TeliaSonera Q2 2010 Earnings Call Transcript

Jul.20.10 | About: TeliaSonera AB (TLSNF)

TeliaSonera (OTCPK:TLSNF) Q2 2010 Earnings Call Transcript July 20, 2010 3:30 AM ET

Executives

Andreas Ekstrom – VP, IR

Lars Nyberg – President and CEO

Per-Arne Blomquist – EVP and CFO

Håkan Dahlström – President, Mobility Services

Analysts

Andreas Joelsson – SEB Enskilda

Michael Andersson – Evli Bank

Lena Östberg – Carnegie

Thomas Heath – Ohman Equities

Tim Boddy – Goldman Sachs

Peter Nielsen – Cheuvreux

Maurice Patrick – Barclays Capital

Jan Dworsky – Handelsbanken

Sven Sköld – Swedbank

Jakob Bluestone – Merrill Lynch

Jacques de Greling – Natixis Securities

David Wright – Deutsche Bank

Ulrich Rathe – Société Général

Soomit Datta – New Street Research

Andreas Ekstrom

Okay. Good morning, everyone. I think that we are ready. And welcome, everyone, to yet another very sunny day here in Stockholm. We will today present our Q2 report to you, of course. However, we will do in a slightly different way compared to the previous quarters. Our President and CEO, Lars Nyberg, will start to get you through some important highlights of the quarter. After that, we will have a Q&A session together with our CFO, Per-Arne Blomquist.

After that, Lars will make a brief introduction to the next section on mobile data. We know that this is a topic and great interest to many of you, and we will share some thoughts on this topic. Håkan Dahlström, our President of Mobility Services, will get you through that part of the presentation. After that, we will have yet another Q&A session on mobile data. With those initial remarks, I leave the floor to our President and CEO, Mr. Lars Nyberg.

Lars Nyberg

Thank you, Andreas. Good morning, everyone. I think we had yet another solid quarter, which means we can all go on vacation this afternoon with good conscious. It looks like some of you have already gone to vacation, but maybe those people who are on the line listening.

What was most encouraging with this solid quarter, of course, was the growth. We had growth, as you remember, in the first quarter we calculated growth in local currency. We had 2.5% in the first quarter, and we even managed to increase that to 3.3% in the second quarter. We continue – as we have done for many quarters already, continue to improve our EBITDA margin with 1.2 percentage points, which I think is pretty impressive. Free cash flow increased by 27%.

Historically, I think TeliaSonera has benefited very much from the – what we call, the associated companies, MegaFon and Turkcell. They have always provided better results or increased results. That has not been the case for the last two years, unfortunately. But of course, I’m proud of the performance of our company, excluding the associated companies, which actually is better than as we report.

On the left hand side, you see here, for instance, that net sale as reported is minus 2% and the EBITDA is plus 2%. If you exclude currency and the associated companies, the growth would have been 3%, and EBITDA 7%, and operating income plus-5% instead of minus 3%. And I think that is attributable to how this organization actually is performing for the last couple of years.

Growth was maybe the most positive in the quarter. Three major drivers; Eurasia, Spain and mobile data, particularly mobile data in Sweden. If you look at Eurasia and you look at all those markets, you can see that they – basically with one exception, they all grew. And we have now seen Eurasia increasing the growth rates since Q3 of last year. If you remember, we had 3.6% growth in Q3, we had 7% in Q4, we had 12% and change in first quarter, and now we have nearly 15%. So the economies, the countries, and our organization are clearly doing better.

Very pleased with – you might think Uzbekistan and Nepal, and of course, I’m pleased with Uzbekistan and Nepal. They are new markets. Very important that we have growth rates in the neighborhood of 50%. But I’m most happy with Kazakhstan because Kazakhstan is such a big market for us. We have 7 million subscribers in Kazakhstan. And when Kazakhstan grows, then Eurasia grows.

So that was one of the drivers of growth. And I said the other one is mobile data. If you look at the bottom here, we have an increase similar to the first quarter of data and messaging. First quarter, we had 38% growth. And now we have 40% growth. This is a good business, and we will talk about that somewhat later, Håkan and I. I really believe this is going to be a growth engine for the industry and certainly for our company.

Continued margin improvements, the 1.2, I think we have said in the forecast for the year that we will increase the EBITDA margin, and it’s driven mainly by of course the big cost reductions we have done in the last 24 months. Here is the explanation why we have lower income from associated companies. It’s not MegaFon. It’s about the same as last year.

The whole market in Turkey has gone down quite dramatically. I believe that Turkcell probably takes, if not all, most of the profits in the market. So if the market goes down, of course, Turkcell will go down too. Hopefully, the market will rebound like it does in so many countries right now.

We did get a high CapEx in the second quarter. I think we were all a little bit surprised over the CapEx in the first quarter. We started this year saying we want to invest, we want to invest in 4G, we want to upgrade our networks in Finland and in Denmark, we want to roll out fiber, etc. And I think you can see that that has now started really in the second quarter. Having said that, we are saying the CapEx for the total year will be somewhat lower than we thought when we started the year, but I’ll come back to that in a minute.

So if I summarize for the first half, we have a growth of 2.9% and that’s the reason why I show this slide, because when we now go to the outlook for the year, which we have revised, we talk about the net sales growth is going to be in line with the first half. So, around 3% instead of between zero and 1%. And we continue to believe that the addressable cost base will be the same as in 2009.

I want to remind you, we are increasing the costs fairly dramatically in Eurasia, for instance, and we are increasing costs in some other places too. That means that we have to reduce cost elsewhere. And that’s exactly what we are doing. And on top of that, we have had an increase – salary increase of about 3%. So, to have the same cost base in ’10 as we had in ’09 doesn’t happen by itself.

The mathematics tells you that EBITDA margin will have to be somewhat higher compared to 2009. And as I said, we are slightly tuning the CapEx-to-sales to 14% to 15% of sales. I think I’ll stop there. I think these are all the highlights. It’s maybe not in essence a quarter with a lot of news as it’s a very solid, stable quarter, predictable very much in line with the expectation. But I’m very pleased with it. And I’m certainly pleased that this is now a quarter number seven or so in a row that we deliver solid results.

Question-and-Answer Session

Andreas Ekstrom

Thank you, Lars. And I will also invite Per-Arne to come up the stage. And we will start the Q&A. We will take a couple of questions from the floor and then leave over to the conference call. And we will start with a question from Andreas. Please introduce yourself with the name and the company.

Andreas Joelsson – SEB Enskilda

Good morning. Andreas Joelsson from SEB Enskilda. Two questions, please. Subscriber intake in Eurasia was extremely strong in this quarter. Is that sustainable trend you see or what is the driver behind that intake? And the second question relates to minutes of use in Sweden that is increasing at a very good pace. What do you see in trends in terms of that going forward?

Lars Nyberg

Let’s start with Eurasia. We have two markets that are relatively new for us, Uzbekistan and Nepal. And of course, the intake of subs in those markets got to be very high. Otherwise, we’re not going to succeed. Now, I showed you growth rate in terms of revenue about 50%. We have become the number one – sorry, the number two in Uzbekistan in every measurement you can do, and we are absolutely having the ambition to be number one in Uzbekistan. It’s a big country. Nepal is also a big country, 28 million people and there are two operators. And we started seriously half a year ago. So yes, I believe that we will continue to see big intake of subscribers. Now on Swedish, you want to answer that – you're going to answer that?

Andreas Ekstrom

Yes. The question was on minutes-of-use and the strong growth in that. I believe it was 10% in the quarter. It was actually 9% in the first quarter. So it’s a similar trend. I think that many of us have been quite surprised about this strong economy in Sweden and that continues to have an impact on our business. And the other thing is that we have a bigger base on smartphone that Håkan will go back to talk about in a minute. And that certainly also has an impact. So, strong economy and more user-friendly handsets are probably the explanations for that. We have a question.

