that expire their contracts. Should we expect negative ARPU, or ARPU

decline, in Sweden mobile next year?

Next question is on Germany mobile. Just a few details, if you could, on the mobile

strategy there. To what extent is this driven by potential consolidation? And also,

you mentioned a voice-centric strategy, but your website is only including

smartphones, so who are these customers that you’re targeting? Thanks.

LARS TORSTENSSON: Thank you, Thomas. So ARPU development in the Swedish market. The Maxi

campaign 345 is coming away next year will we have negative ARPU. When it

comes to ARPU, you know what I think. I think ARPU is an old metric, but if you

would like to have a stab at that one, go ahead.

In Germany, mobile, is this driven by consolidation play that we have the

opportunity to get much better contracts if the E-Plus Telefonica deal comes

through. That’s probably you as well, Mats.

MATS GRANRYD: No, no, it’s absolutely not driven by a consolidation game in Germany. That was

very observant of you, Thomas, to look into the homepage and see that we’re

offering smartphones, because there arrangement segments we believe in

Germany, that is actual the size of Sweden or so, that are using only voice and are

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only interested in using voice. For €5 you can get unlimited texts as well, but that’s

going to cost you €5 extra. No data whatsoever. We believe that there is a niche

for it. It’s not a plan of any bigger scheme, it’s just a way for us to try to stop the

decline of our fixed business.

On ARPU, again I agreed with Lars Torstensson here that ARPU is a very difficult

measure, since we are most likely spending more money today on our

communication needs than what we did five years go, yet ARPU is coming down.

So it is a fact people are using more SIM cards and maybe less expenditure per

SIM card, but the number of SIM cards are more, hence we’re spending more

money.

I would just elaborate on the Maxi Unlimited. It all depends on how they choose to

do it, the customers, if they want to take out a bigger bucket or if they want to stay

where they are. I guess we just need to see.

LARS TORSTENSSON: We do believe in continued growth in the Swedish market.

MATS GRANRYD: Oh, absolutely.

LARS NILSSON: So maybe that’s a more important matrix than ARPU movement. Thomas, please

remember we just introduced multi-SIM as well, so something that is of course

helpful if customers would like to add another SIM, another device and so on.

There you’re going to have new SIM cards coming into the market but with lower

ARPU but still very good business for us. It’s also another example of us trying to

elaborate on pricing.

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Very good. Gentlemen, that concludes our presentation today. Thanks very much

for joining us, both via the telephone conference and via the web. I think we’ve had

a good discussion today. I would like to remind you that we will present a fourth

quarter report on 7 February, but hopefully we can continue the discussion going

until then.

That concludes it and thank you very much and good-bye.

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