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Executives

Jesper Wilgodt – Head, IR

Per-Arne Blomquist – Acting President and CEO

Christian Luiga – Acting CFO

Analysts

Stefan Gauffin – Nordea

Thomas Heath – Handelsbanken

Lena Österberg – Carnegie

Andreas Joelsson – SEB

Ulrich Rathe

Barry Zeitoune

Peter Nielsen

Domink Klarmann

Jakob Bluestone

Andrew Lee

Sasu Ristimäki

Terence Tsui

James Britton

Jacques de Greling

TeliaSonera Ab Ord (OTCPK:TLSNF) Q1 2013 Earnings Conference Call April 19, 2013 3:30 AM ET

Jesper Wilgodt

All right, good morning, all. Welcome to the presentation of TeliaSonera’s first quarter results. I’m Jesper Wilgodt, Head of Investor Relations and I will try to guide you through this session. With me today to present, I have the CEO, Per-Arne Blomquist; and also the CFO, Christian Luiga. And after that, we will have a Q&A session, normally.

So, with no further delay, I would like to hand over to Per-Arne, please.

Per-Arne Blomquist

Thank you very much, and as I said this morning when I was into you via the radio that it has actually, you tend to forget something or sometimes – so, times flies. And the Q1 has been a very turbulent quarter for us. It’s started with the money hammering startling report. We had down the sensational loss. Now we would have both to new wonder.

So a lot of things have happened during this quarter and thus far, I am very proud of the results today. It’s a solid result, satisfied with it. We deliver improved volume, we deliver improved cash flow and you could see with the different down that is mobility doing pretty well despite the fact that they have pressure on both lines. The rates are continuing to grow and they also protect and even improved their margins, which is good.

And I have started concern about broadband, which I will come back to later. At the same time, we have also, after years of discussion, launched a new price model, which I will come back to later on if they want and I think that’s good. As one of the first operators in Europe, we have been able to do this.

We continue of course to work at our efficiencies, which we have to do, given the pressure on the top line. And last by not least, we have to continue to work with the sustainability issue that has been under discussion for quite a while. And I will come back to that later on and also comment upon.

If you look at the EBITDA margin development, I don’t know if you remember this, but we have had a slightly negative trend during the last four quarters. And this quarter now, we managed actually to protect and even improve the margin and I think that shows that we have a solid result during the quarter despite the top line issues. And for me, the top lines issues are very, very crucial right now.

If you look at what I attempt to look at on account of mobility, the billed revenue, you could see here that voice is under a tremendous pressure right now, no volume growth, and we are declining with 13%. Messaging is going down with 10% volume-wise, 7% on the revenue. And you could also see that mobile data is growing, 80%, but the program for us is that we constantly monetize on this.

So, I think – when I look at this, I see two extra positive things. First of all, mobile data is growing. That means that we are a growth company if we manage to monetize the mobile growth. And one of the answers that we have to this issue is down the new offering that we launched in Sweden, the 25th of March, where we offer – a couple of years’ discussion where we have set up probably have flat fee on voice and we will have to pay for data, actually produce an offering that gives this answer.

You could see here that for a fixed price, you will have unlimited voice and text messages. You will pay for what you use on the mobile data. You could choose different packets. Even better, you could add on different devices, up to seven different devices. You can add on also different mobile numbers. You could use it for your family. And you get everything on one invoice.

I think this is a very innovative way of taking care of the mobile data issue. We are, I believe, the first big operator in Europe that actually comes out with this kind of model. And I think this might be the answer, I hope, to see future growth when it comes to the mobile data income as well. And this growth as we have today with the 20%, 1/3 of the volumes are too low and we need to raise that.

Now, being the first operator out in Europe to have launched this model, so it’s important for us, when we look at this, to take this experience from the Northern Europe’s side into Eurasia. We now see that data growth is taking off also – and more data growth is taking off in Eurasia. And roughly one 1/3 or even 40% of the growth or the 40% is, today, mobile data, something that’s happening in Eurasia. And we are now trying to use the experience that we have from the Nordics to put interest to avoid – to get unlimited usage and to low pricing, also a good sign for the future when we talk about growth.

The concern I have right now is also the transition we have in broadband services. We are leaving the old technology, the old DST and voice moving into IT-based services. What is very positive for us is that the fiber rollout stores to take off, yet a lot of positive comments about our fiber installations.

Finally, when we learned how to do this, it took a year, a year and a half with, I would say, a pretty lousy rollout fiber. But now, when we have learned how to do this, I think that demand is actually high enough, we’ll become supplier at last which means that we have taken the right decision to go on and invest in fiber. This will, over time, offset the decline of the old technology, but it will take time.

What is also important here is the TV offering, the triple play is a trigger also for using not only the fiber as an access, but also to use our as a service provider. A concern that they have but I expect changes to come during the coming quarter and year.

We have talked about the cost issue especially within broadband. I think we have been pretty good over time to have a good balance between the top line development and our cost development. And we have seen now during the latter part of 2012 that we have had a shrinking range in GAAP between costs and also the net sales development. And that’s what we then implemented in new efficiency program. We started with that on and off the QT.

So what we have is that and what we repeat to say is that we will save net SEK 2 billion. If we exclude Spain we will go down from SEK 27 billion to SEK 25 billion during 2013 and 2014. And we’re talking about this year around 1,800 employees that have to leave the company and Christian Luiga will go through the details later on what it’s actually in numbers and also phasing.

