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Executives

Per-Arne Blomquist – Acting CEO

Christian Luiga – Acting CFO

Jesper Wilgodt – Head, IR

Analysts

Stefan Gauffin – Nordea

Lena Österberg – Carnegie

Thomas Heath – Handelsbanken

Peter-Kurt Nielsen – CAI Cheuvreux

Laurie Fitzjohn-Sykes – Citi

Nick Lyall – UBS

Ulrich Rathe – Jefferies

Barry Zeitoune – Berenberg

Terence Tsui – Morgan Stanley

Jakob Bluestone – Credit Suisse

Dominik Klarmann – HSBC IB

Sasu Ristimäki – Merrill Lynch

TeliaSonera Ab Ord (OTCPK:TLSNF) Q2 2013 Earnings Call July 17, 2013 3:30 AM ET

Jesper Wilgodt

Okay. Welcome to the presentation of TeliaSonera’s second quarter results. I’m Jesper Wilgodt, Head of Investor Relations. With me today to present, I have our CEO, Per-Arne Blomquist; and also our CFO, Christian Luiga. After those presentations, we will have a Q&A session.

And by that, I would like to hand over to Per-Arne, please.

Per-Arne Blomquist

Thank you. Well, first of all, I would like to say that I am satisfied with the quarter, (two decent) quarter. We have a stable underlying top line development. We are taking care of the costs in a good way. We are executing on our cost efficiency program. But perhaps even most important, we have also addressed a couple of issues during this quarter that is important for the industry.

First of all, the new pricing models, more pricing and while we try to monetize on data and also the coverage issue around 4G and also fiber. I think that the high speed internet access will become more and more important going forward and we have tried to deal with that, now in the first initial stage in this quarter. Finally, last but not least our focus on sustainability issues are important for us and I will come back to that later on in my presentation.

If I go back a year, I felt a bit uncomfortable with the development of both top line and costs. We have had previously a good spread between the cost development and also the income development, and that was narrowed. And that was the reason why we started to work with the cost efficiency program that was launched at the end of 2012. You can now see the effects of this where we have cost coming down and also that our income is moving in the right direction, i.e. upwards. And that has also meant that we have changed a negative trend that we had during 2012 with four consecutive quarters of decreased volumes.

Now we have the first quarter and the second quarter where you could that stable top line and improved cost situation creates better EBITDA margin. And if you look at the 34.8%, that is, I would guess, among the best margins in Europe when it comes to multi-market operator. Yes, we have certain domestic operator that might have higher but this is, I think, among the best in Europe. And it’s a effort and achievement just to keep it at this level and try perhaps to increase this slightly but just to keep it around 35% takes a certain effort.

We have talked about our revenue side and sometimes I feel that this industry is a bit too depressed about the outlook. Yes, I agree we have a voice that is going down with 11%, messaging is going down but what we also can see here is that mobile data continues to grow. It’s 60% -- more than 60%, then you can ask yourself in what industry do you have a volume development of 60%? So I claimed – I’ve claimed that for the last couple of quarters, we are actually part of the growth industry. This is up to us as an industry player to make sure that we can monetize on that growth. That’s our ambition and also our task to do.

And we have tried to do that in different ways. We have taken the first step as major operator in Europe to look at this from a different way, i.e. we have started with flat fees for voice and messaging but the end user, the customer will then pay for the data usage. We are pricing data in a different way.

We have had so far launches in three countries, Sweden, Denmark and Norway and I would say that so far so good. And I think we have been perhaps even more successful in Norway and Denmark than we have been in the Sweden. Perhaps the more simplified offering addressed to one single user. Meanwhile in Sweden, we have a more complicated offering but which is good, it’s what we call (Telia) where you could own more than one device. You can have up to seven different devices, you have it as a family subscription if you want. Bit more complicated but still more than 20% of new sales today are in (Telia). So we are moving not only the price issues but also I will say the industry towards pricing data and we would like to get away from unlimited offerings.

So this is not only question about pricing, this is a question of changing the usage of data in a industry that has been pretty conservative when it comes to price changes. This has been extremely important for us to start with and we will continue with this in as many countries as we can.

Another part of the industry change is the question of coverage. I think that we have learned quite a lot during the last year, perhaps years how we’re actually using our mobile phones. When I say that we actually have been a bit surprised of how dependent we are on our devices. If we go back to 10 years ago, we were satisfied to have a phone where we could talk. A couple of years later on we also put requirements on the quality and capacity. When the iPhone came 2008, we were satisfied to be able to download certain things. Now five, six years later on, we would like to be online all the time, always online, which means that coverage start to be important.

It’s actually a fact, if you take Sweden that people tend to leave Stockholm from time to time and they would like to use the device also outside Stockholm and that is what we try to address here where we said that our coverage when it comes from a geographical perspective should be 92%, close to whole Sweden. You should be able to use our devices in the whole part of Sweden and this is not only a question for Sweden as such, we have been working with that in other countries as well.

