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Executives

Erik Nord - Head of Communication European Operations

Kjell-Morten Johnsen - EVP and Head of European Operations

Analysts

Espen Torgersen - Carnegie

Christer Roth - DnB Market

Jakob Bluestone - Credit Suisse

Ulrich Rathe - Jefferies

Peter Kurt Nielsen - Cheuvreux

Barry Zeitoune- Berenberg

Dominik Klarmann - HSBC

Nick Lyall - UBS

Maurice Patrick - Barclays Capital

Thomas Heath - Handelsbanken Capital Markets

Stefan Gauffin - Nordea

Capital Weekly

Telenor Asa (OTCPK:TELNY) Merger and Acquisition Call April 29, 2013 3:00 AM ET

Erik Nord

You are welcome, both to you here in the audience at Fornebu, the participants at the conference call, and those of you that follow the press conference via webcast. My name is Erik Nord. This is a press conference about Telenor’s purchase of Globul, Bulgaria’s second largest mobile operator. The contract was signed late Friday evening and Head of region Europe, Executive Vice President, Kjell-Morten Johnsen, will now give you a presentation of the Globul case and how Globul will contribute to Telenor Group.

After that, you in the audience and the participants at the conference call, will get the opportunity to ask questions to Kjell-Morten about the case; but first the presentation, Kjell-Morten Johnsen, Head of region Europe.

Kjell-Morten Johnsen

Thank you very much Erik, thank you. So, good morning to you all ladies and gentlemen and welcome to Telenor on this Monday morning. I would like to start by thanking you for taking the time to come out here and listen to us. We think we have something interesting to explain to you. We would like to come across with some interesting new messages about what’s happening in Europe for once. The Europe is a continent that kind of drags along a macroeconomic story these days that is little bit troublesome but there are some very interesting opportunities as well.

So, I will take you through some of the transaction highlights on the Globul case. I will tell you little bit about the investment case and we will also look into the Bulgarian market as such both from a macro prospective and a business prospective.

We also have some ideas about how we want to develop the company Globul going forward and in the end we will take some discussions with you in the audience and also you who are on the webcast.

As Erik said, we signed an agreement on Friday late afternoon to buy Globul the second largest operator in Bulgaria. We didn’t only buy the company Globul, we bought a distribution company called Germanos but this is an integrated whole, basically, a mobile operator and distribution system.

We think we have bought Globul at a very fair price. We think that we can create value based on this price. This is a position that we have taken before. We know how to develop these kinds of companies. We are active in the region. We have been active starting with Montenegro and Hungary, later on Serbia; we are now entering a fourth market in the Central and Eastern Europe region.

We also think that when you evaluate numbers and go through where we stand on the Globul transaction, you will see that we have taken a quite conservative approach to M&A, this is a transaction that fits very well with our M&A profile.

Looking at comparable transactions you see that we come out with a good EBITDA multiple on this transaction compared to comparables in the region. Going forward, whenever I mention the number in here, it will either be an analysis consensus or there’ll be company numbers provided by the selling party. We ourselves will come back with our own views on the future of company that was taking management control.

Coming back to the investment case, this is a strong position in the market, it’s the number two player with about 36% market share, but the size difference between number 1 and 2 means that this is a market with 2 big players and one significantly smaller, so our position is comparable to the number one player in the market. We’ve been in a position like this before in Serbia, and there are many similarities, I’ll get back to that.

We also see that we have an ongoing business that is generating a cash flow today, this is a company that will require investment. We will put our concepts in place, but this is a running business with an okay profitability as we speak.

Looking at Bulgaria as a country, South Eastern Europe have had many issues over the last few years. Bulgaria has some distinct, different factors here, one of them is the macroeconomic side, on the debt ratio, a significantly lower debt than in the countries surrounding Bulgaria, which gives a bit more fiscal headroom for the government and the opportunity to be in charge of their own actions, rather than looking at funding at all times. This is despite the fact that the currency has been pegged to the Euro, which may not have been a blessing over the last few years, may have made it harder to run a policy where you stimulate the economy, so despite the fact the macroeconomic indicators are fairly benign.