Sustainability has been a big issue for us. And I said at the AGM that this is something that is a separate subject for us. This is something that should be a part of our day-to-day business. Now, what we are focused on is private issue, freedom of speech, and also anti-corruption. And we continue to work with our industry, which I think is essential for us to do. We have to work in the industry. We can’t stand there alone.

So we do that within the industry dialog and the Global Network Initiative, which is very, very important for us.

What is, perhaps, even more important is the education that we are launching in April and May entirely in the company. While go through e-learning tool of the anti-corruption policy, et cetera. I’ve done it myself on it. It’s a very, very good tool. I’m optimistic that we will have a very ambitious but good launch on the coming months.

So, summarizing, the quarter as I said is turbulent but we managed to improve margin and cash flow. We had a stable margin in mobility despite the pressure on top line. Good performance, solid performance in Eurasia; concerned about broadband; proud of the initiative when it comes to launching new offerings within the mobile data and mobility; focused on measurement, efficiency measurement; and we continue to work with our sustainability.

Christian, please.

Christian Luiga

Thank you. Good morning, everyone. My name is Christian Luiga. I’m the CFO. I like to start with – there it is. I was looking for this. Start with saying I’m satisfied with the performance in this quarter. We have a slight decline in revenue, but we have sustained our EBITDA and we have improved our margin. The EPS is flat despite quite heavy currency effects and cash flow is positive.

Let me first stop at the currency effect because they are quite severe. And on both top line and EBITDA, they impact 3%. And that means SEK 300 million on the EBITDA line and SEK 800 million on the revenue side. And without that, as I said, the EBITDA would have been flattish for the quarter.

The revenue decline in quarter one is a little bit worse than it was in quarter four and that puts some question marks. All three business areas are declining. On top of that in the first quarter, we are impacted of the 0.6% from Veikon Kone – a retail chain that we closed in July last year and that you tend to forget about. It’s a Finnish electricity goods retail chain that we closed down.

If we start with mobility services, the biggest impact comes from interconnect and it’s SEK 500 million on the top line and all countries contribute to this. If we compared to the fourth quarter, it’s Estonia, Denmark and Norway which has the biggest increase in decline.

We are satisfied with 14% in Eurasia and of this 14%, 4.5 percentage of the growth is data revenue and that is very promising and they come from the largest markets. Kcell alone is increasing 40% and that is one reason why they can show a 4% growth in a very tough market right now. The data growth is also very visible in Azercell and the Ucell. In Azercell, which is the country we have the only negative growth, we have a 2% impact from interconnect.

Broadband, finally. On the surface, it looks quite bad and we have challenges in broadband revenues.

In the first quarter, it’s much lower than it has been in the previous quarters. The biggest impact comes from international carrier, low margin voice business, and also interconnect. We also have an impact of the very cold weather. Actually, the soil has been very frozen in Sweden for the first quarter, extreme, I would say. And that has impacted the revenues side and the build-out.

And also, I don’t want to blame the calendar but it has some impact and it’s a little bit hypothetical but we will come back and see in quarter two to how much it was on the lease date we had in 2012, and also the Easter that ended up in March this year and it was in April last year.

Leaving revenue and look at gross margin, you may remember in 2011 we talked a lot about declining gross margin. In 2012, we stabilized this and this quarter was also stable. This is important for the profitability of course and the impact though, I would say, to start with Eurasia is actually increasing its share of the income statement, and that has a positive impact. In addition, we have reduced margins on low – on equipment sales and also interconnect impacts positively.

To summarize the business area, Eurasia has done a fantastic job, it’s the highest EBITDA margin with 53% in five years. And it’s a combination of the revenue growth and cost control. It’s very positive to see the execution on cost in mobility and that has – have an impact on the profitability. So despite the decline in revenue, we can actually sustain the profitability level. The challenge remains in broadband with lower revenue and higher costs.

That is one reason, not the only reason, why we had to initiate the cost program in 2012. And in October, we launched that we would save 2,000 net over two years and that would have a consequence on about 2,000 employees in the company. This year, we have a plan to reduce 1,800 employees. After today, in April, we have notified 1,000 employees. The majority of those are actually notified in April, and that’s the reason you see a quite small restructuring cost in first quarter.

The employees will leave during – most of them during quarter two, and the biggest impact or the full impact will come from quarter three. We still believe and estimate that the full cost for the year will be SEK 1.7 million.

As I said, EPS is flat. Five or it comes from the currency effects, and we remain at SEK 0.95. CapEx-to-sale is 10.7%. That is lower than our full year forecast. We still believe we will reach the 14% at this point. One effect is in broadband in the first quarter, the same as I said before. The extreme cold weather had put a pressure on the build out of fiber.

Other than that, I would say that over the recent year, we have been more – been better in controlling how we spend our CapEx, so we can decide a little bit more ourselves now. You maybe remember we talked about autopilots in the past. So we have control and we still believe in 14%.

Free cash flow, the biggest impact here is the same as I talked to you about, it’s the CapEx. We lowered CapEx, we have better free cash flow and it has the biggest impact on the improved cash flow for the quarter.

Net debt to EBITDA, we have a decrease from this 1.65 to 1.54, improving net debt to EBITDA based on operational cash flow. But if we consider also the dividend which is paid of 12.3 billion, the net debt to EBITDA is 1.89, and up the level of the range of 1.5 to 2.0 that we have guided all.

Finally, considering the first quarter, when – what I’ve said about the revenue and also the rate in kroner impact, we still believe on a flattish revenue for the year. We believe that we will continue to have an increased EBITDA, slightly increased EBITDA and the CapEx to sales of 14%.