In Estonia today, we have the best national 4G coverage in Europe. We have also good coverage in TeliaSonera via our JV that we have there. And we have launched 4G networks in all Nordic and Baltic countries. So this will be an issue that we continue to work with and we will make sure that we continue to roll out 4G also in Eurasia. We have up till today four of seven countries with the 4G license. A bit concern about Kazakhstan where we have not yet (inaudible) 4G license, we are working on that right now as we speak but that would be important for us going forward and also Kazakhstan (inaudible). In Spain, we will launch 4G, I think it will be this week, I think it was Thursday and we were first to announce 4G in Spain but until someone else puts up, (inaudible). But we will repeat our route in Spain as well. 4G is a part of the high-speed internet access that we worked with.

Another part is the fiber. And I could see it right now a big difference compared to just a couple of years ago where we had a lot of discussions why do we need a fiber, we have 4G. Today it’s completely different. We have more than more the amount that we can supply which I think is one side good, one side bad. What is bad is that we would like to supply as much as we can quicker. We are working with that. What is good with this is that the end user has understood that this is not a competition between fiber and 4G. It's a complement, you need both. And one of their reasons for this is that you start to use our different devices and watch films, TV et cetera. And you need the best possible capacity at every time.

And as an end user, I think that you are looking at a wireless solution. That's what you would like to have, whether the carrier is a mobile network or a fixed network you don't really care about. You would like to have the best possible quality around this. And that's why we also continue to invest in this. And you can see we have been pretty successful when it comes to the TV offerings in Sweden, more or less coming from (CRON) 2006-2007. And now today we have more than 600,000 TV customers. This is just the beginning. So we need to continue to invest in 4G, fiber and also in different TV offerings.

When we talk about the mobile data, this is not just a question for the Nordics and the Baltics, this is also important for Eurasia. Today we have more than one-third of the growth is connected to data. We have a penetration of smartphones of 13% and perhaps even more important, we have a usage-based pricing. I think that, while I am convinced that the smartphone penetration will increase, very much a question of how we could find the cheap phones in certain countries, but that will come. So that -- I am convinced that, that will increase. We’ll need to keep up the discipline on the usage-based pricing. And that will help us to also continuously create growth in Eurasia. So we see a good potential going forward also in Eurasia when it comes to growth, but not only from voice and increased penetration, but also from the data usage, the usage side.

I will not talk so much about the efficiency measures. Christian will have more in detail later on. What I just would like to pinpoint here is that the program we have is a bit aggressive. We are talking about a net cost reduction of 2 billion, which means that if we don't exclude Spain, we take down the cost to 7% and that includes the Nordic business, the Baltics and Eurasia. It is a bit aggressive program and I am proud with what we have delivered so far upon this now. We will say (TeliaSonera) will continue to deliver upon this program going forward. We need it, of course, we need to protect our profitability.

We have talked very much about sustainability, and we continue to talk about this but perhaps more important, we are working with these issues on a regular basis. This is not a quick fix -- that is okay, now we have done the sustainability part. It doesn't work like that. This is a question of working with organization, training, education and learning how things are working. We work with different areas like freedom of expression, privacy, anti-corruption and also power supply and chain management. What I think is most important right now is that we have launched our e-learning tool, we talked about Code of Ethics and Conduct and now we start with four countries and that’d be the roll-out of the whole group. But as I have said, this is not a quick fix, this is something that we have to work with all the time, but we have now started with this and we are working now in a very, very structured way.

To summarize the quarter, the cost savings and the stable top line had created improved margins. We are reshaping the market with our new pricing models and we continue to make investments in our high-speed internet access, which is necessary for the future. And given the financial result, we have also decided to keep the outlook for 2013 unchanged. Christian?

Christian Luiga

Thank you. I will then continue to go into the numbers more in detail. Good morning everyone. Christian Luiga, CFO. I will start with repeating what Pre-Arne said, this is a decent quarter with a slight increase in revenue. The EBITDA margin is up close to 1% but I think it's also good to look at the EBITDA in absolute numbers, and if you look at the local organic growth, it goes up 3.3%. So we increased also the underlying value for the shareholders and then we end up at 8.9 billion in the quarter.

The earnings per share is down since last year. There is two obvious effects: one is the non-recurring restructuring program that we are running this year, and the other part is the lower income from MegaFon as we actually decreased our share. Free cash flow is good, up 1.4 billion.

I will start in the same way I did last quarter with looking at the currency effects. They are significant with about 4% on both revenue and the earnings. If we look at the main currencies euro, tenge and Norwegian krone and look at how they have developed over the last year. Going into the next quarter, assuming they stay the same as they are today, this effect will be much, much smaller in the second half.

