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Executives

Tor Odland – VP, Corporate Communications

Jon Fredrik Baksaas – President and CEO

Richard Olav Aa – EVP and CFO

Analysts

Espen Torgersen – Carnegie

Christer Roth – DnB

Andrew Lee – Goldman Sachs

Andy Parnis – UBS

Jakob Bluestone – Credit Suisse

Barry Zeitoune – Berenberg

Maurice Patrick – Barclays Capital

Terence Tsui – Morgan Stanley

Thomas Heath – Handelsbanken

Telenor Group (OTCPK:TELNY) Q2 2012 Earnings Call July 24, 2012 3:00 AM ET

Tor Odland

Good morning and welcome to the presentation of Telenor’s results for the Second quarter of 2012. We welcome you whether you’re here in the room, listening on the phone, watching the webcast or using a mobile video. My name is Tor Odland. As usual, there will be a Q&A session directly after the presentation. I will come back with how we conduct that. We aim to end the action here on stage around 10 o’clock including the Q&A.

To present the figures today, we have our CEO, Jon Fredrik Baksaas; and our CFO, Richard Olav. First, I will leave the floor to Mr. Baksaas.

Jon Fredrik Baksaas

Tor, thank you, and good morning to everyone. I hope you got here dry this morning. It’s been a wet summer in many ways. This second quarter 2012, we are having another good quarter in Telenor. Operationally, we are quite pleased to present the quarter with continued growth and solid margins also this time. The growth is somewhat slower than previous quarters but still it’s strong in the sector. And cash flows in this quarter amounts to NOK5.1 billion, which is roughly 20% cash flow margin.

The performance in Norway is quite strong this quarter. And given the period that we’ve been through some quarters back, we’re quite pleased that we can show signs of improvement and growth again after a period where we’re a bit late in the competitive response to the marketplace. The situation in India remains undecided from a regulatory perspective. The final auction and conditions are not yet confirmed. And in order to reduce this risk going forward and also to reduce the cost level, we have decided to restructure the Indian operation to focus on the nine best performing circles, and we will get back to this more in detail throughout this presentation.

To follow-up on the ambitions of the Group to meet with expectations on attractive shareholder remuneration, also this year, we are launching a 3% share buyback program. And Richard will do the details on this when it’s his turn. If we then take a deeper dive into the Norwegian performance this year – this quarter, we are very glad that the migration to bundled mobile tariffs has been working the way we intended. It seems to work nice for us. The EBITDA margin has recovered.

And we saw these trends in the first quarter and they are more or less confirmed in this quarter. 52% of our postpaid customer base is now on the bundled tariff structure. And this means that the majority of our active data users are now enjoying data traffic from these bundled traffics. And this we claim will reduce the risk or become realization from IP based services from voice and SMS moving in that direction in the periods to come. However that work is not over yet. Total revenues in Norway increased by 2% driven by 8% in mobile revenues and adjusted for one-time effects in second quarter last year, mobile revenues increased by 5%. Standing here last year you may recall that that was after the network failure.

So far this year we have seen a more rationale competitive market environment in the mobile sector. However, the pricing structure that we now have adopted better reflects the underlying usage pattern from customers and that needs to strengthened also in the future because of the heavy investments that we are undertaking at the same time as we are seeing the very strong shift from voice and SMS to data services. The fixed revenues continues to decline more or less at a regular speed, however not as fast this quarter even I argue compared to previous quarters, but for the first time we are recording the number of lines connected in the fixed line for telephony services below one million lines connected.

And those of you that follow statistics, this was close to 2.5 million at its peak. So it’s really a big transition that has been going on and still is ongoing and of course this will also implications on the future cost structures in the group as we’ll move along and don’t see these kind of developments stop here.

We are continuing to make significant investments into the high-speed both fixed and mobile networks, and in order to deliver the superior coverage and capacity service that we do in Norway. So far this year we have spent NOK2 billion to modernize our networks, to bring capacities deeper into networks and to strengthen the high-speed data and also prepare for 4G to be launched later this year. And throughout this year all in all we expect that the CapEx figure will end roughly at NOK4 billion for the full year.

Then if I move onto Europe, Kjell-Morten Johnsen was recently appointed Regional Director of new set of countries, a new combination in the Telenor Group. We’ve decided to combine Sweden and Denmark with that of Central and Eastern Europe seeing these operations more of a similar structure. And we anticipate and have the ambition to grow the ability to drive the industrialized agenda in these countries going forward from here.