Thank you.

Jesper Wilgodt

Thanks Christian. I think now we will start on – open up for questions. So let’s start with a number of questions here, normally I’ll try to – can start with the front. And please state your name and your company.

Question-and-Answer Session

Stefan Gauffin – Nordea

Stefan Gauffin, Nordea, three questions, if I may? First of all, starting with mobility services in the Nordic region, where sales development was weaker than consensus expected in all the markets. Can you give some information on how you see the competitive landscape if you see that the competitive landscape has changed in any of these markets?

Secondly, the EBITDA margin in Uzbekistan improved quite dramatically from Q4 to Q1. Is this a new, more or less, sustained – sustainable level?

And then, just if you could give some indication on how the new subscription model has been accepted in the market.

Per-Arne Blomquist

Okay. If we start with the different markets in Nordics, I think that we have had a, I would say, rather calm first quarter. But we had pressure, especially on the voice side and that was we can see. I think the toughest market right now is at Finland where we have more price competition than I see in the other countries. But otherwise, I would say that the first quarter has been pretty calm.

You talked about Uzbekistan. We have improved the margin due to the fact we have a management a year ago when they have taken out quite local costs so it went up dramatically. Whether we could keep somewhere on this level, it remains to be seen. But I think, at least, we have come up to more sort of average within the Eurasian business as we have not seen before.

And the last question was?

Christian Luiga

It’s also on the new subscription and I can take that one. I mean we have had a quite good pickup ratio and roughly 20% on new services were launched in the consumer segment.

Per-Arne Blomquist

It’s even front of 2%.

Christian Luiga

Yes, that’s correct.

Per-Arne Blomquist

As well. I think it has taken up a number of positives that way.

Jesper Wilgodt

Thomas?

Thomas Heath – Handelsbanken

Thank you. Thomas Heath with Handelsbanken. A few questions, if I may. On competitive pressure in Finland, it seems quite a lot that this is your own Tele Finland brand and also some others. So are you – what’s the surprising strategy from TeliaSonera’s point of view in Finland given that it’s just three players and the market is heating up? That’s the first question.

And then second on the cost cuts or the lower cost in mobility, if you could shed some light on the components there, how much is staff, how much is lower handset in Q1 and so forth? Thank you.

Per-Arne Blomquist

If we start with Finland, it’s – I think, we have introduced a new offering called (inaudible) which has been pretty successful. To some extent, it might have been a bit even too aggressive on the size, but I’m going to try and adjust that.

Otherwise, Finland as such has been a very – it’s a very competitive price market, I would say, and that has been for a couple of years. And I think we need to find ways there to actually increase especially pricing for mobile data. And therefore, this is kind of new model that we’ve introduced in Sweden. I hope it could also, at some point of time, introduced to Finland to have a better connection between consumption and also what you pay for that.

Then we had a cost, Christian if you please.

Christian Luiga

Yes, cost side, yes. Well, actually, in Mobility Sweden – it was Mobility Sweden or Mobility Group you talked about?

Thomas Heath – Handelsbanken

Okay.

Christian Luiga

Most important – well, it actually comes from both personnel expenses and marketing expenses and other expenses as well. So it’s a combination of all three areas. And I would say, it’s not one that is bigger than the other one. And then we have...

Jesper Wilgodt

I think that was it. That was it, yes. Okay. Lena?

Lena Österberg – Carnegie

Lena Österberg, Carnegie. I just want to hear a little bit about Spain since you decided to keep Yoigo. The margins were weaker in the quarter. I was wondering how much of that is seasonality? Should we see that every year or is there any other cost in the margin in the quarter?

Per-Arne Blomquist

Well, partly I would say is seasonality, and we also have some offerings at the beginning of the quarter has cost up a bit. Otherwise I don’t know what to say for Spain’s margin.

Christian Luiga

Well, the margin improved year-on-year, and we have our seasonality effects in quarter one where the marketing campaigns are actually – the Christmas campaigns were in January, not in December last year. And you see that from last year as well.

Jesper Wilgodt

Okay. One more question.

Andreas Joelsson – SEB

Andreas Joelsson, SEB. Follow-up on Spain. The subscriber intake was a little bit lower than usually and also churn higher. Is that also seasonal effect? And then on Turkcell, there is an AGM coming up, 22nd of May. What are your plans for that when it comes to trying to get the dividend out of Turkcell? What is your strategy? What do you believe the others are up to?

Per-Arne Blomquist

Let me start with Spain. I think it’s important for us to make sure that we also get the good quality customers. Sometimes we have taken in too much and shown out too much, so that has been sort of the efforts we have tried to do during the first quarter. And we will be going forward whether we can increase the intake or not.

I think it has been also pretty aggressive on the price out of Spain, a lot of times we have come up with new offerings, which also explains more importantly churn. But I’ve tried – so we should try to receive both those from having a high intake and then a higher churn. I’d rather go for high volume on the customer base than the high churn rate.

Christian Luiga

Due to that, there you can see the churn is coming from the prepaid side.

Per-Arne Blomquist

Then, when it comes to Turkcell, it’s difficult to comment upon this. I mean, we have an AGM at the 22nd of May and it remains to be seen what will happen there, but I mean, when it comes to dividend, so we would like to take out the dividend from 2010 and 2011. Whether that rocks or not, that’s another issue.

Jesper Wilgodt

All right, should we open up for some questions from the conference call. Operator, please, go ahead.

Operator

(Operator Instructions) Your first question comes from the line of Ulrich Rathe. Please ask your question.