Net sales were down in the first quarter, now it's up and this comes from all -- stems from all the business areas. We have improvement both in Eurasia in broadband and in mobility. And if we start then looking at mobility, not only for us but for many operators in Europe right now, a theme is the interconnect rates are going down. These have significant impact on the revenue side. However, for us at least it's not so significant on the earnings side. The growth we report in mobility is 1.8% minus and 3.4 percentage is coming from the interconnect decreases.

If we look at -- I think this is very important to look at it, if you look at Denmark and Estonia, for example, you have a reported numbers extreme declines, but if you look at the underlying business, it's much better. And I think I would like to point out Denmark especially, in Denmark, we have had a gradual increase over the recent quarters and that this quarter we actually report a positive billed revenue growth.

And then the main effects, I think we have the main job that CERN have done down there is to work with new offerings, like Per-Arne have talked about, but also value added services, such as Spotify and HBO and everything else that we actually send quite a lot in Denmark via the mobile phone.

If we look at broadband, it's better this quarter, it's still down 3.6% and the main impact quarter-over-quarter is both carrier but also we talked about fiber in quarter one. And fiber has started up, we had a slow start with the cold winter, but we also had some digging stuff from the Stockholm city because of all the other problems they have in Stockholm right now, but that has been sold and we are up running and that has an impact also on the revenue growth. We still have quite challenging situation in broadband on the B2B side, not the least in Sweden and Finland. That should be noted.

Eurasia, strong growth. You look at the picture and you see that Eurasia is about 90% -- Ucell is above 90% and in Ucell we had the third operator going out of market last quarter three. That means from the next quarter, it will have an impact on our growth. Ucell will not have 90% growth next quarter. And still, we have a solid growth in our biggest markets Kcell, in Ncell and also in Azercell and if we clean the Azercell numbers from interconnect, we have a 6.3% growth in that unit as well. And I think that and Pre-Arne talked about how important the data growth have been in Eurasia, and in these markets as well especially in Azerbaijan and in Kazakhstan, we have the biggest growth in value terms of the data growth.

Before I go into the addressable cost base, I think we should take a look at the gross margin. So it's good to make sure we understand all the parameters of the income statement. In 2011, we talked a lot about declining gross margin in this group. We have worked quite hard to stabilize the situation and since 2012, we have a stable gross margin position around 63%. And then this is something we continue to work with and defend.

One of our main focus area, the cost program of 2 billion starting in October 2012, we aim to reduce the cost base with 1 billion this year and 1 billion next year net. We have so far decreased this year only 400 million and 200 million in quarter four. This program includes all types of costs, not only personnel and not only marketing. And it's based very much on the way of working and the processes internally. So, we really try to base this on projects that we are running with new ways of working.

The program includes a reduction of 1,800 people and 1,050 have been notified so far this year. This means that we will have -- we are planning for another program in the autumn. The cost so far for this first part, first half year is 700 million and that has then impacted the net income and the earnings per share as I talked about.

The margin increase of 1% on the group level comes from mobility in Eurasia mainly. And this is part of our cost program. And we have tried to rebalance the cost base in all markets and we have done that quite successfully. In mobility in Eurasia we can see a faster decline and they are easier in handling the cost structure. In broadband, you can still see the effects starting in quarter three and this quarter, it's encouraging to see that all three business areas are reporting a negative OpEx. We have about 1.2% in Eurasia and we have 2.3% in broadband. So the balance is getting into all business areas right now.

The stronger margins coming from mobility in Eurasia is encouraging and they continue. In Eurasia, we have a one-time costs related to court case in Azerbaijan of around 103 million. And in mobility, we have a positive effect in Finland of about 120 million. The margin still increases in mobility, if you take away this effect and the margin in Eurasia is up to 53.8% if you also clean for this effect. On the group level, these match with all the other non-recurring we have. So on group level, we have no impact from one-timers.

CapEx to sales ratio. The first thing I want to repeat is that we have been working much more with steering and control. I know you have heard in the past about autopilot in this area, and we get into a position where we are much better in handling the planning of the CapEx. This also has an effect on the first quarter. So when we decided during this half year to shift towards another type of 4G set-up, which Pre-Arne talked about, we’ve actually been able to stop things, replan and then we will start the roll-out according to the new plan. That means that certain things that were supposed to be done had not been done in the roll-out but now when we start quarter three and quarter four, we will have a faster speed and higher focus on spending the money on right thing. And same with the broadband side, we have an effect from the fiber and the focus now for the second half and we still keep our 14% guidance will be to actually focus on the high speed internet access related CapEx.