For us in Telenor, we have exposure to several of these markets from before, we’ve been through a lot of change in that region and we’ve landed our feet in a very good way, so we are confident that Bulgaria is very similar to what we have already experienced and this is something that fits to our way of working inside of Telenor group. So we will be building actively on the change that we have introduced to the other companies in the region. We do see opportunities to continue to work in the post-paid area, where we’ve had success in other countries, we will be executing a network swap, this is something that we’ve done in all the countries in the region, sometimes also in a multivendor setup, we would have to work with different vendors for different part of the network. So we have a big flexibility in terms of carrying out these kinds of changed processes. This will be needed also in order to deliver what we think we can add to the company which is a very good network experience, a good distribution experience and the kind of things that are made as preferred by customers in other countries in the region.

We see a low mobile data usage, we see a market with low Smartphone penetration. And we are assured that it is a question of time before these moves faster also in Bulgaria. And we will be a part of enabling that change.

Again, returning to the regional aspects, clearly, Telenor has strong positions; number one in Montenegro, number one in Serbia, number two in Hungary; positions that we’ve held for many years; where we have shown the results. Globul fits in that geography.

Returning a little bit to the macro context, and we have put in two of the countries where we are operating today just for comparison. We see a high unemployment of more than 11% in Bulgaria, but also lower than some of the other comparable countries.

We see some GDP growth in the markets overall and we see a fairly low debt level; governmental debt level. This means that there is a potential for some fiscal stimulus which will also then give a growth impetus for us. Not trying to say that Bulgaria is so different from everyone else that it’s going to be an easy ride but they have the opportunity and also a track record of keeping a strict control over economy.

Looking at Hungary, where we are operating today, Europe at 79% public debt, that’s the country that has overtime been dealing with a bit of negative roles but also now seem to be past the worst turn of that curve coming back on a more stable macro-economic development.

The mobile market overview again these are company delivered numbers; these are not necessarily our numbers. We have a strong number two position, moving into a strong number two position. And we see opportunity for us to work both on the margin side and in the longer term a bit on the position side in the market in terms of our revenue market shares.

In terms of revenues, you will know that the Bulgarian market like so many others in Europe had been through a series of reductions of termination rates. We are now moving towards the end of that cycle, so it’s a huge difference between coming in the market at the start of the termination rate cuts and at the end, we’re getting much closer to the end here but we have expectations for a reduction also in 2013. But that will then put us and we’ll show you afterwards here, on some of the lowest termination rate in Europe.

When we’re through with the termination rate cuts we get back to the underlying business, the underlying business gives much more benign picture and this is the one that we will build on going into the future, stabilized the revenues, work on the margin picture and get traction in the market based on good network and good distribution. We have enough spectrums to deliver a good performance in the market in an efficient way. We’re not limited and this is only by the spectrum side.

The financial profile compared to some of our other operations, we see that the profitability is slightly lower. We believe that when we go through with a full upgrade we’ll be able to adjust the CapEx profile somewhat. We also have experience from how we work with the bundled going over to more data-driven concept and pricing that overtime will shift the market profile. We believe that we’ve done this before and that we’re able to carry that out again also in Bulgaria. So our intention is as always to work on margin picture also here in Bulgaria.

There will some affect from the neighboring countries, well that’ll be in terms of how we operate our networks but also in terms of common concepts on how we go to market. We have been through several new innovations in different markets that we tried to transfer across the borders and that works quite well. We have a lot of enthusiasm around that within the region.

And Telenor has overtime developed in-house competencies that we’re able to transfer successfully from country-to-country in terms of how we operate in the markets. We need to do that as well when we invite our new colleagues from Globul to us. The most important thing always is that we’re able to energize people who are in the Company.

Please be aware we’re taking over the company that consists of a lot of good people, so what we want to do now is to energize them and then on top of that we will put in place the keys success factors that we can add to the company and you’ve all heard that there is some need for investment and there will be need for new concepts.

We will proceed with these things quite fast. There is no reason for us to holdback so when we assume management control these processes will be put in motion quite quickly. We will also make sure that the current initiatives in the CEE will involve our new colleagues in Globul.