From a performance perspective, it’s a bit varied picture. Sweden and Serbia shows strong development this quarter, subscriber growth, 47,000 in Sweden and 22,000 in Serbia. Handsets and tablet sales dilutes the margins to a certain extent as these handsets distribution has become part of the go-to-market strategy. And there is a good OpEx development both in Sweden and Serbia as well. Migration from prepaid to postpaid continues in Serbia and results in an ARPU growth. Handset subsidies is now also becoming a part of the strategy.

The reported EBITDA in Sweden includes a provision of regulatory cost from previous periods 48 millions and adjusted for this small time one-off, the margin is slightly up year-on-year in Sweden from 24% to 25%. I said varied picture if we then address the Danish market, it continues to be very tough, rates and intense competition there, price pressure and in combination with loss of wholesale revenues. This resulted in a weak revenue development and also reduced profitability.

In Hungary and Montenegro, there are new sales taxes reflecting the overall economic situation of these two countries and telecom as an industry has been targeted to cover some of these revenue shortages that the governments are looking for. And then new telecom tax in Hungary comes in addition to the one that we already have but which is assumed to end by the end of 2012. So we are in a half-year period where we have a double taxation setup in Hungary.

If I then make some comments to VimpelCom. Through two transactions this spring Telenor has reestablished the ownership position in VimpelCom that we had before, the dilution that took place after the Wind transaction was completed. The Russian Antimonopoly Service FAS argues that our deal with Weather is in violation with the Russian Strategy Investment law and there is a court hearing scheduled over the issue at 17th of October. In the meantime, there is an injunction in place which blocks upstream of dividends from VimpelCom in Russia to VimpelCom Limited and this has made VimpelCom Limited to postpone final dividend payouts for 2011.

Of course Telenor has been in Russia for many years and we know our whereabouts when it comes to the Russian law and of course respect any international law in any country. However in this one we solidly believe that the claim is without merit and that we have – and that we are in full compliance with FAS approvals that was granted in 2010. The FAS even said last month that it was pushing for an out of court settlement between shareholders of VimpelCom. And as always we are ready to engage in such discussions if the opportunity arises.

However as we have indicated and emphasized on many occasions, the operational performance of VimpelCom is our great concern, and we believe that the operational improvements in the group could create visible value creation. We are continuing to follow-up on these issues and push for and improve operational performance in the Group.

And as we saw in first quarter of 2012, we saw some improved performance in Russia, showing that VimpelCom might be back on track when it comes to go-to-market activities. This coupled with the recent announcement of LTE licenses in Russia as well seems to position the company quite well. We have a long-term perspective in VimpelCom, we’ve always been and we want to impact the operational development of the Group.

Asia still for Telenor represents the source of growth. It’s in the Asian economies that we see ongoing growth and ongoing usage patterns changing in the different marketplaces. We’re 9% organic this quarter in all our four established markets. We have high activity level in all operations with network swaps and network improvements in the region, in particular in these days when we embark on the swaps in Pakistan and DTAC and DiGi, DiGi soon being finished, DTAC more or less half way.

In the two of our biggest Asian markets, DiGi and DTAC, there is strong growth I’d say on seeing the market moving to data activities. And also new devices will be very important going forward. And we see also here handset manufacturers opting for new smartphones below $100 and for those of you that has followed the industry over quite a period of time, the real explosion in Asia for mobile activities happened when we sold handsets on the 2G generation coming down below $50 and even reaching $20 to $30 bracket for handset prices.

So we believe that this we will see a similar kind of development also in the smartphone area and believe that the mobile operations in Asia is fantastically well positioned to entertain that kind of development trend. However in Grameenphone this quarter, we have a too softer revenue growth compared to the market in general. So there are things that we need to concentrate with in Grameenphone phone in the periods to come and we do see signs of that already. The subscriber growth was now 16% higher than last year and the competitive situation in Bangladesh where the penetration is the lowest compared to the other operations has intensified. We have several initiatives to turn this trend and anticipate that second half will be showing improvements from where we are today.

In Pakistan we have another solid quarter, strong top line growth, 18% in local currency driven by a higher usage as well as increased subscriber base. And also in this quarter we see that financial services really shows, takes a big portion of that growth element, 4% this quarter. We have here started the swap with ZTE and hope that we will be able to carry through as much as possible throughout this year as this will be a good contributor to improved energy efficiency in the network, where energy distribution is quite a challenge for all operators. Generally speaking they agreed was having the half time deliveries for the time being and that means that we have to run base stations on these to a large extent. And the new network generation we’ll offload that quite considerably.