Michael Andersson – Evli Bank

Thanks. Michael Andersson, Evli Bank. The 3% organic growth guidance for this year, we still see a Q2 organic growth better than Q1, we see the Baltics isn’t bottoming out, maybe Eurasia increasing further. Do you see – is it Nordics you are seeing coming down because it still sounds like with this pace you would be able to beat the 3%?

Lars Nyberg

Yes. I mean, you could argue maybe 3.5%. I could argue it may be less than 3%. I think we’ve had – I would nearly use the word ‘spectacular growth’ in mobile Sweden for a number of quarters. I don’t think you can assume that just goes on. And Sweden is still a very important market for us. So I think with that as a backdrop, it’s a bit – being little bit cautious. But I don’t think 3% is going to happen automatically. I think I could actually see if things go round and it would be less than 3%. That’s why we came to 3%. That’s the most reasonable judgment.

Andreas Ekstrom

We have a question here from Lena.

Lena Östberg – Carnegie

Lena Östberg, Carnegie. I was just wondering on your address of cost base because you’ve had very good numbers for Q1 and for Q2. I think on average you’re down 2.4%. So I assume you will step up marketing. You said salaries would go up 3%. But what is it more that you see will increase the cost base in the second half?

Lars Nyberg

No, I think we have – we have increased the OpEx, I believe, between the 2% in the second quarter in Eurasia. And we are investing in Eurasia. And we will continue doing that. I also think that we need to step up some of the marketing activities in the second half.

Lena Östberg – Carnegie

So you expect the cost base to go up?

Lars Nyberg

Well, we have a debate on that because we don’t want to have a run rate when we enter next year. That is not acceptable to us. So we think we will reach the CRO number, as we said from the beginning. And we will increase some cost in the second half. I think at our discretion, if we want to continue those kind of investment in OpEx next year, say, first half of ’11 or not, that will depend very much on how we see the growth scenario. What do we think about growth in the first half of ’11? We will probably make some conclusion on that towards the – somewhere in the beginning of the fourth quarter or something like that. I understand your question, and we are sort of dealing with that question and we are sort of playing the cards how we want to play this. But I do think this is important and we do make some investment in the second half of this year.

Per-Arne Blomquist

And we’ve also tried to keep construction cost base on the controls as more as a activity-based cost that we will put the amount in the spectrum in the third or fourth quarter.

Lars Nyberg

We don’t expect headcount. If you shoot Eurasia a little bit, headcount is not allowed to go up.

Andreas Ekstrom

We will take one more question from the floor before taking some questions from the conference call. Thomas, on second row.

Thomas Heath – Ohman Equities

Hello. Thomas Heath, Ohman Equities. Just a question on wholesale, are you having some margin pressure there? And I just wanted to ask whether you think this is timing issues. I’m speaking particularly of international carrier than between quarters. So if this is a structural negative trend. So what can we count on going forward?

Per-Arne Blomquist

What we have seen is that the voice volumes have gone down globally, number one. And on the IP side, the volumes are fine, but there is certain price pressure, which comes from some competitors in the US markets. It’s a price pressure issue right now. It might have stabilized a bit right now from current pricing perspective, but it is in a very tough competition even in the last quarter.

Thomas Heath – Ohman Equities

Right. So perhaps stabilization from these levels?

Per-Arne Blomquist

Yes, we hope so. We hope so.

Thomas Heath – Ohman Equities

Great. Thanks.

Andreas Ekstrom

We’ll take a couple of questions from the conference call. So please, operator, if we could have the first question?

Operator

The first question comes from the line of Tim Boddy from Goldman Sachs. Please go ahead with your question, sir.

Tim Boddy – Goldman Sachs

Yes, thanks. I wondered if you could just give us an update on the next steps we should expect in your discussions in Russia and in Turkey. And then secondly, obviously continued very strong performance in Spain. And I guess I’ve asked this question before, but is there any change in your view on the sustainability of that business within the TeliaSonera credit? Thank you.

Lars Nyberg

Okay. Nothing has really changed in Russia. I think discussion and the dialogs are fine. We did lose in the first level of court, as you might have seen in Russia. Altimo and TeliaSonera will appeal that. The point is really that the decision, whether we will be allowed to operate the way we want to operate together with Altimo, is not decided in court. It’s decided by this committee from the Duma, chaired by the Prime Minister. That’s where the decision is really made. And they can’t really make a decision before we have asked them for permission. We haven’t asked them yet, because we think if we could make some progress in Turkey first, then that would help that process, we believe. Altimo shares that view. And I’m not less optimistic today than I was six months ago. I think the dialog with Altimo is going fine. Of course, we have difference of opinions with AF Telecom and Alisher Usmanov, but we knew that from day one. So there is – nothing has changed.

The Spain issue, yes, I’m very pleased with Spain of course. That was a big concern of everybody when I joined this company three years ago and also because we lost all the money. We made a commitment (inaudible) made a commitment to ask that we will be breakeven from fourth quarter of this year and onwards. And I see that’s absolutely feasible. That hasn’t changed by mind on the principle of the strategic, but it certainly took off some urgency. It’s much less of course. But I believe TeliaSonera is reputable; high quality; hopefully, world-class customer service operator who wants to be number one in the markets. That’s our strategy. That’s what we’re good at. I don’t think we should be a price fighter. So with that as a backdrop, I think I don’t change my mind on the issue. But the urgency has certainly disappeared.

Tim Boddy – Goldman Sachs

Okay. Thanks for that.

Lars Nyberg

Thank you.

Andreas Ekstrom

Thank you very much, Tim. We’ll take the next question from the conference call.

Operator

The next question comes from the line of Mr. Peter Nielsen from Cheuvreux. Please go ahead with your question.

Peter Nielsen – Cheuvreux

Thanks very much. Couple of questions. First one relates to the Swedish mobile market, particularly the mobile broadband market. I know some of your competitors have been introducing some more aggressive pricing offers in the quarter. You still seem to have been enjoying good momentum in. How is your sort of own evaluation of how you fed in this competitive environment in the quarter? Have your offerings been resilient towards these offers from your competitors? And secondly, how has the broadband ARPU developed within your mobile business over the quarter? Is it possible to talk about this? And thirdly, a question for Per-Arne. We again see in this quarter some fairly significant movements within the working capital line. Is it possible to spend a little bit of what it is we are seeing here and also when we should expect the sort of lower paid CapEx in this quarter to be paid? Would that be in the next quarter compared to the booked CapEx so to speak? Thank you.

Lars Nyberg

Well, it’s a bit difficult for me to comment on the competitors in second quarter because they haven’t announced them yet. I think we are doing fairly well in the marketplace with our offers. We clearly have had a momentum in mobility for a number of quarters now in the Swedish market. We will come back a little bit on some of the issues that you might be referring to when Håkan and I make the presentation for the discussion, we could call it, about mobile data, pricing etc.

Peter Nielsen – Cheuvreux

Okay.

Per-Arne Blomquist

I want to comment on working capital. I mean, we have all this part started to pay off their investments on the negative change and working capital is connected to broadband Sweden and mobility in Denmark. This accounts for 80% to 90% of that.

Peter Nielsen – Cheuvreux

Okay, thank you.

Lars Nyberg

You know the minutes of use.

Andreas Ekstrom

Yes. Just on the working capital, just to say, that can be the booked CapEx, not paid CapEx. You have the Danish 4G license. So some 430 million Swedish Krone as well part of the difference. And your second quarter was on ARPU on mobile broadband. I think it was – and Håkan has to correct me if I’m wrong. But I think it was quite flattish in the second quarter compared to last year.