Ulrich Rathe

Thanks very much, yes, I have two questions. One is Norway, I’m just wondering about sort of general strategy. As yesterday sort of reaffirmed his long-standing targets about and really taking up the number two slot and gaining share within an ongoing basis.

And isn’t this now a time for Telia to really hit back more aggressively, maybe even sacrificing some margin rather than following the Finland playbook essentially giving up the number two position and then starting to fight back more aggressively, just wondering what you’re thinking is, sort of in a big picture?

The second question I have is on Spain, it looks to me as if the service revenues, the ARPU sort of driven revenues have actually deteriorated in local currency terms quite significantly in terms of trends. Is this – is there a particular reason why this is sort of a lot weaker than it was in the fourth quarter? Is this just general sort of price competition or do you attribute that too? Thank you very much.

Per-Arne Blomquist

The first question was about Norway, first of all, it depends on also how you measure your market share. I’m more for measuring revenue market share than because – that would basically generate the intake for you. We will not be able to compete utility on price, they will always undercover, so that’s not the strategy to go forward.

We have to find other offerings that attract the customers in the Norwegian market and I think that’s what they talk about now with this kind of family pack that they have in Sweden, might be something that could be notable in Norway. But they tried to compete with Tele2 on price, that will never work. Then, we have Spain service revenue, yes. What do you say.

Christian Luiga

Well – you want answer?

Per-Arne Blomquist

No. Just if you look at the numbers, we can see that the billed revenue, service in revenues growth is approximately similar in this quarter versus previous quarter. So, I don’t know if you want to add something about...

Christian Luiga

No. We have seen the MVNOs coming in actually on the prepaid side and pushing the price down, but not so much on the postpaid side. And that’s come back to the quality of the customers we’re trying to attract. And the minutes of use in Spain aftermarket is also declining.

Per-Arne Blomquist

Please also remember that the first quarter in Spain is also very weak after Christmas, so that’s a normal trend. I’m not surprised to see this.

Ulrich Rathe

Thank you.

Per-Arne Blomquist

Thank you. Next question, please?

Operator

Thank you. Our next question comes from the line of Barry Zeitoune. Please ask your question.

Barry Zeitoune

Three questions. The first is on Uzbekistan. Clearly, it’s now quite a big component of any growth that you have in Eurasia. And historically, we’ve heard about issues getting money out. I was wondering if you could expand on how easy it is to get money out of Uzbekistan and roughly how much it costs you to get money out in terms of how we should think about valuing that growth?

And my second question is on the business component of your Swedish mobile business. We’ve heard noises from TDC with that MVNO on Tele2 going for the SME segment in Sweden and we’ve also heard a lot of noise on Tele2 themselves wanting to expand the business segment. So, I was wondering whether you’re seeing any evidence of that in terms of increased competition from them and where do you expect that to increase further going forward or whether there are risks to your business segment?

And then my final question is really on your new pricing models. I was just wondering what the expected ARPU effect is going to be in terms of when we saw new pricing models from Telenor in Norway, initially, we saw some dilution from high-end customers. And then we start to see accretion as they move more customers onto bundles.

Are you expecting a similar kind of trend with the family packages in terms of an increased subscriber, take from the low end? Or is it going to be more of an impact initially with dilution coming from the high end? Thank you.

Per-Arne Blomquist

Well, that – I think it’s difficult to say. We have to judge now after a couple of weeks. And – well, of course, it’s always a risk that you might have some high ARPU customers coming in to this kind of offering.

But at the same time, what we have seen is also that value creators kind of found the packages, take all euro subscriptions into this. Independent, whether they are from Telia or whether they’re from some other operator. So I would expect this to actually be a creative subscription. Perhaps once when we begin. I might be a bit too optimistic, but I strongly believe in that this will work. But we’ll see in a couple of weeks’ time.

Then we had Uzbekistan. Yes, it’s a problem to actually convert dollars or some into dollars. And I don’t think that is sort of a fixed price. And for the time being, it’s still very, very difficult to handle that I can’t give you a price on that right now. And the final question was?

Barry Zeitoune

This segment fighting in Sweden.

Per-Arne Blomquist

Yes. I think that we have seen a rather stable situation. It’s pretty tough, overall in the business when it comes to price, but I don’t see that we have sort of changed – that the players have changed their attitude toward the different segments, so far. So it’s – it remains to be seen though if it comes up more than the second quarter, but so far have not really seen the big change that you mentioned.

Barry Zeitoune

Okay. Thank you.

Per-Arne Blomquist

Good. Can we move on, please?

Operator

Thank you. Your next question comes from the line of Peter Nielsen. Please ask your question.

Peter Nielsen

Yes, good morning, thank you, couple of questions, please? First one, in Per-Arne’s presentation about broadband services, one of the slides says on fiber rollout, further extension of footprint necessary. You didn’t elaborate on it, Per-Arne, but could you perhaps could tell us a bit more of what you’re thinking now on this, further extension of footprint, in Sweden I presume?

And my second question, I don’t know if you will answer this but can you tell us whether you’re involved in the license process in Myanmar? And my third question that relates to the working capital, the usual issue I think particularly at Q1, a huge negative working capital movement in this quarter, which is obviously is seasonal. But could you elaborate a bit on why we are seeing this every year? Thank you very much.

Per-Arne Blomquist

No, we are not involved in a license deal in Myanmar. The working capital?