So going forward, the new game changer in Bulgaria as in so many other countries is the data opportunity. How we approach a new relationship to our customer where customers really value the data part much more than their voice part. This is an important part of how we structure our work in the Nordics. It will be very important it Central and Eastern Europe. It will be important in Asia. And we are very close to the forefront, the frontier within some of these areas. We need to bring that with us going forward.

I am using here Serbia as an example, since that is the last acquisition we did in Europe. And when we did that acquisition the expectation was that there would be a two player market for a couple of years and then a third player would come in. There was every reason to expect that. It did not turn out like that. The third player came almost immediately, within 12 months of our signing so to speak.

Despite that factor, we have been able to grow our revenue market share over time by several percentage points and now have become a clear number one in that market, driven by postpaid, a very good network and good distribution in place. So, these are the kind of track records we want to bring with us, the competencies that we want to bring with us into the new operation in Bulgaria. By also being very clear on the direction we are going in the market we are able to structure the operations so that they are driven by our go-to-market strategy and then taking down cost levels. When you have a clear direction, clarity of direction you can have clarity also on how to deliver in an efficient way.

So we see the operator sales levels going down from around 34% to around 25%. Again this approach and the thinking that has delivered these results also will need to be transferred into the Bulgarian market in order to make yourself as successful as we would like to be.

So, in summary, we are buying Globul a strong number-two player with a potential to remain a strong player going forward at the tail end of the termination rate cuts in Bulgaria. We have every opportunity to leverage on the common concepts and the scale that we have developed within the CEE and we believe that seeing the price that we are paying for this company it is very consistent with the approach we have taken where we can use our strong balance sheet if we see a good opportunity to create value to our shareholders. So that would kind of be an intro to whatever questions there may be from the audience on the Globul case.

Question-and-Answer Session

Espen Torgersen - Carnegie

Hi this is Espen Torgersen, Carnegie. Could you elaborate on your CapEx and network swap initiatives and if possible give some kind of targets for that for the next two years. And also if it’s possible, highlight some kind of margin targets or OpEx-to-sales targets for the same period?

Kjell-Morten Johnsen

That’s a good question, but I am not going to completely answer. But then we will proceed with preparations for our networks that swap quite quickly in the market. That is a part of our business case. And this is something we have done before. So we have a reasonable, we have a good experience with that. And when it comes to setting the targets for CapEx-to-sales or OpEx-to-sales, at this point we have done the due diligence. We have been through the company books, but we need to also assume management control before we can come out with specific numbers going into the future for this company. That is a little bit premature.

Erik Nord

Are there any questions?

Christer Roth - DnB Market

Hi, Christer Roth from DnB, just a quick question, could you share with us the interconnect as a percentage of sales within Globul today, and how that has developed over the past few years, just to get a feel for, as you say the underlying business has been more benign?

Kjell-Morten Johnsen

No, I cannot give you the percentage of that, but you can see that the rates have gone down substantially. And we expect them to continue down to about a level of EUR 0.01 from where they are now at around EUR 0.02. So you would see that we also had an illustration of this here, where you will see that Bulgaria was at a level of 10 here back in 2009, and still running around 2. We expect it to go down towards 1, so there is a substantial reduction and at the end of it when you move from 10 to 1, there is not very much left to go.

Erik Nord

Okay are there any questions. No, and then from the conference call, do you have any questions there?

Jakob Bluestone - Credit Suisse

Jakob Bluestone, Credit Suisse.

Kjell-Morten Johnsen

Please go ahead.

Jakob Bluestone - Credit Suisse

Firstly, as regards the new entrant votes that come you didn’t seem particularly concerned about them could you maybe talk a little bit about why, or perhaps, I misunderstood, but could you perhaps talk about why you did not see them as a major threat and maybe if you can also talk a little bit about whether they will be getting national roaming from you or another operator? And secondly, can you talk a little bit about the 4G license process if that has started or not? And then thirdly, are there any material differences between OTE’s accounting for Globul and Telenor’s? Thank you.

Kjell-Morten Johnsen

I didn’t get the second question. Sorry. Second one was?

Erik Nord

Second question, please can you repeat.