Peter Nielsen – Cheuvreux

Thank you.

Andreas Ekstrom

Thank you. Very good. We’d take one more question from the conference call.

Operator

The next question comes from the line of Maurice Patrick from Barclays Capital. Please go ahead with your question.

Maurice Patrick – Barclays Capital

Hi there. Couple of quick questions. Just on the Baltic assets, obviously an improvement in the trends in the quarter. Do you think you have visibility when we can call the bottom of these markets and when we might start getting towards zero percent revenue growth or perhaps you’ve returned to positive growth? And then maybe we’ll talk about some mobile data later in the presentation. Can you just remind us what market do you have where you have upcoming license options? Obviously, India is still high on people’s mind. I’m just kind of keen to understand where you see those – which market do you see coming through in terms of new spectrum. Thank you.

Lars Nyberg

Okay. You’ve got me little bit off there, India, I don’t know why. This is TeliaSonera, not Telenor – Baltics, sorry. I think we see an improvement in the Baltics, particularly in Estonia. I think it’s lesser of an improvement in the other two countries. I think they are coming out. Having you seen the bottom of it? I would dare to say, yes, I hope so and maybe I even believe that. Clearly, in Estonia, we’ve seen the bottom of it. There’s no discussion about it. But the other two, I’m not totally sure of yet. But I will be surprised if we’ll even start seeing improvements in the Baltics in the coming three, four, five quarters.

Per-Arne Blomquist

When it comes to licenses, we have users coming up in Azerbaijan and Kazakhstan. And that’s what we know right now.

Maurice Patrick – Barclays Capital

Thank you.

Andreas Ekstrom

Thank you, Maurice. I see that we have some more questions here from the floor – or frankly not – one question from Jan.

Jan Dworsky – Handelsbanken

Thank you. Jan Dworsky, Handelsbanken. As to detail, the headcount increased in the second quarter, was that due to in-sourcing in the Baltics or –?

Per-Arne Blomquist

Those are temporary. People coming in with some applications.

Jan Dworsky – Handelsbanken

Okay. Thank you.

Andreas Ekstrom

One more question from Sven.

Sven Sköld – Swedbank

Further on the costs – Sven Sköld from Swedbank. I saw that the gross margin declined a little bit in Q2 versus last year. Is that something to – do you aware of the future or, I mean, is that an important change?

Per-Arne Blomquist

I don’t think so. I think that in the margin has developed fine and it’s – and sometime we (inaudible).

Andreas Ekstrom

We have one follow-up question from Lena.

Lena Östberg – Carnegie

Yes. Maybe I could ask a little bit on the EBITDA side in Finland on broadband and on mobile, what’s going on there? Why we see slightly lower EBITDA? And also taxes, which were lower in the quarter, what we should expect going forward with withholding taxes?

Per-Arne Blomquist

Yes. I could go with the tax system. I think that we expect the tax rate to be roughly 22%. It’s somewhere between (inaudible). But we have had samples to effect and still think that we expect roughly around 20% [ph].

Andreas Ekstrom

Do you want to take Finland broader or –?

Per-Arne Blomquist

(inaudible)

Andreas Ekstrom

If we look at broadband in Finland, I think that we had the same EBITDA margin as we had in Q2 last year. So still we see the benefit of the cost-cutting in that market. On the mobile side, we had a bit of a lower EBITDA margin. That was mainly due to higher equipment sales than previous quarter. We bought in more equipment at higher average selling price and that took a bit of a hit to the margin. So I wouldn’t say it’s a structural decline. It’s more of equipment.

Lars Nyberg

I think we have been working pretty hard in the last year with Finland, in Finland, with our colleagues there. I have a positive vibration that we will improve our position in Finland. We have been struggling for quite some time I would argue. And I also think that the Finnish economy will stabilize a bit because they have been hurt much more by the market than we have, for instance, in Sweden where the economy has been clearly better. But I have confidence in the management team in Finland. I think they are working well together and I think they are very focused on trying to regain a better position in that marketplace.

Andreas Ekstrom

We do have a couple or more questions on the conference call as well. So operator, I will leave to you to introduce the next question.

Operator

The next question comes from the line of Mr. Jakob Bluestone from Merrill Lynch. Please go ahead with your question, sir.

Jakob Bluestone – Merrill Lynch

Hi there. Just one question. Could you maybe give us an update on your thinking on the balance sheet and particularly your thinking on returning capital to shareholders through share buyback? And I think you indicated in the past that that’s something you would contemplate.

Per-Arne Blomquist

Well, if you look at our dividend policy, we have some of that we should pay out more than or around 50% of our net income. And if we’ve done all the sort of investments and probably what we’d like to, then still we could use added buybacks for external or ordinary dividends for having the benefit. But it’s still early to say yet what will happen, but I think if you look at our dividend policy, we’ll speak to that.

Jakob Bluestone – Merrill Lynch

Great, thanks.

Andreas Ekstrom

Next question, operator.

Operator

The next question comes from the line of Jacques de Greling with Natixis Securities. Please go ahead with your question, sir.

Jacques de Greling – Natixis Securities

Good morning. My small question on the Swedish market, could you comment the drops – the side drop in the number of broadband lines in Sweden and what should we expect longer term? Thank you.

Lars Nyberg

What was the question?

Andreas Ekstrom

Broadband. The number of broadband lines in Sweden.

Jacques de Greling – Natixis Securities

Yes.

Lars Nyberg

Okay. I think the decline has sort of stabilized. It will continue, I think, to decline. But I think we are managing that thing pretty well. And on the other hand, the fiber rollout. I am convinced that the fixed network is going to be very important also for many years to come. That’s why we are very keen on investing in fiber because that’s kind of why the bandwidth and the speed and the capacity that we all are in demand as customers.

Jacques de Greling – Natixis Securities

Thank you.

Andreas Ekstrom

I was a bit puzzled by your question, I have to look in my papers, because I see that the broadband subscribers was actually flat quarter-on-quarter. So – was that the answer of your question, Jacques?

Jacques de Greling – Natixis Securities

Yes, yes.

Andreas Ekstrom

Okay.

Jacques de Greling – Natixis Securities

It has declined at the 0.3. Thank you.

Andreas Ekstrom

Okay. Thank you. We’ll have one more question on the conference call, operator. Thanks.

Operator

The last question comes from the line of Mr. David Wright from Deutsche Bank. Please go ahead with your question, sir.

David Wright – Deutsche Bank

Hello, it’s David here. I guess just pushing a little more or falling back, let’s say, on the MegaFon issue, I guess just to understand to what extent you have to stay in Russia as it will or whether if negotiations do break down, whether you would have to consider a possible exit boost, you’ve obviously struggled to get cash back from MegaFon that those seemed to be a little struggle now too to push through the Turkcell merger. You are sort of close to Russia and do you feel the need to stay in Russia like perhaps your peers, Tele2 and Telenor.

Lars Nyberg

Well, I don’t think we have to be anywhere maybe with the exception of our home countries. But we have made an investment many years ago in MegaFon. MegaFon is a very well managed company and they are making quite nice results. And therefore, we want to be part of this business and to develop it further. And that’s our objective and our priorities.

David Wright – Deutsche Bank

What you said a priority was for a growth contribution to the earnings lines or is a priority to get some cash back from the investments in the near-term?

Lars Nyberg

Both.

David Wright – Deutsche Bank

Both. I’m pretty much lost.

Lars Nyberg

Okay.

Andreas Ekstrom

Before we go into the next section of the presentation, we have one or two follow-ups on the floor. Let’s take them before we move on. Jan?