Christian Luiga

The working capital, yes, you are correct, the seasonality is always big in quarter one and then it’s better in quarter two. The difference between this year and last year is actually very much related to Spain and that’s why we’re also very careful balancing both profitability and cash flow and gross assets in Spain with terminal financing driving a lot of it.

Per-Arne Blomquist

And when it comes to the fiber, I think as I said here in my presentation, very positive over the response that we have in the multiple fiber. And after a very dull start, we don’t really know how to do level this out, I think is right, which means right now that we are prepared to expand our footprint. And we are looking also to buy and also piloting that growth, et cetera if they are up for sale. So that’s what we are looking at. And I think we are – we have already started that process actually with a smaller acquisitions that we made.

Peter Nielsen

Okay. Thank you.

Jesper Wilgodt

Okay. Should we go back to the floor here, see if there are any other questions on the floor. No? Okay. One on the front here.

Unidentified Analyst

I read this morning somewhere that the head of the Huawei have said that it’s getting to pick up in Europe, the demand. How do you feel up here?

Per-Arne Blomquist

You mean, from the – from our customers or from...

Unidentified Analyst

Well, that you are feeling more comfortable.

Jesper Wilgodt

Use the mic, please.

Unidentified Analyst

Yes. That you are feeling more comfortable and so that basis as well, companies like Huawei.

Per-Arne Blomquist

Well, I think that we have been very much resistive when it comes to continuing to invest. We have not declined even during our really tough times, during the financial crisis. I don’t know if that’s what the – he refers to. But of course, we need to continue to invest. We need to expand for capacity. We need to expand in coverage.

And a good thing for us is that there is a price pressure. We usually talk about more of these things. We would say that the capacity sort of doubles every 18 months for the same price. So – which means that we could – we need to continue to invest. And this might be that that he is looking up. At the same time, we still think it’s important to say is that we are – if we are doing the things right with the pricing, we are a growth industry. If you look at the data volume growing with 80%, for us, it’s just a question how to price this. And if you do it in the right way, we will turn into growth again.

Jesper Wilgodt

One more here Thomas.

Unidentified Analyst

Thank you. Two more, if I may. On broadband services in Sweden, rolling out fiber, it seems a little bit from the numbers that part of the pressure on margins could be gross margins, high gross margins on fixed telephony. Just see if you could comment on that on the sort of margin impact of fixed telephony decreasing and fiber picking up both for the short term and long term.

And then secondly if you could share with us, roughly, how much of your subscribers in Sweden and Norway are on some sort of bucket plan or committed payment plan. Thank you.

Per-Arne Blomquist

If it’s from more sort of generic perspective when it comes to the old technology and the new one. Yes, of course, it’s like that. But, well, take the old TLSN spaces, we have much higher margins. So that would be a margin contraction during this year until we sort of get up running with the more sort of well-round operation on IT solutions.

So it’s – of course, that will happen during the coming years and that’s why it’s so important also for us to balance the cost side, to take out cost for the old technology, close down throwback, et cetera, which we have started to do. That is a key for us to keep up also the profitability within broadband.

Jesper Wilgodt

And on the back – I don’t think we have that direct – we can come back on that. One more.

Stefan Gauffin – Nordea

Yes. Stefan Gauffin, Nordea. Follow up on Broadband Sweden. The top line development has fluctuated quite a lot between the quarters. Looking at this quarter, I think it’s slow down on growth on broadband and also quite a pickup on decline on fixed telephony. You talked about the impact from slowdown on roll out of fiber, but could you elaborate a little bit more on the development in the different segments and what do you expect going forward?

Per-Arne Blomquist

Which segments are you talking about?

Stefan Gauffin – Nordea

On – yes, on broadband services in Sweden and fixed telephony and IP-based services.

Per-Arne Blomquist

If I’ll start with the fiber, I think, sort of – I mean, the problem we have had – we have had a severe winter here. So, we haven’t been able to begin. But then, we also as I said, we had a problem with sort of the whole roll-out process. So, what I expect to happen right now is that we should start to produce of as much as – even less than the demand is actually. But for us, it’s just a question to up sort of to speed and perhaps even increase the production and the rollout of fiber, if that was your question. And that – or...?

Stefan Gauffin – Nordea

Just why the growth has fluctuated so much between the quarters?

Per-Arne Blomquist

Yes. Once again, I mean as I said, we have a winter where you can’t even work. That means that the whole roll-out of fiber has for weather conditions – due to weather conditions. And that has an impact on our numbers for sure then, if you look at the same…

Christian Luiga

If we look at that, as I said, I mean, one thing which is hard to estimate is calendar effects in quarter one and we’ll know more about that when we get to quarter two. And finally, we know this just on the general question, it’s more price pressure on IP services than it’s on traditional fix. And that’s something we have known for many years, so that’s not a secret. That’s on a general market point of view.

Stefan Gauffin – Nordea

Okay, thank you.

Jesper Wilgodt

Okay. Let’s move back to conference call and see if there are some more questions there.

Operator

Of course. (Operator Instructions) Your next question comes from the line of Domink Klarmann. Please ask your question.

Domink Klarmann

Hi, yes, thank you. Firstly, just wondering if there is a strategic review ongoing currently as the new board is appointed or whether that will only happen when the new CEO has been found and I’m especially thinking on your commitment to Eurasia as a region?

And then on the good fiber uptake, you see your fiber demand. I’m wondering what it is, why you can’t satisfy demand – I mean, what’s the bottleneck? Is that, again, just the bad weather conditions or is there anything in the value chain and the operations that’s holding you back?