Jakob Bluestone - Credit Suisse

Is there any process for issuing 800 megahertz spectrum, please?

Kjell-Morten Johnsen

Okay. Well, I’ll start with the first one. Yes, there is already the opportunity for our new player to start fourth operator in the bigger market. That opportunity has been around for a while we haven’t seen any initiatives around that which leads us to believe correctly in our view that there is no good case for running a fourth operator. Bulgaria is a fairly small market to run four mobile operators in the market like that would be unusual and at this point with very high SIM penetration rates it would be very unusual to start an initiative with the fourth player in the market. So, we don’t quite see that case or actually don’t see that case. So, I think there is for good reason that that has not materialized.

As for details around about our regulatory side spectrum I would think its betters we come back through our IR department and I also don’t have any particular flags of different colors when it comes to accounting. Maybe your question is related to the fact that there are two different EBITDA multiples in play in terms of the announcements here but that is just down to intercompany accounting and OTE, there are some management fees that obviously are payable from Globul to OTE, they would not be payable if many company comes to us. So, these things level out when you adjust for that.

Jakob Bluestone - Credit Suisse

I think maybe just follow-up on both those points I mean (Bulsatcom) only received their license at the beginning of this year. And it would have been fairly early for them to have had an impact and at this stage already. And they also have an existing subscriber base that they can offer services too as well and setting a few if you have any comments on those points.

And secondly, on the accounting issue, I was actually thinking Telekom Austria when they acquired Mobitel six seven years ago, and had very high amortization charges subsequently as the customer base that had been capitalized. And so I want to just check if there are any issues like that but I guess they can check that with IR.

Kjell-Morten Johnsen

Well, I guess so on the (Bulsatcom) issue, I think the answer is more or less like I said, of course you cannot have an impact in the market after such a short time when you renewed a license but at least you have to start making preparations for launch, it’s not that easy to launch a mobile company. So when we don’t see a science of that, that leads us to believe that they have come to the same conclusion as us but that would not be a profitable project. But, as of course up to them to decide, so we cannot rule out that the opportunity of a fourth player in the market, we just don’t see that it makes any sense.

Erik Nord

Okay, more questions from the conference call?

Jakob Bluestone - Credit Suisse

Jakob Bluestone, Credit Suisse.

Kjell-Morten Johnsen

Please go ahead.

Erik Nord

Okay. We have some questions coming in from mail. Will we re-brand Globul and Germanos, Kjell-Morten?

Kjell-Morten

Well that’s not of our agenda now. When we take management control this company, scheduled for the third quarter of this year, our focus would be on making sure that the operations of the company are at the standard that we are satisfied with, branding issues at this stage are secondary issues.

Erik Nord

Do we have any plans to launch DTH?

Kjell-Morten

Non-specific.

Erik Nord

And it’s also a question about LTE and our perspective on launching that?

Kjell-Morten

Yes, the LTE is basically needed when you have huge amount of data traffic in the network. Obviously we think it’s good for any country to embark on higher mobile capacities down the road but first we need to drive the market here with an uptake on data traffic, smartphones so that these things hang together in terms of capacity needs, capacity utilization, then in general of course it’s good for market to move on in terms of better services for customers.

Erik Nord

Then it’s a question if we have a plan to be number one in the market?

Kjell-Morten

Never ask competitive people if they want to become number one because you know you never the answer you will get again, our focus will be on running the company in the best possible way. We would like to make sure that we stabilize and we would also like to see an improvement in our operational parameters whether that be in terms of our position in the market or through our P&L, so doing good job in the markets should over time give the opportunity to strengthen your position.

Erik Nord

Okay other questions.

Ulrich Rathe - Jefferies

Ulrich Rathe, Jefferies.