Jan Dworsky – Handelsbanken

Thank you. Jan Dworsky from Handelsbanken. We've seen a good development in mobile Sweden and Finland and some improvement in Norway. Denmark is moving the other way. What's explaining that? And then, has there been any movement or development in relation to discussions with the regulator in fiber-to-the-home? And what terms competitors will be able to access that?

Lars Nyberg

Denmark is a challenging market to be in for mobile. All the operators are having the same sort of issue. And again, the size determines basically your results. Håkan and I laughed sometimes about the market share in percentage equals the EBITDA margin in percentage. It’s actually not so untrue. And we are number three. We are clearly number three, not even close to number two in Denmark. That’s a problem in itself. And this is one of the challenges that Håkan has going forward. How do we improve in Denmark? Your second question was –

Jan Dworsky – Handelsbanken

About fiber.

Lars Nyberg

Yes. I think we have a good dialog. I think we have gone through the decision that was 600 pages long or something like that. And we could eliminate quite a number of orders. There is one big issue left. And that is how the pricing is going to be determined. And the regulator clearly said that that was not part of this document and it should be discussed in dialog with the different operators.

And therefore, I am – reserve my final opinion until I understand what that means because we talk about big money here, we talk about maybe 5 billion or 10 billion Swedish kronas over a number of years. And unless – unless we feel confident that the pricing model is such that our shareholders get a decent return on those 5 billion to 10 billion, we will not invest, anyway not to the extent that we would like to. And I think this country needs somebody who needs to make this investment. I don’t think there are too many alternatives, as the state has said they do not want to invest.

I know there are many players left on standing. And we will absolutely require clarity on the pricing model. For the rest, the fact that we are obliged to open up our fiber networks to everybody although other people who have fiber are not obliged to do that, which is a bit strange. But I have no problem with that or we have no problem with that. We can live with that. Fundamentally, we have changed our mind a little bit I think in the last couple of years.

Our business – TeliaSonera's business and our results is driven by traffic in our network. So the more traffic we have in our network, the better it is. Yes, allow all traffic to be done by TeliaSonera retail, but I don’t mind if Tele2 or Telenor have that traffic going in our network as long as they pay for it and they pay a reasonable price model that assures me that our shareholders get a return on investment. So we have changed our mind. We do right our competitors to have the traffic in our network. Therefore access to fiber, to Telia fiber, is fine with me. The only real issue left standing is the pricing wall.

Andreas Ekstrom

Just before we take the last question, on Denmark, Jan, there was a cut in interconnect on the 1st of May and that can explain one-third of the revenue growth sequentially from the first quarter. We’ll take one more question and then we’ll go to the next topic. And we have Thomas who’s asking for the microphone.

Thomas Heath – Ohman Equities

Just a question. You mentioned in Q1 a little bit, you had some organizational changes with mobility and broadband and that you wanted to sort of work a little more as one group. Is that something you’re working on? And is it possible to tell some concrete points on that?

Håkan Dahlström

Yes, that’s very important. And I think it’s an issue of culture. I mean, one of the things we have been doing here over the last two years is changing culture, changing the way we operate, changing the way we think, changing the way we actually talk to each other. I cannot – I cannot give you proofs of that like I can do in numbers. But I can certainly give you a feeling or it’s my interpretation, we had, for instance – we had once a year the top 100 people from the 20 countries together.

And I remember the first meeting we had three years ago and I remember the second year meeting. And this meeting we had this year was, yes, so different in terms of mood, in terms of colleagues talking to each other, and we were extremely lucky because we had this kind of weather and we were leading. And we talk about it. I mean, the circumference was pretty good too. But I think if I look now on how my two colleagues in the group management, Håkan who sits here and Marlin [ph] standing here on the floor by the hallway, and therefore the people below them are talking about combining offers, making decisions that takes both entities into account. I really think lots are changing.

Andreas Ekstrom

Okay. With that, we close this part of the presentation and I will leave the floor to Lars again to introduce the next topic, Mobile Data.

Presentation

Lars Nyberg

You have heard me talk about this issue over the last year. I’ve been saying the appetite for bandwidth is unlimited. And I truly believe that’s being the case. And I am absolutely convinced that the operators and their suppliers are going to be able to provide us with the bandwidth of unlimited bandwidth. And therefore we have significantly higher performance in our networks. I talk about Moore’s Law. You heard me say that I believe that our suppliers will be able to provide – basically every 18 months, double the capacity at the same cost for us. Whether that’s exactly going to be that case or not, it’s not an issue.

The issue is the technology will drive a lot of additional bandwidth for us. And I’ve also – we have also picked up, of course, among the investor community that this explosion of demand for bandwidth, there is a concern that that will drive very high CapEx increases. And therefore the cash flow will be significant with all the operations only for us. We do not believe that that’s going to be the case. And Håkan will explain to you what has happened in the past couple of years, because we have seen this explosion in bandwidth in the last couple of years. And we will try to give you some predictions for the years to come based on our experience.

But there is one thing in addition I want to address, and I’ve been addressing this also before. If you imagine that you are the customers and your demand for bandwidth is basically unlimited and we have a technology that can double the bandwidth every 18 months, it’s very important for the operators that we have a tool so we can regulate how much traffic you are going to put on an effort, because the moment you put on more traffic, then the network at that point in time can handle. That’s when you get the disaster they had in Manhattan AT&T when you couldn’t make voice calls anymore. And that tool to control how much traffic is going to be allowed on the network in this quarter, for instance, that tool is called price.

And it’s very logical, in my opinion, that if you use more capacity, higher speeds, you pay more than somebody who use less. That’s by long-term for this industry, flat fee doesn’t work. It’s also interesting, it’s not fairly actually because if you look at our customer base, it’s something like 5% to 7% of our customers are the real heavy users. They generate a big chunk of the traffic. And if we have flat fee revenues of 95% are actually subsidizing the 5%. So fundamentally, I’m convinced that the industry will have to have a pricing model where you actually pay for how much you use.

Now, the good news here is, I don’t think it’s going to be a lot more expensive because doubling the capacity at the same cost means that we don’t need to raise the price much to the consumer, but we need to make sure that the ones who consumes maybe 50% of the capacity are paying more than the one who consumes 1%. So these are the fundamental conditions and drivers for us. We now ask Håkan to go through how we have come to the conclusion that CapEx will not explode and therefore cash flow will not be reduced even if we have to live a double traffic every year for the years to come. Håkan?

Håkan Dahlström

Thank you very much, Lars. Yes, Mobile Data, it’s a hot topic in the industry, and we think today is the right time to talk a little bit about our view in this. And out from what we have seen years now and looking forward, we believe that the traffic in our network will actually double every year. It’s a little bit more than that some years. And some years back – looking at a five-year period in front of us. I believe that the network will double its traffic every year.

This is a great opportunity for us. Someone out there really wants to use our services, as they want to use it more and more. Well managed, this could be a great thing for us developing our business. There are some – there are three different sources for this mobile data. And each of them has a different behavior, different user behavior, different characteristic.

And today I will focus on the first here, the mobile broadband, the Internet access that we create for your laptop or for your notebook; and the smartphones, the high end phone that is driving the mobile data usage. The third one, machine-to-machine, is something that will grow in importancy [ph] going forward that we will not focus on them today.

Looking at the Nordic market, we see that the number of our customers in the percentage of the population that is using a mobile phone for getting an Internet access is increasing. And today the situation is so that the Nordic markets is ahead of the rest of Europe. Also when we look at the ones that is using the wireless connection, some sort of wireless connection, it could be a WiFi, it could be a mobile infrastructure, to connect the laptop is also growing, and the Nordic is ahead of Europe.