And then maybe a third question on Denmark, just on your current thinking on the joint venture with Telenor, if you think while it makes potential consolidation actually more difficult to have that joint venture or is that just not just on the agenda at all at the moment? Thank you.

Per-Arne Blomquist

Well, I think if I thought of Denmark, I don’t think that the joint venture such as – locked anything there. I think it was good for us to do this but with being the number three player there, we needed to do something. You could almost see the number of markets, well off in the market. And if you are in number three or number four player, you have to do something else.

And I don’t see, in market consolidation come up to speed unfortunately because I think we would need that within the industry. But, it’s still very much a regulatory question. It’s still a question for local regulators. It’s still a question for Brussels to decide upon that it might be okay to have two operators in a country like Denmark or perhaps two operators in a country like Sweden. We are small countries.

We are talking about between 5 million or 6 million up to 9 million people. If you compare, usually, it takes – Denmark is as big as Greater Hamburg in Germany. And Sweden is as big as Bavaria. So – but this is a problem I would say for the whole industry that there is a lack of willingness to consolidate especially in the small markets that have emerged. And that’s one thing.

Then we talked about the fiber. I think one of the restrictions we have is actually to find construction workers that actually could do this. It’s not that easy. We have found a couple of companies that are good in this, and we have some countries that are both less good in this and that was not very good for our brand. So I think the restriction is to actually to find construction workers that could help us to roll out this physically.

Domink Klarmann

Strategic review.

Per-Arne Blomquist

Well, I think it’s – we have the – our first real board meeting yesterday. And of course, we will start to look at this. And I mean, there’s no change from the structure right now. I mean, Eurasia remains as a very, very important part of our business. And then it’s up to the board now to work on this. And we have enormous strategic review that starts anyway at the beginning where Yuna will continue for a couple of months during the autumn. But that isn’t done in the same way as before.

Jesper Wilgodt

Right. Next question, please.

Operator

Thank you. Next question comes from the line of Jakob Bluestone. Please ask your question.

Jakob Bluestone

You’ve mentioned that you had the first board meeting yesterday. Can you maybe talk a little bit about the new board’s priorities. We’ve obviously seen the announcement of the review of Eurasia and presumably the appointment of a permanent CEO’s is very high up that list. But are there any other sort of strategic priorities from the new board that you’d like to frank to investors and ourselves.

And then secondly on Spain, you’ve obviously decided to hold on to the assets. I was hoping you could maybe give a little bit of longer-term guidance for where you think the business is ahead in terms of market share and margin. And maybe also just maybe talk a little bit about how you see the strategy for that business and fusion is obviously doing extremely well. You’ve got to be rolling out. We’re spending €1 billion in rolling out fiber at this price, we’re at the low end of the market. Where do see Yoigo sitting in with all that? What is the market position that you believe this business can occupy? Thank you.

Per-Arne Blomquist

Thank you. The first question was around the board’s priorities. Well, I don’t want to comment about that. What I mean, we have the first meeting and, of course, very clear is that the first project for the board and the Chairman is to find a new CEO. And that’s the main task for the board so that’s what – and that’s not a secret. And then when it comes to other priorities, it’s something that we do not really comment upon it. That will come up later than they have done that.

When it comes to Spain, we decided not to sell. I have said this morning when I was interviewed, I think with Bloomberg is that – we are not a fourth seller and – well, we didn’t get the right price and we could perhaps resolve the regulatory issues then we decided not to sell. And that we will keep this asset. And the ambition is still to be a growth – well, for growth in Spain, but make sure that we also can improve margins or that we can improve cash flow.

So we still think that we have – we should expect to see growth from the Spanish operations but also with higher profitability going forward.

Jakob Bluestone

If I can just ask two follow-ups on each of those points. On Spain, do you think you need a fixed line offering of some sort or do you get – align yourselves with the fixed operator? And secondly, on the search for or the appointment of the permanent CEO, what is the process at this point and how advance is it? Can you comment on that at this point or?

Per-Arne Blomquist

I can’t comment on that. I mean, that’s a question for the board, so they have to work with that. To be honest, when it comes to Spain, I don’t really know whether you need to have a fixed combination there. I think we are a low-price operator and we are attracting a certain segment of the market. And I think that there’s enough of customers there for us without going into the fixed network. So I think we will stick to that for the time being.

Jakob Bluestone

That’s great. Thank you.

Jesper Wilgodt

Thank you. The next question, please?

Operator

Thank you. Your next question comes from the line of Barry Zeitoune. Please ask your question.

Barry Zeitoune

Hi, I just wanted to ask a follow-up to your comment on Spain and the regulatory issues – was one of the reasons that we didn’t see a deal. I mean, on the surface, you are a willing seller and we had statements from both Vodafone and FT suggesting they were both willing buyers. So I was just wondering whether you can elaborate on what the regulatory issues were as you saw them and how that’s impacted the ability of you doing a deal in Spain? Thank you.

Per-Arne Blomquist

No, I think for me, basically it’s a surprise issue. And then I don’t want to go into the discussion we have had, but there are issues around commitment, et cetera that you connected to the licenses that are a bit complicated. And – but I don’t want to get into more sort of detail around that. We have decided not to go on with the process.

Barry Zeitoune

And would you have expected a similar remedies to the sort of remedies we saw in Austria?

Per-Arne Blomquist

Difficult to say, but I think that is one of the risks you take. When you look at the fact, and you try to guess what could happen in Spain, I think that makes this very, very tricky. And that’s make a tricky not – as I said before, not only in Spain but in all the market in Europe. We don’t think there’s a pit for the whole telecom industry.