Coming then to India and Uninor. Let’s refer little bit to the operational performance of Uninor in the second quarter. And once again I have to say that we were impressed of the Uninor management and their ability to keep on their work under these challenging conditions in the regulatory fields. We see 2.2 new million subscribers this quarter and we continue to take market share. And according to the regulator, we took 18% on net-adds in India in the month of May. And this has taken us to straight below 5% market share pan-India. In addition to this, we are reducing the operational cost base and as a consequence, the operational loses is gradually being reduced as well as you can see from this slide.

However due to the higher uncertainty on the regulatory side, we have decided to expense all our investments in Uninor this quarter, that means that we do not take anything of what we usually account for as CapEx. We take everything of that into the P&L. So we are showing compared to previous periods somewhat weaker EBITDA development in Uninor this quarter, but this comes from this change only account in principles. With the continued subscriber uptick [ph] and cost efficiency measures that we have done, we have now decided to focus on the best performing circles. And some of these will also reach EBITDA breakeven towards the end of the year, beginning of the fourth quarter.

On the restructuring of this, we have made some decisions of quite importance. With the regulatory uncertainty in India and as you know, both timing and the framework of 2G is still unclear. We have decided to restructure the operations and focus on the best performing circles. We will then gradually scale down operations in four circles that will be Kerala, Karnataka, Tamil Nadu and Orissa. And these four circles, they represent 14% of Uninor’s revenues in Q2 and also 14% of the subscriber base in June. However they do account for a much higher relative proportion of the EBITDA losses in the same period. We then plan to reallocate the resources within our Indian footprint from these circles to other areas. By doing this, we believe that we can make Uninor self-financing that means cash flow breakeven within the end of 2013. And in our previous business plan, this target was in first half of 2015. So really we are taking careful breakeven 1.5 year earlier on a more concentrated – in a more concentrated geography.

As before, we are firmly committed to the peak funding limit of INR155 billion and of course, we urgently wait for clarity on the auction framework and the timeline on that one.

To conclude my presentations on this second quarter of 2012 reporting, I’d like to mention three things. We want to move forward on what we see in the Nordic countries when it comes to how to handle differentiation from voice to data. Under these challenges we need to adopt new pricing principles and apply pricing structures that better reflects the change in user behavior from voice to data and IP services. And the examples of this are plentiful by the people in this room because we are all part of this change.

We want to make sure that we utilize the mobile [ph] networks in a way that gives us a competitive edge and makes it possible to monetize on these investments in the longer run. Coupled with this, there will be initiatives also from the Telenor Group to take positions and explore opportunities on the service side of the new ecosystem that of digital services. Secondly, we will execute on operational excellence. We need to see more and continued progress targets we’ve set for 2013 and focus on execution and closely follow-up on our targets for 2013.

Here we will see a combinational location efficiency initiatives in combinational group-wide initiatives based upon the scale of the group and the competencies that we have in the different OpCos. Here we are also thinking about new operating models and at the central everything that we’re going to do we need to think about how we go to market and how we treat the customer side. And finally, and very important as well make the operation in India self-financing within the new time limit that is set for ourself and execute on the restructuring plan that we have announced today and having spoken to Sigve Brekke already, he is there speaking at the same time as we are speaking here.

And with these comments, a strong quarter, lot of good prospects and possibilities going forward, I hand over to Richard, who will guide us through the financials. Richard?

Richard Olav Aa

Thank you, Fredrik. I will do four things. I will take you in more detail into the financial performance. I’ll update you on the funding of the Group including the financial restructuring also of Uninor. I’ll go through the share buyback program and finally the guiding for the Group. So let's start with the financial performance and the revenues. We have an organic revenue growth of 5.4% this quarter, reported is 4.1% difference being a weakening of the currencies in Central and Eastern Europe, both the Serbian Dinars and the Hungarian Forints at the significantly lower level than last year. Anyhow we added NOK1 billion of revenues year-on-year this quarter driven by Asia as Fredrik said.

If you look at the various operating units, there are lots of differences. Denmark being definitely the weakest one in the Group with a decline of NOK387 million and that requires some more detailed explanation. About NOK89 million of that is a drop in the mobile service revenues which is most important long-term. NOK129 million is related to the loss of the Onfone wholesale contract and the rest is a mix of interconnect currency and continuous decline in the fixed business. Hungary, a decline of NOK196 million, 75% of that is due to the weakening of the Forint and 25% of that is due to interconnect, underlying revenues are stable.

Then the Asian units contributes to close to NOK1.1 billion in growth this quarter and that really is all from DiGi, DTAC and Pakistan. Grameenphone in local currency is more or less – in Norwegian kroner is more or less flat. Then India flat ARPU but still subscriber growth but the weakening rupee gives us NOK336 million extra revenue. In other, it’s Norway contributing most of the NOK163 million in increased revenues. Then how does this translate into margins? The EBITDA is up by NOK584 million and stands above NOK8 billion this quarter. The margin is 31.7% this quarter compared to 30.6% last year and underlying margin improvement of 1.1 percentage points. That is mainly driven by reduced operating losses in Uninor.