Due to this, we have picked Sweden as an example when we talk about mobile data. And as you’ve heard Lars said before that the net sales are growing and it’s very much due to data in Sweden. If we look on Q2-to-Q2, we have a growth of 40% here. And if we clean it from messaging, we are on the level of 50% growth on net sales on the mobile data at the Swedish market.

One of the new things in this is the smartphones. We see tremendous fast pickup of smartphones in the market. A year ago, 13% of our phones of our terminals in the network where sort of our smartphone. Today it’s more than twice as big share of the terminals. Of course, the iPhone is the biggest driver for this, but we also see a lot of other smartphones in the network. It is so that it’s mainly the user-friendliness that drives this change. When we’re looking at user behavior, we could see that a certain user that gets into a smartphone, gets in a smart touch, will actually change the behavior, but differently in different services.

The voice minutes goes up a little bit, the messaging goes up much more, but it is the data usage that explodes. So a low end phone is on very few megabyte per month, and a midrange phone here that is usable for WAP, minor access to the Internet is using in the neighborhood of 15 megabyte per month. But smartphones can go up very high, and the average today is 250 megabyte per user per month. This is mainly due to streaming video. That is one of the killer applications on the smartphone.

But we also see that our B2B customers, they could go mobile with their workflow, with their ordinary way of working that they have in locked into our stationary PC or a laptop. Many of what they – Many features that they use, they could now use the smartphone for. So we are, together with our B2B customers, developing new way of working that increased efficiency of the B2B customer. This is the really fast pickup.

The ARPU on a certain customer increase when it go into a smartphone. It increases more on the B2B side than on the consumer side. And this is due to that they are picking up their ordinary work on the smartphone. When you have been a smartphone user for a year or so, you still are developing your behavior. So the earlier user on a smartphone has an increase of data usage in the neighborhood of 50% year-on-year.

Also within the mobile broadband, there is a strong momentum. And here we show the customer base on the Swedish market. So today we have more than 500,000 customers on mobile broadband. This is, as I would say, a good example of what is happening when you are introducing new services. It’s actually 10 years ago since we introduced our first data services, GPRS, and then nothing happened – nothing happened. And there was a lot of questions how to get this driving.

And in December 2006, we’ve actually got to that point that we could give the customer cost control. And with fixed price offering in December 2006, this started to move. And then in the second quarter 2007, it was a lot of good old friends in the market suited for different kind of our customers, and it really started to pick up. So this is a great development, and I think that we could say that we are somewhere in the middle of it. But there’s, as you see, still very much to do.

So we then are looking into what our customers are using, what kind of services, how do they use them, when are they using them. We try to estimate how will they use the data services going forward. And here is a split between mobile broadband where we today have an average usage of 1.5 gigabyte per month, and we see that with the development that we have today and what we can see going forward, we estimate this to be in the neighborhood of 12 gigabyte in 2014.

On the smartphone, where we have an average, as I said, of 250 megabytes today, we estimate this to be around 1 gigabyte in 2014. This – I wouldn’t say that we are more right than anyone else in this area. This is an estimate looking forward to what it will be. But it will be somewhere in this neighborhood. And we have seen so many numbers, so many estimates of this, and I would say that ours is not standing out in any way. I would say that this is probably something that we could agree quite fast about. It will be in this range somewhere. So of course, this is a great opportunity for us as an operator with this increase of usage of our services.

So then, how would we deal with this, the unlimited demand for bandwidth and the increased need of traffic? Here I have split this into three different areas. And if we first start to look at the technology side, then we talk about new technology. We have to remember that the mobile infrastructure or the mobile network can be split between radio part, the sites where you actually are placing the radio or the base station, then you have the transmission and the core net.

If we start with the core net first, if core net that is coming with 4G is well suited for integrating the previous version, the previous generation of mobile infrastructure, so the core net that comes with 4G is designed to deal with what we already have. That’s a very good part. The other part is that core net has never been the cost driving this. And I don’t foresee it to be going forward. So I think we could leave the core net.

Then the radio, the base stations, here has been the cost drive. In all those years I’ve been here and I believe it’s still going to be part of the cost drive going forward. But here we see that with 4G that is very important for us. And it is so important for us due to the fact that if we compare a certain investment, if we would do that in the technology that we have already deployed in our 3G network, or if we would use the money in 4G, we will get more traffic, a high level of production in 4G than compared to what we have already in our 3G network today in the neighborhood of eight times for the same money. Of course, you could argue that the 3G network has also had development, yes, and we don’t have in all places the latest state-of-the-art of the 3G technology.

So there is more to do in the 3G network and we will do so. Of course, we will develop our 3G network, but if we look at the state-of-the-art, what we actually can buy today in the 3G technology and compare that to 4G, I would say that the cost efficiency, the benefit for 4G is in the neighborhood of three times. And that’s the reason why we are so keen on going forward with 4G. And of course, it’s also much more fun to be a pioneer in this area. And with the history of this company, I think it is reasonable that we are, and we’re actually really proud of being a pioneer in the 4G area.

As you know, the radio needs spectrum. And the spectrum is something that we have been able to secure on the 2.6 gigahertz band. We have our license in all the four Nordic markets. And this is what we will start to use. We will use it to get up to speed, to get up the capacity. We also have ambition to get the license in each market on the 800 megahertz band. We have not seen that yet, but we are sure that in each market the regulators see their importancy of the 800 band so that we could create coverage. The 800 band is extremely important for being able to develop the mobile data services with the reasonable coverage.

The third part of this is so that when you are deploying this mobile infrastructure, mobile network, you have the sites where you actually are placing the base stations. They are a big part of the cost. And when we look at what we would need in the Swedish market the coming five years to fulfill this need, as I described earlier on, we see that we have more than 70% of all those sites that we need. So the positive thing here is that we have a lot of sites. We could rebuild them for the 4G, for the new version of 3G that we also will invest it and by that, keeping the costs per sites down.

We see this site is quite reasonable when you have to rebuild them for a new technology, it’s more expensive if you have to establish a new site. It’s also so that most of the need – I would say, two-third of the need of new sites is within cities, where it’s easier today to be able to place the antenna on a rooftop or somewhere else where you don’t have to establish a complete new site with maps and everything. So 70% of the need we already have today or more and that we need to establish from you. I would say that more than two-third of that amount we can see possibility to get on a rooftop.

The next part of this in the mobile infrastructure that is a cost drive is the transmission, how you connect your base station to your core network. We had 2G and the first version of 3G, we had transmission solutions that didn’t scale cost efficient when you are ramping up to speed. With the introduction of the first version of HSPA or Turbo 3G, as you say sometimes, we started to change this.

And today we have made more than half of the swap towards new technology that is IP or Ethernet on top of fiber or on ready link, that is scalable. It actually scales quite beautiful where the bandwidth is picking up. So this is something that we are quite comfortable with, that we have also the transmission part of the control.

So, summing this up, the new technology gives us a cost benefit when we are deploying this new amount – enormous amount of traffic. We see that we have the spectrum 2.6 that we need. We also believe that it will come 800 licenses in the market. I’m not so optimistic on the Baltic. I’m more – in the Nordic, I would say it’s not a question, it’s just when and how soon we could get it. And the last point, when it comes to sites, we have a big portion of our need, and by that, we could scale this volume going forward.

When we look a little bit on how have we performed during this first phase of this mobile data explosion, and to the left side here, you see the data volume that we have produced. And on the right side, the yellow part here is CapEx-to-sales. During this first part of the explosion, we have been able to keep the CapEx-to-sales ratio on a stable level below 10%. And I have no reason to believe that the CapEx-to-sales ratio will go above 10%. It might be one year somewhere in some market. But as a rule, thumb rule, we would say that we will be able to keep this on the level of 10% CapEx-to-sales.