Kjell-Morten Johnsen

Go ahead please

Ulrich Rathe - Jefferies

I think I might have two questions, please. You characterized the macro backdrop as fairly benign. But if I understand this correctly, there’s quite an upheaval in the country over austerity measures, tax hikes. There has been a number of high profile sales immolations. The government had to resign. So how do you actually see this fiscal and, in particular, the regulatory risk going forward? I understand a lot of the protests actually were focusing on the regulated utility prices, which has brought, ultimately, the government down. In this context, also, I’m aware of commentary from Telekom Austria characterizing Bulgaria as one of the worst and most difficult markets, actually, in the whole portfolio across Eastern Europe. I’m just wondering how you put that together with characterizing this as a fairly benign macro backdrop. And my second question is on the MTR cuts. You have highlighted that the rate of MTR cuts is coming down, as we’re approaching the EUR 0.01. I suppose my question is, how do you actually see the retail market, prices in the market, because, obviously, the MTR cuts tend to precede retail price cuts? Do you think the retail pricing has sort of, showing similar signs in terms of the rate of decline slowing down? Thank you.

Kjell-Morten Johnsen

Well, I’ll take the first one on the macro and regulatory, what I pointing out is that the country has a very low debt level compared to the most of the European Union to be fair, very low debt levels. It has been a quite stable country with a fairly liberal agenda in terms of economic policy and at the end of the previous government, there’ll be new elections now on in May. We saw actually for the first time a lot of activity in the streets, people having, coming out in streets to show that we’re happy with the developments, within one specific area which typically tends to be utilities. I think that if this had been one of the neighboring countries this would have been less of a story, because it’s more common. I’ve myself worked more than three years in Serbia and when you would go in sometimes for meetings in the government building, there would often be protestors outside. So I think the Bulgarian authorities were not quite used to that and we were not from the outside used to seeing this kind of engagement, so when that came it came a little bit of a surprise, so I think that’s what made it so visible both for them and the government and for people outside.

I don’t find that usually disturbing and I think this is quite common and we are quite used to handling countries and situations where you have to remain calm to see through complicated situations.

And that maybe distinguish us from some of the other players around so we don’t see that as something dramatic in our view.

When it comes to the termination and pricing in the market going forward; clearly what we will see overtime is that you will have more and more of the bundled products coming into the market. The industry moves step-by-step to higher voice bundles and pricing the data.

And of course we will see that direction coming into Bulgaria as well. That depends on the country itself, how fast is the smart phone penetration developing, what’s the up take on the data side. So we will go through the motions in a similar fashion to other countries.

Little bit faster, little bit slower, depends on which country we are in but generally the direction is the same.

Peter Kurt Nielsen - Cheuvreux

Peter Kurt Nielsen, Cheuvreux.

Kjell-Morten Johnsen

Please go ahead.

Peter Kurt Nielsen - Cheuvreux

As you pointed out earlier disregarding India your last most recent sort of major acquisition at Telenor was in Serbia in the same region. Is this just sort of opportunistic driven or is it sort of a deliberate strategic view on Telenor to prioritize up sort of this region and are you looking to build a cluster sort of in the Eastern European region? Thank you.

Kjell-Morten Johnsen

I think it’s natural for us If we are to consider to do a transaction to do it where we have experience and where we can build on competencies in the region. That is a quite natural approach to take. Now, you know as well as me that there are many things landing on our desks, all opportunities in all kinds of places. Now we are very selective about this and the reason why we have chosen to go forward with Globul is that it fits very well. We have operations in the neighboring countries, we know the region, and we’ve had success in the region that gives us good reason to believe that we also can create value in Globul given that we’ve have paid a good price. We think that we have paid a fair price that gives us the opportunity to create value.

Barry Zeitoune- Berenberg

Barry Zeitoune, Berenberg.

Kjell-Morten Johnsen

Please go ahead.

Barry Zeitoune- Berenberg

Hi I have got four questions if that’s okay; the first is if I can look at the multiple that you are buying this at; if you would adjust for the MTR cuts and take out the EBITDA impact that that will have, can you give me some flavor of what multiple you are paying post-MTR cuts, so when you were in MTR cuts?

And second question is, you used Siberia as an example of execution and what you’ve done in that market which has obviously been very good, but in Siberia we’ve seen a very weak incumbent that you’ve been able to take advantage of. Are you looking at Telekom Austria or Vivacom being strategically in a weak position that you will be to take market share from them?