If we exclude Uninor, the operating margin of the Group is 35.7% which is more or less in line with second quarter last year, a small improvement. However we know that we absorb and increased 5% revenue share in our second biggest mobile operation DTAC that is about 0.7% on the margin. So adjusting for that, there is an underlying margin improvement on 0.8 to 0.9 percentage points in the quarter. Well again big differences between the various business units.

We’re very happy to see that Norway contributes an additional NOK200 million in EBITDA, but we have to remember that we have NOK100 million extra expense for second quarter last year due to the network outage but strong mobile figures in already this quarter. Denmark the currency development and interconnect doesn’t translate into reduced EBITDA, so what you see here is NOK222 million is to some of the mobile fixed and the wholesale revenues going down in Denmark. Strong perform in DiGi and Pakistan improved margins. Good growth, close to or more than NOK300 million in EBITDA growth from those two operations. And then India, reduced cash burn given the new accounting definition of NOK340 million and here we have also expensed approximately NOK100 million that normally would have been treated as CapEx. Other units more or less stable.

Moving on to the CapEx this quarter. It’s higher than second quarter last year with NOK226 million about NOK458 million of that is related to higher CapEx in DiGi and DTAC. DTAC due to the 3G rollout on 850 and the network swap, DiGi due to the network swap. We are NOK200 million lower in Uninor both due to a reduced investment level but also due to the new accounting of CapEx. And Norway, it’s still at the high level, NOK2 billion CapEx in the first half year and we expect that to be the same in the second half year. And as you see from the pie chart, Norway now constitutes about one-third of the CapEx in the Group.

So this results then in an annual operating cash flow, as Fredrik said, approaching NOK20 billion on a 12-month rolling basis. It’s now NOK19.7 billion including the cash burn in India. Year-on-year the cash flow is up NOK370 million due to explanations I’ve been through but the main contributor is of course reduced cash burn in Uninor.

Then going through the P&L. We have already explained the development in revenues and EBITDA. Other items in line with last year, we have a significant manning reduction in the Swedish operation this quarter. We have accrued for about 140 people leaving the company. On the depreciation, we have significantly lower depreciation to that we had higher acceleration of depreciations last year due to the network swaps. So EBIT comes in approximately NOK1 billion higher than last year due to lower depreciations and higher EBITDA.

Then we have a couple of line items that requires some explanation. We have the associated companies which largely is VimpelCom. Last year we had several one-offs that in some was quite positive accounting-wise. We had accounting gain on NOK1.6 billion related to the dilution of our shares in VimpelCom following the Wind transaction and we had the CMore impairment. So net of that, there is a decline in associated companies from NOK1.4 million to NOK700 million approximately. That NOK700 million drop is all related to VimpelCom and there are two big effects. VimpelCom had a currency gain in second quarter last year that is not impacting this year. That is about NOK380 million impact, and the other one is that we owned close to 40% economic of VimpelCom in the second quarter last year and before we bought the common shares this quarter, our ownership was down to approximately 32% economic.

And that dilution effect VimpelCom still makes good profit. It’s about NOK280 million. So underlying there it is not that much change but there are these special explanations that bridge the 2.6 to the 700. Net financials, we also have a big swing of about NOK1.3 billion from last year to this year. And there are really three explanations behind that. First the net interest expense of the group is NOK280 million higher this quarter that is all related to increased proportion of EBITDA [ph] in the Group which is very expensive. And I’ll come back to how we deal with that.

Then currency gains was NOK354 million positive last year and we have a currency loss of NOK180 million this quarter. That is on hedging instruments that we cannot book as hedging due to IAS [ph] and it’s really driven by an increased dollar in the quarter. So that explains about NOK540 million of the delta between second quarter last year and this year. And then finally, on financial instruments, we had a gain last year and a loss this year and the loss this year is related to the TRS in VimpelCom. We had a big gain in the first quarter, then the share price of VimpelCom dropped until we terminated the TRS and that resulted in a loss in the second quarter of about NOK285 million and all these VimpelCom shares are then accounted for as associated with a share of profits going forward.