On the COGS side, we see the same relationship, as we have had, also going forward and have no reason to believe that this will change dramatically. So when it comes to this killer application, mobile data or a mobile access to Internet, we see a great interest in our customer base for their services. And when we price the services, I would say that at least four different phases when a service like this is entering the market, you normally more or less give it away for free.

And so we did with mobile data, and after a while, you see you’re coming to something that needs to give the customer – or to meet the customer’s need for cost control. That is when you have flat rate. And then after sometime, you should understand how this services work and how it suites them and you start charging for speed and volume. This is a model that can live long-term, but if I would guess, I would say that this is not the end game.

Of course, we would like doing some sort of value-based pricing where if you buy a movie, video-on-demand, you would actually have traffic for that movie included in the price of the movie. That would be the reasonable part of it. The same with music. If you are listening to music, you pay for the music. You also have to pay for the traffic. So some sort of value-based pricing, I believe, would be the next step. This is an example from the Swedish market, how we are pricing our services this summer. So we are pricing it on speed and from volume.

Okay. To sum this up then, the demand for bandwidth is unlimited. We have said that many times and we see that in our user behavior. It’s proven every day. The technology and the new technology will continue to deliver that cost benefit and the possibility to increase the traffic in the network twice every year. We see no reason that we shouldn’t be able to keep the cost-to-sales relationship and the CapEx-to-sales relationship under the coming year due to this. But the most positive thing with this is that our customers, they have the willingness to pay for this.

They are really so positive when it comes to the experience of mobile broadband and mobile data. It’s very much about the speed and the usage, and they see enormous amount of services that they would like to use. Very few of them will be developed by us. It would be a partner that we’ll find it on the Internet. But on the other hand, it is up to us to make sure that the quality and experience is there. Due to that, this mobile data explosion has to be well managed, and I think that we are in a good way to do that.

So by that, I will –

Question-and-Answer Session

Andreas Ekstrom

Open up for Q&A. Thank you very much, Håkan. And I would also like Lars to come back here. And we will see if there are any questions. And we start, as we did with the last section, with a couple of questions from the floor and then go over to the conference call. We’ll start with Sven.

Sven Sköld – Swedbank

Yes. Sven Sköld from Swedbank. Thanks for a good presentation. I was just wondering – I mean, you have a very good price model for mobile data, but there is also competition out there. And we know that some of the players in the Swedish market are not as strict as you when it comes to the spares that you show. They have free traffic, I think, on some of their subscriptions. So what’s the take on the market here – the Swedish market and the competition?

Håkan Dahlström

I would say we take our share.

Sven Sköld – Swedbank

I mean, if you take (inaudible), if you look around, at least one player doesn’t look at the return on investment because that is so high it cannot be – I mean, you can’t get return on that investment anyway. So they are just looking at delivering some kind of revenue or some kind of EBITDA.

Håkan Dahlström

As I see it, I mean, you have different phases of it, as I tried to say in the beginning. You have to fight for market share and everybody fights to get up the volume and cost base. And telecom is very much about volume. You know that. So now we have a situation with more than 500,000 mobile broadband customers in the Swedish network. We have a big portion of our customers that is using a smartphone. They are creating a good service and a good experience there.

And I think we have taken the decision to go to the next phase in this business. We have – we charge for speed and volume, and up till today, of course, we see what the other guys are doing. But I believe this is a model that is sustainable and we could live this for long-term. And it’s important to make sure that the quality for all our customers, independent it is voice or data is there. And I would say that the problem with the data that should be volume-based, I don’t see it’s so big. It’s very few of our customers that’s actually running into type of roof, and if they are doing so, they are not cut off the network. They get lower speed, but will still be in the network. They will still have an access.

Lars Nyberg

Let me add something. First of all, I think this is great news because we have found a new application, a new kind of business in our industry. We’ve been doing voice for 100 years. And all of a sudden, you get something next to voice call, data. And in my perception, as I’ve said so many times, your demand for these services is unlimited. The own imagination is the limitation of the applications that you can imagine on this thing. It’s great to be part of an industry where the customers are saying, I have to own more and more and more and more. And it’s beautiful we don’t have to double the price if we double the speed for you. Maybe we can raise the price 5% and we double the speed because the cost for us is about the same. So I basically think we have a very attractive opportunity as an industry. And I don’t see where the limitations are going to be, and certainly not going to be in the coming year. So I think we’re going to have a great opportunity here.

Now, this industry, as Håkan says, has a history. When we introduce something new, we give it away. Remember, I’ve only been here for three years, but when I came in here, we gave away TV. Remember? And then we still said, no, we’re not charging for it. So we show our customers. Do you like it? And somehow you get hooked on it, right? And then you are hooked, then you say, okay, you really like this thing. You will start paying a bit for it. And the more you use, the more value you get and you have to pay a bit more. I think that’s a good model for the industry. And there will always be some cowboys who short-term want to do something, and that’s part of our history also. We have price wars often on and competition is hard. We have a track record – I think we have a track record of managing that fairly well, with some exceptions maybe. So I actually see this as 90% positive and 10% concerning. I think this is a real opportunity for our industry. And I’m very pleased that we have that opportunity.

Andreas Ekstrom

Thank you. We have a question here from Lena.

Lena Östberg – Carnegie

Yes. I was wondering how much of the 4G investment that you planned for this year has already been taken in the first half of the year.

Håkan Dahlström

For 2010, we have two-third of it we took it down this year.

Lena Östberg – Carnegie

Okay. And then I was wondering Tele2 has not had the iPhone and they have finally managed to sign a contract now. And they are the price leader usually in the market. How do you say that they will affect the market now that they have the iPhone? Do you think they are too late?

Håkan Dahlström

The iPhone has been really good for us. We have been able to address (inaudible) customer segment. We have picked up more customers in the big cities. This is too our weak spot in the history, and we have been able to improve a lot in those two areas. And we are happy for that. And what’s going to happen and what other players are doing, we will not comment on, but we have had a great time together with Apple and iPhone. And we are very happy for that. And we have no reason to believe that we will enter it [ph] going forward. So we are excited about the launch of the next version, even though I have to admit one more excited lost time. We had a great party those days, but still very good.

Andreas Ekstrom

We have a question from Michael.

Michael Andersson – Evli Bank

Michael Andersson here again from Evli Bank. The roaming issue, at least as a private user, like in this summer if you want to watch football in Norway on your iPhone, just like don’t do it (inaudible) wholesale instead. Because I guess you will get your flat fee from us now, but instead if you want to pay for that service, that the roaming should have to be the target.

Lars Nyberg

I agree with that point. I’ve been – this is a discussion that goes on in Brussels too. And with the new commissioner, I had a meeting with her, Madame Kroes, two months ago or something, and I’m very clear we’ve got to do something about the roaming. Now, I can’t be accused although I see it’s easy for you to say because you don’t have that much roaming income compared to Spain, England and so on. And yes, I admit that it’s easier for me to say. But my customer, my customer’s experience when they go to Norway and watch TV is horrible. It’s horrible. And there is no cost basis. There is no cost basis that justifies it. So – but I also said to her, don’t think that we’re going to lower those prices only. We’re going to raise something else because the total income cannot change. So maybe the prices should be little bit higher for domestic calls, but the national roaming cost has to come down dramatically, in my opinion.

Michael Andersson – Evli Bank

But this is within your network, within your –

Lars Nyberg

Yes, we are having some of those discussions right now.

Håkan Dahlström

We are looking into what we can do in our part, but the trick is that when you are abroad, as you have experienced, you are moving from network to network. So if it would have been so easy that we could say, okay, you are in our infrastructure, you would have a cost control in our infrastructure, that would have been easier to fix. But I was in Paris in the beginning of last week, and I was in all network before launch. I have been in all network and I had two terminus all over. So this is the problem that you need to have solution for, but we are looking into it. We are not happy with the situation today. We are not.