Third question is really on convergence. If we look at Telekom Austria they’ve acquired fixed line assets in Bulgaria and Vivacom is an integrated operator, so what’s your view on fixed line, do you think you’re going to need acquired fixed line assets in Bulgaria to go with this acquisition?

And then my final question is really on more M&A in region just following from what Peter Kurt asked you. If we look at the moment Tele2 Croatia has been rumored to be for sale; that’s an obvious fit in terms of the regional footprint and then also in the Czech Republic, it looks like there is going to be new entrance spectrum made available. Either of those two opportunities something that you would be looking at? Thank you.

Kjell-Morten Johnsen

Okay and let’s start with first one. Again the numbers that we show you today, the multiples that we show you today, they’re based on the numbers that we have out from the company and also on analysts’ consensus estimates. So that’s how we derive these numbers. When it comes to setting them up in different shapes and fashions depending on scenarios going forward, we of course do that, we’ll do that when we’re in control of the company. But of course to make an adjustment for different MTR scenarios it’s pretty easy to put into your spreadsheets.

So I don’t have that those kinds of numbers on the top of my head. But again, when it comes what we expect of numbers going forward we will do that when we’re in control of the company.

And, yes, you mentioned this Serbia execution in the Serbian market. The Serbian market has had very low growth for some time, and yes there may have been some advantages there to competing with an incumbent that has been for sale. At the same time, there also has been a very aggressive move from it. So there is a mix here, and we see the exposure of Telekom Austria and Vivacom. And fixed is kind of, sometimes it’s great to have fixed. Fixed means that you have fiber or sometimes it can be that you have very good coax position that has been upgraded to (inaudible) situations, so you have a good broadband position. Fixed means that you have a lot of old copper networks and DSL that maybe a very mixed blessing and I think that when you look at those the players there, that’s a range of mixed blessings.

Where the Bulgaria market is now we don’t need a huge push toward fixed in order to provide data capacities that are needed. If that changes in the future, we will of course get back and tell you about our strategy with the company. But to serve the need for the foreseeable future for data communication in Bulgaria, we will handle that on the mobile platform. So that kind of answers the question for now on that.

When it comes to M&A in the region I think you know the answer to that. We will not comment on territory or new entrants or other things on this. You did not expect that did you?

Barry Zeitoune- Berenberg

Probably not. I thought it was worth going for. Can I just follow up on the first question can you give me some kind of flavor for what the positive EBITDA contribution from MTR’s were in 2012, given that is a number that you should have had?

Kjell-Morten Johnsen

No, I am sorry, we can do that afterwards through IR, we will give you more numbers.

Erik Nord

Next.

Dominik Klarmann - HSBC

Dominik Klarmann, HSBC.

Kjell-Morten Johnsen

Go ahead please.

Dominik Klarmann - HSBC

Just one question; last follow up on the macro situation. Again Telekom Austria is also talking about the big brain drain problem and which leads to population decline; I am just wondering if you expect a stabilization of that population decline any time soon or what is your feel on the total pool you can sell to?

Kjell-Morten Johnsen

Unfortunately there is a demographic challenge both in Bulgaria and Serbia for a number of reasons. And there is no reason to believe that that will immediately stabilize. So there is a challenge on that. When it comes to hiring, getting access to good people, please remember that when we run these mobile operators in countries like Bulgaria and Serbia, we are very often among the most attractive employers in the country meaning that it is a lot of people who really would like to join us, to develop their career through our system. We see people in call centers with lots of degrees who come in there and sit there for two years to get a foothold in the company and then start developing their career. So there is a lot of smart people around.

We just need to attract them and we need to make them enthusiastic and make them fans of our company and then we can resolve those issues; we can move on going forward. Then we sometimes bring in people with very specific knowledge from other countries. They can come from our Asian operation or they can come from the Nordics, wherever, because we need a specific competence and then of course we make that available for the operation.

Dominik Klarmann - HSBC

Okay maybe just one more question if I may on that fourth license and would you consider buying it, if that will be something the regulator would allow at some stage, if it’s not used to roll out a new network?

Kjell-Morten Johnsen

I don’t want to get into that question. I don’t want to comment on that. Next.

Nick Lyall - UBS

Nick Lyall, UBS.