Barry Zeitoune

Got it. Okay, understood. Thank you very much.

Per-Arne Blomquist

Thank you.

Operator

Thank you. Your next question comes from the line of Andrew Lee. Please ask your question.

Andrew Lee

Yes. Good morning, everyone. Just, firstly, a question on Turkcell and MegaFon and your relationship with them and your co-shareholders following Lars’s departure. Could you just give us an update on your interactions with Turkcell and your involvement in that, Per-Arne, over and above the specifics surrounding the AGM? And also, who’s the main contact between Telia and MegaFon now?

And then, just secondly, I guess we’re seeing a few markets overly harsh. We’re seeing underperformance in Norway, Denmark, and Finland at the moment. Does it make you rethink your pricing strategy, your attitude and desires consolidate, and could you give us any thoughts around that, please? Thank you.

Per-Arne Blomquist

If I start with the connections with both Turkcell and also MegaFon, I mean, we have a group of people who are working within the board. And we have a group of people here as well that have regular contacts with Turkcell. It’s not just one person. Especially when it comes to its strokes. I mean, we also have Veysel Aral, who is sort of heading the Eurasian business. So, a lot of people are involved in it, including – who’s sitting at the board.

When it comes to MegaFon, I think – I mean we have also broader contact area there. I mean, I met pretty recently both the board and also the management of MegaFon. So, we have a pretty close contact. But it’s not just depending on one person if that’s what you’re quite indicating. I mean, it’s a group of people working with these different assets.

Christian Luiga

And then, about the question on performance outside Sweden in the Nordic region.

Per-Arne Blomquist

Yes. I mean – yes, you’re right. I mean, it is an issue and that is we have seen a weak performance in some of these countries. And that’s – for me, this is not only a question about the rising cost. It’s a combination of your offering, your customer offering to make sure that we become the grow company that we should be given the volume increases that we see.

And I think, but is it the issue for the whole industry? We are not alone here, everyone is struggling with that. And when you’re doing this, you also have to keep the control of the quarter to make sure that you are in both cash flow and also profitability.

Andrew Lee

Just following on that, you mentioned I guess around 9 to 12 months ago, looking into doing it across border, efficiency drive across the Nordics. I think you mentioned a quarter or two ago that that was more difficult than you’d originally thought. Have you had any progress further to that? Thank you.

Per-Arne Blomquist

Yes. I think the fact that mobility is moving forward but they’re doing it in a different way. Sometimes you can complicate things a bit too much, which I think we did. Now we tried to simplify it a bit and go for the things that could be done on a more sort of, say, regional basis and try to focus on that. I think we did too much at the same time. That was the problem.

Per-Arne Blomquist

Thank you.

Christian Luiga

I just also would like to add that the – in Norway and the – we have to saved costs in the first quarter. And it’s a hard work on that and the decline is also related to Tele2 and interconnect situation. So, on the surface, it may look more dramatic than it is.

And in Denmark, revenue has actually improved for the first time in quite a long time compared – on the negative growth side.

Per-Arne Blomquist

And yes, to remind them of what as Christian said before that we have 0.5 billion top line coming from interconnect in this quarter. If you could have, add on back on you – more at the growth we have in the previous quarter.

Andrew Lee

Thank you.

Jesper Wilgodt

Right. Next question, please?

Operator

Thank you. Your next question comes from the line of Sasu Ristimäki. Please ask your question.

Sasu Ristimäki

Thanks, just a very simple one, in Turkey, do you see that Turkcell Holdings will be able to participate in the Turkcell AGM next week? And do you foresee that Turkcell Holdings will be able to vote in the AGM provided it actually does participate?

Per-Arne Blomquist

I don’t want to comment upon this. This is a sort of work ongoing so I don’t want to make comments around that.

Sasu Ristimäki

Despite being the principal shareholder at Turkcell Holdings?

Per-Arne Blomquist

Yes.

Sasu Ristimäki

Okay. Thanks.

Jesper Wilgodt

All right, moving on.

Operator

Your next question comes from the line of Peter Nielsen. Please ask your question.

Peter Nielsen

Thank you. Two follow-ups, please. First one, thank you for answering my previous question, Per-Arne. But maybe just to ask you guys why you are not involved in this – giving your commitment to Eurasia, it will be quite logical for Telia to be involved. Is this a political war then and economic decision?

And secondly, can I just ask about Norway? Obviously, the wholesale revenues continue to suffer as is, of course, expected for logical reasons, but how do you see this progressing? Will the loss of wholesale revenues accelerate over the coming 12 months or will it decelerate? Thank you.

Jesper Wilgodt

Very good. Could you repeat your first question? I didn’t really get that.

Peter Nielsen

No. I’m just asking why you would not be involved in this Myanmar license process. It would be quite natural for Telia to be involved here. My question is just is this a political war then and economic decision not to participate?

Per-Arne Blomquist

I would say I don’t think we were prepared actually to go into that at that point in time. And there was a certain time line that we couldn’t really follow. So I don’t think is a simple answer.

Peter Nielsen

Okay. And then the second question was...

Christian Luiga

Yes, on Norway. I mean, what you can see when you look at the report’s EBITDA number and revenues, but most of that comes from the Telia North, the drop we see year-over-year.

Peter Nielsen

Yes.

Christian Luiga

And we’ll continue to have an impact of that during the quarter of the year and the agreement is valid until the second half of 2014.

Peter Nielsen

Yes. Okay. Thank you.

Jesper Wilgodt

All right. We’re moving on now. Next question, please.