Free cash flow up 1.4 billion. The main parts here is CapEx , which I just talked about and working capital. Working capital effects in this quarter is mainly related to equipment, equipment sales ties less working capital both in accounts receivables terms, but also in inventory . We have actually decreased our inventory on handsets and this is something we are working with. This is part of the new and better ways of working. And also we can see a slight increase in the days of purchasing days. So we pay our vendors a little bit slower, which is good.

The net debt has been increasing and the main reason is, of course, the 12.3 billion that we shared with our shareholders in the dividend in April. We also have a effect of currency effects. So between the end of first quarter and the end of the second quarter, we have a currency impact on the euro and we have a lot of loans in euro that impacts net debt but does not affect the income statement. So the debt value goes up and that is around 2.8 billion.

If we look at the net debt/EBITDA ratio it’s up at 185, and that of course includes this currency effect. It's within the range of 1.5 to 2.0 in the higher part of that. We have just received SEK2 billion in dividend from MegaFon this week and we are expecting a repayment of the AF Telecom loan also within a month, around the same value SEK2 billion.

Finally, finalizing with repeating again, a decent quarter with a flat net sales and outlook that we reiterate and the increase slightly in EBITDA margin and CapEx focused on high speed internet reaching 14%. Thank you.

Jesper Wilgodt

Thank you, Christian and Per-Arne. Then it's time for some questions. And I think we will start here with the audience and please use the mic. So go ahead.

Question-and-Answer Session

Stefan Gauffin – Nordea

Yes, good morning. Stefan Gauffin, Nordea. I have a question around Spain where we have seen over the last six to nine months that MVNOs has taken some market share. And looking at regulator's numbers for April and May, JoyGo should have reported slight negative subscriber intake. And now you reported 92,000 net adds for Q2. Does this reflect that there is a difference in the reporting to the regulator or have you improved performance significantly in June?

Per-Arne Blomquist

Well, I am also – I don't really know whether we have a different reporting to regulatory, I see what numbers that we are getting and they are sort of reporting in the same as they have done before. We have not changed the reporting.

Christian Luiga

But we have increased the sales in May and June and you remember we talked about the handset sales we cut back in first quarter and we released actually and started to work better on that in May and June deliberately to manage cash flow and profit. I don't know if it still answers the question actually, because I don't know either we have differences in the reporting.

Unidentified Analyst

Yes, good morning. I have a question actually not so much about the quarter but about the outlook for CapEx. When Eurasia now grows but not at the same rate as we have seen historically, do you expect the CapEx to sales ratio to come down in Eurasia, I mean looking say one or one and a half year ahead from now to lower numbers? And will you spend that money somewhere else in the group so that you will maintain around 14%?

Per-Arne Blomquist

Well, first of all yes, we will go down in Eurasia because we do not have the same roll-out plans as we have had before. And they are getting into a more mature market, I would say, (inaudible) right now. So it should be below 20%. Then I think it’s up to us and decide on if we have good investment cases, of course we are prepared to invest in other areas but basically I've said for a long-term, we should be somewhere between 10% to 15%. And if we do not find -- and in UK the investment, then we will take it down. But we will be in the range which I know is a very wide range, we are talking about 10% to 15%, we'll be in between there.

Lena Österberg – Carnegie

Lena Österberg, Carnegie. You wrote in a report that in Denmark your network operation there may be some more cost for dismantling networks. Are they already in this quarter, because you had high margins or will they come as additional costs, we should expect lower margins forward?

Christian Luiga

Okay. There were some -- there we had costs already in quarter two actually, and we have started that dismantling. It takes time and we have said -- Per-Arne and I said I think before that we will not see the impact really from this network sharing until a year or two going forward and this is part of that plan. And in the same time, we will build a very good network together and less CapEx it takes some cost to take away the old unusable structure.

Lena Österberg – Carnegie

Will the cost accelerate or you will maintain at roughly this level?

Christian Luiga

It will go up and down in the quarter a little bit but it shouldn't be a significant impact on the business.

Per-Arne Blomquist

And what we have said is that we will not see cost reduction on the OpEx side, let's say on to the year, a year and half from now because we need to dismantle.

Lena Österberg – Carnegie

And then maybe a question on Turkcell as well because you issued a press release now when the London Privy Council ruling came, where you said that you hoped that they were on their obligations to repay your 932 million plus interest. So what are your hopes of receiving that money and what steps are you taking to ensure that you will get the money?

Per-Arne Blomquist

We are working with this on a regular basis. And we have tried to ensure that they can't pledge their shares for funding. So that's what we have done. But I don't know but we will see what happens. I mean we have to wait another, I think, probably close to 60 days to see if they are then prepared to buy the shares, they have got the price of 1.5 billion and we will see what happens. So what we will try to take other measures to make sure that we get our money back as well.