On the tax line, NOK1.5 billion in tax expense, about 10% of that or NOK150 million is a one-off so underlying tax expense this quarter is about NOK1.350 billion. Minorities stands higher due to strong results in DTAC and DiGi where we don’t have 100% ownership. So net income to Telenor this quarter is around NOK2.1 billion and EPS of NOK1.31. Then moving onto the balance sheet, net debt stands at NOK28.6 billion at the end of this quarter, that is up NOK9.3 billion from first quarter. This is as expected, there are two main drivers behind this. It’s the dividend payout to Telenor shareholders and minorities in our Asian subsidiaries of NOK8.5 billion and it’s the purchase of common share in VIP of 4.2 billion. Total NOK12.7 billion on those two items driving up the net debt to EBITDA.

The ratio net debt to EBITDA stands at 0.93. And as you recall that is well below or self imposed cap of 2.0 and still among the lowest leveraged telecom groups in Europe. Then on the Indian side, it’s not on the operational restructuring, it’s also financial restructuring which have impact on the financing of the total Telenor Group. Since the license cancellation in India 2nd of February, the loans of Uninor have been in default. And we have – and Uninor have been in discussions with the lenders since this happened and this has resulted in that the lenders have decided to accelerate the loans and asked Telenor to largely pay up on the guaranteed debt.

This is not unexpected to us. This as we have informed all along since the license cancellation and the impact to Telenor is that it has zero impact on our exposure. This is already consolidated as a part of the debt and the risk we had all along since we started to guarantee for that. I would rather put it very positively that this will enable us to reduce our interest cost significantly going forward. The repay loans are very expensive with rates from 12%, 13% and they are able to refinance that at much lower cost at group level.

It also enable us to draw the debt in the currencies that makes more sense to us which basically will be euros and dollars. We don’t need that much VIP [ph] exposure given Uninor’s size of the total group. We’re also now working on various funding options for Uninor until completion of that company. We have decided to bid in the auction if we get that far through NewCo and we’re also then working on how to finance NewCo.

Of course payout of dividends by buying of VimpelCom shares, share buyback program and also restructuring of the debt in Uninor where Telenor steps in as a creditor requires a lot of liquidity. So we have worked a lot of that in the second quarter. We have issued two bonds, each of 500 million euros. First one with maturity 5.5 years and a coupon of 1.75. Second one of a maturity of 9.5 year and a coupon of 2.75. And I am proud to say that these coupons are the lowest ever issued by a European corporate which shows the strength of the Group.

Also on backup financing, we have replaced one of our revolving credit facilities that was maturing next year with a new credit facilities with Nordic banks maturing in 2017. So the backup facility now stands at NOK2.8 billion with maturities in 2016 and 2017 and these are all undrawn. So we have good liquidity and good lines and with the restructuring of the repay debt also the interest costs should come significantly down.

Then the buyback program, Fredrik said third year in the row of 3% buyback, so we have bought back close of 9% of the shares in the Group. That equals about 47 million shares 3%, 22 million of that will be aimed at buying – we bought back in the market and then we have an agreement with the main shareholder in Norwegian state that they will sell down proportionally and that will equals about 25 million shares. And when this is all done, these shares will then be put forward to the general meeting next spring for cancellation and then target to be cancelled third quarter next year.

So as you see from the bar chart, total approved payout to shareholders this year of Telenor is NOK12.6 billion up from NOK10.7 billion last year and NOK8.8 billion the year before. So the shareholder remuneration is growing steadily and is at the healthy level. Then approaching the end here, the guiding. We are still guiding ex India given the regulatory uncertainty and if we get an auction on how we will get through an auction, there is so much uncertainty about the figures. So we think it’s prudent to guide without India.

We are basically maintaining or guiding that we released in the first quarter organic revenue growth still above 4%. That requires a recovery in GP and also continues strong mobile performance in Norway. EBITDA margin 35% to 36%, that is an underlying improvement from last year when we look at increased handset sales, diluting margins and the revenue share in DTAC, the margin on the service revenues is going up. CapEx to sales, a slight adjustment, previous guiding was 10% to 12% nothing mysterious about that other than that we are six months through the year and that we have high activity level on 3G in Thailand – swaps in Thailand, swaps in DiGi and now starting swaps in Pakistan.

Finally, 19th of September, it’s a great day for Telenor. That’s the Capital Markets Day. We will have five business units presenting this year, the obvious one, Uninor and Norway. In addition, Sweden will present their strategies, how they tackle the data revolution. Pakistan midst all the growth curve combined with financial services and DTAC now approaching becoming the biggest mobile operation in Telenor. In addition, you will learn more about our key initiatives on digital services and group industrial development.

So wish you all a hearty welcome to the Capital Markets Day on 19th September. Then Q&A.