Andreas Ekstrom

I am not surprised to see that there is a lot of interest on the conference call as well. So we leave it to the operator to introduce the first question.

Operator

The first question comes from the line of Mr. Peter Nielsen from Cheuvreux. Please go ahead with your question, sir.

Peter Nielsen – Cheuvreux

Thank you. Håkan mentioned that you do not expect CapEx to go up in the mobile networks going forward. Would you expect the composition of CapEx to change, i.e. from 20? Would you see highest years of CapEx going towards the back of the transmission network going forward (inaudible)? And secondly, is it (inaudible) but is it possible to tell a bit more how you’re seeing the tier pricing structure impacting uses of high users? Has that restricted users overall? I’d be interested in any comments on this. And finally, where are you today in terms of your ability to segment and prioritize traffic based on various sort of user characteristics? And is it something you expect that would improve your ability to do going forward? Thank you.

Andreas Ekstrom

First question was the split between radio maybe and transmission.

Håkan Dahlström

Going forward, the cost for civil work and transmission will be increasing in relationship to other part of it, both on the cost side and on the CapEx side. So we have transmission and radio. You will have a shift towards little bit more on transmission, a little bit less on radio. That will be my guess. But then you asked about –

Lars Nyberg

The second question was about tier pricing. What we see on the high users or –? Did I get you right there?

Peter Nielsen – Cheuvreux

Yes.

Håkan Dahlström

Do you mean that –

Lars Nyberg

What impact the caps of –?

Håkan Dahlström

It’s very few – it's very few users have actually running to the roof. They are – what we will be introducing the market is sort of a small top-up. You will actually be able to top-up the volume and then continue to surf, let’s say. So we haven’t seen that as a big problem today.

Lars Nyberg

Fundamentally, the issue is our customers are willing to pay a little bit more for a lot of more capacity. And I think the answer is yes. Will the competitors, some of them, take an advantage and have flat fee? Yes, I’m sure they are. But fundamentally, I believe, the marketplace says, yes, I can pay 5% more for 100% more capacity. And of course, as we introduce faster networks, we will move these, what we call, caps up all the time. So I think – I hope that the so-called unlimited demand isn’t that unlimited that we don’t have time to move the caps up and only have a small portion of our users hitting the roof, as we call it.

I’ll give you an example. In Almedalen, we had 4G. And Almedalen was filled by people from Stockholm who do visual streaming, all of them at the same time. We have some problems with the voice. That’s exactly what I’m talking about when I say we need a tool to make sure that we understand how much traffic we can allow on the network because what cannot happen is that we can’t do voice calls that happened in Manhattan for AT&T. That cannot happen. That’s why the whole industry needs to make sure that the demand is let on to the network as we increase capacity network without more traffic on for the same price. But if somebody wants to be really heavy use of it got to pay a bit more.

Andreas Ekstrom

You have a third question as well?

Håkan Dahlström

About traffic steering and then prioritization, yes, we have the feature to do that. And we don’t do it particularly much. We see that the capacity in the network is some high so that all the users can more or less do whatever they want. But we have the feature that – I mean, probably the most obvious one is that we could steer our voice traffic between our 2G network and our 3G network. So dependent on the low demand network, we can steer the voice traffic from one network to another to optimize the production cost and postpone the capacity increase in one part of the network. But also on the IP traffic side, there is a lot of possibility and you could find this kind of equipment for, the buzzword is, deep packaging inspection. You could more or less see what kind of service they are and out of that make different priorities. But it is not something that we use normally. This is very –

Andreas Ekstrom

Okay. Thank you, Peter Kurt. We’ll take another question from the conference call.

Operator

The next question comes from the line of Mr. Maurice Patrick from Barclays Capital. Please go ahead with your question.

Maurice Patrick – Barclays Capital

Hi, it’s Maurice again. It’s great to see TeliaSonera leading the debate and communications on mobile data by the way. Couple of questions. You’ve talked about the revenue – the usage, a customer going from one-half gigabyte to 12 gigabytes, and of course capacity doubling for a similar cost on an 18 or 12-month basis. That kind of implies the cost providing the capacity per user. I guess on a four-year view is broadly unchanged. Is it the way we’re thinking about it? Because this would probably imply that the return on invested capital on those new investments you are making on data are probably similar to the legacy return on invested capital. Second question is, you’ve answered most of your – given most of the data on Swedish contacts where of course you are a dominant player with a large incumbent fixed network. Do you see the trends being markedly different, say, for small operators? Are we talking about fixed presence [ph]? Thanks.

Lars Nyberg

I can start – the first question is – yes, I mean, it’s logical the cost per user and the return on investment are similar than with the history if you assume what we have assumed. And yes, we paid Sweden, because first of all, Sweden is very early in applying this new technology and we know Sweden best, of course. And I certainly think that the countries will follow clearly with the Scandinavian and the Nordic countries are sort of at the same pace, more or less. And they develop in parallel more or less. The mainland Europe will certainly follow. And even Eurasia at a certain point in time will follow because the data business in Eurasia has one additional benefit. The fixed networks are normally pretty poor in those countries. So if you want to have Internet access in Kazakhstan, it’s very likely that you will get that over the mobile network, in my opinion.

Maurice Patrick – Barclays Capital

One quick follow-up. Do you have an estimate for the cost per gigabyte of adding mobile data right now?

Lars Nyberg

Yes, but I will not share it. But of course, we’re looking into that continuously. And yes, but not – and the second part of the question was about we have a benefit with the fixed infrastructures on the Swedish market. Of course, we get to have the knowledge in the company and the resource in the company, but I would say it’s more if fiber is available on a wholesale in the market that is important, and then you have to pay the market price in whatever market you are in and also that you have the knowledge and possibility to build radio link. And we are playing with these two tools in the different markets in a different mix out of the feature that is available in that market. So radio link and fiber in combination is what we use today in all markets, in the same way more or less.

Maurice Patrick – Barclays Capital

Thank you very much.

Andreas Ekstrom

Okay. Thank you, Maurice. We’ll take another question from the conference call.

Operator

The next question comes from the line of Mr. Jakob Bluestone from Merrill Lynch. Please go ahead with your question.

Jakob Bluestone – Merrill Lynch

Hello again. I’ve got two questions, please. I mean, it sounds like messaging is still a significant driver of your data revenues. So I was just wondering, is that something you are expecting to slow down and will slow down in messaging and kind of upset the strong growth in non-messaging revenues that you are (inaudible)? Secondly, just talking a little bit on Maurice’s question from before, how important is the rollout that has now been quite delayed in Sweden for delivering mobile data in Sweden and particularly for maintaining that types of CapEx sales? And so if we see scaling back or further delays in fiber rollout, is that something that’s going to impact your ability to deliver this sort of growth that you’re talking about in mobile data usage? Thanks.

Håkan Dahlström

About messaging, in the short-term, I don’t see any reason to think that the trend should change. Long-term, of course, when you look on the youngsters today, they believe that SMS and texting is something for elderly people that they don’t communicate that way. So of course, long-term we will have another usage, another pattern of this. But after today, I see my kids are still answering on the SMS. And so for a while more I think it will work, and it will work more or less that we see today.

Lars Nyberg

That’s when fiber rollout will not affect this mobile data business. The regulator discussion is more on the last mile.

Andreas Ekstrom

To be fair, we’d take a couple of questions from people here on the floor, and we start with – Lena has a follow-up question.

Lena Östberg – Carnegie

Yes. I’m a little bit puzzled on your CapEx guidance, I have to say, because you are delaying or not investing as much in the last mile of fiber until you have the pricing where you’ve also said now the CapEx-to-sales on mobile will stay below 10% and for the first half of the area to 11.6%. So what’s going to take you up to 14% to 15% for the full year?