Thomas Heath – Handelsbanken

Thank you. Thomas Heath with Handelsbanken. Few questions if I may. Firstly on Norway, a challenging quarter as it looks, could you say a little bit maybe about whether this is competitive pressure, so losing business contracts to others, or if it's a general market slowdown that you've seen? So a little bit on Norway if you could. Then secondly, on the second half of this year, your peer TDC talks quite a lot about the impact of the EU roaming -- data roaming caps saying gross profit to fall about 150 million to 200 million Danish. Just wondering if you have any assessment roughly on how much this will cost which starts then from the 1st of July data roaming? And that's it. Thanks.

Per-Arne Blomquist

Let's start with the data roaming. If you’ve seen that we have been very all out if I remember, I think it was one and half year where we decreased the prices. So I think we have taken the measures already. I think it's good that we take down the price. We’ll say, there’s no connection between the service and price that we had before. And I've said, well it's interesting to have 90% margin on the business, but if you still have zero business, it's still zero. So what we did was to take down the prices between 50% to 70% and then increase the volume such that – and then our customers start to use the devices also when they're leaving Sweden. So for me I don't see that this will affect our results and we have taken the hit on that. And it was not a very big hit to take, of course we didn't have a roaming. And then the first question about the --.

Thomas Heath – Handelsbanken

Norway.

Christian Luiga

But in Norway, we have impact both from Tele2 as you know. We have the wholesale agreement. But in Norway even though we have successful actually implementation of the new offerings, we also see that it's hardest as a number two, number three player in that market to be in the B2B side. So B2B side is where we also see some challenges in Norway. But otherwise the big part is the wholesale agreement.

Thomas Heath – Handelsbanken

And last, the third question if I may, while I got the mic here. On Kazakhstan on licensing, do you know what the roadmap is for 4G or is it a sort of regulatory uncertainty situation that you are facing there?

Per-Arne Blomquist

Yeah, partly it is. I’ve met the Prime Minister and also the President to talk about that. We had a sort of council for foreign investors there a couple of months ago where we were – as I said that we would like to have this -- the 4G license, so far we haven't got it. KazakhTelecom, the fixed business has got license and but we are fighting for this right now. But I am concerned about this because we should as the biggest mobile operator have a 4G license. They’ve developed this in Kazakhstan but it's a work in progress.

Jesper Wilgodt

Good. And I think it's time to open up for some questions from the conference call. Operator, could you please open the conference?

Operator

Yeah, it's a question from Peter Nielsen.

Peter-Kurt Nielsen – CAI Cheuvreux

A couple of questions please. Firstly, Per-Arne, your comments about the success you have achieved from your new mobile pricing plans in the Scandinavia and Nordics markets are obviously in contrast to somewhat more downbeat signals and comments that you have made over the past sort of 12 to 18 months, which we have heard from yourself and Lars previously. Is it an indication that you believe that you've now sort of come out on the other side of this repricing to transition in terms of mobile data pricing et cetera and that we now can start to look forward to perhaps positive underlying service revenue growth going forward in these markets? I mean how significant should we interpret your comments on this?

And second if I may ask more specifically on Denmark which you sort of underlined, you are seeing some positive, finally some positive developments here now. Is it your view that is the whole market in Denmark that is sort of stabilizing as a consequence of your dramatic decreases in pricing we've seen over the past years and how significant is this? And finally, may I just ask, you've seen reported very good success in terms of margins in your mobile business over the past quarters. Obviously, in Sweden I mean, Sweden fixed line margins have gone slightly the other way. Is that something you expect and believe can be rectified by the cost reduction program you have elaborated upon here a little earlier? Many thanks.

Per-Arne Blomquist

Okay. Let's start with the last question. Yes, I strongly believe that we will see improved margins in broadband as long as we can keep sort of the control of the top-line because the efficiency measurements that we've been working with will sort of yield result now in Q3 and Q4 for broadband. And we saw the first sign of that now in Q2, so that should definitely be an effect going forward and hopefully then also improve margins.

If we then start with the first question, if we're a bit more upbeat, yes, I am. Because you still saw that we are having as I said 60% growth on the mobile data side. I think the reason for me and Lars to be a bit depressed while we could see that our ability to capture the growth went down. We were at factor of 0.4, 0.5 and as early as it was down to 0.2. And then we said okay, now we have to do something. And I think we have sort of reformed, you can say, the buckets and also we have implemented a new charging structure which I think is good. And that's why I am saying that I mean I can’t be depressed, because if you have 60% volume increases, this is up to us to make so that we can charge for this and we have started to do that.

And if you take both Norway and Denmark, we have seen that the ones that have had sort of changed into the offerings they have a higher ARPU than before, then the impact might not be that evident in this quarter, but it can come over time. And I think that what we have done, we have actually changed sort of structure of this and we are moving into right direction. That’s why I am a bit more upbeat today. Then to talk about Denmark as well.