Question-and-Answer Session

Tor Odland

Thank you, Richard. We are ready to take your questions. So I invite Mr. Baksaas back to the podium. To allow questions from as many as possible, we ask you to limit yourself to one question per person and one follow-up question if a clarification is needed. Please wait for the microphone to be handed to you before you ask. We want everyone also on the webcast to be able to hear your question. So let's start here in the room and then I will take questions on the phone or from the internet afterwards. I have a hand over here.

Espen Torgersen – Carnegie

Hello. It’s Espen Torgersen, Carnegie. Just a quick question on India, should we understand that the following way that you have taken a formal decision to bid for somewhere in the region of nine licenses in spectrum on the basis of how the regulatory situation is looking today?

Jon Fredrik Baksaas

The way the decisions on the regulatory area in India is taken is difficult to predict. And you cannot read into this but as a consequence we will automatically go for license in these circles. On the other hand, we have now concentrated resources in the best performance circles number them by nine and take the restructuring now and of course the answer to your question will solely depend on what the kind of regulatory framework that ultimately will be on the table for all nine of them.

And in that equation, we will evaluate existing spectrum positions by existing players and reference price will be very central. And it’s all going to be wrapped up within the INR155 big funding setup that we’ve set for ourselves.

Espen Torgersen – Carnegie

Okay.

Christer Roth – DnB

Thanks. Christer Roth from DnB. Just a quick question on the financial restructuring in India. How does that affect your bargaining power towards Unitech and how far away are you in your view in terms of a settlement?

Jon Fredrik Baksaas

I couldn’t fully hear you, Christer.

Christer Roth – DnB

Sorry, I’ll try again. In terms of the financial restructuring in India, how does that affect your bargaining power against Unitech and how far away are you from a settlement with Unitech in terms of ownership?

Richard Olav Aa

I think we never comment on any discussions we may or may not have on the M&A side. So I can only decline to comment on that.

Tor Odland

Any more questions from the audience here in (inaudible). No further questions means we can switch to callers please. First question.

Andrew Lee – Goldman Sachs

Andrew Lee, Goldman Sachs.

Jon Fredrik Baksaas

Go ahead please.

Andrew Lee – Goldman Sachs

Good morning everyone. A question on India please, and just around that your peak funding target of INR155 billion. Does this exclude deferred payments of spectrum and if does exclude deferred payments, how can you give us comfort about the maximum you might pay to stay in the market? Thank you.

Richard Olav Aa

I think deferred payment is one of the main features we need to see in this auction coming up as we need to control the risk of our Indian investment and that is of course important part of the peak funding discussion.

Jon Fredrik Baksaas

There are four or there were four real elements feeding into the overall framework for the next phase in India that was a rollout. It was the number of frequencies available, it was the payment profile, and it was the reserve price. And all these four elements both one by one and accumulatively spells out the platform and we don’t know as to whether how the two last ones will be decided and that’s what we and others are waiting for.

Andrew Lee – Goldman Sachs

Understood. Just to clarify, if you are given deferred payment, if you are allowed to make deferred payments, if we can't bundle all this deferred – all the payments over the next ten years into one payments as a start, would that push – could that push you above the INR155 billion i.e., could this take us above that kind of peak funding target if we accelerated it all into one overall payment?

Richard Olav Aa

I’ll take that one. No you cannot look at this way, obviously we have a target now of reaching cash flow breakeven of Uninor next year and then Uninor will start to generate cash. The INR155 billion is whole much operational cash flow we are willing to expose in India. So obviously we would assume that the positive cash flow of the 2013 would be able to pay down any deferred payment without increasing the INR155 billion that’s on the table.

Having said that we also strongly state that we need a good return on new money that we put into India so the deferred payment is not in any way compromising on the returns we are seeking on any new money we will put into Uninor or sorry into NewCo or Uninor until completion and through an auction.

Andrew Lee – Goldman Sachs

Okay, thank you very much.

Tor Odland

Next caller. Next caller please.

Andy Parnis – UBS

Andy Parnis, UBS.

Jon Fredrik Baksaas

Go ahead please.

Andy Parnis – UBS

Hi guys. I’ve got question one question as well actually on India. I just wanted to – what are you current assumption or understanding around getting the sort of original $350 million you invested or Uninor invested in 2G spectrum back in 2008? Should we think of that as an incremental sort of cash to be spent in India on top of the INR155 billion peak funding requirements? Thanks.

Richard Olav Aa

The INR155 billion that we have to be very precise that is always been stated as operational losses plus CapEx because that is what we report every day. What is obviously where you have to make a bridge is obviously that what is being approved of funds into Uninor is both our equity investments that take care of some of that original investment in license and also interest costs going forward, the equity investment and the guaranteed debt. And those numbers will not be the same but the INR155 billion has been defined as EBITDA losses plus CapEx since we invested in the company.