Kjell-Morten Johnsen

Please go ahead.

Nick Lyall - UBS

Hi this is Nick from UBS, can I just ask on, you seem quite upbeat on the ability to create synergies here, or you have at least increased margins overtime. So what exactly have you spotted in the operation in seeing this cut cost. So which areas in particular do you think are quite so fruitful for cost cuts here in the asset?

And secondly I was just interested in your comment on lots of things coming across your desk. So are you seeing more operators, or cash-strapped operators who are presenting you with more opportunities for M&A, do you think?

Kjell-Morten Johnsen

I personally believe that when you want to reduce costs, you do it by being clear about where you want to go. So, you don’t start by saying I want to cut cost, I want to do something, I want to go in this direction. So we know that we have a proven track-record on changing our networks, setting up a very efficient system around that.

We know that we have worked a lot to improve our competence when it comes to distribution. And to apply this clarity of mind and a very good segmentation supporting that as a platform that gives the opportunity to run an efficient organization.

And then what the end result of that will be, it depends of course on the competitive pressures and the market and other things. But I believe that we have a good starting point for running operations in an efficient way going forward. Again your earlier question is also a little off limitation to discuss M&A, with a little different touch to it.

I believe it’s fair to say that we have gotten an opportunity to buy this company because we have been diligent. We have been keeping a strong balance sheet and have been given the opportunity by someone who has changed, decided to do a change to their portfolio, for their own reasons; but beyond that I wouldn’t go any further.

Nick Lyall - UBS

But just back on the cost point on Globul, there is nothing specific though in the cost space that makes you a lot more confident about cutting costs here, is there? This is just a general point about you know versus Serbian operations we can do similar things, but with Globul it doesn’t have any specific cost issues that you would flag?

Kjell-Morten Johnsen

If you look at where they are today, I mean they run a fairly decent EBITDA margin. So we should be conscious that what we are buying here is an ongoing operation, where a lot of people will do a good job. But we would like to add some more elements to it in the way we operate the business. But I would not highlight that we have found one specific thing that we can just jump in and change. That would be unusual.

Maurice Patrick - Barclays Capital

Maurice Patrick, Barclays Capital.

Kjell-Morten Johnsen

Please go ahead.

Maurice Patrick - Barclays Capital

Just about your question on the financial framework for the data, I know you talked about the multiple being a low one comparable to others, but just a sense of what your WACC assumption was? Why do you think you can create the value from the acquisition? Thank you very much.

Kjell-Morten Johnsen

I think, when you look at the acquisition there are couple of things that you pointed out; one is the ratio the EBITDA multiple which compares well. The other thing that we have not put that much emphasis on is the relatively low tax rate in Bulgaria, which in a way gives you a better giving factor on the investment.

All of these things are of course always subject to change, but the way things stand like right now that is post development that lets more of the EBITDA translate through the P&L and into the cash flow for us.

So, those are the couple of the overall things that gives us reason to believe that we’re buying this at a decent valuation.

Maurice Patrick - Barclays Capital

It’s just a follow up, what WACC are you assuming?

Kjell-Morten Johnsen

We’ll get into that.

Thomas Heath - Handelsbanken Capital Markets

Few questions if I may, firstly on smart phone penetration; if you could give any detail on where we are today? Secondly, just if you could confirm that these licenses are tech neutral and that it could roll out LT if you want so in the spectrum as I believe you could. And then thirdly, on the EBITDA in Globul, we can see it’s quite shrinking absolute contribution in euro terms.

If top line has been driven sort of below it mainly by MTR-cuts, it’s not self-evident and not precious EBITDA in the same way. So, maybe if you could give a little color on the pressure on EBITDA over the past three years in the business you just required. Thank you.

Kjell-Morten Johnsen

On the smart phone penetration, we see here like also in other places a level in a low 10s. So clearly like quite significant time line versus for example Sweden which would be at level of definitely in the 60s, so there is a time line here is obviously…

There is a timeline here. It’s obviously a question of time as the price of smart phones are coming down for the entry levels and to your other question on the roll out, there are no technical issues related to roll out whether that a 3G network or LTE network, it’s more a question of the timing and the regulatory side around it. So, for us to roll out a network, it’s a pretty standard fair thing to do to get away without partners. So that is commercialization and it’s a regulatory decision.