Christian Luiga

I think Denmark actually in the Nordic area in total this quarter as the same as quarter one is being quite stable market position, I don't dare to say if there is the same effect in the other players as we have at this time. But I go back and say what I said, we have worked quite hard and so down in Denmark, we’ve worked quite hard for one year both with the offering side and also with value-added services as a very important part of the sales. And that has given impact on our numbers. I think that's what we can say right now.

Per-Arne Blomquist

And I guess that (inaudible) better than the others, so I might get back on this later on with the report result, both thing to have on the good yield by the way in Denmark.

Operator

Thank you. Your next question from Laurie Fitzjohn.

Laurie Fitzjohn-Sykes – Citi

Two questions if I may. Given the progress on the network JV in Denmark, is it still possible for you to participate in consolidation if the opportunity arose? And then on Turkcell, I mean is that being controlled as a likely outcome, how would this change, how you view the asset? Thank you.

Per-Arne Blomquist

Well, to start with the consolidation issue, they are not saying that is connected with the JV as such, it's more a regulatory issue. And so far I have not -- unfortunately not seen a tendency that a regulator has been open for in market consolidation. Something has to change in that sense. And I know that (inaudible) has been very positive to investment et cetera, when it comes to high speed internet. But Joaquín Almunia, he has been more restrictive when it comes to the regulatory side, and I think they need to open up -- as I said I mean if you take the Nordic area, we have I think what it could be, 13-14 networks for 27 million people. And I mean it doesn't really make sense, which means that smaller countries like Sweden, Denmark, and Finland where we have between 5 to 9 million people in there, we can't live with four networks, that won't work over time.

What I think is positive is we find that we will hopefully get clearer as to who is owing the shares. And that means that we can start to discuss with the counterparties there. So I think that will help. What it’d mean in practice side, that remains to be seen but at least this blockage that we have had has done everything more or less impossible to move in Turkey but now when this is clear, I'm a bit more positive to -- that we could move forward into Turkey. But let's see in 60 days.

Operator

Thank you. Next question Nick Lyall.

Nick Lyall – UBS

It's Nick Lyall from UBS. Could I ask you on the Swedish ARPU, it's obviously the Swedish ARPU trends have improved this quarter. But could you discuss the effect of the new packages on the ARPU number? Have you seen some dilution within that number and actually the ARPUs are better than they might seem from the headline numbers? And then secondly back on Turkcell as well, could you just mention as well what actions you are taking against the CMB if any that maybe putting two more members on the to the board, could you discuss the sort of practical things that you are doing to maybe stop that happening and what that might mean for the outlook for Turkcell again please?

Per-Arne Blomquist

Well, I think that this has become a political issue and I think we are trying to work on the political arena as well to convince the Turks that they should not install new members on board level. Whether we will be successful in short-term perspective remains to be seen. But I can't get into the details but we're working pretty actively with that right now. Then we had the ARPUs in Sweden.

Jesper Wilgodt

Beside it's -- I wouldn't say that it's not too much relate to the new offerings but we see some of this pressure on the voice side and messaging side actually and also higher data growth. So but it's not really only related to the new offerings.

Per-Arne Blomquist

I think that's far too early to say, because it will not have that big impact yet, it will take time.

Operator

Thank you. Next question, Ulrich Rathe.

Ulrich Rathe – Jefferies

Thank you very much. I have two questions please. And the first one regards your new CEO, your incoming CEO, I think the message was that his available quota to the company, I was just wondering what does this mean in practice? Is he sort of sitting in on meetings or is he actively debating it with at this point of or (inaudible) is he sort of scouring around for information and trying to get his head around the operation. Just interested what this actually means on whether he is already influencing decisions.

The second question is on Uzbekistan and its sort of role to the group at large, if I understand this correctly without Uzbekistan the group revenue would be very firmly and organic revenue decline at this point. So how do you view this? Would you be sort of okay with the overall group revenues declining or do you feel this would then be a sort of aligned that kind of across and would require incremental investments to get the growth restarted again? Because as you mentioned yourself Uzbekistan might start to annualize the effects on the third quarter onwards. And specifically in Uzbekistan I was wondering whether you have any signs of the authorities trying to reestablish a third operator in the market? Thank you.

Per-Arne Blomquist

I will start with last question. No, we don't know anything about the new third operator. Back to second question, yes I think what I am trying to say is that whether we are satisfied with the underlying growth condensates in the company, because it's -- what is important for us is to see that the bill revenue increases, that's why we have the biggest margins. And that is actually happening in quite a lot of markets. And once again remember that we have been severely hit by the interconnect. So what we are trying to do is then really to work with the underlying business as such. And hopefully that could then compensate if we are coming a bit short in on growth in Uzbekistan. But I think the most important thing for us is to work with underlying business and that's why we talk so much about the bill revenue.