Operator

Thank you. Your next question comes from the line of Terence Tsui. Please ask your question.

Terence Tsui

Thanks very much. I wondered if you could give us a regulatory update on Uzbekistan and how long do you expect the market to be characterized by lack of a third operator. And my second question is just on – a follow up on Turkcell. Even if we were to get a positive outcome in May and maybe the resumption of dividends, does your view remain that special shareholder returns to shareholders and our shareholders is out of the question for 2013 and the earliest you could think about it would be in 2014? Thank you.

Per-Arne Blomquist

The part with Uzbekistan, I don’t know so much what happen on the regulatory side right now. I mean, we are still only two players there are in markets anything new around that. When it comes to shareholder return in Turkcell, we will see what happens now at the 22nd of May and let’s come back after. For me, it’s a very, very difficult to comment about anything around this before this meeting has been done.

Jesper Wilgodt

Okay? I think we have two more questions on the conference call, so please move on.

Operator

Your next question comes from the line of James Britton. Please ask your question.

James Britton

Good morning. Can I just ask how long do you think it will be before you’re ready to push share data plans into all your other Nordic markets. And perhaps, you could just help us understand the different levels of data usage now across those Nordic geographies. Can you give us any statistics that highlight the differentiation? Thanks.

Per-Arne Blomquist

Well, when it comes to the differentiation, let’s come back on that which has to do with market by market. I don’t think this is – if you ask, you can ask or ask that question later on to you then we could go through that.

When it comes to the pricing in the other Nordic office, I hope we could do this as quickly as possible. But we will see. We will start also to evaluate what – how it works in Sweden. And then, I’m not really sure whether we will have it exactly the same model in the whole country. That remains to be seen. But I think if it grows here, then, of course, then you should try to duplicate this as quick as we can.

James Britton

Do you think it’s possible to introduce the elsewhere by the end of this year or there are longer lead times?

Per-Arne Blomquist

Let’s put it like this, if it grows, I would like to do it tomorrow. But we have a reality as well that we have to relate, so we will see. And let’s look at this first and see how it works and not jump too quick into the water here. So, it’s – but if we can do it during the year, it would be great.

James Britton

Okay, thanks.

Jesper Wilgodt

Good. I think we have one more final question on the call. So, please...

Operator

Yes. Your next question comes from the line of Ulrich Rathe. Please ask your question.

Ulrich Rathe

Yes, thank you so much. This is a sort of follow-up. Two questions, please. The first one is you mentioned the weather-related effects on the one hand and the Easter timing on the other as drivers of the top line downside. Is there any way you could quantify either of the two or both? In particular, vis-à-vis the impact on B2B. I’m just trying to sort of extract the underlying trends there.

The second question, and again, it’s a bit of a follow-up on the shared data plan, to what extent do you think this really allows TeliaSonera to differentiate? I remember Tele2 saying yesterday that they would be looking to launch this if they see Telia gaining traction with these plans. Obviously, with something like that, we’re just saying if you’re hoping it to be accretive, the issues, of course, if it’s not a differentiating factor for you, then essentially it’s something that’s going to happen across the industry and it’s going to be, ultimately not changing trends. So I’m just wondering how you think about that question.

Thank you.

Per-Arne Blomquist

I think if our competitors will then follow up, then we have done the right thing. And it’s always good to be the number one in this area. And I think for us it’s good to be – been doing that when it comes to fortify that, et cetera. That has always helped to the rollout in this kind of older questions. But if the competitors would cope with this, I mean it’s up to them, but then we…

Christian Luiga

On the calendar effect, if we have one more day last year compared to this quarter, well, that’s 1% on the revenue side and then we have to calculate how much is fixed and how much is variable. And on the Easter, typically, people when they go to the ski slope or to their summerhouse, they don’t call so much as they do in the office and when they are at home. So that’s the big difference.

Per-Arne Blomquist

But I mean, we have discussed that the lead days – I mean, it’s because – I mean, we’re on a sort of working – when comes to our decline and the 1% backup means very much for us. So I think, we always have these kind of issues. So let’s see now what will happen in the second quarter. I think that’s more important in trying to figure out one day or another. I mean, It’s the general trends – underlying trend is more important than the Easter.

Christian Luiga

Good. Operator, do we have any more questions?

Operator

We do have one last question from the line Jacques de Greling. Please ask your question.

Jacques de Greling

Thank you. Two questions. The first one, could you explain why the ARPU in Estonia is dropping so sharply in the last quarter. And second question, regarding 4G in Sweden, could give us a rough idea of what percentage of your customer base currently is 4G? Thank you

Christian Luiga

On the first one, I cannot say. It’s mainly related to the big interconnection rate count that we saw in the full year and the quarter. On the 4G base, I do not know if we have the number right now. Let us come back and we’ll check the quantity.

Per-Arne Blomquist

I think we’re good for that what is the 100,000 to 150,000 just for 4G, something like that. But I might be wrong here but let’s...

Christian Luiga

Let us check those out.

Per-Arne Blomquist

We’ll check the numbers.

Christian Luiga

Let us check those shareholder basis. Check the shareholder base and we’ll come back to you.

Jesper Wilgodt

Good. Do we have any more questions on the phone here?

Operator

There don’t appear to be any more questions at this time. Please continue.

Jesper Wilgodt

No. Okay. Thanks very much. And...

Per-Arne Blomquist

Thank you. Thank you all.

Jesper Wilgodt

See you next time on the 17th of July, I think.

Operator

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.

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