And obviously when you look at the market dynamics leading a little bit into your EBITDA question, you see the shift where the number one player has lost some market share and Globul has stood fairly firm and Invitel has moved up. So, we see a bit change in the landscape. And obviously that leads to competitive pressures that may have impacted the EBITDA line (inaudible) that we’re going to work much harder on it when we go in and have management control of the company in terms of the positioning and the segmentation of the market.

Thomas Heath - Handelsbanken Capital Markets

It sounds like it’s good old price pressure that’s been driving down EBITDA than the net, it’s a right to believe that you hope that you can segment the market and make it more stable through commercial practice then?

Kjell-Morten Johnsen

Now, what you have seen in other places is that when you start getting a substantial growth in data communication, if you are on to the sort of old relationships to the vendors, you very often have a cost structure that is proportional in a way to your data streams. And that doesn’t work, that just doesn’t cut it in 2013. So, having, decoupling those lines and getting into a kind of a relationship we have with vendors in other countries is one of the crucial elements to keep up profitability when we move more and more to pricing the data rather than pricing voice.

Thomas Heath - Handelsbanken Capital Markets

Okay, so it sounds like, it’s more, if I understand you right, then it’s more about having an efficient network that allows you to take out cost than necessarily stabilizing the price level. So you’d expect prices to sort of come down with technology, but you are taking out cost at the same time.

Kjell-Morten Johnsen

The reality of running a mobile operator is that you have to work both of the top line and the cost at the same time. There is no doubt about that.

Stefan Gauffin - Nordea

Hello, most of my questions have been answered. I have a question relating to synergies left. Could you just give some more information on what kind of synergies you have by having a neighboring country, rather than sort of general operational excellence synergies? So, any synergies coming from being operational in Serbia and Hungary as well as now in Bulgaria?

Kjell-Morten Johnsen

There are at least two things here; one is we are now trying to run these operations more as one operation technically. And that does give some scale and I would not be trying to say that those numbers are enormous in terms of the savings, but they do give very tangible savings. But the other part of that thing is that we’re also building a competence base. So when we now take over a new operator, we have a competence base that we can draw on.

We have people who have been sitting in, running three operations in their daily life, and then being part of evaluating this new operator. So, we have people who can to a larger extent hit the ground running and we can put them into an environment that is known to them. They’re culturally ready for it; they understand how a market like Bulgaria, Hungary, Serbia or Montenegro works.

There are differences but they’re not dramatic differences. So that gives us the opportunity to hit the ground running and be fairly efficient and fast in turning, making the changes that we think will be needed in the company.

Operator

Last question.

Capital Weekly

Hello we are Capital Weekly, Bulgarian newspaper.

Operator

Please go ahead.

Capital Weekly

We have the following questions. Talking about network swap; are you talking about network sharing with another Bulgarian operator and could you mention its name? Secondly, talking about bundles, are you going to invest in internet operators and TV operators here in Bulgaria, or building new networks, or what? What is the concrete need for investments in Globul, let’s say for the next three years? Thank you very much.

Kjell-Morten Johnsen

Okay let me also answer in general the first question, when it comes to network sharing, we believe that in most markets it makes sense for people to share passive resources, in some markets it also makes sense to share active resources. Whether we will do that or not in Bulgaria or any other market is something that we have to come back to. That’s not something that we would have an opinion about today. The general approach is that when it does not impact competition in the end user market, it’s good for operators to cooperate on the things that are basically driving costs and not the competition in the market. When it comes to any ideas about whether we would like to enter this and that and we will buy something then obviously we will not make any comments on that.

I would like to underline that our primary focus when you buy this company is to you go in; exercise management control, optimize the operations for the company so that we can deliver a good customer experience in an efficient way in the market. That’s our primary focus. Any of the other speculations are secondary or tertiary issues for us at this stage. That’s exactly where our focus is now.

Erik Nord

Thank you. That was the final question and it’s time now to round up this press conference. Thank you for the participation.

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