Then you talked about Johan, yes he is here, from time-to-time we meet and we are discussing issues going forward and remember he has been in here for 14 days, we've trying to help him to understand what is going on in every business. And he will start to work full steam the 1st of September but of course I mean we have a dialogue about different things, there is nothing strange for that. And I am very happy to have him here actually.

Operator

Thank you. Your next question is Barry Zeitoune.

Barry Zeitoune – Berenberg

Hi, I've just got two questions please. The first is just a bit detail on your Swedish broadband margin because we've seen pretty good broadband ARPU growth this quarter versus recent quarters. We've seen strong fiber uptake, we've seen good TV growth. And at the same time, we've seen quite a step down in margins in the Swedish broadband business from about 37% to 35%. So I was hoping just to get a bit more detail of what is really driving that margin pressure? And really what your long-term view is on margins for the Swedish broadband business, I mean do you expect them to stay flattish at the 35% level or continue declining? I know you are going to get some benefit from cost cuts. But if you can give more color on that, that will be helpful?

My second question is regarding Turkcell and the situation with CMB and with potentially greater government influence. I mean you said that you're against that. Why are you against the government having more influence in the running of Turkcell? And do you see the possibility that the government may even look taking active stake in Turkcell? So is it possible for -- to potentially sell its rights to buy the stake in Turkcell to the government and could you even see potentially as a seller to the government, if could give us your opinions on that, that would be helpful? Thank you.

Per-Arne Blomquist

I am going to start with Turkey, while I think the promise that we are owing 38% of the company and we have yes one board seat and it doesn't reflect the ownership that we have, that's my problem. And I would like to see that changed. And I don't think it's good for a government to have their board members on our broad and trying to steer the business without having the knowledge about the business.

So that's number one. What will happen with the shares of Turkcell? Yes I mean it's up to anyone to buy them from those, there is nothing that we can steer. And we'll be happy with owners whom we could cooperate with going forward. So but that still remains to be seen. But the most important thing is that we would like to have a board seat that reflects our ownership in the company, which it doesn't do right now.

Barry Zeitoune – Berenberg

Okay, just a follow up on that. If you are unable to get a board structure that reflected your ownership, and it was pretty clear that, that wasn't going to change. Would you consider your ownership in the company?

Per-Arne Blomquist

I am working after the hypothesis that we would like to -- that we will change this in a positive way. And I could even think of increasing the ownership in the Turkcell.

Jesper Wilgodt

And then we had a question on the broadband from audience I don't know who --

Christian Luiga

Well, if you -- I agree, we have some positive signs in the broadband Sweden business. However if you have a decline in revenue that is the same or higher than the decline right now in addressable cost base, you will have a decrease in margins. And that's the main reason overall and of course we are working and that's where you see the signals to both increase the revenue but also to continue to work on the cost base.

Per-Arne Blomquist

But it's also very clear that we have a lower margin on the new services right now than we have on the older more mature products. So that of course is hit and that's why it’s so important for us to improve the cost structure also in broadband going forward.

Christian Luiga

We don't give any guidance on margins.

Operator

On the telephone, you have Terence Tsui.

Terence Tsui – Morgan Stanley

I’ve got one question on Sweden mobile please. Obviously, the family plan is going very well. I just wonder at the low-end, have you seen any impacts from the launch of (Trees Raspberry) brand for some only, for instance the intake of your Halebop brand change much during the quarter? Just a bit more color on that would be much appreciated. Thank you.

Per-Arne Blomquist

And I think I need to come back on the Halebop number. I don't have that on top off of my head. So I will come back to you on that one Terence.

Operator

Thank you. Next question Jakob Bluestone.

Jakob Bluestone – Credit Suisse

Hi there and three questions please. Firstly on the improvement in Denmark, I mean how much of the improvement in growth and you obviously mentioned returning to positive billed revenue growth. How much of that improvement is easy comps and how much is an actual improvement in the sort of underlying performance of the business?

And secondly in Finland, you were previously quite aggressive on pricing from October last year onwards, and you seem to become a bit less aggressive with lower level of promotions this quarter, but at the same time also a very strong contract net adds, could you maybe talk a little bit about how you see that market, is there generally an attempt to be less aggressive and to drive a little bit of market repair? And also can you maybe explain a little bit why you had such strong contract net adds? And then finally on working capital, historically you have had negative working capital movements about 1.5 billion each year, it looks that you had very strong working capital this quarter. And is that sustainable or is that something that will be burst out in the next couple of quarters? Thanks.

Per-Arne Blomquist

I will start with Denmark and I think you take the other two questions. Finland, I'm sorry. I think that if you look at Finland, we introduced a new offering called (Zopia), it was in August, September last year. And which was good in the sense that we were the only one who actually could offer roaming for both the Nordics and the Baltics. And that gave this offer an extra kick up. So I think the problem we had was the pricing as such. It was perhaps a bit too aggressively priced and we have now adjusted that. So that's why you see less of aggressive pricing, but still, I think that Zopia offering as such is very attractive for the market.