Andy Parnis – UBS

So just to clarify the $350 million that you originally invested in spectrum, would that be used in India if you got back to fund your Indian operation or would that go elsewhere in the Group as it would fall above the INR155 billion of funding?

Richard Olav Aa

The way that is the claim there is obviously that it’s Uninor that has that claim on the Indian government and there is also debate in India whether or not that claim is valid. We see some statements from Indian authorities. We think Uninor has a valid claim on that but obviously that is a part of Uninor.

Andy Parnis – UBS

Okay, thank you.

Tor Odland

Next.

Jakob Bluestone – Credit Suisse

Jakob Bluestone from Credit Suisse.

Jon Fredrik Baksaas

Go ahead please.

Jakob Bluestone – Credit Suisse

Hi there. Could you possibly talk us through a little bit what was the criteria for selecting the regions that you chose to exit? Jon, you alluded earlier to that it was a relatively low share revenues and higher share of the losses, was that basically how you made the decision where to stand, where to exit? Was there anything else you can maybe share with us in terms of the thought process? Thank you.

Jon Fredrik Baksaas

The decision profile on who is in and who is out is an evaluation of what we have achieved so far in the competitive situation in those areas. And our own judgment on how can we recover or how can we not recover. And all in all and with the need of also reducing the risk factor to a certain extent, we’ve taken this decision today. And of course this is also a difficult decision to our colleagues in Uninor because we are on the one hand putting more efforts into some circles and leaving other circles and there are consequences on individual level.

However, given the uncertainty in the regulatory framework and the constant postponement on decisions coming through, we think this is a prudent way of how to think on how to move forward. And then make ourselves as independent on other decisions as soon as possible namely to take it to breakeven as soon as possible. Knowing in that period, there will be – hopefully there will be a decision and an auction and then we have to evaluate the detailed parameters at that point of time.

Jakob Bluestone – Credit Suisse

If I can just ask a follow-up. Could you just talk about what happened to those (inaudible) and do you pull the plug or the plan to sell the subscriber bases in the network?

Jon Fredrik Baksaas

The assets in these circles that we will gradually scale down will on the network side gradually be deployed in other circles. So we will take base stations down and move them into the cluster philosophy that we have in other circles that we want to continue. So in that sense, we have 6,000 rough base stations that can be reused in other parts of India. On the sale of the customer base, since this is a prepaid market, and you have a high churn figure, the value and the possibility of such a sale is very limited.

We’re more talking about an agreement of portability rather than sale of a customer base. I think we have to be as realistic as that.

Jakob Bluestone – Credit Suisse

Very helpful. Thank you.

Tor Odland

Next.

Barry Zeitoune – Berenberg

Barry Zeitoune, Berenberg.

Jon Fredrik Baksaas

Go ahead please.

Barry Zeitoune – Berenberg

Hi good morning, just two questions on India please. The first is whether you can be a bit more specific on what the actual EBITDA loss in the four regions you’re leaving was in Q2, or at least give us some idea of the proportion of your total India EBITDA loss that it represents? And then second question is really looking at the current consensus on spectrum pricing seems to be at 20% discount to the TRAI recommendation and the consensus on the payment profile seems to be, the EGoM recommendation which was a 35% upfront payment and then a deferral over a 10 year period? Now when I apply that to the TRAI recommendation, what you basically get is about $500 million of total spectrum cost upfront that's the 35% of which about $200 million is in Mumbai, now on my math that would take you over your peak funding based on five megahertz in each circles, so I'm really interested in how you believe you can stay in Mumbai and why you’ve kept Mumbai within the nine circles remaining in and whether you are confident staying in Mumbai will be possible while keeping within the INR155 billion in peak funding target? Thank you.

Jon Fredrik Baksaas

I think you have sort of dived into one of the – this must be spreadsheet number 25. I think we are at a detailed level that we can't take at this stage. And I also have to say that yes, despite rumors and speculations that both the reserve price and the deferred payment issue, it has been on the agenda of media in India over the last couple of weeks. I don’t think we should preempt that that would end up as being the final decision. So I think we have to wait until the decision really has been seen and knowing that this is not only an EGoM issue after all, this is also now to be confirmed by government after it becomes – after that and it’s only after that they will become a decision. So I am not prepared to walk into those that detailed level of Mumbai that you asked.

Barry Zeitoune – Berenberg

Maybe if I’ll ask you in a different way then. Was Mumbai a region you would definitely dead set on that you want to stay in or was it broad line when you attempted to include it with on top of the four that you’re currently leaving?