Lars Nyberg

Sorry, Eurasia I should say. We are investing in Uzbekistan and Nepal, big time.

Lena Östberg – Carnegie

You did that already in this quarter.

Lars Nyberg

I’m sorry?

Lena Östberg – Carnegie

You did that already in this quarter.

Lars Nyberg

Yes, but you don’t build the network in one quarter. You want to cover Nepal? Have you been there?

Lena Östberg – Carnegie

No.

Lars Nyberg

No. It’s a hilly place, and it’s a difficult on a regular technology point of view. So – and then we need to upgrade – or our networks – continue to upgrade our networks particularly in Denmark and in Finland. So – that's it.

Lena Östberg – Carnegie

So you will be above 15% for the second –?

Lars Nyberg

No, we think we will be 14% and 15% –

Lena Östberg – Carnegie

No, but in the half – second half of this year and you –

Lars Nyberg

No, it’s not. It’s not.

Lena Östberg – Carnegie

Okay.

Andreas Ekstrom

There is another question. That was answered. And we have one question from Jan here in the front row.

Jan Dworsky – Handelsbanken

Jan Dworsky from Handelsbanken. On your smartphone sales, it’s big increase this year obviously compared to last year. What’s the composition? Is it basically only iPhones or is Android making an impact? And how do you see – is it – are you happy with being so dependent on Apple or would you like to see more of a mix between Android phones and possibly Symbian and iPhones?

Håkan Dahlström

Yes. Android phones are picking up very good. So we are quite happy for that. And the iPhone is absolutely the biggest one, but the Android is picking up pretty fast. I think for us it’s not so important which terminal the users are using. We see that the user-friendliness that has come in the last two years isn’t really, really good, both for our business but of course for the users. That is what is most important. We are happy for all the smartphones.

Andreas Ekstrom

We have a couple of more – I don’t think that we will have time to answer all of your questions, but we can take a few more questions from the conference call. Operator, please?

Operator

The next question comes from the line of David Wright from Deutsche Bank. Please go ahead with your question, sir. Hello, David, your line is open.

Lars Nyberg

Can we take the next question, operator?

Operator

The next question comes from the line of Mr. Ulrich Rathe from Société Général. Please go ahead with your question.

Ulrich Rathe – Société Général

Thank you. One question I have about this cost-to-sales and CapEx-to-sales being stable with growing mobile data, what are your assumptions on the effective voice prices then? I suppose the core of the question is the cost per bit that you are charging customers on voice is obviously a lot higher than the cost per bit you are charging customers on data. Obviously there are some operators in Europe, small operators in particular who are offering voice-over-IPs essentially for free now on the mobile networks. So there is an arbitrage channel between the two technologies. I was wondering what’s your thinking about that question and also what are your assumptions when you talk about stable cost percentage vis-à-vis the voice part of the revenue stream. Thank you.

Lars Nyberg

Yes. This – it's interesting. We spend – Håkan and I and some other people are spending some time on discussing this issue. I mean, for 100 years, our industry has basically charged our customers for our services, voice services. And that’s how the majority of the revenues are defined. As voice becomes a very small piece filling a very small part of our big pipes, the industry will have to move to another pricing model. And Håkan was on to that value-based pricing where traffic is included in the price is one model. But fundamentally, our revenue over a number of years, the proportion for being voice will decline to the benefit of other services. You can call it data traffic or whatever, that hasn’t increased. And that’s true. That’s going to happen.

Ulrich Rathe – Société Général

A sense of where you see these years going? Whether the year is on a per-bit basis or, I don’t know, maybe a fact 20, 30 – I don’t know. Do you have – what sort of – what do you assume when you say CapEx-to-sales and cost-to-sales for the voice part? I’m just concerned, what do you assume what happened to the voice here?

Lars Nyberg

What you are talking about is that we would move part of the revenue away from voice, and I’m saying if we do that, then we have to have that revenue called data traffic or whatever you want to call it. We have assumed that we can handle the revenue, whether we are charging it for, call it, voice or we’re charging it for data, is a second question. We have assumed that we will be able to continue to charge the kind of prices, the kind of revenue we have today. And that’s why we said compared to that level of sales, our CapEx and OpEx will be flat, equal to what they have been in the last couple of years. But it is true that the pricing model for telecom operators will have to change. A bigger portion will have to come from data and a smaller portion will come from voice.

Ulrich Rathe – Société Général

Thank you.

Andreas Ekstrom

My colleague is telling me that there is a long list of questions, but I think that we have time for two more questions. After that, you are more than welcome to contact me and my colleagues in the IR team after the presentation. But, operator, can we have the last two questions, please?

Operator

The next question comes from the line of Mr. Tim Boddy from Goldman Sachs. Please go ahead with your question.

Tim Boddy – Goldman Sachs

Yes, thanks. I wanted to ask about – to get a sense of trend on the basis of smartphones. Are these phones – how many of these are what you might call real smartphones as opposed to, say, Nokia-Symbian phone, which is probably just used for taking pictures? So what portion of the kind of real high usage touchscreen, kind of Android or Apple phones? I guess the difference had been that AT&T now has 25% of its customers on iPhones. That’s a very different part of some traffic loading than I think we see most European operators. And I have a follow-up question, which maybe we’ll come to. Thank you.

Lars Nyberg

On the first one, the 28% of the terminus. They are all smartphones. They are touchscreen. They are Android, iPhones. They are what we call really a smartphone, not the high end.

Tim Boddy – Goldman Sachs

That’s great. And then despite the 7% of users who are – what you might call the app [ph] users or the very keen, are they the same 5% to 7% every month or do they change? Because I have had a statistic, which is it’s actually something like a set of customers who end up using more than they kind of cap. It’s just that they are different each month. It’s a different set of users.

Lars Nyberg

I’ve not followed in that way so that – like you say that it is exactly the same customers that bumps into the roof. I think it’s reasonable to believe that a big portion of them are the same, but – no, I’m guessing. I have not – we have not followed the customer in that way. At least I have not started immaterial to that depth. So –

Tim Boddy – Goldman Sachs

Okay. That’s great. Thank you.

Andreas Ekstrom

Thank you, Tim. Operator, can we have the last question, please?

Operator

The last question comes from the line of Mr. Soomit Datta from New Street Research. Please go ahead with your question.

Soomit Datta – New Street Research

Good morning. Thank you. I was just wondering, the non-voice revenues you report for Swedish and Finnish mobile maybe, could you split those into messaging, mobile broadband and smartphones? So I think it’s 26% you reported for Q2. Can you give us sort of further breakdown and maybe give a sense as to where exactly the growth is coming from? Thanks.

Håkan Dahlström

Yes. 60% of it is from mobile data and 40% for value-added services in messaging. I don’t have the growth number for the Finnish market, and I have them for Sweden. The growth number for data is 50%. Do you have Finnish in here?

Andreas Ekstrom

No, I don’t have the Finnish number in my head, actually. But 60/40 or 70/30, somewhere in that range in data favor.

Soomit Datta – New Street Research

Is it possible to split the data between mobile broadband, i.e. dongles versus smartphones?

Andreas Ekstrom

It’s not that different actually. To give you a rough figure, it’s 50/50.

Soomit Datta – New Street Research

Okay, thank you.

Andreas Ekstrom

Okay. As we started by saying, we understand that there is a great interest in this question and this was an initial discussion from our side. Please, as I said, more questions can be addressed to myself or the IR team after the conference call. But in the meantime, we wish you all a happy summer and see you after the summer. Thank you.

Lars Nyberg

Thank you.

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