And I hope also that Finland which has been very, very tough market from a competition perspective on price will come down and we will try to contribute from our perspective in that sense. And I think what we can do is down to create offerings like so, now we are offering something else and adjust the price issue. I think we offer something that others can't compete with.

Christian Luiga

On Denmark, just to try to give you an answer, we have a 3% increase in billed revenue in Denmark and that we had a negative 3% decrease in quarter one and the rest is mainly handsets. So the difference you saw from the chart I showed earlier, you should be able to calculate from that. I'm not really sure what you were asking actually on Denmark other than that. You asked how much was underlying business contributing to the growth but revenue is main underlying business. So that's my answer.

Jakob Bluestone – Credit Suisse

Maybe just to clarify a question on Denmark, so I mean you obviously had a series of price decreases in previous years. And my question is, is the improvement that you’ve had so, going from minus 3 to plus 3, is that just driven by annualizing previous year's price cuts or is it actually being driven by an actual improvement in the business?

Jesper Wilgodt

I mean we see probably a little bit on the easier comparisons perhaps for last year but we definitely see a marked improvement as well if you look at the ARPU trend in the business.

Per-Arne Blomquist

Yeah, if you look at the ARPU trend sequentially I think that has stabilized in the last two, three quarters.

Christian Luiga

Yeah stabilized and we have seen a gradual improvement, so that should give the right signal. The working capital of course, we are working hard on that matter and quarter two is typically a positive quarter for TeliaSonera. So we should remember that, but this is even better than it usually is. And we are trying to actually top that 1 billion a year negative effect, but I don't want to give a guidance right now on how successful we will be this year. But we are doing our best of course as a company to manage that.

Operator

Next question, Dominik Klarmann.

Dominik Klarmann – HSBC IB

Two questions if I may. One on fiber pricing, can you just remind me if at all you have any usage tier in place in fixed similar to mobile, and if not, do you have any plans to introduce them? And then, and more broadly an update on when you think that uptake on fiber can compensate for the decline in the more traditional business line? And then a follow up on consolidation in Denmark. Do I understand you correctly that you think U.S. as an industry can overcome the present dilemma in things like unwinding the joint venture if and when regulation would make consolidation easier? So do you think the upside for the industry too big to ignore if it becomes available? Thank you.

Per-Arne Blomquist

I think that might be a consequence you need to discuss but the most important question is to make the market consolidation to happen. Let's start with that and we are not there yet. So I think let's solve that problem first and we will see what it means for the different countries. And what was the first?

Dominik Klarmann – HSBC IB

First question was about the usage --

Per-Arne Blomquist

What we have today is that we have a upfront fee for installing when we talk about the single value units. And then you pay for the access for fiber and also the different services that you have. We might change this going forward but we could look at volume and also different other services, but that's I will say a work in progress right now.

Jesper Wilgodt

And then we had one question on when the uptake in the fiber broadband could compensate for the decline in traditional business?

Per-Arne Blomquist

Well let's see, we have discussed for that, I think it will take a while, it's more than planning when we had a capital market there a year ago, year and a half that it will happen during the end of 2014. Let's see if she was right or not. Let's see in a year's time.

Operator

On the call, you have Sasu Ristimäki.

Sasu Ristimäki – Merrill Lynch

Hey good morning. I was just curious as to why do you think the decline in voice messaging revenue seems to be getting little bit less severe, we're down single digits in messaging? And then secondly of the 22% growth you're seeing in mobile data revenues how would you break that down into penetration growth of data users and same user revenue credits? Thank you.

Christian Luiga

I think that the decline in both voice and messaging is very similar to the previous quarters. So if we talked about 6% instead of 7% and then also 5% instead of 6%, it's more or less the similar, that has not really changed. When it comes to how we break out what is penetration and what usages are, I don't have that number actually.

Per-Arne Blomquist

But what we see is when you shift from 3G to 4G that I would say kind of big increase in volumes in general. We don't the split right now.

Sasu Ristimäki – Merrill Lynch

Is there -- you said big increase in volumes but is there big increase in revenues when you shift from 3G to 4G?

Per-Arne Blomquist

It depends on how you price it.

Christian Luiga

Exactly, and I think we made a mistake in pricing before. We have tried to take a higher price for 4G. Now I think we have more sort of similar price to 3G. So I don't think that price will sort of shift the revenues, it would be the usage much more than pricing.

Jesper Wilgodt

Okay, thank you. Do we have any more any further questions?

Operator

No further questions on the telephone.

Jesper Wilgodt

No further questions. Anymore questions here from the floor? It seems they are all quiet, good. Okay. And we thank you all for joining this call.

Per-Arne Blomquist

Thank you very much.

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