Jon Fredrik Baksaas

We have an interconnect arrangement, a roaming arrangement with another player in the Mumbai area that makes things a bit differently for that specific region knowing also that we’ve had reasonable good traction on how to go to market and maybe that can be utilized for some good purpose in the next round.

Barry Zeitoune – Berenberg

Okay. And just on the EBITDA question, can you give us an idea of the proportion of the EBITDA loss that came from the four circles that you’re planning to scale down the operations in?

Jon Fredrik Baksaas

I think you’re able to analyze that yourself. However it’s definitely more than double the percentage of revenue.

Tor Odland

We’ll take one or two more questions from the phones please.

Maurice Patrick – Barclays Capital

Maurice Patrick.

Jon Fredrik Baksaas

Patrick, go ahead please.

Maurice Patrick – Barclays Capital

Hi guys. A quick question around inflation whether it’s input price or impact of commodities, are you seeing any major change at all that are impacting your numbers whether its demand on cost, would love to get a sense of that? Thank you very much indeed.

Jon Fredrik Baksaas

In Asia in particular?

Maurice Patrick – Barclays Capital

Yes.

Jon Fredrik Baksaas

Well we don’t have an inflationary element to sort of point to when it comes to how network capacities are being used by customers for the time being since the oil price basically is where it is. We haven't had the energy side except for our own cost side of being an energy consumer ourselves. But it seems quite okay and if you take a look at Thailand and Malaysia in particular, the intensity on how people use digital services is growing strongly and knowing that 3G has only just started in Thailand.

We at this point can say we have above one million users for 3G offering. So we have good and great expectations really on how this can move forward if as you indicate, the economies can stay the course.

Richard Olav Aa

I could also add that in Thailand and Malaysia we have seen strengthening of both Baht and the Ringgit which of course also put down inflationary pressure on imports. So this quarter have not seen any signs of import inflation in those countries.

Maurice Patrick – Barclays Capital

Okay, thank you.

Tor Odland

OK. We will take two more callers and then we will round off here.

Terence Tsui – Morgan Stanley

Terence Tsui, Morgan Stanley.

Jon Fredrik Baksaas

Go ahead please.

Terence Tsui – Morgan Stanley

Thanks very much, good morning everyone. My question is on Bangladesh. Maybe you can just give us a bit more color on your turnaround strategy there and be a bit more specific where you saw the increase in competition? Thank you.

Richard Olav Aa

Yes, what we saw in the second quarter was that some of the our competitors were able to take big share on net-adds, that’s been done as we see it due to pushing pricing, due to pushing higher commission levels in the trade. We as a market leader cannot sit still and look at that, so we are taking actions now especially in the trade and the distribution to contract that development as the clear market leader in Bangladesh.

Jon Fredrik Baksaas

And I think we should be in a way open and register that -- Grameenphone has usually been very, very clever on how to judge the speed in the market when it comes to new segments coming in. And need to get back in that position. Penetration still stands low in Bangladesh and we will probably see the growth into new user segments in Bangladesh as we’ve seen in other countries. And the Grameenphone should be as best positioned to handle that as anyone else. And it’s that attitude that needs to get back on the table.

Tor Odland

One last question.

Thomas Heath – Handelsbanken

Thomas Heath, Handelsbanken.

Jon Fredrik Baksaas

Go ahead please.

Thomas Heath – Handelsbanken

Hello, thank you. One last question here on India perhaps. On a similar math to Barry’s earlier, it looks like if we go through region by region suggested cost with a 20% net cost cut on TRAI prices that it’s very far from possible without deferred funding and hardly possible with deferred funding. Would it be correct to say that the deferred funding is a prerequisite to stay around in India? Thank you.

Jon Fredrik Baksaas

Then we’re in a way back to a previous question that we had on this session and you’re absolutely right in the fact that deferred payments will make a continuation more possible than if it’s not there and that’s been our clear message all the way through as well. So deferred payment and a level of reserve price, those are the two decisions that we’re waiting for whereas there is another element in this discussion as well, there is probably delays decisions in India and that is how to reform or how to get the whole of the market all players onto one platform on how to pay for spectrum, mainly that the reforming and I guess that that question is of a very high importance to incumbents as it doesn’t hit a newcomer Uninor in the same way.

Thomas Heath – Handelsbanken

Okay, thank you.

Jon Fredrik Baksaas

Thank you.

Tor Odland

Thank you everyone for questions. That concludes the session here today. Thank you everyone for joining us online or here in the room. We are open to conduct interviews here on stage. I maintain a list for the media, so come to me first. I’ll give you some few minutes before we start so we can freshen up here. Thank you everyone.

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